blouson blouse
07 Mar 2017
Results My reading of the headlines is that these evidence a very strong underlying business. It will take longer to read the entire results and the analyst call will be interesting. I expect these to perform better in the short term than I had feared after Ogden last week, and the retaining of the final dividend- and even increasing of it- is a demonstration of the management's belief in itself. I'm expecting a re-rating
blouson blouse
01 Mar 2017
Re: Income attractions I agree Vox this is guff but also as Deepsleeves says claimants need the compensation to do the job it's designed for.The problem is the existing system. The current rate of -0.75% is out of whack with the real world, but in fairness the long standing rate of 2.5% was not a return that could be generated by claimants for most of the last 10 years without taking some element of risk with their capital. That isn't fair either. Now insurers and the majority of consumers are penalised; whereas for the last decade or so claimants have been penalised. The solution, as everyone, including the government, seem to agree is to change the broken system. Negative rates were never contemplated until recently. No claimant, however ignorant, would invest his lump sum in a way that guarantees he loses 0.75% a year !! He'd put it in the bank and get 0.25% ( a difference of 1% !!), and when interest rates rise - as they are certain to do in the medium term , he will make out like a bandit. What is encouraging for all shareholders in DLG is the commentary in the media since Monday's Ogden rate was reset. There is a broad commitment to a new consultation to begin before easter ( which is lightening speed in Government circles, and in my view is a clear acknowledgement that they know this is bonkers) and a general consensus not only that the system should change but should change very soon. I would expect a new system to be announced this year and there to be various media updates over the coming 3-6 months, all of which could trigger activity in DLG's sp.However, IMO the new rate was only ever a one off hit, and as I do not expect it to be 'reversed' but just a new system to be implemented the upward benefit won't be great. That said if it happened very quickly then any claims outstanding now and not settled between the date the -0.75% rate comes into force and the date any new system comes into force would produce a saving. It may also focus investors minds on this being a one off charge. On Monday I expected DLG to settle above 150 this week, and it seems that is likely. Next week will turn on the results and the extent to which the dividend is cut
deepsleeves
01 Mar 2017
Re: Income attractions not nonsense to those who need the compensation to provide investment returns over an extended period.The joy of inflation..deep
Rhigos
01 Mar 2017
Re: Income attractions VoxVoci, You are right -0.75%. Read that several times without noticing minus sign, so unbelievable. This is nonsense and cannot be allowed to go through.
VoxVoci
28 Feb 2017
Re: Income attractions Rhigos The 0.75 figure is MINUS 0.75! The assumption being that interest received on investment would not keep up with inflation due to ultra low interest rates. The formula used is based on an investment in government bonds.What a load of guff.
Rhigos
28 Feb 2017
Re: Income attractions IMO DLG oversold yesterday and today's upward trend tends to support that view. Current forecasts of over 9% for yield almost certainly are too high and dividend cut is inevitable. I believe this is a short term problem. Insurance premiums across the board will rise to cover extra costs and profitability will be restored after about 6 months. Most clients will pay the extra. There will be a percentage of younger drivers who will be forced to give up driving until they can afford premiums of perhaps over a £1K pa (or be forced to by police for driving without insurance).As I understand it when serious injury payments e.g. £2 million are made financial advice given to that person so that majority of money is invested to obtain an income. I would expect that income to be a lot more than 0.75% though to be low risk perhaps not as much as 2.5%. From what I heard on news there is to be consultations up until Easter so perhaps 0.75% figure my be revised up a bit.There is a lot of uncertainty until after results but if I was not already overweight in DLG (4.11%) I would top up now. IMO long term risk low and reasonable probability SP will rise after results. I have enjoyed the substantial income from DLG ever since I first bought at IPO and still showing a CG of 17% on average purchase price (made purchases on 6 dates last 6 Jan 17).
Merlindale
27 Feb 2017
Re: Income attractions Many thanks for your very helpful comments BB
blouson blouse
27 Feb 2017
Re: Income attractions Merlindale- my views are but those of one person, but as you asked here they are...I think it depends whether your are a cup half full or half empty type. The positives are that the news is now in the market and there are indications that the Ogden rate/tables could be reinvented quite quickly to stop periodic large movements. Certainly the Lord Chancellor's handling of this doesn't cover her in glory, and it seems perverse to review the rate only occasionally as that must penalise claimants or insurers (depending on how the investment market has moved). If that is so then with interest rates likely to move UP over the medium term so should the Ogden rate, giving a corresponding surprise 'boost' as opposed to the negative seen this morning (though for much shorter periods and hence smaller amounts). It also would draw a line under this issue and help 'call the bottom'.The contrary view is that until DLG's results next week, and their analyst call, the full details won't be known- including the impact to the dividend. Clearly, cautious investors should wait on DLG's results and statement next week before taking any position. I am sure they will be desperate to find a way to try and keep at least their final dividend ( which on it's own yields over 2% at this sp), and if trading has been as decent as indicated they may feel they could increase their final dividend marginally ( to demonstrate confidence) delay its payment date and temporarily stretch solvency ratios, indicate a pause only on special dividends to cashflow this hit, and generally encourage belief that in 12-18 months the yield will return to recent levels. However we just don't know.Insurers are notoriously conservative, so I suspect a passing of the dividend to get the pain out of the way quickly, and a return to dividends within 12 months at the 6-8% yield level. Even if I'm right and that is what they do, it doesn't necessarily mean the sp will fall further- as markets sometimes respect ( and value) prudent management. If the market understands this is a one off, and once we're in possession of the details of last years full numbers, the sp could well bounce to mid 150's or even further quite quickly, even if the dividend is passed entirely.in short it's impossible to know. But I suspect that wherever the sp settles next week, it will likely remain range bound for 6 months or so around that level, giving traders no reason to buy. So the reason for holding is long term yield and reversion to business as usual. After all, nothing today changes how the underlying business is performing...but removes a slug of cash on a one time basis, which if not immediately filled by passing the dividend impacts various ratios for a period of 12 months or so.having topped up this morning at 135 I am holding fire on further top ups until after the results.
Merlindale
27 Feb 2017
Re: Income attractions It would be interesting to hear BB's viewes now that DLG have made their announcement - I am 'holding' at the moment, but am not convinced this will not fall further - the market does not like surprises, specially if BB is right about the dividend hit!
Hydrogen Economy
27 Feb 2017
Re: Income attractions DLG quickly followed up the first RNS with this outline of the impact of the announcement.Seems profit before tax hit by between £215 million and £230 million after reinsurance recoveries, maybe not as bad as BB's feared 300-400m but enough to unsettle the market . H2 Direct Line Insurance Group plc Impact of the Lord Chancellor's announcement 27 February 2017 Direct Line Insurance Group plc (the "Group"
is updating the market following today's announcement by the Lord Chancellor regarding the discount rate for calculating personal injury damages awards. The new discount rate to be used is -0.75% ("New Discount Rate". The Group notes that the Government has said it will review the framework under which the rate has been set today by the Lord Chancellor. The Group expects to recognise the New Discount Rate in its financial statements and also within its Solvency 2 ratio calculation for the year ended 31 December 2016. The Group has previously disclosed in its 2015 Annual Report that its claims liabilities, at that time, were calculated using a discount rate of 1.5%. The Group currently estimates that the impact of moving to the New Discount Rate of-0.75% on the 2016 reported financials would be to: · reduce profit before tax by between £215 million and £230 million after reinsurance recoveries (including the impact on both ongoing and run-off business);· increase the Combined Operating Ratio ("COR" for ongoing business by approximately 6ppts; and· reduce the Group's year end Solvency II capital coverage ratio before dividends, to towards the higher end of the Group's target range of 140-180%. As at 30 June 2016, the Group's Solvency II coverage ratio was 184% after interim dividends. The Lord Chancellor's recent announcement has left open the possibility of further changes to the process by which the rate is set, and therefore the rate itself. The implications of this uncertainty have not, at this stage, been included within the Group's solvency calculation. Before adjusting for the New Discount Rate, the Group confirms it expects to achieve its guidance of a combined operating ratio of towards the lower end of the 93%-95% range adjusted for normal weather for the year ended 31 December 2016. The Group is committed to ensuring claimants receive appropriate compensation. The Group is disappointed at the Lord Chancellor's decision, but will take the time to review the full statement of reasons given. The Group welcomes the consultation to consider options for reform to achieve a better and fairer framework for claimants and defendants. The Group's capital and reserve strength, coupled with its leading brands, differentiated propositions and excellent service mean it is well positioned despite higher claims costs arising from the New Discount Rate. The Group will provide further details in its preliminary full year results announcement scheduled for 7 March 2017, including its estimated Solvency II position as at 31 December 2016.
blouson blouse
27 Feb 2017
Re: Income attractions This morning the Government announced the new Ogden rate as I explained in my previous post- hence today's drop. Interestingly Admiral- which is much less exposed due to re-insurance- has already said it is maintaining it's dividend. However minus 0.5% seems to be worse than DLG were expecting and I suspect they will announce later today that the cost to them in a one off hit is circa £300m-400m. IF that is the case they are likely to not pay any special dividend for last year and quite possibly not pay any final dividend for last year ( and their results are next week). If that is the case the shares will fall further and another 5% or so IMOHowever once the dust settles I expect these to be valued on future prospects and premiums will be repriced, and this ought to hurt a lot of smaller outfits who have been misplacing insurance recently and take them out of the market. Long term it's neutral or good news for DLG- so I expect the shares to stabilise before too long and now the uncertainty has gone to be based on medium term fundamentals. So it may take a year but for Investors rather than traders/speculators, once the rest of today's news is out this could be a good time to get in.I have topped up this morning at 335 ( as I had said I would) but only with 50% of what I intended pending the DLG statement later today. I am in for 3 years for reasons given in a much earlier post.
Guitarsolo
27 Feb 2017
Re: Income attractions Well congrats to Blouse for correctly predicting this. Personally, I didn't think it would come in this quickly (insurance doesn't move quickly!), but it has. And to be honest, it might be the right thing to do for severely injured people given a lump sum and expected to earn a return on it in today's environment to pay for their care. It will be a one-off hit to H2 profits. DLG to update later today probably. Market value has dropped c. £240m so being priced in for something like that - or c. 17p per share. Now, searching for the silver lining, if there has been a cut to the discount rate, there might one day have to be a reversal of that to reflect higher expected returns! Then there should be a one-off gain. As a very long term holder, I might be around for that. In the meantime, no special divi this year for sure. But with clarity over this issue, and a price drop, I would certainly buy more today. Guitarsolo - clutching at straws.
Hydrogen Economy
27 Feb 2017
Ogden rate' cut Admiral takes a charge DLG to announce impact laterH2[link] insurer Admiral to take big one-off charge to account for impact of cut to rate used to calculate personal injury damages The FTSE 100 firm noted today's announcement by the Lord Chancellor that the figure used, known as the Ogden rate' will be cut to -0.75% from +2.5% currently.Car crashAdmiral said the estimated total net financial impact of all claims settling at the new rate is £140mln to £175mln.Motor insurer Admiral Group PLC (LON:ADM) has said it will take a big one-off charge to account for the impact of a cut announced to the discount rate used by courts in England and Wales to calculate personal injury damages awards.The FTSE 100 firm noted today's announcement by the Lord Chancellor that the figure used, commonly referred to as the Ogden discount rate, will be cut to -0.75% from +2.5% currently.Admiral said the reduction in the discount rate will have “the effect of increasing the cost of personal injury claims, therefore also increasing the ultimate loss ratio for all business written up to the effective date, part of which will be earned and part unearned.”It added that the majority of the financial impact in respect of premiums earned during 2016 and prior years will be reflected as a one-off charge against 2016 second half profits.The group said the estimated total net financial impact of all claims settling at the new rate is £140mln to £175mln. It added that the estimated net financial impact on its 2016 reported profit is £70mln to £100mln.Result postponed …Admiral said that in order for the impact of the new discount rate to be reflected in the company's 2016 results, it has decided to postpone the preliminary announcement its full-year 2016 results announcement from March 1 to March 8.The firm added that, given its strong capital position, and reflecting the non-recurring nature of this charge, it expects to maintain its 2016 final dividend at last year's level of 51.5p per share.It said it “anticipates that if market pricing adjusts future premiums to reflect the lower discount rate, there will be no significant impact on future business and its profitability after the change.”Fellow FTSE 100-listed insurer Direct Line Insurance Group PLC (LON
LG) also noted the Lord Chancellor’s announcement in a statement today. But it just said: “The Group will update the market later today regarding implications of this change.”
Rhigos
13 Feb 2017
Re: Income attractions I have a pretty big holding of DLG shares and am getting rather nervous about SP fall. After today's fall forecast dividend yield is up 9.2% however forecast dividend cover is only 0.9 which suggests to me that the market is expecting the dividend to be cut. I have seen this happen before with insurance companies (e.g. RSA). The dividend could be halved and the SP fall sharply. A note of caution with figures, the way EPS is calculated for insurance company is different to other companies so dividend cover may be better than figures I got from SharePad.DLG invest most of the cash they get from insurance premiums. The slice they invest in equities I am not too concerned about as stock markets pretty strong at the moment and outlook at moment looks OK. I believe they have quite a lot in property investment valued in UKP which is not such a good thing at the moment.I found some information from my broker company which is from Dec 2016." Direct Line shares have experiences significant volatility YTDhaving lost sizeable home business partnerships withNationwide and Sainsbury’s earlier this year."This could explain SP weakness of late. From Annual Report:"Main activities during the yearInvestment strategyAfter considering and challenging, the Committeerecommended to the Board the following material changesto the Group’s investment strategy. The Board approved thechanges during 2015.• A revised minimum requirement for access to liquidityin stressed business or economic conditions• The introduction of three new asset mandates. Twomandates will invest in global credit and subordinatedfinancial credit respectively, and the third mandate willinvest in Sterling commercial real estate loans, a new assetclass for the Group’s investment portfolio• Changes to benchmark allocations for various existing assetclasses including gilts, investment-grade credit, high-yieldcredit, securitised credit and investment property• A revised investment objective for existing investment-gradefixed-income mandates "I agree with others on the board that this is a well run company and perhaps my worries are unfounded.
shabby 2 sox
16 Jan 2017
Re: Income attractions blouson blouse. I have done some quick research and the review of the current discount rate appears to be a slow and protracted business.The paper I have read by Andrew Lewis QC on the matter (Google search) is unfortunately undated but seems to imply:-There is general resistance to change the 2.5%:-'48. When looking beyond the reasoning in Wells it is not difficult to envisage a situation where the Lord Chancellor could set a single discount rate above the present 2.5%. The reality is that he is more likely to be inclined to keep as close to the 2.5% rate as possible and provide a clearer but wider ‘methodology’ for his determination of the discount rate in the future. The courts are unlikely to interfere with his chosen rate'.It does not appear that all historic outstanding claims will be caught if the rate is reduced:-'In Love v Dewsbury [2010] EWHC 3452 the Claimant’s attempt to adjourn determination of the issue of the appropriate multiplier to be applied to the assessment of damages pending the outcome of the review failed. The Deputy High Court Judge concluded that the correct approach was for the Court to apply the specified discount rate until such time as it was formally changed'.But admittedly I skimmed a lot of the document and cherry picked the above two paras. It also seems that the document is not that current. Being a lot more informed on this topic than a few hour ago I look forward to the outcome and hope it does not result in any material impact on DLG's share price or future dividends. S
