Direct Line Group 2018 Half Year Report
“This is a good set of results – growing our own brand policies and profits (normalized for weather) in a competitive, albeit to date, rational market – again showing the strength of our business model. We have also made progress on our strategic initiatives which we believe will improve our competitiveness in each of our channels and we are focused on improving our efficiency. This strategic agenda, combined with our disciplined value over volume focus, gives us the confidence in our outlook, for us to reiterate our financial targets.
As you will have seen from our announcement today, I will step down as Chief Executive Officer in the summer of 2019. I have been privileged to lead the Group over a long period of transformation. As I approach my tenth anniversary, it is right to put a successor in place to lead the company in the years ahead. In the meantime, we have a very busy and exciting agenda, which I look forward to delivering.”
– Paul Geddes, CEO of Direct Line Group.
Results summary
| H1 2018 £m | H1 2017 £m | Change | |
| Gross written premium | 1,610.3 | 1,694.2 | (5.0%) |
| Excluding Nationwide and Sainsbury’s | 1,604.6 | 1,596.6 | 0.5% |
| Of which direct own brands | 1,099.0 | 1,063.9 | 3.3% |
| Operating profit | 303.1 | 359.7 | (15.7%) |
| Commission ratio | 6.5% | 8.9% | (2.4pts) |
| Expense ratio | 24.4% | 24.9% | (0.5pts) |
| Combined operating ratio | 93.0% | 88.6% | 4.4pts |
| Profit before tax | 293.8 | 341.4 | (13.9%) |
| Return on tangible equity annualized | 21.8% | 26.6% | (4.8pts) |
| Dividend per share – interim (pence) | 7.0 | 6.8 | 2.9% |
| 30 Jun 2018 | 31 Dec 2017 | Change | |
| Solvency capital ratio post-dividend – estimated | 169% | 165% | 4pts |
Highlights
- Direct own brand premiums up 3.3% driven primarily by continued growth in Motor, also up 3.3% compared to H1 2017. Total Group premiums excluding Nationwide and Sainsbury’s grew 0.5% despite reductions in Motor premium rates.
- Normalized for weather, operating profit was up slightly; H1 2017 also included £49 million of benefit from revised Ogden reserve releases. The headline decline in operating profit of £56.6 million compared to the prior year is driven by higher weather-related claims (H1 2018: £75.0 million, H1 2017: £9.0 million).
- Expense ratio down 0.5 percentage points as costs remained broadly stable. Commission ratio lower as the Group’s business mix continued to shift towards direct own brands.
- Continued positive progress with strategic initiatives including the launch of two further Direct Line differentiating propositions, signing of a new Motor partnership deal and, in July, reaching over 500 trades on the Direct Line for Business platform. Program to deliver latest generation systems benefiting both business and customers on track.
- Interim dividend of 7.0 pence, in line with the Group’s policy which aims to grow the dividend in line with business growth.
- Reiteration of the current financial targets for 2018 and over the medium term: of achieving a combined operating ratio in the range of 93% to 95% adjusted for normal weather and assuming no further change to the Ogden discount rate, supported by reductions in expense and commission ratios. For 2018, the Group expects total investment return in the region of £150 million.
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