Direct Line has suspended its dividend after a combination of severe cold in December and rising inflation pushed up the cost of claims last quarter.
As a result of these factors and a reduction in the value of its commercial property holdings, the motor insurer said it no longer expected to declare a final dividend for 2022.
“The board recognises the importance of the dividend to our shareholders, and continues to take actions to restore balance sheet resilience and dividend capacity as a priority, consistent with our record of delivering returns for shareholders,” said chief executive Penny James.
Direct Line said 3,000 customers experienced burst pipes and water tanks as well as other damage from the sub-zero temperatures in December, creating an expected £90mn in claims across the home and commercial business.
Combined with subsidence claims from last year’s heatwave, weather-related claims are expected to reach around £140mn, well above its £73mn estimate for 2022.
The company had issued a profit warning in July due to the rising cost of claims and has seen third-party claims inflation move higher, compounded by customers suffering more crashes on the December ice.
It is now expecting a combined operating ratio — claims and expenses as a proportion of premiums — at around 102 per cent to 103 per cent for 2022, representing an underwriting loss.
Claims inflation is expected to worsen this ratio for 2023 by two or three percentage points.