Sabre Insurance Group plc (SBRE) Earnings Call Transcript & Summary

Well, first of all, good morning, everybody. Thank you very much for joining us here today. Thank you for battling past reception downstairs. I think most of us have made it through. I guess in some ways, I'd rather not talk about the results for 2022, but I guess it's incumbent on me to do so. And I think more interestingly is what we did in 2022, and how that set us up for '23 and onwards. So we've got the usual presenters here today. Myself and Adam will do the presenting and any hard questions we'll get through to Matt and Trevor at the end. Today's agenda, very simple, very brief. I think it's quite a simple and brief story actually for last year and into this year. We'll run through the overview. Adam will talk through the financial results, sustainability. We'll talk about some of the highlights of this year strategy. And then we'll leave plenty of time for Q&A at the end, which I guess is always the more interesting bit. [Operator Instructions]. Overview. Strange year, I would say 2022, and that was following an even stranger few years at some off that will unpack as we go through this. We performed probably by our own standards, but I think very well in a market context. I guess we feel have vindicated that our long-term calls on inflation have been accurate. And our painful early call on inflation in '22 was correct and has set us up well. So broadly, I would say we've taken the right calls. We've made the right calls, and we got those big calls right. It's just slightly unfortunate that some of those benefits will take a little time to earn through into this year and into next year. So we identified inflation very quickly. We took very rapid pricing action, reserving action. You'll see we've got all of that out of the way in the first half of last year. We returned to growth last year, albeit driven by Motorcycle and Taxi. We've made an underwriting profit, which I don't think is going to be particularly commonplace across the market this year. Strong capital position maintained. And we've also positioned ourselves very well for growth as we go into '23, and I'll come back and talk about a lot of these things in more detail later. Adam, I think you're going to now chat through the financial results.

Thanks, Geoff. Hi, everyone. So I'm going to run through the numbers from last year. Then I'll hand back to Geoff for some strategic highlights and thoughts on the outlook for 2023. The key elements of our P&L are probably very familiar by now with our gross written premium and combined ratio telling most of the story. In this case, the story is one of some top line growth with premium up to GBP 171 million, driven by 2 new products. and some short-term headwinds on loss ratio, which came in at 68.7%, which I'll go into over the next few slides. On the balance sheet side, we are very comfortable with where we ended up for this year. Obviously, capital generation has been a bit slower than in previous years due to the higher loss ratio, but the balance sheet has held up very well, and we declared a special dividend, taking our total distribution for the year to 4.5p per share. Let's take a closer look at what's been going on with the underwriting result in 2022. For our core motor book, in some ways, it's a tale of 2 halves. The first half of 2022 was clearly heavily impacted by inflation. I won't repeat our half year results update. But in summary, we saw inflation was increasing fast. We acted quickly, strengthened reserves and made significant adjustments to pricing. Following our assertive rating action. Our H2 motor loss ratio was a marked improvement on H1 with some more significant inflation impacts largely limited to the first half of the year. Of course, the Motorcycle and Taxi books in H2, which are targeted to have a higher loss ratio became a larger proportion of the earned premium naturally nudging up our overall loss ratio in H2. Our expense ratio dropped by 1% in 2022. We've always controlled costs tightly and that along with our growing net earned premium has led to the improvement. A slight cautionary note on that, we do expect high levels of overall inflation to continue in 2023 and hence caused some strain on expense ratio as the growth in earned premium catches up. Digging a little deeper, we can see that while our motor book has performed well, in market terms with a financial gross ratio of 61.5%. The new alliance have been a bit of a drag on loss ratio in year 1. Both Motorcycle and Taxi have undergone a period of bedding in, where we've improved pricing levels and underwriting controls throughout the year. Given a very significant proportion of Motorcycle business was written early in the year, much of this business didn't benefit from the full suite of enhancements, which contributed to the high loss ratio in 2022. Business written today is expected to generate far better returns. Taxi generated a small amount of premium in 2022. We saw a couple of large claims through the year, which are fairly random, but when set against the low premium had a significant impact on the loss ratio, but not massive in pound terms. Of course, both Taxi and Motorcycle accounts have been subject to the same inflationary issues as core motor as well. So this is a slide I've shown in the last few presentations, which I've updated to the end of last year. Clearly, we put through very substantial rate increases throughout the year as soon as we saw the high inflation had emerged, and we sustained those increases as we continue to cover inflation throughout 2022. On investment strategy, unchanged in 2022. We held a portfolio of investment-grade corporate bonds, government-backed assets. As we hold them to maturity, no losses were realized on the portfolio and on the regulatory balance sheet, which is mark-to-market, those mark-to-market movements were offset by increases in the discount rate. We expect investment return to increase in future periods due to higher reinvestment yields across the same investment mix. While we're on the balance sheet, in spite of the challenges during the year, we generated an underwriting profit and capital, which we've been able to return to shareholders. We paid a relatively big interim dividend and decided to top that up with a special dividend at year-end, taking the total distribution to 4.5p, leaves us comfortably within our preferred SCR range. Obviously, the dividend is small by historic standards, but reflects our strategy and policy to return capital, which we consider to be excess, to our shareholders. Quick dip into IFRS 17. We have been fairly quiet on this front. But I can confirm that the adjustment to IFRS 17 for us is expected to be relatively straightforward. Because we're applying the premium allocation approach across the book, the earnings pattern is similar with the only real differences in being the discounting reserves and the lower amount of costs deferred under IFRS 17. The risk margin under IFRS 4 is now at a similar level to that which we have plans put for the risk adjustment under IFRS 17. We don't expect much impact or any impact on the regulatory balance sheet or our ability to pay dividends. While I'm on my feet, a bit on sustainability. We implemented a Net-zero road map last year and have significantly enhanced our disclosure around climate. This year, we made some good progress particularly through our building refurbishment, where we've implemented more efficient and therefore more environmentally friendly building elements. We'll continue to monitor developments in this space carefully, particularly with a strategic focus on the opportunities presented by emerging products. and evolving technology. And with that, over to Geoff for some strategic highlights.

Thanks, Adam. So it struck me today that it's just over 5 years since we IPO-ed in the room just behind this hall, actually. And it's been quite the 5 years, I would say, if bad news comes in flees, I think we've hopefully got them all out of us. We IPOed straight into a cyclical soft market. We then crashed into the COVID era and having just emerged has that tapered out. We then went straight into an extraordinary inflation environment. We've not really had a year of plain saline since we first came to market, and we hope this year is a start of a return to something much more normal. So it's been a challenging year, extraordinary rapid increase in inflation, which I think has been well flagged. We made a very early call. And you will recall when we came out with a profit warning. I think we called it first, and we called it hardest. Probably more importantly is we took a very assertive rating approach to fix that position, we moved our reserves at the half year, and we moved our pricing to reflect the new reality. That means we had a difficult second half. We think others were too slow to move, which will come back to later. A good motor loss ratio in your 61%, I think, is looking like it's market leading. At this age, I see no one else got anywhere near that for this year so far. Motorcycle and Taxi were launched, reviewed and evolved. So we didn't expect to get this perfect straight off the back. We write a bit more than we expected sort of early doors. Business, we've written since probably halfway through last year, we are pretty confident is on the rate in terms now and we deliver our target profitability. Clearly, there's some new products strain, we always expected that. Timing perhaps slightly unfortunate in that we had that new product strain at the same time the motor loss ratio was going to have a bit of a tough year. We stick rigorously to our "profitability is a target and volumes the output" philosophy. We firmly believe that, no change to our philosophy. And in the face of what we believe is undisciplined market pricing, we allowed our motor business to shrink, which meant we delivered a profit performance. If I was playing a game of insurance top trumps, and why not, I think I would pretty confidently play our top trump cards around loss ratio in year, our inflation call, both the accuracy and the timing of it and our price increases. So to reiterate what Adam said, 30% in year, 50% since January 2020 is well ahead of the market, I suspect. I might also play a card on how well we are now positioned moving into this year and into 2024. The motor insurance market in '22; our view, the market was far too slow to unwind COVID discount and far too optimistic on the whiplash and post-COVID benefits as well as being too slow to reflect inflation factors. There is a slight food in, if I told you so, having been here. Sadly, that doesn't stop us suffering the pain of that rapid increase in inflation, nor does it stop the pain of the volume impact we suffered before the market caught up, perhaps with our view of the required work rate. Claims inflation, we think, peaked at about 12% last year. We expect 2023 claims inflation to remain high, which we'll come back to, although we did see signs of pricing starting to increase in '23? Motorcycle and Taxi, I think Adam has already said this, just to reiterate on Taxi, a couple of large claims against low earned premium sort of makes that loss ratio look worse than we think it is on an underlying basis. And on Motorcycle, the rating sophistication that Matt and his team have now deployed, we believe is at the forefront of the market, and we are confident we are now [ writing ] Motorcycle at our correct loss ratio targets. Motorcycle is a seasonal product. So we'll find out as we go through spring, whether that's fully worked. Overall, we believe these new products are going to be highly attractive contributors to our profit going forward. And we've entered new markets. So pace, scale and with hardly any cost, which we call there was no M&A. And here, there was no renewal like purchase. It's being replacing existing underwriters or entrant panels as a new underwriter. Inflation, always I have one of the more interesting bits of our presentation for people. I'm not going to read these words out word-for-word. We believe 2020 (sic) [ 2022 ] at about 12%. 2023, we can see softening slightly to maybe somewhere around 10%. So we think overall inflation will run hot, but it doesn't have the same impact as '22 as we've seen it come in and we priced for it appropriately. Key bits here, we saw inflation across parts, paint, labor and repair cost, used car values, injury, mobility, almost everything, which I think is quite a unique position. As we look into this year, what might change, we can see parts availability becoming slightly easier. If we can repair cars, that reduces repair length, which reduces the amount of time our customers are in higher cost for mobility costs. So we see the improvement areas as parts availability and mobility, we do then have a careful eye on injury costs and how wage inflation might impact, especially the larger injury cases. So I would say, at this point, this is what we think will happen. There's limited evidence so far for it happening, so we wouldn't call this inflation having softened yet. I think it's [ like a sideshow ]. Some new news, I guess. Two things. One is we are deploying in the summer, a new direct platform. At the moment, the vast majority of our customer contacts on our direct system are still by phone. That's expensive and cumbersome and not great customer service. We're well on track to deploy a new online administration with online portal, as you'd expect. That's like due to go live in the summer. We've got no consultancy spend. There's no CapEx involved in that, so it shouldn't have any meaningful effect on our numbers. but we do expect it to see cost savings being generated, which we can reinvest in our direct pricing as we go forward. We're also rolling out Insurer Hosted Pricing a bit nerdy, a bit tacky perhaps. What it effectively allows us to do is to deploy more granular rating at pace without some of the restrictions of software houses. Matt will be happy to give a couple of examples in the Q&A, if that's helpful at the end. So crystal ball guys and then what might happen. What I would say is there's a range of scenarios for the market this year. Possible positive factors. We think underpricing by competitors in prior periods may bite and maybe there's been some evidence of that over the last few weeks as results have rolled out. Rational market pricing might sustain, we would hope. Inflation might soften more than we expect. And I am pretty confident there'll be some competitor market exits, we know for an almost fact that there's a couple of meaningful people looking to exit the market. From our point of view, our insurer hosted pricing will start to impact later this year and into '24 as with the new direct platform. What might go wrong? Competitors can lose discipline. As volume starts to hurt, it is easy to lose discipline and not to stick to rational pricing. There could be an undisciplined market entry. We don't see that at the moment, but there's always a possibility someone comes around the corner. The official injury claim portal, as you may be aware, there's a court of appeal decision, which basically back claimants, I would say, in terms of how small value claims are valued. That is now through the ABI being appealed to the Supreme Court or leave to appeal has been so -- we're not massive fans. We think it could elongate the uncertainty. We're well covered. Our reserves don't see many good news out of that, but we think that creates some uncertainty for the market. And inflation could come in above expectations, that's not our base case. Our base case is for us to be able to deploy below market price increases now because we've already fixed the delta between inflation and where we are today. And for Sabre to either grow or to increase our margins, and we'll optimize whether we grow or increase margin as we go through the year depending on market conditions. So our base case is for growth and margin enhancement. On people, we continue to benefit from very low staff turnover. And indeed, we have recruited into areas ahead of our anticipated growth, primarily into claims and into Matt's team in Actuarial. We continue to pay bonuses, and we've continued to try and look after staff through cost of living allowances as we came through the winter period. We've rolled out a range of enhancements, self-service HR, employee benefit schemes, electric car schemes. And as Adam mentioned, we are completing a full build and refurbishment to make ourselves a more modern sort of environment for people while also helping our ESG scores. On customers, the big thing here is to look to enhance our direct capability through the new platform, as I've mentioned. We're also looking at processes to identify customer vulnerabilities, especially where it relates to the current cost of living crisis. I guess the acid test is we have very low levels of complaints at the moment across any of our lines of business, be that claims, pricing or anything else. So we are pleased with how we're able to support customers through these difficult times. Looking forward and just to reiterate a few points. We believe we've managed the impacts of inflation as well as possible. Maintaining our price discipline means we continue to anticipate growth as the market hardens. I would say recent 2023 volumes are pretty encouraging in this regard. For the first time, I think, in a long time, we've seen our volumes moving up on a weekly basis, not through our own actions, through the market starting to catch up to our pricing. IHP. We are at a more sophisticated pricing at the moment, we're less than 1% of the market. So we don't feel at all constrained by the opportunities ahead of us. As we start to roll out IHP and some more rating sophistication, we think we'll find other opportunities to grow beyond just market price [ way ] of serving. We continue to see a lot of partnership opportunities, be that MGAs or broker schemes or M&A opportunities. We maintain a very high hurdle. It's not at the center of our strategy. We believe there is a lot of opportunity open to us through organic growth. Outlook. Now I think we feel just about confident enough to try and give some guidance. [indiscernible] where everyone has so far. Premium first. Motor, we expect to grow. We expect to grow our motor volumes. Motorcycle, there will be a stronger Q1 performance than Q4, but overall, we expect to grow motor and shrink motorbike as our rate changes start to bite. As our exit volume was slightly lower through the end of last year, we don't think market pricing caught up last year. Our exit volume is a bit lower from last year than we might have expected. That gives a bit of earned premium paying into this year. Overall, our base case would be for motor growth as in car, in the low double digits. For bike, to shrink a bit. So overall, at the moment, we would expect high single-digit growth across the portfolio. Now there are quite a lot of scenarios around that. We could grow much faster and inflation could soften. So if I was feeling bullish, and I looked at the last couple of weeks' numbers, I might say I'm being too pessimistic on growth. Our view is we've been here before -- for those of you who've listened to us for a few years, we said this in 2020, and the market then rapidly ran out of steam and our volumes tailed off again. So we're not going to get overly ambitious. We're not going to put a bull case forward here. Similarly, competitors might lose discipline and inflation could remain high. What we think we're putting forward here is a sensible central scenario of how we think the year will pan out, but there are scenarios either side of this. Other income and profit. We will see an increase in investment income. We're expecting very material increases in loss ratios across the whole portfolio. We're already seeing that in the early weeks and months of this year. So we are confident our loss ratios will improve as we hope. We do expect a bit of deterioration to expense ratio, as Adam mentioned. There will be sadly some residual impact coming through from inflation last year. Central view, overall COR, mid-80s to 90s depending on how those scenarios pan out. I would say there are views around that. We think we're in a sensible central scenario at the moment. I think overall, and in closing, I think we've delivered possibly a market-leading result in '22, certainly on loss ratio. We're very well positioned now for growth through '23 and '24. Our central cases of growth while reducing COR, i.e., growing and enhancing our margin. We think that's not a bad place to be. The extent of that will be slightly influenced by market factors, but I think it's just how much growth and how much improvement in margin we see not whether either of those 2 things happen. Now at that point, I will pause, and we're very happy to take any questions on anything at all. We'll start in the room, then we'll go to phone and then we'll go to the web. Hands have flown up. [indiscernible] you're in-charge of the mic, I let you choose who go to you first.

It's Abid Hussain from Panmure Gordon. I've got 3 questions, if I can, please. Firstly, on replatforming, why are you migrating the policies now? I think you said you deliberately delayed that. So just wondering why now is the right reason. And have you quantified any benefits, any benefit to the expense ratio that might occur? And the second question is on the software. You touched upon the insurer-hosted pricing. I suppose if you could just put a bit more color around what is that and what the potential benefits of that might be? And then on pricing, you mentioned that you may not need to push through as much pricing as some of your peers because you moved hard and early. Just wondering, how do you track that? And is there any data that you could share with us on that front?

Okay. I'll start in reverse order to that pricing first, while I remember. So our belief is that claims inflation is going to run, I would say, about 10% this year. To cover 10% inflation, we need to put through probably 14 to 15 points, right, allowing for the mix effect. Our view is that others have catch-up to do to fill out the delta between where inflation got to and where their base point was. So we will still be increasing prices as we go through this year by, say, around 1% a month. Others we think need to do that and quite a bit more besides. So as we're putting on our normal price increase, we expect others to put on a lot more. That will allow us to see the benefit in volume. As I mentioned in the most recent weeks, we're seeing some pretty firm evidence of that happening, we'll see if that sustains at the current level. On the software, I will answer the IHP one in a second, if that's okay. Replatforming onto the direct system. It's one we've been looking at for a while. We've been through a pretty extensive market tender process on that through the early part of last year. Costs have come down dramatically. And I think we're now at a point where direct is a large enough part of the book to make it worth the time and effort in moving that across to get the benefits of online for our online servicing. We're not publishing benefits for that. We expect to reinvest that back into price and as they emerge and take extra volume would be our central point there. Matt, do you want to describe IHP sort of in a simplisticish way.

Yes. So the advantage of IHP is currently under software houses, it takes about 6 weeks to get rate changes in. Once we have IHP, we're fully in control. So we think back to the times during COVID. We could have actually done more segmented targeted rate changes quicker to ensure the pricing as accurate as possible during COVID, just kind of looking back. Looking forward, what it allows us to do is to put more complex rate algorithms live. So for example, if we wanted to say what's [ probability is on when a suit ] in our rating, we can get model out into our rating, which today would have a limited ability to have to do that. We can also refine and learn flat rating much quicker. So can we have a 6-week window to get rates live, and then it takes a month to get data and another 6 weeks to make a change. So going forward, we'll be able to get them live much quicker, assess it and then make refinements much quicker. So it's all about that speed to market as well as the ability to have more complex models.

We have to change base prices on a daily basis effectively. This allows us to make much more complex prices on a daily basis. What we won't do is use it to choose volume, we'll use it to deploy more sophisticated price as quickly as we can. Ivan, so you are next?

It's Ivan Bokhmat from Barclays. I've got 3 questions. Well, the first one, I'm glad you brought up the slide with the 5 years since the IPO because I wanted to ask you about your motor portfolio. Obviously, there's been quite a change in it in terms of the size over the past 5 years. So in what shape is it now, in a sense, how much is like the specialist, how much is mass market? Where do you think over that period, you've shed most of the premium volumes? Because if I count just on policy count, it's down 38% since 2017. And I think back then, we were thinking that of the total book, over 2/3 were specialists. So you must have had some bite into that niche segment by now already. So maybe some general thoughts on that. The second question is, I'm thinking of your profitability being quite cyclical, unfortunately, in the bad part of the cycle. So I was wondering if now that the margins are going to need to start to recover and prices rise, would you consider setting aside a bit more in reserving to help steer your earnings? And perhaps a related question to that, but separate, as you move to IFRS 17, can you share what kind of reserve margin percentile you consider to be in.

Yes, sure. So I'll take the first one. First, I will take the IFRS one, if that's okay. So since IPO, we've had to grit our teeth. I think we always said that we launched, we expected to shrink at certain points of the cycle, we didn't expect to get such big waves smashing straight into us. So the cyclical downturn we expected. We didn't expect COVID clearly, and nor do we expect the inflation. So we have had to shrink more than we would have expected. I would say we still maintain a very strong moat around our more nonstandard business. Our average premium, as we see it today, is 700-750, that is a lot higher than the market, which I suspect is around 400. So we're still maintaining that moat. The business we've lost is the stuff near the mass market. As people have, in our view, underpriced, we've clearly not been competitive for some of that near or mass market, lower average premium business. So we're still very comfortable, Ivan, that we've maintained that moat. We haven't really seen any one massively coming to our sector. A few people had a poke. Some have come in, they boomed a little while, then they maybe disappeared for a bit. So we'll see how that works going forward. On the profitability and cyclicality, I guess that's really the reason we're trying to launch other product lines. So we want to try and smooth out some of the troughs. So Bike and Taxi are less cyclical. Once they're fully established, earned in, we believe that gives us a slightly noncyclical line through the middle of the accounts as well. I don't think we're going to change our reserve [indiscernible]. We try and reserve to our actuarial best estimate with an appropriate margin. And I guess, Adam, that's a good segue to you on the margin.

Yes, that's right. So I mean, it's fair to say, we've chosen to be a follower rather than a leader on IFRS 17. I think we want to make sure that what we do is consistent and easily understandable and comparable across the market. It seems that there is a range of sort of percentiles that are being applied on the risk margin across the market. I don't think opinion has settled as well. It should be. Obviously, it has to be different for every insurer, depending on your own risk mix, and there's a sort of choice of judgment there. So I think it's fair to say we're in the pack. We sort of don't have to choose that 100% yet until we come out with our IFRS 17 numbers later in this year, but we'll definitely be sort of in the pack when it comes to our IFRS 17 risk margin, which is, as I mentioned, is likely to be of a similar order of magnitude where it currently is under IFRS 4, although it's on a slightly different basis.

Let me ask a couple of follow-ups. On the first point on the IPO market, maybe you could share your thoughts about the elasticity of it because I think the main advantage in the past was that you're one of the 2, 3 people quoting for some kind of business. But clearly, the volumes they might suggest something else. And secondly, just on Adam's point, maybe you can share that range that you referred to, where you're in the pack just for our benefit.

It feels like most insurers seem to be pitching somewhere between sort of 80% and 95% confidence input on their IFRS 17 risk margin. On the elasticity. It's an interesting one. We did some price benchmarking fairly recently and looked at who was quoting around us. And by and large, it was us quoting against ourselves still. You may recall back to the IPO days. We said, when we quote often worthy one of very few people who were quoting, we looked at who quoted; it was our own direct brands, and it was brokers, who when you dug through the broker quote, was also us. So we still think we have that positioning. I think for the last few years, we've seen less young drivers coming to market, as we've discussed before. We've seen less people become slightly nonstandard. So there were less cars being purchased. We had less people getting speeding convictions because they were driving less. So the nonstandard market itself sort of -- it didn't shrink, but it didn't really grow much. I think what we're seeing now is that market opening back up again as driving tests are now fully maxed out. We know young drivers are still coming to market. We can see new car sales starting to improve, and we're definitely seeing quote volumes on aggregators are now back pretty much to where they were at about '19/'20. So aggregator quote volumes have bounced all the way back up in the most recent months. So we see the volume coming back into the market again, which will be benefiting our volumes as well at the moment.

James Pearse from Jefferies. So the first one is on pricing. You said market pricing has been promising in recent weeks. Firstly, can you quantify that? And I guess if rate momentum continued on a weekly or monthly basis, if that was sustained and claims inflation behaves how you expect, i.e., up 10% this year. How long does it take for the market to start pricing adequately? Is it the first half of this year, second half of this year, next year? Second question is last time you spoke about combined ratio of around 80% in 2024. I appreciate that it's early days, but are you still happy with that as of today?

Yes, sure, I'll take that in reverse order. So we're still targeted 80% as our ideal position to get to in the short-to-medium term. So no change there. Market pricing, how do we track it? We don't spend a huge amount of time tracking competitors, if I'm honest. I'm not sure what we do with it. We took a price to our own requirements rather than chase other people's numbers. What we can see is the impact on our weekly volumes. So we can see a pretty good year-on-year improvement. It's an interesting position last year if you recall the first half of the year was before we made our big inflation call. So last year wasn't a knockout year, but we were still pretty competitive in the first half of the year. We made our big call on inflation around June or July and increased our prices dramatically. What we're seeing is a very distinct step-up now from the volumes we wrote in Q4 last year. I agree that seasonality is slightly different. So we don't want to get overexcited, but at the moment our volumes look pretty good, I would say. We want to see how that pans on a year-on-year basis, and we want to see if it sustains. So we think we're in a sensible place at the moment on our call at the moment without getting overexcited. Adequately pricing, I think without knowing people's base point on pricing, it's really hard to say. So our view is, looking forward, if clients inflation is at 12, everyone should be put in -- sorry, 10, everyone needs to be putting forward the same sort of pricing going forward. Some are in 10%-15% range forward looking, what's the catch-up required from people is what I don't know. So is actually what we would say our price in their projection for the year, 14%, 15%, should that be 25% or 35% of other people that's what we don't know without knowing how far they are off a strong starting position. We think we want a really firm foundation. We've got to cover inflation looking forward. We'd expect that rate increase to be much less than is required by a lot of competitors. So that is all I'm hearing in some of the recent results announcements.

Thomas Bateman from Berenberg. Premiums on pricing for young drivers still seems to be lagging the rest of the market. Could you comment on whether you think is that due to telematics and if that's impacted your competitiveness at all? Second question, just on installment income seems much lower this year. Could you bit a -- put a bit of color around that? Is that due to potentially lower young -- less young new drivers? And finally, you commented on Motorcycle being in your kind of target range. What is that target range? And when do you think you'll be able to hit that on an earned basis.

Sure. So pricing lagging on young drivers. I guess not for us, it's not Matt. We're applying our price changes consistently and equally across the market. We're still seeing a pretty decent mix of young drivers coming through. We track our risk mix on a monthly basis. Yes, I don't think we're lagging. Well, we're certainly not lagging on our price increases there. There are more telematics providers in the market that may be having an impact. Some of those have been MGAs. And some of those people are struggling for capacity. So we may see some of those prices move up quicker than the mass market as the rest of this year pans out as well. So it is slightly vague that somebody will have a specific answer on that one, I'm afraid. On Motorcycle, I think, we were confident we're writing at that our target loss ratio now. If Motor loss ratio is in the low to mid-50s or probably in the early 60s would be our target for motorbike. We have less expenses to deploy it to that. So we're still looking for the same combined ratio, but to reflect the fact, there's reasonably marginal cost coming through there. Installment side, Adam?

Yes. It's not so much impacted by a change in mix within the direct customer pool. But recall that we only set installment income to direct customers. Motorcycle and Taxi are both effectively broker-led. So we won't get any installment income for them. So it's really the multiple and then the direct bit of that, which is smaller, which is driving the lower installment income in the year.

Nick Johnson from Numis. A couple of questions, please. Basically thinking about risks to the combined ratio. So firstly, on that, on claims inflation, your assumption of 8% to 10% this year, what do you see as the biggest risk to that number? Is it bodily injury claims, CPI, supply chain, just where do you think there's most uncertainty on that assumption? And secondly, on fraud and theft, which I think probably traditionally rises in economic downturns. Are you seeing any increase on that front at the moment? And have you loaded pricing for that in the year ahead?

Pass that one to you Trevor so you can talk about injury and things. So yes, theft, I guess, the stuff you read in the papers about Range Rovers in London being a difficult risk to write. That's absolutely true. We are trying a few slightly different things there. So I would say we are seeing certainly increased theft on Land Rover, Jaguar Land Rover vehicles. That's when we address. We are seeing some other likes being targeted as well, Trevor as well.

Yes. So a number of the larger SUVs, so Lexus and some of the Mercedes type vehicles as well, we're seeing going missing particularly around London. I think the other area of theft that we've seen quite a bit of is catalytic converters really just been taken for the precious metal.

I think what I'd say, Nick, as we have very short feedback looks between claims and pricing, so if you start to see these issues emerge, we're on to it pretty quickly in terms of our group rating. Our belief is that still the right price for almost every car, just at right price might be rather larger than it was a couple of years ago. What's the risk to call on claims inflation. I guess the overall risk here is responding to it too quickly. So we can see signs that it might soften. Our view is we're going to wait until we see evidence that it has softened, rather than trying to guess that too much. Trevor, probably injury would be the bigger one?

Yes. Generally, there's a lot of uncertainty in terms of everything from the metal piece, the mobility part and personal injury. If we look into personal injury, we've got a corrosive activity around inflation on those outstanding claims. So we've taken that into account in terms of the reserving. However, the risk there is that wage inflation causes more pain, particularly around care costs in those larger losses. Then in the smaller attritional claims, as Geoff referenced, we've got an outstanding or potentially outstanding decision around how those claims are valued. And certainly, at the moment, it would appear that the savings which were originally considered to be coming through from the whiplash reforms aren't there. So I think it's the extent to which they're not there is the uncertainty.

I see other people refer to those numbers being nearer GBP 15 and GBP 25. I think we'd be in a similar sort of place.

And on care cost, can you just elaborate a bit in terms of what you're assuming in your inflation assumptions?

We're looking at that really as a sort of as a blended number around that sort of 10% level. The opportunity we've got there is that the majority of those claims will be protected by our excess of loss of insurance cover.

And just a follow-up, you talked about theft, but is there anything to say on fraud as well?

Yes, John, can I just comment a bit on that. So one of the significant areas of fraud was around personal injury. So we have seen a material reduction in personal injury frequency. That is being displaced into some property damage, so third-party property damage higher and repair. So we're absolutely vigilant to it. It is there. And we're also doing more at point to quote to ensure that we're identifying the right risks. And Matt really has introduced those tests into the new product lines now. So we've got a lot more capability around Bike and Taxis [indiscernible] are our core business.

Well, I would say Nick is, one of things we described quite a lot internally is the temptation to have a whiteboard on the wall where you write in order things that might go well and therefore, start -- and decide not to think so hard about the things that might go wrong. We spend just as much time thinking about things that might go wrong, initially we got up with a balanced approach. So we're not going to lurch on price discounts for claims inflation reducing till we see some pretty firm evidence of that coming through. That's the main way we avoid getting [indiscernible].

Darius Satkauskas with KB&W. Two questions on the insurance cyclicality. So first of all, can you share what you learned during the last 3 years of the soft market, I mean what worked, what didn't from Sabre's point of view? And the second question is, apart from a product launch, are you pursuing any initiatives in terms of risk selection or pricing that will help you manage the cycle better going forward in terms of -- rather than shrinking the up -- being forced to shrink the policy count, I suppose?

Yes. I mean what have we learned about insurance cyclicality. I guess we've learned it's really painful grit in your teeth to try and do the right thing. That's the main thing we've learned. We would not normally see cyclicality in the way we have done. We'd normally expect to see an 18-month, maybe burst of downturn in the rates we cover. I can't think of any time in the last 25 or 30 years when we've seen 3 events like this that have all called such disruption in the market, and sincerely, I've never to see them again. So I think cyclicality, we would not change our approach in the future, we wouldn't chase volume. We would still stick to our margin is the way you make money in the medium term. We don't want to blow ourselves up by ever changing that strategy. If we can get some things that are less cyclical, great. We'll try and build those into our portfolio as well. Risk selection, well, I mean we do risk selection every week or month. And price, Matt you want to?

Yes. So with the risk selection, we continue to look for opportunities. And if we can identify segments that would be less impacted by the cycle. Of course, we're expanding them. So our idea is to find those pockets of high-margin business to expand into.

One of the things we've never really spoken much about is our work around data science and machine learning. We have a pretty impressive team, I would say, working on that stuff now. And part of the reason for IHP is to allow us to deploy some of that machine learning techniques as well as our normal traditional pricing techniques into rating going forward. So we've absolutely got stuff coming through on that over the next 18 months.

It's Barry Cohen from Panmure Gordon. Three questions, if I may. First of all, Geoff, you had talked about organic growth. And I just wonder whether not M&A might feature this year for you. Do you think the market turmoil that you described, I think you mentioned a couple of firms maybe possibly thinking of closing the doors would create opportunities for you as much as you had last year with the acquisition at nil cost with the Motorcycle book. Secondly, just talking about the cycle. I'm just wondering, as others play catch up, do you think there's a possibility that rates might overshoot on the upside? I guess I'm thinking about things such as the cost of living biting and reduction in usage of vehicles and things like that. And last of all, thirdly, I just wonder whether or not you could comment on how the Motorcycle and Taxi books have performed in terms of retention as you've acquired these books. How they've actually panned out in terms of renewal?

Yes, sure. So organic growth versus M&A. We always look at M&A opportunities, but we went in quite a high hurdle there. I guess if we think about Motorbike, if we'd spend GBP 50 million acquiring a motorbike book, we'd be much more inclined to try and maintain the volume because you're trying to justify the payback. If you picked up a deal as an underwriter, you don't feel that same pressure to justify payback. So our preferred approach is to be an underwriting partner for people with data or distribution expertise where we can apply the right prices. That's a fair comment. Opportunities, yes. I mean we've seen all sorts put in front of us, we could -- without any exaggeration of written GBP 100 million worth of partnership business signed up last year. I think we may have lost a lot more than that while we did it. So we are very thoughtful about these opportunities. There are some good books out there. We've seen some good books fairly recently just not right for us. Our view is we are still relatively high margin insurer, we're very -- we'd be very cautious about anything that took us into more of a low-margin mass market, but we'd start to look like everybody else to that point. So I don't think we're going to go down that route anytime soon. Will prices overshoot? I guess in such a competitive market, the changes of the customers being price gouged is very slim, it feels to me. And if we see the market turn, people will adjust for better claims experience coming forward. So I don't think there's a risk of customers being disadvantaged here that I can see. Motorcycle and Taxi -- so that was question that was Motorcycle and Taxi.

Whether or not the retention?

Retention, yes. So Motorcycle we're only in the very early months of that happening. We have to -- we should say that we mentioned 30% price on car. We've put quite a lot more than that on bike, I think it's fair to say. So we would expect retention in this first year to be fairly low. I don't think we should -- it's probably a bit confidential to our partners to give out the retention levels. But...

I think [indiscernible]expected to grow during the year, as the year-on-year price change comes in and gets lower with our intention to build as year goes on.

I'm Andreas Embden with Peel Hunt. Just a question about distribution. You've traditionally been very much broker focused with the new strategic initiatives, particularly the platform and the IHP, how do you see in the next 5 years, your distribution mix changing? Are you going to deemphasize the broker network and emphasize more on new business? Or is the new platform going to be incremental to what you already have as a presence on the broker panels?

That's a good question. Well, plus we didn't really clarify. The insurer hosted pricing allows us to support the broker channel through more sophisticated rates. So we won't just be using that on direct, that insurer hosted price on what equally well apply to all of our broker partners, we can push out more sophisticated, better, more competitive rates to our brokers as well. We've always described our distribution being agnostic. We think best price wins it. We won't -- we're not focusing on direct against broker either way. We're very happy to carry on with our current split. I think there will be some consolidation in the broker market. We can already see some of that coming through. So I think you may see a split between very big brokers, the sort of smaller high street type does. It's the ones in the middle and need to decide which way to go. So we keep an eye on that market shift as well. We don't think it changes our market potential at all.

Alan Devlin from Goldman Sachs. Still got 3 questions. Just, first of all, on growth, I mean, in the past, given your high-level profitability growth was quite capital-efficient at your 85% to 90% COR, although [indiscernible] probably at the lower end of that. Is that [indiscernible] from a capital point of view, you could grow with the opportunities there? And then also on the claim side, any capacity constraints there? Or could you still grow and be able to manage our claims if the opportunity existed? And then secondly, a few of your competitors have launched Essentials products. I know that kind of lower average premium is probably quite away from your sweet spot, but any kind of thoughts and comments on that? And then thirdly, a question for Adam on the investment side. The -- I mean you have increased your corporate bond portfolio over the last couple of years. But given the high level of yields even on government bonds, any subtle changes to the investment portfolio going forward? And are you getting paid to take the risk?

Okay. Well, you will take that on a minute, Adam. On the growth, I think we can still be very capital efficient there. We're still where we're righting around our normal 80% COR amount. That still allows us to grow and fund our own growth. We've still got all our powder dry. If we ever needed to see a substantial growth, we've not used any reinsurance. We know there's attractive deals out there; if we wanted them [indiscernible] . Our view is no maybe in the future if we had really extensive growth that might do something for us, we keep it on how the economics of that work, so we understand the levers we can pull if we needed to. So we don't feel constrained on capital at all in terms of growth. Clients, you mentioned the building part of that is to open up more space in our building. So we've been recruiting to claims. And I think we'd be really encouraged that we haven't seen staff leave us nor have we since the summer struggled to recruit staff, we've done pretty well, I think.

That's right. So we probably had 2 years where we were having overcapacity during that COVID period where we didn't furlough anybody. But we weren't recruiting. So we really embarked on quite a heavy recruitment during 2022 to position ourselves well. We're also developing our own system further to really make us even more efficient.

You might recall that we try to maintain a capacity over our required claims headcount, so we can grow into it. That's still our ambition. So we're happy to accept a bit of expense drag from the claims department to allow us to grow into it. Essentials products. I think they're really interesting. I think there probably is scope to do something that may be something we look at towards the end of this year or into next year. I think if you really care for what these products are just taking out windscreen cover and knock at GBP 150 of the premium doesn't strike me as the best way forward. So if we do, we will be doing it quite thoughtfully on what is truly an Essentials product and what is the correct price to deploy for it. I think some of will look quite good out there, some of them don't look quite so well. So we'll be quite thoughtful before we do that. And investments?

Yes. So I think we reached our optimum mix in 2020, and we've been in a fairly steady state since then, and we don't have any plans to change that in the immediate future. Certainly, over the last year, I've been quite happy that we've been in the relatively low risk end of the investment market. Certainly, all the sort of mark-to-market movements have been pretty much counteracted by risk-free rate movements on the solvency balance sheet. So that's kind of worked. The reinvestment yield is obviously higher now than it would have been previously. That's probably coming around 4.5%. With the weighted maturity of the portfolio being sort of between 2 and 2.5 years, that will clearly take some time to pay us back in terms of yield coming through the P&L, but it's moving in the right direction because it is a buy-and-hold strategy, we wouldn't necessarily execute trades to bring that forward, particularly when investments are sort of underwater when it comes to market value movements. So I think we will see a tip up over time in investment return. That will be very useful in the current environment, but we're not going to actively pursue anything more risky at this time.

Any more questions in the room? You have your hand up fractionally quicker.

It's Abid again from Panmure. Just a follow-up question actually on Taxi. I understand that some fleets such as Uber are moving to all electric vehicles, I believe, from next year. So that's -- even if it's a hybrid vehicle, it has to be a plug-in electric vehicle as opposed to having a combustion engine charging it. Just wondering how does that feature in your thought process in growing the Taxi book?

Yes. I guess our view on electric vehicle, it is just a vehicle like any other. So we're perfectly happy to insure them. Matt, anything you want to? Matt?

We don't think -- we think it's just -- it's got a [ large engine, large petrol engine -- ] - it has got electric motor. -- it's just a car, we need to take into account the repair costs and time off the road, but it's part of our underwriting business as usual.

That's why it does not have a catalytic converter...

That's a good thing. You don't want to talk about the screwdriver, it is too much underneath, would you?

It's Ivan Bokhmat from Barclays again. Just one follow-up. On the -- as you've provided the combined ratio guidance. I'm just trying to understand how much of a drag from those 2 new product lines is going to carry on into 2023. I mean you've suggested the target loss ratio for those books, obviously, this is more than half drop versus 2022. I mean when do you think we can get to those levels in terms of timing. Is that '24 or second half 2023?

Adam, do you want to take that one?

Yes. I mean the part of the reason that we've guided in the way that we have is that we do expect this to be a drag into 2023. I think that's clear. Motorcycle rates are sort of broadly in the right place. That will take some time to earn through, still some rate to put on Taxi. So overall, we think they're both generating profits into next year, clearly, far in advance of the profits that are generated in 2022. It sort of remains to be seen exactly how they contribute. Overall, on a loss ratio basis, they are still being written at higher loss ratios than the original sort of motor book would have been because the relative expenses on those products are far lower. So if the motor book doesn't catch up in terms of size with where we would expect it to be. And those remain a proportionately more significant element of the book, then that will be a drag on combined ratio. If the motor book does accelerate, then we should see them being less of a drag on loss ratio.

Just a quick follow-up on Motorcycle. I guess I'm a little bit surprised that you need to put so much rate through on Motorcycle. What's -- why is inflation so much higher there? Or I think you alluded to it being less cyclical as well. So what's driving that?

Yes. I won't say -- I think some of the underwriting controls and pricing sophistication were not optimum on the previous book. And I think we've had to work quite hard to get into, we think is an optimum level. So it just took a bit more work than we have maybe anticipated. We got there, Matt. Don't you think we've probably got the [ rate ] level you were completely comfortable with?

I'd say Q3. I think it's -- the starting point was not as always what we expected to be, which is why we had to put more rate for that inflation.

I don't think about inflation was a factor. I think it was we had to optimize the rate in the underwriting controls. Okay. I guess I've looked to the eye under sky. Any questions on the phone?

[Operator Instructions] There are no questions on the phone at this time.

So a couple here on our hi-tech iPad. Can you quantify the level of rate increase we've seen at a market level in '23? I would say the ABI, we view as the best sort of independent view on that. I think that was looking at about 15% at the end of the year, looking at Matt and Trevor, somewhere around there, I think it was. I think our view is not enough. I think it's how I'd quantify the rate increase. You mentioned certainly shores are pulling back this year. Could you provide a bit more color on how big they are? I won't on that because I'm not sure those are entirely public, but we are aware of some meaningful players looking to pull back from the private car market, probably not massive in market share, but it will make a difference.

On your slide of the potential positives, you didn't have higher new car sales on that. I thought that would have helped kind of risk mix for the market to put more business -- new business in the market, which does play to your strengths and hopefully, over time, reduce the car prices as well. Do you think that's a positive and...

Yes, I think it will be. The more sales there are, the more people are changing cars, and that's normally a catalyst, they're getting a different quote. I think there's some interesting stuff going on used car values Trevor as well.

So we have quite close relationship with the vehicle valuation guides. And from conversations with them, their outlook is that broadly used car prices can stay flat. So not yet come off because there's not enough new vehicle still coming into stock. And a lot of the new vehicle is really being driven by the manufacturers meeting, their quotas around BEVs. And have seen BEVs, so Tesla, for example, reducing their retail price and that's had a knock-on effect in terms of used car prices. But if we look at the internal combustion in the petrol and diesel vehicles, we don't necessarily believe that there's going to be a reduction there. So those prices will stay flat. And anecdotally, there is still a shortage of stock. So I think we need to see the new vehicles coming in at the top to free that up.

So hopefully, we don't see much evidence here. Okay. If that's a lot, then thank you very much for your time, attention, and thank you for the questions. I would answer anything individually later. Thanks very much.