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The insurance company reported a solid increase in half year operating profit for its ongoing operations (H1 2015: £335.8 million up from £235.7 million in H1 2014). The results benefited from an absence of claims from major weather events and higher than expected reserve releases together with improved operating efficiency. Gross written premium from ongoing operations increased by 0.4%, with Motor and Home own brand in-force policies proving to be broadly stable. A 4.5% rise in the interim dividend payment (4.6 pence per share) was declared compared to last year. The share price rose by over 2% in opening UK stock market trading.
The results followed the group's late May (2015) announcement regarding the completion of the disposal of its International division, which comprised of its Italian and German operations, with all of the net proceeds returned to shareholders as a special interim dividend of 27.5 pence per share (paid on 24 July 2015), following shareholder approval of an 11 for 12 share consolidation. Direct Line is now totally focused on UK general insurance.
Strategic and operational highlights:
Investment in brand differentiation through further enhancements to Direct Line proposition and improved Churchill positioning.
Improved customer retention rates and Net Promoter Scores in Personal Lines.
Reduced total cost base for ongoing operations by 7.6% in first half of 2015, while building on technical pricing and claims management initiatives.
Growth in eTrade and direct Commercial channels and continued momentum in telematics motor insurance in-force policies.
Chief Executive Comment: "Our first half performance shows the benefits of the many improvements that we continue to make to our business. Customers have reacted positively to the refreshed propositions for Direct Line and Churchill, as well as better customer service. This has led to increased retention rates and, in particular for the Direct Line brand, improved Net Promoter Scores. Together, this has helped us to hold our gross written premium flat in competitive markets.
At the same time, our efforts on efficiency have improved our expense ratio, while improvements in claims and pricing continue to support strong reserve releases from previous years and a good loss ratio so far this year. Action on our investment portfolio has contributed to improving our yield, despite the low interest rate environment."
Management Outlook Comment: "The Group's markets remained highly competitive in the first half of 2015; the motor market overall has seen modest price rises and the home market has seen further price deflation. The Rescue market experienced increased competitor activity towards the end of the period.
Against this backdrop, the Group continues to adopt a disciplined approach to managing the trade-off between margin and volumes. Meanwhile, the Group is investing in building future capability and continues to identify opportunities to improve efficiency."
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