Direct Line tumbles to a loss as insurance claim costs soar in cold weather and car repair delays
- The FTSE 250 company owns the Churchill and Green Flag insurance brands
- Trading in the company’s automotive division has been hit by supply chain disruptions
- Acting CEO Jon Greenwood admitted 2022 has been a ‘tough year’ for the company
Direct Line posted a loss last year after bad weather and rising car repair costs drove up insurance claims costs.
The FTSE 250 company and owner of the Churchill and Green Flag brands posted a loss of £39.5million for 2022, after making a profit of £343.7million the previous year, mainly due to performance weakest in its auto and home divisions.
The former division’s trade has been impacted by supply chain disruptions, resulting in part from Russia’s invasion of Ukraine, leading to longer repair times and increased cost of claims. ‘assurance.
Results: Direct Line, which owns the Churchill and Green Flag brands, reported a loss of £39.5million for 2022, after making a profit of £343.7million the previous year
It was further impacted by higher used vehicle prices and lower renewal premium rates following the implementation of the Financial Conduct Authority’s new Pricing Practices Review (PPR) regulations. .
PPR also led to lower average premiums in the residential segment of the business, although it was particularly hard hit by bad weather claims totaling £149m, more than double expectations of £73m. sterling.
Direct Line noted that the majority of these claims costs were linked to the sub-zero temperatures which plagued much of the UK, particularly parts of Scotland and the North West of England, in December .
Another insurer, Aviva, revealed two months ago that it had to pay policyholders £50 million for damage related to freezing conditions, such as bursting water tanks and pipes.
Two other weather-related events resulted in significant claims outlays for Direct Line – February storms including Storm Eunice, one of the most powerful storms on record in England, and a series of summer heat waves last.
Interim chief executive Jon Greenwood acknowledged that 2022 had been a “difficult year” for the company and said it had failed to tackle the various challenges “as effectively as we would have liked. “.
Due to a decline in its solvency ratio – a measure of meeting long-term debt obligations – the company said investors would not receive a full-year dividend, after initially warning that it would not. wouldn’t do about two months ago.
It expects earnings for 2023 to be impacted by continued economic unpredictability and significant claims inflation in its auto insurance segment written over the past year and in recent months.
Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, said the automotive division “will be key to the group’s financial performance going forward”.
Chiekrie added: “Pricing action has already been taken to try to restore margins, but this will likely reduce future volumes.”
“It is a difficult situation for a new CEO, who has not yet been appointed, to come in to take over. Turning the group’s fortunes around will not be easy and the path to restoring the dividend looks uncertain.
Shares of Direct Line Insurance Group were down 4.6% at 159.9p on Monday morning, meaning they have lost around 40% of their value over the past 12 months.