Earnings Transcript for DLG.L - Q1 Fiscal Year 2024

Dhruv Gahlaut: Good morning, everyone, and thank you for joining our half year results presentation. For those of you who don't know me, I'm Dhruv Gahlaut, I joined the group for the last few weeks back, and I run the strategy and the Investor Relations function. Now moving on to the results presentation, today, I'm joined by Adam Winslow, our CEO; Neil Manser, our Group CFO; and Lucy Johnson, MD of the Motor business, who will take you through today's presentation, following which, we will open for Q&A. At this point, over to Adam now.

Adam Winslow: Thanks, Dhruv. Good morning, everyone. First, let me start with the key messages. At the Capital Markets Day in July, we presented a diagnosis of where the group is, what needs to be fixed and what success looks like. Whilst we're in the early stages of that plan, work is underway on all work streams, and we're starting to see early signs of improvement across the group. As expected, this initial progress isn't yet reflected in today's results as these results reflect decisions and actions principally taken last year. They do not, therefore, yet represent true underlying earnings power of the group. Whilst the Motor strategy is in the process of being implemented, I'm pleased that in the first half, Motor returned to profit and showed a 12-point improvement in the current year loss ratio compared to the first half of 2023. During the first half, we saw an expected decline in policy count as we continue to re-price the book and trade with discipline, writing business above a 10% net insurance margin. As outlined in July, we have a plan to return to growth in Motor and to that end, it's positive to see ratio of 200% following positive capital generation in the first half. The Board has reviewed the progress the group has made and concluded it's appropriate to pay a dividend of 2.0p per share. Overall, as I said, we're in the early stages of our turnaround, and our progress is not likely to be linear, and inevitably, there will be challenges to deal with. I remain confident that we can deliver the targets I set out at our recent Capital Markets Day. I'll now hand over to Neil for the financial update.

Neil Manser: Thanks, Adam. Let me start with the results overview on Slide 6. As Adam said, the headline for this half is that we delivered strong premium growth, return to profitability and had good capital generation. Written premiums were up 54% through a combination of pricing actions in Motor, the partnership with Motability and double-digit premium growth in non-Motor. The net insurance margin was 1.8% and you can see the split of this between Motor and non-Motor, our revised reporting segment on the top right of this slide. Operating profit was GBP 64 million, GBP 157 million better than last year primarily due to the improvements in Motor. We exit the half year with a strong solvency ratio of 198% after the 2.0p per share dividend we're announcing today. So overall, a profitable first half, and we expect to see further improvement in the Motor result, in particular, in the second half of the year. Turning to Motor now on Slide 7, premium in Motor was up 77%, with the bulk of the growth coming from the Motability partnership, which commenced in Q3 last year and so is not in the half year comparative. If I exclude Motability, premium growth was 10%, reflecting higher average premium, but on a lower policy count. And Lucy will share more on Motor trading after me. As I said before, 2024 represents a transitional year for earnings in Motor with the first half result still impacted by business written in the first half of 2023. Now despite this, we have begun to see the Motor result benefit from the pricing actions we've taken, and you can see this in the current year claims ratio, which was 12 points better than the first half of last year. Prior year reserve movements were broadly neutral with the small strengthening coming from third-party damage. I'd repeat what I said back in March that I see limited opportunity for prior year releases in the short term. The combination of higher premiums and a lower expense ratio delivered a 23-point improvement in the net insurance margin. So following the operating loss of last year, we have returned to profitability with a GBP three million operating profit. Let's turn to Motor average premiums on Slide eight and here, we've updated the chart we showed you at the last couple of results. As you can see, average written premiums in the first half were broadly stable with the fourth quarter of last year. However, average earned premium is still rising, as you can see from the dark grey line on the chart and this is further to go in the second half of this year. I've just talked about the year-on-year Motor loss ratio improvement. And on the right, you can see the impact on the Motor current year net insurance margin, which improved six points versus the second half of last year. During the first half of this year, we continue to write our net insurance margin above 10%, and this will support the mechanical earn-through of margin through 2024 and into 2025. So let's move on to non-Motor on Slide 9. As I said earlier, we're now reporting Home, Rescue and Commercial Direct products in one segment, in line with how we run the business. Non-Motor delivered written premium growth of 14% during the first half, which is ahead of our growth target of 7% to 10%. And own brand policy count was broadly stable this year. Adam will talk through the individual product trading performances later on. The net insurance margin for non-Motor was strong at 11.6% or 10.1% normalized for event weather. Now the reduction versus last year was due to a combination of higher weather-related claims this year and lower prior year releases. Overall, non-Motor delivered a strong result in the first half of 2024, with double-digit premium growth, the net insurance margin of 11.6% and an operating profit of GBP 61 million. So let's move on to operating expenses on Slide 10. And the headline here is that the first half saw a two point reduction in the operating expense ratio versus the half year last year. And this was the result of good cost control and higher earned premium. Overall, operating expenses for ongoing operations were GBP 278 million, an increase of 11% compared with the first half of 2023. Now this was primarily due to costs included within levies associated with the Motability partnership and higher amortization. And I talked about both of these features at the full year results. If we look at controllable operating expenses and exclude Motability, these were 3% lower than last year and Adam will talk more about cost progress in a minute. As we look ahead to the full year, I'd expect the premium impact to be less pronounced in the second half, and we expect the operating expense ratio for the full year to be broadly flat compared with 2023. So let's move on to capital and then dividends on Slide 11. Now let me first deal with the miscalculation in the year-end reported capital figures. Very disappointing that this happened. And as you'd expect, we've already taken action to ensure the controls around this specific area have been strengthened. The corrected year-end solvency coverage is 188%, which is still above the 180% we target. Overall, capital generation in the first half has been good, but did benefit from some one-offs, including market movements. If I exclude market movements and the one-offs, I'd estimate capital generation net of capital expenditure was around seven points in the first half of the year. We're announcing a dividend of 2.0p per share. And on a post-dividend basis, we end the half year with a strong ratio of 198%. As a reminder, our revised dividend policy is that we are aiming for a regular dividend of around 60% of post-tax operating profit. So to summarize on Slide 12 before I hand over to Lucy, first, we delivered strong premium growth in the first half across both Motor and non-Motor. Secondly, we saw a significant improvement in the first half net insurance margin due to the earn through of higher premiums in Motor and another strong result in non-Motor. And thirdly, we ended the first half with a strong solvency and have declared a 2.0p per share dividend. Thank you, and over to Lucy.

Lucy Johnson: Thank you, Neil. Good morning, everyone. I want to start by providing an overview of the key messages I'll be sharing today. First, as I outlined at Capital Markets Day, our strategic focus remains on developing insurance technical excellence within Motor. And in order to drive for sustained profitable growth, I remain confident in our strategy and our refreshed team are in full execution mode, delivering the important changes, which will enable us to trade effectively. Secondly, our experienced team and new capability has enabled us to monitor and respond to the market as we continue to see claims inflation that's elevated, but improving, whilst also observing some reductions in market new business premiums, particularly in Q2. Thirdly, against this market backdrop, we have traded with discipline, prioritizing margin over volume. Whilst we continue to see policy numbers decline, the rate of decline is improving through H1, and we're seeing positive trends in the early period of half 2. Fourthly, as I laid out at Capital Markets Day, we have a combination of Motor initiatives which are starting to deliver, with acceleration expected in the second half of the year. And finally, as Neil said earlier, 2024 is a transition year for Motor earnings. We expect further improvements in margin to come through the second half of this year. At our Capital Markets Day, I shared our refreshed focus in insurance technical excellence within Motor in order to drive for sustained profitable growth. We are prioritizing our effort across each of these four elements

Adam Winslow: Thank you, Lucy. Turning to Slide 21, our ambition remains for DLG to become the customer's insurer of choice. As I said upfront, we're in the early stages of our turnaround, but I'd like to highlight a few of our achievements in the first half. I've recruited an experienced an impressive new leadership team. Our most recent joiner is Dhruv, our new Chief Strategy and Investor Relations Officer. The rest of the team are joining us during Q4 and all have a track record of execution in this market. First half, we completed a root and branch strategy review across our entire group and decided to focus our portfolio on key lines where we see the greatest opportunity for targeted profitable growth. As a result, we've moved other personal lines into noncore and are managing them consistent with our strategy of doing fewer things better. We've created a bottom-up cost execution plan detailing the levers to support our target to deliver at least GBP 100 million in gross run rate cost savings. We've expedited our work on the new target operating model and have mobilized best-in-class experts to how to simplify and streamline the business. We've taken important steps towards improving customer digital adoption. As Lucy just said, and we released our new Churchill app, which now has over 16,000 downloads. This was built and delivered in just 12 weeks and this capability enabled us to swiftly launch a Direct Line app only last week. In Rescue, our plans to expand through partnerships are off to a good start, and we plan to actively grow this channel further. Commercial Direct, we've expanded our SME footprint by helping trades people to protect their premises with their showroom, workshop office or their home, demonstrating our ability to grow our presence in underserved segments. In summary, we've started to make progress. And whilst there's a lot more to do, we have a clear strategy and plan to follow. So turning to non-Motor on Slide 22, we delivered a strong result and see substantial opportunity for further growth. Non-Motor delivered double-digit premium growth and net insurance margin of 11.6% and operating profit of GBP 61 million. Let's take a closer look at each of these businesses, starting with Home. Home, as you know, is the second largest personal lines market in the U.K. with GBP 6.4 billion of gross written premium and we already operate at scale with a 9% share. The market has been challenging over the past three years with weather events and high claims inflation at a time where little or no meaningful rate was being applied. Against that backdrop, we managed the period well, pricing ahead of the market whilst maintaining strong retention and delivering positive earnings for the group. As market inflation has returned, our competitiveness has improved across our own brand portfolio, we saw a pleasing increase in new business sales alongside higher average premiums. As a result, we've delivered three consecutive quarters of own brand policy count growth and premium growth of 21% in the first half. This growth has been achieved while continuing the rollout of our new technology platform, which is progressing well. We're writing privileged policies on the new platform, and we plan to start writing Churchill and Direct Line policies on it by the end of this year. Turning to Commercial Direct on Slide 24. Our portfolio covers landlord, van and SME, which includes insurance for trade people, office professionals and other small businesses. We've consistently achieved strong premium growth in commercial and grew 14% in the first half. This was primarily driven by landlord and SME, which make up over 60% of our portfolio and have been delivering consistently healthy margins. Landlord policy count was stable through the first half, and we delivered 16% premium growth year-on-year through a combination of rating action and better serving the needs of our customers with increased take-up of our landlord emergency and rent guarantee add-ons. In the van market, conditions are pretty similar to motor in terms of market pricing and claims inflation. Against this backdrop, we've been disciplined and have taken the required rating action to protect margins and therefore still away from some less profitable segments. In SME, we grew policy count by 4% since year-end and in the first half delivered 21% premium growth. In June, we launched premises cover for trades-people, which should contribute to higher average premiums and drive future profitable growth. As I set out in July, extending our pricing and underwriting capabilities, targeting underserved segments of the market and offering compelling products while enhancing our customer proposition with lean and efficient digital servicing are the foundations for our growth ambitions in commercial direct. Finally, let's look at Rescue on Slide 25. As you know, Green Flag is a well-established top three player in the Rescue market. In the first half, Rescue delivered slight growth in premiums, and we're confident that our planned investment in our own patrol network will enhance efficiency and accelerate growth across both partnership and direct channels. In direct, premiums grew 5% due to improvements in our pricing capabilities, leading to higher average premiums. We also saw some improvement to our new business conversion. In the summer, we launched a new marketing campaign, which showcases the speed and value of Green Flag while offering customers the chance to win their premium back, all of which was designed to deliver higher quote volumes in this channel. As you've heard me say before, we have an exceptional service offering where customers appreciate our fast response times and excellent network. This should improve as we increase the size of our own patrol fleet and continue to target the expansion of our partnership volumes to increase scale efficiency. The planned expansion into new partners is progressing well. We have a pipeline of activities, and we look forward to sharing an update with you about these in due course. This represents a positive first step, and we have teams assembled who are actively looking at further opportunities to build on this momentum. Finally, our sales of linked policies continue to broadly track our own brand Motor policy count although we saw linked sales return to growth in the second quarter following enhancements to the Motor sales journey, which you just heard Lucy describe. So overall, progress across all three Rescue channels, and this strategy is expected to enable us to grow ahead of the market and win share from the larger market incumbent. Moving on to costs, where we're in the early stages of delivery. Cost is a key component of the delivery of our 13% net insurance margin target. Only eight weeks ago, I told you about the cost-out program and key savings planned, spread across three opportunity areas. Our new Chief Operating Officer, joined us in July, we're focused on delivering our new target operating model, and we're using an expert third party to help us drive and execute a reduction in spans and layers to simplify and streamline the business. I'm confident in our ability to deliver at least GBP 100 million of run rate gross cost savings by the end 2025 with a strong desire to go beyond that. So we're focused on delivering the three key objectives that we've already communicated to the market. We're targeting 7% to 10% premium growth for our non-Motor business. I'm confident on delivering at least GBP 100 million of run rate gross cost savings by the end of 2025 as well as delivering our 13% net insurance margin target in 2026. But what does that mean for this year? In Motor, this year is a transitional year for earnings, and we expect further improvement to come through in the second half. In non-Motor, we expect to maintain the good performance for into the second half. And on cost, we anticipate our operating expense ratio to remain broadly flat year-on-year. So to close today's presentation, I'd like to remind you of our key messages. We're in the early stages of our turnaround strategy, and we've seen early signs of progress, but there's a lot more work for us to do. The business has returned to profit in the first half. Our non-Motor business continued to grow and delivered double-digit premium growth. Our relentless focus on cost control helped us reduce the operating expense ratio and identify some quick wins to bring this number down further. Our positive capital generation, strong solvency and progress on turnaround has enabled us to declare a dividend of 2.0p per share. I remain confident that our new strategy should deliver profitability, growth and enhanced shareholder returns. Of course, this progress is only possible with the hard work of our dedicated people and I'd like to thank them once again for all that they do day to day for DLG and most importantly, for our customers. Thank you for listening, and we'll now take your questions.

Operator:

A - Dhruv Gahlaut: We will now open for Q&A. First, we'll take questions from the room before moving to the operator for questions online. [Operator Instructions] Can we start at the back with Faizan and then just move across.

Faizan Lakhani: Faizan Lakhani from HSBC. I want to dig into the reserve releases. Clearly, you mentioned short term, you don't expect a great deal, which makes sense. What do you define a short term? Is that by 2026? And if not, within that 13% NIM target, how much have you sort of implicitly assumed for reserve release? And sort of second part to that as well have you made allowance for the JCG guideline, the pickup in whiplash tariff already within your assumptions in that one? And second one is on growth and policy count. Are you trying to pack for a 10% NIM when thinking about sort of competitors in the Motor market? I'm just trying to broadly understand as well, your average premium at Q2 was roughly in line with the drop as the broader market, yet your policy count dropped significantly within the first half of the year. Is there a business mix impact within that? Have you changed anything in terms of trying to go out and get business to try and understand what's going to -- how do I sort of marry up pricing versus sort of policy count?

Adam Winslow: Neil, why don't you take the first one and Lucy take the second one.

Neil Manser: I try. I think there were three questions in your first question. So let me -- if I forget one, excuse me. So I think short term, we're saying, as I look at the reserves to debt, we would not expect to be all the opportunities over lease is low. So that's as of today, if that message change, I'm sure the message will change. Secondly, we fully reserve for expectations for JCG at the year-end. So that was -- for us, it was a 2023 event. It was a 2024 event, that was already fully reserved because we roll -- we look forward to what the expectations will be for those changes in guidelines. And then on the third one, which is within the -- all substring a 13% NIM. I mean that's -- it's a normalized assumption. I think you should take my on a low opportunity for prior reserve releases to roll forward into that assumption.

Adam Winslow: And on your growth and policy count question, look, I'd say on a macro point, we are absolutely going to prioritize value over volume. I think we were pretty clear that at capital markets. But Lucy, perhaps you can talk specifically about.

Lucy Johnson: Yes, maybe worth reiterating a couple of points. I think from the presentation, just to call them out, we have a different starting point to the marketplace. We talked about coming late to the inflation recognition. And also, we have had a historic focus on the direct channel, and both of those things leave in the position that we are today. I hope I've been clear about the broad range of initiatives that the business is focused in on to catch up with the marketplace. So if you remember the four quadrants of activity. But fundamentally, what those things are trying to do and what they will do is that they will make us more competitive. They will enable us to convert more business and they will enable us to retain more business. And that's where we get the growth from. And then on top of that, of course, what we had a major initiative is Direct Line on PCWs.

Adam Winslow: And I'll remind you, look, the position is different in non-motor where we're seeing, for example, three consecutive quarters of growth in our Home book, strong margins and strong underlying growth.

Dhruv Gahlaut: Can we just go at the back?

Derald Goh: It's Derald Goh from RBC. You spoke about your claims inflation expectation still staying in high single-digit '24. Can you talk a bit about your bodily injury experience at the half year. The reason I'm asking is because at the full year '23, I think you called out I think more BI claims and also more severe ones. So maybe talk about what have you seen in terms of BI frequency and severity? And I guess just an overarching point as well, what are your expectations for inflation as a whole for 2025, as you see it today? The second question is on a dividend. Now I think the payout ratio is somewhere about 75% of operating EPS was a bit higher than a 60% policy. Is that a case of you kind of front loading some of the full year dividend at their interims? And in a similar vein, I mean, to the extent that you're wanting to show confidence and underlying earnings is excess capital returns or possibility at all at this full year? Or is it clearly completely of the equation for now? Thanks.

Adam Winslow: Neil, why don't you take the first one, I'll take the second one please?

Neil Manser: So I would -- so on BI, specifically, I mean as you -- I'm sure you're aware, large body claims are low-frequency, high-severity events. So you get periods of very benign and then you get periods of quite a lot coming through. We've seen, I would say, over the course of the last 18 months, we've seen quite a lot of variability month-by-month on quantum. The factor, I think we're seeing at a market level, which I hear from third parties in the market, there is a market level more individually large BI claims out there. So the kind of the average severity of these very large claims has definitely gone up. Part of that might be related. We might see a release of that depending where the rate comes out. But I think there is a high propensity now for very large BI claims in the marketplace.

Adam Winslow: The dividend question. Look, the ratio is based on a full year number, not a half year number. I think, look, the Board considered the underlying capital generation, the absolute solvency and the encouraging early signs of progress that you've heard us each speak about and wanted to reflect, their confidence in the direction of travel by paying the 2.0p dividend or by announcing the 2.0p today. Look, I can't speculate on excess capital return. I'm not going to prejudge at the stage of board decisions, which will be made in the future.

Dhruv Gahlaut: Andreas?

Andreas van Embden: Andreas van Embden from Peel Hunt. Just wanted to discuss the economics and your thoughts around transferring or moving the Direct Line brand on to PCW. Could you maybe just share what your assumptions are around cannibalization? Is there any assumption around that cannibalization of policy volumes as you move part of that business into PCWs? And also on the loss ratio, have you assumed any dilution in that loss ratio? Typically, PCWs have a higher loss ratio than I assume your direct channel? How are you going to manage that process? Could you just discuss? I think what I ultimately want to try and figure out is whether you will be writing at the same margin through your direct channel as PCWs? Or will there be a difference?

Adam Winslow: And look, we discussed some of these things in more detail the Capital Markets, but I'm going to pass to Lucy for the first question and Neil for the second.

Lucy Johnson: Yes. And maybe it's a repeat of capital market somewhat. But just to say, I mean we -- as we think about doing something significant like putting Direct Line on PCWs, we, of course, establish a business case, and there's a number of assumptions that go into that loss ratio. Cannibalization is not the great one that you can go to. And I think -- what's also helpful is we've got an established direct book, PCW book, as you point to. And therefore, we're very aware of, both the way in which customers shop today and also the resulting economics of that. And we've carefully modeled it. Of course, we're aware of the sensitivities and very confident that all of that routes out in support of the group NIM target of 13% in 2026.

Adam Winslow: Sorry. forward-looking. Neil?

Neil Manser: Well, I think that's the answer the question, which is as you model look through in terms of what's on the overall loss ratio margins, I would think about the 13% target as the endpoint and all of these are factors into that. .

Adam Winslow: And look, anything we make we are going to clearly consider any change in the margin targets that we have already published and that we are targeting in this case in 2026.

Andreas van Embden: Coming back to the question, are you writing at the same margin assumption for PCW as your direct channel or do direct line?

Lucy Johnson: Yes. I mean I think when I consider my business and the margins that I'm writing at, I consider it as a business as a whole. And I have a bunch of different levers. Some of it, as you point out, are there channel differences between them, but I have product differences, I have mix differences. And so I can understand why you really want to kind of point to that differentiation. But I guess I would say in the round, overall, I have a very clear job which is direct to my target margins, and I'm confident that I can do that.

Dhruv Gahlaut: Will?

William Hardcastle: Thanks Dhruv. Will Hardcastle, UBS. You've said previously, I think the second half of '23 was written at Motor was written at 10% NIM. Obviously, a lot of that was before your time of the business. I guess it's just do we still stand by that view? Or has anything changed on that? And secondly, coming back to the reserve point, do you feel like you're adding reserve confidence or buffers here? Or it simply there's limited release to come through because the reserves don't have that to support it? And I guess, or is there something linked with a change in reserve release pattern perhaps pushing that out and it will come through later?

Adam Winslow: I think they're both for you, Neil.

Neil Manser: Yes, sorry, I was thinking about the second one. The first one, so the was down by the 10% margin for the first half of last year -- second half last year, sorry. There are always going to be ups and downs because it's a written basis versus when it runs through. When I think the main variation is, do you think that the claims are coming through in line with expected? And I would caution your mind back to the chart that Lucy showed at the Capital Markets Day, which showed, if you look at the actual versus expected claim performance, over the last time. It's pretty much -- is within a tram line of expectations. So I think that's the first question. On the second question, I would just say I think the reserves at the moment are they are probability weighted best estimate that is the reserving reserve velocity under IFRS 17. That is what they are. I wouldn't want to say there are particularly more margins put in. We are reacting to things we see in the market. For example, the JCG, in the previous question, we reacted to that at year-end 2023, put away reserves associated with that. So I think we're just reacting to what we see when we see it and trying to fall think about where the best estimate are for these reserves.

Dhruv Gahlaut: Abid, did you have a question?

Abid Hussain: It's Abid Hussain from Panmure Gordon. Can I just go back to the Motor volumes question? So there's a shrinkage of 7.5% since the year-end. Can you just give us some color on who you're losing market share to? When do you expect the underlying growth to come back? I mean I'm not looking for sort of a precise just a rough sort of gauge of when do you think you might get back to growth? And linked to that, just following on from the previous question, the PCW distribution angle. Are you finding that the customers are much more price sensitive, and hence, the volume shrinkage was more than you expected? That's the first question. The second question is on the regulatory backdrop. Do you think that the government will clamp I know there's been a lot of speak on clamping down on ancillary products given the value for customers that what do you think is the outlook there? And then sort of linked to that, on premium finance. What is your -- have you shared what your APR is on premium finance?

Adam Winslow: Questions with something. Yes, why don't you take one Lucy.

Lucy Johnson: I'll do I'm not going to transit get started and then you want to. So I think it's back to volumes to start with, okay. So I think your first part of the question was around who receiving volumes to and we monitor that like any organization does and is a mixture of players in the marketplace. There's no one player. And it's broadly distributed against main players according to their size and scale, maybe slightly biased to those that are pushing for volume at any given time. So nothing remarkable really about what we're seeing there. You then asked about driving for growth, very important question. Of course, -- and I can't predict the fit future on that. I think what I've hopefully shared at CMD and again today is that we've got that range of initiatives that enables us to be confident in growth. I know we want to be focus in NDL on PCWs, but really is the initiatives across the value chain, given our starting point that enables us to drive for that profitable sustained growth. And that gives me confidence. We talked about, as you said, the PCW business has turned around in Q2. I don't think we shared in the presentation, but that trend continued since the few weeks since the half year-end. And so therefore, I'm very mindful of giving confidence. And I think what I can say is I am confident that we will achieve growth during 2025.

Adam Winslow: I think on the regulatory backdrop, look, we are a regulated business. We absolutely want to operate within all regulatory parameters and prioritize good customer outcomes. There is a fair value outcome as a consequence of consumer duty, which we keep front in mind. And therefore, your question ancillary fees and income is something that we absolutely keep under continuous review for all of our products. In terms of the precise APRs, there is a range of different APRs we provide, but the point I will draw you back to is that we want to operate within all regulatory frameworks and provide our customers with good outcomes, good and fair outcomes.

Alexander Evans: Thanks. Alex Evans at Citi. Firstly, just on the Motor loss ratios. I think previously, you were talking about the 12 points earned through just given the premiums that you've written. It looks like on your slides, frequencies come down since 4Q, you talked about moderating claims inflation. So why shouldn't we be seeing a bit of a faster improvement in the first half? And how your written loss ratios developed from the start of the year to sort of now? And then secondly, just back to the reserving. I mean, I think everyone appreciates 2024 is a transitioning year why not just take a one-off here and be comfortable with the reserves and investors as well.

Adam Winslow: Lucy?

Lucy Johnson: Yes. I mean I think I mean I think the based on the ratio improvement that there's a bunch of moving parts and I just draw you back to the fact that we're -- we have been -- we continue to write above that 10% margin and that we are confident in that earn through as it comes through in the second part of the year. I don't know there's anything you'd add on that.

Adam Winslow: The reserve question. Look, I'll draw you back probably to the prior answer, which is we are comfortable with our reserving philosophy and approach. There were some very minor changes, I think, in the first half that are detailed in the disclosures. And yes, as I said, we keep that under constant review, but we're comfortable with where we are.

Dhruv Gahlaut: Barrie?

Barrie Cornes: Hello. Barrie Cornes from Panmure Liberum. I've just got two straight questions, if I may. First of all, Adam, you talked about new colleagues going to join you in Q4. Do you think there's a need for cultural change within Direct Line? And if so, how are you going to achieve that? And the second question I had, I think you have an introductory relationship with Tesla, and you're obviously a leader in ensuring electric vehicles, battery electric vehicles. I just wondered how you see the outlook for ensuring these vehicles, bearing in mind values seem to be dropping very fast and complexity of repairing them.

Adam Winslow: Thanks for the question. I think I'll take the first one and perhaps the second. In terms of new colleague, you're right, a number of new colleagues are joining. We absolutely think about culture, ways of looking within the business. And I think some change is necessary to improve, for example, accountability, speed of decision-making and performance management. I think those were things we talked about at capital markets. I think the upside of the new leaders is I think they will act as excellent role for the business. And that's something we will continue working on because ultimately delivering the targets that we have set, require teams and people, not individuals. And so the whole business has to step up and step in and support. What I would say is people wanted, I think, clarity direction and action to be taken. We know that from our own engagement surveys. And so the -- what we announced at CMD in terms of the strategy has been very well received internally. And so we build on those foundations with each and every new joiner.

Lucy Johnson: On electric vehicles, really good question. Actually, I think it's a great chance to reinforce that I think that success in electric vehicles is dependent on the pieces that we're trying to put together for the motor business overall. So whilst they are unique in many ways, if you think about that value chain of technical excellence, the granularity, apologies if the analysis of understanding everything about them that drives frequency and severity of crushes so that you can optimize from a claims performance, but also price and underwrite accurately is what we're doing across the whole portfolio. That being said, one of the first questions I asked the team was to show me the EV performance when I joined. So I mean without looking on Tesla, I guess I can say I'm comfortable with the performance that we are writing the business at is an exciting part of the market moving forward. I'm looking forward to us doing a good job in EVs, but more so because I think that will demonstrate technical excellence across the whole of the motor market rather than just on EV specifically.

Adam Winslow: And perhaps just to build on that. If I think about our partnership, there is a large proportion of that book that is increasingly becoming EV orientated. So the opportunity to underwrite and learn more and more happens every day for us. And we are making considerable changes in our repair centers to ensure there are skills technicians Level 3, Level 4, that can enable us to conduct the repairs with safety and with quality, which, again, is something that we need to plan and prepare for as more people make the transition from internal combustion to EVs. And I think we're really well placed in that transition.

Dhruv Gahlaut: If there's no questions, can we go to the line, please, first, before I go? Matrix?.

Operator: Thank you. We have our first question from Barry Cohen from Ariel. Please go ahead.

Barry Cohen: Yes, good morning. So I have a question on -- just a clarification on two charts because I'm not quite sure they're slightly different numbers, but they seem to be talking about the same thing. So if you compare Slide six and Slide eight and you look at the motor net interest -- sorry, net insurance margin. Slide six is negative 3%. Slide eight as negative two. Which one of those numbers should we be looking at? And why would they be different?

Adam Winslow: Neil, that's one to you.

Neil Manser: Barry, the difference is just prior year. So one is the current year net insurance margin and one is an all-in net insurance margin. The negative 3% is all in the negative 2% is currently. That's a difference between.

Barry Cohen: So if we look at Slide 8, we take a look at like what you're projecting for like the 2024 outlet? You go from a negative eight points to a positive well, which kind of implies a positive 4-point total for the year and a delta of six points in the first half to the second half? I'm a little bit confused -- quite honestly, I'm a little confused about like the results that you printed this morning, and I'm certainly confused for the year-end, right? So if you read the transcript from the first half of 2023. You talk about the fact that you are writing Motor margin consistent with the net insurance margin of 10%. -- and even if that was wrong by 50%, we're only ready to 5%, you're still not writing at that margin based on this math. So all along the way you keep on telling us you're writing 10% or better. My question is like after a year of writing at a 10% margin, how are you printing a negative 3? And why should we not be seeing like a 10% margin at the end of the year? So that's one question. My second question is the market, if you will. And I think it's about time we got. What is the profit in pounds that we are going to have to see before we see our capital come back to us like a hard pound profit number, not a percentage, not some other nonsense. But what is it going to take for us to get our?

Adam Winslow: Neil why don't you take the first? I'll take the second.

Neil Manser: Let me try the first and Barry. It might be we need to have a more detailed conversation after this. But if I try and briangulate the point. So we said last year that from -- I think it probably kind of July, August time, we are writing to a 10 insurance margin. And that will obviously earn through over a period of time. I think we said at the time that, that was on an ultimate basis. We do reserve at 75%. I'll start with. So there will always be a bit of a time lag in there. So I wouldn't expect us to be printing a 10% net insurance margin for this year at any point in time because of the way that runs through. So what we're trying to do with the chart is give you an indication of how that mechanically earns through over the course of into through '23-'24 and then potentially to '25. So I was writing to put the pieces together. Of course, we always back test, do it. Are we confident that the ultimate outworking of written will be close to 10%, yes, it will be, but it will take a period of time to work through the books because of how it earns through and then how the percent of the reserving works through the book.

Adam Winslow: And Barry, in terms of your second question, I think we've got time to catch up, and that might be a better time to have a more in-depth conversation. But the focus is on our strategy, our plan and delivering our targets. If we deliver those targets we can create substantial value for all of our stakeholders, but we have never specified that in a pound amount frame or specific time line. So I think if that was the question, then perhaps we on that off-line.

Operator: The next question is from Anthony Yang from Goldman Sachs. Please go ahead.

Anthony Yang: Hi. Good morning and thank you for taking my questions. The first question is, I think you mentioned the outlook on NIM for 2024 in non-motor business it's like you're going to likely to maintain that. So does that mean we should view the 1H '24 level at the normalized level going forward, given the reserve strategy reported there? That's my first question.

Adam Winslow: Look, if I take that. I think, look, the -- I think that's the second half outlook for the non-motor business. And whilst the direction of travel is positive, I would say, look, as we go into autumn and winter, particularly with our home book in mind, then there is always a weather effect that it's impossible for me sitting here today, Anthony to be specific and forward looking to know what's going to happen. So there is always a seasonality effect. If you put that to one side, I think the underlying activity and trends are positive, and we've tried to convey that message.

Dhruv Gahlaut: Faizan, do you want to take this question before we go back?

Faizan Lakhani: This question have less parts, so hopefully…

Operator: for the mic.

Dhruv Gahlaut: Can you try now?

Faizan Lakhani: Yes. Thank you. My question is on the Solvency two walk, you had a 2-point strain from capital requirements. Just thinking about the policy count growth this year, ex-Motability has actually shrunk. So could you just explain where that SCR intensity has come from and going out forward, how we should think about that? And the second question, what is the combined ratio of the Motability business? If you can provide some sort of framework on how that relative to your written NIM on motor as a whole?

Adam Winslow: Neil, why don't you take the first? I'll take the second.

Neil Manser: Okay. So on the first -- I mean, I would put it into context, that I think it was a GBP 10 million increase in the SCR on a GBP 1.3 billion number. So I mean the SCR is obviously sensitive to market assumptions, a number of assumptions. So I would say GBP 10 million increase is actually flat on the SCR. It's worth saying that the Obviously, a lot of the SCR is in relation to the back book and the reserves rather than the front book. So it's a mixture of you and obviously premium has increased this period even this policy count is down, so the exposure is up over the period. So it's not just policy account exposure and also obviously back book and investments for a big part to play in the total SCR half year movement, I would say, is -- I would see that as a 0 movement.

Adam Winslow: I think, look, we're not going to detail the combined of a specific partner. What I can say and in terms of sort of how I think about mutability that it is a really important strategic relationship, important right across DG -- and I'll draw you back perhaps into some comments, I think, that were made at the time we did the deal, which would give you some sort of sense of margin sensitivity in that respect. But I think it's wrong to look at that in just those terms. We earn from the underwriting side, but we also learned from the repair side tends to my comments about when you think about the Motability deal, it's not purely on the market rate that we think about the value in its totality.

Faizan Lakhani: And I guess my worry is that your combined ratio potentially get worse because it's a fairly significant part, even post quota share, I guess. But it's hard to disaggregate and understand what your underlying margin is even if the NIM is sort of broadly in line. I guess that's where I'm trying to understand the dynamics there. .

Adam Winslow: And I'll draw you back to the fact that when we thought about the targets we were going to publish in the part of the CMD, then it's not like the Motability partnership view at that point, it incepted effectively about a year ago that was in September last year. So we have been working now for a reasonable period of time. And therefore, consistent with Lucy's prior answer, each of those component parts, whether that's the DL question, the PCW question, the Motability question goes into forming and underpinning the group 13% net insurance margin target for 2026.

Dhruv Gahlaut: Operator, can I just check if there is any other questions online?

Operator: We have no further questions from the phone line.

Dhruv Gahlaut: Given there's no further question, can I hand it back to you, Adam for any closing remarks?

Adam Winslow: Look, I simply wanted to say thank you very much for joining us today and taking the time to hear the presentation. We'd be delighted to follow up with you individually and I wish you a very good rest of the day. So thank you for coming.