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Long-suffering Direct Line Insurance Group (LSE: DLG) shareholders received some good news on 30 August. The troubled company has managed to appoint a new chief executive.
Adam Winslow is due to start in the role during the first quarter of 2024. And new blood at the top of any business is almost always a situation charged with positive potential.
New ideas and determination?
Most new bosses come into an organisation brimful of ideas and on a mission to make their mark. And the best way to do that is to drive the business forward into better profits.
Such outcomes can be good for shareholders and good for the individuals wielding the power in the boardroom. After all, salaries and bonuses often rise when a business is successful. And achieving a good result can look really good on an executive’s CV.
Winslow will have a plateful of challenges with Direct Line though. The insurance company stumbled over the basics of its business early in 2023.
In January, the share price plunged after a so-called ‘big freeze’ in the UK caused more customer claims than the company expected. You what? This isn’t like Canada and other really cold places!
Yet Direct Line had to slash its shareholder dividend. And that’s a poor outcome for a company previously known for its chunky yield.
Direct Line’s problems were made worse by claims inflation. In other words, things like burst pipes and motor repairs were all taking longer to execute. And they cost more than expected because of all the well-reported challenges in supply chains and in the everyday economy.
However, an insurance company thrown off course by insurance claims has a poor look. Was the business being run too hot?
It seems that the financial setup in the organisation might have been too thin to handle what many might consider to be normal events. After all, what are insurance companies for if not to insure us against worst-case scenarios?
A strong pedigree?
So there’s some serious sorting out to do. But Winslow previously led Aviva’s UK and Ireland general insurance business from May 2021 with “a clear strategy for both personal and commercial lines which has delivered market share expansion and improved profitability”.
And that experience was built on a career stretching back two decades in the international life and general insurance industry.
Meanwhile, Winslow’s making all the right noises and said: “Delivering great customer service relies on strong strategic vision and the operational capability to execute quickly across a variety of distribution channels.”
Will his approach help to drive the shares back to the levels near 300p, last seen around 18 months ago? I’m optimistic about that. But the key to such an outcome will likely be the restoration of shareholder dividends to previous levels.
However, there’s a long way to go. City analysts expect a hefty double-digit percentage rebound in the shareholder payment ahead. But even for 2024, the estimated dividend of around 16p per share will be down from the 21p achieved in 2018.
Positive outcomes aren’t guaranteed. But I see Direct Line as being set up with turnaround potential and would dive in with deeper research now.
