Shares in insurer Direct Line Group (DLG) edged up 1% to 323.5p as investors responded positively to the firm’s results for last year, which included a small increase in the final dividend and a £100 million share buyback.
The value of total policies in force dipped slightly to £14.6 billion as travel insurance and partnership sales declined, but the value of direct own-brand policies climbed 2.2% to £7.45 billion, with growth across Home, Commercial and Green Flag rescue and Motor insurance flat.
Lower Motor and Commercial claims due to lockdown restrictions were offset by lower Travel sales, while major weather costs were significantly higher due to three big storms which hit the UK in February and record rainfall in early October which caused flooding.
However, the firm’s return on tangible equity rose to 19.9% against its long-term target of 15%, and its combined operating ratio improved to 91% against its target range of 93% to 95%. The combined ratio measures losses and expenses divided by earned premiums, so a lower number is better than a higher number.
Chief executive Penny James, referencing the better combined ratio, said ‘This has enabled us to return capital to shareholders during the year and today declare a final dividend of 14.7 pence per share, up by 2.1% over 2019, and announce a share buyback.
‘Turning to the year ahead, we feel confident that we can build on the momentum we've created and become a tech and data driven insurance company of the future with our customers at its heart’, added James.
Analyst Alan Devlin of Shore Capital commented: ‘We believe today’s update illustrates Direct Line’s defensiveness, and it is trading on 11.8x FY21 consensus estimates and a FY21 yield of 7.1%, with the potential for additional return of capital as it reduces its capital levels from 191% back to within its targeted range of 140-180%’.