Direct Line axes dividend following freezing weather hit

It said this was likely to push up weather claims to about £140m for the whole of 2022, nearly double the £73m previously pencilled in.

Together with the rising cost of motor repairs due to inflation pressures, the group said it is now set to be pushed to an underwriting loss for the year.

Direct Line said, as a result, it would not pay a final dividend for 2022.

Direct Line chief executive Penny James said the firm suffered amid “volatile and challenging” trading conditions in the final three months of 2022.

“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.

“These claims, combined with further increases in motor inflation, have had a significant impact on our underwriting result for 2022.

“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.”

She added: “We have taken actions to respond swiftly to further inflation in motor claims and will continue to navigate market volatility as it arises.”

The group said it saw further increases in the cost of motor claims during the fourth quarter, as well as a rise in claims due to the extreme cold weather.

It is now expecting a combined operating ratio — which represents claims and expenses as a proportion of premiums — at around 102 per cent to 103 per cent for 2022. This represents an underwriting loss.

Direct Line cautioned it also expects claims inflation to worsen this ratio for 2023 by two or three percentage points.

Matt Britzman, Equity Analyst at Hargreaves Lansdown, said: “News that Direct Line won’t be issuing a final dividend this year has rattled markets.

"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 come under pressure though, the forward yield’s been trending above 10 per cent for most of the second half of 2022 and looked likely to be revised lower at some point.”