Helia Group Limited (HLI) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Helia Group Limited 2023 Full Year Financial Results Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Paul O'Sullivan, Head of Investor Relations. Please go ahead.

Hello, and welcome to the 2023 full year financial results briefing for Helia Group. Our first results briefing since Helia's return to the ASX 200 in December last year. I am Paul O'Sullivan, Head of Investor Relations. This morning, we will start with a presentation from our CEO, Pauline Blight-Johnston, who will provide an overview of the results. Our CFO, Michael Cant, will then go into more detail into the financial results and Pauline will then wrap up with closing comments. At the end of the presentation, we'll pass back to the moderator and take questions from investors and analysts. I'll now hand over to Pauline.

Thank you, Paul. Good morning, everyone, and thanks for joining us. Before I start, I'd like to acknowledge the Kearney people of the Eora Nation on his land, I'm hosting our call today. I pay my respects to the elders past and present and to all Aboriginal and Torres rate Island of people here today. Helia's purpose is to accelerate financial well-being through homeownership. Over the past 55 years, Helia has helped Australians buy homes to the ups and downs of economic cycles. Our vision is to be the leading partner of choice for flexible home ownership solutions and we continue to make progress towards this goal. In 2023, Helia helped more than 42,000 Australians to buy a home. This was underpinned by a strong full year 2023 financial results, strategic and operational delivery and a financial resistance, that means self-resilience, that means with full cycle recommended in this match. We're proud of our customer-focused partnership strategy as we deepen our relationships with our lender customers and help us rate is homebuyers and homeowners. In 2023, our commitment to meeting the needs of land buyers and lenders has again been evidenced by an improved Net Promoter Score for the 5th consecutive year and a new exclusive customer win. I would like to check this opportunity to thank the entire Helia team, his passion and commitment collectively contributes to the customer outcomes and strong results we're announcing today and helps us fulfill our purpose and vision. I'll now turn to Slide 5 to walk through the highlights of the half. In 2023, Helia delivered an underlying net profit after tax of $248 million, 6% higher than in 2022, reflecting the combination of a low claims environment and higher investment revenue. Our statutory net profit after tax of $275 million also benefited from unrealized market-to-market gains on the investment portfolio. Insurance revenue was down 9% on 2022 levels to $427 million as the impact of lower new business volumes over the last 2 years began to impact revenue recognition. I'll discuss new business volumes in greater detail in a few minutes. Total claims incurred were negative $67 million, largely driven by actuarial reserve releases in respect of plans incurred in previous years as we continue to experience an extraordinarily low plans environment. During 2023, we continued to deliver on our customer-focused strategy as we invested in better understanding the needs of our customers and their borrowers. Our Net Promoter Score was up 2 points to plus 79%, evidencing the progress we are making with our existing lender customers. This progress has also been evidenced in attracting a new exclusive relationship with great Southern Bank, our largest new customer wins since the company listed in 2014. And, of course, in addition, we retained all on existing customers. Our investment in our IT platform seeks to maintain this momentum, setting us up for improved customer flexibility and operational efficiency looking forward. Above all, the business remained financially strong as reflected by our PCA ratio of 1.86x at 31 December 2023. This strength has enabled us to continue our delivery of active and appropriate capital management for shareholders, including the rest of the announced extension of the on-market share buyback. It has also enabled the Board to declare dividends of $0.59 per share in respect of the 2023 financial year comprised of $0.29 per share in fully frame ordinary dividends, a $0.14 interim dividend and a $0.15 final dividend and an unfranked special dividend of $0.03 per share. The key performance measures on Slide 6 and 7 to pick Helia's results in graphical format under the new accounting standard AASB17. On Slide 6, I particularly would like to draw your attention to the underlying diluted earnings per share, which shows the strength of our recent results and the positive impact of our active capital management initiative. Also, note the underlying return on equity graph, which highlights the value of the business is creating for our shareholders. On Slide 7, you can see the extent of the 9 planned environment and impact on our recent results. We remain well positioned for a pickup in delinquencies and the associated claims with our PCA coverage ratio still above the board targeted range and very realistic expectations regarding life future economic outcomes underpinning our reserving. One of the notable features of AASB17 is the inclusion of the contractual service margin, or CSM, as a liability on the balance sheet, which includes future profits to be released and may be thought of as a source of value for shareholders. On Slide 8, the resilience of the Australian neighbor market was a key fetch of 2023. Despite the 40 basis point increase to 3.9% during the year, unemployment remained low and the participation rate remained the all-time highs, although our work reduced a little, reflecting a gradual easing of labor market conditions. National dwelling values had a record high, rising 8.1% over the course of 2023, a full reversal of the losses seen from the previous cyclical peak. The recovery has been broad-based and has resulted in substantial positive equity in most geographies, providing a helpful buffer for homeowners in those areas. Interest rates rose substantially in 2023 with the Reserve Bank of Australia increasing the cash rate target by a cumulative 125 basis points, much of which was in the first half. Despite the rise in interest rates, they have only been modest increases in mortgage industry areas to date. It is likely, however, that the cumulative impact of interest rate rises is yet to fully fit through the economy. And so, it's possible that we will see increased economic weakness and mortgage arrears in the period ahead. Helia is well positioned and well reserved should this occur. Slide 9 provides a closer look at the residential mortgage market. In 2023, we continued to see weakness in residential mortgage lending across the industry, particularly in respect of higher loan-to-value ratio lending. Despite a small increase over the course of 2023, industry has a new line commitments at 23% below peak levels. Encouragingly, we saw some signs that first-time buyer commitments started to pick up in the second half of the year. First time buyers remained particularly sensitive to movements in health prices and interest rates. Increased interest rates adversely impact serviceability, and this has been particularly felt in high LVR lending. We've seen high LVR lending volumes fall to 29% of total residential lending, 6 percentage points below long-term average levels. Slide 10 looks at the impact of these conditions on the market. The quantum and mix of residential mortgage market originations feeds through to LMI market volumes given the nature of their product. The benign claims environment has also contributed to a higher proportion of vendor waivers, and then this retained some of the risks that would otherwise have been insured for LMI. These conditions are contributing to a reduction in LMI volumes, leading to industry written premiums running below long-term average levels. In addition to these mostly cyclical impacts, the federal government's home guarantee scheme has had a noticeable structural impact on the IMI industry. The scheme has been in place since 2019 and effectively offers a competing product to LMI, no cost to home buyers or lenders, subject to meeting eligibility criteria. At its current level of 50,000 places per annum, it is estimated to have reduced the addressable market by approximately $250 million per annum. These economic and public policy effect have combined to drive weak new insurance written and gross written premiums for Helia, despite the company's positive momentum winning new customers. Some of these factors we expect to be temporary and others longer term. This progress Helia has made in attracting new customers, will position us well as the temporary factors reverse. Michael will provide more color on this later in the presentation. Slide 11 provides more detail on industry arrears and the strength of year's portfolio. Industry arrears have remained lower than expected, aided by favorable economic conditions and the increased sophistication in the application of lender hardship solutions. In aggregate, Helia as new delinquencies increased modestly over 2023, but total delinquencies remain below historical levels as a result of strong cures of policies that were previously delinquent. Whilst there has not been a material increase in 90 days past due statistics, either as an industry or Helia level, we are starting to observe an increase in early-stage arrears. Slide 12, walks through progress in the delivery of our strategy, which continues to serve us well as we seek to meet the needs of lender customers and homebuyers. Helia is Australia's leading LMI provider. And during 2023, we successfully renewed 4 customers and won a new exclusive relationship with Great Southern Bank. We are working on consolidating our positions through enhancing our lender interfaces, including through the increased use of delegated underwriting authorities, or DUAs, and the rollout of new application programming interfaces, or APIs. These initiatives are improving vendor integration and contribute to efficient customer onboarding, winning new customers and retaining our existing ones. Over the last few years, Helia has made some small minority equity investments in businesses offering alternative homeownership financing solutions. In 2023, household capital in which Helia has a 26% ownership interest, continued to grow its position in the reverse mortgage market. We remain encouraged by the potential for this business to grow profitably over the coming years, providing greater financial choice to Australia's retirees. While we are disappointed that OSQO, a fintech start-up of Material has a 25% ownership interest was placed into administration resulting in a full equity write-down of $3.6 million. Through this investment Helia learned valuable lessons and we increased our confidence that LMI is a difficult proposition to bet for lenders and home buyers. On Slide 13, we outlined the work we're doing to improve knowledge of LMI as we explore ways to increase product penetration by educating mortgage brokers and homebuyers on the use of benefits of MI. For first time buyers, we continue to provide resources to support them in their journey to homeownership, including case studies, easy-to-understand product information and a lifestyle and educational legacy included by Home. Our LMI education suite also includes our award-wining deposit comparison estimated and resources in the graphics and videos. We will continue to work hard to densify and in some cases, destigmatize LMI, that homebuyers can make their decisions that work best for them and get into home sooner, contributing to their housing security and long-term financial well-being. On Slide 14, we outline Helia's approach sustainability, which is tailored to our business and built on 3 foundational pillars across which we believe we can have a real impact. Firstly, driving financial well-being and housing accessibility is a core part of our purpose. In 2023, Helia helps more than 9,000 Australians experiencing hardship to stay in their homes by working with our lender customers to provide appropriate financial support to homeowners facing personal difficulties, natural disasters and other challenges. We support programs that help people experiencing homelessness, provide media shelter and help remove barriers to tutor homeownership such as educational disadvantage. Secondly, under enhancing climate resilience. During 2023, Helia was pleased to achieve its target of net zero for Scope 1 and Scope 2 emissions. We also continue to focus on driving medium-term value for shareholders as we better understand the impact of climate change on mortgage risk. Our partnership with Munich Re is providing insights as we work with customers to understand and respond to the climate risk in their portfolios. Finally, our focus on demonstrating good corporate citizenship is a core part of who we are. We're proud of the progress we continue to make towards gender equality with 50% female board member representation and over 40% of leadership positions filled by women. We also achieved gender pay per parity for total remuneration in 2023, which we're very pleased to see reported today, which is a significant milestone compared to the financial services industry and business in general. Parity was achieved through the continued focus of all our leaders and serves as a highly valued traction, retention and engagement tool. We are increasingly turning our attention to other dimensions of diversity to ensure all of our people have the opportunity to grow and contribute to their full potential, and we're proud to have employee engagement, placing us at the top quarter of the financial services industry. Finally, I'll turn to Slide 15, which walks through our capital management initiative. I want to take some time to reiterate the principles underpinning our management of capital. First and foremost, we seek to deploy capital in attractive returns per shareholders and over time, return to and operate within the board's targeted range of 1.4x to 1.6x the prudential capital amount. If we cannot deploy our capital to drive shareholder value, we will look to return capital through a stable fully franked ordinary dividend with any further surplus capital return through special dividends or share buybacks. In 2023, organic capital generation was again strong, resulting in a PCA ratio of 1.86x at the end of the year despite executing $156 million on-market share buybacks, reducing the share count by over 13%. In recognition of the strong profitability and capital position, the Helia Board has today declared a fully franked ordinary dividend of $0.15 per share and a special dividend of $0.30 per share, which was unfranked due to the one-off impact of the change in tax legislation to align with AASB 17. I'll now hand over to Helia's Chief Financial Officer, Michael Cant, who will provide more detail on our financial results.

Thank you, Pauline. It's my pleasure to walk through the financial results for Helia for financial year 2023. I'm going to start on Slide 17 with the income statement. Statutory net profit after tax was $275 million. Underlying impact, which removes unrealized gains and losses on the shareholders' fund was $248 million, up 6% on the prior period. The key features of the results included revenue down 9% on the prior period, incurred claims of negative $67 million and net investment revenue of $171 million compared to large investment losses in 2022. Slide 18 shows a breakdown of the insurance revenue into its major component parts. Most components of revenue, are largely a function of the balances in the opening liability with a proportion recognized as revenue in the income statement each year. The 9% fall in insurance revenue in 2023, is largely a function of the smaller volumes of the in-force business. The recognition of revenue over the life of the cohort under AASB 17, means that insurance revenue in any P&I is largely driven by business volumes in past years. And given we have had 2 soft GWPs in a row, this is now flowing through into a decline in revenue for 2023. Please turn to Slide 19 for some analysis on the new business. Gross written premium for the year was down 42%, which was a function of 3 main factors: Firstly, a drop in industry new lending volumes, particularly for high LVR lending. Secondly, the federal government's first home loan deposit scheme continues to have a significant negative impact on LMI industry volumes. And thirdly, our largest customer, Commonwealth Bank, has ensured a lower percentage of their high LVR lending. While the industry conditions have been challenging for gross written premium, we have had success in winning new customers and also writing more business with existing lenders through sensible expansion of risk settings. The fall in GWP for the year was almost entirely volume related, with only a small impact from mix and rate. Slide 20, contains a breakdown of the insurance services expenses. The key feature of this was that total incurred claims were negative $67 million. That is a benefit to NPAT. This was due to the positive impact of a reduction in the liabilities for prior incurred claims. Total insurance expenses, which include the amortization of acquisition costs were down 1% on the prior comparative period. Slide 21, shows some key statistics on claims and delinquencies. Paid claims and mortgages in position remained extremely low. Delinquencies also remained historically low levels, noting that we have seen some early signs of an uptick in new delinquencies in the final quarter of the year. The strong property market, together with the seasoned nature of our book, has resulted in very low levels of negative equity, only 1% of the total portfolio. Some further claims analysis is summarized on Slide 22. New delinquencies were relatively benign given the strong employment market. Consequently, the current year claims incurred of $65 million was again relatively light and similar to the level in 2022. The major positive impact on total incurred claims arose from the changed liabilities in respect of the prior period incurred claims. Experience on the policies comprising the opening claims liability was $132 million more favorable than expected in the actuarial reserving basis. In particular, aging and queues were favorable, driven by the strong employment market. Secondly, the strong property market meant that any borrowers were able to sell their property with positive equity and therefore, no claim. Cancellations also had a positive impact by releasing reserves on policies where Helia has gone off risk. In addition to the good experience, there was also a $38 million benefit from changes in the actuarial reserving basis, which I will expand upon later. The drivers of the insurance results are summarized on Slide 23. This depicts an additional presentation rather than the traditional income statement view of revenue and expenses. Each year, there is a certain amount of profit that is expected to emerge if experience exactly matches the underlying actuarial assumptions. This expected insurance result for financial year 2023 was $147 million, equivalent to 34% of insurance revenue. The experience variations represent the difference between actual and expected and the largest of these would typically be claims. In the last 2 years, they have been very significant positive experience variations on incurred claims. There's also a small $13 million premium experience variation, which relates to premium credits on top-ups. Please now turn to Slide 24, which summarizes the investment returns. Net investment revenue represented a return of 5.5%, which was a big turnaround on the sizable negative investment revenue in 2022. Higher interest rates have seen an increase in both the interest received and the running yield on the portfolio, which is a big positive for the profitability of the business. I'd now like to turn to the insurance finance expense on Slide 25. Insurance contract liabilities are calculated as the net present value of the expected future cash flows. The change in the impact of this discounting emerges via the interest finance expense. The first component of the insurance finance expense is the interest accretion or unwind at the discount rate on the opening liability, and this was $61 million for financial year 2023. The second component relates to changes in interest rates over the financial year. And for 2023, this contribution was a $29 million expense, reflecting a modest reduction in long-term interest rates in the second half of the year. The table on the bottom right corner of this slide shows the sensitivity of both assets and liabilities to a 1% change in interest rates. I'd now like to turn to the balance sheet on Slide 26, which shows a summarized view. Total assets are down due to the payment of dividends and on-market share buyback. The deferred tax asset that you see on the balance sheet is quite substantial and represents the difference between the insurance liabilities that we use for tax purposes and the accounting basis. There is legislation pending, which will largely align the 2 basis. When this occurs, the DTI will reduce significantly with a corresponding reduction in the liability for current tax, which is shown in the balance sheet under other payables. This likely change in tax treatment will mean that the taxable profit in respect of the 2023 year, will be well under the accounting profit. This does, however, mean we generate less franking credits in the year of transition, which is the reason the special dividend is unfranked this year. On the liability side of the balance sheet, the major item is the insurance contract liabilities, which are further split into the liability for remaining coverage and liability for incurred claims, and I'll return to these items later. Our investment portfolio is shown on Slide 27. The technical funds, which back the liabilities are invested entirely in Australian fixed interest assets and unmatched to the liabilities with an average duration of 3.7 years. The shareholder funds have a higher risk return profile, including an allocation to equities, infrastructure assets and global corporate credit. During 2023, the bond portfolio and the shareholders' fund has been transitioned from floating to fixed rate. The other changes noted in the portfolio has been a 10% allocation to global corporate bonds. Slide 28, contains a breakdown of the insurance contract liabilities. The liability for incurred claims or LIC, represents the liability arising from existing or past delinquencies and a small amount of liability for the incurred but not reported claims. The MIC incorporates a risk margin of 16%. The liability for remaining coverage or LRC, represents the expected liability arising from future delinquent events. It has components for the expected cash flows, risk adjustments and future profits, or CSM. Of the $1.43 billion in LRC, 57% is expected to emerge as profit in future periods by either the release of risk adjustment and CSM. Slide 29, summarizes the breakdown of the liability for incurred plays into its 3 major components. The reserves for reported delinquencies were down $46 million, mainly due to a reduction in the average reserve per reported delinquency. In turn, this reflected the mix of delinquencies and some changes in reserving basis as we released some of the special loadings that were put in place during the COVID period. We continue to hold reserves for potential re-delinquencies, although this quarter reduced by $28 million during the year, largely due to cancellations, which means we've gone off risk. Overall, the reserving basis was significantly strengthened during 2020, much of which still remains in place. I'd now like to spend some time on the claims outlook on Slide 30. Our base case economic assumptions, that were also used in the valuation of the insurance liabilities on the balance sheet is summarized on the slide. Interest rates are now expected to start to fall in late 2024. And as the economy slows, unemployment is forecast to increase moderately. Given this backdrop, we do expect delinquencies to start to increase. However, the strong levels of positive equity from past house price appreciation and a relatively healthy employment market will help mitigate the magnitude of claims. Importantly, the industry has been prudent in its lending and credit quality is good. Overall, we do expect the level of incurred claims to increase from what has been 2 years in incredibly low levels. However, the pace and magnitude of this increase in claims remains difficult to predict. As with previous results, we've shared some information on the expected sensitivity of future claims to the economic environment. The most significant driver of the frequency of claims is unemployment, while property prices are the key driver of claims severity. Mortgage rates have a moderate direct impact but also impact indirectly by the impact of interest rates on house prices. Slide 31, shows a walk of the CSM balance. A reminder that the CSM balance is a liability that's held on the balance sheet, which represents the present value of expected future profits in respect of the in-force business. The CSM added by new business during 2023, was less than what was recognized in the PML from past year's business, primarily due to the low levels of new insurance written in 2023. There were also increases in the quantum of CSM due to assumption changes. The impact of the changes in assumptions were largely related to the volume of top-ups and the associated premium credits. The claims assumptions at the 2 balance states were largely consistent. As you can see from the slide, approximately $133 million or 20% of the existing CSM balance is expected to be recognized as revenue in financial year 2024. Finally, I'd now like to turn to the capital. Slide 32, shows the regulatory capital position, which remains very strong with a PCA ratio of 1.86x. The regulatory capital base fell by $107 million over the year, largely reflecting the fall in net assets due to the active capital management. The APRA PCA had 2 material moving parts. The probable maximum loss, or PML, fell significantly due to lower GWP and high cancellations. However, this was more than offset by a reduction in the capital credit for reinsurance as we actively reduced our level of reinsurance in response to the strong capital position and lower business volumes. The reducing level of the PML also limited the capital credit that we received for the reinsurance placed. Please, now turn to the capital walk on Slide 33. During the period, there were capital returns of $343 million, which exceeded the very high NPAT. The PCA ratio benefited from the runoff and seizing of the in-force book, which was greater than the capital strain on new business. As Pauline noted, the business is generating large amounts of organic capital, and we expect this dynamic to continue in the near term. The sizable impact of the reduction in reinsurance cover is also a part in the walk. The resulting reinsurance credit at December '23, was 27% of the PML, well below our historic long-term levels, and this provides significant capital headroom for the future. The closing capital position remains above the Board's target range. And as previously outlined, the Board is committed to getting back into that target range over time. I'd now like to hand back to Pauline to wrap up the presentation.

Thank you, Michael. I'll now turn to Slide 35, and the outlook for Helia, based on current economic expectations. Helia is well positioned to continue to deliver its purpose of accelerating financial well-being through homeownership and to continue to deliver value to our shareholders. 2024 insurance revenue, is expected to be between $360 million and $440 million, reflecting a lower contribution from a written premium in recent book years. As we have noted a number of times in recent periods, our plans experience has been extraordinarily low and is not expected to continue at these levels in the medium term. We expect the total claims ratio to increase towards around 30%, which is representative of Helia's expectations through the cycle. But please note that the timing and magnitude of future claims is driven by the economic environment, which is by its nature, very difficult to predict. Factoring in the above, the annual ordinary dividend for 2024, is expected to be at a level similar to 2023, reflecting the Board's preference to stable ordinary dividends. Wrapping up on Slide 36. Helia is Australia's leading LMI provider and the delivery of our strategic focus to improve the LMI experience of our customers and their borrowers is solidifying this position with the successful renewal of existing customer relationships and momentum in adding new ones. We remain well positioned to manage the typical impacts of the current environment and to identify new opportunities to achieve our vision as being the leading provider of flexible home ownership solutions for the Australian housing market. There continues to be significant unmet need for higher ownership solutions where we can play an integral role consistent with our purpose to accelerate financial will be into home ownership. Our deep expertise and responsible financial management have positioned the company for profitable growth with sustainable returns in excess of our cost of capital, creating value for our shareholders. This sustainable ROE, combined with capital releases from the backlog, allows the business to deliver value for shareholders while still investing in our strategic agenda. It has enabled Helia, to deliver superior total shareholder returns over a sustained period. The second highest amongst our listed since services peers over the period 2014 to 2023, since listing and the highest over the past 1 and 3 years. We look forward to continuing to deliver against this vision for the benefit of future generations of Australian homeowners and for our shareholders. On behalf of the Board and the senior leadership team, I would like to again thank all of our people at Helia for their continued passion and hard work and for making my job a pleasure. Thank you to our customers for your continued support and collaboration to make homeownership more accessible to Australians. And finally, thank you to all our shareholders for your ongoing support of Helia. And with that, I'll open up to any questions.

[Operator Instructions]. Our first question comes from Andrew Lyons with Goldman Sachs.

Pauline, just in recent years, the business has done a great job, obviously, of stabilizing customer losses and you've even started to pick up customers in recent halves. And obviously, you work on the capital position of the businesses has benefited all shareholders. However, the business you're writing today that's going to drive shareholder value in the future has continued to shrink in recent years. Now, while that's largely a function of the macro environment, can you perhaps just talk in a bit more detail around what the management team is looking to do to drive revenue growth and whether more might need to be done on productivity to reflect some of the structural changes that have perhaps happened in the market in recent years?

Yes. Look, thanks, Andrew. That clearly is the key question that's exercising our time, most of the time of the leadership team. So, the way we see it is there's a couple of things going on and a number of things have come together at the same point in time. We have had a cyclical law in mortgage lending right at the same time, the federal government's person guarantee team has ramped up. So, those 2 things coming together, have had a material impact on our top line, but at the top line of the industry. Some of those factors we do expect to reverse over time. The reality is, there are more Australians today than there were 3 years ago, and they will all need homes at some point in time. And we did see a pull-through of demand, probably an acceleration of demand through 2020 and 2021 through that part of COVID, where interest rates were low, house prices haven't moved. People were stuck at their home and they wanted to get out of where they were. And we saw a really a real increase in first-time buyers entering the market, and we benefit from that. Our volumes were materially up during that time period. Part of that, we expect was really a pull forward of demand that we would have seen over 2022 and 2023 in normal circumstances. So, that a little bit of a dip following that. We've also obviously got the impact of increasing house prices and increase in interest rates, which have had a cyclical impact. Over time, we expect that to come back. The piece we don't expect to come back in the medium term is the first-time buyer piece. And so, that has had an impact on the industry, and we've tried to pull that out separately in the track so that people can see the impact that, that's likely to have over time. Note also that that's a fixed number of places. So, in a year where there's a low industry volume, it has a bigger impact on the industry proportionately than it will have in the years of the industry when the volumes come back to the industry. So, what are we doing about as a team? Well, we think that there's a couple of things we can do. One is, we need to help our lenders to take advantage, I guess, of some of the benign plants environment and say, are the risk settings in the right place? And can we get more borrowers into homes? And we have done that this year. We've increased our investment lending Maximal from 90% to 95%, all we have is, brought some business in that way. We think we've got to be very careful across increasing risk settings. But given the experience we've seen over the last few years, we are gradually increasing some risk settings in pockets of business that we're very comfortable with. The other thing we're doing is, growing market share. And we do believe that there's still a reasonable runway that for us. And so, that combination then of the growth in the market share and the return of the market volumes, we believe will take us to a place that will support our current expense base. So, your question about what we're doing around expenses, I'm sorry, it's a long answer. There are lots of very good points in that question. To a point about current expenses, we run a long-term business, and we are very cognizant of the disadvantages of having our expenses increase and decrease in response to short-term trends that will, we think, impact our business adversely. So, we run our expenses, our first hand expenses is to recognize the long-term match of our business. But that does mean that over time, if we lose confidence around that return of growth, then we will clearly need to do something about the expense base. But at the moment, we believe it's in the right place for where we expect volumes to be over the coming years.

And maybe a question for you, Michael. You noted that your reinsurance credit is just a 27% of PML and does provide some future flexibility. I know the number has sort of averaged more in the 40s as high as $50 to be about $250 million of capital flexibility. Can you maybe just talk to some of the issues that you're thinking about in relation to getting, I guess, that reinsurance credit back to that sort of level, please?

Yes. So, you're right, Andrew. I think we've averaged typically between sort of 40 and 50. And I think, look, in the long term, that's not an unreasonable position for the business to operate, but it does make a lot of sense, we have surplus capital to be using more reinsurance than you need. Again, just to remind to everyone we predominantly use reinsurance as a capital management tool and also to provide protection in a severe stress. So, the upside of being only at 27% of PML is, it does, as you mentioned, give that extra capacity for us to continue to increase that reinsurance in there for increased scope for sort of further capital releases and capital management over time.

[Operator Instructions]. Our next question comes from Jason Shao with Macquarie.

Your commentary on the capital returns changed from recent targets of 1.4 billion to 1.6 from FY '24 to over time. Does it mean we can expect less aggressive capital returns given where the share price is at the moment? Or is still at a minor, reaching in the next 12 months?

Thanks, Jason, it's Pauline. And I'll make some comments and no doubt, Michael will add to them. No, it's no change at all in the billboard in pet to return that capital to shareholders. I think we've demonstrated over the years that we will return it as quickly as we can effectively and efficiently to shareholders in a way that's not going to impact value adversely. The reason that we've taken the time frame of is that what we've learned over the last few years is it's very difficult to predict the time frame because there's so many variables. So, it's more a reflection of that and also, I guess, a hope that we've demonstrated our credentials and that the market will understand that we will do it as quickly as it is sufficient for shareholders for us to do so.

Look, just to expand on that is, the quantum of capital that we've returned over the last 2 years, was probably 2 years ago. What we thought was enough to get us back into the range, but the experience of the business has been so positive. We've continued to generate capital. So, again, that's why we're just being a little bit more less specific on time frame because the ability to get back in the range is both a function of the capital return, but actually, also a function of the profits over that time period. And, as Pauline said, the intent and the way we're managing capital has not changed. And again, you've seen in the presentation, I guess, a restatement of the principles of how we think about that.

And a second question, if I may. The curate on delinquencies have lifted over time in the near term to around 67% in the second half. This was even though unemployment sort of gone up lower in time and cost of living pressures haven't really eased. So, has Helia really achieved? Is this a function of actions taken by the banks? Or is this just a sign of that interest rates and people simply managing to get a hold of repayment?

So, the question, sorry, it's just a little bit hard to get to hear, but the question is why delinquency is staying so low given the pressure that's building up?

Sort of, it's on the increase in the cure rates of delinquencies.

It's been really interesting to watch how this cycle has played out. And we did see for a period of time that people sort of pressure build up and household budgets, they might have gone into delinquency and then that created a real wake-up call for them and we saw the change behavior. And we set it through the national statistics. People get in second job, so much higher proportion of people now having second jobs, et cetera, to then get that mortgage back under control. We saw that factor in the book for quite a while. What we're seeing now is one of the big features in the cures has seen the positive house price appreciation. So, if somebody is in trouble with their mortgage, most people now will have positive equity in their home. And so, we're seeing a much higher proportion of what we call borrower sales, which is where the borrower initiates the sale to get themselves out of trouble rather than the bank for closing, which, of course, is better for us from a claims perspective and generate secure. So, we're also seeing banks what they've learned through the Royal Commission, what they've learned through COVID and more data available to them, working much more proactively on an individualized basis with individual lenders to do, to help them make the right decision for them, which, again, has been helpful for our client experience into the QF.

And our next question comes from Simon Fitzgerald with Jefferies.

In the annual report, you gave an update of the sensitivities, which is very helpful. I was just wondering about, in terms of unemployment rate, house price changes, mortgage rates, et cetera, what the central estimate assumes?

Yes, Simon, if you look at Slide 30, what we're saying, the assumptions in the top left of the slide are effectively the central estimate of the economic competitions.

Our next question comes from Alan Masters with Oxford Analytics.

A couple of housekeeping measures. I'm wondering, is there a financial report that displays the second half results as you put out last year in August?

No, I don't believe we have one that pulls out just satisfaction statements that had just the second half results. Now, we do have obviously the first half to slip-out there, and we have a summary of some of the second half results in the presentation.

So, there's no detail provided to investors or analysts. The other housekeeping question is on page Slide 15 of your presentation today. Where do you show the dividend per share? Is there a reason that a dividend of $0.30 plus $0.15 is exactly the same height as a dividend of $0.27, plus $0.14? Should it be taller?

I haven't got my ruler out. It may be a little bit taller but I'm sorry if we've got that slightly visually.

It's 10% taller. I think you'd be able to see it at 10%.

Yes. Okay. We will take that one on to and to be more careful in the future.

Last quick question is, when you say that you changed your principles to over time from an explicit target of 2024, you're saying that's not a change at all?

What changed is, before we've given a specific guidance about expecting to be back in the target range by December '24 on a post-dividend basis, and we've removed that level of specificity in the time frame, but retain the guidance around and the target to get back into the range.

I'm showing no further questions at this time. I would now like to turn it back to Pauline Blight-Johnston for closing remarks.

Thank you, and thank you to all of you who've joined us today for their interest and support in what we're trying to do. We're really pleased to deliver for you another strong results through operational excellence and sound financial management over some quite, I guess, changing economic environments over the last few years. We are at a good point and to good questions around if this is being weaker than we would like. It is something that, as a leadership team, we're very focused on. They're are cyclical and structural reasons contributing. We do look forward to the cyclical returning our way. In the meantime as a leadership team, we're very focused on finding the growth that is available to us, and I'm very proud of the work that we have done around those aspects that are within our control, including stopping the losing new customers and winning more. We think this positions us well to benefit from the cyclical uplift that will inevitably return at some point. Whilst the economic outlook remains uncertain, particularly, we don't believe we've seen yet the full impact of interest rates flowing through the economy. We do expect claims to increase over the coming years as a result. But we're very pleased with the way that we're positioned for this. The business is strongly capitalized, and we believe our reserving is appropriate to allow for this downturn that we do expect. Importantly, we continue to demonstrate strategic momentum, both through our improved customer experiences, feeding through to the improved customer wins and our market positioning. And we will be doing even more going forward to get the message out to borrowers around the benefit of LMI for their financial planning. We're working hard to deliver for you, and we're very pleased to be back in the ASX 200, and we look forward to continuing to move over the coming years. Thank you again for your interest today.

This concludes today's conference call. Thank you for participating. You may now disconnect.