UK motor insurer Direct Line to hike premiums after profit hit

2/2 © Reuters. FILE PHOTO: New cars are parked at a dockyard in Grimsby, northern England, January 30, 2009. REUTERS/Nigel Roddis/File Photo 2/2

By Carolyn Cohn

LONDON (Reuters) -British motor insurer Direct Line is raising premiums after higher claims hit its first-half profits, as the company feels the effects of soaring prices for everything from used cars to spare parts.

Chief Executive Penny James said on Tuesday the company saw claims inflation at around 10% for the year, and "our rate increases ... need to reflect that".

Direct Line already lowered its profitability forecast last month, saying the motor insurance market saw "significant" levels of claims inflation in the first half.

James pointed in particular to supply chain problems following the COVID-19 pandemic and the Ukraine conflict, which have made it harder to find parts and added to repair times.

Premium rates rose by 15% in the first half, Direct Line said in a trading statement.

UK car insurance premiums have risen by 6% in the last 12 months, according to a survey from Willis Towers Watson (NASDAQ:WTW) and confused.com.

Direct Line was also hurt by economic uncertainty and by regulatory changes brought in this year that prevent insurers from charging a so-called "loyalty penalty" to longstanding customers, it said.

Pretax profit fell 32% to 178 million pounds ($218 million), though this was above 155 million pounds forecast in a company-supplied poll of analysts.

Adjusted gross written premium rose 2.1% to 1.52 billion pounds.

The insurer said it would pay an interim dividend of 7.6 pence per share, unchanged from a year ago, and James said the insurer was "confident in the sustainability of our regular dividends".

Direct Line's shares slipped 0.2% at 0723 GMT, but outperformed a 0.8% fall in the FTSE mid-cap index.

Smaller motor insurer Sabre has seen its share price nearly halve as profits were also hit by claims inflation.

($1 = 0.8173 pounds)