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

I think we are good to go with people in the room, and thank you for joining us on the webcast. I'm pleased to say, we have the usual faces here. I think we worked out. It's our 15th one of these presentations now for most of us. I'm not sure what that says, but it says something. As usual, me and Adam, we'll do the presentation. And then we'll pass all the difficult questions to Matt and Trevor who can deal with those at the end. On the agenda, we will, as usual, look back on last year and give you our thoughts on our results from last year. We'll give you quite a lot of our thoughts on claims inflation. We will once again nerd out in terms of the detail of what we think is driving inflation and how we see that going forward. And then we'll leave plenty of time for Q&A at the end as well. If you're on the webcast, feel free to type the questions in, and they don't look too difficult. I'll answer those at the end. So on our highlights. I think a few opening lines before we almost certainly get dragged down into the weeds on some of KPIs. Overall, the Sabre team have had a cracking year, I think, in 2024. The highest ever premium, doubled profit, generated a ton of capital, which has allowed us to both pay a good dividend and a share buyback for the first time. And I think as importantly, we've laid the foundations for future growth through to 2030. That includes launching Bike, which is going live almost as we speak, and being rolled out over the next week or two. I think stopping there will be good, but even more pleasingly, we've also been able to keep a tight focus on the long-term health of the business. We've kept an eye on how claims inflation impact the back reserves. We've taken a relatively cautious pick for 2024 to ensure we've not overreached for the result. We priced really strongly in 2024 at good margins. That's given us a bit of headroom and gives us a bit of comfort against an uncertain inflationary environment as well. We started very strongly to our focus on profitability and short-term volume as an output. Profitability is our target, short-term volumes very definitely the output. And we've done our utmost to look after staff and customers as we've done that. We've got really good customer responses. We've continued to roll out staff initiatives in terms of added benefits and creating jobs as we've gone through last year. On the detail, we're very much on track for Ambition 2030. We don't see any hiccups on the part of that at this stage. Very strong capital position, as I mentioned, 44% increase in the dividend, our first share buyback, which reflects the amount of excess capital we've generated. Sabre Direct going live this month on motorbike and the testing of the new car pricing will, as planned, go on the second half of this year. So I think a really strong overall result and really good developments for the future as well. At that point, I can get no one better to head us into the weeds than Adam. So that's exactly what he's going to do.

Thanks, Geoff. Hello, everyone. So I'll take us through the key numbers behind our 2024 results. So as ever, our reporting is straightforward and transparent with the results centered on the performance of our 3 flavors of motor insurance. So that will be motorcycle, taxi and core motor vehicle, which is everything that isn't a motorcycle or a taxi. To enhance transparency going forward, all of our headline results, such as loss ratio, net insurance margin, we stated on an undiscounted basis, as promised in our recent capital markets event. At that time, we also discussed our new KPI, which is less insurance margin. So on to the story for this year, another record year for premium, albeit 1 of 2 halves where the top line is concerned. We continue to grow strongly where market conditions were sufficiently robust and allow volumes to dip later in the year when low market pricing meant it was sensible to do so, entirely in line with the strategy we outlined in December. Our net insurance margin has improved by 7 percentage points year-on-year to within touching distance of our 18% to 22% target. More on that in the next few slides. Similarly, our undiscounted combined operating ratio has improved by more than 7 percentage points. This, along with a higher premium in 2023 and 2024 earning through has delivered a doubling of profit year-on-year to GBP 48.6 million. Thanks to this growth in earnings, we've been able to increase the total dividend for the year by 44% to 13p. That's around 90% of earnings. And that was well covered by the capital generation in the period and leaves a very healthy post-dividend capital ratio of 171%. And given the level of excess capital post dividend, we're able to today announce our intention to keep up our first share buyback that will return an additional GBP 5 million of capital. So this slide shows the progression of our net insurance margin over time. And the journey towards our target is clearly demonstrated, a bit like combined ratio, net insurance margin is a function of claims experience and expenses incurred as a proportion of income. And that income is insurance revenue, which includes net insurance premium and installment income as well. So on this chart, the orange bar shrinking shows improving claims experience. And what I'm assured the dark blue or gray shrinking lines show improving expenses as a proportion of insurance revenue. And for clarity, net insurance margin does not include any benefit from discounting. As you can see, the improvement in margins has been a function of both improving claims, which I'll talk about in terms of loss ratio in the next few slides and improving expense leverage. So this next chart shows the relative loss ratio performance across our whole book in 2024 and 2023. There's been a significant improvement in current year loss ratio, primarily on our core motor vehicle book and the motorcycle, reflecting the strong pricing throughout 2024. We are, of course, cautious when making current year loss picks reflecting the relative uncertainty in undeveloped years. The current year will also carry a risk adjustment, which means that the current year loss ratio reported here is likely to be above the expected actual loss ratio achieved for that business. In 2024, the prior year didn't yield a normal level of positive runoff with the loss picks moving out a little during the year. That's reflective of experience and development of some older years, and we've got no reason to expect that the prior years do not return to normal levels of runoff in future periods. And we've made no changes to our reserving philosophy in 2024. This slide highlights the relative contribution to profit from our core motor vehicle business and from the supplementary products. Performance in motor vehicle remains in line with our target although this was the area most affected by the slightly adverse prior year reserve movement. So the strong improvement in current year doesn't fully show through in the overall motor performance for the year. The motorcycle book has been cleared up and is performing well, and it sets a great basis for expanding the product through Ambition 2030. And taxes improved a little, but remains only marginally profitable on a written basis at the moment. We chose to allow policy volumes to reduce across the core motor vehicle book in the second half of the year, as I mentioned. As market conditions softened, it made more sense to focus on maximizing absolute profit rather than chase the market down. Motorcycle income is now fully through our current distributor with the prior year comparison, including some premium from MCE, which went into administration in 2023, as we previously discussed. So the volume of motorcycle business written now is well in line with our plan. Taxi business has been maintained at a relatively low level as we continue to monitor the book's profitability. So on this chart, I've shown a snapshot of our capital generated during the year. And how we've deployed any surplus capital. Overall, the increase in solvency capital requirement has been relatively small, which has allowed us to distribute a healthy ordinary and special dividends and left enough excess capital above the top of our preferred operating range to announce our intention to execute a share buyback during the year, which will be initiated as soon as practical once we've received the usual regulatory approvals. Excluding the capital required to fund the dividend and the share buyback, our solvency capital ratio would be around 163%. We've taken a fresh look at our dividend policy. While we think the policy works well overall, which effectively returns all excess capital to shareholders, we wanted to make sure the ordinary dividend properly reflected our expected sustainable level of distribution. So we've tweaked the policy to allow us to pay a bit more up to 80% profit after tax as an ordinary dividend. We've also made explicit reference to our option to use share buybacks when appropriate to do so, either alongside or in place of a special dividend, taking into account the potential for the larger ordinary dividend. And with that, thanks very much, and back to Geoff.

Thank you, Adam. Okay. So we'll, as usual, give you our views on the market. Who says we can't do PowerPoint, look. So we think the pendulum has been swinging about on pricing for the last couple of years. If you look, as we all know, rates went up a lot in early 2024. We think the pendulum probably swung a bit too far. And probably people were relatively overpricing for the risk by the end of that sort of first half of the year. We think that's probably generated higher profits from that year earning through into this year, combined with the drive for growth by some competitors. We think that probably means the pendulum has now swung back. And we firmly believe the market is materially underpriced for new business. What could be driving that? The higher profits we've mentioned, there was a drop in low-value frequency -- drop in frequency for low-value claims that we'll talk about later. And things like Ogden and reinsurance benefits may have given some one-off benefits, which means this financial year might look absolutely fine for people, but it does potentially mean business is not being written at a profitable margin for some competitors. Our view is this is now a characteristic of a normal insurance market. If you think where we've been since sort of '21, '22, we've had COVID, we've had Brexit, we've had all sorts of inflationary impacts. That made the pendulum has been swinging much more widely than normal. We think we're back now to a normal rate -- normal cyclical business. This is an environment where Sabre's thrived for 15 years. This is exactly what we're used to managing through. We think there's a reasonable chance the market in some places may get a poor financial result for '25 and certainly for '26, if prices don't start to increase later this year. I guess it will impact competitors at different times depending on their rating strength coming out of early '24. It may impact people at different times and people will feel the pain at different times over the next 12 months or so. Other market factors, I think we all know there's quite a lot of significant M&A anticipated over the next 12 to 18 months. I think there's always a risk this drives overly optimistic assumptions in people's business plans. I guess it's much harder to sell yourself when you're shrinking than when you're growing. So I wouldn't be surprised if there's a bit of optimism being held on to in some places in the market. The FCA overview of premium finance and ancillary sales, there could be a bit of a push to get some business on the books before life becomes slightly more difficult. This is also possibly the first year that GIP rules have a real impact in terms of premiums are more stable, therefore, renewals should go up, new business might be slightly harder to come by. We know there's a government task force looking at insurance pricing. I don't think anyone really knows where that's going. We can talk in a minute about our regulatory starts. We think we're pretty safe from anything that might come out of that review. And I think there's a risk of overreaction to some of the recent positive low-value claims frequency. By popular demand, by sort of me, if no one else, the inflation scales have returned. Let's look at deflationary factors, lower accident frequency, I think a really important point here is the only frequency decline we see is in low-value bent metal claims, that's the damage to the vehicle itself. We don't see any real reduction in personal injury frequency. And we certainly don't see any decrease in cost, and Trevor can talk about that much more later of her interest. The Ogden rate is a one-off, we should also probably bear in mind large claims that are being incurred today will not settle under this Ogden discount rate potentially. So what will the next Ogden rate look like needs to be in our minds as well and a decrease in interest rate environment. On the inflation side, cost inflation is very high. We'll talk about that in the next couple of slides. There's pressure on non-premium income and operational cost inflation is absolutely going to come through. So overall, we would see claims inflation at mid- to high single digits. That's a slight softening from where we were, but it's still substantially above the long-term historic position. Let's look at a bit of the detail. This is on the bent metal stuff, where there are some positives and negatives. On windscreen, technology is driving a lot more cost in windscreen. If you've had the misfortune to need a windscreen replaced in the modern tech-enabled car recently, it's a painful process. They don't come to you, you go to them. It's a good 2 or 3 hours of waiting for your windscreen to be replaced sitting at a service station on the M23 from bitter personal experience. So it's expensive and it's slow and it's not great for customers generally. Repair, there is now more capacity in the repair network. But the complexity of cars is requiring longer lead times. And we're also seeing on some of the EVs coming in from perhaps China. They don't have to repair methods, they're not easy to fix. So parts are being produced in large modules, either whole back end of a car. That's great for production, but it's not to easy to fix. So if one part of that back end of the car gets damaged, you've got to replace the whole lot. So it's difficult to fit because you don't know how to fix it. and it's not being built with repair methods in mind, and you've got to replace a lot of material, not just one part of the panel. That is offset by some of the frequency reduction. Total loss is an interesting one. As you know, the move to EVs continues, very strong residual values for older petrol-powered cars, a very large part of the car. The car mark -- car park is aging as we go. We think that could lead to more disputes on value. If you've got a car that's done relatively few miles and is old and you can't replace it cheaply, that's going to make -- put pressure on total loss valuations would be our guess. And on theft, no matter how quickly manufacturers come up with new repair or new security measures, people find ways around it. Vehicles are being acquired for parts. Ford Fiesta is still one of the -- Ford Fiesta is the most stolen car in the U.K. alongside the full transit. That's because there's more of them on the road, but they're not being produced anymore. So are we going to see a part shortage which means cars will be stolen for parts as much as for the car itself. And theft-specific components, I'm reliably informed if you wanted to set up a drugs farm in your loft, the Porsche headlight is an ideal way of getting heat and light on to that drug. So we're seeing some of that sort of stuff come through as well. I told you I would say that, Adam. Let me get to injury claims. We don't see too many upsides on this one. We think this is mainly amber and downside risks. On the minor injury, you've got general damages are linked to RPI. Private treatment is becoming more expensive and more common. We've got inflation in the cost of NHS service. There's a big potential increase coming through to the claims tariff, and we're not seeing the small claims track limits increasing. So more things fall outside the cheap legal claims and fall into the more expensive legal claims. On the major injury side, again, damage is linked to RPI. Availability of [indiscernible] is still difficult. Minimum wages are going up a lot. Things like prosthetics are becoming more expensive and more of them. So overall, we see a lot of cost increase coming through on large claims as well. We think that more than offsets any minor -- the frequency benefit on the cheaper low-value own damage claims. On top of that, we've got the unknowable impact of tariffs and trade wars and what might go on there. I would stress, we don't see any of this as bad news. Provided you see it coming and you price for it properly, this is entirely fine. If you don't see it coming and you don't allow for it in pricing, that's when you get in trouble. So we don't see clients inflation as bad news. We just see it as a factor we need to take into account. Okay. A brief reminder of our Ambition 2030 that we set out end of last year. Key points, significant growth in profit by 2030 is our aim on this one. We expected there to be hard and soft market conditions across that planning period. So the fact we're currently in a relatively soft pricing market doesn't cause us any concern about delivery of that long-term target. And it's capital light. And I think part of the reason for the buyback today demonstrates our confidence we can deliver this growth agenda without the need for additional capital. Three key pillars: expand our car -- core car market and the efficiency of our direct brands on core, expand motorcycle and controlled expenses while we do that. First initiative. Sabre Direct Bike is going live pretty much as we speak. The team are back in Dorking busy making live the website enrolling the product out in the next few -- next week or so, you should really go on to the website and see how that works. It's starting low and slow, I would say, relatively small quotability. We're not going to go in too fast into this. We'll ramp it up as we go through this year and into next year. The second initiative, and I guess, the main driver of our growth is expanding the core motor book. As you know, that's really saying we're going to continue to deliver our current margin for the current relatively high risk, the risk that we write, we'll target a slightly lower margin for the less risky business in appropriate way. Overall loss ratio had increased slightly. But insurance margin should be protected as expense ratio should come down a little bit. As a reminder, where we are, this is our current premium somewhere over GBP 1,000 average premium. The market is on about GBP 500 there and thereabouts. So we are well above the market in terms of our average premium at the moment. This is my slightly more simplistic way of describing what we're doing and perhaps some of the slides we used at the Capital Market Day. Broadly, on the right-hand side of that graph, as you look at it, is the more risky policies with a higher margin requirement to reflect the risk. The further left you come, the lower the margin and the less risky. There's a lot more policies, obviously, in the mid-market than there is at the extremes. So we are taking a small jump to the left at a slightly lower margin, which allows us to complete for more policies slightly near the mass market. We already quote for all these policies already. So this is not unknown territory for us. Importantly, we don't think it's going to be a straight line development. This is sort of reflecting the hard and soft market that we see. This line is purely illustrative. It's not trying to give a profit forecast for each of those years, but we expect the profit to sort of move up gradually towards GBP 80 million weighted towards the back end of this period. I guess just to restate all the foundations of these initiatives are already in place. This doesn't rely. We're not on a sort of wish list here to make this happen. We've already got the steps being put in place or being put in place. '25, a year of testing and transition. '26, when we start to see some benefit on premium and then obviously, profit follows that naturally. So outlook and summary. We're really excited by the next few years. We've worked our way through and managed our way through some pretty turbulent times in the last few years. In fact, all the way since IPO, we've had pretty turbulent times, one way or the other. I think '24 has demonstrated the benefit of long-term discipline underwriting, hold your nerve and position in soft market conditions and intake growth opportunities when they arise. That's exactly what we intend to carry on doing all the time developing the business to drive long stronger underlying growth. So we delivered, we think, great customer outcomes. Good growth in premium, great growth in profit. Ambition 2030 is on track and the net insurance margin, we're confident for next year -- this year will be within our target margin range.

Okay. At that point, we will pause and go to Q&A. Again, if you're on the webcast, feel free to type your questions and we'll answer them. [indiscernible] There's some mics on their way around with very unglamorous assistance.

Abid Hussain from Panmure Liberum. I think I've got 3 questions, please. The first one is the soft market, do you think it's still possible to expand your addressable market even in a soft market. And if you could provide a little more color in terms of sort of does the price elasticity reduce or increase in the soft part of the cycle. And actually, it was interesting to note in the RNS, you said that you think we are already in the softest part of the cycle or we've just come through the softest part of the cycle so interesting to hear your thoughts on that. And then the second one, just on margins, just looking beyond the headline net insurance margin. Can you confirm that the motor vehicle net expense margin is within the sort of 18% to 22% target range. I didn't see out there. So just if you could just sort of give us any thoughts on that. And then the final one is investing in the business. Do you need to invest in any part of your business to deliver on that Ambition 2030? Do you need to invest in people, hiring people in IT or both?

Sure. Okay. I'll start and then maybe hand a couple of these around. On the soft market, yes, we can definitely still grow in a soft market. We're still becoming more competitive. Clearly, we won't grow as quickly as we will do in a hard market. Matt, can you say anything on that?

I think, what you said there is correct. We can still roll out Ambition 2030 during soft market and test the change we want to make, and we still see the impact of that come through.

Trevor, perhaps you can talk about the people we're investing in. On the softest part of the market question, I do think we're probably at the softest part of the market, although near it. I'll become even more boring than normal sort of functions and events around this time of the year sort of testing people's views on claims inflation. I'm not hearing many people disagree with us on claims inflation and not many people saying that prices don't need to start increasing in the second half of the year. If they should start going up at the half year, it could take a bit longer, but I think we will wind themselves into life and doing it. But I'm pretty certain we're looking at prices going up from here, not too much further down. Both, motor vehicle and net margin, Adam, perhaps you can take that one.

Yes. So obviously, we don't disclose margins per se per product, but to give you some sort of relatively imperfect maths on that. If you look at the motor vehicle performance and a loss ratio basis for the year versus the overall book, it's a couple of points better. So given that we're at a sort of 17.6% margin across the book, then motor vehicle will be meaningfully better than that. So the motor book itself is performing in line with the margin. I guess the other way of looking at it, the current years didn't move as they normally would, as I said in the presentation, they went out a tiny bit. They were normally roll off a few percent of risk adjustment. If the prior years had performed as we had normally would have expected, we would have been well within the margin range. So in terms of what we're writing now in terms of what motor did, we're very comfortable about that margin achievement.

Trevor, there's anything about investing in people.

So on the people side, we're in a good position. We've actually got a lot of bench strength at the moment around both on policy side and on the claims side where we've taken the opportunity to invest in training and recruiting people. So we're absolutely there. We also, as you may recall, outsourced some of our services. So where there'd be initial demand, say, in first notification and/or servicing our customers on our direct car products, that's outsourced. On the technology side, we've already made the investments to deliver for Sabre Bike. We're continually evaluating our own systems in terms of the insurance administration systems, and we'll continue to do that.

And I think on bike, it's an interesting one as well that I think we're going to be the only U.K. non-phone support-based bike policy. Everything is going to be online based. That involves some new skills for your team, Trevor, in terms of dealing with web chat rather than phone.

Yes. So we're going to in-house that, which has been part of the recruitment drive in terms of the ability to service those, say, the Direct Bike customers from out of Dorking.

Darius, just because you are first in [indiscernible].

A couple of questions. So thank you for the buyback. A couple of questions on that. So is the buyback now a new tool in your toolbox that we should think about every year? Or is this really sort of a one-off? And I've noticed in your sort of capital generation slide, you started the year with roughly GBP 40 million of excess capital. You ended the year with roughly GBP 40 million of excess capital as well. Now you do say that you're not going to use capital to achieve the Ambition 2030. And you also talked about how your business is cash generative, and we're sort of heading into the soft market, I suppose, or -- in the soft market. Why do you need this GBP 40 million of excess capital? And why you have not given a bit more in terms of the buyback? So that's the second question. And my last question is, the prior year development was a bit of a surprise, I suppose. We had a little bit of strengthening on a discounted basis in the first half, and I suppose, a little bit more on the second half now. What's going on there?

Okay. I'll take the first one. Adam second and Matt can talk about the third. Okay. On the buyback, yes, that's definitely part of our toolbox. We've been discussing this with some of our larger shareholders for the last year or two. And we've really said that should we find ourselves in a position where we have the share price we think is undervalued, a lot of excess capital, and we can still meet the dividend requirements because we're conscious we have shareholders split across income and share back interested clients. We'll always look to meet the dividend first to meet our dividend expectation, should we then think we've got excess capital over that and a low share price, then we'll absolutely think about buybacks going forward. Adam, do you talk about the capital generated?

Yes. I mean I think it comes down to what you think of as genuinely excess capital. So if you look at what we presented on that slide, that's effectively all the capital we've got over 100% of our capital requirement. But the reality is we prefer to hold 140% to 160%. So we paid down to just over 160% if you take the buyback into account as well, which left us with maybe GBP 1 million or so capital above that. We've always said we're very happy to pay down within that range. Our floor is 140% to 160% and we'll use that as we see fit. And it's really just a case of sort of taking every year by year, thinking about what might we need this capital for? What are the risks in the next year and really holding enough to mean that in all reasonably foreseeable circumstances, capital is not going to be a problem. That's the main thing, so we can just continue to grow, execute Ambition 2030. We've given back everything. We really don't think we'll need to be able to do that. But we'll make sure we've got enough capital in the tank to make sure that process runs smooth, and that's why we haven't paid out everything we potentially could have done.

So on prior years, as Adam mentioned during his presentation, we have seen some deterioration in prior years. We've seen some late adverse movements in claims and continue to see inflation come through. So whilst it has deteriorated, we've now accounted for that. We don't expect that to continue. Generally, we will see prior years release rather than deteriorate from the risk adjustment runoff, and that's what I expect to be long term. Often, you see that prior year deterioration, but we don't foresee that happening again this year.

It's Ivan Bokhmat from Barclays. First of all, I wanted to follow up on the capital point that we just raised. I mean, maybe we could talk about 2025 as we think about the capital that you would generate versus the capital that you would need to retain. I think we're talking about margins probably improving from the level where they're slightly below the range at the moment and probably not a lot of growth in solvency capital requirements. So from that perspective, should the capital generation also increase on a net basis in 2025? And I think the other question I've had a little bit technical, but as we think about the FCA Premium Finance study, which presumably is going to be out within the next few months. What do you think the focus points would be? I mean, how can you be affected? Any broader color in the market that you could flag on this?

Okay, Adam, I'll take the second one. You can have a second go at the capital one in a minute. On the FCA Premium Finance, I think there's a couple of bits. There are some concerns that maybe some people increase prices for monthly payers and then hit a higher APR, so you're basically charging for a credit risk twice. We, for clarity, don't do that. We never have and never will. I think there's been a concern that the APR looked high compared to the underlying interest rate. And I think you've seen in the market interest rates coming down. I think perhaps the FCA have achieved their objective just by shining the spotlight that people are gradually softening the margin or the margins on those products. We took a view about 1.5 years ago. We should earn the same margin on all of our ancillary products, which we include premium finance as we do on our core product, and that's exactly what we've moved to. So we think we're in a very sustainable position there. Our margin is pretty much the same across the core product and all the ancillaries. So we generally don't think we're too exposed there. We keep an eye on it all the time. And if we think we're over-earning, then we'll reduce the price on that. I mean there is a genuine risk of premium finance in that. If a person claims, they can just stop paying the rest of their premium. There's not a lot we can do about it. So there's a genuine cost providing premium finance as well as just the credit piece, which I think gets missed sometimes in the debate around thirds. Adam, do you want to talk about...

Okay. Yes, I think I'll take it in a couple of parts. So in terms of the capital generation during 2025, obviously, linked to earnings quite heavily and the level of growth that comes through in the year, et cetera. But we do expect to generate a pretty good level of capital and the solvency capital requirement will grow. Solvency capital requirement, as I'm sure you guys would be well aware, is pretty hard to predict in terms of exactly where it's going to go. We know it will go up probably. We don't know exactly by how much, and then that will limit the amount that we can distribute for the year, and we've actually been very fortunate over the past few years, it hasn't really increased by all that much, and we've been able to distribute quite a lot, which I think takes me to our second point when you look at the dividend policy and what we've done there. And the issue with the previous dividend policy really was the ordinary wasn't ordinary and the special wasn't special. In some respects, we all knew that we were going to generate more capital than the ordinary dividend would allow us to distribute and therefore, there will be a special every year. The normal run rate of dividends when you take normal levels of capital requirement increase into the future isn't 100% of earnings. It sort of won't be as it has been for the last 8 years, it will have to come down more towards that ordinary dividend level. So what we're saying is that we think capital generation should be good. It could be ordinary plus, and there will be an opportunity for a special next year and/or the buyback. But at the moment, that's the way we're trying to get people to sort of think about it. So yes, I think capital generation should be pretty healthy next year. But we'll see how the capital requirement develops, I think, over the next 12 months.

Let me just have a follow-up to what you were talking about the premium finance. I think if we look at the range of what the APRs people charge, I think it starts from like mid-teens, 16% all the way up to 50% with some brokers charge. And you guys are a little over 20%, I think, mid-20s, if I'm not wrong. I mean would the FCA just wanted for you to show to share the economics of what the input costs are? And is that the way how you defend the APR?

Well, I think we have done some work on that in the past in terms of market studies around how APR, I'm sure we have -- how APR works and how we get to it. So I think there is a bit that gets missed there was a genuine risk of running the premium finance scheme in terms of if you have a big claim and you just stop paying your premium, we have to pay the claim regardless of the fact you've only paid 1/12 of your premium. So that's definitely an issue that's out there. There's also -- once you've got someone on the books, you're on the hook for claims until you got them off the books again if they don't pay their premium. So I think this does get missed. I don't know exactly where they are. I think the FCA, we're clearly unhappy at the level of APR and that has been naturally coming down the market as you say, when you look at where people were and where they are now, you can see that softening gently. Who knows? I don't know exactly what's in their mind, but I think we're well set whatever way that goes. We're not very dependent on premium finance anyway. So if it all got banned tomorrow, it wouldn't destroy our business anyway.

It's Derald Goh from RBC. So my first question is just on the reserve strengthening in 2024. Could you maybe give us a sense of how much of it was adverse experience and the other part being a buffer build, if you like, I think to your point about not overreaching given how strong 2024 earnings were, I guess a different way to answer that is that what might also be a normal level of reserve leases from '25 onwards. The second question is just in terms of your core TAM, do you feel as though mass market insurers are being a bit more aggressive there? And I guess, how reliant are you on your new pricing platform to grow? And when can we expect a return to growth in your core policy book? And then the third one, you spoke about your central assumption for market pricing to increase later this year. How has that assumption changed from what you assumed in December? And I guess, if that fails, what confidence can you give that your bottom line will still grow in '25 and '26? Maybe more explicitly what is a minimum level of earnings growth we can expect in '25 and '26 in a so-called bad case?

Okay. There's some big questions in there. Adam, do you want to say anything about the reserve strength in your perspective? And then maybe Matt, you can just add anything to that.

Yes, I will. I mean, in some cases, it's pretty difficult to answer sort of what's going to happen in reserves going forward. So we know that we -- in the current year, we always think about relative uncertainties around that. We prefer for the current year to develop positively rather than negatively into the future, and therefore, we'll book it accordingly. And also, there will be an explicit risk adjustment on top of that as well. So it's very hard for me to say exactly how much that risk adjustment is relatively clear. Anything else, let's assume we put to the best estimate basis and see how it develops is probably the way to think about it. In terms of what the normal level of runoff might be, which is potentially more useful, again, quite difficult because it's nice to point to sort of period of past years and say that's what normal development looks like, but of course, there haven't really been any normal past years for a relatively long time. So I can't do that. What I can do is point back to 2023, where the prior year development was sort of in the region of 2% to 3%. That seems like a relatively sensible amount of sort of risk adjustment runoff. I'm on the record for a few years ago, I was saying, I think the prior year risk margin runoff should be around sort of 4%. Under IFRS 17, the risk adjustment, maybe sort of a little bit less than that. But -- so in that sort of region. So that's an order of magnitude, I think you can sort of think somewhere sort of 2%, 4%. But obviously, there's a lot of water to pass on the bridge between before we actually sort of see that runoff coming through.

And I guess just to add, we've been clear that we've taken a relatively cautious current year pick because of the uncertainty around inflation. But Matt, you've not changed your approach to reserve in?

The approach remains the same.

And we're going for a best estimate, which generally we would hope to run off positively, but can, on occasions, go the other way. We're not expecting that to happen, as Matt said, going forward. I think you then asked about the mass market, and I think it's very aggressive. There's a bit of a feeding frenzy going on, I think, in the mass market. We're not planning on going into the mass market. And we're not planning on writing GBP 400, GBP 500 premiums. That's not where we're at. If you think of those slides, we're about GBP 1,200 at the moment, coming down a few hundred pounds still leaves us very much towards the upper end of the mass market. So I don't think we're planning on going to compete completely in the heart of the mass market. The assumption, what's changed in terms of pricing? I guess there were 2 things happened at the end of last year. One was the Ogden discount rate changed. So that would have given a bit of tailwind to financial results this year. And I think probably for the first time in living recent memory, reinsurance rates came down, it was people had 31/12 renewal. So that would have been another saving for this year. So there were 2 new things that probably elongated the soft part of the cycle beyond the level we might have thought of in early December last year. It looked like you had a slight follow-up on your face at one point there.

Sorry, just my question really wasn't so much about you guys getting to the mass market, but rather the mass market insurers like your Avivas and Admirals of the world sort of knocking on your doors and eating your lunch? So the risk there?

I mean we already compete with Aviva and Admiral. We view the world as a series of end diagrams where we overlap with different people at different times. We've seen different people come in to the market at different times. Some of them are more painful than others when they do that. This has happened regularly over the last -- how many years you've been here, Trevor? There's always people come in and out of our part of the market and say the strategy is designed just to drive straight through the middle of that and be consistent. What will growth look like this year? I think it depends on the market. We're right in a very comfortable level of premium at the moment. We're not concerned about our premium levels for this year. Whether that results in flat, a little bit of growth, more growth, will depend on the market conditions in the second half. But we're certainly not sitting here concerned that we're not writing enough volume at the moment. Anything to add to, Matt?

Andreas Embden, Peel Hunt. Just I had a question about inflation risk. When I go to Slide 25 and you're writing average premium policy between GBP 1,000, GBP 1,200. When you move out to the right of that chart, where you go to the higher premium policy, does that carry more inflation risk than if you go to the left and go more to the near standard market? Is there less inflation risk there? Or is it the other way around? . And just a question about second half of 2024. The -- you lost some policy volumes in a more competitive market again. Obviously, that's the way you underwrite. I just want to check whether that loss, whether that was more in that core motor book, the real core nonstandard book or whether you're again sort of losing policy volumes in that sort of near standard segment of the market? And if that's the case, going into the sort of 2025, would you -- in your underwriting strategy, would you want to retrench in that sort of real core motor book and wait for the market to turn again to go out into the accelerating growth in the near standard, i.e., will you take some -- your foot off the gas in the second half of the year if the market doesn't recover?

Sure. Okay. More inflation risk, if I start maybe, Matt, you can say. I guess in some ways, it's who you hit that matters on a lot of this stuff, and you can hit someone expensively if you're in a highly rated vehicle or a low-rated vehicle.

Yes. I was going to make that very point. Higher risk premiums also tend to be higher frequency rather than necessarily higher severity. There is higher severity there. But of course, as Geoff has just said, they're hitting the same things and the same people. So it's more likely -- the premium is more likely to reflect a frequency risk rather than a severity risk.

Why is that?

So if we take taxi, for example, where average premium is significantly above our core, those vehicles are on the road.

Yes. And sort of the taxis, the issue is it's a taxi in a town center, we drunk people. That's not a great combination. So you expect to see relatively more higher-value claims on that book. For the general stuff we do, I don't think there's much more of an inflation risk, Matt. I think we said it.

It's going to be driven by the components of the risk. So you could have a high premium driven by first-party risk, for example, we could have it driven by high injury risk. So when inflation varies by payroll. That's why the inflation risk will come, so we think injury is a higher inflation risk. That tends to drive a higher premium, therefore there. If it's a high injury component, it could be a higher inflationary risk. But it's something which is quite certain if we low inflation risk.

[indiscernible]

So that question was, is it distributed evenly on high or low premiums?

I'd say it varies depending on the component. So it's hard to say exactly.

So you're looking at rating by the individual part of the risk, yes. I think the second question was around where we're losing policies? Is it our core book or the mass market? I think it traditionally, as we lose stuff from the fringe of the mass market, where we sort of see the tide coming in and out in a hard market, the tide comes in a bit, and we can write more of that lower premium stuff at the right margin. So I think we're seeing no difference to a normal market cycle. As I mentioned earlier, this was like a completely normal market cycle that Sabre used to managing through. Will we retrench? I don't think we really think about how world is retrenching or growing. We just charge the right price, and we see what sticks to it. What I think will reflect in the new strategy is that right price is a slightly lower margin for low-risk policies. So we'd expect more policies to stick to us by putting those prices out there. So we're not targeting. We don't have an aggressive volume. I was reading the [indiscernible] shareholder. I'm not sure if you've seen that recently. But there's a phrase in there, which is exactly in line with our thinking, which is if prices aren't priced correctly, chasing volume is corporate suicide or paraphrasing slightly. That's exactly how we see it. We're in a fortunate position. We can still write plenty of business at our current margins in our current target market. So we're feeling relatively okay with life.

Carl Lofthagen from Berenberg. Just one on distribution, given 90% of the new business is sold by a price comparison, as you're growing and expanding your addressable market, do you expect to kind of tailor your distribution strategy a little bit towards that channel, given I guess, it should offer lower commission expenses?

Okay. I would say probably 90% of our business starts life on a price comparison website now, whether it eventually comes to us via broker or our direct brand. It's still probably start in life on the price comparison website. We already have our brands. We have Go Girl and Insure 2 Drive on the comparison websites. Now they're on all the major comparison websites. I don't view that changing. We don't just do anything different. The product is already there, built works well. We just need to put a slightly different prices behind it for different segments of the market. So no real change needed on that one. Anything else from the room? Or anything on the -- I thought you're going to say, no. But okay. Adam, the first one is heading your way. Investment profile income yield was around 2.5% in '24. Can you give a feel for what level you see this topping out at given recent reinvestment yields?

Yes, it will be higher than that. I would have thought unless something spectacular happens in markets. And obviously, you can't bank that we're going to be able to reinvest at the same yield forever. But we're looking at the sort of normal reinvestment yield for a medium-term set of gilts and a bit of corporate bonds in there. So that should be at least 1% or so higher as we continue to reinvest that through.

Second question, Adam, is also heading your way. GWP decreased 21% year-on-year in Q4. Is this a reasonable run rate, what we should expect to see in the early part of '25?

Yes. I mean it's fair to assume that sort of nothing spectacular happened during the 31st of December last year and the 1st of January this year. So the sort of income run rate is very similar to the exit run rate from last year, for sure. January and February are always unusual months when it comes to premium. You never quite know what's going to happen as insurers enter the new year. But in this case, yes, we can take sort of Q4's premium run rate as informative as to where we came into 2025.

I should say those last 2 questions came from Nick Johnson at Deutsche. Thank you for that, Nick. Next one is from [ Barry Cohens ]. Congratulations on a good set of numbers. I'm going to stop there. I think Sadly, he caries on. Two questions. You mentioned you want to grow further in motorcycle. What are the specific areas you like to target to grow premiums? I'll let you give a few seconds, I think, about that. And how do you think other insurers will react to you entering their space as you expand your addressable market? On the second bit, the motorcycle market is not huge. But already a reasonable chunk of it. You might be called back to our earlier presentations in previous results sessions. There's only probably 5 or 6 insurers out there and 5 or 6 key brokers. We will look to deal with most of those brokers over time. We're rolling out a bit different product, Matt. It's IHP. It's a much more complicated product than most in the market. Do you want to say anything about it?

Yes. So the motorcycle product where roll out is going to be quite a slow rollout, the rating is more complex. And we're using all the data that we have to build as accurate model as possible. It will be fully enriched, and we'll have to use the same technology as our core motor portfolio as well on IHP, but we see it as a slow growth over the 2025 year.

I would say most bike is distributed by brokers, the specialist brands on brokers and those brokers are very keen to deal with us. So we see it as being welcomed into the market, not having to fight our way. Next question, two from Simon Young at Foresight Group here. Do you have information on what percentage of the motor insurance market now bundles its policy into multicar and increasing the multicar plus travel plus home? How has this changed over time? Can you compete here via your distribution partners? I'll ask that in a second. Adam, the second is heading for you. Can you clarify how you calculate the expense ratio? In the release, you stated the expense ratio is 25.5% and total expenses are GBP 28.3 million. Assuming the [indiscernible] total operating expenses divided by net earned premium, you -- I'm going to let you read that because there's no change...

I'll just explain where it is, Geoff. Well, first answer of expense ratio is there are reconciliations in the back of the RNS, so I would go there. And I should reconcile it all back to the IFRS income statement for you. So that's probably the easiest answer. The other answer is that we take all of our expenses across the group. Anything that we reallocated into claims, we take out and put into expenses, and we divide that by net earned premium to get our expense ratio.

On multicar, it's really interesting one. We don't think multicar in and of itself is right for us and that we have a margin requirement that we expect. We're not going to undercut that margin to pick up additional vehicles on the policy. Some of our broker partners do, do multicar and that might be an interesting way. And if they're bundling it at the distribution and we can provide the premiums and the rates for our part of that product that could work well. So yes, I don't think we're competing with people directly in that multicar market. We're a slightly different target market to that. Matt, do you have anything to say on that one? No, it's not a place we see we lose business or we don't think it as a massive growth area either in the medium term. That, I think, is all the questions that we had. Anything else in the room? If not, thank you very much for your time. I look forward to seeing you again for the half year results. And hopefully, we can report more great progress. Thanks so much.