Annual Report and Accounts 2023

Direct Line Group is one of the UK's leading insurance companies.

Through our well-known brands including Direct Line, Churchill, Privilege, Darwin, and Green Flag, we offer a wide range of general insurance products across motor, home, commercial, travel, pet and rescue, both direct to customers and through price comparison websites.

In 2023 we sold our brokered commercial business, prioritised actions to improve margins in Motor, while also continuing to maintain performance in our other businesses.

We are confident that the Group has the foundations for improved performance going forward.

Sale of brokered commercial business

During the year, we sold our brokered commercial insurance business for an attractive valuation, which strengthened the Group both strategically and financially, as well as significantly improving our solvency ratio.

The sale crystallised an attractive valuation for a business we have turned around over the last ten years, but one that ultimately had a different trading model and operates in a different part of the UK insurance market to the rest of the Group.

Following the sale, our strategy is focused on retail personal lines and small business commercial customers.

Improving Motor margins

We have taken a range of actions in Motor to improve our performance and increase our written margins back to target levels. These actions have delivered a material increase in our average premiums, mitigating the impacts of elevated inflation while also reducing our risk exposure.

There are four key areas we have focused on:

Resilient performance from other businesses

Our home, Commercial Direct, rescue and other businesses have delivered good performance with an improved ongoing net insurance margin (NIM).

In Home, our focus was on maintaining margins and we achieved this whilst also growing our share of new business in the price comparison website channel. Following a challenging market backdrop in 2022, the market applied considerable rate increases in 2023 and this helped improve our competitiveness, driving 42% growth in new business sales while retention remained strong.

Overall we delivered 6.4% gross written premium growth in 2023 and a NIM of 10.0%. There were several named weather events across the year and our Home claims team helped over 3000 customers. Despite the high frequency of events, our estimate for event weather of £25 million is below our 2023 assumption for normal event weather of £54 million.

Adapting to customer needs

Our mission is to be brilliant for customers every day. It's the driving force behind everything we do.

We know the importance of providing an exceptional insurance service and aim to deliver great outcomes for our customers.

Over 2023, we have undertaken extensive work across the organisation to further focus on how we meet our customers' insurance needs. Whether it's at point of sale or resolving claims, we want to make it simple for our customers and be there for them when they need us, with the products that meet their needs both now and in the future.

Direct Line Essentials

Building on the success of last year's Churchill Essentials product, we launched our Direct Line Essentials product this year for our Motor customers, expanding our product range and giving those who need it greater choice. The Direct Line Essentials product is available for customers looking for an entry level comprehensive car insurance policy.

Consumer Duty

In July 2023, the Consumer Duty came into effect, introducing significant new Financial Conduct Authority ("FCA") rules on consumer protection for all financial services firms. To support and strengthen our approach to be brilliant for customers every day we:

• provided Consumer Duty training to all colleagues.
• completed a review of our key customer journeys and processes, making numerous improvements to help and support our customers.
• engaged with key suppliers, producing a specific guidance pack to help them understand the expectations around customer outcomes and how we will support them to achieve this.
• launched a customer closeness programme for our Senior Leadership community to go 'back to the floor' and walk in our customers' shoes.
• introduced new product forums with specific accountability for reviewing customer outcomes and reporting against the four main outcomes of the Consumer Duty.

Motor Claims Hub

Knowing that many of our customers prefer to register their claims online, we have focused on enhancing our capability to provide end-to-end digital claims journeys, launching a new Motor Claims Hub in 2023.

The Hub gives our Churchill customers the opportunity to report third-party claims and single vehicle claims while allowing them the flexibility to inform us of an accident at any time of day from their phone, tablet or laptop, all while getting real-time claim decisions. Plans for the Hub include extending this capability to Motability, Direct Line and Privilege customers, as well as introducing additional features for customers to conveniently track their claims online.

Sale of brokered commercial business

Following the sale of our brokered commercial business, we are fully focused on retail personal lines and commercial small business customers where our brands, claims management and technology gives us the opportunity to outperform for our customers.

Motability partnership

After nearly two years of preparation, we welcomed over 700,000 Motability customers at the start of September. The partnership is forecast to deliver over £800 million of gross premium annually and allows for six-monthly repricing, to mitigate the risk of claims inflation, whilst being capital light as it is 80% reinsured.

This is an important commercial partnership for the Group and demonstrates how we can utilise our claims operations as a wider service proposition. The fleet of modern vehicles provides significant scale benefits as well as repair insight across our claims network. We are also pleased to have welcomed a large team of specialist call handlers to support our Motability customers. This partnership is expected to deliver good margins for the Group.

By Miles acquisition

Enhancing our capability to provide easy, digital-first journeys for our customers, we acquired By Miles, a managing general agent, which has sold over 100,000 policies since its launch in 2018 and has around 50,000 members. By Miles' proprietary cloud-based platform allows drivers to pay for cover based on the miles they drive - and enjoy an array of powerful app features. By Miles' proprietary cloud-based platform allows customers to pay only for the miles they drive, which members can manage through a smartphone app.

Continued growth in Commercial Direct

Separate from the brokered commercial business, the sale of which we announced in September, Commercial Direct sells SME cover under the Direct Line for Business and Churchill brands, both direct to customer and through price comparison websites. Landlord insurance is the largest product by premium and policy count followed by Van. Commercial continued to perform strongly, with premium growth of 10.1% and continued strong margins.

Gross written premium growth was achieved across all product lines. Policy count growth in Direct Line Landlord and SME was offset by reductions in Van, where we continued to increase prices in response to high claims inflation.