Direct Line Insurance Group PLC (DLG) 2017年年度報告「LSE」.pdf

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1、Annual Report&Accounts 2017Strategic report1Group highlights2Our investment case4Group at a glance6Business model8Chairmans statement10Chief Executive Officers review12Market overview14Our strategy20Our key performance indicators22Risk management26Corporate social responsibility30Operating review34F

2、inance reviewGovernance44Chairmans introduction46Board of Directors48Executive Committee49Corporate governance report61Committee reports74Directors remuneration report100 Directors reportFinancial statements104 Contents105 Independent Auditors report112 Consolidated financial statements117 Notes to

3、the consolidated financial statements164 Parent Company financial statements167 Notes to the Parent Company financial statementsOther information172 Additional information174 Glossary and appendices180 Forward-looking statements disclaimer181 Contact informationContentsWatch CEO,Paul Geddes comment

4、on the 2017 resultswww.directlinegroup.co.uk/investorsA year of strong progressPaul Geddes,CEO of Direct Line Group,commented:“2017 is the fifth successive year in which we have delivered a strong financial performance.We have seensignificant growth in our direct own brand policies as more customers

5、 respond positively to the many improvements we have made to the business.This success has resulted in our proposing an increase in the final dividend by 40.2%to 13.6 pence,bringing the total ordinary dividend to 20.4 pence and declaring a special dividend of 15.0 pence.This amounts to a cash return

6、 of 486 million to shareholders.“At half year we refreshed our medium-term targets and our results show weve been delivering on our management priorities to maintain revenue growth,reduce expense and commission ratios and deliver underwriting and pricing excellence.“Looking to the future,this succes

7、s enables us to continue investing in our technology and customer experience,supporting our plans to grow the business whilst improving efficiency.Together with our track record of delivery,these give usthe confidence to continue to target a combined operating ratio of 93%to 95%over the medium term.

8、”Notes:1.See glossary on pages 174 to 176 for definitions and Appendix A Alternative performance measures(“APM”)from page 177 for reconciliation tofinancial statement line items.2.A reduction in the ratio represents an improvement as a proportion of net earned premium,while an increase in the ratio

9、represents a deterioration.Seeglossary on page174 for definitions.3.Estimates based on the Groups Solvency II partial internal model.Our strong performance reflects our success in satisfying customers and a focus on profitability and returnsProfit before tax1539.0m(2016:353.0m)Return on tangible equ

10、ity121.7%(2016:14.2%)Combined operating ratio2Ongoing operations191.8%(2016:97.7%)Gross written premium3,392.1m(2016:3,274.1m)Expense ratio2Ongoing operations125.3%(2016:25.3%)Operating profit1Ongoing operations1610.9m(2016:403.5m)Solvency capital ratio3162%(2016:165%)Dividend per share35.4p(2016:24

11、.6p)Commission ratio29.1%(2016:11.5%)Strong growth in direct own brands1 premiums and in-force policies up 9.3%and 5.3%respectively,driven again by continued Direct Line momentum in Motor Operating profit from Ongoing operations of 610.9 million(2016:403.5 million),primarily due to the non-repeat of

12、 the Ogden discount rate change which was reflected in 2016s results.Profit before tax of 539.0 million(2016:353.0 million)Reported expense ratio in line with 2016.Excluding non-cash intangible assets impairment of56.9 million(2016:39.3 million),underlying expense ratio improved 0.5 percentage point

13、s to23.5%Combined operating ratio2 from Ongoing operations of 91.8%(2016:97.7%)reflecting strong Motor and Commercial performance,including from prior-year reserve releases.Adjusted for normal weather,combined operating ratio towards the lower end of the target range 93%to95%Final regular dividend u

14、p by 40.2%to 13.6 pence bringing the total ordinary dividends to 20.4 pence(2016:14.6 pence)and a special dividend of 15.0 pence(2016:10.0 pence).Total dividends for 2017 of 35.4 pence per share(2016:24.6 pence)Group highlightsWWW.DIRECTLINEGROUP.COM1Strategic reportGovernanceFinancial statementsCom

15、bined operating ratio93%-95%RoTE1 at least15%Grow our dividend in line with business growthMaintain solvency capital around the middle of the 140%to 180%Solvency II target rangeOur three strategic pillars have already helped us deliver sustainable growth and at least 15%RoTE1.Smart and efficient man

16、ufacturerWe have the scale and data to provide our customers with an excellent service at a competitive price however they choose to access our insurance via partners,price comparison websites(“PCWs”)or direct.As an example,a strategic decision was taken with the aim of becoming the largest insuranc

17、e owner of accident repair centres in the UK.This helped us continue the brand experience throughout the customer journey,targeting excellent workmanship and service at highly competitive prices.We are well placed to work with our partners to deliver more than just insurance.Wewant to build sustaina

18、ble relationships,combining our strengths to meet our customers needs,such as working on digital innovations with our partner RBS2,helping their customers receive fast,pre-populated insurance quotes.Great retailerOur multiple leading brands offer differentiated propositions through a range of distri

19、bution channels,answering the needs of different customers.2017 has continued a trend of growth in own brand in-force policy count.As a result of listening to our customers we challenged the trend of commoditisation,and invested in our Direct Line brand.We did this because we are convinced that grea

20、t brands and propositions attract customers and build great relationships which deliver real shareholder value.Since its relaunch in 2014,Direct Line has grown consistently year on year.Lead and disruptThe way customers buy,the risks they face and the assets they use are changing at a rapid pace our

21、 philosophy isto embrace those changes and help shape the future.Our digital capabilities mean we can open up new markets;Direct Line for Business has done this with small and medium-sized enterprises(“SMEs”).It also enables us towork with leading car manufacturers,such as Tesla,Peugeot and Citron a

22、nd Volkswagen Insurance Service(Great Britain)Limited so together we can learn from technology and develop the right solutions to support their customers.Creating shareholder valueOur investment caseFive years after the Groups initial public offering we have consistently achieved profitable growth a

23、nd returned 2.4 billion to shareholders including the ordinary and special dividends for 2017 of 486 million.Our successful strategy,built around our“rocket”(see page 14),has enabled us to launch new medium-term financial targets:Notes:1.Return on tangible equity.See glossary on pages 174 to 176 for

24、 definition.2.The Royal Bank of Scotland Group plc,including National Westminster Bank plc.DIRECT LINE GROUP ANNUAL REPORT&ACCOUNTS 20172201720162015201416.016.818.514.2201321.720172016201520146,1286,1126,2646,56320136,909201720162015201495.295.094.097.7201391.8201720162015201420.627.250.124.6201335

25、.416 October 201230025020015010031 December 2012 31 December 2013 31 December 2014 31 December 2015 31 December 2016Direct Line GroupFTSE 350(excluding investment trusts)31 December 2017 Total Shareholder Return(%)2017:8.1%Own brand in-force policy count(thousands)6,909 Return on tangible equity(%)2

26、1.7%Combined operating ratio(%)91.8%Dividend per share(pence)35.4pA proven track recordOur performance in the five years since our initial public offering demonstrates the strength of our strategy and processes.WWW.DIRECTLINEGROUP.COM3Strategic reportGovernanceFinancial statementsDirect Line has mai

27、ntained its brand heritage of speed,simplicity and a common-sense human touch.We continue to sell products direct to customers by phone and online.Our customers want a premium product with exceptional customer care that is tailored to their needs at a competitive Churchill is one of Britains most re

28、cognisable brands.Our products are available by phone and online,including PCWs.Our customers are looking for a dependable partner who is reliable,trustworthy,and happy to spend time making sure they are happy.Those values are at the heart of the Green Flag is our roadside rescue and recovery servic

29、e.It is a standalone service and an optional product alongside motor insurance across all of our brands.Green Flag offers an award-winning breakdown service at a much cheaper price than its two biggest Direct Line for Business is an extension of our Direct Line brand.We market a range of business in

30、surance products over the phone and online.Our customers are looking for the right level ofcover at the right price.www.directlineforbusiness.co.ukPrivilege targets customers who mainly buy through PCWs.Our customers want a quick and efficient service at the best NIG is our commercial insurance bran

31、d dedicated to the broker market and is focused on a number of specialisms including SMEs,Agriculture and Real Estate.We sell our products through over 2,000 brokers,including an in-house intermediary that arranges commercial insurance for partnerships,such as RBS and NatWDLG Partnerships is the Gro

32、ups partnerships arm.We specialise in providing personal lines insurance,and roadside rescue and recovery products to some well-known brands.We have multiple brands,products and distribution channels.These enable our customers to choose the right cover to protect their cars,homes,holidays,businesses

33、 and pets.A diverse propositionGroup at a glanceOur brandsDIRECT LINE GROUP ANNUAL REPORT&ACCOUNTS 20174Motor1,670.4mGross written premium4.0mIn-force policies91.9%Combined operating ratio364.5mOperating profitHome799.1mGross written premium3.2mIn-force policies89.4%Combined operating ratio128.8mOpe

34、rating profitRescue and other personal lines421.1mGross written premium7.7mIn-force policies94.3%Combined operating ratio43.6mOperating profitCommercial501.5mGross written premium708kIn-force policies93.4%Combined operating ratio74.0mOperating profitNotes:1.Includes Direct Line,Churchill,Privilege a

35、nd partner brands:RBS,NatWest,Prudential and Sainsburys GfK Financial Research Survey six months ending January 2018,14,063 adults interviewed for motor insurance and 12,214 for home insurance.2.Mintel Vehicle Recovery UK,September 2017.3.Mintel Pet Insurance UK,August 2017 and Mintel Travel Insuran

36、ce UK,February 2017.Where do we earn our money?3,392.1mGross written premium up 3.6%We are Britains leading personal motor insurer measured by in-force policies1,mainly represented through our well-known brands Direct Line,Churchill and Privilege,and also through our partners.We insure around one in

37、 six insured cars on the road in the UK,representing 4.0 million in-force policies.We are one of Britains leading personal home insurers measured by in-force policies1.We reach our customers by selling home insurance products through our brands Direct Line,Churchill and Privilege,and our partners RB

38、S,NatWest and Prudential.We are one of the leading providers of rescue and other personal lines insurance in the UK2,3 with 7.7 million in-force policies.This includes providing roadside assistance and recovery for customers through Green Flag,the UKs third largest roadside recovery provider2.We als

39、o offer customers protection for their holidays and pets and are the second largest travel and the fourth largest pet insurer respectively3.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 e

40、xclusively through brokers operating 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 PCWs.MotorHomeRescue and other personal linesCommercialWWW.DIRECTLI

41、NEGROUP.COM5Strategic reportGovernanceFinancial statementsRescue and other personal linesOur servicesCommercialMotorHomeReinvest in the businessCreating value for our stakeholdersOur multi-brand,multi-product and multi-distribution channel business offers different propositions to distinct customers

42、.We believe this approach should enable us to provide good value for customers and sustainable returns for our shareholders.Business modelOur core strengthsCustomer focus We put our customers at the heart of everything we do.Ourbrands,products and distribution channels aim to make insurance much eas

43、ier to access and better value for our customers.Our fast and efficient claims service gives our customers the help they need,when it is needed.Talented people We invest in our people,encouraging everyone to aim higher.We do this so that our talented people across all parts of our business strive to

44、 improve and innovate,so that we can continue to deliver the products and services which meet the needs ofcurrent and future customers.Brand power We are Britains leading motor and home insurer1,offering ourcustomers decades of experience,knowledge and service delivery via our trusted household bran

45、ds.This scale provides aplatform for new product development.Data and technology We are harnessing the power of technology to make life easier for both our customers and our people.Continuing our history of disrupting the insurance market,we aim to use technology tobecome even more customer-centric,

46、learning from the wealth of data we possess as a result of being a leading insurer.Capital and financial strengthWe have a simple but highly cash-generative business model.Our proven underwriting discipline,claims excellence and costcontrol helps us meet our customers needs whilst targetingsustainab

47、le returns for our shareholders.1.Measured by in-force policies.See page 2 for our investment caseSee page 30 for operating reviewDIRECT LINE GROUP ANNUAL REPORT&ACCOUNTS 20176PremiumsNet claimsCostsDividendsInvestment and other incomeProfitManaging riskGenerating returnsSustainable value We strive

48、to make sure our business is well-governed and controlled.We manage our finances carefully and balance this with targeting sustainable returns for our shareholders.CustomersWe give customers products that best suit their needs and exceptional service throughout their relationship with us.EmployeesWe

49、 invest in initiatives to develop our people,creating ahigh-performance culture based on diversity,continuous training and customer focus.CommunitiesWe are committed to supporting our employees charitable work,reducing our environmental impact,and inspiring a generation of safer young drivers.Shareh

50、oldersWe aim to give our shareholders value by generating sustainable business profits,part of which wedistribute as dividends.144.0ptsNet Promoter Score278%engagement333%of staff fundraised or volunteered on Company time35.4pDividend per shareSee page 34 for finance reviewSee page 14 for our strate

51、gy2.See page 21 for explanation on NPS.3.See page 28 for details on employee engagement.WWW.DIRECTLINEGROUP.COM7Strategic reportGovernanceFinancial statementsChairmans statementDelivering sustainable growthReturns to our shareholders remain a key focus in this challenging market environment.Cumulati

52、ve dividends represent approximately 80%of the share price at the initial public offering.Dear shareholders,In 2017,the Group delivered profit before tax of 539.0 million(2016:353.0 million).Continuing underwriting discipline,increasing operating efficiency,favourable claims results in the year and

53、releases from prior year reserves have helped us achieve this commendable result.StrategyThe Groups mission is to make insurance much easier and better value for our customers.The Board supports and challenges the Groups management to develop and execute a strategy which is aligned with this mission

54、 and positions the business to address the evolution of customers needs,including taking advantage of significant changes in technology.The effective execution of our strategy requires a substantial and continuing change agenda to improve our digital offering and the agility of the organisation.Divi

55、dendsIn August 2017,the Group announced that the regular dividend would be rebased upwards to reflect the Boards confidence in the Groups earnings capability,its potential to generate strong cash flows,and the progress the business has made since the initial public offering(“IPO”)five years ago when

56、 the Groups dividend policy was previously set.In line with this,the Board is recommending a final dividend of 13.6 pence per share.If approved,the total regular dividend of 20.4 pence per share will represent 39.7%growth on 2016s regular dividend(14.6 pence per share).In addition,the Board has reso

57、lved to pay a further special interim dividend of 15.0 pence per share to reflect the Groups strong performance in the year.The Boards ability to return a substantially higher regular dividend to shareholders is despite the backdrop of a challenging economic environment during the UKs ongoing negoti

58、ations regarding its withdrawal from the European Union.Whilst the day-to-day operations remain substantially unaffected,the Group continues to monitor the consequences of the volatility of Sterling,inflation and uncertain financial markets.Linking remuneration to performanceWe remain committed to e

59、nsuring that executive pay is aligned with the Companys strategy of delivering long-term shareholder and customer value.The Group achieved a return on tangible equity(“RoTE”)of 21.7%for 2017.An increase of 3.3%(2016:a decrease of 9.4%)in the share price over the year to 381.7 pence(2016:369.4 pence)

60、at 31 December 2017,together with dividend payments,provided a total shareholder return(“TSR”)of 8.1%for the year(2016:minus 1%).Over the past five years,shareholders have received a TSR of 152%compared to the FTSE 350(excluding investment trusts)of 62%.The Group has continued to deliver very good r

61、esults each year,which has enabled the Board to declare cumulative dividends,including special dividends,equivalent to approximately 80%of the IPO share price.Solvency IIThe Group uses its partial internal model(“PIM”)to calculate its solvency capital requirement(“SCR”).Taking into account the final

62、 dividend and special interim dividend proposed to be paid in May 2018,the Groups 2017 year-end capital surplus amounts to approximately 0.86 billion above its SCR(2016:0.91 billion above its SCR).This is equivalent to a solvency capital ratio of 162%(2016:165%).The Board considers the appropriate G

63、roup risk appetite range to be 140%to 180%of DIRECT LINE GROUP ANNUAL REPORT&ACCOUNTS 20178its SCR and expects the Group to operate around the middle of this range in normal circumstances where there is no material opportunity or threat.This is intended to enable the Group to meet all of its operati

64、onal,regulatory and rating agency requirements.IT infrastructureThe Board continues to provide oversight of the programme of activity to upgrade and better integrate the major IT systems within the Groups technology infrastructure aimed at improving the digital offering,customer experience and opera

65、tional efficiency.Whilst progress has been made in each of the three areas,implementation and integration of a range of new IT systems is inherently complex and challenging.The Group remains focused on building the right capabilities and will take the time necessary to do so.The Boards ongoing areas

66、 of focus include developing future capability for both customers and colleagues,and monitoring risks around the internal control environment,part of which is focused on the stability and security of the Groups IT systems.Culture,conduct and regulationThe Group maintains active relationships with it

67、s insurance regulators through constructive dialogue.The Board promotes an open and collaborative culture,and provides oversight of the Groups conduct with customers.It oversees the Groups culture and the conduct policy,which aims to ensure that fair customer outcomes are achieved and that employees

68、 behave with integrity.The Group also has a Code of Business Conduct which sets out standards that our employees are required to adhere to(see page 60).The Board recognises that opportunities will arise to improve further the services offered to customers;and it has therefore encouraged a range of c

69、ustomer experience initiatives which are designed to deliver increased levels of customer satisfaction.Board and Committee membership changesSuccession planning remains a key area of focus for the Board.In February 2017,Danuta Gray was appointed as a Non-Executive Director(“NED”)and Mike Holliday-Wi

70、lliams was appointed as an Executive Director to the Board.Danuta was also appointed as a member of the Remuneration Committee in March 2017 and the Nomination Committee in August 2017.John Reizenstein was appointed as a member of the Investment Committee in July 2017.In November 2017,the Group welc

71、omed Penny James to the Board as an Executive Director and CFO-designate,following the announcement that Penny will become CFO with effect from 1 March 2018 and that John Reizenstein will retire from the Board at the conclusion of the Annual General Meeting(“AGM”)on 10 May 2018.I thank John very muc

72、h for his outstanding achievements as CFO over the last seven years;his contribution to the success of the Group to date has been significant and I wish him the very best for the future.Andrew Palmer,independent NED and Chair of the Audit and Investment Committees,has decided to step down from the B

73、oard on 10 May 2018,having served as a Director since 2011.His tireless work before and after the IPO has been invaluable to the Board and to the Groups senior management.He leaves us with our deepest gratitude and our best wishes for the future.My introduction to the Corporate Governance report and

74、 the Nomination Committee report provide further information on these changes.I would like to thank each member of the Board for their significant contribution,commitment and service;and look forward to working with them in 2018 as the Group continues to build on its success to date.EmployeesThe Gro

75、ups employees are fundamental to the Groups strategy and to ensuring a high level of service to our customers.I would like to thank each of them for their hard work,initiative and commitment to our mission.Their positive energy,embodiment of the Groups values and unwavering dedication to our custome

76、rs helped our businesses progress over these five successful years,and has put us in a strong position for the future.Michael N BiggsChairmanGovernance highlightsLeadershipYour Board seeks to ensure that decisions are of the highest standard.It challenges strategic proposals,performance delivery and

77、 management responsibilities.See page 49.EffectivenessThe effectiveness of your Boards and its Committees performance is considered annually in an effectiveness review.See page 52.AccountabilityYour Board provides shareholders with an assessment of the Groups position and prospects.We monitor and re

78、view the effectiveness of the Groups risk management and internal control systems.See pages 22 and 56.RemunerationYour Remuneration Committee ensures a close correlation between creating value for shareholders,and remunerating Executive Directors and senior executives appropriately.See pages 57 and

79、74.Relations with shareholders and stakeholdersYour Board maintains strong relationships and regular interaction with shareholders.Their continued support for the strategic aims is important.See page 57.Your Board also has regard to the interests of stakeholders.See page 59.WWW.DIRECTLINEGROUP.COM9S

80、trategic reportGovernanceFinancial statementsChief Executive Officers reviewMaking insurance much easier andbetter value for customersThis years progress reflects the hard work of our people and our continued customer focus.Q:How is Direct Line Group making insurance much easier and better value for

81、 customers?A:Im really proud that were growing our brands and our customer base whilst continuing to deliver a strong financial performance.A lot of our growth is coming through the Direct Line brand,where we have put a huge amount of work into reinvigorating what we do for our customers.We know tha

82、t insurance is not just about competitive prices;customers value great products and services as well as great prices.This year weve added even more propositions which are unique to Direct Line,including providing alternative accommodation should customers be unable to live in their home after an ins

83、ured event,as well as an emergency plumber service.Our Green Flag brand has also grown fast,showing its effectiveness as a disruptor brand in the Rescue market.And weve continued to develop the digital journey through mobile devices,allowing personal customers to use their smartphones in a broader r

84、ange of claims situations.Q:How would you describe the Groups financial performance?A:2017 is the fifth successive year in which weve delivered a strong financial performance.The Group has a great track record of meeting the targets we publish and this gave us the confidence to extend some of our ta

85、rgets into the medium term.Investors I meet acknowledge that since going public in 2012 we have demonstrated consistently strong results,coupled in recent years with growth in the business though of course they encourage us to not only sustain this but do better.Q:What has driven the Groups dividend

86、s?A:As announced in the 2017 half year results,the Board has rebased the regular dividend upwards,increasing the final dividend by 3.9 pence to 13.6 pence per share(2016:9.7 pence).This reflects our confidence in our earnings and the progress we have made since the IPO in 2012.Q:What role does IT in

87、vestment play in your plans?A:Technology is the backbone of our organisation and weve seen major changes in infrastructure and software over the last few years.Our profitability has enabled us to pay good dividends and also to continue to invest in technology.In 2017 we launched our new digital plat

88、form for small business customers using the Direct Line for Business brand.This addresses the fact that todays small businesses,particularly start-ups,find insurance complex and expensive and need policies and services that are tailored to the needs of their businesses.Meanwhile we are working on ou

89、r core personal lines policy and related systems,bringing in best-in-class software aimed at delivering faster,better,digital customer experience at lower cost.We have invested significantly in IT and data knowledge and capability.We have brought in new talent over the past two years across IT,IT se

90、curity,digital and data to help achieve this.During the year,we decided that some of the investment undertaken as part of the improvement in IT capability would not deliver the targeted performance levels to meet its customers expectations.Therefore,we decided to rework some elements of data storage

91、 and data flows.As a result we incurred an intangible asset impairment charge of 56.9 million in the year,reflecting capitalised costs of intangible assets that will no longer be utilised.DIRECT LINE GROUP ANNUAL REPORT&ACCOUNTS 201710Q:What do you see as the greatest market opportunities and challe

92、nges?A:Ive already mentioned Direct Line for Business and Green Flag.There are other exciting opportunities ahead for NIG,where we are providing a great service to brokers serving the SME sector,and where we are investing in pricing capability as well as technology.In our Home business,we are doing

93、innovative work with our NatWest partner to serve their retail customers better,and in Travel we are building a new operating platform as a foundation for developing both our direct and partner business.Of course the markets we operate in are extremely competitive and 2017 saw significant industry-w

94、ide challenges in the form of Insurance Premium Tax(“IPT”)and changes to the personal injury discount rate.These challenges,coupled with the growing popularity of PCWs,have created a shoppers market and Im delighted with the success that our brands have enjoyed across the direct and PCW channels.In

95、the longer term,our core markets of motor and home and the products we are insuring are changing rapidly and while this brings challenges,it also presents many opportunities.That is why we are investing to stay ahead,for example through a number of strategic partnerships in the FinTech sector which

96、position the Group for some of the disruption which we expect to occur.The most significant challenge in the long term is the potential for driverless cars to enter the mainstream market.We have a positive attitude to new car technology and believe it will make cars much safer,which would be a good

97、thing for society while reducing the pool of risk which customers need to cover via insurance.We believe the insurance industry has a critical role to play in the analysis and adoption of the technology and we are therefore developing insight into the impact of automated driving systems on liability

98、 and claims.This is happening,for example,through MOVE_UK and StreetWise,a driverless car consortia which the Group has joined.We also have the benefit of our state-of-the-art repair network,which is investing to stay abreast of new car technology.If the risk pool declines as a result of the new tec

99、hnologies,we would expect the size of the Motor market to contract.In these circumstances we will need to continue to win more of it.With the insights we are gaining,and the relationships we are building,I believe we will be well-positioned to do that.Q:It has been five years since the IPO.Can you d

100、escribe the journey you have been on as an organisation?What have been the most significant changes over the last five years?A:In many ways it seems like no time at all!I think that the fifth birthday has given us cause to reflect on not just a one year view but on a five year view of our progress.W

101、e have achieved a huge amount over that period.We are a people business and these achievements are the result of the efforts of our entire DLG team,all of whom have played a part in a fundamental change in our culture from that of a division of a large global bank to our own unique identity.Key step

102、s in this change have been our focus on the customer and on individual behaviours,our performance management system,investing in our leadership,our colleague share ownership scheme,and initiatives such as Idea Lab,which enable colleagues to be rewarded for saving the Company money.All this leads to

103、a high level of employee engagement,which rose again in 2017.Our full engagement score has gone up to 78%(five points higher than last year and 33 points higher than when we first ran the survey in 2014)and over 9,200 people(87%)took part in our DiaLoGue colleague survey this year.We are grateful th

104、at so many people participated,and were delighted that our efforts in engaging and motivating our colleagues who,importantly,our internal survey indicates feel that they are listened to and respected continue to pay off.We want them to know that what they think and what they do really matters to the

105、 company.One of the proudest moments for all of us in the last five years has been to write over four million Direct Line policies in 2017.This is the result of an alignment of our strategy,our insurance and marketing expertise and the customer focus of our employees.Q:What is your outlook for the G

106、roup in 2018?A:Looking beyond the external uncertainties like the weather,whiplash reforms and the changes to the personal injury discount rate,we have a good plan in place for our customers,shareholders and colleagues.Achieving a balance between all three has been central to our success since IPO a

107、nd that continues to be our aim.Turning to our performance beyond 2017,the Group targets a combined operating ratio of between 93%and 95%over the medium term,assuming a normal level of claims from major weather events and no further change to the Ogden discount rate,supported by reductions in our ex

108、pense and commission ratios and reiterates our ongoing target of achieving at least a 15%RoTE.For 2018,we expect net investment income yield to be around 2.1%,with overall investment return in the region of 150 million.Paul GeddesChief Executive OfficerWWW.DIRECTLINEGROUP.COM11Strategic reportGovern

109、anceFinancial statementsMarket overviewOur environmentWe operate in a dynamic environment and as such invest in evolving our business to meet the demands of changing customer needs,regulatory requirements and technological disruption.This enables us toserve our customers and manage claims to high st

110、andards.Digitalisation&technologyTechnology provides opportunities forinsurers Digital technology is changing how customer needs can be met Data available to insurers is increasing as homes,vehicles and devices become connected Technologies including artificial intelligence and machine learning will

111、 enable better risk modelling,improved personalisation and enhanced customer experience Increased data and digital access brings a risk to information securityOur response We continued to invest and partner with innovative FinTech and InsureTech companies We continued to invest in our systems,digita

112、l and data capabilities including appointing a new Chief Data Officer We continued to pursue our ambitious IT transformation programme and enhanced our digital offering We developed a custom-built digital platform to provide a seamless journey for our RBS and NatWest partnership customersClaims and

113、premium inflationRising cost pressures for insurers and customers Motor insurance premiums continued to rise with pressure from increasing costs,regulatory changes and macroeconomic pressures Increased vehicle complexity,exchange rate impacts and inflation have contributed to rising repair costs Reg

114、ulatory changes including those to the Ogden discount rate and the rise in IPT have added upwards pressure to the costs of insuranceOur response We continued to add to our accident and repair network and rebranded the network to DLG Auto Services We focussed on expenses reduction by using robotics a

115、nd offshoring as well as investing in our fraud analytics capability We maintained our emphasis on achieving targeted loss ratiosChanging customer needsSMEs represent a growing customer base with distinct needs The SME segment in the UK continued to grow,having grown by over 2million businesses sinc

116、e 2002 Technology and digital trends are enabling small businesses to reach a wider customer base and operate for longer hours,with fewer staff These same trends are changing how these businesses interact with financial services providers Small and micro businesses are behaving increasingly like con

117、sumers looking for simplicity,speed and personalisationOur response Launched Direct Line for Business new digital platform,targeting small and micro businesses218minvested in UK InsureTechs in the first half of 20171On average44mis paid out each day in personal motor and property claims in theUK2Sma

118、ll businesses accounted for99.3%of all private sector businesses at the start of 20173DIRECT LINE GROUP ANNUAL REPORT&ACCOUNTS 201712Car technology and automationOpportunities and challenges in an evolving sector The automotive industry is undergoing dramatic change with improvements in in-car techn

119、ology and the advent of electric,connected and autonomous vehicles These changes will give rise to opportunities and challenges for motor insurers.Access to data from connected cars may present a significant opportunity for insurers to evolve their products Over the longer term,autonomous vehicles c

120、ould impact the nature of the risk being insured and the customers being served as the risk shifts from the driver to the vehicle and more customers move from owning to renting carsOur response Maintaining our industry-leading position in in-car technology with participation in the StreetWise projec

121、t aiming to use artificial intelligence to put autonomous vehicles on Britains roads by 2019 Signed a letter of intent with Volkswagen Insurance Service (Great Britain)Limited covering five well known brands Volkswagen,Audi,SEAT,koda and Volkswagen Commercial Vehicles Brand strengthBrand is a key di

122、fferentiator in a competitive environment Retention is a key driver of profitability for insurers,as the cost of acquisition is often higher than that of retention Brand strength has a material impact in driving purchase and retention5 It is a critical enabler for selling direct which typically has

123、better retention and profitabilityOur response We believe investing in our brands and differentiating propositions is an effective strategy for success,with Direct Line brand policies passing 4 million in 2017 The strength of our brands and propositions enabled us to operate successfully through the

124、 direct distribution channel,deliver a superior service to our customers,great returns to our shareholders and gave us the scale and expertise to operate effectively in the partnership and aggregator channels We launched two headline propositions for Direct Line and the“Drive on”proposition for Chur

125、chill New management appointed for Green Flag and a new advertising campaign highlighting its challenger statusRegulation and legislationA dynamic and complex regulatory environment The insurance regulatory and legislative environment continues to change at a rapid pace,with changes including:new ru

126、les to promote price transparency by requiring disclosure of the previous years premium on renewal increase in the IPT rate reduction in the personal injury discount rate announcement of the Civil Liability Bill aimed at reducing the cost of soft tissue injury claims The vote to leave the EU has con

127、tinued to bring a level of uncertainty over regulation,in particular on Solvency IIOur response We continue to keep abreast of regulatory changes and engage continuously with regulatorsOver85%of all new cars are already classed as connected in the first half of 2017493%of customers believe that clai

128、ms efficiency and trustworthiness are important5It is estimated that soft tissue injury reform could cut1.2bnper year from insurance costs6Notes:1.Accenture2.Association of British Insurers3.Business statistics,December 2017 UK Government4.PwC5.Morgan Stanley6.Ministry of JusticeWWW.DIRECTLINEGROUP.

129、COM13Strategic reportGovernanceFinancial statementsOur key enablersLong-term ambition:Sustainable growth and at least15%RoTEOur strategic pillarsOur missionMake insurance much easier and better value for our customersGreat retailerSmart&efficient manufacturerLead&disrupt the marketData&technologyCul

130、ture&capabilityCapital&risk managementOur strategyGrowth ambition over the longer termWe have shown ourselves to be a business that can deliver great things for our customers through our brands and at the same time deliver excellent returns for our shareholders.As we embrace the future we will do so

131、 with our consistent strategy which targets sustainable growth.As a forward-looking and proactive insurer we are well-positioned to keep pace with technological change and the opportunities it creates for us to grow the business and continue our history ofdisrupting the insurance market.DIRECT LINE

132、GROUP ANNUAL REPORT&ACCOUNTS 201714Great retailerCompelling 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 journey.Thisincludes increasing online policy servi

133、cing options for our customers including claims,enhancing the customer experience from purchase through to 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 better respond to our cust

134、omer needs.Wealsoinvest in our brands,which are a key differentiator ina competitive environment.Customer satisfaction is critical to the success of our business and our brand.As such we link our customer satisfaction scores to our executive remuneration through the Annual Incentive Plan(“AIP”).Our

135、response The investment in our brands and propositions continues to deliver benefits,with the Direct Line brand in-force policy count passing four million customers this year We launched two headline propositions in Direct Line with Onward Travel in Motor that promises to keep customers moving after

136、 an accident,by arranging and paying for a taxi to continue their journey.We are the only insurer who offers this end-to-end service and since launch,our customers have travelled over 46,000 miles in taxis organised by Direct Line In Direct Line Home,we launched our Alternative Accommodation proposi

137、tion,providing hotels for customers within one hour,following incidents which left their homes uninhabitable We are planning to continue to“supercharge”Churchill with new propositions,such as“Drive On”launched this year,assisting customers to replace cars if theirs is written off We continue to grow

138、 in Commercial through our business brands NIG and Direct Line for Business.Direct Line for Business continued to grow throughout the year in all product areas.In particular,weve expanded our business to offer better value,personalised insurance products to different types of small businesses We are

139、 backing Green Flag to disrupt the rescue business through our smart,connected network and embracing our challenger status.To support this ambition,this year we recruited a new Managing Director for Rescue and launched a fresh advertising campaign,with further investment in Green Flag planned in 201

140、8 Frontline colleagues continue to have a high focus on delivering great customer experience with 85%of customers surveyed(1 million+responses)in 2017 rating our peoples performance as 9 or 10 out of 10 Our customer satisfaction scores for the Direct Line brand have seen an 8%improvement from last y

141、ear,with Churchill seeing a 5%improvement over the same periodFind out how this responds to market drivers on pages 12 and 13Putting customers firstWe have revitalised our Green Flag brand.We are the industry challengers providing a smarter breakdown service.By leveraging a nationwide network,instea

142、d of maintaining an expensive branded fleet,it is our customers who reap the rewards.47minsaverage response timeWWW.DIRECTLINEGROUP.COM15Strategic reportGovernanceFinancial statementsOur strategy continuedSmart&efficient manufacturerEfficiency and flexibility to deliver better claims and customer se

143、rvice at lower costWe aim to improve efficiency and effectiveness across the organisation.To do this we continue to deliver transformation initiatives,while also investing in capabilities to enhance the quality and effectiveness of our claims operations.Customer satisfaction with and the quality of

144、our claims process are a crucial part of our brand and help differentiate us from our competitors.As such we link our senior executives remuneration to customer satisfaction through the AIP.Our response This year we centralised procurement and supply chain management into a single strategic function

145、 to enable us to be more proactive in driving performance and value from our supply chain.This helped us lower the total cost of hire car provision,escape of water repairs and our IT infrastructure costs We have implemented robotics process automation as one of our initiatives aimed at reducing our

146、expense ratio.We now have 80 robots managing over 30 processes of varying complexity,with over 600,000 transactions completed this year.Next year we plan to expand our robotics programme which currently has the infrastructure to support an additional 170 robots We have also invested in our fraud ana

147、lytics capabilities,moving some of our data and analytics to an agile,cloud-based infrastructure,enabling real time fraud identification and management,as well as the use of wider datasets We continued to expand our accident repair network,with the addition of a new garage,bringing the total to 19 a

148、cross the country.These have enabled us to control indemnity expenditure better while delivering an improved customer experience.To demonstrate our confidence in the service our repair network delivers,weve rebranded our repair network as DLG Auto Services We continue to monitor and control our cost

149、s carefully as part of the day-to-day running of the business,to help enable our expense ratio to reduce as the business grows We have extended our distribution reach into the strategically important motor manufacturer space:our partnership with PSA Finance UK(part of Groupe PSA,owners of the Peugeo

150、t and Citron brands)and our introducer arrangement with Tesla,positions the Group as one of the leading motor partnership insurers in the UK Lead&disrupt the marketWe seek to maximise existing growth opportunities while creating and driving future areas of valueWe aim to remain a leading competitor

151、in our chosen sectors by providing quality propositions and value for money.Where there are opportunities,we will look to launch new and exciting products and services with the aim of putting us at the forefront of disruptive changes.Our response When Direct Line was first launched,we disrupted a br

152、oker-led personal lines market now we are looking to do the same for the Commercial small and micro business segment.This year,under the Direct Line for Business brand,we successfully launched the first two of our new,fully personalised insurance products for the Hair&Beauty and the Bed&Breakfast tr

153、ades.Products can be tailored by the customer,allowing them to create a policy thats just right for them and only paying for what they need.Next year we will continue our expansion with the launch of further personalised insurance products for different types of business Weve continued to make good

154、progress on developing alternative pricing approaches using machine learning capabilities.These are intended to help us increase our competitiveness at good loss ratiosDIRECT LINE GROUP ANNUAL REPORT&ACCOUNTS 201716 We continue to build on our industry-leading position in understanding the impact of

155、 in-car technology on our industry.In 2017,we joined the StreetWise project,with the UK Government and Artificial Intelligence developers,which aims to use artificial intelligence to put autonomous vehicles on Britains roads by 2019.Our Shotgun app was launched with the aim of saving lives and makin

156、g Britain safer.The app,aimed at under-25s,uses telematics and gamification to reward safer drivers This year also saw the launch of our car maintenance service proposition for Green Flag,giving our customers access to a network of garages at discounted rates through our partner Roadserve In Home,we

157、 took an equity stake in Canopy,a rental market disruptor offering an alternative to costly security deposits that are hindering Generation RentData&technologyHarness the power of technology and the scale of our dataWe aim to harness the power of technology to make things easier for our customers an

158、d our people.By implementing integrated systems that are flexible and efficient,over time we aim to reduce our expense ratio while improving customer interactions such as self-service.We also enjoy a wealth of data from being a major insurer with a large number of policies,which we can use to make o

159、ur business better for our customers.Our response We continued to invest in our data science capability with the appointment of a new Chief Data Officer and are focussing on improving our data architecture and driving further value from the data we hold Weve developed a custom-built digital platform

160、 to securely interface with our partners,including RBS,NatWest and otherthird parties,allowing us to provide a seamless customer journey We are planning to expand our digital platform to connect with more datasets,enabling us to improve our customer experience and improve the quote and buy journey W

161、e continue to deliver our ambitious IT transformation programme by improving our digital offering for our customers through self-service options and enhancing the customer experience In 2017 a new Direct Line brand initiative Fleetlights partnered with the Caister Volunteer Lifeboat Service,making t

162、hem the first search and rescue team in the world to use our high-performance,pioneering semi-autonomous drone technology to save lives at sea.We also launched Smarter Crossings the worlds first responsive road using light-emitting diodes that can react to the traffic,the people around it and the ti

163、me of day,helping to keep road users safeDirect Line for BusinessIn 2017 we launched a technology platform that enables small business customers to tailor policies to their requirements.First launched through Hair and Beauty insurance,this“pick and mix”approach delivers more personalised insurance,a

164、nd we are rolling it out across other commercial lines.Driverless carsWe positively embrace technology and welcome developments in automated driving.Driverless technology will impact all road users and bring new insurable risks to the market.As the UKs largest motor insurer,we play acrucial role in

165、this innovation and are backing projects that aim to bring this technology safely to the market.Byembracing these technologies early on,we will be able to deliver the motor insurance our customers truly need.WWW.DIRECTLINEGROUP.COM17Strategic reportGovernanceFinancial statementsCulture&capabilityBui

166、ld on our peoples potentialWe believe investing in strong development and employee engagement leads to better business performance and a better customer experience.We continue to invest to ensure our people are highly engaged,through targeted interventions at all levels of the organisation.As such w

167、e have diversity,engagement and succession targets in the AIP,an important component of our senior executives remuneration.Our response Our employee engagement has remained high,improving on last years already strong result in our engagement survey.We look to retain the strong levels of employee eng

168、agement through a combination of local team action planning and top-down activity Were improving the quality of career conversations by implementing simplified performance and development processes and increasing our people managers ownership of performance conversations and outturns In support of t

169、his,over 600 of our people managers have attended our Engage programme,a three-day residential course,helping them develop deeper and more authentic relationships with their teams and colleagues Our focus on open and honest conversations led to us speaking to over 650 of our people managers about me

170、ntal health at our November 2017 leadership conference,initiating a dialogue on this important subject and progressing our value of“bring all of yourself to work”We are also focussed on investing in our future at all levels of the organisation.We made a series of appointments and promotions to the S

171、trategic Leadership Team with the dual purpose of capability and succession planning Early talent continues to be a significant focus for us with the second year of our Graduate and Apprentice Schemes bringing the number of graduates in the business to over 100,and apprentices to over 200.The gradua

172、te scheme gives a broad understanding of our business to our graduates in preparation for their advancement towards leadership roles We are also progressing a broad diversity and inclusion agenda through a range of activities,including signing the Women in Finance Charter and sponsoring the Dive-In

173、Festival for Diversity&Inclusion in insurance We will continue to embed diversity and inclusion in our culture and talent processes,enabling our staff to“bring all of themselves to work”and continuing the good progress made on gender mix at senior levels“This course was unlike any leadership course

174、I have ever been on,with a fresh,different approach.”Sheila Brudenell,Counter-Fraud Operations,BromleyOur strategy continuedDIRECT LINE GROUP ANNUAL REPORT&ACCOUNTS 201718Capital&risk managementStrong foundation of capital and risk managementOur approach to capital and risk management is to maintain

175、 an appropriate level of capital and solvency in line with the risk appetite agreed by the Board to support our business,while aiming to grow dividends in line with our overall business growth.Our response We rebased our dividends upwards to reflect the Groups confidence in our future earnings poten

176、tial and the progress made since our IPO five years ago.We aim to grow the dividend in line with business growth We also announced refreshed medium-term targets in our half-year results,including targeting around the middle of our 140%to 180%solvency capital ratio range We proposed a major Solvency

177、II model change,which was subsequently accepted by the Prudential Regulation Authority(“PRA”)We restructured our debt through the issue of Tier 1 notes and the buy-back of older,more costly debt.As a result we have been able to reduce our interest payments,increase our flexibility and spread the mat

178、urity dates of the debt we hold We continued to work on embedding risk management across our organisation and this year we launched two internal campaigns to support this We also continue to monitor our external environment for risk and look to put mitigating actions in place as required.This year w

179、e performed an ad hoc Own Risk&Solvency Assessment(“ORSA”)in response to the change in risk profile as a result of the decrease in the Ogden discount rate We recognise the strategic value and competitive advantage that strong risk management can provide and continue to work to drive ownership of ris

180、k management across the Group We purchase reinsurance to reduce volatility of earnings,facilitate effective capital management and transfer risk that is not within the Groups risk appetite.This includes purchasing reinsurance to protect against large claims for catastrophe,property risk and motor cl

181、aims.This year,we placed a major proportion of our catastrophe programme on a fixed price for three years.“The high-energy,interactive delivery encouraged me to take some valuable time to look at my world differently.”Elizabeth Fairburn,Claims Response,LeedsEngaging our peopleWe are committed to inv

182、esting in our people.Our newly launched“Engage”programme is designed to energise our managers and build a working environment to be proud of.The aim is to equip managers with the tools and techniques to build high-performing teams,and together deliver outstanding performance.640people managers parti

183、cipated in Engage training in 2017WWW.DIRECTLINEGROUP.COM19Strategic reportGovernanceFinancial statementsOur key performance indicatorsDelivering strong performanceRead more about our rewards for performance on page 74.For definitions,see the glossary on pages 174 to 176Definition The return generat

184、ed on the capital that shareholders have in the business.Thisis calculated by dividing adjusted earnings by average tangible equity.The amount of cash paid to shareholders from the Groups profit.This is calculated by dividing the earnings attributable to shareholders bythe weighted average number of

185、 Ordinary Shares in issue.A measure of financial year underwriting profitability.It is the sum ofthe net claims,commissions and expenses divided by net earned premium.This excludes instalment and other operating income,and investment return.A combined operating ratio(“COR”)of less than 100%indicates

186、 profitable underwriting.Aim We aim to achieve at least a 15%RoTE.We have a progressive dividend policy and aim to grow regular dividend in line with business growth.Additionally,we look to return surplus capital to shareholders when appropriate.We have not set a target.However,growing earnings per

187、share is considered an indicator of a healthy business.We aim to make an underwriting profit.For 2018,we expect to achieve a COR in the range of 93%to 95%for Ongoing operations,assuming a normal level of claims from major weather events and no further change to the Ogden discount rate.Performance Se

188、e Finance review page 38 See Finance review page 39 See Finance review page 38 See Finance review page 36Link to Directors remuneration We base the Long-Term Incentive Plan(“LTIP”)awards partly on RoTE over a three-year performance period.We base LTIP awards partly on relative TSR performance,which

189、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 results of the Group after tax.We base part of the AIP awards on profit before tax and earnings per share is closely lin

190、ked to this.We base part of the AIP awards on profit before tax.COR is closely linked to this.Note:1.See glossary on pages 174 to 176 and APM in appendix A from page 177.These key performance indicators assess our performance against our strategy.Return on tangible equity1(%)Dividend per share(pence

191、)Basic earnings per share(pence)Combined operating ratio(%)21.7%35.4p31.8p91.8%17y16y15y10.027.515.014.68.813.820.417y16y15y18.521.714.2TargetAt least 15%17y16y15y27.931.820.417y16y15y94.091.897.7DIRECT LINE GROUP ANNUAL REPORT&ACCOUNTS 201720Definition A measure of the cost of doing business,includ

192、ing paying our people,marketing expenses,and spending on infrastructure and IT.This includes the costs we incur handling claims and any commissions we pay to brokers or partners.A risk-based measure expressing the level of capital resources held as a percentage of the level of capital that is requir

193、ed under Solvency II.Net Promoter Score(“NPS”)is an index that measures the willingness of customers to recommend products or services to others.It is used to gauge customers overall experience with a product or service,and customers loyalty to a brand.The number of complaints we received during the

194、 year as a proportion of the average number of in-force policies.Aim We aim to reduce our expense ratio during 2018,absorbing our investment in future capability.We also aim to deliver a lower commission ratio in 2018,normalised for major weather events.We target a solvency capital ratio in the rang

195、e of 140%to 180%.We 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.Performance See Finance review page 37 See Finance review page 42 Customer claims experience progr

196、ammes and improved propositions have contributed to an increase in our overall brand score.While the proportion of complaints received improved on 2016 we recognise we have more to do to reduce these.Link to Directors remuneration Costs are considered and form part of the gateway measures6 for the A

197、IP awards.Risk management 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,includingNPS.The AIP awards include a weighting to a balance of cu

198、stomer metrics,including complaints.Notes:1.See glossary on pages 174 to 176 and Appendix A-APM from page 177.2.Estimates based on the Groups Solvency II partial internal model.3.On an aggregated 12-months rolling basis,with 2013 rebased to 100.4.FCA complaints reporting requirements have changed fo

199、r periods after 29 June 2016.Before 29 June 2016,only complaints resolved after 2 business days were classed as FCA reportable.From July 2016 all complaints resolved are classed as FCA reportable.5.For the Groups principal underwriter,U K Insurance Limited.6.See page 91 of Directors Remuneration Rep

200、ort for explanation of gateway measures.Expense and Commissionratios1(%)Solvency capital ratio2(%)Net promoter score3Direct Line brand(points)Customer complaints4Principal underwriter5(%)Expense ratio:25.3%Commission ratio:9.1%162.0%144.0pts0.78%17y16y15y23.610.925.3Expense ratio11.525.39.1Commissio

201、n ratio17y17H116y165.0162.0173.017y16y15y118.3129.1144.017y16y15y1.270.780.89WWW.DIRECTLINEGROUP.COM21Strategic reportGovernanceFinancial statementsOur First Line of Defence is management who are responsible for owning and managing risks to achieve our business objectives on a day-to-day basis.The S

202、econd Line of Defence is the Risk function and is responsible for the design and implementation of the ERMF,and for providing proportionate oversight of and challenge to the businesss management of risks,events and management actions.Group Audit is the Third Line of Defence,providing an independent

203、and objective view of the adequacy and effectiveness 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 risks we are prepared to acc

204、ept to achieve our business objectives.The processes for setting risk appetite;particularly the cascade,assessment,mitigation and reporting of risk exposures against risk appetite;are documented in the Groups policies and underlying minimum standards.To monitor whether the business remains within ri

205、sk appetite,we use key risk indicators(“KRIs”).We derive the KRIs from the risk appetite statements which are used to drive 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.Man

206、aging our risksManaging risk in line with our strategyManagement,with oversight from the Board,is responsible for developing our strategy.Our strategic planning process aims to ensure we have developed clear objectives and targets,and identified the actions needed to deliver them,including the manag

207、ement of risk.The delivery of a strategic plan will,by its very nature,result in risks and therefore understanding and managing those risks appropriately is a key aspect of the strategic planning process.The Groups risk strategy is aligned with the Group strategy and supports business decision-makin

208、g through the proactive identification,assessment and management of risks.The Groups risk strategy is consistent with our overall long-term ambition of sustainable growth and at least a 15%RoTE delivered while remaining within our risk appetite.Our risk governance frameworkThe Board sets and monitor

209、s adherence to the risk strategy,risk appetite,and risk framework.The Board approves our strategy,risk appetite and policies,and the Board Risk Committee(“BRC”)approves the Enterprise Risk Management Strategy and Framework(“ERMF”).The Board has established a risk management model that separates resp

210、onsibilities into Three Lines of Defence.Our risk objectives and appetiteRisk objectiveRisk appetite statementOverarching risk objectiveThe Group recognises that its long-term sustainability depends on having sufficient economic capital to meet its liabilities as they fall due,thus protecting its re

211、putation andtheintegrity 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-insurance risks,asappropriate,to enable and assist it

212、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 solvency capital requirement.The Group also seeks to maintain sufficient economic capital consistent with its strategic aim of maintaining a cr

213、edit rating in theArange.2.Stable and efficient access tofundingand liquidityThe Group aims to meet planned and unexpected cash outflow requirements,including those requirements that arise following a 1-in-200 years insurance,market or credit risk event.3.Maintain stakeholder confidenceThe Group has

214、 no appetite for material risks resulting in reputational damage,regulatory orlegal censure,poor customer outcomes,fines or prosecutions,and other types of non-budgeted operational risk losses associated with Group conduct and activities.TheGroup will maintain a robust and proportionate internal con

215、trol environment.Risk managementWe need to have a strong understanding of the nature and extent of the risks involved in pursuing the Group strategy;and,to enable our strategys success,wemust manage risk effectively and efficiently.DIRECT LINE GROUP ANNUAL REPORT&ACCOUNTS 201722Viability statementIn

216、 accordance with provision C.2.2 of the UK Corporate Governance Code,the Directors have assessed the prospects of the Group for a period longer than the 12 months required by the going concern statement.The Strategic report,on pages 1 to 43,sets out the Groups financial performance,business environm

217、ent,outlook and financial management strategies.It covers how the Group measures its regulatory and economic capital needs,and deploys capital.You can find discussion about the Groups principal risks and risk management in this section.Note 3 to the consolidated financial statements starts on page 1

218、27 and sets out financial disclosures relating to the Groups principal risks.This covers insurance,market and credit risk;and the Groups approach to monitoring,managing and mitigating exposures to these risks.Every year,the Board considers a five-year strategic plan and an Own Risk and Solvency Asse

219、ssment(“ORSA”)for the Group.The plan makes certain assumptions in respect of the competitive markets in which the Group operates,and the delivery and implementation of the new customer systems.Appropriate aspects of the strategic plan are stress-tested to understand and help set capital and other re

220、quirements.When reviewing the strategic plan,the Board considered the Groups prospects over the five-year period that the plan covered and the conclusions of the ORSA,based on the Groups anticipated activities as set out in the strategic plan.This review included reviews of solvency,liquidity,assess

221、ment of principal risks,and risk management over a three year period,with a further two years of indicative planning.The one-year planning period has greater certainty,so it was used to set detailed budgets across the Group.Outcomes for the four-year period are less certain.However,the plan provides

222、 a robust planning tool for strategic decisions.The Board recognises that,in a strategic plan,uncertainty increases over time and,therefore,future outcomes cannot be guaranteed or accurately predicted.Considering the Groups current capital and trading position,its principal risks,and the remaining f

223、our years of the strategic plan,the Board has a reasonable expectation that the Company and the Group can continue in operation,and provide the appropriate degree of protection to those who are,or may become,policyholders or claimants in the period to 31 December 2021.Our Enterprise Risk Management

224、Strategy and FrameworkThis section sets out,at a high level,our approach to setting risk strategy and the ERMF for managing risks.It documents the high-level principles and practices to achieve appropriate risk management standards and demonstrates the inter-relationships between components of the E

225、RMF see diagram.Risk profileReporting&monitoringGroup strategyRisk appetitePolicy frameworkPrincipal risksIdentifyAssessManageMonitorReportRisk managementThe ERMF enables us to manage the business with the necessary understanding of our risks and controls,as well ashaving appropriate oversight to ma

226、nage risks proactively.The ERMF is aligned to the Three Lines of Defence model,and provides a comprehensive approach for managing our risks.Our Policy Framework is a central part of the ERMF,and includes policies and minimum standards which provide the context and risk appetite boundaries within whi

227、ch the business conducts its activities.Our risk cultureOur risk culture underpins our business and decision-making,and helps us embed a robust approach to managing risk.Ourrisk culture is demonstrated in the understanding and business-wide use of the risk management systems and processes and throug

228、h risk-aware decision-making.The Board is committed to promoting a culture of high standards ofcorporate governance,business integrity,ethics and professionalism in all our activities.An annual assessment of risk behaviours and attitudes is undertaken jointly by the Risk function and Group Audit and

229、 considers a range of factors influencing risk culture.WWW.DIRECTLINEGROUP.COM23Strategic reportGovernanceFinancial statementsRisk management continuedPrincipal risks and uncertaintiesWe assess robustly the principal risks facing us.Principal risks are defined as having a residual risk impact of 40

230、million ormore on a 1-in-200 years basis,taking into account customer,financial and reputational impacts.There have been movements in our risk profile during 2017 primarily driven by the Ogden discount rate change and enhanced technology controls.Therehave been no material breaches of risk appetite.

231、Principal risksExecutive ownerManagement and mitigation examplesInsurance risk Underwriting risk Reserve risk Distribution risk Pricing risk Reinsurance riskThe risk of loss due to fluctuations in the timings,amount,frequency and severity of an insured event relative to the expectations at the time

232、of underwriting.See pages 127 to 129.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 set at not less than the actuarial best estimate Third par

233、ty experts review the majority of 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 in enhanced external data to analys

234、e and mitigate exposures We set our reserves using the latest data and trends.In particular,the decision to reduce the Ogden discount rate has been reflected in the estimate of reservesMarket risk Spread risk Interest rate risk Property riskThe risk of loss resulting from fluctuations in the level a

235、nd volatility of market prices of assets,liabilities and financial instruments.See pages 129 to 131.Chief Financial Officer We ensure compliance with an investment strategy approved by the Board We carefully diversify asset classes We set limits on exposure to individual asset classes and the amount

236、 of illiquid investments We tightly control individual credit exposures We use risk-reduction techniques,such as hedging foreign currency exposures with forward contracts,and hedging exposure to US interest rates with swap contractsCredit risk Concentration risk Counterparty default riskThe risk of

237、loss resulting from fluctuations in the credit standing of issuers of securities,counterparties and any debtors to which we are exposed.See pages 131 to 135.Chief Financial Officer Credit limits are set for each counterparty and we actively monitor credit exposures We only purchase reinsurance from

238、reinsurers with at least anA rating.For liabilities with a relatively long period of time to settlement,this rating will be at least A+We have well-defined criteria to determine which customers are offered and granted creditOperational risk Information security risk IT and business continuity risk O

239、utsourcing risk Financial reporting risk Model risk Partnership contractual obligations risk Strategic change delivery risk Technology and infrastructure riskThe risk of loss due to inadequate or failed internal processes,people,systems,or from external events.See page 136.Specific members ofthe Exe

240、cutive We monitor operational risk activity in line with a Board-approved operational risk appetite We have appropriate operational processes and systems,including detection systems for fraudulent claims We are continuing to work to improve performance of our IT systems while focussing on developing

241、 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 framework is designed to enable us tocapture risk information in a robust and consistent way

242、 We monitor how risks are managed in the performance ofoutsourced and offshored activitiesDIRECT LINE GROUP ANNUAL REPORT&ACCOUNTS 201724Principal risksExecutive ownerManagement and mitigation examplesRegulatory and conduct risk Compliance risk Conduct riskThe risks arising out of changes to laws,re

243、gulatory rules,policy or interpretation,or to supervisory expectations or approach,that have an adverse operational and financial impact as a result of reputational damage,regulatory or legal censure,fines or prosecutions,and any other type of non-budgeted operational risk losses,associated with the

244、 Groups conduct and activities.Chief Risk Officer andManaging 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 We have a strong culture of delivering on our

245、commitments to our customers Our conduct risk management framework is designed to deliver fair outcomes to customers and minimise our risk exposure We carry out planned risk-based monitoring of customer processes as well as more targeted thematic reviews which consider strategic or regulatory projec

246、tsStrategic risk Strategy implementation risk Strategy formulation riskThe risk of direct or indirect adverse impact on the earnings,capital,or value of our business,resulting from the strategies not being optimally chosen,implemented or adapted to changing conditions.Chief Executive Officer We agre

247、e,monitor and manage performance against the Board-approved plan and targets The Boards lead an annual strategy and five-year planning process which considers our performance,competitor positioning and strategic opportunities We identify and manage emerging risks using established governance process

248、es and forumsEmerging risksOur definition of emerging risks is new or developing risks which are often difficult to quantify;they are also highly uncertain and are external to the Group.Emerging risks are identified by management and are recorded within an Emerging Risk Register.We report these to t

249、he BRC for review and challenge.Our emerging risks processes aim to:identify emerging risks on a timely basis;manage emerging risks proactively;mitigate the impact of emerging risks which could affect the delivery of the strategic plan;and reduce the uncertainty and volatility of our business result

250、s.We consider our main emerging risks to be:Technological change in driving habits reduces consumer need for motor insuranceNew car technologies,such as crash-prevention technologies and driverless cars,could significantly affect the size and nature of the insurance market,and the role of insurers.I

251、n addition to our partnership with the Government on automated driving systems,the Group continues to build strong collaborative relationships,including with key manufacturers ofdriverless cars.Changes to traditional insurance business modelsNew market entrants and changes in consumer expectations c

252、ould 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 make insurance much easier and better value for our customers,is positioned to take advantage of changes in technology and customer b

253、ehaviours,and building our partnership capabilities.UK economyThe UK could enter a prolonged period of reduced growth due to the exit from the EU,potentially reducing insurance sales and the value of our investment portfolio.Whilst our operations are based mainly in the UK,we continue to monitor imp

254、lications surrounding Brexit negotiations,and their uncertain outcomes,including:changes to the value of sterling which impact claims and non-claims supplier costs;inflation;recruitment and retention of people;potential changes to direct and indirect tax;and the regulatory impact on our capital posi

255、tion.Climate changeClimate change could increase the frequency of severe weather events in the UK,and in particular,flooding claims costs.We continue to monitor changes in claims experience and consider weather trends as part of our pricing and underwriting approach.WWW.DIRECTLINEGROUP.COM25Strategi

256、c reportGovernanceFinancial statementsCorporate social responsibilityProtecting Britains young driversAs Britains leading car insurer,our Corporate Social Responsibility strategy isfocussed on road safety.In particular,we are using our insight and expertise tomake a measurable difference to young dr

257、ivers in the UK.Road safetyWe believe we can use our expertise and experience to help reduce the number of deaths and life-changing injuries on Britains roads.Safer young driversWe have set an ambitious long-term aim of helping to cut deaths of young drivers in their first 1,000 miles of driving to

258、zero.We will,of course,need to work with many other stakeholders to achieve this goal.17 to 19-year olds are involved in 9%of all fatal and serious crashes,despite representing just 1.5%of all drivers.Its less well-known that,young drivers are more dangerous in their first 1,000 miles of driving aft

259、er passing their test,before then improving.This is because young drivers are often over confident straight after passing their test.In addition,they are less experienced at spotting dangers or hazards on the road and often take more risks.Our own claims experience confirms this,as we see that aroun

260、d one in five young drivers crash in the first year.To help improve young peoples driving behaviour,we identified three key insights that needed to be true if we wanted to help.The first was that we needed to be in the car with them,the next that we needed to provide feedback for improvement and fin

261、ally that we needed to make the learning experience rewarding,fun and competitive.We designed a free app,which tracks a persons driving.Once drivers have downloaded Shotgun to their phones,we monitor their driving for 1,000 miles,with each individual journey receiving tailored feedback.For example:“

262、That was a bumpy ride!Accelerate gradually and be less heavy on the pedals.Lets turn this around.”To keep drivers engaged,we have put in place attractive rewards and created a leader board to allow people to see how their driving measures up against other drivers on the app.These leader boards can b

263、e personalised to allow people to compete with their friends.There are six levels of reward.Drivers begin on level one,which enables them to get rewards like a free Amazon voucher.As their driving improves,taking on board their feedback they can progress through all levels and choose rewards from ot

264、her leading brands.Level six rewards are higher value and experience-based,such as a free helicopter ride.The rewards are meaningful and help drive engagement with the app.ApproachOur approach to Corporate Social Responsibility(“CSR”)helps us put societys interests at the heart of our business.We pa

265、rtner with leading CSR organisations to ensure that we understand,prioritise,and respond to the sometimes competing needs of our different stakeholders across society.We manage our approach through a CSR Advisory Group that comprises senior managers from across the business supported by our CSR team

266、 and backed by executive ownership.The CSR Committee oversees our approach.You can find more details of our approach on the Groups website at ,including our CSR Charter,policy framework,performance against last years targets and targets for 2018.To find out more about our CSR Committee,see page 68Sh

267、otgunWith over20,000downloads,our Shotgun app is helping raise awareness of safer driving among 17 to 25-year oldsDIRECT LINE GROUP ANNUAL REPORT&ACCOUNTS 201726Marketing this product was not easy:we needed to grab the attention of young drivers who typically arent that engaged with the subject of r

268、oad safety.To do this,we concentrated our efforts on social media,generating awareness with some edgy viral content.This has worked well,helping us to raise awareness of our app with over a million 17 to 25-year olds and we have so far achieved over 20,000 downloads.We also made sure that a wider au

269、dience could find out about how Direct Line is taking a broader role in society and tackling meaningful issues.There was a wealth of PR-generated media coverage that spread the word to parents of young drivers and other opinion formers.We are really proud to say that the app is already helping to ma

270、ke a real difference by improving road safety for young drivers.Our analysis of drivers using the app so far shows that for key areas such as speeding and braking,there has been a great improvement.Early indicators are that around one in three drivers have improved their smoothness,which means less

271、hard breaking or tailgating is happening and one in four have improved their safe driving skills by reducing their speed.We know that these metrics have a high degree of correlation to overall safety and accident statistics,and so we are confident that Shotgun has already helped save people from dea

272、th or serious injury.Road safety partnersDuring 2017,we worked with various partners to highlight a range of road safety issues.PACTSIn December,we launched our fourth Road Safety Dashboard with the Parliamentary Advisory Council for Transport Safety(“PACTS”).This pioneering tool uses Department for

273、 Transport statistics to produce an index that ranks the road safety record of individual parliamentary constituencies.MPs tell us they find the tool valuable.We also sponsored the PACTS Annual Westminster Transport Safety Lecture in the House of Commons where policymakers and campaigners come toget

274、her to share ideas and best practice.Department for TransportWe continue to engage with the Department for Transport on various topics,including telematics technology,driverless cars and road safety policy,providing written evidence to assist legislative proposals such as on the Departments Automate

275、d and Electric Vehicles Bill.BrakeWe maintained our partnership with road safety charity,Brake,and agreed a new three year programme to produce a series of topical survey reports on driver behaviour and attitudes.Thereports include speed,in-vehicle distractions,advanced driver assistance systems and

276、 tiredness.Brake uses this research for its wider campaigning,education,community and professional engagement activities to raise awareness of road safety issues.We also share the results with the media and policymakers.At the beginning of the year we sponsored Brakes Parliamentarian of the Year Awa

277、rds,which recognise Members of Parliament who have campaigned on road safetyissues.WWW.DIRECTLINEGROUP.COM27Strategic reportGovernanceFinancial statements25&under 1,674 26-50 7,64661&over 24451-60 1,244Our peopleOur people strategy supports our business strategy,ensuring we have capable,skilled and

278、engaged people who can help make buying insurance much easier and better value for our customers.We continue to focus on building pride in the Direct Line Group,encouraging and celebrating the quality and diversity of our workforce.Various volunteer groups,such as our Employee Representative Bodies

279、and Local Co-ordination Teams,increase our employees voice within the organisation.We gauge employee engagement through our Employee Opinion Survey.In 2017 we again significantly improved our engagement score from 73%in 2016 to 78%.The percentage of our employees who are proud to work for the Group

280、also increased from 87%in 2016 to 91%,while 85%tell others that the Group is a great place to work(81%in 2016).Diversity,inclusion and human rightsWe continue to work towards an environment based on meritocracy and inclusion,creating a work place where we celebrate differences and we value our peopl

281、e for always being themselves.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 Organization standards.We support the aims of the Modern Slavery Act 2

282、015 and are committed to ensuring that modern slavery is not present in our supply chain.In accordance with the Act,we publish an annual statement on slavery and human trafficking on the Group website at .In 2016,the Group signed up to the Women in Finance Charter.The Charter is a commitment by HM T

283、reasury 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 Alliance in promoting diversity and inclusion in our business.We report our progress against this commitment annually on

284、the Group website .You can find the ratio of female to male employees and the age profile of our employees at 31 December 2017 in the charts below.Gender pay gapInformation relating to gender pay gap can be found on the Groups website .Living wageWe comply with the principles of the Living Wage Foun

285、dation relating to our employees.Anti-bribery and corruptionOur Code of Business Conduct sets out our most important legal obligations and helps colleagues follow key policies.We have an anti-bribery and corruption standard in place to ensure that the Group undertakes a consistent approach to briber

286、y and corruption risks in line with risk appetite.We encourage a speak up culture across our supplier base,and amongst our colleagues and have a whistleblowing policy in place.For more information see page 67 of the Board Risk Committee report.Corporate social responsibility continuedGender diversit

287、y ofallemployeesGender diversity ofseniormanagersGender diversity ofBoardof Directors Age range of employeesMale 5,718(2016:5,768)Female 5,090(2016:5,209)Male 102(2016:112)Female 34(2016:32)Male 7(2016:7)Female 4(2016:3)DIRECT LINE GROUP ANNUAL REPORT&ACCOUNTS 201728CommunityIn response to the terro

288、r attacks in London and Manchester last summer,the Group donated to the British Red Cross UK Solidarity Fund.Furthermore,following the terrible fire at Grenfell Tower,the Group is working with the Housing Plus Academy to develop a programme which begins to build resilience against such tragedies amo

289、ngst residents of other tower blocks in the UK.Aside from giving tenants a voice,the programme is being shaped by research,analysis and expert opinion.The key output will be self-help training and materials for residents,though it is anticipated that a number of policy proposals will also follow.The

290、se outputs will be shared with Government and relevant agencies.Volunteering and fundraisingWe know that participating in fundraising and volunteering is linked to higher engagement levels amongst our people.In order to encourage our people to participate,we run a network of Community and Social Com

291、mittees which are made up of local volunteers.These receive central funding and support 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 sites.Examples of activities include employees manning our call c

292、entres to take pledges for appeals such as Children in Need,supporting national appeals such as the Worlds Biggest Coffee Morning in aid of Macmillan and organising quiz nights,fun runs,masquerade balls,festivals,cake sales,charity football matches and more to raise thousands of pounds for local cau

293、ses.We encourage all employees to volunteer individually or as a team 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 2018 is to at least maintain this level of engagement.Matched giving and grant

294、sWe 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.In 2017,our employees donated 151,000 through our payroll giving scheme and we donated a further 10

295、4,000 in matched giving.We also provided 66,000 in grants to organisations for which our employees fundraise or volunteer.EnvironmentEmissionsYou can find information on Group-wide greenhouse gas(“GHG”)emissions in the chart below and more details of our emissions in the Directors report on page 102

296、.We are targeting a 57%reduction in absolute GHG emissions(scope 1 and 2)by 2020 against a 2013 baseline.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 over the

297、last five years.This covered building management,air-conditioning,heating and 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

298、 and this year achieved a rating of B.Throughout 2017,we have maintained our commitment to sourcing 100%of the Groups electricity from renewable sources.WasteWe continually seek opportunities to improve our systems for managing waste.In 2017,the Group recycled 72%of its waste(80%in 2016).This year-o

299、n-year fall is due to a 58%reduction in paper waste,which is 100%recycled.Excluding paper,the Group recycled 60%of its waste(54%in 2016).98%of our waste,including recycling is diverted from landfill.Note:1.This excludes discontinued operations,the Groups former International division.Total Group emi

300、ssions for 2015 were 23,143.Greenhouse gas emissions1(tonnes)9.9%17y16y15y22,61119,31517,399WWW.DIRECTLINEGROUP.COM29Strategic reportGovernanceFinancial statementsPersonal LinesMotorHighlights A leading British personal Motor insurer by in-force policies In-force policies increased by 3.8%with growt

301、h in own brands maintained in each quarter Gross written premium increased by 8.5%with own brands increasing by 11.4%COR improved by 14.4 percentage points due to the non-repeat of the substantial charge incurred in 2016 as a result of the reduction in the Ogden discount rate Operating profit improv

302、ed by 215.4 million to 364.5 million,due to the non-repeat of the 150.3 million Ogden charge in 2016.Other prior-year releases were lower year on year,albeit large bodily injury claims developed favourablyPerformance highlights 20172016In-force policies(thousands)4,0193,873Of which own brands 3,845

303、3,642 Gross written premium1,670.4m 1,539.1mLoss ratio60.9%74.9%Commission ratio2.5%3.2%Expense ratio28.5%28.2%Combined operating ratio91.9%106.3%Operating profit364.5m149.1mPerformanceMotor in-force policies increased by 3.8%to 4.0 million during 2017,primarily due to growth in own brands.This was

304、supported by higher levels of new business and higher levels of customer retention.Investment in brand differentiation continued in 2017,and helped drive the strong performance in Direct Line.Motor gross written premium increased by 8.5%to 1,670.4 million as a result of higher volumes and higher ave

305、rage premiums.Motor risk adjusted prices increased by 9.5%in 2017 while risk mix reduced by 3.2%reflecting the way the Group deployed Ogden pricing changes which were in line with claims experience.As a result,Motor average premium1 grew by 5.9%in 2017.The Group traded well throughout 2017 and benef

306、itted from its reinsurance programme which was fixed prior to the Ogden discount rate change.Motor also benefitted from better claims experience in 2017 compared with the Groups long term view of claims inflation.These two factors enabled the Group to grow policy count and premiums at attractive mar

307、gins.The market continued to experience a high level of shopping behaviour following the change to the Ogden discount rate,IPT increases and the introduction of last years premium disclosures.Market premiums increased during 2017,albeit slowing in the second half,due to better claims experience.The

308、COR was 91.9%(2016:106.3%),a significant improvement due to the non-repeat of 150.3 million of the Ogden charge incurred in 2016.Excluding the impact of Ogden in 2016,the COR improved due to strong growth at improved margins.Motor also benefitted from a 49 million reserve release after a detailed re

309、view in H1 of the Groups Ogden provision within case reserves.Other prior-year releases were lower year on year,albeit large bodily injury claims developed favourably.The expense ratio increased slightly due to a higher intangible asset impairment of 56.9 million(2016:39.3 million).The commission ra

310、tio improved 0.7 percentage points compared with 2016.The current-year attritional loss ratio improved by 4.4 percentage points to 79.7%(2016:84.1%).This reflects strong trading in 2017,the benefit of the Groups reinsurance arrangements renewed prior to the Ogden discount rate change announcement in

311、 February 2017 and better than expected claims experience.While bodily injury claims frequency was better than expected in 2017,claims severity inflation,particularly in relation to damage perils,remained a headwind.Overall,claims inflation in 2017,excluding Ogden,was below the Groups expected long-

312、term average of 3%to 5%per annum.Operating profit was 364.5 million,higher than the prior year,due to the non-repeat of the 150.3 million Ogden charge,the 49 million reserve release and a reduction in commission costs.These positive effects were offset by lower other prior-year reserve releases.The

313、excess of loss reinsurance programme renewed on 1 January 2018 at a somewhat increased cost reflecting the reduction in the Ogden discount rate and at a level within the Groups plans and risk appetite.The Group renewed all layers,but retained 10%of the first risk layer(2 million excess 1 million).Th

314、is was a successful renewal in an uncertain climate reflecting the Groups historically strong performance and financial position.The Group already has a partnership with PSA Finance UK(part of Groupe PSA;owners of the Peugeot and Citron brands)and an introducer relationship with Tesla,and the Group

315、has recently signed a letter of intent for a partnership arrangement intended to be for five or more years with Volkswagen Insurance Service(Great Britain)Limited covering five well-known brands Volkswagen,Audi,SEAT,koda and Volkswagen Commercial Vehicles.RegulatoryThe Group has continued to operate

316、 within a highly dynamic and evolving regulatory landscape,particularly in the UK motor insurance market where a number of reviews and initiatives,including those that have been announced,by the UK Government,the Ministry of Justice(“MoJ”),the Financial Conduct Authority(“FCA”)and the PRA.On 23 Febr

317、uary 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 of 40 on average.On 27 February 2017 the Lord Chancellor announced a reduction in the Ogden discount r

318、ate to minus 0.75%with effect from 20 March 2017.The Group has also been engaged in the consultation to consider options for reform concerning the discount rate.Operating reviewNote:1.Average incepted written premium excluding IPT for total Motor for year ended 31 December 2017.DIRECT LINE GROUP ANN

319、UAL REPORT&ACCOUNTS 201730HomeHighlights A leading British personal Home insurer by in-force policies Own brands in-force policies increased by 2.0%;overall reduction in in-force policies of 3.8%,primarily due to partnerships Gross written premium was 4.2%lower primarily due to partnerships,while ow

320、n brands increased by 1.2%COR increased by 4.4 percentage points to 89.4%Operating profit was 128.8 million,compared with 166.7 million in 2016.The reduction reflected substantially lower prior-year reserve releases and higher costs from escape of water(“EoW”)claimsPerformance highlights 20172016In-

321、force policies(thousands)3,2483,378Of which own brands 1,794 1,759 Gross written premium799.1m834.4mLoss ratio50.6%40.7%Commission ratio17.7%22.6%Expense ratio21.1%21.7%Combined operating ratio89.4%85.0%Operating profit128.8m166.7mPerformanceThe Groups focus on being a great retailer was demonstrate

322、d again with the launch of another Direct Line Home proposition in 2017 with Emergency Hotel sorted within one hour;in the event of a major home fire,the Group provides rapid support to its customers at the point of need.Propositions such as this continue to differentiate Direct Line from its peers.

323、The Groups investment in its digital capabilities has strengthened its partnership capabilities as demonstrated by a faster quote and buy journey that its partners RBS and NatWest can now provide to their customers,increasing new business sales by 50%in 2017.The change in distribution of Homes insur

324、ance business from partners to PCWs continued in 2017,increasing market price competitiveness and commoditisation.The Group remained competitive across all channels and successfully grew its PCW policies in 2017 at attractive margins,helping to support the strong profitability of the category.In-for

325、ce policies for Home own brands increased by 2.0%to 1.8 million over 2017,and gross written premium grew by 1.2%.Partnership in-force policies and premiums continued to fall in line with previous years.Home own brands maintained competitiveness in 2017.The Group was quick to adjust new business pric

326、es to reflect claims inflation,and due to its strong propositions and improved competitiveness,wrote higher new business volumes.Total own brands risk adjusted prices were 2.6%ahead of prior year.Higher new business growth,particularly through PCWs led to a reduction of 1.3%in Home own brands averag

327、e written premium1.As expected,renewal premiums continue to experience some reduction year on year due to channel mix moving towards lower premium PCW and web channels,whilst strong retention enabled policy renewals to grow year on year.The market continued to experience a high level of shopping beh

328、aviour following IPT increases and the introduction of last years premium disclosures.Market new business premiums increased in 2017 albeit not reflective of claims inflation.The Groups Home partnership with Nationwide ended in December 2017 when new business ceased to be written.Existing in-force p

329、olices will run off during 2018.The COR increased by 4.4 percentage points primarily as a result of a higher loss ratio,partially offset by a reduced commission ratio.The loss ratio increased 9.9 percentage points compared with 2016,mainly as prior-year reserve releases were lower than for 2016 at 2

330、3.7 million(2016:75.9 million),as 2016 benefitted from significant releases from the reserves established following the storms of late 2015.The impact of major weather events in 2017 was slightly lower at approximately 13 million(2016:18 million),lower than the normal annual level of claims costs ex

331、pected from major weather events of approximately 65 million.Based on planned volumes for 2018,the Groups current assumption of a normal annual level of claims costs from major weather events is approximately 55 million.The current-year attritional loss ratio,excluding claims costs from major weathe

332、r events,was 4.2 percentage points higher than in 2016.This was predominantly driven by elevated EoW claims inflation costs and a change in channel mix.Claims,pricing and underwriting actions taken since Q1 2017 have been on track to reduce claims inflation to a more normal level.The decrease in the

333、 commission ratio of 4.9 percentage points to 17.7%primarily reflected lower profit share payments to partners,as a result of lower prior-year reserve releases,a higher current-year attritional loss ratio and changes to partnership arrangements business mix.Operating profit of 128.8 million decreased by 37.9 million due to elevated EoW claims inflation and lower prior-year reserve releases,partial