FTSE 250 movers: Financials under the cosh in wake of SVB crisis

(Sharecast News) - FTSE 250: 18,836.30, -2.69% at 1500 GMT. Financial and banking stock were under the cosh on the FTSE 250 after the collapse of Silicon Valley Bank.

Bank of Georgia Group was almost 10%, while Virgin Money fell 9%. Investment fund Petershill Partners fell 8%.

Insurer Direct Line said on Monday that it swung to a full-year loss as it took a hit from inflation, and warned that 2023 earnings will be impacted by higher-than-expected claims inflation in the motor business.

In the year to the end of December 2022, the company swung to a pre-tax loss of £45.1m from a profit of £446m the year before, while operating profits slumped 94.6% to £32.1m. Analysts had been expecting pre-tax profit of £43m and operating profit of £70m.

The company's combined operating ratio deteriorated to 105.8% from 89.5%, versus consensus expectations of 104.7%. A ratio above 100% indicates an underwriting loss. Meanwhile, the solvency capital ratio fell to 147% from 176%. Consensus expectations were for a ratio of 148%.

Adjusted gross written premiums fell 3.2% to £2.97bn.

Direct Line pointed to elevated motor claims inflation, higher-than-expected weather event claims, new regulatory changes and "challenging" investment markets.

It said claims inflation was most acute in the motor segment, where severity inflation of around 14% was above what was assumed in the group's pricing. This, as well as disruption to supply chains causing delays in third party claims, led to a combined operating ratio of 114.7% in the motor segment, up from 92.4% in 2021.

Acting chief executive Jon Greenwood said: "2022 was a tough year for Direct Line Group. Motor and Home market conditions were challenging, with high claims inflation and regulatory reforms creating substantial headwinds for the business, and we did not navigate these challenges as effectively as we would have wished. Exceptional weather and difficult investment markets also significantly impacted our results.

"Motor, in particular, was affected by high claims inflation, which remained ahead of our expectations throughout the year, as well as the impact of regulatory changes. We have taken pricing actions that will support restoration of margins in Motor and mitigate the impact of further claims inflation. We have also accelerated a range of other actions including deploying additional resources in Motor."

Looking ahead, the company warned that 2023 earnings were expected to be hit by higher-than-assumed claims inflation on motor business written in 2022 and in early 2023, alongside continued macroeconomic uncertainty.

At 1350 GMT, the shares were down 6.6% at 156.51p.

Russ Mould, investment director at AJ Bell, said: "The financial results for the year are as ugly as can be, with all the key metrics worse than a year earlier. Profits have been wiped out and the company said the value of claims from weather events were more than twice as big as forecast, illustrating the severity of the situation.

"The plan now is to push up motor insurance prices in a similar way to what others including Admiral are doing, as well as improve its solvency position.

"Shareholders will have to wait until the half-year results in August to see when the dividend might be restored.

"Despite clearly laying out its problems and what needs to be done, the market is still doubtful that Direct Line will bounce back quickly, given how the shares have taken another tumble on the results."

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: "The motor division continues to struggle and improvement in this area will be key to driving the group's financial performance going forward. Pricing action has already been taken to try and restore margins, but this will likely put a dent in future volumes. And in the meantime, higher than expected claim inflation on business written during 2022 will continue to affect motor earnings during 2023.

"This is a challenging situation for a new, and as yet unappointed, CEO to come in and pick up. Turning the group's fortunes around will not be easy, and the road to restoring the dividend looks to be an uncertain one."

FTSE 250 - Risers

Centamin (DI) (CEY) 108.20p 6.18% Bakkavor Group (BAKK) 107.00p 2.88% Vietnam Enterprise Investments (DI) (VEIL) 568.00p 1.97% Personal Assets Trust (PNL) 472.00p 1.07% Primary Health Properties (PHP) 101.80p 0.79% QinetiQ Group (QQ.) 331.00p 0.73% Pennon Group (PNN) 865.50p 0.64% Ruffer Investment Company Ltd Red PTG Pref Shares (RICA) 305.50p 0.49% PureTech Health (PRTC) 209.50p 0.48% BH Macro Ltd. GBP Shares (BHMG) 458.00p 0.44%

FTSE 250 - Fallers

Bank of Georgia Group (BGEO) 2,450.00p -9.59% Virgin Money UK (VMUK) 149.65p -9.03% Petershill Partners (PHLL) 152.60p -8.18% IWG (IWG) 169.20p -8.14% Carnival (CCL) 691.00p -7.17% Intermediate Capital Group (ICP) 1,215.50p -6.97% Pagegroup (PAGE) 440.60p -6.89% Ashmore Group (ASHM) 233.40p -6.86% Direct Line Insurance Group (DLG) 156.40p -6.71% TI Fluid Systems (TIFS) 108.60p -6.70%