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LONDON (Alliance News) - Moody's Investors Service on Friday upgraded the insurance financial strength rating of Direct Line Insurance Group PLC's main operating subsidiary to A1 from A2.
The credit ratings agency also upgraded the guaranteed subordinated notes issued by Direct Line to A3 from Baa1. Moody's has upgraded Direct Line's outlook, for both ratings, to Positive from Stable.
Moody's said the upgrade reflected Direct Line's "track record of reporting consistently strong return on capital and underwriting results", which Moody's expects will be sustained.
Direct Line's "very strong" position within the UK personal lines general insurance market was also attributed for the upgrade.
Finally, Moody's noted the general insurer's "relatively conservative" investment portfolio, coupled with low financial leverage, and Direct Line's "good" capitalisation as factors in the upgrade.
"These strengths more than offset the group's dependence on the very competitive and highly regulated UK personal motor market and some execution risk around the group's technology transformation and the change in drivers of future profitability," Moody's said.
"Going forward, Moody's expects Direct Line's performance to continue to benefit from its disciplined approach to underwriting and claims management, its pricing capabilities supported by its strong brand differentiation, ongoing cost reduction initiatives and revenue growth thereby enabling it to continue to meet its 15% return on tangible equity and underwriting targets," Moody's continued.
The ratings agency said the "extremely competitive" UK motor market makes it difficult for price increases to match claims inflation but expects Direct Line to improve current year profitability to offset the expected decline in motor prior year reserve releases.
Overall, Moody's believes Direct Line's financial flexibility is "very good".
Shares in Direct Line were flat Friday afternoon at 312.30 pence each.
