Motor insurers slide as Direct Line warns on profit

By Huw Jones and Carolyn Cohn

LONDON – British motor insurer shares slid on Monday as Direct Line minimize its profitability outlook for the 12 months and delayed the second leg of a share buyback, blaming claims inflation and heightened market volatility.

Motor insurers carried out properly through the earlier a part of the COVID-19 pandemic, as lockdowns led to fewer vehicles on the roads, and fewer claims.

However excessive inflation this 12 months has pushed a pointy improve in the price of motor repairs.

Direct Line stated the motor insurance coverage market noticed “important” ranges of claims inflation within the first half, primarily as a consequence of greater used automotive costs, longer restore instances and inflation in the price of spare components.

“Consequently, we're revising our mixed working ratio goal vary for 2022 to 96-98%,” CEO Penny James stated in a press release.

In Could, the corporate stated its goal was 93% to 95% for this 12 months. A ratio nearer to 100% signifies diminished profitability.

“We've got already taken actions together with growing costs and deploying new pricing functionality to revive margins, which imply we anticipate our 2023 mixed working ratio will enhance to round 95% and we reiterate our medium-term goal vary of 93-95%,” James stated.

Direct Line shares fell greater than 14% to eight-year lows, the worst performer within the FTSE mid-cap index. Shares in rival Admiral dropped 8% to four-year lows and had been trailing on the backside of the FTSE 100.

Sabre Insurance coverage Group final week misplaced greater than a 3rd of its market cap, with the motor insurer’s shares hitting a file low after it issued a revenue warning and flagged dividend cuts as a consequence of greater declare prices.

Its shares had been hovering at file lows on Monday.

Direct Line stated it was “assured” within the sustainability of its common dividends, however the board has determined to not launch the second 50 million pound ($59.72 million) tranche of a 100 million pound share buyback programme introduced earlier within the 12 months.

“Following Sabre’s revenue warning, it's clear that claims inflation is accelerating at a tempo that UK motor insurers can't sustain with. Even with costs rising, we anticipate margins to deteriorate considerably,” dealer Jefferies stated in a be aware to shoppers on Monday.

($1 = 0.8372 kilos)