We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register for streaming realtime charts, analysis tools, and prices.
| 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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 189.50 | 189.70 | 190.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Fire, Marine, Casualty Ins | 2.86B | 222.9M | 0.1700 | 11.15 | 2.49B |
TIDMDLG
RNS Number : 9837F
Direct Line Insurance Group PLC
27 February 2018
Hot Features
Premium
Direct Line Insurance Group plc
Preliminary results for the year ended 31 December 2017
27 February 2018
Strong financial performance, final dividend up 40.2% to 13.6p and special dividend
of 15.0p
Paul Geddes, CEO of Direct Line Group, commented
"2017 is the fifth successive year in which we
have delivered a strong financial performance.
We have seen significant growth in our direct own
brand policies as more customers respond positively
to the many improvements we have made to the business.
This success has resulted in our proposing an increase
in the final dividend by 40.2% to 13.6 pence, bringing
the total ordinary dividends to 20.4 pence, and
declaring a special dividend of 15.0 pence. This
amounts to a cash return of GBP486 million to shareholders
for 2017.
"At half year we refreshed our medium term targets
and today's results show we've been delivering
on our management priorities to maintain revenue
growth, reduce expense and commission ratios and
deliver underwriting and pricing excellence.
"Looking to the future, this success enables us
to continue investing in our technology and customer
experience, supporting our plans to grow the business
whilst improving efficiency. Together with our
track record of delivery, these give us the confidence
to continue to target a combined operating ratio
of 93% to 95% over the medium term."
Results summary
FY 2017 FY 2016
GBPm GBPm Change
------------------------------------------------------ ---------- ---------- -----------
Gross written premium 3,392.1 3,274.1 3.6%
Operating profit - Ongoing operations(1) 610.9 403.5 51.4%
Combined operating ratio(2) 91.8% 97.7% (5.9pts)
Profit before tax 539.0 353.0 52.7%
Return on tangible equity(1) 21.7% 14.2% 7.5pts
Dividend per share - interim (pence) 6.8 4.9 38.8%
Dividend per share - final (pence) 13.6 9.7 40.2%
Dividend per share - special (pence) 15.0 10.0 50.0%
Solvency capital ratio post-dividend
- estimated(3) 162% 165% (3.0pts)
------------------------------------------------------ ---------- ---------- -----------
Financial highlights
-- Strong growth in direct own brands(1) premiums
and in-force policies up 9.3% and 5.3% respectively,
driven again by continued Direct Line momentum
in Motor.
-- Operating profit from Ongoing operations of
GBP610.9 million (2016: GBP403.5 million), primarily
due to the non-repeat of the Ogden discount
rate change which was reflected in 2016's results.
Profit before tax of GBP539.0 million (2016:
GBP353.0 million).
-- Reported expense ratio in line with 2016. Excluding
non-cash intangible assets impairments of GBP56.9
million (2016: GBP39.3 million), underlying
expense ratio improved 0.5 percentage points
to 23.5%.
-- Combined operating ratio from Ongoing operations
of 91.8% (2016: 97.7%) reflecting strong Motor
and Commercial performance, including from prior-year
reserve releases. Adjusted for normal weather,
combined operating ratio towards the lower end
of the target range of 93% to 95%.
-- Final dividend up by 40.2% to 13.6 pence bringing
the total ordinary dividends to 20.4 pence (2016:
14.6 pence) and a special dividend of 15.0 pence
(2016: 10.0 pence). Total dividends for 2017
of 35.4 pence per share (2016: 24.6 pence).
Notes:
1. See glossary for definitions and appendix A -
Alternative performance measures for reconciliation
to financial statement line items.
2. 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 definitions.
3. Estimates based on the Group's solvency II partial
internal model.
For further information,
please contact
Andy Broadfield Lisa Tremble
Director of Investor Head of External Affairs
Relations
Tel: +44 (0)1651 831022 Tel: +44 (0)1651 834211
Forward-looking statements disclaimer
Certain information contained in this document, including any information as
to the Group's strategy, plans or future financial or operating performance,
constitutes "forward-looking statements". These forward-looking statements may
be identified by the use of forward-looking terminology, including the terms
"aims", "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 and guidance which are contained in this document
specifically with respect to the return on tangible equity, solvency capital
ratio, the Group's combined operating ratio, prior-year reserve releases, cost
reduction, reductions in expense and commission ratios, 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 outcome of the negotiations relating
to the UK's withdrawal from the European Union, market-related risks such as
fluctuations in interest rates and exchange rates, the policies and actions
of regulatory authorities (including changes related to capital and solvency
requirements or the Ogden discount rate), the impact of competition, currency
changes, inflation and deflation, the timing impact and other uncertainties
of future acquisitions, disposals, joint ventures or combinations within relevant
industries, as well as the impact of tax and other legislation and other regulation
in the jurisdictions in which the Group and its affiliates operate. In addition,
even if the Group's actual results of operations, financial condition and the
development of the business sector in which the Group operates are consistent
with the forward-looking statements contained in this document, those results
or developments may not be indicative of results or developments in subsequent
periods.
The forward-looking statements contained in this document reflect knowledge
and information available as of the date of preparation of this document. The
Group and the Directors expressly disclaim any obligations or undertaking to
update or revise publicly any forward-looking statements, whether as a result
of new information, future events or otherwise, unless required to do so by
applicable law or regulation. Nothing in this document should be construed as
a profit forecast.
Neither the content of Direct Line Group's website nor the content of any other
website accessible from hyperlinks on the Group's website is incorporated into,
or forms part of, this document.
Financial summary
---------------------------------------------------------- --------- -------- ----------
FY FY
2017 2016
GBPm GBPm Change
---------------------------------------------------------- --------- -------- ----------
Ongoing operations:
In-force policies (thousands) 15,714 15,806 (0.6%)
In-force policies - direct own brands(1)
(thousands) 6,909 6,563 5.3%
Gross written premium 3,392.1 3,274.1 3.6%
Net earned premium 3,135.0 3,000.6 4.5%
Underwriting profit 256.9 70.1 266.5%
Instalment and other operating income 179.3 165.3 8.5%
Investment return 174.7 168.1 3.9%
---------------------------------------------------------- --------- -------- ----------
Operating profit - Ongoing operations 610.9 403.5 51.4%
Run-off 43.8 26.6 64.7%
Restructuring costs (11.9) (39.9) 70.2%
---------------------------------------------------------- --------- -------- ----------
Operating profit 642.8 390.2 64.7%
Finance costs (103.8) (37.2) (179.0%)
Profit before tax 539.0 353.0 52.7%
Tax (105.0) (74.2) (41.5%)
Profit after tax 434.0 278.8 55.7%
Of which Ongoing operations(2) 462.9 293.0 58.0%
---------------------------------------------------------- --------- -------- ----------
Key metrics - Ongoing operations
Loss ratio(3) 57.4% 60.9% (3.5pts)
Commission ratio(3) 9.1% 11.5% (2.4pts)
Expense ratio(3) 25.3% 25.3% -
Combined operating ratio(3) 91.8% 97.7% (5.9pts)
Adjusted diluted earnings per share
(1) (pence) 33.6 21.2 58.5%
Return on tangible equity(1) 21.7% 14.2% 7.5pts
---------------------------------------------------------- --------- -------- ----------
Key metrics
Investment income yield(1) 2.5% 2.5% -
Net investment income yield(1) 2.1% 2.2% (0.1pts)
Investment return yield(1) 2.6% 2.6% -
Basic earnings per share (1) (pence) 31.8 20.4 55.9%
Return on equity 16.6% 10.8% 5.8pts
Dividend
per share - interim (pence) 6.8 4.9 38.8%
- final pence) 13.6 9.7 40.2%
- total ordinary (pence) 20.4 14.6 39.7%
- special (pence) 15.0 10.0 50.0%
- total (pence) 35.4 24.6 43.9%
Net asset value per share (pence) 198.9 184.7 7.7%
Tangible net asset value per share
(pence) 164.4 147.4 11.5%
Solvency capital ratio(4) - estimated 162% 165% (3.0pts)
========================================================== ========= ======== ==========
Notes:
1. See glossary for definitions and appendix A - Alternative performance measures
for reconciliation to financial statement line items.
2. Profit after tax for Ongoing operations has been adjusted to exclude the
one-off subordinated debt buy back charge of GBP53.4 million net of tax.
3. A reduction in the ratio represents an improvement as a proportion of net
earned premium, while an increase in the ratio represents a deterioration.
4. Estimates based on the Group's solvency II partial internal model, reported
after proposed dividends.
Business update
Overview
Direct Line Group (the "Group") had a successful 2017, delivering a strong result
and achieving its key priorities. The Group grew direct own brands, with in-force
policies up 5.3% to 6.9 million (2016: 6.6 million) and gross written premiums
up 9.3% to GBP2,184.1 million (2016: GBP1,997.6 million); delivered a combined
operating ratio ("COR") of 91.8%, which when normalised for major weather events
was towards the lower end of its target range of 93% to 95%; and reduced commission
and underlying expense ratios (down 2.4 percentage points and 0.5 percentage
points respectively). These improvements delivered a return on tangible equity
("RoTE") of 21.7%. The solvency capital ratio was 190% before dividends, demonstrating
the strong capital generation of the business and the cumulative benefits of
the Group's long-term risk management approach.
In line with the Group's trading update of 9 February 2018, operating profit
from Ongoing operations increased to GBP610.9 million (2016: GBP403.5 million).
The underwriting result (for both current and prior-year), instalment and other
operating income and investment income were all higher than in 2016, which was
impacted by the change to the Ogden discount rate announced in February 2017.
Operating profit from Ongoing operations in 2017 included strong growth at improved
margins in the Motor business and strong Commercial results, offset by Home,
where 2016 benefitted from significant one-off reserve releases.
Total Group profit before tax was GBP539.0 million (2016: GBP353.0 million),
reflecting a strong run-off result and a one-off charge related to the refinancing
of debt in November 2017.
The Group remained focussed on developing its future capabilities, with investments
in digital offerings, customer experience and operational efficiency. This helped
support growth across its direct brands, including in the small and micro business
market, and further developed its partnership capabilities. The Group continued
to invest in its IT systems and capability. During the year, the Group reviewed
its progress, and as part of its updated plan identified elements to rework,
resulting in an intangible assets impairment charge of GBP56.9 million. The
Group's total expense ratio was stable year on year, despite the higher intangible
assets impairments and increased industry levies.
Motor
The Motor division grew in-force polices 3.8% in the year to 4.0 million and
premiums grew 8.5% to GBP1,670.4 million. This growth was driven by the Direct
Line brand, once again demonstrating the success of the Group's strategic focus
on being a great retailer and the power of the direct model in a highly competitive
switching market.
Motor current-year loss ratio improved to 79.7% (2016: 84.1%) as the Group priced
to reflect the higher costs of the lower Ogden discount rate and benefitted
from having renewed its reinsurance arrangements at the beginning of the year,
before the Ogden discount rate change. Motor also benefitted from a GBP49 million
reserve release after a detailed review in H1 of the Group's Ogden provision
within case reserves. Other prior-year releases were lower year on year, albeit
large bodily injury claims developed favourably. In addition, in 2017 the Group's
claims experience was better than expected.
The Motor excess of loss reinsurance programme renewed on 1 January 2018 at
a somewhat increased cost reflecting the reduction in the Ogden discount rate
and at a level within the Group's plans and risk appetite. The Group renewed
all layers, but retained 10% of the first risk layer (GBP2 million excess GBP1
million). This was a successful renewal in an uncertain climate reflecting the
Group's historically strong performance and financial position.
The Group's ambition is to be the partner of choice for motor manufacturers.
The Group's focus on being a smart and efficient manufacturer and its determination
to embrace new technology has led to improved digital capabilities to enhance
the customer journey and new propositions to meet customer needs which support
this ambition. The Group already has a partnership with PSA Finance UK (part
of Groupe PSA, owners of the Peugeot and Citroën brands) and an introducer
relationship with Tesla, and the Group has recently signed a letter of intent
for a partnership arrangement intended to be for five or more years with Volkswagen
Insurance Service (Great Britain) Limited covering five well-known brands -
Volkswagen, Audi, Seat, Skoda and Volkswagen Commercial Vehicles.
Home
In Home, the Group grew direct own brand in-force policies by 2.0% to 1.8 million
and premiums by 1.2% to GBP409.7 million, although this was more than offset
by the continuing fall in the partnership channel where in-force policies declined
by 10.2% and premiums declined by 9.4%.
Underwriting performance was supported by lower weather losses of GBP13 million
(2016: GBP18 million), but was offset by lower prior-year reserve releases of
GBP23.7 million (2016: GBP75.9 million), as 2016 benefitted from significant
releases from the reserves established following the storms of late 2015. Home's
underwriting performance was also impacted by an increase in escape of water
("EoW") claims costs which affected current-year performance. Management took
actions throughout the year on pricing, claims and underwriting which helped
return EoW inflation to more normal levels.
The change in distribution of Home's insurance business from partners to price
comparison websites ("PCWs") continued in 2017, increasing market price competitiveness
and commoditisation. The Group remained competitive across all channels and
successfully grew its PCW policies in 2017 at attractive margins, helping to
support the strong profitability of the category.
The Group's focus on capital and risk management led to a successful renewal
of its catastrophe reinsurance programme in July 2017, for the first time with
a fixed rate three year arrangement for approximately 60% of its programme,
providing more certainty over the costs it will incur on the majority of its
programme until 2020.
The Group's focus on being a great retailer was demonstrated again with the
launch of another Direct Line Home proposition in 2017, with 'Emergency Hotel
sorted within one hour'; in the event of a major home fire, the Group provides
rapid support to its customers at the point of need. Propositions such as this
continue to differentiate Direct Line from its peers. The Group's investment
in its digital capabilities has strengthened its partnership capabilities as
demonstrated by a faster quote and buy journey that its partners RBS and NatWest
can now provide to their customers, increasing new business sales by 50% in
2017.
Commercial
The Commercial business grew in-force policies 4.9% to 708k with Direct Line
for Business ("DL4B") up 8.1% to 468k and the broker business, NIG, down 0.8%
to 240k. Commercial premiums were up 0.3% to GBP501.5 million, with 11.9% growth
in DL4B partially offset by a 2.9% reduction in NIG.
The Commercial business continued its improvement in profitability, increasing
operating profit to GBP74.0 million (2016: GBP41.8 million) primarily due to
the non-repeat of the Ogden discount rate change and higher prior-year reserve
releases due to favourable development on liability classes. Weather was benign
in 2017 and 2016.
In line with the Group's strategic pillar to 'lead and disrupt', DL4B made significant
strides in its strategy to disrupt the small and micro commercial insurance
industry, launching its new direct insurance platform for UK businesses in April
2017. Hair and Beauty was the first product launched and in December this was
followed up by DL4B's Bed & Breakfast proposition. Management aims to have 75%
of its targeted trades launched by the end of 2018.
In addition to the direct channel, NIG continued to support commercial insurance
brokers by focusing on enabling easier trading. This included using technology
to improve trading efficiency through more on-line products, moving to a paperless
offering and investing in new systems for more complex business.
Rescue and other personal lines
Overall Rescue and other personal lines in-force policies fell by 1.8% to 7.7
million, but the product mix continued to improve. The Rescue business is made
up of three distribution channels: the Group's direct brand (Green Flag), sales
from the Group's insurance brands (linked) and partnerships. Green Flag, the
most profitable channel, grew in-force policies by 10.0% to 802k and reached
the highest number of policies since the Group's initial public offering in
2012, increasing sales of its higher premium products, resulting in 11.5% premium
growth. Rescue partnership premiums decreased by 19.5% as the sale of packaged
products continued to decline and the Group lost a partner. Nonetheless, the
partnership business continued to provide benefit in terms of scale and distribution.
During Q4 2017 the Group agreed to renew its rescue services partnership with
RBS/NatWest for a further 5 years. The Group is currently in discussion with
RBS/NatWest regarding its travel partnership, which is subject to a tender.
The Rescue category has positioned itself as the market disruptor and is seeking
to challenge the rescue market. Green Flag launched a new advertising campaign
in the second half of 2017, highlighting the value of Green Flag policies compared
to its main competitors.
Investments
The Group's investment strategy is intended to protect capital and match its
UK liabilities with a diverse, high quality, and liquid asset portfolio. As
part of this strategy the Group uses hedging to protect itself from movements
in the US dollar/sterling exchange rate and in US dollar interest rates.
Assets under management increased GBP128.3 million in the year reflecting lower
capital distributions in 2017, strong investment performance and business growth
offset by continued reduction in the Group's net liabilities.
Total investment return was GBP175.4 million (2016: GBP171.5 million), giving
a total yield of 2.6% (2016: 2.6%). Whilst investment income has benefitted
from an increase in US interest rates, this has been offset by an increase in
the cost of hedging to a sterling floating rate, resulting in a hedging cost
of GBP27.0 million. This was more than offset by other realised and unrealised
gains, including on the property portfolio.
Investment income remained broadly stable at GBP167.1 million (2016: GBP167.9
million) and the investment income yield was in line with management guidance
at 2.5% (2016: 2.5%). Investment income net of hedging costs was GBP140.1 million
(2016: GBP150.8 million) and the investment income yield net of the hedging
result was 2.1% (2016: 2.2%).
Data and technology
Data and technology as a key enabler remained an ongoing area of focus. This
includes developing future capability and managing the risks associated with
IT systems' stability and cyber security. Technology remains at the heart of
the Group's operations and the focus is on upgrading the Group's IT systems
and capabilities, aimed at improving the digital offering, customer experience
and operational efficiency. Whilst progress has been made in each of the three
areas, implementation and integration of a range of new IT systems is inherently
complex and challenging, and the Group is working with an experienced systems
integrator. The Group remains focused on building the right capabilities and
will take the time necessary to do so and has a phased programme of build, testing
and roll out activities planned in 2018/2019 and beyond in Personal Lines and
Commercial. The Group expects to incur capital expenditure of an average of
around GBP80 million to GBP100 million per annum over the period 2017 to 2019.
Management have invested significantly in the IT and data knowledge and capability
of the Group. The Group has brought in new talent over the past two years across
IT, IT security, digital, and data to help achieve this. During the year, the
Group updated its plans and decided that some of the investment undertaken as
part of the improvement in IT capability would not deliver the targeted performance
levels to meet its customers' expectations. Therefore, as part of its new plans,
the Group decided to rework some elements of data storage and data flows. As
a result the Group incurred an intangible assets impairment charge of GBP56.9
million in the year, reflecting capitalised costs of intangible assets that
will no longer be utilised.
Dividends and capital management
During 2017 the Group increased its capital flexibility by issuing restricted
Tier 1 notes and buying back half of its existing Tier 2 debt. Overall the Group
achieved the primary objectives of the transaction, which were to spread the
maturity of the Group's debt call dates and to increase headroom for Tier 2
debt issuance, should this be needed in the future. The transaction was successfully
completed in December 2017. GBP250 million nominal value of Tier 2 debt with
a coupon of 9.25% was repurchased and GBP350 million of Tier 1 notes were issued
with a coupon of 4.75%. These transactions have increased the solvency capital
ratio by approximately 2 percentage points and reduced future finance costs.
As announced in the Group's 2017 half year results, the Board has rebased the
ordinary dividend upwards, increasing the proposed final dividend by 3.9 pence
to 13.6 pence per share (2016: 9.7 pence). This reflects the Group's confidence
in its earnings and the progress the business has made since the Group's initial
public offering in 2012.
In normal circumstances, the Group expects to operate around the middle of its
solvency capital ratio risk appetite range of 140% to 180%. As a result of the
Group's lower capital requirements in 2017 and the strong financial performance
in the year, the Group has announced a special dividend of 15.0 pence per share,
taking the estimated Group solvency capital ratio post-dividends to 162% as
at 31 December 2017.
Outlook
For 2018 and over the medium term, the Group targets achieving a 93% to 95%
COR assuming a normal annual level of claims from major weather events and no
further change to the Ogden discount rate, supported by reductions in its expense
and commission ratios; and reiterates its ongoing target of achieving at least
a 15% return on tangible equity.
For 2018, the Group targets net investment income yield to be around 2.1% with
overall investment return in the region of GBP150 million.
Finance review
Performance
Operating profit - Ongoing operations
------------------------------------------------------------------------ --------- ---------
FY FY
2017 2016
GBPm GBPm
------------------------------------------------------------------------ --------- ---------
Underwriting profit 256.9 70.1
Instalment and other operating income 179.3 165.3
Investment return 174.7 168.1
------------------------------------------------------------------------ --------- ---------
Total operating profit 610.9 403.5
------------------------------------------------------------------------ --------- ---------
Operating profit from Ongoing operations increased to GBP610.9 million (2016:
GBP403.5 million). The underwriting result (for both current and prior-year),
instalment and other operating income and investment income were all higher
than 2016, which was impacted by the change to the Ogden discount rate announced
in February 2017. Operating profit from Ongoing operations in 2017 included
strong growth at improved margins in the Motor business and strong Commercial
results, offset by Home, where 2016 benefitted from significant releases from
reserves established following the storms of late 2015. Investment return was
higher, with investment income stable while strong realised and unrealised gains
more than offset the increased cost of hedging.
In-force policies and
gross written premium
In-force policies -
Ongoing
operations (thousands)
------------------------- ---------- ---------- ----------- ----------- -----------
31 Dec 30 Sep 30 Jun 31 Mar 31 Dec
At 2017 2017 2017 2017 2016
------------------------- ---------- ---------- ----------- ----------- -----------
Own brands 3,845 3,805 3,761 3,691 3,642
Partnerships 174 188 205 220 231
========================= ========== ========== =========== =========== ===========
Motor total 4,019 3,993 3,966 3,911 3,873
Own brands 1,794 1,783 1,770 1,764 1,759
Partnerships 1,454 1,499 1,534 1,593 1,619
========================= ========== ========== =========== =========== ===========
Home total 3,248 3,282 3,304 3,357 3,378
Of which Nationwide and
Sainsbury's 631 665 688 706 719
Rescue 3,591 3,635 3,663 3,676 3,646
Other personal lines 4,148 4,159 4,178 4,188 4,234
========================= ========== ========== =========== =========== ===========
Rescue and other personal
lines 7,739 7,794 7,841 7,864 7,880
Of which Green Flag
direct 802 788 759 739 729
Direct Line for Business 468 462 452 441 433
NIG 240 244 248 245 242
------------------------- ---------- ---------- ----------- ----------- -----------
Commercial 708 706 700 686 675
------------------------- ---------- ---------- ----------- ----------- -----------
Total in-force policies 15,714 15,775 15,811 15,818 15,806
------------------------- ---------- ---------- ----------- ----------- -----------
Total in-force policies for Ongoing operations during 2017 reduced by 0.6% to
15.7 million (31 December 2016: 15.8 million). The fall primarily related to
lower partner volumes in Home and Rescue and other personal lines partially
offset by increases in more profitable Motor and Home direct own brands business.
Motor in-force policies grew by 3.8% and Commercial by 4.9% across the period.
Own brands direct in-force policies in 2017 grew by 5.3% including a 5.6% increase
in Motor, 2.0% increase in Home, 10.0% increase in Green Flag direct and a 8.1%
increase in DL4B.
Gross written premium -
Ongoing operations
-------------------------------------------- ------- ---------- --------- --------- ---------
Q4 Q4 H2 H2 FY FY
2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm
=================================== ======= ======= ========== ========= ========= =========
Own brands 368.5 333.3 809.7 734.4 1,590.9 1,428.7
Partnerships 15.5 24.0 36.3 54.4 79.5 110.4
=================================== ======= ======= ========== ========= ========= =========
Motor total 384.0 357.3 846.0 788.8 1,670.4 1,539.1
Own brands 102.2 100.1 216.5 213.1 409.7 404.7
Partnerships 91.8 105.2 194.5 218.1 389.4 429.7
=================================== ======= ======= ========== ========= ========= =========
Home total 194.0 205.3 411.0 431.2 799.1 834.4
Of which Nationwide
and Sainsbury's 45.1 54.1 96.2 110.5 193.8 215.5
Rescue 34.2 34.9 77.7 81.2 161.3 163.1
Other personal lines 63.6 60.2 130.1 121.9 259.8 237.7
=================================== ======= ======= ========== ========= ========= =========
Rescue and other personal
lines 97.8 95.1 207.8 203.1 421.1 400.8
Of which Green Flag
direct 13.2 11.6 31.5 28.0 60.9 54.6
Direct Line for Business 29.7 27.1 62.5 56.6 122.6 109.6
NIG 85.2 93.3 170.6 181.3 378.9 390.2
=================================== ======= ======= ========== ========= ========= =========
Commercial 114.9 120.4 233.1 237.9 501.5 499.8
=================================== ======= ======= ========== ========= ========= =========
Total gross written
premium 790.7 778.1 1,697.9 1,661.0 3,392.1 3,274.1
=================================== ======= ======= ========== ========= ========= =========
Gross written premium increased by 3.6% to GBP3,392.1 million (2016: GBP3,274.1
million) primarily relating to an increase in Motor and Home own brands and
other personal lines partially offset by a reduction in Motor and Home partnerships.
Motor
Motor in-force policies increased by 3.8% to 4.0 million during 2017, primarily
due to growth in own brands. This was supported by higher levels of new business
and higher levels of customer retention. Investment in brand differentiation
continued in 2017, and helped drive the strong performance in Direct Line. Motor
gross written premium increased by 8.5% to GBP1,670.4 million as a result of
higher volumes and higher average premiums.
Motor risk-adjusted prices increased by 9.5% in 2017 while risk mix reduced
by 3.2% reflecting the way the Group deployed Ogden pricing changes which were
in line with claims experience. As a result, Motor average premium(1) grew by
5.9% in 2017. The Group traded well throughout 2017 and benefitted from its
reinsurance programme which was fixed prior to the Ogden discount rate change.
Motor also benefitted from better claims experience in 2017 compared with the
Group's long-term view of claims inflation. These two factors enabled the Group
to grow policy count and premiums at attractive margins.
The market continued to experience a high level of shopping behaviour following
the change to the Ogden discount rate, insurance premium tax increases and the
introduction of last year's premium disclosures. Market premiums increased during
2017, albeit slowing in the second half, due to better claims experience.
Home
In-force policies for Home own brands increased by 2.0% to 1.8 million over
2017 and gross written premium grew by 1.2%. Partnership in-force policies and
premiums continued to fall in line with previous years.
Home own brands maintained competitiveness in 2017. The Group was quick to adjust
new business prices to reflect claims inflation and due to its strong propositions
and improved competitiveness, wrote higher new business volumes. Total own brands
risk adjusted prices were 2.6% ahead of prior-year. Higher new business growth,
particularly through PCWs led to a reduction of 1.3% in Home own brands average
premium(2) . As expected, renewal premiums continue to experience some reduction
year on year due to channel mix moving towards lower premium PCW and web channels,
whilst strong retention enabled policy renewals to grow year on year.
The market continued to experience a high level of shopping behaviour following
insurance premium tax increases and the introduction of last year's premium
disclosures. Market new business premiums began to increase in 2017 albeit not
reflective of claims inflation.
The Group's Home partnership with Nationwide ended in December 2017 when new
business ceased to be written. Existing in-force policies will run off during
2018.
Notes:
1. Average incepted written premium excluding IPT for total Motor for year ended
31 December 2017.
2. Average incepted written premium excluding IPT for Home own brands for year
ended 31 December 2017.
Rescue and other personal lines
Rescue and other personal lines in-force policies reduced 1.8% to 7.7 million
compared with 2016, primarily due to lower partner volumes. Green Flag direct
in-force polices increased by 10.0% in the year from 729k to 802k. Gross written
premium increased 5.1% compared with 2016, primarily due to price increases
in Travel and strong growth in Green Flag direct, which increased 11.5% compared
with 2016.
Commercial
Commercial in-force policies increased 4.9% to 708k compared with 2016 with
a particularly strong performance in DL4B which increased 8.1%. Commercial gross
written premium increased by 0.3% to GBP501.5 million compared to 2016, reflecting
strong growth in DL4B, up 11.9%, particularly in landlord and van products.
Gross written premium for NIG decreased by 2.9% compared to 2016, as the Group
continued to price for risk and improved profitability.
Underwriting profit and combined operating
ratio - Ongoing operations
--------------------------------------------------------------------- -------- --------
FY FY
2017 2016
--------------------------------------------------------------------- -------- --------
Underwriting profit (GBP million) 256.9 70.1
Loss ratio 57.4% 60.9%
Commission ratio 9.1% 11.5%
Expense ratio 25.3% 25.3%
--------------------------------------------------------------------- -------- --------
COR 91.8% 97.7%
--------------------------------------------------------------------- -------- --------
The COR for Ongoing operations of 91.8% (2016: 97.7%) improved 5.9 percentage
points, primarily as a result of the improvement in the loss and commission
ratios. At the start of the year, the Group set its 2017 COR target for Ongoing
operations in the range of 93% to 95%. This assumed a normal level of claims
from major weather events. On this basis, the Group achieved a normalised COR
towards the lower end of the Group's target range. This also includes an intangible
asset impairment charge of GBP56.9 million (2016: GBP39.3 million).
The loss ratio was 3.5 percentage points lower at 57.4% (2016: 60.9%) and reflects
a broadly flat current-year loss ratio and higher prior-year reserve releases.
The current year loss ratio was broadly stable, as improvements in Motor were
offset by EoW claims in Home. Prior-year reserves releases included a charge
in 2016 of GBP175.1 million due to the impact of the change to the Ogden discount
rate announced in February 2017, while 2017 includes a reserve release of GBP49
million, arising after a detailed case review of the Group's 2016 Ogden provision.
Other prior-year releases were lower year on year, albeit large bodily injury
claims developed favourably. Home was impacted by higher EoW claims in 2017,
whilst 2016 included favourable development from the storms of late 2015.
The decrease in the commission ratio by 2.4 percentage points to 9.1% primarily
reflected lower profit share payments to Home partners, as a result of lower
prior-year reserve releases, a higher current-year attritional loss ratio and
changes to the business mix and partnership arrangements.
The Group's expense ratio remained stable at 25.3%, as efficiency improvements
in the cost base offset higher intangible asset impairments and industry levies.
Excluding the impairment charge of GBP56.9 million (2016: GBP39.3 million),
the underlying expense ratio improved by 0.5 percentage points to 23.5% (2016:
24.0%).
Loss ratio analysis by division - Ongoing operations
Rescue
and other
personal Total
Notes Motor Home lines Commercial(1) Ongoing
GBPm GBPm GBPm GBPm GBPm
-------------------------- ------- ------- ------- ---------- ---------------- ----------
For the year ended
31 December 2017
Net earned premium 3 1,470.6 790.5 417.6 456.3 3,135.0
========================== ======= ======= ======= ========== ================ ==========
Net insurance claims 3 896.0 400.5 273.3 227.5 1,797.3
Prior-year reserve
releases 19 275.5 23.7 6.8 86.3 392.3
Major weather events n/a- (13.0) n/a n/a (13.0)
========================== ======= ======= ======= ========== ================ ==========
Attritional net insurance
claims 1,171.5 411.2 280.1 313.8 2,176.6
========================== ======= ======= ======= ========== ================ ==========
Loss ratio - current-year
attritional 79.7% 52.0% 67.1% 68.8% 69.4%
Loss ratio - prior-year
reserve releases (18.8%) (3.0%) (1.7%) (18.9%) (12.4%)
Loss ratio - major
weather events -
Home(2) n/a 1.6% n/a n/a 0.4%
========================== ======= ======= ======= ========== ================ ==========
Loss ratio - reported 3 60.9% 50.6% 65.4% 49.9% 57.4%
Commission ratio 3 2.5% 17.7% 5.5% 19.1% 9.1%
Expense ratio 3 28.5% 21.1% 23.4% 24.4% 25.3%
========================== ======= ======= ======= ========== ================ ==========
COR 3 91.9% 89.4% 94.3% 93.4% 91.8%
========================== ======= ======= ======= ========== ================ ==========
For the year ended
31 December 2016
Net earned premium 3 1,337.1 816.3 394.4 452.8 3,000.6
========================== ======= ======= ======= ========== ================ ==========
Net insurance claims 3 1,001.7 332.0 243.0 250.5 1,827.2
Prior-year reserve
releases 19 123.5 75.9 17.5 49.8 266.7
Major weather events n/a (18.0) n/a n/a (18.0)
========================== ======= ======= ======= ========== ================ ==========
Attritional net insurance
claims 1,125.2 389.9 260.5 300.3 2,075.9
========================== ======= ======= ======= ========== ================ ==========
Loss ratio - current-year
attritional 84.1% 47.8% 66.0% 66.3% 69.2%
Loss ratio - prior-year
reserve releases (9.2%) (9.3%) (4.4%) (11.0%) (8.9%)
Loss ratio - major
weather events -
Home(2) n/a 2.2% n/a n/a 0.6%
========================== ======= ======= ======= ========== ================ ==========
Loss ratio - reported 3 74.9% 40.7% 61.6% 55.3% 60.9%
Commission ratio 3 3.2% 22.6% 7.2% 19.5% 11.5%
Expense ratio 3 28.2% 21.7% 24.5% 23.9% 25.3%
========================== ======= ======= ======= ========== ================ ==========
COR 3 106.3% 85.0% 93.3% 98.7% 97.7%
========================== ======= ======= ======= ========== ================ ==========
Notes:
1. Commercial attritional loss ratio includes weather
claims costs.
2. Home claims for major weather events, including
inland and coastal flooding and storms.
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 from major weather events.
The Group's current-year attritional loss ratio
is broadly flat at 69.4% in 2017 (2016: 69.2%) with
a significant improvement in Motor partially offset
by deterioration in other segments.
By division, the COR improved in 2017 in Motor and
Commercial, mainly due to higher prior-year reserve
releases, as 2016 included a GBP175.1 million charge
for the Ogden discount rate change while 2017 included
a GBP49 million reserve release. The COR deteriorated
in Home, primarily due to lower prior-year reserve
releases, as 2016 included releases from the 2015
storms; and the impact of higher EoW claims inflation.
Motor
The COR for the Motor division was 91.9% (2016:
106.3%), a significant improvement due to the non-repeat
of GBP150.3 million of the Ogden charge incurred
in 2016. Excluding the impact of Ogden in 2016,
the COR improved due to strong growth at improved
margins. Motor also benefitted from a GBP49 million
reserve release after a detailed review in H1 of
the Group's Ogden provision within case reserves.
Other prior-year releases were lower year on year,
albeit large bodily injury claims developed favourably.
The expense ratio increased slightly due to a higher
intangible asset impairment of GBP56.9 million (2016:
GBP39.3 million). The commission ratio improved
0.7 percentage points compared with 2016.
The current-year attritional loss ratio improved
by 4.4 percentage points to 79.7% (2016: 84.1%).
This reflects strong trading in 2017, the benefit
of the Group's reinsurance arrangements renewed
prior to the Ogden discount rate change announcement
in February 2017 and better than expected claims
experience.
While bodily injury claims frequency was better
than expected in 2017, claims severity inflation,
particularly in relation to damage perils, remained
a headwind. Overall, claims inflation in 2017, excluding
Ogden, was below the Group's expected long-term
average of 3% to 5% per annum.
Home In Home, the COR increased by 4.4 percentage
points primarily as a result of a higher loss ratio,
partially offset by a reduced commission ratio.
The loss ratio increased 9.9 percentage points compared
with 2016, mainly as prior-year reserve releases
were lower than for 2016 at GBP23.7 million (2016:
GBP75.9 million), as 2016 benefitted from significant
releases from the reserves established following
the storms of late 2015. The impact of major weather
events in 2017 was slightly lower at approximately
GBP13 million (2016: GBP18 million), lower than
the normal annual level of claims costs expected
from major weather events of approximately GBP65
million. Based on planned volumes for 2018, the
Group's current assumption of a normal annual level
of claims costs from major weather events is approximately
GBP55 million.
The current-year attritional loss ratio, excluding
claims costs from major weather events, was 4.2
percentage points higher than in 2016. This was
predominately driven by elevated EoW claims inflation
costs and a change in channel mix. Claims, pricing
and underwriting actions taken since Q1 2017 have
been on track to reduce claims inflation to a more
normal level.
Rescue and other personal lines
The COR for Rescue and other personal lines was
1.0 percentage point higher at 94.3% (2016: 93.3%)
primarily due to an increase in the loss ratio as
a result of lower prior-year reserve releases in
Travel. The commission ratio improved 1.7 percentage
points due to lower payments to partners while the
expense ratio improved 1.1 percentage points primarily
due to improved marketing efficiency for Rescue.
The COR for Rescue was 82.8% (2016: 83.4%).
Commercial
The Commercial COR of 93.4% benefitted from low
weather-related claims costs. This COR was 5.3 percentage
points lower than 2016, primarily due to higher
prior-year reserve releases following favourable
development on liability classes and the non-repeat
of the Ogden charge of GBP24.8 million incurred
in 2016. The current-year attritional loss ratio
was 2.5 percentage points higher in 2017 as the
Group continued to set current accident year reserves
conservatively. Based on planned volumes for 2018,
the Group's current assumption of a normal annual
level of claims costs from major weather events
is approximately GBP20 million.
Total costs - Ongoing
operations
----------------------------------- ------- ------- ---------- ---------------- ----------
Notes FY FY
2017 2016
GBPm GBPm
----------------------------------- ------- ------- ---------- ---------------- ----------
Staff costs 409.6 406.5
Other operating expenses 307.2 277.8
Marketing 9 113.7 112.6
Amortisation and impairment
of other intangible assets 9 111.0 96.7
Depreciation 9 27.9 30.1
=================================== ======= ======= ========== ================ ==========
Total costs 969.4 923.7
=================================== ======= ======= ========== ================ ==========
Operating expenses 9 794.4 759.3
Claims handling expenses 7 175.0 164.4
Total costs 969.4 923.7
----------------------------------- ------- ------- ---------- ---------------- ----------
Total costs for Ongoing operations increased to
GBP969.4 million (2016: GBP923.7 million) reflecting
additional costs in line with business growth, along
with increases in levies of GBP13 million during
the year and higher intangible asset impairments
of GBP56.9 million (2016: GBP39.3 million). The
impairments are in respect of intangible assets
capitalised on the balance sheet and primarily relate
to IT projects which aim to improve customer experience,
support growth and increase the efficiency of the
business. Staff and marketing costs remain broadly
flat while absorbing business growth. The increase
in claims handling expenses is primarily due to
a claims handling provision release of GBP14 million
in 2016. Operating expenses includes GBP12.5 million
(2016: GBP14.2 million) of investment expenses.
The Group's expense ratio remained stable at 25.3%
(2016: 25.3%). Excluding the impairment charge the
underlying expense ratio improved 0.5 percentage
points to 23.5% (2016: 24.0%).
Instalment and other operating
income - Ongoing operations
--------------------------------------------------------- ------------------------------------
FY FY
2017 2016
Note GBPm GBPm
--------------------------------------------------------- ------- ----------- ----------
Instalment income 116.4 107.1
Other operating income:
Vehicle replacement referral
income 6 16.9 14.1
Revenue from vehicle recovery
and repair services 6 11.3 19.3
Legal services income 6 11.0 11.2
Other income 6 23.7 13.6
Other operating income 6 62.9 58.2
--------------------------------------------------------- ------- ----------- ----------
Total instalment and other
operating income 179.3 165.3
--------------------------------------------------------- ------- ----------- ----------
Instalment and other operating income from Ongoing
operations of GBP179.3 million increased 8.5% (2016:
GBP165.3 million). Instalment income increased by
GBP9.3 million compared to 2016, primarily as a
result of higher Motor volumes. Other operating
income increased GBP4.7 million to GBP62.9 million
(2016: GBP58.2 million). Vehicle recovery and repair
services include post-accident and pay-on-use-recovery
and repairs performed on behalf of third party customers.
This income decreased due to a change in the basis
of allocation. Other income, which includes salvage
income and fee income, increased by GBP10.1 million
in the year to GBP23.7 million (2016: GBP13.6 million),
primarily due to a change in contractual terms for
salvage income.
Investment return
-------------------------------------------------------- --- ------- ----------- ----------
FY FY
2017 2016
Note GBPm GBPm
-------------------------------------------------------- --- ------- ----------- ----------
Investment income 167.1 167.9
Hedging to a sterling floating
rate basis (27.0) (17.1)
------------------------------------------------------------- ------- ----------- ----------
Net investment income 140.1 150.8
Net realised and unrealised
gains excluding hedging 35.3 20.7
------------------------------------------------------------- ------- ----------- ----------
Total group investment return 3 175.4 171.5
============================================================= ======= =========== ==========
Investment yields - total Group
---------------------------------------------------------------------- ----------- ----------
FY FY
2017 2016
---------------------------------------------------------------------- ----------- ----------
Investment income yield(1) 2.5% 2.5%
Net investment income yield(1) 2.1% 2.2%
Investment return yield(1) 2.6% 2.6%
---------------------------------------------------------------------- ----------- ----------
Note:
1. See glossary for definition.
The Group's investment strategy is to seek to match
the duration of its UK liabilities and protect the
Group's capital. To avoid over-concentration in
the limited credit market the Group invests in US
and some global investment-grade credit. The Group
uses derivatives to hedge the currency and interest
rate risk back to a sterling floating rate basis,
and as a result benefits from credit diversification
while hedging to a UK interest rate exposure.
Assets under management increased by GBP128.3 million
reflecting lower capital distributions in 2017 as
a result of the Ogden discount rate change, strong
investment performance and business growth offset
by continued reduction in the Group's net liabilities.
The total investment return increased to GBP175.4
million (2016: GBP171.5 million) to give a total
yield of 2.6% (2016: 2.6%). Whilst investment income
has benefitted from an increase in US interest rates,
this has been offset by an increase in the cost
of hedging to a sterling floating rate, resulting
in a hedging cost of GBP27.0 million. This was more
than offset by other realised and unrealised gains,
including on the property portfolio.
Investment income remained broadly stable at GBP167.1
million (2016: GBP167.9 million) and the investment
income yield was in line with management guidance
at 2.5% (2016: 2.5%). Investment income net of hedging
costs was GBP140.1 million (2016: GBP150.8 million)
and the investment income yield net of the hedging
result was 2.1% (2016: 2.2%).
For 2018 the Group expects the net investment yield,
after cost of hedging, to be around 2.1%, reflecting
the UK's current low interest rate environment.
The performance of the Group's property portfolio
has been very strong since its commencement in 2012.
However, given the current levels of the UK property
market, the Group does not expect significant gains
on property in 2018. Overall, the Group currently
anticipates a total investment return in the region
of GBP150 million in 2018.
Investment holdings - total Group
2017 2016
At 31 December GBPm GBPm
------------------------------------------------------------- ------- ----------- ----------
Investment-grade credit(1) 3,893.1 3,888.3
High yield 388.6 409.9
Investment-grade private placements 103.6 85.1
Credit 4,385.3 4,383.3
Sovereign 224.8 341.2
------------------------------------------------------------- ------- ----------- ----------
Total debt securities 4,610.1 4,724.5
Infrastructure debt 316.4 337.0
Commercial real estate loans 169.0 79.7
Cash and cash equivalents(2) 1,304.5 1,110.8
Investment property 309.3 329.0
------------------------------------------------------------- ------- ----------- ----------
Total Group 6,709.3 6,581.0
------------------------------------------------------------- ------- ----------- ----------
Notes:
1. Asset allocation at 31 December 2017 includes investment portfolio derivatives,
which have been included and have a mark-to-market asset value of GBP55.1 million
included in investment grade credit (31 December 2016 mark-to-market value of
GBP5.8 million liability). This excludes non-investment derivatives that have
been used to hedge interest on subordinated debt and operational cash flows.
2. Net of bank overdrafts: includes cash at bank and in hand and money market
funds with no notice period for withdrawal.
At 31 December 2017, total investment holdings of
GBP6,709.3 million were 1.9% higher than at 31 December
2016, reflecting operating cash inflows offset by
dividends paid. Total debt securities were GBP4,610.1
million (31 December 2016: GBP4,724.5 million),
of which 4.8% were rated as 'AAA' and a further
61.9% were rated as 'AA' or 'A'. The average duration
at 31 December 2017 of total debt securities was
2.3 years (31 December 2016: 2.3 years).
At 31 December 2017, total net unrealised gains,
net of tax, on available-for-sale ("AFS") investments
were GBP80.2 million (2016: GBP92.1 million).
Reconciliation of operating
profit
-------------------------------------------------------- --- ------- ----------- ----------
FY FY
2017 2016
GBPm GBPm
-------------------------------------------------------- --- ------- ----------- ----------
Motor 364.5 149.1
Home 128.8 166.7
Rescue and other personal lines 43.6 45.9
Commercial 74.0 41.8
------------------------------------------------------------- ------- ----------- ----------
Operating profit - Ongoing
operations 610.9 403.5
Run-off 43.8 26.6
Restructuring costs (11.9) (39.9)
------------------------------------------------------------- ------- ----------- ----------
Operating profit 642.8 390.2
Finance costs (103.8) (37.2)
Profit before tax 539.0 353.0
Tax (105.0) (74.2)
Profit after tax 434.0 278.8
------------------------------------------------------------- ------- ----------- ----------
Ongoing operations
All divisions were profitable in 2017, with Motor
and Commercial reporting significant improvements
in operating profit compared to 2016 due mainly
to the non-repeat of the Ogden discount rate change.
This was partially offset by a decrease in Home,
primarily due to lower prior-year reserve releases
and the impact of higher EoW claims. Rescue operating
profit of GBP43.5 million (2016: GBP42.8 million)
is included in the Rescue and other personal lines
result.
Run-off costs
The Run-off segment generated a profit of GBP43.8
million in 2017 (2016: GBP26.6 million). This increase
over 2016 was largely due to the non-repeat of the
Ogden charge in 2016.
Restructuring costs
Restructuring costs were significantly lower at
GBP11.9 million (2016: GBP39.9 million), following
the exit of a major site in 2016.
Previously the Group has reported that Run-off profits
and restructuring costs which are not reported in
Ongoing operations will broadly offset each other
between 2015 and 2018 inclusively. Up to the end
of 2017, the accumulated net result from Run-off
and restructuring was a profit of GBP43 million.
For simplicity of reporting going forward, the Group's
reporting will focus on operating profit rather
than operating profit from Ongoing operations. Material
restructuring activities or other one-off items
will be disclosed if they occur.
Finance costs
Finance costs increased significantly to GBP103.8
million (2016: GBP37.2 million) due to the one-off
cost associated with the repurchase of GBP250 million
nominal value of the Group's subordinated guaranteed
dated notes. The price paid included a premium to
nominal value of GBP76.8 million, reflecting the
market price of the notes. Taking into account associated
costs and the interest rate swaps, the net impact
of this repurchase was GBP66.1 million.
Going forward, the coupon payment for the recently
issued Tier 1 notes will be accounted for directly
through equity. As a result of the repurchase, reported
finance costs are expected to reduce by approximately
half.
Taxation
The effective tax rate was 19.5% (2016: 21.0%),
which was broadly in line with the standard UK corporation
tax rate of 19.25% (2016: 20.0%).
Profit for the year and return on tangible equity
Profit after tax for the year was GBP434.0 million
(2016: GBP278.8 million) primarily resulting from
higher underwriting profit following the change
to the Ogden discount rate in 2016 and reduced restructuring
costs partially offset by higher finance charges
which include a one-off charge of GBP66.1 million.
RoTE increased to 21.7% predominantly due to an
improvement in profit after tax (2016: 14.2%). The
profit after tax in 2017 included in the RoTE calculation
includes an adjustment to remove the one-off costs
in relation to the buy-back of the GBP250 million
subordinated guaranteed dated notes (GBP66.1 million
before tax). See appendix A - Alternative performance
measures.
Following a review of the approach to the Group's
Executive Remuneration policy, the Remuneration
Committee is proposing that the level of RoTE required
for the March 2018 long-term incentive plan awards
to vest be increased from the current range of 15.0%
to 18.0% to a range of 17.5% to 20.5%, partly reflecting
the issue of the Tier 1 notes.
Earnings per share
Basic earnings per share were 31.8 pence (2016:
20.4 pence) reflecting the increase in profit after
tax.
Adjusted diluted earnings per share from Ongoing
operations were 33.6 pence (2016: 21.2 pence) reflecting
the increase in operating profit.
Dividends
The Board is proposing a final dividend of 13.6
pence per share making a total ordinary dividend
of 20.4 pence per share (2016: 14.6 pence). This
represents 39.7% growth over the 2016 ordinary dividend
in line with the increase in the interim dividend
announced with the H1 results.
In normal circumstances, the Group expects to operate
around the middle of its solvency capital ratio
risk appetite range of 140% to 180%. As a result
of the Group's lower capital requirements in 2017
and the strong financial performance in the year,
the Group has declared a special dividend of 15.0
pence per share as an interim dividend, taking the
estimated Group solvency capital ratio post-dividends
to 162%. The final dividend will be put to shareholders
for approval at the AGM on 10 May, and the final
dividend and the special dividend are to be paid
on 17 May 2018 to shareholders on the register on
6 April 2018. The ex-dividend date will be 5 April
2018.
Net asset value
------------------------------------------- ----- ------- -------
2017 2016
At 31 December Note GBPm GBPm
------------------------------------------- ----- ------- -------
Net assets 12 2,715.1 2,521.5
Goodwill and other intangible assets 12 (471.1) (508.9)
------------------------------------------- ----- ------- -------
Tangible net assets 12 2,244.0 2,012.6
------------------------------------------- ----- ------- -------
Closing number of Ordinary Shares 12 1,365.1 1,365.1
------------------------------------------- ----- ------- -------
Net asset value per share (pence) 12 198.9 184.7
Tangible net asset value per share (pence) 12 164.4 147.4
=========================================== ===== ======= =======
The net asset value at 31 December 2017 was GBP2,715.1 million (31 December
2016: GBP2,521.5 million) with a tangible net asset value of GBP2,244.0 million
(31 December 2016: GBP2,012.6 million). The increase since the beginning of
the year reflected the 2017 profit offset by dividends paid and a decrease in
AFS investments reserve from GBP92.1 million at 31 December 2016 to GBP80.2
million at 31 December 2017.
Reserving
The Group makes provision for the full cost of outstanding claims from its general
insurance business at the balance sheet date, including claims estimated to
have been incurred but not yet reported at that date and claims handling provision.
The Group considers the class of business, the length of time to notify a claim,
the validity of the claim against a policy, and the claim value. Claims reserves
could settle across a range of outcomes, and settlement certainty increases
over time. However, for bodily injury claims the uncertainty is greater due
to the length of time taken to settle these claims. Annuity payments for injured
parties also increase this uncertainty.
The Group seeks to adopt a conservative approach to assessing liabilities, as
evidenced by the favourable development of historical claims reserves. Reserves
are based on management's best estimate, which includes a prudence margin that
exceeds the internal actuarial best estimate. This margin is made in reference
to various actuarial scenario assessments and reserve distribution percentiles.
It also considers other short and long-term risks not reflected in the actuarial
inputs, as well as management's view on the uncertainties in relation to the
actuarial best estimate.
The most common method of settling bodily injury claims is by a lump sum paid
to the claimant and, in the cases where this includes an element of indemnity
for recurring costs such as loss of earnings or ongoing medical care, settlement
calculations have reference to a standardised Ogden annuity factor at a discount
rate of minus 0.75% in 2017 (2016: minus 0.75%). This is normally referred to
as the Ogden discount rate. Other estimates are also required for case management
expenses, loss of pension, court protection fees, alterations to accommodation
and transportation fees.
The Lord Chancellor changed the Ogden discount rate from 2.5% to minus 0.75%
with effect from 20 March 2017 based on a 3-year average of yields on index-linked
government securities and the rate may be sensitive to future movements in these
instruments. The Government is currently planning to review the Ogden discount
rate again based on 'low risk' investments rather than 'very low risk' investments,
however, there is considerable uncertainty if, when and how a change might be
made.
The Group will continue to exercise judgement around the Ogden discount rate
used in its reserves allowing for the possibility for it to change in the future.
It considers the uncertainties around the legal framework and its implementation
risks to the future rate as being significant but broadly balanced and therefore
provisions at the current proposed rate of minus 0.75%. An allowance for further
movements in the Ogden discount rate is made within the Group's solvency II
balance sheet and capital requirement. Details of the IFRS sensitivity analysis
to the assumed Ogden discount rate are shown overleaf. However, it should be
noted that the Government is considering not only the appropriate level for
the rate but also the methodology of how it is applied, so any sensitivity has
considerable limitations and uncertainty.
The Group's prior-year reserve releases were GBP435.4 million (2016: GBP290.1
million) with good experience in large bodily injury claims being a key contributor.
The releases in 2017 include a GBP49 million Ogden specific release where the
claims file review performed in H1 following the Ogden discount rate change
indicated a lower ultimate cost at the new rate than was assumed at the year-end
2016. In addition, large bodily injury claims developed favourably. Home prior-year
reserve releases of GBP23.7 million (2016: GBP75.9 million) were affected by
EoW experience, whilst in 2016 Home benefitted from favourable development on
the December 2015 weather events.
Looking forward, the Group expects to set its initial management best estimate
for future accident years conservatively. Over time, the proportion of the Group's
underwriting profit attributable to the current-year is expected to increase,
including due to targeted improvements in the expense and commission ratios.
Assuming current claims trends continue, the contribution from prior-year reserve
releases is expected to remain significant, albeit it is expected to reduce
over time.
Claims reserves net of reinsurance
------------------------------------------------------------------- ----------- ----------
2016
2017 GBPm
At 31 December GBPm
------------------------------------------------------------------- ----------- ----------
Motor 1,919.7 2,084.2
Home 293.3 298.1
Rescue and other personal lines 85.6 72.8
Commercial 578.3 607.0
------------------------------------------------------------------- ----------- ----------
Total Ongoing 2,876.9 3,062.1
Run-off 267.6 326.2
------------------------------------------------------------------- ----------- ----------
Total Group 3,144.5 3,388.3
------------------------------------------------------------------- ----------- ----------
Sensitivity analysis - the discount rate used in relation to PPOs and changes
in assumed Ogden discount rate
The table below provides a sensitivity analysis of the potential impact of a
change in a single factor with all other assumptions left unchanged. Other potential
risks beyond the ones described could have an additional financial impact on
the Group.
Increase /
(decrease)
in profit
before tax
and equity(3,4)
at 31 December
=======================
2017 2016
GBPm GBPm
=================================================================== =========== ==========
PPOs(1)
Impact of an increase in the discount
rate used in the calculation of present
values of 100 basis points 54.6 68.2
Impact of a decrease in the discount
rate used in the calculation of present
values of 100 basis points (75.1) (97.9)
------------------------------------------------------------------- ----------- ----------
Ogden discount rate(2)
Impact of the Group reserving at a discount
rate of 0% compared to minus 0.75% 68.4 102.1
Impact of the Group reserving at a discount
rate of minus 1.5% compared to minus
0.75% (102.9) (156.4)
------------------------------------------------------------------- ----------- ----------
Notes:
1. The sensitivities relating to an increase or decrease in the real discount
rate used for PPOs illustrate a movement in the time value of money from the
assumed level of 0.0%. The PPO sensitivity has been calculated on the direct
impact on the change in the real discount rate with all factors remaining unchanged.
2. Ogden discount rate sensitivity has been calculated on the direct impact
of a permanent change in the discount rate with all other factors remaining
unchanged. The Group will consider the statutory discount rate when setting
its reserves but not necessarily provide on this basis. This is to ensure that
reserves are appropriate for current and potential future developments.
3. These sensitivities exclude the impact of taxation.
4. These sensitivities reflect one-off impacts at 31 December and should not
be interpreted as predictions.
The sensitivity above is calculated on the basis of a permanent change in the
rate on the actuarial best estimate reserves as at 31 December 2017. It does
not take into account a change in the Ogden discount rate setting regime, nor
any second order impacts such as those on the Group's PPO assumptions or reinsurance
bad debt assumptions. The year on year reduction in sensitivity to a change
in the Ogden discount rate reflects a GBP49 million reserve release arising
after a detailed case review of the Group's 2016 Ogden provision as well as
the overall reduction in bodily injury exposures. This is due to continued positive
prior-year development of claims reserves for large bodily injury claims, particularly
for accident years where the reinsurance retention level was higher than the
current level of GBP1 million.
Capital management Capital management 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 solvency capital ratio around the middle of its risk appetite range of
140% to 180% of the Group's solvency capital requirements ("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
In its results, the Group has estimated its solvency II own funds, SCR and solvency
capital ratio as at 31 December 2017. The Group will formally submit its final
Solvency Financial Condition Report in May 2018 to the Prudential Regulation
Authority ("PRA"), and expects to continue to update the assumptions and implement
minor model changes until then. Therefore, the final solvency position may differ
from those included in the preliminary results.
Sensitivity analysis
The following table shows the Group's estimated solvency capital ratio sensitivities
based on the assessed impact of scenarios as at 31 December 2017.
Impact on
solvency capital
ratio
----------------------
31 Dec 31 Dec
Scenario 2017 2016
------------------------------------------------------------------- ---------- ----------
Motor bodily injury deterioration equivalent (7pts)
to accident years 2008 and 2009 (8pts)
One-off catastrophe loss equivalent to (9pts)
the1990 storm (9pts)
One-off catastrophe loss based on extensive (9pts)
flooding of the River Thames (9pts)
Change in reserving basis for PPOs to (13pts)
use a real discount rate of minus 1%(1) (13pts)
100bps increase in credit spreads(1,2) (11pts) (10pts)
100bps decrease in interest rates(2) (9pts) (7pts)
=================================================================== ========== ==========
Notes:
1. The methodology for calculating the impact on the ratio of an increase in
credit spreads and a change in the reserving basis for PPOs to use a real discount
rate of minus 1% have been updated in 2017 and for the comparative period.
2. The sensitivities only include the assessed impact of the above scenarios
in relation to AFS investments.
Capital surplus
The Group's SCR and solvency capital
ratio are as follows:
----------------------------------------------------------------- ---------- ------------
At 31 December 2017 2016
----------------------------------------------------------------- ---------- ----------
Solvency capital requirement (GBP billion) 1.39 1.40
Capital surplus above solvency capital
requirement (GBP billion) 0.86 0.91
Solvency capital ratio post-dividend 162% 165%
================================================================= ========== ==========
The following table splits the Group's
own funds by tier on a solvency II basis.
----------------------------------------------------------------- ---------- ------------
2017 2016
At 31 December GBPbn GBPbn
----------------------------------------------------------------- ---------- ----------
Tier 1 capital before foreseeable dividends 1.98 1.87
Foreseeable dividends (0.39) (0.13)
----------------------------------------------------------------- ---------- ----------
Tier 1 capital - unrestricted 1.59 1.74
Tier 1 capital - restricted 0.35 --
----------------------------------------------------------------- ---------- ----------
Tier 1 capital 1.94 1.74
Tier 2 capital: subordinated debt 0.26 0.54
Tier 3 capital: deferred tax 0.05 0.03
----------------------------------------------------------------- ---------- ----------
Total own funds 2.25 2.31
================================================================= ========== ==========
At 31 December 2017, the Group held a solvency II capital surplus of approximately
GBP0.86 billion above its regulatory capital requirements and was equivalent
to an estimated solvency capital ratio of 162%, post-dividend.
Tier 1 capital after foreseeable dividends represents 86% of own funds and 139%
of the estimated SCR. Tier 2 capital relates solely to the Group's GBP0.26 billion
subordinated debt. The amount of Tier 2 and Tier 3 capital permitted under the
solvency II regulations is 50% of the Group's SCR and of Tier 3 it is less than
15%. Therefore, the Group has no ineligible capital.
On 7 December 2017, the Group issued GBP0.35 billion of Tier 1 notes with a
coupon of 4.75%. The notes have an optional redemption date of 7 December 2027
and if the notes are not repaid on that date, the rate of interest will be reset.
Proceeds of the issuance were primarily used to fund the repurchase of half
of the Group's GBP0.50 billion 9.25% Tier 2 capital. This repurchase of Tier
2 capital was achieved at a value of approximately GBP0.33 billion including
accrued interest. The remaining Tier 2 capital of GBP0.25 billion nominal value
has a redemption date of 27 April 2022.
The Group has issued Tier 1 notes to mitigate the risk of a single refinancing
date. In addition, under solvency II eligibility restrictions the Group previously
had limited options to raise additional subordinated debt (Tier 2) capital to
recover solvency. As a result of raising the Tier 1 notes and repaying half
of the Tier 2 capital the Group has the ability to raise further Tier 2 capital
should this be required.
The special dividend will be payable from surplus capital generated from continuing
operations of the Group.
Reconciliation of IFRS shareholders'
equity to solvency II own funds
----------------------------------------------------------------- ---------- ------------
2017 2016
At 31 December GBPbn GBPbn
----------------------------------------------------------------- ---------- ------------
Total shareholders' equity 2.72 2.52
Goodwill and intangible assets (0.47) (0.51)
Change in valuation of technical provisions (0.19) (0.05)
Other asset and liability adjustments (0.08) (0.09)
Foreseeable dividends (0.39) (0.13)
----------------------------------------------------------------- ---------- ------------
Tier 1 capital - unrestricted 1.59 1.74
Tier 1 capital - restricted 0.35 --
----------------------------------------------------------------- ---------- ------------
Tier 1 capital 1.94 1.74
Tier 2 capital: subordinated debt 0.26 0.54
Tier 3 capital: deferred tax 0.05 0.03
================================================================= ========== ============
Total own funds 2.25 2.31
================================================================= ========== ============
Movement in capital surplus
--------------------------------------------- ------ ------
2017 2016
GBPbn GBPbn
--------------------------------------------- ------ ------
Capital surplus at 1 January 0.91 0.78
--------------------------------------------- ------ ------
Underlying movement in capital generation 0.49 0.19
Market movements - 0.12
--------------------------------------------- ------ ------
Capital generation 0.49 0.31
Change in solvency capital requirement 0.01 0.27
--------------------------------------------- ------ ------
Surplus generation 0.50 0.58
Capital expenditure (0.10) (0.11)
Management capital action 0.03 --
Capital distribution - ordinary dividends(1) (0.28) (0.20)
Capital distribution - special dividends(1) (0.20) (0.14)
--------------------------------------------- ------ ------
Net surplus movement (0.05) 0.13
--------------------------------------------- ------ ------
Capital surplus at 31 December 0.86 0.91
============================================= ====== ======
Note:
1. Foreseeable dividends included above are adjusted
to exclude the expected dividend waivers in relation
to shares held by the employee share trusts, which
are held to meet obligations arising on the various
share option awards.
During 2017, the Group's own funds reduced from
GBP2.31billion to GBP2.25 billion. The Group generated
GBP0.49 billion of solvency II capital offset by
GBP0.10 billion of capital expenditure and capital
distribution of GBP0.48 billion, including the 2017
interim and final ordinary dividends and special
interim dividends. The capital management action
refers to the debt refinancing activity mentioned
above.
Leverage
The Group's financial leverage continued to be conservative
at 18.4% (2016: 17.6%). While the Tier 1 notes issued
during 2017 are presented as equity in the balance
sheet, the Group considers this to be part of its
total leverage and the GBP346.5 million (net of
arrangement costs) is included in the ratio.
2017
GBPm 2016
At 31 December GBPm
-------------------------------------------- --------- --------
Shareholders' equity 2,715.1 2,521.5
Tier 1 notes 346.5 -
Financial debt - subordinated debt 264.7 539.6
-------------------------------------------- --------- --------
Total capital employed 3,326.3 3,061.1
============================================ ========= ========
Financial-leverage ratio(1) 18.4% 17.6%
============================================ ========= ========
Note:
1. Total IFRS financial debt as a percentage of
total IFRS capital employed.
Credit ratings
Standard & Poor's and Moody's Investors Service
provide insurance financial-strength ratings for
U K Insurance Limited, the Group's principal underwriter.
U K Insurance Limited is currently rated 'A' (strong)
with a stable outlook by Standard & Poor's, and
'A2' (good) with a positive outlook by Moody's.
Regulatory update
The Group has continued to operate within a highly
dynamic and evolving regulatory landscape, particularly
in the UK motor insurance market where there are
a number of reviews and initiatives, including those
that have been announced by the UK Government, the
Ministry of Justice, the Financial Conduct Authority
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 of 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.
Throughout 2017, the Financial Conduct Authority'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. The Group is exposed to the risk
of changes to regulatory rules, policy or interpretation,
and to supervisory expectations or approach, by
regulators or other bodies or authorities; and of
changes to law, tax, monetary or fiscal policies
or their interpretation by government or government
authorities, any of which may have adverse operational
and financial impact.
The Group will continue to support proportionate
reforms which result in a level playing field across
the industry.
Principal risks and uncertainties
The Group carries out a robust assessment of the
principal risks facing it. Principal risks are defined
as having a residual risk impact of GBP40 million
or more on a one-in-200 years basis, taking into
account customer, financial and reputational impacts.
The Group's risk profile has changed during 2017
primarily driven by the Ogden discount rate change
and enhanced technology controls. There have been
no material breaches of the risk appetite.
Principal risks Owner Management and mitigation examples
================================== ============ =================================================================
Insurance risk Chief
The risk of loss due to Financial * The Group estimates the technical reserves using
fluctuations in the timings, Officer, various actuarial and statistical techniques.
amount, frequency and Managing Management's best estimate of total reserves is set
severity of an insured Directors at not less than the actuarial best estimate
event relative to the of Personal
expectations at the time Lines
of underwriting. Insurance and * Third parties review the Group's reserves
risk includes reserve, Commercial
underwriting, distribution,
pricing and reinsurance * Underwriting guidelines are set for all transacted
risks. business and pricing refined by analysing
comprehensive data
* Catastrophe and motor excess of loss reinsurance
limits the Group's exposure to events and large
losses
* The Group invests in enhanced external data to
analyse and mitigate exposures
* The Group has set reserves using the latest data and
trends. In particular, the decision to reduce the
Ogden discount rate has been reflected in the
estimate of reserves
================================== ============ =================================================================
Market risk Chief
The risk of loss resulting Financial * The Group manages and controls the risks in its
from fluctuations in the Officer investment portfolio through:
level and volatility of
market prices of assets,
liabilities and financial * ensuring compliance with an investment strategy
instruments. Market risk approved by the Board;
includes spread, interest
rate and property risks.
* careful diversification of asset classes
* limits on exposure to individual asset classes;
limits on the amount of illiquid investments; tightly
controlling individual credit exposures; and
risk-reduction techniques, such as hedging foreign
currency exposures with forward contracts and hedging
exposure to US interest rates with swap contracts
================================== ============ =================================================================
Credit risk Chief
The risk of loss resulting Financial * Credit limits are set for each counterparty and the
from fluctuations in the Officer Group actively monitors credit exposures
credit standing of issuers
of securities, counterparties
and any debtors to which * The Group only purchases reinsurance from reinsurers
the Group is exposed. with at least an 'A-' rating. For liabilities with a
Credit risk includes counterparty relatively long period of time to settlement, this
default and concentration rating will be at least 'A+'
risks.
* The Group has well defined criteria to determine
which customers are offered and granted credit
================================== ============ =================================================================
Operational risk Specific
The risk of loss due to members * Monitoring operational risk actively in line with a
inadequate or failed internal of the Board approved operational risk appetite
processes, people, systems Executive
or from external events.
Operational risk includes * The Group has appropriate operational processes and
information security, systems, including detection systems for fraudulent
IT and business continuity, claims
partnership contractual
obligations, change, financial
reporting, model and technology * The Group is working to improve the performance of
and infrastructure risks. its IT systems, while focusing on developing future
systems capability. With significant change underway,
the Group is continuing to monitor risks associated
with IT systems' stability, cyber security and the
internal control environment
* The Group's risk management system is designed to
enable the capture of risk information in a robust
and consistent way
* The Group monitors the performance of outsourced and
offshored activities
================================== ============ =================================================================
Regulatory and conduct Chief
risk Risk * The Group maintains a constructive and open
The risks arising out Officer relationship with regulators
of changes to laws, regulatory and
rules, policy or interpretation, Managing
or to supervisory expectations Director, * Specific risk management tools and resources are used
or approach, that have Personal to help manage exposure to regulatory risk
an adverse operational Lines
and financial impact as
a result of reputational * The Group has a strong culture of delivering on its
damage, regulatory or commitments to customers
legal censure, fines or
prosecutions, and any
other type of non-budgeted * Robust customer conduct risk management is intended
operational risk losses, to minimise the Group's risk exposure
associated with the Group's
conduct and activities.
Regulatory and conduct * The Group carries out planned risk based monitoring
risk includes compliance of customer processes as well as more targeted
risk. thematic reviews which consider strategic or
regulatory projects
================================== ============ =================================================================
Strategic risk Chief
The risk of direct or Executive * The Group has a plan and targets, against which
indirect adverse impact Officer performance is agreed, monitored and managed
on the earnings, capital,
or value of the business
resulting from the strategies * An annual strategy and five-year planning process is
not being optimally chosen, run which considers Group performance, competitor
implemented or adapted positioning and strategic opportunities
to changing conditions.
Strategic risk includes
strategy formulation and * Emerging risks are identified and managed using an
implementation risks. established governance process and forums
================================== ============ =================================================================
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:
* identify emerging risks on a timely basis;
* manage emerging risks proactively;
* mitigate the impact of emerging risks which could
impact the delivery of the strategic plan; and
* reduce the uncertainty and volatility to the Group's
results
The Group considers its main emerging risks to be:
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 build
strong collaborative relationships including with
key manufacturers of driverless cars.
===================================================================================================================
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, and to build our partnership
capabilities.
===================================================================================================================
28B28B2B2BUK economy
The UK could enter a prolonged period of reduced
growth due to the exit from the EU, 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 Group continues
to monitor implications surrounding Brexit negotiations,
including: changes to the value of Sterling which
impact claims and non-claims supplier costs; inflation;
recruitment and retention of people; potential changes
to direct and indirect tax; and the regulatory impact
on the Group's capital position.
===================================================================================================================
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.
===================================================================================================================
Consolidated income statement
For the year ended 31 December 2017
2017 2016
Notes GBPm GBPm
================================= ===== ========= =========
Gross earned premium 4 3,339.7 3,202.8
Reinsurance premium 4 (204.7) (202.2)
================================= ===== ========= =========
Net earned premium 4 3,135.0 3,000.6
Investment return 5 175.4 171.5
Instalment income 116.4 107.1
Other operating income 6 62.9 58.2
================================= ===== ========= =========
Total income 3,489.7 3,337.4
================================= ===== ========= =========
Insurance claims 7 (1,571.1) (2,179.0)
Insurance claims (payable to) /
recoverable from reinsurers 7 (183.1) 375.2
================================= ===== ========= =========
Net insurance claims 7 (1,754.2) (1,803.8)
================================= ===== ========= =========
Commission expenses 8 (286.4) (344.0)
Operating expenses 9 (806.3) (799.4)
================================= ===== ========= =========
Total expenses (1,092.7) (1,143.4)
================================= ===== ========= =========
Operating profit 642.8 390.2
Finance costs 10 (103.8) (37.2)
Profit before tax 539.0 353.0
Tax charge (105.0) (74.2)
================================= ===== ========= =========
Profit for the year attributable
to owners of the Company 434.0 278.8
================================= ===== ========= =========
Earnings per share:
Basic (pence) 11 31.8 20.4
Diluted (pence) 11 31.5 20.2
Consolidated statement of comprehensive income
For the year ended 31 December 2017
2017 2016
GBPm GBPm
============================================ ====== ======
Profit for the year 434.0 278.8
============================================= ====== ======
Other comprehensive (loss) / income
Items that will not be reclassified
subsequently to the income statement:
Actuarial gain / (loss) on defined
benefit pension scheme 2.1 (4.4)
Tax relating to item that will not
be reclassified (0.4) 0.7
============================================= ====== ======
1.7 (3.7)
============================================ ====== ======
Items that may be reclassified subsequently
to the income statement:
Exchange differences on translation
of foreign operations - 0.1
Cash flow hedges (1.1) 1.4
Fair value gain on AFS investments 8.8 119.6
Less: realised net gains on AFS
investments included in income statement (23.2) (15.3)
Tax relating to items that may be
reclassified 2.5 (17.6)
============================================= ====== ======
(13.0) 88.2
============================================ ====== ======
Other comprehensive (loss) / income
for the year net of tax (11.3) 84.5
============================================= ====== ======
Total comprehensive income for the
year attributable to owners of the
Company 422.7 363.3
============================================= ====== ======
Consolidated balance sheet
As at 31 December 2017
2017 2016
Notes GBPm GBPm
===================================== ===== ======= ========
Assets
Goodwill and other intangible assets 471.1 508.9
Property, plant and equipment 174.4 180.9
Investment property 309.3 329.0
Reinsurance assets 13 1,178.5 1,371.8
Current tax assets 0.1 0.1
Deferred acquisition costs 185.4 203.1
Insurance and other receivables 981.2 988.3
Prepayments, accrued income and
other assets 146.2 131.0
Derivative financial instruments 84.4 79.7
Retirement benefit asset 14.4 12.0
Financial investments 14 5,040.4 5,147.0
Cash and cash equivalents 15 1,358.6 1,166.1
Assets held for sale 4.2 3.8
===================================== ===== ======= ========
Total assets 9,948.2 10,121.7
===================================== ===== ======= ========
Equity
Shareholders' equity 2,715.1 2,521.5
Tier 1 notes 17 346.5 ----
------------------------------------- ----- ------- --------
Total equity 3,061.6 2,521.5
------------------------------------- ----- ------- --------
Liabilities
Subordinated liabilities 18 264.7 539.6
Insurance liabilities 19 4,225.7 4,666.6
Unearned premium reserve 20 1,600.3 1,547.9
Borrowings 15 54.1 55.3
Derivative financial instruments 12.0 45.1
Trade and other payables, including
insurance payables 658.0 699.2
Deferred tax liabilities 31.1 46.0
Current tax liabilities 40.7 0.5
===================================== ===== ======= ========
Total liabilities 6,886.6 7,600.2
===================================== ===== ======= ========
Total equity and liabilities 9,948.2 10,121.7
===================================== ===== ======= ========
Consolidated statement of changes in equity
For the year ended 31 December 2017
Foreign
Employee AFS exchange
Share trust Capital revaluation Non-distributable translation Retained Shareholders' Tier1 Total
capital shares reserves reserve reserve reserve earnings equity notes equity
GBPm GBPm 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 - 2,630.0
Profit for the
year - - - - - - 278.8 278.8 - 278.8
Other
comprehensive
income - - - 86.7 - 1.5 (3.7) 84.5 - 84.5
Dividends paid - - - - - - (450.6) (450.6) - (450.6)
Transfer from
non-distributable
reserve - - - - (152.9) - 152.9 - - -
Shares acquired
by employee
trusts - (39.5) - - - - - (39.5) - (39.5)
Credit to equity
for
equity-settled
share-based
payments - - - - - - 16.8 16.8 - 16.8
Shares distributed
by employee
trusts - 25.6 - - - - (25.6) - - -
Tax on share-based
payments - - - - - - 1.5 1.5 - 1.5
================== ======= ======== ======== =========== ================= =========== ======== ============= ===== =======
Balance at 31
December 2016 150.0 (34.3) 1,450.0 92.1 - 1.4 862.3 2,521.5 - 2,521.5
Profit for the
year - - - - - - 434.0 434.0 - 434.0
Other
comprehensive
loss - - - (11.9) - (1.1) 1.7 (11.3) - (11.3)
Dividends paid - - - - - - (225.3) (225.3) - (225.3)
Shares acquired
by employee
trusts - (19.6) - - - - - (19.6) - (19.6)
Credit to equity
for
equity-settled
share-based
payments - - - - - - 14.8 14.8 - 14.8
Shares distributed
by employee
trusts - 19.8 - - - - (19.8) - - - Tax on share-based payments - - - - - - 1.0 1.0 - 1.0 Issue of Tier 1 notes (note 17) - - - - - - - - 346.5 346.5 Balance at 31 December 2017 150.0 (34.1) 1,450.0 80.2 - 0.3 1,068.7 2,715.1 346.5 3,061.6 ================== ======= ======== ======== =========== ================= =========== ======== ============= ===== =======
Consolidated cash flow statement
For the year ended 31 December 2017
2017 2016
Notes GBPm GBPm
========================================== ===== ======= =======
Net cash generated from operating
activities before investment of
insurance assets 204.0 35.0
Cash generated from investment of
insurance assets 341.9 827.4
========================================== ===== ======= =======
Net cash generated from operating
activities 545.9 862.4
========================================== ===== ======= =======
Cash flows from investing activities
Purchases of property, plant and
equipment (22.4) (49.9)
Purchases of intangible assets (73.2) (80.8)
Proceeds on disposals of assets
held for sale - 5.1
Proceeds on disposals of property,
plant and equipment 0.3 -
Net cash used in investing activities (95.3) (125.6)
========================================== ===== ======= =======
Cash flows from financing activities
Net proceeds from issue of Tier
1 notes 346.5 -
Repayment of subordinated liabilities (326.8) -
Dividends paid (225.3) (450.6)
Finance costs (31.7) (38.3)
Purchase of employee trust shares (19.6) (39.5)
========================================== ===== ======= =======
Net cash used in financing activities (256.9) (528.4)
========================================== ===== ======= =======
Net increase in cash and cash equivalents 193.7 208.4
Cash and cash equivalents at the
beginning of the year 15 1,110.8 902.4
Cash and cash equivalents at the
end of the year 15 1,304.5 1,110.8
========================================== ===== ======= =======
Notes to the consolidated financial statements
1. Accounting policies Basis of preparation
The financial information included in this preliminary
announcement has been prepared in accordance with
the recognition and measurement criteria of International
Financial Reporting Standards ("IFRS"). However,
this announcement does not itself contain sufficient
information to comply with IFRS. The financial
information set out in this preliminary results
announcement does not constitute the statutory
accounts for the year ended 31 December 2017. The
financial information is derived from the statutory
accounts, which comply with IFRS, within the Group's
Annual Report & Accounts 2017. These accounts were
signed on 26 February 2018 and are expected to
be published in March 2018 and delivered to the
Registrar of Companies following the Annual General
Meeting to be held on 10 May 2018. The independent
Auditor's report on the Group accounts for the
year ended 31 December 2017 was signed on 26 February
2018, 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.
Going concern
The Directors are satisfied that the Group has
sufficient resources to continue in operation for
the foreseeable future, a period of not less than
12 months from the date of this report. Accordingly,
they continue to adopt the going concern basis
in preparing the consolidated financial statements.
Adoption of new and revised standards
The Group has adopted a small number of new amendments
to standards that became effective for the Group
for the first time during 2017, none of which have
had a significant impact on the consolidated financial
statements.
2. Critical accounting estimates and judgements
Full details of critical accounting estimates and
judgements used in applying the Group's accounting
policies are outlined on pages 134 to 136 of the
Annual Reports & Accounts 2016. There have been
no significant changes to the principles or assumptions
of these critical accounting estimates and judgements
during the year ended 31 December 2017.
3. Segmental analysis
The table below analyses the Group's revenue and results by reportable segment for the year ended 31 December 2017.
Rescue
and
other
personal Total
Motor Home lines Commercial Ongoing Run-off Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================== ======= ======= ========= ========== ========= ======= =========
Gross written premium 1,670.4 799.1 421.1 501.5 3,392.1 - 3,392.1
========================== ======= ======= ========= ========== ========= ======= =========
Gross earned premium 1,603.0 819.4 419.2 498.1 3,339.7 - 3,339.7
Reinsurance premium (132.4) (28.9) (1.6) (41.8) (204.7) - (204.7)
========================== ======= ======= ========= ========== ========= ======= =========
Net earned premium 1,470.6 790.5 417.6 456.3 3,135.0 - 3,135.0
Investment return 117.2 21.1 4.6 31.8 174.7 0.7 175.4
Instalment income 85.3 23.1 2.1 5.9 116.4 - 116.4
Other operating income 43.0 0.9 12.9 6.1 62.9 - 62.9
========================== ======= ======= ========= ========== ========= ======= =========
Total income 1,716.1 835.6 437.2 500.1 3,489.0 0.7 3,489.7
========================== ======= ======= ========= ========== ========= ======= =========
Insurance claims (799.2) (403.3) (273.8) (176.9) (1,653.2) 82.1 (1,571.1)
Insurance claims (payable
to) / recoverable
from reinsurers (96.8) 2.8 0.5 (50.6) (144.1) (39.0) (183.1)
========================== ======= ======= ========= ========== ========= ======= =========
Net insurance claims (896.0) (400.5) (273.3) (227.5) (1,797.3) 43.1 (1,754.2)
========================== ======= ======= ========= ========== ========= ======= =========
Commission expenses (36.7) (139.7) (22.9) (87.1) (286.4) - (286.4)
Operating expenses (418.9) (166.6) (97.4) (111.5) (794.4) - (794.4)
========================== ======= ======= ========= ========== ========= ======= =========
Total expenses (455.6) (306.3) (120.3) (198.6) (1,080.8) - (1,080.8)
========================== ======= ======= ========= ========== ========= ======= =========
Operating profit before
restructuring 364.5 128.8 43.6 74.0 610.9 43.8 654.7
Restructuring costs(1) (11.9)
=========
Operating profit 642.8
Finance costs (103.8)
=========
Profit before tax 539.0
=========
Underwriting profit 119.0 83.7 24.0 30.2 256.9
========================== ======= ======= ========= ========== =========
Loss ratio 60.9% 50.6% 65.4% 49.9% 57.4%
Commission ratio 2.5% 17.7% 5.5% 19.1% 9.1%
Expense ratio 28.5% 21.1% 23.4% 24.4% 25.3%
========================== ======= ======= ========= ========== =========
COR 91.9% 89.4% 94.3% 93.4% 91.8%
========================== ======= ======= ========= ========== =========
Note:
1. Restructuring costs are costs incurred in respect
of the business activities where the Group has a
constructive obligation to restructure its activities.
The table below analyses the Group's revenue and results by reportable segment for the year ended 31 December 2016.
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 149.1 166.7 45.9 41.8 403.5 26.6 430.1
============================= ========= ======= ========= ========== ========= =======
Restructuring costs(1) (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%
============================= ========= ======= ========= ========== =========
Note:
1. Restructuring costs are costs incurred in respect
of the business activities where the Group has a
constructive obligation to restructure its activities.
4. Net earned premium
2017 2016
GBPm GBPm
=========================================== ======= =======
Gross earned premium:
Gross written premium 3,392.1 3,274.1
Movement in unearned premium reserve (52.4) (71.3)
=========================================== ======= =======
3,339.7 3,202.8
=========================================== ======= =======
Reinsurance premium:
Premium payable (208.4) (206.2)
Movement in reinsurance unearned premium
reserve 3.7 4.0
=========================================== ======= =======
(204.7) (202.2)
=========================================== ======= =======
Total 3,135.0 3,000.6
=========================================== ======= =======
5. Investment return
2017 2016
GBPm GBPm
=========================================== ======= =======
Investment income:
Interest income from debt securities 137.5 136.5
Cash and cash equivalent interest income 3.0 4.2
Interest income from infrastructure debt 6.8 7.8
Interest income from commercial real
estate loans 3.6 1.0
------------------------------------------- ------- -------
Interest income 150.9 149.5
Rental income from investment property 16.2 18.4
167.1 167.9
------------------------------------------- ------- -------
Net realised gains / (losses):
AFS debt securities 23.2 15.3
Derivatives 175.0 (282.3)
Investment property 1.6 1.3
=========================================== ======= =======
199.8 (265.7)
=========================================== ======= =======
Net unrealised (losses) / gains:
Impairment of loans and receivables (9.5) -
Derivatives (202.0) 265.2
Investment property 20.0 4.1
=========================================== ======= =======
(191.5) 269.3
=========================================== ======= =======
Total 175.4 171.5
=========================================== ======= =======
The table below analyses the realised and unrealised gains and losses on derivative instruments included in investment return.
Realised Unrealised Realised Unrealised
-------- ---------- -------- ----------
2017 2017 2016 2016
GBPm GBPm GBPm GBPm
======== ==========
Derivative gains / (losses):
Foreign exchange forward contracts(1) 107.8 62.5 (425.7) 19.1
Associated foreign exchange
risk 68.4 (259.1) 151.0 253.0
====================================== ======== ========== ======== ==========
Net gains / (losses) on foreign
exchange forward contracts 176.2 (196.6) (274.7) 272.1
====================================== ======== ========== ======== ==========
Interest rate swaps(1) 1.8 (1.7) (16.9) 20.7
Associated interest rate risk
on hedged items (3.0) (3.7) 9.3 (27.6)
====================================== ======== ========== ======== ==========
Net losses on interest rate
derivatives (1.2) (5.4) (7.6) (6.9)
Total 175.0 (202.0) (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.
6. Other operating income
2017 2016
GBPm GBPm
========================================= ===== =====
Vehicle replacement referral income 16.9 14.1
Revenue from vehicle recovery and repair
services 11.3 19.3
Legal services income 11.0 11.2
Other income(1) 23.7 13.6
========================================= ===== =====
Total 62.9 58.2
========================================= ===== =====
Note:
1. Other income includes salvage income and fee
income from insurance intermediary services.
7. Net insurance claims
Gross Reinsurance Net Gross Reinsurance Net
======= =========== ======= ======= =========== =======
2017 2017 2017 2016 2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm
========================== ======= =========== ======= ======= =========== =======
Current accident
year claims paid 1,165.0 (0.2) 1,164.8 1,131.7 - 1,131.7
Prior accident year
claims paid 847.0 (13.8) 833.2 905.2 (18.8) 886.4
(Decrease) / increase
in insurance liabilities (440.9) 197.1 (243.8) 142.1 (356.4) (214.3)
========================== ======= =========== ======= ======= =========== =======
Total 1,571.1 183.1 1,754.2 2,179.0 (375.2) 1,803.8
========================== ======= =========== ======= ======= =========== =======
The table below analyses the claims handling expenses included in net insurance claims.
2017 2016
GBPm GBPm
=================== ===== =====
Ongoing operations 175.0 164.4
Run-off (0.2) 1.2
Total 174.8 165.6
=================== ===== =====
8. Commission expenses
2017 2016
GBPm GBPm
============================================== ===== =====
Commission expenses 225.4 246.8
Expenses incurred under profit participations 61.0 97.2
============================================== ===== =====
Total 286.4 344.0
============================================== ===== =====
9. Operating expenses
Total Restructuring Total
Ongoing costs Run-off Group
======== ============= ======= ======
2017 2017 2017 2017
GBPm GBPm GBPm GBPm
============================== ======== ============= ======= ======
Staff costs(1) 268.6 11.5 - 280.1
Other operating expenses(1,2) 273.2 0.4 - 273.6
Marketing 113.7 - - 113.7
Amortisation and impairment
of other intangible assets 111.0 - - 111.0
Depreciation 27.9 - - 27.9
============================== ======== ============= ======= ======
Total 794.4 11.9 - 806.3
============================== ======== ============= ======= ======
Total Restructuring Total
Ongoing costs Run-off Group
========== ================= ======== =======
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 carrying value of GBP23.5 million was remeasured on transfer
to its fair value of GBP3.8 million resulting in a charge to other operating
expenses in restructuring of GBP19.7 million.
The table below analyses the number of people employed by the Group's operations.
At 31 December Average for
the year
================ ==============
2017 2016 2017 2016
=========== ======= ======= ====== ======
Operations 9,539 9,692 9,669 9,546
Support 1,269 1,285 1,280 1,353
=========== ======= ======= ====== ======
Total 10,808 10,977 10,949 10,899
=========== ======= ======= ====== ======
The aggregate remuneration of those employed by the Group's operations comprised:
2017 2016
GBPm GBPm
====================== ===== =====
Wages and salaries 363.6 348.1
Social security costs 40.4 38.9
Pension costs 25.5 24.4
Share-based payments 14.8 16.8
====================== ===== =====
Total 444.3 428.2
====================== ===== =====
10. Finance costs
2017 2016
GBPm GBPm
================================================================= ========== ===========
Interest expense on subordinated liabilities 44.8 46.3
Net interest received on designated hedging
instrument(1) (8.0) (8.0)
Unrealised loss / (gain) on designated
hedging instrument(1) 10.4 (19.6)
Unrealised (gain) / loss on associated
interest rate risk on hedged item(1) (11.7) 17.8
Realised gain on associated interest
rate risk on hedged item(1) (11.3) -
Premium paid to repurchase subordinated
liabilities and associated transaction
costs 77.4 -
Amortisation of arrangement costs and
discount on issue of subordinated liabilities 2.2 0.7
================================================================= ========== ===========
Total 103.8 37.2
================================================================= ========== ===========
Note:
1. As described in note 18, 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 floating rate of three-month LIBOR plus a
spread of 706 basis points, which increased to 707
basis points with effect from 29 July 2013. On 8
December 2017, the Group redeemed GBP250 million
nominal value of the notes.
11. Earnings per share
Earnings per share is calculated by dividing earnings
attributable to the owners of the Company by the
weighted average number of Ordinary Shares during
the year.
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. 2017 2016
GBPm GBPm
=========================================== ======= =======
Earnings attributable to owners of the
Company 434.0 278.8
------------------------------------------- ------- -------
Weighted average number of Ordinary Shares
(millions) 1,366.1 1,368.7
=========================================== ======= =======
Basic earnings per share (pence) 31.8 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 the dilutive potential Ordinary Shares. The Company
has share options and contingently issuable shares as categories of dilutive
potential Ordinary Shares.
2017 2016
GBPm GBPm
=========================================== ======= =======
Earnings attributable to owners of the
Company 434.0 278.8
=========================================== ======= =======
Weighted average number of Ordinary Shares
(millions) 1,366.1 1,368.7
Effect of dilutive potential of share
options and contingently issuable shares
(millions) 12.9 13.1
=========================================== ======= =======
Weighted average number of Ordinary Shares
for the purpose of diluted earnings per
share (millions) 1,379.0 1,381.8
=========================================== ======= =======
Diluted earnings per share (pence) 31.5 20.2
=========================================== ======= =======
12. 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.
2017 2016
At 31 December GBPm GBPm
================================================================= ========== =========
Net assets 2,715.1 2,521.5
Goodwill and other intangible assets(1) (471.1) (508.9)
Tangible net assets 2,244.0 2,012.6
================================================================= ========== =========
Number of Ordinary Shares (millions) 1,375.0 1,375.0
Shares held by employee share trusts
(millions) (9.9) (9.9)
================================================================= ========== =========
Closing number of Ordinary Shares (millions) 1,365.1 1,365.1
================================================================= ========== =========
Net asset value per share (pence) 198.9 184.7
Tangible net asset value per share (pence) 164.4 147.4
================================================================= ========== =========
Note:
1. Goodwill has arisen on acquisition by the Group of subsidiary companies.
Intangible assets are primarily comprised of software development costs.
Return on equity
The table below details the calculation of return on equity.
2017 2016
GBPm GBPm
======================================= ======= =======
Earnings attributable to owners of the
Company 434.0 278.8
Opening shareholders' equity 2,521.5 2,630.0
Closing shareholders' equity 2,715.1 2,521.5
======= =======
Average shareholders' equity 2,618.3 2,575.8
======================================= ======= =======
Return on equity 16.6% 10.8%
======================================= ======= =======
13. Reinsurance assets
2017 2016
GBPm GBPm
========================================= ======= =======
Reinsurers' share of general insurance
liabilities 1,141.1 1,329.0
Impairment provision(1) (59.9) (50.7)
========================================= ======= =======
1,081.2 1,278.3
Reinsurers' unearned premium reserve 97.3 93.5
========================================= ======= =======
Total 1,178.5 1,371.8
========================================= ======= =======
Note:
1. Impairment provision relates to reinsurance debtors
allowing for the risk that reinsurance assets may
not be collected or where the reinsurer's credit
rating has been significantly downgraded and may
have difficulty in meeting its obligations.
14. Financial investments
2017 2016
GBPm GBPm
======================================== ======== ========
Available-for-sale debt securities
Corporate 4,170.5 4,183.7
Supranational 43.9 98.6
Local government 12.2 21.7
Sovereign 224.8 341.2
Total 4,451.4 4,645.2
Held-to-maturity debt securities
Corporate 103.6 85.1
Total debt securities 4,555.0 4,730.3
======================================== ======== ========
Total debt securities
Fixed interest rate(1) 4,540.1 4,709.6
Floating interest rate 14.9 20.7
======================================== ======== ========
Total 4,555.0 4,730.3
Loans and receivables
Infrastructure debt 316.4 337.0
Commercial real estate loans 169.0 79.7
======================================== ======== ========
Total 5,040.4 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 31 December 2017 was GBP1,591.5
million (2016: GBP1,593.6 million).
15. Cash and cash equivalents and borrowings
2017 2016
GBPm GBPm
================================================ ======= =======
Cash at bank and in hand 258.0 166.6
Short-term deposits with credit institutions(1) 1,100.6 999.5
================================================ ======= =======
Cash and cash equivalents 1,358.6 1,166.1
Bank overdrafts(2) (54.1) (55.3)
Cash and bank overdrafts(3) 1,304.5 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 and transactions flowing through the accounts
at the bank.
3. Cash and bank overdrafts disclosure note is included
for the purposes of the consolidated cash flow statement.
The effective interest rate on short-term deposits with credit institutions for the year ended 31 December 2017 was 0.29%
(2016: 0.45%) and average maturity was 10 days (2016: 10 days).
16. Share capital
2017 2016 2017
Number Number GBPm 2016
millions millions GBPm
============================== ========= ========= ====== =====
Issued and fully paid: equity
shares
Ordinary Shares of 10 (10)
/(11) pence each(1) 1,375 1,375 150.0 150.0
============================== ========= ========= ====== =====
Note:
1. The shares have attached to them full voting
dividend and capital distribution rights (including
wind up); they do not confer any rights of redemption.
Employee trust shares
The Group satisfies share-based payments under the Group's share plans primarily through shares purchased in the market and held by employee share trusts.
At 31 December 2017, 9,945,473 Ordinary Shares (2016: 9,946,340 Ordinary Shares) were owned by the employee share trusts with a cost of GBP34.1 million (2016: GBP34.3 million). These Ordinary Shares are carried at cost and have a market value of GBP38.0 million (2016: GBP36.7 million).
17. Tier 1 notes
2017 2016
GBPm GBPm
============= ===== =====
Tier 1 notes 346.5 -
============= ===== =====
On 7 December 2017, the Group issued GBP350 million of fixed rate perpetual Tier 1 notes with a coupon rate of 4.75% per annum.
The Group has an optional redemption date of 7 December 2027. If the notes are not repaid on that date, a fixed rate of interest per annum will be reset. The notes are direct, unsecured and subordinated obligations of the issuer ranking pari passu and without any preference amongst themselves.
The Tier 1 notes are treated as a separate category within equity and the coupon payments are recognised outside of the profit after tax result and directly in shareholders equity.
The Group has the option to cancel the coupon payment which becomes mandatory upon breach or non-compliance with the Group SCR, a breach of the minimum capital requirement or where the Group has insufficient distributable reserves.
Proceeds of this issuance have primarily been used to fund the repurchase of GBP250 million subordinated guaranteed dated notes which had a market value of GBP326.8 million (see note 18).
18. Subordinated liabilities
2017 2016
GBPm GBPm
==================================== ===== =====
Subordinated guaranteed dated notes 264.7 539.6
==================================== ===== =====
The subordinated guaranteed dated notes with a nominal value of GBP500 million were issued on 27 April 2012 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 for a floating rate of three-month LIBOR plus a spread of 706 basis points which was credit value adjusted to 707 basis points with effect from 29 July 2013.
On 8 December 2017, the Group repurchased GBP250 million nominal value of the subordinated guaranteed dated notes for a purchase price of GBP330.1 million including accrued interest of GBP2.7 million and associated transaction costs of GBP0.6 million.
The remaining notes, with a nominal value of GBP250 million, have a redemption date of 27 April 2042 with the option to repay the notes on 27 April 2022. If the notes are not repaid on that date, the rate of interest will be reset at a rate of the six-month LIBOR plus 7.91%.
The Group has the option, in certain circumstances, to defer interest payments on the notes but to date has not exercised this right.
The notes are unsecured, subordinated obligations of the Group, and rank pari passu without any preference among themselves.
In the event of a winding-up or of bankruptcy, they are to be repaid only after the claims of all other senior creditors have been met.
19. Insurance liabilities
2017 2016
GBPm GBPm
====================== ======= =======
Insurance liabilities 4,225.7 4,666.6
====================== ======= =======
Gross insurance liabilities
Accident 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total year GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm =========== ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= ======= Estimate of ultimate gross claims costs: At end of accident year 3,393.4 3,823.3 3,941.7 2,698.1 2,372.7 2,184.0 2,094.5 2,118.1 2,157.7 2,217.3 One year later 50.8 121.6 (117.1) (99.3) (163.3) (117.6) 20.7 (30.0) (86.7) Two years later 51.7 (37.0) (99.1) (94.6) (118.9) (153.0) (38.4) (143.5) Three years later (36.7) (14.0) (50.3) (89.3) (49.3) (21.0) (144.9) Four years later (16.7) (101.5) (105.5) (60.9) (9.9) (102.1) Five years later (55.5) (38.8) (57.7) (21.2) (79.2) Six years later (45.7) (80.8) (25.9) (60.3) Seven years later (29.9) (27.3) (50.0) Eight years later (16.2) (14.0) Nine years later (24.3) ----------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Current estimate of cumulative claims 3,270.9 3,631.5 3,436.1 2,272.5 1,952.1 1,790.3 1,931.9 1,944.6 2,071.0 2,217.3 Cumulative payments to date (3,181.5) (3,469.5) (3,303.7) (2,153.9) (1,843.0) (1,610.0) (1,526.7) (1,469.7) (1,442.4) (1,050.6) Gross liability recognised in balance sheet 89.4 162.0 132.4 118.6 109.1 180.3 405.2 474.9 628.6 1,166.7 3,467.2 =========== ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= 2007 and prior 679.2 Claims handling provision 79.3 =========== ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= ======= Total 4,225.7 =========== ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= =======
Net insurance liabilities
Accident 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total year GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm =========== ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= ======= Estimate of ultimate net claims costs: At end of accident year 3,334.7 3,790.6 3,902.0 2,644.4 2,271.8 2,093.9 1,971.0 1,926.7 1,922.2 2,016.9 One year later 52.0 70.0 (125.2) (131.5) (146.7) (123.6) (29.7) (67.0) (18.9) Two years later 15.9 (17.4) (120.4) (82.1) (107.8) (134.4) (42.0) (77.8) Three years later (22.8) (54.1) (44.0) (76.5) (35.6) (27.8) (100.7) Four years later (45.8) (67.0) (93.6) (48.7) (11.6) (64.3) Five years later (48.7) (29.6) (52.3) (37.3) (54.2) Six years later (30.9) (74.6) (43.9) (37.0) Seven years later (24.5) (38.2) (24.8) Eight years later (16.2) (0.4) Nine years later (13.0) ----------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Current estimate of cumulative claims 3,200.7 3,579.3 3,397.8 2,231.3 1,915.9 1,743.8 1,798.6 1,781.9 1,903.3 2,016.9 Cumulative payments to date (3,141.4) (3,436.3) (3,288.7) (2,130.5) (1,830.9) (1,593.3) (1,524.2) (1,467.7) (1,441.8) (1,050.4) Net liability recognised in balance sheet 59.3 143.0 109.1 100.8 85.0 150.5 274.4 314.2 461.5 966.5 2,664.3 =========== ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= 2007 and prior 400.9 Claims handling provision 79.3 =========== ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= ======= Total 3,144.5 =========== ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= =======
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 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 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 4,666.6 (1,278.3) 3,388.3
Cash paid for claims settled in
the year (2,012.0) 14.0 (1,998.0)
Increase / (decrease) in liabilities:
Arising from current-year claims 2,389.9 (200.3) 2,189.6
Arising from prior-year claims (818.8) 383.4 (435.4)
At 31 December 2017 4,225.7 (1,081.2) 3,144.5
====================================== ========= =========== =========
Claims reported 3,003.7 (742.5) 2,261.2
Incurred but not reported 1,142.7 (338.7) 804.0
Claims handling provision 79.3 - 79.3
====================================== ========= =========== =========
At 31 December 2017 4,225.7 (1,081.2) 3,144.5
====================================== ========= =========== =========
Movement in prior-year net claims liabilities by operating segment
2017 2016
GBPm GBPm
================================ ======= =======
Motor (275.5) (123.5)
Home (23.7) (75.9)
Rescue and other personal lines (6.8) (17.5)
Commercial (86.3) (49.8)
Total Ongoing (392.3) (266.7)
Run-off (43.1) (23.4)
Total (435.4) (290.1)
================================ ======= =======
20. Unearned premium reserve
Movement in unearned premium reserve
Gross Reinsurance Net
GBPm GBPm GBPm
========================= ======= =========== =======
At 1 January 2016 1,476.6 (89.5) 1,387.1
Net movement in the year 71.3 (4.0) 67.3
At 31 December 2016 1,547.9 (93.5) 1,454.4
Net movement in the year 52.4 (3.8) 48.6
At 31 December 2017 1,600.3 (97.3) 1,503.0
========================= ======= =========== =======
21. Related parties
Transactions between the Group's subsidiary undertakings, which are related
parties, have been eliminated on consolidation and accordingly are not disclosed.
Full details of the Group's related party transactions for the year ended 31
December 2016 are included on page 178 of the Annual Report & Accounts 2016.
Corporate information
Direct Line Insurance Group plc is a public limited company registered in England
and Wales, number 02280426. The address of the registered office is Churchill
Court, Westmoreland Road, Bromley BR1 1DP.
Statutory accounts information
The Annual Report & Accounts 2016 were signed on 6 March 2017 and were delivered
to the Registrar of Companies following the Annual General Meeting held on 11
May 2017. The Annual Report & Accounts 2016 is available at: ara2016.directlinegroup.com
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.
==================== =================================================
Average written Average written premium is the total
premium written premium at inception divided
by the number of policies.
==================== =================================================
Capital The funds invested in the Group, including
funds invested by shareholders and retained
profits.
==================== =================================================
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 settling claims and
(provision related expenses that the Group considers
for losses it 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. Normalised COR adjusts
loss and commission ratios for a normal
level of major weather events in the
period.
==================== =================================================
Commission Payments to brokers, partners and PCWs
expenses 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 segment.
==================== =================================================
Direct own Direct own brands include Home and Motor
brands under the Direct Line, Churchill and
Privilege brands, Rescue under the Green
Flag brand and Commercial under the Direct
Line for Business brand.
==================== =================================================
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 return 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.
==================== =================================================
Leverage Tier 1 notes and financial debt (subordinated
guaranteed dated notes) as a percentage
of total capital employed.
==================== =================================================
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.
==================== =================================================
Net investment The net investment income yield is calculated
income in the same way as investment income
yield yield but includes the cost of hedging;
see alternative performance measures.
==================== =================================================
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.
==================== =================================================
Periodic payment These are claims payments as awarded
order ("PPO") under the Courts Act 2003. PPOs are used
to settle large personal injury claims.
They generally provide a lump-sum award
plus inflation-linked annual payments
to claimants who require long-term care
==================== =================================================
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.
==================== =================================================
Restructuring Restructuring costs are costs incurred
in respect of the business activities
where the Group has a constructive obligation
to restructure its activities.
==================== =================================================
Return on Return on equity is calculated by dividing
equity the profit attributable to the owners
of the Company
by average shareholders' equity for
the period.
==================== =================================================
Return on Return on tangible equity for 2017 is
tangible equity adjusted profit after tax from Ongoing
("RoTE") operations excluding one-off costs in
relation to the buy-back of subordinated
liabilities, 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%).
RoTE for comparative periods is adjusted
profit after tax from Ongoing operations,
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
and other one-off costs. See alternative
performance measures.
==================== =================================================
Run-off The segment 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.
==================== =================================================
Solvency capital The ratio of solvency II own funds to
ratio the solvency capital requirement.
==================== =================================================
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 / 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 the IFRS measures, to aid the user of the Annual 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 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 3 of the consolidated financial statements presents a reconciliation of the Group's business activities on a segmental basis to the statutory income statement including Ongoing operations of the Group. All note references in the table below are to the notes to the consolidated financial statements.
Group Closest Definition and / or Rationale for APM
APM equivalent reconciliation
IFRS
measure
============== =========== ================================= =====================================
Adjusted Diluted Adjusted diluted earnings This is a representation of
diluted earnings per share is defined the underlying earnings over
earnings per in the glossary and the number of shares in issue
per share share is reconciled below. adjusted for potential dilutions
from the exercise of options
and contingently issuable shares.
============== =========== ================================= =====================================
Current-year Loss Current-year attritional Expresses claims performance
attritional ratio loss ratio is defined in the current accident year
loss ratio in the glossary and in relation to net earned premium.
is reconciled to loss
ratio (discussed below)
in the Finance review.
============== =========== ================================= =====================================
COR Operating COR is defined in the This is a measure of underwriting
profit glossary. The constituent profitability whereby a ratio
parts: operating profit of less than 100% represents
- Ongoing operations an underwriting profit and
is discussed below; a ratio of more than 100% represents
and net earned premium an underwriting loss and excludes
(note 4). non-insurance income.
============== =========== ================================= =====================================
Investment Investment Investment income yield Expresses a relationship between
income income is defined in the glossary the investment income and the
yield and is reconciled below. associated opening and closing
assets adjusted for portfolio
hedging instruments.
============== =========== ================================= =====================================
Investment Investment Investment return yield Expresses a relationship between
return return is defined in the glossary the investment return and the
yield and is reconciled below. associated opening and closing
assets net of any associated
liabilities.
============== =========== ================================= =====================================
Loss ratio Net Loss ratio is defined Expenses claims performance
insurance in the glossary and in relation to net earned premium.
claims is reconciled below.
============== =========== ================================= =====================================
Net investment Investment Net investment income Expresses a relationship between
income income yield is defined in the investment income and the
yield the glossary and is associated opening and closing
reconciled below. assets adjusted for portfolio
hedging instruments.
============== =========== ================================= =====================================
Operating Operating Operating profit from This measure shows the underlying
profit profit Ongoing operations is performance (before tax and
from Ongoing defined as operating finance costs) of the business
operations profit (see glossary) activities without the impact
less operating profit of business that is in Run-off
from Run-off segment and restructuring costs.
plus restructuring costs
(see note 3) and is
reconciled below.
============== =========== ================================= =====================================
Profit Profit Operating profit from This measure shows the underlying
after after Ongoing operations (as performance (after tax and
tax from tax above) less finance finance costs) of the business
Ongoing costs and tax at standard activities without the impact
operations rate and is reconciled of business that is in Run-off
below. and restructuring costs.
============== =========== ================================= =====================================
RoTE Return RoTE is defined in the This shows underlying performance
on Equity glossary and is reconciled against a measure of equity
below. that is more able to be compared
with other companies.
============== =========== ================================= =====================================
Tangible Equity Tangible equity is defined This shows the equity excluding
equity as equity less intangible intangible assets for comparability
assets within the balance with companies who have not
sheet and is reconciled acquired businesses or capitalised
below. intangible assets.
============== =========== ================================= =====================================
Tangible Net Tangible net asset per This shows the equity excluding
net asset assets share is defined as intangible assets per share
per share per tangible equity (as for comparability with companies
share above) expressed as who have not acquired businesses
a value per share and or capitalised intangible assets.
is reconciled in note
12.
============== =========== ================================= =====================================
Total Operating Total costs from Ongoing This represents the total value
costs expenses operations is defined of operating expenses including
from Ongoing as operating expenses those allocated to the insurance
operations adjusted to remove restructuring claims line as claims handling
costs and operating expenses excluding business
expenses charged to in Run-off and restructuring
the Run-off segment costs.
(reconciled in note
9) plus claims handling
expenses incurred in
net insurance claims
on Ongoing operations
(note 7). 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 ("RoTE")(1)
2017 2016
Note(2) GBPm GBPm
============================================ ======= ======= =======
Operating profit 3 642.8 390.2
Add back: restructuring costs 3 11.9 39.9
Exclude: operating profit from Run-off 3 (43.8) (26.6)
============================================ ======= ======= =======
Operating profit from Ongoing operations 3 610.9 403.5
Finance costs 10 (103.8) (37.2)
Finance costs adjustment for one-off
subordinated debt buy back 66.1 -
============================================ ======= ======= =======
Adjusted profit before tax from
Ongoing operations 573.2 366.3
Tax charge (using the UK standard
tax rate of 19.25% and 20.0% respectively) (110.3) (73.3)
============================================ ======= ======= =======
Adjusted profit after tax from Ongoing
operations 462.9 293.0
============================================ ======= ======= =======
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 2,715.1 2,521.5
Closing goodwill and other intangible
assets (471.1) (508.9)
============================================ ======= ======= =======
Closing shareholders' tangible equity 2,244.0 2,012.6
============================================ ======= ======= =======
Average shareholders' tangible equity(3) 2,128.3 2,058.9
============================================ ======= ======= =======
Return on tangible equity 21.7% 14.2%
============================================ ======= ======= =======
Adjusted diluted earnings per share(1)
2017 2016
At Note(2) GBPm GBPm
======================================= ======= ======= =======
Adjusted profit after tax from Ongoing
operations 462.9 293.0
Weighted average number of Ordinary
Shares for the purpose of diluted
earnings per share (millions) 11 1,379.0 1,381.8
======================================= ======= ======= =======
Adjusted diluted earnings per share
(pence) 33.6 21.2
======================================= ======= ======= =======
Notes:
1. See glossary for definitions.
2. See notes to the consolidated financial statements.
3. Mean average of opening and closing balances.
Investment income and return yields
2017 2016
Notes GBPm GBPm
=========================================== ===== ======= =======
Investment income 5 167.1 167.9
Hedging to a sterling floating rate
basis(1) 5 (27.0) (17.1)
------------------------------------------- ----- ------- -------
Net investment income 140.1 150.8
Net realised and unrealised gains
excluding hedging 5 35.3 20.7
=========================================== ===== ======= =======
Investment return 175.4 171.5
=========================================== ===== ======= =======
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 liability(2) (5.8) (45.7)
=========================================== ===== ======= =======
Opening investment holdings 6,581.0 6,818.7
=========================================== ===== ======= =======
Closing investment property 309.3 329.0
Closing financial investments 14 5,040.4 5,147.0
Closing cash and cash equivalents 15 1,358.6 1,166.1
Closing borrowings 15 (54.1) (55.3)
Closing derivatives asset / (liability)(2) 55.1 (5.8)
=========================================== ===== ======= =======
Closing investment holdings 6,709.3 6,581.0
=========================================== ===== ======= =======
Average investment holdings 6,645.2 6,699.9
=========================================== ===== ======= =======
Investment income yield 2.5% 2.5%
Net investment income yield 2.1% 2.2%
Investment return yield 2.6% 2.6%
=========================================== ===== ======= =======
Notes:
1. Includes net realised and unrealised gains / (losses) of derivatives in relation
to AUM.
2. Asset allocation at 31 December 2017 includes investment portfolio derivatives,
which have been included and have a mark-to-market asset value of GBP55.1 million
included in investment grade credit (31 December 2016 mark-to-market value of
GBP5.8 million liability). This excludes non-investment derivatives that have
been used to hedge interest on subordinated debt and operational cash flows.
Additional information
We confirm that to the best of our knowledge:
1. the financial statements within the Annual Report & Accounts, from which
the financial information within these Preliminary Results have been extracted,
are prepared in accordance with International Financial Reporting Standards
as adopted by the European Union, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group and the undertakings included
in the consolidation taken as a whole; and
2. the management report within these Preliminary Results includes a fair review
of the development and performance of the business and the position of the Group,
and the undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties faced by the Group.
Signed on behalf of the Board
Paul Geddes John Reizenstein
Chief Executive Officer Chief Financial Officer
26 February 2018 26 February 2018
LEI: 213800FF2R23ALJQOP04
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DGGDDGGDBGIL
(END) Dow Jones Newswires
February 27, 2018 02:01 ET (07:01 GMT)
1 Year Direct Line Insurance Chart |
1 Month Direct Line Insurance Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
