Commercial grows at Direct Line as group falls to £45m loss

This was driven by a 6.5% rise in in-force policies to 928,000 and increasing average premiums ahead of inflation, the insurer said.

For the ‘NIG and other’ category, which strips out the direct brands, GWP was up 13.9% at £530.4m as policies ticked up 3% to 277,000.

The insurer estimated that claims inflation for the year was 7%.

Weather

The weather-related losses for the commercial unit totalled £30.2m.

The combined operating ratio improved from 96.2% in 2021 to 94.2%, however operating profit dropped year-on-year by £2.1m to £58.3m.

Direct Line listed this was due to higher weather costs, lower reserve releases and a reduced investment return.

Profit warning

The results followed on from DLG’s shock profit warning in January which knocked 25% off the share price as the company warned of £90m in claims across the home and commercial business from the freezing weather in December.

CEO Penny James left the post a little over a fortnight later with former NIG boss Jon Greenwood stepping up from chief commercial officer on an interim basis.

DLG updated that the December cold snap bill came in at £95m.

The business noted that the sub-zero temperatures hit Scotland North West England in particular.

Adding: “With relatively large shares of home and commercial insurance in Scotland, we experienced a significant number of large claims.”

Claims

Overall claims from weather-related events of £149m for the full year was the highest total since DLG listed on the stock market in 2012.

For the full group including motor, the loss before tax of £45.1m reversed a £446m profit in 2021.

In-force policies dropped 3.2% to 9.69m as the COR soared to 105.8% from 89.5% previously.

Motor

The breakdown of the figures showed a motor COR of 114.7%, far above the 92.4% in 2021.

The severity of claims inflation in motor of 14% had been ahead of pricing expectations, the group acknowledged.

There were 3.84m policies in motor, down 3.4%.

GWP was down even more, 8.2%, at £1.43bn.

Home

In home, 2.5m policies, a drop of 6.2%, generated £518.1m of GWP – down 10.3% –as the Financial Conduct Authority’s ban on dual pricing kicked in.

DLG also flagged the impact of weather-related costs and claims inflation, estimated to be 7.5% for the year, as the COR broke through the 100% barrier to reach 106.9% (2021: 80.1%).

The board cut plans to pay a final dividend. At the time of writing the share price was down nearly 6% on the day at 158.05p.

Tough year

Greenwood, acting CEO of DLG, commented: “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.”

Concluding: “Whilst our 2022 performance was disappointing, the fundamentals of our business remain strong and we are now fully focused on rebuilding our margins, further improving our capital strength and generating attractive sustainable returns for shareholders.”

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