Direct Line Insurance Group plc (DLG) Earnings Call Transcript & Summary

Good morning and welcome to our full year 2021 results presentation. I have to say, it is great to see so many of you here, actually in-person. What a change of events. And a warm welcome to everybody who's joining us online as well. I am joined here today by Neil, our CFO; and the front row, members of our leadership team. But before I hand over to Neil, I just want to reflect on what has been a year of significant delivery for the Group. Firstly, we've delivered a strong financial result, growing our profitability whilst delivering our target to improve the quality of our earnings. And we've done this by navigating a complex Motor market with discipline and delivering growth in Commercial, Home and Rescue. Secondly, I'm absolutely delighted with the strategic progress that we've made this year. We have now successfully completed the main elements of our technology transformation. First, I've refreshed my leadership team. So now we have the combination of skills and experience required to utilize the significant capabilities that we have coming online in 2022. Now I'll explain later why these achievements set us up for growth. But first, I'm going to hand over to Neil who can walk you through the financials.

Thanks, Penny. And morning, everyone. And I'd say how great it is to see some actual faces, to be more on the camera [ again ]. So great to see you all here. Delighted to present to another set of strong financials, and I'll begin with the highlights on Slide 4. And so as Penny already mentioned, it's a strong financial performance with operating profit of GBP 582 million. We grew our Direct own brands policy count by 1%, bouncing deflating markets in Home and Motor with continued momentum across Commercial and Green Flag Rescue. Costs reduced, and we've met our current contribution targets with increasingly more profit emerging from COVID factors. We didn't see the repeat of travel claims or the investment losses we saw in 2020, and this was partially offset by higher Motor claims, this frequently moved back to expected levels during the second half of 2021. Secondly, we got a great results in Home. [ Weather helps but underwriting ] is strong. Thirdly, prior year reserve releases rebounded and importantly, came from more recent [ extant ] years. And lastly, we cut costs by GBP 18 million. So good underlying [ trading ] across the board with results outperforming against our financial targets. Let's turn to detail, starting on Slide 6, [ in-force ] accounts and premium. And this is where our diversified business model really shows through. We had across the chart and slide are 3 key trends to pull out. First, Motor and Home were both [ a tale of two halves ]. In Motor, we're traded with discipline throughout the year in a deflating market. In the first half, you can see we pulled back and you see that growing IFPs, where as the second half as our new Motor platform gained stream and brought in pricing improvements, and them restabilized [in-force ] accounts at GBP 3.9 million. In Home, the story the other way around. In the first half, we capitalized on buoyant markets and grew across all channels. In the second half, whereas the PCW market discounted, we pulled back to result in flat IFPs from the half year. Now the key message here is that we trade in the market actively, choosing when to grow and when to protect margin. Secondly, Green Flag, Commercial Direct and NIG each grew strongly, and this is evidenced by transforming the delivery, and Penny will talk to that in more detail later. And lastly, if I pull all this altogether, our diversification enabled total policies and premium to broadly flat overall and Direct own brand policies to be up 1% growth in a challenging market. So let's start with the [ sections ]. And before I look at the individual results, I'd like to spend a bit of time on Slide 7 on Motor claims trading as context. Now there's a lot on this slide, so we break it down to a few key things. First, frequency. I'm sure you're all very familiar with the chart of car usage on this slide. And our frequency is tended to lag miles-driven due to both the negative outlook and the pattern [ meant ] for customer driving. In the first half, this was a tailwind, but during the second half, frequency moved back to expected levels [ as always ]. Moving across the severity inflation. Overall, we ended the year slightly above our 3% to 5% range of expectations, and this is due to heightened damage inflation. Second-hand car prices have risen dramatically since the middle of the year, and this impacts both total loss settlements and death claims. And this builds on inflation already there from high cost of treatment and longer car [ repair ] periods. Now as you recall, as we said back in on claims deep dive in June, we believe we have a competitive advantage through our repair network and supply chain, and that allows us to mitigate some on this inflation damage pressure. Nonetheless, looking into 2022, in the short term, I do expect inflation will remain elevated across the market. And we'll use our claims advantage to remain a relative outperformer. Now let's move on to how this translates into the Motor results on Slide 8. Motor operating profit was GBP 315 million, and the combined ratio was strong at 92%. As you'd expect, profit was down versus 2020 as conditions would normalize in the second half of the year. In particular, the current year loss ratio was 79% in the second half and that's 2 points better than 2019 and in line with underlying 2020 levels. As we've talked about many times, we are pricing our best view of risk without pricing and one-off COVID frequency benefits. And you can see this in our average premium, reaching only 2.5% down versus a market down more by 7%. And this means we are well set as conditions do normalize. Prior year releases were up a bit on last year's low watermark and were [ a gain from ] more recent accident years. And this shows that the reliance on large prior year reserve releases from the old years is now behind us. To bring that together another strong [ brands ] performance for Motor. Let's turn to Slide 9. And again, we delivered an exceptional result from Home with operating profits of GBP 142 million, and that's a combination of good trading, benign weather and additional prior year releases. The attritional current year loss ratio edged up slightly to the low levels in 2020 as a result of price changes and mix shifts, fewer [ own ] partners and more PCW new business, and we saw slightly elevated level of large fire claims. As you recall, we said prior year reserve releases were low in Home in 2020 and then they increased this year, largely driven by favorable development on the [ scale of weather ] claims. So all of this delivered a headline combined ratio of 80% and we normalize for weather at around 85%, which is 5 points better than 2020. So a very positive year for Home. If I look forward, we expect the 2022 combined ratio to return back to the low 90s, which we saw in 2020. Let me move on to Rescue and other personal lines on Slide 10. Here, headline operating profit improved by GBP 58 million and turns that into profit with a combined ratio of 87%. Now this is predominantly driven by the non-repeat of the COVID impact on travel in the first half of 2020. On the right-hand side of this slide, you can see that Rescue delivered operating profit of GBP 55 million at a COR of 75%, which is a fantastic result. I said at half year, the Rescue is well positioned and is significant changes come through in Green Flag direct growth and better indemnity control following the launch of a new claims system. And this year, Green Flag sustained [ passage ] into policies and our new customers will be offered a service contract, which means we can sell with nonregulated products as well. Now there's a small accounting change, which is set out in the premiums. Longer term, this is a new revenue source supporting Green Flag's challenging position. And finally, let's turn to Commercial on Slide 11. I hope you'll agree, the results demonstrate that this unit has been through a great transformation over the last couple of years. It's grown both top line and operating profit and is building a really meaningful market position. Double-digit premium growth was delivered across Direct, PCW and growth channels. And what's the reason for this growth is different in each channel, the consistency is around giving customers and brokers the right propositions backed up by great service. We continue to grow rates across the board, and this supports future years underwriting results. In 2021, the attritional loss ratio was a couple of points higher at 62% due to a few large fire claims and prior year reserve releases were stable at 11%. Overall, operating profit grew by GBP 10 million to GBP 60 million and we expect more growth to come through in the first quarter. Now on to expenses on Slide 12. We continue to make good progress on our cost agenda. Operating expenses of GBP 706 million, GBP 18 million lower in 2020. And this drove a 0.6 point improvement in the expense ratio to 23.9%. In the chart, using our costs before levies, depreciation and amortization were down GBP 37 million, and this means we exited 2021 on our expected cost run rate of below GBP 700 million. Now how does that compare to [ this forward lean ] when we set our expense ratio target back in 2019? Between 2018 and 2021, we've delivered a 7% reduction in controllable expenses, even more if you include claims handling. So how have we done this? First, our technology transformation, property restructuring as well as other initiatives reduced IT and other costs by 12%. Secondly, we reduced headcount by over 10% as we make processes more efficient, digitalize customer journeys and tightened head office functions. And thirdly, we made marketing more efficient. Now reducing marketing itself isn't a target, as we see customer acquisitions and core strength, but we challenge every day on its efficiency. So on cost, we're in line with the [ forward lean ] a run rate of GBP 700 million, whilst offsetting higher levies. A quick word on competitiveness over the last couple of years. If I look on Direct peers, we estimate their expense ratios are up around 2 percentage points, whilst we are broadly flat. So a step forward in competitiveness against the market, which was always our objective. Let's move on Slide 13, and we reiterate our target, an expense ratio of 20% by the end of 2023. So let me walk you through the key moving parts that support this: cost, growth and inflation. As I said on previous slide, we're in line with where we expected to be on cost, and we are looking to make further absolute cost reductions over 2022 and 2023. And you can see the key buckets [ associated and ] outlined on this slide. In terms of growth, we always said at the 20% ratio assumed modest growth. And whilst it's true that the market premium is smaller today than we had expected, we're building a great business that has all the capabilities to deliver the required growth, and Penny will talk through this in more detail later. Now lastly, it will be remiss of me not to acknowledge the inflationary environment that we're in at the moment and obviously, very significant uncertainty given ongoing events. We've already seen some inflation in the set of skills and I do expect this will be bleed through into more costs. We have built some mitigation going forward and long-term supplier contracts, but clearly, we are not immune from these trends. So I stand back from the detail of these 2 slides, the key point is we've made progress and are focused on continuing to make progress, to make deals that are more cost competitive versus the market. Second one to investment return on Slide 14. And here, our high quality portfolio is getting strong gains in 2021. Investment return increased by GBP 51 million to GBP 146 million, primarily reflecting positive fair value adjustments in our investment property portfolio. The net investment yield at 1.7% was a little ahead of our expectations and good performance on the high-yield portfolio and rising [ group yield ] rates. If I take current rates and our maturity profile, we expect net investment income of 1.7% in 2022, increasing to between 1.8% and 1.9% in 2023. Now let me spend a couple of slides on capital starting on Slide 15. Over the last few years, we've evolved our capital structure alongside market developments and our increasing current year profitability. You can see on the slide that I've split it into 3 phases. In the current third phase, we see further opportunities to optimize and add flexibility for future growth. And there are 3 elements to this. First, we've reduced the level of Motor excess of loss reinsurance, increasing retention of GBP 5 million as rising reinsurance rates and reducing cost and uncertainty means retaining more makes sense. We've used management actions including improving current year underwriting to fund this, and this means the SCR was broadly stable. Secondly, we raised Tier 2 debt at a 4% coupon in 2020, which in effect has prefinanced the expensive 9.25% bond, which has the first call date on the 27th of April. Thirdly, our current -- our improved current year profitability together with the internal model gives us an opportunity now to investigate potential longer term strategic reinsurance solutions. So what I'd like you to take away from this slide. We've done a lot of our returns. Our balance sheet is strong, and we have further opportunities. So a few words on capital distributions on Slide 16, where again, we increased the dividend and announced a further share buyback. Let me start with a reminder of our capital allocation approach. First, that we invest in the business and pay with regular dividends. Secondly, we look to see whether there are inorganic opportunities, including partnerships; and thirdly, we return excess cash to the shareholders. Last year, we've invested in the business with further technology spend, with property transactions and an increase in motor reinsurance retention. Also announced the Motability partnership. Now it's obviously not impacted yet, and when it does, we'll use a relatively capital light reinsurance structure. After these, our strong organic capital generation means we're going to announce another GBP 100 million share buyback program. Now this brings us to 160% solvency coverage, which is found in the middle of our risk appetite range. As I said before, I'm proud of our long-term track record of returning capital to shareholders, over GBP 2.1 billion in the last 5 years. And I'm pleased we can be continue that today. So finally targets and outlook on Slide 17 before I hand back to Penny. I'll start with the weather and then talk about the early conservations on how the markets developed so far in 2022. On the recent storms, it's still relatively early, for we estimate claims in reach of GBP 30 million to GBP 40 million for Home and Commercial combined, and that's well within our annual weather expectations. Moving on to Motor and Home. At a market level, we've seen slightly more shopping but less switching. Market new business premiums in January and February have grown mid-single digits at Motor and low double digits in Home. We've see some positive start and falls within the range outcomes that we have [ a vehicle ]. We've always said that having a multi-brand portfolio would set us up well as it enables us to both protect value and be competitive in new business. And this is exactly what we're doing. And Penny will talk to this later on. [ Concluding with ] the financials. Well, despite the significant changes in the market, we're able to reiterate our key target of the combined ratio 93% to 95%, normalized for weather in 2022 and over the medium term. And with that, I will hand back to Penny to update for the strategic progress we've made.

Thanks, Neil. I want to spend most of the time that I have with you today talking about our transformation and how that sets us up for the future. But first, let me remind you of our business case. We have a track record of strong and consistent shareholder returns. And as Neil spoke about our strengthening profitability gives us options to improve capital efficiency. Our diversified business model and scale enables us to compete across all [ reach through its ] groups to market and build valuable customer relationships. This year, we've completed the main elements of our technology transformation, meaning we've retooled almost the entire business. And this means that we have exciting new capabilities coming on stream in 2022. And our refreshed leadership team [ harnesses a ] customer and digital experience and with the ambition to leverage what we have built to grow this business. Moving to Slide 20. This is a business that consistently delivers. We've maintained our return on tangible equity of over 19% for the last 5 years and have delivered operating profit of over GBP 500 million [ prior year ]. We significantly improved the quality of our earnings with over 50% coming from the current year. And now our prior year reserve increases predominantly relates to recent business, around 85% in the last 5 years. We have now corrected the overreliance on historic balance sheet strength. And this profitability has underpinned growth in ordinary dividend alongside additional returns, with GBP 2 billion of capital return to shareholders over that period, including the GBP 100 million buyback that we've announced today. I haven't addressed the stability of our earnings. I'll now explain how we are fully focused on the opportunities to drive growth. The policy has [ this ] as our approach on pricing practices may affect 2022 and beyond. On Slide 21, you can see our brands portfolio, which drives our track record of strong shareholder returns. Having strong brands with multiple products across a range of customer channels is something most of our U.K. peers simply do not have. And it's a significant strength. We continue to expand our brands, develop new products and services, allowing to build valuable customer relationships. But it also means that we have versatile trading options because we can use differing brands, propositions and pricing to target a variety of different customer segments. And we know that this leads to successful outcomes, evidenced by the NPS scores of our 2 major brands and retention rates, which are amongst the highest in the market at 85% in Home and 77% in Motor. Our new platform also means that we can leverage sophisticated data to reach more customers and build deeper relationships. And this is a fantastic place to be following the FCA's new pricing changes. Because the end of [ needless ] discounting means that our reputation for quality insurance backed by trusted brands will matter more for customers. On Slide 22, you can see why having a quality claims operation is also vital, and we have real strengths here versus our peers. First, our scale is a significant advantage. We work with over 1,500 suppliers across the U.K. Every year, we handle around 1 million claims, fix 200,000 cars and incur claims of roughly GBP 2 billion and is key to our top quartile indemnity control. And having the largest insurer-owned garage network gives a double-digit repair cost advantage. This year, we further increased our capacity by purchasing our 22nd site. Second, we're increasingly using digital journeys to deliver benefits. All claims can now be registered online across Home and Motor, and it's proving popular. For instance, in the recent storms, 50% of customers notified their claims digitally. And we use the AI technology to assess damaged vehicles, speeding up to disposition time for [ loans to ] repair or to move cash settlements. So what is it that's important here? Well, while we look [ to new inflation ] we are in the better place than most due to our claims toolkit. It delivers business efficiency, and it allows us to mitigate some of the pressures. And finally, great claims capability will really matter in this new insurance market, as always because customers being well-looked after when they need us is the real key to loyalty. Moving to Slide 23 now. I'm absolutely delighted with the progress that we've made on our tech build. Now there's a lot on this slide. But what you need to know here is that the main elements of our technology transformation are complete, and we believe we now have kits as good as any in the market. It's included replatforming our Commercial, Motor and Rescue businesses, Motor claims, telephony, finance, hardware and much more. And critically, we've also put in place the people and infrastructure that give us a solid data foundation. The major milestone this year has been rolling out our new Motor platform across our largest brands, Direct Line and Churchill. It enables pricing at a different pace and [ spec ] granularity. It enables self-service. It enables products to come to market at a much greater pace. There's more to come as we embed that system, but it significantly adds the group's ability to commercialize opportunities. Now I'll explain what this means and how we intend to drive growth in a moment. But first, moving to Slide 24. You can see why we're excited. When we look at the performance of the business areas, which are already fully agile and it has more time to fine tune that technology. Our Darwin brand is a massive success. It's now a significant player in the PCW market, having grown to over 150,000 policies in just 3 years. Green Flag is disrupting the Rescue market, having delivered a new claims system and policy platform. Deals have been continuing to grow in the Direct SME space and Churchill for Business is a brilliant example of how we're using brand recognition and PCW trading expertise to develop new income streams. Now the premium of these retail businesses might be relatively small. But since 2017, they have collectively grown from 9% to 15% of our Direct own brand GWP, demonstrating what can happen when you get brilliant people and give them the right technology. Taking this all together, this slide proves value or gives us valuable proof points of what can be achieved. So what then about future? Over the next 2 slides, I'm going to take you through the 6 big levers that we have, where you can expect capability to keep coming through. Starting on Slide 25. First, I'd like to discuss there will be a step change in Motor. On pricing -- our pricing to date [ streams ] now have a combination of tooling, data and flexibility to achieve great results. Our new Motor platform means we now price faster with greater granularity and more sophisticated pricing techniques, whilst integrating more data into our models. Let me give you just a few examples. We're seeing 75% reduction with the time taken to bring new major pricing models to market. We've already seen the benefits of [ step change ] through pricing deployment in the second half of 2021, and we're now adding machine learning techniques. We're delivering a fivefold increase in the data sources enriching our models. And we have more models going live in the first half of this year, meaning our pricing is materially more advanced than anything we have used before. Of course, it's crucial because you need speed and the predictive power of data to succeed in this market. Second, we're now adding Home to the same platform, so this step change in pricing capability that we've seen in Motor will be replicated on Home. And as we develop our Home platform, we see great potential in expanding our product set, whether that's harvesting new opportunities in the renters market or leveraging our brand presence to offer existing customers more products and services. Finally, we'll be -- we want to be the electric vehicle insurer choice because we believe that's part of our role to help customers transition to net zero. And we've made great progress by developing our new Direct Line offer, Zoom EV. It's a great example of how we view new partnerships to create value. But this isn't about offering quality insurance alone, it's also about offering quality repair. So we're training our technicians in the EV repair and our new technology training center in Stechford gives us clear strengths as we remain at the forefront of rapidly changing car technology. So what sets us apart in EV is our ability to deliver end-to-end, from developing propositions to pricing effectiveness to our repair expertise. And we believe it's this combination that we will need to win. Moving to Slide 26. We now have the toolkit to deliver for customers. First, we will accelerate how we improved our digital customer journey, driving greater efficiency benefits. With our new Motor platform up and running, the team will focus on fine-tuning its capability in 2022, to deliver more effectively for customers, materially improving the quality and proportion of customer journeys done online. Having created the ability for customers to track and manage claims without use of making a call, we're now focusing on increasing uptake, not least because we know it improves NPS scores as well as bring up our consultants to deal with more complex customer queries. Second, we're delighted to have achieved 2 significant partnership results this year. We're preparing to welcome some 600,000 Motability customers in 2023, giving us extra added insights with a new fleet of Motor vehicles. And I'm really pleased to announce today that we've extended our long-term partnership with the NatWest Group until 2027, where we currently provide around 0.5 million customers with Home insurance. Finally, we'll be ramping up our marketing presence to Direct Line for Green Flag and for Churchill. So we know that our customer adds a real appeal. And armed for a quiet period, our marketing will do that in styles, underlining the stronger brand identity equates with quality insurance. And that we know is a powerful lever. So expected news is Superheroes, a [ chilled-out Churchie ] and watch out behind the web services as featuring Green Flag [ moments ]. So having gone over these 2 slides, I hope you can see that we have a rich and varied toolkit to where we drive competitiveness. But to use this toolkit means having great people. For any insurer to succeed today, it needs to be agile, expert in digital and obsessed about customer journeys. So to achieve that, I've made substantial changes to my leadership team, bringing customer and technology to the [ expert ] table, adding agile and digital experience for our insurance expertise. And we're bringing in new talent into our data, pricing and technology teams, whilst opening opportunities for people to reskill across the organization through our apprenticeship programs and data academy. Our brilliant people make this business what it is. Our passion for tech and data is attracting new colleagues as this data-proud purpose-led organization. From delivering a 50-50 [ X-code ], celebrating our diversity and inclusion agenda, embracing hybrid working and tackling climate change, these are all big goal factors is why talented people are joining us. So given all of that, how do I feel about our position now that the [ SDA's climate ] and changes have actually landed? Well, I believe we've chartered the right course through this early trading period. Because market dynamics to date are within our range of expectations, with inflation coming through on both Motor and on Home. Our approach has been to prioritize value as the market settles and while we understand customer behavior. So we've held back marketing spend for later in the year. To date, retention rates look strong, and we're beginning to use our brand and channel diversification to our advantage. The early signs are in line with what we were expecting. Now we will, of course, navigate this new market with discipline and we believe we can win because of the strength that we have. We have leading customer service, strong brands with unique propositions and a market-leading claims service. And we now have technology that is as good as any in the market, meaning that our pricing teams and data scientists have the tools to deliver a step change in our pricing and underwriting capability. And it will significantly reduce our cost to serve through increased digitization, and we'll be able to get products to market much faster. But you can also see tangible actions that will help us grow. We'll dial up both marketing and pricing as we move through the year. We've already seen strong growth in our retail businesses who are further along in their technology transformation. And we've got a significant partnership with Motability coming in 2023, with around GBP 0.5 billion worth of GWP per year. Taking all of this together, it points to how we can drive growth later in the year and beyond. So to conclude, I hope that you've heard how well positioned we are, now that our core technology transformation is complete and our data foundational capability is in play. And look, we reiterate our 93% to 95% COR target for 2022 as of the midterm. 2022 is the year that we pivot from building to capitalizing on what we've built. We have a clear plan for growth, the business has momentum and energy, and we are ambitious for the future. Thank you for your time. Neil and I, and the management team will be delighted to take any questions that you have.

[Operator Instructions] I will now hand over back to the management team to take the questions from the room.

William Hardcastle of UBS. First question, [ my questions all around ] around this reinsurance change. With the excess loss [indiscernible] solvency that you want to manage your actions [indiscernible] I guess all [ parts being equal ] what would that have done for solvency? And I understand an increase in volatility, you've in fact done some fact testing, what that would have done, [ given that ] last year historically, the profitability had you been at a GBP 5 million level. And Obviously, I don't want to make too much of this, but [ has the model ] how does it change the fact that [ herald team ] going forward, does that change [ the fair bit to ] do with certain other things?

I will take that one. So some of the impact it's low tens of millions, probably [indiscernible] to that. If -- the lower layers of the Motor reinsurance program, they are more kind of money swaps layers rather than [ real monetary ] layers, which is your -- there's a lot of claims go through too much layers, so it's not like -- it's very a different world. An example to a property [ cat ] layers, which have grown large catastrophe layers in [ real monetary ] layers. We did the change in the pricing [ just at the onset of it ]. We actually think it's largely positive to do it based on where pricing was. I think I didn't expect it to be a significant increase in volatility. And the second part, sorry, question part -- so yes, it probably does -- the things that improved in this is to have more strategically reinsurance relationships. There's a couple there. There's clearly -- they actually take on the debt side more efficient, currently improve the current [ plausibility ] is a key contributor. And also having a little bit -- having a slight high potential for most [indiscernible] bit easier [indiscernible]

[indiscernible] two questions from me as well, please. First of all, just on pricing [ inhibition ]. Were you seeing you are and also where you think the market is and [ pricing indication ]. And secondly, on the expense ratio, the 20% guidance, [ what does that be to you ] you say [ your 20% ] group over the last couple of years? Or is that 20% [indiscernible] do you expect [ around ] 4% benefit to be invested into those [ growth ] when it does come through? [indiscernible].

Okay. I take one [indiscernible]. If you bear with me, a slightly different story with [ management claims ] on pricing. And what I want to do is just step back again [ 3 points in '22 ] where this is important as kind of what's happening best part [ of '22 ] to understand where we are. Motor first, then. I think in Motor, the most important factor is in the severity frequency and PPR is kind of, as in [ the past ] a less critical component. What happened through last year and essentially, we're now been to the market with discipline throughout last year. That's kind of the approach that we chose to take. And we lost a bit of market share in the first half, so we dropped about [ 1.9% ] something like that. It's policy count. But it happened in the second half. I think, not because the market got easier, but because we have pricing capability starts to come through and it started to get traction, if you like. And you can see the outlook [ was more like -- ] if you look at the API average premiums, the market was off about 7% last year without [ 2.5 ] and actually, pretty much all of that 2.5 is risk mix, not rate for us. So we're overall flat. And broadly what happened is severity inflation is being offset by frequency benefits through that time. And I think, as Neil talked about earlier, as we came into the second half on the pricing approach [ all ]. The frequency approach our pricing assumptions, that we moved into the sort of 79% loss ratio, kind of in line with kind of our expectations. So all of that said, we came into '22 in a good place and a good place relative to the market as a whole. What's happened as we come to '22? Well, the market has moved up mid-single digits on Motor, something like that, to refect pricing practice changes [ affecting us ] probably enough to just address that change. So we're comfortable that, that's within our [ guide band ] or pricing practices and also we've made our adjustments as well accordingly. I think from here, where I was -- [ the bottom mark, how down ] is -- recover the 7 points or so that it lost last year. And so we feel in relative returns that we're coming into the place [indiscernible]. And as we look forward, we think that our claims capability's, [ how our views inflation what are new ] claims inflation, but we do think we have an advantage relative to the rest of the market that will help us navigate it. So probably that's the -- some noted synopsis and we still have competitive capability to onstream. That's why we feel to be confident, that's why we [ admit to the ] 93% to 95%. Home, broadly, the other way around, actually. We went pretty hard in the first half of the year. It was [ the demands ] of a bouyant market. We figured that we'll probably get more competitive as the year went on, we came towards pricing practices, proved it to be right. So given [ new bids ] prices came up by about 4% in the market towards the end of the year. We didn't follow that. So again we at the end of the year in a position we're pretty comfortable with margin-wise, again, pricing practices have much more of an effect on the Home market than it is in most markets. The markets put through low single -- low double-digit, sorry, on Home. Again, we think it has to deal with the front foot -- front book, back book leveling out. Less clear [ that it's ] not to recover the 5 points that dropped out at the end of last year. Although [ we trust that in that ] you would continue to see prices go up in Home, so maybe that's heading towards that adjustment. So I think as we come into the market in 2022, we focus on value, especially in Home [ where claims has ] a significant back book. Our first [ book ] is to make sure that we have [ stand foot because in the previous ] [indiscernible] [ elasticity ] of the market is doing. This is a reset for the long term. So we started on a basis of protecting value, and as we move through the year and we'll ramp marketing, [indiscernible] move that in free market estimates as time goes on. So that's probably -- I think anything I touched the inflation in Home, running just at the top of our [indiscernible] and raise something like that.

[indiscernible] And so,if you look at how the markets have move to [ set a certain target ] I mean, [ 2022 ] is more ambitious target today than it was back in [ 2019 ] because of the [ jaws ] in the market. And if I look at about, we are still investing heavily [ in trust ] acquisition through the Direct channels, good positive spend. If I look at that the control of the expense ratio within that number, it means these are [ festive ratios ].

James Pearse of Jefferies. So you mentioned you're seeing premium inflation on new business in 2022. I just wanted to get some more color on renewal pricing specifically in Commercial and Home? And then the second question is just on CapEx. So what should we expect in terms of CapEx going forward? I guess what's required to maintain a leading tech platform?

And I'll do [ personal renewal pricing ] Look, renewal pricing, [ a match base in the past ] you'll see some increase in new business prices, some reduction in renewal prices being [indiscernible]. So we're certainly seeing that. There's no market data are available at the moment. So we're ahead of the API, and that's the first pitch point, but you can get an overall sense of ABP. In terms of what we're doing, look, it varies in [ cross listed segments ], different brands, different channels, across [ the piece ]. I don't want to give you a specific number because it's commercially sensitive for us at the moment. So [ I think that's are far as I ] just want to talk about it in retrospect in Q1.

CapEx. So GBP 120 million for this year. I think it will [ tip down ] a bit from that level [indiscernible] somewhere back there. We'll continue to spend in investment business. I mean the technology. So it is a great spend -- deposit spend. So [ no less than GBP 120 million ] will [ continue at least ].

[ Cameron from JPMorgan ] I've got 3 questions. Last we sure. The first question is just about kind of mindset within the company. Obviously, since you [ have a managed rate ] for value over volume or growth. Can you maybe talk through what the change in mindset within the company has to be to get back [ to it quick ]? And maybe how it will be incentivized or what your colleagues will be listening to do to spur that [ growth ] going forward? So that's the first question. Second question, you talked a lot about capital efficiency in the presentation. You see the debt is up to a kind of redemption this year, why not reissue or I mean -- you hope that [indiscernible] take down the Solvency II ratio, but why not we reissue something there? And then the third question, any kind of thoughts or guidance around [ whether 79 ] the current year attritional loss ratio [ motivated as you see ] but for '22 will be very helpful.

So I'll start with mindset [indiscernible]. mindset, really interesting. I could do this -- I could have actually hours on this answer. So the [ short answer ] I think if you just think about what we've been doing over the last year [indiscernible] a hard year, to give you the Direct lines. We're not sure, but we've been building the technology in each product. We've been building the data foundations and bringing in data skill sets. We've been doing a pricing transformation, bringing in new people, changing process, getting ready for tooling. We've been continuing on an agile our transformation [ task ]. So asking people to work in a different way, different growth in a much more fluid manner, which is not straight forward when you are working from home and you have not done it in an office. And we've been starting to rebalance where we do our engineering and bring that in-house as we started to move us toward our new technology, we're also bringing those capabilities in. So in terms of mindset [ chips ], we've been kind of building up to this because there's been this huge wave of activity driving towards looking at it completely different. Now that's not the same that we're changing a value over volume mindset. So if you ask me if there's sort of a lack of discipline in the market then we are and we are, just as an example. We think we've done the right things through last year and that remains [ loss of these -- ] And we didn't say that, which was much more difficult. We [ took back 93 to 95, of course ]. So to say that the mindset remains the same. But I do say there is a real time, we spent a lot of time building capability, and we can start to fill some examples [ we can start ] landing some stuff in the market. It's really exciting when you start to put models out there, where people's hands have been tied and not being able to do those kinds of models. And now they've got 2, 3 of them stacked up waiting, ready to go, waiting to see what it does in the market. So I think there is different energy. And then please just have a chat teams to see what it looks like.

So net capital efficiency. So [ we're in ] that debt quarter into this month, effectively [ 5% ] last year the bring up [ 4% ] [indiscernible] so nothing on trade. We don't need to issue additional debt [ budget is strong ] to see the capital ratio now without the Tier 2, [indiscernible] seems to be in the range. But of course, always new capital opportunities, [indiscernible] [ said clearly, growth it will ] the potential out of investing in more strategic reinsurance. And that has been to play the debt stack, if you will. So [ losing capital in the ran ] relative to just more [indiscernible]. And on the Motor loss ratio, so 79% on the year, exactly as we said. We said we've been at the entry point into 2022. The -- our average [indiscernible] offset the condition normalized as good entry points into the year. We have a lot to pricing benefits that improves -- come through as we referred to it within the presentation. And I think that -- and that gives us opportunity and we see how the market [ returns where ] take that margins growth.

This is Ivan Bokhmat, Barclays. A few questions, please. The first one, so you may have heard last week, your -- one of your competitors giving the outlook of '22, expecting profits to go down. Obviously, we are out of the frequency benefits for Motor. So I was just wondering if you could perhaps frame an outlook, a short-term outlook for '22 in a similar context that you expect profit improvements, of course mindful that you had a big restructuring cost in '21? And the second question is just follow on, on the reinsurance assets. So one, I was wondering if you could highlight how much how do you saved compared to your previous arrangements in terms of spend in reinsurance? And second one, clearly, this should probably also bring some reserving implications. I was just wondering how you would change your approach going forward.

So on the outlook. I hope we've given you some real [ parts ]. So the 93, 95 is a key [indiscernible] clearly in 2021. The combined ratio was 90% in line 91. So the [ in Q, the line parts ] give you certain -- especially as investment returns well. One we haven't given you is realized gain [indiscernible] particularly at state. [indiscernible] going into 2022. So hopefully, there's no moving part there to help you. On reinsurance, the cash settlement is about [ GBP 60 ] million, roughly, now that's in cash saved, that's not profit number because obviously we issue the claims relatively flat and it says [indiscernible] working against the claims [ side ]. So should also small turn net profit for us is taking our [ mature ] margin. Sorry, reserve -- no change in reserve, to be honest. The reserve to be exact somewhere. So on reserve gross and then due to [indiscernible] [ recent project ].

Perhaps I could just follow up. With that then, in a certain period of time, 2, 3 years lead to an increased [ DYD ] unfold. So -- because you have to retain more?

And so I think theoretically if we reserve the same standard and you're seeing reserve releases flow back years, the more it will accrue to us versus the reinsurers. But I think it would take a number of years for that to build up. So it's not -- I don't see it in the short [ impacting ]

[indiscernible] Just 2 questions, please. Just on the Motor outlook and the growth. In those changes to the transformation program for the last year or so. It felt like it was almost there, but there's still more updates to come, still year-on-year declines. So should we expect policy growth in most of this year? And the second question, just on the expenses. A little bit more color on the direction of the movement part, so [ what is the ATR, and then it negates ] and is what are these kind of premium assumptions that you're expecting on the [ upside ]?

The next -- [ rental ] growth, right -- and when you look at growth, [ it comes forward, we look at our Motor business ] is growing. Home, I suspect, will be flat this year because of the approach we've taken return pricing practices. So really in the most question, you're right. We've entered the market in the right place, so we're feeling good about that, I think. And when we look at what's coming on stream, we've got strengthening claims that will help -- should give us an advantage to [ inflationary points ] may increase in aftermarket. We've got pricing capability coming on stream as we move through the year [ in all ] and we've got back-end loaded marketing. So one of that add up to -- sorry, and we've got Motability coming on in 2023. So I think when -- what I said in the presentation is we would like to see it come back and to grow as we move through the year to the end of the year and back -- and into 2023. And that's the shape that we're thinking. Now there is a reality check. We operate in a real market and we will always take the right disciplined choices through that market as it moves. And that's the end that will determine some of the shape, but that's really the case from where we see our competitive improving, if you like, [indiscernible] [ at what timing ].

So on cost, [indiscernible] So your [ appreciation is an issue ] will tick up a bit here. Because we're still turning on new systems that [ will see what you are ] fully starts to amortize? If you want to hit on that growth come through in the [ D&A ] line. Levies I don't control, so quite hard to give outlook. So I mean there's been pressure on levies, let's hope -- put some of the pressure are reduced. You can see it in the last few years to be tinted they are coming through. So obviously that's been the type of [ actions we are taking ] [indiscernible] where we are with [indiscernible]. Turning to growth, I'm going to give [ precise on, so we said modest ] approach, but obviously, the growth will come through. We'll make the choices in the market we need to make. It's like, to Penny's point, we will [ be disciplined ] [indiscernible] And it may not be a straight line growth, it will be fairly keep and as talked a bit about utility as well. Now obviously, we should say that there's a lot of inflation in the market, for example, inflation drives premium. That should be a positive, positive to help us on this growth.

Rhea Shah, Deutsche Bank. And just following up on the expense question, if there isn't any modest growth -- as in a scenario where there is no growth. Are there any [ leaders ] so bring that expense ratio down to 20%? And then my second question is on the market share in Motor and Home, so far this year across the different channels.