Some 383,000 motor insurance customers abandoned Direct Line last year as the company was forced to hike premiums in a bid to return to profitability.

New chief executive Adam Winslow has also promised to cut the company's cost base by £100 million by the end of next year as the insurance group battles claims inflation and takeover approaches from Belgian rival Ageas. Direct Line is in the process of completing a "comprehensive strategic review" and will report back to shareholders in July.

The announcement came as the group posted an operating loss of £189.5m for the year to the end of December, up from £6.4m previously. A pre-tax profit of £277.4m was achieved on gains from the £520m sale last year of Direct Line's  brokered commercial business to Canadian insurer Intact Financial.

READ MORE: Talk of cost cuts makes uncomfortable reading for Direct Line staff in Scotland

The insurer - whose brands also include Churchill, Darwin, Privilege and Green Flag - rejected takeover offers from Belgium's Ageas in February and March, calling them “uncertain, unattractive” and “highly opportunistic”. Under UK takeover rules, Ageas has until March 27 to announce a firm intention on whether to make another offer.

Direct Line has struggled with a challenging motor insurance market as high inflation, supply chain and labour shortages have pushing up the cost of claims across the industry. In addition, Direct Line's cost base is thought to be higher than many of its immediate rivals.

That said, the FTSE-250 group's stock closed yesterday's trading marginally higher as Direct Line reinstated dividend payments at 4p per share. Matt Britzman, equity analyst, Hargreaves Lansdown, said things have picked up for the company but there is still "a long way to go before this turnaround is complete".

"With a new CEO and an improving market, there are early signs that it’s back to writing profitable business, and changes are underway to try to keep it that way," he said.

READ MORE: Direct Line rejects improved £3.2bn takeover bid from Ageas

"But getting to this stage has come at a cost, motor premiums were up 37% over the final quarter, and customers of own-brand products voted with their feet, some 383,000 walking out the door. It’s been a necessary evil to get profitability back, but that trend needs to reverse over the coming quarters."

Mr Winslow said Direct Line has identified "significant opportunities" to cut around £100m by the end of 2025 by reducing operational complexity and technology costs. Marketing spend will also be further reduced as the company builds out customer self-service options such as its digital motor claims hub and the Caha! app launched in 2023.

Direct Line did not quantify whether this will lead to immediate job cuts or a reduction in headcount over time. When asked earlier this morning, Mr Winslow said staff would be the first to be informed in the event of cuts.

READ MORE: Hit to profits drives Direct Line to hike cost of insurance

"While the picture has improved, we need to do more to drive performance and we have identified immediate actions we can take in 2024 to create value, including substantially reducing our cost base, driving claims excellence and optimising pricing capabilities whilst returning us back to higher quotability levels," Mr Winslow said.

The company is targeting a new net insurance margin, normalised for weather, of 13% in 2026. Its net insurance margin for 2023 was 8.3%, an increase of 7.4 percentage points on the previous year.

Direct Line is the UK's second-largest motor insurance group and a major employer in Scotland with approximately 1,000 staff based mainly out of Direct Line House in Glasgow's Cadogan Street.

Shares in Direct Line closed yesterday's trading 0.2p higher at 211.7p, compared with Ageas' most recent cash and shares offer of 237p which values the UK group at approximately £3.07 billion.