Direct Line swings to a loss as insurance claims costs soar on colder weather and car repair delays
- The FTSE 250 company owns the Churchill and Green Flag insurance brands
- Trading in the firm’s motor division was impacted by supply chain disruptions
- Interim CEO Jon Greenwood admitted that 2022 was a ‘tough year’ for the firm
Direct Line swung to a loss last year after poor weather and higher car repair costs lifted the costs of insurance claims.
The FTSE 250 company and owner of the Churchill and Green Flag brands reported a £39.5million loss for 2022, having made a £343.7million profit the previous year, due mainly to weaker performances from its motor and home divisions.
Trading in the former division was hit by supply chain disruptions, partly resulting from Russia’s invasion of Ukraine, leading to longer repair times and driving up the cost of insurance claims.
Results: Direct Line, which owns the Churchill and Green Flag brands, reported a £39.5million loss for 2022, having made a £343.7million profit the previous year
It has been further affected by rising used vehicle prices and lower renewal premium rates after implementing the Financial Conduct Authority’s new Pricing Practices Review (PPR) regulations.
PPR also led to falling average premiums in the firm’s home segment, although it was particularly impacted by claims from heavy weather events totalling £149million, more than double expectations of £73million.
Direct Line noted that the majority of these claims costs were in relation to the sub-zero temperatures that afflicted much of the UK, especially parts of Scotland and North West England, in December.
Fellow insurer Aviva revealed two months ago that it had to cough up £50million to policyholders for damage associated with the freezing conditions, such as burst water tanks and pipes.
Two other weather-related events resulted in significant claims expenses for Direct Line – storms in February, including Storm Eunice, one of the most powerful storms recorded in England, and a series of heatwaves last summer.
Interim chief executive Jon Greenwood acknowledged that 2022 was a ‘tough year’ for the business and said it had failed to combat the various challenges ‘as effectively as we would have wished’.
Due to its declining solvency ratio – a measure of meeting long-term debt obligations – the company said investors would not receive a full-year dividend, having initially warned it would not do so about two months ago.
It anticipates earnings for 2023 will be impacted by continued economic unpredictability and significant claims inflation in its motor insurance segment written last year and in recent months.
Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, said the motor division ‘will be key to driving the group’s financial performance going forward’.
Chiekrie added: ‘Pricing action has already been taken to try and restore margins, but this will likely put a dent in future volumes.’
‘This is a challenging situation for a new, and as yet unappointed, CEO to come in and pick up. Turning the group’s fortunes around will not be easy, and the road to restoring the dividend looks to be an uncertain one.’
Direct Line Insurance Group shares were 4.6 per cent lower at 159.9p on Monday morning, meaning they have lost around 40 per cent of their value in the past 12 months.