Insurance Australia Group Limited (IAG) Earnings Call Transcript & Summary

Well, good morning, everyone, and welcome to IAG's half year results to 31 December 2022. My is Mark Ley. I'm Head of Investor Relations. This morning, we have presentations from our Group CEO, Nick Hawkins; and our CFO, Michelle McPherson. And they put aside plenty of time to answer your questions. If you'd like to ask a question and you're watching on the webcast, the details are on our website. [Operator Instructions] And I'll hand over to Nick. Thank you.

Thanks, Mark, and good morning to everybody. I just want to firstly acknowledge that we're holding this meeting today on the land of the Gadigal people. And so I pay my respects to elders past, present and emerging. As Mark mentioned, with me today is our Chief Financial Officer, Michelle McPherson, who's going to join me on stage shortly, together with members of the IAG executive room -- team that are sitting in the front row here in the room today. I thought I'd just start with a snapshot of our financials that we've released today. Of course, we did have a preliminary release on the third of February, and most of this was contained within that material already. And really, what Michelle and I want to do today is step you through in a bit more detail around where we're at and also importantly what the prospects of where the organization is going over the next 6, 12, 18 months. If I start then with premiums, in relation to growth of the organization over the 6-month period, we had a headline number there of 7.5% growth for the 6-month period. But if you sort of unpack that, and I will in a moment, the underlying growth of the company for the 6-month period was around about 10%. We acknowledge we've definitely had pressure on the underlying and reported margins for the period, and the primary driver there has been around inflation. And then I have some comments I'm making that -- on that as well. The headline profit or net profit after tax was high at $468 million for the 6-month period. But of course, that number has benefited from the significant BI release that we announced earlier in the half, and that is part of that number. And then finally, we're declaring a $0.06 per share dividend. But let's quickly look at the 3 businesses around -- of IAG, and the themes that we've delivered there are very, very similar. So firstly, within our direct business, so Julie's business direct, our premiums have grown by 8% in our motor portfolio and around just over 13% in our home book. And what we've seen is that there's been an acceleration of premium and rate changes flowing through that portfolio over the last 6 months. And we expect that to continue into 2023. Retention rates still remain very, very strong within our direct business here in Australia. I think home is something like 95%, and motor is 91%. So we continue to have very strong retention rates within our direct business here in Australia. Our intermediated business has delivered a slightly improved underlying margin. And that improvement of underlying margin within the environment of the inflation -- of where was experienced inflation. So it's probably even better than the headline number there that we've delivered. And importantly, Jarrod and the team are very focused on delivery of the $250 million insurance profit by 2024, and there's many things that you'll see that are evidencing that we're on track to deliver against that. With Amanda's business in New Zealand, the themes there are similar to what we've experienced in Australia. And headline premium growth in New Zealand currency was just over 9%. But if I sort of adjust out some of the EQC changes, it's sort of around about 10%. Underlying margins are impacted similar to what we've had within our direct business and intermediated business here in Australia. Of course, right now, the second half of our New Zealand businesses is going to have the impacts of the last couple of weeks of perils that Auckland and other surrounding areas have experienced. And of course, our thoughts are with our team right now who are working with our customers and sort of managing through these events. I was there last week, and I saw sort of firsthand the devastating impact that those perils have had on the communities of Auckland and its surrounding areas. So what I thought I'd do at a macro level and certainly in a bit more detail than I normally would have is sort of talk about what's happening within IAG. And we use some of the sort of key financial metrics as a way of sort of evidencing and sort of telling the story of the last 6 months and really sort of settin up, therefore where to from here. The themes are really similar across our businesses. And you'll see in all the detailed packs that we're providing that the themes of sort of inflation and pricing and the impact and timing differences are really quite similar. So what this slide is really showing is the half-on-half comparison of our business. And you can see that there's been around about a 300 basis point reduction in the sort of underlying earnings compared to 12 months ago. And of course, the drivers there are, we have increased our perils allowance, so that is -- that's had a bit of strain in the P&L. Against that, we are realizing some benefits from expenses, and that's sort of seen as a positive. And we've also obviously got some benefit of higher investment returns, and that's in the P&L as well. So the middle bucket is really where I want to spend the time today, and that's around the 400 basis point reduction or worsening of our loss ratio over the period. And of course, the driver there has been inflation and the consequential impact of inflation then on our average claims cost. And so really, what I want to do today is talk about what's driving that and sort of the themes that sit behind that, but then importantly, what our response has been and continues to be going forward. And I'll give you some evidence points around that as well. So start with the impact of inflation that we've had across our business over the last 6 months. What I've done here is just provide you with what's happened with the inflationary environment, in fact, average claims cost within our direct business for our motor and our home portfolios. This is essentially half the company. The themes are similar everywhere. But we sort of dropped it into our largest business unit to sort of illustrate what's been happening with inflation. We've had a go as well of sort of normalizing this for mix and a few other things, so we're getting some sort of comparison and themes that are flowing through. So what this graph is doing is showing average claims cost for our motor and our home portfolio in our direct business. I'll start with the purple line, which is our motor inflation that we've actually experienced or average claims cost that we've actually experienced in a 6-month period. And in a way -- you can see the sharp increase in that purple line sort of August, September, October of 2022. And in a way, it was a bit of a perfect storm. We had sort of a fairly significant increase in labor, increase in parts. We had a delay in those parts being delivered into our country, which actually extended out our average time it took to repair a motor vehicle. And time costs money for us. For example, additional high car costs and things like that. We also have had an increase in the total -- the average claims cost for total losses. We've had a higher secondhand car market. So therefore, average cost of a total loss has gone up a little bit, and that's been impacted in those numbers as well. Just on that last point, we're definitely seeing that come down now as we know secondhand car values are coming down. We've definitely seen inflation in the -- so the other line then is the blue line, which is our home portfolio within direct. You can see that we've definitely had an increase. Particularly you see in July, sort of -- so May, June, but that's mostly driven by the comparative period for June, sort of May, June '21 when we had COVID impacts, mix impacts, and that's distorted it a little bit. But you can see that we definitely have had higher inflation in home, but it hasn't sort of stepped up again during the period. So that's the themes of what we've actually experienced within our motor and our home portfolio within direct, which is sort of similar right across the organization. It's really now about how we responded to that, and that's been very focused on price. So I start with headline here on overall growth. And remember, most of our growth is price, and I'll drop this down another level in a moment. As I mentioned, our headline number was 7.5% growth. If I adjust out for things like portfolio exits within Jarrod's business here in intermediated, we have exited some business. There's quite a material currency impact in the half between Aussie and Kiwi, and there's a reconciliation we'll show you later around that. And there's been a small positive from ESL. Underlying is just under 10%. So the company's underlying growth rate right now is around about 10% -- we'll deliver 10% for the half, and we're probably accelerating, celebrating beyond that at the moment. And that's happening everywhere. We've sort of done a similar graph to the inflation then for pricing. So this is the price changes or what's actually flowing into our premiums now for our direct business, for our motor and our home portfolios. And we didn't -- we've just used one of our businesses, but this is illustrative of all 3 about what's actually happening. And of course, we are responding to pricing driven by inflation, driven by what's happening with our reinsurance costs and driven by what's happening with our allowances around perils. And remember, that's particularly relevant for property. So in addition to the property inflation that we showed on the average claims cost, we need to add in perils and reinsurance to sort of work out the overall picture. What this graph is showing, and it's the same for motor and for home, is at the beginning of the half, we were talking about mid- to high single-digit-type rate increases when we released our numbers here in August. That's what sort of our outlook was for the period. And you can see how that has accelerated during the half. And in fact, as we're exiting calendar '22, we've got double-digit rate increases flowing through these portfolios but flowing right throughout our entire organization. And in fact, we're expecting more of that for the balance of '23. So that's the direct business. But if I just make some comments on the others, I mean the short-tail business of Australian Intermediated is almost identical. So the themes are very similar. A slight difference with our long-tail classes here in Australia, where we have had double-digit rate increases been flowing through for the last couple of years. So they might be slightly lower than what's happening in the short tail, but the themes there around repricing are similar. And I may comment on Amanda's business before in New Zealand, which is when I look at sort of the underlying pricing that's flowing through that portfolio, there's a bit of noise with EQC as I mentioned, but the headlines are very similar. There's significant price flowing through everywhere in our organization. And of course, what that means -- well, that's -- in relation to guidance, you can see what we have done. We have delivered 7.5%, but the run rate of the companies will be on that at the end of calendar '22, and we've evidenced that -- more of that again in what we've seen in January. And so we've changed our guidance on growth from mid- to high single-digit growth to 10%. Of course, what that's really saying is we delivered 7.5% actual, but it's more likely enterprise-wide 12% or thereabouts in the second half. And that's going to be pretty much everywhere across our organization is where that growth is occurring. And of course, that's what's giving us the confidence around the prospects of the company. And I'll come back and make some comments on guidance at the end. But obviously, the vast majority of that slide, and the increases beyond our original expectation haven't been it. So that's what's going to be flowing through in the earnings pattern in the company over the next 6 to 12 months, the earnings profile of those significantly higher premiums than we originally anticipated. So on that, I'll hand you back over to Michelle, who is going to step us through in a bit more detail, and I'll come back at the end.

Thank you, Nick, and good morning, everyone. It's great to see so many faces here in the room with us. I'll start with the financial summary slide and note that at a high level, there are a lot of green arrows on this slide, we're reporting strong top line growth, as Nick's just talked about, and an improved reported margin. Our net profit after tax was boosted by the $252 million posttax release from the business interruption provision, and this also contributed to our strong capital position. These are all pleasing outcomes. Building on Nick's comments, I will focus my comments today on the drivers of the decline in our underlying margin from 15.1% in the first half '22 to 10.7% in this half and provide some key callouts, which when combined with the management actions that are well in train will deliver strong improvement in the second half. So Nick has shared some color on where our top line growth of 7.5% understates the strength at the front of our business. To provide some further detail, in Intermediated Insurance Australia, the exit of a small number of unprofitable personal lines, the most material being IAL Personal Lines, had a 1.4% impact in this half. This is now largely played through, and we would expect a much smaller factor in the second half of FY '23. In New Zealand, as Nick noted, in local currency terms, top line growth has increased over 9% due to the New Zealand dollar depreciation that we saw. This reduces to 3.9% in A dollar terms. The New Zealand dollar has reappreciated in January, which supports our top line growth, noting that this is not factored into the guidance that we've provided. Finally, we reversed a small benefit from the Emergency Service Levy collections. Our underlying GWP growth of 9.8% is primarily rate-driven and includes some positive volume growth in both Direct Insurance Australia and in New Zealand. I've shown on the left-hand side of this slide the gross earned premium growth of 5.2%. The difference between this and the 7.5% GWP growth is an indicator of the earnings lag that will flow through in the second half that Nick talked you through earlier. Turning to claims. The inflationary impacts that we've been discussing were the key driver of the short-tail reserve strengthening in both our Direct and Intermediated Insurance businesses in Australia partially on the natural perils that we saw off the back of the events early in calendar year 2022. We had some releases from New Zealand and DIA CTP portfolio, which are also shown on this slide. At this stage, there's no evidence that we'll need to see further movements in reserving in the second half of the year, and this is factored into our guidance. So to bring all of the claims elements together, we've split our reported loss ratio into its various components, a little bit of a busy slide but hopefully helpful. Perils, discount rate and COVID impacts are shown. And you can see the impact of the larger perils allowance, which is now 11% of net earned premium, up from 9.6% just 1 year ago. I thought it worthwhile to focus on the largest component of our reported loss ratio: the underlying claims ratio, which was 58.2% in the half. In the prior comparative period, this was 52%, but this did include a 2% benefit from COVID lower motor frequency. Adjusting for that, the 4.2% deterioration in this ratio was primarily driven by the inflationary factors that Nick talked you through earlier. When you're thinking about our second half results, I thought it worthwhile to call out some notable impacts that we've seen in the first half. First, there was a risk margin strain due to the greater balance of outstanding claims at 31 December, which we did not adjust for in our underlying calculation. Second, supply chain challenges resulted in increased duration of motor claims repairs, which caused additional higher car costs, and we also saw higher towing costs as well. Windscreen repair costs were above our expectations, which we believe may be related to La Niña weather patterns and the poor condition of some of our roads here in Australia. And living in rural New South Wales, I can confirm they're not in great shape at the moment. In home, we saw a greater number of unusual large fire claims. Finally, I'll call out there was a $7 million unfavorable adjustment to a recovery on a complex dispute that dates back a number of years. The other key contributor to our margin improvement in the second half of the year is forecast to come from our investment portfolio -- thanks. At the full year results announcement in August, I indicated that the portfolio was expected to deliver an underlying yield of 3.5% in FY '23, double the yield we saw in FY '22. The 2-year government bond rate, which is effectively our proxy for the risk-free rate, increased during the half so that we ended up delivering an underlying yield of around 3.7%. In terms of the spread, we have previously indicated that this would be around 50 to 100 basis points above the risk-free rate. And our technical reserves portfolio continues to deliver at the top end of this range. I'd also note that the yield in New Zealand, which is the denomination of about 10% of our portfolio, is around 1% higher than in Australia. So all this combined means that the portfolio is well positioned to deliver around 4.5% in the second half of the year, contributing to the improved margin. Finally, our $5 billion shareholder funds portfolio continues to deliver healthy returns with a contribution of $72 million in the half. The portfolio is currently more defensively positioned following the exit from hedge fund component and taking into consideration the release we had from the BI provision in October. So having covered the key factors that we've called out is driving margin improvement in the second half, I want to touch briefly on some other areas within our results. Firstly, in terms of expenses, we remain on track to achieve our $2.5 billion target for FY '23. In this half, we have experienced a $13 million reduction in expenses due to the depreciation of the New Zealand dollar. This is around 1% of the 4.4% reduction on the prior comparative period. I'd also point out that the pcp did include some additional COVID costs and some one-off costs involving major event claims. Going forward, we remain focused on our cost discipline and attempting to keep our costs around $2.5 billion. Like many organizations, one of the areas we're continuing to review is our property footprint and how we make sure we use that efficiently and effectively. Wage inflation and other inflationary factors may increase into FY '24 and FY '25, which will put some pressure on our $2.5 billion target. However, I'm confident that we will continue to deliver an improvement in our expense ratio as earned premium growth will exceed any future increase in expenses. To capital. A key foundation of our capital position is our whole-of-account quota share arrangements, and we announced the renewal of the majority of these last month. We were very pleased that our reinsurance partners engaged so constructively and positively to renew their long-term partnerships ahead of the expiry of the original agreements. I believe this reflects their confidence in the IAG franchise and the strength of our financial outlook. The renewed agreements provide us with materially consistent financial outcomes and support our 15% to 17% medium-term reported margin target. We've reviewed the financial benefits of the quota share arrangements and can confirm on a prospective basis they deliver between 3% and 5% margin uplift depending upon the underlying performance of the business. This margin uplift includes the material saving in our reinsurance costs from the need to only purchase 67.5% of our catastrophe program. In a constrained reinsurance market, this benefit is increasingly valuable from both a financial and capital certainty perspective. Having locked in 30% of the 32.5% until the latter half of this decade, I can confirm we're in discussions remaining 2.5% and expect this to complete over the coming months. In terms of our main catastrophe reinsurance program, we outlined the new structure on 9 January, but it's worth highlighting some movements post the recent Auckland flooding. The diagram on this slide is on a pre-quota share basis, and we have adjusted the catastrophe program chart to show the $200 million impact from the Auckland flooding event on the aggregate deductible, taking the total FY '23 year-to-date erosion to $365 million of the $500 million deductible. So taking that into account as well as the attachment point for the second event dropdown cover results in a post-quota share maximum event retention of $192 million for a second event this calendar year. It's worth highlighting that we had previously purchased an additional layer of protection for New Zealand. And this results in a post-quota share maximum event retention for a New Zealand-specific second event of $108 million. This is not shown on the diagram on the slide but is mentioned in the comments. Based on the aggregate cover remaining, the MER for third and subsequent events will be further reduced. Finally, on capital, we are above the top end of our target range, which makes sense given we're only 20% through the on-market share buyback process. A couple of callouts on this waterfall chart. You will see the benefit of first half earnings and the deferred tax asset reduction, which is driven by the BI provision release. We had the benefit of the receipt of the AmGeneral proceeds, contributing 6 points. In terms of our continued investment in the enterprise platform, we have commenced amortization, but the net increase on the balance sheet in that intangible asset had a 5-point impact in the half. And finally, the increase in our insurance concentration risk charge on the 2023 calendar reinsurance program had a 6-point impact. There's no further deterioration in the ICRC following the Auckland event. On that note, I'll hand you back to Nick.

Thanks, Michelle. So I'm just going to touch on guidance and outlook and just some comments and then close. But we're open for questions, sorry. But -- so in relation to sort of outlook, we've clearly had a tough first half, and we've stepped you through that on the outcomes. We've definitely experienced inflation, and we're seeing an acceleration of that in the half. We're not anticipating that again at the same level. So we expected that to be less in the second half than the acceleration that we saw in the first half. And then clearly, our results are going to get the benefit of the pricing that we've already put through in the portfolio and the way that's going to be earned through in second half '23 as well as in '24. At the same time, we're continuing to put even more price through the portfolio. So the package of that is really giving us the confidence on outlook for sort of '23 and that 10% reported margin for the year. And in addition to that, around growth, that sort of 10% growth profile because of the actions our business have already taken and continue to take, that's what we're expecting. And in fact, we really do see that pricing environment being pretty constant for calendar '23. I just want to finish with our value proposition around IAG. And just to be clear that we've set our organization up to deliver a 15% to 17% margin and a 12% to 13% ROE. And nothing -- that's unchanged, that ambition and the plans we've put in place to deliver against that. And of course, really behind that is really building on the strengths of us, which is that we've got really widely recognized and trusted brands. And that continues to be the case today as it's been for some time. We know that we have a great reputation for customer service and particularly when -- our customers at their time of need when they're making a claim. We know we have an innovative capital structure that's a bit different compared to others, and that's paying dividends at the moment in the sort of challenging -- more challenging capital markets that we're in. And of course, we've got a management team that we're seeing here that are super focused on delivery against that strategy. Right now, we're sort of delivering things. You'll see in the detail that our direct business grew by around 100,000 customers during the period. We've launched NRMA, and that's now operating within WA and South Australia. So we've strengthened the footprint of that wonderful brand in our main insurance. We're building out better businesses. You'll see in Jarrod's -- in our material on intermediated, we're very focused on delivering against that $250 million profit for 2024. And there's lots of things in play already that are demonstrating we're going to deliver that. With hindsight, we have seen more inflation than what we originally anticipated, but you can see the response, and we've just tried to step you through that today, around what we've actually done against that to ensure that we improve the earnings profile of the company going forward. Around creating value through digital, this is really important. We are delivering an enterprise platform that we've now got up and running within our WA and South Australia businesses. Over the next 12 to 18 months, we're going to have around all of our personal lines businesses pretty much throughout Australia and New Zealand on this platform. So 70% of the group is going to be on a common platform, takes out complexity, improves simplicity and operating efficiency within our organization, and we're well on track on that rollout over the next 12 to 18 months, which really is going to be a step change. And around risk, we have had a significant uplift in risk maturity at IAG over the last couple of years. We know we had some challenges, and we've sorted those, and we've significantly uplifted that maturity right across our enterprise. And as Michelle has stepped you through, in relation to capital, we got 1/3 of the company sort of reinsurance capital locked away for the end of the decade. So we've done 5- to 7-year big deals with some of the largest counterparties in the world to create that certainty of supply, and that's done. So sort of my summary is then tough 6 months, definitely acknowledge that, but we definitely see good things coming through. And we have confidence on how we're going to deliver that over the 6, 12, 18 months. So with that, Michelle and I are happy to take any questions. Back on stage, Michelle.

Kieren Chidgey, Jarden. Just maybe starting on the rate inflation today, Nick, and the great charts you put up, just wanted to go back to Slide 7 and 9, I think it was, and clarify, on the pricing chart, is that monthly pricing? Because the inflation data you're showing is rolling 6-month, so this seems to...

Yes. I think it's point in time compared to...

The pricing?

Yes, yes.

Okay. So if that is the case, and your inflation chart shows you had a pickup in rolling 6-month motor inflation to 11% to 12% back in September, October, are you happy with the pace of repricing given we've only seen a pricing response exceed that level coming through in December sort of where it got up to 12%?

Yes. I mean we are. I mean that's -- it's a challenging market for our customers, obviously, all of this. But yes, we're seeing double-digit rate increases flow through both portfolios now. So that's sort of -- and that's pretty much wide -- enterprise-wide for those classes. We definitely saw more inflation than we're anticipating, but I feel like we've taken a pretty strong response to that. And now we're going to start getting some of the benefits of the earn-through, as you point out.

Okay. And the lag sort of between seeing that pickup in inflation and pricing sort of responding, can you just maybe talk about why it took sort of presumably 2 to 3 months to respond? Or is that sort of fairly normal?

Yes. I mean there's lots of -- I mean there are many -- there are a few different parts to this. I mean -- and of course, it's the -- it's not like we didn't see inflationary pressure across the business. It's the degree to which we saw it. And I think it was -- I mean I tried to use those words perfect storm a little bit where we had labor, parts supply chain disruption, so parts coming into the country were a bit delayed, extended out, say, motor average time to settle a claim, which actually has come back already. All of those things are just adding more cost into it, and it's the sum of that that's really contributed to that spike. There's a process obviously around renewals that were -- I mean the general rhythm in our company is 6 weeks, is the way we do our renewals with our customers. So in itself, that becomes a little bit of a challenge. So I think it's probably a few of those things all coming together at the same time that's caused that. But I mean the message we're -- which is why we've provided the charts is we're not just observing this. We're acting on it, and we've taken significant action. I mean I've used direct as the example, but certainly in Amanda and Jarrod's businesses, it's very similar theme.

And sort of the second part of the question, you just touched on there, but just wondering if you could give us a prospective view or a spot view of how sort of those jaws between pricing and inflation are looking or how you expect them to move through second half across both motor and home separately.

Yes. I mean an important part of sort of expansion of margins in second half is just that, the fact that -- in fact, in reality, the sort of margin outcome for second half in the way the accounting works, not much of it is really going to be driven by the actual rate increases we put through in the second half. Mostly it's going to be on the back of the earn-through of what we said there. There'll be a little bit that continues through so that -- we're continuing our focus obviously if that becomes a bit more of a '24 story at that point. But as a theme, I would expect for both the portfolios to see what you said, that starting to create margin expansion -- or not starting to, will create margin expansion across both those portfolios.

Okay. Just -- sorry, just to be clear on this, is this a reduction in inflation in motor and home driving that? Or is it more a step-up in that earn-through pricing?

I think it's a slowdown in the rate of inflation and hope the expansion in the cumulative impact of inflation, together with the benefits of the earn-through of the rate within our pricing that's sort of creating that opportunity. I don't want to miss out on reinsurance and perils assumptions, too, because we've obviously had to factor that in, particularly relevant in the home portfolio. So even though that graph that we showed sort of shows mid- to high single-digit-type inflation in property classes, actually, I've got to add perils and reinsurance. And that sort of gets up to that double, which is why we're responding quite significantly around property classes right across Australia and New Zealand.

I just had one quick question for Michelle. The underlying margin sort of looks like it was impacted by an asset-liability mismatch on risk-free rates. I think you called it out on $22 million on one of your slides, which is almost 0.5% to your margin. And you also mentioned risk margin sort of as a factor. Can you quantify what that -- sort of what impact that had on your underlying margin this period?

Yes. So the risk margin strain, if I call it that, was about $30 million in the half. And our go-forward is assuming that we're not going to see that level of risk margin strain in the second half, and that comes off moving through the processing of claims. Obviously, those sorts of things can be impacted by significant events. And so it's one of the factors we've taken into consideration when we think about what we expect in our New Zealand business versus our DIA and IIA businesses here in Australia because our New Zealand team who are doing an amazing job at the moment will obviously have more challenging claims processing environment in the next little while.

Andrei Stadnik from Morgan Stanley. Can I ask my first question just around the reserving? Are you confident that reserving in long-term lines is now looking like it's about settled given it was broadly neutral this result and it's really the short tail that was driving it?

Yes, I am. I mean we've done a lot of work. It wasn't a whole lot of fun talking to this group in August -- or a bit earlier than August last year around the strengthening that we had in the liability portfolio. We talked through the reasons that drove that. But as I called out when I talked to the reserving slide, we're not anticipating any material need for further prior period strengthening as we go into the second half. I obviously can't provide guarantees. It is an estimate, but that's our best view at this point in time, Andrei.

My second question, can I ask around the margin improvement in the intermediated book? It was about 70 basis points, 5.7% versus about 5%, which whilst an improvement, it doesn't seem that large given double-digit price increases, and that area of the business didn't really see a lot of the motor inflation headwinds. So what's holding back margin improvement in intermediated?

Yes.

Yes.

No, you go.

I was going to say the themes are similar, though. So in a way, a little bit of margin, the way you've described it in the environment, in my mind, that's pretty good. We're on an agenda here to step this business up half-on-half-on-half. And so we would expect a stronger second half, there is a reasonable personal lines portfolio that's part of those results. That's had a similar theme particularly to the example we provided with direct. So there's sort of positive momentum that's flowing through in the earn-through of the pricing in the second half, which we'll see that step up.

And can I ask my third last question just around where the volume growth is coming from indirect? Because you mentioned all in, it's about -- it's a bit about 2%, but it was over 4% in RACV and NRMA home brands. So is it fair to say that most of the volume growth is coming out of the 2 states, Victoria and New South Wales, because that seems to imply there wasn't -- or is there more...

And we've got WA and South Australia, remember, under the NRMA brands as well now. I think CTPs had a bit of movement down as well. So it's sort of -- it's a bit of a package there. But we'll -- I think in some of the materials, we step you through that in a bit more.

Andrew from Macquarie. Two questions from me, please. Just the first one, it'd be interesting to get some extra context on this year's aggregate cover. How much of that was placed on a multiyear basis, so actually helping with next year?

So I wish I could say that it's all done and dusted and we're not going to face into a challenging 1 July renewal. We will be renewing a significant component of the aggregate program. I can't go into the commercial detail of various arrangements we have in place with our reinsurers. But clearly, it's a challenging reinsurance market. We're pleased that we've placed the cat program, and we've shared the detail of that with you. But we will face into some challenges with ag just like I would expect the industry will moving forward.

And we do have an element of the main -- obviously, we have 1/3 of the main cat program on quota shares. But even within the main, what we call the cat, the sort of the nonquota share cat, there is an element of multiyear arrangements in that as well.

Cool. Excellent. And then just the other question from me was in relation to the $250 million earnings target in Jarrod's business. If I go back a couple of years when that was originally commented on, the intention was to get 10% margin in that business. Certain line items of that division are moving around quite significantly. Is that 10% still the intention?

I mean we've tried to keep the message simple about this $250 million internally. I mean the mindset was the one you described. And our view is that -- and I also want to make the comment -- I've got the team in the front here, that that's just on the path to improve profitability, but we're going to put a market down of $0.25 billion by 2024, which is really a galvanizing thing inside the company as much as well around -- this is really important, and there's a big opportunity here. Nothing's changed about that. That's a prize that we're going after, and we're increasingly confident that we're going to deliver. Any other questions from the floor? I'm getting a sign here. There's 6 questions on the phones, so it sounds like we're going to go to the phones.

[Operator Instructions] Your first question comes from Siddharth Parameswaran with JPMorgan.

A couple of questions if I can. Firstly, just on the home and motor portfolios in direct. Were there any changes in terms and conditions and deductibles over the period, Nick and Michelle?

I mean there's a slight increase in some of the deductibles a little bit, but I don't think that's material to the story. And then sort of broader terms and conditions, no, no material changes.

Okay. Great. Okay. If I could ask a question just on just inflation assumptions as well on long tail, and Michelle, I think you mentioned that you're very comfortable around the outlook on your reserves. I was just wondering, can you just comment on whether you've changed your inflation assumptions at all in this higher inflationary environment or if they're still what they were before?

So Sid, thank you. As we talked about when we looked at the long-tail portfolios at the end of 2022, we had adjusted inflation assumptions then. That flowed into higher expectations for the loss ratio on the long-tail portfolio in FY '23. And we continue to do our reserving, looking at the inflationary environment that we're currently in. So this is definitely not a set and forget for us. I feel like the words very comfortable will haunt me at some point in time, but I am confident in the work of our reserving team working with, particularly when we're talking about long tail, Jarrod's pricing and underwriting teams in the way that we're thinking about the performance of that part of our book.

Yes. Okay. And just a final question for me. Just on the quota shares that would be cut, Nick, you previously said that there was a multiyear element to some of the previous quota shares, and there was an element of readjustment that may be needed. Just given that the old treaties were effectively commuted and replaced, was there any impact on the results in this half from that commuting of the older contracts or the ending of those contracts versus what we might see in the future?

No, Sid. I mean that's -- sorry, that's a simple answer. But no. So if there's any -- so the question, you broke up a little bit, but just to make sure I got the question right, was there any impact in our P&L in the half gone or, in fact, in the new one of any sort of changeover that sort of causes a one-off anywhere? No.

Your next question comes from Julian Braganza with Goldman Sachs.

Just a quick couple of ones from me. So obviously, it's quite clear that pricing has improved. Can I just understand your own view of how your pricing compares versus peers and your expectations for retention going forward?

I mean there's sort of different parts of the business, but sort of if I look at the overall package of the question is then sort of, how do we compare to the market and then what's happening on retention, our view is that we're well placed in our pricing. Some of our premium brands are at the top end of the market. And that's sort of been the history of where IAG operates with some of those. That intention will continue for the quality and the products that's delivered and the service proposition to our customers and all those great things about our enterprise. So that -- I think that sort of positioning is unchanged. In your question around retention, I mean I've done -- I've answered a few, done a few media already this morning. I sort of made the point that our home and motor portfolios, which are sort of the best places to look, are unchanged and extremely high, low 90s for motor, mid-90s for home and no real change occurring. So we sort of -- the pricing strategy, if you call it that, we sort of see plenty of evidence points that we're able to run the organization the way I've articulated around what we're currently doing with pricing.

Okay. Great. And just in terms of the 1 July reinsurance renewal, can you just remind us what percentage of your nonquota share reinsurance costs are up for renewal?

I can't quote you the exact percentage, but it's the ag program. So the cat is obviously the most significant component. I'm hesitating because I've got my Head of Reinsurance in the audience in front of me and who gave me a signal, but I can't quote the exact number, so let me come back to you on that one.

Okay. No worries, no, I'm sure. Okay. And then just in terms of -- lastly, just in terms of business interruption, just keen to understand just what will give you comfort and what are the catalysts that are objective and tangible that you're waiting for before you finally release more provision?

No, really good question. So as you know, we're carrying a business interruption provision of just over $600 million as at the end of December. One of the things when we announced the $360 million release in October that we said is there was an expectation we'd need to communicate with our customers to ensure that anyone who might have a potential claim has had the opportunity to bring forward that potential claim, recognized at the moment we still got less than 1,000 claims have been received today. We have written to all of those potential customers across December and January. We probably need to allow a couple of months to see if anything comes out of that. And obviously, we'll consider the provision in light of that as we move through to the full year results.