Half Year Report 2017

Released : 01.08.2017 07:00

RNS Number : 6649M
Direct Line Insurance Group PLC
01 August 2017
 

Half Year Report 2017

1 August 2017

Strong H1 results, rebasing dividend and refreshing targets

 

Paul Geddes, CEO of Direct Line Group, commented

"The Group delivered another strong first half performance, as we continued to focus on giving customers what they want. In particular, we are pleased with the continued momentum in our Direct Line brand, which shows that customers value the great service and unique insurance propositions we are offering in both Personal Lines and Commercial Lines.

"Today the Board is rebasing the Group's regular dividend upwards to reflect its confidence in the Group's earnings and the progress the business has made since the IPO nearly 5 years ago when the Group's dividend policy was previously set. We aim to grow the regular dividend in line with business growth, which we expect to be in the region of 2% to 3% per annum over the medium term.

"The investments we have made and continue to make in our business have delivered value for our customers and shareholders. As a result, we reiterate our 93% to 95% combined operating ratio target for 2017 and also extend this ambition over the medium term."

Results summary

 

H1

2017

£m

H1

2016

£m

 

Change

 

Gross written premium

1,694.2

1,613.1

+5.0%

Operating profit - Ongoing operations

354.2

323.6

+9.5%

Commission ratio1

8.9%

10.9%

(2.0pts)

Expense ratio1

24.6%

25.3%

(0.7pts)

Combined operating ratio1

88.9%

89.6%

(0.7pts)

Return on tangible equity annualised2

26.1%

23.1%

+3.0pts

Dividend per share - regular interim (pence)3

6.8p

4.9p

+38.8%

 

30 Jun

2017

31 Dec

2016

 

Change

Solvency II capital coverage ratio post-dividend

173%

165%

+8pts

Highlights and outlook

·   

Motor continued to grow gross written premiums, up 10% with Direct Line driving the growth

·   

Commercial launched the first of its flexible and bespoke business insurance policies, a part of our digital transformation, leveraging our strong Direct Line brand and our goal of making insurance much easier and better value for our customers

·   

The Board is rebasing the regular dividend up 38.8%, increasing the interim dividend to 6.8p3. In addition, the Group expects to operate around the middle of its Solvency II capital coverage ratio range of 140% to180%, in the normal course of business

·   

Reiterate the current financial targets for 2017: combined operating ratio in the range of 93% to 95% and investment income yield at 2.4%

·   

In addition, management targets maintaining a 93% to 95% combined operating ratio over the medium term, reflecting its ambition to maintain strong annual financial performance

For further information, please contact:

Andy Broadfield

Jennifer Thomas

Director of Investor Relations

Head of Financial Communications

Tel: +44 (0)1651 831022

Tel: +44 (0)1651 831686

 

Notes:

 

1.

A reduction in the ratio represents an improvement as a proportion of net earned premium, while an increase in the ratio represents a deterioration. See glossary for definition.

2.

See glossary for definitions and appendix A - Alternative performance measures for reconciliation to financial statements line items.

3.

The Group's dividend policy states its expectation that one-third of the annual dividend will generally be paid in the third quarter as

an interim dividend and two-thirds will be paid as a final dividend in the second quarter of the following year.

 

15B15BForward-looking statements disclaimer

Certain information contained in this document, including any information as to the Group's strategy, plans or future financial or operating performance, constitutes "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "aims", "ambition", "anticipates", "aspire", "believes", "continue", "could", "estimates", "expects", "guidance", "intends", "may", "mission", "outlook", "over the medium term", "plans", "predicts", "projects", "propositions", "seeks", "should", "strategy", "targets" 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, which are contained in this document specifically with respect to the return on tangible equity, Solvency II capital coverage ratio, the Group's combined operating ratio, prior-year reserve releases, cost reduction, 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.

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, the result of the referendum and the negotiations relating to the UK's withdrawal from the European Union, the result of the UK general election, 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.

The forward-looking statements contained in this document reflect knowledge and information available as of the date of preparation of this document. The Group and the Directors expressly disclaim any obligations or undertaking to update or revise publicly any forward-looking statements, whether 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.

16B16BInside information

Prior to publication, this document contained inside information for the purposes of Article 7 of European Union Regulation 596/2014.

 

Financial summary




 

H1

2017

£m

H1

2016

£m

 

Change

 

Ongoing operations:




In-force policies (thousands)

15,811

15,736

0.5%

Gross written premium

1,694.2

1,613.1

5.0%

Net earned premium

1,547.5

1,479.9

4.6%

Underwriting profit

172.0

154.2

11.5%

Investment return

92.6

91.0

1.8%

Instalment and other operating income

89.6

78.4

14.3%

Operating profit - Ongoing operations

354.2

323.6

9.5%

Run-off

10.0

23.6

(57.6%)

Restructuring costs

(4.5)

(30.3)

85.1%

Operating profit

359.7

316.9

13.5%

Finance costs

(18.3)

(18.4)

0.5%

Profit before tax

341.4

298.5

14.4%

Tax

(65.9)

(62.6)

(5.3%)

Profit after tax

275.5

235.9

16.8%

Of which Ongoing operations

271.2

244.2

11.1%

Key metrics - Ongoing operations




Current-year attritional loss ratio1

68.8%

68.5%

0.3pts

Loss ratio1

55.4%

53.4%

2.0pts

Commission ratio1

8.9%

10.9%

(2.0pts)

Expense ratio1

24.6%

25.3%

(0.7pts)

Combined operating ratio1

88.9%

89.6%

(0.7pts)

Adjusted diluted earnings per share2 (pence)

19.7

17.6

11.9%

Return on tangible equity annualised2

26.1%

23.1%

3.0pts

Key metrics




Investment income yield annualised2

2.5%

2.5%

-

Investment return annualised2

2.8%

2.8%

-

Basic earnings per share (pence)

20.2

17.2

17.4%

Return on equity annualised

21.3%

17.8%

3.5pts

Dividend per share

- regular interim (pence)

6.8

4.9

38.8%

                          

- special interim (pence)

-

10.0

-

                           

- total (pence)

6.8

14.9

(54.4%)

 

30 Jun

2017

31 Dec

2016

 

Change

Solvency II capital coverage ratio

173%

165%

8pts

Net asset value per share (pence)

194.4

184.7

5.3%

Tangible net asset value per share (pence)

156.5

147.4

6.2%

 

Notes:

 

1.

A reduction in the ratio represents an improvement as a proportion of net earned premium, while an increase in the ratio represents deterioration

2.

See glossary for definition and appendix A - Alternative performance measures for reconciliation to the financial statement line items

 

Business update

0B0BOverview

Direct Line Group (the "Group") delivered a strong performance in the first half of 2017, grew gross written premium 5.0%, reduced expense and commission ratios compared to the first half of 2016 and achieved a return on tangible equity of 26.1%. Solvency II capital coverage ratio remained strong at 173% as at 30 June 2017 after taking into account the interim regular dividend of 6.8 pence per share (H1 2016: 4.9 pence per share).

Throughout its transformation, the Group has remained focussed on developing its future capabilities, with investments in the Group's digital offering, customer experience and operational efficiency. H1 2017 saw one of these investments reach a significant milestone with the launch in April of Commercial's first trade segment, Hair and Beauty, on its new digital platform. The benefits of the Group's long-term investment approach were clear in H1 2017, with continued momentum in the Direct Line brand as it grew policy count and gross written premium again across Motor, Home and Commercial. Since 2013, the Group's own brands in-force policies have grown on average between 2% to 3% p.a.

17B17BMotor

The Group continued to benefit from its strong competitive position in Motor, growing gross written premium 9.9% and in-force policies 4.9% in the first half of 2017, principally driven by the strength of the Direct Line brand. In the first half of the year, the Direct Line proposition was further enhanced with the addition of onward travel by taxi if the customer's car is not driveable. The growth was achieved while also improving the current-year loss ratio from 84.6% in H1 2016 to 81.7% in H1 2017.

Bodily injury claims continued to trend more favourably than expected. In addition, detailed case reviews conducted in Q2 of the additional costs arising from the lowering of the Ogden discount rate indicated a lower than expected increase to claims costs. This has resulted in a reserve release of £49m, leading to a total prior-year reserve release of £174.6m in the first half of 2017 (H1 2016 £134.0m). The Group continued to reserve prudently and assumes a minus 0.75% Ogden discount rate.

18B18BCommercial

Direct Line for Business ("DL4B") launched its first product on its new digital platform, initially for Hair and Beauty professionals, with more professions planned to follow. This key strategic step aligns a new customer-centric digital approach with leveraging the Group's strong, proposition led, Direct Line brand. The Group sees the under-served and growing small and micro business segment as an important medium term prospect.

At the same time, DL4B's current portfolio of predominantly landlord, tradesman and van products continued to grow well, with gross written premium up 13.4% compared to the first half of 2016. DL4B also enhanced its proposition in the first half of 2017 with its rent guarantee cover offer for landlord insurance, and won What Mortgage? 'Best Landlord Insurance Provider' for the fifth year running.

In addition to the direct channel, NIG and other continues to support commercial insurance brokers by using technology to improve trading efficiency through more on-line products, improved eTrade quotability and a fully paperless offering for all products.

19B19BHome

Home's results were robust, helped by low weather losses, partially offsetting higher than expected claims inflation from the escape of water ("EoW") peril. The first half of 2016 benefitted from an unusually high reserve release resulting from 2015 weather events (14.8pts). These weather releases were not repeated in H1 2017. The impact of EoW on the 2017 loss ratio (on both prior and current year) was partially offset through lower profit share commission due to partners. The commission ratio also reduced due to changes to partner arrangements and business mix.

The Home business has taken a number of significant actions across pricing, underwriting and claims management to mitigate EoW inflation. These actions are intended to help return profitability to more normal levels in 2018. While these actions saw reduced new business sales in the first half, Home was still able to maintain its year on year retention levels. In own brands, this supported in-force policy growth of 1.5% and gross written premium growth of 0.8%. Partnership premiums declined 7.9% as in-force policies fell 7.6%.

20B20BRescue

Rescue had a strong half, benefitting from lower than normal claims frequency while growing gross written premium 2.1%. Green Flag, the Group's direct rescue brand, continued its growth momentum, growing in-force policies 8.0% and gross written premium 10.8%. New management has been appointed to the Rescue division and Green Flag has launched a new advertising campaign to highlight its challenger status.

1B1BDividends and capital management

The Board has resolved to pay a regular interim dividend of 6.8 pence per share, an increase on H1 2016 of 1.9 pence per share, 38.8%, reflecting the Group's confidence in its earnings and the progress the business has made since the Group's initial public offering ("IPO") nearly 5 years ago. After deducting this regular interim dividend, the Group's estimated Solvency II capital coverage ratio as at 30 June 2017 was 173%.

The Board previously set its dividend policy at the time of the IPO in 2012 and has now updated the policy as set out in the Dividend policy section. The Board continues to expect that one-third of the annual dividend will generally be paid in the third quarter as an interim dividend and two-thirds will be paid in the second quarter of the following year. The Board aims to grow the regular dividend in line with business growth. 

Under normal circumstances, the Group expects to operate around the middle of its Solvency II capital coverage ratio risk appetite range of 140% to 180% of the Group's solvency capital requirement, and it will take this into account when considering the potential for any special distributions.

The revised dividend policy reiterates that in the normal course of events the Board will consider whether or not it is appropriate to pay a special dividend once a year, alongside the full-year results.

2B2BOutlook

For 2017, the Group targets a combined operating ratio of 93% to 95%, reductions in its expense and commission ratios, a 2.4% investment income yield and a RoTE of at least 15%.

Beyond 2017, the Group targets having a 93% to 95% combined operating ratio over the medium term supported by reductions in its expense and commission ratios and reiterates its ongoing target of achieving at least a 15% return on tangible equity ("RoTE").

 

Finance review

Performance

Operating profit - Ongoing operations

 

H1

2017

£m

H1

2016

£m

Underwriting profit

172.0

154.2

Investment return

92.6

91.0

Instalment and other operating income

89.6

78.4

Total

354.2

323.6

 

Underwriting profit increased to £172.0m, an increase of 11.5% compared to H1 2016. This included the benefit of improved current year loss ratios in Motor, Rescue and other personal lines and Commercial as well as lower expense and commission ratios compared to H1 2016. In Home, weather costs were lower than expected, and in line with H1 2016; however higher than expected claims inflation from EoW led to higher claims costs. Prior-year reserve releases were £19.7m lower at £216.4m (H1 2016: £236.1m) and excluding these releases, current-year operating profits were significantly higher at £137.8m (H1 2016: £87.5m).

Investment return improved to £92.6m (H1 2016: £91.0m) primarily due to a £1.9m increase in net realised and unrealised gains.

Operating profit from Ongoing operations increased by 9.5% to £354.2m (H1 2016: £323.6m) mainly due to an improvement in the underwriting result and higher instalment and other operating income.

In-force policies and gross written premium

In-force policies - Ongoing operations (thousands)

At

30 Jun

2017

31 Mar

2017

31 Dec

2016

30 Sep

2016

30 Jun

2016

Own brands

3,761

3,691

3,642

3,607

3,541

Partnerships

205

220

231

233

238

Motor total

3,966

3,911

3,873

3,840

3,779

Own brands

1,770

1,764

1,759

1,751

1,743

Partnerships

1,534

1,593

1,619

1,638

1,660

Home total

3,304

3,357

3,378

3,389

3,403

Of which Nationwide and Sainsbury's

688

706

719

723

724

Rescue

3,663

3,676

3,646

3,621

3,670

Other personal lines

4,178

4,188

4,234

4,219

4,224

Rescue and other personal lines

7,841

7,864

7,880

7,840

7,894

Of which own brands

2,007

1,936

1,886

1,847

1,850

Direct Line for Business

452

441

433

428

424

NIG and other

248

245

242

239

236

Commercial

700

686

675

667

660

Total

15,811

15,818

15,806

15,736

15,736

Gross written premium - Ongoing operations

 

Q2

2017

£m

Q2

2016

£m

H1

2017

£m

H1

2016

£m

Own brands

412.7

362.9

781.2

694.3

Partnerships

19.0

26.7

43.2

56.0

Motor total

431.7

389.6

824.4

750.3

Own brands

97.6

96.3

193.2

191.6

Partnerships

95.7

104.1

194.9

211.6

Home total

193.3

200.4

388.1

403.2

Of which Nationwide and Sainsbury's

46.2

50.1

97.6

105.0

Rescue

42.9

42.5

83.6

81.9

Other personal lines

66.2

58.4

129.7

115.8

Rescue and other personal lines

109.1

100.9

213.3

197.7

Of which own brands

54.3

48.1

106.8

98.8

Direct Line for Business

31.5

27.1

60.1

53.0

NIG and other

118.3

117.3

208.3

208.9

Commercial

149.8

144.4

268.4

261.9

Total

883.9

835.3

1,694.2

1,613.1

 

Total in-force policies for Ongoing operations during the first half of 2017 remained stable at 15.8 million (31 December 2016 15.8 million). This was due primarily to continued in-force policy growth in Motor and Home's own brands, Green Flag direct and Commercial offset by lower partner volumes in Home and Rescue and other personal lines.

Gross written premium of £1,694.2m increased 5.0% compared with first half of 2016, reflecting continued growth as above.

21B21BMotor

22B22BIn-force policies increased 4.9%, adding 187,000 policies, compared with the first half of 2016. Motor's own brands grew by 6.2% over the same period underpinned by higher levels of new business growth combined with strong customer retention. Investment in brand differentiation through a succession of new Direct Line propositions and competitive pricing continued to drive the improved performance. Motor gross written premium increased by 9.9% in comparison to the first half of 2016 which also reflects the Group's pricing response to ongoing claims inflation including the response to the Ogden discount rate change.

23B23BMotor average written premium1 increased by 6.6% in H1 2017, and risk-adjusted prices increased 11.1%. The Group overall sought to price for changes to the Ogden discount rate (gross of reinsurance) and general claims inflation, partially offset by underlying improvements in bodily injury cost trends. Claims inflation remained around the top of the Group's long-term expectations, although bodily injury costs for prior years continued to improve over initial expectations.

24B24BHome

25B25BIn-force policies for Home's own brands increased by 1.5% compared with the first half of 2016, while partnership volumes reduced by 7.6% due to the cessation of new business in Sainsbury's and a slow-down in other partnership arrangements. The Group's partnership with Nationwide is now expected to continue to the end of 2017. Gross written premium was 3.7% lower than the first half of 2016, due to partners which were 7.9% lower, while own brands experienced a small increase of 0.8%.

Home own brands' average written premium2 decreased by 0.9% compared with the first half of 2016 driven by lower risk mix partially offset by low single-digit price increases in a highly competitive market. Claims inflation continued to rise in the quarter ahead of price increases. In addition to price increases, the Group is also taking action in underwriting and claims management to mitigate higher claims inflation. Retention in Home own brands continued to be strong.

 

Notes:


1.

Average incepted written premiums excluding IPT for total Motor for year to date 30 June 2017.

2.

Average incepted written premiums excluding IPT for Home own brands for year to date 30 June 2017.

 

Rescue and other personal lines

Rescue and other personal lines experienced a small reduction in in-force policies of 0.7% in the first half of 2017 compared with the first half of 2016, primarily resulting from lower partner volumes. Gross written premium for Rescue and other personal lines increased by 7.9% compared with the first half of 2016, mainly due to price increases in Travel and strong growth in Green Flag.

Commercial

Commercial in-force policies were 6.1% higher than for the first half of 2016, reflecting growth in both Direct Line for Business and NIG and other. The increase in gross written premium of 2.5%, compared to the first half of 2016, reflected continuing strong growth in Direct Line for Business, with NIG and other premiums slightly lower primarily due to product mix.

Underwriting profit - Ongoing operations

 

H1

2017

H1

2016

Underwriting profit (£m)

172.0

154.2

Loss ratio

55.4%

53.4%

Commission ratio

8.9%

10.9%

Expense ratio

24.6%

25.3%

Combined operating ratio

88.9%

89.6%

 

The combined operating ratio for Ongoing operations of 88.9% (H1 2016: 89.6%) improved by 0.7 percentage points primarily due to improvements in the commission and expense ratios offset by a higher loss ratio. The increase in the loss ratio to 55.4% (H1 2016: 53.4%) reflected lower prior-year reserve releases, and an increase in Home's current-year loss ratio partially offset by an improvement in Motor's current-year loss ratio. The Group's expense ratio of 24.6% improved by 0.7pts as the Group kept its cost base stable and grew its earned premium. The reduction in the commission ratio of 2.0 percentage points primarily reflected lower profit share payments to Home partners, as a result of lower prior-year reserve releases, a higher attritional loss ratio, changes to partnership arrangements and business mix.

The Group achieved a combined operating ratio for Ongoing operations, normalised for weather of approximately 91% (H1 2016: approximately 91%). The Group maintains its target to achieve a combined operating ratio of 93%-95% for 2017, assuming normal weather for the year.

Beyond 2017, the Group targets maintaining a 93%-95% combined operating ratio over the medium term, assuming a normal annual level of weather claims.

 

Loss ratio analysis by division - Ongoing operations

 

Notes1

Motor
£m

Home
£m

Rescue and other

personal lines
£m

Commercial
£m

Total

Ongoing
£m

H1 2017

 

 

 

 

 

 

Net insurance claims

4

403.5

190.7

135.7

127.1

857.0

Prior-year reserve release/(strengthening)

19

174.6

16.8

(2.1)

27.1

216.4

Major weather events

 

n/a

(9.0)

n/a

n/a

(9.0)

Attritional net insurance claims

 

578.1

198.5

133.6

154.2

1,064.4

Net earned premium

4

707.8

397.0

209.0

233.7

1,547.5

Loss ratio current-year attritional

 

81.7%

50.0%

63.9%

66.0%

68.8%

Loss ratio - prior-year reserve releases

 

(24.7%)

(4.3%)

1.0%

(11.6%)

(14.0%)

Loss ratio - major weather events

 

n/a

2.3%

n/a

n/a

0.6%

Loss ratio - reported

4

57.0%

48.0%

64.9%

54.4%

55.4%

Commission ratio

4

2.6%

17.0%

5.0%

17.9%

8.9%

Expense ratio

4

25.5%

23.8%

23.9%

23.8%

24.6%

Combined operating ratio

4

85.1%

88.8%

93.8%

96.1%

88.9%

H1 2016

 

 

 

 

 

 

Net insurance claims

4

416.1

137.7

121.4

115.1

790.3

Prior-year reserve releases

19

134.0

60.6

7.5 

34.0

236.1

Major weather events

 

n/a

(13.0)

n/a

n/a

(13.0)

Attritional net insurance claims

 

550.1

185.3

128.9

149.1

1,013.4

Net earned premium

4

650.3

411.7

194.8

223.1

1,479.9

Loss ratio current-year attritional

 

84.6%

45.0%

66.2%

66.8%

68.5%

Loss ratio - prior-year reserve releases


(20.6%)

(14.8%)

(3.9%)

(15.2%)

(16.0%)

Loss ratio - major weather events


n/a

3.2%

n/a

n/a

0.9%

Loss ratio - reported

4

64.0%

33.4%

62.3%

51.6%

53.4%

Commission ratio

4

2.6%

22.2%

4.9%

19.4%

10.9%

Expense ratio

4

25.7%

25.3%

25.5%

24.0%

25.3%

Combined operating ratio

4

92.3%

80.9%

92.7%

95.0%

89.6%

 

The movement in the current-year attritional loss ratio is a key indicator of underlying accident year performance as it excludes prior-year reserve movements and claims costs from major weather events in the Home division. The Group's current-year attritional loss ratio of 68.8% was broadly stable compared to the same period in 2016 with improvements in Motor, Rescue and other personal lines and Commercial, partially offset by a deterioration in Home as a result of rising claims inflation due to EoW.

Prior-year reserve releases from Ongoing operations continued to be significant at £216.4m (H1 2016: £236.1m) and were equivalent to 14.0% of net earned premium (H1 2016: 16.0% of net earned premium). Reserve releases were high in H1 2017 as bodily injury claims continued to trend more favourably than expected. Additionally, detailed case reviews in Q2 2017, for the additional costs arising from the lowering of the Ogden discount rate, indicated a £49m reduction in the impact of the rate change. Prior-year reserve releases are expected to reduce in future years, although they are expected to remain a significant contribution to profits.

 

Note:


1.

See notes to the condensed consolidated financial statements.

 

Motor

The combined operating ratio for the Motor division was 85.1% (H1 2016: 92.3%), an improvement of 7.2 percentage points due to higher prior-year reserve releases, including reserve releases from the detailed case reviews, and the current-year improvement in the loss ratio. The current-year attritional loss ratio improved by 2.9 percentage points, to 81.7% due to a favourable trading environment and the recognition of benefits from our claims handling processes and initiatives. The Group expects to continue to re-invest in our customer propositions. Both the expense and commission ratios were stable compared to the first half of 2016.

Home

In Home, the combined operating ratio increased by 7.9 percentage points to 88.8% (H1 2016: 80.9%) with a higher loss ratio, in part offset by improving expense and commission ratios. The loss ratio was higher as a result of lower prior-year reserve releases compared with H1 2016, which benefitted from approximately 7 percentage points of one-off weather-related releases, and the impact of higher than expected claims inflation from EoW claims. The current-year attritional loss ratio, excluding major weather event claims, increased by 5.0 percentage points, also reflecting higher EoW claims inflation experience. The weather in H1 2017 was benign with £9.0m of claims costs from major weather events (H1 2016: £13.0m).

The commission ratio of 17.0% was 5.2 percentage points lower than the first half of 2016 reflective of lower profit commission payments to partners resulting from the impact of elevated claims experience and changes to partner arrangements.

Rescue and other personal lines

The combined operating ratio for Rescue and other personal lines increased by 1.1 percentage points to 93.8% (H1 2016: 92.7%) due principally to an increase in the loss ratio with lower prior-year reserve releases on Travel, partly offset by a 2.3 percentage points improvement in the current-year attritional loss ratio. The expense ratio improved primarily due to lower marketing expenditure on Rescue, while the commission ratio remained stable.

Commercial

The combined operating ratio for Commercial increased by 1.1 percentage points to 96.1% (H1 2016: 95.0%) primarily due to an increase in the loss ratio as a result of a 3.6 percentage points lower contribution from prior-year reserve releases. The current-year attritional loss ratio improved by 0.8 percentage points to 66.0% (H1 2016: 66.8%). The higher loss ratio was partly offset by lower expense and commission ratios. Normalising for claims from weather and large claims, the combined operating ratio was approximately 99% (H1 2016: approximately 98%).

Total costs - Ongoing operations

 

Notes

H1

2017

£m

H1

2016

£m

Staff costs

 

202.2

209.1

Other operating expenses

 

165.0

144.9

Marketing

 

59.0

62.6

Amortisation and impairment of other intangible assets

 

26.7

30.0

Depreciation

 

14.1

15.0

Total costs

 

467.0

461.6

Operating expenses

4

380.4

374.6

Claims handling expenses

8

86.6

87.0

Total costs

 

467.0

461.6

 

Total costs for Ongoing operations increased by £5.4m to £467.0m. Other operating expenses increased due to higher IT costs, offshoring fees and levies. The Group continues to invest in its significant IT programme and operational efficiency improvements while supporting business growth and investment in future capability.

Instalment and other operating income - Ongoing operations

 

H1

2017

£m

H1

2016

£m

Instalment income

55.8

51.4

Other operating income:

 

 

Vehicle replacement referral income

8.3

6.8

Revenue from vehicle recovery and repair services1

9.8

9.4

Other income

15.7

10.8

Total other operating income

33.8

27.0

Total

89.6

78.4

 

Instalment and other operating income from Ongoing operations increased by £11.2m, with increased instalment payments of £4.4m due to higher Motor gross written premium.

 

Investment return - Ongoing operations

 

 

 

H1

2017

£m

H1

2016

£m

Investment income

 

 

82.4

82.7

Net realised and unrealised gains

 

 

10.2

8.3

Total investment return

 

 

92.6

91.0

 

Investment income remained broadly stable compared to H1 2016, despite a reduction of 25 basis points by the Bank of England in the UK base rate in August 2016 and lower assets under management.

Net realised and unrealised gains were higher at £10.2m (H1 2016: £8.3m) primarily due to higher unrealised property gains.

 

Investment yields

 

H1

2017

H1

2016

Investment income yield

2.5%

2.5%

Investment return yield

2.8%

2.8%

 

The investment income yield for H1 2017 was 2.5%, which is slightly above the full year expectation of 2.4%.

 

Investment holdings - total Group

At

 

 

30 Jun

2017

£m

31 Dec

2016

£m

Investment-grade credit2

 

 

3,923.6

3,888.3

High yield

 

 

392.3

409.9

Investment-grade private placements

 

 

88.3

85.1

Credit

 

 

4,404.2

4,383.3

Sovereign

 

 

363.0

341.2

Total debt securities

 

 

4,767.2

4,724.5

Infrastructure debt

 

 

328.0

337.0

Commercial real estate loans

 

 

90.9

79.7

Cash3

 

 

1,047.2

1,110.8

Investment property

 

 

314.9

329.0

Total Group

 

 

6,548.2

6,581.0

 

Notes:


1.

Vehicle recovery includes post-accident and pay-on-use recovery. Repair services constitute the provision of non-insurance related services.

2.

Asset allocation at 30 June 2017 includes investment portfolio derivatives, which have been netted and have a mark-to-market asset of £30.6m included in investment-grade credit (31 December 2016: mark-to-market liability of £5.8m included in investment grade credit). This excludes derivatives that have been used to hedge interest on subordinated debt and operational cash flows.

3.

Net of bank overdrafts, includes cash at bank and in hand and money market funds with no notice period for withdrawal.

 

At 30 June 2017, total investment holdings of £6,548.2m were 0.5% lower than at the start of the year.  Total debt securities were £4,767.2m (31 December 2016: £4,724.5m), of which 6.1% were rated as 'AAA' and a further 63.1% were rated as 'AA' or 'A'. The average duration at 30 June 2017 of total debt securities was 2.3 years (31 December 2016: 2.3 years).

At 30 June 2017, total unrealised gains, net of tax, on available-for-sale investments were £86.5m (31 December 2016: £92.1m).

Operating profit - Ongoing operations


H1

2017

£m

H1

2016

£m

Motor

233.9

168.8

Home

67.5

101.5

Rescue and other personal lines

22.6

23.4

Commercial

30.2

29.9

Total

354.2

323.6

 

All divisions were profitable in H1 2017 with a significant increase in Motor offset by reduced operating profits in Home and Rescue and other personal lines.

Reconciliation of operating profit

 

H1

2017

£m

H1

2016

£m

Operating profit - Ongoing operations

354.2

323.6

Run-off

10.0

23.6

Restructuring costs

(4.5)

(30.3)

Operating profit

359.7

316.9

Finance costs

(18.3)

(18.4)

Profit before tax

341.4

298.5

Tax

(65.9)

(62.6)

Profit after tax

275.5

235.9

 

Run-off

The Run-off segment generated a profit of £10.0m in H1 2017 compared with £23.6m in H1 2016. The reduction in the result followed lower prior-year reserve releases from large bodily injury claims. It is expected that the Run-off segment will continue to contribute positively to operating profit in future years, albeit at a lower level.

Restructuring costs

Restructuring costs for H1 2017 of £4.5m (H1 2016: £30.3m) were significantly lower than in H1 2016.

Over the four year period 2015 to 2018, the Group expects cumulative restructuring costs to be broadly offset by operating profit from the Run-off segment.

Finance costs

Finance costs remained stable at £18.3m (H1 2016: £18.4m).

Taxation

The effective tax rate in H1 2017 was 19.3% (H1 2016: 21.0%), which was higher than the standard UK corporation tax rate of 19.25% (H1 2016: 20.0%) driven primarily by disallowable expenses offset by a prior year tax credit.

Profit for the period and return on tangible equity

Profit for the period of £275.5m (H1 2016: £235.9m) reflected an increase on H1 2016 predominantly due to an improvement in the underwriting result, an increase in instalment and other operating income and a reduction in restructuring costs.

Return on tangible equity increased to 26.1% (H1 2016: 23.1%) due to an annualised profit after tax from Ongoing operations of £542.4m (H1 2016: £488.4m) and a reduction in the average shareholders' tangible equity.

 

Earnings per share

Basic earnings per share increased by 17.4% to 20.2 pence (H1 2016: 17.2 pence).

Adjusted diluted earnings per share increased by 11.9% to 19.7 pence reflecting an increase in profit after tax from Ongoing operations and a reduction in the weighted average number of Ordinary Shares.

Dividends

The Board has resolved to pay an interim dividend for the Company for 2017 of £93.5m in aggregate, representing 6.8 pence per share, an increase of 38.8% on the regular interim dividend for 2016 of 4.9 pence.

The regular interim dividend will be paid on 8 September 2017 to shareholders on the register on 11 August 2017. The ex-dividend date will be 10 August 2017.

Net assets and tangible net assets

At

30 Jun

2017

£m

31 Dec

2016

£m

Net assets

2,654.5

2,521.5

Goodwill and other intangible assets

(517.4)

(508.9)

Tangible net assets

2,137.1

2,012.6

Net assets per share (pence)

194.4

184.7

Tangible net assets per share (pence)

156.5

147.4

 

The net assets at 30 June 2017 increased to £2,654.5m (31 December 2016: £2,521.5m) and tangible net assets increased to £2,137.1m (31 December 2016: £2,012.6m). These increases mainly reflect the profit in H1 2017 partially offset by the payment of the 2016 final dividend.

 

3B3BFinancial management

Capital management

Dividend policy

The Group aims to manage its capital efficiently and generate long-term sustainable value for shareholders, while balancing operational, regulatory, rating agency and policyholder requirements.

The Group aims to grow its regular dividend in line with business growth.

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 capital coverage 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.

In the normal course of events the Board will consider whether or not it is appropriate to distribute any surplus capital to shareholders once a year, alongside the full year results.

The Group expects that one-third of the annual dividend will generally be paid in the third quarter as an interim dividend, and two-thirds will be paid as a final dividend in the second quarter of the following year. The Board may revise the dividend policy from time to time. The Company may consider a special dividend and/or a repurchase of its own shares to distribute surplus capital to shareholders.

Solvency II

The Group is regulated, under Solvency II requirements, by the Prudential Regulation Authority ("PRA") on both a Group basis and, for the Group's principal underwriter, U K Insurance Limited ("UKI"), on a solo basis.

UKI calculates its capital requirement using its PRA approved internal model, which forms part of a Group-wide partial internal model.

The Board has considered the risk appetite range of the Group under its Solvency II partial internal model and considers that the appropriate range, which should enable it to meet its operational, regulatory and rating agency requirements, is 140% to 180% of its solvency capital requirement. Under normal circumstances, the group expects to operate around the middle of the risk appetite range.

 

Sensitivity analysis

The following table shows estimated sensitivities based on assessed impact of scenarios at 30 June 2017

Scenario

Impact on

solvency ratio

Motor premium rate reduction of 10%

(17pts)

Motor bodily injury deterioration equivalent to accident years 2008 and 2009

(8pts)

Increase in periodic payment order propensity by 10pts

(5pts)

One-off catastrophe loss equivalent to 1990 storm

(9pts)

One-off catastrophe loss equivalent based on extensive flooding of the Thames

(9pts)

Change in the reserving basis for PPOs to use a real discount rate of minus 1% instead of 0%

(10pts)

100bps increase in credit spreads

(11pts)

100bps increase in interest rates

(10pts)

 

Capital position

At 30 June 2017, the Group held a capital surplus of approximately £1.04bn after foreseeable dividends and above its estimated Solvency II regulatory capital requirements on the Group's partial internal model basis. This was equivalent to an estimated capital coverage ratio of 173%.

 

At

30 Jun

2017
£bn

31 Dec

20161
£bn

Solvency capital requirement

1.42

1.40

Capital surplus above solvency capital requirement

1.04

0.91

Capital coverage ratio post-dividend

173%

165%

 

The following table splits the Group's own funds by tier on a Solvency II basis.

At

30 Jun

2017

£bn

31 Dec

20161

£bn

Tier 1 capital before foreseeable dividends

1.97

1.87

Foreseeable dividends

(0.09)

(0.13)

Tier 1 capital

1.88

Tier 2 capital

0.53

0.54

Tier 3 capital

0.05

0.03

Own funds

2.46

2.31

 

Tier 1 capital after foreseeable dividends represents 76% of own funds and 132% of the estimated solvency capital requirement. Tier 2 capital relates solely to the Group's £0.53bn subordinated debt. The amount of Tier 2 and 3 capital permitted under the Solvency II Regulations is 50% of the Group's solvency capital requirement, and of Tier 3 is 15%. Therefore, the Group has no ineligible capital.

Reconciliation of IFRS shareholders' equity to Solvency II own funds

At

30 Jun

2017

£bn

31 Dec

20161

£bn

Shareholders' equity

2.65

2.52

Goodwill and intangible assets

(0.52)

(0.51)

Change in valuation of technical provisions

(0.08) 

(0.05)

Other asset and liability adjustments

(0.08) 

(0.09) 

Foreseeable dividends

(0.09)

(0.13)

Tier 1 capital

1.88

1.74

Tier 2 capital: subordinated debt

0.53

0.54

Tier 3 capital: deferred tax

0.05

0.03

Total own funds

2.46

2.31

 

Note:


1.

The comparatives have been updated to reflect the amounts in the Solvency Financial Condition Report for the year ended 31 December 2016, published on the 15 May 2017.

 

Movement in capital surplus

 

2017

£bn

Capital surplus at 1 January 2017

0.91

Underlying movement in capital generation

0.28

Market movements

-

Capital generation

0.28

Increase in solvency capital requirement

(0.02) 

Surplus generation

0.26

Capital expenditure

(0.04) 

Capital distribution - regular dividend

(0.09) 

Net surplus movement

0.13

Capital surplus at 30 June 2017

1.04

Leverage

At

30 Jun

2017

£m

31 Dec

2016

  £m

Shareholders' equity

2,654.5

2,521.5

Financial debt - subordinated guaranteed dated notes

533.0

539.6

Total capital employed

3,187.5

3,061.1

Financial-leverage ratio1

16.7%

17.6%

 

During H1 2017, leverage reduced 0.9 percentage points to 16.7%, due primarily to an increase in profit for the period, partially offset by the payment of the final dividend for 2016.

Credit ratings

Standard & Poor's and Moody's Investors Service provide insurance financial-strength ratings for UKI. UKI is currently rated 'A' (strong) with a stable outlook by Standard & Poor's and 'A2' (good) with a stable outlook by Moody's.

 

4B4BRegulatory update

5B5BThe Group has continued to operate within a highly dynamic and evolving regulatory landscape, particularly in the UK motor insurance market where a number of reviews and initiatives have been announced by the UK Government, the Ministry of Justice ("MoJ"), the Financial Conduct Authority ("FCA") and the PRA. On 23 February 2017, the government announced measures to reduce the volume and cost of soft tissue damage 'whiplash' claims and stated its expectation that this will see a reduction in motor insurance premiums by £40 on average. On 27 February 2017 the Lord Chancellor announced a reduction in the Ogden discount rate to minus 0.75% with effect from 20 March 2017. The Group has also been engaged in the consultation to consider options for reform concerning the discount rate.

 

6B6BDuring the first half of 2017, the FCA's focus has been on value measures and pricing practices as well as the publication of its business plan. The PRA focus has been on the pillars of its financial risk framework, namely reserving, pricing, reinsurance and investments.

 

7B7BThe Group will continue to support proportionate reforms which result in a level playing field across the industry.

Note:


 

1.

Total financial debt as a percentage of total capital employed.

 

 

 

Principal risks and uncertainties

 

The Group carries out a robust assessment of the principal risks facing it in the current and future financial years. Principal risks are defined as having a residual risk impact of £40m or more on profit before tax or net asset value on a one-in-200 years basis, accounting for customer, financial and reputational impacts. The Group considers that the risk profile remains broadly unchanged over the last six months, since the profile disclosed in the Annual Report & Accounts 2016, pages 27 to 29.

 

Principal risks

Insurance risk

The risk of loss due to fluctuations in the timings, amount, frequency and severity of an insured event relative to the expectations at the time of underwriting. Insurance risk includes underwriting, reserve, distribution, pricing and reinsurance risks. The Group faces the risk that future claims on business written could be materially different from expectations resulting in losses. The risk of misstatement of reserves arises from the uncertain nature of claims, data issues and operational failures. Distribution risk is that a material change in the volume of business written may result in losses or reduced profitability. Incorrect pricing could result in the potential loss of market share or profitability. Furthermore, the inappropriate selection or placement of reinsurance arrangements could render the transfer of risk inappropriate or ineffective.

Market risk

The risk of loss resulting from fluctuations in the level and in the volatility of market prices of assets, liabilities and financial instruments. Market risk includes spread, interest rate and property risks. The Group is exposed to fluctuations in the value of assets or the income from its investment portfolio. The value of assets and investments are sensitive to changes in credit spreads above the risk-free interest rate. Asset values are sensitive to changes in interest rates. Property risk arises as a result of sensitivity of assets to market prices of property.

Credit risk

The risk of loss resulting from fluctuations in the credit standing of issuers of securities, counterparties and any debtors to which the Group is exposed. Credit risk includes concentration and counterparty default risks. Concentration risk arises from inadequately diversified portfolios of assets or obligations. The Group has many suppliers, in particular reinsurers as well as a number of investment and broker counterparties. The failure of any of these parties could result in a financial loss. Counterparty risk arises from unexpected default by, or deterioration in the credit standing of, counterparties and debtors.

Operational risk

The risk of loss due to inadequate or failed internal processes, people, systems or from external events. Operational risk includes information security, IT and business continuity, outsourcing, financial reporting, model, partnership contractual obligations, change, and technology and infrastructure risks.

Information security risk includes the potential loss or corruption of data or intellectual property. IT and business continuity risk relates to the failure to recover from major external or internal events, resulting in a delay or inability to deliver services to customers. Outsourcing risk is that an outsourcing arrangement may fail to deliver services to expected levels. The financial reporting misstatement risk derives from the potential misstatement, misrepresentation or untimely delivery of financial information or regulatory returns. Model risk includes the inadequate, incorrect, ineffective or misused model outputs, or a lack of models, for decision-making, product design or for customer offerings. Partnership contractual obligations risk arises where contractual obligations are not delivered for business partners. The Group has a substantial portfolio of change underway which could result in conflicting priorities, failure to deliver strategic outcomes and impairment of intangible assets. Technology and infrastructure risk is the risk that the IT infrastructure is inadequate to deliver the Group's strategy.

Regulatory compliance and conduct risk

Regulatory compliance risk is the potential loss and reputational damage from regulatory or legal censure, fines or prosecutions arising from non-compliance with law and regulations. Conduct risk is the failure to put the customer at the heart of the business and failure to ensure that fairness is a natural outcome of the Group's activities.

Strategic risk

The risk of direct or indirect impact on the earnings, capital, or value of the business as a result of strategies not being optimally chosen, implemented or adapted to changing conditions. Strategic risk includes strategy formulation and implementation risks. These are the risks of failing to formulate and implement an appropriate strategy to deliver strategic objectives.

 

Emerging risks

The Group's definition of emerging risks are newly developing risks which are often difficult to quantify; they are also highly uncertain and are external to the Group. The Group records emerging risks within an Emerging Risk Register. Emerging risks are reported to the Risk Management Committee and Board Risk Committee for review and challenge. The Group's emerging risks processes aim to:

 

·   

achieve 'first mover advantage' by recognising risks and associated opportunities early;

·   

reduce the uncertainty and volatility of the Group's results; and

·   

manage emerging risks proactively.

 

The Group considers its main emerging risks to be:

 

Emerging risks

26B26B0B0BTechnological changes in driving habits reduce consumer need for motor insurance

New car technologies, such as crash-prevention technologies and driverless cars, could significantly affect the size and nature of the insurance market and the role of insurers. In addition to the Group's partnership with the Government on automated Driving systems (MOVE_UK), the Group continues to consider new motor technologies as part of its pricing and underwriting approach.

27B27B1B1BChanges to traditional insurance business models

New market entrants and changes in consumer expectations could result in significant changes to the structure of the general insurance market and require the Group to update its business model. The Group's strategy, aligned to its mission to make insurance much easier and better value for its customers, is positioned to take advantage of changes in technology and customer behaviours. 

28B28B2B2BUK economy

The UK could enter a prolonged period of reduced growth following its referendum vote on EU membership, potentially reducing insurance sales and the value of the Group's investment portfolio. Whilst the Group's operations are based mainly in the UK, the uncertainty surrounding Brexit negotiations could have various implications which the Group will continue to monitor.

The UK Government also continues to work through the results of the UK General Election and the impact this may have on the economy and Brexit negotiations.

29B29B3B3BClimate change

Climate change could increase the frequency of severe weather events in the UK and, in particular, flooding claims costs. The Group continues to monitor changes in claims experience and considers weather trends as part of its pricing and underwriting approach. 

 

Condensed consolidated income statement

For the six months ended 30 June 2017

 

Notes

6 months 

2017 
£m 

 

6 months 

2016 
£m 

 

Full year 

2016 
£m 

(audited) 

Gross earned premium

5

1,645.0

1,579.5

3,202.8

Reinsurance premium

5

(97.5)

(99.6)

(202.2)

Net earned premium

5

1,547.5

1,479.9

3,000.6

Investment return

6

93.0

92.7

171.5

Instalment income

 

55.8

51.4

107.1

Other operating income

7

33.8

27.0

58.2

Total income

 

1,730.1

1,651.0

3,337.4

Insurance claims

8

(768.2)

(738.9)

(2,179.0)

Insurance claims recoverable from reinsurers

8

(79.2)

(29.4)

375.2

Net insurance claims

8

(847.4)

(768.3)

(1,803.8)

Commission expenses

9

(138.1)

(160.8)

(344.0)

Operating expenses

10

(384.9)

(405.0)

(799.4)

Total expenses

 

(523.0)

(565.8)

(1,143.4)

Operating profit

 

359.7

316.9

390.2

Finance costs

11

(18.3)

(18.4)

(37.2)

Profit before tax

 

341.4

298.5

353.0

Tax charge

12

(65.9)

(62.6)

(74.2)

Profit for the period attributable to owners of the Company

 

275.5

235.9

278.8

 

 

 

 


Earnings per share:

 

 

 


Basic (pence)

14

20.2

17.2

20.4

Diluted (pence)

14

20.0

17.0

20.2

 

Condensed consolidated statement of comprehensive income

For the six months ended 30 June 2017

 

6 months 

2017 
£m 

 

6 months 

2016 
£m 

 

Full year 

2016 
£m 

(audited) 

Profit for the period

275.5

235.9

278.8

Other comprehensive (loss) / income

 

 


Items that will not be reclassified subsequently to the income statement:

 

 


Actuarial loss on defined benefit pension scheme

-

-

(4.4)

Tax relating to items that will not be reclassified

-

-

0.7

 

-

-

(3.7)

Items that may be reclassified subsequently to the income statement:

 

 


Exchange differences on translation of foreign operations

-

-

0.1

Cash flow hedges

(0.4)

0.9

1.4

Fair value gains on available-for-sale investments

8.0

76.7

119.6

Less: realised net gains on available-for-sale investments included
in the income statement

(14.8)

(8.2)

(15.3)

Tax relating to items that may be reclassified

1.2

(12.2)

(17.6)

 

(6.0)

57.2

88.2

Other comprehensive (loss) / income for the period net of tax

(6.0)

57.2

84.5

Total comprehensive income for the period attributable to owners of the Company

269.5

293.1

363.3

 

Condensed consolidated balance sheet

As at 30 June 2017

 

Notes

30 Jun

2017
£m

 

31 Dec

2016
£m

(audited)

Assets

 

 

 

Goodwill and other intangible assets

 

517.4

508.9

Property, plant and equipment

 

170.4

180.9

Investment property

 

314.9

329.0

Reinsurance assets

16

1,270.9

1,371.8

Current tax assets

 

0.1

0.1

Deferred acquisition costs

 

189.9

203.1

Insurance and other receivables

 

1,009.9

988.3

Prepayments, accrued income and other assets

 

124.3

131.0

Derivative financial instruments

 

77.7

79.7

Retirement benefit asset

 

12.0

12.0

Financial investments

17

5,155.5

5,147.0

Cash and cash equivalents

18

1,106.6

1,166.1

Assets held for sale

 

3.8

3.8

Total assets

 

9,953.4

10,121.7

 

 

 


Equity

 

2,654.5

2,521.5

 

 

 

 

Liabilities

 

 

 

Subordinated liabilities

 

533.0

539.6

Insurance liabilities

19

4,409.0

4,666.6

Unearned premium reserve

 

1,597.1

1,547.9

Borrowings

18

59.4

55.3

Derivative financial instruments

 

13.3

45.1

Trade and other payables including insurance payables

 

613.9

699.2

Deferred tax liabilities

 

35.6

46.0

Current tax liabilities

 

37.6

0.5

Total liabilities

 

7,298.9

7,600.2

Total equity and liabilities

 

9,953.4

10,121.7

 

Condensed consolidated statement of changes in equity

For the six months ended 30 June 2017

 

Note

Share
 capital
£m

Employee trust
shares
£m

Capital reserves
 £m

AFS

revaluation reserve
 £m

Non-distributable reserve
 £m

Foreign exchange translation reserve
 £m

Retained earnings
£m

Total shareholders'
 equity
£m

Balance at 1 January 2016

 

150.0

(20.4)

1,450.0

5.4

152.9

(0.1)

892.2

2,630.0

Profit for the period

 

-

-

-

-

-

-

278.8

278.8

Other comprehensive income

 

-

-

-

86.7

-

1.5

(3.7)

84.5

Dividends

13

-

-

-

-

-

-

(450.6)

(450.6)

Transfer to non-distributable reserve

 

-

-

-

-

(152.9)

-

152.9

-

Shares acquired by employee trusts

 

-

(39.5)

-

-

-

-

-

(39.5)

Credit to equity for equity-settled share-based payments

 

-

-

-

-

-

-

16.8

16.8

Shares distributed by employee trusts

 

-

25.6

-

-

-

-

(25.6)

-

Tax on share-based payments

 

-

-

-

-

-

-

1.5

1.5

Balance at 31 December 2016 (audited)

 

150.0

(34.3)

1,450.0

92.1

-

1.4

862.3

2,521.5

Profit for the period

 

-

-

-

-

-

-

275.5

275.5

Other comprehensive loss

 

-

-

-

(5.6)

-

(0.4)

-

(6.0)

Dividends

13

-

-

-

-

-

-

(132.4)

(132.4)

Shares acquired by employee trusts

 

-

(10.5)

-

-

-

-

-

(10.5)

Credit to equity for equity-settled share-based payments

 

-

-

-

-

-

-

6.3

6.3

Shares distributed by employee trusts

 

-

12.9

-

-

-

-

(12.9)

-

Tax on share-based payments

 

-

-

-

-

-

-

0.1

0.1

Balance at 30 June 2017

 

150.0

(31.9)

1,450.0

86.5

-

1.0

998.9

2,654.5

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2016

 

150.0

(20.4)

1,450.0

5.4

152.9

(0.1)

892.2

2,630.0

Profit for the period

 

-

-

-

-

-

-

235.9

235.9

Other comprehensive income

 

-

-

-

56.2

-

1.0

-

57.2

Dividends

13

-

-

-

-

-

-

(246.6)

(246.6)

Transfer to non-distributable reserve

 

-

-

-

-

(152.9)

-

152.9

-

Shares acquired by employee trusts

 

-

(17.5)

-

-

-

-

-

(17.5)

Credit to equity for equity-settled share-based payments

 

-

-

-

-

-

-

10.0

10.0

Shares distributed by employee trusts

 

-

15.4

-

-

-

-

(15.4)

-

Tax on share-based payments

 

-

-

-

-

-

-

(0.2)

(0.2)

Balance at 30 June 2016

 

150.0

(22.5)

1,450.0

61.6

-

0.9

1,028.8

2,668.8

 

Condensed consolidated cash flow statement

For the six months ended 30 June 2017

 

Notes

6 months 

2017 
£m 

 

6 months 

2016 
£m 

 

Full year 

2016 
£m 

(audited) 

Net cash generated from / (used by) operating activities before investment of insurance assets

 

27.3

(63.6)

35.0

Cash generated from investment of insurance assets

 

109.6

518.1

827.4

Net cash generated from operating activities

 

136.9

454.5

862.4

Cash flows from investing activities

 

 

 


Purchases of property, plant and equipment

 

(3.8)

(37.4)

(49.9)

Purchases of goodwill and other intangible assets

 

(35.2)

(46.5)

(80.8)

Proceeds from disposals of assets held for sale

 

-

-

5.1

Net cash used by investing activities

 

(39.0)

(83.9)

(125.6)

Cash flows from financing activities

 

 

 


Dividends paid

13

(132.4)

(246.6)

(450.6)

Finance costs

 

(18.6)

(19.2)

(38.3)

Purchase of employee trust shares

 

(10.5)

(17.5)

(39.5)

Net cash used by financing activities

 

(161.5)

(283.3)

(528.4)

Net (decrease) / increase in cash and cash equivalents

 

(63.6)

87.3

208.4

Cash and cash equivalents at the beginning of the period

 

1,110.8

902.4

902.4

Cash and cash equivalents at the end of the period

18

1,047.2

989.7

1,110.8

 

Notes to the condensed consolidated financial statements

 

8B8BCorporate information

Direct Line Insurance Group plc is a public limited company registered in England and Wales (company number 02280426). The address of the registered office is Churchill Court, Westmoreland Road, Bromley BR1 1DP, England.

9B9B1. General information

The financial information for the year ended 31 December 2016 and included in the condensed consolidated financial statements does not constitute statutory accounts as defined in S434 of the Companies Act 2006, but has been abridged from the statutory accounts for that year which have been delivered to the Registrar of Companies. The independent auditor's report on the Group accounts for the year ended 31 December 2016 is unqualified, does not draw attention to any matters by way of emphasis and does not include a statement under S498(2) or (3) of the Companies Act 2006.

10B10B2. Accounting policies

Basis of preparation

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed consolidated financial statements included in this Interim Report have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union.

The Group has not adopted any new standard, interpretation or amendment since 31 December 2016.

Going concern

The Directors, having assessed the principal risks of the Group over the full duration of the planning cycle, consider it appropriate to adopt the going concern basis of accounting in preparing the interim condensed consolidated financial statements.

Accounting policies and accounting developments

The same accounting policies, presentation and methods of computation are followed in the condensed consolidated financial statements as applied in the Group's latest annual audited financial statements.

11B11B3. Critical accounting estimates and judgements

Pages 134 to 136 of the Annual Report & Accounts 2016 provide full details of critical accounting estimates and judgements used in applying the Group's accounting policies. There have been no significant changes to the principles or assumptions of these critical accounting estimates and judgements during the period.

 

12B12B4. Segmental analysis

There have been no significant changes to the Group's reportable segments as set out on page 150 of the Annual Report & Accounts 2016.

The table below is an analysis of the Group's revenue and results by reportable segment for the six months ended 30 June 2017:

 

 

Motor
£m

Home
£m

Rescue and other

 personal lines 

£m

Commercial
£m

Total
Ongoing
£m

Run-off 

£m

Total
£m

Gross written premium

824.4

388.1

213.3

268.4

1,694.2

-

1,694.2

Gross earned premium

773.5

409.1

209.8

252.6

1,645.0

-

1,645.0

Reinsurance premium

(65.7)

(12.1)

(0.8)

(18.9)

(97.5)

-

(97.5)

Net earned premium

707.8

397.0

209.0

233.7

1,547.5

-

1,547.5

Investment return

62.2

11.2

2.4

16.8

92.6

0.4

93.0

Instalment income

40.5

11.4

1.0

2.9

55.8

-

55.8

Other operating income

25.7

0.4

6.3

1.4

33.8

-

33.8

Total income

836.2

420.0

218.7

254.8

1,729.7

0.4

1,730.1

Insurance claims

(348.9)

(191.1)

(136.2)

(133.2)

(809.4)

41.2

(768.2)

Insurance claims recoverable from reinsurers

(54.6)

0.4

0.5

6.1

(47.6)

(31.6)

(79.2)

Net insurance claims

(403.5)

(190.7)

(135.7)

(127.1)

(857.0)

9.6

(847.4)

Commission expenses

(18.3)

(67.4)

(10.5)

(41.9)

(138.1)

-

(138.1)

Operating expenses

(180.5)

(94.4)

(49.9)

(55.6)

(380.4)

-

(380.4)

Total expenses

(198.8)

(161.8)

(60.4)

(97.5)

(518.5)

-

(518.5)

Operating profit before restructuring costs

233.9

67.5

22.6

30.2

354.2

10.0

364.2

Restructuring costs

 

 

 

 

 

 

(4.5)

Operating profit

 

 

 

 

 

 

359.7

Finance costs

 

 

 

 

 

 

(18.3)

Profit before tax

 

 

 

 

 

 

341.4

 

 

 

 

 

 

 

 

Underwriting profit

105.5

44.5

12.9

9.1

172.0

 

 

Loss ratio

57.0%

48.0%

64.9%

54.4%

55.4%

 

 

Commission ratio

2.6%

17.0%

5.0%

17.9%

8.9%

 

 

Expense ratio

25.5%

23.8%

23.9%

23.8%

24.6%

 

 

COR

85.1%

88.8%

93.8%

96.1%

88.9%

 

 

 

The table below is an analysis of the Group's revenue and results by reportable segment for the six months ended 30 June 2016:

 

 

Motor
£m

Home
£m

Rescue and other

 personal lines 

£m

Commercial
£m

Total
Ongoing
£m

Run-off 

£m

Total
£m

Gross written premium

750.3

403.2

197.7

261.9

1,613.1

-

1,613.1

Gross earned premium

710.7

427.4

195.6

245.8

1,579.5

-

1,579.5

Reinsurance premium

(60.4)

(15.7)

(0.8)

(22.7)

(99.6)

-

(99.6)

Net earned premium

650.3

411.7

194.8

223.1

1,479.9

-

1,479.9

Investment return

63.0

11.0

2.1

14.9

91.0

1.7

92.7

Instalment income

36.2

11.6

0.9

2.7

51.4

-

51.4

Other operating income

19.6

0.1

6.2

1.1

27.0

-

27.0

Total income

769.1

434.4

204.0

241.8

1,649.3

1.7

1,651.0

Insurance claims

(397.4)

(137.9)

(121.4)

(117.3)

(774.0)

35.1

(738.9)

Insurance claims recoverable from reinsurers

(18.7)

0.2

-

2.2

(16.3)

(13.1)

(29.4)

Net insurance claims

(416.1)

(137.7)

(121.4)

(115.1)

(790.3)

22.0

(768.3)

Commission expenses

(16.7)

(91.2)

(9.6)

(43.3)

(160.8)

-

(160.8)

Operating expenses

(167.5)

(104.0)

(49.6)

(53.5)

(374.6)

(0.1)

(374.7)

Total expenses

(184.2)

(195.2)

(59.2)

(96.8)

(535.4)

(0.1)

(535.5)

Operating profit before restructuring costs

168.8

101.5

23.4

29.9

323.6

23.6

347.2

Restructuring costs

 

 

 

 

 

 

(30.3)

Operating profit

 

 

 

 

 

 

316.9

Finance costs

 

 

 

 

 

 

(18.4)

Profit before tax

 

 

 

 

 

 

298.5

 

 

 

 

 

 

 

 

Underwriting profit

50.0

78.8

14.2

11.2

154.2

 

 

Loss ratio

64.0%

33.4%

62.3%

51.6%

53.4%

 

 

Commission ratio

2.6%

22.2%

4.9%

19.4%

10.9%

 

 

Expense ratio

25.7%

25.3%

25.5%

24.0%

25.3%

 

 

COR

92.3%

80.9%

92.7%

95.0%

89.6%

 

 

 

The table below shows the Group's revenue and results by reportable segment for the year ended 31 December 2016 (audited):

 

 

Motor
£m

Home
£m

Rescue and other

 personal lines 

£m

Commercial
£m

Total
Ongoing
£m

Run-off 

£m

Total
£m

Gross written premium

1,539.1

834.4

400.8

499.8

3,274.1

-

3,274.1

Gross earned premium

1,461.3

851.0

396.1

494.4

3,202.8

-

3,202.8

Reinsurance premium

(124.2)

(34.7)

(1.7)

(41.6)

(202.2)

-

(202.2)

Net earned premium

1,337.1

816.3

394.4

452.8

3,000.6

-

3,000.6

Investment return

116.9

19.9

3.9

27.4

168.1

3.4

171.5

Instalment income

76.1

23.5

1.9

5.6

107.1

-

107.1

Other operating income

40.9

0.8

13.5

3.0

58.2

-

58.2

Total income

1,571.0

860.5

413.7

488.8

3,334.0

3.4

3,337.4

Insurance claims

(1,297.3)

(332.1)

(243.0)

(297.7)

(2,170.1)

(8.9)

(2,179.0)

Insurance claims recoverable from reinsurers

295.6

0.1

-

47.2

342.9

32.3

375.2

Net insurance claims

(1,001.7)

(332.0)

(243.0)

(250.5)

(1,827.2)

23.4

(1,803.8)

Commission expenses

(42.9)

(184.4)

(28.4)

(88.3)

(344.0)

-

(344.0)

Operating expenses

(377.3)

(177.4)

(96.4)

(108.2)

(759.3)

(0.2)

(759.5)

Total expenses

(420.2)

(361.8)

(124.8)

(196.5)

(1,103.3)

(0.2)

(1,103.5)

Operating profit before restructuring costs

149.1

166.7

45.9

41.8

403.5

26.6

430.1

Restructuring costs

 

 

 

 

 

 

(39.9)

Operating profit

 

 

 

 

 

 

390.2

Finance costs

 

 

 

 

 

 

(37.2)

Profit before tax

 

 

 

 

 

 

353.0

 

 

 

 

 

 



Underwriting (loss) / profit

(84.8)

122.5

26.6

5.8

70.1



Loss ratio

74.9%

40.7%

61.6%

55.3%

60.9%

 


Commission ratio

3.2%

22.6%

7.2%

19.5%

11.5%

 


Expense ratio

28.2%

21.7%

24.5%

23.9%

25.3%

 


COR

106.3%

85.0%

93.3%

98.7%

97.7%



 

5. Net earned premium

 

6 months

2017
£m

6 months

2016
£m

 

Full year

2016
£m

(audited)

Gross earned premium:

 

 

 

Gross written premium

1,694.2

1,613.1

3,274.1

Movement in unearned premium reserve

(49.2)

(33.6)

(71.3)

 

1,645.0

1,579.5

3,202.8

Reinsurance premium:

 

 


Premium payable

(81.6)

(83.1)

(206.2)

Movement in reinsurance unearned premium reserve

(15.9)

(16.5)

4.0

 

(97.5)

(99.6)

(202.2)

Total

1,547.5

1,479.9

3,000.6

6. Investment return

 

6 months

2017
£m

 

6 months

2016
£m

 

Full year

2016
£m

(audited)

Investment income:

 

 

 

Interest income from debt securities

68.0

69.2

136.5

Cash and cash equivalent interest income

1.7

2.3

4.2

Interest income from infrastructure debt

3.6

4.0

7.8

Interest income from commercial real estate loans

1.1

-

1.0

   Interest income

74.4

75.5

149.5

   Rental income from investment property

8.4

8.9

18.4

 

82.8

84.4

167.9

Net realised gains / (losses):

 

 


Available-for-sale debt securities

14.8

8.2

15.3

Derivatives

109.3

(15.9)

(282.3)

Investment property

(0.3)

-

1.3

 

123.8

(7.7)

(265.7)

Net unrealised (losses) / gains:

 

 


Impairment of loans and receivables

(3.4)

-

-

Derivatives

(120.1)

15.5

265.2

Investment property

9.9

0.5

4.1

 

(113.6)

16.0

269.3

Total

93.0

92.7

171.5

 

The table below analyses the realised and unrealised gains / (losses) on derivative instruments included in investment return.

 

 

Realised

Unrealised

Realised

Unrealised

 

6 months

2017

£m

6 months

2017

£m

6 months

2016

£m

6 months

2016

£m

Derivative  gains / (losses):

 

 

 

 

Foreign exchange forward contracts1

41.8

54.6

(68.7)

(149.3)

Associated foreign exchange risk

61.5

(166.6)

42.8

177.5

Net gains / (losses) on foreign exchange forward contracts

103.3

(112.0)

(25.9)

28.2

Interest rate swaps1

9.4

(18.4)

5.0

(62.4)

Associated interest rate risk

(3.4)

10.3

5.0

49.7

Net gains / (losses) on interest rate derivatives

6.0

(8.1)

10.0

(12.7)

Total

109.3

(120.1)

(15.9)

15.5

 

 

Realised

Unrealised

 

 Full year

2016

(audited)

£m

Full year

2016

 (audited)

£m

Derivative (losses) / gains:

 

 

Foreign exchange forward contracts1

(425.7)

19.1

Associated foreign exchange risk

151.0

253.0

Net (losses) / gains on foreign exchange forward contracts

(274.7)

272.1

Interest rate swaps1

(16.9)

20.7

Associated interest rate risk

9.3

(27.6)

Net losses on interest rate derivatives

(7.6)

(6.9)

Total

(282.3)

265.2

 

Note:


1.

Foreign exchange forward contracts are at fair value through the income statement and interest rate swaps are designated as hedging instruments.

7. Other operating income

 

6 months

2017
£m

 

6 months

2016
£m

 

Full year

2016
£m

(audited)

Vehicle replacement referral income

8.3

6.8

14.1

Revenue from vehicle recovery and repair services

9.8

9.4

19.3

Other income1

15.7

10.8

24.8

Total

33.8

27.0

58.2

 

Note:


1.

Other income includes legal services revenue, salvage income and fee income from insurance intermediary services.

8. Net insurance claims

 

Gross

Reinsurance

Net

Gross

Reinsurance

Net

 

6 months
 2017
 £m

6 months
 2017
 £m

6 months
 2017
 £m

6 months
 2016
 £m

6 months
 2016
 £m

6 months
 2016
 £m

Current accident year claims paid

452.4

(0.1)

452.3

436.4

-

436.4

Prior accident year claims paid

573.4

(5.7)

567.7

577.3

(7.2)

570.1

Movement in insurance liabilities

(257.6)

85.0

(172.6)

(274.8)

36.6

(238.2)

Total

768.2

79.2

847.4

738.9

29.4

768.3

 

 

Gross

Reinsurance

Net

 

Full year
2016
£m
(audited)

Full year
2016
£m
(audited)

Full year
2016
£m
(audited)

Current accident year claims paid

1,131.7

-

1,131.7

Prior accident year claims paid

905.2

(18.8)

886.4

Movement in insurance liabilities

142.1

(356.4)

(214.3)

Total

2,179.0

(375.2)

1,803.8

 

The table below analyses the claims handling expenses included in the net insurance claims.

 

6 months

2017
£m

 

6 months

2016
£m

 

Full year

2016
£m

(audited)

Ongoing operations

86.6

87.0

164.4

Run-off

-

1.0

1.2

Total

86.6

88.0

165.6

9. Commission expenses

 

6 months

2017
£m

 

6 months

2016
£m

 

Full year

2016
£m

(audited)

Commission expenses

117.1

123.1

246.8

Expenses incurred under profit participations

21.0

37.7

97.2

Total

138.1

160.8

344.0

10. Operating expenses

 

 

 

 

 

Total Ongoing

Restructuring costs

Run-off

Total Group

 

 

 

 

 

6 months

6 months

6 months

6 months

 

 

 

 

 

2017
£m

2017
£m

2017
£m

2017
£m

Staff costs1

131.6

4.5

-

136.1

Other operating expenses1,2

149.0

-

-

149.0

Marketing

59.0

-

-

59.0

Amortisation and impairment of other intangible assets

26.7

-

-

26.7

Depreciation

14.1

-

-

14.1

Total

380.4

4.5

-

384.9

 

 

 

 

 

 

Total Ongoing 

Restructuring  costs

Run-off 

Total Group 

 

 

 

 

 

6 months

6 months

6 months

6 months

 

 

 

 

 

2016
£m 

2016
£m 

2016
£m 

2016
£m 

Staff costs1

137.2

8.7

-

145.9

Other operating expenses1,2,3

129.8

21.6

0.1

151.5

Marketing

62.6

-

-

62.6

Amortisation and impairment of other intangible assets

30.0

-

-

30.0

Depreciation

15.0

-

-

15.0

Total

374.6

30.3

0.1

405.0

 

 

 

 

 

 

Total Ongoing 

Restructuring  costs

Run-off 

Total Group 

 

 

 

 

 

Full year
(audited)

Full year
(audited)

Full year
(audited)

Full year
(audited)

 

 

 

 

 

2016
£m 

2016
£m 

2016
£m 

2016
£m 

Staff costs1

269.0

16.0

-

285.0

Other operating expenses1,2,3

250.9

23.9

0.2

275.0

Marketing

112.6

-

-

112.6

Amortisation and impairment of other intangible assets

96.7

-

-

96.7

Depreciation

30.1

-

-

30.1

Total

759.3

39.9

0.2

799.4

 

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.

A property site in Bristol comprising of freehold property and fixtures and fittings was transferred from freehold property to assets held for sale in 2016. The property with a carrying value of £23.5 million was re-measured on transfer to its fair value of £3.8 million resulting in a charge to other operating expense in Restructuring costs of £19.7 million.

11. Finance costs

 

6 months

2017
£m

 

6 months

2016
£m

 

Full year

2016
£m

(audited)

Interest expense on subordinated liabilities

23.1

23.0

46.3

Net interest received on designated hedging instrument1

(4.5)

(3.9)

(8.0)

Unrealised loss / (gain) on designated hedging instrument1

6.3

(30.9)

(19.6)

Unrealised (gain) / loss on associated interest rate risk on hedged item1

(6.9)

29.9

17.8

Amortisation of arrangement costs and discount on issue of subordinated liabilities

0.3

0.3

0.7

Total

18.3

18.4

37.2

 

Note:


1.

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 rate of three-month LIBOR plus a spread of 706 basis points, which increased to 707 basis points with effect from 29 July 2013.

12. Tax charge

 

6 months

2017
£m

 

6 months

2016
£m

 

Full year

2016
£m

(audited)

Current taxation:

 

 

 

Charge for the period

69.9

65.0

84.4

Under / (over) provision in respect of the prior period

6.4

-

(7.7)

 

76.3

65.0

76.7

Deferred taxation:

 

 

 

Credit for the period

(2.2)

(2.4)

(5.1)

(Over) / under provision in respect of the prior period

(8.2)

-

2.6

 

(10.4)

(2.4)

(2.5)

Current taxation

76.3

65.0

76.7

Deferred taxation

(10.4)

(2.4)

(2.5)

Tax charge for the period

65.9

62.6

74.2

13. Dividends

 

6 months

2017
£m

6 months

2016
£m

 

Full year

2016
£m
(audited)

Amounts recognised as distributions to equity holders in the period:

 

 

 

2016 final dividend of 9.7p per share paid on 18 May 2017

132.4

-

2015 final dividend of 9.2p per share paid on 19 May 2016

-

126.0

126.0

2016 first interim dividend of 4.9p per share paid on 9 September 2016

-

-

67.1

2016 first special interim dividend of 10.0p per share paid on 9 September 2016

-

-

136.9

2015 second special interim dividend of 8.8p per share paid on 19 May 2016

-

120.6

120.6

Total

132.4

246.6

450.6

 

The trustees of the employee share trusts waived their entitlement to dividends on shares held to meet obligations arising on certain share awards, which reduced the total dividend paid for the six months ended 30 June 2017 by £1.0 million (six months ended 30 June 2016: £0.9 million and year ended 31 December 2016: £1.8 million).

14. Earnings per share

Earnings per share is calculated by dividing the earnings attributable to the owners of the Company by the weighted average number of Ordinary Shares during the period.

Basic

Basic earnings per share is calculated by dividing the earnings attributable to the owners of the Company by the weighted average number of Ordinary Shares for the purposes of basic earnings per share during the period, excluding Ordinary Shares held as employee trust shares.

 

 

6 months

2017
£m

 

6 months

2016
£m

 

Full year

2016
£m

(audited)

Earnings attributable to owners of the Company

275.5

235.9

278.8

Weighted average number of Ordinary Shares (millions)

1,365.5

1,370.2

1,368.7

Basic earnings per share (pence)

20.2

17.2

20.4

 

Diluted

Diluted earnings per share is calculated by dividing the earnings attributable to the owners of the Company by the weighted average number of Ordinary Shares during the period adjusted for dilutive potential Ordinary Shares. The Company has share options and contingently issuable shares as categories of dilutive potential Ordinary Shares.

 

 

6 months

2017
£m

 

6 months

2016
£m

 

Full year

2016
£m

(audited)

Earnings attributable to owners of the Company

275.5

235.9

278.8

Weighted average number of Ordinary Shares (millions)

1,365.5

1,370.2

1,368.7

Effect of dilutive potential of share options and contingently issuable shares (millions)

12.7

15.5

13.1

Weighted average number of Ordinary Shares for the purpose of diluted earnings per share (millions)

1,378.2

1,385.7

1,381.8

Diluted earnings per share (pence)

20.0

17.0

20.2

 

15. Net assets per share and return on equity

Net asset value per share is calculated as total shareholders' equity divided by the number of Ordinary Shares at the end of the period excluding shares held by employee share trusts.

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.

The table below analyses net asset and tangible net asset value per share.

 

At

30 Jun

2017
£m

 

31 Dec

2016
£m

(audited)

Net assets

2,654.5

2,521.5

Goodwill and other intangible assets

(517.4)

(508.9)

Tangible net assets

2,137.1

2,012.6

Number of Ordinary Shares (millions)

1,375.0

1,375.0

Shares held by employee share trusts (millions)

(9.3)

(9.9)

Closing number of Ordinary Shares (millions)

1,365.7

1,365.1

Net asset value per share (pence)

194.4

184.7

Tangible net asset value per share (pence)

156.5

147.4

 

Return on equity

The table below details the calculation of return on equity and annualised return on equity.

 

 

6 months

2017
£m

 

6 months

2016
£m

 

Full year

2016
£m

(audited)

Earnings attributable to owners of the Company

275.5

235.9

278.8

Annualised1

551.0

471.8

278.8

Opening shareholders' equity

2,521.5

2,630.0

2,630.0

Closing shareholders' equity

2,654.5

2,668.8

2,521.5

Average shareholders' equity

2,588.0

2,649.4

2,575.8

Return on equity for period

10.6%

8.9%

10.8%

Return on equity annualised1

21.3%

17.8%

10.8%

 

Note:


1.

Earnings have been annualised using profits for the 6 months ended 30 June 2017 (2016: 6 months ended 30 June 2016).

 

16. Reinsurance assets

At

30 Jun

2017
£m

 

31 Dec

2016
£m

(audited)

Reinsurers' share of general insurance liabilities

1,250.6

1,329.0

Impairment provision

(57.3)

(50.7)

 

1,193.3

1,278.3

Reinsurers' unearned premium reserve

77.6

93.5

Total

1,270.9

1,371.8

 

17. Financial investments

At

30 Jun

2017
£m

 

31 Dec

2016
£m

(audited)

Available-for-sale debt securities

 

 

Corporate

4,174.9

4,183.7

Supranational

98.1

98.6

Local government

12.3

21.7

Sovereign

363.0

341.2

Total

4,648.3

4,645.2

Held-to-maturity debt securities

 

 

Corporate

88.3

85.1

Total debt securities

4,736.6

4,730.3

Total debt securities

 

 

Fixed interest rate1

4,720.2

4,709.6

Floating interest rate

16.4

20.7

Total

4,736.6

4,730.3

Loans and receivables

 

 

Infrastructure debt

328.0

337.0

Commercial real estate loans

90.9

79.7

Total

5,155.5

5,147.0

 

Note:


1.

The Group swaps a fixed interest rate for a floating rate of interest on its US Dollar, Euro and a small amount of its Sterling corporate debt securities by entering into interest rate derivatives. The hedged amount at 30 June 2017 was £1,543.1 million (31 December 2016: £1,593.6 million).

 

18. Cash and cash equivalents and borrowings

At

30 Jun

2017
£m

 

31 Dec

2016
£m

(audited)

Cash at bank and in hand

215.8

166.6

Short-term deposits with credit institutions1

890.8

999.5

Cash and cash equivalents

1,106.6

1,166.1

Bank overdrafts2

(59.4)

(55.3)

Cash and bank overdrafts3

1,047.2

1,110.8

 

Notes:


1.

This represents money market funds with no notice period for withdrawal.

2.

Bank overdrafts represent short-term timing differences between transactions posted in the records of the Group transactions flowing through the accounts at the bank.

3.

Cash and bank overdrafts are included for the purposes of the condensed consolidated cash flow statement.

 

The effective interest rate on short-term deposits with credit institutions for the six months ended 30 June 2017 was 0.39% (year ended 31 December 2016: 0.45%) and average maturity at 30 June 2017 was 10 days (31 December 2016: 10 days).

19. Insurance liabilities

Movements in gross and net insurance liabilities

 

Gross
£m

Reinsurance
£m

Net
£m

Claims reported

2,732.2

(375.0)

2,357.2

Incurred but not reported

1,697.9

(546.9)

1,151.0

Claims handling provision

94.4

-

94.4

At 1 January 2016 (audited)

4,524.5

(921.9)

3,602.6

Cash paid for claims settled in the year

(2,036.9)

18.8

(2,018.1)

Increase / (decrease) in liabilities:

 

 

 

Arising from current-year claims

2,329.3

(235.4)

2,093.9

Arising from prior-year claims

(150.3)

(139.8)

(290.1)

At 31 December 2016 (audited)

4,666.6

(1,278.3)

3,388.3

Claims reported

2,584.5

(388.3)

2,196.2

Incurred but not reported

2,002.8

(890.0)

1,112.8

Claims handling provision

79.3

-

79.3

At 31 December 2016 (audited)

4,666.6

(1,278.3)

3,388.3

Cash paid for claims settled in the period

(1,025.8)

5.8

(1,020.0)

Increase / (decrease) in liabilities:

 


 

Arising from current-year claims

1,204.0

(130.6)

1,073.4

Arising from prior-year claims

(435.8)

209.8

(226.0)

At 30 June 2017

4,409.0

(1,193.3)

3,215.7

Claims reported

2,956.6

(694.2)

2,262.4

Incurred but not reported

1,373.1

(499.1)

874.0

Claims handling provision

79.3

-

79.3

At 30 June 2017

4,409.0

(1,193.3)

3,215.7

Movement in prior-year net claims liabilities by operating segment

 

6 months

2017
£m

 

6 months

2016
£m

 

Full year

2016
£m

(audited)

Motor

(174.6)

(134.0)

(123.5)

Home

(16.8)

(60.6)

(75.9)

Rescue and other personal lines

2.1

(7.5)

(17.5)

Commercial

(27.1)

(34.0)

(49.8)

Total Ongoing

(216.4)

(236.1)

(266.7)

Run-off

(9.6)

(22.0)

(23.4)

Total

(226.0)

(258.1)

(290.1)

 

20. Fair value

The following table compares the carrying value and the fair value of financial instruments and other assets where the Group discloses fair value.

 

At 30 June 2017

Carrying value
£m

Level 1
£m

Level 2
£m

Level 3
£m

Fair value
£m

Assets held at fair value:

 

 

 

 

 

Investment property

314.9

-

-

314.9

314.9

Derivative assets

77.7

-

77.7

-

77.7

Available-for-sale debt securities (note 17)

4,648.3

363.0

4,285.3

-

4,648.3

Other financial assets:

 

 

 

 

 

Held-to-maturity debt securities (note 17)

88.3

-

14.5

76.9

91.4

Infrastructure debt (note 17)

328.0

-

-

336.3

336.3

Commercial real estate loans (note 17)

90.9

-

-

90.9

90.9

Total assets

5,548.1

363.0

4,377.5

819.0

5,559.5

Liabilities held at fair value:

 

 

 

 

 

Derivative liabilities

13.3

-

13.3

-

13.3

Other financial liabilities:

 

 

 

 

 

Subordinated liabilities

533.0

-

653.1

-

653.1

Total liabilities

546.3

-

666.4

-

666.4

 

At 31 December 2016

Carrying value
£m

Level 1
£m

Level 2
£m

Level 3
£m

Fair value
£m

Assets held at fair value:

 

 

 

 

 

Investment property

329.0

-

-

329.0

329.0

Derivative assets

79.7

-

79.7

-

79.7

Available-for-sale debt securities (note 17)

4,645.2

341.2

4,304.0

-

4,645.2

Other financial assets:

 

 

 

 

 

Held-to-maturity debt securities (note 17)

85.1

-

13.6

74.6

88.2

Infrastructure debt (note 17)

337.0

-

-

339.2

339.2

Commercial real estate loans (note 17)

79.7

-

-

79.8

79.8

Total assets

5,555.7

341.2

4,397.3

822.6

5,561.1

Liabilities held at fair value:

 

 

 

 

 

Derivative liabilities

45.1

-

45.1

-

45.1

Other financial liabilities:

 

 

 

 

 

Subordinated liabilities

539.6

-

625.0

-

625.0

Total liabilities

584.7

-

670.1

-

670.1

 

Differences arise between carrying value and fair value where the measurement basis of the assets or liabilities 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 (excluding provisions).

 

The movements in assets held at fair value and classified as level 3 in the fair value hierarchy are all within Investment property. There were no changes in the categorisation of assets between levels 1, 2 and 3 during the current period for assets and liabilities held at 31 December 2016.

 

The table below analyses the movement in assets classified as Level 3 in the fair value hierarchy.

 

 

Investment

property
£m

At 1 January 2016 (audited)

347.4

Additions

1.4

Increase in fair value in the year (note 6)

5.4

Disposals

(25.2)

At 31 December 2016 (audited)

329.0

Increase in fair value in the period (note 6)

9.6

Disposals

(23.7)

At 30 June 2017

314.9

Glossary

 

Term

Definition and explanation

Adjusted diluted earnings per share

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 alternative performance measures).

Adjusted profit after tax

Profit after tax is adjusted to exclude the Run-off segment and restructuring costs, and is stated after charging tax using the UK standard tax rate of 19.25%; (2016: 20.00%). See alternative performance measure.

Available-for-sale ("AFS") investment

Financial assets that are classified as available-for-sale. Please refer to the accounting policy note 1.12 on page 130 of the Annual Report and Accounts 2016.

Capital

The funds invested in the Group, including funds invested by shareholders and retained profits.

Capital coverage ratio

The ratio of Solvency II own funds to the solvency capital requirement.

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 paying claims and related expenses that the Group considers it will ultimately need to pay.

Combined operating
ratio ("
COR")

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.

Commission

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

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 in the Home division.

Earnings per share

The amount of the Group's profit allocated to each Ordinary Share of the Company.

Expense ratio

The ratio of operating expenses divided by net earned premium.

Finance costs

The cost of servicing the Group's external borrowings.

Gross written premium

The total premiums from contracts that began during the period.

International Accounting Standards Board ("IASB")

A not-for-profit public interest organisation that is overseen by a monitoring board of public authorities.
It develops
IFRS: standards that aim to make worldwide markets transparent, accountable and efficient.

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. Where the Group has determined that the value currently held in reserves is not sufficient to meet the estimated ultimate costs of the claim is referred to as incurred but not enough reported ("IBNER").

In-force policies

The number of policies on a given date that are active and against which the Group will pay, following a valid insurance claim.

Insurance liabilities

This comprises insurance claims reserves and claims handling provision, which the Group maintains to meet current and future claims.

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 derives from the period's opening and closing balances for the total Group; see alternative performance measures.

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; see alternative performance measures.

Loss ratio

Net insurance claims divided by net earned premium.

Net asset value

The net asset value of the Group is calculated by subtracting total liabilities 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.

Net earned premium

The element of gross earned premium less reinsurance premium ceded for the period where insurance cover has already been provided.

Ongoing operations

Ongoing operations comprise Direct Line Group's Ongoing divisions: Motor, Home, Rescue and other personal lines, and Commercial. It excludes discontinued operations, the Run-off segment,
and restructuring costs.

Operating profit

The pre-tax profit that the Group's activities generate, including insurance and investment activity,
but excluding finance costs.

Prudential Regulation Authority ("PRA")

The PRA is a part of the Bank of England. It is responsible for regulating and supervising insurers
and financial institutions in the UK.

Reinsurance

Contractual arrangements where the Group transfers part or all of the accepted insurance risk
to another insurer.

Return on equity

Return on equity is calculated by dividing the profit attributable to the owners of the Company
by average Ordinary Shareholders' equity for the period.

Return on tangible equity ("RoTE")

Return on tangible equity 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 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%). See alternative performance measures.

Risk and business mix

Risk and business mix measures the premium impact of channel, tenure and underlying risk mix. It reflects the risk models used in the period, the outputs of which are 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.

Solvency II

The capital adequacy regime for the European insurance industry, which became effective on
1 January 2016. It establishes capital requirements and risk management standards.
It comprises three pillars: Pillar I, which sets out capital requirements for an insurer; Pillar II, which focuses on systems of governance; and Pillar III, which deals with disclosure requirements.

Total costs

Total costs comprise operating expenses and claims handling expenses for Ongoing operations.

Underwriting result
(profit or loss)

The profit or loss from operational activities, excluding investment return and other operating income. It is calculated as net earned premium less net insurance claims and total expenses.

 

Appendix A - Alternative performance measures

 

The Group has identified Alternative Performance Measures ("APMs") in accordance with the European Securities and Markets Authority's published Guidelines. The Group uses APMs to improve comparability of information between reporting periods and reporting segments, by adjusting for either uncontrollable or one-off costs which impact on IFRS measures, to aid the user of the Half Year Report in understanding the activity taking place across the Group. These APMs are contained within the main narrative sections of this document, outside of the condensed consolidated financial statements and notes, and may not necessarily have standardised meanings for ease of comparability across peer organisations.

Further information is presented below, defined in the glossary and reconciled to the most directly reconcilable line items in the financial statements and notes. Note 4 of the condensed consolidated financial statements presents a reconciliation of the Group's business activities on a segmental basis to the condensed consolidated income statement including Ongoing operations of the Group.

 

Group APM

Equivalent
IFRS measure

Adjustment to reconcile primary statements and where calculated

Rationale for adjustments

Adjusted diluted earnings per share

Diluted earnings per share

Adjusted diluted earnings per share is defined in the glossary and is reconciled below.

This is a representation of the underlying earnings over the number of shares in issue adjusted for potential dilutions from the exercise of options.

Current-year attritional loss ratio

Loss ratio

Current-year attritional loss ratio is defined in the glossary and is reconciled to loss ratio in the Finance review.

Expresses claims performance in the current accident year in relation to net earned premium.

COR

Operating profit

COR is defined in the glossary. The constituent parts: operating profit - Ongoing operations is discussed below; 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

Investment income

Investment income yield is defined in the glossary and is reconciled below.

Expresses a relationship between the investment income and the associated opening and closing assets adjusted for portfolio hedging instruments.

Investment return yield

Investment return

Investment return yield is defined in the glossary and is reconciled below.

Expresses a relationship between the investment income and the associated opening and closing assets adjusted for portfolio hedging instruments.

Loss ratio

Net insurance claims

Loss ratio is defined in the glossary and is reconciled in note 4.

Expresses claims performance in relation to net earned premium.

Operating profit from Ongoing operations

Operating profit

Operating profit from Ongoing operations is defined as operating profit (see glossary) less operating profit from run-off segment plus restructuring costs (see note 4) and is reconciled below.

This measure shows the underlying performance (before tax and finance costs)
of the business activities without the impact
of business that is in run-off and non-repeating restructuring costs.

Profit after tax from Ongoing operations

Profit after tax

Operating profit from Ongoing operations (as above) less finance costs and tax at standard rate and is reconciled below.

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 non-repeating restructuring costs.

RoTE

Return on Equity

RoTE is defined in the glossary and is reconciled below.

This shows underlying performance against
a measure of equity that is more able to be compared with other companies.

Tangible equity

Equity

Tangible equity is defined as equity less intangible assets and is reconciled below.

This shows the equity excluding intangible assets for comparability with companies who have not acquired businesses or capitalised intangible assets.

Tangible net asset per share

Net assets per share

Tangible net asset per share is defined as tangible equity
(as above) expressed as a value per share and is reconciled
in note 15.

This shows the equity excluding intangible assets per share for comparability with companies who have not acquired businesses or capitalised intangible assets.

Total costs from Ongoing operations

Operating expenses

Total costs from Ongoing operations is defined as operating expenses adjusted to remove restructuring costs and operating expenses charged to the run-off segment (reconciled in note 10) plus claims handling expenses incurred in net insurance claims on Ongoing operations
(note 8). This is reconciled in the Finance review.

This represents the total value of operating expenses including those allocated to the insurance claims line as claims handling expenses.

 

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, in the Finance review, and defined in the glossary.

 

Return on tangible equity1

 

Note2

H1

2017
£m

H1

2016
£m

Operating profit

4

359.7

316.9

Add back: restructuring costs

4

4.5

30.3

Exclude: operating profit from run-off

4

(10.0)

(23.6)

Operating profit from Ongoing operations

4

354.2

323.6

Finance costs

11

(18.3)

(18.4)

Adjusted profit before tax from Ongoing operations

 

335.9

305.2

Tax charge (using the UK standard tax rate of 19.25% and 20.0% respectively)

 

(64.7)

(61.0)

Adjusted profit after tax from Ongoing operations

 

271.2

244.2

Annualised adjusted profit after tax

 

542.4

488.4

Opening shareholders' equity

 

2,521.5

2,630.0

Opening goodwill and other intangible assets

 

(508.9)

(524.8)

Opening shareholders' tangible equity

 

2,012.6

2,105.2

Closing shareholders' equity

 

2,654.5

2,668.8

Closing goodwill and other intangible assets

 

(517.4)

(541.4)

Closing shareholders' tangible equity

 

2,137.1

2,127.4

Average shareholders' tangible equity3

 

2,074.8

2,116.3

Return on tangible equity annualised

 

26.1%

23.1%

Adjusted diluted earnings per share1

 

Note2

H1

2017
£m

H1

2016
£m

Adjusted profit after tax from Ongoing operations

 

271.2

244.2

Weighted average number of Ordinary Shares for the purpose of diluted earnings per share (millions)

14

1,378.2

1,385.7

Adjusted diluted earnings per share (pence)

 

19.7

17.6

 

Notes:


1.

See glossary for definitions

2.

See notes to the condensed consolidated financial statements

3.

Mean average of opening and closing balances

 

Investment income and return yields1

 

Note2

H1

2017
£m

H1

2016
£m

Investment income

6

82.8

84.4

Investment return

6

93.0

92.7

Investment income annualised


165.6

168.8

Investment return annualised

 

186.0

185.4

Opening investment property

 

329.0

347.4

Opening financial investments

 

5,147.0

5,614.6

Opening cash and cash equivalents

 

1,166.1

963.7

Opening borrowings

 

(55.3)

(61.3)

Opening derivatives3

 

(5.8)

(45.7)

Opening investment holdings

 

6,581.0

6,818.7

Closing investment property

 

314.9

348.6

Closing financial investments

 

5,155.5

5,515.7

Closing cash and cash equivalents

 

1,106.6

1,055.1

Closing borrowings

 

(59.4)

(65.4)

Closing derivatives3

 

30.6

(257.5)

Closing investment holdings

 

6,548.2

6,596.5

Average investment holdings

 

6,564.6

6,707.6

Investment income yield annualised

 

2.5%

2.5%

Investment return yield annualised

 

2.8%

2.8%

 

Notes:


1.

See glossary for definitions

2.

See notes to the consolidated financial statements

3.

Asset allocation at 30 June 2017 includes investment portfolio derivatives, which have been netted and have a mark-to-market asset of £30.6m included in investment-grade credit (31 December 2016: mark-to-market liability of £5.8m included in investment grade credit). This excludes derivatives that have been used to hedge interest on subordinated debt and operational cash flows.

 

Directors' responsibility statement

We confirm that to the best of our knowledge:

1.         

the condensed consolidated financial statements, which have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of Direct Line Insurance Group plc and the undertakings included in the consolidation taken as a whole as required by Disclosure and Transparency Rule 4.2.4R;

2.         

the interim management report includes a fair review of the information required by:


·      Disclosure and Transparency Rule 4.2.7R being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and


·      Disclosure and Transparency Rule 4.2.8R being related parties transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the entity during that period; and any changes in the related parties transactions described in the last Annual Report & Accounts that could do so.

Signed on behalf of the Board

 

Paul Geddes

John Reizenstein

Chief Executive Officer

Chief Financial Officer

31 July 2017

31 July 2017

 

Independent review report to Direct Line Insurance Group plc

 

We have been engaged by Direct Line Insurance Group plc (the "Company") to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 20. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors.  The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Deloitte LLP

Statutory Auditor

London, UK

31 July 2017

 


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