Admiral Group H2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 6, 2025

There are 16 speakers on the call.

Operator

We're good to go. Smick on. Yeah. Great. Hello.

Operator

Hi. Good morning, everybody, and welcome to Admiral Group twenty twenty four results. We're proud to share with you another year of excellent results and progress on many fronts. I will start with an overview. Geraint will follow-up with more detail on financials.

Operator

Alastair Al Graves will today take you through our major business, UK Insurance. Alastair succeeded Cristina Nestares as UK Insurance CEO in October. He has big shoes to fill. His impact to date in his previous roles and knowledge of the business are second to none and is already on a great start. I'm also pleased to announce that Scott Cargill, Admiral Money's CEO also with us today, after he built such a strong business for Admiral, will be joining Alister team to lead our personal insurance lines of business beyond motor.

Operator

Pet, travel and household path like an alternative path to go and additional path to go alongside motor insurance. I'm proud that we continue Admiral's tradition of developing internal talent also in more seniors' roles as they build such a strong track records in their previous positions. We are in the process of identifying Skok's successor as a CEO of Admall Money. Constantino will present international results as usual. He will share a bit more insight than usual on Europe as we decided to postpone the deep dive on Europe that we anticipated at half year.

Operator

Going forward, we will run annual deep dives dedicated to one area of the business and this year we will start with The UK household insurance instead. Good. So 2024 was a remarkable year. Finally, after the pandemic, cost of living crisis, major regulatory changes and inflation spikes, the market has been more favorable with inflation reducing and more benign weather. We've been fast to react to market conditions and glad to be able to share with customers some of these benefits.

Operator

We reported 28% turnover growth as we increased our customer base by 14% and as average premiums were higher on average than 2023 across the board. We managed the business with discipline during inflation spike in 2022 and 2023. And as a result, started last year from a position of strength, able to reduce rates earlier than most and gain market share. Group profitability reached GBP $839,000,000, an all time high, driven by UK motor insurance that deliver close to EUR 1,000,000,000 of profits. We were proud to see the progress of other lines of business as well with two international countries, France and U.

Operator

S, and the two largest business in U. K. Beyond Motor, Admiral Money and U. K. Household, reporting all double digit profits.

Operator

At the same time, we continue to strengthen our capabilities, particularly in data and AI and successfully completed relevant technology projects. Softer market conditions are continuing in early twenty twenty five. We are well positioned, strongly capitalized with the solvency ratio over 200% and happy with the business we are underwriting now. We will continue to remain disciplined as always and adapt as needed. So a bit more color on 2024.

Operator

Great momentum with billion increase in turnover and million increase in policy number. Main growth driver was UK motor, particularly in the first half of

Speaker 1

the year with around million additional customers at the end of H1. But other lines of business in UK were material contributors too, with the progressive migration of more than customer in the second half. The integration is proceeding well. The teams are working well together and we are confirming our expectation for

Operator

the value creation of this deal. Outside UK, a mixed picture with robust performance in France and U. S. U. S.

Operator

Turnaround was a key focus of 2024 and we're very pleased with the results despite having to shrink our customer base there. Spain is also making good progress. Containsted had a tough year and reported a disappointed loss, mainly due to the challenging market conditions with high BI inflation for increase of BI settlement values of reference. Constantino will expand on this later. The team already put in place bold remediation actions and we remain committed and confident on the prospect of the business.

Operator

Regulation is a major theme in UK as well with a concentration of initiatives focused on motor insurance. Alister will touch on some of these later. The new government set up a task force in November to look at increase of average premiums in UK motor insurance in the recent years. We are collaborating to help identifying the drivers, mainly car technology enhancement and maintenance cost and cross sector initiatives to generate savings to pass on to customers. The good news for the customers and the task force is that premiums are already down since the task force was set up, reflecting easing inflation and the positive impact from the change in Ogden rate in December.

Operator

The U. K. Market is indeed extremely competitive and elastic and we're confident that we'll adapt well to any change as it's always been the case in the past. Our agility and performance track record leave us in a strong position with additional flexibility. Finally, we're proud of the turnaround of Elephant in 2024.

Operator

But as we anticipated, we were reviewing strategic options for the business and we now enter exclusive conversation with a potential acquirer. It's early day. I can expand more at this point and we will update you as soon as we'll have more to share. So before hearing more from Geraint on 2024, I would like to take you take with you a step back, a one forward to reflect on our journey in the last ten years and our future prospect. Here we are.

Operator

In UK Motor, in the last decade, we maintained an average combined ratio advantage versus market of around 20 points, while at the same time, materially growing the market with a CAGR of around 5%. The graph at the bottom of the slides show how we managed to grow across cycles, often with an acceleration at the beginning of a softer period as it happened in 2024. The profitable growth is underpinned by relentless focus on insurance fundamentals, technical competence in pricing, in claims and on improving customer service with no complacency and continuous investment in new data and technology to upgrade these capabilities over time. Thanks to this consistent outperformance of the market, we are able to secure stronger assurance agreements that enable our capital light business model. Our plan for UK motor is very simple, to continue to do the same across the next cycles.

Operator

In addition, another interesting growth opportunity is represented for us by the incremental retention of The UK Motor policies for customer that have more than one product with us. And as we will see in the next slide, this segment is growing fast. So looking now beyond UK Motor, it doesn't really work. Yes. In the last ten years, we built a book of 5,400,000 customers beyond UK Motor, roughly half of our group total today between new product lines and international countries.

Operator

These businesses have contributed with a turnover of 1,700,000,000.0. The investment has been limited and it's now delivering positive results. Our plan here is also straightforward and is to increase margins focusing the growth on the product lines and the market with higher potential when we have a proven competitive advantage and a clear right to win. Last year, the results of these lines of business combined was million with four business delivering double digit profits and good combined ratio as well. And two additional profitable business, Vago and UK travel.

Operator

But the positive results were partially counterbalanced by Conteloz's and investment in the younger business such as pet insurance. Looking forward, we remain confident in an increased contribution to our profit for this business and in container around. As just mentioned, we're also particularly excited about the increasing customer lifetime value as we develop our multi product strategy further. I also mentioned that continuous innovation and continuous upgrade of our data and technology capability is really crucial to our success. In the last five years, we renewed the key element of our tech stack, now almost entirely cloud based.

Operator

We implement scaled agile across the group, sharing learnings among countries and leading to a drastic reduction in release times and better quote quality. We extended adoption of predictive AI also beyond pricing. And this last year, we set the foundations to leverage more on Gen AI to increase efficiency across the group. We also continue to develop our motor insurance proposition to meet emerging customer needs and new trends. We're one of the leading insurer of electric fast

Speaker 1

growing

Operator

segment. Finally, our window fast growing segment. Finally, our window on the future, Vago, our brand for the youngest with innovative short term insurance and subscription offers growing once again for the fourth year in a row by more than 40%. Last but not least, very ingrained in our culture is a focus on long term sustainability of the business. Once again, we were glad to receive strong feedback from our customers and excellent engagement score from our 15,000 colleagues.

Operator

It has been a pleasure this year to reward the effort and the commitment of our colleagues that underpinned these results, not only with the usual £3,600 worth of share, but also in additional special bonus of $500 each. This year, we also achieve important milestones for our commitment to the environment, obtaining a AAA MSCI rating, having our science based targets approved and have you published our net zero transition plan. That's all for me for now. And to you, Geraint, to deep dive in 2024 results.

Speaker 2

Thanks, Melinda. Good morning, everyone. Okay. So I'll talk through some of the highlights and the main drivers behind this very positive set of results for 2024 for the Admiral Group. And to start us off, these are some of the usual group metrics.

Speaker 2

Pre tax profit was $839,000,000 or 90% higher. That includes the Ogden impact of $100,000,000 net of which profit would obviously have been $739,000,000 or an increase of 67%. Among the main drivers were much higher revenue and a significantly lower loss ratio. Earnings per share was around 217p. That's nearly double 2023.

Speaker 2

Return on equity was very strong at 56% on the back of the big increase in profit, only partly offset by the higher capital requirement. Solvency ratio remains very strong, so over 200%. And we followed our usual approach on dividends, which results in a full year dividend of a share. That's around 90% up on 2023. And that full year figure includes a a share of final dividend, which I'll cover shortly.

Speaker 2

Then the bottom half of the page shows the main metrics behind a year of very strong growth at group level, as Malena has already mentioned. The growth was around sixtyforty weighted to the first half due to the shape in The U. K. And with the exception of Italy and The U. S, all parts of the group grew and turnover broke through 6,000,000,000 increasing by nearly 30 year on year.

Speaker 2

Now let's take a look at what's driving the big increase in profit. This slide shows the results by business versus last year. So U. K. Insurance is the big driver of the change.

Speaker 2

Motor profit was million higher, including the million from Ogden, and more on that very shortly. U. K. Home Insurance reported a really nice result of million, a big increase on 2023, which results from higher revenue and a better combined ratio. Internationally, we saw an adverse swing in the European result and a big positive change in The U.

Speaker 2

S. Starting in Europe, Olivier in France reported another good result, now into double digits millions of profits and sustainably profitable. Our Spanish result was a modest loss overall, profitable in direct whilst continuing to invest in the newer distribution channels, in line with our plans and satisfactory. The biggest story though is in Italy, where we saw an adverse change in the result to a million loss, consistent with the trends we reported at half year. Conte has been consistently profitable for a decade.

Speaker 2

So as Milena mentioned, this is naturally disappointing. As we said at half year, the change in the Milan Bodily Injury tables was part of the reason, but there was also disappointing loss ratio development on one or two recent underwriting years. And our team in Italy is obviously all over this. Moving to The U. S, we saw further improvement in the bottom line during H2 and a very large improvement as you see year on year.

Speaker 2

And that was mainly due to a much lower loss ratio. Credit to our team there for the turnaround. Admiral Money continued its profitable growth. Outstanding balances increased by around a quarter and profit was up 30. Very good progress all around.

Speaker 2

And Scott will later on also mention an interesting and important development in the Admiral Money business model with the first deal to use third party capital signed in the last few weeks, which will allow Admiral Money to continue to grow beyond our balance sheet limits and will boost Admiral Money's return on capital. There were offsetting changes compared to last year in the share scheme cost and the other items. And we've included some comments on the slide here and in the back. Shout out to Vega for making a small profit and continuing its impressive revenue and customer growth trajectory. Let's take a look now at The U.

Speaker 2

K. Motor P and L count. So this is the usual summarized P and L with a few of the key ratios and some observations on the main changes. In the back of the pack, we showed how Ogden impacts the result and the ratio, so you can see what's going on there. Just a quick comment to start with on Ogden.

Speaker 2

The personal injury discount rates across The U. K, as you know, changed during 2024 to align at plus 0.5%. The approximate ultimate profit impact to Admiral of those changes is around million, of which million is being recognized in 2024. A further million or so will flow into 2025 and the rest thereafter. We adjusted our prices immediately on the news of the change and so there is no impact moving forward.

Speaker 2

So the observations and the main movements are quite consistent with the half year. We've already noted the very large turnover increase and I think the reasons for that are well understood. Investment balances and the rate of return were notably higher than 2023 and they contributed to nicely higher investment income. We've set up more information on investments in the Backyard States pack. Word on profit commission where the revenue for 2024 is maybe counterintuitively a bit lower than 2023.

Speaker 2

As I mentioned at the half year, that's due to the impact of the 2022 underwriting year. That's still booked as loss making and is still restricting our ability to recognize profit commission on the profitable 2023 underwriting year. We expect to start recognizing profit commission on 'twenty three shortly. And then below the P and L, you can see a nicely improved expense ratio on the back of higher average premiums and revenue growth. And on the bottom right, we show the split of the loss ratio into the current year and reserve releases.

Speaker 2

And here you see quite a notable change. The current year loss ratio is a lot lower than 2023, high teens percentage points improvement. And that's due to reasonably positive claims experience in year, but also the impact of higher premiums combating the elevated inflation we've seen in recent years. And on reserve releases, as of the half year, they were quite flat in absolute terms, but lower in percentage terms. And that's mainly due to the large increase in revenue, but also in a smaller way due to us taking a higher prudence risk adjustment position at year end 2024 compared to year end 2023.

Speaker 2

Let's look in a bit more detail at The U. K. Motor loss ratios. Our usual two charts here. These are underwriting year discounted ratios.

Speaker 2

The best estimates are on the left and the booked ratios on the right. We show the undiscounted ratios in the appendix and you can see the discounting still has a notable impact on the ratios. There's quite a lot of information here. So let me give a few observations. Firstly, the best estimates obviously now reflect the new Ogden discount rates that had a circa one point positive loss ratio impact on the twenty one to twenty four years.

Speaker 2

But even excluding those impacts, we see some quite nice improvements on the back years and particularly on 2023, where the projection improved by 10 points over the course of the year. Four of those points came in the second half, including the one from Ogden. As I mentioned previously, we expected this pattern for 2023 because of the impact of higher premiums positively impacting the loss ratio for 2023 as the premium for the year earned through. The first projection of 2024 is pretty low, 63% discounted. In light of the reasonable claims experienced during the year, particularly on frequency, we're now expecting the 2024 underwriting year to be a bit better than 2023, but not hugely so.

Speaker 2

And because of the different premium earning pattern on 2024 compared to 2023, the 2024 loss ratio will not develop as materially as the prior year to its ultimate point. Alastair will cover the trends we're seeing on severity and frequency in a couple of minutes. And then on the booked reserves, you can see the development in the ratios on the right. We've increased our risk adjustment strength in the motor reserves to the maximum ninety fifth percentile, effectively taking a cautious approach to recognizing its profit, the good news coming through in the best estimates, including from the Ogden change. Reserve releases, as already mentioned, in absolute terms were strong, slightly lower in percentage terms because of the revenue increase and the risk adjustment position.

Speaker 2

And there's no change to our recent guidance on reserve releases. Next, let's look at capital and dividend. On the left, we show the movement in the solvency ratio from half year to full year. In summary, we saw very strong capital generation during the second half, mainly but not solely from U. K.

Speaker 2

Motor plus the Ogden change and that was not fully offset by the higher capital requirement and the final dividend payment. And the position obviously is still very satisfactory. Quick comment on the internal model. We entered the pre application process with our regulators during the middle of twenty twenty four. We got the feedback from that at the end of last year.

Speaker 2

We're now acting on that feedback and planning the full application. Though, of course, there remains a lot of work to do on the project. We'll continue to provide updates in due course. And then on the right is the dividend. Proposed final dividend, as mentioned, is 121p a share.

Speaker 2

That's just under 90% of H2 earnings and is 2.3 times the final 2023 dividend benefiting from the Ogden impact in H2. And as you see, the full year dividend is a share, again, just under 90% of the full year earnings and that's 86% higher than 2023. There's no change to report in our approach to dividends. And a couple of closing remarks to finish off. Obviously, this is a very strong set of results with excellent U.

Speaker 2

K. Motor performance leading the way, but nice also to see some positive results from a number of our other businesses, including U. K. Household, French Motor, Admiral Money and The U. S.

Speaker 2

We maintained our very strong solvency position and we see a big increase in the final and the full year dividends. And then on the right, I've added a few outlook comments and maybe just to pick out one. In In U. K. Motor, we expect the 2025 underwriting year for Admiral and the market to be less profitable than 2024 as prices have reduced, though still profitable.

Speaker 2

And when thinking about 2025, it's important to remember the increased reserve strength of 2024 year end and the significant profits still to win through from 2024 and 2023 in particular, but also the earlier years too. And I expect that to be a strong support for profits in 2025. That's it from me. I shall pass you to Alastair to talk about The U. K.

Speaker 2

Insurance business.

Speaker 3

Thank you, Geraint. Good morning, everyone. I've been part of Admiral for seventeen years. I'm very proud to be taking the baton of UK Insurance CEO from Christina. It's a fantastic business with a track record of sustainable profitable growth driven by a great team who consistently deliver for our customers.

Speaker 3

So let's take a look at our excellent UK insurance results. Motor grew very strongly as we moved earlier than the market to reflect better than claims experience by reducing premiums. Beyond motor grew by 27% and we now ensure over 3,000,000 customers. Our extended breadth of products combined with our great service as evidenced by high net promoter scores and a number one position on Trustpilot is leading more customers to choose Admiral for more than one product. The More Than integration continues to go well, providing an additional boost to household growth and a step change for pet.

Speaker 3

We completed the product pricing systems builds and started the renewal migration as planned. The migration will complete in August 2025. Our new colleagues are making a great contribution to the team and retention performance is in line with expectations. All of this plus the Ogden discount rate change contributed to an all time high for UK motor profit, a record profit for home and the second year of profitability for travel. Let's look at what drove the strong results in motor, starting with claims trends.

Speaker 2

If I can.

Speaker 3

Frequency was lower than expected, falling in 2024 compared to 2023. This partly reflected vehicle safety features on more vehicles, increased road safety measures such as reduced speed limits and relatively benign weather in Q4. Severity inflation continues to be elevated compared to the long run trends, but not to the extent we saw in 'twenty two and 'twenty three. Damage severity benefited from repair cost inflation slowing from record levels in 'twenty three and lower secondhand car prices. Bodily injury inflation is also slightly elevated but stable, driven by commercial care costs and increases in general damages, but partly offset by the favorable impact of the Ogden rate change.

Speaker 3

The combination of lower frequency and moderating severity meant better than expected market claims burn costs, where claims burn cost is the average claims cost per policy. The second graph illustrates how relatively flat burn cost in 2024 contributed to falling market premiums. We at Admiral continue to benefit from years of cumulative experience and expertise combined with strong supply chain management and this enables us to deliver good customer outcomes whilst maintaining control of claims costs. Finally, total loss. In line with the FCA multi firm review, our analysis is near completion.

Speaker 3

The final impact is not expected to be significant to our results, but uncertainty remains. Moving to motor pricing. In 2024, a key driver of our exceptional results was being quick to recognize positive claims experience and reduce premiums earlier than the market. We became very competitive when prices and new business volumes were at their peak. When market premium started to fall, we maintained pricing discipline, we remained competitive, but less so than at the peak.

Speaker 3

In total, we reduced prices by around 10% in 2024, broadly in line with the market overall, but our reductions were earlier in the year. So the two graphs on the left show that market prices increased in 2023 and reduced in 2024. The graph on the right shows Admiral's times top, which is the percentage of times we're cheapest on price comparison sites, a measure of our competitiveness. Looking at the second half of 'twenty three, you see our competitiveness increase as the market continued to increase its prices whilst we remain broadly flat. Towards the start of 'twenty four, we responded to improved claims experience and decreased rates by mid single digits, which led to us being most competitive when customers needed it most.

Speaker 3

This resulted in exceptional growth in the first half. Since March 24, we've seen competitors decreasing prices. We also made reductions reflecting both positive claims development and the Ogden discount rate change. But these were less than the markets reducing our competitiveness compared to H1. One area of regulatory focus is premium finance.

Speaker 3

It's too early to understand the outcome of the FCA market study, but our internal fair value framework means we're confident this product provides fair value and accessibility to our customers. Our APR is 17%. This is competitive compared to alternative sources of finance and remains at the lower end of the market. So an excellent year for Motor. Let's move to look at a strong year in household where we delivered a combined ratio of 77% and a record profit of $34,000,000 The market saw a period of elevated claims inflation since 2022, contributed to by the December 2022 freeze, which put pressure on supply chains.

Speaker 3

In 'twenty four, we've seen signs that severity is starting to moderate. We also saw lower frequency than 'twenty three, largely driven by more benign weather. After many years of being flat, market premiums increased in 'twenty three and this continued through 'twenty four with 'twenty four premiums reaching 30% higher than in 2022. This led to increased switching with new business volumes up 14% year on year and price comparison making up over 75% of new business sales. Admiral UK Household was well placed to capitalize on these market dynamics.

Speaker 3

We have strong pricing and claims capabilities and a disciplined approach to balancing margin and growth similar to The UK motor business. Admiral increased rates slightly ahead of the market whilst continuing to grow through our strong focus on price comparison, multi cover, retention and more than. We're very pleased with the development of our current and prior year loss ratio, which along with the benign weather experience have contributed to our record profit. So a very strong year across UK insurance overall. Now let's look ahead to 2025, starting with Motor.

Speaker 3

We expect claims frequency to remain lower than pre COVID, but is likely to increase from the particularly low levels we've seen in 2024. We expect claims severity to continue similarly to 2024, higher than the long run average, but lower than the levels seen in 2022 and 2023. We're seeing market prices continue to increase in Q1. There are differing strategies from various players. So it's not clear how much longer this trend will continue, but no signs of showing of no signs of slowing yet.

Speaker 3

For Admiral, our pricing will be disciplined, reflecting claims inflation and our own trends. In 2025, we expect margins on business written to return to more normal levels with much more modest customer growth. In household, we expect continued stabilization of market claims inflation, while frequency trends remain dependent upon weather. We've seen signs of prices starting to reduce and we anticipate modest market price reductions in Heichuan. Our pricing will continue to reflect inflation, weather and other claims trends.

Speaker 3

We anticipate continued growth both organically and through the more than renewal rights migration. We remain focused on delivering great products and service for our customers whilst managing strong combined ratio performance. We're confident this will drive sustainable profitable growth over the medium term. And now over to Kosti to talk more about our international results.

Speaker 4

Thanks, Al, and good morning, everyone. In this section about our international business, I'll focus on how we have navigated diverse market conditions to deliver for our 2,000,000 international customers as our core objective remains prioritizing healthy margins and exceptional customer satisfaction. Let's move to the next slide and let me highlight the key messages. In Europe, we saw L'Olivier in France achieve strong growth and profitability, while Admiral Seguros in Spain made progress with improved combined ratio nearing breakeven. In Italy, Conte faced challenges due to strong increases in bodily injury cost inflation and some back book loss ratio deterioration.

Speaker 4

And we are actively implementing a comprehensive turnaround plan. Across all European markets, we have maintained our commitment to delivering market leading customer service. In The U. S, as Milena mentioned, we are in exclusive talks for Elephant, and we are pleased with the results achieved. Turning to the next slide, let's delve into each country's performance.

Speaker 4

We observe hardening market conditions in France and Spain, reflecting necessary rate adjustments, which are driving direct market growth. While Italy's market remains challenging, we are seeing signs of cycle upturn in recent months, including increasing average premiums and customers returning to shopping. And we expect it to recover in the near future to historical margins levels seen prior to 2020. In this context, Conte faced significant headwinds for three reasons: unprecedented inflation coupled with increased bodily injury costs from the updated Milano tables and adverse loss ratio developments from the 2022 and 2023 underwriting years. Specifically, during those underwriting years, we expanded our portfolio into newer segments that afterward performed poorly.

Speaker 4

Having learned from past challenges, we have identified the issues and implemented strong actions like substantial price increases resulting in a 25% average premium growth since 2022 exceeding inflation, prudent reserve adjustments reflecting the updated bodily injury tables and strategic portfolio alignment to focus on profitable customer segments. Furthermore, we contained our costs and achieved a 2% expense ratio improvement despite almost flat turnover. And we are confident that these actions will drive positive returns, although they will take time to fully materialize. And we remain optimistic about Conte's profitability potential in the Italian market. L'Olivia Motor delivered an excellent performance with a 89% written combined ratio, driven by strong growth in customers and turnover, while maintaining our controlled loss ratio.

Speaker 4

Admiral Siguroz showed encouraging improvements in its combined ratio, thanks to sustained positive contribution from its dairy channels that has traded south 90% combined ratio and also improved performance from new distribution initiatives, brokers and the ING Bank Insurance Partnership. Overall, the strong performance of Louribya and improvements in Admiral Seguros helped mitigate the impact of Conte's challenging year. On the next slide, let's touch on the key progress on our strategy. We are strategically building scale in Europe, now representing around 18% of group's customers and 10% of Turnova. Our commitment to pricing discipline, particularly through significant rate increases since 2022, has resulted in improved loss ratios versus market in France and Spain.

Speaker 4

While as previously mentioned, in Italy this has not been sufficient to fully offset yet the worsening loss ratio. We're also focused on operational efficiency, achieving across Europe a 24% reduction in motor servicing cost per policy since 2019 despite strong inflation. And our investments in technology including a market leading telephony system and cloud based data platform are driving synergies and efficiency gains. In Bolivia, we are progressively expanding into household insurance mirroring our successful UK direct to consumer and multi product strategy. In Spain and Italy, we are making significant progress in closing the broker opportunity gap through refined propositions and portfolio optimization.

Speaker 4

Crucially, we continue to deliver market leading customer service across all European markets. Turning to the next slide and to Elephant. The U. S. Market has been softer and face increased competition.

Speaker 4

And in this context, we delivered $80,000,000 profit, a significant turnaround from last year's $24,000,000 loss. This was driven by the consistent and effective execution of our turnaround plan announced last year. While we experienced a reduction in top line growth due to our focus on margins, the rate of policy shrinkage has slowed and we expect it to stabilize in 2025 when we will continue to prioritize profitability. And as I commented a few minutes ago, we are in excellent talks with a potential acquirer to sell the business. In summary, we have seen strong performance in Olivier and improved outcomes in Adelon Siburos, demonstrating the effectiveness of our strategies.

Speaker 4

We're actively addressing the challenges in Conte with a focused turnaround plan. In The U. S, we achieved a nice profit improvement showcasing our ability to adapt and execute. Across all European businesses, we remain committed to continue to improve margins, while building scale and excelling at customer satisfaction. Overall,

Operator

we

Speaker 4

are confident in our strategic direction and our ability to deliver long term value for our shareholders. Thanks. Now I hand it over to Scott to present Adi Miramani.

Speaker 1

Thank you, Costi. Good morning, everyone. Firstly, I'm pleased to say it's been a very nice year for Admiral Money. I'll start with a few highlights. Throughout the year, we retained a firm focus on prime lending and continue to prioritize a controlled and a conservative approach to growth.

Speaker 1

Our book at December stands at $1,170,000,000 That's 13% a 23% growth since full year and our credit performance has been more than satisfactory with a full year cost of risk of 2.5%. This has been our third consecutive year of growing profits achieved whilst maintaining an appropriately conservative IFRS nine provision. We continue to focus on being the lender of choice for Admiral Insurance customers with now over 68% of new business coming from current or recently lapsed U. K. Insurance customers.

Speaker 1

And importantly, we're able to confirm the completion of our first third party capital deal signed in February and unlocking the ability to grow the business off balance sheet. I'll provide a bit more detail on that in a moment. So coming into the year, we knew there would be continued uncertainty with the higher interest rate environment. We continued our philosophy of protecting our margin and ensuring strong risk resiliency in our pricing. Our book net interest margin finished the year at a healthy six fifty bps and combined with strong growth in balance has increased our gross income to $113,000,000 That's 19% higher in 2023.

Speaker 1

Combined with a solid credit performance, we are reporting a profit of $13,000,000 for the year. As I mentioned, 68% of new customer flows in 2024 came from Admiral Insurance customers. We achieved this by working closely with the UK insurance team. Our goal to be the lender of choice for Admiral Insurance customers is a key pillar of our strategy and we're expanding our advantage there through greater insight and tailoring our offering, making us increasingly competitive for them compared to other lenders. It's where we have the most significant and sustainable competitive advantage both through direct sales and by searching for them in open market channels.

Speaker 1

The chart on the bottom left shows that the loss ratio delta between Admiral customers and non Admiral customers continues to widen, demonstrating the advantage of the incremental data and the incremental understanding we have of them. Our MPS score of 75 also provides a very nice point of evidence that our commitment to providing certainty and transparency to Admiral customers on their lending needs is more than meeting their expectations. A little on strategy, so when we set our Admiral Money strategy in 2018, we identified four key ingredients to create an Admiral like lender. Over the last seven years, we have made solid progress improving Hiry as pricing and credit excellence, expense efficiency and product differentiation. I'm delighted to see us take our first step towards the fourth, which is using third party capital to enhance capital efficiency.

Speaker 1

I'm pleased to confirm our first off balance sheet deal, which is a forward flow agreement with a major UK bank. It consists of £150,000,000 back book and 300,000,000 per annum, which completely transfers the loan risk of Admiral's balance sheet in exchange for origination and servicing fees. This model provides a treble benefit, is accretive to return on capital, it accelerates profit recognition and enables future growth beyond the group's balance sheet parameters. I've added a slide in the appendix on Page 60, which gives a bit more detail of how it all works. Looking to 2025, we enter with strong momentum and expect to see continued growth of up to $1,300,000,000 on balance sheet and total loans under management growing to up to $1,600,000,000 Thank you very much.

Speaker 1

I'll pass to Melena.

Operator

Thank you, Scott. And congratulations on another good year for Admer Money. So to summarize, an outstanding year with record turnover, Rail Poker customer number and record profits. This was driven by our UK motor business, but also with an acceleration behind motor. We continue and we will continue to innovate for our customer and continue to be focused on developing future proof capabilities.

Operator

The market held was more favorable in 2024, but it is softening. We will continue to steer the business as we've always done in the past with discipline and with agility to continue to build on this year and long track record of success. Thank you. And we're now happy to take any question. Please hold the button while talking and ideally limit to two to start with.

Operator

We start there. Yes.

Speaker 2

Hi. Can you hear me?

Speaker 5

Yes. It's Abi Desain from Pembroke Liberum. Thanks for taking my questions. I've got two questions, please. The first one is on the pricing strategy.

Speaker 5

It feels like you've got enough headroom now across the motor margins to reduce pricing and take further market share. Is that the correct characterization of your strategy for 2025? And it feels like you have much more headroom than the market and the market can't operate that strategy. Is that sort of how I would characterize your thinking into 2025? That's the first question.

Speaker 5

And then the second one is on M and A. So you're obviously looking at disposing The US business, but I'm just wondering on the flip side in The UK, given that The UK market, motor market is particularly fragmented, there's a few large players and a long tail of small operators, would you consider expanding your customer base there inorganically? It looks like you have the balance sheet to participate in consolidation, but just curious as to your thoughts on M and A there.

Speaker 4

Sure.

Operator

Al, do you want to take the first and I'll take the second.

Speaker 3

Yes, sure. So in terms of having good margins, we were very happy with the margins that we wrote in 2024. And as you say, in terms of outperforming the market by being able to go ahead of the market with our price reductions, that was what gave us the strong growth in 2024. We're still happy with the margins that we're writing in 2025, but they're lower than in 2024. And so we're expecting much more modest growth in 2025 as we're really focused on good combined ratio discipline at this point in the cycle.

Operator

On M and A, as we commented in the past, our primary route to grow so far has been mainly organic. We've been successful in this way, but we do remain open to consider M and A opportunity as they fit well our strategy. The Acquisition of more than last year was an example of this and this progressing very well. We are happy where it's leading. We expect this to be accretive to EPS from 2026 onwards and we'll continue to be open to consider opportunity as they come.

Operator

Sorry, I think you were first and then Will.

Speaker 6

Hi there. Fazlan Akani from HSBC. I just wanted to get an insight on the 2025 sort of exit rates for the business you've written on UK motor. Clearly, it's very profitable last year and you mentioned a few drivers of positive profit margin in 2023, '20 '20 '4. But just want to understand what the exit rate is for the 2025 business?

Speaker 6

And the second question is coming back to the prior releases. Just there are a few moving parts there where you've increased the reserve per percentile from 93 to 95. When I look back at your sensitivity to the half year, it's about 26,000,000 sterling that was required to gain to the ninety fifth percentile. Is that the right way to think about what the underlying reserve releases are ex Ogden? And therefore, are we suggesting that was a decrease on an absolute basis?

Speaker 6

So I understand what's going on there. Thank you.

Operator

Karren, do you want to take the second and maybe also the first or

Speaker 2

Yes. So I do the so, yes, reserve releases. So the remind me exactly the question again on releases. Lower percentage.

Speaker 6

I guess you've increased your percent over 93,000,000 to 95,000,000. Your H1 sensitivity suggested that was 26,000,000 to get there. And then you also have the 50,000,000 Ogden load as well, Transcend, all the moving parts there.

Speaker 2

Yes. Sorry, that is pretty much the position, yes. So we increased our reserve strength to the ninety fifth percentile. It was ninety third at the half year and ninety third at the end of last year, too. The impact on reserve releases was about 20% to 30%.

Speaker 2

So had we held at ninety third percentile, reserve releases would have been 20% to 30% higher and profit would have been 40 to 50 higher. And then we show sensitivities in the back of this pack, which gets you down to the ninetieth from the ninety fifth and the eighty fifth, which is very unrealistic, but yes.

Speaker 6

Sorry, the 50,000,000 Ogden, is that sitting in the reserve percentile as well?

Speaker 2

No, the impact we've seen this year, the 100,000,000 in 2024 was mostly reserve releases on back years. It's about one percentage point on about four years. The impacts that will come through in future is actually coming things like profit commission. So there is a release element of that is largely done. The other question was exit rates and entry rates and things like that.

Speaker 2

We talked about the exit rate for 25%, which is a bit forward looking, I think. We were very as Allison said, very comfortable with the ratios that we wrote business at in 'twenty four in December and January and for the year as a whole. So we entered 2025, I think, in very good shape. If you do some maths in the pack, you see at the end, the discounted best estimate loss ratio to the expense ratio, the '24 underwriting, you get to a combined ratio in the high 70s and with some improvement probably to come on the ultimate loss ratio for that year. So it's a very strong start point.

Speaker 2

We don't give the exit loss ratios and things like that, but we're very comfortable with the margins for sure. Thank

Speaker 7

you. The first one is not a million miles off. That actually just thinking about trying to work out a little bit. It's on the exit rate of 24. I don't know you're not going to give us the exact number, but just trying to think of that shape, h on h, because I think it was initially booked at '77 h one.

Speaker 7

I guess the seasonality benefit was removed because it was a benign q four. Then we have Ogden. I guess just trying to work out if that 2024 year is also booked exactly at ninety fifth percentile or if it's spread across the years a bit differently. I guess essentially trying to work out the half and half and a broad guide of where we're exiting. And secondly, just thinking about Admiral Money, it's an interesting development.

Speaker 7

This is essentially presumably where you've been looking to take it to some degree to more fee income. Any guide on that sort of long term trajectory of that balance between own balance sheet and off balance sheet and guidance to us non specialists in this area about sort of ongoing versus yes, ongoing fees and origination fees? Thank you.

Speaker 2

Yes. I'll give the same answer, put the words in slightly different order maybe. So the H2 twenty twenty four underwriting year was worse than H1 twenty twenty four underwriting year for sure because of the shape of the premium changes. The frequency in H2 was a bit better than frequency in H1, as we mentioned, because of the weather in H2. And I'm talking excluding Ogden.

Speaker 2

Obviously, Ogden impacted H2. So H2 was a bit worse than H1, actually not that much because of the frequency. And yes, just to reiterate, very, very satisfied with the margins we wrote business at throughout the year in December in H2 and H1. But we do expect '25 underwriting year to be worse. Still profitable, but worse than '24.

Speaker 1

And on money, the way to think about it is the first back book deal is 150,000,000. Obviously, we've got 1,170,000 on balance sheet. We would expect the share of off balance sheet to increase in the coming years. I give an indication of that in the presentation to the split for 2025, and I would expect that to continue.

Speaker 2

Well, so you also asked about the spread of the risk adjustment by underwriting. It's a fairly standard split. The bigger margin is on the more recent years, and I think it's eight or nine points of margin on 2024, which is pretty normal and pretty large. So yes, I'd say that is also booked at 95%. But we think about it in aggregate, like you say.

Speaker 8

Hi, good morning. Thomas Bateman from Mediobanca. Can I just talk about premium finance, please? So you said that you reduced the APR and now it delivers fair value, but I think you said it delivered fair value before as well. So what has changed there?

Speaker 8

And maybe if you can just help me bridge the investment income that Admiral makes versus the installment income that you make because it seems to me there's a big incentive for someone for you guys to pay in monthly installments because I think about a third of your customers use premium finance and you generated 160,000,000 or so of installment income this year. Whereas investment income is you make a 4% yield that includes your whole customer base. It includes your reserves, it includes your capital, and you only generated 150,000,000. So a third of your customers are generating multiples more on and really the way I'm thinking about this, you're just losing the investment income here. So yes, can you just bridge between million in installment income for customers versus million?

Speaker 8

And maybe just two other tiny little questions on that. What's the administrative cost for you to deliver premium finance? And how many people actually default on their monthly installments?

Speaker 3

So if I take premium finance, I mean, first of all, we think it's a good product for customers. It enables accessibility to insurance by enabling them to spread the cost of that insurance monthly. We you asked about the change in our APR. We look at that on a regular basis, on a fair value basis. We look at the cost of funds.

Speaker 3

We look at the operational costs associated with it. And it's those that mean the reason why the APRs reduced. We've seen the cost of funds going down, and we pass that on to customers. It's also very transparent. So most of the price comparison sites will if a customer says that they want to pay monthly, they'll show the payments monthly, including the premium finance charge.

Speaker 3

So for all of those reasons, for the fact that the 17% compares favorably to alternative sources of finance and we're at the bottom end of our competitors, we're very comfortable that it provides fair value to customers. Did you want to comment on Yes.

Speaker 2

I would also say that we probably wouldn't give the stat on how many of those customers defaults and what the cost of that element is to I think it's a slightly different sum. Obviously, the money we make on investments is slightly different. At the end of the year, there was 1,500,000,000.0 on the balance sheet, I think, of customers bowing us money on premium finance. So that's the relative scale of these things. But clearly, it is a higher interest rate on the premium finance than it is on the investments because of the costs associated with

Operator

With higher average premium, the impact of the admin costs, so the fixed cost element of the premium finance is also spread across a higher premium. Maybe just

Speaker 8

to come back very quickly because you're implying that there's a reasonable amount of operational cost there, but then you apply a flat rate. So for a younger customer that has a much higher propensity to use premium finance where the premiums are substantially higher, there's no change in rate there. There's no reduction of that kind of average administration cost, which, to be honest, I think is actually tiny for you guys. So what I don't know, I'm trying to understand what is that administrative cost. I think it must be minuscule.

Speaker 8

Similarly, to the amount of people default, I think it's tiny. So I really struggle for you to justify a market average 20% APR versus your own investment yield of 4%.

Operator

Our APR as a single rate and as a 17%, there is a cost. You're right, it's more fixed and variable, but there is some variability in that being cost too that is reflected and we'll continue to review as we fare. But as Valeister said, we're very comfortable at the moment as a valuable product for customer and is very important for affordability too.

Speaker 9

Thanks. Andy Sinclair from Bank of America. First, we're just coming back to the Admiral Money Partnership. Just trying to understand, clearly, seems, are we positive, takes away a bit of risk? Just to understand what's the profit impact?

Speaker 9

I'm assuming it would maybe be a lot of a bit of a tick down in profit from that, but just to understand a little bit more there. And then second was just on profit commissions. Currently, I think you mentioned 2023 is getting close. Just if you can give us a little bit color on that. And also just looking back to 2022, even 2021, kind of where are we on profit commission kind of scope there?

Speaker 9

Thanks.

Operator

On to start, Scott.

Speaker 1

So just as a reminder, the way we think about the own balance sheet loans is that we target our return in the region of 2% to 3% on that asset. That would be a flat scale and that would be in the medium term. What the originate sale deal does is it gives us a fee immediately and then we get a servicing component every year going forward. And there's also a small profit share part. So clearly, it's less than if you held it on the balance sheet for the entire five years, but it's still a meaningful part of the model.

Speaker 1

And as you identified, there's no capital requirement for those loans so it's accretive to return on capital.

Speaker 2

And on profit commission. So the yes, the income that we recognized this year was I think it was entirely from 2020 underwriting years and earlier plus a very small part on 2024 too, which has obviously started very low. 2021 underwriting year is effectively at the point where it will start recognizing profit commission from the next penny of loss ratio movement. So that's right at the cusp of starting to recognize. 2022, as you know from the book look, ratios in the back is still a bit high.

Speaker 2

And so we don't foresee profit commission on that year at this point. And 2023 is very close. I'd expect that probably to come in the next twelve months. It requires a 0.02 of loss ratio movement either on '22 or '23. And I think given our loss ratio movements usually by calendar year, you'd expect that pretty quickly, I think.

Speaker 10

Hey, it's Daryl Goh from RBC.

Speaker 6

So the first

Speaker 10

one just to clarify that more prudent reserving, is it you being opportunistic because of how strong the earnings were? Or was it a case of you accounting for a very high share of new business that you've written in the year? And maybe you could also speak more broadly about the impact of the higher share of that new business within your overall risk mix? And secondly, thinking about growth for 2025, what are the levers you have? I think you spoke about increased scale.

Speaker 10

Now how much more has that played out in 2024? And how much more might still come in, in 2025? And then thirdly, just very quickly, just in terms of the excess capital return, what is your thinking behind sticking to a special and maybe not doing a buyback with where you're trading? Thank you.

Operator

Want to take the first two?

Speaker 2

Reserve strength. So there are our accounting policy, as you know, eighty fifth to ninety fifth percentile corridor typically and actually for all of our history, I think we've adopted a prudent approach to reserve it. We think motor insurance can be uncertain. It can be volatile, particularly early in development and particularly where you've written a different mix of customers or there's an upcoming legislative change or something. So we will always reserve conservatively, and we think that's the way to approach it.

Speaker 2

At this period, we move from the ninety third to the ninety fifth percentile. And there are a couple of reasons why we might choose to reserve higher. One is elevated uncertainty in the best estimates for whatever reason. That's not the case right now. Or we might choose to take a prudent approach in recognizing good news that's coming through in the best estimates, including from something like an Ogden discount rate change.

Speaker 2

And that's what we've done at this point. So that's available to us under the accounting policy. Opportunistic is a strong word, but that's what we've chosen to do at this particular point. In the long term, we wouldn't really expect to sit at ninety fifth percentile consistently. That's a very conservative position.

Speaker 2

So once the group's reserves are a bit more evenly spread across the different lines, we'd expect probably to average out around the 90, but that will depend on the particular circumstances, how the best estimates develop and so on.

Speaker 3

New business mix. New business mix. So you're right, we grew faster in 2024 and it meant a bigger share of new business. New business is typically a higher risk mix of business. And actually, you see that in when you look at the average premiums despite us passing on rate reduction to the market, the average premiums are slightly higher as a result of that new business mix.

Operator

On the dividend buyback, we historically always prefer dividends over buyback. We always did dividend. Historically, we consult regularly our shareholders and there is no unanimous preference. But in general, they really like consistency. So that's why we maintain this consistency over time.

Operator

Our employees are also shareholders and part of their bonus linked to dividends. That's not a major reason, but I would say they also prefer dividends too. We revised this very regularly with our board and we're continuing to do very seriously every year now as we go on. There's been a small tweak that we announced at the half year in which we'll stop diluting for shares that we need for the employee share scheme, but that's relatively small in the world context. Sorry?

Operator

Oh, there was question on scale, how much this will play out in 2024 and how much we expect this to play out in 2025?

Speaker 3

In terms of growth In

Operator

terms of profit, you mean? Or in terms of You think you can always

Speaker 10

claim servicing any kind of retention?

Operator

Yes. I think there were different don't

Speaker 2

you?

Speaker 3

Yes, sure. So in terms of growth, I think we've really grown in 2024 by cutting rates at the right time of the cycle. In terms of scale going forward, I think managing the cycle remains a component of how we'll grow. So it will change at different points similar to the slide that Milena showed. And in the meantime, we continue to invest in core capabilities, pricing claims, customer experience.

Speaker 3

You mentioned scale, extra data has a benefit in terms of pricing. We've got more products now, more customers, and we see good traction with multi, which helps retention. So there are benefits of scale as well beyond the way that we've managed the cycle.

Operator

Good. I think it's then here.

Speaker 11

Hi. Thank you. Maria Shah, Deutsche Bank. So just coming back onto the scale question. What is your retention rate in U.

Speaker 11

K. Household? And how many customers or what proportion of your total UK customers have multiple products across car and home and travel as well? So that's question kind of number one. And where do you expect that to really go over the next few years?

Speaker 11

And then the second one is actually around new business and capital strain. So you pointed out in one of the slides that your new business strain was around 11%. Is that a good guide for future years until at least the internal model is passed through?

Operator

Okay.

Speaker 2

Shall I

Speaker 3

take the first one? I don't think we disclose retention, but our household retention is very strong. And when we look at benchmarks, it's stronger than the market average. You tied that in with multiple product holdings, which is does have a positive impact on retention. And we mentioned in the slides that we've got 1,300,000 multi customers.

Speaker 3

So they'll hold at least two products each.

Speaker 2

And the second one is a capital strain. So what we're saying there is the increase in the capital requirement over the course of the year divided by the increase in revenue was about 11%. There are some moving parts in there, so it won't be exactly that level moving forward, but that's not a terrible guide, I would say. And that demonstrates really quite strongly the efficiency of our model and the benefits of using reinsurance.

Operator

Yes, I think we were here and then there.

Speaker 12

Hi, it's Anthony from Goldman Sachs. The first question is, if I may follow-up again on the growth outlook for 2025. You mentioned you expect growth in U. K. Motor going to be slower in 2025.

Speaker 12

Coming to the price momentum, could you give some color in Admiral's portfolio? Are you declining price higher or lower than the market so far in 2025? That's question one. And then question two is on your you guided a PYD in UK motor to be 10 to 15 percentage points. Does that bake in any expectation of the commutation of the reserve?

Speaker 12

And also just in general, what are you doing on the reserve commutation currently? Thank you.

Operator

And do you want to take the first and Garand De Saar?

Speaker 3

Yes, sure. So in terms of motor growth, as we've said, we expect it to be much more modest in 2025 than in 2024. We're happy with the margins that we're writing. We've seen some small reductions in price in the market in the first part of twenty twenty five, and we've also made some small reductions. Still very happy with the margins.

Speaker 3

And going forward in 2025, our focus will be on combined ratio discipline.

Speaker 2

And then on commutations to start with. We've not changed our approach. We'll continue to commute the reinsurance where we think it makes economic sense, I. E, where we're confident about the outcome for the year and it's cost effective from a reinsurance cost point of view to do so. So during 'twenty four, we committed everything up to and including almost all of the 2021 underwriting year contracts.

Speaker 2

There's one more to go, which is designed to be commuted at the end of 2024. So that one will be done probably at the start of this year. The PYD guidance, which is 10% to 15% moving forward, actually is not impacted by commutations. I think that the that sum is the gross claims reserve release divided by the gross premium, so it's not impacted by reinsurance.

Operator

Sure. I think it's here.

Speaker 7

Hi there.

Speaker 6

Thanks for taking my questions. The first one is on your investment portfolio. Obviously, investment income is growing quite strongly. I haven't quite done the math, but it appears that you've, as a proportion, grown your money market funds greater than other parts of your portfolio. Just given the fact you are fairly long duration liability with the BI stuff and given where yields are, is there an incentive to lock in to those yields by increasing duration?

Speaker 6

That's question one. Second question is on the More Than acquisition. I understand there's still a portion left to renew. Can you just explain how much is left and what the roughly the retention is on that business?

Speaker 2

Nikky. So on investments to start with, so the portfolio is very well matched to the duration of the liabilities to start with. So there are some long dated liabilities which are well matched by long duration assets. The flows that we saw, quite a large increase in balances during 2024, they initially go into money market funds and then they get allocated out according to the strategy. So we saw an increase a small increase in money market fund allocation and government bond allocation in 'twenty four.

Speaker 2

We'd expect that to allocate it out during 2025 with no big change. Actually, money market fund yields in 'twenty four were pretty attractive and they obviously on the shorter end of the year duration. But we review it all the time. We're very comfortable with the allocation. I think at this point it's well matched from a liability duration point of view.

Speaker 2

So no big change to report, I don't think.

Speaker 3

On the more than migration, the way that works is we've got the book of business and it's migrating over a twelve month period. That migration will complete in August 25, so we're more than halfway through. In terms of retention, we're not disclosing the retention number, but where it's in line with our expectations for the migration.

Speaker 6

And sorry, just to clarify, the insurance revenue growth should be faster than the gross written premium. In fact, you're migrating more than in two, I guess. So 2025, insurance revenue growth at home should be stronger than gross written premium growth, is that correct, because of the migration?

Speaker 2

Yes. You get the benefit of the yearning through, I suppose, of that.

Speaker 6

Yes. The

Speaker 2

policies that we acquired and migrated over. Okay. Yes.

Operator

And maybe just to remind that we'll have a deep dive on also the insurance at some point later. And we at that point, we'll have complete immigration by August. And so we'll able to share a bit more on that at that point. I think we're here.

Speaker 7

Thank you. Andreas von Emde from Peel Hunt. Just had a question around your price elasticity in The UK motor market. Does that change during the cycle? We're now sort of at the peak of the cycle.

Speaker 7

Our premium policy is very high. Does that change your price elasticity as we go down perhaps to softening market, lower average premiums per policy? And the second question is, if you compare the price elasticity of your multi car product to a single product, is there a material difference between the two? Thank you. Dion?

Speaker 3

Elasticity, it can be impacted by a number of different things. I think you sort of pointed to higher premiums more elastic than the lower ones. I think they can be. That's partly why you see a higher risk mix of business at new business because those customers with higher premiums are more likely to shop. But we wouldn't try and predict changes in elasticity through the cycle.

Speaker 3

It's something we monitor very closely. In terms

Operator

of

Speaker 3

single customers and multi customers, we do see a benefit for retention for customers who hold more than one product.

Operator

Just to add color on it, I think elasticity one element is, of course, the level of premium, but it also depends if you're an outlier or not. So your relative position versus others, you may be of more elasticity if you're an outlier in some cases and also depend on alternatives. If you have a very, I don't know, loan new business from competitors, of course, there could be more elasticity and so forth. So there are a lot of elements playing to this. That's why Alistair mentioned it's difficult to predict.

Operator

It's very much something you want to monitor on a weekly basis and act on it.

Speaker 13

Hi, Karl Lofthagen from Berenberg. Two questions for me. The first on bodily injury inflation, I think care costs are expected to increase in the second half with the changes from the budget. Are you pricing for these changes already? And are you kind of pretty comfortable with where you are?

Speaker 13

And then just similarly on accidental damage, obviously, big topics at the moment in The U. S. Tariffs discussions, secondary impacts. Are you comfortable that we won't see kind of a big spike in inflation this year as things stand today? Thank you.

Speaker 3

So on care costs, yes, we're pricing for the expected increases. It's those care costs and the inflation on those have impact the largest claims. So it also is some protection within the excess of loss agreements that we have, but we do price for that. In terms of accidental damage, we're not anticipating at the moment any spikes in terms of anything that's currently being talked about in terms of tariffs. But there is geopolitical noise, let's call it that.

Speaker 3

And so we're watching that very carefully in case there's anything there that we think we need to adjust for.

Operator

Yes. Maybe a couple and then we check if there is someone

Speaker 14

it's Ivan Bokkel from Barclays. A couple for me. With the first one, you've alluded to the some of the initiatives discussed at the task force. I was just wondering if you could elaborate where if there is any action taken, where what are the work streams that now can be identified? And secondly, just thinking about the cost outlook into 2025, now that we're probably with slightly lower pricing not getting as much operational leverage?

Speaker 14

Do you see you can keep cost flat in relative or in absolute terms? How do you think about this?

Operator

Yes. So on the task force that was set up like four months ago, I think the good news is that price are already down and that's put a bit less pressure. There's been a lot of work, we've been very supportive and collaborating with the government on it. But it's a bit early days, so it's not clear yet what are going to be the key initiatives. It's very early stage to comment on what the outcome is going to be.

Operator

As I said, the Gnuyses price are down. We think there are a lot of interesting opportunity that may be road safety. So there is focus on government, on potholes, speed limits that's already had some good impact on frequency in the area where it's been implemented, lower speed limit. You have measure light on anti fraud, anti theft that can be very helpful. I think telematics is a fantastic tool to help to control price, reduce price, mitigate risk.

Operator

The main cost driver though is really the technology of the car. So the total cost of ownership of the car rather than accessory the cost of running insurance. But there is a lot of areas that the government is exploring and it's a bit difficult to say at this stage where this is going to land. I think it's going to take a bit more time to play out. And your second question was the outlook of cost of price, average premium in motor insurance for 2025, right?

Speaker 14

I was asking about the operating costs of your business, whether you have some big investments to make, whether with the lower prices you'll be able to keep the expense ratio flat, lower, higher?

Operator

Yes. I think in general in terms of expense ratio, of course, we need to think about average premium and how this is going to play out because it's a ratio and the average premium as we anticipated, the premium at the end of the year were lower. So that will have an impact. But in terms of cost per risk, so if you take out the average premium volatility, we are we continue to invest to create efficiency, to increase digitalization, automation. So we're pretty good at trying to maintain cost.

Operator

In the last few years, we invested a lot to increase our investment in data and technology. Now we're more in the phase to try to make the most out of it. So we don't expect major swift in one direction or the other in terms of cost per risk. We'll go here and then we need to I'm sorry, we need to go home.

Speaker 8

Thank you for giving me another opportunity. I just want to understand a little bit what happened in H2 with premiums because that was substantially lower than what I think most people thought. So was there any like mix change or were there some big contracts in H1 maybe? If there was, will they repeat? And also just a small point on pricing.

Speaker 8

You said pricing is down 10% this year. Was that just for new business or the whole portfolio? And I guess what I'm comparing that to is the ABI average increase of 15%. So I just want to should I be carrying minus comparing minus 10% with plus 15%?

Speaker 2

So, Laddoo, in terms of total premiums, in the first half, UK Motor did $2,200,000,000 I think, and it was $4,200,000,000 for the year. So it was about $2,200,000,000 first half, 2 billion dollars in the second half. There are a number of reasons why H2 can be a bit lower, including November and December are quite small months. So we don't write a huge amount of business in November and December. So there is a seasonality where H2 can be a bit smaller.

Speaker 2

And there was a bit of a mix effect. We grew less in the second half, so we wrote less new business. New business attracts higher premiums and renewals, so that also contributes to it. Plus, of course, we reduced the prices in the first half. So there are probably three reasons for it.

Speaker 2

Hopefully, that was unexpected because we talked very clearly about that in the half year results. And so billion in the second half, billion in the first half.

Speaker 8

The thing that I can't square is when I look at your average premiums, they were up like 45% in H1. And you're telling me that you actually dropped pricing more in H1. So I don't know. I can't square the two. And I think consensus is a long way off on premiums for next year, but maybe we can take it off.

Speaker 2

Yeah. I'm not sure I can raise 45% increase in average premiums.

Operator

I think it depends also if you look at H1 on H2 last year, H1 on H1 because don't forget that in 2023, the average premium increased very substantially. So the starting point at the beginning of 2024 was a peak. So even if we decrease a lot, we decrease less than was increased in 2023. So the average is higher. You had the second question, right?

Operator

No? No? We need to move yes to question from home. Is there any question from whom?

Speaker 15

We have a question on the phone lines. Your question comes from the line of Shanti Pang from Bank of America. Please go ahead. Hi. Congratulations on an impressive set of results today and thank you for taking my questions on the phone.

Speaker 15

I just had two questions. The first one was just on Conti. What's the recovery trajectory time line in your view? And what do you see as the key execution risks to that? And the second question is just on Admiral Money.

Speaker 15

I was just wondering if there's anything specific about what business does or doesn't get passed on to the third party. So for example, how does it get selected from back book versus new business? Thank you very much.

Operator

Thank you. Kosti, do you want to take it first and Scott?

Speaker 4

Yes. So what is making us confident on the next next period for Contes that we have identified the reasons of the issues that we have that basically have impacted our 2024 results. And we have implemented very strong actions to recover Kounte in a good place. And at the same time, we are seeing positive signs from a market perspective of improvements, both in terms of average premium growth and also in terms of quotes coming up very clearly on price comparison side and market retention that have reached a sort of a record low, still stayed quite strong, but reached this record low in Q4 twenty twenty four. So if you combine all of this, we remain positive for the near future.

Speaker 4

Although in terms of execution risk, we need to continue to stay very focused on monitoring the impact of our actions and be ready to take further actions if needed and be vigilant on the market conditions and market cycle.

Speaker 1

Our money, in a deal like this, we're very keen to make sure objectives are aligned with our partners. So it's a vertical slice, random allocate loans. There's no difference in the criteria to what we hold on balance sheet.

Operator

Thank you. Thank you very much for your time and question and we'll be around for a few minutes if you need us. Thanks. Thank you very much.

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Earnings Conference Call
Admiral Group H2 2024
00:00 / 00:00