U.S. Markets open in 9 hrs 14 mins

Edited Transcript of ADM.L earnings conference call or presentation 14-Aug-19 8:00am GMT

Half Year 2019 Admiral Group PLC Earnings Call

London Sep 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Admiral Group PLC earnings conference call or presentation Wednesday, August 14, 2019 at 8:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Cristina Nestares

Admiral Group plc - CEO of UK Insurance

* David Stevens

Admiral Group plc - CEO & Director

* Duncan Russell

Admiral Group plc - CFO of AFSL

* Geraint Jones

Admiral Group plc - CFO & Director

* Milena Mondini de Focatiis

Admiral Group plc - CEO of European Insurance

* Scott Cargill

Admiral Group plc - CEO of AFSL

================================================================================

Conference Call Participants

================================================================================

* Andrew John Crean

Autonomous Research LLP - Managing Partner, Insurance

* Dhruv Gahlaut

HSBC, Research Division - Analyst

* Dominic Alexander O'Mahony

Exane BNP Paribas, Research Division - Research Analyst

* Edward Morris

JP Morgan Chase & Co, Research Division - Equity Analyst

* Iain Pearce

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Ivan Bokhmat

Barclays Bank PLC, Research Division - CEEMEA Banks Analyst

* James Austin Shuck

Citigroup Inc, Research Division - Director

* Philip Ross

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst

* Robert Murphy

Edison Investment Research Limited - Head of Investment Trusts

* Sami Taipalus

Goldman Sachs Group Inc., Research Division - Research Analyst

* Jon Denham

Morgan Stanley Investment Research - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

David Stevens, Admiral Group plc - CEO & Director [1]

--------------------------------------------------------------------------------

Thank you for coming out in August to hear our presentation. I'm going to move on with this briefly and probably, I know some of you have a potential clash with the Prudential later on, so we'll launch into it without further ado.

Today, we have speaking for us Geraint who will do the key numbers; Cristina who will pick up the core U.K. business; Milena who has been recently promoted to head of U.K. and EU insurance who will talk about our international insurance operations and price comparison operations before we do a bit of a deep dive on loans with Scott and Duncan, respectively, CEO and CFO of our loans business, who will tell you even more about what we're trying to achieve and what we've achieved so far. We're not intending to do this level of debt or loans in general, but there's been a fair amount of interest from our shareholders. So, we thought we'd give you the chance to understand it and ask questions.

As well as the team on the podium today, we've got a lot of people in the audience. We've got Annette, our Chair; we've got Rachel, our Chief Actuary; James our Chief Risk Officer; Constantino, Head of ConTe; and Chris, who's the U.K. Ops Manager. So you have a short of people to ask questions to afterwards, feel free to ask those managers as well as us.

Over to you, Geraint.

--------------------------------------------------------------------------------

Geraint Jones, Admiral Group plc - CFO & Director [2]

--------------------------------------------------------------------------------

Thanks, David. Good morning, everyone. I'll spend some time on the key numbers. As David says, another increase in profit, a lot is going on. Then I'll move on to highlight, another very strong capital position then finish up with news of the increased and record interim dividend.

The usual highlights slide to kick things off. As you can see, another solid set of results for the first half. At the top we continue to grow both customer numbers and turnover up. You'll note the percentages are a bit lower than previous year and that mainly reflects a broadly flat core business, which Cristina will talk about.

Pretax profit was up 4% to GBP 220 million, so record for first half and comes after the adverse Ogden impact which I'll talk about shortly. EPS was up 2%, 63p, slightly lower increase than the pretax profit increase due to a higher number of shares in issue. Return on equity also strong in the high 40s. And the reduction over last year is entirely down to Ogden.

The strong capital position means we've been able to increase our interim dividend despite the 2% growth in EPS by 5%. The payout will be 63p. And after that dividend is accounted for, we maintain a very strong solvency position. Our solvency ratio is 190%. I do normally like to have red arrows and highlight slides, but the reason that there is almost entirely down to Ogden, so let me talk to you a bit about what's happening there.

I'm sure you all know that the rate was confirmed a month or so back at minus 0.25%, and that rate is firstly very disappointing and is secondly, a bit below what we previously assumed, which you'll recall was 0%. The pretax total impact of moving from 0 to minus 0.25% would be GBP 50 million to GBP 60 million. As you can see we've taken a GBP 33 million of that charge in the first half. And the impact on ROE and EPS are also shown there. We're retiring all Ogden slide for 5 years, you'll be pleased to know.

Let's take a look at the growth stats across the group. And it's nice this time to see a whole slide with green arrows again. You can see at the top as we moved our rates in the U.K. ahead of the market over the past 12 months, our rate of growth has slowed and our core business is only marginally ahead of where it was 12 months ago. Our household and international insurers on the other hand continue to grow very nicely. Household is nearly 20% bigger moving towards the nice 1 million policies milestone. And International Insurance in aggregate turnover of 20% growth. Those percentages accelerating in the first half. And we're nearly now at 1.4 million customers outside the U.K. Comparison turnover was up 8% helped by a very strong H1 from Confused.com. And finally, our loans balances reached GBP 421 million at 30th of June. That's double the level a year ago and about 40% higher than the end of 2018. More detail on all that throughout the presentation.

Let's go into the profits, see what's behind the record first half results. UK Insurance was up around GBP 8 million or 3%. As you can see, that's after the GBP 33 million Ogden hit that I mentioned previously. Underlying profit was therefore quite strongly ahead, more like 16% at half year and half year. And that bigger than usual underlying move was due to some very strong back year loss ratio development in the first half, which despite keeping our reserve margin flat versus 6 months ago has led to a more positive back year booked loss ratio movement than we would normally expect to see in a half year period. And we'll be positively surprised if it happened again in the second half.

Household delivered a profit of GBP 4 million, decent turnaround on last year's weather impacted a loss of GBP 2 million and that comes on the back of a continued strong growth. International Insurance was GBP 2 million lower half year on half year, and there are 2 parts to that. Firstly, the European businesses which grew very strongly and delivered a higher profit, GBP 4 million versus GBP 3 million. But a higher loss ratio at Elephant in the U.S. led the result there to be slightly worse.

Comparison profit was at GBP 7 million more than double the H1 2018 results and again a large part of that is down to a very strong performance in H1 from Confused.com where profits were up 50%.

Admiral Loans reported a loss of GBP 4 million which has improved half year on half year despite the strong growth as the interest income on the portfolio continues to build.

And finally, the other line which is up a few million pounds since H1 last year. And as you see in the bullet point, the shares scheme charge was the main factor there.

And just to add a bit more color on the share scheme, the accounting cost, and remember most of it isn't cash, and is impacted by a number of factors including the number of shares that we expect to vest and of course, the share price. Between 30th of June '18 and 30th of June '19, the share price increased by three pounds, but also the financial metrics that drive the variable part of the scheme have also delivered strongly. And those 2 factors lead to the higher cost in H1.

Moving on to talk about the capital position. I don't have too much to say on this slide. It looks pretty consistent with the position 6 months ago and is very satisfactory at this point. The solvency ratio is 190% post dividend, which is a few points down on the year end. It remains elevated in advance of the internal model application and hopefully approval in due course. And as you can see in the bullet, the Ogden impact cost is about 5 percentage points to solvency. And if you exclude that, we're pretty much flat versus half year last year and year end. There's no change at this stage in the basis of the calculation and there's no new news at this point to an internal model which continues to progress. And hopefully, we'll give you a slightly fuller update on the internal model when we do our full year results in March.

My final section looks at the interim dividend, another record half year payout. The strong solvency position is met, we're able to pay out all of our H1 post tax profit and increase our dividend by 5% to 63p per share. The payout ratio is obviously a bit higher than usual and so don't get used to it. And last half year, we paid out 97%. There's no change to the policy, no change to the philosophy and the relevant dates are shown on the slide.

That's it from me. So let me try and give you a few key messages from my section. The continued growth, a bit more muted in the U.K. but strong elsewhere. Higher profits and materially higher profits on a pre-Ogden basis. And to round off, a higher and record interim dividend with a maintained and strong solvency position.

I shall pass you to Cristina to talk about the U.K.

--------------------------------------------------------------------------------

Cristina Nestares, Admiral Group plc - CEO of UK Insurance [3]

--------------------------------------------------------------------------------

Good morning, everybody. I'm going to talk about the results for the UK Insurance operation focusing mostly on motor. In a nutshell, a good set of results with an increase in profit despite the change in the Ogden rate. This is down to high back year releases which is indication of the strength of our underwriting capabilities. We have relatively flat growth which is an indication of our approach, very prudent which tends to prioritize margin over volume. And in terms of household results, we have seen good growth and an increase in profit.

Now let's focus on prices in the market. We have seen premiums coming down during 2018 and the first quarter of 2019. And we have started to see a change in the trend in the second quarter of this year.

You can see in the first graph, these are market data, these are indexes that reflect changes in the market. In the red bars, you have Confused data. It only focuses on new business. And what we have seen in Q2 is an increase of 3% versus Q1. When you look at the ABI data that looks at new business and also renewals, what you see in Q2 is actually prices being flat. So early and as more signs as possible, a change in the trend and it's very pleasing for us to see the market reacting and starting to increase prices. However, there is still a big lag with claims inflation. So we will expect the market to continue to put prices up.

If we move to Admiral prices, you can see in the second graph our times top and this chart reflects how we behave in price comparison versus competition. It's indexed to January 2017. What you see in the graph is we started putting prices up a year ago and we have continued doing so in the first half of this year. We put prices up by about low-to-mid single digits. And recently, due to the change in Ogden, we also have increased prices by an additional 1%. Second half of the year, we expect to continue putting prices up. And as I mentioned we hope the market to continue doing the same.

Now let's move on to our claims results. The graph that you have here reflects data from the market. And the trends that we see in the first half of 2019 are very similar to what we saw in 2018, basically, flat frequency and an increase in severity. As Admiral, we're experiencing very similar trends and we also expect the market and for Admiral to continue seeing similar trends in the second half. However, there are a number of changes in regulation that might have an impact. I'm going to talk about 3. The first one is the change in the Ogden rate. As mentioned, we have increased prices and we expect our competitors to either have increased prices too or to do so very soon.

Secondly is the whiplash reform that we expect that will happen in about a year. I want to highlight that there's a lot of uncertainty both in timing but also in the actual impact that the reform is going to have. When this was first announced about 2 years ago, the market estimated the savings in the cost of the claim to be around GBP 30 to GBP 40 per policy. However, as you can see in the graph on the right, there has been a very strong decrease in the frequency of these type of claims. So the impact, it's going to be less than initially anticipated. But secondly, we don't yet know how claimants and how lawyers are going to react to it. There could be an increase in other type of claims that are not covered inside the whiplash reform. So with this uncertainty, we don't expect the market to discount prices much, and there is more clarity in timing but also in the actual impact.

And the final change that we can see in the market is the results of the FCA market study on prices. We hope to know more about it in the next 2 months.

Moving on to our own loss ratios results. You can see in the graph, not very well. But let me highlight that you can definitely see the total movement since the first projection of accident year. You also have in the bracket the movement in the past 6 months.

In terms of reserve releases, as Geraint has been mentioning, it has been very positive or we have seen very positive prior year development in the first half of the year. Our belief is it's around 22% and 5% has been the impact of Ogden. Overall, we still hold a very prudent and significant margin, which is relatively flat from a year ago and slightly higher than 6 months ago.

Now before I move into the household results, I want to talk about other revenue. We have included a graph that shows the results that we have seen in other revenue for the past 15 years. Two things I want to highlight, lots of movements, up and down, mostly down to changes in our reinsurance agreement but also [due to] (added by company after the call) changes in product.

The second thing I will highlight is that overall there is a very clear declining trend since 2011 when there was a peak of GBP 84 per vehicle. Today, we're seeing this number to be around mid-60s. And if you make it net of the impact of changes in the reinsurance agreement, it's actually 58 down from the previous year.

So what is happening at the moment on this measure? Well, a couple of pressures, first coming from more sales being closed online where we sell less ancillaries; and secondly pressure coming from changes in regulation. I will highlight the IDD, the Insurance Distribution Directive.

Going forward, we expect to still see these trends and also the whiplash reform might have an impact on the margin that we make on the motor legal ancillary product as the cost of it might go up. So overall, there is a lot of uncertainty. It's hard for us to estimate what is going to be the actual impact. But I think in the next couple of years, we're going to see a decrease of a few pounds.

Now moving on into household results, healthy growth of around 20% both in customers and in turnover. Very pleased to see that this growth has been fueled by the growth of our direct channel. We've seen our MultiCover proposition, which is the cross sell to our motor book to household policies increasing and we've also seen our InstaQuote proposition, which is a direct quote [tool] (added by company after the call) that allows customers to get a price with just 4 questions, and we see an increase in the take up. So very good to see the growth. Also positive results after a good year in terms of weather.

So in summary for motor, good growth in profits despite Ogden. As I say, this is a credit of the strength of our underwriting capabilities, very pleased to see the development of the prior years. Very flat, very modest growth as a reflection of our prudent approach. And in terms of household, good to see a strong growth.

Now before I move on, I just want to highlight that these results are a credit to the trust of our customers. We focus very much on delivering the best service every year and we continue to improve. And secondly, our staff, I already highlighted this, but we are very proud to see how happy our staff are in Admiral and all of these results are a credit to them.

So that's it for me, and now I'll leave you with Milena who is going to talk more about the results of our international operations and price comparison.

--------------------------------------------------------------------------------

Milena Mondini de Focatiis, Admiral Group plc - CEO of European Insurance [4]

--------------------------------------------------------------------------------

Thank you, Cristina, and good morning, everybody. So today, I will talk to you about International Insurance, as usual and price comparison sites. Starting with International Insurance, I'm delighted to say that once again, we've seen a very strong growth across all the operation in Europe and in U.S. With particularly ConTe and L'olivier growing very fast and celebrating premium milestones of GBP 100 million and 50 million, respectively.

The total International Insurance result reflected profit in Europe offset by an increase in the current year claims ratio in U.S. and overall resulted in GBP 2.7 million loss. The European operation while growing very strongly also managed to report a record profit for the first half and this is particularly thanks to the contribution of ConTe and Admiral Seguros.

We've also seen in Europe a positive development of premium underwriting year loss ratio. This is on the back of continuous effort in innovating in pricing, improving antifraud capability and exporting best practice in underwriting across the countries. And all these results are based on an unchanged, if not strengthened, level of conservatism in reserves.

There are some positives on Elephant as well, notably an 11% growth of vehicle on covers and a further 2 percentage point reduction in the expense ratio. Unfortunately, these were offset by an increase of 5.5 percentage points in the claims ratio for the current year. The Elephant team responded to this by increasing further pricing in Q2 particularly for the segments that were showing more poor results. And in the next 6 months, we'll continue to protect the claims ratio if needed at the expense of growth and also try to continue to push the expense ratio further down.

So as I mentioned in the past, and as you can see from the set of results that combine very strong growth and relatively flat bottom line, our principal aim at this stage of the story of international operation is to build economy of scale. That's where we put the most of our effort in the last period. And this is based on a very simple belief. We do have already an advantage in loss ratio and we are building it in the less mature business. And with more sizable books, we will be able to deliver substantial profit to the group in the short-term, and short-medium term.

And this last slide on International Insurance is the result of this effort. So as you can see all of our cost metrics are trending in the right direction with significant improvement in expense ratio, cost per policy and calls per customer, as more of our customers decide to interact with us on our portal online. And we are pushing this efficiency without renouncing to invest in our people, in our brands and in our platforms that are evolving continuously.

In Italy, for example, we invest more significantly increasing media investment with a new TV campaign with a very strong testimonial, Mr. ConTe. That is probably the best and the more recognized showman in Italy. And we have a very good return on this media investment. In L'olivier, as you can see on the table on the right, has pioneered our effort in producing and providing more and more feature lines to our customer. We continue to release new ones as we speak.

So moving now to price comparison sites. The first half of the year has seen very pleasing results for us through LeLynx that we're growing both in turnover and in profit in what remain challenging markets that are less mature than U.K.

Everywhere, we are continuing our crusade to empower customers to do better and easier choice, and this translates in Spain by providing a more accurate price to the customer in the final part of the quote. That seems very obvious to us in the U.K., but it is very far to be market standard in Spain. And customers are reacting very positive with improved NPS score and more insurers in the panel are embracing this proposition.

We are also empowering customers to do a broader range of choice in our site and this means product diversification with special focus on the finance vertical, with mortgages in particular in Spain and energy in France.

Moving now to U.S. Compare fell in loss of $3.5 million in the first half of the year. And this is on the back of a challenging market conditions, as we mentioned in the past. As a consequence of that, we amended our forecast and our projection for the future to reflect a more conservative view of the speed of adoption of this new acquisition channel by U.S. consumers. And consequently, we have written down in a typical conservative Admiral style the carrying value of Compare.com by GBP 25.7 million.

The most notable change in this period was a substantial capital overhead cost. This was executed very effectively. We retained all the key personnel as well as serving our customers and our partners well throughout the period. As a result of this cost cut as well as the improvement in acquisition costs, we expect for the second half of the year a materially lower loss for Compare.

Back to U.K. now, Confused had a very pleasing half year, growing 14% in turnover and also with the 50% increase in profit. This was on the back of continued effort in improving our proposition for the customer and our product. And behind also very strong performance in motor, Confused also increased their share in household comparison. We strengthened the B2B relationship as well and have seen an increase in brand awareness and also an increase in effectiveness of media spending with the new TV ads.

So to summarize, we've seen a pleasing half year for price comparison site led by very strong half year for Confused and with a challenging condition in U.S. We've seen a very strong growth across all international operations and profit from Europe once again. Thank you very much.

And I now hand over to Duncan and Scott that is going to talk to us about a newer, but already very exciting part of Admiral business.

--------------------------------------------------------------------------------

Scott Cargill, Admiral Group plc - CEO of AFSL [5]

--------------------------------------------------------------------------------

Good morning. Thank you, Milena for the introduction. As some of you know I joined Admiral 3.5 years ago following a 15-year career in U.K. Retail Banking. More recently with Lloyds Banking Group where I was focused on the development of new consumer finance propositions; and prior to that at the Royal Bank of Scotland where I worked across all retail products including areas of pricing and finance and as part of the executive team driving the digital and technology focus in retail future bank programs.

So why was I attracted to Admiral loans? Why was I attracted to Admiral? Two reasons: the first is the company. As we all know, Admiral is a special and outlier insurance company. So the opportunity to leverage those capabilities to create a special and outlier loans business was a huge pull factor. The second was the market, or more precisely the opportunity that currently exists in the personal loans and car finance market in the U.K. where I believe Admiral can better price risks, be more efficient and drive more consistent customer outcomes. I'll come back to this in a minute.

So how are we doing? Since launching in 2017, we've had cumulative investment of GBP 22 million. We have originated over GBP 500 million of loans to over 60,000 customers. And at the end of June '19, we have a stock position of GBP 421 million. About half of our loans are for the purpose of financing cars and around 20% of those are already to Admiral Insurance customers.

During this period, we won multiple awards voted for by our customers. And we have a fantastic team of people, 140 in total based back in Cardiff, who have been recruited approximately 50% from industry and 50% internally from Admiral.

We're playing in the prime space and we currently have a market share of 1.5%. And we've also invested heavily in our technology, which allows us to acquire 99% of our loans fully digitally. And of those, 85% come through fixed cost channels. So at this point in time, we are already an established lender but we realize there is a lot to do. So over the next 1 to 2 years, the goal is to create a differentiated and special lender for Admiral's shareholders.

The U.K. loan market is large and established, and as I mentioned earlier, there are a series of trends occurring that present an opportunity for Admiral. Firstly, with distribution. We're seeing a shift to channels in which Admiral has historically been strong, notably price comparison but also new credit score based marketplaces like clearscore. 75% of personal loans in the U.K. are already now acquired digitally and over 20% come via these channels. We expect the share of these channels to continue to grow.

Secondly, we are seeing a pull from both distributors and from customers for an improved pricing accuracy and acceptance certainty. It is a gradual shift from a representative rate model to a preapproved guaranteed rate model. The chart on the top right gives a real example of a price comparison ranking first on chance of approval despite there being lower priced representative rate offers available. We think we can be a beneficiary from this given the group's price and expertise and our new flexible technology in the loans business.

Finally, with [U. K] (corrected by company after the call) car finance, some of you may have seen the recent media link to the FCA review, due to both these regulatory changes and changes in consumer behavior, more and more people are shopping online for their cars and subsequently for their finance. We see in time, acquisition gradually moving away from point of sale traditional channels where there are high cost APRs to subsidize the high cost dealer commissions.

So this is what you can expect from us in the next 1 to 2 years. As I said, our focus is to create a truly industry-leading lender. And leading on the Admiral winning formula, we see the following 4 capabilities as key to achieving this. The first is risk selection and data analytics. This is the single most important capability. The data advantage of the additional players is reducing. So our focus will be centered around using established data sources in a more granular way and using new data sources like open banking to better price risks. We have an obsession with little details and our technology allows us to make rapid changes. So we believe this combination will help us find the pockets of higher pricing returns.

The second is expense efficiency. We wouldn't be an Admiral U.K. business without our industry leading expense ratio. You can see from the chart our run rate fixed costs have already reduced from 3.7% of stock balance in June '18 to 2.1% in 2019. And at our scale of growth we expect this operational efficiency to continue.

The third is product development. We see an opportunity to get more flexible and convenient products for our customers, in particular by bringing together car insurance and car finance into one interaction where customers can directly and conveniently arrange all of their car needs.

And finally, with technology. We started with an end-to-end industry proven system and are in the process of evolving to a micro services architecture using best of bid components. And we have in H1 '19 completed the first phase of this development with our new proprietary pricing system.

So hopefully, that's giving you an overview of both the market and the business. I'd like to leave you with 2 points to summarize. Why will Admiral win in loans? The first is that using the latest technology, we will give customers better choices for car finance. And the second, as we hold an obsession on data and pricing to better price risks and find the pockets of higher pricing returns.

So with that, I'll pass you to Duncan to talk more about our funding and our performance.

--------------------------------------------------------------------------------

Duncan Russell, Admiral Group plc - CFO of AFSL [6]

--------------------------------------------------------------------------------

Thank you, Scott. Good morning, everyone. My name is Duncan Russell, I'm the CFO of Admiral Loans. I joined Admiral about 1.5 years ago. Prior to that I was working in the Netherlands for a Dutch insurance company where I was responsible for corporate finance and strategy. And before that, I was based in London at JPMorgan where I was a managing director. I will spend a few minutes talking about the key financial highlights of the loans business, and I'll start in that context on the funding position.

And as you can see from this slide, of the GBP 421 million loans outstanding at the half year, roughly 60% of those is funded on a senior secured basis via our banking warehouse structure. As a standard facility for a lending business like ourselves and was put in place roughly 12 months ago. The remaining 40% has been funded by money provided to us by Admiral Group who in turn have sourced that through a combination of drawing on credit facilities at the holding company and downstreaming it, while utilizing the insurance asset base. We believe that these two funding sources should be sufficient for the loans business to meet our near to medium-term growth ambitions. While in the longer term, we will naturally need to diversify further and it is most likely we'll do that through capital market transactions such as a public securitization or debt issue.

With respect to the capital position, Admiral Loans is part of a separate legal entity called Admiral Financial Services and is a consumer credit firm, which means that it does not have any material regulatory capital requirements of its own. However, within the group's Solvency II ratio, we are added in. And the way that's done is via a notional solvency capital requirement, calculated using banking Basel rules which is broadly equivalent to 6% of the loans outstanding at any point in time.

With respect to asset quality, as Scott mentioned, we are operating in the prime space. As an output, that means we're targeting annualized losses in the range of 1.5% to 2%. And an APR on the book in the mid to high single digits. From an input perspective, it means we're targeting customers who have a good credit history, have a certain minimum level of income and a certain maximum level of debt.

Now over the past 12 to 18 months, we have been optimizing our credit rules and that's been a function not only of the data and trends we've seen emerging in own book, but also a realization that we are a new lender in the market and we have looked to remove any concentrations that may emerge. In addition, we are aware of the macroeconomic background and therefore have generally had a tightening bias on our credit rules over the last 12 to 18 months.

As Scott mentioned, we have invested in technology and recently, we put in place our pricing capability which allows us to price risk in a very granular manner and in a very rapid manner and utilizing the data sources, which Scott mentioned earlier.

From a provisioning perspective, we are utilizing IFRS 9 and the total provision at the half year was GBP 15.7 million. As some of you are probably aware that does recognize credit losses slightly earlier than the prior accounting standards. To put that into context, of the GBP 15.7 million credit provision as of the half year, approximately GBP 5.5 million related to what are known as Stage 1 loans which means that they are up to date and haven't experienced any credit deterioration.

As you're aware, the half year result for those business was a loss of GBP 4.3 million which is a slight improvement period on period. We're guiding for that number to be in the high single-digit area for the full year notwithstanding any significant change in the macroeconomic environment.

As you can see from the charts, the loan balances have steadily increased over the past 1.5 years and that's been a function of stable level of new loan originations. We anticipate for the coming two years, we'll also keep our new loan originations relatively stable and that means that the total loan balances outstanding in two years' time should be in the range of GBP 700 million to GBP 900 million.

As Scott mentioned, there's a lot more to do. But as a team, myself, Scott and the team back in Cardiff are reasonably satisfied with the financial performance of the business so far and we look forward to the future with optimism.

And with that, I'll hand back to David to summarize.

--------------------------------------------------------------------------------

David Stevens, Admiral Group plc - CEO & Director [7]

--------------------------------------------------------------------------------

Thank you, very much Duncan and Scott. I said we won't dive as deeply as that into loans in future, but I bear your indulgence for 1 extra page, which is to try and set the loans business a bit in the context of Admiral's aspiration and time frame.

So I look at the loans business with a goal of creating something Admiral-like in a few years' time. What do I mean by Admiral-like? I mean a special business in a difficult market. Loans is a difficult market it's a commoditized product. There's a lot of capacity. It's subject to exposure to macroeconomic cycles. But if you create a special business, you can still make good returns.

How is this business going to be special? It's going to be special in risk selection. It's going to find ways of identifying overpriced risks. It took Admiral 5 to 7 years to beat the industry average loss ratio through a process of learning and applying those learnings. It doesn't happen overnight. It's going to do it through creative product innovation. This appears to be a commoditized market, but there are often opportunities to tweak a product to slightly differentiate. We did it ourselves with a 10-month product and with multicar and multicover just gives the customer an extra reason for coming to us. Again, it takes time to develop those products.

And tight expense control has always been part of the Admiral formula, low acquisition costs, low administration costs. And I'm glad to say that I think the loans business is already demonstrating superior expense economics versus the average competitor in the lending market.

Now if over time we achieve these 3 goals, we get a business that establishes a track record of superior returns. And if we do that, we can apply another part of the Admiral formula, which is working in partnership with third-party capital providers to increase the capital efficiency and the risk mitigation of our capital structure, and that's something of our goal. We will do that in the way that Duncan described through securitization. We also might look for more innovative ways of doing that. And I'm pleased to say we've done our first relatively small capital efficiency deal with one of our reinsurance partners to provide support for the lending operation.

So what would I like you to take away from this morning's presentation? I think 3 things, really. The loan business is an option on a potentially attractive business for the long term. Record European growth. We got 209,000 more cars on cover than we had a year ago in Europe and 125,000 of those came in the last 6 months. And lastly, and perhaps mostly importantly, I think these results are a further demonstration of the strength and resilience of the core franchise. To see the back year loss ratios evolving as they are gives us confidence that we continue to beat the market collectively on that key loss ratio metric. And also our conservative approach to recognizing that superior performance means that we can deliver even in difficult times in the market.

So thank you for your attention, and I'm going to open up for questions and answers.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

David Stevens, Admiral Group plc - CEO & Director [1]

--------------------------------------------------------------------------------

Do you want to go first?

--------------------------------------------------------------------------------

Sami Taipalus, Goldman Sachs Group Inc., Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

Hi Sami Taipalus, Goldman Sachs. First, just on the U.K. motor environment, where do you see yourselves being now in terms of margin progression relative to the second half, do you think you've reached the bottom, do you think you're in a position where you can cost claims inflation? Then a couple of questions on the loans book value. Can you just give a little more detail on financing there and how you see that's developing? And also are there any in synergies with the rest of the Admiral team?

--------------------------------------------------------------------------------

David Stevens, Admiral Group plc - CEO & Director [3]

--------------------------------------------------------------------------------

So Cristina, can you do the U.K. business?

--------------------------------------------------------------------------------

Cristina Nestares, Admiral Group plc - CEO of UK Insurance [4]

--------------------------------------------------------------------------------

Yes. We believe there is still a gap to reach the claims inflation, so we will continue putting prices up.

In terms of margin, as Geraint has said, in the first half of the year, we have experienced a particularly high back year releases and we don't anticipate to continue with this trend in the second half.

--------------------------------------------------------------------------------

Scott Cargill, Admiral Group plc - CEO of AFSL [5]

--------------------------------------------------------------------------------

And on synergy, the first priority is to create a great lending business as we talked a bit in the script. In terms of synergy, I think about it in 2, possibly 3 ways. And the first is the customer base. There's obviously 4 million to 5 million insurance customers in the U.K. We estimate we've got a GBP 9 billion of car finance and personal loans. So we'd like to talk to them about giving them better solutions and better products. The second is data, and we already see that in addition to credit data that the Admiral data does correlate well. And there's some insights that will aim to take over in the next few years with that. And then the third is cultural. Admiral has quite a unique way of driving customer experiences, but also in terms of the granularity and frequency of pricing changes. And we're already inheriting some of that, so we see a synergy there as well.

--------------------------------------------------------------------------------

Duncan Russell, Admiral Group plc - CFO of AFSL [6]

--------------------------------------------------------------------------------

Question was on financing. As we indicated in the slides, you can expect our balances to be around GBP 700 million to GBP 900 million in 2 years' time. And the reason we gave that was to help you frame the financing need, the capital need and some sort of indication on the P&L as well. I indicated in the presentation that I felt that the current funding capabilities we had, which is the banking warehouse, which funds roughly 60% of those balances and the remaining 40% being funded by a combination of credit lines and insurance. Assets should be sufficient to meet those near-term needs, particularly at the bottom end. And at the top end, probably, with a small upscaling. Post that, any further growth above that would require, I believe, a diversification of funding. Most likely, it will be in the form of public securitization. The main barrier to achieving that will be track record and data. And that's also why it coincides nicely with the 2-year near-term needs and then thereafter when we've built up a track record over a 4- to 5-year period tapping those public markets.

--------------------------------------------------------------------------------

Ivan Bokhmat, Barclays Bank PLC, Research Division - CEEMEA Banks Analyst [7]

--------------------------------------------------------------------------------

Hi it's Ivan Bokhmat from Barclays. My first question would be on the reinsurance profit commissions. Maybe you could provide some outlook considering a creep-up in the current year loss ratios, how should it work through the future years? And the second question I had also on loans, just to follow up. Maybe you could provide some kind of bank comparisons in terms of the cost of risk and the cost of income that you target for that business. What kind of ROE should we be expecting once you get to the GBP 900 million loan balances target?

--------------------------------------------------------------------------------

David Stevens, Admiral Group plc - CEO & Director [8]

--------------------------------------------------------------------------------

You want to answer the reinsurance commissions?

--------------------------------------------------------------------------------

Geraint Jones, Admiral Group plc - CFO & Director [9]

--------------------------------------------------------------------------------

Profit commissions, the flow through into the accounts will be predominantly driven by how we release back year loss ratios. So the current years, we wouldn't expect those to feed into the profits for 2 or 3 or 4 years. So the next couple of years will be largely influenced by what happens on '14, '15, '16, '17, which should appear to be quite profitable years. We're now moving into the territory where we're recognizing profit commission, so that will lead us the next couple of years. As I mentioned and Cristina mentioned, the first half of this year has been particularly positive for those back years. I'd be positively surprised if it happens in the second half. We do have a fairly strong track record of fairly strong back year reserve releases, and that does lead into profit commission as well.

--------------------------------------------------------------------------------

Scott Cargill, Admiral Group plc - CEO of AFSL [10]

--------------------------------------------------------------------------------

On loans, let me answer in 2 parts. So the expense part, I think the way to think about it is that the cost income of banks in the order of 40 to 50. And we're already demonstrating sub-30 cost income ratios. I'm not aware of a low-cost provider with the parent like Admiral coming into this market. A lot of the challenger banks come in on their own with heavy expense requirements. Sometimes having to set up a bank before they can really get the revenue going. So I think from an expense perspective, we would see us getting certainly into the 20s.

--------------------------------------------------------------------------------

Duncan Russell, Admiral Group plc - CFO of AFSL [11]

--------------------------------------------------------------------------------

From a returns perspective, on the economics, which I flagged in the presentation, high single-digit APR and annualized cash loss, roundabout 2%, funding costs roughly similar to that and a capital requirement roundabout 6%. Within the IRR, it's a roundabout 25% on the loans originating today.

--------------------------------------------------------------------------------

Dominic Alexander O'Mahony, Exane BNP Paribas, Research Division - Research Analyst [12]

--------------------------------------------------------------------------------

Hi Dominic O'Mahony from Exane BNP Paribas. If I can ask 3 questions if that's ok, Cristina, you mentioned some of the headwinds on the other revenue per customer. I wonder if you might be able to flesh out in a little bit more detail why you see the IDD as being a headwind and also how you see the whiplash reforms impacting the legal cover. Secondly, even in the past, you indicated PYD might trend in the long-term average of about 20 points on the combined ratio. Do you still think that's a reasonable number? Or should we be inferring that while next half won't be quite as good as this half, it's still going to be above that? And then finally, apologies for a slightly technical question, but if I look at the book loss ratio for the 2018 vintage, it started roughly at the same place as 2014. Is that good development? But when you commuted 2014 and 2016, it was a little bit of a loss, GBP 30 million odd loss. If 2018 turns out to be similar to 2014 in terms of development, what sort of loss do you think that might mean on commutation? And did you really consider not commuting it if there is a chunky loss?

--------------------------------------------------------------------------------

David Stevens, Admiral Group plc - CEO & Director [13]

--------------------------------------------------------------------------------

Do you want to do IDD and whiplash and maybe Geraint do commutation?

--------------------------------------------------------------------------------

Cristina Nestares, Admiral Group plc - CEO of UK Insurance [14]

--------------------------------------------------------------------------------

Yes. One thing I want to highlight is that despite the decrease that we have been seeing, so from the peak of 84 to where we are right now around 60, it has not stopped us from delivering good profits and good return year-on-year. So I think that's important to take into account. In regards to IDD and whiplash, whiplash might increase the cost of delivering motor legal protection. This is an ancillary that we offer and is quite an important one. And if the cost increases, there might be pressure on the margin. Yes, so that's the impact of whiplash.

Second one is in terms of IDD, I would highlight, it's not just the insurance distribution directories. It generally is a trend to better disclosure, and IDD is just an indication. So there is a trend constantly, value measures, IDD and many other reforms that would lead to different ways of selling products.

--------------------------------------------------------------------------------

Geraint Jones, Admiral Group plc - CFO & Director [15]

--------------------------------------------------------------------------------

The question on reserve releases, we used to guide that 15% was the sort of long-term average. And as we've updated the chart, it's heading more towards 20%. I think we commented earlier the size of our margins is conservative and large. And I think if things develop as we would normally expect them to in the second half, you'd expect H2 to be pretty strong, so not in the 15% territory, probably closer to 20%. And the future will obviously depend on how claims develop. But I think 20% is probably a more reasonable guide for the very near term than 15% for sure.

And commutations, it's a very valid point. If 2018's booked loss ratio progression looks like 2014 and we choose to commute it, then you might expect a similar accounting loss. I would just emphasize it's not a real loss. Obviously 2016 is booked at roundabout 19%, and so it's a very profitable year. And so the accounting loss that we recognized at that point of commutation has since unwound in full. And we would certainly expect that 2018 will be a profitable year. And we choose to make the better commutation decision based on our expectation of the ultimate profit. And so if it looks to us like it's going to be a profitable year, then we'll probably do that commutation. And therefore, that might recognize a loss at that point. We'll decide that in 2020 or 2021, whenever that point comes.

--------------------------------------------------------------------------------

Iain Pearce, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [16]

--------------------------------------------------------------------------------

Iain Pearce from Berenberg. On the -- I mean could you just give us some guide on what's led to that sort of extraordinary performance in terms of claims trends? And then secondly on Ogden, on the sort of GBP 20 million to GBP 30 million additional impact you're flagging from that, when should we expect that to sort of earn through the P&L?

--------------------------------------------------------------------------------

Geraint Jones, Admiral Group plc - CFO & Director [17]

--------------------------------------------------------------------------------

Probably, it's more of the same sort of stuff that we'd normally expect to see. It's positive development of average cost of injury claims and particularly large injury claims. We'd seen some different trends in our data over the past couple of years, a more stable development that we'd normally expect to see, and we'd normally expect to see continued releases over time. Those trends have reverted more towards normal over the past 6 or 9 months. And so our independent and external actuaries have started to take account of that more positive trend -effectively some of that stuff has been stored up. And so you get a bigger movement in the first half than you might normally see. So that's the prior year. Second part, what's the second part, sorry? Ogden. Yes, so we reckon the total cost will be GBP 50 million to GBP 60 million. We've recognized GBP 33 million in H1, and that's all in the form of lower reserve releases. The next GBP 20 million or so will come through in lower-profit commission and it will be over the next 2 or 3 years. So the individual 6-month impact will be pretty trivial, as I wouldn't expect this to actually flag it at this point. It will just be lower-profit commission.

--------------------------------------------------------------------------------

Edward Morris, JP Morgan Chase & Co, Research Division - Equity Analyst [18]

--------------------------------------------------------------------------------

Edward Morris, JPMorgan. A few questions on loans, first, if I may, and then one on solvency. First, just when you talk about pricing and how you approach this, can you just explain how you go about this? Is this something where all of the differentiation on pricing comes through the APR? And can you offer a similar level of granularity that you do for your insurance businesses? Is there an upper limit on what you offer on APR? Secondly, relating to capital on the loans business. You said there's a 6% charge on the capital of the loans book and some of it comes from insurance assets. So I was just interested, is that because of the Basel treatment? It seems like quite a low capital charge compared to what you would expect from insurance assets that were in other illiquid type investments. And then lastly on solvency, I think you mentioned your solvency ratio is subject to regulatory approval on the capital add-on. What's the expected timing on that, please? I thought that might have been expected for the first half.

--------------------------------------------------------------------------------

David Stevens, Admiral Group plc - CEO & Director [19]

--------------------------------------------------------------------------------

Do you want to do loans, and we'll come back to Geraint, Duncan?

--------------------------------------------------------------------------------

Duncan Russell, Admiral Group plc - CFO of AFSL [20]

--------------------------------------------------------------------------------

Yes. So taking a reversal of the capital, that's a standard banking Basel requirement. So we use a standardized approach to calculate the risk-weighted assets, and we take the pier 1 requirement of that. We don't do anything on top of that, and that just mathematically works out at a roundabout 6%. Important to know, that does not diversify, so if it was within the loans business and within the insurance business, that will have a diversification benefit as well. But because it's an add-on to the group insurance Solvency II ratio, it doesn't diversify until it's 6% flat, which, I think, is something to remember.

On pricing, we do have a maximum APR, which is, I think, reflective of the prime space we're operating. So we are, as I indicated, targeting an overall book APR in high single digits. So in that context, there is a maximum, which is reflective within that. As Scott mentioned, I think on the pricing side, we're trying to develop a couple of competitive advantages. First is cultural, which is both from a who we write and the price we charge, we're trying to be quite proactive in managing that, not just because we are a new lender into the market and we are aware of the macroeconomic environment, but just that's something we've learned that Admiral on the insurance side does quite well. And so we have tried to mirror that. And on the technology side, we built our own proprietary in-house pricing capability, which means that we could come in, in any single morning and adapt the price in a very granular manner for a very specific risk and change that as frequently as we want. And we believe the combination of those 2 things should allow us to, over time, build a competitive advantage in pricing risk selection.

--------------------------------------------------------------------------------

Geraint Jones, Admiral Group plc - CFO & Director [21]

--------------------------------------------------------------------------------

The second question is capital add-on. So our capital requirement is based on a standard formula plus the capital add-on. We calculate that internally every quarter and we report that externally every 6 months. If it changes materially from the previously approved one, then we'll talk to the regulator about getting it reapproved. I'd expect us to be doing that reasonably shortly. It has gone down a fair bit since the last one. So that's part of the story here. So I would expect that to be done reasonably shortly.

--------------------------------------------------------------------------------

Jon Denham, Morgan Stanley Investment Research - Analyst [22]

--------------------------------------------------------------------------------

Jon Dennham from Morgan Stanley, just one question on motor expense ratio seems it has taken out a little bit -- what's the reason for that and what is the outlook going forward. And just on loans you've mentioned funding with motor insurance is that something you have discussed with the regulator?

--------------------------------------------------------------------------------

Cristina Nestares, Admiral Group plc - CEO of UK Insurance [23]

--------------------------------------------------------------------------------

I've said that we continue to be very focused on our expense ratio and to be an efficient operator. This year, I will highlight a couple of things. One is the increase in levees and the other one is just the increasing cost of doing business in the U.K. In areas like cyber, we have done a very important [exercise] (corrected by company after the call) to strengthen our cyber capabilities.

--------------------------------------------------------------------------------

Scott Cargill, Admiral Group plc - CEO of AFSL [24]

--------------------------------------------------------------------------------

On loans, so the product is to build a great lending business and one we take inspiration from the car insurance business in a few ways. And one is that they've got dedicated and relentless focus on one product for a very long time, and our competitors don't. Many of them try to do lots of different products. So we see the value chain splintering. And it's splintering in a way where we think the profit center, which is personal loans and car finance for banks, is an opportunity for other people to get involved in. So that's why we're there.

In terms of car insurance, we're talking to millions of customers every year wherein they're changing their vehicle. And we have a lot of data on those customers to help us give good indications to what type of price they should be getting for their loan. So bundling is not really where we're thinking about it. We're thinking about talking to our customers about their financing means at the point they're making the change in their vehicle purchase.

--------------------------------------------------------------------------------

Andrew John Crean, Autonomous Research LLP - Managing Partner, Insurance [25]

--------------------------------------------------------------------------------

It's Andrew Crean, Autonomous. Three questions, if I can. Could you talk a little bit more about the FCA pricing review and the potential risks that you see there? Secondly, in your appendix, you give a sensitivity to changes in the loss ratio, including impacts from changing profit commission terms. But I think the loss ratio is now so high, that there is no sensitivities as it comes down 5 points. So it's not really helping us to see how, as years progress, you take more of the profit. I wonder whether you could do something about that. And then second, coming back on to the loans business. As I understand it, you started this operation as a car loans business. And now, half of it is a personal loans business. Why do you think you have better pricing insights than the traditional player in that personal loans business? I think you did admit that they have more access to data.

--------------------------------------------------------------------------------

Cristina Nestares, Admiral Group plc - CEO of UK Insurance [26]

--------------------------------------------------------------------------------

Yes. So you first start with the FCA pricing review. I'll highlight first the uncertainty. We don't know what is going to come out. We see risk and maybe opportunities. Risk, because any change in regulation, if it's implemented in a way that is similar to every player, I think it could be interesting, but there is always uncertainty when it comes to changes in regulation. Also any change that will limit our ability to price based on risk factors could have an impact. However, there could also be opportunities. If you look at our motor book, most of it comes from price comparison where people shop on a very regular basis. About 80% of our customers contact us every single year. And if you look at our household book, actually, it's very recent. We have very old -- sorry, we have very young customers, so it could actually be an opportunity at the end. I will leave it with a lot of uncertainty.

--------------------------------------------------------------------------------

Geraint Jones, Admiral Group plc - CFO & Director [27]

--------------------------------------------------------------------------------

On loss ratio sensitivity, maybe I will pick up after with you, as I need to clarify the question. The extent of the sensitivity will really depend on where the individual underwriting year is booked at. And how much profit can be recognized by moving the loss ratios a couple points. So maybe, I'll pick that up with you afterwards, if that's good.

--------------------------------------------------------------------------------

Andrew John Crean, Autonomous Research LLP - Managing Partner, Insurance [28]

--------------------------------------------------------------------------------

It's a very simple point. The benefit of 5 points is to say 5x the benefit of 1 point, whereas if your loss ratio is further down, you begin to see the exponential benefit of improving profit commissions. So it provides us no guide in terms of how to model it.

--------------------------------------------------------------------------------

David Stevens, Admiral Group plc - CEO & Director [29]

--------------------------------------------------------------------------------

Well, it provides you with a guide to model if it moves by 5 points. I'll pick up with you later on Andrew.

--------------------------------------------------------------------------------

Scott Cargill, Admiral Group plc - CEO of AFSL [30]

--------------------------------------------------------------------------------

On the online we were thinking about data and pricing. There's probably 3 areas. So as I said in the script, we're talking about established. And where we think we can do, certainly better than someone established as we're looking at the raw data, the raw credit data at point of acquisition, so literally hundreds of variables. So there's an opportunity there, I think, to certainly, for a lot of lenders, who only look at consolidated scores at point of acquisition to point an advantage.

The second thing on new data sources, we're one of the first, we believe, in the market to work with open banking data. So when I said the traditional data sources or traditional advantages are reducing, open banking data gives you access to feel current account data. And if customers are willing, you're able to assess risk with that information. So that's the second way we're looking at it. And we're investing a lot in that in the second half of the year. And the third was the Admiral data, the simple example would be a line indicator for a car insurance product, that has a correlation, as you might expect with a bad loan performance. So there's some links there with regard to Admiral data.

--------------------------------------------------------------------------------

David Stevens, Admiral Group plc - CEO & Director [31]

--------------------------------------------------------------------------------

One observation I'd make having worked closely with the loans team over the last 2 or 3 years, as we've initially piloted and then decided to go with a loans operation is that the mental process of pricing insurance and mental process of pricing a loan is not as similar as I would have immediately anticipated. But I've taken away from it the view that a combination of a loans pricing culture and an insurance pricing culture is an asset for a lender and, in fact, also a combination of a lending and insurance pricing culture is arguably an asset for the insurance business as well. There's learning for both sides on how traditionally these sectors have tackled risk.

--------------------------------------------------------------------------------

James Austin Shuck, Citigroup Inc, Research Division - Director [32]

--------------------------------------------------------------------------------

James Shuck from Citi. I have 3 quick questions, please. Firstly, the best estimate liabilities, I think you've previously guided that you would expect the best estimate not to develop as favorably as it has done in the past. 2017, 2018, we're still seeing very strong development. If you can just run me through what actually is driving that positive development, that will be helpful, please. Secondly, the whiplash reforms, as I think you indicated, it is about a year before you expect those to come in. I was expecting April 2020. Could you just shed some light in terms of that potential delay? And thirdly, just around the Solvency II sensitivities to low rates. I remember those being far more sensitive to 50 basis point reduction. Could you just clarify what's included in that? Is there a reduction in Ogden rate as well? Thank you.

--------------------------------------------------------------------------------

David Stevens, Admiral Group plc - CEO & Director [33]

--------------------------------------------------------------------------------

The first one is the development in ultimate loss ratio. So we have commented that we don't expect these projected loss ratios to improve as much as they would have done in the more distant past. We have instances in the past where our loss ratios would have improved by 20 or 30 percentage points, and we wouldn't expect that to happen anymore. We frequently comment that we expect on more recent years to be on the cautious side of the best estimate range. And so you see that reflected in the rectangles on Slide 14 where some of the years have improved by double digits. And '17 and '18 have improved pretty decently already. I think I said earlier that the reason for a particularly strong first half was some unwind of conservatism that was there 6 months ago based on the trends that we've seen on '15, '16, '17 years starting to be more like normal trends after a period of quite stubbornly flat average cost development. And so this half year, I would say, is a more positive half year than usual.

--------------------------------------------------------------------------------

Cristina Nestares, Admiral Group plc - CEO of UK Insurance [34]

--------------------------------------------------------------------------------

In terms of the timing of the whiplash reform, I tried to leave it a bit vague in the sense that it's about a year because it could be April, it could be October given the current political climate and some of the priorities, but also the fact that a system needs to be developed. I think there is uncertainty, which we don't know. There could be a delay.

--------------------------------------------------------------------------------

James Austin Shuck, Citigroup Inc, Research Division - Director [35]

--------------------------------------------------------------------------------

Is it mainly the portal -- the online portal that's the limiting factor on that?

--------------------------------------------------------------------------------

Cristina Nestares, Admiral Group plc - CEO of UK Insurance [36]

--------------------------------------------------------------------------------

It's one of them, yes.

--------------------------------------------------------------------------------

Geraint Jones, Admiral Group plc - CFO & Director [37]

--------------------------------------------------------------------------------

And finally, about the sensitivity 50 basis points moves in the interest rates. The reason it was particularly material historically was twofold. Firstly, the much higher expectation from PPO propensity and the positive discount rate environment. With a minus 0.25% discount rate environment, we don't expect that many PPOs. And so the longer-tail duration of the liabilities is not as material as it once was. There's another part.

--------------------------------------------------------------------------------

James Austin Shuck, Citigroup Inc, Research Division - Director [38]

--------------------------------------------------------------------------------

Is Ogden included in the sense?

--------------------------------------------------------------------------------

Geraint Jones, Admiral Group plc - CFO & Director [39]

--------------------------------------------------------------------------------

So that sensitivity reflects the new Ogden rate and then the slightly lower propensity of PPOs. The other point is our portfolio is better matched than it was a couple of years ago in terms of asset liability positions.

--------------------------------------------------------------------------------

James Austin Shuck, Citigroup Inc, Research Division - Director [40]

--------------------------------------------------------------------------------

So the sensitivity reflects the Ogden rate discount rate as well on the solvency position.

--------------------------------------------------------------------------------

Geraint Jones, Admiral Group plc - CFO & Director [41]

--------------------------------------------------------------------------------

It assumes that the Ogden discount rate stays the same and the PPO propensity, we would therefore assume holds.

--------------------------------------------------------------------------------

Dhruv Gahlaut, HSBC, Research Division - Analyst [42]

--------------------------------------------------------------------------------

Dhruv Gahlaut, HSBC. 3 questions. Could you talk a bit more in terms of what happened to motor rates since the start of Q3? As in you highlighted a couple of stats on ABR, et cetera. I just want to understand what happened on the competitive landscape. Have you seen any increases? Secondly, what is the reinvestment rate at this point? And what is the investment yield you're getting on your portfolio? And lastly on Compare.com, post the write-down, what's the carrying value there now?

--------------------------------------------------------------------------------

David Stevens, Admiral Group plc - CEO & Director [43]

--------------------------------------------------------------------------------

You want to do Q3?

--------------------------------------------------------------------------------

Cristina Nestares, Admiral Group plc - CEO of UK Insurance [44]

--------------------------------------------------------------------------------

Yes. It's too early to comment. We haven't seen any particular change in trend. Confused index for the month of July doesn't have an increase, but the Confused index sometimes changes a bit, so we prefer to take it into quarters than monthly.

--------------------------------------------------------------------------------

Geraint Jones, Admiral Group plc - CFO & Director [45]

--------------------------------------------------------------------------------

And the other 2 points, well, Compare's carrying value in our books now reflects the net assets of the company, which is about $15 million in total. It's not our assessment of how much the business is worth. That's what's on the balance sheet. And the final point was reinvestment rates are particularly depressing. They started the year pretty good, and they've moved down very materially since then. And I think the typical bit of them, the reinvestment of our bond portfolio is 1.3, 1.4, somewhere around that. It was 2 at the time of the year.

--------------------------------------------------------------------------------

Robert Murphy, Edison Investment Research Limited - Head of Investment Trusts [46]

--------------------------------------------------------------------------------

Rob Murphy, Edison. On the other income, are you still expecting the installment income to grow strongly? And how should we think about the margin mix and the impact that's going to have on the net figure, net of internal costs?

--------------------------------------------------------------------------------

Cristina Nestares, Admiral Group plc - CEO of UK Insurance [47]

--------------------------------------------------------------------------------

Yes. The biggest change in installment income has been more an accounting change between reinsurance and ourselves, and that's what was mentioned in the slide in green. So if you look at net of the effects of the changes in the reinsurance agreements, there hasn't been any material change in the installment income. And we don't expect any material change going forward.

In terms of margin, as I said, when you look at our underwriting, we have one of the best combined ratios in the market, so we tend to get a lot of our profitability coming from there. And we tend to see the profitability of the motor book as a whole, both combined ratio and ancillaries. So there might be changes on where we get the margin.

--------------------------------------------------------------------------------

David Stevens, Admiral Group plc - CEO & Director [48]

--------------------------------------------------------------------------------

Sorry, we've got probably one more. Sorry, go for it then.

--------------------------------------------------------------------------------

Philip Ross, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst [49]

--------------------------------------------------------------------------------

Phil Ross for Mediobanca. Just a single one for me. You mentioned the pricing increase at 1% in response to the Ogden rate change. Do you have any view on whether you need to revisit that once claims start settling in at the new rates? Or do you think that's fairly final?

--------------------------------------------------------------------------------

Cristina Nestares, Admiral Group plc - CEO of UK Insurance [50]

--------------------------------------------------------------------------------

We think that is the final number, but how claims evolve is always uncertain. The result is something to consider, which is the possible change in the cost of the reinsurance, excess of loss. That will come for most companies at the beginning of the year. Given that we have a very high retention level, we don't expect a significant impact for us, but it could have a significant impact for other companies. So yes, I will assume there might be another change related to Ogden, at least in the market.

--------------------------------------------------------------------------------

David Stevens, Admiral Group plc - CEO & Director [51]

--------------------------------------------------------------------------------

Thank you. And that was a nice quick question. At the expense -- at the risk of the ire of Marisja, If you have a very short one, I'll take it.

--------------------------------------------------------------------------------

Jon Denham, Morgan Stanley Investment Research - Analyst [52]

--------------------------------------------------------------------------------

It is short. Just your view, really. I mean we've heard from most of the listed peers in the last month or so and since the start of the year, and consistently, people have been talking about pricing not keeping pace with claims inflation. I just wonder what is your view on why the market isn't reacting. And is it because there's something that we don't see from the numbers advised?

--------------------------------------------------------------------------------

David Stevens, Admiral Group plc - CEO & Director [53]

--------------------------------------------------------------------------------

I think the conclusion, if you look at all the people who stood up in the last few weeks and talked about how they run their business, they're running them in a disciplined way seeking to offset the impact of the cycle. The implication of that has to be that there are players out there who feel it's an appropriate time to grow. And probably, it's fair to say that they tend to be the middle-sized ones. In our experience, there are a number of players who tend to respond a bit too late to market cyclical developments, and we anticipate that they will respond and should have done already.

Thank you.