Direct Line launches £100mn saving plan as it fights takeover interest

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Direct Line’s chief executive announced new cost savings and profit targets, as the UK motor insurer swung back to profit and launched a fightback against a takeover attempt from Belgian rival Ageas.

Presenting his first set of full-year results on Thursday, just weeks after he joined the group, Adam Winslow said Direct Line had a “strong platform for recovery”, after a boost in profits allowed the group to restore a dividend of 4p per share.

Direct Line rebounded from a restated pre-tax loss of £302mn in 2022 to a £277mn pre-tax profit last year, boosted by a sale of its brokered commercial business, and shy of consensus estimates compiled by Bloomberg. A surge in insurance prices has repaired damage to its underwriting margins.

Winslow said the group had “identified immediate actions we can take in 2024 to create value” including a substantial reduction to the cost base and improving how it manages claims. He also promised a “comprehensive strategy review” to be unveiled in July. The group has targeted £100mn in annual cost savings by the end of next year, and a tougher underwriting profit target to be achieved by 2026.

Direct Line, which provides motor and home cover as well as other policies, struggled to deal with post-Covid inflation, leading to a string of profit warnings, the departure of its chief executive and the suspension of its dividend.

Its interim boss said last year that it had been guilty of “over-optimism” in not pushing through enough price rises. It has since raised premiums sharply, in step with peers.

Ageas has had two preliminary cash-and-share offers rejected by Direct Line’s board, the second of which valued the group at 237p per share. The target’s board said the offer, which implied a £3.2bn valuation, was “uncertain, unattractive, and significantly undervalues” the UK insurer, in a statement earlier this month.

Analysts at Jefferies have previously estimated that an offer in the 270p to 300p per share range would have “a higher likelihood of being accepted . . . and would be more in line with recent M&A valuations in the sector”. Under takeover rules, Ageas has until March 27 to announce whether it has a firm intention to make an offer.