Direct Line Insurance Group PLC Trading Update for the first nine months of 2017 (7181V)

TIDMDLG

RNS Number : 7181V

Direct Line Insurance Group PLC

07 November 2017

 
 Trading Update for the first nine months of 2017(1) 
                                     7 November 2017 
               Continued momentum to meet targets 
 
 
 Paul Geddes, CEO of Direct Line Group, commented: 
  "We have continued the good momentum from the first 
  half into the third quarter, and remain on track with 
  our targets. In-force policies grew by a third of a 
  million or 5.1% over the last 12 months in our direct 
  own brands, across Motor, Home, Green Flag and Direct 
  Line for Business, demonstrating the strength of the 
  Direct Line Group business model. 
 
  "Our Motor, Commercial and Rescue businesses continued 
  to trade well in the quarter while the actions we've 
  taken on Home claims costs have started to take effect. 
  We remain focused on our target loss ratios with our 
  strong customer relationships, propositions and trading 
  capabilities differentiating us in the competitive 
  marketplace. 
 
  "We have continued to invest in our business and our 
  people with the aim of delivering good value for our 
  customers and good returns for our shareholders. As 
  a result, we expect to achieve a combined operating 
  ratio around the middle of the target range of 93% 
  to 95% for 2017 and we reiterate our medium term targets." 
 
 
 Results summary 
 
 
                                           Q3 2017    Q3 2016 
                                              GBPm       GBPm     Change 
---------------------------------------  ---------  ---------  --------- 
  Gross written premium: 
  Motor                                      462.0      431.5      +7.1% 
  Home                                       217.0      225.9     (3.9%) 
  Rescue and other personal lines            110.0      108.0      +1.9% 
  Commercial                                 118.2      117.5      +0.6% 
---------------------------------------  ---------  ---------  --------- 
  Total                                      907.2      882.9      +2.8% 
    Of which direct own brands(2)            606.6      560.0      +8.3% 
---------------------------------------  ---------  ---------  --------- 
                                            30 Sep     30 Sep 
                                              2017       2016     Change 
                                              '000       '000 
---------------------------------------  ---------  ---------  --------- 
  In-force policies                         15,775     15,736      +0.2% 
    Of which direct own brands(2)            6,838      6,504      +5.1% 
---------------------------------------  ---------  ---------  --------- 
                                          9 months   9 months 
                                              2017       2016 
---------------------------------------  ---------  ---------  --------- 
  Investment income yield (annualised)        2.6%       2.5%    +0.1ppt 
  Investment return yield (annualised)        2.8%       2.7%    +0.1ppt 
---------------------------------------  ---------  ---------  --------- 
 
 
 Highlights and outlook 
 
 
 --   Own brands in-force policies grew across Motor, 
       Home, Direct Line for Business and Green Flag 
       year on year and quarter on quarter, particularly 
       in the Direct Line brand. 
 --   Strong momentum in Motor, with own brands policies 
       up 5.5% compared to 30 September 2016. 
 --   The actions taken on Home across claims and underwriting 
       to mitigate the high escape of water claims inflation 
       have resulted in encouraging improvements in 
       claims experience. 
 --   Annualised investment income yield of 2.6% is 
       ahead of 2017 expectations due to portfolio positioning 
       and some one-off benefits. Realised and unrealised 
       gains net of hedging costs in the quarter were 
       GBP3.4m. 
 --   The Group is on track to achieve a combined operating 
       ratio around the middle of the range of 93% to 
       95%, assuming a normal level of claims from major 
       weather events. 
 

For further information, please contact:

 
 Andy Broadfield                  Jennifer Thomas 
 Director of Investor Relations   Head of Financial Communications 
 Tel: [phone]          Tel: [phone] 
 
 
 Notes: 
 1. Direct Line Group's Trading Update relates to 
  the nine months ended 30 September 2017, and contains 
  information to the date of publication. 
 2. Direct own brands includes in-force policies for 
  Home and Motor under the Direct Line, Churchill and 
  Privilege brands, Rescue policies under the Green 
  Flag brand. 
 
 
 Business update 
 Direct Line Group (the "Group") delivered a strong 
  performance in the first nine months of 2017, growing 
  total gross written premium 4.2% year on year, and 
  continued to make progress towards its targets announced 
  at the half year 2017. 
 In direct own brands, the Group maintained momentum 
  growing in-force policies 5.1% since 30 September 
  2016, with sales through the Direct Line brand driving 
  the growth. 
 Strong momentum in Motor 
  In Motor, own brands in-force policies increased 
  by around 200,000 or 5.5% and premiums grew 10.0% 
  compared to the third quarter of 2016. During the 
  third quarter, trading overall continued to be strong 
  and the Group maintained good retention rates on 
  renewal business while there were some signs new 
  business rate increases slowed in the market. On 
  claims, damage severity remained at elevated levels, 
  while frequency so far this year has been better 
  than expected, although it is too early to call 
  this a trend. 
 Keeping Home profitability on course 
  In-force policies in Home own brands increased by 
  around 30,000 or 1.8% since 30 September 2016 and 
  premiums increased by 1.2% compared to the third 
  quarter of 2016. Rate increases, coupled with the 
  underwriting and claims actions taken over the last 
  six months to tackle escape of water claims inflation 
  started to have a positive effect, while weather 
  experience in the period was benign. The Group's 
  partnership with Nationwide will end in December 
  and the Group will stop earning premiums from this 
  contract by the end of 2018. 
 Taking Rescue and Commercial brands forward 
  In Rescue, total in-force policies were broadly 
  stable compared to 30 September 2016, as the growth 
  in Green Flag was offset by a reduction in partner 
  policies. In the third quarter, Green Flag launched 
  a new advertising campaign to highlight its position 
  as a challenger brand. In October, the Group agreed 
  to renew its rescue services partnership with Royal 
  Bank of Scotland for a further 5 years. 
 Within Commercial, Direct Line for Business continued 
  to grow, with in-force policies up 7.9% since 30 
  September 2016 and premiums increasing by 11.2% 
  compared to the third quarter of 2016. The performance 
  of the Direct Line for Business new technology platform, 
  launched in April 2017, has been encouraging and 
  the Group is on track to launch its next product 
  on the platform around the end of the year. In NIG, 
  van insurance sales were strong, while the Group 
  chose to give up some higher premium business which 
  would have failed to achieve the Group's return 
  hurdle. 
 Improving efficiency and investing in the future 
  The Group is investing in multiple initiatives and 
  systems aimed at improving customer experience, 
  supporting growth and increasing the efficiency 
  of the business. This investment spans policy, pricing, 
  payment and other related data and digital systems 
  across the business, such as the successful launch 
  of its eTrading platform for the Direct Line for 
  Business unit in the first half of 2017. As previously 
  indicated, the Group expects to incur capital expenditure 
  of an average of GBP80m to GBP100m per annum in 
  the period 2017 to 2019. 
  Whilst these initiatives are making progress, the 
  Group has decided to rework some elements of the 
  original capital expenditure already incurred, aimed 
  at ensuring these initiatives achieve the targeted 
  performance levels. The impact of this on intangible 
  assets is being reviewed and this could lead to 
  an impairment charge at year end somewhat higher 
  than last year's level. 
  In terms of solvency capital, the balance sheet 
  does not recognise intangible assets and any such 
  impairment would have no material impact on the 
  Group's capital position or policy. 
  Progress on the Group's initiatives is supporting 
  its expectation for 2017 to deliver a business as 
  usual expense ratio(1) lower than 2016 (24.0%). 
 
 
 Note: 
 1. Business as usual expense ratio of 24% in 2016 
  is the reported expense ratio (25.3%) excluding 
  the impairment charge of GBP39.3m. 
 
 
 Outlook 
 The strong performance in Motor for 2017 gives the 
  Group confidence that even with the potential impairment 
  it expects to deliver a combined operating ratio 
  around the middle of the target range of 93% to 
  95%, assuming a normal level of claims from major 
  weather events. 
  In line with the Group's previously stated targets, 
  the full year business as usual expense ratio is 
  expected to be lower than 2016 (24.0%) and the commission 
  ratio is expected to be significantly lower. However, 
  the reported expense ratio may be around or above 
  the level in 2016, depending on the outcome of the 
  impairment review. 
  The Group now expects to achieve a 2.5% investment 
  income yield compared to its previous expectation 
  of a 2.4% investment income yield and continues 
  to expect a return on tangible equity ("RoTE") of 
  at least 15%. 
 Beyond 2017, the Group reiterates its target of 
  achieving a 93% to 95% combined operating ratio 
  over the medium term, assuming a normal level of 
  claims from major weather events, supported by reductions 
  in its expense and commission ratios, and the Group 
  reiterates its ongoing target of achieving at least 
  a 15% RoTE. 
 
 
 Financial update 
 
 

 In-force policies - 
  Ongoing operations (thousands) 
---------------------------------  -------  -------  -------  -------  ------- 
                                    30 Sep   30 Jun   31 Mar   31 Dec   30 Sep 
 As at                                2017     2017     2017     2016     2016 
---------------------------------  -------  -------  -------  -------  ------- 
 Own brands                          3,805    3,761    3,691    3,642    3,607 
 Partnerships                          188      205      220      231      233 
=================================  =======  =======  =======  =======  ======= 
 Motor total                         3,993    3,966    3,911    3,873    3,840 
 Own brands                          1,783    1,770    1,764    1,759    1,751 
 Partnerships                        1,499    1,534    1,593    1,619    1,638 
=================================  =======  =======  =======  =======  ======= 
 Home total                          3,282    3,304    3,357    3,378    3,389 
  Of which Nationwide 
   and Sainsbury's                     665      688      706      719      723 
 Rescue                              3,635    3,663    3,676    3,646    3,621 
 Other personal lines                4,159    4,178    4,188    4,234    4,219 
=================================  =======  =======  =======  =======  ======= 
 Rescue and other personal 
  lines                              7,794    7,841    7,864    7,880    7,840 
  Of which Green Flag 
   direct                              788      759      739      729      718 
 Direct Line for Business              462      452      441      433      428 
 NIG and other                         244      248      245      242      239 
---------------------------------  -------  -------  -------  -------  ------- 
 Commercial                            706      700      686      675      667 
---------------------------------  -------  -------  -------  -------  ------- 
 Total                              15,775   15,811   15,818   15,806   15,736 
---------------------------------  -------  -------  -------  -------  ------- 
 
 
 Total in-force policies have increased by 0.2% since 
  30 September 2016 driven by continued growth across 
  Motor and Home's own brands, Green Flag direct and 
  Direct Line for Business. The growth across own 
  brands was partially offset by reductions across 
  the Group's partnership arrangements. 
 
 
 Gross written premium - Ongoing 
  operations 
--------------------------------------  ------  ------  ---------  --------- 
                                            Q3      Q3   9 months   9 months 
                                          2017    2016       2017       2016 
                                          GBPm    GBPm       GBPm       GBPm 
--------------------------------------  ------  ------  ---------  --------- 
 Own brands                              441.2   401.1    1,222.4    1,095.4 
 Partnerships                             20.8    30.4       64.0       86.4 
--------------------------------------  ------  ------  ---------  --------- 
 Motor total                             462.0   431.5    1,286.4    1,181.8 
 Own brands                              114.3   113.0      307.5      304.6 
 Partnerships                            102.7   112.9      297.6      324.5 
--------------------------------------  ------  ------  ---------  --------- 
 Home total                              217.0   225.9      605.1      629.1 
  Of which Nationwide and Sainsbury's     51.1    56.4      148.7      161.4 
 Rescue                                   43.5    46.3      127.1      128.2 
 Other personal lines                     66.5    61.7      196.2      177.5 
--------------------------------------  ------  ------  ---------  --------- 
 Rescue and other personal 
  lines                                  110.0   108.0      323.3      305.7 
  Of which Green Flag direct              18.3    16.4       47.7       43.0 
 Direct Line for Business                 32.8    29.5       92.9       82.5 
 NIG and other                            85.4    88.0      293.7      296.9 
--------------------------------------  ------  ------  ---------  --------- 
 Commercial                              118.2   117.5      386.6      379.4 
--------------------------------------  ------  ------  ---------  --------- 
 Total                                   907.2   882.9    2,601.4    2,496.0 
--------------------------------------  ------  ------  ---------  --------- 
 
 
 Gross written premium of GBP2,601.4m increased by 
  4.2% compared with the first nine months of 2016 
  and by 2.8% compared with the third quarter of 2016, 
  mainly driven by Motor. The Direct Line brand continued 
  to perform well. 
 
 
 Corporate information 
 Direct Line Insurance Group plc is a public limited 
  company registered in England & Wales, number 02280426. 
  The address of the registered office is Churchill 
  Court, Westmoreland Road, Bromley BR1 1DP. 
 The Annual Report & Accounts 2016 is available at: 
  www.directlinegroup.com 
 
 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 II capital coverage 
  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 result of the referendum 
  and the negotiations relating to the UK's withdrawal 
  from the European Union, the result of the UK general 
  election, market-related risks such as fluctuations 
  in interest rates and exchange rates, the policies 
  and actions of regulatory authorities ((including 
  changes related to capital and solvency requirements 
  or the Ogden discount rate), the impact of competition, 
  currency changes, inflation and deflation, the timing 
  impact and other uncertainties of future acquisitions, 
  disposals, joint ventures or combinations within 
  relevant industries, as well as the impact of tax 
  and other legislation and other regulation in the 
  jurisdictions in which the Group and its affiliates 
  operate. In addition, even if the Group's actual 
  results of operations, financial condition and the 
  development of the business sector in which the 
  Group operates are consistent with the forward-looking 
  statements contained in this document, those results 
  or developments may not be indicative of results 
  or developments in subsequent periods. 
 The forward-looking statements contained in this 
  document reflect knowledge and information available 
  as of the date of preparation of this document. 
  The Group and the Directors expressly disclaim any 
  obligations or undertaking to update or revise publicly 
  any forward-looking statements, whether as a result 
  of new information, future events or otherwise, 
  unless required to do so by applicable law or regulation. 
  Nothing in this document should be construed as 
  a profit forecast. 
 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. 
 

This information is provided by RNS

The company news service from the London Stock Exchange

END

TSTDMMGMRVRGNZM

(END) Dow Jones Newswires

November 07, 2017 02:00 ET (07:00 GMT)