Direct Line has returned to profit but failed to match analyst expectations after losing almost half a million motor insurance customers.
The insurer posted a pre-tax profit of £61.6m for the six months to June 30, compared to losses of more than £75m a year ago. However, this was below the £85m forecast by most analysts. As a result shares fell 2% during early trading on Wednesday.
While investors have enjoyed dividends in the past, they may not drive away with as much following the news.
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Direct Line, which announced in July that it would appear on price comparison websites for the first time, said it had lost 488,000 motor customers after increasing the cost of cover by as much as 30%.
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The insurer additionally said it remained on track to cut annual costs by at least £100m by the end of 2025. Direct Line is one of the UK’s largest motor insurers.
Adam Winslow, who took over as chief executive of the London-listed home and motor insurer in March, said: “The actions we have taken are beginning to make a difference but there is more to do. “
A volley of profit warnings led to the departure of Direct Line’s former boss Penny James last year and meant the company had to ditch its dividend.
Is now a good time to invest in Direct Line?
The fact the company did not meet expectations on profits will disappoint but the numbers were a radical improvement on the same period a year ago when it posted losses of £76.3m.
Since that time the new CEO has begun a cost-cutting drive and said it would list on price comparison websites for the first time in a bid to breathe life into a flagging share price.
The insurer, which also owns Churchill and Green Flag, had previously prided itself for not being on the likes of Moneysupermarket but, after a review of the business, changed tack.
Winslow said at the time: “In the past five years, price comparison websites have continued to increase their share of new business from around 80 per cent to 90 per cent… To grow, winning on price comparison websites is critical. Our presence on these platforms, alongside our powerful direct sales offering, will enable us to reach even more customers.”
“Russ Mould, investment director at AJ Bell, also said at the time: “This a major change for the business and a significant event. General insurance is a highly competitive market and unless a provider is willing to accept skinny margins by being the cheapest, they run the risk of being further down the rankings of a comparison site than some people would look when scrolling for deals.”
The changes have been well-received but investors might be wise to wait and see how the business review plays out and who else the new CEO decides to bring into the firm to strengthen the transformation.
Winslow said: “We will continue to drive business transformation during the second half of 2024 and into 2025, as our new high calibre management team continues to arrive.”
