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Direct Line Insurance Group plc Preliminary results for year ended 31 December 2016

07.03.17

Preliminary results for the year ended 31 December 2016

Financial highlights

  • Gross written premium for Ongoing operations1,2 up 3.9% to £3,274.1m (2015: £3,152.4m), driven by growth in Motor and Home own-brand in-force policies (up 4.3%)
  • 2016 results reflect the one-off impact of using the new Ogden discount rate of minus 0.75%. Operating profit from Ongoing operations of £403.5m (pre-Ogden discount rate reduction3: £578.6m; 2015: £520.7m) and profit before tax of £353.0m (pre-Ogden3: £570.3m; 2015: £507.5m). Return on tangible equity1, 2 of 14.2%, (pre-Ogden3: 20.2%; 2015: 18.5%)
  • Combined operating ratio1 from Ongoing operations of 97.7% (pre-Ogden3: 91.8%; 2015: 94.0%) increased as a result of the reduction in the Ogden discount rate, partially offset by improved current-year underwriting performance and favourable weather claims. Adjusted for normal weather and before the Ogden discount rate change, the combined operating ratio was 93.5%, towards the lower end of the target range of 93% to 95%
  • 5.4% increase in final dividend per share to 9.7 pence per share, (2015: 9.2 pence). Total dividends per share for 2016, including special interim dividend of 10.0 pence per share paid in September 2016 following the approval of the Group’s partial internal model, of 24.6 pence per share (2015: 50.1 pence)
  • The Group’s estimated Solvency II capital coverage ratio4 post dividend is 165%, above the middle of the Group’s risk appetite range of 140% – 180% (pre-dividend: 174%)

Strategic and operational highlights

  • Direct Line Motor and Home new business growth at the highest annual level since IPO, demonstrating the success of the investment in brand, proposition and customer service
  • Total costs for Ongoing operations of £923.7m broadly flat year on year before non-cash impairment charge of £39.3m, after absorbing £24.1m Flood Re levy and supporting growth in Motor and Home own brands
  • Extended Home and Private Insurance partnership with RBS for a further three years, and implemented faster and easier sales journeys using cloud-based technology making connectivity and future change easier
  • Invested in innovation, including partnership with PSA Peugeot Citroën for telematics extended for 4 more years, introducer role developed with Tesla, and MOVE_UK project brought into data collection stage
  • Received approval from the Prudential Regulation Authority to use the Group’s Solvency II partial internal model

Paul Geddes, CEO of Direct Line Group, commented

“2016 was a successful year for Direct Line Group and I’m proud of the strong own brand growth achieved in a switching market, proving our competitiveness in all our key categories and channels. This positions us well in a market disrupted by the reduction in the discount rate, and allows us to target a 93-95% combined operating ratio in 2017. We will continue to target improved efficiency and invest in customer and technology trends affecting our markets.”

For further information, please contact:

Andy Broadfield Jennifer Thomas
Director of Investor Relations Head of Financial Communications
Tel: +44 (0)1651 831022 Tel: +44 (0)1651 831686

Notes:

  1. See glossary on page 42 for definitions.
  2. See appendix A – Alternative performance measures on page 43 for reconciliation to financial statement line items.
  3. See appendix B – Proforma results on page 46 which presents the Group’s results excluding the recent impact of the Ogden discount rate reduction.
  4. Estimates based on the Group’s Solvency II partial internal model for 31 December 2016 and 30 June 2016.

Forward-looking statements disclaimer

Certain information contained in this document, including any information as to the Group’s strategy, plans or future financial or operating performance, constitutes “forward-looking statements”. These forward-looking statements may be identified by the use of forward-looking terminology, including the terms “aims”, “anticipates”, “aspire”, “believes”, “continue”, “could”, “estimates”, “expects”, “guidance”, “intends”, “may”, “mission”, “outlook”, “plans”, “predicts”, “projects”, “seeks”, “should”, “strategy”, “targets” or “will” or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include statements regarding the intentions, beliefs or current expectations of the Directors concerning, among other things: the Group’s results of operations, financial condition, prospects, growth, strategies and the industry in which the Group operates. Examples of forward-looking statements include financial targets which are contained in this document specifically with respect to return on tangible equity, risk-based capital coverage ratio, the Group’s combined operating ratio, prior-year reserve releases, cost reduction, investment income yield, net realised and unrealised gains, results from the run-off segment, restructuring and other one-off costs, and risk appetite range. By their nature, all forward-looking statements involve risk and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future or are beyond the Group’s control.

Forward-looking statements are not guarantees of future performance. The Group’s actual results of operations, financial condition and the development of the business sector in which the Group operates may differ materially from those suggested by the forward-looking statements contained in this document, for example directly or indirectly as a result of, but not limited to, UK domestic and global economic business conditions, the result of the referendum on the UK’s withdrawal from the European Union, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities (including changes related to capital and solvency requirements or the Ogden discount rate), the impact of competition, currency changes, inflation and deflation, the timing impact and other uncertainties of future acquisitions, disposals, joint ventures or combinations within relevant industries, as well as the impact of tax and other legislation and other regulation in the jurisdictions in which the Group and its affiliates operate. In addition, even if the Group’s actual results of operations, financial condition and the development of the business sector in which the Group operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods.

The forward-looking statements contained in this document reflect knowledge and information available as of the date of preparation of this document. The Group and the Directors expressly disclaim any obligations or undertaking to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by applicable law or regulation. Nothing in this document should be construed as a profit forecast.

Inside Information

Prior to publication, this document contained inside information for the purposes of Article 7 of the European Union Regulation 596/2014.

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