LONDON -- Direct Line Insurance Group (DLG 0.54%) -- the company that operates the Direct Line, Churchill, and Green Flag brands -- is down 0.7% as of 10:20 a.m. EDT after it published results for the first quarter ending March 31. The fall comes despite a reported 33% increase in operating profit to 107.5 million pounds.
However, gross written premiums were 4.5% lower due to competitive market conditions in the U.K. Gross written premiums in the company's motor business dropped 14.3% following a decision to reduce exposure to young drivers and ongoing refinements to "gender-neutral" pricing models. But good growth was reported in Direct Line's international business, especially in Germany.
The company also said it remains on track to achieve 100 million pounds of gross annual cost-savings during 2014 and that it will continue to target underwriting profitability, even if it must come at the expense of volume.
Direct Line CEO Paul Geddes commented:
The U.K. market remains competitive, particularly in motor. We made some deliberate choices in the quarter that had the effect of reducing our motor premiums. We believe these choices achieved an appropriate balance between managing risk and protecting value. Momentum across our five strategic pillars was sustained, and independent control of our cost base continues to present us with opportunities to improve efficiency. We continue to monitor and support the implementation of motor legal reforms, the impact of which we expect to be at least net neutral in the medium term. Reduced claims arising from these reforms should, over time, contribute to lower premiums for motorists, especially young drivers.
Although it has fallen back almost 10% since its post-IPO high earlier this year, Direct Line's share price is still up more than 8% on its flotation value of October last year. Furthermore, the company's estimated yield for 2013 currently stands just above 6% and is forecast to rise to more than 6.5% in 2014, which makes it hard for income-seeking investors to ignore.
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