Direct Line issues profit warning as inflation pushes up claims costs

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Direct Line has become the second UK motor insurer to warn on profits in the space of a week, saying that inflation in the prices of used cars and car parts was pushing up the cost of claims.

The company said on Monday that claims costs were rising by 10 per cent, higher than it had expected and higher than the rate of increase in premiums.

As a result the company’s combined operating ratio — a measure of claims and costs as a proportion of premiums — will be between 96 and 98 per cent. That is worse than the 93-95 per cent it had expected, and the 90.1 per cent it delivered last year.

Chief executive Penny James said: “We have already taken actions including increasing prices and deploying new pricing capability to restore margins, which mean we expect our 2023 combined operating ratio will improve to around 95 per cent and we reiterate our medium-term target range of 93-95 per cent.”

Direct Line also said that it would cancel the second half of its £100mn share buyback plan but added that it was “confident in the sustainability of its regular dividends”.

Last week, rival Sabre warned on profits because of rising claims inflation, pushing shares across the sector down.

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