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

So straight on. I'm very pleased to say we've got the same team here presenting. As usual, myself and Adam will run through the presentation fairly briefly. And then any difficult questions, we'll hand to Trevor and Matt at the end. The agenda. Fairly standard agenda for us. We'll run through briefly the highlights. Adam will run through the financial performance. I'll give my thoughts on the current state of the market. We'll touch on our competitive edge given that market environment, outlook and summary, and then we'll leave plenty of time for Q&A at the end. So the highlights. Overall, we're really pleased with where we find ourselves at the half year stage. Good performance, good profit performance, good dividend. We'll talk about in a minute for the half year. Probably more importantly is what it suggests about the full year this year and maybe even more importantly, what it suggests for '26 and '27 onwards. I think we're probably in a very strong position compared to many others in the market at this stage. So I'll touch on the highlights briefly. Very strong profit for the half year, 26% up year-on-year, and that's in weak market conditions, which we'll discuss much more later. Margin of 19%, comfortably inside our range and some pretty explicit guidance this time around that we expect our full year profit to be very similar to that we delivered in 2024. Growth. I guess, growth a bit of a misnomer in some ways that we didn't grow terribly much in the first half year, and that's a very deliberate management decision. We're very happy that we've maintained our discipline through the bottom of the pricing cycle, and we think we're writing very healthy premium levels at this stage. So very comfortable with our premium position. Leaves us very well positioned to return to growth as market conditions improve, which we still expect to be the second half of this year. Robust capital position. Back very strong, I think, might be a good description. Interim dividend, 100% up on last year. Obviously, that is fairly formulaic. It's linked on the previous year's full dividend. And we are going well on our first ever share buyback. I think we're probably around halfway through that now. And we'll talk more about that later. On the strategy side, really good progress on Ambition 2030. Everything we're talking about today suggests to us, we're very firmly in line to deliver our GBP 80 million plus profit by '30. The Sabre Direct motorcycle product launched very well, and the plan is still very much on track to start testing differentiated pricing on our core car product later this year. That's a very brief overview. Adam will now talk about the numbers in more detail, and then we'll talk about the market and a few more of these things in more detail a little later. So Adam, you're going to ask me when you want to change slides, I think, as we go through.

Thanks, Geoff. I will. So I'll run through the financial results for the first half of 2025. Geoff, if we can move on to the first slide, please. So here's a snapshot of the results. We discussed in our first -- recent trading update that the market pricing has remained low in the first half of the year and that we protect margins and profits at the expense of a short-term dip in premium, which is clearly evident in the gross written premium number, which is down 20% on the same period in 2024, albeit against a very strong comparator. The very good news is that we're now able to show the positive side of maintaining this discipline with our margin now having improved to 19%, which is comfortably within our target 18% to 22% range. This is a result of the 4.8 percentage point improvement in net loss ratio to 54.9%, slightly offset by a 1.4 percentage point increase in expense ratio, which is a natural consequence of letting our premium reduce for a period. This improved margin has generated a 26% increase in profit before tax to GBP 25.5 million, setting us on a great footing for the full year. Our interim dividend is at 3.4p per share, which is in line with our policy to pay 1/3 of the prior year's ordinary dividend. And our solvency capital generation has been commensurate with the earnings for the period, and our position at the 30th of June is above our target 140% to 160% range. On to the next slide please, Geoff. So here, we show the progression of the group's margin since 2022. As planned, the margin has recovered to within the target range, having almost got there last year. And we now expect to maintain the margin within the range through continued price discipline and cost management. Next slide, please. So diving into our loss ratio performance across the portfolio. This slide shows how the loss ratio for the period breaks down into current year claims, that being the impact of accidents that have happened in the period and the prior year loss ratio, which shows the impact of movements in expected and incurred payments on accidents that happened in previous years but have not yet settled at the start of this year. And we've included charts for both the first half of 2025 and the whole of 2024 on this slide. So it's normal for the current year loss ratio to be a bit higher than our target, particularly in the first half of the year as there will be a significant number of new open claims with reserves carrying margins reflecting uncertainty. So the 61% current year loss ratio is absolutely fine on the plan for us. It's been pleasing to see a return to a more normal state of prior year movements being negative, presenting a benefit to profit rather than the small increase we saw in 2024. This movement represents a mixture of the runoff of risk adjustments on claims that were open at the start of the period and a reduction in the total amount of expected claims payments on previous years. Overall, our loss ratio is demonstrating good underwriting performance in line with our targets, while still reflecting our cautious views around claims inflation. On to the next slide please, Geoff. So here, we show our usual breakdown of underwriting profitability by product. Firstly, we can see that the main core motor vehicle book has performed incredibly well with a 48.1% loss ratio, having shown strong current year performance and being the main beneficiary of those prior year reserve movements. The focus on preserving margin and maximizing absolute profit has meant that we've allowed policy volumes to dip through the soft part of the cycle. Motorcycle and Taxi remain a very small part of the book with the low earned premium in a 6-month period being particularly susceptible to the impact of large claims. This year, our large claims experience has been relatively good overall, but the large claims happen to have occurred on the Motorcycle and Taxi books, hence, the high loss ratios on those small products, but we have no reason not to expect the performance of those products to improve for the full year 2025. On to our capital position please, Geoff. So we've seen a small dip in our solvency capital requirement since the end of last year, while the capital generation has been reflective of the profit during the period. We started the buyback program announced at our year-end results and the full impact of it is reflected in the period-end capital position. And the interim dividend of 3.4p per share is inline with our policy. As in previous years, we will assess the capital position at year-end and determine the total level of capital distribution for the year as well as how that capital will be distributed. And with that, back to you, Geoff. Thank you.

Thanks, Adam. We'll now spend a few minutes talking about our view of the current state of the U.K. market. And I guess I do feel I'm a bit of a stuck record on this sometimes. We think the market is substantially underpricing at the moment, and that risks a pretty severe price correction down the line. We probably have some insurers on a bit of a land grab, but possibly ahead of M&A-type activity to maintain value. Others may be taking advantage of some distraction in the market as acquisitions come together. It's pretty hard to argue with some of the external views that if prices don't move soon, then 2026 is going to be a pretty ugly year for industry profitability. If we look at the slide on here, this is a slide, and thank you to Jefferies who allowed us to use this slide. It perfectly sums up how we view this. This shows the premium versus claims deficit by underwriting year. You'll see having clawed back to a good position at the end of '23 to '24, the market has perhaps slightly sadly given all that away again to the point where there's now a deficit opening up between premium and claims. From a saver perspective, we've continued to fully cover claims inflation. We've not allowed ourselves to get into a deficit. So we are very happy with the volume that we're able to write while fully covering claims inflation while it would appear the market isn't. That will be different for different insurers depending on how much of a deficit they allow to open up. So I guess the message from us is, I guess, the industry should be okay for this year in profitability, but next year is going to look difficult if prices don't start to move fairly soon. Look at claims inflation. Claims inflation is a bit more interesting perhaps than in some previous years, in that there's things you can see and point and count now and then things that involve a bit of crystal ball goes in. If you look at the slide here, on the left, you can see things that we would call items in the data. So frequency is definitely down. There's definitely increased capacity in the body shop. Parts and paint inflation is slightly offset by some of the parts supply. You can already see some of the cost of care increases and underlying inflation. On a simplistic view, that would suggest that near-term inflation will be somewhere around 5% or so. So there's genuinely good news on claims inflation coming through. But there's quite a lot of items not yet in the data. So we know that the injury portal tariffs are increasing. We think there could be a bit of a false read on frequency. We think there's an element. Customers saw some fairly high premium increases in recent years. We think there might be a crash-not-claim mindset, just if you've had a relatively minor claim, you choose to either drive the car around with it or to get it fixed yourself. That may change as those premium increases fade a little bit in customers' memory. So it's possible that frequency ticks back the other way again. There's definitely a continued lack of resource in care and specialist repair industries. We know there's all sorts of macro things happening around tariffs, shipping delays. There's tsunamis happening now just to add to the mix. Persistent higher economic inflation. Our realistic assumption would suggest you probably look at another couple of points on top for things that you can't yet quantify but are out there in the world. So we would view a claims inflation assumption of around 7% to be sensible. We think it would be very bold or slightly mad to base your inflation assumptions going forward just on things you can see today at 5%. Happy to take any questions on that later. These are our favorite scales on what do we think should happen to premium in the market. Why might premiums deflate? Well, claims frequency is definitely down, and there is a reduction in overall claims inflation. That's good news. And the market or people in the market may over rely on short-term trends. On the other side, things we've just discussed. Claims inflation is still elevated. Premium increases definitely needed to maintain industry profitability. So overall, good news on inflation generally, but apply any sensible level of prudence, you still need to be looking at an elevated level of claims inflation and to cover that through premium increases. Our view, really, the market is down, what, 9% to 15%, depending on which track you look at over 12 months and claims inflation are up anywhere between 5% and 10%, depending on where you are as an insurer. So quite a delta opening up at an industry level. And to reiterate, we've not allowed ourselves to drift into that place. Interesting regulatory developments in the last couple of weeks. I draw the short straw and be the first one to talk about this as a results session. Two things really from the FCA. One on the retail market review, second one on the interim premium finance review. I think both generally positive and helpful for the industry. On the retail market review, the FCA has really confirmed that claims inflation is real, and it's driven by factors outside insurers' control. So the premium increases were matching claims inflation rather than any form of profit tiering. The second report also confirmed the importance of premium finance to customers in terms of ability to pay for premiums and it specifically ruled out some of the market-wide interventions. It feels to us like the likely way forward term here is for the fair value assessments to do quite a lot of the heavy lifting from here and that the reports we have to send back are very detailed. The FCA get a very granular view on where people's margins are coming from. And I suspect conversations from here may go on behind closed doors. Worth restating where Sabre are on this. We took a view a couple of years ago that the fair thing to do was to earn exactly the same margin on our core product as all our ancillary products and premium finance, and that's exactly what we do. That has clearly cost us some profit, but we think leaves us in a very stable, very defendable, very good, very customer-focused position on fair value that it's the same margin on our core and core products. Hopefully, at an investor level, this takes quite a lot of regulatory risk overhang. So if you look at our competitive edge given those market dynamics, where does that leave us? We think we are a strong player in a pretty attractive and perhaps undervalued market sector. Motor insurance is a mandatory product. I think we've taken away some of the regulatory overhang in the last couple of weeks. We're the niche part of that market. We're happy to stay in our lane. We're not looking to become a mass market insurer. We specialize in high-premium, high-margin policies, probably high-premium, high-risk, high-margin policies would be an accurate description. High return on equity, that's due to being very focused on margins, efficient capital management and consistent smart underwriting and claims handling. We're very focused on dividend. We want to pay a reliable and growing dividend based on 70% to 80% of profit after tax, plus a regular return of surplus capital. We've now updated our policy so that can be through special dividends or buybacks as a decision we'll make every year. Really key to us is we've been doing this a very long time. The management team here have all been here at least 7, 8 years, very experienced staff sitting outside my door here. We've also been here a long time and add a huge amount of value every day. We've got an incredible depth of accurate, reliable, relevant data and very consistent expert claims handling. I think Trevor will tell he is only, say, the second-only claims director. And that level of consistency means we don't get unexpected claim movements or reserving shocks. A very cautious, prudent, well-informed and consistent reserving methodology lessens the impact of adverse developments. I was talking to an investor recently. He said the eighth wonder of the world was insurance accounting. So I said I disagree slightly. I think the eighth wonder of the world is claims reserving. And really claims reserving is the question investors should be asking of how solid, how safe, how cautious are you on the claims reserving because that drives everything else that we do. We've got an ambitious, but we think very achievable 5-year plan. We've grown consistently since 2002. I say consistently, we've grown on average since 2002. You'll see from these dips, we're very happy to let premium subside in unattractive market conditions and then pick up the pace again later. So we're not obsessed to keeping top line growing on a consistent basis. Overall, we want the average to be growing like that. Growth is going to come from 2 things: expanding our addressable market. That's becoming slightly more competitive, perhaps a slightly lower premium, lower risk business and the launch of the direct motorcycle product and expanding motorcycle into broker panels as well. Very good progress to date. The Sabre Direct motorcycle product launched in April. It's quite unusual that it's online only, web chat supported rather than call center. We think that might be unique in the market. Very good sales volumes on restricted quotes so far. We're restricting our quotability as we test and roll out and evolve the rates on that. We'll gradually increase those volumes through the second half of this year and into next year. All the systems working incredibly well, rock solid and really good support by the in-house team. On enhanced pricing for the core product. The technology stack is sort of ready now, and that testing is going to be -- we'll be testing those rates later this year. There won't be much impact on the premium, if any, this year. That will start to impact from next year. We're still very confident in our ability to get to at least GBP 80 million of profit by 2030. I think importantly, we're going to stay very true to our DNA as we grow. That really means higher-margin business. We're not looking to drift into the mass market, low-cost operating structure. We're going to continue to keep profit as the target and volume as the output. I know it's a bit of a strap line, but it's one we truly live by. And we'll continue to maintain cautious assumptions to ensure long-term and sustainable profitability. We don't want to get into a boom and bust regime. So to summarize this brief run through, quite a simple story in some ways. Good profit for the half year, well up on last year. Full year earnings, we've given some pretty tight guidance. We expect them to be very similar to last year despite the market pricing weakness. Ambition '30 projects on track. Growth in Half 2 will depend on the market, not particularly pivotable. We're not particularly bothered by that. We expect to write a bit more in the second half than the first half. So let's see where that goes and a good margin. So overall, quite a simple story. We're very happy where we are and very happy what this suggests for full year and into next year. Now at that point, I am going to pause. I can already see some hands going up. So Henry, I will pass to you to introduce and unmute people as we go.

Yes, Geoff. First person with the question is Ivan Bokhmat from Barclays.

Well, my first question actually is more of a big picture one regarding the 2030 ambition. I mean we've -- since then, since December when it was published, I mean, we've seen a bit of a decline both in the GWP, which I'm sure you're fine with, but also in policy count. Do you think that retention needs to increase for you to hit that target? Because that clearly implies some punchy growth. And on the side comment there, the regulator seems to be quite happy with how loyal customers have been treated. Do you think that will make acquiring new customers harder for you? And a couple more questions. One, perhaps you could comment on the outcome of the 1st of July reinsurance renewals and maybe give some outcome, the shape of your reinsurance program? And the final one, I think you say that you sound quite pleased with how the share buyback has been going. We're almost halfway through it right now. I mean, does it look like for you, it's a preferred way to return capital, like the special dividend is less attractive than the share buyback?

Okay. I'll start and please, team kick in as we go. Policy count and harder to get new customers, perhaps different for us compared to some Ivan, and that we tend to attract people who've got quirky circumstances, and those people will continue to come to market. We don't expect to be in the mass market sort of trading people for the sake of GBP 10 or GBP 15 every year annually. So we have new drivers coming to market. We have people who bought new types of cars, people who maybe picked up new convictions, a whole host of things. So I don't think we're going to find it harder to attract new business. I do understand why that might be a market phenomenon in a completely straightforward mass market. Matt, Trevor, anything you want to add anything you want to add to that? On the reinsurance side, we had a good placement. Adam, do we talk about -- I'll just say it. We had a price -- our price went down for reinsurance this year based on our generally good results and good market conditions. So we're very pleased with our reinsurance. We are gradually very gently increasing our retention, but only moderately. So that's a path we'll probably continue on for a couple of years. So good reduction and a very slight increase in retention. The buyback has gone well. I don't think it will be our preferred way forward. I think our policy will always be ordinary dividend, good special dividend. Anything surplus, we'll consider a special, special dividend or a buyback at that point. So buyback will be definitely part of our thinking, but not at the expense of a good dividend. Ivan, did that answer your questions? I was conscious there's a few in there. Did I hit them all?

No, no, you did. Sure. Maybe I can just follow up on the reinsurance answer. So maybe I think in the past, you've had a GBP 1 million retention. I mean, where are we now on that, on the individual in terms of loss?

Trevor, do you want to take that one?

Yes. Yes, Ivan. So we're still -- got an index retention of GBP 1 million, but we partially placed that GBP 1 million over GBP 1 million there. So it's a way of us taking on more of the risk at that lower level there, but not exposing ourselves to frequency.

Next question is from Amalie Zdravkovic from Deutsche Munich.

It's Amalie from Deutsche Bank. So just on GWP, I mean, it's down again, but it's sort of slowing from the first 4 months of the year. I mean if we think about the sort of the full year guidance, how should we think about that in terms of volume and price increases for GWP? And then if I can just ask a bit on the very strong reserve release. I mean, Adam, you spoke a bit about it. But if we can have sort of any color on this? Is it -- are there any one-offs? Or is this predominantly from sort of prudent reserving in prior years?

Matt, I'll let you take the reserve question in a second. On the price increases, I mean, we, as I've mentioned, have fully covered claims inflation. So we need to keep actually tickling prices forward during the second half of the year, but we don't have any price correction to do. Our view is there is a catch-up price correction for many in the market, which we don't need to do. When more premiums increase in the second half is an unknown point. They should be increasing now. They may not. Our view if they don't happen I think we'll see a very similar thing to the last market upturn. The longer it takes, the steeper that increase will be when it happens. So we're pretty relaxed about this. Yes. So for us, very -- we'll just keep tickling prices forward in the second half. We don't take a big correction. We think the market does, which is where our increased competitiveness will come from, we think at some point in Half 2. Matt, reserve releases, one-offs or prudent?

It's twofold, I think. So we'd expect the prior years to have the risk adjustment runoff. So we'd expect to see prior years always releasing a little bit each quarter. There's also some one-off prior releases from experience being more favorable than expected.

Did that answer the question?

Yes. Very clear.

Next up is Carl Lofthagen from Berenberg.

Can I just -- on the prior year, sorry to follow up again. Are you able to highlight which accident years this relates to? And I mean, sorry if I misunderstood, are you saying is it a few large claims essentially settling more favorably? And then just on kind of the inflation piece, we've seen a pretty big jump in Chinese electric vehicle sales over the past 12 months. I mean, essentially from 0 to now accounting for almost 5% of new car sales. I appreciate it's still small, but are you seeing some early kind of issues there, concerns with access to parts and higher repair costs from these cars? And kind of just thinking around as this grows, what could be the impact?