y Re sults e brua ry 2014 e liminar 26 F 2013 Pr Age nda and pr - PDF document

y Re sults e brua ry 2014 e liminar 26 F 2013 Pr

Age nda and pr e se nte r s Ke y me ssa g e s Pa ul Ge dde s - CE O F ina nc ia ls John Re ize nste in - CF O Stra te g ic upda te Pa ul Ge dde s - CE O Summa ry a nd outlook Pa ul Ge dde s - CE O Que stions and answe rs 2 2

Age nda and pr e se nte r s Ke y me ssa g e s Pa ul Ge dde s - CE O F ina nc ia ls John Re ize nste in - CF O Stra te g ic upda te Pa ul Ge dde s - CE O Summa ry a nd outlook Pa ul Ge dde s - CE O Que stions and answe rs 3 3

Ke y me ssage s 2 COR • Ope ra ting profit 1 of £526.5m, up 14.2% ; 1 101.8% profit be fore ta x of £423.9m, up 70.2% 99.2% 98.0% 96.1% • 5% growth in final divide nd plus a se c ond 2 spe c ial divide nd of 4.0p – total divide nds of 20.6p for 2013 2011 2012 2013 Target 2011 2012 2013 2013 • Target Pe r for manc e r e fle c ts foc us on value ove r 3 volume toge the r with be ne fits fr om our 3 ROT E tr ansfor mation plan 16.0% • 15.0% Mar ke ts r e main highly c ompe titive ; 13.4% 4 g uida nc e of 95% - 97% COR for 2014 10.0% (nor malising for we athe r ) • Pr e liminar y e stimate of YT D Home flood 5 a nd stor m c la ims of £70- 90m a nd a pprox. £20m for Comme rc ia l 4 2011 2012 2013 Ongoing Pro forma Target 1 Ope rating pro fit fro m Ong o ing o pe ratio ns 2 Co mb ine d o pe rating ratio fro m Ong o ing o pe ratio ns 4 3 Ro T E is adjuste d pro fit afte r tax fro m o ng o ing o pe ratio ns divide d b y the Gro up’ s ave rag e tang ib le share ho lde rs’ e q uity. Pro fit afte r tax is adjuste d to e xc lude run-o ff o pe ratio ns and re struc turing and o the r o ne -o ff c o sts and is state d afte r c harg ing tax (using UK standard tax rate o f 23.25%). 4 T o 22 F e b ruary 2014

Age nda and pr e se nte r s Ke y me ssa g e s Pa ul Ge dde s - CE O F ina nc ia ls John Re ize nste in - CF O Stra te g ic upda te Pa ul Ge dde s - CE O Summa ry a nd outlook Pa ul Ge dde s - CE O Que stions and answe rs 5 5

F inanc ial highlights (£m unless stated) Obse rva tions 4Q 13 4Q 12 F Y 13 F Y 12 • Ong oing ope rations GWP of £3,826.6m down 4.1% ve rsus 2012 1 Gross written premium 873.0 905.4 3,826.6 3,990.6 1 Underwriting profit/(loss) 15.8 19.8 138.2 28.2 • 2 14.2% inc re ase in ope rating pr ofit fr om Instalment and other income 42.7 51.5 180.2 198.3 ong oing ope ra tions Investment return 50.2 42.0 208.1 234.7 Ope rating profit – Ong oing 2 108.7 113.3 526.5 461.2 • 3 COR of 96.1% , a 3.1ppt improve me nt ope r ations Profit before tax 90.9 60.2 423.9 249.1 • £110m improve me nt in unde rwriting Net income / profit after tax 69.7 42.5 312.8 184.3 profit Of whic h Ong o ing o pe ratio ns 1 76.3 79.2 375.2 326.5 • 4 Combined operating ratio 98.2% 97.9% 96.1% 99.2% RoT E of 16.0% , a 2.6ppt improve me nt 3 Investment return 2 - - 2.5% 2.8% • RoTE 3 4 - - 16.0% 13.4% 5 F inal divide nd of 8.4 pe nc e pe r share , re fle c ting 5% g rowth a nd a furthe r spe c ia l Adjusted EPS 4 – diluted - - 25.0p 21.8p divide nd of 4.0 pe nc e pe r sha re , ta king tota l divide nds to 20.6 pe nc e pe r sha re Re g ula r divide nds pe r sha re - - 12.6p 12.0p 5 Spe c ial divide nds pe r share - - 8.0p - 1 Pro fit fro m Ong o ing o pe ratio n le ss financ e c o sts and tax (UK standard tax rate 23.25%: 2012 24.5%) 2 I nc lude s re alise d g ains and lo sse s and unre alise d g ains and lo sse s to the inc o me state me nt 6 3 Ro T E is adjuste d pro fit afte r tax fro m o ng o ing o pe ratio ns divide d b y the Gro up’ s ave rag e tang ib le share ho lde rs’ e q uity. Pro fit afte r tax is adjuste d to e xc lude run-o ff o pe ratio ns and re struc turing and o the r o ne - o ff c o sts and is state d afte r c harg ing tax (using UK standard tax rate o f 23.25%; 2012 24.5%). Pro -fo rma Ro T E assume s that the c apital ac tio ns take n b y the Gro up prio r to I PO (£1b n divide nd and £500m de b t issue o c c urre d o n 1 January 2012 4 Adjuste d E PS c alc ulate d using pro fit fro m Ong o ing o pe ratio ns afte r tax (se e 1)

Stable c ur r e nt ye ar unde r wr iting pe r for manc e L oss ra tio a na lysis - ong oing ope ra tions F Y 2012 F Y 2013 Includes c. 1.2ppts of German Includes c. 0.6ppts of hail and Commercial weather Commercial large above normal losses above normal 73.0% 73.0% £322m 2.8% 67.1% £435m £105m 2.0% 8.7% 62.6% £69m 12.4% Full year Prior year Home major Full year Full year Prior year Home major Full year 2012 development weather 2012 2013 development weather 2013 current year events reported current year events reported attritional attritional 7

Impr oving e xpe nse r atio Obse rva tions E xpe nse a na lysis - ong oing ope ra tions Expense ratio • E 23.0% 22.3% xpe nse r atio down 0.7ppts to 22.3% • Ope ra ting e xpe nse s down 9.2% or £105m to £1,137m £1,032m £1,032m 282 2 • Q4 2013 c osts of £248m 246 £855m £786m • Good prog re ss towa rds tota l c ost ta rg e t of 156 207 a pproxima te ly £1,000m in 2014 54 58 313 E xpe nse ra tio move me nt - ong oing ope ra tions 337 203 23.0% 22.3% 1.1% 184 129 1.9% Full year Full year 2013 2012 Staff costs Claims handling expenses 1 Marketing costs Other costs FY 2012 Impact of NEP Reduction in FY 2013 Management fees Depreciation / amortisation expenses 1 I nc lude d in lo ss ratio 2 Re duc tio n in 2012 c laims handling c o sts o f c . £8m c o mpare d with the fig ure re po rte d due to a re allo c atio n b e twe e n Ong o ing and Run-o ff 8

Motor highlights Re sults Obse rva tions • (£m unless stated) IF Ps down 7.1% sinc e De c e mbe r 2012, or 5.4% F Y 2013 F Y 2012 1 a djusting for va n re c la ssific a tion; broa dly sta ble sinc e Q2 2013 In- forc e polic ie s (000s) 1 1 3,762 4,050 Gross written premium 1 1,421.1 1,623.5 2 • Net earned premium 1,444.8 1,629.2 GWP down 12.5% ve rsus 2012 or 10.8% 2 a djusting for va n re c la ssific a tion Loss ratio – current year 85.3% 85.4% • Loss ratio – prior years (20.2%) (10.8%) 9.5ppt improve me nt in loss ra tio 3 Loss ratio 65.1% 74.6% 3 Commission ratio 2.5% 2.0% • 4 £124.4m improve me nt in unde rwriting profit Expense ratio 25.6% 25.0% • 8.4ppt improve me nt in c ombine d Combine d ope r ating r atio 93.2% 101.6% ope ra ting ra tio Underwriting profit / (loss) 98.1 (26.3) 4 Of whic h prio r ye ar re le ase s 291.9 174.3 • Insta lme nt a nd othe r inc ome down £21.3m 5 due to re duc e d volume s a nd the ba nning of Instalment and other income 2 126.8 148.1 5 solic itors’ re fe rra l fe e s Investment return 122.8 140.0 • Ope rating profit 6 347.7 261.8 32.8% improve me nt in ope ra ting profit 6 1 Adjustme nt made to GWP and I F Ps fo r DL 4B Van histo ric ally re po rte d in pe rso nal line s Mo to r (GWP: £19.8m F Y 2013, £29.8m F Y 2012. I F Ps: 61k De c 2013, 74k De c 2012). Ne w b usine ss writte n in Co mme rc ial divisio n sinc e Se pte mb e r 2010 9 2 T rac ke r dispo se d in F e b ruary 2014 – 2013 re sult inc lude s T rac ke r re late d inc o me and e xpe nse s - £18.4m in o the r inc o me and £19.8m in o the r e xpe nse s (inc lude d in e xpe nse ratio )

Motor c laims tr e nds BI c appe d 1 burn c ost vs T 2 (inde xe d) PWP BI c appe d se ve rity inflation 250 2013 vs. 2012 vs. 2011 vs. 2010 vs. Direct Line Group 2012 2011 2010 2009 200 Inflation at latest TPWP (12.9%) 1.0% (3.5%) (6.4%) settlement rate point 150 Inflation in booked (4.5%) (0.3%) 0.0% (2.6%) best estimate 3 100 Inde xe d (2009 = 100) Delivering lower than market average burn Inflation at settlement 50 79.5 91.2 90.3 93.6 cost point Inflation in booked 0 92.8 97.1 97.4 97.4 best estimate 3 2004 2005 2006 2007 2008 2009 201 0 201 1 201 2 201 3 Motor booke d loss ra tio de ve lopme nt (g ross 4 ) 105% 100% At the end of 2009 95% 90% At the end of 2010 85% At the end of 2011 80% 75% At the end of 2012 70% At the end of 2013 65% 60% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Ac c ide nt ye ar 1 Small b o dily injury c laims c appe d at £50k (in 1999) 2 T PWP: I F OA T hird Party wo rking party pre liminary re po rt 2013. T he me asure s are se ttle me nt spe e d adjuste d e xc luding nils 10 3 E xc lude s marg in 4 Base d o n manag e me nt b e st e stimate , g ro ss o f re insuranc e and e xc lude s c laims handling c o sts