Esure — FY2014 Earnings Presentation
31 slides from Esure's earnings presentation, Mar 10, 2015
Slide 1: 2014 Full Year Results
GROUP 2014 Full Year Results 10 March 2015
Slide 2: Agenda
Agenda GROUP Welcome & overview Stuart Vann, Chief Executive Officer Financial review Darren Ogden, Chief Finance Officer Chief Executive review and outlook Stuart Vann, Chief Executive Officer Q&A Slide 1
Slide 3: Business overview: A solid set of results
Business overview “A solid set of results” GROUP Financials Market Our actions In-force policies Focused and disciplined 1.946 million underwriting +0.7% Competitive rating Gross written premiums environment Continuing with segment £517.8m re-entry (3.4)% Combined operating ratio Launching footprint
Slide 4: Gocompare update
Gocompare update GROUP Taking strategic control • Consideration of £95m for outstanding 50% of Gocompare • Earnings enhancing in year one on a cash basis Brand • Invest in Gocompare to take advantage of the significant opportunities available in the medium term. • Further diversification of Group’s
Slide 5: Financial review
GROUP Financial review Darren Ogden, Chief Finance Officer Slide 4
Slide 6: Group financials
Group financials GROUP Key points 2014 2013 Mvt • Gross written premiums lower at £517.8m Gross written premiums (£m) 517.8 535.8 (3.4)% Trading profit (£m) 115.4 130.6 (11.6)% • In-force policies up 0.7% to 1.946m Profit before tax (£m) 103.3 118.4 (12.8)% • Combined operating ratio 2.2ppts higher
Slide 7: Trading profit
Trading profit GROUP 2014 Income streams 2014 2013 £m £m Underwriting 39.5 50.6 £12.5m £31.1m Non-underwritten ASR (1) 51.0 52.4 £12.4m Investment income 12.4 14.7 Share of joint venture 12.5 12.9 (Gocompare) (2) Note: See Appendix for footnotes £8.4m • Underwriting income streams impacted by £51.0m
Slide 8: Motor
Motor GROUP Key points • Gross written premiums lower at £429.3m due to 2014 2013 Mvt continued competitive rating environment • In-force policies broadly flat at 1.378m Gross written premiums (£m) 429.3 446.5 (3.9)% • Loss ratio impacted by re-emergence of small bodily Trading profit (£m) 31.1 41.0
Slide 9: Motor loss ratio
Motor loss ratio GROUP Motor (4.7)% 69.9% 2.0% 67.2% 2013 Loss Ratio PY movements Current year 2014 Loss Ratio • Current year loss ratio impacted by lower rates and re-emergence of small bodily claims inflation in H2 2014 • Continued strong favourable development of prior accident year reserves, equ
Slide 10: Home
Home GROUP Key points • Gross written premiums broadly flat at £88.5m 2014 2013 Mvt • In-force policies increased 3.6% to 0.568m Gross written premiums (£m) 88.5 89.3 (0.9)% • Sub 90% combined operating ratio achieved through good risk selection in competitive market conditions Trading profit (£m) 8
Slide 11: Home loss ratio
Home loss ratio GROUP Home (1.1)% 1.3% 59.3% 59.1% 2013 Loss Ratio PY movements Current year 2014 Loss Ratio • Improvement in current year accident loss ratio driven by benign weather in the second half of 2014 • Continued strong favourable development in prior accident year reserves, equivalent to
Slide 12: Favourable development in reserves
Favourable development in reserves GROUP Key points Net accident year loss ratio development – Total • Prudent approach to reserving 100% • Strong favourable development of prior accident year 80% reserves – £90.0m in 2014 (2013: £82.4m) 60% • Reserves remain in excess of 15% above our actuarial 40%
Slide 13: Additional Services Revenue
Additional Services Revenue GROUP Key points Additional Services Revenue £103.9m £103.0m • ASR income excluding Claims Income up 1.7% to £97.3m, broadly in line with in-force policy growth £95.7m £97.3m • Motor ASR per IFP, excluding Claims Income ex Claims ex Claims reduced to £62.0, in line with g
Slide 14: Investment returns
Investment returns GROUP Return on invested funds Gocompare • Full year return of £12.4m impacted by second half • Share of trading profit from Gocompare lower at volatility in financial investment markets and lower £12.5m (2013: £12.9m) average assets under management in 2014 • Share of profit afte
Slide 15: Debt & Regulatory capital
Debt & Regulatory capital GROUP Subordinated notes IGD coverage • On 19 December 2014, the Group issued £125m 437% 6.75% ten year tier two subordinated notes 369% 377% 308% • Issue resulted in net proceeds of £122.1m • Interest expense of £0.3m in 2014, with an annualised expense of £8.4m 2013 2014
Slide 16: Dividend
Dividend GROUP Key points Dividend calculation 2014 • Payout ratio of 85% comprises 2014 Profit after tax (a) £82.4 m Payout Ratio – Base (b) 50% — Base dividend of 50% Payout Ratio – Special (c) 35% Annualised payout ratio (b+c) = (d) 85% — Special dividend of 35% Full year dividend (a*d) = (e) £70
Slide 17: Chief Executive review and outlook
GROUP Chief Executive review and outlook Stuart Vann, Chief Executive Officer Slide 16
Slide 18: Underwriting discipline maintained… …while creating opportunities
Underwriting discipline maintained… …while creating opportunities GROUP 2013 2014 Motor footprint Motor expansion core book Motor segment IFPs Home IFPs re-entry core book 1.933m 1.946m No Claims Discount - Motor Age group above 30 - Motor 88% 86% (2013: 89%) (2013: 85%) 5 yr + <5 yr 30 and below Ab
Slide 19: Motor underwriting opportunities
Motor underwriting opportunities GROUP Key points • Segment re-entry and footprint expansion opportunities are at higher average written premiums • Higher average written premiums benefit the expense ratio • Segment re-entry current contribution is in excess of the core portfolio • Encouraging signs
Slide 20: Motor rating – esure & the market
Motor rating – esure & the market GROUP Price and average written premium reductions better than the market esure rating experience in 2014 Risk Mix Price H1 ‘14 v H1 ’13 2% 8% H2 ‘14 v H2 ’13 2% 4% FY ‘14 v FY ’13 0% 2% Market rating in 2014 Pricing index FY 2014 FY 2013 (1) Confused.com/TW (8)% (1
Slide 21: Motor Risk and Rate Review
Motor Risk and Rate Review GROUP LASPO Rating Underwriting Segment Gender Reforms cycle IP re-entry directive Rating engine Lower new business premiums Lower new business risk premiums Lower new business premiums underpinned by a much larger reduction in risk Slide 20
Slide 22: UK motor claims environment
UK motor claims environment GROUP No. of claims notification forms created and sent to a compensator using MoJ claims portal Rolling 12 months from January 2013 to December 2014(1) Claims frequency – small bodily injury 890000 • Small bodily injury claims frequency on the rise, up 870000 2% for 2014
Slide 23: UK Motor rating environment… …many factors are coming together
UK Motor rating environment… GROUP …many factors are coming together Gibraltar Solvency II transition to in 2016 Solvency II Rate Large bodily reductions injury claims earning through Oil prices & Accidental increased damage mileage claims Small PI inflation claims frequency & general damages Slide
Slide 24: Summary & Outlook
Summary & Outlook GROUP Summary • Solid results, disciplined underwriting and opportunistic management action in challenging market conditions • Reserves in excess of 15% above our actuarial best estimate with strong capital position • Full year dividend of 16.8 pence per share represents a payout r
Slide 25: Q&A
GROUP Q&A Slide 24
Slide 26: Appendix
GROUP Appendix Slide 25
Slide 27: Investment portfolio
Investment portfolio GROUP Key points Asset allocation 4% 6% 5% • The Group deploys a conservative investment strategy 16% 18% with the primary objectives of capital preservation and 30% maintaining liquidity 80% 76% • The £122.1m net proceeds from the issue of the 65% 6.75% ten year tier two subord
Slide 28: Regulation
Regulation GROUP FCA Findings May 2014 - Insurers' management of Thematic Review conducted by the FCA shows the majority of policyholders are satisfied with (1) claims - household and retail travel the claims handling by their insurers, however there still remain few areas of improvement: - manageme
Slide 29: Accounting for Gocompare
Accounting for Gocompare GROUP Key points: Segmental reporting: trading profit to profit before tax • The acquisition of Gocompare will create a fair value gain due to step accounting required by IFRS 3 Business Combinations In million £ 2015 • In deriving an underlying profit before tax the Group T
Slide 30: References
References GROUP Slide 6 1. Non-underwritten ASR includes four main components: (I) sales of non-underwritten additional insurance products to motor and home insurance customers; (ii) instalment interest on premium payment plans; (iii) policy administration fees; and (iv) legal panel membership fees
Slide 31: Disclaimer
Disclaimer GROUP The information contained in this presentation has not been independently verified and this presentation contains various forward-looking statements that reflect management’s current views with respect to future events and financial and operational performance. The words “growing”,