British motor insurer Direct Line Group has responded to accelerated claims inflation during the second quarter with a 15% hike on premiums, interim results show.
Pre-tax profit declines of nearly 33% were blamed on a sharp rise in higher-severity motor claims costs combined with soaring prices for spare parts and wider supply-chain issues.
Chief executive officer Penny James said that Direct Line saw claims inflation at around 10% for the year, and "our rate increases... need to reflect that".
The insurer’s flagging results hardly came as a surprise to industry onlookers; Sabre Insurance issued its own profit warning in July, while shares across the sector have been tumbling for weeks.
Investors will be keen to see if premium hikes prove to be the silver bullet needed to combat rising claims inflation.
In the meantime, DLG shares — which are currently changing hands at 207p — continue to trend downwards by 27% year to date, although an income yield of 1.7% is expected for 2022.
From the brokers
Andreas van Embden from equities analysts Peel Hunt noted that underwriting losses in the motor segment were offset by strong performance in the home and commercial segments.
van Embden said: “The outlook is unchanged and it will be two years before DLG’s margins return to within the target range. It will be taking action to bolster its solvency position and is confident it can sustain its regular dividend.”
Equities analysts at Jefferies noted: “(Direct Line) guided that it will incur realised losses of £20-25mln in the second half, due to reducing longer duration credit exposure, thus more than offsetting first-half gains.”