Financial highlights
- Direct own brand in-force policies grew 2.0% with continued growth across Motor, Green Flag and Commercial direct own brands, with Home broadly stable. Total policies reduced by 1.7% as partnership volumes reduced.
- Gross written premium was broadly steady as strong momentum in Q1, with growth of 4.7%, was largely offset by lower new business shopping in Motor and Rescue in Q2 due to Covid-19.
- Operating expenses before restructuring and one-off costs of £372.0 million were £9.0 million higher than H1 2019 following investment in initiatives to support our customers, people and society through the Covid-19 uncertainty. Despite an increase in levy costs of £3.0 million, underlying operating expenses were broadly stable. The Group reiterates its target of delivering a 20% expense ratio by 2023.
- Across the Group the impact of Covid-19 on operating profit was broadly neutral, as the additional travel and business interruption claims, alongside a reduction in investment asset returns and higher operating expenses, were offset by favourable claims frequencies in Motor and Commercial. The net impacts of Covid-19 on travel and business interruption claims are unchanged from Q1 and estimated at £25 million and £10 million respectively.
- Operating profit of £264.9 million was £9.4 million lower than H1 2019 mainly due to increased weather costs of £30.4 million, partially offset by the change in the Ogden discount rate to minus 0.25% in H1 2019 (H1 2019: £16.9 million). There was continued improvement in current-year profitability, offset by reduced prior year reserve releases.
- Profit before tax of £236.4 million was £24.9 million lower than H1 2019 following the reduction in operating profit alongside £15 million of restructuring and one-off costs as the Group invests £60 million in cost saving initiatives across 2019 and 2020 as outlined at the Capital Markets Day in November 2019.
- Interim ordinary dividend of 7.4 pence per share, an increase of 2.8% over the interim dividend announced at H1 2019, alongside a special interim dividend of 14.4 pence per share reflecting a full catch-up of the cancelled 2019 final dividend.
And this;
Strong capital generation during H1 reflecting the Group's performance during the period, alongside the issue of £260 million of Tier 2 debt, delivered a solvency capital ratio at 30 June 2020 of 213% before dividends and 192% after the interim and special dividend declared. 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 dividends would be 173%.
Since the cancellation of the 2019 final dividend in April, there has been greater stability in the financial markets and increased certainty about claims costs on business lines negatively impacted by the pandemic, including travel and business interruption.
Nonetheless, whilst in normal circumstances, the Board would expect the Group to operate around the middle of its solvency capital ratio risk appetite range of 140% to 180%, the Board consider current circumstances to be exceptional. The uncertainty surrounding Covid-19, its impact on the wider economy, and other factors such as Brexit, have led the Board to conclude that at this time it is appropriate for the Company to take a cautious approach when considering liquidity and the distribution of solvency capital. The Board will keep the appropriate level of capital and liquidity under review as the pandemic and Brexit and their consequences, and other uncertainties, develop, including when reviewing the Group's 2020 full year results.
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