Well, good morning, everyone, and welcome to our Shelley Street offices. What an impressive lineup we have here. It is quite daunting standing up here. Unusually well attended. Thank you very much for coming along. Let me begin by acknowledging the traditional owners of the lands upon which we meet and pay our respects to elders past and present. Today, our intention is to give you a clear view of where Suncorp is positioned and the capabilities that we have built and how we are converting those capabilities, importantly, into sustainable growth and to long-term returns. You will notice today's agenda is slightly different from our previous investor updates. We have deliberately kept the formal presentations a bit shorter so that we can create more space for discussion and for interaction.
In the roundtable that will follow my presentation, you will hear from the ELT about their priorities and how they will drive growth. This format will also provide those executives in new roles an opportunity to discuss their immediate and, more importantly, their longer-term priorities for each of their portfolios. I will then move to Jeremy, who will cover the financial settings, and there will be plenty of opportunity for Q&A before we farewell our guests online, while those here in the room will rotate between four breakout sessions showcasing AI use cases, our Home Repair business, our Digital Insurer program of work, and our Vero Specialty Lines growth engine. As usual, I would remind you at the start of the presentation how value is created at Suncorp. Our purpose is building futures and protecting what matters.
It is delivered through our people in support of our customers and the communities in which they live. When we do these things well, in that order, the financial outcomes will follow. We introduced this slide at the FY 2026 results, so I will not repeat all the details we covered then, but the central idea remains the same. Suncorp's transformation is an evolution with clear and distinct phases. The first two phases established the foundations. We exited non-core businesses, we reduced complexity, and we have invested in modern platforms, data, artificial intelligence, and resilience. Our focus now turns firmly on the third phase, leveraging those investments to deliver better outcomes for both shareholders and customers. This is important because insurance will fundamentally change over the next decade. It is clear to us that insurance needs to keep pace with the evolving expectations of its customers.
Customers increasingly expect products and services that reflect their individual circumstances. It is called personalized insurance, and it is something we have been talking about for quite some time. To meet those expectations, insurers will need modern, intelligent, cloud-based core systems that allow agility and innovation in product design. That is fundamentally the reason why we have made the investments that we have, and we will talk through them sequentially over the course of the morning. The fourth phase remains the longer-term value opportunity, where having leveraged the investments that we have built to drive growth in the core business, we seek to unlock new growth opportunities. We see scope to participate more broadly across relevant insurance value chains and to evolve our business model, but in a disciplined way. The immediate priority, however, is execution in phase three, and that is the focus for today.
How we convert the investments already made into profitable growth and sustainable shareholder returns. To the next slide, which you can see is the strength of the positions that we hold across each of the portfolios. At the aggregate level, we operate in large, attractive markets with sizable revenue pools and structural drivers that support ongoing premium growth over the long term. These industry tailwinds support long-term growth, but the more important point is where Suncorp has opportunities to outperform. In home and motor, one of the clearest opportunities is our loss ratio, where we are currently operating above our peers. Through initiatives such as Home Repair and the enhanced fraud detection, which we will take you through later in the day, as well as our enhanced risk selection, we see a significant opportunity to drive savings in claims and then to reinvest those benefits into pricing and customer growth.
We also see significant opportunities through AI-enabled distribution. With our strong foundations, that multi-brand portfolio, market-leading brands across Australia and New Zealand, and the existing digital capabilities that are already built and in place, we are well-placed to capture the opportunities from AI disruption. Again, we will demonstrate one of our early propositions in AI-enabled distribution in the breakout session. In commercial, Vero Specialty Lines provides a particularly attractive growth engine, allowing the capability to expand into segments where we have historically been absent or underrepresented. Six products have already been launched, including three during FY 2026. But the bigger opportunity is the repeatable capability we have built to identify market gaps, to develop specialist propositions, and to bring them to market with the disciplined underwriting and strong broker support that have been hallmarks of our commercial insurance business for the past decade.
Finally, in New Zealand, we have a strong franchise with a clear opportunity to deepen penetration across AA Motoring Clubs' one million member base and broader customer reach, alongside additional opportunities to expand our corporate partnered relationships in New Zealand. While the structural growth drivers are supportive, our focus is on the opportunities where we have a clear right to win, giving us confidence in our ability to outperform. While the opportunities are clear, the question is why we believe Suncorp is positioned to capture those opportunities. The answer lies in four competitive advantages, and our leadership team will spend a bit of time covering these during the round table discussion. Firstly, customer access. We believe our wholly owned, wholly owned multi-brand portfolio allows us to access a broader customer base than any of our competitors. Secondly, technology leadership.
Combining our customer access with investment in modern cloud-based systems and our ongoing AI transformation, we can deliver leading customer experiences at a lower cost to serve, therefore, driving growth. Third, our scale, which we are able to leverage across our supply chain, our embedded repair networks, and our claims operations to deliver market-leading event response and better outcomes for customers. In pricing, our rich data sets and our deep underwriting expertise support pricing excellence and risk selection. Finally, the resilience of our business. Our enhanced resilience profile is underpinned by our disciplined approach to capital management, conservative investment portfolio, and the optimized reinsurance settings, including the aggregate cover that we announced in the last 12 months. Bring these together, and these settings support resilient margins and provide flexibility to continue investing for growth.
Jeremy will go through a little bit of this in more details in a minute. This final slide brings the strategy together. Platform modernization and artificial intelligence are the key enablers of the next phase of growth. Digital Insurer is the marquee investment of our platform modernization strategy, and it will enable us to compete differently and create sustainable advantage over time. By modernizing our core policy administration system, we are building a business that can move faster, respond more quickly to customer needs, and bring new products and services to market more efficiently. Importantly, we are building these capabilities once and leveraging them across the Group while continuously benefiting from new functionality, security enhancements, and AI innovation through the core. AI innovation through the core of our PAS as those AI innovations become available.
Pleasingly, we have continued to make good progress over the past year with the release in our AAMI brand imminent. There are examples of modern policy administration systems in the market today. Some of our competitors may claim to have them, but nothing like we are building. Adam will talk you through in the breakout session how this PAS is different to other policy administration systems in the market today. This investment in modern platforms also strengthens our ability to harness AI, making data more readily accessible and creating opportunities to apply AI more broadly across the insurance value chain. We are moving beyond individual use cases towards reimagining end-to-end processes and preparing for evolving customer needs and future insurance business models. Over the past few years, we have invested heavily in the foundations.
That is the underlying technology data governance and skills required to roll out AI safely and at scale. Ultimately, competitive advantage won't come from access to AI alone. It will come from the ability to combine modern platforms, quality data, strong governance, and an AI-enabled workforce to deliver better outcomes for both customers and shareholders. In summary, we have simplified the business unequivocally. We have strengthened the core, which is ongoing work, and we are investing in the new foundations that we need to be competitive into the future. Our focus now is on leveraging all of the things that we have done, all the investments that we have made to improve customer outcomes, to drive profitable growth, and then deliver those sustainable shareholder returns. With that, I might ask the leadership team to come up on the stage for the panel discussion that will be led by Belinda.
Good morning and welcome everybody. It is great to have you all here. For those who don't know me, I am Belinda Speirs. I am the Chief Executive for People, Legal, and Corporate Services. Today, I am joined by Bridget Messer, who is our newly minted CEO of Customer, Brand, and Digital. Michael Miller, who is our also newly appointed CEO of Consumer Insurance. Lisa Harrison, newly appointed CEO of Commercial and Personal Injury. Of course, last but definitely not least, Jimmy Higgins, who is our longstanding and valuable CEO of New Zealand. Given the changes that we have had across the leadership team, we thought that today it would be really useful for everybody to hear and so we could discuss what are the opportunities that everybody is seeing, what are the priorities, and importantly, what are our competitive advantages that are actually going to see us deliver growth.
Michael, let's start with you.
Thank you.
11 weeks in, but consumer's not all foreign territory to you. What do you see as the opportunities?
Thanks, Belinda. Firstly, delighted to be here and delighted to be leading the consumer function. I do want to say thank you to Lisa for leaving the business in such a good state as I came in. As Belinda said, I'm not a stranger to consumer insurance. I have had a stint of running home motor.
Claims, also personal injury claims. I was the CFO for Insurance Australia for a number of years, so I am well-versed in the machinations of portfolios and did a lot of work in reinsurance. I understand the perils and how we price those. Also great to work with Bridget. Really important, we split the business into two, and Bridget runs the customer brand and digital, and it has been delightful to work with her over the last 11 weeks, is it, to set the business for the future. What I like, I like many things. I cannot go through it all, but I will pick three. Strong business momentum. You are closer to it, you have seen it over the years. Good growth over the last three or four years. Margins in the top end of the range. But more importantly for me, there is momentum in investment.
You can see it in terms of Digital Insurer coming through, the artificial intelligence, what we are doing in claims. So it is not from a standing start, there is much we can work with there. I really like that. The fundamentals of insurance, though, I cannot get away from that. Scale and claims, number one, and number two, in home and motor in Australia. You can run claims for two reasons. One, to get a price point that is competitive and make sure your premiums are competitive in the market and get the right returns back to all of you, our shareholders. And the second, get delightful customer interactions, which I think is becoming more and more important. How do you make sure that you have the experience with an insurance company that is delightful and you want to come back?
Again, the loss ratio, there are programs at work in place to address that to make us more and more competitive as we go forward. And again, really looking forward to working on that. And the last one, this is probably the insurance nerd coming out, pricing and risk selection. There is a superb team. I will not tell you how many people actually do it, but around pricing and risk selection.
In commercial, it is an art and a science. More science than art. In consumer, it is all science. Our job is to get a price for every person in this room, every Australian, that is personalized to them. And when we have more and more data, and you can see it coming, it becomes more prolific. We will be able to personalize insurance for individuals, and that is the future of insurance. So those fundamentals are very, very strong.
That is what I like. Belinda.
Thank you. Talking about the science and the art now, moving across to Commercial and Personal Injury. Also 11 weeks in, Lisa. There are some common fundamentals, though. Strong claims management, for example. What are the key elements that have got you fired up?
Yeah, thanks, Belinda . Like Michael said, great to see you all. Thank you for coming. This is a business that I know well. I actually started off my career as a commercial insurance graduate, and there's always something nice and familiar around that. Also, in terms of personal injury, there's no more noble purpose than helping injured Australians get back to life. It is great to be back, and it is a great business. What I've been impressed with is both the quality of the franchise and, big thanks to Michael and the team for building those great foundations. But also for me, the scale of the opportunity. Over the last 11 weeks, I've been around the country talking to brokers, talking to end clients, and also listening to the team. A couple of key standouts for me.
One is the strength of the relationship. The brands of Vero and GIO in workers' compensation are particularly strong. Brokers like working with us to deliver quality insurance solutions to their clients. There's a real hallmark around customer and service. Two weeks into the job, I had the fortune of going along to the Mansfield Awards. For those who don't know, they are the most prestigious claims awards in the industry, voted by clients and brokers. For the seventh year in a row, Vero has won that. That's a true testament to the claims capability and the investments we have made. Also, and importantly in this market, strong portfolio disciplines. Great capability around underwriting, pricing, and risk selection. Also, it's not just what people say. I feel it's evident in the numbers.
If we look at FY 2026, growth relative to market was stronger, and also margin's very good. That's important for a sustainable business as we move forward. I feel that we've got strong foundations, strong disciplines, and meaningful headroom for growth. Belinda , that's what's got me fired up as we look forward.
I'm looking forward to watching you. Bridget, let's shift to you. You're leading a new function, which will be exciting and opportunity-rich by any stretch of the imagination. But it's quite a broad portfolio. It goes from acquisition all the way to remediation. What's the rationale behind that? What's tying it together, and what are the key opportunities that you want to focus on?
Oh, thanks, Belinda. Good morning, everyone. It's a delight to be here in this different context with you all. I want to start by saying what a privilege it is to lead the team and the new portfolio, which, as you say, it does span everything from brand promise to customer acquisition to sales, service, and retention from the digital channels, to corporate affairs and customer advocacy, and all the way through to quality assurance and remediation. When I step back and I look at that, the breadth of the function, what it really gives us is it gives us the entire customer life cycle all in one. I suppose my responsibility is to look at that customer life cycle and make us stronger than the sum of the parts.
It should give us the ability, a really unique ability, to understand why customers choose us, where they're experiencing friction, and where we can improve. I look at what we've got, and we all know that the raw materials are really, really strong. I think we've got the best portfolio of brands, bar none. I think we have really deep customer relationships, and I think we've got super strong digital engagement. In my function alone, we have 120 million digital interactions each year. Where I step back, I think the opportunity is to really connect those assets, those raw materials, and our interactions in a more deliberate way, by truly focusing on what our customers want, when they want it, how they want it, why they want it. That's where I think the real opportunity comes from bringing together this new function.
120 million digital interactions. That's opportunity rich.
Absolutely.
I'd say. Jimmy, heading across to New Zealand. Now, you've been there since 2020. You know that business intimately. I know the world is changing. What do you see as the opportunities and strengths?
Yeah, look, a couple of years ago, we took a deep look at the business following Cyclone Gabrielle in New Zealand. It was largely prompted by the reaction of the reinsurance market, the capacity, the pricing. There was a couple of other things that were happening around that time as well. We explored the intermediated business, we explored the direct business. We examined the composition of the portfolios that respond and serve the relevant market that they operate in in New Zealand. We looked at the historic profitability of those portfolios and including margin resilience and with a sort of a forward outlook on it. The conclusion we did come to was that we do have a unique set of assets in New Zealand that are attractive and can be successful in the New Zealand market. We've got strong brands.
We've got the Vero brand, highly respected in New Zealand. We've got the AA brand, AA Insurance brand, that has been rated the most trusted general insurer in the last 16 years in a row. The other thing at the time was we saw quite a bit of potential for synergies across the Trans-Tasman as well. The exercise for me really demonstrated that New Zealand is a resilient business. It highlighted the similarities and the synergies between the Australian market and the New Zealand market. But it also highlighted the differences that New Zealand market has and where those value drivers and opportunities exist. That's where we are today.
Thank you. I think we've all set out now a few opportunities, but the rubber has to hit the road, and you actually have to prioritize in order to actually convert them. I want to just go down a level now and actually understand what everybody's priorities are so we can start focusing on them and delivering that growth. Michael, consumers' ambition is to be the leading provider of protection and prevention solutions. What have you done in your 11 weeks to get there, and what's on the road ahead?
Thanks, Belinda. It has been a busy 11 weeks. It's less than 11 weeks, but feels like less. We have made some changes already in the function. We wanted to focus on three things. One, customer experience, absolutely critical. We're good at it. We need to get better at it. Number two is change and transformation. Really important. There's a lot of change that's going to go on in the next five to 10 years in insurance. How do we set ourselves up for that? Collaboration, absolutely critical, particularly with Bridget's team at CBD and Adam's team in technology. Got to make those work. The two main changes are that we've reorganized into two verticals, one for home and motor, as much as possible end to end.
What that does is gives the leadership team for both those businesses, they can see the placement of the portfolio, the risk settings. They can see the pricing. They can see what's going on in claims. That gives them a more holistic view, and they can be more nimbler. It's also a much simpler interaction then into the CBD function because we have to holistically make distribution into pricing, into portfolio, into claims and the contact centers as seamless as we can. So that's the first one. The second one is change. There's so much change going through the whole of Australia right now. How do we set ourselves up for that? We've set up a dedicated transformation function that reports into me, and it's a momentum squad. So it's agile momentum, well proven. It's a mix of tech and business.
When it's working, it's very, very good. The velocity is fantastic. We have to do that because we have the Digital Insurer program coming through. You finish the tech, we have to embed that in everything that we do and learn how to use it. Artificial intelligence, the bedrock is there, but how do we deploy that in a safe way, in an efficient way, and get great customer outcomes? Risk selection and fraud, a big investment in that, and you'll see that later on, particularly on the fraud side. Investment in cost platforms within claims. It gives us transparency of our suppliers, transparency of cost items, and how we make that work really well. Those two changes set us up for the future. As I said, it's been a very, very busy period.
Very busy. Looking forward to see what you do next now. Bridget.
Yep.
Michael mentioned AI, he mentioned transformation, he mentioned nimbleness.
I don't even know if that's a word.
It is.
It is. When you think about AI and how it's likely going to reshape insurance distribution and service, some would see this as a massive threat. What's your view?
Absolutely. AI is changing our environment super fast. It presents a huge opportunity. First, to improve today's experiences, and second, to be the leader at the new AI front door. We look first at improving today's experiences. We are using AI to remove effort for our customers. Whether that be in anything like getting help or making a claim or understanding cover, we are moving our customers from navigating forms and complexity towards conversational outcome-based experiences. You will get to see one of those later today in our walk around with Bingle Buddy. We are also using AI behind the scenes to connect fragmented processes within our organization and to remove what I like to call sand in the machine.
We are supporting our frontline teams to have better conversations with our customers by serving up on a platter consistent, accurate contextual information to help them have those better conversations. Again, you will see an example of that later in the walk-arounds. Second and probably more importantly for the future, AI does change the front door to insurance, but it offers us the ability to lead in AI-enabled search. We know customers are already using LLMs to research and compare and shortlist insurance providers. Not quote and bind yet, but definitely to research. In fact, we think that could even be as high as 50% of customers doing that. We also know that AI is trusted by consumers. It is becoming the new authority.
What we are seeing both in research and in some of our examples is 20% of customers saying that they changed their mind on what they wanted to buy based on the LLM's recommendation. We also see the LLMs being a new accelerator. What we are seeing is that purchasing journeys are faster using LLM, sometimes two times as fast. There are some really big changes in consumer behaviors. That is just today. We are also seeing agents emerging across the ecosystem. That could be cross-sector horizontal agents like Muse and Instinct, which claim to be able to run your life for you, all the way down to vertical insurer-based agents. Again, you will see one with Bingle of ours over there. The ecosystem is changing really fast. Our response to all of this is twofold.
First of all, we have established capabilities that allow us to track and monitor and manage our brand's visibility and our brand sentiments in LLMs. We are performing well. With the LLM strategy that we have got, which is about website engineering, it is about content, it is about social proofing, I am really confident that we can be a leader in LLM search. We are also building technical capability to give us optionality, and that is the really important word for me that I talk to the team all about. We do not know the future, but we need to create optionality. We need to create two-way doors that allows us to give as much optionality as possible in that agentic future as it emerges. Second, the recommendations that LLMs make are ultimately rooted in the customer experience and the trust we engender with our customers.
That is absolutely something that we can control. Trust becomes much more important in this future, not less. Product quality, brand salience, claims outcome, service, reputation. It all becomes increasingly transparent and therefore more important. We do not know the end state. Nobody does. It is exciting. I am confident that we have the right foundations, insights, importantly, the right experiments, the right execution, and definitely the right brands to win in this future.
I love that answer. That was fantastic.
Thank you.
I think we have a comprehensive way through this, is what I am seeing. Lisa, turning now of course to Commercial and Personal Injury, which is positioned as our growth engine. You earlier mentioned some of the standouts and the things that you see which are great, but it is a really tough market. How are you actually going to drive that growth?
Yeah. You will notice in terms of on the slide, we are saying disciplined growth engine. Discipline is really important, as Belinda has touched on. It is a competitive market, and it is a soft cycle. Making sure that as we deliver growth, we are very disciplined. I have been in insurance long enough to know that discipline at this time in the market is really critical.
We have three priorities, and I will go through them. One is portfolio quality. It is really important. It is an important foundation for any insurance company. What are we doing there? We are investing in the underwriting teams. We are leveraging AI, leveraging geospatial technology to make sure that we are making good underwriting decisions and we are making them quickly. At the same thing, one of the gems I have seen in the portfolio that Michael and the team have been investing in is risk engineering.
We have about 30 risk engineers. They play a really important role with our clients, help them understand their risk, minimize their risk, but they also bring great risk insights back into our underwriting teams. The third is pricing. That is tools, that is models, that is data sets and teams, and continuing to invest in our pricing capability. Really important to make sure that we have strong portfolio quality. The second, and Steve has already touched on this, is there are opportunities for us to accelerate targeted growth. In commercial, Vero Specialty Lines is a good growth engine for us. You will see a showcase a little bit later. The team have developed six products in two years, and the opportunity in front of us is to scale the products that we have launched.
One of the things I am genuinely impressed by is the fact that we have got this product capability. Understand our customers, listen to our brokers, and quickly develop products and get them into market, I think is a really important capability now and into the future. In personal injury, we have great capabilities in claims, and claims is really important in a personal injury business. As I said earlier, there is no more noble purpose than helping our customers when they have been injured. There is certainly a great capability for us to leverage in that claims-as-a-service proposition as well. Thirdly, it is about customer and claims outcomes. We have a strong base, and we see that in our Net Promoter Scores, and we need to continue to build on that. Where are we investing? Digital is one.
One of the fortunes coming from a consumer business is where we have made heavy investments in digital and bringing some of that capability based on the foundations we have built into our commercial business, for instance. We have got great digital capability in motor, and now it is about bringing that into, say, our motor fleet proposition, our commercial proposition. Again, AI helping us make quicker, better decisions is something that we will continue to roll out. Michael and the team have done a great job around broker connectivity, making sure that we connect into the broker platforms, make their jobs easier, make dealing with us easier, but also more automated, more science underwriting for us is really important. Lastly, it is pretty exciting in terms of Digital Insurer. We are starting to do the work for commercial as we look forward.
Thank you. Good comprehensive list there as well. Just jumping across the ditch quickly to Jimmy, and staying with the growth theme. Your ambition is to profitably grow. How are you going to capture that share?
Yeah, look, we've talked a lot about pricing, underwriting discipline. It's no different in New Zealand. It is core to what I believe a successful company. We are now in our final year of a three-year program, uplifting our pricing capability through the Earnix platform. We've also updated our underwriting models as well, particularly in the peril-based models, the seismic, non-seismic models. We're integrating this technology now into the rich data history that we have got around claims and underwriting over the many, many years, that I truly believe creates a competitive moat for us in New Zealand. It also supports our advocacy agenda, particularly as it relates to the New Zealand government's drive to build more resilient homes in New Zealand, and that is more prominent following Cyclone Gabrielle a couple of years ago. So it's really positioned us quite well for that.
The second area of focus for me is then leveraging the platforms we've invested in over the last couple of years. Now, these platforms are workflow processes. They're telephony, they're insurance-related platforms, and it's delivering real tangible benefits that I can see now in the business around productivity gains, efficiency gains, customer outcome, better customer outcomes through those technologies. The combination of all of this is really uplifting our service to brokers, and you heard Lisa talk about the importance of broker relationships. This is really uplifting our service to our brokers to position us as the optimal insurer of choice in New Zealand. The third piece is claims differentiation. What do I mean by that? You heard Steve earlier talk about disaster management. I believe that we are the best at disaster response in New Zealand.
It's not just a pride thing, it's something that the government and regulators have acknowledged historically about how well we respond to disasters. Our model is different in terms of large loss management, and I really want to leverage some of the experience out of Australia into New Zealand to really differentiate the claims experience for us. Look, the final piece is on AA, with the key focus being on delivering more personalized experiences, products, benefits, while driving the operational efficiencies that the new PAS will deliver. Well, it's not new. The new Duck Creek went in about 18 months ago, I think it was. It's now had a significant upgrade on Monday.
It is really turbocharging that business in terms of performance and really excited about what it is going to deliver for that business in the future, and you will see some of that today in the workshops.
Great. Now we have heard opportunities, we have heard a bit about priorities, but you know what? Every other insurer talks about those as well. Let us actually get a little bit real and turn to what gives Suncorp confidence that we can deliver on this. What are our competitive advantages? Michael, I am starting with you again. Steve highlighted a number of competitive advantages. Where do they actually show up in consumer insurance, and how are they going to help us help our customers?
Thanks, Belinda. Steve did a great job of rolling out and illustrating our competitive advantages. They are all applicable to consumer insurance. I will pick two. One is around our purpose. Building futures and protecting what matters is one of the reasons I stay at Suncorp. It flows through the whole organization. You see it no better than when a disaster happens, and we send out the teams and make people's lives much better for that. Do we do that all the time? This is where I get to customer experience culture. We are very good at insurance, but how do we get very good at designing processes that delight customers, whether they are buying insurance, whether getting a product that is personalized for them, or experiencing our claims. I think the purpose-led customer experience culture, that is a big one for me.
I always go back to claims. I have a soft spot for claims for two reasons. One, financially, you can actually deliver great returns to the business and to our shareholders. Two, you can make an absolute difference to individuals. You will see it later on, but Home Repair, it is an in-house builder that we built, a great asset. If you combine that with Apia, which is our pensions and insurance brand, which caters to older Australians. One of the issues that older Australians have is they want to stay in their house for longer, and maintenance becomes more and more difficult. We have this in-house builder, so that is where prevention comes in. We are looking at how we do that, how you bundle it up so they get to maintain their house through Home Repair, they get to insure with Apia.
And why is that good? One, they are more resilient, their lives are better. They can see the value of Apia. We do not get a claim. And that is a perfect combination. And that is what insurance, I think in the future is all about, much as about fixing, but preventing as well. And I think that is an absolutely worthy purpose.
I think that is a fantastic articulation with a lot of heart and actually goes back to where Steve started, which is around our purpose. Lisa, same challenge, same question for you. Where do you see your clearest competitive advantage, and how does it help our customers?
Yeah, in terms of, as I said, I think we have got great foundations to build off in the Commercial and Personal Injury business. If I start in terms of customer access, as I said, the broker relationships are very strong. And also the other thing I would touch on, we also have direct brands as well, and especially for some of those micro SMEs, we have got direct brands like AAMI, where we can connect with our customers.
If I touch on tech, broker connectivity I have touched on. I have also touched on, again, commercial risks are changing, and I think one of the great capabilities you have got to have is a pattern for new product development and working with our customers and brokers to develop solutions to meet their needs. And I feel with Vero Specialty Lines, we have got a very good pattern and capability that we will continue to invest in.
Also we are doing the design work for Digital Insurer. Then I will touch on scale, and I will touch on it in a couple of parts. One is we look at Commercial and about 9% market share. We have got room to grow, and that is very exciting. In Personal Injury, we are the number one personal injury provider, and that gives us scale to invest.
Again, in Personal Injury, investing in your claims proposition and supporting customers is really important, and we have got scale to continue to invest in that, both as an insurer and a claims as a service business. Then also we have got leverage. And one of the things I believe we uniquely do is leverage the big consumer engine that Michael runs. So from a motor claims perspective, Michael and his team deliver that. We get access to the largest motor insurer in the country.
That means we get access to the ways of working, the technology, but also such a large repair chain, and that's really important. The same from pricing. Michael and his team deliver the pricing sophistication that we leverage in Commercial. So we've got great foundations, we've got great capability, and I believe we've got a very strong plan to take us through.
Talking about engines, we're going to run at a bit of two speeds back to New Zealand, where New Zealand has a slightly different market structure. You've got a greater share of consumer insurance being placed through intermediaries and corporate partners. So what gives us the competitive edge across those channels, but equally on the other side, what's the growth potential of our direct AA Insurance business?
Yeah, thanks. Look, I'll cover four areas very briefly, and some of them you'll see a common theme from what I spoke about today. One is customer access, and Steve, that was in his presentation. Customers in New Zealand can buy product through three channels: Direct, Corporate Partner, and Brokered. So we have access to all three and very strong relationships in all three. When you look at the competitive landscape in New Zealand, you got to think of everybody that does provide risk services. So, we provide a broad suite of general insurance products in New Zealand that brokers can come to for a one-stop shop for all customer needs.
We do from specialty lines like liability, cyber, marine, corporate, through the mid-market, commercial business, rural, and then into the consumers, so motor home contents through all of those channels, which does give us a pretty strong, I believe, competitive advantage in New Zealand. The third one, and again, this is something that I think we should dial up in how we think about it, but it's the Trans-Tasman opportunities. Now, we have already started to leverage that, and I talked earlier about the work we did a couple of years ago around Trans-Tasman synergies. We have latched onto that, and we've now done it around pricing, around claims, around technology. But you heard Bridget and Michael talk about AI and Home Repair and the stuff that we're doing in Australia.
That is repeatable and can be duplicated in New Zealand, and I am going to grab it once those things are fully formed and developed. We have a massive opportunity to leverage the capabilities out of Australia that not many other insurers in New Zealand can actually do. The third thing, the fourth thing for me really is about relationships. I did talk about corporate partners. We have the largest bank and the largest motor dealer as a corporate partner in New Zealand. We have strong relationship with brokers. I really want to dial up the NZAA, the motoring club in New Zealand. It is different to motoring clubs here in Australia. It is deeply woven into the fabric of every Kiwi. I will not ask any Kiwis to put their hands up here, but it is deeply woven into the fabric of every Kiwi in New Zealand.
It is a national business. Steve mentioned it has 1 million members, but it has also got a further 1 million relationships with B2B and OEM partnerships. So one in four Kiwis has a relationship with AA. It is deeply integrated into the licensing system in New Zealand. For example, it processed last year 1 million licensed transactions for Kiwis, and that is significant. I think that is what is going to drive our competitive advantage in New Zealand. It is going to drive certainly growth with the relationship, the AA Insurance relationship with AA, and I do not believe any other insurer in New Zealand can replicate that. I am quite excited about the growth opportunities there.
All right. Bridget, turning to you. We have now heard Jimmy, Lisa, and Michael rather neatly step through their vertical product portfolios. How will you leverage your competitive assets? What is in your arsenal to bring that all together?
Thanks, Belinda. I am very conscious that I am the only thing standing between you good folks and JR, so I will be quick. The way we are seeing the CBD function is as connective tissue or a force multiplier, if you will, between the product portfolios. The three levers that we are focused on to drive growth are brands, customer insight, and digital. I will start with brands really quickly. Our portfolio of brands gives us multiple ways to reach the entire market with distinct brands serving different needs, segments, and price points. It creates enormous reach across the market and multiple sources of customer growth. In an AI-assisted environment, every brand gives us another chance to be on the short list of recommendations and to win the LLM model's recommendations. Our second lever is customer insight.
I have been running retail FS businesses for more than 20 years, both here in Australia, but for a long time overseas in about 15 different markets. My overwhelming observation from that time is that businesses that can productionize and institutionalize customers' interests in every decision they make are the organizations that win. We are pairing behavioral data and digital analytics, of which we have a lot, with our advocacy, our complaints, and our remediation signals. We are turning those signals into earlier identification of changing needs and changing customer behaviors, which is really, really important when the ecosystem around you is changing so fast. We are funneling those insights back into product, into pricing, into service, into journeys, harnessing the power of Digital Insurer. Finally, digital, where we are about convert, connect, and scale.
Converting customers better with simpler digital journeys that turn our brand demand into customer growth. Connecting with customers on a deeper level, and really using our digital interface at those critical moments that matter. Scaling and really taking advantage of our scale to reuse our platforms, our data, our digital capability across all of our brands. Building capabilities once and deploying them many times across the portfolio rather than solving the same problem multiple times.
All right. Slightly misleading because my perspective is also standing between you and Jeremy, which I thought I would actually just take an opportunity to share. A little bit like Bridget, who sees some horizontal opportunities, I just want to call out what I see as our competitive advantage, and how we actually do really leverage our investment. That is our workforce, which I see as a major differentiator. We have invested deeply in transforming our workforce at the same time as we are transforming our infrastructure. We have invested in capability. We all know that every single one of us will either work on, with, or lead AI. We have invested not only in building AI fluency, but also in ensuring that we can govern it appropriately and drive accountability. We have equally not forgotten the investment, and we continue in this, in building our domain expertise.
For example, underwriting skills. It is really important we have that. We are also redesigning work, because it is no good putting in the new tech if we do not harness it properly. We harness the best of our technology, especially AI, and bits that Bridget mentioned, removing effort, connecting the fragmented processes. But marrying that up with the most valuable human attributes of empathy, critical thinking, judgment, and how that marries up to drive value for our customer, and as well as eliminating some unnecessary work. Again, in the showcases, especially in AI, you will actually see where we have brought some of that work redesign to life with our post-lodgement review. Workforce is also, in my mind, anybody who actually touches our customer experience. It actually also covers our suppliers and our partners.
We are continuing to focus on enhancing our supplier management, not only at the front end with a sharp procurement lens, but also driving performance throughout the cycle of the engagement to feed that back into the procurement and drive that flywheel. In summary, I think you've seen a couple of perspectives across all the portfolios, and I think what you'll see is clear intent. You'll see a strong set of priorities, and you'll see an equally strong set of execution focuses from every single one of us. With that, I'll hand back to Jeremy to talk through the financials.
Great. Thank you. Thanks, Belinda. All right. Thanks, Belinda, and good morning, everyone. It's great to see so many people in the room this morning. We haven't seen this for a long time, so thanks for coming. Look, it's really great to see the passion, the enthusiasm, the energy each of our CEOs have got for their new portfolios, and of course, Jimmy continues to have for the New Zealand business. I wanted to start this morning with a reminder of our investment proposition, and that is how we create long-term shareholder value. We do this through growth in earnings per share, strong risk-adjusted returns supported by reduced volatility, and disciplined capital management. I'll start with the earnings per share growth element.
The key drivers for us are profitable customer growth supported by disciplined underlying margin management, the strong fundamentals for insurance premium growth, and our efficient capital management policy. Steve took us through the long-term drivers of premium growth, as well as the competitive opportunities for Suncorp, but I'd just like to add a couple of points to that. As you just heard in the roundtable discussion, our strategy is centered on driving profitable organic customer growth. You can see on the chart there, we've put up the growth flywheel that drives that. We reinvest the benefits from our key programs, that includes Digital Insurer, operational and claims transformation, and our loss ratio initiatives that Michael referenced, into ongoing improvements in our customer proposition with better service, improved products, and lower prices. This, of course, includes investing in our VSL business in the commercial lines.
This then drives customer growth while maintaining margins and returns. In turn, it creates capacity for further investment in the business and growth or additional capital returns to shareholders. Whilst acknowledging the current rate cycle, insurance premium growth has strong fundamentals, as Steve said. We've seen insurance premium inflation exceeding CPI by an average of nearly 3% over the last decade. Many of the idiosyncratic factors driving insurance input costs, including the outlook for building cost inflation, are expected to persist for a number of years. In this context, our loss ratio opportunities, such as further leveraging the Home Repair business, which you're going to hear more about later for those in the room, are important, and they're important to ensure our competitive position and to help with customer affordability. Finally, on earnings per share, our disciplined approach to capital management is expected to contribute.
The framework is straightforward and should be reasonably familiar to you. Ordinary dividends are set at 60%-80% of cash earnings, while the needs of the business are expected to be around 20% through the cycle. We'll then look to return any remaining excess capital to shareholders, and that discipline, of course, reduces the share count over time, supporting earnings per share growth and returns, whilst preserving our capacity to continue investing in the business. The second part of our investor proposition is strong risk-adjusted returns with reduced volatility. Suncorp has demonstrated a track record for consistently delivering underlying margins within the target range and has been at the top of the target range for the last five halves. This consistency reflects the quality of the portfolio and the discipline with which we manage the business.
Importantly, our return profile is now supported by greater resilience as well through our reinsurance structures, through our conservative investments, and the lower reliance on prior reserve releases. Combined, these support reduced downside risk reported earnings, more skew to the upside, and higher returns through the cycle. The third and final element of our investor proposition is disciplined capital management and value creation. This is best demonstrated by tangible book value per share, which has grown at over 11% per annum over the last five years. In this time, Suncorp has outperformed the Australian financial services industry. Taken together, profitable growth, consistent margins, and disciplined capital management provide the foundations for compounding shareholder value creation. Before finishing up with our investor scorecard, I wanted to share some data points on how Suncorp's fundamental investment metrics screen relative to the broader market.
You can see from the chart that we believe they compare pretty well. The chart on the left demonstrates how Suncorp has delivered attractive absolute returns, with a comparatively lower risk relative to the broader market. I would note the volatility measure is historical on this chart, and we'd expect the aggregate cover to reduce our volatility without impacting our overall returns. In the chart on the right, the Sharpe ratio will be familiar to you, no doubt, and it considers share price returns on a risk-adjusted basis, where we've also outperformed the market and our peers over the last three years. Taken together, these measures demonstrate a business that's delivering strong shareholder returns with a comparatively low risk profile, and we remain focused on maintaining that balance. That's protecting downside risk whilst preserving meaningful upside optionality. Now to finish up, our investor scorecard.
Successful execution of our strategy that you've heard will be visible in the following key outcomes over time. Firstly, gross written premium at or above system, and that depends on the portfolio. An operating expense ratio that remains well managed and a source of competitive advantage. Resilient margins with reduced downside risk while preserving the upside optionality. Strong returns, both in absolute and risk-adjusted terms, and in capital in excess of the needs of the business returned to shareholders. In closing, I'll just give a brief update on our near-term outlook for FY 2027, and a bit of a focus on GWP growth. Market conditions remain competitive across consumer and commercial in both Australia and New Zealand, and we're maintaining our disciplined approach to profitable growth in that environment. In this context, I note that our outlook for FY 2027 growth reflects two updated factors.
Firstly, the loss of a single large commercial contract with AUD 125 million of GWP, that is worth about 0.8% of our GWP, effective 31st of December. Renews on the one day, reflecting our disciplined approach to pricing. Secondly, a revised outlook for a slightly weaker New Zealand dollar at AUD 0.81 for FY 2027, not helped by the news yesterday. Accordingly, we now expect GWP growth for FY 2027 to be around 3%. I also note we expect a reasonable skew to the second half, as the impact of that large commercial contract is fully experienced in GWP in the first half. Notwithstanding that GWP outlook, we confirm that all other items in our outlook for FY 2027, including and importantly underlying ITR, remain in line with the guidance provided at the full year results.
I do remind that the underlying ITR, we expect to have a modest skew to the second half as well. Whilst we are yet to enter the most active part of the weather season, year to date natural hazard outcomes have been better than the allowance, with only one event ahead of the AUD 10 million mark as at 30 September. The weather that we have seen across much of Eastern Australia over the last week, is expected to be reasonably comfortably within the October allowance. Of course, this year we also have the aggregate cover protection in place as well. Prior reserve releases have been performing better than expected, and along with that, and the natural hazard experience, are expected to provide upside in reported margins, more than offsetting the mark to market from the yield experience to date.
Finally, I would just update and remind, as noted in our full year results, that we are expecting restructuring costs of around AUD 30 million below the line for FY 2027. With that, I will hand back to Steve for Q&A.
Quite cozy.
The couch.
Okay, so we'll have a Q&A session. I think we've got through till about 10:30 A.M. Is that about right? So we've got everyone in the room here, so who wants to kick off? Sid? Start over here and then come back.
Start here?
Yes.
Hi, Steve. Simon Fitzgerald here from Jefferies. How are you?
Good, thank you.
Good to have you back.
Thank you.
Just quickly, I wanted to get a bit more information just in regards to the improvement in the loss ratios. Maybe just if you can sort of talk through the various books. More specifically, what you're sort of looking at doing.
Jeremy, do you want to talk?
Yeah, there's a range of initiatives, and I think I've spoken to this before, that goes across the entire value chain. It goes across claims handling, including how we can use AI to improve our claims handling efficiency. You'll see in one of the showcases, hopefully coming up, some examples around that. It includes the supply chain and how we can better make sure we're pathing our repairs, our home repairs, motor repairs, the more efficient parts of the value chain. It goes through to loss ratio work around risk selection and pricing, and putting more risk selection and pricing factors into our engines. The Digital Insurer gives us a much, much better capability in that space. Then through the repair chain, examples like what you'll see today on Home Repair, gives us a big opportunity on claims costs in the home value chain.
It's a range of initiatives that goes all the way across the value chain. The pricing and risk selection is probably a big opportunity for us, in terms of getting more of those risk selection factors into our policy admin and pricing engines.
Just one other question on AI. It seems like every insurer's adopting pretty broad strategy right across their business, from claims distribution all the way through. It seems like it's happening very rapidly as well, so this is probably going to be a tool that everyone uses and everyone has. How do you see it as being your competitive advantage, and how do you look to secure that?
Yeah. If you think about AI, I try and group it into four categories. There is the very traditional productivity benefits of AI, and I think many insurers and most financial services companies are very focused on the productivity benefit, doing more for less. That is right across the organization, and to be honest, a lot of the use cases that we got running at the moment are in that domain. For insurance, there are a couple of other specific areas where AI provides material opportunity. The second one is in distribution. A lot of market analysts and others see that as a threat to insurers, and I think one of the key parameters of making the structural changes that we did in introducing Bridget into the new portfolio was to capitalize on what we believe is the opportunity that comes from AI in distribution.
Customers using agents and other forms of interaction through LLMs with insurers to effectively monetize the things that they are doing inside their home and to get better risk premium. We think that with the combination of the strength of our brands, the multi-brand strategy, and being towards the front of the pack on AI, gives us that opportunity to turn what some people might describe as a risk into an opportunity. The third domain of AI is in product design and product development. I think AI will be used significantly in terms of what I call hyper-personalized insurance. People will invest in their properties, do things, capitalize on AI to drive down the cost of risk, and then monetize that risk through distribution. You need to be nimble. You need to be able to personalize your product.
You need to have AI embedded in your pricing engine and in your PAS. Hence why you will see a bit later on when Adam talks through why our PAS is different to other PAS in the market, in so much as we are building it in an era of AI, so we are bringing AI right through the core. That will allow us to differentiate product and manufacture product differently than we might have historically been able to do. The fourth domain is a bit of a negative in the context of cost, but it is really what I call customer-enabled AI use. Like all financial services institutions, and particularly in insurance, customers are becoming more savvy about the use of AI to lodge complaints and go through the process there, and very sophisticated use of AI to interact with retailers and insurers and financial services companies.
Those are the four areas. Over time, we will get better at using AI to respond to that and organize ourselves around that fourth domain. All of those four areas are critical to us. The only other point I would make is that maybe 18 months ago, everyone had a, and Suncorp is not alone here, I think most other insurers and most other financial services companies, very ambitious views around what the opportunities of AI are. For all the reasons that we will talk about today, you have to do it safely, you have to improve your governance. You cannot just put an AI process into a broken process and think it is going to work. You have got to change the process and embed AI through it.
We are all finding, I think all financial services and insurance companies are finding that you need to be at the front of the pack with AI. But the benefits that we might have assumed 18 months ago are not going to be as great, but they are going to be material. You cannot afford to be at the back of the pack. You need to be at the front, because if you are at the front, you have an opportunity to recycle that benefit equally to shareholders and customers. If you are at the back, you are just going to be pedaling hard to catch up.
Steve, I will just add one thing on the loss ratio. We think we are 3%-5% opportunity relative to peers. But with the AI piece, the other one we have not spoken about so much that sort of fits in the first category is fraud. With that loss ratio work as well, there is a big opportunity on fraud, and you will see some more on that in the showcase, where there is a lot of leakage from fraud in the industry. There is a big opportunity for those who can deploy AI quickly and safely to capture that benefit as well.
Sid.
Morning, Steve, Jeremy. Just two questions, if I can. One just on the guidance. I was hoping you could just clarify, just maybe provide a bit more detail on the conditions that you are seeing at the moment. You flagged that the main driver, as you see it, of the downgrade is this single contract that you lost. But just previously you had guided to, I think, 6% inflation was what we were seeing in the broader market. Hopefully you could give us some update on whether that is trending a little bit lower. We had seen flat units, I think, in the second half of last year. Just if you could give us in personal lines, if you could give us some idea of how that is tracking--
I might just make a couple.
--around the grounds.
Yeah, around the grounds. It is competitive. That is an obvious point to make. Inflation is pretty much tracking consistent with what we would have described at the last result. It is coming through in two or three different ways. Firstly, supply chain challenges off the back of the big hailstorms 12 months ago, and there are pinch points in various areas of trade. That is driving up the cost of claim.
That is only going to, I think that is going to be entrenched through the medium to longer term. You have the Olympics coming, and everything I am looking at in the economy-wise is that projects are taking longer to roll out and are more costly. So there is that point. We are seeing elements of that. We still see elevated levels of escape of liquids. Again, you will see a demonstration today from the Home Repair perspective on those costs.
We are also seeing that influx of EVs and the cost of repair flowing through. There is a slightly compensating aspect in motor particularly, which is slightly lower frequency. Obviously, the cost of fuel traditionally drives a small delta to frequency levels. People do not drive as much in that environment. That has sort of been a bit of an offset. That is the sort of round the grounds on inflation. Our approach to pricing in that environment is pretty consistent with what it has always been. It has been margin related, return on capital margin. We price the portfolio to cover that sort of level of inflation across all of those portfolios. We have been disciplined around that. So that continues to be the case in consumer. Commercial is a bit more specific to the individual account or the risk that you are underwriting. Again, very competitive.
In that environment, we will put our best foot forward. We consistently challenge ourselves around making sure that we are putting our best proposition into the market from both a price and service perspective, but we will not go beyond a certain point. We have been around long enough, and we have seen enough examples where in these cycles competition takes hold, discipline goes out the back door, and when cycles turn, companies that are remediating are on the back foot, and we do not want to be in that position. So we will be disciplined in that portfolio. The rest of the portfolios, I think, are behaving pretty much as we thought. There are some interesting front of business deals that are being undertaken by some of our competitors at the moment around discounting or gift cards and those sorts of things.
Again, we are not playing in that domain, and we will continue to respond appropriately through each of those portfolios.
I will just add, Steve, that you will recall our guidance was 3%-5% for FY 2027. We are not a "but for" team, but acknowledging today that we spoke about that single large commercial contract that was 80 basis points of growth, and then we also are now expecting a weak New Zealand dollar, 70 basis points. Together, they are 150 basis points, and we are talking around 3%. I think it is a but for, but if you adjust for those, you can see that we are within that middle point, actually probably towards the topper end of that range that we put out. So things are tracking in line with that level of expectation that we put out the full year guidance originally with. I would call out, as Steve said, a couple of key things.
One is pricing in homes probably a little bit ahead because that escape of liquids was running a little bit faster than we had expected at the time. Then pricing and inflation in motor is probably coming off a bit because of that frequency impact. Then the other delta a little bit is New Zealand. So the New Zealand economy has been a little bit weaker than we had expected. We thought that might turn, but it has not turned to the extent we thought it had. But the net of all of it is that we are, but for the loss of that single contract and the New Zealand dollar, pretty much within the range where we expect it to be.
New Zealand pricing, just on that?
Just on that, sorry. The New Zealand pricing for motor.
Yeah. Home and motor is pricing for inflation. Inflation is still pretty benign in New Zealand on home and motor. The commercial's where a lot of the pain is still in--
Okay.
--from the economy and from the weaker cycle. Yeah.
Obviously the next question from growth to margin. Jeremy reiterated our confidence around the margin outlook and the point to come through there is we continue to see opportunity. Loss ratio opportunity continues to be in front of us. We continue to, while our expense ratios are pretty good, obviously we need to be disciplined about making sure the business is set for, on the expense side, on the operations side, the sort of level of growth we're getting at the front of the business. We continue to refine the expense ratio to protect margin.
Steve, just adding to that one. We obviously have the yield curve has been stronger than we had thought originally. So that has been of benefit to us. But a slightly lower GWP outlook also impacts on margin, then we have the escape of liquids with motor frequency and the net of all of those things. You will know about those things. The net of all of those is margin in line with guidance.
Sorry, just to clarify volumes. Pretty flat in the second half on personal lines. Are they still flat? Are there any favorable signs?
Yeah, look, I think I would characterize it the same. We are going to continue to be disciplined in this market. It is reasonably competitive, and we will continue to be disciplined.
Okay, thanks. Just a question just on some of the comments that were made around customer use of LLMs changing how they are perhaps looking at insurance. Could you give us some idea of whether what they are looking for is changing? Is it still price that they are very much focused on? Is it a different proposition that people are going to focus on going forward now that they can use LLMs?
Might get Bridget to respond.
Yeah. Thank you. When you look at the UX of an LLM, it is very different to a price comparison website, which presents you with a list of 20 different providers with the price. LLMs very much are looking at a broader range of product propositions, and much more contextual to what the customer is asking. I do think that the experience is quite different from the price comparators, and I do think that it allows brands to stand up and be distinctive and to answer customer needs. Do I think it is changing what people are looking for? Probably not, but I think it is helping connect customers with brands that are providing what they are looking for in a really effective way. I do not think there has been a better time to be a customer out there with cost of living pressures aside.
Okay. Andrew, then we will go to Kieren. Kieren.
Hi. Andrew Buncombe from Macquarie. Maybe the first one on the contract loss, just maybe some context around that, and maybe some takeaways or learnings that you have had from that contract. Is it brand? Is it price? Is it irrational competition? Just some learnings as a takeaway. Thanks.
I do not want to go through the entrails of a contract win or a loss to any granular detail other than, yes, there are always learnings. I would be loathe to describe things as either rational or irrational because what we might describe as irrational might be totally rational for someone else who is putting a bid in. Obviously these big contracts are fiercely fought. We believe we have got a significant differentiator in terms of service capability in these areas. We put it through our disciplined pricing approach through our pricing engines. Did a lot of work on it. I do not think we felt comfortable going to a level that would have sort of continued to retain the business. We probably could have muddled our way through for six to 12 months, but it would have been dilutive to our margin performance in years two and three.
That is sort of the way we look at it, and it is going to happen in these parts of the cycle. It has happened before. We just have to maintain the discipline. The market will turn in due course, and we want to be well-placed through the other side to grow strongly out of that.
The next question on AI, maybe from a fundamentals point of view. AI by its very nature is probabilistic. The structure that APRA puts on all financial services businesses is deterministic. Just interested in how you are trying to join those things as you are rolling out AI across the business, because there is a fundamental disconnect between what the technology is based on and the infrastructure that you need to work inside from a regulatory point of view.
Yeah. Look, it is a good question and it is correct, and it is something that has been on our minds. We think there is a pathway through this with the regulators, with ASIC, with APRA. It will depend on where and how it gets deployed, of course. But yeah, we definitely think there is a pathway through this that will meet the needs of the regulators, and we have had lots of interactions and ongoing discussions with the regulators on it.
And then maybe the final one from me, it might be better to actually get Bridget up here, but I am interested in how she is allocating, and her team are allocating her time across the different divisions, the different products, or the different services of the business.
Thanks, Andrew. We will go to Kieren next. Bridget?
I think it is fair to say there is a really big focus in our consumer business at the moment, and Michael and I are working really hard to set up our collaboration rhythms between the two teams. We have split the consumer business in two, and so it is really critical that where that split occurs, there is both organic and structured collaboration points through it. So we have been spending a lot of time on that. We have been spending a lot of time on the brand portfolio, brand segmentation, and making sure that our segmentation is up to date to ensure that actually, our brands are all distinct, they are all playing a different role in the brand portfolio and going after different audiences. So we have been doing a lot of that.
We have been doing a lot of making sure that our website estate, our content environment, our social proofing is set up to respond to the LLMs, and doing a lot of thinking around a future state where agentic plays much more of a part and what are those technology bets that we want to put on to give us optionality in an agentic future. Then there is a lot of, it is a really big organization. There are lots of, I said 120 million digital interactions a year. That is a pretty big machine that you have got to make sure is keeping on running. Then, we get a lot of complaints. Steve talked about the role that AI is playing as consumers are complaining.
We get a lot of complaints, and making sure that we are dealing with those in a really efficient way, but also learning from them and feeding that back into the loop. Like with any new portfolio, you need to bring your team together, and you need to wrap them in a sense of a why and why we all exist together and why we make sense together. I have been out a lot talking to a lot of people. I am just staggered by the tremendous capability that we have got in our team. Our team is full of really curious, collectively ambitious people who are spending a surprising amount of time looking out of the house and saying, "What is going on out there, and how do we bring that in?" Really, really pleased with the capability we have got on the team.
Kieren.
Thanks. Kieren Chidgey, UBS. Steve, a follow-up question, I guess, to that subject matter, more around accountability. How do you think with the new divisional leadership structure with Bridget's team sitting alongside Michael and Lisa, who at the end of the day is accountable for GWP growth outcomes?
Michael.
Okay.
As Bridget mentioned, close collaboration all the way through. Bridget will have accountability for a range of metrics that will be contributors to Michael's P&L, but ultimately, there are three P&Ls in this company. One in consumer insurance, one in personal injury and commercial, and the other one in New Zealand. Those three executives are accountable for their P&Ls end to end.
All right. That is clear. Jeremy, a second question. You touched on yields, and that has obviously been a very significant tailwind financial year to date. I am just not clear why we are not seeing some benefit come through, particularly given your inflation commentary seemed fairly unchanged from August. GWP, I would not think would have much of a bearing on where the margin lands.
Yeah. The key offset to it has been escape of liquids in home. It is an expectation that we will continue to see more of that, the trend we have seen in the first quarter. Maybe it plays out that way, maybe it does not, but it is an expectation that continues, has been the key one. Then the loss of that single contract that takes a fair bit of GWP out. Obviously, there are commissions and claims and et cetera, but that also has some impact. Really, those two things have offset the yield curve tailwind.
Okay. I know you said it is only a modest skew in margin between the two halves, but what are the factors that lead to the pickup in second half?
Yeah. Part of it is the aggregate cover. We put pricing through, so obviously aggregate cover hits on the 1st of July. We put through a little bit of extra pricing at home. Not a huge amount, but a little bit of extra pricing at home on that. That has got to take a bit of time to earn its way through, so that is probably the key one.
Then finally, there has been quite a bit written in the press on Tokio Marine, including your trips, Jeremy, to Japan.
Fair to say.
But just keen if you can give us latest status whether or not there has been any dialogue on this front.
You can answer it, Steve.
Look, I think we read the newspapers with the same interest as I'm sure you do and others do. I haven't got much to add to that commentary other than the disclosures that we've made, which are pretty clear. I do sign off Jeremy's travel requests, and I've not seen anything in Japan for quite a while, so I don't know where that comes from. Look, there's a lot of noise around, but we just got to keep our head down, and we've got an organic plan to deliver, and we don't want the business to be distracted by any of that noise. The disclosures speak for themselves. We've got a business to run. We've got an organic plan to deliver, and we're just focused 100% on that.
Andrei?
Good morning. Andrei Stadnik from Royal Bank of Canada. Can I ask just one question around the balance sheet structure? You highlighted in one of the slides that the return on tangible assets is quite strong at about 23%, similar to North American insurers. Of course, within the North American insurers, it's quite a bit more commercial business, which is not as high ROE or long term. Obviously, you've got a peer here that does mid-30s return on tangible equity with IAG. You also have some peers in the Nordics that are personal lines, they do 30%-40% return on tangible equity. So, in that context, you have a very clean, very strong balance sheet. What are your thoughts going forward about what you could do about debt or other forms of capital?
Yeah. It's something we always focus on, is that the efficiency of the balance sheet. At the end of the day, the gearing of the balance sheet, the leverage of the balance sheet is somewhat constrained by APRA regulations. There's a limit to the amount of Tier 2, a limit to the amount of AT1 you can have on the balance sheet, and we feel pretty comfortable that we have got that optimized for our business. So, there's a 20% limit on Tier AT1, 20% limit on Tier 2. You can get some diversification benefit from New Zealand through to that Tier 2 number. You can see one of our peers with a larger New Zealand business has probably got a little bit more of that diversification benefit. But within that constraint, we actively optimize the balance sheet.
From time to time, it might be a higher or lower level of gearing, but that all references through to the timing on which we renew the capital issuance and pre-fund till the next capital issuance. Otherwise, it's optimized to that regulatory constraint.
Nigel?
Thank you. Nigel Pittaway from Citi. Just first of all, back on escape of liquids, just to be clear what you're saying there. I think you put through more pricing for that. So you're saying that inflation's actually run ahead of your pricing, and therefore you're going to need to put through more. Is that the right way to understand that, or what-
In home, I think that is probably fair, yep.
Yeah.
That is what happens when inflation is a little bit ahead of where you expect it to be. That is what happens. There is the inverse on the margins, and to some extent, that motor frequency has been of benefit to us as well.
I think you were intending to book through quite a sort of meaningful price increase, and you were flagging that as an area.
In home, part because-
You put it through, but it's not been enough, yeah?
Correct. Yeah.
Yeah.
It hadn't been, but as we sit here today, we think it is. Yeah.
Right.
Yeah. But it takes time to earn through.
Yeah, okay. Fair enough. Then just more on the sort of opportunities that you've described today. There's a number of them like scaling Vero Specialty, closer relationships with AA in New Zealand. More obviously on the claims, which you seem to be talking about more as margin protection than anything else. If we roll forward three years and say, three years' time we look back and say, "Yeah, couple of those were really meaningful," what are they most likely to be?
I think Vero Specialty Lines is a huge opportunity for us. It's effectively sort of restructuring the commercial market insofar as building underwriting agency capability within the manufacturing layer of our business. It will allow us over time to safely address market segments that we've historically, when we were a conglomerate and we owned a bank, that we've avoided or moved out of or remediated over time. Strata being one. Maybe farmers and other areas where we'll build capability, heavily reinsure, but run this sort of niche type approach through the manufacturing layer of the Vero Specialty Lines business. When you've got a business that's got high broker satisfaction, good claims capability, this specialist niche capability under the name of Vero, which is well-recognized. I think with 8% or 9% market share, there's a very big opportunity for us to grow organically in that market.
I think that's a huge opportunity for us. I think obviously AI, we've talked a lot about that, and you'll see in the showcases to be at the front of the queue there will give us the opportunity to differentiate by product manufacturing and then by distribution means to capture more of that opportunity going forward. You'll see in the Digital Insurer showcase why it is different, why the opportunity will be there for us to personalize product quickly and redesign product efficiently. So I think they're the sorts of areas I think that will be more material for us over time. We have a scale business, and we pay a lot out in claims, AUD 10 billion in claims a year. So as Michael mentioned in his presentation, you don't have to turn the dial too much in claims to get a material benefit.
I just still believe there remains opportunity in claims, to improve the efficiency. That loss ratio opportunity is real. The growth opportunities that we've got in commercial are real. I think over time, personal injury schemes will be privatized across the country, and that'll provide opportunities, the biggest personal injury insurer, for us to participate in that. In New Zealand, obviously, the AA opportunity continues to be significant. The penetration of the AA customer base is around 34%, 35%, and it should be higher, and it can be higher, and the team are focused on bringing that up. So, we are not without organic growth opportunities or organic loss ratio or expense ratio opportunities.
So in other words, you think they are all material?
Well, if not all material, they add up to materiality.
Okay, fair enough. Then just on the Vero Specialty, since you sort of prioritized it, at the moment it is pretty small. Now, you have obviously talked about needing to scale it. What are the challenges as you scale those products?
Well, you want to do it safely, for a start. We do not want to sort of embark upon a new segment underwriting capability until we have got the capability within the team. The first part of VSL was to move portfolios that we actually did underwrite within Vero into that specialty lines and then niche market them through the brokers. That has been very successful, but we had the capability, demonstrable capability. In the new portfolios, we tend to focus more on making sure that we experiment properly and that we trial before we actually start the underwriting process, and then we heavily reinsure off the back end, so the risk is not great. Over time, we will unwind those reinsurance arrangements and bring more of the premium straight through to margin on our books. So, that is the way we are thinking about it.
Again, there will be some portfolios and some segments where we might have been in before but moved out of or we have avoided for particular reasons. But it presents a nice growth opportunity for us in that portfolio.
Strata has been a good example.
Strata is a good.
Steve, where we have had a careful rollout, northern states first, making sure we got the pricing right, then we have gone to New South Wales, to Victoria. You do not want to get ahead of yourselves on volume, on underwriting, on claims, et cetera. We have just got a phased approach to the way we are rolling it out, just to make sure we roll it out carefully and properly.
Okay, thank you.
We've got time for maybe one more question in the room. Someone's got to have one. Tommy?
Are you worried that you are missing any growth blind spots and that could lead you to actually underperforming on growth?
Look, I am sure there are growth opportunities that, I would not say they are blind spots. Maybe we've got our hands over our eyes because we do not want to underwrite in some of those areas. I think one of the key things that, as an organization culturally, we have to remind ourselves sometimes, we are no longer a conglomerate. We are an insurance business. What that means is, while we've got a risk appetite that obviously is very well-defined and very well guided by the board through the management team, we have the opportunity to work up more into that risk appetite over time as we demonstrate the capability we've got in underwriting and risk selection and so forth. I think with things like VSL and the opportunities that we've got within the portfolios we currently underwrite, we've got plenty of options to grow.
Obviously, we have to go through that process of getting the culture to the point where we can expand within the currently defined risk appetites. That's probably where we are today.
I'll say it, Steve. It's probably not blind spots, but there's just opportunity everywhere. Steve spoke about commercial. There's opportunity in consumer, customer segments, niches. There's just opportunity, getting all the brands performing to the same level. It's less blind spots, more about opportunities, and they're there for us. Yeah.
Okay. There's been a lot of discussion this morning on agents and the way you might use those to grow. What are you doing in terms of risk management and cybersecurity around agents? There was a famous example earlier in the year of a gym in Melbourne where there was someone who used their agent to book a gym, and that agent went and canceled the bookings for two other people so that person could attend a class. Are you at risk of having agents do things to your systems you're unaware of?
I'm going to get the CIO to come up and answer that one. This is his command performance in front of the full audience.
Almost got away with not being up on the podium. Look, I think there's three dimensions of the kind of security angle. One is the external cyber threat, and you see massive increase in zero-day vulnerabilities and things that are getting identified. So the key there is how can we identify those and respond to them quickly, and we feel very, not complacent, but very confident that we've got the measures to be able to do that. The second is the controls within our environment when we're deploying AI, and picked up a little bit on the question of differentiation. Super important that we're scaling AI safely and with the control environment that allows us to, a little bit to your question as well, Andrew, that the guardrails are in place. So yes, it's probabilistic, but it's doing it within a very clear set of guardrails.
And then the third is agents externally. I think you've seen examples of banks in the U.S. and other examples in financial services already. And again, we're very clear in terms of the kind of protections that we're putting in place to ensure that things aren't happening that we don't know about. But equally, this is moving at incredible pace and speed. And so I think every organization is just making sure, a little bit to Bridget's point, that we're alive to all of those creative ways that agents are operating and that we can respond to them effectively.
Thank you.
Okay. Neil, I might ask if you can. We'll have a break now for 10 minutes, but before we do, just a couple of housekeeping matters.
Yeah, sure. Okay, I just want to say this concludes today's webcast. I am just going to say goodbye to all those who joined us on the webcast.