Annual Results Presentation 2018 Presenting & Q&A Geoff - - PowerPoint PPT Presentation

Annual Results Presentation

2018

Presenting & Q&A

Geoff Carter - CEO Adam Westwood – CFO Trevor Webb – Claims Director James Ockenden – Chief Actuary

2018 Highlights Geoff Carter Financial Results Adam Westwood Market context Geoff Carter Strategy - reminder Geoff Carter Summary & Outlook Geoff Carter Q&A All

Today’s agenda

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2018 Highlights

Geoff Carter

Financial highlights

OUR ABSOLUTE FOCUS ON PROFITABILITY DELIVERED STRONG RESULTS AGAINST A CHALLENGING MARKET BACKDROP:

• Leading underwriting performance...
• Loss ratio of 48.5%
• Expense ratio of 22.1%
• Combined ratio of 70.6%
• ...strong profitability and returns...
• Adjusted profit after tax of £50.1m (EPS of 19.9p)
• Return on Tangible Equity of 54.4%
• ...attractive capital generation...
• Solvency ratio of 213%, over our 140-160% target range
• ...maintained flat premium in line with expectations
• Gross written premium of £210.0m in 2018
• …allowing us to announce an attractive total dividend of

20p per share

• 7.2p interim, 12.8p final, including special

LOSS RATIO %

48% 47% 49%

EXPENSE RATIO %

22% 22% 22% 2016 2017 2018

COMBINED RATIO %

69% 68% 71% 2016 2017 2018 2016 2017 2018

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Operational highlights

Product developments

• Continued roll-out of new rating factors
• Soft launch of new direct van product (Insure2Drive Van) in Q4 ‘18
• Enhancement of Broker based van product in Q1 ‘19

Operational improvements

• Rolling out software robots to enhance customer service and efficiency
• Completed transition to a new hybrid cloud IT infrastructure
• Testing innovative AI / machine learning processes
• Engaged BDO as outsourced internal auditor

Employee satisfaction

• Maintained extremely low levels of employee turnover
• Excellent response to first staff survey – 88% would recommend Sabre as a

good place to work

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Financial Results

Adam Westwood

Results summary

2018 2017 Change Gross written premium £210.0m £210.7m (£0.7m) Net earned premium £188.2m £186.9m £1.3m Combined ratio 70.6% 68.5% 2.1ppts Investment return £0.8m (£0.7m) £1.5m Adjusted profit before tax £61.9m £63.9m (£2.0m) Adjusted profit after tax £50.1m £53.3m (£3.2m) Basic EPS 19.9p 14.5p 5.4p Dividend per share 20.0p 12.7p 7.3p Solvency coverage ratio 213% 160% 53pps à Post-dividend 161% 160% 1ppt Return on Tangible Equity 54.4% 81.8% (27.4ppts) Return on opening SCR 82.0% 92.1% (10.1ppts)

2018 Summary financial performance

• Gross written premium broadly in-line

with 2017

• Slight increase in combined ratio as loss

ratio tends towards long-run average, following an exceptional year in 2017

• Underwriting profit remains primarily a

function of net earned premium and combined ratio

• Investment return represents net yield on

gilt portfolio – no significant changes

• Profit figures reflective of the above, also

include the £0.7m amortised cost of free shares issued at IPO, which has no impact on our Solvency Capital

• Return on SCR reflective of profits

generated during the year

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59.2% 48.5% 48.5% 10.7% Current year Prior year Financial year

Leading underwriting performance

46.5% 48.5% 22.0% 22.1% 2017 2018 Loss ratio Expense ratio 2.1pp

• Financial year combined ratio below long-run mid-

70’s target, driven by a strong loss ratio

• Current accident-year loss ratio returns to long-run

norm as prior-year reserve movements remain high. Level of current-year claims recorded supports our view of having written at a mid-70’s combined ratio during 2018

• Prior-year reserve movement continues to represent

run-off of prudence margins and exceptional releases

• No changes to reserving methodology
• Expense ratio relatively flat against 2017, includes

amortised cost of free shares issued to staff. Costs remain largely proportional to volume of business written Combined ratio evolution Loss ratio breakdown

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Conservative approach to risk

• Investments continue to be held in UK government

bonds, in line with our conservative approach to risk

• Investment portfolio managed in house and focused
• n capital preservation to support our profitable

underwriting activities

• Net investment return of £0.8m for 2018 in-line with

normal gilt yield adjusted for market value movements

• Low risk investment portfolio complemented by a

consistent and conservative reserving policy and prudent use of reinsurance

94.4% 0.1% 5.5% Gilts Corporate bonds Cash

(0.7) 0.8 2017 2018

Investment portfolio breakdown Investment return evolution (£m)

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Attractive capital generation

• We continue to benefit from strong profitability and an

efficient capital model

• 2018’s adjusted profit after tax was equivalent to 82%
• f the opening solvency capital requirement
• Strong capital generation led to a year end solvency

ratio of 213%, managed back within our preferred

• perating range by means of a special dividend
• Stated dividend policy from IPO: c. 70% of profit after

tax as an ordinary dividend, with additional distributions of surplus capital above the Group’s target 140-160% solvency ratio range

• In 2018 the Group has paid an interim ordinary

dividend of c. 70% of its profit after tax for the first 6 months of the year

50.1 61.1 2018 Adjusted PAT 2018 Opening SCR

82% return on opening SCR

160% 213% 2017 2018 Pre final dividend +53pp

Return on opening SCR Solvency coverage ratio Total dividend of £50.0m (20.0 pence per share) in respect of 2018.

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Approach to capital management

Our approach

• Prudent approach to regulatory capital with a minimum SCR of 140%
• Focus on underwriting discipline generating organic capital - target long term COR of mid-70s

Continued investment

• Continued investment in business to enhance product capabilities and maintain operational efficiencies

Capital distribution

• Ordinary dividend pay out ratio of 70%
• Surplus capital beyond top of SCR range of 160% returned to shareholders via special dividends
• Target range of 140%-160% enables more stable returns of capital to investors by supporting dividends

during cycle downturns or periods of rapid growth

120.0% 140.0% 160.0% 180.0% 200.0% 220.0% Capital at 31 December 2017 2018 H1 Trading 2018 Interim Dividend Capital at 30 June 2018 2018 H2 Trading 2018 Proposed final dividend Capital at 31 December 2018

160% 179% 161% 49% (30%) 34% (52%) FY2018 Regulatory Capital Movements 12

Strategy and Market Environment

2019 Outlook Geoff Carter

Market context

80 90 100 110 120 130 140 150 160 2015 2016 2017 2018

ABI Claims Settled Claims Data Indexed Average Claim Costs

Claims exc. Injury All Claims

40,000 45,000 50,000 55,000 60,000 65,000 70,000 75,000 80,000 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19

CNF Count

MOJ Portal Statistics: Rolling 3 Month Average CNF Count

1. MOJ portal – injury frequency is broadly flat

Claims inflation / premium inflation

2. ABI data – settled non- injury claims have been increasing at compound rate of 10.7% annually since 2015 3. ABI – overall settled claims inflation running at 5.6% since 2015

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Sabre view

“Bent Metal” high single digit % PI frequency flat, severity circa 5% inflation Theft inflation > 25%

Overall inflation 6-7%

Sabre current view of market inflation driven by a combination of Bent Metal and PI claims, with Theft now also a meaningful factor

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300 340 380 420 460 500 540 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 2016 2017 2018

Average Premium (£)

Market premiums down 1% over 2018 and appear to be lagging claim inflation (6 to 7%)

Premium inflation

ABI motor premium tracker

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2019 – potential market impacts

Possible premium deflation factors

• Whiplash reforms
• Ogden discount rate
• New MGA’s launching
• Continued claims inflation
• Competitor margin squeeze
• Lawyer legal reforms

response

• FCA pricing review

Possible premium inflation factors Sabre Strategy Continue to price to mid 70%’s CoR, reflecting changes as they emerge and avoiding speculation 18

Possible premium inflation factors

• Focused on inertia pricing and propensity modelling
• Key concern seems to be pockets of vulnerable

customers Possible Impacts

• Increase in new business pricing through forced (nearer)

parity between new business and renewal pricing

• Risk of customer redress if companies are found to have

acted poorly

FCA Pricing Review

• Claims inflation currently (6-7%) / Premium inflation

pretty flat

• Claims inflation driven by increased costs due to

technology in newer vehicles & theft Possible Impacts

• If current dynamics continue, potential margin squeeze

across the industry likely to continue

• Still unclear how strongly competitors have reflected

current level of claims inflation in premiums

Market claims / premium inflation

Sabre does not utilise inertia pricing or propensity modelling, and prices are calculated purely from risk factors Sabre has sought to fully cover emerging claims experience in 2018 and into 2019, maintaining its underwriting discipline 19

Possible premium deflation factors

* Caveated assumption that average PI cost for claims caught by the changes will generate a saving of £30 per policy. Possible Impacts

• Risk that lawyers adapt behaviours to neutralise planned

savings from reforms

• Potential for new non-whiplash claim elements (e.g.

hearing related)

• Possible emergence of non-regulated claims

management companies (“McKenzie Friends”)

• Associated claims elements not included in reforms,

e.g. credit hire

• Inflating claims to drag over small claims limits
• No guarantees savings will emerge

Whiplash reforms (Target implementation April 2020)

Rate likely to move back to a discount around mid-year. Reasonable range of 0 to 0.5% Possible Impact

• Sabre impact assuming rate moves to 0.5% discount:

– Potential £0.7m P&L benefit – Potential modest reinsurance spend saving – Discount rate to be assessed every 5 years. – Only impacts England & Wales – Scotland discount rate expected to be lower

Ogden discount rate

Sabre will continue to focus on “Facts Not Opinions” and will amend rates as evidence emerges Sabre continues prudently to rate / reserve on (-0.75% Discount rate) until any change is actually made 20

What has our approach been?

• Sabre has “Walked the Walk” on focusing on profitability not volume
• Prices reduced during start of the year to reflect reduced small BI frequency

– Most competitors reflected this in late 2017

• Price increases in H2 2018 to reflect unattractive claims inflation trends
• Sabre believes it has covered claims inflation - minimised negative jaws between claims and premium inflation

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Strategy reminder

Strategy and key business principles

Premium growth across the cycle Maintain wide underwriting footprint Market leading underwriting performance

COMBINED RATIO TARGET

Mid 70%

Strong returns and cash generation Controlled and attractive growth across the cycle

£ 70%

BASE DIVIDEND PAYOUT

140-160%

TARGET SOLVENCY RATIO

Return excess capital to shareholders

Continue to develop defensive non- standard positioning

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“Wide footprint” - Prince Philip crash (Daily Mail research)

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Likely short / medium term scenarios

?

• Potential market margin compression leads to

price increases

• Sabre has already taken pricing action, and will

therefore be able to grow

• Potential FCA pricing review impacts in addition

Sabre current cautious approach is correct

• Data will demonstrate too much prudence in

pricing assumptions, allowing prices to be reduced fuelling growth

• Potential FCA pricing review impacts in addition

Sabre current view is too cautious

• Timing on either scenario is difficult to assess and a range of GWP outcomes therefore remain possible
• As pricing ahead of the market, it is reasonable to assume a slower start to the year, accelerating when

the market hardens

• Sabre will return to GWP growth at the appropriate time

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Summary & Outlook

Geoff Carter

Summary and outlook

• We remain focused on our long term and well established strategy; prioritizing underwriting

profitability over premium growth and centered on a mid 70% COR target.

• This profit focused business model, aided by a bias toward to the higher premium market

segments and prudent in year claims reserving, will: Øallow Sabre to maintain its underwriting profitability Øcontinue to deliver strong capital generation Øsupport attractive and sustainable returns to shareholders, through the cycle

• We will consider utilising our capital generation & range as appropriate to support dividends in

certain market conditions.

• Having covered claims inflation leaves us well positioned to take advantage of growth
• pportunities as the market turns, expansion into other “Engine and Wheels” products

provides further potential options.

• We are looking forward with confidence.

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Q&A

Geoff Carter - CEO Adam Westwood – CFO Trevor Webb – Claims Director James Ockenden – Chief Actuary

Appendices

Reconciliation to KPIs (1)

Adjusted Profit Before Tax 2018 2017 2016 £'k £'k £'k Profit before tax 61,363 55,512 63,432 Add: Amortisation of goodwill 501 887 1,619 Exceptional items

• 7,542
• Adjusted profit before tax

61,864 63,941 65,051 Adjusted Profit After Tax 2018 2017 2016 £'k £'k £'k Profit after tax 49,568 45,343 52,293 Add: Amortisation of goodwill 501 887 1,619 Exceptional items

• 7,542
• Tax on exceptional items
• (482)
• Adjusted profit after tax

50,069 53,290 53,912 Loss Ratio 2018 2017 2016 £'k £'k £'k Net insurance claims 97,861 92,912 92,721 Less: Claims handling expenses (6,536) (6,044) (5,878) 91,325 86,868 86,843 Net earned premium 188,235 186,866 182,107 Net loss ratio 48.5% 46.5% 47.7% Expense Ratio 2018 2017 2016 £'k £'k £'k Total expenses 35,191 34,994 33,488 Plus: Claims handling expenses 6,536 6,044 5,878 41,727 41,038 39,366 Net earned premium 188,235 186,866 182,107 Expense Ratio 22.2% 22.0% 21.6% Combined Operating Ratio 2018 2017 2016 £'k £'k £'k Total expenses 35,191 34,994 33,488 Net insurance claims 97,861 92,912 92,721 133,052 127,906 126,209 Net earned premium 188,235 186,866 182,107 Combined operating ratio 70.7% 68.4% 69.3% Solvency Coverage Ratio 2018 2017 2016 £'k £'k £'k Solvency II net assets 130,019 97,873 74,283 Solvency Capital Requirement 60,995 61,087 57,852 Solvency Coverage Ratio 213.2% 160.2% 128.4%

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Reconciliation to KPIs (2)

Solvency Coverage Ratio - Post-Dividend 2018 2017 2016 £'k £'k £'k Solvency II net assets 130,019 97,873 74,283 Less: Final dividend expected (32,000)

• Solvency II net assets inc. dividend

98,019 97,873 74,283 Solvency Capital Requirement 60,995 61,087 57,852 Solvency Coverage Ratio 160.7% 160.2% 128.4% Return on Rangible Equity 2018 2017 2016 £'k £'k £'k IFRS net assets at year-end 265,194 231,993 212,816 Less: Intangible assets at year-end (156,279) (156,279) (156,279) Goodwill at year-end

• (501)

(1,388) Closing tangible equity 108,915 75,213 55,149 Opening tangible equity 75,213 55,149 56,813 Average tangible equity 92,064 65,181 55,981 Adjusted profit after tax 50,069 53,290 53,912 Return on tangible equity 54.4% 81.8% 96.3% Return on Opening SCR 2018 2017 £'k £'k Opening SCR 61,087 57,852 Adjusted profit after tax 50,069 53,290 Return on SCR 82.0% 92.1%

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Balance sheet

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Claims development

Net insurance liabilities 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total Accident year £’k £’k £’k £’k £’k £’k £’k £’k £’k £’k Estimate of ultimate claims costs: At end of accident year 61,912 94,171 89,901 77,316 74,609 97,288 104,808 106,478 111,433 One year later 69,055 90,742 81,403 64,071 65,639 85,814 93,664 96,446 Two years later 72,475 87,494 75,938 59,301 60,953 81,164 87,824 Three years later 69,649 81,950 73,606 57,739 59,741 77,869 Four years later 68,001 78,509 74,304 56,947 59,008 Five years later 67,100 77,534 72,731 56,892 Six years later 66,926 77,496 72,624 Seven years later 66,791 77,266 Eight years later 66,791 Current estimate of cumulative claims 66,791 77,266 72,624 56,892 59,008 77,869 87,824 96,446 111,433 Cumulative payments to date (65,626) (76,928) (71,408) (53,732) (54,642) (66,638) (70,269) (64,200) (45,986) Liability recognised in balance sheet 1,166 338 1,216 3,161 4,367 11,231 17,555 32,246 65,447 136,726 2009 and prior 1,326 Claims handling provision 3,502 Total 141,554

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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

• f securities under any applicable legislation or an offer to sell or solicitation of any offer to buy, or otherwise constitute

an invitation or inducement to any person to subscribe for or otherwise acquire or underwrite, any securities or other financial instruments or any advice or recommendation with respect to any securities or other financial instruments. This presentation contains forward-looking statements concerning the financial condition, results, operations and business of the Group which are necessarily subject to risks and uncertainties because they relate to events and depend upon circumstances that may or may not occur in the future. For example, statements regarding expected revenues, margins, earnings per share, market trends and the Group's product pipeline are forward-looking statements. Words such as "aim", "plan", "intend", "anticipate", "well placed", "believe", "estimate", "expect", "target", "vision", "consider" or the negative of these terms and other similar expressions are generally intended to identify forward-looking statements. These forward-looking statements are based upon current expectations and assumptions regarding anticipated developments and other factors affecting the Group and are not guarantees of future performance. There are a number

• f factors, many of which are beyond the Group's control, that could cause actual results or developments of the

Group's business and operations to differ materially from those expressed or implied by these forward looking

• statements. Some of those factors are discussed in the Group's Annual Report and Accounts 2018 in the section

headed "Principal risks and uncertainties". Any forward-looking statement is based on information available to the Group as of the date of preparation of this presentation and the Group cautions against placing undue reliance on any forward- looking statement. All written or oral forward-looking statements attributable to the Group are qualified by this caution. Except as required by any applicable law or regulation, the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this presentation to reflect any change in the Group’s expectations or any change in events, conditions or circumstances on which any such statement is based. This presentation may contain supplemental non-GAAP financial and operating information which the Group believes provides valuable insight into the performance of the Group's business. Whilst such information is considered important, it should be viewed as supplemental to the Group's financial results prepared in accordance with International Financial Reporting Standards and not as a substitute for them. Nothing in this presentation should be construed as a profit forecast. 34