Notes to the Parent Company financial statements www.directlinegroup.com 167 1. Accounting policies 1.1 Basis of preparation Direct Line Insurance Group plc, registered in England and Wales (company number 02280426), is the ultimate parent company of the Direct Line Group. The principal activity of the Company is managing its investments in subsidiaries, providing loans to those subsidiaries, raising funds for the Group and the receipt and payment of dividends.
1.3 Dividend income Dividend income from investment in subsidiaries is recognised when the right to receive payment is established.
Additional investment in subsidiary undertakings 237.0 6.6 Disposal of subsidiary undertaking – (4.0) Impairment of subsidiary undertakings (234.6) (4.3) Transfer to assets held for sale – (114.8)
Direct Line Group Annual Report & Accounts 2015 168 2. Investment in subsidiary undertakings continued The subsidiary undertakings of the Company are set out below. Their capital consists of Ordinary Shares which are unlisted. In all cases, the Company owns 100% of the Ordinary Shares, either directly or through its ownership of other subsidiaries, and exercises full control over their decision making.
Directly held by the Company: Direct Line Group Limited United Kingdom Intermediate holding company DL Insurance Services Limited United Kingdom Management services Finsure Premium Finance Limited United Kingdom Dormant Inter Group Insurance Services Limited United Kingdom Intermediate holding company UK Assistance Accident Repair Centres Limited United Kingdom Motor vehicle repair services UK Assistance Limited United Kingdom Dormant U K Insurance Business Solutions Limited United Kingdom Insurance broking services U K Insurance Limited United Kingdom General insurance Indirectly held by the Company: 10-15 Livery Street, Birmingham UK Limited Jersey Property rental company Churchill Insurance Company Limited United Kingdom General insurance Direct Line Insurance Limited United Kingdom Dormant DL Dormant 5 Limited United Kingdom Dormant DL Dormant 6 Limited United Kingdom Dormant DLG Legal Services Limited United Kingdom Legal services DLG Pension Trustee Limited United Kingdom Dormant DL Support Services India Private Limited India Management services Farmweb Limited United Kingdom Dormant Green Flag Group Limited United Kingdom Intermediate holding company Green Flag Holdings Limited United Kingdom Intermediate holding company Green Flag Limited United Kingdom Breakdown recovery services Intergroup Assistance Services Limited United Kingdom Dormant National Breakdown Recovery Club Limited United Kingdom Dormant Nationwide Breakdown Recovery Services Limited United Kingdom Dormant The National Insurance Breakdown and Guarantee Corporation Limited United Kingdom Dormant UKI Life Assurance Services Limited United Kingdom Dormant 3. Assets held for sale £m 2014 £m
On 29 May 2015, the Company completed the sale of its German subsidiary Direct Line Versicherung AG for a cash consideration of £232.6 million, incurring transaction costs of £8.3 million and generating a profit on disposal of £109.5 million. The investment in subsidiary was transferred to assets held for sale on 25 September 2014 when the Company entered into a binding agreement for the sale.
overnance Financial statem ents www.directlinegroup.com 169 4. Other receivables £m 2014 £m
Note: 1. Included in loans to subsidiary undertakings is a £500 million unsecured subordinated loan to U K Insurance Limited. The loan was advanced on 27 April 2012 at a fixed rate of 9.5% with a repayment date of 27 April 2042. There is an option to repay the loan on specific dates from 27 April 2022. If the loan is not repaid on 27 April 2022, the rate of interest will be reset at a rate of the six-month LIBOR plus 8.16%.
Derivative assets Designated as hedging instruments: Subsidiary undertakings 0.7 0.1 – –
Derivative liabilities Designated as hedging instruments: Third parties 0.7 0.1 – –
Designated hedging instruments at 31 December 2015 and 31 December 2014 include foreign exchange hedge contracts relating to supplier payments on behalf of its subsidiaries. At 31 December 2014, the Company also had a foreign currency hedge contract converting Euro to Sterling in respect of the proceeds from the sale of the International business, which ceased on completion of the sale.
Direct Line Group Annual Report & Accounts 2015 170 10. Subordinated liabilities £m 2014 £m
The Company has the option, in certain circumstances, to defer interest payments on the notes but to date has not exercised this right.
Payables to subsidiary undertakings 3.8 1.0 Payables to third parties – 0.1 Provision 2.8 –
Full details of related parties are set out in note 40 to the consolidated financial statements.
The following transactions were carried out with related parties: Sales of services £m 2014 £m
Interest receivable from subsidiary undertakings 47.5 47.6 Dividend income from subsidiary undertakings 671.0 446.7
Interest income from loans to subsidiary undertakings was charged at rates ranging from 0.5% to 9.5% (2014: 0.5% to 9.5%).
15. Share-based payments Full details of share-based compensation plans are provided in note 34 to the consolidated financial statements.
16. Risk management The risks faced by the Company, arising from its investment in subsidiaries, are considered to be the same as those in the operations of the Group. Details of the key risks and the steps taken to manage them are disclosed in note 3 to the consolidated financial statements. The Company also holds, on behalf of its subsidiaries, designated hedging instruments which relate to foreign currency supplier payments.
Additional information 172 Direct Line Group Annual Report & Accounts 2015
Share ownership Share capital You can find details of the Company’s share capital in note 28 to the consolidated financial statements.
Shareholders can arrange to receive their cash dividend payments in a bank or building society by completing a dividend mandate form. This is available from the Company’s registrar, Computershare Investor Services PLC (“Registrar”), in the UK. You can find the Registrar’s contact details on the inside back cover. Alternatively, shareholders can access their shareholdings online and download a dividend mandate form from the Investor Centre. You can find details of this below.
Dividend Reinvestment Plan The Company offers a Dividend Reinvestment Plan. This enables shareholders to use their cash dividends to buy the Company’s Ordinary Shares in the market. You can find more details on the Company’s website.
Shareholders can access their current shareholding details online at www.investorcentre.co.uk/directline . Investor Centre is a free-to-use, secure, self-service website that enables shareholders to manage their holdings online. The website allows shareholders to: • Check their holdings
• Access all their securities in one portfolio by setting up a personal account
• Do not converse with them. Note the name of the person and firm contacting you, then end the call
Report a scam If fraudsters approach you, tell the FCA using the share fraud reporting form at www.fca.org.uk/consumers/scams . You can also find out more about investment scams on the same web page.
• Keep correspondence from the Registrar that shows your shareholder reference number in a safe place, and shred unwanted correspondence
Electronic communications and voting The Group produces various communications. Shareholders can view these online, download them or receive paper copies by contacting the Registrar.
Dealing facilities Shareholders can buy, sell or transfer their shares through a stockbroker or a high street bank, or through the Registrar’s share-dealing facility.
You can call or email the Registrar regarding its share-dealing facility using this contact information: • For telephone sales, call +44 (0)370 703 0084 between 8.30 am and 5.30 pm, Monday to Friday, excluding public holidays
Dividend tax allowance From April 2016 dividend tax credits will be replaced by an annual £5,000 tax-free allowance across an individual’s entire share portfolio. Above this amount, individuals will pay tax on their dividend income at a rate dependent on their income tax bracket and personal circumstances. The Company will continue to provide registered shareholders with a confirmation of the dividends paid and this should be included with any other dividend income received when calculating and reporting total dividend income received to HMRC. It is the shareholder’s responsibility to include all dividend income when calculating tax requirements.
Financial calendar 2016 Date Event 1 March Preliminary Results 2015 10 March ‘Ex-dividend’ date for 2015 final and second special interim dividends 11 March Record date for 2015 final and second special interim dividends 4 May1 Trading update for the first quarter of 2016 12 May Annual General Meeting 19 May Payment date for 2015 final and second special interim dividends 2 August1 Half Year Report 2016 11 August1 ‘Ex-dividend’ date for 2016 interim dividend 12 August1 Record date for 2016 interim dividend 9 September1 Payment date for 2016 interim dividend 8 November1 Trading update for the third quarter
Annual General Meeting The 2016 AGM will be held on 12 May 2016 at the offices of Allen & Overy LLP, One Bishops Square, London E1 6AD, starting at 11.00 am. All shareholders will receive a separate notice convening the AGM. This will explain the resolutions to be put to the meeting.
Actuarial best estimate The probability-weighted average of all future claims and cost scenarios. It is calculated using historical data, actuarial methods and judgement. A best estimate of reserves will therefore normally be designed to include no margin for optimism or, conversely, caution.
Capital The funds invested in the Group, including funds invested by shareholders and retained profits. Claims frequency The number of claims divided by the number of policies per year. Claims reserve (provision for losses and lossadjustment expense)
Funds the Group sets aside to meet the estimated cost of claims payments and related expenses that the Group considers it will ultimately need to pay.
Commission Payments to brokers, partners and PCWs for generating business. Commission ratio The ratio of commission expense divided by net earned premium. Continuing operations Continuing operations include all activities other than discontinued operations. Current-year attritional loss ratio
A forum that represents all employees, including in circumstances where there is a legal requirement to consult employees.
Funds set aside to meet the cost of claims for accidents that have occurred, but have not yet been reported to the Group.
Investment income yield The income earned from the investment portfolio, recognised through the income statement during the period and divided by the average assets under management (“AUM”). This excludes unrealised and realised gains and losses, impairments and fair-value adjustments. The average AUM is derived from the period’s opening and closing balances.
Investment return The income earned from the investment portfolio, including unrealised and realised gains and losses, impairments and fair value adjustments.
Investment return yield The return earned from the investment portfolio, recognised through the income statement during the period divided by the average AUM. This includes unrealised and realised gains and losses, impairments and fair-value adjustments. The average AUM derives from the period’s opening and closing balances.
Risk mix Risk mix reflects the expected level of claims from the portfolio. It measures the estimated movement based on risk models used in that period, and is revised when models are updated.
Run-off Where the Group no longer underwrites new business, but continues to meet its claims liabilities under existing contracts.
Forward-looking statements disclaimer 176 Direct Line Group Annual Report & Accounts 2015
This Annual Report & Accounts has been prepared for, and only for, the members of the Company as a body, and no other persons. The Company, its Directors, employees, agents or advisers do not accept responsibility to any other person to whom this document is shown or into whose hands it may come, and any such responsibility or liability is expressly disclaimed.
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, 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.