Annual Results Presentation 2018
Presenting & Q&A Geoff Carter - CEO Adam Westwood – CFO Trevor Webb – Claims Director James Ockenden – Chief Actuary
Today’s agenda 2018 Highlights 1 Geoff Carter Financial Results 2 Adam Westwood Market context 3 Geoff Carter Strategy - reminder 4 Geoff Carter Summary & Outlook 5 Geoff Carter 6 Q&A 6 All 3
2018 Highlights Geoff Carter
Financial highlights OUR ABSOLUTE FOCUS ON PROFITABILITY DELIVERED STRONG LOSS RATIO % RESULTS AGAINST A CHALLENGING MARKET BACKDROP : ● Leading underwriting performance... 49% 48% 47% - Loss ratio of 48.5% - Expense ratio of 22.1% - Combined ratio of 70.6% 2016 2017 2018 EXPENSE RATIO % ● ...strong profitability and returns... - Adjusted profit after tax of £50.1m (EPS of 19.9p) - Return on Tangible Equity of 54.4% 22% 22% 22% ● ...attractive capital generation... 2016 2017 2018 - Solvency ratio of 213%, over our 140-160% target range COMBINED RATIO % ● ...maintained flat premium in line with expectations - Gross written premium of £210.0m in 2018 71% 69% 68% ● …allowing us to announce an attractive total dividend of 20p per share 2016 2017 2018 - 7.2p interim, 12.8p final, including special 5
Operational highlights ● Continued roll-out of new rating factors Product developments ● Soft launch of new direct van product (Insure2Drive Van) in Q4 ‘18 ● Enhancement of Broker based van product in Q1 ‘19 Operational ● Rolling out software robots to enhance customer service and efficiency improvements ● Completed transition to a new hybrid cloud IT infrastructure ● Testing innovative AI / machine learning processes ● Engaged BDO as outsourced internal auditor Employee ● Maintained extremely low levels of employee turnover satisfaction ● Excellent response to first staff survey – 88% would recommend Sabre as a good place to work 6
Financial Results Adam Westwood
Results summary 2018 Summary financial performance ● Gross written premium broadly in-line with 2017 2018 2017 Change Gross written premium £210.0m £210.7m (£0.7m) ● Slight increase in combined ratio as loss ratio tends towards long-run average, Net earned premium £188.2m £186.9m £1.3m following an exceptional year in 2017 Combined ratio 70.6% 68.5% 2.1ppts ● Underwriting profit remains primarily a Investment return £0.8m (£0.7m) £1.5m function of net earned premium and combined ratio Adjusted profit before tax £61.9m £63.9m (£2.0m) Adjusted profit after tax £50.1m £53.3m (£3.2m) ● Investment return represents net yield on gilt portfolio – no significant changes Basic EPS 19.9p 14.5p 5.4p ● Profit figures reflective of the above, also Dividend per share 20.0p 12.7p 7.3p include the £0.7m amortised cost of free Solvency coverage ratio 213% 160% 53pps shares issued at IPO, which has no impact on our Solvency Capital à Post-dividend 161% 160% 1ppt Return on Tangible Equity 54.4% 81.8% (27.4ppts) ● Return on SCR reflective of profits generated during the year Return on opening SCR 82.0% 92.1% (10.1ppts) 8
Leading underwriting performance ● Financial year combined ratio below long-run mid- 70’s target, driven by a strong loss ratio Combined ratio evolution ● Current accident-year loss ratio returns to long-run 22.1% 22.0% norm as prior-year reserve movements remain high. 46.5% 48.5% Level of current-year claims recorded supports our 2.1pp view of having written at a mid-70’s combined ratio 2017 2018 during 2018 Loss ratio Expense ratio ● Prior-year reserve movement continues to represent run-off of prudence margins and exceptional releases Loss ratio breakdown ● No changes to reserving methodology 10.7% ● Expense ratio relatively flat against 2017, includes amortised cost of free shares issued to staff. Costs 59.2% 48.5% 48.5% remain largely proportional to volume of business written Current year Prior year Financial year 9
Conservative approach to risk Investment portfolio breakdown ● Investments continue to be held in UK government 0.1% 5.5% bonds, in line with our conservative approach to risk ● Investment portfolio managed in house and focused Gilts on capital preservation to support our profitable Corporate bonds underwriting activities Cash 94.4% ● Net investment return of £0.8m for 2018 in-line with normal gilt yield adjusted for market value movements ● Low risk investment portfolio complemented by a Investment return evolution (£m) consistent and conservative reserving policy and 0.8 prudent use of reinsurance (0.7) 2017 2018 10
Attractive capital generation ● We continue to benefit from strong profitability and an Return on opening SCR efficient capital model ● 2018’s adjusted profit after tax was equivalent to 82% 82% return on opening SCR of the opening solvency capital requirement 61.1 50.1 ● Strong capital generation led to a year end solvency ratio of 213%, managed back within our preferred operating range by means of a special dividend ● Stated dividend policy from IPO: c. 70% of profit after 2018 Adjusted PAT 2018 Opening SCR tax as an ordinary dividend, with additional distributions of surplus capital above the Group’s target 140-160% solvency ratio range Solvency coverage ratio ● In 2018 the Group has paid an interim ordinary 213% +53pp dividend of c. 70% of its profit after tax for the first 6 160% months of the year Total dividend of £50.0m (20.0 pence per share) 2017 2018 Pre final dividend in respect of 2018. 11
Approach to capital management ● Prudent approach to regulatory capital with a minimum SCR of 140% Our approach ● Focus on underwriting discipline generating organic capital - target long term COR of mid-70s Continued ● Continued investment in business to enhance product capabilities and maintain operational efficiencies investment ● Ordinary dividend pay out ratio of 70% Capital ● Surplus capital beyond top of SCR range of 160% returned to shareholders via special dividends distribution ● Target range of 140%-160% enables more stable returns of capital to investors by supporting dividends during cycle downturns or periods of rapid growth FY2018 Regulatory Capital Movements 220.0% (30%) 34% 49% (52%) 200.0% 179% 180.0% 160% 161% 160.0% 140.0% 120.0% Capital at 31 2018 H1 Trading 2018 Interim Capital at 30 June 2018 H2 Trading 2018 Proposed final Capital at 31 December 2017 Dividend 2018 dividend December 2018 12
Strategy and Market Environment 2019 Outlook Geoff Carter
Market context
Claims inflation / premium inflation 1. MOJ portal – injury MOJ Portal Statistics: Rolling 3 Month Average CNF Count frequency is broadly flat 80,000 75,000 70,000 CNF Count 65,000 60,000 55,000 50,000 45,000 40,000 Jan-16 Jun-16 Aug-16 Sep-16 Nov-16 Dec-16 Jan-17 Jun-17 Aug-17 Sep-17 Nov-17 Dec-17 Jan-18 Jun-18 Aug-18 Sep-18 Nov-18 Dec-18 Jan-19 Feb-16 Mar-16 Apr-16 May-16 Jul-16 Oct-16 Feb-17 Mar-17 Apr-17 May-17 Jul-17 Oct-17 Feb-18 Mar-18 Apr-18 May-18 Jul-18 Oct-18 2. ABI data – settled non- ABI Claims Settled Claims Data injury claims have been Indexed Average Claim Costs increasing at compound 160 150 rate of 10.7% annually 140 130 since 2015 120 110 3. ABI – overall settled 100 90 claims inflation running 80 2015 2016 2017 2018 at 5.6% since 2015 Claims exc. Injury All Claims 15
Sabre view Sabre current view of market inflation driven by a combination of Bent Metal and PI claims, with Theft now also a meaningful factor Overall inflation 6-7% PI frequency flat, “Bent Metal” high severity circa 5% single digit % inflation Theft inflation > 25% 16
Premium inflation Market premiums down 1% over 2018 and appear to be lagging claim inflation (6 to 7%) Average Premium (£) 540 500 460 420 380 340 300 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 2016 2017 2018 ABI motor premium tracker 17
2019 – potential market impacts Possible premium Possible premium deflation factors inflation factors • Whiplash reforms • Continued claims inflation • Ogden discount rate • Competitor margin squeeze • New MGA’s launching • Lawyer legal reforms response • FCA pricing review Sabre Strategy Continue to price to mid 70%’s CoR, reflecting changes as they emerge and avoiding speculation 18
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