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1、Annual Report&Accounts 2016Building our brandsDirect Line Insurance Group plc Annual Report&Accounts 2016Strategic report2 Group highlights4 Group at a glance6 Market overview8 Business model10 Chairmans statement12 Chief Executive Officers review14 Our strategy24 Our key performance indicators26 Ri
2、sk management30 Corporate social responsibility34 Operating review38 Finance reviewGovernance48 Chairmans introduction50 Board of Directors52 Executive Committee53 Corporate governance report64 Committee reports82 Directors remuneration report110 Directors reportFinancial statements114 Contents115 I
3、ndependent Auditors report122 Consolidated financial statements127 Notes to the consolidated financial statements179 Parent Company financial statements182 Notes to the Parent Company financial statementsOther information187 Additional information189 Glossary and appendices195 Forward-looking statem
4、ents disclaimer196 Contact informationContentsFor all the latest news and announcements visit Our mission:To make insurance much easier and better value for our customersOur strategy supports our aspiration to be the leading personal and small business general insurer in the UK.Our customers are at
5、the centre of everything we do,as we remain focused on protecting an ever-changing Britain.Building our brandsBuilding a culture of great serviceFind out more on page 18Building our technology and data capabilitiesFind out more on page 20Building our brands by offering moreFind out more on page 1Gro
6、up highlightsProviding stability for our customers and shareholdersTargetAt least 15%16y15y14y14.2%Return on tangible equity2(%)18.516.814.2Total costs2 Ongoing operations(m)3,222.1 16y15y14y927.7884.7923.7923.7mDividend per share3(pence)24.6p16y15y14y14.027.58.813.813.210.014.697.7%Combined operati
7、ng ratio2Ongoing operations2(%)3,222.1 16y15y14y95.094.097.7403.5mOperating profit2Ongoing operations(m)16y15y14y506.0520.7403.5Adjusted diluted earnings per share2(pence)21.2p16y15y14y25.526.621.23,27 4.1mGross written premium1(m)16y15y14y3,099.4 3,152.43,274.1353.0mProfit before tax1(m)16y15y14y45
8、6.8507.5353.0Basic earnings per share1(pence)16y15y14y20.4p24.027.920.4Notes:1.Results for the years ended 31 December 2015 and 31 December 2014 are based on continuing operations and exclude discontinued operations2.See glossary on pages 189 and 190 and Alternative performance measures(“APM”)in App
9、endix A on page 191 and Appendix B Proforma results on page 194 presents the Groups results excluding the recent impact of the Ogden discount rate reduction3.The Board is proposing a final dividend of 9.7 pence per share,making a total regular dividend for 2016 of 14.6 pence per share Direct Line Gr
10、oup Annual Report&Accounts 20162Financial highlights Gross written premium for Ongoing operations1,2 up 3.9%to 3,274.1m(2015:3,152.4m),driven by growth in Motor and Home own-brand in-force policies(up 4.3%)2016 results reflect the one-off impact of using the new Ogden discount rate of minus 0.75%.Op
11、erating profit from Ongoing operations of 403.5m(pre-Ogden discount rate reduction3:578.6m;2015:520.7m)and profit before tax of 353.0m(pre-Ogden3:570.3m;2015:507.5m).Return on tangible equity1,2 of 14.2%,(pre-Ogden3:20.2%;2015:18.5%)Combined operating ratio1 from Ongoing operations of 97.7%(pre-Ogde
12、n3:91.8%;2015:94.0%),increased as a result of the reduction in the Ogden discount rate,partially offset by improved current-year underwriting performance and favourable weather claims.Adjusted for normal weather and before the Ogden discount rate change,the combined operating ratio was 93.5%,towards
13、 the lower end of the target range of 93%to 95%5.4%increase in final dividend per share to 9.7 pence per share,(2015:9.2 pence).Total dividends per share for 2016,including special interim dividend of 10.0 pence per share paid in September 2016 following the approval of the Groups partial internal m
14、odel(“PIM”),of 24.6 pence per share(2015:50.1 pence)The Groups estimated Solvency II capital coverage ratio4 post dividend is 165%,above the middle of the Groups risk appetite range of 140%180%(pre-dividend:174%)Strategic and operational highlights Direct Line Motor and Home new business growth at t
15、he highest annual level since IPO,demonstrating the success of the investment in brand,proposition and customer service Total costs for Ongoing operations of 923.7m broadly flat year on year before non-cash impairment charge of 39.3m,after absorbing 24.1m Flood Re levy and supporting growth in Motor
16、 and Home own brands Extended Home and Private Insurance partnership with RBS for a further three years,and implemented faster and easier sales journeys using cloud-based technology making connectivity and future change easier Invested in innovation,including partnership with PSA Peugeot Citron for
17、telematics extended for 4 more years,introducer role developed with Tesla,and MOVE_UK project brought into data collection stage Received approval from the Prudential Regulation Authority(“PRA”)to use the Groups Solvency II PIMWe had a successful 2016,absorbing a reduction in the discount rate appli
18、cable to personal injury lump sum damages awards to minus 0.75%and the Flood Re levy,while at the same time investing in the business and making progress on implementing our strategy.Our investments in our direct brands,competitiveness on price comparison websites and partnership capabilities are be
19、aring fruit.Notes:1.See glossary on pages 189 and 1902.See appendix A Alternative performance measures on page 191 for reconciliation to financial statement line items3.See appendix B Proforma results on page 194 for the Groups results excluding the recent impact of the Ogden discount rate reduction
20、 4.Estimates based on the Groups Solvency II PIM for 31 December 3Strategic reportGovernanceFinancial statementsOur brandsGroup at a glanceProtecting our customersWe have multiple brands,products and distribution channels.Each enables our customers to choose the right cover to protect their cars,hom
21、es,holidays,businesses and pets.Direct Line has maintained its brand heritage by selling products direct to customers exclusively by phone and internet.We target customers with ahighaffinity to the brand,and focuson providing a fast and NIG is our specialist commercial insurance brand.We sell our pr
22、oducts through brokers,including an in-house intermediary that arranges RBS1 and NatWest commercial Green Flag is our roadside rescue and recovery provider.We sell it as a standalone service and an additional optional product alongside motor Brand Partners is the Groups partnerships arm.We specialis
23、e in providing personal lines insurance,and roadside rescue and recovery products to some well-known brands.Direct Line for Business is an extension of our Direct Line brand.It is our direct commercial insurance brand for small businesses that have straightforward commercial insurance requirements.w
24、ww.directlineforbusiness.co.ukChurchill is a household name.Wemarket our products by phone andinternet,including PCWs.We target customers who have a high affinity to the brand,and who need an extra helping Privilege targets customers who mainly buy through PCWs.We focus on making sure they experienc
25、e a quick service at the best Note:1.The Royal Bank of Scotland Group plc,including National Westminster Bank plcDirect Line Group Annual Report&Accounts 20164MotorWe are Britains leading personal motor insurer measured by in-force policies1,mainly represented through our highly recognised brands Di
26、rect Line,Churchill and Privilege,and also through our partners.We insure around one in six insured cars on the road in the UK,representing 3.9 million in-force policies.HomeWe are Britains leading personal home insurer measured by in-force policies1.We reach our customers by selling home insurance
27、products through our brands,Direct Line,Churchill and Privilege,and our partners RBS,NatWest and Prudential.We protect commercial businesses through our brands,NIG,Direct Line for Business and Churchill,and through our partners RBS and NatWest.NIG sells its products exclusively through brokers opera
28、ting across the UK.Direct Line for Business provides business,van and landlord insurance products direct to customers.Churchill sells business,landlord and van products direct to customers and through price comparison websites(“PCWs”).Personal linesCommercial1,539.1mGross written premium3.9mIn-force
29、 policies106.3%Combined operating ratio149.1mOperating profit834.4mGross written premium3.4mIn-force policies85.0%Combined operating ratio166.7mOperating profit400.8mGross written premium7.9mIn-force policies93.3%Combined operating ratio45.9mOperating profitRescue and other personal linesWe are one
30、of the leading providers of rescue and other personal lines insurance in the UK2,3 with 7.9 million in-force policies.This includes providing roadside assistance and recovery for customers through Green Flag,the UKs third-largest roadside recovery provider2.We also offer customers protection for the
31、ir pets and holidays and are the second largest travel and the third largest pet insurer respectively3.499.8mGross written premium98.7%Combined operating ratio675kIn-force policies41.8mOperating profitNotes:1.Includes Direct Line,Churchill,Privilege and partner brands:RBS,Nationwide(home only),NatWe
32、st,Prudential and Sainsburys GfK Financial Research Survey six months ending November 2016,13,665 adults interviewed for motor insurance and 12,270 for home insurance2.Mintel Vehicle Recovery UK,September 20163.Mintel Pet Insurance UK,August 2016 and Mintel Travel Insurance UK,February 5Strategic re
33、portGovernanceFinancial statementsClaims and premium inflationRising costs for insurers and customersCustomers motor premiums have been rising over the past two years.Increasing claims costs have continued to push premiums higher,with increases in Insurance Premium Tax(“IPT”)also contributing.Despit
34、e sustained declines in the number of claims in recent years,average motor claim payouts rose again in 2016,with an increase of over 2.5%as personal injury claims have escalated2,3.Digitalisation&technologyInnovative companies offer partnership possibilitiesNew technology has the power to create fea
35、ture-rich insurance apps and systems that can analyse vast amounts of data.These developments support the possibility of more tailored insurance products,as underwriting techniques evolve.Such innovations are being partly driven by InsureTech and FinTech companies,who are creating opportunities for
36、partnerships with established insurers.However,given the amount of private and confidential information being generated,cyber security remains an increasing focus for the insurance industry.9.5bnOur changing environmentinvested globally in FinTech companies during 20151Market overviewWe operate in a
37、 dynamic environment,and the way we interact with customers is evolving.Changes inside and outside the industry,including technology and regulation,are shaping customers expectations.It is vital that we continue to serve customers and manage claims to the highest standards.Notes:1.KPMG The Pulse of
38、Fintech Converted to GBP at 2015 12 month average 1=$1.528602.Association of British Insurers(“ABI”)Key facts 20153.ABI Key Facts 2016Direct Line Group Annual Report&Accounts 20166Sharing economy and car automationChanging habits offer opportunities and challengesThe new sharing economy is changing
39、the way we live.Insurance products must change to reflect this.For example,we will need more innovative products than traditional buildings and contents insurance,as communal living and short-term rentals grow in popularity.Change will also affect motor insurance,where increasingly autonomous cars m
40、ay lead to significant reductions in severe crashes and injuries and change the profile of claims.In the long term,the industry will need to consider how best to provide cover as risk shifts from the driver to the vehicle.Regulation and legislationThe pace of change remains rapidInsurance regulation
41、 has continued to evolve over the past year with a reduction in the personal injury discount rate,Flood Re,the Enterprise Bill,Solvency II,an Insurance Premium Tax increase and new FCA renewal legislation being implemented.The UKs vote to leave the European Union adds significant regulatory uncertai
42、nty.The Bank of Englands decision to cut the base rate to 0.25%has reduced insurers investment returns with impacts on industry profitability.Brand strengthBrand investment pays off for insurersInsurance brands that are well known and valued by customers2 are consistently amongst the most successful
43、 in the industry3.Brand strength and visibility is an important factor in consumers insurance acquisition process.Therefore,to generate new business,insurers must invest in their brands to stay at the front of the publics minds.Providing quality customer service and offering something above and beyo
44、nd the average insurer reaps its benefits,with the market cost of acquiring new customers up to five times the cost of retention4.84%of consumers would use one insurer for all of their insurance needs if quality customer service and low prices were available51.8 millionThe average bodily injury clai
45、m cost following an accident is6connected cars in the UK in 2016110,9555.8bnone-off impact to the industry due to the personal injury discount rate reduction7Notes:1.Statista Number of connected cars in the United Kingdom(UK)from 2014 to 20202.Hall&Partners3.Deloitte Household and Motor Insurance Se
46、minars 20164.Digital Market Magazine How can the insurance industry retain existing customers?5.Consumer Intelligence Digital Insurance World 20166.ABI Key facts 20167.Willis Towers W7Strategic reportGovernanceFinancial statementsBusiness modelCreating value for our customersRead more about our bran
47、ds on page 4Read more about our key performance indicators on page 24Read more about our risk management on page 26Our multi-brand,multi-product and multi-distribution channel business offers different propositions to distinct customers.We believe this approach should enable us to generate value for
48、 customers and sustainable returns for our shareholders.ProfitReinvest in the businessDividendsServicingManaging riskOur shareholdersCostsOur peopleOur customersManaging financesCapitalNet claimsInvestment and other income PremiumsDirect Line Group Annual Report&Accounts 20168Customers are at the ce
49、ntre of our business model.So our mission is clear:we want to make insurance much easier and better value for them.We aspire to give them products that best suit their needs and exceptional service throughout their relationship with us.We also strive to adapt to their changing needs.From the moment
50、customers choose our products,to the time they claim or need to resolve an event we treat every step of the customer journey as an opportunity to provide excellent service and outcomes.We seek to make sure our business is well governed and controlled.We manage our finances carefully and balance this
51、 with targeting a suitable and sustainable return for our shareholders.We hold assets that exceed our expected liabilities as capital to allow us to absorb any unexpected losses that might occur.We maintain a buffer that significantly exceeds our regulatory capital requirements.We prefer to adopt a
52、conservative approach to claims reserving in order to hold sufficient funds to pay customer claims.This may result in subsequent releases from these reserves,which contribute to our annual profit.We aim to make it easy for our customers to access our products,and to give them what they are looking f
53、or.We want to make sure they have appropriate cover to protect against the unexpected.Customers can buy products online including through PCWs by phone,and indirectly through our partners.In our Commercial business,they can also buy our products through brokers.Each brand provides products for one o
54、r more insurance segments:motor,home,rescue,pet,travel and commercial.By tailoring the mix of distribution channels for each product,we seek to offer customers a blend of brands,products and services that best suit their needs.Everyone,from our front-line staff to employees in support and central fu
55、nctions,helps ensure we meet customers needs.Without our people,we could not generate value for customers and sustainable returns for our shareholders.Our shareholders are a big part of our business model.They invest in the business wanting to achieve a good level of return.So we aim to give our sha
56、reholders value by generating sustainable business profits.We reinvest part of this profit in the business,or add to capital and,where appropriate,distribute the rest to shareholders as dividends.We ensure our products meet regulatory standards and that customers understand what they are buying from
57、 us.We also aim to price our policies accurately and invest our assets appropriately to minimise potential losses.We transfer insurance risk through reinsurance in our normal business activities.External experts review our insurance claims reserves regularly.We mitigate risks by implementing our Gro
58、up policies and minimum standards.These are reviewed regularly to ensure we are in line with the risk appetite that the Board sets.Our business has been in operation for over 30 years,giving us a deep insight into the risks we underwrite.This insight enables us to make our pricing more reflective of
59、 the risks we underwrite.It also allows us to invest substantially in data and increase efficiencies.Again,this means we are better able to set accurate prices for the risks we underwrite.Customers experience the value of their cover when they come to claim.So we aim to settle claims as quickly and
60、easily as possible by engaging closely with our customers.This helps us demonstrate why our products and services are valuable,and to manage our claims costs.Making insurance much easier and better value for our customersOur focused processesOur disciplined 9Strategic reportGovernanceFinancial state
61、mentsChairmans statementFocused on creating long-term valueMike BiggsChairmanReturns to our shareholders remain a key focus in this challenging market environment.Cumulative dividends represent approximately 72%of the share price at the initial public offering.Dear shareholders,In 2016,the Group del
62、ivered profit before tax of 353.0 million(2015:507.5 million).Before the reduction in the Ogden discount rate to minus 0.75%,profit before tax was 570.3 million.We achieved this resilient result through our continued focus on the value,service and brand propositions offered to our customers,on opera
63、ting efficiency and on underwriting discipline in competitive markets.StrategyThe Groups mission is to make insurance much easier and better value for our customers.The Boards role is to support and challenge the Groups management to develop and execute a strategy which is aligned with this mission,
64、and positions the business to take advantage of changes in technology affecting vehicles,homes and how our customers communicate with us,as well as delivering operating efficiencies and targeting sustainable income streams.The effective execution of our strategy requires a substantial and continuing
65、 change agenda to improve our core systems,digital offering and the agility of the organisation.DividendsWe aim to increase the dividend annually in real terms,under our progressive dividend policy(see page 110).This aim reflects the potential of the Companys cash-flow generation and long-term earni
66、ngs.We are recommending a final regular dividend of 9.7 pence per share.If approved,the total regular dividend of 14.6 pence per share will represent 5.8%growth on 2015s regular dividend(13.8 pence per share),which is consistent with this policy.In addition,we paid a special interim dividend of 10.0
67、 pence per share in September 2016.The Boards ability to return a dividend to shareholders is against the backdrop of a challenging economic environment following the UKs EU membership referendum and the recent reduction in the Ogden discount rate.Whilst the day-to-day operations remain unaffected,t
68、he Group continues to monitor the consequences of the devaluation of Sterling,inflation,uncertain financial markets and the Ogden discount rate reduction.Linking remuneration to performanceWe remain committed to ensuring that executive pay is aligned with the Companys strategy of delivering long-ter
69、m shareholder value.The Group achieved a return on tangible equity(“RoTE”)of 14.2%for 2016.However,a decrease of 9.4%(2015:an increase of 39.9%)in the share price over the year to 369.4 pence(2015:407.5 pence)at 31 December 2016,together with dividend payments,provided a total shareholder return(“TS
70、R”)of minus 1%for the year(2015:46.9%),which is reflected in the long-term incentive plan(“LTIP”)outcome for 2016.This follows three consecutive years of outperformance versus the benchmark(FTSE 350 excluding Direct Line Group Annual Report&Accounts 201610LeadershipYour Board seeks to ensure that de
71、cisions are of the highest standard.It challenges strategic proposals,performance delivery and management responsibilities.See page 53.EffectivenessThe effectiveness of your Boards and its Committees performance is considered annually in an effectiveness review.See page 59.AccountabilityYour Board p
72、rovides shareholders with an assessment of the Groups position and prospects.We monitor and review the effectiveness of the Groups risk management and internal control systems.See pages 26 and 61.RemunerationYour Remuneration Committee ensures a close correlation between creating value for sharehold
73、ers,and remunerating Executive Directors and senior executives appropriately.See pages 63 and 82.Relationships with shareholdersYour Board maintains strong relationships and regular interaction with our shareholders.Their continued support for our strategic aims is important.See page 63.investment t
74、rusts)meaning that shareholders,since the initial public offering in 2012(“IPO”),have received a TSR of 188%compared to the FTSE350(excluding investment trusts)of 48%.Since the IPO,the Group has delivered good results each year,enabling the Board to declare cumulative dividends,including special int
75、erim dividends,equivalent to approximately 72%of the IPO share price.The Remuneration Committee has consulted our major shareholders and other stakeholders,on our proposed Directors remuneration policy on which shareholders will be given the opportunity to vote at the forthcoming AGM.More informatio
76、n on awards and our proposed Directors remuneration policy is provided in the letter from the Chair of the Remuneration Committee on page 82.Solvency IIIn June 2016,the Group received approval from the PRA for the use of a Group PIM to calculate its solvency capital requirements(“SCR”).At 31 Decembe
77、r 2016,the Group held a capital surplus of approximately 0.92 billion above its SCR.This was equivalent to a Solvency II capital coverage ratio of 165%,post-dividend and taking into account the impact of the new Ogden discount rate.The Board considers the appropriate Group risk appetite range to be
78、140%to 180%of its SCR,which should enable the Group to meet its operational,regulatory and rating agency requirements.IT InfrastructureThe Group has been making positive changes to its IT infrastructure,including working towards the implementation and integration of major IT systems which is inheren
79、tly complex and challenging.The Boards ongoing areas of focus include developing future capability,and continuing to monitor risks associated with IT systems stability,cyber security,and the internal control environment.Regulation,conduct and cultureWe maintain active relationships with our regulato
80、rs through constructive two way dialogue.Your Board promotes the Groups culture and oversees the Groups conduct policy,which aims to ensure that we achieve good customer outcomes and that our employees behave with integrity.We also have a Code of Business Conduct which sets out standards that our em
81、ployees are required to observe.We recognise that opportunities always exist to improve the services offered to our customers;and your Board has encouraged a range of customer experience initiatives which are designed to deliver increased levels of customer satisfaction.Board and Committee membershi
82、p changesSuccession planning remains a key area of focus for the Board.In January 2016,Dr Richard Ward was appointed as our Senior Independent Director.Following Priscilla Vacassins retirement from the Board in March 2016,a number of changes were made to the chairmanship and membership of the Boards
83、 Committees.On 1 February 2017,I was delighted to welcome Danuta Gray as a Non-Executive Director and Mike Holliday-Williams as an Executive Director to the Board.Danuta brings executive and non-executive experience from her previous roles in a number of sectors,including financial services.Mikes ap
84、pointment reflects the importance of the Personal Lines business to the Group.Your Board will benefit from closer interaction with the Personal Lines business and from the expertise that Mike will bring to the Board.My introduction to the Corporate Governance report and the Nomination Committee repo
85、rt provide further information on these changes.I would like to thank the entire Board for their significant contribution,commitment and service;and look forward to working with them in 2017 as the Group continues to build on its strategic priorities.EmployeesI would also like to thank our employees
86、 for their hard work,initiative and commitment to our mission.Their positive energy and dedication in supporting our customers helped our business progress in 2016,and has put us in a strong position for the future.Michael N BiggsC11Governance highlightsStrategic reportGovernanceFinancial statements
87、Chief Executive Officers reviewBuilding on our successPaul GeddesChief Executive OfficerThe fact that our own brands have grown shows that customers like the many changes we have made in recent years.In particular,the success of Direct Line has encouraged us to keep innovating for our customers.What
88、 is your view on the Groups financial performance?It was a strong year,maintaining our record of strong financial performance and underwriting discipline since our IPO,but also with an added ingredient:growth.This is particularly gratifying because it shows that customers really like the new proposi
89、tions,the great value and the excellent service that our brands are delivering,especially Direct Line.The Group has hit nearly all its targets since its IPO four years ago.To what do you attribute this success?We found the whole IPO process actually helped us get really clear on our strategy and pla
90、ns,and motivated the whole team to deliver against them.In particular,the fact that we have now given all of our colleagues three grants of free shares helps everyone to care about the Company enough to change it.We listen to colleagues ideas,for example,through the employee representative bodies an
91、d through our IdeasLab scheme,and continue to invest in their training and development.All this has helped us to do hard things like reducing our costs yet at the same time increase the engagement of our colleagues and improve our service to customers.What do you believe will be the risks,opportunit
92、ies and challenges in 2017?As 2016 has shown,no one can predict the future.Everything from the unpredictability of the weather,combatting new types of fraud such as cyber attacks,the uncertainties of Brexit and the change to the Ogden discount rate means we all have to remain vigilant.However,as 201
93、6 revealed,we can do well in uncertain times.We hold our head,know what were trying to achieve,and have experienced teams that are well prepared to tackle whatever the world throws at us.We also have to keep pace with what customers expect from technology.We expect profound revolution with connected
94、 cars and homes;the risks we cover;new sources of data;and new propositions for customers.Thats exciting.In terms of regulation,weve actively lobbied Government to make whiplash claims more efficient for customers and ourselves.If we reduce costs,we can be in a position to pass on savings to custome
95、rs,so we hope the Government consultation will produce effective reform for the industry.How do you feel the Group is progressing towards its goal to make insurance much easier and better value for our customers?The fact our brands are growing is evidence that were doing the right thing.In a market
96、that people believed was commoditised and only about cheap prices,growing the Direct Line brand is the ultimate accolade.It shows customers still value great products and service too.Our TV advertising helps show where we believe our propositions differentiate us from our competitors.Our people have
97、 also received training on how to better understand and empathise with customers to help meet their needs appropriately.Alongside this,we have improved both the sales and claims processes for our customers.Improving the digital journey through mobile devices,allowing customers to use their smartphon
98、es on more aspects of their claims and enabling customers to amend their policies with no additional fees are just a few ways were making Direct Line much easier and better value for our customers.Direct Line Group Annual Report&Accounts 201612This year saw many success stories.What were the highlig
99、hts for you?Apart from the great success of Direct Line,we made good progress on our other brands too.Churchill equals Direct Line for customer recognition,and it has been great to see how the brand is so central to the British sense of identity.Launching a“Bring Back Lollipoppers”campaign for schoo
100、ls also linked the brand to improving road safety in a tangible way.We have big ambitions for our Green Flag business,and we think technology will continue changing what it means to be good at rescue.So,we have introduced an exciting service called“Green Flag Alert Me”,which tells drivers whats goin
101、g on in their cars via an app.And alongside this,the Green Flag app enables people to easily let us know they have broken down,where they are,and track the Green Flag unit coming to help them.Direct Line for Business has also seen strong growth,with policy numbers rising by 6.4%over the year.We have
102、 ambitions of ensuring the Company can do more for businesses in the future.What is the Groups opinion on driverless cars?We have an open-minded,optimistic attitude to new car technology.However,there are two dangerous attitudes that I sometimes hear in our industry.The first is that new technology
103、will remove the need for insurance because cars wont have accidents at all,or that drivers will not be held responsible for any accidents.I think that,for now,this remains in the realms of science fiction.Its not the way legislation is shaped,its not the current reality,and it wont be for many years
104、 ahead.However,a second and more dangerous view I hear is that nothing will change.We believe technology will make cars much safer and improve driver experiences.Usage,ownership,prices,and how people choose to buy cars and insurance will evolve.So,while I feel the market will remain large,what it me
105、ans to be an insurer can be expected to change profoundly.I believe we are thought leaders regarding what car technology will mean.We talk to many groups,including car manufacturers and technology companies.There are also many strands to our work,such as developing the legal framework for autonomous
106、 driving,through to becoming the market leader for insuring safer cars.We are already giving customers discounts,for example,if their cars have features such as autonomous emergency braking.Reducing accidents can only be a good thing.I lost my best friend in an accident so Im absolutely behind it.Te
107、chnology might change how our business is configured.The market may get smaller,so well need to win more of it.If we have the right attitude;consider all the opportunities;and remain experts at using data,helping our customers,and finding new partners,I believe we can grow our market share.What are
108、your thoughts about 2016s employee engagement survey“Dialogue”?Im delighted that our efforts on engaging and motivating our colleagues continue to pay off.There is a risk that engagement can suffer in organisations like ours that are undergoing rapid change,seeking to improve their efficiency and lo
109、wer costs.We have seen quite the opposite,and the fact that 88%of our people complete the Dialogue survey means it represents all the various views across our business.The Dialogue approach enables over 900 teams to discuss how they feel about the business,whats working well and tackle whats not qui
110、te right.Say it like it is is a core value of ours;whether its through dialogue or through talking to our employee representative body and other representative groups.This years survey showed that we now also have a record number of colleagues we can identify as“champions”people who are both fully e
111、ngaged and committed to the Group.They want to contribute to our success,something which Im able to see and feel when I visit our sites and talk to individual teams.I believe it is our engaged colleagues themselves who can drive the changes and efficiency improvements in our business.What do you fee
112、l unites and defines the Groups people?We are unique in that we are small enough as a business that every person can make a difference,but also big enough that we can invest in our people and support their growth and progress.This investment is crucial and we have been developing our frontline teams
113、,managers and professional technical teams to ensure that we have the best people,trained to the highest standards that can Do the right thing for our customers,investors and other external stakeholders.Supporting this are internal initiatives such as our diversity network alliance,external schemes
114、such as the 2016 Women in Finance charter,and several other associations that I am proud we have joined.These are all helping us to chip away at the male,pale,stale image of insurance.Every day,I see evidence of people bringing all of themselves to work I think this is because we are diverse,and val
115、ue the individuality and the unique strengths of each person.This is backed up by our Dialogue results,where 90%of our colleagues say that they feel they can be themselves at work.This is important as it ensures we have the most talented teams and truly represent the ever changing Britain we look to
116、 protect.I believe this further helps our people genuinely care about their actions,whether thats in the way they treat our customers,or how they help other parts of the Company to be efficient and effective.Although there is even more we can do in this area,diversity is something that unites and de
117、fines us.Not only in the conventional sense,but also through striving to have a powerful combination of people,with a rich diversity of experience and thinking.My thanks go to our people for their hard work and support throughout the year.I am excited by their passion and by how they work tirelessly
118、 to make insurance much easier and better value for our customers.Paul GeddesChief Executive O13Strategic reportGovernanceFinancial statementsOur strategyFocusing strategy to deliver now and build for the futureOur mission is to make insurance much easier and better value for our customers.Our strat
119、egy to achieve this is based on three strategic pillars:great retailer,smart&efficient manufacturer and lead&disrupt the market.We continue to invest in our key enablers to help grow and strengthen these pillars,which we believe will help us with our ambitions of growing sustainably and delivering a
120、t least a 15%RoTE.Direct Line Group Annual Report&Accounts 201614Great retailerSmart&efficient manufacturerLead&disrupt the marketMake insurance much easier and better value for our customersData&technologyCulture&capabilityCapital&risk managementOur missionOur strategic pillarsLong-term ambition:Su
121、stainable growth and at least 15%RoTEOur key enablersGreat retailerSmart&efficient manufacturerCompelling brands,propositions and customer experience to meet diverse and long-term customer needsWe aim to make it easy for our customers to access our products and services at every stage of their journ
122、ey.This includes increasing online servicing for customer policies and claims,and evolving telephone sales and servicing by investing in next-generation customer systems.We focus on training our contact centre employees to understand and respond better to our customer needs.How we performed in 2016T
123、he differentiation of our brands remained a key focus in 2016.For Direct Line we have built strong foundations since our reboot of the brand just over two years ago,introducing a succession of effectively marketed product enhancements.This year we added a three-hour emergency plumbing service for ou
124、r Home Plus customers.Our strong marketing and branding is key to clearly articulating these enhancements to our customers so they want to come directly to us.The success of our marketing to drive Direct Line growth was recognised when we won the Gold Institute of Practitioners in Advertising award
125、for marketing effectiveness.The strength of our Direct Line brand is not limited to the personal lines sector,with more small businesses looking for reliable and easy to use direct insurance,Direct Line for Business continued to grow strongly in the year,highlighting the value of this brand asset.Ou
126、r effectiveness on PCWs via the Churchill and Privilege brands has also increased,particularly in Home as we improved the customer journey.This contributed to strong new sales growth through this channel.Our Churchill brand was strengthened with the launch of our Lollipoppers campaign and we have re
127、cruited new Lollipop men and women nationwide.We also relaunched our Churchill Motor free rescue campaign,differentiating this brand and leveraging our Rescue capabilities at the same time.Our Green Flag brand continued to perform well.Green Flags app was enhanced with Green Flag Alert Me and Rescue
128、 Me,providing the capability for rescue customers to monitor the health of their car and to improve their rescue experience.Our objectives for 2017Continue to build the Direct Line brand presence,offering a differentiated and valued service and proposition not available on PCWs.Further leverage our
129、Direct capabilities with our small to medium-sized enterprise(“SME”)commercial customers and maintain our competitiveness on PCWs.Efficiency and flexibility to deliver better claims and customer service at lower costWe aim to improve efficiency and effectiveness across the organisation everyday.Whil
130、e we re-established our traditional partnership capabilities,we intend to establish ourselves as the UK insurance partner of choice for less traditional partners.How we performed in 2016Our underlying costs(excluding higher non-cash impairments to intangible assets than in recent years)were stable c
131、ompared to 2015,having absorbed the 24m Flood Re levy and still supporting 4.3%in-force policy growth in our Motor and Home own brands.Excluding the impairment,H2 2016 costs were lower than H2 2015,primarily due to lower claims handling expenses.In our Partnerships,we extended our Home and Private I
132、nsurance arrangement with RBS for a further three years and our Travel insurance contract with Nationwide Building Society until the end of 2018.We agreed an extension of our Home and Motor insurance partnership with Prudential for a further two years.As part of this,we will renew policies under the
133、 Prudential brand until 2019.Weve also launched our first Affinity Partnership scheme to offer access to Churchill-branded Home and Motor policies to Prudential Group customers who do not currently have such insurance with us.This partnership demonstrates our ability to deliver tailored propositions
134、 to meet the needs of our partners and their customers.The Group increased the number of accident repair centres it owns to 18 in 2016 strengthening its ability to control indemnity spend and improve customer experience.Our objectives for 2017While we made good progress in establishing new partners
135、in 2016,we continue to be on the lookout for more opportunities where our flexibility and expertise can benefit all stakeholders.We maintain a firm focus on improving the efficiency of the business through cost efficiency programmes,while investing in systems and capabilities to increase customer se
136、lf-service.We are investing to further strengthen our application and claims fraud 15Strategic reportGovernanceFinancial statementsOur strategy continuedLead&disrupt the marketData&technologyMaximise existing growth opportunities while creating and driving future areas of valueWe aim to remain a lea
137、ding competitor in our chosen markets by providing quality propositions and value for money.Where there are opportunities,we will look to launch new and exciting products and services.These will aim to put us at the forefront of disruptive market changes.How we performed in 2016We continued to build
138、 on our strong market position by identifying and investing in market developments we believe can contribute to future growth.We have extended our partnership with PSA Finance UK(part of Peugeot Citron)for a further four years.The partnership has found success by packaging insurance with car finance
139、 to create innovative mobility solutions for consumers,particularly young or inexperienced drivers through the use of telematics in the Peugeot Just Add Fuel and Citroen SimplyDrive offers.Extending the partnership allows us to create propositions based on the technology being fitted to the car.We a
140、re working with Tesla to understand the role advanced technology and driving aids can play in enhancing road safety and therefore insurance.In 2017,Tesla became an introducer appointed representative to be able to refer customers to Direct Line to insure their Tesla.In 2016,we formed a partnership c
141、alled MOVE_UK with the UK government,technology providers and car manufacturers to accelerate the development,market readiness and deployment of Automated Driving Systems(“ADS”).With ADS systems observing and recording in the background while MOVE_UK vehicles are driven normally,this is a unique opp
142、ortunity to learn how ADS technology would respond in real life situations.In Commercial,we continued to be recognised for our leading capabilities in eTrade and direct Commercial insurance,both of which are expected to continue to grow.Our objectives for 2017New car technology centred on improving
143、safety is emerging at a fast pace and the Group aims to take a lead by becoming the insurer of choice for the owners of the cars equipped with such technology.We continue to look for new partners and ways to help our customers benefit from these new technologies.In Commercial,we are looking to furth
144、er leverage our strong Direct Line brand and direct marketing capabilities to disrupt the small commercial customer segment.Harness the power of technology and the scale of our data We aim to harness the power of technology to make things easier for our customers and our people.By implementing integ
145、rated systems that are flexible and efficient,over time we aim to reduce costs while improving customer interactions such as self-service.We also enjoy a wealth of data from being a major insurer for a number of years,which we can use to make our business better for our customers.How we performed in
146、 2016The ongoing areas of focus include developing future capability,and managing risks associated with IT systems stability and cyber security.Technology remains at the heart of our operations and the focus is on upgrading our IT systems and capabilities,aimed at improving the digital offering,cust
147、omer experience and operational efficiency.While progress has been made in each of these three areas,implementation and integration of a range of new IT systems is inherently complex and challenging.We remained focused on adopting the right capabilities and will take the time necessary to do so.We h
148、ave made progress improving the performance of the core infrastructure during the year,supporting our people in performing their roles more effectively.Our objectives for 2017We will continue to look to improve the performance and cost effectiveness of our existing IT systems and work on developing
149、and building new IT systems.Direct Line Group Annual Report&Accounts 201616Culture&capabilityCapital&risk managementBuild on our peoples potential We are continuing to invest in our employees skills.This will help us to improve effectiveness and customer experiences.We aim to create excellent Group-
150、wide employee engagement by focusing on leadership and people management at all levels.This has helped improve our employee engagement metrics year on year.How we performed in 2016During the year we continued to invest in employees skills to improve effectiveness and customer experience.We are commi
151、tted to broadening the diversity of our talent pool and this year signed up to the Women in Finance Charter,seeking to increase the number of women in senior roles in the organisation.In addition,we launched a new graduate scheme and apprentice recruitment drive to build a stronger organic talent po
152、ol.We also launched a major new training programme for our people,designed to help flex their approaches to improve engagement with customers.Not only has this strengthened our front office staff skills,as they handle customers in often difficult situations,but it has also strengthened the way our p
153、eople interact with one another.This has in turn helped the engagement rate to continue to improve through the year from an already improved level in 2015.Our objectives for 2017We have a range of new initiatives to build on our people strategy focused on developing a high performance culture based
154、on diversity,continuous training and a focus on the customer.Our foundation of capital and risk management Our risk and capital management policy seeks to maintain an appropriate level of capital and solvency for the risk appetite agreed by the Board to support our business,while aiming to grow divi
155、dends annually in real terms.How we performed in 2016During 2016,we received approval from the PRA to use the Groups PIM,successfully concluding a multi-year project.We have embedded this model at the centre of the risk management framework and now use it to report our Solvency II capital coverage.W
156、e have used the PIM to establish a clear capital target range which provides additional security over the regulatory SCR.We were well prepared for the UKs referendum on leaving the European Union(“EU”)and have actively managed the impacts from the subsequent volatile financial markets.We are a UK-ba
157、sed business underwriting risk within the UK,and the day-to-day operations remain largely unaffected.We continue to monitor the consequences of the devaluation of Sterling and uncertain financial markets.Our objectives for 2017We aim to further embed the use of our internal model within the business
158、 and operational decision making.We recognise the strategic value and competitive advantage strong risk management can provide and continue to work to drive ownership of risk management across the G17Strategic reportGovernanceFinancial statementsBuilding a culture of great service In order to consta
159、ntly improve our customer experience we are investing in training and development for our people.4,000+colleagues trained in“Connect”since its launch in 2015Providing the tools for success The Connect programme was designed to challenge the mindset of our organisation and help our people with the sk
160、ills they need to have real conversations with customers.The aim was to connect them to the vital role they play in supporting people through what can be difficult times.Direct Line Group Annual Report&Accounts 201618Committed supportBecause our people are our biggest asset and have the biggest impa
161、ct on our customers,we wanted this cultural change to touch every customer facing area of our business.This includes contact centres,accident repair centres,offshore partners and suppliers.This contributes to our aim of creating an effortless journey for our 19Preparing for the roads of the futureTh
162、is year we kicked off a partnership called MOVE_UK with Government,technology providers,and car manufacturers to accelerate the development,market readiness and deployment of Automated Driving Systems(ADS).Planning for the future of our business is vital so that we continue to provide customers with
163、 a service that fits their needs.Testing tomorrows cars The three-year project is one of the first of its kind in the UK and aims to develop a new method for validating ADS and a data resource that will help us analyse and prepare for the impact of ADS on three-year vehicle insurance.Direct Line Gro
164、up Annual Report&Accounts 201620Building our technology and data capabilitiesFurther advances of in-car technology and driverless cars are set to change British roads.As a leading insurer we have a key role to play in the development and,in particular,the adoption of this technology which has the po
165、tential to improve road safety significantly.250+data points monitored in each carEmbracing new technologyWith ADS observing and recording in the background while MOVE_UK vehicles are driven normally,its a unique opportunity to learn how ADS technology would respond in real life 21Building our brand
166、s by offering more We take pride in investing in our brand propositions to give customers increased certainty around the service they can expect from their insurance.Direct Line committing to providing a plumber within3 hoursday or night was an industry firstSupport around the clock We identified es
167、cape of water as a costly problem for both homeowners and insurers and one that requires a quick remedy a burst pipe can result in 30 gallons of water escaping in as little as two minutes.To tackle this,in 2016 we introduced our commitment to providing an emergency plumber within three hours of repo
168、rting an uncontrollable leak for all Direct Line Home Insurance Plus policyholders and those who add Home Emergency to their standard Direct Line Home policy.Direct Line Group Annual Report&Accounts 201622Available when our customers need us The commitment to a plumber arriving in such a short time
169、frame is a first for the insurance industry.For water leaks that can be contained by turning off the water supply,Direct Line will still ensure an emergency plumber is sent to the property at a time convenient for the 23Our key performance indicatorsDefining and measuring our performanceRead more ab
170、out our rewards for performance on page 82.For definitions,see the glossary on pages 189 and 190DefinitionThe return generated on the capital that shareholders have in the business.This is calculated by dividing adjusted earnings by average tangible equity.The amount of cash paid to shareholders fro
171、m the Groups profit.This is calculated by dividing the earnings attributable to shareholders by the weighted average number of Ordinary Shares in issue.A measure of financial year underwriting profitability.It is the sum of the net claims,commissions and expenses divided by net earned premium.This e
172、xcludes instalment and other operating income,and investment return.A combined operating ratio(“COR”)of less than 100%indicates profitable underwriting.AimWe aim to achieve at least a 15%RoTE.We have a progressive dividend policy and aim to increase the dividend in real terms each year.Additionally,
173、we look to return surplus capital to shareholders when appropriate.We have not set a target.However,growing earnings per share is considered an indicator of a healthy business.We aim to make an underwriting profit.For 2017,we expect to achieve a COR in the range of 93%to 95%for Ongoing operations,as
174、suming a normal level of claims from major weather events and no further change to the Ogden discount rate.PerformanceSee Finance review page 42See Finance review page 42See Finance review page 42See Finance review page 39Link to Directors remunerationWe base the Long-Term Incentive Plan(“LTIP”)awar
175、ds partly on RoTE over a three-year performance period.We base LTIP awards partly on relative TSR performance,which includes dividends.Directors also receive dividends on their beneficial shareholdings and accrue these on unvested LTIP awards.This is a broad measure of earnings and reflects the resu
176、lts of the Group after tax.We base part of the Annual Incentive Plan(“AIP”)awards on profit before tax and earnings per share is closely linked to this.We base part of the AIP awards on profit before tax.COR is closely linked to this.Notes:1.See glossary on pages 189 and 190 and APM in appendix A on
177、 page 1912.See note 3 on page 2These key performance indicators assess our performance against our strategy.16y15y14yReturn on tangible equity1(%)16.8 18.5 14.2TargetAt least 15%14.2%Dividend per share2(pence)16y15y14y8.827.514.013.210.013.814.624.6pBasic earnings per share(pence)16y15y14y24.027.920
178、.420.4pCombined operating ratio(%)16y15y14y95.0 94.097.797.7%Direct Line Group Annual Report&Accounts 201624DefinitionThe cost of doing business,including paying our people,marketing expenses,and spending on infrastructure and IT.This includes the costs we incur handling claims,but excludes any comm
179、issions we pay to brokers or partners,and restructuring and other one-off costs.A measure to show the level of capital held compared to the level that is required,accounting for the risks we face.Net Promoter Score(“NPS”)is an index that measures the willingness of customers to recommend products or
180、 services to others.It is used to gauge customers overall experience with a product or service,and the customers loyalty to a brand.The number of complaints we received during the year as a proportion of the average number of in-force policies.AimWe aim to reduce our expense ratio during 2017,absorb
181、ing our investment in future capability.We also aim to deliver a lower commission ratio in 2017,normalised for major weather events.We target capital coverage to the Boards risk appetite range of 140%to 180%of our SCR.We also aim to maintain a rating in the A range from our credit rating agencies.We
182、 aim to improve this to achieve strong levels of customer loyalty and retention rates.This measure indicates the level of customer service we provide.We aim to improve this over time.PerformanceSee Finance review page 40See Finance review pages 45 and 46Customer claims experience programmes and impr
183、oved propositions have contributed to an increase in our overall brand score.While the proportion of complaints received improved on 2015,we recognise we have more to do to reduce these.Link to Directors remunerationCosts are considered and form part of the gateway measures for the AIP awards.Risk m
184、anagement within risk appetite,which includes an assessment of capital strength,and acts as a gateway for the AIP awards and underpin for LTIP awards.The AIP awards include a weighting to a balance of customer metrics,including NPS.The AIP awards include a weighting to a balance of customer metrics,
185、including complaints.Notes:1.Estimates based on the Groups Solvency II partial internal model for 31 December 2016 and 30 June 2016.Solvency II capital coverage based on standard formula for 31 December 20152.On an aggregated 12-months rolling basis,with 2013 rebased to 1003.For the Groups principal
186、 underwriter,U K Insurance Limited;it excludes discontinued operationsTotal costs(m)16y15y14y927.7884.7923.7923.7mCapital coverage1 Total Group(%)16y16H115y147.4184.0165.0165.0%Net Promoter Score2 Direct Line brand(points)16y15y14y110.8118.3129.1129.1pointsComplaints Principal underwriter3(%)16y15y1
187、4y0.350.330.260.26%25Strategic reportGovernanceFinancial statementsRisk managementManaging our risksManaging risk in line with our strategyManagement,and ultimately the Board,are responsible for developing our strategy.Our strategic planning process aims to ensure we have developed clear objectives
188、and targets,and identified the actions needed to deliver them,including the management of risks.These clear objectives are consistent with our overall long-term ambition of sustainable growth and at least a 15%RoTE delivered within our risk appetite.To find out more about our strategy,see page 14.Ou
189、r risk governance structureThe Board sets and monitors adherence to the risk strategy,risk appetite,and risk framework.It has established a risk management model that separates responsibilities into Three Lines of Defence.Our First Line of Defence is responsible for owning and managing risks to achi
190、eve our business objectives on a day-to-day basis.The Second Line of Defence is responsible for providing proportionate oversight,and challenging risks,events and management actions.Group Audit is the Third Line of Defence,providing an independent and objective view of the adequacy and effectiveness
191、 of the Groups risk management,governance and internal control framework.The Groups governance structure is set out in more detail in the corporate governance section.Risk appetiteOur risk appetite statements define the opportunities and associated risks we are prepared to accept to achieve our busi
192、ness objectives.The Group has recalibrated its risk appetite range relating to the Solvency II internal model see the table below.To monitor whether the business remains within risk appetite,we use key risk indicators(“KRIs”).We derive the KRIs from the risk appetite statements which are used to dri
193、ve and monitor risk-aware decision-making.These KRIs are qualitative and quantitative,and forward and backward looking.We review our risk appetite statements and KRIs annually,using outputs from the Internal Economic Capital Model(“IECM”).Our risk objectives and appetiteOur business is risk.So to en
194、sure our strategys success,we must manage risk effectively and efficiently.Direct Line Group Annual Report&Accounts 201626Risk objectiveRisk appetite statementOverarching risk objectiveThe Group recognises that its long-term sustainability depends on having sufficient economic capital to meet its li
195、abilities as they fall due,thus protecting its reputation and the integrity of its relationship with policyholders and other stakeholders.As part of this,the Groups appetite is for general insurance risk,focusing on personal lines retail and SME insurance in the UK.The Group has appetite for non-ins
196、urance risks,as appropriate,to enable and assist it to undertake its primary activity of insurance.1.Maintain capital adequacyThe Group seeks to hold own funds in the range of 140%to 180%of the internal model SCR.The Group also seeks to maintain sufficient economic capital consistent with its strate
197、gic aim of achieving a standalone credit rating in the A range.2.Stable and efficient access to funding and liquidityThe Group aims to meet planned and unexpected cash outflow requirements,including those requirements that arise following a one-in-200 years insurance,market or credit risk event.3.Ma
198、intain stakeholder confidenceThe Group has no appetite for material risks resulting in reputational damage,regulatory or legal censure,fines or prosecutions,and other types of non-budgeted operational risk losses associated with Group conduct and activities.The Group will maintain a robust and propo
199、rtionate internal control environment.Our Enterprise Risk Management Strategy andFrameworkThis section sets out,at a high level,our approach to setting risk strategy and the Enterprise Risk Management Framework(“ERMF”)for managing risks.It documents the high-level principles and practices to achieve
200、 appropriate risk management standards and demonstrates the inter-relationships between components of the ERMF see diagram.The ERMF enables us to run the business with the necessary understanding of our risks and controls,as well as having appropriate oversight to manage risks proactively.The ERMF i
201、s aligned to the Three Lines of Defence model,and intends to provide a coherent,robust,fit-for-purpose,end-to-end approach for managing all material risks.Our policy framework is a central part of the ERMF,and includes policies and minimum standards.These inform the business about how it needs to co
202、nduct activities to remain within its risk appetite.The Board approves our strategy,risk appetite and policies,and the Board Risk Committee(“BRC”)approves the ERMF.Our risk cultureOur risk culture underpins our business and decision-making,and helps us embed a robust approach to managing risk.Our ri
203、sk culture is demonstrated in the understanding and business-wide use of the risk management systems and processes and through risk-aware decision-making.The Board is committed to promoting a culture of high standards of corporate governance,business integrity,ethics,and professionalism in all our a
204、ctivities.An annual assessment of risk behaviours and attitudes(“ARBA”)is undertaken jointly by the Risk function and Group Audit and considers a range of factors influencing risk culture.Risk profileReporting&monitoringGroup strategyRisk appetitePolicy frameworkPrincipal risksIdentifyAssessManageMo
205、nitorReportRisk managementPrincipal risks and uncertaintiesWe assess robustly the principal risks facing us.Principal risks are defined as having a residual risk impact of 40 million or more on profit before tax or net asset value on a one-in-200 years basis,accounting for customer,financial and rep
206、utational impacts.We believe our risk profile remained broadly unchanged over the last year.Principal risksOwnerManagement and mitigation examplesInsurance risk Underwriting Reserve Distribution Pricing ReinsuranceThe risk of loss due to fluctuations in the timings,amount,frequency and severity of a
207、n insured event relative to the expectations at the time of underwriting.See pages 136 to 139.Chief Financial Officer,Managing Directors of Personal Lines and Commercial We estimate technical reserves using various actuarial and statistical techniques.Managements best estimate of total reserves is s
208、et at not less than the actuarial best estimate Third parties review our reserves Underwriting guidelines are set for all transacted business,and pricing refined by analysing comprehensive data Catastrophe and motor excess of loss reinsurance limits our exposure to events and large losses We invest
209、in enhanced external data to analyse and mitigate exposures We have set reserves using the latest data and trends.In particular,the recent decision to reduce the Ogden discount rate has been reflected in the estimate of 27Strategic reportGovernanceFinancial statementsRisk management continuedPrincip
210、al risksOwnerManagement and mitigation examplesMarket risk Spread Interest rate PropertyThe risk of loss resulting from fluctuations in the level and volatility of market prices of assets,liabilities and financial instruments.See pages 139 to 141.Chief Financial Officer We manage and control the ris
211、ks in our investment portfolio through:an investment strategy approved by the Board;diversifying the types of assets;limits on the amount of illiquid investments;tightly controlling individual credit exposures;and risk-reduction techniques,such as hedging foreign currency exposures with forward cont
212、racts,and hedging exposure to US interest rates with swap contractsCredit risk Concentration Counterparty defaultThe risk of loss resulting from fluctuations in the credit standing of issuers of securities,counterparties and any debtors to which we are exposed.See pages 141 to 146.Chief Financial Of
213、ficer Credit limits are set for each counterparty and we actively monitor credit exposures We only purchase reinsurance from reinsurers with at least an A ratingOperational risk Information security IT and business continuity Outsourcing Financial reporting Model Partnership contractual obligations
214、Change Technology and infrastructureThe risk of loss due to inadequate or failed internal processes,people,systems,or from external events.Specific members of the Executive We have appropriate operational processes and systems,including detection systems for fraudulent claims We are working to impro
215、ve the performance of our IT systems while focusing on developing future systems capability.With significant change underway,we are continuing to monitor risks associated with our IT systems stability,cyber security,and the internal control environment Our risk management system is designed to enabl
216、e us to capture risk information in a robust and consistent way We monitor the performance of outsourced and offshored activitiesRegulatory and conduct risk Compliance ConductThe risks leading to reputational damage,regulatory or legal censure,fines or prosecutions,and other types of non-budgeted op
217、erational risk losses associated with our conduct and activities.Chief Risk Officer and Managing Director,Personal Lines We maintain a constructive and open relationship with our regulators We use specific risk management tools and resources to help manage our exposure to regulatory risk Our risk-ba
218、sed monitoring is designed to ensure we use our resources effectively We have a strong culture of considering customers perspectives;delivering the right outcomes for our customers is central to how we operate Our robust customer conduct risk management is designed to minimise our risk exposureDirec
219、t Line Group Annual Report&Accounts 201628Emerging risksOur definition of emerging risks is newly developing or changing risks that are often difficult to quantify,but may materially affect our business.We have further defined emerging risks as highly uncertain risks that are external to our busines
220、s.We record emerging risks within an Emerging Risk Register.We report these to the Risk Management Committee and BRC for them to review,challenge,approve and feed into the Boards strategic planning process.Our emerging risks processes aim to:achieve first mover advantage by recognising risks and ass
221、ociated opportunities early;reduce the uncertainty and volatility of our business results;and manage emerging risks proactively.We consider our main emerging risks to be as follows:Technological change in driving habits reduces consumer need for motor insuranceNew car technologies,such as crash-prev
222、ention technologies and driverless cars,could significantly affect the size and nature of the insurance market,and the role of insurers.In addition to our partnership with the Government on Automated Driving Systems MOVE_UK,the Group continues to consider new motor technologies as part of its pricin
223、g and underwriting approach.Changes to traditional insurance business modelsNew market entrants and changes in consumer expectations could result in significant changes to the structure of the general insurance market,and require us to update our business model.Our strategy,aligned to our mission to
224、 make insurance much easier and better value for our customers,is positioned to take advantage of changes in technology and customer behaviours.UK economyThe UK could enter a prolonged period of reduced growth following its referendum vote on EU membership,potentially reducing insurance sales and th
225、e value of our investment portfolio.Equally,the uncertainty surrounding the nature and outcome of the Article 50 negotiations could have various implications.In addition,whilst our operations are based mainly in the UK,we have monitored and will continue to monitor actual and potential implications
226、including:changes to the value of Sterling which impact claims and non-claims supplier costs;volatility in currency exposures and hedging costs;inflation;recruitment and retention of people;potential changes to direct and indirect tax;and the impact on our capital position.Climate changeClimate chan
227、ge could increase the frequency of severe weather events in the UK,and particularly flooding claims costs.We continue to monitor changes in claims experience and consider weather trends as part of our pricing and underwriting processes.Potential future changes to the Ogden discount rateThe Ogden dis
228、count rate has recently been reduced to minus 0.75%,with an imminent consultation announced to consider the methodology for setting this discount rate and therefore potentially leading to further changes to the rate itself.We are monitoring the development of the consultation and analysing the impli
229、cations on claims costs and the solvency capital requirement.Principal risksOwnerManagement and mitigation examplesStrategic risk Strategy implementation Strategy formulationThe risk of direct or indirect adverse impact on the earnings,capital,or value of our business,resulting from the strategies n
230、ot being optimally chosen,implemented or adapted to changing conditions.Chief Executive Officer We agree,monitor and manage performance against the plan and targets We run an annual strategy and 5-year planning process which considers our performance,competitor positioning and strategic opportunitie
231、s We identify and manage emerging risks using established governance processes and forumsWe consider brand,reputational and political risk within the drivers of other risk types,such as regulatory and conduct,operational and strategic 29Strategic reportGovernanceFinancial statementsCorporate social
232、responsibilitySafer young driversApproach Our Corporate Social Responsibility(“CSR”)strategy helps us put societys interests at the heart of our business.The strategy has four strands.As shown in the graphic,they are Helping to make our society safer,Proud to be here,Recognised as part of our commun
233、ities and Reduce,Reuse and Recycle.We manage our strategy through our CSR Advisory Group,which comprises senior managers from across the business.Our sustainability team supports the Advisory Group.Individual members of our Executive Committee are accountable for each strand of the strategy.The CSR
234、Committees role is to oversee our approach.See page 72.To help us understand,prioritise,and respond to the sometimes competing needs of our different stakeholders across society,we partner with several leading CSR organisations.You can find more details of our approach on the Groups website at ,incl
235、uding our CSR Charter,policy framework,performance against last years targets,and targets for 2017.Helping to make our society saferWe recognise that our products,services and operations affect our many stakeholders so we seek to make our society safer for everyone.Our current focus is on road safet
236、y.We believe we can responsibly use our expertise and experience to reduce deaths and life changing injuries on Britains roads.Safer young driversIn December last year we launched Shotgun,a free smartphone app that aims to reduce road deaths among new young drivers.In the UK,around half a million 17
237、 to 25 year olds pass their driving test each year.It is a significant rite of passage for many young people,but it is also a time when young drivers are at their most vulnerable.Our data shows that accident rates among young drivers are,perhaps not surprisingly,enormously higher during the first ye
238、ar of driving,with one in five young drivers having some form of accident during this time.Young drivers are also hugely over-represented in the most serious accidents.There are various reasons why young drivers crash;these include over-confidence,a natural human urge to test personal boundaries and
239、 take risks,and little experience of recognising hidden hazards.Using road-safety data and our knowledge of driver behaviour,we identified contextual speed(speed relative to other safe road users)as a significant cause of fatal and serious crashes involving young drivers.In particular,the first 1,00
240、0 miles for a new driver are critical;this is when the gap between perceived and actual driving competence drives much higher risk.In response,we have set ourselves the ambitious goal of cutting deaths in the first 1,000 miles to zero across the UK.We will,of course,need to work with many other stak
241、eholders to achieve this goal.To find out more about our CSR Committee,see page 72While progressing our broad Corporate Social Responsibility strategy,we have increased our focus on road safety as the area where we have some of the clearest and strongest expertise in the UK.We are using our position
242、 as Britains leading car insurer to try to inspire a generation of safer young drivers and make a radical and measurable change to the level of young driver deaths.Proud to be hereDirect Line Group Annual Report&Accounts 201630The biggest barrier to addressing this issue is that young drivers often
243、feel immune to the risks.Our goal of inspiring a generation of safe and careful drivers sits at odds with many of the motivations of new drivers.Young drivers,especially young men,can be pro-risk and competitive.From our surveys,we found that many believe that most people drive faster than the speed
244、 limit and that good driving means travelling as fast as you can.To change behaviour,we must change this perspective.Shotgun acts as the wingman for newly qualified drivers and was developed with their direct input.Through GPS technology on a users smartphone,Shotgun uses the best of our telematics
245、capability to assess driving performance,evaluating smoothness,contextual speed and a number of other factors to generate a score for each journey taken.Each user builds up a personal score which is a core indicator of accident risk.In turn,this score earns app users a place on the Shotgun leaderboa
246、rd,gamifying the experience and allowing users to compete with their peers.Shotgun re-frames what it takes to be a good driver,and explodes the myth that everybody else is driving fast.The app also gives users detailed feedback,highlighting what they have done well,and how they could improve their d
247、riving score next time.When users hit pre-determined point thresholds,they unlock rewards.This encourages drivers to use the app through 1,000 miles and to improve their performance still further to earn ever more valuable rewards.We are working with various reward partners,including Boost and Virgi
248、n Experience.Shotgun offers rewards which are attractive to a 17 to 25 year old demographic.Our research showed we needed a range of reward options that appealed to different tastes and to both urban and more rural users.To launch the app we used the same leading-edge thinking that won Direct Line a
249、 coveted Institute of Practitioners in Advertising Gold award for Effectiveness.The Shotgun launch represented a departure from traditional advertising,in a bid to engage the target audience using channels that are relevant.This moves the topic of road safety into a more social space,with a particul
250、ar focus on personal platforms like Instagram,You Tube and Snapchat.The strategy was to create content in a range of formats,based on creative ideas that resonate with the audience.These were seeded with carefully chosen partners to build saliency and drive momentum.They are also quite a bit edgier
251、than our traditional marketing messages.We put in place a communication plan for a diverse range of audiences young drivers,of course,were central but also their parents as well as our own employees.Making sure we capture all of these groups is critical.For our staff,our approach has been to create
252、awareness,build understanding and drive engagement across the business.We want our people to be proud of our shared belief that the know-how and power of Direct Line can be a real force for good in the UK.We also want our employees to become active advocates for this initiative in their local commun
253、ities right across the country.From our research and testing,we know we can engage with this vulnerable audience and change both their attitudes to driving and materially improve their driving behaviour,making a real change in their chances of being killed or injured on the roads.During 2017,we are
254、focusing on delivering against this objective.We will run a series of attitudinal research studies to track our users attitude to driving.In addition,the Shotgun app will give us a rich source of data allowing us to measure improvements to driving performance over time.Road safety partnersDuring 201
255、6,we worked with various partners to highlight a range of road safety issues.PACTSIn November,we launched our third Road Safety Dashboard with the Parliamentary Advisory Council for Transport Safety(“PACTS”).This pioneering tool uses Department for Transport statistics to produce an index that ranks
256、 the road safety record of individual parliamentary constituencies.MPs tell us they find the tool valuable.In July,we also ran an event in Parliament at which 33 parliamentarians signed up to our pledge to improve road safety awareness.We also sponsored the PACTS Annual Westminster Transport Safety
257、Lecture in the House of Commons where policymakers and campaigners come together to share ideas and best practice.Department for TransportWe continue to engage proactively with the Department for Transport on various topics,including telematics technology,driverless cars and road safety policy.Brake
258、We maintained our partnership with road safety charity,Brake,to produce a series of survey reports on driver behaviour and attitudes.We released the results to the media to raise awareness of road safety issues and educate the public.This years reports have covered drink driving,eating and drinking
259、at the wheel,texting while driving,winter driving and speed awareness in urban areas.Brake uses this research for its wider campaigning,education,community and professional engagement activities.We also sponsored Brakes Parliamentarian of the Year Awards,which recognise Members of Parliament who hav
260、e campaigned on road safety 31Strategic reportGovernanceFinancial statementsCorporate social responsibility continuedNote:1.This excludes discontinued operations,the Groups former International division.Total Group emissions for 2014 and 2015 were 28,759 and 23,143,respectively 14.6%Greenhouse gas e
261、missions1(tonnes)3,222.1 16y15y14y27,30822,61119,315Reduce,Reuse and RecycleWe aim to manage our operations sustainably and have progressed well in reducing our impact on the environment.EmissionsYou can find information on Group-wide greenhouse gas(“GHG”)emissions in the chart below and more detail
262、s of our emissions in the Directors report on page 112.Energy use is the main cause of our emissions.In absolute terms,we have reduced our emissions significantly after rationalising and implementing an energy-savings plan across our estate.This covered location management,air-conditioning,heating a
263、nd lighting,for instance.We are targeting a 30%like-for-like reduction in the Groups energy use by 2020 against a 2013 baseline.We communicate the details of a carbon management programme through the Carbon Disclosure Project.Throughout 2016,100%of the Groups electricity was purchased on a green tar
264、iff.WasteWe have further improved our systems for managing waste and increased the percentage of waste we recycle at our UK Accident Repair Centres to 61%from 54%in 2015 and at our office sites to 42%from 40%in 2015.These figures exclude paper waste which is 100%recycled.Including paper,we recycled
265、80%of waste at our UK Accident Repair Centres and 78%at our offices in 2016.All of our office waste is diverted from landfill,including recycling.SuppliersOur Ethical Code for Suppliers sets out our approach to managing CSR related matters across our supply chain.We support the aims of the Modern Sl
266、avery Act 2015 and are committed to ensuring that modern slavery is not present in our supply chain.We have extended our Ethical Code to expressly cover this commitment.In accordance with the Act,we publish an annual statement on slavery and human trafficking on the Group website at .Proud to be her
267、eOur people strategy supports our business strategy,ensuring we have capable,skilled and engaged people that can help make insurance easier and better value for our customers.We continue to focus on building pride in Direct Line Group,encouraging and celebrating the strength of our workforce.Various
268、 volunteer groups,such as our Employee Representative Bodies and Local Co-ordination Teams,increase our employees voice.Last year we invited employees to participate in research to help shape their future way of working.The research considered how the future working environment,technology and cultur
269、e could give our people the tools they need to live and work at their best.We also invested significantly in a new Graduate Programme.The Programme offers opportunities equally to existing employees and new applicants and will help further drive the pipeline of qualified,bright young people coming i
270、nto our business.Employee feedback remains an important gauge of how our initiatives affect change.In 2016 our people managers created over 900 action plans to improve their teams experience.Again this played a major part in significantly improving our engagement score from 60%in 2015 to 73%.The per
271、centage of our employees who are proud to work for the Group also increased from 80%in 2015 to 87%,while 81%tell others that the Group is a great place to work (70%in 2015).Diversity,inclusion and human rightsWe continue to work towards an environment based on meritocracy and inclusion,where every e
272、mployee can achieve their full potential,whatever their background or situation.Our diversity and inclusion practices are in line with the Universal Declaration of Human Rights.Our Ethical Code for Suppliers requires that all our suppliers adhere to the core International Labour Organisation standar
273、ds.Direct Line Group Annual Report&Accounts 201632Examples of activities include:780 employees manning our call centres to take pledges for appeals such as Stand Up to Cancer,Comic Relief and Children in Need;supporting national appeals such as the Worlds Biggest Coffee Morning in aid of Macmillan a
274、nd raising funds during Movember for various mens health charities;and organising quiz nights,fun runs,masquerade balls,festivals,cake sales,sky dives,charity football matches and much more to raise thousands of pounds for local causes.We encourage all employees to volunteer individually or as a tea
275、m through our One Day initiative.Our Employee Opinion Survey revealed that 33%of staff volunteered or fundraised in company time last year.Our target for 2017 is to at least maintain this high level of engagement.Matched giving and grantsIn 2016,our employees donated 149,000 through our payroll givi
276、ng scheme and we donated a further 100,000 in matched giving.We also provided 68,250 in grants to organisations for which our employees fundraise or volunteer.Male 5,768Female 5,209Gender diversity of all employees Male 7Female 3Gender diversity of Board of Directors Male 112Female 32Gender diversit
277、y of senior managers In 2016,the Group signed up to the Women in Finance Charter.The Charter is a commitment by HM Treasury and signatory firms to work together to build a more balanced and fairer industry.Our pledge to the Charter reinforces our other initiatives such as our Diversity Network Allia
278、nce in promoting diversity and inclusion in our business.The Group committed to increase female representation in senior management to 30%by the end of 2019.You can find the ratio of female-to-male employees at 31 December 2016 in the charts below.In 2016,the Group was proud to be named in the OUTst
279、anding Power Lists.We started working with OUTstanding,a professional network of executives committed to diversity,alongside other partner organisations to help shape our plans and bring new ideas and thinking on diversity and inclusion.Living wageWe comply with the principles of the Living Wage Fou
280、ndation,relating to our employees.Recognised as part of our communitiesWe believe that our peoples feelings about working for the Group are linked to our reputation in the community and we therefore try to align our approach to giving more generally with their interests.Volunteering and fundraising
281、We know that participating in fundraising and volunteering is linked to higher engagement levels amongst our people.In order to encourage our people to participate,therefore,we run a network of Community and Social Committees which are made up of local volunteers.These receive central funding and su
282、pport from the Group to support Group-wide national appeals and create a programme of events and activities based on the interests of employees at their 33Strategic reportGovernanceFinancial statementsOperating review Motor Highlights Britains leading personal motor insurer measured by in-force poli
283、cies In-force policies increased by 4.5%with growth in own brands in-force policies in each quarter Gross written premium increased by 9.4%with own brands increasing by 9.3%COR increased by 13.9 percentage points to 106.3%primarily reflecting the increase in reserves following the reduction in the O
284、gden discount rate Operating profit reduced to 149.1 million due to higher non-cash intangible asset impairments and the reduction in the Ogden discount rate Performance highlights 2016 2015In-force policies(thousands)3,873 3,707Gross written premium 1,539.1m 1,406.7mLoss ratio 74.9%63.6%Commission
285、ratio 3.2%2.6%Expense ratio 28.2%26.2%Combined operating ratio 106.3%92.4%Operating profit 149.1m 338.0mPerformance Motor in-force policies increased by 4.5%during 2016,driven primarily by own brands.Overall,Motor gross written premium increased by 9.4%in comparison to 2015.The market experienced hi
286、gh levels of shopping during 2016.The Direct Line brand was able to use this environment to continue to improve its competitive position,resulting in strong new business growth.The comparatively high level of persistency and attractive customer base allowed the Group to reinvest some of that value b
287、ack into propositions and price competitiveness.Motor average written premiums1 increased by 6.3%in 2016 compared with an average increase of 5.2%in 2015.As demonstrated by the improving current-year loss ratio,the Group was able to continue to write business at attractive margins,as a result of suc
288、cessful pricing and a slightly improved risk mix.Claims inflation remained at the top of the Groups long-term expectation of 3%-5%,driven by higher damage costs.The COR for the Motor division was 106.3%(2015:92.4%),including an 11.2 percentage points one-off increase due to the recent reduction in t
289、he Ogden discount rate.Prior-year reserve releases were significantly lower at 123.5 million(2015:266.8 million),including a 139.8 million charge in respect of the recent Ogden discount rate change.The expense ratio increased due to higher non-cash intangible asset impairments of 39.3 million.The co
290、mmission ratio remained broadly stable compared to 2015.The current-year attritional loss ratio improved by 0.9 percentage points to 84.1%(2015:85.0%).Excluding the impact of the recent reduction in the Ogden discount rate,the current-year attritional loss ratio for Motor was 83.3%an improvement of
291、1.7 percentage points compared to 2015.Growth in average premiums,coupled with improving claims trends in large bodily injury,were partially offset by higher than expected damage inflation and the Groups investment in new business growth.Operating profit was 149.1 million,lower than 2015 primarily a
292、s a result of a one-off charge due to the reduction in the Ogden discount rate of 150.3 million and higher intangible asset impairments of 39.3 million.Regulatory On 27 February 2017,the Lord Chancellor announced a reduction in the Ogden discount rate to minus 0.75%with effect from 20 March 2017,whi
293、ch has led to an increase in the amount of claims reserves necessary to be held by the Group,specifically those that are settled as lump sums by the Courts.This follows a consultation process instigated by the Ministry of Justice some years ago in connection with the rate to be applied to personal i
294、njury lump sum damages awards in settling such claims.The Group is committed to ensuring claimants receive appropriate compensation and has made appropriate provision in its claims reserves for the ruling,which will apply to all open unsettled claims.The Lord Chancellors announcement referred to a c
295、onsultation to consider options for reform concerning the discount rate and accordingly has left open the possibility of further changes to the process by which the rate is set,and therefore to the rate itself.The Group welcomes the consultation to consider options for reform,with a view to achievin
296、g a better and fairer framework for claimants and defendants.On 23 February 2017,the Government announced measures to reduce the volume and cost of soft tissue damage whiplash claims and stated its expectation that this will see a reduction in motor insurance premiums by 40 on average.The measures i
297、nclude a fixed tariff for payment of injuries up to 24 months in duration.Further measures detailed in the paper are still being considered.The Government is keen to introduce all changes to whiplash claims as a package in late 2018.The Group has been calling for reform in this area for some time an
298、d continues to work with Government and industry bodies on how the reforms should be implemented.Outlook The market was highly competitive and faced a number of significant government policy and regulatory changes during 2016 and 2017.In the face of these challenges,we demonstrated our resilience an
299、d appeal to customers by growing our own brand policies while maintaining overall margins,which has continued into early 2017.We do not expect any material residual impact on 2017 Motor profit as a result of adopting the reduction in the Ogden discount rate to minus 0.75%.Note:1.Average incepted wri
300、tten premiums excluding IPT for total Motor for year ended 31 December 2016 Personal LinesDirect Line Group Annual Report&Accounts 201634Home Highlights Britains leading personal home insurer measured by in-force policies Own brands in-force policies increased by 2.3%;overall reduction in in-force p
301、olicies of 1.2%primarily due to partnerships Gross written premium was 3.7%lower primarily due to partnerships,while own brands reduced by 0.9%COR improved by 7.2 percentage points to 85.0%Operating profit improved by 51.7 percentage points to 166.7 million reflecting lower claims from major weather
302、 events Performance highlights 2016 2015In-force policies(thousands)3,378 3,418Gross written premium 834.4m 866.3mLoss ratio 40.7%51.5%Commission ratio 22.6%20.9%Expense ratio 21.7%19.8%Combined operating ratio 85.0%92.2%Operating profit 166.7m 109.9mPerformance In-force policies for Home own brands
303、 increased by 2.3%to 1.8 million over 2016,while partner in-force policies reduced by 4.7%.Gross written premium was 3.7%lower than for 2015 primarily due to partnerships which were 6.2%lower,while own brands experienced a smaller reduction of 0.9%.Following a prolonged period of significant deflati
304、on,the home market showed signs of some stability during the second half of 2016.Homes average written premium1 decreased by 3.9%in 2016 compared with 3.6%in 2015,primarily due to changes to tenure and distribution channel mix including higher sales through the PCW channel.Home market new business p
305、remiums improved during the year after years of premium deflation.New business pricing for the Groups Home own brands was sufficiently competitive to allow the Home division to continue to grow own brands through web and aggregator channels.In Home,the COR improved by 7.2 percentage points primarily
306、 as a result of a lower loss ratio,which was 10.8 percentage points lower than 2015.The impact of major weather events in 2016 was approximately 18 million(2015:90 million)and was lower than the normal annual level of claims costs expected from major weather events of approximately 70 million.Prior-
307、year reserve releases,which included some favourable development from the storms in late 2015,were higher than last year at 75.9 million (2015:41.9 million).The current-year attritional loss ratio,excluding claims costs from major weather events,was 2.0 percentage points higher than 2015.This was pr
308、edominantly driven by a greater proportion of new business sales compared to 2015 and an increase in claims inflation.The expense ratio at 21.7%was 1.9 percentage points higher than in 2015 primarily due to the Flood Re levy.The commission ratio at 22.6%was 1.7 percentage points higher than in 2015
309、as profit share due to partners was higher as a result of the improved loss ratio performance.Operating profit of 166.7 million improved by 51.7 percentage points benefitting from lower claims costs from major weather events and higher than expected prior-year reserve releases.The Groups partnership
310、 with Nationwide Building Society was due to terminate in June 2017.These plans are currently being reviewed which may result in the migration moving to the second half of 2017,whilst the Group works with Nationwide to ensure a smooth transition for customers.If this is the case,the Group will conti
311、nue to earn premiums written in the second half of 2017 through to the second half of 2018.The Group continued with its planned digital and proposition investment in the successful RBS Home and Private Insurance relationship.This will enable the Group to offer RBS customers tailored products consist
312、ent across distribution channels.The Group agreed an extension of its Home and Motor insurance partnership with Prudential for a further two years.As part of this,policies will be renewed under the Prudential brand until 2019.The Group also launched its first affinity partnership scheme to offer acc
313、ess to Churchill-branded Home and Motor policies for Prudential Group customers who do not currently have such insurance with the Group.This partnership demonstrates the Groups ability to deliver tailored propositions to meet the needs of partners and their customers.Flood Re From 1 April 2016,Flood
314、 Re,the Government and industry-backed scheme to provide affordable home insurance to households at high risk of flooding,became operational.The Group has supported Flood Res formation and was ready to cede chosen risks to Flood Re on its inception.Outlook The market remained competitive in 2016,alt
315、hough with some signs of premium inflation on new business,following several years of significant deflation.There is evidence that claims inflation has been increasing and has continued to run ahead of premium inflation.The focus remains on balancing margin and volume with a view to delivering susta
316、inable long term value.Note:1.Average incepted written premiums excluding IPT for Home own brands for year ended 31 December 2016 35Strategic reportGovernanceFinancial statementsOperating review continued Rescue and other personal lines Highlights In-force policies for Rescue reduced by 7.3%primaril
317、y as a result of lower partner volumes Gross written premium for Rescue and other personal lines increased by 1.7%to 400.8 million primarily due to Travel partnerships pricing COR increased by 2.1 percentage points to 93.3%Operating profit reduced by 11.7%to 45.9m Performance highlights 2016 2015In-
318、force policies(thousands)Rescue1 3,646 3,932Other personal lines 4,234 4,356Total in-force policies 7,880 8,288Gross written premium 400.8m 394.1mLoss ratio 61.6%59.9%Commission ratio 7.2%6.4%Expense ratio 24.5%24.9%Combined operating ratio 93.3%91.2%Operating profit 45.9m 52.0mPerformance In-force
319、policies for Rescue reduced by 7.3%to 3.6 million in comparison to the prior year through lower partner volumes.The reduction in in-force policies for other personal lines of 2.8%across 2016 primarily reflected lower packaged bank account volumes.Gross written premium for Rescue and other personal l
320、ines grew by 1.7%compared with 2015.Rescue gross written premium remained broadly stable compared with 2015.Green Flag performed well supported by competitive propositions.Gross written premium for other personal lines grew by 3.0%compared to 2015.The COR for Rescue and other personal lines was 2.1
321、percentage points higher than 2015 at 93.3%(2015:91.2%).The Rescue COR was 83.4%(2015:82.3%)with a higher loss ratio reflecting changes in business mix and investment in the network.The commission ratio of 7.2%was 0.8 percentage points higher than 2015,reflecting higher partner profit share,while th
322、e expense ratio was stable compared to 2015.Operating profit reduced by 11.7%to 45.9 million.Within Rescue and other personal lines,Rescue operating profit was similar to the prior year at 42.8 million (2015:42.2 million).The Group continues to support RBS with rescue and travel products sold to pac
323、kaged account customers.The provision of these services beyond the current contract term is subject to a market review,in which the Group is participating.Outlook Rescue continued to build its underlying capability to provide an excellent customer experience.During 2016 strong improvements in NPS un
324、derlined the progress being made and Green Flag has a strong focus for 2017 to seek to further enhance customer experience.The Group also continues to roll-out improvements in Pet and Travel to enhance our service while updating our customer propositions.Note:1.Rescue in-force policies have been rev
325、ised to exclude partner post-accident vehicle recoveries Direct Line Group Annual Report&Accounts 201636Highlights Commercial in-force policies grew by 3.1%with Direct Line for Business growth of 6.4%Gross written premium increased by 3.0 percentage points to 499.8 million.Direct Line for Business g
326、ross written premium grew by 7.7 percentage points to 109.6 million COR reduced by 5.8 percentage points and operating profit increased by 21.0 million with both benefitting from lower claims costs from major weather events Performance highlights 2016 2015In-force policies(thousands)DL4B 433 407NIG
327、and other 242 248Total in-force policies 675 655Gross written premium 499.8m 485.3mLoss ratio 55.3%62.7%Commission ratio 19.5%19.6%Expense ratio 23.9%22.2%Combined operating ratio 98.7%104.5%Operating profit 41.8m 20.8mPerformance Commercial in-force policy growth across 2016 was achieved by increas
328、ed sales through the Direct Line for Business and NIG.By 31 December 2016,there were more than 433,000 Direct Line for Business in-force policies.Commercial gross written premium increased by 3.0%to 499.8 million compared to 2015,reflecting growth in Commercial direct,particularly landlord and van p
329、roducts.Gross written premium for NIG and other increased by 1.7%compared to 2015 in part reflecting premium rate increases.The Commercial market has remained competitive during 2016,in particular in the broker channel.Overall premium rates have slightly lagged claims inflation albeit with variation
330、 by class of business and channel.Commercial continued to maintain its underwriting discipline and seek to balance the retention of customers with premium rate inflation.The Commercial COR of 98.7%was 5.8 percentage points lower compared to 2015.This benefited from lower weather related claims costs
331、,which were offset by the impact of the recent Ogden discount rate change.Operating profit was therefore 41.8 million,an increase of 21.0 million compared to 2015.The reduction due to the recent change in the Ogden discount rate was 24.7 million,of which 23.1 million relates to 2015 and prior accide
332、nt years.The current-year attritional loss ratio was 9.2 percentage points lower than 2015 due to lower weather-related claims costs and over 1 percentage point of underlying improvement due to better pricing and risk selection.Regulatory The Insurance Act went live in August 2016 with changes appli
333、ed to all of our product wordings across Commercial along with new processes in the claims area to ensure alignment to the principles of the Act.2017 will bring changes from the Enterprise Act and the Commercial division is well placed to support these changes.Outlook The Commercial division continued to develop both its direct to customer and broker led operations.Direct Line for Business continu
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