Sabre Insurance Group Plc · LSE:SBRE
Sabre Insurance — FY2020 Earnings Presentation
61 slides from Sabre Insurance's earnings presentation, Dec 3, 2021
Slide 1: 2020 Full Year Results
2020 Full Year Results 2019
Slide 2: Presenting and Q&A
Presenting and Q&A Presenters and Q&A Call Moderator Geoff Carter Adam Westwood Hanro van Heerden CEO CFO Group Financial Controller Trevor Web James Ockenden Matt Wright Claims Director Chief Actuary Deputy Chief Actuary 2
Slide 3: Today's agenda
Today’s agenda 2020 Highlights 1 Geoff Carter Financial results 2 Adam Westwood Market context 3 Geoff Carter Sabre’s investment case 4 Geoff Carter Summary and outlook 5 Geoff Carter Q&A 6 All 3
Slide 4: 2020 Highlights
2020 Highlights Geoff Carter
Slide 5: Financial highlights
Financial highlights Continued absolute focus on profitability and NET LOSS RATIO % maintaining strong foundations ahead of anticipated 51.5% growth opportunities 46.5% 48.5% 48.6% Maintained leading underwriting performance, with strong 2017 2018 2019 2020 profitability and returns, and attractiv
Slide 6: Operational highlights
Operational highlights Current focus Supporting employees and customers through continuing effects of COVID‐19 Maintaining appropriate pricing levels as the impact of COVID‐19 recedes and regulatory changes take effect Tracking/covering long‐run claims (and other cost) inflation with appropria
Slide 7: Operational highlights
Operational highlights Other activities Operational restructure to allow future growth to be accommodated within existing headcount Test launch of new cloud‐based rating/processing infrastructure to support existing systems Maintained all employees on full pay. Excess headcount maintained in o
Slide 8: Impacts of COVID-19
Impacts of COVID-19 Premium factors Claims factors Expected claims savings passed back to customers Short‐term benefits through reduced traffic as forward‐looking benefits identified Theft not down by same proportions Premium significantly down due to lack of car Larger PI claims settlemen
Slide 9: Financial results
Sabre INSURANCE GROUP Financial results
Slide 10: Results summary
Results summary 2020 financial performance FY 2020 FY 2019 Change Gross written premium £173.2m £197.0m (£23.8m) Premium income down 12% against 2019, Net earned premium £165.7m £183.2m (£17.5m) following significant dips in income during more extreme lockdowns Combined ratio 75.3% 73.4% 1.9ppts
Slide 11: Sabre price increases vs the market
Sabre price increases vs the market Comparison of Sabre price increases versus change in average market premium 2018 2019 2019 2019 2019 2020 2020 2020 2020 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sabre price increases Change in average market premium 11
Slide 12: Car insurance quotes are down across the market
Car insurance quotes are down across the market 15% 10% 5% 0% Mar‐20 Apr‐20 May‐20 Jun‐20 Jul‐20 Aug‐20 Sep‐20 Oct‐20 Nov‐20 Dec‐20 Jan‐21 Feb‐21 ‐5% ‐10% ‐15% ‐20% ‐25% Graph shows number of quote requests received through ‘big 4’ aggregators vs the same period in 2019 12
Slide 13: Lockdown impacts on volumes
Lockdown impacts on volumes Premium by month ‐ Difference between 2020 and 2019 4 2 2020 vs 2019 GWP (£'m) ‐ ‐2 2020 vs 2019 Premium ‐4 ‐6 ‐8 ‐10 Month Why did lockdown impact Sabre’s premium so significantly? Sabre’s pricing vs market discounting Fewer new drivers Fewer car sales Very few “
Slide 14: Leading underwriting performance
Leading underwriting performance Financial year combined ratio in‐line with mid‐70% Combined ratio evolution target, driven by a strong loss ratio Current accident‐year loss ratio represents claims 21.9% 1.9ppts 26.7% incurred in the accident year to date and is driven by lower than expected cla
Slide 15: Controlled expenditure
Controlled expenditure Expense ratio impacted by return to normal levels of expenditure following one‐off benefit in 2019 and reduction in net earned premium Industry levies continue to rise, a trend we expect to continue through 2021 and beyond Operational costs broadly flat, with savings mad
Slide 16: Sabre's expense ratio
Sabre’s expense ratio Sabre’s expense ratio is “all in” Breakdown of expense ratio 30.0% It represents all non‐exceptional expenditure Includes commission costs 25.0% Includes share scheme IFRS 2 charges 8.6% Includes all head‐office and parent company 20.0% expenditure 8.6% 1.0% 15.0% 0.6% 10
Slide 17: Conservative approach to risk
Conservative approach to risk Investment portfolio now includes Investment portfolio breakdown UK Government bonds UK Government Other government backed assets 40.2 bonds High quality corporate bonds Government‐backed £m 121.9 securities Diversification of bond portfolio avoids negative 84.2 y
Slide 18: Attractive capital generation
Attractive capital generation Return on Tangible Equity We continue to benefit from strong profitability 36.0% Return on tangible equity and an efficient capital model £110.0m £110.6m Strong capital generation led to a year‐end solvency ratio of 203% Dividend policy is to pay an interim divide
Slide 19: Approach to capital management
Approach to capital management Our Prudent approach to regulatory capital with a minimum SCR of 140% approach Focus on underwriting discipline generating organic capital ‐ target long term COR of mid‐70% Continued Continued investment in business to enhance product capabilities and maintain op
Slide 20: Market context
Sabre INSURANCE GROUP Market context
Slide 21: COVID-19 – the pricing challenge
COVID-19 – the pricing challenge Claims‐Adjusted Modelled Traffic Volumes For Prospective COVID‐19 Pricing & Written Premium by Month 1.1 40,000,000 Lockdown (LD) 1.0 1 35,000,000 Traffic volumes as % of normal 0.9 30,000,000 0.8 0.7 25,000,000 0.6 20,000,000 0.5 Written Premium 15,000,000 0.4 10,00
Slide 22: COVID-19 – the pricing challenge
COVID-19 – the pricing challenge Claims‐Adjusted Modelled Traffic Volumes For Prospective COVID‐19 Pricing & Written Premium by Month 1.1 40,000,000 Lockdown (LD) 1.0 1 35,000,000 Traffic volumes as % of normal 0.9 30,000,000 0.8 0.7 25,000,000 0.6 20,000,000 0.5 Written Premium 15,000,000 0.4 10,00
Slide 23: COVID-19 – the pricing challenge
COVID-19 – the pricing challenge Claims‐Adjusted Modelled Traffic Volumes For Prospective COVID‐19 Pricing & Written Premium by Month 1.1 40,000,000 Lockdown (LD) 1.0 Schools re‐open 1 35,000,000 Traffic volumes as % of normal 0.9 30,000,000 0.8 0.7 25,000,000 0.6 20,000,000 0.5 Written Premium 15,0
Slide 24: COVID-19 – the pricing challenge
COVID-19 – the pricing challenge Claims‐Adjusted Modelled Traffic Volumes For Prospective COVID‐19 Pricing & Written Premium by Month 1.1 40,000,000 Lockdown (LD) 1.0 LD 2.0 Schools re‐open 1 35,000,000 Traffic volumes as % of normal 0.9 30,000,000 0.8 0.7 25,000,000 0.6 20,000,000 0.5 Written Premi
Slide 25: COVID-19 – the pricing challenge
COVID-19 – the pricing challenge Claims‐Adjusted Modelled Traffic Volumes For Prospective COVID Pricing & Written Premium by Month 1.1 40,000,000 Lockdown (LD) 1.0 LD 2.0 LD 3.0 Schools re‐open Schools re‐open 1 35,000,000 Traffic volumes as % of normal 0.9 30,000,000 0.8 0.7 25,000,000 0.6 20,000,0
Slide 26: Summary of pricing challenge
Summary of pricing challenge Summary of pricing challenge Sabre has applied scientifically valid discounts in a cautious way for limited periods Pricing needs to reflect claims spend over the policy life – not current profitability Caution has benefited this year’s loss ratio through the delta
Slide 27: Sabre through the market cycle
Sabre through the market cycle Sabre’s premium and policy count throughout the cycle 351 348 335 327 289 281 243 209 216 213 211 189 142 149 211 210 197 197 170 180 173 157 150 149 140 87 99 81 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Year‐end IFPs (000s) GWP (£m) The mo
Slide 28: Market premium inflation
Market premium inflation Full picture obscured by temporary lockdown‐driven claim frequency reduction Strong evidence of market rate increases in early 2020 – reversed when first lockdown kicked in Fits and starts attempts to increase rates as lockdown starts/stopped Claims frequency benefits
Slide 29: Possible future premium inflation factors
Possible future premium inflation factors Possible premium deflation factors Modest Whiplash reform Possible premium Best view materially less than £30 inflation factors original Continued claims inflation Rates depressed for longer due to Competitor margin squeeze COVID‐19 claims frequenc
Slide 30: Sabre view of claims inflation – Unchanged: but different drivers
Sabre view of claims inflation – Unchanged : but different drivers Sabre view of market claims inflation is consistent year‐on‐year, with slightly amended underlying drivers Likely that mix of business underwritten will see competitors in a range around this Overall inflation 7.5% to 8.0% First
Slide 31: Possible premium inflation factors
Possible premium inflation factors Additional “Bent Metal” claims inflation factors Continued increased cost of parts, including potential post‐Brexit impacts Potential increased use of credit repair models by competitors Credit repair costs materially higher than traditional subrogated costs
Slide 32: Innovation Group parts cost analysis
Innovation Group parts cost analysis Innovation Group (IG) provide our First Notification of Loss (FNOL) facility and manage repairs on our behalf and for a range of insurers and other partners This gives us the ability to benefit from the same “Buying Power” as an insurer with around 4m motor p
Slide 33: Innovation Group parts cost analysis
Innovation Group parts cost analysis Change in the average cost of car parts for the top 10 manufacturers Average cost £300 £250 8.23% 3.59% 9.31% £200 5.70% 9.66% 4.14% £150 £250 £223 £231 £100 £193 £204 £169 £176 £50 £‐ 2014 2015 2016 2017 2018 2019 2020 33
Slide 34: Innovation Group parts cost analysis
Innovation Group parts cost analysis Right headlamp Average cost £300 £250 17.16% £200 11.48% 9.58% 9.15% £150 4.38% 6.99% £239 £100 £204 £183 £153 £167 £137 £143 £50 £‐ 2014 2015 2016 2017 2018 2019 2020 34
Slide 35: Innovation Group parts cost analysis
Innovation Group parts cost analysis Rear bumper Average cost £350 £300 9.89% 5.60% 3.47% £250 9.28% 0.88% 3.49% £200 £150 £311 £268 £283 £259 £227 £229 £237 £100 £50 £‐ 2014 2015 2016 2017 2018 2019 2020 35
Slide 36: Possible premium inflation factors
Possible premium inflation factors Whiplash reforms (Civil Liability Act) Market claims/premium inflation Rules now published Sabre continues to see significant on‐going claims inflation. Current view at 7.5% ‐ 8.0% To be implemented from 31 May 2021 on an accidents occurring basis Claims in
Slide 37: Possible premium inflation factors
Possible premium inflation factors MIB Levy FSCS levy Levy certain to increase due to Ogden costs There have been several insurance company failures impacting MIB “normal” claims in the last two years (Tradewise, Elite, Octagon, Lamp, Qudos) In addition recent Supreme Court judgment has held M
Slide 38: Possible premium inflation factors
Possible premium inflation factors FCA Pricing Review Reinsurance Costs Proposed remedies confirmed early summer Market price increases advised for 31 December 2020 centred on + 5% Key aspect is banning “price walking” Size and claims experience drive the level of increase Little obvious i
Slide 39: Forward looking market context – Timeline
Forward looking market context – Timeline Possible overall market actions / impacts Some competitors Unwinding of Quote volumes Significant market FCA Pricing impacts reflect “whiplash” COVID‐19 discounts increase (car sales / pricing correction increase new discounts driving tests) for claims infla
Slide 40: Sabre's investment case
Sabre’s investment case Geoff Carter
Slide 41: Strategy and key business principles
Strategy and key business principles Maintain wide Continue to develop Market leading Mid‐70% underwriting defensive non‐ underwriting footprint standard positioning performance COMBINED RATIO TARGET 80% CEILING £ 70% Strong returns BASE DIVIDEND PAYOUT Controlled and Premium and cash attractive gro
Slide 42: Pricing approach
Pricing approach In 2021 will seek to move 2020 written position towards the “bullseye” in soft market ahead of volume growth 70% low‐end where 75% “Bullseye” in 80% COR growth outstrips stable market Ceiling operational capacity conditions At any point in time we seek to optimise long term profit
Slide 43: Focus on writing profitable business
Focus on writing profitable business Disciplined underwriting, keeping our combined ratio between 70%‐80% Seeking growth only when market conditions are suitable Maintaining efficient and cost effective operations Running a diverse, multi‐channel distribution model All of this means that we
Slide 44: Generating long-term, sustainable profitability
Generating long-term, sustainable profitability Our focus on combined operating ratio leads to consistent profitability Sabre has operated its core strategy for over 18 years, which has resulted in consistent and growing profitability over the long‐term Profit has shown some fluctuations, but due to
Slide 45: Control of risk and efficient use of capital
Control of risk and efficient use of capital The Group’s focus on long‐term profitability is supported by a tight control on risk and efficient use of capital. We manage risk through: Prudent use of reinsurance Operating a low‐risk investment portfolio Consistent reserving for the cost of clai
Slide 46: A reliable dividend flow
A reliable dividend flow Our focus on combined operating ratio, prudent risk management and robust capital position allow us to provide ongoing value to shareholders through a reliable dividend flow The majority of capital generated is returned to shareholders by way of an ordinary and special divid
Slide 47: Sources of competitive advantage
Sources of competitive advantage High‐quality underwriting Data lake Cutting‐edge data enrichment Sophisticated proprietary pricing model Purely scientific risk‐based pricing Cost advantage Distribution Claims handling experience Split between brokers and direct Outsourcing where benef
Slide 48: Sabre vs InsurTech businesses
Sabre vs InsurTech businesses InsurTech “buzzwords” Automated underwriting State of the art risk pricing Machine learning enabled data lake State of the art technology Industry leading data enrichment Automation of processes via software bots Use of artificial intelligence throughout t
Slide 49: Sabre vs InsurTech businesses
Sabre vs InsurTech businesses Sabre Automated underwriting State of the art risk pricing Machine learning enabled data Lake State of the art technology Industry leading data enrichment Automation of processes via software bots Use of artificial intelligence throughout the business Li
Slide 50: Growth opportunities
Growth opportunities We had anticipated that 2020 could be the start of a growth phase – indications at the start of the year suggested this was correct COVID‐19 driven claim frequency benefits have delayed this phase In early to mid‐2021 some competitors may not adjust due to benefits earning
Slide 51: Growth pillars – organic growth is key focus
Growth pillars – organic growth is key focus Growth Product Optimising expansion ‐ Potentially opportunities in regular (but import teams or Good value our existing core limited) launch individuals with complementary book and of product expert skills in M&A exploiting our variants or complementary o
Slide 52: Summary and outlook
Summary and outlook Geoff Carter
Slide 53: Summary
Summary We remain focused on our long‐term and well established strategy; prioritising underwriting profitability over premium volume and centred on a mid‐70%’s COR target We believe growth opportunities will emerge in the foreseeable future, but exact timing of market‐turn uncertain. In the short‐t
Slide 54: Q&A
Q&A Geoff Carter Adam Westwood Trevor Webb James Ockenden Matt Wright
Slide 55: Appendices
Sabre INSURANCE GROUP Appendices
Slide 56: Reconciliation to KPIs
Reconciliation to KPIs Adjusted Profit Before Tax 2020 2019 2018 £’k £’k £’k Profit before tax 49,122 56,479 61,363 Add: Amortisation of intangible assets ‐ ‐ 501 Exceptional items ‐ ‐ ‐ Adjusted profit before tax 49,122 56,479 61,864 Adjusted Profit After Tax 2020 2019 2018 £’k £’k £’k Profit after
Slide 57: Reconciliation to KPIs
Reconciliation to KPIs Net Loss Ratio 2020 2019 2018 £’k £’k £’k Net insurance claims 88,110 101,990 97,861 Less: Claims handling expenses (7,637) (7,558) (6,536) Net claims incurred 80,473 94,432 91,325 Net earned premium 165,707 183,238 188,235 Net loss ratio 48.6% 51.5% 48.5% Expense Ratio 2020 2
Slide 58: Reconciliation to KPIs
Reconciliation to KPIs Solvency Coverage Ratio – Pre Dividend 2020 2019 2018 £’k £’k £’k Solvency II net assets 122,500 127,086 130,019 Solvency capital requirement 60,327 59,495 60,995 Solvency coverage ratio 203.1% 213.6% 213.2% Solvency Coverage Ratio – Post Dividend 2020 2019 2018 £’k £’k £’k So
Slide 59: Reconciliation to KPIs
Reconciliation to KPIs Return on Tangible Equity 2020 2019 2018 £’k £’k £’k IFRS net assets at year end 266,400 267,417 265,148 Less: Intangible assets at year end ‐ ‐ ‐ Goodwill at year end (156,279) (156,279) (156,279) Closing tangible equity 110,121 111,138 108,869 Opening tangible equity 111,138
Slide 60: Reconciliation to KPIs
Reconciliation to KPIs Gross Earned Premium 2020 2019 2018 £’k £’k £’k Gross written premium 173,235 197,040 210,017 Movement in unearned premium reserve 12,527 6,640 (1,395) Gross earned premium 185,762 203,680 208,622 Dividend Payout Ratio 2020 2019 2018 £’k £’k £’k Adjusted profit after tax 39,79
Slide 61: Disclaimer
Disclaimer LEGAL NOTICE This presentation has been prepared to inform investors and prospective investors in the secondary markets and other market participants about Sabre Insurance Group plc and its subsidiaries (the "Group") and does not constitute an offer of securities under any applicable legi