Home and vehicle insurer Direct Line (DLG) edges slightly ahead, up 0.4% to 338.3p, on news it is returning the proceeds of an asset sale to investors.

The group, which also provides pet and travel cover, completed the sale of its interests in Italy and Germany to Spanish insurer Mapfre on Friday, having flagged up the disposal last year (25 Sep).

The international business was sold for £430.9 million and the group intends to use the proceeds to pay a 27.5p a share special dividend.

Web - Direct Line - 29 May 2015

The lukewarm market reaction likely reflects concern over the competitiveness of the general insurance market. Investors can often profit by reinvesting dividend proceeds back into a thriving company, but Direct Line is not in great shape.

Competition has forced premiums down meaning that for every £1 Direct Line collects from its customers it pays out 94p in expenses and claims. Not great. Premiums are continuing to fall in Direct Line’s markets and there is no clear sign that they will start rising soon.

This has led Direct Line to return the proceeds to shareholders as it will not generate a sufficient return from using its capital to write new business. A shareholder vote is scheduled for 29 June to approve the payout.

Issue Date: 29 May 2015