Admiral Group posts robust H1 2024 results, turnover up 43% By Investing.com

Admiral Group (LON:) PLC (ADM.L), the UK-based insurance giant, has reported a significant uptick in its financial performance for the first half of 2024. The company’s turnover saw a 43% increase, while its pretax profit grew by 32%. A key contributor to this growth was the addition of over half a million motor policies, particularly in the UK motor insurance sector, which leveraged

Admiral’s competitive pricing on comparison sites. The insurer also reported a profit in its US operations and is exploring strategic options for its Elephant business. Despite mixed results in international markets, Admiral continues to diversify its portfolio and strengthen its technical capabilities with data and AI advancements.

Key Takeaways

• Admiral Group’s turnover increased by 43%, with a 32% rise in pretax profit in H1 2024.
• Over 0.5 million motor policies were added, with the UK motor insurance business being the primary growth driver.
• The US business turned a profit, and options for the Elephant business are being considered.
• Diversification efforts in household, lending, and pet insurance are progressing, bolstered by the More Than acquisition.
• The company is enhancing its core competencies with predictive AI and machine learning.
• Admiral’s climate targets have been approved, aiming for a 70% emission reduction by 2030.
• The interim dividend has been increased by nearly 40%, with a strong solvency ratio of just under 200%.

Company Outlook

• Admiral is committed to diversifying its portfolio, with a focus on household, lending, and pet insurance.
• The acquisition of More Than aims to significantly increase market share in household and pet insurance.
• The company is investing in enhancing its technical capabilities through data and technology.

Bearish Highlights

• International business recovery has been slow in Europe, with a loss reported in Italy due to higher court settlements.
• Inflation and market volatility have been observed, although a slight improvement is expected in the latter half of the year.

Bullish Highlights

• Admiral’s UK motor insurance business continues to grow robustly.
• The US business has shown a marked improvement, reporting a profit in the first half of 2024.
• The company anticipates further improvement in loss ratios and stable ratios for previous years.

Misses

• Co-insurer profit commission was lower due to high booked ratios in previous years.
• The risk mix in the UK motor book has evolved, introducing some uncertainty into loss ratios and pricing for the second half of the year.

Q&A highlights

• The company is assessing options for its Elephant business and focusing on long-term setup.
• Admiral Group expects strong absolute reserve releases moving forward.
• The internal model pre-application process is ongoing, with feedback expected by year’s end.
• No specific plans for future M&A were disclosed, but the recent acquisition of RSA’s direct home and pet business was highlighted.
• The company is awaiting more information on the Ogden discount rate before updating pricing reserves.

Admiral Group’s performance in the first half of 2024 paints a picture of a company that is not only growing but also adapting to the challenges and opportunities of the insurance market. With a strong financial base, a commitment to innovation, and a diversified portfolio, Admiral appears well-positioned to navigate the evolving landscape of the insurance industry.

Full transcript – None (AMIGF) Q2 2024:

Milena Mondini: Good. So welcome, everybody, to Admiral 2024 Half Year Results. It’s another year of strong results, combined with sustained growth, increased margins and continuous progress against our strategic objective. I’ll start with the key highlights, followed by Geraint, Cristina and Costantino, who will tell us more about the key financials. UK Insurance and International business, respectively. Scott, Admiral Money CEO, is also in the audience if you want to grab him after the presentation and ask him questions on our lending business that had another very strong semester. So, last year, we celebrated our 30 years anniversary. Soon we’ll be celebrating our 20 years anniversary on London Stock Exchange. It has been a story of profitable growth with 10 times the number of customers and GBP5.6 billion of dividends shared with our shareholders since closing. And this is a story underpinned by a mix of technical competence, agility but most of all, a unique culture. Six months ago, we anticipated to be in a good position to capture more market share and margins. Today we report 43% growth in turnover and 32% in pretax profit. Customer number increased 12% year-on-year to an 8-digit figure of 10.5 million. UK motor insurance is the main driver of both these achievements, leveraging on a stronger and earlier response than market to inflation. We’ve also improved results in International business, but with a different mix than previous years. Beyond motor, we are continuing to build on a strong momentum and growing contribution to the bottom line. We made good progress on our strategic agenda too. We are strongly capitalized with a solvency ratio of 198%. And looking ahead, we continue to be in a good position in a softening market with inflation still elevated but reducing. As already mentioned, UK motor insurance was the biggest driver of our improved performance. In the last six months, we added more than 0.5 million motor policies to our book, leveraging on strong competitive position on price comparison site. This, combined with substantially higher average premiums, resulted in turnover growth over 50%. As price and inflation decrease, the market is becoming more competitive, and we expect slower growth in the second half. Overseas, our results were mixed. In Europe, the market is taking longer than UK to recover. We believe anyhow market condition will improve, and reiterate our confidence for continuous profitable growth in the future. In Italy, there has been a higher-than-anticipated increase in the court values of reference for BI settlement. This impacted ConTe results that reported a small loss for the first time in the last 10 years. The team adopted a prudent approach in reserving and we expect to return to profitability soon. On the other side, very strong performance in France, increasing margins and growing to more than 0.5 million customers. Spain continued to make good progress, too. Last, as a result of strong focus on loss ratio and expenses and strong execution of our Elephant team, our U.S. business reported a profit in the first half. In terms of the way forward for Elephant, we are considering the right outcome for the business and our team, and will update you as soon as possible. But in the meantime, we remain very focused on protecting the bottom line. Looking now beyond motor, diversifying our portfolio is very important to us, not only to improve the resilience of the business to external trends but also to better support the customers and to strengthen the core business. Customers with more product indeed have higher persistency and substantially higher lifetime value. Let’s take a closer look at our more established business, in UK beyond motor, so household, lending and pet — sorry, household, lending and travel. In the last two years, we almost doubled the turnover from GBP160 million to GBP310 million, and added almost one million customers. They delivered jointly GBP18 million of profits in the last six with around 6% margins, while growing at the same time almost 40% year-on-year. Cristina will tell us more later about the progress in household. Admiral Money also had a positive half year, proving its ability to adapt across different market conditions, and continue to be on a strong path for further growth and increasing profitability. Our main focus looking ahead is on unlocking more commercial and pricing synergies with a single view of the customer and for the customer. At the same time, we continue to grow our younger business, like pet and small business insurance. Pet almost tripled customers in the last year to more than 100,000, and we are continuing to focus on transferring technical competence from the core to these newer lines of business. More Than acquisition has now been completed and we are happy to see how the teams are working together, and now we are starting the integration phase. This transaction has the potential to bring us close to double-digit market share both in household and pet. For context, it took Admiral 17 years to reach the same goal in motor. So as mentioned, we continue to make progress at pace on our strategic objective. Just a few examples here, I already touched on diversification in the previous slide. We continue to stay close to key trends in mobility. Our electric vehicle book continued to grow and perform well. We’ve also continued to evolve our offering for temporary insurance subscription for the younger generations with our Veygo brand. And we signed a partnership with Flock to bring real-time risk management to fleet insurance. Our foundational pillar is Admiral 2.0 to evolve our core and technical competence, leveraging our new data and technology. We are massively proud of how much we evolved our capabilities in the last three, four years. Our focus now is on unlocking the benefit of scale agile implementation for faster delivery and an investment done in data foundation, mainly for predictive AI applied to pricing and underwriting. We doubled indeed the number of machine learning models released, and having seen the strong benefit of new pricing model in UK, we’re implementing it in our European business too. Next frontier will be Gen AI where we’re training, testing, learning and moving in production successful pilots. Overall, we feel we have a very efficient flexible platform to continue to evolve our business. But as you can see in the slide, anyhow, at the core of our strategy is our customer and our people. So we’re very pleased to continue receiving great feedback from our customers with top two place in Trustpilot score across UK and Continental Europe and the Net Promoter Score across the Group over 45. Our people and culture remain the key competitive advantage of the Group, with recognitions such as Great Place to Work in all geographies, and additional awards for well-being, diversity and innovation. Our targets for climate change have been approved by SBTi and we confirm our commitment to reduce emission for Scope 1 and 2 by 70% by 2030. I’m pleased to report that a few days ago, our MSCI rating also improved to AAA. And to Geraint now to deep dive in our key financial results.

Geraint Jones: Thanks, Milena. Good morning, everyone. So I’ll cover some of the main features of the results from a quite positive first half. I’ll look at some of the highlights, the Group and UK income statements, the key loss ratios, very healthy half year, capital position, and an increased interim dividend. These are some of the highlights to start us off. As you’ve seen, profit was up quite significantly. We see continued positive back-year development, a materially better current year combined ratio, and higher net investment income. Pretax profit and earnings per share were both up around a third 3 to GBP310 million and 77.5p per share. Solvency remains strong, just under 200%. And we’re declaring nearly 40% increase in the interim dividend to GBP0.71 per share following our usual approach to dividends. Return on equity increases nicely to 45%, in line with the increased profits despite some growth in the equity as the businesses grew. On the bottom, we show the main turnover and customer metrics. Turnover in UK motor and home was up very strongly. In motor, we saw a combination of a further increase in average premium, coupled with strong market share gain in H1. And a similar — a slightly less dramatic story in home. Outside the UK, we saw modest reductions in turnover and customer numbers as price increases impacted volumes. And in Admiral Money, our loans balances were back in line with the level of a year earlier. In aggregate across the Group, customer numbers were up 12% and increased by more than 1 million over the last year to 10.5 million. As usual, we’ll cover these metrics in more detail as we move throughout the presentation. Moving now to look at the positive first half profit. This slide shows the results by business versus the last H1. Starting in the UK where we see the biggest change, motor profit was GBP60 million higher, I’ll cover that shortly. Home profit was up to GBP11 million with an improved current period combined ratio and positive reserve releases. And remember that effectively all of the H1 profit last year was a one-off reinsurer profit commission. And so the improved performance is bigger than it seems. Turnover was nearly 40% higher, and good growth in Home continues. Across the international businesses, the total results improved by just under GBP10 million, though the mix was a bit different, as you can see. Starting in Europe, the result there was impacted by a disappointing loss ratio in H1 in Italy, a big part of which was due to the update to the Milan Court tables, which govern most injury claim settlements. The net impact of that was around GBP12 million. ConTe made a loss in the first half. More positively, L’olivier in France grew turnover quite nicely, and the motor business more than doubled its profit. And in Spain, the business continues to grow and diversify distribution, whilst the P&L was near breakeven. Positive performance. Moving to the U.S., the Elephant result was significantly better than in H1 ’23, our team very much delivering on the objective to materially improve the bottom line, though the business is smaller. Admiral Money enjoyed another positive six months, making a profit of around GBP7 million. It’s more than double last half year. Loan balances grew again in the first half after reducing in H2 last year. And all is generally very satisfactory, good cost/income ratio, positive arrears trends, prudent credit loss provisions. Further detail is set out in the appendix. The loss from Admiral Pioneer more than halved, as the result in Veygo improved whilst that business continues to grow impressively. And we continue to invest modestly in Admiral business. There are some notes on the page on the right-hand side on share scheme costs and the other items. And as usual, we include a fuller breakdown of the other items in the appendix. And we do call out one or two nonrecurring items, as you can see. Next, we’ll look at UK motor in more detail. So this is a summarized income statement, observations on the main changes. Firstly, as we saw earlier, turnover was up very significantly, and that results from a combination of higher volumes and much higher average premiums. Secondly, as the investment portfolio is reinvested at higher yields, we see a further increase in the average rate of return on the assets, just under 4% for the first half but also higher discount unwind, which partly offsets. Third, co-insurer profit commission. The lower amount this half is mainly because we’re not recognizing profit commission on ’23 or ’24 years yet. And that’s due to the still high booked ratios on ’21 and ’22. And then on to the ratios. We see good improvements in the reported loss and expense ratios, and that’s predominantly driven by higher premiums offsetting the high claims inflation of the past couple of years. And then on the bottom right, we show the split of the reported loss ratio into the current year and the releases. And it’s quite a notable change here with a significantly lower current year ratio versus last half. And then despite being quite consistent in absolute terms, the contribution in percentage terms from releases is lower because of the much higher premiums. Let’s look in a bit more detail at UK motor loss ratios. Here we show our usual two charts, both on an underwriting year basis and they’re discounted, best estimate on the left, booked on the right. And we show the undiscounted ratios here in the appendix, and they show consistent movements. My observations would be, firstly, we see very good improvement in the best estimate of ’23. That’s in line with our expectation for that year in this half given the pattern and the scale of the rate increases. And the book ratio has also moved down, and we expect further improvement to come in ’23, possibly not to the same extent that we saw in the first half, which was very strong. Years before 2023 have continued to develop in line with our expectations. And 2020 and prior underwriting year should now be quite stable. Quick word on 2024, obviously, it’s quite early to comment on 2024 but you might observe on the right-hand side in the bullet that the first booking on that year is quite low. Don’t extrapolate from it. It’s likely to increase in the second half. And actually, right now, based on what we see today, we don’t expect much difference in the ultimate loss ratios for the ’23 and the ’24 underwriting years. On severity, we see signs of it easing in the first half, but we don’t expect big changes this year. We haven’t changed our view of ’23, and we expect high single digit inflation in the first half of ’24. Cristina will cover more on claims trends shortly. We have held the level of risk adjustment in the booked reserves flat at the half year, in line with ’23 yearend. And so we still sit in the upper end of our policy range. That’s a very prudent position. And then finally, reserve releases, as I mentioned, in absolute terms are strong, quite comparable with the first half of ’23. And as usual, all being well, we expect significant releases to continue, including from some gradual reduction in the risk adjustment strength. The percentage though is very likely to be lower than in past years because of the very large increase in premiums. Moving now to look at capital and dividend, on the left, we show the bridge of the solvency ratio from full year ’23 to half year ’24. We see very significant capital generation in the first half due to the much improved current year performance. The impact of the higher capital requirement due to growth was around 25 points. As flagged, there was an 11-point reduction in the ratio as a result of completing the More Than acquisition. And then the final step is accounting for the interim dividend. And all that means quite a consistent and really healthy position at just under 200%. On the internal model, we have entered the pre-application process with our regulators. And that’s a positive step towards making the full application for approval in due course. And then on the right, these are the dividend details. We’ve declared a dividend of $0.71 a share. It’s about GBP230 million in total, and it’s roughly 92% of the first half profit after tax. And there’s no change to report on our approach to dividends. To wrap up with a few key messages from the financials. After a challenging couple of years for claims costs, our strong pricing response has led to much improved loss and combined ratios and higher profitability. In the UK, comfort with margins enabled us to reduce prices around the start of the year and take share. We’ve maintained a very cautious reserve position. And we end the half with a very healthy capital position having declared a 40% increase in the interim dividend. Over to Cristina now to talk us through the UK

Cristina Nestares: Thank you, Geraint. Good morning, everyone. I’m going to talk about the UK insurance results in more detail. Let me start by saying that we have had very good growth in all our products in the first half of the year. And having more products in the UK insurance is proving very positive for our customers. We’re seeing strong retention and very healthy year-on-year growth. Also for Admiral, having more data points per customer allow us to do a better risk selection. In this context, the More Than acquisition of the renewal rights for household and pet, I’m pleased to say it’s going well. We have welcomed our 300 new colleagues at the start of the year, and we have started with renewing these customers. In household, we started a couple of weeks ago, and in pet, we will start in a few days. So as you can tell, very early days. Moving to motor pricing, for the market, we have included two graphs at this time. The first graph, in blue, this is ABI data that includes new business and renewal premiums. And the comparison that we’re making is year-on-year. The second graph, it’s for Confused. It only includes new business prices, and the comparison we’re making is quarter-on-quarter, to be able to show you better the trends we’re seeing in the first half. So as you can see, the Confused data indicates that prices have started to decrease in the first half of the year. The graph on the right, that is a graph that we show many times, it’s time stopped, which is the percentage of times we are cheapest on aggregate, and it’s indexed to the beginning of 2022. If we start focusing on the second half of ’23, the market continued to increase its prices while we remained broadly flat. And that made us or allow us to become very competitive. Also, at the start of the year, we decreased rates by mid-single digits, reflecting improved claims experience. And then from March this year, we’re seeing competitors decreasing prices when we have stayed broadly flat, which meant we are becoming less competitive. Also, it’s worth to highlight that the growth in the first half has been helped by strong retention and also by a very healthy new business market. Let’s now move to motor claims, and start by looking at the different aspects of damage inflation. In terms of frequency for the market, it continues to be around 10% to 15% below pre-pandemic levels. Even though when you look at miles driven, it’s already very close to where we were before COVID. The reasons why frequency is small is they are three. The first one is increased technology in vehicles. It’s a constant trend that we’ve seen for many years, but uses frequency. The second one is a change in driving habits. And then the third one, it’s the Whiplash regulation, which has reduced the frequency for small BI claims. In terms of claims inflation for the market, it remains elevated, although we’re seeing certain signs that it is softening. For example, secondhand vehicle values have reduced in the last 12 months and have now stabilized. In terms of repair inflation, it also remains high, but it has reduced slightly, thanks to increased repair capacity and parts availability. For the future, we expect repair inflation to continue high as vehicles increase the technology. And then for Admiral, our repair network is performing very well and is helping us to further strengthen our advantage versus the market. Moving to bodily injury. Inflation is in line with our expectations and is largely restricted to increases to pain and suffering awards. We were pleased with the Supreme Court decision on Whiplash and it was within our forecast. So we made no changes to our reserves. We hope settlements will increase given that we have now more certainty. We also anticipate an uplift in the Whiplash tariff in the coming 6 to 12 months. However, this will need government regulation — sorry, legislation. Also, we expect Ogden clarity by no later than January ’25, but we have not adjusted our reserves or our prices so far. And we continue to monitor large BI trends, particular commercially care cost and increases to general damages. And we remain prudently reserved for potential inflationary pressures in this area. And now a few words on total loss. In line with the FCA multi-firm review on these claims, we have been reviewing and refining our processes. The work is still ongoing but we don’t expect it to have a significant impact on our accounts. And we have included an appropriate provision in our H1 results. Let’s move to the household business, the market has started to see elevated inflation already in ’22, driven by increases in the cost of raw materials. And that was — there was even more pressure because of the freeze event in December ’22. And that put a lot of pressure in our capacity for those claims, but also for the cost of freeze claims — sorry, for the claims, which are similar, like escape of water. The market responded by increasing rates after a long time of being broadly flat, leading to elevated levels of customer switching. Admiral increased rates slightly ahead of the market both in ’23 and in the first half of ’24. And despite these strong increases, we continue to grow with a strong retention. We’re very pleased with the development of our current year loss ratio. It has improved six points year-on-year driven by higher premium earnings through and weather development. And all of this has resulted in a good profit of GBP11 million in the first half, and it puts the household business in a strong position for the remainder of the year. Now to finalize, let’s look ahead, starting with motor. We’re seeing prices to continue to decrease in the market in Q3, and we expect this trend to continue. However, it’s hard for us to tell for how long as we’re seeing different strategies across competitors. For Admiral, we expect to continue growing for the rest of the year but at a lower rate than in the first half. We’re comfortable with our current margin, and we’re very happy with the business we have retained in the first half. We will continue, as always, monitoring trends in our own claims development and also in the market, and adapt our rates accordingly. We anticipate that inflation could improve slightly over the second half, however, some volatility still remains. And for household, during the second half, we expect both market and Admiral to increase prices, although at a slower rate than in the first half. Our pricing as in motor will continue to reflect inflation, our internal and external views, weather and other factors. And we expect inflation to remain high in the second half but to slow down a bit, always subject to weather uncertainty. As always, we remain focused on pricing discipline, prioritizing medium-term profitability, and maintaining a prudent approach to claims reserving. And now over to Costi to talk to us more about our International results.

Costantino Moretti: Thank you, Cristina, and good morning, everyone. In Europe, we experienced lower motor profits driven by the deterioration of loss ratios in Italy during the first half of this year. However, at the same time, we have seen positive momentum in France, with a solid performance from L’Olivier, demonstrating accelerated profitability. And in Spain, with Admiral Seguros approaching breakeven. I’m pleased to report that our focus on efficiencies and expense management is paying dividends, as reflected in improved expense metrics. We continue to invest strategically in digital, data and analytics, which is enhancing our competitive position. Moreover, we are making good progress with our diversification strategy in intermediary distribution in Italy and in Spain, as well as in household insurance in France. As anticipated in our last meeting, we are targeting the second quarter of 2025 for our in-depth presentation of our European businesses. More logistical details will be communicated in due course. In the United States, we have seen a significant improvement in performance, driven by a strong execution and a focus on margins. Moving to the next slide, let’s discuss our European businesses. We have navigated the economic cycle with diligence, increasing prices ahead of both competitors and inflation. As a result, we have seen a slight reduction in our customer base, alongside solid growth in turnover, reflecting our commitment to protecting margins over pursuing pure growth. While we observed improved inflation trends, the market remained competitive and challenging. Starting with Italy, it’s important to briefly provide some context. The market has faced severe challenges reaching the negative peak of the cycle over the last two years. The drivers of this poor market performance include the record-low average premium reached post-COVID, which has recovered more slowly than inflation, and the new guidelines for BI claim settlement costs issued by the Milano Court on June 24. In this context, ConTe has materially outperformed the direct market but it has not been immune to this unprecedented situation. As you can see in the chart at the bottom left of the slide, we have taken a conservative reserving position and also strong actions with double-digit rate increases and portfolio penetration, and we are seeing our average premium grow strongly and faster than the market one. Therefore, we are confident that ConTe will recover its profitability over time, leveraging our proven competitive advantages that have made the business profitable every year for the last decade. On a positive note, higher profits from L’Olivier have resulted from strong loss ratio performance as price increases done in 2023 took effect, with customer numbers up 10% to over 0.5 million. We are also continuing to invest in our household product, aiming to build a solid direct-to-consumer multiproduct business that is well recognized and appreciated by our customers. In Spain, Admiral Seguros had a positive first half, progressing towards breakeven, thanks to sustained rate increases over the last two years, continued direct business profits and significantly reduced losses on new investments in brokers and partnerships. Overall, our focus on efficiency continues to pay off with motor customers per full time employee up 3% year-on-year despite a decrease in customer numbers. Finally, we have made good progress in our tech and data strategies, enhancing our competitive positioning in digital and analytics, with the goal of reinforcing risk selection and portfolio management capabilities, as well as gaining more efficiencies while better serving our customers. In conclusion, we are pleased with the overall progress made. Despite short-term results being impacted by tough market conditions in Italy, we remain confident in the potential of our European business to deliver meaningful returns to our shareholders. Moving on to the next slide, let’s discuss Elephant, our U.S. business. As Milena mentioned, we are continuing to prioritize margins over growth. Elephant has shown materially improved performance by focusing on pricing, underwriting, claims and expense management. The U.S. market has seen continued easing of inflation but increased competition has driven direct market acquisition costs up. For the first half of ’24, we achieved a profit of $3.8 million compared to a loss of $12.8 million in the same period last year. This significant improvement was driven by price increases implemented in 2023, which are now taking effect, along with continued cost discipline, better risk selection and strong execution. Despite adverse top line performance due to reduced competitiveness and lower advertising spend, we remain focused on maintaining margins. Thank you. And I’ll hand over to Milena for the wrap-up.

Milena Mondini: Good. Thanks, Costantino. So to summarize, another set of strong results with record turnover, record customer number and improved margin. Once again, we demonstrated agility, effective management across the cycle, anticipating market pricing strategy and taking market share at the right time. We’re building optionality for the future with new line of business growing profitably. We continue to strengthen our foundation for lean delivery and improved customer experience. We remain prudently reserved, strongly capitalized and well positioned for the future as uncertainty remain and our core market become more competitive. Our strength is our culture, and I’d like to take this opportunity to thank Admiral crew that delivered these excellent set of results. So thanks a lot. That’s all from us for now, and we’re very happy to take any question. Please try to limit to two, actually do limit to two, and press and hold the button while talking. I think we first need to hold and press the button while talking. We also have people connected in video. We’ll get there. We start from the room.

Q – James Pearse: Sorry for — sorry for breaking everything [ph] in here. It’s James Pearse from Jefferies. Congratulations on the results today. So first question is just on the written expense ratio. That was 15.5%, with your operating leverage improving. I guess, is there room for that to go down even further as you continue to grow? Or is that kind of a good level to think about going forward? And second question is on the quota share results. So reinsurance recoveries have unwound on 2021 to 2023 underwriting years. Has your 2021 reinsurance mostly been commuted now? I’m just wondering whether you expect that to be a drag on earnings — whether you expect that drag on earnings to be a feature of the P&L in the near term, particularly on the 2022 underwriting year. Thank you.

Milena Mondini: Thank you, James. Geraint, you want to–?

Cristina Nestares: I’m happy to take the first question if that’s okay.

Geraint Jones: You go ahead.

Cristina Nestares: The expense ratio has reduced mostly because of increasing premiums. Actually, the absolute expenses have increased. We continue to increase our investment in areas like technology, automation, analytics, and it should bring some efficiencies. But I do not expect the expense ratio to decrease from this base.

Geraint Jones: On quota share, most of the contracts up to it, including ’21, have been commuted now, I think. So you see in the accounts, we show you a table of breaking down the quota share results into underwriting years, and we show you the remaining asset by underwriting year, which I think is quite useful. So the most significant asset, as you can see is in ’22. And so as we reduce the loss ratio on that year towards its ultimate, that will be — we will unwind some of the assets. And I strongly dislike the drag on earnings comment but they will be a charge to the P&L. On ’23 and ’24, you can see slightly different patterns. So ’23 has got a small asset because of the book ratio on that year, and ’24 has got no asset because of the book loss ratio in that year. So I think — our expectation, I think, by underwriting year for the second half is a lower quota share charge, with ’22 being the main year that would contribute to it.

Faizan Lakhani: Hi, there. Faizan Lakhani from HSBC. I want to come back to your comment in the slides about comfort around the current margin. Given the fact that you still want to grow in H2, can I assume that means you felt that you overshot in H1? And effectively, what is the right level of kind of margin going forward for you? The second question is, in your report, you mentioned that you expect the 2024 underwriting year to develop less well than 2023. Just want to understand sort of the trajectory of that. Are you making a statement that there’s less prudence than 2024 year? And you expect, I guess, to end up at a higher point? To try to understand that. And the fact that given the fact you expect ’23 and ’24 to be at a similar level, does that mean the profit commission tranches are sort of the same level as 2023 going forward? Thank you.

Geraint Jones: Yes. I think what we’re talking about in ’24 is not a different level of prudence or anything in our estimate of the ultimate or the booking. It’s about the pattern of how it will develop. So ’23 underwriting year developed with increasing average premiums throughout its earning. ’24 will have a different profile because we’ve reduced the prices at the start of that underwriting year. So the second half of this year, we expect the right business at lower margins, higher loss ratios in the first half. And so in H2, we expect the book loss ratio to actually go up, and then start to reduce towards its ultimate over time. And what was the next part of question, sorry?

Milena Mondini: Comfort on the margin, what does that mean?

Geraint Jones: Do you want to take the right level of margin?

Cristina Nestares: Yes, happy to. So as mentioned, we’re comfortable with the business written in the first half. But as Geraint has mentioned, we expect in the second half that the loss ratio will increase partly due to seasonality increases in inflation. As I mentioned, we maintain our prices broadly flat since the second half of last year. And given the level of uncertainty of the total loss, whiplash, we always try to remain prudent and to take a good approach with the information we have had.

Milena Mondini: Thank you. Sorry, Freya, Bank of America.

Freya Kong: Thanks for taking my questions. Freya Kong from Bank of America. Can you talk a bit about how the risk mix has evolved in your UK motor book since it’s grown so much in the half? Are you nervous about these, I guess, fairly large shifts in customer segments? And just following up on Faizan’s question, how should we think about, I guess, if H2 as well as H1 in terms of margins, the exit run rate for 2024? Thanks.

Geraint Jones: I think the exit rate really depends on what happens with claims inflation and our pricing throughout the second half of the year. So I think it’s a bit early to call and we’ll respond and try, as usual, optimize profitability for the medium term by adjusting the rates as we move through. So it’s a bit early to comment on that, I think, at this point, six months ahead of it.

Cristina Nestares: And in terms of risk mix, the biggest change is related to the share of new business in our total book, new business and renewals. After GIPP, they have the same rate but they don’t have the same premium. Just to give you a very silly example. Everybody is a year older at renewals than they were at new business. So the average payment on new business is higher and we have a higher proportion given that we became more competitive. And secondly, that the new business market was particularly high in the first half. So that’s the main change.

Freya Kong: Thank you.

Ivan Bokhmat: Hi. It’s Ivan Bokhmat from Barclays. Thank you very much and great set of numbers. The first question, rather general. I mean having seen quite a few cycles right now, what do you think is different about this one? We’ve had the pricing reform, clearly, does that change anything dramatically for you, or maybe the cross-sell ability changes it differently? I mean any thoughts on how the competitors are acting, whether it’s rational, irrational, would also be quite helpful. The second question, just wanted to ask you about the — maybe some clarification on that 2024, booked loss ratio. So it’s 73% discounted right now. When you say it should be the same level as last year, are we talking about the first loss pick? Like last year, it was 86%. So are we normalizing to that level? And maybe the final one, just maybe another clarification on the — on how the releases by underwriting year come. If I look at the slide that you have there, it does appear that first half ’24 had a much higher share of recent years, like ’23, ’24, compared to prior years or full year as being more distributed. So any thoughts on that would be helpful. Thank you.

Milena Mondini: Maybe I take the general one, Geraint, and you going to — so in terms of the difference in this cycle versus the previous one, I think the main difference is that there was a consistence of a very strong external driver for the cycle. So inflation, we’ve seen unprecedented level of inflation, extremely high, not in the last 30 years at this extent. The impact on the combined ratio of the market has been extreme. So the jump in combined ratio of the market from ’21 to ’22, we have never seen something of that size. And that’s accumulated with COVID, and so there was some window of COVID and then the GIPP reforms. So we had three things at the same — happening at the same times that were driven by external factors that were not entirely in the control of the industries. And so what’s happened is that we’ve seen a cycle that is much sharper than usual. And then inflation in particular has a backward impact because it impact all your reserves. So it’s not only about adjusting pricing to expectation in terms of trends, frequency, severity and so forth or portfolio mix. It’s really about impacting reserves at the same time. So I think the main difference has been much more violent than we’ve seen in the past. I hope we’re going to — we’re not going to see the same situation soon. But I think the things together were quite powerful. If you look forward, I would say that probably the GIPP reform may have an impact of having software cycle going forward. Because when you rebalance new business or renewal price, there is an expectation in a normal situation to have a slightly higher retention in the market. So cycle may be slightly more soft because elasticity is much lower renewal in your business, so you change your board price, you have a slightly softer impact at the same time. In terms of behavior, I would say that because the impact was so strong, people reacted at different time with different extent, so we’ve seen a bit more less order reaction of the market and a bit different strategies also to react these events. So it has been more varied again than we’re used to see. I would say that’s probably the main things. And so we see different level of pickup in terms of price increase and price decrease. Our aim is always try to anticipate these trends, try to follow the data as close and as fast as possible, and so to anticipate pricing change versus market.

Cristina Nestares: Maybe if I comment on competitors, I think you were asking. Similar to what I said last time, we’re seeing very different strategies. Clearly, some competitors are putting more emphasis into growth. And we have been surprised by some of the intensity of the rating decreases since around March. Hard to tell if this will continue but I think growth appetite is clearly very different in the market.

Geraint Jones: And then the underwriting years. So 20 — the comment that I made was that ’24 and ’23 underwriting years we expect, based on a lot of caveats because we’re halfway through ’24 that they’ll end up in a broadly similar place on an ultimate basis. There’s no comment on the kind of early booking patterns. And they will develop differently because the patterns of average premiums going through those years. So there’ll be different patents, and they might well end up in a similar place. And then the pattern in reserve releases this first half, you’re right, ’23 did contribute a lot. I think that’s all related to the same reason. So we saw a very strong development to ’23 underwriting year in the first half of the year. And so the absolute level of release was strong, driven by ’23. We don’t expect that to fully repeat in the second half. And the pounds number releases in the first half was quite similar to last half 1 but quite a lot lower than last H2. And that’s because of ’23 releasing very strongly. So moving forward, you’d expect that to kind of normalize out, not to be quite so strong.

Will Hardcastle: Hey. Will Hardcastle, UBS. I fully appreciate it’s too early to comment too much on the exit rate. I’ll try for some assistance still. Cristina, you flagged something on seasonality. Just any quantum around that 2H, 1H normally? And then if we think prices were down mid-single digit at the beginning of the year, inflation is obviously probably around that, a bit higher. There’s a clear swing. And I guess could be looking at once we think about the claims weight on that, higher single digit — mid- to higher single digit. I guess all else equal, is that how we should be thinking about it with seasonality with that? But then is there any positive offset just thinking about that as well? I know that’s a long question, sorry. Second one is just thinking, is there any change in the rhetoric on the timing of when we might hit midpoint of that reserve percentile? Is anything different, anything deviating in your thinking there versus when you set out the full year?

Cristina Nestares: I’m not sure exactly what the question — the first question was. So I will try to comment a bit more about H1 and H2. I said seasonality. It’s clear there are more claims in Q4 than there are before. We also have Q1 but normally, from October, we see an increase and uptick in frequency. So in general, when you look at our past years, the book loss ratio in H2 tends to increase. And then as Geraint said, eventually, it hits a peak and then it starts to normally reduce, yes? So that’s the seasonality I was trying to explain. And you’re completely right. We did have a decrease in rates at the beginning of the year, and inflation continues to be elevated, even if it’s going to soften, it’s just a slight reduction. So margin will deteriorate. So we would expect the loss ratio to increase in the second half. But we see in August, it’s very early, we are seeing — we haven’t yet seen the Ogden for example, which would have an impact. There is some regulatory uncertainty around things like total loss and other activity. And we will change our rates when and how we think appropriate. Did that cover the first question or was there anything else?

Geraint Jones: I think it didn’t answer Will’s question exactly but it’s the answer we’re going to give him. Yes, I think that’s right. I think you sort of — we try and manage the cycle effectively and as we’ve done in the past. And comment on something that’s going to happen in a few months’ time, it’s just not what we’re going to do, I think. Risk adjustment percentile, yes. So we’ve kept it flat at the half year, and that’s mainly because of the growth in the UK motor reserves. It doesn’t signal any discomfort or concern with the level or what type of claims we’ve got. We’ve just opted to hold it flat. Over time, we expect that to come down and sit on average around the 90th percentile. I expect that to happen over a number of accounting periods and they get influenced by what’s going on in the book. So yes, no change in the philosophy.

Darius Satkauskas: Darius Satkauskas, KBW. Two questions, please. So the first one is, I noticed you didn’t include an expectation for forward inflation in the presentation. So what’s that number? And can you give some color on the second quarter versus first quarter policy count growth in motor? Did you manage to grow policies when you kept the rates flat or not? And then the second question is, you’ve been looking at different solutions for Elephant for, if I’m not mistaken, 1.5 years now. Could you just give a bit more color on what the comments mean? I mean is there anything in the pipeline? Is there something like a 1H event? Or is just a longer-term sort of review with nothing clear in sight? Thank you.

Milena Mondini: So what’s the first one? Sorry.

Cristina Nestares: I’m happy to take it. You asked about inflation, and I’m really sorry, I’m just going to repeat what we said, basically high-single digits, slightly softening in the second half. It’s just too much uncertainty to be more concrete. And just to give a reference, for ’23, we said it was 10%. So it’s a small, slight improvement. In terms of growth for the first quarter and second quarter, yes, you are right. I think we grew more in Q1 and Q2. Several things that happened. The first is new business market. So people trying to switch the number of quotes, it was bigger in Q1, prices were at the peak. And when you get your renewal notice and you have a big increase from the previous year, that’s when people shop. So very big new business market in Q1, weaker than in Q2. And then it was clear we increased rates at the beginning — sorry, we decreased rates at the beginning of the year, and when the market really started decreasing rates from March. So you see it in the graph, our time stop has increased, meaning our growth was bigger in Q1 and Q2. And I think this is important because when we talk about the remainder of the year, we expect this trend to continue. So we expect to continue to grow but at a slower rate.

Milena Mondini: On Elephant, we — you’re right, it’s been a period of time, we’re looking at option for the business. For us, it’s important to not rush on decision, do what is right for the business, for the shareholders and for the team. It’s not been an easy market but we are making progress. We’re continuing to look in it. And what really matters to us also is that the team delivered very well. So the business is not losing money. It doesn’t need more capital. And so we are focusing on continuing to protect the bottom line while continuing to assess what the right setup for the long term.

Derald Goh: Hey, it’s Derald Goh from RBC. So the first question is on your quota share renewals that 38%, I think is due to be concluded in Q3. Could you talk about the level of shares, it’s still at 38%. Because on one hand, I’m thinking the share of ancillaries have come down now, on the other hand the underwriting has gone up. So kind of like puts and takes and how did you arrive at the final number, if you can share that now. The second question, could you share what your current retention level is? And maybe also speak more broadly about your expectations for customer switching at a market level given that we’ve been in such a long period of switching? Is that going to be kind of a sticky behavior now even as the pricing cycle comes — softens at some stage?

Milena Mondini: So first question is on the ancillary contribution to profitability, Geraint you or Cristina wants to say on quota share.

Geraint Jones: First one I think was quota share. We’ve got 38% of quota share on the motor business, that is — some of that is expiring at the end of this year. Good progress being made on renewals, don’t expect a big change.

Cristina Nestares: I think, in terms of the market, what we have seen is when prices go up, people switch more. It’s very clear. So in terms of retention for the market, we expect that as pricing decrease, retention will increase. And that has the both sides of the same coin. So in our view, we have seen the peak of the new business market and it should decrease and retention should increase. Milena was talking about GIPP before. I don’t think we have yet really seen the impact of GIPP in retention and new business market size. If there are no more shocks, no more COVID or very big, unexpected inflation, then we should see the market to be much smaller in new business and bigger in retention. Just to highlight, given that we have the biggest book, a strong retention is something that we look forward to. Sorry, we don’t give those type of numbers. Apologies.

Milena Mondini: Good. And I think then we may go in the video.

Youdish Chicooree: Youdish Chicooree from Autonomous Research. My first question is on reserve releases. I think previously you were guiding to releases in the low 20s. With the higher premium base, we’ve already seen the effects in H1. So what is the new guidance going forward? And then secondly, on your solvency internal model. Can you talk a bit what this preapproval process looks like? I mean how long does it last? What are the actual objectives there? Would you get a very good clarity in terms of the likelihood of your model being approved or not? Thank you.

Geraint Jones: The first one was about releases. So we’d expect our written premium to broadly double between ’22 and ’24. So the denominator in that equation has just changed totally. So I would guide that we will have strong absolute reserve releases moving forward because of our reserving approach. But the number in percentage terms will be closer to 10%. Basically half but still significant releases to come through. And then the internal model pre-application. So that’s a process for the regulator. They takes a detailed look at certain parts of the application and certain parts of the model. We’d expect to get a good level of feedback on that by the end of the year. And then depending on what comes out of that process, obviously, we’ll determine what we do for next year and when the full application might follow.

Milena Mondini: Thank you. I think we take the last one, and then if there is anybody connected.

Faizan Lakhani: I just want to follow up on two other points that were made. One was on the PYD halving to 10%. But if your 2023 and 2024 underwriting year have a much bigger written premium base, I would expect the absolute reserve release to go up a lot for those as well. So I just want to understand how you come back to 10%. The second is on Solvency II. How do I think about capital generation in H2 given the fact that H1 is on a written basis, and how that sort of feeds through in H2? And I guess in relation to that as well, your sensitivity to UK motor loss ratio has gone up significantly. Given the fact, and your own admission, loss ratios are meant to come down. How much have you already factored into Solvency II on that front?

Geraint Jones: Reserve releases, 10%, this was a broad comment. I think actually 10% to 15% is a corridor, something like that. In ’23 and ’24 will be big reserve years, and we’ll have big reserve releases over time as they start to flow through, but the premium hits immediately, the reserve releases follow over time. This is a fair observation. Capital generation in H2 will be lower than H1, unless we see really strong back-year reserve releases, which also contribute. On a written basis, the business we write in H2, as we commented, will be lower than H1. All-in, we don’t see actually huge changes in solvency ratio, partly because we saw a 25% reduction this time because of the strong growth. If we grow less, you see less of a reduction. Final point, sorry, was?

Faizan Lakhani: Is on the solvency sensitivities, yes.

Geraint Jones: So when we — our Solvency II own funds and solvency balance sheet is based on best estimate loss ratios as we published in the back-year, tends to be some prudence in those recent years, as you know. So that will improve over time.

Milena Mondini: Thank you. I think we will have one question from phone.

Operator: [Operator Instructions] Now we will take our first question over the phone, and it comes from the line of Abid Hussain from Panmure Liberum. Your line is open. Please ask your question.

Abid Hussain: Hello. Good morning, everyone. I think I’ve got a couple of questions. The first one is on pricing. I appreciate you’ve sort of covered that to some extent already. Sort of two sort of parts to the question. One is sort of pricing and backwards looking over the year. So year-to-date, claims in force — has claims inflation for you, what you’ve observed, has that sort of fallen by 5%? And is that why you were able to reduce prices by some 5%? Or was it simply that you overshot in terms of the price increases that you put through in 2H of last year? So just that sort of nuance in backwards-looking piece, please? And then the second part of that is the forward-looking piece. How much do you think you could — so just sort of in a scenario analysis, how much do you think you could reduce your prices by further from here whilst inflation assumption is still running at 7% to 9%? So that’s the sort of pricing question. And then the second one is on — just a follow-up on the internal model. It feels like it’s taken some time to get to where you are in terms of the preapproval stage and you’re waiting for feedback. Just wondering why has it taken so long? Is it the sort of the complications of your business model, the sort of quota share, the reinsurance arrangements? Or is it just sort of lack of people power at PRA, so that note sort of life insurers, number of them have recently got approval on their internal models. So just wondering if that sort of bottleneck has started to clear up. And is that why you’re sort of more confident that you’re moving through that chain?

Milena Mondini: I’m going to briefly comment on the first one. On the pricing, if you look backwards, what’s happened is that already in 2023 — 2022 and 2023, we increased the rates quite fast to follow for inflation, the effect of unwinding in COVID and some final adjustment post GIPP. So we anticipated the market and that put us in the position onward the very end of last year to be able to stop increased price, that’s why we became a bit more competitive. Inflation was more stubborn than anticipated last year. So we have seen quite a substantial price increase and the market more or less aligned. What happened is that, as Cristina mentioned, there are some signs that inflation is slightly easing, with material damage cost, labor availability and some of the other elements. And so we started gradually to decrease price. It’s really a very day-to-day work, try to follow the trend as close as possible [Technical Difficulty] for evolution of the trends but also in terms of perspective view on the future in terms of inflation. So it’s continued adjustment. We’ve seen some possibility to improve the market share and to decrease price, and we are very happy with the margin we wrote in the first half, and we started again also in 2024 a bit earlier than the market. I don’t think we suggested that we’re going to decrease price further. I think, Cristina, mentioned that in Q3 we’ve seen the market is decreasing price as done in Q2, and is probably we expect this trend to continue for the market. But as for us, we’ll continue to follow the trend we see in our claims inflation and other external inputs. And the other question was around reinsurance and internal model.

Geraint Jones: So yes, internal model, I think it’s a good milestone. Our teams worked very hard to get us to that point. So I think it’s a good milestone to get into that with the regulator, working collaboratively with the regulator. And there’s no head count issues on either side, I would say. It has taken longer, and maybe I’ll point to two reasons for that. Firstly, we got some feedback from the regulator a couple of years ago that we needed to change some aspects of the model and the documentation. So we’ve been doing that. And the second point is that our business has changed. Since we started the model development program a number of years back, the mix of our business has changed. And so we’ve increased the scope of the model to bring in other lines, notably household, which wasn’t in the first part of the scope. And that takes some time. So those are the two reasons I’d point out.

Abid Hussain: Thank you.

Operator: Now we’re going to take our next question, and it comes from line of Anthony Yang from Goldman Sachs. Your line is open. Please ask your question.

Anthony Yang: Hi, good morning. Thank you for taking my questions. The first question is just on the Ogden discount rate. Not sure if you could comment on any expectation or view on the Ogden discount rate at this stage? And then the second one is on the M&A. So just given your acquisition on the RSAs direct home and pet business, how should we think about M&A, say, by lines or geography for Admiral going forward? Thank you.

Milena Mondini: I’ll briefly comment. On Ogden, a bit early to say, we expect news by Jan 2025, as Cristina mentioned, there are still discussion about the structure of the rate, if it’s going to be single or dual. So it’s a bit early to comment. As per us, we continue to be prudently reserved but we’re not—we didn’t take any change into account yet in our pricing or our reserves. So we will wait the outcome in a few months. And RSA, do you want, Cristina, to comment on RSA?

Cristina Nestares: I think there was like a broader question about M&A strategy for the Group, by lines of geography or lines of business.

Milena Mondini: Yes. So I would say, first of all, we’re very happy that what — how we see the team working together with the acquisition of More Than, and that gives us lot of comfort, but it is really very early stage. So as Cristina mentioned, just starting renewal. We will continue to be open to consider other M&A opportunity wherever fit very well with our strategy, so in the line of business and plays in countries in which we are expected to grow. And we want to grow. We’ll continue to consider it one by one and see if it’s the right fit, and for us, it’s the right choice compared to an organic growth. In terms of new geography, there is no plan for us to launch a new country as has been the case for the last 10 years. We continue to be focused on where we are and try to develop, particularly in UK, a multiproduct strategy, and to make the business stronger and more profitable elsewhere.

Anthony Yang: Thank you.

Milena Mondini: I think we’ll have more one, and then–

Operator: Thank you. [Operator Instructions] And we have a question coming from the line of Rhea Shah from Deutsche Bank. Your line is open. Please ask your question.

Rhea Shah: Hi, thank you. Just two questions left for me. So the first one, going back to the question around Ogden. I get that you haven’t adjusted your pricing or reserves yet for that. But do you think the market is pushing through anything for Ogden into pricing and that’s also contributing to price decreases in the market since March? And then the second one, on Europe. If we exclude the impact in Italy with the Milan tables, what do you think the underlying level of profit should do in the second half of the year and the outlook for that? And when do you think Spain will break even?

Milena Mondini: So thank you for the question. Costi will take on Italy. On the Ogden, it’s really not for us to comment what are the action in terms of pricing and reserving of our competitors. As we said, that we are waiting more news in the next few months. We’re in August, hopefully by January we’ll update our pricing reserve if needed at that point. Costi?

Costantino Moretti: So on Europe and on Italy, we have given in the slide an indication of the conservative reserving position that we have taken for the BI cost Milano tabled. And that is, I think, a good indication, although we have taken a conservative approach because the change has just happened in the last June. So you should not necessarily take this as a clear indication for H2, but I think the key message is there is that the actions we have taken, we believe, that we’ll earn through and will restore the profitability in Italy soon. And therefore, we continue to grow the business and the profit in Europe. And Spain, commented it’s almost at breakeven. So it’s very close. It’s almost there. And it’s a function of the increased profitability of the direct business and the reduced losses or investments in the new initiatives, meaning distribution diversification in intermediaries and the partnership with ING Bank.

Milena Mondini: Thank you. I think that’s it for today. Thank you very much for your time and attention and questions. And we’ll be around another than 10, 15 minutes in case you have more. Thanks.

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