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(Alliance News) - Direct Line Insurance Group PLC on Tuesday warned claims in its motor division will hurt annual profit, though it added it is moving towards getting margins up to speed in the unit.
Direct Line shares fell 5.5% to 155.40 pence each in London on Tuesday morning, among the worst FTSE 250 performers.
The insurance company said adjusted gross written premiums in the first quarter of 2023 amounted to GBP805.7 million, up 9.7% on-year from GBP734.3 million.
Motor premiums rose 3.3% to GBP358.7 million, while in its Home offering, premiums increased 2.1% to GBP129.0 million. Commercial premiums were up 28% to GBP219.3 million.
"During the quarter we continued to take pricing action in motor to improve our margins and made good progress towards target margins across the Motor portfolio. As a result, average renewal premiums in Q1 increased by 19% compared to Q1 2022, reflecting premium rate increases during 2022 and in Q1 2023," Direct Line said.
"In Commercial, the strong premium growth seen in 2022 continued in Q1 2023."
However, Direct Line warned it suffered "further adverse claims development in respect of late 2022 and early 2023" in its Motor arm. This was particularly related to damage.
"This is expected to put pressure on earnings in 2023 including from prior-year reserve releases," Direct Line cautioned.
It added that it incurred "modest" weather event-related claims, in line with its full-year forecast of GBP80 million.
"Our forward view of claims inflation remains unchanged at high single digits across Motor and Home, albeit there continues to be a range of potential outcomes depending on future economic conditions," it said.
Acting Chief Executive Jon Greenwood said: "Trading has been positive over the first quarter with premium growth across motor, home and commercial and this trend has continued into April. Our focus continues to be on restoring the capital strength of the group and improving motor margins, where we have made good progress. Whilst 2023 earnings outlook continues to be challenging, the group has many strengths, and we continue to take the actions required to drive business performance."
Greenwood was named as acting CEO in January after Penny James stepped down. Earlier that month, Direct Line shares dropped by a quarter in one day after saying it would not pay a final dividend due to a big increase in weather related claims, pushing the insurer into a loss on underwriting.
By Eric Cunha, Alliance News news editor
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