UPDATE 1-Insurer Direct Line takes smaller hit from flood claims

Fri May 2, 2014 5:17am EDT

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By Esha Vaish

May 2 (Reuters) - Direct Line Insurance Group Plc reported a smaller-than-expected hit from the severe floods that swept parts of Britain in the first quarter, sending its shares up as much as 4.5 percent.

Shares of Direct Line, one of Britain's biggest home insurers, were among the top percentage gainers on London's FTSE-250 Midcap Index in early trading on Friday.

UK insurers have been bracing for large claims from floods that left some areas of England under water for more than a month and prompted the government to summon insurers to report on their progress in tackling the crisis.

Direct Line said home major weather events claims for the first quarter were 60 million pounds ($101.37 million). The company had earlier forecast a hit of 70 million to 90 million pounds from the start of the year to Feb. 22.

Home insurance, which includes flood cover, accounts for about a quarter of Direct Line's revenue. The company is also Britain's largest car insurer and offers travel and pet cover.

Tough competition in the UK motor and home insurance markets contributed to a 5.6 percent decline in Direct Line's first-quarter gross written premium.

The company, which gets more than 40 percent of its revenue from motor insurance, said gross written premium fell to 949.3 million pounds ($1.60 billion) in the quarter ended March 31.

Direct Line, as well as other large motor insurers such as Admiral Group Plc and esure Group Plc, have been cutting prices to compete with each other in the face of stiff competition from price-comparison websites.

The price of comprehensive motor policy in the UK has dropped below 600 pounds, a 19.1 percent year-on-year fall in first-quarter rates, according to a recent survey by price-comparison website Confused.com and consultancy Towers Watson. (link.reuters.com/tuf98v)

But the average price of motor insurance policies written by Direct Line in the first quarter fell only 4 percent. Motor gross written premium was down 10.2 percent, in line with the company's previous guidance.

Direct Line, whose brands include Churchill, Privilege and the Green Flag roadside recovery service, said it would continue to prioritise margins over policy volumes.

The company reiterated its 2014 outlook of achieving a combined operating ratio from ongoing operations of 95 percent to 97 percent, provided weather claims were normal. A ratio below 100 percent means an insurer earns more in premiums than it pays out in claims.

Direct Line's shares were up 0.6 percent at 249.4 pence at 0912 GMT on the London Stock Exchange, having given up some of their early gains. ($1 = 0.5919 British Pounds) (Additional reporting by Richa Naidu in Bangalore; Editing by Robin Paxton)

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