10th September 2023
Jon Greenwood, acting ceo of Direct Line, comments:
"Over the last six months we have taken decisive action to put the Group back on a more stable footing. In March, we set out that our key priorities were to restore capital resilience, to improve Motor performance and to maintain the
performance of our non-Motor businesses.
The proposed sale of the brokered commercial insurance business that we announced this week addresses the first, at
the same time as focusing our strategy on retail personal lines and small business commercial customers. Its impact is
estimated to increase the Group’s solvency ratio on a pro forma basis by approximately 45 percentage points. It also
crystallises an attractive valuation for a business we have turned around over the last ten years, but one that ultimately has a different trading model and operates in a different part of the UK insurance market to the rest of the Group.
Our second priority this year has been to improve margins in Motor. We have made good progress and with increased
pricing together with other underwriting actions, delivered gross written premium growth of 7% and we now believe that
we are underwriting profitably, consistent with a 10% net insurance margin. This has taken longer than expected and will take time to flow through into reported earnings.
The underlying performance of our non-Motor businesses has remained resilient and benefited from relatively benign
weather conditions so far in 2023. Excluding Motor, the Group delivered gross written premium and associated fees
growth of 12% and a net insurance margin of 12.2%.
Although the personal lines market continues to be challenging, we are taking the actions necessary to set the Group up for improved performance.
We have announced that we have agreed to sell our NIG business to RSA Insurance Limited for an upfront consideration of £520m and an earn out of up to £30m. In addition, we estimate we will release capital of £270m over
time, with approximately £170m released upfront when the transaction is approved by shareholders..
NIG has been a part of the Group since 2003 with its success driven by its strong and extensive partnerships with brokers, delivering tailored insurance propositions for UK SME customers. Since the IPO in 2012, we have improved the operational and financial performance of NIG including improving technology, introducing new pricing and underwriting tools and developing new broker relationships. Recent performance demonstrates the success of this strategy with premium growth and improved margins.
With the success of the operational turnaround of NIG and given the differences in the trading model versus our other
businesses, we believe it is an appropriate time to sell and crystallise the value that has been created. Following the sale ,we will be fully focused on retail personal lines and commercial small business customers where our brands, claims
management and technology give us the opportunity to outperform for our customers.
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