Focused for
the future
Annual
Report and
Accounts
2023
Contents
Strategic Report
Focused on performance
Focused on customers
Focused on retail personal and commercial insurance
Chair’s statement
Welcoming our new CEO, Adam Winslow
CEO review
Outgoing Acting CEO review
Section 172(1) statement
Business model
Market Overview
Strategy
Our key performance indicators
CFO review
Operating review
Non-financial and sustainability information statement
Building a sustainable future
Task Force on Climate-related Financial Disclosures
Risk management
Viability statement
Governance
Chair’s introduction
Board of Directors
Corporate Governance
Committee reports
Directors’ Remuneration report
Directors’ report
Financial Statements
Contents
Independent Auditor’s Report
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Parent Company Financial Statements
Notes to the Parent Company Financial Statements
Other information
Shareholder information
Glossary and Appendices
Forward-looking statement
Contact Information
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276
277
Our vision is to create a world where insurance is
personal, inclusive and a force for good. Our purpose
is to help people carry on with their lives, giving them
peace of mind now and in the future.
Our mission is to be brilliant for customers every day.
This year the Group has taken decisive action to restore our capital resilience, to improve Motor performance and
to maintain the performance of our non-Motor businesses. Following the challenging trading environment in 2022,
these actions have been designed to put the Group back on a more stable footing.
Looking ahead, we believe that our customer focus, strong brands and claims expertise can drive long-term value
for customers and shareholders.
To read more about our strategy, see pages 22 to 23.
Direct Line Group Annual Report and Accounts 2023
1
Strategic Report / Governance / Financial statements Focused on
performance
Direct Line Group is
one of the UK’s leading
insurance companies.
Through our well-known brands including Direct Line,
Churchill, Privilege, Darwin, and Green Flag we offer a wide
range of general insurance products across motor, home,
commercial, travel, pet and rescue, both direct to customers
and through price comparison websites (“PCWs”).
In 2023, we sold our brokered commercial business,
prioritised actions to improve margins in Motor, while also
continuing to maintain performance in our other businesses.
We are confident that the Group has the foundations
for improved performance going forward.
Progress in all segments
Sale of brokered commercial business
During the year, we sold our brokered commercial
insurance business for an attractive valuation which
strengthened the Group both strategically and financially,
as well as significantly improving our solvency ratio.
For more information, please read page 16.
Improving Motor margins
As a result of significant pricing and underwriting actions,
in the second half of the year we were underwriting
profitably consistent with a 10% net insurance margin.
For more information, please read page 15.
Resilient performance from other businesses
Our Home, Commercial direct, Rescue and other businesses
have delivered a good performance with an improved
ongoing net insurance margin.
For more information, please read page 15.
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
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Strategic Report / Governance / Financial statements Focused on
customers
Our mission is to be brilliant
for customers every day.
It’s the driving force behind
everything we do.
We know the importance of providing an exceptional
insurance service and aim to deliver great outcomes
for our customers.
Over 2023, we have undertaken extensive work across
the organisation to further focus on how we meet our
customers’ insurance needs, whether it’s from the point of
sale through to resolving claims, we want to make it simple
for our customers and be there for them when they need
us, with the products that meet their needs both now
and in the future.
Adapting to customer needs
Direct Line Essentials
We launched a new Direct Line Essentials product this year,
expanding our product range to meet the needs of more
Motor customers.
Read more on page 52.
Consumer Duty
Across the business we have been embedding delivery
of our Consumer Duty obligations to ensure good customer
outcomes and meet our mission to be brilliant for
customers every day.
Read more on page 51.
Motor Claims Hub
Knowing that many of our customers prefer to register their
claims online, we have focused on enhancing our capability
to provide end-to-end digital claims journeys, launching
a new Motor Claims Hub in 2023.
Read more on page 53.
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
5
Strategic Report / Governance / Financial statements Focused on retail
personal and
commercial
insurance
Following the sale of
our brokered commercial
business, we are fully
focused on the areas
in which we have the
most expertise.
Looking forward, we are now fully focused on retail personal
lines and commercial small business customers where our
brands, claims management and technology gives us the
opportunity to outperform for our customers.
Focused for the future
Motability partnership
In September we welcomed over 700,000 Motability
customers and brought on board 600 colleagues
based in Liverpool.
Read more on pages 15 and 52.
By Miles acquisition
As part of our drive to enable customers to pick the motor
insurance cover that best suits them, we acquired By Miles,
a company that harnesses vehicle data to provide real-time,
pay-by-mile insurance policies.
Read more on page 53.
Commercial direct
We are focused on using our expertise to the benefit
of personal and commercial customers serviced through
direct and PCW channels.
Read more on pages 15 to 16.
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
7
Strategic Report / Governance / Financial statements Chair’s
statement
We have entered 2024 with a more
resilient business, well positioned to
achieve our mission of being brilliant
for customers every day.
Danuta Gray
Chair of the Board
Dear Shareholders,
2023 has been a challenging year for the Group, but a year
in which I believe we have delivered on some important
commitments to put the Group on a more stable footing.
We have restored capital resilience and have continued to
adjust our Motor insurance premiums to mitigate the effect
of claims inflation, with the result that we are now writing
Motor business profitably. Our non-motor businesses
performed well in 2023.
The sale of our brokered commercial business to RSA
Insurance Limited represents a significant milestone for the
Group. It reflects our intention to leverage the full potential
of our personal lines and commercial direct businesses in
which we have well-recognised brands and serve over nine
million customers.
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Direct Line Group Annual Report and Accounts 2023
In August 2023, we were delighted to announce that Adam Winslow
was to be appointed as Chief Executive Officer of the Group, subject
to regulatory approval.
The Board conducted an extensive search and Adam stood out for
his strategic understanding of the sector, outstanding track record
of leading high performing businesses and his focus on driving
operational excellence to consistently meet customer needs.
Adam has deep expertise in the UK general insurance market and
significant leadership experience, spanning two decades across
personal and commercial lines insurance and, throughout his career,
his commitment to delivering for customers has been a clear focus,
as has his energy and passion as a leader.
Adam Winslow, Chief Executive Officer designate, commented:
“Direct Line Group is one of the UK’s leading insurers with some
of the most recognisable brands in the retail and commercial market.
It’s a privilege to be invited to lead the Group into the future,
particularly given its rich heritage and passion for serving its
millions of customers.
“The UK insurance industry is dynamic and always evolving.
Delivering great customer service relies on strong strategic vision
and the operational capability to execute quickly across a variety
of distribution channels. I’m looking forward to working with my
new colleagues who share my determination for driving growth,
delivering for customers and creating long-term shareholder value.”
Adam became the Chief Executive Officer on 1 March 2024 and will
join the Board on 21 March 2024.
Welcoming our new
CEO, Adam Winslow
Dividend and capital management
Following a challenging 2022, we took decisive action in 2023 to
restore the capital resilience of our business. In January, we
entered into a three-year quota share reinsurance programme
and, in September, agreed the sale of the Group’s commercial
brokered business. We exit 2023 with a strong solvency position
above our agreed risk appetite.
The Board is acutely aware of the importance of dividends to
our shareholders. At the time of our interim results in
September we announced our aim to restart dividends subject
to two conditions: the recovery of our solvency ratio to the
upper end of our risk appetite range; and a return to organic
capital generation in Motor.
We have made good progress towards meeting these
conditions with a pre-dividend solvency ratio of 201% as at the
end of 2023 and increasing confidence in the profitability of the
Motor business we have written in the second half of 2023.
Reflecting their increased confidence, the Board is, therefore,
recommending a final dividend of 4.0 pence per share for 2023.
We will continue to keep this under active review throughout
2024 and provide an update at the interim results.
I acknowledge that our shareholders would like us to resume
the payment of dividends as soon as possible, but equally that
they would like us to prioritise the strengthening of the
business for long-term stability.
Board and leadership
In early 2023 Penny James stepped down from the Board as
CEO and Jon Greenwood agreed to serve as Acting Chief
Executive Officer whilst we conducted a search for a permanent
successor.
We were delighted to announce, in August 2023, that Adam
Winslow would be joining us as our new Chief Executive Officer.
He joined the Group on 1 March and his appointment to the
Board will take effect on 21 March 2024. Adam brings with him
a wealth of experience gained from a successful career in the
insurance industry, most recently leading Aviva’s UK and
Ireland general insurance business. Adam is committed to
delivering for customers, creating value for our shareholders
and is a passionate and energetic leader who shares the
Group’s values and will lead the continued transformation of
the business.
Jon Greenwood will step down into a senior executive role
following a handover to Adam. I would like to thank Jon for his
hard work and commitment through 2023, during which he led
the organisation in taking the critical action to restore its capital
resilience and profitability.
During the year we welcomed Mark Lewis and David Neave to
the Board as independent Non-Executive Directors. Mark, a
former Chief Executive of MoneySupermarket.com Group, is
contributing his deep understanding of the regulated
aggregator marketplaces in which our brands operate, as well
as his experience of digital marketing strategy and improving
multi-channel customer experience in retail and financial
services. David, whose executive career spanned General and
Life Insurance, broking and the legal and technology sectors, is
contributing his deep understanding of general insurance to
the Board’s oversight of our core businesses.
Direct Line Group Annual Report and Accounts 2023
9
Strategic Report / Governance / Financial statements Chair’s statement continued
At the end of 2023, Sebastian James stepped down as an
independent Non-Executive Director, having served for over
nine years. I would like to thank Sebastian for his energetic
support of the Group and the Board, as well his leadership of
the Sustainability Committee and his contribution to the work
of the Board’s other Committees.
On 20 March 2024, the Board approved the appointment of
Carol Hagh as an independent Non-Executive Director with
effect from 1 April 2024. Carol’s career has encompassed
financial services consultancy, insurance marketing strategy,
customer strategy and executive search. She is a former
Head of Spencer Stuart LLP’s UK Insurance practice and is an
independent Non-Executive Director of Chesnara plc. Carol
will contribute her deep experience of customer-orientated
business transformation, as well as her passion for diversity
and inclusion.
Customers
During 2023, we have continued working hard to meet our
customers’ needs and to improve our customer outcomes-
focused culture to serve them best in the future. We welcomed
over 700,000 new customers under our ten-year partnership
with Motability. This is a significant commercial partnership
for the Group and enables us to leverage our repair and
customer service capabilities, delivering significant scale benefits.
In addition, the Group, launched our Direct Line Essentials
Motor product, which offers customers a basic comprehensive
product at enhanced value for money during the cost-of-living
crisis, and completed the acquisition of By Miles, whose
technology enables a pay-as-you-drive product to be offered
to customers (see pages 41, 52 and 53 respectively.)
2023 also saw the FCA’s Consumer Duty regulation coming
into effect. The Board has been closely engaged in overseeing
work to ensure that the Group was ready, with support from
the Consumer Duty Champion, Tracy Corrigan. We continue
to monitor initiatives aimed at ensuring the regulation is
embedded into the culture of the organisation and that we
deliver good outcomes and fair value for customers.
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Direct Line Group Annual Report and Accounts 2023
Recognising that economic conditions remain challenging
for our people, we awarded a 5% pay increase to all colleagues,
excluding senior management, from January 2023 and made
a cost-of-living payment to colleagues on lower rates of pay.
Our company values were refreshed and simplified in 2023
to guide the way we work together to perform as a business
and deliver for our customers. I was delighted that the Group
was ranked in the Inclusive Top 50 UK Employers List for
the third year running.
Planet
In 2022 we became one of the early personal lines general
insurers in the UK to have Science-Based Targets approved
by the Science Based Targets initiative, a key step in the journey
towards our ambition of becoming a Net Zero business by
2050. During 2023, the Board oversaw the work and initiatives
needed to help us make significant progress against these
targets which we are reporting on for the first time. Initiatives
included implementing the use of hydrogenated vegetable oil
in our recovery vehicles at 95% of our Auto Services sites and
providing clear mandates to our investment portfolio managers
to reduce the impact of our investment portfolio. For more
information, please see pages 61 to 65, 78 and 79.
Conclusion
As a result of the action we have taken during the year,
I believe we have entered 2024 with a more resilient business,
well-positioned to achieve our mission of being brilliant for
customers every day. I know that our people have worked
incredibly hard in a very challenging year and I would like
to take this opportunity to thank them for their continued
dedication and support. I would also like to acknowledge the
intensive work done by the Board in 2023 and to thank my
fellow Directors for redoubling their efforts in supporting the
business. I believe, under the leadership of our new CEO, Adam,
we are poised to realise the full potential of our technological
investments and fantastic brands and to deliver good
outcomes for all our stakeholders.
Danuta Gray
Chair of the Board
2023
We have continued working hard to meet our customers’ needs
and to improve our customer outcomes-focused culture to serve
them best in the future.
2024
We have entered 2024 with a more resilient business, well-positioned
to achieve our mission of being brilliant for customers every day.
However, I must also acknowledge areas in which we did not
perform as well as we would have liked for customers. During
the year we announced that, following extensive consultation
with the FCA, we would be undertaking two past business
reviews relating to motor total loss payments and the
implementation of the pricing practices regulation. Where
things have gone wrong, we are committed to putting them
right. We have worked hard to rectify the unintentional errors
that occurred and ensure any lessons learned are embedded
into control and process improvements. In total, we have
provided for the cost of the total remediation of £150 million,
which we consider to be final.
Culture
During the year, the Board intensified its oversight of culture,
ensuring actions were taken to enable Direct Line to become
a truly high performing and customer-centric organisation
with a deeply ingrained awareness of the benefits of excellent
risk management. This work included the delivery of a new
performance management framework for our people;
augmentation of operational measures to provide improved
insights into culture change; and enhancements to our risk
framework and controls and the tools we use to assess them.
We have also developed new metrics to obtain insights into the
drivers of customer outcomes and have augmented the role
of the Customer and Sustainability Committee, which will meet
more frequently to oversee the embedding of the Consumer
Duty and how we deliver for our customers. More information
on this work can be found on pages 54, 106 and 127.
People
Areas on which the Board focused in 2023 included driving
high performance across all levels of the business and
reviewing the Group’s current leadership capability to ensure
it meets the requirements of the future. In addition to assessing
our current skills, we have actively recruited for future skills
needs as well as implementing a more comprehensive talent
assessment and development for our leadership group
population, in partnership with Korn Ferry. This work
commenced in Q4 2023, with all senior leaders immediately
below Executive Committee level invited to take part in an
Executive Leadership Assessment, the outputs of which will
provide valuable insights and inform our group leadership
development approach, aligned to a new leadership model
in 2024. In addition to this, the new performance framework
launched in 2023 is intended to equip and encourage our
people leaders to improve the quality of their development
and careers conversations with colleagues.
Direct Line Group Annual Report and Accounts 2023
11
Strategic Report / Governance / Financial statements Adam Winslow
Chief Executive Officer
I joined Direct Line Group because I believe there is an
opportunity to improve performance and nothing has changed
that view since arriving. Direct Line Group has strong
foundations, with a leading personal lines customer franchise,
scaled market positions and some of the most recognisable
brands in the market across a complementary and diverse
portfolio.
The last few years have been challenging and the Group has not
always delivered best value for its shareholders. We need to
significantly improve our performance and I joined both to
acknowledge these challenges and seek to solve them.
I believe we have a strong platform to build from. The Group has
some of the most recognisable brands in the market, over 9
million customers and a diverse portfolio of assets. In addition,
the management actions taken during 2023 have been the
right ones. We believe that Motor has turned a corner, and with
business outside Motor performing well during 2023, we expect
overall performance to improve in 2024.
We have one clear agenda, an unrelenting focus on driving
shareholder value by serving our customers well. We believe that
through a combination of quick wins, alongside medium-term
strategic opportunities, we can deliver a net insurance margin of
13% in 2026.
I have transformed legacy businesses before and understand
what it takes to win in general insurance. There are immediate
actions we can take in 2024 to address some of the gaps and
deliver quick wins.
CEO review
With the right strategy in place and
determined actions, I am confident
we can deliver a net insurance
margin of 13%1 in 2026.
Note
1. Normalised for weather.
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Reduce our cost base
Broaden market coverage
There is a substantial opportunity to reduce our total cost base
and significantly improve operational efficiency through
reducing operational complexity and technology costs,
including through increasing our use of digital channels for
customers. We will focus change spend on the areas that drive
most financial benefit and tighten discretionary spend.
Our marketing spend can be reduced further and we will build
out customer self-service options by leveraging investments the
Group has already made, for example the digital Motor claims
hub and the Caha! App that we launched in 2023. Across all
these levers, we have identified a series of initiatives that are
expected to deliver significant cost savings by the end of 2025.
The run-rate annualised cost savings have been considered in the
context of a total addressable cost base of £849 million in 2023.
Approximately 54% of these savings are expected to come
from technology and digitalisation initiatives and 46% from
removing complexity across the Group. The savings will mainly
be realised by:
– driving greater digital adoption and increasing automation,
mainly across Claims, Sales and Services, as well as reducing
third party technology spend, simplifying and modernising IT
infrastructure; and
– simplifying operational complexity, right-sizing support
functions and reducing change initiatives across the Group.
We expect to incur non-recurring costs of up to £165 million in
total by 2025 to implement these savings and to help fund
further opportunities towards our ambition to deliver greater
savings beyond 2025. A significant amount of these costs is
already assumed within the Group’s ongoing capital
expenditure expectations for 2024 and 2025. No dis-benefits are
expected to arise from the programme.
In realising these cost savings by the end of 2025 on a run-rate
annualised basis the Group is expected to deliver an expense
ratio that is more in line with its comparable peer group.
Improve claims performance
The Group has strong foundations in claims, having one of the
largest insurer-owned garage networks across the UK and a
strong track record on counter fraud, but our competitors in
recent years have caught up. We need to capture the benefits
from our structural advantage by repairing more cars at lower
cost through our owned network where we consistently deliver
superior customer service. We are about to launch a claims
transformation, which will initially focus on optimising our
garage network and building on counter fraud efforts.
In 2024, we have identified immediate actions to drive value.
These include adapting processes in order to leverage the DLG
Auto Services advantage, increasing the speed and effectiveness of
recoveries and introducing enhanced technology at policy stage
to further reduce fraud.
Optimise pricing capability
A full transformation of our Motor pricing capabilities is already
underway. There is more to do. In 2023, we upgraded our core
pricing models and launched new products. While our
capabilities have improved versus peers, there is further to go
and in 2024 we will build on our efforts by developing the next
generation of technical pricing models and enrich these models
with more internal and external data sources while enhancing
fraud protection and simplifying our Motor pricing algorithms.
Direct Line and Churchill are two of the strongest and best
known brands in the market and we need to utilise our brand
portfolio to its full potential. We plan to increase our Motor PCW
quotability to historical levels of over 70% in 2024 and create a
clear segmentation strategy and value proposition across our
different brands. As part of this work, we are evaluating whether
we put Direct Line on PCWs and that decision will be shared at
the Capital Markets Day in July.
Financial impact of transformation programme
We see immediate opportunities for improved performance, we
plan this to be achieved primarily through:
– Tight management of the cost base through targeting
discretionary spend and increasing usage of customer self-
serve functionality.
– Improving claims performance by building on existing counter
fraud efforts and optimising third party claims capture.
– Optimising our pricing by developing the next generation of
pricing models, enriching data sources and simplifying pricing
algorithms.
– Increasing market coverage by developing a clearer brand
value proposition and improving PCW quotability.
Furthermore, we see greater potential benefits as we move into
2025 and 2026. We have set a target to deliver significant cost
savings on an annualised run-rate basis by the end of 2025 and
together with benefits from other areas of our transformation
programme, we are targeting a net insurance margin,
normalised for weather, of 13% in 2026.
Strategic review
Alongside the actions highlighted above, I am completing a
comprehensive strategic review during the first half of 2024. I
will report back to shareholders in July when I will set out our
plans and update on our progress.
Capital and dividends
The Group ended 2023 with a strong capital position and a
solvency capital ratio of 201% before our proposed dividend,
above its risk appetite range.
The Board is proposing a dividend in respect of 2023 of 4.0 pence
per share (£52 million) reflecting the Group’s strong capital
position following the sale of the brokered commercial business
and good performance in Home, Commercial and Rescue. While
the Board is confident in the actions taken in Motor, it recognises
that the period over which to judge the sustainability of Motor’s
capital generation has been short and consequently this dividend
should not be regarded as a resumption of regular dividends. The
Board will update on any changes to its dividend policy, alongside
the conditions it has previously set to consider restarting regular
dividends, in July to coincide with its planned strategy update.
Outlook
We have taken the right actions during 2023 to improve written
margins in Motor and expect this to improve Motor
performance in 2024.
The Group believes there is significant opportunity to create
further value and is targeting a net insurance margin,
normalised for weather, of 13% in 2026.
Adam Winslow
Chief Executive Officer
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
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Strategic Report / Governance / Financial statements Jon Greenwood
Acting Chief
Executive Officer
After a challenging period, the Group has now turned a corner.
We have delivered against our three key objectives, having
improved our Motor margins, maintained the good
performance of our other businesses and restored the resilience
of our balance sheet.
First, in Motor we have taken significant pricing and
underwriting action, prioritising margin improvement over
volume. We believe that for the majority of the second half of
2023 we have been underwriting profitably, consistent with our
ambition of a net insurance margin of above 10%.
Encouragingly, we began to see the signs of an improvement in
our current year net insurance claims ratio in the second half of
2023.
Secondly, our other businesses delivered a good performance
with an overall net insurance margin of 12.2% and operating
profit of £130 million. This shows the benefits of the strong
positions the Group holds in Home, Rescue and Commercial
Direct.
Finally, the sale of the Group's brokered commercial business
has restored the resilience of the Group’s balance sheet,
crystallising an attractive valuation whilst also focusing the
Group’s strategy on retail personal and small business insurance.
With a solvency capital ratio post-dividend of 197% at year-end,
above the top end of the Group’s risk appetite range of 140% to
180%, we exit the year in a strong capital position.
Outgoing
Acting CEO
review
I am confident that the actions we
have taken this year will strengthen
the business and leave us well
placed to improve earnings going
forward. As I hand over to our new
CEO, Adam Winslow, I know that
we are in good hands and well
equipped to build on the changes
we have made.
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Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Whilst these priorities have been the key focus for the Group
during 2023, we have also commenced our partnership with
Motability, bringing further scale to our operations, and
continued to deliver other improvements across the business. In
2023 we expanded our accident repair network, launched the
Green Flag patrol service and four new Motor products, and
continued to make it easier for customers to engage with us
through digital journeys.
Overall, whilst it will take time for the actions we have taken to
fully come through in our reported figures, I am confident the
Group has taken the right actions and together with the new
operational improvement plan, can improve performance going
forward.
2023 results
The 2023 results do not reflect the profitability of the business
we believe is being written by the Group today. Whilst we have
taken action to return Motor to underwriting profitability, the
Group’s financial result in 2023 reflects the below target margin
business written in Motor during 2022 and the first half of 2023.
This resulted in an operating loss of £319.6 million in Motor,
which more than offset a good performance across the rest of
the Group where operating profit was £130.1 million.
Overall, this delivered an ongoing operating loss of £189.5
million, compared to a £6.4 million loss in 2022. The net gain
from the sale of the Group’s brokered commercial business
contributed to a profit before tax of £277.4 million, up from a
loss before tax of £301.8 million in 2022.
Improved our written margins in Motor
We have taken a range of actions in Motor to improve our
performance and increase our written margins back to target
levels. These actions have delivered a material increase in our
average premiums, mitigating the impacts of elevated inflation
while also reducing our risk exposure.
There are four key areas we have focused on.
1. Pricing – we have applied significant rate increases in 2023
and improved renewal discounting controls, which have
delivered a 37% increase in our average written premiums in
Q4 2023 compared with the same period in 2022. Average
earned premiums increased by 15% between the first and
second half of 2023. Pricing ahead of claims inflation has
enabled us to improve written profitability and it is
encouraging to see these pricing actions begin to benefit our
earned margins.
2. Underwriting and claims – we have made good progress
across a range of actions on our underwriting footprint. We
made considerable improvements to our pricing and trading
capabilities, tightened our fraud controls and took targeted
actions on underperforming segments. We launched a new
retail price optimisation model in the price comparison
website ("PCW") channel and, in claims, we continued to
expand our own vehicle repair network, having acquired our
23rd DLG Auto Services centre.
3. Product – in order to meet the needs of a broader set of
customers, we launched Direct Line Essentials this year, which
has driven an increase in conversion. Darwin, which launched
in 2019, passed the 250,000 policy milestone in 2023 and
rolled out two new products, Darwin Gold and Darwin
Platinum.
4. Team – we have brought in experience from across the
market into our pricing and underwriting teams, through
several key hires in leadership positions.
As a result of these actions, we believe we have been writing
business consistent with a net insurance margin in line with our
ambition for the majority of the second half of 2023. Whilst it
will take time for these actions to fully earn through into
reported numbers, we are encouraged by our performance in
the second half of 2023 where we have seen the current year
claims ratio in Motor improve by around 6 percentage points
compared with the first half of 2023.
Motor current-year attritional net insurance claims
ratio
2023
2022
H1
H2
89.8 %
75.6 %
84.0 %
84.3 %
Full year
86.7 %
79.9 %
Commenced new Motability partnership
After nearly two years of preparation, we welcomed over
700,000 Motability customers at the start of September. The
partnership is forecast to deliver over £800 million of gross
premium annually and allows for six-monthly repricing to
mitigate the risk of claims inflation, whilst being capital light as
it is 80% reinsured
This is an important commercial partnership for the Group and
demonstrates how we can utilise our claims operations as a
wider service proposition. The fleet of modern vehicles provides
significant scale benefits as well as repair insight across our
claims network. We are also pleased to have welcomed a large
team of specialist call handlers to support Motability's
customers.
This partnership is expected to deliver good margins for the
Group.
Non-Motor businesses delivered resilient
performance
Outside of Motor, the Group delivered an ongoing net insurance
margin of 12.2% whilst delivering gross written premium and
associated fees growth of 4.7%.
Resilient performance in Home
In Home, our focus was on maintaining margins and we
achieved this whilst also growing share of new business in the
PCW channel. Following a challenging market backdrop in
2022, the market applied considerable rate increases in 2023
and this helped improve our competitiveness, driving 42%
growth in new business sales while retention remained strong.
Overall we delivered 6.4% gross written premium growth in
2023 and a net insurance margin of 10.0%. There were several
named weather events across the year and our Home claims
team helped over 3,000 customers. Despite the high frequency
of events, our estimate for event weather of £25 million is below
our 2023 assumption for normal event weather of £54 million.
Continued growth in Commercial Direct
Separate from the brokered commercial business, the sale of
which we announced in September, Commercial Direct sells
SME cover under the Direct Line for Business and Churchill
brands, both direct to customer and through PCWs. Landlord
insurance is the largest product by premium and policy count,
followed by Van. Commercial continued to perform strongly,
with premium growth of 10.1% and continued strong margins.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
1515
Strategic Report / Governance / Financial statements Outgoing Acting CEO review continued
Gross written premium growth was achieved across all product
lines, while policy count growth in Direct Line Landlord and SME
was offset by reductions in Van, where we continued to increase
prices in response to high claims inflation.
The largest growth area was Landlord, which accounts for
around half of Direct Line branded Commercial premiums due
to our differentiated rent guarantee proposition. We now
provide landlord cover for an estimated 370,000 properties
across the UK. Our Churchill brand continued to grow in the
PCW channel, delivering 48% gross written premium growth
over the last three years.
The net insurance margin was 13.1% during 2023 (2022: minus
2.7%), with strong margins in Direct Line Landlord and benign
weather conditions more than offsetting the impact of
heightened inflation within Van.
These Commercial results exclude the brokered commercial
business that was sold in the second half of 2023 and is now
reported outside of ongoing operations.
Strong margins in Rescue and other personal
lines
Rescue and other personal lines continued to deliver strong
margins with a net insurance margin of 15.6% and £48.0 million
of operating profit.
In Green Flag, we focused on improving pricing and customer
journeys which delivered higher average premiums with
minimal impact on sales and retention. We also expanded our
Green Flag patrol service across the North of the UK, attending
to over 7,000 rescues. The patrol service of 20 vans is helping
customers get back on the road faster, including through the
sale of tyres and batteries at the roadside, and has delivered
strong Net Promoter Scores, which is why we have an ambition
to get to 130 vehicles. Green Flag was once again ranked as the
top rescue provider in the UK by the UK Institute of Customer
Service.
Across our other personal lines products, good results in Travel
and Pet offset weather-related losses in our mid- to high-net
worth business, UK Select.
Expanding our products and servicing options for
our customers
We have also continued to focus on providing customers with
greater choice of products and channels to interact with us.
In Motor, we have expanded our Motor product options.
Alongside our two new Essentials products we further
expanded our own brand portfolio through the acquisition of By
Miles, a digitally native insurer, that offers 'pay as you drive'
insurance. This not only increases choice for customers, it
provides the Group with new data and digital capabilities
including direct integration with newer vehicles.
Furthermore, we are creating easy, digital first journeys to enable
customers to interact with us seamlessly from sales through to
claims. In 2020 we first offered customers a simple way to
register motor claims online and in 2023 we took a step forward
with the launch of our new Motor Claims Hub, a fully integrated
claims journey. We’re initially offering customers the ability to
register a single vehicle or third party claim online and we plan
to extend this service to include online repair booking and claim
tracking.
16
16
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Past business reviews
As previously announced, we are conducting two unconnected
past business reviews: the first regarding Motor total loss claims
and the second about the implementation of the FCA's Pricing
Practices Review ("PPR") regulations. These reviews are
progressing well and we aim to complete both reviews in mid
2024. Following extensive review and consultation with the FCA,
we have provided for the cost of the total remediation of £150
million, which we consider to be final. A breakdown is set out in
the CFO review.
In response to these reviews we have carried out extensive read
across activity and have taken steps to improve the control
environment.
Sale of Brokered Commercial business
In September we announced the sale of the brokered
commercial insurance business. The sale crystallised an
attractive valuation for a business we have turned around over
the last ten years, but one that ultimately had a different trading
model and operates in a different part of the UK insurance
market to the rest of the Group.
Following the sale, our strategy is focused on retail personal lines
and small business commercial customers. The proceeds from
the sale and the release of capital increased the Group’s
solvency capital ratio by 46 percentage points.
A positive start to 2024 trading
Trading has been positive in the first two months of the year
with premium growth across all segments. Motor premiums
grew by 21.4%, with a modest reduction in policy count. In
Home, own brand policy count growth was offset by lower
partnership policies, with premiums increasing 14.2% year on
year. There were some weather event claims in the early stages
of the year, with a current estimate of £22 million in Home
compared to a full year assumption of £54 million.
Gross written premium
and associated fees
In-force policies
Feb YTD
£m
Variance to
PY
%
29 Feb
2024
'000s
Change to
Dec 2023
262.8
21.4 %
4,113
(1.6 %)
93.3
14.2 %
2,445
0.0 %
40.3
19.8
47.0
0.5 %
2,110
(2.9 %)
2.8 %
1,924
(2.0 %)
19.1 %
645
0.0 %
Motor
Home
Rescue and other
personal lines
Of which: Rescue
Commercial
Total ongoing
443.4
17.4 %
9,313
(1.4 %)
Jon Greenwood
Outgoing Acting Chief Executive Officer
Strategic Report / Governance / Financial statements
Section 172(1) statement
The Board of Direct Line Insurance Group plc (“Direct Line”) confirms that during the year under review, it has acted in the way
it considers would be most likely to promote the long-term success of the Company for the benefit of its members as a
whole, whilst having regard to the matters set out in Section 172(1)(a)-(f) of the Companies Act 2006 (“Section 172(1)”).
Purpose and Vision
The matters set out in Section 172(1) underpin Direct Line’s purpose and vision and form the foundation for the Board’s
considerations and decision making. Our purpose – to help people carry on with their lives, giving them peace of mind now
and in the future – is centred on customers and their long-term interests. Our vision – to create a world where insurance is
personal, inclusive and a force for good – reflects our desire to do business in a way that benefits all stakeholders, the
environment and wider society.
Stakeholders
Information on Direct Line’s key stakeholders is set out in the Sustainability section of the Strategic report on the following
pages: Customers, pages 51 to 53; People, pages 54 to 57; Society, pages 58 to 60; and the Planet, pages 61 to 65.
Engagement
The Board recognises that our stakeholders have diverse and sometimes competing interests that need to be finely balanced,
and that these interests need to be heard and understood in order for them to be effectively reflected in decision making.
Information about how the Board has engaged with stakeholders during the year and outcomes of that engagement can be
found on page 107 in the table titled “How the Board engages with stakeholders”.
Board decisions and oversight
Examples of how stakeholder engagement and Section 172(1) matters have influenced Board discussion and decision
making during the year can be found in the table titled “Consideration of Section 172(1) factors by the Board” on pages 105
to 106 The table covers a number of key topics including: Consumer Duty implementation; the cost of living crisis; and the
sale of the brokered commercial insurance business. The metrics and processes which the Board looks at to ensure that
business practices and behaviours reflect the Company’s culture, purpose and values, including the impact of decisions on
key stakeholders, are set out on page 109. Information about Board oversight of environmental matters can be found on
pages 70 to 71 in the TCFD Report.
The table below sets out where key disclosures in respect of each of the Section 172(1) matters can be found.
Section 172(1) factor
Relevant disclosures
the likely consequences of any
decision in the long-term
the interests of the Company’s
employees
the need to foster the
Company’s business
relationships with suppliers,
customers and others
the impact of the Company’s
operations on the community
and the environment
the desirability of the Company
maintaining a reputation for
high standards of business
conduct
the need to act fairly between
members of the Company
Mission, vision, purpose and strategic objectives (page 22)
Consideration of Section 172(1) factors by the Board (pages 105 to 106)
Key performance indicators – Colleague engagement scores (page 25)
Outcome of employee engagement (pages 108 to 109)
Diversity and Inclusion (pages 112 to 113)
How the Board engages with stakeholders (pages 107 to 108)
Employee Representative Body (page 109)
Key performance indicators – NPS and customer complaints metrics (pages 53 and 25)
Customer support (pages 51 to 53)
Supply Chain (page 63)
How the Board engages with stakeholders (pages 107 to 108)
Community Fund 2023 (page 58)
Science-Based Targets (page 62)
External ratings, memberships and benchmarks (page 69)
TCFD disclosures (pages 70 to 85)
How the Board engages with stakeholders (pages 107 to 108)
Customer and Sustainability Committee report (pages 127 to 128)
Our values (page 22)
The role of the Board in the Company’s culture (page 103)
Internal controls (pages 115 to 116)
Capital management (page 32)
How the Board engages with stakeholders (pages 107 to 108)
Shareholder voting rights (page 158)
Annual General Meeting (page 259)
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
1717
Strategic Report / Governance / Financial statements Business model
We cover a wide range of customer needs across
personal and small commercial lines
Motor
Home
Van
Landlord
Rescue
Pet
Tradesperson
Business
Travel
We give our customers a choice of brands and channels
We know how to build brand
value and have some of
the most well-known brands
in the UK
Our brands are available direct,
and through price comparison
websites (“PCW”)
We also partner with other
well-known brands
18
Direct Line Group Annual Report and Accounts 2023
We are a fully focused retail personal and small commercial
insurer with fundamental strengths
Motor
44.1%
Home
26.0%
Rescue
20.9%
Over 9.4m
policies1
Commercial direct
6.8%
Pet
1.2%
Other personal lines
1.0%
This is how we create value
Diversified model
Accident repair centres
Our diversified model enables us to generate
premiums from a range of brands and products
across retail personal and small commercial lines.
We own 23 accident repair centres, the largest
network of any insurer, delivering lower repair
costs and providing data-led insights, enabling
us to react to emerging trends and helping
inform our pricing.
Claims management
Balanced investment portfolio
We have a deep specialism in claims handling
and leveraged our claims management
capabilities to win the partnership with Motability.
The premiums we collect from customers are
invested in a diversified investment portfolio
designed to meet our long-term claims
commitments whilst also generating investment
returns. We seek to align our investment
strategy with our sustainability strategy.
Cost control
We’re focused on improving efficiency
through greater use of digital processes
across the business.
Capital management
We aim to manage capital efficiently
and generate long-term sustainable
returns for shareholders, while balancing
operational, regulatory, rating agency,
and policyholder requirements.
1. In-force policies as at 31 December 2023 excluding brokered commercial business and run-off partnerships.
Direct Line Group Annual Report and Accounts 2023
19
Strategic Report / Governance / Financial statements Market Overview
Motor premium and claims inflation
The UK motor market continued to be affected by challenging
conditions, driven by the impact of elevated inflation.
Premium inflation was significant in the year, as the market
reacted to heightened claims inflation. The proportion of new
motor insurance policies in the market rose, as consumers
responded to a rise in premiums with increased shopping,
resulting in a reduction in market retention rates.
Claims inflation remained elevated in 2023, albeit lower than
the levels seen in 2022. In the second half of the year, several
inflationary pressures began to moderate, which included the
stabilisation of used car prices. Repair cost inflation remained
elevated in the market, driven by higher labour costs.
Car usage was higher in the year with miles driven returning
closer to pre-pandemic levels, leading to the market
experiencing an increase in underlying claims frequency.
The Group responded with significant pricing action, as well as
targeted action on its underwriting portfolio. We also continued
to expand our repair network capabilities to repair vehicles as
efficiently and economically as possible. See pages 40 to 41 for
more information.
Home premium and claims inflation
The UK household market experienced strong premium inflation
in 2023 driven by claims inflation, which included pressures
from the severe freeze event in December 2022, and higher
reinsurance pricing. These trends saw the volume of consumers
shopping in the market increase.
The market experienced a number of weather events in the
year, particularly in the fourth quarter, in which there was a
high frequency of named weather events. Despite this, the
impact of these events was smaller when compared to those
experienced in 2022, partly due to the mitigating effect of
reinsurance provided by Flood Re.
The Group focused on maintaining margins throughout the
year, in line with market wide premium inflation, whilst growing
its share of new business through the PCW channel. See pages
42 to 43 for more information.
Consumer trends
During 2023, the market focused on offering consumers access
to a greater range of cover options during a period of high
premium inflation and the cost of living crisis, which continues
to see customers remaining price sensitive.
Elsewhere, consumers are placing increased importance
on multi-channel, self-serve and digital journeys. In addition,
the future of the electric vehicle landscape continues to see
products and propositions evolve in the market.
In response to these trends, we have delivered greater product
choice to customers, continued to make it easier for customers
to engage with us through digital journeys and expanded our
repair capacity and capabilities.
The Group welcomes the FCA’s
Consumer Duty, which aligns with our
purpose to help people carry on with
their lives, giving them peace of mind
now and in the future.
Financial Conduct Authority Consumer Duty
The FCA’s Consumer Duty came into effect on 31 July 2023 and
introduced higher expectations for the standard of care that
financial service firms should provide to customers, as well as
introducing a more outcomes-focused approach.
The Group welcomes the FCA’s Consumer Duty, which aligns
with our purpose to help people carry on with their lives, giving
them peace of mind now and in the future. As part of the
implementation of Consumer Duty, we reviewed all our critical
customer journeys, enhanced our methodology to put testing
customer understanding at the heart of our thinking and
embedded predicting customer harm in our ways of developing
journeys and customer experience. Our new Riverbank House
office in London, which was opened in August 2023, includes
a purpose-built user experience testing facility where we can
meet with customers to test new experiences and place
customers at the heart of any changes we make.
Climate change
A focus on climate remains, with particular emphasis placed
on how firms are assessing and managing longer-term
climate-related risks. Increased importance is also being given
to the communication of plans that companies have in place to
support the transition to a low-carbon economy. This includes
the actions that are being taken to progress against emission
reduction targets and net zero aims. Furthermore, we continue
to expect an increase in regulatory focus on how firms are
managing climate-related financial risks, as well as how this is
reported, supported by developments in reporting frameworks
and disclosure requirements.
The Group continues to respond to climate change, and
we take our responsibilities seriously in our assessment of
climate-related risks to our business. Our disclosure against
the recommendations of the Task Force on Climate-related
Financial Disclosures (“TCFD”) (see pages 70 to 85) sets out our
strategic response to climate change and reflects continued
action to further develop our understanding and management
of the associated risks and opportunities. The disclosure reports
on the progress we have made in the year against our carbon
emissions reduction targets, which were approved by the
Science Based Targets initiative (“SBTi”) in 2022.
20
Direct Line Group Annual Report and Accounts 2023
The Group continues to respond
to climate change, and we take
our responsibilities seriously in our
assessment of climate-related risks
to our business.
In June 2023, the International Sustainability Standards Board
(“ISSB”) issued its Sustainability Disclosure Standards, IFRS S1
and S2. The Standards are currently subject to UK endorsement,
which is expected later in 2024. The TCFD’s monitoring
responsibilities will be transferred to the ISSB from 2024.
The Group welcomes the ISSB’s new Sustainability Disclosure
Standards and appreciates the value the Standards will have
in evolving the global baseline for climate-related reporting.
Solvency II reforms
In June 2023, HM Treasury published two draft statutory
instruments allowing it to implement reform to the calculation
of the risk margin, ahead of other proposed reforms to Solvency
II in the UK. The revised calculation reduces the amount of risk
margin that insurers must hold and applies to both general
insurance business and long-term life insurance business,
which includes Periodic Payment Orders (“PPOs”).
In December 2023, these regulations were laid before
parliament and came into force on 31 December 2023.
In line with the Government’s legislative plans, the remainder
of the regime reforms are expected later in 2024.
Direct Line Group Annual Report and Accounts 2023
21
Strategic Report / Governance / Financial statements Strategy
Our mission is to be brilliant
for customers every day
Our vision is to create a world where
insurance is personal, inclusive and
a force for good
Our purpose is to help people carry
on with their lives, giving them peace
of mind now and in the future
Our values
Our values shape the Group’s strong and positive culture. They set the expectations for how we want our people to deliver
in their role. Colleagues use these shared values as a set of guiding principles to help them to work together effectively,
make good decisions, and deliver for our customers.
Win together
Be yourself
Nobody has all the answers. Think, act and win as one
team to deliver great outcomes for our customers each
and every day. Draw upon diverse skills and perspectives,
testing and iterating as you go. Collaborate, communicate
and be inclusive.
We want the real, whole you and value diverse
perspectives, ideas and opinions. So feel confident and
empowered. Believe in yourself as much as we do.
Be you, have fun, and make this a great place to be.
Own it
Speak up
Make it happen. Spot the opportunities, take the initiative
and be accountable. Be brave, innovative and embrace
new challenges, doing what’s right not what’s easy.
Keep it simple and take risks in a positive way.
Develop new skills, own your own career path and push
your talent to the limit.
We need different perspectives, so your input matters.
Ask questions, make suggestions, raise concerns but be
respectful and make the space to listen to others.
Face into difficult conversations so we continue to
evolve and improve.
22
Direct Line Group Annual Report and Accounts 2023
Our core strengths and capabilities drive our strategy
Growth opportunities
We look to innovate for future success, be
it developing new products, services and
digital tools, to understanding the latest car
tech or tackling climate change.
Core strengths
We have powerful, trusted brands
with unique propositions and high
customer retention.
We provide customers with a
claims experience that combines leading
capabilities and repair expertise which uses
our network of 23 accident repair centres,
the largest network of any UK insurer.
Enhanced capability
We are delivering easy digital-first journeys
so if customers want the simplicity of
managing their insurance online, they can.
If they prefer the phone, we’re there for them.
We can price at speed and with greater
accuracy thanks to the combination of our
historical data and new pricing systems.
Efficient
cost base
Innovating for
success
Data,
technology
and agile
ways of
working
Customer
focus
Pricing
sophistication
Claims
expertise
Our sustainability pillars
We believe that by working sustainably we can create value for all our stakeholders. Our five pillar Sustainability Strategy
supports our vision of creating a world where insurance is personal, inclusive and a force for good.
Customers
People
Society
Planet
Governance
Direct Line Group Annual Report and Accounts 2023
23
Strategic Report / Governance / Financial statements
Our key performance
indicators
(0.9)%
(8.3)%
22
23
(2.7)%
Net insurance margin - ongoing
operations1 ("NIM") (%)
Definition
A measure of financial year underwriting
profitability. A positive NIM indicates
profitable underwriting. The NIM is
calculated by dividing the net insurance
service result by net insurance revenue.
Aim
We aim to produce a profitable insurance
service result and the Group has an ambition
over time to generate a NIM of above 10%,
normalised for weather.
For additional performance information see
page 28
Remuneration
We base part of the Annual Incentive Plan
(“AIP”) awards on operating profit. The NIM is
closely linked to this.
For additional performance information see
pages 132 and 140
Operating return on tangible
equity ("Operating RoTE")1 (%)
Definition
The return generated on the capital that
shareholders have in the business. This is
calculated by dividing adjusted operating
earnings by average tangible equity.
Aim
We do not set a target. However our aim is to
grow operating RoTE.
For additional performance information see
page 31
(2.7)
(12.8)
22
23
277.4
(14.9)%
Remuneration
We base the LTIP awards partly on adjusted
RoTE over a three-year performance period.
For additional performance information see
pages 132 and 143
22
23
(301.8)
22
23
Operating loss per share - ongoing
operations1 (pence)
Definition
This is calculated by dividing the earnings
attributable to shareholders less coupon
payments in respect of Tier 1 notes and
restructuring and one-off costs by the
weighted average number of Ordinary
Shares in issue.
Aim
We have not set a target. However, our aim is
to grow operating earnings per share.
For additional performance information see
page 31
Remuneration
We based the 2023 Long-term Incentive Plan
("LTIP") partly on operating earnings per
share.
For additional performance information see
page 143
(Loss)/profit before tax (£m)
Definition
A measure of overall profitability of the
Group, including the insurance service result,
investment return, net insurance finance
result and other operating income, expenses
and finance costs.
Aim
Profit before tax includes income and
expenses that are outside of management
control, although it does aim to operate
profitably.
For additional performance information see
page 27
Remuneration
We base part of the AIP awards on operating
profit. Profit before tax is closely linked to this.
For additional performance information see
pages 132 and 140
Notes:
1. See glossary on pages 261 to 264 and Appendix A – Alternative performance measures on pages 265 to 266 for reconciliation to financial statement
line items.
24
24
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Changes to our KPIs in 2023
Our metrics are reviewed annually and updated as appropriate
to ensure they remain an effective measure of delivery against
our objectives. For 2023, the review of these metrics resulted in
the following changes:
Following adoption of IFRSs 17 and 9, the Group no longer
uses combined operating ratio to measure underwriting
profitability and has, instead, adopted net insurance margin as
it more closely resembles how the Group runs the business.
KPIs that have been impacted by the Group's adoption of
IFRSs 17 and 9 have been restated for 2022. Earlier periods
have not been recalculated and have not been reported.
Comparative numbers will in due course be built back up to
disclose five years of data.
In previous years the Group used earnings per share as one of its
KPIs. As LTIP awards granted by the Group during 2023 included
an operating earnings per share performance measure the KPI
was updated to reflect the relationship to remuneration.
Net promoter score continues to be a key measure of
performance and is disclosed on page 53.
189% 191%
176%
197%
147%
19
20
21
22
23
0.88
0.63
0.61
0.51
0.46
19
20
21
22
23
Solvency capital ratio1,2,3 (%)
Definition
A risk-based measure expressing the
level of capital resources held as a
percentage of the level of capital that
is required under Solvency II.
Aim
Under normal circumstances, the
Group aims to maintain a solvency
capital ratio around the middle of the
risk appetite range of 140% to 180%.
For additional performance information
see page 32
Remuneration
Solvency capital ratio within our risk
appetite is an indicator of capital
strength, which is one of the gateways
for the AIP awards and an underpin
for LTIP awards.
For additional performance information
see page 132
Customer complaints5 (%)
Definition
The number of complaints we
received during the year as a
proportion of the average number of
in-force policies.
Aim
This measure indicates where our
customer service has not met
expectations to the extent that the
customer has initiated a complaint.
We aim to improve this over time.
Remuneration
The AIP awards include a weighting to
a balance of customer metrics,
including complaints.
For additional performance information
see page 132 and 141
78
74
72
72
66
19
20
21
22
23
14,533
6,609
11,697
Colleague engagement4 (%)
Definition
Engagement is the degree in which
our colleagues use their cognitive,
emotional, and behavioural energies
to help the Group achieve our
company goals. We partner with Viva
Glint to regularly monitor engagement
levels across the Group.
Aim
To make the Group best for our
customers and best for our colleagues.
We gauge employee engagement
through our colleague opinion surveys
and we aim for high colleague
engagement scores each year.
Remuneration
The AIP awards include a weighting to
a balance of employee metrics,
including engagement.
For additional performance information
see pages 132 and 141
Operational emissions1
(tCO2e)
Definition
Operational emissions are defined as
the Scope 1 and 2 emissions across
our buildings and accident repair
centres.
10,187
3,886
7,924 7,811
8,982
3,155
2,453
6,999
7,032
2,499
6,529
Aim
We aim to reduce Scope 1 and 2
emissions by 46% by 2030 from a 2019
base year.
4,500
For additional performance information
see pages 62 and 64
22
23
19
20
21
n Scope 1
n Scope 2
Remuneration
From 2022, the LTIP awards have an
emissions performance condition
which includes a targeted reduction in
emissions and temperature score.
For additional performance information
see page 143
2. The 2019 solvency capital ratio has been adjusted to remove the cancelled 14.4p final dividend and £120 million of the share buyback as
announced in March/April 2020. (The reported number was a solvency capital ratio of 165%).
3. Estimates based on the Group’s Solvency II partial internal model.
4. The methodology for determining colleague engagement changed in 2022 as a result of a change of survey provider. Engagement scores for the
years 2018 to 2021 are presented on a consistent basis. The 2022 score was assessed against a benchmark score of 75% and is not directly
comparable to the scores in 2021 and prior years.
5. For the Group’s principal underwriter, U K Insurance Limited.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
25
25
Strategic Report / Governance / Financial statements CFO
review
The Group’s solvency capital
ratio at the end of 2023
improved to 201%, following
significant management action
and benefiting from the sale of
the Group's brokered
commercial business.
Neil Manser
Chief Financial Officer
Financial Summary
– Stable policy count overall as the introduction of over 700,000
new Motability customers offset lower policies elsewhere
primarily in Motor and associated Rescue.
– Gross written premium and associated fees increased by
27.1% during 2023, with 46.2% growth in the second half.
– Net insurance margin of minus 8.3% was impacted by the
continued earn through of Motor policies written during 2022
and first half of 2023. Outside of Motor, the Group delivered a
good result and a net insurance margin of 12.2%.
– In Motor, premium rate increases contributed to a 5.8
percentage point improvement in the current year net
insurance claims ratio in the second half of 2023. Motor
policies written since August estimated to be in line with the
Group’s ambition of a net insurance margin of above 10%.
– Operating loss from ongoing operations of £189.5 million in
2023, compared to a loss of £6.4 million in 2022, with the
adverse movement in the net insurance margin partially offset
by an increase in investment income. The proceeds of the sale
of the Group’s brokered commercial business contributed to a
profit before tax of £277.4 million, up from a loss before tax of
£301.8 million in 2022.
– The Group’s solvency capital ratio at the end of 2023
improved to 201%, following significant management action
and benefiting from the sale of the brokered commercial
business. A dividend of 4.0 pence per share is proposed, with
the solvency capital ratio, post-dividend, equal to 197%.
26
26
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Group financial performance
Ongoing operations1
In-force policies2 (thousands)
Ongoing operations1
Gross written premium and associated fees4
Net insurance revenue4
Insurance service result
Net insurance margin4
Combined operating ratio4
Net insurance claims ratio4
Net acquisition ratio4
Net expense ratio4
Normalised net insurance margin4
Investment income
Unwind of discounting of claims4
Other operating income and expenses before restructuring and one-off costs
Operating loss - ongoing operations¹ ⁴
Of which:
Current-year operating (loss)/profit4
Prior-year reserve development
FV gains/(losses)4
Effect of change in yield curve4
Restructuring and one-off costs
Brokered commercial business
Run-off partnerships1
Other finance costs
Gain on disposal of business
Profit/(loss) before tax
Tax (charge)/credit
Profit/(loss) for the year attributable to the owners of the Company
KPIs
Operating return on tangible equity4
Basic earnings/(loss) per share (pence)
Diluted earnings/(loss) per share (pence)
Operating loss per share (pence)
Return on equity annualised4
Investments metrics
Investment income yield4
Capital and returns metrics
Dividend per share – total ordinary (pence)
Net asset value per share (pence)
Tangible net asset value per share (pence)
Solvency capital ratio - post dividend5
Strategic Report / Governance / Financial statements
2023
2022
Change
9,442
FY 2023
9,397
FY 2022
£m £m (restated3)
Notes
0.5%
Change
£m
27.1%
2.6%
(188.3)
(7.4pts)
(7.4pts)
(6.9pts)
0.2pts
(0.7pts)
2,443.6
2,481.8
(23.5)
(0.9%)
100.9%
74.9%
7.0%
19.0%
1.7%
(11.3pts)
94.1
(50.4)
(26.6)
(6.4)
50.7%
(68.3)
97.0%
(183.1)
(41.8)
35.4
(2.0)
(181.1)
(342.5)
136.3%
60.7
(45.3)
62.9
(10.8)
(20.4)
—
(301.8)
(142.0%)
(31.3%)
(56.1%)
(18.7)
28.9%
0.0%
579.2
69.9
(124.4)
(231.9)
454.8
(2.7%)
(12.2pts)
(19.1)
(19.1)
(2.7)
(11.6%)
35.0
34.8
(10.1)
22.2pts
2.1%
2022
1.4pts
Change
7.6
(47.4%)
142.1
78.8
147%
11.6%
21.2%
50pts
3,106.0
2,547.5
(211.8)
(8.3%)
108.3%
81.8%
6.8%
19.7%
(9.6%)
141.8
(118.7)
(0.8)
(189.5)
(43.8)
(145.7)
124.4
(25.5)
(59.5)
27.6
(29.5)
(14.5)
443.9
277.4
(54.5)
222.9
(14.9%)
15.9
15.7
(12.8)
10.6%
3.5%
2023
4.0
158.6
95.5
197%
10
10
11
11
Notes:
1. Ongoing operations and run-off partnerships – See glossary on pages 261 to 264 for definitions and appendix A – Alternative Performance Measures
2.
on pages 265 to 268 for reconciliation to financial statement line items.
In-force policies as at 31 December 2022 have been restated to remove 14,500 Commercial policies that were previously included in the reported
amounts in error.
3. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
4. See glossary on pages 261 to 264 for definitions and appendix A – Alternative Performance Measures on pages 265 to 268 for reconciliation to
financial statement line items
5. Estimates based on the Group’s Solvency II partial internal model.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
2727
Strategic Report / Governance / Financial statements
CFO review continued
Group financial performance
Ongoing operations1
In-force policies (thousands)2,3
31 Dec
2023
9,442
30 Sep
2023
30 Jun
2023
31 Mar
2023
31 Dec
2022
9,518
9,071
9,228
9,397
FY 2023
£m
3,106.0
FY 2022
Change
£m
restated4
2,443.6
27.1%
(331.6)
50.2
42.0
27.6
(211.8)
141.8
(118.7)
(0.8)
(189.5)
(8.3%)
81.8%
75.1%
5.7%
1.0%
6.8%
19.7%
(9.6%)
(70.7)
(369.0%)
(3.5)
1534.3%
55.7
(24.6%)
(5.0)
652.0%
(23.5)
94.1
(50.4)
(26.6)
(6.4)
(0.9%)
74.9%
71.3%
(1.4%)
5.0%
7.0%
(801.3%)
50.7%
(135.5%)
97.0%
(2860.9%)
(7.4pts)
(6.9pts)
(3.8pts)
(7.1pts)
4.0pts
0.2pts
19.0%
(0.7pts)
1.7%
(11.3pts)
In-force policies and gross written premium and
associated fees1,2
In-force policies from ongoing operations were 9.4 million at the
end of December, in line with the end of 2022 as the
introduction of over 700,000 new Motability customers offset a
reduction in the number of own brand policies. Own brand
policy reductions were largest in Motor, where we strongly
increased premiums to achieve target margins. This also led to a
reduction in linked Rescue policies.
Gross written premium and associated fees from ongoing
operations grew by 27.1% to £3,106.0 million predominantly
due to premium rate increases and the contribution from the
Motability partnership delivering strong growth of 42.9% in
Motor, 10.1% in Commercial and 6.4% in Home, offset by a small
decline in Rescue and other personal lines.
Total Group in-force policies were 12.0 million which was in line
with 2022, and gross written premium and associated fees was
£3,921.9 million compared with £3,098.4 million in 2022.
Insurance service result1
In 2023, the Group's net insurance margin was minus 8.3%
(2022: minus 0.9%) and normalised for weather, it was minus
9.6% (2022: 1.7%). This represents an insurance service result
from ongoing operations of a loss of £211.8 million (2022:
£226.6 million) , compared with a loss of £23.5 million in 2022.
Gross written premium and associated fees2,4
Insurance service result
Motor
Home
Rescue and other personal lines - ongoing operations1
Commercial
Insurance service result - total ongoing operations
Net investment income
Unwind of discounting of claims5
Other operating income and expenses before restructuring and one-off costs
Operating (loss)/profit - ongoing operations5
Net insurance margin5
Net insurance claims ratio5
Current-year attritional net insurance claims ratio5
Prior-year reserves development ratio5
Major weather events ratio5
Net acquisition ratio5
Net expense ratio5
Normalised net insurance margin5
IFRS17 and description of operating (loss)/profit
This is the first set of annual results that the Group is reporting
under IFRS 17, the new insurance accounting standard for
insurance contracts. Although the new standard does not
change the economics of the Group, it does introduce new
disclosure headings and some changes in timing of recognition.
For example, insurance claims are now all discounted to reflect
the time value of money.
The table above sets out the Group’s operating loss for ongoing
operations. Significant items excluded from operating loss for
ongoing operations include the results from certain partnerships
that are now in run-off, the results from the brokered
commercial business, the sale of which we announced in
September, fair value movements on investments and the effect
of changes of discount rates on brought forward claims reserves.
These items are discussed later in this report.
2023 performance
Overall, gross written premium grew by 27.1% in 2023 however,
operating profit was adversely affected by the earn through of
below target margin Motor policies that were written in 2022
and the first half of 2023, alongside remediation provisions
arising from past business reviews. Outside of Motor, results in
Home, Rescue and Commercial were good and benefited from
relatively benign weather conditions. Net investment income
improved due to the effect of higher interest rates and this was
largely offset by an increase in the unwinding of previous
periods discounting. Overall operating loss for ongoing
operations was £190 million, split between an operating loss of
£319.6 million in Motor and an operating profit of £130.1 million
outside of Motor.
28
28
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Ongoing operations (£m)
2023
2022
Variance
Insurance service
result
Of which:
Motor - current year
Motor - prior year
Home
Rescue and other
personal lines
Commercial
(211.8)
(23.5)
(188.3)
(193.2)
(138.4)
50.2
42.0
27.6
(75.0)
4.3
(3.5)
55.7
(5.0)
(118.2)
(142.7)
53.7
(13.7)
32.6
This £188.3 million deterioration in the ongoing operations
insurance service result was predominantly driven by Motor,
with prior year strengthening alongside an adverse movement
in current year reflecting the earn through of lower margin
business. This was partially offset by more benign weather
conditions helping deliver a £53.7 million improvement in
Home’s profitability, alongside a recovery in the Commercial
result.
We are currently conducting two past business reviews and
approximately £104 million was recognised for these in 2023.
Excluding these provisions, the net insurance margin would
have been 4.1 percentage points better.
Impact of past business reviews on reported net insurance margin
Total loss £m
Pricing practices £m
Total remediation provisions £m
Reported net insurance margin
Remediation impact (pts)
Adjusted net insurance margin
Ongoing operations
2023
78
26
104
(8.3) %
2022
28
18
Motor
2023
78
14
2022
28
13
Home
2023
—
12
46
(0.9) %
92
(21.1) %
41
(4.8) %
12
10.0 %
2022
—
5
5
(0.8) %
4.1 pts
1.8 pts
5.9 pts
2.8 pts
2.1 pts
1.1 pts
(4.2) %
0.9 %
(15.2) %
(2.0) %
12.1 %
0.3 %
The insurance service result for Motor was a £331.6 million loss
(2022: £70.7 million loss) with a 15.9pts increase in the Motor net
insurance claims ratio. This reflected the earn through of below
target margin business written during 2022 and in the first half
of 2023, alongside adverse experience on prior-year reserves.
Performance improved in the second half of 2023, with the net
current year claims ratio 5.8 percentage points better than the
first half of 2023 as higher premiums from rate increases started
to earn through, together with a more stable claims
environment.
Outside of Motor, our other ongoing business areas delivered a
good set of results, with a cumulative insurance service result of
£119.8 million across Home, Rescue and other personal lines
and Commercial (2022: £47.2 million) and a net insurance
margin of 12.2% (2022: 4.7%).
Overall, the Group delivered a net insurance claims ratio from
ongoing operations of 81.8% (2022: 74.9%).
The current year attritional claims ratio increased by 3.8pts to
75.1% primarily driven by a 6.8pts increase in Motor. Outside of
Motor, Home and Rescue and other personal lines saw modest
increases in their current year attritional claims ratios, offset by a
significant improvement in Commercial.
Weather-related claims for ongoing operations in the year were
£27 million, less than our 2023 assumption for ongoing
operations of £59 million and £122 million lower than prior year.
Our 2024 weather-related claims assumption for Home and
Commercial combined is £62 million.
Prior-year reserve movements were impacted by a
£138.4 million reserve strengthening in Motor which included a
£78 million increase in the cost for the remediation from the
total loss past business review. This delivered a deterioration in
the prior-year reserve movement from ongoing operations from
a release of £35.4 million in 2022 to a strengthening of
£146 million in 2023. Outside of Motor, Home saw a £8.9 million
release, but this was offset by a strengthening within the
Commercial Van product. As previously set out, the opportunity
for prior-year reserve releases in the short term remains low.
The net acquisition ratio from ongoing operations decreased by
0.2pts to 6.8%, as a reduction in marketing costs was only
partially offset by an increase in commissions. The expense ratio
from ongoing operations increased by 0.7pts to 19.7% primarily
due to higher amortisation and depreciation costs as well as
underlying inflation in IT and other costs. Staff costs increased by
less than wage inflation.
In 2024 we expect the expense ratio for ongoing operations will
be broadly stable.
Expenses in insurance service result
Commission expenses
Marketing
Acquisition expenses
Staff costs6
IT and other operating expenses6,7
Insurance levies
Depreciation, amortisation and
impairment of intangible and fixed
assets8
Operating expenses
Total expenses - ongoing
operations
Total expenses - run-off
partnerships
Total expenses
Net acquisition ratio5 - ongoing
operations
Net acquisition ratio5 - total Group
Net expense ratio5 - ongoing
operations
Net expense ratio5 - total Group
FY 2023
£m
(111.1)
(62.7)
(173.8)
(194.6)
(102.9)
(81.2)
(123.4)
(502.1)
(675.9)
(24.5)
(907.9)
6.8%
9.3%
19.7%
19.7%
FY 2022
(restated)³
£m
(95.9)
(77.9)
(173.8)
(188.6)
(85.6)
(83.0)
(114.9)
(472.1)
(645.9)
(23.2)
(871.0)
7.0%
9.7%
19.0%
18.7%
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
2929
Strategic Report / Governance / Financial statements
CFO review continued
Investment result and unwind of discount rate1
Net investment income increased to £141.8 million (2022: £94.1
million) primarily driven by yield improvements in variable rate
asset classes benefiting from a rising interest rate environment.
This represents an investment income yield of 3.5%. Based on
current yields, we estimate an investment income yield of
around 3.8% for 2024 and 3.9% for 2025.
Investment income
Investment fees
Net investment income
Insurance and reinsurance finance
expenses - unwind of discounting
of claims
Finance income and expenses in
operating profit
Investment income yield (total
Group)
FY 2023
£m
149.1
(7.3)
141.8
FY 2022
£m
restated4
101.9
(7.8)
94.1
(118.7)
(50.4)
23.1
43.7
FY 2023
FY 2022
3.5%
2.1%
The increase in investment income was offset by an increase in
the unwind of the discounting of claims. The unwinding of prior-
period discounting in 2024 is expected to be similar to 2023.
Reconciliation of operating (loss)/profit to basic
earnings/(loss) per share
Note
Motor
Home
Rescue and other personal lines -
ongoing operations¹
Commercial
Operating loss - ongoing
operations¹
Operating profit - brokered
commercial business¹
Operating loss - run-off
partnerships¹
Operating (loss)/profit - total
Group
Restructuring and one-off costs
Net fair value gains/(losses)5
Net insurance finance income -
effect of change in yield curve
Other finance costs
Gain on disposal of business
9
Tax (charge)/credit
FY 2023
£m
(319.6)
52.4
48.0
29.7
FY 2022
£m
restated4
(64.8)
0.9
60.1
(2.6)
(189.5)
(6.4)
27.6
62.9
(29.5)
(10.8)
(191.4)
(59.5)
124.4
(25.5)
(14.5)
443.9
(54.5)
45.7
(45.3)
(342.5)
60.7
(20.4)
—
69.9
Profit/(loss) for the year
attributable to the owners of
the Company
Basic earnings/(loss) per share
(pence)
222.9
(231.9)
13
15.9
(19.1)
Operating return on tangible
equity annualised5
(14.9%)
(2.7%)
Ongoing operations and run-off segments1
The Group has excluded the results of the brokered commercial
business and three run-off partnerships from its ongoing results.
Results relating to ongoing operations are clearly referenced.
Note 4 (Segmental analysis) has also been amended to reflect
the change. The insurance service result including run-off
segments was a loss of £251.4 million (2022: £14.3 million profit).
Brokered commercial business
The Group has excluded the results of the brokered commercial
business from its ongoing results and has restated all relevant
comparatives across this review. We agreed the transfer of the
Group’s brokered commercial lines insurance business and
associated partnerships to Royal and Sun Alliance Insurance
Limited with effect from 1 October 2023 through a combination
of quota share reinsurance and a form of renewal rights transfer.
As a result, the economic effect of the brokered commercial
insurance business moved to Royal and Sun Alliance Insurance
Limited and the back book of policies has remained with the
Group. The operating profit relating to the brokered commercial
business in 2023 was £27.6 million (2022: £62.9 million). The
formal separation and operational transfers are expected to start
in the second quarter of 2024, with subsequent transfers of
outstanding elements of the overall brokered commercial
insurance business to follow.
Run off partnerships
These partnerships are in Travel and Rescue and have either
been exited or termination has been initiated. This will reduce
the Group’s exposure to low margin packaged bank accounts so
it can redeploy capital to segments with higher return
opportunities. The two Travel partnerships were with NatWest
Group and Nationwide Building Society and expire in 2024. The
Rescue partnership was with NatWest Group and expired in
December 2022. The operating loss relating to run off
partnerships in 2023 was £29.5 million (2022: £10.8 million loss).
Net fair value gains/(losses)
Net fair value gains in the period were £124.4 million, a
significant improvement on 2022 reflecting the tightening of
credit spreads and interest rate movements. Fair value gains on
debt securities, derivatives and investment property was £125.0
million (2022: £341.9 million loss).
Net insurance finance income
The net insurance finance expenses reflects the effect of
changes in the yield curve and the ASHE index on the
discounting of previously recognised PPO claims.
Restructuring and one-off costs
The Group incurred £59.5 million of restructuring and one-off
costs in 2023, which were predominantly driven by work carried
out in relation to the Group’s two past business reviews, cost
efficiency initiatives and impairments.
Gain on disposal of brokered commercial business
In 2023 the Group announced the sale of its brokered
commercial business for a consideration of £520 million, which
was received by the Group in October. After deducting £76.1
million for transaction costs, disposal of assets, and asset
impairment, this resulted in a gain on disposal of £443.9 million.
Other finance costs
Other finance costs fell to £14.5 million (2022: £20.4 million)
primarily as a result of the redemption of the Group's £250
million 9.25% Tier 2 subordinated notes on 27 April 2022.
30
30
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Effective corporation tax rate
Cash flow
The Effective Tax Rate ("ETR") for 2023 was 19.6% (2022: 23.2%),
which was lower than the standard UK corporation tax rate of
23.5% (2022: 19.0%). This was driven primarily by the offset of
capital losses brought forward, which had not previously been
recognised in deferred tax, together with tax relief for coupon
payments on the Group's Tier 1 notes, which are accounted for
as a distribution, partly offset by disallowable expenses and the
tax effect of a property revaluation.
Due to the offset of capital losses against the capital gain arising
on the sale of the brokered commercial business in 2023, the
ETR is lower than the restated ETR for 2022, which reflected the
rate differential between the in-force corporation tax rate for
2022 of 19% and future enacted tax rates (25% from 1 April
2023) on tax adjustments arising on transition from IFRS 4 to
IFRS17 and IFRS9 to be relieved in subsequent periods at higher
standard tax rates.
Operating return on tangible equity 1,5
The operating return on tangible equity decreased by 12.2pts to
minus 14.9% (2022: minus 2.7%) due primarily to the decrease
in the Group's operating profit from ongoing operations.
Earnings/(loss) per share
The basic earnings per share for period was 15.9 pence (2022:
loss of 19.1 pence). Diluted earnings per share were also 15.7
pence (2022: loss of 19.1 pence), mainly reflecting an increase in
the Group's post tax loss for the calculation of earnings per share
in 2023. Operating loss per share was 12.8 pence (2022: loss of
2.7 pence).
The financial performance of the Group is discussed in detail on
pages 28 to 32. The calculation of earnings/(loss) per share is
presented in note 13 on page 220. The calculation of operating
earnings/(loss) per share is presented on page 268.
Notes:
1. Ongoing operations – See glossary on pages 261 to 264 for definitions
and appendix A – Alternative Performance Measures on pages 265 to
266 for reconciliation to financial statement line items.
2. See appendix B for additional data on in-force policies and gross
3.
written premium and associated fees.
In-force policies as at 31 December 2022 and 31 March 2023 have
been restated to remove 14,500 and 19,700 Commercial policies
respectively that were previously included in the reported amounts in
error.
4. Prior period comparatives have been restated on transition to IFRS 17
'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1
and 40 for further details.
5. See glossary on pages 261 to 264 for definitions and appendix A –
Alternative performance measures on pages 265 to 266 for
reconciliation to financial statement line items.
7.
6. Staff costs and other operating expenses attributable to claims
handling activities are allocated to the cost of insurance claims.
IT and other operating expenses include professional fees and
property costs.
Includes right-of-use ("ROU") assets and property, plant and
equipment. For the year ended 31 December 2023, there were no
impairment charges which relate solely to own occupied freehold
property (2022: no impairments).
8.
Net cash generated from
operating activities
Of which:
Operating cash flows
before movements in
working capital
Movements in working
capital
Tax paid
Cash generated from
investment of insurance
assets
Net cash generated from/
(used in) investing activities
Net cash used in financing
activities
Note
2023
£m
2022
£m
restated1
404.9
800.2
(284.6)
26.7
416.6
(30.9)
49.6
(44.5)
304.4
768.1
398.3
(100.8)
(51.8)
(657.5)
Net increase in cash and
cash equivalents
Cash and cash equivalents at
the beginning of the year
Cash and cash equivalents
at the end of the period
25
751.4
41.9
938.4
896.5
25
1,689.8
938.4
Note:
1. Prior period comparatives have been restated on transition to IFRS 17
'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1
and 40 for further details.
The Group’s cash and cash equivalents increased by £751.4
million during the year (2022: £41.9 million increase) to £1,689.8
million.
The Group had an operating cash outflow before movements in
working capital of £284.6 million (2022: inflow £26.7 million), a
reduction of £311.3 million due to an increase in non-cash
movements. After taking into account movements in working
capital, the Group's cash inflow was £100.5 million (2022:
outflow £32.1 million), an increase of £68.4 million. The Group
has considerable assets under management, the cash
generated from these assets decreased by £463.7 million to
£304.4 million as proceeds from the disposal and maturity of
debt securities held at fair value through profit or loss ("FVTPL")
exceeded purchases. Net cash generated from operating
activities was £404.9 million (2022: £800.2 million).
Net cash generated from investing activities of £398.3 million
primarily reflected net proceeds from the sale of the brokered
commercial business of £469.7 million, offset with the Group's
continuing investment in its major IT programmes (2023: £124.1
million, 2022: £108.4 million).
Net cash used in financing activities of £51.8 million included
£16.6 million in Tier 1 capital coupon payments and £nil in
dividends in the year (2022: £314.5 million in dividends and Tier
1 capital coupon payments), £nil in share buybacks (2022: £50.1
million) and £10.8 million (2022: £8.9 million) lease principal
payments. Also included in 2022 was the redemption of the
remaining £250.0 million Tier 2 subordinated debt issued in
2012.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
3131
Strategic Report / Governance / Financial statements
Capital Returns (£million)
595.2
100.0
195.5
401.3
100.0
299.7
301.3
128.6
30.0
98.6
149.1
50.1
99.0
52.0
2019
2020
2021
2022
2023
n Ordinary dividends
n Special dividends
n Buyback programmes
Capital analysis
The Group is regulated under Solvency II requirements by the
PRA on both a Group basis and for the Group’s principal
underwriter, U K Insurance Limited. In its results, the Group has
estimated its Solvency II own funds, SCR and solvency capital
ratio as at 31 December 2023.
Capital position
At 31 December 2023, the Group held a Solvency II capital
surplus of £1.10 billion above its regulatory capital requirements,
which was equivalent to an estimated solvency capital ratio of
197%
At 31 December
Solvency capital requirement (£
billion)
Capital surplus above solvency
capital requirement (£ billion)
Solvency capital ratio post-
dividends
2023
1.13
1.10
2022
1.21
0.57
197%
147%
CFO review continued
The £404.9 million the Group generated from operating
activities and £398.3 million generated from investing activities
more than offset net cash used in financing activities and
resulted in a net increase in cash and cash equivalents of £751.4
million (2022: £41.9 million increase) to £1,689.8 million (2022:
£938.4 million). The sale of the Groups brokered commercial
business contributed £469.7 million to the net increase in cash
and cash equivalents. The levels of cash and other highly liquid
sources of funding that the Group holds to cover its claims
obligations are continually monitored with the objective of
ensuring that the levels remain within the Group’s risk appetite.
Balance sheet management
Capital management and dividend policy
The Group's capital management and dividend policy is as
follows:
"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 intends to return any surplus to
shareholders. In normal circumstances, the Board expects that a
solvency capital ratio around the middle of its risk appetite
range of 140% to 180% of the Group’s solvency capital
requirement ("SCR") would be appropriate and it will therefore
take this into account when considering the potential for special
distributions.
"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."
The Board is proposing a dividend in respect of 2023 of 4.0
pence per share (£52 million) reflecting the Group’s strong
capital position following the sale of the brokered commercial
business and good performance in Home, Commercial and
Rescue. While the Board is confident in the actions taken in
Motor, it recognises that the period over which to judge the
sustainability of Motor’s capital generation has been short and
consequently this dividend should not be regarded as a
resumption of regular dividends. The Board will update on any
changes to its dividend policy, alongside the conditions it has
previously set to consider restarting regular dividends, in July to
coincide with its planned strategy update.
The final dividend is to be recommended to the shareholders at
the annual general meeting scheduled for 8 May 2024 and paid
on 17 May 2024 to shareholders on the register on 5 April 2024.
The ex-dividend date will be 4 April 2024.
32
32
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Movement in capital surplus (£bn)
0.56
0.06
0.08
(0.15)
(0.05)
1.10
0.57
Capital surplus at 1
January
Capital generated/
(used) excluding
market movements
Market movements
Change in solvency
capital requirement
Capital expenditure
Final dividend
Capital surplus at 31
December
Movement in capital surplus
Change in solvency capital requirement
Capital surplus at 1 January
Capital generated/(used) excluding
market movements
Market movements
Capital generated/(used)
Change in solvency capital
requirement
Surplus generated/(used)
Capital expenditure
Repayment of subordinated Tier 2
notes
Interim dividend
Final dividend
Removal of second tranche of
share buyback
Decrease in ineligible Tier 3 capital
Net surplus movement
Capital surplus at 31 December
2023
£bn
0.57
0.56
0.06
0.62
0.08
0.70
(0.15)
—
—
(0.05)
—
0.03
0.53
1.10
2022
£bn
1.03
(0.06)
(0.12)
(0.18)
0.14
(0.04)
(0.12)
(0.25)
(0.10)
—
0.05
—
(0.46)
0.57
Note:
1. At 31 December 2023, no ineligible Tier 3 capital arose as the Group's
available Tier 3 capital was under the amount permitted under the
Solvency II regulations (15% of the Group’s SCR). At 31 December
2022, ineligible Tier 3 capital arose as the Group's Tier 3 capital was
above the amount permitted under the Solvency II regulations.
During 2023, the Group generated £0.62 billion of Solvency II
capital after market movements, supported by the proceeds of
the sale of the Group's brokered commercial business. After
capital expenditure of £0.15 billion the net surplus for the year
increased by £0.53 billion.
Solvency capital requirement at 1 January
Model and parameter changes
Exposure changes
Adjustments relating to the sale of the brokered
commercial insurance business
Solvency capital requirement at 31 December
2023
£bn
1.21
0.07
(0.03)
(0.12)
1.13
During 2023, the Group’s SCR reduced by £0.08 billion to £1.13
billion. primarily due to the sale of the Group’s brokered
commercial business, partially offset by higher reserve risk.
Scenario and sensitivity analysis1
The following table shows the impact on the Group’s estimated
solvency capital ratio in the event of the following scenarios as at
31 December 2023. The impacts on the Group’s solvency capital
ratio arise from movements in both the Group’s SCR and
own funds.
At 31 December
Deterioration of small bodily injury
motor claims equivalent to that
experienced in 2008/09
One-off catastrophe loss equivalent
to the 1990 storm "Daria"
One-off catastrophe loss based on
extensive flooding of the River
Thames
Increase in Solvency II inflation
assumption for PPOs by 100 basis
points2
100bps increase in credit spreads3
100bps decrease in interest rates
with no change in the PPO
discount rate4
Impact on solvency capital ratio
2023
2022
(5pts)
(5pts)
(9pts)
(10pts)
(7pts)
(10pts)
(15pts)
(5pts)
(10pts)
(5pts)
([6pts)
(2pt)
Notes:
1. Sensitivities are calculated on the assumption that full tax benefits can be realised.
2. The periodic payment order ("PPO") inflation assumption used is an actuarial judgement which is based on a range of factors including the
economic outlook for wage inflation relative to the PRA discount rate curve excluding any change in discount rate. Scenario updated to the latest
PPO inflation assumptions with discount rates held constant.
Includes only the impact on assets held at FVTPL (excludes assets held at amortised cost) and assumes no change to the SCR.
3.
4. Scenario updated to latest PPO inflation assumptions and to include change in expected investment return on cash holdings. The 2022 sensitivity
has been restated on a like for like basis.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
3333
Strategic Report / Governance / Financial statements
CFO review continued
Own funds
The following table splits the Group’s eligible own funds by tier
on a Solvency II basis.
At 31 December
Tier 1 capital – unrestricted
Tier 1 capital – restricted
Less reclassified restricted Tier 1 debt¹
Eligible Tier 1 capital
Tier 1 debt and Tier 2 subordinated
debt¹
Tier 3 capital – deferred tax
Ineligible Tier 3 capital²
Total eligible own funds
2023
£bn
1.59
0.32
—
1.91
0.22
0.10
—
2.23
2022
£bn
1.07
0.32
(0.05)
1.34
0.26
0.21
(0.03)
1.78
Notes:
1. As at 31 December 2023, none (31 December 2022: £51 million) of
the Group's restricted Tier 1 capital was reclassified as Tier 2 due to
Solvency II tiering restrictions.
2. At 31 December 2023, no ineligible Tier 3 capital arose as the Group's
available Tier 3 capital was under the amount permitted under the
Solvency II regulations (15% of the Group’s SCR). At 31 December
2022, ineligible Tier 3 capital arose as the Group's Tier 3 capital was
above the amount permitted under the Solvency II regulations.
During 2023, the Group’s eligible own funds increased from
£1.78 billion to £2.23 billion. Eligible Tier 1 capital after
foreseeable distributions represents 86% of own funds and
169% of the estimated SCR. Tier 2 capital relates to the Group’s
£0.22 billion subordinated debt with no ineligible Tier 1 capital.
The maximum amount of Restricted Tier 1 capital permitted as
a proportion of total Tier 1 capital under the Solvency II
regulations is 20%. Restricted Tier 1 capital relates solely to the
Tier 1 notes issued in 2017.
The amount of Tier 2 and Tier 3 capital permitted under the
Solvency II regulations is 50% of the Group’s SCR and the
amount of Tier 3 alone is 15% of the Group's SCR. The Group has
no ineligible Tier 3 own funds.
Reconciliation of IFRS shareholders’ equity to Solvency
II eligible own funds
At 31 December
Total shareholders’ equity
Goodwill and intangible assets
Change in valuation of technical
provisions
Other asset and liability
adjustments
Foreseeable dividend
Tier 1 capital – unrestricted
Tier 1 capital – restricted
Less reclassified restricted Tier 1 debt¹
Eligible Tier 1 capital
Tier 2 capital – reclassified
restricted Tier 1 debt and Tier 2
subordinated debt¹
Tier 3 capital – deferred tax
Ineligible Tier 3 capital²
Total eligible own funds
2023
£bn
2.06
(0.82)
0.43
(0.03)
(0.05)
1.59
0.32
—
1.91
2022
£bn
1.93
(0.82)
—
(0.04)
—
1.07
0.32
(0.05)
1.34
0.22
0.26
0.10
—
2.23
0.21
(0.03)
1.78
Notes:
1. As at 31 December 2023, none (31 December 2022: £51 million) of
the Group's restricted Tier 1 capital was reclassified as Tier 2 due to
Solvency II tiering restrictions.
2. At 31 December 2023, no ineligible Tier 3 capital arose as the Group's
available Tier 3 capital was under the amount permitted under the
Solvency II regulations (15% of the Group’s SCR). At 31 December
2022, ineligible Tier 3 capital arose as the Group's Tier 3 capital was
above the amount permitted under the Solvency II regulations.
Reconciliation of IFRS shareholders’ equity to Solvency II eligible own funds (£bn)
0.82
0.43
0.03
0.05
2.06
2.23
0.10
0.22
0.32
1.59
Total shareholders’
equity
Goodwill and intangible
assets
Change in valuation of
technical provisions
Other asset and liability
adjustments
Foreseeable dividend
Total own funds
n Tier 1 capital unrestricted
n Tier 1 capital restricted
n Tier 1 debt and Tier 2
n Tier 3 capital – deferred tax
34
34
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Investment portfolio
Our investment strategy aims to deliver several objectives, which are summarised below:
– to ensure there is sufficient liquidity available within the investment portfolio to meet stressed liquidity scenarios;
– to match PPOs and non-PPOs liabilities in an optimal manner; and
– to deliver a suitable risk-adjusted investment return commensurate with our risk appetite.
The current strategic asset allocation is being reviewed given the changed macro-economic environment and resulting shifts in
investment risk and return opportunities.
Asset and liability management
The following table summarises the Group's high-level approach to asset and liability management.
Liabilities
Assets
Characteristics
More than 10 years, for example PPOs
Property and infrastructure debt
Inflation linked or floating
Short and medium term - all other claims
Investment-grade credit
Fixed - key rate duration matched
Tier 1 equity
Tier 2 sub-debt
Tier 2 sub-debt fixed
Surplus - tangible equity
Investment-grade credit
Commercial real estate loans and cash
Investment-grade credit and cash
Investment-grade credit, short-term high yield,
cash and government debt securities
Fixed
Floating
Fixed or floating
Fixed or floating
Asset allocation and benchmarks - U K Insurance Limited
The current strategic benchmarks for U K Insurance Limited are detailed in the following table:
Investment-grade credit
High yield
Investment-grade private placements
Credit
Sovereign
Total debt securities
Infrastructure debt
Commercial real estate loans
Other loans
Cash and cash equivalents
Investment property
Total investment holdings
Benchmark
Holding
2023
Actual
Holding
2023
60.0 %
43.8 %
6.0 %
0.0 %
66.0 %
10.0 %
76.0 %
4.0 %
6.5 %
0.0 %
8.0 %
5.5 %
5.4 %
1.4 %
50.6 %
13.0 %
63.6 %
4.1 %
2.8 %
0.1 %
24.1 %
5.3 %
Benchmark
Holding
2022
66.0 %
6.0 %
3.0 %
75.0 %
3.0 %
78.0 %
4.0 %
6.5 %
0.0 %
6.0 %
5.5 %
Actual
Holding
2022
49.5 %
5.8 %
2.1 %
57.4 %
10.7 %
68.1 %
5.0 %
4.2 %
0.0 %
16.9 %
5.8 %
100.0 %
100.0 %
100.0 %
100.0 %
With a focus during the year being on resilience of the capital position of the Group, assets under management has been overweight
cash and underweight credit versus its benchmark holdings. During this time, a strategic asset allocation exercise was undertaken
which resulted in several benchmark allocation changes being implemented effective in Q4 2023. These included a 7% increase in
sovereign holdings and a 2% increase in cash and cash equivalents, offset by a reduction in investment grade credit and private
placement bonds, thus reducing expected volatility and value at risk in the portfolio.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
3535
Strategic Report / Governance / Financial statements CFO review continued
Investment holdings and yields
Investment-grade credit2
High yield
Investment-grade private placements
Credit
Sovereign
Total debt securities
Infrastructure debt
Commercial real estate loans
Other loans
Cash and cash equivalents3
Investment property
Equity investments4
Total Group
2023
2022 (restated)¹
Allocation
Income
Yield
Allocation
Income
(£m)
2,288.1
281.2
70.6
2,639.9
681.2
3,321.1
214.2
145.9
3.1
1,689.8
277.1
19.7
(£m)
51.1
16.5
2.8
70.4
8.5
78.9
14.8
12.9
—
65.2
16.1
—
5,670.9
187.9
(%)
2.2 %
5.9 %
3.3 %
0.0 %
1.4 %
0.0 %
6.6 %
7.5 %
0.4 %
5.5 %
5.8 %
0.0 %
3.5 %
(£m)
2,360.0
278.8
97.2
2,736.0
510.3
3,246.3
236.8
198.9
1.6
938.4
278.5
14.4
(£m)
59.1
14.9
2.7
76.7
2.0
78.7
7.9
8.8
—
13.9
15.6
—
4,914.9
124.9
Yield
(%)
1.9 %
4.8 %
2.9 %
2.2 %
0.7 %
2.2 %
3.2 %
4.4 %
0.4 %
1.5 %
5.3 %
0.0 %
2.3 %
Notes:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 21 for
further details.
2. Asset allocation at 31 December 2023 includes investment portfolio derivatives, which have a mark-to-market asset value of £12.4 million which is
split as assets of £12.0 million included in investment grade credit and of £0.4 million included in sovereign debt (31 December 2022: mark-to-
market asset value of £2.5 million and £0.9 million liability respectively). This excludes non-investment derivatives that have been used to hedge
operational cash flows.
3. Net of bank overdrafts: includes cash at bank and in hand and money market funds.
4. £241.8 million (2022: £nil) of this balance is invested within money market funds under the 100% quota share reinsurance treaty for the brokered
commercial business, which is operated on a funds withheld basis. This entitles the reinsurer to the investment return earned on underlying
collateral assets held in money market funds. The Group has appointed a custodian for the asset while retaining ownership of the funds withheld
assets collateral.
5. Equity investments consist of quoted shares and insurtech-focused equity funds. The insurtech-focused equity funds are valued based on external
valuation reports received from a third-party fund manager.
At 31 December 2023, total investment holdings of £5,670.9
million were 15.4% higher than at the start of the year, reflecting
fair value movements in fixed rate debt securities and the net
sale proceeds from the disposal of the Group's brokered
commercial business. Total debt securities were £3,321.1 million
(31 December 2022: £3,246.3 million), of which 2.6% were rated
as ‘AAA’ and a further 61.5% were rated as ‘AA’ or ‘A’. The
average duration at 31 December 2023 of total debt securities
was 2.1 years (31 December 2022: 2.3 years).
At 31 December 2023, total unrealised losses on investments
held at FVTPL were £136.5 million (31 December 2022:
£282.1 million unrealised losses).
Investment income
Investment fees
Net investment income in
operating profit
Net investment income -
brokered commercial
business
Net investment income -
exited partnerships
Net investment income
Net FV gains/(losses)4
Total investment income
recognised through the
statement of profit or loss
FY 2023
£m
149.1
(7.3)
141.8
35.2
1.6
178.6
124.4
FY 2022
£m
restated1
101.9
(7.8)
94.1
20.4
0.9
115.4
(342.5)
Note
6
6
6
303.0
(227.1)
Net investment income increased to £141.8 million (2022: £94.1
million) primarily driven by yield improvements in variable rate
asset classes benefiting from a rising interest rate environment.
Fair value gains were £124.4 million, versus losses in 2022 (£342.5
million), with a tightening of credit spreads and interest rates
accounting for the majority of the movement. Fair value
adjustments to commercial property valuations resulted in a
£1.4 million write-down during 2023.
Net asset value
Net assets2
Goodwill and other
intangible assets
Tangible net assets
Closing number of Ordinary
Shares (millions)
Net asset value per share
(pence)
Tangible net asset value per
share (pence)
2023
£m
2022
£m
restated1
2,058.2
1,845.3
(818.6)
1,239.6
(822.2)
1,023.1
Note
14
14
14
14
1,297.7
1,298.2
14
14
158.6
142.1
95.5
78.8
Notes:
1. Prior period comparatives have been restated on transition to IFRS 17
'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1
and 21 for further details.
2. See glossary on pages 78 to 80 for definitions and appendix A –
Alternative Performance Measures on pages 84 to 87 for reconciliation
to financial statement line items.
36
36
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Net assets at 31 December 2023 increased by £212.9 million to
£2,058.2 million (31 December 2022: £1,845.3 million)
and tangible net assets decreased to £1,239.6 million
(31 December 2022: £1,023.1 million).
Leverage
The Group’s financial leverage remained steady at 22.7% (2022:
24.7%).
Shareholders’ equity
Tier 1 notes
Financial debt – subordinated debt
Total capital employed
Financial leverage ratio2
2023
£m
2,058.2
346.5
258.8
2,663.5
22.7%
2022
£m
restated1
1,845.3
346.5
258.6
2,450.4
24.7%
Notes:
1. Prior period comparatives have been restated on transition to IFRS 17
'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1
and 21 for further details.
2. Total IFRS financial debt and Tier 1 notes as a percentage of total IFRS
capital employed.
Credit ratings
Moody’s Investors Service provides insurance financial-strength
ratings for U K Insurance Limited, our principal underwriter.
Moody’s rate U K Insurance Limited as ‘A2’ for insurance
financial strength (strong) with a stable outlook.
Reserving
We make provision for the full cost of outstanding claims from
the general insurance business at the statement of financial
position date, including claims estimated to have been incurred
but not yet reported at that date and associated claims
handling costs. We consider the class of business, the length of
time to notify a claim, the validity of the claim against a policy,
and the claim value. Claims reserves could settle across a range
of outcomes, and settlement certainty increases over time.
However, for bodily injury claims the uncertainty is greater due
to the length of time taken to settle these claims. The possibility
of annuity payments for injured parties also increases this
uncertainty.
We seek to adopt a prudent approach to assessing liabilities. The
liability for incurred claims ("LIC") reserves are the combination
of best estimate of liabilities ("BEL") and a risk adjustment, which
is set around the 75th percentile and provides a prudence
margin on top of the BEL. The BEL is set on a discounted basis
and includes an allowance for events not in data ("ENIDs"), set
by reference to various actuarial scenario assessments. ENIDs
also consider other short- and long-term risks not reflected in
the actuarial inputs, as well as the actuarial function’s view on
the uncertainties in relation to the BEL.
The most common method of settling bodily injury claims is by
a lump sum. When this includes an element of indemnity for
recurring costs, such as loss of earnings or ongoing medical care,
the settlement calculations apply the statutory discount rate
(known as the Ogden discount rate) to reflect the fact that
payment is made on a one-off basis rather than periodically over
time. The current Ogden discount rate is minus 0.25% for
England and Wales, with the equivalents being minus 0.75% in
Scotland, and minus 1.5% in Northern Ireland.
We reserve our large bodily injury claims at the relevant discount
rate for each jurisdiction, with the overwhelming majority of
cases now reserved at minus 0.25% as most will be settled
under the law of England and Wales. The Ogden discount rate
will be reviewed again at the latest in 2024 and the Group has
booked a probability weighted allowance for a discount rate
change within its best estimate of liabilities. Since 2021, we have
reduced the level of Motor reinsurance purchased, resulting in
higher net reserves for accident years 2021 to 2023.
If the claimant prefers, large bodily injury claims can be settled
using a PPO. This is an alternative way to provide an indemnity
for recurring costs, making regular payments, usually for the rest
of the claimant’s life. These claims are reserved for using an
internal discount rate, which is progressively unwound over
time. As it is likely to take time to establish whether a claimant
will prefer a PPO or a lump sum, until a settlement method is
agreed we make assumptions about the likelihood that
claimants will opt for a PPO. This is known as the PPO
propensity.
At 31 December 2023, the real discount rate for PPOs is 0.7%
(2022: 0.6%, restated for IFRS 17), the combination of cash flow
weighted inflation and discounting of 3.9% (2022: 4.2%, restated
for IFRS 17), which allows for higher short-term inflation before
reverting to a long term trend of 3.5%, and a yield curve based
discount rate of 4.6% (2022: 4.8%, restated for IFRS 17).
Higher claims inflation remains a risk, given the continuing high
level of consumer prices and wage inflation. In 2022, consumer
prices inflation was at its highest level for the past decade and is
not expected to normalise until at least 2024. Upwards pressure
is likely to remain on wages, with potential implications for the
cost of care. Global supply chain issues remain problematic,
resulting in a risk of price increases for products and
components in short supply. A range of general and specific
scenarios for excess inflation has been considered in the
reserving process.
Prior-year reserve development at year end 2023 was £149.0
million (2022: £97.8 million release), driven by strengthening in
Motor, of which £78 million related to the Motor total loss past
business review remediation. Looking forward, the opportunity
for prior-year reserve releases in the short term remains low
given the inflationary backdrop.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
3737
Strategic Report / Governance / Financial statements
CFO review continued
Net liability for incurred claims
Motor
Home
RoPL1,2
Commercial
Total ongoing operations1
Brokered commercial business
Run-off partnerships
Total
31 Dec 2023
31 Dec 2023
31 Dec 2023
31 Dec 2022
31 Dec 2022
31 Dec 2022
Estimate of
present value
cash flows
Risk
adjustment
£m
£m
1,634.9
352.5
65.7
129.0
2,182.1
354.7
72.8
2,609.6
79.9
16.1
2.4
6.2
104.6
18.5
2.2
125.3
Total
Estimate of
present value
cash flows
Risk
adjustment
£m
1,714.8
368.6
68.1
135.2
2,286.7
373.2
75.0
2,734.9
£m
£m
1,393.0
386.9
75.4
102.2
1,957.5
415.4
55.1
2,428.0
72.7
19.5
3.0
6.3
101.5
20.8
1.3
123.6
Total
£m
1,465.7
406.4
78.4
108.5
2,059.0
436.2
56.4
2,551.6
Note:
1. Ongoing operations – See glossary on pages 78 to 80 for definitions and appendix A – Alternative Performance Measures on pages 84 to 87 for
reconciliation to financial statement line items.
Sensitivity analysis – changes in: the discount rate used in relation to PPOs and other claims, the assumed Ogden
discount rate and claims inflation
The table below provides a sensitivity analysis of the potential net impact of a change in a single factor (the internal discount rate
used for PPOs and other claims, the Ogden discount rate or claims inflation) with all other assumptions left unchanged.
Other potential risks beyond the ones described could have additional financial impacts.
Increase/(decrease) in profit before tax
and equity gross of reinsurance1,2
Increase/(decrease) in profit before tax
and equity net of reinsurance1,2
At 31 December
Discount curve - PPOs3
Impact of an increase in the discount rate used in the calculation of
present values of 100 basis points
Impact of a decrease in the discount rate used in the calculation of
present values of 100 basis points
Discount curve - other claims4
Impact of an increase in the discount rate used in the calculation of
present values of 100 basis points
Impact of a decrease in the discount rate used in the calculation of
present values of 100 basis points
Ogden discount rate5
Impact of the Group reserving at a discount rate of 0.75% compared to
minus 0.25% (2022: 0.75% compared to minus 0.25%)
Impact of the Group reserving at a discount rate of minus 1.25%
compared to minus 0.25% (2022: minus 1.25% compared to minus
0.25%)
Claims inflation
Impact of a decrease in claims inflation by 200 basis points for two
consecutive years
Impact of an increase in claims inflation by 200 basis points for two
consecutive years
Risk adjustment6
Impact of a risk adjustment at the 70th percentile compared to the
booked risk adjustment at the 75th percentile
Impact of a risk adjustment at the 80th percentile compared to the
booked risk adjustment at the 75th percentile
2023
£m
95.0
(127.8)
55.9
(58.6)
2022
£m
87.1
(113.7)
39.7
(41.4)
2023
£m
39.0
(52.1)
37.2
(38.9)
2022
£m
35.2
(45.4)
27.1
(28.2)
105.1
85.7
48.1
24.8
(220.6)
(180.4)
(97.0)
(48.2)
112.8
(114.6)
73.1
(84.5)
96.9
(98.3)
74.1
(87.5)
71.7
(72.8)
36.6
(42.9)
64.5
(65.4)
33.7
(38.6)
Notes:
1. These sensitivities are net of reinsurance and exclude the impact of taxation.
2. These sensitivities reflect one-off impacts at the statement of financial position date and should not be interpreted as predictions.
3. The sensitivities relating to an increase or decrease in the real discount rate used for PPOs illustrate a movement in the time value of money from the
assumed level of 0.6% for reserving. The PPO sensitivity has been calculated on the direct impact of the change in the real internal discount rate
with all other factors remaining unchanged.
4. The sensitivities relating to an increase or decrease in the yield curve used to discount all reserves excluding PPOs illustrate a movement in the time
value of money from the assumed level at the statement of financial position dates. The sensitivity has been calculated on the direct impact of the
change in the discount curve with all other factors remaining unchanged.
5. Ogden discount rate sensitivity has been calculated on the direct impact of a permanent change in the discount rate in England and Wales with all
other factors remaining unchanged. The Group will consider the statutory discount rate when setting the reserves but not necessarily provide on this
basis. This is intended to ensure that reserves are appropriate for current and potential future developments.
6. The risk adjustment sensitivities are with respect to the discounted net risk adjustment at the statement of financial position dates.
38
38
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
The PPO sensitivity above is calculated on the basis of a change
in the internal discount rate used for the actuarial best estimate
reserves as at 31 December 2023. It does not take into account
any second order impacts such as changes in PPO propensity or
reinsurance bad debt assumptions.
Reinsurance
The objectives of the Group’s reinsurance strategy are to reduce
the volatility of earnings, facilitate effective capital management,
and transfer risk outside the Group’s risk appetite. This is
achieved by transferring risk exposure through various
reinsurance programmes:
– Catastrophe reinsurance to protect against an accumulation
of claims arising from a natural perils event. The retained
deductible is £100 million and cover is placed annually on 1
January up to a modelled 1-in-200 year loss event of £1,000
million.
– Motor reinsurance to protect against a single claim or an
accumulation of large claims, which renews on 1 January. The
retained deductible is set at an indexed level of £5 million per
claim, with unlimited protection above £10 million subject to
an additional aggregate retention of £37.5 million.
– Motor excess of loss reinsurance has been purchased and
incepted on 1 September 2023 for Motability Operations. The
retained deductible is set at an indexed level of £5 million per
claim up to an unlimited amount. Motability policies are 80%
quota share reinsured.
Strategic Report / Governance / Financial statements
Total tax contribution
The Group’s direct and indirect tax contribution to the UK
Exchequer is significantly higher than the UK corporation tax
that the Group would ordinarily pay on its profits. The Group
collects taxes relating to employees and customers on behalf of
the UK Exchequer and other national governments. It also
incurs a significant amount of irrecoverable value added tax
relating to overheads and claims. Taxes borne and collected in
other tax jurisdictions have not been included in this note as the
amounts are minimal in the context of the wider UK Group.
During 2023, the sum of taxes either paid or collected across the
Group was £936.8 million. The composition of this between the
various taxes borne and collected by the Group is shown below.
Total taxes borne
At 31 December
Current-year Corporation Tax charge
Irrecoverable Value Added Tax incurred on
overheads
Irrecoverable Value Added Tax embedded
within claims spend
Employers' National Insurance contributions
Other taxes
Total
2023
£m
24.3
89.6
214.4
44.7
5.2
378.2
2023
£m
439.1
17.0
102.5
558.6
– Following the Group's sale of its brokered commercial
Total taxes collected
At 31 December
Insurance Premium Tax
Value Added Tax
Employees' Pay As You Earn and National
Insurance contributions
Total
Neil Manser
Chief Financial Officer
business to RSA Insurance Limited, quota share reinsurance
between the two parties incepted on 1 October 2023, on an
earned basis, covering 100% of all premiums earned and
claims incurred after this date. Commercial property risk
reinsurance was not renewed following the sale of the Group's
brokered commercial business.
– Whole account (excluding Motability) structured quota share
reinsurance with a 10% cessation, ceded on a funds-withheld
basis with a three-year term that incepted on 1 January 2023..
Tax management
The Board recognises that the Group has an important
responsibility to manage its tax position effectively. The Board
has delegated day-to-day management of taxes to the Chief
Financial Officer and oversight is provided by the Audit
Committee.
These arrangements are intended to ensure that the Group:
complies with applicable laws and regulations; meets its
obligations as a contributor and a collector of taxes on behalf of
the tax authorities; and manages its tax affairs efficiently,
claiming reliefs and other incentives where appropriate.
Tax authorities
The Group has open and co-operative relationships with the tax
authorities with which it deals in the countries where the Group
operates, namely the UK, the Republic of Ireland, South Africa
and India.
Tax policy and governance
The Group’s tax policy has been reviewed and approved by the
Audit Committee. The Group Tax function supports the Chief
Financial Officer in ensuring the policy is adhered to at an
operational level.
For more information please see our published Group Tax policy
on the Group’s website at:
www.directlinegroup.co.uk/en/sustainability/reports-policies-
and-statements.html
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
3939
Strategic Report / Governance / Financial statements
Operating review
Motor
Performance summary
—
In-force policies grew by 9.0% as our
partnership with Motability began in
September 2023. Direct own brand policy
count reduced by 10.2%.
—
Gross written premium grew by 42.9%.
—
Operating loss of £319.6 million reflects the
earn through of below target margin
business written in 2022 and the first half of
2023.
Financial summary
In-force policies (thousands)
Of which:
Direct own brands1
Partnerships
Gross written premium2
Of which:
Direct own brands1
Partnerships
Operating loss2
Loss before other finance costs
Net insurance margin2
Net insurance claims ratio2
Current-year attritional net
insurance claims ratio
Prior-year reserves development
ratio
Net acquisition ratio2
Net expense ratio2
2023
£m
4,181
2022
£m
3,836
3,373
808
2,047.8
3,756
80
1,432.7
1,575.7
472.1
(319.6)
(274.4)
(21.1%)
95.5%
1,398.5
34.2
(64.8)
(252.3)
(4.8%)
79.6%
86.7%
79.9%
8.8%
5.7%
19.9%
(0.3%)
5.6%
19.6%
Gross written premium by
channel
n 38 % Direct
n 39 % Price comparison websites
n 23 % Partnerships
Notes:
1. Direct own brands include in-force policies under the Direct Line, Churchill, Darwin, Privilege and By Miles brands.
2. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
3. See glossary on pages 261 to 264 for definitions and appendix A – Alternative Performance Measures on pages 265 to 268 for reconciliation to
financial statement line items.
40
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Motability: Welcoming over
700,000 customers
We welcomed over 700,000 new customers
through our Motability partnership in
September 2023 after nearly two years of
preparation. Forecast to deliver around £800
million of gross written premium annually, it
is a great strategic partnership but also
brings significant other benefits including
ongoing repair insights gathered from
working on their fleet of modern vehicles
and the opportunity to learn from a new
team of colleagues skilled in supporting
vulnerable customers.
The Motor result was adversely affected by the earn through of
below target margin policies which were written in 2022 and
the first half of 2023. The Group has taken significant pricing and
underwriting actions and therefore believes it has been
underwriting consistent with a net insurance margin of above
10% for the majority of the second half of 2023.
In-force policies and gross written premium and
associated fees
In response to market wide claims inflation, the motor market
experienced significant price inflation during 2023. Market
average premiums increased by around 25%1 which led to an
increase in customer shopping and a reduction in market
retention rates. The Group applied significant rate increases
across its own brand portfolio during the year which delivered
an increase in own brand average premiums of 28%2
The Group's actions to improve profitability led to an increase in
direct own brand gross written premium and associated fees of
12.7% compared with 2022 despite in-force policies reducing by
10.2% over the period. Policy count loss was greatest in Q3 as
rate increases worked through and decelerated during Q4, as
new business competitiveness and retention rates improved.
Following the commencement of the partnership with
Motability, total Motor gross written premium and associated
fees grew by 42.9% compared with 2022 and in-force policies
grew by 9.0% over the period.
Underwriting
Market wide claims inflation remained a feature during 2023
although trends stabilised in the second half of the year. In the
first half our view of 2022 severity inflation deteriorated, due to
repair inflation and high levels of total losses arising from
industry repair backlogs.
Notes:
1. Source: ABI motor premium tracker as at Q4 2023.
2. Average premium and rate figures quoted relate to Motor direct own
brands excluding the By Miles brand.
In the second half, we reduced repair times across the network
and used car prices began to deflate whereas inflation persisted
in the cost of parts and labour rates. These trends resulted in
attritional claims severity inflation of around 9% in 2023, in line
with our expectation of high single digits. Outside of damage, in
2023 we experienced a higher number of large bodily injury
claims
Prior year reserves were strengthened by £138 million in 2023
primarily reflecting a combination of increased damage costs
from industry backlogs in the first half of the year and costs
associated with the remediation for the Motor total loss past
business review.
In 2024 we expect attritional inflation to remain in high single
digits.
Net insurance margin and loss
These factors delivered a higher net insurance claims ratio in
2023, with an increase of 15.9pts compared with 2022. However,
the significant pricing actions taken throughout the year began
to come through in improved margins in the second half of
2023, and together with the new Motability partnership,
delivered a 5.8 percentage point improvement in the current
year net insurance claims ratio compared with the first half of
2023.
Overall, the net insurance margin was minus 21.1% and the
operating loss was £319.6 million in 2023.
Loss before other finance costs
Loss before other finance costs increased from a loss of £252.3
million in 2022 to a loss of £274.4 million in 2023 due to the
factors described above.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
4141
Strategic Report / Governance / Financial statements Operating review continued
Home
Performance summary
—
Total in-force policies 2.3% lower at 2.4 million.
Direct own brand policies were 1.5% lower at
1.7 million.
—
Total gross written premium grew 6.4% to
£551.5 million. Direct own brand gross
written premium grew 7.2% to £408.8
million.
—
Operating profit increased to £52.4 million,
primarily due to more benign weather in
2023.
Financial summary
In-force policies (thousands)
Of which:
Direct own brands1
Partnerships
Gross written premium2
Of which:
Direct own brands1
Partnerships
Operating profit2
Profit/(loss) before other
finance costs
Net insurance margin2
Net insurance claims ratio2
Current-year attritional net
insurance claims ratio
Prior-year reserves development
ratio
Major weather events ratio
Net acquisition ratio2
Net expense ratio2
Normalised net insurance
margin2
2023
£m
2,444
1,706
738
551.5
408.8
142.7
52.4
71.7
10.0%
62.3%
59.2%
(1.8%)
4.9%
8.4%
19.3%
2022
£m
2,501
1,732
769
518.1
381.5
136.6
0.9
(30.7)
(0.8%)
76.8%
57.7%
(3.2%)
22.3%
6.3%
17.7%
4.2%
11.0%
Gross written premium by
channel
n 28 % Direct
n 60 % Price comparison websites
n
12 % Partnerships
Notes:
1. Direct own brands include in-force policies under the Direct Line, Churchill and Privilege brands.
2. See glossary on pages 261 to 264 for definitions and appendix A – Alternative Performance Measures on pages 265 to 268 for reconciliation to
financial statement line items.
42
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Supporting customers during the
storms
We know extreme weather events are often
when our customers need our support the
most. In 2023 we introduced SMS
messaging to make customers in vulnerable
areas aware of approaching high-risk
weather conditions and providing a link to
enable them to register claims online where
appropriate. To help ensure people could
contact us quickly, we increased the number
of colleagues available to take customer
calls and delivered assistance on the ground
with our Direct Line and Churchill vehicles
visiting affected areas to help policyholders
who were vulnerable or had damage to their
homes.
Home continued to trade well in 2023, with growth in premium
written and a low level of weather-related claims.
In-force policies and gross written premium and
associated fees
Following challenging market conditions during 2022, the
home market experienced increased pricing in 2023 with an
estimated increase in market prices of 41%. This reflected
increases in reinsurance costs alongside the inflationary
pressures on escape of water claims from the severe freeze
event in December 2022. These trends led to increased
shopping in the market and enabled the Group to deliver a 42%
increase in new business sales. The Group increased prices
during 2023 to reflect our view of claims inflation and increased
reinsurance costs, which resulted in average premium in direct
own brands increasing by 12%. Retention remained strong
across the period.
Overall gross written premium and associated fees increased by
6.4% compared to 2022, or 7.7% when adjusted to remove the
impact of remediation. In-force policies reduced by 2.3% during
the year, however own brands returned to growth in the fourth
quarter.
Underwriting
Underlying claims trends for 2023 remained elevated, albeit in
line with our expectations of mid- single digits. We experienced
an increase in escape of water severity for claims received late in
2022 around the time of the December freeze event, which
reduced prior-year reserve releases compared to 2022.
Despite a high frequency of named weather events in the year,
weather-related claims at £25 million (2022: £119 million) were
below our assumptions for the year demonstrating good
underwriting management of flood exposure. The full year 2024
weather event claims assumption is £54 million and the impact
of freeze and flood events in early 2024 is estimated at £22
million.
Net insurance margin and profit
These factors combined led to a 14.5pts improvement in the
claims ratio to 62.3%, with lower weather claims more than
offsetting the impact of reduced prior-year reserve releases.
Normalised for the impact of weather and excluding prior-year
reserve movements, the attritional claims ratio increased by 1.5
percentage points between 2022 and 2023, due to the impact
of elevated inflation and 2022 benefiting from the earn through
of premiums written prior to the introduction of the FCA's PPR
regulations.
The net insurance margin was 10.0% with operating profit of
£52.4 million. Excluding the impact of remediation, the net
insurance margin was 12.1% ,and 6.3% when normalised for
weather and remediation.
The planned rollout of our new Home platform in 2024 is
intended to enable longer-term trading and product
development opportunities.
Profit/(loss) before other finance costs
Profit/(loss) before other finance costs increased from a loss of
£30.7 million to profit of £71.7 million due to the factors
described above alongside higher net investment income.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
4343
Strategic Report / Governance / Financial statements Operating review continued
Rescue and
other personal
lines
Performance summary
—
Rescue in-force policies reduced by 10.1% and
gross written premium and associated fees
fell by 3.0%.
—
Rescue operating profit of £47.6 million and
net insurance margin of 29.0%.
—
Operating profit of £0.4 million in other
personal lines.
Financial summary
Ongoing operations1
In-force policies (thousands)
Of which:
Rescue – ongoing operations
Of which Green Flag direct
Pet
Other personal lines – ongoing
operations
Gross written premium and
associated fees2
Of which:
Rescue – ongoing operations
Of which Green Flag Direct
Pet
Other personal lines – ongoing
operations
Operating profit2
Profit before other finance costs
Net insurance margin2
Net insurance claims ratio2
Current-year attritional net
insurance claims ratio
Prior-year reserves development
ratio
Net acquisition ratio2
Net expense ratio2
2023
£m
2,172
1,965
1,048
112
2022
£m
2,424
2,185
1,106
128
95
111
265.7
273.9
137.3
85.1
66.5
61.9
48.0
53.8
15.6%
57.0%
56.6%
0.4%
4.6%
22.8%
143.7
88.2
70.8
59.4
60.1
52.7
19.8%
52.3%
53.9%
(1.6%)
7.9%
20.0%
Gross written premium and
associated fees by product
n 52 % Rescue
n 25 % Pet
n 23 % Other personal lines
Notes:
1. Ongoing operations – See glossary on pages 261 to 264 for definitions and appendix A – Alternative performance measures on pages 265 to 268 for
reconciliation to financial statement line items.
2. See glossary on pages 261 to 264 for definitions and appendix A – Alternative performance measures on pages 265 to 268 for reconciliation to
financial statement line items.
44
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Green Flag: delivering customer
satisfaction
Green Flag was once again ranked as one of
the top 20 brands for customer service in
the UK, in the Institute of Customer Service
Customer Satisfaction Index, reflecting how
the brand continues to develop and
enhance its offer to meet the evolving needs
of the modern motorist. We rolled out a new
fleet of branded patrol vehicles in 2023 and
focused on broadening the availability of
roadside products, such as batteries and
tyres, to help get customers moving more
quickly.
Other personal lines
Other personal lines is made up of Pet, Travel, Creditor and
Select, our insurance targeted at mid- to high-net worth
customers. Pet is the largest product within Other personal lines.
Pet gross written premiums fell 1.4% as in-force policies
reduced by 14.4%. Overall Other personal lines made an
operating profit of £0.4 million in 2023.
Profit before other finance costs
Profit before other finance costs increased by £1.1 million to
£53.8 million due the factors set out above.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
4545
Overall Rescue and other personal lines delivered strong
margins with a net insurance margin of 15.6%, providing £48.0
million diversified operating profit for the Group. Gross written
premium was broadly flat during the year, with modest
reductions in Rescue and Pet, partially offset by growth in our
medium to high net worth business, UK Select. Operating profit
of £48.0 million was lower than the prior year primarily due to
higher claims costs and prior year strengthening in other
personal lines.
Rescue
Rescue’s gross written premium from ongoing operations was
4.5% lower in 2023 with in-force policies reducing by 10.1%. The
largest fall was in Linked where Rescue is sold alongside a Motor
policy.
Rescue experienced increases in claims frequency and modest
claims inflation which was mitigated by self-help actions taken
across its managed network. Green Flag increased its prices
towards the end of 2023 which delivered additional premium
with minimal impact on sales or retention.
Overall, Rescue's ongoing operations delivered operating profit
of £47.6 million in 2023 (2022: £53.7 million), with an attractive
net insurance margin of 29.0%. A fleet of Green Flag branded
patrol vehicles is being rolled out following a successful pilot.
This aims to help mitigate the impact of claims inflation and
offer new revenue opportunities through vehicle related sales at
the roadside.
Strategic Report / Governance / Financial statements Operating review continued
Commercial
Performance summary
—
In force policies grew by 1.4%.
—
Gross written premiums grew by 10.1%.
—
Operating profit increased to £29.7 million
with a net insurance margin of 13.1%.
Financial summary
In-force policies1 (thousands)
2023
£m
645
2022
£m
636
Gross written premium2
241.0
218.9
Operating profit/(loss)2
Profit/(loss) before other finance
costs
Net insurance margin2
Net insurance claims ratio2
Current-year attritional net
insurance claims ratio
Prior-year reserves development
ratio
Major weather events ratio
Net acquisition ratio2
Net expense ratio2
Normalised net insurance
margin2
29.7
34.4
13.1%
57.9%
49.8%
7.1%
1.0%
14.1%
14.9%
11.4%
(2.6)
(10.1)
(2.7%)
66.9%
69.3%
(5.0%)
2.6%
19.0%
16.8%
(2.4%)
Gross written premium by
channel
n 82%
n 18%
Direct
Indirect
Notes:
1. Commercial includes in-force policies for Direct Line for Business and Churchill brands.
2. See glossary on pages 261 to 264 for definitions and appendix A – Alternative Performance Measures on pages 265 to 268 for reconciliation to
financial statement line items.
46
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Assisting landlords in an
emergency
An increasing number of landlords are
choosing to insure with us. Among the
products we offer is Landlord Emergency
cover, a callout service within four hours for
a number of insured emergencies, including
failure of electricity or heating. This year we
have reduced average wait times for those
using this service, to ensure tenants are
supported when they need emergency
assistance.
Underwriting
Commercial's claims ratio improved by 9.0pts to 57.9% during
2023. Alongside relatively benign weather conditions, the focus
on maintaining margins more than offset a £15 million prior
year reserve strengthen, predominantly driven by the impact of
elevated claims inflation in Van.
Net insurance margin and profit/(loss)
Overall, these factors combined led to a net insurance margin of
13.1% (2022 minus 2.7%) with operating profit of £29.7 million.
Normalised for weather the net insurance margin was 11.4%.
Profit/(loss) before other finance costs
Profit/(loss) before other finance costs increased from a loss of
£10.1 million to profit of £34.4 million due to the factors
described above alongside higher net investment income.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
4747
Following the sale announced in 2023, the brokered
commercial business is reported as being in run-off. Results for
prior periods have been restated.
Commercial continued to trade well in 2023, maintaining its
premium growth whilst delivering strong margins. Commercial
sells SME cover under the Direct Line for business and Churchill
brands, both direct to customer and through price comparison
websites. Landlord insurance is the largest product by premium
followed by Van.
In-force policies and gross written premium and
associated fees
Through a combination of both policy count growth and
premium rate increases, Commercial delivered policy growth of
1.4% and gross written premium growth of 10.1% during 2023.
Both Direct Line and Churchill delivered strong premium
growth across all products in 2023, Direct Line grew policy count
by 1.3% and premiums by 7.0% while Churchill delivered 23.7%
premium growth and policy count was stable.
In Landlord, whilst new business volumes were lower than 2022,
it was a positive market backdrop, against which the Group was
able to expand its footprint in multi property policies, delivering
gross written premium growth of 14.5% and policy count
growth of 3.4%.
In Van, in response to elevated inflation, average premiums
increased across the market during 2023, driving an increase in
new business sales and reductions in market retention rates. The
Group focused on maintaining margins, with significant rate
increases delivering gross written premium growth of 5.1%,
alongside a reduction in policy count of 6.0%.
Strategic Report / Governance / Financial statements Operating review continued
Brokered
commercial
business and
run-off
partnerships
The Group's ongoing operations result
excludes the results of the brokered
commercial business, that it sold to RSA
Insurance Limited in 2023, and the Rescue
and other personal lines partnerships that
the Group first excluded from its 2022
results. Run-off partnerships comprises
personal Rescue and Travel packed bank
account business.
Brokered commercial business
Run-off partners
In-force policies (thousands)
Gross written premium and
associated fees
Operating profit
Net insurance margin1
Net insurance claims ratio1
Net acquisition ratio1
Net expense ratio1
2023
£m
286
665.8
27.6
3.1%
49.4%
26.6%
20.9%
2022
£m
277
530.4
62.9
10.6%
45.5%
26.4%
17.5%
In-force policies (thousands)
Gross written premium and
associated fees
Operating loss
Net insurance margin1
Net insurance claims ratio1
Net acquisition ratio1
Net expense ratio1
2023
£m
2,224
150.1
(29.5)
(19.6%)
102.9%
1.5%
15.2%
2022
£m
2,188
124.4
(10.8)
(8.7%)
89.7%
1.8%
17.2%
On 6 September 2023 we announced the sale of our brokered
commercial business and we are presenting the results for this
business as a separate segment.
The transaction involved the sale of the Group’s brokered
commercial business and associated partnerships through a
combination of reinsurance and a form of renewal rights
transfer. As a result, with effect from 1 October 2023 (the risk
transfer date), new business moved to RSA. The Group retains
the back book of policies and will manage these policies until
they run off. The formal separation and operational transfers are
expected to start in the first quarter of 2024, with subsequent
transfers of outstanding elements of the overall brokered
commercial insurance business to follow.
2023 results
Gross written premium and associated fees were £665.8 million
(2022: £530.4 million). The operating profit relating to the
brokered commercial business was £27.6 million (2022: £62.9
million).
Note:
1. See glossary on pages 261 to 264 and Appendix A – Alternative
performance measures on pages 265 to 268 for reconciliation
to financial statement line items.
In our FY 2022 results we disclosed that we planned to reduce
our exposure to packaged bank accounts where they do not
meet target levels of return and are no longer required for
operational scale, in order to improve our capital efficiency, and
we are presenting the results for this business as a separate
segment.
Rescue packaged accounts
Our contract with NatWest Group ended in December 2022 and
was fully run off by the end of 2023. This partnership
represented around 1.1 million in-force policies.
Travel packaged accounts
Our partnerships with NatWest Group and Nationwide Building
Society are due to expire in 2024. Together, these travel
partnerships represent around 2.2 million in-force policies.
On 31 January 2024 our contract with NatWest ended and all
business was transferred to the new provider. The Nationwide
contract will end on 30 April 2024 although policy upgrades will
continue to be underwritten by the Group until 30 April 2025.
2023 results
Gross written premium and associated fees were £150.1 million
(2022: £124.4 million). The operating loss relating to run-off
partnerships in 2023 was £29.5 million (2022: £10.8 million).
48
48
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Non-financial and sustainability
information statement
Strategic Report / Governance / Financial statements
This non-financial and sustainability information statement highlights information necessary for an understanding of the Company’s development,
performance, position and impact of its activity, information relating to environmental, employee, social, respect for human rights, anti-corruption
and anti-bribery matters.
Where possible, the following table states where additional information can be found that supports the requirements of sections 414CA and 414CB
of the Companies Act 2006.
Reporting
Requirement
Environment
Annual Report
Sustainability
Page
Relevant policies, statements and codes available
at directlinegroup.co.uk
50 to 69
Environment Statement
Anti-bribery and anti-
corruption
Task Force on Climate-related Financial
Disclosures
70 to 85
Streamlined Energy and Carbon Reporting
85
Financial crime and anti-bribery and corruption
124
Ethical Code for Suppliers
67
Prevention of Financial Crime Policy
Code of Business Conduct
Ethical Code for Suppliers
Whistleblowing Policy
Employees
People
54 to 57
Flexible Working Policy
Health & Safety Policy
Business model
Brilliant for customers every day
4 & 51 to 53
Prompt Payment Code
Social and
community matters
Strategy
Business model
Operating review
Market overview
Society
Community fund
22 to 23
Responsible Investment Policy
18 to 19
Underwriting Standards
40 to 48
Tax Policy
20 to 21
Board Diversity Policy
58 to 60
Data Privacy Policy
58 to 60
Corporate Website Privacy Notice
Human rights
Human rights and modern slavery
67 & 128
Human Rights, Diversity and Inclusion Policy
Modern Slavery Statement
KPIs
Our key performance indicators
Risk
management
Risk management
Principal risks and uncertainties
Emerging risks
24 to 25
86 to 92
88 to 90
91 to 92
The table below has been produced to comply with the requirements of section 414CB of the Companies Act 2006, as amended by the Companies
(Strategic Report) (Climate-related Financial Disclosures) Regulations 2022. The information listed is incorporated by cross-reference.
Reporting requirement
(a) a description of the company's governance arrangements in relation to assessing and
managing climate-related risks and opportunities
Page
70 to 71
Further information
Refer to Governance
(b) a description of how the company identifies, assesses, and manages climate-related risks
and opportunities
(c) a description of how processes for identifying, assessing, and managing climate-related
risks are integrated into the company’s overall risk management process
(d) a description of:
–
(i) the principal climate-related risks and opportunities arising in connection with the
company’s operations; and
(ii) the time periods by reference to which those risks and opportunities are assessed
–
80 to 81
Refer to Risk Management
71
Refer to Management's role
70 to 85
Additional information available
throughout TCFD report
80 to 81
Refer to Risk Management
77
Refer to table within Our
strategic response
(e) a description of the actual and potential impacts of the principal climate-related risks and
opportunities on the company’s business model and strategy
77 to 81
Refer to Our strategic response
(f) an analysis of the resilience of the company’s business model and strategy, taking into
account consideration of different climate-related scenarios
73 to 76
Refer to Scenario analysis
(g) a description of the targets used by the company to manage climate-related risks and to
realise climate-related opportunities and of performance against those targets
78, 79, 83, 84
and 85
Refer to Science-Based Targets
(h) the key performance indicators used to assess progress against targets used to manage
climate-related risks and realise climate-related opportunities and a description of the
calculations on which those key performance indicators are based
81 to 85
Refer to Metrics and Targets
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
4949
Strategic Report / Governance / Financial statements
Building a sustainable
future
Our five-pillar sustainability strategy was developed and has evolved to support our vision of creating a world where
insurance is personal, inclusive and a force for good.
Each pillar is defined through an overarching ambition that together drive us to deliver a positive impact for our
stakeholders and strengthen our own business by taking action on priority environmental, social and governance issues.
Over the last year, we have progressed all areas of our strategy, from cost of living support for our customers and tools to
drive a high performance and inclusive culture for our people, to new social mobility partnerships and programmes in our
local communities and the continued decarbonisation of our business as we report performance against our Science-Based
Targets for the first time.
Our vision
To create a world where insurance
is personal, inclusive and a force for good
Customers
People
Society
Planet
Governance
Earn our
customers’ trust
by demonstrating
how we are acting
in their interests
Encourage a culture
that celebrates
difference and
empowers people
so that they
can thrive
Use our expertise
to improve outcomes
for society and
the communities
we serve
Protect our business
from the impact
of climate change
and give back more
to the planet than
we take out
Look to the long term
for our stakeholders,
build a reputation for
high standards of
business conduct
and develop a
sustainable business
2023 actions
– Rolled out
– Developed our
– Conducted new
climate-related risk
management
roadmap
– Rolled out our supply
chain sustainability
programme
materiality research
and analysis
– Reviewed Board
Committees’ Terms
of Reference for
sustainability and
climate
– Rolled out enhanced
vulnerable customer
training
– Launched a new
performance
framework
Community Fund
outreach programme
– Refreshed how we
review customer
conduct
– Enhanced our
customer experience
design process
– Set new gender
– Launched new
and ethnic
diversity targets
partnership with
UK Youth
Near-term priorities
– Evolve and enhance
our digital servicing
options for
customers
– Review and update
our electric vehicle
strategy
– Develop and
embed new learning
opportunities
– Define our approach
to culture, leadership
and future prospects
– Review our
approach,
programmes
and partnerships
– Integrate our
community
approach to build
future talent
pipelines
– Review and align
with new SBTi
standard for
financial institutions
– Build out our climate
transition plan
– Complete materiality
analysis and use
findings to update
our strategy
– Enhance overall
governance of
sustainability and
climate across
the business
50
Direct Line Group Annual Report and Accounts 2023
Customers
Strategic Report / Governance / Financial statements
Our mission is to be brilliant
for customers every day,
and we want to be known for
excellence through all stages
of the customer journey.
We are focused on meeting the needs
of all our customers, aiming to provide
them with the products they want,
while delivering an exceptional service.
Over the year, we’ve continued to
enhance our customer approach
following the introduction of the
Consumer Duty, recognising ongoing
cost of living challenges, launched our
Direct Line Essentials product and
improved our capability to provide
easy digital-first journeys.
“The Group has come together around
Consumer Duty to put the customer
at the heart of everything we do.”
Lorraine Price, Head of Product
Lifecycle Management
The Consumer Duty
In July 2023, Consumer Duty came into effect, introducing
significant new Financial Conduct Authority (“FCA”) rules
on consumer protection for all financial services firms.
To support and strengthen our approach to be brilliant for
customers every day, we:
– provided Consumer Duty training to all colleagues, including
those interacting with customers every day.
– completed a review of our key customer journeys and
processes, making numerous improvements to help and
support our customers.
– engaged with key suppliers, producing a supplier-specific
guidance pack to help them understand the expectations
around customer outcomes and how we will support them
to achieve this.
– launched a customer closeness programme for our Senior
Leadership community to go ‘back to the floor’ and walk in
our customers’ shoes.
– introduced new product forums with specific accountability
for reviewing customer outcomes and reporting against the
four main outcomes of the Consumer Duty.
Direct Line Group Annual Report and Accounts 2023
51
Sustainability continued
Supporting our customers
Direct Line Essentials and cost of living support
Building on the success of last year’s Churchill Essentials
product, we launched our Direct Line Essentials product this
year for our Motor customers, expanding our product range
and giving those who need it greater choice during a time
when many are facing cost of living challenges. The Direct Line
Essentials product is available for customers looking for an
entry-level comprehensive car insurance policy.
In addition to this, we continue to assist those facing financial
difficulty, asking customers to discuss with us their needs
so we can look to offer the most appropriate support
which may include reviewing levels of cover or considering
alternative products.
Enhancing our vulnerable customer approach
We continued to build on our vulnerable customer training
programme and during 2023 over 4,000 of our employees
received enhanced refresher training. In addition, further
reference tools were introduced to enable employees
to support vulnerable customers and those experiencing
financial difficulty.
To improve customer communications, we also continued
our partnership with Plain Numbers, an organisation which
aims to change the way numbers are presented to improve
comprehension, by training more colleagues as practitioners
this year. We were pleased to be recognised for our efforts,
receiving accreditation and becoming one of just ten
organisations to achieve this accolade.
Additionally, we have worked with the disability charity,
Scope, to review our websites and make changes to the way
we present information to improve accessibility and partnered
with And or If Ltd, a specialist agency who find creative
ways to present customer communications to refresh our
policy documents.
Focused on customer needs
Motability onboarding
We welcomed over 700,000 new customers as part of our
partnership with Motability Operations in September last year
which will help us to gain further insight into their fleet of
modern vehicles. The more insight we have the better able we
are to fix customers’ cars so customers will benefit.
Planning for this partnership over the last few years, we have
worked on mapping out customer journeys and built new
technology platforms and data flows. Since the integration,
our teams have handled over 110,000 calls from customers,
replied to around 39,000 web chats and registered around
80,000 claims.
Darwin milestone
Our Darwin motor brand continues to grow since its launch
in 2019 and reached the significant milestone of welcoming
its 250,000th customer this year. Utilising new technology
and machine learning models to offer competitive prices to
customers on Price Comparison Websites (“PCWs”), Darwin
is one of the highest-rated motor insurance brands in the
UK on Trustpilot.
52
Direct Line Group Annual Report and Accounts 2023
Customer user research suite
To enhance our understanding of customer wants and
needs, we’ve opened a new user research suite in our
Riverbank House office in London, providing a relaxed
and informal space where we can gain customer
feedback for future products and teams can test many
experiences from digital journeys, websites, apps, to
our latest marketing campaign and more.
Making electric easy
Our electric vehicle (“EV”) strategy is focused on providing
comprehensive EV insurance combined with additional
non-insurance benefits with the overall aim of supporting our
customers to make sustainable choices by making the switch
to electric easy.
We carefully consider our EV insurance products to reflect the
specific needs of EV owners, giving our customers and those
considering purchasing an EV for the first time peace of mind.
For example, our policies include battery cover, home charger
and cable cover, specialist EV repairs completed by qualified
EV technicians and liability cover to others if they’re injured
by cables which are attached to an EV.
During 2023, we have also continued to enhance our added-
value proposition through the Direct Line electric vehicle
bundle that we first introduced in 2021 in partnership with
Zoom EV to provide essential, non-insurance services to
customers to help them run their EV. This is offered for free to
new and existing Direct Line motor insurance customers and
includes benefits such as access to discounted public charging,
discounts off home charging devices, EV home energy benefits,
community charging, discounted parking, and access to a
dedicated EV expert helpline – with the services provided by
established operators in the market.
The proposition has proved popular with our EV customers; to
date, 45% have activated their bundle with over 70% of these
engaging and interacting with at least one of our end service
providers. In 2024, we will continue to expand on the benefits
and partnerships available, offering accessible solutions for our
customers to the commonly cited barriers to EV ownership.
Behind the scenes, we continue to build our own capabilities
and expertise to support the growth and development of our
EV strategy. This includes the training and recruitment of
EV-accredited technicians in our accident repair centres
(with over 170 across our sites and a minimum of two on each
site), developing strategic supply chain partnerships to support
EV repairs, maintaining a presence at key industry events to
facilitate collaboration and partnership, as well as building
internal awareness around all things EV and supporting our
employees to make the transition.
During 2024, our EV strategy team will be reviewing and
updating our approach to ensure it remains fit for purpose
and continues to reflect the needs of our customers in this
crucial stage of the EV transition.
Delivering digital-first journeys
By Miles acquisition
Enhancing our capability to provide easy digital-first journeys
for our customers, we acquired By Miles, a managing general
agent, which has sold over 100,000 policies since its launch in
2018 and has around 50,000 customers. By Miles proprietary
cloud-based platform allows customers to pay only for the
miles they drive, which members can manage through a
smartphone app.
Motor Claims Hub
Knowing that many of our customers prefer to register their
claims online, we have focused on enhancing our capability
to provide end-to-end digital claims journeys, launching a
new Motor Claims Hub in 2023. The Hub gives our Churchill
customers the opportunity to report both third-party and single
vehicle claims, allowing them the flexibility to inform us of an
accident at any time of day from their phone, tablet or laptop,
all while getting real-time claim decisions. Future plans for the
Hub include extending this capability to Motability, Direct Line
and Privilege customers, as well as introducing additional
features for customers to conveniently track their claims online.
Recognition
Brand awards
– Direct Line and Churchill received Which? Recommended
Supplier Status, recognised for outstanding cover and
services for Jan – Dec 2023.
– Green Flag was again ranked as the top rescue service
provider by the UK Institute of Customer Service in 2023.
– Darwin is one of the highest-rated mainstream motor
insurers in the UK with 80% of the 20,000 reviews rating
the brand five stars.
Net Promoter Score (“NPS”)
Our aim is always to deliver good customer outcomes and
maintain a strong NPS. In 2023 we experienced a decrease
in our Direct Line NPS which was driven mainly by rising
premium prices in a challenging economic environment and
claims delays impacted by supply chain challenges. These
challenges have had an impact across our industry. We have
taken action to mitigate these challenges and continue to be
fully focused on delivering good customer outcomes in 2024.
Net Promoter Score – Direct Line brand
Launch of Caha! app
This year, after undertaking extensive consumer
research to find out the biggest issues for motorists
we launched a new app, Caha! to bring together all
aspects of car management and ownership on one
platform. Aiming to meet more customer needs, the
app allows users to find parking spots, fuel stations,
as well as holding any car-related documents such as
insurance policies, V5 documents and MOT certificates.
19
20
21
22
23
155
158
156
142
115
Direct Line Group Annual Report and Accounts 2023
53
Strategic Report / Governance / Financial statements Sustainability continued
People
At Direct Line Group
we’re a team of talented
individuals all working
together to be brilliant for
customers every day.
In 2023 we have been focused on
putting in place the enabling blocks
to support and encourage colleagues
to build on their skills, capabilities
and experience to do the best work
of their career and make their full
contribution to embedding a high-
performance culture.
Focused on performance
Our new performance framework means all colleagues can be
clear on what high-performance looks like, what they need to
deliver and how to deliver it by demonstrating our core values.
We have applied a strong diversity and inclusion lens to our
approach – helping to protect against bias. This has provided
colleagues with clarity, fairness and transparency to help
them succeed, progress and take ownership of creating
their own future.
Focused on Values
This year we have evolved our Values to represent the best of
the Group, and to guide the way we work together to perform
as a business and deliver for our customers. Our Values help us
make good decisions, support each other in the right way and
draw on diverse perspectives.
In November we recognised and celebrated those colleagues
who had gone above and beyond in exemplifying our Group
Values with our new Group Annual Awards.
“It’s fantastic to have 400 colleagues
on Ignite apprenticeships and we
are really proud of the 44 who
successfully completed their
qualification in 2023.”
Stephanie Bishop, Emerging Careers Lead
Building skills and capabilities
At the Group we’re serious about ensuring our colleagues are
equipped not just for the job they are doing today but also
the skillsets they and the business will need in the future.
Highlights of learning and development in 2023 were:
More information on our Group Values can be found on page 22.
– LinkedIn Learning: We partnered with LinkedIn Learning
to connect colleagues with learning opportunities, helping
them to develop critical skills and grow their careers.
Since its launch in July, over 2,100 hours of learning have
been consumed.
– Ignite Programmes: Launched in 2022 we continue to evolve
our programmes to develop the future skills needed to serve
our increasingly tech-savvy customers. 394 colleagues are
currently on a diverse range of apprenticeships, with 33%
focused on vehicle repairs and 43% on data and technology.
Win together
Be yourself
Own it
Speak up
54
Direct Line Group Annual Report and Accounts 2023
will be £23,400 from 1 April 2024, for a 37.5hr working week,
(excluding apprentices in DLG Auto Services who receive
different rates of pay).
A diverse and inclusive business
We know that to succeed as a high performing business we
need our workforce to be truly representative of our customers
and society. Diverse perspectives, ideas and opinions lead to
more insight, innovation and better decision making. And we
know that being diverse is not enough, we also need to be
inclusive, so everyone feels free to be themselves and succeed
in their careers.
We’ve received some great external recognition; the Group has
featured on the Top 50 UK Inclusive Employer’s List for the last
three years running and we have been placed in the Social
Mobility Index for the first time this year. However, we’ve
continued to build on the strong foundations we have in place,
addressing under-representation at the senior levels of our
business, whilst focusing on improving inclusion through key
programmes of work. We are:
– holding Senior Leadership to account for the delivery of
representation targets, with progress towards these new
targets being a factor of consideration within the annual
bonus outcome discussions.
– using inclusive hiring principles, which include the use
of language decoders for job adverts, diverse shortlisting
standards, anonymised CVs and panel-based interviewing.
– starting to build a stronger pipeline of diverse talent,
especially in areas where we need skills for the future.
This is complemented by additional interventions such
as work experience, mentoring and skills building
programmes that target these communities for our Ignite
apprenticeship initiatives.
– learning from our Diversity Network Alliance (“DNA”) which
comprises of seven employee networks which are a key driver
of diversity and inclusion across our business. They focus on
the following areas: Belief, Life (families and carers), LGBTQ+,
Neurodiversity and Disability, REACH (race, ethnicity and
cultural heritage), Social Mobility and Thrive (gender).
Increasing diverse representation in Senior
Leadership
Increasing the diversity of Senior Leadership is a continuing
focus for the Group, in particular the representation of women
and ethnic minority and Black colleagues. Our progress is
ongoing, but we are proud of the progress we have made.
This year we have been investing in coaching and targeted
development programmes for our high potential women,
ethnic minority and Black talent to support their progression
into senior roles.
During 2023, we evolved our Senior Leadership diversity
representation targets in order to better align with the
approach taken by the FTSE Women Leaders Review, Women
in Finance review and Parker Review. Whereas previously we
set senior level diversity representation targets (including our
2023 targets) based on our internal role grading structure,
going forward we define Senior Leadership in this context as
the Executive Committee and their direct reports, excluding
direct reports in support or administrative roles.
With this refined definition, we have challenged ourselves
by setting longer-term stretching targets to hold us to account
for delivering change.
Direct Line Group Annual Report and Accounts 2023
55
Riverbank House – a great place to work
for all our people
In August we opened Riverbank House – our new, fit
for purpose and accessible by design office in London.
It provides the environment we need for how we work
now with lots of spaces for collaboration, creativity
and interaction. The new location is in easy reach
by multiple public transport routes, broadening the
geographical area from which to attract top talent.
Working with external specialists and with extensive
input from our Diversity Network Alliance employee
networks, the building has been designed to meet the
needs of our colleagues. Spaces include: a quiet room,
multi-faith prayer room, nursing room and gender
neutral toilet and shower facilities, alongside gender
specific facilities. Office features include lighting and
temperature controls, accessible fixtures and fittings,
tactile and braille signage, with assistive hearing
technology available. This inclusivity and accessibility
lens was also applied to our new Motability office in
Liverpool, creating a bright, modern and accessible
space where colleagues can work at their best.
Rewarding colleagues
In January 2023 all colleagues (excluding Executive Directors
and senior management) received a 5% pay rise, this was
three months earlier than usual in recognition of cost of living
pressures. This meant our minimum salary rose to £21,840 p.a.
(based on a 37.5hr working week). This was set at 2.8% above
the Living Wage Foundation’s National Real Living Wage
(as set in September 2022 for roles outside of London) and
was also 7.5% above the Government’s statutory National
Living Wage (effective 1 April 2023 for those aged 23 and over).
To provide additional support for colleagues on lower salaries,
in February 2023 a one-off cost-of-living payment of £1,000 was
announced for colleagues earning less than £40,000.
In March 2024, we announced that all eligible employees
(excluding Executive Directors and senior management)
will receive a salary increase of 5% effective from 1 April 2024.
We remain firm to our commitment to lift the pay of our lowest
earners and also announced that all colleagues will meet the
Living Wage Foundation’s National Real Living Wage (as set
in November 2023) from 1 April 2024. This means that some
employees will see their salary rise by around 7% on a full-time
basis (for a 37.5hr working week), and the DLG minimum salary
Strategic Report / Governance / Financial statements Sustainability continued
Senior Leadership female representation
Despite our long-term focus on investing in women, we missed
our 2023 annual target of 42.8% of women in senior roles (set
with a definition based on our internal role grading structure,
which covered a larger population including ExCo-2).
Looking to the future, we have set a new stretching target of
40% female representation in Senior Leadership by the end of
2027 (based on the new definition outlined above). At the end
of 2023, women made up:
Board
ExCo
ExCo-1
ExCo-2
Senior
Leadership
25.0%
42.9%
29.3%
37.8%
31.3%
Senior Leadership ethnic minority and Black
representation
Although we missed our senior role ethnic minority and Black
representation 2023 annual targets (being 14.2% and 2.6%
respectively), we recognise that progress is not always linear,
and our representation remains strong compared to industry
peers. We are strengthening our Senior Leadership succession
pool by investing in developing ethnic minority successors
through engaging with external programmes such as Solaris
and Involve Emerging Leaders.
We have set new targets to achieve 16% ethnic minority and
4% Black representation in Senior Leadership roles by the
end of 2027.
Ethnic minority representation in
Senior Leadership1
Gender diversity of our Board
As of 31 December 2023
25.0% Women (3)
75.0% Men (9)
Gender diversity of Senior Leadership
As of 31 December 2023
31.3% Women (15)
68.7% Men (33)
Gender diversity of Senior Leadership defined as Executive
Committee and direct reports, excluding those in support or
administrative roles
Gender diversity of all employees
As of 31 December 2023
45.1% Women (4,530)
54.9% Men (5,520)
2023
2022
2021
12.5%
12.1%
11.7%
Excludes an estimated 0.4% of colleagues who identify
as non-binary, gender-fluid or other gender due to data
reporting constraints
Ethnicity of all employees
Black representation in Senior Leadership1
As of 31 December 2023
2023
0.0%
2022
1.5%
2021
0.8%
Notes:
1. 2023 figures refer to definition of Senior Leadership as Executive
Committee and direct reports, excluding direct reports in support
or administrative roles. 2021 and 2022 figures refer to a previous
definition, used for 2023 annual targets, whereby senior roles are
based on our internal role grading structure, which covered a larger
population including ExCo-2.
56
Direct Line Group Annual Report and Accounts 2023
11.2% Asian (1,122)
2.9% Black (287)
1.8% Mixed (178)
1.7% Other (174)
72.1% White (7,248)
6.1% Prefer not say (613)
4.2% Not specified (428)
For more information on leadership gender diversity,
including gender diversity of the Board see pages 101
and 112 to 113.
Gender pay gap1
Last year our mean gap widened by 1.8 percentage points
and our median gap by 3.1 percentage points. Our pay gap
continues to be low compared with the broader financial
services sector, but we want to see that gap close. We are
comfortable that we do not pay people differently because of
their gender and believe that the way to reduce the gap in the
medium- to long-term is to continue with our work to address
the disproportionate representation of women at certain levels
and in certain areas of our business. For example, a particular
driver of the pay gap movement we have seen is a market-
driven movement in salaries in our accident repair centres,
which is an area heavily resourced by men.
Our 2023 gender pay gap showed:
Mean
Median
21.1% 23.4%
19.3%
20.3%
16.1%
14.2%
Mean
Median
53.8% 43.8%
46.7%
45.4%
45.9%
34.0%
Men Women
84.2% 87.3%
83.1%
82.6%
72.7%
60.6%
Pay gap
2023
2022
2021
Bonus gap
2023
2022
2021
% of employees receiving bonus
2023
2022
2021
Notes:
Ethnicity pay gap2
This is the third year that we are voluntarily disclosing our
ethnicity pay gap. This year, aligned with new government
guidance, we have changed the way we report this data to
focus on more disaggregated ethnic minority groups.
As with the gender pay gap, we are comfortable that we do not
pay people differently because of their ethnicity and believe
that the way to reduce the gap in the medium- to long-term
is to continue with our work to address the disproportionate
representation of ethnic minority and black colleagues at
certain levels and in certain areas of our business. Our
disclosure rate has increased since last year. We are proud that
91% of colleagues are disclosing this information. However,
changes in disclosure rate could change our gap, so as we
continue to encourage colleagues to share their ethnicity with
us, the numbers we report in the future may change.
It is important to note that when pay gap data is based on a
smaller number of individuals, it can vary significantly over time
due to colleagues’ changes during the year. Our pay gap for all
ethnic minorities remains low and has narrowed in 2023.
Ethnicity pay gap
2023
2022
Mean
Median
Mean
Median
Ethnic minority (overall)
1.0%
12.7%
Asian
Black
Mixed
Other
-2.7%
14.1%
12.2%
17.8%
3.2%
2.9%
8.2%
-0.2%
3.1%
1.1%
11.8%
1.0%
2.9%
9.7%
16.1%
11.0%
4.9%
6.1%
Ethnicity bonus gap
2023
2022
Mean
Median
Mean
Median
Ethnic minority (overall)
28.7% 20.4% 40.9%
19.1%
17.8%
29.2% 20.5%
33.6%
40.6% 24.5%
59.7%
26.4%
22.3%
15.3%
45.1%
22.5%
16.9%
10.1%
45.6%
8.3%
Asian
Black
Mixed
Other
% of employees receiving bonus:
White
Ethnic minority (overall)
Asian
Black
Mixed
Other
2023
88.0%
78.5%
77.7%
74.1%
78.6%
89.6%
2022
84.6%
74.6%
71.5%
67.6%
77.0%
91.2%
1. The gender pay gap shows the difference in average pay between women and men. This is different to equal pay, which is women and men
receiving the same pay for work of equal value. Our reporting is based on a snapshot date of 5 April 2023.
2. The ethnicity pay gap shows the difference in average pay between ethnic minorities, Asian, Black, Mixed, Other and White colleagues.
This is different to equal pay that is ethnic minority and White colleagues receiving the same pay for work of equal value. Our reporting is based
on a snapshot date of 5 April 2023 and 91% of colleagues that have shared their ethnicity with us, this is an increase of 4% compared to last year.
Direct Line Group Annual Report and Accounts 2023
57
Strategic Report / Governance / Financial statements Sustainability continued
Society
Building on the success of our
Community Fund programme
to help equip students with key
career skills, we launched the
second phase of activity in 2023
supporting social mobility by
focusing on breaking down
barriers further and engaging
with harder to reach groups.
Progressing towards our ambition
to build a more inclusive and
equitable Britain, we developed
our approach to include youth
centre engagement, business
simulations and outreach with
special educational needs and
disability (“SEND”) students.
Insurance business simulations
Introducing immersive experiences with a competition element where
students can learn about different insurance roles and skills.
Youth centre engagement
Partnering with UK Youth, colleagues are visiting youth centres
to engage with young people who face more complex barriers
to accessing the workplace.
Working with SEND students
“It was a privilege to show
neurodiverse students how maths
and data is used within insurance.”
Fiifi Arthur, Data Scientist
58
Direct Line Group Annual Report and Accounts 2023
Working closely with special
education providers, Majorie
McClure and The Courtyard
schools, to create tailored
programmes to help students
gain insight into Insurance
and a professional work
environment.
Work experience
Providing in-person and virtual opportunities for students
with a focus on employability and careers skills.
Mentoring
Supporting young people on a one-to-one basis with career options,
raising aspirations, and helping to build professional networks.
Insight events
Running insight events that enable students to develop networking
skills and learn about different career pathways in insurance.
From 2022-2023
600+
colleague volunteers
2,200+
total volunteering hours
75%
of colleagues feel that
we do a good job of
supporting communities
9,700
young people’s employability
positively impacted
84%
were eligible for free
school meals
83%
were from an ethnic
minority background
We were delighted to be recognised for our efforts to
support social mobility, ranking on the Social Mobility
Foundation’s Employer Index for the first time.
We were assessed on various criteria for our work
across the organisation including our recruitment
approach, internal progression opportunities, our
engagement with young people via the Community
Fund and more.
Looking ahead to 2024, we want to build on the
foundations we have created by connecting students
with potential job opportunities to broaden access to
careers in financial services.
Direct Line Group Annual Report and Accounts 2023
59
Strategic Report / Governance / Financial statements Sustainability continued
Aligned with our vision to be a force for good, we aim to have
a positive impact on the communities we serve and society
as a whole.
We know that our stakeholders want us to contribute positively
and we are working towards this ambition with our charity
support, volunteering and Community Fund activity.
In 2023, we kicked off the second phase of our Community
Fund, focused on outreach and enhancing our approach to
working with young people who face more complex barriers
to employment as we aim to broaden access to careers in
financial services. This included the launch of a new partnership
with UK Youth to complement our existing partnerships.
Further information on our Community Fund activity can be
found on pages 58 to 59. In 2024, we will focus on creating
further synergies between our Community Fund outreach
programmes and our emerging careers strategy to generate
talent pipelines for critical business areas.
We were additionally delighted to rank on the Social Mobility
Employer Index for the first time in 2023, recognised for
various initiatives across the organisation as well as our
Community Fund.
Charity support
We have also continued to help those in need by providing
donations to various charitable causes in the UK, as well as
several humanitarian appeals globally during 2023, including:
– Sponsoring the NSPCC’s Great Chefs dinner, which raised
close to £300,000 to help vulnerable children around the UK.
– £100,000 going out to local causes from our colleague-led
Community and Social Committees (“CASCs”).
– £90,000 distributed from our Diversity Network Alliance
to a variety of organisations supporting their aims.
– £70,000 to various humanitarian and Disasters Emergency
Committee campaigns across the world.
Volunteering
A key part of our social sustainability strategy, that supports our
Community Fund outreach and our ambition to have a positive
impact on the communities we serve, involves employee
volunteering through our One Day programme. In 2023,
hundreds of colleagues took part in various volunteering
activities ranging from mentoring young people to hands-on
projects improving spaces in our local communities and we
look forward to continuing to drive engagement in 2024 with
the launch of a new volunteering platform.
Our 2023 tax
contribution
In accordance with
applicable tax laws and
regulations and our
responsibilities both as a
contributor of corporate
taxes and as a collector of
taxes on behalf of HMRC,
in 2023 the Group’s net
tax contribution was
£936.8 million, which
includes the Group’s
direct and indirect
taxation.
Our
customers
IPT
Our suppliers
VAT
£439.1m
£17.0m
Our people
PAYE NIC
£102.5m
Our
operations
Other taxes
including
business rates
£5.2m
Irrecoverable VAT
£304.0m
Employers NIC
£44.7m
Our
performance
Corporation Tax
£24.3m
HM Treasury
£936.8m1
Net tax contribution
Society
– Public services
– Healthcare
– Infrastructure
– Welfare
– Education
– Defence
Note:
1. The Group’s total tax contribution in 2023, including direct and indirect tax contributions.
60
Direct Line Group Annual Report and Accounts 2023
Planet
We are focused on playing
our part in accelerating the
transition to a low-carbon
future, while supporting
our customers to make
sustainable choices.
Aligned with our mission to protect our business from the
impact of climate change and give more back to the planet
than we take out, our climate strategy is summarised in the
diagram below.
This is supported by our Science-Based Targets (“SBTs”) and
our climate-related risk management roadmap, against which
we continued to make progress in 2023. For more information,
please see our progress against our SBTs on page 62 and
in our understanding and management of climate-related
risks and opportunities in our climate-related disclosures
on pages 70 to 85.
Our vision
To create a world where insurance
is personal, inclusive and a force for good
Our climate ambition
To become a Net Zero business across all scopes by 2050
Having had our Science-Based Targets approved by the Science Based Targets initiative in November 2022,
we are taking a strategic and rounded approach to developing a transition plan to meet our targets and manage
our climate-related risks and opportunities.
Our 5 near-term Science-Based Targets1 to support our ambition
Operational emissions
(Scope 1 and 2)
1. Reduce emissions 46%
across our office estate
and accident repair
centres by 2030
Investment portfolio
(Scope 3): Corporate
bonds
2. Align our scope 1 and 2
portfolio temperature
rating to 2.08°C by 2027
Investment portfolio
(Scope 3): Corporate
bonds
3. Align our scope 1, 2
and 3 portfolio
temperature rating to
2.31°C by 2027
Investment portfolio
(Scope 3): Commercial
property
Investment portfolio
(Scope 3): Real estate
loans
4. Reduce emissions
from our commercial
property portfolio by
58% per square metre
by 2030
5. Reduce emissions
from our real estate
loans portfolio by 58%
per square metre
by 2030
Our commitments to deliver against our ambition and targets
Plan and implement
Engage and influence
Govern and manage
– Tangible actions to reduce emissions
across our office estate and auto
services sites.
– Strategies and new products and
services to support our customers in
the transition such as our EV strategy.
– Strategies to tilt our investments
towards companies taking action to
reduce emissions.
– Our supply chain through our supply
chain sustainability programme that
encourages and supports suppliers
to reduce their emissions.
– Our external investment partners
to align their strategies with
our commitments.
– Our people through our internal
sustainability networks and
education programmes.
– Our sector through our involvement
with the ABI and its working groups.
– Our climate-related risks and
opportunities through our climate-
related risk management roadmap.
– Our underwriting footprint
by understanding our
underwriting emissions.
– Our SBTs through annual external
assurance and future alignment to
updated guidance and standards.
– The integration of oversight
responsibilities for climate across
our Board Committees.
Electric vehicles
Supply chain
Flood resilience
Underwriting footprint
Strategic management actions
Note:
1. Targets were set against a 2019 baseline and are expected to be updated and expanded according to new SBTi sector guidance, due in 2024.
Direct Line Group Annual Report and Accounts 2023
61
Strategic Report / Governance / Financial statements Sustainability continued
Science-Based Targets
In November 2022, we had our SBTs validated by the Science Based Targets initiative (“SBTi”). Current guidance from SBTi has
enabled us to set near-term targets for our operational emissions (Scope 1 and 2) and emissions associated with our investments,
which are estimated to represent 70% of our Scope 3 emissions. This is our first year of reporting against three of our five targets
with our 2023 performance summarised below. We are due to report against our commercial property and real estate loans targets
for the first time in 2024. While we wait for finalised sector guidance from SBTi in 2024, we have also set an internal target to reduce
our supply chain emissions through to 2030.
2023 performance
Progress against targets
Operational emissions (Scope 1 and 2)
Covering
Operational footprint
Operational emissions (Scope 1 and 2)
Our buildings and garage network
Including our 23 auto services sites
and 13 offices.
Targets
1. Reduce emissions by 46% across
our offices and accident repair
centres by 2030 against the
2019 baseline.
10000
8000
6000
4000
2000
0
9
1
0
2
0
2
0
2
1
2
0
2
2
2
0
2
3
2
0
2
4
2
0
2
5
2
0
2
6
2
0
2
7
2
0
2
8
2
0
2
9
2
0
2
0
3
0
2
Result
Target
In 2023 we further reduced these emissions by
31%1 compared to 2022 as we continue to make
progress in downsizing and investing in our
office estate, electrifying our auto services sites
and using alternative fuels in our recovery trucks.
Overall we have now reduced our Scope 1 and 2
emissions by 43%1 against our 2019 baseline
meaning we are on track to deliver our 2030
target of a 46% reduction. Our work will continue
this year and beyond as we look to renegotiate
our renewable energy contracts, continue
the electrification of our auto services sites
and explore fossil fuel alternatives for our
recovery trucks.
1. We are required to use Scope 1 and Scope 2 market-based emissions for SBTi operational target-setting and reporting. When including
Scope 2 location-based emissions this reduction is equivalent to a 22% reduction when compared to 2022 and a 52% reduction overall.
Covering
Corporate bonds
The largest asset class in our
investment portfolio and typically
short-duration holdings.
Targets
2. Align our Scope 1 and 2 corporate
bonds portfolio temperature rating
to 2.08°C by 2027 from 2.44°C
in 2019.
3. Align our Scope 1, 2 and 3
portfolio temperature rating to
2.31°C by 2027 from 2.8°C in 2019.
Investments (Scope 3)
Corporate bonds
Scope 1 and 2 temperature rating
5
4
3
2
1
0
2019
2023
2024
2025
2026
2027
Result
Target
Corporate bonds
Scope 1, 2 and 3 temperature rating
3
2
1
0
2019
2023
2024
2025
2026
2027
Result
Target
Our performance in 2023 shows we were
successful in reducing the temperature rating
of this portfolio to 2.02°C for Scope 1 and 2
against our 2019 baseline of 2.44°C (Target 2)
and to 2.31°C for Scope 1, 2 and 3 (Target 3)
against our 2019 baseline of 2.8°C. This means
we have hit our 2027 targets early, something
we have achieved through working with our
investment managers and providing them
with clear mandates.
Reductions have been largely driven by an
increasing number of investee companies
achieving lower temperature ratings by setting
ambitious greenhouse gas reduction targets
including SBTs. This has helped to lower the
aggregate portfolio temperature score. To a
lesser extent, reducing exposure to US dollar
denominated corporate bonds (as part of the
Group-wide capital de-risking exercise in
summer 2022) has helped as firms in the dollar
universe have been relatively slower to set
targets for emissions reduction than in Europe.
Although the weight to US dollar debt will
likely increase in 2024, we do not expect the
temperature score to materially rise as managers
are expected to largely target bonds issued from
companies with stronger climate credentials.
5
4
3
2
1
0
3
2
1
0
Commercial property
4. Reduce commercial property
emissions by 58% per square metre
by 2030 compared to the 2019
baseline.
Real estate loans
5. Reduce real estate loans
emissions by 58% per square metre
by 2030 compared to the 2019
baseline.
Investment portfolio consisting of prime UK
commercial properties.
2023 performance will be reported with a
one-year lag in the 2024 Annual Report and
Accounts.
Investment portfolio consisting of short-dated
loans backed by UK commercial properties.
2023 performance will be reported with a
one-year lag in the 2024 Annual Report and
Accounts.
62
Direct Line Group Annual Report and Accounts 2023
Our investments
All external investment managers are signatories of the United
Nations Principles for Responsible Investment (“UN PRI”), which
ensures that Environmental, Social, and Governance (“ESG”)
criteria are integrated into the investment process.
For investment-grade corporate bond portfolios, as an added
measure, we require that managers maintain an average MSCI
ESG rating equivalent to or higher than that of the ESG-
weighted reference index each portfolio is managed against.
We have set ourselves the target of achieving Net Zero
emissions from the investment portfolio by 2050 as part of our
alignment with the Race to Zero campaign on climate change.
In addition to our SBTs, we are keeping our target of reducing
the greenhouse gas (“GHG”) emissions intensity of our
corporate bond portfolio by 50% by 2030 versus a 2020 baseline
as a backward looking indicator, to ensure emissions are
reducing at the required pace over time to achieve our
longer-term Net Zero goal.
We also require the below exclusions and preferences:
– The exclusion of any companies with a low MSCI low-carbon
transition score, indicating assets could be economically
stranded.
– The exclusion of companies involved in thermal coal activity,
either mining or power generation, at greater than 5%
of revenues.
– Preference for investments in green bonds where the risk
return characteristics are similar to conventional bonds.
Energy efficiency measures1
In 2023, we made progress in reducing our footprint, investing
in energy efficient measures to help us work towards meeting
our SBTs. Compared to last year, we have:
– expanded the use of hydrogenated vegetable oil (“HVO”)
in our repair centres as an alternative fuel for our recovery
trucks. This initiative has now been implemented at 95%
of our auto services sites, resulting in an estimated saving
of 2,025 tCO2e in 2023;
– removed gas from all paint spray booths in one of our
auto services sites, providing an estimated saving of 277
tCO2e per year;
– completed the installation of LED lights across all 23 auto
services sites; and
– been awarded a silver SKA rating for the fit out of our
new Riverbank House office. An SKA rating is a recognised
means of assessing the refurbishment of existing buildings
to ensure the retrofit is carried out in an environmentally
considerate way.
Supply chain sustainability programme
We continue to make headway with our supply chain
sustainability programme, liaising with and influencing
suppliers so we can make the transition to a pathway
consistent with a 1.5°C scenario. We have now engaged with
our managed supply chain, of which 20% have signed up to
SBTi targets or an equivalent, and have updated our processes
to ensure we are continuously engaging with our key suppliers
to understand their plans to reduce emissions and set targets.
During the year, we also worked on reviewing our sourcing
processes, communicating to our key managed suppliers our
intention to increase the weighting on sustainability questions
from 5% to 10% for contracts over £1 million from January 2024.
While we work towards our internal emissions reduction target,
we also look forward to the final publication of the Financial
Institutions Net-Zero Standard from the SBTi, which
is expected in 2024.
Note:
1. Data is reported in compliance with the SECR requirements
(see page 85).
“It’s been great switching our paint
booths from gas to electric, helping
to reduce our footprint.”
Elliott Henry-Hughes | Technical
Engineering Graduate 2022
Group emissions
We believe accurate measurement and transparency can guide
the business in making targeted interventions as part of our
carbon reduction strategy. During the year we implemented
a number of test and learn activities, and continue to innovate
and explore a range of solutions such as the electrification
of the paint spray booths at our auto services sites.
We have provided a comparison of emissions data for Scope 1, 2
and 3 which includes our Investment emissions for the first
time. We are reporting on the temperature rating of our
corporate bonds and private placements for 2023. Due to the
practicalities of obtaining data from our external asset
managers ahead of the release of the Group’s annual reporting,
emissions for commercial property and real estate loans will be
reported with a one-year time lag. This approach was agreed
with the SBTi when our targets were approved in 2022.
100% of the emissions reported in the table on page 64 relate
to our operations, all of which are based in the UK. The data is
reported in compliance with the Streamlined Energy and
Carbon Reporting (“SECR”) requirement to disclose annual
global GHG emissions.
Definitions
Scope 1: This covers direct emissions from owned or controlled
sources. For example, our office sites throughout the UK using
gas boilers, the paint booths in our auto services sites currently
relying on gas powered processes, and our fleet vehicles.
Scope 2: These are indirect emissions. They are emissions
associated with the production and transmission of energy we
eventually use as a company across our office and auto services
sites. For example, the production of the electricity we buy to
heat and cool our buildings generates emissions.
Scope 3: These are indirect emissions that occur in our
investments and the value chain to support our company
operations. For example, employee commuting, activities
related to the disposal of waste, and the goods and services we
purchase to fulfil customer claims as part of our supply chain.
Direct Line Group Annual Report and Accounts 2023
63
Strategic Report / Governance / Financial statements Sustainability continued
Group greenhouse gas emissions reporting
Scope 1
Office sites
DLG Auto Services1
Total (tCO2e)1
Scope 2
Office sites
DLG Auto Services
Total (tCO2e)
Total Scope 1 and 2 (tCO2e)1
Of which: Office sites (tCO2e)
Of which: DLG Auto Services (tCO2e)1
Scope 3
Purchased goods and services3
Fuel and energy-related activities (not included
in Scope 1 and 2)
Upstream transportation and distribution
Waste generated in operations
Business travel
Employee commuting4
Of which: homeworking emissions5
Upstream leased assets6
Downstream leased assets1,7
Total Scope 1, 2 and 3 excluding investments
(tCO2e)
Investments8,9,10
Corporate bonds and private placements
Scope (1 and 2)
Corporate bonds and private placements
Scope (1, 2 and 3)
Real estate investments (tCO2e)
Real estate investments – intensity (kCO2e/m2)
Real Estate Loans (tCO2e)
Real Estate Loans – intensity (kCO2e/m2)
Intensity metrics
Scope 1 and 2 emissions (tCO2e) per £ million
of net insurance revenue11
Scope 1 and 2 emissions (tCO2e) per average
number of employees for the year
Notes:
2023
671
3,829
4,500
2022
1,023
5,506
6,529
2021
1,220
5,812
7,032
2019 (Baseline)
1,418
6,506
7,924
Location-
based
642
1,824
Market-
based2
33
0
Location-
based
1,089
1,364
Market-
based2
0
0
Location-
based
1,372
1,783
Market-
based2
0
0
Location-
based
4,516
2,093
Market-
based2
0
0
2,499
6,999
1,346
5,653
2,453
8,982
2,112
6,870
3,155
10,187
2,592
7,595
6,609
14,533
5,934
8,599
242,364
244,316
268,696
294,080
1,354
1,641
1,762
1,287
7,100
5,256
131
2,878
1,518
1,890
2,523
475
7,227
5,583
189
1,552
2,586
655
1,990
91
5,962
5,501
110
964
2,459
4,173
3,358
1,807
3,176
–
514
1,658
265,516
268,672
291,241
325,758
2.02ºC
2.31ºC
–
–
–
–
2.2
0.7
4,630
54
10,011
72
2.9
0.9
2.44°C
2.80°C
5,197
67
13,769
81
1.0
1.3
1. The 2019 reported Scope 1 emissions baseline differs from our previously reported baseline following a review of courtesy car fuel, by Accenture. As a result, 1,658 tCO2e
has been reclassed from Scope 1 emissions to downstream leased assets (Scope 3, Category 13), which represents the emissions from any additional fuel used by customers
in courtesy cars. An additional 183 tCO2e has been included within Scope 1 emissions to account for the initial on-site refuelling of courtesy cars.
2. Figures for Scope 2 use standard location-based methodology. We follow the GHG Protocol to disclose both location and market-based figures; and as we have secured
our energy from 100% renewable sources since 2014, our Scope 2 market-based results are nil prior to 2023. From 2023, emissions from electric and plug-in hybrid vehicles
in the company car fleet have been reported within Scope 2 market-based for the first time. Prior period data for these emissions is not available.
3. In accordance with the GHG Protocol under which we report, the following are excluded from the total: operational control activities already detailed under Scope 3
emissions; cash payments to customers or other insurance companies/legal firms as compensation; intragroup transfers between our operating companies for financial
accounting purposes as the actual purchase of goods and services to our third-party suppliers is already captured; and reinsurance costs to third-party reinsurers as this
is a financing transaction.
4. Employee commuting is based on estimated UK national averages, not actual individual methods of transport of Direct Line Group employees commuting.
5. Homeworking emissions are reported under the employee category in line with the GHG Protocol.
6. Upstream leased assets refer to (1) leased office space locations where Direct Line Group does not directly control the energy provision (2) auto services pods in retail car park
locations.
7. Downstream leased assets includes DLG Auto Services courtesy cars emissions as referenced in footnote 1.
8. The investment portfolio emissions are being reported for the first time where available. The corporate bonds emissions and corresponding temperature ratings relate
to 2023 performance. Due to the practicalities of obtaining data from our external asset managers ahead of the release of the Group’s annual reporting, emissions for
commercial property and real estate loans will be reported with a one-year time lag. This approach was agreed with the SBTi when these targets were approved in 2022.
9. Investment emissions for the corporate bonds portfolio are expressed as temperature scores (oC). The temperature scores have been generated using the Carbon Disclosure
Project temperature rating tool.
10. Investment emissions for the commercial property and real estate loans portfolio are emissions-based expressed as emissions intensity per m2 of floor area (kCO2e/m2).
The underlying emissions are calculated in accordance with Partnership for Carbon Accounting Financials for accounting and reporting emissions generated from
investment activities.
11. Following adoption of IFRS 17, the Group restated its 2022 results. As such, we now calculate this intensity metric using net insurance revenue (previously calculated using
net earned premium) and the 2022 metric has been re-presented accordingly. Analysis for periods prior to 2022 is not available. For historic reporting, see previous
publications, including page 70 of the 2022 Annual Report and Accounts.
64
Direct Line Group Annual Report and Accounts 2023
Reporting methodology
We apply the relevant greenhouse gas reporting requirements
contained within Schedule 7, Part 7 of the Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 (as amended) and apply the GHG Protocol
Corporate Accounting and Reporting Standard (revised edition)
to calculate our emissions, which includes emissions associated
with electricity consumption. We use the operational control
method to define the boundary for consolidating GHG emissions.
Our carbon emissions are calculated by an external third
party and reviewed internally. The calculation method used
for our 2023 emissions reporting remains consistent with
prior periods and with the reporting standards stated above.
For the year ended 31 December 2023, Accenture provided
limited assurance for Scope 1, 2 and partial Scope 3 emissions
reporting. This verification exercise was performed to the ISO
14064-3 standard.
Scope 3 emissions
The GHG Protocol defines Scope 3 emissions as all other
indirect emissions that occur in a company’s value chain.
These include Scope 3, Category 1: Purchased Goods and
Services (or ‘supply chain’) and Scope 3, Category 15:
Investments (or ‘financed emissions’).
In estimating the emissions from our supply chain, we use the
GHG Protocol’s spend-based approach. This involves using
supplier spend data and multiplying these values by a relevant
emissions factor to estimate the amount of emissions
associated with purchased goods or services.
We have applied the Partnership for Carbon Accounting
Financials (“PCAF”) methodology to calculate emissions
associated with our investment activities, in line with industry
best practice. We have included our corporate bonds,
commercial property and real estate loans within our financed
emissions calculations.
Our Net Zero ambition
We aim to become a Net Zero business across all scopes by
2050, with external near-term targets and plans that cover our
operational emissions (Scope 1 and 2) and our investments.
At present, we have not set an external target for our supply
chain emissions while we await the publication of the Financial
Institutions Net-Zero Standard from the SBTi, which is expected
in 2024. We expect this new standard to enable us to set targets
that are consistent with our ambition of achieving Net Zero
across all scopes by 2050. For more information on our supply
chain sustainability programme, please see page 63.
Energy consumption (kWh)1,2
Electricity
Gas
Total
2023
2022
11,906,788
12,686,882
19,779,732
21,485,898
31,686,520
34,172,780
Our approach to offsetting
Our primary focus is on reducing absolute emissions as quickly
as possible in line with our Science-Based Targets and we
recognise that using carbon credits to offset residual emissions
in reaching Net Zero is a last resort. As we decarbonise our
business, we currently choose to support projects that help
to offset our remaining Scope 1 and 2 emissions.
Working with Climate Impact Partners, an organisation that
develops and delivers high quality carbon financed projects,
we supported a new afforestation initiative in Uruguay
from November 2023. We have selected this project as it is
a verified carbon removal project to offset our Scope 1 and 2
emissions for the next 3 years. Our support contributes to the
reforestation of land where eucalyptus plantations have been
established, helping to develop a sustainable approach to
wood production, provide employment opportunities for the
local community and enhance biodiversity and carbon
sequestration opportunities.
Biodiversity
Globally, nature is declining at an unprecedented rate and the
UK is one of the most nature-depleted countries in the world.
This degradation affects society as a whole and while our
sector may not have the same degree of direct impacts and
dependencies on biodiversity as some others, it is a crisis that
demands the attention of all businesses. We also recognise
that conserving and restoring nature, and the biodiversity it
contains, is essential for limiting emissions and adapting to
climate impacts.
We are a supporter of the Get Nature Positive movement, a
UK initiative founded by the Council for Sustainable Business
and supported by Defra, which seeks to build momentum on
nature and biodiversity. In 2023, we continued to fund a tree
planting project on a flood prevention scheme in Yorkshire,
replacing the trees we removed when home insurance
policyholders make subsidence claims. Working in partnership
with nature recovery charity Heal, we also provided a loan to
acquire a 460 acre site in Bruton, Somerset where rewilding is
in progress and wildlife is flourishing.
The publication of the Taskforce on Nature-related Financial
Disclosures (“TNFD”) final framework on nature-related risk
management and disclosure in September 2023 provides
welcome guidance for businesses to report and act on evolving
nature-related dependencies, impacts, risks and opportunities.
We will continue to review our practices and approach against
these new standards.
Notes:
1. 100% of GHG emissions and energy consumption reported relates to operations, all of which are based in the UK.
2. Data is reported in compliance with the Streamlined Energy and Carbon Reporting (“SECR”) requirements (see page 85).
Direct Line Group Annual Report and Accounts 2023
65
Strategic Report / Governance / Financial statements Sustainability continued
Governance
Good governance is the
foundation of our approach
to sustainability and our
ability to operate ethically
and responsibly.
This starts with a clear commitment
from the Board to align sustainability
goals across the Group, supported by
our Committee structure including the
work of our dedicated Customer and
Sustainability Committee, whose role it
is to challenge and scrutinise the
Group’s approach and performance in
the pursuit of our goals.
While we report on our approach and progress in our priority
governance-related issues in this section, the corporate
governance section incorporates information on the role
and activities of the Board and our Committees in relation
to sustainability in 2023, including:
– Board leadership and company purpose (page 102)
– The role of the Board in the Company’s culture (page 103)
– How the Board engages with stakeholders (pages 107 to 108)
– Colleague engagement (pages 108 to 109)
– The Board’s approach to inclusion and diversity (page 112)
– The Customer and Sustainability Committee (pages 127 to 128)
– Responsible investment (page 130)
For further information on how we’re embedding sustainability
considerations into Senior Management performance and long-term
incentive plans, please see page 141 and 143 of the remuneration report.
Business ethics
We are committed to the highest possible standards of
professional and ethical conduct across the Group as a
prerequisite to building a sustainable business for the future
that serves all our stakeholders. Our Code of Conduct sets out
the ethical standards that are required of all those working for
or on behalf of our business – our people, contractors and
partners – in relation to areas including discrimination,
harassment or bullying, treating customers and suppliers fairly,
diversity and inclusion, fair competition and contributing to
society and the environment.
This is underpinned by a comprehensive policy framework,
each of which outlines our commitments and expectations
of our people and partners in relation to specific areas.
All of our Group policies and statements including our Code of
Business Conduct, Ethical Code for Suppliers, Prevention of Financial
Crime and Whistleblowing policies, and our latest modern slavery
statement can be found at www.directlinegroup.co.uk
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Direct Line Group Annual Report and Accounts 2023
Anti-bribery, anti-corruption and financial
crime prevention
We are committed to the detection, prevention and reporting
of financial crime which includes:
– bribery and corruption;
– money laundering;
– terrorist financing;
– fraud; and
– sanctions.
Our approach is based on maintaining robust systems and
controls with clearly defined policies and minimum standards
to promote compliance with all applicable legislation, as well
as regulation and industry-approved guidance. These are
regularly reviewed to ensure they remain fit for purpose and
align to the Group risk framework which includes a robust
financial crime governance framework and internal reporting
and escalation channels.
Mandatory financial crime awareness training (which covers
anti-money laundering, counter-terrorist financing, financial
sanctions, fraud and the prevention of the facilitation of tax
evasion) is undertaken by all employees at induction and
annually thereafter, including an assessment element that
must be passed. In 2023, 96% of our employees completed
our annual programme of mandatory financial crime
awareness training.
In addition, mandatory anti-bribery and whistleblowing training
is undertaken by all employees at induction and annually
thereafter, again including an assessment element that must
be passed. In 2023, 97% of our employees completed our
annual programme of mandatory anti-bribery training.
Human rights and modern slavery
Although as a general insurer, we may be seen as within a lower
risk industry, we recognise the importance of understanding
and managing the areas within our supply chain that can be
more vulnerable to potential human rights risks. Our Ethical
Code for Suppliers expects our suppliers to adhere to:
a. The core International Labour Organisation (“ILO”)
standards which ban the use of child labour and forced
compulsory or bonded labour.
b. The non-core ILO standards which include statements that
workers should have safe and hygienic working conditions,
a living wage should be paid, working hours are not to be
excessive, and abuse and intimidation are prohibited.
In addition, we expect our suppliers to comply with the UK
Modern Slavery Act (2015) and provide assurances of
compliance through a published statement which outlines the
steps that are being taken to support the Act, where applicable.
The processes we follow across our procurement and supply
chain function are key to supporting our adherence to the Act,
with modern slavery considerations fully integrated across our
sourcing process, ongoing assurance activity and mandatory
annual training. In 2023, this training was enhanced through
the trialling of a government-sponsored module.
Prompt Payment Code
We have always had a strong commitment to engage with
and treat our partners in the right way being longstanding
signatories to the Prompt Payment Code, a voluntary code
of practice for businesses to ensure payments are made
to suppliers on time. In 2023, for the second year in a row,
we were awarded a Fast Payer Accreditation Award by
Good Business Pays acknowledging our role in supporting
our suppliers in this way.
These and other related policies are supported by our
whistleblowing policy and approach which sets out the controls
within which the Group promotes a culture of openness and
creates a positive working environment in which anyone can
raise any concerns without fear of reprisals. All employees and
contractors can raise concerns via their people manager or
utilise the services provided by an independent third party
that provides a free, confidential 24/7 telephone helpline and
web-based service for disclosures to be made.
Responsible procurement
As a financial services business, many of our social and
environmental impacts manifest through the operations
and activities of our suppliers. Our relationships with and the
performance of our suppliers is therefore critical to our business
and our ability to operate sustainably, responsibly, and ethically.
As such, our aim is always to maximise supply chain
opportunities by proactively seeking and building strong,
value-focused relationships with our suppliers.
Our approach to working with our suppliers is underpinned
by our Ethical Code for Suppliers which outlines both our
commitments to our suppliers and our expectations of
suppliers including areas such as human rights and labour
standards, people and society, environment, and governance.
This Code was refreshed in 2022 and rolled out to all managed
suppliers in Q1 2023. All suppliers that we work with are
required to confirm that they agree to this Code and we
encourage them to ensure their own upstream supply chain
adheres to the spirit of our business principles.
We maintain a centralised procurement and supply chain
function that operates the processes designed to ensure we
select and manage our suppliers appropriately to support
the given service provision and potential risk exposure
to our business. These processes, which include supplier
segmentation based on multiple factors including risk
exposures, due diligence on new suppliers, on-boarding,
ongoing management and assurance, are reviewed and
refreshed on an annual basis to ensure they remain relevant
and aligned with the potential exposures faced by the business.
When selecting new suppliers, our sourcing teams conduct an
open and transparent sourcing and assessment process during
which potential suppliers are assessed against a wide range of
criteria including commitment to and practices relating to the
wider ESG agenda such as reducing environmental impacts,
with a sustainability score being applied during the sourcing
process. Through ongoing monitoring of our supply chain we
are able to assess their contribution to our scope 3 emissions
and work with them on initiatives that will support the delivery
of our strategic objectives.
For more information on our supply chain sustainability
programme, please see page 63.
Direct Line Group Annual Report and Accounts 2023
67
Strategic Report / Governance / Financial statements Sustainability continued
“We know how important it is to
support our suppliers, playing our
role in being a responsible corporate
citizen and it’s fantastic to be
recognised with the fast payer
accreditation award.”
Darren Braham,
Results Production Analyst
Data ethics
Consumers are becoming more aware of their data rights and
the industry is gathering more data than ever before as it
increasingly explores more sophisticated processing
capabilities, such as artificial intelligence (“AI”) and machine
learning. Against this backdrop, we have continued to embed
ethical considerations as a foundation of our approach to the
use of data so we can both protect our customers and use
more advanced technology to drive better customer outcomes.
68
Direct Line Group Annual Report and Accounts 2023
We have established and embedded a holistic data ethics
framework to enable ethical data-driven decision-making
across the business and drive a culture of transparency,
accountability and data literacy. At the heart of the framework
are eight principles which act as guardrails to ensure that we
meet the core tenets of fairness, transparency, accountability
and lawfulness:
1. Respect the person behind the data.
2. Ethics will be designed into data processes and solutions
from the outset.
3. Understand and document the purpose for any data
collected, used and/or shared.
4. Comply with applicable laws and regulations in connection
with data, its collection and use.
5. Understand limitations and quality of the data we use and
how this may impact the decisions we make.
6. Actively pursue a fair, explainable and transparent approach
to algorithmic and statistical decision-making.
7. Ensure accountability and appropriate governance for any
automated decision process.
8. Provide appropriate guidance and training to support and
encourage responsible data use.
Data privacy and security
We have implemented and maintain an extensive privacy and
security framework to effectively manage privacy and security
risks and to meet our responsibilities under the UK’s General
Data Protection Regulation (“UK GDPR”) and the Data
Protection Act 2018. All business areas within the Group and our
subsidiaries are required to meet the standards set out in the
framework and are required to evidence compliance with UK
GDPR obligations, including implementing privacy by design,
fulfilling data subjects rights and reporting and resolving
potential incidents.
Our cyber security programme is led by the Chief Information
Security Officer who has responsibility for cyber security, first
line technology risk and operational resilience. We employ
sophisticated tools designed to protect information and
prevent data breaches and routinely perform self-assessments
against regulatory frameworks such as the NIST (National
Institute of Standards and Technology) cyber security framework.
Our internal controls are validated through the use of security
monitoring and rigorous internal audits, with external
independent audits conducted at least once every two years.
All staff, including temporary staff and contractors, are
provided with training on their data protection and security
responsibilities as part of our annual programme of
mandatory training.
External ratings,
memberships and
benchmarks
We actively support a variety of membership organisations, and disclose information to ratings and benchmarking authorities,
as well as receive ESG performance ratings.
MSCI
In 2023, we received a rating of AAA (on a scale of AAA-CCC) in the MSCI ESG
Ratings assessment
Sustainalytics
As of October 2023, we received an ESG Risk Rating of 23.2 and were assessed
by Sustainalytics to be at a medium level of risk1,2
Ecovadis
We were awarded a silver medal in 2023
Carbon Disclosure Project
We were awarded a C score in 2023
Science Based Targets initiative
In 2023, we made progress in working towards our Science-Based Targets,
after having our targets approved in November 2022
Race to Zero
As part of our Race to Zero pledge, we have signed the Business Ambition
for 1.5°C
Get Nature Positive
We are a supporter of the Get Nature Positive campaign, focused on restoring
nature and biodiversity
Inclusive top 50 employers
We ranked 17th on the Inclusive Top 50 UK Employers List 2022/23
Social Mobility Pledge
We support the Social Mobility Pledge and have focused on helping students
with their careers through our Community Fund
Women in Finance
We are a signatory to HM Treasury’s Women in Finance Charter
Race at Work Charter
We support the Race at Work Charter to take positive action towards supporting
ethnic minority representation and inclusion
The Faith & Belief Forum
We are a signatory of the Charter for Faith & Belief Inclusion which aims to help
create understanding between people of different faiths and beliefs and a
society which is fair to people of all backgrounds – religious and non-religious
Notes:
1. Assessed to be at a medium level of risk of experiencing material financial impacts from ESG factors.
2. Copyright © 2023 Morningstar Sustainalytics. All rights reserved. This section contains information developed by Sustainalytics
(www.sustainalytics.com). Such information and data are proprietary of Sustainalytics and/or its third-party suppliers (Third Party Data)
and are provided for informational purposes only. They do not constitute an endorsement of any product or project, nor an investment
advice and are not warranted to be complete, timely, accurate or suitable for a particular purpose. Their use is subject to conditions
available at https://www.sustainalytics.com/legal-disclaimers
Direct Line Group Annual Report and Accounts 2023
69
Strategic Report / Governance / Financial statements Task Force on Climate-related Financial Disclosures
Task Force on
Climate-related
Financial Disclosures
Introduction
The Group’s 2023 disclosure against the recommendations
of the Task Force on Climate-related Financial Disclosures
(“TCFD”) reflects continued action to further develop our
understanding and management of climate-related risks
and opportunities. Our report also provides an update on
the progress we are making towards our Science-Based
Targets and includes the steps we have taken in the year
to further assess and develop our disclosures against the
TCFD’s recommendations.
The Group, as at the time of publication, has complied
with the requirements of Listing Rule 9.8.6R by including
climate-related financial disclosures consistent with 9 of the
11 TCFD Recommendations and Recommended Disclosures
for all sectors (‘Section C Guidance for All Sectors’), including
the supplemental guidance for insurance companies
(‘Section D Supplemental Guidance for the Financial Sector’)
within the 2021 TCFD Annex. The Group has reported
against all 11 recommended disclosures and believes its
disclosure against 9 of the 11 recommendations meets
the objectives of the TCFD framework, with further detail
regarding the two remaining recommendations
explained below.
For Metrics and Targets disclosure recommendations (a)
and (b), which includes sector-specific guidance for
insurance companies, we continue to work towards
developing our disclosure against the relevant components
of these two recommendations, as outlined below.
Metrics and Targets disclosure recommendation (a):
– to provide additional metrics, including cross-industry
metrics, within our disclosure to support measurement
and management of transition risks and opportunities;
and
– to describe the extent to which our insurance
underwriting activities, where relevant, are aligned with
a well below 2°C scenario.
Metrics and Targets disclosure recommendation (b):
– to disclose, where data and methodologies allow, the
weighted average carbon intensity or GHG emissions
associated with commercial property and specialty lines
of business.
In the year, we have assessed the actions required to
improve the level of disclosure across these areas in future
reporting. On page 83, we set out the details of this
assessment and the activities undertaken, with further plans
in place across 2024.
Companies (Strategic Report) (Climate-related
Financial Disclosures) Regulations 2022
The climate-related financial disclosures made by the
Group, within the following pages, comply with the
requirements of the Companies Act 2006 as amended by
the Companies (Strategic Report) (Climate-related Financial
Disclosures) Regulations 2022. The Non-Financial and
Sustainability Information Statement, on page 49, outlines
where disclosure against each of these requirements
can be found.
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Direct Line Group Annual Report and Accounts 2023
Governance
Our approach
The Group’s approach to the governance of its sustainability
strategy is underpinned by our Vision and Purpose (see page
22) and a clear commitment from the Board and senior
management to align sustainability goals with the Group’s
strategy, and to encourage accountability across the business.
Our five-pillar sustainability strategy, endorsed by the Board,
aims to foster the highest standard of Environmental, Social
and Governance practice and deliver long-term sustainability
for all our stakeholders. The Planet pillar takes the lead on
climate-related issues.
Boards and Committees
The potential and actual impact of climate change on the
business (“inbound”), as well as the Group’s impact on the
environment (“outbound”), are issues requiring robust
governance to empower business areas in the management
of climate-related risks and opportunities.
It starts with the Group’s Board, which seeks to underpin all
of the Group’s activities with the highest standards of corporate
governance. The Board has oversight on two key aspects of
the Group’s approach:
– Each year, the Board assesses the strategic plan (the “Plan”)
in conjunction with the Group’s Own Risk and Solvency
Assessment (“ORSA”), which considers material risks to the
Plan, including climate change-related risks.
– The Board oversees the Group’s sustainability activity
through its Committees, which scrutinise and provide
appropriate challenge on the Group’s five pillar sustainability
strategy, including the establishment and monitoring of
Science-Based Targets and the Group’s development of
a climate-related risk management roadmap (see page 71).
The Chair of each Committee reports to the Board after
each Committee meeting.
Committees
– The Audit Committee meets a minimum of four times a
year and is responsible for overseeing the Group’s financial
statements and non-financial disclosures, including
climate-related financial disclosures.
– The Board Risk Committee oversees all aspects of financial,
regulatory and operational risk, including the risk to the
Group from climate change. It meets a minimum of four
times a year and receives reports on stress testing of
long-term climate change scenarios, discusses strategies
for managing the associated risks and receives updates
on emerging risks throughout the year, with deep dives
as appropriate. During the year, the Committee played a
key role in monitoring the Group’s climate-related risk
management roadmap and identifying areas of opportunity
for improvement.
– The Investment Committee meets a minimum of three
times a year and considers the strategy for incorporating
ESG factors into the Group’s investment management,
which has seen our credit portfolios tilted to issuers
with higher sustainability weightings. In 2023, additional
items relating to climate and sustainability oversight were
introduced into the Committee’s Terms of Reference.
– The Nomination and Governance Committee meets a
minimum of two times a year, monitoring the Board’s
overall structure, size, composition and balance of skills.
This Committee is also responsible for monitoring the
Group’s observance of corporate governance best practice.
– The Customer and Sustainability Committee scrutinises
progress against the sustainability strategy to ensure that
we continue to make progress under our Customer, People,
Society, Planet and Governance pillars. The Committee meets
a minimum of four times a year. During 2023, it has reviewed
progress against the Group’s Science-Based Targets,
approved by the Science Based Targets initiative (“SBTi”)
in 2022; and reviewed performance and approach on key
stakeholder matters, including the PRA’s expectations
regarding climate risk. It continues to monitor the Group’s
progress towards its Net Zero aims.
– The Remuneration Committee meets a minimum of four
times a year and considers how executive remuneration
can be used to drive progress on climate-related matters.
An emissions metric has been applied to long-term incentive
plan (“LTIP”) awards made since 2022 and makes up a 10%
weighting of the total award made under the LTIP.
The emissions performance condition includes a targeted
reduction in emissions and temperature score and is based
on the Science-Based Targets that were approved by the
SBTi in 2022.
More information on the structure of the Board and Board Committees
can be found within the Corporate Governance report on page 111.
Management’s role
There are three primary management roles designed to assign
responsibility for the delivery of the Group’s assessment and
management of climate-related matters:
– the Chief Executive Officer (“CEO”) has overall responsibility
for climate change and environmental matters;
– the Chief Financial Officer (“CFO”) is responsible for
overseeing the implementation of the Group’s investment
strategy and is advised by the Investment Committee on the
application of ESG weightings, including those related to
climate change, to the relevant portfolios. The CFO is a
member of the Investment Committee and the Director of
Investment and Capital Management is a regular attendee;
and
– in the year, the Chief Risk Officer (“CRO”) was responsible for
overseeing the identification, assessment and management
of climate change-related risk. The CRO role also has
responsibility for assessing and monitoring climate-related
financial risk. In that capacity, the role oversees the work of
the Risk Function which analyses the potential future impact
of climate change on the business. The results of these
analyses are submitted to the Risk Management Committee,
the Board Risk Committee and the Board, including as part
of the ORSA. In addition, a CRO report is submitted to every
meeting of the Board Risk Committee and to the Board
meetings held throughout the year.
Further information relating to our climate risk identification process can
found on page 80.
To support the Customer and Sustainability Committee’s
oversight, and in recognition of the Group’s increased focus on
climate-related activity, the Group has an established Climate
Executive Steering Group (“CESG” or the “Steering Group”),
which reports into the Customer and Sustainability Committee,
and meets a minimum of six times a year.
Note:
1. Ongoing operations – see glossary on page 263.
The CESG consists of members representing various teams
from across the organisation and includes members of the
Executive Committee. It assesses the potential impacts of
climate change on the business, along with the business’
impact on the environment, with the aim of ensuring risks
are identified in a timely manner and managed effectively.
The CESG also oversees input to the Group’s business
development and strategic processes to make sure climate
is given appropriate consideration in long term strategy and
planning. This includes the ongoing identification and oversight
of climate-related opportunities. For example, progress against
our electric vehicle strategy, and the opportunities considered as
part of our Auto Services Sustainability Programme, are regular
agenda items. More information on the key performance
indicators used to assess, monitor and manage climate-related
risks and opportunities can be found on pages 81 to 85.
The CESG monitors progress against the Group’s climate-
related risk management roadmap. The roadmap, also
overseen by the Customer and Sustainability Committee and
Board Risk Committee, sets out a range of actions, planned
across a number of years, to further integrate climate risk
management across the business and to build additional
capabilities in areas such as climate risk modelling and
scenario analysis.
The Steering Group’s responsibilities further include:
– monitoring, and driving performance against, the Group’s
Science-Based Targets, in support of our Net Zero aims;
– considering the risk management challenges presented to
the business by climate change, including financial risk
related to underwriting and investments; and
– overseeing the Group’s disclosure of climate within the
context of broader ESG and financial disclosures.
The CESG will provide oversight on the Group’s implementation
of the International Sustainability Standards Board’s (“ISSB”)
Sustainability Disclosure Standards, IFRS S1 and S2. Issued
in June 2023, the Standards are currently subject to UK
endorsement, which is expected later in 2024.
Further information relating to the processes by which management
are informed about climate-related issues can be found on page 80.
Group Audit
Group Audit provides an independent and objective view of the
adequacy and effectiveness of the Group’s risk management,
governance and internal control framework. In the year, Group
Audit were represented at the CESG.
Strategy
The effects associated with climate change are far reaching and
have the potential to cause significant economic and societal
impact. We know that through the actions we take as a
business we can contribute to a more sustainable future and as
an insurer with over 9.4 million in-force policies1, we recognise
our role in supporting – and accelerating – the transition to a
low-carbon economy.
Our strategy focuses on mitigating against, and adapting to,
climate change. This involves driving change across our
underwriting activities, our operations and our investments,
and includes the actions we are taking to progress against our
Science-Based Targets and Net Zero ambitions.
The following pages examine this strategy alongside the actual
and potential impacts of climate change on the Group, in line
with the TCFD recommendations, and outline how we continue
to develop our approach to climate-related risks and
opportunities across the business.
Direct Line Group Annual Report and Accounts 2023
71
Strategic Report / Governance / Financial statements Task Force on Climate-related Financial Disclosures continued
Climate change risks and opportunities
The potential impacts of climate change on organisations are
classified into the following three categories by the TCFD:
– physical risks – resulting from the physical effects of climate
change;
– transition risks – resulting from the transition to a lower-
carbon economy; and
– opportunities – arising from efforts to mitigate and adapt to
climate change.
We also recognise that litigation risk, which includes risks
arising when parties who have suffered losses from climate
change seek to recover them from those they believe may have
been responsible, could also cause adverse impact. This could
include direct climate-related litigation against the Group or
insurance risk arising from the underwriting of liability products.
The Group considers the risks associated with this to be low due
to low exposure in high-risk industry sectors. Following the sale
of the brokered commercial business we expect our exposure
to liability insurance risk to reduce further as this business runs
off over time.
Materiality
A greater level of estimation and assumption is required when
assessing materiality in the context of climate change and this,
combined with the longer term and forward-looking nature of
climate-related risks and opportunities, makes the assessment
inherently uncertain. As a result, we have chosen not to quantify
a materiality threshold for the purposes of our climate-related
financial disclosures.
Our approach to determine where information is material is
supported by quantitative assessment, such as the findings of
our scenario analysis activities where we consider the potential
financial impact of climate change over the longer term. Our
approach means we disclose relevant information that focuses
on the areas of our business that could be most affected by
climate change, which we identify as our underwriting
activities, our operations and our approach to investments.
The key physical and transition risks and opportunities that
could impact these areas are outlined on page 77.
We will continue to review emerging best practice associated
with assessing climate-related materiality and we expect this
to evolve over time. More information on our current approach
to measuring the impact of climate-related risk, and the
integration of climate change into the Group’s overall risk
management processes, can be found below and on page 80.
Defining the short, medium and long-term
time horizons
Short 1 – 10 years
Medium
Long
10 – 30 years
When defining the time horizons, the useful life of assets
was considered. However, the Group’s assets are primarily
depreciated or amortised over a period of up to 10 years.
As such, from a climate-related risk perspective, this falls into
our short-term time horizon and therefore climate-related
risk is not a significant input into determining asset useful
economic lives.
The time horizons over which specific climate-related issues
will manifest themselves vary significantly. However, in general,
transition risks are likely to materialise more rapidly than
physical risks, which are likely to be gradual and materialise
over the longer term. The timing of climate-related litigation
risk is less certain due to the nature of the exposure.
The key physical and transition risks and opportunities that
could significantly impact the Group, as well as the time
horizons over which they could manifest, is available further
into our disclosure on pages 77 to 80.
Financial planning, performance and position
Without appropriate management, the risks posed by
climate change could adversely impact the Group’s financial
performance and financial position.
To help quantify the potential impact of climate change we:
– perform scenario analysis, which enhances our
understanding of the financial risks associated with the
longer-term impacts of climate change and provides an
indication of strategic resilience (see pages 73 to 76);
– undertake climate risk modelling to assess the most
predominant physical drivers of risk in our property insurance
products, enabling us to evaluate the potential impact to the
Group’s capital position (see page 81); and
– integrate climate risk into the Group’s overall approach
to risk management. This includes measuring the relative
significance of climate-related risks to other risks in the Group
Risk Taxonomy (see page 80).
Financial planning
We acknowledge that limitations exist in aligning
climate change and financial planning. A key issue relates to
the modelling of the impact of climate change, which typically
extends out to thirty or more years, a significantly longer period
than our current financial plan.
Although limitations and uncertainties associated with the
longer-term impacts of climate change exist, we continue to
embed climate-related considerations into our planning.
This includes within the Group’s Plan, which reflects the
strategic planning that is ongoing across the business and
covers any climate-related initiatives that are embedded within.
These include:
– the actions we are taking to progress against our Science-
Based Targets and Net Zero ambitions, such as the initiatives
we are implementing to reduce the carbon footprint of our
accident repair centres and the associated costs. More
information on these initiatives can be found on pages 78
and 79;
30 years +
– the use of reinsurance in our property insurance business,
As in previous years, our approach to defining the time
horizons associated with climate-related risks and opportunities
is to align closely with the scenarios considered in the Group’s
quantitative analysis of climate-related risk, which typically
considers scenarios that span thirty years or longer
(see page 73).
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Direct Line Group Annual Report and Accounts 2023
acknowledging that the cost to obtain catastrophe
reinsurance could be impacted by an increase in the
frequency and severity of major weather events; and
– the development of propositions and channel expertise
to support the transition to a low carbon economy, such as
our electric vehicle offer.
We also monitor losses from major weather events, which
include inland and coastal flooding, storm surge, freeze events
and subsidence. We use sophisticated modelling techniques to
estimate the expected losses from major weather events in our
property book to set an annual expectation for major weather-
related claims. The impact of major weather relative to this
annual expectation for 2023 can be found within Metrics and
Targets on page 82.
Financial performance and position
In preparing the financial statements, the Group has assessed
the impact of climate change. While the risks associated
with climate change remain uncertain looking forwards, the
impact of major weather events is reflected in the Group’s
historical performance and position as at 31 December 2023.
The potential impact of climate change on insurance risk is also
discussed in further detail within note 3 to the consolidated
financial statements (see page 196).
Areas of physical and transition risks the Group could be
exposed to are outlined in the table on page 77. The financial
impact of these risks can, if realised, be grouped broadly into
the following:
– Adverse impacts to revenue and market share due to a failure
to understand, and adapt to, the scale of change in market
demand for products and services due to climate-related
policy, technology and consumer preference.
– Increased climate-related operating costs and capital
expenditure due to the investments we make to progress
against our emission reduction targets, or higher operating
costs due to carbon cost increases or regulatory
requirements designed to limit carbon emissions.
– Changes in the value of our financial investments due to
the influence of physical and transition risk impacting the
wider economy.
– An increase in the frequency and severity of natural
catastrophes and other weather-related events adversely
impacting insurance liabilities.
We also recognise that our access to capital can be materially
affected by factors including, but not limited to, financial
performance and investment decisions, which have their own
associated climate-related risks. In addition, our performance is
assessed externally by ESG rating agencies, to which investors and
other stakeholders are giving increasing prominence. Adverse
impacts to our debt rating could negatively affect cost and access
to sources of debt finance and subsequent interest rates.
In our approach to acquisitions and divestments, any climate-
related risks and opportunities are expected to form part of our
usual due diligence process.
Scenario analysis
Our most comprehensive climate scenario analysis activity took
place during 2021, followed by a smaller round of analysis in
early 2022.
During 2023, we updated the physical risk section of the
underwriting liabilities element of the original analysis to
account for portfolio and modelling changes. The findings from
the updated analysis can be found on pages 75 and 76.
The analyses were designed to enhance our management of
climate-related financial risk and the scenarios used expanded
on the Network for Greening the Financial System’s (“NGFS”)
Net Zero 2050, Delayed Transition and Current Policies
scenarios by including additional risk transmission channels
and adding additional variables.
The exercise considered the financial impacts from these three
distinct climate scenarios at a ten- and thirty-year time horizon,
capturing a range of different combinations of transition and
physical risks. Two of the scenarios represent routes to net zero
greenhouse gas emissions and primarily explore transition risk
from climate change:
– Early Action The transition to a net zero emissions economy
started in 2021, so carbon taxes and other policies intensify
relatively gradually over the scenario horizon. Global carbon
dioxide emissions are reduced to net zero by around 2050.
Global warming is limited to 1.8°C by the end of the scenario
(relative to pre-industrial levels). Some sectors are more
adversely affected by the transition than others, but the
overall impact on GDP growth is muted, particularly in the
latter half of the scenario, once a significant portion of the
required transition has occurred and the productivity benefits
of green technology begin to be realised.
– Late Action The implementation of policy to drive transition
is delayed until 2031 and is then more sudden and
substantial. Global warming is limited to 1.8°C by the end
of the scenario (relative to pre-industrial levels). The more
compressed nature of the transition results in material
short-term macroeconomic disruption, which is particularly
concentrated in carbon-intensive sectors. Output contracts
sharply in the UK and international economies. The rapid
sectoral adjustment associated with the sharp fall in GDP
reduces employment and leads to some assets being
stranded, with knock-on consequences for demand
and spending. Risk premiums rise across multiple assets.
An important indicator of the level of transition risks
in these scenarios is the carbon price, reflecting that
policymakers can induce the transition by increasing the
implicit cost of emissions.
The third scenario primarily explores physical risks from climate
change in the event that there are no new climate policies
introduced beyond those already implemented:
– No Additional Action The absence of transition policies leads
to a growing concentration of greenhouse gas emissions in
the atmosphere and, as a result, global temperature levels
continue to increase, reaching 3.3°C relative to pre-industrial
levels by the end of the scenario. This leads to chronic
changes in precipitation, ecosystems and sea level. UK
and global GDP growth is permanently lower and
macroeconomic uncertainty increases.
The scenario specification builds upon a subset of the NGFS
climate scenarios. NGFS climate scenarios aim to provide
central banks and supervisors with a common starting point
for analysing climate risks under different future pathways.
They are produced in partnership with leading climate scientists,
leveraging climate-economy models that have been widely used
to inform policymakers, and have been used in key reports.
For each of the three scenarios, variable paths were provided for
the underlying physical and transition risks and for mapping
these risks onto macroeconomic and financial variables:
– Physical and transition risks: pathways for climate variables to
represent the impact of climate risks and opportunities at the
global and regional level.
– Macroeconomic and financial market conditions: impact of
climate-related risks and opportunities at a global level, and
at the level of key countries, regions, and sectors – reflecting
the impacts of physical and transition variables in each
scenario. Financial market conditions reflect the direct
financial market consequences of the paths of the
macroeconomic variables.
Direct Line Group Annual Report and Accounts 2023
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Strategic Report / Governance / Financial statements Task Force on Climate-related Financial Disclosures continued
Our 2021 analysis focused on changes in invested assets
and insurance liabilities, and the variables provided formed the
basis for the modelling. The stress assumed an instantaneous
shock, effectively bringing forward the future climatic
environment to today’s balance sheet, with no allowance
for changes in future premiums, asset allocation, expenses,
reinsurance programmes and other future changes in
business models.
The original analysis was applied to the Group’s Solvency II
balance sheet as at 31 December 2020 and assumed
fixed balance sheets, premiums, exposures and
reinsurance arrangements.
As the scenario impacts for investments have not been
updated from the original analysis, any impact comparisons
between investments and liabilities outlined in the following
section are based on the analysis undertaken in 2021.
Summary of results – 2021 analysis
The main results of the comprehensive climate scenario
analysis from 2021 are included below for illustrative purposes.
Whilst the Group’s business and risk profile have changed
since this exercise has been undertaken, the overall high-level
conclusions outlined below remain relevant. In terms of the
investment portfolio, updated modelling of climate impacts
commenced in Q4 2023 with this work expected to continue
throughout 2024 (see page 80). For the underwriting liabilities,
the results of an updated exercise undertaken in 2023 are
outlined on pages 75 and 76.
The results from our 2021 analysis show the most material
impact on the Group’s Solvency II own funds arises in the
No Additional Action Year 30 scenario, in which transition risk
on the investment portfolio dominates the overall impact.
These large impacts reflect the cumulative downward trend in
asset values, with no stabilisation effects observed (unlike the
other two scenarios) as extreme weather events increase
in frequency and intensity, and continue to affect economic
growth beyond the thirty-year horizon considered by
the analysis.
The No Additional Action Year 30 scenario also shows the
largest increases in insurance liabilities, in absolute terms,
which is consistent with estimated increases in Gross Average
Annual Losses (“AAL”) of around 150% for inland flooding and
around 390% for coastal flooding. This could result in a material
increase in weather load, reinsurance costs and capital load.
While the short-term nature of the business, the ability
to re-price annually and the risk mitigation provided by
reinsurance arrangements are likely to limit the impact on
general insurance liabilities, the modelling has illustrated that
the increased physical effects of climate change could
potentially result in some risks and perils becoming either
uninsurable or unaffordable.
Relative Impact – No Additional Action to Early Action
The following graph illustrates the potential adverse impact
to the Group’s Solvency II balance sheet value of investment
assets and insurance liabilities at Year 30 under the Early Action,
Late Action and No Additional Action scenarios, based on the
original analysis.
The most adverse financial impact was from the No Additional
Action scenario, which is set at 100% in the graph. When
compared to the total impact under the No Additional Action
scenario, the impact of the Late Action scenario was around
54% of the value and the impact under the Early Action
scenario was around 39% of the value.
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Direct Line Group Annual Report and Accounts 2023
%
100
80
60
40
20
0
Transition scenarios
Early
Action
Year 30
Late
Action
Year 30
No
Additional
Action
Year 30
Figure 1: Year 30 impacts of scenarios relative to the largest No Additional
Action scenario
In the Late Action scenario, the delay in policy implementation
to transition to a low-carbon economy means there are no
transition impacts over the initial ten-year time horizon.
However, accelerated transition from 2031 results in greater
impacts versus the Early Action scenario over the thirty-year
time horizon. Whilst both of these transition scenarios saw
material impacts on the investment portfolio, the most
significant impacts on both investments and insurance
liabilities arose from the physical risk effects of no transition in
the No Additional Action scenario (where no additional actions
are taken beyond those already announced).
At the thirty-year time horizon, financial impacts in the
No Additional Action scenario are nearly double those in the
Late Action scenario, and physical risks also drove the largest
impact on investment results in absolute terms. However, these
impacts do not take into account the Group’s long-term
commitments within its investment strategy, which includes
the ambition of holding a net zero emissions investment
portfolio by 2050 (see pages 79 to 80 and 84 to 85).
All three scenarios would lead to a breach in risk appetite,
and the No Additional Action Year 30 scenario would also lead
to a breach in SCR based on the Solvency II balance sheet as at
year-end 2020. However, a set of clearly defined management
actions could be deployed in each scenario to address the risks
and allow the business to recover to above risk appetite
(see page 75).
Comparison of impact – insurance liabilities
and investments
The following graph shows the potential adverse impact on
the Solvency II balance sheet value of investment assets
and insurance liabilities under the Early Action, Late Action
and No Additional Action scenarios at Year 10 and Year 30,
based on the original analysis.
The graph outlines how the impact for each scenario
(set at 100%) is split between the impact on investments
and insurance liabilities to illustrate their relative materiality.
For example, in the No Additional Action Year 10 scenario,
impacts are split broadly evenly, while in the corresponding
Year 30 scenario, the impact on investments dominates.
CBES second round
In early 2022, we participated in the second round of the Bank
of England’s CBES exercise. The initial CBES exercise, that took
place in 2021, was designed to test the resilience of the UK
financial system to physical and transition risk from climate
change to assist banks and insurers in enhancing their
management of climate-related financial risk.
For general insurers the second round focused on
management responses to the CBES scenarios and resulting
challenges to the business models. More specifically, it probed
how responses would change if losses were higher; encouraged
additional thinking about dependencies and actions required
by the Government and other associated stakeholders; and
further explored opportunities in the climate scenarios.
In response, the Group concluded that the climate-related
management actions identified in the initial analysis would
remain appropriate. However, the pre-emptive management
actions of repricing and reinsurance would be accelerated after
considering a scenario under which physical losses from
climate change were materially higher.
The second round of analysis was based on the modelling
outputs from the initial exercise, as in the short term re-running
the CBES scenarios is unlikely to produce materially
different results.
2023 physical risk modelling
In 2023, we updated the physical risk section of the
underwriting liabilities element of the original analysis to
account for portfolio and modelling changes. In the updated
analysis, the original temperature scenarios were applied
to the Group’s Solvency II balance sheet exposure, as at
the end of Q2 2023.
As part of the updated exercise, we took steps to improve our
model to enhance our view of risk. This included applying an
adjustment for storm surge to account for more accurate flood
defence data and the data used in the analysis was enriched
to incorporate the floor level of each insured property.
The updated analysis also took into account the sale of the
brokered commercial business, to reflect a view of exposure
that was representative of the ongoing Group.
The following graph presents a view of the potential adverse
impact to insurance liabilities at Year 30 under the Early Action,
Late Action and No Additional Action scenarios, based on the
updated 2023 analysis. The graph illustrates the contribution
of each peril to the change in total impact (set at 100%), for
example in the No Additional Action scenario around 70% of
the change in total impact is driven by inland flooding.
%
100
80
60
40
20
0
Early
Action
Year 10
Early
Action
Year 30
Late
Action
Year 10
Late
Action
Year 30
No
Additional
Action
Year 10
No
Additional
Action
Year 30
Investments
Insurance liabilities
Figure 2: Share of impact – insurance liabilities and investments
Except in the Late Action Year 10 scenario, where there is
no transition risk due to the assumed delay, in all scenarios
the impact on investments is more material than on
insurance liabilities.
Additionally, insurance liabilities were considered gross of
reinsurance and, in practice, factors such as the short-term
nature of the business, the ability to re-price annually and the
risk mitigation provided by reinsurance arrangements is likely
to limit the impact on general insurance liabilities further.
Management actions
Undertaking this analysis provided us with a framework to
identify and assess the climate-related transition and physical
risks that the business could be exposed to.
Taking into account the level of impacts that we have observed
as part of this climate-related modelling, we identified a
number of management actions that would be effective to
mitigate these risks and respond to new opportunities.
Our Management Action Framework consists of three broad
categories based on the purpose and nature of the action:
– Contingent Management Actions – These follow
the Group’s existing Contingent Management Actions
framework and would be deployed to mitigate the scenario
impacts, assuming these arise as instantaneous shocks on
the balance-sheet; potential action could include restricting
capital distributions, for example.
– Pre-emptive Management Actions – These have been
developed assuming that the business can observe the
scenarios unfolding in real time and begin to adapt the
business model in response to these emerging impacts; they
cover areas such as repricing, de-risking of investments and
reinsurance.
– Strategic Management Actions – These actions are aligned
to the Group’s ongoing strategic activity as part of our
contribution to the transition to a lower-carbon economy.
They include: taking action to progress against our Net Zero
ambitions and Science-Based Targets; understanding how
we can support in improving the flood resilience of UK
properties in flood-prone areas; and evaluating the impact
of climate change on our underwriting footprint. Progress
against these actions is overseen by the Climate Executive
Steering Group.
Direct Line Group Annual Report and Accounts 2023
75
Strategic Report / Governance / Financial statements Task Force on Climate-related Financial Disclosures continued
%
80
70
60
50
40
30
20
10
0
-10
-20
80
70
60
50
40
30
20
10
0
-10
-20
Early Action/Late
Action Year 30
No Additional
Action Year 30
Inland Flooding
Coastal Flooding
Windstorm
Subsidence
Figure 3: Split of physical risk impacts on insurance liabilities by peril
Figure 3 shows that, on a gross basis, the physical risk to
insurance liabilities across all three scenarios was largely driven
by inland flooding and subsidence. Windstorm was assessed
to have a small positive benefit over all scenarios as a result
of changing atmospheric conditions driven by complex
interactions of a number of variables, ultimately caused by
rising temperatures.
Applying the original climate scenarios to the Q2 2023 portfolio
showed that the risk related to inland flooding and coastal
flooding has significantly decreased compared to the Q4 2020
portfolio across all scenarios, which may indicate greater
climate resilience. For example, under the Year 30 No Additional
Action scenario, the reduction in AAL for inland flooding and
coastal flooding was approximately 20% and 60%, respectively,
when compared to the original analysis. This favourable change
can be attributed to modelling improvements, as discussed
above, as well as portfolio changes including increased ceding
to Flood Re, and other underwriting actions. The results
continue to show that AAL for flooding perils accelerate after
the Flood Re scheme ends in 2039.
Risk for subsidence and windstorm is broadly unchanged from
the original analysis, although due to the significant reduction
in AAL from coastal flooding, the proportion of impact from
subsidence was greater across the scenarios, when compared
to the original analysis.
The findings continue to highlight the importance of the
Group’s existing Management Action Framework (page 75),
which includes a range of actions that could mitigate against
the risks identified through our climate-related modelling.
The updated analysis supports future developments in our
physical risk modelling of insurance liabilities, as we evolve
our understanding of the physical risks associated with the
longer-term impacts of climate change.
Reverse stress test – electric vehicle adoption
In 2023, we conducted a reverse stress test to establish whether
the long-term future for motor insurance, specifically, the
adoption of electric vehicles, poses a threat to the viability of
our current business model. While not commonly covered by
transition risk scenarios, changes in consumer behaviour form a
significant part of the transition to a net zero emissions economy.
Changes in the motor market linked to the rate of electric
vehicle adoption could include: change in ownership models,
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Direct Line Group Annual Report and Accounts 2023
such as the use of subscription services and shifting trends
from car ownership to car usership; disruptors entering the
market; and reductions in accident frequencies which could
reduce the size of the personal lines motor market premium
pool. Supported by changes in technology and policy, such as
Government plans to end the sale of new petrol and diesel
cars in the UK by 2035, the speed of this transition to electric
continues to increase.
The reverse stress test considered a range of variables across
three potential outcome ranges (Base, Best and Worst case)
and three time periods (2025, 2030 and 2040) to reflect the
high degree of uncertainty associated with these risks.
In general, as transition risks are likely to materialise more
rapidly than physical risks, the time periods examined in this
exercise form part of our short- and medium-term time
horizons, as defined on page 72.
The Best case assumed a slow pace of EV adoption and less
movement from ownership to usership, meaning the size of
the personal lines market share remains stable. This case also
assumed the Group’s market share, from both electric and
internal combustion engine vehicles, increases and there is a
small impact from disruptors entering the market. The Worst
case scenario considered all of those elements moving in the
opposite direction.
The analysis considered the following variables across the time
periods and scenarios:
– the Group’s share of the electric vehicle market;
– the impact of disruptors on market share;
– the impact to the size of the personal lines market that a
move from vehicle ownership to usership could have; and
– the rate of electric adoption.
The findings showed that in the short term, to 2025, there
are only minor differences between the scenario impacts,
with more significant movements unfolding over a longer
timeframe. Over the longer term, the results varied
considerably across the different scenarios and included
possible adverse impacts to the Group’s business model or
market share. Conversely, at the favourable end of the range,
the findings represented a possible growth opportunity. The
analysis also identified that the outcomes are sensitive to
assumptions which are largely outside of the Group’s control,
such as the rate of adoption of electric vehicles in the UK, which
is supported by changes in technology and policy designed to
limit carbon emissions.
The analysis supports our assessment of transition risk and
highlighted the importance of enhancing capabilities,
particularly around the Group’s ability to identify and respond
to the emerging electric vehicle and mobility landscape. More
information on how we are evolving our strategic response to
the adoption of electric vehicles can be found on page 78.
Future developments
Going forward, we will continue to work towards developing
scenarios specific to our own risk profile that focus on the most
material aspects of our business and explore the sensitivity of
potential impacts to key uncertainties. These actions form part
of our climate-related risk management roadmap and will
enable the Group to make use of scenario-testing output more
effectively to further inform our strategic approach to
mitigating climate-related impacts.
During the year, we acquired climate scenario modelling
capability to support the future assessment of climate change
impact on the investment portfolio and this capability will
continue to be embedded throughout 2024. See page 80.
Our strategic response
Developing our understanding and management of climate-related risks, whilst seeking out opportunities that may arise from
efforts to mitigate and adapt to climate change, are important aspects for maintaining the longer-term resilience of our strategy.
Our approach focuses on driving change across key areas of our business: our underwriting activities; our operations; and our
approach to investments. The actions we are taking across these areas are considered in turn on pages 78 to 80.
In the following table, we outline the key physical and transition risks and opportunities that could significantly impact these areas
and include the time horizons over which we believe these could become manifest. Additional focus on the operating segments
that could be most affected by climate change can be found on page 78. More information on how we define the time horizons
can be found on page 72.
Category
Description
Examples of potential impact on the Group
Physical risks
Transition risks
Opportunities
Acute – event
driven risks such as
flooding and storm
surge.
Chronic – longer-
term shifts in
climate patterns,
such as a continued
rise in average
temperatures,
changes in, and
extreme variability
of, precipitation and
weather patterns
and rising sea levels.
Risks arising from
the transition to a
lower-carbon
economy.
These are
categorised by
the TCFD as:
– policy and
legal risks;
– technology risks;
– market risks; and
– reputational risks.
Efforts to mitigate
and adapt to
climate change
can also produce
commercial
opportunities.
These could
allow us to help
accelerate the
transition and
continue
contributing to
a sustainable
economy.
An increase in the frequency and severity of natural catastrophes
and other weather-related events could adversely impact
insurance liabilities, particularly those from our property
insurance products.
Disruption to our direct operations, which could include damage
to our estate, impacting our ability to serve customers.
S S M M L
Chronic risks could lead to significant changes in our
underwriting criteria to maintain risk appetite, and/or higher
costs to obtain catastrophe reinsurance to protect us against an
accumulation of claims arising from a natural perils event.
S M M L
Time
horizon
S S M M L
Key area
of impact
U
O
U
Reduced returns from investments in companies whose
operations are impacted by physical climate risks, and real asset
investments directly impacted by physical climate risks.
S S M M L
U I
A failure to understand the scale of change in market demand
for products and services due to climate-related policy,
technology and consumer preference could impact revenue
and market share. This could include risks from the transition to
electric-powered vehicles, for example.
S S M
U O
Costs associated with the transition to a lower-carbon economy
may increase over time and the adoption of new lower emission
technologies may be unsuccessful.
S S M
O
Insufficient progress against our net zero ambitions could cause
stakeholder concern and reputational damage.
S S M M L
U U I O
Reduced returns from investments in high carbon intensity
companies that are not taking action to transition to a low
carbon economy, and real asset investments that are not
compatible with the transition to a low carbon economy.
Accelerating the speed of transition to a lower-carbon economy
by, for example, supporting the move to greener transport
solutions, particularly electric-powered cars, allows us to develop
new insights and capabilities to help us build insurance
solutions that best meet our customers’ evolving needs.
Investment in energy-efficient features and equipment across
our office estate and accident repair centres could save on
energy consumption and operating costs, reduce our footprint
and improve operational and resource efficiencies.
Potentially enhance risk-adjusted returns from our investments
by aligning the investment portfolio with the transition to a low
carbon economy whilst also enhancing our reputation as a
responsible investor. Ensuring the investment portfolio is
resilient against the physical effects of climate change.
S S M M L
U I
S S M
S S M M L
U
O
S S M M L
U I
Key
S
U
Short-term (1 – 10 years) S M Medium-term (10 – 30 years) M L
Long-term (30 years +)
Underwriting
U I
Investments
O Operations
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Strategic Report / Governance / Financial statements Task Force on Climate-related Financial Disclosures continued
Underwriting
Actions we have taken include:
Property
The physical risks from climate change are most likely to
manifest themselves as an insurance risk on our property
insurance products, where we protect millions of our
customers’ properties against devastating weather events,
such as flooding and windstorms.
These natural catastrophes, and other weather-related events
in the UK, are key drivers in the Group’s solvency capital
requirements and we recognise that climate change could
cause the frequency and severity of these events to increase.
The short-term nature of the business we underwrite, the ability
to re-price annually, and the risk mitigation provided by
reinsurance arrangements are all important factors in how we
manage our exposure. In addition, we further limit our exposure
by making extensive use of Flood Re to cede high flood risk
residential properties.
However, in general, the physical risks from climate change are
likely to intensify over the longer-term. To assess the effects of
this, we perform scenario analysis to measure the potential
impact of climate change on our insurance liabilities over a
thirty-year period. This analysis helps us to quantify the financial
implications of physical risk under different possible future
climate scenarios, with the outputs providing an indication of
the Group’s resilience.
The analysis provides a framework to understand and assess
the potential future risks associated with climate change in
greater detail and the findings aid our strategic planning. This
has included the development of our Strategic Management
Actions (see page 75), which span across business areas and
include action on:
– engaging with policymakers on the importance of
flood defences in the UK to protect properties located
in flood-prone areas;
– exploring how we can help shape the thinking around
resilient repairs of properties affected by flooding; and
– further evaluating the impact of climate change on
our underwriting footprint and risk appetite.
The analysis further supported us in developing our contingent
and pre-emptive management actions, which could be
deployed to mitigate against the risks identified. These cover
areas such as pricing, de-risking of investments and
reinsurance (see page 75).
Findings from our scenario analysis activities can be found on
pages 73 to 76.
Motor
As one of the largest personal motor insurers in the UK, the
move to electric-powered vehicles is particularly pertinent and,
supported by changes in technology and policy, the speed of
transition to electric continues to increase. Whilst this presents
new challenges, we also recognise this as an opportunity to
support the move to a lower-carbon economy, through the
insurance products we offer.
In response, we have already expanded our propositions to
support our Motor customers who are making the switch to
electric, and we have established a dedicated Electric Vehicle
Distribution and Strategy team, focused on evolving the
Group’s strategic response to the electric shift.
78
Direct Line Group Annual Report and Accounts 2023
– developing an electric vehicle package, offered to all new
and renewing Direct Line Motor customers, which provides
access to electric vehicle essentials, discounted access to
public and community charging, discounted home charger
installation and insurance that covers batteries and
charging cables;
– entering into new strategic partnerships which can help
grow our data, such as with Motability Operations from
September 2023, where we expect the number of electric
vehicles we insure to increase over the course of the
partnership; and
– building further capabilities in our accident repair centres,
where an increasing number of our technicians are now
accredited in repairing electric vehicles, supporting the
development of insight into the future of vehicle technology
and repair.
During the year, we also performed a reverse stress test to
assess how the adoption of electric vehicles could impact the
Group’s business model, which considered a range of variables
across three time periods and scenarios. More information can
be found on page 76.
Operations
Operating in a sustainable way not only supports the planet
but is also a part of how we can mitigate against the potential
climate risks that could cause disruption to our operations.
We have a history of taking action to reduce the environmental
impact of our business. This has included investing in our estate
to integrate new energy-efficient features and equipment,
launching a carbon reduction strategy in our network of
accident repair centres and since 2014, purchasing the
electricity for all our offices and accident repair centres from
renewable sources.
Science-Based Targets
Our aim is to become a Net Zero business by 2050
and this covers our direct operations. To make
progress against this, we set Science-Based
Targets which were approved by the SBTi in 2022.
These targets, aligned to a 1.5°C pathway, mean
we have ambitious carbon reduction plans which
support our journey towards Net Zero.
One of these targets covers the emissions generated
from our direct operations, where we are aiming for
a 46% reduction in absolute Scope 1 and 2 emissions
from our office estate and accident repair centres
by 2030, from a 2019 baseline. Reporting against
this target can be found within Metrics and Targets
on page 83.
More information on the plans to progress against
our targets and ambitions can be found within the
Sustainability section on pages 61 and 62.
Operational emissions
The steps we have taken in recent years mean we understand
where the most carbon-intensive areas of our operations are,
allowing us to prioritise carbon reduction activity across these
areas in support of our targets. Our 23 accident repair centres
remain a key area of focus and we continue to embed a range
of solutions as part our carbon reduction strategy, with this
work being led by colleagues in the Auto Services Sustainability
Programme. In the year, we have:
– expanded the use of hydrogenated vegetable oil in our
accident repair centres as an alternative fuel for our recovery
trucks. This initiative has now been implemented at 95% of
our repair centres, resulting in an estimated 2,025 tCO2e
saved in 2023;
– delivered the removal of gas from all of the paint spray
booths at one of our sites, providing an estimated saving of
277 tCO2e in the year. We continue to use this experience to
explore expanding the move from gas powered paint booths
to electric in more of our repair centres; and
– completed the installation of LED lighting at all 23 accident
repair centres.
Elsewhere, in 2023, we reduced our office footprint when
moving our head office from Bromley to a newer and smaller
Central London property, Riverbank House, where we obtained
an SKA Silver Rating for the fitting out of the office space.
An SKA Rating is a recognised means of assessing the
refurbishment of existing buildings to ensure the retrofit is
carried out in an environmentally considerate way.
Emissions reporting
We calculate and report our GHG emissions annually and
our most recent carbon emissions reporting can be found on
page 64. Further disclosure on the progress we have made in
reducing our operational footprint to date can be found within
Metrics and Targets on pages 83 and 84.
Carbon offsetting
Our aim is to become less reliant on carbon offsetting and,
although our journey to net zero emissions continues to gain
momentum, we acknowledge that it will take time to facilitate
the transition. For this reason, we offset our remaining Scope 1
and 2 emissions. Further information on the offsetting projects
we pledge support to can be found on page 65.
Supply chain
Through our Supply Chain Sustainability Programme, we are
engaging with suppliers to encourage them to sign up to SBTi
targets or an equivalent, so we can make the transition to a
pathway consistent with a 1.5°C scenario. During the year, this
work also included reviewing the weighting of sustainability
factors in our sourcing processes.
Further information on the activities undertaken in the year
as part of our Supply Chain Sustainability Programme can be
found on page 63 and the GHG emissions from our supply
chain are reported on page 64.
Investments
In recent years, we have begun integrating more ESG
considerations into our investment strategy, recognising this
is a long-term process which will require assessment and
challenge to inform future decision making.
We know that the impacts of potential physical and transition
climate-related risks arising in the wider economy will have an
impact on our investment portfolio, through their influence on
the value of assets. For example, our portfolio is exposed to
physical risks through our investment in companies that are
exposed to disruption from adverse weather events across their
Note:
supply chain. It is also exposed to transition risks, where
companies that we are invested in are not adapting their
strategy to a low-carbon future. However, the transition
to a low-carbon economy also creates significant
investment opportunities.
We have the long-term goal of our entire investment portfolio
being net zero emissions by 2050 and in support of our aims
we continue to implement key climate initiatives into our
investment strategy. During 2023, we:
– began work towards meeting our approved Science-Based
Targets for GHG emissions reduction for in scope asset classes;
– remained a signatory to the CDP’s science-based targets
campaign; a collective engagement campaign supported
by over 350 financial institutions and multinationals which
encourages high emitters to set science-based emissions
reduction targets; and
– continued to reduce the carbon intensity of our corporate
bond portfolio in line with our aim of a 50% reduction by 2030
from a 2020 base year.
The actions detailed above form part of the ongoing
development of the wider ESG framework underpinning
investments. In terms of holding investments in other
companies, those with higher reported ESG credentials have
more sustainable practices which better align to our investment,
environmental and social goals. As such, a requirement of all
investment-grade corporate bond portfolios is that each portfolio
must maintain an MSCI ESG rating at least as high as the
corresponding ESG weighted reference index or benchmark.
Science-Based Targets
In support of our long-term goal of ensuring our
entire investment portfolio is net zero emissions
by 2050, in line with the aims of the Race to Zero
campaign, we set four science-based GHG emission
reduction targets in our investment portfolio.
Approved by the SBTi in 2022, the targets cover
corporate bonds, commercial property and real
estate loans which, as at the end of 2023, covered
65% of AUM.
More information on the targets, and our 2023 reporting
against them, can be found within Metrics and Targets on
pages 84 and 85 and on pages 61 and 62.
Looking through the climate lens, we also have in place the
following current initiatives:
– Thermal coal screen whereby we restrict investment in firms
generating more than 5% of revenues from either thermal
coal mining or thermal coal power production unless the
company is taking positive climate action1.
– We actively encourage our investment managers to invest in
green bonds. Green bonds are designated bonds intended to
encourage sustainability and to support climate-related or
other environmental projects. All our relevant corporate bond
mandate guidelines now direct the portfolio manager to
purchase a green bond where the risk return characteristics
are similar to those of a comparable non-green bond.
1. Companies taking positive climate action are defined as those that are committed to setting Science-Based Targets or have a 2°C or better carbon
performance alignment from the transition pathway initiative.
Direct Line Group Annual Report and Accounts 2023
79
Strategic Report / Governance / Financial statements Task Force on Climate-related Financial Disclosures continued
– Within our investment property portfolio all assets must have
an Energy Performance Certificate of ‘D’ or better, or a plan
and funds in place to achieve that level. The property portfolio
also has a tailored set of ESG targets covering areas such as
carbon, energy, water and waste.
Scenario analysis
During the year, we acquired climate scenario
modelling capability to support our assessment of
the impact climate change could have on the
investment portfolio.
This will enable us to measure and quantify the
potential financial impact of climate-related physical
and transition risk on our investments, whilst also
providing a better understanding of the
opportunities that may arise from the transition to a
lower-carbon economy. The modelling uses different
possible future climate scenarios, including those
issued by the Network for Greening the Financial
System and the Intergovernmental Panel on
Climate Change.
This capability will continue to be embedded
throughout 2024.
Using our influence
We are committed to using our influence to drive wider
change. For example, all of our investment managers are
signed up to the UN Principles for Responsible Investment.
We also talk regularly to our external asset managers to
understand (and where necessary, challenge) how they are
using their global presence, size and leverage to engage and
encourage corporations to tackle climate change. This year
we have also signed up to the CDP’s science-based targets
collective engagement campaign which encourages high
emitters to set science-based emissions reduction targets.
Risk Management
Enterprise Risk Management Strategy
and Framework
The Enterprise Risk Management Strategy and Framework
(“ERMF”) sets out, at a high level, the Group’s approach to
setting risk strategy and managing risks to the strategic
objectives and day-to-day operations of the business, including
climate change. The ERMF is supported by the Internal Control
Framework (“ICF”) which sets out the key elements, roles and
responsibilities of the Group’s system of internal control.
Further information can be found in the Risk management
section of the Strategic report on pages 86 and 87.
Risk taxonomy
The effects of climate change are wide-ranging, affecting many
risks across the risk universe. To allow for better recognition of
internal and external drivers of climate-related risk and to
provide a focal point for the reporting of risks relating to climate
change, the Strategic Risk category includes Climate Risk
within Environmental, Social and Governance Risk.
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Direct Line Group Annual Report and Accounts 2023
Risk impact
The impacts of all risks, events and action plans are rated using
the Impact Classification Matrix which facilitates a consistent
approach to the sizing and categorisation of risk across the
Group by using Financial, Regulatory, Customer, Reputation,
Operational disruptions and Economic, Social and Governance
factors (including Climate Change) inputs. This includes those
risks relating to climate change, including climate-related
litigation risks, and allows the Group to determine the relative
significance of climate-related risks in relation to other risks.
Climate-related risk identification process
Annual risk identification process
Each year, the business is required to review all current and
developing risks which could impact on the achievement of
strategic objectives. This process includes assessing risk drivers,
at a Group level, such as those due to climate change, and their
potential impact and likelihood of risk crystallisation on both
an inherent and residual basis, in addition to identifying the
position which aligns with risk appetite.
We also use a variety of indicators across our product segments
to assess, monitor and manage climate-related risks. A number
of these key metrics can be found on pages 81 to 85.
Regulatory monitoring
The Group monitors and reviews relevant outputs from the
FCA, the PRA, and His Majesty’s Treasury (“HMT”), to consider
existing and emerging regulatory requirements.
During 2023, this included reviewing:
– HMT’s update to the Green Finance Strategy for the UK to
become the world’s first Net Zero Aligned Financial Centre;
– the Bank of England’s report on climate-related risks and the
regulatory capital frameworks; and
– the FCA’s discussion paper on Finance for positive
sustainable change.
We continue to monitor future developments. Reviews are
summarised and distributed to relevant stakeholders, and,
where necessary, responses are coordinated and overseen
by Second Line of Defence subject matter experts.
Emerging risk process
In addition to the annual risk review process, the Group has
in place an emerging risks process which facilitates the
identification, management and monitoring of new or
developing risks which are difficult to quantify or are highly
uncertain. The Group records emerging risks within an
Emerging Risk Register. Updates on emerging risk and the
actions being taken to address them are presented to the Risk
Management Committee and the Board Risk Committee
regularly, supplemented by deep dives on selected emerging
risks. In 2023, a deep dive was conducted on the transition to
electric vehicles (see page 76). Each emerging risk is owned by
an Executive sponsor to help ensure alignment of how it is
managed to the strategic objectives and priorities; as well as a
senior business leader who is responsible for day-to-day
management of the risk.
Climate change, including climate-related physical and
transition risk, is one of the Group’s most prominent emerging
risks, with regular oversight provided by the Climate Executive
Steering Group, consisting of First Line of Defence subject
matter experts from around the business where the impact of
climate change is the highest, in addition to Second Line of
Defence subject matter experts who provide oversight and
challenge of risk management activity relating to this.
Both physical and transition risks could manifest themselves
through a range of existing financial and non-financial risks,
including insurance, market, operational and strategic risks.
For more information on emerging risk and climate change
see page 92.
Climate risk modelling
The predominant direct physical drivers of risk to the Group’s
capital position are major UK floods and windstorms and these
are modelled together with less material perils such as freeze
and subsidence within the Group’s Internal Economic Capital
Model and reviewed at least biennially.
The influence of climate change is difficult to isolate from the
complex oceanic and atmospheric processes driving UK
weather. The Group uses catastrophe models to capture these
factors, and in turn these models are regularly reviewed against
specific criteria including how they have considered latest
scientific thinking, to ensure they appropriately capture the
Group’s risk profile. Responsibility for this work sits within the
Capital Management function.
The majority of our policies renew annually and are priced
according to risk. Pricing algorithms use sophisticated rating
engines to account for recent trends and are supplemented
with views of catastrophic risk to seek to ensure sufficient
pricing. These prices will evolve as climate change influences
manifest themselves through changing loss patterns, and views
of catastrophic risk develop because of rising sea levels,
changes in precipitation rates and urban resilience.
Risk pricing models are built using historical data covering
a multi-decadal time period for perils most likely to be
influenced by climate change. This allows us to understand
and incorporate long-term signals and past trends into our
modelling. These models benefit from considerable amounts
of internal and externally purchased data. External data
is reviewed and updated regularly, and we maintain a
relationship with data suppliers to understand the
methodologies and assumptions in their work. Nevertheless,
the underlying trends can be difficult to measure as they
emerge through infrequent one-off catastrophe events and
may have additional contributory factors (for example,
deforestation increasing the pace of rainwater run-off upstream
of a flood). Furthermore, future trends are likely to differ from
past projections. As such, we recognise a range of uncertainty
as to current and future impacts.
Increases in frequency and severity of large catastrophe weather
events are mitigated by the Group’s use of catastrophe excess of
loss reinsurance. This reinsurance covers property (Personal Lines
and Commercial Direct) and Motor physical damage losses; in
addition to significant capital benefits, it transfers the volatility of
low-frequency, high-severity natural peril events away from the
Group. The reinsurance purchase decision is a combination of
catastrophe modelling, capital analysis, the Group’s risk appetite,
cost of cover and the overall income statement impact. Cover is
typically purchased with an upper limit equivalent to a 200-year
modelled loss and the retention will be based upon the amount
that the Group is willing to sustain from such a loss. In addition,
we make extensive use of Flood Re to cede high flood risk
residential properties.
Metrics and Targets
We use a variety of key performance indicators across the different lines of our business to assess, monitor and manage climate-
related risks and opportunities. In the table below, we summarise the key metrics used across the three areas of activity, as
identified earlier in our disclosure: our underwriting activities; our operations; and our approach to investments. Further detail on
these, and our targets, can be found within the pages that follow.
Area
Metric
Description
Underwriting
Total weather-
related loss impact
Track actual performance against our an annual expectations
for major weather-related claims and monitor the impact of
claims associated with severe weather on the Group’s net
insurance margin.
Category
Page
Physical risk
82
Flooding
Monitor our market share for risks to be deemed in the high- or
very high-risk segments and track the volume and proportion
of policies we are ceding to Flood Re.
Physical risk
Subsidence
Monitor our subsidence market share by geo risk classification.
Physical risk
Electric vehicles
Monitor the number and proportion of electric vehicle policies
we underwrite and track the number of new electric vehicles
registered in the UK.
Transition risk and
opportunities
83
83
83
Operations
Operational
emissions
Calculate and report our operational emissions (Scope 1 and 2),
to monitor progress towards our science-based operational
emissions target.
Physical risk and
transition risk
62, 64,
83, 84
Measuring progress
within our repair
centres
Investments
Investment portfolio
emissions
Quarterly oversight of:
– GHG emissions and gas consumption metrics associated with
vehicle repair;
– the delivery of carbon reduction plans; and
– opportunities for innovating and using new solutions within
repair centres, in support of plans and targets.
Measure and report the temperature score of our corporate
bond portfolio, and GHG emissions from commercial property
and real estate loans, to track progress against our science-based
investment targets to ensure we are delivering against our aims.
Transition risks
and opportunities
84
Physical risk and
transition risk
62, 64,
84, 85
Direct Line Group Annual Report and Accounts 2023
81
Strategic Report / Governance / Financial statements Task Force on Climate-related Financial Disclosures continued
The Group has disclosed a number of metrics consistent with
the cross-industry categories recommended by the TCFD.
These include:
– GHG emissions: our Scope 1, 2 and 3 emissions and emissions
intensity metric reporting can be found on page 64.
– Remuneration: our LTIP awards have an emissions
performance condition which covers the targeted reductions
in emissions and temperature scores that form part of our
Science-Based Targets. More information can be found in the
Directors’ Remuneration Report on page 143.
– Physical risks: the results of our scenario analysis activities,
which assesses the potential impact of climate-related
physical risk on the value of insurance liabilities, can be found
on pages 73 to 76. Analysis of the actual impact of severe
weather claims can be found in the underwriting section,
below.
– Transition risks: the results of our scenario analysis activities,
which assesses the potential impact of climate-related
transition risk on the value of investment assets, can be found
on pages 73 to 76.
Our aim is to explore further how we incorporate additional
cross-industry metrics, including those to enhance the
measurement and management of transition risks and
opportunities, in future reporting.
Underwriting
Weather-related loss impact
The predominant direct physical drivers of catastrophe
weather risk from a capital perspective are major UK floods
and windstorms. The last peak of windstorm activity was in the
late 1980s and early 1990s; the last decade being particularly
benign in comparison. By contrast, flood has seen more
elevated activity.
Catastrophe reinsurance is purchased annually to protect
against event losses greater than £100 million (see page 39).
Use of the Flood Re scheme mitigates against the highest
individual residential flood risks.
The cost of claims relating to major weather can found within
the management view statement of profit or loss (see
page 270).
Severe weather claims1 (actual % of expected loss)
The Group uses sophisticated modelling techniques to estimate
the expected losses from severe weather events and uses these
to set an annual expectation for major weather-related claims.
%
250
200
150
100
50
0
2013 2014 2015 2016 2017 2018 2019
2020
2021 2022 2023
Actual weather
Expected
82
Direct Line Group Annual Report and Accounts 2023
The previous graph shows the impact of severe weather claims
relative to this annual expectation. In 2023, claims associated
with severe weather were below our 2023 severe weather
assumption, which is set at 100% in the graph.
As shown in the graph, the trends are reflective of relatively
benign activity, although there is significant variability.
In 2022, claims from weather-related events were more than
double our annual assumption following three significant
storms in Q1, a rise in subsidence claims from extremely
high temperatures in the summer and the December freeze
event. The 2018 peak was driven by the ‘Beast from the East’
freeze event and the 2015 peak was a result of a number of
weather events in December, which caused severe flooding
across the UK.
Impact of severe weather on net insurance
margin1, 2 (pt)
pt
3
2
1
0
-1
-2
-3
-4
54
39
2022
2023
Severe weather impacts
Expected
Both these graphs reflect the number of major weather events
in the year that the Group responded to. The frequency and
severity of extreme weather events could be affected by climate
change, which in turn will affect our view of risk, how we price
severe weather risk, and the type and level of reinsurance we
purchase to protect our balance sheet.
Home
Key risk indicators are produced by the underwriting function
and reviewed quarterly through relevant business forums.
The key climate change-related activities are flood, subsidence
and other weather incidents. For flood and subsidence perils,
we monitor the Group’s market share for risks deemed to be
in the high- or very high-risk segments. We also monitor and
review the proportion of policies ceded to Flood Re. Each peril
is monitored against set tolerances, with movements in amber
or red ratings generating investigation and action as required.
Notes:
1. Data used within this analysis is for ongoing operations (see glossary
on page 263).
2. Following adoption of IFRS 17, the Group restated its 2022 results and
the 2022 analysis within this graph has been represented accordingly.
The Group has moved to net insurance margin as a key performance
indicator, replacing the previously used combined operating ratio,
which is reflected in this analysis of severe weather impact. Analysis for
periods prior to 2022 is not available. For historic reporting, see previous
publications, including page 83 of the 2022 Annual Report and Accounts.
We maintain a view of trends and look to take action where
a trend is likely to result in a breach of tolerance.
Flooding
Governments have been working with insurers since 2000
to help make flood risk insurance more affordable and in 2016
Flood Re was introduced. Every insurer that offers home
insurance in the UK, the Group included, must pay into the
Flood Re scheme and this levy is used to cover the flood risks
in home insurance policies.
To ensure the Group and its customers benefit from the levy
and guard against the highest of flood risks, we monitor the
volume and proportion of policies we are ceding to Flood Re.
Properties are eligible to be ceded to Flood Re when they meet
certain criteria. Since early 2019, the cost to cede policies to
Flood Re has dropped, driving an increase in ceded volumes.
Subsidence
We monitor exposure to this physical risk via our subsidence
market share by geo risk classification. This risk classification
aims to give a market view of geographic risk, within the UK,
of having a subsidence claim. This enables us to understand the
proportion of subsidence risk that we write compared to our
estimate of the total in the market.
Motor
The Group’s motor market is diversified throughout the UK,
and although weather-related factors will influence claims
frequency it is a relatively small influence compared with other
factors, such as used car prices. As such we do not currently
consider there to be any valuable climate-related physical risk
indicators that can be tracked for this portfolio.
planned include reviewing issued guidance related to
measuring and reporting underwriting emissions, in order
to further inform the Group’s approach.
The weighted average carbon intensity or GHG emissions
associated with commercial property and specialty lines
of business, where data and methodologies allow
Following the sale of our brokered commercial business
earlier in the year, we expect our underwriting exposure to
commercial property lines to significantly reduce as this
business runs off over time.
We continue to remain active in the direct small business
commercial insurance market, which includes providing
insurance for small commercial properties, however, we view
our exposure to carbon intensive sectors through these
underwriting activities to be low, due to the type and size
of the businesses we insure.
Whilst we will continue to review emerging best practice,
at present, we do not believe available methodologies have
sufficient maturity to meaningfully measure the weighted
average carbon intensity or GHG emissions associated with
small business commercial property lines. For example, current
frameworks recommend collecting emissions data from
companies’ own disclosures or official filings, or use of physical
or economic activity data, to determine emissions associated
with commercial lines portfolios. Such recommendations are
not currently pragmatic for insurers with commercial small
business customers, such as the Group.
The Group does not underwrite any specialty lines of business.
Operational
In order to track the transition towards electric vehicles we
monitor both the number and proportion of policies we
underwrite for these types of vehicles as well as the number
of electric vehicles and alternatively fuelled vehicles registered
in the UK. This supports us in estimating our market share
and helps inform our electric vehicle strategy.
We calculate and report our operational GHG emissions
annually. Our most recent reporting can be found on page 64
where we continue to break out our Scope 1 and Scope 2
emissions into separate performance figures across our office
sites and accident repair centres. We also disclose our Scope 3
footprint, which includes emissions from our supply chain.
Progress against the supplemental guidance for
insurance companies
The Group believes that its disclosure against certain
components of the sector-specific guidance, within Metrics
and Targets recommendations (a) and (b), does not meet the
objectives of the TCFD.
Below, we outline the activities we have undertaken during the
year to improve our disclosure against these areas in future
reporting, as well as the activities planned for 2024.
The extent to which insurance underwriting activities,
where relevant, are aligned with a well below 2.0°C scenario
The Group recognises that measuring underwriting emissions
remains a developing area, with the frameworks and
methodologies to support insurers in calculating these
emissions continuing to evolve. An area of limitation that is
particularly pertinent to personal lines and small commercial
business insurers is the practicalities of obtaining data with
sufficient accuracy and reliability to determine the emissions
associated with these portfolios.
During the year, the Group has embedded plans to further
assess its disclosures relating to underwriting emissions, through
the development of a climate-related risk management
roadmap (see page 71). In 2024, the actions that are currently
Note:
Science-Based Targets
In support of our net zero ambitions, we have set five
Science-Based Targets, in line with a 1.5°C pathway, focused on
the most carbon intensive areas of our business, one of which
covers our operational emissions. These targets were approved
by the SBTi in 2022.
Scope
Target
2023 update
Operational
We target
reducing absolute
Scope 1 and 2 GHG
emissions by 46%
by 2030 from
a 2019 base year.
As at the end
of 2023, absolute
Scope 1 and 2 GHG
emissions reduced
by 43%1, from
a 2019 base year.
Our 2023 reporting shows a 43%1 reduction in Scope 1 and 2
emissions, when compared to the 2019 baseline. This reflects
the actions we have taken in recent years, which has included
reducing our office footprint, investing in our estate to integrate
new energy-efficient features and equipment and the carbon
reduction initiatives we are implementing across our network
of accident repair centres.
More information on our Science-Based Targets, including the
actions we have taken in the year against them and our future
priorities, can be found on pages 61 and 62.
1. We are required to use Scope 1 and Scope 2 market-based emissions for SBTi operational target setting and reporting. When including Scope 2
location-based emissions this reduction is equivalent to a 52% reduction.
Direct Line Group Annual Report and Accounts 2023
83
Strategic Report / Governance / Financial statements Task Force on Climate-related Financial Disclosures continued
Operational emissions performance
With hybrid working well embedded across the business, large
numbers of our people continue to work from home regularly.
In recognition of this we have again calculated and reported
homeworking emissions under the Scope 3 ‘Employee
Commuting’ category (see page 64).
Overall, when compared to 2022, our Scope 1 and 2 GHG
emissions decreased to 6,999 tCO2e. In the year, our office
footprint reduced following the move of our head office from
Bromley to a newer and smaller Central London property,
contributing to lower Scope 1 and 2 emissions from our
office estate.
Within our repair centres, we continued to see a reduction in
Scope 1 emissions through the use of hydrogenated vegetable
oil as an alternative fuel for our recovery trucks, with this
initiative now implemented at 95% of our Auto Services sites
(see page 79). These reductions were partly offset by an increase
in Scope 2 emissions from our repair centres as we continue
to switch to electric from gas to power spray paint booths,
where possible.
Auto Services Sustainability Programme
Our Auto Services Sustainability Governance Forum, held
quarterly, is responsible for the oversight, accountability and
coordination of all activity that forms part of the Auto Services
Sustainability Programme. The Forum oversees progress
against the activities to deliver towards the carbon reduction
strategy within our accident repair centres and tracks key
Programme milestones.
This includes monitoring the delivery and performance against
GHG emissions reduction targets, where metrics, such as gas
consumption and emissions associated with vehicle repair, are
tracked. The Forum also assesses the risks that could impact
the delivery or prioritisation of planned activity, coordinating
the actions required to mitigate against these. It also considers
metrics relating to opportunities from innovating and using
new solutions in support of plans and targets, such as assessing
the feasibility and benefits of adopting new lower emission
technologies or equipment in repair centre sites.
Supply chain
While we wait for the publication of the Science-Based Net
Zero Targets for Financial Institutions from the SBTi, which is
expected in 2024, we have chosen to set an internal emissions
reduction target for our supply chain. This target forms part
of our Supply Chain Sustainability Programme, where we
continue to encourage our largest emitting direct suppliers
to sign up to SBTi targets or an equivalent (see page 63).
Investments
In 2018, the SBTi launched a project to help financial institutions
align their lending and investment portfolios with the
ambitions of the Race to Zero campaign. The project audience
includes universal banks, pension funds, insurance companies
and public financial institutions.
Science-Based Targets
Our long-term goal is for our entire investment portfolio to be
net zero emissions by 2050, in line with the aims of the Race to
Zero campaign. To support this, we have set Science-Based
Targets for our investment portfolio covering corporate bonds,
commercial property and real estate loans, these were
approved by the SBTi in 2022.
As at the end of 2023 our investment portfolio targets covered
65% of AUM.
Asset Class
Target
2023 update
Corporate
Bonds
Commercial
Property
Real Estate
Loans
Align the Scope 1
and 2 portfolio
temperature score
by invested value
from 2.44°C in 2019
to 2.08°C by 2027.
Align the Scope 1, 2
and 3 portfolio
temperature score
by invested value
from 2.80°C in 2019
to 2.31°C by 2027.
Reduce GHG
emissions by 58%
per square metre
by 2030 from a
2019 base year.
Reduce GHG
emissions by 58%
per square metre
by 2030 from a
2019 base year.
As at the end of
2023, the Scope 1
and 2 portfolio
temperature score
by invested value
was 2.02°C.
As at the end of
2023, the Scope 1, 2
and 3 portfolio
temperature score
by invested value
was 2.31°C.
Agreed first
reporting in 20241.
Agreed first
reporting in 20241.
Further details on the emissions from our investments are
reported on page 64.
Note:
1. Due to the practicalities of obtaining data from our external asset managers ahead of the release of the Group’s annual reporting, progress against
our commercial property and real estate loan targets is reported with a one-year time lag. This approach was agreed with the SBTi when these
targets were approved in 2022.
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Direct Line Group Annual Report and Accounts 2023
The temperature score for corporate bonds is the implied level
of warming above pre-industrial levels to which our portfolio
is aligned based on the CDP’s temperature rating data set.
For an individual company the temperature rating is the level
of warming to which a company’s publicly stated emission
reduction targets align. The targets are set on a linear pathway
for the portfolio to reach 1.5°C by 2040 as is required by the SBTi.
We aim to achieve our corporate bond target by directing
investment to companies with lower temperature scores
as these are the ones taking most serious action to reduce
emissions. We will also expect our external investment
managers to engage with portfolio companies to encourage
them to act by setting robust emissions reduction targets.
We also continue to target an interim 50% reduction in
weighted average carbon intensity by 2030 from a 2020 base
year for corporate bonds in order to ensure emissions are
reducing over time.
Carbon intensity is the GHG emissions intensity per $1 million
of sales. Normalising by sales allows the investor to compare
carbon efficiency of different-sized firms within the same
industry and has become a standard metric used in the
investment industry.
For commercial property and real estate loans, targets were set
using the SBTi sectoral decarbonisation approach for real estate
which uses the IEA ETP 2017 Beyond 2°C scenario. Emissions for
real estate relate to the energy use of buildings which is largely
emissions from electricity and heating use. Work towards our
real estate targets will require improving the energy efficiency
of buildings, engaging with tenants to share energy use
data and encouraging them to set their own emissions
reduction targets.
More information on our Science-Based Targets, including the
actions we have taken in the year against them and our future
priorities, can be found on pages 61 and 62.
Streamlined Energy and Carbon Reporting (SECR) regulations
The following table highlights where information can be found that supports the requirement to disclose
how the Group manages its energy consumption and carbon emissions.
Requirement
Annual global GHG emissions (CO2e):
– from activities for which the Company is responsible
– from buying electricity, heat, steam or cooling by the Group for its own use
Annual global energy consumption in kWh, being the aggregate of:
– energy consumed from activities for which the Company is responsible
– energy consumed resulting from buying electricity, heat, steam or cooling
by the Group for its own use
The proportion of GHG emissions and energy consumed relating
to the UK and offshore area1,2
Methodology used to calculate emissions and energy consumption
At least one intensity metric in relation to emissions
Description of energy efficiency actions taken
Pages
64
64
65
65
63, 65
65
64
63
Notes:
1. The offshore area is broadly defined as the sea adjacent to the UK, including the territorial sea, plus the sea in any designated area
under section 1(7) of the Continental Shelf Act 1964 and section 41 (3) of the Marine and Coastal Access Act 2009.
2. 100% of the Group’s GHG emissions and energy consumption reported relates to operations, all of which are based in the UK.
Direct Line Group Annual Report and Accounts 2023
85
Strategic Report / Governance / Financial statements Risk management
Our aim is to make risk management simple, effective, well understood and deeply
embedded. The Risk Function will provide oversight which is pro-active,
proportionate and commercial to help the business make informed risk-based
decisions and to move quickly whilst understanding the risks.
Managing risk in line with our strategy
Our management team, with oversight from the Board, and
Board Risk Committee, is responsible for developing our
strategy. Our strategic planning process aims to ensure we have
developed clear objectives and targets, and identified the
actions needed to deliver them, including the management of
risks arising from the strategic plan.
A key aspect of any effective strategic planning process is to
understand and manage those risks appropriately. To achieve
this, the Risk Function works closely with the rest of the business
to help it to identify and assess risks, which is done through
setting and achieving targets as well as through its review and
challenge of business plans in the strategic planning process.
The Group’s risk strategy is aligned with the Group strategy and
supports business decision-making through the proactive
identification, assessment and management of risks.
Our risk governance framework
The Risk Function continues to lead significant cultural change
to drive ownership of risks across the Group. The Group has a
strong risk culture, and a mature and embedded Enterprise Risk
Management Framework (“Risk Management Framework”)
with clear accountabilities and risk ownership designed to
ensure that we identify, manage, mitigate and report on all key
risks and controls through the three lines of defence model:
First line: Management is responsible for embedding risk
management into business as usual and change processes
whilst creating transparent reporting of risks and management
actions.
Second line: The Risk Function is responsible for the design and
recommendation to the Board Risk Committee of the risk
management framework, its implementation across the Group
and the provision of proportionate oversight of risks, events and
management actions throughout the Group.
Third line: Group Audit is responsible and accountable for
providing an independent and objective view of the adequacy
and effectiveness of the Group’s risk management, governance
and internal control framework.
See page 110 for governance structure.
Risk appetite
Our risk appetite statements define the opportunities and
associated level of risk the Group is prepared to accept to
achieve its business objectives. The statements are used to drive
risk-aware decision making by key business stakeholders.
Our risk appetite statements are documented in our Policies
and include:
– monitoring whether the business remains within risk appetite,
among other information, using key risk indicators;
– deriving the key risk indicators from the risk appetite
statements to drive and monitor risk-aware decision-making;
and
– both qualitative and quantitative risk statements which are
forward- and backward-looking. We review our risk appetite
statements and key risk indicators annually.
Overarching risk objective
The Group recognises that its long-term sustainability is
dependent on having sufficient economic capital to
meet its liabilities as they fall due, thus protecting its
reputation and the integrity of its relationship with
policyholders and other stakeholders. As part of this, its
appetite is for general insurance risk, focusing on
personal lines retail and small and medium-sized
enterprise insurance in the United Kingdom. The Group
has appetite for non-insurance risks, as appropriate, to
enable and assist it to undertake its primary activity of
insurance.
Three strategic risk objectives
1. Maintain capital adequacy
The Group seeks to hold capital resources in the range
of 140% to 180% of the partial internal model solvency
capital requirement.
2. Stable/efficient access to funding and
liquidity
The Group aims to meet both planned and
unexpected cash outflow requirements, including
those requirements that arise following a 1-in-200 year
insurance, market or credit risk event.
3. Maintain stakeholder confidence
The Group has no appetite for material risks resulting in
reputational damage, regulatory or legal censure, poor
customer outcomes, fines or prosecutions and other
types of non-budgeted operational risk losses
associated with the Group’s conduct and activities. The
Group’s objective is to maintain a robust and
proportionate internal control environment.
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Our Risk Management Framework
The Risk Management Framework sets out, at a high level, the
Group’s approach to setting risk strategy, and managing risks to
the strategic objectives and day-to-day operations of the
business. The Risk Management Framework is designed to
manage the Group’s risk proactively and to enable dynamic risk-
based decision making.
Aligned to the three lines of defence model, not only does the
Risk Management Framework articulate the high-level
principles and practices needed to achieve appropriate risk
management standards, but it also demonstrates the inter-
relationships between components of the Risk Management
Framework.
Within this, the risk management process is a key element in
the development and on-going maintenance of an accurate risk
profile. The objective of the risk management process is to
identify, assess, manage, monitor and report on the risks that the
Group is exposed to. See pages 80 and 81 for specific
information on how the business identifies and assesses the
risks associated with climate change.
Within the Risk Management Framework, Policies address
specific risk areas and are aligned to the Group’s risk appetite.
Policies, where appropriate, are supported by underlying
Minimum Standards which interpret Policies into a set of risk
and control requirements to be implemented across the Group.
Our risk culture
Our risk culture underpins our business and decision-making
and helps us maintain a robust and disciplined approach to
managing risk. Our Risk Function drives ownership of risks in the
business, ensures that risk consideration is integral to decision-
making and that activities within the business are aligned with
the Risk Management Framework. Risk also provides expert
advice and guidance to business areas, including challenging
the effectiveness of controls to manage risk and compliance, to
support the business in demonstrating the right mindset to
achieve its strategic objectives. The Board is committed to
promoting a culture of high standards of corporate governance,
business integrity, ethics and professionalism in all our activities.
The Risk Function continues to work collaboratively across the
Group to engender a positive risk culture, in particular
developing a consistent approach to assessing and reporting on
risk culture maturity, to ensure risk is fully integrated within the
Group’s wider cultural ambitions and aligned on values and
behaviours that we expect our people to demonstrate.
Inherent Risk
The Group Enterprise Risk Management Framework
(ERMF)
Residual Risk
Strategic
Objectives
Vision &
Business
model
Insurance
Market
Credit
Liquidity
Operational
Conduct
Regulatory
Strategic
Group
1st Line of Defence
2nd Line of Defence
3rd Line of Defence
» Risk Policies &
» Risk & Compliance
Minimum Standards
Function
» Group Audit
Function
» Risk appetites
» Board Risk
» Audit Committee
Committee (BRC)
» Risk Management
Committee (RMC)
» Other Risk
Committees
»
Impact Classification
Matrix
» Risk & Control
Assessment
» Monitoring &
Reporting
» Governance
» Business Processes
Internal Control Framework (ICF)
Control Environment
(Tone, Integrity, Values, Risk Culture, Risk Maturity)
Internal Control Standards
(Structures, Policies, Standards, Role &
Responsibilities)
Control Activities
(Internal controls, Key Controls, Testing)
“What the Group is
trying to achieve
as a Company”
“The risks (and
opportunities) the
Group’s Objectives
expose it to”
“How the Group manages those risks (and opportunities)”
Insurance
Market
Credit
Liquidity
Operational
Capital
Conduct
Regulatory
Strategic
Group
“The Backstop
to protect
customers if
the Group
gets it wrong”
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87
Strategic Report / Governance / Financial statements Principal risks and
uncertainties
We carefully assess the principal risks facing us. Principal risks are defined as having a residual risk impact of £30 million or more,
taking into account customer, financial and reputational impacts. During 2023 the Group revised its financial materiality threshold
down from £40 million to £30 million. This was driven by wanting to bring the materiality closer to that of the audit materiality, along
with a desire to consider a wider range of quantitative (such as Solvency) and qualitative factors to ensure the level of materiality
does not fluctuate significantly year on year.
Our principal risks are under continuous review and assessment and, with the introductions of the FCA’s PPR regulations and
Consumer Duty, Conduct Risk is now deemed a principal risk to the Group.
Principal risk
Description
Risk commentary
Insurance Risk
Relative size of risk
Trend – stable
Market Risk
Relative size of risk
Trend – stable
The risk arising from
insurance
obligations, in
relation to the perils
covered and the
processes used in
the conduct of
business. It takes
account of the
uncertainty related
to the Group’s
existing insurance
and reinsurance
obligations as well
as to new business
expected to be
written. It includes
the risk of loss, or of
adverse change in
the value of
insurance liabilities
resulting from:
–
fluctuations in the
timing, frequency
and severity of
insured events,
and in the timing
and amount of
claim
settlements; and
– significant
uncertainty of
pricing and
provisioning
assumptions
related to
extreme or
exceptional
events (for
example
catastrophe risk).
The risk of loss
resulting from
fluctuations in the
level and in the
volatility of market
prices of assets,
liabilities and
financial instruments.
Finally, climate change presents a risk of more
frequent extreme events and we are looking to
enhance key risk indicators to monitor related
risks across Home and Commercial. The Group
manages its current exposure to weather events
through the use of reinsurance and our
participation in the Flood Re initiative.
Key drivers of the outlook for insurance risk
across our business plan include reserve,
underwriting, distribution, pricing and
reinsurance risks. Issues relating to claims
inflation, the cost of living crisis, the impact of the
FCA's PPR regulations, and the global political
situation compounding supply/demand issues
which arose following Covid-19 and Brexit have
been key areas of focus for the Group in 2023.
Claims trends have been significantly impacted
by persistent claims inflation, particularly in the
motor market, leading to uncertainty in claims
reserving and pricing in 2023 and beyond.
However, our reserving processes reflect
improved insight in claims experience and
inflation trends resulting from extensive work
undertaken across the business over the past
year. In addition, the Group has begun its pricing
and underwriting transformation journey aimed
at delivering best market practice in our Motor
business.
Key risk themes relating to this category include
the macroeconomic environment, motor
profitability, organisational resilience and agility,
and sales risk post implementation of the FCA
PPR regulations.
We have used scenario testing to understand the
potential financial impacts of these risks and
continue to monitor them closely.
Key drivers of market risk are the sensitivity of the
values of our assets and investments to changes
in credit spreads, our exposure to losses as a
result of changes in interest rate term structure
or volatility, and the key risk theme of the impact
from the macroeconomic environment.
Concerns about recession risk, escalation of
geopolitical tensions and fiscal policy concerns
could affect equity and credit markets within the
global economy leading to credit spread
increases, foreign exchange rate volatility, and
interest rate changes.
Market risk remains at a heightened but stable
level over the term of the Group's Financial Plan
(the "Plan"). In the United Kingdom inflation has
been coming down from the high levels in 2022
and interest rates have reached their peak in Q4
2023. The sustained high interest rates,
continued economic uncertainty and low
productivity levels are likely to lead to minimal
economic growth. Recession in the United
Kingdom would be likely to add to market
volatility.
To seek to address this, we have an investment
strategy which is approved by the Board and
includes limiting exposure to individual asset
classes and the amount of illiquid investments we
hold. We also use risk reduction techniques such
as hedging foreign currency exposures with
forward contracts, interest rate swaps to hedge
interest rate risks and de-risking the investment
portfolio during volatile periods.
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Principal risk
Description
Risk commentary
Operational Risk
Relative size of risk
Trend – stable
The risk of loss due
to inadequate or
failed internal
processes or systems,
human error or from
external events.
Conduct Risk
Relative size of risk
Trend – stable
The risk of failing to
put the customer at
the heart of our
business, failing to
deliver on our
commitments and/
or failing to ensure
that fairness is a
natural outcome of
what we do and how
we do it.
We have continued in the journey to improve change
portfolio management and change initiative delivery,
with the object of ensuring that change delivery is
delivered to achieve the intended outcomes and benefits
for customers and shareholders within risk appetite.
Notably, we continue plans to modernise our IT
infrastructure and technology estate for increased
performance and stability, so that our customers can have
a better sales and servicing experience through the
improved target operating models (people, processes,
technology, and data flows).
The risks arising from cyber security failures that impact
the confidentiality, integrity and availability of our data
continue to increase and evolve as threat actors enhance
their practices. Our Chief Information Security Officer is
responsible for ensuring robust cyber security policies and
controls are in place and operate effectively to protect
customer and Group data.
Headwinds relating to the macroeconomic and operating
environment have led to increased risk exposure in
respect of third parties and outsourcing arrangements.
Initiatives have been established to enhance the Group’s
third party supplier risk and control environment in
response to the increased risk exposure and to ensure risk
is managed within Group appetite.
Finally, the Group continues to focus on improving
organisational culture. Culture remains a core focus and
forms part of the Group’s 2024 plans of activity and work
is progressing to implement required frameworks,
capabilities, tools, and governance to deliver against
desired cultural outcomes.
The introduction of Consumer Duty represents a
significant shift in the FCA’s expectations of firms and
applies to all of the Group’s regulated products.
A comprehensive implementation plan has been put in
place to address the requirements arising from the new
Duty, which has been approved by the Board.
Finally, the Group is aware of the impact of the rising cost
of living on our customers and we are taking measures to
help support customers during this period, including the
launch of Direct Line Essentials to adapt to changing
customer needs.
Key risks relating to this category include
Technology and Infrastructure, Change,
Cyber, Supply Chain & Outsourcing and
People & Culture.
The trend in operational risk is driven by
ongoing risk exposure as the Group
continues to implement and embed
changes in its technology systems, data
flows, pricing models, and processes,
whilst operating within a volatile external
environment.
Our approach is to manage our
operational risks proactively, to mitigate
potential customer harm, regulatory or
legal censure, and financial
or reputational impacts. The Group is also
undertaking various initiatives to reduce
its operational risk through the
strengthening of the control
environment.
The Group’s exposure to technology risk
is materially impacted by the need to
enhance digital capabilities, simplify our
technology estate and mitigate IT
resilience risk.
The Group is well placed to respond to
new regulations and develops
technology with a resilience by design
approach. Continuous monitoring and
maintenance of the currency and
technology estate, along with disaster
recovery testing, mitigates the likelihood
of system failures. The Group maintains
and tests critical end-to-end business
and continuity plans in the event of a
material system outage.
The FCA placed two regulatory
requirements on Direct Line Group in
2023. In June 2023, the Group was
required to carry out a past business
review of Motor total loss claims settled
between 1 September 2017 and 17
August 2022 to identify policyholders
who received unfair settlements and
provide them with appropriate redress.
In September 2023, the Group was
required to carry out a past business
review of renewal prices charged since 1
January 2022 to identify any that did not
comply with the rules relating to use of
tenure and provide policyholders with
appropriate redress. The Group is running
remediation programmes for affected
customers.
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Strategic Report / Governance / Financial statements Principal risks and uncertainties continued
Principal risk
Description
Risk commentary
Regulatory
Compliance Risk
Relative size of risk
Trend – increasing
The risk of
reputational
damage, regulatory
or legal censure,
fines or prosecutions
and other types of
losses arising from
non-compliance
with regulations
and legislation.
The outlook for regulatory compliance
risk is increasing as financial institutions
embed multiple regulatory changes,
alongside a challenging external
environment referred to in strategic risk
and insurance risk.
Further, regulators are increasingly
expecting financial institutions to play a
broader role in resolving societal issues,
such as income inequality, climate
change, and diversity and inclusion;
creating challenges for insurers to
balance commercial and societal
outcomes in decision-making, as they
seek to meet the needs of different
stakeholders.
Credit Risk
Relative size of risk
Trend – stable
The risk of loss
resulting from
default in obligations
due from, and/or
changes in the credit
standing of, issuers of
securities,
counterparties or any
debtors to which the
Group is exposed.
The outlook for credit risk is stable. The
Group monitors its key counterparties,
namely the security of the issuers within
its investment portfolio, and its
reinsurance exposures are mainly held
with reinsurers with high credit ratings.
To manage credit risk, we set credit limits
for each material counterparty and
actively monitor credit exposures, whilst
also considering new future exposures.
Strategic Risk
Relative size of risk
Trend – stable
The risk of direct or
indirect adverse
effects resulting from
strategies not being
optimally chosen,
implemented or
adapted to changing
conditions.
Strategic risk is influenced by internal
and external developments, including
the potential impacts of: cost of living;
persistently high inflation; an increased
level of regulatory concern and focus
including Consumer Duty, the potential
for new and ongoing geopolitical
conflicts and climate-related financial
risks impacting the Group’s strategic
position. These factors are driving a high
level of uncertainty in the market and
subsequent impact on consumer
behaviour and engagement models and
will continue to challenge the delivery of
the Group’s Plan, although the Group has
put itself in a stronger capital position
following the sale of the brokered
commercial business.
We have maintained an ongoing dialogue with our
regulators, and we have continued to engage with the
regulators and HM Treasury regarding the future
regulatory framework within the UK.
We remain focused on key areas of regulatory attention,
including embedding the FCA’s PPR regulations and
Consumer Duty, and regulatory requirements under the
Green Finance Strategy, climate-related risks and the
regulatory capital frameworks, and finance for positive
sustainable change.
We have also continued our focus upon operational
resilience in accordance with the increased regulatory
requirements.
Finally, we have a governance and accountability
framework in place as part of the Senior Managers and
Certification Regime, and carry out an annual declaration
process to ensure the ongoing fitness and propriety of the
Group’s Senior Managers and Certified Functions.
In addition, we only enter material reinsurance contracts
with reinsurers with at least an A- rating and, for liabilities
with a relatively long period of time to settlement, the
majority of reinsurance is arranged with reinsurers with a
rating of A+ or above and a maximum of 10% of reinsurers
rated between A- and A+.
Finally, we also have well defined criteria to determine
which customers and brokers are offered and granted
credit.
The Group is in a place of transitional leadership, with an
outgoing Acting CEO having only recently handed over to
the new permanent CEO who joined at the beginning of
March 2024. This has impacted the Group’s ability to
reformulate the longer strategy, which is being offset
through preparatory work, progression of no-regret
actions, and continuation of our existing strategy.
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Effects of macroeconomic and trading
environments on the Group
The UK is facing into a cost of living crisis and a UK recession,
driven by the challenging macroeconomic environment. This, in
conjunction with a challenging trading environment, could lead
to or exacerbate existing risks for the Group and we remain
alert to possible developments across our risk universe.
Emerging risks
Emerging risks are defined by the Group as newly developing or
changing threats or opportunities, external to the Group, that
are subject to a high degree of uncertainty but have the
potential to materially impact the Group.
The Group has in place an emerging risks process designed to
enable it to:
– have a proactive approach to emerging risk management;
– identify, manage and monitor a broad range of
potential emerging risks; and
– mitigate the impact of emerging risks which could impact
the delivery of the Plan.
The Group records emerging risks within an Emerging Risk
Register. An update on emerging risks is presented to the Board
Risk Committee annually and is supplemented by deep dives
on selected emerging risks.
The most notable emerging risk themes currently being
monitored via the emerging risks process are outlined below.
Emerging Risk Radar
Proximity
10+ years
5-10 years
3-5 years
0-3 years
Risk
Velocity
Rapid
Moderate
Slow
Impact
Material
Significant
Medium
The Group’s Emerging Risk Radar classifies each risk by its theme, proximity (time), velocity (speed of development) and likely impact
(on strategic objectives). This allows for active monitoring and prioritisation of management actions. The radar is used for illustrative
purposes only.
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Strategic Report / Governance / Financial statements Principal risks and uncertainties continued
Transition to a low carbon economy, including
climate change
The Group recognises that transition to a low-carbon economy,
including climate change, potentially poses material long-term
financial risks to the business and is receiving increased scrutiny
from investors and regulators. Climate change risk can be
divided into physical and transition risks. Both of these
categories can manifest themselves through a range of existing
financial and non-financial risks, including insurance, market,
operational, strategic and reputational risks. The Group is also
aware of the liability risks due to climate change when parties
who have suffered loss or damage from physical or transition
risk factors seek to recover losses from those they hold
responsible.
During 2023, the Group has continued to embed further
controls, targets and reporting around climate change, overseen
by its Climate Executive Steering Group. The Group’s Risk
Taxonomy has also been expanded to include additional
reference to climate related risks.
We continue to monitor these risks closely and to develop our
climate change modelling capability. Further details on our risk
management approach to climate change are included on
pages 80 to 81, within the Task Force on Climate-related
Financial Disclosures (“TCFD”) report.
Changing customer needs
As consumers face intense pressure on their finances and time,
coupled with generational changes, this is expected to generate
a rapid structural shift in customer demand, requiring the Group
to innovate and adapt its product offerings in order to remain
relevant.
Geopolitical tension
Due to heightened global tensions, there is a risk that measures
are implemented by governments that decrease political
stability, erode countries’ relationships and contribute to
increasing protectionism. This could lead to multiple impacts
including on investment performance and supply chains. The
Group conducts ongoing analysis to monitor exposure to the
developing geopolitical environment (for example, the Middle
East, Russia/Ukraine and China/Taiwan), while maintaining a
close eye on the political risk landscape.
Automotive technology
New car technologies, such as autonomous vehicles and
hydrogen power, are in development which, once on UK roads,
are expected to be transformative. Traditional motor policies
may no longer serve the needs of customers, requiring changes
to the Group’s pricing models and policy wordings to remain
relevant. The repair networks’ capabilities will also need to be
upgraded to serve this demand effectively. The Group will focus
on launching new products that will better serve customer
needs in the future while engaging with regulators to help
shape policies and understand potential impacts for the Group.
Data ethics
Consumers are becoming more aware of their data rights and
regulators more interested in how firms use customer data. The
industry is also gathering more data than ever before and
increasingly exploring more sophisticated processing
capabilities, such as artificial intelligence (“AI”) and machine-
learning. These trends together could lead to data being used in
ways that customers or regulators find unacceptable, or which
result in unfair customer outcomes.
In 2023, the Group has implemented and embedded the
Consumer Duty principles, along with continuing to review and
understand customers' needs.
The Group has embedded a Data Ethics Framework and Data
Ethics principles which are now well established and have been
tested via the Data Ethics committee.
Keeping up with digital advancements
Developments in technology and changes in market, regulatory
and consumer trends are creating opportunities for new
entrants to profitably exploit new distribution channels, business
models and niches. Failure to keep up with such developments
could lead the Group to fall behind.
To mitigate this, we are delivering multiple programmes to
provide the Group with the capabilities to enable our offerings
to compete with new entrants, for example: InsureTech.
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Viability statement
Strategic Report / Governance / Financial statements
In accordance with Provision 31 of the 2018 UK Corporate
Governance Code, the Directors have assessed the prospects of
the Group for a period longer than the minimum 12 months
required by the going concern statement. The Strategic report,
on pages 1 to 94, sets out the Group’s financial performance,
business environment, outlook and financial management
strategies. It covers how the Group measures its regulatory and
economic capital needs and deploys capital. You can find
discussion about the Group’s principal risks and risk
management on pages 88 to 90. Note 3 to the consolidated
financial statements starts on page 194 and sets out financial
disclosures relating to the Group’s principal risks. This covers
insurance, market and credit risk, and the Group’s approach to
monitoring, managing and mitigating exposures to these risks.
Every year, the Board considers the strategic plan (“the Plan”) for
the Group. The Plan makes certain assumptions in respect of the
competitive markets in which the Group operates. By its nature,
a strategic plan comprises a series of underlying assumptions
which can be uncertain in nature and rely on judgement. Each
year, the Group’s Risk Function assesses the Plan and provides a
report to the Board which supports the Board in concluding on
the Group’s viability.
When reviewing the Plan, the Board considered the Group’s
prospects over the period that the Plan covered and the
conclusions of the Risk Function’s review, based on the Group’s
anticipated activities as set out in the Plan. The Board has
assessed the principal risks of the Group over the duration of the
planning cycle. All of the Group’s principal risks, as outlined on
pages 88 to 90, were reviewed as part of the Risk Function
review of the Plan, and the outlook of those risks over the period
covered by the Plan was taken into account (i.e. whether the
outlook for each risk was increasing, broadly static or decreasing
over the period of the Plan). In addition, the Risk Function’s
review defined a set of key risk themes, known as top risks,
grouped around the themes of financial resilience, operational
resilience and future strategic fit in the context of the Plan. The
Plan did not introduce any new material risks other than those
already contained within the Group’s Material Risk Register.
Whilst outcomes for the later years in the Plan are less certain,
the Plan provides a robust planning tool for strategic decisions.
The Board recognises that, in a strategic plan, uncertainty
increases over time and, therefore, future outcomes cannot be
guaranteed or accurately predicted. As the Plan is used for
planning over a timeframe of four years, to 31 December 2027,
this has been selected as the most suitable period for the Board
to review the Group’s viability.
The Group's Risk Function has carried out an assessment of the
risks to the the Plan and the dependencies for the success of the
Plan. This included running adverse scenarios on the Plan to
consider the downside risks to the Plan and subsequent impact
on forecast profit. The key scenarios applied to the Plan were in
relation to the impact of adverse claims inflation, failure to
achieve motor pricing initiative benefits, delay to delivery of
expense reductions and a fall in asset values. The key
judgements and assumptions applied in these scenarios were as
follows:
– Adverse claims inflation: the Group’s Plan includes a scenario
for inflation being higher than expected, leading to claims
costs increasing by 3% to 6% with the Group and market
response delayed by six months.
– Failure to achieve motor pricing initiative benefits: planned
benefits from future motor pricing initiatives are not achieved.
– Delay to delivering expense reductions: there is a delay of 12
months in delivering planned expense reductions.
– Fall in asset values: an increase in credit spreads of 75 basis
points, with a partial recovery of 25 basis points over 2025.
It is unlikely that all risks would materialise at the same time.
None of the scenarios individually were concluded to present a
threat to the Group’s expected viability across the duration of
the Plan.
The CFO review describes the Group’s capital management
strategy, including the capital actions taken in the last 12
months designed to ensure the continued strength of the
balance sheet, and sets out management actions that the
Group continues to pursue to improve capital strength. The
Group’s financial position is also covered in that section,
including a commentary on cash and investment levels,
reserves, currency management, insurance liability
management, liquidity and borrowings.
The Risk Function has also carried out an assessment of the risks
to the Group's capital position over 2024 and 2025. Two specific
macroeconomic combination stresses, a moderate and a severe,
have been updated to include not only a review of Group
financials but also a review of assumptions to reflect the latest
internal and external environment and trends. The stresses have
been run to assess the possible impact on own funds in the
period to 31 December 2024 and 31 December 2025. The
stresses are updated and repeated regularly. The
macroeconomic assumptions for key parameters such as
Consumer Price index, GDP and bank base rate for the
moderate scenario reflect the adverse end of the Bank of
England November Monetary Policy Committee forecast range.
The severe scenario adopts the key parameters from the 2022
Bank of England Banking Stress Test, which is described as
“severe but plausible”, updated for changes in the
macroeconomic environment.
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9393
Strategic Report / Governance / Financial statements Based on the results of these reviews, the Board has a
reasonable expectation that the Company and the Group can
continue in operation, meet liabilities as they fall due and
provide the appropriate degree of protection to those who are,
or may become, policyholders or claimants in the period to 31
December 2027.
Statement of the Directors
in respect of the Strategic report
The Board reviewed and approved the Strategic report on pages
1 to 94 on 21 March 2024.
By order of the Board
Neil Manser
Chief Financial Officer
21 March 2024
Viability statement continued
In the moderate and severe scenarios, it was concluded that the
Company's solvency capital requirement would not be
breached.
Additionally, the Risk Function conducted a reverse stress test to
establish whether the long-term future for motor insurance,
specifically, the adoption of electric vehicles, poses a threat to
the viability of the Company’s current business model. The
findings showed that over the duration of the planning cycle,
the scenarios considered did not present a risk to the viability of
the business model.
Further information in relation to the sensitivity of key factors on
the Group’s financial position are included in the CFO review.
This sets out the impact on profit before tax of an increase and a
decrease in claims inflation of 200 basis points for two
consecutive years. The market risk note in the consolidated
financial statements sets out the impact on profit before tax of a
100 basis points increase in spreads on financial investments
and the impact of a 100 basis points increase in interest rates on
financial investments and derivatives.
Transition to low carbon economy including
climate change
In 2023, while the stress and scenario tests that were initially
performed in 2021 were not revisited, the Risk Function
updated the physical risk section of the underwriting liabilities
element of the original analysis to account for portfolio and
modelling changes. As part of the updated exercise, we took
steps to improve our model to enhance our view of risk. The
updated analysis also took into account the sale of the Group’s
Brokered Commercial Insurance Business, to reflect a view of
exposure that was representative of the ongoing Group. The
tests are discussed in more detail on pages 75 and 76. In
addition, in 2023, we conducted a reverse stress test to establish
whether the long-term future for motor insurance, specifically,
the adoption of electric vehicles, poses a threat to the viability of
our current business model. This is discussed in more detail on
page 76.
The overall conclusion of these tests was that there could be
breaches in the Group’s risk appetite in the long term, however
a combination of contingent, pre-emptive and strategic
management actions could be deployed to address the risks
and allow the business to recover to above risk appetite.
Furthermore, the Group’s response to climate change underpins
its sustainability strategy, and having set out its Science-Based
Targets in 2022, the Group remains committed to reducing its
carbon footprint.
94
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Chair’s
Introduction
I believe we have entered 2024 with a
more resilient business, well-positioned
to achieve our mission of being brilliant
for customers every day.
Danuta Gray
Chair of the Board
Dear Shareholders,
On behalf of the Board, I am pleased to present the Corporate
Governance report for the year ended 31 December 2023.
This report sets out how we have applied the principles of the
UK Corporate Governance Code (the “Code”) throughout the
year. It provides information on the activity of the Board and
progress we have made in strengthening our corporate
governance practices.
Board developments and effectiveness
As I set out in my statement on page 8, 2023 has seen some
significant developments in respect of the Board. Following
a comprehensive search process for a new CEO, Adam Winslow
was identified as the preferred candidate and his appointment
was announced in August 2023. He joined the Group on
1 March 2024 and his appointment to the Board is to take
effect on 21 March 2024. Adam joins us from Aviva where
he led Aviva’s UK and Ireland general insurance business,
developing a clear strategy for both personal and commercial
lines which has delivered market share expansion and improved
profitability. More information about the Nomination and
Governance Committee’s selection process can be found
on page 125.
Jon Greenwood, who has been serving as our Acting CEO, will
smooth the transition following Adam’s appointment to the
Board by completing a handover and then returning to a senior
executive role. Again, I would like to thank Jon for all his efforts
in leading the Company over the past year.
Direct Line Group Annual Report and Accounts 2023
95
Strategic Report / Governance / Financial statements Chair’s introduction continued
Our review of the Board’s balance of experience and skills
during the year led to a search for a Non-Executive Director
with a strong general insurance background and culminated
in the appointment of David Neave in October 2023. David has
previously held chairmanships, directorships and advisory roles
in a number of insurance, InsurTech, consultancy and legal
businesses including, in his executive career, serving as Chief
Executive of General Insurance for Co-operative Insurance.
A further search was carried out during the year to identify
a Non-Executive Director whose experience would further
strengthen the Board’s expertise in general insurance and
customer service transformation, as well as contributing to the
Board’s diversity. This search resulted in the decision to appoint
Carol Hagh, who will join the Board as a Non-Executive Director
on 1 April 2024. Further information about Carol’s career and
experience can be found in my Chair’s Statement on page 10.
This year, we carried out an internal Board performance
evaluation with assistance from Promontory Financial Group,
who provided an independent perspective to help the Board
to assess its effectiveness and define an action plan. Themes
emerging from the 2023 review included Board and executive
succession planning, management skills and capabilities,
culture, communication, meetings and materials. Information
about the evaluation process and outcomes can be found
on page 114.
Diversity
Changes to the Board in 2023 caused the proportion of women
on the Board to fall below the FCA’s diversity target of 40% (see
page 101). Board diversity, including gender diversity, is a key
consideration in the Nomination and Governance Committee’s
succession planning. We have made some progress towards
addressing the Board’s gender balance by appointing a new
female Non-Executive Director and will continue to focus on
diversity as we consider Board succession planning in 2024.
Increasing the diversity of senior leadership is an ongoing
target for the Group and we have continued our work on
improving the representation of women, ethnic minority and
Black colleagues. In 2023 we invested in coaching and targeted
development programmes for our high potential women, ethnic
minority and Black talent, to support their progression into
senior roles. During the year, we set ourselves ambitious new
targets to continue to improve diversity in senior leadership.
Our internal targets are now aligned with the definitions
of senior leadership used by the FTSE Women Leaders Review
and Parker Review. We are aiming, by the end of 2027, to
increase representation at senior management level of women
to 40%, ethnic minority talent to 16% and Black talent to 4%.
The Group has been included in the Top 50 UK Inclusive
Employers List for three years running and has been placed in
the Social Mobility Index for the first time this year. We continue
to build on the strong foundations we have in place, addressing
under-representation at senior levels in the business, whilst
focusing on improving inclusion through key work programmes.
Stakeholder engagement
During a year of sustained economic pressure on all our
stakeholders, including colleagues and customers, we have
continued the vital work of listening to our stakeholders to
ensure that their priorities are considered in our decision-making
and that we hear how, as a business, we can best support them.
The tables on pages 106 and 107 set out how we have engaged
with our various stakeholders and how this engagement has
fed into Board discussion and decision-making.
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Direct Line Group Annual Report and Accounts 2023
Audit and internal control
2023 will be the Group’s first full year reporting under the new
insurance accounting standard IFRS 17 and our Audit
Committee has overseen this transition, as well as the handover
of the external audit by Deloitte to KPMG. KPMG will assume
the role as auditor for the financial year ending 31 December
2024, subject to shareholder approval at our 2024 AGM. More
information on the work of the Audit Committee can be found
on pages 117 to 121.
During the year, our Board Risk Committee has overseen a
Group-wide controls improvement programme which has
helped the Group in its aim to bring our oversight, monitoring
and control environment into line with industry best practice
and to enhance the resilience of our control framework. In
addition, the Audit Committee has overseen a Control and
Oversight Remediation Programme within Finance, the aim of
which is to enhance the financial reporting control
environment across the Group. More information on this work
can be found on pages 122 to 124.
Remuneration
The Group’s remuneration policy was last approved by
shareholders at the 2023 AGM. During the year, the
Remuneration Committee implemented changes to
performance measures in respect of the LTIP and AIP in line
with investors’ preference for emphasis to be placed on cost
management. See page 132 for more information.
In terms of remuneration outcomes for the year, whilst the
Group has made good progress in restoring its capital
resilience, and although there has been positive progress
against some of the strategic metrics, particularly in relation to
the People measure, in terms of remuneration outcomes for
the year, the Committee concluded it appropriate to recognise
the actions the management team has taken during the year,
particularly the good progress made by taking decisive action
to restore our capital resilience, improve performance in Motor
insurance and maintain the performance of our non-Motor
businesses, as well as robust performance in the people
element of the AIP. The Committee concluded that an
outcome of 15% of maximum AIP opportunity is appropriate in
this context.
AGM
Our 2024 AGM will be held on 8 May 2023 at 10.30 a.m. Full
details, including the resolutions to be proposed to our
shareholders, can be found in the Notice of AGM, which will be
made available on our corporate website. The outcome of the
resolutions put to the AGM, including poll results detailing votes
for, against and withheld, will be published on the London
Stock Exchange’s and the Company’s websites once the AGM
has concluded.
Yours sincerely,
Danuta Gray
Chair of the Board
Board of Directors
Danuta Gray
Chair of the Board
Jon Greenwood
Outgoing acting CEO and
Chief Commercial Officer
Neil Manser
Chief Financial Officer
Committees
– Nomination and Governance
Committee (Chair)
– Remuneration Committee
Appointed
– Independent Non-Executive Director
in February 2017
– Chair of the Board since August 2020
Key Skills and Experience:
Committees
– None
Appointed
– Acting CEO in January 2023
and member of the Board
since August 2023
Key Skills and Experience
– Deep knowledge of the insurance
sector and Commercial function.
Committees
– Investment Committee
Appointed
– May 2021
Key Skills and Experience
– Responsibility for overall direction on
all financial matters and oversight of
investment management and treasury
function.
– Extensive experience leading and
transforming large, consumer focused
businesses.
– Strong leadership skills with a focus on
– Extensive corporate finance and
capital resilience and own brands
performance.
capital markets knowledge.
– Deep understanding of the operation
– Positive mindset with proven track
record in efficiency delivery.
of strategy and culture in the
insurance industry.
Jon joined the Group in 2000 as Product
and Pricing Director for UK Partnerships
and has over 30 years’ experience in the
insurance industry.
In 2022, he was appointed the Group’s
first Chief Commercial Officer and as
acting CEO, he has played a key strategic
role in driving the sale of NIG and the
brokered commercial business in 2023.
Before joining the Group, Jon held roles
at HBOS, MBNA and Pinnacle.
External Appointments
– None.
Neil has held several roles in Finance and
Strategy since joining the Group in 2011,
including Director of Investor Relations,
Managing Director of NIG and Chief
Strategy Officer. He was instrumental
in the Group’s successful IPO in 2012.
He brings extensive industry and capital
markets experience to the Board. Prior to
joining the Group, Neil held roles at Brit
Insurance, Merrill Lynch and Fox-Pitt,
Kelton. He is an Associate of the Institute
of Chartered Accountants in England
and Wales.
External Appointments
– None.
– Deep understanding of governance
and remuneration requirements
affecting listed companies gained
from previous Chair roles.
– Expertise in sales, marketing, and
technology.
Danuta was Chair of Telefónica in
Ireland until 2012. She was Chief
Executive between 2001 and 2010, during
which time Telefónica’s customer base
increased to 1.7 million from just under
1 million. Between 1984 and 2001, Danuta
held a variety of senior positions within
the BT Group. Elsewhere, Danuta has
acted as Senior Independent Director of
the Aldermore Group; Non-Executive
Chair of St Modwen Properties; Non-
Executive member of the Ministry of
Defence Board, NED and Chair of the
Remuneration Committee at both Page
Group plc and Old Mutual plc; and was
Non-Executive Chair of the Board of
Perth Topco Limited and North Tech.
External Appointments
– Non-Executive Director, Chair of the
Remuneration Committee and
member of the Nomination
Committee of Burberry Group plc.
– Non-Executive Director and Chair-
elect of Croda International plc.
– Trustee Director of The Resolution
Foundation.
Direct Line Group Annual Report and Accounts 2023
97
Strategic Report / Governance / Financial statements
Board of directors continued
Tracy Corrigan
Independent
Non-Executive Director
Mark Gregory
Independent
Non-Executive Director
Adrian Joseph OBE
Independent
Non-Executive Director
Committees
Committees
Committees
– Customer and Sustainability
Committee (Chair)
– Nomination and Governance
Committee
– Remuneration Committee
Appointed
– November 2021
Key Skills and Experience
– Track record of driving digital growth.
– Experience in digital transformation
with a focus on data, culture and
customer.
– Expertise in ESG issues and
communications with multiple
stakeholders.
Tracy’s professional background spans
financial journalism, digital media and
corporate strategy in the media industry.
Most recently Tracy was Dow Jones’
Chief Strategy Officer where she was
responsible for global strategy, customer
insight and commercial policy, and had
oversight of the digital transformation of
the business. Earlier in her career, Tracy
was Editor-in-Chief of The Wall Street
Journal Europe and Digital Editor of
The Wall Street Journal. She also held
various positions, including Editor of FT.
com and Editor of the Lex Column,
at the Financial Times.
– Board Risk Committee (Chair)
– Audit Committee
– Investment Committee
– Nomination and Governance
Committee
– Remuneration Committee
Appointed
– March 2018
– Customer and Sustainability
Committee
– Nomination and Governance
Committee
Appointed
– January 2021
Key Skills and Experience
– Leading expertise in digital, data
Key Skills and Experience:
science and analytics.
– Extensive experience in both general
and life insurance.
– Deep understanding of capital
markets.
– Strategically orientated with a detailed
understanding of the retail sector.
Mark was CEO of Merian Global Investors
from January 2019 to August 2020. He
previously held the role of Group CFO
and Executive Director at Legal &
General until 2017. Mark acted in a variety
of senior roles in his 19-year career at
Legal & General, including CEO of the
Savings business, Managing Director of
the With-Profits business, and Resources
and International Director. Earlier in his
career, Mark held senior financial and
business development roles at ASDA and
Kingfisher. Mark is an Associate of the
Institute of Chartered Accountants in
England & Wales.
– Track record of using data and AI to
drive business transformation.
– Recognised Diversity and Inclusion
leader and a passionate advocate on
this topic.
Adrian is the former Managing Director,
Group Data and Artificial Intelligence at
BT Group and a former member of HM
Government’s AI Council. He has
significant industry and consultancy
experience and has held senior roles at
EY and Google. Between 2016 and 2020,
Adrian was a NED at the Home Office
where he sat on the Data Board advising
on data science, digital transformation,
and diversity and inclusion. A former
Chair of the Race Equality Board, Adrian
was appointed to the main Board of
Business in the Community in 2014 and
continues to act as an adviser to them. In
2018, he was announced as the most
influential Black, Asian and minority
ethnic technology leader in the UK by
the Financial Times and Inclusive Boards.
Adrian has been awarded an OBE for
services to equality and diversity in
business.
External Appointments
– None.
External Appointments
External Appointments
– Non-Executive Director and member
of the Audit and Risk Committees
of Phoenix Group Holdings plc.
– Non-Executive Director and member
of the Remuneration Committee of
Barclays Bank UK plc.
– Chair of the Sustainability Committee
and Non-Executive Director and
member of the Audit and Nomination
Committees of Domino’s Pizza
Group plc.
– Non-Executive Director and member
of the Nominations Committee of
The Scott Trust and Chair of The Scott
Trust Endowment Limited.
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Direct Line Group Annual Report and Accounts 2023
Key for Committee membership
Audit Committee
Investment Committee
Remuneration Committee
Committee chair
Board Risk Committee
Nomination and
Governance Committee
Customer and Sustainability
Committee
Mark Lewis
Independent Non-
Executive Director
Fiona McBain
Independent
Non-Executive Director
David Neave
Independent
Non-Executive Director
Committees
Committees
Committees
– Customer and Sustainability
Committee
– Nomination and Governance
Committee
– Remuneration Committee
Appointed
– March 2023
– Investment Committee (Chair)
– Audit Committee
– Board Risk Committee
– Nomination and Governance
Committee
Appointed
– September 2018
Key Skills and Experience
Key Skills and Experience
– Strong track record of delivering digital
transformation and growth.
– Highly experienced in customer-
focused and regulated business
environments with a focus on strategy
and innovation.
– Expertise in price comparison
websites.
Mark’s career has spanned financial
services, retail, e-commerce,
management consultancy and
advertising. Most recently, he was Chief
Executive of the MoneySupermarket
Group, overseeing a period of revenue
and profit growth for the UK listed price
comparison business. Mark’s previous
roles include the Retail and Online
Director for John Lewis and the
Managing Director of eBay UK.
External Appointments
– Non-Executive Director and member
of the Audit, Remuneration, Risk and
Responsible Banking Committees of
Santander UK plc.
– Non-Executive Director of Hammer
PW Topco Limited.
– Deep understanding of the
development of corporate
and digital strategy.
– International experience with
broad perspective of business
and capital markets.
– Expertise in digital transformation,
customer analytics and stakeholder
communications.
Fiona’s experience in retail financial
services, both in the industry and as an
auditor, was gained in the UK and the
USA. Fiona qualified as an accountant
early in her career at Arthur Young
(now EY). Until January 2019, she was
Vice-Chair of Save the Children UK and
a Trustee Director of the Humanitarian
Leadership Academy. Previously, Fiona
served as CEO of Scottish Friendly Group
for 11 years, before which she was Scottish
Friendly Group’s Finance Director.
Between February 2009 and June 2023
she served as Chair and Non-Executive
Director of the Scottish Mortgage
Investment Trust plc. Fiona is a Fellow
of the Institute of Chartered Accountants
in England & Wales.
External Appointments
– Chair of the Audit Committee and
Non-Executive Director of Currys plc.
– Senior Independent Director, Chair of
the Audit Committee and Non-
Executive Director of Monzo Bank
Limited.
– Audit Committee
– Board Risk Committee
– Nomination and Governance
Committee
Appointed
– October 2023
Key Skills and Experience
– Deep understanding of general and
life insurance markets.
– Extensive experience in senior
management and non-executive roles.
– Proven record of delivering general
insurance business modernisation.
David is a Chartered Insurer and former
Chief Executive of General Insurance for
Co-operative Insurance. Following his
executive career, spanning over twenty
years in senior management roles in
general insurance, David has held
chairmanships, non-executive
directorships and advisory roles in a
number of insurance, InsurTech,
consultancy and legal businesses,
including Slater and Gordon UK Limited,
The Solicitors Indemnity Fund, Liverpool
Victoria Friendly Society, LV General
Insurance Limited and Accenture UK
Limited.
External Appointments
– Chair of the Advisory Board of the
Common Automotive Platform
Standard.
Direct Line Group Annual Report and Accounts 2023
99
Strategic Report / Governance / Financial statements
Board of directors continued
Key for Committee membership
Audit Committee
Investment Committee
Remuneration Committee
Committee chair
Board Risk Committee
Nomination and
Governance Committee
Customer and Sustainability
Committee
Gregor Stewart
Independent
Non-Executive Director
Dr. Richard Ward
Senior Independent
Director
Committees
Committees
– Audit Committee (Chair)
– Board Risk Committee
– Nomination and Governance
– Remuneration Committee (Chair)
– Board Risk Committee
– Nomination and Governance
Committee
Appointed
– March 2018
Committee
Appointed
– January 2016
Key Skills and Experience
Key Skills and Experience
– Strong audit background having
worked as a partner in Ernst & Young’s
Financial Services practice.
– Highly experienced financial services
professional with expertise in dealing
with complex stakeholder groups.
– Extensive experience in the insurance
– Extensive knowledge of the insurance
and investment management
industry.
industry with deep insight into
prudential regulation.
– Deep knowledge and understanding
of financial services regulation and
practice.
– Background of delivering business
transformation and change in
challenging circumstances.
Gregor worked at Ernst & Young for 23
years, 10 of which were as partner in the
financial services practice. Between 2009
and 2012, he was Finance Director for the
insurance division of Lloyd’s Banking
Group plc which included Scottish
Widows. Gregor previously served as
Chair and Non-Executive Director of
Alliance Trust plc and FNZ (UK) Limited.
Gregor is a Member of the Institute of
Chartered Accountants of Scotland.
External Appointments
– Deputy Chair, Chair of the Risk
Committee and Non-Executive
Director of FNZ Group.
Richard was previously Executive Chair
of Ardonagh Specialty, Chief Executive
of Lloyd’s of London, and CEO of the
International Petroleum Exchange. He
also held the roles of Non-Executive
Chair at Brit Syndicates Limited and
Executive Chair of Cunningham Lindsey.
Richard also held NED roles at the
Partnership Assurance Group plc and
the London Clearing House. Earlier in his
career he held a range of senior positions
at British Petroleum and was a research
scientist for the Science and Engineering
Council. Richard has also been a
member of the PwC Advisory Board, the
PRA Practitioner Panel and the Geneva
Association.
External Appointments
– Non-Executive Chair of CFC
Group Limited.
– Non-Executive Chair of Mrald Limited.
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Direct Line Group Annual Report and Accounts 2023
Board independence1
8% Chair (1)
17% Executive Directors (2)
75% Independent Non-Executive Directors (9)
Board gender2
Chair and NED tenure
25% Women (3)
75% Men (9)
44.5% 0-3 Years (4)
44.5% 4-6 Years (4)
11% 7-9 Years (1)
Gender diversity of our Executive Committee3
Gender diversity of Senior Management4
43% Women (3)
57% Men (4)
31.3% Women (15)
68.7% Men (33)
Notes:
1. As at 31 December 2023. Following Sebastian James’ retirement from the Board, Board independence is 9% Chair (1), 18% Executive
Directors (2) and 73% Independent Non-Executive Directors (8).
2. As at 31 December 2023. Following Sebastian James’ retirement from the Board, the Board gender is split 38% Women (3) and 72% Men (8).
3. As at 31 December 2023.
4. Senior Management in this context is defined as the Executive Committee, Company Secretary and direct reports (where direct reports are
members of the Group’s Enterprise Leadership Network) as at 31 December 2023.
Direct Line Group Annual Report and Accounts 2023
101
Strategic Report / Governance / Financial statements Corporate Governance continued
Corporate Governance
This report explains the Board’s
role and activities, and how
corporate governance operates
throughout the Group.
Corporate Governance Statement
This Corporate Governance Statement explains key features of
Direct Line Insurance Group plc’s (the “Company”) governance
structure and how it measures itself against the standards set
out in the UK Corporate Governance Code 2018 (the “Code”).
The Code, set by the Financial Reporting Council (the “FRC”),
applied to the financial year ended 31 December 2023.
For more information about the Code, visit the FRC’s website
at www.frc.org.uk. This Corporate Governance Statement
fulfils the requirements of the FCA’s Disclosure Guidance and
Transparency Rule 7.2 (“DTR 7.2”). For full details refer to the
Directors’ report on pages 157 to 160.
The Company complied with the principles and
provisions of the Code throughout the financial year
and up to the date of this Annual Report and Accounts.
Board leadership and
company purpose
– The role of the Board
– The role of the Board in the Company’s
culture
– Board activity and meeting attendance
– Consideration of section 172(1) factors
– How the Board engages with stakeholders
Division of responsibilities
– Governance framework and structure
– Structure of the Board, Board Committees
and executive management
– Roles and responsibilities of the Board
Composition, succession
and evaluation
– Board composition
– Induction, training and support
– Board’s approach to diversity, inclusion
and succession planning
– Board and Committee effectiveness review
Audit, risk and internal control
– Preparation of the Annual Report
and Accounts
– Assessing emerging and principal risks
– Risk management and internal
control systems
– Audit Committee report
– Board Risk Committee report
Remuneration
– Directors’ Remuneration report
Pages
102
110
112
115
131
Board leadership and company purpose
The role of the Board
The Board seeks to promote the long-term sustainable
success of the Company for the benefit of its shareholders
and stakeholders, establishes the Company’s purpose, values,
culture, and strategy, while contributing to wider society.
The Board aims to create shared vision for the organisation
and role-models the values and standards that are expected
from all of our people. The Board and its Committees are
comprised of individuals with an appropriate mix of skills,
industry experience and knowledge.
This is supported by a formal Schedule of Matters Reserved
for the Board, which contains items that are reserved for the
Board’s consideration and approval. These matters relate to
strategy and management, material contracts, financial
reporting and controls, internal controls and risk management,
Board membership and succession planning, corporate
governance, structure and capital, and delegation of authority.
The matters reserved for the Board are kept under review to
ensure they remain appropriate. Throughout 2023, the Board
acted in accordance with the Schedule of Matters Reserved
for the Board.
The Board discharges some of its responsibilities through
its Committees, each of which expands the work of the
Boardand enables deeper focus on particular areas. Each
Board Committee has written Terms of Reference defining its
roleand responsibilities. The Terms of Reference of the Board
Committees can be found on our corporate website.
Further details regarding the role, responsibilities and activities
of the Board and its Committees can be found below and in
the Directors’ Remuneration report which begins on page 131.
Whilst some of the key areas of the Board’s responsibility are
summarised in the following paragraphs, these are not
intended to be an exhaustive list.
Leadership
The Board provides leadership within a framework of
prudent and effective controls. The Board has clear divisions
of responsibility and seeks the long-term sustainable success
of the Group. Information on how opportunities and risks
to the future success of the business have been considered
and addressed, and about the sustainability of the Company’s
business model, is set out in the Strategic report which
begins on page 22.
Operations
The Board oversees the implementation of a robust control
framework to allow effective management of risk. The Board
supervises the Group’s operations, with a view to ensuring they
are effectively managed, that effective controls are in place,
and that risks are assessed and managed appropriately.
Financial performance
The Board sets the financial plans, annual budgets and key
performance indicators and monitors the Group’s results
against them.
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Direct Line Group Annual Report and Accounts 2023
Strategy
Cultural messaging
The Board oversees the development of the Group’s strategy,
the sustainability of the business model and considers how
the Group’s governance supports the delivery of strategy.
The Board monitors management’s performance and progress
against the Group’s strategic aims and objectives.
Further details of how the Company applied the Code’s
principles and complied with its provisions can be found
in the following sections of the Annual Report and Accounts:
The role of the Board in the
Company’s culture
Our Mission:
To be brilliant for customers every day.
Our Vision:
To create a world where insurance is personal, inclusive
and a force for good.
Our Purpose:
To help people carry on with their lives, giving them
peace now and in the future.
Our culture informs the way we work, the way we interact
with stakeholders and how we provide value for our customers
and underpins our mission, vision and purpose.
The Board recognises that evolving and enhancing the Group’s
culture is critical to its future success in a rapidly changing
world. Therefore during 2023, the Board oversaw a dedicated
programme to review the Group’s culture and bring together
various activities in the Group aimed at instilling a customer
focused, high performance and risk-positive culture.
The ‘Tone from the Top’
The Board and the Executive Committee participated in a
series of interviews which helped identify the positive elements
of the Group’s culture they felt should be protected, as well as
areas that could be dialled up.
Following this, the Group established a Culture Steering
Committee, to meet on a quarterly basis to co-ordinate and
lead activity on culture. The Steering Committee is made up of
key individuals from across the business who influence culture,
including the Chief People Officer and representatives from
Business Change, Human Resources, the Conduct Centre
of Excellence, Trading, Customer Sales and Service, Corporate
Communications, Risk and Compliance.
The Group has reviewed and enhanced the way it
communicates on culture internally with a view to ensuring
the tone from the top is cascaded clearly and effectively by
using consistent messaging.
Monitoring culture
A dashboard has been developed to help the Board monitor
culture that includes key metrics in respect of: Customer
(for example; NPS and complaints); People (e.g. performance
management; grievances; diversity; hiring trends; and
engagement); and Risk (e.g. colleague compliance training
completion levels; completion of internal audit actions; and
speaking up and whistleblowing reports. The dashboard will
be regularly reviewed by the Board.
The Future
Looking ahead in to 2024, we aim to continue evolving our
culture by focusing on:
– Performance
The Group aims to improve individual and team performance
through embedding the high-performance framework.
People managers will be upskilled in the key behavioural
traits and capabilities of giving and receiving feedback,
coaching others, aligned to themes of positive risk
management and consumer outcomes.
– Leadership
We will drive improved leadership capability and evidence
this through leadership assessments, performance
assessments, and the strength of succession planning.
– Customer
The Group will continue to embed Consumer Duty
requirements throughout the organisation.
– Governance and Risk
Improved governance across the organisation will be
intended to lead to quick and clear decision-making, allowing
us to resolve issues at pace when they are identified. Our Risk
maturity will be improved and measured by the Risk and
Controls Self-Assessment (“RCSA”). More information on the
RCSA can be found on page 122 and 123.
Direct Line Group Annual Report and Accounts 2023
103
Strategic Report / Governance / Financial statements Corporate Governance continued
Board meetings and activity in 2023
Scheduled Board meetings focused on four main themes, as detailed below:
Themes
Description
Strategy and execution
• Approving and overseeing the Group’s key strategic targets and monitoring the Group’s
Strategic alignment
performance against those targets;
• reviewing customer experience and trends and monitoring the Group’s performance
against external brand metrics;
• reviewing and approving key projects aimed at developing the business or rationalising
a b c
a b c
d e f
d e f
a b c
a b c
d e f
d e f
Financial performance and
investor relations
a b c
d e f
Strategic alignment
a b c
a b c
d e f
a b c
d e f
d e f
Risk management,
regulatory and other
related governance
Strategic alignment
a b c
a b c
d e f
d e f
a b c
d e f
a b c
d e f
Board and Board
Committee governance
Strategic alignment
a b c
a b c
d e f
d e f
costs;
• considering growth opportunities; and
• reviewing the individual strategy of key business lines.
• Setting financial plans, annual budgets and key performance indicators, and monitoring
• the Group’s results against them;
• considering the Group’s reserving position, approving the Solvency II narrative reports
• and approving financial results for publication;
• approving reinsurance programmes and renewals;
• reviewing broker reports on the Group, alongside feedback from investor meetings; and
• considering the appropriateness or otherwise of possible surplus capital distributions.
• Reviewing and agreeing the Group’s policies;
• setting risk appetite;
• approving the Own Risk and Solvency Assessment (“ORSA”);
• seeking to ensure that the Group complies with its regulatory obligations;
• reviewing the Group’s solvency position and forecast;
• overseeing the Control and Oversight Remediation Programme;
• reviewing the Group’s ESG initiatives;
• reviewing and approving the Group’s Task Force on Climate-related Financial Disclosures
(“TCFD”); and
• reviewing and approving the Group’s Consumer Duty implementation programme.
• Receiving reports from the Board’s Committees;
• updating the Schedule of Matters Reserved for the Board;
• updating terms of reference for the Board’s Committees;
• receiving corporate governance updates;
• overseeing Board and executive succession planning;
• conducting the annual review of the Board and Board Committees’ performance and
• conducting an annual review of the Group’s governance framework.
In addition to its scheduled Board meetings, the Board
held a number of ad hoc meetings to deal with urgent
or arising matters.
In June 2023, the Board held a strategy day to set and monitor
progress against the Group’s strategy and to discuss the
Group’s future opportunities.
Link to core strengths and capabilities driving our strategy
Innovating for success
Customer focus
Claims expertise
a b c
a b c
d e f
d e f
Pricing sophistication
Efficient cost base
a b c
a b c
d e f
d e f
Board and Committee meeting attendance
The Board and its Committees held a number of scheduled meetings in 2023, which senior executives, external advisers and
independent advisers were invited to attend and to present on business developments and governance matters. The Company
Secretary attended all Board meetings and he, or his nominated deputy, attended all Board Committee meetings.
d e f
a b c
The table overleaf sets out attendance at the scheduled meetings in 2023. Attendance is expressed as the number of scheduled
meetings attended out of the number of such meetings possible or applicable for the Director to attend. In circumstances where
a Director is unable to attend a meeting, the Director receives papers in advance and has the opportunity to raise issues and give
comments to the Chair in advance of the meeting.
Additional Board and Committee meetings were convened during the year to discuss current issues, ad hoc business
development, governance and regulatory matters.
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Direct Line Group Annual Report and Accounts 2023
Board
Audit
Committee
Board Risk
Committee
Customer
and
Sustainability
Committee
Investment
Committee
Nomination and
Governance
Committee
Remuneration
Committee
Chair
Danuta Gray
9 of 9
Senior Independent Director
Richard Ward
9 of 9
Non-Executive Directors
Tracy Corrigan
9 of 9
–
–
–
–
5 of 5
–
–
–
4 of 4
–
–
–
Mark Gregory
9 of 9
7 of 7
5 of 5
–
4 of 4
Sebastian James
Adrian Joseph OBE1
Mark Lewis2
9 of 9
8 of 9
7 of 7
–
–
–
–
–
–
4 of 4
2 of 4
3 of 3
Fiona McBain
9 of 9
7 of 7
5 of 5
David Neave3
2 of 2
–
–
Gregor Stewart
9 of 9
7 of 7
5 of 5
Executive Directors
Jon Greenwood4
Neil Manser
3 of 3
9 of 9
Former Executive Directors
Penny James5
2 of 2
–
–
Notes:
–
–
–
–
–
–
–
–
–
–
4 of 4
–
–
4 of 4
–
3 of 3
4 of 4
3 of 3
4 of 4
–
–
3 of 3
–
–
–
–
–
–
–
4 of 4
4 of 4
4 of 4
–
2 of 2
–
–
–
–
–
1. Adrian Joseph was unable to attend meetings due to conflicting commitments.
2. Mark Lewis was appointed to the Board, the Remuneration Committee and the Customer and Sustainability Committee on 30 March 2023.
3. David Neave was appointed to the Board on 19 October 2023.
4. Jon Greenwood was appointed to the Board on 31 August 2023
5. Penny James resigned as CEO on 27 January 2023.
Consideration of section 172(1) factors by the Board
The Group’s section 172(1) statement can be found in the Strategic report on page 17.
The table below sets out how factors under section 172(1) of the Companies Act 2006 and engagement with stakeholders have
fed into Board discussion and decision making on key topics. More information about Board engagement with stakeholders can
be found in the table on page 106 and 107.
Section 172(1)
The Directors must act in a way they consider, in good faith, would be most likely to promote the success of the Company
for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:
a
the likely consequences of any decision in the long term;
a b
the interests of the company’s employees;
c
d
the need to foster the company’s business relationships with suppliers, customers and others;
the impact of the company’s operations on the community and the environment;
d e
the desirability of the company maintaining a reputation for high standards of business conduct; and
f
the need to act fairly between members of the company.
Direct Line Group Annual Report and Accounts 2023
105
Strategic Report / Governance / Financial statements Corporate Governance continued
Topic
Section 172(1) considerations
Outcomes
a
c
a
a
c
d e
c
a b
a b
a
c
a
Return of capital
to shareholders
The Board
considered the
distribution of
surplus capital to
shareholders
during the year.
Consumer Duty
implementation
The Board
considered the
implementation
of the FCA’s new
Consumer Duty
rules, which
came into effect
in July 2023.
Cost of living
crisis
The Board
considered how
to respond to the
continuing strain
on real
disposable
incomes.
Sale of brokered
commercial
insurance
business
The Board
considered the
future of the
brokered
commercial
insurance
business.
Considered the Group’s capital
position, taking into
consideration regulatory and
policy holder requirements and
the long-term investment needs
of the business.
Considered 2023 results and
trading performance in Motor.
Considered the macro-economic
environment.
Considered how the Group could
embrace and embed Consumer
Duty requirements to ensure
good outcomes and fair value
for customers.
Considered how suppliers could
support implementation where
they may have a material impact
on customer outcomes.
Considered the resources
needed to ensure successful
implementation and to ensure
that customers are prioritised
appropriately.
Considered feedback received
via the ERB about how the cost
of living crisis was affecting
colleagues, the benefits of
financial wellbeing, and what
could be done to support
our people.
Considered how to adapt the
Group’s motor products to
provide customers with the
choice of a stripped-back
insurance policy.
Considered future strategy of the
Company and ambition to focus
on retail personal and direct
small business commercial lines
insurance customers.
Considered the need to restore
the resilience of the Group’s
capital position and to drive the
long-term value potential for
both customers and shareholders.
Considered the interests of
commercial customers and
of colleagues who would be
transferred as a result of a sale and
the buyer’s reputation in respect
of customers and as an employer.
In January 2023, the Board took the decision not to
recommend a final dividend for 2022. In September 2023 the
Group announced that no interim dividend was proposed for
the half year 2023.
The Board set two conditions under which dividends would
be restarted – the first being a return to capital coverage at
the upper end of the agreed range and secondly a return to
organic capital generation in Motor. The Board took the view
that these conditions had been met and recommended a
final dividend for 2023 of 4.0 pence per share. For more
information on the Board’s recommendation of a final
dividend, please see the Chair’s statement on page 8.
The Board oversaw the implementation of its Consumer
Duty framework ahead of the 31 July 2023 implementation
date. Progress against the approved Consumer Duty
implementation plan was closely monitored.
Pre-implementation, the Group engaged with a wide range
of suppliers to set expectations on consumer duty. In cases
where suppliers could materially affect customer outcomes,
the Group engaged with them on the required changes to
customer journeys. Suppliers were also issued questionnaires
on their approach to consumer duty.
Resource risk was monitored throughout the
implementation period and was mitigated through the
addition of key supporting resources and subject matter
expertise in various workstreams.
There is continued oversight of the embedding of Consumer
Duty across the Group, the implementation of a customer
conduct culture framework and the transition of Consumer
Duty into business as usual activity while ensuring that the
Group is resourced to an appropriate level to prioritise the
right customers at the right time.
During the year, we introduced initiatives focused on
supporting colleagues’ financial well-being, including a free
mortgage advisory service, a platform which enables debt to
be re-paid through salary and providing access to shopping
discounts. See page 133 for more information on these
measures.
Following the success of the Churchill Essentials product, we
launched the Direct Line Essentials product (see page 52 for
more information.)
The sale of the brokered commercial insurance business to RSA
was agreed. Its specialist trading model operated in a different
part of the UK insurance market to that of the rest of the Group
and this, combined with the operational turnaround of the
brokered commercial insurance business, meant that the
Board considered it to be the right strategic decision to
facilitate a sale and crystallise the value that had been created.
The sale increased the Group’s solvency by approximately
45 percentage points.
A key consideration in the transaction was to maintain service
delivery for brokered commercial insurance customers. It was
considered that the sale to RSA would allow continued support
and service delivery to brokered commercial insurance
customers, due to their position as a multinational general
insurer providing a range of personal, commercial and specialty
insurance solutions through a wide network of brokers, third
party partners and directly to customers.
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Direct Line Group Annual Report and Accounts 2023
How the Board engages with stakeholders
The table below sets out how the Board has engaged with various stakeholders or received information about engagement
with stakeholders throughout the year.
Our Shareholders
The Investor Relations team runs a comprehensive programme of engagement covering a broad range of the Company’s
shareholders and debt investors, which includes meetings with the Chair and Executive Directors, presentations and conference
calls to discuss performance and strategy.
The Remuneration Committee Chair engages with shareholders on remuneration-related matters (see page 132 of the Directors’
Remuneration report for more information).
The AGM provides both institutional and retail shareholders with the opportunity to ask the Board questions either live
or by submitting questions in advance.
Our People
Executive Directors host interactive sessions with colleagues throughout the year to receive feedback and answer questions.
These sessions are held in various formats, e.g. town halls and live Q&A sessions, in order to encourage maximum participation
from colleagues, allowing them to have a more informal discussion with senior managers.
During the year, Non-Executive Directors visited the Group’s operations in Birmingham, Bristol, Glasgow, Doncaster, Leeds,
Manchester and Bristol. All of the visits included informal Q&A sessions with colleagues.
In addition, the Chair of the Board delivered keynote talks at the Chief Risk Officer’s ‘The Future of Risk and Compliance
Conference’, and at an afternoon session of the Group’s ‘Young Professionals Conference’.
We have several methods by which the Board engages with our people as stakeholders. The employee voice from each of the
below forums is fed back to the Board on a regular basis:
Employee Representative Body (“ERB”)
The ERB meets on a quarterly basis and comprises colleagues from across the business areas and locations. Meetings are generally
attended by the Group’s leadership, including the Acting CEO and one or two Non-Executive Directors, to discuss issues and
proposals which have (or may have) an impact on our people. Attendance and information on the work of the ERB during the year
can be found on page 108 and 109.
Motability
In September 2023, the Group welcomed 585 Motability colleagues to the business. People in this area are represented by the
union Unite. The business leads meet fortnightly with representatives of Unite to discuss transitional activity and other issues.
The Group is intent on building and maintaining a positive relationship with Unite based on transparency and trust throughout
the duration of the Motability partnership.
DiaLoGue
The Board receives regular updates on people matters from the Chief People Officer and reviews the results and key outcomes of
the Group’s colleague engagement survey, ‘DiaLoGue’, through which all colleagues are surveyed three times a year.
Findings provide both a snapshot and trends not only of all-colleague opinion but also findings for specific teams, allowing
solutions to be tailored to specific needs. Response to these surveys has consistently been high (over 80%).
Diversity Network Alliance (“DNA”)
There are seven employee networks, each of which are key drivers of diversity and inclusion across the business. They focus on the
following areas: Belief, Life (families and carers), LGBTQ+, Neurodiversity & Disability, REACH (Race, Ethnicity and Cultural Heritage),
Social Mobility and Thrive (gender). During the year, the Chair of the Board gave an interview on the “Social Mobility Podcast by Making
the Leap” hosted by Tunde Banjoko OBE, CEO of Making the Leap, which was facilitated through the Group’s Social Mobility Strand.
Direct Line Group Annual Report and Accounts 2023
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Strategic Report / Governance / Financial statements Corporate Governance continued
Our Customers
The Board closely monitors customer conduct and satisfaction. It considers a Customer Outcomes report at each of its scheduled
meetings, which includes data in respect of a number of customer experience metrics including Net Promoter Scores and
customer complaints data relating to sales, service and claims. It also reviews data in respect of digital service interactions.
During the year, the Board received detailed updates on the impact of various key strategic matters on customers, including the
implementation of the new Consumer Duty Regulation. Tracy Corrigan, Non-Executive Director, is the Consumer Duty Champion
and acts as the voice of the customer in the boardroom.
The Group has invested in market-leading research capabilities, including an advanced customer engagement suite in our
corporate headquarters at Riverbank House. During the year, the Board and members of the Executive Committee met one
of our visually impaired customers to test the online journey to purchase a policy. This highlighted the challenges faced by visually
impaired customers and the ways they could be supported by simplifying online journeys and, in turn, how these journeys can
be simplified for all of our customers.
The Board seeks to utilise a breadth of methods through which to engage with customers: through complaints procedures,
customer facing teams, Q&A sessions and via ERB feedback from frontline teams.
Our Suppliers
The Board receives regular updates from management on key issues with suppliers. During the year, the Acting CEO met with
a number of key technology suppliers, partners and external consultants.
The Board reviewed and approved the Group’s Ethical Code for Suppliers and Modern Slavery Statement. The Code states that the
Company encourages and welcomes feedback from suppliers on the Group as a customer and on how policies and procedures
can be improved. This feedback can be given as part of regular review meetings with management.
The Group is a long-standing signatory of the Prompt Payment Code. Key performance indicators in respect of prompt payment
are reported internally, and there are mechanisms in place for any significant issues regarding prompt payment to be escalated
to the Board.
Our Planet and Our Society
The Customer and Sustainability Committee is a key vehicle through which the Board receives updates on engagement with key
community and environmental stakeholders. More information on the work of the Customer and Sustainability Committee can be
found on pages 127 and 128.
Colleague Engagement
The Group has an established Employee Representative Body, meetings of which are attended by elected representatives from
the different areas of the business and by the Acting CEO, the Chief People Officer and members of the senior leadership team,
to discuss issues and proposals which have, or may have, an impact on colleagues. Non-Executive Directors also attended meetings
on a rotational basis (during the year, four different Non-Executive Directors attended ERB meetings). Output from the meetings
attended by Directors is reported to the full Board so they can consider relevant colleague views in their decision making.
The Board considers that this arrangement fulfils the recommendation under Provision 5 of the Code to provide a mechanism for
engaging with the workforce, being an enhanced version of the “formal workforce advisory panel” method referred to in Provision
5. The Board considers this arrangement to be highly effective as it provides a formal framework through which a wide variety
of views can be represented and provides colleagues the opportunity to express these views directly to both Executive and
Non-Executive Directors. It also means Director attendance can be tailored so that colleagues can engage with the most
appropriate Board member on a particular topic. For example, during the year, the Chair of the Remuneration Committee
attended the meeting at which workforce pay was discussed, and the Chair of the Board attended the meeting at which effect
of the Consumer Duty regulations were discussed.
Information about Board representation at ERB meetings can be found in the table below.
Meeting
March
June
September
December
Board Representation
Jon Greenwood
(Acting CEO)
Vicky Wallis
(Chief People Officer)
Tracy Corrigan
(Non-Executive Director)
Jon Greenwood
(Acting CEO)
Danuta Gray
(Chair of the Board)
Vicky Wallis
(Chief People Officer)
Neil Manser (CFO)
Mark Lewis
(Non-Executive
Director)
Vicky Wallis
(Chief People Officer)
Jon Greenwood
(Acting CEO)
Dr. Richard Ward
(Non-Executive
Director)
Vicky Wallis
(Chief People Officer)
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Direct Line Group Annual Report and Accounts 2023
Examples of engagement with the ERB having resulted in business action include:
Issue Discussed
Outcomes
Developing a
high-performing
culture
Our Values
We discussed the new high-
performing culture with the ERB.
This was an iterative process
of feedback and update during
which the ERB challenged
the business on new
performance objectives.
The ERB was consulted
on a refreshed set of values:
Win Together, Be Yourself,
Speak Up and Own It.
(More information on our values
can be found on page 54.)
Objectives have been set to reflect the most important priorities
for us as a business and have been developed to help all of our
colleagues understand how they contribute. Performance
against these objectives will form part of individual performance
ratings. People leaders have been given training on how to
apply these performance objectives in year-end reviews.
With ERB support, our values have evolved to represent the best
of the Group, and to guide the way we work together to perform
as a business and deliver for our customers. Our values help us
make good decisions, support each other in the right way and
draw on diverse perspectives.
We use our values to assess ‘how’ our colleagues deliver,
alongside ‘what’ they deliver, when considering individual and
team performance across the Group..
DiaLoGue
DiaLoGue is our employee engagement tool that we use to survey our colleagues three times a year. In 2023, we also used
DiaLoGue to carry out a ‘pulse’ survey to understand how our people were feeling during a challenging year. Examples of outcomes
resulting from DiaLoGue feedback include:
The Future
Leadership
Issue Raised
Outcome
Colleagues sought clarity on their
objectives and how they support
the Group’s wider strategy.
In 2023 we put standardised objectives, which are aligned to
our strategy, in place for all colleagues (including the Executive
Committee and Enterprise Leadership Network) to support the
understanding of the link between individual objectives and
the Group’s overall strategy.
Colleagues sought enhanced
communications from leadership,
alongside a clear set of priorities
for the future.
We have reviewed the approach to and impact of internal
communications and have delivered a set of focused priorities.
In addition, we are developing a model to understand our
leadership strengths and to identify opportunities for
improvement.
Direct Line Group Annual Report and Accounts 2023
109
Strategic Report / Governance / Financial statements Corporate Governance continued
Division of responsibilities
Governance framework and structure
The Board oversees the system of governance in operation
throughout the Group. This includes an effective Enterprise
Risk Management Framework and system of internal control.
The Board has established a risk management model that
separates the Group’s risk management responsibilities into
three lines of defence. An explanation of these responsibilities
can be found on page 86.
The Group’s governance framework is detailed in the Group’s
Systems of Governance document. This document also details
how the Group meets Solvency II and the Prudential Regulation
Authority (“PRA”) requirements to identify key functions, and to
have and maintain a Responsibilities Map in respect of the PRA
and FCA’s Senior Managers and Certification Regime
requirements. The Board reviews this document annually.
The core elements of the governance framework are the:
– Matters Reserved for the Board and the Board Committees’
Terms of Reference;
– Systems of Governance document;
– Risk appetite statements, which are described on page 86;
– Enterprise Risk Management Strategy & Framework and
Internal Control Framework, which is described on page 87;
– Group policies, which address specific risk areas, are aligned
to the Group’s risk appetite, and inform the business on how
it needs to conduct its activities to remain within risk
appetite; and
Minimum Control standards, which interpret the Group’s
policies into a set of requirements that can be implemented
throughout the Group.
The diagram below summarises the split of responsibilities
for the different parts of the Group’s governance framework.
The Board approves
The Systems of Governance
Framework, overarching risk
appetite statements and Group
policies, following review by
the Board Risk Committee.
Matters Reserved for the Board
and Board Committees’ Terms
of Reference.
Matters Reserved
for the Board
and Board
Committees’
Terms of
Reference
The Systems of Governance Framework document
Overarching
risk appetite
statements
The Board Risk Committee
approves
The Risk Management Framework
and the policy risk appetite
statements, following review by
the Risk Management Committee
(a committee comprised
of executives).
Minimum Control Standard
Policy owner approves
Minimum standards, subject to
non-objection from the Risk
Management Committee.
Enterprise
Risk
Management
Strategy and
Framework
Internal
Control
Framework
ERMF policies
Policy risk
appetite
statements
Minimum Control standards
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Direct Line Group Annual Report and Accounts 2023
Structure of the Board, Board Committees and executive management
The following chart sets out the structure of the Board and its Committees and highlights the responsibilities of the Chair, the
Senior Independent Director, the Non-Executive Directors, the Executive Directors, the Company Secretary and the Executive
Committee. The role descriptions for the CEO and Chair are set out in writing; the profiles clearly define their respective roles
and responsibilities, and ensure that no one person has unlimited powers of decision making.
The Board and Board Committees have unrestricted access to management and external advisers to help discharge their
responsibilities. Each Committee plays a vital role in helping the Board to operate efficiently and consider matters appropriately.
The Board and Board Committees are satisfied that, in 2023, sufficient, reliable and timely information was received in order
for them to perform their responsibilities effectively.
The reports by each Board Committee are given in this Annual Report and Accounts. The Terms of Reference for each Committee
can be found on the corporate website at: www.directlinegroup.co.uk/en/who-we-are/leadership/board-committees
Roles and responsibilities of the Board
Board of Directors
Each Director brings different skills, experience and
knowledge to the Company, and the NEDs contribute
additional independent thought and judgement.
Depending on the business needs, the NEDs and the
Chair commit at least two days a month and two days
a week respectively to discharging their duties effectively
in accordance with their letters of appointment.
As at 31 December 2023, the Board comprised the Chair,
eight independent NEDs, and two executive Directors
(the CFO and the Acting CEO). Biographies of the full Board
can be found on pages 97 to 100.
Board Committees
Full details of membership, responsibilities and activity
of each Committee throughout the year can be found
on pages 117 to 135.
Audit
Committee
Investment
Committee
Remuneration
Committee
Board Risk
Committee
Nomination and
Governance Committee
Customer and
Sustainability
Committee
The Executive Committee
The Executive Committee is the principal management
committee that helps the Acting CEO manage the Group’s
operations and supports the Acting CEO in:
– Setting performance targets;
– Implementing Group strategy;
– Monitoring key objectives and commercial plans to help
achieve the Group’s targets; and
– Evaluating new business initiatives and opportunities.
Chair
– Guides, develops and leads the Board.
– Plans and manages the Board’s business.
– Oversees the Group’s governance framework.
Senior Independent Director
– Acts as a sounding board for the Chair and an
intermediary for the other Directors when necessary.
– Is available to shareholders if they have concerns that
cannot be resolved through other channels.
– Leads the Chair’s performance evaluation.
Non-Executive Directors
– Challenge management in an objective and
constructive manner.
– Use their wider business experience to help develop
the Group’s strategy.
Executive Directors
– The Acting CEO and CFO are members of the Board,
with delegated responsibility for the day-to-day operation
of the Group and delivering its strategy.
– The Acting CEO delegates certain elements of their
authority to the Executive Committee members to
help ensure that senior executives are accountable
and responsible for managing their business areas
and functions.
Company Secretary
– Ensures the Directors receive accurate, timely and clear
information.
– Assists the Chair in overseeing the Group’s corporate
governance arrangements.
Direct Line Group Annual Report and Accounts 2023
111
Strategic Report / Governance / Financial statements Corporate Governance continued
Board composition
As at the date of this report, the Board comprised the Chair,
who had previously served as an independent Non-Executive
Director and was independent when appointed as Chair; one
Executive Director; and eight independent Non-Executive
Directors, including the Senior Independent Director.
Following the departure of Penny James on 27 January 2023,
Jon Greenwood served as Acting CEO throughout 2023 and
was appointed to the Board as an Executive Director on
31 August 2023 following regulatory approval.
Biographical details of the Directors of the Company as at the
date of this report are set out on pages 97 to 100. Details of
Directors who have served throughout the year can be found
in the Directors’ Report on page 157.
Board succession
The Nomination and Governance Committee continues to
review succession plans both for the Board and at executive
level each year. Further information on our approach to
succession planning and Board appointments can be found
in the Nomination and Governance Committee’s report
on pages 125 to 126.
Board induction and training
All new Directors appointed to the Board undertake an
induction programme aimed at ensuring they develop an
understanding and awareness of our businesses, people and
processes, and of their roles and responsibilities as Directors
of the Company. The programmes are tailored to suit each
Director and include provision of relevant current and historical
information about the Company and the Group; visits to
operations around the Group; induction briefings from Group
functions; one-to-one meetings with Board members, Senior
Management and the Company’s advisers; and engagement
with the Group’s ERB.
The Board is committed to the training and development
of Directors to improve their knowledge of the business and
the regulatory environment in which it operates. The Company
Secretary is responsible for helping the Chair identify and
organise training for the Directors which is tailored to
individual needs.
The Company Secretary maintained the training agenda for
the Board and its Committees during the year. During the year,
the Board received technical briefings on the Internal Economic
Capital Model. In addition, the Board attended a ‘Technology
Boardwalk’ that focused on the role that technology plays
delivering great customer experiences.. This was brought to life
by listening to, watching and analysing our actual customers
in the Group’s customer experience labs and through smaller
session where the Board could engage with customers
about their experiences.
Non-Executive Director (“NED”) Independence
On behalf of the Board, the Nomination and Governance
Committee assesses the NEDs’ independence, skills, knowledge
and experience annually. The Nomination and Governance
Committee concluded that every current NED was independent,
continued to contribute effectively, and demonstrated they
were committed to the role. Each current Director will submit
themselves for election or re-election at the 2024 AGM.
You can find out more about the activities of the Nomination
and Governance Committee’s work during the year on pages
125 and 126.
112
Direct Line Group Annual Report and Accounts 2023
External directorships
The Board keeps Directors’ external commitments under
continual review to ensure they continue to have sufficient time
to dedicate to the Group. During the year, the Board reviewed
and approved in advance, Danuta Gray’s appointment as a
Independent Non-Executive and Chair Designate of Croda
International plc. The Board was satisfied that, in taking on this
role, Danuta would continue to have sufficient time to dedicate
to her role on the Board.
Information and support
The Board accesses assistance and advice from the Company
Secretary. The Board, and each member of the Board, may seek
external independent professional advice at the Company’s
expense, if required, to discharge its duties.
Board’s approach to inclusion and diversity
The Company reports that as at 31 December 2023 the Board
was partly compliant with the new Listing Rule targets,
meeting the target for at least one senior Board position to be
held by a woman and for at least one Board member to be
from a minority ethnic background (which is also consistent
with the Parker Review recommendations). However, for the
majority of the year it did not meet the target for at least 40%
of the Board to be women.
The Board recognises that there is more work to do in this area,
and it aims to meet the targets set out by the Listing Rules,
noting the challenges associated with achieving this. Diversity,
including gender diversity, is a key consideration in succession
planning, though as the skills and experience of the Board are
refreshed over time, the gender balance will be dependent
on the availability of the best candidates for Board vacancies.
In 2023 the Group set ambitious new targets to continue to
improve diversity in senior leadership. Our targets are aligned
with the definitions of senior leadership used by the FTSE
Women Leaders Review, Women in Finance review and Parker
Review. We are aiming to increase representation of women
to 40%, ethnic minority talent to 16%, and Black talent to 4%
at senior leadership levels (defined as Executive Committee
and direct reports, excluding direct reports in support
or administrative roles).
Current
representation
(end Oct 2023)
Targeted
representation
(end 2027)
Women
Ethnic minority
Black
31%
13%
0%
40%
16%
4%
The tables below set out data about the sex and ethnicity of the Board and senior management as at 31 December 2023,
in the format prescribed by the Listing Rules.
Number of
Board
members
Percentage
of the
Board
9
3
–
75%
25%
–
Number of
senior positions
on the Board
(CEO, CFO, SID
and Chair)
Number in
executive
management1
Percentage of
executive
management1
3
1
–
6
4
–
60%
40%
–
Men
Women
Not specified/prefer not
to say
Note:
1. Executive management is the Executive Committee and Company Secretary.
Number of
Board
members
Percentage
of the
Board
Number of
senior positions
on the Board
(CEO, CFO, SID
and Chair)
Number in
executive
management1
Percentage of
executive
management1
White British or other
White (including
minority-white groups)
Mixed/Multiple Ethnic
Groups
Asian/Asian British
Black/African/Caribbean/
Black British
Other ethnic group,
including Arab
Not specified/prefer not
to say
Note:
11
1
–
–
–
–
91.7%
8.3%
–
–
–
–
4
–
–
–
–
–
7
–
2
–
–
1
70%
–
20%
–
–
10%
1. Executive management is the Executive Committee and Company Secretary.
The Group recognises the importance of understanding diverse representation and the monitoring of differential outcomes.
It collects diversity representation information on the basis of self-reporting across the categories of sex, gender identity, ethnicity,
religion, sexual orientation, disability and socio-economic background, collected using our HR Information Systems as part of the
onboarding process.
Direct Line Group Annual Report and Accounts 2023
113
Strategic Report / Governance / Financial statements Corporate Governance continued
Senior management succession planning
The Board recognises that in order to maintain and improve
on diversity levels, it must ensure that senior management
succession planning is focused on promoting diverse leadership,
and that workforce diversity is achieved at all levels in order to
secure a diverse pipeline of talent.
The 2023 Annual Incentive Plan includes targets for Executive
Directors, the Executive Committee and senior management
in respect of improving the gender and ethnic diversity of the
workforce in the context of leadership succession planning
(more information on this can be found on pages 55 and
56 and on 141.
Board appointments and Diversity Policy
The Board has in place a Diversity Policy which sets out
the key principles to be followed in respect of the Board
appointment process. More information on this can be found
in the Nomination and Governance Committee report on
pages 125 and 126.
Workforce diversity and inclusion
The Board encourages and supports equity, diversity and
inclusion in the workplace and is committed to building an
inclusive culture. It continues to support Group-wide diversity
and inclusion activities and initiatives, many of which are
outlined on pages 112 to 114. This includes the work of the
Company’s Diversity Network Alliance (“DNA”) which champions
diversity and inclusion in the Group through its ‘DNA strands’:
Race, Ethnicity and Cultural Heritage (‘REACH’); Belief; LGBT+;
Life (working families and carers); Neurodiversity and Disability;
Social Mobility; and Thrive (gender). More information about
the work of the DNA during the year can be found on page 55
of the Strategic report.
Board skills, experience and knowledge
The Nomination and Governance Committee assesses and
monitors the skills, experience and knowledge of Board
members with the aim of equipping the Board to challenge
and support the executive team effectively, taking into
consideration the Group’s evolving strategy.
Board and Committee effectiveness review:
three-year Board evaluation cycle
The Board conducts an annual review of the effectiveness
of the performance of the Board, its Committees, the Chair
and individual Directors, with the input of an external facilitator
at least every third year. In 2023, the performance review was
carried out in-house with the assistance of Promontory
Financial Group (“Promontory”), which has no other connection
with the Company or any Director. The Board recognises that
a continuous and constructive review of its performance is
a critical factor in achieving the Group’s objectives, realising
potential and promoting the long-term sustainable success
of the Company.
Promontory mapped themes identified during both the
previous Board performance review and at a follow-up
workshop with the Non-Executive Directors which they
facilitated in June 2023. They conducted one-to-one interviews
with Board members and senior managers who were regular
attendees of Board and Committee meetings, and reviewed
samples of meeting agendas and papers. Promontory’s
findings and recommendations were considered by the Board
and its Committees in early 2024.
Evaluation process
Step 1
Step 2
Step 3
The thematic priorities for the review were
established by Promontory in discussion with
the Chair and the Company Secretary.
Promontory interviewed members of the
Board and senior managers about Board and
Committee performance and the Group’s current
and target culture, and reviewed sample agendas
and papers.
A report, covering Board and Committee
performance, was prepared and presented by
Promontory and discussed at the Board’s January
2024 meeting.
Step 4
An action plan was defined, based on the
recommendations in Promontory’s report.
2023 evaluation outcome
The results of the review were presented to the Board and
its Committees in January 2024 and the recommendations
form the basis of an action plan for 2024 as summarised in the
table on page 115, along with an update on the action plan that
resulted from the 2022 review. Themes emerging from the
2023 review included Board and executive succession planning,
management skills and capabilities, culture, communication,
meetings and materials. Separately, the Senior Independent
Director discussed the Chair’s performance with the
Non-Executive Directors (except the Chair) and provided
constructive feedback to the Chair. No Director was involved
in the review of their own performance.
114
Direct Line Group Annual Report and Accounts 2023
2022 focus areas and action taken during 2023
Reflecting on 2022 challenges
The Non-Executive Directors arranged a discussion in June 2023, which was facilitated by Promontory, to reflect on the
lessons learned from navigating the challenges and volatility of 2022. The Board and its Committees have, during 2023,
overseen a number of action plans, the objectives of which included improving the Group’s control framework and
increasing the depth of management’s technical and leadership capability.
Improving Board information
Some progress has been made in supplying summary key performance indicators to the Board by business category
in a more succinct and insightful format. This is work-in-progress and further reviews of Board and Committee materials,
and training for the authors and executive sponsors of papers, are planned in 2024.
Succession planning
The search for a new Chief Executive resulted in the selection of Adam Winslow, which was announced on 30 August
2023. Two new Non-Executive Directors joined the Board in 2023, Mark Lewis in March and David Neave in October,
and an additional search has led to the appointment of Carol Hagh with effect from 1 April 2024. A review of executive
succession planning during the year led to a number of searches at senior level, which are expected to be concluded
in early 2024. There has been a particular focus on recruiting additional technical and leadership capability in the Pricing
& Underwriting and Actuarial functions.
2023 focus areas and proposed action for 2024
Strategic direction
The Board intends to rebalance its support for, and challenge of, senior management. It will engage with Adam
Winslow, the new Chief Executive, on setting the priorities for the Group’s strategy in 2024 and beyond, including
for brand and commercial strategy, driving the business benefits of investment in technology and responding to
customers’ changing needs.
Investment in leadership
The Board will oversee the continuing action plan to strengthen management technical and leadership capability,
working with the new CEO on the Group’s target operating model, clarifying roles and responsibilities and
driving accountability.
Refreshing culture
The Board will continue to oversee work on stimulating a high-performance, customer outcomes-focused and
risk-positive culture, including investing in risk management and compliance culture and capability, further enhancing
the insights from cultural metrics developed in 2023.
Audit, Risk & Internal Control
An explanation of how the Board complies with the Code in
relation to audit, risk and internal control is set out below,
except for the following matters, which are covered elsewhere
in the Annual Report and Accounts:
– how the Board has assessed the Group’s longer-term viability
and the adoption of the going concern basis in the financial
statements is on page 93 and page 159; and
– the Board’s delegated responsibility to the Audit Committee
to oversee the management of the relationship with the
Company’s External Auditor.
You can find details of the Audit Committee’s role, activities and
relationship with the External Auditor in the Audit Committee
report which starts on page 117 .
Responsibility for preparing the Annual Report
and Accounts
The Board’s objective is to give shareholders a fair, balanced
and understandable assessment of the Group’s position,
performance, business model and strategy. The Board is also
responsible for maintaining adequate accounting records,
and seeks to ensure compliance with statutory and
regulatory obligations.
You can find an explanation from the Directors about their
responsibility for preparing the financial statements in the
Statement of Directors’ responsibilities on page 160. The Group’s
External Auditor explains its responsibilities on page 171.
The Directors confirm that they consider that the
Annual Report and Accounts, taken as a whole, are fair,
balanced and understandable, and provide the information
that shareholders need to assess the Group’s position,
performance, business model and strategy. In arriving at this
conclusion, the Board was supported by a number of processes,
including the following:
– management drafted the Annual Report and Accounts to
ensure consistency across sections, and a steering group
comprising a team of cross-functional senior management
provided overall governance and co-ordination;
– a verification process, to ensure the content was
factually accurate;
– members of the Executive Committee reviewed drafts
of the Annual Report and Accounts;
– the Company’s Disclosure Committee reviewed an advanced
draft of the Annual Report and Accounts; and
– the Audit Committee reviewed the substantially final draft
of the Annual Report and Accounts, before consideration
by the Board.
Assessing emerging and principal risks
The Board determines the nature and extent of the risks that it
is willing to take to achieve its strategic objectives. The Directors
robustly assessed the emerging and principal risks facing the
Company, including risks that would threaten its business
model, future performance, solvency or liquidity. You can find
a description of these risks, and their management or
mitigation, on pages 88 to 92.
Direct Line Group Annual Report and Accounts 2023
115
Strategic Report / Governance / Financial statements Corporate Governance continued
This determination is based on the Board Risk Committee’s
review and challenge of the Group’s Material Risk Assessment,
and the Board’s review and approval of the Group’s risk
appetite statements. The Risk Assessment identifies risks
quantified as having a residual risk impact of £30 million or
greater. The quantifications are produced through stress and
scenario analysis, and our capital model. Each directorate’s
bottom-up risk identification and assessment supplements the
Material Risk Assessment. The Material Risk Assessment also
plays a key role in developing the ORSA and assessing the
Group’s strategic plan.
Risk management and internal control systems
The Board, with the assistance of the Board Risk Committee
and the Audit Committee, and support from the Risk and Group
Audit functions as appropriate, monitored the Company’s risk
management and internal control systems that have been in
place throughout the year under review, and reviewed their
effectiveness. The monitoring and review covered all material
controls, including financial, operational and compliance controls.
The Risk function annually produces an Internal Risk and
Control Assessment (“IRCA”) Statement to support the Board in
monitoring the effectiveness of the Group’s risk management
and internal control systems. Under the IRCA process, each
function completes a self-assessment of its risks and key
controls and an Executive Sponsor, responsible for the function,
attests to the status of the effectiveness of the risk management
and internal control systems. This is supported by control
testing in the first line of defence. The Risk function reviews
and challenges these findings and the Group Audit function
provides an independent assessment of the overall effectiveness
of the governance and risk and control framework of the Group.
The overall findings are combined into a Group-level assessment
and reported to the Board Risk Committee.
The 2023 IRCA process did not identify any material financial,
operating, or compliance control deficiencies during the year
ended 31 December 2023, nor any material control deficiencies
that remained unresolved at the balance sheet date.
The IRCA specifically assessed the potential control
implications of risk events which occurred in recent years but
have further crystallised in 2023, including material customer
redress provisions, and weaknesses in the Motor account
trading performance.
The Group incurred material customer redress provisions
of £104m in 2023 in respect of its past business reviews relating
to renewal pricing under the rules in ICOBS 6B and claims
under motor insurance policies where the vehicle was deemed
uneconomical to repair (“Motor Total Loss Claims”). The IRCA
identified that these events were, in part, caused by deficiencies
in the Group’s operational and compliance controls in prior
years. The underlying root causes of these control deficiencies
have since been remediated, such that they did not represent
an unresolved material control failure as at the balance
sheet date.
In addition, the Group’s 2023 trading performance has been
adversely impacted by the earning of premiums priced during
the exceptional inflationary UK motor claims environment
in 2022. The IRCA reported that the adequacy of the Group’s
pricing response at that time may have been impacted by
shortcomings in the resilience of its pricing and underwriting
control environment when operating in those stressed
circumstances. The Group has taken a number of corrective
actions in 2023 to reduce the impact of this on its ongoing
commercial performance.
116
Direct Line Group Annual Report and Accounts 2023
During the year, the Group enhanced its control environment
across a number of key areas including pricing and underwriting,
compliance with pricing practices regulation, financial reporting,
change management, and risk management in the first line.
These enhancements are part of an objective to strengthen the
Group’s overall risk and control environment. Further work is to
be undertaken in 2024 to formalised newly introduced controls,
complete the programme of control remediation, and ensure
that the process of risk and control assessment is updated to
fully support and embed these enhancements.
To support and accelerate this work, the Board commissioned
a Group-wide controls improvement programme in 2023.
This was overseen by the Board Risk Committee. In addition,
the Audit Committee has overseen a Control and Oversight
Remediation Programme within Finance, the aim of which is
to enhance the financial reporting control environment across
the Group. Significant progress has been made under both
initiatives resulting in an improving control environment, with
work continuing into 2024. More information in respect of both
initiatives can be found in the respective Audit Committee and
Board Risk Committee reports.
The Group Audit function supports the Board by providing
independent and objective assurance on the adequacy and
effectiveness of the Group’s controls. It brings a systematic
and disciplined approach to evaluating and improving the
effectiveness of the Group’s risk management, control and
governance frameworks and processes. Group Audit’s 2023
annual assessment of the risk management, governance and
control environment did not identify any matters that conflict
with the 2023 IRCA Statement.
On behalf of the Board, the Board Risk Committee reviewed
the 2023 IRCA Statement and was satisfied with the conclusion
that the Group’s risk management systems, including its
internal control systems, were adequate for managing all
material risks. The Board Risk Committee also regularly reviews
significant risks and how they might affect the Group’s financial
position, comparisons to agreed risk appetites, and what the
Group does to manage risks outside its appetite.
The Board confirms that there is an ongoing process for
assessing the Company’s risk management and internal
control systems and identifying, evaluating and managing
the significant risks faced by the Group, which has been in
place throughout the period and up to the date of this report.
The Board takes the view that, on the basis of the 2023 IRCA
assessment carried out, it would be reasonable to conclude that
the Group’s risk management and internal control systems are
effective. The Directors acknowledge that any internal control
system can manage, but not eliminate, the risk of not achieving
business objectives. It can only provide reasonable, not absolute,
assurance against material misstatement or financial loss.
Remuneration
The Board is mindful at all times that remuneration policies and
practices must be designed to support strategy and promote
the long-term sustainable success of the Group. It delegates
responsibility to the Remuneration Committee to ensure that
there are formal and transparent procedures for developing
policy on Executive remuneration and determining Director
and senior management remuneration.
In his report on pages 131 to 135, the Remuneration Committee
Chair provides an overview of the Committee’s work in setting
an appropriate framework for remuneration of the Executive
Directors, Executive Committee and other senior managers, as
well as the wider workforce, to ensure fair pay for all our colleagues.
For details on how the Company has applied Provision 40 of the
Code in determining Executive Director remuneration policy
and practices, see the summary on page 138.
Audit Committee report
Gregor Stewart
Chair
Committee membership
– Gregor Stewart
Chair and Independent Non-Executive Director
– Mark Gregory
Independent Non-Executive Director
– Fiona McBain
Independent Non-Executive Director
– David Neave1
Independent Non-Executive Director
Key responsibilities
– Oversee the integrity of the Group’s
financial statements.
– Oversee and challenge the effectiveness of the
Group’s systems of financial internal controls and
regulatory reporting.
– Oversee Group Audit's annual assessment of the
Group's risk management, control and governance
frameworks and processes.
– Oversee the actuarial reserving process.
– Oversee the work and effectiveness of the Group’s
internal and external auditors.
– Oversee the Group’s financial and non-financial
disclosures, including climate-related financial
disclosures.
Areas of focus in the reporting period
– Financial reporting: reviewed and challenged the key
accounting estimates and judgements made by
management to support the financial statements.
– Insurance reserves: reviewed the Group’s insurance
reserves to obtain assurance that they remained
appropriate for discharging expected liabilities.
– Reviewed IFRS 17 implementation.
– External Audit: oversaw the transition from Deloitte
LLP to KPMG LLP.
– Oversaw the CFO Control and Oversight Remediation
Programme.
– Reviewed and challenged Group Audit's annual
assessment of the Group's risk management, control
and governance framework and processes.
– Oversaw the independent External Quality
Assessment of the Group Audit function.
Committee skills and experience
In line with the UK Corporate Governance Code (the “Code”), all
members of the Audit Committee are independent, and the
Committee as a whole is deemed to have competence
relevant to the insurance and financial services sectors in
which the Group operates.
The Committee Chair is a member of the Institute of Chartered
Accountants of Scotland. Fiona McBain and Mark Gregory are
members of the Institute of Chartered Accountants in England
and Wales. David Neave brings to the Committee 40 years of
experience in senior general insurance positions including
claims and underwriting.
Each member has recent and relevant financial experience
gained in a number of different financial services businesses,
including insurance, enabling them to contribute diverse
expertise to the Committee’s proceedings.
Main activities during the year
At each of its scheduled meetings, the Committee received
reports on financial reporting, insurance reserves, internal
controls and Group Audit.
Financial reporting
The Committee followed a review process before recommending
the Annual Report and Accounts and Half Year report to the
Board, and focused on the choice and application of significant
accounting policies, emphasising those requiring a major element
of estimation or judgement. Further information on the significant
matters considered is provided in the table on page 118.
In addition, the Committee reviewed papers prepared by
management on the use of alternative performance measures
in the financial statements. The Audit Committee had previously
noted that on transition to IFRS 17, the Group intended to
replace the previously reported alternative performance
measure, the combined operating ratio, with a new metric, the
net insurance margin. The net insurance margin expresses the
insurance service result under IFRS 17 as a percentage of
insurance revenue and measures financial year underwriting
profitability. The Committee was satisfied that an explanation of
both the alternative performance measure, and why it was used,
was clearly communicated to users of the financial statements.
Furthermore, the Committee considered the estimates and
judgements used to prepare the Group’s capital position under
Solvency II, including focusing on the level of technical
provisions held. Specific matters considered included
judgements made in respect of events not in data, and the risk
margin. The Committee reviewed the Group’s Solvency and
Financial Condition report on behalf of the Board before
submission to the PRA, and concluded that the processes to
produce and review this report had operated satisfactorily.
IFRS 17 and IFRS 9 implementation
During the year, the Committee reviewed and challenged
disclosures in respect of the Company’s first reporting under IFRS 17
and IFRS 9, which included 2022 restatements. It considered
challenge from the External Auditor on topics in IFRS 17 including:
the illiquidity premium to be used to discount insurance liabilities;
the application of the premium allocation approach and the
eligibility testing undertaken; the onerous contracts assessment; the
treatment of extreme events not in data; and reclassification of line
items on the Statement of Financial Position.
Note:
1. Appointed to the Committee with effect from 6 December 2023.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
117117
Strategic Report / Governance / Financial statements Audit Committee report continued
Significant judgements and issues
Matter considered
Description
Action
Insurance liabilities
valuation
Valuation of
investments not held
at fair value and
investment property
In 2023, the Committee reviewed and challenged the
approach, methodology and key assumptions used by
management in setting the liability for incurred claims and
monitored developing trends that could have a material
impact on them. On an ongoing basis, it received updates
from the Actuarial Director on how actual claims experience
compared to expectations. Particular points of discussion in
2023 were the developing trends in personal lines Motor,
covering large and small bodily injury claims experience in
addition to damage claims. This included a focus on
recoveries for non-fault claims, where the adequacy of the
provision was challenged to protect against the risk of fewer
recoveries than estimated. The Committee also considered
the more wide-ranging impacts of the ongoing uncertainty
caused by the current macro-economic environment. The
Committee discussed the judgements that underpinned the
year end liabilities, including those based on current and
prior-year development and settlement patterns. Consistent
with the continued uncertainty in an inflationary
environment, the Committee reviewed analysis of the
matters that significantly impacted the booked reserves,
alongside supporting data and diagnostics, and the potential
range of outcomes. The Committee discussed the approach
to identifying and recognising those events which were not
yet reflected in data and reviewed and challenged the
provisions proposed by management. In addition, the
Committee was provided with the Group's response to the
Dear Chief Actuary letter from the PRA, which highlighted
the risks of inflation for general insurers and made
recommendations on certain actions to address those risks.
The Committee obtained insight and reviewed results from
an independent actuarial review of material elements of
insurance liabilities. Where there was divergence between
the independent actuarial review and that of management,
the Committee challenged the reasons for the divergence.
The Committee also considered the adequacy of remediation
costs recognised for past business reviews covering Motor
total loss and the pricing of Motor and Home policies
following the implementation of the FCA's PPR reforms. The
Committee was satisfied that management had exercised
appropriate control and judgement in estimating insurance
liabilities.
In 2023, the Committee considered material accounting
estimates and judgements in respect of assets not held at fair
value, and the investment property portfolio, and was
satisfied with the carrying value of investments and the basis
for their valuation. The Committee noted that a write down
was proposed in the investment portfolio in relation to one of
the Group’s commercial real estate loans. The Committee
considered the impact of the continuing challenging macro-
economic environment on the investment property portfolio
and noted the year end independent valuation resulted in a
small decline overall in the portfolio value. The Committee
concluded that the carrying values in the accounts were
reasonably stated.
The Committee reviewed
the level of insurance
liabilities of the Group.
Insurance liabilities include
the liability for remaining
coverage and the liability for
incurred claims at the
statement of financial
position date. By its nature,
the liability for incurred
claims requires analysis of
trends and risks, and the
application of management
judgement, knowledge and
experience. The
measurement of the liability
for remaining coverage is
less judgemental than the
liability for incurred claims
and is recognised on a
similar basis to the Group's
previous accounting
treatment of the unearned
premium reserve under
IFRS 4. Further information
on insurance liabilities is
provided on pages 37 to 38.
The Committee considered
reports on the estimates
and judgements applied to
the carrying value of the
Group’s investments that
are not held at fair value,
and the basis for the
valuation. These assets
principally comprise
infrastructure loans,
commercial real estate
loans and private
placement bonds held
within the investment
portfolio. The Group also
holds a portfolio of
investment properties.
Information was provided to
the Committee on a regular
basis to support the value
recognised in the accounts.
118
118
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Insurance contract liabilities - liability for incurred
claims
The Committee reviewed and challenged the key assumptions
and judgements, emerging trends, movements, and analysis of
uncertainties underlying the reserving estimates made for the
liability for incurred claims. These assumptions and judgements
were informed by actuarial analysis, wider commercial and risk
management insights, and principles of consistency from period
to period. Inflation risks were discussed throughout the year,
taking account of care costs, cost of materials and general
labour inflation affecting different lines of business. The Actuarial
Director presented scenario analyses for various inflationary
drivers, supporting the booking of the liability for incurred
claims. After its review, the Committee recommended the
liability for incurred claims to the Board.
The Committee also commissioned an external independent
actuarial review of material risk areas of insurance liabilities,
carried out for the Committee by PricewaterhouseCoopers LLP
(“PwC”).
Task Force on Climate-related Financial
Disclosures report
The Committee reviewed the financial disclosures in the Task
Force on Climate-related Financial Disclosures report on behalf
of the Board as part of its review of the Annual Report and
Accounts. The TCFD report can be found on page 70.
Going concern, viability and fair, balanced
and understandable
The Committee considered the going concern assumptions and
viability statement in the 2023 Annual Report and Accounts,
valuation of assets and impairment reviews, non-recurring
period-specific transactions and clarity of disclosures. The
Committee reviewed and concluded that the Annual Report
and Accounts taken as a whole were fair, balanced and
understandable and provided sufficient information to enable
the reader to assess the Group’s position, performance, business
model and strategy.
When considering the 2023 Annual Report and Accounts, the
Committee considered the significant judgements and issues
which could be material to the financial statements. These
included the matters set out in the table on page 118. The
Committee challenged the estimates and judgements being
made and also discussed these matters with the External
Auditor.
For more information on the viability statement see page 93.
Internal control
During the year, the Committee continued to monitor and
review the adequacy and effectiveness of the controls that
underpin the Group’s financial reporting control framework,
which forms part of the Group’s wider internal controls system.
The Board delegates supervision of the framework to the
Committee, while the CFO is responsible for the framework’s
operation on a day-to-day basis. During 2023, there were no
material control deficiencies reported to the Committee.
In the 2022 Annual Report, the Committee reported that whilst
there were no material control deficiencies reported to it during
2022, there had been an increase in the number of non-material
control deficiencies identified during that year and therefore
took an action to work alongside the Board Risk Committee to
oversee a programme of improvements to the Group’s financial
reporting control environment.
In this regard, the Audit Committee has overseen the CFO
Control and Oversight Remediation Programme (the
"Programme"), the aim of which is to enhance the financial
reporting control environment across the Group. During the
year, the Programme, which is led by the CFO Control Steering
Group and chaired by the CFO, reported back to the Committee
on a monthly basis, as well as at scheduled meetings, on its
progress. Targeted remediation activities relating to
improvement in the financial reporting processes were
completed. The Programme will continue in 2024 to ensure that
progress made in 2023 is maintained into 2024 to further
embed the continuous improvement of the control
environment of the Group’s financial reporting framework.
The Committee reviewed and challenged Group Audit's annual
assessment of the Group's risk management, control and
governance frameworks and processes. The Committee also
reviewed Group Audit's opinion on the overall effectiveness of
the Group's internal control framework. This concluded that
important elements of the formal framework required further
improvement, but that, taken as a whole, the framework was
adequate, such that no material control failures had occurred in
the current year.
The Committee also considered management’s processes and
controls for identifying and responding to the risk of fraud. The
Committee noted that there were no fraud-related events or
actions to suggest that fraud might have a material impact on
the financial statements.
The Committee monitored management’s responses to the
control insights and observations raised by the External Auditor
in its annual management letter during the year, and was
satisfied that management was taking appropriate and timely
action to resolve the issues raised.
Group Audit
The Committee is responsible for overseeing the work of Group
Audit and for ensuring industry best practice is adopted
appropriately. The Group Head of Audit’s primary reporting line
is to the Chair of the Committee. The secondary reporting line,
for day-to-day administration, is to the CEO.
During the year, the Committee oversaw the independent
External Quality Assessment ("EQA") of the Group Audit
function. This rated Group Audit 'generally conformant' with
professional standards, with some improvements
recommended against relevant Internal Audit professional
standards. The Committee oversaw the development of the
action plan to address the findings from the EQA and is
receiving quarterly progress updates. Group Audit’s performance
partner PwC continued to provide independent quality
assurance activity alongside the EQA with results reported to
the Committee.
During the year, Group Audit provided the Committee with
independent and objective reports on the adequacy and
effectiveness of the Group’s governance, risk management and
internal controls. Group Audit completed a number of reviews
of major programmes during the year. The Committee
approved Group Audit’s plan on a quarterly basis, and
confirmed the audit plan coverage on an annual basis. The
Committee received quarterly reports detailing internal audit
activity, key findings, management responses, and proposed
action plans. There were no material deficiencies reported to the
Committee in the year.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
119119
Strategic Report / Governance / Financial statements Audit Committee report continued
Following the independent EQA and assessment by the
Committee during the year, it was concluded that the Group
Audit function was effective. The Committee approved the
Group Audit Charter, which is reviewed annually.
Additional information
The Committee has unrestricted access to management and
external advisers to help discharge its duties. It is satisfied that in
2023 it received sufficient, reliable and timely information to
perform its responsibilities effectively.
During the reporting period, the External Auditor and Head of
Group Audit met privately with the Audit Committee, in the
absence of management. The Chair of the Committee reported
on matters dealt with at each Committee meeting to the
subsequent scheduled Board meeting.
During the year, the FRC carried out a limited scope review of
the Group's Half Year report to 30 June 2023 as part of its
thematic review of IFRS 17, covering interim disclosures in the
first year of application. No substantive questions or queries
were raised as a result of the review. It is noted that the FRC's
review was limited to considering compliance with reporting
requirements, did not provide assurance that the report was
correct in all material respects, and it is not the FRC's role to
verify the information provided.
External Audit
Deloitte LLP (“Deloitte”) has served as the Company’s Auditor
since 2000. Andrew Holland, FCA, was the lead audit partner for
the Company’s 2023 audit. As Deloitte was appointed as Auditor
to the Company in 2000 (when it was a subsidiary of The Royal
Bank of Scotland Group plc), under the transitional provisions of
the relevant legislation, Deloitte could only continue as the
Company's External Auditor until 31 December 2023. As noted
below, a competitive tender process was undertaken in 2022 to
appoint a new External Auditor.
The Committee is responsible for overseeing the work of the
External Auditor and agreeing the audit fee, as well as approving
the scope of the External Auditor’s annual plan.
External Audit transition
During 2022, the Committee oversaw a competitive tender
process to select a new auditor to be appointed for the financial
year ending 31 December 2024. As announced on 10 October
2022, the Board approved the appointment of KPMG LLP
(“KPMG”) as the Company’s auditor for the financial year ending
31 December 2024, subject to shareholder approval at the
Company’s 2024 AGM.
During the year the Committee has been engaged in overseeing
planning and arrangements for the transition from Deloitte to
KPMG. The lead Audit Partner from KPMG, James Anderson,
attended a number of meetings of the Committee to report on
progress against the transition plan. Transitional activities have
included: reviewing Deloitte’s files; shadowing Deloitte on the
2023 audit; visiting the Company’s outsourced finance resources
in India and meeting with management. The Committee
reviewed KPMG’s independence, noting that they have been
considered independent in line with all regulatory and
professional requirements since June 2023.
The Company has complied with the provisions of the Statutory
Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014.
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Direct Line Group Annual Report and Accounts 2023
Auditor independence
The Group has in place a minimum standard in relation to the
independence of the External Auditor, which is compliant with
the Financial Reporting Council’s review of its Ethical Standard
for Auditors. This establishes parameters for preventing or
mitigating anything that compromises the External Auditor’s
independence or objectivity. The minimum standard includes:
– a formal process for the pre-approval of certain non-audit
services by the External Auditor;
– a requirement that any non-audit services are
reviewed annually;
– restrictions on employees of the auditor working for the
Group and vice-versa; and
– a requirement that key audit partners are rotated at least
every 5 years.
The Committee reviews the standard annually.
The Committee’s Terms of Reference require that the Committee
meet at least once annually with the External Auditor in the
absence of management.
In addition, the Committee reviews confirmation from Deloitte
that in its professional opinion, it is independent within the
meaning of regulatory and professional requirements.
Therefore, the Committee is satisfied that the Group has
adequate procedures to ensure that the External Auditor is
independent and objective and that these procedures operated
effectively during the year.
Non-Audit Fees
During the year, the Committee approved fees in respect of
Deloitte providing reporting accountant services in respect of
the sale of the brokered commercial business. The Company's
policy for non-audit services is compliant with the FRC’s ‘Revised
Ethical Standard 2019’. In line with regulation, the Group is
required to cap the level of non-audit fees paid to its external
auditor at 70% of the average audit fees paid in the previous
three consecutive financial years.
The following is a breakdown of fees paid to Deloitte for the year
ended 31 December 2023 (excluding VAT).
Audit fees
Audit-related assurance services
Non-audit services
Total fees for audit and other services
Fees
£m
Proportion
%
3.8
0.6
1.6
6.0
63 %
10 %
27 %
100 %
Audit-related assurance services were in respect of the Group’s
Solvency II reporting, the review of the Half Year report 2023, for
which the Company’s External Auditor must be used and for
assurance services in respect of the Claims Liability Act. Non-
audit fees charged by Deloitte for their services as reporting
accountants as explained above, were within the cap of 70% of
the last three average annual audit fees. An additional non-audit
service has been provided in 2024 for fees of £0.4m for reporting
accountant services. Further information in respect of audit fees
paid to Deloitte is disclosed in note 7 to the consolidated
financial statements.
Strategic Report / Governance / Financial statements
In addition, the Committee’s terms of reference were reviewed
against the activity of the Committee during the year. The terms
of reference were found to be suitable, comprehensive and of
appropriate scope. The Committee’s terms of reference can be
found on the corporate website: www.directlinegroup.co.uk/en/
who-we-are/leadership/board-committees
The Board reviewed and approved this report on 21 March 2024.
Gregor Stewart
Chair of the Audit Committee and Independent Non-
Executive Director
Effectiveness of the external audit process
In 2023, the Committee conducted its annual review of the
External Auditor’s effectiveness. The Committee assessed the
External Auditor through:
i. a detailed questionnaire completed by key stakeholders;
ii. discussing matters with the CFO;
iii. formally reviewing the External Auditor’s independence;
iv. assessing the key risks identified by the External Auditor, the
quality controls put in place to deliver the audit and whether
the agreed audit plan was fulfilled; and
v. private meetings with the External Auditor in the absence of
management.
In addition, through regular interaction with the External
Auditor, the Committee was satisfied that the External Auditor
continued to demonstrate professional scepticism and
challenged management’s assumptions.
The quality of the audit was assessed through review and
discussion of the External Auditor’s report to the Committee at
each meeting, and from the challenges and insights brought to
significant areas of judgement in the Group’s financial
statements.
After taking into account all of the information available and
considering FRC Audit Quality: Practice aid for audit
committees, the Committee concluded that Deloitte had
performed its obligations effectively and appropriately as
External Auditor to the Group.
The Committee also considered the publication by the FRC in
July 2023 of the results of its Annual Quality Review and its
thematic findings for 2021/2022. The FRC reviewed Deloitte’s
audit of the Group’s financial statements for the year ended
31 December 2022 for the 2022/23 review cycle. No significant
recommendations were made by the FRC for further
improvement and a number of areas of good practice were
highlighted.
Committee effectiveness review
During the year, an internal evaluation of the effectiveness of the
Committee was carried out with assistance from Promontory as
part of the wider review of the performance of the Board and
the Board Committees. The review found that the Committee's
skills and experience were appropriate, that its papers, whilst
technical in natures, were accessible, that the Committee's
interaction with the Board and other Committees was
constructive and that its level of challenge was effective,
reflecting current priorities. The review noted that the
Committee had increased the frequency of its meetings to
oversee current issues. Further information on the Board
effectiveness review can be found on pages 114 to 115.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
121121
Strategic Report / Governance / Financial statements Board Risk Committee
report
Mark Gregory
Chair
Committee membership
– Mark Gregory
Chair and Independent Non-Executive Director
– Fiona McBain
Independent Non-Executive Director
– David Neave1
Independent Non-Executive Director
– Gregor Stewart
Independent Non-Executive Director
– Dr. Richard Ward
Senior Independent Director
Key responsibilities
– Provide oversight and advice to the Board in relation
to current and emerging risk exposures of the Group
and the strategic approach to managing
risk, including determination of risk appetite.
– Promote a risk-aware culture within the Group.
– Review the design and implementation of the
Enterprise Risk Management and Strategy
Framework, risk appetite and tolerances.
Areas of focus in the reporting period
– Monitored and reviewed the Group’s top risks across
its financial, operational and organisational resilience
pillars.
– Regularly assessed the Group’s emerging risks,
including monitoring of the geopolitical landscape
and its impacts on the Group.
– Oversaw and challenged progress and delivery of the
FCA’s Consumer Duty implementation programme,
followed by continued oversight post-
implementation.
– Oversaw the Controls and Risk and Control Self-
Assessment ("RCSA") Project ("CRP"), a Company-
wide controls improvement programme aiming to
set a new activity and assurance standard.
– Received regular updates on the Pricing Practices
Regulation and Motor Total Loss past business
reviews.
Further detail on these areas can be found in the body
of the Committee report.
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Chief Risk Officer’s report
At each scheduled meeting, the Committee received a report
from the Chief Risk Officer (“CRO”) which outlined the
challenges and risks being faced across the Group’s financial,
operational and organisational resilience pillars. The CRO’s
report provided an overview and status of the top and principal
risks against the Group’s appetite, as well as: key activities
undertaken by the Risk function to further embed risk
management across the Group; outputs of regular risk
monitoring activities; and details of any current and specific
financial, non-financial or regulatory and compliance risk
matters. Alongside the CRO's report, the Committee regularly
assessed the Group’s emerging risks. It challenged management
on the identification of all possible significant emerging risks
during the year and on the Risk function’s role in ensuring that
such emerging risks were being monitored and managed
appropriately. The most notable emerging risks identified
included those relating to geopolitical tension, disruptor
emerging risk, data ethics, digital disruption, the transition to a
low carbon economy, changing customer needs, cyber threats
and the transition to Electric Vehicle ("EVs"). In addition, the
Committee reviewed the plan of risk assurance activities to be
undertaken for each quarter and the year ahead to support the
Group's key strategic objectives and to ensure adherence to
prevailing legal and regulatory requirements, as well as the
Group’s enterprise and risk management framework.
Focused business and risk reviews
Set out below are some of the areas of focus and key reviews
that the Committee carried out during the reporting period, to
examine the risk profile of the business, and to challenge the
robustness of frameworks in place to manage key risk exposures
as well as regulatory requirements and expectations:
– oversaw and challenged progress and delivery of the
Consumer Duty implementation programme;
– reviewed customer and conduct risk matters with a view to
ensuring that fair pricing and outcomes were being achieved
for customers across all Direct Line Group products, including
review of the Group’s pricing strategy and the pricing
governance and control framework;
– reviewed the Group’s operational resilience self-assessment,
including important business services and associated impact
tolerances;
– reviewed the effectiveness of the Group’s risk management
and internal control systems and environment, including
material financial, operational and compliance risks, the
Group’s residual risk position, associated mitigating actions
and compensating controls. This included oversight of the
Group’s CRP;
– reviewed the Group’s adherence to privacy and data
protection legislation; and
– reviewed the stability, security and capability of the Group’s IT
systems.
Note:
1.
Appointed to this Committee with effect from 6 December 2023.
Risk appetite
The Committee undertakes an annual review of the Group’s risk
appetite framework, which includes the overarching risk
appetite and policy risk appetite statements. It monitors the
Group’s exposure against these statements, considers key risk
indicators and assesses the key drivers that affect status against
risk appetite. At each scheduled meeting, the Committee also
monitors the Group’s performance against its capital risk
appetite through the CRO’s report. In line with regulatory
requirements, the Committee scrutinises and approves the
Group’s overall affirmative and non-affirmative cyber insurance
underwriting strategy, associated risk appetite statements and
relevant management information.
Committee members also reviewed and challenged the Own
Risk Self-Assessment ("ORSA") process and key content before
submission to the Board for approval. Committee challenges on
elements of the ORSA during the year included: the effect of
profit warnings issued by the Group in January 2023 which
required an updated ORSA to be developed and whether
internal and external stress factors in the document were
sufficiently stringent. In addition, the Committee monitored and
challenged the stress and scenario testing plan and outputs. The
Committee also reviewed the potential Contingent
Management Actions for management to consider taking in
times of stress to restore the Group’s capital strength to within
an acceptable risk appetite range.
Compliance and regulatory risk
During the year, the Committee received regular reports on the
progress of the Group’s Consumer Duty implementation plan.
This included the Group’s interpretation of and planned
compliance with the new Consumer Duty regulations. The
Committee challenged the progress towards implementation
and sought assurance that management had the appropriate
resources to meet the implementation deadline of 31 July 2023,
that robust and reasonable interpretations of Consumer Duty
requirements had been developed, and that associated risks
had been managed appropriately.
The Committee received regular reports on phase two of the
programme, which focused on embedding Consumer Duty
across the Group, delivering improvements, implementation of a
new customer conduct culture framework, and transitioning
Consumer Duty into business as usual.
The Committee also reviewed and challenged regular updates
in respect of Pricing Practices Regulation and Motor Total Loss
past business reviews.
Strategic Report / Governance / Financial statements
Internal control
In the 2022 Annual Report, the Board Risk Committee reported
that whilst the IRCA process in respect of 2022 had not
identified any material financial, operating or compliance
control deficiencies, it did identify areas where further
enhancements could be made to the Group's risk and control
environment. During 2023, the Group took a number of steps to
improve its overall risk and control environment across key areas
such as pricing, finance, change management, culture and first
line risk management.
To accelerate these enhancements, during 2023 the Board Risk
Committee oversaw a Group-wide control improvement
programme aiming to improve the Group's risk management,
oversight and monitoring capability. This programme is
currently in progress and will continue into 2024. Key elements
of this programme include:
– the introduction of new risk policies and standards;
– the launch of an enhanced quarterly RCSA process;
– an assessment of the design of the Group’s critical processes
and controls, supported by external subject matter experts;
– strengthening the ownership of risk and control across the
first line;
– improving the documentation of risk and control through
new risk and control matrices and control libraries; and
– the replacement of the Group's risk management system.
This work is supported by further activity across the Group,
overseen by the Board and its relevant Committees, designed to
carry out control remediation, improve risk culture, and develop
the required capability across the first line of defence.
The Committee received updates on the control improvement
programme at each of its scheduled meetings, where it
monitored and challenged progress and supported work to
enhance the Group’s controls environment. This programme will
continue into 2024 as the underlying improvements in risk and
control are further formalised and embedded across the Group.
In response to the Group undertaking a business review relating
to pricing during the year, the Committee also oversaw a review
of the Group’s pricing control activity with a view to making
improvements in control documentation, testing and
monitoring. A suite of new controls designed to improve the
pricing control environment was implemented to target the
root cause of the issues identified and these controls are to be
further formalised and embedded in 2024.
Climate change
The Committee regularly received updates on climate change.
In particular, the Committee reviewed the climate-related risk
management roadmap that was in place and considered the
plan to take the Group to a position whereby it could
demonstrate credible progress towards Net-Zero. The key areas
were the time horizon, scenario modelling, integrating climate
into the risk framework and reporting on it in the ORSA, and
incorporating Net Zero modelling into the plan. The Group’s Net
Zero targets have been accepted by the Science Based Targets
initiative.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
123123
Strategic Report / Governance / Financial statements Board Risk Committee report continued
Internal capital model
The Committee regularly reviewed and challenged reports on
the Group’s partial internal economic capital model for
determining regulatory capital requirements during the year,
including key assumptions, methodologies and areas of expert
judgement used within the model, activities undertaken to
validate model outputs, model changes and future
management actions.
Whistleblowing
As delegated by the Board, the Committee routinely reviewed
the arrangements by which employees may, in confidence, raise
concerns about possible improprieties in matters of financial
reporting or other matters ("whistleblowing") during the year.
The Committee Chair oversees the independence, autonomy
and effectiveness of the Group’s policies and procedures on
whistleblowing, including the procedures for protection from
detrimental treatment for staff who raise concerns. During the
year, the Committee reviewed reports relating to
whistleblowing, including anonymised, individual cases, to
ensure arrangements were in place for the proportionate
and independent investigation of such matters and for
appropriate follow-up action. The Committee challenged
management and was satisfied that the whistleblowing process
met the necessary standards and that it was adequately
designed, operated effectively and adhered to regulatory
requirements.
Financial crime and anti-bribery and corruption
The Group has a fraud and financial crime policy, which includes
the requirement that all employees of the Group comply with
an anti-bribery and corruption minimum standard. The aim of
the standard is to ensure compliance with applicable anti-
bribery and corruption legislation and regulation and to ensure
that employees act responsibly and ethically at all times when
conducting business.
The Committee considered the Group’s actions to prevent
financial crime through its review of the annual financial crime
report and recognised the additional monitoring controls that
had been implemented to manage remote working fraud risk.
Annually, the Committee considers an anti-bribery and
corruption report, which includes a risk assessment of the level
of anti-bribery and corruption risk to the Group. Following
review and challenge, the Committee was satisfied that the
Group’s policies and procedures on anti-bribery and corruption
were fit for purpose and that anti-bribery and corruption risks
were managed appropriately.
The conflict between Russia and Ukraine has seen continued
sanctions against the Russian regime. The Group continues to
monitor the sanctions situation and screen against the most up-
to-date key sanctions lists on a daily basis in order to mitigate
this risk.
Risk governance
During the reporting period, the Committee received assurance
from management on the process for review of the Group’s
policies and reviewed material changes to the Group’s most
significant policies. The Committee reviewed and challenged
each of these policies and recommended them for approval by
the Board as appropriate.
The Committee has unrestricted access to management and
external advisers to help discharge its duties. It is satisfied that in
2023 it received sufficient, reliable and timely information to
perform its responsibilities effectively. In addition to one-to-one
meetings with the Chair, the CRO also met with the Committee
in the absence of the Executive Directors. The Chair reported on
matters dealt with at each Committee meeting to the
subsequent scheduled Board meeting.
Committee effectiveness review
During the year, an internal evaluation of the effectiveness of the
Committee was carried out with assistance from Promontory as
part of the wider review of the performance of the Board and
the Board Committees. The review found that the skills and
experience of the Committee were appropriate, that its
interaction with the Board and other Committees was
constructive and that its level of challenge was effective,
reflecting current priorities. The Committee recommended that
some training be provided to improve the impact and
succinctness of some of its papers. Further information on the
Board effectiveness review can be found on pages 114 to 115.
In addition, the Committee’s Terms of Reference were reviewed
against the activity of the Committee during the year. The Terms
of Reference were found to be suitable, comprehensive and of
appropriate scope.
The Committee’s Terms of Reference can be found on the
corporate website:
www.directlinegroup.co.uk/en/who-we-are/leadership/board-
committees
The Board reviewed and approved this report on 21 March 2024.
Mark Gregory
Chair of the Board Risk Committee and Independent Non-
Executive Director
124
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Nomination and Governance
Committee report
Danuta Gray
Chair
Committee membership
– Danuta Gray
Chair and Independent Non-Executive Director
– Tracy Corrigan1
Independent Non-Executive Director
– Mark Gregory1
Independent Non-Executive Director
– Sebastian James2
Independent Non-Executive Director
– Adrian Joseph1
Independent Non-Executive Director
– Mark Lewis1
Independent Non-Executive Director
– Fiona McBain1
Independent Non-Executive Director
– David Neave1
Independent Non-Executive Director
– Gregor Stewart1
Independent Non-Executive Director
– Dr Richard Ward
Senior Independent Non-Executive Director
Key responsibilities
– Review the composition of the Board and its
Committees.
– Lead the process for Board appointments and make
recommendations to the Board.
– Oversee executive succession planning at a high level
to ensure the development of a diverse senior
management talent pipeline.
– Set diversity objectives and strategies.
– Oversee and monitor the corporate governance
framework of the Group.
– Monitor developments in governance and investor
ESG expectations.
Areas of focus in the reporting period
– Led the search for the new Chief Executive Officer.
– Led the searches for new Non-Executive Directors.
– Recommended appointments to the Board and to
the Board’s Committees.
Main activities during the year
Board and senior management succession planning
The Committee continuously keeps the composition of the
Board under review, with the objective of preserving and
refreshing the Board’s collective experience, expertise and
diversity to enable it to oversee the execution of the Group’s
long-term strategy effectively.
During the year, the Committee led the search for a new
permanent Chief Executive Officer ("CEO"), working closely with
the Board on specifying the skills and experience needed by a
CEO to shape the Group’s strategy and lead the business. The
international search firm Spencer Stuart (a signatory to the
voluntary code of conduct for executive search firms, which has
no other connection to the Company or any individual director)
was engaged to assist with the search. Shortlisted candidates
were interviewed by members of the Committee and other
Non-Executive Directors, resulting in the selection of Adam
Winslow as the preferred candidate. We announced on
30 August 2023 that Adam would join the Group as its new
CEO, subject to regulatory approval. We announced on
27 January 2023 that Jon Greenwood had been appointed
as Acting CEO and, on 31 August 2023, that, the relevant
regulatory approvals having been obtained, he had been
appointed to the Board as a Director.
The Committee also led searches for new Non-Executive
Directors during the year with the assistance of Teneo, the
global executive search and advisory firm (and a signatory to the
voluntary code of conduct for executive search firms, which has
no other connection to the Company or any individual director).
Shortlisted candidates were interviewed by members of the
Committee and the Board and David Neave, having been
selected as the preferred candidate, was appointed to the Board
as a Non-Executive Director with effect from 19 October 2023.
The searches started in 2023 have also resulted in the selection
of Carol Hagh, whose appointment to the Board will take effect
on 1 April 2024. More information about the expertise that Carol
will contribute to the Board is set out in the Chair's statement on
page 10.
Composition of Board Committees
During the year, the Committee considered the effect of
changes in the Board’s composition on the skills and experience
available to the other Committees of the Board and
recommended that Mark Lewis be appointed as a member of
the Remuneration and Customer and Sustainability
Committees and that David Neave be appointed as a member
of the Audit and Board Risk Committees. The Committee also
recommended that all Non-Executive Directors should become
members of the Nomination and Governance Committee with
effect from 1 January 2024 or, if later, with effect from their date
of appointment to the Board.
Electing and re-electing Directors
Before recommending the proposed election or re-election of
Directors at the 2023 AGM, the Committee reviewed the
independence of the Non-Executive Directors and concluded
that all Non-Executive Directors remained independent in
judgement and character and met the criteria for
independence set out in the UK Corporate Governance Code.
The Chair of the Board was independent on appointment.
Notes:
1. Tracy Corrigan, Mark Gregory, Adrian Joseph, Mark Lewis, Fiona
McBain, David Neave and Gregor Stewart were appointed to the
Committee with effect from 1 January 2024
2. Sebastian James stepped down as a Director on 31 December 2023..
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
125125
Strategic Report / Governance / Financial statements Committee effectiveness review
During the year, an internal evaluation of the effectiveness of the
Committee was carried out with assistance from Promontory
Financial Group as part of the wider review of the performance
of the Board and its Committees. The review found that the
Committee challenged matters within its remit effectively,
having regard to wider strategic priorities, and that the materials
available to it were satisfactory. The Committee considered that
its effectiveness would be enhanced by the appointment of all
Non-Executive Directors as members of the Committee, which
it recommended to the Board and which took effect from
1 January 2024.. Further information about the Board
effectiveness review can be found on pages 114 to 115.
The Committee also reviewed its activity against its Terms of
Reference and determined that its Terms of Reference
remained comprehensive and of appropriate scope.
The Committee’s Terms of Reference can be found on the
corporate website: www.directlinegroup.co.uk/en/who-we-are/
leadership/board-committees.
The Board reviewed and approved this report on 21 March 2024.
Danuta Gray
Chair of the Nomination and Governance Committee
Nomination and Governance Committee report continued
The Committee also carefully considered Directors’ external
responsibilities and concluded that all Directors had sufficient
time to dedicate to their respective roles.
All current Directors will submit themselves for election or re-
election at the Company’s 2024 AGM.
Diversity and inclusion
The Committee believes that diversity of gender, ethnicity, skills
and experience, as well as cognitive, regional, socio-economic,
educational and professional diversity, equips the Board better
to take a broad strategic perspective and the management
team better to lead a diverse workforce and serve a diverse
customer base.
The Board has in place a Diversity Policy, the objective of which
is to seek to ensure that individual differences, which contribute
to the success of the Company and represent the diversity of our
customers and colleagues, are reflected at Board level. The
policy states that appointments should embrace diversity of
gender, ethnicity, skills, experience and cognitive diversity, as
well as socio-economic, educational and professional
background, among other differences. The policy underpins
appointments that are made to both the Board and its
Committees.
The Board Diversity Policy is monitored and reviewed annually
by the Nomination and Governance Committee and made
available to any executive search firm engaged to assist with the
selection and appointment process for Board positions.
The Board Diversity Policy is available to view on the Company’s
website at www.directlinegroup.co.uk/en/sustainability/reports-
policies-and-statements.
Further information on the Board’s approach to diversity can be
found in the Corporate Governance report on pages 112 to 113
which includes progress against key external targets.
The Committee also oversees the promotion of diversity at
senior management level and Group-wide. During the year, it
has kept the Group’s diverse talent pipeline under review, noting
its focus on inclusivity and equality of opportunity, as well as on
prioritising future skills needed by the business, and the progress
made towards gender targets among senior management
positions. More information on senior management diversity can
found on page 113.
Corporate governance
The Committee monitors arrangements made by the Company
and its subsidiaries to comply with the UK Corporate
Governance Code and other relevant governance standards. It
also considers emerging governance matters, observance of ESG
standards and developments, and reforms which may affect the
Group’s adherence to corporate governance best practice.
The Chair reported on matters dealt with at each Committee
meeting to the subsequent scheduled Board meeting.
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Customer and Sustainability
Committee report
Tracy Corrigan
Chair
Committee membership1
– Tracy Corrigan2
Chair and Independent Non-Executive Director
– Adrian Joseph OBE
Independent Non-Executive Director
– Mark Lewis3
Independent Non-Executive Director
Key responsibilities
– Provide oversight of and advice to the Group on
conducting its business in a responsible and
sustainable manner.
– Monitor the progress of the Group under its five
sustainability pillars.
Areas of focus in the reporting period
– Monitored the Group’s activity under the five pillars of
the Group’s sustainability strategy.
– Oversaw the Group’s involvement in environmental
initiatives, tracking progress against the Group’s
Science-Based Targets.
– Considered decision making on ethical matters,
including the Group’s Modern Slavery Statement.
– Reviewed performance and approach on key
stakeholder matters, including the refresh of the
Group's sustainability materiality matrix.
– Reviewed the Group’s people plans, including targets
aimed at improving gender and ethnic diversity at all
levels of the business and developing a culture of
inclusivity.
– Reviewed the Committee’s remit to ensure all
sustainability matters received appropriate review
and challenge at Board and management level.
Main activities during the year
On 31 December 2023, Seb James stepped down as Chair of
this Committee. I would like to thank Seb for his energetic
stewardship of the Committee for the past seven years.
I was delighted to be appointed as Seb's successor and took the
Chair of this Committee from 1 March 2024.
Customer
During the year, the Committee oversaw management’s work to
drive positive customer outcomes and to align business
practices with the Group’s purpose of helping people carry on
with their lives, giving them peace of mind now and in the
future.
The Committee reviewed the business’ implementation of a
new ‘Group Customer Day’ as part of work to deepen Group-
wide understanding of customer outcomes, feedback and
metrics.
As part of the Group's Consumer Duty implementation, the
Committee received presentations on how the business was
evaluating, developing and testing its products and customers’
understanding of them, and how the business was further
adapting its communications to meet the needs of vulnerable
customers. The Committee welcomed steps taken by the Group
to support customers affected by the cost-of-living crisis.
The Committee challenged the business's arrangements for
embedding a customer outcomes-focused culture and
encouraged the continuing improvement of metrics used to
understand customers' priorities.
Planet
At the beginning of the year, the Committee considered the
results of a sustainability benchmarking exercise and supported
management’s strategic approach to climate change risk.
Emphasis was placed on the importance of delivering the
Group’s carbon emissions reduction plan whilst managing the
potential risk to the business of climate change.
In the second half of the year, the Group commenced work to
deliver against the climate-related risk management roadmap
that it had submitted to the PRA in July 2023. Management was
challenged to refine the business’ sustainability materiality
matrix and the underlying ESG issues identified as most relevant
to the Group and its stakeholders.
Progress on delivery of the Group’s five Science-Based Targets
(“SBTs”) was reviewed throughout the year and the Committee
strongly supported engagement with smaller suppliers in order
to support their journey towards decarbonisation.
Notes
1. Sebastian James chaired this Committee until he stepped down from
the Board on 31 December 2023.
2. Tracy Corrigan was appointed as Chair of this Committee with effect
from 1 March 2024.
3. Mark Lewis was appointed as a member of this Committee
on 30 March 2023.
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Strategic Report / Governance / Financial statements Customer and Sustainability Committee report continued
People
Governance
Over the course of 2023, the Committee reviewed the business’s
initiatives to promote a culture that helps people thrive through
celebrating difference.
The Committee oversaw the introduction of a new four-point
performance framework along with new Group values. For more
information on our refreshed values, please see page 22.
The Committee received reports on the all-employee ‘DiaLoGue’
engagement surveys and carefully monitored any trends in the
feedback received, including responses to employee pay
arrangements, provision of a targeted one-off cost-of-living
payment, as well as general levels of engagement.
The Committee supported management’s work to improve
diverse recruitment at all levels of the business, including the
continuing development of a healthy talent pipeline and the
establishment of targeted mentoring, coaching and leadership
development for colleagues from minority groups.
Society
Throughout the year, the Committee oversaw the business’s
work to use its expertise to improve outcomes for society and
the communities that the Group serves.
The Committee noted that, since its launch in May 2023, the
Group's Community Fund outreach programme had engaged
with 9,700 young people. The programme was facilitated by 600
Group colleagues, including the Chair of the Board of Directors,
who collectively contributed 2,200 volunteering hours. Events
held included business simulation events for students from
lower socio-economic backgrounds, and work experience and
mentoring opportunities for students with special educational
needs and disabilities.
During the year, new partnerships were established with UK
Youth and St Mary Magdalene Academy: The Courtyard school,
and the business continued to work with existing partners
Envision and Springpod.
In 2023, the Committee welcomed news that the Group had
entered the Social Mobility Foundation Top 75 Employer Index
for the first time.
Modern Slavery Statement
In February 2023, the Committee reviewed the Group’s policy on
compliance with the Modern Slavery Act 2015 (the “MSA”) and
how third-party suppliers complied with the Act’s requirements.
The Committee reviewed the Procurement function’s activity in
relation to the MSA and concluded that processes and policies
in connection with the MSA were robust, effectively embedded
in supply chain processes, and reflected the Procurement
function’s updated sustainability processes.
The Modern Slavery Statement is available to view on the
corporate website:
https://www.directlinegroup.co.uk/en/sustainability/reports-
policies-and-statements
The Board is committed to ensuring that ethical and sustainable
business practice is embedded throughout the business, and to
both reviewing and challenging management’s approach to
delivering outcomes in line with the Group’s vision and purpose.
During the year, the Chair of the Customer and Sustainability
Committee reported on matters dealt with at each Committee
meeting to the subsequent scheduled Board meeting, whilst
the Board, recognising the growing strategic significance of
sustainability matters, received additional, dedicated reports on
the Group’s approach to Customer, People and Culture.
Remit of the Committee
The Committee reviewed its responsibilities in late 2023 and
recommended that it increase its oversight of customer
outcomes, conduct and experience. With that objective, the
Committee decided to meet more frequently to be able to
dedicate the time thought appropriate to monitor and
challenge customer metrics, and to debate the standard to
which the Group aims to work in supporting its customers. To
reflect its increased focus on customer-related matters, the
Committee has changed its name to the Customer and
Sustainability Committee.
Committee effectiveness review
During the year, an internal evaluation of the effectiveness of the
Committee was conducted with assistance from Promontory, as
part of the wider review of the performance of the Board and its
Committees. The review found that the skills and capacity of the
Committee, and the materials available to it, were appropriate
to enable it to provide an effective level of challenge. Further
information on the Board effectiveness review can be found on
pages 114 to 115.
In addition, the Committee’s Terms of Reference were reviewed
against the activity of the Committee during the year. The Terms
of Reference were found to be suitable, comprehensive and of
appropriate scope.
The Committee’s Terms of Reference can be found on the
corporate website:
www.directlinegroup.co.uk/en/who-we-are/leadership/board-
committees
The Board reviewed and approved this report on 21 March 2024.
Tracy Corrigan
Chair of the Customer and Sustainability Committee and
Independent Non-Executive Director
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Investment Committee
report
Fiona McBain
Chair
Committee membership
– Fiona McBain
Chair and Independent Non-Executive Director
– Mark Gregory
Independent Non-Executive Director
– Neil Manser
Chief Financial Officer
Key responsibilities
– Provide oversight of the Group’s investment strategy.
– Oversee the management and performance of the
Group’s investment portfolio.
Areas of focus in the reporting period
– Monitored closely the changes in valuations and
resilience of the Group’s investment assets.
– Oversaw the refresh of the target Strategic Asset
Allocation, including approval of plans for phased
implementation and review of recommendations
across asset classes.
– Ensured the investment portfolio held appropriately
matched assets and liabilities and remained within
agreed aggregate risk and exposure limits.
– Ensured the investment portfolio maintained
sufficient liquidity to meet a stress insurance or
financial market event in a 1 in 200-year insurance,
market, or credit risk event.
– Received progress updates on the calibration of
Science-Based Targets (“SBTs”) for each asset class in
scope within the investment portfolio.
Oversight of market developments
During the year, the Committee considered trends in economic
growth, employment figures, credit spreads, inflation and
interest rates, stresses in the banking sector, and wider
geopolitical contexts and took these into account when
providing oversight of, and challenge to, the Group’s investment
strategy.
At each scheduled meeting, the Committee received reports on
key financial market developments from the Director of
Investments and Capital Management.
Monitoring investment activity and performance
Throughout the year, the Committee carefully reviewed the
performance of the Group’s investments. It received a
presentation from the external managers of its commercial
property portfolio, CBRE, and discussed areas in which there
might be further opportunities for investment in line with the
Group's risk appetite. Management shared recommendations
for the Group's in-house portfolios, which were reviewed and
challenged by the Committee to ensure the investment strategy
remained appropriate and well-positioned in an uncertain
macro-economic context.
Reviewing investment strategy and liquidity
Early in 2023, the Committee conducted its annual review of the
business’s asset liability management, which was undertaken to
ensure that the Group’s asset and liability matching, along with
stressed liquidity requirements, remained appropriate. Noting
feedback from the Financial Risk function, and due to the
relatively small changes in the nature of the liabilities in the past
twelve months, the Committee supported management’s
recommendation that no adjustments were required.
The Committee agreed a slight adjustment of the Group’s
liquidity requirements, striking a balance between the business’s
performance and the Group’s ability to access sufficient liquidity
if it were to meet a 1 in 200-year stress risk event.
During the year, the Committee oversaw a Strategic Asset
Allocation (“SAA”) exercise which had been carried out by
external consultants Willis Towers Watson (“WTW”). The exercise
was undertaken in order to identify an SAA with improved
expected return compared to the Group’s existing portfolio and
reduced expected volatility and value-at-risk. Following review
and challenge, the Committee approved the staggered
implementation of a provisional target SAA, which
management had adapted from the original WTW
recommendation. The Financial Risk function was engaged
throughout the process and made recommendations for risk
mitigation, which were supported by the Committee. Following
input from the Committee, the first stages of the target SAA
refresh were actioned, including work to rebalance the core and
specialist fixed interest portfolios.
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Strategic Report / Governance / Financial statements Investment Committee report continued
Oversight of responsible investment
In 2023, the Group finalised its selection of a climate scenario
modelling provider and updated its responsible investment
framework. The latter included: a climate framework for
corporate bonds; setting of SBTs for emissions reduction for
commercial real estate (“CRE”) and CRE loans; use of ESG-
weighted indices; and screening for controversial weapons and
issuers deemed in violation of the UN Global Compact
principles.
Governance
The Chair reported on matters dealt with at each Committee
meeting to the subsequent scheduled Board meeting.
Committee effectiveness review
During the year, an internal evaluation of the performance of the
Committee was conducted with assistance from Promontory, as
part of the wider review of the performance of the Board and its
Committees. The review found that the Committee had the
appropriate skills and experience to enable it to challenge
effectively, that it provided effective updates to the Board and
that it received satisfactory and timely papers. Further
information on the Board effectiveness review can be found on
pages 114 to 115.
In addition, the Committee’s Terms of Reference were reviewed
against the activity of the Committee during the year. The Terms
of Reference were found to be suitable, comprehensive and of
appropriate scope. Updates were made regarding the
Committee’s oversight of climate and sustainability.
The Committee’s Terms of Reference can be found on the
corporate website:
www.directlinegroup.co.uk/en/who-we-are/leadership/board-
committees
The Board reviewed and approved this report on 21 March 2024.
Fiona McBain
Chair of the Investment Committee and Independent Non-
Executive Director
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Directors’ Remuneration
report
Dr Richard Ward
Chair of the Remuneration
Committee
Committee membership
– Dr Richard Ward
Chair and Senior Independent Director
– Tracy Corrigan
Independent Non-Executive Director
– Danuta Gray
Chair of the Board
– Mark Gregory
Independent Non-Executive Director
– Sebastian James1
Independent Non-Executive Director
– Mark Lewis2
Independent Non-Executive Director
Key responsibilities
– Determine the policy for rewarding Directors and senior
leadership for results that are generated within the risk
appetite set by the Board and oversee how the Group
implements its Remuneration Policy.
– Oversee the level and structure of remuneration
arrangements for senior executives, approve share
incentive plans, and recommend them to the Board and
shareholders.
– Review workforce remuneration and related policies and
the alignment of incentives and rewards with culture,
ensuring all our colleagues are paid fairly.
Areas of focus in the reporting period
– Jon Greenwood was appointed Acting CEO on 27
January 2023 and the Committee carefully considered
the appropriate remuneration package for this role,
taking into account its interim nature.
– The Committee also considered the remuneration
arrangements for the departing CEO, Penny James, in
accordance with the Directors’ Remuneration Policy and
incentive plan rules, contractual obligations and
shareholder expectations.
– The process for the recruitment of a new CEO was
completed during the year, with Adam Winslow taking
up the position on 1 March 2024. The Committee
carefully considered the appropriate remuneration
package to attract and motivate Adam.
– The Committee (and Board) continued to be updated on
wider workforce actions in the context of the higher cost
of living environment, including employee feedback,
voluntary turnover and salary increase decisions.
Dear Shareholders,
On behalf of the Remuneration Committee ("the Committee"), I
am pleased to introduce the Directors’ Remuneration Report for
the 2023 financial year.
During 2023, Direct Line Group has taken decisive action to
restore our capital resilience, improve performance in Motor
insurance and maintain the performance of our non-Motor
businesses. The Group has been put back on a stable footing,
after a volatile trading environment in 2022, with heightened
inflation and severe weather events. The performance of Home,
Rescue and Commercial Direct has been good, broadly in line
with our expectations, and we have taken significant actions to
improve margin in Motor.
During the year, we sold our brokered commercial insurance
business for an attractive valuation which strengthened the
Group both from a strategic and capital perspective, in
particular improving our solvency ratio. Our Home, Commercial
Direct, Rescue and other businesses have delivered a good
performance with an improved ongoing net insurance margin.
These factors have continued to impact remuneration
outcomes for the 2023 financial year, and the Committee
carefully considered a range of factors when making
remuneration decisions in respect of 2023 performance. In
doing so we were also cognisant of the challenges faced by our
people in the context of the continuing cost of living crisis and
the actions the Group has taken to best support them through
this period. Further details are set out later in this letter.
The Report is set out in the following sections:
Section
Chair’s statement
Remuneration at a glance – summarising the
remuneration arrangements for Executive
Directors
Annual Report on Remuneration – detailing pay
outcomes for 2023 and covering how the Group
will implement the Policy for 2024
Summary of the Policy approved at the 2023
AGM
Page
131 to 135
136
137 to 152
153 to 156
Notes:
1. Sebastian James stepped down from the Board on 31 December
2023.
2. Mark Lewis was appointed to this Committee on 30 March 2023.
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Strategic Report / Governance / Financial statements Directors' Remuneration report continued
Performance and incentive outcomes for 2023
During 2023, we continued to balance the needs of our
stakeholders, supporting our people through a cost of living
crisis, whilst looking after our customers and protecting the
business for the long term. We addressed our three key
priorities; to restore our capital resilience, improve our
performance in Motor, and have resilient trading across our
other business.
Significant underwriting and pricing actions have been taken to
improve our written margins, which in the second half of the
year were consistent with a 10% net insurance margin. The
nature of financial reporting for an insurance business means
that 2023 earnings do not fully reflect the profit on business
written during the year (particularly in the second half of the
year), and significant underwriting and pricing actions have
been taken to improve our written margins, which, we believe
for the majority of the second half of the year were consistent
with our ambition of a net insurance margin above 10%. The
performance outcomes of the Annual Incentive Plan ("AIP") and
Long-term incentive Plan ("LTIP") awards reflect these factors
and challenges, and are set out below.
AIP
Financial performance in 2023 was heavily influenced by the
external environment, but we took strategic action to rebuild
our capital position as outlined above. Motor continued to be
affected by high claims inflation, which remained ahead of our
expectations for the first half of the year. Although underwriting
and pricing actions during the second half of the year have
improved the net insurance margin position, this is not yet fully
reflected in our reported financial performance. As a result, there
was an operating loss of £189.5m (excluding restructuring and
one-off costs), which was below the threshold level for this
element of the AIP (55% weighting).
In last year's report we explained our intention to base 45% of
the AIP on an assessment against a set of Group Objectives and
Key Results related to 2023 underwriting performance as well as
delivering a great customer experience and supporting great
people. During engagement with shareholders in early 2023,
investors set out a clear preference that cost management
should be an additional area of focus. As a result, the Committee
resolved shortly after the finalisation of the 2022 Annual Report
that the appropriate performance measures for the 2023 AIP
were cost management and underwriting performance (25%
weighting), customer (10% weighting) and people (10%
weighting).
To assess the delivery of improved underwriting performance,
the Committee considered how we have made progress on our
cost agenda via operating expenses, as well as progress in
current year Motor margin and the scored loss ratio for Home.
The Committee awarded 10% (out of 25%) for this element.
Performance in respect of the People element was robust, with
delivery of industry-recognised training programmes to address
skills gaps in particular areas and good inclusion and
engagement scores. The Committee awarded 5% (out of 10%)
for this element. There was limited progress against Customer
metrics, which resulted in this element not meeting threshold
performance.
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The Committee considered the appropriateness of the AIP
outcome for Executive Directors at length, noting that financial
performance has been challenging. However, the Committee
believes it is also important to appropriately recognise the
actions the management team has taken during the year, in
particular the actions in relation to improving Motor
performance and rebuilding the capital position, neither of
which are wholly reflected in our operating profit result. The
Committee also noted that no AIP awards were made to any
staff in respect of 2022.
The Committee concluded that an outcome of 15% of
maximum appropriately balances the factors outlined above. In
line with the Policy, 40% of any AIP for the Executive Directors
will be deferred for three years under the Deferred Annual
Incentive Plan ("DAIP").
The overall AIP outcome for the Executive Directors for 2023
was therefore 15% of maximum, which resulted in a payout of
£176,756 for the Acting CEO (relating to the period as an
Executive Director) and £138,229 for the CFO, which the
Committee believes is appropriate in the context of the Group's
performance in 2023. In line with the Policy, 40% of any AIP
award will be deferred for three years under the DAIP.
Full details on the outcomes for the year are included on pages
140 to 141.
LTIP
In accordance with the remuneration reporting regulations, the
reported figures in the single figure table for 2023 include the
RoTE element of the 2021 LTIP awards and the TSR element of
the 2020 LTIP awards. The Group granted LTIP awards in two
tranches in 2020 and 2021.
– RoTE (2021 LTIP): Average RoTE for the three year
performance period ending 31 December 2023 was 0.9%.
This is below the threshold target level of 17.5%, and therefore
this element will lapse in full.
– Relative TSR (2020 LTIP): The performance of this element
(three year performance period from grant to vesting date
ending on 26 March and 31 August, respectively) was below
the threshold performance level (median) for both awards,
and therefore these elements lapsed in full.
This means that the overall outcome of the March and August
2020 LTIP awards, which vested in 2023 were both 0% of
maximum (including the RoTE outcomes disclosed last year).
The relative TSR elements of the 2021 LTIP, and therefore the
overall outcome of the March and August 2021 LTIP awards
(including the RoTE outcomes as above) will be disclosed in
next year’s report once the performance period is complete.
No discretion was exercised in respect of LTIP awards vesting
during the year, which reflects the trading performance over the
last three years.
Strategic Report / Governance / Financial statements
Committee decisions on remuneration outcomes
The Group has also continued to support colleagues by:
– continuing to provide a facility for employees to access part of
their monthly salary in advance of the normal payroll date;
– refreshing the Group’s employee discount platform
and signposting to relevant offers; and
– providing support and options to seek support for colleagues
facing financial hardship.
The Chair of the Committee has attended at least one meeting
of the Group’s Employee Representative Body (“ERB”) each year
since 2018. I attended the ERB meeting in December 2023,
where I listened to concerns from the ERB members regarding
the impact of the cost of living crisis and their insights regarding
hybrid working. I had the opportunity to explain how, when
making decisions about executive remuneration, the
Remuneration Committee balance the needs of shareholders
and employees, particularly the pressure on our lowest paid
workers.
The Chief People Officer and Acting Chief Executive Officer
provided further workforce reward updates to the Committee
throughout the year as part of a standing agenda item at our
Committee meetings. Further details can be found on page 137.
This year, updates included information on the Group’s gender
and ethnicity pay gaps and cost of living support outlined above,
as well as how reward mechanisms have been reviewed to
ensure alignment with Group's customer focussed priorities in
the context of Consumer Duty requirements and best practice.
The Committee considers it important to monitor and assess
internal pay relativities, including the CEO pay ratio disclosures,
and takes these into account in its decision making. For
example, the Committee scrutinises the reasons for movements
in the CEO pay ratio year-on-year and considers the impact of
salary increases on the total remuneration package of our
Executive Directors and Executive Committee in the context of
appropriate external remuneration benchmarking data.
The overall AIP outcome recognising the impact on the Group’s
financial performance during the year were considered
appropriate and therefore no discretion to adjust the outcome
was exercised.
The 0% vesting outcomes for the 2020 LTIP awards were
considered appropriate in the light of the Group’s performance
over the three-year performance period, and therefore no
discretion to adjust the outcome was exercised in relation to
these awards.
Although the RoTE element of the 2021 LTIP awards will lapse,
the extent that the TSR elements vest will be considered by the
Committee in March and August 2024 (as the TSR performance
period continues until the vesting date).
Taking the points above into account, the Committee believes
the Policy has delivered an appropriate quantum of reward for
the corporate performance achieved. The Committee was
therefore satisfied that the Group’s Remuneration Policy has
operated as intended.
Wider workforce pay considerations and engagement
for 2023
The Committee considers wider employee pay as context for
the decisions it makes and this has been particularly important
this year in light of the continuing cost of living pressures. The
Committee was acutely cognisant of the wider macroeconomic
environment throughout the year, in particular the impact that
sustained higher inflation and energy bills have had on our
people.
As part of the wider Committee oversight on all-employee pay
matters, the Committee is pleased to confirm that the Group
will apply an increase to the Group's minimum salary of 7.1%
from 1 April 2024, to align with the Living Wage Foundation's
Real Living Wage. This will result in the Group-wide minimum
salary increasing to £23,400 on a full-time basis (for 37.5hr
working week).
For employees who earn above the minimum salary, all eligible
employees (excluding Executive Directors and the Executive
Committee and Senior Leadership) will receive a salary increase
of 5% effective 1 April 2024. In addition, the Committee was
supportive of management's recommendation to extend the
eligibility of an annual variable pay scheme to all our colleagues
who do not currently participate in a variable pay scheme.
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Strategic Report / Governance / Financial statements Directors' Remuneration report continued
Directors’ Remuneration Policy (the “Policy”)
In line with the usual triennial Policy approval timescales, a new
Policy was approved by shareholders at the AGM in May 2023.
Considering shareholder support for the pre-existing
arrangements and recognising the economic uncertainty,
inflationary challenges and complexities associated with the
Insurance industry transition to IFRS 17, the Committee
concluded that the existing Policy remained appropriate at the
current time and therefore largely rolled-forward our existing
Policy for approval at the 2023 AGM.
The Policy was approved by shareholders, with over 98%
support. A summary of the Policy is set out on pages 153 to 156.
The Committee retains the ability to keep the Policy under
review in light of the Group's evolving strategy and under the
leadership of a new CEO.
Executive Director changes
As explained in last year's report, Penny James agreed with the
Board to step down as Chief Executive Officer and as a Director
on 27 January 2023. Penny's employment ceased on 28
February 2023 and further details are provided on page 149.
As announced on 30 August 2023, Adam Winslow was
appointed as Chief Executive Officer effective from 1 March
2024 and to the Board on 21 March 2024. In setting Adam's
remuneration, the Committee considered his wealth of
experience in general insurance, market data in respect of
FTSE51-150 companies and other FTSE350 insurers, the
previous CEO's remuneration package, our Directors'
Remuneration Policy and the pay and conditions of the wider
workforce. Taking these factors into account, Adam's salary was
set at £820,000, broadly in line with the previous CEO, and he
will not be eligible for a salary increase in 2024.
In accordance with the Directors' Remuneration Policy, he will
receive pension contributions (or cash in lieu) in line with the
wider workforce (9% of salary) and his variable remuneration
opportunities (AIP and LTIP) are in line with the current
Directors' Remuneration Policy. Adam will also receive buyout
awards to compensate him for awards forfeited from his
previous employer in connection with his appointment at DLG.
Further details are set out on page 149.
Jon Greenwood (previously Chief Commercial Officer) served as
Acting Chief Executive Officer from 27 January 2023 until 21
March 2024. As explained in last year's report, Jon's salary was
set at £725,000 with pension and variable remuneration
opportunities in line with the Directors' Remuneration Policy.
Following the appointment of Adam Winslow, Jon has returned
to a non-Board role - as a continuing employee he remains
eligible for 2024 AIP and LTIP awards, and his unvested DAIP
and LTIP awards will continue as normal.
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Strategic Report / Governance / Financial statements
Executive Director remuneration for 2024
Your AGM vote
The Committee welcomes investor feedback on an ongoing
basis and this report seeks to describe and explain our
remuneration decisions clearly. I hope that having read the
information in this report, you will vote in support of the
Remuneration Report resolution at the upcoming AGM.
Should you have any questions about the Committee’s Report
please email our AGM email address
shareholderenquiries@directlinegroup.co.uk and I or one of my
colleagues at Direct Line Group will respond to you.
Yours sincerely,
Dr Richard Ward
Chair of the Remuneration Committee and Senior
Independent Director
The Committee carefully considered salary increases for
the Executive Directors (and Executive Committee) for 2024,
taking into account the wider workforce level (of 5%) and
shareholder expectations. The Committee determined that Neil
Manser should receive an increase of 3% (below the wider
workforce level) effective from 1 April 2024. Jon Greenwood will
not receive an increase prior to returning to a non-Board role. As
outlined above, Adam Winslow will not receive a salary increase
during 2024.
Following Adam Winslow's appointment as CEO, it is expected
that a business wide review will take place to confirm the
Group's strategic priorities. The Committee is of the view that, in
order to ensure long term remuneration is linked to KPIs, it will
be appropriate to set the 2024 LTIP targets once this review is
complete (and no later than 6 months after the grant date). The
targets applicable to these awards will be disclosed in due
course.
The Committee has carefully considered the appropriate
performance measures for the 2024 AIP. Operating Profit will
remain the key financial measure (55% weighting), reflecting
the strategic focus on net insurance margin and pricing. A 20%
weighting will also be attributed to delivering against key
strategic measures in 2024. The remainder of the 2024 AIP will
be based on performance against our customer experience
dashboard (15% weighting) and progress on people and culture
initiatives (10% weighting).
Committee performance
During the year, an evaluation of the effectiveness of the
Committee was facilitated by Independent Audit, as part of
their wider review of the Board’s effectiveness. The review found
that Committee members bring a good mix of skills and styles
to meetings and that the Committee benefits from a well-
established agenda and good support from the business.
Further information about the Board effectiveness review can be
found on pages 114 to 115.
In addition, the Committee’s terms of reference were reviewed
against the activity of the Committee during the year. The terms
of reference were found to be suitable, comprehensive and of
appropriate scope.
The Committee’s terms of reference can be found on the
corporate website: www.directlinegroup.co.uk/en/who-we-are/
leadership/board-committees
Direct Line Group Annual Report and Accounts 2023
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Strategic Report / Governance / Financial statements Directors' Remuneration report continued
Remuneration at a glance
Remuneration outcomes for 2023
Total pay (£’000)
Jon Greenwood
(Acting CEO)
2023
Neil Manser
(CFO)
2023
£1,031
£715
£0
£100
£200
£300
£400
£500
£600
£700
£800
£900
£1,000
£1,100
n Base salary n Pensions and benefits n Annual bonus
Find out more on page 139
Note:
1. Jon Greenwood was appointed as Acting CEO effective 27 January 2023. His remuneration has been pro-rated accordingly for this period.
AIP achievement
This chart illustrates the actual amounts earned from the AIP reflecting performance in 2023. 60% of the amount is payable in
April 2024 and 40% will be deferred into shares for three years.
Jon Greenwood
(Acting CEO)
Neil Manser
(CFO)
£177k
26%
£138k
26%
175%
175%
—%
120%
60%
£0 £200 £400 £600 £800 £1,000 £1,200
100%
80%
20%
40%
n Actual (% of salary) n Maximum (% of salary) … Actual (£)
Find out more on page 140 to 141.
136
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Strategic Report / Governance / Financial statements
During the year, PwC advised on market practice, corporate
governance and regulations, incentive plan design and target-
setting, recruitment, and other matters that the Committee was
considering. PwC supported the Group in several ways,
including the provision of internal audit, risk and controls, tax
and actuarial services during 2023. PwC is a member of the
Remuneration Consultants Group and a signatory to its Code of
Conduct and the Committee is therefore satisfied that the
advice PwC provided was objective and independent from the
Group and its Directors.
PwC’s total fees for remuneration-related advice in 2023 were
£163,250 excluding VAT. PwC charged its fees on a time and
expenses basis.
Wider workforce engagement and pay considerations
for 2023
The Committee carefully and regularly considers wider
employee pay as context for the decisions it makes.
The Group’s ERB is a valued forum for having a two-way
dialogue on many important matters. Since 2018 the
Committee Chair has attended meetings as appropriate. The
Committee Chair attended an ERB meeting in December 2023
where there was a Q&A session covering topics such as
affordability and maintaining competitiveness of pay. Feedback
was shared about how people are adapting to different working
patterns and how some are continuing to experience cost of
living challenges. The leadership reflected on this in considering
the approach to the 2024 pay review.
The outcome of our DiaLoGue People Survey is an important
factor for the Committee to reflect on and it has been kept
abreast of matters by the Chief People Officer and Acting Chief
Executive Officer throughout the year. Our existing workforce
engagement is strengthened through “town halls” and other
forums. To supplement this, the Committee receives papers
setting out details of all-employee pay and workforce policies
across the Group at each meeting. For 2023 this included
information on aligning with Consumer Duty, the Motability
partnership, our gender and ethnicity pay gap, updates on
supporting colleagues with cost of living and the approach to
2024 salary increases for the wider workforce. This standing
agenda item provides valuable insight and context for framing
executive pay and policies.
Annual Report on Remuneration
Introduction
We have prepared this Report in accordance with the
requirements of the Companies Act 2006 and the Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 (as amended) (the “Regulations”). The Report
also meets the relevant requirements of the Listing Rules of the
FCA and describes how the Board has complied with the
principles and provisions of the Corporate Governance Code
relating to remuneration matters. Remuneration tables subject
to audit in accordance with the relevant statutory requirements
are contained in this report and stated to be audited. Unless
otherwise stated, the information within the Report is
unaudited.
Committee members and governance
The following list details members of the Committee during
2023. You can find information about each member’s
attendance at meetings on page 105. You can find their
biographies on pages 97-100.
Committee Chair
Dr Richard Ward
Non-Executive Directors
Danuta Gray
Tracy Corrigan
Mark Gregory
Sebastian James (to 31 December 2023)
Mark Lewis (from 30 March 2023)
Advisers to the Committee
The Committee consults with the Acting Chief Executive Officer,
the Chief Financial Officer, the Chief People Officer, and senior
representatives of the HR, Risk and Finance functions on
matters relating to the appropriateness of all remuneration
elements for Executive Directors and Executive Committee
members. The Chair of the Board, Acting CEO, CFO and CPO are
not present when their remuneration is discussed. The
Committee works closely with the Chair of the Audit Committee
and the Board Risk Committee Chair is a member of the
Remuneration Committee. Input was received regarding target-
setting and payouts under incentive plans, and whether it is
appropriate to apply malus and/or clawback. The Remuneration
and Board Risk Committees can also hold joint meetings to
consider matters of common interest.
The Committee appointed PricewaterhouseCoopers LLP (“PwC”)
as its independent adviser from 1 January 2019 following a
competitive tender process.
Direct Line Group Annual Report and Accounts 2023
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Strategic Report / Governance / Financial statements Directors' Remuneration report continued
Alignment to Provision 40 of the Corporate Governance Code
The following table summarises how the Remuneration Committee has addressed the factors set out in Provision 40 of the 2018 UK
Corporate Governance Code.
Clarity
Remuneration
arrangements should be
transparent and promote
effective engagement with
shareholders and
the workforce.
Simplicity
Remuneration structures
should avoid complexity
and their rationale and
operation should be easy to
understand.
Risk
Remuneration
arrangements should
ensure reputational and
other risks from excessive
rewards, and behavioural
risks that can arise from
target-based incentive
plans, are identified and
mitigated.
Predictability
The range of possible values
of rewards to individual
directors should be
identified and explained at
the time of approving the
Policy.
Proportionality
The link between individual
awards, the delivery of
strategy and the long-term
performance of the
Company should be clear.
Outcomes should not
reward poor performance.
Alignment to culture
Incentive schemes should
drive behaviours consistent
with company purpose,
values, and strategy.
– The remuneration arrangements for the Executive Directors are set out in a clear and simple way in the Directors’
Remuneration Policy and in the plan rules for each incentive plan. Guides are accessible explaining how each
incentive plan operates via an employee portal to ensure full understanding and demonstrates a commitment to
transparency.
– Queries on remuneration practices from shareholders or the workforce are welcomed by the Committee throughout
the year and encouraged at the AGM and at the Group’s regular ERB meetings, which the Chair of the Remuneration
Committee attended in December 2023. Further details are set out on pages 133 and 137.
– We are committed to transparent communication with all our stakeholders, including shareholders. For example, in
conversations in early 2023, investors expressed a preference that cost management should be reflected in the AIP,
and the Committee therefore resolved that the 2023 AIP would include this metric, alongside underwriting
performance, people and customer elements.
– The Group’s remuneration arrangements are intentionally simple and well understood. Executive Directors (and
Senior Leadership) receive fixed pay (salary, benefits, pension), and participate in a single short-term incentive (the
AIP) and a single long-term incentive (the LTIP).
– The decision, for 2023 onwards to adopt a single annual grant of LTIP, rather than the previous approach to split into
two grants, has been well received and simplified the framework further.
– The Committee reviews the appropriateness of targets annually, being mindful of alignment with strategy.
– The ability to mitigate potential risks is within the Policy. Examples include:
–
–
–
the Committee’s discretionary powers to amend the formulaic outcome from incentive awards (for example, where
not consistent with performance);
the inclusion of malus and clawback provisions under a wide range of potential scenarios; and
in-employment and post-employment shareholding requirements.
– The Committee considers that the incentive arrangements do not encourage inappropriate risk-taking, due to the
Committee’s rigorous process for reviewing incentive outcomes, which includes seeking the view of the Chair of the
Board Risk Committee before making its final variable pay determinations.
– The Committee also considers that the Policy provides wide-ranging flexibility to adjust payments where outcomes
are not considered to reflect underlying business performance and individual contributions, or where behaviours are
inconsistent with the risk appetite of the Group.
– At the time of approving the Policy, full information on the potential values of the AIP and LTIP are provided, with
strict maximum opportunities and minimum, target and maximum performance scenarios. An indication of the
potential impact of a 50% share price appreciation on the value of LTIP awards was also included.
– The 2023 AIP and LTIP award opportunities were in line with the maximum opportunity in the Policy.
– Payments under variable incentive schemes require robust performance against challenging conditions over the
short and longer term. For example, for 2023, 55% of the AIP was based on operating profit in addition to cost and
underwriting performance (25% of the AIP), and there was an equal focus between RoTE and EPS in the LTIP (both
measures being Key Performance Indicators for the Group).
– The Committee considers the formulaic outcome, as well as other relevant factors, when making decisions on
remuneration outcomes.
– Outcomes do not reward poor performance due to the Committee’s overriding discretion to depart from formulaic
outcomes which do not reflect underlying business performance.
– The Committee oversees consistent workforce reward principles and is satisfied that these policies drive the right
behaviours and reinforce the Group’s values, which in turn promote an appropriate culture.
– Our new values are reflected in the measures used in our incentive schemes. Our incentive arrangements link to them
in the following ways:
– Win together – the strategic element of the AIP requires our Executive Directors and senior leadership to work
together to deliver key results to our stakeholders. For example, our AIP measures include measures linked to our
customer and people performance, whilst our AIP and LTIP measures include financial metrics which measure the
short-term and long-term performance of the business including earnings and returns measures.
– Own it – financial targets under the AIP are the same for all eligible participants, regardless of seniority, linking
everyone’s individual contribution to AIP reward outcomes.
– The use of annual bonus deferral, LTIP holding periods and our shareholding requirements strengthen the focus on
our strategic aims and ensure alignment with the interests and experiences of shareholders, both during and after
employment.
138
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Strategic Report / Governance / Financial statements
Implementing Policy and pay outcomes relating to 2023 performance
Single figure table (Audited)
£’000
Jon Greenwood4
Neil Manser
Penny James5
Salary1
Benefits2
Annual
bonus3
Long-term
Incentives
All-
employee
share plans
Pension
contributions
and cash
allowance in
lieu of
pension
Fixed pay
and benefits
sub-total
Variable
remuneration
sub-total
Total
2023
2022
2023
2022
2023
2022
668
-
527
515
57
817
125
-
2
2
1
49
177
-
138
0
0
0
0
-
0
0
0
0
1
-
1
1
-
-
60
-
47
46
5
74
854
-
577
564
63
940
177
1,031
-
138
0
0
0
-
715
564
63
940
Notes:
1. Salary – the Company operates a flexible benefits policy, and salary is reported before any personal elections are made.
2. Benefits – include a company car or allowance, private medical insurance, life assurance, income protection, health screening and discounted
insurance. The former CEO used a car service for travelling on journeys between home and office; the Group also paid for any associated tax liability
on this benefit. To reflect the interim nature of the role, the Acting CEO received reimbursement of reasonable travel and accommodation expenses
between his home in the North of England and the Group's London office; the Group also paid for any associated tax liability on this benefit. The
total cost to provide this travel and accommodation benefit was £88,897.63. The Acting CEO also received an allowance of £25,000 per annum
(payable monthly, £23,205.19 received in respect of 2023) to reflect the significant disturbance to Jon and his family as a result of spending the
majority of his time in London.
3. Annual bonus – includes amounts earned for performance during the year but deferred for three years under the DAIP. For more information, see
pages 140 to 141. These deferred awards are normally subject to continuous employment. Awards remain subject to malus and clawback.
4. Jon Greenwood was appointed as Acting CEO effective 27 January 2023. His remuneration has been pro-rated accordingly for this period.
5. Penny James stepped down from the Board on 27 January 2023. Her remuneration has been pro-rated for this period accordingly. Details of Penny's
exit arrangements can be found on page 149.
Each Executive Director has confirmed they have not received any other form of remuneration, other than that already disclosed in
the single figure table.
Direct Line Group Annual Report and Accounts 2023
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139139
Strategic Report / Governance / Financial statements Directors' Remuneration report continued
Annual Incentive Plan outcomes for 2023 (Audited)
The chart illustrates the final assessment, performance measures and weightings under the AIP.
Performance measures and weighting
Performance achievement 2023 Outcome 2023
Operating profit
0%
Underwriting performance and cost
40%
Customer
0%
People
50%
15%
Total
0%
10%
0%
5%
Achievement under the 2023 AIP
2023 AIP payment
15%
15%
£176,756
£138,229
n 55% Operating profit
n 10% Customer
n 10% People
n 25% Underwriting performance and cost
Executive Director
Jon Greenwood
Neil Manser
Operating profit (55% weighting)
The primary financial performance measure for 2023 was operating profit for ongoing operations. The Committee established
threshold and maximum performance levels at the start of the year considering internal budgets and analysts’ consensus forecasts
and did not adjust the targets during the year.
The approach taken to assessing financial performance against this measure was based on a straight-line outcome between 10% for
threshold performance and 100% for achievement of maximum performance.
The table below sets out the threshold and maximum performance targets for the year, and the actual performance achieved.
Measure
Operating Profit
Threshold 10%
Maximum 100%
2023 Actual
2023 Achievement
£168.7m
£253.1m
(£189.5m)
nil
Notes:
1. The AIP for Jon Greenwood is pro-rated to reflect the period from 27 January 2023, being the date he was appointed Acting CEO.
2. 40% of any AIP award is deferred into shares under the DAIP, vesting three years after grant.
3. Note that the operating profit target was originally set on an IFRS 4 basis (on a Group basis, rather than an ongoing operations basis, as targets were
set prior to the sale of the Commercial business), before being rebased to IFRS 17 per the targets disclosed in the table above - for transparency, the
original targets as set on an IFRS 4 basis were:
a. Threshold: £201.8m
b. Maximum: £302.8m
A straight-line interpolation occurs from threshold to maximum performance.
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Strategic Report / Governance / Financial statements
Underwriting
performance and
Cost
(25% weighting)
Improve our
competitiveness to
deliver better value and
experience for
customers by reducing
operating expenses
Improving Motor margins
– In Motor during 2023 we have taken significant pricing and underwriting action, prioritising margin
improvement over volume.
– We believe that for the majority of the second half of 2023 we have been underwriting profitably,
consistent with our ambition of a net insurance margin of above 10%.
– Encouragingly, we began to see the signs of an improvement in our current year net insurance claims
ratio in the second half of 2023.
Sustaining Home underwriting
– Over the course of 2023 Home has traded the market well, delivering written margins ahead of
budget, maintaining a strong retention and exiting the year with an improved in-force policy count
trajectory.
Cost
– Adjusting for the impact of changes to perimeter, e.g. Motability, controllable spend was reduced
broadly in line with a specific stretch in the budget.
– Overall costs increased by less than the rate of inflation.
2023 Achievement: 40% (10% out of 25%)
Customer
(10% weighting)
To better align focus of
our leadership teams on
delivery of customer
experience
– Across the business we have been embedding delivery of our Consumer Duty obligations to ensure
good customer outcomes and meet our mission to be brilliant for customers every day. A
comprehensive implementation plan addressed the requirements arising from the new Duty, which
has been approved by the Board.
– Over 2023, we undertook extensive work across the organisation to further focus on how we meet our
customers' insurance needs. Although good performance was delivered against some of the stretching
customer targets (including Net Promoter Scores) set as part of the 2023 AIP, particularly in the Rescue
part of the business, performance against other metrics (such as complaints) and in other areas of the
business were below the threshold level set by the Committee at the start of the year.
– The Committee recognised that these outcomes were impacted by lower levels of capacity across the
motor repair industry, higher inflation (which has led to higher premium prices) and higher resulting
call volumes (leading to longer wait times). However, the Committee concluded that the overall
performance did not warrant any payout in respect of this element of the AIP.
2023 Achievement: 0%
People
(10% weighting)
A range of indicators
around diversity and
inclusion, employee
engagement and
closing the skills gap,
reflecting the
importance of these
agendas to the success
of the Group
– 2023 diversity targets, aiming to improve gender and ethnic diversity at senior levels were not met, but
it is recognised that progress is not always linear, particularly given that Group’s representation remains
strong compared to the wider market.
– We did well to buck the trend on UK employee satisfaction, and maintained employee satisfaction
levels despite not only facing the same external challenges as the rest of the UK, but a complex
internal landscape.
– On building our entry level talent pipeline, during the year programmes continued to evolve to develop
the future skills needed to serve our increasingly tech-savvy customers. 394 colleagues are currently on
a diverse range of apprenticeships, with 33% focused on vehicle repairs and 43% on data and
technology. Intake to our Ignite/apprenticeship schemes landed above the target range numbers.
– In addition, nearly half of our people manager population have attended high performance upskilling
in 2023 and people manager calibration toolkits were widely used to support on the job learning when
completing end of year performance calibration.
– 2023 Achievement: 50% (5% out of 10%)
Direct Line Group Annual Report and Accounts 2023
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Strategic Report / Governance / Financial statements Directors' Remuneration report continued
LTIP outcomes for 2023 (Audited)
2020 LTIP awards (vesting in 2023)
Awards under the LTIP granted in March and September 2020 vested during 2023. They were subject to relative TSR performance
over the three-year period from the date of grant, and RoTE performance in 2020, 2021 and 2022.
Consistent with the Regulations, the expected RoTE vesting outcomes for the year ended 31 December 2022 (together with the TSR
elements from the 2019 awards) are included in the 2022 LTIP column of the single figure table because the performance period for
these elements ended in 2022. The performance outcomes of these elements are included in the table below.
The TSR elements of the 2020 awards (and the RoTE elements of the 2021 awards – see below) are included in the 2023 single
remuneration figure because the performance period for those elements ended in 2023. Details of the targets and performance
achieved are set out in the table below.
The performance achieved against the targets was as follows:
Award
Performance measure
Weighting
Threshold
(20% of
maximum)
March 2020
August 2020
RoTE
(2022 single figure)
Relative TSR
(2023 single figure)
RoTE
(2022 single figure)
Relative TSR
(2023 single figure)
2021 LTIP awards (vesting in 2024)
60%
17.5%
Maximum
(100% of
maximum)
20.5%
Actual performance
Achievement
Outcome
14.2%
0.0%
0.0%
40% Median Upper quintile
Below median
0.0%
0.0%
60%
17.5%
20.5%
14.2%
0.0%
0.0%
40% Median Upper quintile
Below median
0.0%
0.0%
Awards under the LTIP granted in March and August 2021 are subject to relative TSR performance over the three-year vesting period,
and RoTE performance in 2021, 2022 and 2023. The RoTE performance period for these awards ended on 31 December 2023 and
performance in respect of this element is set out in the table below. Performance under the relative TSR measure will be assessed at
the end of the vesting periods in March 2024 and August 2024 respectively and will be disclosed in the 2023 Directors’
Remuneration Report. Vesting is subject to the Committee’s satisfaction that the financial and risk underpins have been met at the
end of the vesting period.
Consistent with the Regulations, the expected RoTE vesting outcomes for the 2021 LTIP awards (together with the TSR elements
from the 2020 awards above) are included in the 2023 single remuneration figures. You can find details of this on page 139.
Award
Performance measure
Weighting
Threshold
(20% of
maximum)
60%
17.5%
Maximum
(100% of
maximum)
20.5%
Actual performance
Achievement
Outcome
0.9%
0.0%
0.0%
March 2021
August 2021
RoTE
(2023 single figure)
Relative TSR
(2024 single figure)
RoTE
(2023 single figure)
Relative TSR
(2024 single figure)
40% Median Upper quintile
Performance period not yet complete
60%
17.5%
20.5%
0.9%
0.0%
0.0%
40% Median Upper quintile
Performance period not yet complete
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Strategic Report / Governance / Financial statements
LTIP awards granted during 2023 (Audited)
The table below shows awards granted under the LTIP to Executive Directors in 2023 in the form of nil-cost options. As outlined in
last year's report, to simplify the remuneration structure, we have now transitioned to a single LTIP grant for participants each year
(previously granted 50% in March and 50% in August). Prior to granting the awards, the Committee considered the decline in the
share price since the grant of the 2022 LTIP awards. However the Committee determined that it would not be appropriate to make
an adjustment at the time of grant given the recent volatility in the share price at the time, and will instead review whether there has
been a "windfall gain" at the time of vesting (to the extent that the performance conditions have been met).
Director
Position
Award as % of salary
Number of shares granted
Face value of awards (£)
Jon Greenwood
Acting Chief Executive Officer
Neil Manser
Chief Financial Officer
200%
200%
1,058,394
751,824
1,450,000
1,030,000
Awards granted in 2023 under the LTIP1
Note:
1. The number of shares awarded was based on the average share price in the three-day period prior to grant on 30 March 2023, which was £1.37.
The performance conditions that apply to the LTIP awards granted in 2023 are set out below:
Performance Measure
RoTE (average over three years)
TSR (vs FTSE 51-150 (excluding Investment Trusts))
Cumulative operating earnings per share
Emissions
Notes:
1. Emissions targets are:
Performance conditions for awards granted in 2023 under the LTIP
Proportion of award
Performance for threshold
vesting (20%)
30%
30%
30%
15.0%
Median
46.6p
Performance for
maximum vesting
22.0%
Upper quintile
63.1p
10% 1 out of 3 targets are met
All 3 targets are met
a. Operational Scope 1 and 2: Reduce Scope 1 emissions by 36% by 2025 versus the 2019 baseline.
b. Corporate bonds (Scope 1 and 2): Reduce Scope 1 + 2 portfolio temperature score by invested value within corporate bonds portfolio from 2.44°C
in 2019 to 2.23°C in 2025.
c. Corporate bonds (Scope 1, 2 and 3): Reduce Scope 1 + 2 + 3 portfolio temperature score by invested value within corporate bonds portfolio from
2.80°C in 2019 to 2.51°C in 2025.
2. Note that the RoTE and cumulative operating earnings per share targets were originally set on an IFRS 4 basis, before being rebased to IFRS 17 per
the targets disclosed in the table above. After careful analysis and consideration, the Committee determined that no change was required for the
RoTE targets but the cumulative operating EPS targets were adjusted on a neutral basis to offset the impact of the adoption of IFRS 17 - for
transparency, the original targets as set on an IFRS 4 basis were:
Threshold: 56.2p
a.
b. Maximum: 76p
A straight-line interpolation occurs from threshold to maximum performance.
The performance period for the awards granted on 30 March 2023 will end on 31 December 2025 for the RoTE, EPS and Emission
elements, and 29 March 2026 for the TSR element.
Direct Line Group 2012 Share Incentive Plan (“SIP”) (Audited)
During 2023, all employees, including Executive Directors, were eligible to invest from £10 to £150 a month from their pre-tax pay
into the scheme, and receive one matching share for every two shares they purchased in the form of a conditional share award. The
matching shares vest after 3 years subject to continued employment and continuing to hold the purchased shares. This table details
the number of shares held by Jon Greenwood and Neil Manser under the SIP.
Jon Greenwood
Neil Manser
Matching shares
granted during
the year
Matching shares
cancelled during
the year
Value of matching
shares granted (£)1
Total number of
matching shares at
31 December 20232
539
539
—
—
901
901
1,225
1,225
Notes:
1. The total market value of matching shares granted at the time of each award. Purchase of the matching shares takes place within 30 days of the
contributions being deducted from salary.
2. Matching shares which are subject to forfeiture.
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Directors' Remuneration report continued
Directors’ Share interests (Audited)
Executive Directors commit not to hedge their exposure to outstanding awards under these plans or in respect of shares they are
reporting to the Company within their ownership for the purposes of any share ownership guidelines. They also agree not to pledge
as collateral their participation under any of the plans or any shares which they are required to hold in the Company for any
purposes, including for share ownership guidelines. The table below sets out details of the Executive Directors’ share interests
exercised whilst serving as a Director in the year to 31 December 2023.
At 31 December 2023
Share plan
awards subject
to performance
conditions1,2,3
Share plan
awards subject
to continued
service1
Share plan
awards vested
but unexercised1
Share plan interests exercised
whilst serving as a Director during
the year to 31 December 2023
Shares held
outright4
Number of
options
exercised1
Share price on
date of exercise5,6
Jon Greenwood
1,516,703
140,926
—
120,121
92,440
1,548
83,915
Neil Manser
Penny James7
1,416,577
142,085
—
329,494
53,289
—
322,790
556,618
1,361,226
1.38
1.66
1.66
1.38
Notes:
1. These awards take the form of nil-cost options over the Company’s shares. Such awards accrue dividend entitlement from the grant date to the date
on which an award vests, or the end of the applicable holding period. Dividends added post-vesting are shown to 31 December 2023 but are not
realised until exercise.
2. LTIP awards granted to Executive Directors include an additional two-year holding period before awards may be released.
3. Unvested awards subject to performance conditions represent LTIP awards.
4. The number includes beneficial share interests acquired under the SIP. At 21 March 2024, the number of shares beneficially held by Jon Greenwood
has increased to 120,391, and the number of shares held by Neil Manser has increased to 329,764.
5. Jon Greenwood exercised options on 28 March and 26 May 2023.
6. Neil Manser exercised options on 28 March 2023.
7. The above share plan interests for Penny James are as at 27 January 2023 being the date she stepped down from the Board.
The table below shows the Non-Executive Directors’ beneficial interests in the Company’s shares1.
Director
Danuta Gray
Tracy Corrigan
Mark Gregory
Sebastian James
Adrian Joseph
Mark Lewis
Fiona McBain
David Neave
Gregor Stewart
Richard Ward
Shares held at
31/12/2023
26,500
—
—
5,000
—
—
—
—
2,925
—
Shares held at
31/12/2022
26,500
—
—
5,000
—
—
—
—
2,925
—
Note:
1. This information includes holdings of any connected persons, as defined in section 253 of the Companies Act 2006.
2. There were no changes to the above between 31 December 2023 and 21 March 2024.
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Non-Executive Directors (Audited)
Non-Executive Directors receive a basic fee plus additional fees for specific Board responsibilities. The Chair of the Board receives a
single fee. Non-Executive Directors may also claim for reasonable travel and subsistence expenses, in accordance with the Group’s
travel and expenses policy, and, where these are classified as taxable by HMRC, they are shown under ‘Taxable benefits’ below. The
Non-Executive Directors receive no other benefits.
Director
Danuta Gray
Tracy Corrigan
Mark Gregory
Sebastian James
Adrian Joseph
Mark Lewis4
Fiona McBain
David Neave4
Gregor Stewart
Richard Ward
Fees
2023
£’000
350
90
130
105
80
68
110
29
115
150
Taxable benefits2,3
Total
2022
£’000
350
88
129
104
80
—
109
—
115
150
2023
£’000
2022
£’000
10
—
—
—
—
4
14
3
22
—
6
—
—
—
—
—
11
—
12
—
2023
£’000
360
90
130
105
80
72
124
32
137
150
2022
£’000
356
88
129
104
80
—
120
—
127
150
Notes:
1. Non-Executive Directors are not eligible to participate in any of the Group’s bonus or share incentive schemes or to join any Group pension scheme.
2. The values shown under ‘Taxable benefits’ above comprise the value of taxable travel and subsistence expenses reimbursed by the Company
(including any gross-up for tax and national insurance contributions due).
3. The value of benefits for Tracy Corrigan, Mark Gregory, Sebastian James, Adrian Joseph and Richard Ward in 2023, and for Richard Ward in 2022,
were all less than £500. The values have been rounded to 0 for consistency in the table above.
4. Mark Lewis joined the Board on 30 March 2023. David Neave joined the Board on 19 October 2023.
Shareholdings (Audited)
This table sets out the Executive Directors’ share ownership guidelines and actual share ownership levels:
Director
Position
Jon Greenwood
Acting Chief Executive Officer
Neil Manser
Chief Finance Officer
Share ownership guideline1
(% of salary)
Value of shares held at
31 December 20232,3
(% of salary)
250%
200%
51%
142%
Notes:
1. Executive Directors are normally expected to retain all the ‘after tax’ Ordinary Shares they obtain from any of the Company’s share incentive plans
until they achieve a shareholding level that is equal to 250% of base salary for the CEO and 200% of base salary for the CFO respectively. In light of
the interim nature of the role, the Committee did not expect the Acting CEO to meet the share ownership guideline.
2. For these purposes, holdings of Ordinary Shares will be treated as including unvested DAIP awards, all vested but unexercised awards, or awards
unvested but after the performance period and in the holding period. Holdings of Ordinary Shares are valued on a basis that is net of applicable
personal taxes payable on acquiring such Ordinary Shares.
3. Shareholding as a percentage of salary has been calculated based on the 29 December 2023 share price of £1.82.
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Directors' Remuneration report continued
CEO pay ratio
The table below compares the single total figure of remuneration for the CEO since 2019 with that of the Group employees who are
paid at the 25th percentile (lower quartile), 50th percentile (median) and 75th percentile (upper quartile) of its employee population.
Director
20231
2022
2021
2020
20192
Method
25th percentile pay ratio
Median pay ratio
75th percentile pay ratio
Option A
Option A
Option A
Option A
Option A
36:1
35:1
122:1
132:1
123:1
27:1
27:1
95:1
108:1
101:1
19:1
18:1
65:1
73:1
67:1
Notes:
1. As required by the regulations, the CEO single figure used to determine the 2023 pay ratios is based on the sum of the total single figures
of remuneration for Penny James and Jon Greenwood (as Acting CEO).
2. As required by the regulations, the CEO single figure used to determine the 2019 pay ratios is based on the sum of the total single figures
of remuneration for Paul Geddes and Penny James, but with remuneration in respect of Penny James’ service as CFO excluded.
The UK employees included are those employed on 31 December 2023 and remuneration figures are determined with reference to
the financial year ending on 31 December 2023 (consistent with the approach taken in previous years).
Option A, as set out under the reporting regulations, was used to calculate remuneration for 2023 as we continue to believe that that
is the most robust methodology for calculating these figures. The value of each employee's total pay and benefits was calculated
using the single figure methodology consistent with the CEO. No elements of pay have been omitted. Where required, remuneration
was approximately adjusted to be full-time and full-year equivalent basis based on the employee's average full-time equivalent
hours for the year and the proportion of the year they were employed. No other adjustments were made.
The table below sets out the salary and total pay and benefits of the employee at the lower quartile, median and upper quartile for
the 2023 financial year:
Director
Salary
Total pay and benefits
25th percentile (P25)
Median (P50)
75th percentile (P75)
£24,786
£30,466
£29,836
£39,900
£48,616
£58,726
Base salaries of all employees, including our Executive Directors, are set with reference to a range of factors including market
practice, experience and performance in role. In reviewing the ratios, the Committee also noted that the CEO’s remuneration
package is weighted more heavily towards variable pay (including the AIP and LTIP) than the wider workforce due to the nature of
the role, and this means the ratio is likely to fluctuate depending on the performance of the business and associated outcomes of
incentive plans in each year.
The 2023 ratios are broadly in line with 2022 levels. Although there has been an increase in the (combined) CEO total single figure
remuneration (driven by a higher benefits value for the Acting CEO and non-zero AIP outturn for 2023, partially offset by a lower base
salary for the Acting CEO), there has been a broadly consistent proportionate increase in total pay and benefits for quartile
employees (primarily due to a combination of salary increases and increased bonus outturns). As a result, there have been only small
changes to the 2023 pay ratios compared to 2022. In September 2023, over 500 employees joined the Group through our Motability
partnership, but this has not significantly impacted the pay ratios for 2023.
The Group’s employees are fundamental to the Group’s strategy and to ensuring a high level of service to our customers. We are
proud that the high number of consultants in our customer service centres are employed by the Group (rather than being
outsourced) and note that the impact of these lower paid roles is reflected in the ratios above. Further details on the remuneration of
Executive Directors and the wider workforce are set out on page 137. The Committee notes that the pay ratios for 2023 reflect the
nature of the CEO’s package being more heavily weighted towards variable pay compared to more junior colleagues, consistent with
our reward policies, such that the 2023 (and 2022) ratios are lower than previous years reflecting the incentive scheme performance
outturns. Furthermore, the Committee is satisfied that these policies drive the right behaviours and reinforces the Group’s values
which in turn drives the correct culture, and for the reasons outlined above, believes that the ratios are consistent with the Group’s
reward policies.
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Percentage change in Executive Directors’ and Non-Executive Directors’ pay for 2020 to 2023
The table below shows the year-on-year percentage change in salary, taxable benefits, and bonus (where applicable) of the Executive
Directors and Non-Executive Directors, compared to the average pay for all other employees.
Director
2023
2022
2021
2020
2023
2022
2021
2020
2023
2022
2021
2020
Salary/Fees1
Benefits2
Bonus
(including deferred amount)3
Executive Directors
Jon Greenwood
Penny James
Neil Manser
Non-Executive Directors4,5,6
Danuta Gray
Tracy Corrigan
Mark Gregory
Sebastian James
Adrian Joseph
Mark Lewis
Fiona McBain
David Neave
Gregor Stewart
Richard Ward
All employees (average)
Average employee
0%
2%
0%
2%
1%
1%
0%
—
—
—
—
—
—
—
0%
1%
8%
0%
—
—
(16%)
7%
38%
37%
4%
—
0%
67%
90%
18%
—
—
3%
15%
4%
4%
7%
1%
0%
—
—
—
—
—
—
1%
—
0%
0%
7%
7%
15%
—
—
—
0%
0%
5%
19%
0%
0%
56%
0%
0%
0%
0%
—
26%
—
92%
(4%)
—
—
0%
0%
0%
n/a
0%
0%
—
—
—
—
—
(100%)
—
—
—
(100%)
105%
193%
—
(25%)
—
(100%)
n/a
(100%)
0%
—
—
(80%)
—
(87%)
(6%)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(100%)
3%
16%
(100%)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.6%
6%
3%
4%
0%
57%
(19%)
(1%)
34%
(41%)
9%
4%
Notes:
1. Based on the change in average pay for employees employed in the year ended 31 December 2023 and the year ended 31 December 2022. Jon
Greenwood joined the Board in 2023 and therefore there is no comparison to prior year. Non-Executive Director fee levels were unchanged between
2022 and 2023.
2. For all employees, there were no changes in benefits provision between 2022 and 2023. For Non-Executive Directors, benefits comprise taxable
travel and subsistence expenses reimbursed by the Company (including any gross-up for tax and national insurance contributions due).
3. This includes average amounts earned under the AIP, and other variable incentive schemes, including monthly incentive schemes operated in
certain parts of the Group. Jon Greenwood and Neil Manser received bonuses related to 2023 performance, however it is not possible to display as a
percentage increase due to their nil bonus in 2022. Non-Executive Directors are not eligible to participate in any of the Group’s bonus or incentive
schemes.
4. Jon Greenwood, Mark Lewis and David Neave joined the Board during 2023.
5. Mark Lewis, David Neave, Adrian Joseph, Sebastian James, Mark Gregory and Tracy Corrigan had expenses in 2023, however it is not possible to
display as a percentage increase due to their nil expenses in 2022. See page 145 for further information.
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Directors' Remuneration report continued
Chief Executive Officer’s pay between 2014 and 2023 and historical performance of TSR
The table below shows historical levels of the CEO’s pay between 2014 and 2023. It also shows vesting of annual and long-term
incentive pay awards as a percentage of the maximum available opportunity. The graph reflects the TSR for the Company and the
FTSE 350 index (excluding Investment Trusts) on a cumulative basis over the period from 31 December 2013 to 31 December 2023,
as the Company is a constituent of this index.
Total Shareholder Return (%)
250
200
150
100
31 Dec 2013
31 Dec 2014
31 Dec 2015
31 Dec 2016
31 Dec 2017
31 Dec 2018
31 Dec 2019
31 Dec 2020
31 Dec 2021
31 Dec 2022
31 Dec 2023
n DLG n FTSE 350 (excluding Investment Trusts)
Director
Paul Geddes
Penny James
Jonathan
Greenwood
2014¹
2015
2016²
2017
2018
2019³
2019³
2020
2021
2022
20234
20234
CEO single figure of
remuneration (£’000s)
Annual bonus payment
(% of maximum)
LTIP vesting
(% of maximum)1
5,356
4,795
4,071
4,039
3,250
774
2,773
3,286
3,137
940
63
1,031
75%
83%
43%
88%
68%
76%
76%
82%
84%
0%
n/a
15%
88%
96%
86%
99%
71%
0%
100%
80%
75%
0%
n/a
0%
Notes:
1. Based on actual vesting under the 2010, 2011 and 2012 RBS Group LTIP. The value included in the single figures in respect of these awards is
£2,437,428 in 2014.
2. The 2016 single figure and annual bonus payment reflect an adjustment, made in 2019, to the original award of 20% of maximum opportunity
related to the Ogden discount rate change.
3. The 2019 single figure reflects part of the year for the outgoing CEO, Paul Geddes, and the entire year for the newly appointed CEO, Penny James.
4. The 2023 single figure reflects part of the year for the outgoing CEO, Penny James, and part of the year for the Acting CEO, Jon Greenwood.
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Strategic Report / Governance / Financial statements
Payments for loss of office (Audited)
Penny James
As announced on 27 January 2023, the Board and Penny James mutually agreed that she would step down as Chief Executive
Officer and an Executive Director with immediate effect. She supported the Board with a handover to the Acting CEO and her
employment then ceased on 28 February 2023. During this period, she continued to receive her contractual salary, pension and
benefits as normal.
After this date, Penny continued to receive an amount equivalent to salary, pension and benefits in monthly instalments in lieu of the
remainder of her contractual 12 notice period (which would have run to 26 January 2024).
The table below sets out the total value of the amounts paid (or which are due to be paid) to Penny in relation to her departure, as
outlined above:
Total pay and benefits
817
14
74
905
Salary (£’000)
Benefits (£’000)
Pension (£’000)
Total (£’000)
Penny also received £73,250 in respect of legal fees and outplacement support in connection with the termination of her
employment.
In respect of variable remuneration:
– No payments were made under the 2022 AIP and Penny was not eligible for an award under the 2023 AIP.
– All outstanding unvested LTIP awards lapsed at the point of cessation of employment (that is: awards granted in 2020, 2021 and
2022).
– Penny retained her unvested awards under the DAIP. The awards will continue to vest on the third anniversaries of award and
remain subject to the scheme rules, including malus and clawback provisions.
– Penny also retained LTIP awards which had vested but were in the two year post-vesting holding period. The holding period will
continue to apply and awards remain subject to the scheme rules, including malus and clawback provisions.
In accordance with the Policy, Penny is required to maintain a shareholding of 250% of salary for a period of two years from the date
of cessation of her employment, with the number of shares being held in order to comply with these requirements fixed as at the
date of termination of her employment at 28 February 2023.
New Executive Director
Adam Winslow
Adam Winslow was appointed as Chief Executive Officer effective from 1 March 2024 and will be appointed to the Board on 21
March 2024.
In setting Adam’s remuneration, the Committee considered his wealth of experience in general insurance, market data in respect of
FTSE 51-150 companies and other FTSE 350 insurers, the previous CEO’s remuneration package, our Directors’ Remuneration Policy
and the pay and conditions of the wider workforce. Taking these factors into account, Adam’s salary was set at £820,000, broadly in
line with the previous CEO. Adam will not be eligible for a salary increase during 2024.
Pension and variable remuneration opportunities have been set in line with the Directors’ Remuneration Policy.
The Committee also approved buyout awards to compensate him for awards forfeited from his previous employer in connection
with his appointment as follows:
– 2023 annual bonus (Maximum: £975,000): To mirror the original award as far as possible, the final value will be determined based
on the published Aviva Group CEO 2023 annual bonus outcome (i.e. based solely on Aviva Group performance) prior to any
personal performance adjustment. The Remuneration Committee will then consider the performance of the business unit which
Adam led, based on published information and may adjust the outcome noted above upwards or downwards accordingly. The
award will be delivered 50% in cash and 50% in shares (which vest annually over 3 years) to mirror the original terms.
– Deferred bonus in respect of 2021 and 2022 (Estimate: approximately£760,000): Granted on a like-for-like basis with the original
awards (which vest annually over a 3 year period from grant).
– Unvested share awards subject to performance conditions (Maximum: approximately £4.25 million, estimated performance:
approximately £3.8 million): Value based on a performance assessment of the unvested awards, to be granted on a like-for-like
basis with the original awards. For the 2021 LTIP, the buyout award will be based on the performance outcome disclosed in the
2023 Aviva Directors’ Remuneration Report. For the 2022 and 2023 LTIP awards, the buyout awards will be based on the expected
performance out turn at the date of his appointment.
Values are based on the Aviva share price and estimated performance outcomes at the time of preparation of this report, and are
therefore subject to change based on movements in the Aviva share price and/or final performance out turns. Final values will be
disclosed in next year’s Directors’ Remuneration Report.
Direct Line Group Annual Report and Accounts 2023
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Strategic Report / Governance / Financial statements Directors' Remuneration report continued
Distribution statement
This chart shows the overall pay expenditure across all Group employees compared with the total dividend value paid to
shareholders in 2022 and 2023.
Dividend (£m)
% change
(100.0)%
n Ordinary
297.9
Overall expenditure
on pay (£m)
% change
8.8%
511.7
470.2
0
2023
2022
2023
2022
Note:
1. The dividends paid information has been taken from note 14 to the Consolidated financial statements. The overall expenditure on pay has been taken
from note 7 and therefore, consistent with market practice, it has not been calculated in a manner consistent with the single figure in this report.
AGM voting outcomes
The table below shows the percentage of shareholders’ votes which were for or against, and the percentage of votes withheld,
relating to the resolutions to approve the 2022 Directors’ Remuneration Report (which was put to shareholders at the 2023 AGM)
and the Policy (which was put to shareholders at the 2023 AGM).
For
Against
Number
Percentage
Number
Percentage
Number of
votes withheld
(abstentions)
Approval of Directors’ Remuneration Policy (2023 AGM)
1,030,959,263
98.1% 19,918,567
1.9%
1,356,094
Approval of Directors’ Remuneration Report (2023 AGM)
1,028,748,967
97.9% 22,163,847
2.1%
1,321,110
Dilution
The Company complies with the dilution levels that the Investment Association guidelines recommend. These levels are 10% in 10
years for all share plans and 5% in 10 years for discretionary plans. This is consistent with the rules of the Company’s share plans.
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Strategic Report / Governance / Financial statements
Implementing the Policy in 2024
Base salary
Key features
– Reviewed annually with any increases taking effect on 1
April
– The Committee considers a range of factors when
determining salaries, including pay increases throughout
the Group, individual performance, and market data
Pensions
Key features
– Pension contributions are paid only in respect
of base salary
– The Executive Directors’ pension is set in line with the
pension level received by the employee population
Annual Incentive Plan
Key features
– Maximum opportunity of 175% of salary for the CEO and
the CFO
– At least 50% of the AIP is based on financial measures. The
Committee considers various non-financial performance
measures such as strategic measures for the remainder
– The outcome is assessed at the end of the performance
period with reference to targets agreed at the start of the
year
– Any payment is subject to an additional gateway
assessment, including assessing risk factors
– Malus and clawback provisions apply
Deferred Annual Incentive Plan
Key features
– 40% of the AIP is deferred into shares
– Typically vesting after three years, normally subject to
continued employment
– Malus and clawback provisions apply
Implementation in 2024
– The Acting CEO’s salary remains unchanged at £725,000
– The incoming CEO's salary will be set at £820,000
– 3% increase for the CFO to £546,364
Implementation in 2024
– Pension contributions remain at 9% (in line with the
workforce)
Implementation in 2024
– No change to the maximum opportunity
– There will be a straight-line vesting between AIP threshold
and maximum performance
– Operating Profit (55% weighting)
– Strategic measures (20% weighting)
– Customer (15% weighting)
– People (10% weighting)
– The performance targets are considered commercially
sensitive and will therefore be disclosed in next
year’s Report
Implementation in 2024
– No further performance conditions apply
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Directors' Remuneration report continued
Implementing the Policy in 2024 continued
Long-Term Incentive Plan
Key features
– Awards typically granted as nil-cost options
– Awards granted once per year
– The LTIP allows for awards with a maximum value of 200%
of base salary per financial year
– Performance is measured over three years
– Awards vest subject to financial underpin and payment
gateway
– Malus and clawback provisions apply
– Awards are subject to an additional two-year holding
period following the end of the three-year performance
period
Implementation in 2024
– No change to the maximum annual award levels
– Will be granted once per year
– Nil-cost options will continue to be used for the grants
– Following Adam Winslow's appointment as CEO, it is
expected that a business wide review will take place to
confirm the Group's updated strategic priorities. The
Committee is of the view that, in order to ensure long term
remuneration is linked to KPIs, it will be appropriate to set
the 2024 LTIP targets once this review is complete (and no
later than 6 months after the grant date). The targets
applicable to these awards will be disclosed in due course.
Non-Executive Directors’ fees
The fees for the Chair and Non-Executive Directors for 2024 are set out below (unchanged from 2023).
Position
Board Chair fee
Basic Non-Executive Director fee
Additional fees
Senior Independent Director fee
Chair of Audit, Board Risk and Remuneration Committees
Chair of Sustainability and Investment Committees
Member of Board Committee (Audit, Board Risk or Remuneration)
Member of Board Committee (Sustainability, Investment or Nomination)
Fees for 2024
£’000
350
75
30
30
15
10
5
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Strategic Report / Governance / Financial statements
Directors’ Remuneration Policy
The following is a copy of the main table from the Policy approved by shareholders at the 2023 AGM on 9 May 2023. The full Policy is
available in the Directors' Remuneration report of the 2022 Annual Report and Accounts, which is available on the Direct Line Group
website, under the 'Results and Reports' heading in the Investors page. You can find further details regarding the Policy's operation
for 2024 on pages 151 and 152.
Policy table
Base salary
– This is the core element of
pay that reflects the
individual’s role and
position within the Group
– Staying competitive in the
market allows us to attract,
retain and motivate high-
calibre executives with the
skills to achieve our key
aims while managing costs
Operation
– Base salaries are typically reviewed annually and set in April of each year, although the
Committee may undertake an out-of-cycle review if it determines this to be appropriate
– When reviewing base salaries, the Committee typically takes the following into account:
– general base salary movements across the Group;
– level of skill, experience and scope of responsibilities, individual and business
performance, economic climate, and market conditions; and
– the appropriate benchmarking peer group(s) that reflects the Group’s size and industry
focus, the corresponding market pay range(s) and the relevant positioning within the
market pay range(s)
– The Committee does not follow market data in isolation, and instead uses it as a reference
point when considering, in its judgement, the appropriate salary level, while regarding
other relevant factors, including corporate and individual performance, and any changes
to an individual’s role and responsibilities
– The principles for setting base salary are like those applied to other employees in the
Group. However, the specific benchmarking groups used to review external market
relativities may differ across employee groups
– Base salary is typically paid monthly
Maximum opportunity
– When determining salary increases, the Committee will consider the factors outlined in
this table under ‘Operation’
Performance measures
– Not applicable
Pension
– To remain competitive
within the marketplace
– To encourage retirement
planning and retain
flexibility for individuals
Operation
– Pension contributions are paid only in respect of base salary
– Executive Directors are eligible to participate in the defined contribution pension
arrangement or alternatively they may choose to receive a cash allowance in lieu
of pension
– The Executive Directors’ pension will be set in line with the pension level for the wider
workforce
Maximum opportunity
– The maximum pension percentage contributions are set at the wider workforce level
(currently 9% of salary)
Performance measures
– Not applicable
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Directors' Remuneration report continued
Policy table continued
Benefits
– A comprehensive and
flexible benefits package is
offered, emphasising
individuals being able to
choose the combination of
cash and benefits
that suits them
Operation
– Executive Directors receive a benefits package generally set by reference to market
practice in companies of a similar size and complexity. Benefits currently provided include
a Company car, use of a car or car allowance, private medical insurance, life insurance,
health screening, and income protection
– The Executive Directors are eligible to receive such additional benefits as the Committee
considers appropriate having regard to market norms
– In line with our approach to all employees, certain Group products are offered to Executive
Directors at a discount
– Executive Directors are eligible to participate in any of the employee share plans operated
by the Company, in line with HMRC guidelines (where relevant) and on the same basis as
other eligible employees. Currently, this includes our HMRC-approved SIP, which has been
used to provide an award of free shares to all employees (including Executive Directors)
and permits employees to purchase shares with a corresponding matching award
– Where an Executive Director is required to relocate to perform their role, they may be
offered appropriate relocation benefits. The level of such benefits would be determined
based on the circumstances of the individual and typical market practice and be
consistent with the relocation arrangements available to the workforce generally. In
normal circumstances, relocation benefits will only be paid for a period of up to 12
months
Maximum opportunity
– The costs of benefits provided may fluctuate from year to year, even if the level of provision
has remained unchanged
– Additionally, the limit for any employee share plans in which the Executive Directors
participate will be in line with the caps permitted by HMRC from time to time
– The Executive Directors may be entitled to retain fees received for any directorships held
outside the Group
– Similarly, while not benefits in the normal usage of that term, certain other items such as
hospitality or retirement gifts may also be provided
Performance measures
– Not applicable
154
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Element and purpose in supporting the Group’s strategic objective
AIP
– To motivate executives and
incentivise delivery of
performance over a one-
year operating cycle and
enable a stronger focus
and alignment with the
short to medium-term
elements of our strategic
aims
– Deferral delivers further
alignment with
shareholders and aids
retention of key executive
talent
Operation
– The AIP is measured based on performance over the financial year against performance
targets which the Committee considers to be appropriate
– At least 40% of the AIP is deferred into shares (typically in the form of nil-cost options or
conditional share awards) under the DAIP
– This typically vests three years after grant (with deferred awards also capable of being
settled in cash at the discretion of the Committee, for example, when it gives rise to legal
difficulties to settle in shares). The remainder of the award is paid in cash following the
year-end
– The Committee will keep the percentage deferred and terms of deferral under review. This
will ensure levels are in line with regulatory requirements and best practice and may be
changed in future years but will not, in the Committee’s view, be changed to be less
onerous overall
– Dividends will accrue during the deferral period
– Malus and clawback provisions apply to the cash and deferred elements of the AIP. These
are explained in the notes to the Policy table
Maximum opportunity
– The maximum bonus opportunity under the AIP is 175% of base salary per year
– The current maximum bonus opportunity applying for each individual Executive Director
is shown in the statement of implementation of Policy
– Threshold and maximum bonus levels for Executive Directors are set by considering
annual bonus practice throughout the organisation and referring to practice at other
insurance and general market comparators
– Outcomes for performance between threshold and maximum will be determined on a
straight-line basis
– No more than 10% of the bonus is paid for threshold performance
– However, the Committee retains flexibility to amend the pay-out level at different levels of
performance for future bonus cycles. This is based on its assessment of the level of stretch
inherent in the set targets, and the Committee will disclose any such determinations
appropriately
Performance measures
– Performance measures for the AIP may be financial and non-financial (Group, divisional,
business line or individual)
– Each year, at least 50% of the AIP is based on financial measures. The remainder of the AIP
may be based on a combination of, for example, strategic, operational, ESG, shared or
individual performance measures
– The Committee sets targets at the beginning of each financial year
– Before any payment can be made, the Committee will perform an additional gateway
assessment (including in respect of any risk concerns). This will determine whether the
amount of any bonus is appropriate in view of facts or circumstances which the
Committee considers relevant. This assessment may result in moderating (positively or
negatively) each AIP performance measure, subject to the individual maximum bonus
levels
– The AIP remains a discretionary arrangement. In line with the Code requirements, the
Committee maintains discretion to override formulaic outcomes where those outcomes
are not reflective of the overall Group performance. DAIP awards vest subject to continued
employment only
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
155155
Strategic Report / Governance / Financial statements
Directors' Remuneration report continued
Element and purpose in supporting the Group’s strategic objective continued
LTIP
– Aligning executives’
interests with those of
shareholders to motivate
and incentivise delivering
sustained business
performance over the long
term
– To aid retaining key
executive talent long term
and deliver market
competitive remuneration
Share ownership
guidelines
– To align the interests of
Executive Directors with
those of shareholders
Operation
– Awards will typically be made in the form of nil-cost options or conditional share awards,
which vest to the extent performance conditions are satisfied over a period of at least
three years. Under the Plan rules, awards may also be settled in cash at the discretion of
the Committee. This may be appropriate, for example, if legal difficulties arise with settling
in shares
– Vested options will remain exercisable for up to the tenth anniversary of grant
– Malus and clawback provisions apply to the LTIP. These are explained in the notes to the
Policy table
– Executive Directors will be subject to an additional two-year holding period following the
vesting period, during which time awards may not normally be exercised or released
– During the vesting period and additional holding period (during which time awards
cannot be exercised) the awards will continue to accrue dividends. Following the holding
period, awards will cease to accrue dividends if not exercised
Maximum opportunity
– The maximum LTIP award in normal circumstances is 200% of salary
– Awards of up to 300% of base salary are permitted in exceptional circumstances, for
example relating to recruiting or retaining an employee, as determined by the Committee
Performance measures
– The Committee will determine the performance conditions for each award made under
the LTIP, measuring performance over a period of at least three years with no provision to
retest
– Performance is measured against targets set at the beginning of the performance period,
which may be set by referring to the time of grant or financial year
– Awards vest based on performance against financial and/or such other measures (including
share return), as set by the Committee, to be aligned with the Group’s long-term strategic
objectives. The Committee may alter the precise measures used for future awards
– Not less than 50% of the award shall be subject to one or more financial measures
– Awards will be subject to a payment gateway, such that the Committee must be satisfied
that there are no material risk failings, reputational concerns or regulatory issues
– 20% of the award vests for threshold performance, with 100% vesting for maximum
performance
– The Committee reserves the right in respect of future awards to lengthen (but not reduce)
any performance period and/or amend the terms of any holding period; however, there is
no intention to reduce the length of the holding period
– In line with the Code requirements, the Committee maintains discretion to override
formulaic outcomes where those outcomes are not reflective of the overall Group
performance
Operation
– Executive Directors are expected to retain all the ordinary shares vesting under any of the
Company’s share incentive plans, after any disposals for paying applicable taxes, until they
have achieved the required shareholding level; unless earlier sale, in exceptional
circumstances, is permitted by the Chair of the Board
– Shares considered will include those held by the director and their connected persons,
vested awards subject to holding requirements and unvested awards not subject to
performance conditions (on a net of tax basis). Executive Directors are also expected to
retain their in-employment shareholding requirement (or actual shareholding, if lower)
post their employment for a period of two years
– In exceptional circumstances, earlier sale is permitted subject to the Chair’s discretion
Maximum opportunity
– 250% of salary for the CEO and 200% for the CFO
– The Committee reserves the discretion to amend these levels in future years
Performance measures
– Not applicable
156
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Directors’ report
The Board of Directors present their report for the financial year
ended 31 December 2023 as required by the Companies Act
2006.
The Board would like to draw your attention to the forward-
looking statements disclaimer which can be found on page 276.
Directors’ report disclosures
The Board takes the view that some of the matters required to
be disclosed in the Directors’ report are of strategic importance
and these are, therefore, included in the Company’s Strategic
report which is on pages 1 to 94 as permitted by the
Companies Act 2006. These matters, and all matters referenced
in the table below, are incorporated into this Directors’ report:
Subject
Use of financial instruments
Important events since the financial year end
Likely future developments in the business
Employee engagement
Engagement with suppliers, customers and other
business relationships
Research and development
Greenhouse gas emissions, energy consumption and
energy-efficient action
Branches outside the UK
Pages
30, 35, 36
8 to 16
16
25, 54 to 57,
104 to 109, 140
51 to 53, 107
19, 51
63 to 65
256
Disclosure of information required by
Disclosure Guidance and Transparency Rule 7.2
The FCA’s Disclosure Guidance and Transparency Rule 7.2
requires a Corporate Governance statement in the Directors’
report to include certain information. You can find information
that fulfils the Corporate Governance statement’s requirements
in this Directors’ report, the Corporate Governance report, the
Committee reports and the Directors’ Remuneration report, all
of which are incorporated into the Directors’ report by reference.
Disclosure of information under Listing Rule
9.8.4C
In accordance with Listing Rule 9.8.4C, the table below sets out
the location of the information required to be disclosed under
LR 9.8.4R, where applicable:
Subject
Interest capitalised by the Group
Unaudited financial information
Details of long-term incentive schemes
Directors’ waivers of emoluments
Directors’ waivers of future emoluments
Non pro-rata allotments for cash (issuer)
Pages
Not applicable
Note 3.5
141 to 142
Not applicable
Not applicable
Not applicable
Non pro-rata allotments for cash (major subsidiaries)
Not applicable
Listed company is a subsidiary of another company
Not applicable
Contracts of significance involving a Director
Not applicable
Contracts of significance involving a
controlling shareholder
Details of shareholder dividend waivers
Not applicable
158
Controlling shareholder agreements
Not applicable
Dividends
As explained in the Chair's statement on page 8, the Board is
recommending a dividend for 2023. More information on
dividends and capital management can be found in the CFO
review on page 32.
Directors
The names of all current Directors and their biographies are set
out on pages 97 to 100. Information about Adam Winslow, who
joined the Group as CEO on 1 March 2024, can be found in the
Chair's statement on page 9.
All Directors will retire and those wishing to continue to serve
will be submitted for election or re-election at the 2024 AGM.
This is in accordance with the UK Corporate Governance Code
and the Articles of Association of the Company, which govern
appointing and replacing Directors.
The Directors listed on pages 97 to 100 were the Directors of
the Company throughout the year under review. In addition,
Sebastian James served from the start of the year to
31 December 2023 when he retired from the Board.
The Company’s Articles of Association set out the Directors’
powers. You can view these on the Company’s website at
www.directlinegroup.co.uk. The Directors’ powers are also
subject to relevant legislation and, in certain circumstances,
including in relation to the issuing or buying back of shares,
authority from the Company’s shareholders. You can find details
of the Directors’ remuneration, service contracts, employment
contracts and interests in the shares of the Company in the
Directors’ Remuneration report on pages 131 to 156.
The Articles of Association of the Company permit it
to indemnify the Company’s officers, and officers of any
associated company, against liabilities arising from conducting
Company business, to the extent permitted by law. As such, the
Company has executed deeds of indemnity for each Director’s
benefit, regarding liabilities that may attach to them in their
capacity as Directors of the Company or associated companies.
These indemnities are qualifying third-party indemnities as
defined by section 234 of the Companies Act 2006. No amount
was paid under any of these indemnities during the year. The
Company maintains directors’ and officers’ liability insurance.
This provides appropriate cover for legal actions brought against
its Directors. The Company has also provided the Directors of
DLG Pension Trustee Limited with qualifying pension scheme
indemnities. This is in accordance with section 235 of the
Companies Act 2006. During 2023, DLG Pension Trustee
Limited acted as trustee for two of the Company’s occupational
pension schemes.
Secretary
Roger Clifton is the Company Secretary of Direct Line Insurance
Group plc and can be contacted at the Company’s Registered
Office, details of which are on page 277.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
157157
Strategic Report / Governance / Financial statements Directors' report continued
Share capital
The Company has a premium listing on the London Stock
Exchange. As at 31 December 2023, the Company’s share
capital comprised 1,311,388,157 fully paid Ordinary Shares of
10 10/11 pence each.
At the Company’s 2023 AGM, the Directors were authorised to:
– allot shares in the Company or grant rights to subscribe for or
convert any security into shares, up to an aggregate nominal
amount of £47,686,842, and to allot further shares up to an
aggregate nominal amount of £98,373,684 for the purpose of
a rights issue;
– allot shares having a nominal amount not exceeding in
aggregate £14,306,052 for cash, without offering the shares
first to existing shareholders in proportion to their holdings;
– allot additional shares having a nominal amount not
exceeding in aggregate £14,306,052 for the purposes
of financing a transaction which the Board of the Company
determines to be an acquisition or other capital investment,
without offering the shares first to existing shareholders in
proportion to their holdings;
– make market purchases of up to 131,138,815 shares in the
Company, representing 10% of the Company’s issued share
capital at the time; and
– allot shares (with the disapplication of pre-emption rights) up
to an aggregate nominal amount of £23,250,000 in relation to
the issue of Restricted Tier 1 (“RT1”) Instruments.
To date, the Directors have not used these authorities granted in
2023. At the 2024 AGM, shareholders will be asked to renew
these authorities. The Company has not held any shares in
treasury during the period under review. You can find out more
about the Company’s share capital and shares under option as
at 31 December 2023 in notes 27 and 31 of the consolidated
financial statements.
Under the Company’s Share Incentive Plan, Trustees hold shares
on behalf of employee participants. The Trustees will only vote
on those shares, and receive dividends that a participant
beneficially owns, in accordance with the participant’s wishes.
An Employee Benefit Trust also operates which has discretion
to vote on any shares it holds as it sees fit, except any shares
participants own beneficially, in which case the Trustee will only
vote on such shares as per a participant’s instructions.
The Trustee of the Employee Benefit Trust has waived its right
to dividends on all shares within the Trust. You can find out
more about the number of shares held by the employee share
plan trusts in note 31 on page 241. The Company is not aware
of any other dividend waivers or voting restrictions in place.
158
158
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Shareholder voting rights and restrictions
on transfer of shares
All the Company’s issued Ordinary Shares rank equally in all
respects. The Company’s Articles of Association set out the rights
and obligations attaching to the Company’s Ordinary Shares.
Employees of the Company and Directors must comply with
the UK Market Abuse Regulation and the Company’s share
dealing rules. These rules restrict particular employees’ and
Directors’ ability to deal in the Company’s shares at certain
times, and require the employee or Director to obtain
permission to deal before doing so. Some of the Company’s
employee share plans also include restrictions on transferring
shares while the shares are held within the plans.
Each general meeting notice will specify a time, not more than 48
hours before the time fixed for the meeting (which may exclude
non-working days), for determining a shareholder’s entitlement to
attend and vote at the meeting. To be valid, all proxy
appointments must be filed at least 48 hours (which may exclude
non-working days) before the time of the general meeting.
Where the Company has issued a notice under section 793 of
the Companies Act 2006, and the person interested in the
relevant shares has been in default of the notice for at least 14
days, they shall not be entitled to attend or vote at any general
meeting until the default has been corrected or the shares sold.
There is no arrangement or understanding with any
shareholder, customer or supplier, or any other external party,
which provides the right to appoint a Director or a member of
the Executive Committee, or any other special rights regarding
control of the Company.
Articles of Association
Unless expressly specified to the contrary in the Articles of
Association, the Articles may only be amended by a special
resolution of the Company’s shareholders at a general meeting.
Significant agreements affected by a change
of control
A number of agreements may take effect, alter or terminate
upon a change of control of the Company. None of these
agreements is considered significant in terms of its impact on
the Group’s business as a whole. All the Company’s employee
share incentive plans contain provisions relating to a change of
control. Outstanding awards would typically vest and become
exercisable. This is subject to satisfying any performance
conditions, and normally with an additional time-based pro-
rata reduction where performance conditions apply, and with
approval from the Remuneration Committee.
Substantial shareholdings
The table below shows the holdings of the major shareholders
in the Company’s ordinary issued share capital, as at
31 December 2023 and as at 18 March 2024, as notified in
accordance with the provisions of Chapter 5 of the FCA’s
Disclosure Guidance and Transparency Rules. It should be
noted that these holdings may have changed since the
Company was notified. However, notification of any change is
not required until the next notifiable threshold is crossed.
Information provided by the Company pursuant to the FCA’s
Disclosure Guidance and Transparency Rules is publicly
available via the regulatory information services and on the
Company’s website.
Subject
abrdn plc
31 December
2023
18 March
2024
Nature of
Holding
4.57 %
4.57 % Indirect
Ameriprise Financial Inc
5.06 %
5.06 % Indirect
APG Asset Management N.V.
2.99 %
2.99 % Direct
Ariel Investments
4.90 %
4.90 % Direct/
Indirect
Artemis Investment
Management LLP
4.82 %
4.82 % Indirect
BlackRock Inc
Below 5% Below 5% Indirect
FIL Limited
FMR LLC
Majedie Asset Management
Limited
Norges Bank
Schroders plc
5.12 %
5.12 % Indirect
7.11 %
7.11 % Indirect
4.99 %
4.99 % Indirect
3.99 %
2.94 % Direct
5.67 %
5.67 % Indirect
T.Rowe Price Associates, Inc.
4.68 %
4.68 % indirect
Political donations
The Group made no political donations during the year (2022: £nil).
Disabled and neuro-divergent colleagues
The Group is committed to supporting those who are neuro-
divergent or have a disability and recognises the benefits that
diversity of thought or body brings to an organisation.
For recruitment purposes, we adjust and enhance our application
and selection process, and guide and provide additional training
for interviewers where necessary. We reasonably adjust colleagues’
working environments and equipment, and roles and role
requirements (including for colleagues who become disabled
during their time working in the Group). We also seek to ensure
that everyone can access the same opportunities.
The Neuro-Diversity & Disability strand of our Diversity Network
Alliance (“DNA”) works to celebrate and support those who are
neuro-divergent or disabled with the aim of ensuring that all
our colleagues feel understood, fully appreciated, and
empowered to be their best selves. More information about the
work of the DNA strand can be found on page 55 of the
Strategic report.
Going concern
The Directors believe that the Group has sufficient financial
resources to meet its financial needs, including managing a
mature portfolio of insurance risk. The Directors believe the
Group is well positioned to manage its business risks
successfully in the current economic climate. The Chief
Financial Officer Review describes the Group's capital
management strategy, including the capital actions taken in
the last 12 months to ensure the continued strength of the
balance sheet and sets out management actions that the
Group continues to pursue to rebuild balance sheet resilience.
The Group's financial position is also covered in that section,
including a commentary on cash and investment levels,
reserves, currency management, insurance liability
management, liquidity and borrowings. The financial
disclosures relating to the Group's principal risks are set out in
note 3. This covers insurance, market, credit, liquidity and
operational risk; and the Group's approach to monitoring,
managing and mitigating exposures to these risks.
Strategic Report / Governance / Financial statements
The Directors have assessed the principal risks of the Group over
the duration of the planning cycle, which runs until 2027, with
the first year following approval of the Strategic Plan ("the
Plan"), being 2024, having greater certainty and hence used to
set detailed budgets. The Group's Risk Function has carried out
an assessment of the risks to the Plan and the dependencies for
the success of the Plan. This included running adverse scenarios
on the Plan to consider the downside risks to the Plan and
subsequent impact on forecast profit. The key scenarios applied
to the Plan were in relation to the impact of adverse claims
inflation, failure to achieve motor pricing initiative benefits,
delay to delivery of expense reductions and a fall in asset values.
The key judgements and assumptions applied in these
scenarios were as follows:
– Adverse claims inflation: the Plan includes a scenario for
inflation being higher than expected, leading to claims costs
increasing by 3-6% with the Group and market response
delayed by six months.
– Failure to achieve motor pricing initiative benefits: planned
benefits from future motor pricing initiatives are not achieved.
– Delay to delivering expense reductions: there is a delay of 12
months in delivering planned expense reductions.
– Fall in asset values: an increase in credit spreads of 75 basis
points, with a partial recovery of 25 basis points over 2025.
It is unlikely that all risks would materialise at the same time.
None of the scenarios individually were concluded to present a
threat to the Group’s expected viability across the duration of
the Plan.
The Risk Function has also carried out an assessment of the risks
to the Group's and Company's capital position over 2024 and
2025. Two specific macroeconomic combination stresses, a
moderate and a severe, have been updated to include not only
a review of Group financials but also a review of assumptions to
reflect the latest internal and external environment and trends.
The stresses have been run to assess the possible impact on
own funds in the period to 31 December 2024 and 31
December 2025. The stresses are updated and repeated
regularly. The macroeconomic assumptions for key parameters
such as Consumer Price index, GDP and bank base rate for the
moderate scenario reflect the adverse end of the Bank of
England November Monetary Policy Committee forecast range.
The severe scenario adopts the key parameters from the 2022
Bank of England Banking Stress Test, which is described as
“severe but plausible”, updated for changes in the
macroeconomic environment.
In the moderate and severe scenarios, it was concluded that the
Company's solvency capital requirement would not be
breached.
Additionally, the Risk Function conducted a Reverse Stress Test
("RST") to establish whether the long-term future for motor
insurance, specifically, the adoption of EVs, poses a threat to the
viability of the Company’s current business model. The findings
showed that over the duration of the planning cycle the
scenarios considered did not present a risk to the viability of the
business model.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
159159
Strategic Report / Governance / Financial statements Directors' report continued
Further information in relation to the sensitivity of key factors on
the Group’s financial position are included in the financial
statements. The insurance risk note (note 3.3.1) sets out the
impact on profit before tax of an increase and a decrease in
claims inflation of 100 basis points for two consecutive years. The
market risk note (note 3.3.2) sets out the impact on profit before
tax and equity of a 100 basis points increase in spreads on
financial investments and the impact of a 100 basis points
increase in interest rates on financial investments and derivatives.
Therefore, having made due enquiries, the Directors believe
they can reasonably expect that the Group has adequate
resources to continue in operational existence for at least 12
months from 21 March 2024 (the date of approval of the
condensed consolidated financial statements). Accordingly, the
Directors have adopted the going concern basis in preparing
the condensed consolidated financial statements.
Disclosing information to the Auditor
Each Director at the date of approving these Annual Report and
Accounts confirms that: as far as they are aware, there is no
relevant audit information of which Deloitte, the Company’s
External Auditor, is unaware; and they have taken all the steps
that they ought to have taken as a Director to make themselves
aware of any relevant audit information, and to establish that
Deloitte is aware of that information. This confirmation is given
and should be interpreted in accordance with the provisions of
section 418 of the Companies Act 2006.
Auditor
Deloitte will retire as auditor from the conclusion of the 2024
AGM in line with mandatory rotation requirements. As
announced on 10 October 2022, following a competitive tender
process led by the Audit Committee, the Board approved the
appointment of KPMG LLP as auditor of the Company for the
financial year ending 31 December 2024, subject to approval
by shareholders at the Company’s 2024 AGM. Therefore, a
resolution to appoint KPMG will be proposed at the
forthcoming 2024 AGM. You can find more information about
the change of auditor in the Audit Committee report on page
117.
Conflicts of interest
Each Director has a duty to avoid conflicts of interest and must
declare any conflict of interest that could interfere with their
ability to act in the Group’s best interests. In accordance with
the Companies Act 2006, the Company’s Articles of Association
allow the Board to authorise matters where there is, or may be,
a conflict between the Group’s interests and the direct or
indirect interests of a Director, or between a Director’s duties to
the Group and another person. As a matter of course, the Board
authorises certain potential conflicts of interest in this way,
including Directors’ external directorships and their interests in
securities of other financial service institutions. The Company
Secretary maintains a register of potential conflicts which the
Board reviews at each scheduled Board meeting.
Directors’ responsibility statement
The Directors are responsible for preparing the Annual Report
and financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare such financial
statements for each financial year in accordance with UK-
adopted international accounting standards.
160
160
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
The Directors have elected to prepare the Parent Company
financial statements in accordance with FRS 101 'Reduced
Disclosure Framework'. Under company law, the Directors must
not approve the accounts unless they are satisfied that they give
a true and fair view of the Company’s state of affairs and profit or
loss for that period.
In preparing these financial statements, IAS 1 requires that
Directors: properly select and apply accounting policies; present
information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable
information; provide additional disclosures when compliance
with the specific requirements in IFRS is insufficient to enable
users to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance, and to assess the Company’s ability to
continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that: are sufficient to show and explain the Company’s
transactions and disclose, with reasonable accuracy, the
Company’s financial position at any time; and enable them to
ensure the financial statements comply with the Companies
Act 2006. Additionally, the Directors are responsible for
safeguarding the Company’s assets and, hence, taking
reasonable steps to prevent and detect fraud and other
irregularities. The Directors are responsible for maintaining and
ensuring the integrity of the corporate and financial information
included on the Company’s website at:
www.directlinegroup.co.uk.
Legislation in the UK governing preparing and disseminating
financial statements may differ from legislation in other
jurisdictions.
Each of the Directors in office as at the date of this report,
whose names and functions are listed on pages 97 to 100
confirms that, to the best of their knowledge:
– the financial statements, prepared in accordance with IFRS,
give a true and fair view of the assets, liabilities, financial
position, and profit or loss of the Company, and the
undertakings included in the consolidation taken as a whole;
– the Strategic report (on pages 1to 94) and Directors’ report
(on pages 158 to 160) include a fair review of: (i) the business’s
development and performance; and (ii) the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties they face; and
– the Annual Report and the financial statements, taken as a
whole, are fair, balanced and understandable, and provide
the information necessary for shareholders to assess the
Company’s position, performance, business model and
strategy.
This report was approved by the Board on 21 March 2024 and
signed on its behalf by:
Roger C. Clifton
Company Secretary
Registered address: Churchill Court, Westmoreland Road,
Bromley, BR1 1DP
Registered number: 02280426
Contents
Strategic Report / Governance / Financial statements
Financial Statements
Independent Auditor's Report
Consolidated Financial Statements
Consolidated Statement of Profit or Loss
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
Notes to the Consolidated Financial Statements
1. Accounting policies
27. Share capital
162
28. Other reserves
29. Tier 1 notes
174
175
176
177
178
30. Subordinated liabilities
31. Share-based payments
32. Provisions
33. Trade and other payables
34. Notes to the consolidated cash flow statement
35. Commitments and contingent liabilities
179
36. Leases
2. Critical accounting judgements and key sources of
190
37. Fair value
estimation uncertainty
3. Risk management
4.
5.
6.
Segmental analysis
Insurance service result
Investment return and net insurance financial
result
7. Other operating expenses
8. Other finance costs
9. Gain on disposal of business
10. Tax charge/(credit)
11. Current and deferred tax
12. Dividends and appropriations
13. Earnings/(loss) per share
14. Net asset value per share and return on equity
15. Goodwill and other intangible assets
16. Property, plant and equipment
17. Right-of-use assets
18.
Investment property
19. Subsidiaries
20.
Insurance contract assets and liabilities - gross and
reinsurance
21. Prepayments, accrued income and other assets
22. Derivative financial instruments
23. Retirement benefit obligations
24. Financial investments
25. Cash and cash equivalents and borrowings
26. Assets held for sale
194
210
213
214
215
216
216
218
219
219
220
220
221
223
223
224
224
225
234
235
235
238
239
239
38. Acquisitions
39. Related parties
40. First time adoption of new accounting standards
Parent Company Financial Statements
Parent Company Statement of Financial Position
Parent Company Statement of Comprehensive Income
Parent Company Statement of Changes in Equity
Notes to the Parent Company Financial
Statements
1. Accounting policies
2.
Investment in subsidiary undertakings
3. Other receivables
4. Current and deferred tax
5. Derivative financial instruments
6. Cash and cash equivalents
7.
8.
9.
Share capital, capital reserves and distributable
reserves
Tier 1 notes
Subordinated liabilities
10. Borrowings
11. Dividends
12. Share-based payments
13. Risk management
14. Employees, Directors and key management
remuneration
240
240
240
240
241
242
242
243
244
244
246
248
249
250
253
254
254
255
255
257
257
257
257
257
257
258
258
258
258
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Insurance Group plc
Report on the audit of the financial statements
1. Opinion
In our opinion:
– the financial statements of Direct Line Insurance Group plc (the "Parent Company") and its subsidiaries (the "Group") give a true
and fair view of the state of the group’s and of the Parent Company’s affairs as at 31 December 2023 and of the Group’s profit for
the year then ended;
– the Group financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and International Financial Reporting Standards ("IFRSs") as issued by the International Accounting
Standards Board ("IASB");
– the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
– the Consolidated Statement of Profit or Loss;
– the Consolidated and Parent Company Statement of Comprehensive Income;
– the Consolidated and Parent Company Statement of Financial Position;
– the Consolidated and Parent Company Statement of Changes in Equity;
– the Consolidated Cash Flow Statement; and
– the related notes 1 to 40 of the consolidated financial statements and related notes 1 to 14 on the Parent Company financial
statements excluding the capital adequacy disclosures in note 3.5 calculated in accordance with the Solvency II regime that are
marked as unaudited.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law, and
United Kingdom adopted international accounting standards and IFRSs as issued by the IASB. The financial reporting framework
that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom
Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting
Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements
section of our report.
We are independent of the group and the Parent Company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the Financial Reporting Council’s (the "FRC’s") Ethical Standard as applied to
listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The fees
for the non-audit services provided to the Group and Parent Company for the year are disclosed in note 7 to the financial statements.
We confirm that we have not provided any non-audit services prohibited by the FRC’s Ethical Standard to the Group or the Parent
Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
– Valuation of insurance contract liabilities:
1) The frequency, severity and inflationary assumptions for bodily injury claims;
2) Periodic payment orders ("PPOs") inflation and discount rates; and
3) Third party recoveries on accidental damage claims.
– Valuation of illiquid investments:
1) Commercial real estate loans, infrastructure debt and private placement bonds; and
2) Investment property.
– Transition to IFRS 17.
– Past business reviews provisions.
Within this report, key audit matters are identified as follows:
Newly identified;
Increased level of risk;
Similar level of risk; and
Decreased level of risk.
Materiality
Scoping
Significant
changes in our
approach
The materiality that we used for the Group financial statements was £24 million, which approximates to 1.0%
of shareholders' equity.
Our Group audit scoping included three entities being subject to a full scope audit and a further one entity
being subject to an audit of specified account balances. These four entities represent the principal business
units and account for 96% of the Group’s shareholders’ equity, 100% of the Group’s insurance revenue and
100% of the Group’s insurance contract liabilities.
During the year we have made the following changes to our audit approach:
a. We updated our key audit matters on the valuation of insurance contract liabilities to include third
party recoveries on accidental damage claims;
b. We identified a new key audit matter on the transition to IFRS 17. Our key audit matter last year
covered the disclosure of the impact of IFRS 17; and
c. We identified a new key audit matter on the past business reviews provisions.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s and Parent Company’s ability to continue to adopt the going concern
basis of accounting included:
– We obtained an understanding of the internal controls relating to management’s going concern assessment process;
– We assessed the impact of emerging issues and the current macroeconomic environment on the future capital position of the
Group;
– We assessed management’s strategic plan and challenged management’s underlying business plans and forecasts to support key
forward-looking assumptions such as the Group’s growth and discount rates given our understanding of the Group and its
industry. This included assessing the impact of the sale of the brokered commercial business, the liquidity forecast, the 3-year
structured 10% quota share arrangement and the partnership with Motability; and
– We evaluated management’s stress test, independently performing sensitivity analysis to assess the impact of various scenarios on
the Group’s solvency headroom.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group's and Parent Company’s ability to continue as a going concern for
a period of at least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of
this report.
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Insurance Group plc continued
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on the overall audit strategy, the allocation of
resources in the audit and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
5.1 Valuation of insurance contract liabilities
Refer to page 118 (Audit Committee report), pages 183 to 185 (Accounting policies - note 1.5), page 190 (Critical accounting
judgements and key sources of estimation uncertainty – note 2.1) and pages 225 to 234 (Notes to the consolidated financial
statements – note 20).
The Group’s gross insurance contract liabilities total £5.2 billion (2022 restated: £4.6 billion) and represent the single largest liability
on the balance sheet. Valuation of these liabilities requires management to select methods and assumptions that are subject to high
levels of estimation uncertainty. Consequently, small changes in these methods or assumptions can materially impact the valuation
of these liabilities. We have identified the following three key areas of focus for our audit given their significance to the Group’s result
and the high level of estimation uncertainty. We have also identified these as potential fraud risk areas.
5.1.1 The frequency, severity and inflationary assumptions for bodily injury claims
Key audit matter description
The frequency and severity of bodily injury claims have a significant impact on the valuation of the insurance contract liabilities and
the setting of these assumptions is driven by a variety of factors. These factors include the completeness and accuracy of source data,
the transparency of any changes in the reporting of bodily injury claims, actuarial assumptions being consistent with emerging data,
changing legislation, market factors and the Group’s reserving model and policy. As a result of these factors, there is a significant level
of judgement and estimation uncertainty in the valuation of these claims, which increases the susceptibility of the balance to
material misstatement due to error or fraud.
Furthermore, reduced traffic volumes throughout accident years 2020 and 2021 and a return to normality during 2022 and 2023
increases inherent uncertainty underlying the estimation of the ultimate number of non-large bodily injury claims in the most recent
cohorts of data. This uncertainty is amplified given the long-tailed nature of bodily injury claims. Additionally, the whiplash reform in
May 2021 has impacted the frequency and severity mix of bodily injury claims and there continues to be inherent uncertainty.
Moreover, we have identified that inflationary assumptions have a significant impact on the valuation of bodily injury insurance
contract liabilities and there is a significant level of estimation uncertainty inherent with these assumptions in light of the
macroeconomic environment.
How the scope of our audit responded to the key audit matter
We gained a detailed understanding of the end-to-end claims and reserving process and obtained an understanding of relevant
controls.
To gain assurance over the completeness and accuracy of source data used in the Group’s actuarial calculations and by our in-house
actuarial specialists in performing our work, we tested the data reconciliation controls and re-performed reconciliations on the
actuarial data back to the financial ledger and source systems.
Having done this, we worked with our actuarial specialists to:
– Inspect and challenge the reserving process for bodily injury claims by assessing relevant documentation and enquiring with the
Actuarial Director and his team;
– Inspect and challenge the Group’s documented methodology and key assumptions, with particular reference to inflationary
impacts. This included:
a. Using our in-house reserving software to help us challenge any emerging claims trends;
b. Conducting sensitivity testing on the methodology and assumptions used in the current year selections and challenging
changes from the prior year;
c. Comparing the Group’s cost per claim and frequency diagnostics to market benchmarks and independent reserve review
results;
– Enquire with the Actuarial Director and his team to inspect and challenge the Events Not in Data reserves ("ENIDs"), assessing
whether the approach in setting the ENIDs are reasonable given economic and non-economic events. This includes leveraging
third party economic studies to challenge the appropriateness of management’s adverse scenarios;
– Assess and challenge the reasonableness of the risk adjustment included in the calculation to account for non-financial risks
associated with claims by inspecting methodology and validation documentation; and
– Perform a ‘stand back’ test to challenge the reasonableness of the overall insurance contract liability estimate, in light of the level
of uncertainties that existed at the reporting date.
Key observations
We concluded that the frequency, severity and inflationary assumptions used in the calculation of the bodily injury claims reserves
are reasonable.
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5.1.2. Periodical payment orders, inflation and discount rates
Key audit matter description
The Group is required to settle a proportion of large bodily injury claims as PPOs rather than lump sum payments. The valuation of
PPOs has a material impact on the financial statements, with liabilities totalling £655.1 million (2022 restated: £643.2 million) on a
discounted gross basis as detailed in note 20.
Given the ongoing uncertainty in the UK’s inflation environment and investment markets, the selection of the inflation and discount
rate assumptions is highly judgemental. The PPOs are sensitive to the economic assumptions selected and, for 31 December 2023,
the Group valued PPOs using an inflation rate curve linked to the consumer price index (2022: inflation rate curve linked to the PRA
published risk free rate). Additionally, the Group include an illiquidity premium in the discount rate. These assumptions represent a
key source of estimation uncertainty for the Group, which increases the susceptibility of the balance to material misstatement due to
error or fraud.
How the scope of our audit responded to the key audit matter
We gained a detailed understanding of management’s process for setting these assumptions and obtained an understanding of the
relevant controls on the setting of the inflation and discount rates, specifically the challenge and approval of these assumptions by
the Reserving Committee.
We worked with our actuarial specialists to:
– Inspect and challenge management’s PPO inflation assumption by evaluating relevant documentation, enquiring with the
Actuarial Director and his team;
– Inspect and evaluate management’s sensitivity testing on the PPO inflation assumption, requesting additional sensitivity testing
from management where needed; and
– Inspect and challenge management’s methodology and rationale for deriving the discount rate by benchmarking against external
sources and comparing with market economic data.
In addition, we worked with our valuations specialist to inspect and challenge the methodology and reasonableness of the illiquidity
premium.
Key observations
We determined that the inflation and discount rate assumptions used in the calculation of the PPO claims reserve are reasonable.
5.1.3 Third party recoveries on accidental damage claims
Key audit matter description
In 2022, the number of accidental damage paid recoveries for accident years 2020 to 2022 were significantly lower than prior years.
This trend has continued in 2023 resulting in accidental damage recoveries not yet received from third parties by the end of
December 2023 increasing significantly. This results in the overall accidental damage reserves being highly sensitive to the recovery
rate assumptions used to estimate the reserves. These assumptions represent a key source of estimation uncertainty for the Group,
which increases the susceptibility of the balance to material misstatement due to error or fraud.
How the scope of our audit responded to the key audit matter
We gained an understanding of management’s process and relevant controls for setting these assumptions. We tested a sample of
the third-party recoveries on accidental damage claims reported but not yet paid at the end of 2022 and 2023 to identify whether
the amount recognised had been fully recovered by tracing the amount to the bank statement. If the amount had not been
recovered, or had been partially recovered, we evaluated the reason for partial or non-receipt.
We worked with our actuarial specialists to:
– Assess the findings from the sample testing performed to consider the impact on the liability for incurred claims, including
whether the findings are an indication of management bias, and challenge management where applicable.
– Inspect and challenge the reserving process undertaken for accidental damage recoveries claims by reviewing relevant
documentation, benchmarking, and enquiring with the Actuarial Director and his team; and
– Inspect and challenge management’s methodology, key assumptions, and their underlying rationale adopted.
Key observations
We concluded that the assumptions applied to estimate the third party recoveries on accidental damage claims are reasonable.
5.2 Valuation of illiquid investments
Refer to page 118 (Audit Committee report), page 187 (Accounting policies - notes 1.12 and 1.13), page 193 (Critical accounting
judgements and key sources of estimation uncertainty – notes 2.3 and 2.4) and pages 224 and 238 (Notes to the consolidated
financial statements – notes 18 and 24).
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Insurance Group plc continued
5. Key audit matters continued
5.2.1 Commercial real estate loans, infrastructure debt and private placement bonds
Key audit matter description
Commercial real estate loans, infrastructure debt and private placement bonds are held at amortised cost on the balance sheet and
represent a higher credit risk relative to the majority of the Group’s investment portfolio. As detailed in disclosure note 24, the total
value at 31 December 2023 is £430.7 million (2022 restated: £532.9 million).
In 2023, the Group transitioned to IFRS 9 Financial Instruments, which replaced the existing standard for financial instruments, IAS
39 Financial Instruments: Recognition and Measurement. The Group continues to recognise and measure these instruments at
amortised cost, and these instruments continue to require the recognition of an impairment when an incurred loss event arises.
Significant management judgement is required in determining if an incurred loss event has occurred and, in the instance an event
has occurred, there is significant estimation uncertainty in determining the impairment charge.
There is a continuing risk of default or delinquency on these less liquid assets owing to high and sustained levels of uncertainty in the
UK economy from increasing inflation rates and the cost-of-living crisis.
How the scope of our audit responded to the key audit matter
We obtained an understanding of the valuation and impairment processes of illiquid investments and tested the relevant controls.
We attended the year end impairment review meeting to observe the operation of this key management review control.
In addition, we performed the following procedures:
– Tested a sample of interest payments to bank during and after the year to test for default or delinquency in interest payments;
– Used market indices to identify commercial real estate loans at risk and inspected the tenancy breakdowns for potential risks of
unit closure given the current economic issues facing the UK;
– Challenged management on loans of interest where indicators could point to issuer financial difficulty and obtained evidence to
assess whether management’s conclusion was reasonable; and
– Engaged our complex pricing specialists to determine an independent fair value of these assets to identify any significant
decreases in value below amortised cost.
Key observations
We considered the valuation of commercial real estate loans, infrastructure debt and private placement bonds to be reasonable.
5.2.2 Investment property
Key audit matter description
The investment properties held by the Group comprise of retail, retail warehouse, supermarkets, industrials, hotels and alternative
properties. As noted in disclosure note 18, the total value at 31 December 2023 is £277.1 million (2022: £278.5 million).
Given the continued UK macroeconomic environment uncertainty from inflationary pressures and increased interest rates affecting
the cost of debt, the methodology and assumptions used for valuing the investment property portfolio involves significant
judgement, including the use of external valuation experts.
Valuation methodology for investment properties is subjective in nature and involves various key assumptions. The use of different
valuation methodology and assumptions could produce significantly different estimates of fair value. With the volatility in the UK
financial market, the property valuers can attach less weight to previous market evidence in determining a fair value. This leads to
greater levels of estimation uncertainty in determining the valuation.
How the scope of our audit responded to the key audit matter
We obtained an understanding of, and tested, the relevant control related to the annual meeting with management’s external
valuation expert when management review and challenge the assumptions and methodologies used in determining the fair value.
– Worked with our real estate specialists to challenge the estimated rental value, yield and capitalisation rate assumptions and
methodologies;
– Assessed the competence, capability and objectivity of management’s expert;
– Tested the completeness and accuracy of the data inputs used in the valuation process performed by management and their
external valuer; and
– Tested the data inputs used in the valuation model for investment properties, by agreeing occupation rates, unit sizes and
contracted rent to the underlying signed agreements and property reports. We then re-performed the calculation of the yields
applied using this data.
Key observations
We considered the methodology and assumptions used for valuing the investment property portfolio to be reasonable.
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5.3 Transition to IFRS 17
Refer to page 117 (Audit Committee report), pages 180 to 182 (Accounting policies – note 1.1), pages 190 to 193 (Critical accounting
judgements and key sources of estimation uncertainty – note 2.1) and pages 225 to 234 and 250 to 252 (Notes to the consolidated
financial statements – notes 20 and 40).
Key audit matter description
On 1 January 2023, the Group has adopted IFRS 17 Insurance Contracts, which replaced the existing standard, IFRS 4 Insurance
Contracts.
IFRS 17 introduces pervasive changes to the measurement, presentation and disclosure of insurance contracts and related account
balances. The standard is complex and has required significant judgement and interpretation in its application. To meet the
requirements of the new standard, the Group has made significant changes to systems, processes and controls.
IFRS 17 has been applied fully retrospectively as at 1 January 2022 to each group of insurance contracts. As a result, comparative
information has been restated within the financial statements. The net impact on the opening balance sheet equity at 1 January
2022 was a reduction of £96.1 million.
The transition to IFRS 17 is considered a key audit matter due to the pervasive accounting impact and the significant judgements
made by management in its application. This has had a corresponding impact on audit effort. Key sources of estimation uncertainty
and accounting judgements, as identified in note 2, include:
– Level of aggregation;
– Premium Allocation Approach ("PAA") eligibility;
– Estimates of future cash flows;
– Risk adjustment;
– Discount rates;
– Onerous contracts; and
– General insurance: Liability for incurred claims and amounts recoverable from reinsurance contracts held.
How the scope of our audit responded to the key audit matter
We performed the following audit procedures for the purposes of understanding and challenging key judgements and assumptions:
– Assessed management's accounting policy and methodology papers for compliance with the standard, involving relevant IFRS 17
specialists where required;
– Gained a detailed understanding of the relevant controls implemented for both the restated balances and business processes
impacted by the transition to IFRS 17 in 2023;
– Substantively tested through a combination of test of details and/or substantive analytical procedures, the restated comparative
figures under IFRS 17;
– Inspected contract terms and management information to assess the application of level of aggregation requirements to the
insurance contracts issued and reinsurance contracts held by the Group;
– For those contracts not automatically eligible for PAA, including the Motability insurance contract, we worked with our actuarial
specialists to challenge management’s PAA eligibility testing and conclusions;
– Involved our actuarial specialists in performing procedures to challenge the Group’s IFRS 17 calculation models, including those
related to the estimate of the fulfilment cashflows, the risk adjustment and discounting;
– Engaged financial instrument specialists to challenge the determination of the illiquidity premia applied to short and long tail
insurance liabilities;
– Gained an understanding of management’s onerous contracts facts and circumstances assessment and performed procedures to
test the input data used and the mathematical accuracy of the results reached; and
– Challenged the disclosures and presentation within the financial statement against the requirements of IFRS 17.
Key observations
We considered the IFRS 17 accounting policies and methodologies adopted to be reasonable and in compliance with the standard.
5.4 Past business reviews provisions
Refer to page 16 (Outgoing acting CEO review), page 29 (CFO review), page 118 (Audit Committee report) and pages 190 to 193
(Critical accounting judgements and key sources of estimation uncertainty – note 2.1).
Key audit matter description
Provisions for the Group’s best estimate of anticipated customer redress payments and operational costs from past business reviews
are material and have been the subject of significant audit effort, including the involvement of a regulatory specialist partner, and are
therefore considered a key audit matter.
The past business review provisions at 31 December 2023 total £130.2 million (2022: £45.9 million).
The past business reviews cover motor total loss claims, which covers claims settled between 1 September 2017 and 17 August
2022, and the pricing of motor and home policies following the implementation of the FCA’s Pricing Practices Review ("PPR") reform
from 1 January 2022 and have been subject to third party investigations.
The measurement of these provisions requires several assumptions with a significant degree of management judgement. Key
assumptions include the expected volume of impacted customers and related redress costs. As a result, the estimates and
judgements applied in setting these provisions are a source of key estimation uncertainty.
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Insurance Group plc continued
5. Key audit matters continued
How the scope of our audit responded to the key audit matter
We performed the following procedures:
– Gained an understanding of management's process for setting these provisions;
– Performed a sample test on the redress amounts by tracing to underlying case files, customer communications and bank
statements where an amount had been paid;
– Performed an assessment of whether the methodology and approach to redress was consistent with third party investigation
reports;
– Assessed the competence, capability and objectivity of the third party experts;
– Met with the FCA to understand the regulatory context of the investigations;
– Involved a regulatory specialist partner, who supported the audit team in providing challenge on assumptions and judgements in
inspecting the third party investigation reports;
– Assessed each provision for contradictory evidence and management bias; and
– Challenged the disclosures and presentation of the provisions within the financial statement using relevant disclosure checklist
tools.
Key observations
We concluded that the provisions are reasonable.
6. Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of
our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
Basis for
determining
materiality
Rationale
for the
benchmark
applied
Group financial statements
£24.0 million (2022: £24.0 million)
Parent Company financial statements
£21.6 million (2022: £21.6 million)
The materiality approximates 1.0% (2022: 1.0%) of
shareholders’ equity.
We determined that the critical benchmark for the Group
was shareholders’ equity given the focus on distributable
reserves and future dividend payment capacity.
We also considered this measure alongside insurance
revenue, with our materiality equating to 0.7% (2022: 0.7%)
of insurance revenue.
The materiality approximates 0.7% (2022: 1.0%)
of shareholders’ equity and is capped at 90%
(2022: 90%) of Group materiality.
We determined that the critical benchmark for
the Parent Company was shareholders’ equity.
This is because the Parent Company is not a
trading entity but rather received dividend
income from its subsidiaries.
When determining materiality for the Parent
Company, we also considered the
appropriateness of this materiality for the
consolidation of this set of financial statements
to the Group’s results.
Group materiality is used for setting audit scope and the assessment of uncorrected misstatements. Materiality is set for each
significant component in line with the component’s proportion of the chosen benchmark. This is capped at the lower of 90% of
Group materiality and the component materiality determined for a standalone audit. The main UK insurance trading entity, U K
Insurance Limited, which makes up 100% of Group insurance revenue and 100% of Group insurance contract liabilities, is scoped to
a component materiality of £21.6 million (2022: £21.6 million). Component materiality for other entities within the scope of our
Group audit ranged from £0.8 million to £21.6 million (2022: £0.7 million to £21.6 million).
£2,442m
£24m
Shareholders’ equity
Group materiality
Group materiality £24m
Component materiality range
£0.8m to £21.6m
Audit Committee reporting
threshold £1.2m
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6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole.
Group financial statements
Parent Company financial statements
65% (2022: 67.5%) of Group materiality
65% (2022: 67.5%) of Parent Company materiality
In determining performance materiality, we considered the following factors:
–
–
The impact of the economic and past business reviews on the Group; and
Our risk assessment, including our assessment of the Group’s overall control environment.
Performance
materiality
Basis and
rationale for
determining
performance
materiality
6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £1.2 million (2022:
£1.2 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report
to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1 Identification and scoping of components
The scope of our Group audit was determined by obtaining an understanding of the Group and its environment, including Group
wide controls and assessing the risks of material misstatement at Group level.
This resulted in three entities (Direct Line Insurance Group plc, U K Insurance Limited and DL Insurance Services Limited) being
subject to a full scope audit and a further one (Churchill Insurance Company Limited) was subject to an audit of specified account
balances where the extent of our testing was based on our assessment of the risks of material misstatement and of the materiality of
the Group’s operations. All entities within scope of the Group audit are based in the UK.
These four entities represent the principal trading and service operations of the Group and account for 96% (2022: 97%) of the
Group’s shareholders’ equity and 100% (2022: 100%) of the Group’s insurance revenue and 100% of insurance contract liabilities
(2022: 100%). They were also selected to provide an appropriate basis for undertaking audit work to address the risks of material
misstatement identified above.
Insurance Revenue
Insurance Contract Liabilities
Shareholders' equity
100%
100%
4%
96%
Full audit scope
Full audit scope
Full audit scope
Review at Group level
At the Group level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that
there were no significant risks of material misstatement of the aggregated financial information of the remaining components not
subject to audit or audit of specified account balances.
The Group audit team directly performed the audit work for all of the entities identified above, including the Parent Company.
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Insurance Group plc continued
7. An overview of the scope of our audit continued
7.1 Identification and scoping of components continued
7.2 Our consideration of the control environment
IT Controls
In planning our 2023 audit, we identified 19 (2022: 19) systems that were material to the Group’s financial reporting processes. These
systems handled data relating to premiums, claims, expenses and payroll and we intended to rely on the IT and business controls
associated with these systems. Our IT specialists tested the IT controls associated with these systems, and the supporting
infrastructures and wider general IT control environment. We were able to rely on the IT controls associated with 17 (2022: 17)
systems, with one (2022: one) system in the process of establishing controls and one (2022: one) system having controls that did not
operate for the whole period.
Business Process and Financial Reporting controls
In planning our 2023 audit, we identified 21 business processes (2022: 21) that were material to the Group’s financial reporting
process. These processes covered the Group’s material transactions and account balances including the premiums, claims,
reinsurance, expenses, payroll, investments and intangibles processes and part of the reserving process relating to reconciliation of
data. Of these, we intended to rely on the business controls associated with 19 (2022: 19) of these processes. Further, we changed our
control rotation strategy, and tested all relevant controls in significant business processes, except payroll, for operating effectiveness.
Having completed our testing of the relevant controls of business controls associated with these processes, we concluded that we
were able to rely on the business controls associated with 19 (2022: 12) processes as planned.
In response to deficiencies identified as part of the 2022 audit, we performed enhanced procedures in the current period on the
business processes impacted. We tested the design, implementation and operating effectiveness over the remediated controls on
which we planned to rely and which management implemented in response to the deficiencies raised.
7.3 Our consideration of climate-related risks
We have gained an understanding of management’s processes to address climate-related risks, including the Climate Executive
Steering Group and Group sustainability framework. Management has performed a risk assessment for climate-related risks, further
details are disclosed in the strategic report on pages 70 to 85. Based on the risk assessment, management has concluded that the
impact of climate-related risks is not material to the financial statements in the short term, as disclosed in note 3 to the financial
statements. We have performed a risk assessment of the financial impact of climate risks, with support from a climate change risk
disclosure specialist, on the financial statements and concluded the risks of material misstatement due to climate risk factors are
remote. In doing so we considered the estimates and judgements applied to the financial statements and how climate risks impact
their valuation.
We have read the climate-related financial disclosures (including climate risks) within the Planet section of the Annual Report, taking
into consideration the TCFD recommended disclosures and UK Companies (Strategic Report) (Climate-related Financial Disclosure)
Regulations 2022, and consider the disclosures to be consistent with our understanding of the business and the financial
statements.
8. Other information
The other information comprises the information included in the annual report, other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise
to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there
is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of Directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
170
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Strategic Report / Governance / Financial statements
10. Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
11.1 Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws
and regulations, we considered the following:
– the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
– the Group’s own assessment of the risks that irregularities may occur either as a result of fraud or error that was tabled at the audit
committee on 1 November 2023;
– results of our enquiries of management, internal audit, the directors and the audit committee about their own identification and
assessment of the risks of irregularities, including those that are specific to the Group’s sector;
– any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
– the matters discussed among the audit engagement team and relevant internal specialists, including actuarial, tax, real estate,
valuations, pensions, IT, fraud, regulatory and industry specialists regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following area: valuation of insurance contract liabilities. In common with all audits
under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the Group operates in, focusing on provisions of
those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules and tax
legislation.
11.1 Identifying and assessing potential risks related to irregularities continued
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the
Group’s operating licence, regulatory solvency requirements such as those under the relevant Solvency II requirements and those
required by the PRA, FCA and environmental regulations.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
171171
Strategic Report / Governance / Financial statements Independent Auditor's Report to the shareholders of Direct Line
Insurance Group plc continued
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
continued
11.2 Audit response to risks identified
As a result of performing the above, we identified the valuation of insurance contract liabilities as a key audit matter related to the
potential risk of fraud and the past business reviews provisions as a key audit matter related to the potential risk of non-compliance
with laws and regulations. The key audit matters section of our report explains the matter in more detail and also describes the
specific procedures we performed in response to that key audit matter.
In addition, our procedures to respond to risks identified included the following:
– reviewing the financial statement disclosures and testing supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect on the financial statements;
– enquiring of management, the audit committee and in-house legal counsel concerning actual and potential litigation and claims;
– performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
– enhancing our stand-back assessments for accounting judgements, increasing and broadening the scope of our fraud inquiries;
– reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence
with the PRA and FCA;
– meeting directly with the PRA and FCA and engaging a regulatory specialist to support our performance of audit procedures
around regulatory compliance; and
– in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors' remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
–
the information given in the strategic report and the directors' report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
– the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the strategic report or the directors' report.
13. Corporate governance statement
The Listing Rules require us to review the directors' statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Group's compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
– the directors' statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on pages 159 and 160;
– the directors' explanation as to its assessment of the Group's prospects, the period this assessment covers and why the period is
appropriate set out on pages 93 and 94;
– the directors' statement on fair, balanced and understandable set out on page 115;
– the board's confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 115;
– the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out
on page 194; and
– the section describing the work of the Audit Committee set out on page 117.
172
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Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
14. Matters on which we are required to report by exception
14.1 Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– we have not received all the information and explanations we require for our audit; or
– adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
– the Parent Company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2 Directors' remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors' remuneration have
not been made or the part of the Directors' remuneration report to be audited is not in agreement with the accounting records and
returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1 Auditor tenure
Following the recommendation of the audit committee of Royal Bank of Scotland Group Plc ("RBSG"), which at the time owned
Direct Line Insurance Group plc, we were appointed by the Board of Directors of RBSG on 21 March 2000 to audit the financial
statements for the year ending 31 December 2000 and subsequent financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments of the firm is 24 years, covering the years ending 31 December 2000 to 31
December 2023. There is mandatory rotation of the audit of the financial statements for the year ending 31 December 2024, and
therefore we will cease to be auditor of the Group.
15.2 Consistency of the audit report with the additional reports to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with
ISAs (UK).
16. Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s 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 and the company’s members as a body, for our audit work, for this report, or for the
opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.15R – DTR 4.1.18R, these
financial statements form part of the Electronic Format Annual Financial Report filed on the National Storage Mechanism of the FCA
in accordance with DTR 4.1.15R – DTR 4.1.18R. This auditor’s report provides no assurance over whether the Electronic Format
Annual Financial Report has been prepared in compliance with DTR 4.1.15R – DTR 4.1.18R.
Andrew Holland, FCA
Senior statutory auditor
For and on behalf of Deloitte LLP
Statutory auditor
London, United Kingdom
21 March 2024
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
173173
Strategic Report / Governance / Financial statements Consolidated Statement of Profit or Loss
For the year ended 31 December 2023
Insurance revenue
Insurance service expenses
Allocation of reinsurance premiums paid
Amounts recoverable from reinsurance contracts held
Insurance service result
Total interest income calculated using effective interest rate method
Other interest and similar income
Investment fees
Investment income
Total net fair value gains/(losses) on financial assets held at fair value through profit or
loss:
Net fair value losses on investment property
Net credit impairment losses on financial investments
Investment return
Net finance (expenses)/income from insurance contracts issued
Net finance income/(expenses) from reinsurance contracts held
Investment return and net insurance finance result
Other operating income
Other operating expenses
Other finance costs
Gain on disposal of business
Profit/(loss) before tax
Tax (charge)/credit²
Profit/(loss) for the year attributable to the owners of the Company
Earnings/(loss) per share:
Basic (pence)
Diluted (pence)
Notes
5
5
5
5
5
6
6
6
6
6
6
6
6
6
6
6
7
8
9
10
2023
£m
3,601.7
(3,806.3)
(470.2)
423.4
(251.4)
2022
£m
restated1
3,229.1
(3,145.5)
(165.7)
96.4
14.3
171.8
16.1
(9.3)
178.6
127.0
(1.9)
(0.7)
303.0
(193.8)
28.0
137.2
21.8
(59.6)
(14.5)
443.9
277.4
(54.5)
222.9
109.3
15.6
(9.5)
115.4
(302.8)
(39.1)
(0.6)
(227.1)
102.4
(101.5)
(226.2)
8.3
(77.8)
(20.4)
—
(301.8)
69.9
(231.9)
13
13
15.9
15.7
(19.1)
(19.1)
Notes:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
2. Tax on gain on disposal of business is included in this figure.
The attached notes on pages 179 to 252 form an integral part of these consolidated financial statements.
174
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2023
Strategic Report / Governance / Financial statements
Profit/(loss) for the year attributable to the owners of the Company
Other comprehensive income/(loss)
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gain/(loss) on defined benefit pension scheme
Fair value gain/(loss) on equity investments measured at FVOCI
Realised loss on equity investments measured at FVOCI
Tax relating to items that will not be reclassified
Items that may be reclassified subsequently to profit or loss:
Cash flow hedges
Other comprehensive income/(loss) for the year net of tax
Total comprehensive income/(loss) for the year attributable to the owners of the
Company
Notes
23
6
6
11
2023
£m
222.9
2022
£m
restated1
(231.9)
0.1
3.3
(0.6)
—
2.8
(0.2)
(0.2)
2.6
(9.8)
(0.6)
—
2.5
(7.9)
0.3
0.3
(7.6)
225.5
(239.5)
Note:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
The attached notes on pages 179 to 252 form an integral part of these consolidated financial statements.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
175175
Strategic Report / Governance / Financial statements
Consolidated Statement of Financial Position
As at 31 December 2023
Assets
Goodwill and other intangible assets
Property, plant and equipment
Right-of-use assets
Investment property
Insurance contract assets
Reinsurance contract assets
Deferred tax assets
Current tax assets
Other receivables
Prepayments, accrued income and other assets
Derivative financial instruments
Retirement benefit asset
Financial investments
Cash and cash equivalents
Assets held for sale
Total assets
Equity
Shareholders' equity
Tier 1 notes
Total equity
Liabilities
Subordinated liabilities
Insurance contract liabilities
Reinsurance contract liabilities
Borrowings
Derivative financial instruments
Provisions
Trade and other payables
Lease liabilities
Total liabilities
Total equity and liabilities
As at 31 December
As at 1 January
2023
£m
2022
£m
2022
£m
Notes
restated1
restated1
15
16
17
18
20
20
11
21
22
23
24
25
26
29
30
20
20
25
22
32
33
36
818.6
91.6
96.1
277.1
5.4
1,346.0
56.5
82.8
35.2
101.5
27.4
1.3
3,691.6
1,772.2
13.9
8,417.2
822.2
83.7
73.0
822.5
113.8
76.1
278.5
317.0
17.3
—
1,074.9
1,181.7
89.0
71.9
34.5
29.4
14.4
28.4
104.9
124.2
31.3
1.6
35.9
12.1
3,696.4
4,630.3
1,003.6
955.7
40.9
41.2
7,423.7
8,382.7
2,058.2
346.5
2,404.7
1,845.3
2,450.6
346.5
346.5
2,191.8
2,797.1
258.8
5,238.8
116.6
82.4
15.4
30.8
163.6
106.1
6,012.5
8,417.2
258.6
513.6
4,625.8
4,725.6
13.9
65.2
29.6
10.2
3.6
59.2
19.5
48.1
147.0
131.8
81.6
84.2
5,231.9
5,585.6
7,423.7
8,382.7
Note:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
The attached notes on pages 179 to 252 form an integral part of these consolidated financial statements.
The financial statements were approved by the Board of Directors and authorised for issue on 21 March 2024.
They were signed on its behalf by:
NEIL MANSER
CHIEF FINANCIAL OFFICER
Registration No. 02280426
176
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Consolidated Statement of Changes in Equity
For the year ended 31 December 2023
Strategic Report / Governance / Financial statements
Share
capital
(note 27)
Employee
trust shares
Capital
reserves
(note 28)
AFS
revaluation
reserve2
Equity
investments
revaluation
reserve
Foreign
exchange
translation
reserve
Retained
earnings
Shareholders'
equity
Tier 1
notes
(note 29)
Balance at 1 January 2022
First application of IFRS 17
First application of IFRS 9
£m
£m
£m
145.2
(41.4) 1,454.8
—
—
—
—
—
—
£m
7.5
—
(7.5)
Balance at 1 January 2022 (restated¹)
145.2
(41.4) 1,454.8
Loss for the year
Other comprehensive (loss)/income
Total comprehensive (loss)/income
for the year (restated¹)
Dividends and appropriations paid
(note 12)
Shares acquired by employee trusts
Shares cancelled following buyback
(note 27)
Credit to equity for equity-settled
share-based payments
Shares distributed by employee
trusts
Tax on share-based payments
—
—
—
—
—
—
—
—
—
(11.0)
—
—
—
—
—
(2.1)
—
2.1
—
—
—
—
13.4
—
—
—
—
Total transactions with equity holders
(2.1)
2.4
2.1
Balance at 31 December 2022
(restated¹)
Profit for the year
Other comprehensive income/(loss)
Total comprehensive income/(loss)
for the year
Dividends and appropriations paid
(note 12)
Shares acquired by employee trusts
Credit to equity for equity-settled
share-based payments
Shares distributed by employee
trusts
Tax on share-based payments
Total transactions with equity holders
143.1
(39.0) 1,456.9
—
—
—
—
—
—
—
—
—
—
—
—
—
(10.2)
—
19.3
—
9.1
—
—
—
—
—
—
—
—
—
Balance at 31 December 2023
143.1
(29.9) 1,456.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
equity
£m
£m
£m
£m
£m
£m
1.5
(0.3)
982.9
2,550.2
346.5 2,896.7
—
—
1.5
—
(0.6)
—
—
(96.1)
4.0
(96.1)
(3.5)
—
—
(96.1)
(3.5)
(0.3)
890.8
2,450.6
346.5 2,797.1
—
0.3
(231.9)
(7.3)
(231.9)
(7.6)
—
—
(231.9)
(7.6)
(0.6)
0.3
(239.2)
(239.5)
—
(239.5)
—
—
—
—
—
—
—
—
(314.5)
(314.5)
—
(314.5)
—
—
(11.0)
—
(11.0)
—
(50.1)
(50.1)
—
(50.1)
—
—
—
9.6
(13.4)
0.2
9.6
—
0.2
—
(368.2)
(365.8)
—
—
—
—
9.6
—
0.2
(365.8)
0.9
—
283.4
1,845.3
346.5 2,191.8
—
2.7
2.7
—
—
—
—
—
—
—
222.9
(0.2)
0.1
222.9
2.6
(0.2)
223.0
225.5
—
—
—
—
—
—
(16.6)
—
13.9
(19.3)
0.3
(16.6)
(10.2)
13.9
—
0.3
(21.7)
(12.6)
—
—
—
—
—
—
—
—
—
222.9
2.6
225.5
(16.6)
(10.2)
13.9
—
0.3
(12.6)
3.6
(0.2)
484.7
2,058.2
346.5
2,404.7
Notes:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
2. The available-for-sale ("AFS") revaluation reserve recorded fair value movements on financial assets categorised as AFS under IAS 39 'Financial
Instruments: Recognition and Measurement' which has since been superseded by IFRS 9 (see notes 1.1b and 40).
The attached notes on pages 179 to 252 form an integral part of these consolidated financial statements.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
177177
Strategic Report / Governance / Financial statements
Consolidated Cash Flow Statement
For the year ended 31 December 2023
Net cash generated from operating activities before investment of insurance assets
Cash generated from investment of insurance assets
Net cash generated from operating activities
Cash flows from/(used) in investing activities
Investment in other intangible assets
Purchases of property, plant and equipment
Proceeds on disposals of assets held for sale
Proceeds from disposal of business
Net cash outflow from acquisition of businesses
Net cash generated from/(used in) investing activities
Cash flows used in financing activities
Dividends and appropriations paid
Repayment of subordinated liabilities
Other finance costs (including lease interest)
Principal element of lease payments
Purchase of employee trust shares
Share buyback
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the period
2023
£m
100.5
304.4
404.9
(124.1)
(18.9)
21.9
520.0
(0.6)
398.3
(16.6)
—
(14.2)
(10.8)
(10.2)
—
(51.8)
751.4
938.4
1,689.8
2022
£m
restated1
32.1
768.1
800.2
(108.4)
(11.7)
19.3
—
—
(100.8)
(314.5)
(250.0)
(23.0)
(8.9)
(11.0)
(50.1)
(657.5)
41.9
896.5
938.4
Notes
34
34
15
16
9
38
12
34
27
25
25
Note:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
The attached notes on pages 179 to 252 form an integral part of these consolidated financial statements.
178
178
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Notes to the Consolidated Financial Statements
Strategic Report / Governance / Financial statements
Corporate information
Direct Line Insurance Group plc (the "Group") 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.
The principal activity of the Group is the provision of general
insurance.
1. Accounting policies
Basis of preparation
As required by the Companies Act 2006, the Group's
consolidated financial statements are prepared in accordance
with United Kingdom adopted international accounting
standards and International Financial Reporting Standards
("IFRSs") as issued by the International Accounting Standards
Board ("IASB"). The Group has elected to prepare its parent
company financial statements in accordance with FRS 101
'Reduced Disclosure Framework'.
The consolidated financial statements are prepared on the
historical cost basis except for (i) insurance and reinsurance
contract assets and liabilities which are measured at their
fulfilment value in accordance with IFRS 17; (ii) debt and equity
investments held at either fair value through profit or loss
("FVTPL") or fair value through other comprehensive income
("FVOCI"); and (iii) financial assets; investment property and
derivative financial instruments, which are measured at fair
value (fair value is defined in note 37).
Where necessary, adjustments have been made to the financial
statements of subsidiaries to bring the accounting policies used
into line with those used by the Group. The policies set out
below have been applied consistently throughout the years
ended 31 December 2023 and 31 December 2022 to items
considered material to the consolidated financial statements.
The accounting policies are consistent with those set out in the
Group's 2022 annual financial statements, with the exception of
new accounting standards which were effective for periods
beginning on or after 1 January 2023. The nature and effect of
these changes are disclosed in note 2 and 40.
The Company's financial statements and the Group's
consolidated financial statements are presented in sterling,
which is the functional currency of the Company and the Group.
Going concern
The Directors believe that the Group has sufficient financial
resources to meet its financial needs, including managing a
mature portfolio of insurance risk. The Directors believe the
Group is well positioned to manage its business risks
successfully in the current economic climate. The Chief Financial
Officer Review describes the Group's capital management
strategy, including the capital actions taken in the last 12
months to ensure the continued strength of the balance sheet
and sets out management actions that the Group continues to
pursue to rebuild balance sheet resilience. The Group's financial
position is also covered in that section, including a commentary
on cash and investment levels, reserves, currency management,
insurance liability management, liquidity and borrowings. The
financial disclosures relating to the Group's principal risks are set
out in note 3. This covers insurance, market, credit, liquidity and
operational risk; and the Group's approach to monitoring,
managing and mitigating exposures to these risks.
The Directors have assessed the principal risks of the Group over
the duration of the planning cycle, which runs until 2027, with
the first year following approval of the Strategic Plan ("the Plan"),
being 2024, having greater certainty and hence used to set
detailed budgets. The Group's Risk Function has carried out an
assessment of the risks to the Plan and the dependencies for
the success of the Plan. This included running adverse scenarios
on the Plan to consider the downside risks to the Plan and
subsequent impact on forecast profit. The key scenarios applied
to the Plan were in relation to the impact of adverse claims
inflation, failure to achieve motor pricing initiative benefits, delay
to delivery of expense reductions and a fall in asset values. The
key judgements and assumptions applied in these scenarios
were as follows:
– Adverse claims inflation: the Plan includes a scenario for
inflation being higher than expected, leading to claims costs
increasing by 3-6% with the Group and market response
delayed by six months.
– Failure to achieve motor pricing initiative benefits: planned
benefits from future motor pricing initiatives are not achieved.
– Delay to delivering expense reductions: there is a delay of 12
months in delivering planned expense reductions.
– Fall in asset values: an increase in credit spreads of 75 basis
points, with a partial recovery of 25 basis points over 2025.
It is unlikely that all risks would materialise at the same time.
None of the scenarios individually were concluded to present a
threat to the Group’s expected viability across the duration of
the Plan.
The Risk Function has also carried out an assessment of the risks
to the Group's and Company's capital position over 2024 and
2025. Two specific macroeconomic combination stresses, a
moderate and a severe, have been updated to include not only
a review of Group financials but also a review of assumptions to
reflect the latest internal and external environment and trends.
The stresses have been run to assess the possible impact on own
funds in the period to 31 December 2024 and 31 December
2025. The stresses are updated and repeated regularly. The
macroeconomic assumptions for key parameters such as
Consumer Price Index, GDP and Bank base rate for the
moderate scenario reflect the adverse end of the Bank of
England November Monetary Policy Committee forecast range.
The severe scenario adopts the key parameters from the 2022
Bank of England Banking Stress Test, which is described as
“severe but plausible”, updated for changes in the
macroeconomic environment, including the recession in the
United Kingdom.
In the moderate and severe scenarios, it was concluded that the
Company's solvency capital requirement would not be
breached.
Additionally, the Risk Function conducted a reverse stress test to
establish whether the long-term future for motor insurance,
specifically, the adoption of electric vehicles, poses a threat to
the viability of the Company’s current business model. The
findings showed that over the duration of the planning cycle the
scenarios considered did not present a risk to the viability of the
business model.
Further information in relation to the sensitivity of key factors on
the Group’s financial position are included in the financial
statements. The insurance risk note (note 3.3.1) sets out the
impact on profit before tax of an increase and a decrease in
claims inflation of 200 basis points for two consecutive years.
The market risk note (note 3.3.2) sets out the impact on profit
before tax and equity of a 100 basis points increase in spreads
on financial investments and the impact of a 100 basis points
increase in interest rates on financial investments and
derivatives.
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The key changes noted below are those that are significant on
transition to IFRS 17.
Disclosures are more detailed and granular:
– The presentation of the primary statements has changed
including the introduction of new required line items. New
requirements include insurance revenue, insurance service
expenses, allocation of reinsurance premium paid and
amount recoverable from reinsurance contracts held. The
presentation provides analysis of the various components
related to insurance activities. As a result, the consolidated
statement of profit or loss no longer includes the presentation
of gross and net written premium.
– New accounting policies as a result of transition to IFRS 17
and related accounting treatments are summarised in note 1.
– Significant judgements, and changes in those judgements,
and critical estimates when applying the standard are
summarised in note 2.1.
– Other disaggregated qualitative and quantitative information
as required by IFRS 17 (for example. reconciliation of
insurance contract liabilities for movement in liability for
remaining coverage and liability for incurred claims) is
provided in the notes to the financial statements (see note
20).
The fully retrospective approach was applied to the insurance
contracts and reinsurance contracts in force at the transition
date 1 January 2022. The application of the transition approach
involved:
– comprehensive review, identification, and measurement of
groups of insurance contracts and reinsurance contracts. The
assessment was conducted as if the requirements of IFRS 17
were always in effect. As a result, any balances that would not
have existed under the constant application of IFRS 17 have
been removed. The approach ensures compliance with the
retrospective application of IFRS 17, bringing the Group's
financial reporting in line with the principles of the standard;
and
– PAA eligibility assessment was carried out for insurance and
reinsurance contracts in the 2021 and prior unexpired groups,
specifically those with coverage periods exceeding 12
months. The assessment confirmed that these contracts
satisfied the criteria for PAA eligibility.
On the transition date, 1 January 2022, the Group has
determined the quantitative impact in the following key areas.
Equity: net shareholders equity decreased by £96.1 million,
primarily as a result of the policy choice to expense acquisition
costs. This was partially offset by the inclusion of discounting in
the LIC.
Net insurance contract liabilities: decreased primarily due to the
introduction of discounting, for non-PPO claims reserves,
partially offset by the reclassification of balances, such as IPT
payable, from trade and other payables into net insurance
contract liabilities.
Deferred tax asset: on transition, the effect of the above changes
created a deferred tax asset of £29.2 million.
The reconciliation of opening to closing equity under IFRS 17
and the resulting impact on key financial statement line items is
disclosed in note 40.1.
1. Accounting policies continued
Going concern continued
Therefore, having made due enquiries, the Directors believe they
can reasonably expect that the Group has adequate resources
to continue in operational existence for at least 12 months from
21 March 2024 (the date of approval of the consolidated
financial statements). Accordingly, the Directors have adopted
the going concern basis in preparing the consolidated financial
statements.
1.1 Adoption of new and revised standards
The Group has adopted the following new amendments to
IFRSs and International Accounting Standards ("IASs") that
became mandatorily effective for the Group for the first time
during 2023 which are material to the Group.
The Group has adopted the requirements of IFRS 17 'Insurance
Contracts' and IFRS 9 'Financial Instruments' from 1 January
2023 on a fully retrospective basis in these financial statements
for the first time. The impact of adoption of the standards and
key changes are discussed below:
– transition approaches used and their impact;
– new accounting policies related to IFRS 17 and IFRS 9; and
– significant accounting judgements and sources of estimation
uncertainty.
1.1 (a) Adoption of IFRS 17: transition approach and
impact
The Group has adopted IFRS 17 from 1 January 2023, and chose
to restate 2022 comparatives. IFRS 17 does not impact the
fundamental economics of the Group's business, financial
strength, claims paying ability, or dividend capacity. Thus, there
is no change to the Group's business operations. IFRS 17 results
in a significant change in the accounting, presentation, and
disclosures of the Group's financial results. The key changes are
summarised below.
The insurance service result has reflected discounting for claims
in the period and reclassification of certain expenses from
attributable to non-attributable expenses, in line with the
requirements of the standard. This has resulted in non-
attributable expenses being recognised outside of the insurance
service result.
Under IFRS 17, the Group has taken the option to expense
insurance acquisition cash flows when they are incurred. Under
IFRS 4, such acquisition costs were recognised and presented
separately as ‘deferred acquisition costs’.
The Group uses the Premium Allocation Approach ("PAA") to
simplify the measurement of groups of insurance contracts and
reinsurance contracts provided that relevant PAA eligibility
criteria are met.
The carrying amount of a group of insurance contracts issued is
the sum of liability for remaining coverage ("LFRC") and liability
for incurred claims ("LIC"). In measuring LFRC, the PAA aligns
closely with the Group's previous accounting approach under
IFRS 4. However, IFRS 17 incorporates several key changes
compared to IFRS 4 in the measurement of the LIC. Previously,
only PPO reserves were discounted to present value, reflecting
the time value of money. Since transition to IFRS 17 all claims
reserves are discounted to their present value. Additionally, an
explicit risk adjustment ("RA") is included in the calculation to
account for non-financial risks associated with claims. The
Group has chosen to take the full effect of the time value of
money and changes in the time value of money and financial
risk to the consolidated statement of profit or loss.
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There are no other reclassifications as a result of applying IFRS 9
as:
– assets previously classified as held-to-maturity ("HTM") and
loans and receivables satisfy the IFRS 9 condition to be
classified as ‘held-to-collect’. These assets are measured at
amortised cost as they are debt instruments with contractual
terms that give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal
amount outstanding and sales are infrequent or insignificant;
– derivatives continue to be measured at FVTPL;
– equity investments will continue to be valued at either FVOCI
when designated as such at initial recognition or FVTPL; and
– financial liabilities continue to be measured at amortised cost,
except for derivative financial liabilities, which are held at fair
value.
The following table shows the differences in the carrying
amounts of financial instruments from their previous
measurement category under IAS 39 to the measurement
categories on transition to IFRS 9 on 1 January 2022.
1.1 (b) Adoption of IFRS 9: transition approach and
impact
The Group has adopted IFRS 9 retrospectively from 1 January
2023 and chose to restate comparatives for 2022.
The adoption of IFRS 9 has resulted in changes to the Group's
accounting policies for recognition, classification and
measurement of financial assets and financial liabilities and
introduces new rules for hedge accounting and a new
impairment model for financial assets, which requires a
calculation for an expected credit loss ("ECL") for financial assets
held at amortised cost.
On the transition date, 1 January 2022, the net impact
recognised in equity was a decrease of £3.5 million, driven
primarily by the recognition of the ECL under IFRS 9 for financial
instruments carried at amortised cost, with further details
included in notes 24, 40.1, 40.2 and 40.3.
Classification and measurement of financial
instruments
The Group's debt instruments of £4,084.6 million that were
classified as available-for-sale ("AFS") under IAS 39 ‘Financial
Instruments: Recognition and Measurement’ as at 1 January
2022 (the opening date of the comparative period) satisfy the
conditions for classification as ‘held to collect and sell’ under
IFRS 9 to be measured at FVOCI. However, the Group has
applied the IFRS 9 option to designate debt instruments,
backing its insurance contracts as FVTPL, to reduce the
accounting mismatch caused by the change in the discount
rates on the value of insurance contracts that are reflected in the
consolidated statement of profit or loss. The AFS reserve of £7.5
million was transferred to retained earnings on 1 January 2022.
IAS 39
IFRS 9
Measurement category
Carrying
amount
£m
Measurement category
Carrying
amount
£m
Financial assets
Debt securities
Available-for-sale
4,084.6
Fair value through profit or loss
4,084.6
Debt securities
Held-to-maturity
Loans and receivables
Amortised cost
91.2
Amortised cost
451.6
Amortised cost
Equity investments
Available-for-sale
6.2
Fair value through other
comprehensive income
Equity investments
Fair value through profit or loss
0.8
Fair value through profit or loss
Derivative financial
instruments
Fair value through profit or loss
35.9
Fair value through profit or loss
Cash and cash equivalents Amortised cost
955.7
Amortised cost
Financial liabilities
Borrowings
Amortised cost
Derivative financial
instruments
Fair value through profit or loss
59.2
19.5
Amortised cost
Fair value through profit or loss
Trade and other payables
Amortised cost
Subordinated liabilities
Amortised cost
131.8
Amortised cost
513.6
Amortised cost
90.0
449.2
6.2
0.8
35.9
955.7
59.2
19.5
131.8
513.6
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Notes to the Consolidated Financial Statements continued
1. Accounting policies continued
1.1 Adoption of new and revised standards continued
Expected credit losses
The IFRS 9 impairment model requires the recognition of
impairment provisions based on expected credit losses rather
than incurred credit losses as was the case under IAS 39. The
Group has established a default probability model for its
financial investments and debt securities held at amortised cost.
Impairment for the remaining assets is measured using the
simplified approach based on a probability matrix that
incorporates all available information relevant to the assessment
of credit risk, including information about past events, current
conditions and reasonable and supportable forecasts of
economic conditions at the reporting date. The forward-looking
aspect of IFRS 9 requires judgement as to how changes in
economic factors affect ECLs.
The adoption of IFRS 9 has resulted in an ECL, inclusive of the
effect of tax, of £3.5 million at 1 January 2022.
1.1 (c) Estimated impact of the transition to IFRS 17 and
IFRS 9 disclosed in the 2022 Annual Report and
Accounts (the "Report")
Following the publication of the 2022 Report, and as disclosed
in the 2023 Half Year Report, the Group has reassessed its
reserving methodology for events not in data ("ENIDs"). To
ensure consistency in the recognition of ENIDs between
Solvency II and IFRS17, the Group has taken the decision to
align the IFRS17 ENIDs methodology with that used in Solvency
II. This change in methodology has further reduced the Group's
total equity of £2,896.7 million on the opening consolidated
statement of financial position as at 1 January 2022 by £39.4
million to £2,797.1 million from the estimated financial impact
of adoption of IFRS 17 and IFRS 9 of £60.2 million disclosed in
the 2022 Annual report.
1.1 (d) Other accounting standards and amendments
adopted during 2023
The Group has adopted the following new amendments to
IFRSs and IASs that became mandatorily effective for the Group
for the first time during 2023. None of these changes have a
material impact on the Group.
In February 2021 the IASB issued ‘Definition of Accounting
Estimates (Amendments to IAS 8)’ which introduces a new
definition of ‘accounting estimates’. The amendments are
designed to clarify the distinction between changes in
accounting estimates and changes in accounting policies and
the correction of errors.
Also, in February 2021 the IASB issued ‘Disclosure of Accounting
policies (Amendments to IAS 1 and IFRS Practice Statement 2)’
to help entities to provide accounting policy disclosures that are
more useful by:
– replacing the requirement for entities to disclose their
‘significant’ accounting policies with a requirement to disclose
their ‘material’ accounting policies; and
– adding guidance on how entities apply the concept of
‘materiality’ in making decisions about accounting policy
disclosures.
In May 2021 the IASB issued ‘Deferred Tax related to Assets and
Liabilities arising from a single Transaction (Amendments to IAS
12)’ which narrows the scope of the initial recognition exception
under IAS 12 ‘Income Taxes’ so that it no longer applies to
transactions that give rise to equal taxable and deductible
temporary differences. The amendments also clarify where
payments that settle a liability are deductible for tax purposes.
In May 2023 the IASB issued amendments to IAS 12 ‘Income
Taxes’ which gives companies temporary relief from accounting
for deferred taxes arising from the Organisation for Economic
Co-operation and Development’s (OECD) international tax
reform.
1.2 Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and the entities that are controlled
by the Group at 31 December 2023 and 31 December 2022.
Control exists when the Group is exposed, or has rights, to
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
In assessing whether the Group controls another entity, the
existence and effect of the potential voting rights that are
currently exercisable or convertible are considered.
A subsidiary acquired is included in the consolidated financial
statements from the date it is controlled by the Group until the
date the Group ceases to control it. On acquisition of a
subsidiary, its identifiable assets, liabilities and contingent
liabilities are included in the consolidated financial statements
at fair value.
The Group accounts for the disposal of subsidiary undertakings
or a disposal group when it ceases to exert control.
A gain or loss is measured as the difference between the fair
value of consideration received or receivable and the value of
the assets and liabilities de-recognised, which relate to
businesses disposed of. The gain or loss is recognised on the
effective date of the completion of the disposal.
All intercompany transactions, balances, income and expenses
between Group entities are eliminated on consolidation.
1.3 Foreign currencies
Group entities record transactions in the currency of the primary
economic environment in which they operate (their functional
currency), translated at the foreign exchange rate ruling at the
date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies are translated into the relevant functional currency at
the foreign exchange rates ruling at the statement of financial
position date. Foreign exchange differences arising on the
settlement of foreign currency transactions and from the
translation of monetary assets and liabilities are reported in the
statement of profit or loss.
Non-monetary items denominated in foreign currencies that are
stated at fair value are translated into the relevant functional
currency at the foreign exchange rates ruling at the dates the
values are determined. Translation differences arising on non-
monetary items measured at fair value are recognised in the
statement of profit or loss except for differences arising on
equity investments held at fair value through other
comprehensive income ("FVOCI"), which are recognised in other
comprehensive income.
Assets and liabilities of foreign operations, including goodwill
and fair value adjustments arising on acquisition, are translated
into sterling at the foreign exchange rates ruling at the
statement of financial position date. Income and expenses of
foreign operations are translated into sterling at average
exchange rates unless these do not approximate the foreign
exchange rates ruling at the dates of the transactions. Foreign
exchange differences arising on the translation of a foreign
operation are recognised in the consolidated statement of other
comprehensive income. The amount accumulated in equity is
reclassified from equity to the consolidated statement of profit
or loss on disposal or partial disposal of a foreign operation.
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1.4 Contract classification
Insurance contracts are those contracts where the Group (the
insurer) has accepted significant insurance risk from another
party (the policyholder) by agreeing to compensate the
policyholder if a specified uncertain future event (the insured
event) adversely affects the policyholder.
Once a contract has been classified as an insurance contract, it
remains an insurance contract for the remainder of its lifetime,
even if the insurance risk reduces significantly during this period,
unless all rights and obligations are extinguished or it is
derecognised as a result of a contract modification.
1.5 Insurance contracts
Insurance and reinsurance contracts classification
Contract classification, as disclosed in policy note 1.4 above,
remains unchanged on adoption of IFRS 17. The Group issues
short-term motor, home, rescue, pet, travel and commercial
insurance contracts in the normal course of business, under
which it accepts significant insurance risk from its policyholders.
The Group has reinsurance treaties and other reinsurance
contracts that transfer significant insurance risk. The Group
cedes insurance risk by reinsurance in the normal course of
business.
Insurance contracts accounting treatment
(i) Separating components from insurance and reinsurance
contracts
The Group assesses its insurance contracts to determine
whether they contain distinct components which must be
accounted for under another IFRS instead of under IFRS 17.
After separating any distinct components, the Group applies
IFRS 17 to all remaining components of the (host) insurance
contract. Currently, the Group's contracts do not include any
distinct components that require separation.
(ii) Level of aggregation
Insurance contracts are aggregated into groups for
management purposes. The level of aggregation for the Group is
determined firstly by dividing the business written into
portfolios. Portfolios comprise groups of contracts with similar
risks which are managed together. Portfolios are further divided
based on expected profitability at inception into three
categories:
i. onerous contracts, if any;
ii. contracts with no significant risk of becoming onerous; and
iii. the remainder group of contracts in the portfolio.
A group of insurance contracts is considered to be onerous at
initial recognition if the fulfilment cashflows allocated to that
group of contracts in total are a net outflow. This occurs if the
present value of expected claims, attributable expenses and risk
adjustment exceeds the premium. As all inwards contracts are
measured under the PAA model, due to the short-term nature
of the contracts, the Group takes the standard’s default
assumption that no groups are onerous unless facts and
circumstances indicate otherwise. The grouping of insurance
contracts is determined at initial recognition and is not
subsequently reassessed.
Portfolios of reinsurance contracts held are assessed for
aggregation separately from portfolios of insurance contracts
issued. Applying the grouping requirements to reinsurance
contracts held, the Group aggregates reinsurance contracts held
based on the criteria of similar risks which are managed
together. The reinsurance contract held portfolios are further
divided within a calendar year into three groups that comprise:
i. contracts for which there is a net gain at initial recognition, if
any;
ii. contracts for which, at initial recognition, there is no
significant possibility of a net gain arising subsequently; and
iii. remaining contracts in the portfolio.
(iii) Recognition
The Group recognises groups of insurance contracts it issues
from the earliest of the following:
– the beginning of the coverage period of the group of
contracts;
– the date when the first payment from a policyholder in the
group is due or when the first payment is received if there is
no due date; or
– for a group of onerous contracts, when facts and
circumstances indicate that the group is onerous.
The Group recognises a group of reinsurance contracts held it
has entered into from the earlier of the following:
– the beginning of the coverage period of the group of
reinsurance contracts held. However, the Group delays the
recognition of a group of reinsurance contracts held that
provide proportionate coverage until the date any underlying
insurance contract is initially recognised, if that date is later
than the beginning of the coverage period of the group of
reinsurance contracts held; and
– the date the Group recognises an onerous group of
underlying insurance contracts if the Group entered into the
related reinsurance contract held at or before that date.
(iv) Contract boundary
The Group includes in the measurement of a group of insurance
contracts all the future cash flows within the boundary of each
contract in the group. Cash flows are within the boundary of an
insurance contract if they arise from substantive rights and
obligations that exist during the reporting period in which the
Group can compel the policyholder to pay the premiums, or in
which the Group has a substantive obligation to provide the
policyholder with insurance contract services.
A liability or asset relating to expected premiums or claims
outside the boundary of the insurance contract is not
recognised. Such amounts relate to future insurance contracts.
The contract boundary is reassessed at each reporting date to
include the effect of changes in circumstances on the Group's
substantive rights and obligations and therefore may change
over time.
The contract boundary for a reinsurance contract is dependent
on the terms and conditions of the reinsurance contract and
therefore may not necessarily be the same as for the underlying
insurance contracts. For groups of reinsurance contracts held,
cash flows are within the contract boundary if they arise from
substantive rights and obligations of the Group that exist during
the reporting period in which the Group is compelled to pay
amounts to the reinsurer or in which the Group has a
substantive right to receive insurance contract services from the
reinsurer.
The Group’s reinsurance contracts (both quota share and Motor
excess of loss) include contracts with a coverage period greater
than one year. However, there is no material difference in the
measurement of the asset for remaining coverage between the
PAA and the general model, therefore these qualify for the PAA.
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1. Accounting policies continued
1.5 Insurance contracts continued
(v) Measurement – Premium Allocation Approach
The Group applies the PAA to all the insurance contracts that it
issues and expects to apply it to reinsurance contracts that it
holds, as:
– the coverage period of each contract in the group is one year
or less, including insurance contract services arising from all
premiums within the contract boundary; or
– for groups of insurance and reinsurance contracts longer than
one year, the Group has modelled possible future scenarios to
test the measurement of the liability for remaining coverage
for the group containing those contracts under the PAA does
not differ materially from the measurement that would be
produced by applying the General Measurement Model.
Where contracts and groups of contracts are deemed to be
immaterial additional PAA testing is not performed and
accordingly contracts are measured under the PAA
measurement model.
Insurance contracts – initial measurement
The Group applies the PAA to simplify the measurement of
insurance contracts. When measuring liabilities for remaining
coverage, the PAA is broadly similar to the Group's previous
accounting treatment under IFRS 4. However, when measuring
liabilities for incurred claims, the Group applies discounting and
includes an explicit risk adjustment for non-financial risk.
The Group does not adjust the liability for remaining coverage
for insurance contracts issued for the effect of the time value of
money, because insurance premiums are due within one year of
the coverage period.
For a group of contracts that is not onerous at initial recognition,
the Group measures the liability for remaining coverage as:
– the premiums, if any, received at initial recognition; plus
– any other asset or liability previously recognised for cash flows
related to the group of contracts that the Group pays or
receives before the group of insurance contracts is recognised.
Where facts and circumstances indicate that contracts are
onerous at initial recognition, the Group performs additional
analysis to determine if a net outflow is expected from the
contract. Such onerous contracts are separately grouped from
other contracts and the Group recognises a loss in profit or loss
for the net outflow, resulting in the carrying amount of the
liability for the group being equal to the fulfilment cash flows. A
loss component is established by the Group for the liability for
remaining coverage for any such onerous group depicting the
losses recognised.
Reinsurance contracts held – initial measurement
The Group measures its reinsurance assets for a group of
reinsurance contracts that it holds on the same basis as
insurance contracts that it issues. However, they are adapted to
reflect the features of reinsurance contracts held that differ from
insurance contracts issued, for example the generation of
expenses or reduction in expenses rather than revenue.
Where the Group recognises a loss on initial recognition of an
onerous group of underlying insurance contracts or when
further onerous underlying insurance contracts are added to a
group, the Group establishes a loss-recovery component of the
asset for remaining coverage for a group of reinsurance
contracts held depicting the recovery of losses.
Insurance contracts – subsequent measurement
The Group measures the carrying amount of the liability for
remaining coverage at the end of each reporting period as:
– the liability for remaining coverage at the beginning of the
period; plus
– premiums received in the period; minus
– the amount recognised as insurance revenue for the services
provided in the period.
The Group estimates the liability for incurred claims as the
fulfilment cash flows related to incurred claims. The fulfilment
cash flows incorporate, in an unbiased way, all reasonable and
supportable information available without undue cost or effort
about the amount, timing and uncertainty of those future cash
flows; they reflect current estimates from the perspective of the
Group and include an explicit adjustment for non-financial risk
(the risk adjustment). The Group adjusts the future cash flows for
the time value of money and the effect of financial risk for the
measurement of liability for incurred claims, including those
that are expected to be paid within one year of being incurred.
The Group has chosen to take the effect of the time value of
money and changes in the time value of money and financial
risk to the statement of profit or loss (see insurance finance
income and expense below).
Reinsurance contracts held – subsequent measurement
The subsequent measurement of reinsurance contracts held
follows the same principles as those for insurance contracts
issued and has been adapted to reflect the specific features of
reinsurance contract held. The Group adjusts the asset for
incurred recoveries (on underlying incurred claims) for the effect
of changes in the default risk of the reinsurer with the
corresponding change being reflected in the insurance service
result (amounts recovered from reinsurance contracts held). The
risk adjustment for non-financial risk is the amount of risk being
transferred by the Group to the reinsurer.
Insurance acquisition cash flows for insurance contracts
issued
The Group has taken the option to expense insurance
acquisition cash flows as they are incurred. This includes for a
small number of contracts where the coverage period exceeds a
period of twelve months (see above) and there are no material
amounts of acquisition costs relating to these contracts. This
policy differs to the Group's previous policy of deferring
acquisition costs over a twelve month period.
Insurance contracts – modification and derecognition
The Group derecognises insurance contracts when:
– the rights and obligations relating to the contract are
extinguished (i.e. discharged, cancelled or expired); or
– the contract is modified such that the modification results in
a change in the measurement model or the applicable
standard for measuring a component of the contract,
substantially changes the contract boundary, or requires the
modified contract to be included in a different group. In such
cases, the Group derecognises the initial contract and
recognises the modified contract as a new contract.
When a modification is not treated as a derecognition, the
Group recognises amounts paid or received for the modification
of the contract as an adjustment to the estimate of fulfilment
cash flows.
(vi) Presentation
The Group presents separately, in the consolidated statement of
financial position, the carrying amount of portfolios of insurance
contracts issued that are assets, portfolios of insurance contracts
issued that are liabilities, portfolios of reinsurance contracts held
that are assets and portfolios of reinsurance contracts held that
are liabilities.
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The Group separately presents income or expenses from
reinsurance contracts held from the expenses or income from
insurance contracts issued.
Insurance revenue
The insurance revenue for the period is the amount of expected
premium receipts allocated to the period. The Group allocates
the expected premium receipts and instalment income (being
the additional fees payable by a policyholder associated with
paying for an insurance contract over 12 months that are
considered non-distinct from the underlying insurance policy) to
each period of insurance contract services on the basis of the
passage of time.
Cash flows associated with arrangement fee and administrative
fee income are included within the insurance revenue cash
flows as they are considered non-distinct from the underlying
insurance policy. Arrangement services are provided at a point
in time as the benefits from obtaining the insurance policy
occur at a specific time. The customer benefits from
administration services throughout the policy period; as the
Group performs its obligation on an as-needed basis, the
allocated element of administration services is spread evenly
over the term of the policy.
Insurance service expenses
Insurance service expenses include the following:
– incurred claims; and
– other incurred directly attributable expenses, such as
marketing and acquisition costs.
Other expenses not included above are included in other
operating expenses in the consolidated statement of profit or
loss.
Vehicle replacement referral fees, salvage income and legal
services fees are rolled up and offset against the claim cost at
the Group level.
Insurance finance income and expense
Insurance finance income and expenses comprise the change in
the carrying amount of the group of insurance contracts in
respect of incurred claims arising from:
– the effect of the time value of money and changes in the time
value of money. This mainly comprises interest accreted on
the LIC; and
– the effect of financial risk and changes in financial risk. This
mainly includes the effect of changes in interest rates (i.e
discount rates) and the inflation assumptions for PPOs (which
are predominantly inflated with respect to the ASHE 6115
index).
The Group does not disaggregate finance income and expenses
because the related financial assets are managed on a fair value
basis and measured at FVTPL
Net income or expense from reinsurance contracts
held
The Group presents separately on the face of the consolidated
statement of profit or loss the amounts expected to be
recovered from reinsurers, and an allocation of the reinsurance
premiums paid. The Group treats reinsurance cash flows that
are contingent on claims on the underlying contracts as part of
the claims that are expected to be reimbursed under the
reinsurance contract held and treats amounts not dependent
on the underlying claims, such as ceding commissions, as a
reduction in the premiums paid to the reinsurer.
Strategic Report / Governance / Financial statements
Presentation of reinsurance contract with ‘funds
withheld’ arrangement
The Group has quota share reinsurance contracts that have
funds withheld features, whereby the quota share proportion of
reinsurance premiums and related recoveries are retained by
the Group and will be settled on a net basis at commutation.
Under this arrangement, no assets are transferred to the
reinsurer at the inception of the contract. Instead, the asset is
deposited within a segregated funds withheld account that is
maintained by the Group with a third-party custodian. Cash
withheld under funds withheld arrangements are presented in
cash and cash equivalents within the statement of financial
position.
The funds withheld account balance is adjusted at the agreed
commutation date, with any shortfall or surplus resulting from
reinsurance premium compared to reinsurance recoveries
necessitating an adjustment to funds withheld. The funds
withheld account is measured by reference to the fulfilment
cash flows (of the reinsurance contract held) that, according to
the contractual terms, give rise to the funds withheld feature.
Until it is settled in cash, the funds withheld liability is included
within reinsurance contract assets or liabilities.
Whilst the funds withheld arrangement operates on a net
settlement basis, the Group’s policy is to present the reinsurance
results on a gross basis in the consolidated statement of profit or
loss, as outlined above.
1.6 Revenue recognition - non-insurance
Investment return
Interest income on financial assets is determined using the
effective interest rate method. The effective interest rate
method is a way of calculating the amortised cost of a financial
asset (or group of financial assets) and of allocating the interest
income over the expected life of the asset.
Rental income from investment property is recognised in the
statement of profit or loss on a straight-line basis over the period
of the contract.
Dividend income is recognised when the right to receive
payment is established.
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1. Accounting policies continued
1.6 Revenue recognition - non-insurance continued
Other income
Revenue from vehicle recovery and repair services (accounted
for in accordance with IFRS 15 'Revenue from Contracts with
Customers')
The Group's income also comprises vehicle repair services
provided to other third-party customers. Income in respect of
repairs to vehicles is recognised upon completion of the repair
obligations. The price is determined using market rates for the
services and materials used after discounts have been deducted
where applicable.
Revenue from any goods provided is accounted for at the point
of sale.
1.7 Restructuring and one-off costs
Restructuring costs are costs incurred in respect of those
business activities which have a material effect on the nature
and focus of the Group's operations. One-off costs are costs that
are non-recurring in nature.
1.8 Goodwill and other intangible assets
Acquired goodwill, being the excess of the cost of an acquisition
over the Group's interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities of the subsidiary
acquired, is initially recognised at cost and subsequently at cost
less any accumulated impairment losses. Goodwill arising on
the acquisition of subsidiaries is included in the statement of
financial position category "goodwill and other intangible
assets". The gain or loss on the disposal of a subsidiary includes
the carrying value of any related goodwill.
Intangible assets that are acquired by the Group are stated at
cost less accumulated amortisation and impairment losses.
Amortisation is charged to the statement of profit or loss over
the assets' economic lives using methods that best reflect the
pattern of economic benefits and is included in operating
expenses. The estimated useful economic lives for software
development costs are up to 10 years.
Expenditure on internally generated goodwill and indirect
advertising costs is written off as incurred. Direct costs relating to
the development of internal-use computer software and
associated business processes are capitalised once technical
feasibility and economic viability have been established. These
costs include payroll costs, the costs of materials and services
and directly attributable overheads. Capitalisation of costs
ceases when the software is capable of operating as intended.
During and after development, accumulated costs are reviewed
for impairment against the projected benefits that the software
is expected to generate. Costs incurred prior to the
establishment of technical feasibility and economic viability are
expensed as incurred, as are all training costs and general
overheads.
1.9 Property, plant and equipment
Items of property, plant and equipment (except investment
property – see note 1.12) are stated at cost less accumulated
depreciation and impairment losses. Where an item of property,
plant and equipment comprises major components having
different useful lives, they are accounted for separately.
Depreciation is charged to the statement of profit or loss on a
straight-line basis so as to write off the depreciable amount of
property, plant and equipment over their estimated useful lives.
The depreciable amount is the cost of an asset less its residual
value. Land is not depreciated. The estimated useful lives are as
follows:
Freehold and leasehold
buildings
50 years or the period
of the lease if shorter
Other equipment, including
computer equipment,
vehicles and property
adaptation costs
2 to 15 years
The gain or loss arising from the derecognition of an item of
property, plant and equipment is determined as the difference
between the disposal proceeds, if any, and the carrying amount
of the item.
1.10 Right-of-use assets ("ROU") and lease liabilities
Where the Group is a lessee
At inception, the Group assesses whether a contract contains a
lease arrangement, which involves assessing whether it obtains
substantially all the economic benefits from the use of a specific
asset, and it has the right to direct the use of that asset. The
Group recognises a ROU asset and a lease liability at the
commencement of the lease (when the underlying asset is
available for use), except for short-term leases of 12 months or
less and low-value leases which are expensed on a straight-line
basis in the statement of profit or loss. The ROU asset is initially
measured based on the present value of the lease payments,
plus initial direct costs less any incentives received. Lease
payments include fixed payments and variable payments.
Variable payments relate to contractual rent increases linked to
inflation indices. The ROU asset is depreciated over the lease
term, or its economic useful life if shorter, and is subject to
impairment testing if there is an indicator of impairment. When
leases contain an extension or purchase option which is
reasonably expected to be exercised this is included in the
measurement of the lease.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease
commencement date unless the interest rate implicit in the
lease is readily determinable. The incremental borrowing rate is
determined based on available risk-free market yield-to-
maturity pricing linked to the lease amount and term, and
includes a credit spread. The lease liability is subsequently
measured at amortised cost using the effective interest rate
method and remeasured, with a corresponding adjustment to
the ROU asset, when there is a change in future lease payments,
terms or reassessment of options.
The Group's property leases mainly relate to office space and
vehicle repair centres. Leases in respect of motor vehicles relate
to recovery and replacement vehicles, and management cars.
The Group also leases certain IT equipment which is not a
significant portion of the total leased asset portfolio.
Where the Group is a lessor
Leases where a significant proportion of the risks and rewards of
ownership is retained by the lessor are classified as operating
leases. Lease income from operating leases is recognised in the
statement of profit or loss on a straight-line basis over the lease
term.
Where assets are subject to finance leases, the present value of
the lease payments, together with any unguaranteed residual
value, is recognised as a receivable.
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1.11 Impairment of intangible assets, goodwill and
property, plant and equipment
At each reporting date, the Group assesses whether there is any
indication that its intangible assets, goodwill, property, plant and
equipment or ROU assets are impaired. If any such indication
exists, the Group estimates the recoverable amount of the asset
and the impairment loss, if any. Goodwill is tested for
impairment annually or more frequently, if events or changes in
circumstances indicate that it might be impaired. If an asset
does not generate cash flows that are independent of those of
other assets or groups of assets, the recoverable amount is
determined for the cash-generating unit ("CGU") to which the
asset belongs. The recoverable amount of an asset is the higher
of its fair value less costs to sell and its value-in-use.
Value-in-use is the present value of future cash flows from the
asset or CGU, discounted at a rate that reflects market interest
rates, adjusted for risks specific to the asset or CGU that have not
been reflected in the estimation of future cash flows.
If the recoverable amount of an intangible or a tangible asset is
less than its carrying value, an impairment loss is recognised
immediately in the statement of profit or loss and the carrying
value of the asset is reduced by the amount of the impairment
loss.
A reversal of an impairment loss on intangible assets, property,
plant and equipment or ROU assets is recognised as it arises
provided the increased carrying value does not exceed the
carrying amount that would have been determined had no
impairment loss been recognised. Impairment losses on
goodwill are not reversed.
1.12 Investment property
Investment property comprises freehold and leasehold
properties that are held to earn rentals or for capital
appreciation or both. Investment property is not depreciated
but is stated at fair value based on valuations completed
quarterly by independent registered valuers, who hold
recognised and relevant professional qualifications and have
recent experience in the location and category of the
investment property being valued, and in accordance with
guidance issued by the Royal Institution of Chartered Surveyors.
Fair value is based on current prices for similar properties
adjusted for the specific characteristics of each property. Any
gain or loss arising from a change in fair value is recognised in
the statement of profit or loss.
Investment property is derecognised when it has been either
disposed of or permanently withdrawn from use and no future
economic benefit is expected from disposal. Any gains or losses
on the retirement or disposal of investment property are
recognised in the statement of profit or loss in the year of
retirement or disposal.
1.13 Financial instruments
Financial assets and liabilities
Financial assets and financial liabilities are recognised in the
statement of financial position when the Group becomes a
party to the contractual provisions of the instrument.
On initial recognition, financial assets are measured at fair value
net of transaction costs. Subsequently they are measured at
amortised cost, FVOCI or FVTPL, depending on the Group's
business model for managing the financial assets and whether
the cash flows represent solely payments of principal and
interest. The Group assesses its business models at a portfolio
level based on its objectives for the relevant portfolio, how the
performance of the portfolio is managed and reported, and the
frequency of asset sales. The Group reclassifies financial assets
when and only when its business model for managing those
assets changes.
Financial instruments measured at amortised cost
Financial assets that are held to collect contractual cash flows
where those cash flows represent solely payments of principal
and interest are measured at amortised cost. Interest income is
accounted for using the effective interest method. Such assets
held by the Group include some of the Group's debt security
portfolio, loans and receivables, trade and other receivables, and
cash and cash equivalents.
Financial liabilities are measured at amortised cost, except for
derivative financial liabilities, which are held at fair value.
Financial assets measured at fair value through other
comprehensive income
Financial assets that are held to collect contractual cash flows
and for subsequent sale, where the assets’ cash flows represent
solely payments of principal and interest, are recognised in the
statement of financial position at their fair value, inclusive of
transaction costs.
The Group elects at initial recognition to account for equity
instruments at FVOCI. For these investments, dividends are
recognised in the statement of profit or loss but fair value gains
and losses are not subsequently reclassified to the statement of
profit or loss following derecognition of the investment. The
Group's has one equity investment which is measured at fair
value through other comprehensive income, being an
investment in unlisted insurtech-focused equity funds.
If the Group assesses the need to recognise a loss allowance on
a financial asset carried at fair value through other
comprehensive income, the loss allowance is recognised in
other comprehensive income; however, the recognition of a loss
allowance does not impact the carrying value of the asset on the
statement of financial position. Cumulative gains and losses on
equity instruments at fair value through other comprehensive
income are not recycled to the statement of profit or loss.
Financial instruments measured at fair value through
profit or loss
Financial assets are classified as FVTPL where they do not meet
the criteria to be measured at amortised cost or FVOCI or where
they are designated at FVTPL to reduce an accounting
mismatch. The Group has elected to account for its debt
securities, backing its insurance contracts as FVTPL to reduce
the accounting mismatch caused by fluctuations in values of
underlying insurance contracts due to changes in discount rates.
Derivatives are initially recognised at fair value on the date on
which a derivative contract is entered into and are subsequently
valued at fair value at each statement of financial position date.
Financial assets measured at FVTPL are recognised in the
statement of financial position at their fair value. Fair value gains
and losses together with interest coupons and dividend income
are recognised in the statement of profit or loss within the
investment return in the period in which they occur.
Financial liabilities are measured at FVTPL where they are
trading liabilities such as derivative financial instruments.
Financial liabilities measured at FVTPL are recognised in the
statement of financial position at their fair value. Fair value gains
and losses are recognised in the statement of profit or loss in the
period in which they occur.
The fair values of assets and liabilities traded in active markets
are based on current bid and offer prices respectively. If the
market is not active the Group establishes a fair value by using
valuation techniques.
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Strategic Report / Governance / Financial statements Notes to the Consolidated Financial Statements continued
1. Accounting policies continued
1.13 Financial instruments continued
Impairment of financial assets
The ECL model is used to calculate impairment to be
recognised for all financial assets measured at amortised cost
and FVOCI. The general approach, which utilises the three-stage
model, is used for financial investment and debt securities,
whilst impairment for the remaining assets is measured using
the simplified approach.
The assessment of credit risk and the estimation of an ECL are
unbiased, probability-weighted and incorporate all available
information relevant to the assessment, including information
about past events, current conditions and reasonable and
supportable forecasts of economic conditions at the reporting
date. The forward-looking aspect of IFRS 9 requires judgement
as to how changes in economic factors affect ECLs.
The ECL three-stage model is based on forward looking
information regarding changes in credit quality since inception.
The three stages of ECL are defined and assessed as follows:
Stage 1 - no significant increase in credit risk since inception;
Stage 2 - significant increase in credit risk since inception;
Stage 3 - asset is impaired.
For assets in stage 1, the allowance is calculated as the expected
credit losses from events within 12 months after the reporting
date. For assets in stage 2 and 3, the allowance is calculated as
the expected credit loss from events in the remaining lifetime of
each asset.
The loss allowance reduces the carrying value of the financial
asset and is reassessed at each reporting date. ECL impairment
charges are recognised in the statement of profit or loss within
the investment return.
Note 3.3.3 explains how the Group assesses whether the credit
risk of a financial asset has increased since initial recognition
and the approach to estimating ECLs.
Derivatives and hedging
Derivative financial instruments are recognised initially at fair
value on the date the derivative contract is entered into, and
subsequently remeasured to their fair value at the end of each
reporting period. Derivative fair values are determined from
quoted prices in active markets where available. Where there is
no active market for an instrument, fair value is derived from
prices for the derivative's components using appropriate pricing
or valuation models. Gains and losses arising from changes in
the fair value of a derivative are recognised as they arise in the
statement of profit or loss unless the derivative is the hedging
instrument in a qualifying hedge.
The Group enters into a small number of immaterial cash flow
hedges and applies the hedge accounting requirements of IFRS
9. Hedge accounting relationships are formally documented at
inception. The documentation includes the Group’s risk
management objective and strategy for undertaking the hedge,
identifies the hedged item and the hedging instrument, the
nature of the risk that is being hedged, and the way in which
the Group will assess whether the hedging relationship meets
the hedge effectiveness requirements (including identifying
potential sources of hedge ineffectiveness).
In a cash flow hedge, the effective portion of the gain or loss on
the economic hedging instrument is recognised in other
comprehensive income. Any ineffective portion is recognised in
the statement of profit or loss.
Derecognition of financial assets
A financial asset is derecognised when the contractual rights to
receive the cash flows from that asset have expired or when the
Group has transferred its rights to receive cash flows from the
asset and either the Group has transferred substantially all the
risks and rewards of ownership of the asset or the Group has
neither transferred nor retained substantially all the risks and
rewards of ownership and the Group has not retained control.
1.14 Cash and cash equivalents and borrowings
Cash and cash equivalents comprise cash in hand and demand
deposits with banks together with short-term highly liquid
investments that are readily convertible to known amounts of
cash and subject to insignificant risk of change in value.
Borrowings, comprising bank overdrafts, are measured at
amortised cost using the effective interest rate method and are
part of the Group's cash management approach and are
repayable on demand.
1.15 Assets and liabilities held for sale
Non-current assets, including investment property, are classified
as held for sale if their carrying amount will be recovered
principally through a sale transaction rather than through
continuing use and a sale is considered highly probable.
Investment property is measured at fair value less costs to sell.
Other non-current assets are measured at the lower of their
carrying amount and fair value less costs to sell.
An impairment loss is recognised in the statement of profit or
loss for any initial or subsequent write down of the asset to fair
value less costs to sell. A gain is recognised for any subsequent
increase in fair value less costs to sell of an asset but not in
excess of any cumulative impairment loss previously recognised.
A gain or loss not previously recognised by the date of the sale is
recognised at the date of derecognition.
Non-current assets classified as held for sale are presented
separately from the other assets in the statement of financial
position and are not depreciated or amortised.
1.16 Financial liabilities
Financial liabilities are initially recognised at fair value net of
transaction costs incurred. Other than derivatives which are
recognised and measured at fair value, all other financial
liabilities are subsequently measured at amortised cost using
the effective interest rate method.
A financial liability is derecognised when the obligation under
the liability is discharged, cancelled or expires.
1.17 Subordinated liabilities
Subordinated liabilities comprise subordinated guaranteed
dated notes which are initially measured at fair value net of
transaction costs incurred. Subsequently, subordinated liabilities
are measured at amortised cost using the effective interest rate
method.
1.18 Provisions
The Group recognises a provision for a present legal or
constructive obligation from a past event when it is more likely
than not that it will be required to transfer economic benefits to
settle the obligation and the amount can be reliably estimated.
When the Group has an onerous contract outside of the scope
of IFRS 17, it recognises the present obligation under the
contract as a provision. A contract is onerous when the
unavoidable costs of meeting the contractual obligations
exceed the expected future economic benefit.
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Strategic Report / Governance / Financial statements
Restructuring provisions are made, including redundancy costs,
when the Group has a constructive obligation to restructure. An
obligation exists when the Group has a detailed formal plan and
has communicated the plan to those affected.
1.19 Short-term employee benefits
Liabilities recognised in respect of staff bonuses and rewards are
measured at the undiscounted amount of benefits expected to
be paid in exchange for the related service.
1.20 Pensions and other post-retirement benefits
The Group provides post-retirement benefits in the form of
pensions and healthcare plans to eligible employees.
Contributions to the Group's defined contribution pension
scheme are recognised in the statement of profit or loss when
payable.
The Group's defined benefit pension scheme, as described in
note 23, was closed in 2003. Scheme liabilities are measured on
an actuarial basis, using the projected unit credit method, and
discounted at a rate that reflects the current rate of return on a
high-quality corporate bond of equivalent term and currency to
the scheme liabilities.
Scheme assets are measured at their fair value. Any surplus or
deficit of scheme assets over liabilities is recognised in the
statement of financial position as an asset (surplus) or liability
(deficit). The past service costs, together with the net interest on
the net pension liability or asset, are charged or credited to
operating expenses. Actuarial gains and losses are recognised in
full in the period in which they occur outside the statement of
profit or loss and presented in other comprehensive income
under "Items that will not be reclassified subsequently to the
statement of profit or loss".
Insurance assets resulting from a bulk annuity insurance policy
‘buy-in’ transaction result in the insurance asset exactly
matching the pension liability. A ‘buy-in’ is not a settlement and
the liability is not derecognised as the Group retains ultimate
responsibility for funding the plan.
1.21 Taxation
The tax charge or credit represents the proportion of the tax
payable and receivable arising in the current year only.
The current tax charge is based on the taxable profits for the
year as determined in accordance with the relevant tax
legislation, after any adjustments in respect of prior years.
Taxable profit differs from net profit as reported in the
statement of profit or loss because it excludes items of income
or expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible.
Provision for taxation is calculated using tax rates that have
been enacted, or substantively enacted, by the statement of
financial position date and is allocated over profits before
taxation or amounts charged or credited to components of
other comprehensive income or equity, as appropriate.
Deferred tax assets and liabilities are calculated at the tax rates
expected to apply when the assets are realised or liabilities are
settled based on laws and rates that have been enacted or
substantively enacted at the statement of financial position
date. Deferred tax is charged or credited in the statement of
profit or loss, except when it relates to items charged or credited
to other comprehensive income or equity, in which case the
deferred tax is also dealt with in other comprehensive income or
directly in equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes
levied by the same taxation authority and the Group intends to
settle its current assets and liabilities on a net basis.
1.22 Share-based payment
The Group operates a number of share-based compensation
plans under which it awards Ordinary Shares and share options
to its employees. Such awards are generally subject to vesting
conditions that can alter the amount of cash or shares to which
an employee is entitled.
Vesting conditions include service conditions (requiring the
employee to complete a specified period of service) and
performance conditions (requiring the Group to meet specified
performance targets).
The fair value of options granted is estimated using valuation
techniques which incorporate exercise price, term, risk-free
interest rates, the current share price and its expected volatility.
The cost of employee services received in exchange for an
award of shares or share options granted is measured by
reference to the fair value of the shares or share options on the
date the award is granted and takes into account non-vesting
conditions and market performance conditions (conditions
related to the market price of the Company's Ordinary Shares).
The cost is expensed on a straight-line basis over the vesting
period (the period during which all the specified vesting
conditions must be satisfied) with a corresponding increase in
equity in an equity-settled award. The cost is adjusted for vesting
conditions (other than market performance conditions) so as to
reflect the number of shares or share options that actually vest.
The cancellation of an award through failure to meet non-
vesting conditions triggers an immediate expense for any
unrecognised element of the cost of an award.
1.23 Capital instruments
The Group classifies a financial instrument that it issues as a
financial liability or an equity instrument in accordance with the
substance of the contractual arrangement. An instrument is
classified as a liability if it is a contractual obligation to deliver
cash or another financial asset, or to exchange financial assets or
financial liabilities on potentially unfavourable terms, or as
equity if it evidences a residual interest in the assets of the
Group after the deduction of liabilities.
Deferred taxation is accounted for in full using the statement of
financial position liability method on all temporary differences
between the carrying amount of an asset or liability for
accounting purposes and its carrying amount for tax purposes.
The Tier 1 notes are classified as equity as they have a perpetual
maturity and the Group has full discretion over interest
payments, including ability to defer or cancel interest payments
indefinitely.
Deferred tax liabilities are generally recognised for all taxable
temporary timing differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised.
Deferred tax assets are reviewed at each statement of financial
position date and reduced to the extent that it is probable that
they will not be recovered.
The consideration for any Ordinary Share of the Company
purchased by the Group for the benefit of the employee trusts is
deducted from equity.
1.24 Dividends
Interim dividends on Ordinary Shares are recognised in equity in
the period in which they are paid. Final dividends on Ordinary
Shares are recognised when they have been approved at the
AGM.
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Strategic Report / Governance / Financial statements Notes to the Consolidated Financial Statements continued
1. Accounting policies continued
1.25 Accounting developments
Amendments to IAS 12 – Income Taxes: ‘International Tax
Reform — Pillar Two Model Rules
During the year the UK Government enacted legislation to apply
a global minimum tax rate of 15% to multinational businesses
headquartered in the UK, as well as a new domestic UK
minimum tax rate of 15%, in line with the Model Rules agreed
by the Organisation for Economic Co-operation and
Development ("OECD"). These rules will be effective for the
Group’s financial year beginning 1 January 2024. The Group has
performed an assessment of its potential exposure to Pillar Two
income taxes based upon the most recent information available
regarding the financial performance of its constituent entities.
Based on that assessment, the Pillar Two effective tax rate in the
UK is expected to be above 15% and management is not
currently aware of any circumstances under which this might
change. Operations in other jurisdictions are de minimis.
Therefore, the Group does not expect a potential exposure to
Pillar Two top up taxes.
Other accounting developments
New IFRS standards and amendments that are issued, adopted
by the UK, but are not effective until 1 January 2024 reporting
period and have not been early adopted by the Group are
disclosed below. The Group intends to adopt these standards, if
applicable, when they become effective.
In January 2020, the IASB issued ‘Classification of Liabilities as
Current or Non-current (Amendments to IAS 1)’ which clarifies
the requirements for classifying liabilities as current or non-
current. More specifically these amendments:
– specify that an entity’s right to defer settlement must exist at
the end of the reporting period;
– clarify that classification is unaffected by management’s
intentions or expectations about whether the entity will
exercise its right to defer settlement of a liability;
– clarify how lending conditions affect classification; and
– clarify requirements for classifying liabilities an entity will or
may settle by issuing its own equity instruments.
On 22 September 2022, the IASB issued ‘Lease Liability in a Sale
and Leaseback (Amendments to IFRS 16)’, which adds
subsequent measurement requirements for sale and leaseback
transactions.
On 25 May 2023, the IASB issued ‘Supplier Finance
Arrangements (Amendments to IAS 7 and IFRS 7)’ to add
disclosure requirements, and ‘signposts’ within existing
disclosure requirements, that ask entities to provide qualitative
and quantitative information about supplier finance
arrangements.
The following amendments are effective from 1 January 2025
but have not yet adopted by the UK.
The IASB issued amendments ‘Lack of Exchangeability
(Amendments to IAS 21 The Effect of Changes in Foreign
Exchange Rates’) that provide guidance to specify when a
currency is exchangeable and how to determine the exchange
rate when it is not.
2. Critical accounting judgements and key sources of estimation uncertainty
The reported results of the Group are sensitive to the accounting policies, assumptions and estimates that underlie the preparation
of its financial information. The Group's principal accounting policies are set out on pages 179 to 190. Company law and IFRSs
require the Directors, in preparing the Group's financial statements, to select suitable accounting policies, apply them consistently
and make judgements and estimates that are reasonable.
The critical accounting judgements and key sources of estimation uncertainty in applying the Group's accounting policies have been
updated following adoption of IFRS 17 and IFRS 9, with the exception of fair value of investment properties, which remains a source
of estimation uncertainty and is not affected by the transition to IFRS 17 and IFRS 9.
In the absence of an applicable standard or interpretation, IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors'
requires management to develop and apply an accounting policy that results in relevant and reliable information in the light of the
requirements and guidance in IFRS dealing with similar and related issues and the IASB's Framework for the Preparation and
Presentation of Financial Statements. The judgements and assumptions involved in the Group's accounting policies that are
considered by the Board to be the most important and material to the portrayal of its financial condition are discussed below.
2.1 IFRS 17: Insurance and reinsurance contracts
Level of aggregation
Accounting judgement
The Group defines a portfolio as insurance contracts subject to similar risks and managed together. Contracts within the same
product line are expected to be in the same portfolio as they have similar risks and are managed together. The assessment of which
risks are similar and how contracts are managed requires the exercise of judgement. The general principles for defining the portfolio
of insurance contracts for level of aggregation are equally applicable to reinsurance contracts held.
The Group manages insurance contracts issued by product. Contracts within each product are grouped together into different sub-
groups for IFRS 17 reporting and disclosure purposes based on the criteria of similar risks which are managed together, the nature of
product and profitability. Accordingly, insurance contacts are aggregated into groups for measurement purposes. All inwards
contracts are measured under the PAA model and take the standard’s default assumption that no groups are onerous unless facts
and circumstances indicate otherwise. The Group aggregates portfolios of reinsurance contracts held issued by product which is
consistent with how the reinsurance contract held portfolio is assessed and managed together operationally at product level.
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PAA eligibility
Accounting judgement
IFRS 17 states that entities may adopt the PAA measurement model if at the inception of the group of contracts, the entity
reasonably expects that such simplification would produce a measurement of the liability for remaining coverage (LFRC) for the
group that would not differ materially from the one that would be produced, or if the coverage period of each contract in the group
is one year or less. All insurance contracts issued by the Group, including the Motability contract that incepted in September 2023,
are assessed for eligibility with the PAA measurement model on initial recognition, using the Group's PAA eligibility framework.
Where insurance and reinsurance contracts do not automatically qualify for measurement using the PAA, the Group exercises
accounting judgement in determining whether the LFRC produced under PAA measurement are sufficiently close to those
produced under General Measurement Model (GMM) conditions so as to meet the requirements of the accounting standard for
measurement using the simplified approach. Materiality is a key consideration in the quantitative assessment of results, and
qualitative factors about the nature of the contracts including the timing and size of cash flows are considered when forming
conclusions on PAA applicability.
Estimates of future cash flows
Source of estimation uncertainty
In estimating future cash flows, the Group will incorporate, in an unbiased way, all reasonable and supportable information that is
available without undue cost or effort at the reporting date. This information includes both internal and external historical data
about claims and other experience, updated to reflect current expectations of future events. The estimates of future cash flows will
reflect the Group's view of current conditions at the reporting date, ensuring the estimates of any relevant market variables are
consistent with observable market prices. However, these cash flows are inherently uncertain in size, timing and are based on
probability-weighted average expectations. The Group applies the PAA to simplify the measurement of insurance contracts. When
measuring liabilities for remaining coverage, the PAA is broadly similar to the Group’s previous accounting treatment under IFRS 4.
Risk adjustment
Accounting judgement
A risk adjustment for non-financial risk is determined to reflect the compensation that the Group would require for bearing non-
financial risk and its degree of risk aversion. It is determined at Group level and allocated to groups of contracts based on the size of
their reserves. More recent accident periods tend to be less developed with generally larger reserves than older contract periods, so
that a higher proportion of the overall risk adjustment is allocated to these more uncertain groups of contracts. The risk adjustment
for non-financial risk is determined using a confidence level technique. The risk adjustment is applied to the liability for incurred
claims but not to the liability for remaining coverage.
The Group estimates the probability distribution of the expected present value of the future cash flows from the contracts at each
reporting date and calculates the risk adjustment for non-financial risk as the excess of the value at risk at the target confidence level
over the expected present value of the future cash flows allowing for the associated risks over all future years. The target confidence
level is the 75th percentile for the liability for incurred claims. The risk adjustment is derived using the reserve risk distribution
calculated in the internal economic capital model and consequently, is subject to model and parameter uncertainty. A sensitivity
which demonstrates the impact of the confidence level being at the 80th percentile on profit before tax is included in the Chief
Financial Officer Review in the Reserving section. Group diversification benefit is not considered at the individual insurance
undertaking entity level but is considered in determining the confidence level at a consolidated level for disclosure purposes.
Discount rates
Accounting judgement
IFRS 17 requires entities to determine discount rates using either the ‘bottom up’ or ‘top down’ approach. The ‘top down’ approach
involves using discount rate curves derived from a portfolio of reference assets adjusted to remove all characteristics of the assets
that are not present in insurance contracts, but not requiring to eliminate the illiquidity premium. The Group selected to apply the
‘bottom up’ approach which requires the use of risk-free rate curves and adding the illiquidity premium. The standard does not
specify how to derive the illiquidity premium.
The Group determines the risk-free discount rate using the Solvency II risk-free rates sourced from the Bank of England. For cash
flows that are not in respect of PPOs, a small illiquidity premium is added to the risk-free rate, reflecting the short settlement tail. For
PPOs, to reflect the different liquidity characteristics of the cash flows, the risk-free yield curves are adjusted by a generally higher
illiquidity premium. The illiquidity premium is determined by using a fundamental spread approach by deducting the risk-free rate
and credit risk premium from corresponding corporate bond reference portfolios. For non-PPOs, the reference portfolio is A-rated
bonds with terms of 1 to 3 years and for PPOs, the reference portfolio is BBB-rated bonds with a remaining term of 15 or more years.
Judgement is applied when determining the illiquidity premium with respect to allowances for past and future trends, considering
changes in the economic environment.
Yield curves used to discount PPO and Non-PPO cash flows
Spot rate
PPOs
Non-PPOs
1 year
6.1 %
4.9 %
3 year
5.1 %
3.9 %
15 year
4.8 %
3.6 %
The impact of a 100bps change in the discount rate is shown in the Chief Financial Officer Review, in the Reserving section.
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2. Critical accounting judgements and key sources of estimation uncertainty continued
2.1 IFRS 17: Insurance and reinsurance contracts continued
Onerous contracts
Source of estimation uncertainty
In utilising the PAA measurement model approach, the Group assumes that no material contracts are onerous at initial recognition
unless facts and circumstances indicate otherwise. If at any time during the coverage period the facts and circumstances indicate
that a group of insurance contracts is onerous, the Group establishes a loss component as the excess of the fulfilment cash flows that
relate to the remaining coverage of the group over the carrying amount of the liability for remaining coverage of the group as
determined above. Accordingly, by the end of the coverage period of the group of contracts the loss component will be zero. Where
the Group recognises a loss on initial recognition of an onerous group of underlying insurance contracts, or when further onerous
underlying insurance contracts are added to a group, and the Group has a corresponding reinsurance contract held, the Group
establishes a loss-recovery component of the asset for remaining coverage for a group of reinsurance contracts held depicting the
expected recovery of the losses.
General insurance: Liability for Incurred Claims and amounts recoverable from reinsurance contracts held
Accounting judgement
We seek to adopt a prudent approach to assessing liabilities. The Liability for Incurred Claims (“LIC”) reserves are the combination of
best estimate of liabilities (“BEL”) and a risk adjustment, which is set around the 75th percentile and provides a prudence margin on
top of the BEL. The BEL is set on a discounted basis and includes an allowance for events not in data ("ENIDs"), set by reference to
various actuarial scenario assessments. ENIDs also consider other short and long-term risks not reflected in the actuarial inputs, as
well as the actuarial function’s view on the uncertainties in relation to the BEL.
Source of estimation uncertainty
The Group makes provision for the full cost of outstanding claims from its general insurance business at the statement of financial
position date, including claims estimated to have been incurred but not yet reported at that date and associated claims handling
costs. Outstanding claims provisions net of related reinsurance recoveries at 31 December 2023 amounted to £2,734.9 million (2022:
£2,551.6 million).
Claims reserves are assessed separately for large and attritional claims, typically using standard actuarial methods of projection. Key
sources of estimation uncertainty include those arising from the selection of specific methods as well as assumptions for claims
frequency and severity through the review of historical claims and emerging trends. The Group seeks to adopt a conservative
approach to assessing claims liabilities.
The corresponding amount recoverable from reinsurance contracts held is calculated on an equivalent basis, with similar estimation
uncertainty, as discussed in note 1.5. A credit exposure exists with respect to reinsurance contracts held, to the extent that any
reinsurer is unable to meet its obligations.
The most common method of settling bodily injury claims is by a lump sum. When this includes an element of indemnity for
recurring costs, such as loss of earnings or ongoing medical care, the settlement calculations apply the statutory discount rate
(known as the Ogden discount rate) to reflect the fact that payment is made on a one-off basis rather than periodically over time.
The current Ogden discount rate is minus 0.25% for England and Wales, with the equivalents being minus 0.75% in Scotland, and
minus 1.5% in Northern Ireland.
The Group reserves its large bodily injury claims at the relevant discount rate for each jurisdiction, with the overwhelming majority
now case reserved at minus 0.25% as most will be settled under the law of England and Wales. The Ogden discount rate will be
reviewed again in 2024 and the Group has booked a probability weighted allowance for a discount rate change within its best
estimate liabilities. Since 2021, we have reduced the level of Motor reinsurance purchased, resulting in higher net reserves for
accident years 2021 to 2023.The impact of a potential change in the Ogden discount rate is shown in note 3.3.1.
If the claimant prefers, large bodily injury claims can be settled using a Periodic Payment Order (“PPO”). This is an alternative way to
provide an indemnity for recurring costs, making regular payments, usually for the rest of the claimant’s life. These claims are
reserved for using an internal discount rate, which is progressively unwound over time. As it is likely to take time to establish whether
a claimant will prefer a PPO or a lump sum, until a settlement method is agreed we make assumptions about the likelihood that
claimants will opt for a PPO. This is known as the PPO propensity.
At 31 December 2023, the real discount rate for PPOs is 0.7% (2022: 0.6%, restated for IFRS 17), the combination of cash flow
weighted inflation and discounting of 3.9% (2022: 4.2%, restated for IFRS 17), which allows for higher short-term inflation before
reverting to a long term trend of 3.5%, and a yield curve based discount rate of 4.6% (2022: 4.8%, restated for IFRS 17).
The table in note 20.6 to the financial statements provides an analysis of outstanding PPO claims provisions on a discounted and an
undiscounted basis at 31 December 2023 and 31 December 2022 and further details on sources of estimation uncertainty. Details of
sensitivity analysis to the discount rate applied to PPO claims are shown in note 3.3.1.
Higher claims inflation remains a risk, given the continuing high level of consumer prices and wage inflation. In 2022, the consumer
prices inflation was at its highest level for the past decade and is not expected to normalise until 2024. Pressure is likely to remain
strong on wages, with potential implications for the cost of care. Global supply chain issues remain problematic, resulting in a risk of
price increases for products and components in short supply. A range of general and specific scenarios for excess inflation have been
considered in the reserving process. The Group has observed a slow-down in the processing of recoveries and liabilities with third
party insurers which increases the estimation risk of these amounts. A range of data types and methods are used with historical
comparators to assess the underlying position separate from the timing effects to mitigate the uncertainty and the Group has
booked an additional provision to protect against the risk of less recoveries than estimated within the actuarial best estimate. There
is also uncertainty regarding the remediation cost for Motor total loss claims on past business and following a detailed review, the
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Group has strengthened its provision for this risk at the year end.
Motor accidental damage recovery reserves, which form part of the wider motor accidental damage reserves, are subject to
estimation uncertainty, and as such are subject to regular review and assessment. To support the accurate estimation of such
recoveries, the Claims Function performs regular assessment of recovery trends, including assessment by counterparty and year of
loss, as well as executing period audits on a sample basis of recoveries. In addition, the Reserving function perform periodic ‘deep
dive’ reviews of recoverable amounts to ensure the ongoing adequacy of the reserve.
Changes in the climate can impact both frequency and severity of losses, particularly for windstorm and flood events. This is taken
into account in the planning process, pricing and through our capital model; the impact on reserves is only seen when major loss
events occur.
Changes in claims frequency present greater uncertainty when calculating the LFRC, whereas uncertainty over the level of claims
severity has a greater impact on both the LFRC and LIC reserves. Claims severity risk is particularly acute with respect to care costs for
large bodily injury claims as well as input costs and replacement costs for damage claims. The sensitivity analysis in note 3.3.1 looks
at a 200 basis point change in the claims inflation assumed in the actuarial best estimate over the next two years, which continues to
remain relevant and is within the Group's booked reserves. The risk of material adjustments to the Group's estimates which could
affect the carrying value in 2023 is highest in relation to long tail classes where inflation has been less evident to date. The Group
therefore reserves for the risk of excess inflation on these classes within its ENID position.
The Group provides a best estimate for remediation cost, including the operational costs of performing such reviews, relating to
Motor total loss claims settled between 1 September 2017 and 17 August 2022, and the pricing of Motor and Home policies
following the implementation of the FCA’s PPR reform from 1 January 2022. Management exercise judgement in assessing which
customers should be remediated and apply estimation techniques in deriving the remediation amounts. The value of the past
business review provisions at 31 December 2023 totals £130.2 million (2022: £45.9 million).
2.2 IFRS 9: Financial instruments
Classification of financial instruments
Accounting judgement
The Group exercises judgement in assessing the business model within which the assets are held and whether the contractual terms
of the assets are solely payments of principal and interest on the principal amount outstanding. The Group assesses its business
models at a portfolio level based on its objectives for the relevant portfolio, how the performance of the portfolio is managed and
reported, and the frequency of asset sales and has concluded on the classification category of each portfolio of financial instrument
in accordance with IFRS 9.
2.3 Fair value of investment properties
Sources of estimation uncertainty
The Group holds a portfolio of investment properties, with a fair value at 31 December 2023 of £277.1 million (2022: £278.5 million).
Where quoted market prices are not available, valuation techniques are used to value these properties. The fair value was
determined using a methodology based on recent market transactions for similar properties, which have been adjusted for the
specific characteristics of each property within the portfolio. The valuation in the financial statements is based on valuations by
independent registered valuers and the techniques used include some unobservable inputs. The valuations used for investment
properties are classified in the level 3 category of the fair value hierarchy (see note 37).
Any significant risk of a material adjustment to the carrying amount of the investment property portfolio within the next financial
year will be dependent on a number of factors including the developments in the economic outlook which could result in volatility
in market prices, rental yields or occupancy rates. Sensitivity analysis for the investment property portfolio has been independently
calculated by the Group's registered valuers by flexing inputs of internal models to a reasonable alternative yield to ascertain the
impact on property valuations (see note 18). There are no significant sources of estimation uncertainty in relation to climate-related
matters in valuing the investment property portfolio.
2.4 Impairment provisions – financial assets
Accounting judgement
The measurement of the ECL allowance under IFRS 9 for financial assets measured at amortised cost and FVOCI requires significant
judgements and assumption in particular, for the estimation of the amount and timing of future cash flows when determining
impairment losses and the assessment of a significant increase in credit risk. These estimates are driven by the outcome of modelled
ECL scenarios, and the relevant inputs used.
The Group has a portfolio of financial investments measured at amortised cost, primarily comprising infrastructure debt and
commercial real estate loans (total 31 December 2023: £363.2 million; 31 December 2022: £437.3 million). During the year the effect
of changes in assessing the ECL relating to financial investments amounted to £0.9 million (2022: £0.9 million).
The Group has a small portfolio of debt securities measured at amortised cost (31 December 2023: £70.6 million; 31 December 2022:
£97.2 million). During the year the effect of changes in assessing the ECL on these securities amounted to £0.2 million (2022:
£0.2million).
Refer to analysis in note 3.3.3 and note 24 to the financial statements for further details on the Group’s ECL methodology applied in
the period.
Other than in relation to the implementation of IFRS 17 and IFRS 9, there have been no significant changes in the basis upon which
judgement and estimates have been determined, compared to that applied as at 31 December 2022.
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3. Risk management
3.1 Enterprise Risk Management Strategy and Framework
The Enterprise Risk Management Strategy and Framework sets out, at a high level, the Group's approach and processes for
managing risks. Further information can be found in the Risk management section of the Strategic report on page 86.
3.2 Risk and capital management modelling
The Board has ultimate responsibility for ensuring that the Group has sufficient funds to meet its liabilities as they fall due. The Group
carries out detailed modelling of its assets, liabilities and the key risks to which these are exposed. This modelling includes the
Group's own assessment of its solvency capital requirement ("SCR"), using its partial internal model approved by the PRA in 2016. The
SCR quantifies the insurance, market, credit, operational and liquidity risks that the regulated entities are undertaking.
The Board is closely involved in the SCR process and reviews, challenges and approves its assumptions and results.
3.3 Principal risks from insurance activities and use of financial instruments
The Risk management section of the Strategic report also sets out all the risks assessed by the Group as principal risks. Detailed
below is the Group's risk exposure arising from its insurance activities and use of financial instruments specifically in respect of
insurance risk, market risk, credit risk, operational risk and liquidity risk.
The global geopolitical situation, including the ongoing war between Russia and Ukraine affected Europe’s energy supply with
inflation rate highs at the start of 2023, with rates reducing somewhat over the year. Interest rates reached their peak in Q3 2023. The
global economic environment including the UK remains uncertain, driven by slow growth prospects with GDP growth remaining flat
as increases in borrowing costs weigh on investment and consumption. The risk of a recession in the UK is still present and a
persistent cost of living crisis would be heightened by further interest rate increases to ensure that the Government's 2% inflation
target is met by the second quarter of 2025, has not been ruled out by the Bank of England, which would be expected to adversely
impact both customers and businesses.
The Group's Investment and Treasury function continues to assess the impact of these adverse economic conditions on its
investment portfolio holdings as part of its ongoing investment management oversight.
The implications of these risks are referred to in the Risk management section of the Strategic report on page 86.
Claims inflation
The Group's reserves and claims from underwritten policies are exposed to the risk of changes in claims development patterns
arising from inflation. Uncertainty in claims reserves and underwriting risk has significantly increased due to the increase in future
inflation volatility and its outlook, and the additional uncertainty when forecasting its impact on claims reserves.
The insurance sectors that the Group operates in are particularly affected by inflation and its impact on the costs of car parts, used
car prices, services and care worker labour, and construction materials. This, in addition to the supply chain dislocation has led to
materially increased claim severity on motor damage and home and commercial property claims, with a longer term risk of care
worker inflation increasing motor large bodily injury claims. Details of the Group's sensitivity to claims inflation is included in note
3.3.1.
Climate change
The Group recognises that climate change potentially poses material long-term financial risks to the business and is receiving
increased scrutiny from regulators and investors. Details on our risk management approach to climate change are included on pages
70 to 85, within the Task Force on Climate-related Financial Disclosures (“TCFD”) report.
3.3.1 Insurance risk
The Group is exposed to insurance risk as a primary consequence of its business. Key insurance risks focus on 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.
The Group is mainly exposed to the following insurance risks:
Reserve risk
Reserve risk relates to both premium and claims. This is the risk of understatement or overstatement of reserves arising from:
the uncertain nature of claims, in particular large bodily injury claims;
–
– unexpected future impact of socio-economic trends or regulatory changes, for example changes to the Ogden discount rate;
– data issues and changes to the claims reporting process;
– operational failures;
–
failure to recognise claims trends in the market including a slow-down in the processing of recoveries and liabilities with third
party insurers which increases the estimation risk of these amounts; and
– changes in underwriting and business written so that past trends are not necessarily a predictor of the future.
Understatement of reserves may result in not being able to pay claims when they fall due. Alternatively, overstatement of reserves
can lead to a surplus of funds being retained resulting in opportunity cost; for example, lost investment return or insufficient resource
to pursue strategic projects and develop the business.
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Reserve risk is managed through a range of processes and controls:
–
–
regular reviews of the claims and premiums, in line with IFRS 17 requirements for the main classes of business by the internal
actuarial team;
the use of external actuaries to review periodically the actuarial best estimate reserves produced internally, either through peer
review or through provision of independent reserve estimates;
– accompanying all reserve reviews with actuarial assessment of the uncertainties through a variety of techniques including
bootstrapping and scenario analysis;
– use of reinsurance programmes, through Motor, liability, property catastrophe and travel, which are renewable annually;
– oversight of the reserving process by relevant senior management and the Board;
–
regular reconciliation of the data used in the actuarial reviews against general ledger data and reconciliation of the claims data
history against the equivalent data from prior reviews; and
– regular assessment of the uncertainty in the reserves to help the Board set management best estimate reserves.
The Group's reserves are subject to the risk of retrospective changes in judicial conditions such as changes in the Ogden discount
rate. Detailed information on the Ogden discount rate is provided in note 20.6.
Uncertainty in claims reserves estimation is larger for claims such as PPOs for which annually indexed payments are made, typically
over the lifetime of the injured party. Under IFRS 17 all claims reserves are held on a discounted basis and so are sensitive to changes
in the discount rate, however this sensitivity tends to be more significant to the Group's PPO reserves given their longer duration.
The table below provides a sensitivity analysis of the potential net impact of a change in a single factor (the discount curve used for
PPOs and other claims, Ogden discount rate, claims inflation or risk adjustment) with all other assumptions left unchanged. Other
potential risks beyond the ones described could have additional financial impacts on the Group.
At 31 December
Discount curve - PPOs3
Impact of an increase in the discount rate used in the calculation of present
values of 100 basis points
Impact of a decrease in the discount rate used in the calculation of present
values of 100 basis points
Discount curve - other claims4
Impact of an increase in the discount rate used in the calculation of present
values of 100 basis points
Impact of a decrease in the discount rate used in the calculation of present
values of 100 basis points
Ogden discount rate5
Impact of the Group reserving at a discount rate of 0.75% compared to
minus 0.25% (2022: 0.75% compared to minus 0.25%)
Impact of the Group reserving at a discount rate of minus 1.25% compared
to minus 0.25% (2022: minus 1.25% compared to minus 0.25%)
Claims inflation
Impact of a decrease in claims inflation by 200 basis points for two
consecutive years
Impact of an increase in claims inflation by 200 basis points for two
consecutive years
Risk adjustment6
Impact of a risk adjustment at the 70th percentile compared to the booked
risk adjustment at the 75th percentile
Impact of a risk adjustment at the 80th percentile compared to the booked
risk adjustment at the 75th percentile
Increase/(decrease) in profit
before tax and equity gross of
reinsurance1,2
Increase/(decrease) in profit
before tax and equity net of
reinsurance1,2
2023
£m
2022
£m
2023
£m
2022
£m
95.0
87.1
39.0
35.2
(127.8)
(113.7)
(52.1)
(45.4)
55.9
39.7
37.2
27.1
(58.6)
(41.4)
(38.9)
(28.2)
105.1
85.7
48.1
24.8
(220.6)
(180.4)
(97.0)
(48.2)
112.8
96.9
71.7
64.5
(114.6)
(98.3)
(72.8)
(65.4)
73.1
74.1
36.6
33.7
(84.5)
(87.5)
(42.9)
(38.6)
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Notes to the Consolidated Financial Statements continued
3. Risk management continued
3.3.1 Insurance risk continued
Notes:
1.
2.
3.
4.
These sensitivities exclude the impact of taxation.
These sensitivities reflect one-off impacts at the statement of financial position date and should not be interpreted as predictions.
The sensitivities relating to an increase or decrease in the real discount rate used for PPOs illustrate a movement in the time value of money from
the assumed level of 0.7% for reserving. The PPO sensitivity has been calculated on the direct impact of the change in the real internal discount
rate with all other factors remaining unchanged.
The sensitivities relating to an increase or decrease in the yield curve used to discount all reserves excluding PPOs illustrate a movement in the
time value of money from the assumed level at the statement of financial position dates. The sensitivity has been calculated on the direct impact
of the change in the discount curve with all other factors remaining unchanged.
5. Ogden discount rate sensitivity has been calculated on the direct impact of a permanent change in the discount rate in England and Wales with
all other factors remaining unchanged. The Group will consider the statutory discount rate when setting the reserves but not necessarily provide
on this basis. This is intended to ensure that reserves are appropriate for current and potential future developments.
The risk adjustment sensitivities are with respect to the discounted net risk adjustment at the statement of financial position dates.
6.
The PPO sensitivity above is calculated on the basis of a change in the internal discount rate used for the actuarial best estimate
reserves as at 31 December 2023. It does not take into account any second order impacts such as changes in PPO propensity or
reinsurance bad debt assumptions.
There is the risk that claims are reserved or paid inappropriately, including the timing of such activity. However, there are claims
management controls in place to mitigate this risk, as outlined below:
– claims are managed utilising a range of IT system-driven controls coupled with manual processes outlined in detailed policies
and procedures to ensure claims are handled in an appropriate, timely and accurate manner;
– each member of staff has a specified handling authority, with controls preventing them handling or paying claims outside their
authority, as well as controls to mitigate the risk of paying invalid claims. In addition, there are various outsourced claims handling
arrangements, all of which are monitored closely by management, with similar principles applying in terms of the controls and
procedures;
loss adjusters are used in certain circumstances to handle claims to conclusion. This involves liaison with the policyholder, third
parties, suppliers and the Claims Function;
specialist bodily injury claims teams are responsible for handling these types of losses, with the nature of handling dependent on
the level and type of claim. Claims exceeding a certain threshold are referred to the technical and large loss teams who also deal
with all other claim types above defined limits or within specific criteria; and
–
–
– a process is in place to deal with major weather and other catastrophic events, known as the 'Surge Demand Plan'. A surge is the
collective name given to an incident which significantly increases the volume of claims reported to the Group's Claims Function.
The plan covers surge demand triggers, stages of incident, operational impact, communication and management information
monitoring of the plan.
Underwriting risk
This is the risk that future claims experience on business written is materially different from the results expected, resulting in current-
year losses. The Group predominantly underwrites personal lines insurance including motor, residential property, roadside assistance,
creditor, travel and pet business. In Q3, under our new partnership, the Group began underwriting vehicle insurance for over 700
thousand members of the Motability scheme which is designed to enable disabled people, their families and their carers to lease a
new car, scooter or powered wheelchair, using their disability benefit. The Group also underwrites commercial risks primarily for low-
to-medium risk trades within the small and medium-sized enterprises market. Contracts are typically issued on an annual basis
which means that the Group's liability usually extends for a 12-month period, after which the Group is entitled to decline to renew or
can revise renewal terms by amending the premium or other policy terms and conditions such as the excess as appropriate.
The Solvency II definition of underwriting risk includes catastrophe risk and the risk of loss, or of adverse change in the value of the
insurance liabilities resulting from significant uncertainty of pricing, underwriting and provisioning assumptions related to extreme or
exceptional circumstances.
The key risks relating to climate change today are UK floods and major UK windstorms. The Group recognises that climate change
may impact its business over the longer term. In particular, there is a risk that climate change affects the frequency and severity of
extreme weather events (physical risk), which will change the Group's view of underwriting risk, reinsurance and pricing. The Group
will continue to develop its risk management systems and monitoring tools over 2024, and accelerate the pre-emptive management
actions of repricing and reinsurance as well as the strategic management actions relating to flood resilience and underwriting
footprint following the second round of the Climate Biennial Exploratory Scenario ("CBES") analysis in early 2022. Low-frequency,
high-severity weather losses are mitigated to a significant degree by the catastrophe reinsurance programme, the ceding of Home
high flood risks to Flood Re, and the commercial direct underwriting strategy which reduces high flood risk exposure. The Group
expects these specific risks to materialise in the medium to longer term (see page 72 for definition). Furthermore, there is a risk that
the Group's insurance products will not meet its customers' needs as a result of changes in market dynamics and customer
behaviour in relation to climate change, for example a rapid shift towards electric vehicle usage. The Group anticipates that its
continued strategic and operational response to the transition to a lower-carbon economy will support mitigation of these risks and
the associated impacts in the long term.
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When underwriting policies, the Group is subject to concentration risk in a variety of forms, including:
– geographic concentration risk – the Group's business is almost wholly written in the UK general insurance market. The Group
purchases a catastrophe reinsurance programme to protect against a modelled 1-in-200 year windstorm/storm surge and flood
losses. The programme which ran from 1 July 2022 to 30 June 2023 was renewed on the 1 July for six months to 31 December
2023. It had a retention of £150 million per weather event and an upper limit of £1,400 million. Subsequently, it will be renewed
annually on 1 January and will cover a 12 month period. The 2024 programme has a retention of £100 million per event with an
upper limit, including retention, of £1,000 million. The size of the programme has reduced as a result of the sale of the Group's
brokered commercial business, and subsequent quota share arrangements, announced in September 2023; and
– product concentration risk – the Group offers a diversified portfolio of products and a variety of brands sold through a range of
distribution channels to its customers.
It is important to note that none of these risk categories are independent of the others and that giving due consideration to the
relationship between these risks is an important aspect of the effective management of insurance risk.
Distribution risk
This is the risk of a material reduction in profit compared to plan due to the Group not writing its planned policy volumes in each
segment.
Pricing risk
This is the risk of economic loss arising from business being incorrectly priced or inappropriately underwritten.
Reinsurance risk
This is the risk of inappropriate selection and/or placement of reinsurance arrangements, with either individual or multiple reinsurers,
which renders the transfer of insurance risk to the reinsurer(s) inappropriate and/or ineffective.
Other risks include:
reinsurance concentration risk – the concentration of credit exposure to any given counterparty;
reinsurance capacity being reduced and/or withdrawn;
–
–
– underwriting risk appetite and reinsurance contract terms not being aligned;
–
reinsurance contract terms being inappropriate or ineffective resulting in classes or types of business not being appropriately
reinsured;
– non-adherence to the reinsurance policy terms and conditions, in terms of both policy management and claims not being
handled within the reinsurance contract terms and conditions, or paid on an ex-gratia basis, resulting in reinsurance recoveries
not being made in full;
inappropriate or inaccurate management information and/or modelling being used to determine the value for money and
purchasing of reinsurance (including aggregate modelling); and
–
– changes in the external legal, regulatory, social or economic environment (including changes resulting from climate change)
altering the definition and application of reinsurance policy wordings or the effectiveness or value for money of reinsurance.
The Group uses reinsurance to:
– protect the underwriting result against low-frequency, high-severity losses through the transfer of catastrophe claims volatility to
reinsurers;
– protect the underwriting result against unforeseen volumes of, or adverse trends in, large individual claims in order to reduce
volatility, control the Group's capital requirements and improve stability of earnings; and/or
– transfer risk that is not within the Group's current risk appetite.
3.3.2 Market risk
Market risk is the risk of loss resulting from fluctuations in the level and in the volatility of market prices of assets, liabilities and
financial instruments.
The Group is mainly exposed to the following market risk factors:
spread risk;
–
–
interest rate risk;
– property risk; and
– currency risk.
The Group has policies and limits approved by the Investment Committee for managing the market risk exposure. These set out the
principles that the Group should adhere to for managing market risk and establishing the maximum limits the Group is willing to
accept having considered strategy, risk appetite and capital resources.
The Group monitors its market risk exposure on a daily basis and, has established an aggregate exposure limit consistent with its risk
objective to maintain capital adequacy. Interdependencies across risk types have also been considered within the aggregate
exposure limit. The allocation of the Group's investments across asset classes has been approved by the Investment Committee. The
Committee also determines policy and controls, covering such areas as risk, liquidity and performance. The Investment Committee
meets at least three times a year to evaluate risk exposure, the current strategy, associated policies and investment guidelines and to
consider investment recommendations submitted to it. Oversight of the implementation of decisions taken by the Investment
Committee is via the first and second lines of defence.
In light of the global economic uncertainty, during the first three quarters of 2023, maturities from the in-house short and
intermediate sterling credit portfolios had not been reinvested up to October, significantly increasing cash reserves and liquidity.
Direct Line Group Annual Report and Accounts 2023
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197197
Strategic Report / Governance / Financial statements Notes to the Consolidated Financial Statements continued
3. Risk management continued
3.3.2 Market risk continued
During Q2 2023 the Group undertook a Strategic Asset Allocation exercise in relation its investment portfolio. The proposals from the
strategic allocation exercise were reviewed by the Investment Committee and its recommendations are in the process of being
approved by the Investment Committee on a phased basis. Following their approval, the first changes to the investment portfolio
began to be implemented in Q4 2023. This involved increasing proportions invested in UK gilts and US credit holdings. Further
changes are anticipated to be brought to the Investment Committee for approval during 2024. The net proceeds from the sale of
the brokered commercial business have provided additional funds available for investment.
The investment management objectives are to:
– maintain the safety of the portfolio's principal both in economic terms and from a capital, accounting and reporting perspective;
– maintain sufficient liquidity to provide cash requirements for operations, including in the event of a catastrophe; and
– maximise the portfolio's total return within the constraints of the other objectives and the limits defined by the investment
guidelines and capital allocation.
The Investment Committee has agreed long-term targets for the investment portfolio in relation to supporting the Group's objectives
on climate change. These are: ensuring the Group's entire investment portfolio is net zero emissions by 2050 in line with the aims of
the Race to Zero campaign; and an interim target of a 50% reduction in weighted average greenhouse gas emissions intensity by
2030 within the Group's corporate bonds portfolio, the largest part of its investment portfolio, compared to a 2020 baseline. See
pages 79 to 80 for more information on investment portfolio targets, exclusions and preferences and pages 61 to 62 for the Group's
approved Science-Based Targets.
The Group has a property portfolio and an infrastructure debt portfolio to generate a real return which, from an asset and liability
matching perspective, is used to offset the liability arising from longer duration PPOs,
When setting the strategic asset allocation, the Group is subject to concentration risk in a variety of forms including:
– large exposures to individual assets (either bond issuers or deposit-taking institutions); and
– large exposures to different assets where movements in values and ratings are closely correlated.
Concentration risk on investments arises through excessive exposure to particular industry sectors, groups of business undertakings
or similar activities. The Group may suffer significant losses in its investment portfolio as a result of over-exposure to particular sectors
engaged in similar activities or having similar economic features that would cause their ability to meet contractual obligations to be
similarly affected by changes in economic, political or other conditions.
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The table below analyses the distribution of debt securities by geographical area (commercial real estate loans and infrastructure
debt are all within the UK):
Corporate
Local
government
Sovereign
Supranational
Debt securities
total
At 31 December 2023
Australia
Austria
Belgium
Canada
China
Denmark
Finland
France
Germany
Hong Kong
Italy
Japan
Luxembourg
Mexico
Netherlands
Norway
Portugal
South Africa
Spain
Sweden
Switzerland
United Kingdom
USA
Supranational
Total
£m
£m
£m
119.8
3.1
39.3
48.2
0.6
18.2
8.9
229.3
140.8
0.8
17.4
20.8
4.8
7.1
105.4
0.5
6.5
6.4
66.0
23.4
55.0
745.4
933.7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
657.1
23.7
—
2,601.4
0.9
680.8
£m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
25.6
25.6
£m
119.8
3.1
39.3
48.2
0.6
18.2
8.9
229.3
140.8
0.8
17.4
20.8
4.8
7.1
105.4
1.4
6.5
6.4
66.0
23.4
55.0
1,402.5
957.4
25.6
3,308.7
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Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
3. Risk management continued
3.3.2 Market risk continued
The table below analyses the distribution of debt securities by geographical area (commercial real estate loans and infrastructure
debt are all within the UK):
Corporate
Local
government
Sovereign
Supranational
Debt securities
total
At 31 December 2022 (restated¹)
Australia
Austria
Belgium
Canada
Cayman Islands
China
Czech Republic
Denmark
Finland
France
Germany
Hong Kong
Ireland
Italy
Japan
Luxembourg
Mexico
Netherlands
New Zealand
Norway
Portugal
South Africa
Spain
Sweden
Switzerland
United Arab Emirates
United Kingdom
USA
Zambia
Supranational
Total
£m
£m
£m
£m
116.0
4.3
31.6
59.8
3.7
0.6
0.7
17.9
7.7
237.0
175.7
9.3
1.4
16.1
18.8
2.6
7.0
100.0
10.0
17.7
6.7
6.0
56.5
23.9
50.0
3.5
821.0
895.5
1.3
—
—
—
—
—
—
—
—
—
—
5.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
480.3
31.0
—
—
2,702.3
5.9
511.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
25.2
25.2
£m
116.0
4.3
31.6
59.8
3.7
0.6
0.7
17.9
7.7
242.9
175.7
9.3
1.4
16.1
18.8
2.6
7.0
100.0
10.0
17.7
6.7
6.0
56.5
23.9
50.0
3.5
1,301.3
926.5
1.3
25.2
3,244.7
Note:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
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Strategic Report / Governance / Financial statements
The table below analyses the distribution of debt securities by industry sector classifications:
At 31 December
Basic materials
Communications
Consumer, cyclical
Consumer, non-cyclical
Diversified
Energy
Financial
Industrial
Sovereign, supranational and local government
Technology
Transport
Utilities
Total
2023
£m
43.0
135.7
244.2
216.2
16.9
81.6
1,424.5
145.8
707.3
65.6
12.8
215.1
3,308.7
The table below analyses the distribution of infrastructure debt by industry sector classifications:
At 31 December
Social, of which:
Education
Health
Other
Transport
Total
2023
£m
93.0
60.5
43.9
16.8
214.2
%
1%
4%
7%
7%
1%
3%
43%
4%
21%
2%
0%
7%
100%
%
44%
28%
20%
8%
100%
2022
£m
48.9
131.1
274.7
223.0
14.3
81.2
1,452.6
158.5
542.3
50.2
12.7
255.2
3,244.7
2022
£m
105.2
63.8
47.4
20.4
%
2%
4%
8%
7%
0%
3%
45%
5%
16%
2%
0%
8%
100%
%
44%
27%
20%
9%
236.8
100%
The Group uses its partial internal model to determine its regulatory capital requirements and monitors its market risk exposure
based on a 99.5% value-at-risk measure. The Group also applies market risk stress and scenario testing for the economic impact of
specific severe market conditions. The results of this analysis are used to enhance the understanding of market risk. The market risk
minimum standard explicitly prohibits the use of derivatives for speculative or gearing purposes. However, the Group is able to and
does use derivatives for hedging its currency risk and interest rate risk exposures.
Spread risk
This is the risk of loss from the sensitivity of the value of assets and investments to changes in the level or in the volatility of credit
spreads over the risk-free interest rate term structure. The level of spread is the difference between the risk-free rate and actual rate
paid on the asset, with larger spreads being associated with higher-risk assets. The Group is exposed to spread risk through its asset
portfolio, most notably through its investment in corporate bonds.
Net interest rate risk
This is the risk of loss from changes in the term structure of interest rates or interest rate volatility which impact assets and liabilities.
The Group's interest rate risk arises mainly from its debt, floating interest rate investments and assets and liabilities exposed to fixed
interest rates.
The Group has subordinated Tier 2 notes with fixed coupon rates with a nominal value of £260 million that were issued on 5 June
2020 and perpetual Tier 1 notes with fixed coupon rates with a nominal value of £350 million that were issued on 7 December 2017.
The Group also invests in floating rate debt securities, whose investment income is influenced by the movement of the short-term
interest rate. A movement of the short-term interest rate will affect the expected return on these investments.
The market value of the Group's financial investments with fixed coupons is affected by the movement of interest rates. For the
majority of investments in US dollar and Euro debt securities, the Group hedges its exposure to US dollar and Euro interest rate risk
using swaps, excluding £307.4 million of US dollar short-duration, high-yield bonds (2022: £286.8 million), £137.3 million of US dollar
subordinated financial debt and £118.1 million of Euro subordinated financial debt (2022: £134.4 million and £93.6 million,
respectively).
The Group is exposed to the following interest rate benchmarks within its hedging relationships: GBP SONIA, USD SOFR and
EURIBOR. The hedged items include holdings of US dollar and Euro denominated fixed rate debt securities.
IBOR reform
During the year ended 31 December 2021, the Group transitioned to alternative benchmark rates for most of its relevant financial
instruments, implementing the relevant risk-free rate benchmarks and other relevant agreements.
As at 31 December 2023, the Group has determined it has no remaining exposures (2022: nominal exposure of £238.2 million) from
financial instruments subject to IBOR reform. Where legal documentation has not been completed, in the immediate future
reference of rates will be linked to synthetic GBP LIBOR.
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201201
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
3. Risk management continued
3.3.2 Market risk continued
Property risk
This is the risk of loss arising from sensitivity of assets and financial investments to the level or volatility of market prices, rental yields,
or occupancy rates of properties. At 31 December 2023, the value of these property investments was £277.1 million (2022: £278.5
million). The property investments are located in the UK.
Currency risk
This is the risk of loss from changes in the level or volatility of currency exchange rates. Exposure to currency risk is generated by the
Group's investments in US dollar and Euro denominated debt bonds.
The Group maintains exposure to US dollar securities through £763.1 million (2022: £751.0 million) of investments in US dollar bonds
and Euro securities through £219.1 million (2022: £165.4 million) of Euro bonds. The foreign currency exposure of these investments
is hedged by foreign currency forward contracts, maintaining a minimal unhedged currency exposure on these portfolios, as well as
a low basis risk on the hedging contracts.
A limited exposure to currency risk also arises through the Group's insurance and other contractual liabilities. Currency risk is not
material at Group level.
Use of derivatives
The Group uses derivatives to hedge against interest rate and currency risk.
The tables below analyse the maturity of the Group's derivative assets and liabilities:
At 31 December 2023
Derivative assets
At fair value through profit or loss
Foreign exchange contracts (forwards)
Interest rate swaps
Total
At 31 December 2023
Derivative liabilities
At fair value through profit or loss
Foreign exchange contracts (forwards)
Interest rate swaps
Designated as hedging instruments
Foreign exchange contracts (forwards)
Total
Notional
amounts
Maturity and fair value
Less than 1
year
1 – 5 years
Over 5 years
£m
£m
£m
£m
1,568.7
49.2
1,617.9
27.1
0.1
27.2
—
0.2
0.2
—
—
—
Notional
amounts
Maturity and fair value
Less than 1
year
1 – 5 years
Over 5 years
£m
£m
£m
£m
908.4
252.8
14.2
1,175.4
8.2
—
0.3
8.5
—
1.7
—
1.7
—
5.2
—
5.2
Total
£m
27.1
0.3
27.4
Total
£m
8.2
6.9
0.3
15.4
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Strategic Report / Governance / Financial statements
Notional
amounts
Maturity and fair value
Less than 1
year
1 – 5 years
Over 5 years
£m
£m
£m
£m
1,014.4
240.4
3.4
1,258.2
Notional
amounts
24.2
6.0
0.1
30.3
—
0.5
—
0.5
—
0.5
—
0.5
Maturity and fair value
Less than 1
year
1 – 5 years
Over 5 years
£m
£m
£m
£m
1,190.4
107.6
1,298.0
28.4
—
28.4
—
0.2
0.2
—
1.0
1.0
Total
£m
24.2
7.0
0.1
31.3
Total
£m
28.4
1.2
29.6
At 31 December 2022
Derivative assets
At fair value through profit or loss
Foreign exchange contracts (forwards)
Interest rate swaps
Designated as hedging instruments
Foreign exchange contracts (forwards)
Total
At 31 December 2022
Derivative liabilities
At fair value through profit or loss
Foreign exchange contracts (forwards)
Interest rate swaps
Total
Sensitivity analysis
The table below provides a sensitivity analysis of the impact on financial investments and derivatives of a change in a single factor
that is reasonably possible, with all other assumptions left unchanged. Other potential risks beyond the ones described in the table
could have an additional financial impact on the Group.
Spread
Impact of a 100 basis points increase in spreads on financial investments2
Interest rate
Impact of a 100 basis points increase in interest rates on financial investments and derivatives2,3
Investment property
Impact of a 15% decrease in property markets
Increase/(decrease) in profit
before tax1 at 31 December
2023
£m
2022
£m
(72.1)
(82.3)
(62.2)
(64.7)
(41.6)
(41.8)
Notes:
1. These sensitivities exclude the impact of taxation and have not considered the impact of the general market changes on the value of the Group's
insurance liabilities. They reflect one-off impacts at 31 December and should not be interpreted as predictions.
2. The impact on profit or loss does not reflect any fair value movement in infrastructure debt, commercial real estate loans and private placement
debt securities that would not be recorded in the financial statements under IFRS 9 as they are classified as loans and receivables and private
placement respectively, which are carried at amortised cost. It is estimated that a fair value reduction in these asset categories resulting from a 100
basis points increase in spreads would have been £11.7 million (2022: £13.5 million) and a 100 basis points increase in interest rates would have
been £2.8 million (2022: £3.7 million).
3. The sensitivities set out above reflect one-off impacts at 31 December, with the exception of the statement of profit or loss interest rate sensitivity on
financial investments and derivatives, which projects a movement in a full year's interest charge as a result of the increase in the interest rate applied
to these assets or liabilities on those positions held at 31 December.
Direct Line Group Annual Report and Accounts 2023
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203203
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
3. Risk management continued
3.3.2 Market risk continued
The Group has a number of open interest rate and foreign exchange derivative positions. Collateral management arrangements are
in place for significant counterparty exposures. At 31 December 2023, the Group has pledged £16.6 million in cash (2022:
£19.2 million) to cover initial margins and out-of-the-money derivative positions. At 31 December 2023, counterparties have pledged
£12.8 million in cash (2022: £7.1 million in cash) to the Group to cover in-the-money derivative positions.
The terms and conditions of collateral pledged for both assets and liabilities are market-standard. When securities are pledged they
are required to be readily convertible to cash, and as such no policy has been established for the disposal of assets not readily
convertible into cash.
3.3.3 Credit risk
This is the risk of loss resulting from defaults in obligations due and/or changes in credit standing of either issuers of securities,
counterparties or any debtors to which the Group is exposed. The Group's credit risk policy sets out the assessment and
determination of what constitutes credit risk for the Group. The Group is mainly exposed to counterparty default risk.
Counterparty default risk
This is the risk of loss from unexpected default or deterioration in the credit standing of the counterparties and debtors of Group
undertakings. This risk is monitored by two forums: the Investment Risk Forum monitors credit spreads as indicators of potential
losses on investments incurred but not yet realised; the Credit Risk Forum monitors reinsurance and corporate insurance
counterparty default risk. The main responsibility of these forums is to ensure that all material aspects of counterparty default risk
within the Group are identified, monitored and measured.
An account is deemed to have defaulted when the Group considers that a customer is in significant financial difficulty or that the
customer meets certain quantitative and qualitative criteria regarding their ability to make contractual payments when due. This
includes instances where the customer makes a declaration of significant financial difficulty, or the account has been transferred to
recoveries and the relationship is terminated.
The main sources of counterparty default risk for the Group are:
– investments – this arises from the investment of funds in a range of investment vehicles permitted by the investment policy;
– reinsurance recoveries – this represents amounts receivable from the reinsurer to cover claims paid to policyholders. PPOs have the
potential to increase the ultimate value of a claim and, by their very nature, to increase significantly the length of time to reach
final payment. This can increase reinsurance counterparty default risk in terms of both amount and longevity;
– commercial credit – this arises as brokers collect premiums on behalf of the Group; and
– consumer credit – exposure from offering monthly instalments on annual insurance contracts.
The Group cedes insurance risk to reinsurers but, in return, assumes counterparty default risk against recoveries as it remains liable
for claims payments to policyholders in case of reinsurer default. The financial security of the Group's panel of reinsurers is therefore
important and both the quality and amount of the assumed counterparty default risk are subject to an approval process whereby
reinsurance is only purchased from reinsurers that hold a credit rating of at least A– for short tail reinsurance and the majority of long
tail reinsurance to be purchased from reinsurers rated A+ or above with a maximum of 10% of the risk to be placed with reinsurers
with a rating between A- and A+ at the time cover is purchased. The reinsurance and credit manager monitors the credit rating of
the Group's current and potential reinsurance counterparties on a regular basis. The Group aims to deal with a diverse range of
reinsurers on its contracts to mitigate the credit and/or non-payment risks associated with its reinsurance exposures.
The following tables analyse the carrying value of the Group's financial, insurance and reinsurance contracts assets that bear
counterparty default risk between those assets that have not been impaired by age in relation to due date and those that have been
impaired.
The Group's maximum exposure to credit risk is represented by the carrying value of financial investments , cash and cash
equivalent, the carrying value of loans and advances and the excess of reinsurance assets over amounts owed to reinsurers under
funds withheld arrangements which are settled on a net basis. In addition, the Group operates 100% quota share reinsurance treaty
on its brokered commercial business which was sold to RSA Insurance Limited on a funds withheld basis, which substantially
reduces credit risk, as the Group retains the cash received from policyholders. The Group does not use credit derivatives or similar
instruments to mitigate exposure.
All financial investments held at amortised cost have been assessed for impairment using the expected credit loss model under IFRS
9. The assessment has been made based on the externally available credit ratings of the entities.
Infrastructure debt and commercial real estate loans are held with well rated institutions and are held at book value, with
impairment calculated in a similar manner to debt securities. All assets which require a calculation of impairment, are considered
based on an external credit rating agency or an assessment from external asset managers. The credit rating of all assets is regularly
monitored. As at the year-end reporting date, the vast majority of financial assets are of investment grade and considered low risk
under IFRS 9. These therefore remain within stage 1 and a 12-month expected loss is used to calculate the impairment provision
required. Any assets downgraded to below BBB or any sub BBB asset that is downgraded by 1 full credit rating, are considered by
the Group to have significantly increased in credit risk, and therefore are stage 2 or stage 3 under IFRS 9.
204
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Strategic Report / Governance / Financial statements
Neither past
due nor
impaired
Past due 1 – 90
days
Past due more
than 90 days
Carrying value
in the
statement of
financial
position
£m
1,340.4
32.9
27.4
3,308.7
214.2
145.9
1,772.2
3.1
6,844.8
£m
5.5
2.0
—
—
—
—
—
—
£m
0.1
0.3
—
—
—
—
—
—
£m
1,346.0
35.2
27.4
3,308.7
214.2
145.9
1,772.2
3.1
7.5
0.4
6,852.7
Neither past
due nor
impaired
Past due 1 – 90
days
Past due more
than 90 days
Carrying value
in the
statement of
financial
position
£m
1,065.2
33.7
31.3
3,244.7
236.8
198.9
1,003.6
1.6
£m
9.6
0.6
—
—
—
—
—
—
£m
0.1
0.2
—
—
—
—
—
—
£m
1,074.9
34.5
31.3
3,244.7
236.8
198.9
1,003.6
1.6
5,815.8
10.2
0.3
5,826.3
At 31 December 2023
Reinsurance contract assets
Other receivables
Derivative financial instruments
Debt securities
Infrastructure debt
Commercial real estate loans
Cash and cash equivalents1
Other loans
Total
At 31 December 2022
Reinsurance contract assets
Other receivables
Derivative financial instruments
Debt securities
Infrastructure debt
Commercial real estate loans
Cash and cash equivalents1
Other loans
Total
Note:
1. This represents money market funds with no notice period for withdrawal and cash at bank and in hand.
Within the analysis of debt securities above are bank debt securities at 31 December 2023 of £973.7 million (2022: £961.2 million)
that can be further analysed as: secured £11.1 million (2022: £11.2 million); unsecured £770.6 million (2022: £795.3 million); and
subordinated £192.0 million (2022: £154.7 million).
The Group's maximum exposure to credit risk from Insurance contract assets is £5.4 million (2022: £17.3 million).
The tables below analyse the credit quality of debt securities that are neither past due nor impaired:
At 31 December 2023
Corporate
Supranational
Local government
Sovereign
Total
At 31 December 2022
Corporate
Supranational
Local government
Sovereign
Total
AAA
£m
56.8
25.6
0.9
4.7
AAA
£m
67.7
25.2
—
AA+ to AA-
A+ to A-
BBB+ to BBB- BB+ and below
Not rated
£m
£m
£m
£m
152.7
1,201.6
899.6
289.2
—
—
676.1
—
—
—
—
—
—
—
—
—
88.0
828.8
1,201.6
899.6
289.2
£m
1.5
—
—
—
1.5
Total
£m
2,601.4
25.6
0.9
680.8
3,308.7
Total
£m
AA+ to AA-
A+ to A-
BBB+ to BBB- BB+ and below
Not rated
£m
£m
£m
£m
£m
158.1
1,268.4
919.8
286.6
1.7
2,702.3
—
5.9
—
—
—
—
—
—
—
—
—
—
—
—
25.2
5.9
511.3
31.0
480.3
123.9
644.3
1,268.4
919.8
286.6
1.7
3,244.7
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£m
—
—
—
—
5.7
—
—
5.7
£m
—
25.7
—
—
—
0.1
3.1
Total
£m
1,340.4
32.9
27.4
214.2
145.9
1,772.2
3.1
Total
£m
£m
1.4
1,065.2
33.3
—
—
—
—
33.7
31.3
236.8
198.9
1,003.6
1.6
1.6
Notes to the Consolidated Financial Statements continued
3. Risk management continued
3.3.3 Credit risk continued
The tables below analyse the credit quality of financial and insurance assets that are neither past due nor impaired (excluding debt
securities analysed above). The tables include reinsurance exposure, after provision. The Group's approach to reinsurance
counterparty default risk is detailed on page 204.
AA+ to AA-
A+ to A-
BBB+ to BBB- BB+ and below
Not rated
At 31 December 2023
Reinsurance contract assets
Other receivables
Derivative financial instruments
Infrastructure debt
Commercial estate loans
Cash and cash equivalents1
Other loans
AAA
£m
—
0.4
—
—
12.1
1,624.2
—
£m
£m
290.5
1.7
1,047.5
4.8
26.4
—
47.9
14.0
—
0.4
34.5
51.6
133.0
—
£m
2.4
0.3
0.6
179.7
28.6
0.9
—
Total
1,636.7
380.5
1,271.8
212.5
28.9
3,536.1
At 31 December 2022
Reinsurance contract assets
Other receivables
Derivative financial instruments
Infrastructure debt
Commercial estate loans
Cash and cash equivalents1
Other loans
Total
AA+ to AA-
A+ to A-
BBB+ to BBB- BB+ and below
Not rated
AAA
£m
—
—
—
—
15.7
878.8
—
£m
£m
440.7
622.2
0.1
7.9
—
64.1
7.8
—
0.3
23.4
38.2
88.1
116.1
—
£m
0.9
—
—
191.8
24.0
0.9
—
£m
—
—
—
6.8
7.0
—
—
894.5
520.6
888.3
217.6
13.8
36.3
2,571.1
Note:
1. This represents money market funds with no notice period for withdrawal and cash at bank and in hand.
Debt instruments measured at amortised cost.
The table below shows the credit quality and the maximum exposure to credit risk per the Group's internal credit rating model. The
amounts presented are gross of ECL allowances:
AA+ to AA-
A+ to A-
BBB+ to BBB-
BB+ and below
Total
12 month
expected
credit loss
2023
Lifetime
expected
credit loss
£m
11.5
16.0
33.8
—
61.3
£m
—
—
—
10.1
10.1
12 month
expected
credit loss
2022
Lifetime
expected
credit loss
£m
11.5
42.8
33.8
—
88.1
£m
—
—
—
10.1
10.1
Total
£m
11.5
16.0
33.8
10.1
71.4
Total
£m
11.5
42.8
33.8
10.1
98.2
206
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Loans and receivables measured at amortised cost:
The table below shows the credit quality and the maximum exposure to credit risk per the Group’s internal credit rating model. The
amounts presented are gross of ECL allowances:
AAA
AA+ to AA-
A+ to A-
BBB+ to BBB-
BB+ and below
Not rated
Total
12 month
expected
credit loss
2023
Lifetime
expected
credit loss
£m
12.1
47.9
86.2
209.4
—
—
355.6
£m
—
—
—
—
28.9
3.4
32.3
12 month
expected
credit loss
2022
Lifetime
expected
credit loss
£m
15.7
64.1
126.4
217.1
—
—
423.3
£m
—
—
—
—
35.9
1.9
37.8
Total
£m
12.1
47.9
86.2
209.4
28.9
3.4
387.9
Total
£m
15.7
64.1
126.4
217.1
35.9
1.9
461.1
The Group’s Investment and Treasury team prepares internal ratings for instruments held in which its counterparties are rated using
internal grades (AAA to BB+ and below). The ratings are determined incorporating both qualitative and quantitative information that
builds on information from credit agencies, supplemented with information specific to the counterparty and other external
information that could affect the counterparty’s behaviour. These information sources are first used to determine whether an
instrument has had a significant increase in credit risk.
The tables below analyse the change in the carrying amount and loss allowance of debt securities measured at amortised cost and
the corresponding ECL.
Carrying amount
Amortised cost as at 1 January
New assets originated or purchased
Assets derecognised or matured
Amortised cost as at 31 December
Loss allowance
Loss allowance as at 1 January
Effect of changes in assessed ECL
Loss allowance as at 31 December
12 month
expected
credit loss
2023
Lifetime
expected
credit loss
£m
88.1
—
(26.8)
61.3
£m
10.1
—
—
10.1
12 month
expected
credit loss
2023
Lifetime
expected
credit loss
£m
(0.4)
0.1
(0.3)
£m
(0.6)
0.1
(0.5)
12 month
expected
credit loss
2022
Lifetime
expected
credit loss
£m
£m
81.1
10.1
7.0
—
—
—
88.1
10.1
12 month
expected
credit loss
2022
Lifetime
expected
credit loss
£m
(0.5)
0.1
(0.4)
£m
(0.7)
0.1
(0.6)
Total
£m
98.2
—
(26.8)
71.4
Total
£m
(1.0)
0.2
(0.8)
Total
£m
91.2
7.0
—
98.2
Total
£m
(1.2)
0.2
(1.0)
The tables below analyse the change in the carrying amount and loss allowance of loans and receivables measured at amortised
cost and the corresponding ECL.
Carrying amount
Amortised cost as at 1 January
New assets originated or purchased
Assets derecognised or matured
Accrued interest capitalised
Transfer to 12 month ECL
Amortised cost as at 31 December
12 month
expected
credit loss
2023
Lifetime
expected
credit loss
£m
423.3
—
(75.5)
0.8
7.0
355.6
£m
37.8
1.5
—
—
(7.0)
32.3
12 month
expected
credit loss
£m
435.8
40.8
(56.1)
2.8
—
2022
Lifetime
expected
credit loss
£m
35.9
1.9
—
—
—
Total
£m
471.7
42.7
(56.1)
2.8
—
423.3
37.8
461.1
Total
£m
461.1
1.5
(75.5)
0.8
—
387.9
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Notes to the Consolidated Financial Statements continued
3. Risk management continued
3.3.3 Credit risk continued
Loss allowance
Loss allowance as at 1 January
Transfer to lifetime ECL
Effect of changes in assessed ECL
Loss allowance as at 31 December
3.3.4 Operational risk
12 month
expected
credit loss
2023
Lifetime
expected
credit loss
£m
(1.5)
(0.1)
0.5
(1.1)
£m
(22.3)
0.1
(1.4)
(23.6)
Total
£m
(23.8)
—
(0.9)
(24.7)
12 month
expected
credit loss
£m
(2.2)
—
0.7
(1.5)
2022
Lifetime
expected
credit loss
£m
Total
£m
(20.7)
(22.9)
—
(1.6)
(22.3)
—
(0.9)
(23.8)
This is the risk of loss due to inadequate or failed internal processes, people, systems, or from external events. Material sources of
operational risk for the Group include:
Change risk
This is the risk of failing to manage the Group's business change portfolio resulting in conflicting priorities and failure to deliver
strategic outcomes to time, cost or quality.
Technology and infrastructure risk
This is the risk that the IT infrastructure is insufficient to deliver the Group's strategy.
Supplier management and outsourcing risk
This is the risk of failing to implement a robust framework for the sourcing, appointment and ongoing contract management of
third-party suppliers, outsourced service providers and intra-group relationships. This includes both domestic and offshore
outsourcing activities.
Cyber risk
This is the risk of loss or corruption to Group or customer data, intellectual property or failure of business-critical systems resulting in
reputational damage, regulatory censure, supervision, fines and/or loss of competitive advantage.
Partnership contractual obligations
This is the risk of contractual obligations not being delivered for business partners resulting in damaged reputation, the loss of
contract at renewal, significant liability payments and/or the early termination of a partnership scheme.
The Group has in place agreed policies and standards to establish and monitor key controls relating to operational risk.
Risk concentrations and management
The Group is subject to concentration in its operational risks through, for example, its IT systems and change programmes; which
include the risk of loss in a number of scenarios such as system outages and data security breaches. Technology remains at the heart
of the Group operations and focus is on upgrading Group IT systems and capabilities, aimed at expanding the Group's digital
offerings, capitalising on the Group's data, improving customer experience and overall increasing operational efficiency.
The Group proactively manages its operational risks to mitigate potential customer harm, regulatory or legal censure, financial and
reputational impacts. The Group has in place operational processes and systems, including prevention and detection measures.
These include processes which seek to ensure the Group can absorb and/or adapt to internal or external events that could impact
customer operations and the wider business, as well as to learn from these situations to improve the Group's overall risk and control
systems moving forward.
The Group's risk management framework is designed to enable it to capture risk information in a complete and consistent way,
enabling proactive trend analysis, root cause analysis and read across to facilitate early warnings and a ‘learning’ risk environment.
3.3.5 Liquidity risk
This is the risk of being unable to access cash from the sale of investments or other assets in order to settle financial obligations as
they fall due.
The measurement and management of the Group's liquidity risk is undertaken within the limits and other policy parameters of the
Group's liquidity risk appetite and is detailed in the liquidity risk minimum standard. As part of this process, the Investment and
Treasury team is required to put in place a liquidity plan which must consider expected and stressed scenarios for cash inflows and
outflows that is reviewed at least annually by the Investment Committee. Compliance is monitored in respect of both the minimum
standard and the regulatory requirements of the PRA.
208
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Strategic Report / Governance / Financial statements
The following table analyses the carrying value of financial investments and cash and cash equivalents, by contractual maturity,
which can fund the repayment of liabilities as they crystallise.
At 31 December 2023
Debt securities
Infrastructure debt
Commercial real estate loans
Cash and cash equivalents1
Other loans
Total
At 31 December 2022
Debt securities
Infrastructure debt
Commercial real estate loans
Cash and cash equivalents1
Other loans
Total
Within
1 year
£m
1 – 3 years
3 – 5 years
5 – 10 years
£m
£m
£m
566.1
1,542.0
598.2
503.6
20.4
46.5
1,772.2
—
32.8
55.5
—
0.4
41.2
43.9
—
2.7
81.8
—
—
—
Over
10 years
£m
98.8
38.0
—
—
—
Total
£m
3,308.7
214.2
145.9
1,772.2
3.1
2,405.2
1,630.7
686.0
585.4
136.8
5,444.1
Within
1 year
£m
1 – 3 years
3 – 5 years
5 – 10 years
£m
£m
£m
Over
10 years
£m
Total
£m
798.6
979.0
807.3
530.9
128.9
3,244.7
18.9
55.9
1,003.6
—
34.8
63.3
—
—
41.2
79.7
—
1.6
91.2
50.7
—
—
—
—
—
—
236.8
198.9
1,003.6
1.6
1,877.0
1,077.1
929.8
622.1
179.6
4,685.6
Note:
1. This represents money market funds with no notice period for withdrawal and cash at bank and in hand.
The following table analyses the undiscounted cash flows of insurance liabilities based on the future cash flows expected to be paid
out in the periods presented, and financial and other liabilities by maturity dates.
Less than 1
year
1 – 3 years
3 – 5 years
5 – 10 years
Over 10 years
Total
Carrying value
At 31 December 2023
Subordinated liabilities
£m
£m
£m
£m
£m
10.4
20.8
20.8
Insurance contract liabilities
2,050.0
1,365.1
781.0
Borrowings
Lease liabilities
Provisions
Trade and other payables
82.4
12.7
30.3
157.4
—
22.3
0.4
6.1
—
23.0
0.1
0.1
296.4
564.4
—
51.4
—
—
—
602.7
—
27.3
—
—
£m
348.4
5,363.2
82.4
136.7
30.8
163.6
£m
258.8
3,874.0
82.4
106.1
30.8
163.6
Total
2,343.2
1,414.7
825.0
912.2
630.0
6,125.1
4,515.7
Less than 1
year
1 – 3 years
3 – 5 years
5 – 10 years
Over 10 years
Total
Carrying value
At 31 December 2022
Subordinated liabilities
£m
£m
£m
£m
10.4
20.8
20.8
306.8
£m
—
£m
£m
358.8
258.6
Insurance contract liabilities
1,460.7
902.0
474.7
371.2
1,498.3
4,706.9
3,394.3
Borrowings
Lease liabilities
Provisions
Trade and other payables
Total
65.2
10.9
9.6
140.7
—
17.6
0.5
6.1
—
14.3
0.1
0.2
—
32.2
—
—
—
27.8
—
—
65.2
102.8
10.2
147.0
65.2
81.6
10.2
147.0
1,697.5
947.0
510.1
710.2
1,526.1
5,390.9
3,956.9
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Notes to the Consolidated Financial Statements continued
3. Risk management continued
3.3.5 Liquidity risk continued
The following table analyses the undiscounted cash flows of derivative financial instruments, by contractual maturity.
At 31 December 2023
Derivative assets
Derivative liabilities
Total
At 31 December 2022
Derivative assets
Derivative liabilities
Total
3.4 Capital management
Within 1 year
1 – 3 years
3 – 5 years
5 – 10 years
Total
Carrying value
£m
27.6
(14.4)
13.2
£m
(0.1)
(1.0)
(1.1)
£m
(0.1)
—
(0.1)
£m
—
—
—
£m
27.4
(15.4)
12.0
£m
27.4
(15.4)
12.0
Within 1 year
1 – 3 years
3 – 5 years
5 – 10 years
Total
Carrying value
£m
31.7
(29.6)
2.1
£m
—
—
—
£m
(0.1)
—
(0.1)
£m
—
—
—
£m
31.6
(29.6)
2.0
£m
31.3
(29.6)
1.7
At 31 December 2023, the Group's capital position was comprised of shareholders' equity of £2,058.2 million (31 December 2022:
£1,845.3 million) and Tier 1 notes of £346.5 million (31 December 2022: £346.5 million). In addition, the Group's consolidated statement
of financial position also included £258.8 million of subordinated loan capital (31 December 2022: £258.6 million) which is classified as
Tier 2 for Solvency II purposes.
The Group manages capital in accordance with the Group's capital management minimum standard, the aims of which are to
manage capital efficiently and generate long-term sustainable value for shareholders, while balancing operational, regulatory, credit
rating agency and policyholder requirements. The Group seeks to hold capital resources such that, in normal circumstances, the
solvency capital ratio is around the middle of the target range of 140% to 180%. At 31 December 2023, the Group's solvency capital
ratio was 197% (31 December 2022: 147%)
The Group's regulatory capital position is assessed against the Solvency II framework. From 1 July 2016, the Group gained approval to
assess its SCR using a partial internal model, including a full internal model for the U K Insurance Limited underwriting entity. The
model is calibrated to a 99.5% confidence interval and considers business written to date and one year of future written business
over a one-year time horizon, in line with Solvency II requirements.
During the year, the Group and its regulated entities complied with all external capital requirements.
3.5 Capital adequacy (unaudited)
Using the Group's partial internal model, there is a capital surplus of approximately £1.10 billion above an estimated SCR of £1.13
billion as at 31 December 2023 (31 December 2022: £0.57 billion and £1.21 billion respectively). The Group's capital requirements
and solvency position are produced and presented to the Board on a regular basis.
4. Segmental analysis
The Chief Operating decision makers, being the Acting Chief Executive Officer and the Chief Financial Officer, regularly review the
operating results at the segmental level as described below and disclosed in the tables in this note to assess performance and make
decisions about allocation of resources.
Motor
This segment consists of personal motor insurance together with the associated legal protection cover. The Group sells motor
insurance direct to customers through its own brands Direct Line, Churchill, Privilege and Darwin, and through partnership brands
such as vehicle manufacturers and through price comparison websites ("PCWs").
Home
This segment consists of home insurance together with associated legal protection cover. The Group sells home insurance products
through its brands Direct Line, Churchill and Privilege, and its partnership brands (Royal Bank of Scotland and NatWest), as well as
through PCWs.
Rescue and other personal lines
This segment consists of rescue products which are sold direct through the Group's own brand, Green Flag, and other personal lines
insurance, including travel, pet and creditor sold through its own brands Direct Line, Churchill and Privilege, and through partnership
brands and through PCWs.
Commercial
This segment consists of commercial insurance for small and micro-sized enterprises sold direct through the Group's brands Direct
Line for Business and Churchill. Both brands sell products directly to customers and Churchill also sells products through PCWs.
210
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Brokered commercial business and run-off1 partnerships
On 6 September 2023 the Group announced the sale of its brokered commercial insurance business to Royal & Sun Alliance
Insurance Limited. Under the terms of the agreement, the Group has retained the back book of the business written and earned
prior to 1 October 2023 (the "Risk Transfer Date"). Business written subsequent to the Risk Transfer Date is subject to a quota share
arrangement between the two companies. Over time the two companies intend to enter into discussions regarding the potential
transfer of the back book of policies written prior to the Risk Transfer Date.
The Group has exited, or is seeking to exit, three partnerships which will reduce its exposure to low margin packaged bank accounts
so it can redeploy capital to higher return segments. The run-off partnerships relate to a Rescue partnership with NatWest Group
that expired in December 2022 and Travel partnerships with NatWest Group and Nationwide Building Society which expire in 2024,
where the Group has indicated that it will not be seeking to renew.
The Group has aggregated and excluded the results of the brokered commercial business and run-off partnerships from its ongoing
results and has restated all relevant comparatives across the report. Results relating to ongoing operations will be clearly labelled.
The segmental analysis has been amended to reflect the changes. The profit/(loss) before restructuring and one-off costs relating to
the brokered commercial business and run-off partnerships in 2023 was £50.0 million profit and £28.0 million loss (2022: £17.9
million profit and £13.6 million loss respectively).
Inter-segmental transactions
No inter-segment transactions occurred in the year ended 31 December 2023 (2022: £nil). If any transaction were to occur, transfer
prices between operating segments would be set on an arm's-length basis in a manner similar to transactions with third parties.
Segment income, expenses and results will include those transfers between business segments which will then be eliminated on
consolidation.
For each operating segment, there are no individual policyholders or customers that represent 10% or more of the Group's total
revenue.
The table below analyses the Group's revenue and results by reportable segment for the year ended 31 December 2023.
Motor
Home
RoPL1,2
Commercial
Total Group -
ongoing
operations1
Brokered
commercial
business
Run-off
partnerships1
Restructuring
and one-off
costs
£m
£m
£m
£m
£m
£m
£m
Total
Group
£m
Insurance revenue
Insurance service expenses
1,805.4
539.7
272.9
234.9
2,852.9
600.8
148.0
—
3,601.7
(2,145.2)
(477.4)
(229.5)
(187.4)
(3,039.5)
(564.3)
(177.7)
(24.8)
(3,806.3)
Allocation of reinsurance premiums paid
(240.5)
(36.1)
(3.7)
Amounts recoverable from reinsurers
248.7
24.0
2.3
(331.6)
50.2
42.0
179.3
39.2
10.7
(25.1)
5.2
27.6
11.8
(305.4)
280.2
(211.8)
241.0
(163.4)
140.8
13.9
59.0
(1.4)
2.4
—
—
(470.2)
423.4
(28.7)
(24.8)
(251.4)
3.0
Insurance service result
Investment return
Net finance expenses from insurance
contracts issued
Net finance (expenses)/income from
reinsurance contracts held
Investment return and net insurance
finance result
Other operating income
Other operating expenses
(146.2)
(15.9)
(1.5)
(6.8)
(170.4)
(21.9)
(1.5)
25.5
0.9
0.1
58.6
24.2
9.3
4.2
0.4
15.3
(5.6)
(3.1)
(12.8)
1.0
6.0
1.5
(0.7)
27.5
98.1
21.4
(22.2)
0.4
0.1
37.5
0.4
(1.8)
1.6
—
(0.9)
—
—
(34.7)
—
—
—
303.0
(193.8)
28.0
137.2
21.8
(59.6)
(Loss)/earnings before other finance costs
(274.4)
71.7
53.8
34.4
(114.5)
50.0
(28.0)
(59.5)
(152.0)
Gain on disposal
Other finance costs
Profit before tax
443.9
(14.5)
277.4
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
211211
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
4. Segmental analysis continued
The table below analyses the Group's assets and liabilities by reportable segment at 31 December 20233.
Motor
Home
RoPL1,2
Commercial
£m
£m
£m
£m
Goodwill
Assets held for sale
Other segment assets
134.0
45.8
28.7
8.7
1.6
0.4
4,356.6
783.1
230.6
Reinsurance contract assets
1,076.4
36.6
3.6
Insurance contract assets
—
—
—
Reinsurance contract liabilities
(16.9)
(4.7)
(1.5)
Insurance contract liabilities
(3,305.9)
(583.1)
(155.9)
Other segment liabilities
(415.1)
(73.2)
(19.6)
—
0.7
324.9
23.0
—
(3.4)
(250.1)
(31.4)
Total Group -
ongoing
operations1
Brokered
commercial
business
Run-off
partnerships1
£m
208.5
11.4
5,695.2
1,139.6
—
(26.5)
(4,295.0)
(539.3)
£m
—
2.3
£m
—
0.2
1,059.6
88.6
203.6
—
2.8
5.4
(89.6)
(0.5)
(866.0)
(77.8)
(108.7)
(9.1)
9.6
Total
Group
£m
208.5
13.9
6,843.4
1,346.0
5.4
(116.6)
(5,238.8)
(657.1)
2,404.7
Segment net assets
1,837.8
206.1
86.3
63.7
2,193.9
201.2
Notes:
1. Ongoing operations and run-off partnerships – See glossary on pages 261 to 264 for definitions and appendix A – Alternative performance measures
on pages 265 to 268 for reconciliation to financial statement line items.
2. See glossary on page 263 for definitions. The Group incurred £59.5 million of restructuring and one-off costs in 2023, which were predominantly
driven by work carried out in relation to the Group’s two past business reviews, cost efficiency initiatives and impairments.
3. This segmental analysis is prepared using a combination of asset and liability balances directly attributable to each operating segment and an
apportionment of assets and liabilities managed at a Group-wide level. This does not represent the Group's view of the capital requirements for its
operating segments.
The table below analyses the Group's restated revenue and results by reportable segment for the year ended 31 December 2022.
Insurance revenue
1,555.3
560.7
282.1
Insurance service expenses
(1,636.2)
(540.8)
(223.4)
Allocation of reinsurance premiums paid
(77.2)
(26.5)
(2.3)
Motor
Home
RoPL1,2
Commercial
£m
£m
£m
£m
Total Group -
ongoing
operations1
Brokered
commercial
business
Run-off
partnerships2
Restructuring
and one-off
costs
211.8
(192.9)
(22.1)
(1.8)
(5.0)
(8.1)
3.4
£m
2,609.9
(2,593.3)
(128.1)
88.0
(23.5)
(185.3)
91.4
£m
£m
496.4
122.8
(419.5)
(132.7)
(36.9)
(0.7)
8.4
—
48.4
(39.6)
(10.6)
(2.2)
11.1
(0.1)
87.4
3.1
(0.7)
(70.7)
(3.5)
55.7
(140.3)
(29.8)
(7.1)
81.8
5.0
1.2
Total
Group
£m
3,229.1
(3,145.5)
(165.7)
96.4
14.3
(227.1)
102.4
(101.5)
£m
—
—
—
—
—
—
—
—
(94.8)
(0.4)
—
(1.2)
(96.4)
(5.1)
—
(153.3)
(25.2)
(6.4)
0.5
(5.9)
11.4
(21.9)
(2.5)
(8.5)
(5.9)
1.6
(0.8)
(190.3)
(33.6)
7.1
(33.7)
1.2
1.9
(2.3)
—
(0.7)
—
—
(45.3)
(226.2)
8.3
(77.8)
Amounts recoverable from/(payable to)
reinsurers
Insurance service result
Investment return
Net finance income/(expenses) from
insurance contracts issued
Net finance expenses from reinsurance
contracts held
Investment return and net insurance
finance result
Other operating income
Other operating expenses
(Loss)/earnings before other finance costs
(252.3)
(30.7)
52.7
(10.1)
(240.4)
17.9
(13.6)
(45.3)
(281.4)
Other finance costs
Loss before tax
(20.4)
(301.8)
212
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Direct Line Group Annual Report and Accounts 2023
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Strategic Report / Governance / Financial statements
The table below analyses the Group's restated assets and liabilities by reportable segment at 31 December 20223.
Motor
Home
RoPL1,2
Commercial
£m
£m
£m
£m
Goodwill
Assets held for sale
Other segment assets
130.4
45.8
28.7
25.4
5.0
1.5
3,818.4
736.1
246.1
Reinsurance contract assets
956.1
19.1
1.4
Insurance contract assets
Reinsurance contract liabilities
—
—
—
—
(5.2)
(1.2)
Insurance contract liabilities
(2,860.2)
(567.0)
(171.5)
Other segment liabilities
(367.5)
(72.9)
(22.0)
—
1.9
287.2
20.0
—
(2.6)
(214.9)
(27.6)
Total Group -
ongoing
operations1
Brokered
commercial
business
Run-off
partnerships1
£m
204.9
33.8
5,087.8
996.6
—
(9.0)
(3,813.6)
(490.0)
£m
10.1
6.8
939.3
78.0
—
(4.5)
£m
—
0.3
48.5
0.3
17.3
(0.4)
(755.5)
(56.7)
(97.1)
(5.1)
4.2
Total
Group
£m
215.0
40.9
6,075.6
1,074.9
17.3
(13.9)
(4,625.8)
(592.2)
2,191.8
Segment net assets
1,702.6
160.9
83.0
64.0
2,010.5
177.1
Notes:
1. Ongoing operations and run-off partnerships – See glossary on pages 261 to 264 for definitions and appendix A – Alternative performance measures
on pages 265 to 268 for reconciliation to financial statement line items.
2. See glossary on page 263 for definitions.
3. This segmental analysis is prepared using a combination of asset and liability balances directly attributable to each operating segment and an
apportionment of assets and liabilities managed at a Group-wide level. This does not represent the Group's view of the capital requirements for its
operating segments.
5. Insurance service result
Insurance revenue
Insurance service expenses
Incurred claims and other claims expenses
Past service – incurred claims
Other directly attributable expenses
Other directly attributable claims income2
Total insurance service expenses
Expenses from reinsurance contracts held
Reinsurance premium paid
Movement in asset for remaining coverage
Allocation of reinsurance premiums paid
Insurance claims recoverable from reinsurance contracts held
Claims recovered
Past service – claim recoveries
Other directly attributable expenses
Effect of non-performance risk of reinsurers
Total amounts recoverable from reinsurance contracts held
Total insurance service result
2023
£m
3,601.7
2022
£m
restated1
3,229.1
(2,860.3)
(80.9)
(907.9)
42.8
(3,806.3)
(2,435.3)
118.0
(871.0)
42.8
(3,145.5)
(613.0)
142.8
(470.2)
(141.6)
(24.1)
(165.7)
495.7
(63.1)
(3.4)
(5.8)
423.4
(251.4)
92.2
12.6
—
(8.4)
96.4
14.3
Note:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
2. This includes vehicle replacement referral fees, salvage income and legal services fees which have been assessed as part of the IFRS 17 contract
boundary.
Direct Line Group Annual Report and Accounts 2023
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213213
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
6. Investment return and net insurance financial result
Amounts recognised in profit or loss
Interest income calculated using effective interest rate method:
Debt securities
Cash and cash equivalents
Infrastructure debt
Commercial real estate loans
Total interest income calculated using effective interest rate method
Rental income from investment property
Other interest and similar income
Investment income
Investment fees
Net investment income
Net fair value gains/(losses) on financial assets held at fair value through profit or loss:
Debt securities
Derivatives
Equity investments
Total net fair value gains/(losses) on financial assets held at fair value through profit or loss:
Net fair value losses on investment property
Net credit impairment losses on financial investments
Investment return
Insurance finance (expense)/income from insurance contracts issued:
Interest accreted to insurance contracts using current financial assumptions
Reinsurance finance income/(expense) from reinsurance contracts issued:
Interest accreted to reinsurance contracts using current financial assumptions
Insurance and reinsurance finance (expenses)/income
Total investment return, insurance and reinsurance finance income/(expenses)
2023
£m
2022
£m
restated1
78.9
65.2
14.8
12.9
171.8
16.1
16.1
187.9
(9.3)
178.6
134.1
(6.4)
(0.7)
127.0
(1.9)
(0.7)
78.7
13.9
7.9
8.8
109.3
15.6
15.6
124.9
(9.5)
115.4
(370.7)
69.5
(1.6)
(302.8)
(39.1)
(0.6)
303.0
(227.1)
(193.8)
102.4
28.0
(165.8)
(101.5)
0.9
137.2
(226.2)
Amounts recognised in other comprehensive income
Net fair value gains/(losses) on equity investments measured at fair value through other
comprehensive income
2.7
(0.6)
Note:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
214
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Strategic Report / Governance / Financial statements
The table below analyses the realised and unrealised gains and losses on derivative instruments included in investment return.
(Losses)/gains on hedging instruments:
Foreign exchange forward contracts2
Associated foreign exchange risk
Net (losses)/gains on foreign exchange contracts
Interest rate swaps:
(Losses)/gains on interest rate swaps²
Total (losses)/gains on hedging instruments
2023
£m
43.0
(48.5)
(5.5)
(0.9)
(6.4)
2022
£m
restated1
(184.1)
184.7
0.6
68.9
69.5
Notes:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
2. Foreign exchange forward contracts and interest rate swaps are measured at fair value through the statement of profit or loss, other than a small
number of immaterial cash flow hedges.
The Group holds fixed rate USD and EUR denominated bonds whose fair value is exposed to movements in interest rates. In order to
economically hedge the interest rate risk of these bonds the Group enters into interest rate swaps, paying a fixed rate and receiving a
floating rate.
7. Other operating expenses
Non-directly attributable IT and other operating expenses
Non-directly attributable staff expenses
Impairment of intangible and fixed assets
Total other operating expenses
2023
£m
33.4
15.7
10.5
59.6
2022
£m
restated1
42.2
10.5
25.1
77.8
Note:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
The table below analyses the number of people employed by the Group's operations.
At 31 December
Average for the year
Insurance operations
Repair centre operations
Support
Total
The aggregate remuneration of those employed by the Group's operations comprised:
Wages and salaries
Social security costs
Pension costs
Share-based payments
Total
2023
7,015
1,715
1,401
10,131
2022
6,523
1,508
1,356
9,387
2023
6,743
1,620
1,321
9,684
2023
£m
421.4
47.7
28.7
13.9
511.7
2022
6,828
1,433
1,407
9,668
2022
£m
391.6
43.9
26.5
8.2
470.2
Of the total aggregate remuneration, £15.7 million relates to other operating expenses with the remainder included within the
Insurance service result as part of other directly attributable expenses, see note 5 for further details.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
215215
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
7. Other operating expenses continued
The table below analyses Auditor's remuneration in respect of the Group's operations.
Fees payable for the audit of:
The Company's annual accounts
The Company's subsidiaries
Total audit fees
Audit-related assurance services
Other assurance services
Non-audit services
Total1
2023
£m
0.5
3.3
3.8
0.4
0.2
1.6
6.0
2022
£m
0.4
2.6
3.0
0.2
—
—
3.2
Notes:
1. Total audit fees, excluding VAT.
2. An additional non-audit service has been provided in 2024 for fees of £0.4 million for reporting accountant services.
Aggregate Directors' emoluments
The table below analyses the total amount of Directors' remuneration in accordance with Schedule 5 to the Accounting Regulations.
Salaries, fees, bonuses and benefits in kind
Gains on exercise of share options
Total
2023
£m
3.7
0.3
4.0
2022
£m
2.6
1.8
4.4
Further information about the remuneration of individual Directors is provided in the Directors' Remuneration Report.
At 31 December 2023, no Directors (2022: no Directors) had retirement benefits accruing under the defined contribution pension
scheme in respect of qualifying service. During the year ended 31 December 2023, one Director exercised share options (2022: two
Directors).
8. Other finance costs
Interest expense on subordinated liabilities
Net interest received on interest rate swap
Unrealised losses on interest rate swap
Amortisation of arrangement costs, discount on issue and fair value hedging adjustment of
subordinated liabilities
Interest expense on lease liabilities
Other interest expense
Total
2023
£m
10.5
—
—
0.2
3.8
—
14.5
2022
£m
restated1
17.8
(2.2)
2.4
(0.8)
3.1
0.1
20.4
Note:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
216
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Strategic Report / Governance / Financial statements
9. Gain on disposal of business
On 6 September 2023, the Group announced that it had entered into an agreement with Royal & Sun Alliance Insurance Limited
(“RSA”), a wholly-owned subsidiary of Intact Financial Corporation, to dispose of its brokered commercial business. The disposal was
structured through several agreements, including:
– A business transfer agreement, which related to the transfer of the new business franchise and certain operations, brands,
employees, contractors, data, third party contracts and premises, with the operational transfer targeted to occur in Q2 2024.
Certain aspects of the overall business transfer are expected to take place following the initial operational transfer, whereupon RSA
will start to write relevant business. On completion of the transaction on 26 October 2023 when the cash consideration was
received, the Group lost control of the net assets in relation to the brokered commercial business and as a result, these net assets
have been de-recognised in the consolidated statement of financial position and the gain on disposal recognised in the
consolidated statement of profit or loss.
– A quota share arrangement relating to the reinsurance of new and certain existing brokered commercial business with effect from
1 October 2023, the risk transfer date, which transferred the economics of the business from this date. The arrangement included
business written but not yet earned prior to the risk transfer date and new policies from the risk transfer date until the date of
operational transfer. If approved by the Court, and in due course, a subsequent insurance business transfer scheme to transfer
these policies to RSA will take place under Part VII of the Financial Services and Markets Act 2000.
– Certain administration and transitional services arrangements to be entered into in connection with operational transfer, including
the servicing of policies during the transition.
The Group has retained the back book in relation to business written and earned before 1 October 2023.
On 19 October 2023, the Group's shareholders approved the sale transaction. The cash consideration of £520 million was received on
26 October 2023,
There is potential for further consideration of up to £30 million contingent upon certain earn-out provisions relating to the financial
performance of the business. At 31 December 2023, the fair value of the contingent consideration was determined to be nil due to
inherent uncertainty at this point on how the disposed business will perform until the conclusion of the earn out period.
A pre-tax gain on disposal of £443.9 million, net of transaction costs, has been recognised in the consolidated statement of profit or
loss.
The operations of the brokered commercial business have not been classified as discontinued operations since they do not represent
a separate major line of business or geographical operations.
The proceeds from the transaction will be used to enhance the capital strength of the Group and for general corporate purposes.
Cash consideration
Less: Net assets disposed of
Transaction cost
Assets written-off and impaired as part of disposal
Gain on disposal – pre-tax impact
The table below summarises the statement of financial position of brokered commercial business as at date of disposal:
Assets
Intangible assets
Property, plant & equipment
Right of use assets
Prepayments, accrued income and other assets
Total assets
Liabilities
Trade and other payables
Provisions
Lease liabilities
Total liabilities
Net assets disposed of
2023
£m
520.0
(6.3)
(50.3)
(19.5)
443.9
2023
£m
6.9
0.5
0.6
0.2
8.2
(0.1)
(0.8)
(1.0)
(1.9)
6.3
Direct Line Group Annual Report and Accounts 2023
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217217
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
10. Tax charge/(credit)
Current taxation:
Charge/(credit) for the year
Over-provision in respect of prior period
Deferred taxation (note 13):
Charge/(credit) for the year
Under-provision for the year-provision in respect of prior year
Current taxation
Deferred taxation (note 11)
Tax charge/(credit) for the year
2023
£m
24.3
(2.6)
21.7
29.5
3.3
32.8
21.7
32.8
54.5
2022
£m
restated1
(9.8)
(3.0)
(12.8)
(61.0)
3.9
(57.1)
(12.8)
(57.1)
(69.9)
Note:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
The following table analyses the difference between the actual income tax (credit)/charge and the expected income tax (credit)/
charge computed by applying the standard rate of corporation tax of 23.5%1 (2022: 19.0%).
Profit/(loss) for the year
Expected tax charge/(credit)
Effects of:
Previously unrecognised capital losses now offset against capital gains
Disallowable expenses
Non-taxable items
Movement in deferred tax asset/liability not recognised
Higher tax rates on overseas earnings
Effect of change in corporation taxation rate1
Under-provision in respect of prior year
Revaluation of property
Deductible Tier 1 notes coupon payment in equity
Tax charge/(credit) for the year
Effective income tax rate
2023
£m
277.4
65.2
(12.4)
3.7
(0.1)
(0.1)
—
0.2
0.7
1.2
(3.9)
54.5
19.6%
2022
£m
restated2
(301.8)
(57.3)
—
3.4
(0.3)
—
0.1
(15.2)
0.9
1.7
(3.2)
(69.9)
23.2%
Notes:
1.
In the Finance Act 2021, the UK Government enacted, on 10 June 2021, an increase in the UK corporation tax rate from 19% to 25% effective from 1
April 2023. As a consequence the closing deferred tax assets and liabilities have been recognised at the tax rates expected to apply when the
temporary differences reverse. The impact of these changes on the tax (credit)/charge for the year is set out in the table above.
2. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
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Strategic Report / Governance / Financial statements
11. Current and deferred tax
The aggregate current and deferred tax relating to items that are credited to equity is £0.3 million (2022: £0.2 million).
The table below analyses the major deferred tax assets and liabilities recognised by the Group and movements thereon.
At 1 January 2022 (restated¹)
(Charge)/credit to the statement of profit or loss
Credit to other comprehensive income
Credit direct to equity
At 31 December 2022¹
(Charge)/credit to the statement of profit or loss
Credit direct to equity
At 31 December 2023
Provisions and
other
temporary
differences
Retirement
benefit
obligations
Depreciation
in excess of
capital
allowances
Share-
based
payments
Transitional
adjustments
on adoption
of IFRS 9
Transitional
adjustments
on adoption
of IFRS 17
£m
£m
£m
£m
£m
£m
6.0
(1.4)
—
—
(3.1)
0.2
2.5
—
(4.7)
(4.3)
—
—
3.5
(1.7)
—
—
(1.7)
67.1
—
—
29.4
(2.8)
—
—
Total
£m
29.4
57.1
2.5
—
4.6
(0.4)
(9.0)
1.8
65.4
26.6
89.0
(2.9)
—
1.7
0.1
—
2.0
—
(0.3)
(7.0)
0.9
0.3
3.0
(6.3)
(26.6)
(32.8)
—
59.1
—
—
0.3
56.5
Note:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
A deferred tax asset of £59.1 million (2022: £65.4 million) relates to future tax relief on adoption of IFRS 9 which is spread evenly over
10 years from 1 January 2023. A deferred tax asset of £Nil (2022: £26.6 million) relates to tax relief on adoption of IFRS17 which is
applicable in 2023. Other deferred tax assets will be recovered over a period of 1 to 12 years.
As at 31 December 2023, the Group has an unrecognised deferred tax asset of £0.1 million (2022: £13.0 million) in relation to capital
losses, of which £Nil (2022 £11.8 million) relates to realised losses and £0.1 million (2022 £1.2 million) related to unrealised losses.
Deferred tax assets have been recognised in respect of IFRS 9 transitional tax adjustments and all other temporary differences
because it is probable that these assets will be recovered, with the exception of unrecognised capital losses, where recovery is
uncertain as it is dependent on realising future capital gains. The deferred tax asset in respect of IFRS 9 transitional tax adjustments
is relieved for tax over 10 years from the adoption of IFRS 9 on 1 January 2023. Other deferred tax assets will be recovered over a
period of one to 12 years.
Recovery of deferred tax assets is dependent on future taxable profits, which are expected to arise in future years without the
combination of factors that led to the trading losses for 2023 and 2022, and without the one off gain on disposal of the brokered
commercial business in 2023. Probability of recovery has been assessed based on the group’s forecasts for the next four years which
anticipate a return to profitability, and it is assumed that sufficient profits will continue to be realised in subsequent years for offset of
the remaining future tax deductions.
12. Dividends and appropriations
Amounts recognised as distributions to equity holders in the period:
2022 interim dividend of 7.6 pence per share paid on 9 September 2022
2021 final dividend of 15.1 pence per share paid on 17 May 2022
Coupon payments in respect of Tier 1 notes1
Proposed dividends:
2023 final dividend of 4 pence per share
2023
£m
Full year 2022
£m
—
—
—
16.6
16.6
99.0
198.9
297.9
16.6
314.5
52.5
—
Note:
1. Coupon payments on the Tier 1 notes issued in December 2017 are treated as an appropriation of retained profits and, accordingly, are accounted
for when paid.
The proposed final dividend for 2023 has not been included as a liability in these financial statements.
The trustees of the employee share trusts waived their entitlement to dividends on shares held to meet obligations arising on the
Long-Term Incentive Plan, Deferred Annual Incentive Plan and Restricted Share Plan awards, which reduced the total dividends paid
for the year ended 31 December 2022 by £2.0 million. No dividends were paid or proposed during the year ended 31 December
2023.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
219219
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
13. Earnings/(loss) per share
Earnings per share is calculated by dividing earnings attributable to the owners of the Company less coupon payments in respect of
Tier 1 notes by the weighted average number of Ordinary Shares during the year.
Basic
Basic earnings per share is calculated by dividing the earnings attributable to the owners of the Company less coupon payments in
respect of Tier 1 notes by the weighted average number of Ordinary Shares during the period, excluding Ordinary Shares held as
employee trust shares.
Diluted
Diluted earnings per share is calculated by dividing the earnings attributable to the owners of the Company less coupon payments
in respect of Tier 1 notes by the weighted average number of Ordinary Shares during the period, excluding Ordinary Shares held as
employee trust shares, adjusted for the dilutive potential Ordinary Shares. The Company has share options and contingently issuable
shares as categories of dilutive potential Ordinary Shares. All awards are to be satisfied using market-purchased shares.
Earnings/(loss) attributable to the owners of the Company
Coupon payments in respect of Tier 1 notes
Profit/(loss) for the calculation of earnings per share
Weighted average number of Ordinary Shares in issue for the purpose of basic earnings per share
(millions)
Effect of dilutive potential of share options and contingently issuable shares (millions)2
Weighted average number of Ordinary Shares for the purpose of diluted earnings per share (millions)
Basic earnings/(loss) per share (pence)
Diluted earnings/(loss) per share (pence)
2023
£m
222.9
(16.6)
206.3
2022
£m
restated1
(231.9)
(16.6)
(248.5)
1,299.0
17.3
1,304.3
—
1,316.3
15.9
15.7
1,304.3
(19.1)
(19.1)
Note:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
2. As at 31 December 2022, 15.0 million share options and contingently issuable shares are not included in the calculation of diluted earnings per
share because they are antidilutive. These options could potentially dilute basic earnings per share in the future.
During 2022 the Group repurchased 19,324,855 Ordinary Shares for an aggregate consideration of £50.1 million.
The shares were subsequently cancelled giving rise to a capital redemption reserve of an equivalent amount to their nominal value
as required by the Companies Act 2006.
14. Net asset value per share and return on equity
Net asset value per share is calculated as total shareholders' equity (which excludes Tier 1 notes) 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:
Net assets
Goodwill and other intangible assets2
Tangible net assets
Number of Ordinary Shares (millions)
Shares held by employee trusts (millions)
Closing number of Ordinary Shares (millions)
Net asset value per share (pence)
Tangible net asset value per share (pence)
2023
£m
2,058.2
(818.6)
1,239.6
1,311.4
(13.7)
1,297.7
158.6
95.5
2022
£m
restated1
1,845.3
(822.2)
1,023.1
1,311.4
(13.2)
1,298.2
142.1
78.8
Notes:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
2. Goodwill has arisen on acquisition by the Group of subsidiary companies and on acquisition of new accident repair centres. Intangible assets
primarily comprise software development costs:
220
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Return on equity
The table below details the calculation of return on equity:
Earnings/(losses) attributable to the owners of the Company
Coupon payments in respect of Tier 1 notes
Profit/(loss) for the calculation of return on equity
Opening shareholders' equity
Closing shareholders' equity
Average shareholders' equity
Return on equity
2023
£m
222.9
(16.6)
206.3
1,845.3
2,058.2
1,951.8
10.6%
2022
£m
restated1
(231.9)
(16.6)
(248.5)
2,450.6
1,845.3
2,148.0
(11.6%)
Note:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
15. Goodwill and other intangible assets
Cost
At 1 January 2022
Acquisitions and additions
Disposals and write-off
At 31 December 2022
Acquisitions and additions
Disposals and write-off1
At 31 December 2023
Accumulated amortisation and impairment
At 1 January 2022
Amortisation charge for the year
Disposals and write-off
Impairment losses2
At 31 December 2022
Amortisation charge for the year
Disposals and write-off1
Impairment losses2
At 31 December 2023
Carrying amount
At 31 December 2023
At 31 December 2022
Goodwill
£m
Other
intangible
assets
£m
Total
£m
215.0
1,182.1
1,397.1
—
—
108.4
(71.7)
108.4
(71.7)
215.0
1,218.8
1,433.8
3.6
(10.1)
124.1
(14.1)
127.7
(24.2)
208.5
1,328.8
1,537.3
—
—
—
—
—
—
—
—
—
574.6
92.7
(71.7)
16.0
611.6
100.6
(8.1)
14.6
718.7
574.6
92.7
(71.7)
16.0
611.6
100.6
(8.1)
14.6
718.7
208.5
215.0
610.1
607.2
818.6
822.2
Notes:
1. Disposals and write-off of goodwill arose from the sale of the brokered commercial business . The sale of the brokered commercial business is
2.
detailed further in note 9. Disposals and write-off of other intangible assets include fully amortised intangible assets no longer utilised by the Group
in its operating activities.
Impairment losses relate to capitalised software development costs for ongoing IT projects primarily relating to development of new systems, and
intangible assets no longer utilised by the Group in its operating activities following the sale of the brokered commercial business. Of this amount,
£5.4 million (2022: £16.0 million) is included within Other operating expenses and £9.2 million (2022: £nil) is included within Gain on disposal of
business.
Included within other intangible assets are assets still under development of £100.8 million (2022: £95.1 million). The increase of £5.7
million is primarily due to the building of a new Home platform and development of new capabilities for the Group's Motor platform.
The assets still under development at 31 December 2023 relate mainly to finance and core technology projects which are expected
to be ready for use in 2024. These assets are tested for impairment during the Group's annual impairment review at each reporting
date.
Other intangible assets relate mainly to internally generated software. For year ended 31 December 2023, other intangible assets
additions, which are internally generated, are £122.8 million (2022: £106.1 million).
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
221221
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
15. Goodwill and other intangible assets continued
Goodwill arose on the acquisition of U K Insurance Limited (£141.0 million), Churchill Insurance Company Limited (£70.0 million) and
accident repair networks (£4.0 million) and is allocated to reportable segments. The addition to goodwill in the year ended
31 December 2023 of £3.6 million arose from the purchase of By Miles Group Limited ("By Miles") and the purchase of the business
and assets of a vehicle repair centre to further expand the Group's wholly owned DLG Auto Services network. The acquisitions are
further detailed in note 38.
Goodwill is allocated to cash generating units (CGUs) for the purpose of impairment testing. The allocation is made to those CGUs
that are expected to benefit from the business combination in which the goodwill arose. The units are identified at the lowest level
at which goodwill is monitored for internal management purposes, being the reportable segments (Note 4).
The Group's testing for impairment of goodwill and intangible assets includes the comparison of the recoverable amount of each
CGU to which goodwill and other intangible assets have been allocated with its carrying value and is updated annually for goodwill,
at each reporting date for other intangibles, and whenever there are indications of impairment.
A segment-level summary of the goodwill allocation is presented below:
Motor
Home
Rescue and other personal lines
Commercial
Total
2023
£m
134.0
45.8
28.7
—
208.5
2022
£m
130.4
45.8
28.7
10.1
215.0
There is no goodwill impairment for the year ended 31 December 2023 (2022: £nil).
Goodwill is tested for impairment by comparing the carrying value of the CGU to which the goodwill relates to the recoverable value
of that CGU. The recoverable amount is the value in use of the CGU unless otherwise stated.
Value in use is calculated as the discounted value of expected future profits of each business, using the Group's strategic plan
covering a five year period. The long-term growth rates have been based on gross domestic product rates adjusted for inflation. The
risk discount rates incorporate observable market long-term government bond yields and average industry betas adjusted for an
appropriate risk premium based on independent analysis.
Key assumptions used in the value in use calculation are presented below:
Segment
Motor
Home
Rescue and other personal lines
Commercial
Assumptions 2023
Assumptions 2022
Terminal
growth rate
Pre-tax
discount rate
Terminal
growth rate
Pre-tax
discount rate
%
1.5
1.5
1.5
%
11.3
11.3
11.3
%
1.5
1.5
1.5
—
—
1.5
%
11.4
11.4
11.4
11.4
Management considers that no reasonably possible changes to the key assumptions would reduce a CGU’s headroom to £nil.
Sensitivity information on the key assumptions have been presented below, as management consider it to be helpful for users:
Segment
Motor
Home
Rescue and other personal lines
Change to key assumptions needed to reduce headroom to nil
Headroom
under key
assumptions
Reduction to
future profits in
the Groups
strategic plan2
Reduction in
terminal
growth rate
Increase in pre-
tax discount
rate
£m
1,333.0
307.8
508.6
%
41.5
58.8
83.6
% (abs)
12.2
35.1
n/a1
% (abs)
6.2
12.0
34.1
1. No change in this metric could reduce the headroom to nil.
2.
In the equivalent disclosure included within the 2022 annual report and accounts, the 'discount in forecast pre-tax profits' sensitivity metric
incorrectly referenced a 1% movement, rather than the 10% sensitivity scenario reflected in the figures in the table.
222
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
16. Property, plant and equipment
Cost
At 1 January 2022
Additions
Disposals
Assets held for sale
At 31 December 2022
Acquisition of subsidiary
Additions
Disposals
At 31 December 2023
Accumulated depreciation and impairment
At 1 January 2022
Depreciation charge for the year
Disposals
Assets held for sale
At 31 December 2022
Depreciation charge for the year
Disposals
At 31 December 2023
Carrying amount
At 31 December 2023
At 31 December 2022
Strategic Report / Governance / Financial statements
Land and
buildings
Other
equipment
£m
£m
Total
£m
56.7
185.3
242.0
—
—
(19.8)
36.9
—
—
—
11.7
(7.0)
(15.8)
174.2
2.7
18.9
(8.8)
11.7
(7.0)
(35.6)
211.1
2.7
18.9
(8.8)
36.9
187.0
223.9
4.4
0.8
—
(0.6)
4.6
0.5
—
5.1
123.8
11.6
(5.5)
(7.1)
128.2
12.4
(5.5)
(7.7)
122.8
127.4
10.5
(6.1)
11.0
(6.1)
127.2
132.3
31.8
32.3
59.8
51.4
91.6
83.7
The Group is satisfied that the aggregate fair value of property, plant and equipment is not less than its carrying value.
17. Right-of-use assets
Cost
At 1 January 2022
Additions
Disposals
At 31 December 2022
Additions
Disposals
At 31 December 2023
Accumulated depreciation and impairment
At 1 January 2022
Depreciation charge for the year
Disposals
At 31 December 2022
Depreciation charge for the year
Disposals
At 31 December 2023
Carrying amount
At 31 December 2023
At 31 December 2022
Property Motor vehicles
IT equipment
£m
£m
£m
116.6
4.4
—
121.0
30.9
(6.9)
145.0
44.2
7.1
—
51.3
9.1
(5.8)
54.6
10.9
2.4
(3.7)
9.6
5.5
(5.0)
10.1
7.4
2.6
(3.7)
6.3
2.8
(4.7)
4.4
1.2
—
(1.2)
—
—
—
—
1.0
0.2
(1.2)
—
—
—
—
Total
£m
128.7
6.8
(4.9)
130.6
36.4
(11.9)
155.1
52.6
9.9
(4.9)
57.6
11.9
(10.5)
59.0
90.4
69.7
5.7
3.3
—
—
96.1
73.0
The average contract duration at inception for Property is 20 years, and for Motor vehicles is three years. The maturity analysis of lease
liabilities is presented in note 36.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
223223
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
18. Investment property
At 1 January 2022
Capitalised expenditure
Fair value adjustments
At 31 December 2022¹
Capitalised expenditure
Fair value adjustments
At 31 December 2023¹
Retail
Retail
warehouse Supermarkets
Industrials
£m
£m
£m
£m
Hotels
£m
Alternative
sector
£m
26.6
22.7
56.9
134.2
58.4
18.2
0.3
(1.6)
25.3
0.1
0.2
(1.6)
21.3
—
(1.0)
(0.5)
24.4
20.8
—
0.1
(5.8)
(22.3)
—
(8.1)
—
0.3
51.1
—
(4.0)
47.1
112.0
0.4
3.3
115.7
50.3
—
0.2
50.5
18.5
—
0.1
18.6
Total
£m
317.0
0.6
(39.1)
278.5
0.5
(1.9)
277.1
Note:
1. The cost included in the carrying value at 31 December 2023 is £217.0 million (2022: £216.4 million).
The investment properties are measured at fair value derived from valuation work carried out at the statement of financial position
date by independent property valuers. The valuation conforms to international valuation standards. The fair value was determined
using a methodology based on recent market transactions for similar properties, which have been adjusted for the specific
characteristics of each property within the portfolio. This approach to valuation is consistent with the methodology used in the year
ended 31 December 2022.
Lease agreements with tenants are drawn up in line with local practice and the Group has no exposure to leases that include
contingent rents.
The following tables provide a sensitivity analysis for +/- 5 basis points and +/- 50 basis points movement in tenants' rental income
and impact on property valuation in sterling:
2023
Equivalent yield
Value
2022
Equivalent yield
Value
-50bp
5.31
253.5
-5bp
5.81
274.6
Baseline as at
31 December
2023
+5bp
+50bp
5.87
277.1
5.92
279.8
6.42
305.7
-50bp
4.98
-5bp
5.47
Baseline as at
31 December
2022
5.53
+5bp
5.58
+50bp
6.07
253.5
275.4
278.5
280.9
308.1
%
£m
%
£m
19. Subsidiaries
The principal subsidiary undertakings of the Group, over which it exercises 100% voting power, are shown below. Their capital
consists of Ordinary Shares which are unlisted. All subsidiaries (a full list of which is included in note 2 of the Parent Company's
financial statements) are included in the Group's consolidated financial statements.
Name of subsidiary
DL Insurance Services Limited
U K Insurance Limited
Company
registration
number
03001989
01179980
Place of incorporation
and operation
Principal activity
United Kingdom
Management services
United Kingdom
General insurance
The Group acquired four subsidiary entities in 2023. These were: By Miles Group Limited, By Miles Limited, By Miles Payment Services
Limited and By Miles Technology Services Limited. It did not dispose of any subsidiaries in the year ended 31 December 2023
(31 December 2022: 10-15 Livery Street was dissolved on 29 December 2022).
224
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Strategic Report / Governance / Financial statements
20. Insurance contract assets and liabilities - gross and reinsurance
Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See
notes 1 and 40 for further details.
20.1 Insurance and reinsurance contract assets and liabilities by segment
Motor
£m
Home
£m
RoPL1
Commercial
Total Group -
ongoing
operations1
Brokered
commercial
business and
run-off
partnerships1
£m
£m
£m
£m
2023
Insurance contract assets
Insurance contract liabilities
Net insurance contract liabilities
Reinsurance contract assets
Reinsurance contract liabilities
—
—
—
(3,305.9)
(583.1)
(155.9)
(3,305.9)
1,076.4
(583.1)
36.6
(155.9)
3.6
(16.9)
(4.7)
(1.5)
Net reinsurance contract assets
1,059.5
31.9
2.1
—
(250.1)
(250.1)
23.0
(3.4)
19.6
—
(4,295.0)
(4,295.0)
1,139.6
(26.5)
1,113.1
5.4
(943.8)
(938.4)
206.4
(90.1)
116.3
Total Group
£m
5.4
(5,238.8)
(5,233.4)
1,346.0
(116.6)
1,229.4
2022
Insurance contract assets
Insurance contract liabilities
Net insurance contract liabilities
Reinsurance contract assets
Reinsurance contract liabilities
—
—
—
(2,860.2)
(567.0)
(171.5)
(2,860.2)
956.1
(567.0)
19.1
(171.5)
1.4
—
(5.2)
(1.2)
Net reinsurance contract assets
956.1
13.9
0.2
—
(214.9)
(214.9)
20.0
(2.6)
17.4
—
(3,813.6)
(3,813.6)
996.6
(9.0)
987.6
17.3
17.3
(812.2)
(794.9) (4,608.5)
(4,625.8)
78.3
(4.9)
73.4
1,074.9
(13.9)
1,061.0
Motor
£m
Home
£m
RoPL1
Commercial
Total Group -
ongoing
operations1
Brokered
commercial
business and
run-off
partnerships1
Total Group
£m
£m
£m
£m
£m
2023
Insurance contracts assets/(liabilities)
Remaining coverage
Excluding loss component
Loss component
Incurred claims
Estimate of present value cash flows
Risk adjustment
(514.7)
(514.7)
(177.9)
(177.9)
—
—
(2,791.2)
(2,647.6)
(405.2)
(385.3)
(143.6)
(19.9)
(84.2)
(84.2)
—
(71.7)
(68.8)
(2.9)
Total insurance contracts assets/(liabilities)
(3,305.9)
(583.1)
(155.9)
2022
Insurance contracts assets/(liabilities)
Remaining coverage
Excluding loss component
Loss component
Incurred claims
Estimate of present value cash flows
Risk adjustment
(451.7)
(451.7)
(141.5)
(141.5)
—
—
(2,408.5)
(2,259.6)
(425.5)
(400.4)
(148.9)
(25.1)
(91.7)
(91.7)
—
(79.8)
(76.0)
(3.8)
Total insurance contracts assets/(liabilities)
(2,860.2)
(567.0)
(171.5)
(91.9)
(91.9)
—
(158.2)
(150.0)
(8.2)
(250.1)
(868.7)
(868.7)
—
(3,426.3)
(3,251.7)
(174.6)
(4,295.0)
(283.8)
(283.8)
—
(1,152.5)
(1,152.5)
—
(3,874.0)
(654.6) (4,080.9)
(622.3)
(32.3)
(938.4)
(5,233.4)
(206.9)
(86.4)
(86.4)
—
(128.5)
(119.4)
(9.1)
(214.9)
(771.3)
(771.3)
—
(3,042.3)
(2,855.4)
(186.9)
(3,813.6)
(224.0)
(224.0)
—
(570.9)
(538.9)
(32.0)
(995.3)
(995.3)
—
(3,613.2)
(3,394.3)
(218.9)
(794.9) (4,608.5)
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
225225
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
20. Insurance contract assets and liabilities - gross and reinsurance continued
Motor
£m
Home
£m
RoPL1
Commercial
Total Group -
ongoing
operations1
Brokered
commercial
business and
run-off
partnerships1
Total Group
£m
£m
£m
£m
£m
2023
Reinsurance contracts assets/(liabilities)
Remaining coverage
Excluding loss recovery component
Loss recovery component
Incurred claims
Estimate of present value cash flows
Risk adjustment
(16.9)
(16.9)
—
1,076.4
1,012.7
63.7
(4.7)
(4.7)
—
36.6
32.8
3.8
Total reinsurance contracts assets/(liabilities)
1,059.5
31.9
2022
Reinsurance contracts assets/(liabilities)
Remaining coverage
Excluding loss recovery component
Loss recovery component
Incurred claims
Estimate of present value cash flows
Risk adjustment
13.3
13.3
—
942.8
866.6
76.2
(5.2)
(5.2)
—
19.1
13.5
5.6
Total reinsurance contracts assets/(liabilities)
956.1
13.9
(1.5)
(1.5)
—
3.6
3.1
0.5
2.1
(1.2)
(1.2)
—
1.4
0.6
0.8
0.2
(3.4)
(3.4)
—
23.0
21.0
2.0
19.6
(26.5)
(26.5)
—
1,139.6
1,069.6
70.0
1,113.1
(90.1)
(90.1)
—
206.4
194.8
11.6
116.3
(116.6)
(116.6)
—
1,346.0
1,264.4
81.6
1,229.4
(2.6)
(2.6)
—
20.0
17.2
2.8
17.4
4.3
4.3
—
983.3
897.9
85.4
987.6
(4.9)
(4.9)
—
78.3
68.4
9.9
73.4
(0.6)
(0.6)
—
1,061.6
966.3
95.3
1,061.0
Note:
1. Ongoing operations and run-off partnerships – See glossary on pages 261 to 263 for definitions and appendix A – Alternative performance measures
on pages 265 to 268 for reconciliation to financial statement line items.
226
226
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
20.2.1 Roll-forward of net asset or liability for insurance contracts issued and reinsurance contracts held showing
the liability for incurred claims – total Group
Insurance contracts issued - liability for
incurred claims
Reinsurance contracts held - amounts
recovered on incurred claims
Estimate of
present value
cash flows
Risk
adjustment
for non-
financial risk
£m
£m
Estimate of
present value
cash flows
Risk
adjustment
for non-
financial risk
£m
£m
Total
£m
Total
£m
Net
Total
£m
—
—
— 1,043.8
99.7
1,143.5
1,143.5
(3,470.8)
(221.3)
(3,692.1)
—
—
—
(3,692.1)
(3,470.8)
(221.3)
(3,692.1) 1,043.8
99.7
1,143.5
(2,548.6)
(2,369.9)
50.2
(65.4)
67.8
(2,435.3)
118.0
75.6
33.6
(8.4)
16.6
(21.0)
(2,319.7)
2.4
(2,317.3)
100.8
(4.4)
92.2
12.6
(8.4)
96.4
(2,343.1)
130.6
(8.4)
(2,220.9)
102.4
102.4
(101.5)
(101.5)
0.9
(2,217.3)
2.4
(2,214.9)
(0.7)
(4.4)
(5.1)
(2,220.0)
Insurance/reinsurance contract assets as at 1
January 2022
Insurance/reinsurance contract liabilities as at
1 January 2022
Net insurance/reinsurance contract
liabilities/assets as at 1 January 2022
Insurance service expenses:
Incurred claims/claims recovered and other
attributable expenses
Past service – incurred claims
Effect of non-performance risk of reinsurers
Insurance service result1
Insurance/reinsurance finance expenses/
income
Total amounts recognised in
comprehensive income
Cash flows:
Claims and other expenses paid/recovered
2,293.8
2,293.8
2,293.8
2,293.8
(76.8)
(76.8)
(76.8)
(76.8)
2,217.0
2,217.0
Total cash flows
Insurance/reinsurance contract assets as at
31 December 2022
Insurance/reinsurance contract liabilities as at
31 December 2022
Net insurance/reinsurance contract
liabilities/assets as at 31 December 2022
Insurance service expenses:
Incurred claims/claims recovered and other
attributable expenses
—
—
—
966.3
95.3
1,061.6
1,061.6
(3,394.3)
(218.9)
(3,613.2)
—
—
—
(3,613.2)
(3,394.3)
(218.9)
(3,613.2)
966.3
95.3
1,061.6
(2,551.6)
(2,787.8)
(72.5)
(2,860.3)
464.6
27.7
492.3
(2,368.0)
Past service – incurred claims
(165.4)
84.5
(80.9)
(21.7)
(41.4)
(63.1)
(144.0)
Effect of non-performance risk of reinsurers
Insurance service result1
Insurance/reinsurance finance expenses/
income
Total amounts recognised in
comprehensive income
Cash flows:
(2,953.2)
12.0
(2,941.2)
(5.8)
437.1
(5.8)
(5.8)
(13.7)
423.4
(2,517.8)
(193.8)
(193.8)
28.0
28.0
(165.8)
(3,147.0)
12.0
(3,135.0)
465.1
(13.7)
451.4
(2,683.6)
Claims and other expenses paid/recovered
2,667.3
2,667.3
2,667.3
2,667.3
(167.0)
(167.0)
(167.0)
2,500.3
(167.0)
2,500.3
Total cash flows
Insurance/reinsurance contract assets as at
31 December 2023
Insurance/reinsurance contract liabilities as at
31 December 2023
Net insurance/reinsurance contract
liabilities/assets as at 31 December 2023
—
—
— 1,264.4
81.6
1,346.0
1,346.0
(3,874.0)
(206.9) (4,080.9)
—
—
—
(4,080.9)
(3,874.0)
(206.9) (4,080.9)
1,264.4
81.6
1,346.0
(2,734.9)
Note:
1- The amounts recognised in Insurance service result for the year of £2,941.2 million (2022: £2,317.3 million) does not include other directly attributable
expenses of £907.9 million (2022: £871.0 million) and other directly attributable claims income of £42.8 million (2022: £42.8 million) as these are not
recognised within liabilities for incurred claims. Please see note 5.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
227227
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
20. Insurance contract assets and liabilities - gross and reinsurance continued
20.2.2 Roll-forward of net asset or liability for insurance contracts issued and reinsurance contracts held showing
the liability for remaining coverage – total Group
Insurance contracts issued - liability for
remaining coverage
Reinsurance contracts held - asset for
remaining coverage
Excluding
loss
component
Loss
component
£m
£m
Excluding
loss recovery
component
Loss recovery
component
£m
£m
Total
£m
Total
£m
Net
Total
£m
Insurance/reinsurance contract assets as at
1 January 2022
Insurance/reinsurance contract liabilities as at
1 January 2022
Net insurance/reinsurance contract
liabilities/assets as at 1 January 2022
Insurance revenue/reinsurance expenses
Insurance service expenses:
Incurred claims/claims recovered and other
attributable expenses
Losses/ loss recovery and reversal of losses
from onerous contracts
Insurance service result
Insurance/reinsurance finance expenses/
income
Total amounts recognised in
comprehensive income
Cash flows:
Premium received/paid
Total cash flows
Insurance/reinsurance contract assets as at
31 December 2022
Insurance/reinsurance contract liabilities as at
31 December 2022
Net insurance/reinsurance contract
liabilities/assets as at 31 December 2022
Insurance revenue/reinsurance expenses
Insurance service expenses:
Incurred claims/claims recovered and other
attributable expenses
Losses/ loss recovery and reversal of losses
from onerous contracts
Insurance service result
Insurance/reinsurance finance expenses/
income
Total amounts recognised in
comprehensive income
Cash flows:
Premium received/paid
Total cash flows
Insurance/reinsurance contract assets as at
31 December 2023
Insurance/reinsurance contract liabilities as at
31 December 2023
Net insurance/reinsurance contract
liabilities/assets as at 31 December 2023
—
—
—
38.2
(1,033.4)
—
(1,033.4)
(3.6)
(1,033.4)
3,229.1
—
(1,033.4)
3,229.1
34.6
(165.7)
3,229.1
—
—
—
—
—
—
3,229.1
(165.7)
—
3,229.1
—
3,229.1
(165.7)
(3,191.0)
(3,191.0)
(3,191.0)
(3,191.0)
130.5
130.5
17.3
—
17.3
13.3
(1,012.6)
—
(1,012.6)
(13.9)
(995.3)
—
3,601.7
(995.3)
3,601.7
(0.6)
(470.2)
3,601.7
—
—
—
—
—
—
3,601.7
(470.2)
—
3,601.7
—
3,601.7
(470.2)
(3,758.9)
(3,758.9)
(3,758.9)
(3,758.9)
354.2
354.2
5.4
—
5.4
—
(1,157.9)
—
(1,157.9)
(116.6)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
38.2
38.2
(3.6)
(1,037.0)
34.6
(998.8)
(165.7)
3,063.4
—
—
—
—
(165.7)
3,063.4
—
—
(165.7)
3,063.4
130.5
(3,060.5)
130.5
(3,060.5)
13.3
30.6
(13.9)
(1,026.5)
(0.6)
(470.2)
(995.9)
3,131.5
—
—
—
—
(470.2)
3,131.5
—
—
(470.2)
3,131.5
354.2
354.2
(3,404.7)
(3,404.7)
—
5.4
(116.6)
(1,274.5)
(1,152.5)
—
(1,152.5)
(116.6)
—
(116.6)
(1,269.1)
228
228
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
20.3.1 Roll-forward of net asset or liability for insurance contracts issued and reinsurance contracts held showing
the liability for incurred claims – ongoing operations
Insurance contracts issued - liability for
incurred claims
Reinsurance contracts held - amounts
recovered on incurred claims
Estimate of
present value
cash flows
Risk
adjustment
for non-
financial risk
£m
£m
Estimate of
present value
cash flows
Risk
adjustment
for non-
financial risk
£m
£m
Total
£m
Total
£m
Net
Total
£m
—
—
—
959.2
89.1
1,048.3
1,048.3
(2,855.8)
(187.4)
(3,043.2)
—
—
—
(3,043.2)
(2,855.8)
(187.4)
(3,043.2)
959.2
89.1
1,048.3
(1,994.9)
(1,988.7)
(1.8)
(52.6)
53.1
(2,041.3)
51.3
(1,990.5)
0.5
(1,990.0)
68.1
31.2
(7.6)
91.7
13.7
(17.4)
(3.7)
81.8
13.8
(7.6)
88.0
(1,959.5)
65.1
(7.6)
(1,902.0)
91.4
91.4
(96.4)
(96.4)
(5.0)
(1,899.1)
0.5
(1,898.6)
(4.7)
(3.7)
(8.4)
(1,907.0)
Insurance/reinsurance contract assets as at
1 January 2022
Insurance/reinsurance contract liabilities as at
1 January 2022
Net insurance/reinsurance contract
liabilities/assets as at 1 January 2022
Insurance service expenses:
Incurred claims/claims recovered and other
attributable expenses
Past service – incurred claims
Effect of non-performance risk of reinsurers
Insurance service result1
Insurance/reinsurance finance expenses/
income
Total amounts recognised in
comprehensive income
Cash flows:
Claims and other expenses paid/recovered
1,899.5
1,899.5
1,899.5
1,899.5
(56.6)
(56.6)
(56.6)
(56.6)
1,842.9
1,842.9
Total cash flows
Insurance/reinsurance contract assets as at
31 December 2022
Insurance/reinsurance contract liabilities as at
31 December 2022
Net insurance/reinsurance contract
liabilities/assets as at 31 December 2022
Insurance service expenses:
Incurred claims/claims recovered and other
attributable expenses
—
—
—
897.9
85.4
983.3
983.3
(2,855.4)
(186.9)
(3,042.3)
—
—
—
(3,042.3)
(2,855.4)
(186.9)
(3,042.3)
897.9
85.4
983.3
(2,059.0)
(2,280.2)
(57.1)
(2,337.3)
330.9
20.7
351.6
(1,985.7)
Past service – incurred claims
(163.2)
69.4
(93.8)
(29.4)
(36.1)
(65.5)
(159.3)
Effect of non-performance risk of reinsurers
Insurance service result1
Insurance/reinsurance finance expenses/
income
Total amounts recognised in
comprehensive income
Cash flows:
(2,443.4)
12.3
(2,431.1)
(5.8)
295.7
(5.8)
(5.8)
(15.4)
280.3
(2,150.8)
(170.4)
(170.4)
27.5
27.5
(142.9)
(2,613.8)
12.3
(2,601.5)
323.2
(15.4)
307.8
(2,293.7)
Claims and other expenses paid/recovered
2,217.5
2,217.5
2,217.5
2,217.5
(151.5)
(151.5)
(151.5)
2,066.0
(151.5)
2,066.0
Total cash flows
Insurance/reinsurance contract assets as at
31 December 2023
Insurance/reinsurance contract liabilities as at
31 December 2023
Net insurance/reinsurance contract
liabilities/assets as at 31 December 2023
—
—
— 1,069.6
70.0
1,139.6
1,139.6
(3,251.7)
(174.6)
(3,426.3)
—
—
—
(3,426.3)
(3,251.7)
(174.6)
(3,426.3)
1,069.6
70.0
1,139.6
(2,286.7)
Note:
1- The amounts recognised in Insurance service result do not include other directly attributable expenses and other directly attributable claims income,
as these are not recognised within liabilities for incurred claims.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
229229
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
20. Insurance contract assets and liabilities - gross and reinsurance continued
20.3.2 Roll-forward of net asset or liability for insurance contracts issued and reinsurance contracts held showing
the liability for remaining coverage – ongoing operations
Insurance contracts issued - liability for
remaining coverage
Reinsurance contracts held - asset for
remaining coverage
Excluding
loss
component
Loss
component
£m
£m
Excluding
loss recovery
component
Loss recovery
component
£m
£m
Total
£m
Total
£m
Net
Total
£m
Insurance/reinsurance contract assets as at
1 January 2022
Insurance/reinsurance contract liabilities as at
1 January 2022
—
(762.1)
—
—
—
38.2
(762.1)
(3.4)
Net insurance/reinsurance contract
liabilities/assets as at 1 January 2022
Insurance revenue/reinsurance expenses
Insurance service expenses:
Incurred claims/claims recovered and other
attributable expenses
Losses/ loss recovery and reversal of losses
from onerous contracts
Insurance service result
Insurance/reinsurance finance expenses/
income
Total amounts recognised in
comprehensive income
Cash flows:
Premium received/paid
Total cash flows
Insurance/reinsurance contract assets as at
31 December 2022
Insurance/reinsurance contract liabilities as at
31 December 2022
Net insurance/reinsurance contract
liabilities/assets as at 31 December 2022
Insurance revenue/reinsurance expenses
Insurance service expenses:
Incurred claims/claims recovered and other
attributable expenses
Losses/ loss recovery and reversal of losses
from onerous contracts
Insurance service result
Insurance/reinsurance finance expenses/
income
Total amounts recognised in
comprehensive income
Cash flows:
Premium received/paid
Total cash flows
Insurance/reinsurance contract assets as at
31 December 2023
Insurance/reinsurance contract liabilities as at
31 December 2023
Net insurance/reinsurance contract
liabilities/assets as at 31 December 2023
(762.1)
2,609.9
—
(762.1)
2,609.9
34.8
(128.1)
2,609.9
—
—
—
— 2,609.9
—
—
—
(128.1)
2,609.9
— 2,609.9
(128.1)
(2,619.1)
(2,619.1)
—
(771.3)
(2,619.1)
(2,619.1)
97.6
97.6
—
—
—
13.3
(771.3)
(9.0)
(771.3)
2,852.9
—
(771.3)
2,852.9
4.3
(305.4)
2,852.9
—
—
—
— 2,852.9
—
—
—
(305.4)
2,852.9
— 2,852.9
(305.4)
(2,950.3)
(2,950.3)
(2,950.3)
(2,950.3)
274.6
274.6
—
—
—
—
(868.7)
—
(868.7)
(26.5)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
38.2
38.2
(3.4)
(765.5)
34.8
(128.1)
(727.3)
2,481.8
—
—
—
—
(128.1)
2,481.8
—
—
(128.1)
2,481.8
97.6
97.6
13.3
(2,521.5)
(2,521.5)
13.3
(9.0)
(780.3)
4.3
(767.0)
(305.4)
2,547.5
—
—
—
—
(305.4)
2,547.5
—
—
(305.4)
2,547.5
274.6
274.6
(2,675.7)
(2,675.7)
—
—
(26.5)
(895.2)
(868.7)
—
(868.7)
(26.5)
—
(26.5)
(895.2)
230
230
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
20.4.1 Roll-forward of net asset or liability for insurance contracts issued and reinsurance contracts held showing
the liability for incurred claims – brokered commercial business and run-off partnerships
Insurance/reinsurance contract assets as at
1 January 2022
Insurance/reinsurance contract liabilities as at
1 January 2022
Net insurance/reinsurance contract
liabilities/assets as at 1 January 2022
Insurance service expenses:
Incurred claims/claims recovered and other
attributable expenses
Past service – incurred claims
Effect of non-performance risk of reinsurers
Insurance service result1
Insurance/reinsurance finance expenses/
income
Total amounts recognised in
comprehensive income
Cash flows:
Claims and other expenses paid/recovered
Total cash flows
Insurance/reinsurance contract assets as at
31 December 2022
Insurance/reinsurance contract liabilities as at
31 December 2022
Net insurance/reinsurance contract
liabilities/assets as at 31 December 2022
Insurance service expenses:
Incurred claims/claims recovered and other
attributable expenses
Effect of non-performance risk of reinsurers
Insurance service result1
Insurance/reinsurance finance expenses/
income
Total amounts recognised in
comprehensive income
Cash flows:
Claims and other expenses paid/recovered
Total cash flows
Insurance/reinsurance contract assets as at
31 December 2023
Insurance/reinsurance contract liabilities as at
31 December 2023
Net insurance/reinsurance contract
liabilities/assets as at 31 December 2023
Insurance contracts issued - liability for
incurred claims
Reinsurance contracts held - amounts
recovered on incurred claims
Estimate of
present value
cash flows
Risk
adjustment
for non-
financial risk
£m
£m
Estimate of
present value
cash flows
Risk
adjustment
for non-
financial risk
£m
£m
Total
£m
—
—
—
84.5
10.6
Total
£m
95.1
Net
Total
£m
95.1
(615.0)
(33.9)
(648.9)
—
—
—
(648.9)
(615.0)
(33.9)
(648.9)
84.5
10.6
95.1
(553.8)
(381.2)
51.9
(12.8)
14.7
(394.0)
66.6
(329.3)
1.9
(327.4)
7.5
2.3
(0.7)
9.1
2.9
(3.6)
(0.7)
11.0
11.0
(5.1)
10.4
(1.3)
(0.7)
8.4
(5.1)
(383.6)
65.3
(0.7)
(319.0)
5.9
(318.3)
1.9
(316.4)
4.0
(0.7)
3.3
(313.1)
394.4
394.4
394.4
394.4
(20.1)
(20.1)
(20.1)
(20.1)
—
—
—
68.4
9.9
78.3
374.3
374.3
78.3
(538.9)
(32.0)
(570.9)
—
—
—
(570.9)
(538.9)
(32.0)
(570.9)
68.4
9.9
78.3
(492.6)
(507.6)
(15.4)
(523.0)
133.8
7.7
—
7.1
(5.4)
140.9
(382.1)
2.3
—
15.2
—
(509.8)
(0.3)
(510.1)
141.5
1.7
143.2
(366.9)
(23.4)
(23.4)
0.5
0.5
(22.9)
(533.2)
(0.3)
(533.5)
142.0
1.7
143.7
(389.8)
449.8
449.8
449.8
449.8
(15.6)
(15.6)
(15.6)
(15.6)
—
—
—
194.8
11.6
206.4
434.2
434.2
206.4
(622.3)
(32.3)
(654.6)
—
—
—
(654.6)
(622.3)
(32.3)
(654.6)
194.8
11.6
206.4
(448.2)
Past service – incurred claims
(2.2)
15.1
12.9
Note:
1- The amounts recognised in Insurance service result do not include other directly attributable expenses and other directly attributable claims income,
as these amounts are not recognised within liabilities for incurred claims.
Direct Line Group Annual Report and Accounts 2023
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231231
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
20. Insurance contract assets and liabilities - gross and reinsurance continued
20.4.2 Roll-forward of net asset or liability for insurance contracts issued and reinsurance contracts held showing
the liability for remaining coverage – brokered commercial business and run-off partnerships
Insurance contracts issued - liability for
remaining coverage
Reinsurance contracts held - asset for
remaining coverage
Insurance/reinsurance contract assets as at
1 January 2022
Insurance/reinsurance contract liabilities as at
1 January 2022
Net insurance/reinsurance contract
liabilities/assets as at 1 January 2022
Insurance revenue/reinsurance expenses
Insurance service expenses:
Incurred claims/claims recovered and other
attributable expenses
Losses/ loss recovery and reversal of losses
from onerous contracts
Insurance service result
Insurance/reinsurance finance expenses/
income
Total amounts recognised in
comprehensive income
Cash flows:
Premium received/paid
Total cash flows
Insurance/reinsurance contract assets as at
31 December 2022
Insurance/reinsurance contract liabilities as at
31 December 2022
Net insurance/reinsurance contract
liabilities/assets as at 31 December 2022
Insurance revenue/reinsurance expenses
Insurance service expenses:
Incurred claims/claims recovered and other
attributable expenses
Losses/ loss recovery and reversal of losses
from onerous contracts
Insurance service result
Insurance/reinsurance finance expenses/
income
Total amounts recognised in
comprehensive income
Cash flows:
Premium received/paid
Total cash flows
Insurance/reinsurance contract assets as at
31 December 2023
Insurance/reinsurance contract liabilities as at
31 December 2023
Net insurance/reinsurance contract
liabilities/assets as at 31 December 2023
Excluding
loss
component
Loss
component
£m
£m
Excluding
loss recovery
component
Loss recovery
component
£m
£m
Total
£m
—
(271.2)
(271.2)
619.2
619.2
619.2
(572.0)
(572.0)
17.3
(241.3)
(224.0)
748.8
748.8
748.8
(808.6)
(808.6)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(271.2)
(0.2)
(271.2)
619.2
(0.2)
(37.6)
—
—
619.2
—
(37.6)
619.2
(37.6)
(572.0)
(572.0)
32.9
32.9
17.3
—
(241.3)
(4.9)
(224.0)
748.8
(4.9)
(164.8)
—
—
748.8
—
(164.8)
748.8
(164.8)
(808.6)
(808.6)
79.6
79.6
5.4
—
5.4
—
(289.2)
—
(289.2)
(90.1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Net
Total
£m
—
Total
£m
—
(0.2)
(271.4)
(0.2)
(37.6)
(271.4)
581.6
—
—
—
—
(37.6)
581.6
—
—
(37.6)
581.6
32.9
32.9
(539.1)
(539.1)
—
17.3
(4.9)
(246.2)
(4.9)
(164.8)
(228.9)
584.0
—
—
—
—
(164.8)
584.0
—
—
(164.8)
584.0
79.6
79.6
(729.0)
(729.0)
—
5.4
(90.1)
(379.3)
(283.8)
—
(283.8)
(90.1)
—
(90.1)
(373.9)
232
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Direct Line Group Annual Report and Accounts 2023
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Strategic Report / Governance / Financial statements
20.5 Insurance and reinsurance contract assets and liabilities - claims development tables
Gross insurance liabilities
Accident year
Estimate of ultimate gross claims
costs:
2015
2016
2017
2018
2019
2020
2021
2022
2023
Total
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
At end of accident year
2,135.9 2,169.8 2,226.8 2,337.6 2,085.7 1,786.5 1,912.8 2,283.2 2,755.0
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
(57.4)
(95.8) (142.6) (129.6)
(72.0)
(79.4)
(5.7) 132.9
(131.5)
(63.9) (108.8)
(48.7)
(43.5)
(13.8)
(34.7)
(58.5)
(89.5)
(38.0)
(6.0)
3.7
35.9
(28.7)
(42.9)
(20.4)
25.5
14.1
(21.9)
(13.5)
1.5
23.8
1.0
(12.0)
21.6
22.4
9.2
(18.2)
Current estimate of cumulative
claims
1,843.1 1,861.4 1,940.1 2,202.6 1,988.0 1,729.2 1,872.4 2,416.1 2,755.0
Cumulative payments to date
(1,741.1) (1,797.4) (1,850.1) (1,993.2) (1,759.5) (1,414.3) (1,474.8) (1,806.2) (1,336.4)
Gross liability recognised in the
statement of financial position
2014 and prior
Claims handling provision
Adjustment for non-financial risk
Effect of discounting
Other LIC
Total
Net insurance contract liabilities
Accident year
Estimate of ultimate net claims
costs:
At end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Current estimate of cumulative
claims
Cumulative payments to date
Gross liability recognised in the
statement of financial position
2014 and prior
Claims handling provision
Adjustment for non-financial risk
Effect of discounting
Other LIC
Total
102.0
64.0
90.0
209.4
228.5
314.9
397.6
609.9
1,418.6
3,434.9
1,761.6
109.6
289.3
(1,571.6)
57.1
4,080.9
2015
2016
2017
2018
2019
2020
2021
2022
2023
Total
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
1,920.1 1,934.4 2,012.0 2,141.0 1,922.8 1,623.6 1,758.1 2,184.2 2,241.9
(79.5)
(31.4)
(95.9)
(82.2)
(37.2)
(54.0)
2.4 168.1
(63.4)
(47.2)
(61.4)
(20.7)
(40.7)
(39.2)
(13.0)
(29.4)
(43.4)
(17.7)
(24.0)
(4.5)
50.0
(21.8)
(15.2)
(27.5)
7.3
11.6
(22.8)
(10.1)
(9.4)
24.1
(1.8)
(11.6)
9.5
1.3
(3.8)
(3.6)
1,699.1 1,771.7 1,809.6 2,045.5 1,852.0 1,580.4 1,747.5 2,352.3 2,241.9
(1,671.0) (1,746.7) (1,765.8) (1,945.6) (1,718.7) (1,375.2) (1,442.8) (1,804.9) (1,088.6)
28.1
25.0
43.8
99.9
133.3
205.2
304.7
547.4
1,153.3
2,540.7
919.5
91.4
158.7
(800.7)
(174.7)
2,734.9
Direct Line Group Annual Report and Accounts 2023
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233233
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
20. Insurance contract assets and liabilities - gross and reinsurance continued
20.6 Analysis of outstanding PPO claims provisions on a discounted and an undiscounted basis
The Group settles some large bodily injury claims as PPOs rather than lump sum payments.
The table below analyses the outstanding PPO claims provisions on a discounted and an undiscounted basis at 31 December 2023
and 31 December 2022. These represent the total cost of PPOs rather than any costs in excess of purely Ogden-based settlements.
At 31 December
Gross claims
Approved PPO claims provisions
Anticipated PPOs
Total
Reinsurance
Approved PPO claims provisions
Anticipated PPOs
Total
Net of reinsurance
Approved PPO claims provisions
Anticipated PPOs
Total
Discounted Undiscounted
Discounted
Undiscounted
2023
£m
542.6
112.5
655.1
(300.1)
(79.7)
(379.8)
242.5
32.8
275.3
2023
£m
2022
£m
2022
£m
1,603.4
300.7
1,904.1
(905.2)
(228.8)
(1,134.0)
698.2
71.9
770.1
518.7
1,394.0
124.5
328.2
643.2
1,722.2
(290.5)
(84.7)
(795.3)
(242.9)
(375.2)
(1,038.2)
228.2
39.8
268.0
598.7
85.3
684.0
The provisions for PPOs have been categorised as either claims which have already been determined by the courts as PPOs
(approved PPO claims provisions) or those expected to settle as PPOs in the future (anticipated PPOs). The Group has estimated the
likelihood of large bodily injury claims settling as PPOs. The anticipated PPOs in the table above are based on historically observed
propensities adjusted for the assumed Ogden discount rate.
In the majority of cases, the inflation agreed in the settlement is the Annual Survey of Hours and Earnings SOC 6115 inflation
published by the Office for National Statistics, for which the long-term cashflow-weighted average rate is assumed to be 3.9% (2022:
4.2%). The Group has estimated a cashflow-weighted average rate of interest used for the calculation of present values as 4.6% (2022:
4.8%, which results in a real discount rate of 0.7% (2022: 0.6%). The Group will continue to review the inflation and discount rates
used to calculate these insurance reserves.
21. Prepayments, accrued income and other assets
Prepayments
Accrued income from contracts with customers and other assets
Total
2023
£m
73.8
27.7
101.5
2022
£m
restated1
83.5
21.4
104.9
Note:
1. Prior period comparatives have been restated on transition to IFRS 9 'Financial Instruments'. See notes 1 and 40 for further details.
234
234
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
22. Derivative financial instruments
Derivative assets
At fair value through profit or loss:
Foreign exchange contracts (forwards)
Interest rate swaps
Designated as hedging instruments:
Foreign exchange contracts (forwards)1
Total
Derivative liabilities
At fair value through profit or loss:
Foreign exchange contracts (forwards)
Interest rate swaps
Designated as hedging instruments:
Foreign exchange contracts (forwards)1
Total
Strategic Report / Governance / Financial statements
2023
£m
27.1
0.3
—
27.4
8.2
6.9
0.3
15.4
2022
£m
24.2
7.0
0.1
31.3
28.4
1.2
—
29.6
Note:
1. Foreign exchange contracts (forwards) are designated as cash flow hedges in relation to supplier payments.
23. Retirement benefit obligations
Defined contribution scheme
The pension charge in respect of the defined contribution scheme for the year ended 31 December 2023 was £28.7 million (2022:
£26.5 million).
Defined benefit scheme
The Group's defined benefit pension scheme was closed in 2003, although the Group remains the sponsoring employer for
obligations to current and deferred pensioners based on qualifying years' service and final salaries. The defined benefit scheme is
legally separated from the Group with a trustee who is required by law to act in the interests of the scheme and of all the relevant
stakeholders. The trustee of the pension scheme is responsible for the investment policy with regard to the assets of the scheme.
In October 2022, the trustee completed a £53.9 million bulk annuity insurance buy-in transaction whereby the assets of the pension
scheme were replaced with an insurance asset. The policy purchased is designed to provide cash flows that exactly match the value
and timing of the benefits to the defined benefit scheme’s members, so removing the risks impacting funding levels such as
changes in interest rates and inflation expectations or the performance of the previously invested assets for the members covered by
the policy. The non-insured assets are now primarily intended to cover the costs of meeting any additional liability for members of
the defined contribution section who have a defined benefit underpin that exceeds the value of the defined contribution funds as
well as being available to meet expenses.
The weighted average duration of the defined benefit obligations at 31 December 2023 is 16 years (2022: 17 years) using accounting
assumptions.
The table below sets out the principal assumptions used in determining the defined benefit scheme obligations:
Rate of increase in pension payment
Rate of increase in deferred pensions
Discount rate
Inflation rate
2023
%
2.5
2.5
4.5
3.1
2022
%
2.5
2.6
4.8
3.3
No assumption has been made for salary growth as there are no obligations in the scheme that are linked to future increases in
salaries.
Post-retirement mortality assumptions
Life expectancy at age 60 now:
Males
Females
Life expectancy at age 60 in 20 years' time:
Males
Females
2023
2022
87.0
89.0
88.9
90.8
87.2
89.2
89.2
91.0
Direct Line Group Annual Report and Accounts 2023
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235235
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
23. Retirement benefit obligations
The table below analyses the fair value of the scheme assets by type of asset.
Insurance policies1
Index-linked bonds
Government bonds
Liquidity fund2
Defined contribution section funds3
Other
Total
2023
£m
51.8
0.5
0.3
—
1.4
1.7
55.7
2022
£m
48.8
0.3
0.5
0.1
1.7
2.0
53.4
Insurance policies are valued at the present value of the related obligations.
Notes:
1.
2. The liquidity fund is an investment in an open-ended fund incorporated in the Republic of Ireland which targeted capital stability and income in the
UK. It is invested in short-term fixed income and variable rate securities (such as treasury bills) listed or traded on one or more recognised exchanges.
3. The defined contribution section funds relate to members in that section who have a defined benefit underpin that exceeds the value of the defined
contribution funds. The investments are largely in a diversified growth fund. The corresponding liability is included in the defined benefit scheme
obligation (see the movement in net pension surplus table on page 236).
The majority of debt instruments held directly or through the liquidity fund have quoted prices in active markets.
Movement in net pension surplus
At 1 January 2022
Statement of profit or loss:
Net interest income/(cost)¹
Administration costs
Statement of comprehensive income:
Remeasurement losses
Fair value of
defined benefit
scheme assets
Present value of
defined benefit
scheme
obligations
Net pension
surplus
£m
£m
108.2
(96.1)
2.1
(0.9)
(1.9)
—
£m
12.1
0.2
(0.9)
Return on plan assets excluding amounts included in the net interest on the
defined benefit asset
(53.3)
—
(53.3)
Actuarial gains on defined benefit scheme
Experience gains
Gains from change in demographic assumptions
Gains from change in financial assumptions
Benefits paid
At 31 December 2022
Statement of profit or loss:
Net interest income/(cost)¹
Administration costs
Statement of comprehensive income:
Remeasurement gains
Return on plan assets excluding amounts included in the net interest on the
defined benefit asset
Actuarial losses on defined benefit scheme
Experience losses
Gains from change in demographic assumptions
Losses from change in financial assumptions
Benefits paid
At 31 December 2023
—
—
—
(2.7)
53.4
2.5
(0.5)
0.3
0.5
42.7
2.7
(51.8)
(2.4)
—
0.3
0.5
42.7
—
1.6
0.1
(0.5)
2.7
—
2.7
—
—
—
(2.4)
55.7
(1.3)
0.4
(1.7)
2.4
(54.4)
(1.3)
0.4
(1.7)
—
1.3
Note:
1. The net interest income/(cost) in the statement of profit or loss has been included under other operating expenses.
236
236
Direct Line Group Annual Report and Accounts 2023
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Strategic Report / Governance / Financial statements
The table below details the history of the scheme for the current and prior years:
Present value of defined benefit scheme obligations
Fair value of defined benefit scheme assets
Net pension surplus
Experience (losses)/gains on scheme liabilities
Return on plan assets excluding amounts included in the net
interest on the defined benefit asset
Sensitivity analysis
2023
£m
(54.4)
55.7
1.3
(1.3)
2.7
2022
£m
(51.8)
53.4
1.6
0.3
2021
£m
(96.1)
108.2
12.1
(5.8)
(53.3)
2.2
2020
£m
(98.7)
107.7
9.0
2.4
9.0
2019
£m
(90.3)
100.0
9.7
0.4
4.4
The sensitivity analysis has been calculated by valuing the pension scheme liabilities using the amended assumptions shown in the
table below and keeping the remaining assumptions the same as disclosed in the table above, except in the case of the inflation
sensitivity where other assumptions that depend on assumed inflation have also been amended correspondingly. The pension cost
has been determined allowing for the estimated impact on the scheme's assets. Following the purchase of the insurance policy to
cover the benefits of the defined benefit section members, the scheme’s asset and liabilities move by the same amount in respect of
these members, hence has no impact on pension cost. The selection of these movements to illustrate the sensitivity of the defined
benefit obligation to key assumptions should be viewed as illustrative, rather than providing a view on the likely size of any change.
Discount rate
1.0% increase in discount rate (2022: 1.0% increase in discount rate)
1.0% decrease in discount rate (2022: 1.0% decrease in discount rate)
Inflation rate
1.0% increase in inflation rate (2022: 1.0% increase in inflation rate)
1.0% decrease in inflation rate (2022: 1.0% decrease in inflation rate)
Life expectancy
1-year increase in life expectancy
1-year decrease in life expectancy
Impact on present value
of defined benefit
scheme obligations
2023
£m
(7.4)
8.7
2.7
(2.7)
2.4
(2.4)
2022
£m
(7.3)
8.7
2.8
(2.6)
2.6
(2.6)
The most recent funding valuation of the Group's defined benefit scheme was carried out as at 1 October 2023. This showed an
excess of assets over liabilities. The Group agreed with the trustee to make contributions of up to £1.5 million per annum in 2023 and
2024, in the event that a deficit subsequently emerges on the anniversary of the funding valuation date.
At the date of signing these financial statements, no contributions are expected to be payable in 2024 (2023: £nil).
Direct Line Group Annual Report and Accounts 2023
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237237
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
24. Financial investments
Debt securities measured at fair value through the profit or loss
Corporate
Supranational
Local government
Sovereign
Total
Debt securities measured at amortised cost
Corporate
Total
Total debt securities
Of which:
Fixed interest rate2
Floating interest rate
Loans and receivables measured at amortised cost
Infrastructure debt
Commercial real estate loans
Other loans
Total loans and receivables
Unquoted equity investments measured at fair value through other comprehensive income3,4
Unquoted equity investments measured at fair value through the profit or loss3
Quoted equity investments measured at fair value through the profit or loss3
Total
2023
£m
2,530.8
25.6
0.9
680.8
3,238.1
70.6
70.6
3,308.7
2022
£m
restated1
2,605.1
25.2
5.9
511.3
3,147.5
97.2
97.2
3,244.7
3,307.5
1.2
3,231.1
13.6
214.2
145.9
3.1
363.2
18.9
0.7
0.1
3,691.6
236.8
198.9
1.6
437.3
13.3
0.8
0.3
3,696.4
Notes:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
2. The Group swaps a fixed interest rate for a floating rate of interest on its US dollar and Euro corporate debt securities by entering into interest rate
derivatives. The hedged amount at 31 December 2023 was £419.4 million (2022: £401.8 million).
3. Equity investments consist of quoted shares and insurtech-focused equity funds. The insurtech-focused equity funds are valued based on external
valuation reports received from a third-party fund manager.
4. On initial recognition the Group made an irrevocable election to classify some equity investments as FVOCI given the instruments are strategic in
nature, and are not held for trading.
Amounts arising from expected credit loss: financial investments measured at amortised cost
The table below shows the gross carrying value of financial investments in stages 1 – 3:
Stage 1
Stage 2
Stage 3
Total
Gross carrying
amount ECL allowance
2023
£m
416.8
13.6
28.9
2023
£m
(1.3)
(1.0)
(23.2)
Carrying
amount
2023
£m
415.5
12.6
5.7
Carrying
amount
Carrying
amount
31 Dec 2022
1 Jan 2022
£m
£m
509.6
514.3
17.9
7.0
15.6
8.8
459.3
(25.5)
433.8
534.5
538.7
238
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Direct Line Group Annual Report and Accounts 2023
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Strategic Report / Governance / Financial statements
The following table shows the Group's updated expected credit loss allowances for financial investments measured at amortised
cost should there be a three-notch downgrade. This reflects an immediate downgrade on the issuers current credit ratings. The key
driver of such a scenario could be a change in the economic outlook which could impact the portfolio as a whole, or a response to
an unexpected negative event, for a specific company or industry.
Infrastructure debt
Commercial real estate loans
Debt securities held at amortised cost
Other loans
Total
25. Cash and cash equivalents and borrowings
Short term deposits with credit institutions¹
Cash at bank and in hand
Cash and cash equivalents
Bank overdrafts2
Cash and cash equivalents and borrowings3
3 notch
immediate
downgrade
2023
£m
(19.2)
(10.5)
(2.7)
(0.4)
ECL
2023
£m
(16.6)
(7.7)
(0.8)
(0.4)
3 notch
immediate
downgrade
2022
£m
(20.6)
(10.2)
(3.6)
(0.3)
ECL
2022
£m
(17.0)
(6.5)
(1.0)
(0.3)
(25.5)
(32.8)
(24.8)
(34.7)
2023
£m
1,624.2
148.0
1,772.2
(82.4)
1,689.8
2022
£m
878.8
124.8
1,003.6
(65.2)
938.4
Notes:
1. This represents money market funds.
2. Bank overdrafts represent short-term timing differences between transactions posted in the records of the Group and transactions flowing through
the accounts at the bank.
3. Cash and bank overdrafts total is included for the purposes of the consolidated cash flow statement.
The effective interest rate on short-term deposits with credit institutions for the year ended 31 December 2023 was 4.57% (2022:
1.46%) and average maturity was 10 days (2022: 10 days).
Of the total amount of short-term deposits with credit institutions of £1,624.2 million (2022: £878.8 million), £241.8 million (2022: £nil)
is invested within money market funds under the 100% quota share reinsurance treaty for the brokered commercial business, which
is operated on a funds withheld basis. This entitles the reinsurer to the investment return earned on underlying collateral assets held
in money market funds. The Group has appointed a custodian for the asset while retaining ownership of the funds withheld assets
collateral.
26. Assets held for sale
Property, plant and equipment
Investment property
Total assets held for sale
2023
£m
13.9
—
13.9
2022
£m
37.0
3.9
40.9
The Group has been able to reduce the number of office sites it needs by changing the way it uses its premises so that they support
collaboration, training and teamwork rather than being an everyday place of work for most people.
Assets held for sale at 31 December 2023 relate to an office site in Leeds (including retail space within the property) that is no longer
required. At 31 December 2022, assets held for sale also included an office site and retail space in Bromley and an office site in
Ipswich that were subsequently sold during 2023.
A net impairment loss of £5.1 million (2022: £8.9 million) is included within operating expenses (as part of restructuring and one-off
costs) for the write down of the carrying value of these properties to their held for sale values.
Direct Line Group Annual Report and Accounts 2023
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239239
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
27. Share capital
Issued and fully paid: equity shares
Ordinary Shares of 10 10/11 pence each1
At 1 January
Shares cancelled following buyback2
At 31 December
2023
2022
Number of
shares
Share capital
millions
1,311.4
—
1,311.4
£m
143.1
—
143.1
Transfer to
capital
redemption
reserve3
£m
6.9
—
6.9
Number of
shares
Share capital
millions
£m
1,330.7
(19.3)
1,311.4
145.2
(2.1)
143.1
Transfer to
capital
redemption
reserve3
£m
4.8
2.1
6.9
Notes:
1. The shares have full voting, dividend and capital distribution rights (including on wind-up) attached to them; these do not confer any rights of
redemption.
2. During 2022, the Group repurchased 19,324,855 Ordinary Shares for an aggregate consideration of £50.1 million.
3. Shares bought back were subsequently cancelled giving rise to a capital redemption reserve of an equivalent amount to their nominal value as
required by the Companies Act 2006.
Additional information including the number of shares authorised for issue is available in the Directors' Report which starts on page
158.
Employee trust shares
The Group satisfies share-based payments under the Group's share plans primarily through shares purchased in the market and held
by employee share trusts.
At 31 December 2023, 13,688,971 Ordinary Shares (2022: 13,214,811 Ordinary Shares) were owned by the employee share trusts at a
cost of £29.9 million (2022: £39.0 million). These Ordinary Shares are carried at cost and at 31 December 2023 had a market value of
£24.9 million (2022: £29.2 million).
28. Other reserves
Capital reserves
Capital contribution reserve1
Capital redemption reserve2
Total
2023
£m
100.0
1,356.9
1,456.9
2022
£m
100.0
1,356.9
1,456.9
Notes:
1. Arose on the cancellation of a debt payable to a shareholder.
2. £1,350.0 million arose on the reduction of nominal value of each share in issue with a corresponding transfer to capital redemption reserve. No
further additions were made in 2023, (2022: additions of £2.1 million when shares repurchased through buyback were cancelled).
29. Tier 1 notes
Tier 1 notes
2023
£m
346.5
2022
£m
346.5
On 7 December 2017, the Group issued £350 million of fixed rate perpetual Tier 1 notes with a coupon rate of 4.75% per annum.
The Group has an optional redemption date of 7 December 2027. If the notes are not repaid on that date, a fixed rate of interest per
annum will be reset. The notes are direct, unsecured and subordinated obligations of the issuer ranking pari passu and without any
preference amongst themselves.
The Tier 1 notes are treated as a separate category within equity and the coupon payments are recognised outside of the profit after
tax result and directly in shareholders' equity.
The Group has the option to cancel the coupon payment. Cancellation becomes mandatory if the Solvency condition1 is not met at
the time of, or following, coupon payment; there is non-compliance with the SCR or the minimum capital requirement; the Group
has insufficient distributable reserves; or the relevant regulator requires the coupon payment to be cancelled.
Note:
1. All payments shall be conditional upon the Group being solvent at the time of payment and immediately after payment. The issuer will be solvent if
(i) it is able to pay its debts owed to senior creditors as they fall due and (ii) its assets exceed its liabilities.
30. Subordinated liabilities
Subordinated Tier 2 notes
2023
£m
258.8
2022
£m
258.6
On 5 June 2020, the Group issued subordinated Tier 2 notes at a fixed rate of 4.0%. The notes have a redemption date of 5 June 2032
and may be redeemed at the option of the Group commencing on 5 December 2031 until the maturity date.
240
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Strategic Report / Governance / Financial statements
The notes are unsecured and subordinated obligations of the Group and rank pari passu and without any preference among
themselves. In the event of a winding-up or of bankruptcy, they are to be repaid only after the claims of all other senior creditors have
been met and will rank at least pari passu with the claims of holders of other Tier 2 capital.
The Group has the option, in certain circumstances, to defer interest payments on the notes but to date has not exercised this right.
31. Share-based payments
The Group operates equity-settled, share-based compensation plans in the form of a Long-Term Incentive Plan ("LTIP"), a Restricted
Shares Plan, a Deferred Annual Incentive Plan ("DAIP") and Direct Line Group Share Incentive Plans, including both the Free Share
awards and a Buy-As-You-Earn Plan, details of which are set out below. All awards are to be satisfied using market-purchased shares.
Long-Term Incentive Plan
Executive Directors and certain members of senior management are eligible to participate in the LTIP with awards granted in the
form of nil-cost options. Under the plan, the shares vest at the end of a three-year period dependent upon continued employment
by the Group and also the Group achieving predefined performance conditions associated with total shareholder return ("TSR"),
return on tangible equity ("RoTE"), from 2022 emissions and from 2023 operating earnings per share ("Operating EPS"). The
Executive Directors are subject to an additional two-year holding period following the three-year vesting period.
An award was made in the year ended 31 December 2023 of 8.0 million Ordinary Shares with an estimated fair value of £10.9 million
at the 2023 grant date (2022: 4.5 million Ordinary Shares with an estimated fair value of £10.7 million).
The estimated fair value of the LTIP share awards with market-based performance conditions was calculated using a Monte Carlo
simulation model.
The table below details the inputs into the model:
Weighted average assumptions during the year:
Share price (pence)
Exercise price (pence)
Volatility of share price
Average comparator volatility
Expected life
Risk-free rate
2023
2022
139
0
32%
35%
3 years
3.54 %
243
0
29%
41%
3 years
2.09%
Expected volatility was determined by considering the actual volatility of the Group's share price since its initial public offering and
that of a group of listed UK insurance companies.
Plan participants are entitled to receive additional shares in respect of dividends paid to shareholders over the vesting period.
Therefore, no deduction has been made from the fair value of awards in respect of dividends.
Expected life was based on the contractual life of the awards and adjusted based on management's best estimate, for the effects of
exercise restrictions and behavioural considerations.
Restricted Shares Plan
The purpose of the Restricted Shares Plan is to facilitate the wider participation in Group share-based awards of eligible employees.
These awards can be granted in the form of a nil-cost option at any time during the year, generally have no performance criteria, and
vest over periods ranging up to seven years from the date of the grant, subject to continued employment. During the year awards
were made of 7.8 million Ordinary Shares (2022: 1.0 million Ordinary Shares) with an estimated fair value of £11.6 million (2022:
£2.6 million) using the market value at the date of grant.
Deferred Annual Incentive Plan
To incentivise delivery of performance over a one-year operating cycle, Executive Directors and certain members of senior
management are eligible for awards under the Annual Incentive Plan ("AIP"), of which at least 40% is granted in the form of a nil-cost
option under the DAIP with the remainder being settled in cash following year end. During the year no awards were made (2022:
1.6 million Ordinary Shares). The 2022 award had a fair value of £4.2 million using the market value at the date of grant.
The awards outstanding at 31 December 2023 have no performance criteria attached; there is a requirement that the employee
remains in employment with the Group for three years from the date of grant.
Direct Line Group Share Incentive Plans: Free Share awards
No free share awards have been granted to eligible employees since 2021.
Direct Line Group Share Incentive Plans: Buy-As-You-Earn Plan
The Buy-As-You-Earn Plan entitles employees to purchase shares from pre-tax pay for between £10 and £150 per month and receive
one matching share for every two shares purchased at nil-cost.
In the year ended 31 December 2023, matching share awards were granted of 1.0 million Ordinary Shares (2022: 0.7 million Ordinary
Shares) with an estimated fair value of £1.7 million (2022: £1.7 million). The fair value of each matching share award is estimated
using the market value at the date of grant.
Direct Line Group Annual Report and Accounts 2023
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241241
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
31. Share-based payments continued
Under the plan, the shares vest at the end of a three-year period dependent upon continued employment with the Group together
with continued ownership of the associated purchased shares up to the point of vesting.
Movement in total share awards
At 1 January
Granted during the year¹
Forfeited during the year
Exercised during the year
At 31 December
Exercisable at 31 December
Number of share awards
2023
millions
2022
millions
28.7
16.8
(8.1)
(3.4)
34.0
3.8
28.4
9.8
(4.3)
(5.2)
28.7
2.2
Note:
1.
In accordance with the rules of the LTIP, Restricted Shares Plan and DAIP, additional awards of 3.3 million shares were granted during the year
ended 31 December 2023 (2022: 2.0 million) in respect of the equivalent dividend.
In respect of the outstanding options at 31 December 2023, the weighted average remaining contractual life is 1.50 years (2022: 1.56
years). No share awards expired during the year (2022: nil).
The weighted average share price for awards exercised during the year ended 31 December 2023 was £1.63 (2022: £2.41).
The Group recognised total expenses in the year ended 31 December 2023 of £13.9 million (2022: £8.2 million) relating to equity-
settled share-based compensation plans.
Further information on share-based payments, in respect of Executive Directors, is provided in the Directors' Remuneration Report.
32. Provisions
Movement in provisions during the year
At 1 January 2023 (restated)¹
Additional provision
Utilisation of provision
Released to the statement of profit or loss
At 31 December 2023
Restructuring
Other2
£m
8.7
29.7
(7.0)
(1.9)
29.5
£m
1.5
0.3
—
(0.5)
1.3
Total
£m
10.2
30.0
(7.0)
(2.4)
30.8
Notes:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
2. Other includes a number of individually immaterial provisions.
Of the above, no amount is due to be settled outside of 12 months (2022: £Nil).
Restructuring includes a number of restructuring programmes within the Group, including office site closures and staff restructuring
along with an impairment charge. There are no material uncertainties in timings, amounts or assumptions used.
33. Trade and other payables
Accruals
Trade creditors
Other taxes
Other creditors
Deferred income
Total
2023
£m
141.6
2.2
12.3
1.1
6.4
163.6
2022
£m
restated1
132.4
2.2
7.9
1.2
3.3
147.0
Note:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
242
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Strategic Report / Governance / Financial statements
34. Notes to the consolidated cash flow statement
Profit/(loss) for the year
Adjustments for:
Net Investment return excluding investment fees
Finance costs
Net defined benefit pension scheme expense
Equity-settled share-based payment charge
Tax charge/(credit)
Depreciation and amortisation charge
Impairment of intangible assets
Impairment provision movements on non-performance reinsurance contracts
Impairment on assets held for sale
Loss on disposal of property, plant and equipment and ROU assets
Transaction costs paid on disposal of business
Profit on disposal of business
Operating cash flows before movements in working capital
Movements in working capital:
Net (increase)/decrease in reinsurance contract assets
Net (increase)/decrease in insurance contract assets
Net increase/(decrease) in reinsurance contract liabilities
Net decrease in other receivables
Net decrease in accrued income and other assets
Net increase/(decrease) in trade and other payables
Net increase/(decrease) in insurance contract liabilities
Cash generated from operations
Taxes paid
Cash flow hedges
Net cash generated from operating activities before investment of insurance assets
Interest received
Rental income received from investment property
Purchase of investment property
Proceeds on disposal/maturity of financial investments measured through profit or loss
Proceeds from maturity of debt securities measured at amortised cost
Advances made for commercial real estate loans
Repayments of infrastructure debt and commercial real estate loans
Purchases of debt securities measured at amortised cost
Purchase of equity investments
Purchase of financial investments measured at fair value through profit or loss
Advances for other loans
Cash generated from investment of insurance assets
Notes
6
8
23
10
15
26
9
2023
£m
222.9
(312.3)
14.5
0.4
13.9
54.5
123.5
5.4
52.4
5.1
4.1
(25.1)
(443.9)
(284.6)
(323.5)
11.9
102.7
(0.6)
3.2
9.9
613.0
132.0
(30.9)
(0.6)
100.5
2022
£m
restated1
(231.9)
217.6
20.4
0.7
8.2
(69.9)
115.0
16.0
37.4
8.9
1.5
—
—
123.9
69.3
(17.4)
10.3
(6.2)
19.3
(23.1)
(99.8)
76.3
(44.5)
0.3
32.1
6
18
176.7
16.1
(0.6)
1,062.4
26.5
(5.4)
81.8
—
(3.0)
(1,049.0)
(1.1)
304.4
133.0
15.6
(0.6)
1,696.2
—
(40.8)
57.2
(7.0)
(7.7)
(1,075.9)
(1.9)
768.1
Note:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
Direct Line Group Annual Report and Accounts 2023
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243243
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
34. Notes to the consolidated cash flow statement continued
The table below details changes in liabilities arising from the Group's financing activities:
At 1 January
Repayment of subordinated liabilities1
Interest paid on subordinated liabilities
Lease repayments
Financing cash flows
Additions from acquisition of business
Additions/disposals of leases
Interest on lease liabilities
Amortisation of arrangement costs and discount on issue of subordinated
liabilities
Amortisation of fair value hedging
Accrued interest expense on subordinated liabilities
Other changes
At 31 December
Leases
Subordinated liabilities
2023
£m
81.6
—
—
(14.6)
(14.6)
0.8
34.5
3.8
—
—
—
39.1
106.1
2022
£m
84.2
—
—
(12.0)
(12.0)
—
6.3
3.1
—
—
—
9.4
81.6
2023
£m
258.6
—
(10.4)
—
(10.4)
—
—
—
0.2
—
10.4
10.6
258.8
2022
£m
513.6
(250.0)
(22.0)
—
(272.0)
—
—
—
0.3
(1.1)
17.8
17.0
258.6
Note:
1. As described in note 30, the Group repaid in full the £250 million 9.25% subordinated Tier 2 notes due 2042 on 27 April 2022 when it had its first
option to repay. The interest rate swap hedging these notes expired on the same date. Associated transaction costs were £0.1 million.
35. Commitments and contingent liabilities
The Group did not have any material commitments and contingent liabilities at 31 December 2023 (2022: none).
36. Leases
Operating lease commitments where the Group is the lessor
The following table analyses future aggregate minimum lease payments receivable under non-cancellable operating leases in
respect of property leased to third-party tenants:
Within one year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Later than 5 years
Total1,2
2023
£m
14.8
13.8
12.9
11.0
9.1
66.8
128.4
2022
£m
13.8
12.6
11.1
10.4
8.8
59.8
116.5
Notes:
1.
In the table above, the amounts disclosed for year ended 31 December 2023 exclude total future aggregate minimum lease payments receivable of
£0.1 million which relate to leases to third-party tenants on properties the Group has classified as assets held for sale.
2. At year ended 31 December 2023: £126.5 million of the total operating lease commitments where the Group is the lessor relates to the lease of
investment properties detailed in note 18 (2022: £114.2 million).
The investment properties held by the Group consist of 18 in total, all based in the UK with exposure predominantly to the South of
England operating in the following sectors; retail, retail warehouse, supermarkets, industrial, hotels and alternative sectors.
The investment properties are leased to tenants under operating leases with rental income for the majority paid a quarter in advance
with an average unexpired lease to expiry (including break clauses and tenants currently in rent free periods) of 9.8 years (2022: 10.5
years). 49% (2022: 49%) of rental income is RPI/index linked.
Where considered necessary to reduce credit risk, the Group may obtain guarantees from parent companies for the term of the
lease.
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Other lease disclosures
At 31 December 2023 the Group had no commitments to property leases not yet commenced (2022: total future cash outflows of
£29.0 million).
The following table analyses the amounts that have been included in the consolidated statement of profit or loss for leases:
Depreciation of ROU assets
Gain on modification of leases
Loss/(gain) on disposal of leases
Interest on lease liabilities
Short-term leases2
Low-value leases2
Impairment on ROU assets
Income from subleasing ROU assets
Total
31 Dec 2023
31 Dec 2022
£m
11.9
—
1.4
3.8
2.2
1.4
—
—
20.7
£m
9.9
—
(0.5)
3.1
1.6
1.4
—
—
15.5
Notes:
1. Total cash outflows in respect of leases was £18.2 million (2022: £15.0 million) which includes amounts expensed for short-term leases and leases of
low-value assets.
2. At years ended 31 December 2023 and 31 December 2022, expenses relating to short-term leases and leases of low-value assets were not included
in the measurement of lease liabilities as they were not considered significant.
Lease commitments where the Group is the lessee
Lease liabilities total £106.1 million (2022: £81.6 million). Future contractual aggregate minimum lease payments are as follows:
Within one year
In the second to fifth year inclusive
After five years
Sub total
Less effect of discounting and unearned interest
Total
2023
£m
12.7
45.3
78.7
136.7
(30.6)
106.1
2022
£m
10.9
31.9
60.0
102.8
(21.2)
81.6
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in
the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability
is reassessed.
The lease agreements do not impose any covenants other than the security interest in the leased assets that are held by the lessor.
Direct Line Group Annual Report and Accounts 2023
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245245
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
37. Fair value
Fair value hierarchy
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation
technique. There were no changes in valuation techniques during the year.
For disclosure purposes, fair value measurements are classified as level 1, 2 or 3 based on the degree to which fair value is observable:
– Level 1 financial assets are measured in whole or in part by reference to published quotes in an active market. In an active market
quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory
agency and those prices represent actual and regularly occurring market transactions on an arm's-length basis.
– Level 2 financial assets and liabilities are measured using a valuation technique based on assumptions that are supported by
prices from observable current market transactions. These include debt securities held at FVTPL for which pricing is obtained via
pricing services, but where prices have not been determined in an active market, or financial assets with fair values based on
broker quotes or assets that are valued using the Group's own models whereby the majority of assumptions are market-
observable. Derivatives are valued using broker quotes or appropriate valuation models. Model inputs include a range of factors
which are deemed to be observable, including current market and contractual prices for underlying instruments, period to
maturity, correlations, yield curves and volatility of underlying instruments. Level 2 also includes quoted equity investments that
the Group holds for which prices are available however, the market transactions upon which those prices are based are not
considered to be regularly occurring.
– Level 3 fair value measurements used for investment properties, debt securities measured at amortised cost, infrastructure debt,
commercial real estate loans, unquoted equity investments and other loans are those derived from a valuation technique that
includes inputs for the asset that are unobservable. Debt securities measured at amortised cost are private placed securities which
do not trade on active markets, these are valued using discounted cash flow models designed to appropriately reflect the credit
and illiquidity of these instruments. The key unobservable input elements from the discount rate used across private debt
securities is the credit spread which is based on the credit quality of the assets and the illiquidity premium. Infrastructure debt and
commercial real estate are loans which do not trade on active markets. Valuations are derived from external asset managers’
credit assessment and pricing models. These aim to take into account movements in broader credit spreads and are aligned to
varying degrees with external credit rating equivalents. Unlisted equity investments are comprised of: investments in private equity
funds, which are valued at the proportion of the Group’s holding of the net asset value reported by the investment vehicle and are
based on several unobservable inputs including market multiples and cash flow forecasts; and unquoted equity shares in a
strategic investment.
Comparison of carrying value to fair value of financial instruments and assets where fair value is disclosed
Carrying value
Level 1
Level 2
Level 3
£m
£m
£m
£m
—
—
—
27.4
680.8 2,555.8
0.1
—
277.1
—
1.5
—
0.7
Fair value
£m
277.1
27.4
3,238.1
0.1
0.7
277.1
27.4
3,238.1
0.1
0.7
18.9
70.6
214.2
145.9
3.1
—
—
—
—
—
—
—
—
18.9
18.9
16.2
—
—
—
49.4
213.9
145.4
3.1
65.6
213.9
145.4
3.1
3,996.1
680.8
2,599.5
710.0
3,990.3
15.4
—
15.4
258.8
274.2
—
212.8
—
228.2
—
—
—
15.4
212.8
228.2
At 31 December 2023
Assets held at fair value through profit or loss:
Investment property
Derivative assets
Debt securities
Listed equity investments
Unlisted equity investments
Assets held at fair value through other comprehensive income:
Equity investments
Assets held at amortised cost:
Debt securities
Infrastructure debt
Commercial real estate loans
Other loans
Total
Liabilities held at fair value through profit or loss:
Derivative liabilities
Other financial liabilities:
Subordinated liabilities
Total
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At 31 December 2022 (restated¹)
Assets held at fair value through profit or loss:
Investment property
Derivative assets
Debt securities
Listed equity investments
Unlisted equity investments
Assets held at fair value through other comprehensive income:
Equity investments
Assets held at amortised cost:
Debt securities
Infrastructure debt
Commercial real estate loans
Other loans
Total
Liabilities held at fair value through profit or loss:
Derivative liabilities
Other financial liabilities:
Subordinated liabilities
Total
Carrying value
Level 1
Level 2
Level 3
£m
£m
£m
£m
—
—
—
31.3
511.3 2,636.2
0.3
—
278.5
—
—
—
0.8
Fair value
£m
278.5
31.3
3,147.5
0.3
0.8
278.5
31.3
3,147.5
0.3
0.8
13.3
97.2
236.8
198.9
1.6
—
—
—
—
—
—
—
—
13.3
13.3
28.6
—
—
—
61.0
235.7
198.1
1.9
89.6
235.7
198.1
1.9
4,006.2
511.3
2,696.4
789.3
3,997.0
29.6
—
29.6
258.6
288.2
—
204.9
—
234.5
—
—
—
29.6
204.9
234.5
Note:
1.
Prior period comparatives have been restated on transition to IFRS 9 'Financial Instruments'. See notes 1 and 40 for further details.
Differences arise between carrying value and fair value where the measurement basis of the asset or liability is not fair value (for
example; assets and liabilities carried at amortised cost). Fair values of the following assets and liabilities approximate their carrying
values:
– cash and cash equivalents;
– borrowings; and
– trade and other payables.
The movements in assets held at fair value and classified as level 3 in the fair value hierarchy relate to investment property and
unquoted equity investments. Investment property is analysed in note 18 along with further details on the Group's valuation
approach. A summary of realised and unrealised gains or losses in relation to investment property at fair value are presented in note 6.
There were no changes in the categorisation of assets between levels 1, 2 and 3 for assets and liabilities held by the Group since
31 December 2022.
The table below shows the unobservable inputs used by the Group in the fair value measurement of its investment property:
Fair value
£m
2023
2022
Valuation
technique
Unobservable
input
Range
(weighted average)
2023
2022
Investment property
277.1¹
278.5¹
Income
capitalisation
Equivalent yield
(note 18)
Estimated rental value
per square foot
4.50% – 7.96%
(average 5.77%)
£7.00 – £35.00
(average £16.38)
4.23% – 7.61%
(average 5.62%)
£6.50 – £32.92
(average £13.59)
Note:
1.
The methodology of valuation reflects commercial property held within U K Insurance Limited.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
247247
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
The table below analyses the movement in assets carried at fair value classified as level 3 in the fair value hierarchy:
At 1 January 2023 (restated¹)
Additions
(Reduction)/increase in fair value in the period
Disposals
Foreign exchange movement
At 31 December 2023
Investment
property
£m
278.5
0.5
(1.9)
—
—
277.1
Unquoted
equity
investments
held at FVOCI
Unquoted
equity
investments
held at FVTPL
£m
13.3
3.0
3.3
(0.6)
(0.1)
18.9
£m
0.8
—
(0.1)
—
—
0.7
Note:
1. Opening balances have been restated on transition to IFRS 9 'Financial Instruments'. See notes 1 and 40 for further details.
38. Acquisitions
By Miles Group Limited
On 24 April 2023 the Group acquired 100% of the share capital of By Miles Group Limited (“By Miles”) for a nominal consideration.
Details of the business combination are as follows:
Amount settled in cash
Recognised amounts of identifiable net assets:
Intangible assets
Property, plant and equipment
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Borrowings
Net identifiable assets and liabilities
Goodwill
21 April 2023
£m
—
0.6
1.9
1.1
0.5
(1.6)
(5.2)
(2.7)
2.7
By Miles is a Managing General Agent and provider of real-time pay-by-mile insurance policies. The amount settled in cash was £1.
Acquisition-related expenses of £0.4 million have been recognised in the consolidated statement of profit or loss.
Goodwill recognised on the acquisition relates to expected growth, synergies and the value of the By Miles proposition which cannot
be separately recognised as an intangible asset. The goodwill has been allocated to the Motor segment. None of the goodwill is
expected to be deductible for tax purposes.
The fair value of trade and other receivables acquired is equal to the gross contractual amount receivable of £0.5m.
By Miles has contributed £4.7 million to the Group’s other operating income and a loss of £3.2 million to the Group’s consolidated
profit before tax from the acquisition date to 31 December 2023. Had the acquisition occurred on 1 January 2023, By Miles would
have contributed £5.7 million to the Group’s other operating income and a loss of £6.2 million to profit before tax. Amounts have
been calculated using consistent accounting policies to those used by the Group.
248
248
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Vehicle repair workshop
On 1 April 2023, the Group acquired the business and assets of a vehicle repair centre to further expand the Group's wholly owned
DLG Auto Services network. Details of the business combination are as follows:
Amount settled in cash
Recognised amounts of identifiable net assets:
ROU assets
Property, plant and equipment
Lease liabilities
Net identifiable assets and liabilities
Goodwill
1 April 2023
£m
1.7
0.8
0.8
(0.8)
0.8
0.9
Goodwill represents the value attributed to the business by the Group as part of its ongoing strategy of developing its repair network.
The Group measured the acquired lease liabilities and matching ROU assets using the present value of the remaining lease
payments at the date of acquisition.
No disclosure has been made for revenue and profit before tax generated as the Group does not manage its business at this level.
39. Related parties
Transactions between the Group's subsidiary undertakings, which are related parties, have been eliminated on consolidation and
accordingly are not disclosed.
Subject to the preceding sentence, there were no sales or purchases of products and services to or from related parties in the year
ended 31 December 2023 (2022: £nil).
Compensation of key management
Termination benefits
Short-term employee benefits
Post-employment benefits
Share-based payments
Total
2023
£m
1.0
6.6
0.2
2.5
9.3
2022
£m
—
7.6
0.2
3.5
11.3
For the purposes of IAS 24 'Related party disclosures', key management personnel comprise the Directors and Non-Executive
Directors and the members of the Executive Committee.
Direct Line Group Annual Report and Accounts 2023
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249249
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
40.1 First time adoption of new accounting standards
The Group assessed its business model for managing the financial assets held by the Group and classified its financial assets into the
appropriate IFRS 9 categories. The impact of the reclassification was as follows:
Financial asset
Measurement category
IAS 39
Remeasurement
IFRS 9
IAS 39
IFRS 9
ECL
Other
1 January 2022
1 January 2022
Debt securities measured at
FVTPL
Debt securities measured at
amortised cost
Equity Investments
Equity Investments
Infrastructure debt
Available-for-sale
Fair value through
profit or loss
Held-to-maturity
Amortised cost
Fair value through
OCI
Fair value through
OCI
Fair value through
profit or loss
Fair value through
profit or loss
Amortised cost
Amortised cost
Commercial real estate loans Amortised cost
Amortised cost
Other loans²
Amortised cost
Amortised cost
Cash and cash equivalents
Amortised cost
Amortised cost
Derivative financial
instruments
Fair value through
profit or loss
Fair value through
profit or loss
£m
£m
£m
4,084.6
91.2
6.2
0.8
250.8
200.8
—
955.7
35.9
—
(1.2)
—
—
(1.8)
(0.6)
(0.5)
—
—
—
—
—
—
—
—
—
—
—
£m
restated1
4,084.6
90.0
6.2
0.8
249.0
200.2
(0.5)
955.7
35.9
Notes:
1.
2.
Prior period comparatives have been restated on transition to IFRS 9 'Financial Instruments'. See note 1 for further details.
Relates to a loan contract agreed with the nature recovery charity, Heal, where the first draw down of the facility was not made until August 2022.
The Group has determined that the application of IFRS 9’s impairment requirements at 1 January 2022 results in additional
allowance for impairment as follows:
Loss allowance as at 31 December 2021 under IAS 39
Additional impairment recognised at 1 January 2022 on:
Debt securities measured at amortised cost
Infrastructure debt
Commercial real estate loans
Other loans
Loss allowance at 1 January 2022 under IFRS 9
40.2 First time adoption of new accounting standards
Impact on the consolidated statement of comprehensive income for the period ended 31 December 2022.
31 December
2022
£m
First-time
adoption
of IFRS 9
First-time
adoption
of IFRS 17
£m
£m
(Loss)/profit for the year attributable to the owners of the Company
Other comprehensive (loss)/income for the year for the period net of tax
Total comprehensive (loss)/income for the year for the period attributable
to the owners of the Company
(39.5)
(210.8)
(202.0)
203.2
(250.3)
1.2
(Loss)/earnings per share
Basic (loss)/earnings per share (pence)
Diluted (loss)/earnings per share (pence)
(4.3)
(4.3)
(15.5)
(15.5)
9.6
—
9.6
0.7
0.7
£m
20.1
1.2
1.8
0.6
0.5
24.2
31 December
2022
£m
restated1
(231.9)
(7.6)
(239.5)
(19.1)
(19.1)
Note:
1.
Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See note 1 for
further details.
250
250
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
40.3 First time adoption of new accounting standards
Impact on the consolidated statement of financial position as at 1 January 2022.
Assets
Goodwill and other intangible assets
Property, plant and equipment
Right-of-use assets
Investment property
Reinsurance contract assets2,3
Deferred acquisition costs
Deferred tax assets
Current tax assets
Other receivables2
Prepayments, accrued income and other assets
Derivative financial instruments
Retirement benefit asset
Financial investments
Cash and cash equivalents
Assets held for sale
Total assets
Equity
Shareholders' equity
Tier 1 notes
Total equity
Liabilities
Subordinated liabilities
Insurance contract liabilities2
Reinsurance contract liabilities3
Unearned premium reserve
Borrowings
Derivative financial instruments
Provisions2
Trade and other payables2
Lease liabilities
Deferred tax liabilities
Total liabilities
1 January 2022
First-time
adoption
of IFRS 9
First-time adoption of IFRS 17
1 January 2022
Presentation
changes
Measurement
changes
£m
£m
£m
£m
822.5
113.8
76.1
317.0
1,211.8
186.6
—
14.4
762.8
125.1
35.9
12.1
4,633.6
955.7
41.2
—
—
—
—
—
—
0.2
—
—
(0.9)
—
—
(3.3)
—
—
—
—
—
—
(4.4)
—
—
—
(734.4)
—
—
—
—
—
—
9,308.6
(4.0)
(738.8)
—
—
—
—
(25.7)
(186.6)
29.2
—
—
—
—
—
—
—
—
(183.1)
£m
restated1
822.5
113.8
76.1
317.0
1,181.7
—
29.4
14.4
28.4
124.2
35.9
12.1
4,630.3
955.7
41.2
8,382.7
2,550.2
346.5
2,896.7
513.6
3,680.5
—
1,500.7
59.2
19.5
96.4
457.3
84.2
0.5
6,411.9
(3.5)
—
(3.5)
—
—
—
—
—
—
—
—
(0.5)
—
—
—
(96.1)
—
(96.1)
2,450.6
346.5
2,797.1
—
(365.0)
—
—
—
—
(48.3)
(325.5)
—
—
—
1,410.1
3.6
(1,500.7)
—
—
—
—
—
—
(87.0)
513.6
4,725.6
3.6
—
59.2
19.5
48.1
131.8
84.2
—
5,585.6
(0.5)
(738.8)
Total equity and liabilities
9,308.6
(4.0)
(738.8)
(183.1)
8,382.7
Notes:
1.
Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See note 1 for
further details.
Following publication of the Group's H1 2023 Interim Report, the Group has reclassified some elements of the following balances into insurance
contract liabilities and reinsurance contract assets: Other receivables (£176.7 million asset in the interim report), provisions (£96.4 million liability in
the interim report) and trade and other payables (£133.9 million liability in the interim report). The balance reported in the interim report for
insurance contract liabilities was £4,669.7 million and reinsurance contract assets was £946.6 million.
Since the publication of the H1 2023 Interim Report, £3.6 million has been reclassified between reinsurance contract assets and reinsurance
contract liabilities
2.
3.
The quantitative impact on the consolidated statement of financial position of the first-time adoption of IFRS 9 and 17 on the
transition date is explained in note 1.1 of these financial statements.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
251251
Strategic Report / Governance / Financial statements
Notes to the Consolidated Financial Statements continued
40.4 First time adoption of new accounting standards
Impact on the consolidated cash flow statement for the year ended 31 December 2022.
Net cash generated from operating activities
Net cash used in investing activities
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the period
31 December
2022
£m
First-time
adoption
of IFRS 9
First-time
adoption
of IFRS 17
£m
£m
800.2
(100.8)
(657.5)
41.9
896.5
938.4
—
—
—
—
—
—
—
—
—
—
—
—
31 December
2022
£m
restated1
800.2
(100.8)
(657.5)
41.9
896.5
938.4
Note:
1.
Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See note 1 for
further details.
252
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Parent Company Statement of Financial Position
As at 31 December 2023
Assets
Investment in subsidiary undertakings
Other receivables
Current tax assets
Derivative financial instruments
Cash and cash equivalents
Total assets
Equity
Shareholders' equity
Tier 1 notes
Total equity
Liabilities
Subordinated liabilities
Borrowings
Derivative financial instruments
Deferred tax liabilities
Total liabilities
Total equity and liabilities
Notes
2023
£m
2022
£m
2
3
4
5
6
8
9
10
5
4
3,445.2
23.4
14.1
0.3
118.8
3,601.8
3,332.6
26.8
6.8
0.1
112.3
3,478.6
2,693.6
346.5
3,040.1
2,695.7
346.5
3,042.2
258.8
301.7
0.3
0.9
561.7
3,601.8
258.6
176.8
0.1
0.9
436.4
3,478.6
The attached notes on pages 255 to 258 form an integral part of these separate financial statements.
The profit for the year net of tax was £21.2 million (2022: £126.2 million).
The financial statements were approved by the Board of Directors and authorised for issue on 21 March 2024.
They were signed on its behalf by:
NEIL MANSER
CHIEF FINANCIAL OFFICER
Direct Line Insurance Group plc
Registration No. 02280426
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
253253
Strategic Report / Governance / Financial statements
Parent Company Statement of Comprehensive Income
For the year ended 31 December 2023
Profit for the year attributable to the owners of the Company
Other comprehensive gain
Items that may be reclassified subsequently to the statement of profit or loss:
Gain on fair value through other comprehensive income investments
Other comprehensive gain for the year net of tax
Total comprehensive income for the year attributable to the owners of the Company
Parent Company Statement of Changes in Equity
For the year ended 31 December 2023
2023
£m
21.2
—
—
21.2
2022
£m
126.2
0.1
0.1
126.3
Balance at 1 January 2022
Profit for the year
Other comprehensive income
Total comprehensive income for the
year
Dividends and appropriations paid
(note 11)
Shares cancelled following
buyback
Credit to equity for equity-settled
share-based payments
Shares distributed by employee
trusts
Total transactions with equity
holders
Balance at 31 December 2022
Profit for the year
Total comprehensive income for the
year
Dividends and appropriations paid
(note 11)
Credit to equity for equity-settled
share-based payments
Shares distributed by employee
trusts
Total transactions with equity
holders
Share
capital
(note 7)
Capital
reserves
(note 7)
Share-
based
payment
reserve
Fair value
through other
comprehensive
income
revaluation
reserve
Retained
earnings
Shareholders
equity
Tier 1 notes
(note 9)
Total equity
£m
£m
£m
£m
£m
£m
£m
£m
145.2 1,454.8
5.0
(0.1) 1,333.0
2,937.9
346.5 3,284.4
—
—
—
—
—
—
—
—
126.2
126.2
0.1
—
0.1
—
—
126.2
0.1
—
—
0.1
126.2
126.3
—
126.3
—
—
—
—
(314.5)
(314.5)
—
(314.5)
(2.1)
2.1
—
—
(50.1)
(50.1)
—
(50.1)
—
—
—
9.5
—
(13.4)
—
—
—
9.5
—
9.5
—
(13.4)
—
(13.4)
(2.1)
2.1
(3.9)
—
(364.6)
(368.5)
—
(368.5)
143.1 1,456.9
1.1
— 1,094.6
2,695.7
346.5 3,042.2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12.6
(19.3)
(6.7)
(5.6)
—
—
—
—
—
—
—
21.2
21.2
21.2
21.2
(16.6)
(16.6)
—
—
12.6
(19.3)
(16.6)
(23.3)
—
—
—
—
—
—
21.2
21.2
(16.6)
12.6
(19.3)
(23.3)
1,099.2
2,693.6
346.5
3,040.1
Balance at 31 December 2023
143.1
1,456.9
The attached notes on pages 255 to 258 form an integral part of these separate financial statements.
254
254
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Notes to the Parent Company Financial Statements
1. Accounting policies
1.1 Basis of preparation
Direct Line Insurance Group plc, registered in England and Wales (company number 02280426), is the ultimate parent company of
the Group. The principal activity of the Company is managing its investments in subsidiaries, providing loans to those subsidiaries,
raising funds for the Group and the receipt and payment of dividends.
The address of the Company's registered office is Churchill Court, Westmoreland Road, Bromley, BR1 1DP.
The Company's financial statements are prepared on the historical cost basis except for derivative financial instruments, which are
measured at fair value.
In accordance with the exemption permitted under section 408 of the Companies Act 2006, the Company's statement of profit or
loss and related notes have not been presented in these separate financial statements.
The Company's financial statements are prepared in accordance with FRS 101 'Reduced Disclosure Framework'.
The Company has taken advantage of the following FRS 101 disclosure exemptions:
– FRS 101.8 (d): the requirements of IFRS 7 'Financial Instruments: Disclosures' to make disclosures about financial instruments;
– FRS 101.8 (e): the disclosure requirements of IFRS 13 'Fair Value Measurement';
– FRS 101.8 (g): the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 111, and 134 to 136 of IAS 1 ‘Presentation of
Financial Statements’ to produce a cash flow statement and to make an explicit and unreserved statement of compliance with
IFRSs, additional comparative information and capital management information;
– FRS 101.8 (h): the requirements of IAS 7 'Statements of Cash Flows' to produce a cash flow statement and related notes;
– FRS 101.8 (i): the requirements of paragraphs 30 and 31 of IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors'
to include a list of new IFRSs that have been issued but that have yet to be applied; and
– FRS 101.8 (k): the requirements of IAS 24 'Related Party Disclosures' to disclose related party transactions entered into between
two or more members of a group, provided that any subsidiary which is party to a transaction is wholly owned by such a member.
Adoption of new and revised standards
Full details of the new and revised standards adopted by the Company are set out in note 1.1 to the consolidated financial
statements.
1.2 Investment in subsidiaries
Investment in subsidiaries is stated at cost less any impairment.
2. Investment in subsidiary undertakings
At 1 January
Additional investment in subsidiary undertakings
At 31 December
2023
£m
3,332.6
112.6
3,445.2
2022
£m
3,322.9
9.7
3,332.6
The subsidiary undertakings of the Company are set out in the table below. Their capital consists of Ordinary Shares which are
unlisted. In all cases, the Company owns 100% of the Ordinary Shares, either directly or through its ownership of other subsidiaries,
and exercises full control over their decision making.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
255255
Strategic Report / Governance / Financial statements
Notes to the Parent Company Financial Statements continued
2. Investment in subsidiary undertakings continued
Name of subsidiary
Directly held by the Company:
Direct Line Group Limited1
DL Insurance Services Limited1
Finsure Premium Finance Limited1
Company
registration
number
Place of incorporation
and operation
Principal activity
02811437
United Kingdom Intermediate holding company
03001989
United Kingdom Management services
01670887
United Kingdom Non-trading company
Inter Group Insurance Services Limited1
02762848
United Kingdom Dormant5
UK Assistance Accident Repair Centres Limited1
02568507
United Kingdom Motor vehicle repair services
UK Assistance Limited1
02857232
United Kingdom Dormant5
U K Insurance Business Solutions Limited1
05196274
United Kingdom Insurance intermediary services
U K Insurance Limited2,3
Indirectly held by the Company:
Brolly UK Technology Limited1
By Miles Group Ltd1
By Miles Ltd1
By Miles Payments Services Ltd1
By Miles Technology Services Ltd1
Churchill Insurance Company Limited1
Direct Line Insurance Limited1
DL Support Services India Private Limited4
DLG Legal Services Limited2
DLG Pension Trustee Limited1
Farmweb Limited1
Green Flag Group Limited2
Green Flag Holdings Limited1
Green Flag Limited2
01179980
United Kingdom General insurance
10134039
United Kingdom Dormant5
12270837
United Kingdom Intermediate holding company
09498559
United Kingdom Business support services
12190473
United Kingdom Business support services
12189384
United Kingdom Software development
02258947
United Kingdom General insurance
01810801
United Kingdom Dormant5
See
footnote 4
India
Support and operational services
08302561
United Kingdom Legal services
08911044
United Kingdom Dormant5
03207393
United Kingdom Dormant5
02622895
United Kingdom Intermediate holding company
03577191
United Kingdom Intermediate holding company
01003081
United Kingdom Breakdown recovery services
Intergroup Assistance Services Limited1
03315786
United Kingdom Dormant5
National Breakdown Recovery Club Limited1
02479300
United Kingdom Dormant5
Nationwide Breakdown Recovery Services Limited1
01316805
United Kingdom Dormant5
The National Insurance and Guarantee Corporation Limited1 00042133
United Kingdom Dormant5
UKI Life Assurance Services Limited1
03034263
United Kingdom Dormant5
Notes:
1. Registered office at: Churchill Court, Westmoreland Road, Bromley, BR1 1DP.
2. Registered office at: The Wharf, Neville Street, Leeds, LS1 4AZ.
3. U K Insurance Limited has a branch in the Republic of South Africa and a branch in the Republic of Ireland.
4. Registered office at: Max House, Level 5, Okhla Industrial Area Phase-3, New Delhi, 110020, India. Company registration number:
U74140DL2014FTC265567.
5. These entities have not been audited, in accordance with the exemptions available for dormant entities under section 480 of the Companies Act
2006.
At 31 December 2023, the carrying amount of the Company’s net assets of £3,040.1 million (2022 £3,042.2 million) exceeded the
Group’s market capitalisation of £2,386.1 million (2022: £2,902.1million). The Group has performed an impairment test in line with
the requirements of IAS 36 ‘Impairment of Assets’ and concluded that no impairments were required to any of the Company’s
investments in its subsidiaries.
The recoverable amounts of each investment were based on the higher of the value-in-use test, using the strategic plan, and the fair
value which was deemed to be equal to the subsidiaries’ net asset values. For each investment in subsidiary the recoverable amount
was greater than the carrying value of the cost of investment resulting in no impairment required for the year ended 31 December
2023 (2022: £nil).
256
256
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
3. Other receivables
Loans to subsidiary undertakings1
Trade receivables due from subsidiary undertakings
Other debtors
Total²
Notes:
1. All loans are neither past due nor impaired.
2. All other receivables are classified as current.
4. Current and deferred tax
Per statement of financial position:
Current tax assets
Deferred tax liabilities
The deferred tax liability is in respect of temporary differences in Tier 1 notes.
5. Derivative financial instruments1
Derivative assets
Designated as hedging instruments:
Foreign exchange contracts (forwards)2
Total
Derivative liabilities
Designated as hedging instruments:
Foreign exchange contracts (forwards)2
Total
2023
£m
16.9
6.0
0.5
23.4
2023
£m
14.1
(0.9)
2022
£m
21.1
5.4
0.3
26.8
2022
£m
6.8
(0.9)
Notional
amount
2023
£m
Fair value
2023
£m
Notional
amount
2022
£m
Fair value
2022
£m
14.5
14.5
14.5
14.5
0.3
0.3
0.3
0.3
3.4
3.4
3.4
3.4
0.1
0.1
0.1
0.1
Notes:
1. The derivative assets and liabilities are both classified as level 2 within the Group's fair value hierarchy set out in note 37 of the consolidated financial
statements.
2. The foreign exchange cash flow hedges have been entered into on behalf of the Group's subsidiary companies.
6. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits with credit institutions1
Total
Note:
1. This represents money market funds.
2023
£m
0.3
118.5
118.8
2022
£m
—
112.3
112.3
7. Share capital, capital reserves and distributable reserves
Full details of the share capital and capital reserves of the Company are set out in notes 27 and 28 to the consolidated financial
statements.
Of the Company's total equity, £1,099.2 million (2022: £1,094.6 million), being the total of its retained earnings, is considered to be
distributable reserves.
8. Tier 1 notes
Full details of the Tier 1 notes of the Company are set out in note 29 to the consolidated financial statements.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
257257
Strategic Report / Governance / Financial statements
Notes to the Parent Company Financial Statements continued
9. Subordinated liabilities
Subordinated Tier 2 notes
2023
£m
258.8
2022
£m
258.6
On 5 June 2020, the Company issued subordinated Tier 2 notes at a fixed rate of 4.0%. The notes have a redemption date of 5 June
2032 and may be redeemed at the option of the Company commencing on 5 December 2031 until the maturity date.
The notes are unsecured, and subordinated obligations of the Company and rank pari passu and without any preference among
themselves. In the event of a winding-up or of bankruptcy they are to be repaid only after the claims of all other senior creditors have
been met and will rank at least pari passu with the claims of holders of other Tier 2 capital.
The Company has the option, in certain circumstances, to defer interest payments on the notes but to date has not exercised this
right. The aggregate fair value of subordinated guaranteed dated notes at 31 December 2023 was £212.8 million (2022: £204.9
million).
10. Borrowings
Loans from fellow subsidiaries within the Group1
2023
£m
301.7
2022
£m
176.8
Note:
1.
Included in the above is a loan of £93.1 million (2022: £69.2 million) from UK Assistance Accident Repair Centres Limited. All loans from fellow Group
subsidiaries are repayable by 31 December 2024.
11. Dividends
Full details of the dividends paid and proposed by the Company are set out in note 12 to the consolidated financial statements.
12. Share-based payments
Full details of share-based compensation plans are provided in note 31 to the consolidated financial statements.
13. Risk management
The risks faced by the Company, arising from its investment in subsidiaries, are considered to be the same as those in the operations
of the Group. Details of the key risks and the steps taken to manage them are disclosed in note 3 to the consolidated financial
statements. The Company also holds, on behalf of its subsidiaries, designated hedging instruments which relate to foreign currency
supplier payments.
14. Employees, Directors and key management remuneration
The Company has no employees. The Directors and key management of the Group and the Company are the same. The aggregate
emoluments of the Directors are set out in note 7 to the consolidated financial statements, the compensation for key management
is set out in note 39 to the consolidated financial statements and the remuneration and pension benefits payable in respect of the
highest-paid Director are included in the Directors' Remuneration Report in the Governance section of the Annual Report and
Accounts.
258
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Shareholder information
Financial calendar1
2024
Date
21 March 2024
Event
Preliminary Results 2023
announcement
08 May
Annual General Meeting
4 September
Half-year report 2024
5 November
Trading update for the third quarter of
2024
Annual General Meeting
The 2024 AGM will be held at Riverbank House, 2 Swan Lane,
London, EC4R 3AD on Wednesday 8 May 2024, starting at
11:00 am. All shareholders will receive a separate notice
convening the AGM. This will explain the resolutions to be put to
the meeting.
The Articles of Association of the Company and the letters of
appointment of the Executive Directors, the Chair and the Non-
Executive Directors are available for inspection at the Company's
registered office and at the offices of Allen & Overy LLP.
Market
The Company has a premium listing on the UK Listing
Authority's Official List. The Company's Ordinary Shares (EPIC:
DLG) are admitted to trading on the London Stock Exchange.
Share ownership
Share capital
You can find details of the Company's share capital in note 27 to
the consolidated financial statements.
Dividends
The Company pays its dividends in sterling to shareholders
registered on its register of members at the relevant record date.
Shareholders can arrange to receive their cash dividend
payments in a bank or building society account by completing a
dividend mandate form. This is available from the Company's
registrar, Computershare Investor Services Plc ("Registrar"), in
the UK. You can find the Registrar's contact details on page 277.
Alternatively, shareholders can access their shareholdings online
and download a dividend mandate form from the Investor
Centre. You can find details of this below.
Dividend Reinvestment Plan
The Company offers a Dividend Reinvestment Plan. This enables
shareholders to use their cash dividends to buy the Company's
Ordinary Shares in the market. You can find more details on the
Company's website.
Shareholder enquiries
Shareholders with queries about anything relating to their
shares can contact our Registrar.
Shareholders should notify the Registrar of any change in
shareholding details, such as their address, as soon as possible.
Shareholders can access their current shareholding details
online at www.investorcentre.co.uk/directline. Investor Centre is
a free-to-use, secure, self-service website that enables
shareholders to manage their holdings online. The website
allows shareholders to:
– check their holdings;
– update their records, including address and direct credit
details;
– access all their securities in one portfolio by setting up a
personal account;
– vote online; and
– register to receive electronic shareholder communications.
To access information, the website requires shareholders to
quote their shareholder reference number. Shareholders can
find this number on their share certificates.
Corporate website
The Group's corporate website is www.directlinegroup.co.uk. It
contains useful information for the Company's investors and
shareholders. For example, it includes press releases, details of
forthcoming events, essential shareholder information, a
dividend history, a financial calendar, and details of the
Company's AGM. You can also subscribe to email news alerts.
Shareholder warning
Fraudsters use persuasive and high-pressure tactics to lure
investors into scams. They may offer to sell shares that prove to
be worthless or non-existent, or they can offer to buy shares at
an inflated price in return for you paying upfront. They promise
high profits. However, if you buy or sell shares in this way, you
will probably lose your money.
Note:
1. These dates are subject to change.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
259259
Strategic Report / Governance / Financial statements Shareholder information continued
How to avoid share fraud
– Remember that FCA-authorised firms are unlikely to contact
you unexpectedly offering to buy or sell shares.
– Do not converse with them. Note the name of the person and
firm contacting you, then end the call.
– To see if the person and firm contacting you are authorised by
the FCA, check the Financial Services Register at
www.fca.org.uk/register.
– Beware of fraudsters claiming to be from an authorised firm;
copying its website; or giving you false contact details.
– If you want to phone the caller back, use the firm's contact
details listed on the Financial Services Register at
www.fca.org.uk/register.
– If the firm does not have contact details on the Register or
Electronic communications and voting
The Group produces various communications. Shareholders can
view these online, download them, or receive paper copies by
contacting the Registrar.
Shareholders, who register their email address with our
Registrar, or at the Investor Centre, can receive emails with news
on events, such as the AGM. They can also receive shareholder
communications electronically, such as the Annual Report and
Accounts and Notice of Meeting.
Dealing facilities
Shareholders who wish to buy, sell or transfer their shares may
do so through a stockbroker or a high street bank; or through
the Registrar's share-dealing facility.
they tell you the details are out of date, call the FCA on 0800
111 6768.
You can call or email the Registrar regarding its share-dealing
facility using this contact information:
– For telephone sales, call +44 (0)370 703 0084 between 8.00
am and 6.00 pm, Monday to Friday, excluding public holidays,
and
– For internet sales, go to www.investorcentre.co.uk/directline.
You will need your shareholder reference number, as shown
on your share certificate, or your welcome letter from the
Chair.
Dividend tax allowance
The dividend tax-free allowance is £1,000 across an individual's
entire share portfolio for the tax year 2022 to 2023 and will
reduce to £500 for the tax years 2024 to 2025 and beyond.
Above these amounts, individuals will pay tax on their dividend
income. The rate of this tax depends on their income tax
bracket and personal circumstances. The Company will
continue providing registered shareholders with a confirmation
of the dividends paid. Shareholders should include this with any
other dividend income they receive when calculating and
reporting total dividend income received to HMRC. The
shareholder is responsible for including all dividend income
when calculating tax requirements. If you have any tax queries,
please contact your financial adviser.
– Search the list of unauthorised firms to avoid at
www.fca.org.uk/consumers/unauthorised-firms-individuals.
– Remember that if you buy or sell shares from an unauthorised
firm, you cannot access the Financial Ombudsman Service or
Financial Services Compensation Scheme.
– Get independent financial and professional advice before
handing over any money.
– If it sounds too good to be true, it probably is.
Report a scam
If fraudsters approach you, tell the FCA using the share fraud
reporting form at www.fca.org.uk/consumers/report-scam-
unauthorised-firm. You can also find out more about investment
scams on the same web page.
You can call the FCA Consumer Helpline on 0800 111 6768.
If you have already paid money to share fraudsters, call Action
Fraud on 0300 123 2040.
Tips on protecting your shares
– Keep all your certificates in a safe place. Alternatively, consider
holding your shares in the UK's electronic registration and
settlement system for equity, called CREST, or via a nominee;
– Keep correspondence from the Registrar that shows your
shareholder reference number in a safe place, and shred
unwanted correspondence;
– Inform the Registrar as soon as you change your address;
– If you receive a letter from the Registrar regarding a change of
address and you have not recently moved, contact them
immediately;
– Find out when your dividends are paid and contact the
Registrar if you do not receive them;
– Consider having your dividends paid direct into your bank
account. You will need to complete a dividend mandate form
and send it to the Registrar. This reduces the risk of cheques
being stolen or lost in the post;
– If you change your bank account, inform the Registrar of your
new account details immediately;
– If you are buying or selling shares, only deal with brokers
registered in the UK or in your country of residence; and
– Be aware that the Company will never call you concerning
investments.
260
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Glossary and Appendices
Term
Definition and explanation
Actuarial best estimate
("ABE")
The probability-weighted average of all future claims and cost scenarios. It is calculated using
historical data, actuarial methods and judgement. A best estimate of reserves will therefore
normally include no margin for optimism or, conversely, caution.
Acquisition costs
Costs that arise from activities of selling, underwriting and starting a group of contracts that are
directly attributable to the portfolio of contracts to which the group belongs.
Annual Incentive Plan
("AIP")
This incentivises the performance of Executive Directors and employees over a one-year operating
cycle. It focuses on the short- to medium-term elements of the Group's strategic aims.
Assets under management
("AUM")
This represents all assets managed or administered by or on behalf of the Group, including those
assets managed by third parties.
Association of British
Insurers ("ABI")
ASHE index
Bootstrapping
Brokered commercial
business ("NIG")
The trade body that represents the insurance and long-term savings industry in the UK.
The Annual Survey of Hours and Earnings ("ASHE") provides information about the levels,
distribution and make-up of earnings and paid hours worked for employees in all industries and
occupations. The ASHE tables contain estimates of earnings for employees by sex and full-time or
part-time status.
A statistical sampling technique used to estimate reserve variability around the Actuarial Best
Estimate. Results produced from bootstrapping historical data are used to set and inform the level
of margin incorporated in the Management Best Estimate ("MBE").
The brokered commercial insurance business of U K Insurance Limited which it was announced
on 6 September 2023 was being sold to Royal & Sun Alliance Insurance Limited. The Group has
retained the back book of the business written and earned prior to 1 October 2023 (the "Risk
Transfer Date"). Business written and earned on and subsequent to the Risk Transfer Date will be
subject to a quota share arrangement between the two companies. Over time the two Companies
intend to enter into discussions regarding the potential transfer of the back book of policies
written prior to the Risk Transfer Date.
The term brokered commercial business does not meet the criteria of a discontinued operation as
defined under IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations' and has not
been accounted for as such.
Buy-As-You-Earn Plan
The HM Revenue & Customs approved Buy-As-You-Earn Share Incentive Plan gives all employees
the opportunity to become shareholders in the Company.
Capital
Carbon/operational
emissions:
Scope 1
Scope 2
Scope 3
Claims frequency
Clawback
Combined operating
ratio
The funds invested in the Group, including funds invested by shareholders and Tier 1 notes. In
addition, the subordinated liabilities in the Group's statement of financial position is classified as
Tier 2 capital for Solvency II purposes.
Scope 1 – covers direct emissions from owned or controlled sources, including fuels used in office
buildings, accident repair centres and owned vehicles.
Scope 2 – covers indirect emissions from the generation of purchased electricity, steam, heating
and cooling for office buildings and accident repair centres.
Scope 3 – includes all other indirect emissions that occur in the Group's value chain,such as from
purchased goods and services.
The number of claims divided by the number of policies per year.
The Group's ability to claim repayment of paid amounts both cash and equity-settled share-based
payments.
The sum of the net insurance claims, net acquisition and net expense ratios. The ratio measures
the amount of claims costs, acquisition and operating expenses, compared to net insurance
revenue. A ratio of less than 100% indicates profitable underwriting. The ratio and the
comparative are calculated on an IFRS 17 basis and is not comparable to combined operating
ratios that were calculated on an IFRS 4 basis published previously. (See page 265 alternative
performance measures.)
Current-year attritional
net insurance claims ratio
The net insurance claims ratio for the current accident year, excluding the movement of claims
reserves relating to previous accident years and claims relating to major weather events. (See page
265 alternative performance measures.)
Deferred Annual
Incentive Plan ("DAIP")
For Executive Directors and certain members of senior management, at least 40% of the AIP
award is deferred into shares typically vesting three years after grant. The remainder of the award
is paid in cash following year end.
Employee Representative
Body ("ERB")
Effect of change in yield
curve
The forum that represents all employees, including when there is a legal requirement to consult
employees.
Reflects the effect of changes in discounting, due to movements in the PRA risk-free yield curve
and ASHE index, on claims previously recognised.
Events not in data ("ENIDs") Events not in data allow for short- and long-term risks not reflected in other actuarial inputs,
including uncertainties in relation to the actuarial best estimate.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
261261
Strategic Report / Governance / Financial statements Glossary and Appendices continued
Term
Definition and explanation
Fair value through profit or
loss ("FVTPL")
A financial asset or liability where at each statement of financial position date the asset or liability
is remeasured to fair value and any movement in that fair value is taken directly to the statement
of profit or loss.
Fair value gains/(losses)
Includes fair value gains/(losses) on financial assets held at FVTPL, fair value gains/(losses) on
investment property and net expected credit losses on financial investments. (See note 6
Investment return and net insurance financial result.)
Financial leverage ratio
Tier 1 notes and financial debt (subordinated Tier 2 notes) as a percentage of total capital
employed.
Financial Reporting
Council
Gross written premium and
associated fees
The UK's regulator for the accounting, audit and actuarial professions, promoting transparency
and integrity in business.
The total premiums from insurance contracts that were incepted during the period including the
impact of a contractual change to Green Flag premium such that a portion of income that was
previously included in GWP is now included in service fee income. GWP is included for the
Motability contract for the following six months at the commencement of each six month pricing
period.
Incremental borrowing
rate ("IBR")
The rate of interest that a lessee would have to pay to borrow, over a similar term and security, the
funds necessary to obtain an asset of a similar value to the ROU asset in a similar economic
environment.
In-force policies
Investment income
yield
Investment return
Investment return
yield
Long-Term Incentive
Plan ("LTIP")
Malus
Minimum capital
requirement ("MCR")
The number of policies on a given date that are active and against which the Group will pay,
following a valid insurance claim.
The income, net of fees, earned from the investment portfolio, recognised through the statement
of profit or loss during the period (excluding unrealised and realised gains and losses, impairments
and fair value adjustments) divided by the average AUM. The average AUM derives from the
period’s opening and closing balances for the total Group. (See page 265 alternative performance
measures.)
Total investment income recognised through the statement of profit or loss, earned from the
investment portfolio, including investment fees, unrealised and realised gains and losses,
impairments and fair value adjustments.
The investment return divided by the average AUM. The average AUM derives from the period’s
opening and closing balances. (See page 265 alternative performance measures.)
Awards made as nil-cost options or conditional share awards, which vest to the extent that
performance conditions are satisfied after a period of at least three years.
An arrangement that permits unvested remuneration awards to be forfeited, when the Company
considers it appropriate.
The minimum amount of capital that an insurer needs to hold to cover its risks under the Solvency
II regulatory framework. If an insurer's capital falls below the MCR then authorisation will be
withdrawn by the regulator unless the insurer is able to meet the MCR within a short period of
time.
Net acquisition cost ratio
The ratio of acquisition costs divided by net insurance contract revenue (See page 265 alternative
performance measures.)
Net asset value
Net expense ratio
The difference between the Group's total assets and total liabilities, calculated by subtracting total
liabilities (including Tier 1 notes) from total assets.
The ratio of operating expenses divided by net insurance contract revenue (See page 265
alternative performance measures.)
Net insurance claims ratio
The ratio of net insurance contract claims divided by net insurance contract revenue (See page
265 alternative performance measures.)
Net insurance margin
("NIM")
Net insurance revenue
The ratio of insurance service result divided by net insurance contract revenues. The normalised
net insurance margin adjusts net insurance claims and acquisition costs for weather and changes
to the Ogden discount rate, when relevant. (See page 265 alternative performance measures.)
The total insurance contract revenue (consisting of gross written premium and associated fees,
instalment income and movement in liability for remaining coverage) less expenses from
reinsurance contracts held (consisting of reinsurance premium paid and movement in asset for
remaining coverage).
Net promoter score
("NPS")
This is an index that measures the willingness of customers to recommend products or services to
others. It is used to gauge customers' overall experience with a product or service, and customers'
loyalty to a brand.
Ogden discount rate
The discount rate set by the Lord Chancellor and used by courts to calculate lump sum awards in
bodily injury cases.
262
262
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Term
Definition and explanation
Ongoing operations
Operating earnings/(loss)
per share
Operating profit
The Group's ongoing operations include Motor, Home, Rescue and other personal lines and
Commercial segments and excludes the brokered commercial business and run-off partnerships
segments. Please also refer to brokered commercial business and run-off partnerships.
The use of the term ongoing operations is not considered equivalent to continuing operations as
defined under IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations' as brokered
commercial business and run-off partnerships do not meet the criteria of discontinued operations
and have not been accounted for as such. (See page 265 alternative performance measures.)
The earnings attributable to the owners of the Company. The Group's profits, which include
brokered commercial business and run-off partnerships, other finance costs & tax after deduction
of the Tier 1 coupon payment allocated to each Ordinary Share of the Company, but excludes
restructuring and one-off costs divided by the weighted average of Ordinary Shares outstanding in
the relevant financial year, excluding Ordinary Shares held by as employee trust shares, adjusted
for the dilutive potential Ordinary Shares.
The pre-tax profit that the Group's activities generate, including insurance and investment activity,
but excluding FV gains/(losses), change in yield curve, other finance costs, restructuring and one-
off costs and gains on the disposal of business. Normalised operating profit is operating profit
adjusted for weather and any changes to the Ogden discount rate. Current-year normalised
operating profit is calculated using the normalised operating profit adjusted for prior-year reserve
movements. (See pages 265 to 268 alternative performance measures.)
Operating return on
tangible equity ("RoTE")
This is adjusted operating profit from ongoing operations divided by the Group’s average
shareholders’ equity less goodwill and other intangible assets. Operating profit after tax is adjusted
to include other finance costs and the Tier 1 coupon payments. It is stated after charging tax using
the UK standard rate of 23.5% (2022: 19%). (See page 266 - Alternative Performance Measures.)
Other finance costs
The cost of servicing the Group's external borrowings and including the interest on right-of-use
assets.
Other operating expenses
These are the expenses relating to business activities excluding restructuring and one-off costs
and those included within the insurance service result. (See page 274.)
Own Risk and Solvency
Assessment ("ORSA")
Periodical payment order
("PPO")
Prudential Regulation
Authority ("PRA")
PRA risk-free yield curve
A forward-looking assessment of the Group's risks and associated capital requirements, over the
business planning period.
These are claims payments as awarded under the Courts Act 2003. PPOs are used to settle certain
large personal injury claims. They generally provide a lump-sum award plus inflation-linked annual
payments to claimants who require long-term care.
The PRA is a part of the Bank of England. It is responsible for regulating and supervising insurers
and financial institutions in the UK.
Schedules of risk-free interest rates in a number of currencies produced by the Bank of England.
These rates are used to calculate the present value of the expected future costs of honouring
insurance companies' obligations to policyholders.
Restructuring and one-off
costs
Restructuring costs are costs incurred in respect of those business activities which have a material
effect on the nature and focus of the Group's operations. One-off costs are costs that are non-
recurring in nature.
RoPL
Return on equity
Run-off partnerships
Rescue and other personal lines.
This is calculated by dividing the (loss)/profit attributable to the owners of the Company after
deduction of the Tier 1 coupon payments by average shareholders' equity for the period.
The Group has exited, or has initiated termination of, three partnerships which will reduce its
exposure to low margin packaged bank accounts so it may redeploy capital to higher return
segments. The run-off partnerships relate to a Rescue partnership with NatWest Group that
expired in December 2022 and Travel partnerships with NatWest Group and Nationwide Building
Society which expire in 2024, where the Group has indicated to the partner that it will not be
seeking to renew.
The term run-off partnerships does not meet the criteria of a discontinued operation as defined
under IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations' and has not been
accounted for as such.
Science-Based Targets
("SBT")
Science-Based Targets are a set of goals developed by a business to provide it with a clear route to
reduce greenhouse gas emissions. An emissions reduction target is defined as "science-based" if it
is developed in line with the scale of reductions required to curb a global temperature rise to well
below 2°C above pre-industrial levels and ideally to limit to a 1.5°C rise.
Solvency capital ratio
Solvency capital
requirement ("SCR")
The ratio of Solvency II own funds to the solvency capital requirement.
The SCR is the amount of capital the regulator requires an insurer to hold to meet the
requirements under the Solvency II regulatory framework. The Group uses a partial internal model
to determine the SCR.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
263263
Strategic Report / Governance / Financial statements Glossary and Appendices continued
Term
Definition and explanation
Tangible equity
This shows the equity excluding Tier 1 notes and intangible assets (for comparability with
companies which have not acquired businesses or capitalised intangible assets). (See page 266
alternative performance measures.)
Tangible net assets per
share
This shows the amount of tangible equity allocated to each ordinary share (for comparability with
companies which have not acquired businesses or capitalised intangible assets). (See page 266
alternative performance measures.)
Task Force on Climate-
related Financial Disclosure
("TCFD")
Established by the Financial Stability Board, the TCFD developed a set of disclosure
recommendations on the risks and opportunities presented by climate change. The TCFD aims to
improve and increase climate-related disclosure by organisations and promotes the provision of
clear, comprehensive and high-quality information.
Total Shareholder
Return ("TSR")
Unwind of discounting of
claims
Compares share price movement with reinvested dividends as a percentage of the
share price.
Comprises insurance finance income and expenses arising from the release of the effect of
discounting as projected cashflows move one period closer. The discount unwind is calculated
every quarter on opening reserves.
264
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Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Appendix A – Alternative performance measures (unaudited)
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 the IFRS measures, to aid the user of the
annual report and accounts in understanding the activity taking place across the Group. These APMs are contained within the main
narrative sections of this document, outside the 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 on pages 261 to 264 and reconciled to the most directly reconcilable
line items in the financial statements and notes. Note 4 on page 210 of the consolidated financial statements presents a
reconciliation of the Group's business activities on a segmental basis to the consolidated statement of profit or loss. All note
references in the table below are to the notes to the consolidated financial statements on pages 179 to 252.
Group APM
Closest equivalent
IFRS measure
Combined
operating ratio
Insurance
service result
Definition and/or reconciliation
Rationale for APM
Combined operating ratio is defined in
the glossary on page 261 and
reconciled in appendix B on page 269.
Current-year
attritional
insurance claims
ratio
Gross written
premium and
associated fees
Net insurance
claims
Current-year attritional loss ratio is
defined in the glossary on page 261
and is reconciled to the loss ratio
(discussed below) on page 269.
Insurance
revenue
Gross written premium and associate
fees is defined in the glossary on page
262 and reconciled appendix B on
page 269.
This is a measure of underwriting profitability and
excludes non-insurance income, whereby a ratio of
less than 100% represents an underwriting profit
and a ratio of more than 100% represents an
underwriting loss.
Expresses claims performance in the current
accident year in relation to net insurance revenue.
The IFRS 17 profit or loss account disclosures reflect
revenue earned from service provided, compared to
a premium written basis under IFRS 4. The Group
will continue to provide detail on trading volumes
on a written basis as an alternative performance
measure.
Investment
income yield
Investment
income
Investment income yield is defined in
the glossary on page 262 and is
reconciled on page 267.
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 on page 262 and is
reconciled on page 267.
Expresses a relationship between the investment
return and the associated opening and closing
assets adjusted for portfolio hedging instruments.
Net acquisition
ratio
Other directly
attributable
expenses
Net acquisition ratio is defined in the
glossary on page 262 and is reconciled
in appendix B on page 269.
Expresses acquisition costs in relation to net
insurance contract revenue.
Net expense ratio Other directly
attributable
expenses
Net expense ratio is defined in the
glossary on page 262 and is reconciled
in appendix B on page 269.
Net insurance
claims ratio
Net insurance
claims
Net insurance
margin ("NIM")
Insurance
service result
Net insurance claims ratio is defined in
the glossary on page 262 and is
reconciled in appendix B on page 269.
Net insurance margin is defined in the
glossary on page 262 and is reconciled
on page 267.
Normalised net
insurance margin
Insurance
service result
Normalised net insurance margin is
defined in the glossary on page 262
and reconciled on page 268.
Expresses underwriting and policy expenses in
relation to net insurance revenue. Note that
restructuring and one-off costs are not considered
as underwriting costs and are not included in
expense ratio calculations.
Expresses claims performance in relation to net
insurance revenue.
This is a measure of underwriting profitability and
excludes non-insurance income. A ratio greater
than 0% represents an underwriting profit and a
ratio of less than 0% represents an underwriting
loss.
This is a measure of underwriting profitability
excluding the variances of actual weather from our
assumptions and Ogden discount rate changes
(when relevant). It also excludes non insurance
income. A ratio greater than 0% represents an
underwriting profit and a ratio of less than 0%
represents an underwriting loss.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
265265
Strategic Report / Governance / Financial statements Glossary and Appendices continued
Closest equivalent
IFRS measure
Multiple -
rationale for
APM
Group APM
Ongoing
operations (see
also brokered
commercial
business and run-
off partnerships)
Definition and/or reconciliation
Rationale for APM
Ongoing operations, brokered
commercial business and run-off
partnerships are defined in the glossary
on pages 263 and 264 and reconciled
in appendix B on page 269.
As noted in the Acting CEO and CFO reviews, the
Group has announced the sale of its brokered
commercial business and exited or has initiated
termination of three low margin partnerships in
order to be able to deploy its capital where it may
obtain higher returns and has excluded these
businesses from its ongoing results to give the
reader a clearer view of the Group's ongoing
activities and activities that it is seeking to exit from.
This is a measure of profitability. A three-year
cumulative operating earnings per share (the sum
of the amounts for the three years starting with the
year that the award is made) is used in long-term
incentive plan ("LTIP") calculations.
Operating
earnings/(loss)
per share
Diluted
earnings per
share
Operating earnings/(loss) per share is
defined in the glossary on page 263
and reconciled on page 267.
Operating profit
Profit before
tax
Operating profit is defined in the
glossary on page 263 and reconciled in
note 4 on page 211.
This shows the underlying performance (before tax
and excluding finance costs and restructuring and
one-off costs) of the business activities.
Return on
equity
Operating return on tangible equity is
defined in the glossary on page 263
and is reconciled on page 267.
This shows performance against a measure of
equity that is more easily comparable to that of
other companies.
This shows the expenses relating to business
activities excluding restructuring and one-off costs
and those included within the insurance service
result.
This shows the equity excluding Tier 1 notes and
intangible assets for comparability with companies
which have not acquired businesses or capitalised
intangible assets.
This shows the equity excluding Tier 1 notes and
intangible assets per share for comparability with
companies which have not acquired businesses or
capitalised intangible assets.
Operating return
on tangible
equity
Other operating
expenses
Other directly
attributable
expenses
Other operating expenses is defined in
the glossary on page 263 and
reconciled in Appendix B on page 269.
Tangible equity
Equity
Tangible equity is defined in the
glossary on page 264 and is reconciled
in note 14 on page 220.
Tangible net
asset value per
share
Net asset value
per share
Tangible net asset value per share is
defined in the glossary on page 264
and reconciled in note 14 on page 220.
266
266
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Investment income and return yields1
Investment income
Investment fees
Realised and unrealised gains/(losses)
Total investment return
Opening investment property
Opening financial investments
Opening cash and cash equivalents
Opening borrowings
Opening derivatives asset4
Opening investment holdings
Closing investment property
Closing financial investments
Closing cash and cash equivalents⁴
Closing borrowings
Closing derivatives asset5
Closing investment holdings
Average investment holdings6
Investment income yield1
Investment return yield1
Strategic Report / Governance / Financial statements
Notes2
FY 2023
£m
6
6
6
6
28
29
29
187.9
(9.3)
124.4
303.0
278.5
3,696.4
1,003.6
(65.2)
1.6
4,914.9
277.1
3,691.6
1,530.4
(82.4)
12.4
5,429.1
5,172.0
3.5%
5.9%
FY 2022
£m
restated3
124.9
(9.5)
(342.5)
(227.1)
317.0
4,630.3
955.7
(59.2)
14.3
5,858.1
278.5
3,696.4
1,003.6
(65.2)
1.6
4,914.9
5,386.5
2.1%
(4.2%)
Notes:
1. See glossary on page 262 for definitions.
2. See notes to the consolidated financial statements.
3. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
4. Excludes cash withheld under funds withheld arrangement, see note 1.5.
5. See page 36 (Investment holdings).
6. Mean average of opening and closing balances.
Operating return on tangible equity1
Operating loss - ongoing operations
Other finance costs
Coupon payments in respect of Tier 1 notes
Adjusted operating loss - ongoing operations before tax
Tax credit (2023 UK standard tax rate of 23.5%, 2022 UK standard tax rate of 19.0%)
Adjusted operating loss - ongoing operations after tax
Opening shareholders' equity
Opening goodwill and other intangible assets
Opening shareholders' tangible equity
Closing shareholders' equity
Closing goodwill and other intangible assets
Closing shareholders' tangible equity
Average shareholders' tangible equity3
Operating return on tangible equity
2023
£m
(189.5)
(14.5)
(16.6)
(220.6)
51.8
(168.8)
1,845.3
(822.2)
1,023.1
2,058.2
(818.6)
1,239.6
1,131.4
(14.9%)
2022
£m
restated2
(6.4)
(20.4)
(16.6)
(43.4)
8.2
(35.2)
2,450.6
(822.5)
1,628.1
1,845.3
(822.2)
1,023.1
1,325.6
(2.7%)
Notes:
1. See glossary on page 263 for definitions.
2. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
3. Mean average of opening and closing balances.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
267267
Strategic Report / Governance / Financial statements
Glossary and Appendices continued
Operating earnings/(loss) per share
Operating loss - ongoing operations
Other finance costs
Coupon payments in respect of Tier 1 notes
Adjusted operating loss - ongoing operations before tax
Tax credit (2023 UK standard tax rate of 23.5%, 2022 UK standard tax rate of 19.0%)
Adjusted loss for the year attributable to the owners of the Company
Weighted average total shares (number of Ordinary Shares (millions))
Weighted average of Share Trust owned shares (millions)
Weighted average number of Ordinary Shares in issue (millions)
Effect of dilutive potential of share options and contingently issuable shares (millions)
Weighted average number of Ordinary Shares for the purpose of operating earnings per share
(millions)
Operating loss per share
Note:
1. See glossary on page 263 for definitions.
Insurance and reinsurance finance expenses
Insurance finance expense from insurance contracts issued:
Unwind of discounting of claims
Of which:
Ongoing operations in operating profit
Brokered commercial business
Run-off partnerships
Effect of change in yield curve
Insurance finance expense from insurance contracts issued
Reinsurance finance expense from insurance contracts issued:
Unwind of discounting of claims
Of which:
Ongoing operations in operating profit
Brokered commercial business
Run-off partnerships
Effect of change in yield curve
Reinsurance finance expense from insurance contracts issued
Net insurance finance expense:
Unwind of discounting of claims
Of which:
Ongoing operations in operating profit
Brokered commercial business
Run-off partnerships
Effect of change in yield curve
Net insurance finance expense
268
268
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
2023
£m
(189.5)
(14.5)
(16.6)
(220.6)
51.8
(168.8)
1,311.4
(12.4)
1,299.0
17.3
2022
£m
(6.4)
(20.4)
(16.6)
(43.4)
8.2
(35.2)
1,317.3
(13.0)
1,304.3
—
1,316.3
1,304.3
(12.8)
(2.7)
2023
£m
2022
£m
(189.8)
(87.2)
(163.8)
(24.4)
(1.6)
(4.0)
(193.8)
(75.8)
(11.0)
(0.4)
189.6
102.4
49.5
27.4
45.1
4.3
0.1
(21.5)
28.0
25.4
2.0
—
(128.9)
(101.5)
(140.3)
(59.8)
(118.7)
(20.1)
(1.5)
(25.5)
(165.8)
(50.4)
(9.0)
(0.4)
60.7
0.9
Strategic Report / Governance / Financial statements
Appendix B - Management view statements of profit or loss, claims development tables, expenses,
average premiums, gross written premium and associated fees and in-force policies (unaudited)
Management view statement of profit or loss – year ended 31 December 2023
The table below analyses the Group’s management view results by reportable segment for the year ended 31 December 2023.
Motor
Home
RoPL¹ ²
Commercial
Total Group -
ongoing
operations
Brokered
commercial
business
Run-off
partnerships¹
Notes
£m
£m
£m
£m
£m
£m
£m
Total Group
£m
2,047.8
551.5
265.7
241.0
3,106.0
665.8
150.1
3,921.9
66.1
16.0
2.5
6.3
90.9
1.9
—
92.8
(308.5)
(27.8)
4.7
(12.4)
(344.0)
(66.9)
(2.1)
(413.0)
5 1,805.4
539.7
272.9
234.9
2,852.9
600.8
148.0
3,601.7
5
(240.5)
(36.1)
(3.7)
1,564.9
503.6
269.2
(25.1)
209.8
(305.4)
2,547.5
(163.4)
437.4
(1.4)
146.6
(470.2)
3,131.5
Gross written premium and associated
fees
Instalment income
Movement in liability for remaining
coverage
Insurance revenue
Expenses from reinsurance contracts
held
Net insurance revenue
Incurred claims - including losses from
onerous contracts and other directly
attributable claims income
(1,743.5)
(337.7)
(155.7)
Amounts recoverable from reinsurers
5
248.7
24.0
2.3
Net insurance claims
Of which:
(1,494.8)
(313.7)
(153.4)
Prior-year reserves development
(138.4)
8.9
(1.2)
Acquisition costs
Operating expenses
Other directly attributable expenses
Insurance service result
Investment income
Unwind of discounting of claims
5
5
6
6
(89.6)
(42.3)
(12.4)
(312.1)
(97.4)
(61.4)
(401.7)
(139.7)
(73.8)
(331.6)
50.2
42.0
107.7
21.2
(94.3)
(16.3)
5.9
(2.4)
2.5
Other operating income and expenses
(1.4)
(2.7)
(319.6)
52.4
48.0
Operating (loss)/profit
Fair Value gains2
Effect of change in yield curve
Restructuring and one-off costs2
Other finance costs
Gain on disposal of business
Profit before tax
6
6
8
(126.7)
5.2
(121.5)
(2,363.6)
280.2
(2,083.4)
(15.0)
(29.5)
(31.2)
(60.7)
27.6
7.0
(5.7)
0.8
29.7
(145.7)
(173.8)
(502.1)
(675.9)
(211.8)
141.8
(118.7)
(0.8)
(189.5)
(356.8)
140.8
(216.0)
32.2
(116.3)
(91.2)
(207.5)
13.9
35.2
(20.1)
(1.4)
27.6
Key performance indicators – year ended 31 December 2023
Motor
Home
RoPL¹ ²
Commercial
Net insurance margin ("NIM")²
Combined operating ratio²
Net expense ratio²
Net acquisition costs ratio²
Net insurance claims ratio²
– current-year attritional²
(21.1%)
121.1%
10.0%
90.0%
15.6%
84.4%
19.9%
19.3%
22.8%
5.7%
8.4%
4.6%
95.5%
62.3%
57.0%
86.7%
59.2%
56.6%
– prior-year reserves development
8.8%
(1.8%)
0.4%
– major weather events
Effect of weather
Net insurance claims ratio²
Net acquisition ratio²
N/A
4.9%
N/A
N/A
N/A
(5.8%)
0.0%
N/A
N/A
(1.7%)
0.0%
Net insurance margin normalised for
weather²
N/A
4.2%
N/A
11.4%
(9.6%)
13.1%
86.9%
14.9%
14.1%
57.9%
49.8%
7.1%
1.0%
Total Group -
ongoing
operations
(8.3%)
108.3%
19.7%
6.8%
81.8%
75.1%
5.7%
1.0%
(1.3%)
0.0%
(153.2)
2.4
(150.8)
(2,873.6)
423.4
(2,450.2)
(10.6)
(2.2)
(22.3)
(24.5)
(28.7)
1.6
(1.5)
(0.9)
(29.5)
(124.1)
(292.3)
(615.6)
(907.9)
(226.6)
178.6
(140.3)
(3.1)
(191.4)
124.4
(25.5)
(59.5)
(14.5)
443.9
277.4
Total Group
(7.2%)
107.2%
19.7%
9.3%
78.2%
73.3%
4.0%
0.9%
(1.6%)
0.0%
(8.8%)
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
269269
Strategic Report / Governance / Financial statements
Glossary and Appendices continued
Management view statement of profit or loss – year ended 31 December 2023 continued
Additional data to support key performance indicators – year ended 31 December 2023
Motor
Home
RoPL¹ ²
Commercial
£m
£m
£m
£m
Net insurance claims
Attritional net insurance claims
(1,494.8)
(313.7)
(153.4)
(1,356.4)
(297.9)
(152.2)
Prior-year reserves development
(138.4)
8.9
Major weather events
N/A
(24.7)
(1.2)
N/A
(121.5)
(104.5)
(15.0)
(2.0)
Normalised operating profit2 – year ended 31 December 2023
Total Group -
ongoing
operations
£m
(2,083.4)
(1,911.0)
(145.7)
(26.7)
Total Group
£m
(2,450.2)
(2,297.9)
(124.1)
(28.2)
Operating loss
Effect of:
Ogden discount rate
Normalised weather - claims
Normalised weather - profit share
Normalised operating loss
Prior-year adjustments
Prior-year reserves development
Ogden discount rate
Prior-year normalised operating loss
Current-year normalised operating loss
Current-year normalised operating loss ratio
Total Group -
ongoing
operations1
£m
(189.5)
—
(32.7)
—
(222.2)
(145.7)
—
(145.7)
(76.5)
34%
Notes:
1. Ongoing operations and run-off partnerships – See glossary on pages 261 to 264 for definitions and appendix A – Alternative performance measures
on pages 265 to 268 for reconciliation to financial statement line items.
2. See glossary on page 261 for definition and appendix A – Alternative performance measures on page 267 for reconciliation to financial statement
line items.
270
270
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Management view statement of profit or loss – year ended 31 December 2022
The table below analyses the Group’s management view results by reportable segment for the year ended 31 December 2022
(restated1).
Notes
Motor
Home
RoPL¹ ²
Commercial
Total Group -
ongoing
operations
Brokered
commercial
business
Run-off
partnerships¹
Total Group
£m
£m
£m
£m
£m
£m
£m
£m
Gross written premium and associated
fees
1,432.7
518.1
273.9
218.9
2,443.6
530.4
124.4
3,098.4
Instalment income
65.5
16.9
2.8
5.9
91.1
1.6
—
92.7
Movement in liability for remaining
coverage
Insurance revenue
Expenses from reinsurance contracts
held
Net insurance revenue
Incurred claims - including losses from
onerous contracts and other directly
attributable claims income
Amounts recoverable from/(payable to)
reinsurers
Net insurance claims
Of which:
57.1
25.7
5.4
(13.0)
75.2
(35.6)
(1.6)
38.0
5 1,555.3
560.7
282.1
211.8
2,609.9
496.4
122.8
3,229.1
5
(77.2)
(26.5)
(2.3)
(22.1)
(128.1)
(36.9)
(0.7)
(165.7)
1,478.1
534.2
279.8
189.7
2,481.8
459.5
122.1
3,063.4
(1,263.7)
(413.1)
(145.5)
(125.1)
(1,947.4)
(217.6)
(109.5)
(2,274.5)
5
87.4
3.1
(0.7)
(1.8)
88.0
8.4
—
96.4
(1,176.3)
(410.0)
(146.2)
(126.9)
(1,859.4)
(209.2)
(109.5)
(2,178.1)
Prior-year reserves development
4.3
17.0
4.6
9.5
35.4
38.6
23.8
97.8
Acquisition costs
Operating expenses
(82.4)
(33.4)
(22.0)
(36.0)
(173.8)
(121.5)
(2.2)
(297.5)
(290.1)
(94.3)
(55.9)
(31.8)
(472.1)
(80.4)
(21.0)
(573.5)
Other directly attributable expenses
5
(372.5)
(127.7)
(77.9)
(67.8)
(645.9)
(201.9)
(23.2)
(871.0)
(70.7)
(3.5)
55.7
72.7
13.8
(38.5)
(28.3)
(64.8)
(7.4)
(2.0)
3.5
(2.0)
2.9
0.9
60.1
(5.0)
4.1
(2.5)
0.8
(2.6)
(23.5)
94.1
(50.4)
(26.6)
48.4
20.4
(9.0)
3.1
(10.6)
0.9
(0.4)
(0.7)
(6.4)
62.9
(10.8)
Insurance service result
Investment income
Unwind of discounting of claims
Other operating income and expenses
Operating (loss)/profit
Net fair value losses³
Effect of change in yield curve
Restructuring and one-off costs3
Other finance costs
Loss before tax
5
6
6
6
6
8
Key performance indicators – year ended 31 December 2022
Net insurance margin ("NIM")³
Combined operating ratio³
Net expense ratio³
Net acquisition costs ratio³
Net insurance claims ratio³
– current-year attritional³
Motor
Home
RoPL² ³
Commercial
Total Group -
ongoing
operations2
(4.8%)
(0.8%)
19.8%
(2.7%)
(0.9%)
104.8%
100.8%
80.2%
102.7%
100.9%
19.6%
17.7%
20.0%
5.6%
6.3%
7.9%
79.6%
76.8%
52.3%
79.9%
57.7%
53.9%
16.8%
19.0%
66.9%
69.3%
19.0%
7.0%
74.9%
71.3%
– prior-year reserves development
(0.3%)
(3.2%)
(1.6%)
(5.0%)
(1.4%)
– major weather events
Effect of weather
Net insurance claims ratio³
Net acquisition ratio³
Net insurance margin normalised for
weather³
N/A
22.3%
N/A
2.6%
5.0%
N/A
N/A
12.6%
(0.8%)
N/A
11.0%
N/A
N/A
N/A
0.3%
0.0%
2.8%
(0.2%)
(2.4%)
1.7%
14.3
115.4
(59.8)
(24.2)
45.7
(342.5)
60.7
(45.3)
(20.4)
(301.8)
Total Group
0.5%
99.5%
18.7%
9.7%
71.1%
69.4%
(3.2%)
4.9%
2.5%
(0.1%)
2.9%
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
271271
Strategic Report / Governance / Financial statements
Glossary and Appendices continued
Management view statement of profit or loss – year ended 31 December 2022 continued
Additional data to support key performance indicators – year ended 31 December 2022
Net insurance claims
Motor
Home
RoPL² ³
Commercial
Total Group -
ongoing
operations2
£m
£m
£m
£m
£m
(1,176.3)
(410.0)
(146.2)
(126.9)
(1,859.4)
Attritional net insurance claims
(1,180.6)
(307.9)
(150.8)
(131.4)
(1,770.7)
Prior-year reserves development
Major weather events
4.3
17.0
N/A
(119.1)
4.6
N/A
9.5
(5.0)
35.4
(124.1)
Normalised operating profit3 – year ended 31 December 2022
Total Group
£m
(2,178.1)
(2,125.4)
97.8
(150.5)
Operating loss
Effect of:
Ogden discount rate
Normalised weather - claims
Normalised weather - profit share
Normalised operating profit
Prior-year adjustments
Prior-year reserves development
Ogden discount rate
Prior-year normalised operating profit
Current-year normalised operating profit
Current-year normalised operating profit ratio
Total Group -
ongoing
operations2
£m
(6.4)
—
68.0
(4.3)
57.3
35.4
—
35.4
21.9
38%
Notes:
1. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
2. Ongoing operations and run-off partnerships – See glossary on pages 261 to 264 for definitions and appendix A – Alternative performance measures
on pages 265 to 268 for reconciliation to financial statement line items.
3. See glossary on page 261 for definition and appendix A – Alternative performance measures on page 267 for reconciliation to financial statement
line items.
272
272
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Insurance and reinsurance contract assets and liabilities - claims development tables (discounted PPO basis)
The claims development tables disclosed in note 20.5 have been represented on an undiscounted PPO basis, this is more in line with
how the Group manages its insurance and reinsurance contract assets and liabilities.
Gross insurance liabilities
Accident year
Estimate of ultimate gross claims
costs:
2015
2016
2017
2018
2019
2020
2021
2022
2023
Total
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
At end of accident year
2,066.5 2,124.8 2,178.0 2,280.7 2,059.9 1,767.3 1,905.5 2,252.1 2,721.5
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
(35.1)
(78.5) (118.2)
(92.3)
(57.3)
(66.4)
(11.1) 157.9
(113.2)
(52.7)
(93.7)
(38.8)
(37.5)
(28.7)
(29.9)
(57.2)
(80.4)
(32.1)
(3.4)
(8.1)
36.7
(20.5)
(39.8)
(18.2)
4.1
15.0
(16.5)
(12.0)
(1.2)
20.9
5.3
(18.6)
11.0
(5.9)
8.6
(16.5)
Current estimate of cumulative
claims
1,806.9 1,851.4 1,925.6 2,171.2 1,972.0 1,708.9 1,864.5 2,410.0 2,721.5
Cumulative payments to date
(1,740.9) (1,797.3) (1,849.9) (1,993.3) (1,759.5) (1,414.3) (1,474.9) (1,806.2) (1,336.4)
Gross liability recognised in the
statement of financial position
2014 and prior
Claims handling provision
Adjustment for non-financial risk
Effect of discounting
Other Liabilities for Incurred Claims
Total
Net insurance contract liabilities
Accident year
Estimate of ultimate net claims
costs:
At end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Current estimate of cumulative
claims
Cumulative payments to date
Gross liability recognised in the
statement of financial position
2014 and prior
Claims handling provision
Adjustment for non-financial risk
Effect of discounting
Other Liabilities for incurred claims
Total
66.0
54.1
75.7
177.9
212.5
294.6
389.6
603.8
1,385.1
3,259.3
688.2
109.6
289.3
(322.6)
57.1
4,080.9
2015
2016
2017
2018
2019
2020
2021
2022
2023
Total
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
1,912.3 1,931.8 2,009.2 2,137.8 1,921.4 1,622.7 1,761.1 2,180.7 2,237.7
(75.5)
(30.3)
(95.1)
(80.1)
(36.3)
(49.2)
(1.5) 170.4
(61.9)
(46.7)
(60.2)
(20.0)
(36.9)
(42.6)
(12.6)
(29.2)
(42.9)
(17.2)
(18.2)
(7.7)
48.3
(21.0)
(14.8)
(26.8)
3.5
9.9
(22.0)
(8.0)
(10.2)
20.9
5.0
(13.2)
7.9
(5.2)
(4.9)
(7.4)
1,695.1 1,771.0 1,807.6 2,043.9 1,850.4 1,579.2 1,747.0 2,351.1 2,237.7
(1,671.1) (1,746.8) (1,765.8) (1,945.7) (1,718.7) (1,375.2) (1,442.9) (1,804.8) (1,088.6)
24.0
24.2
41.8
98.2
131.7
204.0
304.1
546.3
1,149.1
2,523.4
442.0
91.4
158.7
(305.9)
(174.7)
2,734.9
Direct Line Group Annual Report and Accounts 2023
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273273
Strategic Report / Governance / Financial statements
Glossary and Appendices continued
Operating expenses - ongoing operations1
Commission expenses
Marketing
Acquisition expenses
Staff costs3
IT and other operating expenses3,4
Insurance levies
Depreciation, amortisation and impairment of
intangible and fixed assets5
Operating expenses
Total expenses - ongoing operations
Total expenses - brokered commercial insurance
Total expenses - run-off partnerships
Restructuring and one off costs
Total expenses
Net acquisition ratio6 - ongoing operations
Net acquisition ratio6 - total Group
Net expense ratio6 - ongoing operations
Net expense ratio6 - total Group
Insurance
service result
FY 2023
Other
expenses
(note 7)
FY 2022 (restated)3
Total expenses
Insurance
service result
Other
expenses
(note 7)
Total expenses
£m
(111.1)
(62.7)
(173.8)
(194.6)
(102.9)
(81.2)
£m
N/A
N/A
N/A
(5.9)
(15.1)
N/A
(123.4)
(1.2)
(502.1)
(675.9)
(207.5)
(24.5)
N/A
(22.2)
(22.2)
(1.8)
(0.9)
N/A
(907.9)
(24.9)
£m
(111.1)
(62.7)
(173.8)
(200.5)
(118.0)
(81.2)
(124.6)
(524.3)
(698.1)
(209.3)
(25.4)
(59.5)
(992.3)
6.8%
9.3%
19.7%
19.7%
£m
(95.9)
(77.9)
(173.8)
(188.6)
(85.6)
(83.0)
£m
N/A
N/A
N/A
(6.3)
(26.6)
N/A
£m
(95.9)
(77.9)
(173.8)
(194.9)
(112.2)
(83.0)
(114.9)
(0.8)
(115.7)
(33.7)
(33.7)
1.9
(0.7)
N/A
(32.5)
(505.8)
(679.6)
(200.0)
(23.9)
(45.3)
(948.8)
(472.1)
(645.9)
(201.9)
(23.2)
N/A
(871.0)
7.0%
9.7%
19.0%
18.7%
Notes:
1. Ongoing operations and run-off partnerships – See glossary on pages 261 to 264 for definitions and appendix A – Alternative performance measures
on pages 265 to 268 for reconciliation to financial statement line items.
2. Prior period comparatives have been restated on transition to IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'. See notes 1 and 40 for
further details.
3. Staff costs and other operating expenses attributable to claims handling activities are allocated to the cost of insurance claims.
4.
5.
IT and other operating expenses include professional fees and property costs.
Includes right-of-use assets and property, plant and equipment. For the year ended 31 December 2023, there were no impairment charges which
relate solely to own occupied freehold property (2022: no impairments).
6. See glossary on page 261 for definition and appendix A – Alternative performance measures on page 267 for reconciliation to financial statement
line items.
Motor and Home average premium (£)
£
New business
Renewal
Motor direct own brands¹
New business
Renewal
Home direct own brands
Note:
1. Excluding the By Miles brand.
FY 2023
FY 2022
Q4 2023
Q3 2023
Q2 2023
Q1 2023
Q4 2022
551
441
470
206
249
242
486
333
368
209
217
216
594
513
537
212
259
249
588
480
507
214
257
250
532
412
445
204
249
243
478
373
401
188
230
224
474
362
392
201
226
223
274
274
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Gross written premium and associated fees1
Direct own brands
Partnerships
Motor
Direct own brands
Partnerships
Home
Rescue - ongoing operations
Pet
Other personal lines - ongoing operations
Rescue and other personal lines - ongoing operations
Of which: Green Flag direct
Commercial direct own brands
Total gross written premium and associated fees - ongoing operations
Brokered commercial insurance
Run-off partnerships
Total gross written premium and associated fees
FY 2023
£m
1,575.7
472.1
2,047.8
408.8
142.7
551.5
137.3
66.5
61.9
265.7
85.1
241.0
3,106.0
665.8
150.1
3,921.9
FY 2022
£m
1,398.5
34.2
1,432.7
381.5
136.6
518.1
143.7
70.8
59.4
273.9
88.2
218.9
2,443.6
530.4
124.4
3,098.4
Note:
1. See glossary on page 261 for definition and appendix A – Alternative performance measures on page 267 for reconciliation to financial statement
line items.
In-force policies (thousands)
Direct own brands1
Partnerships2,3
Motor
Direct own brands1
Partnerships
Home
Rescue - ongoing4
Pet
Other personal lines - ongoing operations4
Rescue and other personal lines - ongoing operations4
Of which: Green Flag Direct
Commercial direct own brands1,4,5
Total in-force policies - ongoing operations4
Brokered commercial insurance
Run-off partnerships4
Total in-force policies5
31 Dec
2023
3,373
808
4,181
1,706
738
2,444
1,965
112
95
2,172
1,048
645
9,442
286
2,224
11,952
31 Dec
2022
3,756
80
3,836
1,732
769
2,501
2,185
128
111
2,424
1,106
636
9,397
277
2,188
11,862
Notes:
1. Motor partnerships includes the Motability partnership, which has an initial term of 7 months from 1 September 2023. Subsequently, Motability
premiums are repriced twice a year on 1 April and 1 October with gross written premium recognised twice a year on the same dates. As the
Motability contract is a fleet contract, Motability customer numbers are used to allow a more representative presentation of the Group's in-force
policies.
2. Ongoing operations – the Group's ongoing operations result exclude the results of the brokered commercial insurance business, that the Group in
2023 entered into an agreement to sell, and the Rescue and other personal lines partnerships that the Group first excluded from its 2022 results.
Relevant prior-year data has been restated accordingly. See glossary on pages 261 to 263 for definitions and appendix A – Alternative performance
measures on pages 265 to 268 for reconciliation to financial statement line items.
In-force policies as at 31 December 2022 have been restated to remove 14,500 direct own brand policies that were previously erroneously included
in the reported amounts.
3.
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
275275
Strategic Report / Governance / Financial statements
– market-related risks such as fluctuations in interest rates,
exchange rates and credit spreads, including those created or
exacerbated by the war in Ukraine following the Russian
invasion and/or the conflict in the Middle East involving Israel
and Gaza;
– the policies and actions and/or new principles, rules and/or
regulations, of regulatory authorities and bodies, and of
changes to, or changes to interpretations of, principles, rules
and/or regulations (including changes made directly or
indirectly as a result of Brexit or related to capital and solvency
requirements or related to the Ogden discount rates or made
in response to the Covid-19 pandemic and its impact on the
economy and customers) and of changes to law and/or
understandings of law and/or legal interpretation following
the decisions and judgements of courts;
– the impact of competition, currency changes, inflation and
deflation;
– the timing, impact and other uncertainties of future
acquisitions, disposals, partnership arrangements, joint
ventures or combinations within relevant industries; and
– the impact of tax and other legislation and other regulation
and of regulator expectations, requirements, interventions,
enforcements, fines and requirements and of court,
arbitration, regulatory or ombudsman decisions, judgements
and awards (including in any of the foregoing in connection
with the Covid-19 pandemic) 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 obligation or undertaking to update or
revise publicly any forward-looking statements, whether
because of new information, future events or otherwise, unless
required to do so by applicable law or regulation. Nothing in this
document constitutes or should be construed as a profit
forecast.
Neither the content of Direct Line Group's website nor the
content of any other website accessible from hyperlinks on the
Group's website is incorporated into, or forms part of, this
document.
Forward-looking Statement
This Annual Report & Accounts has been prepared for, and only
for, the members of the Company as a body, and no other
persons. The Company, its Directors, employees, agents or
advisers do not accept responsibility to any other person to
whom this document is shown, or into whose hands it may
come, and any such responsibility or liability is expressly
disclaimed.
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”, "vision", “will” or "would" 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 may appear in several places
throughout this document and include statements regarding
intentions, beliefs or current expectations, including of the
Directors, concerning, among other things: the Group’s results of
operations, statement of financial position, financial condition,
prospects, growth, net insurance margin, insurance service
result, strategies, the industry in which the Group operates and
the Group's approach to climate-related matters. Examples of
forward-looking statements include financial targets which are
contained in this document with respect to return on tangible
equity, solvency capital ratio, net insurance margin, combined
operating ratio, percentage targets for current-year contribution
to operating profit, prior-year reserve releases, cost reductions,
reduction in net expense ratio, investment income yield, net
realised and unrealised gains, capital expenditure and risk
appetite range; and targets, goals and plans relating to climate
and the Group's approach and strategy in connection with
climate-related risks and opportunities. 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 and/or are beyond the
Group’s control and/or they rely on assumptions that may or
may not transpire to be correct. Forward-looking statements are
not guaranteeing future performance.
The Group's actual results of operations, financial condition and
the development of the business sector in which the Group
operates may differ materially from those suggested by the
forward-looking statements contained in this document, for
example directly or indirectly as a result of, but not limited to:
– United Kingdom ("UK") domestic and global economic
business conditions;
– the direct and indirect impacts and implications of the
coronavirus Covid-19 pandemic on the economy, nationally
and internationally, on the Group, its operations and
prospects, and on the Group’s customers and their behaviours
and expectations;
– the Trade and Cooperation Agreement between the UK and
the European Union ("EU") regarding the terms of the trading
relationships between the UK and the EU and its
implementation, and any subsequent trading and other
relationship arrangements between the UK and the EU and
their implementation;
– the terms of trading and other relationships between the UK
and other countries following Brexit;
– the impact of the FCA's PPR regulations and Consumer Duty
regulations and of responses by insurers, customers and other
third parties and of interpretations of such rules by any
relevant regulatory authority;
276
276
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
Strategic Report / Governance / Financial statements
Principal banker
NatWest Group plc
250 Bishopsgate
London
EC2M 4AA
Telephone: +44 (0)20 7833 2121
Website: www.natwestgroup.com
Corporate brokers
Goldman Sachs International
Plumtree Court
25 Shoe Lane
London
EC4A 4AU
Telephone: +44 (0)20 7774 1000
Website: www.goldmansachs.com
Morgan Stanley & Co. International plc
25 Cabot Square
Canary Wharf
London
E14 4QA
Telephone: +44 (0)20 7425 8000
Website: www.morganstanley.com
RBC Europe Ltd (trading as "RBC Capital Markets")
100 Bishopsgate
London
EC2N 4AA
Telephone: +44 (0)20 7653 4000
Website: www.rbccm.com
Contact Information
Registered office
Direct Line Insurance Group plc
Churchill Court
Westmoreland Road
Bromley
BR1 1DP
Registered in England and Wales No. 02280426
Company Secretary: Roger C Clifton
Website: www.directlinegroup.co.uk
Registrars
Computershare Investor Services Plc
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
Shareholder helpline: +44 (0)370 873 5880
Shareholder fax: +44 (0)370 703 6101
Website: www.computershare.com
Investor Centre
To find out more about Investor Centre, go to
www.investorcentre.co.uk/directline
Auditor
Deloitte LLP
1 New Street Square
London
EC4A 3HQ
Telephone: +44 (0)20 7936 3000
Website: www.deloitte.com
Legal advisers
Allen & Overy LLP
One Bishops Square
London
E1 6AD
Telephone: +44 (0)20 3088 0000
Website: www.allenovery.com
Slaughter and May
One Bunhill Row
London
EC1Y 8YY
Telephone: +44 (0) 20 7600 1200
Website: www.slaughterandmay.com
Direct Line Group Annual Report and Accounts 2023
Direct Line Group Annual Report and Accounts 2023
277277
Strategic Report / Governance / Financial statements Direct Line Insurance Group plc©
Registered in England & Wales No. 02280426
Registered Office:
Churchill Court
Westmoreland Road
Bromley
BR1 1DP