Direct Line suspends share buyback due to coronavirus

(Sharecast News) - Direct Line announced on Thursday that it was suspending its share buyback programme as a result of "the volatile conditions" arising from the Covid-19 pandemic.

The £150m buyback programme, which was launched alongside full-year results, was designed to return surplus capital to shareholders and the solvency capital coverage ratio towards the middle of its solvency risk appetite range. To date, about £29m of shares have been purchased under the programme.

The insurer said it will be "keeping the position under review" to assess opportunities to undertake further share repurchase exercises in future.

Chief financial officer Tim Harris said: "Given the uncertainty as a result of Covid-19 we've taken the prudent decision to pause our share buybacks until the situation becomes clearer. The Direct Line Group capital position remains strong, and solvency has moved as expected in line with our sensitivity analysis following recent market movements.

"We hope to be able to resume the share buybacks in due course, but it's right we seek to preserve the group's strong balance sheet during this period of heightened uncertainty."

Direct Line said it expects claims trends across its diversified business lines to differ in the period affected by the virus outbreak. In the motor segment, it anticipates lower claims frequency in the short term after the government advised against all non-essential travel.

The company said gross reported claims related to the coronavirus in the travel business had risen to £5m on 15 March from £1m on 3 March.

"An increase in claims following further travel restrictions imposed by the Foreign & Commonwealth Office (FCO) is expected, although it is too early to estimate the potential impact," it said.

Direct Line said it had put measures in place to help mitigate this, including pausing new travel insurance sales and restricting cover for new travel bookings. It has reinsurance cover totalling £18.5m for travel claims.