3. Estimates based on the Group’s Solvency II partial internal model. 4. The 2019 comparatives for dividends and capital returns and the solvency capital ratio have been adjusted to remove the cancelled 2019 final dividend and £120 million of share buyback. (The reported numbers were solvency capital ratio of 165% and capital returns of £447.0 million). See page 18 for further details.
We’re reimagining how we work, to be more agile. Empowering you to transform what we do.
Group successfully transitions a number of business areas to agile ways of working
Strategy Our vision is to create a world where insurance is personal, inclusive and a force for good. Our purpose is to help people carry on with their lives, giving them peace of mind now and in the future. We have worked exceptionally hard to deliver against that purpose throughout the challenging events of 2020.
A significant proportion of executive remuneration is delivered through shares and shareholding requirements and our incentive schemes’ performance measures are aligned with the long-term performance measures considered important by investors.
The Group’s share price on 31 December 2020 was 319.0 pence (2019: 312.5 pence). Total shareholder return (“TSR”), which includes dividend payments, increased by 9.0 percentage points for the year (2019: 7.0 percentage point increase). During 2020, the Group’s share price grew by 2.1% (2019: 1.9% decrease), reflecting increased investor confidence following the Capital Markets Day at the end of 2019 and the delivery of strong financial results in March 2020. This was partially offset by concerns over margin contraction in Motor and Home following the publication of the FCA’s Pricing Practices Report (“PPR”) which put pressure on UK Personal Lines stocks.
We traded well through the year, delivering growth in our Home, Commercial and Green Flag Rescue businesses despite prolonged periods of lockdown when new business shopping dropped significantly. Retention has held up well. In contrast average premiums have fallen as risk mix has reduced, with fewer new drivers on the road as no driving tests have been conducted for parts of the year and fewer new cars have been purchased. In the midst of these trends we are happy to see direct own brand policy growth of 2.2% and gross written premium broadly flat.
Overall, the impact of the pandemic led to a modest net benefit to our financial result, with the effects concentrated in four main areas: – Reduction in motor claims frequency falling to below normal levels from Q2
With the potential impact of the FCA Pricing Practices report, discussed in the Market Overview section later, combined with whiplash reform, currently due to be effective from May 2021, a mixed picture is emerging in terms of lockdowns in H1 and uncertainty over the long-term level of driving in our new “normal”, and there are clearly many moving parts.
Report Published our first Task Force on Climate-related Financial Disclosures (“TCFD”) Report3 www.directlinegroup.co.uk 15
The Group’s focus in 2021 is to evaluate the Scope 3 emissions1 arising out of our investment portfolio and we will begin to scope out Science-Based Targets, which are a set of goals to provide a clear route
– final (pence) 14.7 14.4 – total ordinary (pence) 22.1 21.6 – special (pence) 14.4 –
Overall this delivered an increase in underwriting profit to £267.8 million (2019: £232.1 million).
For the year ended 31 December 2020 Net earned premium 4 1,484.8 555.8 422.9 497.0 2,960.5 Net insurance claims 4 888.1 309.1 261.1 255.3 1,713.6 Prior-year reserve releases 34 100.6 10.8 5.6 56.8 173.8 Major weather events n/a (27.0) n/a (16.0) (43.0) Attritional net insurance claims 988.7 292.9 266.7 296.1 1,844.4 Loss ratio – current-year attritional 66.6% 52.7% 63.0% 59.6% 62.3% Loss ratio – prior-year reserve releases (6.8%) (1.9%) (1.3%) (11.4%) (5.9%) Loss ratio – major weather events1 n/a 4.8% n/a 3.2% 1.5%
Net assets at 31 December 2020 increased to £2,699.7 million (31 December 2019: £2,643.6 million) and tangible net assets decreased to £1,912.9 million (31 December 2019: £1,941.1 million) reflecting the 2020 retained profit and increases in available-for-sale reserves. This was offset by additional expenditure on intangible assets as the Group continued to invest in the business.
Where the Board believes that the Group has capital which is expected to be surplus to the Group’s requirements for a prolonged period, it would intend to return any surplus to shareholders. In normal circumstances, the Board expects that a solvency capital ratio around the middle of its risk appetite range of 140% to 180% of the Group’s solvency capital requirement (“SCR”) would be appropriate and it will therefore take this into account when considering the potential for special distributions.
The Group’s in-house vehicle repair network continued to repair customers’ vehicles and prioritised repairs for NHS workers.
Total operating profit was £49.2 million lower than prior year due to £27.0 million of major weather costs (2019: £3.0 million) alongside a reduction in prior-year reserve releases.
Gross written premium was 1.5% lower than 2019, primarily due to the reduction in partnership volumes. Own brands gross written premium increased by 1.0% as growth in in-force policies was offset by lower average premium.
Elsewhere, Green Flag continues to record digital milestones by using advanced technology systems to reduce our mileage by sending customers the right resource first time. This leads to an efficient customer service but also helps minimise our carbon emissions in what is one of the most carbon intensive parts of our operation. Similarly our “Phone Fix” initiative means we are fixing approximately 6% of jobs over the phone with customers, an increase of 3%, across all jobs, in “Phone Fix” compared to the previous year, resulting in saving miles driven. Note: 1. Trustpilot score of 4.4/5 (23/02/21).
Overview In 2020 customers continued to seek cover in the direct market that was flexibly tailored to their individual needs. Against this backdrop, Commercial maintained underwriting discipline and grew its policy count across all product lines.
Performance Commercial in-force policies of 811,000 increased by 4.6% compared with 2019, reflecting strong growth in both Commercial direct own brands and NIG and other.
United Nations SDGs In 2015 the United Nations launched 17 Sustainable Development Goals (“SDGs”) to help end poverty, fight inequality and tackle climate change by 2030. Through our sustainability work, we believe we can contribute to seven of the Goals.
MSCI: The Group maintained its ‘A’ rating this year highlighting our Board-level diversity, staff training and development programmes and the strengthening of ESG integration into our investment portfolio. The Group is also in the top quartile for Corporate Governance and Human Capital development.
Our determination to deliver the best possible customer value and experience drove our response to Covid-19. We are proud that our net promoter scores have yet again demonstrated the willingness of our customers to recommend our Direct Line brand year on year.
– retrained over 500 people to support travel customers to navigate the pandemic.
We want to earn our customers’ loyalty and give them a reason to stay with our brands by taking measures such as: – actively reviewing customers’ renewal price when they reach their five-year anniversary with us, as a result of which many of our customers have seen their premiums frozen or discounted; – introducing a facility to enable a customer to opt out of automatic renewal through our web chat service; and
In our 21 accident repair centres we want to encourage women to think about careers in the bodyshop industry through awareness of our engineering graduate programme.
Employee share incentive scheme Despite the impact of Covid-19, we are continuing with our commitment to award free shares. The Group awarded eligible colleagues 180 shares which were worth £500 in April 2020. For employees who have been with the Group since our IPO in 2012, this was our fifth award of free shares totalling 626 shares which were worth £1,997 at 31 December 2020, plus dividends paid on those shares which amount to a further £793.
Our suppliers VAT £11.3m Our people PAYE NIC £97.9m Our operations
Planet Protect our business from the impact of climate change and give back more to the planet than we take out.
Step three: Offset while we reduce We know that it will take time to reduce our emissions so in the meantime we have made a long-term commitment to be a 100% carbon neutral business by offsetting Scope 1 and 2 emissions as well as the elements of our Scope 3 emissions which are under our direct control.
– Clean cookstoves, Bangladesh: Less than 20% of Bangladeshi households have access to clean cooking, instead using traditional “three-stone” fires, contributing to approximately 49,000 premature deaths a year. Our funding will support entrepreneurs to produce, manufacture and distribute the “bondhu chula”, a clean cookstove designed for an efficient burn to reduce fuel use.
In addition, the Climate Change Working Group has been established to help assess the potential impacts of climate change on the Group. Members of this working group represent various teams from across the business with the aim of ensuring risks are identified and managed effectively.
Underwriting Climate change is a key risk facing the insurance industry. It has the potential to affect both the frequency and severity of natural catastrophes and other weather-related events in the UK which are key drivers in the Group’s solvency capital requirements.
The influence of climate change is difficult to isolate from the complex oceanic and atmospheric processes driving UK weather. The Group uses catastrophe models to capture these factors, and in turn these models are regularly reviewed against specific criteria including how they have considered latest scientific thinking, to ensure they appropriately capture the Group’s risk profile. Responsibility for this work sits within the Capital Modelling function.
These models benefit from considerable amounts of internal and externally purchased data. External data is reviewed and updated regularly, and we maintain a relationship with data suppliers to understand the methodologies and assumptions in their work. Nevertheless, the underlying trends can be difficult to measure as they emerge through infrequent one-off catastrophe events and may have additional contributory factors (for example, deforestation increasing the pace of rainwater run-off upstream of a flood). Furthermore, future trends are likely to differ from past projections. As such, we recognise a range of uncertainty as to current and future impacts.
– an extension to the ‘hours clause’. Catastrophe reinsurance covers are generally subject to an hours clause that defines a loss event by a number of hours. In practice, the Group can accumulate all losses within a number of hours to determine the reinsurance event for recovery purposes. In recent years, the amount of time available has been extended which means that the Group can capture more claims and longer duration events and have a greater level of protection for these losses.
For a full breakdown of the Group’s overall emissions, including our intensity metric and historical performance, see page 61.
Risk management Describe the organisation’s processes for identifying and assessing climate-related risks.
Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets.
UK recession and global financial instability The risk of a further UK-wide recession and global financial instability is ongoing. The economic uncertainty is expected to remain high throughout H1 2021, as a result of the Covid-19 pandemic, and the Group continues to monitor the worst-case impact.
Key risks identified as potentially arising in the context of disruption following the end of the transition period included financial impacts (for example, if credit spreads widened) and operational impacts (for example, if goods were delayed at the EU/UK border). Other risks identified included risks of changes to the value of sterling, inflation, recession, recruitment and retention of people, impacts on travel, and potential changes to tax and regulation.
Purpose, culture and values The Board recognises the importance of its role in setting the tone of the Group’s culture, aligning it with our purpose, values and strategy, and embedding it throughout the Group. The Board aims to foster an open and collaborative culture based on our vision and purpose, supporting decisions that are best for our shareholders, whilst having regard to the interests of our other stakeholders. Our vision, purpose, values and Code of Business Conduct are central to the Group’s culture. We encourage our people to be curious, to be aligned on outcomes, to build trust, encourage simplicity, empower their teams and continually test, learn and adapt.
Audit, risk & internal control Read more on pages 95 to 96
Biography Richard’s previous experience as a Chief Executive, a Non-Executive Director and a Chair makes him well suited to the role of Senior Independent Director of the Company. The Board benefits from his experience in the insurance industry and his insight into prudential regulation.
Jonathan was previously Managing Director of the Group’s Household and Life businesses. He joined the Group as Product and Pricing Director for UK Partnerships. Before joining the Group, Jonathan held roles at HBOS, MBNA and Pinnacle.
Before stepping into the Acting Chief Strategy Officer role, she was Managing Director of Direct Line for Business, leading the growth of the direct Commercial Insurance business.
Operations The Board is responsible for overseeing the implementation of a robust control framework to allow effective management of risk. The Board supervises the Group’s operations, with a view to ensuring they are effectively managed, that effective controls are in place, and that risks are assessed and managed appropriately.
The charts below provide an overview of the Board independence and tenure, along with a summary of the Board and Executive Committee gender as at 31 December 2020.
Board skills, experience and knowledge Our Nomination and Governance Committee has an active and dynamic process of understanding and identifying the skills, experience and knowledge of its board members. The principles of the Code are embodied in the Committee’s approach to board evaluation and succession planning and the Chair of the Committee goes through a continuous process of evaluating the skill and experience required on the Board. The principles and practices set by the Board and the progress made with the diversity of the Board include: 1. Maintaining at least 33% female representation on the Board The Board aims to maintain female representation of at least 33% and remains committed to seeking to improve further its position on gender diversity when appropriate opportunities arise. The Board will continue to appoint the most appropriate candidates based on knowledge, skills, experience and, where necessary, independence. As at the date of this report (5 March 2021), female representation on the Board was 40% which exceeds the target set in Lord Davies’ Women on Boards Review Five Year Summary to be achieved by 2020 and exceeds the Hampton-Alexander Review’s recommendation for a minimum of 33% of women’s representation on boards by 2020. The Group ranked 44th in the FTSE 250 for female Board representation in the Hampton-Alexander review.
In addition, the Senior Independent Director discussed the Chair’s performance with the Non-Executive Directors (except the Chair) to enable him to provide constructive feedback. No Director was involved in the review of their own performance.
Financial reporting The Committee followed a review process before recommending the Annual Report & Accounts and Half Year report to the Board, which focused on the choice and application of significant accounting policies, emphasising those requiring a major element of estimation or judgement. Further information on the significant matters considered is provided in the table on page 99.
When considering the timing of the external audit tender, the Committee took into account the Group’s ongoing change programmes including the implementation of a new general ledger system, the use of consultants employed by auditing firms in connection with those programmes, audit partner rotation, the impact of IFRS 17 and the best interests of all stakeholders including potential investors and shareholders. The Committee will review the position on an annual basis, but currently anticipates tendering the audit contract after the implementation of IFRS 17 to ensure the broadest choice of firms. The Committee also confirmed that it will continue to comply with the regulations governing auditor rotation.
The Committee received updates at each of its meetings on the developing, testing and implementation of releases under the Group’s technological transformation programmes, on interdependencies between programmes and on the overall management of the Group’s change portfolio, reviewing and challenging the operational and financial risks and controls and the potential impact on customers, people and the Group’s strategic and financial plan. Each report was accompanied by an update from the Risk function on its assurance activity, which included reviewing and challenging programme plans, testing methodology and performance, and reviewing preparations for implementation. Reasonable assurance on the Group’s technology re-platforming programme, “Best for Customer”, was provided to the Committee by Deloitte, who had been engaged to conduct a number of deep dive reviews of a range of programme stages and risks focusing on planning methodology and approach, testing, technical readiness for business volume increases and programme closedown.
Note: 1. Mike Biggs was a member of this Committee until he retired from the Board on 4 August 2020.
Further information on the Board diversity policy and the Group’s diversity initiatives can be found in the Corporate Governance report on page 92.
– met its target for a 30% like-for-like reduction in the Group’s energy use by 2020 against a 2013 baseline.
The Committee considered the Group’s progress towards achieving its carbon neutrality ambitions in 2020. The Group agreed a three-year commitment with the Carbon Trust to offset carbon emissions by investing in high impact projects that both reduce carbon emissions and support global communities.
The financial consequences of the pandemic on the Company’s budgeted investment result and changes in assets valuations were reported at each meeting.
The Committee is immensely proud of the ways in which our people continued to provide exceptional service, value and flexibility to our customers in 2020, aligning with our desire to make insurance personal, inclusive and a force for good. We offered extra value to all our customers and further support to those in financial difficulty in response to the unexpected impact of the Covid-19 pandemic. Many measures were introduced across the business to achieve this, including payment deferrals, waiving cancellation fees, mileage refunds and free roadside assistance to key workers.
Remuneration Policy In last year’s report, we presented an updated Directors’ Remuneration Policy (the “Policy”) to be submitted for shareholder approval at the AGM on 14 May 2020. The updated Policy included relatively minor changes to align with regulatory and governance updates, such as the introduction of a post-cessation shareholding requirement, an increase in the shareholding requirement for the CEO, and changes aimed at simplifying the remuneration structure, such as adopting a straight-line performance schedule for the Annual Incentive Plan (“AIP”) between threshold and maximum (consistent with the Long-Term Incentive Plan (“LTIP”)). The updated Policy was approved by shareholders, with 97.55% of votes cast in favour, and the Committee has implemented this Policy during 2020. During the year, the Committee has taken full account of the 2018 Corporate Governance Code (the “Code”) in our discussions and remuneration practices. The full Policy can be found on the Direct Line Group website, under the ‘Results and Reports’ heading of the Investors page, and on pages 128 to 138 in the 2019 Directors’ Remuneration Report. In our Remuneration at a glance section on page 119, we summarise the performance outcomes against our remuneration framework, in the context of how the Policy was applied in 2020.
2020 salary rises To increase the level of base salary of the CEO in line with the average rise made to all employees.
PwC’s total fees for remuneration-related advice in 2020 were £78,500 excluding VAT. PwC charged its fees based on its standard hourly rates for providing advice.
Simplicity Remuneration structures should avoid complexity and their rationale and operation should be easy to understand.
– The Committee also considers that the Policy provides wide-ranging flexibility to adjust payments where outcomes are not considered to reflect underlying business performance and individual contributions, or where behaviours are inconsistent with the risk appetite of the Group.
– In 2020, our mid-year engagement score was 1% off our highest ever score at 80%, having improved by 2pts from the preceding survey and 4pts year on year. However, towards the end of 2020 as the new wave of lockdowns hit, this dipped by 6% to 74%. This is in line with the shape other organisations are reporting. Although we are consistent with upper quartile high-performing companies, we were slightly below the threshold target of maintaining 2019 engagement levels at 78%.
Percentage change in Executive Directors’ and Non-Executive Directors’ pay for 2019 to 2020 The table below shows the year-on-year percentage change in salary, taxable benefits and bonus (where applicable) of the Executive Directors and Non-Executive Directors, compared to the average pay for all other employees.
Payments to Past Directors (Audited) March and August 2017 LTIP The table below sets out the awards which vested during the year to John Reizenstein (former CFO), Paul Geddes (former CEO) and Mike Holliday-Williams (former MD, Personal Lines), who exited the Group on 7 September 2018, 31 July 2019 and 30 September 2019 respectively: Award Executive Director
Notes: 1. On 3 March 2020, the Group announced that the Board had approved a share buyback of up to £150 million. On 19 March 2020, the Board cancelled that share buyback programme given the uncertainty in the capital markets at the time, driven by the rapidly emerging Covid-19 pandemic.
AGM voting outcomes The table below shows the percentage of shareholders’ votes which were for or against, and the percentage of votes withheld, relating to the resolutions to approve the 2019 Directors’ Remuneration Report and Remuneration Policy, both of which were put to shareholders at the 2020 AGM.
– 20% of the award vests for threshold performance, with 100% vesting for maximum performance. The Committee reserves the right in respect of future awards to lengthen (but not reduce) any performance period and/or amend the terms of any holding period; however, there is no intention to reduce the length of the holding period
Auditor Deloitte has expressed its willingness to continue in office as the External Auditor. A resolution to reappoint Deloitte will be proposed at the forthcoming AGM. You can find an assessment of the effectiveness of and a recommendation for reappointing Deloitte in the Audit Committee report on page 101.
Key audit matter description Actual claims experience may differ from the historical pattern on which the actuarial best estimate is based and the cost of settling individual claims may exceed that reserved for. Consequently, management adds a margin to the actuarial best estimate to arrive at the booked insurance liabilities. This margin is determined by considering a range of adverse economic and non-economic scenarios and reflects the inherent uncertainty in estimating the ultimate losses on claims, over and above that which can be projected actuarially as a best estimate based on underlying claims development data.
The materiality approximates to 5.6% (2019: 5.3%) of the three year average profit before tax, excluding the impact of the Ogden discount rate change to 0% in the 2018 results and minus 0.25% in the 2019 results which we elected to exclude due to the non-recurring nature of these events.
These four entities represent the principal trading and service operations of the Group and account for 99% (2019: 99%) of the Group’s net assets, 100% (2019: 100%) of the Group’s gross earned premium and 95% (2019: 98%) of the Group’s profit before tax. They were also selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above.
10. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
COLIN RAWLINGS FCA (SENIOR STATUTORY AUDITOR) FOR AND ON BEHALF OF DELOITTE LLP
Consolidated Income Statement For the year ended 31 December 2020 www.directlinegroup.co.uk 157
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2020 158 DIRECT LINE GROUP ANNUAL REPORT & ACCOUNTS 2020
Net increase / (decrease) in cash and cash equivalents 271.9 (196.1)
The Directors have assessed the principal risks faced by the Group over the duration of the planning cycle. These included the implementation of the FCA’s Pricing Practices Review, possible adverse implications of Brexit, change risk and possible challenging market conditions due to the impact of Covid-19 on the economy and customer behaviour. The 2020 Plan modelled a number of different scenarios which were directly and indirectly influenced by the Covid-19 pandemic and Brexit. These included delay to improvements in technological capability, the impact of Covid-19 on claims frequency levels and the impact of Brexit on the investment return. The key judgements applied were in relation to the likely time period of Covid-19-related restrictions, and the subsequent impact on customer behaviour and the economic recovery.
Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the income statement over the assets’ economic lives using methods that best reflect the pattern of economic benefits and is included in operating expenses. The estimated useful economic lives for software development costs is up to 10 years.
Notes to the Consolidated Financial Statements continued 166 Direct Line Group Annual Report and Accounts 2020
1.14 Cash and cash equivalents and borrowings Cash and cash equivalents comprise cash in hand and demand deposits with banks together with short-term highly liquid investments that are readily convertible to known amounts of cash and subject to insignificant risk of change in value.
1.19 Taxation continued Deferred tax assets and liabilities are calculated at the tax rates expected to apply when the assets are realised or liabilities are settled based on laws and rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited to other comprehensive income or equity, in which case the deferred tax is also dealt with in other comprehensive income or directly in equity.
Derivative assets do not have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The fair value of these financial assets is disclosed in note 42 and the amount of change in the fair value during the period was an increase of £64.5 million (2019: £111.8 million increase).
The core of IFRS 17 is the general model, supplemented by an optional simplified premium allocation approach which is permitted for the liability for the remaining coverage for short-duration contracts. The general model measures insurance contracts using the building blocks of: discounted probability-weighted cash flows; an explicit risk adjustment; and a contractual service margin representing the unearned profit of the contract which is recognised as revenue over the coverage period.
– Management expectations about events after the balance sheet date, for example on whether a covenant will be breached, or whether early settlement will take place, are not relevant.
Accounting judgement Reserves are based on management’s best estimate, which includes a prudence margin that exceeds the internal actuarial best estimate. This margin is set by reference to various actuarial scenario assessments and reserve distribution percentiles. It also considers other long and short-term risks not reflected in the actuarial inputs, as well as management’s view of the uncertainties in relation to the actuarial best estimate.
Notes to the Consolidated Financial Statements continued 174 Direct Line Group Annual Report and Accounts 2020
174 DIRECT LINE GROUP ANNUAL REPORT & ACCOUNTS 2020178 Direct Line Group Annual Report and Accounts 2020
2. The income statement impact on financial investments is limited to floating rate instruments and interest rate derivatives used to hedge a portion of the portfolio. The income statement is not impacted in relation to fixed rate instruments, in particular AFS debt securities, where the coupon return is not impacted by a change in prevailing market rates, as the accounting treatment for AFS debt securities means that only the coupon received is processed through the income statement, with fair value movements being recognised through total equity.
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 2020, the Group has pledged £65.8 million in cash (2019: £37.8 million) to cover initial margins and out-of-the-money derivative positions. At 31 December 2020, counterparties have pledged £12.0 million in cash and £8.1 million in UK Gilts (2019: £0.3 million in cash and £9.2 million in UK Gilts) to the Group to cover in-the-money derivative positions.
The following table analyses the undiscounted cash flows of derivative financial instruments, by contractual maturity.
At 31 December 2020, no Directors (2019: one Director) had retirement benefits accruing under the defined contribution pension scheme in respect of qualifying service. During the year ended 31 December 2020, one Director exercised share options (2019: three Directors).
Note: 1. Goodwill has arisen on acquisition by the Group of subsidiary companies and on acquisition of new accident repair centres. Intangible assets primarily comprise software development costs.
Notes to the Consolidated Financial Statements continued 194 Direct Line Group Annual Report and Accounts 2020
Additions 4.2 1.8 — 6.0 Disposals (18.7) (3.2) — (21.9) At 31 December 2020 195.4 12.6 1.2 209.2 Accumulated depreciation and impairment
2. The absolute return bond fund is an investment in an open-ended fund incorporated in Luxembourg which targets positive returns in all market conditions. It is invested in short-term fixed income asset classes and seeks additional returns via a range of additional investments including certificates of deposit, rates and global currencies.
Notes to the Consolidated Financial Statements continued 202 Direct Line Group Annual Report and Accounts 2020
Net gains transferred to income statement on disposals – tax 0.2 2.8
Accident year £m £m £m £m £m £m £m £m £m £m £m
Cash paid for claims settled in the year (1,933.0) 141.1 (1,791.9) Increase / (decrease) in liabilities: Arising from current-year claims 2,057.3 (169.9) 1,887.4 Arising from prior-year claims (326.9) 153.1 (173.8)
42. Fair value continued Differences arise between carrying value and fair value where the measurement basis of the asset or liability is not fair value (e.g. assets and liabilities carried at amortised cost). Fair values of the following assets and liabilities approximate their carrying values: – insurance and other receivables; – cash and cash equivalents; – borrowings; and – trade and other payables, including insurance payables.
The financial statements were approved by the Board of Directors and authorised for issue on 5 March 2021.
The subsidiary undertakings of the Company are set out in the table 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.
For Executive Directors and certain members of senior management, 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.
Direct own brands Direct own brands include Home and Motor under the Direct Line, Churchill, Darwin and Privilege brands, Rescue under the Green Flag brand and Commercial under the Direct Line for Business and Churchill brands.
The rate of interest that a lessee would have to pay to borrow, over a similar term and security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
Insurance liabilities This comprises insurance claims reserves and claims handling provision, which the Group maintains to meet current and future claims.
Operating profit The pre-tax profit that the Group’s activities generate, including insurance and investment activity, but excluding finance costs, restructuring and one-off costs. Normalised operating profit is operating profit adjusted for weather and changes to the Ogden discount rate. (See page 229 alternative performance measures.)
irect Lin e In su ran ce G rou p p lc A n n u al R ep ort & A