Sept 7 (Reuters) – Britain’s Direct Line Insurance Group (DLGD.L) posted a first-half operating loss on Thursday but the insurer’s acting chief executive said the company expected earnings to improve over the next year as price increases take effect.
Shares in the home and motor insurer, which struck a 520-million pound ($648-million) deal on Wednesday with Canada’s Intact Financial (IFC.TO) for its brokered commercial insurance business, were up almost 15% in early trade.
Direct Line said in a statement it would assess the performance of its motor business during the second half of 2023 to ensure performance was consistent with pricing assumptions.
The insurer has increased prices in the segment, leading to gross written premium growth of 7% and an underwritten net insurance margin of more than 10%.
The company’s operating loss for ongoing operations for the six months ending on June 30 was 78.3 million pounds, compared with a profit of 197 million pounds a year ago.
“First-half earnings are clearly not at an acceptable level yet,” acting CEO Jon Greenwood said in an interview, adding that significant price increases were taking longer than expected to take effect.
“That (motor insurance) business that we’re writing today will improve the margin earn through over the course of the next 12 months,” he added.
Matt Britzman, an equity analyst at Hargreaves Lansdown, said the latest earnings report “could just mark a pivot point”.
“The cycle looks like it might finally be turning, with price hikes catching up to claims inflation,” he wrote in a briefing note.
The deal to sell the brokered commercial insurance business would help in increasing the company’s solvency ratio on a pro forma basis by about 45 percentage points, Direct Line said.
Last month, the insurer appointed Adam Winslow, a senior executive at Aviva (AV.L), as its new chief executive and he is due to take over in the first quarter of 2024.
