Direct Line Group’s Half Year Interim Report relates to the first half ended 30 June 2013 and contains information to the date of publication.

Financial highlights

• Operating profit from ongoing operations1 of £286.6 million for the first half of 2013, up 27.8% (first half 2012: £224.2 million) driven principally by lower claims from major weather events and improved cost control, partially offset by lower investment returns
• Gross written premium for ongoing operations 4.0% lower for the first half of 2013, reflecting competitive market conditions in UK personal lines, partially offset by growth in International
• Combined operating ratio2 for ongoing operations of 94.6% for the first half of 2013, an improvement of 6.5 percentage points against the first half of 2012 (101.1%) arising from lower claims from major weather events, continued prior year reserve releases and lower expenses
• Annualised return on tangible equity3 from ongoing operations of 17.3% for the first half of 2013 (first half 2012: 10.2%; pro forma4 full year 2012: 13.4%)
• Interim dividend per share of 4.2 pence representing growth of 5.0% over pro forma 2012 interim dividend5
• Net asset value per share of 186.9 pence and tangible net asset value per share of 156.6 pence (31 December 2012: 189.1 pence and 161.0 pence, respectively) principally reflecting payment of the 8.0 pence final dividend

 

Strategic and operational highlights

• Good progress across each of the Group's strategic priorities
• Improved customer propositions, including launch of a telematics product in June
• Continued development of claims capability, including roll-out of initiatives to Home and establishment of DLG Legal Services
• Additional cost savings announced in June, targeting a reduced cost base6 of £1,000 million in 2014
• Total operating profit from Commercial and International up by more than 100%

 

Paul Geddes, CEO of Direct Line Group, commented

"These are a good set of results, even allowing for the benign weather in the period. Our transformation plan continues to deliver strong benefits to our Home and Motor businesses, and the total operating profit from our Commercial and International businesses doubled compared with the first half of 2012.

"The UK motor market remained competitive and dynamic, with significant premium reductions and the introduction of legal reforms. We believe the full effect of the reforms will take time to materialise and their ultimate impact is difficult to predict as it will depend on a change in the behaviour of claimants and lawyers. We continued to price based upon our observed claims experience, which was favourable. In the second quarter, this has helped us to reduce premium rates overall about 3% year on year, contributing to a stabilisation of our policy count.

"Alongside our ongoing focus on costs, we continue to invest in our future. In the second quarter, Direct Line launched a telematics black box and smartphone app, DrivePlus, while the Group announced plans to establish a law firm to enhance the affordable legal services accessible to our customers."

For further information, please contact:

Neil Manser
Director of Corporate Strategy and Investor Relations
Tel: +44 (0) 1651 832183

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

Notes

1. Ongoing operations include Direct Line Group’s (the "Group") ongoing segments: Motor, Home, Rescue and other personal lines, Commercial and International. It excludes the Run-off segment and Restructuring and other one-off costs.

2. Combined operating ratio ("COR") is the sum of the loss, commission and expense ratios. The ratio is a measure of the amount of claims costs, commission and expenses compared to net earned premium generated.

3. Return on tangible equity ("RoTE") is annualised adjusted profit after tax from ongoing operations divided by the Group’s average tangible shareholders’ equity. Profit after tax is adjusted to exclude the Run-off segment and Restructuring and other one-off costs and is stated after charging tax (using the UK standard tax rate of 23.25%; 2012: 24.5%).

4. Pro forma RoTE is based on the return on tangible equity but assumes that the capital actions taken by the Group prior to the initial public offering ("IPO") (£1 billion dividend payment and £500 million long-term subordinated debt issue) occurred on 1 January 2012.

5. Pro forma 2012 interim dividend of 4.0 pence per share is based on one third of the pro forma full year dividend of 12.0 pence per share.

6. Operating expenses from ongoing operations and claims handling expenses

Forward-looking statements

This document has been prepared for, and only for, the members of Direct Line Insurance Group plc (the "Company") as a body, and no other persons. The Company, its Directors, employees, agents or advisers do not accept responsibility to any other person to whom this document is shown or into whose hands it may come and any such responsibility or liability is expressly disclaimed.

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", "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 document 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 document specifically with respect to RoTE, the Group’s COR, the COR for the Group’s Commercial business, and cost savings. 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 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 document reflect knowledge and information available as of the date of preparation of this document. The Company 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.

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