Direct Line Says Dividend Sustainable After Missing Estimates

Direct Line Insurance Group Plc, the U.K.’s biggest non-life insurer, said it’s confident of sustaining its dividend after first-quarter profit missed analysts’ estimates and competitors cut their annual payouts.

Operating profit from continuing operations rose 33 percent to 107.5 million pounds ($167 million) in the first three months of the year, the Bromley, England-based company said today in a statement. That missed the 111.9 million-pound average estimate of 15 analysts surveyed by Direct Line.

“We have a sustainable dividend policy,” Chief Financial Officer John Reizenstein said on a call with reporters. “We target to grow it at least in line with inflation.” He said he is is “absolutely” confident the dividend is sustainable.

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. The lack of returns prompted RSA Insurance Group Plc to reduce its annual payout by 33 percent in March while Aviva Plc cut its dividend 44 percent in the same month.

Direct Line dropped 2 percent to 199.8 pence at 9:25 a.m. in London trading, valuing the firm at about 3 billion pounds.

The insurer paid out 55 percent of its post-tax earnings from continuing operations as dividends last year. The firm is restructuring its auto insurance division and put some operations in run-off after losing money following the bailout of then-owner Royal Bank of Scotland Group Plc in 2008.

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 pretax profit was 94.3 million pounds, higher than the 63.1 million pounds estimated by the analysts, because of more profitable underwriting and lower restructuring costs.

Net earned premiums, a measure of revenue, dropped 5 percent to 885.3 million pounds. The insurer sold fewer policies in the first quarter as it analyzed the effect of the European Union’s ruling on gender-neutral pricing, Chief Executive Officer Paul Geddes said on the call.

RBS, 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 about 8 percent since its initial public offering in October.

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