Direct Line chief executive steps down after profit warnings

Pressure had been building on the group after it scrapped its dividend earlier this month

The insurance group said on Friday that Penny James had agreed with the board that she would leave immediately and that Jon Greenwood, the chief commercial officer, would become acting chief executive.

“It has been a privilege to lead Direct Line Group for nearly four years,” said James. “While the business was impacted by significant headwinds at the end of 2022, the group has continued to make strategic progress.”

Direct Line’s chair Danuta Gray thanked James for her service since joining as chief financial officer in 2017, and getting the top job two years later. A person close to James said the departure was a mutual decision.

Gray said the board would work closely with the interim chief executive “as he focuses on our priorities of driving our performance and restoring balance sheet resilience, following the significant headwinds the business faced in recent months”. Greenwood has been at the company since 2000 and previously built up its commercial insurance division.

Direct Line moved to strengthen its balance sheet on Thursday with a reinsurance deal that it said lifted its solvency ratio.

Pressure has built on James as spiralling inflation in used car prices and other costs pushed up the size of its payouts, forcing Direct Line to issue a profit warning last July. In November, it further revised down its underwriting profit guidance.

Earlier this month, the insurer’s shares sank further after it said a spell of severe cold weather in December had pushed up the cost of home claims, compounded by further inflation in motor payouts, meaning it could no longer pay a final dividend.

At the time, Citi analysts said the news tested “management credibility” following reassurances the market had been given as recently as November. Earlier this week, rival Aviva announced that its own general insurance business was trading in line with expectations.

“We believe [James’s] replacement will need to be an external hire, meaning difficult decisions need to be made in the absence of a leader or more likely delayed,” said analysts at Panmure Gordon.

They said the management had overdistributed capital through share buybacks before inflation and bad weather fuelled claims costs, while some peers had “seemingly acted faster” to confront the problem.

The insurer’s shares, which have fallen more than 40 per cent over the past year due to the profit warnings, were weaker in Friday morning trading.

James is the second chief executive in the sector to step down in two days. French reinsurer Scor announced on Thursday afternoon that Laurent Rosseau, who took the top job in mid-2021, had resigned.

The reinsurer’s share price has fallen by a fifth over the past year, as natural catastrophes and claims inflation weighed on the group. He has been replaced by Thierry Léger, former chief underwriting officer at rival Swiss Re. Scor’s shares were down more than 5 per cent in early trading on Friday.

Original article here: https://www.ft.com/content/96c89852-b70b-400b-adad-ab2616dcd142

Author: Oliver Ralph and Ian Smith

Abid Hussain

Director, Research Analyst, Insurance