Direct Line Regulatory News (DLG)

DIRECT LINE INSURANCE GROUP PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021

8 March 2022

STRONG RESULTS, INCREASED DIVIDEND, SHARE BUYBACK ANNOUNCED

PENNY JAMES, CEO OF DIRECT LINE GROUP, COMMENTED

"I am delighted by the Group's strong performance and proud of the way we have navigated the complexities of a challenging market. Operating profit has increased to £582 million, own brands policies grew as our Home, Commercial and Rescue businesses performed strongly, whilst in Motor we steered a smart path through another uncertain period as the market sought to predict the impact of Covid-19. We are pleased to declare a final dividend of 15.1 pence per share, up by 2.7% over 2020, and also announce a further share buyback programme.

"2021 has been a year of significant strategic progress - we've successfully completed the main elements of our technology build and data capability, both key enablers of future growth. Our new motor platform is improving our competitiveness, we've announced a new partnership with Motability Operations that is expected to see over 640,000 customers join us in 2023 and we've extended our Home partnership with NatWest Group until 2027.

"I can't thank my colleagues enough. This year's success is due to the sheer dedication of our brilliant people who have continued to deliver despite the challenges of a pandemic. This is a fantastic business, with great brands, a customer obsessive mindset and an exceptional claims service where we are harnessing the best of technology to meet customer needs. The capability we have built is already delivering improved competitiveness and we believe there is plenty more to come in 2022."

Results summary

Financial highlights

- Direct own brands in-force policies grew 1.0% with growth across Commercial direct (7.5%), Green Flag Rescue (5.8%) and Home (2.3%). Motor direct own brands in-force policies were stable in H2 2021 with a reduction of 1.9% over the year. Direct own brands gross written premium was 0.8% lower and grew 0.7% in H2 2021.

- Operating profit increased to £581.8 million (2020: £522.1 million) driven by an increase in underwriting profit and a strong investment return result. Current-year contribution to operating profit, normalised for weather, was 53% (2020: 65%), in line with the Group's 2021 target of at least 50%.

- Combined operating ratio improved to 90.1% (2020: 91.0%). Normalised for weather, the combined operating ratio was 91.1%, ahead of our medium-term target of 93% to 95% and in line with the expectation of between 90% and 92% for 2021 we stated at half year.

- Profit before tax of £446.0 million was £5.4 million lower than 2020 as the increase in operating profit was offset by a £62.1 million increase in restructuring and one-off costs primarily reflecting restructuring of the property portfolio, including the purchase of the Bromley office in early 2021 as previously announced.

- Proposed final ordinary dividend of 15.1 pence per share, making a total of 22.7 pence per share, an increase of 2.7% over the 2020 total ordinary dividend, and announcing a £100.0 million share buyback programme. Strong capital position with an adjusted solvency capital ratio of 160%.

Strategic highlights

In 2021, we made great progress on our path to building the insurance company of the future - technology and data-led with a customer obsessive mindset. We completed the main elements of our technology build and continued to make progress across all six of our strategic objectives:

- Best at direct: Our main direct brands, Direct Line and Green Flag, continued to deliver great customer service with high net promoter scores across a broad product range. For Direct Line customers we continued to offer mileage-based savings, we helped make the transition to electric vehicles easier and we extended our product range. In Green Flag we delivered a new cloud-based policy platform for digital sales and relaunched the way we operate enabling us to offer more services alongside our great value recovery service. 

- Win on Price Comparison Websites: We have built on the success of Churchill in the PCW channel by rolling out our new Motor platform which allows us greater pricing sophistication, use of third-party data and speed to market. We saw some initial benefits of this in improved Motor competitiveness in the second half of the year. We have already launched further pricing enhancements in 2022 with machine learning techniques due to be deployed in Q2. This is complemented by the success of Darwin in this channel, which grew its in-force policy count by 150% in 2021 to over 135,000 policies.

- Extend our reach: We announced a new partnership with Motability Operations, demonstrating our core strengths in delivering great customer service and efficient car repair. The partnership shows how we can leverage our capability into wider customer groups and is anticipated to increase Motor gross written premium by around £500 million each year from H2 2023. We also agreed a long-term extension to our Home partnership with NatWest Group until 2027, where we currently provide Home insurance to its customers.

- Nimble and cost efficient: We reduced our operating expense base by £18 million in 2021, despite the inflationary backdrop, and reiterate our target of a 20% expense ratio in 2023. These savings evidenced the benefits from our transformation programme and have arisen across technology, property, operations and head office. We have taken action to reduce our office footprint by over 30%, compared to pre-pandemic levels, and are digitalising customer and back-office processes, with customers now able to register 100% of new motor and home claims online.

- Technical edge: We have expanded our claims expertise with the acquisition of our 22nd auto services repair centre and investment in a car technology centre. These actions support our double-digit repair cost advantage in Motor and we continue to invest in our capability to repair more advanced vehicles.

- Great people: We have refreshed our leadership with an Executive Committee team with the brilliant mix of digital, customer, data, insurance and agile skills we need to grow our business, levering the technology we have built. We believe we have some of the best people in the industry and we continue to invest in skills vital for the future including digital, data, engineering and pricing. We are also recruiting talent from other consumer industries who are attracted by our inclusive culture and improving agility.

Notes:

1. Direct own brands include in-force policies for Home and Motor under the Direct Line, Churchill, Darwin and Privilege brands, Rescue policies under the Green Flag brand and Commercial under the Direct Line for Business and Churchill brands.

2. See glossary for definitions and appendix A - Alternative performance measures for reconciliation to financial statement line items.

3. A reduction in the ratio represents an improvement as a proportion of net earned premium, while an increase in the ratio represents a deterioration. See glossary for definitions.

4. The Group's dividend policy includes an expectation that generally one-third of the regular annual dividend will be paid 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.

5. 2020 special dividend paid in lieu of the cancelled 2019 final dividend.

6. Estimates based on the Group's Solvency II partial internal model.

7. Adjusted solvency capital ratio excluding Tier 2 debt which can first be called from 27 April 2022. See appendix A - Alternative performance measures for reconciliation to financial statement line items.

Forward-looking statements disclaimer

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", "will" or "would" 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 several 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, the industry in which the Group operates and the Group's approach to climate-related matters. 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, percentage targets for current-year contribution to operating profit, prior-year reserve releases, cost reductions, reduction in expense ratio, investment income yield, net realised and unrealised gains, capital expenditure and, risk appetite range; and targets, goals and plans relating to climate and the Group's approach and strategy in connection with climate-related risks and opportunities. 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 and/or are beyond the Group's control and/or they rely on assumptions that may or may not transpire to be correct. Forward-looking statements are not guaranteeing 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:

- United Kingdom ("UK") domestic and global economic business conditions;

- the direct and indirect impacts and implications of the coronavirus Covid-19 pandemic on the economy, nationally and internationally, on the Group, its operations and prospects, and on the Group's customers and their behaviours and expectations;

- the Trade and Cooperation Agreement between the UK and the European Union ("EU") regarding the terms, following the end of the Brexit transition period, of the trading relationships between the UK and the EU and its implementation, and any subsequent trading and other relationship arrangements between the UK and the EU and their implementation;

- the terms of trading and other relationships between the UK and other countries following Brexit;

- the impact of the FCA pricing practices report and the rules and regulations arising as a result of that report and of responses by insurers, customers and other third parties and of interpretations of such rules by any relevant regulatory authority;

- market-related risks such as fluctuations in interest rates, exchange rates and credit spreads;

- the policies and actions and/or new principles, rules and/or changes to, or changes to interpretations of principles, rules and/or regulations, of regulatory authorities and bodies (including changes made directly or indirectly as a result of Brexit or related to capital and solvency requirements or related to the Ogden discount rate or rates or made in response to the Covid-19 pandemic and its impact on the economy and customers) and changes to law and/or understandings of law and/or legal interpretation following the decisions and judgements of courts;

- the impact of competition, currency changes, inflation and deflation;

- the timing, impact and other uncertainties of future acquisitions, disposals, partnership arrangements, joint ventures or combinations within relevant industries; and

- the impact of tax and other legislation and other regulation and of regulator expectations, interventions, enforcements, fines and requirements and of court, arbitration, regulatory or ombudsman decisions, judgements and awards (including in any of the foregoing in connection with the Covid-19 pandemic) 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 forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods.

The forward-looking statements contained in this document reflect knowledge and information available as of the date of preparation of this document. The Group and the Directors expressly disclaim any obligations or undertaking to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, unless required to do so by applicable law or regulation. Nothing in this document constitutes or should be construed as a profit forecast.

Neither the content of Direct Line Group's website nor the content of any other website accessible from hyperlinks on the Group's website is incorporated into, or forms part of, this document.

Financial summary

Notes:

1. A reduction in the ratio represents an improvement as a proportion of net earned premium, while an increase in the ratio represents a deterioration. See glossary for definitions.

2. See glossary for definitions and appendix A - Alternative performance measures for reconciliation to financial statement line items.

3. 2020 special dividend paid in lieu of the cancelled 2019 final dividend.

4. Estimates based on the Group's Solvency II partial internal model.

5. Adjusted solvency capital ratio excluding Tier 2 debt which can first be called from 27 April 2022. See appendix A - Alternative performance measures for reconciliation to financial statement line items.

CEO REVIEW

As I reflect on 2021, I am delighted by the Group's strong performance. I feel proud of the way we have navigated the complexities and uncertainties of a challenging market, impacted by the pandemic. Commercial, Home own brands and Rescue have grown, benefiting from the investments we have made in recent years in technology and pricing, whilst in Motor we have prepared for future growth while steering a smart path through a period of falling premium and uncertain claims frequency as the market seeks to predict the shape of the pandemic and its effect on customer driving behaviour.

At the same time we have made brilliant strategic progress. After several years replacing the technology across the business, introducing agile ways of working and building our data foundations, we are nearing the completion of our technology transformation phase.

Through that transformation we have improved the profitability of the business we write, with releases from older reserve years no longer such a significant part of our annual profits. We have delivered performance across the business, including the quality of claims management, pricing and improvements in our cost efficiency. We anticipate further progress in all these areas through 2022 and 2023.

So, as I look ahead, I see 2022 as the year we pivot to focusing on driving the business forward. 2021 has been dominated by delivering the transformation to enable future growth and preparing for one of the biggest changes the market has seen with the introduction of the FCA's new Pricing Practices Review regulations. As we tune and embed the systems we have built and plan for Home to join Motor on them, we also look ahead with excitement as we are able to focus on driving our performance in this new market.

As we look to make this shift, I have focused on making sure we have the right leadership to make us successful. Several members of our executive team have changed and we now have a team brimming with the customer and insurance experience that has driven our past success, but also the technology, digital and data skills we want to become the data- and technology-driven insurance company of the future.

We start from a position of strength, of course, with a track record of strong returns, having delivered a return on tangible equity of over 19% for each of the last five years and having returned over £2.1 billion of capital to shareholders over the same period, including the final dividend and share buyback programme announced today. This is possible due to our scale and expertise across our diversified business model, with market-leading brands across multi-products and multi-channels. These sustained returns, combined with our new tech capability, give us a platform for future success.

Our customer-obsessive mindset is intent on delivering long-term sustainable growth. We are a business that puts data at the heart of what it does and we are working to have it at everyone's fingertips - with the agility to create and tailor innovative solutions and give customers the flexible, modular and on-demand insurance products that give them control. It is why I am so excited by the progress we have made, having now rolled out our largest brands, Direct Line and Churchill, onto our new Motor platform.

This transformation builds on our existing core strengths of great customer service, strong brands and expert claims capability which look to harness the best of technology to make every customer interaction effortless, instant and transparent, however customers come to us. Our diversified business model gives us the platform to be the best at Direct and win through price comparison websites ("PCWs"), partners and brokers. The technology transformation enables a step change in our pricing capability and operational efficiency which is designed to further increase our competitiveness.

As we move to embed and leverage what we have built, we believe there is plenty more to come:

- Step changes in our use of pricing and data, which are already beginning to improve our competitiveness in Motor and we will continue to refine and enhance our pricing models and capabilities as we move through the year.

- The next sweep of our Brand advertising, building on the success of the 'superheroes' and Churchill campaigns.

- Improvements in our customer service and costs efficiency through material increases in straight-through processing.

- Over 640,000 Motability Operations customers who are scheduled to join us in 2023 in a deal focused on providing brilliant customer service and claims in a capital-efficient manner with 80% reinsured.

- And we are delighted to have extended our contract with NatWest Group to continue looking after their customers' Home insurance needs, a contract built on our ability to deliver great service for their customers through brilliant use of digital and data capability.

So, as we enter 2022, we are initially focused on understanding the new dynamics in the marketplace, where renewal and new business pricing are linked. It's early days but the market appears to be responding rationally and we are taking time to understand how customers will behave in the new pricing practices world and how to balance product, pricing and distribution to the best effect. The next phase is optimising for growth as we embed and tune the technology we've built.

We believe passionately that delivering sustainable growth in the long run means our customers, society and the planet need to thrive and we have a role to play in helping to ensure that is the case. In essence we need to do the right thing for our customers, our people and the planet. We are making our business an inclusive and rewarding place to work, where brilliant, skilled people can deliver in a high-performance culture. We are investing in the skills that our business will need for its future success and are offering training programmes to enable people who want to reskill to do so.

We have also made further strides to embed sustainability initiatives by prioritising actions which are good for the long-term interests of the business and which bring wider societal benefits. You can see this most strongly in the steps we are taking to protect our business from the impact of climate change and to give back more to the planet than we take out. Our decision this year to join the Race to Zero - committing to set Science-Based Targets to reduce emissions based on a 1.5°C pathway - reflects that ambition. But we also recognise our role in supporting customers to go green and delivering our new Direct Line electric vehicle proposition is another sign of our ability to innovate in an agile way.

This is a business I love, brimming with people who share my view and go the extra mile to support customers and one another. 2021 has been far from an easy year. Change is never comfortable and is rarely predictable. The results and progress are the outcome of the sheer dedication of our amazing people and their determination to succeed despite the challenges and strains of a pandemic. So, the most important thing I can do here is thank each one of them for sharing this journey with me.

Business performance

We are already beginning to see some financial benefits of our transformation, with another strong financial performance in 2021, growing our own brand policy count, delivering a combined operating ratio of 90.1% and increasing operating profit year on year by 11.4% to £581.8 million. This has enabled us to declare a final dividend of 15.1 pence, a 2.7% increase over 2020, and announce a share buyback programme of up to £100 million.

We grew direct own brand in-force policies by 1.0% driven by Commercial direct and Green Flag Rescue, our two divisions furthest through their transformation, and Home where we traded well in a buoyant new business market.

We continued to make progress on our cost agenda, with operating expenses reducing £18 million to £706 million and the expense ratio falling 0.6 percentage points to 23.9%. Whilst we saw levies increase by 11% during 2021, alongside heightened inflation in wage costs, these impacts were more than offset by lower technology costs, savings from our property strategy and a 9% reduction in headcount. We also incurred lower Covid-19 related costs.

The combined operating ratio at 90.1%, normalised for weather at 91.1%, was better than our medium-term target of 93% to 95% and in line with our mid-year stated revised expectation of between 90% and 92%. We achieved an excellent underwriting profit for the year with increased prior-year reserve releases and Motor claims frequency remaining below pre-pandemic levels in H1 2021.

This, together with a strong investment result, meant operating profit increased from £522.1 million in 2020 to £581.8 million in 2021. We have been focusing on improving the amount of our operating profit that comes from the current year and in 2021 met our target of at least 50%.

Motor - underwriting discipline and stable policy count in H2

In 2021 we took a significant step forward in Motor's strategic transformation by successfully launching our new Motor platform across our biggest brands, Direct Line and Churchill and expanding our claims expertise with the acquisition of our 22nd DLG Auto Services accident repair centre. We are already seeing the benefits of our new Motor platform and its improved pricing sophistication through increased competitiveness in H2 and there remain further opportunities ahead.

There were two major trends in the motor market during 2021. Firstly, against the backdrop of deflationary market conditions driven by claims frequency remaining below pre-pandemic levels and the impact of the Whiplash reforms, we remained disciplined and focused on maintaining target loss ratios. Secondly, following the implementation of the Motor platform we saw improved competitiveness, enabling us to hold policy count flat across H2 despite our average premiums reducing only 2.5% in 2021 compared to the market reducing 7%. Overall, gross written premium in 2021 reduced 3.5%.

Maintaining discipline during 2021 was especially important as Motor claims severity inflation remained slightly above the top end of our 3% to 5% medium-term expectations, driven by elevated damage inflation. We were able to mitigate some of this inflation through actions taken in our repair network but with second hand vehicle prices having increased dramatically since May 2021, this impacted both total loss settlements and theft claims. In addition we continued to see higher costs from cleaning and longer hire periods.

Operating profit decreased by £48.7 million to £314.8 million as we saw higher claims frequency after the lockdowns in 2020, partially offset by stronger prior-year reserve releases following favourable development in bodily injury claims. With claims frequency increasing back to expected levels in H2, our focus on disciplined underwriting enabled us to protect our margins as we entered 2022, with our H2 current year attritional loss ratio broadly in line with the underlying 2020 performance, at 79%.

Home - operating profit growth

Direct own brands gross written premium grew by 1.2% compared with 2020 as we capitalised on a buoyant new business market during H1. The market became increasingly competitive across H2 as we approached the implementation of the Pricing Practices Review regulations. Against this deflationary backdrop, particularly in the PCW channel, we maintained our discipline ending the year with growth in in-force policies of 2.3%.

We grew operating profit by £40.4 million to £141.8 million, driven by lower weather costs and higher prior-year reserve releases. Claims severity remained within our 3 to 5% medium term expectations and claims frequency remained in line with normal levels.

We continue to monitor the impact of heightened inflation, especially with construction materials such as concrete and lumber. Although we have a large Home business, construction materials only make up a small amount of our claims costs, with a greater proportion relating to labour costs and decorating materials where we have not seen significant inflation.

Rescue and other personal lines - Green Flag growth

This segment includes our challenger brand Green Flag, as well as other personal lines products - Pet, Travel, Creditor and our mid- to high-net worth business, UK Select.

Rescue and other personal lines premium reduced 9.0% in 2021 to £380.0 million with growth in Green Flag Rescue more than offset by lower gross written premium in Travel, with international travel volumes remaining low. Although the new business market was impacted by lockdown restrictions in H1, Green Flag Rescue grew gross written premium and policy count by 6.3% and 5.8% respectively in 2021, supported by strong retention. With the successful implementation of Rescue's new cloud-based policy platform for online sales in 2021, alongside its new operating model enabling us to offer more services alongside our great value recovery service, we believe we are increasingly well positioned to deliver continued growth.

Operating profit increased by £58.0 million in 2021 compared to 2020, with the non-repeat of the loss in Travel in 2020 alongside the continued profitable growth in Rescue.

Commercial - double-digit growth in both direct and broker business

Within Commercial we have two main businesses, NIG and other broker business and Commercial direct own brands. Commercial direct own brands includes Direct Line for Business and commercial products sold under the Churchill brand primarily on PCWs.

Commercial is the area of our business furthest through its technology transformation and demonstrates what can be achieved when it is combined with our existing strengths in strong brands and fantastic customer service.

During 2021 Commercial grew gross written premium by 15.0% with strong growth across both our direct own brands and NIG and other. Within direct own brands, Direct Line for Business continued to deliver double-digit growth within the micro small to medium enterprise ("SME") market, supported by 64% growth in Churchill for business. NIG delivered the highest gross written premium growth in the last 10 years as it leveraged its new pricing capability alongside the high levels of broker and customer service maintained throughout the pandemic.

Commercial's operating profit increased by 19.8% to £60.4 million in 2021, with its strong growth, higher investment return and modest increase in prior-year reserve releases more than offsetting a 2.4 percentage point higher current year attritional loss ratio due predominantly to increased large fire claims.

Impact of Covid-19

Whilst in 2020 we saw a modest indirect economic benefit from the Covid-19 pandemic in our results, during 2021 the impact was less marked. Within Motor we saw similarly low levels of claims frequency across the first half of 2020 and 2021 and with restrictions easing across H2 2021 we saw claims frequency increase back to expected levels. Throughout 2021 motor market premiums reduced, in part reflecting this trend and offsetting the financial impact.

Outside of Motor the impact of Covid-19 was even less significant. Rescue saw lower new business shopping during lockdown restrictions whist claims experience in Home and Commercial was not significantly affected.

In our Travel business, lower customer travel levels continued to reduce gross written premium below pre-pandemic levels and claims volumes reduced in 2021 following the non-repeat of Covid-19 related claims in 2020.

Strategy update

Valuable customer relationships

Following the implementation of the FCA Pricing Practices regulatory changes at the start of 2022, the importance of strong customer relationships has never been higher.

Strong brands and great customer service have always been core strengths of our business and that has been consistently demonstrated by our high Net Promoter Scores and retention rates across both Home and Motor.

Throughout our technology transformation, we have always started with the customer. Our new technology architecture has delivered a step change in our digital capabilities, enabling our customers to deal with us however they wish. We have seen customer use of our digital channels increasing month on month throughout 2021, with 100% of Motor and Home claims now able to be registered online.

Our diversified business model also means that customers can deal with us through a range of recognised brands across a number of products. This enables us to support a real breadth of different customers.

Darwin, a new brand we set up in 2019, is a great example of our diversified approach. It uses machine learning to leverage our existing data resource and counter-fraud expertise to offer customers a low-cost digital product. In just two years it has increased to over 135,000 policies, is ranked in the top 10 on TrustPilot and provides us another powerful brand in the PCW channel.

Finally, our transformation has enabled us to improve our competitiveness through increased accuracy and agility in our pricing, as well as increasing the breadth of propositions that we can offer. During 2021 we rolled out our new electric vehicle proposition, building on our expertise in this growing market and helping our customers make the switch to electric vehicles.

Strategic objectives

Overall, in 2021, we made great progress on our path to building the insurance company of the future - technology and data led and with a customer-obsessive mindset. We not only completed the main elements of our technology build but have also made great progress against our six strategic objectives;

Growing the portfolio

Commercial and Green Flag Rescue are the areas of our business that are furthest through their transformation and they demonstrate what can be achieved when we combine our existing strengths in claims management, customer service and strong brands, with a new technology infrastructure and agile ways of working.

Between them they drove strong gross written premium growth of 13.9% in 2021 and gained share in their respective markets. We are adopting similar approaches in Motor and Home and are seeking to grow our share over time.

Longer term, we believe our brand strength enables us to extend into broader products and services to meet customers' needs. Direct Line has recently launched a standalone cyclist product to take advantage of this growing market and to attract new customers to other more established products; our electric vehicle proposition is designed to help customers transition to electric vehicles and is only one part of a wider ecosystem; and Green Flag, by changing its operating model, can now offer more assistance to customers during a vehicle recovery. These are all examples of how we are broadening our propositions and products to deliver for more customers.

Sustainability strategy progress

We have continued to make progress on our sustainability strategy this year, improving our MSCI ESG rating from an 'A' to 'AA', and will publish our second Task Force for Climate-related Financial Disclosures ("TCFD") report outlining our strategic response to climate change in our 2021 Annual Report. We have also participated in the Bank of England's Climate Biennial Exploratory Scenario ("CBES"), providing a clearer assessment of climate-related implications for the Group. We take our environmental targets seriously and this year joined the Race to Zero - committing to set Science-Based Targets to reduce emissions based on a 1.5°C pathway. While we finalise our submission to the Science Based Target Initiative ("SBTi") for approval, we are clear-sighted that setting ambitious targets requires practical measures to help reduce our emissions.

Colleagues have been innovating and trialling solutions to guide our emission reduction strategy, including launching a Supply Chain Sustainability Programme and piloting measures in our garage network because these are some of our most carbon-intensive operations. Part of our strategic response also means helping to make it easy for our customers to go green so that we can both contribute to and benefit from accelerating the transition. As a major motor insurer we are determined to make it easy for customers to insure electric vehicles, while aiming to fix them in the most energy-efficient repair network in the UK. That's why our new electric vehicle proposition for Direct Line customers is such an exciting development and a sign of how we can take long-term sustainable decisions which are good for the planet and our business.

UK weather

During February 2022, the UK experienced three significant storms: Dudley, Eunice and Franklin. To date, we have already helped over 10,000 customers across Home and Commercial and estimate claims to be between £30 million and £40 million. This is an early estimate and is within our annual weather budget assumption for 2022.

Ukraine conflict

We are deeply saddened and shocked by the conflict in Ukraine and have made an immediate donation from the Group's Community Fund to the UK's DEC Ukraine Humanitarian Appeal. As a UK-based business, there has been no direct impact from the conflict in Ukraine that started in February 2022. The investment portfolio has no direct exposure to Russia or Ukraine.

Dividend and capital management

The Board has recommended a final ordinary dividend of 15.1 pence per share, making a total of 22.7 pence per share, an increase of 2.7% over the 2020 total ordinary dividend.

Following the £100 million share buyback programme in 2021 and reflecting the strength of our capital position, we intend to commence a further share buyback programme of up to £100 million split into two tranches of up to £50 million each, the first in H1 and the second scheduled for H2.

After the proposed final dividend and £100 million share buyback programme, the estimated solvency capital ratio was 176% as at 31 December 2021. We have outstanding Tier 2 debt issued in 2012 with nominal value of £250 million which can first be called from 27 April 2022. Excluding this debt, the adjusted solvency ratio after the proposed final dividend and share buyback would be 160% which is in the middle of our stated risk appetite range of 140% to 180% of solvency capital requirement.

We have a track record of returning capital to shareholders, with £2.1 billion returned over the last five years, whilst also improving our capital structure with issues of Restricted Tier 1 and Tier 2 debt. Furthermore, over the last two Motor reinsurance renewals we have reduced the amount of excess of loss reinsurance purchased as increasing reinsurance prices has made it less effective economically. Looking forward, we have a strong balance sheet with further opportunities to reduce capital intensity and increase flexibility.

Outlook

Our strong strategic progress and disciplined approach to trading throughout 2021 mean we were well placed as we entered 2022 and began the implementation of the FCA Pricing Practices regulatory changes.

These are early days but we have seen positive new business premium inflation across the Home and Motor markets in January and February 2022, with search volumes higher but with switching reduced when compared to the same period in 2021. Our retention levels in Motor and Home have remained strong. These movements are within the range of outcomes we had projected and prepared for.

Our initial focus was on aiming to safely land the changes compliantly, while seeking to understand both market and consumer behaviour in the new environment. Our multi-brand portfolio sets us up well as it enables us to both protect value and be competitive in new business. This will enable us, as we move through the year, to optimise for growth and shareholder value whilst all the time delivering great outcomes for customers.

There are a range of inflationary pressures currently being seen within our market. Our claims expertise, including our repair cost advantage in Motor, puts us in a good position to manage these. Elsewhere, we have delivered absolute reductions in our overall cost base and we plan to reduce costs further during 2022.

Reflecting this, as well as our long-term confidence underpinned by our strategic transformation, we reiterate our combined operating ratio target range of 93% to 95%, normalised for weather, in 2022 and over the medium term. We also reiterate our expense ratio target of 20% for 2023, assuming modest premium growth, and our ongoing target of achieving at least a 15% return on tangible equity each year.

Having completed the main elements of our technology build we have complemented our strengths in strong brands, fantastic customer service and market-leading claims capabilities with a step change in our pricing capability, greater digitalisation and improved efficiency.

Whilst we are already seeing some of the benefits of this new capability coming through, the full benefits are yet to be realised, which leaves us well positioned to build on this strong performance through 2022 and beyond.

PENNY JAMES

CHIEF EXECUTIVE OFFICER

FINANCE REVIEW

Performance

Operating profit1

Notes:

1. See glossary for definitions and appendix A - Alternative performance measures for reconciliation to financial statement line items.

In 2021 we delivered a strong financial performance, growing our own brand policy count, delivering a combined operating ratio of 90.1% and increasing operating profit year on year by 11.4%. This enabled us to declare a final dividend of 15.1 pence, a 2.7% increase over 2020, and announce a further share buyback programme of up to £100 million.

We delivered operating profit of £581.8 million, an increase of £59.7 million over 2020, driven by increased underwriting profit and a strong investment return, partially offset by lower instalment and other operating income. Current-year contribution to operating profit, normalised for weather, was 53% (2020: 65%), in line with our target of at least 50%.

Underwriting profit increased by £23.7 million, with increases in prior-year reserve releases and lower operating costs being partially offset by higher claims frequency in Motor. Increases in prior-year reserve releases benefited from favourable development across several perils in Home and large bodily injury reserves development in Motor as uncertainty arising from Covid-19 and Brexit reduced. The combined operating ratio at 90.1%, normalised for weather at 91.1%, was better than our medium-term target of 93% to 95% and in line with our stated mid-year revised expectation for 2021 of between 90% and 92%.

Lower average premiums in Motor and lower claims volumes across the whole year drove a reduction in instalment and other income to £144.0 million (2020: £159.2 million).

Investment return increased by £51.2 million in 2021 following £43.6 million of realised and unrealised gains across our investment property and credit portfolios (2020: £11.7 million of net realised and unrealised losses).

During 2021, the impact of Covid-19 was less significant than in the previous year where it caused a modest overall indirect economic benefit. Whilst Motor claims frequency remained below pre-pandemic levels in H1, it increased back to expected levels during H2 and Motor saw elevated severity inflation in damage claims throughout the year.

In-force policies and gross written premium

In-force policies (thousands)

Direct own brand policies grew 1.0% to 7.5 million with growth in Commercial, Green Flag Rescue and Home offsetting declines in Motor. Total in-force policies were broadly stable at 14.6 million (31 December 2020: 14.6 million) as the increases in direct own brand and Commercial NIG in-force policies were offset by lower partnership and Travel volumes.

Gross written premium

Direct own brands gross written premium reduced by 0.8% to £2,207.6 million (2020: £2,225.6 million) where strong growth in Commercial and Green Flag Rescue were offset by lower volumes and lower average premiums in Motor. Total gross written premium of £3,171.6 million (2020: £3,180.4 million) reduced by 0.3% with strong growth in Commercial NIG offset by the small reduction in own brands and a reduction in Travel.

Motor

Motor in-force policies reduced by 2.2% to 4.0 million compared to 2020, with own brand in-force policies down by 1.9% at 3.9 million. Gross written premium reduced by 3.5% to £1,560.8 million in the same period, with Motor own brand average premium reducing 2.5% during 2021.

There were two major trends in the motor market during 2021. Firstly, against the backdrop of deflationary market conditions driven by claims frequency remaining below pre-pandemic levels and the impact of the Whiplash reforms, we remained disciplined and focused on maintaining target loss ratios. Secondly, following the implementation of the Motor platform we saw improved competitiveness, enabling us to hold policy count flat across H2 despite our average premiums1 reducing 2.5% in 2021 compared to the market reducing 7%.

We offered premium refunds to customers where miles driven were expected to be lower than anticipated at policy inception. In particular, we continued our "Mileage MoneyBack" proposition for all Direct Line customers such that customers would be able to receive a refund at the end of the policy period where they had driven less than expected.

Home

In-force policies for Home's own brands increased by 2.3% compared to 2020 to 1.9 million policies. Retention levels remained high, whilst new business sales grew across our direct channels reflecting improved competitiveness in a strong new business market in H1. The market became increasingly competitive across H2 as we approached the implementation of the Pricing Practices Review regulations. Against this deflationary backdrop, we maintained our discipline and reduced our competitiveness in relation to new business particularly in the PCW channel.

Own brands gross written premium increased by 1.2%, whilst overall gross written premium remained stable between 2020 and 2021. Partnership volumes reduced by 1.6%; Prudential and Sainsbury's partnerships are closed to new business and continued to run off in line with expectations.

Own brands average premium2 reduced by 1.6% compared to 2020, reflecting a change in mix towards lower risk policies, alongside risk-adjusted prices reducing by 1.0%. This followed pricing actions earlier in the year to capitalise on a buoyant new business market and to support retention, more than offsetting underlying inflationary price increases.

Rescue

Rescue in-force policies increased by 0.5% to 3.4 million and gross written premium increased by 2.0% to £170.0 million compared to 2020.

Green Flag Rescue continued to grow its higher average premium direct business during 2021, increasing in-force policies by 5.8% to 1.2 million and gross written premium by 6.3% to £88.3 million compared to 2020. Other Rescue lines, which include the linked channel, where cover can be purchased with a Group Motor policy, and Rescue partnerships, saw in-force policies and gross written premium reduce by 2.1% and 2.3% respectively.

In 2022, Green Flag is developing its customer proposition. As a result, the amount new customers pay will be split between premium and a service fee, which could result in up to approximately £10 million being recognised as other income instead of premium.

Other personal lines

Other personal lines (comprising Travel, Pet and other) in-force policies reduced by 1.8% to 3.6 million compared to 2020 primarily due to reductions in travel partnerships volumes. Gross written premium for Other personal lines decreased by 16.4% with reductions across all lines except policies tailored to mid- to high-net worth customers, where premium levels grew by 7.0%. In Travel, gross written premium was down 31.1% reflecting lower upgrade premium, lower partnership volumes and reduced partnership pricing that reflected lower claim expectations in 2021.

Commercial

Commercial in-force policies of 871,000 increased by 7.4% compared with 2020, reflecting strong growth in both Commercial direct own brands and NIG and other. Commercial gross written premium grew by 15.0% to £653.0 million (2020: £567.8 million).

Commercial direct own brands grew in-force policies by 7.5% and gross written premium increased by 14.8% to £187.4 million, with increases across all Commercial direct product lines. We continued to see the benefits of our technology transformation driving growth in SME trading on both the Direct Line for Business platform and Commercial's Churchill brand.

NIG and other in-force policy numbers were 7.2% higher than in 2020 and gross written premium grew by 15.1% to £465.6 million. This reflected growth across all major categories as the book continued to benefit from improvements arising from the re-platforming of its products, improved pricing sophistication and growth on its award-winning electronic trading platform.

Notes:

1. Average incepted written premium excluding IPT for Motor direct own brands for the year ending 31 December 2021.

2. Average incepted written premium excluding IPT for Home own brands for the year ending 31 December 2021.

Underwriting profit and combined operating ratio1

Note:

1. See glossary for definitions and appendix A - Alternative performance measures for reconciliation to financial statement line items.

Overall underwriting profit increased to £291.5 million (2020: £267.8 million) with an improvement in the combined operating ratio to 90.1% (2020: 91.0%).

The loss ratio edged up slightly to 58.1% (2020: 57.9%) driven by increases across Motor and Commercial more than offsetting improvements in Home and Rescue and other personal lines.

The small deterioration in the loss ratio was more than offset by a lower commission ratio. The commission ratio reduced primarily due to reduced profit share payments, particularly on packaged bank accounts and Home partnerships, partially offset by increased commission payments in Commercial.

The expense ratio reduced by 0.6 percentage points to 23.9% as operating expenses reduced following progress on our cost-saving initiatives, partially offset by increased levies and depreciation and amortisation charges relating to the launch of our new technology platforms.

Ratio analysis by division

Notes:

1. Home and Commercial claims for major weather events, including inland and coastal flooding and storms.

2. See glossary for definitions and appendix A - Alternative performance measures for reconciliation to financial statement line items.

The current-year attritional loss ratio excludes prior-year reserve releases and claims costs from major weather events and is therefore an indicator of underlying accident year performance. Our current-year attritional loss ratio of 65.5% increased by 3.2 percentage points compared to 2020, with increases in loss ratio in Motor, Home and Commercial partially offset by a reduction in Rescue and other personal lines.

Prior-year reserve releases increased in 2021 to £258.1 million (2020: £173.8 million), equivalent to 8.7% of net earned premium (2020: 5.9%) and were concentrated towards more recent accident years. Prior-year reserve releases were higher across all categories, including in Home, which benefited from favourable experience across several perils, in line with expectations, and Motor, which benefited mainly from large bodily injury reserve development as uncertainty arising from Covid-19 and Brexit reduced.

Our current-year combined operating ratio increased by 1.9 percentage points to 98.8% (2020: 96.9%) as a 3.2 percentage point increase in the current-year attritional loss ratio was partially offset by a 0.6 percentage point improvement in the expense ratio, a 0.5 percentage point decrease in the commission ratio and a 0.2 percentage point reduction in claims due to major weather.

Motor

Motor's current-year attritional loss ratio rose 6.3 percentage points to 72.9% (2020: 66.6%) driven predominantly by a reduction in the severity of lockdowns in 2021 compared to 2020. Whilst the Motor current-year loss ratio in H1 2021 was modestly higher than for H1 2020, it increased in H2 as lockdown restrictions were eased and claims frequency increased back to expected levels. In addition, claims severity inflation was slightly above our medium-term 3% to 5% per year inflation expectations during 2021, due to high levels of inflation in second-hand vehicles and additional Covid-19 related cleaning costs. Our vertically integrated business, including the largest insurer-owned network of vehicle repair centres, has continued to provide us with a competitive advantage and mitigate some of this inflationary pressure.

In total, prior-year reserve releases were £26.5 million higher year on year at £127.1 million reflecting, primarily, favourable development of large bodily injury claims reserves as uncertainty arising from Covid-19 and Brexit reduced.

Overall, Motor's reported combined operating ratio increased by 4.7 percentage points to 92.4% (2020: 87.7%). A 1.8 percentage point increase in prior-year reserve releases was offset by a 6.3 percentage point increase in the current-year attritional loss ratio. There were marginal increases in the expense ratio and the commission ratio.

Home

The current-year attritional loss ratio, excluding major weather event claims, was 3.0 percentage points higher than prior year at 55.7%. as we took pricing actions to support retention and to capitalise on a buoyant new business market in H1, alongside some large fire claims and freeze events. The reported loss ratio was 4.9 percentage points better than 2020, with increases in prior-year reserve releases, following favourable experience on escape of water, flood, storm and fire perils, and a reduction in major weather claims more than offsetting the increase in attritional loss ratio. Claims severity inflation remained within our 3% to 5% medium-term expectations and claims frequency remained within normal levels.

The commission ratio of 6.9% was 1.2 percentage points lower than in 2020 due to lower profit share payments to partners.

Home's combined operating ratio improved by 7.0 percentage points to 80.1% (2020: 87.1%). This was driven primarily by a 6.4 percentage point improvement as a result of higher prior-year reserve releases and a 1.5 percentage point improvement resulting from fewer major weather events, as well as improvements in commission and expense ratios, offset in part by an increase in the current-year attritional loss ratio. Normalised for weather, the combined operating ratio was 5.1 percentage points better than for 2020 at 85.2%1 (2020: 90.3%). For 2022, it is expected that the normalised combined operating ratio will return to levels similar to the 2020 normalised performance.

Rescue and other personal lines

The combined operating ratio for Rescue and other personal lines improved by 15.1 percentage points to 86.9% (2020: 102.0%) due to the non-repeat of the 2020 Covid-19 related claims in Travel and to improvements in Rescue.

The combined operating ratio for Rescue of 74.8% was 1.7 percentage points better than 2020's ratio of 76.5%. This reflected an improved expense ratio, due predominantly to reduced marketing expenditure, and a lower commission ratio following lower profit shares with partners.

Other personal lines combined operating ratio improved by 21.7 percentage points compared to 2020 to 96.8%. The improvement is primarily due to the non-repeat of 2020 Covid-19 related claims in Travel.

Commercial

The current-year attritional loss ratio in Commercial increased by 2.4 percentage points to 62.0% in 2021 due, predominantly, to elevated large fire claims partially offset by an improvement in underlying loss ratio in motor and liability.

Total prior-year reserve releases increased by 8.1% to £61.4 million (2020: £56.8 million).

Overall, the combined operating ratio for Commercial increased by 0.7 percentage points to 96.2% (2020: 95.5%), with the 3.1 percentage point increase in reported loss ratio and a 1.3 percentage point increase in commission ratio partially offset by a 3.7 percentage point decrease in expense ratio reflecting good cost control.

Note:

1. See glossary for definitions and appendix A - Alternative performance measures for reconciliation to financial statement line items.

Operating expenses before restructuring and one-off costs

Notes:

1. Staff costs and other operating expenses attributable to claims handling activities are allocated to the cost of insurance claims.

2. IT and other operating expenses include professional fees and property costs.

3. For the year ended 31 December 2021, depreciation and amortisation includes a £2.1 million impairment charge (2020: £6.6 million), which relates to capitalised software development costs for ongoing IT projects primarily relating to the development of new systems. and a £0.5 million impairment charge (2020: £nil), which relates to ROU property assets.

4. Includes depreciation on right-of-use assets of £10.8 million (2020: £14.8 million).

We continued to reduce our operating expenses as we move towards our target of a 20% expense ratio in 2023. Overall operating expenses before restructuring and one-off costs reduced by £18.1 million to £706.3 million (2020: £724.4 million) and resulted in a decrease in the expense ratio of 0.6 percentage points to 23.9% (2020: 24.5%).

Costs before insurance levies, depreciation and amortisation were 6.7% (£37.5 million) lower at £520.7 million reflecting lower costs in relation to the Covid-19 response and reductions arising from the Group's cost-saving initiatives. We have also made good progress on our property strategy, completing the acquisition of our Bromley office and we have disposed of a further property in 2022.

Instalment and other operating income

Note:

1. Other income includes mainly fee income from insurance intermediary services.

Instalment and other operating income, which is primarily driven by premium and claims volumes, decreased by £15.2 million to £144.0 million. Instalment income fell primarily due to lower Motor gross written premium, whereas other operating income reduced due primarily to a reduction in external Motor repair income and lower recovery after accident volumes.

Investment return

Investment yields

Note:

1. See glossary for definitions and appendix A - Alternative performance measures for reconciliation to financial statement line items.

Total investment return increased by £51.2 million to £146.3 million (2020: £95.1 million) primarily reflecting positive fair value adjustments in investment properties in 2021 versus write downs in 2020, as well as increasing the gains from debt security disposals year on year. Lower investment rates, driven by central banks' policy actions in 2020, led to a lower net investment income yield of 1.7% (2020: 1.8%).

In 2021 net investment income has been modestly ahead of expectations mainly due to good performance on the high yield portfolio and rising risk-free rates. For 2022 we expect net investment income yield to be in the region of 1.7%, increasing to between 1.8% and 1.9% in 2023, based on current yield curves.

Our 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 scenarios;

- to match periodic payment orders ("PPO") and non-PPO liabilities in an optimal manner; and

- to deliver a suitable risk-adjusted investment return commensurate with our risk appetite.

Investment holdings

Notes:

1. Asset allocation at 31 December 2021 includes investment portfolio derivatives, which have a mark-to-market asset value of £14.2 million included in investment grade credit and £0.1 million in sovereign debt (31 December 2020: mark-to-market asset value of £7.7 million and £0.3 million respectively). This excludes non-investment derivatives that have been used to hedge interest on subordinated debt and operational cash flows.

2. Net of bank overdrafts: includes cash at bank and in hand and money market funds.

3. Equity investments consist of an equity fund which is valued based on external valuation reports received from a third-party fund manager.

At 31 December 2021, total investment holdings of £5,861.4 million were 4.7% lower than at the start of the year. Total debt securities were £4,190.1 million (31 December 2020: £4,215.0 million), of which 2.1% were rated as 'AAA' and a further 54.7% were rated as 'AA' or 'A'. The average duration at 31 December 2021 of total debt securities was 2.5 years (31 December 2020: 2.8 years).

At 31 December 2021, total unrealised gains, net of tax, on available-for-sale ("AFS") investments were £9.0 million (31 December 2020: £83.9 million).

Reconciliation of operating profit

Operating profit by segment

All divisions contributed significant profit in 2021, demonstrating the diversity of our multi-product, multi-brand and multi-channel portfolio. Motor operating profit decreased as claims frequency increased back to expected levels as Covid-19 lockdown measures have been progressively relaxed across H2 2021, partially offset by an increase in prior-year reserve releases following favourable development of large bodily injury reserves as uncertainty arising from Covid-19 and Brexit reduced. Home operating profit increased primarily due to lower weather-related costs and higher prior-year reserve releases on escape of water, flood and fire perils. Rescue and other personal lines profit increased significantly following the non-repeat of the 2020 impact of the Covid-19 pandemic on Travel. Commercial operating profit increased due to improvements in underlying motor and liability claims costs, offsetting higher property claims costs, and increased gross written premium. Rescue operating profit of £55.0 million (2020: £51.2 million) is included in the Rescue and other personal lines result.

Restructuring and one-off costs

We incurred £101.5 million of restructuring and one-off costs in 2021, with £89 million of these costs relating to our site strategy, including £83.9 million in relation to the purchase of the lease of our Bromley office. The remainder are in respect of redundancy programmes and one-off costs. The Group may incur additional costs in 2022 if further opportunities are found as part of the Group's site strategy.

Finance costs

Finance costs increased to £34.3 million (2020: £31.3 million) primarily due to the full-year effect of interest payments on the £260 million Tier 2 subordinated debt issued in June 2020 included in the 2021 figure, partially offset by reductions of lease interest payable following the purchase of the lease of our Bromley office.

Effective corporation tax rate

The effective tax rate for 2021 was 22.9% (2020: 18.7%), higher than the standard UK corporation tax rate of 19.0% (2020: 19.0%) driven primarily by the non-deductible payment to terminate the lease on the Bromley property, and other disallowable expenses partly offset by tax relief for the Tier 1 coupon payments. The Effective Tax Rate is higher than for 2020 due to the Bromley lease payment and is expected to return to a more normal level in future years, subject to any future one off disallowable items.

Profit for the year and return on tangible equity1

Profit before tax of £446.0 million was £5.4 million lower than for 2020 as the increase in operating profit was offset by a £62.1 million increase in restructuring and one-off costs as we continued to make progress in our property site strategy.

Profit for the year ended 31 December 2021 decreased by £23.5 million to £343.7 million (2020: £367.2 million) as an increase in operating profit was partially offset by a £62.1 million increase in restructuring and one-off costs and finance costs.

Return on tangible equity increased to 23.6% (2020: 19.9%) due primarily to the higher operating profit. Profit after tax was adjusted for restructuring and one-off costs and coupon payments in respect of Tier 1 notes.

 Note:

1. See glossary for definitions and appendix A - Alternative performance measures for reconciliation to financial statement line items.

Earnings per share

Basic earnings per share decreased by 5.0% to 24.5 pence (2020: 25.8 pence). Diluted earnings per share decreased by 5.5% to 24.1 pence (2020: 25.5 pence) mainly reflecting a reduction in profit after tax.

Net asset value

Note:

1. See glossary for definitions and appendix A - Alternative performance measures for reconciliation to financial statement line items.

Net assets at 31 December 2021 decreased by £149.5 million to £2,550.2 million (31 December 2020: £2,699.7 million) and tangible net assets decreased to £1,727.7 million (31 December 2020: £1,912.9 million) following the payment of the 2020 final dividend, 2021 interim dividend and the completion of the share buyback programme, a reduction in available-for-sale reserves and additional expenditure on intangible assets as we continued to invest in the business.

Balance sheet management

Capital management and dividend policy

The Group aims to manage its capital efficiently and generate long-term sustainable value for shareholders, while balancing operational, regulatory, rating agency and policyholder 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 Group's requirements for a prolonged period, it intends to return 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 Group's solvency capital requirement ("SCR") would be appropriate and it will therefore take this into account when considering 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-year results.

The Group expects that one third of the annual dividend will generally be paid 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 surplus capital to shareholders.

The Board has recommended a final dividend of 15.1 pence per share (2020: 14.7 pence), an increase of 0.4 pence per share (2.7%). This reflects the Board's continued confidence in the Group's capital position and the sustainability of its earnings.

After the dividend and proposed share buyback programme, the estimated solvency capital ratio was 176% as at 31 December 2021. The Group has outstanding Tier 2 debt issued in 2012 with nominal value of £250 million which can first be called from 27 April 2022. Excluding this debt, the Group's adjusted solvency ratio would have been 160% as at 31 December 2021.

The final dividend will be paid on 17 May 2022 to shareholders on the register on 8 April 2022. The ex-dividend date will be 7 April 2022.

The Group uses reinsurance extensively to mitigate the impact of individual large claims and the aggregation of claims. At the 1 January 2022 renewal for its Motor excess of loss reinsurance, the Group chose to retain additional risk and increased the retention for each individual claim to £5 million (2021: £1 million with 75% placement).

Looking forward, we have a strong balance sheet with further opportunities to reduce capital intensity and increase flexibility.

Capital analysis

The Group is regulated under Solvency II requirements by the PRA on both a Group basis and for the Group's 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 31 December 2021.

Capital position

At 31 December 2021, the Group held a Solvency II capital surplus of £1.03 billion above its regulatory capital requirements, which was equivalent to an estimated solvency capital ratio of 176%, after the proposed final dividend and share buyback programme. Excluding the Group's outstanding Tier 2 debt the Group would have had a Solvency II capital surplus of £0.81 billion, equivalent to a solvency capital ratio of 160%.

The Group's SCR and solvency capital ratio are as follows:

Note:

1. Adjusted solvency capital ratio excluding Tier 2 debt which can first be called from 27 April 2022.

Movement in capital surplus

Note:

1. Relates to the cancellation of the 2019 cash dividend (£197 million) and share buyback (£120 million); offset by the special dividend subsequently declared at half-year 2020.

2. Foreseeable dividends included above are adjusted to exclude the expected dividend waivers in relation to shares held by the employee share trusts, which are held to meet obligations arising on the various share option awards.

3. The amount of Tier 2 and Tier 3 capital permitted under the Solvency II regulations is 50% of the Group's SCR.

In 2021, the Group generated £0.37 billion of Solvency II capital, of which £0.06 billion related to a change in the Group's deferred tax rate, following the change to the UK corporation tax rate from 19% to 25% with effect from 1 April 2023. Restructuring costs in relation to the purchase of the Bromley office lease reduced capital generation by £83.9 million. This was offset by a £0.01 billion change in the SCR, £0.12 billion of capital expenditure, dividends of £0.30 billion and share buybacks of £0.10 billion. At 31 December 2021 there was £0.03 billion of ineligible capital relating to deferred tax assets. Capital expenditure levels are expected to remain around £120 million in 2022.

Change in solvency capital requirement

The Group's SCR has increased by £0.01 billion in the year. Exposure changes resulted in a £0.06 billion increase, which was partially offset by a decrease of £0.05 billion relating to model and parameter changes.

Scenario and sensitivity analysis

The following table shows the impact on the Group's estimated solvency capital ratio in the event of the following scenarios as at 31 December 2021. The impact on the Group's solvency capital ratio arises from movements in both the Group's SCR and own funds.

Notes:

1. 2021 figures exclude from own funds the value of the £250 million Tier 2 subordinated debt which can first be called from 27 April 2022. The comparative period has been represented on this basis, with the only change being the interest rate sensitivity which was reported as (3pts) at 31 December 2020.

2. The PPO inflation assumption used is an actuarial judgement which is reviewed annually based on a range of factors including the economic outlook for wage inflation relative to the PRA discount rate curve.

3. Only includes the impact on AFS assets (excludes illiquid assets such as infrastructure debt) and assumes no change to the SCR.

Own funds

The following table splits the Group's eligible own funds by tier on a Solvency II basis.

Notes:

1. As at 31 December 2021 £19 million (2020: £nil) of the Group's restricted Tier 1 capital was reclassified as Tier 2 due to Solvency II tiering restrictions.

2. The amount of Tier 2 and Tier 3 capital permitted under the Solvency II regulations is 50% of the Group's SCR.

During 2021, the Group's eligible own funds reduced from £2.56 billion to £2.38 billion. Eligible Tier 1 capital after foreseeable distributions represents 71% of own funds and 126% of the estimated SCR. Tier 2 capital relates to the Group's £0.51 billion subordinated debt and £0.02 billion of 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 capital 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 Group's SCR and of Tier 3 alone is less than 15%. The Group has Tier 2 plus Tier 3 ineligible own funds of £0.03 billion.

Reconciliation of IFRS shareholders' equity to Solvency II eligible own funds

Notes:

1. As at 31 December 2021 £19 million (2020: £nil) of the Group's restricted Tier 1 capital was reclassified as Tier 2 due to Solvency II tiering restrictions.

2. The amount of Tier 2 and Tier 3 capital permitted under the Solvency II regulations is 50% of the Group's SCR which resulted in ineligible capital of £31 million.

Leverage

The Group's financial leverage increased by 1.0 percentage point to 25.2% (2020: 24.2%). The increase was primarily due to a decrease in shareholder's equity following the payment of the 2020 final dividend, 2021 interim dividend and the Group's £100 million share buyback programme, partially offset by 2021 profits.

Note:

1. Total IFRS financial debt and Tier 1 notes as a percentage of total IFRS capital employed.

Credit ratings

Moody's Investors Service provides insurance financial-strength ratings for U K Insurance Limited, our principal underwriter. Moody's rate U K Insurance Limited as 'A1' for insurance financial strength (strong) with a stable outlook.

Reserving

We make provision for the full cost of outstanding claims from the general insurance business at the balance sheet date, including claims estimated to have been incurred but not yet reported at that date and associated claims handling costs. We consider the class of business, the length of time to notify a claim, the validity of the claim against a policy, and the claim value. Claims reserves could settle across a range of outcomes, and settlement certainty increases over time. However, for bodily injury claims the uncertainty is greater due to the length of time taken to settle these claims. The possibility of annuity payments for injured parties also increases this uncertainty.

We seek to adopt a conservative approach to assessing liabilities, as evidenced by the favourable development of historical claims reserves. Reserves are based on management's best estimate, which includes a prudence margin that exceeds the internal actuarial best estimate. This margin is set by reference to various actuarial scenario assessments and reserve distribution percentiles. It also considers other short- and long-term risks not reflected in the actuarial inputs, as well as management's view on the uncertainties in relation to the actuarial best estimate.

The most common method of settling bodily injury claims is by a lump sum. When this includes an element of indemnity for recurring costs, such as loss of earnings or ongoing medical care, the settlement calculations apply the statutory discount rate (known as the Ogden discount rate) to reflect the fact that payment is made on a one-off basis rather than periodically over time. The current Ogden discount rate is minus 0.25% for England and Wales, minus 0.75% in Scotland, and minus 1.75% in Northern Ireland.

We reserve our large bodily injury claims at the relevant discount rate for each jurisdiction, with the overwhelming majority now case reserved at minus 0.25% as most will be settled under the law of England and Wales. The Ogden discount rate will be reviewed again at the latest in 2024. There has been an ongoing reduction in large bodily injury exposures as a result of continued positive prior-year development of claims reserves, and a higher proportion of reserves being covered by reinsurance for the 2014 to 2020 underwriting years. We have reduced the level of Motor reinsurance purchased from 2021 which will have an impact on future reserving.

If the claimant prefers, large bodily injury claims can be settled using a PPO. This is an alternative way to provide an indemnity for recurring costs, making regular payments, usually for the rest of the claimant's life. These claims are reserved for using an internal discount rate, which is progressively unwound over time. As it is likely to take time to establish whether a claimant will prefer a PPO or a lump sum, until a settlement method is agreed we make assumptions about the likelihood that claimants will opt for a PPO. This is known as the PPO propensity.

Higher claims inflation remains a risk, given the continuing rise in consumer prices and wage inflation. Consumer prices inflation is at its highest level for the past decade and is not expected to decline until 2023. Pressure is likely to remain strong on wages, with potential implications for the cost of care. Global supply chain issues remain problematic, resulting in a risk of price increases for products and components in short supply. A range of general and specific claims inflation scenarios for goods and services have therefore been considered in the reserving process.

Prior-year reserve releases were £258.1 million (2020: £173.8 million) concentrated towards more recent accident years, with good experience in Home and with Motor large bodily injury claims in later accident years also being a key contributor as uncertainty arising from Covid-19 and Brexit reduced.

Looking forward, we expect to continue setting our initial management best estimate with an appropriate degree of conservatism. Assuming current claims trends continue, the contribution from prior-year reserve releases is expected to remain significant.

Claims reserves net of reinsurance

Sensitivity analysis - the discount rate used in relation to PPOs, changes in the assumed Ogden discount rate and claims inflation

The table below provides a sensitivity analysis of the potential net impact of a change in a single factor (the internal discount rate used for PPOs, the Ogden discount rate or claims inflation) with all other assumptions left unchanged. Other potential risks beyond the ones described could have additional financial impacts.

Notes:

1. These sensitivities are net of reinsurance and exclude the impact of taxation.

2. These sensitivities reflect one-off impacts at the balance sheet date and should not be interpreted as predictions.

3. The sensitivities relating to an increase or decrease in the real discount rate used for PPOs illustrate a movement in the time value of money from the assumed level of 0% for reserving. The PPO sensitivity has been calculated on the direct impact of the change in the real internal discount rate with all other factors remaining unchanged.

4. Ogden discount rate sensitivity has been calculated on the direct impact of a permanent change in the discount rate in England and Wales with all other factors remaining unchanged. The Group will consider the statutory discount rate when setting the reserves but not necessarily provide on this basis. This is intended to ensure that reserves are appropriate for current and potential future developments.

The PPO sensitivity above is calculated on the basis of a change in the internal discount rate used for the actuarial best estimate reserves as at 31 December 2021. It does not take into account any second order impacts such as changes in PPO propensity or reinsurance bad debt assumptions.

Tax management

The Board recognises that the Group has an important responsibility to manage its tax position effectively. The Board has delegated day-to-day management of taxes to the Chief Financial Officer and oversight is provided by the Audit Committee.

These arrangements are intended to ensure that the Group: complies with applicable laws and regulations; meets its obligations as a contributor and a collector of taxes on behalf of the tax authorities; and manages its tax affairs efficiently, claiming reliefs and other incentives where appropriate.

Tax authorities

The Group has open and co-operative relationships with the tax authorities with whom it deals in the countries where the Group operates, namely the UK, the Republic of Ireland, South Africa and India.

Tax policy and governance

The Group's tax policy has been reviewed and approved by the Audit Committee. The Group Tax function supports the Chief Financial Officer in ensuring the policy is adhered to at an operational level.

For more information please see our published Group Tax policy on the Group's website at;

www.directlinegroup.co.uk/en/sustainability/reports-policies-and-statements.html

Total tax contribution

The Group's direct and indirect tax contribution to the UK Exchequer is significantly higher than the UK corporation tax that the Group pays on its profits. The Group collects taxes relating to employees and customers on behalf of the UK Exchequer and other national governments. It also incurs a significant amount of irrecoverable value added tax relating to overheads and claims. Taxes borne and collected in other tax jurisdictions have not been included in this note as the amounts are minimal in the context of the wider UK Group.

During 2021 the sum of taxes either paid or collected across the Group was £885.1 million. The composition of this between the various taxes borne and collected by the Group is shown below.

Total taxes borne

Total taxes collected

Principal risks and uncertainties

We carefully assess the principal risks facing us. Principal risks are defined as having a residual risk impact of £40 million or more on a 1-in-200 years basis, taking into account customer, financial and reputational impacts.

Potential effects of Covid-19 and the UK's new international trading relationships on inflation

The UK's new international trading relationships may have had an impact on claims inflation and may still do so, although the Covid-19 pandemic continues to mask the effects of these relationships. Certain risks related to Brexit could still occur or be exacerbated and we continue to be alert to possible developments.

Emerging risks

Emerging risks are defined by the Group as newly developing or changing threats or opportunities, external to the Group, that are subject to a high degree of uncertainty but have the potential to materially impact the Group.

The Group has in place an emerging risks process designed to enable it to:

- have a proactive approach to emerging risk management;

- identify, manage and monitor a broad range of potential emerging risks; and

- mitigate the impact of emerging risks which could impact the delivery of the strategic plan.

The Group records emerging risks within an Emerging Risk Register. An update on emerging risks is presented to the Board Risk Committee annually and is supplemented by deep dives on selected emerging risks.

The most notable emerging risks currently being monitored via the emerging risks process are outlined below.

Climate change

The Group recognises that climate change potentially poses material long-term financial risks to the business and is receiving increased scrutiny from regulators and investors. Climate change risk can be divided into physical and transition risks. Both of these categories can manifest themselves through a range of existing financial and non-financial risks, including insurance, market, operational, strategic and reputational risks.

In 2021, we participated in the Bank of England's CBES exercise, which was designed to test the resilience of the financial system to the physical and transition risks from climate change. The CBES exercise covered both a quantitative scenario analysis, spanning a 30-year time horizon, and a qualitative assessment of management actions and the sustainability of different business models.

We continue to monitor these risks closely and to develop our climate change modelling capability.

Ethical use of data

The insurance industry is gathering and processing greater volumes of data than ever before. The adoption of Artificial Intelligence ("AI") and Machine Learning introduces the potential to create unfair outcomes if data is not processed responsibly. The use of technology to automate decisions could magnify the impact of problems caused by inaccurate or biased data.

The Group has developed a Data Ethics Framework which introduces a set of principles to drive the ethical use of data and a new governance model to ensure appropriate visibility and escalation of ethical concerns. Furthermore, the Group has an established Data Ethics Steering Group which gathers internal and external views on data ethics, reviews business propositions on data use and helps to drive the embedding of the data ethics framework across the Group.

Global financial instability

Global financial instability can occur through unexpected or unpredictable external events that affect fundamental macroeconomic variables, such as GDP growth, consumption, inflation or unemployment. As markets worldwide continue to recover from the impact of Covid-19, there is a risk that global financial instability could be triggered and/or worsened by numerous external events, including natural disasters, war, terrorism, natural resource or fuel shortages and global technological failures. Should the Russia-Ukraine situation continue to deteriorate, there is a likelihood that the impact on global financial instability will increase.

The principal impacts of global financial instability would likely be felt on the Group's investment portfolio, through changes in credit spreads and sovereign yields. Depending on the cause, there may also be operational and insurance risk impacts to consider.

The Group's investment portfolio is already positioned relatively defensively, reducing the potential exposure to global financial instability. However, if global financial instability were to materialise, further steps could be taken, such as shifting the portfolio further towards 'defensive' sectors, pausing reinvestment or increasing the allocation to cash and sovereign debt.

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2021

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2021

CONSOLIDATED BALANCE SHEET

As at 31 December 2021

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2021

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2021

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Accounting policies

Basis of preparation

The financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRS") as adopted by the UK. The financial information set out in this preliminary results announcement does not constitute the statutory accounts for the year ended 31 December 2021. The financial information is derived from the statutory accounts, which comply with IFRS, within the Group's Annual Report & Accounts 2021. These accounts were signed on 7 March 2022 and are expected to be published in March 2022 and delivered to the Registrar of Companies following the Annual General Meeting to be held on 10 May 2022. The independent Auditor's report on the Group accounts for the year ended 31 December 2021 was signed on 7 March 2022, is unqualified, does not draw attention to any matters by way of emphasis and does not include a statement under S498(2) or (3) of the Companies Act 2006. This audit opinion excludes disclosures surrounding capital adequacy calculated under the Solvency II regime as these are outside of the audit scope.

Going concern

The Directors believe that the Group has sufficient financial resources to meet its financial needs, including managing a mature portfolio of insurance risk. The Directors believe the Group is well positioned to manage its business risks successfully in the current economic climate. The Finance Review describes the Group's capital management strategy, including the capital actions taken in the last twelve months to ensure the continued strength of the balance sheet. The Group's financial position is also covered in that section, including a commentary on cash and investment levels, reserves, currency management, insurance liability management, liquidity and borrowings. Additionally, note 3 to the consolidated financial statements in the Group's Annual Report and Accounts 2021 sets out financial disclosures relating to the Group's principal risks. This covers insurance, market and credit risk; and the Group's approach to monitoring, managing and mitigating exposures to these risks.

The Directors have assessed the principal risks of the Group over the duration of the planning cycle. The assessment included the impact of the Covid-19 pandemic on the underwriting cycle, including motor claims frequency, travel disruption and supply chain disruption, and the possible impacts of the FCA's Pricing Practices Review ("PPR"). The key judgements and assumptions applied were in relation to the likely time period of continued Covid-19 related effects and the impact on the general insurance market, the economic recovery and the impact of the PPR on customer behaviour. The 2021 Strategic Plan ("the Plan") indicates that the Group will continue to maintain levels of solvency in line with its risk appetite across the planning cycle (to 31 December 2025).

In addition, the Group's Risk Function has carried out an assessment of the risks to the Plan and the dependencies for the success of the Plan. This included running stress tests on the Plan to consider the 1 in 8 years and 1 in 25 years loss simulations based on the internal economic capital model. In both scenarios, it was concluded that the Group's solvency capital requirement would not be breached following the implementation of management actions.

A reverse stress test was also performed to identify the most probable combination of stresses that would result in capital loss and thus threaten the viability of U K Insurance Limited, the Group's principal underwriter, i.e. a reduction of own funds to below the solvency capital requirement. The purpose of this reverse stress test was to assess the coverage and scope of the internal economic capital model and there were no findings that invalidate the internal model.

Therefore, having made due enquiries, the Directors reasonably expect that the Group has adequate resources to continue in operational existence for at least 12 months from 7 March 2022 (the date of approval of the consolidated financial statements). Accordingly, the Directors have adopted the going concern basis in preparing the consolidated financial statements.

Adoption of new and revised standards

In August 2020, the International Accounting Standards Board has issued 'Interest Rate Benchmark Reform Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) which is effective from 1 January 2021 and was adopted by the UK in January 2021. The key considerations are as follows:

The Phase 2 amendments provide practical relief from certain requirements in IFRS standards. These reliefs relate to modifications of financial instruments and lease contracts or hedging relationships triggered by a replacement of a benchmark interest rate in a contract with a new alternative benchmark rate. If the basis for determining the contractual cash flows of a financial asset or financial liability measured at amortised cost changed as a result of interest rate benchmark reform, then the Group updated the effective interest rate of the financial asset or financial liability to reflect the change that is required by the reform. A change in the basis for determining the contractual cash flows is required by interest rate benchmark reform if the following conditions are met:

- the change is necessary as a direct consequence of the reform; and

- the new basis for determining the contractual cash flows is economically equivalent to the previous basis - i.e. the basis immediately before the change.

When changes were made to a financial asset or financial liability in addition to changes to the basis for determining the contractual cash flows required by interest rate benchmark reform, the Group first updated the effective interest rate of the financial asset or financial liability to reflect the change that is required by interest rate benchmark reform. After that, the Group applied the policies on accounting for modifications to the additional changes.

The amendments also provide an exception to use a revised discount rate that reflects the change in interest rate when remeasuring a lease liability because of a lease modification that is required by interest rate benchmark reform. The Group has no lease contracts where changes to rental amounts are affected by the interest rate benchmark reform.

The Phase 2 amendments provide a series of temporary exceptions from certain hedge accounting requirements when a change required by interest rate benchmark reform occurs to a hedged item and/or hedging instrument that permits the hedging relationship to be continued without interruption. The Group applied the following reliefs as and when uncertainty arising from interest rate benchmark reform was no longer present with respect to the timing and amount of the interest rate benchmark-based cash flows of the hedged item or hedging instrument:

- the Group amended the designation of a hedging relationship to reflect changes that were required by the reform without discontinuing the hedging relationship; and

- when a hedged item in a cash flow hedge was amended to reflect the changes that were required by the reform, the amount accumulated in the cash flow hedge reserve was deemed to be based on the alternative benchmark rate on which the hedged future cash flows are determined.

The IASB issued 'Covid-19-related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16)' in March 2021 which was adopted by the UK in May 2021. The amendment extends, by one year, the original May 2020 amendment that permits lessees, as a practical expedient, not to assess whether particular rent concessions occurring as a direct consequence of the Covid-19 pandemic are lease modifications and instead to account for those rent concessions as if they are not lease modifications. The Group has not needed to apply this practical expedient.

Accounting developments

New IFRS standards and amendments that are issued, but not yet effective for the 31 December 2021 reporting period have not been early adopted by the Group. The Group intends to adopt these standards, if applicable, when they become effective, except for Amendments to IFRS 9 'Financial Instruments', as explained below.

These IFRS 9 amendments permitted insurers which satisfied certain criteria to defer the effective date of IFRS 9, to coincide with the expected effective date of IFRS 17. The Group conducted a high-level assessment of the three aspects of IFRS 9 and, based on current information, the impact of applying the expected loss model for the first time is currently immaterial. The Group does not expect any other significant impact on its financial statements.

The amendments required insurance entities to evaluate whether their activities were predominantly connected to insurance as at its annual reporting date immediately preceding 1 April 2016, providing an option to defer adoption of IFRS 9 if liabilities connected to insurance comprised a predominant proportion of its total liabilities as at that date. The Group concluded that it satisfied the criteria and there have been no significant changes in the Group's activities since this assessment to require a reassessment of the criteria.

As a result, the Group decided to defer the application of IFRS 9 and continues to do so.

IFRS 17 was issued by the IASB in May 2017 to replace IFRS 4 'Insurance Contracts' and is effective for reporting periods beginning on or after 1 January 2023, with comparative figures required. IFRS 17 is a comprehensive new accounting standard for all insurance contracts covering recognition and measurement, presentation and disclosure. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers and to replace the requirements of IFRS 4 that allowed insurers to apply grandfathering of previous local accounting policies.

As the vast majority of the Group's insurance contracts have a coverage period that is 12 months or less, the Group intends to adopt the premium allocation approach ("PAA") for all insurance and reinsurance contract groups. Applying the PAA, an entity measures the liability for remaining coverage ("LRC") of a group of insurance contracts on initial recognition as premiums received less any insurance acquisition cash flows paid. Subsequently, the liability for remaining coverage of a group of insurance contracts increases with premiums received and decreases to reflect an allocation of the total amount of the expected premiums receipts to profit or loss on a straight line basis as insurance services are provided. The measurement of the Group's liability for incurred claims ("LIC") will require the Group to determine a probability-weighted best estimate of future fulfilment cash flows, discounted to reflect the time value of money with a risk adjustment to compensate for non-financial risk.

A dedicated programme of activity throughout the year has ensured the Group remains on track to complete the necessary data and technology changes required to transition to IFRS 17 and IFRS 9 from 1 January 2023, with a period of parallel run planned for 2022.

The Group also continues to refine its accounting policy choices and accounting judgments under IFRS 17 and therefore it is not possible to accurately estimate the likely impact of IFRS 17 to the Group's financial statements at this stage.

The standard is yet to be endorsed by the UK.

2. Critical accounting judgements and key sources of estimation uncertainty

Full details of critical accounting judgements and key sources of estimation uncertainty used in applying the Group's accounting policies are outlined on pages 170 to 171 of the Annual Report & Accounts 2020. There have been no significant changes to the principles or assumptions of these critical accounting judgements and key sources of estimation uncertainty during the year ended 31 December 2021 except, following the successful implementation of the Group's new Motor platform, that 'impairment provisions - intangible assets' is no longer a critical accounting judgement or source of estimation uncertainty. This is because the Group's most significant intangible asset, the Motor IT platform, has begun amortisation over the period of its expected useful economic life.

3. Segmental analysis

The table below analyses the Group's revenue and results by reportable segment for the year ended 31 December 2021.

The table below analyses the Group's assets and liabilities by reportable segment for the year ended 31 December 2021.