Direct Line Group still expects lower reserve releases than last year despite first-half increase

Paul Geddes, Direct Line Group

The insurance industry’s personal motor rate are still below claims inflation despite recent increases, according to Direct Line Group chief executive Paul Geddes.

According to the latest ABI quarterly motor premium tracker, motor rates increased by 2.9% year-on-year in the second quarter this year.

But, speaking to Insurance Times following the release of Direct Line Group’s first-half results today, Geddes said that he believes claims inflation is currently higher than the long-term range of between 3% and 5%.

“The market is getting back towards pricing for claims inflation but it is still lagging.”

Direct Line Group increased motor rates by 5.9% in the first quarter of 2015,following on from a 4.2% increase in the first quarter.

Geddes said this reflected Direct Line Group’s view of claims inflation, which is being driven by large bodily injury claims as well as increased claims costs in accidental damage because of the rising price of paint, parts and labour.

Geddes added: “I would be surprised if the market wasn’t seeing some of the claims inflation we are seeing.”

Direct Line Group reported a 49% jump in profit before tax in the first half of 2015 to £315m and a 6.7 percentage point improvement in combined operating ratio (COR) to 89.4%.

As with previous periods, the insurer’s profitability was strongly influenced by reserve releases. The company released a total of £215.1m in the first half of 2015 (H1 2014: £212.5m), which shaved 14.9 percentage points from the COR (H1 2014: 14.1 points).

But while the reserve releases were slightly higher in the first half of 2015, the company still expects releases for the full year of 2014 to be lower than the £397.6m reported for the full year of 2014.

Direct Line Group chief financial officer John Reizenstein said that the bulk of the motor reserve releases had come from reserves for large bodily injury claims for the year 2000 and before.

Reizenstein said: “We have also had good releases on commercial and home, probably more in the first half than we would normally get, and we won’t get much more in those two segments for this year.”