Direct Line delays second £50m instalment of buyback programme after shares plummet by 13%

Direct Line declared the biggest faller on the FTSE 250 after warning that the soaring prices of used cars, parts and longer repair times have pushed up the cost of claims.

Related topics:  insurance,  claims
Tabitha Lambie | Editorial assistant, Barcadia Media
18th July 2022
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"We have already taken actions including increasing prices and deploying new pricing capability to restore margins."
- Penny James, Direct Line chief executive

The insurance company has said that the motor insurance market experienced “significant levels of severity inflation” which is primarily due to higher used car prices which were amplified by “higher third-party claim costs, longer repair times, and inflation in the cost of car parts.”

Direct Line claim that market premium inflation has continued to lag the increases in claims inflation, resulting in their combined operating ratio – which measures costs as a proportion of premiums – will be between 96% and 98%.

In May, Direct Line said that it expected it to be between 93% and 95% this year, and last year it was 90.1%.%. The closer the ratio is to 100% the less profitable the company will be.

Penny James, Direct Line chief executive has said:

“Today’s trading update follows a period of heightened volatility across the UK motor insurance market, in which we have seen claims inflation in motor in the first half of 2022 spike above the levels assumed in our pricing.”

In light of the current market environment, Direct Line has said that it will not launch the second £50m tranche of a £100m share buyback programme announced earlier in the year.

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