March 3, 2020 / 7:47 AM / 25 days ago

UPDATE 2-Insurer Direct Line sees small coronavirus-related claims, to buy back shares

* Profit falls but beats estimates

* Shares jump 7% on midcap index

* Company launches buyback plan (Adds CEO comments, share move)

By Muvija M

March 3 (Reuters) - British insurer Direct Line said on Tuesday it expected its coronavirus-related claims to be manageable as it posted a smaller-than-forecast fall in annual profit and announced a 150-million-pound ($192 million) share buyback plan.

Shares in the country’s largest motor insurer jumped 7% as it also proposed a 2.9% rise in its 2019 dividend, and were the second biggest gainer in the UK midcap index.

The company, whose brands include Churchill, Green Flag and Privilege, said it had currently incurred claims of around 1 million pounds due to the fast-spreading coronavirus, which has led to travel restrictions across many countries.

It said it had reinsurance to mitigate the cost of an event over a 28-day period up to a maximum of 10 million pounds and could also reinstate that policy once.

“I think the claims at the moment are very small... we don’t expect financial impact from that to be significant,” Chief Executive Penny James said.

The company has 3.5 million policies in travel, contributing 150 million pounds to overall premiums.


Operating profit fell 9.8% to 546.9 million pounds for the year ended Dec. 31, in the face of steep claims and strong competition on pricing from smaller rivals. But that was above estimates from Panmure Gordon analysts and Refinitiv Eikon.

“Its claims inflation is lower than most peers, which put it in a strong competitive position where motor premium pricing has been lagging claims inflation,” Panmure Gordon analysts said in a note.

Insurers have been struggling with strong competition and changes in the rate used to calculate compensation for personal injuries, while Brexit uncertainties had also dominated markets for most of last year.

Prime Minister Boris Johnson’s clear majority victory in the December election cleared some of those up, with the country now in a transition period after exiting the European Union in January.

“Towards the end of the year, we started to see some positive signs and that’s continued into the first part of this year,” Finance Chief Tim Harris told Reuters.

Direct Line, which was once part of RBS, also reported a 0.3% dip in gross written premiums to 3.20 billion pounds, while its combined ratio inched up to 92.2% from 91.6%. A ratio below 100% means the insurer earns more in premiums than it pays out in claims.

It said it continued to target a combined operating ratio of 93% to 95% for 2020 and the medium term.

Direct Line also estimated claim costs of up to 35 million pounds from the recent storms Ciara and Dennis in Britain this month.

Separately, it said its Chairman Mike Biggs would step down in 2020 after the appointment of a successor. ($1 = 0.7818 pounds) (Reporting by Muvija M in Bengaluru; editing by Patrick Graham)

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