Direct Line Insurance Group PLC (DLG) 2022年年度報告「LSE」.pdf

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1、Annual Report and Accounts 2022Brilliant for customers every dayContentsStrategic ReportBrilliant for customers every day1Strategy10Business model12Chairs statement14Section 172(1)statement16Chief Executive Officers review17Market overview20Our key performance indicators22Chief Financial Officers re

2、view24Operating review40Non-financial information statement49Sustainability50Task Force on Climate-related Financial Disclosures72Streamlined Energy and Carbon Reporting85Risk management86Viability statement92GovernanceChairs introduction94Board of Directors96Executive Committee100Corporate Governan

3、ce report102Committee reports116Directors Remuneration report130Directors report162Financial StatementsContents167Independent Auditors Report168Consolidated Financial Statements179Notes to the Consolidated Financial Statements184Parent Company Financial Statements242Notes to the Parent Company Finan

4、cial Statements244Other informationShareholder Information 249Glossary and Appendices251Forward-looking statements disclaimer259Contact information260Our vision is to create a world where insurance is personal,inclusive and a force for good.Our purpose is to help people carry on with their lives,giv

5、ing them peace of mind now and in the future.Our mission is to be brilliant for customers every day.The Groups financial results fell significantly below expectations in 2022 as we navigated a volatile trading environment,with heightened inflation and severe weather events.In response,we are taking

6、action to restore the Groups capital resilience and improve business performance.Looking ahead,we believe that our customer focus,powerful brands and claims expertise can drive long-term value for customers and shareholders.To read more about our strategy,see pages 10-111www.directlinegroup.co.ukStr

7、ategic reportGovernanceFinancial statementsBrilliant for customers every day2Direct Line Group Annual Report and Accounts 2022We reach customers wherever they shop and whatever their insurance needs.We want to be known for insurance excellence from point of sale through to resolving claims.By delive

8、ring easy digital-first journeys we make it simple for customers and are there for them when they need us.We operate across four market segments,delivering value and great customer experiences.In 2022 we made our claims process simpler customers can now register 100%of claimstypes across the vast ma

9、jority of our brands and partners onlineSee more on page 54We are set to welcome over 600,000 new customers in H2 2023 as part of our 10-year partnership with Motability OperationsFind out more on page 41MotorWe are Britains leading private motor insurer,represented through our well-known brands Dir

10、ect Line,Churchill,Privilege,Darwin,and also through our partners1HomeWe are one of Britains leading private home insurers,represented through our well-known brands Direct Line,Churchill,Privilege,and also through our partners1 Rescue and other personal linesWe are one of the leading providers of re

11、scue,including through our Green Flag brand2,travel and pet insurance in the UK3CommercialWe protect commercial businesses through our brands NIG,Direct Line for Business and ChurchillNotes:1.Ipsos 2023,Financial Research Survey(FRS),6 months ended Jan 2023.14,318 adults(aged 16+)surveyed across Gre

12、at Britain with motor insurance,13,942 with home insurance.Interviews were conducted online and via telephone,and weighted to reflect the overall profile of the adult population.Includes Direct Line,Churchill,Privilege,Darwin and partner brands:RBS and NatWest.2.Mintel Vehicle Recovery report Septem

13、ber 2022.3.Mintel Pet Insurance report 2022.3www.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsPowerful brands4Direct Line Group Annual Report and Accounts 2022We have some of the strongest and most recognisable insurance brands in the UK.They enable customers to pick the cover

14、that best suits them to protect their cars,homes,holidays,businesses and pets.Our brandsWe extended our EV bundle for another year to support our Direct Line motor customers making the switch to electric vehiclesSee page 67We launched a new Churchill Essentials product for motor customersFind out mo

15、re on page 535www.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsReaching customers however it suits them6Direct Line Group Annual Report and Accounts 2022Reaching customers however it suits themWhether customers access our products and services digitally,through a broker,or on t

16、he phone,our aim is to provide peace of mind now and in the future.We offer insurance through the four main routes to market so customers can choose what works best for them.DirectCustomers come to us direct because of our powerful brands and propositions which offer great valuePrice comparison webs

17、itesWe offer a variety of products across our brands on price comparison websites to meet different customer needsPartnershipsWe partner with a number of well-known brands to give more customers excellent insuranceBrokersUsing our established NIG broker network we meet a variety of specialist insura

18、nce needs for both large and small businessesIn 2022 our Commercial business again delivered strong growth across all channels,continuing to realise the benefits of its transformationFind out more on page 46We extended our partnershipwith NatWest Group to continue to look afterclose to half a millio

19、n of their customers home insurance needs until 2027Page 43 for more detail7www.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsWere a force for good8Direct Line Group Annual Report and Accounts 2022We believe that by working sustainably we strengthen Direct Line Group for the bet

20、ter and create value for our customers,people,society and the planet.CustomersWe stand for insurance excellence because positive customer outcomes mean we can grow our businessPeopleWe stand for being a diverse and inclusive employer because attracting and retaining talented people powers our busine

21、ss forwardSocietyWe stand for being rooted in our communities because,when they flourish,so does our businessPlanetWe stand for a greener planet because were all in it together,its our responsibility,and tackling climate change benefits our business,our people and societyGovernanceWe stand for a com

22、petitive and strong financial services sector because its essential to being successfulOur 2022 Community Fundfocused on building amore inclusive and equitableBritainSee more on pages 62 to 63We became one of the first personal lines insurers in the UK to have carbon reduction plans approved by the

23、Science Based Targets initiativeFind out more on page 66Sustainability pillars9www.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsStrategyOur strategic objectivesBest at directWin on price comparison websites Extend our reachNimble and cost efficientTechnical edgeGreat peopleMiss

24、ionVisionPurposeTo be brilliant for customers every dayWe want to create a world where insurance is personal,inclusive and aforce for goodWe help people carry on with their lives,giving them peace ofmind now and in the future10Direct Line Group Annual Report and Accounts 2022Our core strengths and c

25、apabilities drive ourstrategyCore strengths We have powerful,trusted brands with unique propositions and high customer retention.We provide customers with a claims experience that combines leading capabilities and repair expertise which uses our network of 22 accident repair centres,the largest netw

26、ork of any insurer.Enhanced capabilityWe are delivering easy digital-first journeys so if customers want the simplicity of managing their insurance online,they can.If they prefer the phone,were there for them.We can price at speed and with greater accuracy thanks to the combination of our historical

27、 data and new pricing systems.Growth opportunities We are always looking to innovate for future success be it developing new products,services and digital tools,to understanding the latest car tech or tackling climate change.Our valuesOur brandsAim higher Take ownershipSay it like it is Work togethe

28、rBring all of yourself to workDo the right thingInnovating for successEfficient cost baseCustomer focusClaims expertisePricing sophisticationData,technology and agile ways of working11www.directlinegroup.co.ukStrategic reportFinancial statementsGovernanceDelivering for all our stakeholdersPremiumsCl

29、aimsCostsInvestment and other incomeOur customersOur people and capabilitiesReinvest in thebusinessProfitServicingBusiness modelManaging financesManaging riskDividendsOur shareholdersCapital12Direct Line Group Annual Report and Accounts 2022How we create valueWe have a number of strengths,from stron

30、g brands to rich data and expert claims skills which provide real long-term valueDiversified modelOur diversified model enables us to generate premiums from a range of brands,products and distribution channels.Accident repair centresWe own 22 accident repair centres,the largest network of any insure

31、r,delivering lower repair costs and providing data-led insights,enabling us to react to emerging trends and helping inform pricing.Cost controlWere focused on improving efficiency through greater use of digital processes across the business.Balanced investment portfolioThe premiums we collect from c

32、ustomers are invested in a diversified investment portfolio designed to meet our long-term claims commitments whilst also generating investment returns.See page 33 for more information.Claims managementWe have a deep specialism in claims handling,including advanced fraud capabilities.Capital managem

33、entWe aim to manage capital efficiently and generate long-term sustainable returns for shareholders,while balancing operational,regulatory,rating agency,and policyholder requirements.13www.directlinegroup.co.ukStrategic reportGovernanceFinancial statements“We are renewing our determination to levera

34、ge ourdiversifiedbusinessmodeland well-recognised brands to trade competitively in our core markets,restore capital strength and focus on providing value for our customers.”Chairs statementDanuta GrayChair of the BoardNavigating a challenging yearDear Shareholders,In 2022,Direct Line Group faced a u

35、nique combination of factors and challenges,including exceptional inflation,severe weather events,a volatile investment market and significant regulatory change.These made for a tough trading environment during the year.We have worked hard to support our customers and colleagues in these challenging

36、 circumstances,but I acknowledge that the impact on the Groups trading and financial performance has been deeply disappointing and,in Motor,well below our expectations.The UK motor insurance market remains challenging at the beginning of 2023 and we have adjusted our pricing to mitigate the effect o

37、f claims inflation.Our priority is to deploy the resources needed by our Motor business to price with accuracy and speed to restore margins and improve performance both in the direct channel and on price comparison websites.We are determined to leverage the strength of our diversified business model

38、 and well-recognised brands to trade competitively in our core markets,restore capital resilience and focus on providing value for our customers.Dividend and capital managementDuring the first half of 2022,we returned 50 million of capital to shareholders by way of a share buy-back and in September

39、we paid an interim dividend of 7.6 pence per share(99.0 million).However,against a background of heightened inflation in the UK motor insurance market throughout 2022 and the years severe weather events,the Board took the decisions respectively in July not to launch the second 50 million 14Direct Li

40、ne Group Annual Report and Accounts 2022People,Diversity and InclusionThe impact of the cost of living crisis on our people has been at the forefront of our minds throughout the year.Page 56 sets out what we have done to support our colleagues,with action targeted at the lowest paid in the organisat

41、ion.We have continued to drive forward our Diversity and Inclusion programme,voluntarily publishing our ethnicity pay gap alongside our gender pay gap for the first time.We are confident that we pay people fairly,irrespective of gender and ethnicity and can see that both pay gaps are driven by the l

42、evels of representation of women and those from ethnic minority backgrounds at certain levels of the business,which we are focused on improving.Details of the representation of women and ethnic minorities in leadership can be found on pages 57 to 58.Recognising the need to provide our people with de

43、velopment opportunities,and to ensure our colleagues are equipped with the skills the business will need in order to thrive in the future,during the year we launched our Ignite academies,incorporating apprenticeships in Technology,Customer Service and Data,as well as our Data Academy,with which over

44、 1,000 of our colleagues have engaged.More information about this can be found on page 56.PlanetDuring the year we met a significant milestone in our journey to becoming a net-zero business,when our plans to reduce our greenhouse gas emissions were approved by the Science Based Targets initiative(“S

45、BTi”).We have set five emissions reduction targets focused on the most carbon intensive areas of the business,with one target covering operational emissions and a further four targets covering our investment portfolio.As part of our Sustainable Sourcing approach,we have also set our own voluntary em

46、issions target for our supply chain.Of course,now the hard work really begins on the action needed to meet these targets.We have a robust plan and our colleagues are passionate about,and committed to,achieving our targets.ConclusionI would like to take the opportunity to thank our hard-working colle

47、agues,loyal customers and shareholders for their continued support during the year.Following the challenges we faced in 2022,I am confident that we are focused on the right immediate strategic priorities,that the business is fundamentally resilient,and that our people are determined to use our stron

48、g brands and technological capability to deliver value to our customers and shareholders.Danuta GrayChair of the Boardtranche of the 100 million share buy-back programme and more recently not to recommend a final dividend for 2022.I recognise that these decisions have come as a severe disappointment

49、 to our shareholders,many of whom I have spoken with over the last few months.Restoring capital resilience is among our urgent priorities for 2023.We have already made progress,having entered into a quota share reinsurance programme covering 10%of our book,which has improved our solvency position by

50、 around 6 percentage points and we continue to explore further capital management options.Since the beginning of 2023,positive credit movements affecting our bond portfolio and a reduction in ineligible capital on adoption of the new accounting standard,IFRS 17,have improved our solvency coverage ra

51、tio by approximately a further 5 percentage points.Board and leadershipIn January 2023,Penny James stepped down from the Board,having served as CEO from May 2019 and formerly having joined the Board in late 2017 to become our CFO.I would like to thank Penny for the contribution she made during her t

52、ime on the Board.She led significant strategic progress and evolved the Groups culture to be increasingly focused on providing value and excellent service for customers.While the Board conducts a process to appoint a permanent successor,I am grateful that Jon Greenwood has agreed to serve as Acting

53、Chief Executive Officer.Jon has a successful track record in leading our Commercial Lines division and,as Chief Commercial Officer,has a deep understanding of all the Groups businesses.The Board and I will work closely with Jon as he focuses on our priorities of driving growth and restoring capital

54、resilience.During the year,we also took the decision to appoint Tracy Corrigan,independent Non-Executive Director,as the Boards Consumer Duty Champion.In this role,Tracy will ensure that the voice of the customer is brought into the boardroom and that good customer outcomes are central to the Boards

55、 agenda.Since the end of the year,we have announced the appointment of Mark Lewis,a former Chief Executive of MoneySupermarket Group,as an independent Non-Executive Director with effect from 30 March 2023.Mark will contribute his deep understanding of the regulated aggregator marketplaces in which o

56、ur brands operate,as well as his experience of digital marketing strategy and driving improved multichannel customer experience in retail and financial services.CustomersStrong retention levels during 2022 demonstrate that our customers trust us with their business at a time when every penny counts.

57、On page 53 we have set out action that we have taken to support our customers during the cost of living crisis and we explain how we are responding to our customers changing demands with new products.2023 will see us welcome some 600,000 new customers under our ten-year partnership with Motability a

58、nd we look forward to providing them with the same great service that our customers have come to expect from us.15www.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsThe Board of Direct Line Insurance Group plc(“Direct Line”)confirms that during the year under review,it has acted

59、in the way it considers would be most likely to promote the long-term success of the Company for the benefit of its members as a whole,whilst having regard to the matters set out in Section 172(1)(a)-(f)of the Companies Act 2006(“Section 172(1)”).Purpose and VisionThe matters set out in Section 172(

60、1)underpin Direct Lines purpose and vision and form the foundation for the Boards considerations and decision making.Our purpose to help people carry on with their lives,giving them peace of mind now and in the future is centred on customers and their long-term interests.Our vision to create a world

61、 where insurance is personal,inclusive and a force for good reflects our desire to do business in a way that benefits all stakeholders,the environment and wider society.StakeholdersInformation on Direct Lines key stakeholders is set out in the Sustainability section of the Strategic report on the fo

62、llowing pages:Customers,52 to 54;People,55 to 59;Society,60 to 63;and the Planet,64 to 70.EngagementThe Board recognises that our stakeholders have diverse and sometimes competing interests that need to be finely balanced,and that these interests need to be heard and understood in order for them to

63、be effectively reflected in decision making.Information about how the Board has engaged with stakeholders during the year and outcomes of that engagement can be found on page 107 in the table titled“How the Board engages with stakeholders”.Board decisions and oversightExamples of how stakeholder eng

64、agement and Section 172(1)matters have influenced Board discussion and decision making during the year can be found in the table titled“Consideration of Section 172(1)factors by the Board”on pages 105 to 106.The table covers a number of key topics including:the return of capital to shareholders;Cons

65、umer Duty implementation;the cost of living crisis;the relocation of the London Hub;and Science-Based Target setting.The metrics and processes which the Board looks at to ensure that business practices and behaviours reflect the Companys culture,purpose and values,including the impact of decisions o

66、n key stakeholders,are set out on page 103.Information about Board oversight of environmental matters can be found on pages 72 to 73 in the TCFD Report.The table below sets out where key disclosures in respect of each of the Section 172(1)matters can be found.Section 172(1)factorRelevant disclosures

67、the likely consequences of any decision in the long-termBrilliant for our customers every day(pages 1 to 9)Mission,vision,purpose and strategic objectives(page 10)Consideration of Section 172(1)factors by the Board(pages 105 to 106)the interests of the companys employeesKey performance indicators Co

68、lleague engagement scores(page 23)Outcome of employee engagement(page 56)Diversity and Inclusion(pages 57 to 59)How the Board engages with stakeholders(page 107)Employee Representative Body(page 108)the need to foster the companys business relationships with suppliers,customers and othersKey perform

69、ance indicators NPS and customer complaints metrics(page 23)Customer support(page 53)Supply Chain(page 80)How the Board engages with stakeholders(page 107)the impact of the companys operations on the community and the environmentCommunity Fund 2022(page 62)Science-Based Targets(page 66)External rati

70、ngs,memberships and benchmarks(page 71)TCFD disclosures(pages 72 to 85)How the Board engages with stakeholders(page 107)Sustainability Committee Report(pages 126 to 127)the desirability of the company maintaining a reputation for high standards of business conductOur values(page 11)The role of the B

71、oard in the Companys culture(page 103)Internal controls(pages 114 to 115)the need to act fairly between members of the companyCapital management(page 19)How the Board engages with stakeholders(page 107)Shareholder voting rights(page 163)Annual General Meeting(page 249)Section 172(1)statement16Direct

72、 Line Group Annual Report and Accounts 2022CEOs reviewLooking ahead to 2023Jon GreenwoodActing Chief Executive Officer2022 was a difficult year for the Group.Our performance in Motor fell well below our expectations and did not reflect our previous track record of delivering strong returns for share

73、holders.Rising claims inflation and new regulatory changes,along with severe weather events,resulted in a material fall in the Group operating profit and solvency ratio,and the Boards decision not to recommend a final dividend.This is deeply disappointing and we have already taken and continue to ta

74、ke actions designed to strengthen our solvency position and improve our Motor pricing in this difficult trading environment.Enhancing how we price in the motor market will be a key focus for the Group throughout 2023.All of our other businesses performed broadly in line with our expectations when no

75、rmalised for weather.Despite the setbacks in Motor in 2022,the long-term earnings potential of the Group remains robust.Our diversified business model and fundamental strengths remain a significant asset in the highly competitive UK insurance market.We have a strong franchise,some of the most recogn

76、isable insurance brands in the UK and strong customer service delivered by a high-quality workforce.With a determination to enhance our pricing capability and better leverage the benefits of our integrated business model,I firmly believe that we can restore our performance in Motor,enabling the Grou

77、p to get back to delivering attractive returns for shareholders.“Despite the setbacks in Motor in 2022,the long-term earnings potential of the Group remains robust.Our diversified business model and fundamental strengths remain a significant asset in the highly competitive UK insurance market.”17www

78、.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsCEOs review continuedInvestment portfolioWith investment yields having increased substantially over the last 12 months,we are rebalancing our target asset allocations in order to deliver the correct balance between return and capita

79、l allocation.This should release further capital over time.In addition to management actions,we expect the unrealised loss position on our investment-grade debt security portfolio to unwind due to the pull to par effect as bonds mature.Organic capital generationWe believe the Group will be capital g

80、enerative in 2023 supported by Home,Commercial and Rescue and other personal lines,although it will take some time to restore earnings in Motor.Continuing to deliver for customersExcluding Motor and elevated weather claims,all other business traded broadly in line with expectations.Commercial delive

81、red another strong performance,with the benefits of the technology transformation enhancing Commercials already strong product and service offering and sophisticated pricing.In 2022,Commercial delivered double-digit growth across both its main businesses,NIG and Commercial direct own brands.Over the

82、 past 10 years this business has doubled in size and improved its combined operating ratio to 94.2%from over 100%.Home successfully navigated the implementation of the FCAs Pricing Practices Review(“PPR”)regulations and elevated inflation by focusing on maintaining margins and leveraging its diversi

83、fied business model.Home also made progress with its new technology platform,which remains on track for roll out in 2023.Green Flag successfully diversified its product portfolio,providing further value for customers by offering accessories via the Green Flag shop.This gives customers the convenienc

84、e of booking maintenance and repair services,or providing a competitive price to check a vehicles history before they decide to make a purchase.In January 2023,Green Flag patrol was launched,with its own network of recovery vehicles,in order to enhance network efficiency,improve customer experience

85、and increase sales.A key pillar of our strategy is reducing our carbon footprint and helping our customers make the green transition.Alongside expanding our electric vehicle propositions,in 2022 the Group became one of the first personal lines general insurers in the UK to have its Science-Based Tar

86、gets approved by the Science Based Targets initiative.Improving performance in MotorOur main operational focus during 2023 will be on restoring performance in Motor,in order to drive profitability and build capital resilience,and we are pushing ahead in four main areas.First,we have already taken pr

87、icing action to restore written margins based on our rebased inflation assumptions,and we will continue to prioritise maintaining margins over volume as we progress through 2023.Secondly,we will focus on utilising our new pricing tools to their full potential and enhancing the sophistication of our

88、risk pricing models.This will include deployment of substantial additional resource to ensure that Motor has the capability and capacity it needs to price with greater precision.Thirdly,we will better leverage the wealth of claims insight that we have available through our vertically-integrated mode

89、l.We want to move from being an efficient claims processor and repairer,into a data-driven claims operation,utilising all our data to enhance our pricing capability.Finally,we will align our model more closely to the price comparison website(“PCW”)channel,which accounts for around 90%of new business

90、 motor sales in the market.We will do this through new propositions,such as our new Churchill Essentials product,which has demonstrated how we can expand our PCW channel footprint and offer value to our customers.Restoring the resilience of our balance sheetIn addition to the capital benefits from i

91、mproving our Motor performance,we have a range of levers aimed at helping us build back our capital strength.ReinsuranceWe have always used reinsurance through our motor excess of loss reinsurance and our property catastrophe programmes to manage our risk profile.We have now built on this with a new

92、 10%quota share reinsurance arrangement effective from 1January 2023.This not only strengthened our solvency position as at year end 2022 by six percentage points,but it is also the foundation for an efficient long-term source of capital for the Group.We continue to explore further strategic reinsur

93、ance options.Portfolio actionsAt the 2022 half-year results we flagged our review of where we deploy our capital in order to deliver the highest returns.As a result we have decided to exit certain partnerships,reducing our exposure to low margin insurance within packaged bank accounts.In the second

94、half of 2023 we plan to begin our new 10-year partnership with Motability Operations,which brings 600,000 new customers.We believe these changes to our portfolio will be positive from both a financial and strategic perspective.18Direct Line Group Annual Report and Accounts 2022and other income withi

95、n revenue,alongside the additional benefit from discounting more of our insurance liabilities.As a result,the NIM is expected to be around six percentage points better than the margin implied by the equivalent combined operating ratio.For example,a 100%combined operating ratio,implying a 0%margin,un

96、der the previous accounting standard would translate into around a 6%NIM under IFRS 17.Capital managementThe Groups capital position was affected by the combination of significantly weaker levels of Motor profitability,adverse investment experience and well above average claims from major weather ev

97、ents.These factors reduced the Groups own funds during the year,whilst the weaker Motor outlook and higher inflation also contributed to an increased capital requirement,which was only partly offset by higher than expected investment income.During H2 and into 2023,the Group took several actions whic

98、h increased the Groups solvency capital ratio by 14 percentage points,including reducing the risk in the investment portfolio and agreeing a 10%whole account quota share reinsurance arrangement.As at the end of 2022,the Groups estimated solvency capital ratio was 147%which is within the Groups risk

99、appetite range,albeit towards the bottom end of that range.At the end of February 2023,the Groups solvency capital ratio has increased by approximately five percentage points due to the positive movements on the bond portfolio as well as a reduction in ineligible capital.We are pursuing a range of a

100、ctions designed to bring the Groups solvency position back towards the middle of the range.The Group expects positive organic capital generation in 2023.The Group paid an interim dividend of 7.6 pence per share in 2022;however,given the year-end solvency ratio,as indicated at the January trading upd

101、ate,the Board is not recommending a final dividend.The Board understands the importance of dividends to shareholders and will update the dividend outlook at the half-year results.OutlookHigher than expected claims inflation on business written during 2022 and in early 2023 will continue to affect Mo

102、tor earnings during 2023.Furthermore,the outlook for claims inflation remains uncertain given,for example,capacity constraints in the repair industry,continued settlement delays in third party claims and potential care cost inflation.In our other businesses,trading conditions in Commercial have rema

103、ined favourable with continued growth in 2023 to date.In Home,market conditions in early 2023 have improved and Green Flag direct has continued to perform well.The Group believes it continues to have a fundamentally strong business and has an ambition over time to generate a NIM of above 10%,normali

104、sed for weather.Jon GreenwoodActing Chief Executive OfficerBusiness performanceIn 2022,there is a clear distinction between the results of Motor and those of the Groups other business lines.Gross written premiummGross written premium%Normalised combined operating ratio%Motor1,432.748.2114.7Home,Comm

105、ercial,Rescue and other personal lines ongoing operations1,537.151.892.2Total ongoing operations2,969.8100.0103.3Motor delivered a poor result,with a combined operating ratio of 114.7%.Claims inflation over the course of the year was greater than we expected,and not reflected in our pricing.This was

106、 compounded by higher claims frequency in the fourth quarter.This coincided with the introduction of the FCAs PPR regulations which reduced new business growth opportunities.Retention remained strong at 81.6%.Our normalised combined operating ratio for ongoing operations across our Home,Commercial a

107、nd Rescue and other personal lines was 92.2%.In Commercial,we combined strong growth with an improved current-year loss ratio following several years of pricing ahead of estimated claims inflation.We also priced ahead of claims inflation in Home,which saw a challenging new business market following

108、the implementation of the FCAs PPR regulations.Rescue did not see the same growth as previous years but its margins remained strong.WeatherDuring 2022,we experienced our highest level of weather-related claims since before our IPO in 2012,including our highest individual event from the freeze in Dec

109、ember.Overall claims from weather-related events were 149 million,more than double our 2022 annual assumption of 73 million.This was made up of three events storms in February,extremely dry weather over the summer which resulted in subsidence and the freeze in December.The freeze event was the most

110、significant,with 95 million of claims costs across Home and Commercial following prolonged sub-zero temperatures,especially across Scotland and North West England.With relatively large shares of Home and Commercial insurance in Scotland,we experienced a significant number of large claims.Implementat

111、ion of IFRS 17 Insurance Contracts and IFRS 9 Financial InstrumentsIFRS 17 and IFRS 9 are effective from 1January 2023.These new accounting standards will improve alignment between IFRS earnings and capital generation under Solvency II and will not affect the economics of our business or its dividen

112、d paying capacity.Overall,we believe the new standards should improve comparability between companies.We will change our headline key performance measure from combined operating ratio to net insurance margin(“NIM”)under IFRS 17,which we believe is a better measure of how we run our business.The key

113、reconciling items when moving from a combined operating ratio to a NIM are the inclusion of instalment 19www.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsMarket overviewMotor premium and claims inflationThe Group was affected by global inflationary pressures in 2022,creating a

114、volatile trading environment,particularly in our Motor business,which faced complex market conditions.The UK motor market saw market premium lag behind significant levels of claims severity inflation.Supply chain dislocation caused parts delays,and the limited supply of new vehicles continued to inc

115、rease the cost of second-hand vehicles,impacting total loss settlements.We also witnessed elevated third-party claims inflation across the year,particularly in the fourth quarter,and second-hand vehicle prices increased compared to the previous year.In response,we continue to use our accident repair

116、 centres to repair cars as efficiently and economically as possible.We are also responding swiftly to volatile inflationary pressures in motor claims.Financial Conduct Authority Pricing Practices ReviewThe FCAs reforms to general insurance pricing came into effect on 1 January 2022.The reforms equal

117、ised customer prices by requiring a renewal price to be no higher than the equivalent new business price through the same sales channel for motor and home policies.Throughout the year,we saw competitive pressures as the new business market reduced,while retention levels for renewal customers remaine

118、d high.We believe the Group is well positioned in the medium-term due to our large customer base and because consumers will continue to value trusted brands,excellent customer service and claims expertise.These are attributes where the Group has fundamental strengths.Consumer trendsDuring 2022,we wi

119、tnessed a number of consumer trends.The market saw product diversification in response to cost of living pressures which caused customers to be more price sensitive.Other trends include increased electric vehicle adoption and customers desire to self-serve online by using digital journeys.We respond

120、ed to these trends,supported by our technology transformation and agile capabilities,by:A new PCW Essentials motor product using our Churchill brand,which offers an alternative product for customers who may be looking for a stripped-back motor insurance policy,particularly given cost of living press

121、ures,while still covering vehicle and third-party damage.Delivering our Essentials product highlights our improving capability to get products out to market quickly and expand our product footprint in the PCW channel.We extended our Electric Vehicle bundle for another year to support our Direct Line

122、 Motor customers in making the switch.By partnering with ZoomEV we offer benefits and discounts,alongside cover for batteries and charging cables.The bundle also includes a discounted home charger by Zaptec and the opportunity for customers to access EV help and guidance.Its another example of how w

123、e are giving customers valued insurance propositions.Our electric vehicle capability is supported by our repair expertise in our network of 22 accident repair centres.As electric vehicle adoption increases in the UK,it is an integral part of our strategy to be equipped to repair sophisticated car te

124、chnology where we can gain commercial insights that support our underwriting and claims operations.Greater options for customers to access easy digital-first journeys where Motor customers can now register 100%of claims types online across the vast majority of our brands and partners.In 2023,we are

125、aiming for Motor customers to be able to track their claim online from start to finish,whether waiting for a repair or cash settlement.“We believe the Group is well positioned due to our large customer base and because consumers will continue to value trusted brands,excellent customer service and cl

126、aims expertise.”20Direct Line Group Annual Report and Accounts 2022Climate changeIn 2022,the Group experienced its highest level of weather-related claims since we listed over a decade ago.We are proud of how we supported customers throughout the year.Three events storms in February,extremely dry we

127、ather over the summer causing subsidence and the freeze in December led to claims totalling 149 million,more than twice our annual assumption for weather-related claims of 73 million.Whilst we have experienced significant weather-related claims in 2022,we expect the physical risks related to climate

128、 change to materialise over the long-term which we have defined as more than 30 years.The Group continues to respond to climate change.We take our responsibilities seriously in our assessment of climate-related risks to our business and continue to assess what steps we can take to enhance our approa

129、ch and reducing the emissions under our direct control.We expect increased regulatory scrutiny of climate-related risks,including how firms are assessing and managing insurance risks from severe weather,and the potential for more frequent mid-sized events,such as flood,storm,freeze and prolonged hot

130、 weather causing subsidence.As a result,the Group continues to assess how it can improve its approach,particularly regarding quantitative modelling.In April 2022,the UK Government launched The Transition Plan Taskforce(“TPT”)to develop a gold standard for private sector firms to produce climate tran

131、sition plans.The Group this year became one of the first personal lines insurers in the UK to receive approval by the Science Based Targets initiative(“SBTi”)for its plans to reduce greenhouse gas(“GHG”)emissions(see page 66).Our third Task Force on Climate-related Financial Disclosures(“TCFD”)repor

132、t(see pages 72 to 85)sets out our strategic response to climate change and we publish the Groups carbon emissions(see page 69)in which,for the second year running,we publish our Scope 3 supply chain emissions and homeworking emissions now that our mixed(remote and site-based)working model is establi

133、shed.Whiplash reform developmentsWhiplash injuries are a common feature of motor insurance claims.The Civil Liability Act 2018,implemented in 2021,introduced reforms governing the valuation of whiplash injuries,with a specific tariff for back and neck injuries expected to last a period of 24 months

134、or less.Other injuries associated with a claim are subject to common law.The intention of the Act was to reduce fraudulent claims by using medical evidence to settle claims within a clear tariff framework.A recent Court of Appeal judgment has endorsed a valuation methodology that differs from the or

135、iginal reforms and is expected to increase the tariff awarded to non-whiplash related injuries.As a result,the costs of motor personal injuries could increase more than previously anticipated.The Group is assessing its bodily injury forecasts to reflect the Court of Appeal judgment and is expected t

136、o increase the amount awarded for some non-whiplash related injuries.An allowance for the estimated increase in claims costs has been included in the Groups year end reserves.Solvency II reformsIn November 2022,HM Treasury confirmed,in its response to the Solvency II review consultation,that it is e

137、xpected to legislate to reform the risk margin calculations leading to an expected reduction of approximately 30%for general insurance business and an expected reduction of 65%for long-term life insurance business,which will include Periodic Payment Orders(“PPOs”).Secondary legislation is expected t

138、o follow the passage of the Financial Services and Markets Bill.The indication is that the Group will benefit from the reforms,although PRA consultations on rule changes needed to implement Solvency II reforms are expected in June and September 2023 and these may provide more detail on the extent of

139、 any benefit.21www.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsOur key performance indicatorsDefinitionA measure of financial year underwriting profitability.A COR of less than 100%indicates profitable underwriting.The COR is the sum of claims,expense and commission ratios and

140、 compares the cost of doing business against net earned premium generated.AimWe aim to make an underwriting profit.This KPI will be updated to reflect the Groups transition to reporting under IFRS 17.For additional performance information see page 26RemunerationWe base part of the Annual Incentive P

141、lan(“AIP”)awards on profit before tax.The COR is closely linked to this.For additional performance information see pages 131 and 138DefinitionA risk-based measure expressing the level of capital resources held as a percentage of the level of capital that is required under Solvency II.AimUnder normal

142、 circumstances,the Group aims to maintain a solvency capital ratio around the middle of the risk appetite range of 140%to 180%.For additional performance information see page 30RemunerationSolvency capital ratio within our risk appetite is an indicator of capital strength,which is one of the gateway

143、s for the AIP awards and an underpin for LTIP awards.For additional performance information see pages 131 and 140DefinitionThis is calculated by dividing the earnings attributable to shareholders less coupon payments in respect of Tier 1 notes by the weighted average number of Ordinary Shares in iss

144、ue.AimWe have not set a target.However,our aim is to grow earnings per share.For additional performance information see page 29RemunerationThis is a broad measure of earnings and reflects the results of the Group after tax less Tier 1 coupon payments.We base part of the AIP awards on profit before t

145、ax.For additional performance information see pages 131 and 138Combined operating ratio1,2(“COR”)(%)Solvency capital ratio3,4(%)Basic(loss)/earnings per share1(pence)Expense ratioCommission ratioLoss ratio23.223.224.523.823.891.692.291.089.5105.861.961.957.958.474.76.57.18.67.37.32221201918222120191

146、833.329.525.824.5(4.3)222120191821.620.819.923.6(0.9)2221201918170.0189.0191.0176.0147.0Notes:1.See glossary on pages 251 to 253 and Appendix A Alternative performance measures on pages 254 to 257 for reconciliation to financial statement line items.2.The 2022 combined operating ratio is for ongoing

147、 operations(see footnote 1 on page 25).2021 has been restated accordingly(reported as 90.1%in the 2021 Annual Report and Accounts).3.The 2019 solvency capital ratio has been adjusted to remove the cancelled 14.4p final dividend and 120 million of the share buyback as announced in March/April 2020.(T

148、he reported number was a solvency capital ratio of 165%).4.Estimates based on the Groups Solvency II partial internal model.DefinitionThe return generated on the capital that shareholders have in the business.This is calculated by dividing adjusted earnings by average tangible equity.AimWe aim to ac

149、hieve at least a 15%RoTE per annum.For additional performance information see page 29RemunerationWe base the LTIP awards partly on adjusted RoTE over a three-year performance period.For additional performance information see pages 131 and 140Return on tangible equity1(%)22Direct Line Group Annual Re

150、port and Accounts 2022DefinitionEngagement is about being proud to work for the Group and helping us to succeed.It means that colleagues are not just happy or satisfied,but doing something to help us achieve our Company goals.AimTo make the Group best for our customers and best for our colleagues.We

151、 gauge employee engagement through our colleague opinion surveys and we aim for high colleague engagement scores each year.For additional performance information see page 56RemunerationThe AIP awards include a weighting to a balance of employee metrics,including engagement.For additional performance

152、 information see pages 131 and 139Colleague engagement5(%)2221201918145.6155.0158.0156.0142.0222120191881.078.074.066.072.022212019180.770.630.510.460.61Scope 1Scope 22221201916,0089,3997,0326,5297,81111,69710,1878,9826,6093,1552,4533,8865.The methodology for determining colleague engagement changed

153、 in 2022 as a result of a change of survey provider.Engagement scores for the years 2018 to 2021 are presented on a consistent basis.The 2022 score was assessed against a benchmark score of 75%and is not directly comparable to the scores in 2021 and prior years.6.Direct Line brand.On an aggregated 1

154、2-month rolling basis,with 2013 rebased to 100.7.For the Groups principal underwriter,U K Insurance Limited.DefinitionNet 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 pr

155、oduct or service,and customers loyalty to a brand.AimWe aim to increase our NPS over time.For additional performance information see page 53RemunerationThe AIP awards include a weighting to a balance of customer metrics,including NPS.For additional performance information see pages 131 and 139Defini

156、tionThe number of complaints we received during the year as a proportion of the average number of in-force policies.AimThis measure indicates where our customer service has not met expectations to the extent that the customer has initiated a complaint.We aim to improve this over time.RemunerationThe

157、 AIP awards include a weighting to a balance of customer metrics,including complaints.For additional performance information see page 131 and 139DefinitionOperational emissions are defined as the Scope 1 and 2 emissions across our buildings and accident repair centres.AimWe aim to reduce Scope 1 and

158、 2 emissions by 46%by 2030 from a 2019 base year.For additional performance information see pages 66 and 69RemunerationFrom 2022,the LTIP awards have an emissions performance condition which includes a targeted reduction in emissions and temperature score.For additional performance information see p

159、ages 131 and 141Net Promoter Score6(points)Customer complaints7(%)Operational emissions(tCO2e)Changes to our KPIs in 2022Our metrics are reviewed annually and updated as appropriate to ensure they remain an effective measure of delivery against our objectives.For 2022,the review of these metrics res

160、ulted in the following change:Operational emissions is a new KPI that reflects the importance of and aligns with our aim to become a Net Zero business by 2050.Following a review of the LTIP metrics,an emissions measure was introduced to the LTIP from 2022 awards onwards.See page 141.The five-year re

161、cord of capital returns chart can be found in the CFO Review adjacent to a section describing the Groups dividend policy.23www.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsCFO reviewNeil ManserChief Financial OfficerFinancial summary Group operating profit from ongoing operatio

162、ns fell to 32.1 million(2021:590.3 million)reflecting a volatile operating environment with elevated motor claims inflation,higher than expected weather event claims,new regulatory changes and challenging investment markets.Total Group operating profit was 20.6 million(2021:581.8 million).Claims inf

163、lation was most acute in Motor,where severity inflation of around 14%was above the levels assumed in the Groups pricing.Alongside disruption to supply chains causing delays in third party claims,this led to a Motor combined operating ratio of 114.7%(2021:92.4%).In our other businesses,pricing kept p

164、ace with claims inflation and combined operating ratios were broadly in line with expectations,when normalised for weather.2022 saw the highest weather event costs since the Group listed over a decade ago with 149 million of claims,well above the 2022 73 million budget assumption.The largest event w

165、as Decembers freeze,which delivered around 95 million of claims costs due to prolonged periods of sub-zero temperatures across Scotland and North West England.Group combined operating ratio for ongoing operations was 105.8%and 103.3%when normalised for weather.The Groups total combined operating rat

166、io including run-off partnerships was 106.0%.Solvency capital ratio reduced during 2022 as a result of lower profit as well as unrealised losses on investments.A new 10%quota share reinsurance arrangement was agreed with effect from 1January 2023 and,including the benefit from this,the solvency capi

167、tal ratio was 147%.At the end of February,the Group solvency ratio has further improved by approximately 5 percentage points due to positive credit movements on the bond portfolio and a reduction in ineligible capital on adoption of IFRS 17 Insurance Contracts.In line with the expectation previously

168、 disclosed,the Group is not proposing a final dividend for 2022,resulting in a total dividend for 2022 of 7.6 pence per share.24Direct Line Group Annual Report and Accounts 2022Group financial performance FY 2022FY 2021ChangeOngoing operations1In-force policies(thousands)9,68910,014(3.2%)Of which:di

169、rect own brands(thousands)27,2457,529(3.8%)NotesFY 2022mFY 2021mChangeOngoing operations1Adjusted gross written premium32,974.03,072.7(3.2%)Of which:direct own brands22,087.12,207.6(5.5%)Net earned premium42,844.42,860.2(0.6%)Underwriting(loss)/profit ongoing operations14(166.6)300.9(155.4%)Loss rat

170、io3,4474.7%58.4%(16.3pts)Commission ratio3,447.3%7.3%0.0ptsExpense ratio3,4423.8%23.8%0.0ptsCombined operating ratio3,44105.8%89.5%(16.3pts)Current-year attritional loss ratio3,474.4%65.6%(8.8pts)Normalised combined operating ratio3,4103.3%90.5%(12.8pts)Instalment and other operatingincome4147.7143.

171、92.6%Investment return451.0145.5(64.9%)Operating profit ongoing operations1,3432.1590.3(94.6%)Of which:Current-year operating(loss)/profit3(108.7)347.2(131.3%)Prior-year reserve releases140.8243.1(42.1%)Restructuring and one-offcosts4(45.3)(101.5)55.4%Run-off partnerships14(11.5)(8.5)(35.3%)Operatin

172、g(loss)/profit after restructuring and one-off costs34(24.7)480.3(105.1%)Finance costs11(20.4)(34.3)40.5%(Loss)/profit before tax4(45.1)446.0(110.1%)Tax credit/(charge)5.6(102.3)105.5%(Loss)/profit for the period attributable to the owners of the Company(39.5)343.7(111.5%)Profitability metricsReturn

173、 on tangible equity(0.9%)23.6%(24.5pts)Basic(loss)/earnings per share(pence)15(4.3)24.5(117.6%)Diluted(loss)/earnings per share(pence)15(4.3)24.1(117.8%)Return on equity16(2.5%)12.5%(15.0pts)Investments metricsInvestment income yield2.3%1.9%0.4ptsNet investment income yield2.2%1.7%0.5ptsInvestment r

174、eturn yield1.0%2.4%(1.4pts)Capital and returns metricsNet asset value per share(pence)16149.0193.6(23.0%)Tangible net asset value per share(pence)1685.6131.2(34.8%)Solvency capital ratio post dividend and share buyback5147%176%(29pts)Solvency capital ratio(as above)/adjusted solvency capital ratio3,

175、5,6147%160%(13pts)Notes:1.Ongoing operations and run-off partnerships See glossary on pages 251 to 253 for definitions and appendix A Alternative performance measures on pages 254 to 257 for reconciliation to financial statement line items.2.Direct own brands include in-force policies for Home and M

176、otor under the Direct Line,Churchill,Darwin and Privilege brands,Rescue policies under the Green Flag brand and Commercial under the Direct Line for Business and Churchill brands.3.See glossary on pages 251 to 253 for definitions and appendix A Alternative performance measures on pages 254 to 257 fo

177、r reconciliation to financial statement line items.4.A reduction in the ratio represents an improvement as a proportion of net earned premium,while an increase in the ratio represents a deterioration.See glossary on pages 251 to 253 for definitions.5.Estimates based on the Groups Solvency II partial

178、 internal model.6.Adjusted solvency capital ratio as at 31 December 2021 excluded 250 million Tier 2 debt which was redeemed on 27 April 2022.See appendix A Alternative performance measures on pages 254 to 257 for reconciliation to financial statement line items.25www.directlinegroup.co.ukStrategic

179、reportGovernanceFinancial statementsCFO review continuedGroup financial performance131 Dec 202230 Sep 202230 Jun 202231 Mar 202231 Dec 2021Year-on-year changeIn-force policies(thousands)29,6899,7719,9119,95210,014(3.2%)Of which direct own brands37,2457,3047,4177,4597,529(3.8%)FY 2022mFY 2021mChangeA

180、djusted gross written premium22,974.03,072.7(3.2%)Of which direct own brands32,087.12,207.6(5.5%)Underwriting(loss)/profit(166.6)300.9(155.4%)Instalment and other operating income147.7143.92.6%Investment return51.0145.5(64.9%)Operating profit432.1590.3(94.6%)Loss ratio474.7%58.4%(16.3pts)Commission

181、ratio47.3%7.3%0.0ptsExpense ratio423.8%23.8%0.0ptsCombined operating ratio4105.8%89.5%(16.3pts)Current-year attritional loss ratio474.4%65.6%(8.8pts)Normalised combined operating ratio4103.3%90.5%(12.8pts)0.00%20.00%40.00%60.00%80.00%100.00%120.00%2021Combined operating ratio2022Loss ratioComission

182、ratioExpense ratioCombined Operating Ratio74.7%7.3%23.8%105.8%58.4%7.3%23.8%89.5%2022 was a challenging year for the Group.The aggregate effect of continued high inflation in Motor,regulatory change in personal lines,twice the assumed level of weather claims,as well as adverse investment conditions,

183、reduced operating profit for ongoing operations by 94.6%to 32million.Despite the headline reduction in profit,underlying underwriting performance in Home,Commercial and Rescue and other personal lines was broadly in line with expectations.Ongoing operations and run-off partnershipsThe Group has exit

184、ed,or has initiated termination of three partnerships which will reduce its exposure to low margin packaged bank accounts so it can redeploy capital to higher return segments.The run-off partnerships relate to a Rescue partnership with NatWest Group that expired in December 2022 and Travel partnersh

185、ips with NatWest Group and Nationwide Building Society which expire in 2024,and which the Group has indicated to the partner that it will not be seeking to renew.The Group has excluded the results of these three run-off partnerships from its ongoing results and has restated all relevant comparatives

186、 across this review.Results relating to ongoing operations are clearly referenced.Note 4(Segmental analysis)has also been amended to reflect the change.The operating loss relating to run-off partnerships in 2022 was 11.5 million(2021:8.5 million).In-force policies and adjusted gross written premium1

187、,2In-force policies from ongoing operations were 9.7 million at the end of December,3.2%lower than prior year with reductions across all segments except Commercial which continued to deliver strong growth.Adjusted gross written premium from ongoing operations experienced a similar reduction,falling

188、by 3.2%to 2,974.0 million.Growth in Commercial was offset by reductions in Motor and Home arising from the combination of challenging market conditions together with the impact of regulatory change.Total Group in-force policies were 11.9 million and total adjusted gross written premium was 3,098.4 m

189、illion.26Direct Line Group Annual Report and Accounts 2022Investment return1NoteFY 2022mFY 2021mInvestment income124.0115.1Hedging to a sterling floating rate basis(5.9)(13.2)Net investment income118.1101.9Net realised and unrealised(losses)/gains excluding hedging(67.1)43.6Total investment return o

190、ngoing operations451.0145.5Total investment return run-off partnerships0.60.8Total investment return51.6146.3Investment yieldsFY 2022FY 2021Investment income yield42.3%1.9%Net investment income yield42.2%1.7%Investment return yield41.0%2.4%Total investment return from ongoing operations decreased by

191、 94.5million to 51.0 million(2021:145.5 million)primarily driven by realised and unrealised losses resulting from write-downs in fair value adjustments of commercial property(39.1 million)and 24.9 million of realised losses from disposals of our debt securities holdings,predominantly relating to act

192、ions taken to reduce our longer duration USD credit holdings.The Groups investment return including run-off partnerships was 51.6 million(2021:146.3 million).Despite assets under management declining 16.1%year-on-year,investment income from ongoing operations was up 8.9 million,driven by a yield imp

193、rovement in variable rate asset classes following eight UK base rate increases during 2022,when rates rose from 0.25%to 3.5%.This resulted in a net investment income yield improvement of 0.5 percentage points to 2.2%.The investment income yield is expected to increase to 3.2%in 2023 as maturing asse

194、ts are invested at higher yields together with higher yields on floating assets.The total return yield for 2023 is expected to be around 4.0%,once pull to par effects are taken into account.Given this measure includes unrealised movements as well,the outcome will depend on market movements during th

195、e year.Underwriting result1The Group made an underwriting loss from ongoing operations of 167million(179million loss including run-off partnerships),a reduction of 468million compared to 2021.This was predominately due to a 259million reduction in current-year profitability in Motor,due to pricing n

196、ot reflecting claims inflation,alongside 112million higher weather costs in Home and Commercial.In Motor,2022 did not see a repeat of low claims frequency experienced during the lockdowns in the first half of 2021,together with elevated claims inflation and the impact of regulatory reforms in 2022.P

197、rior-year reserve releases from ongoing operations reduced from 243million in 2021 to 141million in 2022,with the reduction primarily driven by lower Motor and Home releases.Our claims reserves include specific allowance for inflation over the next few years to be higher than recently experienced fo

198、r longer-tail lines of business.The loss ratio from ongoing operations increased to 74.7%(2021:58.4%)driven predominantly by Motor and weather events in Home and Commercial,although an improved current-year attritional loss ratio in Commercial offset an increased current-year attritional loss ratio

199、in Home.Weather-related claims in the year were 149 million,more than twice our 2022 annual assumption of 73 million and the highest since the Groups IPO in 2012.Our weather-related claims assumption for Home and Commercial combined for 2023 is 80 million.The combined operating ratio from ongoing op

200、erations increased to 105.8%(2021:89.5%)and 103.3%,when normalised for weather(2021:90.5%).The underwriting result including run-off partnerships was a loss of 179million(2021:292million profit)and the combined operating ratio including run-off partnerships was 106.0%(2021:90.1%).Instalment and othe

201、r operating income1NoteFY 2022mFY 2021mInstalment income492.497.3Other operating income455.346.6Total instalment and other operating income ongoing operations147.7143.9Total instalment and other operating income run-off partnerships0.1Instalment income from ongoing operations of 92.4million was 4.9m

202、illion lower than 2021,largely reflecting lower volumes written in Motor and Home in 2022.Other operating income from ongoing operations increased 18.7%to 55.3million in 2022,primarily due to the introduction in 2022 of arrangement and administration fees in Rescue together with higher claims freque

203、ncy in Motor,driving increased revenue from vehicle recovery and repair services and higher salvage income.27www.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsCFO review continuedNotesFY 2022mFY 2021mMotor4(77.2)314.8Home4(8.7)141.8Rescue and other personal lines ongoing operati

204、ons1459.773.3Commercial458.360.4Operating profit ongoing operations1432.1590.3Operating loss run-off partnerships14(11.5)(8.5)Operating profit total Group420.6581.8Restructuring and one-off costs4(45.3)(101.5)Finance costs11(20.4)(34.3)Tax credit/(charge)125.6(102.3)(Loss)/earnings attributable to t

205、he owners of the Company(39.5)343.7Basic(loss)/earnings per share(pence)15(4.3)24.5Return on tangible equity4(0.9%)23.6%Restructuring and one-off costsThe Group incurred 45.3 million of restructuring and one-off costs in 2022,principally due to an impairment of an IT system of 15.2 million following

206、 the decision to exit Travel packaged bank account partnership business1 and write-offs in relation to property fixtures and fittings.The majority of these restructuring costs are non-cash and therefore have no impact on the Groups solvency ratio.Finance costsFinance costs fell to 20.4 million(2021:

207、34.3 million)primarily as interest payments reduced following the redemption of the Groups 250 million 9.25%Tier 2 subordinated notes on 27 April 2022.Effective corporation tax rateThe effective tax rate(“ETR”),which is calculated as total tax charge divided by(loss)/profit before tax was 12.4%for 2

208、022(2021:22.9%).Unusually,due to the overall loss position the ETR is lower than the standard UK corporation tax rate of 19.0%(2021:19.0%)as tax relief for the accounting loss is reduced by disallowable expenses which are only partly offset by tax relief for the Tier 1 coupon payments(which are acco

209、unted for as a distribution rather than expense),together with the tax effect of a property revaluation.Further details can be found in the tax reconciliation in Note 12 to the financial statements.Whilst the quantum of the disallowable expenses has returned to a more normalised level in 2022 follow

210、ing the one-off non-deductible Bromley lease payment in 2021,they have a greater impact on the ETR(calculated as tax charge divided by profit or(loss)before tax)as the denominator is much lower in 2022 compared with 2021.Ordinarily disallowable expenses would increase Operating expenses before restr

211、ucturing and one-off costs1NoteFY 2022mFY 2021mStaff costs5232.9246.7IT and other operating expenses5,6143.2138.5Marketing93.5112.0Sub-total469.6497.2Insurance levies92.688.2Depreciation,amortisation and impairment of intangible and fixed assets7115.796.6Total operating expenses ongoing operations46

212、77.9682.0Operating expenses run-off partnerships421.624.3Total operating expenses4699.5706.3Expense ratio ongoing operations23.8%23.8%Expense ratio total Group23.6%23.9%Operating expenses from ongoing operations in 2022 were 677.9 million(699.5 million including run-off partnerships),in line with ou

213、r target of around 700 million,and 4.1 million lower than 2021.This reflected a continued focus on improving efficiency and cost control.Despite inflationary pressures,controllable costs reduced by 27.6 million,more than offsetting a 23.5 million increase in amortisation,depreciation and levies.The

214、reduction in controllable costs was driven by a range of cost saving initiatives,including reducing the Groups office footprint,reducing technology run costs and increased customer adoption of digital and self-service channels.The Groups full-time equivalent headcount reduced by 4.1%to 9,387 in 2022

215、.Looking ahead,the Group remains focused on driving cost efficiency,but is not immune to inflationary pressures in the market.28Direct Line Group Annual Report and Accounts 2022the ETR where there is an accounting profit(such as in 2021 and previous years),as more tax is paid than would be expected

216、from applying the statutory tax rate to the accounting profit.However,in a loss making year,such as 2022,disallowable expenses lead to fewer tax losses than accounting losses,thereby leading to an overall reduction in the ETR.Return on tangible equity4Return on tangible equity decreased to(0.9%)(202

217、1:23.6%)due primarily to the reduction in the Groups operating profit.(Loss)/earnings per shareBasic earnings per share decreased by 117.6%to a loss of 4.3 pence(2021:earnings of 24.5 pence).Diluted earnings per share decreased by 117.8%to a loss of 4.3 pence(2021:earnings of 24.1 pence),mainly refl

218、ecting the Groups loss after tax in 2022.The financial performance of the Group is discussed in detail on pages 26 to 29.The calculation of(loss)/earnings per share is presented in note 15 on page 220.Cash flow2022m2021mNet cash generated from operating activities800.2439.0Of which:Operating cash fl

219、ows before movements in working capital(24.3)435.9Movements in working capital8.2(45.8)Tax paid(44.5)(118.4)Net cash generated from investment of insurance assets860.5167.2Net cash used in investing activities(100.8)(138.7)Net cash used in financing activities(657.5)(572.0)Net increase/(decrease)in

220、cash and cash equivalents41.9(271.7)Cash and cash equivalents at 1 January896.51,168.2Cash and cash equivalents at 31December938.4896.5The Groups cash and cash equivalents increased by 41.9 million during the year(2021:271.7 million reduction)to 938.4 million.The Group had an operating cash outflow

221、before movements in working capital of 24.3 million(2021:inflow 435.9 million),a reduction of 460.2 million,due to the loss for the year compared to a profit in the prior year and an increase in adjustments for non-cash movements.After taking into account movements in working capital,the Groups cash

222、 outflow was 16.1 million(2021:inflow 390.1 million),a decrease of 406.2 million.The Group has considerable assets under management,the cash generated from these assets increased by 693.3 million to 860.5 million as proceeds from the disposal and maturity of available-for-sale(“AFS”)debt securities

223、exceeded purchases,in part due to actions taken to reduce the Groups longer duration USD credit holding,helping fund dividend payments and the redemption of 250 million of the Groups subordinated Tier 2 debt.Net cash generated from operating activities was 800.2 million(2021:439.0 million).Net cash

224、used in investing activities of 100.8 million reflected the Groups continuing investment in its major IT programmes(2022:108.4 million,2021:109.4 million).Net cash used in financing activities of 657.5 million included 314.5 million(2021:317.4 million)in dividends and Tier 1 capital coupon payments

225、in the year,50.1 million in share buybacks(2021:101.0 million)and 8.9 million(2021:101.9 million)lease principal payments.Also included in 2022 was the redemption of the remaining 250.0 million Tier 2 subordinated debt issued in 2012.Dividends paid in the year comprised the 7.6 pence interim dividen

226、d announced in the half-year results in 2022 and the 15.1 pence final dividend for 2021 announced in March 2022.The 800.2 million the Group generated from operating activities more than offset net cash used in financing and investing activities and resulted in a net increase in cash and cash equival

227、ents of 41.9 million(2021:271.7 million reduction)to 938.4 million(2021:896.5 million).The levels of cash and other highly liquid sources of funding that the Group holds to cover its claims obligations are continually monitored with the objective of ensuring that the levels remain within the Groups

228、risk appetite.Notes:1.Ongoing operations and run-off partnerships See glossary on pages 251 to 253 for definitions and appendix A Alternative performance measures on pages 254 to 257 for reconciliation to financial statement line items.2.See appendix B on page 258 for additional data on in-force pol

229、icies and adjusted gross written premium.3.Direct own brands include in-force policies for Home and Motor under the Direct Line,Churchill,Darwin and Privilege brands,Rescue policies under the Green Flag brand and Commercial under the Direct Line for Business and Churchill brands.4.See glossary on pa

230、ges 251 to 253 for definitions and appendix A Alternative performance measures on pages 254 to 257 for reconciliation to financial statement line items.5.Staff costs and other operating expenses attributable to claims handling activities are allocated to the cost of insurance claims.6.IT and other o

231、perating expenses include professional fees and property costs.7.Includes right-of-use(“ROU”)assets and property,plant and equipment.For the year ended 31December 2022,there were impairment charges of 16.0 million which relate solely to impairment of intangible assets(2021:2.6 million of which,2.1 m

232、illion relates to impairment of intangible assets and 0.5 million relates to ROU property assets).29www.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsCFO review continuedBalance sheet managementCapital management and dividend policyThe Group aims to manage its capital efficientl

233、y and generate long-term sustainable value for shareholders,while balancing operational,regulatory,rating agency andpolicyholder requirements.The Group aims to grow its regular dividend in line with business growth.Where the Board believes that the Group has capital which is expected to be surplus t

234、o the Groups requirements for a prolonged period,it intends toreturn any surplus to shareholders.In normal circumstances,the Board expects that a solvency capital ratio around the middle of its risk appetite range of 140%to 180%of the Groups solvency capital requirement(“SCR”)would be appropriate an

235、d it will therefore take thisinto account when considering the potential for special distributions.In the normal course of events the Board will consider whether or not it is appropriate to distribute any surplus capital to shareholders once a year,alongside the full yearresults.The Group expects th

236、at one third of the annual dividend will generally be paid in the third quarter as an interim dividend,and two thirds will be paid as a final dividend in the second quarter of the following year.The Board may revise the dividend policy from time to time.The Company may consider a special dividend an

237、d/or a repurchase of its own shares to distribute surplus capital to shareholders.In 2022,the Board announced an interim dividend of 7.6 pence per share.The Board is not recommending a final dividend and will update its dividend outlook at the 2023 half-year results.In the Groups 2021 full year resu

238、lts,we announced a share buyback programme of up to 100 million,with an initial tranche of 50 million which was completed on 28 June 2022.The Board decided,when considering the half-year results to 30 June 2022,not to launch the second 50 million tranche of the 100 million buyback programme announce

239、d earlier in the year.Capital analysisThe Group is regulated under Solvency II requirements by the PRA on both a Group basis and for the Groups principal underwriter,U K Insurance Limited.In its results,the Group has estimated its Solvency II own funds,SCR and solvency capital ratio as at 31 Decembe

240、r 2022.Capital positionAt 31December 2022,the Group held a Solvency II capital surplus of 0.57 billion above its regulatory capital requirements,which was equivalent to an estimated solvency capital ratio of 147%,after the interim dividend.At 31 December20222021Solvency capital requirement(billion)1

241、.211.35Capital surplus above solvency capital requirement(billion)0.571.03Solvency capital ratio post dividends and share buyback147%176%Solvency capital ratio(as above)/adjusted solvency capital ratio1147%160%Note:1.Adjusted solvency capital ratio excluding Tier 2 debt which was redeemed on 27 Apri

242、l 2022.Change in solvency capital requirement2022bnSolvency capital requirement at 1 January1.35Model and parameter changes0.05Exposure changes(0.19)Solvency capital requirement at 31 December1.21During 2022,the Groups SCR reduced by 0.14 billion to 1.21 billion.Exposure changes resulted in a 0.19 b

243、illion reduction partially offset by an increase of 0.05 billion relating to model and parameter changes.These changes were partly the result of management action to improve the Groups solvency ratio,including entering into a 10%whole account quota share reinsurance arrangement with effect from 1Jan

244、uary 2023 and reducing our longer duration USD credit holdings.The Group SCR also benefited from the impact of higher interest rates.Buyback programmesSpecial dividendsOrdinary dividendsCapital returns(m)2018201920202021202299.0301.3299.798.630.0287.6113.7195.5100.0401.3595.2401.3149.1128.6100.050.1

245、30Direct Line Group Annual Report and Accounts 2022Movement in capital surplus2022bn2021bnCapital surplus at 1 January1.031.22Capital(used)/generated excluding market movements(0.06)0.40Market movements(0.12)(0.03)Capital(used)/generated(0.18)0.37Change in solvency capital requirement0.14(0.01)Surpl

246、us(used)/generated(0.04)0.36Capital expenditure(0.12)(0.12)Repayment of subordinated Tier 2notes(0.25)Interim dividend(0.10)(0.10)Final dividend1(0.20)Share buyback(0.10)Removal of second tranche of share buyback0.05Increase in ineligible Tier 3 capital2(0.03)Net surplus movement(0.46)(0.19)Capital

247、surplus at 31 December0.571.03Notes:1.Foreseeable dividends included above are adjusted to exclude the expected dividend waivers in relation to shares held by the employee share trusts,which are held to meet obligations arising on the various share option awards.2.At 31 December 2022,ineligible Tier

248、 3 capital arose as the amount of Tier 3 capital permitted under the Solvency II regulations is 15%of the Groups SCR.At 31 December 2021,ineligible Tier 3 capital arose as the amount of Tier 2 and Tier 3 capital permitted under the Solvency II regulations is 50%of the Groups SCR.During 2022,the Grou

249、p repaid its then outstanding 250 million 9.25%subordinated Tier 2 notes.The Group used 0.18 billion of Solvency II capital after market movements and increased the surplus by 0.05 billion as the second 50 million tranche of the share buyback programme was not launched.Capital expenditure of 0.12 bi

250、llion and the interim 2022 dividend of 0.10 billion reduced the capital surplus.In 2023,capital expenditure levels are expected to be broadly in line with 2022.Scenario and sensitivity analysis1The following table shows the impact on the Groups estimated solvency capital ratio in the event of the fo

251、llowing scenarios as at 31December 2022.The impacts on the Groups solvency capital ratio arise from movements in both the Groups SCR and ownfunds.Impact on solvency capital ratio1Scenario31 Dec 202231 Dec 20212Deterioration of small bodily injury motor claims equivalent to that experienced in 2008/0

252、9(5pts)(5pts)One-off catastrophe loss equivalent to the 1990 storm“Daria”(10pts)(9pts)One-off catastrophe loss based on extensive flooding of the River Thames(10pts)(9pts)Increase in Solvency II inflation assumption for PPOs by 100 basis points3(10pts)(9pts)100bps increase in credit spreads4(5pts)(8

253、pts)100bps decrease in interest rates with no change in the PPO real discount rate1pt(2pts)Notes:1.Sensitivities are calculated under the assumption full tax benefits can be realised.2.2021 figures exclude from own funds the value of the 250 million Tier 2 subordinated debt which was redeemed on 27

254、April 2022.3.The periodic payment order(“PPO”)inflation assumption used is an actuarial judgement which is reviewed annually based on a range of factors including the economic outlook for wage inflation relative to the PRA discount rate curve.4.Includes only the impact on AFS assets(excludes assets

255、held at amortised costs)and assumes no change to theSCR.0.00.20.40.60.81.01.21.030.060.120.140.120.250.050.100.57Capital surplus at 1 JanuaryRemoval of 2nd tranche of share buybackInterim dividendCapital surplus at 31 DecemberReypayment of subordinated Tier 2 notesCapital expenditureChange in solven

256、cy capital requirementMarket movementsCapital(used)/generated excluding market movementsMovement in capital surplus(bn)31www.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsCFO review continuedReconciliation of IFRS shareholders equity to Solvency II eligible own fundsAt 31 Decemb

257、er2022bn2021bnTotal shareholders equity1.932.55Goodwill and intangible assets(0.82)(0.82)Change in valuation of technical provisions(0.01)Other asset and liability adjustments(0.04)(0.06)Foreseeable dividend and share buyback(0.30)Tier 1 capital unrestricted1.071.36Tier 1 capital restricted0.320.36L

258、ess reclassified restricted Tier 1debt(0.05)(0.02)Eligible Tier 1 capital1.341.70Tier 2 capital reclassified restricted Tier 1 debt and Tier 2 subordinateddebt0.260.53Tier 3 capital deferred tax0.210.18Ineligible Tier 3 capital(0.03)(0.03)Total eligible own funds1.782.38Notes:1.As at 31 December 202

259、2,51 million(31 December 2021:19 million)of the Groups restricted Tier 1 capital was reclassified as Tier 2 due to Solvency II tiering restrictions.2.At 31 December 2022,the amount of Tier 3 capital permitted under the Solvency II regulations is 15%of the Groups SCR which resulted in ineligible capi

260、tal of 33 million.At 31 December 2021,the amount of Tier 2 and Tier 3 capital permitted under the Solvency II regulations is 50%of the Groups SCR which resulted in ineligible capital of 31 million.During 2022,the Groups eligible own funds reduced from 2.38 billion to 1.78 billion.Eligible Tier 1 cap

261、ital after foreseeable distributions represents 75%of own funds and 111%of the estimated SCR.Tier 2 capital relates to the Groups 0.21 billion subordinated debt and 0.05 billion of ineligible Tier 1 capital.The maximum amount of Restricted Tier 1 capital permitted as a proportion of total Tier 1 cap

262、ital under the Solvency II regulations is 20%.Restricted Tier 1 capital relates solely to the Tier 1 notes issued in 2017.The amount of Tier 2 and Tier 3 capital permitted under the Solvency II regulations is 50%of the Groups SCR and the amount of Tier 3 alone is 15%of the Groups SCR.The Group has T

263、ier 3 ineligible own funds of 0.03 billion.Own fundsThe following table splits the Groups eligible own funds by tier on a Solvency II basis.At 31 December2022bn2021bnTier 1 capital before foreseeable distributions1.071.66Foreseeable dividend and sharebuyback(0.30)Tier 1 capital unrestricted1.071.36T

264、ier 1 capital restricted0.320.36Less reclassified restricted Tier 1 debt(0.05)(0.02)Eligible Tier 1 capital1.341.70Tier 2 capital reclassified restricted Tier 1 debt and Tier 2 subordinated debt0.260.53Tier 3 capital deferred tax0.210.18Ineligible Tier 3 capital(0.03)(0.03)Total eligible own funds1.

265、782.38Notes:1.As at 31 December 2022,51 million(31 December 2021:19 million)of the Groups restricted Tier 1 capital was reclassified as Tier 2 due to Solvency II tiering restrictions.2.At 31 December 2022,ineligible Tier 3 capital arose as the amount of Tier 3 capital permitted under the Solvency II

266、 regulations is 15%of the Groups SCR.At 31 December 2021,ineligible Tier 3 capital arose as the combined amount of Tier 2 and Tier 3 capital permitted under the Solvency II regulations is 50%of the Groups SCR.32Direct Line Group Annual Report and Accounts 2022Investment portfolioThe investment strat

267、egy aims to deliver several objectives which are summarised below:to ensure there is sufficient liquidity available within the investment portfolio to meet stressed liquidity scenarios;to match PPO and non-PPO liabilities in an optimal manner;and to deliver a suitable risk-adjusted investment return

268、 commensurate with the Groups risk appetite.Asset and liability managementThe following table summarises the Groups high-level approach to asset and liability management.LiabilitiesAssetsCharacteristicsMore than 10 years,for example PPOsProperty and infrastructure debtInflation linked or floatingSho

269、rt and medium term all other claimsInvestment-grade creditFixed key rate duration matchedTier 1 equityInvestment-grade creditFixedTier 2 sub-debt(swapped fixed to floating)Commercial real estate loans and cashFloatingTier 2 sub-debt fixedInvestment-grade credit and cashFixed or floatingSurplus tangi

270、ble equityInvestment-grade credit,short-term high yield,cash and government debt securitiesFixed or floating0.00.00.041.780.181.930.821.070.270.26 Tier 1 capital-unrestricted Tier 1 capital-restricted Tier 2 capital Tier 3 capitalTotal share-holders equityGoodwill and intangible assetsChange in valu

271、ation of technical provisionsOther asset and liability adjustmentsForeseeablecapital distributionsTotal own fundsReconciliation of IFRS shareholders equity to Solvency II own funds(bn)33www.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsCFO review continuedAsset allocation and be

272、nchmarks UK Insurance LimitedThe current strategic benchmarks for U K Insurance Limited are detailed in the following table:Benchmark holding2022Actual holding2022Benchmark holding2021Actual holding2021Investment-grade credit166.0%49.5%66.0%65.7%High yield26.0%5.8%6.0%6.1%Investment-grade private pl

273、acements23.0%2.1%3.0%1.7%Credit75.0%57.4%75.0%73.5%Sovereign3.0%10.7%3.0%0.6%Total debt securities78.0%68.1%78.0%74.1%Infrastructure debt4.0%5.0%4.0%4.5%Commercial real estate loans6.5%4.2%6.5%3.6%Cash and cash equivalents6.0%16.9%6.0%12.1%Investment property5.5%5.8%5.5%5.7%Total investment holdings

274、100.0%100.0%100.0%100.0%Notes:1.Asset allocation at 31 December 2022 includes investment portfolio derivatives,which have a mark-to-market asset value of 1.6 million which is split as an asset of 2.5 million included in investment grade credit and a liability of 0.9 million included in sovereign deb

275、t (31 December 2021:mark-to-market asset value of 14.2 million and 0.1 million respectively).This excludes non-investment derivatives that have been used to hedge operational cash flows.2.In the 2021 report,benchmark and actual holding percentages for high-yield securities and investment grade priva

276、te placements were incorrectly reported as 3.0%and 1.7%for high-yield securities and 6.0%and 6.1%for investment-grade private placements respectively.The 2021 comparatives have been restated in the asset allocation and benchmarks table,above.At 31 December 2022,investment grade credit was below benc

277、hmark holding,following the tactical decision undertaken in H2 to de-risk the portfolio.Surplus funds as a result of this action have been held in cash and cash equivalents or three month sterling treasury bills.Investment holdings and yields20222021Allocation(m)Income(m)Yield(%)Allocation(m)Income(

278、m)Yield(%)Investment-grade credit12,360.059.11.9%3,721.170.91.9%High yield278.814.94.8%342.117.55.1%Investment-grade private placements98.22.72.9%91.22.42.5%Credit2,737.076.72.2%4,154.490.82.2%Sovereign1510.32.00.7%35.70.10.2%Total debt securities3,247.378.72.1%4,190.190.92.2%Infrastructure debt238.

279、27.93.2%250.84.41.7%Commercial real estate loans199.18.84.4%200.86.12.9%Other loans1.90.4%0.0%Cash and cash equivalents2938.414.01.5%896.50.10.0%Investment property278.515.65.3%317.014.54.8%Equity investments313.60.0%6.20.0%Total Group4,917.0125.02.3%5,861.4116.01.9%Notes:1.Asset allocation at 31 De

280、cember 2022 includes investment portfolio derivatives,which have a mark-to-market asset value of 1.6 million which is split as an asset of 2.5 million included in investment grade credit and a liability of 0.9 million included in sovereign debt (31 December 2021:mark-to-market asset value of 14.2 mi

281、llion and 0.1 million respectively).This excludes non-investment derivatives that have been used to hedge operational cash flows.2.Net of bank overdrafts:includes cash at bank and in hand and money market funds.3.Equity investments consist of quoted shares and insurtech-focused equity funds.The insu

282、rtech-focused equity funds are valued based on external valuation reports received from a third-party fund manager.34Direct Line Group Annual Report and Accounts 2022At 31December 2022,total investment holdings of 4,917.0 million were 16.1%lower than at the start of the year,reflecting adverse fair

283、value movements in fixed rate debt securities,payment of the interim dividend,repayment of subordinated debt and share buy-back activity.Total debt securities were 3,247.3 million(31December 2021:4,190.1 million),of which 3.8%were rated as AAA and a further 59.0%were rated as AA or A.The average dur

284、ation at 31December 2022 of total debt securities was 2.3 years(31December 2021:2.5 years).At 31December 2022,total unrealised losses,net of tax,on AFS investments were 194.7 million(31December 2021:9.0 million unrealised gains)as a result of higher credit spreads and increased interest rates.Net as

285、set valueAt 31 DecemberNote2022m2021mNet assets1161,934.02,550.2Goodwill and other intangible assets16(822.2)(822.5)Tangible net assets161,111.81,727.7Closing number of Ordinary Shares(millions)161,298.21,317.3Net asset value per share(pence)16149.0193.6Tangible net asset value per share(pence)1685.

286、6131.2Note:1.See glossary on pages 251 to 253 for definitions and appendix A Alternative performance measures on pages 254 to 257 for reconciliation to financial statement line items.Net assets at 31December 2022 decreased by 616.2 million to 1,934.0 million(31December 2021:2,550.2 million)andtangib

287、le net assets decreased to 1,111.8 million(31December 2021:1,727.7 million)following adverse movements in the Groups AFS reserves and the reduction in profit for the year.LeverageThe Groups financial leverage decreased by 1.4 percentage points to 23.8%(2021:25.2%).The decrease was primarily due to a

288、 reduction in subordinated debt following the redemption of the Groups 250 million 9.25%Tier 2 notes on 27 April 2022,partially offset by a reduction in shareholders equity,primarily due to dividends paid in the year and the share buyback,along with a reduction in the Groups AFS reserves.At 31 Decem

289、ber2022m2021mShareholders equity1,934.02,550.2Tier 1 notes346.5346.5Financial debt subordinated debt258.6513.6Total capital employed2,539.13,410.3Financial-leverage ratio123.8%25.2%Note:1.Total IFRS financial debt and Tier 1 notes as a percentage of total IFRS capital employed.Credit ratingsMoodys I

290、nvestors Service provides insurance financial-strength ratings for U K Insurance Limited,our principal underwriter.Moodys rate U K Insurance Limited as A1 for insurance financial strength(strong)with a negative outlook.ReservingWe make provision for the full cost of outstanding claims from the gener

291、al insurance business at the balance sheet date,including claims estimated to have been incurred but not yet reported at that date and associated claims handling costs.We consider the class of business,the length of time to notify a claim,the validity of the claim against a policy,and the claim valu

292、e.Claims reserves could settle across a range of outcomes,and settlement certainty increases over time.However,for bodily injury claims the uncertainty is greater due to the length of time taken to settle these claims.The possibility of annuity payments for injured parties also increases this uncert

293、ainty.We seek to adopt a prudent approach to assessing liabilities,as evidenced by the favourable development of historical claims reserves.Reserves are based on managements best estimate,which includes a prudence margin that exceeds the internal actuarial best estimate.This margin is set by referen

294、ce to various actuarial scenario assessments and reserve distribution percentiles.It also considers other short-and long-term risks not reflected in the actuarial inputs,as well as managements view on the uncertainties in relation to the actuarial best estimate.The most common method of settling bod

295、ily injury claims is by a lump sum.When this includes an element of indemnity for recurring costs,such as loss of earnings or ongoing medical care,the settlement calculations apply the statutory discount rate(known as the Ogden discount rate)to reflect the fact that payment is made on a one-off basi

296、s rather than periodically over time.The current Ogden discount rate is minus 0.25%for England and Wales,minus 0.75%in Scotland,and minus 1.5%in Northern Ireland.35www.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsCFO review continuedWe reserve our large bodily injury claims at

297、the relevant discount rate for each jurisdiction,with the overwhelming majority now case reserved at minus 0.25%as most will be settled under the law of England and Wales.The Ogden discount rate will be reviewed again at the latest in 2024.There has been an ongoing reduction in large bodily injury e

298、xposures as a result of continued positive prior-year development of claims reserves,and a higher proportion of reserves being covered by reinsurance for the 2014 to 2020 underwriting years.Since 2021,we have reduced the level of Motor reinsurance purchased,resulting in higher net reserves for accid

299、ent years 2021 and 2022.The 2023 Motor excess of loss(“XoL”)reinsurance contract is in line with the 2022 Motor treaty,resulting in a similarly higher net retention for accident year 2023.If the claimant prefers,large bodily injury claims can be settled using a PPO.This is an alternative way to prov

300、ide an indemnity for recurring costs,making regular payments,usually for the rest of the claimants life.These claims are reserved for using an internal discount rate,which is progressively unwound over time.As it is likely to take time to establish whether a claimant will prefer a PPO or a lump sum,

301、until a settlement method is agreed we make assumptions about the likelihood that claimants will opt for a PPO.This is known as the PPO propensity.In 2022,the Group reviewed the estimates used to discount PPOs.Given the significant changes both in the current economic environment and the longer term

302、 outlook,the Group changed from flat rate inflation and discounting assumption to a yield curve approach,allowing for an increase in short-term inflation and higher long-term real returns.This resulted overall in the application of a real discount rate of 0.9%(2021:0.0%),the combination of cash flow

303、 weighted inflation and discounting of 4.2%and 5.1%respectively,the latter driven by an expected increase in the long-term yield of the assets backing PPO liabilities.Higher claims inflation remains a risk,given the continuing high level of consumer prices and wage inflation.In 2022,consumer prices

304、inflation was at its highest level for the past decade and is not expected to normalise until 2024.Pressure is likely to remain strong on wages,with potential implications for the cost of care.Global supply chain issues remain problematic,resulting in a risk of price increases for products and compo

305、nents in short supply.A range of general and specific scenarios for excess inflation have been considered in the reserving process.Prior-year reserve releases were 163.2 million(2021:258.1 million)concentrated towards more recent accident years,with good experience across all categories.Looking forw

306、ard,the management best estimate will be replaced under IFRS 17 by the best estimate of liabilities(“BEL”)and a risk adjustment.The BEL will be on a discounted basis and include an allowance for events not in data(“ENIDs”).The risk adjustment will be set around the 75th percentile.1,546.3 Motor409.2

307、 Home 55.2 Rescue and other personal lines567.5 Commercial30.0 Run-off partnerships1Claims reserves net of reinsurance 2022(m)2,608.2m1,607.9 Motor297.8 Home 53.5 Rescue and other personal lines547.3 Commercial41.9 Run-off partnerships1Claims reserves net of reinsurance 2021(m)2,548.4mNote:1.See glo

308、ssary on pages 251 to 253 for definitions and appendix A Alternative performance measures on pages 254 to 257 for reconciliation to financial statement line items.36Direct Line Group Annual Report and Accounts 2022ReinsuranceThe objectives of the Groups reinsurance strategy are to reduce the volatil

309、ity of earnings,facilitate effective capital management,and transfer risk outside the Groups risk appetite.This is achieved by transferring risk exposure through various reinsurance programmes:Catastrophe reinsurance to protect against an accumulation of claims arising from a natural perils event.Th

310、e retained deductible is 150 million and cover is placed annually on 1 July up to a modelled 1-in-200 year loss event of 1,350 million.Motor reinsurance to protect against a single large claim or an accumulation of large claims which renews on 1 January.The retained deductible is set at an indexed l

311、evel of 5 million per claim up to a level of 10m and the protection above 10m is subject to an additional aggregate retention of 37.50m.This programme was renewed on 1 January 2023.Commercial property risk reinsurance to protect against large individual claims with a retained deductible of 4.0 milli

312、on.The contract is subject to an aggregate deductible of 2.0 million and renews annually on 1 July.Whole account quota share reinsurance with a 10%cession,ceded on a funds-withheld basis entered into from 1 January 2023.Sensitivity analysis the discount rate used in relation to PPOs,changes in the a

313、ssumed Ogden discount rate and claims inflationThe table below provides a sensitivity analysis of the potential net impact of a change in a single factor(the internal discount rate used for PPOs,the Ogden discount rate or claims inflation)with all other assumptions left unchanged.Other potential ris

314、ks beyond the ones described could have additional financial impacts.Increase/(decrease)in profit before tax1,2At 31 December2022m2021mPPOs3 Impact of an increase in the discount rate used in the calculation of present values of 100 basis points31.043.0Impact of a decrease in the discount rate used

315、in the calculation of present values of 100 basis points(42.8)(58.9)Ogden discount rate4Impact of the Group reserving at a discount rate of 0.75%compared to minus 0.25%(2021:0.75%compared to minus 0.25%)46.742.5Impact of the Group reserving at a discount rate of minus 1.25%compared to minus 0.25%(20

316、21:minus 1.25%compared to minus 0.25%)(64.2)(59.4)Claims inflation5Impact of a decrease in claims inflation by 200 basis points for two consecutive years79.474.3Impact of an increase in claims inflation by 200 basis points for two consecutive years(80.5)(75.5)Notes:1.These sensitivities are net of r

317、einsurance and exclude the impact of taxation.2.These sensitivities reflect one-off impacts at the balance sheet date and should not be interpreted as predictions.3.The sensitivities relating to an increase or decrease in the real discount rate used for PPOs illustrate a movement in the time value o

318、f money from the assumed level of 0.9%for reserving.The PPO sensitivity has been calculated on the direct impact of the change in the real internal discount rate with all other factors remaining unchanged.4.Ogden discount rate sensitivity has been calculated on the direct impact of a permanent chang

319、e in the discount rate in England and Wales with all other factors remaining unchanged.The Group will consider the statutory discount rate when setting the reserves but not necessarily provide on this basis.This is intended to ensure that reserves are appropriate for current and potential future dev

320、elopments.5.We have updated this sensitivity,across 2021 and 2022,to a 200 basis point increase/decrease in inflation in acknowledgment of the current uncertain economic environment.The PPO sensitivity above is calculated on the basis of a change in the internal discount rate used for the actuarial

321、best estimate reserves as at 31 December 2022.It does not take into account any second order impacts such as changes in PPO propensity or reinsurance bad debt assumptions.37www.directlinegroup.co.ukStrategic reportGovernanceFinancial statementsCFO review continuedTax managementThe Board recognises t

322、hat the Group has an important responsibility to manage its tax position effectively.The Board has delegated day-to-day management of taxes to the Chief Financial Officer and oversight is provided by the Audit Committee.These arrangements are intended to ensure that the Group:complies with applicabl

323、e laws and regulations;meets its obligations as a contributor and a collector of taxes on behalf of the tax authorities;and manages its tax affairs efficiently,claiming reliefs and other incentives where appropriate.Tax authoritiesThe Group has open and co-operative relationships with the tax author

324、ities with whom it deals in the countries where the Group operates,namely the UK,the Republic of Ireland,South Africa and India.Tax policy and governanceThe Groups tax policy has been reviewed and approved by the Audit Committee.The Group Tax function supports the Chief Financial Officer in ensuring

325、 the policy is adhered to at an operational level.For more information please see our published Group Tax policy on the Groups website at:www.directlinegroup.co.uk/en/sustainability/reports-policies-and-statements.htmlTotal tax contributionThe Groups direct and indirect tax contribution to the UK Ex

326、chequer is significantly higher than the UK corporation tax that the Group would ordinarily pay on its profits.The Group collects taxes relating to employees and customers on behalf of the UK Exchequer and other national governments.It also incurs a significant amount of irrecoverable value added ta

327、x relating to overheads and claims.Taxes borne and collected in other tax jurisdictions have not been included in this note as the amounts are minimal in the context of the wider UK Group.38Direct Line Group Annual Report and Accounts 2022During 2022 the sum of taxes either paid or collected across

328、the Group was 803.9 million.The composition of this between the various taxes borne and collected by the Group is shown below.Total taxes borneAt 31 December2022mCurrent-year Corporation Tax credit(9.8)Irrecoverable Value Added Tax incurred on overheads79.9Irrecoverable Value Added Tax embedded with

329、in claims spend176.5Employers National Insurance contributions44.8Other taxes5.9Total297.3Total taxes collectedAt 31 December2022mInsurance Premium Tax389.4Value Added Tax14.8Employees Pay As You Earn and National Insurance contributions102.4Total506.6Total taxes borne by tax type(m)297.3mTotal taxe

330、s collected by tax type(m)506.6m5.944.8256.4-50050100150200250300350Corporation tax Other taxesEmployers NICIrrecoverable VAT-9.80100200300400500600389.414.8102.4Employees PAYE and NICVATInsurance premium taxNeil ManserChief Financial Officer39www.directlinegroup.co.ukStrategic reportGovernanceFinan

331、cial statementsMotor:performance summaryOwn brand in-force policies reduced by 2.9%,with an overall reduction in in-force policies of 3.4%to 3.8 million.Own brand gross written premium reduced by 7.7%,overall gross written premium reduced by 8.2%.Operating loss of 77.2 million,reflecting heightened

332、claims inflation,an increase in claims frequency,and lower prior-year reserve releases.56.0%Direct41.7%Price comparison websites 2.3%PartnershipsGross written premium by channelOperating reviewMotor40Direct Line Group Annual Report and Accounts 2022In H2 2023,we welcome our new partnership with Mota

333、bility Operations,which is expected to provide around 500 million of gross written premium per annum from 2024,of which 80%is reinsured.UnderwritingClaims inflation accelerated over the course of the year.Entering 2022,we expected claims severity inflation would track slightly above our medium-term 3%to 5%expectation.Supply chain disruption,partly in response to the war in Ukraine and resource con