Preliminary results for the year ended 31 December 2012

Financial highlights

• 9.3% increase in operating profit from ongoing operations1 to £461.2 million with all five divisions profitable in 2012
• Return to underwriting profit with a combined operating ratio2 of 99.2%, an improvement of 2.6 percentage points
• Return on tangible equity3 of 11.5% and pro forma return on tangible equity3 of 13.4%
• Final dividend of 8 pence per share, implying a pro forma annual payout of 55% of post-tax earnings from ongoing operations. From 2013, aim to raise the dividend annually in real terms

 

Strategic highlights

• Good progress made towards achieving 15% return on tangible equity target
• New and extended major partnership agreements and expanded presence of Churchill and Privilege to the four major UK price comparison websites
• Delivered benefits through claims and pricing transformation plans contributing to a 3.1 percentage point improvement in the loss ratio to 67.1%
• Announced plans relating to 70% of £100 million gross annual cost saving target with advanced plans for remainder of the proposed savings
• Improved balance sheet efficiency by raising £500 million of long-term subordinated debt and paying £1 billion of dividends to RBS Group pre-IPO. Capital position remains strong with risk based capital coverage of 145% post-final dividend

 

Paul Geddes, CEO of Direct Line Group, commented

“We have made good progress since the beginning of our transformation plan and our 2012 performance is further evidence that we have made the right strategic decisions and are executing our plans well, with an increase in operating profit from ongoing operations of 9.3% to £461.2 million.

“However, there is no room for complacency as we face a competitive market, particularly in UK motor, where there are also expected to be significant legal reforms. Our transformation plans target further benefits and we have made substantial progress on our target to achieve £100 million of gross annual cost savings in 2014. We will maintain our firm focus on value and underwriting discipline, consistent with achieving our 98% combined operating ratio target for 2013."

For further information, please contact:

Neil Manser
Director of Investor Relations
Tel: +44 (0)20 8285 3134

Rob Bailhache
Director of Communications
Tel: +44 (0)16 5183 1723

Notes:

1. Ongoing operations
   Ongoing operations include Direct Line Group’s (the “Group”) ongoing segments: Motor, Home, Rescue and other personal lines, Commercial and International. It excludes Run-off and Restructuring and other one-off costs.
   
   
2. Combined operating ratio
   Combined operating ratio (“COR”) is the sum of net insurance claims, commission and other operating expenses expressed as a percentage of net earned premium. The ratio excludes instalment income, other operating income and investment income.
   
   
3. Return on tangible equity (“RoTE”)
   Return on tangible equity is adjusted profit after tax, from ongoing operations, divided by the Group’s average tangible shareholders’ equity. Profit after tax is adjusted to exclude Run-off operations and Restructuring and other one-off costs and is stated after charging tax (using the UK standard tax rate). Pro forma RoTE is based on RoTE but assumes that the capital actions taken by the Group (£1 billion dividend payment and £500 million long-term subordinated debt issue) occurred on 1 January 2012.

Forward-looking statements

Certain information contained in this announcement including any information as to the Group's strategy, plans or future financial or operating performance constitute "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "aims", "anticipates", "believes", "estimates", "expects", "intends", "may", "plans", "predicts", "projects", "seeks", "should", “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 announcement and include statements regarding the intentions, beliefs or current expectations of the Directors concerning, amongst other things: the Group's results of operations, financial condition, prospects, growth, strategies and the industry in which the Group operates. Examples of forward-looking statements include financial targets which are contained in this announcement specifically with respect to RoTE, the Group’s COR, the COR for the Group’s Commercial business, and cost savings.

By their nature, forward-looking statements involve risks 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 announcement, including but not limited to, UK domestic and global economic business conditions, 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, deflation, the timing impact and other uncertainties of future acquisitions 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 announcement speak only as of the date of this announcement. The Group expressly disclaims 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, regulation or accounting standard, or the Listing Rules or the Disclosure and Transparency Rules of the Financial Services Authority (“FSA”). Nothing in this announcement should be construed as a profit forecast.

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