Admiral Group plc

Good. Welcome. Welcome everybody to the half-year presentation of Admiral H1 2023. Very pleased to say that despite the challenging market condition, we deliver another period of solid performance, great service to our customer, to more customers, and good outcome for our shareholders as well, despite the high inflationary environment. So thank you for joining us. As usual, I will start with the key highlights. Geraint will follow up with more detail on our key financial metrics. Cristina will explain us how we navigated this extreme cycle and will provide more detail on household and market trends. Constantino will tell us how we strengthened our position overseas. And then I will come back to share some exciting progress on our lending business and our strategy. So... Well, these are pictures from top 10. This is our most iconic event in which we celebrate our colleagues that go above and beyond for our customer and our shareholders. So let me start by thanking those that were really behind the achievements that we are about to present. Speaking of which, in the last year, our turnover grew by more than 20%. This was mainly driven by price increase to respond to the high inflation. Our customer around the group overall were up 4% and it was driven by Europe and new product. And this grow more than compensated the reduction in active policy base in UK motor insurance. Our profit under the new accounting standard IFRS 17 were $234 million. this figure is higher than last reporting period, and it's also higher than H1 2022, restated under IFRS 17, but it's lower versus H1 2022 under IFRS 4. And I think overall, this is a solid combination of results, and it's nice to observe that this was also a true team effort, as all our mature business contributed both to turnover growth and improved bottom line. We're proud of the progress we made in our strategy, particularly the adoption of advanced analytics, tech capabilities, and some of the development in the newer business. And I'm pleased to say that we are, again, in a very strong, solid capital position with a solvency ratio of 182. And that, as usual, we've been disciplined in our underwriting and pricing, and this put us on strong footing for a turning cycle. And now let me start with a bit more detail on market conditions. I wish I could tell you a different story from six months ago, but it's a bit more of the same, to be honest, although we believe that we are closer to a turning point. In the graph bottom left, you can see CPI inflation and average market premium increase in each country for H2 2022 and first half of 2023. Now, as you see, CPI inflation is decreasing everywhere, but it's still high. And that's even more true for material damage inflation, for which, unfortunately, we don't have comparable data by country, but that sits higher on top of CPI inflation. And this inflation stubbornness led to stronger price increase than anticipated for the market that should lead to materially improved results in the underwriting year 2023. Another consequence of renewal price increases is a strong growth in shopping. And overseas, where shopping is a less ingrained habit, this may lead to an acceleration of the migration toward the direct channel. As for Admiral, we continue to monitor the trend very closely and act very fast on market condition and change. Our objective is always the same. It remains to focus on and maximise medium-term profitability that depends by a combination of revised market trend, estimated ratio and price elasticity. And this approach led to different outcomes in different parts of the group. In UK motor, where we have a large book and we had increased price well ahead of the market last year, the rational outcome was to shrink in the first part of 2023. This pricing gap with the market is closing, as Cristina will explain later. and we expect to return to grow soon. In the other country and product, where inflation was lower, market reaction was lower, and we have still more potential for economy of scales, we continue to grow. 20% overall, around 20% overall, although more cautiously than previously. The U.S. is the only exception. As anticipated six months ago, we are successfully prioritizing capital preservation and loss reduction in the state. And the process to assess future options is progressing. I will provide an update in due course where we'll have more to share. And now to Geraint with more details on our financial results.

Thanks, Milena. Morning, everyone. I'll cover off some of the highlights from a solid first half. I'll give an overview of the impact of IFRS 17 on this period and the restated 2022. I'll look at the UK motor results, UK motor loss ratios, and then I'll finish off on the half-year capital position and the interim dividend. To start with, these are the usual set of financial highlights. And just to comment quickly here on the basis of preparation, this is obviously the first time that we've reported under IFRS 17. Financial statements include a restated set of 2022 figures for H1 and the full year. On this slide, the pre-tax profit and the earnings per share numbers are the most impacted and the originally reported numbers you see in the footnotes. The numbers continue to be influenced by the high inflation we've seen in all our businesses. Though, as Milena mentioned, we're satisfied that we've responded appropriately and robustly to what we're seeing. And whilst not yet very apparent in the profit numbers, there are clear signs of improving performance and more positive markets in 2023. Pre-tax profit for H1 was 234 million and earnings per share was 58 pence. The higher UK tax rate of 25% versus 19% explains most of the difference in the percentages there. Return on equity was improved and strong at just under 40%. And that's partly positively impacted by lower equity under IFRS 17 as we flagged. The half year solvency position was strong, again, 182 percent. And we declared an interim dividend of 51 pence per share, which is a touch under 90 percent of the first half post-tax profits. Now, despite the payout ratio remaining the same, basically, as the first half of 2022, last year's interim dividend was, of course, based off the IFRS 4 profits. which were higher than the restated IFRS 17 result, as we'll see shortly. Plus, as I mentioned, the effective tax rate is higher for this period, and those two factors explain the 15% change in the dividend. You see clear evidence of our strong response to claims inflation in the top line metrics, where customer numbers increased more modestly than in recent periods. But there was a very strong increase in turnover driven by significant increases in premiums across the group. So let's take a quick look now at how those numbers break down. This slide shows customer numbers and turnover across the group. The main observations here are, firstly, on UK Motor, customer numbers reduced by around 3% in the first half, as the cumulative impact of our rate changes over the past 15 months or so continue to impact volumes. And it's very apparent, though, that those rate increases are taking effect, with the big increase in turnover reported that you can see. UK household delivered strong growth again, and with pricing moving up in our business and in the market, we see a large increase in turnover. Internationally, again, we see double-digit growth in customer numbers, growth in Europe, slight reduction in the US, and again, to continue the theme, strong pricing action led to a bigger increase in turnover. And finally, in Admiral Money, we saw continued growth, though further tightening of credit rules in response to economic conditions has consciously slowed the rate. This slide doesn't show the growing numbers of customers across the group with travel, pet, Vago, etc. We see very strong growth in those areas. Before we look at the group results, I wanted to make a few points here on the new accounting standards. Obviously, big news. The main qualitative points at the top are, as stated before, IFRS 17 does change the accounting and particularly the presentation and can change profit recognition patterns, though it doesn't change our business fundamentals. In reasonably normal trading conditions, we wouldn't expect to see significant differences in profitability under the new versus the old accounting standard. We don't keep IFRS 4 accounts anymore, so of course it's not possible to present full reconciliations from here on. And of course, thankfully, as a non-life insurer, we are able to adopt the simplified approach. On the bottom left, we make observations on the restatement of 2022. IFRS 4 H1 profit was a little higher than the restated numbers, and that's mainly due to differences in the reserve strength or risk adjustment positions over 2022. Under IFRS 4, we moved down to the 95th percentile at the end of 2022 from a higher position at the start of the year. Under IFRS 17, we started and ended the year at the 95th percentile. And so smaller reserve releases led to lower profit on the IFRS 17 basis. The difference in profit is more pronounced in H2 as the reserve strength movement in H2 under IFRS 4 was more pronounced. So we see this aligning of reserve strength positions at the end of 2022 as part of the transition to IFRS 17, rather than the new standard leading to a different result. And on the bottom right, some more straightforward observations on 2023 H1. Assuming similar changes in risk adjustment percentile, we would not have seen a materially different IFRS 4 number for this period had we prepared IFRS 4 accounts. There are some ups and downs, of course, and discounting is one of the positive impacts. But there is no real difference to the bottom line from the new standard this year. In the appendix, we include more information than usual to hopefully help in understanding the new accounting treatments, including discounting and reinsurance particularly. And we have dedicated sessions, as I think you all know, set up tomorrow and more time available on Friday for technical queries. So give us a shout if you're not down to join those who want to. That's the background. So let's now take a look at results across the group versus the last half year. And here we also show the IFRS 4 2022 H1 numbers for reference. Main theme in the insurance businesses continues to be claims inflation. And although we see generally strong improvement in underwriting year 2023 combined ratios, it's predominantly the earlier years that are contributing to profit in this half year. And of course, particularly including the lower margin 21 and 22 underwriting years. The UK insurance business reported a total profit of just over 300 million, which is around 5% up on the restated 2022 H1. Motor profit, as you can see in the text on the right, was just under 300. That's covered on the next but one page. UK household profit was up to 9 million from 4 million, with a few factors impacting the result there. Firstly, we see a higher non-weather loss ratio this period. That's impacted by inflation. Secondly, there is a lower severe weather cost this H1 as a result of lower severe weather. Thirdly, lower reserve releases, which are impacted by an increased estimated cost of the December 2022 freeze event. And finally, a one-off crystallization of profit commission on one of our quota share contracts on household. Internationally, we saw decent and expected improvement half year and half year. Starting first in Europe, the overall results improved to a profit of three from a loss of three, including a motor profit of five versus a loss of two, obviously more satisfactory first half. The results are still impacted by higher loss ratios over the past underwriting year or so, although the underlying results, again, have improved with significant rate increases. There is continuing investment in distribution diversification in Italy and Spain and investment in growth across all businesses, which does impact the expenses. In the US, our goal was to materially improve the bottom line compared to last year. We're satisfied with the improvement and more so in the underwriting year result. The US loss was particularly heavy in H2 last year, and we don't expect a similar pattern to repeat this year, though conditions in the US remain tough. Admiral money continued to grow, as we noted earlier. Business pleasingly remains profitable and is, of course, prudently provided. We'll continue to take a cautious approach to growth and risk appetite. Admiral Pioneer result was a bit worse half year and half year, notably impacted by a handful of large claims in the VEGO business and also continuing investment in growing our SME insurance business. The other items at the bottom were higher, as you see, and there are a number of factors that contribute to that, including some one-offs. There is an analysis in the appendix and happy to take any questions on that later. Let's now take a look at UK Motor, which is the key driver to Group Profit. This is a summarized income statement versus the restated 22 H1, comments on the main drivers of the change. Firstly, as noted earlier, despite the small reduction in the book size, rate increases have led to a much higher average premium and a strong increase in turnover. Secondly, higher interest rates have a couple of impacts. Firstly, higher investment income, as expected, but also higher discounting impact on current year claims. We've got more detail on investments in the appendix, but there are no changes to report in our approach on investments. And then three, in terms of the ratios, we've shown two sets of ratios on this slide. First set is based on total insurance revenue, so includes add-ons and fees. And the bottom set shows just the core motor insurance policy metrics. We see essentially a flat core motor loss ratio, which is made up of a higher current period ratio impacted by 2022, offset by larger reserve releases. The expense ratio is higher on an earned basis, partly due to the impact of a lag in the higher average premium earning through, but the written basis ratio is flat at around 19.5%. Perhaps the most important metric currently is UK motor loss ratio, so let's take a look at what's happening there. two charts, both on an underwriting year basis for the core motor insurance only. On the left, we show the projected ultimates, and on the right, the booked ratios. IFRS 17 means we're showing the ratios on a different basis here, and so they won't be directly comparable to the ones you've seen previously. Both these sets of ratios are discounted, which is obviously a more important element under IFRS 17, and we've included guidance in the appendix on how discounting works, and we also include the undiscounted triangles. Some key observations. We're not yet seeing notable changes in average claims cost inflation in H1, though we expect inflation to start easing in H2 and beyond. We believe the ultimates on the more recent underwriting years are still prudently projected and, for instance, include prudent positions on bodily injury claims where we're not yet seeing particular stress come through in our numbers. We also continue to reserve at the actual minus 0.25% personal injury discount rate. But as we approach the review date in 2024, tentatively expecting a better rate, we've included some sensitivities. We continue to see improvements related mainly to bodily injury claims on the older years, though the more recent years have been stable, as you can see. Now on the right hand side, the booked reserves close the half year at the upper end of our accounting policy range. As flagged, we've moved that percentile down slightly from the 95th percentile at the start of the year to the 94th percentile at half year. Reserve releases are still an important contributor to profit, and we expect this to continue absent any major claims shocks. Moving now to look at the half year capital position and the interim dividend. And firstly, on the top, this is the capital position, 182 percent, slightly higher position than at the full year, and it remains very comfortable. The level of surplus in pounds millions has increased. As you will have seen at the end of June, we successfully refinanced our tier two capital. We increased the size to 250 million and bought back most of the 2024 maturing bond. The movements from full year 22 to half year 23 are set out in the appendix, and that broadly shows half one capital generation offset by the interim dividend, and the impact of the new tier two partly offset by the impact of a higher capital requirement, which results from growth. If, as we're currently seeing, the business written in the second half is more profitable again than in the first half, we would expect capital generation in the second half to be larger. Most of you, I think, will be familiar that we also track and report solvency under the PRA-approved capital add-on, as opposed to the numbers here, which feature an updated add-on, which takes account of the latest balance sheet and risk positions. At our request, the PRA has agreed to reduce that approved add-on from just over 80 million to closer to 20 million, which is a significant reduction. And so there is now a smaller difference between the updated numbers you see on this slide and the regulatory-approved solvency ratios. There's no news to report on internal model development where work and regulatory engagement continues. And then on the bottom of the slide, the dividend information. The interim dividend, as I mentioned, is 51 pence per share. That's equal to 89% of the first half post-tax profits in line with our usual practice. I explained earlier the reasons for the change period on period despite the flat, basically flat payout ratio, as you can see on the slide. And again, there's no change in dividend guidance. To summarize a few of the key points from the first half, firstly, strong claims inflation continues to impact the reported results as the profit on the lower margin 21 and 22 underwriting years is recognized. Our response, mainly in terms of substantial rate increases, means much improved profitability on the 23 underwriting years across our businesses. But in the very short term, the accounting results will continue to be influenced by those 21 and 22 years. We've seen stronger levels of rate increases in various markets in the first half, and we expect this to continue through H2 at least. And as usual, we report a strong solvency position. We've successfully refinanced tier two capital, and we're paying out nearly 90% of the first half profits. Over now to Christina to talk to us about the UK.

Thanks, Mr. Jones. Good morning, everybody. I am going to cover the results for our UK insurance business, starting with the highlights. In 2023, so far we have seen inflation, which has remained very high, and we have seen very strong price increases, both in the market and in Admiral. And this trend applies to our both products, to the household and motor markets. Now, interestingly, the impact on the size of our book for those two products have been quite different. So in the case of motor, we decrease year on year our book size by 7% and 3% compared to the end of last year. And in household, we grew by 14%, mostly helped by retention. Our price increases starting from last year are feeding through our average premiums, and you can see strong increases in our turnover for both products. For the rest of the year, we expect a continuation of these trends, price increases for both Admiral and the market, and hopefully we might start to see costs stabilizing. And then finally, consumer duty is life. Became into effect a couple of weeks ago. In the Admiral, we're very committed to delivering good outcomes to our customers and to offer fair value products. So we don't expect any significant financial impact from this reform. Now let's move to pricing. Let's start with the market. In the first graph, you have market data. In blue, ABI, which includes new business and renewals. And in red, the confused index, which focuses on new business prices on price comparison. As you can see, the market started increasing prices in the second half of last year, but there has been a clear acceleration of price increases as H1 has progressed. Particularly relevant are the increases that we have seen in Q2, as shown by the confused index, and also good to see that in July, price increases in the market have continued to be quite strong. All in all, looking at Confuse, the price increases in the first half of the year have been 23%. In the second graph, you have Admiral Time Stop. Just as a reminder that what this graph shows is the percentage of times where Admiral was cheapest on price comparison. And we index this to January 22. Now, as you can see, we started increasing prices quite strongly from April last year, and we became much less competitive. What has happened since the end of last year is that as the market has started to do significant price increases, our competitiveness has improved. This explains why we shrunk by 7% if you look year on year, but less when you compare to the end of last year. Now, a key question that you might be asking is, when are we going to go back to growth? Good news is that in the past few weeks, we are seeing our number of customers in motor stabilizing, so we expect to return to growth in the near future. Now, exactly when, it's hard to tell, and it will depend on what the rest of the market does with prices. We will continue putting prices up to account for inflation. So let's now take a look at the motor claims. And let's start with frequency. The graph on the top is road usage. Interesting, in the past few months, we're starting to see very similar levels of miles driven as we saw pre-COVID. However, frequency remains lower than before the pandemic. Two key reasons. First is the impact of the WIPLUS reforms. And secondly, is that we still see less claims during peak hours. Moving now to damage inflation, it remains quite high. You can see in the first graph on the bottom how prices have continued to increase. And if we do a bit of a dip down into the reasons for this, Definitely repair delays. There is still some pressure on market capacity. Labor costs have been increasing. Also, when you look at credit hire costs, because these claims are taking longer, we're seeing higher costs. On the good news, parts availability is becoming better, which helps. is these repair delays, and also second-hand car prices have started to stabilize, as you can see in the second graph on the bottom. And finally, there has been an increase in theft in the market, although it remains a small part of claims. And then in terms of bodily injury, quite stable. When you look at the claims that have settled in this first half of the year compared to last year, we don't see significant changes. But a couple of things to take into account. First, in terms of a small BI, we still wait for the resolution of the court case. on mixed-in-year settlement, and we expect this at the beginning of next year. And secondly, in terms of large bodily in-year, they are developing as expected, but we hold some prudent reserves to take into account for a possible increase in wage inflation. And finally, in terms of the Ogden rate, not further news. We expect to know more in the next 6 to 12 months as we think the rate will be decided at the end of 2024 or beginning of 2025. And then taking everything into account, it's quite pleasing to see that despite all the challenges, admiral claims cuts continue to be better than the market. Now let's move to our household business. We recently celebrated our 10th anniversary since the launch. And in this period, average premiums have remained flat. So basically, when looking at the ABA data, the average premium in the first half of 23 has been the same as in the first half of 2013. So this puts into context how pleasing it is to see finally clear increases in the market in 2023. Overall, and according to the ABI, prices in the market, or sorry, premiums in the market have gone up by 10%. The rationale for this, inflation, very strong and very clear. The second one is freeze events and weather last year. And then the third reason, we believe, is the impact of the FCA JEEP reform, which puts pressure, especially on renewal premiums. In this environment, Admiral has continued putting prices up. We started in the second half of last year, where we increased about high single digits. And this year, in the first half, we have increased prices even more, around 20%. And despite this, we have been able to grow help by retention, which continues to be above market levels, and our multi-proposition. As mentioned, inflation for household has continued to be high. And also there are pressures on our supply chain and the market supply chain. Partly a bit more pressure has come from the freeze event. And there are still a lot of claims that need to be settled. So. What I want to say is in terms of profitability of our household book, we have seen good profits this first half, but that has been mostly influenced by one of profit commission coming from the commutation of our reinsurance agreements. And then to finalize, let's take a look at our expectations for the rest of the year. As I said, continuation of similar trends in terms of prices. Admiral will continue putting prices up in household and in motor, and we expect the market to continue doing so. As I said, growth, we hope to continue to see strong pricing increases in the market, which should help the Admiral Motorbook go back to growth. In terms of underwriting performance, we are growing our confidence that for both products, 2023 loss ratio will be better than 2022. And then in terms of inflation, as I said and held by the CPI news this morning, we expect to see costs starting to stabilise. So this is it for the UK insurance results. Just a reminder of our core principles. We maintain pricing discipline and we will continue doing so, prioritizing profit over growth. And secondly, we hold a very prudent approach to our reserves. And now over to Kosti to talk to us more about our international results.