Direct Line’s restructuring costs to come in 12pc lower
Direct Line, which is a major employer in Leeds, said it expected aggregate restructuring and other one-off costs in 2013 and 2014 to be about £220m, £30m lower than previously expected.
Royal Bank of Scotland sold nearly a third of Direct Line’s shares in a £787m flotation last October, fulfilling conditions of a taxpayer bailout during the 2008 financial crisis that left the bank 82 per cent state-owned.
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Hide AdDirect Line, led by chief executive Paul Geddes, promised shareholders before its float that it would restructure itself.
The company has a greater ability to cut costs than peers, and it is expected it to meet its 2014 target cost base with ease, said RBC Capital Markets analyst Gordon Aitken in a note.
“The quarterly run rate of £260m is already close to the 2014 target of £250m, even though the efficiency plan extension was only announced in June 2013,” Mr Aitken said.
The insurer, whose brands include Churchill, Privilege and the Green Flag roadside recovery service, said in June that it planned to axe about 2,000 jobs and trim £130m in annual costs by 2014 to remain competitive in the face of intense competition from price-comparison websites.
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Hide AdThe company said yesterday that operating profit from ongoing operations rose to £131.2m in the three months ended September 30 from £123.7m a year earlier, driven by higher net investment gains.
While underwriting profits fell about 7 per cent to £26.5m, net investment gains more than doubled to £14.6m during the period.
Numis Securities analyst Nick Johnson said investment earnings were stronger than expected, but were offset by a slight shortfall in underwriting profit due to German hail losses of £9m.
“Any disappointment on underwriting is more than offset by positive news elsewhere,” Morgan Stanley analyst Marcus Rivaldi said in a note to clients.
Net insurance claims fell 7.2 per cent to £547.7m.
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Hide AdDirect Line said it was too early to assess claims costs from the St Jude’s Day storm with certainty, but they were likely to fall within its fourth-quarter expectation of about £25m from major weather events.
The company added that its vehicle-tracking devices would become increasingly important in the UK motor market and it was installing about 400 devices each week.
The Financial Times reported on Thursday that Direct Line was in advanced talks to sell a telematics business to a private equity house. If it goes ahead with the disposal, Direct Line would retain other telematics-related interests, including a mobile phone app it launched in June, FT said.