CMD 2024

Dec 5, 2024

Really good to see you all here. Thank you so much for coming along. First time we've done one of these. It's called a Capital Markets Day, 'cause we couldn't really think what to call a Capital Markets 45 minutes, which is sort of what we've got lined up here. Clearly this is the big news in personal lines insurance at the moment, not some little takeover spat that's going on between Aviva and Direct Line. Clearly this is the big news. This is a quote we stole from one of our shareholders, which stuck in my mind the Q3 results, which is, "What every investor's looking for is a high margin business with strong growth opportunities." That's exactly what we think we are at Sabre. I think in the past we've spoken a lot about our margin. We probably haven't spoken much about growth. We think this is a chance now to start to talk about the growth elements as well as the margin we make. We are today setting out our medium-term ambitions, which are quite a significant uplift in terms of our profit over the next few years. We're gonna do that while maintaining all the good things that make us as a business. We're not coming away from any of our underwriting discipline, any of our profit first, volume second approach. This highlights how we think we can get growth moving across the cycle as well. We wanna hit at least GBP 80 million of profit by 2030. Our plans internally are to clear that by a pretty decent margin, not to scrape across GBP 80 million, so we're looking to go well over 80 with a decent following wind. I guess why are we doing this now? Since IPO, we've had to manage through a whole series of once-in-a-lifetime events. You sort of don't actually choose your timing. Choosing your IPO timing just after Brexit, COVID, high inflation, not ideal. We think now we're in a really strong position where all that noise is behind us to talk about the good things we can do going forward. We think we managed through those events well. We haven't just been managing and coping as we've come through that. We've spent a lot of time building future capability as well. A lot of what we'll outline today is things that we've worked on for the last two or three years. Importantly through this, we haven't lost any of our experienced staff. If you recall, prior to IPO, we were quite a bit bigger than we are now in terms of policy count. We've maintained the staff, we've maintained the experience. Really what we're talking about today is backed by experienced staff who are ready to help us on this journey. We're gonna do two things, really. Talk about a bit about what's the underlying benefit to our business, what are our underlying strengths. Then we'll talk about the strategy after that. The usual faces presenting. You can tell Matt's the youngest. He's the only one who can stand up long enough to have his photograph taken apparently. Usual faces on Sabre's side, so a very experienced management team. Matt is the Chief Actuary. Trevor's the Claims and Operations Director, and Adam and myself I think everyone here knows. The agenda, a quick canter through who we are as a business. Talk about the Ambition 2030. Adam will talk about how that impacts capital allocation. Headline, not too much before anyone gets worried. Then a Q&A at the end where we're happy to answer anything about anything. A bit of a reminder on what makes us different as a business. We're U.K.-based entirely. We're PRA-regulated, U.K.-based. We target the higher margin and higher premium sectors of the market. Our market positioning means we've delivered market leading underwriting results for a very long period, certainly back to 2002. Somewhere in the room is Keith Morris, wherever Keith is. Keith, for those of you who don't know him, you may have heard us talk about the sort of founder of the new Sabre. Keith was one of the two people who set up Sabre long before, well, before management team here joined. Keith's still a shareholder, good to see Keith here today. We're very focused on operating profitably. Nothing we're gonna say today will change our, say, profit first, volume second mentality. We just think we can get volume moving at the same time. We have delivered and will continue to deliver attractive capital returns all the way through this period as well. Nothing we're gonna say today undermines our dividend and yield approach either. I would say insurance as a sector seems to have fallen slightly out of favor recently. I think it's probably worth reminding ourselves some of the benefits of the market. It's a compulsory purchase. It's largely price led. We're not a big brand. We don't intend to build a strong brand. It's a price-led market. That plays to our strengths of technical expertise and pricing. The capital requirements and reinsurance cost is a really effective way of keeping out too many new entrants. It's a market that has good levels of competition, not absurd. There's not new entrants coming in on a regular basis. Despite some of the noise around regulation, there's still very limited pricing regulation in the U.K. We're completely free to price as ever we see fit, provided we can show that provides fair value to customers. That very different from the U.S. for the people who may be U.S. investor, where there's filing and approval of prices. We don't have any of that at all. I would say that I don't want to Aviva and DLG too much, although I'm sure I'll get asked a question later. I think it's quite promising for the sector that someone's prepared to actually double down and potentially spend GBP 3 billion on the car and home insurer. That suggests Aviva, who are a big, sensible company, believe this is a sector worth investing in still. I think that's just an added bonus there. We do have particular expertise in non-standard. I think importantly, we do write across the piece. While I think the highest premium I've seen this year is about GBP 32,000 for one risk, we also write plenty at GBP 400. As we go through today, don't think we don't know how to underwrite slightly lower premium business as well. Matt will talk about this later. The market typically operates on very low margins. We always operate on a much higher margin. We don't intend to change that. I guess one of the key things here is we're less than 1% of the market. Very significant growth for us barely has any impact in terms of the wider market. No one's gonna really notice us in terms of our competitors and what we're doing here. It's like small amount of market share growth is a big growth for us as an individual company. I think it's probably worth highlighting the difference between the underwriting models in the market. We are, I think, almost unique in the UK motor market, and that the majority of our profit comes from underwriting. We retain the majority of the underwriting risk, and I'll explain that in a second. Net insurance margin is key to us, which is a new KPI that Adam will outline a little bit later. We've got very low income and profit from add-on products, and a low focus on policy count, so we're relatively well protected. Many regulatory focus around ancillary or premium finance. They're not big drivers of our profit. There's not generally too much concern on insurers making a fair profit from underwriting. Other insurers, by contrast, make almost all their profit from add-on products, so very exposed to regulatory risk. That means they're very focused on volume because you need policies to sell other things too. Many pass on a lot of that underwriting risk through quota share reinsurance. There's less focus on underwriting margins and discipline, I might say. Therefore, I would say other companies in the market are probably more exposed to regulatory risk, a lot more exposed than we are. Our products. We sell 3, motor vehicle, which means car and vans, motorcycle, and taxi. We're not talking about taxi a huge amount today, not because we're trying to ignore it, but it's not one we want to really push the accelerator on yet. We still think that's one we're watching. We sell car insurance direct, we sell it through brokers. We sell motorcycle through one specialist broker. We'll talk more about motorbike quite a lot later. Taxi through a range of brokers and one specialist partner. As you know, we expanded into motorcycle and taxi a couple of years ago. We think these provide quite nice resilience, they're countercyclical, or in fact not cyclical at all in many ways, compared to the car insurance market. We think these give us a good foundation, a good layer of growth going forward that's not exposed to the motorcycle. We went to both those markets through very low-cost partnerships. People I think still think we actually made acquisitions in motorcycle, we didn't. They were partnerships with no acquisition cost attached to them. Going forward, core motor vehicle will still remain the majority of our book. We're not really coming away from that, although we'll be adding on quite a layer of motorcycle as well. Motorcycle is now in a place we are very happy with. We spent the last couple of years getting rates that we are confident in. Matt's team have done some great work on this. We're now in a place where we're happy, we're confident in the rates, and we can, if I say push the accelerator, but twist the handle might be a better phrase on a motorbike. We're ready to move a bit quicker on motorbike. Trevor will talk about bike later. How do we achieve this level of market outperformance? All we do is technical stuff. We're not worried about brand. We don't run call centers primarily. We're very much a technical-focused business. We've got some unique data, populated over the last 20 years. We have pricing techniques that are designed to leverage and optimize the benefits on that data. We've got a hugely skilled claims function with a huge amount of experience in there. That's especially important in some of the non-standard markets where claims can look a bit different. 170 people all in one building in Dorking, all of whom are in the office at least three days a week, which we think is quite important. Huge amount of experience. It's those people who've worked incredibly hard for the last 2 years to get us to this position today where we can talk about these new products. I think culture is probably one of the most important things. I would say in a nutshell what makes us successful is we are entirely focused, if not unhealthily obsessed. We're talking about motor insurance in the U.K. That's really all we do, and that drives a lot of our think and expertise. What does our outperformance look like? We've outperformed the market by 20 or 30 points for a very long time on combined ratio. Combined ratio on the left as you're looking at it. 20, 30-point average outperformance over the last few years. We have grown. If you look at the other graph, that shows the growth rate. It's sort of bumpy, but if you look at that, we have continued to grow from the start to the end of a cycle, and the last cycle was much more elongated than the traditional insurance cycle would be. That's enough about what makes us great as a business. Let's talk about what we're going to do going forward. As I said, we want to increase our profits to at least GBP 80 million, and to reiterate, we're looking to go some way over that with a, with the following wind. We're not going to bet the farm on this. These are not big wild swings. These are evolutionary steps, but we've already had a chance to test and put the technology in place. We're not going to lose discipline in any way, so growth will still be slightly linear, but hopefully at a step higher level. We don't have any M&A dependency whatsoever in our plans. This is all organic growth. You'll hear us say a couple of times nothing here involves capital expenditure. We've pretty much sunk the cost of these developments already. What are we actually going to do? We're going to increase profit on motor, we're going to increase profit on motorcycle. The 4 boxes at the top are the things that are going to drive this. Efficiency of direct distribution, expanding our market position. We've avoided the word footprint expansion largely in this presentation because we already quote for everything already. This is just becoming more competitive for different bits of the market. We're going to launch a direct motorcycle brand that Trevor will talk about. We're going to launch through more brokers on motorbike as well. We're not going to talk about efficiency of direct distribution much today. Really, that's just about increasing the use of customer portal, reinvesting the operational savings back into price. That's not going to be a big feature of today's conversation. The other 3 we will unpack quite a bit. 3 core concepts that we are using. The first one is about balancing profit growth and underlying or earnings compared to being fixed to a specific COR number. I think in the past we've painted ourselves slightly into a corner by saying we're gonna definitely hit this COR when that might not be the most profitable thing to do. This is a very small change that says it's about the profit, the pound note profit number that matters, not the precise ratio. That doesn't mean we're gonna come away wildly from our current targets, but it's a little bit of flex on our core product to reflect market conditions at any point in time. We're gonna accelerate our growth by competing for additional slightly lower premium business. Matt will explain much more in a minute. The moment our margin is appropriate for high-risk business. For low-risk business, a slightly lower margin is appropriate, which Matt will talk about in his section. We're now ready to expand motorcycle. We're gonna launch a new direct brand, which Trevor will talk about and expand our broker distribution. On our core book, this is a small evolutionary bit of flex. Bigger changes on the new book, where we can take a slightly bigger step to drive incremental business. At that point, this next section involves some math, which means I'm gonna get out the way and let Matt talk about it. Thank you, Geoff. Currently, we target roughly a 20% margin across our core motors portfolio. This reflects the high risk of our portfolio, ensuring they remain profitable even in years of poor performance, as we saw in 2022. If we were to target a slightly lower risk profile, we could reduce the margin we require to reflect the lower volatility and the performance we see. The lower margin would then increase our competitiveness, allowing us to sell at lower prices and win more business. Currently, we have quite a wide footprint but quite low competitiveness due to our high margin requirements. By using the skills, or leveraging the skills and data and the strengths of our business, we believe we can write more of this low, lower margin business whilst maintaining the existing margin on the current business. How does this shift from our current approach? This Option 1 here shows what we currently do today. If we write GBP 100 of premium. These are, sorry, these are here for demonstrative purposes only. If we write GBP 100 of premium today at a 8% COR, we'd make about GBP 20 profit. If we're to offer a discount across the whole book, we could increase the premium by GBP 20, but that would lead to the expected loss ratio or the loss ratio, expense ratio, and COR to also increase. The net result would be, whilst writing more business, we still deliver the same profit. Option 2 is what Geoff talked about. The aim of Option 2 is to write new business at a lower margin whilst keeping the existing business at the same margin. In this example, we'll increase the top line still by GBP 20 million. However, the loss ratio increases by lower amounts than in option 1. Overall, the combined ratio only increases slightly, delivering additional profit for the same size portfolio as in option 1. The new option is focused on discounts only rather than discounting the whole book, and will continue to let us deliver our existing margin on the current book. The foundations of this approach have been laid on the new platform which has been rolled out since 2023. Using this platform, we can implement more sophisticated pricing to deliver the strategy and target the business we want. This diagram here shows the market share by insurer and Sabre, with Sabre being the yellow dot in the middle. As you can see, Sabre currently writes quite a small portion of the market. Whilst looking to grow substantially, which is the red circle, Sabre's business will still remain relatively small compared to the market. What this pie chart is trying to demonstrate is whilst we're gonna pick up more business, we're not targeting any specific underwriter or portfolio. We'll expect to write business, a small amount of business from all the underwriters in the market. This chart here shows the market distribution of premiums in the first half of this year. You can see on the whole, premiums tend to be on the left-hand side of the chart, so lower premiums. The market average last year was about GBP 544, where Sabre's normal business is written at average between GBP 1,000 and GBP 1,050. Sabre's about double the average premium of the market. The expectation is the new business we write at a slightly lower margin will deliver a slightly lower average premium, but still above market average. In summary, over the coming years, we continue to target the existing portfolio at existing margin, which we expect to grow in line with inflation. Additionally, we'll be targeting a slightly lower risk profile at a reduced margin to deliver more profits. This will be done cautiously and gradually to ensure that we deliver additional profit and do not harm our existing book. I'll now hand over to Trevor to discuss motorcycle. Thanks. Thank you, Matt. Right. We all revved up for this? James, I've taken that one from you. Motorcycle, we're doing two things, direct, and we're going to expand our broker distribution. On the direct side, it has already made the press following the RNS this morning, but I'm going to just talk somewhat about that as we go through. This is really sort of the second limb in terms of how we reach the growth target that we're setting ourselves. In Q1 next year, we're going to start to expand our presence in motorcycle, first through the direct brand that we're going to be launching. We currently service only 3% of the motorcycle market. Similar to where we are on car and van, it's relatively easy to grow simply by by... If we were to double that number, we double our bike book pretty quickly. We're gonna launch Direct as an online brand only. It'll be online customer service through a portal. We're not gonna be providing a call center for the customers, but we will be supporting web chat for those customers who need support. And that's going to be leveraged through our existing capabilities in Sabre House. We're going to take on some of the releases that we've made operationally to support this customer brand. Once that's in play, we're then gonna roll out Sabre Bike to other distributors. At the moment, as Geoff said, we've got one key partnership, we're going to be rolling out to other brokers, which will give us access to risks that we don't currently have today. Really the key strategy here is grow our distribution, expand our distribution. Through direct, we'll be able to get access to better quote data, to enrich our capabilities. Potentially on the direct side, retention of risks will be better as well. Classic Sabre, we've spent an absolute fortune on brand. This is what Sabre Direct, the look and feel of what we're going to achieve. As I say, this is supported through distribution on the aggregators and the customer service through a portal. The initiatives that Matt's described and what we're doing on bike, everything's already in place, where the development has really been in play over the last couple of years to get us ready. 2025's going to be a soft launch, through testing the strategies and then rolling them out through a stage process. As I say, Direct first and then through into the intermediary market. Because of that and sort of the earnings patterns, we don't expect to see a significant increase in profit until 2026 coming in from Bike. Importantly, as Geoff's already said, all of these initiatives leverage our, the capabilities that we've already got, so whether that's the technology or whether that's our existing people. There will be no CapEx required to support the introduction. Right. Adam. Thanks, Trevor. Hello. Good afternoon, everyone. I'm going to spend a few minutes talking through how the plans outlined today are going to affect the numbers. This is a slide that will look pretty familiar to anyone that's seen our results presentations over the past few years and outlines our general capital allocation and distribution priorities. The key point here, no real change to this straightforward distribution policy. We're going to generate capital organically through underwriting. We're going to deliver an ordinary dividend of 70% of profit after tax, and then we'll consider distributing any further excess at year-end, and the method of distribution is flexible. It's important to note, as has already been said, that none of the plans outlined today involve significant capital investment. We've been funding these projects for a number of years through normal P&L expenditure and will continue to do so. Just to note that no M&A has been included within our medium-term strategic objectives either. This is just a reminder that we put some guidance out at Q3, and I'm not providing any further guidance at this stage. The implication being that we expect this to be our highest ever premium year, despite some of the comments that we made at Q3, which say that soft market conditions have slowed growth for the 2nd half of the year. We expect profit to be in line with expectations, which is of course, well ahead of where 2023 was. We've listened to analysts, investors, and indeed our own objectives when thinking about our KPIs, and we've added one new or slightly tweaked KPI, which is going to be our net insurance margin. This will be shown on an undiscounted basis and will take into account premium and installment income. On the other KPIs, we're still going to be reporting the other KPIs you'll be familiar with the focus shifted more towards the undiscounted numbers, although the discounted numbers will be in there as well. That more accurately reflects the way that we manage the business, and I think it makes it easier to understand where our performance is coming from. Just a note on KPI targets. The point of this next slide really is to highlight that while managing margin is essential to our business, we are solving to an optimum bottom line position. We'll balance margin and income to maximize the bottom line, while ensuring we don't stray too far from our historic loss ratios. In essence, we're not going to fix ourselves dogmatically to a point margin. We're going to manage our position carefully, but we will always adhere to our profit first, volume second mentality. Here's a graphical illustration of how our future profit of over GBP 80 million might look in 2030. The majority here still comes from our current book, which we intend to grow through a combination of structural market growth and picking up new risks through more sophisticated pricing at the current margins. We've got the additional profit through motorcycle distribution, and the profit generated through the new lower margin business. The new profit streams will be additive to the traditional business. It's important to point out that we don't expect the growth to come in a straight line. GBP 80 million of profit in 2030 represents a CAGR of around 10%, but we don't expect those to grow by that amount every year. In some years they could be less, and some years significantly more. The core of our strategy is to generate this profit over the medium term. Right. Back to Geoff. Thank you. I think this will be a capital markets 45 minutes. It's capital markets half an hour so far. I guess, I guess in some ways, we're quite excited about today. We've spent quite a lot of time, effort, heartache, and resource in the last couple of years building this functionality. I know I've confused everybody here by talking about insurer-hosted pricing and at various presentations, which we've not done today, but this really tells you why we've been speaking about this. This really gives us. We've got two things. We've got the competitive footprint on motor. We're really excited about that. We don't need to get massive growth share of the market to get a big growth for ourselves as a company. We are entirely confident we can make this happen. Presence in motorcycle. Motorcycle is an attractive market still. There's not that many players. There's relatively few distributors, relatively few underwriters. We've still got quite a low market share. We've been very cautious going into this. We are really excited, and I think huge thanks to the team back in Dorking. A lot of people have worked very hard for the last couple of years on this to get these technology advances in place. Now is the time we're happy that we're able to start to demonstrate to you the difference it's gonna make to the business. I am very happy now to take any questions on anything. Brace for impact here. Abid, I think you beat Ivan by about a fraction of a second then. Afternoon, and thanks for the presentation. It's Abid Hussain from Panmure Gordon. I've got three questions. Firstly, actually before the questions, thanks for the new targets. That's very helpful. The first question is on the core book. How do you plan to grow your core book if you are gonna keep the margins at 20% or sort of where you currently are? 'Cause you're suggesting there's structural growth in the core books. I just wanna unpack that a little bit, please. The second one is your ability to manage the cycle. What happens to growth when the pricing cycle becomes unfavorable? Are you just saying you sort of pull back 'cause you're not looking to grow linearly? The final question is on the tech stack. Mm-hmm. Can you just give us a bit more color on how sophisticated that is? For example, can it price in real time? Sure. If I start, and then you guys feel free to kick in. I guess on the core book, I think as Adam highlighted one of those slides, a margin of 18%-22%. I think as I mentioned, we've probably painted ourselves into a bit of a corner by saying 20% is the only number we're prepared to target, and then we get a bit of a boot in if we deliver 81, even though that's more profitable in GBP note terms. We want to be able to flex very gently in that sort of 18%-22% range, which allows us to grow in different market conditions. If the market is very hard, we'll probably take the margin at 22%, but we're happy to flex down to 18% if that's the more pound note profitable thing to do. Anything to add on that one? Nope. Okay. Manage the cycle, I guess a similar thing actually. We'll flex that margin. Clearly, we'll be looking to grow the new non-core book, if I can call it that, more aggressively in hard parts of the market than in soft parts of the market. Which is why, as Adam said, it may flex between under 10% and well over 10%, depending where the market is. Overall, we expect to see that line continuing to go up just by slightly different amounts at different points in the cycle. We won't lose that discipline, we won't chase growth if it's not the right precise point in the market to do it. The tech stack, I mean, yes, it absolutely can price in real time, but we absolutely won't be doing that. I think it's fair to say, Matt. We can change rates any time we like. Our view is very different to others in the market, I think here, that the right price for a risk on a Tuesday is probably still the right price on a Thursday. You can change your price just to chase volume. That, to us, is not a logical or sensible thing to do. For us, it's allowing Matt to price at a more granular level so that we can pick up more of the book we currently have today, and we can start to pick up that non-core book at attractive margins as well. It gives us all the flexibility that we would want, but we'll be using it in quite a disciplined way. Anything to add to that? No. Okay. Thanks, Abid. Ivan, you're next. Thank you very much. I was just wondering, in terms of the KPIs that you've decided to adopt. It's a profit in absolute terms, you know, net insurance margin. Do you think of the type of ROE that you'd like to generate through the cycle, and how you think that could develop maybe with the broader use of debts in your capital stack, you know, use of reinsurance that you might consider? That would be question 1. Question 2, I suppose just was wondering, you're targeting growth at similar margins whilst it doesn't feel like, for example, on the expense ratio you have much of an advantage. Could there be any additional initiatives that you can highlight or will it all just mainly come through the loss ratio advantages on that new incremental growth? Sure. If I start, maybe you guys can kick in on a couple of these. On the first point about reinsurance, we always look at quota share every year. Our view is because we're different and we make our profit from underwriting, we don't wanna give away that profit. So far we've not been able to identify a quota share program that makes economic sense for us. We do look at that. Net insurance margin ROE, Adam, anything you wanna say there? I mean, ROE, well, ROE is obviously a measure which is useful 'cause you can compare across industries potentially, so we certainly keep an eye on it. I mean, profit is clearly our primary objective. At the moment there are mechanisms by which you can restructure your capital to potentially change the ROE. As Geoff says, there's always an element of cost attached to some of those, and we think about them carefully from time to time. At the moment it suits us to have a very clean balance sheet, which gives us a lot of dry powder if we ever need it. That works best for us with this current strategy. I think you asked about expense ratio, other initiatives. There is a whole world of other things we could do out there. We've said in the past, things with engines, wheels and that stay on the ground, we think are very much within our capability of underwriting. One of the things that's made Sabre successful is not trying to do too many things all at the same time. Do less and obsess was a phrase you may have heard us use in the past. That's the philosophy we intend to stay to. We think these 2 initiatives give us all the growth opportunity we need for the next 2 or 3 years. As we get further through this cycle, we may start to look at other things as well. Perhaps a word on the expense ratio. Ours is an all-in expense ratio, and I think sometimes when this gets compared across companies, Adam, it's not quite comparing apples and apples. Well, that's right. I mean, different insurance groups have different ways of defining which expenses fall into their expense pool. Because of our simplicity, it makes sense for everything to go into our expense ratio, so it can look a little bit toppy compared to others sometimes. Similarly, if it looks similar to others, we're probably doing a little bit better on expenses as well. Geoff, I would say one of the strategic boxes that we moved past pretty quickly in the presentation, is still pretty important, was the efficiency on the direct book. We're obviously taking some initiatives through there to make the direct book more efficient and therefore become more competitive on that. Of course, underlying all of those, you would've seen sort of operational efficiencies coming through. It is front of mind always for us to keep expenses down to a good level, and yes, then once we start to grow, the leverage effect will be quite useful as well. Yeah. Thanks. Rory, just behind you maybe. We'll work around as we go. Thank you. Andreas from DP Hunt. Just 2 questions. On the core motor business, are there any areas of the market where you feel you're not competitive enough, and where you could introduce new products together with your pricing agility to win market share, like within the next 12 months? Or is this really a long-term sort of strategy of gradually creeping up your market share? The second question is on capital. If you're gonna write a book with a lower average premium policy, therefore lower volatility, will the capital requirements of running this book going forward decline as well? Thank you. Adam, I'll let you and Matt have a think about that second question. On the other products, there are other products in the market. There's telematics, which we've looked at in the past. We're not massive fans. We still believe there's not really enough claims data that shows sustainably it's worth the discount people expect given having a telematics box in the car. We've looked at value products, that's where you have a high windscreen excess or you have no windscreen cover. We don't like them from a customer point of view. We think there's a risk customers don't know what they're buying. We have looked at those products and concluded they're probably not the best for us to get into. We think there's plenty of opportunity without having to risk poor customer outcomes. Fundamentally, Andreas, it's about giving our current market share, small incremental increases make quite a big difference to us. On the capital side, Adam, Matt? On the capital side, from a pure capital requirement perspective, on the Standard Formula, it doesn't make a huge amount of difference how risky the underlying business is. It really just looks at your outstanding liabilities and your premium, and works out the capital requirement. Based on that, I suppose it could alter our thinking around how much excess capital we wanted to hold based on the volatility of the book. The reality is these changes probably aren't going to be significant enough to make us move away from our 140s, 160 range that we've currently got. Okay. We'll get to the second bit. Nick, I think you're just 'cause you're nearest. Thanks very much. Yeah, Nick Johnson from Deutsche Numis. Three questions please. Firstly, the GBP 80 million target, just wondering how much of that, you know, in terms of the bridge from now until then, how much do you get there from inflation alone? Because presumably that's gonna carry on running at sort of 5%, 10% per annum. Secondly, You currently quote for, I think you said 100% of the market, more or less, give or take. Obviously you've got very stringent margin targets, so you write a very small share. Just wondering if you would ever consider writing business for someone else's balance sheet who's happy to accept lower margin business and you would generate fee income? Lastly, more broadly, have you got any feel for how the FCA government study on insurance pricing is going? What are the key ideas emerging around that? Thanks. Yeah, sure. Adam, perhaps we'll take the GBP 80 million inflation one at the end. I'll talk about the other ones first. 100% the market we write into someone else's balance sheet, not a hope in hell are we gonna give away any of our IP by writing onto someone else's paper. People have asked us in the past. We think carefully around MGAs, which is like a hybrid broker underwriter. We've been happy to do that with actually Freeway on taxi 'cause it's a very different market. I don't think we'd wanna risk, unless Matt's gonna tell me something very surprising, we'd wanna risk giving away any of our IP by helping someone else write anywhere near our market. We definitely won't do that. On the FCA government study, I'm involved in various ABI committees. I'm not quite sure what I can say and what I can't say on this. I think overall it all feels quite sensible. There's a lot of stakeholders involved. I think the FCA have said publicly that they appreciate the market is not making super profits, and anything that changes is probably a redistribution impact rather than a just insurers must make less money. I would say at the moment it's all feeling fairly sensible. It's focused on what can people do to drive down the cost of claims. You know, potholes gets used as an example, but we would say the Ogden discount rate that came out this week is generally positive news. What about the tariffs? What about other personal injury things? There's as much focus on how to drive the cost down. It isn't, as far as I can see, an insurer bashing task force. That's what it doesn't feel like, which is very positive. On the GBP 80 million target inflation. Yeah. We've very deliberately not given specific growth targets to each of the initiatives. We've left ourselves flexibility there. The reason being that the market's dynamic, we don't wanna be operating with one hand behind our back trying to reach a certain level of premium for a certain stream. Really we're taking it all in totality. I mean, what I would say is that, you know, claims inflation is high now. Over the next six years, it probably won't stay that high forever. It might, but it's unlikely. It's fair to assume we're assuming a decrease in claims inflation, and that will reflect itself through structural growth in the motor insurance market. I mean, prior to, the last 5 years or so, you know, claims inflation was in the 3%-5% range, and there's no reason to think it won't get back to that over time. We're certainly not sort of projecting a 10% claims inflation impact throughout the next 6 years. Yeah. Thanks. Daryll, I think we've ignored you twice now. We'll definitely get to you now. Hey, it's Daryl Go from RBC. Three questions please. Could you talk about the tab of the non-standard risk and what share you have at the moment? I'm just thinking as you improve your operating leverage, is there more that you can go for within the non-standard risk itself? The second question, if I think about that GBP 80 million. Obviously, I get it's not linear, but, you know, you sound really confident. Maybe can you share how have you stress-tested at GBP 80 million? What are the assumptions? Can you say that you've flexed it for pricing down 20%, you still get the, you know, what's gonna happen on costs, et cetera. The third one I guess is kind of related to that. As, you know, as you flex your growth materially in a period, say, if you were to put on 50%, whatever the number is, volumes of policies, what is the risk that you might have from an operational perspective in terms of, you know, risk selection, claim servicing, et cetera? Thanks. Sure. Again, I'll start and do feel free to chip in. In fact, Trevor, why don't you take the claims one first. Yeah, if I deal with the operation, the operational strain, Geoff made the point that we hung on to all of our people during COVID. We have serviced books that have been bigger. Claims frequency has been reducing over the last few years, so it's never properly recovered since COVID. In terms of our headcount, we're well able to deal with a significant increase in sort of the number of policies that we write, particularly at a lower risk will again be a lower frequency. In bike we work with partners in terms of the first notification piece as well. A lot of the heavy lifting on bike is outsourced in terms of sort of the first party piece. Throughout this, and we've not talked about it significantly, but throughout this we've also got initiatives that have been in play and that are continuing to give us more operational efficiency in any event. In terms of planning, Matt and I run a forecast that looks ahead at least a year. That gives us the opportunity, were we in that position, that we needed to recruit, to bring people in, bring talent in, and train those people up. We don't really have those restrictions. No, we're not feeling at all operationally constrained. No ... by this one, I'm pleased to say. Dorking is still a very good place to recruit people, I'm pleased to say. We're still managing to recruit well, good quality people, and we're very happy with it. You asked about, I guess assumptions and sort of testing and how confident are we. I mean, Matt runs pricing tests all the time in terms of it's a constant ongoing thing. Perhaps the thing we should stress is we already quote for almost everything, and we already write business across the spectrum, so we know what it looks like and feels like to write a GBP 400 risk as well as we do a GBP 1,200 risk. This is a very low risk strategy for us. We run tests. We know what price elasticity looks like at various levels. We wouldn't be saying, and I'd probably stress again, we want to clear GBP 80 million by a pretty decent margin. We're not looking to just scrape across the top of this. We are pretty confident we can make this happen. Bizarrely, the most optimistic one amongst us is actually Matt. If an actuary's optimistic, you must know we're feeling confident. I guess on non-standard risks. I mean, it's an interesting one 'cause we consider sort of non-standard risks in a different way. Clearly, high premium levels, not many people quote to the maximum levels we do. We do pick up quite a lot of those risks. We think there is more we can pick up in that non-standard book as well. As Matt's little pie or little diagram showed, we pick up bits from other insurers. We think we can pick up a bit more of the things that other people would consider non-standard, we think of as relatively standard for us. We think there's more to go at in that sort of core book as well. That was a slightly waffly answer, but I can't think of a better way of describing it, unfortunately. What's perhaps add is there isn't a defined number of non-standard risks. Yeah. A lot of them are transitional, so they're almost going for a rehabilitation. Whether that's after an accident, or they've changed address, or they've had a credit history issue. It's really difficult to say what is that absolute target of non-standard risk. Okay. Darius, why don't you just start first? Hiya. I'm Darius, KBW. Two questions please. The first question is, what did you assume in terms of market dynamics over your business plan, you know, competitiveness. You're assuming that market just remains sort of disciplined and rational throughout the period? It's difficult to answer, but have you ran any sort of, you know, stress tested, you know, what happens if, you know, there's a three-year period where, you know, someone goes for scale. It's clearly there's capital looking to come in, you know, AIG is trying to, you know, bid for Direct Line, et cetera. The second question is, your sort of lower average premium business that you're targeting, is that sort of approaching the, you know, more vanilla type of risks, or are you still playing in that, unique element? Thank you. Yeah, sure. If the market stays entirely rational, it'll be the first time in 30 years it's happened, I would probably say. I think we think it'll be more rational. We've had an extraordinary period, you know, coming out the end of COVID and then inflation and everything else. We're not expecting to go back to those sort of extreme and elongated down parts of the cycle. I'm absolutely sure the market will still go up and down over a three to five-year period, which is why we say some years we'll be sitting here saying, "Not grown by that much this year." Other years, we might have grown by 20, 25% as we did, end of last year. We've assumed normal market cycles, I guess, throughout this. In a historic normal market cycle, not the most recent one. Lower premium, is it vanilla risks? Well, as Matt described, we're at GBP 1,200. The market average, I think as of last quarter, was GBP 600, actually, for a written business, so in that GBP 550-GBP 600 range. We're not gonna start going and chasing business at GBP 200 or GBP 300, but there's a big space between the market average at GBP 500 and GBP 600 and us at GBP 1,200. There's still quite a nice delta there of things that are still not vanilla, but they're nearer standard. Better way of describing it? Okay. Thanks. Barry. Barry Jones, Liberum. 3 questions from me, please. First of all, in terms of motorcycle, can you explain the differences between underwriting a motorcycle and a car or a van? Are there large differences? And as you expand, will you look to use quota share reinsurance? That's the first question. Second question, in terms of cross-selling, it seems slightly odd on the outside that you don't, you don't do home insurance, you don't take any referrals, or any cross-selling at all. It seems slightly odd. Do you get a fee or could you get a fee from referring a car, a van, or motorbike to another home insurer? The third question really in terms of what's currently happening in the market, do you think the removal of one of the large competitors in the motor space would be good news or bad news for yourselves? Thank you. Difference between car and van. Maybe Trevor, I'll let you explain some of the claims things. I guess there are some distinct differences. It's much easier to steal a motorbike than it is a car. You wheel it into a transit van and off you go. Clearly, there's more, a higher theft risk. I guess people forget that you can't claim for hurting yourself on a bike. People tend to think about bike, and they think about people laying by the side of the road and think that must be an expensive claim. There is no claim if you've hurt yourself on a motorbike. I guess they've still got engine and wheels and hit people and things. Trevor, do you wanna... I would say I think you've picked up on the main points there. The other important point from an underwriting perspective is it's an unsophisticated rating market. If we are able to apply or Matt's able to apply, and has been applying his capabilities in pricing, which you would adopt from motor, then gives us a real opportunity, and that's really the work that's been going on since 2021. There are differences, but fundamentally it's the same barrier. It's people. Things get stolen or damaged, and people hurt other people. You hit other people. Bikes, other cars, and other people. It's exactly within our competency on claims. Cross-selling. We challenge ourselves all the time on why we're doing things, not so much why we should do more. If we do this thing, is it a distraction from a better thing we can be doing? Actually I think we'd consider doing cross-selling referrals, it would be a distraction from things that are much more lucrative for us to focus resource on. We try and stay very disciplined about what's gonna be the most bang for our buck, and that's a weekly challenge we give ourselves as a management team. No particular plans to give referrals. We don't know anything about home. All the things we sort of talk about with our benefits of data and expertise and pricing, we wouldn't have any of that if we entered into home. Things that have got engines and wheels. It's all an evolution from what we do today. Home would be a big lurch. The movement of a large competitor, I mean, in and of itself, I guess it doesn't make a lot of difference to us because we're not really competing with Aviva or Direct Line, I don't think. If it means there's one less competitor in the market, maybe that's makes competition slightly more rational going forward, a bit less price competition. Yeah, I don't think it has a direct impact on us, unless anyone's got any other views. No? Okay. Thanks. Yeah. Sorry. Thanks. George Ensor, River Global. Geoff, you showed the chart of the long-term kind of combined ratio versus the market- Yeah. At 20-30 point spread. If you were to break it into 5-year cohorts, do you think you've been ceding combined ratio spreads to the market? Has it been harder to sustain that? The second one. Mm-hmm. would be, on the pricing, just how do you maintain, your returns on the market you have had whilst pricing more competitively elsewhere? I don't understand how you have both of those things. Sure. If I start, if I explain the second one first. Think of this as two different portfolios, effectively. The current portfolio, we're effectively gonna lock the margin on that portfolio. Depending on the market cycle, we might lock it at 18 or 22 or some other number around there. That stays rigid. What the pricing technology lets us do is to say, "We're leaving that where it is. We're gonna price this differentiated book at a different combined ratio." This really is the proprietary tech, Matt, and your team's skills in identifying those two different portfolios and saying. The reason we haven't done this before is really, as Matt described, option one. If you get this wrong, you just write more business but make absolutely no profit at all. That's pointless. It's taken us a good couple of years to get this tech in, I would say, Matt. You've got the tools you need to make this work. Anything you wanna add to that? I get- Just to add to the question. Mm-hmm. Basically drop the SIV and just. Yeah. So, the question couldn't be heard on the mic there. That was about saying how do we avoid bringing the whole SIV down, basically, and just writing everything a bit less. I guess think of it as two different SIVs, maybe. There's the SIV for our existing book, which that absolutely would happen, but you've got to think about these as two different portfolios. Matt, that's a very untechnical description. Do you wanna try and add a bit of science to that? I would probably say that we're not gonna discuss exactly how we're gonna do it, because then everyone else would know what we plan to do, and we wouldn't be able to achieve it. We have plans how we will do it. Yeah, this is the, "You'll have to trust us" type response, I'm afraid. Otherwise, as Matt says, if we talk, we hate talking about what we're doing, generally, which is why we haven't done one of these before. We prefer to do it and then talk about it afterwards, rather than talk about things we're going to do rather than things we have done that have been successful. This has really caused us some angst. We're gonna give you a flavor here rather than give you the exact tools for it, clearly. What was the second question I didn't answer? No, I think that was it, wasn't it? The spread to the market. Sorry, the sustainable. I would say, no, I don't think we have found it difficult to maintain that margin. If you look at our loss ratio, if we start there, you know, we're still writing at low 50s and the market's still at 70s, 80s. I don't really see that changing. I think, you know, at different points in the cycle, that gets lower. Probably where it's become lower is where we think we've identified an issue first, and we've pushed our claims reserves up. If you think about the claims inflation call we made a couple of years ago, it probably looked like we were underperforming for a period. Actually, we think we got it about right, and we were performing just as well. It just took others a little while to recognize the impacts. Anything else on that? No, I think you're right, Geoff. It's a timing issue, a lot of this. Mm-hmm. Yeah. Yeah. Thanks. Andreas, you had another question, I think. Mic heading its way towards you. Traditionally, Sabre has always had low retention rates. It was part of your non-standard business model. With this new sort of growth strategy, are you assuming that you'll not only be able to compete better, but also retain more business through the cycle? If so, where do you see your retention rates, which, you know, traditionally were 30%-35%, do you see that going up structurally over the next, you know, 5, 6 years? I think they've been slightly higher than 35% recently, from memory. I think there's an interesting thing, Andreas, on retention, which is often we see churn between the brokers. We wrote it with broker A one year. That broker's lost it, and it comes back to us through broker B the following year. Actually, if you add that up, our retention's slightly higher than some of the core numbers might suggest. Do we think our retention will go up? We haven't really planned for it to. I guess on some of those lower average premium numbers, we may see a slightly better retention. As Trevor mentioned in his section, a lot of the business we write on non-standard is transitory in nature. You've either recently bought a new car, you are an inexperienced driver, you've had a claim. Clearly as time, that becomes less significant, you become more attractive to mainstream insurers. We don't intend to really change that attitude. We won't chase retention by underpricing. We'll continue to put the right price out, and the retention will be what the retention will be on that one. Yeah, Abid. Hi. Sorry, just a follow-up question on distribution channels. Is there a difference in terms of the strategy that you need to think about through the broker channel and then sort of the direct on price comparison sites? Just any color on that. It sort of links back to the retention point 'cause on PCWs it feels like there must be some sort of benefit for retaining the customer for longer if you're able to flex the margin and not incur the same cost for acquiring the customer. Just trying to think that through. It might be through the broker channel that doesn't work 'cause of the churn, but possibly does it work through the PCW channel? Just any thoughts on that? In fact, you've probably reminded me of an important point actually, which is this new pricing gets rolled out through brokers and direct. One of the big benefits is that brokers will also benefit from this new, more sophisticated pricing. We often talk about people like Post Office being a broker. That means we'll still be sitting behind these big brands with these more sophisticated prices. We carry on with all the benefits of the broker distribution network still. Price comparison websites, I mean, our retention is better on direct, Matt, than it is on broker. We tend not to report it separately, we blend it, but it's always been better on PCWs, and that is taken into account in the way we set prices. Okay. Tom. Hi there. Hi, Thomas Bateman. Thomas Bateman from Mediobanca. Thanks for the presentation, Geoff. Just a couple of quick ones. Premium finance, where do you think the FCA is on that at the moment? I think you made a point of peers making more out of ancillary income. Do you want the FCA to bin premium finance so they have to put pricing up more? Second question is just on reinsurance pricing. Obviously, we've had the change in Ogden. Mm-hmm. Have you seen any early indications of changing pricing there? Sure. Premium finance, there's an interesting question. You know, where do I think the FCA is? I think they don't like high, high APR rates, and they especially don't like high, high APR rates applied to less affluent individuals, 'cause I think they're paying a higher price because the characteristics tend to make the right price slightly higher, and then there's a high APR on top of that. We know the FCA don't like that at all. I think they've indicated anything over 20% odd feels troublesome. I suspect they've already had a win in that. I think if we look at APRs in the market, we're already drifting down 'cause no one wants to be the sort of tallest poppy at that point. I suspect they'll come down. From our point of view, we're a bit ambivalent. You know, we don't make much money out of premium finance. If it all went away tomorrow, it wouldn't make a whole heap of difference to us. We'd adjust fairly quickly. That's clearly not the case for others in the market. That's about as far as I'm gonna push myself on that one. Reinsurance pricing, well, we'll find out, I guess, the reinsurance renewals for those who've got the 31st 12 renewal are underway now. Interesting timing in terms of it's right in the middle of that renewal cycle. Our view is there should be a discount on reinsurance pricing for Ogden. On the other hand, I hate arguing, putting this argument forward, pricing in the market hasn't gone up. Overall, if you look at overall market pricing for this year, it's not really gone up at all. I would expect reinsurance to be balancing. You told me price would go up by 10%, and they haven't. Well, that's a negative. Ogden's a positive. Who knows where they net out on that? I've seen some fairly big numbers bouncing around in terms of how much this will do for average premium, which we struggle to reconcile at all. We think The Ogden's, it's good, but it's a bit in the margins. We don't think it drives a fundamental repricing of the market. That a fair comment? Yeah. Potentially, it's below expectation. Where we've landed at 0.5 is below where others may have expected it to have landed. It is generally positive. It's a good thing rather than it staying where it was. Nick. You can now charge him backwards and forwards across the auditorium here, aren't you? We should definitely have invested in two mics, Adam. Learn that for next time. Thanks. Hi. Hi. It's Nick again. Just on the new lower premium, lower margin business, do you expect that to be more or less cyclical, if I can call it that, in terms of volumes, depending on competitor behavior than the sort of core higher premium, higher margin business? Which we've obviously seen in the last few years that that's been quite cyclical in terms of top line from competition in the market. I guess logically, the closer you are to a vanilla standard risk, the more chance there's someone becoming more competitive than you in a very soft part of the market. I guess logically, that must be slightly more cyclical than our non-standard higher premium business. Yeah. Yes, we would expect to be that bit more volatile. Anything else? Barry. Look at that, backing forward across the auditorium still. If someone on the extreme left can have a question next time, that'd be great. Sorry. Yeah. Hello. It's Barry again. The GBP 80 million, you talked in your presentation of, or alluded to exceeding the GBP 80 million? Mm-hmm. Can you just give us a level of confidence on how you feel about that GBP 80 million figure, and is it dependent on external factors like the shape of the underwriting cycle going forwards in the next three or four years, or any other external factors that could impact you? I think we feel pretty confident as a team. That's fair to say. You know, we've tried to set a number we're confident we can exceed, not one we can grope our way towards. I think it's probably a timeframe question rather than whether we get there. If the market did go incredibly soft for five years, clearly it would take a bit longer than if the market behaves as we expect it to behave over the next two or three. I think we are pretty confident in 2030, and we're very confident we can get over that number somewhere in that sort of timeframe. Yeah. Anything else? No? In that case, for those of you who are here not watching the recording, we're very tight for this. There'll be a glass of no doubt slightly disappointing wine outside. It'd be great if you can join us for that. Very happy to have any questions after this as well. Happy to have any phone calls with people who'd like a bit more detail. Thank you so much for coming along, and hopefully see you outside in a second. Thank you.