- Claims inflation running in high single digits
- Average Q1 motor renewals increase 19% year on year
- Unchanged capital buffer
Beleaguered insurer Direct Line (DLG) signaled continued headwinds on Tuesday as high single digit claims inflation is expected to impact 2023 earnings.
The shares dropped 6% to 154.8p following a strong rally in April which took the shares 27% higher from the March lows. In early January the company shocked investors after scrapping the final dividend to rebuild it balance sheet.
WHAT DID THE COMPANY SAY?
Acting CEO Jon Greenwood commented: ‘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.
‘Our ambition over time to generate a net insurance margin of above 10% remains.’
PRICE RISES
First quarter average motor renewal premiums to the end of March increased 19% compared with 2022 which led to a 2.5% reduction in active policies.
The commercial division saw continued strong growth with written premiums up 27.6% year on year. In home insurance the company said it saw ‘significant’ price increases across the market.
Overall, the group generated gross premiums of £805.7 million in the quarter, up 9.7% compared with 2022.
RISING REPAIRS BILL
The cost of damage repairs continues to run ahead of expectations in early 2023 while ‘modest’ weather related claims was said to be within the full year assumption of £80 million.
The company’s forward view of claims inflation across motor and home remains unchanged at high single digits although it highlighted a range of potential outcomes were possible depending on future economic conditions.
Analysts at Jefferies said: ‘While the intensity of the impact of adverse claims in motor on 2023 earnings is unclear, it is clear that elevated claims severity inflation has not gone away.’
The company said its solvency capital ratio was unchanged at the end of March after earlier gains in the bond portfolio were unwound later in the quarter.
LEARN MORE ABOUT DIRECT LINE GROUP
