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

Okay. Good morning, everyone. Just give a few seconds for people to join. I think we're good to go. Thank you very much for joining us and dialing in on this bright and sunny day. And I'm pleased to say bright and sunny is pretty much how we feel about the half year results actually. We think it's a good half year performance, and we're looking forward to explaining why and getting into some detail in the next half an hour or so. Usual process, today myself and Adam will run through a few slides, and then we'll leave all the difficult questions to Trevor and Matt to pick up at the end. As we go through, you have the option to type questions into the Q&A box. Now we'll pick or at the end. Put your virtual hand up and Hanro will unmute you and introduce you into the call. So this will be the presentation we'll run through. Fairly punchy. We're not going to drag this out too long. Run through the top highlights. Adam will run through the financial performance, a bit of a market update, a bit of a strategy update, restate our investment case and then the outlook. And we will, as ever, leave plenty of time for Q&A at the end. So the highlights, I guess for me, strong growth, probably slightly more growth than we expected at this point and very confident in delivering against our current guidance of a profit slightly higher than last year. Probably impressively, we've done that ahead of a meaningful market turn in pricing as well. Looking into the detail a little bit. So very confident in the full year profit projection. Half year probably underplays the progress. I know there's been some focus on the margin. To me, that's just maths. The margin will snap back into line, we're very, very confident, by the end of the year. Matt can explain why later. Growth, we've been able to grow ahead of the market, so like I say, partly because we've been able to reduce our claims inflation assumption as we discussed in the full year and -- the full year results by coming back from high single-digit to mid-single-digit. That's allowed us to rebase slightly. Importantly, we continue to write completely within our target margins on new business, and we're completely covering our forward-looking claims inflation, which we'll discuss later. So financial results, 15% up on the top line. Profit before tax, pretty healthy at this point. Full year profit, as I mentioned, again, anticipated to be ahead of last year. All levers have been written within our target markets. We're not underpricing to grow by any stretch of imagination. Strong solvency position, dividend is fairly mechanical, but hopefully an attractive dividend coming out the half year, virtually finished the share buyback. And on strategy, good progress on Ambition 2030. First proof points coming through on Motorcycle. And we're also building in more customer enhancements by use of portals and looking at how chatbots can support customers going forward as well. So at this stage, very happy with where we are at the half year. At that point, I will leave Adam to talk about the financial position in a bit more detail, and we'll come back and give a bit more context around some of those points. So Adam, if I can hand to you.

Great. Thanks, Geoff, and good morning, everyone. I'll take you through the financial performance for the first half of 2026 once the slides start to move forward. There we go. So the first half reflects 2 important themes in the business. Firstly, we've delivered a strong and profitable growth with gross written premium increasing by 15.7% year-on-year to GBP 116 million. Secondly, because insurance premium earns through the life of the policy, the value generated by that growth is not yet fully reflected in the period. As a result, profit before tax of GBP 23.9 million is slightly lower than the comparative period, but entirely in line with our expectations and supports our confidence in delivering a full year profit slightly ahead of 2025. Our net insurance margin was 15.7%, reflecting a net loss ratio of 55.7% and an expense ratio of 29.9%. The loss ratio remains comfortably within our long-term expectations, whilst the expense ratio reflects lower earned premium from the reduced volumes written during 2025, together with continued investment in people and technology. Importantly, the increase in premium written during 2026 is expected to earn through progressively over the remainder of the year, resulting in a lower expense ratio, and we expect the net insurance margin to return to within our target range of 18% to 22% for the full year. Our solvency position remains very strong at 161.4% after allowing for the interim dividend and the ongoing GBP 5 million share buyback program. That strength has enabled the Board to increase the interim dividend in line with our dividend policy by 20% to GBP 4.1p per share. This chart provides some additional context around the movement in net insurance margin. As a reminder, net insurance margin measures the proportion of net insurance revenue retained after claims and expenses, and is our key underwriting profitability metric. The principal driver of the reduction from the 19.2% achieved in 2025 to 15.7% in the first half of 2026 is the expense ratio. The expense ratio increased to 29.9%, reflecting the lower earned premium generated from reduced 2025 volumes. Because our growth returned strongly in the first half of this year, there's a natural timing mismatch between writing the business and earning the associated revenue. Alongside that, we've continued to invest in our people, systems and technology as we execute on Ambition 2030. As those higher premium volumes earn through during the second half, we expect the expense ratio to improve meaningfully, which, along with a strong loss ratio delivered through continued underwriting discipline, will allow the net insurance margin to return to within our target range. Our core strategy remains unchanged. We continue to write business at target margins and fully cover expected claims inflation within our pricing. And as a reminder, for comparability with previous periods and many of our long-standing disclosures, all of the headline ratios shown here are presented on an undiscounted basis and do not include any benefit from IFRS 17 discounting. This slide breaks down the loss ratio into current year and prior year, with the chart on the left showing the performance in 2026 to date and the chart on the right showing the full year 2025 comparative. The overall net loss ratio for the period was 55.7% compared with 54.1% in 2025. The current year loss ratio was 66.5%. This is a little above the position at the end of 2025, but remains firmly within normal levels of volatility and is consistent with our usual approach to reserving. At the half year stage, there was always significant uncertainty around recently reported claims, so the current year position naturally includes the largest level of explicit margins. The prior year loss ratio was a favorable 10.8%. That reflects continued release of explicit margins held against older claims reserves as those claims mature, together with some positive prior year development during the period. There have been no unexpected adverse claims frequency or severity trends, and our assumption for claims inflation remains unchanged at a mid-single-digit level. Overall, the loss ratio remains fully consistent with the business being written at our target profitability levels. Waiting for the slide to change. There we go. So this slide shows the underwriting performance across our 3 product lines. Motor Vehicle continues to be the key driver of profitability, delivering a net loss ratio of 52%, while written premium increased strongly. Policy count grew 16.5% year-on-year, demonstrating our ability to grow whilst maintaining underwriting discipline. Motorcycle premium increased by more than 50% compared to the first half of last year, largely reflecting the continued success of Sabre Direct motorcycle. The product loss ratio is elevated at the half year stage, reflecting the effect of individually large claims and normal seasonality within what remains a relatively small portfolio. Taxi performance improved significantly year-on-year, with loss ratio reducing to 48.2%. Whilst premium volumes remain deliberately constrained, this reflects the benefit of maintaining a disciplined approach in parts of the market where pricing remains unattractive. Looking across the portfolio as a whole, the message is unchanged. We're growing where market conditions allow us to achieve target returns, and we remain willing to limit volume where pricing does not adequately compensate us for the risk. And finally, turning to capital generation. The group continues to benefit from strong profitability and an efficient capital model, generating capital organically whilst maintaining a prudent balance sheet. The Board has declared an interim dividend of 4.1p per share, up from 3.4p last year and in line with our stated dividend policy. Alongside this, the GBP 5 million share buyback announced at the full year results is now nearing completion. After allowing for both the dividend and the buyback, our solvency coverage ratio stands at 161.4%, which is slightly above our preferred operating range of 140% to 160%. That provides substantial flexibility to support growth, invest in Ambition 2030 and continue to deliver attractive returns to shareholders. As ever, our capital framework remains straightly forward. We prioritize underwriting discipline and capital generation, pay ordinary dividends in line with the policy and return surplus capital where appropriate. And with that, I'll hand back to Geoff.

Thanks, Adam. So a brief market update. Where is the market pricing to start with? I would say slightly messy, would probably be my summary. I think it's pretty clear that more price is needed in the market. We're seeing evidence people are trying to push that price on. It's maybe not necessarily sticking. So struggling to get a really firm foothold to push on from. So clear evidence market pricing needs to go up still. It's definitely stabilized. It's definitely stopped going down. It's definitely inching forward, but quite a lot more to go is our view. We're pretty well positioned to come into this market. We've maintained our rating strength over the last couple of periods. We priced pretty strongly for claims inflation. So we still see forward-looking claim inflation of 6% or 7% from our current rating base. Clearly, if you've got a bit behind the curve, you may have more to catch up with on that, which we'll talk about in a second. So where we are, we see growth coming towards us as the market does eventually get a good foothold and push on the pricing. We can probably increase prices less than the market, given our current price adequacy. On claims inflation, not a lot of clear evidence yet or anything coming through from the current conflicts. We're looking both at our own data, and we're trying to look as far through the supply chain as we can for any early evidence of issues emerging. So far, not a lot, and we think our current 6% to 7% inflation probably covers where we are. Probably some things to be cautious of around care inflation. You may have seen Andy Burnham talking about the need for care workers to be well paid. Clearly, that will knock through to NHS and potentially care for seriously injured individuals. So that's something to watch there as well. Trevor, I'm sure, can give some more detail at the end, if helpful. Regulatory, probably about as stable as it's been for a very long time. No new market interventions. Government task force concluded that the market added work competitively, and there was no price profiteering going on. As a general rule, we look to maintain a very low regulatory burden anyway, low regulatory risk. We really make our money from underwriting, not from any of the things that might be seen as more controversial. To summarize the pricing piece, this is -- thank you to Jefferies for this slide, this graph. This really shows where claims inflation has gone and where premiums inflation has gone. And I guess really, you'd want the premium line to be on top of the claims inflation line. Similarly, other market commentators have spoken about the need for a 15-point increase over the next 2 years. I think some thought that might be 4% this year, maybe 12% next year, not a position I fully understand if you think you're heading into trouble one for 12 this year and 4 next year. So market still got some way to go. As I mentioned, we're not seeing the need for this to come through to drive growth, and we don't need this price to hit our margins going forward. So maybe a little frustrating the market has not moved quicker, but we're still trading perfectly nicely through it. A strategy update. So Ambition 2030, I guess a lot of people on the call will understand the intention of Ambition 2030. Very briefly, it's to move our profit up to around GBP 80 million by 2030 by 2 things. One is to increase our competitive position on core motor and to increase our general market presence on motorcycle. On core motor, going pretty nicely. The base IT developments are all in place, further evolution to go over the next few years. The initial pricing tests are completed, and we're probably about to start to get into some slightly higher cadence and some slightly higher impact pricing tests as we come toward or through the end of this year and into next year. On motorcycle, all the IT is in place. Motorcycle customer service is being done entirely online through a web chat and customer portal. Really interesting, we haven't seen any customer -- any meaningful customer demand for phone-based support here. Clearly, we do find out that it is required, but most things are sticking within the portal or the chat. Motorcycle pricing, we continue to test and iterate our pricing, but our confidence grows increasingly on that, and we'll be quoting across the entire market probably as we go towards the end of this year. Inherent within all of this is maintaining our expense base. We can't afford to get sloppy. We want to make sure we keep expenses controlled as we roll out this new strategy. So what's going to become an enabler for us on 2030 is AI. This is something we spent a lot of time looking at as a business over the last 6 months or so. It's probably got 5 key areas where it's going to be an advantage to us. The first one is the speed of coding on systems. That's our internal systems and potentially our, sort of, core infrastructure systems. Clearly, coding is much quicker, and that provides new opportunities to us going forward. AI can support our fraud checks. So it gives another tool to try and find fraudsters. I would say that's a bit of an arms race. So as quickly as we're looking for AI to help us, we know there's a risk of AI-generated images, CCTV images and still images coming through. So there's a bit of an arms race in terms of how we keep on top of that one. The actuarial team just outside my door here are getting very excited about the opportunity for AI to support some of the pricing decisions. We've got great data, great techniques, great people. AI gives us another tool to put on top of that as well. So that gives another boost to our strengths going forward. We think AI is going to help on some customer interactions. So certainly, the chatbots at the moment is still manned by people. We see maybe AI having a role there going forward as well. What I would say on that side of things is that for us, AI is all about enhancing people's jobs. We have no plans for redundancies whatsoever. We think as we grow, we hope we can hold our staff numbers, but we're certainly not looking to lose people as we go forward. And the final box really is we've had a very tight focus on the risks of AI coming through. We've obviously seen things recently about AI bots breaking out of the sandbox to hack other companies. We're putting even more effort into the cybersecurity. That's both in terms of stopping hacks into us and the risk of leaking customer or company IP out as well. So lots of opportunities, but we're equally focused on what could be the downside if we are careless. Investment case. Very brief, just one slide on the investment case. We think we have some pretty significant competitive advantages. We're a very focused pure motor insurer. I think we've got a long track record of delivering near market-leading margins and market-leading performance through all parts of the market cycle. We have a mindset, which is perhaps unusual, that we're prepared to reduce volume when pricing is weak. We will always protect our margin and capital, and that will maximize our medium-term profitability. We're now really in a position where we see the growth potential. So we've always said we can grow as market rates harden. That's really what we would expect to see going through the next 6 to 12 months, ability to grow further as market increases. Clear medium-term growth plans through Ambition '30. Very low-risk balance sheet, no debt, reinsurance cover at quite a low retention limit to protect the volatility of the P&L and straightforward investment portfolio, nothing complicated. We make our money from underwriting, not from taking investment gambles. Attractive income and capital returns, good dividend yield, ordinary dividend, a fairly straightforward dividend policy, and special dividends and buybacks are now part of our thinking as well where we end up with truly surplus capital. Really, that means Ambition '30 is an evolution of what we do today, not a revolution. This is really building on our core strengths rather than taking a big swing by entering perhaps more risky new areas. This is really more of what we do today. So outlook. As promised, we've kept this presentation pretty brief and punchy, and I'll keep this outlook and summary equally punchy. We expect for this year strong growth and confident -- we're very confident in the full year guidance. So to reiterate, profit higher than last year. Net insurance margin to be back within the range by the end of the year, that's just maths. That will snap back in again. And Ambition 2030 currently on track with the early proof points coming through from the very strong growth in Sabre motorcycle. Now at that point, we will pause, and we're happy to take any questions whatsoever. If you want to stick your hand up, Hanro will unmute you and we'll go from there. Hanro, over to you.

First question is from Ivan from Barclays.

Go on, Ivan. Ivan, are you unmuted?

I am now. Thank you.

There we go. Okay.

So I've got 3 questions, please. The first one, just on the market outlook on pricing. I was just wondering if you could maybe share a little bit more color of how you think this is going to play out. I mean one obvious question, there may be a 15 points of price needed, but all the major players seem to still be generating good underwriting profit. So what will make them push prices up so much at the risk of losing volumes? My second question is actually going to be on the loss ratio. So I think what you were talking about is the overall loss ratio is within expectations. But there's, of course, quite a bit of volatility between the current year loss ratio and the PYD. Just thinking into second half, I mean, should we expect the overall loss ratio to stay high because of current year loss ratio reducing or because of reserve releases stay high? And I have a third question as well, please. And this is just on the capital generation. I think we have seen in the past that episodes of strong growth at the margins that Sabre generates bring quite a lot of new capital generation, which is not the case right now. Maybe you could help us on the -- on what's happening currently and what's your kind of outlook for the next 6 to 12 months there?

Yes, sure. No problem. I'll take the first one, Matt, you take the second, Adam, the third, if that's okay? So in terms of pricing, I think pretty consistent view is that claims inflation is now mid-single-digit. I don't think it matters where your profits are at the moment. It's going to go backwards if you're not covering claims inflation on a forward-looking basis. I haven't heard anybody say they don't think claims inflation exists. Everything I'm seeing from external commentators suggests our call on this is about right, that you need to be in that 10% to 15% range of price increase in the market to stay profitable. Clearly, bigger players probably have more reserves. There may be some synergy benefits coming through in some places. I think probably the most uncomfortable place to be will be the squeezed sort of middle, the mid-ranking insurers, where they're small and specialist. They can afford to be focused. Big means you've got some synergy and probably some other cost savings coming out. But I think, Ivan, there's not too much question that rates need to go up across the market more when, not if. Matt, do you want to talk about the loss ratio evolution?

Yes. So the question is in 2 parts, Ivan. First of all, around prior year movements and then the current year movements. So on prior years, we would expect in the second half this year to continue to see the margins come off. That's inside the risk adjustments as the claims settle. So we expect some improvement from that. We don't anticipate the selected ultimates reducing further. So any further movement in the prior year loss ratio will be from the margin runoff. On the current year loss ratio, we did see we had some large claims in Q1, less so in Q2, which is normal volatility in that top layer. We're writing the business -- we'll be writing the business at our target margins. Therefore, for the second half of the year, we expect the loss ratio for current year to reduce back more towards our target range. Therefore, during the second half of the year, the overall loss ratio to improve driven by the current year loss ratio coming down.

And Adam, can you take the question about capital generation and growth? Once you come off mute, that is.

I was about to get called out by that one. So on capital generation, I mean, I think what's happened in the first half of the year is sort of within reasonable bands of what's happening with earnings. If you look at sort of where the starting point was versus what we've generated in the year and what's happened in the capital requirement, the capital requirement has grown as we've grown as a business, both in sort of the reserves we're holding and the premium we're writing. We would expect a sort of similar trend to continue through the second half of this year. We have seen in the past that when premium grows fairly rapidly that we get a bit of a boost to capital versus earnings. That might happen, although in the first half of the year it hasn't happened as pronouncedly as in previous years, like 2023, for example. So there's a few things to think about there. Generally, we sort of anchor capital generation on earnings and then take off a bit of the capital requirement improvement or increase rather. And I think that's probably the best way to think about it for now. What does that mean in terms of our policy? Well, that's obviously exactly the same. So we think we can comfortably pay an ordinary dividend, 70% to 80% of profit after tax. We expect that there may be some surplus capital. We'll sort of decide what to do with that at the year-end. But as always, when I'm talking about solvency, there are quite a lot of moving parts. It's very hard to put a sort of good point estimate on it. So I'm thinking about it sort of in the round. That's the way I would think about it. So very comfortable with what we've got, we're comfortable with what we think we're going to generate in the second half of the year to be able to deliver the kind of capital returns that the market is expecting. And we'll sort of see what happens over the next 6 months.

Thanks Ivan. Hanro, who is next?

Next person is Abid from Panmure.

Good morning, Abid. Give you a second to come off mute.

Morning. Can you hear me?

We can, loud and clear.

I hadn't realized you had to manually unmute as well. Let's see if I can.

That's a hint for everyone else coming to speak as well then.

So I have 3 questions, if I can, please. The first one was on the margin. I was wondering if you could help us bridge the half year net insurance margin back to the 18% to 22% range for the full year. Is it simply the mechanical premium earn-through or do we need some normalization on the loss ratio? I think from some of your comments, it's probably a bit of both. So just any more color on that. And then the second question is on growth. So the motor vehicle policy count grew, I think, some 15% since the start of the year. I'm wondering, can it grow further if pricing remains where it is? Or do you need pricing now to increase from there? So just any color on that, please. And then the final question is on the Motor Vehicle NIM. Could you share where that is for the half year? I think it might be slightly better than the group. So just any further detail on that would be helpful.

Okay. Thanks, Abid. I'll take the growth one. Matt, maybe you talk about the bridge and Adam will talk about the NIM. See how we go on that. Growth, I think, Abid, I'm pretty confident we can carry on growing. The market has not turned in the first half dramatically, and we've managed to put on pretty good growth. The extent of growth in the second half will depend partly on that market movement, but I would be pretty confident we're going to see decent growth still coming through the second half of this year regardless. Matt, do you want to talk about the bridge between half 1 and half 2 margin?

Yes. So as I mentioned before, we expect the current year loss ratio to improve in the second half of the year, which should help the margin improve back to our target range. As Adam mentioned during the presentation, the premium is expected to be higher in the second half of the year as well, which should help the expense ratio reduce as well, which contributes towards the margin. The business we've been writing is in line with our targets. Therefore, as that earns through in the second half of the year, we expect that to be earning at that target loss ratio, which again helps us contribute, bring us back towards our target margin. Is there anything you wanted to add to that, Adam?

No, that is completely right. So the expense ratio will be a chunk of the bridge, and the loss ratio will fill the gap essentially and hopefully get us to within our target range.

I've got to say, for a Chief Actuary, that's as wildly confident as you can hope to be. Adam, do you want to be anything on the -- I think that was asked a bit as well, didn't it? Did I answer the NIM question, I think you did.

No, I think where Abid was coming from was if you look at it on a product basis what the margin might look like for Motor Vehicle. Now we don't calculate or disclose by product margins. We have a fixed cost base across the entire business. So it's not a number that we report. However, I suppose if you were to add our normal expense ratio or the expense ratio achieved in the first half of the year to the loss ratio for say motor, that would take us to around an 82% combined across that product, which would equate to a margin in the sort of 18% to 19% range. And obviously, there's a lot more factors you could try and build into that if you were doing it properly. So I think we're pretty comfortable with the margins that we're achieving on Motor Vehicle, I suppose is sort of the key answer to your question there.

Thanks, Abid. Hanro, where are we going next?