Good morning, and welcome to Admiral's 2020 interim results presentation. Thank you very much for participating, and I hope you and yours are flourishing in these difficult times. I'm David Stevens, Admiral Group CEO.
I'm Milena Mondini, Group CEO Designate.
We take advantage of this virtual format to invite a number of senior managers to participate today. We're gonna start with Geraint Jones, CFO, who will talk you through the key financials. Then Cristina Nestares, Head of our U.K. Insurance Operation, will talk about the core business. Costantino Moretti, our recently appointed Head of International Insurance, will talk about our international insurance operations. And Elena Betés, Head of Comparison Platforms, will tell you how those have performed for us over the last six months. And towards the end, Scott Cargill, our Head of Loans, will, you guessed it, talk about our loans business. But before we start that out, I've asked Milena to give you a bit of an overview of Admiral's response to COVID. Over to you, Milena.
Thank you, David, and good morning, everybody. These have been, very challenging times that we face, but Admiral has performed very well, has proven to be very resilient, and has focused on the right thing. I'm hugely proud of how Admiral reacted. I've always been very proud to work for Admiral, but in the last month, it has been heartwarming to see the commitment and the energy of our staff to support customers, each other, and the broader community. The whole company, as united as ever, stood up for its values, adapted quickly, continued to focus on the business, delivering a strong set of results, and putting the customer at the heart and the center, and all this despite the disruption.
We've been received such a great feedback from our customers, particularly in response to our Admiral Stay at Home Refund, as you can see in this slide, and which I will talk more about later. In general, COVID has been a major disruption for everybody, but we're beginning to see the world entering gradually into a new normal. There have been, several market-wide impacts, but the two most relevant ones for our core business have been, first, a temporary drop-down of customer shopping for insurance, as you can see on the left. Naturally, partially offset by strength and retention, and now reignited. And second, a massive reduction in driving during lockdown, as you can see on the right, with a low in April, when motor vehicle usage was only roughly 30% of February. And now, as restriction lift, reversing back towards more normal levels.
Beyond motor, the impact on household was less pronounced, and we took early and proactive measures in our travel and loans business, and stopped writing new business for these products, so we could focus attentively and entirely on our existing customers. Staying true to Admiral's approach and values, we have strived to look after all our stakeholders. The biggest highlight was the decision to pay back GBP 110 million to our motor customers through the Admiral Stay at Home Refund, the first and only rebate of its kind in the U.K. Customers were using our products less, and simply, it seems fair to refund them. But we also put in place many other initiatives to support our customers. For example, in the U.K., we have waived the excess for healthcare professionals.
In France, we gave them free breakdown cover, and in Italy, we provided a free COVID protection product. We've been keen to give back to our community as well. In the U.K., we launched the Admiral Support Fund to support charities across South Wales, as well as contributed towards industry-wide charitable funds. Example of initiatives that we have supported include: buying a tablet device for a nursing home to help residents to stay connected, and the Admiral Stay at Home Half Marathon, that saw Admiral staff, including majority of presenters today, together, running the equivalent distance from Cardiff to the North Pole. Staff wellbeing has been paramount from day zero. We protected immediately our vulnerable colleagues and ensured job safety to all our staff without any government support. We implemented several initiatives to support our staff in the transition to home working.
We have offered flexible working options and increased engagement. More than 95% of our staff felt well supported by the business in this period. Last but not least, we continue to deliver good performances for our shareholders, and we're going to pay a full half year dividend, as well as the withheld full year 2019 special dividend, as Geraint will explain soon. So what does the future hold? The outlook for the future is uncertain. We are entering what is likely to be the worst economic crisis of the last century. Some changes to consumer behaviors are here to stay, others, we don't know. It is unclear, for example, how mobility and car usage will evolve, as Cristina will explain better later. Also, we may see a second wave in the next months. Fortunately, our core business proved to be resilient.
I would like to end by highlighting that opportunities always present themselves during times of crisis, and our intention is to ensure that we realize these opportunities. First, we have laid the foundation for strong operational resilience, and we want to build on this through further improvements to our technology and digital capabilities to enhance the user experience. Second, the move to remote working give us additional access to new talent and the chance to strengthen, at the same time, productivity and staff satisfaction by offering more flexible working options. And finally, the increased propensity to online shopping should benefit us with an increase in online distribution within our international operations and within our product lines, such as household and loans in the U.K., where price comparison are not the dominant channel yet. I'm confident Admiral will come out from this crisis stronger than ever.
To conclude, we have performed well, we have proven to be resilient, and our people have stepped up to the mark and delivered on Admiral core values. Thank you. Geraint will now share with you the group's financial results.
Thanks, Milena. Hello, everyone. As we've been hearing, the first half of 2020 has been a challenging period, and I'm proud of the way the group's responded, looking out for our staff, doing the right things by customers, delivering a very solid set of results, as we'll hear about today, not least, supporting good causes in our communities. You can see some pictures from the Admiral Stay at Home Half Marathon that Milena mentioned on the slide here. I'm going to mention some of the main features of the results, looking at top line, profit, and closing on capital and dividend. First up is our usual highlight slide, and it sets out a generally very positive picture of the first half. Top line has been quite significantly impacted by COVID.
The customer numbers continue to move on nicely, and all our insurance businesses are bigger now than they were at the start of the year. Further material improvements in back year loss ratios in the U.K. led to profit and earnings per share moving up strongly by around 30% each, though as we'll see, the percentage change is somewhat flattered by the non-repeat of some negative items last year. We're declaring a dividend of 70.5 pence for the first half, 12% up on 2019, and as Milena mentioned, based on the group's strong financial position, we're also confirming payment of the special dividend of 20.7p that we deferred back in April. We close the period with a reasonably stable and strong solvency ratio.
Moving to the next slide to look at top line progression, and it's good to set out a fair amount of green on this slide despite the negative impacts of COVID. Cristina will cover the detail on the U.K., but despite a little bit of a rollercoaster throughout the first half and being around 1% down at one point, we ended the period with more customers than six and twelve months ago. Turnover was down, impacted by the lower volumes in early lockdown, discounts, and, of course, significantly, the premium rebate. Add back the rebates, and turnover was flat. Household grew nicely again, nearly 10% in turnover, 16% in customers, and our international businesses continued their progress. 1.5 million customers now outside the U.K. and turnover increasing.
Comparison businesses were significantly impacted in the early part of the second quarter, although the latter part of H1 was much stronger, and turnover for the period was up nearly 10% half year on half year, a very positive result. And finally, net loans balances are up nearly 10% versus 30th of June last year. They're in line with the 2019 year-end position, having risen in January and February, but then reducing after we paused new business in March. To the next slide, and let's take a look at what's driving the significant increase in the profit. The table shows the year-on-year movements for each of the main parts of our business. Starting with the U.K. Insurance, where profit was up nearly GBP 60 million to GBP 314 million.
A reminder that the first half of 2019 included a GBP 33 million negative impact from changing Ogden discount rate, so the underlying increase is more in the order of GBP 25 million. Household result was up around GBP 1 million, which was pleasing and came despite GBP 5 million worth of worse weather in 2020, and the travel insurance loss was around GBP 1 million, worse at around GBP 2 million. And so the increase is coming from motor, and it's made up of higher underwriting profit and profit commission, although a number of offsetting factors there, including the rebate and also higher investment income. We've included a waterfall in the back of the pack, which sets out an analysis of H1 to H1 profit.
Moving down, the international result improved quite significantly by around GBP 9 million, from a loss of GBP 3 million to a profit of GBP 6 million.
We saw notably higher profit in Europe and a smaller loss in the U.S., with improvements in both back and current year loss ratios, and also growth leading to higher other revenue. The comparison segment was resilient, and the combined result was up strongly, despite the early impacts of COVID, with Confused.com profit up over 50% in the first half. Admiral Loans, as expected, has reported a worse loss for H1 at around GBP 9 million, as we set up what we believe to be prudent provisions for expected credit losses in the second half and beyond. Detail on the other items is in the appendix. Finally, to address what impact COVID has had on the profit.
Tough to put a precise number on that, and there are numerous items that offset the significant claims benefit from lockdown, such as the rebate, Admiral Loans loss, charitable support, and lower other revenue, to name a few. We estimate that the impact on H1 has been positive, but not materially so. One of the main drivers of profit is U.K. loss ratio movements and reserve releases, and so we'll go there next. To the next slide, and the first chart on the left shows a number of things. The solid line is the usual current projection of the accident year loss ratio, along with changes in the last six months and since they were first projected. As you know, these numbers are prudent, and especially so for the more recent years. Years pre-2015 didn't change much at all in the first half, as expected.
Despite an unusual 2020 accident year, which we don't show a projection of at this point, movements on the back years were actually quite normal and mainly reflect releases on big claims, as settlement activity continued to be at more normal levels after the slowdown a year or two back. The chart on the right shows the contribution to profit from reserve releases. As you can see, it's been another period with above normal reserve releases and a high contribution to profit from back years. Although the current period percentage is impacted by the lower premiums in the first half, notably the rebate. If the percentage is adjusted for the rebate, it would be in line with 2019. We've maintained a level of prudence in the book reserves at the end of June in light of the uncertainty in the reserves after Q2.
While not shown on the chart, similarly, in our international insurers, we saw a period of good back year loss ratio development, and we remain very prudently reserved. To the next slide, and turning now to look at the capital position and dividend. First, on the left-hand side, the solvency position. As you can see, we're reporting a healthy and pretty consistent position with the comparative periods, with a solvency ratio of 186%. Movements in the ratio from the end of 2019 are set out in the appendix, and are largely as expected for the period, other than the hit from wider credit spreads, which was around six points at thirtieth of June. Internal model progress was in line with the plan despite remote working, and we made our submission to enter the PRA's pre-application process.
We still expect to make our formal application for approval next year. On the right-hand side shows the dividend. We're declaring an interim of 70.5 pence per share, which is 12% higher than the 2019 payment, and is a payout ratio of 85% of the first half profit. And we're confirming that due to the continued strong financial position and reduced level of uncertainty now, compared to back in early April, we will pay the 20.7p special dividend that we deferred alongside the 2020 interim in October. Onto the next slide, and to leave you with the key messages from my section. Top line progress was generally decent, and although negatively impacted by COVID, more recent trends have been much more positive.
Profit was up strongly with generally very good results from around the group, and we maintain a strong solvency position after paying the interim 2020 dividend, as well as the deferred special dividend. I'll hand you over now to Cristina to talk about the U.K.
Good morning. Thanks, Geraint. As you have said, this period has been a rollercoaster for the U.K. insurance business. I'm proud to state that despite all this, we're in a stronger position than we were a few months ago, and also that despite COVID, the highlights of our results have been the same than in previous years, which is the strength of our reserve releases, a testimony of our underwriting capability. Now, let's start talking about the top line in motor insurance. First, a modest vehicle growth. It has been impacted, our growth, by the reduction in quotes and sales during the lockdown, and it has been partially helped by the fact that we have had very strong retention. Also, turnover was down by 8% due to the premium refund, and additional income was also down.
This was mostly down to the fact that we collected less fees, and also that we had less income coming from our non-fault claims, just because we had less of those. So the combination of a reduction in income and an increase in expenses due to COVID has meant that our expense ratio has gone up by 1 point versus last year, but we expect this to be just a one-off. Moving on into claims, it's clear that the biggest impact of COVID in our business has been the strong reduction in frequency. You have a graph that shows car usage in the market. Frequency was down as much as 75% at the beginning of lockdown, and it's been going up week on week. Today, it's around -30%.
COVID has also put some pressure on our repair process, and as we had less capacity in our garages, which meant more written off and also longer duration of car hire. So we have seen higher inflation during this period, but it's we expect it to come down to more normal levels. Frequency is the big uncertainty in the future. There are many factors that are gonna push frequency up, like, for example, less usage of public transport. But we're also gonna see reductions in frequency due to recession, and also maybe due to further COVID restrictions. So very hard to tell what is gonna happen to frequency. My take is that we're not gonna go back to normal levels, at least until the end of the year. So let's take a look at prices.
For the market, during the second quarter, we have seen a reduction in prices. The ABI indicates about a 3% and Confused, which only looks at new business prices, is talking about a 5% decrease. Now, it's important to note that this is the average for the market, but actually we have seen very different behavior by the different vendors. In the case of Admiral, and as we told you at the full year results, we increased prices in the first quarter of the year to take into account the inflation we were seeing, and we reduced prices in the second quarter, given the strong reduction in frequency. Taking everything into account, we have decreased prices both for new business and renewals by about low single digits. We haven't shown this time the Price Stats graph, and that is because there was a lot of volatility.
I think the highlight to mention is that we are today more competitive than we were at the beginning of the period. Now the future, again, is very hard to predict. Lots of pressure on claim severity, lots of uncertainty, as I mentioned, on frequency, but also we don't know when and how big it's gonna be, the impact and the outcome of the FCA pricing study. I think that we're gonna see price increases if frequency comes back to normal levels, but that is hard to tell. All I can say is that so far, since July, we have seen relatively flat prices in the market. Moving on to our household book, it's been a positive period. Good growth in terms of numbers, but also good growth in terms of profits.
Despite bad weather at the beginning of the year, we managed to increase our profits, and the overall impact of the storm was about GBP 5 million net of flood re-recoveries. COVID hasn't impact household as much as it has impact motor, but we have seen a change in claims mix. More accidental damage claims and less theft and escape of water, and this is just because people are staying more at home. Maybe we will see some more of these changes in the future as people might work much more from home. In the future, for our household book, we expect a continuation of growth and hopefully an improvement in our loss ratio. Now, at the beginning, I said that I was very proud because we're a stronger business today than we were just a few months ago. Why? Well, we have a stronger brand.
We have accelerated and improved our digital capabilities, and we're a better place to work than we were before. So let me explain you a bit more in detail. First, in terms of brand, the impact of our stay at home refund has been very strong and very positive from our customers. It's great to see their comments, but also it's great to see how this has translated into what we believe is higher conversion and higher retention. You can see in the graph an increase in the consideration of our brand during this period, while the average of the market has gone down. Secondly, we have seen an improvement in our digital capabilities. We have increased the investment that we're making, and we're seeing the results. Double the number of online sales, and also double the transactions that we do online during the year.
Additionally, we have improved our online capabilities, both at renewals and claims stage. I also said that we were a better business for our staff. We continue to receive very strong awards during this period, but also the fact that we have allowed all our staff to remote working, will increase flexibility for the future and will help when it comes to attract talent, as well as doesn't need to be the only option for the future. So overall, we're in a very strong position, and actually, I've never been as proud as I am now to work for Admiral. So in summary, a very good period for the U.K. insurance. The highlight, the strong material releases, also modest growth, during this period, but we're starting to see recovery, a reduction in frequency, and a good period for our household book. It's all for me.
Now, I'm gonna move on and give you Costantino, who will talk more about international insurance results. Thank you.
Thank you, Cristina, and good morning, everyone. My name is Costantino Moretti. I joined Admiral in 2007 as part of the management team that launched ConTe, our Italian operation. I became ConTe CEO in 2016, and I was appointed Head of International Insurance a couple of months ago. In this new role, I will count on an exceptional team of colleagues who lead our operation in Spain, France, Italy, and the U.S., and those who support our technology and governance capabilities. To start, I'd like to highlight levels of commitment made by the international insurance businesses to pursue sustainable growth, focusing all our efforts on scaling the business whilst preserving our loss ratio and evolving our risk selection capabilities, leveraging on data and analytics.
H1 2020 has been positive for us, profitable on a combined basis and with customer numbers 10% higher than a year ago, with a turnover growth of 3% despite the COVID disruption. While it reduced the speed of growth, it has actually provided some benefit to loss ratios. COVID trends observed in the non-U.K. operations have been more or less similar to the U.K. trends described by Cristina. I'm very proud of the resilience demonstrated by our operations that have shown the capabilities to prioritize staff well-being while continuing to serve our customers with high levels of satisfaction. Moving on to the next slide. In the European businesses, we have continued to grow our customer base, even if below expectations due to the COVID emergency. Primarily, this affected the demand for new policies.
However, renewals performed very well because we focused on continuing to serve our customers while offering lower rates due to lower frequency with fewer people driving. Looking at the single European businesses, ConTe and Admiral Seguros have taken a more prudent approach, given the highly competitive markets within which they operate. Improvements in digital conversion and in the expansion of the broker networks have continued in 2020. Both projects supported volume growth, while turnover remained quite flat as a consequence of lower rates being offered to the customers due to COVID. L'olivier has achieved, once again, very positive results, with growth mainly driven by the direct channel and strong persistency. The growth is primarily coming from the continuous investments in brand awareness and conversion, whilst product improvements has helped to sustain turnover.
The figures for Elephant, our U.S. operation, reflect our conservative approach to not grow in order to preserve technical results and the lower turnover growth is affected by the launch of the six-month term policy. Taking out, it remains relatively flat. Moving on to the next slide. On the left-hand side, the European businesses combined achieved a strong EUR 11.2 million profit, with a positive contribution from all the operations. Three main reasons behind this result, in order of relevance: One, the past year's loss ratio have evolved very positively, another demonstration of our reserving prudency. Two, pre-COVID claims evolution suggests we have positive trends in the current year loss ratio. Three, a lower than expected frequency experience due to COVID disruption, despite us transferring part of this benefit through lower rates to our customers.
On the right-hand side, Elephant experienced a lower loss of $4.2 million due to loss ratio improvements in H1, as well as the impact of COVID, although this was partially offset by a customer moratorium linked to increased payments for customers with payment difficulties and also some additional operational expenses. The loss ratio improvements are linked to the continuous strengthening of risk selection capabilities, where a lot of enhancements have happened over the last year. While we see some positive early signs of improvements, we remain very cautious, and we wait for further development before recognizing them. Finally, across all the operations, we continue to focus on cost control and enhancing customer service through the digital channel, improving the expense ratio, and producing value for our customers. In conclusion, moving on to the next and final slide, I'd like to highlight the three key messages for International Insurance.
Growth temporarily slowed down due to COVID emergency. Higher profits in Europe, driven by prior year improvements and COVID effects. Elephant continues to focus on loss ratio improvements and strengthen business fundamentals. Thanks. And now I pass over to Elena to talk about our price comparison portals.
Thanks, Costi. I'm Elena Betés. I'm leading Admiral Online Comparison Portals. We love to see ourselves as penguins. Its business is a penguin. As you could see on the slide, penguins group it, and work as a team under adverse condition, and it has been extremely relevant capability to deliver the following results. So let's move to the next slide, to the European penguins. Our comparison businesses started 2020 strongly and remained resilient during COVID. The pandemic led to a significant drop in quote volumes across operations, particularly impacting on businesses in continental Europe, rastreator.com and LeLynx.fr, where we suffer a reduction on revenues and profitability. Confused.com performance was particularly strong. Our increasing market share in current home insurance drive a double-digit growth in revenue and improvements on profit by 55% compared with last year.
The team navigated very well through the very changeable last few months, and we are pleased with the half-year results. Even more pleased to see a strong signs of recovery across the board in June and July, made possible by teams' reactions in order to adapt and relevant contingency plan in place across Europe. We turn for the next slide, beyond Europe. Let me highlight two operations. Our U.S. operations, compare.com, achieved a substantially reduced loss of $0.6 million, despite volumes and revenue is strongly impacted by COVID. This was driven by improved conversion and by strategic changes made to the business last year. We are committed to maintain our customer-centric proposition, convinced that this is the way to develop a, in that competitive market. On the other side of the slide, let me highlight Rastreator Mexico.
This is one of the ventures from Preminen, our penguin incubator. Rastreator.mx was launched in 2017, and has performed strongly since the beginning. The first six months, we saw not just growth on the revenue line, but a comfortable media breakeven. So as a summary, I will say that, this is a pleasing, results, and it demonstrates resilience on our businesses, and independently of the size of them. We have seen COVID more as an opportunity right now than this digitalizing our customers and our suppliers. Second, our purpose continue to focus on empowering more customers to make better financial decisions, which under expected crisis, is even more relevant. And last but not least, our strategy and the penguin umbrella to leverage on each other, stronger together, has proven fundamental.
In a world where data points to take decision is key, the fact that we have visibility on pandemic impact in each country has allowed a scalable learning that teams has leveraged on to move quicker than local competitors. So thanks a lot for all the penguins for your amazing efforts. Now moving to Scott, who leads our financial services.
Thank you, Elena. Good morning, everyone. My name is Scott Cargill, and I am the CEO of Admiral Financial Services. Since the deep dive providing to loans at half year 2019, the business has continued to grow in the prime space, and we have continued the trend of tightening credit rules throughout 2019. As you may have seen from the intro slide, January 2020 started with us writing our 100,000th loan customer. That happened on January 4, which set the tone for an encouraging start to the year. As you see in the chart, by mid-March, our balances had grown to GBP 515 million, and we also experienced all-time low loss outcomes during that period, while maintaining our focus on expense control.
In addition, having developed our new pricing capability last year, we launched in early January, which during quarter one showed signs of an increase in margin. As the COVID crisis emerged, we took early action. Firstly, in early March on pricing, and by mid-March, we paused new business entirely. We implemented working from home and reallocated significant resources to servicing and collections. We also ensured that existing funding lines were secured and extended. Moving to the next slide. The loans business has fared okay during the COVID crisis so far. We supported customers, resulting in 3.5% being offered reduced payments or payment holidays, to which over 50% have now successfully returned to up to date. With the exception of the payment holiday activity, we have not yet seen an increase in defaults.
The payment success rate of those customers not in a payment holiday during Q2 has been in line to better than historical ratios. The high loss is therefore predominantly driven by a prudent approach. We have increased the provision by GBP 16 million in H1, and as you can see from the chart, our coverage ratio has increased from 3.7% to 8.1% at the half year 2020. This includes increasing the provision for up to date from 1.3% to 4%. Overall, this results in a total provision of GBP 40 million for the GBP 495 million loans balance sheet, and we've provided some extra detail on the scenario assumptions in the RNS. There were some encouraging signs pre-COVID, and we have started to cautiously write new business again. We believe the evolution of the market post-COVID plays to Admiral's strengths.
However, near-term economic uncertainty does drive a more prudent outlook, and therefore, we are revising our original balance guidance down to GBP 500 million-GBP 600 million in 2021. As you can see from the slide, our half year loss was GBP -9 million, and we are allowing for a loss in the range of GBP -12 million to GBP -16 million for the full year. To summarize the key messages from my section, Admiral continues to invest in its loan capabilities, and there were encouraging signs pre-COVID. We had a rapid response to COVID, and there is a resulting deferred growth plan, and prudent provisions have been made. We remain highly cautious about the next six months due to the high level of economic uncertainty, and we expect the next twelve months to be a transitional period.
With that, I'll pass back to David and Milena to wrap up.
Thank you, Scott. So in summary, I think a very gratifying set of results. Progress across a broad range of our businesses, increased profitability and market share in international insurance and on our comparison platforms. Clear, though admittedly provisional at this point, evidence of competence and resilience for our loans business, and of course, above all, another great set of numbers from our core U.K. business, yet again.
David, you were instrumental in building these businesses. As you come to the end of your term as Group CEO, what is the legacy you feel you're leaving behind?
Well, Milena, I don't think I leave a legacy. I think I pass on a baton. I pass on values and competencies that have made Admiral a great company to work for, to buy from, to invest in. Those same set of values and competencies that you deployed to such effect in building the European businesses. As you take on that baton yourself, what are you most excited about in terms of taking the business into the future?
So first and foremost, I need to make sure Admiral culture continues. Our staff is highly motivated, engaged, and also shareholder, and this is what make Admiral unique and special, and this underpins all our competitive advantages. Second, I'm excited by the opportunity to accelerate digitalization and enhance our data and advanced analytics capabilities. And finally, I'm looking forward to continuing the journey that you started, of offering more products to Admiral customers, to deepen our engagement with them and our understanding of their needs, particularly where we're confident we can deploy our core competencies. Now, in order to achieve all this, our people is key. Admiral culture is key, and talent is key.
We've recently hired some very experienced managers in the area of technology and data from the outside, but what makes me so positive is that we are plenty of bright, passionate colleagues with great potential to make Admiral stronger and stronger in the future. On that note, should we open up to questions?
Thank you, Milena. Time to open up the questions. First question, please.
The first question is from Jon Hocking of Morgan Stanley. Please go ahead.
Good morning. Thank you both for taking my questions. Firstly, you said that your pricing in U.K. motor is more competitive at the beginning of the period, and the pricing's been flat since July. Do you think you're taking a more aggressive view on low frequency continuing than peers, or are you just able to make more targeted rate adjustments faster? That's, I guess, one for Cristina. You've recently resumed the sale of travel insurance and lending products, and you gave new loans guidance, but I was just wondering if your long run growth appetite has, to each product has changed, and you've also changed the kind of loans you're looking to offer? And Milena just then, you said you were thinking about offering additional products.
Sure. Thank you, Jon, for the question. Shall we start with, we'll take it in your order. Cristina, do you wanna do pricing before I hand over to Scott for loans and then Milena on the new products?
Thanks. Yes. So, we are at the end of the period, so in June, we were more competitive than in January. I think it's important to mention that we had been increasing prices quite strongly ahead of the market, already in the second half of last year. So when we started to decrease, we came from a very different base. And yes, today, we are more competitive, which in a way might imply our views for the future. As I mentioned during the presentation, what I think we're seeing in the market is a very different response by different players, and that might also be playing into the current context. But just to mention on travel, very quickly, that we have started a few weeks ago, to offer travel insurance to our customers again, although there is a very small volume.
Thank you, Cristina. Scott?
David, sorry, Garrett here. We've, we were on a bit of a lag, and so we missed the second two questions. Could we get the loans and the new product questions repeated, please?
Okay, Jon, would you mind repeating the loans question and the new product question?
Of course. So yeah, you've recently resumed the sale of travel and loans. You gave your new loans guidance, but I was just wondering if your long run growth appetite for either product has changed, and if the kind of loans that you're offering has changed. And then just I think I caught Milena saying something about offering new products in the closing comments. So just if we could get more details there. Thanks.
Scott, do you want to do loans then?
Sure. Hi, Jon. The on the main point on loans will be that for the next 12 months, that we will be very cautious. We are looking to find stable risks, so there has been an adjustment. We were quite focused anyway, but we are very cautious for the next 12 months. And therefore, I think you could look at it like a delay to our growth, or potentially it would be a gradual pickup in the next 2-3 years. So long term, 5-10 years, no change, but for the next 2-3 years, less than what we would have been doing otherwise.
So on the new product, David set the ambition a few years ago for Admiral to start the journey to diversification. The main rationale there is to be able to offer more product to the customer, to engage more with them, have more contact point. Also, getting to know them better, having more data, and being able to provide them a better user experience, better journey. And, we're looking at doing that in area and market where we feel we have relevant competence can deploy. Loans and household there have been the first examples. You know, loans is different from insurance, but we feel there are some synergies, and we can deploy our ability, for example, to select risk better, et cetera.
We've also done other venture like Veygo, for example, in U.K., that provide non-standard insurance, short-term cover, or Homebrella, that is an InsurTech in household in France. And we're continuing to explore new ideas along those lines, and those principles, and we'll continue to do so in the future.
Great. Thank you.
Rachel, next question?
The next question is from Andrew Crean from Autonomous Research. Please go ahead.
Good morning, all. And David, I think this, Is this your last set of results?
Morning, Andrew. I gave my notice in March, when we did the full year results presentation-
Yeah.
It's a twelve-month notice, and that's where we are. Obviously, there's a process to transition from myself to Milena-
Yeah.
and more and more of the business reports to her. So even if de jure, I'm CEO for a while yet, de facto, Milena is increasingly the current CEO.
Will, will this be your last investor call?
It depends a bit on the timing of the next one.
Okay. Well, I'll save it till next spring. But a couple of questions then, if I might. Firstly, I know on the European insurance businesses, that you've been delaying profit by building reserve. And I wonder with the big release from reserves coming through, whether that process is over, and now we should look for a much more rapid acceleration in the profitability of those European insurance businesses? So that's the first question. Second question is, Large BI. I mean, when the frequency fell in March, April, May, from what I understood, the other thing which was going on was not only were there fewer cars being driven, but there were fewer people in each car.
Have you seen that as an important impact, i.e., that there's been a rapid drop in the Large BI claims?
Costi, do you want to go into European before Cristina picks up Large BI?
Yes, David. Good morning, everyone. On the European businesses, in terms of reserving, we are adopting the same conservative approach of the group, and we are planning to continue in this way. While I would say that the underlying trends of the European businesses are consistent and are strong, so we are observing year-on-year improvements in all the fundamental KPIs, like loss ratio and expense ratio.
Therefore, we are confident that we are on track to reach our previously communicated estimate of the range GBP 30 million-GBP 60 million pre-tax profit by 2022.
Good morning. On the large BIs in the U.K., so we have seen a strong decrease similar to what we have seen in the overall frequency. But there have been two key changes. First, as you said, fewer clear, fewer people in the car, and secondly, during the lockdown period, a different type of PIs. So less like driving, for example, and more injuries involving people driving a motorcycle or a bicycle. Having said this, it's very few numbers we're talking about, and this is something that we have seen just for a few weeks.
The next question is from James Pearse with RBC Capital Markets. Please go ahead.
Morning, everyone. I hope you're all well. First question is just on reserve releases. So I think in the past, you suggested that you'd expect these to trend down in the long term towards 15%, but again, obviously, they've been really strong this year, so just want to check if that's still the case. And then just expanding on that, has there been any change in the level of prudence that has been booked into your initial loss ratios on the more recent years? Or has there been any change in the rate at which you release that conservatism? And then the second question is just, can you give us a sense of how you think the 2020 ultimate loss ratio has developed, excluding the claims frequency benefit from COVID-19 in the U.K.?
I know, I appreciate there's a lot of moving parts there, but I think it'd just be useful to get a sense of which way you think the underlying loss ratio is heading compared to 2019. Thank you.
Geraint, will you take the reserve releases question, and Cristina, the 2020 prospect?
Yeah, no problem. On reserve releases, we talked last time about the average at five years being 40 in the range of 20-21%. Albeit you're quite right, the past couple of periods, we've seen high 20s. If you back out the impact of the rebate, we're pretty consistent in the first half of this year with that sort of high 20s range. I'd expect it to sort of stay there in the very, very short term, but probably trend down after that, back towards low 20s, 20. I think 15 is probably a little bit out of date now. But of course, you should caveat that with all depends on what happens with claims development, of course. If it goes as expected, we'd expect continued strong reserve releases.
Level of prudence, Geraint?
There's no change in the overall level of prudence. We measure it and monitor it really across the whole reserve, not individual years. We try and have a logical pattern, obviously, with typically more reserve and more prudence on the more recent years. There is more conservatism in some of the more recent years than it appears in the back of the pack, because those tend to be prudent projections of the ultimate loss ratios, as you know. So no real change, I would say.
Cristina, 2020?
From the loss ratio for 2020, it's very early to make any comments, but I will highlight a couple of things that we have seen. First, that we put price increases during 2019, and therefore, the starting point of 2020 at the beginning of the year is different than the starting point of 2019 in terms of level of prices. The second one is that we have seen an increase of accidental damage inflation during lockdown, which has taken higher than normal levels, but we expect this trend to reverse back to normal levels.
The next question is from Freya Kong with Bank of America. Please go ahead.
Hi, good morning. Two questions from me, please. Firstly, shopping activity in May, June, appears to have more than offset the slowdown you guys saw in March and April. How are activities trending, how are activity levels trending now, and when do you expect to see some normalization? And secondly, you've now grown U.K. home customers to over a million, up 6% year to date, while competitors continue to shed customers. Are these new customers coming to you via PCW, or are these existing customers taking up your MultiCover offering? Thanks.
I think the comparison platform businesses have the best insight into shopping behavior. So maybe, Elena, would you take the first one about shopping, and Cristina, the household one?
Sure. So all around Europe, we have seen, like, a big impact on activity until May, I would say. However, June, there was an extraordinary month for everybody, and must kind of recover from all the drop. July, August is trending as normal, from our perspective.
Thank you, Elena. Cristina?
Yes, David. So the growth in household comes from both channels, multi and price comparison, with price comparison traditionally taking the vast share of the growth.
Thank you, Freya. Next question?
The next question is from James Shuck of Citigroup. Go ahead.
Hi there, good morning, everybody. So a couple of things from me. So the 2020 booked loss ratio on the underwriting year basis, that was at 70%. I think the 2019 initial booked loss ratio was 92%. Can you just help me understand that bridge between the 92% and the 70%, would be helpful. Secondly, I guess over the past, you know, well, in your entire tenure, David, at Admiral, you've demonstrated much better combined ratios than the industry in a very competitive market, 20-30 points, probably on a fully developed basis.
We're at a stage now where the market is changing, and potentially in terms of customer behavior, shifting quite materially, which means that the data that you have may not be quite as insightful as it was in the past. So my question really is, you know, the size of that outperformance in the past, will it get tougher to do that, particularly as we move through a new kind of potential paradigm shift in terms of driving behavior, who's in the cars, physical damage, inflation, all of these things? Interested to get your view on that. If I can quickly squeeze in a third one as well, it's just really a clarification on slide 18. Because you show the new business online sales being up 47%.
Don't really understand that, because that implies that your previous new business online sales was actually quite a low number, whereas I thought you were selling kind of 80% or so through price comparison sites. And if that is the scale of the increase, could you just clarify what the implications might be for ancillary sales, given you wouldn't be closing via calls quite as much as you have done in the past? Thank you.
I'm gonna do them in a slightly different order. Cristina, do you wanna clarify the point on 18 first, and then I'll, I'll pass to Geraint to do the 2020 detail question. And then maybe I'll pick up the under the combined ratio advantage and the impact of shifts in consumer behavior at the end. Cristina first, then Geraint, then me.
Yes. So when we talk about new business sales, we traditionally have talked about where they start. And you're right, that the more. You know, about 90% or more, the majority of our sales starts online, either price comparison or directly to us. What is different now is where they are closed. So it's, it's a normal process where the customer sees a price and price comparison, and then they might call us. What we have done during COVID is to change this trend, and, we have more and more customers finalizing the, the sales online.
The implication on ancillaries, there is a difference between sales that close on the phone and sales that close online, but we still, a lot of our products, like legal protection and broadband, are needed by the customers, and they still take it online, so the gap is not that big.
Thank you, Cristina. Geraint, on 2020?
Yeah, thanks, James. It's a good observation. I think the point there is that 2020 underwriting year, six months into its development with the particular period we've just had, is an unusual underwriting year. So it's not, there's not a lot of earned premium on it, and it's obviously gone through a second quarter, which is unusual from a claims perspective. So it's difficult to comment on meaningful trends from it at this point. I think, let's wait till the end of the year. We'll see where we're booking at that point, and we'll show at that point, obviously, a 2020 ultimate projection as well. So difficult to comment at this point, and is very influenced by quarter two, and a low amount of earned premium on 2020.
James, you made the point that historically, Admiral has had a very strong combined ratio advantage. You raise a question that maybe with a major shift in consumer behavior and driving patterns, that advantage may not be sustainable, or maybe, maybe in some senses, challenged. I sort of suspect the opposite might be true, because if you get a discontinuity and a change in behavior, as we are seeing, although I think the world will revert towards a different, towards normal, if you see that discontinuity, I think the winners are the people who make the quickest and most intelligent responses and who are closest to their business and to the drivers of loss ratio.
I hope, and this is a hostage to fortune, but I hope we are making the right responses, reading the data quickly, and implementing appropriate changes. The big challenge for any car insurer at the moment is to understand when we commit to a price for 12 months, and there's so much uncertainty around frequency and, to an extent, severity, when you look at the sort of second half of a policy term of 12 months, or even the last three quarters of that term, then there's a lot of judgment call. But I think that we're probably in a better position to make those judgment calls than some of our competitors because of our culture and heritage.
The next question is from Jonny Urwin with UBS. Please go ahead.
Hi, good morning. Hope everyone's well. Two from me, please. So, firstly, can you talk a bit about the, you know, the structure of the, the U.K. motor market, with regard to the recent consolidation that we've seen? I mean, do you think this could be, you know, could be helpful in, in, in kind of improving the structure of the market? And secondly, I was interested in your, your observations around the, the potential opportunities arising, arising from COVID-19 driven disruption. I mean, of those four areas that you note, which do you see most potential from? And, are you backing this up with accelerated investment? Thank you.
Jonny, could you sort of expand on the four areas that we noted? Was that me that noted them or...
It's on slide 5.
Okay.
Shift towards digital contact channels.
Okay.
acceleration of online distribution
I see.
flexible working and operational resilience. Thanks.
Fine. So, Milena, do you want to take that? But first of all, maybe, if Cristina would like to comment on the big picture on the markets and the changes we've seen.
Yes. Actually, we don't expect a significant change. I mean, Hastings is a strong player with a clear focus on data and digital. They've been growing a lot in the recent periods, and I would expect that the new owner will continue with this strategy. So no major changes.
Hi. So it is difficult to prioritize them, because we don't know exactly what the new normal is gonna look like. Just for the benefit of everybody, I mentioned an improvement in digital contact, an acceleration of online distribution that will be particularly beneficial for the product, where online is not the dominant channel yet. And this is international insurance and products outside motor in U.K., and then flexible working, access to new talent and operational resilience.
I would say personally, that, this order is, somehow reflecting what I would expect to be, the order of and probably the shift towards a, stronger user experience, higher adoption of digital channel and online distribution is probably gonna give an additional boost to, company that can provide good service online, they're competitive in pricing and they're, very customer centric as Admiral.
Thank you.
The next question is from Greig Paterson with KBW. Please go ahead.
Morning, everybody. Can you hear me?
We can, Greg.
Three questions. One is, the net earned premiums. I thought you were gonna book the rebates there. Am I correct that you rather booked it as a claims cost? And I'm just trying to understand the accounting. The second question, in terms of the first half of the year, ignoring COVID-19, I wonder if you could give us sort of an idea of what the year-on-year, just broadly, inflation rate was. Was it low, single digits, high, medium, whatever? And then if you could answer the same question, including COVID. So in other words, what was the year-on-year inflation in U.K. motor from COVID? And then, thirdly, there was press speculation about you disposing of your European and U.K. PCW. I was wondering what your thoughts are, or was there anything to that, that press speculation?
You know, what is the strategy there? Thank you.
Thank you. Maybe I'll take the last one first before handing over to Geraint on the handling of the rebate and Cristina on motor inflation before and after COVID impact. So, yeah, I mean, ever since we launched price comparison a fair while ago, it's been an area that's attracted a lot of external interest. And that has been more the case in recent years, even than it had been historically. Partly based on the increased success of our comparison businesses and particularly Confused. Coming out of the lockdown, also, I know there's a lot of private equity money out there, looking for places that have been resilient to COVID.
So we do, we have been approached, and we have a strict policy of considering approaches and trying to judge them from the point of view, what's in the shareholders' interest. My predecessor, Henry, used to say, everything's for sale, except his wife. And that sort of applies. Having said that, they're lovely businesses. They generate a great return on capital and a solid profit flow. So there's no urgency to consider external offers.
Greg, on the accounting for the rebate, you, as regards to the, yes, page 59 of the accounts, we, what we've done with the accounting, it's all taken in the first half into net earned premium. It's not offset against claims costs. The impact is obviously net reinsurance is a bit lower than the GBP 100 million, but top line figure, but set out in the notes. Give me a shout if you need to talk through it.
Greg, on year-on-year inflation for claims, if we don't take into account COVID, we have experienced normal levels of inflation around mid-single digits. When you take into account COVID, the inflation of the repair claims of accidental damage has been higher than the normal levels. Given the disruption that we had in our repair process during lockdown, there was limited garage capacity, and that has an impact, for example, in the sense that it's more written off, we had more duration of car hires. However, we think this is a clear effect of lockdown, and we expect inflation to go back to normal levels, once things go back to normal levels around especially, garage capacity.
The next question is from Thomas Bateman with Berenberg Bank. Please go ahead.
Hi, good morning, everybody. Thank you for taking my question. Just a couple of questions to begin with on the international division. You flagged sort of longer-term cautiousness on, in Italy and in the U.S. The U.S., I kind of get that, that's understandable, given sort of focus on cost control there, and maybe pulling back a little bit. But I don't quite understand the cautiousness in Italy. Can you give me a little bit more context around that? And linked to that, you said you chose to increase the net retention in the U.S.
What's the sort of rationale behind that? Was that an internal decision or a reinsurer decision? And finally, just second question on the loans. Can you just run through the numbers again, Scott, on those that went onto a payment holiday, those that are now out of the payment holiday, and how that has impacted your provision? Thank you.
Lovely. I'll do the retention question first before passing to Costi on the U.S. and Italy, and then back to Scott to finish on loans. So yeah, so we have regular conversations with our reinsurers as contracts come up for extension and renegotiation. And the balance of our view of the balance of outcomes in terms of what was on offer was that we shouldn't take as much reinsurance as we historically had, and we stepped down from 75% cover to roughly 50% cover. So it's the outcome of a negotiation. Costi, over to you.
Yes, thank you. So, I would say that we, that consciousness is part of our, DNA. But having said that, about, about Italy and, and ConTe.it, we are building, a strong businesses, there, that is profitable over more than five years. And, the, all the underlying KPIs are, continuing to improve year on year, despite, to be honest, a very, a very challenging, competitive market. While I would say, in the U.S., we, remain very cautious, and, very committed to improve the business fundamental.
Before I hand back to Scott, let me, s orry, I realize I slightly misstated. We were 66%. We weren't 70%, we've gone down to 50%. Over to Scott.
Payment holidays, we had around 3,500 customers go into payment holidays. And at the half year, just over 50% of those had returned to up to date. Which as of now is about 1,000, so it's continuing to go down. And the way we account for that is that they're maintained as up to date, because that's the way we treat them in the accounts. But, you know, we've held about 75% of them in Stage 2. So, you'll see the coverage there is around 34%. They won't return immediately back to Stage 1, because we still see a lot of those customers as potential risk of credit deterioration in the second half.
The next question is from Dom O'Mahony with Exane BNP Paribas. Please go ahead.
Good morning, folks. Thank you for taking the call. Just two questions from me, if that's all right. First is just on inflation and not so much, you know, the year-on-year inflation, but in terms of longer-term inflation, in particular on large bodily injury. You know, one of the topics that's sometimes debated in the markets right now is whether monetary stimulus and similar measures might increase inflation in the short to medium term. What's your approach to inflation on the LBI reserves? Clearly, because you retain that more than some of your peers, you know, in the past, the good management of those reserves has been very critical.
But just wondering how you control that, whether you, for instance, use inflation swaps to control that. The second question, more on business. Lots of discussion today on trends in digital distribution, which looks very encouraging, in terms of the market trends. One of the things that, you know, at least I've noticed, is more car companies talking about the connection of essentially the technology in the car to insurance. I wonder if you could flesh out your approach to partnering with the car OEMs. I know you have a partnership with Ford. Are you seeing that as a potential distribution channel in the future and using car technology as part of that? Thank you.
So Geraint, do you wanna handle the impact and inflation on large bodily injury exposures? And then, Cristina, are you all right to talk a bit about connected cars and our relationship with Ford? Over to Geraint.
I think it's fair, it is fair to say that we buy a lower layer of loss reinsurance than our peers, and so when we see an elevated number of large injury claims, then we would suffer. But on the contrary, when we see a reduced number of large injury claims or lower inflation, of course, we would be, we would benefit from that. I'm not sure we're actively pricing in or doing anything different, in response to potential long-term trends on inflation on large injury claims at this point. We will adjust our prices to what we see, on our portfolio in terms of the numbers and the cost of claims that come in, in material.
Is there anything you might say about the matching of assets and liabilities in the context of large bodily injury exposure?
Yeah, of course. From the asset side, we are well matched. The duration of the assets is well matched to the duration of those liabilities. Hence, when interest rates move up and down, you don't see big swings in Solvency Ratio as a result of that at all.
Thank you.
Uh, Cristina?
Yes. I'll start by saying that we value a lot, the data that telematics or technology in the car can bring. It's clear that we're one of the largest providers of telematics insurance in the market because this reason. So we are very open to getting to partnerships with OEMs or with other data providers that might give us access to the technology in the car data. We have done a partnership before, and we remain open to finding new distribution channels and new partnerships as a way to get this data, but also as a way to find customers in a different way.
Thank you. Do you have any-
All right. Yeah. So we've got some questions coming in from the website. The first one is from Abid Hussain, and his first question is: Do you think driving will ever return to normal, given flexible working is likely to continue over the long run, meaning fewer car journeys? And his second question is: Can you explain how Admiral Loans work? How are they funded? What is the risk to shareholders if losses arise? What is your medium-term growth outlook on loans, given the recessionary environment? Thanks.
Okay, thank you very much. Cristina, do you want to take the first question and, and obviously, Scott, the second?
Yes. I think it's, it's very hard to tell if driving will ever return to normal, but I would tend to agree with the question in the sense that flexible working is gonna stay and gonna continue in the future. I think we're gonna see, for example, less traffic in peak hours. We might see people moving from city centers to the outside, and that is definitely gonna impact frequency or overall car usage down. However, there are other trends, like less usage of public transport and more domestic holidays, which I also think might continue in the future, at least some of it. So overall, lots of uncertainty. In my view, we won't go back to normal levels of driving, at least for a very long time.
Okay. Next question from the website.
Well, on the loans one, David-
Oh, sorry, sorry, Scott.
So on funding, there's detailed notes in it, actually, in the notes at slide 40, page 42. But we have some internal funding, which is GBP 200 million, and then we have a warehouse, which is around GBP 400 million. So that the detailed borrowing notes for the half year are in page 2. In terms of losses in the near term, our weighted unemployment rate in the provision is around 11.2%, so we're kind of towards the higher end of market consensus. That said, we have shown some sensitivities, also in the notes, which would show what would happen if there was a move to the downturn or to the severe.
And on a balanced outlook, I think broadly covered this yesterday. 12 months, we will definitely be taking a view of caution, but we have big ambitions for the future. So, when we see the opportunity, we'll look to grow again. Thank you.
Thank you. All right, our next question is from Ming Zhu, and their question is: What is your claims inflation outlook, and how does that versus your comments of being more competitive? Are you implying that you are writing a lower margin? Thanks.
Cristina, do you want to do that one?
Yes. Admiral has a history or a trend of moving prices ahead of the market. And I think to answer this question, it's important to mention what has been happening in the past couple of years. So we started putting prices up in mid-2018, which means we continued in 2018, 2019, and the first months of 2020. So for about 20 months, we've been putting prices up, which meant that at the beginning of 2020, we were less competitive than we were a couple of years ago. In Q2, we decreased prices by low single digits, and I would say that now is closer to where it was a couple of years ago.
Our next question is from James Hyde, and he asks: You seem still to be writing U.K. motor policies from a German entity. How long post-Brexit do you expect this to be allowed to continue? And will there be costs from bringing the writing back to the U.K.? Thank you.
So that relates to the Munich Re company, Great Lakes, which is a German company with a U.K. branch. We're very confident they've got the right permissions to carry on writing the U.K. business, in the U.K., post-2020, and don't expect to see any additional cost of doing that.
Thanks, Geraint. Our next question comes from Roman Friedman, and the question is: Now that you're reaching scale and ongoing profitability in international operations, when do you think you'll be able to improve overall economics on the co-insurance contracts internationally to progressively move towards U.K. similar economics? Thanks.
Milena, do you want to have a go at that one?
Sure. So, as we mentioned in the past, we think that over time, once we've proved a track record of strong set of results, we can improve the terms of the contract that we have with our insurance internationally. Just so we think that's gonna happen in time. Just to remind that those contracts are multi-year contracts, so it's not a linear function. It's something that will come when the contract will reach their expiration date.
Thank you. Our next question is from Faizan Lakhani, and he asks threefold question. One, how are your quota share negotiations developing? Do you expect any change to your reinsurance structure? Two, could you split the benefit in motor profit for claims frequency benefit from COVID-19 versus the underlying improvement? And three, you've mentioned that accident damage inflation in H1 has increased. Could you provide further detail what that is due to? And what gives you comfort that trend will reverse? Thank you.
Marisha, I slightly wonder if that question was asked before Cristina answered a very similar question a few questions ago. I'm wondering about asking Geraint to comment on the reinsurance contracts and leaving it there.
Happy to. Yeah, the U.K. quota share reinsurance discussions are active, and they're productive, and we'd expect them to conclude very shortly. At this point, not expecting any notable changes to those arrangements.
That's all questions from the web chat, so no further questions from our side.
Okay. Does that mean, Marisha, that we wrap it up here?
That's correct, David.
Okay. Thank you, everyone, for participating in today's call and question and answers. We very much welcome your questions and looking forward to a successful second half. Bye.
Bye, everyone.
Bye, everyone.
Bye.
Thank you. Bye.
Thank you.
Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.