Interim Management Statement for Direct Line Group for the third quarter and first nine months of 2014

Interim Management Statement for Direct Line Group for the third quarter and first nine months of 2014

Direct Line Group’s Interim Management Statement relates to the third quarter and the nine months ended 30 September 2014, and contains information to the date of publication.


  • Gross written premium for ongoing operations1 5.0% lower for the first nine months of 2014 compared with the same period of 2013, reflecting lower gross written premium in Motor and Home, partially offset by growth in Commercial
  • Motor in-force policies 0.7% lower than the previous quarter with prices stable in the third quarter of 2014
  • Improvement in personal lines capability through new websites, delivery of a number of pricing projects and a new advertising campaign and propositions for the Direct Line brand. Launched self-install telematics proposition in Motor
  • Total cost base2 for the nine months ended 30 September 2014 6.0% lower than for the first nine months of 2013. On track to achieve targeted total cost base2 of approximately £1,000 million in 2014. Investment income yield increased by 20 basis points on the first nine months of 2013 to 2.3%, reflecting actions to diversify the portfolio
  • Announced a binding agreement with Mapfre, S.A. for the sale of the Group's International division for cash sale proceeds of €550.0 million (£430.1 million3). It is expected that substantially all of the net proceeds will be returned to shareholders
  • Group expects the combined operating ratio for ongoing operations1 to be within the range of 95% to 97% including the benefit of significant reserve releases. Motor current-year loss ratio in the second half of the year is expected to be similar to the first half of 2014


Paul Geddes, CEO of Direct Line Group, commented

"Progress in the third quarter means we remain on track to deliver our 2014 financial targets, despite a backdrop of markets that remain highly competitive.

"We are working hard to enhance our propositions and I am particularly pleased with how we are harnessing technology to improve our product features and make it easier for our customers to interact with us.

"Looking forward, we remain focused on improving our efficiency and the competitiveness of our offering in this ever-changing marketplace."

For further information, please contact:

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

Jennifer Thomas
Head of Financial Communications
Tel: +44 (0) 1651 831686


1. Ongoing operations include Direct Line Group’s ongoing divisions: Motor, Home, Rescue and other personal lines and Commercial. It excludes the International division, Run-off segment and restructuring and other one-off costs. For the purposes of the Group’s 2014 targets, International should be added back to ongoing.

2. Operating expenses and claims handling expenses from ongoing operations and the International division. It excludes the Run-off segment and restructuring and other one-off costs.

3. Cash sale proceeds received in Euros have been converted to Pounds Sterling using the rate within the foreign currency hedge contract.

Business update

Direct Line Group (the “Group”) continued to make progress in the first nine months of 2014 on its strategic priorities and towards its financial targets, while maintaining its disciplined approach to underwriting in a competitive marketplace.

The Group has continued to develop its propositions and functionality for both Motor and Home during the third quarter, building on initiatives delivered in the first six months of 2014. During 2014 to date, the Group has: launched new motor websites, significantly improving the 'quote and buy' journey; provided a new self-install telematics product; developed 30 pricing projects; refreshed and differentiated the Direct Line customer proposition; and rolled out smartphone technology in the claims process. These initiatives have improved the customer offering while building better trading capability.

Insurance market trends in the third quarter were similar to those seen in the second quarter, namely that the motor market experienced a second successive quarter of pricing stability whereas the home market saw further premium deflation.

Motor - effect on premium income of changes in price and risk mix1

For the Group's Motor portfolio, overall prices were flat in the third quarter of 2014 compared with the same period last year while risk mix1 reduced by 2.5%, a similar fall to the previous quarter. The reduction in gross written premium of 5.4% in Q3 was less than in previous quarters, as the Group’s prices were more competitive in a stable market, and the benefits from improvements in pricing and claims capability continued.

The Home division increased its competitiveness in the third quarter following strong underlying claims performance which reflected the benefits from recent pricing and claims initiatives. Home retention continued at good levels.

While the motor and home markets have remained competitive, the Group has grown premium and policy count in Rescue. The Green Flag direct business continued to deliver excellent levels of customer service at a more affordable price point than its peers.

Commercial continued to grow through eTrade and Direct Line for Business. This was offset by the van market, which experienced similar trends to motor. During 2014, the division extended its eTrade product suite and launched Churchill for Business, which is focused on growing distribution through price comparison websites.

On 25 September 2014, the Group announced that it had reached a binding agreement with Mapfre, S.A. for the sale of the Group’s International division for total cash sale proceeds of €550.0 million (£430.1 million2). The Group is expecting to recognise a pre-tax gain on disposal of approximately £160 million. The transaction is conditional on the approvals of relevant regulatory authorities and is currently expected to close in the first quarter of 2015. The results of this division, including comparatives, are now classified as discontinued operations and, from the date of the agreement, its assets classified as held for sale.


1. Risk mix reflects the expected level of claims from the portfolio. It measures the estimated movement based on risk models used in that period and is revised when risk models are updated.

2. See note 3 on page 1

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