Aviva PLC (LSE:AV.) and Admiral Group Plc (LSE:ADM) were among the insurers knocked by the shock warning by Direct Line Group PLC today.
The FTSE 250-listed insurer earlier announced it was axing its dividend in response to increased claims following a spell of cold weather in December and continued inflation in its motor division.
Weather-related claims of around £90mln are expected following the cold snap, meaning annual weather-related losses of £140mln at Direct Line will be nearly double the group’s forecast.
In reaction, shares in Direct Line crashed in early exchanges, leaving it on track for its biggest one-day share price drop in its history, shedding more than a quarter of its market valuation.
It also sparked falls in other insurers. Admiral slumped 10%, Aviva fell 3.3%, Legal & General Group PLC (LSE:LGEN) dipped 1.8% and Future PLC (LSE:FUTR) slipped 2.4%.
Matt Britzman, equity analyst at Hargreaves Lansdown, said the news has rattled markets although he suggested it was not the biggest surprise to see the dividend come under pressure.
“The forward yield’s been trending above 10% for most of the second half of 2022 and looked likely to be revised lower at some point,” he pointed out.
Peel Hunt said the cut was more than anticipated, it had estimated a final pay-out of 9.2p, with the key now how soon it can reinstate the dividend again.
This “will largely depend on a recovery of the UK motor market with the weather losses and commercial property impacts largely a one-off”, the broker commented.