The Group has subordinated guaranteed dated notes with fixed coupon rates with a nominal value of £250 million. £500 million were issued on 27 April 2012; at the same time the Group entered into a 10-year designated hedging instrument, to exchange the fixed rate of interest on these notes to a floating rate, to hedge exposure to interest rate risk and have a redemption date of 27 April 2042. £250 million was repurchased by the Group on 8 December 2017.
The Group maintains exposure to US Dollar securities through £1,699.3 million (2017: £2,084.5 million) of investments in US Dollar corporate bonds and Euro securities through £79.4 million (2017: £110.4 million) of Euro corporate bonds. The foreign currency exposure of these investments is hedged by foreign currency forward contracts, maintaining a minimal unhedged currency exposure on these portfolios, as well as a low basis risk on the hedging contracts.
Derivative assets At fair value through the income statement: Foreign exchange contracts (forwards) 1,354.6 19.2 – – 19.2 Designated as hedging instruments: Foreign exchange contracts (forwards) 18.5 1.2 0.2 – 1.4
3. The increase or decrease in total equity does not reflect any fair value movement in infrastructure debt, HTM debt securities and commercial real estate loans that would not be recorded in the financial statements under IFRSs as they are classified as loans and receivables and HTM respectively, which are carried at amortised cost. It is estimated that a fair value reduction in these asset categories resulting from a 100 basis points increase in spreads would have been £22.2 million (2017: £23.7 million) and a 100 basis points increase in interest rate would have been £5.8 million (2017: £6.2 million).
The Group has a number of open interest rate and foreign exchange derivative positions. Collateral management arrangements are in place for significant counterparty exposures. At 31 December 2018, the Group has pledged £31.8 million in cash (2017: £28.2 million) and £2.9 million in UK Gilts (2017: £0.3 million) to cover initial margins and out-of-the-money derivative positions. At 31 December 2018, counterparties have pledged £24.0 million in cash and £7.6 million in UK Gilts (2017: £25.1 million in cash and £15.5 million in UK Gilts) to the Group to cover in-the-money derivative positions.
Certain reinsurance contracts have long durations as a result of bodily injury and PPO claims, and insurance reserves therefore include provisions beyond the levels created for shorter-term reinsurance bad debt. For these contracts, reinsurance is only purchased from reinsurers that hold a credit rating of at least A+ at the time cover is purchased.
Reinsurance assets 1,178.5 – – – 1,178.5 Insurance and other receivables 942.5 38.2 0.5 – 981.2 Derivative assets 84.4 – – – 84.4 Debt securities 4,555.0 – – – 4,555.0 Infrastructure debt 316.4 – – – 316.4 Commercial real estate loans 169.0 – – – 169.0 Cash and cash equivalents1 1,358.6 – – – 1,358.6
Concentration risk This is the risk of loss associated with inadequately diversified portfolios of assets and/or obligations, in particular: – large exposures to individual credits (either bond issuers or deposit-taking institutions); and – large exposures to different credits where movements in values and ratings are closely correlated.
Concentration risk on investments arises through excessive exposure to particular industry sectors, groups of business undertakings or similar activities. The Group may suffer significant losses in its investment portfolio as a result of over exposure to particular sectors engaged in similar activities or similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions.
154 DIRECT LINE GROUP 2018 ANNUAL REPORT & ACCOUNTS FINANCIALS V6.1 3. Risk management continued The table below analyses the distribution of debt securities by geographical area (commercial real estate loans and infrastructure debt are all within the UK).
The table below analyses the distribution of debt securities by industry sector classifications.
3.3.5 Liquidity risk This is the risk of being unable to realise investments in order to settle financial obligations when they fall due.
The following table analyses the carrying value of financial investments and cash and cash equivalents, by contractual maturity, which are able to fund the repayment of liabilities as they crystallise.
Trade and other payables, including insurance payables 648.8 8.0 0.4 0.8 – 658.0 658.0
3.4 Capital management The Group manages capital in accordance with the Group’s capital management minimum standard, the aims of which are to manage capital efficiently and generate long-term sustainable value for shareholders, while balancing operational, regulatory, credit rating agency and policyholder requirements. The Group seeks to hold capital resources such that, in normal circumstances, the solvency capital ratio is around the middle of the target range of 140% to 180%.
4. Segmental analysis The Directors manage the Group primarily by product type and present the segmental analysis on that basis. The segments, which are all UK based, reflect the management structure whereby a member of the Executive Committee is accountable to the Chief Executive Officer for each of the operating segments: Motor This segment consists of personal motor insurance together with the associated legal protection cover. The Group sells motor insurance direct to customers through its own brands Direct Line, Churchill and Privilege, and through partnership brands such as vehicle manufacturers and through price comparison websites. The Motor segment includes results previously reported in the Run-off and restructuring segments. Comparative data has been re-presented accordingly.
Commercial This segment consists of commercial insurance for small and medium-sized enterprises sold through our brands NIG, Direct Line for Business and Churchill. NIG sells its products exclusively through brokers operating across the UK. Direct Line for Business sells its products directly to customers, and Churchill sells its products directly to customers and through price comparison websites.
Insurance claims recoverable from / (payable to) reinsurers 46.7 7.7 (0.1) 0.8 55.1
Note: 1. Results for the year ended 31 December 2018 are based on total Group operations including the restructuring costs and Run-off segment.
Insurance claims (payable to) / recoverable from reinsurers (135.8) 2.8 0.5 (50.6) (183.1)
Loss ratio 60.9% 57.4% Commission ratio 2.5% 9.1% Expense ratio 28.5% 25.3%
Notes: 1. The Motor segment for the year ended 31 December 2017 includes restructuring costs and the Run-off segment, which were total income of £0.7 million, net insurance claims of £43.1 million and operating expenses of £11.9 million. 2. Comparative ratios for the Motor segment and total Ongoing operations, prior to re-presentation of the restructuring costs and the Run-off segment. Ongoing operations for 2017 comprised total Group operations less the restructuring costs and the Run-off segment.
Gross earned premium: Gross written premium 3,211.9 3,392.1 Movement in unearned premium reserve 94.8 (52.4)
Reinsurance premium: Premium payable (223.5) (208.4) Movement in reinsurance unearned premium reserve 6.3 3.7 6. Investment return £m 2017 £m
Net unrealised gains / (losses): Impairment of loans and receivables (6.0) (9.5)
Derivative (losses) / gains: Foreign exchange forward contracts1 (102.6) (41.3) 107.8 62.5 Associated foreign exchange risk 72.6 41.3 68.4 (259.1) Net (losses) / gains on foreign exchange forward contracts (30.0) – 176.2 (196.6)
FINANCIALS V6.1 WWW.DIRECTLINEGROUP.CO.UK 161 7. Other operating income £m 2017 £m
Notes: 1. Other income includes salvage income and fee income from insurance intermediary services. 2. Other income includes a £9.6 million gain on the sale of a property in Bristol in January 2018.
Claims handling expenses for the year ended 31 December 2018 of £192.9 million (20171: £174.8 million) have been included in the claims figures above.
Notes: 1. Staff costs and other operating expenses attributable to claims handling activities are allocated to the cost of insurance claims. 2. Other operating expenses include IT costs, insurance levies, professional fees and property costs. 3. Amortisation and impairment of other intangible assets includes a £1.5 million impairment charge for the year ended 31 December 2018 (2017: £56.9 million), which relates to capitalised software development costs for ongoing IT projects primarily relating to development of new systems.
Fees payable for the audit of: The Company’s annual accounts 0.2 0.3 The Company’s subsidiaries 1.7 1.6
At 31 December 2018, no Directors (2017: no Directors) had retirement benefits accruing under the defined contribution pension scheme in respect of qualifying service. During the year ended 31 December 2018, four Directors exercised share options (2017: three Directors).
Note: 1. As described in note 32, on 27 April 2012 the Group issued subordinated guaranteed dated notes with a nominal value of £500 million at a fixed rate of 9.25%. On the same date, the Group also entered into a 10-year designated hedging instrument to exchange the fixed rate of interest on the notes for a floating rate of 3-month LIBOR plus a spread of 706 basis points, which increased to 707 basis points with effect from 29 July 2013. On 8 December 2017, the Group redeemed £250 million nominal value of the notes.
The following table analyses the difference between the actual income tax charge and the expected income tax charge computed by applying the standard rate of corporation tax of 19.0%1 (2017: 19.25%).
Tax charge for the year 108.9 105.0 Effective income tax rate 18.7% 19.5%
Per balance sheet: Current tax assets – 0.1 Current tax liabilities (46.0) (40.7) Deferred tax liabilities (7.6) (31.1)
Credit / (charge) to the income statement 0.3 (0.1) (3.9) 4.9 – (0.5) – 0.7 (Charge) / credit to other comprehensive income – (0.4) – – – – 23.8 23.4 Charge direct to equity – – – – – (0.6) – (0.6)
Amounts recognised as distributions to equity holders in the period: 2017 final dividend of 13.6 pence per share paid on 17 May 2018 186.1 – 2016 final dividend of 9.7 pence per share paid on 18 May 2017 – 132.4 2018 first interim dividend of 7.0 pence per share paid on 7 September 2018 95.8 – 2017 first interim dividend of 6.8 pence per share paid on 8 September 2017 – 92.9 2017 special dividend of 15.0 pence per share paid on 17 May 2018 205.3 –
The trustees of the employee share trusts waived their entitlement to dividends on shares held to meet obligations arising on the Long-Term Incentive Plan, Deferred Annual Incentive Plan and Restrictive Share Plan awards, which reduced the total dividends paid for the year ended 31 December 2018 by £2.4 million (2017: £1.6 million).
FINANCIALS V6.1 WWW.DIRECTLINEGROUP.CO.UK 165 15. Earnings per share Earnings per share is calculated by dividing earnings attributable to the owners of the Company less coupon payments in respect of Tier 1 notes by the weighted average number of Ordinary Shares during the year.
Earnings attributable to owners of the Company 473.7 434.0 Coupon payments in respect of Tier 1 notes (16.6) – Profit for the calculation of earnings per share 457.1 434.0 Weighted average number of Ordinary Shares (millions) 1,366.5 1,366.1 Basic earnings per share (pence) 33.5 31.8
Diluted Diluted earnings per share is calculated by dividing the earnings attributable to the owners of the Company less coupon payments in respect of Tier 1 notes by the weighted average number of Ordinary Shares during the period adjusted for the dilutive potential Ordinary Shares. The Company has share options and contingently issuable shares as categories of dilutive potential Ordinary Shares.
Tangible net asset value per share is calculated as total shareholders’ equity less goodwill and other intangible assets divided by the number of Ordinary Shares at the end of the period excluding shares held by employee share trusts.
166 DIRECT LINE GROUP 2018 ANNUAL REPORT & ACCOUNTS FINANCIALS V6.1 16. Net assets per share and return on equity continued Return on equity The table below details the calculation of return on equity.
Charge for the year – 45.2 45.2 Disposals and write-off1 – (4.7) (4.7) Impairment losses2 – 1.5 1.5
Goodwill arose on the acquisition of U K Insurance Limited (£141.0 million), Churchill Insurance Company Limited (£70.0 million) and accident repair networks (£1.7 million) and is allocated to reportable segments. The addition to goodwill in the year ended 31 December 2018 of £0.4 million arose on acquisition of a new accident repair centre.
168 DIRECT LINE GROUP 2018 ANNUAL REPORT & ACCOUNTS FINANCIALS V6.1 19. Investment property £m 2017 £m
Note: 1. The cost included in the carrying value at 31 December 2018 is £252.5 million (2017: £252.4 million).
The valuation conforms to international valuation standards. The fair value was determined using a methodology based on recent market transactions for similar properties, which have been adjusted for the specific characteristics of each property within the portfolio. This approach to valuation is consistent with the methodology used in the year ended 31 December 2017.
Additional provision (7.5) (9.6) Release to income statement 12.7 0.4 22. Deferred acquisition costs £m 2017 £m
Derivative assets At fair value through the income statement: Foreign exchange contracts (forwards) 19.2 51.1 Designated as hedging instruments: Foreign exchange contracts (forwards)1 1.4 1.0 Interest rate swaps 27.6 32.3
Derivative liabilities At fair value through the income statement: Foreign exchange contracts (forwards) 20.6 11.3 Designated as hedging instruments: Interest rate swaps 5.3 0.7
Index-linked bonds 30.4 28.7 Government bonds 24.9 17.7 Liquidity fund1 0.8 52.7 Absolute return bond fund2 39.4 –
UK pension schemes more widely. 3. A number of historical annuity policies held by the scheme were transferred to individual members during the year.
Experience adjustment gains on scheme liabilities – 1.5 1.2 1.2 1.0 Experience adjustment (losses) / gains on scheme assets (3.5) 1.0 13.7 (1.9) 12.9
172 DIRECT LINE GROUP 2018 ANNUAL REPORT & ACCOUNTS FINANCIALS V6.1 27. Cash and cash equivalents and borrowings £m 2017 £m
Cash at bank and in hand 157.4 258.0 Short-term deposits with credit institutions1 997.0 1,100.6 Cash and cash equivalents 1,154.4 1,358.6 Bank overdrafts2 (62.0) (54.1) Cash and bank overdrafts3 1,092.4 1,304.5
Note: 1. The freehold property held for sale at 31 December 2017 related to a property in Bristol which was sold in January 2018.
The Group has an optional redemption date of 7 December 2027. If the notes are not repaid on that date, a fixed rate of interest per annum will be reset. The notes are direct, unsecured and subordinated obligations of the issuer ranking pari passu and without any preference amongst themselves.
The Tier 1 notes are treated as a separate category within equity and the coupon payments are recognised outside of the profit after tax result and directly in shareholders’ equity.
The Group has the option to cancel the coupon payment which becomes mandatory upon breach of non-compliance with the Group SCR, a breach of the minimum capital requirement or where the Group has insufficient distributable reserves.
The notes are unsecured, subordinated obligations of the Group, and rank pari passu without any preference among themselves. In the event of a winding-up or of bankruptcy, they are to be repaid only after the claims of all other senior creditors have been met.
174 DIRECT LINE GROUP 2018 ANNUAL REPORT & ACCOUNTS FINANCIALS V6.1 33. Insurance liabilities £m 2017 £m
Estimate of ultimate gross claims costs: At end of accident year 3,823.3 3,941.7 2,698.1 2,372.7 2,184.0 2,094.5 2,118.1 2,157.7 2,217.3 2,300.1 One year later 121.6 (117.1) (99.3) (163.3) (117.6) 20.7 (30.0) (86.7) (116.2) Two years later (37.0) (99.1) (94.6) (118.9) (153.0) (38.4) (143.5) (53.3) Three years later (14.0) (50.3) (89.3) (49.3) (21.0) (144.9) (62.4) Four years later (101.5) (105.5) (60.9) (9.9) (102.1) (50.2) Five years later (38.8) (57.7) (21.2) (79.2) (50.8) Six years later (80.8) (25.9) (60.3) (36.2) Seven years later (27.3) (50.0) (25.1) Eight years later (14.0) (17.6) Nine years later (36.4)
Gross liability recognised in balance sheet 120.5 95.1 74.6 53.6 84.1 289.1 334.5 463.1 629.7 1,126.1 3,270.4 2008 and prior 655.5 Claims handling provision 80.0 Total 4,005.9
Accident year 2009 £m 2012 £m £m £m £m £m 2018 £m Total £m
Current estimate of cumulative claims 3,544.2 3,380.4 2,210.9 1,885.5 1,704.9 1,757.3 1,751.5 1,865.1 1,937.2 2,125.9
Net liability recognised in balance sheet 102.8 72.2 61.6 40.1 67.8 172.3 207.4 316.3 466.9 952.2 2,459.6 2008 and prior 361.1 Claims handling provision 80.0 Total 2,900.7 174 DIRECT LINE GROUP 2018 ANNUAL REPORT & ACCOUNTS
Note: 1. Results for the year ended 31 December 2018 are based on total Group operations including the Run-off segment. Comparative data has been re-presented accordingly to include Run-off segment prior-year claims movements within the Motor segment (2017: £43.1 million).
Awards were made in the year ended 31 December 2018 over 3.9 million Ordinary Shares with an estimated fair value of £10.5 million at the 2018 grant dates (2017: 4.2 million Ordinary Shares with an estimated fair value of £15.2 million).
Plan participants are entitled to receive additional shares in respect of dividends paid to shareholders over the vesting period. Therefore, no deduction has been made from the fair value of awards in respect of dividends.
Granted during the year1 9.2 9.6 Forfeited during the year (2.7) (1.3) Exercised during the year (5.4) (6.2)
Note: 1. In accordance with the rules of the LTIP and DAIP award plans, additional awards of 1.7 million shares were granted during the year ended 31 December 2018
In respect of the outstanding options at 31 December 2018, the weighted average remaining contractual life is 1.58 years (2017: 1.39 years). No share awards expired during the year (2017: nil).
The weighted average share price for awards exercised during the year ended 31 December 2018 was £3.58 (2017: £3.61).
Trade creditors and accruals 227.7 282.8 Other taxes 100.0 103.9 Other creditors 89.1 95.9
Due to reinsurers 47.4 74.2 Due to agents, brokers and intermediaries 11.9 18.2 Deferred income 4.7 4.8 Due to insurance companies 0.5 4.0
Profit for the year 473.7 434.0 Adjustments for: Investment return (154.6) (175.4) Instalment income (119.9) (116.4) Finance costs 19.1 103.8 Defined benefit pension scheme – net interest charge / (income) 0.1 (0.3) Equity-settled share-based payment charge 21.0 14.8 Tax charge 108.9 105.0 Depreciation and amortisation charge 76.3 82.0 Impairment of property, plant and equipment, goodwill and intangible assets 1.5 56.9 Impairment provision movements on reinsurance contracts (5.2) 9.2 Gain on sale / fair value adjustment on assets held for sale (9.6) (0.4) Loss on sale of property, plant and equipment 0.3 0.7
Accrued interest expense on subordinated liabilities (23.1) (47.5) – – Unrealised gain on associated interest rate risk on hedged item 5.6 11.7 – – Realised gain on associated interest rate risk on hedged item – 11.3 – 10.7 Net accrued interest on interest rate swap – – (0.2) (1.2) Fair value movement in interest rate swap – – (1.3) (11.7)
38. Contingent liabilities The Group did not have any material contingent liabilities at 31 December 2018 (2017: none).
Within one year 19.2 19.2 In the second to fifth years inclusive 56.4 58.1 After five years 148.7 154.8
Within one year 14.5 15.3 In the second to fifth years inclusive 42.9 46.1 After five years 70.4 73.1
180 DIRECT LINE GROUP 2018 ANNUAL REPORT & ACCOUNTS FINANCIALS V6.1 40. Fair value Fair value hierarchy Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique.
At 31 December 2018 Carrying value £m Level 1 £m £m Fair value £m
Other financial assets: HTM debt securities (note 26) 101.0 – 13.9 87.4 101.3
Commercial real estate loans (note 26) 201.6 – – 201.6 201.6
Liabilities held at fair value: Derivative liabilities (note 24) 25.9 – 25.9 – 25.9 Other financial liabilities: Subordinated liabilities (note 32) 259.5 – 297.8 – 297.8
At 31 December 2017 Carrying value £m Level 1 £m £m Fair value £m
Assets held at fair value: Investment property (note 19) 309.3 – – 309.3 309.3
Liabilities held at fair value: Derivative liabilities (note 24) 12.0 – 12.0 – 12.0 Other financial liabilities: Subordinated liabilities (note 32) 264.7 – 328.7 – 328.7 180 DIRECT LINE GROUP 2018 ANNUAL REPORT & ACCOUNTS
The movements in assets held at fair value and classified as level 3 in the fair value hierarchy are within investment property and are analysed in note 19. There were no changes in the categorisation of assets between levels 1, 2 and 3 for assets and liabilities held by the Group since 31 December 2017.
Cash and cash equivalents 7 236.1 209.3 Total assets 3,909.9 3,944.2
The attached notes on pages 184 to 188 form an integral part of these separate financial statements.
Registration No. 02280426 182 DIRECT LINE GROUP 2018 ANNUAL REPORT & ACCOUNTS
Profit for the year 449.6 50.6 Other comprehensive loss Items that may be reclassified subsequently to income statement: Fair value loss on fair value through other comprehensive income investments (0.1) (0.4) Tax relating to items that may be reclassified – 0.1
Other comprehensive loss for the year net of tax (0.1) (0.3) Total comprehensive income for the year attributable to owners of the Company 449.5 50.3
Credit to equity for equity-settled share-based payments – – 14.8 – – 14.8 – 14.8 Shares distributed by employee trusts – – (19.8) – – (19.8) – (19.8) Issue of Tier 1 notes (note 9) – – – – – – 346.5 346.5
184 DIRECT LINE GROUP 2018 ANNUAL REPORT & ACCOUNTS FINANCIALS V6.1 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 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.
The Company has taken advantage of the following FRS 101 disclosure exemptions: – FRS 101.8 (d): the requirements of IFRS 7 ‘Financial Instruments: Disclosures’ to make disclosures about financial instruments; – FRS 101.8 (e): the disclosure requirements of IFRS13 ‘Fair Value Measurement’; – FRS 101.8 (g): the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and 134 – 136 of IAS 1 ‘Presentation of Financial Statements’ to produce a cash flow statement, a third balance sheet and to make an explicit and unreserved statement of compliance with IFRSs; – FRS 101.8 (h): the requirements of IAS 7 ‘Statements of Cash Flows’ to produce a cash flow statement and related notes; – FRS 101.8 (i): the requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and
1.2 Adoption of new and revised standards The accounting policies used in the preparation of these separate financial statements are consistent with previous years, and the accounting policies applied in the consolidated financial statements of Direct Line Insurance Group plc, except for the adoption of IFRS 9 ‘Financial Instruments’ and the additional accounting policies specific to the separate financial statements of the Company as set out below.
The Company has adopted IFRS 9 which became mandatory for the first time in 2018. IFRS 9 replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’, introducing new guidance on the classification and measurement of financial assets, an expected credit loss impairment model, and new hedge accounting requirements.
1.4 Dividend income Dividend income from investment in subsidiaries is recognised when the right to receive payment is established.
Fair value through other comprehensive income Assets which are held both to collect contractual cash flows and to sell the financial asset, where the contractual terms of the asset give rise to cash flows which are solely payments of principal and interest on the principal amount outstanding, are measured at fair value through other comprehensive income, unless designated as fair value through profit or loss. Movements in the carrying amount are taken through other comprehensive income, except for gains or losses recognised in the income statement when the asset is derecognised, modified or impaired.
Impairment On recognition of a financial asset measured at amortised cost or fair value through other comprehensive income, an expected credit loss allowance is recognised by multiplying the financial asset’s gross carrying amount by the probability of default multiplied by the loss given default.
U K Insurance Business Solutions Limited1 United Kingdom Insurance intermediary services U K Insurance Limited2,3 United Kingdom General insurance Indirectly held by the Company: 10-15 Livery Street, Birmingham UK Limited4 Jersey Dormant7
Churchill Insurance Company Limited1 United Kingdom General insurance Direct Line Insurance Limited1 United Kingdom Dormant7
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 6-month LIBOR plus 8.16%. All loans are neither past due nor impaired.
Per balance sheet: Current tax assets – 16.1 Current tax liabilities (0.2) – Deferred tax liabilities (0.6) (0.6)
Fair value through other comprehensive income revaluation reserve £m Total £m
Cash at bank and in hand 0.1 3.8 Short-term deposits with credit institutions1 236.0 205.5
16. Directors and key management remuneration The Directors and key management of the Group and the Company are the same. The aggregate emoluments of the Directors are set out in note 10 to the consolidated financial statements, the compensation for key management is set out in note 41 to the consolidated financial statements and the remuneration and pension benefits payable in respect of the highest paid Director are included in the Directors’ remuneration report in the Governance section of the Annual Report & Accounts.
– If it sounds too good to be true, it probably is.
190 DIRECT LINE GROUP 2018 ANNUAL REPORT & ACCOUNTS ADD INFO V5.2
Dividend Reinvestment Plan 08 May1 Trading update for the first quarter of 2019 09 May Annual General Meeting 16 May Payment date for 2018 final dividend and special interim dividend 31 July1 Half Year Report 2019 08 August1 ‘Ex-dividend’ date for 2019 interim dividend 09 August1 Record date for 2019 interim dividend 15 August1 Final date for election under the
Annual General Meeting The 2019 AGM will be held on 9 May 2019 at the offices of Deloitte LLP, 2 New Street Square, London EC4A 3BZ, 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.
Average written premium Average written premium is the total written premium at inception divided by the number of policies. Bootstrapping A statistical sampling technique used to estimate reserve variability around the Actuarial Best Estimate
(“ABE”). Results produced from bootstrapping historical data are used to set and inform the level of margin incorporated in the management best estimate (“MBE”).
The loss ratio for the current accident year, excluding the movement of claims reserves relating to previous accident years, and claims relating to major weather events.
The UK’s independent regulator responsible for promoting high-quality corporate governance and reporting to foster investment.
Gross written premium The total premiums from contracts that began during the period. Group Direct Line Insurance Group plc and its subsidiaries (“Direct Line Group” or the “Group”). Incurred but not reported (“IBNR”)
Funds set aside to meet the cost of claims for accidents that have occurred but have not yet been reported to the Group. This includes an element of uplift on the value of claims reported.
192 DIRECT LINE GROUP 2018 ANNUAL REPORT & ACCOUNTS GLOSSARY & APPENDICES V5.2
Loss ratio Net insurance claims divided by net earned premium. Malus An arrangement that permits unvested remuneration awards to be forfeited, when the Company considers it appropriate. Management’s best estimate (“MBE”)
Net asset value The net asset value of the Group is calculated by subtracting total liabilities (including Tier 1 notes) from total assets.
Net claims The cost of claims incurred in the period less any claims costs recovered under reinsurance contracts. It includes claims payments and movements in claims reserves.
These are claims payments as awarded under the Courts Act 2003. PPOs are used to settle some large personal injury claims. They generally provide a lump-sum award plus inflation-linked annual payments to claimants who require long-term care.
Run-off Refers to the lines of business no longer underwritten by the Group including Tesco Motor and Personal Lines Broker.
Further information is presented below, defined in the glossary on pages 191 to 192 and reconciled to the most directly reconcilable line items in the financial statements and notes. Note 4 on page 158 of the consolidated financial statements presents a reconciliation of the Group’s business activities on a segmental basis to the consolidated income statement. All note references in the table below are to the notes to the consolidated financial statements on pages 136 to 181.
In 2018, the Group ceased presenting APMs for the following measures: – adjusted diluted earnings per share; – operating profit from Ongoing operations; and – adjusted profit before tax and after tax from Ongoing operations.
These APMs no longer provide relevant information, as 2018 results are based on total Group operations including the Run-off segment and restructuring costs which are included in the Motor segment.
Combined operating ratio is defined in the glossary on page 191.
Expresses a relationship between the investment return and the associated opening and closing assets net of any associated liabilities.
Loss ratio is defined in the glossary on page 192 and is reconciled in note 4.
Net investment income yield is defined in the glossary on page 192 and is reconciled on page 194.
Return on tangible equity is defined in the glossary on page 192 and is reconciled on page194.
Hedging to a sterling floating rate basis5 6 (30.8) (27.0) Net investment income 128.4 140.1 Net realised and unrealised gains excluding hedging 6 26.2 35.3 Investment return 154.6 175.4 Opening investment property 309.3 329.0 Opening financial investments 5,040.4 5,147.0 Opening cash and cash equivalents 1,358.6 1,166.1 Opening borrowings (54.1) (55.3) Opening derivatives asset / (liability)6 55.1 (5.8) Opening investment holdings 6,709.3 6,581.0 Closing investment property 19 322.1 309.3 Closing financial investments 26 4,737.8 5,040.4 Closing cash and cash equivalents 27 1,154.4 1,358.6
Notes: 1. See glossary on pages 191 and 192 for definitions. 2. Results for year ended 31 December 2018 are based on total Group operations including the restructuring costs and Run-off segment. Comparative data has been re-presented accordingly to include the restructuring costs and Run-off profits in the 2017 operating profit. The adjusted profit after tax reported in 2017 was £462.9 million and the return on tangible equity was 21.7%.
3. Mean average of opening and closing balances. 4. See notes to the consolidated financial statements. 5. Includes net realised and unrealised gains / (losses) of derivatives in relation to AUM. 6. See note 1 on page 36.
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, United Kingdom (“UK”) domestic and global economic business conditions, the outcome of discussions within the UK parliament and discussions between the UK and the European Union (“EU”) regarding the manner and terms on which, if any, the UK leaves the EU (usually called “Brexit”) and the terms in due course of any future trading relationship between the UK and the EU, 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.
196 DIRECT LINE GROUP 2018 ANNUAL REPORT & ACCOUNTS CONTACT INFO V5.1
Auditors Deloitte LLP Hill House 1 Little New Street London EC4A 3TR
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Telephone: +44 (0)20 7489 1188 Website: www.rbccm.com 196 DIRECT LINE GROUP 2018 ANNUAL REPORT & ACCOUNTS