Direct Line takes a £50m hit from the '˜Beast from the East'

DIRECT Line Insurance has revealed a £50 million hit from the 'Beast from the East' and warned that almost its entire annual weather claims budget had been used in the first three months of the year

The Beast from the East caused chaos earlier this year. Picture: Johnston Press

The group, which employs around 2,000 staff in Leeds and Doncaster, saw a surge in claims as the freezing temperatures in February and March took their toll on households and businesses across the UK.

Claims from the big freeze are set to reach around £50 million on a post-tax basis, using up most of the £55 million it sets aside a year for major weather events across 12 months.

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Direct Line Group chief executive Paul Geddes said: “The freezing weather earlier this year hit many drivers, households and businesses hard, and I am proud of the way our people helped our customers during this difficult period, demonstrating the value of our insurance cover and service.

“We estimate the claims associated with the major freeze event will utilise the group’s full annual weather budget.”

The weather system dubbed “the Beast from the East” brought rare snow and sub-zero temperatures to much of Britain in late February and early March.

Two police forces declared “major incidents” and many drivers faced frustrating delays caused by the bad weather.

Direct Line’s first-quarter figures showed gross written premiums for motor insurance lifted 2.9 per cent to £404 million in the first quarter.

Direct Line said policyholders benefited from a reversal of last year’s sharp hikes in the cost of cover.

Home insurance gross written premiums lifted 0.4 per cent to £96 million.

Overall gross written premiums fell 5 per cent to £769.9 million, dragged lower by a 52 per cent plunge in its home insurance partnerships sales after ending tie-ups with Nationwide and Sainsbury’s.

But it reported a 4.7 per cent rise to £530.5 million across its own brands.

In-force policies fell 2.2 per cent to 15.5 million, but rose 5 per cent to 7 million for its own brands.

The cost of a comprehensive motor insurance policy fell 7 per cent in Britain in the first quarter, the largest quarterly reduction in premiums seen in four years, according to a survey compiled by insurance advisory company Willis Towers Watson.

Richard Hunter, Head of Markets at interactive investor, commented: “Direct Line has built on the strong momentum announced at the full-year figures in February, despite having taken a hit from the recent cold snap.

“Indeed, the annual weather budget has effectively now been used, putting the company in a potentially uncomfortable situation. Meanwhile, price competition within the industry remains at a heightened state and the decline in gross written premiums is something of a setback, as evidenced by the initial share price reaction.

“Even so, growth in its own brand policies was strong, whilst both the combined operating and capital ratios are sound.”

Mr Hunter added: “The company’s cash generation and confidence in prospects has resulted in a punchy dividend yield of 5.4 per cent, with the projected yield looking likely to nudge an eye-watering 8 per cent. The company is one with a close eye on margins and profits, and the strength of its brands, mostly household names, make it a market leader. Its absence from comparison sites gives Direct Line something of a competitive and strategic advantage, and the shares have risen accordingly, up 8 per cent over the last year as compared to a 4.4 per cent hike for the wider FTSE100. Stripping out the tinge of disappointment on the update, the group’s potential remains evident and the market consensus of the shares as a buy should remain in place.”

Direct Line was established in April 1985 with a single product, car insurance, which was bought over the phone.

The company, which now has more than 10 million customers, was established during a time of revolutionary changes in the insurance industry.

When it was founded, the company had just 63 employees. It now employs 10,000 staff.

Direct Line started out selling car insurance from a single call centre in Croydon. Today, you can buy home, pet, travel, life breakdown, landlord and business cover direct from the company online or over the phone.

According to its website, Direct Line provides more than 13,000 car insurance quotes daily and a Direct Line policy is sold every 10 seconds.

A customer notifies the company of a claim every 30 seconds, according to the website.