Sabre Insurance Group Plc · LSE:SBRE
Sabre Insurance — FY2019 Earnings Presentation
50 slides from Sabre Insurance's earnings presentation, Sep 27, 2020
Slide 1: 2019 Full year results presentation
2019 Full year results presentation 2019 Restricted - External
Slide 2: Presenters and Q&A
Presenting and Q&A Presenters and Q&A Geoff Carter Adam Westwood CEO CFO Q&A Trevor Web James Ockenden Claims Director Chief Actuary 2 Restricted - External
Slide 3: Today's agenda
Today’s agenda 2019 Highlights 1 Geoff Carter Financial results 2 Adam Westwood Market context 3 Geoff Carter Sabre’s strategic approach – A Reminder 4 Geoff Carter Summary, COVID-19 impacts and Outlook 5 Geoff Carter Q&A 6 All 3 Restricted - External
Slide 4: 2019 Highlights
2019 Highlights Geoff Carter Restricted - External
Slide 5: Financial highlights
Financial highlights Continued absolute focus on profitability delivering LOSS RATIO % robust results in the context of a turbulent market 51.5% backdrop 46.5% 48.5% Leading underwriting performance, with continued strong 2017 2018 2019 profitability and returns, and attractive organic capital gen
Slide 6: Operational highlights
Operational highlights Current focus Tracking / covering long-run claims and other cost inflation with price increases Optimising profit within our mid-70% to 80% ceiling COR range Understanding possible changes following whiplash reforms and being ready to respond appropriately Continued ro
Slide 7: Operational highlights
Operational highlights Other activities Rolled-out “Insure 2 Drive” van insurance to most price comparison websites Agreed new distribution agreement with SAGA to launch mid 2020 Appointed Goldman Sachs Asset Management to manage investments within conservative guidelines Maintained high lev
Slide 8: Financial results
Financial results Restricted - External
Slide 9: Results summary
Results summary 2019 financial performance FY 2019 FY 2018 Change Gross written premium £197.0m £210.0m (£13.0m) Premium income down 6.2% against the same Net earned premium £183.2m £188.2m (£5.0m) period in 2018, while we continue to increase Combined ratio 73.4% 70.6% 2.8ppts prices to match cla
Slide 10: Leading underwriting performance
Leading underwriting performance Combined ratio evolution Financial year combined ratio below long-run mid-70% target, driven by a strong loss ratio 22.1% 21.9% Current accident-year loss ratio represents claims 48.5% 51.5% incurred in the accident year to date and is 2.8pp consistent with busin
Slide 11: Conservative approach to risk
Conservative approach to risk Investment portfolio breakdown Investments continue to be held in UK government bonds, in-line with our conservative approach to 31.8 UK government debt risk £m Cash Investment portfolio managed in-house and focused on capital preservation to support our 263.6 profi
Slide 12: Attractive capital generation
Attractive capital generation We continue to benefit from strong profitability Return on Tangible Equity 41.6% Return on tangible equity and an efficient capital model 110.0 92.1 Strong capital generation led to a year-end solvency ratio of 214% Dividend policy set out at IPO is to pay an inte
Slide 13: 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 14: Market context
Market context Restricted - External
Slide 15: Sabre view of claims inflation
Sabre view of claims inflation Sabre view of market claims inflation is consistent YOY, but with a possibility this may trend upwards Likely that mix of business underwritten will see competitors in a range around this Overall inflation 7.5-8.5% PI frequency flat, “Bent Metal” severity 10% infla
Slide 16: Possible premium inflation factors
Possible premium inflation factors Additional “Bent Metal” claims inflation factors Ongoing migration of Third Party claims to a credit repair model Credit Repair costs materially higher than traditional subrogated costs and higher levels of inflation Increased Total Loss values (driven by inc
Slide 17: 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 They facilitate the repair of vehicles across a range of insurers and other partners This gives us the ability to benefit from the same “Buying Pow
Slide 18: Ford Fiesta
Ford Fiesta Average Manufacturers List Price per year OEM part 2014 2015 2016 2017 2018 2019 Bonnet £165 £161 £170 £186 £202 £208 Front Bumper £297 £295 £339 £366 £376 £403 Rear Bumper £306 £316 £314 £358 £355 £379 Left Headlamp £166 £177 £213 £218 £237 £254 Right Headlamp £162 £178 £209 £216 £230 £
Slide 19: Vauxhall Corsa
Vauxhall Corsa Average Manufacturers List Price per year OEM part 2014 2015 2016 2017 2018 2019 Bonnet £182 £188 £218 £244 £256 £257 Front Bumper £220 £227 £243 £269 £279 £290 Rear Bumper £210 £206 £221 £239 £255 £258 Left Headlamp £130 £133 £151 £167 £181 £234 Right Headlamp £123 £136 £152 £170 £18
Slide 20: Volkswagen Polo
Volkswagen Polo Average Manufacturers List Price per year OEM part 2014 2015 2016 2017 2018 2019 Bonnet £183 £185 £204 £220 £228 £229 Front Bumper £178 £185 £197 £209 £215 £224 Rear Bumper £171 £170 £187 £205 £210 £216 Left Headlamp £107 £109 £118 £132 £132 £165 Right Headlamp £110 £109 £113 £155 £1
Slide 21: Premium inflation position
Premium inflation position Year-on-year premium delta consistent, despite continued rate increases Evidence of market rate increases late 2019 and into 2020 Anecdotal feedback from brokers suggests a steady drip feed of inflationary monthly increases now underway… ….but we have not seen a step
Slide 22: Possible future premium inflation factors
Possible future premium inflation factors Possible premium deflation factors Modest (at best) Whiplash reforms Possible premium inflation factors Continued claims inflation Competitor margin squeeze Whiplash reforms impact Lawyer legal reforms response FCA pricing review MIB levy incre
Slide 23: Possible premium inflation factors
Possible premium inflation factors FCA Pricing Review Market claims / premium inflation Proposed remedies due in summer Sabre continues to see significant on-going claims Believed to be a clear understanding that renewal inflation. Current view at circa 8% but with discounts will drive an equa
Slide 24: 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 impacting MIB “normal” claims failures in 2019 (Elite, Octagon, Lamp, Qudos) In addition recent Supreme Court judgement has Others may be struggling as
Slide 25: Possible premium inflation factors
Possible premium inflation factors Reinsurance Costs Whiplash reforms (Civil Liability Act) Market price increases advised for 31 /12 Range of outcomes from modest claims cost renewals range from mid single digit to significant decreases to a mildly inflationary impact double digit increases dri
Slide 26: Civil Liability Act – where are we?
Civil Liability Act – where are we? Known Unknown Original plan to go live April 2020 for accidents The civil procedure rules remain unknown occurring after that date now moved to August We do not know how multiple injuries (e.g. a soft 2020 tissue injury to neck and bruising to chest) will be
Slide 27: Civil Liability Act – where are we?
Civil Liability Act – where are we? Risks Change of Government is the only resolved risk Changes to current behaviours modified Rules and policy decisions cannot be supported by The emergence of new representation models, planned IT build including unregulated representation Testing of por
Slide 28: Possible premium inflation factors - Ogden
Possible premium inflation factors - Ogden Ogden discount rate Rate moved to (0.25%) from (0.75%) – announced 15th July 2019 Impact on Sabre Estimated impact on Sabre recorded in H1 2019 financial result Approximately £0.3m net P&L benefit Gross reserves decreased by c £9.0m Impact on Insuranc
Slide 29: Overall cost inflation
Overall cost inflation 115% 110% 105% Claims and expenses Base costs for 2019 100% 95% 90% Claims and expenses One-off release of Increas in the cost of Reinsurance cost Increase in industry for 2019 accrual claims increases levies We intend to cover potential cost increases of over 10% with price c
Slide 30: Sabre's strategic approach – A Reminder
Sabre’s strategic approach – A Reminder Geoff Carter Restricted - External
Slide 31: 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 32: Pricing approach
Pricing approach In 2020 will seek to move 2019 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 33: Impacts of Sabre prudent views
Impacts of Sabre prudent views Possible outcomes Sabre current cautious approach is correct Sabre current view is too cautious Claims and other cost inflation leads to market Data will demonstrate too much prudence in margin compression pricing assumptions, allowing prices to be This leads to
Slide 34: Summary and outlook
Summary and outlook Geoff Carter Restricted - External
Slide 35: 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% COR target Signs of market price increases but not yet enough to close the jaws between claims and premium inflation We are comfortable with
Slide 36: COVID-19 impacts and actions
COVID-19 impacts and actions Very aware of the wider economic and societal context within which we are reporting these results We intend to continue employing all of our colleagues on full salaries We do not believe we will need to take direct advantage of any of the Government support currently ava
Slide 37: COVID-19 impacts and actions
COVID-19 impacts and actions Likely short term reduction in claims frequency as less miles being driven Potential subsequent increase in claims cost if parts are hard to source, body shops are not able to operate and a risk of new claim trends emerging . We have a nimble, expert and focused claims t
Slide 38: Possible COVID-19 costs impacts
Possible COVID-19 costs impacts Possible cost inflation factors Possible cost reduction factors Parts availability & cost Short term reduction in claims frequency Bodyshop capacity - during and post social distancing Increase in miles driven post social distancing Inability to purchase rep
Slide 39: COVID-19 impacts and actions
COVID-19 impacts and actions The vast majority of our staff are now working from home. Appears to be working efficiently but operational pressures may emerge We will look to prioritise essential workers claims if required We are taking a sympathetic view towards some risk detail changes – e.g. Taxi
Slide 40: Investment Case features in market conditions
Investment Case features in market conditions Consistent and stress tested strategy that delivers consistent profitability within a relatively narrow band across the motor market cycle Absence of debt and strong capital generation supports an attractive dividend across the market cycle Vast majority
Slide 41: Dividend decision in light of COVID-19 impacts
Dividend decision in light of COVID-19 impacts Extensive scenario modelling carried out, including impacts of very significant increase in policy cancellations. Under reasonably foreseeable scenarios it is highly unlikely we would undermine our capital base More extreme and long lasting scenarios mo
Slide 42: Outlook – Pre COVID-19
Outlook – Pre COVID-19 Premium outturn for the year will depend on market conditions. Central base case of margin enhancement before potentially modest growth On track to deliver earned COR very slightly above long term target ahead of this returning to a lower level in 2021 Continued strong capital
Slide 43: Outlook – Post COVID-19 impacts
Outlook – Post COVID-19 impacts Premium outturn for the year uncertain. Reduced car sales and customer behaviours may drive lower new quotation volumes Risk of some competitors chasing lower quote volumes through price discounts &/or reducing prices due to lower, temporary, claims frequency. May set
Slide 44: Q&A
Q&A Geoff Carter Adam Westwood Trevor Webb James Ockenden Restricted - External
Slide 45: Appendices
Appendices Restricted - External
Slide 46: Reconciliation to KPIs
Reconciliation to KPIs Adjusted Profit Before Tax 2019 2018 2017 £'k £’k £’k Profit before tax 56,479 61,363 55,512 Add: Amortisation of Intangible assets - 501 887 Exceptional items - - 7,542 Adjusted profit before tax 56,479 61,864 63,941 Adjusted Profit After Tax 2019 2018 2017 £'k £’k £’k Profit
Slide 47: Reconciliation to KPIs
Reconciliation to KPIs Net Loss Ratio 2019 2018 2017 £'k £’k £’k Net insurance claims 101,990 97,861 92,912 Less: Claims handling expenses (7,558) (6,536) (6,044) 94,432 91,325 86,868 Net earned premium 183,238 188,235 186,866 Net loss ratio 51.5% 48.5% 46.5% Expense Ratio 2019 2018 2017 £'k £’k £’k
Slide 48: Reconciliation to KPIs
Reconciliation to KPIs Solvency Coverage Ratio – Pre Dividend 2019 2018 2017 £'k £’k £’k Solvency II net assets 127,086 130,019 97,873 Solvency capital requirement 59,495 60,995 61,087 Solvency coverage ratio 213.6% 213.3% 160.2% Solvency Coverage Ratio – Post Dividend 2019 2018 2017 £'k £’k £’k Sol
Slide 49: Reconciliation to KPIs
Reconciliation to KPIs Return on Tangible Equity 2019 2018 2017 £'k £’k £’k IFRS net assets at year end 267,417 265,148 231,993 Less: Intangible assets at year end - - (501) Goodwill at year end (156,279) (156,279) (156,279) Closing tangible equity 111,138 108,869 75,213 Opening tangible equity 108,
Slide 50: 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