See infographic here

DELIVERED A GOOD FINANCIAL PERFORMANCE AND SUPPORTED OUR CUSTOMERS, PEOPLE AND SOCIETY DURING AN UNCERTAIN YEAR

PENNY JAMES, CEO OF DIRECT LINE GROUP, COMMENTED, "Despite the many challenges we faced in the year as a result of the Covid-19 pandemic, we traded well and prioritised support for our customers, our people and local communities. Own brands policies grew by 2.2%, and our model of disciplined underwriting delivered a combined operating ratio of 91.0%. This has enabled us to return capital to shareholders during the year and today declare a final dividend of 14.7 pence per share, up by 2.1% over 20191, and announce a share buyback.

"I am proud that our people, even when working remotely, have continued both to care for our customers and to help us build an insurance company of the future. Thanks to their commitment we have made great progress on our transformation programme, designed to drive a step change in our competitiveness and deliver profitable growth. As a small thank you we are awarding all employees shares worth £350.

"We are a business that is proud to deliver strong returns to shareholders and to challenge itself to be a force for good. We chose to invest £93 million in a range of measures to support our customers, our people and local communities. We also want to do everything we can to tackle climate change and last year committed to set science-based targets to reduce our carbon emissions.

"Turning to the year ahead, we feel confident that we can build on the momentum we’ve created and become a tech and data driven insurance company of the future with our customers at its heart.”

Results summary

Financial highlights

• Direct own brands in-force policies grew by 2.2% driven by strong segments of growth across the business, including Home, Commercial and Green Flag Rescue, whilst Motor was broadly stable. Total in-force policies reduced due to lower partnerships and Travel volumes.
• Direct own brands gross written premium was stable with growth across Home and Commercial direct own brands and Green Flag Rescue offset by lower average premiums in Motor. Overall gross written premium reduced by 0.7% due to falling partnership and Travel premium.
• Increased major weather costs of £43.0 million (2019: £6.0 million) contributed to lower operating profit of £522.1 million, £24.8 million (4.5%) lower than 2019 (£546.9 million). Covid-19 restrictions reduced claims frequency in Motor and Commercial, although this was partially offset by investment in initiatives to protect our customers, people and society, lower investment asset returns and the impact of the Covid-19 pandemic on Travel. Overall, the impact of the Covid-19 pandemic was a modest net benefit to the result.
• Combined operating ratio improved to 91.0% (2019: 92.2%). Normalised combined operating ratio³ of 91.7%, was ahead of target of 93% to 95% predominantly due to the lower claims frequency in Motor.
• Progress on the Group’s transformation continued to drive improved current year profitability via increased pricing and underwriting sophistication in Commercial and improved counter-fraud capability in Motor.
• Profit before tax of £451.4 million was £58.3 million lower than 2019 following the reduction in operating profit alongside £39.4 million of restructuring and one-off costs as the Group invested in cost saving initiatives.
• Proposed final ordinary dividend of 14.7 pence per share, increased 2.1%¹, and announcing a share buyback programme of up to £100 million. Intention to move back towards the middle of the Group's capital risk appetite range assuming more normal circumstances.

Strategic highlights

We continued to transform at pace into the insurance company of the future with Commercial and Rescue which are the most progressed, beginning to deliver improved financial performance.

• Commercial delivered growth at stronger margins as its investment in technology and the adoption of agile ways of working has enabled it to expand its product offering with more sophisticated pricing.
• Motor is live on our new platform for Privilege, and Churchill has begun rolling out its new business on this platform, enabling future operational efficiencies, improved customer experience and pricing capability. Direct Line is scheduled to follow in the first half of 2021.
• We launched a new ‘superhero’ creative campaign highlighting Direct Line’s unique propositions across multiple products at improved economics.
• Strong growth in Darwin, which is now live on four price comparison websites ("PCWs"), with over 50,000 in-force policies at the end of 2020.
• Green Flag continued to enhance its digital offering with the launch of a new claims system and enhancements to its ‘Green Flag Rescue Me’ app.
• We embedded agile ways of working across trading, digital and technology functions targeting increased pace of change and reduced cost.
• We launched a new property site strategy, fundamentally repositioning the way we use our buildings, accelerating £85 million of future costs into 2021 to generate long-term savings in excess of £10 million per annum from 2022.

Customer, people and society highlights

Invested £93 million in a range of initiatives to support our customers, people and society through the uncertainty caused by the Covid-19 pandemic and stepped up our action on tackling climate change:

• Customer: we supported over 450,000 customers through a range of measures and continue to do so during the most recent lockdown through "Mileage MoneyBack".
• People: we successfully moved the majority of our people to remote working and offered flexibility to help them manage home and work commitments. Despite all the challenges our people went the extra mile and in recognition all employees will be receiving £350 worth of free shares and all eligible employees who are not usually paid bonuses or incentives will receive a £400 bonus in their April salary.
• Society: we donated over £7 million to charities and good causes via the "DLG Community Fund" and the "ABI Covid-19 Support Fund" helping thousands of people in need of additional support.
• Planet: we achieved our 2020 climate targets and have committed to go further by setting Science Based Targets (“SBT”). We published our first Task Force on Climate-related Financial Disclosure ("TCFD") report and sustainability report and became a 100% carbon neutral business by offsetting our emissions as we work towards reducing our emissions year on year.

For further information, please contact
PAUL SMITH DIRECTOR OF INVESTOR RELATIONS		LISA TREMBLE GROUP CORPORATE AFFAIRS AND SUSTAINABILITY DIRECTOR
Mobile: +44 (0)7795 811263		Mobile: +44 (0)7795 234801

Notes:

1.    The 2019 final dividend of 14.4 pence was subsequently cancelled and paid as a special interim dividend in 2020.

2.   Direct own brands include in-force policies for Home and Motor under the Direct Line, Churchill, Darwin and Privilege brands, Rescue policies under the Green Flag brand and Commercial under the Direct Line for Business and Churchill brands.

3.   See glossary for definitions and appendix A – Alternative performance measures for reconciliation to financial statement line items.

4.   A reduction in the ratio represents an improvement as a proportion of net earned premium, while an increase in the ratio represents a deterioration. See glossary for definitions.

5.   The Group’s dividend policy includes an expectation that generally one-third of the regular annual dividend will be paid in the third quarter as an interim dividend and two-thirds will be paid as a final dividend in the second quarter of the following year.

6.   Estimates based on the Group’s Solvency II partial internal model.

7.   The solvency capital ratio as reported at 31 December 2019 is after taking into account the then expected 14.4p final dividend and the £150 million share buyback announced on 3 March 2020. The impacts of the cancellation of the dividend (as announced on 8 April 2020) and of the share buyback programme (as announced on 19 March 2020 after £30 million of the buyback had been executed) would have added 24 percentage points to the ratio as reported to give an adjusted solvency capital ratio of 189%.

Forward-looking statements disclaimer

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”, “ambition”, “anticipates”, “aspire”, “believes”, “continue”, “could”, “estimates”, “expects”, “guidance”, “intends”, “may”, “mission”, “outlook”, “over the medium term”, “plans”, “predicts”, “projects”, “propositions”, “seeks”, “should”, “strategy”, “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 several places throughout this document and include statements regarding the intentions, beliefs or current expectations of the Directors concerning, among 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 and guidance which are contained in this document specifically with respect to the return on tangible equity, solvency capital ratio, the Group’s combined operating ratio, percentage targets for current-year contribution to operating profit, prior-year reserve releases, cost reduction, reductions in expense and commission ratios, investment income yield, net realised and unrealised gains, capital expenditure and risk appetite range. 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 and/or are beyond the Group’s control. Forward-looking statements are not guaranteeing 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, for example directly or indirectly as a result of, but not limited to:

• United Kingdom (“UK”) domestic and global economic business conditions;
• the direct and indirect impacts and implications of the coronavirus Covid-19 pandemic on the economy, nationally and internationally, on the Group, its operations and prospects, and on the Group’s customers and their behaviours and expectations;
• the trade and co-operation agreement between the UK and the European Union (“EU”) regarding the terms, following the end of the Brexit transition period, of the trading relationships between the UK and the EU and its implementation, and any subsequent trading and other relationship arrangements between the UK and the EU and their implementation;
• the terms of trading and other relationships between the UK and other countries following Brexit;
• market-related risks such as fluctuations in interest rates and exchange rates;
• the policies and actions of regulatory authorities and bodies (including changes related to capital and solvency requirements or to the Ogden discount rate or rates or in response to the Covid-19 pandemic and its impact on the economy and customers) and changes to law and/or understandings of law and/or legal interpretation following the decisions and judgements of courts;
• regulations and requirements arising out of the FCA pricing practices review and changes in customer and market behaviours and practices arising out of that review and such regulations and requirements;
• the impact of competition, currency changes, inflation and deflation;
• the timing, impact and other uncertainties of future acquisitions, disposals, partnership arrangements, joint ventures or combinations within relevant industries; and
• the impact of tax and other legislation and other regulation and of regulator expectations, interventions and requirements and of court, arbitration, regulatory or ombudsman decisions and judgements (including in any of the foregoing in connection with the Covid-19 pandemic) 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 Group and the Directors expressly disclaim any obligations or undertaking to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, unless required to do so by applicable law or regulation. Nothing in this document constitutes or should be construed as a profit forecast.

Neither the content of Direct Line Group’s website nor the content of any other website accessible from hyperlinks on the Group’s website is incorporated into, or forms part of, this document.

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