Direct Line falls to loss amid cold weather and car repair delays

Direct Line turned a loss last year after bad weather and higher auto repair costs drove up insurance claims costs.

The FTSE 250 company and owner of the Churchill and Green Flag brands reported a loss of £39.5 million for 2022 after making a profit of £343.7 million last year, mainly due to weaker car performance – and housing divisions.

Trading in the former division was hit by supply chain disruptions, in part due to the Russian invasion of Ukraine, leading to longer repair times and higher insurance claims costs.

It was further impacted by rising used vehicle prices and lower renewal premium rates following the implementation of the Financial Conduct Authority’s new Pricing Practices Review (PPR) regulations.

PPR also led to falling average premiums in the company’s home segment, although it was particularly impacted by severe weather claims totaling £149m, more than double expectations of £73m.

Direct Line noted that the majority of these claims were related to the sub-zero temperatures that hit much of the UK, particularly parts of Scotland and North West England, in December.

Fellow insurer Aviva revealed two months ago that it had to cough up £50 million from policyholders for frost-related damage, such as burst water tanks and pipes.

Two other weather-related events resulted in significant damage costs for Direct Line: storms in February, including Storm Eunice, one of the most powerful storms on record in England, and a series of heat waves last summer.

Interim chief executive Jon Greenwood acknowledged that 2022 was a “tough year” for the company, saying it had failed to “address the various challenges as effectively as we would have liked”.

Due to the declining solvency ratio — a measure of meeting long-term debt obligations — the company said investors would not receive a full-year dividend after initially warning two months ago that it would not.

It expects revenues for 2023 to be impacted by the continued economic unpredictability and significant claims inflation in the auto insurance segment incurred last year and in recent months.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said the auto division “will be key to driving the group’s financial performance going forward.”

Chiekrie added: “Pricing measures have already been taken to try and restore margins, but this is likely to put a dent in future volumes.”

“This is a challenging situation for a new, and as yet unnamed, CEO to come in and pick up. It will not be easy to reverse the fate of the group and the road to recovery of the dividend seems uncertain.’

Shares Direct Line Insurance Group were 4.6 percent lower Monday morning at 159.9 pence, meaning they’ve lost about 40 percent of their value over the past 12 months.