There were no sales and purchases of products and services to or from related parties in the year ended 31 December 2017 (2016: £nil).
Note: 1. This balance relates to an amount recoverable from RBS Group plc, the Group’s former parent company and originates from a period when they were still a related party.
Settled in the year (0.2) – At 31 December – 0.2
Current tax assets 4 16.1 0.8 Derivative financial instruments 5 1.0 1.7
Derivative financial instruments 5 1.0 1.7 Trade and other payables 12 1.4 6.4 Deferred tax liabilities 4 0.6 0.4 Total liabilities 340.2 513.0 Total equity and liabilities 3,944.2 3,950.5
The financial statements were approved by the Board of Directors and authorised for issue on 26 February 2018. They were signed on its behalf by: John Reizenstein Chief Financial Officer
Parent Company statement of comprehensive income For the year ended 31 December 2017 £m 2016 £m
Purchase of employee trust shares – (25.6) Repayment of subordinated liabilities (326.8) – Proceeds of borrowings from related parties 150.3 – Repayments of borrowings from related parties (65.9) – Finance costs (51.5) (46.3) Net cash used in financing activities (172.7) (522.5) Net increase in cash and cash equivalents 51.8 127.7 Cash and cash equivalents at the beginning of the year 7 157.5 29.8 Cash and cash equivalents at the end of the year 7 209.3 157.5
The Company’s financial statements are prepared in accordance with IFRSs as issued by the IASB and as adopted by the EU, and are presented in accordance with the Companies Act 2006. In accordance with the exemption permitted under section 408 of the Companies Act 2006, the Company’s income statement and related notes have not been presented in these separate financial statements.
Indirectly held by the Company: 10-15 Livery Street, Birmingham UK Limited4 Jersey Non-trading company Churchill Insurance Company Limited1 United Kingdom General insurance Direct Line Insurance Limited1 United Kingdom Dormant DL Support Services India Private Limited5 India Support and operational services DLG Legal Services Limited6 United Kingdom Legal services DLG Pension Trustee Limited1 United Kingdom Dormant Farmweb Limited1 United Kingdom Non-trading company Green Flag Group Limited2 United Kingdom Intermediate holding company Green Flag Holdings Limited1 United Kingdom Intermediate holding company Green Flag Limited2 United Kingdom Breakdown recovery services Intergroup Assistance Services Limited1 United Kingdom Non-trading company National Breakdown Recovery Club Limited1 United Kingdom Dormant Nationwide Breakdown Recovery Services Limited1 United Kingdom Dormant The National Insurance and Guarantee Corporation Limited1 United Kingdom Dormant UKI Life Assurance Services Limited1 United Kingdom Dormant
Notes: 1. Registered office at: Churchill Court, Westmoreland Road, Bromley, BR1 1DP. 2. Registered office at: The Wharf, Neville Street, Leeds, LS1 4AZ. 3. U K Insurance Limited has a branch, as defined in section 1046 (3) of the Companies Act 2006 in the Republic of South Africa. 4. Registered office at: 22 Grenville Street, St Helier, JE4 8PX, Jersey. 5. Registered office at: 4 Aradhana Enclave, Sector 13, Rama Krishna Puram, New Delhi, South West Delhi, Delhi, 110066, India. 6. Registered office at: 42 The Headrow, Leeds, LS1 8HZ.
At 1 January 2016 – – – Charge to the income statement (0.3) – (0.3) Charge to other comprehensive income – (0.1) (0.1)
5. Derivative financial instruments Notional amount Fair value Notional amount Fair value £m £m 2016 £m
Derivative assets Designated as hedging instruments: Derivative liabilities Designated as hedging instruments: Notes: 1. The derivative assets and liabilities are both classified as level 2 within the Group’s fair value hierarchy set out in note 40 of the consolidated financial statements. 2. The foreign exchange cash flow hedges have been entered into on behalf of Group subsidiary companies.
Cash at bank and in hand 3.8 0.2 Short-term deposits with credit institutions1 205.5 157.3
8. Share capital and capital reserves Full details of the share capital and capital reserves of the Company are set out in notes 29 and 30 to the consolidated financial statements.
Notes to the Parent Company financial statements continued 10. Subordinated liabilities £m 2016 £m
The subordinated guaranteed dated notes with a nominal value of £500 million were issued on 27 April 2012 at a fixed rate of 9.25% and have a redemption date of 27 April 2042. The Company has the option to repay the notes on specific dates from 27 April 2022. If the notes are not repaid on 27 April 2022, the rate of interest will be reset at a rate of the six-month LIBOR plus 7.91%.
Payables to subsidiary undertakings 0.1 4.7 Payables to third parties 1.3 1.7 13. Dividends Full details of the dividends paid and proposed by the Company are set out in note 14 to the consolidated financial statements.
Taxes received / (paid) 0.8 (3.0) Cash flow hedges 2.2 1.2 Net cash used in operating activities (7.9) (5.1)
Repayment of subordinated liabilities 326.8 Interest paid on subordinated liabilities1 51.5 Financing cash flows 378.3 Premium paid to buy back of debt issued (76.8) Amortisation of arrangement costs and discount on issue of subordinated liabilities (2.2) Accrued interest expense on subordinated liabilities (47.5) Non-cash changes (126.5)
15. Related parties Direct Line Insurance Group plc, which is incorporated in England and Wales, is the ultimate parent undertaking of the Direct Line Group of companies.
Interest income from loans to subsidiary undertakings was charged at rates ranging from 0.3% to 9.5% (2016: 0.4% to 9.5%).
Management fees payable to subsidiary undertakings 23.6 18.1 Interest payable to subsidiary undertakings 0.1 –
Interest charged on borrowings from related parties in the year ended 31 December 2017 was at rates ranging from 0.3% to 0.5% (2016: £nil).
Shareholders can arrange to receive their cash dividend payments in a bank or building society account 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 page 181. Alternatively, shareholders can access their shareholdings online and download a dividend mandate form from the Investor Centre. You can find details of this below.
To access information, the website requires shareholders to quote their Shareholder Reference Number. Shareholders can find this number on their share certificates.
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Tips on protecting your shares • Keep all your certificates in a safe place. Alternatively, consider holding your shares in the UK’s electronic registration and settlement system for equity, called CREST, or via a nominee
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Shareholders, who register their email address with our Registrar, or at the Investor Centre, can receive emails with news on events, such as the AGM. They can also receive shareholder communications electronically, such as the Annual Report & Accounts and Notice of Meeting.
Adjusted diluted earnings per share is calculated by dividing the adjusted profit after tax of Ongoing operations by the weighted average number of Ordinary Shares during the period adjusted for dilutive potential Ordinary Shares. (See Appendix A – APM from page 177).
This incentivises the performance of executives and employees over a one-year operating cycle. It focuses on the short to medium-term elements of the Group’s strategic aims.
Average written premium Average written premium is the total written premium at inception divided by the number of policies. Buy-As-You-Earn Plan The HM Revenue & Customs approved Buy-As-You-Earn Share Incentive Plan gives all employees the opportunity to become shareholders in the Company. 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 handling provision (provision for losses and loss-adjustment expense)
Funds the Group sets aside to meet the estimated cost of settling claims and related expenses that the Group considers it will ultimately need to pay.
The sum of the loss, commission and expense ratios. The ratio measures the amount of claims costs, commission and expenses, compared to net earned premium generated. A ratio of less than 100% indicates profitable underwriting. Normalised COR adjusts loss and commission ratios for a normal level of major weather events in the period.
Commission expenses Payments to brokers, partners and PCWs for generating business. Commission ratio The ratio of commission expense divided by net earned premium. Current-year attritional loss ratio
For Executive Directors, at least 40% of the AIP award is deferred into shares typically vesting three years after grant. The remainder of the award is paid in cash following year-end.
Investment income yield The income earned from the investment portfolio, recognised through the income statement during the period divided by the average assets under management (“AUM”). This excludes unrealised and realised gains and losses, impairments, and fair value adjustments. The average AUM derives from the period’s opening and closing balances for the total Group. (See Appendix A – APM from page 177).
Investment return The return earned from the investment portfolio, including unrealised and realised gains and losses, impairments, and fair value adjustments.
These reserves are based on Management’s best estimate, which includes a prudence margin that exceeds the internal ABE.
It includes claims payments and movements in claims reserves. Net earned premium The element of gross earned premium less reinsurance premium ceded for the period where insurance cover has already been provided. Net investment income yield
Ongoing operations Ongoing operations comprise Direct Line Group’s Ongoing divisions: Motor, Home, Rescue and other personal lines, and Commercial. It excludes run-off and restructuring costs.
A Solvency II requirement. It documents the Group’s insurance underwriting entities’ risks and associated capital requirements, both now and projected over the business planning period. It is forward looking, reflecting business strategy and risk appetite.
Reinsurance Contractual arrangements where the Group transfers part or all of the accepted insurance risk to another insurer.
Return on Tangible Equity for 2017 is adjusted profit after tax from Ongoing operations excluding one-off costs in relation to the buy-back of subordinated liabilities, divided by the Group’s average shareholders’ equity, less goodwill and other intangible assets. Profit after tax is adjusted to exclude the Run-off segment and restructuring costs. It is stated after charging tax using the UK standard tax rate of 19.25% (2016: 20.0%). RoTE for comparative periods is adjusted profit after tax from Ongoing operations, divided by the Group’s average shareholders’ equity, less goodwill and other intangible assets. Profit after tax is adjusted to exclude run-off and restructuring costs and other one- off costs. (See Appendix A – APM from page 177).
Solvency capital ratio The ratio of Solvency II own funds to the solvency capital requirement. Total costs Total costs comprise operating expenses and claims handling expenses for Ongoing operations. Total Shareholder Return (“TSR”)
Adjusted diluted earnings per share is defined in the glossary on page 174 and is reconciled on page 178.
COR is defined in the glossary on page 174. The constituent parts are underwriting profit defined in the glossary on page 176 and net earned premium (note 5).
This is a measure of underwriting profitability whereby a ratio of less than 100% represents an underwriting profit and a ratio of more than 100% represents an underwriting loss and excludes non-insurance income.
Investment income yield is defined in the glossary on page 175 and is reconciled on page 179.
Net investment income yield is defined in the glossary on page 175 and is reconciled on page 179.
Operating profit from Ongoing operations (as above) less finance costs and tax at standard rate and is reconciled on page 178.
This measure shows the underlying performance (after tax and finance costs) of the business activities without the impact of business that is in Run-off and restructuring costs.
Appendix A – Alternative performance measures continued Additionally, the current-year attritional loss ratio within the analysis by division section and total costs have also been identified as alternative performance measures, similarly reconciled to the financial statements and notes, on page 36, and defined in the glossary.
Finance costs adjustment for one-off subordinated debt buy back 66.1 – Adjusted profit before tax from Ongoing operations 573.2 366.3 Tax charge (using the UK standard tax rate of 19.25% and 20.0% respectively) (110.3) (73.3) Adjusted profit after tax from Ongoing operations 462.9 293.0
Notes: 1. See glossary on pages 174 and 175 for definitions 2. See notes to the consolidated financial statements 3. Mean average of opening and closing balances
Hedging to a sterling floating rate basis3 6 (27.0) (17.1) Net investment income 140.1 150.8 Net realised and unrealised gains excluding hedging 6 35.3 20.7 Investment return 175.4 171.5
Closing derivatives asset / (liability)4 55.1 (5.8) Closing investment holdings 6,709.3 6,581.0 Average investment holdings 6,645.2 6,699.9 Investment income yield 2.5% 2.5% Net investment income yield 2.1% 2.2% Investment return yield 2.6% 2.6%
Certain information contained in this document, including any information as to the Group’s strategy, plans or future financial or operating performance, constitutes “forwardlooking 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” or “will” 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 appear in a number of places throughout this document and include statements regarding the intentions, beliefs or current expectations of the Directors concerning, among other things: the Group’s results of operations, financial condition, prospects, growth, strategies and the industry in which the Group operates. Examples of forward-looking statements include financial targets and guidance which are contained in this document specifically with respect to the return on tangible equity; solvency capital ratio; the Group’s combined operating ratio; prior-year reserve releases; cost reduction; reductions in expense and commission ratio; net investment income yield; net realised and unrealised gains; results from the Run-off segment; restructuring costs and risk appetite range. 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 or are beyond the Group’s control.
The forward-looking statements 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 as a result of new information, future events or otherwise, unless required to do so by applicable law or regulation. Nothing in this document should be construed as a profit forecast.
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