Direct Line says it’s back in gear despite missing forecast profits

The new boss of Direct Line has insisted a turnaround of the beleaguered motor insurer is on track despite the company posting a smaller-than-expected return to profit.

Half-year results from the London-listed group showed it swung from a £93.7 million operating loss a year ago to a £63.7 million profit, although this fell short of the £85 million that had been anticipated by City analysts. Its net insurance margin of 1.8 per cent in the six months to the end of June also missed forecasts for 3 per cent.

Yet Adam Winslow, who became Direct Line’s chief executive in March, nevertheless said his overhaul of the troubled group was “under way” and added: “While we’re in the early stages we’re starting to see signs of improvement across the group.”

He argued that it was too early for the fruits of his strategy to be reflected in the insurer’s half-year figures, which he said instead bore the scars of errors made by the business under its old management team.

“We didn’t get our pricing right throughout ’22 and the first half of ’23 and we’re still seeing that catch-up and earn-through,” Winslow said.

Direct Line was thrown into turmoil when it was caught out by a surge in the cost of handling motor claims, which have surged since early 2022 after prices for spare parts and second-hand cars jumped, and wage costs in repair shops went up. The insurer failed to raise its prices quickly enough, leading to a string of profit warnings that culminated in the shelving of its dividend and the abrupt exit of Penny James as chief executive in January last year.

Winslow was poached from Aviva, the London-listed insurer, to lead a recovery. He was immediately confronted by an attempted £3.2 billion takeover by Ageas, a Belgian insurer, which had approached the Direct Line board with a bid shortly before Winslow took charge of the company.

He has since set out a turnaround plan for the group, which involves finding at least £100 million of savings by the end of next year, allowing the main Direct Line brand to appear on price comparison websites for the first time, and resuming dividend payments, with an interim distribution of 2p a share declared, slightly less than the 2.6p expected by analysts. The company has also pushed through price increases to catch up with claims inflation, although this has led to a reduction in customers, with in-force policies declining by 3.1 per cent year-on-year to 8.95 million in the first-half.

Higher prices for car insurance in the past two years have stoked fears that motor cover is becoming unaffordable for some households. This prompted Labour to pledge in its election manifesto that it would tackle the problem, although Winslow did not comment on the prospect of government intervention.

He also would not be drawn on whether City regulators were examining an accounting blunder revealed by Direct Line last month, when the insurer admitted it had overstated the financial strength of its balance sheet in its full-year results for 2023.

Shares in the company fell 4½p, or 2.3 per cent, to 188½p.