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

We do think this is the start of a very good upswing for Sabre, both in terms of volume and profit growth going forward. As a slight spoiler, I'm pleased to say there's no new doomsday messages coming out at this presentation. So we don't have any more bad industry news to impart as far as we are aware. On the strategic highlights, I'm pleased to say our strategy is playing out pretty much as planned as the market hardens. It's been a long time coming but what this basically means is we are able to grow our policy volume and premium having priced correctly as other competitors need to correct prices to reflect claims inflation. So we believe we priced consistently and correctly through the last few years, others, we believe have been a bit behind the wave, we now benefit in terms of volumes as market pricing has to catch up. We're seeing very positive momentum in market pricing, which we'll talk about later. Now claims inflation remains high. We're sticking to our previous estimate of around 10% across 2023, and we'll talk more on this about the drivers of that as we go through. Really good news that our direct system re-platforming has deployed on time and on budget, a huge effort by people within Sabre, which I'm really grateful for. That's already providing enhanced customer experience, and we view this as a original platform to build customer experience and lower our costs on direct going forward. We've deployed the first stages of insurer-hosted pricing, while I utterly confused everybody last year talking about this, but maybe Matt will at the end in Q&A can talk about some of the things we can do with insurer-hosted pricing going forward. Motorcycle and Taxi are maturing. Motorcycle is now in a good place. Taxi has got a bit of work to do still, but it would hopefully be on the same glide path as motorcycle, and we can talk about that later. We think they'll both be a profitable part of the company's future. Some of you may know that sadly MCE, one of our motorcycle distribution partners, went into administration not so long ago. We don't believe that will have any material impact on our premium or profit delivery. On the financial highlights, we're seeing very strong growth in the motor book at the same time as enhancing margins. This is an ideal place to find ourselves. Growth has been extremely strong year-on-year on a weekly basis in recent weeks. The last time we spoke, we were talking about plus 20% year-on-year. We've now gone up to around 50% higher year-on-year. Importantly, that is having deployed significant price increases of about 17.5% year-to-date. So we're growing volume, while also covering claims inflation and enhancing our margin back towards historical norms. You can see very good strong growth on core motor. Loss ratio in motor is starting to return towards our historic position. We'd like to target somewhere in the low to mid-50s, and we're now very much on track for pricing new business at that level. Motorcycle, we think will make a profit this year, as we said, Taxi hopefully will turn profit in '24, a relatively small part of our book still. We don't intend to let motorcycle or taxi to become a dominant part of our book by any means core motor will remain the heart of what we do. Expense ratio is up versus historic norms. Part of that is the low premium coming through in this period. Part of it is some one-offs in terms of a building reorganization, we need to do a building redevelopment and some development expenditure on the new direct platform. Now at that point, I will stop and Adam will talk in a bit more detail about the numbers.

Thanks, Geoff. So these are our results for the first half of 2023, presented for the first time on an IFRS 17 basis. Although, hopefully, the layout and the summary will feel familiar to those have seen this before. I'll talk through some of the key differences on IFRS 17 later. And so far as these figures are concerned, the main difference is in the loss ratios and hence combined ratios that are now presented on a discounted basis. We will show these on an undiscounted basis, which should ease the comparison year-on-year. So overall, we've shown good growth in GWP, driven by our core motor business and really accelerating from mid-March this year. This growth will take a while to appear in our earned premium and hence profit, which is why you can see a reduction in the net earned premium versus H1 2022. Loss ratios have improved driven by core motor with motorcycle business maturing into a more profitable product. The expense ratio, as Geoff mentioned, has shown some strain in the first half, primarily due to some expected inflation in operating costs set against earned premium that's low by historic standards. We've also incurred some costs in relation to the development of our Direct platform, insurer-hosted pricing. They're not really materially individual, but impactful when taken against the lower earned premium base that's also occurred during the first half of the year. Our interim dividend, in line with our policy of 1/3 of the prior year ordinary, so hopefully, not too much of a surprise there. And it does leave clearly sufficient capital headroom for growth, and that's in a very comfortable capital position. So this is a little bit more busy than it's been in previous periods, but hopefully gives a good feel for the impact of discounting on the result. As you can see, broadly discounting appears to favor the current year loss ratio and has dragged on the prior years. But taking the impact of discounting out, we can see more accurately what's going on in underlying claims experience, which is an improvement in current year loss ratio and a return to releases from prior years following the strengthening due to inflation in H1 last year. So this breaks down the performance by product and give us a bit more detail on our improving loss ratios. Motor loss ratio down over 3 points versus the full year 2022. Motorcycles improved considerably as that product has matured. Taxi has been more challenging as that product continues to develop, albeit making up a small part of the book. So I mentioned the relative levels of maturity of our different products and wanting to bring it to life there. This slide shows where we think the 3 products are. Clearly Motor is well established, delivering broadly stable loss ratios, and we expect those to be in line with our target levels of profitability. Motorcycles coming closer to becoming established, having taken losses in the first year and is starting to contribute towards our profitability. Taxi is a little bit behind. We think we've taken the appropriate pricing and underwriting actions to generate profits from that product in the next year or so, but it will take a while to earn through. Right. I'm not going to spend too much time on IFRS 17 now it's easy to get bogged down in the detail, but I'll try and hit the key points and we can take more technical questions off-line, if useful. For those of you who haven't been following us that closely, IFRS 17 is the new standard for insurance accounting designed to bring a greater degree of consistency in reporting. I guess time will tell whether that's the case. I expect it to impact insurers very differently depending on the nature of their insurance products. For us, the most significant impact aside from the presentation of the accounts is the claims reserves are now discounted as I mentioned previously. Of course, this doesn't change the real income or expenditure associated with our business or the capital generation, it's largely about timing. I thought this reconciliation of the 2022 net asset position would be useful. We can see that the majority of the difference is in the valuation of insurance liabilities, primarily discounting. There's also a reduction in the amount of costs that we've deferred, which reduced the deferral asset, but has had almost no impact on earnings. One thing to note, IFRS 17 has provided the opportunity to introduce new KPIs or change the definition of those measures. For our part, we have tried to keep everything as consistent as possible. The main difference is that our loss and combined ratios are now discounted but we will also continue to disclose undiscounted numbers. We've not changed the way we calculate our expense ratio. So ours continues to include all attributable and nonattributable expenses in a similar way than it has done previously. As I mentioned, I kept this relatively brief, but I am happy to take technical questions on the new standard off-line. And I'm intending to run a roundtable in September when we can discuss the impact of this new standard in a bit more detail once we've seen that applied across all of our peers. And on that note, back to Geoff.

Thanks, Adam, I'm glad you kept IFRS 17 brief. I've heard more than enough about that in recent weeks to be going on with. I think our usual commentary now on the motor market. Those of you who followed us for a while, we know we've been banging on for a while that we thought market was substantially underpriced given underlying claims inflation. I'm pleased to say that seems to have dramatically turned in the last few months. When we last spoke to the Q1, we thought this was happening. We've seen a dramatic increase in pricing since March. In fact, I can't think of a time when we've seen such a dramatic increase in prices going through in the market. Having said that, we believe some competitors have a long way to go still. So market prices are going, but we still think there's a long way to catch up with effectively 4 or 5 years of underpricing in the market. We do think claims inflation remains high. If we're expecting 10% claims inflation, as we've discussed before, we need to be putting on 12%, 13% price increase just to stand still looking the forward-looking claims inflation, nevermind catching up with prior periods. We believe we're fully funded on our past -- on the past inflation. So for us now, it's about making sure we keep track of forward-looking inflation as well as taking our margin to the optimal point. We do think there'll be some slowdown in overall inflation in future periods. That doesn't mean deflation. That just means a slowing of inflation pretty early to see some of that at this point. We think things like credit hire will be one of the first things that shows benefits. We think parts availability is improving, but it's still pretty early days. And there is some uncertainty, I think about small personal injury claims. You may know there was an industry appeal following the court appeal decision. The Supreme Court is due to review the position in Q1 next year, which means we won't really know the full value of smaller claims until probably this time next year. We're not the biggest fans of this appeal, I have to say. We think it creates uncertainty. And given that, we're going to stay prudently reserved and prudently priced until we get clarity, which will probably be into this time next year. I'm sure Trevor will be happy to give some more detail on that when we get to the end. The actions we've taken, we've increased prices a lot. This year, as I mentioned earlier, we've increased prices by over 17% year-to-date, and that's on top of 30% nearly last year. So we believe we are well funded now on our core motor book. We've taken similar and appropriate action on taxi and bike as we've been through as well. What might happen? This is slightly marking our homework from what we thought would happen at the full year. I'll say it's played out roughly as we expected actually, I'm pleased to say. We would say some insurtechs and new entrants do look pretty cheap to us. So in certain parts of the market, we think maybe realism hasn't quite bitten yet and the prices haven't started to move enough. We've mentioned the Supreme Court decision will impact the small claims so we are -- we think we'll reserve that. We do think inflation will decrease, but low signs yet of that -- slow signs yet of that happening. And probably the base case is the interesting bit here, which is we believed that our ability to then twice below the market due to our early action taken on pricing would allow us to grow and increase prices to increase margin. That's probably playing out better than we did hope now we didn't expect to be so far up on a weekly basis at this point in the year. So that's probably a sign of good market price increases. Some competitors, all in all different part of the market, and so playing out better than I'd did hope at the end of last year. Private market issues. Accelerating pricing on the positive side. We know some MGAs are struggling to find capacity, reinsurance pricing continues to be a strain, competitor profit challenges, I'm sure will continue into next year given the late move on some of the prices. We are seeing pressure on supply chain easing, and we do believe that inflation in labor rates and the body shops will start to ease as overall inflation comes down. What are the risks? Market hardening runs out of steam, hopefully not anytime soon. Cost of living challenges we need to keep an eye on. Could there be an increase in fraud, could there be an increase in noninsured driving. We're monitoring for that stuff very closely. Clearly, we've got to cover inflation on our expenditures as we go forward. I'm not going to mention Supreme Court again. And the Ogden rate change is in the process now of being reviewed. We shouldn't assume that's going to be good news. We hope for neutral or good news, but there are different ways this could emerge from split rates, draw rates, people having different views on long term, what the long-term risk reinvestment looks like. And again, with that said and Trevor, I'm sure will be happy to give a bit more detail on that if people are interested. What are our priorities? The first one is to enhance customer experience. Consumer duty is coming. We believe we're in a good place. We've had a large project to make sure we're in line with requirements. It's not required too much. I'm pleased to say there's some governance things we've had to tighten up. We've introduced new employee groups to review documentation. We've introduced a [indiscernible] who is now champion and is the voice of the champion on our Board. So it's been some tightening up without a whole set of changes, I'm pleased to say. We're going to optimize our direct business profitability. We've got the new direct system in place now. We haven't done it for fun. That's really to allow us to try and get more customers online. I don't believe customers want or need to talk to us on a lot of queries. So we're now about optimizing the benefits there. We're going to expand our core rating capability. We already believe we're at the forefront of market pricing, the insurer-hosted pricing allows us to stay there and enhance how we deliver some of those prices to the brokers and customers. Our motorcycle distribution, as you can see, we've got our rates in a good place now. We're now in a good place to evaluate future motorcycle distribution. There's other brokers we don't deal with. We're engaged in conversations to see should we be talking to other brokers as well about alternative distribution. So a summary. I guess having managed the challenges of inflation, we believe we're now at the start of a really strong period over the next couple of years, hopefully. Current trading suggests motor up 25% to 30% on '22, motorcycle and taxi down as we've expressed. Overall, good growth we think coming through in the portfolio overall. We've got a positive challenge of higher than anticipated growth, which generates a bit of strain in 2003 (sic) [ 2023 ]. Taxi, we believe we've now got priced in the right place, but it's a small account, so we're keeping a very close eye on how that develops. Combined operating ratio, we think we're at the upper end of 85% to 90%. That is on a discounted basis. So a point or 2 on top of that for the undiscounted basis I would suggest. And we really do continue to expect strong recovery in profitability into 2024. So overall, we're expecting a good year this year and an even better next couple of years coming up. I think at that point, that's fairly well all we had to say. And we're now very happy to take any questions on anything.

So first question, Geoff, is from James Pearse.

Hope you are all well? Can you hear me okay?

Loud and clear.

Great. So I think you previously guided to a circa 80% combined ratio for 2024. And I suspect that's probably on an IFRS 4 basis. Do you feel more or less confident in reaching that target now just given the rates you put through this year combined with the volumes that you've also seen? Second question is on Consumer duty rules, which were implanted on Monday. Could you talk a bit about where you think the motor insurance industry will be impacted there and what you have focused on to align Sabre to those new rules?

Yes, sure. [indiscernible], do you want to talk about the combined ratio guidance?

Yes, I can. I can. On 2024 is an interesting one. Obviously, we're getting a good feel for how 2023 is shaping up at the moment. We've had a relatively high combined ratio in H1, and we should see some improvement into H2. I think we're looking closely at how we think that's going to develop through 2024. I'd say, on a discounted basis, that gives us an extra couple of points of benefit to combine and that would be easier to say we will come in within that range. I think expense ratio clearly is relatively high at the moment as well, at sort of over 31% in the first half of the year, we should see that come down for the full year 2023 and potentially improve further into '24 as well. Part of that will be a function of growth and when that growth has occurred, which was a little bit later in this year than we might have thought at the start. So we'll see how that plays through. There is a chance we'll come in over 80%, there's a chance we'll come in just above 80%. I think it's a case of sort of seeing how it sort of plays through.

So I just -- I think we were saying we're somewhere around 80% is still our central base case with a nudge [indiscernible], depending on how things pan out. Okay. And you asked about consumer duty. I guess, in some ways, we were quite well prepared for this. We've already had the fair value requirements built in. We've had the FCA pricing rules built in. And we've had TCF in general insurance for quite a while. So if you combine those 3 things together, it fairly well adds up to what consumer duty is trying to achieve. So we have had a large project to sort of go through the consumer duty rules, benchmark it against what we believe are the new requirements. And there hasn't been a huge gap for us. Now part of that is because the vast majority of our profit comes from underwriting. So actually perhaps we're less impacted than some, I don't know. I don't think industry as a whole should be dramatically impacted by this. Most, I think big companies have probably been acting under a TCF approach anyway. So I'm not sure I'd expect huge market shifts from this in motor. Does that answer the question, James?

Yes, it does.

The next question is from Abid Hussain from Panmure.

I've got 3 questions. First one is on post period end. Can you just give us some color on how the profitability has trended since your June period end, particularly on the call? It seems to be in the right direction, but any sort of color on that, please? And then just -- my second question is on the core guidance. I just want to check on the old basis, on the old money on IFRS 4 basis where are you trending at the moment? Because I think you said for full year '23, you were going to be in the 85% to 90%. Where do you think you're going to be on that for full year '23? And then likewise, for full year '24, please? And then the third question is on PYD. I just noticed on the slide that there's a shift in the PYD from undiscounted to discounted from being a release of reserves to an additional reserves. And I'm just trying to get my head around why the discounting has that effect?

Sure. I'm going to take the first question because that's easy, while Adam prepares the more difficult answers. Prior year, in July, we've referenced this in the RNS. We had an extremely strong July. I can say that premium growth carried out at the same sort of level. Profitability in July, I suspect, will be not less than GBP 4 million in July, so a very strong month in July. If you look and you sort of add that on to the year-to-date figure we reported at June, we're sort of much near probably the consensus figure side, the sort of vagaries of when claims arriving gets settled really. So a very strong July and taking that into account. I think we're putting nearer the half year consensus numbers. Adam, do you want to take the -- I think just a bit more detail on the guidance and then into PYD.

We've guided effectively to within the 85% to 90% range on a discounted basis, which means that obviously on undiscounted basis, it's possibly a few points higher than that range. And I think what we're saying is there is a likely significant enhancement in the combined ratio into H2, we should be looking forward to a good loss ratio and an improvement in expense ratio. However, we've still got the H1 result, which we've brought it in there as well. So the sort of 98% undiscounted combined ratio coming down to below 90% could happen, but it's obviously less likely than if that was at motor bike. So that's where we are for 2023 and into 2024. As I mentioned to James, again, we're looking at, hopefully, a significant improvement into 2024. I guess it's impossible to say whether or not that will be an improvement to below 80% or above 80%, but certainly, we're expecting a good outcome relative to where we were in '23. On your question on discounting. I think we're all learning how discounting is starting to affect the numbers, and that's why we're keen to report these undiscounted numbers, so you can see sort of through the noise as to what's actually happening in the underlying reserve movements, which hopefully are moving as expected. I think most people have sort of come to terms with the current year loss ratio being flattered at all by discounting because you're putting claims onto the books at effectively a lower amount than you would if they were undiscounted. So that is having that sort of uniformly positive effect on the current year. The prior year appears to be more complicated, you are effectively taking discounted reserves off the books and that can therefore move discounting the other way so instead of getting a discounting credit you're getting a bad guy through discounting. That would depend on sort of the timing of those reserve movements versus when you're expecting them to run off in the level of discount you applied them. So it's a much more complex area. And I think for the moment, we just have to cut through that to see what the undiscounted movement is and except that the discounting is going to affect it in some way. So broadly, it appears discounting over the entire loss ratio is a benefit to loss ratio. A lot -- most of that benefit comes through current year and prior year's neutral to a bit worse on a discounted basis at the moment.

Next up is Ivan Bokhmat from Barclays.

I just wanted to ask a few questions. One of them is a follow-up on the consumer duty question. Maybe in a bit more detail, do you think there will be pressure on ancillary revenues or on installment income? Maybe you can share some context of how you think about value of those products? And the second question I wanted to ask you was related to the reinsurance renewals this midyear, maybe any news on what you were able to achieve? And the third one, perhaps on the capital and dividends. So you're right now above the top end of the paying dividend, how do you think we should consider the payout ratio or where do you want to be in the range by year-end? Will it be appropriate to [indiscernible].

Sure. Ivan, that wasn't the best WiFi connection, but I think we've got the questions. If I take the first one on fair -- really around ancillary, ancillary questions, I think was the first one. I think this has really been covered by fair value over the last couple of years anyway. And I think it is hard to justify some of the premiums charged on some products where maybe it has a unit production cost of 50p and it's sold for GBP 23. You have to question where the profit is going in there in that chain. We keep a close eye on fair value and it's not a big part of our profit stream anyway, as you know. So I think fair value should really address that already rather than it being a new thing that suddenly come in, in the last few days with consumer duty. Now on the reinsurance renewals, we had a pretty good -- well, I say good, if any reinsurers listening, it was still too high. A fairly good result and our increase this year was less than 5%. I think to keep that in context, we have put on a lot of price over the last year. And what reinsurers benefit from is the percentage they're charging against the amount we're charging for an individual policy. So a low-ish increase but it's applying to us having a very disciplined approach to pricing over the last year, which I think worked in our benefit on the reinsurance negotiations. Adam, do you want to talk about capital and dividends?

Yes. Yes. I suppose we're in a slightly different place than we have been for the last few years, where we're looking into a growthy periods, growth obviously requires some capital to fund it. And while we are generating that capital through the profitable growth that we're going through. That probably means our appetite for sort of large uncovered dividends, as you've seen, or at least moderately uncovered dividends that you've seen in the prior years, has lessened. So I would suggest that we will link dividends back to both a function of earnings and our excess capital as we've always done. But that delta should be smaller than it has been in the past. We certainly aren't moving away from our preferred capital range. Clearly, the interim hasn't taken us within that range, but it doesn't usually because the interim dividend is relatively small per the policy. So we'll be doing the same kind of capital as we've always done, but I expect the capital requirements to be growing rather than sort of shrinking as it's done in the past. So clearly, last year's dividend was relatively low in historic terms. I would hope that we can exceed that this year with greater earnings through the second half of the year, and then we will link the dividend back to that.

The next question is from Thomas Bateman from Berenberg.

Can you hear me?

Loud and clear.

Excellent. And just coming back one more time to the consumer duty, obviously the hot topic at the moment, and specifically on installment income, could you give us an idea of what the APR Sabre charges, and if you differentiate based on the credit risk. And if the pricing of that installment income has changed at all this year? That would be really helpful. And on the small injury appeal, could you just give us a sense of the sensitivity of this? I don't know how much of your reserves are put aside for the small injury claims, and what could this kind of appeal do positively or negatively? And finally, just on taxi and motorcycle, there's been a little bit of volatility, but it feels like most of that is getting in the right place now and taxi is still a little bit high. But how do you think about the long-term view of these 2 kind of newer product lines?

Sure. So I'll maybe take the APR one and Trevor can you take the PI -- the Supreme Court one. And Matt, if you don't mind taking the taxi and motorcycle in a second. On APR, I think we are about 24%, 25% APR. How do I think I'm right in saying? That's obviously only on our direct book, our brokers set their own APR of a business, they sell. Our price has not changed particularly. Bear in mind we -- our book is split between people who are less wealthy in some ways. So we already have a book that's sort of appropriate for people who are less affluent anyway. So we don't split the APR. We have a consistent APR across our customer base. Adam, do [ have anything ] you want to say on APR?

No, no, not really. I mean, obviously, the -- as you mentioned in your previous answer, the question of value as regards to APR and other products has always been something that insurers have thought about, dealt with it and sort of documented their responses to. I suppose it's interesting that insurers and we, in particular, have not put our APR up despite the fact that the markets have moved and yields have changed on investment portfolio. So the margins attached to that would have decreased over that period. Nonetheless, it's still within sort of a fair balance. So no, we haven't changed our view on APR as your outlook for consumer duty.

I think one thing I might add on consumer duty. I think our view is if you keep the customer probably at the heart of what you do, you should be doing the right things and customer duty shouldn't be, I think that is too scary. And that's certainly the way we feel about it. Trevor, do you want to talk about the -- or maybe just give 30 seconds on what this appeals all about and what's going on?

Yes. So you may recall that we've previously described how the Civil Liability Act introduced for claims after May '21 a tariff for the whiplash element of a claim. And then there were non-whiplash elements, which were to be valued in the context of a normal valuation of general damages. The issue at large was the extent to which those injuries were -- those additional injuries were already being compensated for by the tariff. And the Court of Appeal found that really whilst it shouldn't be a plus b, to the extent to which there should be a reduction for overlay was minimal. So it's that decision which is being appealed to the Court of Appeal. I think for us, the key issue at the moment is the proportion of claims that remain unsettled. So not just for Sabre, but across the industry, there's a material delta in terms of the settled claim ratio for outstanding or for small value personal injury claims compared to the historical proportions. And that gives uncertainty. In terms of what does this look like around quantum, the challenge that these decisions bring to incentivize claimants to have or their lawyers to present claims with more and more additional injuries with a view to then increasing the quantum of those claims to excess of the small claims limit and to also recover legal costs. From our perspective, we've taken a conservative view from day 1 in terms of the savings that the Civil Liability Act would deliver to us. So what we're not able to do is to say, based upon scenario A, B or C, what that would mean in terms of releases, or indeed strengthening. But from our insights at the moment, we are very well reserved in terms of the potential outcomes in these cases.

Yes. So we have stayed prudent, I think it's fair to say, Trevor, as we've gone through this. Just for clarity, the appeal is going to the Supreme Court. It's been through the court of appeal. Now it's been appealed to the supreme court. Matt, do you want to talk about taxi and motorcycle. I mean you've turned around motorcycle pretty well from this time last year. So sort of about what we've done and maybe what we're doing on Taxi?

Okay. So on motorcycle, we've done a lot of segmented rate changes and implemented a new rating model. And we believe we've got that now in a position where it's performing as we expect. On the taxi account, we've taken quite a lot of underwriting action as well as rate changes. So that's now in our footprint to target the areas we believe are more profitable and also raising segmented of rate increases to bring that back into loan target. We believe we're now writing both products where we need to be writing them to deliver the product to the profits in years to come. However, we still got the prior year -- well, previously written business on taxi turn through, which is a drag we've seen at half year on profitability for taxi. But going forward, we believe we are able to write in our target markets on targeted range, and we believe we are now there.

Next up is Nick Johnson from Numis.

Good. Hopefully you can hear me. Three questions, please. Firstly, you say you're anticipating further growth in '24 which is obviously in the context of the motor market quite a long way off and things could change. I was just wondering what gives you confidence that you will continue to grow in '24? Secondly, the 50% growth that you've seen in car insurance in May and June, could you just perhaps give us a feel for how that breaks down between price increases, volume growth and perhaps mix change? And then lastly, on the question, on the issue of growth strain. Just wondered if you could say what the materiality of that is in 2023 combined ratio guidance? And how long it will take for reserve releases to emerge from the initial reserve prudence, which I assume is what's causing the growth strain. And I guess, lastly, on that sort of same subject is, does the guidance you're talking about for '24 around 80% combined ratio, does that include an element of growth strain in it as well?

Got you. Okay. So why do we think we can carry on growing? I'll take that one and then obviously Adam, Matt a couple heading your way here. I guess, further growth, we -- as we've just said, we think the market's got some way to go to get to a sustainable price point on inflation. I don't believe the market is yet on the right foundation. We think there's further to go on that one. As we go into next year, of course, we also have the benefit of the renewal book coming through from this year. So we have a new business that we expect to carry on growing plus the renewals from business that we've written this year. So we don't see that runway ending anytime soon in terms of new business growth. On the growth in May and June, the mix between policy growth and premium. We are growing both. We've already described the rate increase we put through so far this year. And we are now growing policies on a weekly basis in a sort of 500 to 1,000 a week range on the core motor book. So we're seeing actual policy unit growth as well as the benefits of increased price coming through. So far this year, the growth has been driven, I would say, mainly marked by premium benefit, and now we're seeing policy growth also start to come through as well. Adam, do you want to talk about the growth strain, please?

Yes, I will. And I guess just to be clear on what we're really talking about when we say growth strain, that would be the margins that we would hold on outstanding claims before we settle them, there's an explicit risk adjustment under IFRS 17, and that would be sort of analogous to a risk margin that we held under IFRS 4 and any other prudence in the reserves, which may be there, but primarily this risk adjustment that we're holding. So when we put a new claim on the books, we would hold an additional amount, when we settle those claims, that initial amount would fall away. All else being equal, if we settled same amount of claims that we have put on, then there wouldn't be any additional strain on the loss ratio, plus you'd be getting a benefit from closing out claims. At the same time, you're putting new reserve on for new claims. If you're growing, your opening position hasn't changed, but your new claims are higher, so you're putting more extra reserve on than that, and you're getting running off from the prior years. And that's where the growth strain really comes in. In sort of normal, fairly growthy period, it's not that significant in periods where you're growing quicker, it becomes more significant. And clearly, we've said that this year, we have grown quite quickly, and again claims hopefully won't grow at the same rate because of all the rate we're putting on, but they will still grow nonetheless. Settlement patterns are difficult to predict at the moment because of some of the things that Trevor has talked about. But generally, you would expect if you're growing to put on more claims than you settle and therefore, to have a bit of growth strain. In terms of materiality, hard to say. I think possibly maybe a percentage point or so on the loss ratio is the way I'd be thinking about it over a sort of 12-month period. I would expect that if the rates of growth were to slow, and this will then [indiscernible] that strain would come down, but there should be some of that factored into that 2024 guidance that we're putting through. So more growth strain this year probably and maybe into the early part of 2024, maybe a little bit less growth strain. But hopefully, given everything we're saying about the market dynamics and the direction of travel there should still be some growth strain coming through into next year, which we would take as an entirely good thing.

Can I just follow up on the question on sort of components of growth between price and volume. Is there anything that sort of changed significantly in terms of mix between nonstandard and standard customers?

Matt, I don't [ assume anything ] you're seeing in terms of the overall portfolio mix?

No, there's no significant mix changes. The change that we have seen are where we've targeted to write for certain segments more due to high profitability. But that's just standard as we see through and during segmented rate changes.

And what I would say is, don't forget, as the market hardens, we become slightly more competitive for newer, the mass market risks as well. So we might expect over the next year or 2 to see our mix actually come down a bit in terms of nonstandard towards more standard, if I can call it that. So we would expect to see that sort of drift come through as we go through the next couple of periods.

Next up is Alex Evans from Citi.

Perfect. Yes. So apologies, I missed at the start, but obviously, there's a lot of moving parts with sort of taxi, motorcycle and obviously, discounting as well. So I was just wondering if you could give us a flavor of sort of the Motor current year undiscounted loss ratio in the second half of last year compared to now. And sort of how does July compare? And is that sort of the first stage that you're writing a target loss ratios in that core motor book? Secondly, just on sort of back to the APRs, what are the sort of the highest APRs you're seeing in the market? And what's the range here? And where that some of the insurtechs are sort of giving a monthly rolling policy and this essentially a 0% APR. Is that something that you think the FCA will be looking at? And then just finally, on Ogden rates, it would be great if you could give a little bit of color on how you're thinking about that just because current rates at the moment suggest that would be positive. But also how would you balance that with potentially a pickup in PPO propensity as well?

Yes, [indiscernible]. So the motor currently, Adam do you want to just call out where the loss ratios are can you put those to hand?

Yes. I guess if you're talking undiscounted, which I think Alex is really after there. I've got the sort of financial year loss ratios to hand but last half year versus this half year and that would have come down from around 65.8% to 58.8% from H1 '22 to H1 '23. So that's the kind of improvement that we've seen on motor. Now there would have been some strengthening of reserves in HY 2022, across the entire book. I think in the previous slide, that was something in the region of 4%. That would have largely been on motor with possibly some motorcycle, it's actually because obviously motorcycle and taxi are relatively small, particularly on the prior year basis last year. So we've assumed lots of that is motor and that kind of gives us the delta. So still an improvement on undiscounted basis on current year most loss ratio.

Okay. On the July result, I mean, I think there's a couple of bits going on there. Yes, we would expect to see the loss ratio improving because we've said the first half year will be where we earn out the -- earn out some of the pain from 2022. What you absolutely shouldn't do is assume they're going to start rolling a GBP 4 million profit months every month. That was not what we're talking about here at all. I think what we've seen there is really the vagaries of how large claims come in and get settled. So we've had a period now in the first half year where we saw new claims arrived but not that many settled with releases. And in July, we saw the flip side of that. So -- and as I said we can't get the claims to come in a smooth line. So we're always going to get a bit of variability month-to-month. Matt, anything do you want to add to that comment?

No, I'll take that as you explained that reasonably well. Then. On the APRs, I mean, I haven't looked recently at market benchmark, but it certainly wasn't uncommon to see APRs in the 40%. [ Going ] back, I don't know if they still exist. I think people are generally in a range of low 20s up towards 30% will be my take on where APRs at the moment. As Adam said, there haven't been increased as interest rates have increased nor do they probably reflect a higher credit risk as perhaps more people are able to pay some of those installments with the cost of living strain coming through. You can describe that, Trevor, do you want to sort of talk about where the potential outcomes might go on that?

Yes, certainly. So I guess if I start off in terms of the timing here, we expect to find out what the new discount rate is at the end of 2024, once all the processes go through. The key issues are going to be whether a dual rate is applied and the dual rate will essentially deal with those with shorter life expectancies versus those with longer life expectancies and the investment returns for those payments. There is also a proposal that different discount rates are applied to different heads of damage. Personally, that feels like a very unlikely outcome as due to complexity. It's worth saying that claimants through their payment representatives want to remain with a single rate that we have today rather than dual rate. So we would probably back remaining in a single rate position. So then will we see an improved discount rate, i.e. a reduction from the minus 0.25% that we have today, it's very difficult to call that one. And I think as Geoff said at the start, we would probably be pleased with a neutral outcome. So no particular movement. But there's still a bit of time to play out. And the time horizon, which the expert panel will arrive at in terms of determining the basket of investments or the period over which the return will be key to establishing what that final discount rate ends up. PPO propensity, I think that varies materially by firm or by compensator. Our PPO propensity over time has been incredibly low. So even when we look back to when the discount rate was at positive 2.5% on we had a very low propensity for PPOs at that point. So I wouldn't expect PPO propensities to change for Sabre. On the whole, they tend to change with individual firm's strategies.

Yes. And on the rolling policies question, we've seen a few of these, and these are sort of no renewal date policies. I don't think they've got a huge market pickup so far from what I've seen. I think now there's more interest perhaps in short-term policies or by more policies for certain niche parts of the market. I haven't as far as on the way have seen any real market penetration on the rolling no renewal date policy yet. So I don't really have any huge insight there. Thanks, Alex, anything else that we haven't answered there? Okay. Thank you.

The next question is from Andreas van Embden from Peel Hunt.

Just a quick question about insurance hosted pricing (sic) [ insurer-hosted pricing ]. I'm just wondering how you're going to sort of implement this? Are you going to change your pricing on a weekly basis or intraday? How has that going to work? And how does this really translate into any ambitions you have to grow your footprint, either in terms of your underwriting footprint in the nonstandard market or a standard or your ability to join new panels? I'm just trying to get a feeling for where this is a structural volume growth opportunity in terms of your in-force policy growth rather than just what the cycle is doing? Is this sort of a structural opportunity for growth?

And perhaps Matt if I start and you can fill in a bit of detail. I mean I think for us, insurer-hosted prices is not about change in rates to hit volume targets because we don't have a volume targets. Historically, it was used to be done sort of change prices to hit call center demand, for example. And that's how it's been used in the past. That's not our ambition. The right price on a Tuesday is probably still the right price on the Thursday. So we're not going to be using it just to top and change our prices randomly. Matt, do you want talk about what it does do for us?

Yes. So as Geoff said, it does give you the ability to change fast -- rates faster that we don't -- that's not our aim. Our aim is more to allow us to have more price sophistication. So we're able to deploy more advanced techniques simpler on a quicker basis whereas the development may now currently take a few months if it's very complex and with insurer-hosted pricing it would that much quicker. You mentioned around new people joining the panel. Most of our brokers work through software houses. So it's relatively simple, but if there was a new channel, it should be easier to plug into different [ IHP ] solution. And also the ease of deploying it too so where it's currently have to deploy at commercial software houses. This will add those deploy rates into 1 place and keep the IP more in-house as well.

Okay. So is the price elasticity is not really going to change on your book if you're not using it to price for volume. Is that correct?

Well, we'll continue to price to get the optimal profit. So there may be times where we reduce price -- well not produce prices, but price up less to target volume, if we think that's going to deliver more profits. But we're still very bottom line focused. We're not going to use this as an elastic driver to drive the top line.

Thanks, Andreas. And then 1 last question from [ Simon Young ].

Just -- it's more sort of a longer-term one. If you look at your business since 2017, in-force policies in motor have come down from 350,000 to what, 211,000 and a bit. And I guess you talk about pricing sophistication, but there's a value over volume strategy. But at the same time, you've been so head fast on maintaining really strong margins actually, the expense ratio has blown out, and you haven't really taken advantage of your structural advantages. Is there a conversation going on internally that says, maybe we should try and utilize our advantages to grow the business faster and better to get back to 350,000 or 500,000 policies over time? I'm just sort of talking about the sort of the conversations you have because it has been more cyclical than one would have assumed. And yes I don't think you've necessarily taken advantage in the same way that Admiral has taken advantage of its underwriting disciplines and advantages to grow its business.

Sure. I mean I guess -- and I would say it's fully not being more cyclical, it's being sort of being less cyclical and that there's just been an enormous down curve in the cycle that's probably lasted for 3 or 4 years, which we normally expect to last for a couple of years. So it's definitely been a more painful cycle than we would normally have expected. Generally, I guess, I'd farm rather to have 211,000 profitable policies than 350,000 unprofitable ones. We do -- we are thinking what's the appropriate point, what's the appropriate COR target. So if it's more profit, we'd arrive to 80% than force ourselves to a notional 75%, we're absolutely thinking about that as we go through on a month-on-month basis. Now if it's more profitable we'd arrive to 83%, then we'd arrive to 83%. So I think what we're saying is we're not going to drive ourselves to a ratio if we can make more pound notes by having a slightly higher target, which is probably a slight change in message from when we first IPO-ed where it was -- it doesn't change our focus in terms of profitability. It's just maybe how we get to that profitability amends ever so slightly, which I think is probably to your point here. Yes, hopefully that answered the question, [ Simon ].

Yes, I think it does. Yes, considering that you've slightly changed your -- you've nuanced your approach, which I think as you've probably seen you probably missed out on some quite profitable business by being maybe just too curious about a 75% combined ratio. But I'd say you don't want to get too -- but then again, you don't want to get too sort of gung-ho and go into the 90s because we all know what happens at that point.

Yes, exactly.

Your margin for error just shrinks dramatically.

I was going to say the same thing that I think -- I don't think we've missed that only profitable business. We definitely missed out on volume, but we still returned to profit at the end of last year because we had a good margin discipline. So yes, it's an evolving conversation, I would say. But it doesn't -- what I want to have is it doesn't change our profitability focus. And we still think around or inside 80% is the correct place to be in the current market. I have got a few questions that have come through on the Q&A. Let me you just check, the Ogden discount rate, I think, we've spoken about. Can you elaborate on the bodily injury inflation drivers. Trevor, is there anything we could say there?

Yes. I guess there are a few things. So we're expecting general damages to be increased in line with inflation. So those guidelines come out biannually and are expected towards the end of this year. We've already seen county courts making decisions that are inflating general damages. So that's one. we're seeing additional layering of claims. And by that, I mean, more treatments going into claims. We've recently had a decision or an industry decision which has allowed the cost of translation fees. So that's another area where we see injury inflation coming through. And then at the higher end, there's an ongoing issue there in terms of the cost of care, which we've talked about in the past. If we look at sort of amputation type cases, the cost of technology around prosthetics, et cetera. So at the moment, all of the drivers around personal injury are inflationary.

Okay. Thanks, Trevor. There's a question, Adam, about can we split out the strain on the expense ratio between new business and investment? Which I think we've probably partly answered in the growth strain, but maybe just what's driving out the expense ratio?

Well, I guess on expense ratio terms, it's a little bit different. You can't split it entirely neatly because you might call things like recruiting new staff as investment in making sure that we can manage the indemnity spend and all the growth that we're experiencing. So that's not really separable. What we can separate is things like the investment in the new direct platform and the insurer-hosted pricing cost, and the investment in building that we've made, which both have been relatively modest sort of in the region of GBP 0.3 million each this half, which we're not planning on recurring next half. So that's the kind of split we can do. But obviously, what's really driving the expense ratio up aside from those things is the fact that we have had and we have given our staff pay rises, that we have been recruiting. And there is some operational expense inflation going through against a net earned premium, which in the last most recent half has gone down, but which subsequently we expect to go up. So that's sort of how I split it in my head.

Thanks, Adam. I think the only other question we've got on here is an idea of numbers. So I think we've said in motor we're about 211,000 and we're growing between 500 and 1,000 a week -- sorry yes 500 and 1,000 a week at the moment. So we're in that sort of range.

Geoff, if you just look at the chat, [ Greg Patterson ] has asked a question around ABI rates.

Okay. So the ABI, yes, so that's the year-on-year. The ABI is due to publish their next set of stats, I think, about the 8th or 9th so what's that next week. I would expect that to show a material step up given what we've seen in the market since we last saw that and what was it March. So I've no insight of what that will say, but all logic would suggest it's going to be quite significantly up for this time around. So I think that's all the questions we had. So I think as a team, we're feeling pretty perky. It feels like we've managed our way through a difficult few years with COVID and inflation. A lot of that now seems to be behind us. We generally think we're going to start a pretty good upswing now going into the next few periods. So thank you very much for your questions. Anything you want to raise after whereabout for this week and next week, very happy to pick up anything else that needs to be clarified. Thank you for your time, and see you later.