By Carolyn Cohn
LONDON (Reuters) -Shares in Direct Line lost more than a quarter of their value on Wednesday after the British motor and home insurer unexpectedly scrapped its 2022 final dividend, with stocks in rivals Admiral and Aviva also falling sharply.
Motor insurers performed strongly when the COVID-19 pandemic first hit in 2020, as restrictions meant fewer drivers on the road and fewer accidents.
But Direct Line said it expected an underwriting loss in 2022, after inflationary pressures and supply chain issues due to the pandemic and the war in Ukraine pushed up the cost of motor repairs.
Extreme hot and cold weather spells in Britain in the past year have also led to more claims due to issues such as subsidence and burst pipes.
“The Board recognises the importance of the dividend to our shareholders, and continues to take actions to restore balance sheet resilience and dividend capacity as a priority, consistent with our track record of delivering returns for shareholders,” CEO Penny James said in a statement.
Direct Line said it expected its 2022 combined operating ratio – a key indicator of underwriting performance in which a level above 100% indicates a loss – to be 102-103%.
It also expected higher motor claims inflation to add two to three percentage points to its 2023 combined operating ratio.
Direct Line in July cut its profitability outlook for the year and delayed the second leg of a share buyback.
“Things have gone from bad to worse,” analysts at Jefferies said in a note, though they reiterated their “hold” rating on the stock.
Direct Line shares were down 27% at 0813 GMT, languishing at the bottom of the FTSE mid-cap index and on course for their biggest one-day loss on record.
Admiral’s shares dropped 15%, taking it to the bottom of the FTSE 100, while Aviva, which offers life as well as home and motor insurance, was down 4.4%.
Direct Line said it expected total weather claims of around 140 million pounds ($170 million) for 2022, well above its original expectation of 73 million pounds.
Gross written premiums in motor insurance fell 2% in the fourth quarter versus the previous year, the insurer said.
It also said its property investment portfolio had seen a 15% drop in values, equivalent to 45 million pounds.
($1 = 0.8221 pounds)
(Reporting by Carolyn Cohn Editing by Sinead Cruise and Mark Potter)
