DIRECT LINE INSURANCE GROUP PLC
TRADING UPDATE FOR Q3 20211
CONTINUED PROGRESS ON TRANSFORMATION

 

PENNY JAMES, CEO OF DIRECT LINE GROUP, COMMENTED

“We are pleased with our Q3 2021 trading performance. During the quarter, our direct own brand policy count grew overall while stabilising in Motor.
"We have made strong progress in executing our strategy and have begun to see improved pricing competitiveness in Motor as a result of the capability delivered by our new platform. We have also successfully launched an electric vehicle proposition for our Direct Line brand, which helps make the switch to electric easier for our customers and builds on our expertise in this growing market.

"We are also on track to implement the FCA's new pricing practices regulations at the start of next year. Whilst market pricing in the first few months of 2022 is likely to be volatile as the market resets, our brands, customer focus and diversified business model mean we remain confident.
"Our transformation progress, delivery of new propositions and improved competitiveness, combined with our focus on disciplined underwriting, mean we are well placed as we look ahead and we reiterate our combined operating ratio target of 93% to 95% over the medium term."

Trading summary

 

Financial highlights

– Direct own brands in-force polices grew in Q3, increasing by 0.6% across the quarter. Motor policies stabilised and all other own brand products saw growth. Total policies reduced by 0.4%.

– Total gross written premium increased by 0.7% compared with Q3 2020 as strong growth in Commercial and Green Flag Rescue of 12.4% and 9.2% respectively was offset by lower premiums in Motor and Travel.

– In Motor, we continued to focus on maintaining the quality of our book and continued to price for claims severity inflation. Market pricing, however, was not reflective of observed claims inflation in the quarter. Despite this, our direct own brand policy count stabilised during the quarter as we improved our competitiveness following the launch of our new motor platform.

– Motor claims frequency continued to trend towards the level assumed in our pricing whilst claims severity inflation was slightly above our 3 to 5% medium-term expectations. This was largely due to inflation in second-hand vehicles, which impacted total loss settlements but our in-house vehicle accident repair network allowed us to partially mitigate this. We continue to expect our Motor current-year attritional loss ratio in H2 to return closer to underlying 2020 levels of around 79%.

– Home direct own brands in-force policies continued to grow, albeit at a slower rate. The market became increasingly competitive during Q3, particularly in the price comparison website ("PCW") channel as we approach the implementation of the FCA pricing practices review. Direct own brands gross written premium was flat compared to Q3 2020.

– Green Flag Rescue returned to strong growth, with premiums increasing 9.2% compared with Q3 2020 and in force policies increasing by 3.4% across the quarter. This was offset by Other Rescue and other personal lines, with our Travel business reflecting reduced levels of international travel.

– Commercial continued to see the benefits of its transformation come through, with strong growth across both direct own brands and NIG and other. Gross written premium increased by 12.4% compared to Q3 2020 and policies increased by 1.4% across the quarter.

– The Group experienced weather event claims in Q3 of £7.5 million in Home and £9.5 million in Commercial. Year to date total weather events are estimated at £20 million compared to our annual budget assumption of £69 million for 2021.

Strategic and operational highlights

We continued to transform into a data and technology-led insurer. With the major elements of the Motor technology transformation now complete, our focus turns to extracting the benefits from this new capability.

– Continued the operational embedding and honing of our new Motor platform. We refreshed our risk premium models and introduced new capability that aims to enable greater pricing accuracy. The new platform continued to drive improved efficiency, with the proportion of own-brand customers choosing to self-serve increasing month on month.

– Launched a new Direct Line proposition helping to make the transition to electric vehicles easier for customers by providing customers free access to a bundle of electric vehicle-related services, including discounted home charging installation.

– Continued to develop our approach to meet our commitment to set Science-Based Targets via the Science Based Targets initiative, including launching our Supply Chain Sustainability Programme.

– On track for implementation of the FCA's general insurance pricing practices review from 1 January 2022, having met the product governance deadline at the end of September 2021.

– Bought back £47.6 million of shares to date3 in relation to the second £50 million tranche of the £100 million share buyback programme announced earlier this year.

Outlook

– We reiterate our medium-term target of achieving a combined operating ratio in the range of 93% to 95%, normalised for weather. For 2021, following lower than normal claims frequency in Motor and strong prior-year reserve releases, we continue to expect a combined operating ratio in the range of 90% to 92%, normalised for weather.

For further information, please contact:

PAUL SMITH
DIRECTOR OF INVESTOR RELATIONS

Mobile: +44 (0)7795 811263

WILL SHERLOCK
GROUP CORPORATE AFFAIRS AND SUSTAINABILITY DIRECTOR

Mobile: +44 (0)7786 836562