The Direct Line Group's solvency capital ratio, prior to any dividends or incremental capital returns, was 213% as at 31 December 2020. The Board has recommended a final dividend of 14.7 pence, an increase of 2.1% on the special interim dividend of 14.4 pence announced at the time of their interim results, which reflected a full catch up of the cancelled 2019 final dividend.
Reflecting the strength of the Group's capital position, and in line with their dividend policy to return capital to shareholders which is expected to be surplus to the Group's requirements for a prolonged period, the Group intends to commence a share buyback programme of up to £100 million, with an initial tranche of up to £50 million expected to be completed by the time of the half-year results.
After the proposed final dividend and £100 million share buyback, the estimated solvency capital ratio was 191% as at 31 December 2020. The Group has outstanding Tier 2 debt issued in 2012 with nominal value of £250 million and a first call date during the first half of 2022. Excluding this debt, the Group's solvency ratio after the proposed final dividend and share buyback would be 172%. In February 2021, the Group acquired the head lease of its Bromley office site, which reduced the Group's coverage ratio by an additional 6 percentage points.
Other financial highlights:
- Direct own brands in-force policies grew by 2.2% driven by strong segments of growth across the business, including Home, Commercial and Green Flag Rescue, whilst Motor was broadly stable. Total in-force policies reduced due to lower partnerships and Travel volumes.
- Direct own brands gross written premium was stable with growth across Home and Commercial direct own brands and Green Flag Rescue offset by lower average premiums in Motor. Overall gross written premium reduced by 0.7% due to falling partnership and Travel premium.
- Increased major weather costs of £43.0 million (2019: £6.0 million) contributed to lower operating profit of £522.1 million, £24.8 million (4.5%) lower than 2019 (£546.9 million). Covid-19 restrictions reduced claims frequency in Motor and Commercial, although this was partially offset by investment in initiatives to protect customers, people and society, lower investment asset returns and the impact of the Covid-19 pandemic on Travel. Overall, the impact of the Covid-19 pandemic was a modest net benefit to the result.
- Combined operating ratio improved to 91.0% (2019: 92.2%). Normalised combined operating ratio of 91.7%, was ahead of target of 93% to 95% predominantly due to the lower claims frequency in Motor.
- Progress on the Group's transformation continued to drive improved current year profitability via increased pricing and underwriting sophistication in Commercial and improved counter-fraud capability in Motor.
- Profit before tax of £451.4 million was £58.3 million lower than 2019 following the reduction in operating profit alongside £39.4 million of restructuring and one-off costs as the Group invested in cost saving initiatives.