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

Welcome, everybody. Good to see you here in the room. We also have people on the webcast, and I think we're good to go now. We're live on webcast as well. Excellent. Good to be here in person. Thank you all very much for coming. Same faces. I'm pleased to say. I'm slightly concerned Trevor [indiscernible] in his phone. I'm not quite sure if he's done with it, but I think that's nothing wrong with that one. I'll say welcome to our informal results call, that's a good start. As ever, Adam and I will run through the slides and then let Trevor and Matt do with all the difficult questions at the end. So feel free to bombard them when we get there. Usual looking agenda. We'll spend some time on our results, obviously, but then equally as much time on our view on the current market and how we see the market panning out for '24. We will, of course, leave plenty of time for questions at the end as well. So highlights. And perhaps for the first time since IPO, this does look like a highlight slide actually '17 -- 2017 seems a long time ago, we'll talk about where the market has been since then as we go through. We have stolen some of our own thunder, clearly by preannouncing, but hopefully, we've got some new things to talk about in here as well, especially around the market. So as I said, we've had a great [indiscernible] for a long time since we've IPOed in '17. We've had to cope with COVID, we've had to cope with high inflation, and we've had to cope with what we would see as some pretty bonkers market pricing along the way as well. I think these results today for the first time, perhaps really show the power of our strategy. The first thing is a strict adherence to profitability. We haven't come off our strategy. We still see profit as a target and volume as an output. The most important thing for us is we've enhanced our loss ratio. We're now very well, we are in line with our long-term target loss ratios. Almost incidentally, we've delivered our best ever GWP. That's not just since IPO, that's our best ever GWP. Pleasingly, very strong growth in January and February as well. So we haven't seen that tail off. And we're also looking pretty good in March as well. So we haven't really seen any volume title off since the year-end. The rates we put through last year were broadly in line with the ABI. The ABI quoted about 35%. You can assume we're somewhere around that level for the year on year as well. We've got Motorbike a good loss ratio. We've effectively halved the loss ratio in the year. Taxi still got a bit of work to do, but we're seeing pretty encouraging trends coming through on the taxi loss ratio as well. Claims inflation is still very high. We called inflation high. I think we were the first to call the issues back in '22. We are sticking with a claims inflation number of around 10%. And we'll spend quite a bit of this presentation outlining why that is. And finally, our direct system, new direct system went live, amazingly on-time and on-budget with external consultancy support. Huge thanks to all my Sabre colleagues who worked incredibly hard to get that platform live. Financial highlights. Strong results, we still think of staging post to what should be our near back to normal results next year. The highlights. Margins. Well, we will start with growth -- very strong growth, 31%, overall 47%, which is way above our expectations in CAR. Overall, 31% impacted by motorcycle shrinking as planned, one of our distributor stock trading last year, we expected motorcycle to come down during the year. Very strong motor loss ratio. You can see 50% for the year. That's comfortably around our long-term target. But importantly, core motor vehicle is 89% of our overall GWP. So while motorcycles still improving, taxis still not quite where we want it, relatively small bits of the portfolio, the vast majority of our result was driven by the core motor results still. Stronger profit than we expected at the start of the year, clearly we preannounced that profit is going to be better. So still a stage and post where we think next year should take us. Full year dividend, we think, is pretty attractive, 9p for the full year, probably slightly above people's expectations. And that still left us with a very strong capital position. We don't intend to hang on to that capital. We don't think we need it to support growth in a meaningful way. That capital is still available to be redistributed in future periods. And a very strong balance sheet, really gives us flexibility in how we do that. Our first of call will always be dividend but there are a lot of options we may consider in the future as well. Adam, at that point, I think I'm going to hand to you.

All right. Okay. Thanks, Geoff. Hi, everyone. Let's take a look at 2023's financial performance in a bit more detail. So I've set out the headline figures in a way that's hopefully familiar to those who followed our results for a while, albeit now on an IFRS 17 basis. You'll be happy to hear -- I'm not going to give a lecture on the new accounting standard, but I'm happy to take any questions later on and show you how it impacted our results. I'm pleased I can start with a very strong growth in the topline. Having stuck to our guns during softer market conditions, we brought our total premium back to beyond its previous peak whilst maintaining our pricing discipline. Insurance revenue, which is effectively a premium and installment income on an earned basis, has grown by less than the written premium in 2023, but we'll see that growth once the GWP from 2023 starts to run through in 2024. Sticking to that pricing discipline and responding quickly to inflation, has allowed us to bring our net loss ratio down to 56.3%, an improvement of nearly 10 points since 2022, that's much closer to our long-run average. Our expense ratio, while up on last year has improved since half year '23 as the increase in premium starts to earn through to cover our operational expense inflation and some smaller one-off expenses that occurred during the year, all of which leads to an increase in profit before tax, up 68% in 2022 when restated on IFRS 17 basis. Pleasingly, our increase in both income and profitability have allowed us to double the returns of capital to our shareholders this year, whilst leaving us with a useful excess of regulatory capital as we move through 2024. On this slide, I've broken out our prior year and current year loss ratio on a discounted and undiscounted basis to give you the full picture. Given the headline figures, hopefully, there will be no surprise to see improvements in both. The current year loss ratio reflects improved performance across core motor vehicle and motorcycle whilst the prior year loss ratio has returned to reflecting the runoff of the risk adjustment as we had expected. This slide gives a little bit more detail on the performance by product. The big news here is the significant increase in premium in core motor along with the improvement in core motor vehicle loss ratio. That means we've been able to address the balance of income towards our more profitable core product, whilst motorcycle and taxi remain a small part of the overall picture. We've seen policy volumes growing core motor vehicle as our rate increases have been supported by market strengthening, whilst motorcycle book has shrunk following the closure of one of our distributors. The taxi market remains challenging, so it's growing only a little during '23 whilst underwriting quality and pricing has been improved which we expect to show in 2024. My final 2 slides, which cover the capital position of the group. At the end of 2023, we've grown our pre-dividend capital excess to 205%, well ahead of our preferred operating range of 140% to 160%. That gave us plenty of options when it comes to the deployment of that excess capital. We proposed a total year-end special plus ordinary dividend of 8.1p which we consider to reflect a sensible balance between passing all the excess capital back to our shareholders immediately and keeping the uncovered element of the dividend to a reasonable level. Note that while the proposed dividend is in excess of profit, it's not in excess of the level of capital generated during the year. So our post-dividend solvency capital ratio remains above our target range of 171%. This next slide is a reminder of our capital allocation and distribution priorities. Fundamentally, we aim to trade profitably, generate excess capital and return that capital to our shareholders. A key element of that capital return will take the form of an ordinary dividend, which is currently set at 70% of profit after tax. We then have the flexibility to deliver further returns of capital should our excess regulatory capital will move above our target range, which in 2023 has taken the form of a special dividend. And with that, back to Geoff.

I've successfully not fallen over twice now, that's good. Okay. Thank you, Adam. So now we're going to spend some time talking about the motor insurance market. We get sort of free rein to our insurance and tendencies here. What's the key thing? Extraordinarily high levels of claims inflation in 2023 with which we're going to unpack in here as we go through. Absolutely extraordinary levels of price increase in the market last year. Obviously, nothing like it in 30 years, way more than we expected in the 1-year correction. For us, that's been good news because we've been able to return our margins quicker than we expected through this. We think there's some irrational pricing from competitors for quite a long time. Our general view is that is now corrected and that people should be pretty much at the right start point. We're seeing competitive exits from the core motor market. And we've seen a lack of MGA capacity. Even last night, there was news in insurance [indiscernible] MGA struggling to new capacity for this year. That's in line with our thoughts that MGAs are going to struggle to keep their existing capacity. And if they do, maybe on different terms, which hopefully means higher pricing. Market prices going forward. If our view of claims inflation is correct at about 10%, we would think that market needs to put through pricing of maybe 13%, 14% to cover that claims inflation. So back to a more sustainable 1, 1.5, 2 points a month compared to the extraordinary level of the price insurance -- price inflation we saw last year. Taxi market a bit more difficult. We still think there are some InsurTech-type businesses that are fundamentally underpriced in that market. We're very happy with the distributor we're working with. They're sensible, neither was pushing for volume in this market, we'll keep our foot in to see if that market improves through '24. We do expect taxi to deliver contribution to profit this year. So we'll be out of the loss-making stage in this year, all being well. As you clearly know, there's a lot of regulatory focus on some of the product value measures we'll talk about later. So what might happen? We're going to quickly run through these and then unpack some of them in the next section. What I would say to start is, we have covered all the things we see here as risks are part of our claims inflation and therefore our pricing, reserve and assumptions. So we view these as market risks, not things that will adversely impact Sabre. So what might go well. Market price discipline, hopefully will be maintained; reduction in used car prices, that's certainly helpful; continued improvement in part supply, although I might put a question mark against that since I wrote these slides a couple of weeks ago; improvement in credit higher cost if we do get those parts when we keep repairs moving. Improvements in reinsurance pricing. We know in January, overall, there were reinsurance price reductions to people who we need on one-one. That's mainly driven by the increase in the underlying premium. So the cost -- the reinsurance cost of the vehicle on the road were still up year-on-year, but the actual reinsurance price came down. Ogden discount rate hopefully will move on increasing used car sales. On the risk side, there's clearly a risk that some competitors lose price discipline. We haven't seen that so far this year, I'm pleased to say. Cost review. Judicial college guidelines, I've come with a drop this year, which I'll be waiving about in a minute and explain them. Inflation. This is quite early, but quite important that inflation could move small claims outside of the 5K cap that will move clients back into a cost environment for lawyers, which could increase personal injury frequency and could increase the cost. There's definitely a lack of resources in body shops and the care industry, which we'll talk about in a minute. And the impact to global complex is now starting to impact even since, again, we wrote these slides a week or 2 ago, we're starting to see evidence. Of course, living challenges can increase claims frequency and there's ongoing uncertainty around claims cost by the Supreme Court decision. The uncertainty bits in here, Supreme Court, which way might that go. FDA installment income focus and consumer duty generally. So to unpack some of the more interesting bits here. The first few slides here are broadly on the cost of fixing bent metal, fixing cars. Used car prices. This slide, you may able to say on hereby clearly shows the cost of increasing parts. So what we have here is some headlights, some bonnets and some bumpers. It's a pretty aggressive looking ski slope on most of those. The message is that these part cost increases are not stopping. These are continuing to go up and Trevor can probably unpack, if helpful, some more detail around that in a minute. Labor rate pressures in the bodyshop repair wouldn't be surprised if 10% to 15% labor rate increases coming through in some of those areas. I don't think it might as whether you employ people or whether you can track that out, you're still seeing the same pressure for the labor. There's lots of vacancies in the care industry, 150,000 vacancies in the last numbers we saw, that will put further inflationary pressures into the fixing people side of this. This is a really interesting one. This is the amount of freight coming through the Red Sea. So a lot of parts come in through the Red Sea route. I won't try and explain this slide in detail, but effectively, you can see the amount of freight coming through has come off a cliff in the last few months. We reckon that it's adding about 8.5 to 9 days to each trip, which adds around GBP 1 million to the costs. Interestingly, on Friday afternoon, we got notification that Tesla and Volvo are having to pull back production in Europe because of a lack of car parts. I think for Volvo, particularly it was gearboxes. They can't get hold of. If they're pulling back production on new cars, that must mean there's going to become a shortage of parts. No one is confident this freight capacity goes back up anytime soon. So this is a thing to keep an eye on. It's a bit -- it's not a typical thing to look at an insurance claims inflation, but we think we'll have quite a substantial impact. Inflationary factors. Something else that happened last week, as I'm usual to get 2 things like this. This very slim guideline is the guideline to judicial college with the assessment of general damages not in the top slots on the Amazon bestsellers, but it's probably worth a read. I think it's GBP 21 a copy, just to warn you. What -- this is the guidelines that effectively guide how much courts give for a personal injury. So if you look through here, you'll see everything from hearing loss to risk damage to bad backs to serious brain injury. The key message is everything has gone up by 22%. So all small claims starting point, I would say, is now 22% inflated. This is not a surprise to us. This is what we thought would happen. I think [indiscernible] to the number what we had in our price assumption for the year. We think this is worth around 2 to 2.5 points as a sort of a part of a driver of claims inflation covered by our own reserving and pricing, whether it is for the rest of the market, I clearly don't know. For us, this is a proof point of why you can't be too bold on claims inflation at this point. The other thing we spoke about on here is that if costs inflate, it may drop out of the cheaper under 5K claims track, which will have an inflationary factor of its own. What I'd also say is this impacts all outstanding claims. This is not just new claims. This is any unsettled claim will be subject to these price pressures. NHS cost review, I mean, this is just a fairly sounded the normal review once a year, how much we have to contribute for the NHS costs, reviewed twice last year, which I think is another proof point of the care industry costs that we're facing, that's going to continue inflation going forward. Supreme Court decision is a really interesting one. So this is around the whiplash reform, which suffered the whiplash and something else that's covered in this book. Trevor, you were there for the call, I listened into the webcast. I didn't feel wildly encouraging, I would say, for the insurance industry. The notes that are out from solicitors didn't feel there was a strong position put forward. We think it could lead to some really strange behaviors. Decision. They did promise at the end of that case to try and do it quickly, but that still feels like a little way off. Ogden discount rate. Economically, it looks like that should be positive for the industry. It's not just an economic decision, it's a political decision as well and takes into account other factors such as the cost of advice. Due at the end of the year and probably January next year, just likely to make our reserving processes next year quite entertaining around the end of the year. We are not seeing any positive news from these Ogden discount rates. Nothing here is outside our current thoughts. FCA focus on installment income. It doesn't feel likely to me that there'll be a cap imposed. I think what will probably happen here is a much tighter view on fair value. Are you happy that your products generally are providing fair value, of which premium finance is one. We are happy that our APR in the mid-20s does provide fair value. Consumer duty. We've always taken a pretty customer-focused approach. Some of the examples of the total loss issues. We've always taken a retail approach to total loss rather than a trade valuation on that. So we are not feeling like we have any particular exposures here to consumer duty or the fair value rules coming through. All of that feels a bit gloomy, which is not the intention at all. I think we're just saying these are proof points of why we think people or we are being fairly cautious on claims inflation and while we don't think there's really scope to come on pricing discipline as we go into and through this year. So outlook and summary. Very strong performance in '23. As I said, it is a stage in post we would hope to an even better performance in '24. Overall cost pressures are going to remain from fixing vehicles and fixing people. We're very vigilant. We were quick to spot the claims inflation pressure going one way where equally as attentive to find any further poor moves or if we see positive moves reflecting that in our pricing. Our base case is to grow by more than claims inflation. So that clearly means growth of more than 10%. Improvement in combined ratio. We've given the guidance of 75% to 80%. And overall, we feel we are in a very good place. I think good profit, strong growth, attractive dividend, more to come. So we are feeling pretty bullish as we go into this year. We're pleased with last year and excited about the year to come. At that point, we're now going to brace ourselves for what I thought would be, I'm going to invite my colleagues to not fall or a step and join me up here.

Normally, my voice is quite loud enough. So 3 questions, if I can. It's Abid Hussain from Panmure Gordon. Just first on the current trading conditions, how has pricing premium growth and margins trended year-to-date? I think you've touched on, but just any more color on that would be helpful, please. And then secondly, on growth versus capital, you've handed back a substantial dividend today from the excess capital. Just wondering why you didn't keep hold of that excess capital and potentially deploy it this year into a very attractive margin market and potentially grow harder this year? So why not keep hold of the capital? And then the third one is on Consumer duty. What is the hit to your earnings if the FCA was to set some sort of maximum on the APR, so the premium finance. So just your view on premium finance APR, if they will set a maximum? And if so, what would be the hit to your earnings?

Okay. I'll take the first one. Adam, maybe you can take the second one with Matt. Premium growth is still very strong. We haven't really seen any tailing off in the pounds premium coming through in January and February. So we've carried on with the same sort of run rate that we saw at the end of last year. So no decrease at all. Policy count continues to grow at between 500 and 1,000 a week on core motor. So we're continuing exactly the same trend we saw at the end of last year. On growth, to start that off, I mean, we are basically self-funded on growth. We don't need to hold back capital for growth. Adam, do you want to pick up on that?

Well, that's exactly right. And we set our margins at a sufficient level so that we can effectively self-fund the increase in capital requirement through the profitability on the policies that we write. So capital has never really been a constraint for growth. Clearly, we will need some of that capital to support the increase in capital requirement. But yes, so our strategy has always been, if we generate capital through trading, we can generally pass that back to our shareholders, except for that, which we need to cover the increase in capital requirement, but that's generally a very high proportion of our capital.

[indiscernible] can you talk about premium finance?

Yes. I mean -- so I mean, installment income for us is a relatively small part of our overall income. We only generate it on our direct book and then only on those customers who chose to pay for policy on installments which is a relatively small amount. So that's as a percentage of our overall income, GBP 3 million to GBP 4 million out of the sort of over GBP 200 million of income that we earn as a group. So it's not massively significant. Obviously, we don't know exactly what an APR cap would be or what form it would take if it was introduced, but we don't see that as having a particularly material impact on our overall profitability.

Yes, I would say we don't think the cap is likely. That is not our central point. That's because I saw you next move, I'll come back in a sec.

Darius Satkauskas, KBW. Two questions, please. The first one is on claims inflation. So as you said yourself, it feels a bit more gloomy than what was the feeling last quarter. Were you able to overshoot a bit in terms of price increases last year that puts you in a good position to do price for it without losing competitiveness compared to the market? And if not, be comfortable that the market will reprice for this high inflation, 12%, 14%, when we've been hearing about some decreases in January in certain parts of the market. That's the first question. And the second question, you'll be well aware of the recent bid for one of your competitors. So I'm just curious about your outlook for consolidation in the U.K. motor market going forward. Is that a good thing for the likes of Sabre from your perspective? Would you expect more to come? Any thoughts helpful. Okay.

So on the claims inflation push, I want to be really clear, we're not gloomy about any of these things. These are all things we've thought of when we could see coming for the last 9 months, Matt. I mean these are things you want to talk about how you sort of thought about some of these pricing?

We've had the outlook that inflation will remain high for well over a year now. So our pricing will continue to expect that to come through. So when we're setting the prices and the reserves, we ensure we have enough to cover that off. So I think we're in a correct place at the moment to allow for this high inflation to company has come through.

Yes. Will people price right? Well, I hope so. I mean if you don't -- and that claims inflate, but I think we've seen what happens to the market if you don't price for claims inflation properly, you end up with the extraordinary recovery curve that was needed last year. These things we're seeing are not unique to Sabre. These are market-wide factors. I struggle to see why anybody would be too bold in claims inflation and therefore, pricing at the moment. On consolidation, I'm not going to make any comments on TLJ [indiscernible], I am sure you know way more than I do about that. What I can say is that MGA is struggling for capacity, will there be consolidation there? We will have to find new capacity probably? Is it at the center of our radar? No, it's not. We think we have plenty of organic growth to go at this point. We clearly keep our eyes open. I think if we do anything, we are more interested in partnership type deals than we are when anything that evolves writing big checks. We've seen the bike work well for us. Taxi is still more of a struggle, but we haven't actually paid anything for it. So we're happy that's a good way of developing new product areas. I guess from a personal point of view, it's nice to see listed motor insurers. Good to see research that covers the market. So I guess from a personal point of view, it's good to see not just 2 people left as listed in specialist motor insurers, it'd be my instinctive take on it.

It's Derald Goh from RBC. A few questions, please, if that's okay. The first one, just on risk mix. So I presume some of the policy wins that you've had is coming from some of the standard markets. How does it impact your loss ratio, if at all? And in terms of the longer term, how does it change your competitiveness in the standard market? Presumably, you're getting more data, you're getting more brand presence as well. Doesn't that mean that on the longer term, there might be more of a gradual shift towards standard risk as well? Second one, it's on frequency in terms of the experience in '23. Could you maybe split that out by BI and damage and also your frequency expectations for 2024? The third one, you mentioned that 20% uplift in JCG review, is it fair to assume that, that would translate one for one to kind of tariff review as well, that should be up by 22%.

So applied to the tariff?

Yes. Last one, if that's okay. I guess when you rolled forward your claims inflation projection from last year to this year, what were the elements that surprised you in terms of stuff that stayed a bit more persistent than you expected? And in terms of looking forward in 2024 as well, given that I think your 10% market is a bit higher than everyone else's, which elements of it do you think that the market is underestimating at the moment?

Okay. Trevor, I'll take the first one to give you time to prepare for the last 3, if that's okay. So I think on the standard market, we look to get exactly the same margin, whichever policy be like. So we're happy to write a policy at GBP 300. We're happy to write one at GBP 30,000. We look for the same margin. So we don't target move into the standard market. What we tend to see is as rates in the market go up, we become more competitive with that margin for things that feel and can be considered more like standard. So we don't really have a segmentation strategy around our price and trying to get into different bits. Matt, anything you want to add to that? Trevor, there's a question about frequency and the JCG on the tariff first.

Yes, let's take those 2. So frequency, I would say that since May '21, when the OIC reforms came in, BI frequencies reduced materially. Accident frequency has continued to fall year-on-year. And certainly, what we're seeing in Q1 this year is lower frequencies normal. However, we've had very mild winter. But over time, we have seen that improvement in frequency, which is, to a large extent, being driven by the vehicle technologies. So frequency is definitely a good guy. I think just to explain, when we talk about inflation, we talk about burning cost inflation after the good guy from frequency improvements. The JCG uplift of 22% is actually an uplift that takes us back to -- sorry, back to August '23. So there's a little bit more to come on that. The OIC tariffs are due to be updated in May this year. When they were originally set in May '21, they assumed, I think it was something like an 11% inflation over that 3-year period. Clearly, inflation was greater than 11%. So one might say there's a delta of about 11% to come. And if it's also proposed on a going-forward basis, we might actually end up with numbers that are very similar to that 22% uplift that we've seen in the JCG but getting there through a different methodology.

Trevor, I just want to add maybe a bit more detail on how it gets over the 5K limit and how that might happen.

Yes. So at the moment, a 2-year whiplash on the tariff, including a bit of [indiscernible] GBP 4,300 -- sorry, GBP 4,345. If we apply a 20% uplift to that, we're over GBP 5,000, a claim over GBP 5,000 attracts legal costs. So the consequences of that are that the lawyer bringing the claim -- it will be more profitable to do so. So they've got 25% potentially on the damages plus some costs of GBP 600 or so. And that, in turn, may well fuel an uptick in the number of personal injury claims that have been brought. So it's something that we're very mindful of if the small claims track limit isn't increased in line with inflation.

Trevor, the last one I think was around is there anything that surprised you in inflation last year? Anything that stayed high or went down low?

No, I think that we -- the JCG is absolutely not a surprise at all. We knew that, that would be indexed to RPI. So that's not been an impact. I guess the things that are a bit more of a surprise are what we're seeing sort of out in the Red Sea. We didn't really expect that. So we were expecting more of a return to normal in terms of the supply chain. I think -- and this almost goes back to the beginning of '23, the material reduction in the value of EVs was a bit of a surprise, but that was probably right back in January '23 rather than sort of throughout the rest of it. Otherwise, we've not really been sort of taken by surprise by anything that's happened.

I would say we are quite boring. And we do spend a lot of time thinking about this stuff, which is, I guess, while we get so nerdy in this presentation. Tom, unfortunately, I'm going to making that joke. Go on Tom, you carry on.

Thomas Bateman from Berenberg. Just going back to the fair value issue. I guess from the outside, it's really difficult to understand how you go through that process of saying this is fair value, this isn't fair value. And where the line is between a competitive market and you're generating profit and then the regulator coming and interfering. Maybe if you could just give us a little bit of color on how that thought process goes for you. Secondly, could you just give us a bit more color on the direct system you're in-house insurer-hosted and just what that means in terms of pricing dynamics and your agility in the market? And finally, just on peer behavior, I guess, with the introduction of pricing practices, there was some that thought long term, this might lead to a more sensible market because you have to price everybody at the same level. Can you see any evidence of that thus far or a little bit too early?

Yes, sure. Matt, partially you take the IHP a bit in a minute. On the fair value, I guess our starting point here is if we know the margin we make on our core product, if we're making about the same margin on ancillary products, that seems fair value to us. We're not trying to take super profits on other factors. I mean if we look at one product that we actually withdrew last year or this year was personal accident product in the market. We looked at it, we weren't seeing what we thought was enough claims to justify that as a valued product for customers. So we took a decision, we'd actually tried quite hard to get claims. Trevor's team was saying, in any event where there was a claim that could lead to PAI, are you sure that you're not injured. So actually, we have taken steps to withdraw products that we don't think provide -- we can't see providing fair value going forward. On the direct system, the main thing there is customer self-service. So how can we avoid the costs of manual intervention into the very simple processes sometimes. So the direct session is about really self-serve a more modern approach to customer service. On the IHP bit, Matt?

Yes. So IHP is we're currently rolling out some insure host pricing. That will allow us to have mobility to flex work rates in new ways and bring in more sophisticated pricing models. So whilst we do additional development, it just allows for greater flexibility in how we deploy that and therefore, opens up more avenues opportunity going forward.

So that means all the stuff that Matt's been working and we find better ways are deployed in the market. On peer behavior, I would certainly hope that it brings a more sensible approach. I think it's been hard to tell because of the -- just the wave of price increase that came across in the second half of last year. It's probably a little hard to tell what underlies that. But you would certainly -- it should certainly stop some of the poorer practices that are in the market. And hopefully, people price new business sustainably going forward. So I think we'll have to wait and see time on that one. I think we need to see what happens when we're not in this hyperinflation period.

Nicholas from Numis. Three questions. Firstly, on sort of competitiveness, customers grew 8% in core motor last year, which obviously suggests Sabre is cheaper than the market. Just wondering if you sort of have a sort of sense for why that is? Is it that competitors have overshot? Is it you've seen withdrawals in sort of nonstandard area of the market? Or is it just more fundamental that Sabre is better at cost control and pricing? So just really sort of what you see the drivers of the sort of 8% growth in customers last year. Secondly, on Ogden rate change, just wondering what you're assuming in reserves, if that's something you have to sort of look forward to be on keen to know what you've assumed? And lastly, Labor Party have said that they will look to address the cost of insurance. Just wondering if you are consulting with the government, what would you sort of suggest to look at? What errors can they sort of potentially address?

Okay. Well, that's a big final question. I'll take the first one, Matt, can you take the other one in a second, and we'll all have a crack at how we'd consult with the labor party. On competitiveness, clearly, it's Nick just because we're better, I think you summed it up in your final part of the question. I think we've seen a lot of withdrawals in our part of the market. Over last year, we've seen people who were very competitive, move away from that market. We haven't particularly priced behind the market. Now we thought we would grow by undercutting market price increase. We haven't had to do that yet. Actually, it's been more -- we've put through prices that are not dissimilar to the market, and we've still been able to grow. So it's been a perfect scenario for us on that front. Anything you want to add to that?

I think the only thing to add is we also started increasing rates before the start of 2024 as well. So we have that head start on the market as well from start to increase rates before the rest of the market.

On Ogden and reserves?

Yes. So the Ogden changes likely to impact the excess of loss of the reinsurance layer more than the net layer. Therefore, the impact on Sabre is going to be smaller. So on reserve, it's going to make lesser impact.

I think on your final question, I have quite a strong view actually that insurance gets blamed for increases in premium. The insurance industry doesn't cause those problems, the premium reflects the cost we have to cover in claims. So if you're looking to reduce premiums, you need to reduce the costs that are guiding into a premium. So I mean, the government can't impact judicial guidelines, but that is a factor we have to face into. Labor rate shortages are another big factor. So I think if they want to reduce prices, they need to reduce the things that drive insurance claims costs, not to battle the industry for reflecting those costs back again in premiums. Anything to add to that?

I guess, or 2 personal points. One is we currently have unlimited liability in motor. So if there were to be a cap on liability, that would potentially bring the cost of capital down in relation to reinsurance, quite a complex change to make. And I think the other is the whole sort of credit -- higher credit repair model, whether the government for the CMA might want to get involved in engaging with that. I think the challenges there again would be quite difficult for government to intervene on.

Andreas van Embdenfrom Peel Hunt. On your retention rates, could you maybe mention how that developed in 2023 versus 2022 as sort of the market recovered? And what would be the optimal retention rate for Sabre to sort of generate some organic policy growth into sort of '24, '25 and perhaps '26? And the second question is as you move your margins towards that sort of 80%, sort of undiscounted combined ratio in your core motor book, I just wonder what level of margin would you be comfortable enough in seeing across your portfolio to start just pushing for growth organically rather than being reliant on what the rest of the market does?

Okay. I mean on retention rates, I think they are fair steady stable through last year sort of mid-40s. So slightly up, but not dramatically. So we don't target retention rate. We target margin. We'll take what every retention rate comes out of that price. So we don't target a notional retention rate in that. On the margin overall, I mean, we don't want to -- we're not at profit here. We've been pretty clear on what our margin requirements are. Once we hit those margin requirements, we'll ease off the price increase and take growth at that point. So I think as we naturally hit that target ratios, we can then start to accept the growth that comes out at the end. What we won't do is undermine our margin approach to try and push our growth first. Anything else to add? Any other questions in the room? Were there any on the phone? Not quite sure how I get here through is actually. I'll take -- I've got something on the iPad here. Do you think the market has changed in any way, which makes return into a 75% combined ratio challenging? I don't think the market's changed. I think probably the cost of running the insurance company has changed. Regulation is more expensive to cover, being a plc is a reasonably expensive hobby. So there are other costs in there that weren't there when we were a private company 7, 8 years ago. Is there anything else you'd like to add?

No, I think that's fair. I mean in the first few years of our life as a plc, we did benefit from a few exceptional releases through our reserves, which we always said would not continue and they haven't so in the prior year. Benefit is now reflective of the runoff of risk adjustments rather than anything exceptional, which obviously gives us a slightly higher combined ratio anyway. But absolutely, structurally, the expense base is a little bit higher now. We have seen a lot of overall economic inflation at a time when our earned premium has been shrinking or not growing as rapidly, we expect that earned premium to catch up over time, which again is going to put pressure on the expense ratio. In terms of a loss ratio basis, there's no reason, notwithstanding what I've said about reserve releases, we can't get to a similar place that we've always been really the question is can we get that expense ratio back down to similar levels as when we took 5 years ago.

Yes. There's a question about acquisitions, which I think I answered in terms of it's certainly not center of our radar. Are we going to enrich returns in excess capital to shareholders? Yes, absolutely. That's exactly the plan. We see no reason to hang on to excess capital at all. The 5-year plan for the business, I think, is to almost get back to where we were pre IPO, which is to show how we can sustainably grow on a sensible level every year while generating the margins we've historically done. So I think our immediate plans are to go back to the future almost just to demonstrate that we've got this period behind us. We can evidence the sort of company we think we are. Anything else?

Just one question. Can you disclose what expense ratio you are aiming to write at?

Adam, do you want to take that?

Yes, I can. I guess we really target a loss ratio. Our expense ratio will hopefully consequently fall as a result of the increasing premium that we're writing. We do have to estimate what we think our expense ratio is going to be over the next period. And we build in where we've been in the previous year versus sort of what operational expense increases versus the leverage that we're going to get through increased premium. And certainly, we hit, I think, 32% in the first half of the year. For the full year, it's 30%. So clearly, there has been a reduction. My view is that we'll stay around the sort of high 20s for at least the sort of short to medium term as that earned premium starts to catch up.

I'll just check, it's nothing on the phone. Okay. Well, thank you for your time, very much appreciated. Despite the fact we spent half an hour talking about gloomy claims inflation things. We're actually on chirpy form, I would say, as a business. So we're very optimistic about how this year and the next few periods develop. So thank you to everyone who's been with us for a while and look forward to updating more at the half year. Thanks very much.