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

Welcome, everyone, to Direct Line Group's Capital Markets Day. I'm Paul Smith, the Director of Business Performance and Investor Relations. Today's presentation will be focused on the group's refresh strategy and therefore won't cover current trading, which we'll update as part of our half year results on the 4th of September. First, a few bits of housekeeping before we get going. If I could ask everyone to turn their phones off or put them on silent, and we're not planning any fire drills. So in the event of a fire alarm, please follow the property team as instructive. We'll have a short break during the presentation and time for Q&A at the end. We'll provide more detail on how this will be run a bit later. Our speakers will remain here after the Q&A so do take the opportunity to have a quick chat with the team. Thank you very much, everyone. Adam, over to you.

Thank you, Paul, and welcome, everyone. You'll recall in March that I said I'd provide the market with a refreshed strategy for Direct Line Group featuring further details on our priorities, portfolio focus and cost target. This was an important early commitment as we work to improve the company's performance. Today, I'll start by giving that update on our group strategy, before later unpacking our portfolio ambition and giving more detail on how we plan to deliver our cost target. I'm joined today by Lucy Johnson, our new Managing Director of Motor who'll provide a detailed update on our Motor strategy; and Neil Manser, our CFO, who'll talk more about capital and dividends. Since joining DLG, I've sought to create a culture of transparency, accountability and ownership. This cultural shift is the cornerstone of the strategy and something I'll continue to prioritize and reinforce. As some of you will know, over the past few months, I've completed a thorough bottom-up diagnosis of this business to really understand our historic underperformance. One of my overarching observations is that this is an insurance business that has lost some of its technical edge and needs to focus and execute to regain a leadership position. We've made some substantial decisions that I believe will shape the strategic direction of the group. As we unveil our strategy, we'll demonstrate to you that we know what it takes to win in our core markets that we have a compelling plan to achieve these outcomes and that we're making priority strategic choices that would enable us to deliver strong returns for our shareholders. As a result, we've identified some near-term priorities, which will deliver more immediate value and will also provide a platform for continued success. And through careful prioritization and executing on what we know will deliver results, we can, and I'm determined we will win. I'd like to start by providing you with the key takeaways. The first, as I've said before, is that this business is built on strong foundations with 2 iconic insurance brands in Direct Line and Churchill and a well-known challenger Rescue brand in Green Flag. We have well-positioned businesses in our core portfolio of Motor, Home, Commercial Direct and Rescue. And we have unique assets in our owned accident repair centers and Green Flag rescue operations which give us more control to deliver excellent customer and commercial outcomes with few amounts to feed in the value chain. But, we haven't always used our strengths well. The difference will be in our ability to combine our strengths and execute against our priorities to simplify our business and deliver profitable growth. The second key takeaway is that we know the motor market well. Price comparison websites are the Paramount Channel. Price is the driving factor and customers expect seamless digital journeys. It's a well-trodden path to win and Lucy and her refresh motor team know the formula for success. It requires excellent pricing and underwriting capability, a low cost base, strong claims management and superior digital journeys. By fully embracing PCW-led distribution and executing on our turnaround plan, we can return Motor to growth and deliver consistent, sustained profitable earnings. Lucy will talk about our road map and the actions the team have already taken, which are showing positive early results. The third takeaway is that it's not all about Motor at DLG, of course. We have other business lines where we're already winning. Our Home, Commercial Direct and Rescue business lines all delivered faster growth and a more profitable return than Motor last year and we see substantial opportunity for further growth in these markets by building on our unique capabilities. We're going to focus our portfolio investment in the areas where we know we have the opportunity and capability to win and we make disciplined decisions when we allocate our capital to maximize shareholder value. We therefore decided to exit OEM affinity motor partnerships, and we're firming up next steps for our pet travel and other personal lines businesses. I'll tell you more about our strategy for our core business lines later on. The fourth key takeaway is that I want to reaffirm what we've said previously. We're focused on delivering at least GBP 100 million in run rate gross cost savings by the end of 2025 and targeting a 13% group net insurance margin in 2026. For the 3 months down the line, I'm even more confident in our ability to deliver on our cost target. We have a clear execution plan in place to deliver at least GBP 100 million and we don't want to stop there. We see material opportunity to simplify our business in a measured way that enables us to be more efficient and effective with our operations, whilst at the same time being brilliant for customers and improving commercial performance. I'm going to return to this theme with more detail later on. And the last key takeaway is that we have a strong balance sheet and a growing capital base. This now gives us the flexibility to restart regular dividends at around a 60% payout ratio with additional capital returns possible over the new 180% target solvency ratio in due course. Our ambition is for DLG to become the customer's insurer of choice in U.K. Personal Lines and Commercial Direct. This means doing all the things that attract and keep customers longer by offering them the products they want to need in the channels they prefer. It also means being competitive on price while providing a brilliant customer experience. We want to rejoin the front runners in Motor and will target leading positions in Home, Commercial Direct and Rescue. Underpinning our ambition are 3 enablers, insurance technical excellence, cost competitiveness and a performance culture. Being leaders in our chosen markets only happens when we have cutting-edge excellence across the insurance value chain in key areas like pricing, underwriting, claims and distribution. Being competitive on cost in a PCW-led market is vital. Our cost program to close the gap to our peers underpins our ambition to be the customer's insurer of choice. And people are at the heart of any organization. We need to set our business on the right footing by empowering our colleagues to work at their best in an organization that promotes accountability, transparency and delivery. We've already made progress on our turnaround over the 4 months since I started, and I'd like to highlight a few of our successes. I've recruited and experienced an impressive new leadership team, some of whom are already here today, and I'll say more about them in a moment. We've completed a root and branch strategy review across our entire group to understand the economics of our business, our market, our products and channels and what we need to do to win. We've conducted a comprehensive analysis of the opportunity to put the Direct Line brand on PCWs and have concluded that this is the right course of action. Home, Commercial Direct and Rescue have proven that they can grow profitably, and we have plans in place to further leverage these well-positioned businesses. For the other areas of our portfolio, we've decided to exit OEM affinity motor partnerships and will cease investment in Pet, Travel and other personal lines for which we're firming up next steps. We've created a central transformation office and initiated substantial cost reduction action, such as prioritizing recruitment only for the most critical roles and reducing discretionary spend to see an in-year benefit. These actions are the very first steps on our route to establishing DLG as the customer's insurer of choice. I talked about our foundations in March, and I absolutely believe that the group is built on assets, which are hard to replicate and take years to develop. I know some of this isn't new and may be met with some skepticism, but it remains true that we are very fortunate to have the brands, scale and value chain depth -- brand scale and value chain depth that we have. But it's what we do with them that count. And we know that these assets, what they can help us achieve when we utilize them effectively. For example, research showed that when buying a motor policy on a price comparison website, if all brands are priced the same, customers would actively choose brands they know best, like Churchill or Direct Line. We remain competitively positioned in our core markets with scale positions in the Motor and Home markets where we top 2 and 4 respectively and with a strong foothold in the commercial direct market through our existing propositions. This scale also gives us a rich history of customer insight. From the last decade alone, we [indiscernible] from over 7 million claims across [indiscernible] products that we can use to further develop customer propositions and pricing accuracy. By combining the data we have obtained from '23 owned accident repair centers, with 55% of our own brand vehicle claims are serviced. We have a unique opportunity to stay ahead of the market on claims development and costs, but we haven't always taken full advantage of this. Our assets also enable us to deliver brilliant customer service. The recent report by the consumer body, which showed that Green Flag ranks higher than the AA and the RAC on speed of breakdown response. And we've seen Green Flag's leading service level reflected in a consistently high Net Promoter Score of 70 and above. It's important to acknowledge that these foundations aren't all about new capability, but we're now better positioned to unlock our potential by utilizing these strengths in a more joined up and coherent strategy that provides clear direction on where we'll be prioritizing investment in order to deliver value for our customers and for our shareholders. My key message here is that we want to do fewer things better. As I've said, our strategy sets out a clear path for where we'll focus our investment in order to win. The counter to this is that there are certain things we're currently doing that aren't core to our strategy moving forward. Therefore, we're not going to invest further in these areas. Starting with our core portfolio, as Lucy will explain shortly, our priority in Motor is to return to a winning and profitable position in the market by fully embracing a PCW-led distribution strategy. We believe we have a winning formula that combines deploying our leading brands in the channels where customers choose to buy insurance, refocusing our investment in core insurance capabilities and delivering through a refreshed team who bring execution and commercial focus. Outside Motor, we'll focus our portfolio to drive strong medium-term growth. Craig Thornton will join us in October, and we already have experienced and capable leaders in Home, Commercial Direct and Rescue. In Home, we'll build upon our existing strengths in technical excellence and leverage the capabilities provided by our new technology platform. In Commercial Direct, we'll continue to optimize our product set to disrupt the small business insurance market. We've built solid momentum in this market, and we believe we're well primed for further growth through targeting underserved segments. And in Rescue, as you've heard me say, we have an exceptional service offering where customers appreciate our fast response times and excellent network. We're now going to accelerate our investment in an owned patrol fleet and target expanding our partnership volumes to increase scale efficiency. With the remaining portfolio, we've decided to exit OEM affinity motor partnerships, and we're firming up next steps for our Pet, Travel and other personal lines businesses. Our renewed portfolio ambition is closely aligned to our strategic vision of doing fewer things better by creating a simplified business to deliver sustainable, profitable growth. I think it's really important to be open about acknowledging missteps over the past few years, and I'm fully committed to addressing these issues to strengthen our organization and enable us to improve our performance moving forward. My overarching observation since I joined is that this business didn't create the platform to enable our talented people to succeed. Technology replatforming distracted the organization and allowed competitors to get ahead of us. We've now taken action to create a more stable platform, and we're refocusing our efforts on the core insurance capabilities required to win. We gave too much weight in the past to our strengths within the direct channel without creating a clear route to win in the PCW channel. As I mentioned a moment ago, we'll be launching Direct Line, our strongest brand on PCWs, and Lucy will talk much more about this later. Insufficient accountability, both for customer experience and commercial performance led to ineffective delivery of objectives. I'm bringing in a refreshed and experienced leadership team, enhanced controls and a compensation model very clearly aligned to performance and shareholder outcomes. And finally, our complex organization and technology structure limited our ability to move with the pace and efficiency needed in our commoditized and fast-moving market. We'll simplify our business model to ensure a leaner organizational structure with clear end-to-end accountability. As we begin to accelerate execution of our turnaround, I'm going to continuously review that the appropriate checks and balances remain in place to ensure we're constantly moving in the right direction. One of the immediate actions I took when joining was to start recruiting a new high-caliber management team, all of whom are well known and well respected in their fields, have deep experience and a track record of execution in the U.K. general insurance market. We already have many talented individuals across our business, and I'm confident that this team will help support them to deliver at their best, as well as challenge our established thinking by bringing in new outside in perspectives. Starting with those in the room, I'm delighted to welcome Lucy Johnson, our new Managing Director of Motor. Lucy will introduce herself in a few minutes. Hugh Hessing, our new Chief Operating Officer, is also here in the room having joined us on Monday. Hugh brings extensive industry insight, having been in a variety of senior roles across Aviva and KPMG. Our transformation office and delivery teams will report into Hugh. Jane Poole, our new CFO, is a highly experienced finance professional, who joins us from Aviva, where she's been CFO of the General Insurance business since 2021, and prior to that, was CFO of RSA's U.K. and international businesses. Craig Thornton will oversee our Home, Commercial Direct and Rescue business and brings with him vast experience from Lloyds Banking Group, Aviva and Swiss Re. Martin Milliner, our new Managing Director of claims brings with him over 30 years of unrivaled deep technical knowledge of claims, most recently from his role as Claims Director at AllianzLV. And additionally, Maz Bown, our new Chief Risk Officer, joins us from Aviva, and Dhruv Gahlaut, our new Chief Strategy and Investor Relations Officer, will join us from Global Insurer SiriusPoint. Clearly, this team will be critical in leading our talented people to ensure we deliver on the turnaround strategy that I'm presenting to you today. And all of this will be underpinned by a strengthened performance management and delivery culture with executive remuneration totally aligned to performance and shareholder outcomes. So to close this section, we're confident that our new strategy will deliver profitability and enhanced shareholder returns. As we focus on delivery, we're guided by the 3 key objectives that we've already made clear to the market. Firstly, I'm confident that we can deliver at least GBP 100 million of run rate gross cost savings by the end of next year, and we'll provide transparency on our progress with regular updates to the market on our performance. Secondly, we're focused on delivering a 13% group net insurance margin in 2026. And thirdly, we have a credible plan to restart regular dividends in a way that delivers value for shareholders. Additional returns may be possible, but it's important to recognize that we're in the early stages of the turnaround. More detail will be shared by Neil later in the presentation. As we embark on a new phase for DLG, we'll remain focused on delivering our turnaround strategy, supported by our new execution capability and a refreshed performance management culture. I'm now going to hand over to Lucy, to share with you more detail on our Motor strategy. Lucy? Over to you.

Thank you, Adam, and hello, everyone. I'm Lucy Johnson, the Managing Director of Motor. Today, I will share with you my plan to return to sustained profitable growth in Motor, including the progress already made to date. Before jumping into the details, let me start with the experience I have, which has enabled me to quickly analyze the situation at Direct Line in order to build this compelling motor strategy and the associated plans. I have a decade of experience in insurance with my career spanning to broader financial services, and a proven track record for driving growth in price comparison distributed motor insurance. As chief commercial and marketing officer, and underwriting services [indiscernible], I was with the business as it transformed from being privately owned with 1 million customers to nearly 3 million and publicly owned in 2019. The roles band product, distribution, pricing, underwriting, digital transformation, basically the fundamentals of running 1 of the market-leading PCW motor insurers. For the past 4 years, as partner at Positive Momentum consultancy, I have operated as an adviser to the executives of 5 other personal lines insurance companies. Most recently, I've supported Adam on the development of this refreshed corporate strategy. I have a strong preference for leading turnaround in growth businesses with a reputation for building talented teams. I have watched DLG as a business for the past decade. In my previous roles, I categorize as a company that could be great but wasn't. From a far, it looked like a company that was relying on a business model that was outdated, and it had underinvested in what it takes to win in the PCW market. Given the support I have provided Adam on this refreshed corporate strategy, I was fully aware of the current position of the Motor business. My rationale for joining as Motor MD was because I observed 3 major changes. Firstly, DLG now has a clear and focused strategy for sustainable and profitable growth. This is essential in order to win in a market where ruthless execution wins. Secondly, the quality of the new ExCo team and a number of individuals in the motor business. And finally, the motor business itself being in a position where growth is possible. And by that, I mean stable from a pricing perspective with the foundations now firmly in place. Of course, I'll share much more on this later. There will be easier jobs in the market, but I am really confident that there is no better job than turning around the DLG Motor business. Let me now talk through what I mean by turnaround and how we plan to win. I'll start with my key messages, and then I'll take you through the detail. The motor market is, of course, competitive and PCWs have driven unprecedented price transparency, but success can be achieved. This formula for success is well understood by our rebuilt motor team. At the heart of our strategy is an unrelenting focus on the core insurance capabilities. And by that, I mean product and distribution, but in particular, pricing, underwriting and claims. I view this as a marked change from history. The technical facets of insurance are the most important elements. Anyone in the motor market can drive increased volume. What we recognize is the discipline of doing so whilst remaining in control of margins. On top of that firm technical foundation, after careful consideration, we are launching Direct Line on PCWs, extending the reach of one of the most recognized brands in the market into the channel where customers prefer to shop. My refreshed leadership team with their strong track records of bringing best practice into DLG to reinvigorate a trading culture that focuses on delivering growth through PCWs. We understand our market and we know how to win. Together, we developed a road map with over 20 initiatives that are now in flight and already delivering business benefits with the team being in full execution mode. Overall leadership capability in motor is now in a good place, and I will continue to strengthen this in my first 12 months. To summarize, focus on insurance technical excellence, combined with the opportunity to launch Direct Line on PCWs creates confidence that we're ready to drive sustained profitable growth. In the past 5 years, PCWs have continued to increase their share of new business in the market from around 80% to 90%, and we see no evidence that this will decline in the foreseeable future. As we know, DLG motor market share has declined in recent years. A key part of this is that the motor business has always been underway in new customer acquisition on PCWs, the major and growing sales channel in the market. In order to grow, winning on PCWs is critical. In a price comparison world, customers have an extensive choice of insurers, with limited obvious differentiation between products and high levels of price transparency. It is therefore easy to label PCWs as Uber competitive. But even so, in my experience, there was a known formula to success through this channel that enables some companies to win over others. My personal observation of DLG was that it was too slow to adapt to PCWs and recognize the science involved. And as such, we continue to have opportunities across the spectrum, including better use of product tiering to meet customer needs and extensive use of data. Telling you that the motor market is ever changing is, of course, nothing new. Claims inflation, regulatory intervention, changing vehicle technology. They have all featured in conversations within motor insurers for as long as I have been in insurance. The reason why I share this today is that in my experience, the best insurance companies leapfrog others through periods of significant change, and I intend to bring this philosophy to Direct Line Group. My message today is that there are many people in the market who can talk about the facets of the motor insurance market, but there are far fewer who have proven experience of growing through the cycle in a controlled way. This motor team has that experience. In the next few slides, I will share with you specifics on our past issues, the actions we now have in place and evidence of our pricing governance, with the aim of demonstrating that this is a motor team that understands market reality and is firmly in control. Not adapting to the requirements of the market was a key contributor to DLG's historic underperformance, including internal factors specific to DLG. We now understand the root causes of these shortfalls. And you will see today that we have clear actions to address them, some of which are already underway. DLG lost valuable time with the delayed technology replatforming, which allowed the best competitors to accelerate away on core insurance capabilities. Our technology platform is now operating at scale, ready to support our growth ambition. And for some time, we have been deploying initiatives to catch up in our core insurance capabilities. DLG continued to invest in multiple routes to market, including direct instead of ruthlessly prioritizing efforts towards PCWs. We're amongst the biggest players on PCWs, but remain underrepresented, as you saw on the previous slide. We will instead focus our investments on improving PCW distribution over the next 3 years to drive growth. Helpfully, much of what ensures success on PCWs will also remain true for our direct channel, which will support customers who prefer to stay and buy direct. DLG suffered a substantial loss of experienced team members who did not buy into the new agile organizational design. The business, therefore, continue to operate without the same density of top talent in key roles whilst implementing the new technology platform. However, team rebuild has been underway since 2023, with more than 10 new senior members added to the Motor leadership team with more in the motor team overall. DLG considerably underpriced inflation and failed to act with the same speed and agility as our peers. This led to DLG's projection on 2022 inflation, increasing by 7 percentage points during 2023. We now have proven monthly monitoring embedded, allowing us to identify the trends and that quickly. I will share more on these important details later. And finally, DLG has also been carrying a cost base that has simply been too high, equating to roughly 6 percentage points higher than peers, which has a direct impact on performance in a highly price-sensitive market. We have already launched a group-wide transformation program to reduce costs to ensure we are well positioned for PCW competitiveness. We are tackling these challenges head on and you will see clearly in the plans being shared today alongside early proof points from improvement over the past couple of months. As mentioned on the previous slide, we underpriced inflation. You can see here in the left-hand side of this actual versus expected loss ratio graph. Through 2022, our expectation of written loss ratio is shown on the pink line. And you can see the differential between this and our actual loss ratio performance, the orange dotted line. This significant underpricing was identified when we implemented the new monitoring process in 2023. We took action and adjusted our prices at pace. From that point onwards, our expected view of the loss ratio has been reviewed on a monthly basis. It has not moved materially and continues to track the actual loss experience within the usual bounds we would expect. This can be seen by a selection of monthly review points shown on the graph, July '23, the purple line, November '23, the light blue line and May '24 actual loss ratio, the green line. This chart is an extract from our now standard and automated monthly process, in which over 200 different pieces of analysis are examined to confirm our pricing is under control. Alongside this, we apply the usual management oversight and discretion, enabling us to adjust rate incrementally by way of protection if we are entering a period of uncertainty. As an example, through this process, we observed frequency reductions, which were beyond expectations given known risk mix changes and benign weather. Pricing adjustments follow prudently and close monitoring continues. Simply put, these controls, combined with the oversight by talented individuals in the motor team, protect the business from a repeat of the 2022/'23 underpricing. Our ambition is to drive sustained profitable growth in Motor. And to do so, there are 5 key elements, which I will cover at a high level before sharing more detail on the coming slides. The nature of the motor market means that all 5 aspects require focus in order to optimize across the whole value chain, revenue, claims and costs. Pricing and underwriting, the accuracy in technical pricing is paramount. This means the ability to price accurately, monitor closely and take actions quickly. Moving to customer experience. We will target improvements across the customer journey life cycle to deliver brilliant customer experience. And given the size of our portfolio are focusing hard on renewal outcomes. Claims has been one of our historic strengths. But our ambition is to lead in cost control. Pushing it from good to great is one of the key elements of our motor strategy. And now to distribution, we have the best brands and we need the right product suite, optimize the PCWs to help us maximize their full potential. And finally, we should not underestimate the uplift we expect from our new ways of working. Our new operating model promotes accountability and drives delivery. So starting with ways of working. In the Motor market, and specifically given DLG's position, having an experienced leadership team with a proven track record is essential. We are in catch-up mode and need to accelerate through this phase as quickly as possible. The rebuild of the team commenced in 2023 following the period of high attrition that I referred to previously. And this rebuild has enabled the Motor team to build firm foundations for the past 12 months. Our new team includes some of the best talents from our top competitors, including Admiral Hastings and Aviva to rebuild our bench strength. Within my leadership team, Matt [ Pennet ] and I worked together in Hastings, prior to him joining DLG as Retail Director. Colin Anthony has joined as Manufacturing Director from Tesco Underwriting. And I have recently hired Katie Griffin, who joins in September as Business Improvement Director from PwC. Our new organizational structure means our leadership team now owns product digital pricing and underwriting decisions with dedicated personnel across these functional areas, which is a clear break from the past and now mirrors best practice. It also means we can test, learn and iterate faster to accelerate our speed of delivery, which is whilst being firmly in control. This will foster a performance-oriented culture to help us attract and retain top talent, which is essential for our future success. As I mentioned in my introduction, I have a reputation for building and maintaining talented teams and this will continue to be an area of focus for me in my early months in the business. Investment in pricing and underwriting capability is something that will move a motor business from average to great, and I have led teams who have gone on this journey. Technical pricing is paramount. And by my own assessment, the current technical pricing capability, i.e., the technical algorithms within motor have gone through substantial rework and I am satisfied by capability in this area. Other elements remain where we have opportunity to increase technical pricing accuracy, a critical one is by adding new data sources, with this example showing the impact of a recent deployment. In the graph, you can see the proportion of new policy sales by risk profile, with the light blue line showing the pre-data enrichment states and the dark blue line showing the post enrichment state. You can see that by adding in a single piece of data enrichment, we are now able to better predict the risk price for all of our customers and meet their needs more appropriately. This allows us to better attract and compete for the lower risk proportion of customers, which, in this case, shifts the overall mix to the lower end. We do still want to and do still win on the right-hand side of the graph, but now we better predict the risk. For example, post data enrichment, the average sold premium on the right-hand side is 10% to 20% higher than before. This particular data enrichment initiative delivers an overall conversion uplift whilst also delivering a 0.6 percentage point lost ratio performance improvement versus the control group. I see this is an area where continuous improvement in innovation is possible and a key lever for the motor business. The catch-up in capabilities since 2023 has resulted in substantial improvements to our pricing and underwriting effectiveness. The monthly performance review, technical model rebuilds, segmental analysis and proactive underwriting management leads me to have confidence that we are operating in control. We have 3.2 million motor customers with an average tenure of 5 years. We have material opportunities to better meet the needs of our customers and improve retention. This work is underway with retention rates trending upwards, initially benefiting from a single initiative that will deliver around 2 percentage point increase in core motor this year. In our Darwin business, the focus on retention is also leading to a meaningful increase in retention rate. Overall, we're targeting a 5 percentage point increase in the next 18 months. This is on top of any natural benefit we see from less extreme year-on-year price increases. This will be a proof point of our new operating model, where we will deploy, test and learn across a long list of initiatives through the full range of levers, for example. In pricing, we plan to optimize our models for greater retention and develop proprietary data sources to better target and price for customers most likely to stay with us. This is in addition to optimizing discount controls in order to retain more policies in target customer segments. Across our customer journeys, we have plans to enable more of our customers to fully transact digitally, and we will build segmented communication strategies in order to better meet customer needs and improve retention. In our contact centers, we're providing our customer agents with a retention tool kit with an observed retention uplift, and we are actively charging calls to more highly skilled agents across the customer journey. Given the scale of our motor business today, retention is a critical strand in this strategy. We cannot achieve profitable, sustainable growth through solely focusing on new business. Migration to digital for the majority of customers is a tried and tested routes that many of our competitors have taken. Competitor expense ratios and digital benchmarks suggest that none of our leading competitors have nearly as many phone calls or printed communications as we do. This is one of the consequences of an over concentration on the direct distribution channel, where there was less need to make this digital transition. Our customers all expect brilliant customer journeys, and therefore, we have a significant opportunity to reduce our cost base through digitization to be more aligned to being a top PCW player. Last year, we conducted over 14 million calls and distributed over 24 million physical paper packs. Both of these are way too high. Our ambition is to reach top quartile performance, and I have confidence in this ambition given the prioritized list of initiatives that I have personally seen. This is a well-trodden path where I expect us to make progress quickly. Where we are offering customers a competitive price and product on PCWs, we want nothing to stand in their way of competing the purchase. Benchmarking shows us today that we are outside the top 10 in our click-to-sale ratio, which is the proportion of customers who complete a sale after clicking through from a PCW. We are targeting at least a 5 percentage point increase in click to sale by the end of 2025. As an example of our progress, in the last week, we have finalized 1 specific initiative test, which has been confirmed to generate a percentage point increase in our click to sale ratio. In the new operating model, all of these initiatives are managed by motor, and we have end-to-end control, which is a good example of the accountability change, Adam mentioned earlier. Digital customer journey enhancements are expected to play a key role in delivering our cost base that ensures we are well positioned for PCW competitiveness, and Adam will share more as he talks about our cost ambition shortly. Claims management has historically been a strength for the group. However, recently, it has not fully kept pace with the development of market best practice. From benchmarking ourselves, we have identified opportunities to get back to being a top performer for claims cost control, which will also benefit our customers with a more efficient and simpler claims service. We have started to execute a comprehensive claims program, building on 2 foundational components, a great customer experience and the technical claims excellence to enable it. We have 29 prioritized initiatives across the end-to-end claims journey with 10 underway, expected to realize over 30% of the estimated program impact. These will contribute to the 2024 in-year results. Full run rate benefits from the planned initiatives are expected to be achieved by the end of 2026. The biggest drivers, as you can see, our motor damage, motor networks and fraud. Throughout our claims journey, we have identified key decision points where the development of analytics for predictable and repeatable decisions is likely to drive significant benefit. By way of examples, liability decisions, mobility choices, and garage options all offer opportunity for optimization. By encouraging and enabling more customers [indiscernible] will be able to more efficiently leverage our scale to provide a consistently high standard of customer experience, increasing repair volumes into our owned accident repair centers which also lowest cost per claim. We expect at least a 30% increase in counter forward benefit per policy to better protect our genuine customers whilst being tough on [indiscernible]. We'll deploy machine learning techniques in both detection and to help expert judgments. We also have the added benefit of our partnership with the U.K.'s largetst fleet owner [indiscernible] with a 50,000 strong EV fleet that drive scale and insight through our repair centers. Further improvement in digital journeys will significantly improve our customer experience and provide a platform for embedding analytics in the key decision points of a motor claim. To bring to life the benefits of owning the U.K.'s largest insurer owned motor network, I will now share a short video from our repair center in Stetchbord. It's our second largest in the group, employing more than 100 individuals with a Net Promoter Score of 70. Let's hear from Graham. [Presentation] Thank you, Graham. And finally, whilst the PCW market reduces barriers to entry for brands, the fact remains that the most recognized and considered brands continue to have a commercial advantage over less recognized brands in the market. We know we have the strongest brands in the market in a price-agnostic scenario. To maximize the value of these brands after careful consideration, we will launch Direct Line on PCWs with the bespoke PCW product set, creating a strong source of growth for Motor and the group. Our new product suite is designed to compete and win exclusively on PCWs. It will meet the needs of customers who shop and buy on these channels and create clear differentiation between our direct channel, direct line product. In launching direct line on PCWs, we do expect and have factored in prudent assumptions around customers choosing to switch from being a direct to a PCW customer. We remain confident that this is a profitable strategy. The combination of Direct Line, along with our 4 existing brands, already distributing on PCWs will ensure we maximize customer appeal across all customer segments. To help ensure the success of this important strategic decision, we will focus our investment on improving PCW distribution over the next 3 years. This will distinctly set us apart from our historical approach of investing in multiple routes to market. Given this shift to PCWs, we will also be reducing marketing spend to more optimal levels in line with our market peers while ensuring we do not detrimentally impact the brand awareness we have built historically. When Adam asked me to join, I was very aware of the underperformance in the motor business. Despite the best efforts of the teams within the business, the results have simply not been good enough. Following the motor strategy review that I worked on with Adam, I'm confident that we now have a clear path forward. As I shared at the outset, delivery of the motor strategy requires focus on all elements of the insurance value chain. And whilst this creates a busy agenda, each strategy item has a dedicated group of individuals assigned and in many cases, this is a well-trodden path in which our experienced team have proven delivery capability. These 2 factors significantly reduce execution risk. Our strategic ambition is to move DLG from in the pack where it is today, back to a leading position in motor, and I'm confident we can get there based on our valuable assets, our clear strategy and our experienced team. Firstly, we continue to evolve to become the best of the insurance basics. And we will take pride in focusing on core value chain items that I have discussed today. Secondly, putting the most popular brand in the market on PCWs will enable us to meet our customers where they want us and I'm excited to be unlocking an important growth lever. Adam has discussed the group target of a 13% net insurance margin and profitable growth, and Motor has a key role to play. I'm encouraged by the progress that we've made recently, whilst aware that we have more to do, but I'm also excited to drive for our ambition of sustained profitable growth in Motor. I will now pass back to Adam.

Thank you, Lucy. Please do come and have a chat to Lucy after the Q&A at the end. As I mentioned at the start, part of our strategic review has identified the opportunity to accelerate non-motor for value and growth. So let me provide you now with some more detail. As you've heard me say before, our home commercial direct and rescue lines are well-performing, well-established businesses where we've already demonstrated our ability to grow profitably. To become a more resilient business overall, in addition to winning in Motor, we've chosen to focus on these highest performing parts of our business and plan to accelerate their growth. In home, we're the fourth largest player and motor is the second biggest personal line segment, and we're ready to build on our existing strengths and leverage the capabilities provided by our new technology platform. In Commercial Direct, we've consistently delivered strong margins and growth over the past 5 years in one of the fastest-growing insurance segment in the U.K. And Rescue, we stand out as the only major U.K. insurer with an in-house rescue operation. Green Flag's profitability and outstanding customer service positions us well to target growth through scaling patrols and partnerships. For the other areas of our portfolio, we've decided to exit OEM affinity motor partnerships and we'll cease investment in Pet, Travel and other personal lines for which we're firming up next step. Before diving into each product area, I want to share an overview of our current position and future ambitions. Home, as I just said, is our second largest portfolio and grew faster than the market last year. We expect to be able to accelerate our growth as our new technology platform becomes fully operational by introducing new products, improving the speed and accuracy of our pricing and underwriting and enhancing our claims handling capability. By doubling our gross written premium over the past 5 years, whilst also maintaining a healthy margin. We've proven our potential in commercial direct. And by enhancing our capabilities and going after new opportunities in the market, we plan to accelerate this even further. Green Flag is well established as a top 3 player in rescue with a very attractive net insurance margin in the high 20s. We expect our planned investment in the own patrol model will enhance efficiency and accelerate growth across both partnerships and direct channels. These 3 lines of business have strong growth potential and are well positioned under the proven leadership of key existing team members, namely Roll Fleet & Home, Rebecca Clapham and Commercial Direct and Katie Lomas in Green Flag. Going forward, our financial results will mirror the new management structure, combining these 3 business lines into 1 new reported segment nonmotor. Overall, we plan to grow our gross written premium across these businesses by between 7% to 10% per annum. Now you've seen the overall ambition, I'd like to take the opportunity to dive into each product area in more detail, starting with Home. Home is the second largest personal lines market in the U.K. with GBP 6.4 billion of gross written premium, and DLG already operates its scale with a 9% share. The market has been challenging over the past 3 years with regulatory intervention, weather events and high claims inflation. We've managed this period well. Pricing ahead of the market whilst maintaining a retention rate above the market average and delivering positive underlying contributions to the group. Inflation pressure is now returning to more historic levels. And this, coupled with market rate increases, has created a more stable market where conditions are more favorable to enable profitable policy growth. So what does it take to win in Home insurance? I think it takes deep technical understanding of the U.K. property market to inform pricing, risk selection and claims fulfillment. This is becoming increasingly important as the industry grapples with the impact of climate change. It also requires leading brands with diversified distribution channels. Like Motor, price comparison websites remain a key growth channel, although there's less reliance on this channel as a route to market. And it requires a scaled claims network capable of delivering effectively for customers. We already have each of these 3 core components. Our view of underwriting risk includes over 250 features created using over 25 external data sources and blended with 50 million years of policy exposure. We have 2 of the U.K.'s leading insurance brands in Direct Line in Churchill and access to customers through a range of channels, including direct, cross-sell, PCWs and our partnership with NatWest Group. And our claims capability is well established and benchmarks well across leading industry peers. We're building from strong foundations, and we'll continue to accelerate our plans as we target further growth and expansion enabled by our upgraded technology platform. We're implementing RADAR live which will improve the accuracy and speed to market of pricing and underwriting changes, enabling us to deploy simple rate changes in a matter of hours, more sophisticated margin optimizations in weeks and a granular refresh of our risk models quarterly. This will allow us to further leverage our unique insights and data advantages that I mentioned a few moments ago. Today, only 11% of Direct Line and Churchill Motor customers also have a home policy with us. The new digital app, which I'll talk about later, will allow us to use data enrichment and customer insight to proactively offer an indicative premium for a home policy to the rest of our Motor customers. Over recent years, we're focused on upgrading our core policy administration system, and now this is live, it will allow us to bring new products to market in growing segments such as the Essential segment, which now accounts for about 1/4 of new business home sales in the market. And by leveraging the insight, we generate through our enhanced digital and data analytics capability, we can optimize customer journeys to improve conversion and lower our cost to serve. For example, we can now identify where specific communication used in online journeys is leading to higher digital dropout rates, giving us the insight to quickly adapt and deliver more of our customer journeys online. We've already started writing privilege policies on our new technology platform, and we plan to start writing Churchill and Direct Line policies by the end of the year. In summary, for Home, we're well placed building from strong foundations with a clear strategy, which is being executed by an experienced, talented team with a proven track record of operating well in this marketplace. Moving on to Commercial Direct. This is the fastest growing market in which we operate, and it's highly fragmented with both personal and commercial lines players specializing in various subsegments or channels. DLG is well positioned with our strong brand equity translating well. We've already established ourselves as a leading direct and PCW player. Our portfolio covers landlord, Van and SME, which includes insurance for trades people, office professionals and other small businesses. We've consistently achieved strong premium growth. This has primarily been driven by landlord and SME, which make up over 60% of our portfolio and have been delivering healthy margins. Post the sale of our broker commercial business, we're enhancing our core capabilities to enable us to expand initially where we've already proven our success and then into new market segments in order to further accelerate our growth. To support this growth ambition, we're taking steps to expand our pricing and underwriting capability, and this includes strengthening technical talent and leveraging advanced analytics. Building on our existing capabilities, we aim to target underserved areas of the market, especially expanding our underwriting criteria for micro SMEs and landlords. If we take multiproperty landlord as an example, it represents approximately 70% of the landlord market, and it's growing. We currently under-index within the segment, but we have the opportunity to win here by leveraging the success we've seen with single property landlords. Our growth strategy also includes increasing our presence on PCWs. Much like you heard, Lucy, described in Motor, PCW is the major channel for Van new business and are growing, increasing their share of new business sales by 10 percentage points last year alone. Today, while the PCW share in landlord and SME is lower, we do expect this channel to continue to grow and we'll take measured action with the aim of accessing this growth in a profitable manner. Then to further evolve and establish DLG as the leading player in commercial direct, would explore expanding into adjacent market segments and leveraging our existing capabilities to offer compelling products while enhancing our customer proposition with lean and efficient digital servicing. This combination of activities would enable us to grow and expand our portfolio at an already proven and healthy margin. And lastly, our Rescue business is a crucial component of our revenue generation ambition outside of Motor and has a really promising outlook. We expect to return direct sales to growth and we have a renewed focus on partnerships and a transformative change ahead in the scaling of our owned patrol fleet. Historically, the Rescue market has been attractive and profitable with net insurance margins consistently above 20% since 2018. It's also a highly concentrated market with the 2 major players holding an 83% market share between them and both operating an owned patrol business model. Green Flag business has consistently contributed to group profits, but only has a 7% market share. A significant majority of Green Flag's customers hold private policies with business policies constituting less than 15% of our current portfolio, which is considerably less than our 2 biggest competitors. We aim to grow in all channels to unlock scale that will foster additional growth and efficiency. And this strategy is expected to create a flywheel effect, which should enable us to grow ahead of the market and win share. There are 3 elements that are expected to create the flywheel effect I just referred to. Growth in patrols, growth in partnership customers and growth in retail customers, which includes both direct and insurance-linked policies. We're turbocharging the expansion of our patrol fleet. With over 30 vehicles already on the road following the successful trial, our goal is to increase this to over 300 vehicles in the next 2 to 3 years. We'll still maintain the flexibility and value of our current model through our third-party network while seeking to gain more of the benefits that an owned model brings, such as reduced claims costs and additional roadside revenues through the sale of items such as batteries and tires. The patrol expansion is based on a leasing model which means that it's capital light and is expected to return an attractive ROI as well as enhancing the customer experience. Sustaining an own patrol fleet does require volume, which we aim to achieve through the acquisition of new commercial partnerships. We've already made progress on this, and we look forward to announcing more at a later stage. The patrol fleet significantly enhances our appeal to potential business customers by boosting our commercial competitiveness and offering a brilliant customer value proposition that's well placed to compete with and ideally outperform the competition. Recent motor customer journey enhancements have increased insurance-linked rescue new business sales by more than 50%. And an additional benefit of our expanding patrol fleet is the greater brand presence this creates on the road. Together with a strong customer proposition, we expect these initiatives to drive growth in our direct customer base, which is a significant driver of operating profit growth. We're incredibly passionate about this business. and our ability to deliver a service that goes the extra mile. But don't just take my word for it, let's hear now from one of our green flag technicians, Brian Quinn, who delivers this brilliant customer experience every single day. [Presentation] Thanks, Brian. So to summarize, we have an opportunity to refocus our portfolio through growth in proven high-performance areas of our business. In home, our new platform will enable us to harness our data and brand assets to optimize our products and enrich our risk pricing models, supporting both our growth and margin ambition. In commercial direct, we have a trach record of strong growth [indiscernible] accelerate this further building [indiscernible] capabilities pursuing growth opportunities in our existing markets, and developing our products and services to capture new market segments. And, through targeting approximately 10x for total growth in Rescue, we aim to build more volume, drive efficiencies, and as you've just heard from Brian, consistently deliver a brilliant customer experience. To maintain focus, we've also decided to cease investment in noncore areas of our portfolio where we're firming up next steps. Now we're going to take a short 5-minute break before I return to provide more details on our cost saving targets and Neil will talk about capital and dividends. See you soon. Welcome back, everyone, and now that I've shared our refreshed group strategy and Lucy and I provided a comprehensive overview of our specific portfolio strategies. I want to talk in more detail about how we deliver on our cost target, and Neil will talk about what this means for capital. In March, I shared my initial plans on addressing our cost base. And today, I'll share further detail on where I see these savings coming from and the activities that underpin the plan. As a result of the work we've done over the last few months, I'm now even more confident in our ability to deliver at least GBP 100 million of run rate gross cost savings by the end of 2025, and we have a strong desire to go beyond that. Our cost savings will be delivered across 3 key areas: firstly, technology, where we have -- where we plan to decommission legacy systems and leverage the investments we've already made in new platforms, you've heard both Lucy and I talk about. Secondly, operations and demand, where I'll share our plans to become a more efficient business with a higher degree of digitization. And finally, simplification, where improvements will be focused on creating a rightsized performance-driven operating model. We've already taken immediate action on costs by identifying and prioritizing around 50 initiatives for implementation, many of which are already underway. And finally, cost is a key component of the delivery of our 13% net insurance margin target, which we are reconfirming today. To offer value to our customers and be competitive is specially in a market where PCWs are paramount, we need to close the gap on cost. As highlighted in March, we see a 6 percentage point gap in our gross admin expense ratio compared to our peer group average. Over the last few months, we've conducted a detailed cost audit to really understand how to close this gap. We're clear that our corporate functions are costly and we're now taking action to simplify and streamline them in line with the new operating model we're building to create an environment where our talented people can work at their best. . We've also diagnosed inefficiencies in our technology and digital capability. For example, we know our digital uptake in motor servicing and retention is currently only around 30%. Over the plan period, we intend to increase this to above 50%. We expect the current cost program to close around half the gap to peers. However, we want to go further. As we grow our core portfolio, we expect to improve our admin expense ratio on top of that, further cost-saving opportunities will be unlocked once key initiatives are complete, and I intend to close this gap to our peers over time. The majority of our GBP 849 million cost base, as defined at full year '23 is addressable, leaving us with significant opportunity to simplify our organization and close the gap to peers I just talked about. If we look at the makeup of our cost base, there's a relatively even split between our operations, technology and head office functions, and we see significant opportunity for simplification across each of these areas. We're also incurring significant depreciation and amortization costs, which reflect historic investments. As you'd expect, I'm looking at these investments as part of this review, and any actions that might be taken are not included within our current targets. Most importantly, we view cost reduction as a lever to improve both our organizational efficiency and to improve our ability to serve customers and improve our competitive position in a PCW-led market. Over the last few months, we've created a bottom-up execution plan, detailing out the levers that will support the delivery of at least GBP 100 million in run rate gross cost savings. And in total, as you heard me say, we have about 50 granular activities to underpin these savings. The GBP 100 million savings will be spread across 3 opportunity areas. GBP 50 million of our savings is planned to come from technology, including removing legacy infrastructure where possible, GBP 20 million is planned to come from improving our operations and reducing demand for cost-intensive activity. We plan to further enhance our digital offering and increase customer uptake. And the remaining GBP 30 million is planned to come from simplifying and streamlining the business through a combination of technology advancements and a new target operating model, which will require a different profile of resources. The cost to achieve is expected to be GBP 165 million, which is consistent with the guidance previously provided. I've already taken immediate action to help offset and mitigate some of the headwinds we currently face on business run costs, inflation and depreciation and amortization. These actions include cuts to discretionary spending, a review of change programs and focusing recruitment only on the most critical roles. I'll provide further updates on our cost target in our regular market updates so you can transparently track our progress. Now let me go into a bit more detail about each of these opportunity areas in turn. Starting with technology. Our priority is to remove legacy systems that we no longer need and to utilize to a greater extent, the existing systems investments that we've already made. The group currently operates with a costlier and less efficient technology based than peers, largely due to expensive dual run of legacy and new systems following our technology replatforming. You can see that material savings are expected to come from decommissioning our mainframe system, and these savings come towards the end of our cost program as we finalize the implementation road map. To give an example of the other opportunities that we see across our organization, there are currently around 40 different technology systems in our contact centers that we want to consolidate into 1 core system. In total, we've identified and have a plan for delivering around 20 technology initiatives, which we estimate will deliver GBP 50 million of the GBP 100 million cost savings target. Many of these, as you can see with the shading on the slide are already in flight. There's a further opportunity to increase our operational efficiency by improving the take-up rate of digital journeys while delivering greater choice and experience for our customers. We have an underutilized self-service customer portal, and we want to encourage more customers to interact with us there. As Lucy demonstrated, there are clear opportunities to increase the number of customers who interact with us digitally while simultaneously reducing the burden and cost of telephone calls and postage. As well as enhancements to online journeys for customers, we're focusing on driving efficiency across our contact centers and operational activity by actively seeking to eliminate, automate and optimize processes. In total, we've identified 15 initiatives here, estimated to deliver GBP 20 million of the GBP 100 million target. As part of our focus on improving digital adoption, we need to meet customers' demands for a more seamless and intuitive customer journey in their channel of choice. To this end, some of you might have seen that this week, we released our new Churchill app. The app bill was delivered in just 12 weeks by our excellent team organized in our new operating model and a Direct Line version will be coming soon. We recognized that we need to catch up to our peers in this space and intend to do so at pace. We already have 30% of motor customers choosing to interact with us digitally on servicing and retention, and we're focused on further delivering to customer expectations whilst reducing cost. This launch demonstrates our new focus on delivery effectiveness and prioritization through clear ownership and accountability, and we see this as setting the standard for our improved execution capability. And finally, we want to create an operating model, which enables our incredible people to work at their best. And as we do so, there's a real opportunity to serve our customers better as well. For instance, moving to a simpler organizational structure will allow us to deduplicate activity and provide clearer accountability. This also includes providing the right organizational incentives to deliver results that lead to better customer outcomes and commercial performance. We understand that a different profile of a talent pool will be required as we continue to streamline and go further on digitization. Benchmarking with other personal lines competitors suggest that we operate in many areas with around 50% more internal resource. In total, there are about 15 initiatives here that we estimate will deliver around GBP 30 million of GBP 100 million cost savings. Central to our transformation and ability to drive benefits through each of these initiatives is our ability to consistently deliver at scale and at pace. In addition to the executive announcements I've already talked about, I've brought in an experienced Chief Transformation Officer to lead our change programs. We've already mapped out the key cost initiatives, both in-flight and new to provide greater transparency and enable us to effectively deploy resources. We've developed the delivery infrastructure needed to reliably prioritize initiatives that deliver the most value and effectively move those into execution, and we've already started to deliver at scale. This will accelerate over the next few months as we build on our progress, and I'm now confident that we have the right initiatives, the right process and the right governance to deliver against these clear targets. Cost will be a really important driver to deliver our 13% net insurance margin target by 2026, which we're reconfirming today. As you've seen throughout today's presentation, we've already made a start on what we said we'd do in March. We've validated and started to implement our cost program. We've mobilized our claims transformation, and we've begun to execute on a revised strategy with a clear plan for driving margin improvement through pricing, underwriting and product initiatives. We believe these actions will deliver an additional 4 to 5 points of margin upside, and we're confident that we have the breadth of levers we need to deliver against our target of a 13% net insurance margin in 2026. Any further margin upside beyond that target of 13% will naturally be reinvested into growth. So to summarize, the key message on cost 4 months into the role is that I'm even more confident in our ability to deliver on our target of at least GBP 100 million worth of run rate gross cost savings by the end of next year. We've created a detailed execution plan to deliver these targets with initiatives spanning the breadth and depth of the group, and we won't stop once we achieve our target. As we deliver on our cost program and unlock further benefits, we expect and want to go further. Finally, we set up the infrastructure, delivery capability and transformation leadership to be able to execute at pace and scale to achieve these targets. We are confident we have multiple levers of which cost, as a key component, to be able to deliver our 13% net insurance margin target, which we've reconfirmed today. Now let me pass to Neil, to talk to you about capital.

Thanks, Adam, and good afternoon, everyone. Now let's talk about capital and dividends. The key message today is that the actions we have underway provide a path to deliver our financial targets, and we believe this underpins attractive future returns for our shareholders. In this section, I'm going to talk you through the following: our capital allocation framework, how we've reduced our cost of capital over the last few years? How we're thinking about the solvency ratio going forward? And our updated dividend and capital return policy. So let's start with the capital allocation framework on Slide 51. Our primary objective is unchanged, ensuring that we use capital in a way that generates long strong returns for our shareholders. And as you've heard today, in the near term, our strategy focuses on improving business performance to drive profit and growth. During this time, we'll invest in high-payback organic opportunities, for example, the cost saving program, which Adam has just talked you through, and restart regular dividends. And you can see this in the top row. As we generate surplus capital through the turnaround phase of the strategy, our primary focus will be to return it to shareholders. We absolutely do not want to retain capital unnecessarily. To complete the capital allocation framework, we've included inorganic activity. But to be clear, there is nothing on the horizon and the plans we presented to you today are based entirely on delivering across our existing portfolio. The bottom line is we have no intention to hoard capital and acquisitions are not part of our current thinking. As you can see, the framework is straightforward, restarting dividends, and investing in the core as a priority, followed by returning surplus capital to shareholders. So let's move on to the capital stack. I want to take the opportunity to step back and talk through the actions we've taken across recent years to make our capital more efficient and further diversify our capital stack. On debt, we've significantly reduced our cost of capital by issuing 2 new instruments to replace the previous GBP 500 million Tier 2 notes. These actions reduced our annual interest cost from 9.25% on to an average of around 4%, very attractive in today's market. On reinsurance, we entered into a 10% whole account quota share arrangement, diversifying our capital structure at an attractive cost of capital, thereby further improving capital efficiency. And unlike many of our U.K. motor peers, we use an internal model to generate our capital requirements. This not only reduces our capital requirement by around 20% versus the standard formula, It also provides opportunity for bespoke reinsurance arrangements. And looking ahead, you can expect us to continue to explore additional ways to optimize our capital, including through potential reinsurance options. In addition, over the next few years, we expect our reserve risk to reduce as the brokered commercial business back book runs off, and this is irrespective of whether we do a back book deal or not. So in summary, a world diversified capital base with further opportunities ahead. Moving on to solvency on Slide 53. Last year, we restored our capital resilience and paid a 4p per share dividend, which left us with a strong solvency ratio of 197%, well above our minimum risk appetite of 140%, which we are reiterating today. In the past, we've talked about operating in normal times at around 160%. We've now increased our target solvency ratio to around 180% in the medium term. And this reflects the more recent operating environment and now doubles the capital buffer above the 140% minimum risk appetite. But I do want to be clear. In the short term, as the team executes on the turnaround plan set out today, it is likely we'll be more conservative and continue to hold capital above the 180% level. The chart on the left is color-coding to reflect the [ LAD ] of intervention. As you can see from the amber coloring, we would not look to operate below the 160% level. So on to updated dividend and capital returns policy. You'd have already read that the key change we're announcing today is to move away from a progressive dividend policy to one based on a target payout ratio of earnings. We look to use ongoing operating profit, less finance costs and tax as the base and will target a payout ratio of around 60%. As you're all aware, we have set 2 conditions for a resumption of the regular dividend. The Board will review the good progress we are making against these conditions on an ongoing basis with the next time being alongside the half year results. The combination of a solvency ratio target of around 180% and a payout ratio of around 60% reduces downside risk to capital and provides us with the flexibility we need to retain capital for growth and additional returns to shareholders when appropriate to do so. It's worth reiterating that we will continue to review the opportunity for additional returns annually alongside our strategic plan and full year results. But to repeat what I said earlier, we have no intention to hoard capital. Finally, this slide pulls together the various pieces I've talked about today and shows how we'd expect to see capital build over time. Now whilst there are clearly some unknowns in terms of how the market may evolve, which can impact capital requirements, there are also some further opportunities to reduce capital, not least as the commercial broker business runs off. As the business reaches its target of a 13% net insurance margin, we would expect this to translate into capital generation after dividends of around 10 to 15 points of solvency annually. So if you stand back, the combination of where our solvency is today, our pace of expected capital generation and the dividend policy means that we should be able to grow the capital ratio from here and, therefore, be able to offer additional opportunities for returns to our shareholders. As I said a moment ago, we're likely to take a conservative approach in the short term as we're in the early stages of a turnaround, but the Board absolutely understand shareholders' desire for strong returns in the medium term and there is no intention to keep capital unnecessarily. So the key messages to take away are; our capital allocation framework balances shareholder returns with investment in the business. We have a diversified capital stack with additional opportunities. We're targeting a solvency ratio of around 180% in the medium term and we're likely to hold capital above that as we execute our turnaround plan, and we're moving to a payout ratio of around 60% for regular dividends and expect our solvency ratio to build over time to support additional shareholder returns. And with that, I'll hand back to Adam.

Thank you, Neil. I'd like to bring today's presentation to a close with a few final messages. Over the course of this presentation, you've heard us talk about the levers that we'll use to transform our business. We're confident in our ability to deliver on our refresh strategy, and we'll focus on our strength with a clear objective of growing profitably in our core markets of Motor, Home, Commercial Direct and Rescue. We've always had a tremendous opportunity to leverage our brands and unique position in the market. Now we have the strategy, the execution plan, the team and the focus to turn that potential into real value. I'd like to thank our fantastic colleagues for the incredible progress we've made since I joined. We still have a long way to go but working amongst my talented team gives me every assurance that we'll successfully navigate the obstacles that we'll inevitably face as we embark upon this turn around. As I close, I'd like to reiterate our 5 key takeaways. DLG has strong foundations with iconic brands and leading market positions. We plan to grow profitably and rejoin the front-runners in motor through technical excellence and by fully embracing PCW-led distribution, including putting direct line on price comparison websites. We're focused to accelerate in Non-Motor with a clear growth plan for Home, Commercial Direct and Rescue. We're confident that we've identified clear cost-saving opportunities and built the execution machine that will help us deliver at least GBP 100 million run rate gross cost savings by the end of 2025 and we remain fixed on our 13% net insurance margin target in 2026. As you've just heard, our strong balance sheet and growing capital base provides flexibility to restart regular dividends at around a 60% payout ratio with additional capital returns possible over our 180% solvency ratio target when it's appropriate to do so. Thank you very much for listening. We're now going to move over -- move on to Q&A. Paul?

As I said earlier, please focus questions on the strategic update provided today. We will answer any questions on current trading at our half year results in early September. When asking your question, if you could please introduce yourself and limit it to 2 questions each. I'll start with questions in the room. So please raise your hand if you have a question, and please wait for the mic. James?

It's James Pearse from Jefferies. So first question is on the GBP 100 million cost saving target. What sensitivity analysis have you done in terms of the level of premium growth and installment income that's required for the GBP 100 million cost saving target to work in achieving that 13% NIM. And I guess just if you don't grow as planned to get sufficient operating leverage is the room to stretch that GBP 100 million target further over the next couple of years? Second question is on Direct Line going live on price comparison websites. So I mean, what do you think has stopped the company from doing that in the past. You spoke about carefully considering putting direct line on price comparison websites. Can you maybe talk about some of the reservations that you had before deciding to go ahead with that?

Great. Thank you, James, for the question. So in terms of the cost savings, I mean, they are based on our plan assumptions. So in terms of the sensitivities, they would be the normal sensitivities we would run naturally as we revise our corporate plan on an annual basis, but we also reforecast during the course of financial year. So I think the financial processes we run to underpin our planning are pretty standard, if you will across all businesses. And we believe the cost savings absolutely hold up through the planned horizon. And in fact, I think when you think about the range of levers and the breadth of opportunities we have at our disposal, then actually, I think we can, we kind of do work in a dynamic market, and we're confident that we can still meet the at least GBP 100 million cost saving targets despite those things. I think on DLG PCW, our solution to comment as well -- it's very difficult for us. We're both relatively new to comment on the past. We're both focused on the future and I think if you think about where Motor is today, PCWs represent 90% to 95% of sales in the motor channel. And I think the truth therefore is meeting customers where they want to be met in the channel of their choice is, I think, the right strategy for us to deploy. What we've got is a brand that I think is probably the envy of many of our competitors, but we're not putting it in a place where most of our customers shop and the simple reason why we're doing this is to acknowledge customer preference and choice. And I think that has evolved over time. But Lucy, would you like to add anything to that?

Yes. Like you -- I obviously can't comment on the past on this one but the growth in customers shopping on PCWs continues to increase, that's obviously helps -- when we think about this strategy. But if we go back to the capability now in the Motor team, I think there's a mark difference in the experience of individuals that are confident and comfortable in growing profitably on PCWs versus prior. And I refer back to that science involved. And I think that gives us the confidence now that we know how to win in this marketplace and to push forward.

Freya Kong from Bank of America. The first question on the 13% net insurance margin, which generates 10 to 15 points of capital post dividend. Does this also factor in CapEx and more specifically, what's the CapEx outlook for the next 2 years given the high restructuring spend and the outlook beyond that? Second question is on the 7% to 10% growth in Non-Motor businesses. How much of this do you expect to come from pricing versus volume? And how much of this is dependent on the market holding up generally.

Thank you. Let me just take your first question. So 13% NIM. I mean the CapEx budget, I think we've talked about historically has been about GBP 100 million a year. And so we've said that the cost saving opportunities are within that existing budget. Neil, do you want to add anything?

No, that's right. So we said about GBP 100 million, I mean, it's a plus or minus, of course. And within the net insurance margin walk that's kind of embedded within that effectively because your amortization profile and your CapEx profile are pretty similar at the moment.

And the 7% to 10% growth in non-motor, we don't split out and aren't providing to you today a split between volume or product growth and consequently, do I believe that we have the right strategies in place almost regardless of market conditions? Yes, I do because of the breadth of opportunities we've got. I think some of them, if you think about data enrichment, new products. They're not dependent on the market per se. Things like the rescue strategy is more dependent on the partnership deals and that's how we will control, if you will, the volume on the new -- on the owned operating model versus the capacity, if you will, in the system. So I think we've got a keen eye on a range of levers we can pull that will give us a clear guide path to the 7% to 10% annual growth figure that we have guided you towards. And it's fair to say because we're talking about Home, Commercial Direct and Rescue, we have offsets within -- they don't all move in the same way at the same point in time.

It's [ Cameron Hussain ] from JPMorgan. I've got 2.5 questions. The first 1 is just around the Direct Line move to PCW. I mean, I guess at the time that you announced the GBP 100 million cost save back in March, that Direct Line on PCW wasn't part of that discussion. But to what extent is that kind of new sense then? And are there kind of further opportunities to rationalize costs with that move to PCW, for example, kind of reduced marketing costs in the longer run? The second question is a little bit softer. It's really exciting to hear like a refreshed management team talking about the opportunities, the potential, the growth. If I think about the past, like growth has been an issue, it's been a difficult thing and Direct Line has been shrinking in lots of areas rather than growing. Just wondering how you put that growth mindset in place. And the kind of half question at the end is the 197% and kind of staying near that Solvency II ratio, you talked about that being during the transition period. Is that to 2026 or a little bit sooner than that.

Why don't I take 2 and 3? Lucy, we'll start with the first question, if that's right?

Yes, sure. I love the fact that you're not calling that 2.5 either.

Yes. I mean that's fair question.

So DL and PCW, I think the question is around the cost savings. So when we originally looked at the GBP 100 million, there was an assumption, I think, around adjustments in brand spend. But you're right that firming up the decision to put DL on PCWs, presents if you like, a slightly further opportunity on that. But I guess what I would say is, obviously, we're driving growth and that is somewhat compensated by the commissions that we pay to the PCWs. So that's how I think about that piece. And then I do want to reiterate that we want to maintain brand equity in Direct Line, Churchill and Green Flag, obviously, not related to Motor as such. And so we will still be having a level of investment to make sure that, that doesn't deteriorate over time. Growth mindset, I don't want to dispute questions. But if I'm honest, that's not the thing that I focus most on. Actually, it's much more about the discipline on the margin mindset and the finding sexiness in core insurance capabilities. So if you did reverse the question, you can see -- I'm not in marketing. But if you were to say where do you want that mindset change, it's on that cadence of trading mindset. You can grow, anyone can grow, but we need to grow firmly in control with discipline with our margins. And that is something that is relatively new in really firm ways in the Motor organization. So that's why I'm really focusing my time.

And I think what I was going to say to build on that is I think it is different between Motor and Non-Motor. I think we have seen growth in Non-Motor, Home, Commercial Direct, Rescue. So we're building on solid foundations, they've traded well. The businesses are performing well, and we're looking to accelerate growth, but we are seeing growth. Motor has been a different story. Hence, Lucy's answer is an apposition in that sense. Your half a question or third question, depending on how you want to see it, the transition period. We're not guiding to a timeline today. We're focused on the levers we can pull to deliver sustainable earnings and create a more capital-generative business. And I think there are some clear levers that we need to deliver that would enable us to generate those earnings, namely the cost saving targets and the delivery of the 13% net insurance margin. And so there isn't a specific timeline, but there is very specific activity that I hope you feel we've outlined in some detail today that will enable us to get there.

Youdish Chicooree from Autonomous Research. My question is on -- the first question is on pricing accuracy, the one you presented on Slide 17. Looking at that, it seems to suggest that from July 2023, your pricing accuracy has been pretty spot on. So if we fast forward 18 months, when you fully earn through those prices, does that mean you can deliver a NIM of 10% as soon as the first half of next year?

Sorry, can you just repeat the last bit again, I couldn't quite...

Can we deliver NIM of 10% as soon as...

Okay. Do you want to take that quickly?

Yes. So let me pick up that question. What we'll say today is that we continue to write Motor consistent with the 10% net insurance -- the written net insurance margin target we've talked about previously. What we're not going to then do is extrapolate the future financials. We'll come back if you're okay with that, to talk about those midyear in the financial update on the 4th of September.

And the second question, I wonder if you could elaborate on the comment on using reinsurance more basically.

Neil, do you want to...

So a couple of things. So I mentioned a couple of times the NIG or commercial broker back book. There obviously are some reinsurance options there to remove that reserve risk. Obviously, we have a period of time where we'll talk to RSA about that. But if it's not deal to be done, we could go external. So that's the first one. Secondly, we do look at other reinsurance options. I won't give you all the details, but we have a kind of a hopper of ideas that we can work with working with the reinsurance brokers, working with our reinsurance partners we have at the moment. And obviously, all of that stuff, I'll be passing on to Jane when she arrives and to take those forward. And then the third part is, I think in the recent market -- it's been very hard reinsurance market. So earnings volatility protection has been hard to come by because retentions have gone up. I think at some point in time, you'll get a softer reinsurance market, there might be further opportunities in that. That's not a today thing. But over time, I think we should look at that as well.

But if you think in guide, what we're trying to do is reduce volatility and improve the consistency, quality and stability of our earnings. And the presentation today is designed to give you an us comfort in terms of what those plans are and our confidence in being able to achieve.

Will Hardcastle, UBS. First one, just on the capital. I know you're not giving a time frame, but presumably, if we're entering 2026 operating at the level that you're wanting to run the business up from a NIM target, presumably, that's the sort of time frame we should be thinking that you run with the appropriate capital level that you've deemed. Second one, just thinking about that 13% NIM target at the group level. And I think that was said, [indiscernible], before you joined. Does that give you running the motor book sufficient flexibility? Because presumably, there's opportunities at times to grow harder? Or do you focus more on that NIM target and that works very well in the way you plan on running that division.

So in your first question, I know you're looking for a time frame. I'm not going to give you a time frame. What I'm going to try and remind you of is, look, we're at the early stages of a turnaround. As I just said, we're working very hard to decrease the volatility in the business, improve the consistency, stability and quality of our earnings. We've got clear plans in place to do that. Neil said multiple times, we absolutely don't want to hoard capital. We want to return it to shareholders, but we want to be prudent. I think we've got to acknowledge the past experience of this business and the fact that we've got some work to do to achieve the aims and objectives I've outlined today, and we're confident in getting there, Yes. Have we got there yet? No. And so I'm sorry that's not the direct answer you're looking for, but that's the best I'm going to offer. And in the 13% NIM, we set that target. I was in the business. It was a 10% target before I joined. We raised that target at the full year '23 process at the end of March. And I know your question was sort of more specifically about Motor -- but I think it's a group target. And we have a range of levers and a breadth of opportunity right across the group, and I'm confident. But whilst we operate in dynamic markets and things do change, we're going to focus on the things we can control and the things we can control will get us to that 13% net insurance margin. That's why I'm confident.

Rhea Shah, Deutsche Bank. Just 2 questions or I'm really allowed to. So the first 1 on cross-selling. Could you just provide some more color on what you could do around this opportunity? How many of your policies or what proportion of your book is cross sold at the moment between Home and Motor? And where you want to get that to over the next 3 years? And then secondly, on marketing spend, you said you wanted to get this closer to peers. Is this as a percentage of costs or a percentage of revenues? If you could just quantify that.