Direct Line 2017 results jump on Ogden change
UK-based Direct Line has seen its operating profit in the motor business more than double in 2017 after UK’s Ogden personal injury discount rate change, boosting overall results, but reinsurance cost also increased at January 2018 renewals.
In September 2017, the UK government revealed a proposal for the Ogden discount rate which implying a real rate of 0 percent to 1 percent.
The move came after earlier in February the government had reduced the Ogden discount rate to -0.75 percent from 2.5 percent, which hit both insurers’ and reinsurers’ profits.
Direct Line’s motor current-year loss ratio improved to 79.7 percent from 84.1 percent in 2016 as the group priced to reflect the higher costs of the lower Ogden discount rate and benefitted from having renewed its reinsurance arrangements at the beginning of the year, before the Ogden discount rate change.
Motor also benefitted from a £49 million reserve release after a detailed review in the first half of the group’s Ogden provision within case reserves. Other prior-year releases were lower year on year, albeit large bodily injury claims developed favourably. In addition, in 2017 the group’s claims experience was better than expected.
The operating profit in motor grew to £364 million in 2017 from £149 million in 2016. The improvement in motor boosted Direct Line’s pre-tax profit which increased 52.7 percent year on year to £539.0 million in 2017. Gross written premium grew 3.6 percent £3.39 billion in 2017.
“We have seen significant growth in our direct own brand policies as more customers respond positively to the many improvements we have made to the business,” said Paul Geddes, CEO of Direct Line Group.
The motor excess of loss reinsurance programme renewed on 1 January 2018 at a somewhat increased cost reflecting the reduction in the Ogden discount rate. The group renewed all layers, but retained 10 percent of the first risk layer (£2 million excess £1 million).
Direct Line stated its ambition to be the partner of choice for motor manufacturers. The group already has a partnership with PSA Finance UK (part of Groupe PSA, owners of the Peugeot and Citroën brands) and an introducer relationship with Tesla, and the group has recently signed a letter of intent for a partnership arrangement intended to be for five or more years with Volkswagen Insurance Service (Great Britain) covering Volkswagen, Audi, Seat, Skoda and Volkswagen Commercial Vehicles.
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