Insurer Direct Line said on Monday that it swung to a full-year loss as it took a hit from inflation, and warned that 2023 earnings will be impacted by higher-than-expected claims inflation in the motor business.
In the year to the end of December 2022, the company swung to a pre-tax loss of £45.1m from a profit of £446m the year before, while operating profits slumped 94.6% to £32.1m. Analysts had been expecting a pre-tax profit of £43m and an operating profit of £70m.
The company’s combined operating ratio deteriorated to 105.8% from 89.5%, versus consensus expectations of 104.7%. A ratio below 100% indicates an underwriting profit. Meanwhile, the solvency capital ratio fell to 147% from 176%. Consensus expectations were for a ratio of 148%.
Direct Line pointed to elevated motor claims inflation, higher-than-expected weather event claims, new regulatory changes and “challenging” investment markets.
It said claims inflation was most acute in the motor segment, where severity inflation of around 14% was above what was assumed in the group’s pricing. This, as well as disruption to supply chains causing delays in third party claims, led to a combined operating ratio of 114.7% in the motor segment, up from 92.4% in 2021.
Acting chief executive Jon Greenwood said: “2022 was a tough year for Direct Line Group. Motor and Home market conditions were challenging, with high claims inflation and regulatory reforms creating substantial headwinds for the business, and we did not navigate these challenges as effectively as we would have wished. Exceptional weather and difficult investment markets also significantly impacted our results.
“Motor, in particular, was affected by high claims inflation, which remained ahead of our expectations throughout the year, as well as the impact of regulatory changes. We have taken pricing actions that will support restoration of margins in Motor and mitigate the impact of further claims inflation. We have also accelerated a range of other actions including deploying additional resources in Motor.”
Looking ahead, the company warned that 2023 earnings were expected to be hit by higher-than-assumed claims inflation on motor business written in 2022 and in early 2023, alongside continued macroeconomic uncertainty.
At 0915 GMT, the shares were down 6.6% at 156.60p.
