UK primary insurer Direct Line has said it no longer expects to declare a final dividend for 2022, as total weather claims for the year are estimated at nearly twice its original expectations.
The company says it currently expects to pay claims worth around £90 million due to freezing temperatures in December that resulted in burst pipes and other related damage.
Combined with another freeze event from January 2022 and subsidence related claims over the summer, this means that Direct Line’s total weather claims for the year will be in the region of £140 million, which is well above its 2022 expectation of £73 million.
In other areas, Direct Line reported that motor trading in the fourth quarter improved against a hardening market backdrop with policies broadly flat across the quarter and gross written premium 2% lower compared with the prior year.
Claims inflation, however, remains a feature of the market, and the fourth quarter also saw an increase in claims frequency, in part relating to the adverse weather conditions.
Additionally, the investment property market has seen a reduction in valuations despite a relatively calm Q4 for the bond markets, following extremes at the end of Q3
As a result, Direct Lines investment property portfolio has experienced a 15% reduction in values, equivalent to £45 million.
Together, these factors mean that the company expects operating expenses to reduce year on year to around £700 million in 2022, with a group combined operating ratio normalised for weather of around 102% to 103%.
“We have seen a volatile and challenging operating environment in the fourth quarter,” said Direct Line CEO Penny James. “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,” she explained. “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.”
“Despite the impact of these external factors, we continue to make good progress, including enhancing our technological capabilities, introducing new products and improving our efficiency. We have taken actions to respond swiftly to further inflation in motor claims and will continue to navigate market volatility as it arises.”