TIDMDLG
RNS Number : 7181V
Direct Line Insurance Group PLC
07 November 2017
Trading Update for the first nine months of 2017(1)
7 November 2017
Continued momentum to meet targets
Paul Geddes, CEO of Direct Line Group, commented:
"We have continued the good momentum from the first
half into the third quarter, and remain on track with
our targets. In-force policies grew by a third of a
million or 5.1% over the last 12 months in our direct
own brands, across Motor, Home, Green Flag and Direct
Line for Business, demonstrating the strength of the
Direct Line Group business model.
"Our Motor, Commercial and Rescue businesses continued
to trade well in the quarter while the actions we've
taken on Home claims costs have started to take effect.
We remain focused on our target loss ratios with our
strong customer relationships, propositions and trading
capabilities differentiating us in the competitive
marketplace.
"We have continued to invest in our business and our
people with the aim of delivering good value for our
customers and good returns for our shareholders. As
a result, we expect to achieve a combined operating
ratio around the middle of the target range of 93%
to 95% for 2017 and we reiterate our medium term targets."
Results summary
Q3 2017 Q3 2016
GBPm GBPm Change
--------------------------------------- --------- --------- ---------
Gross written premium:
Motor 462.0 431.5 +7.1%
Home 217.0 225.9 (3.9%)
Rescue and other personal lines 110.0 108.0 +1.9%
Commercial 118.2 117.5 +0.6%
--------------------------------------- --------- --------- ---------
Total 907.2 882.9 +2.8%
Of which direct own brands(2) 606.6 560.0 +8.3%
--------------------------------------- --------- --------- ---------
30 Sep 30 Sep
2017 2016 Change
'000 '000
--------------------------------------- --------- --------- ---------
In-force policies 15,775 15,736 +0.2%
Of which direct own brands(2) 6,838 6,504 +5.1%
--------------------------------------- --------- --------- ---------
9 months 9 months
2017 2016
--------------------------------------- --------- --------- ---------
Investment income yield (annualised) 2.6% 2.5% +0.1ppt
Investment return yield (annualised) 2.8% 2.7% +0.1ppt
--------------------------------------- --------- --------- ---------
Highlights and outlook
-- Own brands in-force policies grew across Motor,
Home, Direct Line for Business and Green Flag
year on year and quarter on quarter, particularly
in the Direct Line brand.
-- Strong momentum in Motor, with own brands policies
up 5.5% compared to 30 September 2016.
-- The actions taken on Home across claims and underwriting
to mitigate the high escape of water claims inflation
have resulted in encouraging improvements in
claims experience.
-- Annualised investment income yield of 2.6% is
ahead of 2017 expectations due to portfolio positioning
and some one-off benefits. Realised and unrealised
gains net of hedging costs in the quarter were
GBP3.4m.
-- The Group is on track to achieve a combined operating
ratio around the middle of the range of 93% to
95%, assuming a normal level of claims from major
weather events.
For further information, please contact:
Andy Broadfield Jennifer Thomas
Director of Investor Relations Head of Financial Communications
Tel: +44 (0)1651 831022 Tel: +44 (0)1651 831686
Notes:
1. Direct Line Group's Trading Update relates to
the nine months ended 30 September 2017, and contains
information to the date of publication.
2. Direct own brands includes in-force policies for
Home and Motor under the Direct Line, Churchill and
Privilege brands, Rescue policies under the Green
Flag brand.
Business update
Direct Line Group (the "Group") delivered a strong
performance in the first nine months of 2017, growing
total gross written premium 4.2% year on year, and
continued to make progress towards its targets announced
at the half year 2017.
In direct own brands, the Group maintained momentum
growing in-force policies 5.1% since 30 September
2016, with sales through the Direct Line brand driving
the growth.
Strong momentum in Motor
In Motor, own brands in-force policies increased
by around 200,000 or 5.5% and premiums grew 10.0%
compared to the third quarter of 2016. During the
third quarter, trading overall continued to be strong
and the Group maintained good retention rates on
renewal business while there were some signs new
business rate increases slowed in the market. On
claims, damage severity remained at elevated levels,
while frequency so far this year has been better
than expected, although it is too early to call
this a trend.
Keeping Home profitability on course
In-force policies in Home own brands increased by
around 30,000 or 1.8% since 30 September 2016 and
premiums increased by 1.2% compared to the third
quarter of 2016. Rate increases, coupled with the
underwriting and claims actions taken over the last
six months to tackle escape of water claims inflation
started to have a positive effect, while weather
experience in the period was benign. The Group's
partnership with Nationwide will end in December
and the Group will stop earning premiums from this
contract by the end of 2018.
Taking Rescue and Commercial brands forward
In Rescue, total in-force policies were broadly
stable compared to 30 September 2016, as the growth
in Green Flag was offset by a reduction in partner
policies. In the third quarter, Green Flag launched
a new advertising campaign to highlight its position
as a challenger brand. In October, the Group agreed
to renew its rescue services partnership with Royal
Bank of Scotland for a further 5 years.
Within Commercial, Direct Line for Business continued
to grow, with in-force policies up 7.9% since 30
September 2016 and premiums increasing by 11.2%
compared to the third quarter of 2016. The performance
of the Direct Line for Business new technology platform,
launched in April 2017, has been encouraging and
the Group is on track to launch its next product
on the platform around the end of the year. In NIG,
van insurance sales were strong, while the Group
chose to give up some higher premium business which
would have failed to achieve the Group's return
hurdle.
Improving efficiency and investing in the future
The Group is investing in multiple initiatives and
systems aimed at improving customer experience,
supporting growth and increasing the efficiency
of the business. This investment spans policy, pricing,
payment and other related data and digital systems
across the business, such as the successful launch
of its eTrading platform for the Direct Line for
Business unit in the first half of 2017. As previously
indicated, the Group expects to incur capital expenditure
of an average of GBP80m to GBP100m per annum in
the period 2017 to 2019.
Whilst these initiatives are making progress, the
Group has decided to rework some elements of the
original capital expenditure already incurred, aimed
at ensuring these initiatives achieve the targeted
performance levels. The impact of this on intangible
assets is being reviewed and this could lead to
an impairment charge at year end somewhat higher
than last year's level.
In terms of solvency capital, the balance sheet
does not recognise intangible assets and any such
impairment would have no material impact on the
Group's capital position or policy.
Progress on the Group's initiatives is supporting
its expectation for 2017 to deliver a business as
usual expense ratio(1) lower than 2016 (24.0%).
Note:
1. Business as usual expense ratio of 24% in 2016
is the reported expense ratio (25.3%) excluding
the impairment charge of GBP39.3m.
Outlook
The strong performance in Motor for 2017 gives the
Group confidence that even with the potential impairment
it expects to deliver a combined operating ratio
around the middle of the target range of 93% to
95%, assuming a normal level of claims from major
weather events.
In line with the Group's previously stated targets,
the full year business as usual expense ratio is
expected to be lower than 2016 (24.0%) and the commission
ratio is expected to be significantly lower. However,
the reported expense ratio may be around or above
the level in 2016, depending on the outcome of the
impairment review.
The Group now expects to achieve a 2.5% investment
income yield compared to its previous expectation
of a 2.4% investment income yield and continues
to expect a return on tangible equity ("RoTE") of
at least 15%.
Beyond 2017, the Group reiterates its target of
achieving a 93% to 95% combined operating ratio
over the medium term, assuming a normal level of
claims from major weather events, supported by reductions
in its expense and commission ratios, and the Group
reiterates its ongoing target of achieving at least
a 15% RoTE.
Financial update
In-force policies -
Ongoing operations (thousands)
--------------------------------- ------- ------- ------- ------- -------
30 Sep 30 Jun 31 Mar 31 Dec 30 Sep
As at 2017 2017 2017 2016 2016
--------------------------------- ------- ------- ------- ------- -------
Own brands 3,805 3,761 3,691 3,642 3,607
Partnerships 188 205 220 231 233
================================= ======= ======= ======= ======= =======
Motor total 3,993 3,966 3,911 3,873 3,840
Own brands 1,783 1,770 1,764 1,759 1,751
Partnerships 1,499 1,534 1,593 1,619 1,638
================================= ======= ======= ======= ======= =======
Home total 3,282 3,304 3,357 3,378 3,389
Of which Nationwide
and Sainsbury's 665 688 706 719 723
Rescue 3,635 3,663 3,676 3,646 3,621
Other personal lines 4,159 4,178 4,188 4,234 4,219
================================= ======= ======= ======= ======= =======
Rescue and other personal
lines 7,794 7,841 7,864 7,880 7,840
Of which Green Flag
direct 788 759 739 729 718
Direct Line for Business 462 452 441 433 428
NIG and other 244 248 245 242 239
--------------------------------- ------- ------- ------- ------- -------
Commercial 706 700 686 675 667
--------------------------------- ------- ------- ------- ------- -------
Total 15,775 15,811 15,818 15,806 15,736
--------------------------------- ------- ------- ------- ------- -------
Total in-force policies have increased by 0.2% since
30 September 2016 driven by continued growth across
Motor and Home's own brands, Green Flag direct and
Direct Line for Business. The growth across own
brands was partially offset by reductions across
the Group's partnership arrangements.
Gross written premium - Ongoing
operations
-------------------------------------- ------ ------ --------- ---------
Q3 Q3 9 months 9 months
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
-------------------------------------- ------ ------ --------- ---------
Own brands 441.2 401.1 1,222.4 1,095.4
Partnerships 20.8 30.4 64.0 86.4
-------------------------------------- ------ ------ --------- ---------
Motor total 462.0 431.5 1,286.4 1,181.8
Own brands 114.3 113.0 307.5 304.6
Partnerships 102.7 112.9 297.6 324.5
-------------------------------------- ------ ------ --------- ---------
Home total 217.0 225.9 605.1 629.1
Of which Nationwide and Sainsbury's 51.1 56.4 148.7 161.4
Rescue 43.5 46.3 127.1 128.2
Other personal lines 66.5 61.7 196.2 177.5
-------------------------------------- ------ ------ --------- ---------
Rescue and other personal
lines 110.0 108.0 323.3 305.7
Of which Green Flag direct 18.3 16.4 47.7 43.0
Direct Line for Business 32.8 29.5 92.9 82.5
NIG and other 85.4 88.0 293.7 296.9
-------------------------------------- ------ ------ --------- ---------
Commercial 118.2 117.5 386.6 379.4
-------------------------------------- ------ ------ --------- ---------
Total 907.2 882.9 2,601.4 2,496.0
-------------------------------------- ------ ------ --------- ---------
Gross written premium of GBP2,601.4m increased by
4.2% compared with the first nine months of 2016
and by 2.8% compared with the third quarter of 2016,
mainly driven by Motor. The Direct Line brand continued
to perform well.
Corporate information
Direct Line Insurance Group plc is a public limited
company registered in England & Wales, number 02280426.
The address of the registered office is Churchill
Court, Westmoreland Road, Bromley BR1 1DP.
The Annual Report & Accounts 2016 is available at:
www.directlinegroup.com
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 a number of 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 II capital coverage
ratio, the Group's combined operating ratio, prior-year
reserve releases, cost reduction, reductions in
expense and commission ratios, investment income
yield, net realised and unrealised gains, results
from the Run-off segment, restructuring costs 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 or are beyond
the Group's control.
Forward-looking statements are not guarantees of
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, UK domestic and global economic
business conditions, the result of the referendum
and the negotiations relating to the UK's withdrawal
from the European Union, the result of the UK general
election, market-related risks such as fluctuations
in interest rates and exchange rates, the policies
and actions of regulatory authorities ((including
changes related to capital and solvency requirements
or the Ogden discount rate), the impact of competition,
currency changes, inflation and deflation, the timing
impact and other uncertainties of future acquisitions,
disposals, joint ventures or combinations within
relevant industries, as well as the impact of tax
and other legislation and other regulation 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 as a result
of new information, future events or otherwise,
unless required to do so by applicable law or regulation.
Nothing in this document 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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