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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Direct Line Insurance Group Plc | LSE:DLG | London | Ordinary Share | GB00BY9D0Y18 | ORD 10 10/11P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -3.00 | -1.56% | 189.50 | 189.70 | 190.00 | 192.40 | 187.20 | 190.60 | 7,468,758 | 16:35:01 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Fire, Marine, Casualty Ins | 2.86B | 222.9M | 0.1700 | 11.18 | 2.49B |
From Apr 2019 to Apr 2024
TIDMDLG
RNS Number : 6649M
Direct Line Insurance Group PLC
01 August 2017
Half Year Report 2017
1 August 2017
Strong H1 results, rebasing dividend and refreshing targets
Paul Geddes, CEO of Direct Line Group, commented
"The Group delivered another strong first half performance, as we continued to focus on giving customers what they want. In particular, we are pleased with the continued momentum in our Direct Line brand, which shows that customers value the great service and unique insurance propositions we are offering in both Personal Lines and Commercial Lines. "Today the Board is rebasing the Group's regular dividend upwards to reflect its confidence in the Group's earnings and the progress the business has made since the IPO nearly 5 years ago when the Group's dividend policy was previously set. We aim to grow the regular dividend in line with business growth, which we expect to be in the region of 2% to 3% per annum over the medium term. "The investments we have made and continue to make in our business have delivered value for our customers and shareholders. As a result, we reiterate our 93% to 95% combined operating ratio target for 2017 and also extend this ambition over the medium term."
Results summary
Hot Features
Premium
H1 H1 Change
2017 2016
GBPm GBPm
------------------------------------------ -------- -------- ---------
Gross written premium 1,694.2 1,613.1 +5.0%
Operating profit - Ongoing operations 354.2 323.6 +9.5%
Commission ratio(1) 8.9% 10.9% (2.0pts)
Expense ratio(1) 24.6% 25.3% (0.7pts)
Combined operating ratio(1) 88.9% 89.6% (0.7pts)
Return on tangible equity annualised(2) 26.1% 23.1% +3.0pts
Dividend per share - regular interim
(pence)(3) 6.8p 4.9p +38.8%
-------- --------
30 Jun 31 Dec
2017 2016 Change
-------- -------- ---------
Solvency II capital coverage ratio
post-dividend 173% 165% +8pts
------------------------------------------ -------- -------- ---------
Highlights and outlook
-- Motor continued to grow gross written premiums,
up 10% with Direct Line driving the growth
-- Commercial launched the first of its flexible
and bespoke business insurance policies, a part
of our digital transformation, leveraging our
strong Direct Line brand and our goal of making
insurance much easier and better value for our
customers
-- The Board is rebasing the regular dividend up
38.8%, increasing the interim dividend to 6.8p(3)
. In addition, the Group expects to operate around
the middle of its Solvency II capital coverage
ratio range of 140% to180%, in the normal course
of business
-- Reiterate the current financial targets for 2017:
combined operating ratio in the range of 93% to
95% and investment income yield at 2.4%
-- In addition, management targets maintaining a
93% to 95% combined operating ratio over the medium
term, reflecting its ambition to maintain strong
annual financial performance
For further information, please contact:
Andy Broadfield Jennifer Thomas
Director of Investor Head of Financial Communications
Relations
Tel: +44 (0)1651 831022 Tel: +44 (0)1651 831686
Notes:
1. A reduction in the ratio represents an improvement
as a proportion of net earned premium, while
an increase in the ratio represents a deterioration.
See glossary for definition.
2. See glossary for definitions and appendix A
- Alternative performance measures for reconciliation
to financial statements line items.
3. The Group's dividend policy states its expectation
that one-third of the annual dividend will
generally be paid in the third quarter as
an interim dividend and two-thirds will be
paid as a final dividend in the second quarter
of the following year.
15B15BForward-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", "ambition", "anticipates", "aspire",
"believes", "continue", "could", "estimates", "expects",
"guidance", "intends", "may", "mission", "outlook",
"over the medium term", "plans", "predicts", "projects",
"propositions", "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 the return on tangible equity, Solvency
II 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 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
and the negotiations relating to the UK's withdrawal
from the European Union, the result of the UK general
election, 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.
16B16BInside information
Prior to publication, this document contained inside
information for the purposes of Article 7 of European
Union Regulation 596/2014.
Financial summary
-------------------------------------------- -------- -------- ---------
H1 H1 Change
2017 2016
GBPm GBPm
-------------------------------------------- -------- -------- ---------
Ongoing operations:
In-force policies (thousands) 15,811 15,736 0.5%
Gross written premium 1,694.2 1,613.1 5.0%
Net earned premium 1,547.5 1,479.9 4.6%
Underwriting profit 172.0 154.2 11.5%
Investment return 92.6 91.0 1.8%
Instalment and other operating
income 89.6 78.4 14.3%
-------------------------------------------- -------- -------- ---------
Operating profit - Ongoing operations 354.2 323.6 9.5%
Run-off 10.0 23.6 (57.6%)
Restructuring costs (4.5) (30.3) 85.1%
-------------------------------------------- -------- -------- ---------
Operating profit 359.7 316.9 13.5%
Finance costs (18.3) (18.4) 0.5%
Profit before tax 341.4 298.5 14.4%
Tax (65.9) (62.6) (5.3%)
Profit after tax 275.5 235.9 16.8%
Of which Ongoing operations 271.2 244.2 11.1%
-------------------------------------------- -------- -------- ---------
Key metrics - Ongoing operations
Current-year attritional loss
ratio(1) 68.8% 68.5% 0.3pts
Loss ratio(1) 55.4% 53.4% 2.0pts
Commission ratio(1) 8.9% 10.9% (2.0pts)
Expense ratio(1) 24.6% 25.3% (0.7pts)
Combined operating ratio(1) 88.9% 89.6% (0.7pts)
Adjusted diluted earnings per
share(2) (pence) 19.7 17.6 11.9%
Return on tangible equity annualised(2) 26.1% 23.1% 3.0pts
-------------------------------------------- -------- -------- ---------
Key metrics
Investment income yield annualised(2) 2.5% 2.5% -
Investment return annualised(2) 2.8% 2.8% -
Basic earnings per share (pence) 20.2 17.2 17.4%
Return on equity annualised 21.3% 17.8% 3.5pts
Dividend
per share - regular interim (pence) 6.8 4.9 38.8%
- special interim (pence) - 10.0 -
- total (pence) 6.8 14.9 (54.4%)
30 Jun 31 Dec
2017 2016 Change
======== ======== =========
Solvency II capital coverage ratio 173% 165% 8pts
Net asset value per share (pence) 194.4 184.7 5.3%
Tangible net asset value per share
(pence) 156.5 147.4 6.2%
============================================ ======== ======== =========
Notes:
1. A reduction in the ratio represents an improvement
as a proportion of net earned premium, while
an increase in the ratio represents deterioration
2. See glossary for definition and appendix A -
Alternative performance measures for reconciliation
to the financial statement line items
Business update
0B0BOverview
Direct Line Group (the "Group") delivered a strong
performance in the first half of 2017, grew gross
written premium 5.0%, reduced expense and commission
ratios compared to the first half of 2016 and achieved
a return on tangible equity of 26.1%. Solvency II
capital coverage ratio remained strong at 173% as
at 30 June 2017 after taking into account the interim
regular dividend of 6.8 pence per share (H1 2016:
4.9 pence per share).
Throughout its transformation, the Group has remained
focussed on developing its future capabilities, with
investments in the Group's digital offering, customer
experience and operational efficiency. H1 2017 saw
one of these investments reach a significant milestone
with the launch in April of Commercial's first trade
segment, Hair and Beauty, on its new digital platform.
The benefits of the Group's long-term investment
approach were clear in H1 2017, with continued momentum
in the Direct Line brand as it grew policy count
and gross written premium again across Motor, Home
and Commercial. Since 2013, the Group's own brands
in-force policies have grown on average between 2%
to 3% p.a.
17B17BMotor
The Group continued to benefit from its strong competitive
position in Motor, growing gross written premium
9.9% and in-force policies 4.9% in the first half
of 2017, principally driven by the strength of the
Direct Line brand. In the first half of the year,
the Direct Line proposition was further enhanced
with the addition of onward travel by taxi if the
customer's car is not driveable. The growth was achieved
while also improving the current-year loss ratio
from 84.6% in H1 2016 to 81.7% in H1 2017.
Bodily injury claims continued to trend more favourably
than expected. In addition, detailed case reviews
conducted in Q2 of the additional costs arising from
the lowering of the Ogden discount rate indicated
a lower than expected increase to claims costs. This
has resulted in a reserve release of GBP49m, leading
to a total prior-year reserve release of GBP174.6m
in the first half of 2017 (H1 2016 GBP134.0m). The
Group continued to reserve prudently and assumes
a minus 0.75% Ogden discount rate.
18B18BCommercial
Direct Line for Business ("DL4B") launched its first
product on its new digital platform, initially for
Hair and Beauty professionals, with more professions
planned to follow. This key strategic step aligns
a new customer-centric digital approach with leveraging
the Group's strong, proposition led, Direct Line
brand. The Group sees the under-served and growing
small and micro business segment as an important
medium term prospect.
At the same time, DL4B's current portfolio of predominantly
landlord, tradesman and van products continued to
grow well, with gross written premium up 13.4% compared
to the first half of 2016. DL4B also enhanced its
proposition in the first half of 2017 with its rent
guarantee cover offer for landlord insurance, and
won What Mortgage? 'Best Landlord Insurance Provider'
for the fifth year running.
In addition to the direct channel, NIG and other
continues to support commercial insurance brokers
by using technology to improve trading efficiency
through more on-line products, improved eTrade quotability
and a fully paperless offering for all products.
19B19BHome
Home's results were robust, helped by low weather
losses, partially offsetting higher than expected
claims inflation from the escape of water ("EoW")
peril. The first half of 2016 benefitted from an
unusually high reserve release resulting from 2015
weather events (14.8pts). These weather releases
were not repeated in H1 2017. The impact of EoW on
the 2017 loss ratio (on both prior and current year)
was partially offset through lower profit share commission
due to partners. The commission ratio also reduced
due to changes to partner arrangements and business
mix.
The Home business has taken a number of significant
actions across pricing, underwriting and claims management
to mitigate EoW inflation. These actions are intended
to help return profitability to more normal levels
in 2018. While these actions saw reduced new business
sales in the first half, Home was still able to maintain
its year on year retention levels. In own brands,
this supported in-force policy growth of 1.5% and
gross written premium growth of 0.8%. Partnership
premiums declined 7.9% as in-force policies fell
7.6%.
20B20BRescue
Rescue had a strong half, benefitting from lower
than normal claims frequency while growing gross
written premium 2.1%. Green Flag, the Group's direct
rescue brand, continued its growth momentum, growing
in-force policies 8.0% and gross written premium
10.8%. New management has been appointed to the Rescue
division and Green Flag has launched a new advertising
campaign to highlight its challenger status.
1B1BDividends and capital management
The Board has resolved to pay a regular interim dividend
of 6.8 pence per share, an increase on H1 2016 of
1.9 pence per share, 38.8%, reflecting the Group's
confidence in its earnings and the progress the business
has made since the Group's initial public offering
("IPO") nearly 5 years ago. After deducting this
regular interim dividend, the Group's estimated Solvency
II capital coverage ratio as at 30 June 2017 was
173%.
The Board previously set its dividend policy at the
time of the IPO in 2012 and has now updated the policy
as set out in the Dividend policy section. The Board
continues to expect that one-third of the annual
dividend will generally be paid in the third quarter
as an interim dividend and two-thirds will be paid
in the second quarter of the following year. The
Board aims to grow the regular dividend in line with
business growth.
Under normal circumstances, the Group expects to
operate around the middle of its Solvency II capital
coverage ratio risk appetite range of 140% to 180%
of the Group's solvency capital requirement, and
it will take this into account when considering the
potential for any special distributions.
The revised dividend policy reiterates that in the
normal course of events the Board will consider whether
or not it is appropriate to pay a special dividend
once a year, alongside the full-year results.
2B2BOutlook
For 2017, the Group targets a combined operating
ratio of 93% to 95%, reductions in its expense and
commission ratios, a 2.4% investment income yield
and a RoTE of at least 15%.
Beyond 2017, the Group targets having a 93% to 95%
combined operating ratio over the medium term supported
by reductions in its expense and commission ratios
and reiterates its ongoing target of achieving at
least a 15% return on tangible equity ("RoTE").
Finance review
Performance
Operating profit - Ongoing operations
H1 H1
2017 2016
GBPm GBPm
--------------------------------------- ------ ------
Underwriting profit 172.0 154.2
Investment return 92.6 91.0
Instalment and other operating income 89.6 78.4
Total 354.2 323.6
--------------------------------------- ------ ------
Underwriting profit increased to GBP172.0m, an increase
of 11.5% compared to H1 2016. This included the
benefit of improved current year loss ratios in
Motor, Rescue and other personal lines and Commercial
as well as lower expense and commission ratios compared
to H1 2016. In Home, weather costs were lower than
expected, and in line with H1 2016; however higher
than expected claims inflation from EoW led to higher
claims costs. Prior-year reserve releases were GBP19.7m
lower at GBP216.4m (H1 2016: GBP236.1m) and excluding
these releases, current-year operating profits were
significantly higher at GBP137.8m (H1 2016: GBP87.5m).
Investment return improved to GBP92.6m (H1 2016:
GBP91.0m) primarily due to a GBP1.9m increase in
net realised and unrealised gains.
Operating profit from Ongoing operations increased
by 9.5% to GBP354.2m (H1 2016: GBP323.6m) mainly
due to an improvement in the underwriting result
and higher instalment and other operating income.
In-force policies and gross written premium
In-force policies - Ongoing operations (thousands)
30 Jun 31 Mar 31 Dec 30 Sep 30 Jun
At 2017 2017 2016 2016 2016
--------------------------- ------- ------- ------- ------- -------
Own brands 3,761 3,691 3,642 3,607 3,541
Partnerships 205 220 231 233 238
=========================== ======= ======= ======= ======= =======
Motor total 3,966 3,911 3,873 3,840 3,779
Own brands 1,770 1,764 1,759 1,751 1,743
Partnerships 1,534 1,593 1,619 1,638 1,660
Home total 3,304 3,357 3,378 3,389 3,403
Of which Nationwide
and Sainsbury's 688 706 719 723 724
Rescue 3,663 3,676 3,646 3,621 3,670
Other personal lines 4,178 4,188 4,234 4,219 4,224
=========================== ======= ======= ======= ======= =======
Rescue and other personal
lines 7,841 7,864 7,880 7,840 7,894
Of which own brands 2,007 1,936 1,886 1,847 1,850
Direct Line for Business 452 441 433 428 424
NIG and other 248 245 242 239 236
--------------------------- ------- ------- ------- ------- -------
Commercial 700 686 675 667 660
--------------------------- ------- ------- ------- ------- -------
Total 15,811 15,818 15,806 15,736 15,736
--------------------------- ------- ------- ------- ------- -------
Gross written premium - Ongoing operations
Q2 Q2 H1 H1
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
====================================== ====== ====== ======== ========
Own brands 412.7 362.9 781.2 694.3
Partnerships 19.0 26.7 43.2 56.0
====================================== ====== ====== ======== ========
Motor total 431.7 389.6 824.4 750.3
Own brands 97.6 96.3 193.2 191.6
Partnerships 95.7 104.1 194.9 211.6
Home total 193.3 200.4 388.1 403.2
Of which Nationwide and Sainsbury's 46.2 50.1 97.6 105.0
Rescue 42.9 42.5 83.6 81.9
Other personal lines 66.2 58.4 129.7 115.8
====================================== ====== ====== ======== ========
Rescue and other personal
lines 109.1 100.9 213.3 197.7
Of which own brands 54.3 48.1 106.8 98.8
Direct Line for Business 31.5 27.1 60.1 53.0
NIG and other 118.3 117.3 208.3 208.9
====================================== ====== ====== ======== ========
Commercial 149.8 144.4 268.4 261.9
====================================== ====== ====== ======== ========
Total 883.9 835.3 1,694.2 1,613.1
====================================== ====== ====== ======== ========
Total in-force policies for Ongoing operations during
the first half of 2017 remained stable at 15.8 million
(31 December 2016 15.8 million). This was due primarily
to continued in-force policy growth in Motor and
Home's own brands, Green Flag direct and Commercial
offset by lower partner volumes in Home and Rescue
and other personal lines.
Gross written premium of GBP1,694.2m increased 5.0%
compared with first half of 2016, reflecting continued
growth as above.
21B21BMotor 22B22BIn-force policies increased 4.9%,
adding 187,000 policies, compared with the first
half of 2016. Motor's own brands grew by 6.2% over
the same period underpinned by higher levels of
new business growth combined with strong customer
retention. Investment in brand differentiation through
a succession of new Direct Line propositions and
competitive pricing continued to drive the improved
performance. Motor gross written premium increased
by 9.9% in comparison to the first half of 2016
which also reflects the Group's pricing response
to ongoing claims inflation including the response
to the Ogden discount rate change. 23B23BMotor average
written premium(1) increased by 6.6% in H1 2017,
and risk-adjusted prices increased 11.1%. The Group
overall sought to price for changes to the Ogden
discount rate (gross of reinsurance) and general
claims inflation, partially offset by underlying
improvements in bodily injury cost trends. Claims
inflation remained around the top of the Group's
long-term expectations, although bodily injury costs
for prior years continued to improve over initial
expectations. 24B24BHome 25B25BIn-force policies
for Home's own brands increased by 1.5% compared
with the first half of 2016, while partnership volumes
reduced by 7.6% due to the cessation of new business
in Sainsbury's and a slow-down in other partnership
arrangements. The Group's partnership with Nationwide
is now expected to continue to the end of 2017.
Gross written premium was 3.7% lower than the first
half of 2016, due to partners which were 7.9% lower,
while own brands experienced a small increase of
0.8%. Home own brands' average written premium(2)
decreased by 0.9% compared with the first half of
2016 driven by lower risk mix partially offset by
low single-digit price increases in a highly competitive
market. Claims inflation continued to rise in the
quarter ahead of price increases. In addition to
price increases, the Group is also taking action
in underwriting and claims management to mitigate
higher claims inflation. Retention in Home own brands
continued to be strong.
Notes:
1. Average incepted written premiums excluding
IPT for total Motor for year to date 30 June
2017.
2. Average incepted written premiums excluding
IPT for Home own brands for year to date
30 June 2017.
Rescue and other personal lines Rescue and other
personal lines experienced a small reduction in
in-force policies of 0.7% in the first half of 2017
compared with the first half of 2016, primarily
resulting from lower partner volumes. Gross written
premium for Rescue and other personal lines increased
by 7.9% compared with the first half of 2016, mainly
due to price increases in Travel and strong growth
in Green Flag. Commercial Commercial in-force policies
were 6.1% higher than for the first half of 2016,
reflecting growth in both Direct Line for Business
and NIG and other. The increase in gross written
premium of 2.5%, compared to the first half of 2016,
reflected continuing strong growth in Direct Line
for Business, with NIG and other premiums slightly
lower primarily due to product mix.
Underwriting profit - Ongoing operations
H1 H1
2017 2016
---------------------------- ------ ------
Underwriting profit (GBPm) 172.0 154.2
Loss ratio 55.4% 53.4%
Commission ratio 8.9% 10.9%
Expense ratio 24.6% 25.3%
---------------------------- ------ ------
Combined operating ratio 88.9% 89.6%
---------------------------- ------ ------
The combined operating ratio for Ongoing operations
of 88.9% (H1 2016: 89.6%) improved by 0.7 percentage
points primarily due to improvements in the commission
and expense ratios offset by a higher loss ratio.
The increase in the loss ratio to 55.4% (H1 2016:
53.4%) reflected lower prior-year reserve releases,
and an increase in Home's current-year loss ratio
partially offset by an improvement in Motor's current-year
loss ratio. The Group's expense ratio of 24.6% improved
by 0.7pts as the Group kept its cost base stable
and grew its earned premium. The reduction in the commission ratio of 2.0 percentage points primarily reflected lower profit share payments to Home partners, as a result of lower prior-year reserve releases, a higher attritional loss ratio, changes to partnership arrangements and business mix. The Group achieved a combined operating ratio for Ongoing operations, normalised for weather of approximately 91% (H1 2016: approximately 91%). The Group maintains its target to achieve a combined operating ratio of 93%-95% for 2017, assuming normal weather for the year. Beyond 2017, the Group targets maintaining a 93%-95% combined operating ratio over the medium term, assuming a normal annual level of weather claims.
Loss ratio analysis by division - Ongoing operations
Rescue
and
other
personal Total
Motor Home lines Commercial Ongoing
Notes(1) GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- -------- -------- ---------- ----------- ---------
H1 2017
Net insurance claims 4 403.5 190.7 135.7 127.1 857.0
Prior-year reserve
release/(strengthening) 19 174.6 16.8 (2.1) 27.1 216.4
Major weather events n/a (9.0) n/a n/a (9.0)
========================== ========= ======== ======== ========== =========== =========
Attritional net
insurance claims 578.1 198.5 133.6 154.2 1,064.4
Net earned premium 4 707.8 397.0 209.0 233.7 1,547.5
Loss ratio current-year
attritional 81.7% 50.0% 63.9% 66.0% 68.8%
Loss ratio - prior-year
reserve releases (24.7%) (4.3%) 1.0% (11.6%) (14.0%)
Loss ratio - major
weather events n/a 2.3% n/a n/a 0.6%
Loss ratio - reported 4 57.0% 48.0% 64.9% 54.4% 55.4%
Commission ratio 4 2.6% 17.0% 5.0% 17.9% 8.9%
Expense ratio 4 25.5% 23.8% 23.9% 23.8% 24.6%
Combined operating
ratio 4 85.1% 88.8% 93.8% 96.1% 88.9%
========================== ========= ======== ======== ========== =========== =========
H1 2016
Net insurance claims 4 416.1 137.7 121.4 115.1 790.3
Prior-year reserve
releases 19 134.0 60.6 7.5 34.0 236.1
Major weather events n/a (13.0) n/a n/a (13.0)
Attritional net
insurance claims 550.1 185.3 128.9 149.1 1,013.4
Net earned premium 4 650.3 411.7 194.8 223.1 1,479.9
Loss ratio current-year
attritional 84.6% 45.0% 66.2% 66.8% 68.5%
Loss ratio - prior-year
reserve releases (20.6%) (14.8%) (3.9%) (15.2%) (16.0%)
Loss ratio - major
weather events n/a 3.2% n/a n/a 0.9%
Loss ratio - reported 4 64.0% 33.4% 62.3% 51.6% 53.4%
Commission ratio 4 2.6% 22.2% 4.9% 19.4% 10.9%
Expense ratio 4 25.7% 25.3% 25.5% 24.0% 25.3%
Combined operating
ratio 4 92.3% 80.9% 92.7% 95.0% 89.6%
========================== ========= ======== ======== ========== =========== =========
The movement in the current-year attritional loss
ratio is a key indicator of underlying accident year
performance as it excludes prior-year reserve movements
and claims costs from major weather events in the
Home division. The Group's current-year attritional
loss ratio of 68.8% was broadly stable compared to
the same period in 2016 with improvements in Motor,
Rescue and other personal lines and Commercial, partially
offset by a deterioration in Home as a result of
rising claims inflation due to EoW.
Prior-year reserve releases from Ongoing operations
continued to be significant at GBP216.4m (H1 2016:
GBP236.1m) and were equivalent to 14.0% of net earned
premium (H1 2016: 16.0% of net earned premium). Reserve
releases were high in H1 2017 as bodily injury claims
continued to trend more favourably than expected.
Additionally, detailed case reviews in Q2 2017, for
the additional costs arising from the lowering of
the Ogden discount rate, indicated a GBP49m reduction
in the impact of the rate change. Prior-year reserve
releases are expected to reduce in future years,
although they are expected to remain a significant
contribution to profits.
Note:
1. See notes to the condensed consolidated financial
statements.
Motor The combined operating ratio for the Motor
division was 85.1% (H1 2016: 92.3%), an improvement
of 7.2 percentage points due to higher prior-year
reserve releases, including reserve releases from
the detailed case reviews, and the current-year
improvement in the loss ratio. The current-year
attritional loss ratio improved by 2.9 percentage
points, to 81.7% due to a favourable trading environment
and the recognition of benefits from our claims
handling processes and initiatives. The Group expects
to continue to re-invest in our customer propositions.
Both the expense and commission ratios were stable
compared to the first half of 2016. Home
In Home, the combined operating ratio increased
by 7.9 percentage points to 88.8% (H1 2016: 80.9%)
with a higher loss ratio, in part offset by improving
expense and commission ratios. The loss ratio was
higher as a result of lower prior-year reserve releases
compared with H1 2016, which benefitted from approximately
7 percentage points of one-off weather-related releases,
and the impact of higher than expected claims inflation
from EoW claims. The current-year attritional loss
ratio, excluding major weather event claims, increased
by 5.0 percentage points, also reflecting higher
EoW claims inflation experience. The weather in
H1 2017 was benign with GBP9.0m of claims costs
from major weather events (H1 2016: GBP13.0m).
The commission ratio of 17.0% was 5.2 percentage
points lower than the first half of 2016 reflective
of lower profit commission payments to partners
resulting from the impact of elevated claims experience
and changes to partner arrangements.
Rescue and other personal lines
The combined operating ratio for Rescue and other
personal lines increased by 1.1 percentage points
to 93.8% (H1 2016: 92.7%) due principally to an
increase in the loss ratio with lower prior-year
reserve releases on Travel, partly offset by a 2.3
percentage points improvement in the current-year
attritional loss ratio. The expense ratio improved
primarily due to lower marketing expenditure on
Rescue, while the commission ratio remained stable.
Commercial
The combined operating ratio for Commercial increased
by 1.1 percentage points to 96.1% (H1 2016: 95.0%)
primarily due to an increase in the loss ratio as
a result of a 3.6 percentage points lower contribution
from prior-year reserve releases. The current-year
attritional loss ratio improved by 0.8 percentage
points to 66.0% (H1 2016: 66.8%). The higher loss
ratio was partly offset by lower expense and commission
ratios. Normalising for claims from weather and
large claims, the combined operating ratio was approximately
99% (H1 2016: approximately 98%).
Total costs - Ongoing operations
H1 H1
2017 2016
Notes GBPm GBPm
-------------------------------- ------ ------ ------
Staff costs 202.2 209.1
Other operating expenses 165.0 144.9
Marketing 59.0 62.6
Amortisation and impairment of
other intangible assets 26.7 30.0
Depreciation 14.1 15.0
-------------------------------- ------ ------ ------
Total costs 467.0 461.6
================================ ====== ====== ======
Operating expenses 4 380.4 374.6
Claims handling expenses 8 86.6 87.0
================================ ====== ====== ======
Total costs 467.0 461.6
-------------------------------- ------ ------ ------
Total costs for Ongoing operations increased by GBP5.4m
to GBP467.0m. Other operating expenses increased
due to higher IT costs, offshoring fees and levies.
The Group continues to invest in its significant
IT programme and operational efficiency improvements
while supporting business growth and investment in
future capability.
Instalment and other operating income - Ongoing operations
H1 H1
2017 2016
GBPm GBPm
------------------------------------------- ------ ------
Instalment income 55.8 51.4
Other operating income:
Vehicle replacement referral income 8.3 6.8
Revenue from vehicle recovery and repair
services(1) 9.8 9.4
Other income 15.7 10.8
=========================================== ====== ======
Total other operating income 33.8 27.0
------------------------------------------- ------ ------
Total 89.6 78.4
------------------------------------------- ------ ------
Instalment and other operating income from Ongoing
operations increased by GBP11.2m, with increased
instalment payments of GBP4.4m due to higher Motor
gross written premium.
Investment return - Ongoing operations
H1 H1
2017 2016
GBPm GBPm
----------------------------- ---- ---- ------ ------
Investment income 82.4 82.7
Net realised and unrealised
gains 10.2 8.3
----------------------------------------- ------ ------
Total investment return 92.6 91.0
========================================= ====== ======
Investment income remained broadly stable compared
to H1 2016, despite a reduction of 25 basis points
by the Bank of England in the UK base rate in August
2016 and lower assets under management.
Net realised and unrealised gains were higher at
GBP10.2m (H1 2016: GBP8.3m) primarily due to higher
unrealised property gains.
Investment yields
H1 H1
2017 2016
------------------------- ------ ------
Investment income yield 2.5% 2.5%
Investment return yield 2.8% 2.8%
------------------------- ------ ------
The investment income yield for H1 2017 was 2.5%,
which is slightly above the full year expectation
of 2.4%.
Investment holdings - total Group
30 Jun 31 Dec
2017 2016
At GBPm GBPm
------------------------------ -------- --------
Investment-grade credit(2) 3,923.6 3,888.3
High yield 392.3 409.9
Investment-grade private
placements 88.3 85.1
-------------------------------- -------- --------
Credit 4,404.2 4,383.3
Sovereign 363.0 341.2
-------------------------------- -------- --------
Total debt securities 4,767.2 4,724.5
Infrastructure debt 328.0 337.0
Commercial real estate loans 90.9 79.7
Cash(3) 1,047.2 1,110.8
Investment property 314.9 329.0
-------------------------------- -------- --------
Total Group 6,548.2 6,581.0
-------------------------------- -------- --------
Notes:
1. Vehicle recovery includes post-accident and
pay-on-use recovery. Repair services constitute
the provision of non-insurance related services.
2. Asset allocation at 30 June 2017 includes investment
portfolio derivatives, which have been netted
and have a mark-to-market asset of GBP30.6m
included in investment-grade credit (31 December
2016: mark-to-market liability of GBP5.8m included
in investment grade credit). This excludes derivatives
that have been used to hedge interest on subordinated
debt and operational cash flows.
3. Net of bank overdrafts, includes cash at bank
and in hand and money market funds with no notice
period for withdrawal.
At 30 June 2017, total investment holdings of GBP6,548.2m
were 0.5% lower than at the start of the year. Total
debt securities were GBP4,767.2m (31 December 2016:
GBP4,724.5m), of which 6.1% were rated as 'AAA'
and a further 63.1% were rated as 'AA' or 'A'. The
average duration at 30 June 2017 of total debt securities
was 2.3 years (31 December 2016: 2.3 years).
At 30 June 2017, total unrealised gains, net of
tax, on available-for-sale investments were GBP86.5m
(31 December 2016: GBP92.1m).
Operating profit - Ongoing operations
H1 H1
2017 2016
GBPm GBPm
--------------------------------- ------ ------
Motor 233.9 168.8
Home 67.5 101.5
Rescue and other personal lines 22.6 23.4
Commercial 30.2 29.9
--------------------------------- ------ ------
Total 354.2 323.6
================================= ====== ======
All divisions were profitable in H1 2017 with a significant
increase in Motor offset by reduced operating profits
in Home and Rescue and other personal lines.
Reconciliation of operating profit
H1 H1
2017 2016
GBPm GBPm
--------------------------------------- ------- -------
Operating profit - Ongoing operations 354.2 323.6
Run-off 10.0 23.6
Restructuring costs (4.5) (30.3)
--------------------------------------- ------- -------
Operating profit 359.7 316.9
Finance costs (18.3) (18.4)
Profit before tax 341.4 298.5
Tax (65.9) (62.6)
Profit after tax 275.5 235.9
--------------------------------------- ------- -------
Run-off
The Run-off segment generated a profit of GBP10.0m
in H1 2017 compared with GBP23.6m in H1 2016. The
reduction in the result followed lower prior-year
reserve releases from large bodily injury claims.
It is expected that the Run-off segment will continue
to contribute positively to operating profit in future
years, albeit at a lower level.
Restructuring costs
Restructuring costs for H1 2017 of GBP4.5m (H1 2016:
GBP30.3m) were significantly lower than in H1 2016.
Over the four year period 2015 to 2018, the Group
expects cumulative restructuring costs to be broadly
offset by operating profit from the Run-off segment.
Finance costs
Finance costs remained stable at GBP18.3m (H1 2016:
GBP18.4m).
Taxation
The effective tax rate in H1 2017 was 19.3% (H1 2016:
21.0%), which was higher than the standard UK corporation
tax rate of 19.25% (H1 2016: 20.0%) driven primarily
by disallowable expenses offset by a prior year tax
credit.
Profit for the period and return on tangible equity
Profit for the period of GBP275.5m (H1 2016: GBP235.9m)
reflected an increase on H1 2016 predominantly due
to an improvement in the underwriting result, an
increase in instalment and other operating income
and a reduction in restructuring costs.
Return on tangible equity increased to 26.1% (H1
2016: 23.1%) due to an annualised profit after tax
from Ongoing operations of GBP542.4m (H1 2016: GBP488.4m)
and a reduction in the average shareholders' tangible
equity.
Earnings per share
Basic earnings per share increased by 17.4% to 20.2
pence (H1 2016: 17.2 pence).
Adjusted diluted earnings per share increased by
11.9% to 19.7 pence reflecting an increase in profit
after tax from Ongoing operations and a reduction
in the weighted average number of Ordinary Shares.
Dividends
The Board has resolved to pay an interim dividend
for the Company for 2017 of GBP93.5m in aggregate,
representing 6.8 pence per share, an increase of
38.8% on the regular interim dividend for 2016 of
4.9 pence.
The regular interim dividend will be paid on 8 September
2017 to shareholders on the register on 11 August
2017. The ex-dividend date will be 10 August 2017.
Net assets and tangible net assets
30 Jun 31 Dec
2017 2016
At GBPm GBPm
--------------------------------------- -------- --------
Net assets 2,654.5 2,521.5
Goodwill and other intangible assets (517.4) (508.9)
======================================= ======== ========
Tangible net assets 2,137.1 2,012.6
Net assets per share (pence) 194.4 184.7
Tangible net assets per share (pence) 156.5 147.4
======================================= ======== ========
The net assets at 30 June 2017 increased to GBP2,654.5m
(31 December 2016: GBP2,521.5m) and tangible net
assets increased to GBP2,137.1m (31 December 2016:
GBP2,012.6m). These increases mainly reflect the
profit in H1 2017 partially offset by the payment
of the 2016 final dividend.
3B3BFinancial management
Capital management
Dividend policy The Group aims to manage its capital
efficiently and generate long-term sustainable value
for shareholders, while balancing operational, regulatory,
rating agency and policyholder requirements. The
Group aims to grow its regular dividend in line with
business growth. Where the Board believes that the
Group has capital which is expected to be surplus
to the Group's requirements for a prolonged period,
it would intend to return any surplus to shareholders.
In normal circumstances, the Board expects that a
capital coverage ratio around the middle of its risk
appetite range of 140% to 180% of the Group's solvency
capital requirement ("SCR") would be appropriate
and it will therefore take this into account when
considering the potential for special distributions.
In the normal course of events the Board will consider
whether or not it is appropriate to distribute any
surplus capital to shareholders once a year, alongside
the full year results. The Group expects that one-third
of the annual dividend will generally be paid in
the third quarter as an interim dividend, and two-thirds
will be paid as a final dividend in the second quarter
of the following year. The Board may revise the dividend
policy from time to time. The Company may consider
a special dividend and/or a repurchase of its own
shares to distribute surplus capital to shareholders.
Solvency II
The Group is regulated, under Solvency II requirements,
by the Prudential Regulation Authority ("PRA") on
both a Group basis and, for the Group's principal
underwriter, U K Insurance Limited ("UKI"), on a
solo basis.
UKI calculates its capital requirement using its
PRA approved internal model, which forms part of
a Group-wide partial internal model.
The Board has considered the risk appetite range
of the Group under its Solvency II partial internal
model and considers that the appropriate range, which
should enable it to meet its operational, regulatory
and rating agency requirements, is 140% to 180% of
its solvency capital requirement. Under normal circumstances,
the group expects to operate around the middle of
the risk appetite range.
Sensitivity analysis
The following table shows estimated sensitivities
based on assessed impact of scenarios at 30 June
2017
Impact
on
solvency
Scenario ratio
--------------------------------------------- ---------
Motor premium rate reduction of 10% (17pts)
Motor bodily injury deterioration equivalent
to accident years 2008 and 2009 (8pts)
Increase in periodic payment order propensity
by 10pts (5pts)
One-off catastrophe loss equivalent to 1990
storm (9pts)
One-off catastrophe loss equivalent based
on extensive flooding of the Thames (9pts)
Change in the reserving basis for PPOs to
use a real discount rate of minus 1% instead
of 0% (10pts)
100bps increase in credit spreads (11pts)
100bps increase in interest rates (10pts)
============================================= =========
Capital position
At 30 June 2017, the Group held a capital surplus
of approximately GBP1.04bn after foreseeable dividends
and above its estimated Solvency II regulatory capital
requirements on the Group's partial internal model
basis. This was equivalent to an estimated capital
coverage ratio of 173%.
30 Jun 31 Dec
2017 2016(1)
At GBPbn GBPbn
--------------------------------------------------- ------ --------
Solvency capital requirement 1.42 1.40
Capital surplus above solvency capital requirement 1.04 0.91
Capital coverage ratio post-dividend 173% 165%
=================================================== ====== ========
The following table splits the Group's own funds by tier on a Solvency II basis.
30 Jun 31 Dec
2017 2016(1)
At GBPbn GBPbn
-------------------------------------------- ------ --------
Tier 1 capital before foreseeable dividends 1.97 1.87
Foreseeable dividends (0.09) (0.13)
-------------------------------------------- ------ --------
Tier 1 capital 1.88 1.74
Tier 2 capital 0.53 0.54
Tier 3 capital 0.05 0.03
-------------------------------------------- ------ --------
Own funds 2.46 2.31
============================================ ====== ========
Tier 1 capital after foreseeable dividends represents
76% of own funds and 132% of the estimated solvency
capital requirement. Tier 2 capital relates solely
to the Group's GBP0.53bn subordinated debt. The amount
of Tier 2 and 3 capital permitted under the Solvency
II Regulations is 50% of the Group's solvency capital
requirement, and of Tier 3 is 15%. Therefore, the
Group has no ineligible capital.
Reconciliation of IFRS shareholders' equity to Solvency II own funds
30 Jun 31 Dec
2017 2016(1)
At GBPbn GBPbn
-------------------------------------------- ------ --------
Shareholders' equity 2.65 2.52
Goodwill and intangible assets (0.52) (0.51)
Change in valuation of technical provisions (0.08) (0.05)
Other asset and liability adjustments (0.08) (0.09)
Foreseeable dividends (0.09) (0.13)
-------------------------------------------- ------ --------
Tier 1 capital 1.88 1.74
Tier 2 capital: subordinated debt 0.53 0.54
Tier 3 capital: deferred tax 0.05 0.03
-------------------------------------------- ------ --------
Total own funds 2.46 2.31
============================================ ====== ========
Note:
1. The comparatives have been updated to reflect
the amounts in the Solvency Financial Condition
Report for the year ended 31 December 2016,
published on the 15 May 2017.
Movement in capital surplus
2017
GBPbn
-------------------------------------------- ------
Capital surplus at 1 January 2017 0.91
------
Underlying movement in capital generation 0.28
Market movements -
======
Capital generation 0.28
Increase in solvency capital requirement (0.02)
======
Surplus generation 0.26
Capital expenditure (0.04)
Capital distribution - regular dividend (0.09)
Net surplus movement 0.13
-------------------------------------------- ------
Capital surplus at 30 June 2017 1.04
============================================ ======
Leverage
30 Jun 31 Dec
2017 2016
At GBPm GBPm
----------------------------------------- ------- -------
Shareholders' equity 2,654.5 2,521.5
Financial debt - subordinated guaranteed
dated notes 533.0 539.6
----------------------------------------- ------- -------
Total capital employed 3,187.5 3,061.1
========================================= ======= =======
Financial-leverage ratio(1) 16.7% 17.6%
----------------------------------------- ------- -------
During H1 2017, leverage reduced 0.9 percentage
points to 16.7%, due primarily to an increase in
profit for the period, partially offset by the payment
of the final dividend for 2016.
Credit ratings
Standard & Poor's and Moody's Investors Service
provide insurance financial-strength ratings for
UKI. UKI is currently rated 'A' (strong) with a
stable outlook by Standard & Poor's and 'A2' (good)
with a stable outlook by Moody's.
4B4BRegulatory update
5B5BThe Group has continued to operate within a
highly dynamic and evolving regulatory landscape,
particularly in the UK motor insurance market where
a number of reviews and initiatives have been announced
by the UK Government, the Ministry of Justice ("MoJ"),
the Financial Conduct Authority ("FCA") and the
PRA. On 23 February 2017, the government announced
measures to reduce the volume and cost of soft tissue
damage 'whiplash' claims and stated its expectation
that this will see a reduction in motor insurance
premiums by GBP40 on average. On 27 February 2017
the Lord Chancellor announced a reduction in the
Ogden discount rate to minus 0.75% with effect from
20 March 2017. The Group has also been engaged in
the consultation to consider options for reform
concerning the discount rate.
6B6BDuring the first half of 2017, the FCA's focus
has been on value measures and pricing practices
as well as the publication of its business plan.
The PRA focus has been on the pillars of its financial
risk framework, namely reserving, pricing, reinsurance
and investments.
7B7BThe Group will continue to support proportionate
reforms which result in a level playing field across
the industry.
Note:
1. Total financial debt as a percentage of total
capital employed.
Principal risks and uncertainties
The Group carries out a robust assessment of the
principal risks facing it in the current and future
financial years. Principal risks are defined as
having a residual risk impact of GBP40m or more
on profit before tax or net asset value on a one-in-200
years basis, accounting for customer, financial
and reputational impacts. The Group considers that
the risk profile remains broadly unchanged over
the last six months, since the profile disclosed
in the Annual Report & Accounts 2016, pages 27 to
29.
Principal risks
==============================================================
Insurance risk
The risk of loss due to fluctuations in the timings,
amount, frequency and severity of an insured event
relative to the expectations at the time of underwriting.
Insurance risk includes underwriting, reserve, distribution,
pricing and reinsurance risks. The Group faces the
risk that future claims on business written could
be materially different from expectations resulting
in losses. The risk of misstatement of reserves arises
from the uncertain nature of claims, data issues
and operational failures. Distribution risk is that
a material change in the volume of business written
may result in losses or reduced profitability. Incorrect
pricing could result in the potential loss of market
share or profitability. Furthermore, the inappropriate
selection or placement of reinsurance arrangements
could render the transfer of risk inappropriate or
ineffective.
==============================================================
Market risk
The risk of loss resulting from fluctuations in the
level and in the volatility of market prices of assets,
liabilities and financial instruments. Market risk
includes spread, interest rate and property risks.
The Group is exposed to fluctuations in the value
of assets or the income from its investment portfolio.
The value of assets and investments are sensitive
to changes in credit spreads above the risk-free
interest rate. Asset values are sensitive to changes
in interest rates. Property risk arises as a result
of sensitivity of assets to market prices of property.
==============================================================
Credit risk
The risk of loss resulting from fluctuations in the
credit standing of issuers of securities, counterparties
and any debtors to which the Group is exposed. Credit
risk includes concentration and counterparty default
risks. Concentration risk arises from inadequately
diversified portfolios of assets or obligations.
The Group has many suppliers, in particular reinsurers
as well as a number of investment and broker counterparties.
The failure of any of these parties could result
in a financial loss. Counterparty risk arises from
unexpected default by, or deterioration in the credit
standing of, counterparties and debtors.
==============================================================
Operational risk
The risk of loss due to inadequate or failed internal
processes, people, systems or from external events.
Operational risk includes information security, IT
and business continuity, outsourcing, financial reporting,
model, partnership contractual obligations, change,
and technology and infrastructure risks.
Information security risk includes the potential
loss or corruption of data or intellectual property.
IT and business continuity risk relates to the failure
to recover from major external or internal events,
resulting in a delay or inability to deliver services
to customers. Outsourcing risk is that an outsourcing
arrangement may fail to deliver services to expected
levels. The financial reporting misstatement risk
derives from the potential misstatement, misrepresentation
or untimely delivery of financial information or
regulatory returns. Model risk includes the inadequate,
incorrect, ineffective or misused model outputs,
or a lack of models, for decision-making, product
design or for customer offerings. Partnership contractual
obligations risk arises where contractual obligations
are not delivered for business partners. The Group
has a substantial portfolio of change underway which
could result in conflicting priorities, failure to
deliver strategic outcomes and impairment of intangible
assets. Technology and infrastructure risk is the
risk that the IT infrastructure is inadequate to
deliver the Group's strategy.
==============================================================
Regulatory compliance and conduct risk
Regulatory compliance risk is the potential loss
and reputational damage from regulatory or legal
censure, fines or prosecutions arising from non-compliance
with law and regulations. Conduct risk is the failure
to put the customer at the heart of the business
and failure to ensure that fairness is a natural
outcome of the Group's activities.
==============================================================
Strategic risk
The risk of direct or indirect impact on the earnings,
capital, or value of the business as a result of
strategies not being optimally chosen, implemented
or adapted to changing conditions. Strategic risk
includes strategy formulation and implementation
risks. These are the risks of failing to formulate
and implement an appropriate strategy to deliver
strategic objectives.
==============================================================
Emerging risks
The Group's definition of emerging risks are newly
developing risks which are often difficult to quantify;
they are also highly uncertain and are external
to the Group. The Group records emerging risks within
an Emerging Risk Register. Emerging risks are reported
to the Risk Management Committee and Board Risk
Committee for review and challenge. The Group's
emerging risks processes aim to:
-- achieve 'first mover advantage' by recognising
risks and associated opportunities early;
-- reduce the uncertainty and volatility of the
Group's results; and
-- manage emerging risks proactively.
The Group considers its main emerging risks to be:
Emerging risks
=============================================================
26B26B0B0BTechnological changes in driving habits
reduce consumer need for motor insurance
New car technologies, such as crash-prevention technologies
and driverless cars, could significantly affect the
size and nature of the insurance market and the role
of insurers. In addition to the Group's partnership
with the Government on automated Driving systems
(MOVE_UK), the Group continues to consider new motor
technologies as part of its pricing and underwriting
approach.
=============================================================
27B27B1B1BChanges to traditional insurance business
models
New market entrants and changes in consumer expectations
could result in significant changes to the structure
of the general insurance market and require the Group
to update its business model. The Group's strategy,
aligned to its mission to make insurance much easier
and better value for its customers, is positioned
to take advantage of changes in technology and customer
behaviours.
=============================================================
28B28B2B2BUK economy
The UK could enter a prolonged period of reduced
growth following its referendum vote on EU membership,
potentially reducing insurance sales and the value
of the Group's investment portfolio. Whilst the Group's
operations are based mainly in the UK, the uncertainty
surrounding Brexit negotiations could have various
implications which the Group will continue to monitor.
The UK Government also continues to work through
the results of the UK General Election and the impact
this may have on the economy and Brexit negotiations.
=============================================================
29B29B3B3BClimate change
Climate change could increase the frequency of severe
weather events in the UK and, in particular, flooding
claims costs. The Group continues to monitor changes
in claims experience and considers weather trends
as part of its pricing and underwriting approach.
=============================================================
Condensed consolidated income statement
For the six months ended 30 June 2017
6 months Full
2016 year
6 months GBPm 2016
2017 GBPm
Notes GBPm (audited)
=================================== ===== ======== ======== ==========
Gross earned premium 5 1,645.0 1,579.5 3,202.8
Reinsurance premium 5 (97.5) (99.6) (202.2)
=================================== ===== ======== ======== ==========
Net earned premium 5 1,547.5 1,479.9 3,000.6
Investment return 6 93.0 92.7 171.5
Instalment income 55.8 51.4 107.1
Other operating income 7 33.8 27.0 58.2
=================================== ===== ======== ======== ==========
Total income 1,730.1 1,651.0 3,337.4
=================================== ===== ======== ======== ==========
Insurance claims 8 (768.2) (738.9) (2,179.0)
Insurance claims recoverable
from reinsurers 8 (79.2) (29.4) 375.2
=================================== ===== ======== ======== ==========
Net insurance claims 8 (847.4) (768.3) (1,803.8) =================================== ===== ======== ======== ========== Commission expenses 9 (138.1) (160.8) (344.0) Operating expenses 10 (384.9) (405.0) (799.4) =================================== ===== ======== ======== ========== Total expenses (523.0) (565.8) (1,143.4) =================================== ===== ======== ======== ========== Operating profit 359.7 316.9 390.2 Finance costs 11 (18.3) (18.4) (37.2) Profit before tax 341.4 298.5 353.0 Tax charge 12 (65.9) (62.6) (74.2) =================================== ===== ======== ======== ========== Profit for the period attributable to owners of the Company 275.5 235.9 278.8 =================================== ===== ======== ======== ========== Earnings per share: Basic (pence) 14 20.2 17.2 20.4 Diluted (pence) 14 20.0 17.0 20.2
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2017
6 months Full
2016 year
6 months GBPm 2016
2017 GBPm
GBPm (audited)
================================================= ======== ======== ==========
Profit for the period 275.5 235.9 278.8
================================================= ======== ======== ==========
Other comprehensive (loss) / income
Items that will not be reclassified
subsequently to the income statement:
Actuarial loss on defined benefit
pension scheme - - (4.4)
Tax relating to items that will
not be reclassified - - 0.7
================================================= ======== ======== ==========
- - (3.7)
================================================= ======== ======== ==========
Items that may be reclassified subsequently
to the income statement:
Exchange differences on translation
of foreign operations - - 0.1
Cash flow hedges (0.4) 0.9 1.4
Fair value gains on available-for-sale
investments 8.0 76.7 119.6
Less: realised net gains on available-for-sale
investments included
in the income statement (14.8) (8.2) (15.3)
Tax relating to items that may be
reclassified 1.2 (12.2) (17.6)
================================================= ======== ======== ==========
(6.0) 57.2 88.2
================================================= ======== ======== ==========
Other comprehensive (loss) / income
for the period net of tax (6.0) 57.2 84.5
================================================= ======== ======== ==========
Total comprehensive income for the
period attributable to owners of
the Company 269.5 293.1 363.3
================================================= ======== ======== ==========
Condensed consolidated balance sheet
As at 30 June 2017
31 Dec
30 Jun 2016
2017 GBPm
Notes GBPm (audited)
===================================== ===== ======= ==========
Assets
Goodwill and other intangible assets 517.4 508.9
Property, plant and equipment 170.4 180.9
Investment property 314.9 329.0
Reinsurance assets 16 1,270.9 1,371.8
Current tax assets 0.1 0.1
Deferred acquisition costs 189.9 203.1
Insurance and other receivables 1,009.9 988.3
Prepayments, accrued income and
other assets 124.3 131.0
Derivative financial instruments 77.7 79.7
Retirement benefit asset 12.0 12.0
Financial investments 17 5,155.5 5,147.0
Cash and cash equivalents 18 1,106.6 1,166.1
Assets held for sale 3.8 3.8
===================================== ===== ======= ==========
Total assets 9,953.4 10,121.7
===================================== ===== ======= ==========
Equity 2,654.5 2,521.5
Liabilities
Subordinated liabilities 533.0 539.6
Insurance liabilities 19 4,409.0 4,666.6
Unearned premium reserve 1,597.1 1,547.9
Borrowings 18 59.4 55.3
Derivative financial instruments 13.3 45.1
Trade and other payables including
insurance payables 613.9 699.2
Deferred tax liabilities 35.6 46.0
Current tax liabilities 37.6 0.5
Total liabilities 7,298.9 7,600.2
===================================== ===== ======= ==========
Total equity and liabilities 9,953.4 10,121.7
===================================== ===== ======= ==========
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2017
Foreign
Employee AFS exchange Total
Share trust Capital revaluation Non-distributable translation Retained shareholders'
capital shares reserves reserve reserve reserve earnings equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ==== ======= ======== ======== =========== ================= =========== ======== =============
Balance at 1
January 2016 150.0 (20.4) 1,450.0 5.4 152.9 (0.1) 892.2 2,630.0
Profit for the
period - - - - - - 278.8 278.8
Other
comprehensive
income - - - 86.7 - 1.5 (3.7) 84.5
Dividends 13 - - - - - - (450.6) (450.6)
Transfer to
non-distributable
reserve - - - - (152.9) - 152.9 -
Shares acquired
by employee
trusts - (39.5) - - - - - (39.5)
Credit to equity
for
equity-settled
share-based
payments - - - - - - 16.8 16.8
Shares distributed
by employee
trusts - 25.6 - - - - (25.6) -
Tax on share-based
payments - - - - - - 1.5 1.5
================== ==== ======= ======== ======== =========== ================= =========== ======== =============
Balance at 31
December 2016
(audited) 150.0 (34.3) 1,450.0 92.1 - 1.4 862.3 2,521.5
Profit for the
period - - - - - - 275.5 275.5
Other
comprehensive
loss - - - (5.6) - (0.4) - (6.0)
Dividends 13 - - - - - - (132.4) (132.4)
Shares acquired
by employee
trusts - (10.5) - - - - - (10.5)
Credit to equity
for
equity-settled
share-based
payments - - - - - - 6.3 6.3
Shares distributed
by employee
trusts - 12.9 - - - - (12.9) -
Tax on share-based
payments - - - - - - 0.1 0.1
Balance at 30
June 2017 150.0 (31.9) 1,450.0 86.5 - 1.0 998.9 2,654.5
================== ==== ======= ======== ======== =========== ================= =========== ======== ============= Balance at 1 January 2016 150.0 (20.4) 1,450.0 5.4 152.9 (0.1) 892.2 2,630.0 Profit for the period - - - - - - 235.9 235.9 Other comprehensive income - - - 56.2 - 1.0 - 57.2 Dividends 13 - - - - - - (246.6) (246.6) Transfer to non-distributable reserve - - - - (152.9) - 152.9 - Shares acquired by employee trusts - (17.5) - - - - - (17.5) Credit to equity for equity-settled share-based payments - - - - - - 10.0 10.0 Shares distributed by employee trusts - 15.4 - - - - (15.4) - Tax on share-based payments - - - - - - (0.2) (0.2) ================== ==== ======= ======== ======== =========== ================= =========== ======== ============= Balance at 30 June 2016 150.0 (22.5) 1,450.0 61.6 - 0.9 1,028.8 2,668.8 ================== ==== ======= ======== ======== =========== ================= =========== ======== =============
Condensed consolidated cash flow statement
For the six months ended 30 June 2017
6 months Full
2016 year
6 months GBPm 2016
2017 GBPm
Notes GBPm (audited)
===================================== ===== ======== ======== ==========
Net cash generated from / (used
by) operating activities before
investment of insurance assets 27.3 (63.6) 35.0
Cash generated from investment
of insurance assets 109.6 518.1 827.4
===================================== ===== ======== ======== ==========
Net cash generated from operating
activities 136.9 454.5 862.4
===================================== ===== ======== ======== ==========
Cash flows from investing activities
Purchases of property, plant
and equipment (3.8) (37.4) (49.9)
Purchases of goodwill and other
intangible assets (35.2) (46.5) (80.8)
Proceeds from disposals of
assets held for sale - - 5.1
Net cash used by investing
activities (39.0) (83.9) (125.6)
===================================== ===== ======== ======== ==========
Cash flows from financing activities
Dividends paid 13 (132.4) (246.6) (450.6)
Finance costs (18.6) (19.2) (38.3)
Purchase of employee trust
shares (10.5) (17.5) (39.5)
Net cash used by financing
activities (161.5) (283.3) (528.4)
===================================== ===== ======== ======== ==========
Net (decrease) / increase in
cash and cash equivalents (63.6) 87.3 208.4
Cash and cash equivalents at
the beginning of the period 1,110.8 902.4 902.4
Cash and cash equivalents at
the end of the period 18 1,047.2 989.7 1,110.8
===================================== ===== ======== ======== ==========
Notes to the condensed consolidated financial statements
8B8BCorporate information
Direct Line Insurance Group plc is a public limited
company registered in England and Wales (company
number 02280426). The address of the registered
office is Churchill Court, Westmoreland Road, Bromley
BR1 1DP, England.
9B9B1. General information
The financial information for the year ended 31
December 2016 and included in the condensed consolidated
financial statements does not constitute statutory
accounts as defined in S434 of the Companies Act
2006, but has been abridged from the statutory accounts
for that year which have been delivered to the Registrar
of Companies. The independent auditor's report on
the Group accounts for the year ended 31 December
2016 is unqualified, does not draw attention to
any matters by way of emphasis and does not include
a statement under S498(2) or (3) of the Companies
Act 2006.
10B10B2. Accounting policies
Basis of preparation
The annual financial statements of the Group are
prepared in accordance with International Financial
Reporting Standards as adopted by the European Union.
The condensed consolidated financial statements
included in this Interim Report have been prepared
in accordance with International Accounting Standard
34 'Interim Financial Reporting' as adopted by the
European Union.
The Group has not adopted any new standard, interpretation
or amendment since 31 December 2016.
Going concern
The Directors, having assessed the principal risks
of the Group over the full duration of the planning
cycle, consider it appropriate to adopt the going
concern basis of accounting in preparing the interim
condensed consolidated financial statements.
Accounting policies and accounting developments
The same accounting policies, presentation and methods
of computation are followed in the condensed consolidated
financial statements as applied in the Group's latest
annual audited financial statements.
11B11B3. Critical accounting estimates and judgements
Pages 134 to 136 of the Annual Report & Accounts
2016 provide full details of critical accounting
estimates and judgements used in applying the Group's
accounting policies. There have been no significant
changes to the principles or assumptions of these
critical accounting estimates and judgements during
the period.
12B12B4. Segmental analysis
There have been no significant changes to the Group's
reportable segments as set out on page 150 of the
Annual Report & Accounts 2016.
The table below is an analysis of the Group's revenue
and results by reportable segment for the six months
ended 30 June 2017:
Rescue
and
other
personal Total
Motor Home lines Commercial Ongoing Run-off Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================= ======= ======= ========= ========== ======== ======= =======
Gross written premium 824.4 388.1 213.3 268.4 1,694.2 - 1,694.2
============================= ======= ======= ========= ========== ======== ======= =======
Gross earned premium 773.5 409.1 209.8 252.6 1,645.0 - 1,645.0
Reinsurance premium (65.7) (12.1) (0.8) (18.9) (97.5) - (97.5)
============================= ======= ======= ========= ========== ======== ======= =======
Net earned premium 707.8 397.0 209.0 233.7 1,547.5 - 1,547.5
Investment return 62.2 11.2 2.4 16.8 92.6 0.4 93.0
Instalment income 40.5 11.4 1.0 2.9 55.8 - 55.8
Other operating income 25.7 0.4 6.3 1.4 33.8 - 33.8
============================= ======= ======= ========= ========== ======== ======= =======
Total income 836.2 420.0 218.7 254.8 1,729.7 0.4 1,730.1
============================= ======= ======= ========= ========== ======== ======= =======
Insurance claims (348.9) (191.1) (136.2) (133.2) (809.4) 41.2 (768.2)
Insurance claims recoverable
from reinsurers (54.6) 0.4 0.5 6.1 (47.6) (31.6) (79.2)
============================= ======= ======= ========= ========== ======== ======= =======
Net insurance claims (403.5) (190.7) (135.7) (127.1) (857.0) 9.6 (847.4)
============================= ======= ======= ========= ========== ======== ======= =======
Commission expenses (18.3) (67.4) (10.5) (41.9) (138.1) - (138.1)
Operating expenses (180.5) (94.4) (49.9) (55.6) (380.4) - (380.4)
============================= ======= ======= ========= ========== ======== ======= =======
Total expenses (198.8) (161.8) (60.4) (97.5) (518.5) - (518.5)
============================= ======= ======= ========= ========== ======== ======= =======
Operating profit before
restructuring costs 233.9 67.5 22.6 30.2 354.2 10.0 364.2
============================= ======= ======= ========= ========== ======== =======
Restructuring costs (4.5)
=======
Operating profit 359.7
Finance costs (18.3)
=======
Profit before tax 341.4
=======
Underwriting profit 105.5 44.5 12.9 9.1 172.0
============================= ======= ======= ========= ========== ========
Loss ratio 57.0% 48.0% 64.9% 54.4% 55.4%
Commission ratio 2.6% 17.0% 5.0% 17.9% 8.9%
Expense ratio 25.5% 23.8% 23.9% 23.8% 24.6%
============================= ------- ======= ========= ========== ========
COR 85.1% 88.8% 93.8% 96.1% 88.9%
============================= ======= ======= ========= ========== ========
The table below is an analysis of the Group's revenue
and results by reportable segment for the six months
ended 30 June 2016:
Rescue
and
other
personal Total
Motor Home lines Commercial Ongoing Run-off Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================= ======= ======= ========= ========== ======== ======= =======
Gross written premium 750.3 403.2 197.7 261.9 1,613.1 - 1,613.1
============================= ======= ======= ========= ========== ======== ======= =======
Gross earned premium 710.7 427.4 195.6 245.8 1,579.5 - 1,579.5
Reinsurance premium (60.4) (15.7) (0.8) (22.7) (99.6) - (99.6)
============================= ======= ======= ========= ========== ======== ======= =======
Net earned premium 650.3 411.7 194.8 223.1 1,479.9 - 1,479.9
Investment return 63.0 11.0 2.1 14.9 91.0 1.7 92.7
Instalment income 36.2 11.6 0.9 2.7 51.4 - 51.4
Other operating income 19.6 0.1 6.2 1.1 27.0 - 27.0
============================= ======= ======= ========= ========== ======== ======= =======
Total income 769.1 434.4 204.0 241.8 1,649.3 1.7 1,651.0
============================= ======= ======= ========= ========== ======== ======= =======
Insurance claims (397.4) (137.9) (121.4) (117.3) (774.0) 35.1 (738.9)
Insurance claims recoverable
from reinsurers (18.7) 0.2 - 2.2 (16.3) (13.1) (29.4)
============================= ======= ======= ========= ========== ======== ======= =======
Net insurance claims (416.1) (137.7) (121.4) (115.1) (790.3) 22.0 (768.3)
============================= ======= ======= ========= ========== ======== ======= =======
Commission expenses (16.7) (91.2) (9.6) (43.3) (160.8) - (160.8)
Operating expenses (167.5) (104.0) (49.6) (53.5) (374.6) (0.1) (374.7)
============================= ======= ======= ========= ========== ======== ======= =======
Total expenses (184.2) (195.2) (59.2) (96.8) (535.4) (0.1) (535.5)
============================= ======= ======= ========= ========== ======== ======= =======
Operating profit before
restructuring costs 168.8 101.5 23.4 29.9 323.6 23.6 347.2
============================= ======= ======= ========= ========== ======== =======
Restructuring costs (30.3)
=======
Operating profit 316.9
Finance costs (18.4)
Profit before tax 298.5
Underwriting profit 50.0 78.8 14.2 11.2 154.2
============================= ======= ======= ========= ========== ========
Loss ratio 64.0% 33.4% 62.3% 51.6% 53.4%
Commission ratio 2.6% 22.2% 4.9% 19.4% 10.9%
Expense ratio 25.7% 25.3% 25.5% 24.0% 25.3%
============================= ======= ======= ========= ========== ========
COR 92.3% 80.9% 92.7% 95.0% 89.6%
============================= ======= ======= ========= ========== ========
The table below shows the Group's revenue and results
by reportable segment for the year ended 31 December
2016 (audited):
Rescue
and
other
personal Total
Motor Home lines Commercial Ongoing Run-off Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================= ========= ======= ========= ========== ========= ======= =========
Gross written premium 1,539.1 834.4 400.8 499.8 3,274.1 - 3,274.1
============================= ========= ======= ========= ========== ========= ======= =========
Gross earned premium 1,461.3 851.0 396.1 494.4 3,202.8 - 3,202.8
Reinsurance premium (124.2) (34.7) (1.7) (41.6) (202.2) - (202.2)
============================= ========= ======= ========= ========== ========= ======= =========
Net earned premium 1,337.1 816.3 394.4 452.8 3,000.6 - 3,000.6
Investment return 116.9 19.9 3.9 27.4 168.1 3.4 171.5
Instalment income 76.1 23.5 1.9 5.6 107.1 - 107.1
Other operating income 40.9 0.8 13.5 3.0 58.2 - 58.2
============================= ========= ======= ========= ========== ========= ======= =========
Total income 1,571.0 860.5 413.7 488.8 3,334.0 3.4 3,337.4
============================= ========= ======= ========= ========== ========= ======= =========
Insurance claims (1,297.3) (332.1) (243.0) (297.7) (2,170.1) (8.9) (2,179.0)
Insurance claims recoverable
from reinsurers 295.6 0.1 - 47.2 342.9 32.3 375.2
============================= ========= ======= ========= ========== ========= ======= =========
Net insurance claims (1,001.7) (332.0) (243.0) (250.5) (1,827.2) 23.4 (1,803.8)
============================= ========= ======= ========= ========== ========= ======= =========
Commission expenses (42.9) (184.4) (28.4) (88.3) (344.0) - (344.0)
Operating expenses (377.3) (177.4) (96.4) (108.2) (759.3) (0.2) (759.5)
============================= ========= ======= ========= ========== ========= ======= =========
Total expenses (420.2) (361.8) (124.8) (196.5) (1,103.3) (0.2) (1,103.5)
============================= ========= ======= ========= ========== ========= ======= =========
Operating profit before
restructuring costs 149.1 166.7 45.9 41.8 403.5 26.6 430.1
============================= ========= ======= ========= ========== ========= ======= =========
Restructuring costs (39.9)
=========
Operating profit 390.2
Finance costs (37.2)
Profit before tax 353.0
Underwriting (loss)
/ profit (84.8) 122.5 26.6 5.8 70.1
============================= ========= ======= ========= ========== =========
Loss ratio 74.9% 40.7% 61.6% 55.3% 60.9%
Commission ratio 3.2% 22.6% 7.2% 19.5% 11.5%
Expense ratio 28.2% 21.7% 24.5% 23.9% 25.3%
============================= ========= ======= ========= ========== =========
COR 106.3% 85.0% 93.3% 98.7% 97.7%
============================= ========= ======= ========= ========== =========
5. Net earned premium
6 months 6 months Full
2017 2016 year
GBPm GBPm 2016
GBPm
(audited)
======================================= ======== ======== ==========
Gross earned premium:
Gross written premium 1,694.2 1,613.1 3,274.1
Movement in unearned premium reserve (49.2) (33.6) (71.3)
======================================= ======== ======== ==========
1,645.0 1,579.5 3,202.8
======================================= ======== ======== ==========
Reinsurance premium:
Premium payable (81.6) (83.1) (206.2)
Movement in reinsurance unearned
premium reserve (15.9) (16.5) 4.0
======================================= ======== ======== ==========
(97.5) (99.6) (202.2)
======================================= ======== ======== ==========
Total 1,547.5 1,479.9 3,000.6
======================================= ======== ======== ==========
6. Investment return
6 months 6 months Full
2017 2016 year
GBPm GBPm 2016
GBPm
(audited)
========================================= ======== ======== ==========
Investment income:
Interest income from debt securities 68.0 69.2 136.5
Cash and cash equivalent interest
income 1.7 2.3 4.2
Interest income from infrastructure
debt 3.6 4.0 7.8
Interest income from commercial
real estate loans 1.1 - 1.0
----------------------------------------- -------- -------- ----------
Interest income 74.4 75.5 149.5
Rental income from investment property 8.4 8.9 18.4
----------------------------------------- -------- -------- ----------
82.8 84.4 167.9
----------------------------------------- -------- -------- ----------
Net realised gains / (losses):
Available-for-sale debt securities 14.8 8.2 15.3
Derivatives 109.3 (15.9) (282.3)
Investment property (0.3) - 1.3
123.8 (7.7) (265.7)
========================================= ======== ======== ==========
Net unrealised (losses) / gains:
Impairment of loans and receivables (3.4) - -
Derivatives (120.1) 15.5 265.2
Investment property 9.9 0.5 4.1
========================================= ======== ======== ==========
(113.6) 16.0 269.3
========================================= ======== ======== ==========
Total 93.0 92.7 171.5
========================================= ======== ======== ==========
The table below analyses the realised and unrealised
gains / (losses) on derivative instruments included
in investment return.
Realised Unrealised Realised Unrealised
======== ========== ======== ==========
6 months 6 months 6 months 6 months
2017 2017 2016 2016
GBPm GBPm GBPm GBPm
====================================== ======== ========== ======== ==========
Derivative gains / (losses):
Foreign exchange forward contracts(1) 41.8 54.6 (68.7) (149.3)
Associated foreign exchange
risk 61.5 (166.6) 42.8 177.5
====================================== ======== ========== ======== ==========
Net gains / (losses) on foreign
exchange forward contracts 103.3 (112.0) (25.9) 28.2
====================================== ======== ========== ======== ==========
Interest rate swaps(1) 9.4 (18.4) 5.0 (62.4)
Associated interest rate risk (3.4) 10.3 5.0 49.7
====================================== ======== ========== ======== ==========
Net gains / (losses) on interest
rate derivatives 6.0 (8.1) 10.0 (12.7)
Total 109.3 (120.1) (15.9) 15.5
====================================== ======== ========== ======== ==========
Realised Unrealised
=========== ==========
Full Full
year year
2016 2016
(audited) (audited)
GBPm GBPm
========================================= =========== ==========
Derivative (losses) / gains:
Foreign exchange forward contracts(1) (425.7) 19.1
Associated foreign exchange risk 151.0 253.0
========================================= =========== ==========
Net (losses) / gains on foreign exchange
forward contracts (274.7) 272.1
========================================= =========== ==========
Interest rate swaps(1) (16.9) 20.7
Associated interest rate risk 9.3 (27.6)
========================================= =========== ==========
Net losses on interest rate derivatives (7.6) (6.9)
Total (282.3) 265.2
========================================= =========== ==========
Note:
1. Foreign exchange forward contracts are at
fair value through the income statement and
interest rate swaps are designated as hedging
instruments.
7. Other operating income
6 months Full
2016 year
6 months GBPm 2016
2017 GBPm
GBPm (audited)
==================================== ======== ======== ==========
Vehicle replacement referral income 8.3 6.8 14.1
Revenue from vehicle recovery and
repair services 9.8 9.4 19.3
Other income(1) 15.7 10.8 24.8
==================================== ======== ======== ==========
Total 33.8 27.0 58.2
==================================== ======== ======== ==========
Note:
1. Other income includes legal services revenue,
salvage income and fee income from insurance
intermediary services.
8. Net insurance claims
Gross Reinsurance Net Gross Reinsurance Net
======== =========== ======== ======== =========== ========
6 months 6 months 6 months 6 months 6 months 6 months
2017 2017 2017 2016 2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm
====================== ======== =========== ======== ======== =========== ========
Current accident
year claims paid 452.4 (0.1) 452.3 436.4 - 436.4
Prior accident year
claims paid 573.4 (5.7) 567.7 577.3 (7.2) 570.1
Movement in insurance
liabilities (257.6) 85.0 (172.6) (274.8) 36.6 (238.2)
====================== ======== =========== ======== ======== =========== ========
Total 768.2 79.2 847.4 738.9 29.4 768.3
====================== ======== =========== ======== ======== =========== ========
Gross Reinsurance Net
========== =========== ==========
Full Full Full
year year year
2016 2016 2016
GBPm GBPm GBPm
(audited) (audited) (audited)
================================== ========== =========== ==========
Current accident year claims paid 1,131.7 - 1,131.7
Prior accident year claims paid 905.2 (18.8) 886.4
Movement in insurance liabilities 142.1 (356.4) (214.3)
================================== ========== =========== ==========
Total 2,179.0 (375.2) 1,803.8
================================== ========== =========== ==========
The table below analyses the claims handling expenses
included in the net insurance claims.
6 months Full
2016 year
6 months GBPm 2016
2017 GBPm
GBPm (audited)
======================= ========== ========= ============
Ongoing operations 86.6 87.0 164.4
Run-off - 1.0 1.2
======================= ========== ========= ============
Total 86.6 88.0 165.6
======================= ========== ========= ============
9. Commission expenses
6 months Full
2016 year
6 months GBPm 2016
2017 GBPm
GBPm (audited)
============================================== ======== ======== ==========
Commission expenses 117.1 123.1 246.8
Expenses incurred under profit participations 21.0 37.7 97.2
============================================== ======== ======== ==========
Total 138.1 160.8 344.0
============================================== ======== ======== ==========
10. Operating expenses
Total Restructuring Total
Ongoing costs Run-off Group
======== ============= ======== ========
6 months 6 months 6 months 6 months
2017 2017 2017 2017
GBPm GBPm GBPm GBPm
=============================== ======== ============= ======== ========
Staff costs(1) 131.6 4.5 - 136.1
Other operating expenses(1,2) 149.0 - - 149.0
Marketing 59.0 - - 59.0
Amortisation and impairment of
other intangible assets 26.7 - - 26.7
Depreciation 14.1 - - 14.1
=================================== ======== ============= ======== ========
Total 380.4 4.5 - 384.9
=================================== ======== ============= ======== ========
Total Restructuring Total
Ongoing costs Run-off Group
======== ============= ======== ========
6 months 6 months 6 months 6 months
2016 2016 2016 2016
GBPm GBPm GBPm GBPm
================================ ======== ============= ======== ========
Staff costs(1) 137.2 8.7 - 145.9
Other operating expenses(1,2,3) 129.8 21.6 0.1 151.5
Marketing 62.6 - - 62.6
Amortisation and impairment of
other intangible assets 30.0 - - 30.0
Depreciation 15.0 - - 15.0
==================================== ======== ============= ======== ========
Total 374.6 30.3 0.1 405.0
==================================== ======== ============= ======== ========
Total Restructuring Total
Ongoing costs Run-off Group
========== ============= ========== ==========
Full Full Full Full
year year year year
(audited) (audited) (audited) (audited)
2016 2016 2016 2016
GBPm GBPm GBPm GBPm
================================ ========== ============= ========== ==========
Staff costs(1) 269.0 16.0 - 285.0
Other operating expenses(1,2,3) 250.9 23.9 0.2 275.0
Marketing 112.6 - - 112.6
Amortisation and impairment of
other intangible assets 96.7 - - 96.7
Depreciation 30.1 - - 30.1
==================================== ========== ============= ========== ==========
Total 759.3 39.9 0.2 799.4
==================================== ========== ============= ========== ==========
Notes:
1. Staff costs and other operating expenses attributable
to claims handling activities are allocated
to the cost of insurance claims.
2. Other operating expenses include IT costs,
insurance levies, professional fees and property
costs.
3. A property site in Bristol comprising of freehold
property and fixtures and fittings was transferred
from freehold property to assets held for
sale in 2016. The property with a carrying
value of GBP23.5 million was re-measured on
transfer to its fair value of GBP3.8 million
resulting in a charge to other operating expense
in Restructuring costs of GBP19.7 million.
11. Finance costs
6 months Full
2016 year
6 months GBPm 2016
2017 GBPm
GBPm (audited)
======================================= ======== ======== ==========
Interest expense on subordinated
liabilities 23.1 23.0 46.3
Net interest received on designated
hedging instrument(1) (4.5) (3.9) (8.0)
Unrealised loss / (gain) on designated
hedging instrument(1) 6.3 (30.9) (19.6)
Unrealised (gain) / loss on associated
interest rate risk on hedged item(1) (6.9) 29.9 17.8
Amortisation of arrangement costs
and discount on issue of subordinated
liabilities 0.3 0.3 0.7
======================================= ======== ======== ==========
Total 18.3 18.4 37.2
======================================= ======== ======== ==========
Note:
1. On 27 April 2012 the Group issued subordinated
guaranteed dated notes with a nominal value
of GBP500 million at a fixed rate of 9.25%.
On the same date, the Group also entered into
a 10-year designated hedging instrument to
exchange the fixed rate of interest on the
notes for a rate of three-month LIBOR plus
a spread of 706 basis points, which increased
to 707 basis points with effect from 29 July
2013.
12. Tax charge
6 months Full
2016 year
6 months GBPm 2016
2017 GBPm
GBPm (audited)
====================================== ======== ======== ==========
Current taxation:
Charge for the period 69.9 65.0 84.4
Under / (over) provision in respect
of the prior period 6.4 - (7.7)
-------------------------------------- -------- -------- ----------
76.3 65.0 76.7
====================================== ======== ======== ==========
Deferred taxation:
Credit for the period (2.2) (2.4) (5.1)
(Over) / under provision in respect
of the prior period (8.2) - 2.6
====================================== ======== ======== ==========
(10.4) (2.4) (2.5)
====================================== ======== ======== ==========
Current taxation 76.3 65.0 76.7
Deferred taxation (10.4) (2.4) (2.5)
====================================== ======== ======== ==========
Tax charge for the period 65.9 62.6 74.2
====================================== ======== ======== ==========
13. Dividends
6 months 6 months Full
2017 2016 year
GBPm GBPm 2016
GBPm
(audited)
======================================== ======== ======== ==========
Amounts recognised as distributions
to equity holders in the period:
2016 final dividend of 9.7p per
share paid on 18 May 2017 132.4 - -
2015 final dividend of 9.2p per
share paid on 19 May 2016 - 126.0 126.0
2016 first interim dividend of 4.9p
per share paid on 9 September 2016 - - 67.1
2016 first special interim dividend
of 10.0p per share paid on 9 September
2016 - - 136.9
2015 second special interim dividend
of 8.8p per share paid on 19 May
2016 - 120.6 120.6
======================================== ======== ======== ==========
Total 132.4 246.6 450.6
======================================== ======== ======== ==========
The trustees of the employee share trusts waived
their entitlement to dividends on shares held to
meet obligations arising on certain share awards,
which reduced the total dividend paid for the six
months ended 30 June 2017 by GBP1.0 million (six
months ended 30 June 2016: GBP0.9 million and year
ended 31 December 2016: GBP1.8 million).
14. Earnings per share
Earnings per share is calculated by dividing the
earnings attributable to the owners of the Company
by the weighted average number of Ordinary Shares
during the period.
Basic
Basic earnings per share is calculated by dividing
the earnings attributable to the owners of the Company
by the weighted average number of Ordinary Shares
for the purposes of basic earnings per share during
the period, excluding Ordinary Shares held as employee
trust shares.
6 months Full
2016 year
6 months GBPm 2016
2017 GBPm
GBPm (audited)
==================================== ======== ======== ==========
Earnings attributable to owners
of the Company 275.5 235.9 278.8
==================================== ======== ======== ==========
Weighted average number of Ordinary
Shares (millions) 1,365.5 1,370.2 1,368.7
==================================== ======== ======== ==========
Basic earnings per share (pence) 20.2 17.2 20.4
==================================== ======== ======== ==========
Diluted
Diluted earnings per share is calculated by dividing
the earnings attributable to the owners of the Company
by the weighted average number of Ordinary Shares
during the period adjusted for dilutive potential
Ordinary Shares. The Company has share options and
contingently issuable shares as categories of dilutive
potential Ordinary Shares.
6 months Full
2016 year
6 months GBPm 2016
2017 GBPm
GBPm (audited)
========================================= ======== ======== ==========
Earnings attributable to owners
of the Company 275.5 235.9 278.8
========================================= ======== ======== ==========
Weighted average number of Ordinary
Shares (millions) 1,365.5 1,370.2 1,368.7
Effect of dilutive potential of
share options and contingently issuable
shares (millions) 12.7 15.5 13.1
========================================= ======== ======== ==========
Weighted average number of Ordinary
Shares for the purpose of diluted
earnings per share (millions) 1,378.2 1,385.7 1,381.8
========================================= ======== ======== ==========
Diluted earnings per share (pence) 20.0 17.0 20.2
========================================= ======== ======== ==========
15. Net assets per share and return on equity
Net asset value per share is calculated as total
shareholders' equity divided by the number of Ordinary
Shares at the end of the period excluding shares
held by employee share trusts.
Tangible net asset value per share is calculated
as total shareholders' equity less goodwill and other
intangible assets divided
by the number of Ordinary Shares at the end of the
period excluding shares held by employee share trusts.
The table below analyses net asset and tangible net
asset value per share.
31 Dec
30 Jun 2016
2017 GBPm
At GBPm (audited)
============================================= ======= ==========
Net assets 2,654.5 2,521.5
Goodwill and other intangible assets (517.4) (508.9)
Tangible net assets 2,137.1 2,012.6
============================================= ======= ==========
Number of Ordinary Shares (millions) 1,375.0 1,375.0
Shares held by employee share trusts
(millions) (9.3) (9.9)
============================================= ======= ==========
Closing number of Ordinary Shares (millions) 1,365.7 1,365.1
============================================= ======= ==========
Net asset value per share (pence) 194.4 184.7
Tangible net asset value per share (pence) 156.5 147.4
============================================= ======= ==========
Return on equity
The table below details the calculation of return
on equity and annualised return on equity.
6 months Full
2016 year
6 months GBPm 2016
2017 GBPm
GBPm (audited)
================================ ======== ======== ==========
Earnings attributable to owners
of the Company 275.5 235.9 278.8
================================ ======== ======== ==========
Annualised(1) 551.0 471.8 278.8
Opening shareholders' equity 2,521.5 2,630.0 2,630.0
Closing shareholders' equity 2,654.5 2,668.8 2,521.5
================================ ======== ======== ==========
Average shareholders' equity 2,588.0 2,649.4 2,575.8
================================ ======== ======== ==========
Return on equity for period 10.6% 8.9% 10.8%
Return on equity annualised(1) 21.3% 17.8% 10.8%
================================ ======== ======== ==========
Note:
1. Earnings have been annualised using profits
for the 6 months ended 30 June 2017 (2016:
6 months ended 30 June 2016).
16. Reinsurance assets
31 Dec
30 Jun 2016
2017 GBPm
At GBPm (audited)
======================================= ======= ==========
Reinsurers' share of general insurance
liabilities 1,250.6 1,329.0
Impairment provision (57.3) (50.7)
======================================= ======= ==========
1,193.3 1,278.3
Reinsurers' unearned premium reserve 77.6 93.5
======================================= ======= ==========
Total 1,270.9 1,371.8
======================================= ======= ==========
17. Financial investments
31 Dec
30 Jun 2016
2017 GBPm
At GBPm (audited)
=================================== ======= ==========
Available-for-sale debt securities
Corporate 4,174.9 4,183.7
Supranational 98.1 98.6
Local government 12.3 21.7
Sovereign 363.0 341.2
Total 4,648.3 4,645.2
Held-to-maturity debt securities
Corporate 88.3 85.1
=================================== ======= ==========
Total debt securities 4,736.6 4,730.3
=================================== ======= ==========
Total debt securities
Fixed interest rate(1) 4,720.2 4,709.6
Floating interest rate 16.4 20.7
=================================== ======= ==========
Total 4,736.6 4,730.3
Loans and receivables
Infrastructure debt 328.0 337.0
Commercial real estate loans 90.9 79.7
=================================== ======= ==========
Total 5,155.5 5,147.0
=================================== ======= ==========
Note:
1. The Group swaps a fixed interest rate for
a floating rate of interest on its US Dollar,
Euro and a small amount of its Sterling corporate
debt securities by entering into interest
rate derivatives. The hedged amount at 30
June 2017 was GBP1,543.1 million (31 December
2016: GBP1,593.6 million).
18. Cash and cash equivalents and borrowings
31 Dec
30 Jun 2016
2017 GBPm
At GBPm (audited)
================================================ ======= ==========
Cash at bank and in hand 215.8 166.6
Short-term deposits with credit institutions(1) 890.8 999.5
================================================ ======= ==========
Cash and cash equivalents 1,106.6 1,166.1
Bank overdrafts(2) (59.4) (55.3)
Cash and bank overdrafts(3) 1,047.2 1,110.8
================================================ ======= ==========
Notes:
1. This represents money market funds with no
notice period for withdrawal.
2. Bank overdrafts represent short-term timing
differences between transactions posted in
the records of the Group transactions flowing
through the accounts at the bank.
3. Cash and bank overdrafts are included for
the purposes of the condensed consolidated
cash flow statement.
The effective interest rate on short-term deposits
with credit institutions for the six months ended
30 June 2017 was 0.39% (year ended 31 December 2016:
0.45%) and average maturity at 30 June 2017 was 10
days (31 December 2016: 10 days).
19. Insurance liabilities
Movements in gross and net insurance liabilities
Gross Reinsurance Net
GBPm GBPm GBPm
====================================== ========= =========== =========
Claims reported 2,732.2 (375.0) 2,357.2
Incurred but not reported 1,697.9 (546.9) 1,151.0
Claims handling provision 94.4 - 94.4
====================================== ========= =========== =========
At 1 January 2016 (audited) 4,524.5 (921.9) 3,602.6
Cash paid for claims settled in
the year (2,036.9) 18.8 (2,018.1)
Increase / (decrease) in liabilities:
Arising from current-year claims 2,329.3 (235.4) 2,093.9
Arising from prior-year claims (150.3) (139.8) (290.1)
At 31 December 2016 (audited) 4,666.6 (1,278.3) 3,388.3
====================================== ========= =========== =========
Claims reported 2,584.5 (388.3) 2,196.2
Incurred but not reported 2,002.8 (890.0) 1,112.8
Claims handling provision 79.3 - 79.3
====================================== ========= =========== =========
At 31 December 2016 (audited) 4,666.6 (1,278.3) 3,388.3
Cash paid for claims settled in
the period (1,025.8) 5.8 (1,020.0)
Increase / (decrease) in liabilities:
Arising from current-year claims 1,204.0 (130.6) 1,073.4
Arising from prior-year claims (435.8) 209.8 (226.0)
At 30 June 2017 4,409.0 (1,193.3) 3,215.7
====================================== ========= =========== =========
Claims reported 2,956.6 (694.2) 2,262.4
Incurred but not reported 1,373.1 (499.1) 874.0
Claims handling provision 79.3 - 79.3
====================================== ========= =========== =========
At 30 June 2017 4,409.0 (1,193.3) 3,215.7
====================================== ========= =========== =========
Movement in prior-year net claims liabilities by operating segment
Full
year
6 months 6 months 2016
2017 2016 GBPm
GBPm GBPm (audited)
================================ ======== ======== ==========
Motor (174.6) (134.0) (123.5)
Home (16.8) (60.6) (75.9)
Rescue and other personal lines 2.1 (7.5) (17.5)
Commercial (27.1) (34.0) (49.8)
Total Ongoing (216.4) (236.1) (266.7)
Run-off (9.6) (22.0) (23.4)
Total (226.0) (258.1) (290.1)
================================ ======== ======== ==========
20. Fair value
The following table compares the carrying value and
the fair value of financial instruments and other
assets where the Group discloses fair value.
Carrying Level Level Level Fair
value 1 2 3 value
At 30 June 2017 GBPm GBPm GBPm GBPm GBPm
============================= ======== ===== ======= ===== =======
Assets held at fair value:
Investment property 314.9 - - 314.9 314.9
Derivative assets 77.7 - 77.7 - 77.7
Available-for-sale debt
securities (note 17) 4,648.3 363.0 4,285.3 - 4,648.3
Other financial assets:
Held-to-maturity debt
securities (note 17) 88.3 - 14.5 76.9 91.4
Infrastructure debt (note
17) 328.0 - - 336.3 336.3
Commercial real estate
loans (note 17) 90.9 - - 90.9 90.9
============================= ======== ===== ======= ===== =======
Total assets 5,548.1 363.0 4,377.5 819.0 5,559.5
============================= ======== ===== ======= ===== =======
Liabilities held at fair
value:
Derivative liabilities 13.3 - 13.3 - 13.3
Other financial liabilities:
Subordinated liabilities 533.0 - 653.1 - 653.1
============================= ======== ===== ======= ===== =======
Total liabilities 546.3 - 666.4 - 666.4
============================= ======== ===== ======= ===== =======
Carrying Level Level Level Fair
value 1 2 3 value
At 31 December 2016 GBPm GBPm GBPm GBPm GBPm
============================= ======== ===== ======= ===== =======
Assets held at fair value:
Investment property 329.0 - - 329.0 329.0
Derivative assets 79.7 - 79.7 - 79.7
Available-for-sale debt
securities (note 17) 4,645.2 341.2 4,304.0 - 4,645.2
Other financial assets:
Held-to-maturity debt
securities (note 17) 85.1 - 13.6 74.6 88.2
Infrastructure debt (note
17) 337.0 - - 339.2 339.2
Commercial real estate
loans (note 17) 79.7 - - 79.8 79.8
Total assets 5,555.7 341.2 4,397.3 822.6 5,561.1
============================= ======== ===== ======= ===== =======
Liabilities held at fair
value:
Derivative liabilities 45.1 - 45.1 - 45.1
Other financial liabilities:
Subordinated liabilities 539.6 - 625.0 - 625.0
============================= ======== ===== ======= ===== =======
Total liabilities 584.7 - 670.1 - 670.1
============================= ======== ===== ======= ===== =======
Differences arise between carrying value and fair
value where the measurement basis of the assets or
liabilities is not fair value (e.g. assets and liabilities
carried at amortised cost). Fair values of the following
assets and liabilities approximate their carrying
values:
-- Insurance and other receivables;
-- Cash and cash equivalents;
-- Borrowings; and
-- Trade and other payables including insurance payables
(excluding provisions).
The movements in assets held at fair value and classified
as level 3 in the fair value hierarchy are all within
Investment property. There were no changes in the
categorisation of assets between levels 1, 2 and
3 during the current period for assets and liabilities
held at 31 December 2016.
The table below analyses the movement in assets classified
as Level 3 in the fair value hierarchy.
Investment
property
GBPm
============================================ ==========
At 1 January 2016 (audited) 347.4
Additions 1.4
Increase in fair value in the year (note 6) 5.4
Disposals (25.2)
==========
At 31 December 2016 (audited) 329.0
Increase in fair value in the period (note
6) 9.6
Disposals (23.7)
============================================ ==========
At 30 June 2017 314.9
============================================ ==========
Glossary
Term Definition and explanation
==================== =================================================
Adjusted diluted Adjusted diluted earnings per share is
earnings per calculated by dividing the adjusted profit
share after tax of Ongoing operations by the
weighted average number of Ordinary Shares
during the period adjusted for dilutive
potential Ordinary Shares (see alternative
performance measures).
==================== =================================================
Adjusted profit Profit after tax is adjusted to exclude
after tax the Run-off segment and restructuring
costs, and is stated after charging tax
using the UK standard tax rate of 19.25%;
(2016: 20.00%). See alternative performance
measure.
==================== =================================================
Available-for-sale Financial assets that are classified
("AFS") investment as available-for-sale. Please refer to
the accounting policy note 1.12 on page
130 of the Annual Report and Accounts
2016.
==================== =================================================
Capital The funds invested in the Group, including
funds invested by shareholders and retained
profits.
==================== =================================================
Capital coverage The ratio of Solvency II own funds to
ratio the solvency capital requirement.
==================== =================================================
Claims frequency The number of claims divided by the number
of policies per year.
==================== =================================================
Claims handling Funds the Group sets aside to meet the
provision estimated cost of paying claims and related
(provision expenses that the Group considers it
for losses will ultimately need to pay.
and loss-adjustment
expense)
==================== =================================================
Combined operating The sum of the loss, commission and expense
ratio ("COR") ratios. The ratio measures the amount
of claims costs, commission and expenses,
compared to net earned premium generated.
A ratio of less than 100% indicates profitable
underwriting.
==================== =================================================
Commission Payments to brokers, partners and PCWs
for generating business.
==================== =================================================
Commission The ratio of commission expense divided
ratio by net earned premium.
==================== =================================================
Current-year The loss ratio for the current accident
attritional year, excluding the movement of claims
loss ratio reserves relating to previous accident
years, and claims relating to major weather
events in the Home division.
==================== =================================================
Earnings per The amount of the Group's profit allocated
share to each Ordinary Share of the Company.
==================== =================================================
Expense ratio The ratio of operating expenses divided
by net earned premium.
==================== =================================================
Finance costs The cost of servicing the Group's external
borrowings.
==================== =================================================
Gross written The total premiums from contracts that
premium began during the period.
==================== =================================================
International A not-for-profit public interest organisation
Accounting that is overseen by a monitoring board
Standards of public authorities.
Board ("IASB") It develops IFRS: standards that aim
to make worldwide markets transparent,
accountable and efficient.
==================== =================================================
Incurred but Funds set aside to meet the cost of claims
not reported for accidents that have occurred, but
("IBNR") have not yet been reported to the Group.
This includes an element of uplift on
the value of claims reported. Where the
Group has determined that the value currently
held in reserves is not sufficient to
meet the estimated ultimate costs of
the claim is referred to as incurred
but not enough reported ("IBNER").
==================== =================================================
In-force policies The number of policies on a given date
that are active and against which the
Group will pay, following a valid insurance
claim.
==================== =================================================
Insurance This comprises insurance claims reserves
liabilities and claims handling provision, which
the Group maintains to meet current and
future claims.
==================== =================================================
Investment The income earned from the investment
income yield portfolio, recognised through the income
statement during the period, and divided
by the average assets under management
("AUM"). This excludes unrealised and
realised gains and losses, impairments,
and fair-value adjustments. The average
AUM derives from the period's opening
and closing balances for the total Group;
see alternative performance measures.
==================== =================================================
Investment The income earned from the investment
return portfolio, including unrealised and realised
gains and losses, impairments, and fair
value adjustments.
==================== =================================================
Investment The return earned from the investment
return yield portfolio, recognised through the income
statement during
the period divided by the average AUM.
This includes unrealised and realised
gains and losses, impairments, and fair-value
adjustments. The average AUM derives
from the period's opening and closing
balances; see alternative performance
measures.
==================== =================================================
Loss ratio Net insurance claims divided by net earned
premium.
==================== =================================================
Net asset The net asset value of the Group is calculated
value by subtracting total liabilities from
total assets.
==================== =================================================
Net claims The cost of claims incurred in the period
less any claims costs recovered under
reinsurance contracts. It includes claims
payments and movements in claims reserves.
==================== =================================================
Net earned The element of gross earned premium less
premium reinsurance premium ceded for the period
where insurance cover has already been
provided.
==================== =================================================
Ongoing operations Ongoing operations comprise Direct Line
Group's Ongoing divisions: Motor, Home,
Rescue and other personal lines, and
Commercial. It excludes discontinued
operations, the Run-off segment,
and restructuring costs.
==================== =================================================
Operating The pre-tax profit that the Group's activities
profit generate, including insurance and investment
activity,
but excluding finance costs.
==================== =================================================
Prudential The PRA is a part of the Bank of England.
Regulation It is responsible for regulating and
Authority supervising insurers
("PRA") and financial institutions in the UK.
==================== =================================================
Reinsurance Contractual arrangements where the Group
transfers part or all of the accepted
insurance risk
to another insurer.
==================== =================================================
Return on Return on equity is calculated by dividing
equity the profit attributable to the owners
of the Company
by average Ordinary Shareholders' equity
for the period.
==================== =================================================
Return on Return on tangible equity is adjusted
tangible equity profit after tax from Ongoing operations,
("RoTE") divided
by the Group's average shareholders'
equity, less goodwill and other intangible
assets. Profit after tax is adjusted
to exclude the Run-off segment and restructuring
costs. It is stated after charging tax
using the UK standard tax rate of 19.25%
(2016: 20.0%). See alternative performance
measures.
==================== =================================================
Risk and business Risk and business mix measures the premium
mix impact of channel, tenure and underlying
risk mix. It reflects the risk models
used in the period, the outputs of which
are revised when models are updated.
==================== =================================================
Run-off Where the Group no longer underwrites
new business, but continues to meet its
claims liabilities under existing contracts.
==================== =================================================
Solvency II The capital adequacy regime for the European
insurance industry, which became effective
on
1 January 2016. It establishes capital
requirements and risk management standards.
It comprises three pillars: Pillar I,
which sets out capital requirements for
an insurer; Pillar II, which focuses
on systems of governance; and Pillar
III, which deals with disclosure requirements.
==================== =================================================
Total costs Total costs comprise operating expenses
and claims handling expenses for Ongoing
operations.
==================== =================================================
Underwriting The profit or loss from operational activities,
result excluding investment return and other
(profit or operating income. It is calculated as
loss) net earned premium less net insurance
claims and total expenses.
==================== =================================================
Appendix A - Alternative performance measures
The Group has identified Alternative Performance
Measures ("APMs") in accordance with the European
Securities and Markets Authority's published Guidelines.
The Group uses APMs to improve comparability of information
between reporting periods and reporting segments,
by adjusting for either uncontrollable or one-off
costs which impact on IFRS measures, to aid the user
of the Half Year Report in understanding the activity
taking place across the Group. These APMs are contained
within the main narrative sections of this document,
outside of the condensed consolidated financial statements
and notes, and may not necessarily have standardised
meanings for ease of comparability across peer organisations.
Further information is presented below, defined in
the glossary and reconciled to the most directly
reconcilable line items in the financial statements
and notes. Note 4 of the condensed consolidated financial
statements presents a reconciliation of the Group's
business activities on a segmental basis to the condensed
consolidated income statement including Ongoing operations
of the Group.
Equivalent Adjustment to reconcile
Group IFRS primary statements and
APM measure where calculated Rationale for adjustments
============ ========== ================================= ============================
Adjusted Diluted Adjusted diluted earnings This is a representation
diluted earnings per share is defined of the underlying
earnings per in the glossary and earnings over the
per share share is reconciled below. number of shares
in issue adjusted
for potential dilutions
from the exercise
of options.
============ ========== ================================= ============================
Current-year Loss Current-year attritional Expresses claims
attritional ratio loss ratio is defined performance in the
loss in the glossary and current accident
ratio is reconciled to loss year in relation
ratio in the Finance to net earned premium.
review.
============ ========== ================================= ============================
COR Operating COR is defined in the This is a measure
profit glossary. The constituent of underwriting
parts: operating profit profitability whereby
- Ongoing operations a ratio of less
is discussed below; than 100% represents
and net earned premium an underwriting
(note 5). profit and a ratio
of more than 100%
represents an underwriting
loss and excludes
non-insurance income.
============ ========== ================================= ============================
Investment Investment Investment income yield Expresses a relationship
income income is defined in the glossary between the investment
yield and is reconciled below. income and the associated
opening and closing
assets adjusted
for portfolio hedging
instruments.
============ ========== ================================= ============================
Investment Investment Investment return yield Expresses a relationship
return return is defined in the glossary between the investment
yield and is reconciled below. income and the associated
opening and closing
assets adjusted
for portfolio hedging
instruments.
============ ========== ================================= ============================
Loss Net Loss ratio is defined Expresses claims
ratio insurance in the glossary and performance in relation
claims is reconciled in note to net earned premium.
4.
============ ========== ================================= ============================
Operating Operating Operating profit from This measure shows
profit profit Ongoing operations is the underlying performance
from defined as operating (before tax and
Ongoing profit (see glossary) finance costs)
operations less operating profit of the business
from run-off segment activities without
plus restructuring costs the impact
(see note 4) and is of business that
reconciled below. is in run-off and
non-repeating restructuring
costs.
============ ========== ================================= ============================
Profit Profit Operating profit from This measure shows
after after Ongoing operations (as the underlying performance
tax from tax above) less finance (after tax and finance
Ongoing costs and tax at standard costs)
operations rate and is reconciled of the business
below. activities without
the impact
of business that
is in run-off and
non-repeating restructuring
costs.
============ ========== ================================= ============================
RoTE Return RoTE is defined in the This shows underlying
on Equity glossary and is reconciled performance against
below. a measure of equity
that is more able
to be compared with
other companies.
============ ========== ================================= ============================
Tangible Equity Tangible equity is defined This shows the equity
equity as equity less intangible excluding intangible
assets and is reconciled assets for comparability
below. with companies who
have not acquired
businesses or capitalised
intangible assets.
============ ========== ================================= ============================
Tangible Net Tangible net asset per This shows the equity
net asset assets share is defined as excluding intangible
per share per tangible equity assets per share
share (as above) expressed for comparability
as a value per share with companies who
and is reconciled have not acquired
in note 15. businesses or capitalised
intangible assets.
============ ========== ================================= ============================
Total Operating Total costs from Ongoing This represents
costs expenses operations is defined the total value
from as operating expenses of operating expenses
Ongoing adjusted to remove restructuring including those
operations costs and operating allocated to the
expenses charged to insurance claims
the run-off segment line as claims handling
(reconciled in note expenses.
10) plus claims handling
expenses incurred in
net insurance claims
on Ongoing operations
(note 8). This is reconciled
in the Finance review.
============ ========== ================================= ============================
Additionally, the current-year attritional loss ratio
within the analysis by division section and total
costs have also been identified as alternative performance
measures, similarly reconciled to the financial statements
and notes, in the Finance review, and defined in
the glossary.
Return on tangible equity(1)
H1 H1
2017 2016
Note(2) GBPm GBPm
============================================ ======= ======= =======
Operating profit 4 359.7 316.9
Add back: restructuring costs 4 4.5 30.3
Exclude: operating profit from run-off 4 (10.0) (23.6)
============================================ ======= ======= =======
Operating profit from Ongoing operations 4 354.2 323.6
Finance costs 11 (18.3) (18.4)
============================================ ======= ======= =======
Adjusted profit before tax from
Ongoing operations 335.9 305.2
Tax charge (using the UK standard
tax rate of 19.25% and 20.0% respectively) (64.7) (61.0)
============================================ ======= ======= =======
Adjusted profit after tax from Ongoing
operations 271.2 244.2
============================================ ======= ======= =======
Annualised adjusted profit after
tax 542.4 488.4
============================================ ======= ======= =======
Opening shareholders' equity 2,521.5 2,630.0
Opening goodwill and other intangible
assets (508.9) (524.8)
Opening shareholders' tangible equity 2,012.6 2,105.2
============================================ ======= ======= =======
Closing shareholders' equity 2,654.5 2,668.8
Closing goodwill and other intangible
assets (517.4) (541.4)
============================================ ======= ======= =======
Closing shareholders' tangible equity 2,137.1 2,127.4
============================================ ======= ======= =======
Average shareholders' tangible equity(3) 2,074.8 2,116.3
============================================ ======= ======= =======
Return on tangible equity annualised 26.1% 23.1%
============================================ ======= ======= =======
Adjusted diluted earnings per share(1)
H1 H1
2017 2016
Note(2) GBPm GBPm
======================================= ======= ======= =======
Adjusted profit after tax from Ongoing
operations 271.2 244.2
Weighted average number of Ordinary
Shares for the purpose of diluted
earnings per share (millions) 14 1,378.2 1,385.7
======================================= ======= ======= =======
Adjusted diluted earnings per share
(pence) 19.7 17.6
======================================= ======= ======= =======
Notes:
1. See glossary for definitions
2. See notes to the condensed consolidated financial
statements
3. Mean average of opening and closing balances
Investment income and return yields(1)
H1 H1
2017 2016
Note(2) GBPm GBPm
=================================== ======= ======= =======
Investment income 6 82.8 84.4
Investment return 6 93.0 92.7
=================================== ======= ======= =======
Investment income annualised 165.6 168.8
Investment return annualised 186.0 185.4
=================================== ======= ======= =======
Opening investment property 329.0 347.4
Opening financial investments 5,147.0 5,614.6
Opening cash and cash equivalents 1,166.1 963.7
Opening borrowings (55.3) (61.3)
Opening derivatives(3) (5.8) (45.7)
=================================== ======= ======= =======
Opening investment holdings 6,581.0 6,818.7
=================================== ======= ======= =======
Closing investment property 314.9 348.6
Closing financial investments 5,155.5 5,515.7
Closing cash and cash equivalents 1,106.6 1,055.1
Closing borrowings (59.4) (65.4)
Closing derivatives(3) 30.6 (257.5)
=================================== ======= ======= =======
Closing investment holdings 6,548.2 6,596.5
=================================== ======= ======= =======
Average investment holdings 6,564.6 6,707.6
=================================== ======= ======= =======
Investment income yield annualised 2.5% 2.5%
Investment return yield annualised 2.8% 2.8%
=================================== ======= ======= =======
Notes:
1. See glossary for definitions
2. See notes to the consolidated financial statements
3. Asset allocation at 30 June 2017 includes investment
portfolio derivatives, which have been netted
and have a mark-to-market asset of GBP30.6m
included in investment-grade credit (31 December
2016: mark-to-market liability of GBP5.8m included
in investment grade credit). This excludes derivatives
that have been used to hedge interest on subordinated
debt and operational cash flows.
Directors' responsibility statement
We confirm that to the best of our knowledge:
1. the condensed consolidated financial statements,
which have been prepared in accordance with
International Accounting Standard 34 'Interim
Financial Reporting' as adopted by the European
Union, give a true and fair view of the assets,
liabilities, financial position and profit
or loss of Direct Line Insurance Group plc
and the undertakings included in the consolidation
taken as a whole as required by Disclosure
and Transparency Rule 4.2.4R;
2. the interim management report includes a fair
review of the information required by:
* Disclosure and Transparency Rule 4.2.7R being an
indication of important events that have occurred
during the first six months of the financial year and
their impact on the condensed set of financial
statements, and a description of the principal risks
and uncertainties for the remaining six months of the
financial year; and
* Disclosure and Transparency Rule 4.2.8R being related
parties transactions that have taken place in the
first six months of the current financial year and
that have materially affected the financial position
or the performance of the entity during that period;
and any changes in the related parties transactions
described in the last Annual Report & Accounts that
could do so.
Signed on behalf of the Board
Paul Geddes John Reizenstein Chief Executive Officer Chief Financial Officer 31 July 2017 31 July 2017
Independent review report to Direct Line Insurance Group plc
We have been engaged by Direct Line Insurance Group plc (the "Company") to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 20. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, UK
31 July 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR RBMLTMBJJBPR
(END) Dow Jones Newswires
August 01, 2017 02:01 ET (06:01 GMT)
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