1、Focused for the futureAnnual Report and Accounts 2023ContentsStrategic ReportFocused on performance2Focused on customers4Focused on retail personal and commercial insurance6Chairs statement8Welcoming our new CEO,Adam Winslow9CEO review12Outgoing Acting CEO review14Section 172(1)statement17Business m
2、odel18Market Overview20Strategy22Our key performance indicators24CFO review26Operating review40Non-financial and sustainability information statement49Building a sustainable future50Task Force on Climate-related Financial Disclosures70Risk management86Viability statement93GovernanceChairs introducti
3、on95Board of Directors97Corporate Governance102Committee reports117Directors Remuneration report131Directors report157Financial Statements Contents161Independent Auditors Report162Consolidated Financial Statements174Notes to the Consolidated Financial Statements179Parent Company Financial Statements
4、253Notes to the Parent Company Financial Statements255Other informationShareholder information259Glossary and Appendices261Forward-looking statement276Contact Information277Our vision is to create a world where insurance is personal,inclusive and a force for good.Our purpose isto help people carry o
5、n with their lives,giving them peace of mind now and in the future.Our mission is to be brilliant for customers every day.This year the Group has taken decisive action to restore our capital resilience,to improve Motor performance and tomaintain the performance of our non-Motor businesses.Following
6、the challenging trading environment in 2022,theseactions have been designed to put the Group back on a more stable footing.Looking ahead,we believe that our customer focus,strong brands and claims expertise can drive long-term value forcustomers and shareholders.To read more about our strategy,see p
7、ages 22 to 23.1Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statementsFocused on performanceDirect Line Group is oneofthe UKs leading insurancecompanies.Through our well-known brands including Direct Line,Churchill,Privilege,Darwin,and Green Flag we offer a
8、wide range of general insurance products across motor,home,commercial,travel,pet and rescue,both direct to customers and through price comparison websites(“PCWs”).In 2023,we sold our brokered commercial business,prioritisedactions to improve margins in Motor,while also continuing to maintain perform
9、ance in our other businesses.We are confident that the Group has the foundations forimproved performance going forward.Progress in all segmentsSale of brokered commercial businessDuring the year,we sold our brokered commercial insurance business for an attractive valuation which strengthened the Gro
10、up both strategically and financially,as well as significantly improving our solvency ratio.For more information,please read page 16.Improving Motor marginsAs a result of significant pricing and underwriting actions,inthe second half of the year we were underwriting profitably consistent with a 10%n
11、et insurance margin.For more information,please read page 15.Resilient performance from other businessesOur Home,Commercial direct,Rescue and other businesses have delivered a good performance with an improved ongoing net insurance margin.For more information,please read page 15.2Direct Line Group A
12、nnual Report and Accounts 2023Strategic Report/Governance/Financial statements3Direct Line Group Annual Report and Accounts 2023Focused on customersOur mission is to be brilliant for customers every day.Itsthe driving force behind everything we do.We know the importance of providing an exceptional i
13、nsurance service and aim to deliver great outcomes forourcustomers.Over 2023,we have undertaken extensive work across theorganisation to further focus on how we meet our customers insurance needs,whether its from the point of sale through to resolving claims,we want to make it simple for our custome
14、rs and be there for them when they need us,with the products that meet their needs both now andinthefuture.Adapting to customer needsDirect Line EssentialsWe launched a new Direct Line Essentials product this year,expanding our product range to meet the needs of more Motor customers.Read more on pag
15、e 52.Consumer DutyAcross the business we have been embedding delivery ofour Consumer Duty obligations to ensure good customer outcomes and meet our mission to be brilliant for customers every day.Read more on page 51.Motor Claims HubKnowing that many of our customers prefer to register their claims
16、online,we have focused on enhancing our capability to provide end-to-end digital claims journeys,launching anew Motor Claims Hub in 2023.Read more on page 53.4Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statements5Direct Line Group Annual Report and Account
17、s 2023Focused on retail personal and commercial insuranceFollowing the sale of ourbrokered commercial business,we are fully focused on the areas inwhich we have the mostexpertise.Looking forward,we are now fully focused on retail personal lines and commercial small business customers where our brand
18、s,claims management and technology gives us the opportunity to outperform for our customers.Focused for the futureMotability partnershipIn September we welcomed over 700,000 Motability customers and brought on board 600 colleagues based in Liverpool.Read more on pages 15 and 52.By Miles acquisitionA
19、s part of our drive to enable customers to pick the motor insurance cover that best suits them,we acquired By Miles,acompany that harnesses vehicle data to provide real-time,pay-by-mile insurance policies.Read more on page 53.Commercial directWe are focused on using our expertise to the benefit ofpe
20、rsonal and commercial customers serviced through direct and PCW channels.Read more on pages 15 to 16.6Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statements7Direct Line Group Annual Report and Accounts 2023Dear Shareholders,2023 has been a challenging year
21、for the Group,but a year inwhich I believe we have delivered on some important commitments to put the Group on a more stable footing.We have restored capital resilience and have continued to adjust our Motor insurance premiums to mitigate the effect ofclaims inflation,with the result that we are now
22、 writing Motorbusiness profitably.Our non-motor businesses performed well in 2023.The sale of our brokered commercial business to RSA InsuranceLimited represents a significant milestone for the Group.Itreflects our intention to leverage the full potential ofour personal lines and commercial direct b
23、usinesses in whichwehave well-recognised brands and serve over nine millioncustomers.Danuta GrayChair of the BoardChairs statementWe have entered 2024 with a more resilient business,well positioned to achieve our mission of being brilliant forcustomers every day.8Direct Line Group Annual Report and
24、Accounts 2023Dividend and capital managementFollowing a challenging 2022,we took decisive action in 2023 to restore the capital resilience of our business.In January,we entered into a three-year quota share reinsurance programme and,in September,agreed the sale of the Groups commercial brokered busi
25、ness.We exit 2023 with a strong solvency position above our agreed risk appetite.The Board is acutely aware of the importance of dividends to our shareholders.At the time of our interim results in September we announced our aim to restart dividends subject to two conditions:the recovery of our solve
26、ncy ratio to the upper end of our risk appetite range;and a return to organic capital generation in Motor.We have made good progress towards meeting these conditions with a pre-dividend solvency ratio of 201%as at the end of 2023 and increasing confidence in the profitability of the Motor business w
27、e have written in the second half of 2023.Reflecting their increased confidence,the Board is,therefore,recommending a final dividend of 4.0 pence per share for 2023.We will continue to keep this under active review throughout 2024 and provide an update at the interim results.I acknowledge that our s
28、hareholders would like us to resume the payment of dividends as soon as possible,but equally that they would like us to prioritise the strengthening of the business for long-term stability.Board and leadershipIn early 2023 Penny James stepped down from the Board as CEO and Jon Greenwood agreed to se
29、rve as Acting Chief Executive Officer whilst we conducted a search for a permanent successor.We were delighted to announce,in August 2023,that Adam Winslow would be joining us as our new Chief Executive Officer.He joined the Group on 1 March and his appointment to the Board will take effect on 21 Ma
30、rch 2024.Adam brings with him a wealth of experience gained from a successful career in the insurance industry,most recently leading Avivas UK and Ireland general insurance business.Adam is committed to delivering for customers,creating value for our shareholders and is a passionate and energetic le
31、ader who shares the Groups values and will lead the continued transformation of the business.Jon Greenwood will step down into a senior executive role following a handover to Adam.I would like to thank Jon for his hard work and commitment through 2023,during which he led the organisation in taking t
32、he critical action to restore its capital resilience and profitability.During the year we welcomed Mark Lewis and David Neave to the Board as independent Non-Executive Directors.Mark,a former Chief Executive of MoneyS Group,is contributing his deep understanding of the regulated aggregator marketpla
33、ces in which our brands operate,as well as his experience of digital marketing strategy and improving multi-channel customer experience in retail and financial services.David,whose executive career spanned General and Life Insurance,broking and the legal and technology sectors,is contributing his de
34、ep understanding of general insurance to the Boards oversight of our core businesses.Welcoming our new CEO,AdamWinslowIn August 2023,we were delighted to announce that Adam Winslow was to be appointed as Chief Executive Officer of the Group,subject to regulatory approval.The Board conducted an exten
35、sive search and Adam stood out for hisstrategic understanding of the sector,outstanding track record ofleading high performing businesses and his focus on driving operational excellence to consistently meet customer needs.Adam has deep expertise in the UK general insurance market and significant lea
36、dership experience,spanning two decades across personal and commercial lines insurance and,throughout his career,his commitment to delivering for customers has been a clear focus,as has his energy and passion as a leader.Adam Winslow,Chief Executive Officer designate,commented:“Direct Line Group is
37、one of the UKs leading insurers with some ofthe most recognisable brands in the retail and commercial market.Its a privilege to be invited to lead the Group into the future,particularly given its rich heritage and passion for serving its millionsof customers.“The UK insurance industry is dynamic and
38、 always evolving.Delivering great customer service relies on strong strategic vision and the operational capability to execute quickly across a variety ofdistribution channels.Im looking forward to working with my newcolleagues who share my determination for driving growth,delivering for customers a
39、nd creating long-term shareholder value.”Adam became the Chief Executive Officer on 1 March 2024 and will join the Board on 21 March 2024.9Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statementsAt the end of 2023,Sebastian James stepped down as an independen
40、t Non-Executive Director,having served for over nine years.I would like to thank Sebastian for his energetic support of the Group and the Board,as well his leadership of the Sustainability Committee and his contribution to the work of the Boards other Committees.On 20 March 2024,the Board approved t
41、he appointment of Carol Hagh as an independent Non-Executive Director with effect from 1 April 2024.Carols career has encompassed financial services consultancy,insurance marketing strategy,customer strategy and executive search.She is a former Headof Spencer Stuart LLPs UK Insurance practice and is
42、 an independent Non-Executive Director of Chesnara plc.Carol willcontribute her deep experience of customer-orientated business transformation,as well as her passion for diversity andinclusion.CustomersDuring 2023,we have continued working hard to meet our customers needs and to improve our customer
43、 outcomes-focused culture to serve them best in the future.We welcomed over 700,000 new customers under our ten-year partnership with Motability.This is a significant commercial partnership forthe Group and enables us to leverage our repair and customer service capabilities,delivering significant sc
44、ale benefits.In addition,the Group,launched our Direct Line Essentials Motor product,which offers customers a basic comprehensive product at enhanced value for money during the cost-of-living crisis,and completed the acquisition of By Miles,whose technology enables a pay-as-you-drive product to be o
45、ffered tocustomers(see pages 41,52 and 53 respectively.)2023 also saw the FCAs Consumer Duty regulation coming intoeffect.The Board has been closely engaged in overseeing work to ensure that the Group was ready,with support from the Consumer Duty Champion,Tracy Corrigan.We continue tomonitor initiat
46、ives aimed at ensuring the regulation is embedded into the culture of the organisation and that we deliver good outcomes and fair value for customers.Chairs statement continued10Direct Line Group Annual Report and Accounts 2023However,I must also acknowledge areas in which we did not perform as well
47、 as we would have liked for customers.During the year we announced that,following extensive consultation with the FCA,we would be undertaking two past business reviews relating to motor total loss payments and the implementation of the pricing practices regulation.Where things have gone wrong,we are
48、 committed to putting them right.We have worked hard to rectify the unintentional errors that occurred and ensure any lessons learned are embedded into control and process improvements.In total,we have provided for the cost of the total remediation of 150 million,which we consider to be final.Cultur
49、eDuring the year,the Board intensified its oversight of culture,ensuring actions were taken to enable Direct Line to become atruly high performing and customer-centric organisation witha deeply ingrained awareness of the benefits of excellent risk management.This work included the delivery of a new
50、performance management framework for our people;augmentation of operational measures to provide improved insights into culture change;and enhancements to our risk framework and controls and the tools we use to assess them.We have also developed new metrics to obtain insights into the drivers of cust
51、omer outcomes and have augmented the role ofthe Customer and Sustainability Committee,which will meet more frequently to oversee the embedding of the Consumer Duty and how we deliver for our customers.More information on this work can be found on pages 54,106 and 127.PeopleAreas on which the Board f
52、ocused in 2023 included driving high performance across all levels of the business and reviewing the Groups current leadership capability to ensure itmeets the requirements of the future.In addition to assessing our current skills,we have actively recruited for future skills needs as well as impleme
53、nting a more comprehensive talent assessment and development for our leadership group population,in partnership with Korn Ferry.This work commenced in Q4 2023,with all senior leaders immediately below Executive Committee level invited to take part in an Executive Leadership Assessment,the outputs of
54、 which will provide valuable insights and inform our group leadership development approach,aligned to a new leadership model in2024.In addition to this,the new performance framework launched in 2023 is intended to equip and encourage our people leaders to improve the quality of their development and
55、careers conversations with colleagues.Recognising that economic conditions remain challenging forour people,we awarded a 5%pay increase to all colleagues,excluding senior management,from January 2023 and made acost-of-living payment to colleagues on lower rates of pay.Our company values were refresh
56、ed and simplified in 2023 toguide the way we work together to perform as a business anddeliver for our customers.I was delighted that the Group wasranked in the Inclusive Top 50 UK Employers List for thethird year running.PlanetIn 2022 we became one of the early personal lines general insurers in th
57、e UK to have Science-Based Targets approved bythe Science Based Targets initiative,a key step in the journey towards our ambition of becoming a Net Zero business by 2050.During 2023,the Board oversaw the work and initiatives needed to help us make significant progress against these targets which we
58、are reporting on for the first time.Initiatives included implementing the use of hydrogenated vegetable oil in our recovery vehicles at 95%of our Auto Services sites and providing clear mandates to our investment portfolio managers to reduce the impact of our investment portfolio.For more informatio
59、n,please see pages 61 to 65,78 and 79.ConclusionAs a result of the action we have taken during the year,Ibelievewe have entered 2024 with a more resilient business,well-positioned to achieve our mission of being brilliant for customers every day.I know that our people have worked incredibly hard in
60、a very challenging year and I would like totake this opportunity to thank them for their continued dedication and support.I would also like to acknowledge the intensive work done by the Board in 2023 and to thank my fellow Directors for redoubling their efforts in supporting the business.I believe,u
61、nder the leadership of our new CEO,Adam,we are poised to realise the full potential of our technological investments and fantastic brands and to deliver good outcomes for all our stakeholders.Danuta GrayChair of the Board2023We have continued working hard to meet our customers needs andtoimprove our
62、 customer outcomes-focused culture to serve thembest in the future.2024We have entered 2024 with a more resilient business,well-positioned to achieve our mission of being brilliant for customers every day.11Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statem
63、entsAdam WinslowChief Executive OfficerCEO reviewWith the right strategy in place and determined actions,I am confident we can deliver a net insurance margin of 13%1 in 2026.Note 1.Normalised for weather.I joined Direct Line Group because I believe there is an opportunity to improve performance and
64、nothing has changed that view since arriving.Direct Line Group has strong foundations,with a leading personal lines customer franchise,scaled market positions and some of the most recognisable brands in the market across a complementary and diverse portfolio.The last few years have been challenging
65、and the Group has not always delivered best value for its shareholders.We need to significantly improve our performance and I joined both to acknowledge these challenges and seek to solve them.I believe we have a strong platform to build from.The Group has some of the most recognisable brands in the
66、 market,over 9 million customers and a diverse portfolio of assets.In addition,the management actions taken during 2023 have been the right ones.We believe that Motor has turned a corner,and with business outside Motor performing well during 2023,we expect overall performance to improve in 2024.We h
67、ave one clear agenda,an unrelenting focus on driving shareholder value by serving our customers well.We believe that through a combination of quick wins,alongside medium-term strategic opportunities,we can deliver a net insurance margin of 13%in 2026.I have transformed legacy businesses before and u
68、nderstand what it takes to win in general insurance.There are immediate actions we can take in 2024 to address some of the gaps and deliver quick wins.12Direct Line Group Annual Report and Accounts 2023Reduce our cost baseThere is a substantial opportunity to reduce our total cost base and significa
69、ntly improve operational efficiency through reducing operational complexity and technology costs,including through increasing our use of digital channels for customers.We will focus change spend on the areas that drive most financial benefit and tighten discretionary spend.Our marketing spend can be
70、 reduced further and we will build out customer self-service options by leveraging investments the Group has already made,for example the digital Motor claims hub and the Caha!App that we launched in 2023.Across all these levers,we have identified a series of initiatives that are expected to deliver
71、 significant cost savings by the end of 2025.The run-rate annualised cost savings have been considered in the context of a total addressable cost base of 849 million in 2023.Approximately 54%of these savings are expected to come from technology and digitalisation initiatives and 46%from removing com
72、plexity across the Group.The savings will mainly be realised by:driving greater digital adoption and increasing automation,mainly across Claims,Sales and Services,as well as reducing third party technology spend,simplifying and modernising IT infrastructure;and simplifying operational complexity,rig
73、ht-sizing support functions and reducing change initiatives across the Group.We expect to incur non-recurring costs of up to 165 million in total by 2025 to implement these savings and to help fund further opportunities towards our ambition to deliver greater savings beyond 2025.A significant amount
74、 of these costs is already assumed within the Groups ongoing capital expenditure expectations for 2024 and 2025.No dis-benefits are expected to arise from the programme.In realising these cost savings by the end of 2025 on a run-rate annualised basis the Group is expected to deliver an expense ratio
75、 that is more in line with its comparable peer group.Improve claims performanceThe Group has strong foundations in claims,having one of the largest insurer-owned garage networks across the UK and a strong track record on counter fraud,but our competitors in recent years have caught up.We need to cap
76、ture the benefits from our structural advantage by repairing more cars at lower cost through our owned network where we consistently deliver superior customer service.We are about to launch a claims transformation,which will initially focus on optimising our garage network and building on counter fr
77、aud efforts.In 2024,we have identified immediate actions to drive value.These include adapting processes in order to leverage the DLG Auto Services advantage,increasing the speed and effectiveness of recoveries and introducing enhanced technology at policy stage to further reduce fraud.Optimise pric
78、ing capabilityA full transformation of our Motor pricing capabilities is already underway.There is more to do.In 2023,we upgraded our core pricing models and launched new products.While our capabilities have improved versus peers,there is further to go and in 2024 we will build on our efforts by dev
79、eloping the next generation of technical pricing models and enrich these models with more internal and external data sources while enhancing fraud protection and simplifying our Motor pricing algorithms.Broaden market coverageDirect Line and Churchill are two of the strongest and best known brands i
80、n the market and we need to utilise our brand portfolio to its full potential.We plan to increase our Motor PCW quotability to historical levels of over 70%in 2024 and create a clear segmentation strategy and value proposition across our different brands.As part of this work,we are evaluating whethe
81、r we put Direct Line on PCWs and that decision will be shared at the Capital Markets Day in July.Financial impact of transformation programmeWe see immediate opportunities for improved performance,we plan this to be achieved primarily through:Tight management of the cost base through targeting discr
82、etionary spend and increasing usage of customer self-serve functionality.Improving claims performance by building on existing counter fraud efforts and optimising third party claims capture.Optimising our pricing by developing the next generation of pricing models,enriching data sources and simplify
83、ing pricing algorithms.Increasing market coverage by developing a clearer brand value proposition and improving PCW quotability.Furthermore,we see greater potential benefits as we move into 2025 and 2026.We have set a target to deliver significant cost savings on an annualised run-rate basis by the
84、end of 2025 and together with benefits from other areas of our transformation programme,we are targeting a net insurance margin,normalised for weather,of 13%in 2026.Strategic reviewAlongside the actions highlighted above,I am completing a comprehensive strategic review during the first half of 2024.
85、I will report back to shareholders in July when I will set out our plans and update on our progress.Capital and dividends The Group ended 2023 with a strong capital position and a solvency capital ratio of 201%before our proposed dividend,above its risk appetite range.The Board is proposing a divide
86、nd in respect of 2023 of 4.0 pence per share(52 million)reflecting the Groups strong capital position following the sale of the brokered commercial business and good performance in Home,Commercial and Rescue.While the Board is confident in the actions taken in Motor,it recognises that the period ove
87、r which to judge the sustainability of Motors capital generation has been short and consequently this dividend should not be regarded as a resumption of regular dividends.The Board will update on any changes to its dividend policy,alongside the conditions it has previously set to consider restarting
88、 regular dividends,in July to coincide with its planned strategy update.OutlookWe have taken the right actions during 2023 to improve written margins in Motor and expect this to improve Motor performance in 2024.The Group believes there is significant opportunity to create further value and is targe
89、ting a net insurance margin,normalised for weather,of 13%in 2026.Adam WinslowChief Executive OfficerStrategic Report/Governance/Financial statementsDirect Line GroupAnnual Report and Accounts 20231313Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statementsJon
90、 GreenwoodActing Chief ExecutiveOfficerOutgoing Acting CEO reviewI am confident that the actions we have taken this year will strengthen the business and leave us well placed to improve earnings going forward.As I hand over to our new CEO,Adam Winslow,I know that we are in good hands and well equipp
91、ed to build on the changes we have made.After a challenging period,the Group has now turned a corner.We have delivered against our three key objectives,having improved our Motor margins,maintained the good performance of our other businesses and restored the resilience of our balance sheet.First,in
92、Motor we have taken significant pricing and underwriting action,prioritising margin improvement over volume.We believe that for the majority of the second half of 2023 we have been underwriting profitably,consistent with our ambition of a net insurance margin of above 10%.Encouragingly,we began to s
93、ee the signs of an improvement in our current year net insurance claims ratio in the second half of 2023.Secondly,our other businesses delivered a good performance with an overall net insurance margin of 12.2%and operating profit of 130 million.This shows the benefits of the strong positions the Gro
94、up holds in Home,Rescue and Commercial Direct.Finally,the sale of the Groups brokered commercial business has restored the resilience of the Groups balance sheet,crystallising an attractive valuation whilst also focusing the Groups strategy on retail personal and small business insurance.With a solv
95、ency capital ratio post-dividend of 197%at year-end,above the top end of the Groups risk appetite range of 140%to 180%,we exit the year in a strong capital position.14Direct Line Group Annual Report and Accounts 2023Whilst these priorities have been the key focus for the Group during 2023,we have al
96、so commenced our partnership with Motability,bringing further scale to our operations,and continued to deliver other improvements across the business.In 2023 we expanded our accident repair network,launched the Green Flag patrol service and four new Motor products,and continued to make it easier for
97、 customers to engage with us through digital journeys.Overall,whilst it will take time for the actions we have taken to fully come through in our reported figures,I am confident the Group has taken the right actions and together with the new operational improvement plan,can improve performance going
98、 forward.2023 results The 2023 results do not reflect the profitability of the business we believe is being written by the Group today.Whilst we have taken action to return Motor to underwriting profitability,the Groups financial result in 2023 reflects the below target margin business written in Mo
99、tor during 2022 and the first half of 2023.This resulted in an operating loss of 319.6 million in Motor,which more than offset a good performance across the rest of the Group where operating profit was 130.1 million.Overall,this delivered an ongoing operating loss of 189.5 million,compared to a 6.4
100、million loss in 2022.The net gain from the sale of the Groups brokered commercial business contributed to a profit before tax of 277.4 million,up from a loss before tax of 301.8 million in 2022.Improved our written margins in MotorWe have taken a range of actions in Motor to improve our performance
101、and increase our written margins back to target levels.These actions have delivered a material increase in our average premiums,mitigating the impacts of elevated inflation while also reducing our risk exposure.There are four key areas we have focused on.1.Pricing we have applied significant rate in
102、creases in 2023 and improved renewal discounting controls,which have delivered a 37%increase in our average written premiums in Q4 2023 compared with the same period in 2022.Average earned premiums increased by 15%between the first and second half of 2023.Pricing ahead of claims inflation has enable
103、d us to improve written profitability and it is encouraging to see these pricing actions begin to benefit our earned margins.2.Underwriting and claims we have made good progress across a range of actions on our underwriting footprint.We made considerable improvements to our pricing and trading capab
104、ilities,tightened our fraud controls and took targeted actions on underperforming segments.We launched a new retail price optimisation model in the price comparison website(PCW)channel and,in claims,we continued to expand our own vehicle repair network,having acquired our 23rd DLG Auto Services cent
105、re.3.Product in order to meet the needs of a broader set of customers,we launched Direct Line Essentials this year,which has driven an increase in conversion.Darwin,which launched in 2019,passed the 250,000 policy milestone in 2023 and rolled out two new products,Darwin Gold and Darwin Platinum.4.Te
106、am we have brought in experience from across the market into our pricing and underwriting teams,through several key hires in leadership positions.As a result of these actions,we believe we have been writing business consistent with a net insurance margin in line with our ambition for the majority of
107、 the second half of 2023.Whilst it will take time for these actions to fully earn through into reported numbers,we are encouraged by our performance in the second half of 2023 where we have seen the current year claims ratio in Motor improve by around 6 percentage points compared with the first half
108、 of 2023.Motor current-year attritional net insurance claims ratioH1H2Full year2023 89.8%84.0%86.7%2022 75.6%84.3%79.9%Commenced new Motability partnershipAfter nearly two years of preparation,we welcomed over 700,000 Motability customers at the start of September.The partnership is forecast to deli
109、ver over 800 million of gross premium annually and allows for six-monthly repricing to mitigate the risk of claims inflation,whilst being capital light as it is 80%reinsuredThis is an important commercial partnership for the Group and demonstrates how we can utilise our claims operations as a wider
110、service proposition.The fleet of modern vehicles provides significant scale benefits as well as repair insight across our claims network.We are also pleased to have welcomed a large team of specialist call handlers to support Motabilitys customers.This partnership is expected to deliver good margins
111、 for the Group.Non-Motor businesses delivered resilient performanceOutside of Motor,the Group delivered an ongoing net insurance margin of 12.2%whilst delivering gross written premium and associated fees growth of 4.7%.Resilient performance in HomeIn Home,our focus was on maintaining margins and we
112、achieved this whilst also growing share of new business in the PCW channel.Following a challenging market backdrop in 2022,the market applied considerable rate increases in 2023 and this helped improve our competitiveness,driving 42%growth in new business sales while retention remained strong.Overal
113、l we delivered 6.4%gross written premium growth in 2023 and a net insurance margin of 10.0%.There were several named weather events across the year and our Home claims team helped over 3,000 customers.Despite the high frequency of events,our estimate for event weather of 25 million is below our 2023
114、 assumption for normal event weather of 54 million.Continued growth in Commercial DirectSeparate from the brokered commercial business,the sale of which we announced in September,Commercial Direct sells SME cover under the Direct Line for Business and Churchill brands,both direct to customer and thr
115、ough PCWs.Landlord insurance is the largest product by premium and policy count,followed by Van.Commercial continued to perform strongly,with premium growth of 10.1%and continued strong margins.Strategic Report/Governance/Financial statementsDirect Line GroupAnnual Report and Accounts 20231515Direct
116、 Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statementsGross written premium growth was achieved across all product lines,while policy count growth in Direct Line Landlord and SME was offset by reductions in Van,where we continued to increase prices in response to
117、 high claims inflation.The largest growth area was Landlord,which accounts for around half of Direct Line branded Commercial premiums due to our differentiated rent guarantee proposition.We now provide landlord cover for an estimated 370,000 properties across the UK.Our Churchill brand continued to
118、grow in the PCW channel,delivering 48%gross written premium growth over the last three years.The net insurance margin was 13.1%during 2023(2022:minus 2.7%),with strong margins in Direct Line Landlord and benign weather conditions more than offsetting the impact of heightened inflation within Van.The
119、se Commercial results exclude the brokered commercial business that was sold in the second half of 2023 and is now reported outside of ongoing operations.Strong margins in Rescue and other personal linesRescue and other personal lines continued to deliver strong margins with a net insurance margin o
120、f 15.6%and 48.0 million of operating profit.In Green Flag,we focused on improving pricing and customer journeys which delivered higher average premiums with minimal impact on sales and retention.We also expanded our Green Flag patrol service across the North of the UK,attending to over 7,000 rescues
121、.The patrol service of 20 vans is helping customers get back on the road faster,including through the sale of tyres and batteries at the roadside,and has delivered strong Net Promoter Scores,which is why we have an ambition to get to 130 vehicles.Green Flag was once again ranked as the top rescue pr
122、ovider in the UK by the UK Institute of Customer Service.Across our other personal lines products,good results in Travel and Pet offset weather-related losses in our mid-to high-net worth business,UK Select.Expanding our products and servicing options for our customers We have also continued to focu
123、s on providing customers with greater choice of products and channels to interact with us.In Motor,we have expanded our Motor product options.Alongside our two new Essentials products we further expanded our own brand portfolio through the acquisition of By Miles,a digitally native insurer,that offe
124、rs pay as you drive insurance.This not only increases choice for customers,it provides the Group with new data and digital capabilities including direct integration with newer vehicles.Furthermore,we are creating easy,digital first journeys to enable customers to interact with us seamlessly from sal
125、es through to claims.In 2020 we first offered customers a simple way to register motor claims online and in 2023 we took a step forward with the launch of our new Motor Claims Hub,a fully integrated claims journey.Were initially offering customers the ability to register a single vehicle or third pa
126、rty claim online and we plan to extend this service to include online repair booking and claim tracking.Past business reviewsAs previously announced,we are conducting two unconnected past business reviews:the first regarding Motor total loss claims and the second about the implementation of the FCAs
127、 Pricing Practices Review(PPR)regulations.These reviews are progressing well and we aim to complete both reviews in mid 2024.Following extensive review and consultation with the FCA,we have provided for the cost of the total remediation of 150 million,which we consider to be final.A breakdown is set
128、 out in the CFO review.In response to these reviews we have carried out extensive read across activity and have taken steps to improve the control environment.Sale of Brokered Commercial business In September we announced the sale of the brokered commercial insurance business.The sale crystallised a
129、n attractive valuation for a business we have turned around over the last ten years,but one that ultimately had a different trading model and operates in a different part of the UK insurance market to the rest of the Group.Following the sale,our strategy is focused on retail personal lines and small
130、 business commercial customers.The proceeds from the sale and the release of capital increased the Groups solvency capital ratio by 46 percentage points.A positive start to 2024 tradingTrading has been positive in the first two months of the year with premium growth across all segments.Motor premium
131、s grew by 21.4%,with a modest reduction in policy count.In Home,own brand policy count growth was offset by lower partnership policies,with premiums increasing 14.2%year on year.There were some weather event claims in the early stages of the year,with a current estimate of 22 million in Home compare
132、d to a full year assumption of 54 million.Gross written premium and associated feesIn-force policiesFeb YTD mVariance to PY%29 Feb 2024 000sChange to Dec 2023Motor262.8 21.4%4,113 (1.6%)Home93.3 14.2%2,445 0.0%Rescue and other personal lines40.3 0.5%2,110 (2.9%)Of which:Rescue19.8 2.8%1,924 (2.0%)Co
133、mmercial 47.0 19.1%645 0.0%Total ongoing443.4 17.4%9,313(1.4%)Jon GreenwoodOutgoing Acting Chief Executive OfficerOutgoing Acting CEO review continued16Direct Line Group Annual Report and Accounts 2023Section 172(1)statementThe Board of Direct Line Insurance Group plc(“Direct Line”)confirms that dur
134、ing the year under review,it hasacted in the way it considers would be most likely to promote the long-term success of the Company for the benefit of its members as a whole,whilst having regard to the matters set out in Section 172(1)(a)-(f)of the Companies Act 2006(“Section 172(1)”).Purpose and Vis
135、ion The matters set out in Section 172(1)underpin Direct Lines purpose and vision and form the foundation for the Boards considerations and decision making.Our purpose to help people carry on with their lives,giving them peace of mind now and in the future is centred on customers and their long-term
136、 interests.Our vision to create a world where insurance is personal,inclusive and a force for good reflects our desire to do business in a way that benefits all stakeholders,the environment and wider society.StakeholdersInformation on Direct Lines key stakeholders is set out in the Sustainability se
137、ction of the Strategic report on the following pages:Customers,pages 51 to 53;People,pages 54 to 57;Society,pages 58 to 60;and the Planet,pages 61 to 65.EngagementThe Board recognises that our stakeholders have diverse and sometimes competing interests that need to be finely balanced,and that these
138、interests need to be heard and understood in order for them to be effectively reflected in decision making.Information about how the Board has engaged with stakeholders during the year and outcomes of that engagement can be found on page107 in the table titled“How the Board engages with stakeholders
139、”.Board decisions and oversightExamples of how stakeholder engagement and Section 172(1)matters have influenced Board discussion and decision making during the year can be found in the table titled“Consideration of Section 172(1)factors by the Board”on pages 105 to 106 The table covers a number of k
140、ey topics including:Consumer Duty implementation;the cost of living crisis;and the sale of the brokered commercial insurance business.The metrics and processes which the Board looks at to ensure that business practices and behaviours reflect the Companys culture,purpose and values,including the impa
141、ct of decisions on key stakeholders,are set out on page 109.Information about Board oversight of environmental matters can be found on pages 70 to 71 in the TCFD Report.The table below sets out where key disclosures in respect of each of the Section 172(1)matters can be found.Section 172(1)factorRel
142、evant disclosuresthe likely consequences of any decision in the long-termMission,vision,purpose and strategic objectives(page 22)Consideration of Section 172(1)factors by the Board(pages 105 to 106)the interests of the Companys employeesKey performance indicators Colleague engagement scores(page 25)
143、Outcome of employee engagement(pages 108 to 109)Diversity and Inclusion(pages 112 to 113)How the Board engages with stakeholders(pages 107 to 108)Employee Representative Body(page 109)the need to foster the Companys business relationships with suppliers,customers and othersKey performance indicators
144、 NPS and customer complaints metrics(pages 53 and 25)Customer support(pages 51 to 53)Supply Chain(page 63)How the Board engages with stakeholders(pages 107 to 108)the impact of the Companys operations on the community and the environmentCommunity Fund 2023(page 58)Science-Based Targets(page 62)Exter
145、nal ratings,memberships and benchmarks(page 69)TCFD disclosures(pages 70 to 85)How the Board engages with stakeholders(pages 107 to 108)Customer and Sustainability Committee report(pages 127 to 128)the desirability of the Company maintaining a reputation for high standards of business conductOur val
146、ues(page 22)The role of the Board in the Companys culture(page 103)Internal controls(pages 115 to 116)the need to act fairly between members of the CompanyCapital management(page 32)How the Board engages with stakeholders(pages 107 to 108)Shareholder voting rights(page 158)Annual General Meeting(pag
147、e 259)Strategic Report/Governance/Financial statementsDirect Line GroupAnnual Report and Accounts 20231717Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statementsBusiness modelWe give our customers a choice of brands and channelsWe know how to build brand val
148、ue and have some of themost well-known brands intheUKOur brands are available direct,and through price comparison websites(“PCW”)We also partner with other well-known brandsWe cover a wide range of customer needs across personal and small commercial linesMotorHomeVanLandlordTravelRescuePetTradespers
149、onBusiness18Direct Line Group Annual Report and Accounts 2023Diversified modelOur diversified model enables us to generate premiums from a range of brands and products across retail personal and small commercial lines.Accident repair centresWe own 23 accident repair centres,the largest network of an
150、y insurer,delivering lower repair costs and providing data-led insights,enabling us to react to emerging trends and helping inform our pricing.Claims managementWe have a deep specialism in claims handling and leveraged our claims management capabilities to win the partnership withMotability.Balanced
151、 investment portfolioThe premiums we collect from customers are invested in a diversified investment portfolio designed to meet our long-term claims commitments whilst also generating investment returns.We seek to align our investment strategy with our sustainability strategy.Cost controlWere focuse
152、d on improving efficiency throughgreater use of digital processes acrossthe business.Capital managementWe aim to manage capital efficiently andgenerate long-term sustainable returnsforshareholders,while balancing operational,regulatory,rating agency,andpolicyholder requirements.This is how we create
153、 valueWe are a fully focused retail personal and small commercial insurer withfundamental strengths1.In-force policies as at31 December2023excluding brokered commercial business and run-off partnerships.Commercial direct6.8%Pet1.2%Other personal lines1.0%Over 9.4mpolicies1Motor44.1%Home26.0%Rescue20
154、.9%19Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statementsMarket OverviewFinancial Conduct Authority Consumer DutyThe FCAs Consumer Duty came into effect on 31 July 2023 and introduced higher expectations for the standard of care that financial service fir
155、ms should provide to customers,as well as introducing a more outcomes-focused approach.The Group welcomes the FCAs Consumer Duty,which aligns with our purpose to help people carry on with their lives,giving them peace of mind now and in the future.As part of the implementation of Consumer Duty,we re
156、viewed all our critical customer journeys,enhanced our methodology to put testing customer understanding at the heart of our thinking and embedded predicting customer harm in our ways of developing journeys and customer experience.Our new Riverbank House office in London,which was opened in August 2
157、023,includes apurpose-built user experience testing facility where we can meet with customers to test new experiences and place customers at the heart of any changes we make.Climate changeA focus on climate remains,with particular emphasis placed onhow firms are assessing and managing longer-term cl
158、imate-related risks.Increased importance is also being given to the communication of plans that companies have in place to support the transition to a low-carbon economy.This includes the actions that are being taken to progress against emission reduction targets and net zero aims.Furthermore,we con
159、tinue to expect an increase in regulatory focus on how firms are managing climate-related financial risks,as well as how this is reported,supported by developments in reporting frameworks and disclosure requirements.The Group continues to respond to climate change,and wetake our responsibilities ser
160、iously in our assessment of climate-related risks to our business.Our disclosure against therecommendations of the Task Force on Climate-related Financial Disclosures(“TCFD”)(see pages 70 to 85)sets outour strategic response to climate change and reflects continued action to further develop our unde
161、rstanding andmanagement of the associated risks and opportunities.The disclosure reports on the progress we have made in the year against our carbon emissions reduction targets,which were approved by the Science Based Targets initiative(“SBTi”)in2022.Motor premium and claims inflationThe UK motor ma
162、rket continued to be affected by challenging conditions,driven by the impact of elevated inflation.Premium inflation was significant in the year,as the market reacted to heightened claims inflation.The proportion of new motor insurance policies in the market rose,as consumers responded to a rise in
163、premiums with increased shopping,resulting in a reduction in market retention rates.Claims inflation remained elevated in 2023,albeit lower than the levels seen in 2022.In the second half of the year,several inflationary pressures began to moderate,which included the stabilisation of used car prices
164、.Repair cost inflation remained elevated in the market,driven by higher labour costs.Car usage was higher in the year with miles driven returning closer to pre-pandemic levels,leading to the market experiencing an increase in underlying claims frequency.The Group responded with significant pricing a
165、ction,as well as targeted action on its underwriting portfolio.We also continued to expand our repair network capabilities to repair vehicles as efficiently and economically as possible.See pages 40 to 41 for more information.Home premium and claims inflationThe UK household market experienced stron
166、g premium inflation in 2023 driven by claims inflation,which included pressures from the severe freeze event in December 2022,andhigher reinsurance pricing.These trends saw the volume ofconsumers shopping in the market increase.The market experienced a number of weather events in the year,particular
167、ly in the fourth quarter,in which there was a high frequency of named weather events.Despite this,the impact of these events was smaller when compared to those experienced in 2022,partly due to the mitigating effect of reinsurance provided by Flood Re.The Group focused on maintaining margins through
168、out the year,in line with market wide premium inflation,whilst growing its share of new business through the PCW channel.See pages 42 to 43 for more information.Consumer trendsDuring 2023,the market focused on offering consumers access to a greater range of cover options during a period of high prem
169、ium inflation and the cost of living crisis,which continues to see customers remaining price sensitive.Elsewhere,consumers are placing increased importance onmulti-channel,self-serve and digital journeys.In addition,thefuture of the electric vehicle landscape continues to see products and propositio
170、ns evolve in the market.In response to these trends,we have delivered greater product choice to customers,continued to make it easier for customers to engage with us through digital journeys and expanded our repair capacity and capabilities.The Group welcomes the FCAs Consumer Duty,which aligns with
171、 our purpose to help people carry on with their lives,giving them peace of mind now and in the future.20Direct Line Group Annual Report and Accounts 2023In June 2023,the International Sustainability Standards Board(“ISSB”)issued its Sustainability Disclosure Standards,IFRS S1 and S2.The Standards ar
172、e currently subject to UK endorsement,which is expected later in 2024.The TCFDs monitoring responsibilities will be transferred to the ISSB from 2024.TheGroup welcomes the ISSBs new Sustainability Disclosure Standards and appreciates the value the Standards will have inevolving the global baseline f
173、or climate-related reporting.Solvency II reformsIn June 2023,HM Treasury published two draft statutory instruments allowing it to implement reform to the calculation of the risk margin,ahead of other proposed reforms to Solvency II in the UK.The revised calculation reduces the amount of risk margin
174、that insurers must hold and applies to both general insurance business and long-term life insurance business,which includes Periodic Payment Orders(“PPOs”).In December 2023,these regulations were laid before parliament and came into force on 31 December 2023.In line with the Governments legislative
175、plans,the remainder ofthe regime reforms are expected later in 2024.The Group continues to respond toclimate change,and we take ourresponsibilities seriously in our assessment of climate-related risks toour business.21Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Finan
176、cial statementsStrategyOur mission is to bebrilliant forcustomers every dayOur vision is to create aworld where insurance is personal,inclusive and aforce for goodOur purpose is to help people carry onwiththeir lives,giving them peace ofmind now and inthe futureOur valuesOur values shape the Groups
177、strong and positive culture.They set the expectations for how we want our people to deliver intheir role.Colleagues use these shared values as a set of guiding principles to help them to work together effectively,makegood decisions,and deliver for our customers.Win togetherNobody has all the answers
178、.Think,act and win as one team to deliver great outcomes for our customers each and every day.Draw upon diverse skills and perspectives,testing and iterating as you go.Collaborate,communicate and be inclusive.Be yourselfWe want the real,whole you and value diverse perspectives,ideas and opinions.So
179、feel confident and empowered.Believe in yourself as much as we do.Beyou,have fun,and make this a great place to be.Own itMake it happen.Spot the opportunities,take the initiative and be accountable.Be brave,innovative and embrace new challenges,doing whats right not whats easy.Keepit simple and take
180、 risks in a positive way.Developnew skills,own your own career path and push your talent to the limit.Speak upWe need different perspectives,so your input matters.Ask questions,make suggestions,raise concerns but be respectful and make the space to listen to others.Faceinto difficult conversations s
181、o we continue to evolveand improve.22Direct Line Group Annual Report and Accounts 2023Our core strengths and capabilities drive our strategyOur sustainability pillarsWe believe that by working sustainably we can create value for all our stakeholders.Our five pillar Sustainability Strategy supports o
182、ur vision of creating a world where insurance is personal,inclusive and a force for good.Innovating for successEfficient cost baseCustomer focusClaims expertisePricing sophisticationData,technology and agile ways of workingGrowth opportunities We look to innovate for futuresuccess,be itdeveloping ne
183、w products,services and digital tools,tounderstanding the latest car tech ortackling climate change.Core strengths We have powerful,trusted brands withunique propositions and high customerretention.We provide customers with a claimsexperience that combinesleading capabilities andrepair expertise whi
184、ch uses our network of 23 accident repair centres,the largest network of any UK insurer.Enhanced capability We are delivering easy digital-first journeys so if customers want the simplicity of managing their insurance online,they can.Ifthey prefer the phone,were thereforthem.We can price at speed an
185、d with greater accuracy thanks to the combination of our historical data and new pricing systems.CustomersPeopleSocietyPlanetGovernance23Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statementsNet insurance margin-ongoing operations1(NIM)(%)DefinitionA measur
186、e of financial year underwriting profitability.A positive NIM indicates profitable underwriting.The NIM is calculated by dividing the net insurance service result by net insurance revenue.AimWe aim to produce a profitable insurance service result and the Group has an ambition over time to generate a
187、 NIM of above 10%,normalised for weather.For additional performance information see page 28RemunerationWe base part of the Annual Incentive Plan(“AIP”)awards on operating profit.The NIM is closely linked to this.For additional performance information see pages 132 and 140Operating loss per share-ong
188、oing operations1(pence)DefinitionThis is calculated by dividing the earnings attributable to shareholders less coupon payments in respect of Tier 1 notes and restructuring and one-off costs by the weighted average number of Ordinary Shares in issue.AimWe have not set a target.However,our aim is to g
189、row operating earnings per share.For additional performance information see page 31RemunerationWe based the 2023 Long-term Incentive Plan(LTIP)partly on operating earnings per share.For additional performance information see page 143Operating return on tangible equity(Operating RoTE)1(%)DefinitionTh
190、e return generated on the capital that shareholders have in the business.This is calculated by dividing adjusted operating earnings by average tangible equity.AimWe do not set a target.However our aim is to grow operating RoTE.For additional performance information see page 31RemunerationWe base the
191、 LTIP awards partly on adjusted RoTE over a three-year performance period.For additional performance information see pages 132 and 143(Loss)/profit before tax(m)DefinitionA measure of overall profitability of the Group,including the insurance service result,investment return,net insurance finance re
192、sult and other operating income,expenses and finance costs.AimProfit before tax includes income and expenses that are outside of management control,although it does aim to operate profitably.For additional performance information see page 27RemunerationWe base part of the AIP awards on operating pro
193、fit.Profit before tax is closely linked to this.For additional performance information see pages 132 and 140Notes:1.See glossary on pages 261 to 264 and Appendix A Alternative performance measures on pages 265 to 266 for reconciliation tofinancial statement line items.Our key performance indicators(
194、2.7)(12.8)2223(2.7)%(14.9)%2223(0.9)%(8.3)%2223(301.8)277.4222324Direct Line Group Annual Report and Accounts 2023Changes to our KPIs in 2023Our metrics are reviewed annually and updated as appropriate to ensure they remain an effective measure of delivery against our objectives.For 2023,the review
195、of these metrics resulted in the following changes:Following adoption of IFRSs 17 and 9,the Group no longer uses combined operating ratio to measure underwriting profitability and has,instead,adopted net insurance margin as it more closely resembles how the Group runs the business.KPIs that have bee
196、n impacted by the Groups adoption of IFRSs 17 and 9 have been restated for 2022.Earlier periods have not been recalculated and have not been reported.Comparative numbers will in due course be built back up to disclose five years of data.In previous years the Group used earnings per share as one of i
197、ts KPIs.As LTIP awards granted by the Group during 2023 included an operating earnings per share performance measure the KPI was updated to reflect the relationship to remuneration.Net promoter score continues to be a key measure of performance and is disclosed on page 53.Solvency capital ratio1,2,3
198、(%)DefinitionA risk-based measure expressing the level of capital resources held as a percentage of the level of capital that is required under Solvency II.AimUnder normal circumstances,the Group aims to maintain a solvency capital ratio around the middle of the risk appetite range of 140%to 180%.Fo
199、r additional performance information see page 32RemunerationSolvency capital ratio within our risk appetite is an indicator of capital strength,which is one of the gateways for the AIP awards and an underpin for LTIP awards.For additional performance information see page 132Colleague engagement4(%)D
200、efinitionEngagement is the degree in which our colleagues use their cognitive,emotional,and behavioural energies to help the Group achieve our company goals.We partner with Viva Glint to regularly monitor engagement levels across the Group.AimTo make the Group best for our customers and best for our
201、 colleagues.We gauge employee engagement through our colleague opinion surveys and we aim for high colleague engagement scores each year.RemunerationThe AIP awards include a weighting to a balance of employee metrics,including engagement.For additional performance information see pages 132 and 141Cu
202、stomer complaints5(%)DefinitionThe number of complaints we received during the year as a proportion of the average number of in-force policies.AimThis measure indicates where our customer service has not met expectations to the extent that the customer has initiated a complaint.We aim to improve thi
203、s over time.RemunerationThe AIP awards include a weighting to a balance of customer metrics,including complaints.For additional performance information see page 132 and 141Operational emissions1(tCO2e)DefinitionOperational emissions are defined as the Scope 1 and 2 emissions across our buildings and
204、 accident repair centres.AimWe aim to reduce Scope 1 and 2 emissions by 46%by 2030 from a 2019 base year.For additional performance information see pages 62 and 64RemunerationFrom 2022,the LTIP awards have an emissions performance condition which includes a targeted reduction in emissions and temper
205、ature score.For additional performance information see page 1432.The 2019 solvency capital ratio has been adjusted to remove the cancelled 14.4p final dividend and 120 million of the share buyback as announced in March/April 2020.(The reported number was a solvency capital ratio of 165%).3.Estimates
206、 based on the Groups Solvency II partial internal model.4.The methodology for determining colleague engagement changed in 2022 as a result of a change of survey provider.Engagement scores for the years 2018 to 2021 are presented on a consistent basis.The 2022 score was assessed against a benchmark s
207、core of 75%and is not directly comparable to the scores in 2021 and prior years.5.For the Groups principal underwriter,U K Insurance Limited.Strategic Report/Governance/Financial statementsDirect Line GroupAnnual Report and Accounts 20232514,53311,69710,1878,9826,9997,9247,8117,0326,5294,5006,6093,8
208、863,1552,4532,4991920212223787466727219202122230.630.510.460.610.881920212223189%191%176%147%197%1920212223nScope 1nScope 225Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statementsNeil ManserChief Financial OfficerCFOreviewThe Groups solvency capital ratio a
209、t the end of 2023 improved to 201%,following significant management action and benefiting from the sale of the Groups brokered commercial business.Financial Summary Stable policy count overall as the introduction of over 700,000 new Motability customers offset lower policies elsewhere primarily in M
210、otor and associated Rescue.Gross written premium and associated fees increased by 27.1%during 2023,with 46.2%growth in the second half.Net insurance margin of minus 8.3%was impacted by the continued earn through of Motor policies written during 2022 and first half of 2023.Outside of Motor,the Group
211、delivered a good result and a net insurance margin of 12.2%.In Motor,premium rate increases contributed to a 5.8 percentage point improvement in the current year net insurance claims ratio in the second half of 2023.Motor policies written since August estimated to be in line with the Groups ambition
212、 of a net insurance margin of above 10%.Operating loss from ongoing operations of 189.5 million in 2023,compared to a loss of 6.4 million in 2022,with the adverse movement in the net insurance margin partially offset by an increase in investment income.The proceeds of the sale of the Groups brokered
213、 commercial business contributed to a profit before tax of 277.4 million,up from a loss before tax of 301.8 million in 2022.The Groups solvency capital ratio at the end of 2023 improved to 201%,following significant management action and benefiting from the sale of the brokered commercial business.A
214、 dividend of 4.0 pence per share is proposed,with the solvency capital ratio,post-dividend,equal to 197%.26Direct Line Group Annual Report and Accounts 2023Group financial performance20232022ChangeOngoing operations1In-force policies2(thousands)9,442 9,397 0.5%FY 2023FY 2022ChangeNotesmm(restated3)m
215、Ongoing operations1Gross written premium and associated fees4 3,106.0 2,443.6 27.1%Net insurance revenue4 2,547.5 2,481.8 2.6%Insurance service result(211.8)(23.5)(188.3)Net insurance margin4(8.3%)(0.9%)(7.4pts)Combined operating ratio4 108.3%100.9%(7.4pts)Net insurance claims ratio4 81.8%74.9%(6.9p
216、ts)Net acquisition ratio4 6.8%7.0%0.2ptsNet expense ratio4 19.7%19.0%(0.7pts)Normalised net insurance margin4(9.6%)1.7%(11.3pts)Investment income 141.8 94.1 50.7%Unwind of discounting of claims4(118.7)(50.4)(68.3)Other operating income and expenses before restructuring and one-off costs(0.8)(26.6)97
217、.0%Operating loss-ongoing operations (189.5)(6.4)(183.1)Of which:Current-year operating(loss)/profit4(43.8)(41.8)(2.0)Prior-year reserve development(145.7)35.4 (181.1)FV gains/(losses)4 124.4 (342.5)136.3%Effect of change in yield curve4(25.5)60.7 (142.0%)Restructuring and one-offcosts(59.5)(45.3)(3
218、1.3%)Brokered commercial business 27.6 62.9 (56.1%)Run-off partnerships1(29.5)(10.8)(18.7)Other finance costs(14.5)(20.4)28.9%Gain on disposal of business 443.9 0.0%Profit/(loss)before tax 277.4 (301.8)579.2 Tax(charge)/credit (54.5)69.9 (124.4)Profit/(loss)for the year attributable to the owners of
219、 the Company 222.9 (231.9)454.8 KPIsOperating return on tangible equity4(14.9%)(2.7%)(12.2pts)Basic earnings/(loss)per share(pence)10 15.9 (19.1)35.0 Diluted earnings/(loss)per share(pence)10 15.7 (19.1)34.8 Operating loss per share(pence)(12.8)(2.7)(10.1)Return on equity annualised411 10.6%(11.6%)2
220、2.2ptsInvestments metricsInvestment income yield4 3.5%2.1%1.4pts20232022ChangeCapital and returns metricsDividend per share total ordinary(pence)4.0 7.6 (47.4%)Net asset value per share(pence)11 158.6 142.1 11.6%Tangible net asset value per share(pence)95.5 78.8 21.2%Solvency capital ratio-post divi
221、dend5 197%147%50ptsNotes:1.Ongoing operations and run-off partnerships See glossary on pages 261 to 264 for definitions and appendix A Alternative Performance Measures on pages 265 to 268 for reconciliation to financial statement line items.2.In-force policies as at 31 December 2022 have been restat
222、ed to remove 14,500 Commercial policies that were previously included in the reported amounts in error.3.Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments.See notes 1 and 40 for further details.4.See glossary on pages 261 to 26
223、4 for definitions and appendix A Alternative Performance Measures on pages 265 to 268 for reconciliation to financial statement line items5.Estimates based on the Groups Solvency II partial internal model.Strategic Report/Governance/Financial statementsDirect Line GroupAnnual Report and Accounts 202
224、32727Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statementsGroup financial performanceOngoing operations131 Dec202330 Sep202330 Jun202331 Mar202331 Dec2022In-force policies(thousands)2,3 9,442 9,518 9,071 9,228 9,397 FY 2023FY 2022Changemmrestated4Gross wri
225、tten premium and associated fees2,4 3,106.0 2,443.6 27.1%Insurance service resultMotor(331.6)(70.7)(369.0%)Home 50.2 (3.5)1534.3%Rescue and other personal lines-ongoing operations1 42.0 55.7 (24.6%)Commercial 27.6 (5.0)652.0%Insurance service result-total ongoing operations(211.8)(23.5)(801.3%)Net i
226、nvestment income 141.8 94.1 50.7%Unwind of discounting of claims5(118.7)(50.4)(135.5%)Other operating income and expenses before restructuring and one-off costs(0.8)(26.6)97.0%Operating(loss)/profit-ongoing operations5(189.5)(6.4)(2860.9%)Net insurance margin5(8.3%)(0.9%)(7.4pts)Net insurance claims
227、 ratio5 81.8%74.9%(6.9pts)Current-year attritional net insurance claims ratio5 75.1%71.3%(3.8pts)Prior-year reserves development ratio5 5.7%(1.4%)(7.1pts)Major weather events ratio5 1.0%5.0%4.0ptsNet acquisition ratio5 6.8%7.0%0.2ptsNet expense ratio5 19.7%19.0%(0.7pts)Normalised net insurance margi
228、n5(9.6%)1.7%(11.3pts)IFRS17 and description of operating(loss)/profitThis is the first set of annual results that the Group is reporting under IFRS 17,the new insurance accounting standard for insurance contracts.Although the new standard does not change the economics of the Group,it does introduce
229、new disclosure headings and some changes in timing of recognition.For example,insurance claims are now all discounted to reflect the time value of money.The table above sets out the Groups operating loss for ongoing operations.Significant items excluded from operating loss for ongoing operations inc
230、lude the results from certain partnerships that are now in run-off,the results from the brokered commercial business,the sale of which we announced in September,fair value movements on investments and the effect of changes of discount rates on brought forward claims reserves.These items are discusse
231、d later in this report.2023 performance Overall,gross written premium grew by 27.1%in 2023 however,operating profit was adversely affected by the earn through of below target margin Motor policies that were written in 2022 and the first half of 2023,alongside remediation provisions arising from past
232、 business reviews.Outside of Motor,results in Home,Rescue and Commercial were good and benefited from relatively benign weather conditions.Net investment income improved due to the effect of higher interest rates and this was largely offset by an increase in the unwinding of previous periods discoun
233、ting.Overall operating loss for ongoing operations was 190 million,split between an operating loss of 319.6 million in Motor and an operating profit of 130.1 million outside of Motor.In-force policies and gross written premium and associated fees1,2In-force policies from ongoing operations were 9.4
234、million at the end of December,in line with the end of 2022 as the introduction of over 700,000 new Motability customers offset a reduction in the number of own brand policies.Own brand policy reductions were largest in Motor,where we strongly increased premiums to achieve target margins.This also l
235、ed to a reduction in linked Rescue policies.Gross written premium and associated fees from ongoing operations grew by 27.1%to 3,106.0 million predominantly due to premium rate increases and the contribution from the Motability partnership delivering strong growth of 42.9%in Motor,10.1%in Commercial
236、and 6.4%in Home,offset by a small decline in Rescue and other personal lines.Total Group in-force policies were 12.0 million which was in line with 2022,and gross written premium and associated fees was 3,921.9 million compared with 3,098.4 million in 2022.Insurance service result1In 2023,the Groups
237、 net insurance margin was minus 8.3%(2022:minus 0.9%)and normalised for weather,it was minus 9.6%(2022:1.7%).This represents an insurance service result from ongoing operations of a loss of 211.8million(2022:226.6million),compared with a loss of 23.5 million in 2022.CFO review continued28Direct Line
238、 Group Annual Report and Accounts 2023Ongoing operations(m)20232022VarianceInsurance service result(211.8)(23.5)(188.3)Of which:Motor-current year(193.2)(75.0)(118.2)Motor-prior year(138.4)4.3 (142.7)Home 50.2 (3.5)53.7 Rescue and other personal lines 42.0 55.7 (13.7)Commercial 27.6 (5.0)32.6 This 1
239、88.3 million deterioration in the ongoing operations insurance service result was predominantly driven by Motor,with prior year strengthening alongside an adverse movement in current year reflecting the earn through of lower margin business.This was partially offset by more benign weather conditions
240、 helping deliver a 53.7 million improvement in Homes profitability,alongside a recovery in the Commercial result.We are currently conducting two past business reviews and approximately 104 million was recognised for these in 2023.Excluding these provisions,the net insurance margin would have been 4.
241、1 percentage points better.Impact of past business reviews on reported net insurance marginOngoing operationsMotorHome202320222023202220232022Total loss m 78 28 78 28 Pricing practices m 26 18 14 13 12 5 Total remediation provisions m 104 46 92 41 12 5 Reported net insurance margin(8.3)%(0.9)%(21.1)
242、%(4.8)%10.0%(0.8)%Remediation impact(pts)4.1 pts 1.8 pts 5.9 pts 2.8 pts 2.1 pts 1.1 ptsAdjusted net insurance margin(4.2)%0.9%(15.2)%(2.0)%12.1%0.3%The insurance service result for Motor was a 331.6million loss(2022:70.7million loss)with a 15.9pts increase in the Motor net insurance claims ratio.Th
243、is reflected the earn through of below target margin business written during 2022 and in the first half of 2023,alongside adverse experience on prior-year reserves.Performance improved in the second half of 2023,with the net current year claims ratio 5.8 percentage points better than the first half
244、of 2023 as higher premiums from rate increases started to earn through,together with a more stable claims environment.Outside of Motor,our other ongoing business areas delivered a good set of results,with a cumulative insurance service result of 119.8million across Home,Rescue and other personal lin
245、es and Commercial(2022:47.2million)and a net insurance margin of 12.2%(2022:4.7%).Overall,the Group delivered a net insurance claims ratio from ongoing operations of 81.8%(2022:74.9%).The current year attritional claims ratio increased by 3.8pts to 75.1%primarily driven by a 6.8pts increase in Motor
246、.Outside of Motor,Home and Rescue and other personal lines saw modest increases in their current year attritional claims ratios,offset by a significant improvement in Commercial.Weather-related claims for ongoing operations in the year were 27million,less than our 2023 assumption for ongoing operati
247、ons of 59million and 122million lower than prior year.Our 2024 weather-related claims assumption for Home and Commercial combined is 62million.Prior-year reserve movements were impacted by a 138.4million reserve strengthening in Motor which included a 78million increase in the cost for the remediati
248、on from the total loss past business review.This delivered a deterioration in the prior-year reserve movement from ongoing operations from a release of 35.4 million in 2022 to a strengthening of 146million in 2023.Outside of Motor,Home saw a 8.9 million release,but this was offset by a strengthening
249、 within the Commercial Van product.As previously set out,the opportunity for prior-year reserve releases in the short term remains low.The net acquisition ratio from ongoing operations decreased by 0.2pts to 6.8%,as a reduction in marketing costs was only partially offset by an increase in commissio
250、ns.The expense ratio from ongoing operations increased by 0.7pts to 19.7%primarily due to higher amortisation and depreciation costs as well as underlying inflation in IT and other costs.Staff costs increased by less than wage inflation.In 2024 we expect the expense ratio for ongoing operations will
251、 be broadly stable.Expenses in insurance service resultFY 2023FY 2022(restated)mmCommission expenses(111.1)(95.9)Marketing(62.7)(77.9)Acquisition expenses(173.8)(173.8)Staff costs6(194.6)(188.6)IT and other operating expenses6,7(102.9)(85.6)Insurance levies(81.2)(83.0)Depreciation,amortisation and i
252、mpairment of intangible and fixed assets8(123.4)(114.9)Operating expenses(502.1)(472.1)Total expenses-ongoing operations(675.9)(645.9)Total expenses-run-off partnerships(24.5)(23.2)Total expenses(907.9)(871.0)Net acquisition ratio5-ongoing operations 6.8%7.0%Net acquisition ratio5-total Group 9.3%9.
253、7%Net expense ratio5-ongoing operations 19.7%19.0%Net expense ratio5-total Group 19.7%18.7%Strategic Report/Governance/Financial statementsDirect Line GroupAnnual Report and Accounts 20232929Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statementsInvestment r
254、esult and unwind of discount rate1Net investment income increased to 141.8 million(2022:94.1 million)primarily driven by yield improvements in variable rate asset classes benefiting from a rising interest rate environment.This represents an investment income yield of 3.5%.Based on current yields,we
255、estimate an investment income yield of around 3.8%for 2024 and 3.9%for 2025.FY 2023FY 2022mmrestated4Investment income 149.1 101.9 Investment fees(7.3)(7.8)Net investment income 141.8 94.1 Insurance and reinsurance finance expenses-unwind of discounting of claims(118.7)(50.4)Finance income and expen
256、ses in operating profit 23.1 43.7 FY 2023FY 2022Investment income yield(total Group)3.5%2.1%The increase in investment income was offset by an increase in the unwind of the discounting of claims.The unwinding of prior-period discounting in 2024 is expected to be similar to 2023.Reconciliation of ope
257、rating(loss)/profit to basic earnings/(loss)per shareFY 2023FY 2022mmNoterestated4Motor(319.6)(64.8)Home 52.4 0.9 Rescue and other personal lines-ongoing operations 48.0 60.1 Commercial 29.7 (2.6)Operating loss-ongoing operations(189.5)(6.4)Operating profit-brokered commercial business 27.6 62.9 Ope
258、rating loss-run-off partnerships(29.5)(10.8)Operating(loss)/profit-total Group(191.4)45.7 Restructuring and one-off costs(59.5)(45.3)Net fair value gains/(losses)5 124.4 (342.5)Net insurance finance income-effect of change in yield curve(25.5)60.7 Other finance costs(14.5)(20.4)Gain on disposal of b
259、usiness9 443.9 Tax(charge)/credit(54.5)69.9 Profit/(loss)for the year attributable to the owners of the Company 222.9 (231.9)Basic earnings/(loss)per share(pence)13 15.9 (19.1)Operating return on tangible equity annualised5(14.9%)(2.7%)Ongoing operations and run-off segments1The Group has excluded t
260、he results of the brokered commercial business and three run-off partnerships from its ongoing results.Results relating to ongoing operations are clearly referenced.Note 4(Segmental analysis)has also been amended to reflect the change.The insurance service result including run-off segments was a los
261、s of 251.4 million(2022:14.3 million profit).Brokered commercial businessThe Group has excluded the results of the brokered commercial business from its ongoing results and has restated all relevant comparatives across this review.We agreed the transfer of the Groups brokered commercial lines insura
262、nce business and associated partnerships to Royal and Sun Alliance Insurance Limited with effect from 1 October 2023 through a combination of quota share reinsurance and a form of renewal rights transfer.As a result,the economic effect of the brokered commercial insurance business moved to Royal and
263、 Sun Alliance Insurance Limited and the back book of policies has remained with the Group.The operating profit relating to the brokered commercial business in 2023 was 27.6 million(2022:62.9 million).The formal separation and operational transfers are expected to start in the second quarter of 2024,
264、with subsequent transfers of outstanding elements of the overall brokered commercial insurance business to follow.Run off partnershipsThese partnerships are in Travel and Rescue and have either been exited or termination has been initiated.This will reduce the Groups exposure to low margin packaged
265、bank accounts so it can redeploy capital to segments with higher return opportunities.The two Travel partnerships were with NatWest Group and Nationwide Building Society and expire in 2024.The Rescue partnership was with NatWest Group and expired in December 2022.The operating loss relating to run o
266、ff partnerships in 2023 was 29.5 million(2022:10.8 million loss).Net fair value gains/(losses)Net fair value gains in the period were 124.4 million,a significant improvement on 2022 reflecting the tightening of credit spreads and interest rate movements.Fair value gains on debt securities,derivative
267、s and investment property was 125.0 million(2022:341.9 million loss).Net insurance finance incomeThe net insurance finance expenses reflects the effect of changes in the yield curve and the ASHE index on the discounting of previously recognised PPO claims.Restructuring and one-off costsThe Group inc
268、urred 59.5 million of restructuring and one-off costs in 2023,which were predominantly driven by work carried out in relation to the Groups two past business reviews,cost efficiency initiatives and impairments.Gain on disposal of brokered commercial businessIn 2023 the Group announced the sale of it
269、s brokered commercial business for a consideration of 520 million,which was received by the Group in October.After deducting 76.1 million for transaction costs,disposal of assets,and asset impairment,this resulted in a gain on disposal of 443.9 million.Other finance costsOther finance costs fell to
270、14.5 million(2022:20.4 million)primarily as a result of the redemption of the Groups 250 million 9.25%Tier 2 subordinated notes on 27 April 2022.CFO review continued30Direct Line Group Annual Report and Accounts 2023Effective corporation tax rateThe Effective Tax Rate(ETR)for 2023 was 19.6%(2022:23.
271、2%),which was lower than the standard UK corporation tax rate of 23.5%(2022:19.0%).This was driven primarily by the offset of capital losses brought forward,which had not previously been recognised in deferred tax,together with tax relief for coupon payments on the Groups Tier 1 notes,which are acco
272、unted for as a distribution,partly offset by disallowable expenses and the tax effect of a property revaluation.Due to the offset of capital losses against the capital gain arising on the sale of the brokered commercial business in 2023,the ETR is lower than the restated ETR for 2022,which reflected
273、 the rate differential between the in-force corporation tax rate for 2022 of 19%and future enacted tax rates(25%from 1 April 2023)on tax adjustments arising on transition from IFRS 4 to IFRS17 and IFRS9 to be relieved in subsequent periods at higher standard tax rates.Operating return on tangible eq
274、uity 1,5The operating return on tangible equity decreased by 12.2pts to minus 14.9%(2022:minus 2.7%)due primarily to the decrease in the Groups operating profit from ongoing operations.Earnings/(loss)per shareThe basic earnings per share for period was 15.9 pence(2022:loss of 19.1 pence).Diluted ear
275、nings per share were also 15.7 pence(2022:loss of 19.1 pence),mainly reflecting an increase in the Groups post tax loss for the calculation of earnings per share in 2023.Operating loss per share was 12.8 pence(2022:loss of 2.7 pence).The financial performance of the Group is discussed in detail on p
276、ages 28 to 32.The calculation of earnings/(loss)per share is presented in note 13 on page 220.The calculation of operating earnings/(loss)per share is presented on page 268.Notes:1.Ongoing operations See glossary on pages 261 to 264 for definitions and appendix A Alternative Performance Measures on
277、pages 265 to 266 for reconciliation to financial statement line items.2.See appendix B for additional data on in-force policies and gross written premium and associated fees.3.In-force policies as at 31 December 2022 and 31 March 2023 have been restated to remove 14,500 and 19,700 Commercial policie
278、s respectively that were previously included in the reported amounts in error.4.Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments.See notes 1 and 40 for further details.5.See glossary on pages 261 to 264 for definitions and app
279、endix A Alternative performance measures on pages 265 to 266 for reconciliation to financial statement line items.6.Staff costs and other operating expenses attributable to claims handling activities are allocated to the cost of insurance claims.7.IT and other operating expenses include professional
280、 fees and property costs.8.Includes right-of-use(ROU)assets and property,plant and equipment.For the year ended 31December 2023,there were no impairment charges which relate solely to own occupied freehold property(2022:no impairments).Cash flow20232022mmNoterestated1Net cash generated from operatin
281、g activities 404.9 800.2 Of which:Operating cash flows before movements in working capital(284.6)26.7 Movements in working capital 416.6 49.6 Tax paid(30.9)(44.5)Cash generated from investment of insurance assets 304.4 768.1 Net cash generated from/(used in)investing activities 398.3 (100.8)Net cash
282、 used in financing activities(51.8)(657.5)Net increase in cash and cash equivalents 25 751.4 41.9 Cash and cash equivalents at the beginning of the year 938.4 896.5 Cash and cash equivalents at the end of the period 25 1,689.8 938.4 Note:1.Prior period comparatives have been restated on transition t
283、o IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments.See notes 1 and 40 for further details.The Groups cash and cash equivalents increased by 751.4 million during the year(2022:41.9 million increase)to 1,689.8 million.The Group had an operating cash outflow before movements in working capi
284、tal of 284.6 million(2022:inflow 26.7 million),a reduction of 311.3 million due to an increase in non-cash movements.After taking into account movements in working capital,the Groups cash inflow was 100.5 million(2022:outflow 32.1 million),an increase of 68.4 million.The Group has considerable asset
285、s under management,the cash generated from these assets decreased by 463.7 million to 304.4 million as proceeds from the disposal and maturity of debt securities held at fair value through profit or loss(FVTPL)exceeded purchases.Net cash generated from operating activities was 404.9 million(2022:800
286、.2 million).Net cash generated from investing activities of 398.3 million primarily reflected net proceeds from the sale of the brokered commercial business of 469.7 million,offset with the Groups continuing investment in its major IT programmes(2023:124.1 million,2022:108.4 million).Net cash used i
287、n financing activities of 51.8 million included 16.6 million in Tier 1 capital coupon payments and nil in dividends in the year(2022:314.5 million in dividends and Tier 1 capital coupon payments),nil in share buybacks(2022:50.1 million)and 10.8 million(2022:8.9 million)lease principal payments.Also
288、included in 2022 was the redemption of the remaining 250.0 million Tier 2 subordinated debt issued in 2012.Strategic Report/Governance/Financial statementsDirect Line GroupAnnual Report and Accounts 20233131Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statem
289、entsThe 404.9 million the Group generated from operating activities and 398.3 million generated from investing activities more than offset net cash used in financing activities and resulted in a net increase in cash and cash equivalents of 751.4 million(2022:41.9 million increase)to 1,689.8 million(
290、2022:938.4 million).The sale of the Groups brokered commercial business contributed 469.7 million to the net increase in cash and cash equivalents.The levels of cash and other highly liquid sources of funding that the Group holds to cover its claims obligations are continually monitored with the obj
291、ective of ensuring that the levels remain within the Groups risk appetite.Balance sheet managementCapital management and dividend policyThe Groups capital management and dividend policy is as follows:The Group aims to manage its capital efficiently and generate long-term sustainable value for shareh
292、olders,while balancing operational,regulatory,rating agency andpolicyholder requirements.The Group aims to grow its regular dividend in line with business growth.Where the Board believes that the Group has capital which is expected to be surplus to the Groups requirements for a prolonged period,it i
293、ntends toreturn any surplus to shareholders.In normal circumstances,the Board expects that a solvency capital ratio around the middle of its risk appetite range of 140%to 180%of the Groups solvency capital requirement(SCR)would be appropriate and it will therefore take thisinto account when consider
294、ing the potential for special distributions.In the normal course of events the Board will consider whether or not it is appropriate to distribute any surplus capital to shareholders once a year,alongside the full yearresults.The Group expects that one third of the annual dividend will generally be p
295、aid in the third quarter as an interim dividend,and two thirds will be paid as a final dividend in the second quarter of the following year.The Board may revise the dividend policy from time to time.The Company may consider a special dividend and/or a repurchase of its own shares to distribute surpl
296、us capital to shareholders.The Board is proposing a dividend in respect of 2023 of 4.0 pence per share(52 million)reflecting the Groups strong capital position following the sale of the brokered commercial business and good performance in Home,Commercial and Rescue.While the Board is confident in th
297、e actions taken in Motor,it recognises that the period over which to judge the sustainability of Motors capital generation has been short and consequently this dividend should not be regarded as a resumption of regular dividends.The Board will update on any changes to its dividend policy,alongside t
298、he conditions it has previously set to consider restarting regular dividends,in July to coincide with its planned strategy update.The final dividend is to be recommended to the shareholders at the annual general meeting scheduled for 8May 2024 and paid on 17May 2024 to shareholders on the register o
299、n 5April 2024.The ex-dividend date will be 4April 2024.Capital Returns(million)128.6595.2401.3149.152.098.6299.7301.399.0195.530.0100.0100.050.120192020202120222023nOrdinary dividendsnSpecial dividendsnBuyback programmesCapital analysisThe Group is regulated under Solvency II requirements by the PRA
300、 on both a Group basis and for the Groups principal underwriter,U K Insurance Limited.In its results,the Group has estimated its Solvency II own funds,SCR and solvency capital ratio as at 31December 2023.Capital positionAt 31December 2023,the Group held a Solvency II capital surplus of 1.10 billion
301、above its regulatory capital requirements,which was equivalent to an estimated solvency capital ratio of 197%At 31 December20232022Solvency capital requirement(billion)1.13 1.21 Capital surplus above solvency capital requirement(billion)1.10 0.57 Solvency capital ratio post-dividends 197%147%CFO rev
302、iew continued32Direct Line Group Annual Report and Accounts 2023Movement in capital surplus(bn)0.570.560.060.08(0.15)(0.05)1.10Capital surplus at 1 JanuaryCapital generated/(used)excluding market movementsMarket movementsChange in solvency capital requirementCapital expenditureFinal dividendCapital
303、surplus at 31 DecemberMovement in capital surplus20232022bnbnCapital surplus at 1 January 0.57 1.03 Capital generated/(used)excluding market movements 0.56 (0.06)Market movements 0.06 (0.12)Capital generated/(used)0.62 (0.18)Change in solvency capital requirement 0.08 0.14 Surplus generated/(used)0.
304、70 (0.04)Capital expenditure(0.15)(0.12)Repayment of subordinated Tier 2 notes (0.25)Interim dividend (0.10)Final dividend(0.05)Removal of second tranche of share buyback 0.05 Decrease in ineligible Tier 3 capital 0.03 Net surplus movement 0.53 (0.46)Capital surplus at 31 December 1.10 0.57 Note:1.A
305、t 31December 2023,no ineligible Tier 3 capital arose as the Groups available Tier 3 capital was under the amount permitted under the Solvency II regulations(15%of the Groups SCR).At 31December 2022,ineligible Tier 3 capital arose as the Groups Tier 3 capital was above the amount permitted under the
306、Solvency II regulations.During 2023,the Group generated 0.62 billion of Solvency II capital after market movements,supported by the proceeds of the sale of the Groups brokered commercial business.After capital expenditure of 0.15 billion the net surplus for the year increased by 0.53 billion.Change
307、in solvency capital requirement2023bnSolvency capital requirement at 1 January 1.21 Model and parameter changes 0.07 Exposure changes(0.03)Adjustments relating to the sale of the brokered commercial insurance business(0.12)Solvency capital requirement at 31 December 1.13 During 2023,the Groups SCR r
308、educed by 0.08 billion to 1.13 billion.primarily due to the sale of the Groups brokered commercial business,partially offset by higher reserve risk.Scenario and sensitivity analysis1The following table shows the impact on the Groups estimated solvency capital ratio in the event of the following scen
309、arios as at 31December 2023.The impacts on the Groups solvency capital ratio arise from movements in both the Groups SCR and ownfunds.Impact on solvency capital ratioAt 31 December20232022Deterioration of small bodily injury motor claims equivalent to that experienced in 2008/09(5pts)(5pts)One-off c
310、atastrophe loss equivalent to the 1990 storm Daria(9pts)(10pts)One-off catastrophe loss based on extensive flooding of the River Thames(7pts)(10pts)Increase in Solvency II inflation assumption for PPOs by 100 basis points2(15pts)(10pts)100bps increase in credit spreads3(5pts)(5pts)100bps decrease in
311、 interest rates with no change in the PPO discount rate4(6pts)(2pt)Notes:1.Sensitivities are calculated on the assumption that full tax benefits can be realised.2.The periodic payment order(PPO)inflation assumption used is an actuarial judgement which is based on a range of factors including the eco
312、nomic outlook for wage inflation relative to the PRA discount rate curve excluding any change in discount rate.Scenario updated to the latest PPO inflation assumptions with discount rates held constant.3.Includes only the impact on assets held at FVTPL(excludes assets held at amortised cost)and assu
313、mes no change to theSCR.4.Scenario updated to latest PPO inflation assumptions and to include change in expected investment return on cash holdings.The 2022 sensitivity has been restated on a like for like basis.Strategic Report/Governance/Financial statementsDirect Line GroupAnnual Report and Accou
314、nts 20233333Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statementsOwn fundsThe following table splits the Groups eligible own funds by tier on a Solvency II basis.20232022At 31 DecemberbnbnTier 1 capital unrestricted 1.59 1.07 Tier 1 capital restricted 0.32
315、 0.32 Less reclassified restricted Tier 1 debt (0.05)Eligible Tier 1 capital 1.91 1.34 Tier 1 debt and Tier 2 subordinated debt 0.22 0.26 Tier 3 capital deferred tax 0.10 0.21 Ineligible Tier 3 capital (0.03)Total eligible own funds 2.23 1.78 Notes:1.As at 31December 2023,none(31December 2022:51mill
316、ion)of the Groups restricted Tier 1 capital was reclassified as Tier 2 due to Solvency II tiering restrictions.2.At 31December 2023,no ineligible Tier 3 capital arose as the Groups available Tier 3 capital was under the amount permitted under the Solvency II regulations(15%of the Groups SCR).At 31De
317、cember 2022,ineligible Tier 3 capital arose as the Groups Tier 3 capital was above the amount permitted under the Solvency II regulations.During 2023,the Groups eligible own funds increased from 1.78 billion to 2.23 billion.Eligible Tier 1 capital after foreseeable distributions represents 86%of own
318、 funds and 169%of the estimated SCR.Tier 2 capital relates to the Groups 0.22 billion subordinated debt with no ineligible Tier 1 capital.The maximum amount of Restricted Tier 1 capital permitted as a proportion of total Tier 1 capital under the Solvency II regulations is 20%.Restricted Tier 1 capit
319、al relates solely to the Tier 1 notes issued in 2017.The amount of Tier 2 and Tier 3 capital permitted under the Solvency II regulations is 50%of the Groups SCR and the amount of Tier 3 alone is 15%of the Groups SCR.The Group has no ineligible Tier 3 own funds.Reconciliation of IFRS shareholders equ
320、ity to Solvency II eligible own funds At 31 December20232022bnbnTotal shareholders equity 2.06 1.93 Goodwill and intangible assets(0.82)(0.82)Change in valuation of technical provisions 0.43 Other asset and liability adjustments(0.03)(0.04)Foreseeable dividend(0.05)Tier 1 capital unrestricted 1.59 1
321、.07 Tier 1 capital restricted 0.32 0.32 Less reclassified restricted Tier 1 debt (0.05)Eligible Tier 1 capital 1.91 1.34 Tier 2 capital reclassified restricted Tier 1 debt and Tier 2 subordinated debt 0.22 0.26 Tier 3 capital deferred tax 0.10 0.21 Ineligible Tier 3 capital (0.03)Total eligible own
322、funds 2.23 1.78 Notes:1.As at 31December 2023,none(31December 2022:51million)of the Groups restricted Tier 1 capital was reclassified as Tier 2 due to Solvency II tiering restrictions.2.At 31December 2023,no ineligible Tier 3 capital arose as the Groups available Tier 3 capital was under the amount
323、permitted under the Solvency II regulations(15%of the Groups SCR).At 31December 2022,ineligible Tier 3 capital arose as the Groups Tier 3 capital was above the amount permitted under the Solvency II regulations.Reconciliation of IFRS shareholders equity to Solvency II eligible own funds(bn)2.061.590
324、.820.430.030.320.220.10Total shareholders equityGoodwill and intangible assetsChange in valuation of technical provisionsOther asset and liability adjustmentsForeseeable dividendTotal own fundsnTier 1 capital unrestrictednTier 1 capital restrictednTier 1 debt and Tier 2nTier 3 capital deferred taxCF
325、O review continued2.230.0534Direct Line Group Annual Report and Accounts 2023Investment portfolioOur investment strategy aims to deliver several objectives,which are summarised below:to ensure there is sufficient liquidity available within the investment portfolio to meet stressed liquidity scenario
326、s;to match PPOs and non-PPOs liabilities in an optimal manner;and to deliver a suitable risk-adjusted investment return commensurate with our risk appetite.The current strategic asset allocation is being reviewed given the changed macro-economic environment and resulting shifts in investment risk an
327、d return opportunities.Asset and liability managementThe following table summarises the Groups high-level approach to asset and liability management.LiabilitiesAssetsCharacteristicsMore than 10 years,for example PPOsProperty and infrastructure debtInflation linked or floatingShort and medium term-al
328、l other claimsInvestment-grade creditFixed-key rate duration matchedTier 1 equityInvestment-grade creditFixedTier 2 sub-debtCommercial real estate loans and cashFloatingTier 2 sub-debt fixedInvestment-grade credit and cashFixed or floatingSurplus-tangible equityInvestment-grade credit,short-term hig
329、h yield,cash and government debt securitiesFixed or floatingAsset allocation and benchmarks-U K Insurance LimitedThe current strategic benchmarks for U K Insurance Limited are detailed in the following table:Benchmark HoldingActual HoldingBenchmark HoldingActual Holding2023202320222022Investment-gra
330、de credit 60.0%43.8%66.0%49.5%High yield 6.0%5.4%6.0%5.8%Investment-grade private placements 0.0%1.4%3.0%2.1%Credit 66.0%50.6%75.0%57.4%Sovereign 10.0%13.0%3.0%10.7%Total debt securities 76.0%63.6%78.0%68.1%Infrastructure debt 4.0%4.1%4.0%5.0%Commercial real estate loans 6.5%2.8%6.5%4.2%Other loans
331、0.0%0.1%0.0%0.0%Cash and cash equivalents 8.0%24.1%6.0%16.9%Investment property 5.5%5.3%5.5%5.8%Total investment holdings 100.0%100.0%100.0%100.0%With a focus during the year being on resilience of the capital position of the Group,assets under management has been overweight cash and underweight cre
332、dit versus its benchmark holdings.During this time,a strategic asset allocation exercise was undertaken which resulted in several benchmark allocation changes being implemented effective in Q4 2023.These included a 7%increase in sovereign holdings and a 2%increase in cash and cash equivalents,offset
333、 by a reduction in investment grade credit and private placement bonds,thus reducing expected volatility and value at risk in the portfolio.Strategic Report/Governance/Financial statementsDirect Line GroupAnnual Report and Accounts 20233535Direct Line Group Annual Report and Accounts 2023Strategic Report/Governance/Financial statementsInvestment holdings and yields20232022(restated)AllocationIncom
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