Direct Line predicts home and commercial lines claims of £90m

Direct Line Insurance Group (Direct Line) is now expecting the value of home and commercial claims associated with the freeze event last year to be around £90m, according to its latest trading update.

In an update published today (11 January 2023), Direct Line noted that December 2022 saw a prolonged period of sub-zero temperatures across the UK.

This, coupled with the freeze event during January 2022 and subsidence related claims over the summer months, means that weather claims could hit £140m for 2022 – this is above the insurer’s previous expectation of £73m.

Penny James, chief executive at the firm, said: “We have seen a volatile and challenging operating environment in the fourth quarter.

”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.”

Combined with motor claims, the unexpected weather conditions have had a “significant impact” on the insurer’s underwriting result for 2022, it said. 

This is also in direct comparison to November 2022, when Direct Line delivered strong growth in commercial lines for the first nine months of the year. 

Changes to final dividend

Meanwhile, the group has also noted reductions in the valuations of commercial property holdings in its investment portfolio – although these are in line with movements in the broader property market.

Because of this, Direct Line no longer intends to pay a final dividend to shareholders for the 2022 financial year.

James explained: “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. 

”The board recognises the importance of the dividend to our shareholders and continues to take actions to restore balance sheet resilience and dividend capacity as a priority, consistent with our track record of delivering returns for shareholders.”

Direct Line has returned more than £1.5bn of capital to shareholders over the last five years.

James added that the dynamics of 2022 – in particular the additional factors in the fourth quarter – resulted in a capital coverage that is now expected to be at the lower end of the firm’s risk appetite range of between 140% and 180%.

Inflation

Direct Line’s investment property portfolio has delivered excellent returns since it started trading and occupancy levels remain strong – at around 95%.

Despite inflation, operating expenses are expected to reduce year-on-year to around £700m in 2022. Last year in, July Direct Line predicted an inflation-driven profit hit. 

In terms of outlook for the year ahead, Direct Line’s initial expectation is that the group combined operating ratio (COR) – normalised for weather during 2022 – would reach around 102% to 103%.

The firm’s medium-term COR target remains unchanged and the group will reset targets to an International Financial Reporting Standard (IFRS17) basis with its full year results.

IFRS17 is an accounting standard for insurance contracts which replaced IFRS4 on 1 January 2023.

James added: ”Despite the impact of these external factors, we continue to make good progress, including enhancing our technological capabilities, introducing new products and improving our efficiency.”