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JON GREENWOOD, ACTING CEO OF DIRECT LINE GROUP, COMMENTED

"Over the last six months we have taken decisive action to put the Group back on a more stable footing. In March, we set out that our key priorities were to restore capital resilience, to improve Motor performance and to maintain the performance of our non-Motor businesses.

"The proposed sale of the brokered commercial insurance business that we announced yesterday addresses the first, at the same time as focusing our strategy on retail personal lines and small business commercial customers. Its impact is estimated to increase the Group’s solvency ratio on a pro forma basis by approximately 45 percentage points. It also crystallises an attractive valuation for a business we have turned around over the last ten years, but one that ultimately has a different trading model and operates in a different part of the UK insurance market to the rest of the Group.

“Our second priority this year has been to improve margins in Motor. We have made good progress and with increased pricing together with other underwriting actions, delivered gross written premium growth of 7% and we now believe that we are underwriting profitably, consistent with a 10% net insurance margin. This has taken longer than expected and will take time to flow through into reported earnings.

“The underlying performance of our non-Motor businesses has remained resilient and benefited from relatively benign weather conditions so far in 2023. Excluding Motor, the Group delivered gross written premium and associated fees growth of 12% and a net insurance margin of 12.2%.

Although the personal lines market continues to be challenging, we are taking the actions necessary to set the Group up for improved performance.”

Results summary

​	H1 2023	H1 2022	Change
	£m	£m	£m
		restated1
Gross written premium and associated fees - ongoing operations2,3	1,615.2	1,470.5	9.8%
Insurance service result – ongoing operations2	(93.4)	166.5	(259.9)
Net insurance margin - ongoing operations2,3	(6.4%)	11.3%	(17.7pts)
Operating (loss)/profit - ongoing operations2,3	(78.3)	197.0	(275.3)
Loss before tax	(76.3)	(11.1)	(65.2)
Operating return on tangible equity annualised²	(14.6%)	18.9%	(33.5pts)
Basic loss per share (pence)	(4.6)	(0.3)	(4.3)
Dividend per share – interim (pence)	0.0	7.6	(100.0%)
	30 Jun 2023	31 Dec 2022	Change
In-force policies - ongoing operations (thousands)2,4	9,364	9,674	(3.2%)
Solvency capital ratio5	147%	147%	—

Financial summary

These results are reported under the IFRS 17 accounting standard and prior-year comparisons have been restated accordingly.

Gross written premium and associated fees increased by 9.8% to £1,615 million, as growth in Commercial and rate increases implemented to improve Motor written margins more than offset a 3.2% reduction in in-force policies across H1.

The Group’s net insurance margin for the period was minus 6.4% and was adversely affected by the earn through of Motor policies written during 2022 and continued high claims inflation. The net insurance margin excluding Motor was 12.2% supported by resilient underlying results across Home, Commercial and Rescue.

Group operating loss for ongoing operations in the first half was £78 million, a reduction of £275 million from the first half of 2022 profit as a result of lower earnings in Motor.

Loss before tax of £76 million in H1 2023 was a £65 million increase year on year, with the reduction in operating profit partially offset by valuation movements on the Group's investment portfolio. In 2022 we saw a large negative fair value movement whereas the first half of 2023 has been more stable following the de-risking of some of the Group's investment portfolio.

CEO appointment

We announced last week that Adam Winslow is to be appointed as CEO of the Group, subject to regulatory approval. Adam has deep expertise in UK general insurance market and significant international experience spanning two decades. Adam is expected to join in the first quarter of 2024.

Capital and dividends

The Group’s solvency capital coverage ratio of 147% was in line with year end as continued management actions and organic capital generation in Home, Commercial and Rescue were offset by Motor performance. The proposed sale of our brokered commercial insurance business ("NIG") is expected to increase the Group's pro-forma solvency capital ratio by approximately 45 percentage points.

The Board understands the importance of dividends to shareholders and will aim to restart dividends once two conditions are met. First, an improvement in the capital coverage at the upper end of our agreed range and secondly, a return to organic capital generation in Motor. Whilst the first condition would be met through the sale of NIG, for the second condition the Board will assess the performance of Motor over the second half of the year to ensure that actual performance is consistent with pricing assumptions.

Outlook

Operating profit in 2023 is expected to continue to be adversely affected by the earn through of previously written Motor business. The outlook for Motor claims inflation remains in line with our assumption of high single digits, however the opportunity for prior-year reserve releases in the short-term remains low given this inflationary backdrop.

Looking forward, the improved Motor margins now being achieved should provide a platform to support an improvement in operating profit into 2024.

The Group has taken decisive action to improve its financial position and continues to have an ambition over time to generate a net insurance margin of above 10%, normalised for weather.

 

For further information, please contact
PAUL SMITH DIRECTOR OF BUSINESS PERFORMANCE, REPORTING AND INVESTOR RELATIONS		ALAN OLIVER GROUP CORPORATE AFFAIRS AND SUSTAINABILITY DIRECTOR
Mobile: +44 (0)7795 811263		Mobile: +44 (0)7385 481295
EWAN ROBERTSON GROUP CORPORATE AFFAIRS		TOM BURNS BRUNSWICK
Mobile: +44 (0)7779 718865		Phone: +44 (0)20 7404 5959

Notes:

1.     Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 2 and 21 for further details.

2.    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. See glossary on pages 60 to 62 for definitions and appendix A – Alternative Performance Measures on pages 64 to 67 for reconciliation to financial statement line items.

3.    See glossary on pages 60 to 62 for definitions and appendix A – Alternative Performance Measures on pages 64 to 67 for reconciliation to financial statement line items.

4.   In-force policies as at 31 December 2022 have been restated to remove 14,500 Commercial policies that were previously included in the reported amounts in error.

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