Direct Line’s Profit Climbs on Higher Releases From Reserves

Direct Line Insurance Group Plc (DLG), the U.K.’s biggest home and motor insurer, said first-quarter profit rose 33 percent, missing analysts’ estimates, as the firm released reserves from previous years.

Operating profit climbed to 107.5 million pounds ($167 million) in the first three months of the year, from 80.9 million pounds in the same period a year earlier, the Bromley, England-based company said today in a statement. That missed the 111.9 million-pound average estimate of 15 analysts surveyed by the Direct Line.

The improvement in underwriting was “driven by continued prior year reserve releases and lower claims from weather events,” Direct Line said in the statement.

The insurer is cutting costs and attempting to sell more profitable policies amid falling premiums in the U.K., its biggest market, and lower investment returns driven by record low interest rates. Competitor RSA Insurance Group Plc (RSA) said low investment returns caused it to cut its dividend by a third in March.

Direct Line’s claims and expenses were 98 pence for every pound it took in premiums in the first quarter, an improvement on the 104.5 pence in the same period a year ago. The company’s profit before tax was 94.3 million pounds, which was higher than the 63.1 million pounds estimated by the analysts, due to more profitable underwriting and lower restructuring costs.

Net earned premiums, a measure of revenue, dropped 5 percent to 885.3 million pounds.

Royal Bank of Scotland Group Plc, which owns 48.5 percent of Direct Line, sold a 30 percent stake in the insurer in October and a further holding in March. The stock has risen 8.2 percent to 203.5 pence since its initial public offering in October.

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