UK motor and home insurance group Direct Line has announced that it has executed a strategic reinsurance arrangement, effective from January 1, 2023.
The agreements were entered into via the company’s principal underwriter, UK Insurance Limited.
Together, Direct Line says that the arrangement comprises a 3-year structured 10% quota share treaty.
This announcement comes after Direct Line confirmed earlier this month that it would cancel its final dividend for 2022, as total weather claims for the year were estimated at nearly twice its original expectations.
The company currently expects to pay claims worth around £90 million due to freezing temperatures in December that resulted in burst pipes and other related damage.
Combined with another freeze event from January 2022 and subsidence related claims over the summer, this means that Direct Line’s total weather claims for the year will be in the region of £140 million, which is well above its 2022 expectation of £73 million.
Added to this, recent legal rulings in the UK mean that claims inflation could rise faster than expected in motor lines, which is a key area of business for Direct Line.
It therefore makes sense that the group would be looking to put additional reinsurance protections in place to reduce any further volatility in the coming months and years.
Direct Line says its new contracts incept with effect from 1 January 2023 and are expected to increase its year-end 2022 solvency capital ratio by around 6 percentage points.
It also confirmed that Gallagher Re had served as its advisor while implementing these agreement.
