Direct Line shares were down 27% on Wednesday after the insurance group scrapped their dividend due to higher than expected claims due to bad weather.
Total claims are now expected to be £140m, significant higher than the previously estimated £73m. Claims associated with the cold weather are expected to be around £90m.
Having paid out £1.5bn of capital over the last 5 years in dividends to investors, the sharp jump in claims meant Direct Line are being forced to scrap their final dividend for 2022.
Direct Line also said they were writing down the value of their property portfolio by £45m due to a softer property market.
“News that Direct Line won’t be issuing a final dividend this year has rattles markets, with shares down around 27% in early trading. December’s cold spell has caused a significant increase in bad weather claims, with the estimated cost somewhere in the region of £90m,” said Matt Britzman, Equity Analyst at Hargreaves Lansdown.
“To make matters worse, motor claims ticked higher as well as third party claims inflation. All in, the fourth quarter presented some serious challenges, and the end result is a weaker capital position with the dividend on the chopping block. It’s not too surprising to see the dividend some under pressure though, the forward yield’s been trending above 10% for most of the second half of 2022 and looked likely to be revised lower at some point.”