Direct Line Insurance Group PLC (DLG) 2013年年度報告「LSE」.pdf

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1、Annual Report&Accounts 2013BuildingsustainableperformanceDirect Line Group(the“Group”)is Britains leading personal lines motor and home insurer1,with motor insurance operations in Italy and Germany.We operate a multi-brand,multi-product and multi-distribution channel business that covers the majorit

2、y of customer segments in the UK for personal lines general insurance and small-and medium-sized enterprise commercial insurance.Our brands offer the following products:motor,home,rescue,pet,travel and commercial.Churchill,whose mascot has become a household name,markets its products in the UK throu

3、gh the phone and internet,including PCWs.We target customers who have a high brand affinity and value the need for Direct Line has maintained the heritage of its brand in the UK by selling products directly to its customers through the phone and internet only.We target customers who have a high bran

4、d affinity,with a focus on a quick and straightforward customer Direct Line for Business,an extension of the Direct Line brand,is our direct commercial insurance brand for micro and small-sized businesses in the UK that have straightforward commercial insurance requirements.www.directlineforbusiness

5、.co.ukDirect Line in Italy and Germany distributes to customers through the phone and internet,including price comparison websites(“PCWs”).The brand is known for its excellent customer service and value.www.directline.it/www.directline.dePrivilege targets customers who predominantly buy through PCWs

6、,focusing on a quick customer experience at the best Green Flag is our roadside rescue and recovery product,which is sold both as a stand-alone service and as an additional optional product alongside motor NIG is our specialist commercial insurance brand focused towards small-and medium-sized enterp

7、rises(“SMEs”)and micro businesses in the UK through brokers,including an in-house intermediary that arranges all of Royal Bank of Scotland (“RBS”)and National Westminster Bank plc(“NatWest”)commercial Brand Partners is the business-to-business arm of the Group,specialising in providing personal line

8、s insurance and roadside rescue and recovery products to some of the UKs biggest brands.www.brand-partners.co.ukOur brandsFor more information visit us online at:Note:1.Ranked number one by total in-force policies in the motor and home markets combined,including Direct Line Group partner brands:RBS,

9、NatWest,Nationwide,Prudential,Egg GfK NOP Ltd 2014,Financial Research Survey(FRS)6 months ending December 2013,13,263 adults interviewed for motor insurance and 13,107 for home insurance.Strategic report2 Group highlights4 Group at a glance6 Business model14 Chairmans statement16 Chief Executive Off

10、icers review18 Our strategy20 Key performance indicators22 Risk management28 Operating review34 Finance review44 Corporate social responsibilityGovernance50 Chairmans introduction52 Board of Directors54 Executive Committee56 Corporate governance report65 Committee reports76 Directors remuneration re

11、port100 Directors reportFinancial statements104 Contents105 Independent auditors report108 Consolidated financial statements113 Notes to the consolidated financial statements168 Parent Company financial statements171 Notes to the Parent Company financial statements Other information175 Additional in

12、formation177 Glossary179 Forward-looking statements disclaimer180 Contact informationThis has been a year of progress towards our strategic targets.We introduced new customer initiatives,including telematics;enhanced our technical pricing capability;continued the transformation of our claims capabil

13、ity;and increased our operating efficiency.Our strong customer focus remains integral:we aspire to provide our customers with products that best suit their evolving needs and encourage them to expect a high quality of service throughout their relationship with us.For more on our strategy see p.18 Bu

14、ilding sustainable performanceDirect Line Group Annual Report&Accounts 20131Strategic reportStrategic reportGovernanceFinancial statementsGovernanceOur strategic progressGroup highlightsIn our first full year as a listed company,we continued to make good progress in our financial performance and adv

15、ance our transformation plan.Highlights Operating profit from ongoing operations1 of 526.5 million for 2013,up 14.2%(2012:461.2 million);and total Group profit before tax of 423.9 million(2012:249.1 million)Investment in improved customer-focused capabilities and propositions,launch of two telematic

16、s products and start of roll-out of smartphone and tablet optimised websites Extended efficiency programme particularly in head office functions and announced additional cost savings,targeting a reduced total cost base2 of approximately 1,000 million in 2014 Completed claims transformation for Motor

17、 and Home,extended ClaimCenter to Commercial Motor and Italy and laid the foundations for DLG Legal Services Limited Continued to develop Commercial and International,in particular full roll-out of eTrading and strong growth in Germany Combined operating ratio for ongoing operations1 of 96.1%for 201

18、3,an improvement of 3.1 percentage points against 2012(99.2%),and ahead of the target 98%for 2013 Combined operating ratio for ongoing operations1 in 2013 included higher than expected contribution from prior-year reserve releases of 12.4 percentage points(435.1 million)compared to 8.7 percentage po

19、ints in 2012(322.0 million)Return on tangible equity3 from ongoing operations of 16.0%for 2013(2012:11.5%and pro forma4 13.4%)5.0%increase in final dividend per share to 8.4 pence per share and second special interim dividend of 4.0 pence per share taking total dividends for 2013 to 20.6 pence per s

20、hare Strong capital position maintained with risk-based capital coverage of 148.7%post final and second special interim dividends,towards the upper end of the target range of 125%to 150%Financial highlights 13.4%pro forma in 2012416.011.510.0Return on tangible equity3(%)1 6.0%111213(KPI)423.9249.134

21、2.9Profit before tax(m)423.9m 111213Notes:1.Ongoing operations include the Groups ongoing divisions:Motor,Home,Rescue and other personal lines,Commercial and International.It excludes the Run-off segment,restructuring and other one-off costs and gain on disposal of subsidiary.2.Operating expenses an

22、d claims handling expenses from ongoing operations.It excludes the Run-off segment and restructuring and other one-off costs.3.Return on tangible equity(“RoTE”)is adjusted profit after tax from ongoing operations divided by the Groups average tangible shareholders equity.Profit after tax is adjusted

23、 to exclude the Run-off segment,restructuring and other one-off costs and gain on disposal of subsidiary and is stated after charging tax(using the UK standard tax rate of 23.25%;2012:24.5%).4.Pro forma RoTE is based on the return on tangible equity,but assumes that the capital actions taken by the

24、Group prior to the initial public offering (1 billion dividend payment and 500 million long-term subordinated debt issue)occurred on 1 January 2012.Direct Line Group Annual Report&Accounts 20132For information on our financial performance see p.34For information on performance rewards see our remune

25、ration report on p.763,8273,9914,125Gross written premium1(m)3,827m11121396.199.2101.8Combined operating ratio1(%)96.1%1112133.1 ppts improvement(KPI)526.5461.2421.9Operating profit1(m)526.5m1112138.012.68.0Dividend per share5(pence)20.6p1213 12.0 pence pro forma full year dividend for 2012(KPI)25.0

26、21.820.5Adjusted earnings per share diluted6(pence)25.0p111213(KPI)20.912.316.6Earnings per share basic(pence)20.9p1112135.For 2013,total special interim dividends of 8.0 pence per share were paid.For 2012,pro forma full year dividend is based on the final dividend of 8.0 pence per share representin

27、g two-thirds of the full year payout ratio.6.Adjusted earnings per share diluted,excludes the Run-off segment,restructuring and other one-off costs and gain on disposal of subsidiary (using UK standard tax rate of 23.25%;2012:24.5%).Direct Line Group Annual Report&Accounts 20133Strategic reportPerso

28、nal linesMotorWe are Britains leading personal motor insurer,with a 14%share of in-force policies2.Mainly represented through our highly recognised brands,Direct Line,Churchill and Privilege,we insure one in seven cars on the road,representing 3.8 million in-force policies.We also provide motor insu

29、rance for customers through partners such as Sainsburys Bank.Read more on p.29HomeWe are one of Britains largest home insurers,with a 17%share of in-force policies2.We reach our customers by selling home insurance products both through our own brands and through partners such as Sainsburys Bank,RBS,

30、NatWest,Nationwide Building Society and Prudential.Read more on p.30Gross written premium1,421.1mIn-force policies(thousands)3,762Combined operating ratio93.2%Operating profit347.7mGross written premium943.1mIn-force policies(thousands)3,719Combined operating ratio93.8%Operating profit106.2mProtecti

31、ng customersGroup at a glanceWe have multiple brands,products and distribution channels that enable customers to choose the right level of cover to protect their cars,homes,holidays,businesses and pets.Our business divisionsWe tailor our products to target specific market segments.Notes:1.See note 1

32、 on page 22.Ranked by total in-force policies in the motor and home markets,including partner brands:RBS,NatWest,Nationwide,Prudential and Egg GfK NOP Financial Research Survey(FRS)6 months ending October 2013,15,260 adults interviewed for motor insurance and 15,922 for home insurance.3.Mintel Vehic

33、le Recovery UK,September 2013 report4.Mintel estimate,based on 2012 data.Mintel Pet Insurance UK,September 2013 report5.Mintel estimate,based on 2012 data.Mintel Travel Insurance UK,February 2013 report6.insurance Europe,European Insurance in Figures February 2014 report,Motor gross written premiums

34、 2012Contribution to operating profit1(m)Motor 347.7l Home 106.2 Rescue and other personal lines 46.5l Commercial 9.5l International 16.6Multi-brandMillions of consumers recognise many of our brands.For almost 30 years,we have sought to make it easier for our customers to obtain good value insurance

35、 cover.Direct Line Group Annual Report&Accounts 20134CommercialInternationalRescue and other personal linesWe are one of the leading providers of rescue and other personal lines insurance in the UK,with 8.8 million in-force policies.This includes providing roadside assistance and recovery for custom

36、ers through Green Flag,the UKs third largest roadside recovery provider3.We also offer customers protection for their pets and holidays with 11%4 and 14%5 shares of gross written premium respectively.Read more on p.31We protect micro,small and medium-sized businesses,through our own brands NIG and D

37、irect Line for Business,as well as through RBS and NatWest.Read more on p.32We have operations in Italy and Germany,two of the three largest motor insurance markets in Europe6,providing private motor insurance for customers through our Direct Line brand,and have around 1.6 million in-force policies.

38、Read more on p.33Gross written premium383.4mIn-force policies(thousands)8,801Combined operating ratio92.4%Operating profit46.5mGross written premium47 4.5mIn-force policies(thousands)583Combined operating ratio106.8%Operating profit9.5mGross written premium604.5mIn-force policies(thousands)1,610Comb

39、ined operating ratio103.9%Operating profit16.6mFor information on our divisional performance see our operating review see p.28Direct Line Group Annual Report&Accounts 20135Strategic reportGenerating value and sustainable returnsBusiness modelOur shareholdersOur customersOur peopleSettling claims+=Ex

40、pensesCapitalManaging financesPremiumsClaimsInvestment and other incomeReinvest in the businessManaging riskProfitDividendsProduct distributionPricing and underwritingWe use a multi-brand,multi-product and multi-distribution channel business model,aiming for each of our brands to offer a specific pr

41、oposition to a distinct customer segment.We believe that this approach,when combined effectively with our significant scale,should help us achieve high performance in distribution,pricing,claims and cost.In turn,this enables us to aim to generate value for customers and sustainable returns for our s

42、hareholders.Our customersOur business model starts with our customers,whom we aim to keep at the core of what we do.We aspire to give them the products that best suit their needs and encourage them to expect a high quality of service throughout their relationship with us.We also strive to be a busin

43、ess that can adapt to their changing needs.We treat each phase of the customer journey as an opportunity to provide an excellent service and outcome from the moment customers select our products,through to the time they make a claim or need to resolve an unexpected event.Our peopleEveryone from fron

44、t-line staff,who interact directly with our customers,to our people in support and central functions,who run the processes that support our products and services plays a part in ensuring we are meeting customers needs.Without our people,we could not generate value for our customers and sustainable r

45、eturns for our shareholders.Our shareholdersOur shareholders form a crucial part of our business model by investing in us,in the expectation of achieving a return.We aim to deliver value for our shareholders by sustaining the generation of business profit,which is reinvested in the business or distr

46、ibuted to shareholders in the form of dividends.Generating value for our customers through our peopleDirect Line Group Annual Report&Accounts 20136For information on key performance indicators that measure the effectiveness of our business model see p.20For information on our risk management see p.2

47、2Our focused processesOur disciplined approachProduct distributionWe aim to make our products easy to access and to give our customers what they are looking for,to ensure they are appropriately covered when unexpected events happen.We apply a multi-brand,multi-product and multi-distribution channel

48、business model to sell to retail customers and businesses.Products can be purchased online,including via PCWs,by phone and indirectly through partners and in our Commercial business,via brokers.Each brand provides products targeted at one or more insurance segment:motor,home,rescue,pet,travel and co

49、mmercial.By tailoring the mix of distribution channel for each product,we can offer our customers a combination of brands,products and services that best suits their needs.Pricing and underwritingThe scale of our business,which has been operating for almost 30 years,gives us deep insight into the ri

50、sks we underwrite,which enables us to improve pricing accuracy.It also allows us to invest more heavily in data and achieve efficiencies,which means we can more accurately set the appropriate price for the risks we underwrite.Settling claimsIf the time comes to make a claim,it is at that point that

51、customers see the value of their policy.Through active engagement with our customers,we aim to settle their claim as quickly and as easily as possible.Doing this the right way helps us to demonstrate the value of the products and services we provide and manage our claims costs.Managing financesWe se

52、ek to ensure that our business is well governed and controlled.We aim to manage our finances carefully by spending money on items that add the most value to our customers,balancing this with the need to generate a suitable and sustainable return to our shareholders.We hold assets in excess of our ex

53、pected liabilities in the form of capital,which is designed to absorb unexpected losses that might occur,as well as to meet regulatory capital requirements.We have a conservative approach to reserving and this may result in significant prior-year reserve releases.Managing riskWe ensure that our prod

54、ucts meet regulatory standards and that customers understand what they are purchasing from us.We also aim to make sure we price our policies prudently and we invest our assets appropriately to minimise any potential losses.We mitigate risks by adopting policies and minimum standards that are regular

55、ly reviewed and updated to ensure that we are in line with the risk appetite set by the Board.Regular reviews by external experts supplement this internal control framework.Direct Line Group Annual Report&Accounts 20137Strategic reportNew offeringsBusiness model continuedPricing and underwritingOur

56、new customer offerings,such as our telematics black box and smartphone apps,are helping us to improve our pricing models.In June 2013,we moved from a test and learn phase to launching our telematics propositions on our own motor brands,Direct Line,Churchill and Privilege.This included our black box

57、solution for young drivers aged 17 to 25,and our downloadable app available to all ages.We are now selling approximately 400 telematics policies a week and have sold 12,000 to date.This represents a growing proportion of our new motor business and we believe telematics has an increasingly important

58、role to play in motor insurance,not just with young drivers but across the market.12,000live telematics devices to dateBenefits to young driversYoung drivers as a high-risk,high-premium group are expected to gain the greatest benefit from telematics.We are seeing that around one-in-five Direct Line

59、new policies taken out by under 25s over the phone have selected telematics.This also allows feedback to customers on their driving,which is anticipated to reduce the likelihood of accidents and improve safety on our roads.This is a really positive step and will help with our ongoing campaign to the

60、 UK Government to contribute to an improvement in young driver safety.Our extensive data and large customer base mean we,alongside specialist partners,are well positioned to capitalise on this growing market.To date,we have gathered 22 million miles of customer data,giving us a more accurate picture

61、 of our customers,how they use their cars,and what cover is suitable for them.Once we have analysed this data over a period of time,we will have the ability to price and underwrite more accurately.Have our black box fitted to your car or download the smartphone appSafe driving behaviour could save y

62、ou money on car insuranceView feedback on how youre driving213Direct Line Group Annual Report&Accounts 20138Direct Line Group Annual Report&Accounts 20139Strategic reportTimely updatesNotify us of your accident1Damage assessedCheck the progress of your car on the portalYour car is taken in by our ga

63、rage2Business model continuedSettling claims MotorOur claims transformation programme is improving the way we deal with customers,making it smoother and faster.Our ongoing roll-out of ClaimCenter has passed the milestone of registering 1 million customer claims,as well as bringing Commercial and Ita

64、lian motor claims onto the platform.All new customer motor and home claims for our Direct Line,Churchill and Privilege brands,as well as some of our partnership brands,are now handled through the system.Over 1,000,000claims on the new systemImproving our customers experienceWe identified that provid

65、ing timely updates during car repairs is a key challenge in our claims business and important to our customers.Therefore,to resolve this in our Motor business,our customers are now able to receive regular updates on when their car will be ready.This transparency should give them peace of mind and,on

66、ce active across our entire accident repair centre network,is expected to reduce call volumes and avoidable frustrations.Keys to your car returned345Direct Line Group Annual Report&Accounts 201310Direct Line Group Annual Report&Accounts 201311Strategic reportWeather responseBusiness model continuedS

67、ettling claims HomeOver the last year the UK experienced some of the worst wind and rain storms in a quarter of a century,leaving many homes damaged and without power.Before each storm hit,we put our severe weather plans into action,making sure there were extra staff on the phones and on the ground

68、to help our customers.On the day of greatest impact,we received more than double our normal customer call volumes.We also deployed our emergency response vehicle,CHARLIE,to the worst affected areas to help customers on the ground get on with the claims process.Supporting our customers on the groundW

69、e have been looking at how we can best use our people on the ground to support our customers when they make a home claim.To make access to us more convenient,we are introducing the use of smartphone technology to capture and send claim details while connected to a customer services adviser.The cost

70、of the repairs can then be priced using our home estimation tool,thereby getting the claim moving much faster.Contact us as soon as possible to make a claim3Before the storm hits,we ensure there are extra people available to help you on the phone and on the groundCHARLIE,our emergency response vehic

71、le,is sent to the worst affected areas2Property advisers attend your home and instantly send through list of damage1 Damage repaired and claim paidWhere the storm hit the UK in November 201354Direct Line Group Annual Report&Accounts 201312Direct Line Group Annual Report&Accounts 201313Strategic repo

72、rtChairmans statement“The Board is encouraged by the progress made on the Groups transformation plan and endorses managements actions to drive efficiency in the current competitive markets.“Over the longer term,the Board believes that a continued focus on our strategic priorities should generate sus

73、tainable value.”2013 represented another significant year for Direct Line Group.In the first full year of being listed on the London Stock Exchange,the Group achieved the 2013 combined operating ratio1(“COR”)and cost targets set at the time of the initial public offering(“IPO”)in October 2012.This r

74、esulted in a 16.0%RoTE from ongoing operations2,ahead of its long-term target.This has been achieved despite competitive market conditions and demonstrates the improved levels of performance the Groups transformation plan is delivering.Our shareholders have also seen a 15.3%increase in the share pri

75、ce to 249.6 pence per share in the year to 31 December 2013.In addition,we paid shareholders dividends totalling 16.2 pence per share during 2013.As at the date of this report(25 February 2014)the share price is 261.0 pence.Strategy updateDuring 2013,the Group has continued to focus on delivering th

76、e strategic plan established in 2010 to transform Direct Line Group into Britains best retail general insurer.We have made good progress in 2013 across each of our strategic priorities and have plans for further transformation in the future.Looking to 2014,we will continue to focus on delivering for

77、 our customers,in particular by using technology to enhance customer experience.More details of this and other strategic priorities can be found in the Chief Executive Officers review.We continue to target a RoTE from ongoing operations2 of 15%.In addition,we have set specific targets for 2014,being

78、 a total cost base3 of approximately 1,000 million and a COR in Commercial of less than 100%.Overall,we currently expect a COR for the Group of between 95%and 97%in 2014.These assume a normal level of claims from weather events and large losses.Dividend and capital managementThrough our progressive

79、dividend policy,we aim to increase the dividend annually in real terms.The Board is recommending a final dividend of 8.4 pence per share to shareholders.If approved,the full year regular dividend of 12.6 pence per share would represent a 5.0%growth on the pro forma full year dividend4 of 2012(12.0 p

80、ence per share)and is in line with this policy.Good progress towards targetsMike Biggs,ChairmanDirect Line Group Annual Report&Accounts 201314In addition,we paid a special interim dividend of 4.0 pence per share in December and we are now declaring a second special interim dividend of 4.0 pence per

81、share.Both these special interim dividends relate to items in 2013 that were not expected at the start of the year.First,the sale of our closed life insurance operation,Direct Line Life Insurance Company Limited(the“Life business”),and secondly,better than expected profit from the Run-off segment an

82、d the sale of Tracker.Due to the one-off nature of these items,the Board believes it is appropriate in this instance to return this capital to shareholders.The Board considers that the Group is currently strongly capitalised with a risk-based capital coverage ratio at the upper end of its risk-based

83、 capital coverage target range and an A rating with stable outlook from its credit rating agencies.In determining this position,the Board has considered a number of factors that may positively and negatively affect the Groups capital position over the next 12 months.The Board will continue to review

84、 this position as clarity improves on these factors and the Group makes further progress with its transformation plan.More details can be found on page 42.Relationship with RBS GroupOur ongoing relationship with RBS Group is principally set out in two key agreements,the Relationship and Transitional

85、 Services Agreements.The Relationship Agreement sets out that Direct Line Group is to carry on its business independently of RBS Group and entitles RBS Group to nominate a Director for appointment to the Board.The agreement will terminate once RBS Group holds less than 20%of Direct Line Insurance Gr

86、oup plc(the“Company”)shares.Under the Transitional Services Agreement,RBS Group will continue to provide IT and certain other services to Direct Line Group for a transitional period of up to 36 months following the IPO in October 2012.Subsequent to the IPO,RBS Group undertook two further placings in

87、 2013 of 551.6 million Ordinary Shares in the Company.These represented 36.8%of the total share capital and generated additional gross proceeds of 1,135.8 million for RBS Group.Following the placings,RBS Groups shareholding in the Company was 28.5%.Board changes and effectivenessFollowing RBS Groups

88、 reduction in its shareholding in the Company to below 50%,and in accordance with the terms of the Relationship Agreement,Mark Catton stepped down from the Board on 26 April 2013.On 1 October 2013,Bruce Van Saun stepped down from the Board to focus on other projects for RBS Group and Mark Catton was

89、 reappointed.May I take this opportunity to thank Bruce for the insights and value he brought to the Board during his time as a Director.I would also like to extend this gratitude more generally to all of our Non-Executive Directors for their dedication to the Group.The Board and its Committees unde

90、rtook formal evaluations of their performance in 2013.The Company engaged the services of an external facilitator,who met with me as Chairman to agree the structure,scope and content of the evaluations.The individual Directors were subject to a review of their effectiveness and I have met with each

91、Director to provide feedback on a one-to-one basis.Committee Chairs also received feedback on the performance of the Committees.SummaryI have been very impressed by the commitment of our employees whenever our customers need their support.In a challenging year,they have remained determined to help o

92、ur customers get back on their feet after an accident or an event in their lives.The Group is only as good as its people and everyone has contributed to this success,and I would like to thank employees and senior management for everything that has been achieved in 2013.Michael N Biggs,ChairmanFor in

93、formation on our corporate governance see p.50For information on our risk management see p.22Notes:1.See note 1 on page 22.See note 3 on page 23.See note 2 on page 24.See note 5 on page 3Direct Line Group Annual Report&Accounts 201315Strategic reportInvesting in our futureChief Executive Officers re

94、view“Our strategic progress and successful delivery of our targets is a direct result of the hard work demonstrated throughout the business.This has enabled us to deliver benefits to our customers and returns to our shareholders.”Overview of financial performanceI am pleased that in 2013 we continue

95、d to make good progress with our strategic priorities and financial targets,while maintaining our disciplined approach to underwriting in a highly competitive and deflationary marketplace in the UK.We delivered an operating profit from ongoing operations of 526.5 million,an increase of 14.2%compared

96、 to 2012(461.2 million);and total Group profit before tax of 423.9 million(2012:249.1 million).With a COR of 96.1%we achieved our COR target of 98%for 2013.This contributed to a RoTE of 16.0%,ahead of our long-term target of 15.0%.While our results were helped by higher reserve releases than expecte

97、d,the momentum of our transformation and self-help agenda continued to create benefits and opportunities.We took positive steps towards reducing costs across the business and improving our operating efficiency.Within other areas of our strategy,such as pricing and claims,we continued to deliver sust

98、ainable benefits for our customers and shareholders.Delivering value for our customersOur focus on improving our pricing capability and claims infrastructure has particularly helped us to reduce prices for UK motor customers.In addition,we have been exploring new ways in which we can innovate to ach

99、ieve better outcomes for customers.Direct Lines heritage is rooted in the revolution it unleashed by using the telephone to bypass the traditional high street insurance broker model and provide customers with more competitive products.That innovation gave way to the advent of PCWs,which emerged in r

100、esponse to the growing purchase of insurance via the internet.We are on the cusp of a new era,when growing customer use of new technologies prompts them to seek a different experience from their insurer,and where nimble providers can harness technology to offer both competitive products and more per

101、sonalised solutions.The strength of our data and brands,together with the operational and financial transformation of our platform,leaves us well placed to help draw the road map for this new age.For instance,we are piloting real-time online progress updates on car repairs,and we are offering telema

102、tics technology to give customers instant feedback on the quality of their driving,which can ultimately,if they drive well,improve road safety and save them money.We have also been working hard to reduce customer complaints across the Group and for the second half of 2013 our complaint volumes decre

103、ased by 19%compared to the same period in 2012.This is a key area of focus for us.To ensure we are tracking how well we are responding to our customers needs,we have introduced a new key performance indicator to measure the volume of customer complaints across the Group.We recognise that,while we ha

104、ve made improvements in how we interact with our customers,we have not met all of our aspirations to develop and differentiate our customer propositions and brands.We have much to do to meet the evolving needs of our customers,but we are rising to the challenge with determination and energy.Deliveri

105、ng for our peopleOur people continue to be the main driver behind delivering better outcomes for our customers.Although we have had to remove 3,200 roles since the start of our cost savings initiatives,to ensure our organisation can operate in the most cost-efficient manner,our consistent aim has be

106、en to treat colleagues with the utmost fairness and respect throughout redeployment or redundancy processes.As we continue to drive an agenda of operational and cultural change through the organisation,we remain committed to investing in our people,which in turn will help us to deliver the products

107、and services that our customers value.Paul Geddes,Chief Executive OfficerDirect Line Group Annual Report&Accounts 201316Developing stand-alone systemsEver since beginning our separation from RBS Group,we have made significant investments to design and started to build a stand-alone IT infrastructure

108、 capable of supporting a multi-brand,multi-product and multi-distribution channel business with 18 million in-force policies.Notwithstanding the complex operational risk associated with this task,we aim for the migration to have made substantial progress by the end of 2014.Alongside the construction

109、 of a stand-alone IT platform,we are continuing to develop our technological capabilities by investing in other systems designed to improve customer operations and business processes.The opening of our own,state-of-the-art data centres was a significant step forward in advancing our technology initi

110、atives in 2013.Regulatory environmentWe have continued to operate within a highly dynamic and evolving regulatory landscape,particularly in the UK motor insurance market where over the past two years a number of reviews and initiatives have been announced by the UK Government,the Ministry of Justice

111、(“MoJ”),the Financial Conduct Authority(“FCA”),and the Competition Commission(“CC”).The Group continues to engage proactively in new or emerging regulatory priorities.Good conduct is integral to the success of our business,which is why we decided to switch the sale of our motor legal protection prod

112、uct to opt in prior to the publication of regulatory guidance,and why we chose to lay the foundations for DLG Legal Services as an alternative business structure,which should help shield our existing customers from potentially excessive third-party solicitor fees.In December,the CC published the pro

113、visional findings of its ongoing investigation into the UK private motor insurance market.We continue to work with the CC,and have always said we welcome the investigation,if it results in a level playing field and the removal of market dysfunction,to the benefit of our customers and consumers more

114、broadly.Strategic priorities for 2014During 2014 we aim to progress further towards delivering the remainder of the strategic financial targets we have set ourselves.In particular,we aim to deliver our target of a total cost base1 of approximately 1 billion,as well as our Commercial business achievi

115、ng a COR2 of less than 100%.We will also continue to enhance our products and update our infrastructure to ensure we sharpen our customer experience,delivering what the customer has grown to expect,and doing so sustainably for all of our stakeholders,be they our customers,our people or our sharehold

116、ers.OutlookThe UK motor and home markets remain highly competitive.In this trading environment,we will continue to prioritise targeting appropriate margins,even if this is at the expense of premium or policy volumes.We continue to progress initiatives supporting our strategic priorities in order to

117、seek to improve our competitive position and performance in the longer term.For 2014,we aim to achieve a COR in the range of 95%to 97%for ongoing operations,assuming a normal level of claims from weather events.Assuming underlying claims trends continue,a significant contribution from prior-year res

118、erve releases is currently expected,albeit at a lower level than in 2013.I would like to thank our people for the continuous hard work and dedication that they have demonstrated throughout the year.This has enabled us to continue to deliver benefits to our customers,shareholders,and wider stakeholde

119、rs.Paul Geddes,Chief Executive Officer16.0%111213Return on tangible equity3(%)(KPI)16.011.510.0 13.4%pro forma in 2012496.1%111213Combined operating ratio5(%)(KPI)3.1 ppts improvement96.199.2101.8For more on our strategy see p.18For more on performance rewards see our remuneration report on p.76Note

120、s:1.See note 2 on page 22.This assumes a normal level of claims from weather-related events and large losses.3.See note 3 on page 24.See note 4 on page 25.See note 1 on page 2Direct Line Group Annual Report&Accounts 201317Strategic reportOur strategyDistributionWe aim to improve our distribution eff

121、iciency and effectiveness through a focus on digital capability and customer value.We seek to understand customers needs and provide them with products that meet their needs,offer good value and are straightforward to purchase.We employ a multi-distribution channel model and look to optimise the mix

122、 of these channels for each of our products and brands.This includes selling our products directly via the phone and internet,through the UKs four largest PCWs,and via selected partners.2013 progress:Reduced marketing spend,while differentiating product offerings Developed and launched two telematic

123、s propositions black box and smartphone app Invested in digital content platform and web tool analyticsPriorities for 2014:Complete the roll-out of our new smartphone and tablet optimised websites and leverage the new digital platform To continue to develop and differentiate the Direct Line customer

124、 proposition To evolve our telematics propositions based on customer feedback and performancePricingWe aim to leverage our substantial data and the investments we have made to provide leading technical and market pricing.By enhancing our pricing capabilities we can improve the assessment of the risk

125、s we are willing to accept and price these more accurately.Our customers benefit from this through more competitive prices.2013 progress:Launched updated technical pricing models in Motor with further granularity Used improved rating models to optimise exposure in higher premium segments Implemented

126、 enhanced renewal management capabilities in Motor and HomePriorities for 2014:30 major programmes due to be delivered in 2014 A number of specific pricing initiatives to enhance trading capability on PCWs Use telematics experience and data to support technical pricingDelivering our strategyWe conti

127、nue to transform our business to move towards our ambition to be Britains best retail general insurer.Our strategy is based on five key priorities.Financial targets 15%Return on tangible equity1 125%to 150%capital coverage consistent with credit rating in the A range2014 targets1,000m Approximate to

128、tal cost base2Less than 100%COR for Commercial division3Guidance95%to 97%COR for ongoing operations4,5 in 2014Notes:1.See note 3 on page 22.See note 2 on page 23.See note 2 on page 174.See note 1 on page 25.This assumes a normal level of claims from weather events.Direct Line Group Annual Report&Acc

129、ounts 201318CostsWe aim to improve efficiency throughout the business to reduce costs,enable faster decision making and improve customer propositions.We recognise the requirement to keep costs down,whatever the market conditions.We are also in the process of updating our IT infrastructure which shou

130、ld improve efficiency,offer us more flexibility and enable us to enhance our customers experience.2013 progress:Achieved cost reduction target set at the time of IPO and taken further steps to improve efficiency throughout the organisation,particularly in head office Built new data centres in conjun

131、ction with Capgemini Started roll-out of new voice and desktop tools to improve efficiency throughout the organisationPriorities for 2014:Make substantial progress on the migration of IT applications,reducing dependency on RBS Group systems Build a low-cost self-service digital infrastructure Reduce

132、 total cost base1 to approximately 1,000 millionClaimsWe aim to maintain top quartile performance by achieving efficient and effective claims management.We have fundamentally redesigned our claims operating model with simpler processes in fewer sites,giving our people more control and our customers

133、a better experience.By managing claims through our own professional loss adjusters and repairing cars through our own accident repair centres,we aim to give customers the benefit of our scale and strength.We continue to invest in our capabilities to provide customers with a service that is reliable

134、and straightforward,with improved transparency at each step of a claim.2013 progress:Completed claims transformation in Motor and Home with ClaimCenter roll-out and new operating model,including the use of social networking techniques to combat fraud Making full use of our claims fulfilment network

135、to offer improved customer propositions,for example car replacement service Laid the foundations for DLG Legal ServicesPriorities for 2014:Continue to improve customers experience by rolling out further claims initiatives,for example using smartphone technology Further enhance claims leakage and fra

136、ud identification Generate further efficiencyCommercial and InternationalWe focus our Commercial business on targeting the growing SME and micro segments,and are well positioned to benefit as these customers move towards direct and e-trading distribution channels.We have 10 years of experience in It

137、aly and Germany,two of Europes biggest motor insurance markets,and are now reaching scale.As the characteristics of our personal and commercial lines businesses increasingly come together,we aim to leverage our skills across the Group particularly in the areas of technical pricing,claims management,

138、telematics and flood mapping.2013 progress:Full cycle eTrading platform launched for Commercial Implemented ClaimCenter in Italy and for Commercial Motor Delivered efficiencies through consolidation of underwriting centres and separating trading activities Improved profitability in Italy with a lowe

139、r COR Significantly grew premiums in GermanyPriorities for 2014:Achieve target for COR of below 100%for Commercial division2 Embed and extract value from ClaimCenter and eTrade roll-out Develop van proposition,including telematics and Churchill brand Drive further efficiencies in International Imple

140、ment a new rating engine in Italy Maintain progress in Germany with over 9%growth in in-force policies in January 2014Notes:1.See note 2 on page 22.See note 2 on page 17Direct Line Group Annual Report&Accounts 201319Strategic reportKey performance indicatorsNotes:1.See note 1 on page 22.See note 2 o

141、n page 23.See note 6 on page 3Measuring our performanceWe have defined eight key performance indicators that allow us to monitor our performance against our strategic priorities.In turn,these are supported by further performance indicators monitored by management.96.1%111213Combined operating ratio1

142、(%)96.199.2101.83.1 ppts improvement 1,03 1.9m111213Total cost base2(m)1,031.91,136.81,134.02.1%111213Investment income yield(%)2.12.02.325.0p111213Adjusted earnings per share diluted3(pence)25.021.820.5DefinitionA measure of financial year underwriting profitability calculated by the sum of claims,

143、commissions and expenses divided by net earned premium for ongoing operations.This excludes instalment and other operating income and investment return.A COR of less than 100%indicates profitable underwriting.AimWe aim to make an underwriting profit,and in 2013 set and achieved a target of a 98%COR.

144、For 2014,we are providing guidance of a COR in the range of 95%to 97%for the Group.This assumes a normal level of claims from weather events.DefinitionThe cost of doing business,including paying our people,marketing,infrastructure and IT.This includes the costs we incur in handling claims,but exclud

145、es any commissions we pay to brokers or partners and restructuring and other one-off costs.AimWe aim to operate an efficient and effective organisation and are targeting our total cost base2 for 2014 to be approximately 1,000 million.DefinitionThe return generated by investing the assets we hold.The

146、se investments are held to pay out future claims and to support our capital base.It is calculated by dividing investment income(excluding net realised gains)by average investment assets under management(“AUM”).AimWe aim to maximise investment income subject to the risk appetite set by the Board.The

147、investment portfolio assets are currently invested in credit and sovereign debt securities,cash and property.DefinitionWe adjust earnings to exclude restructuring and other one-off costs,the result of our Run-off segment and other one-off items.These adjusted earnings,which reflect the ongoing opera

148、tions,are divided by the average number of shares in issue adjusted for dilutive potential Ordinary Shares.AimWe have not set a target for adjusted earnings per share given the cyclical nature of the insurance industry.Growing earnings per share is considered one indicator of a healthy business.Dire

149、ct Line Group Annual Report&Accounts 201320For more information on our financial performance see p.34For information on our performance rewards see our remuneration report on p.76Notes:1.See note 3 on page 22.See note 4 on page 23.See note 5 on page 34.Adjusted for final and second special interim d

150、ividends16.0%111213Return on tangible equity1(%)16.011.510.0 13.4%pro forma in 201228.012.68.0121320.6pDividend per share3(pence)12.0 pence pro forma full year dividend for 2012148.7%111213Risk-based capital coverage4(%)148.7145.4169.51112130.32%Complaints(%)0.320.370.43DefinitionThe return generate

151、d on the capital shareholders have in the business.This is calculated by dividing adjusted earnings by average tangible equity.AimWe have set a target to achieve a 15%RoTE.DefinitionThe amount of cash paid to shareholders out of the profit of the Group.The comparative amount shown excludes dividends

152、 paid prior to the IPO.AimWe have adopted a progressive dividend policy and aim to grow the dividend in real terms each year.In addition,we look to return excess capital to shareholders when appropriate.DefinitionA measure to show the level of capital held compared to the level that is required,taki

153、ng into account the risks faced by the business.AimWe target risk-based capital coverage of 125%to 150%which is consistent with our aim to maintain a rating in the A range from our credit rating agencies.DefinitionThe number of complaints received during the year as a proportion of the average numbe

154、r of in-force policies.AimThis measure indicates the level of customer service provided and over time we aim to improve this.Direct Line Group Annual Report&Accounts 201321Strategic reportManaging riskWe have a robust and integrated risk management framework.This framework sets out and enables the m

155、onitoring of the responsibilities and accountabilities for risk management and internal control for the whole business.Risk managementNotes:1.The 1st line of defence is provided by line managers who are responsible for ownership and management of the risks to the achievement of business objectives o

156、n a day-to-day basis.2.The 2nd line of defence is provided by specialist control functions,including Risk and Compliance,which are responsible for the provision of proportionate oversight of the business and related or emerging risks.3.Group Audit delivers the 3rd line of defence through the provisi

157、on of an independent view for the Board on the effectiveness of risk management.The Chief Risk Officer is a member of the Executive and reports to the Chief Executive Officer,with a right of access to the Board Risk Committee and the Audit Committee,assuring independence of the function.The Chief Ri

158、sk Officer chairs the Risk Management Committee,which reviews material policies for the effective management of risk across the Group.“Our risk and compliance strategy is designed to support our goal to become Britains best retail general insurer.”Jos Vazquez,Chief Risk OfficerOur risk governance st

159、ructureExecutiveBoardDirect Line Group BoardBoard Risk CommitteeChief Executive OfficerRisk Management Committee1st line of defenceRisk ownership3rd line of defence Independent assurance2nd line of defence Oversight,challenge and support of 1st lineAudit CommitteePersonal LinesCommercialInternationa

160、lClaimsChief Customer OfficeFinanceChief Information OfficeHuman ResourcesCommunications2nd line function:Risk and ComplianceFunctions with 1st and 2nd line responsibilities:LegalCompany Secretarial FinanceHuman ResourcesRisk management tools:High Level Controls and System of Governance documentERM

161、strategyERM frameworkDelegated authoritiesGroup policiesMinimum standardsRisk appetiteAdvice and guidanceAssurance and monitoringGroup AuditThe Board has responsibility for setting and monitoring adherence to the risk strategy,risk appetite and risk framework.The Board has established a risk managem

162、ent model that separates the businesss risk management responsibilities into three lines of defence as set out in the diagram below.Direct Line Group Annual Report&Accounts 201322Managing risk in line with Group strategyGroup strategy development is the responsibility of management and ultimately th

163、e Board.Our strategic planning process aims to ensure that we have developed a clear set of objectives and targets and have identified the action plans necessary to deliver them.These must be consistent with our overall objective of a 15%RoTE and be delivered in line with our risk appetite.For infor

164、mation on our strategy see page 18.Delivering a strategic plan will,by its very nature,result in taking risk.Management of this risk is therefore a key aspect of the strategic planning process and it is important that the link between strategy and its impact on capital is clear.We place Enterprise-w

165、ide Risk Management(“ERM”)at the very heart of our approach.We recognise that our long-term sustainability depends on having sufficient funds to meet our liabilities as they fall due.This protects our reputation and the integrity of our relationship with customers and other stakeholders.For informat

166、ion on our allocation of capital by risk type see page 42.Risk strategy and appetiteThe risk appetite statements are expressions of the level of risk we are prepared to accept to achieve our business objectives.In order to monitor whether we are within risk appetite,we have aligned the statements to

167、 key business metrics,such as volumes of business or levels of exposure.These metrics form key risk indicators,which are both qualitative and quantitative and forward and backward looking,and our risk profile is monitored regularly using these indicators to ensure we remain within appetite.We have a

168、n appetite for general insurance risk,with a focus on personal lines and commercial SME insurance in the UK and direct motor insurance in selected overseas countries.To support our primary activity of insurance,we have an appetite for appropriate non-insurance risks.Risk appetite should not be stati

169、c and we are committed to performing,as a minimum,an annual review of the risk appetite to ensure it remains suitable to support the Group.Such a review was undertaken in the second quarter of 2013 and resulted in Board approval of the risk appetite statements outlined in the table.We would also rev

170、iew risk appetite if the Groups strategy changed,ensuring risk management remains aligned to the Group strategy.The risk appetite statements are aligned with the Boards strategic risk objectives.Over the last 12 months,to help achieve these strategic risk objectives,we have:Strengthened financial ri

171、sk oversight by developing the risk management function through tailored recruitment Enhanced the ERM framework to reflect our operation as a stand-alone Group Realigned risk management and oversight responsibilities as part of the three lines of defence model Increased our focus on customer conduct

172、 risks in line with our Group objectives as well as with the objectives of the FCA.Our ERM frameworkStrategic risk objective Risk appetite statementMaintain capital adequacyMaintain sufficient economic capital consistent with the aim of achieving a stand-alone credit rating in the A range.Stable and

173、 efficient access to funding and liquidityMeet all cash outflow requirements,including those that arise following a 1 in 200 year insurance,market or credit risk event.Maintain stakeholder confidenceNo appetite for material risks leading to reputational damage,regulatory or legal censure,fines or pr

174、osecutions and other types of operational risk losses associated with the firms conduct and activities.ERM is the process of organising and controlling the activities of the whole Group so as to ensure the Group remains within risk appetite.To enable ERM we have developed a framework comprising a nu

175、mber of components which are fundamental to good risk management.These are set out in the graphic overleaf.A central component of the ERM framework is our policy framework,consisting of policies and minimum standards.These inform the business how it needs to conduct its activities so as to remain wi

176、thin risk appetite.The policies cover the key risks to which we are exposed.Policies are supported by minimum standards which set out the minimum level of risk management and other corporate and personal behaviours that must be complied with.Where appropriate,these minimum standards are in turn supp

177、orted by detailed guidance documents.We also employ a number of risk tools to manage and monitor our risks,the output of which is tested and reported upon both internally and externally.Direct Line Group Annual Report&Accounts 201323Strategic reportRisk management continuedOur ERM framework has been

178、 made stronger during 2013 as a result of:The linking of risk strategy and governance to our risk appetite and policy frameworks,documented in our High Level Controls and System of Governance document Improvements to our internal control environment self-certification process The development of our

179、Own Risk and Solvency Assessment(“ORSA”)which supports the achievement of our strategic objectives The introduction of a risk culture which helps our understanding and measurement of how well risk is embedded within the GroupThe ERM framework:enhanced by an effective risk and control cultureRisk cul

180、ture is about how the principles,processes and tools of the risk framework are applied in day-to-day behaviour.A good risk culture is one where risk management is a significant part of the way we work.Our Group values align to the risk culture and seek to promote proactive risk management.Our risk c

181、ulture focuses on the key areas of strategy,employees,promoting good governance,communication,systems and reporting.We believe that the ERM framework is made stronger by the promotion of a good risk culture across the Group.Solvency IIMaking use of Pillar I models,the PRA has developed the Individua

182、l Capital Adequacy Standards Plus(“ICAS+”)process to enable UK insurers to make use of capital models developed under Solvency II programmes.The ICAS+process will also enable firms to obtain feedback on their progress towards Solvency II.U K Insurance Limited has engaged with this ICAS+process and h

183、as used the new internal model for this purpose.This ICAS+submission included Pillar II elements which are currently in development.The Groups internal model produces Solvency II,Individual Capital Adequacy and economic capital requirements for the UK general insurance business.The Groups risk manag

184、ement system,including the automated risk management tool,is being embedded and the Solvency II data warehouse implementation is continuing to progress.The Group expects Solvency II to be in force on 1 January 2016 with the Internal Model Approval Process taking place in 2015.As a result,the risk ma

185、nagement team is developing a revised timeline for progress towards internal model approval and engaging with the PRA about the Groups self-assessment of its progress towards Solvency II.In addition,the requirement under Pillar III will result in additional reporting requirements both to the PRA and

186、 to external stakeholders.The Group continues to make progress to ensure all requirements will be met in line with developing best practice.Risk appetitePolicy frameworkReporting and management informationCapital modelIRISS,risk training and communicationRisk assessment including MRAIssues managemen

187、tControl environment certificationGroup strategyERM strategyCultureOur culture and ERM framework are mutually supportive.Our culture encompasses all risk management activity and helps embed risk management within our business.Our ERM strategy supports our Group strategy.Group strategy,ERM strategy,r

188、isk appetite and policy framework are approved by the Board.The ERM strategy is enabled using risk management tools such as risk appetite and the capital model.Underpinning these tools are IRISS,our specialist risk management software,comprehensive risk management training and communication.Notes:MR

189、A Material risk assessmentIRISS Internal Risk Intelligence Software System facilitates a robust and consistent approach to the way we capture risk information.Key elements of the risk management processDirect Line Group Annual Report&Accounts 201324Principal risks and uncertaintiesRisks are always p

190、resent in our business.The key role of the Risk function is to ensure that these risks have been identified and measured and are monitored and reported throughout the business on an ongoing basis.The Risk function also monitors changes in these risks over time.We believe that these risks are broadly

191、 unchanged over the last 12 months.Principal risksManagement and mitigation examplesStrategic riskThe external environment could put at risk our ability to meet our strategic objectives through the five key strategic priorities of distribution,pricing,claims,costs and Commercial and International.We

192、 have agreed strategic targets which are monitored and managed Risk assessment of projects designed to enhance pricing and claims capability Our multi-channel approach provides diversification,which mitigates this risk Monitoring of cost savings to ensure they remain on track The Chief Executive Off

193、icer owns and manages this riskInsurance risk:underwriting and pricing We are subject to the risk that inappropriate business could be written(or not specifically excluded)and inappropriate prices charged.Underwriting risk includes catastrophe risk arising from losses due to unpredictable natural an

194、d man-made events affecting multiple covered risks,particularly given the concentration of our Home business in the UK.We have set underwriting guidelines for all business transacted,restricting the types and classes of business that may be accepted Pricing is refined through analysis of comprehensi

195、ve data Catastrophe reinsurance is purchased,limiting our exposure to large losses.We also purchase excess of loss cover on our Motor portfolio,as well as other selected reinsurance covers We invest in enhanced external data to mitigate exposures,for example flood and individual underwriting risk th

196、rough Geospatial The Managing Directors of each division own and manage this riskInsurance risk:reserving Due to the uncertain nature and timing of the risks to which we are exposed,we cannot precisely determine the amounts that we will ultimately pay to meet the liabilities covered by the insurance

197、 policies written.Reserving risk is our biggest risk,generated by our large Motor portfolio.Reserving risk is heightened in the case of periodic payment orders(“PPOs”)because of their long-term nature and is discussed further in the finance review on page 39 and in notes 2.1 and 3 to the consolidate

198、d financial statements on pages 120 and 123 respectively.Reserving generates both upside and downside risk,with the potential for outcomes to be in our favour,generating reserve releases.We estimate the technical reserves using a range of actuarial and statistical techniques.Projections of ultimate

199、claims cost involve assumptions across a range of variables,including estimates of trends in claims frequency and average claim amounts.These are based on facts and circumstances at a given point in time We ensure that managements best estimate of reserves is not less than the actuarial best estimat

200、e The Chief Financial Officer owns and manages this riskCounterparty riskWe partner with many suppliers and the failure of any of these to perform their financial obligations in a timely manner could result in a financial loss.Our principal area of counterparty risk is our use of reinsurance against

201、 underwriting risk,sometimes called reinsurance risk or reinsurer default risk.We set credit limits for each counterparty Our reinsurance is purchased only from reinsurers that hold a minimum credit rating of A-at the time cover is purchased The business actively monitors broker credit exposures The

202、 Chief Financial Officer owns and manages this riskMarket riskWe are subject to the risk that,as a result of market movements,we may be exposed to fluctuations in the value of our assets or the income from our assets.For the Group this includes:interest rate risk,spread risk,currency risk and proper

203、ty risk.We manage and control our investment portfolio through:Investment strategy and guidelines proposed to the Board by the Investment Committee and monitored by the Asset and Liability Committee Diversity in the types of assets held,including by geography,sector and credit rating We use risk red

204、uction techniques such as hedging foreign currency exposures with forwards and hedging foreign interest rates with swaps The Chief Financial Officer owns and manages this riskDirect Line Group Annual Report&Accounts 201325Strategic reportRisk management continuedPrincipal risksManagement and mitigat

205、ion examplesOperational riskWe potentially face the risks of direct or indirect losses resulting from inadequate or failed internal processes or fraudulent claims;from systems and people;or from external events.In particular we have IT systems risk,including that we are highly dependent on the use o

206、f RBS Groups information technology,software,data and service providers.Migrating IT systems away from RBS Group introduces different operational risks;there is increased likelihood of system failure at the point that functions are moved onto new infrastructure.Further,if the migration fails to stay

207、 on schedule,we will incur charges for remaining on RBS Group IT infrastructure.IT migration also introduces people risk,as management may be distracted away from day-to-day activities.Operational risk includes cyber risk,the risks relating to the use of computers,other IT and the storage of data.Wi

208、thin this category,we also consider the risk of the Group not recruiting and retaining suitable talent.This risk is particularly important during the Groups current period of change.We have strong operational processes and systems,including fraudulent claims detection systems.Our risk,business and c

209、apital strategies are integrated We maintain a robust internal control environment We have developed a bespoke risk capture,management and reporting system(IRISS)Ongoing migration of IT away from RBS Group on to a new enhanced platform is continually monitored and managed by experienced personnel We

210、 have strong recruitment processes to help our aim of ensuring that the right people are recruited and placed into the right roles In addition to mandatory training,employees are encouraged to use the large number of training tools available to enhance their abilities Specific members of the Executi

211、ve own and manage the different aspects of operational risksRegulatory riskRegulatory risk arises if changes in law and regulations are not identified or understood,or are inappropriately and incorrectly interpreted or adopted.In particular,Solvency II regulations are currently being introduced.Solv

212、ency II requirements are still uncertain and subject to the outcome of discussion between UK and European regulators.The outcome and impact of the ICAS+process is also uncertain.These uncertainties increase our level of risk.Regulatory risk also includes the risk that business practices are not effi

213、ciently modified following a regulatory change.Further,there is a risk that current legal or regulatory requirements are not complied with.We have a constructive and open relationship with our regulators In addition,we use specific risk management tools and resources,such as our upstream risk team,t

214、o help manage our exposure to regulatory risk We exercise risk-based monitoring to ensure our resources are used to greatest impact The Chief Risk Officer owns and manages this riskConduct riskWe are subject to the risk of failing to deliver the appropriate treatment for our customers throughout all

215、 stages of the customer journey and the risk that our people fail to behave with integrity.This includes the risk that our organisational culture is not appropriate,with a failure to communicate the correct tone from the top.Our organisational culture prioritises a consistent approach towards custom

216、ers and the interests of customers are at the heart of how we operate We have developed a robust customer conduct risk management framework,to minimise our exposure to conduct risk The Chief Executive Officer owns and manages this riskBrand and reputational riskWe are dependent on the strength of ou

217、r brands,our reputation with customers and distributors in the sale of products and services.We have entered into various strategic partnerships that are important to the marketing,sale and distribution of our products.Our brand and reputational risk is regularly reviewed through our governance fram

218、ework We undertake substantial marketing activities to protect and build our brands,and regularly measure their effectiveness Specific members of the Executive own and manage this riskDirect Line Group Annual Report&Accounts 201326Evolving risksRisks can emerge and evolve over time,often as a result

219、 of changes in the environment in which we operate.As part of our risk management framework,we aim to identify these risks as they first emerge,working efficiently to mitigate their potential impact on the business.Set out below are examples of current significant evolving risks and the way in which

220、 we monitor and mitigate these risks.Evolving risk detailsOur actionsInsurance risk:claims costsBodily injury claims costs are a key source of uncertainty with several regulatory,legal and market pressures facing the Group,including:Underlying trends in bodily injury claims frequency and average cos

221、t per claim inflation The results of the MoJ consultation into the discount rate used to value certain types of bodily injury claim awards The propensity for large injury claims to settle as PPOs,and the inflation and longevity assumptions used to value PPOs The impact on claims costs of the MoJ con

222、sultation and Transport Committee investigation into whiplash injuries.Monitoring claims costs to identify trends in the settlement of bodily injury claims Investigating proposed changes in regulation and legislation and using risk fora to discuss these changes and develop a business response Invest

223、igating asset-liability matching opportunities that would mitigate this riskRegulatory risk:regulatory environmentThe UK insurance market is subject to several regulatory reviews and potential areas of focus which are sources of uncertainty,including:The CC investigation into aspects of the private

224、motor insurance market The FCAs market study of general insurance add-on products The FCAs thematic review of complaints and claims handling The impacts of Flood Re and the proposed levy on home insurance premiumsThere is also uncertainty around the way in which the FCA may apply the principles unde

225、rpinning behavioural economics to the insurance industry and the impact that this has on our business.The EU is currently developing new EU Data Protection Regulations which will replace the UK Data Protection Act.This may impact our ability to use and benefit from our stored data.Specifically,restr

226、ictions or bans on profiling may impact our ability to identify the most appropriate products or solutions for our customers.The Italian regulatory landscape is changing which could lead to greater regulatory intervention.Investigating proposed changes in regulation and legislation and using risk fo

227、ra to discuss these changes and develop a business response Regular contact with the regulator to ensure the business is kept abreast of changes in expectations Where appropriate,participation in lobbyingStrategic risk:business transformation and project deliveryThe Group is carrying out initiatives

228、 to improve its operational efficiency as part of the implementation of its business transformation plan.There is a strategic risk of the potential failure to execute the plan,or that the expected benefits of the plan may not be achieved on time or to the extent targeted.There is also a large potent

229、ial for upside risk should initiatives provide benefits that are greater than those planned,or if the expected benefits are felt by the business sooner than planned.Uncertainties include the potential changes in the market around use of PCWs,changes in customer behaviour and the increasing use of te

230、lematics.Having a detailed transformation plan Monitoring of the project milestones ensures we remain on track and enables us to make adjustments where appropriate Ensuring that the projects are managed by the right people with the ideal skills Using lessons learnt exercises to ensure later projects

231、 are improved by our experiencesRisks can emerge over the very long term as a result of significant changes in the environment including technology,weather patterns and socio-economic behaviours.Examples of these risks would include driverless cars,new types of competitor entering the market and cli

232、mate change.A specific example of an emerging risk we have considered during 2013 is the failure of a competitor.A competitor failing may lead to an industry levy which we would be subject to.This risk could also impact our relationships with both investors and regulators,depending on the cause of t

233、he competitors failure.There is also potential upside should the failure of a competitor enable us to increase the number of policies we issue.Direct Line Group Annual Report&Accounts 201327Strategic reportOperating reviewGroup performanceAchieved our combined operating ratio1 target of 98%and this

234、contributed to a return on tangible equity2 16.0%,ahead of our long-term target of 15.0%.Operating profit from ongoing operations1 improved by 14.2%to 526.5 million(2012:461.2 million)and COR1 by 3.1 percentage points to 96.1%(2012:99.2%).These were driven by an improved underwriting profit,includin

235、g higher prior-year reserve releases of 435.1 million(2012:322.0 million),and were partially offset by lower investment return and instalment and other income.A lower loss ratio1,reflecting our continued choice to focus on value of business over volume and helped by pricing and claims efficiencies,t

236、ogether with lower costs contributed to the improved underwriting result and COR.Benefiting from the capital actions taken in 2012 and the improved operating performance,the Group achieved a RoTE for ongoing operations2 of 16.0%(2012:11.5%and pro forma3 13.4%).Total Group profit before tax delivered

237、 of 423.9 million(2012:249.1 million).Summary income statementFor the year ended 31 December2013 m2012 mOngoing operations1 Gross written premium3,826.63,990.6Net earned premium3,520.6 3,708.7Underwriting profit138.2 28.2 Instalment and other operating income180.2 198.3Investment return208.1 234.7Op

238、erating profit ongoing operations1526.5 461.2Run-off segment63.6 6.1 Restructuring and other one-off costs(140.5)(189.5)Operating profit449.6 277.8 Finance costs(37.7)(28.7)Profit on disposal12.0 Profit before tax423.9 249.1 Adjusted earnings per share diluted(pence)425.0 21.8 Basic earnings per sha

239、re(pence)20.9 12.3 Return on tangible equity ongoing operations216.0%11.5%Pro forma return on tangible equity ongoing operations3n/a13.4%Return on equity total Group11.1%5.7%Ongoing operating profit by division1For the year ended 31 December2013 m2012 mMotor347.7 261.8 Home106.2 93.3Rescue and other

240、 personal lines46.5 84.4Commercial9.5 2.2International16.6 19.5 Total526.5 461.2Notes:1.See note 1 on page 22.See note 3 on page 23.See note 4 on page 24.See note 6 on page 3Direct Line Group Annual Report&Accounts 201328“UK Personal Lines delivered good results within a competitive market and a cha

241、nging regulatory landscape.We continue to develop compelling customer propositions,deepen customer relationships and enhance our capability.”Tom Woolgrove,Managing Director of Personal LinesMotorHighlights Retained position as Britains leading personal motor insurer with a 14%share of in-force polic

242、ies1 Improvement in risk selection and claims capability contributing to reserve releases and reduced loss ratio COR improved significantly by 8.4 percentage points Operating profit up 32.8%,despite significant reduction in other operating income Laid the foundations for DLG Legal ServicesPerformanc

243、e highlights2013 2012In-force policies(thousands)3,7624,050Gross written premium1,421.1m1,623.5mLoss ratio65.1%74.6%Commission ratio 2.5%2.0%Expense ratio 25.6%25.0%Combined operating ratio 93.2%101.6%Operating profit 347.7m261.8mMarketIn the UK,an economic recovery appears to have been taking hold,

244、and it is expected to gather pace2.Consistent with this,car registrations recorded their highest monthly total for many years in September3,while higher petrol prices are anticipated from oil price inflation.The motor insurance market in the UK was again highly competitive,with another year of insur

245、ance premium deflation.PCW sales continue to rise and their media advertising remains high.Customers are shopping around more and there is a greater market focus towards retention and cross-selling products.There has also been a relatively benign claims experience during 2012 and 2013,alongside the

246、positive effects of a series of government interventions to reduce the costs of bodily injury claims.In particular,a package of reforms,including the Legal Aid,Sentencing and Punishment of Offenders(“LASPO”)Act measures and the banning of legal referral fees,were introduced during 2013.These reforms

247、 are intended to reduce the average cost of bodily injury claims,largely due to lower legal costs.However,it is too early to say whether they will also have a material benefit in terms of the frequency of bodily injury claims.Furthermore,improved fraud detection capabilities are expected to help red

248、uce false declarations of driving experience and convictions.Also,the FCA continues to review all aspects of conduct risk through a series of thematic reviews,including motor legal expenses insurance,which we,and our distribution partners,continue to engage with proactively.Following the implementat

249、ion of the EU Gender Directive,some young drivers,particularly males,have seen reductions in premiums.The growth of telematics has supported this,as drivers of all ages and genders are able to receive discounts.This follows installation of a device to their car or the download of a smartphone app,an

250、d the display of safer driving behaviour.PerformanceGiven the highly competitive market,we continued to make choices to optimise value and prioritise underwriting margin over volume growth.Furthermore,the results reflected previous actions taken to reduce risk and manage claims costs,which together

251、contributed to significant prior-year reserve releases.We have enhanced our pricing engines,delivered claims efficiencies and improved our customer propositions,including the roll-out of telematics propositions.These have helped to successfully manage the business through a period of regulatory chan

252、ge.Gross written premium of 1,421.1 million fell 12.5%compared with 2012,as we maintained pricing discipline.Average premium per policy was down over the year by approximately 7%due to market competitiveness,the channel shift to PCWs and a reduction in risk mix,but also our focus on value and retain

253、ing customers.We seek to pass on lower premiums to customers based on our observed claims experience and during 2013 reduced motor prices by 3%.In-force policies were also slightly lower.There was an improvement in underwriting result driven by the attritional loss ratio and reserve releases,as a re

254、sult of actions taken on pricing and claims.These reserve releases,which were higher than expected,were driven by both small and large bodily injury claims.The expense ratio rose by 0.6 percentage points following reduced net earned premium,which more than offset the lower cost base.However,the sign

255、ificant improvement in the operating profit was partially offset by reduced other income,from the cessation of solicitors referral fee income,and a lower investment return.In February 2014,the Group sold its stolen vehicle recovery business,Tracker.Operating loss from this business was 1.4 million i

256、n 2013.OutlookThe UK motor market remained highly competitive in the first quarter of 2014 and gross written premium is expected to be approximately 10%lower than the same period in 2013.We continue to focus on protecting underwriting margins,rather than prioritise policy volumes.During 2014,we aim

257、to develop initiatives to support our strategic priorities further including the rolling out of new customer websites,enhancing our trading capability,evolving our telematics-based propositions and continuing to evolve technical pricing sophistication.Notes:1.Direct Line Group including partner bran

258、ds:RBS,NatWest,Nationwide,Prudential and Egg GfK NOP Financial Research Survey(FRS)6 months ending October 2013,15,260 adults interviewed for motor insurance.2.Bank of England3.Society for Motor Manufacturers and TradersPersonal linesDirect Line Group Annual Report&Accounts 201329Strategic reportOpe

259、rating review continuedHighlights Retained position as one of Britains largest home insurers with a 17%share of in-force policies1 Continued to improve our technical pricing models,which contributed to increased retention in 2013 Customer initiatives rolled out,such as the claims home estimation too

260、l Improvement in the COR by 2.8 percentage points to 93.8%,following fewer claims from major weather eventsPerformance highlights20132012In-force policies(thousands)3,7194,239Gross written premium943.1m989.0mLoss ratio53.9%58.4%Commission ratio19.6%16.2%Expense ratio20.3%22.0%Combined operating rati

261、o93.8%96.6%Operating profit106.2m93.3mMarketThe UK housing market remained flat for the majority of 2013,and ongoing limited mortgage availability has caused an increase in the number of people renting.Lower disposable incomes have also driven price sensitivity.However,there have been indications of

262、 a UK economic recovery.Britains home insurance market size has been stable,but become more competitive,with new business premiums reducing in the year2.PCWs shares of sales are growing,albeit from a lower base than Motor,and have facilitated the growth of lesser known brands,as well as increasing p

263、rice competitiveness.Retail banking distribution arms continue to review branch sales processes.Meanwhile,there is growth in the adoption of new technology by customers,including the use of mobile technology and online servicing.Providers are maximising customer value,increasing cross-selling activi

264、ty and retention capabilities.A lack of mortgage demand has contributed to providers finding other routes to source new customers.In the flat housing market,the increase in the renter population is causing a decline in the demand for combined building and contents covers.The Association of British I

265、nsurers(“ABI”)and the UK Government arrived at the Flood Re solution,which is intended to ensure the availability of affordable home insurance in the highest flood risk affected parts of Britain.As with the motor market,the FCA continues to review all aspects of conduct risk through a series of them

266、atic reviews,which we continue to engage with proactively.PerformanceThe Home business experienced another strong result in 2013,which benefited from lower weather claims than 2012,despite the significant flooding and storm claims in December.Customer retention improved on last year as we optimised

267、technical-pricing models.The product range was also rationalised from 30 products to three across the brand portfolio to simplify the customer proposition.The number of policies sold through the PCW channel increased by 8.0%on last year.Promising initial results have been experienced from the launch

268、 of the Home estimation tool,which allows more accurate assessment of claims to facilitate speedier claims adjustment and payment.Gross written premium of 943.1 million declined by 4.6%,reflecting competitive market conditions.In-force policies fell by 12.3%since the start of the year,mainly as a re

269、sult of the removal of Home Response3 policies(around 420,000)from certain packaged bank accounts no longer sold through partners.Excluding this effect,the underlying in-force policies were broadly similar year-on-year.The loss ratio improved,reflecting fewer claims from major weather events and con

270、tinued reserve releases.On an underlying current-year attritional basis,it was in line with last year at 51.3%.The commission ratio rose due to profit-share payments reflecting higher profitability of partnership business,mainly as a result of the lower loss ratio.Underwriting profit improved on las

271、t year mainly due to the fewer claims from major weather events.The expense ratio improved by 1.7 percentage points due to cost improvements across the Group.Overall,operating profit improved by 13.8%,reflecting fewer major weather events across 2013 in the UK.OutlookIn a competitive UK home market,

272、we continue to focus on maintaining our underwriting performance through further pricing and claims initiatives.Adverse weather conditions experienced in the fourth quarter of 2013 have continued in the first quarter of 2014 resulting in further storm damage and severe flooding.While it is too early

273、 to assess with accuracy,the Groups preliminary estimate for the cost of Home claims from this event up to 22 February 2014 is in the range of 70 to 90 million.This compares to an expectation in an average year of 80 million of claims from major weather events.Notes:1.Direct Line Group including par

274、tner brands:RBS,NatWest,Nationwide,Prudential and Egg GfK NOP Financial Research Survey(FRS)6 months ending October 2013,15,922 adults interviewed for home insurance.2.Consumer Intelligence3.Insurance policy giving customers access to vetted tradesmen for home emergencies and repairs.HomeDirect Line

275、 Group Annual Report&Accounts 201330Highlights New customer Rescue propositions and refreshed Green Flag marketing campaigns Gross written premium broadly stable at 383.4 million reflected rise in direct sales offset by reduced cross sales Loss ratio increased and operating profit reduced due to the

276、 non-repeat of 2012 one-offs,primarily in the legacy creditor book Completed sale of the Life business for 62 million enabling payment of a special interim dividendPerformance highlights20132012In-force policies(thousands)8,8019,431Gross written premium383.4m389.8mLoss ratio60.1%50.9%Commission rati

277、o7.5%6.0%Expense ratio24.8%25.8%Combined operating ratio92.4%82.7%Operating profit46.5m84.4mMarketThe economic trends are the same as in the Motor and Home operating reviews.The roadside assistance market is similarly showing signs of recovery,with the overall market size increasing.Three major prov

278、iders,including Green Flag,account for the majority of the market and competition is increasing,with service and price being important aspects for customers.Products are bought direct from providers,as part of linked motor sales,as part of packaged bank accounts,and via PCWs.The pet population and m

279、arket penetration rates remain stable;however,average premiums have been rising.The premiums increase in recent years is due to higher claims severity,driven by treatment and drug advances,while price competition continues to increase.Insurance providers are focused on recommendations by,and distrib

280、ution through,vets as an important channel to customers;however,PCW visits are gradually increasing.The travel insurance market has been stable,and characterised by high volumes and penetration rates,the latter being the uptake of insurance by travellers.Medical claims represent the largest componen

281、t of claims severity and continue to grow,followed by cancellation claims.Distribution is moving away from travel agents and brokers,with travel insurance being offered through packaged bank accounts and PCWs.PerformanceWe focused on new Rescue customer propositions and a refreshed marketing campaig

282、n,with Green Flags one hour response commitment,which aimed to differentiate the brand.A positive contribution continued to be received from the pet insurance line,while the travel business experienced a loss due to increased claims frequencies from packaged bank accounts.In November,we completed th

283、e sale of the closed Life business for 62 million,and returned the proceeds of sale to shareholders by way of a special interim dividend in December.Gross written premium of 383.4 million was broadly stable to last year.This reflected increased direct sales of Green Flag products offset by reduced l

284、inked sales.Pet gross written premium increased by 3.7%from rate increases and travel gross written premium decreased by 0.8%driven by volume decreases.Underwriting profit reduced to 27.9 million from last year while the loss ratio increased 9.2 percentage points as 2012 benefited from positive one-

285、offs relating to legacy creditor business.The expense ratio improved by 1.0 percentage point due to cost improvements across the Group,partially offset by increased Green Flag marketing costs.Overall,operating profit decreased to 46.5 million following the non-repeat of certain one-offs,primarily in

286、 the legacy creditor business,which benefited 2012.Of the total operating profit,38.1 million was delivered by Rescue and 6.4 million by the closed Life business.The Rescue contribution was 9 million lower than in 2012,due to the increased marketing spend and the non-repeat of certain one-off items.

287、OutlookRescue and other personal lines continues to represent an opportunity to create value for the Group,and meet customers broader insurance needs.Investment in distribution and propositions will support further contribution,offset by the disposal of the Life business,and lower Creditor premiums

288、as the business runs off.Rescue and other personal linesDirect Line Group Annual Report&Accounts 201331Strategic reportOperating review continued“With a continued focus on the SME sector,we have improved our COR for the third year running.We are on track to achieve a sub-100%COR in 2014,helped by dr

289、iving our efficiencies and delivering improvements in our underwriting.”Jon Greenwood,Managing Director of CommercialHighlights Continued to grow in-force policies,particularly in Direct Line for Business Gross written premium up 8.9%to 474.5 million Continued roll-out of NIGs broker eTrading platfo

290、rm The Hub to new products Continue to rationalise the back office,improve efficiency and streamline the operating model Improvement in operating profit of 7.3 million,despite adverse weather in the fourth quarter and a high level of large lossesPerformance highlights20132012In-force policies(thousa

291、nds)583466Gross written premium474.5m435.6mLoss ratio62.3%63.1%Commission ratio21.2%21.6%Expense ratio23.3%23.5%Combined operating ratio106.8%108.2%Operating profit9.5m2.2mMarketUK economic growth has continued to strengthen in 2013 and optimism is increasing about the general business situation.Int

292、erest rates remain at low levels,reducing investment returns.There has been some evidence of insurers exiting historically unprofitable business.Insurers are also seeking to reduce costs and there have been instances of insurers reviewing their regional structures and branch networks.Furthermore,the

293、re is a desire for brokers and insurers to adopt e-trading solutions for SME and micro-sized businesses,in order to reduce costs and speed up the underwriting process.PerformanceWe continued to grow in-force policies,particularly in Direct Line for Business.NIGs full cycle broker e-trading platform

294、The Hub continued to be rolled out across the year to new products.Where business has been migrated to the new platform,broker take up has been encouraging.We have established two online newspaper partnerships aimed towards small businesses and social media channels have been introduced to interact

295、directly with customers.Proposition development continues to be a strength for Direct Line for Business,with a number of new initiatives launched.Furthermore,to streamline our operating model,we separated our trading and operational functions,and restructured the regional functions to enhance new bu

296、siness focus and improve efficiency.Gross written premium increased by 8.9%compared to 2012 due to the transfer of the van business from the Motor division and growth in Direct Line for Business.In 2013,some components of the portfolio were de-risked.The COR improved by 1.4%to 106.8%;however,when no

297、rmalised for weather this would have been 103.7%,showing good progress towards the 2014 target.The loss ratio improved modestly by 0.8 percentage points to 62.3%despite higher than normal claims relating to weather events,the majority of which were in the fourth quarter,and a high level of large los

298、ses.We continued to experience reserve releases,similar to the level of 2012,but remain prudently reserved.An improvement in current-year loss ratio was led by an improvement in the underwriting profit of 3.5 million.A marginal improvement in the expense ratio of 0.3 percentage points reflected cost

299、 improvements across the Group.The regional restructure undertaken in Commercial was implemented in the second half of the year and is expected to deliver cost savings in 2014.Overall,operating profit increased by 7.3 million to 9.5 million for the year.OutlookNormalising the 2013 performance for cl

300、aims from weather events,the division made progress towards its 2014 COR target of sub-100%.Actions taken during 2013 on pricing,risk selection and the cost base are expected to continue to flow through in 2014 and the divisions target for this year is unchanged.This assumes a normal level of claims

301、 from weather-related events and large losses.Up to 22 February 2014,approximately 20 million of such claims have been received.CommercialDirect Line Group Annual Report&Accounts 201332“The International division has continued to develop in line with our plans.We maintained profit in Italy and incre

302、ased gross written premium in Germany,where profitability was affected by hailstorms.”Jamie Brown,Managing Director of InternationalHighlights In-force policies grew by 10.1%on 2012 and now exceed 1.6 million Gross written premium,in local currency,grew by 4.9%reflecting strong growth in Germany off

303、set by a modest decline in Italy Loss ratio improved marginally by 0.8 percentage points despite 8 million of higher than normal hailstorm claims in Germany Implemented ClaimCenter in Italy and continue to evolve technology to deliver efficient digital platformPerformance highlights20132012In-force

304、policies(thousands)1,6101,462Gross written premium604.5m552.7mLoss ratio77.3%78.1%Commission ratio15.8%12.1%Expense ratio10.8%13.1%Combined operating ratio103.9%103.3%Operating profit16.6m19.5mMarketItalys economy continued to decline in 2013.In 2014,it is expected gradually to return to growth1.Hou

305、sehold consumption is stagnant1 and the number of new car registrations is declining2.The number of road accidents,injuries and deaths has contributed to a reduction of claims frequency,which has led to a decrease in average price of around 5%3.Recent insurance sector reforms,especially the ending o

306、f a requirement for policyholders to advise their insurer if they do not wish to renew their motor policies,together with the increase in PCWs,has increased the level of switching.This increases the potential market for Direct Line,while also increasing the number of our customers who shop around at

307、 renewal.Going forward,we expect growth in the number of customers accessing insurance products via smartphone and tablet devices.The economic conditions in Germany are different,with the recovery continuing4 and growth expected to rise slightly faster4.Household consumption continues to strengthen4

308、 and the number of registered vehicles is rising,while petrol costs decline4.Motor average premiums,which have risen over the previous two years,are expected to remain stable,taking account of claims inflation5.The severe hailstorms in June and July 2013 may result in increased average premiums.In I

309、taly,the use of telematics to collect information at the claims stage is already fairly extensive.As a consumer proposition it is continuing to develop.We have a number of pilots to understand how best to operate in this area.In Germany,the first introduction has recently occurred.PerformanceWe cont

310、inue to focus on extracting value from the Italian and German businesses.Growth arose from Germany where we benefited from positive market conditions allowing our efficient platform to enable us to grow our share of year-end business without significant additional cost.We remain cautious in Italy gi

311、ven the uncertain economic environment and competitive conditions.We implemented ClaimCenter in Italy and continue to evolve technology to deliver an efficient digital platform.Italy,Germany and the UK continued to share and leverage best practice,for example on claims processes and telematics.In-fo

312、rce policies grew by 10.1%and gross written premium increased by 4.9%in local currency terms.These were driven by Germany where we expanded our share of business renewing on 1 January 2013.PCWs,while still small in both markets,continued to grow their share of new business.Direct Line is present on

313、PCWs in both countries.The COR remained broadly stable at 103.9%,with higher than normal hailstorm claims in Germany which resulted in a COR of 109.8%,offset by lower claims frequency in Italy with a COR of 101.6%.The loss ratio in Germany similarly reflects the 8 million of claims relating to the s

314、evere hailstorms.A higher commission ratio was attributable to a change in mix towards PCWs and partners.Total operating profit of 16.6 million was split 14.1 million from Italy and 2.5 million from Germany.Operating profit,in local currency,was 20.4 million a decrease of 16.7%on the previous year(2

315、012:24.5 million).OutlookIn Italy,more competitive market conditions and increased customer switching during 2013 have lowered premium growth expectations for 2014.With this more cautious stance,we will continue to focus on creating value through improving operating and pricing efficiency.Germany ha

316、s once again experienced a good start to the year,which has increased in-force policies to approximately 628,000 at the end of January 2014.Following average premium rate increases over the last two years,an increase in competition is now expected to place pressure on average premiums.InternationalN

317、otes:1.Instituto Nazionale di Statistica2.Automobile Club Italia3.Associazione Nazionale fra le Imprese Assicuratrici4.Bundesministerium der Finanzen5.Gesamtverband der Deutschen VersicherungswirtschaftDirect Line Group Annual Report&Accounts 201333Strategic reportFinance reviewAgainst a backdrop of

318、 competitive markets,the Group made progress on its financial targets,achieving a COR for ongoing operations1 of 96.1%and a 16.0%RoTE2.We maintained a strong capital position,with a conservative approach to reserving and a high-quality investment portfolio.Highlights Operating profit1 of 526.5 milli

319、on for 2013,up 14.2%(2012:461.2 million)and total Group profit before tax of 423.9 million(2012:249.1 million)Gross written premium1 4.1%lower for 2013,reflecting competitive market conditions in UK personal lines,partially offset by growth in International and Commercial Combined operating ratio1 o

320、f 96.1%for 2013,an improvement of 3.1 percentage points against last year(2012:99.2%).This arises from improved underwriting and lower costs Prior-year reserve releases for ongoing operations1 amounted to 435.1 million(2012:322.0 million)Return on tangible equity2 from ongoing operations of 16.0%for

321、 2013(2012:11.5%and pro forma3 13.4%)Net asset value per share of 186.6 pence and tangible net asset value per share of 153.2 pence Final dividend proposed of 8.4 pence per shareFor the year ended 31 December2013 m 2012 m Ongoing operations1In-force policies(thousands)18,47519,648 Gross written prem

322、ium3,826.6 3,990.6 Net earned premium3,520.6 3,708.7 Underwriting profit138.2 28.2 Instalment and other operating income180.2 198.3 Investment return208.1 234.7 Operating profit ongoing operations1526.5 461.2 Run-off segment63.6 6.1 Restructuring and other one-off costs(140.5)(189.5)Operating profit

323、449.6 277.8 Finance costs(37.7)(28.7)Gain on disposal of subsidiary12.0 Profit before tax423.9 249.1 Tax(111.1)(64.8)Profit after tax312.8 184.3 Of which is ongoing operations4375.2326.5 Key metrics ongoing operations1Loss ratio62.6%67.1%Commission ratio11.2%9.1%Expense ratio22.3%23.0%Combined opera

324、ting ratio96.1%99.2%Adjusted earnings per share5 diluted(pence)25.0 21.8 RoTE216.0%11.5%Pro forma RoTE3n/a 13.4%Key metrics total GroupInvestment income yield2.1%2.0%Investment return2.5%2.8%Basic earnings per share(pence)20.9 12.3 Net asset value per share(pence)186.6 189.1 Tangible net asset value

325、 per share(pence)153.2 161.0 Dividend per share interim(pence)4.2 4.0 final(pence)8.4 8.0 regular(pence)12.6 8.0 first special(pence)4.0 n/a second special(pence)4.0 n/a total(pence)20.6 8.0 pro forma6 regular(pence)n/a 12.0 John Reizenstein,Chief Financial OfficerDelivering performance“In our first

326、 full year as a stand-alone listed Group,we showed good progress towards our targets and delivered improved returns to shareholders.”Direct Line Group Annual Report&Accounts 201334PerformanceOperating profit ongoing operationsFor the year ended 31 December2013 m 2012 m Underwriting profit138.2 28.2I

327、nstalment and other operating income180.2 198.3Investment return208.1 234.7Operating profit526.5 461.2Overall operating profit from ongoing operations1 of 526.5 million represented a 14.2%increase on 2012(2012:461.2 million).There was a significant improvement in the underwriting result,driven by hi

328、gher than expected reserve releases of 435.1 million(2012:322.0 million),in part due to management actions to improve the risk profile of the book and initiatives relating to claims,and despite poor weather in the last quarter,fewer claims from major weather events in Home in 2013.This more than off

329、set a lower investment return,lower instalment and other operating income and higher than normal weather-related claims in Commercial and International.In-force policies and gross written premiumIn-force policies ongoing operations(thousands)As at 31 December2013 2012 Motor3,762 4,050 Home3,719 4,23

330、9 Rescue and other personal lines8,801 9,431 Commercial583 466 International1,610 1,462 Total ongoing18,475 19,648 In-force policies for ongoing operations1 decreased by 6.0%during 2013 to 18.5 million.The fall related primarily to Rescue and other personal lines and Home.The Rescue and other person

331、al lines reduction arose mainly from travel policies from packaged bank accounts.Home in-force policies fell mainly as a result of the removal of Home Response7 policies(around 420,000)from certain packaged bank accounts no longer sold through partners.Excluding this effect,which had little impact o

332、n gross written premium,Home in-force policies have decreased by 2.6%during 2013.The fall in Motor in-force policies of 7.1%reflects the Groups focus on maintaining its underwriting discipline in a competitive marketplace,particularly for new business.The reclassification of van business to Commerci

333、al(around 70,000 in-force policies)from 1 January 2013 represented 1.7 percentage points of the reduction.International growth arose from Germany where the Group has benefited from improved market conditions.Commercial continued to grow in-force policies,particularly in Direct Line for Business and also benefited from the reclassification of van business from Motor.Gross written premium ongoing op