Direct Line Group PLC Trading Update for Q1 2023

Trading summary

Trading update

During the quarter we continued to take pricing action in Motor to improve our margins and made good progress towards target margins across the Motor portfolio. As a result, average renewal premiums in Q1 increased by 19% compared to Q1 2022, reflecting premium rate increases during 2022 and in Q1 2023. Focusing on margin led to a reduction of in-force policies of 2.5% across the quarter and despite this gross written premium increased by 3.3% in Q1 2023.

In Commercial, the strong premium growth seen in 2022 continued in Q1 2023 with gross written premium growth of 27.6% in Q1 driven by both direct own brands and NIG and other. In Home, we observed significant price increases across the market. Our Home gross written premium grew by 2.1% with policy count stable across Q1.

Claims and reserving

We have experienced further adverse claims development in respect of late 2022 and early 2023 in Motor (including Commercial Motor) particularly in relation to damage. This is expected to put pressure on earnings in 2023 including from prior-year reserve releases.

We incurred modest weather event claims during the first quarter, well within the 2023 full year assumption of £80 million.

Our forward view of claims inflation remains unchanged at high single digits across Motor and Home, albeit there continues to be a range of potential outcomes depending on future economic conditions.

Investments

Group total investment return was £70.9 million in Q1 of which £37.0 million related to net investment income and £33.9 million related to the movement in realised and unrealised gains. The annualised investment income yield was 3.2% as at the end of March 2023.

Capital

The Group’s estimated solvency capital ratio on 31 March was broadly unchanged compared with year end, as the majority of credit spread narrowing early in the quarter unwound during March. As previously set out, we expect to benefit from several capital tailwinds, including a reduction in ineligible capital on the adoption of IFRS 17 and the pull to par effect on our bond portfolio, which are now expected to be recognised over the remainder of 2023. In addition, self-help actions continue to be explored, as we set out with our full year results.

JON GREENWOOD, ACTING CEO OF DIRECT LINE GROUP, COMMENTED

"Trading has been positive over the first quarter with premium growth across Motor, Home and Commercial and this trend has continued into April. Our focus continues to be on restoring the capital strength of the Group and improving Motor margins, where we have made good progress. Whilst 2023 earnings outlook continues to be challenging, the Group has many strengths, and we continue to take the actions required to drive business performance. Our ambition over time to generate a net insurance margin of above 10% remains."

APPENDIX 1: Adjusted gross written premium²

APPENDIX 2: In-force policies by segment (thousands)

APPENDIX 3: Average premium

Notes:

1. Direct Line Group’s Trading Update relates to the three months ended 31 March 2023 and contains information to the date of publication.
2. Adjusted gross written premium includes the impact of a contractual change to Green Flag Rescue premium such that a portion of income that was previously included in gross written premium is now included in service fees. The measure supports comparability with prior period gross written premium. This measure was introduced with effect from 1 January 2022.
3. 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 policies under the Direct Line for Business and Churchill brands.
4. Ongoing operations – the Group has excluded a number of Rescue and other personal lines partnerships from its ongoing operations results. The run-off partnerships relate to a Rescue partnership with NatWest Group that expired in December 2022 and Travel partnerships with NatWest Group and Nationwide Building Society which expire in 2024, and which the Group has already indicated that it will not be seeking to renew. Relevant prior-year data has been restated accordingly.

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