Direct Line Insurance Group plc Results for the third quarter and first nine months of 2013

Direct Line Group’s Interim Management Statement relates to the third quarter and first nine months ended 30 September 2013, and contains information to the date of publication.

Financial highlights

• Operating profit¹ of £417.8 million for the first nine months of 2013, up 20.1% (first nine months 2012: £347.9 million)
• Operating profit¹ of £131.2 million for the third quarter of 2013, up 6.1% (third quarter 2012: £123.7 million)
• Gross written premium1 4.3% lower for the first nine months of 2013, reflecting competitive market conditions in UK personal lines, partially offset by growth in International and Commercial
• Combined operating ratio^1,2 of 95.4% for the first nine months of 2013, an improvement of 4.3 percentage points against the same period last year (99.7%) arising from improved underwriting, including lower costs, as well as fewer claims from major weather events
• Annualised return on tangible equity³ from ongoing operations of 16.8% for the first nine months of 2013 (first nine months 2012: 10.6% and pro forma⁴ 13.5%). Annualised RoTE normalised for claims from major weather events of approximately 15%5
• Net asset value per share of 187.9 pence and tangible net asset value per share of 155.8 pence

 

Strategic and operational highlights

• Good progress across each of the Group's strategic priorities and towards its target of a 15% return on tangible equity and its full year 2013 target of a 98% combined operating ratio
• Improved customer propositions, including the roll-out of telematics products with one in five new Direct Line motor policies with drivers aged under 25 now including telematics
• Cost saving programmes progressing well and on track to meet target to reduce the cost base6 to approximately £1,000 million in 2014
• First stage of IT migration from RBS Group delivered with new data centres established which offer more flexibility to progress digital plans
• Announcement on 8 October for the sale of the UK closed life insurance business and intention to pay a special interim dividend of 4.0 pence per share following completion

 

Paul Geddes, CEO of Direct Line Group, commented

“These are good results in competitive markets, with a 20% improvement in operating profit, a 95.4% combined operating ratio and a return on tangible equity of 16.8%. Even after allowing for normal weather losses, our performance proves we are delivering our self-help agenda and making good progress towards our strategic targets.

"While these results demonstrate our continuing choice to focus on value of business over volume, in Motor we were able to reduce average prices for our customers helped by our own claims efficiencies and the benefits of the recent legal reforms.

"We continue to invest in technology, adapting to new ways in which our customers want to interact with us and with the aim of driving further business improvements. The launch of our own data centres, the first stage in the delivery of our IT migration to a stand-alone platform, is an enabler of this plan. Combined with our other major initiatives, we continue to transform our business.”

For further information, please contact:

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

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

Notes

1. Ongoing operations include Direct Line Group’s (the “Group”) ongoing divisions: 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 (£1 billion dividend payment and £500 million long-term subordinated debt issue) occurred on 1 January 2012.

5. Return on tangible equity normalised for expected level of claims from major weather events which is assumed to be £80 million per annum.

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, disposals 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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