Direct Line to further increase premiums after earnings plummet due to ‘uniquely complex automotive market conditions’
- Direct Line’s pre-tax profit fell 31.8% year-on-year to £178.1m
- The company blamed ‘uniquely complex engine market conditions’ for the decline
- Premium rates rose 15% in first half and bosses expect further hikes
Direct Line’s profits plummeted in the first half of 2022 when the car and home insurer was hit hard by ‘uniquely complex market conditions for cars’.
Pre-tax profits fell 31.8 per cent on the same time last year to £178.1 million as the combined operating ratio, a measure of profitability, grew 12.3 percentage points to 96.5 per cent.
The company told investors today it would increase premiums in response to rising claims, with Direct Line already issuing a profit warning last month.
Direct Line warned last month that it expects a significant drop in its key profitability measure this year
Direct Line, owner of Churchill and Green Flag, plummeted last month when it revealed the extent to which it expects double-digit inflation to increase insurance claims and thereby boost profitability.
It forecasts the combined business ratio for the full year to be between 96 and 98 percent, down from previous estimates of 93 to 95 percent.
Direct Line said in its interim results on Tuesday that gross written premiums fell 2.1 percent year-on-year to £1.52 billion, mainly due to ‘challenging market conditions’ and new regulations.
To counter this, premiums rose by 15 percent in the first half.
According to a study by Willis Towers Watson and Confused.com, UK motor insurance premiums have risen 6 percent over the past 12 months.
Direct Line said: “The UK car market experienced significant levels of inflation in H1 2022. Market premium inflation lagged behind increases in claims inflation and we now estimate headline inflation in car claims for 2022 at around 10 per cent .
“As a result, our attrition loss ratio for the current year has increased to 86.4 percent. We have taken action to mitigate the short-term impact of this and have now returned to our target margins based on the most recent claims assumptions.”
However, Direct Line said other business segments performed “largely” in line with expectations.
Boss Penny James added: “Uniquely complex automotive market conditions during the first half, due to significant regulatory changes, increased claim inflation and macroeconomic uncertainty, have tested our near-term profitability.
However, the long-term fundamentals of the company remain strong.
“Through pricing actions, steps taken in our garage repair network and the deployment of improved pricing capabilities, we have now returned to writing our target margins based on the latest claim assumptions.
“We are announcing an interim dividend in line with 2021 and are confident in the sustainability of our regular dividends as we look ahead to the full year and beyond.”
She added that the company saw inflation of about 10 percent for the year, and “our rate increases…should reflect that.”
Direct connection shares rose 0.7 percent in early trading to 208.8 pence.