G R O U P 2014 Interim Results Presentation 4 August 2014
Agenda G R O U P Welcome & overview Stuart Vann, Chief Executive Officer Financial results Darren Ogden, Chief Finance Officer Business update & outlook Stuart Vann, Chief Executive Officer Questions & answers Slide 1
2014: Headlines G R O U P Financial Gross written In-force Earnings Dividend premiums policies per share per share £260.4m 1.974m 10.9 pence 5.1 pence (1.9)% +2.1% +2.7% Operational & Strategic LASPO Reforms Underwriting Operational Rating & Cycle Initiatives Initiatives & Claims Slide 2
G R O U P Financial results Darren Ogden, Chief Finance Officer Slide 3
Group financials G R O U P Key points 2014 2013 2013 Mvt HY HY FY • Gross written premiums 1.9% lower Gross written 260.4 265.4 535.8 (1.9)% driven by a reduction in both Motor premiums (£m) and Home Trading profit (£m) 61.0 65.2 130.6 (6.4)% • Trading profit £4.2m lower due to £3m Profit before tax (£m) 57.1 56.9 118.4 0.4% exceptional weather costs in Q1 2014 Profit after tax (£m) 45.5 44.3 93.2 2.7% and reduction in share of JV profits Combined operating 90.9 89.6 89.7 (1.3)ppts • Profit after tax increased 2.7% through ratio (%) lower non-trading and finance costs, Loss ratio (%) 66.4 65.7 65.9 (0.7)ppts aided by reduction in tax rate Expense ratio (%) 24.5 23.9 23.8 (0.6)ppts • Dividend of 5.1 pence per share Investment return (%) 1.2 1.1 2.2 0.1ppts • Reserves remain in excess of 15% In-force policies 1.974 1.855 1.933 2.1%* above our actuarial best estimate (“IFPs”) (millions) Earnings per share 10.9 10.6 22.4 2.7%** (pence) Dividend per share 5.1 2.5 15.8 N/A (pence) * Movement calculated against the 2013 full year position ** The earnings per share movement has been calculated using the earnings per share correct to two decimal places Slide 4
Trading profit G R O U P HY 2014 £5.4m Income streams HY ‘13 £6.7m £17.1m Underwriting £22.5m 37% £7.6m HY ’13 £18.3m HY ‘13 £7.5m Non-underwritten £25.5m 42% ASR £5.4m Investment £7.6m 12% HY ‘13 £6.6m income Share of JV £5.4m 9% £25.5m (Gocompare) HY ‘13 £26.1m Motor underwriting Home underwriting Non-underwritten ASR Investment Income Share of JV (Gocompare) Slide 5
Motor G R O U P Key points 2014 2013 2013 Mvt HY HY FY • Gross written premiums down 1.8% reflecting market conditions Gross written 217.9 221.9 446.5 (1.8)% premiums (£m) • Modest growth in in-force policies Trading profit (£m) 17.1 18.3 41.0 (6.6)% • Trading profit down £1.2m – largely driven by Q1 weather impact of £1m Loss ratio (%) 68.3 67.6 67.2 (0.7)ppts Expense ratio (%) 23.4 23.2 22.7 (0.2)ppts In- force policies (‘000s) Combined operating 91.7 90.8 89.9 (0.9)ppts ratio (%) 1,421 1,385 In-force policies (000s) 1,421 1,328 1,385 2.6%* 1,328 1,255 ASR per IFP (£) 67.4 74.5 70.5 (9.5)% 1,221 excluding Claims 63.3 64.3 64.3 (1.6)% Income (£) 2012 2013 2014 HY FY * Movement calculated against the 2013 full year position Slide 6
Motor loss ratio G R O U P Motor 68.3% (2.4)% 1.8% 67.2% (0.5)% 2013 Loss Ratio PY movements Exceptional weather Current year HY 2014 Loss Ratio • Prior accident year reserves continue to develop favourably • £1m of exceptional weather claims in Q1 2014 • Increase in current year loss ratio as claims benefits from LASPO are not sufficient to offset rate reductions • We continue to take a conservative view with regards to LASPO and set reserves for the 2014 accident year on a prudent basis. Slide 7
Home G R O U P Key points HY HY FY Mvt 2014 2013 2013 • Gross written premiums down 2.3% reflecting market conditions Gross written 42.5 43.5 89.3 (2.3)% premiums (£m) • Trading profit down £1.2m due to exceptional weather costs of £2m in Q1 2014 – at the Trading profit (£m) 5.4 6.6 9.6 (18.2)% lower end of our previous guidance Loss ratio (%) 56.9 56.1 59.3 (0.8)ppts • Excellent underlying loss ratio driven by good risk selection Expense ratio (%) 30.0 27.5 28.9 (2.5)ppts In- force policies (‘000s) Combined operating 86.9 83.6 88.2 (3.3)ppts ratio (%) 553 548 527 In-force policies (000s) 553 527 548 0.9%* 504 480 ASR per IFP (£) 18.8 20.8 19.2 (9.6)% 2012 2013 2014 * Movement calculated against the 2013 full year position HY FY Slide 8
Home loss ratio G R O U P Home (4.8)% 3.6% 3.6% 59.3% 56.9% 2013 Loss Ratio PY movements Exceptional weather Current year HY 2014 Loss Ratio • Exceptional weather costs of £2m in Q1 2014 • Continue to see favourable development of prior accident year reserves – strong favourable development on Q4 2013 weather events • Current year benefiting from the Group’s approach to risk selection Slide 9
Additional services revenues G R O U P Key points Additional services revenues £51.0m £51.0m • Additional services revenue up 5.7%, excluding Claims Income, broadly in line with policy growth £48.0m £45.4m • Motor ASR per IFP, excluding Claims Income, ex-Claims ex-Claims Income down £1 in line with guidance of £1 to £2 Income reduction for the full year HY 2013 HY 2014 • Home ASR per IFP down, as expected, through Non-underwritten additional insurance products strategic pricing to aid core customer Underwritten additional insurance products conversion and retention Claims Income Motor ASR per IFP Home ASR per IFP £80 £25 £60 £20 £40 £15 HY 2013 2013 HY 2014 HY 2013 2013 HY 2014 ASR per IFP ASR per IFP (ex Claims Income) ASR per IFP Slide 10
Investment returns G R O U P Return on invested funds Gocompare (1) • Investment return of 1.2% in first half of 2014 • Share of trading profit from joint venture down (HY 2013: 1.1%) 19.4% to £5.4m (HY 2013: £6.7m) • Continue to seek reasonable yield with • Lower share of profit due to increased spend conservative risk appetite on advertising campaign and media • Expect 2H 2014 to be up on the first half of the year Note: See appendix I for footnotes Investment income Share of Gocompare trading profit 10.0 0.9 0.3 £6.7m 8.0 £5.4m 6.0 £m 8.3 8.1 4.0 2.0 0.0 -1.1 -1.4 HY 2013 HY 2014 -2.0 HY 2013 HY 2014 Interest and other income Investment charges Net gains and losses on investments Slide 11
Regulatory capital & dividend G R O U P Dividend Calculation HY 2014 IGD coverage HY 2014 Profit after tax (a) £45.5m HY 2014 2013 Payout Ratio – Base (b) 50% 391% Payout Ratio – Special (c) 20% 369% 366% 308% Payout ratio (b+c) = (d) 70% Adjustment for interim (e) 67% Interim dividend (a)*(d)*(e) £21.3m Interim dividend per share 5.1p Coverage Post dividend Coverage Post dividend Base dividend per share 3.6p Special dividend per share 1.5p Key points • Interim dividend of 5.1 pence per share represents a payout ratio of 70% of profit after tax (50% base dividend and 20% special dividend) • Interim special dividend set on a conservative basis – as per guidance given at full year preliminary results announcement • Retained capital provides capacity to fund prospective premium growth • The Group continues to hold a capital buffer, above that required under its ICG, which it believes will set it in good stead as it heads towards Solvency II Slide 12
G R O U P Business update & outlook Stuart Vann, Chief Executive Officer Slide 13
What has been happening during H1 2014..... G R O U P Rating LASPO & Claims Cycle Regulation Underwriting & Operational initiatives Slide 14
esure’s motor rating experience and premiums G R O U P 1H 2013 v 1H 2014 Rates Mix AWP 8% 2% 6% Motor experience Quarterly Motor gross written premiums • Average written premium down 6% compared to 1H 2013 • Targeted rate increases in Q2... • ...resulting in a drop in the level of new business conversion, with in-force policy growth lower in Q2 compared to Q1 2012 2013 2014 Q1 Q2 Q3 Q4 Slide 15
LASPO & Claims – Market perspective G R O U P Market frequency Market general damages Average General Damages Offered after Contribution No. of claims notification forms created and sent to a compensator using MoJ claims portal 1 100,000 £3,000 Increase in 90,000 general damages £2,600 80,000 Period of stability 70,000 60,000 £2,200 50,000 40,000 £1,800 30,000 20,000 £1,400 10,000 0 £1,000 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jan-12 Jan-13 Jan-14 Note: See appendix I for footnotes Note: See appendix I for footnotes Source: Ministry of Justice Claims Portal MI Source: Ministry of Justice Claims Portal MI • Frequency has declined around 8% year-on- • Upward trend in general damages broadly in year, without adjusting for the increase in line with LASPO uplift and Judicial College the Claims Portal limit from £10k to £25k Guidelines (“JCG”) increases which came into effect in July 2013 • Important to continuously monitor lawyer • Encouraging frequency benefit from LASPO responses to the LASPO Reforms Reforms to date Slide 16
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