Direct Line faces ‘bumpy road ahead’ as motor claims soar
Direct Line warned that rising motor claims would put pressure on earnings today, as it published its first quarter results.
The company reported a 9.7 per cent rise in first-quarter underlying gross written premiums to £805.7m.
The insurer warned its motor segment would continue to “put pressure” on earnings, as damage related claims tick higher in a difficult market; Direct Line (DLG) shares dropped 6.6 per cent in early trade this morning.
The results come off the back of a turbulent year for the insurer, which saw sharp rises in motor repair costs due to soaring inflation and supply chain pressures.
Direct Line shares collapsed earlier this year when the firm reported a £45m loss for 2022 and the winter cold caused a rise in burst pipes, leading to £95m worth of claims. Its CEO Penny James stepped down that same month.
Direct Line – solvency and dividends
Jon Greenwood, acting chief executive said: “Trading has been positive over the first quarter with premium growth across motor, home and commercial and this trend has continued into April.
“Our focus continues to be on restoring the capital strength of the Group and improving Motor margins, where we have made good progress.
“Whilst 2023 earnings outlook continues to be challenging, the group has many strengths, and we continue to take the actions required to drive business performance.”
Matt Britzman, equity analyst at Hargreaves Lansdown, said that the road ahead “continues to look bumpy for Direct Line.”
“Just as weather-related claims ease back to more normal levels, there’s little in the way of a let-off for the motor division as damage-related claims tick higher. Add in claims inflation that continues to run at high single-digit levels, and the outlook for insurance profitability gets a little murky.”
He added: “along with pressure on earnings, the lack of solvency improvement could mean the dividend is under some pressure this year.”