This announcement contains inside information.

Direct Line Insurance Group plc

Direct Line Insurance Group plc (the “Group”) is today providing an update on current trading,

weather related costs and outlook.

Penny James, Chief Executive Officer, said:

“We have seen a volatile and challenging operating environment in the fourth quarter. We

have seen a significant increase in claims as a result of the prolonged period of severe cold

weather in December and I am proud of the way that we have supported our customers

during this period. These claims, combined with further increases in motor inflation, have

had a significant impact on our underwriting result for 2022. We have also seen reductions in

the valuations of the commercial property holdings in our investment portfolio in line with

enhancing our technological capabilities, introducing new products and improving our

efficiency. We have taken actions to respond swiftly to further inflation in motor claims and

will continue to navigate market volatility as it arises.”

Weather

December saw a prolonged period of sub-zero temperatures across the whole of the UK. As a

result, we have so far helped three thousand customers deal with burst pipes, water tanks

and other related damage. It is still relatively early but we currently expect claims associated

with the freeze event to be around £90 million across Home and Commercial.

This, together with the freeze event from January 2022 and subsidence related claims over

2% lower compared with the prior year, a significant improvement on the variances in the

third quarter.

Claims inflation, however, remains a feature of the market. Inflation in relation to own

managed damage claims remains broadly in line with expectations; however, we have seen a

further increase in third party claims inflation during the fourth quarter. Additionally, the

fourth quarter has seen an increase in claims frequency, in part relating to the adverse

weather conditions. At this stage we estimate these factors will increase the motor loss ratio

in 2022 by around six percentage points. We are continuing to take actions to address this.

Other Group segments have traded broadly in line with expectations.

As a result, our investment property portfolio has experienced a c.15% reduction in values,

equivalent to £45 million. This is greater than we had initially expected, but broadly in line

with commercial property indices over the fourth quarter. Our investment property portfolio

has delivered excellent returns overall since inception, and occupancy levels remain strong at

around 95%.

Operating expenses

Notwithstanding the inflationary backdrop, we expect operating expenses to reduce year on

year to around £700 million in 2022.

Our medium-term combined operating ratio target remains unchanged and the Group will

reset targets to an IFRS17 basis with the full year results.

Capital position and 2022 final dividend

We have returned over £1.5bn of capital over the last 5 years and we continue to understand

The dynamics of 2022, and in particular the additional factors in the fourth quarter, have

resulted in a capital coverage that is now expected to be at the lower end of our risk appetite

range of 140% to 180%. Therefore, the Board no longer expects to pay a final dividend for the

2022 financial year.

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.

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, risk appetite range, balance sheet resilience and dividend capacity; 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 or assumed in the forward-

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.