Direct Line axes dividend following freezing weather hit
It revealed around £90 million in insurance claims from the severe weather in December
Direct Line Insurance has seen shares plummet after the group scrapped its shareholder dividend following a warning over a hit from last month’s freezing weather and soaring costs of motor cover claims.
The group’s shares tumbled 29% in morning trading on Wednesday as it revealed around £90 million in insurance claims from the severe weather in December, which saw 3,000 customers suffer burst pipes and water tanks, as well as other damage from the big freeze.
It said this would likely push up weather claims to about £140 million for the whole of 2022 – nearly double the £73 million previously pencilled in.
Together with the rising cost of motor repairs due to inflation pressures, the group said it is now set to be pushed to an underwriting loss for the year.
Direct Line said, as a result, it would not pay a final dividend for 2022.
Direct Line chief executive Penny James said the firm suffered amid “volatile and challenging” trading conditions in the final three months of 2022.
“We have seen a significant increase in claims as a result of the prolonged period of severe cold weather in December, and I am proud of the way that we have supported our customers during this period.
“These claims, combined with further increases in motor inflation, have had a significant impact on our underwriting result for 2022.
“We have also seen reductions in the valuations of the commercial property holdings in our investment portfolio in line with movements in the broader property market.
“As a result the board no longer expects to declare a final dividend for 2022.”
She added: “We have taken actions to respond swiftly to further inflation in motor claims and will continue to navigate market volatility as it arises.”
The group said it saw further increases in the cost of motor claims during the fourth quarter, as well as a rise in claims due to the extreme cold weather.
It is now expecting a combined operating ratio — which represents claims and expenses as a proportion of premiums — at around 102% to 103% for 2022. This represents an underwriting loss.
Direct Line cautioned it also expects claims inflation to worsen this ratio for 2023 by two or three percentage points.
Published: by Radio NewsHub