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Direct Line – Decembers Cold Snap Pushes Claims Higher, Full Year Dividend Gets The Chop

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Direct Line Insurance Group PLC (LON:DLG) expects total weather claims to be in the region of £140m for 2022, well ahead of the £73m previously estimated.

Motor trading improved in the fourth quarter compared to the third, with own brand policies broadly flat and gross written premiums down 2%. Claims inflation remains a challenge, and along with an increase in claims frequency over the fourth quarter, the motor loss ratio (claims + costs / premium income) for 2022 is expected to rise by around 6 percentage points.

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The investment property portfolio saw a drop in valuation of around 15%, or £45m. Occupancy levels remain at around 95%.

All in, Direct Line expects to see its combined operating ratio (COR), normalised for weather, for 2022 at around 102% to 103%. For 2023, higher claims inflation is expected to increase COR by around 2-3 percentage points from the previous target of 95%.

Fourth quarter challenges put capital coverage at the lower end of the target range. As such, the board has decided not to pay a final dividend for the 2022 financial year.

Direct Line's Dividend Gets The Chop

Matt Britzman, Equity Analyst at Hargreaves Lansdown

“News that Direct Line won’t be issuing a final dividend this year has rattles markets, with shares down around 27% in early trading. December’s cold spell has caused a significant increase in bad weather claims, with the estimated cost somewhere in the region of £90m.

To make matters worse, motor claims ticked higher as well as third party claims inflation. All in, the fourth quarter presented some serious challenges, and the end result is a weaker capital position with the dividend on the chopping block.

It’s not too surprising to see the dividend some under pressure though, the forward yield’s been trending above 10% for most of the second half of 2022 and looked likely to be revised lower at some point.”

HL's Senior Independent Director, Penny James, is CEO of Direct Line Insurance Group plc.