The Direct Line Insurance Group PLC (LON: DLG) share price plunged 30.3% after releasing a trading update for the fourth quarter of 2022. Investors reacted negatively to the company scrapping its full-year dividend due to increased claims and motor vehicle inflation.
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Direct Line is a stable dividend payer, and the decision to scrap its annual dividend for 2022 caught many by surprise, hence, the sudden selloff in its share price. The company also noted that the value of its properties had fallen by about 15%, in line with broader industry trends.
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The company attributed the higher claims payouts to the prolonged period of sub-zero temperatures in the UK that led many of its customers to experience burst water tanks and pipes, along with other weather-related damages.
The insurance group also highlighted the increase in the frequency of motor vehicle claims due to bad weather conditions. The firm noted that the inflation in its own managed motor vehicle claims combined with third-party claims and the higher frequency would increase its motor loss ratio in 2022 by about 6%.
Direct Line noted that its bond portfolio was largely stable during the fourth quarter following the disruptions witnessed during the third quarter, resulting in stable returns. However, the value of its commercial property portfolio had significantly declined despite generating stable returns.
Penny James, Direct Line’s CEO, said: “We have seen a volatile and challenging operating environment in the fourth quarter. We have seen a significant increase in claims as a result of the prolonged period of severe cold weather in December, and I am proud of the way that we have supported our customers during this period. These claims, combined with further increases in motor inflation, have had a significant impact on our underwriting results for 2022. We have also seen reductions in the valuations of the commercial property holdings in our investment portfolio in line with movements in the broader property market.”
While the company did not declare a final dividend for 2022, it reassured investors that it was working hard to restore its balance sheet's resilience and dividend capacity.
*This is not investment advice.
The Direct Line share price.
The Direct line share price plunged 30.33% to trade at 161.80p, from Tuesday’s closing price of 232.25p.
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