Direct Line Group (not covered) profit warned yesterday on claims inflation, bad weather and falling real estate valuations. This note explores the read-across to our coverage. Direct Line (not covered) profit warned (again) and cancelled the FY22 final dividend On 11th January, Direct Line Group issued a trading statement downgrading combined ratio guidance for FY22 (to 102%-103% from c.98%) and FY23 (an increase of 2%-3%). This implies, we think, a c.18% reduction to Visible Alpha consensus 2023e net profit. Management attributed this to claims inflation, specifically third-party claims costs, as well as the cold weather in December. This combined with a reduction in real estate valuations places the Solvency ratio towards the bottom of their 140%-180% target range. Read-across 1: Is this a market pricing / inflation issue, or a company-specific challenge? UK motor pricing has been behind claims inflation for most of 2022, and we are seeing the pain as this earns-through and margins deteriorate. The open question from here is the extent to which the latest downgrade to guidance is a result of company specifics or wider market effects. We expect investors may start asking whether this will prompt consolidation in the sector. Read-across 2: Real estate is under pressure, but UK Life insurers start with strong Solvency DLG highlighted the impact of a 15% fall in UK commercial real estate prices. We see implications for the wider UK insurance sector, with Aviva (-) publishing the highest Solvency sensitivity. But given the strength of UK Life Solvency positions at present, we think they have significant capacity to absorb this. We make minor adjustments to estimates, but no valuation changes.