Direct Line optimistic on outlook despite Ogden rate impact

UK motor insurer Direct Line’s full year 2016 results were hit by a sharp reduction of the personal injury (Ogden) discount rate in the UK, but management remains optimistic about the company’s outlook.

Direct Line reported operating profit from ongoing operations of £403.5 million for 2016, down from £520.7 million in 2015 due to a change in the UK’s Ogden discount rate.

The UK’s Lord Chancellor and Justice Secretary Elizabeth Truss has decided on February 27 to change the Ogden discount rate to -0.75 percent from 2.5 percent. The so-called Ogden tables are used to calculate compensation awards for serious personal injuries. The change exceeded the level expected by the industry.

Without the impact from the Ogden discount rate reduction, Direct Line’s operating profit would have been £578.6 million in 2016 and therefore above the 2015 results.

Paul Geddes, CEO of Direct Line Group, commented: “2016 was a successful year for Direct Line Group and I’m proud of the strong own brand growth achieved in a switching market, proving our competitiveness in all our key categories and channels. This positions us well in a market disrupted by the reduction in the discount rate, and allows us to target a 93-95% combined operating ratio in 2017. We will continue to target improved efficiency and invest in customer and technology trends affecting our markets.”

Direct Line’s combined operating ratio from ongoing operations was 97.7 percent in 2016, a deterioration from 94.0 percent in 2015. Without the Ogden rate change effect it would have been at 91.8 percent in 2016. The impact from the Ogden discount rate change was partially offset by improved current-year underwriting performance and favourable weather claims, the company said.

Gross written premium for ongoing operations was up 3.9 percent year-on-year at £3.27 billion in 2016, driven by growth in motor and home own-brand in-force policies.

Direct Line’s pre-tax before was £353.0 million in 2016 compared to £507.5 million in 2015.

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