DLG: Premiums up but profits hit
Direct Line Group’s (DLG) 2016 results show that despite increased gross written premiums, full year pre-tax profits have been hit hard by the Ogden discount rate reduction.
Gross written premiums for ongoing operations were up 3.9% to £3.2bn (2015: £3.1bn), driven by growth in motor and home own-brand in-force policies (up 4.3%). However, the 2016 results reflect the one-off impact of using the new Ogden discount rate of minus 0.75% reducing pre-tax profits by 30% to £353.0m (pre-Ogden: £570.3m; 2015: £507.5m). The revised combined operating ratio was 97.7% (pre-Ogden: 91.8%; 2015: 94.0%).
Paul Geddes, CEO of Direct Line Group, commented, ‘2016 was a successful year for Direct Line Group and I’m proud of the strong own brand growth achieved in a switching market, proving our competitiveness in all our key categories and channels. This positions us well in a market disrupted by the reduction in the discount rate, and allows us to target a 93-95% combined operating ratio in 2017. We will continue to target improved efficiency and invest in customer and technology trends affecting our markets.’
The motor division grew inforce polices 4.5% in the year and improved its current-year attritional loss ratio by 0.9% after the impact of the Ogden discount rate. Overall, motor gross written premium increased by 9.4% in comparison to 2015. The COR for the motor division was 106.3% (2015: 92.4%), including an 11.2% one-off increase due to the reduction in the Ogden discount rate.
Motor average written premiums increased by 6.3% in 2016 compared with an average increase of 5.2% in 2015. Claims inflation remained at the top of the Group’s long-term expectation of three to five per cent driven by higher damage costs.
Gross written premium for Rescue and other personal lines grew by 1.7% compared with 2015.