INSURER DIRECT Line reported a 27% fall in pre-tax profit to £249.1 million in its first set of annual results since it made its stock market debut.
Profits were hit by the costs of restructuring and flotation, but operating profit for 2012 rose 9.3% to £461.2m on revenues that were down 10% to £4.05 billion.
The group, which was spun out of Royal Bank of Scotland, is one of the UK’s biggest home and motor insurers. Its brands include Green Flag, Privilege and Churchill.
Since listing in October, Direct Line has been cutting costs, raising prices and lessening its exposure to high-risk drivers. Around 1000 jobs have been cut, mostly call centre staff, as it seeks to take £100m of costs per year out of the business by 2014.
Chief executive Paul Geddes said: “In the midst of tough economic and competitive conditions, we have delivered a clear turnaround in performance, most visibly a £667m improvement in operating profit from ongoing operations since 2010.
“We’ve maintained a focus on underwriting for profit by methodically reducing our level of risk, taking stringent steps to improve pricing capability, and exiting lines of business that have proven unprofitable.
“We have made good progress since the beginning of our transformation plan and our 2012 performance is further evidence that we have made the right strategic decisions and are executing our plans well, with an increase in operating profit from ongoing operations.
“However, 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 £100m of gross annual cost savings in 2014.
“We will maintain our firm focus on value and underwriting discipline, consistent with achieving our 98% combined operating ratio target for 2013.”
Operating ratio is a technical term used by insurance companies to show if they are making money from their underwriting and investment operations. A score below 100% represents profit.
Last year Direct Line saw a 1.4% rise in the number of policies in force, to 19.65 million. Mr Geddes said he expected the group to seek quality over quantity in the motor insurance market.
“The full effect of the move to gender neutral pricing, the package of upcoming legal reforms and the referral of the UK motor insurance market to the Competition Commission are still to be felt.
“In this environment, the group will continue its strategy of disciplined underwriting that prioritises maintaining margin over volume.”
Direct Line is paying a final dividend of 8p per share, ahead of analysts’ predictions.
business@thecourier.co.uk