G R O U P Full Year Results

Transcription

1 2014 Full Year Results 10 March 2015

2 Agenda 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

3 Business overview A solid set of results Financials In-force policies million +0.7% Market Our actions Focused and disciplined underwriting Gross written premiums 517.8m (3.4)% Competitive rating environment Continuing with segment re-entry Combined operating ratio 91.9% (2.2)ppts Launching footprint expansion initiatives Earnings per share 19.8 pence (11.6)% Increasing personal injury claims frequency trends Taking strategic control of Gocompare Full year dividend per share 16.8 pence +6.3% Enhancing the customer experience and retention Slide 2

4 Gocompare update Taking strategic control Consideration of 95m for outstanding 50% of Gocompare Earnings enhancing in year one on a cash basis Invest in Gocompare to take advantage of the significant opportunities available in the medium term. Brand Further diversification of Group s income streams Expect to assume control on 31 March 2015 Markets Customers Technology Partnerships Verticals Substantial opportunities in the medium term Slide 3

5 Financial review Darren Ogden, Chief Finance Officer Slide 4

6 Group financials Key points Gross written premiums lower at 517.8m In-force policies up 0.7% to 1.946m Combined operating ratio 2.2ppts higher at 91.9% Profit after tax lower at 82.4m, partly reflecting the one-off costs associated with the acquisition of Gocompare Full year dividend of 16.8 pence, represents a payout ratio of 85% Mvt Gross written premiums ( m) (3.4)% Trading profit ( m) (11.6)% Profit before tax ( m) (12.8)% Profit after tax ( m) (11.6)% Combined operating ratio (%) (2.2)ppts Loss ratio (%) (2.1)ppts Expense ratio (%) (0.1)ppts Investment return (%) (0.2)ppts In-force policies ( IFPs ) (millions) % Return on capital employed of 30.6% achieved through efficient capital base Pro forma earnings per share (pence) (11.6)% Full year dividend per share (pence) % Return on capital employed (%) (7.1)ppts Slide 5

7 Trading profit 2014 Income streams 2014 m 2013 m 12.5m Underwriting m Non-underwritten ASR (1) m Investment income Share of joint venture (Gocompare) (2) Note: See Appendix for footnotes 51.0m 8.4m Underwriting income streams impacted by soft rating environment Motor underwriting Non-underwritten ASR Share of joint venture (Gocompare) Home underwriting Investment income Through full ownership of Gocompare the Group s income streams will be further diversified in 2015 Slide 6

8 Motor Key points Gross written premiums lower at 429.3m due to continued competitive rating environment In-force policies broadly flat at 1.378m Mvt Gross written premiums ( m) (3.9)% Loss ratio impacted by re-emergence of small bodily injury claims inflation in H Low expense ratio at 22.5% Trading profit ( m) (24.1)% Loss ratio (%) (2.7)ppts Expense ratio (%) ppts In-force policies ( 000s) 1,421 Combined operating ratio (%) (2.5)ppts 1,221 1,255 1,328 1,385 1,378 In-force policies (000s) 1,378 1,385 (0.5)% ASR per IFP ( ) (6.2)% excluding Claims Income ( ) (3.6)% HY FY Slide 7

9 Motor loss ratio Motor 67.2% 2.0% (4.7)% 69.9% 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 H Continued strong favourable development of prior accident year reserves, equivalent to 19.5% of Motor net earned premium (2013: 17.5%) Slide 8

10 Home Key points Gross written premiums broadly flat at 88.5m In-force policies increased 3.6% to 0.568m Sub 90% combined operating ratio achieved through good risk selection in competitive market conditions Expense ratio deterioration to 30.8% as the competitive rating environment earns through and volumes grow Mvt Gross written premiums ( m) (0.9)% Trading profit ( m) (12.5)% Loss ratio (%) ppts Expense ratio (%) (1.9)ppts In-force policies ( 000s) Combined operating ratio (%) (1.7)ppts In-force policies (000s) % ASR per IFP ( ) (4.2)% HY FY Slide 9

11 Home loss ratio Home 59.3% (1.1)% 1.3% 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 12.5% of Home net earned premiums (2013: 13.6%) Weather costs for the full year are in line with expected weather claims costs for 2014 Slide 10

12 Favourable development in reserves Key points Net accident year loss ratio development Total Prudent approach to reserving Strong favourable development of prior accident year reserves 90.0m in 2014 (2013: 82.4m) Reserves remain in excess of 15% above our actuarial best estimate 100% 80% 60% 40% 20% 0% Initial Booked Net Loss Ratio Current Booked Net Loss Ratio Net accident year loss ratio development Motor Net accident year loss ratio development Home 120% 120% 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% % Initial Booked Net Loss Ratio Current Booked Net Loss Ratio Initial Booked Net Loss Ratio Current Booked Net Loss Ratio Slide 11

13 Additional Services Revenue Key points Additional Services Revenue ASR income excluding Claims Income up 1.7% to 97.3m, broadly in line with in-force policy growth 95.7m 103.9m 103.0m 97.3m Motor ASR per IFP, excluding Claims Income reduced to 62.0, in line with guidance ex Claims Income ex Claims Income Home ASR per IFP slightly down as the Group continues to strategically price its Home additional insurance products Motor ASR per IFP Non-underwritten additional insurance products Underwritten additional insurance products Claims income Home ASR per IFP ASR per IFP ASR per IFP (ex Claims Income) ASR per IFP Slide 12

14 Investment returns Return on invested funds Gocompare Full year return of 12.4m impacted by second half volatility in financial investment markets and lower average assets under management in 2014 Investment return of 2.0% (2013: 2.2%) Portfolio remains conservative with primary objectives of capital preservation and maintaining liquidity Share of trading profit from Gocompare lower at 12.5m (2013: 12.9m) Share of profit after tax flat year-on-year at 8.5m Cash dividend of 8.8m (2013: 6.0m) 100% ownership in Gocompare expected on 31 March 2015; further diversification of profit streams Investment income Share of Gocompare trading profit m m 12.9m 12.5m 15 m (2.5) (3.4) (0.1) Interest and other income Investment charges Net gains and losses on investments Slide 13

15 Debt & Regulatory capital Subordinated notes IGD coverage On 19 December 2014, the Group issued 125m 6.75% ten year tier two subordinated notes 369% 308% 437% 377% Issue resulted in net proceeds of 122.1m Interest expense of 0.3m in 2014, with an annualised expense of 8.4m Coverage Post final dividend Regulatory capital Capital position further strengthened in 2014 through issue of subordinated notes m qualified as lower tier two capital under Solvency I Coverage under IGD remains strong at 377%, after the final dividend Solvency II On track no significant change expected in capital requirements Debt expected to be permitted as qualifying capital but restricted to 50% of SCR Capital requirement to be calculated using the standard formula Slide 14

16 Dividend Key points Dividend calculation 2014 Payout ratio of 85% comprises Base dividend of 50% Special dividend of 35% 2014 Profit after tax (a) 82.4 m Payout Ratio Base (b) 50% Payout Ratio Special (c) 35% Annualised payout ratio (b+c) = (d) 85% Full year dividend (a*d) = (e) 70.1m Full year dividend per share (e) / no. of shares in issue 16.8p Interim dividend 5.1p Final dividend 11.7p 2015 Dividend Dividend timetable The dividend payout ratio to be set with reference to the Group s underlying profit after tax As in 2013 and 2014 the interim dividend is most likely to be set on a more conservative basis than the final dividend Ex-dividend date 9 April 2015 Record date 10 April 2015 Payment date 22 May 2015 Slide 15

17 Chief Executive review and outlook Stuart Vann, Chief Executive Officer Slide 16

18 Underwriting discipline maintained while creating opportunities IFPs 1.933m Motor segment re-entry Motor footprint expansion Motor core book Home core book IFPs 1.946m No Claims Discount - Motor Age group above 30 - Motor 88% (2013: 89%) 86% (2013: 85%) 5 yr + <5 yr 30 and below Above 30 Source: Management information, pie charts relate to Motor only Slide 17

19 Motor underwriting opportunities 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 from footprint expansion Average written premium Indexed contribution Core Segment re-entry Footprint expansion Core Segment re-entry Source: Management information New business average written premium from April 2014 to December 2014 Source: Management information Indexed current capped contribution per policy, New Business and Renewals combined for Core & Segment re-entry (from Feb 2013) Slide 18

20 Motor rating esure & the market 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 Confused.com/TW (1) (8)% (13)% AA (2) (10)% (14)% ABI (3) (4)% (9)% Source: See Appendix for footnotes Slide 19

21 Motor Risk and Rate Review LASPO Reforms Rating cycle Underwriting IP Segment re-entry Gender 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

22 UK motor claims environment Claims frequency small bodily injury 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) Small bodily injury claims frequency on the rise, up 2% for 2014 compared to 2013 LASPO reforms benefits noted in 2013, eroded by increase in claims frequency in 2014 Second half of 2014 has seen a 12% increase in claims notifications compared to the second half of Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Average general damages awarded using MoJ portal (1) (1) Source: See Appendix for footnotes 2,750 Claims severity small bodily injury 2,500 2,250 December 2014 general damages are 24% higher than April 2013 when LASPO reforms were introduced This is ahead of the expected increase from LASPO Reforms and JCG guidelines 2,000 1,750 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Source: See Appendix for footnotes Slide 21

23 UK Motor rating environment many factors are coming together Gibraltar transition to Solvency II Solvency II in 2016 Large bodily injury claims Rate reductions earning through Oil prices & increased mileage Small PI claims frequency & general damages Accidental damage claims inflation Slide 22

24 Summary & Outlook 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 ratio of 85% Acquisition of the remaining 50% of Gocompare for 95m funded by the issue of 125m 6.75% ten year tier two subordinated notes; expect to complete on 31 March 2015 Outlook Modest growth in premiums and in-force policies in the first quarter, assuming rating environment remains stable We expect the combined operating ratio trend in 2014 to continue into 2015 largely reflecting ongoing claims inflation Remain well positioned for further growth when market conditions permit Slide 23

25 Q&A Slide 24

26 Appendix Slide 25

27 Investment portfolio Key points The Group deploys a conservative investment strategy with the primary objectives of capital preservation and maintaining liquidity The 122.1m net proceeds from the issue of the 6.75% ten year tier two subordinated notes are currently held in a AAA rated liquidity fund Short duration of approximately one year with 83% of investments A rated and above on an adjusted basis Asset allocation 4% 6% 5% 16% 18% 30% 80% 76% adjusted 65% 2014 Fixed income Cash & liquidity funds Equities Note: Adjusted removes the impact of the subordinated notes issue held as AAA rated liquidity fund Fixed income 614.1m 545.5m 38% 52% 23% 19% 19% 11% 20% 18% FRN's Government bonds Covered / RMBS Corporate bonds Credit rating 15% 17% 14% 24% 22% 28% 21% 39% 34% adjusted 24% 18% 44% 2014 AAA AA A BBB or below or not rated Note: Credit rating relates to investments bearing credit risk and cash and cash equivalents Note: Adjusted removes the impact of the subordinated notes issue held as AAA rated liquidity fund Slide 26

28 Regulation FCA May Insurers' management of claims - household and retail travel (1) July General insurance Add-Ons: Final Report - Confirmed Findings of the Market Study (2) December 2014 Consultation paper: Complaint handling (3) CMA September final report into UK private motor insurance market (4) PRA Solvency II further guidance provided throughout 2014 (5) UK government October latest reforms aimed at combating fraudulent claims and reducing the cost of motor insurance (6) Flood Re - implementation late 2015 (7) Findings Thematic Review conducted by the FCA shows the majority of policyholders are satisfied with the claims handling by their insurers, however there still remain few areas of improvement: - management of supply chains - clarity of product documentation - communication and ownership of claims - Proposed banning default opt-out sales - Improvements to how price comparison websites provide add-on options and pricing - Proposed publishing of claims ratios The consultation paper follows the thematic review conducted in 2014 and recommends the following: - increasing the time that firms can deal with initial expression of dissatisfaction - making all complaints reportable - removing 0845 numbers and premium rate ones from post sales - giving all complainants the right to refer to FOS if they remain dissatisfied - Wide Most Favoured nation clauses have been banned for price comparison websites - Improved transparency on no claims bonus protection - FCA to give further consideration to add-ons sold through price comparison websites - Market consistent balance sheets - Risk-based capital - Own risk and solvency assessment (ORSA) - Senior management accountability - Supervisory assessment Changes to law -Initial medical reports in personal injury claims to be set at Prohibits medical experts who produce the medical report from offering the treatment to the injured - Due for implementation in April Not-for-profit flood reinsurance fund to provide affordable home insurance cover for all, managed by the insurance industry Source: See Appendix for footnotes Slide 27

29 Accounting for Gocompare Key points: The acquisition of Gocompare will create a fair value gain due to step accounting required by IFRS 3 Business Combinations In deriving an underlying profit before tax the Group will adjust for the amortisation on current acquired intangibles, the amortisation of Gocompare acquired intangibles and the fair value gain The Group s dividend payout ratio will be set with reference to underlying profit after tax Segmental reporting: trading profit to profit before tax Trading profit In million 2015 x.x - Fair value gain x.x - Amortisation of Group's intangibles (x.x) - Amortisation of acquired intangibles (x.x) - Finance costs (x.x) - Transaction costs (x.x) Underlying profit: - Non trading costs (x.x) - Share of joint venture tax (x.x) In million 2015 Profit before tax x.x - Fair value gain (x.x) - Amortisation of current acquired intangibles x.x - Amortisation of Gocompare acquired intangibles x.x Profit before tax Taxation expense Profit after tax x.x (x.x) x.x Underlying profit before tax x.x Slide 28

30 References 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 and fees generated from the appointment of firms used during the claims process, including medical, vehicle repair and car hire suppliers ( Claims Income ). Non-underwritten Additional Insurance Products revenue represents the commission margins for the Group generated from sales of such products. 2. Gocompare The Group holds a 50% shareholding in Gocompare.com Holdings Limited Slide Confused.com/Towers Watson Car Insurance Price Index published 12 January 2015 AA British Insurance Premium Index ( AA ) published 20 January 2015 Association of British Insurers ( ABI ) Motor Insurance Premium Index published 02 February 2015 Slide Ministry of Justice Claims Portal Slide Financial Conduct Authority ( FCA ) FCA FCA Competition and Markets Authority Prudential Regulation Authority Medical reports legislation Flood Re regulation - Slide 29

31 Disclaimer 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, scope, platform, future, expected, estimated, accelerating, expanding, continuing, potential and sustainable and similar expressions or variations of such expressions identify certain of these forward-looking statements. Others can be identified from the context in which the statements are made. These forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates and other factors, which may be beyond esure Group plc s (the Group s ) control and which may cause actual results or performance to differ materially from those expressed or implied from such forward-looking statements. All statements (including forward-looking statements) contained herein are made and reflect knowledge and information available as of the date of preparation of this presentation and the Group disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements due to the inherent uncertainty therein. Nothing in this document should be construed as a profit forecast. Slide 30