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Direct Line shares plummet after insurer scraps 2022 dividend

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The new boss at Direct Line is bringing forward his plans for turning around the business in an attempt to rebuff a £3.1bn takeover bid from Belgian insurers Ageas.
The new boss at Direct Line is bringing forward his plans for turning around the business in an attempt to rebuff a £3.1bn takeover bid from Belgian insurers Ageas.

Shares in Direct Line plummeted today after the insurer said it expects to scrap its 2022 dividend due to facing a “challenging and volatile operating environment in the fourth quarter”.

The insurance company said its board “no longer expects to declare a final dividend for 2022” due to it facing a series of challenges related to severe cold weather, soaring inflation, and sliding commercial property prices.

Direct Line’s shares plummeted on the news and remain down by more than 26 per cent since yesterday.

The Bromley-headquartered firm said a “prolonged period of sub-zero temperatures across the whole of the UK” in December led to a surge in claims, related to burst pipes and water tanks, Direct Line said in a trading update.

Claims linked to the “freeze event” are set to cost the insurer’s home and commercial division £90m, Direct Line said, as the firm said it expects weather events throughout 2022 to cost it around £140m – almost double its initial expectation of £73m.

Direct Line noted that a series of “subsidence related claims” over the summer also increased its weather-related costs. The past year’s dry summer caused a surge in subsidence events, in which buildings sink into the ground, due to a lack of moisture in the soil.  

Inflation also saw Direct Line forced to pay out six per cent more on motor claims, as higher prices caused the cost of fulfilling such claims to increase. Soaring inflation in the cost of car parts and second-hand vehicles has driven up insurers costs and seen premiums surge.

Direct Line noted there was also an uptick in motor claims in the fourth quarter of 2022 due to the adverse weather conditions.

Falling property prices also hit Direct Line’s balance sheet, in causing its property investment portfolio to lose 15 per cent of its value – equivalent to £45m.

The insurer said that while it has returned £1.5bn of capital to shareholders over the past five years, its board “no longer expects to pay a final dividend for the 2022 financial year.”