Direct Line Insurance : Trading Update for the first quarter of 2018

Continued progress towards strategic and financial targets

Paul Geddes, CEO of Direct Line Group, commented:
'We are pleased with our continued strategic progress and the momentum of the Group in Q1, growing our direct own brands in-force policies by 5.0%.

'The freezing weather earlier this year hit many drivers, households and businesses hard, and I am proud of the way our people helped our customers during this difficult period, demonstrating the value of our insurance cover and service. We estimate the claims associated with the major freeze event will utilise the Group's full annual weather budget.

'In Motor, the premium rises in the first half of 2017 have now largely reversed as customers benefitted from last year's favourable claims environment. On partnerships, Royal Bank of Scotland Home returned to policy growth for the first time since 2012, benefitting from our investment in digital capabilities, and Volkswagen² joined our portfolio of Motor partnerships.

'We are pleased we were able to grow while maintaining our discipline on loss ratios and we reiterate our full year targets.'

Highlights

• The Group continued to differentiate its Direct Line proposition to customers, recently launching a 'Fast Response' proposition for Home customers, and in Motor a 'Fair claim commitment' which protects customers from losing their no claims discount for a range of common non-fault claims.
• Motor own brands premiums grew by 5.3% and in-force policies grew by 5.0% compared to the prior year, with Direct Line particularly strong. Average premiums were higher than in Q1 2017, albeit the increase year on year reduced.
• Home own brands premiums grew by 0.4% and in-force policies grew by 1.8% compared to prior year as the price comparison website channel saw strong growth, while the Royal Bank of Scotland partnership achieved its first quarter on quarter policy growth since 2012. The exit from the Nationwide and Sainsbury's partnerships reduced premiums by £48.8 million compared to Q1 2017.
• Direct Line for Business and Green Flag, the direct businesses in our Commercial and Rescue categories, continued their progress growing premiums by 8.6% and 9.6% respectively. NIG premiums fell 2.2%, although it saw underlying rate increases ahead of claims inflation, while Rescue partners continued their declining trend.
• Claims associated with the major freeze in Q1 2018 are expected to be in the region of £50 million post tax, resulting in the annual weather claims budget⁴ being broadly utilised in Q1.
• The Group's final solvency capital ratio at 31 December 2017 included in its Solvency and Financial Condition Report is 165% for the full year (estimate in Annual Report & Accounts 2017: 162%).

Notes:

1. Direct Line Group's Trading Update relates to the three months ended 31 March 2018, and contains information to the date of publication.
2. Volkswagen Insurance Service (Great Britain) Limited, which covers five well-known brands - Volkswagen, Audi, SEAT, ŠKODA and Volkswagen Commercial Vehicles.
3. Direct own brands includes in-force policies for Home and Motor under the Direct Line, Churchill and Privilege brands, Rescue policies under the Green Flag brand and Commercial under the Direct Line for Business brand.
4. The Group's current assumption of a normal annual level of claims costs from major weather events in 2018 is approximately £55 million for Home and £20 million for Commercial pre-tax and before profit commission.

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Corporate information

Direct Line Insurance Group plc is a public limited company registered in England & Wales, number 02280426. The address of the registered office is Churchill Court, Westmoreland Road, Bromley BR1 1DP.

The Annual Report & Accounts 2017 is available at: www.directlinegroup.com

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Certain information contained in this document, including any information as to the Group's strategy, plans or future financial or operating performance, constitutes 'forward-looking statements'. These forward-looking statements may be identified by the use of forward-looking terminology, including the terms 'aims', 'ambition', 'anticipates', 'aspire', 'believes', 'continue', 'could', 'estimates', 'expects', 'guidance', 'intends', 'may', 'mission', 'outlook', 'over the medium term', 'plans', 'predicts', 'projects', 'propositions', 'seeks', 'should', 'strategy', 'targets' or 'will' or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include statements regarding the intentions, beliefs or current expectations of the Directors concerning, among other things: the Group's results of operations, financial condition, prospects, growth, strategies and the industry in which the Group operates. Examples of forward-looking statements include financial targets and guidance which are contained in this document specifically with respect to the return on tangible equity, solvency capital ratio, the Group's combined operating ratio, prior-year reserve releases, cost reduction, reductions in expense and commission ratios, net investment income yield, net realised and unrealised gains, results from the Run-off segment, restructuring costs and risk appetite range. By their nature, all forward-looking statements involve risk and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future or are beyond the Group's control.

Forward-looking statements are not guarantees of future performance. The Group's actual results of operations, financial condition and the development of the business sector in which the Group operates may differ materially from those suggested by the forward-looking statements contained in this document, for example directly or indirectly as a result of, but not limited to, UK domestic and global economic business conditions, the outcome of the negotiations relating to the UK's withdrawal from the European Union, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities (including changes related to capital and solvency requirements or the Ogden discount rate), the impact of competition, currency changes, inflation and deflation, the timing impact and other uncertainties of future acquisitions, disposals, joint ventures or combinations within relevant industries, as well as the impact of tax and other legislation and other regulation in the jurisdictions in which the Group and its affiliates operate. In addition, even if the Group's actual results of operations, financial condition and the development of the business sector in which the Group operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods.

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