Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Motor business returned to profit with a 12-point improvement in the current year loss ratio compared to the first half of 2023.
- Strong premium growth with written premiums up 54%, driven by pricing actions in Motor and double-digit growth in non-Motor segments.
- Operating profit of GBP64 million, a significant improvement of GBP157 million from the previous year.
- Strong solvency ratio of 198% after announcing a 2.0p per share dividend.
- Non-Motor segment delivered double-digit premium growth and a net insurance margin of 11.6%, contributing to an operating profit of GBP61 million.
Negative Points
- Expected decline in policy count as the company continues to re-price the book and trade with discipline.
- Limited opportunity for prior year reserve releases in the short term, impacting overall financial flexibility.
- Operating expenses for ongoing operations increased by 11% compared to the first half of 2023, primarily due to costs associated with the Motability partnership and higher amortization.
- Motor business still in a transitional year for earnings, with the first half result impacted by business written in the first half of 2023.
- Challenges in maintaining growth in the Motor segment, with a 7.5% reduction in own brands in-force policies in the first half of 2024.
Q & A Highlights
Q: Faizan Lakhani from HSBC. I want to dig into the reserve releases. Clearly, you mentioned short term, you don't expect a great deal, which makes sense. What do you define a short term? Is that by 2026? And if not, within that 13% NIM target, how much have you sort of implicitly assumed for reserve release? And sort of second part to that as well have you made allowance for the JCG guideline, the pickup in whiplash tariff already within your assumptions in that one? And second one is on growth and policy count. Are you trying to pack for a 10% NIM when thinking about sort of competitors in the Motor market? I'm just trying to broadly understand as well, your average premium at Q2 was roughly in line with the drop as the broader market, yet your policy count dropped significantly within the first half of the year. Is there a business mix impact within that? Have you changed anything in terms of trying to go out and get business to try and understand what's going to how do I sort of marry up pricing versus sort of policy count?
A: Neil Manser - CFO & Director: I think short term, we're saying, as I look at the reserves to debt, we would not expect to be all the opportunities over lease is low. So that's as of today, if that message change, I'm sure the message will change. Secondly, we fully reserve for expectations for JCG at the year-end. So that was for us, it was a 2023 event. It was a 2024 event, that was already fully reserved because we roll we look forward to what the expectations will be for those changes in guidelines. And then on the third one, which is within the all substring a 13% NIM. I mean that's it's a normalized assumption. I think you should take my on a low opportunity for prior reserve releases to roll forward into that assumption.
Adam Winslow - Chief Executive Officer: And on your growth and policy count question, look, I'd say on a macro point, we are absolutely going to prioritize value over volume. I think we were pretty clear that at capital markets. But Lucy, perhaps you can talk specifically about.
Lucy Johnson - MD Motor business: Yes, maybe worth reiterating a couple of points. I think from the presentation, just to call them out, we have a different starting point to the marketplace. We talked about coming late to the inflation recognition. And also, we have had a historic focus on the direct channel, and both of those things leave in the position that we are today. I hope I've been clear about the broad range of initiatives that the business is focused in on to catch up with the marketplace. So if you remember the four quadrants of activity. But fundamentally, what those things are trying to do and what they will do is that they will make us more competitive. They will enable us to convert more business and they will enable us to retain more business. And that's where we get the growth from. And then on top of that, of course, what we had a major initiative is Direct Line on PCWs.
Q: Derald Goh from RBC. You spoke about your claims inflation expectation still staying in high single-digit '24. Can you talk a bit about your bodily injury experience at the half year. The reason I'm asking is because at the full year '23, I think you called out I think more BI claims and also more severe ones. So maybe talk about what have you seen in terms of BI frequency and severity? And I guess just an overarching point as well, what are your expectations for inflation as a whole for 2025, as you see it today? The second question is on a dividend. Now I think the payout ratio is somewhere about 75% of operating EPS was a bit higher than a 60% policy. Is that a case of you kind of front loading some of the full year dividend at their interims? And in a similar vein, I mean, to the extent that you're wanting to show confidence and underlying earnings is excess capital returns or possibility at all at this full year? Or is it clearly completely of the equation for now? Thanks.
A: Neil Manser - CFO & Director: So I would so on BI, specifically, I mean as you I'm sure you're aware, large body claims are low-frequency, high-severity events. So you get periods of very benign and then you get periods of quite a lot coming through. We've seen, I would say, over the course of the last 18 months, we've seen quite a lot of variability month-by-month on quantum. The factor, I think we're seeing at a market level, which I hear from third parties in the market, there is a market level more individually large BI claims out there. So, the kind of the average severity of these very large claims has definitely gone up. Part of that might be related. We might see a release of that depending where the rate comes out. But I think there is a high propensity now for very large BI claims in the marketplace.
Adam Winslow - Chief Executive Officer: The dividend question. Look, the ratio is based on a full year number, not a half year number. I think, look, the Board considered the underlying capital generation, the absolute solvency and the encouraging early signs of progress that you've heard us each speak about and wanted to reflect, their confidence in the direction of travel by paying the 2.0p dividend or by announcing the 2.0p today. Look, I can't speculate on excess capital return. I'm not going to prejudge at the stage of board decisions, which will be made in the future.
Q: Andreas van Embden from Peel Hunt. Just wanted to discuss the economics and your thoughts around transferring or moving the Direct Line brand on to PCW. Could you maybe just share what your assumptions are around cannibalization? Is there any assumption around that cannibalization of policy volumes as you move part of that business into PCWs? And also on the loss ratio, have you assumed any dilution in that loss ratio? Typically, PCWs have a higher loss ratio than I assume your direct channel? How are you going to manage that process? Could you just discuss? I think what I ultimately want to try and figure out is whether you will be writing at the same margin through your direct channel as PCWs? Or will there be a difference?
A: Lucy Johnson - MD Motor business: Yes. And maybe it's a repeat of capital market somewhat. But just to say, I mean we as we think about doing something significant like putting Direct Line on PCWs, we, of course, establish a business case, and there's a number of assumptions that go into that loss ratio. Cannibalization is not the great one that you can go to. And I think what's also helpful is we've got an established direct book, PCW book, as you point to. And therefore, we're very aware of, both the way in which customers shop today and
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
