Thank you for joining us on the webcast. I'm pleased to say we have the usual faces here. I think we worked out it's our 15th one of these presentations now for most of us. Not sure what that says, but it says something. As usual, me and Adam will do the presentation, and then we'll pass all the difficult questions to Matt and Trevor, who can deal with those at the end. On the agenda, we will, as usual, look back on last year and give you our thoughts on our results from last year. We'll give you quite a lot of our thoughts on claims inflation, and we will once again nerd out in terms of the detail of what we think is driving inflation and how we see that going forward. We will leave plenty of time for Q&A at the end as well.
If you're on the webcast, feel free to type the questions in, and while they don't look too difficult, I'll answer those at the end. On our highlights, I think if you open lines before we almost certainly get dragged out into the weeds on some of the KPIs. Overall, the Sabre team have had a cracking year, I think, in 2024. Highest ever premium, doubled profit, generated a ton of capital, which has allowed us to both pay a good dividend and a share buyback for the first time. I think, as importantly, we've laid the foundations for future growth through to 2030. That includes launching Bike, which is going live almost as we speak and being rolled out over the next week or two.
I think stopping there would be good, but even more pleasingly, we've also been able to keep a tight focus on the long-term health of the business. We've kept an eye on how claims inflation impacts the back reserves. We've taken a relatively cautious pick for 2024 to ensure we've not overreached for the result. We priced really strongly in 2024 at good margins. That's given us a bit of headroom and gives us a bit of comfort against an uncertain inflationary environment as well. We've stuck very strongly to our focus on profitability and short-term volume as an output. Profitability is our target. Short-term volume is very definitely the output. We've done our utmost to look after staff and customers as we've done that. We've got really good customer responses.
We've continued to roll out staff initiatives in terms of added benefits and creating jobs as we've gone through last year. On the detail, we're very much on track for Ambition 2030. We don't see any hiccups on the path to that at this stage. Very strong capital position, as I mentioned, 44% increase in the dividend, our first share buyback, which reflects the amount of excess capital we've generated. Sabre Direct going live this month on motorbike. The testing of the new car pricing will, as planned, go on the second half of this year. I think a really strong overall result and really good developments for the future as well. At that point, I think no one better to head us into the weeds than Adam. That's exactly what he's going to do.
Thanks, Geoff.
Hello, everyone. I'll take us through the key numbers behind our 2024 results. As ever, our reporting is straightforward and transparent, with the results centered on the performance of our three flavors of motor insurance. That will be motorcycle, taxi, and core motor vehicle, which is everything that is not a motorcycle or a taxi. To enhance transparency going forward, all of our headline results, such as loss ratio and net insurance margin, will be stated on an undiscounted basis, as promised in our recent capital markets event. At that time, we also discussed our new KPI, which is net insurance margin. Onto the story for this year. Another record year for premium, albeit one of two halves where the top line is concerned.
We continue to grow strongly when market conditions were sufficiently robust and allow volumes to dip later in the year when low market pricing meant it was sensible to do so. Entirely in line with the strategy we outlined in December. Our net insurance margin has improved by 7 percentage points year-over-year to within touching distance of our 18%-22% target. More on that in the next few slides. Similarly, our undiscounted combined operating ratio has improved by more than 7 percentage points. This, along with the higher premium in 2023 and 2024 earning through, has delivered a doubling of profit year-over-year to GBP 48.6 million. Thanks to this growth in earnings, we've been able to increase the total dividend for the year by 44% to GBP 0.13. That's around 90% of earnings.
That is well covered by the capital generation in the period and leaves a very healthy post-dividend capital ratio of 171%. Given the level of excess capital post-dividend, we are able to today announce our intention to kick off our first share buyback that will return an additional GBP 5 million of capital. This slide shows the progression of our net insurance margin over time, and the journey towards our target is clearly demonstrated. A bit like combined ratio, net insurance margin is a function of claims experience and expenses incurred as a proportion of income. That income is insurance revenue, which includes net insurance premium and installment income as well. On this chart, the orange bars shrinking shows improving claims experience. What I am assured are dark blue or grey shrinking lines show improving expenses as a proportion of insurance revenue.
For clarity, our net insurance margin does not include any benefit from discounting. As you can see, the improvement in margin has been a function of both improving claims, which I'll talk about in terms of loss ratio in the next few slides, and improving expense leverage. This next chart shows the relative loss ratio performance across our whole book in 2024 and 2023. There has been a significant improvement in current year loss ratio, primarily on our core motor vehicle book and the motorcycle, reflecting the strong pricing throughout 2024. We are, of course, cautious when making current year loss picks, reflecting the relative uncertainty in undeveloped years. The current year will also carry a risk adjustment, which means that the current year loss ratio recorded here is likely to be above the expected actual loss ratio achieved for that business.
In 2024, the prior years did not yield a normal level of positive run-off, with the loss picks moving out a little during the year. That is reflective of experience and development of some older years, and we have got no reason to expect that the prior years do not return to normal levels of run-off in future periods. We have made no changes to our reserving philosophy in 2024. This slide highlights the relative contribution to profit from our core motor vehicle business and from the supplementary products. Performance in motor vehicle remains in line with our target, although this was the area most affected by the slightly adverse prior year reserve movement. The strong improvement in current year does not fully show through in the overall motor performance for the year.
The motorcycle book has been cleared up and is performing well, and it sets a great basis for expanding the product through Ambition 2030. Taxis improved a little but remains only marginally profitable on a written basis at the moment. We chose to allow policy volumes to reduce across the core motor vehicle book in the second half of the year, as I've mentioned. As market conditions softened, it made more sense to focus on maximizing absolute profit rather than chase the market down. Motorcycle income is now fully through our current distributor, with the prior year comparison including some premium from MCE, which went into administration in 2023, as we previously discussed. The volume of motorcycle business written now is well in line with our plan. Taxi business has been maintained at a relatively low level as we continue to monitor the book's profitability.
On this chart, I've shown a snapshot of our capital generated during the year and how we've deployed any surplus capital. Overall, the increase in solvency capital requirement has been relatively small, which has allowed us to distribute a healthy, ordinary, and special dividend, and left enough excess capital above the top of our preferred operating range to announce our intention to execute a share buyback during the year, which will be initiated as soon as practical, once we've received the usual regulatory approvals. Excluding the capital required to fund the dividend and the share buyback, our solvency capital ratio would be around 163%. We've taken a fresh look at our dividend policy. While we think the policy works well overall, which effectively returns all excess capital to shareholders, we wanted to make sure the ordinary dividend properly reflected our expected sustainable level of distribution.
We have picked the policy to allow us to pay a bit more, up to 80% of profit after tax, as an ordinary dividend. We have also made explicit reference to our option to use share buybacks when appropriate to do so, either alongside or in place of a special dividend, taking into account the potential for the larger ordinary dividend. With that, thanks very much and back to Geoff.
Thank you, Adam. Okay, we will, as usual, give you our views on the market. Who says we can't do PowerPoint, look? We think the pendulum's been swinging about on pricing for the last couple of years. If you look, as we all know, rates went up a lot in early 2024. We think the pendulum probably swung a bit too far, and probably people were relatively overpricing for the risk by the end of that sort of first half of the year. We think that's probably generated higher profits than that year, earning through into this year. Combined with a drive for growth by some competitors, we think that probably means the pendulum's now swung back. We firmly believe the market is materially underpriced for new business. What could be driving that?
The higher profits we've mentioned, the result drop in low value frequency, of drop in frequency for low value claims that we'll talk about later. Things like Ogden and reinsurance benefits may have given some one-off benefits, which means this financial year might look absolutely fine for people, but it does potentially mean the business is not being written at a profitable margin for some competitors. Our view is this is now a characteristic of a normal insurance market. If you think where we've been since sort of 2021, 2022, we've had COVID, we've had Brexit, we've had all sorts of inflationary impacts. That meant the pendulum's been swinging much more widely than normal. We think we're back now to a normal rate, a normal cyclical business. This is an environment where Sabre's thrived for 15 years. This is exactly what we're used to managing through.
We think there's a reasonable chance the market in some places may get a poor financial result for 2025 and certainly for 2026 if prices don't start to increase later this year. I guess it will impact competitors at different times depending on their rating strength coming out of early 2024. It may impact people at different times and people will feel the pain at different times over the next 12 months or so. Other market factors, I think we all know there's quite a lot of significant M&A anticipated over the next 12 to 18 months. I think there's always a risk this drives overly optimistic assumptions in people's business plans. I guess it's much harder to sell yourself when you're shrinking than when you're growing. I wouldn't be surprised if there's a bit of optimism being held onto in some places in the market.
The FCA overview of premium finance and ancillary sales, there could be a bit of a push to get some business on the books before life becomes slightly more difficult. This is also possibly the first year the GIP rules have a real impact in terms of premiums are more stable, therefore renewals should go up, new business might be slightly harder to come by. We know there is a government task force looking at insurance pricing. I do not think anyone really knows where that is going. We can talk in a minute about our regulatory stance. We think we are pretty safe from anything that might come out of that review. I think there is a risk of overreaction to some of the recent positive low value claims frequency. By popular demand, by sort of me, if no one else, the inflation scales have returned.
Let's look at deflationary factors, lower accident frequency. I think a really important point here is the only frequency decline we see is in low value bent metal claims. That's the damage to the vehicle itself. We don't see any real reduction in personal injury frequency, and we certainly don't see any decrease in cost. Trevor can talk about that much more later if you're interested. The Ogden rate is a one-off. We should also probably bear in mind large claims that are being incurred today will not settle under this Ogden discount rate potentially. What will the next Ogden rate look like needs to be in our minds as well in a decrease in interest rate environment. On the inflation side, cost inflation is very high. We'll talk about that in the next couple of slides.
There's pressure on non-premium income, and operational cost inflation is absolutely going to come through. Overall, we would see claims inflation at mid to high single digits. That's a slight softening from where we were, but it's still substantially above the long-term historic position. Let's look at a bit of the detail. This is on the bent metal stuff, where there are some positives and negatives. On windscreen, technology is driving a lot more cost in windscreen. If you've had the misfortune to need a windscreen replaced in a modern tech-enabled car recently, it's a painful process. They don't come to you, you go to them. It's a good two or three hours of waiting for your windscreen to be replaced sitting at a service station on the M23, from bitter personal experience. It's expensive and it's slow, and it's not great for customers generally.
Repair, there is now more capacity in the repair network, but the complexity of cars is requiring longer lead times. We are also seeing on some of the EVs coming in from perhaps China, they do not have the repair methods, they are not easy to fix. Parts are being produced in large modules, i.e., the whole back end of a car. That is great for production, but it is not very easy to fix. If one part of that back end of a car gets damaged, you have to replace the whole lot. It is difficult to fix because you do not know how to fix it, and it is not being built with repair methods in mind, and you have to replace a lot of material, not just one part of the panel. That is offset by some of the frequency reduction. Total loss is an interesting one.
As you know, the move to EVs continues. Very strong residual values for older petrol-powered cars. A very large part of the car, the car park is aging as we go. We think that could lead to more disputes on value. If you've got a car that's done relatively few miles and is old, and you can't replace it cheaply, that's going to put pressure on total loss valuations would be our guess. On theft, no matter how quickly manufacturers come up with new repair or new security measures, people find ways around it. Vehicles are being acquired for parts. Ford Fiesta is still one of the, in fact, the Ford Fiesta is the most stolen car in the U.K. alongside the Ford Transit. That's because there's more of them on the road, but they're not being produced anymore.
Are we going to see a part shortage, which means cars will be stolen for parts as much as for the car itself? Theft of specific components. I'm reliably informed if you wanted to set up a drugs farm in your loft, a Porsche headlight is an ideal way of getting heat and light onto that drug. We're seeing some of that sort of stuff come through as well. I told you I would say that, Adam. We get to injury claims. We don't see too many upsides on this one. We think this is mainly amber and downside risks. On the minor injury, you've got general damages are linked to RPI. Private treatment is becoming more expensive and more common. We've got inflation in the cost of NHS service.
There's a big potential increase coming through to the claims tariff, and we're not seeing the small claims track limits increasing. More things fall outside the cheap legal claims and fall into the more expensive legal claims. On the major injury side, again, damage is linked to RPI. Availability of carers is still difficult. Minimum wages are going up a lot. Things like prosthetics are becoming more expensive and more of them. Overall, we see a lot of cost increase coming through on large claims as well. We think that more than offsets any minor of the frequency benefit on the cheaper, low value owned damage claims. On top of that, we've got the unknowable impact of tariffs and trade wars and what might go on there. I would stress we don't see any of this as bad news.
Provided you see it coming and you price for it properly, this is entirely fine. It's if you don't see it coming and you don't allow for it in pricing, that's when you get in trouble. We don't see claims inflation as bad news. We just see it as a factor we need to take into account. Okay, a brief reminder of our Ambition 2030 that we set out end of last year. Key points, significant growth in profit by 2030 is our aim on this one. We expected there to be hard and soft market conditions across that planning period. The fact we're currently in a relatively soft pricing market doesn't cause us any concern about delivery of that long-term target. It's capital light.
I think part of the reason for the buyback today demonstrates our confidence we can deliver this growth agenda without the need for additional capital. Three key pillars, expand our core car market and efficiency of our direct brands on core, expand motorcycle, and controlled expenses while we do that. First initiative, Sabre Direct Bike is going live pretty much as we speak. The team are back in Dorking, busy making live the website and rolling the product out. In the next week or so, you should be able to go onto the website and see how that works. It's starting low and slow, I would say. Relatively small quotability. We're not going to go in too fast into this. We'll ramp it up as we go through this year and into next year.
The second initiative, and I guess the main driver of our growth is expanding the core motorbook. As you know, that's really saying we're going to continue to live our current margin for the current relatively high risk that we ride. We'll target a slightly lower margin for the less risky business in an appropriate way. Overall loss ratio will increase slightly, but insurance margin should be protected as expense ratio should come down a little bit. As a reminder where we are, this is our current premium. Somewhere over GBP 1,000 average premium. The market's on about GBP 500 there and thereabouts. We are well above the market in terms of our average premium at the moment. This is my slightly more simplistic way of describing what we're doing and perhaps some of the slides we use at the Capital Market Day.
Broadly, on the right-hand side of that graph, as you look at it, is the more risky policies with a higher margin requirement to reflect the risk. The further left you come, the lower the margin and the less risky. There are a lot more policies, obviously, in the mid-market than there are at the extremes. We are taking a small jump to the left at a slightly lower margin, which allows us to compete for more policies slightly nearer the mass market. We already quote for all these policies already, so this is not an unknown territory for us. Importantly, we do not think this is going to be a straight line development. This is sort of reflecting the hard and soft market that we see. This line is purely administrative.
It's not trying to give a profit forecast for each of those years, but we expect the profit to sort of move up gradually towards GBP 80 million, weighted towards the back end of this period. I guess just to restate, all the foundations for these initiatives are already in place. This doesn't rely. We're not on a sort of wish list here to make these happen. We've already got the steps being put in place or being put in place. 2025, a year of testing and transition. 2026, obviously, when we start to see some benefit on premium, and then obviously profit follows that naturally. Outlook and summary. We're really excited by the next few years. We've worked our way through and managed our way through some pretty turbulent times in the last few years.
In fact, all the way since IPO, we've had pretty turbulent times one way or the other. I think 2024 has demonstrated the benefit of long-term disciplined underwriting, hold your nerve and position in soft market conditions, and then take growth opportunities when they arise. That is exactly what we intend to carry on doing all the time, developing the business to drive long, stronger underlying growth. We have delivered, we think, great customer outcomes, good growth in premium, great growth in profit. Ambition 2030 is on track. The net insurance margin, we are confident for next year, this year, will be within our target margin range.
Okay, at that point, we will pause and go to Q&A. Again, if you are on the webcast, feel free to type your questions in and we will answer them. Abid, only because you are nearest to me.
are some mics on their way around with our very unglamorous assistants.
That is a bit harsh. True.
Morning. Morning. Thanks for taking my question. It is Abid Hussain from Panmure Liberum. I think I have got three questions, please. The first one is the soft market. Do you think it is still possible to expand your addressable market even in a soft market? If you could provide any more color in terms of does the price elasticity reduce or increase in the soft part of the cycle? Actually, it was interesting to note in the R&S, you said that you think we are already in the softest part of the cycle or we have just come through the softest part of the cycle. Interesting to hear your thoughts on that.
Then the second one, just on margins, just looking beyond the headline net insurance margin, can you confirm that the motor vehicle net insurance margin is within the sort of 18-22% target range? I did not see it up there. Just to see if you could just sort of give us any thoughts on that. The final one is investing in the business. Do you need to invest in any part of your business to deliver on that Ambition 2030? Do you need to invest in people, hiring people in IT or both?
Sure. Okay, thanks. I'll start and then maybe hand a couple of these around. On the soft market, yes, we can definitely still grow in a soft market. We're still becoming more competitive. Clearly, we will not grow as quickly as we will do in a hard market.
Matt, do you want to say anything on that?
I think what you said there is correct. We can still roll out Ambition 2030 during a soft market and test the change we want to make. We will still see the impact of that come through.
Yeah. Trevor, perhaps you can talk about the people we're investing in. On the softest part of the market question, I do think we're probably at the softest part of the market or very near it. I've become even more bored in the normal sort of functions and events around this time of year sort of testing people's views on claims inflation. I'm not hearing many people disagree with us on claims inflation and not many people saying that prices don't need to start increasing from the second half of the year.
If they should start going up at the half year, it could take a bit longer, but I think people wind themselves into life and doing it. I am pretty certain we are looking at prices going up from here and not too much further down. Motor vehicle net margin, Adam, perhaps you can add that one.
Yeah, obviously we do not disclose margins per se per product, but to give you some sort of relatively imperfect maths on that, if you look at the motor vehicle performance and loss ratio basis for the year versus the overall book, it is a couple of points better. Given that we are at a sort of 17.6% margin across the book, then motor vehicle would be meaningfully better than that. The motor book itself is performing in line with the margin.
I guess the other way of looking at it is the current years did not move as they normally would. As I said in the presentation, they went out a tiny bit. They would normally roll off a few percent of risk adjustment. If the prior years had performed as we had normally would have expected, we would have been well within the margin range. In terms of what we are writing now and in terms of what motor did, we are very comfortable about that margin achievement. Trevor, just anything about investment in people?
On the people side, we are in a good position. We have actually got a lot of bench strength at the moment around both on the policy side and on the claim side where we have taken the opportunity to invest in training and recruiting people. We are absolutely there.
We also, as you may recall, outsource some of our services. Where there be initial demand, say in first notification and/or servicing our customers on our direct car products, that is outsourced. On the technology side, we have already made the investments to deliver for Sabre Bike. We are continually evaluating our own systems in terms of the insurance administration systems, and we will continue to do that.
I think on bike, it is an interesting one as well that I think we are going to be the only U.K. non-phone support-based bike policy. Everything is going to be online-based. That involves some new skills for your team, Trevor, in terms of dealing with web chat rather than phone.
Yeah, we are going to in-house that, which has been part of the recruitment drive in terms of the ability to service those Sabre Direct Bike customers from out of Dorking. Yeah. Thanks, Peter.
Darius, just because you were first in my eye.
Thank you. Couple of questions. Thank you for the buyback. Couple of questions on that. Is the buyback now a new tool in your toolbox that we should think about every year, or is this really sort of a one-off? I have noticed in your sort of capital generation slide, how you started a year with roughly GBP 40 million of excess capital. You ended the year with roughly GBP 40 million of excess capital as well. You do say that you're not going to use capital to achieve your Ambition 2030, and you also talk about how your business is cash generative, and we're sort of heading into the soft market, I suppose, or in the soft market.
Why do you need this 40 million of excess capital, and why you have not given a bit more in terms of the buyback? That is the second question. My last question is, the prior year development was a bit of a surprise, I suppose. We had a little bit of strengthening on discounted basis in the first half, and I suppose a little bit more in the second half now. What is going on there? Thank you.
Okay, I will take the first one, Adam, the second, and Matt, about the third. Okay, on the buyback, that is definitely part of our toolbox.
Now, we've been discussing this with some of our larger shareholders for the last year or two, and we've really said that should we find ourselves in a position where we have a share price we think is undervalued, a lot of excess capital, and we can still meet the dividend requirements because we're conscious we have shareholders split across income and share back interested clients, we'll always look to meet the dividend first, to meet our dividend expectations. Should we then think we've got excess capital over that and a low share price, then we'll absolutely think about buybacks going forward. Adam, do you want to talk about the capital gen pit?
Yeah, I mean, I think it comes down to what you think of as sort of genuinely excess capital.
If you look at what we presented on that slide, that's effectively all the capital we've got over 100% of our capital requirement, but the reality is we've preferred to hold 140-160%. We've paid down to just over 160% if you take the buyback into account as well, which leaves us with maybe a million or so capital above that. We've always said we're very happy to pay down to within that range. Our floor is 140%, not 160%, and we'll use that as we see fit. It's really just a case of taking every year by year, thinking about what might we need this capital for, what are the risks in the next year, and really holding enough to mean that in all reasonably foreseeable circumstances, capital is not going to be a problem. That's the main thing.
We can just continue to grow, execute Ambition 2030. We've given back everything. We really don't think we'll need to be able to do that, but we'll make sure we've got enough capital in the tank to make sure that process runs smoothly, and that's why we haven't paid out everything we potentially could have done.
Thanks. Matt. On the prior years, as Adam mentioned during his presentation, we have seen some deterioration prior years. We've seen some late adverse movements in claims and continue to see inflation come through. Whilst it has deteriorated, we've now accounted for that. We don't expect that to continue. Generally, we will see prior years release rather than deteriorate from the risk adjustment run-off, and that's what we expect to be long-term. Ever so often, you'll see that prior year deterioration, but we don't foresee that happening again this year.
Yeah.
Thanks, Matt.
Ivan. Hi, it's Ivan Boulding from Barclays. First of all, I wanted to follow up on the capital point that we just raised. I mean, maybe we could talk about 2025 as we think about the capital that you would generate versus the capital that you would need to retain. I think we're talking about margins probably improving from the level where they're slightly below the range at the moment and probably not a lot of growth in solvency capital requirements. From that perspective, should the capital generation also increase on a net basis in 2025? I think the other question I've had, a little bit technical, but as we think about the FCA premium finance study, which presumably is going to be out within the next few months, what do you think the focus points would be? I mean, how can you be affected?
Any broader color in the market that you could flag on this? Thank you.
Okay. Adam, I'll take the second one. You can have a second go at the capital one in a minute. On the FCA premium finance, I think there's a couple of bits. There's some concerns that maybe some people increase prices for monthly payers and then hit a higher APR. You are basically charging for a credit risk twice. We, for clarity, do not do that. We never have and never will. I think there has been a concern that the APR looked high compared to the underlying interest rate, and I think you have seen in the market interest rates coming down. I think perhaps the FCA have achieved their objective just by shining the spotlight that people are gradually softening the margins on those products. We took a view about a year and a half ago.
We should earn the same margin on all of our ancillary products, which we include premium finance as we do on our core product, and that's exactly what we've moved to. We think we're in a very sustainable position that our margin is pretty much the same across the core product and all the ancillaries. We generally don't think we're too exposed there. We keep an eye on it all the time, and if we think we're over-earning them, we'll reduce the price on that. I mean, there is a genuine risk to premium finance in that if a person claims, they can just stop paying the rest of their premium. There's not a lot we can do about it. There's a genuine cost to providing premium finance as well as just the credit piece, which I think gets missed sometimes in the debate around this.
Adam, do you want to talk about?
Okay. Yeah, I think I'll take it in a couple of parts. In terms of the capital generation during 2025, obviously linked to earnings quite heavily and the level of growth that comes through in the year, etc. We do expect to generate a pretty good level of capital, and the solvency capital requirement will grow. Solvency capital requirement, as I'm sure you guys will be well aware, is pretty hard to predict in terms of exactly where it's going to go. We know it'll go up probably. We do not know exactly by how much, and then that'll limit the amount that we can distribute for the year.
We have actually been very fortunate over the past few years that it has not really increased by all that much, and we have been able to distribute quite a lot, which I think takes me to our second point when you look at the dividend policy and what we have done there. The issue with the previous dividend policy really was the ordinary was not ordinary, and the special was not special in some respects. We all knew that we were going to generate more capital than the ordinary dividend would allow us to distribute, and therefore there would be a special every year. The normal run rate of dividends, when you take normal levels of capital requirement increase into the future, is not 100% of earnings. It sort of cannot be as it has been for the last eight years. It will have to come down more towards that ordinary dividend level.
What we're saying is that we think capital generation should be good. It could be ordinary plus, and there'll be an opportunity for a special next year and/or a buyback. At the moment, that's the way we're trying to get people to sort of think about it. Yeah, I think capital generation should be pretty healthy next year, but we'll see how the capital requirement develops, I think, over the next 12 months.
Let me just add a follow-up to what you were talking about, the premium finance. I think if we look at the range of what the APRs people charge, I think it starts from mid-teens, 16% all the way up to 50% with some brokers charged. You guys are a little over 20, I think mid-20s, if I'm not wrong.
I mean, would the FCA just want for you to share the economics of what the input costs are? Is that the way how you defend the APR?
I think we have done some work on that in the past in terms of market studies around how APR, but I'm sure we have, as to how APR works and how we get to it. I think there is a bit that gets missed. There is a genuine risk of running a premium finance scheme in terms of if you have a big claim and you just stop paying your premium, we have to pay the claim regardless of the fact you've only paid one-twelfth of your premium. That's definitely an issue that's out there.
There's also, once you've got someone on the books, you're on the hook for claims until you've got them off the books again if they don't pay their premium. I think this does get missed. I don't know exactly where to go. I think the FCA were clearly unhappy at the level of APR, and that has been naturally coming down the mark, which is, when you look at where people were and where they are now, you can see that softening gently. Who knows? I don't know exactly what's in their mind, but I think we're well set whatever way that goes. We're not very dependent on premium finance anyway. If it all got banned tomorrow, it wouldn't destroy our business anyway.
Hey, it's Darryl Goh from RBC. My first question is just on the reserve strengthening in 2024.
Could you maybe give a sense of how much of it was adverse experience and the other part being a buffer build, if you like, I think to your point about not overreaching given how strong 2024 earnings were? I guess a different way to answer that is that what might also be a normal level of reserve releases from 2025 onwards. The second question is just in terms of your core TAM, do you feel as though mass market insurers are being a bit more aggressive there? I guess, how reliant are you on your new pricing platform to grow, and when can we expect a return to growth in your core policy book? The third one, you spoke about your central assumption for market pricing to increase later this year. How has that assumption changed from what you assumed in December?
I guess if that fails, what confidence can you give that your bottom line will still grow in 2025 and 2026? Or maybe more explicitly, what is a minimum level of earnings growth we can expect in 2025 and 2026 in a so-called bad case? Thank you.
Yeah. Okay, there are some big questions in there, are not there? Adam, do you want to say anything about the reserve strength in your perspective? Then maybe, Matt, you can just add anything to that.
Yes, I will. I mean, in some cases, it is pretty difficult to answer sort of what is going to happen in reserves going forward. We know that in the current year, we always think about relative uncertainties around that. We prefer for the current year to develop positively rather than negatively into the future, and therefore, we will book it accordingly.
There will be an explicit risk adjustment on top of that as well. It is very hard for me to say exactly how much that risk adjustment is relatively clear. Anything else, let's assume we put it at a best estimate basis and see how it develops. It is probably the way to think about it. In terms of what the normal level of run-off might be, which is potentially more useful, again, quite difficult because it is nice to point to a sort of period of past years and say, "That's what normal development looks like," but of course, there have not really been any normal past years for a relatively long time. I cannot do that. What I can do is point back to 2023, where the prior year development was sort of in the region of 2%-3%.
That seems like a relatively sensible amount of sort of risk adjustment run-off. I'm on the record for a few years ago of saying I think the prior year risk margin run-off should be around sort of 4%. Under IFRS 17, the risk adjustment may be sort of a little bit less than that, but still in that sort of region. That's an order of magnitude. I think you can sort of think somewhere sort of 2%-4%, but obviously, there's a lot of water to pass under the bridge before we actually sort of see that run-off coming through.
Thanks. I guess just to add, we've been clear that we've taken a relatively cautious current year pick because of the uncertainty around inflation. Matt, you've not changed your approach to reserving.
The approach remains the same.
We're going for a best estimate, which generally we would hope to run off positively, but can on occasions go the other way. We're not expecting that to happen, as Matt said, going forward. Correct. I think you then asked about the mass market, and I think it's very aggressive. There's a bit of a feeding frenzy going on, I think, in the mass market. We're not planning on going into the mass market, and we're not planning on writing GBP 400- GBP 500 premiums. That's not where we're at. If you think of those slides, we're about GBP 1,200 at the moment. Coming down a few hundred pounds still leads us very much towards the upper end of the mass market. I don't think we're planning on going to compete completely in the heart of the mass market. The assumption, what's changed in terms of pricing?
I guess there were two things happened at the end of last year. One was the Ogden discount rate changed. That would have given a bit of tailwind to financial results year-to-year. I think probably for the first time in living recent memory, reinsurance rates came down for people who had a 31-12 renewal. That would have been another saving for this year. There were two new things that probably elongated the soft part of the cycle beyond the level we might have thought of in early December last year. You had a slight follow-up on your face at one point there.
Sorry, just my question earlier was not so much about you guys getting to the mass market, but rather the mass market insurers like your Avivas and Admirals of the world sort of knocking on your doors and eating your lunch. The risk there.
I mean, we already compete with Aviva and Admiral. We view the world as a series of Venn diagrams where we overlap with different people at different times. We've seen different people come into the market at different times. Some of them are more painful than others when they do that. This has happened regularly over the last, how many years you've been here, Trevor? Fifteen. Fifteen. There's always people coming in and out of our part of the market and Sabre strategy is designed just to drive straight through the middle of that and be consistent. What will growth look like this year? I think it depends on the market. We're writing a very comfortable level of premium at the moment. We're not concerned about our premium levels for this year.
Whether that results in flat, a little bit of growth, more growth will depend on the market conditions in the second half. We are certainly not sitting here concerned that we are not writing enough volume at the moment. Anything to add to that?
No. Okay. Thanks.
Andreas.
Yeah, thank you, Andreas van Embden , Peel Hunt. I just had a question about inflation risk. When I go to slide 25 and you are writing average premium policy between GBP 1,000 and GBP 1,200, when you move out to the right of that chart, when you go to the higher premium policy, does that carry more inflation risk than if you go to the left and go more to the near-standard market? Is there less inflation risk there, or is it the other way around? I just have a question about the second half of 2024.
You lost some policy volumes in a more competitive market again. Obviously, that's the way you underwrite. I just want to check whether that loss, whether that was more in that core motor book, the real core non-standard book, whether you're again sort of losing policy volumes in that sort of near-standard segment of the market. If that's the case going into this sort of 2025, would you, in your underwriting strategy, would you want to retrench in that sort of real core motor book and wait for the market to turn again to go out into the accelerating growth and near-standard? Will you take your foot off the gas in the second half of the year if the market doesn't recover? Thank you.
Sure. Okay. More inflation risk. If I start, maybe Matt, you can say.
I guess in some ways, it's who you hit that matters on a lot of this stuff. You can hit someone expensively if you're in a highly rated vehicle or a low-rated vehicle. Yeah, I was going to make that very point. Higher risk premiums also tend to be higher frequency rather than necessarily higher severity. There is higher severity there. Of course, as Geoff's just said, they're hitting the same things and the same people. It's more likely the premium is more likely to reflect a frequency risk rather than a severity risk. If we take a taxi, for example, where average premium is significantly above our core, those vehicles are on the road more. Yeah. For the rated taxis, the issue is it's a taxi in a town center with drunk people. That's not a great combination.
You expect to see relatively more higher value claims on that book. For the general stuff we do, I don't think there's much more of an inflation risk, Matt.
I think we see it. It's going to be driven by the components of the risk. You could have a high premium driven by first-party or flat risk, for example, or you could have it driven by high injury risk. Where inflation varies by peril, that's where the inflation risk will come. If we think injury is a higher inflation risk, that tends to drive a higher premium. Therefore, if it's a high injury component, it'd be higher inflationary risk. If it's something which is quite certain, it'd be low inflation risk. Yeah.
Would you say it's more distributed across your book when it's high premium or low premium?
That question was, is it distributed evenly on high or low premiums?
I would say it varies depending on the component. It's hard to say exactly. You're looking at rating by the individual part of the risk. Yeah.
Okay. I think the second question was around, were we losing policies? Is it our core book or the mass market? I think it traditionally is we lose stuff from the fringe of the mass market where we sort of see the tide coming in and out. In a hard market, the tide comes in a bit, and we can write more of that lower premium stuff at the right margin. I think we're seeing no different to a normal market cycle. As I mentioned earlier, this was like a completely normal market cycle that Sabre used to manage through. Will we retrench?
I don't think we really think about our world as retrenching or growing. We just charge the right price, and we see what sticks to it. What I think we're reflecting in the new strategy is that right price is a slightly lower margin for low-risk policies. We'd expect more policies to stick to us by putting those prices out there. We're not targeting. We don't have an aggressive volume. I was reading the Berkshire shareholder letter. I'm not sure if you've seen that recently, but there's a phrase in there which is exactly in line with our thinking, which is, if prices aren't priced correctly, chasing volume is corporate suicide. Or paraphrasing slightly, that's exactly how we see it. We're in a fortunate position. We can still write plenty of business at our current margins in our current target market. We're feeling relatively okay with life.
Okay. Hi.Tom Lovell from Berenberg. Just one on distribution. Given 90% of the new business is sold via price comparison, as you're growing and expanding your addressable market, do you expect to kind of tailor your distribution strategy a little bit towards that channel, given, I guess, it should offer lower commission expenses? Thank you.
Okay. I would say probably 90% of our business starts life on a price comparison website now. Whether it eventually comes to us via broker or via our direct brand, it's still probably starting life on a price comparison website. We already have our brands. We have Go Girl and Insure 2 Drive on the comparison websites. Now they're on all the major comparison websites. I don't view that change. We don't need to do anything different. The product's already there. Built works well.
We just need to put slightly different prices behind it for different segments of the market.
No real change needed on that one. Anything else in the room? Rory, anything on the... I thought you were going to say no then, but there you have it. Okay. Right.
Right, Adam, the first one's heading your way. Investment portfolio income yield was around 2.5% in 2024. Can you give a feel for what level you see this topping out at given recent reinvestment yields?
Yes, it'll be higher than that, I would have thought, unless something spectacular happens in the markets. Obviously, you can't bank that we're going to be able to reinvest at the same yield forever. We're looking at the sort of normal reinvestment yield for a medium-term set of gilts and a bit of corporate bonds in there.
That should be at least a percent or so higher as we continue to reinvest that through.
Thank you. Second question, Adam's also heading your way. GWCRE decreased 21% year-over-year in Q4. Is this a reasonable run rate? What we should expect to
see in the early part of 2025? Yeah, I mean, it's fair to assume that sort of nothing spectacular happened during the 31st of December last year and the 1st of January this year. The sort of income run rate is very similar to the exit run rate from last year, for sure. January and February are always unusual months when it comes to premium. You never quite know what's going to happen as insurers enter the new year. In this case, yeah, we can take Q4's premium run rate as informative as to where we came into 2025.
I should say those last two questions came from Nick Johnson at Deutsche. Thank you for that, Nick. Next one is from Barrie Cornes
Congratulations on a good set of numbers. I'm going to stop there, I think. Sadly, he carries on. Two questions. You mentioned you want to grow further in motorcycle. What are the specific areas you'd like to target to grow premiums?
Matt, I'll let you give a few seconds to think about that. How do you think other insurers will react to you entering their space as you expand your addressable market? On the second bit, you know, the motorcycle market is not huge. We're already a reasonable chunk of it. You might recall back to our earlier presentations in previous results sessions, there's only probably five or six insurers out there and five or six key brokers.
We will look to deal with most of those brokers over time. We're rolling out a very different product, Matt. It's IHP. It's a much more complicated product than most in the market. Can I say anything about it?
Yeah, so the motorcycle product we're rolling out is going to be quite a slow rollout. The rating is more complex, and we're using all the data we have to build as accurate models as possible. It'll be fully enriched, and it will have the same technology as our core motor portfolio as well on IHP. We see it as a slow grow over the 2025 year.
I would say most bikes are distributed by brokers. The specialist brands on brokers, and those brokers are very keen to deal with us. We see it as being welcomed into the market, not having to fight our way in.
Next question, two from Simon Young at Foresight Group here.
Do you have information on what percentage of the motor insurance market now bundles its policy into multi-car and increasingly multi-car plus travel plus home? How has this changed over time? Can you compete here via your distribution partners? I'll ask that in a second. Adam, the second one's heading for you. Can you clarify how you calculate the expense ratio? In the release, you state the expense ratio is 25.5% and total expenses are GBP 28.3 million. Assuming the formula is total operating expenses divided by net earned premium, you
I'm going to let you read that because there's no chance you're going to... I'll just explain what it is, I think, Geoff. You start. Rather than getting into the weeds of it.
First answer on expense ratio, is there are reconciliations in the back of the R&S?
I would go there, and it should reconcile it all back to the IFRS income statement for you. That is probably the easiest answer. The other answer is that we take all of our expenses across the group. Anything we reallocate into claims, we take out and put into expenses, and we divide that by net earned premium to get our expense ratio.
Okay. On multi-car, it is a really interesting one. We do not think multi-car in and of itself is right for us in that we have a margin requirement that we expect charged. We are not going to undercut that margin to pick up additional vehicles on the policy. Some of our broker partners do do multi-car, and that might be an interesting way.
If they're bundling it at the distribution end, we can provide the premiums and the rates for our part of that product. That could work well. Yeah, I do not think we're competing with people directly in that multi-car market. We're a slightly different target market to that. Matt, do you have anything you want to say on that one?
No. It's not a place we see we lose business, or we do not see it as a massive growth area either in the medium term.
That, I think, is all the questions that we had. Anything else in the room? If not, thank you very much for your time. I look forward to seeing you again for the half-year results. Hopefully, we can report more great progress. Thanks very much.