Direct Line says higher injury payouts won't hurt as much as it thought
Shares in Direct Line got a boost as the insurer said a change in the way lump-sum payouts are calculated will have less of an impact on the business than it previously thought.
Direct Line Insurance Group
193.50p
16:40 19/04/24
FTSE 100
7,895.85
16:59 19/04/24
FTSE 350
4,341.08
17:09 19/04/24
FTSE All-Share
4,296.41
17:08 19/04/24
Insurance (non-life)
3,637.32
17:09 19/04/24
The Lord Chancellor, Elizabeth Truss, is due to announce this month a review of the Ogden discount rate, used by courts to calculate lump sum compensation.
The rate has been set at 2.5% since 2001 and analysts are expecting it to be reduced to 1% or 1.5%, which will mean higher payouts for insurers.
Direct Line had been due to release its 2016 results on 28 February but decided to defer them to 7 March as the Lord Chancellor’s announcement, which could affect the group’s results, could be made on any day up to and including that date.
The company said on Monday that it has already been applying a lower rate of 1.5% in its calculations of injury claims liabilities, given the potential for a reduction.
In its 2015 results, Direct Line had said that its profit before tax sensitivity to a 100 basis points increase/decrease in the discount rate around the group's assumed rate of 1.5% was £131.9m/a loss of £190m.
As at the end of 2016, however, the group said its sensitivity to a 100bps increase/decrease in the discount rate is “materially lower” than indicated in the 2015 annual report.
In addition, Direct Line said it continues to expect to achieve its previously announced target of a combined operating ratio of towards the lower end of the 93%-95% range, adjusted for normal weather, for the year ended 31 December 2016.
At 1210 GMT, the shares were up 3% to 364.50p.