Direct Line today stepped up to the challenge posed by a listed Esure by insisting that there was “no room for complacency”.
The company, which was spun out of Royal Bank of Scotland last year, admitted that the motor insurance industry was likely to become even more competitive this year but said it expected to remain the market leader.
Shares in Direct Line — whose brands include Churchill — have risen by about 20% since they were listed on the London Stock Exchange in October. Smaller rival Esure, which is run by Direct Line’s founder Peter Wood, is set to follow suit over the next few weeks and has vowed to use the £50 million it raises from the float to pay down debt and expand its market share.
Paul Geddes, Direct Line’s chief executive, said his company was well-placed to build on its initial success: “There is no room for complacency as we face a competitive market, particularly in UK motor, where there are also expected to be significant legal reforms. Our transformation plans target further benefits and we have made substantial progress on our target to achieve £100 million of annual cost savings in 2014.”
Direct Line’s pre-tax profits fell 29% to £249.1 million last year after £189.5 million of restructuring costs. It has cut jobs, raised prices and lowered its exposure to high-risk drivers since listing.
The company said it had reduced its combined ratio from 101.8% to 99.2%. This key industry measure reflects underwriting profitability, with figures below 100% reflecting a profit.
Geddes said the insurance market was likely to face significant regulatory headwinds in 2013. “We are operating in an industry that is preparing for substantial regulatory change,” he added. “With the ongoing debates in the motor market surrounding referral and legal fees, the increase in whiplash claims and the implementation of the gender directive, we aim to be leaders through this period of change, and lobby for reform to provide the best outcome for our customers and shareholders.”
