Direct Line's Competitive Position Is Steadying After Changing Conditions and Operational Headwinds

Direct Line was founded in 1985 by Peter Wood and Martin Long as a personal lines insurance company that operated with a model of direct-only sales. In the early days, the business became synonymous with selling directly as the company was known for its red telephone. While the business was originally established to cut out intermediaries, Direct Line has since reverted to a model of selling through high street partners and wholesalers. As the financial crisis started to unravel in the United Kingdom, Royal Bank of Scotland was requested by the European Commission to divest Direct Line. While RBS fully exited its financial interest in 2014, there wasn’t a complete operational separation until 2017. Ever since this financial separation, we think Direct Line has begun to reorient its business away from third-party policy sales, but investors haven’t really seen an improvement in the company’s loss ratios. We believe partnerships bring less control over risk selection, and this is why Direct Line started to move away from this.