Shares in Domestic & General fell by 9% this morning after the company warned that its pre-tax profits for the 12 months to the end of June would be up to 10% lower than the previous year.
The company's claims ratio has deteriorated by about 5% over the 11 months to May, which follows a period of rising costs.
Plunging stock market values will also knock a hole in the company's profits, it said.
About 12% of the company's investments were held in equities, which at the beginning of the year were worth £15m. Their value is expected to have fallen sharply.
The decline in profit comes despite an increase in turnover in its important warranty business, which the company said would be up by 35% on a like-for-like basis.
Managers believed the company's claims ratio had stopped rising and its call centre business Inkfish was growing well.
The results are due out on Thursday 22 August.
The shares were trading at 650p at lunchtime, down from an opening price of 700p.
