Direct Line Insurance Group PLC Strong set of results driven by resilient business model

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Direct Line Insurance Group PLC (LON:DLG), today announced preliminary results for year ended 31 December 2018.

PAUL GEDDES, CEO OF DIRECT LINE GROUP, COMMENTED

“I am pleased to announce a strong set of results driven by our resilient business model which performed well in a highly competitive market. We have added a million direct own brand policies since 2014 showing that our customers value our brands, propositions and service.

“Together, our diversified product and channel portfolio and disciplined approach to underwriting have produced operating profits of £601.7 million, a combined operating ratio of 91.7% and a 21.5% return on tangible equity. As a result, the Board is able to announce a final dividend of 14.0p, an increase of 2.9% on last year, and a special dividend of 8.3p.

“We enter a pivotal year of operational delivery in 2019. This includes starting the roll-out of the latest generation IT systems for personal lines, following the successful launch of our new systems for small businesses in 2018, which we believe will deliver benefits for customers, colleagues and shareholders over the coming years. This aims to provide the springboard from which to deliver a step change in both capability and efficiency to help to grow the contribution from current-year profitability.

“This gives us the confidence to continue to target a combined operating ratio of 93% to 95% in 2019 and over the medium term.

“It gives me great pleasure to be handing over to Penny James as our next Chief Executive Officer with effect from the AGM in May. Penny’s expertise as our Chief Financial Officer and the breadth of experience she brings from previous roles will be invaluable as she leads the business. I’ve worked closely with Penny for over twelve months and have been impressed by her drive, energy and ambition for the Group. I am pleased to be leaving the Group in such experienced and capable hands.”

Result Summary

		FY 2018 £m	FY 2017¹ £m	Change
Gross written premium		3,211.9	3,392.1	(5.3%)
Of which: direct own brands		2,223.0	2,184.1	1.8%
Operating profit		601.7	642.8	(6.4%)
Combined operating ratio²		91.7%	90.8%	(0.9pts)
Profit before tax		582.6	539.0	8.1%
Return on tangible equity³		21.5%	23.0%	(1.5pts)
Dividend per share	– interim (pence)⁴	7.0	6.8	2.9%
	– final (pence)⁴	14.0	13.6	2.9%
	– special (pence)	8.3	15.0	(44.7%)
		31 Dec 2018	31 Dec 2017	Change
Solvency capital ratio post-dividends⁵		170%	165%	5pts

Financial highlights

– Direct own brands premium up 1.8% compared to 2017, driven by growth across all segments. Total Group premium reduced by 5.3% year on year, as a result of the exit from Nationwide and Sainsbury’s6 Home partnerships.

– Operating profit decreased by £41.1 million compared to 2017, primarily due to reductions in prior-year reserve releases and investment return as expected. Operating profit included a £55 million benefit from moving to an assumed 0% Ogden discount rate (2017: £49 million benefit relating to Ogden).

– Demonstrating the value in the Group’s diversified product base, current-year underwriting profitability was stable despite a reversal of the benign motor conditions in 2017. The expense ratio reduced to 23.4%.

– Profit before tax increased by 8.1% to £582.6 million (2017: £539.0 million) as the decrease in operating profit was more than offset by the non-repeat of finance costs in relation to the debt repurchased in 2017.

– Final ordinary dividend of 14.0 pence per share, an increase of 2.9% on 2017. Special dividend of 8.3 pence per share. Total dividends of 29.3 pence per share. (2017 total dividends of 35.4 pence per share including a special dividend of 15.0 pence per share).

– Strong capital position with solvency capital ratio of 170% (after proposed dividends) reflecting prudence given current political and economic uncertainties.

– Reiteration of financial targets for 2019 and over the medium term of achieving a combined operating ratio in the range of 93% to 95% normalised for weather. In 2019, targeting operating expenses below £700 million. Reiteration of ongoing target of achieving at least a 15% return on tangible equity.

Strategic and operational highlights

– Successful build and test of core personal lines systems; on track for first launch in Q2 2019.

– Good progress on alternative pricing project, with innovative pricing capability; aiming to launch in Q2 2019 under new brand.

– NIG successfully launched a new Motor Trade product using a new policy system and pricing engine.

– Direct Line launched two further unique customer propositions, in Motor and Home.

– Direct Line for Business launched cover for over 500 new trades in 2018 on its new digital platform alongside a national marketing campaign.

– Green Flag’s five-year transformation plan kicked off with a Centre of Excellence to drive benefits through greater focus; Rescue Me app rebuilt in-house and re-launched – Apple App store score of 4.8 and used in over 35,000 claims.

– Increased use of data in Motor to improve fraud prevention helping to drive 18% growth in price comparison website new business volumes.

– Third in the Sunday Times list of 25 Best Big Companies7 to work for in 2019.

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