Direct Line Insurance Group PLC (LSE:DLG) saw its shares slump 28% after axing its dividend in response to increased weather-related claims and continued inflation in its motor division.
"We have seen a volatile and challenging operating environment in the fourth quarter,” Penny James, chief executive officer, said.
As a result, the FTSE 250-listed insurer said it expects its 2022 combined operating ratio to be around 102% to 103%, with a level above 100% indicating a loss.
The group said a prolonged spell of severe cold weather in December had led to a “significant increase in claims” which combined with further increases in motor inflation have had a significant impact on the underwriting result for 2022.
The cold weather is expected to result in claims of around £90mln, taking the annual total of weather claims to around £140mln, well above the company's expectation of £73mln.
The motor loss ratio is forecast to have increased in 2022 by around six percentage points, reflecting rising third-party claims inflation and an increase in claims frequency.
The insurer also noted it has also seen reductions of around 15% in the valuations of the commercial property holdings in its investment portfolio in line with movements in the broader property market.
In axing the dividend, Direct Line acknowledged the importance of a pay-out to shareholders and said actions to restore balance sheet resilience and dividend capacity were “a priority”.