Impact of the Lord Chancellor's announcement

RNS Number : 9010X

Direct Line Insurance Group PLC

27 February 2017

 

Direct Line Insurance Group plc

Impact of the Lord Chancellor's announcement

27 February 2017

Direct Line Insurance Group plc (the "Group") is updating the market following today's announcement by the Lord Chancellor regarding the discount rate for calculating personal injury damages awards. The new discount rate to be used is -0.75% ("New Discount Rate"). The Group notes that the Government has said it will review the framework under which the rate has been set today by the Lord Chancellor.

The Group expects to recognise the New Discount Rate in its financial statements and also within its Solvency 2 ratio calculation for the year ended 31 December 2016. The Group has previously disclosed in its 2015 Annual Report that its claims liabilities, at that time, were calculated using a discount rate of 1.5%.

The Group currently estimates that the impact of moving to the New Discount Rate of

-0.75% on the 2016 reported financials would be to:

·     reduce profit before tax by between £215 million and £230 million after reinsurance recoveries (including the impact on both ongoing and run-off business);

·     increase the Combined Operating Ratio ("COR") for ongoing business by approximately 6ppts; and

·     reduce the Group's year end Solvency II capital coverage ratio before dividends, to towards the higher end of the Group's target range of 140-180%. As at 30 June 2016, the Group's Solvency II coverage ratio was 184% after interim dividends.

The Lord Chancellor's recent announcement has left open the possibility of further changes to the process by which the rate is set, and therefore the rate itself.  The implications of this uncertainty have not, at this stage, been included within the Group's solvency calculation. 

Before adjusting for the New Discount Rate, the Group confirms it expects to achieve its guidance of a combined operating ratio of towards the lower end of the 93%-95% range adjusted for normal weather for the year ended 31 December 2016.

The Group is committed to ensuring claimants receive appropriate compensation.  The Group is disappointed at the Lord Chancellor's decision, but will take the time to review the full statement of reasons given.  The Group welcomes the consultation to consider options for reform to achieve a better and fairer framework for claimants and defendants.  

The Group's capital and reserve strength, coupled with its leading brands, differentiated propositions and excellent service mean it is well positioned despite higher claims costs arising from the New Discount Rate.

The Group will provide further details in its preliminary full year results announcement scheduled for 7 March 2017, including its estimated Solvency II position as at 31 December 2016.

This document contains inside information for the purposes of Article 7 of European Union Regulation 596/2014.

-ENDS-

For investor and media enquiries please contact:
Andy Broadfield	Jennifer Thomas
Director of Investor Relations	Head of Financial Communications
Tel: [phone]	Tel: [phone]

 

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