-Full year 2022 profit wiped out
-Company plans to rebuild capital buffer and margins
-New dividend outlook will be shared at half year results
A perfect storm comprised of elevated motor claims inflation, higher than expected weather related claims and challenging investment markets resulted in a 95% drop in full year 2022 operating profit at insurer Direct Line Group (DLG).
After plunging 25% in January when the company first alerted investors to the challenging backdrop and said it would pass on its final dividend, the shares sank a further 6% on Monday to 157.8p reaching a new 10-year low.
WHAT DID THE COMPANY SAY?
CEO Jon Greenwood commented: ‘Since the year end, we have taken action to begin to rebuild the resilience of our balance sheet, and we have further self-help options available, as well as organic capital generation to enhance our solvency ratio during 2023.
‘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.’
Over the year the group’s solvency ratio which measures capital strength against minimum regulatory capital, fell 13% to 147%, but actions taken to improve the ratio in February as well as positive credit movements in the bond portfolio has resulted in a 5% improvement post year end.
The company said it will update shareholders on its dividend outlook at the first half results but warned ‘ 2023 earnings are expected to be impacted by higher than assumed claims inflation on Motor business written during 2022 and in early 2023, alongside continued macroeconomic uncertainty.’
'RESULTS AS UGLY AS CAN BE'
Investment director at AJ Bell Russ Mould commented: ‘After one of its worst years in living memory, Direct Line was forced into the pits a few months ago and is now hoping to get back on the road, albeit likely stuck in the slow lane for a while.
‘The company realised its capital ratios were on the danger of slipping outside its comfort zone, so half of a share buyback programme and the final dividend for 2022 both went in the bin.
‘The financial results for the year are as ugly as can be, with all the key metrics worse than a year earlier. Profits have been wiped out and the company said the value of claims from weather events were more than twice as big as forecast, illustrating the severity of the situation.
‘The plan now is to push up motor insurance prices in a similar way to what others including Admiral are doing, as well as improve its solvency position.’
Disclaimer: Financial services company referenced in the article AJ Bell owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (Tom Sieber) own shares in AJ Bell.
