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Direct Line profit falls as weather-related costs hit home insurance unit

Mar 8, 2021

(Reuters) – Direct Line reported a fall in 2020 profit on Monday as weather-related costs weighed on its home insurance unit, offsetting strong earnings in its motor insurance business that saw fewer claims due to COVID-19 curbs.

But encouraged by a 2.2% increase in own-brand policies to 7.5 million, Direct Line announced a 100 million pound ($138.10 million) share buyback plan and increased its final dividend by 2.1% to 14.7 pence per share.

The London-listed company, whose brands include Churchill, Green Flag, Shotgun and Privilege, recorded 27 million pounds ($37.30 million) in costs related to weather in 2020, compared with 3 million pounds a year earlier.

“The results have been affected by the usual variability around weather events but the addition of the factors surrounding COVID-19 make them more difficult to navigate than in previous years,” Direct Line said in a statement.

Operating profit in the company’s home insurance business fell by 49.2 million pounds to 101.4 million pounds for the 12 months ended Dec. 31.

However, earnings in its motor business surged 20% to 363.5 million pounds as pandemic-induced restrictions on movement kept people away from roads.

Overall operating profit fell 4.5% to 522.1 million pounds, while gross written premiums edged 0.7% lower to 3.18 billion pounds.

The company’s 2020 combined operating ratio improved to 91% from 92.2%, but Direct Line said it expected the ratio to be 93% to 95% in the current year and over the medium term. A ratio below 100% means the insurer earns more in premiums than it pays out in claims.

(Reporting by Muvija M and Pushkala Aripaka in Bengaluru; Editing by Aditya Soni)