Suncorp Group Limited (SUN) Earnings Call Transcript & Summary

Good morning, and welcome, everyone. Those of you joining us here in Sydney, in the office in Sydney and those that are joining us via the webcast and other means, and welcome. I apologize for a result that we're trying to maneuver around. So we're trying to get ours out of the way as quickly as we can -- and for those -- so let me begin, as usual, by acknowledging the traditional owners of the land upon which we meet and to pay our respects to all elders past, present and emerging. Today, I'm joined by our CFO, Jeremy Robson, to present the financial results for FY '23 and the other members of our leadership team will join Jeremy and I for the Q&A session that follows. So as usual, I'll start by reinforcing our purpose and how we believe it connects to long-term value creation. At Suncorp, we are driven by our purpose, which is building futures and protecting what matters, and it's the absolute priority of our team to support our customers quite often in times of great uncertainty or distress. The long-term value -- long-term financial outcomes that we achieve and the value we create for shareholders reflects our success in getting this right. So turning to the result and the group has delivered a material improvement in earnings for the FY '23 financial year with net profit after tax of $1.15 billion and cash earnings of $1.25 billion. Now at the headline level, it's very difficult to compare FY '23 with the prior period given FY '22 saw a very material mark-to-market losses across the group's investment portfolios. And as we said at the time, these losses would unwind to profit in the form of improved underlying yield. And while markets in totality have continued to be volatile, the impact of higher running yields has more than offset any unfavorable mark-to-market movements in FY '23, meaning investment returns become a large contributor to the headline profit increase. The group result was also impacted by the third consecutive La Nina and elevated natural hazard activity with around 130,000 natural hazard claims during the course of the year. Now whilst a similar overrun to what we experienced in FY '22, this year, it can largely be explained by the New Zealand events with Australian experience broadly in line, which we think is a very, very good positive. Once you get behind the headline noise, it's clear that the underlying performance across each of our businesses continues to improve and that the operational improvements that were embedded in the plan that we put in place in the FY '20 year delivering. Now I'll talk to some of the results highlights in a moment. But first, to the dividend and the Board has declared a final fully franked dividend of $0.27 per share, and this represents a payout of 60% of cash earnings for the full year. Now whilst the significant increase on the prior period, it's within our payout ratio range, I do acknowledge it breaks with our usual practice of landing the full year dividend payout in the top half of the range. And I'll get Jeremy in a minute to step through all the moving parts. As you know, we have always maintained a conservative capital position in order to manage any unexpected risks, whether they be economic, geopolitical or weather-related. And now with the bank sale likely to complete in FY '24, we felt it appropriate to maintain this conservative approach. To the next slide and to strong top line growth and underlying momentum across the group has again been a key highlight of the result. In Insurance Australia, like-for-like GWP was up by 11.7% in Home and 13.8% in Motor. Unit growth now while it moderated in the second half, remained within our tolerances as we continue to prioritize margin by pricing for higher natural hazard and reinsurance costs and broader claims inflation. New Zealand GWP increased by 14.3% with a targeted pricing response to offset inflationary pressures and higher reinsurance costs. The group achieved an underlying ITR of 10.9% for the year, which is up from 9% when you exclude the positive impact of COVID from the prior period. Revenue growth, improving expense ratios across the Australian business and investment yields supported margin and they more than offset pressure from increased hazards and reinsurance costs and claims inflation, particularly in the Motor portfolio. In the Bank, the Home lending portfolio delivered another strong year of growth, increasing by $4.6 billion or 9.1%. Asset quality remains sound within a conservatively positioned portfolio with a small increase in the collective provision due to the more challenging outlook for Business Credit, 0.9% with increased demand for term deposits given rising interest rates. The bank efficiency benefits from the strategic program of work that we put in place 3 years ago. Above the through-the-cycle cost of equity, we targeted an underlying ITR between a supply chain disruption and most recently, record inflation. Now the plan that we put in all of them this morning, but I will highlight 3 key achievements. Significant growth across has been supported not only by the hardening market but by improved marketing, the revitalization of our brands and broker relationships and improved customer value propositions. Beyond the financial outcomes, our investments in Digital have made a real difference to the way we interact with our customers. It was illustrated on the slide, Digital now makes up 68% of all of our sales and 44% of service transactions across our mass brands with active digital users now growing to approximately $5 million. In Claims, enhances to our online lodgement process has now resulted in 50% of Home and Motor claims now being lodged digitally. More recent claims events, including the Newcastle Hale event has seen Home lodgments via digital of above 80%. In the Bank, our investments to simplify the customer and broker experience have significantly improved Net Promoter Scores, while median application turnaround times for Home Lending have dramatically reduced to just 4 working days, which is down from around 14 days when we set out with this planned period. In fact, we recorded the fastest turnaround amongst peers for 32 of the 52 weeks of FY '23. Turning now to the sale of the bank. And obviously, we're disappointed with the ACCC decision to deny authorization of the planned sale. We maintain our view that the proposed sale is in the best interest of customers, shareholders and employees and that it will deliver public benefits not only for Queensland but for the nation. In our view, the deal can achieve these objectives without adversely affecting the competitive dynamics in the markets in which we operate. The evidence we have provided to support our views on these matters is contained on the public register and it will ultimately be considered by the tribunal. Our evidence also supports our belief that based on the extensive analysis that we have done and our engagement with the Queensland government, there is no relevant alternative transaction involving another regional bank that has any commercial likelihood of being executed. Now while we've only had a couple of days to review the ACCC determination, we've seen nothing that has changed our view on these matters or our level of confidence that the deal will ultimately be approved. On this slide, I've outlined how we see the process from here. We will, of course, support ANZ through the competition tribunal process to review the determination. The Tribunal will look at all the evidence and will ultimately form its own view. Now this process could take up to 8 months with the time frame dependent upon the complexity of the case and where the new evidence is put before the tribunal. So subject to a successful outcome at the tribunal and all approvals being received, we now anticipate completion to be around the middle of the 2024 calendar year. So with that, I'll hand over to Jeremy.

All right. Thanks, Steve, and Good morning, everyone. I'd like to start by reiterating how pleasing it is to be able to report on the successful achievement of the FY '23 targets that we first outlined in May 21 that Steve spoke to. We faced into many challenges, and I think it's a testament to the growing resilience of the business that we've been able to deliver on those promises today. In General Insurance, the operating conditions remained challenging with inflationary pressures and elevated natural hazard costs. We continue to respond with appropriate price increases and good management of the cost base and the result was supported by improved investment returns as well as a business interruption provision release in the first half. In banking, the benefits from growth in recent periods has underpinned the strong performance and shareholder returns improved with return on tangible equity of around 16% and total shareholder return of 28% over the financial year. I'll now take you through the results in a little more detail, and we'll start with Insurance Australia and top line growth as usual. Overall, GWP grew by 10.6%. That's excluding portfolio exits. The home portfolio grew by nearly 12% as we continue to put through strong premium increases in response to natural hazards and reinsurance costs. Motor increased by nearly 14% with premium increases accelerating in the second half, reflecting industry-wide claims inflation. We saw unit growth across both portfolios over the course of the year, albeit with growth slowing in the second half. We are confident our pricing reflects the increase in input costs, but I do remind you of the inherent lag between inflation and the earning of premiums. And note the significant GWP increase, you can see it on the slide, from previous renewals still to earn through the P&L. In commercial, growth of 10% was driven by NTI property and fleet with retention stable, stronger new business and that's despite rate increases. Remediation of packages and long-tail portfolios drove improved growth in the second half. CTP increased by about 1% with a stronger second half from improved price positioning, driving unit growth across all schemes, and then growth in workers' compensation reflected higher wages, rate increases and improved retention. Turning then to claims. The deterioration in consumer that you can see on the slide, continue to be driven by the Motor portfolio, largely from elevated secondhand car prices, which was more predominant in the first half and then supply chain disruption, which was more prominent in the second half. In response to this inflation, we've continued to increase repair capacity across both drive and non-drive networks. We've implemented the new Cape pricing model for Motor. We've improved our digital lodgment and claims management, and we've put through significant price increases, noting that they do take time to earn through the book. We've accelerated Motor pricing throughout the year in response to inflation and margins are expected to return to target levels by the end of FY '24, and we expect current Motor inflation to moderate in the second half of FY '24. Home loss ratios improved despite the significant increase in reinsurance costs with stable frequency, strong cost management and favorable mix outcomes. Commercial was slightly unfavorable as higher costs in fleet offset the benefits of ongoing pricing and underwriting actions. Prior reserve releases at 1.3%, and that's excluding the New South Wales Tapal adjustment, we're broadly in line with our expectation with some favorability in consumer and in runoff portfolios, partially offset by modest strengthening in commercial. Natural hazard costs you see on the slide, 23 a year. Turning then to investment performance for Australia. The net impact of investment markets for FY '23 was a very significant turnaround with higher investment income across both tech reserves and shareholders' funds as well as a higher discounting benefit on the claims line. The performance of our managers across most asset classes has also been pleasingly strong, and the average underlying yield on insurance funds was 5.1% with improved returns across all components. Inflationary bonds provided strong returns supporting the business through this period of elevated inflation. The average return on shareholders' funds was 4.6% with higher running yields and improved equity market performance. Now as always, we continue to assess and monitor the profile of our investment portfolio, and I note the following. We've normalized our exposure to equities in the second half as we saw market conditions improve. We further diversified our portfolio with allocations to property and infrastructure. And then we've continued to invest 90% of the overall portfolio in investment grade or better fixed income securities. The result this year in New Zealand was impacted by significantly elevated natural hazard activity as well as the elevated claims cost from those events, their impact included a $95 million. It's $5 million internal reinsurance reinstatement that was internal to the group and therefore, neutral to the group level. We continue to experience strong top line growth in New Zealand with over 14% GWP growth driven by targeted price increases in response to claims inflation and natural hazard costs. The higher working claims were driven by Motor inflation with similar dynamics to Australia and in some large fire losses, particularly in the first quarter. The prior period in New Zealand was also positively impacted by COVID-related Motor frequency benefits. Now as with Australia, we're confident that current pricing increases are appropriate to reflect underlying claims inflation. Natural hazard costs, as I said, were elevated in New Zealand with a La Nina weather pattern driving 4 events as well as elevated attritional losses, investment in K portfolio. And in pleasingly, the Life business saw a significant increase in profit in part. Turning then to the group underlying ITR. We recorded an accelerating to 11.7% in the second half. This was a good result given the headwinds of increased reinsurance costs from the FY '23 reinsurance renewal and significant Motor claims inflation across both Australia and New Zealand. The key factors that offset these were -- the impacts that offset them were significant increases in premiums in response to those headwinds, higher investment income, as I said, driven by underlying yields and then the performance of the inflation-linked bond portfolio continuing to provide that hedge against inflation. And then very importantly, the delivery of strategic initiatives that drove efficiencies across both OpEx and claims handling expenses. We continue to target a in lower moderating prior year reserve releases. These though, were offset by the expected earn through of higher premium renewal rates and then moderating Motor claims inflation in the second half. Now given the timing of these dynamics, we do expect the underlying ITR to be at the bottom end of the range in the first half, but with a much stronger second half input costs earned through in both Australia and New Zealand, not dissimilar to the dynamics we saw this year and beyond FY '24. Moving on to natural hazards for the year exceeded the allowance by $97 million, driven by those weather events in New Zealand. Pleasingly, though, on natural hazards in line with what our modeling would have suggested for a land new year, which is our third in casino El Nino weather pattern for the year ahead. We're pleased to have once again placed a comprehensive reinsurance program for FY '24. And as we outlined in early July, the key features of the program include the first event retention of $350 million with a prepaid reinstatement in place and an appropriate drop-down structures for both the group and Australia. We made the economically rational decision not to replace the aggregate excess of loss cover. We did see an increase in the attachment points in New Zealand for the New Zealand buy downs with 52% placed. And then we renewed the Queensland quota share for Home. Now as always, we performed comprehensive modeling. We take a disciplined do believe the cover place provides the best economic outcome for us. And importantly, our capital management has enabled us to achieve that outcome. Turning then to the bank. The strong profit performance benefited from volume growth and improved margins. The bank continued to deliver on its strategic objective to grow in home lending with growth of over -- around 9% over the year. And then the strong lending growth is testament to the significant improvement in processes and turnaround times that the banks achieved. Very importantly, though, we've grown this credit without compromising on quality, and I'll say a little bit more of that briefly on the next slide. Deposits grew 7% with a clear shift in mix from transaction accounts to term deposits and savings accounts as customers take advantage of the increasing rates. The net interest margin of 196 basis points was just above our target range and was elevated by deposit pricing in the first half, but offset by intense competition in lending. And that increase in competition on deposits has led to a lower net interest margin in the second half and the ongoing competition on lending and the increased income ratio improved to 51.8% but with an increase in the second half, largely from the impact of the margin rate environment. Now I'll quickly touch on the bank's credit quality. As I said, it remains really well positioned and strong in all key metrics. I'll give you a couple of examples. 93% of new home lending business was originated at an LV had a debt-to-income ratio of greater than 6x. The dynamic LVR of the home lending portfolio now sits at 57% noting, we've increased it by $10 million to $190 million. Importantly, as Steve said, this is in the context of continued inflationary pressures that have faced most businesses with wages and tech costs being the most significant contributors for us. However, and importantly, we've more than offset these increases from efficiency benefits from strategic and operational initiatives as well as the steps taken to simplify the business over recent years. In terms of outlook, we expect the general insurance expense ratio to remain flat with strong disciplined control of operating expenses, but also some investment in growing the business. And then the bank cost-to-income ratio is expected to increase, largely reflecting the challenging revenue environment, but also a modest increase in costs. Now whilst there has been no material change to the expected net proceeds from the bank sale, there have been some offsetting changes to the component parts. We now expect the separation and other costs to increase from the originally estimated $500 million to between $575 million and $600 million. This reflects largely the delay in the process as well as improved clarity on the program requirements. We'll look to update on this as we work through the revised transition time line and plan following the ACCC's decision last week. But again, I reiterate that importantly, there's been no change to the expected net proceeds from the sale of the bank for the bank sale. Moving on to capital. The capital position at 30 June was relatively flat on December with CET1 held a group of $274 million. You'll see on the chart, we've broken down a net capital usage for the half into its component parts. The FY '24 reinsurance renewal, as previously flagged, had a material impact on capital. This was partially offset by the realization of capital diversification benefits through the NOC changes we also previously flagged. I also note that the capital position at 30 June reflects the impact of timing differences that are expected to largely reverse over the coming 12 to 24 months. These include the impact on excess tech of the FY '24 reinsurance renewal ahead of the price response earning through, having already recovered a similar item relating to the FY '23 renewal. The asset risk charge from elevated reinsurance recoveries and then there are still some deferred tax assets on unrealized losses on fixed income securities. The final dividend of $0.27 per share takes the full year dividend to $0.60 per share, up 50% on FY '22. Now whilst we do acknowledge the payout ratio is lower than usual, this decision reflects our prudent and disciplined approach to capital management in the current economic environment. It reflects the impact on capital of the FY '24 reinsurance renewal. And it also reflects, as we work through the tribunal process relating to the sale of the bank. The group remains committed to a 60% to 80% payout ratio going forward, noting the factors I've just taken you through, which were reflected in the unusually lower FY '23 payout ratio. And then finally, I can't finish without talking about AAB17. I'll quickly touch on a few points there. Firstly, I'd like to note that the adoption of the standard is not expected to have any impact on the economics of the business. The financial impacts are contained to timing of presentation in the financial statements. And the key changes are onerous contracts being calculated at a more granular level, risk adjustment, which was previously risk margin being at a lower probability of adequacy and an illiquidity premium adding to the discounting of outstanding claims. Now some of the financial metrics and ratios will need to be updated to reflect the new standards, noting that we'll provide clear reconciliations to existing metrics over a transitional period. We'll engage with the market later in the calendar year on the changes being adopted before we first adopt the new standard and report on it in February of next year. And on that, I'd now like to pass back to Steve.

Thank you, Jeremy. And on this slide, I recap the strategic portfolios across the business, and I provide a high-level articulation of our ambition in each of them. I've also identified the tools that we build across the business to enable growth, to modernize the business and to make it more efficient. Now you've already seen the results we've delivered in digital sales, service and claims lodgment and we'll continue to progress to our ultimate objective of 70-plus percent of sales and service and 80-plus percent of claims lodgement delivered via our digital channels. We've also mobilized specialist automation teams to improve customer service while making our business more efficient and risk resilient. We're well advanced in exploring the significant opportunities that AI will provide to reshape the insurance value chain. And of course, we'll be disciplined around the way we invest in the business with our investment slate funded within the high-level guide rails that we've set for the portfolios and across the business. In the bank, it's now likely we will continue to own the bank for a large part of the FY '24 year. Here the priorities that we've successfully executed over the past 3 years will remain in place. We will look to consolidate our best in-market capability and broker satisfaction and turnaround times while selectively lending in our business portfolio, as always conscious of the economic outlook. As in insurance, we'll continue to leverage digital, automation and AI to support customers and to reduce costs. Now with the delay to the bank completion, we can't afford to sit still. With input costs increasing and affordability being a key issue for our customers, we have to continue to evolve the business and to align it to the priorities that I outlined on the previous slide. Now this has been the focus of the work that we've been undertaking in advance of receiving the bank approvals. Not all the changes we had proposed can be implemented now, but many can. Today, we're announcing some organizational changes that are broadly aligned to that portfolio view of our business. The first, one of the catalysts for it is Paul Smeaton, who is our current COO, insurance COO, has signaled his intention to retire from a full-time executive career. Now it looks like he's only 40, but he actually has just moved into a 60. So I think it's reasonable for him to do so. He's served with Suncorp with distinction over 30 years in a number of EGM or ELT roles, and we thank him and wish him well for the future. And obviously, he'll leave us towards the end of the year. When we put the current structure in place 3 years ago, I was keen to bring the claims function together under Paul in order to consolidate our scale and to improve the way we leverage our supply chains. This model and the best-in-class claims initiatives have served us well through an unprecedented period of hazards and inflation. But with the claims improvements now embedded in the BAU, we have an opportunity to provide end-to-end alignment of our home and motor portfolios within the Consumer Insurance division. This will bring together the whole value chain, including underwriting, pricing, product distribution and claims and provide a single point accountability for customer and financial outcomes. It's also now an appropriate time to elevate the commercial and personal injury portfolios to the ELT and to provide the same end-to-end focus. The Consumer Insurance division will be led by Lisa Harrison, while Michael Miller, who's currently the EGM commercial insurance joins the ELT, and Michael should be well known to you having served in a number of executive roles at Suncorp. The Insurance Group operations activities currently within Paul's responsibilities will transfer to Adam Bennett. The change has come into effect in September, ensuring we could hit the ground running when the bank sale completes. So finally, to the outlook for '24 and at the macro level of the operating environment obviously remains challenging. Supply chain pressures are easing. But economy-wide inflation continues to inform central bank decision-making, and this, in turn, is expected to continue to drive volatility in investment markets. The household level cost of living pressures are likely to persist through FY '24 suppressing aggregate consumer demand. Global reinsurance markets remain in a hardening cycle, reflecting adverse global natural hazard experience inflationary pressures and a reassessment of Australia and New Zealand underwriting risks. These factors impact the cost of reinsurance, the degree of risk retention, which is seen this year and ultimately, the price of insurance products to consumers. While we've had 3 consecutive years of La Nina, the Bureau meteorology has updated the likelihood of an El Nino to 70% for the upcoming spring and summer seasons. Now this accords with the views of our very capable in-house weather science team. Against this backdrop, our key strategic targets remain consistent with the previous aim of delivering a growing business with a sustainable return on equity above the through-the-cycle cost of equity. GWP growth of around 10% will be primarily driven by pricing as we continue to respond to increased input costs and we prioritize margin over volume. As Jeremy has gone through the dynamics in the FY '24 underlying ITR outlook, but they are pretty similar to in context the outcomes that we received in FY '23. Prior year reserve releases, as Jeremy pointed out, also are expected to continue to moderate to around 1% of NEP. But importantly, we've assumed this 1% within the go-forward 10% to 12% underlying ITR range. In the bank, we're targeting home lending growth to be in line with system. Competition in both lending and deposits is expected to keep net interest margin under pressure, and we expect the FY '24 NIM to be at the lower end of the 185 to 195 target range. Given the impact of slowing credit growth and lower margins, the bank cost-to-income ratio is expected to rise to around the mid-50s. At the group level, we continue to target a cash return on equity above the through-the-cycle cost of equity alongside our target payout ratio of 60%, 80% of cash earnings. Of course, we remain committed to returning any capital to shareholders that is in excess of the needs of the business. And with that, we'll move to questions. Kieren, do you want to start the team?

Thanks, Kieren Chidgey, Jarden. Steve, I might just start on Motor, which you called out as sort of being particularly problematic, and you touched on supply chain disruption being the greater impact in the second half. Can you just unpack the particular issues you saw through the second half there? And what gives you confidence that as we move through to the back half '24 that you're going to be at target margins more from an inflationary point of view?

Yes. I mean, inflation is a very broad topic and you could look at inflation through the context of CPI. But I mean, at its very, very core, you can't stop the supply chain in motor vehicle repair for 3 years, Hibernate workforce, which is very much dependent upon overseas migration and apprenticeship training and then expect it to kick up immediately overnight. So that's been, I think, a complexity that the whole industry has been focused on and has challenged the whole industry. And what that does is it elongates if the capacity is not there in the supply chain, elongates the duration of the claim. And we've seen a lot of evidence of that. Now that's the stubborn element of motor inflation. Secondhand car prices, I think, consistent with the industry, we've seen them start to moderate. We are building more capacity in those supply chains. We are diversifying, particularly on the drive side, diversifying our provider panel so that we've got more capacity available to us. And we expect that, that will -- given the -- it doesn't change overnight, we expect that, that will start to moderate. We'll get more capacity into our preferred networks coming into the latter part of this calendar year and into next year, which is a big dynamic. And then the broader inflationary elements, I think, will be pretty much in line with the trajectory that they're currently displaying.

I'll just add that, as we said before, I think that a majority of our Motor portfolio is on agreed value. And obviously, there's a lag up and a lag down on that. So you can see the secondhand car prices coming off. The agreed value, the claims will then start to come off as well. So we have a bit more confidence around that aspect too.

And second question just on the ITR outlook for '24. Just a couple of parts around that. You flagged reserve releases will be lower. I know you've kind of been indicating this over the last year or so. But can you just be clear, are you actually still expecting underlying reserve releases on a go-forward basis? And how should we think about the long held 1.5% of NEP moving forward?

Yes. So I think what we're flagging is the 1.5% becomes 1. And as we've said as well, we'll consistently review as we go forward. But whatever the prior year reserve release number will be, we will manage that within our underlying ITR stream lines. And so as Steve said, another way, looking at is dropping from 1.5 to 1 makes it underlying ITR more resilient. It's a bit more resilience to it. So we're confident that we'll achieve that. The dynamics are pretty clear in terms of the consumer portfolios that have been going more strongly, which puts pressure on just an outright ratio and the scheme reform puts pressure on it. So we probably expect it to come down over time. But again, importantly, we're going to manage that within the underlying ITR swim loans.

And just another point within the insurance margin outlook. The expense ratio, I think you're flagging is flat into next year. Can you just explain why that's kind of when the top line is growing at 10%?

Yes. So when we think about expenses, we've got a process where we think about them in terms of running the business and growing the business. And so when we talk about that disciplined management of the operating cost base, what we'd look to try and do is achieve a flat year-on-year. So eat inflation with efficiency gains for that component of the cost base. But we want to sustainably invest to grow the business. And so again, what we've seen over a number of years at Suncorp is we have invested in the business, but it's been outside the underlying ITR stream lines. And so what we want to do is make -- get that underlying ITR set up to be a sustainable number. And so there is investment in the business. But when I say investment, there's growth in commissions, there's -- because we're growing the business, there's a little bit of growth in advertising because -- and marketing because it's a good investment return for us. And then there is some sensible investment in proximate things to the business around technology customers, et cetera. So that's the logic around it.

Siddharth Parameswaran from JPMorgan. Perhaps if I could just continue the theme of inflation. I was wondering if you could just help us understand what level of inflation you are actually seeing in some of your key portfolios. So Home, Motor, New Zealand commercial, Bear in mind that particularly -- I mean, you haven't mentioned Home at all. I think you'd said 6 months ago, inflation was very low digit negative, I think, a year ago. I was wondering if you could just comment on where that is now and the outlook for inflation over the next 12 months on those key classes as well.

Well, I'll start with Home and Jeremy can go to Motor. I mean, Home has been a very good story for us. And it's very much where the best-in-class claims initiatives have been really brought to bear I think the inflationary elements on the building elements of Home are flat, maybe even slightly down year-on-year. Our contents are up. Obviously, that's more reflective of the CPI-type inflation but certainly being constrained at the 3% to 4% type level. On Motor?

Yes. We might -- we're sort of inflation's running in the double digits, and that's both in Australia and New Zealand. There's also -- so when we talk about inflation, we don't, but the temptation can be to think about the claims cost. And obviously, the 2 components is frequency and claim size. We are seeing some increasing -- we have seen increased frequency on Motor, not to beyond where it was back in 2019, but probably back to -- it's back to where it was in 2019. So we've seen that reversion in frequency, which comes through, obviously, the claims cost line. And then in terms of the average the average claims cost double-digit inflation there and in New Zealand, similar dynamics in New Zealand across those 2. And that's what we're expecting to continue into the first half in both jurisdictions before starting to come off in the second half.

Commercial?

Yes. Commercial, different portfolios. What we've called out today's fleet has had some increase in claims coal fleets now sort of seeing similar trends to the consumer Motor portfolio. Inflation in the rest of the Commercial portfolio is pretty still pretty benign.

Okay. Maybe if I could just ask a question just on maybe just some scenario analysis around the bank. If there is no bank sale at all. I was just wondering if you could comment on what the CapEx requirements might be for the bank. I mean, I think in some of your submissions you flagged that the bank would need a large amount of CapEx. So obviously, it's part of your thinking as to why you're getting rid of the bank. I'm hoping you could provide us some idea about this given that it is a realistic possibility now?

Look, I don't want to get into precise scenario analysis said because, as I mentioned in the presentation, we remain confident that the process will conclude through the tribunal. I mean, the submissions that we put in go very much to the capital consumptive nature of insurance, which has stepped up materially. I mean banking is capital consumptive as you grow the bank, you do consume capital. I mean the bank generally is in reasonable shape in a technology sense, so we will have to continue to incrementally invest in it alongside the insurance business, if that were to be the scenario. But again, I don't want to get into precision around what that might look like. If, in fact, the outcome of the tribunal was not what we hoped, then would certainly regroup around the strategy and work out how we take it forward in that sense that we'll be reopen with the market around that. But I don't think now is the time for us to be speculating around what that might look like. We will contemplate it if that were to be the case.

Okay. Well, just 2 questions then if the other scenario plays out and you do get rid of the bank. So firstly, just around capital, just a question of whether the current capital requirements, particularly on GI are reasonable given that you'll lose the diversification benefits with the bank? And the second question is just around the restructuring the organization. I take it, Steve, that's assuming everything goes through. So if it does go through, is that the new structure yourself, Jeremy, you're all committed to stay? Is that how I should be interpreting the...

If you've heard something I haven't, but No, I mean the structure is simply -- well, firstly, there's the catalyst that Paul's retirement, which is an opportunity. And when I came into the role, one of the key priorities to make sure we can consolidate the claims activity to get the momentum and scale and the best-in-class claims initiatives in place. It's now probably the right time to move the claims teams into the vertical of the insurance business. So that will kick off in September. That's here. We're getting on with it. We're going to do it. And if we -- as we expect to complete the bank transaction sometimes next year, we'll just refine that and see what adjustments we need to make, but that's going to be in place straightaway gives us an opportunity to improve the end-to-end alignment in the business from the customer all the way through brand marketing, distribution, product pricing through the claims end-to-end. It's this way that we've successfully run the bank in New Zealand to date. So that's a refinement.

And on the capital, there is a modest -- we expect there would be a modest capital impact on the loss of tax sharing across the group. We'll be pretty modest. We've got that factored when we talk about the net proceeds. That's factored into the net proceeds number, the target change there. And of course, we've never really been able to extract from a capital perspective, all that diversification because APRA regulates each of the entities on a stand-alone anyway. So the key impact that we see, it is pretty small is on a diversification benefit of tax sharing arrangements between the 2, which we've allowed for.

Okay. Why don't we go down the end here. Let's move down here, and then we'll come back to you and Nigel.

Simon Fitzgerald from Jefferies. Obviously, the increases in premiums are hurting customers, and we've seen that through the press, et cetera. It may very well turn out to be a bit of a political hot cake, but I'm interested to know from your perspective, what you're sort of seeing in terms of what changes you might be seeing in terms of customer behavior changes in insured sums, but also if you had any thoughts on the political issues around increases in premiums, et cetera?

Yes. I might get Lisa to go directly to the consumer end of it in terms of the political end of it, I understand, very conscious of it. I think the dynamics are reasonably well understood by both regulators and politicians. I mean we are seeing a once-in-a-generation reset of risk from global reinsurers. We've seen it over the past 2 or 3 years. That hasn't been the case 10 years ago where they were very happy to deploy their capacity into Australia and New Zealand and get the diversification benefit, support their credit rating. And probably, in aggregate, this is a very broad assessment, but spend less time focused on underwriting risk, whether they are inherent perils in Australia and New Zealand. That's turned around now. So we've seen this material reset. I think that is well understood in Canberra and by regulators. So I think that's one element of it. I think the industry needs to do more and the ICA is leading a lot of that as are the insurers as are we trying to lead that. Firstly, digital is a key element of it. Product innovation is another key piece of it. We have to respond to the customer need and we have to create affordable insurance products. They might not be the same as the ones we've traditionally provided. They might be slightly different. But as an industry, we've got to regroup and do better at that. I think that's a reflection. And I think that will be a lot of the focus that we'll see over the next 12 to 18 months. I do hope the dynamics are reasonably well understood, but we have to continue as an industry to articulate the value of insurance. The resilience and mitigation issues that we're steering into the role of government to support that with investment. And it's a long-dated argument, that one, and we're making progress, but we're not there yet. Lisa, do you want to talk about the dynamics on the retention?

Yes. So as Steve said, we are very alive to the affordability challenges. In terms of what we are seeing from customer behavior, we are still seeing strong retention rates albeit we have seen them come off a little bit, more so in the second half. What we've also seen is an increase in shopping behavior in the market as well. And so our investments in our brands as well as digital first sales and servers has held us in good stead in that regard. And we are seeing more customers being more interested in understanding how they can save. So we have started to see a continuation of that trend of customers changing their excess levels, albeit though when you look at excess levels, there's still well within -- we'll sort of under that $1,000 mark for customers. And I think the other thing, as Steve said, is we are continuing to invest in our product development teams to think about other ways in which we can help customers save on their insurance premiums on the long term.

That's very helpful. Sorry, one more question on the bank. I know that you said that you're prepared to support ANZ through this process. I'm interested to know in terms of footing for the legal bills, does that sit with ANZ? Will they be shared between the 2 of you? And also just how far you're willing to take this in terms of if it is rejected by the tribunal, would you be happy to see it through federal courts, et cetera?

I think I'll take it one step at a time. Again, I'll just reiterate, nothing we've seen in the process to date reduces our level of confidence. That's not the presupposed the outcome of the tribunal, they've got a job to do. They've got evidence to review. So I think that's -- we'll get through that step first and contemplate anything if that were to evolve. In terms of the legal bills, unfortunately, we'll have our own team, very capable team in that process alongside the ANZ team. So Yes, the longer these things go on, the legal bills do continue to evolve, but we'll have our own representation and team. Scotty and then back to Nigel.

Scott Russell UBS. 2 questions, please. Firstly, on capital and reinsurance. So the capital positions tightened up as at June and part of the reason for that is the new reinsurance program. Can you comment on the significance of APRA's letter last week and Suncorp's appetite for cat bonds in the future, to what extent that might help?

I mean we'll sort of -- we'll consider that as we sort of frame the program going forward. But year-to-date, there haven't been something that's been economic for us versus the traditional part of the program. So it's something we'll consider. I think we are lower in the range. But importantly, when you look at the capital position, we are slightly above our target level. And the reason why we're lower than we were this time last year in December is because we expected to have a pretty tough reinsurance renewal, which we've had, and therefore, the excess capital we've been carrying for that we've deployed to it. And as I said in my notes that what's that's enabled us to do is to actually make rational decisions around reinsurance. If we hadn't had that capital, we wouldn't have been able to make economically rational decisions. We would have just been a price taker. And so it's that element of it, at least, it's probably been a little harder than we thought, but it's played out sort of as we expected.

Okay. Second question is on New Zealand. In the second half, the ITR was minus 2%. I appreciate some of that is the internal reinsurance premium back to Australia. But I'd be interested more in the Home claims. It's somewhat surprising that Motor is still seeing bottlenecks whereas in Australia, that seems to have peaked it and come back a bit. I just be interested in any comments you can make perhaps around the effectiveness of Suncorp's panels in New Zealand relative to Australia and how that's insulating against claims inflation broadly.

Thank you. Look, on the -- I'll talk about Home first. It's fair to say the first half of last year, you could see the inflationary impact coming through the Home book and the pricing was responding to that. The reference point we look for on the Home book as the Cordell Construction Index, which over the last. And how we manage those claims, we were seeing sort of sub-3%. So we're sort of managing the Home book in line with or better than inflation. On the Motor side, what we've seen is to assess the Motor claims because of the events and so the capacity constraint in the environment was difficult. We are seeing some improvements sort of coming through in terms of claims management. But that's kind of how we're seeing it improving.

And then, Steve, from your perspective, how does the effectiveness and the structure of the panels in New Zealand compared to what you've established here successfully in Australia?

Yes. I mean, obviously, it's a different market. So -- and we have -- we built an element of capacity for Smart in New Zealand in Auckland, a couple of sites, but only a couple of sites. And so I don't think it's materially different to Australia. I think it's more diversified than it is in Australia. And obviously, that hasn't typically allowed us to get the consolidation of volume that we have had in Australia. But I don't think the outcomes in New Zealand have been particularly different to what we've seen in Australia over the last 12 to 18 months. And we just got to continue to -- I mean, the bottleneck issues that we've had have been similar in both jurisdictions and probably compounded somewhat in New Zealand by the events and the impact -- the dislocation of the events have had on Motor assessing capability and the volume of claims that have been in the market.

Last one, Jimmy, premium rate increases on Home and Motor, similar to what we get here in Page 11 for Australia. What are you putting through at the moment on those portfolios?

Yes. Look, on the Home side, we've sort of gone early last year when we saw the inflationary impacts come through, we're seeing high teens coming through. And on the Motor side, we saw sort of between 5% and 10%, M&I putting mid- to high teens in the Motor book across the portfolios. It was fair to say that the AA channels got the bigger Motor book. So we're seeing -- we'll see sort of more sort of elevated premiums coming through that book. But generally around, that's the range we're thinking of.

Nigel Pittaway from Citi. First question, you sort of touched a little bit on this already, but I'd be interested in more insight as to why you think your unit growth moderated in the consumer portfolios in second half? And in particular, can you confirm that the Home units probably went backwards in the second half? Is that...

We've taken quite a purposeful approach to both of those portfolios and have done for some time. So that is what we have prioritized to some extent. And then similarly now with Motor that we've felt the need to prioritize. So you can see, feel that we're putting a lot of price through both of those portfolios. What that does mean is it -- and everyone is doing the same thing, it increases people shopping on both Home and Motor. But one of the pleasing things for us is we have seen an increase in our new business across all those channels as well as we've invested in search engine marketing, et cetera. Lisa, you want to add?

So Nigel, you are correct in terms of the second half. We did have some unit losses in Home. Premiums also went up in the second half, and we did start to see retention come off a little bit in that regard. As Jeremy said, new business was strong. One call out I'd have in Home portfolio. Terry Shire is a very strong brand for us in the landlord segment had a derate in the second half, consistent with what we're seeing in terms of investor buying activity.

On a kind of similar vein, but in the opposite direction, you did mention that seat probably expecting that to pick up a bit more. Can you sort of just maybe give us some insight as to how you're going to manage that and how you're going to preserve your margin during that process?

Referring to Queensland CTP, I assume, Nigel. So look, that's something that we are in the throes of working through the regulator in Queensland is in the process of allocating the first quarter. So the third quarter of this year's book to the existing insurers. But for us, so we'll work through that with the regulator. But the critical element for us is really sensing because we need that to make sure the economics stack up for us.

For '23?

From the aggregate, yes, test. We just above the $10 million, just didn't quite get there. It was actually sort of state it was a fair bit short in the end.

Yes. And sort of Nigel in forms, whether or not we bought it again. I mean, obviously, it was going to be very challenging to buy it in any set of circumstances. But given the nature of the events that we saw in '23 and the fact that we still ended up $100 million short of the attachment point probably didn't make a lot of sense for us to repurchase it at the rates at which we were potentially going to be paying.

Yes. The buying decision became quite clear on it. I mean it would have been totally economically irrational to purchasing.

And again, I know there's some level of discomfort about where you have to set capital positions. But again, to be in a position where we can make those decisions because we've got a significant enough buffer on the balance sheet to allow us to make the economic decision, I think, is in the best interest of shareholders in the longer term. If you haven't got that buffer, your -- the options that you have when you're in that purchasing process significantly limited. And let me tell you those last couple of days of negotiation. There's some pretty healthy negotiations going on and some pretty elaborate pricing coming through. So being able to take commercial pragmatic decisions because you've got capital deployed is a big benefit, not one that I never want to get on the wrong side of that negotiation.

Michelle Wigglesworth with Australian Ethical. The one center generation reset in risk from the global reinsurers, do you think this is structural or it could be cyclical if their returns start getting better? Like is this something that's going to be permanent? And if other insurers start buying less, could they see that as an issue like you haven't purchased the aggregate this time?

Yes. I think there has been a structural change. But having reset, I think it then moves back into a cyclical phase, which will be very much related to capacity demand and supply. I mean it's an efficient market in that sense. So I think it will move into a more cyclical nature. It has gone through a structural change. So you saw that through the pricing in -- as we move into FY '23. And you've seen it through capacity in FY '24 the issue this year in '24. And so I think we did a good job to hold at $350, and that was a good outcome for us. I think our assessment would be we're moving towards the end of the structural reset. We look at the reinsurers profitability loss ratios in reverse, so we can sort of see what those loss ratios look like. And we're probably getting to a point where we're feeling like some of the structural adjustments have been made. And then I think we get back into a more cyclical element of it, which will be reflective of what experience looks like as we move into another weather pattern, what that looks like for Australia and New Zealand, what capacity is in the market and available to Australia and New Zealand. I think once reinsurers get more comfortable with underwriting risk back in New Zealand, again, they'll start to come back into that market as well. And so I think it will just take a little -- and again, we're always leveraged in Australia and New Zealand and what goes on globally. So what's happening in the Northern Hemisphere is also relevant to us in terms of how much capacity reinsurers have in a macro sense. So I'm hopeful the structural change is done and we can get back into a more somewhat predictable cyclical review. Andrew?

Andrew Buncombe from Macquarie. 2 questions from me. The first one is in relation to the separation costs of $575 million to $600 million. Just trying to wrap my head around how much of that effectively becomes a sunk cost now? And if the bank sale actually falls through, is there a scope for that number to actually go higher to unwind what you would have already spent?

Yes. Look, the, call it, $600 million that was previously $500 million. There's an element of that, that is around dealing to stranded costs. There's an element of that, which is around sensible, prudent positioning of the balance sheet around the sale, indemnities, moralities, et cetera. And then there's an element of it around the actual transition costs themselves and then there's a transaction cost. So the transaction costs not sunk because half of them might be half or not because obviously success fee elements around that. The transition program itself, which is where all of the changes come to delay the legal costs, et cetera. And then when we set the original number, we actually hadn't done any of the detailed transition planning. So we've now got clarity around all of that. So the element that is the actual transition plan itself, which is sort of around half of it. There will be an element of that, that is beneficial to us. So it's an element of that, that makes sense for us to separate out so we can have the bank operate on a more stand-alone basis. But there'll be an element of it that is -- that introduces a stranded nature to it. So there'll be a bit of a mix of both, but there certainly some benefit everlasting benefit if the sale didn't go ahead in those costs. But I'm not sure that we would be looking to incur more to unwind stuff. We've got to work, but we've got to work through all of that, yes.

Sure. And then my second question was in relation to the Motor claims inflation outlook. My understanding is that the AMA contract still isn't finalized. Can you give us an update on where that is and how you can have confidence in your claims inflation outlook when that's not cut yet?

Well, it's not finalized. We hope to be in a position soon to be able to conclude that. I mentioned earlier that we've built significant diversification back into our drive book with some contractual arrangements that we've put in place. But I think we're sufficiently confident of what that looks like to be able to give that assessment around when we expect Motor inflation to start to moderate into the second half. And some of that direction into the second half is to make sure that we can -- we're reasonably conservative about how we can land those contractual negotiations.

And I do remind like it's an important part of our repair network, clearly. But just to be clear, it's 15% of our Motor repair cost. So it's circa 50%, 45%, 50% of volumes, but it's a much smaller share of the total cost.

Andrei Stadnik from Morgan Stanley. Can I ask my first question around the bank. So the net interest margin reversal first half to second half is probably one of the largest we've ever seen, 2 or 3 moving to $189 million, and that happened as both loans and deposits unusually saw pressure. Can you talk a little bit about how you want to manage the margin going forward? What confidence can we have that those conditions will improve and stabilize?

Yes. So you're spot on in terms of the move half-on-half in our margin, as Jeremy and Steve touched on the competitive dynamics in the market, and I'm not saying this just because of the ACCC process, they are very, very real. And we saw the big shift that occurred between half 1 and half 2 around deposit competition stepped up quite significantly in half 2. And so if you look at the drivers of the margin move in half 2, it was a combination of both sides of the balance sheet. And that meant that our margin in half 2 was 189. If you recall, our target range is 185 to 195 basis points. Our exit NIM was at the bottom end of that range. And I think if you're asking what the outlook is, you'll see what some of the other banks report and what they signal, but we certainly expect margin pressure to be sustained. You just need to look at the big dynamics, the drivers of that. Year system growth is slowing, but you've got the TFF that is being refinanced its $188 billion that is being refinanced across the industry, a combination of wholesale and customer deposits. So those big drivers are what's forcing competition to occur. I don't see them dissipating materially.

And my second question around group capital. So you've highlighted some of the capital headwinds and temporary. And can you give us a feel for what dollar figure will potentially own 1 and 1 year view? Is it something in the $200 million to $300 million range on a 1 year the could unwind?

It's probably sensible number around it. So if you sort of break it down as the excess tech impact of the FY '24 reinsurance renewal that we called out in the ASX in July. So you can see the number on that's about $100 million. The one thing I'd just point out there is that we can see -- we call that a similar number for the FY '23 reinsurance renewal. I'm not sure if you believe us that we're going to see that, but we have seen that reverse. So as we put the pricing through, we've seen that come back into capital. So we're pretty confident we'll get that back over the next 12, 18 months as the pricing goes through. And we can already see the renewal go through. So we have some confidence around that. There's the deferred tax assets on the -- I call out the unrealized losses on the fixed income because we know what the turn of that portfolio is, whereas the equities are a little bit harder, is give or take $50 million on that. And then the other one is the asset risk charge on the elevated reinsurance recoveries, which is smaller, it's in the 10. So those are the sort of the approximate quantums. And 12, 24 months is time frame.

Antonio Hoo at CLSA here. I just had a question around your outlook. You've given FY '24 saying midpoint of the range in terms of insurance margin, at the same time first half be the bottom and obviously implied second half will be at the top end. Now is it a good base as we move through the year into FY '25, the top end of the range, and we've also said expecting ongoing margin improvement. So I'm just wondering if you can give us some comment around the medium-term outlook.

I'll just put one caveat around all of that back to Michelle's question around the structural or cyclical nature of reinsurance. We have one reinsurance renewal, which you'd have to go through. So relevant is my response to that, how much structural change is left to go and what the outcomes of this year's weather patterns look like and what experience looks like.

Yes. I mean we would like to see that sort of trajectory on margin continue. Once it starts to get -- once the underlying ITR starts to get above 12%, the return on tangible equity, which is the sort of market dynamic, if you like, gets well over 20%. So we'd like to see it head higher than the mid 10% to 12% beyond FY '24. We have taken on -- we're conscious we've taken on some more risk on reinsurance, et cetera. So we think that's appropriate. We can see a trajectory for that. We can see the renewals we're putting through the earn-through. The caveats around it are, as Steve said, reinsurance, but we've, I think, been in our sort of outlook view, sensible around what the next renewal looks like. Investment markets, we have a view around that, but they could -- they're pretty volatile at the moment. And then the other one is -- that's in front of us today is work in claims. But as we said, we understand where the inflation is coming from, and we have a view that, that should come off in the second half. So you put all that together, and we should continue to have trajectory beyond FY '24 and FY '25.

Can I also ask quickly just on Motor inflation. We've talked a lot about that already. You talked about what's happening in your business now at the moment. But you've also said you're expecting second half to moderate a -- just wondering if you could give us some more concrete insight into what gives you the confidence into the second half, which is, I don't know, 8, 9 months away? What are you seeing that actually gives you the confidence?

Yes, it's not quite 8, 9 months away. It's sort of how we're talking January forward. So what gives us confidence back to Andrew's question earlier. I think the nature of inflation in Motor has been quite challenging for the whole industry, and it's fundamentally at the moment around supply -- the supply chain around the availability of repair capacity. And we always anticipated that, that doesn't come back overnight. You can't flick a switch and reenergize all of these repair, the repair capacity that we had pre-coded particularly as we've seen frequency step up pretty quickly over the past 12 to 18 months. So I think our -- well, I know our confidence comes from those bottlenecks starting to reduce, which goes through the duration of the claim, the requirements for us to have higher cars for longer, all of the downstream impacts of having a supply chain that's got bottlenecks embedded in it. So I think that's the fundamental one. We can make assumptions around used car prices, the more traditional elements of inflation, parts, supply. I'll make the point, the other thing that gives us some confidence about the general direction and trajectory is the third-party recoveries that demand, the third-party demands that have come in, which into our book, which continue to exhibit similar levels of inflation and what we're seeing in some cases, higher. So I think it's imprecise given the nature of the inflation we're seeing in Motor, but I think the big variable that gives us confidence is the unlocking of those supply chains, the capacity that's going to come into the repair network, the diversification that we've got in the repair network now, the fixed price nature of the contracts that we've got gives us confidence that the second half into December, January, February was when we start to see the moderation. Okay. Just before we go, another question, just anyone on the line or on the webcast if you want to want to ask a question, we'll move to the phones soon, but I haven't got any there at the moment. So another question in the room? Kieren?

Kieren with Jarden. Just a follow-up question around reinsurance and cap budget outlook for next year, given you're retaining more risk, obviously, the result and your earnings variability more dependent on that budget being reasonable. Can you just talk to the back testing you did for the new reinsurance program where that $1.36 billion sits? Is it sort of the average of the last 5, 10 years? Or was it sufficiency?

Yes. I mean it depends on -- obviously, it depends on which -- and conscious of the last 3 years have got 3 La Nina in them. But the point I made was that -- the group natural hazard outcome for FY '23, the $97 million ahead of allowance is what our model would have told us a La Nina year would give us. And so that starts to give us some confidence that the model is doing the right thing. We've actually -- there's been a modest increase in the modeled outcome for the year for FY '24. So beyond inflation and reinsurance changes, et cetera. We've also taken opportunity just to put a little bit more strength into that allowance. So I think -- and when we do back test it, probably, it's -- it will be sufficient to cover the actual outcomes in -- by 5 or 6 out of the last 9 something of that sort of order. So I think we're -- what we've said all along is that we have been very disappointed that we've had the 3 La Nina because having lifted the natural hazard allowance at the start of them, it hasn't really given us a lot of opportunity to demonstrate that through the cycle, it's the right number, but we are getting more hopeful that as we face into an La Nina that we're going to have an opportunity to demonstrate that.

And before we get -- and I think the contrast in the business, it's designed to land with the allowance or below the allowance on a far greater level of probability than has ever been the case. Going forward, we'll have 1% backed out of the underlying margin for reserve releases. And we will be contemplating continuing to invest in the business to allow it to continue to grow. And so within the dynamics of that 10% to 12% range, which as Jeremy said, longer term, we'd like to be towards the top end of that range. And obviously, we will continue to reassess the adequacy of that range relative to the risk that we've taken on with the new reinsurance program. So we've transitioned the business in a core underlying manner from 3 years ago to what it is today in far stronger shape, I think, as we move forward. Whether will be what it will be investment markets will be what they will be, but we're in a lot stronger position to be able to manage those factors with the strength of the business today versus a few years...

Just a quick question just on the bank. Just sustainable cost-to-income ratio. I mean, you've been trying to hit 50, but you haven't seen 50 except for the previous half.

Just give us a little bit of credit.

But I mean, obviously, more competitive environment, just your thoughts around that on a go-forward basis if the bank remains.

Yes. I mean, like I don't think if you haven't been -- I know you have, but obviously may not have been reading all the submissions that we've been putting into the ACCC process. I mean, it is tough for regional banks. We think that there would be a pathway to get to 50, and we should be able to sustain 50, but for the short term with the significant margin challenge that we've got relative to the competitive environment that we're steering into, that's going to be very tough to deliver. But as we move forward, obviously, Clive very much focused on digitizing the business, automating the business, using AI, all the things that we're doing in the insurance business also apply to the bank. And so we've got to be ever vigilant around the cost base to make sure that we can continue to drive down costs so that when margin falls that we've got a buffer against that cost-to-income ratio. Clive, do you want to add anything?

Yes. As a relatively small bank, you should expect a bit of volatility in that CTI and the margin pressures that I mentioned the ongoing mix shift that you see from customers moving out of low-yielding transaction accounts to higher-yielding savings accounts. Those are other structural drivers that where we are in the cycle, they will put everybody's CTIs under more pressure in times to come. We've signaled will be in the mid-50s. We expect for FY '24. That's still well below some of our midsized bank competitors. We will be in that target range over time around the 50%.

Okay. And we've got a question online.

Thank you, Steve. [Operator Instructions] Your first question comes from Julian Braganza from Goldman Sachs.

Just to follow up on that last point there. So just to clarify what you're saying, even if the bank sale doesn't go through those targets that you've got there for the cost-to-income ratio should still be relatively sustainable through the cycle, the mid-50s target that you've got there?

Yes. Look, I don't think Clive's providing forward guidance. I mean we've given guidance for FY '24. I keep reiterating our confidence around the bank process for the business going forward. So I think in terms of where we are, given the levers that we can control over time, we should be able to aspire to cost-income ratios around the 50% range go forward. But again, we'd have to come back and update that I don't give that as firm guidance just in a minute.

Okay. Great. Then just on margin. So I mean, you've provided a pretty clear picture just in terms of trajectory for margins, how you're thinking about it, building more resilience into that 10% to 12% number and a bit more stability in the business, et cetera. I guess just from a top-down strategic perspective, just keen to understand when the focus will start to shift towards volumes and in organic growth and just dealing with market share issues and the like?

Yes. That's a very good question. I think, goes to the reason why we want to continue to invest in the business because if you just let the franchise tool, then you rely too much on average written premium growth and not a combination of average written premium and market share, then the franchise deteriorates over time. And I guess, a few years ago, there was potentially a risk of that. That's why we've said about through the program of work that was in the plan that we put in place in FY '20 was fundamentally about improving the quality of the business through an expense ratio view through a loss ratio view, making the business more resilient. And so that will give us the capacity within that sort of 10% to 12% range to be able to make an appropriate level of investment in the business. And that, in turn, will drive growth. I think we're poised at that level now where we've done the hard work. We put the foundations in place. And the program of work that we've articulated with the Board, and we would like to introduce, I would like to have introduced sooner rather than later through the completion of the bank transaction is where we start to build on that, invest in the business, grow the business. But at all times, doing it within the guide rails of the underlying ITR guidance that we've given, which translates to returns on tangible equity of high teens, 20%. So there's a framework and a rationale for the business now and a platform that we've built that we want to springboard off. And again, that's the sort of way we see it. We don't want to just drive a margin-only business because without investing in the franchise longer term, it's a deteriorating story over time. We think we can create a growing resilient franchise within the guide rails that we set for the business that we've articulated of the foundation that we've built.

And Steve, without wishing to be defensive to the question, but Motor, I think we've seen unit growth it's probably, give or take, over the last few periods, around system level. We're starting to see growth in commercial portfolios. We know we've got some work to do on packages, but we've got clear line of sight around that. We're growing in CTP. We're growing in New Zealand. We're growing in other portfolios. So the one that we've had challenged with most has been Home, and I think we can see a pathway through to getting back -- getting that portfolio back into margin and then -- because that should be pretty imminent for us and then back into a better growth profile.

Okay. And just to be clear, for the GMV guidance of 10% largely red driven in FY '24. So really, it's more of an FY '25 story around volumes and making a bigger contribution to GWP going forward?

Yes. I think in that 10% number, I mean, that is -- a GWP growth that sort of level is always going to be predominantly AWP because system growth is going to be below that. So we'd expect a component of it to be system growth, but the majority of it is going to be AWP, which is always going to be GWP at those sort of levels.

And also, I guess, there's always the overlay in insurance of risk selection, and we've been through quite a material remediation of our Home book given the risk bias that it might have had 5, 10 years ago, we've been progressively remediating some of that risk profile of the book as we've become more sophisticated around the way we assess risk, the way we, for example, map flooding risk and the way that we've introduced the more sophisticated pricing engines, which allow us to disperse input cost increases more appropriately across the portfolio, and that's driving a better risk mix in the book today than we might have had 3 to 5 years ago. But it does impact on aggregate unit count and market share as we go through that remediation process.

Okay. And just last question for me, just on the capital target. The general insurance business, so the capital target there for the CET1 ratio has widened quite a bit. But can you to understand just how you get that and also getting to the top end of that range? What will the take and the time lines on that?

Well, I think the CET1 range for the insurance business is it's a sensible number in the context of reinsurance, the sort of things we think about in terms of what we want to have that target range therefore. We're not saying that we would necessarily aim to be in the top end of that range. The range is there for a reason. The -- where we've landed this year is around the midpoint. And I think the one thing I'd just encourage people to just to make sure they're clear on is where our ranges sit relative to other peers in the industry. We carry -- in terms of target ranges, last time I looked, quite significant more strength around CET1 ranges. Similar numbers around total capital, but CET1, we carry quite a relatively robust target range for CET1.

Okay. And that question is more on the line. Andrei, do you want to ask a final question?

I wanted to ask just around your comments on the risk reward on the margin going forward, given that you are taking on higher retention and so you want to drive a higher margin outcome. What kind of margin benefit you're actually getting from the higher retention? For example, do you drop the aggregate cover? And that feels like alone could be provided almost 1 percentage point uplift in your margin. So we're thinking about the right way? Like what kind of margin benefit are you getting from the higher retention?

Yes. I mean the -- certainly, there is in isolation, some benefit on the AXL because, as I said, it was becoming totally uneconomic. So certainly, in isolation, there's some benefit on that component. But when you put all of the reinsurance components together, all the drop-downs, the -- and that's the main catch. There's not much in the way of net benefit out of all that. It's difficult to look at it that way because, obviously, most of the change to our natural hazard allowance this year has really come through the higher retention from reinsurance. So you've got to look at it as a package. It's hard to sort of just look at reinsurance and natural hazards in isolation and just look at reinsurance in terms of what the impact of the renewal was, it has to be looked together. But -- so yes, I mean, in isolation, the AXL clearly gives a margin benefit, but that's not what you see when you look at it in an overall context.

Okay. Any last questions here? More online? Thank you very much for attending, and we'll see you all over the next couple of weeks.

Thanks, everyone.