(Sharecast News) – Shares in Direct Line Insurance Group surged on Thursday as the company said improved margins on its motor arm should help improve operating profit into 2024 and it also offloaded its commercial lines business for £520m.
The news came as the home and motor insurer saw half-year losses widen as inflation continued to push up the cost of motor claims.
Pre-tax losses increased from £11.1m to £76.3m, while operating profits swung to a loss of £78.3m from a £197m profit last year. Direct Line earlier this year axed its dividend which triggered the departure of chief executive Penny James.
High inflation, supply chain issues following the Covid-19 pandemic and the war in Ukraine have pushed up the costs of motor repairs adversely and hitting margins for insurers.
On Wednesday, Canadian property and casualty insurer Intact Financial said it was buying Direct Line’s brokered commercial lines operations for £520m to expand its UK unit RSA.
Direct Line said operating profit in 2023 was expected to continue to be adversely affected by the earn-through of previously written motor business.
“The outlook for motor claims inflation remains in line with our assumption of high single digits, however the opportunity for prior-year reserve releases in the short-term remains low given this inflationary backdrop,” it added.
“Looking forward, the improved motor margins now being achieved should provide a platform to support an improvement in operating profit into 2024.”
Reporting by Frank Prenesti for Sharecast.com