Direct Line Ins Grp - Trading Update
11/01/2023 07:00
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RNS Number : 3658M Direct Line Insurance Group PLC 11 January 2023
This announcement contains inside information.
Direct Line Insurance Group plc
Trading update
11 January 2023
Direct Line Insurance Group plc (the "Group") is today providing an update on
current trading, weather related costs and outlook.
Penny James, Chief Executive Officer, said:
"We have seen a volatile and challenging operating environment in the fourth
quarter. We have seen a significant increase in claims as a result of the
prolonged period of severe cold weather in December and I am proud of the way
that we have supported our customers during this period. These claims,
combined with further increases in motor inflation, have had a significant
impact on our underwriting result for 2022. We have also seen reductions in
the valuations of the commercial property holdings in our investment portfolio
in line with movements in the broader property market.
As a result the Board no longer expects to declare a final dividend for 2022.
The Board recognises the importance of the dividend to our shareholders, and
continues to take actions to restore balance sheet resilience and dividend
capacity as a priority, consistent with our track record of delivering returns
for shareholders.
Despite the impact of these external factors, we continue to make good
progress, including enhancing our technological capabilities, introducing new
products and improving our efficiency. We have taken actions to respond
swiftly to further inflation in motor claims and will continue to navigate
market volatility as it arises."
Weather
December saw a prolonged period of sub-zero temperatures across the whole of
the UK. As a result, we have so far helped three thousand customers deal with
burst pipes, water tanks and other related damage. It is still relatively
early but we currently expect claims associated with the freeze event to be
around £90 million across Home and Commercial.
This, together with the freeze event from January 2022 and subsidence related
claims over the summer means that we currently expect total weather claims to
be in the region of £140 million for 2022, well above our 2022 expectation of
£73 million.
Trading and underwriting performance
Motor trading in the fourth quarter improved against a hardening market
backdrop with direct own brands in force policies broadly flat across the
quarter and gross written premium 2% lower compared with the prior year, a
significant improvement on the variances in the third quarter.
Claims inflation, however, remains a feature of the market. Inflation in
relation to own managed damage claims remains broadly in line with
expectations; however, we have seen a further increase in third party claims
inflation during the fourth quarter. Additionally, the fourth quarter has
seen an increase in claims frequency, in part relating to the adverse weather
conditions. At this stage we estimate these factors will increase the motor
loss ratio in 2022 by around six percentage points. We are continuing to take
actions to address this.
Other Group segments have traded broadly in line with expectations.
Investments
The fourth quarter saw relative calm in the bond markets after the extremes of
the end of the third quarter. However, as highlighted in our Q3 trading
update, the investment property market has seen a reduction in valuations.
As a result, our investment property portfolio has experienced a c.15%
reduction in values, equivalent to £45 million. This is greater than we had
initially expected, but broadly in line with commercial property indices over
the fourth quarter. Our investment property portfolio has delivered excellent
returns overall since inception, and occupancy levels remain strong at around
95%.
Operating expenses
Notwithstanding the inflationary backdrop, we expect operating expenses to
reduce year on year to around £700 million in 2022.
2022 estimate and 2023 outlook
Taking all these factors into consideration, our initial expectation is that
the Group combined operating ratio normalised for weather for 2022 will be
around 102% to 103%.
In addition, the impact of higher motor claims inflation on the business
already written is estimated to increase the 2023 Group combined operating
ratio by approximately 2 to 3 percentage points, relative to the target of
around 95%.
Our medium-term combined operating ratio target remains unchanged and the
Group will reset targets to an IFRS17 basis with the full year results.
Capital position and 2022 final dividend
We have returned over £1.5bn of capital over the last 5 years and we continue
to understand the importance of this to our shareholders.
The dynamics of 2022, and in particular the additional factors in the fourth
quarter, have resulted in a capital coverage that is now expected to be at the
lower end of our risk appetite range of 140% to 180%. Therefore, the Board no
longer expects to pay a final dividend for the 2022 financial year.
The Group has a range of management actions that it continues to pursue to
rebuild balance sheet resilience.
For further information, please contact
PAUL SMITH WILL SHERLOCK
Director of Business Performance, Reporting Group Corporate Affairs and Sustainability
and Investor Relations Director
Mobile: +44 (0)7795 811263 Mobile: +44 (0)7786 836562
This announcement contains inside information. The person responsible for
arranging the release of this announcement on behalf of the Company is Neil
Manser, Chief Financial Officer.
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", "will" or "would" 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 may appear in several places throughout this document
and include statements regarding intentions, beliefs or current expectations,
including of the Directors, concerning, among other things: the Group's
results of operations, financial condition, prospects, growth, strategies, the
industry in which the Group operates and the Group's approach to
climate-related matters. Examples of forward-looking statements include
financial targets which are contained in this document specifically with
respect to return on tangible equity, solvency capital ratio, combined
operating ratio, percentage targets for current-year contribution to operating
profit, prior-year reserve releases, cost reductions, reduction in expense
ratio, investment income yield, net realised and unrealised gains, capital
expenditure, risk appetite range, balance sheet resilience and dividend
capacity; and targets, goals and plans relating to climate and the Group's
approach and strategy in connection with climate-related risks and
opportunities. 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 and/or are beyond the Group's control
and/or they rely on assumptions that may or may not transpire to be correct.
Forward-looking statements are not guaranteeing 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 or assumed in the forward-looking
statements contained in this document, for example directly or indirectly as a
result of, but not limited to:
- United Kingdom ("UK") domestic and global economic business conditions;
- the direct and indirect impacts and implications of the coronavirus Covid-19
pandemic on the economy, nationally and internationally, on the Group, its
operations and prospects, and on the Group's customers and their behaviours
and expectations;
- the Trade and Co-operation Agreement between the UK and the European Union
("EU") regarding the terms, following the end of the Brexit transition period,
of the trading relationships between the UK and the EU and its implementation,
and any subsequent trading and other relationship arrangements between the UK
and the EU and their implementation;
- the terms of trading and other relationships between the UK and other
countries following Brexit;
- the impact of the FCA pricing practices report and any rules and regulations
arising as a result of that report and of responses by insurers, customers and
other third parties and of interpretations of such rules by any relevant
regulatory authority;
- market-related risks such as fluctuations in interest rates, exchange rates
and credit spreads, including those created or exacerbated by the Russian
invasion of Ukraine;
- the policies and actions and/or new principles, rules and/or regulations, of
regulatory authorities and bodies, and of changes to, or changes to
interpretations of principles, rules and/or regulations (including changes
made directly or indirectly as a result of Brexit or related to capital and
solvency requirements or related to the Ogden discount rates or made in
response to the Covid-19 pandemic and its impact on the economy and customers)
and of changes to law and/or understandings of law and/or legal interpretation
following the decisions and judgements of courts;
- the impact of competition, currency changes, inflation and deflation;
- the timing, impact and other uncertainties of future acquisitions,
disposals, partnership arrangements, joint ventures or combinations within
relevant industries; and
- the impact of tax and other legislation and other regulation and of
regulator expectations, interventions, enforcements, fines and requirements
and of court, arbitration, regulatory or ombudsman decisions, judgements and
awards (including in any of the foregoing in connection with the Covid-19
pandemic) 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 because of
new information, future events or otherwise, unless required to do so by
applicable law or regulation. Nothing in this document constitutes or should
be construed as a profit forecast.
Neither the content of Direct Line Group's website (or any part of it
including any press release), nor the content of any other website accessible
from hyperlinks on the Group's website, is incorporated into, or forms part
of, this document.
LEI: 213800FF2R23ALJQOP04
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