Last checked at 
(Alliance News) - Direct Line Insurance Group PLC on Monday cautioned on "heightened volatility across the UK motor insurance market" as it lowered its full-year outlook.
Shares were down 15% at 185.04 pence in London early Monday, extending losses registered last week in the wake of a similar warning from smaller peer Sabre Insurance Group PLC.
The Bromley, London-based insurer said it has seen "claims inflation in motor in the first half of 2022 spike above the levels assumed in our pricing."
As a result, it now expects a combined operating ratio for 2022 around 96% to 98%, having previously targeted a ratio between 93% and 95%.
A ratio below 100% indicates an insurer is making underwriting profit, so the lower the better. A ratio of 98% would be only barely profitable.
For the first half of 2022 alone, Direct Line expects a combined operating ratio of 96.5%, worsened from 84.2% a year prior, and gross written premiums of GBP1.52 billion, down from GBP1.56 billion.
Chief Executive Officer Penny James said the firm has already undertaken measures to increase prices and "restore margins". It expects its 2023 combined operating ratio to improve to around 95% and reiterated its medium-term target range of 93% to 95%.
Direct Line added: "The motor insurance market experienced significant levels of severity inflation in H1, primarily resulting from higher used car prices, and amplified by higher third-party claims costs, longer repair times and inflation in the cost of car parts. Market premium inflation has continued to lag the increases in claims inflation. Whilst the group has been pricing claims inflation over the last 12 months, experience has been in excess of the levels assumed. The group now estimates overall motor claims severity inflation for 2022 of around 10%.
"The group's other business units are performing largely in line with expectations, demonstrating the benefit of the group's diversified business model."
Direct Line said it continues to target significant cost reductions across the business. It aims to reduce operating expenses to between GBP690 million and GBP700 million in 2022. For the year after, the company is targeting operating expenses in the region of GBP670 million.
"Given the increase in amortisation and market levies over the period, this represents a GBP76 million (15%) reduction in controllable expenses from 2021 to 2023," it explained.
In addition, the company said it will not proceed with a second GBP50 million tranche of a GBP100 million buyback. It expects an unchanged interim payout of 7.6p.
By Xindi Wei; xindiwei@alliancenews.com
Copyright 2022 Alliance News Limited. All Rights Reserved.
