Direct Line Insurance Group PLC (LON:DLG) said motor claims dropped around 70% during April due to fewer people driving during the coronavirus lockdown but the severity of the claims is expected to be higher.
Gross written premiums increased 4.7% to £789.6mln in the first quarter, with the FTSE 250 group saying it expects a gross £44mln impact on its travel insurance business from the impact of Covid-19 disruption, with a net impact of roughly £25mln.
A further £70mln has been set aside for measures “to provide peace of mind to our stakeholders”, including supporting customers in financial difficulty, pausing all redundancies until at least the autumn and providing all NHS workers with free breakdown services.
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By the start of May, the estimated solvency capital ratio had increased from 174% at the end of March to around 177%, which is near the top of the group’s 140-180% risk appetite range.
But, subject to uncertainties arising from the pandemic, chief executive Penny James reiterated the target of achieving a combined operating ratio in the range of 93-95% normalised for weather in 2020, as well as other long-term targets.
“We've traded well during Q1 and continue to make progress on our strategic transformation,” said James, pointing to the launch of its Darwin brand on Confused.com, the launch of cover for tradespeople and roll-out of a new rescue claims system.
Having cancelled its share buyback in March and the 2019 final dividend in early April, James said the board will review the dividend position alongside half-year results and then on an ongoing basis once it is possible to have a better understanding of the impact of Covid-19.
Shares in Direct Line rose 4% to 283.7p on Wednesday morning.
Analysts at Shore Capital said they estimate a net 50% reduction in motor claims would save Direct Line circa £45mln a month, hence a three-month shut down would be a £135mln saving, “more than offsetting the £25m higher travel claims and £70m additional costs”.