Direct Line Earnings: Strong Pricing, but Core Customer Growth Remains a Problem

While Direct Line has delivered a good top-line performance in the first quarter of 2024, growing gross written premiums by 10.7%, that all came from pricing as customers continued to decline. We definitely like the 34.9% quarter-on-quarter average motor insurance premium rise and 14.7% quarter-on-quarter average home insurance premium increase. We understand that customer attrition is part and parcel of that flow. However, we still believe that at some point Direct Line will have to deliver customer growth in core lines. Motor insurance policies in force are higher quarter on quarter by 8.8%. That includes Motability customers and adjusting for this, we think underlying policy numbers have continued to decline. Since year-end, motor policies in force are down by 2.6%. With a decline since year-end of 1.8% the same can be said of home policies. The impact of weather events looks less severe than in the first three months of 2023. We maintain our GBP 2.20 per-share fair value estimate and forecast zero policy growth in core lines. We also maintain our no moat rating.