Admiral Group PLC
LSE:ADM
Earnings Call Analysis
Q2-2023 Analysis
Admiral Group PLC
Admiral H1 2023 has proactively calibrated its lending strategy to the fluctuating macroeconomic landscape. Despite confronting potential customer pressures, they maintain a prudent credit loss provision coverage at 7.2%, which is bolstered by a post-model adjustment of £12.6 million. Their cost income ratio has been reduced to an exceptional 38% for a business of this magnitude.
Looking ahead, modest growth is expected in H2, aligning with full year guidance. This indicates a steady progress rather than a significant leap in expansion, with existing strategies still pertinent for the near future. There's a sense of cautious optimism as the company reiterates its stance without deviating from prior forecasts.
Admiral has historically returned an average of 90% of post-tax profits to shareholders, which signifies a strong commitment to investor returns even as the company experiences robust growth. There's no indication of changes in dividend guidance, pointing to a stable payout policy going forward.
Customer numbers saw a 3% decline in the first half of the year due to previous rate adjustments impacting volume. Nonetheless, these rate increases have translated into a significantly higher turnover. While the UK Motor segment anticipates a return to growth after price adjustments align with the market, the U.K. household sector continues to boom. Internationally, Europe exhibits double-digit growth in customer numbers, contrarily the U.S. observes a slight downturn, yet showing overall turnover expansion. A strong price action strategy consistently leads to turnover growth across various markets.
Admiral has raised rates leading to an upsurge in average premiums and subsequent strong turnover increases. The company has yielded higher investment income from elevated interest rates and expects materially better underwriting year results in 2023 with premium expansion across all their businesses. They remain well-positioned for prospective growth, despite the challenges posed by the current trading conditions.
Despite a modest customer reduction in the U.K. Motor segment due to strategic price hikes, Admiral remains on course to resume growth as market conditions stabilize. Internationally, growth continued at a prudent rate of around 20%, with the company strategically preserving capital and reducing losses, particularly emphasized in the U.S. market.
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Welcome, everybody, to the half year presentation of Admiral H1 2023. Very pleased to say that despite the challenging market condition, we delivered another period of solid performance, great service to our customer to more customers and good outcome for our shareholders as well despite the high inflationary environment. So thank you for joining us. As usual, I will start with the key highlights. Geraint will follow up with more detail on our key financial metrics.
Cristina will explain us how we navigated this extreme cycle, and will provide more detail on household and market trends. Costantino will tell us how we strengthen our position overseas. And then I will come back to share some exciting progress on our lending business and our strategy.
So well, these are pictures from Top 10. This is our most iconic event, in which we celebrate our colleagues that go above and beyond for our customers and our shareholders. So let me start by thanking those who were really behind the achievements that we are about to present. Speaking of which, in the last year, our turnover grew by more than 20%, this was mainly driven by price increase to respond to the high inflation. Our customer around the group overall were up 4%, and it was driven by Europe and new product and grow more than compensated the reduction in active policy base in U.K. motor insurance.
Our profit under the new accounting standard, IFRS 17 were £234 million. This figure is higher than last reporting period and it's also higher than H1 2022 restated under IFRS 17, but is lower versus H1 2020, '22 under IFRS 4. And I think overall, this is a solid combination of results. And it's nice to observe that this was also a true team effort as all our mature business contributed both to turnover growth and improved bottom line. We're proud of the progress we made in our strategy, particularly the adoption of advanced analytics, tech capabilities and some of the development in the newer business.
And I'm pleased to say that we are, again, in a very strong, solid capital position with a solvency ratio of 182%. And that, as usual, we've been disciplined in our underwriting and pricing, and this put us on a strong footing for a turning cycle. And now let me start with a bit more detail on market conditions. I wish I could tell you a different story from 6 months ago, but it's a bit more of the same, to be honest. Although we believe that we are closer to a turning point. In the graph bottom left, you can see CPI inflation and average market premium increase in each country for H2 2022 and first half of 2023.
Now as you see, CPI inflation is decreasing everywhere, but it's still high. And that's even more true for material damage inflation for which, unfortunately, we don't have comparable data by country, but that sits higher on top of CPI inflation.
And this inflation stubbornness led to stronger price increase than anticipated for the market that should lead to materially improved results in the underwriting year 2023. Another consequence of renewal price increases is a strong growth in shopping. And overseas, where shopping is a less ingrained habit. This may lead to an acceleration of the migration toward the direct channel. As for Admiral, we continue to monitor the trend very closely and act very fast on market condition and change. Our objective is always the same. We remain focused on maximize medium-term profitability that depends by a combination of revised market trend, estimated ratio and price elasticity. And this approach led to different outcomes in different parts of the group.
In U.K. Motor, where we have a large book and we had increased price well ahead of the market last year. The rational outcome was to shrink in the first part of 2023. This price -- this gap pricing gap with the market is closing, as Cristina will explain later, and we expect to return to growth soon. In the other country and product, where inflation was lower, market reaction was lower and we have still more potential for economy of scales.
We continue to grow, 20% overall, around 20% overall, although more cautiously than previously. The U.S. is the only exception. As anticipated 6 months ago, we are successfully prioritizing capital preservation and loss reduction in the state. And the process to assess future option is progressing.
I will provide an update in due course where we'll have more to share. And now to Geraint with more details on our financial results.
Thanks, Milena. Good morning, everyone. I'll cover off some of the highlights from a solid first half. I'll give an overview of the impact of IFRS 17 on this period and the restated 2022. I look at the U.K. Motor results, U.K. Motor loss ratios, and then I'll finish off on the half year capital position and the interim dividend.
To start with, these are the usual set of financial highlights. And just to comment quickly here on the basis of preparation, which is obviously the first time that we've reported under IFRS17. Financial statements include a restated set of 2022 figures for H1 and the full year.
On this slide, the pretax profit and the earnings per share numbers are the most impacted and the originally reported numbers you see in the footnotes. The numbers continue to be influenced by the high inflation we've seen in all our businesses.
Though as Milena mentioned, we're satisfied that we've responded appropriately and robustly and to what we're seeing. And whilst not yet very apparent in the profit numbers, there are clear signs of improving performance and more positive markets in 2023.
Pretax profit for H1 was £234 million and earnings per share was 58p. The higher U.K. tax rate of 25% versus 19% explains most of the difference in the percentages there. Return on equity was improved and strong at just under 40%, and that's partly positively impacted by lower equity under IFRS 17 as we flagged. The half year solvency position was strong, again, at 182%, and we declared an interim dividend of 51p per share, which is a touch under 90% of the first half post-tax profits.
Now despite the payout ratio remaining the same, basically, as the first half of 2022, last year's interim dividend was, of course, based off the IFRS 4 profits, which were higher than the restated IFRS 17 result as we'll see shortly plus, as I mentioned, the effective tax rate is high for this period. And those 2 factors explain the 15% change in the dividend. You see clear evidence of our strong response to claims inflation in the top line metrics where customer numbers increased more modestly than in recent periods, but there was a very strong increase in turnover, driven by significant increases in premiums across the group.
So let's take a quick look now at how those numbers break down. This slide will show -- shows customer numbers and turnover across the group. The main observations here are: firstly, on U.K. Motor, customer numbers reduced by around 3% in the first half. As the cumulative impact of our rate changes over the past 15 months or so continue to impact volumes.
And it's very apparent though that those rate increases are taking effect with the big increase in turnover reported that you can see. U.K. households delivered strong growth again and with pricing moving up in our business and in the market, we see a large increase in turnover. Internationally, again, we see double-digit growth in customer numbers, growth in Europe, a slight reduction in the U.S. and again, to continue the theme, strong pricing action led to a bigger increase in turnover.
And finally, in Admiral Money, we saw continued growth through further tightening of credit rules in response to economic conditions has consciously slowed the rate. This slide doesn't show the growing numbers of customers across the group with Travel, Pet, Veygo, et cetera. We see very strong growth in those areas.
Before we look at the group results, I wanted to make a few points here on new accounting standards, obviously big news. The main qualitative points are at the top are as stated before. IFRS17 does change the accounting and particularly the presentation and can change profit recognition patterns, though it doesn't change our business fundamentals. In reasonably normal trading conditions, we wouldn't expect to see significant differences in profitability under the new versus the old accounting standard. We don't keep IFRS 4 accounts anymore.
So of course, it's not possible to present full reconciliations from here on. [ANIA] thankfully is a nonlife insurer, we are able to adopt the simplified approach.
On the bottom left, we make observations on the restatement of 2022. IFRS 4 H1 profit was a little higher than the restated numbers and that's mainly due to differences in the reserve strength or risk adjustment positions over 2022. Under IFRS 4, we moved down to the 95th percentile at the end of 2022 from a higher position at the start of the year. Under IFRS17, we started and ended the year at the 95th percent. And so smaller reserve releases led to lower profit on the IFRS17 basis.
The difference in profit is more pronounced in H2 as the reserve strength movement in H2 under IFRS 4 was more pronounced. So we see this aligning of reserve strength positions at the end of 2022 as part of the transition to IFRS 17 rather than the new standard leading to a different result.
And on the bottom right, some more straightforward observations on 2023, H1. Assuming similar changes in risk adjustment percentage, we would not have seen a materially different IFRS 4 number for this period had we prepared IFRS 4 accounts. There are some ups and downs of course and discounting is one of the positive impacts but there's no real difference to the bottom line from the new standard this year. In the appendix, we include more information than usual to hopefully help me in understanding the new accounting treatments, including discounting and reinsurance, particularly.
And we have dedicated sessions, as I think you all know, set up tomorrow and more time available on Friday for technical query. So give us a shout if you're not down to join those who want to. That's the background. So let's now take a look at results across the group versus the last half year. And here, we also show the IFRS 4 2022 H1 numbers for reference. Main theme in the insurance businesses continues to be claims inflation. And although we see generally strong improvement in underwriting year 2023 combined ratios is predominantly the earlier years that are contributing to profit in this half year and of course, particularly including the lower margin '21 and '22 underwriting years.
The U.K. Insurance business reported a total profit of just over £300 million which is around 5% up on the restated 2022 H1. Motor profit, as you can see in the text on the right, was just under £300 million, and that's covered on the next book one page. U.K. Household profit was up to £9 million from £4 million, with a few factors impacting the result there. Firstly, we see a higher non-weather loss ratio this period. That's impacted by inflation.
Secondly, there is a lower severe weather costs this H1 as a result of lower severe weather. Thirdly, lower reserve releases, which were impacted by an increased estimated cost of the December 2022 freeze event.
And finally, a one-off crystallization of profit commission on one of our quota share contracts on household. Internationally, we saw a decent and expected improvement half year on half year. Starting first in Europe, the overall results improved to a profit of £3 million from a loss of £3 million including a motor profit of 5 versus a loss of 2, obviously, more satisfactory first half. The results are still impacted by high loss ratios over the past underwriting year or so, but the underlying results, again, have improved with significant rate increases.
There is continuing investment in distribution diversification in Italy and Spain and investment in growth across all businesses, which does impact the expenses. In the U.S., our goal was to materially improve the bottom line compared to last year. We're satisfied with the improvement and more so in the underwriting year result. The U.S. loss was particularly heavy in H2 last year, and we don't expect a similar pattern to repeat this year. Though conditions in the U.S. remain tough.
Admiral Money continued to grow, as we noted earlier, business pleasingly remains profitable and is, of course, prudently provided. We'll continue to take a cautious approach to growth and risk appetite. Admiral Pioneer result was a bit worse half year on half year, notably impacted by a handful of large claims in the Veygo business and also continuing investment in growing our SME insurance business. The other items at the bottom were higher, as you see, and there are a number of factors that contribute to that, including some one-offs.
There is an analysis in the appendix and happy to take any questions on that later.
Let's now take a look at U.K. Motor, which is the key driver to group profit. This is a summarized income statement versus the restated '22 H1, comments on the right on the main drivers of the change. Firstly, as noted earlier, despite the small reduction in the book side, rate increases have led to a much higher average premium and a strong increase in turnover.
Secondly, higher interest rates had a couple of impacts: firstly, higher investment income, as expected, but also higher discounting impact on current year claims. We've got more detail on investments in the appendix, but there are no changes to report in our approach on investments. Three, in terms of the ratios, we've shown 2 sets ratios on this slide. First set is based on total insurance revenue, so includes add-ons and fees. And the bottom set shows just the core motor insurance policy metrics.
We see essentially a flat core motor loss ratio which is made up of a higher current period ratio impacted by 2022, offset by larger reserve releases. The expense ratio is higher on an earned basis, partly due to the impact of a lag in the higher premium -- higher average premium earning through but the written basis ratio is flat at around 19.5%. Perhaps the most important metric currently is U.K. Motor loss ratio. So let's take a look at what's happening there.
Two charts both on an underwriting year basis for the core motor insurance only. On the left, we show the projected ultimates and on the right, the booked ratios. IFRS 17 means we're showing the ratios on a different basis here. And so they will be directly comparable to the ones you've seen previously. Both these sets of ratios are discounted, which is obviously a more important element under IFRS 17, and we've included guidance in the appendix on how discounting works and we also include the undiscounted triangles.
Some key observations. We're not yet seeing notable changes in average claims cost inflation in H1, but we expect inflation to start easing in H2 and beyond. We believe the ultimates on the more recent underwriting years are still prudently projected and for instance, include prudent positions on bodily injury claims where we're not yet seeing particular stress come through in our numbers. We also continue to reserve at the actual minus 0.25% personnel injury discount rate.
But as we approach the review date in 2024, tentatively expecting a better rate, we've included some sensitivities. We continue to see improvements related mainly to bodily injury claims on the older years, but the more recent years have been stable, as you can see. Now on the right hand side, the book reserves closed the half year at the upper end of our accounting policy range. As flag, we moved that percentage down slightly from the 95th percentile at the start of the year to the 94th percentile at half year.
Reserve releases are still an important contributor to profit, and we expect this to continue, absent any major claims shocks. Moving now to look at the half year capital position and the interim dividend. And firstly, on the top, this is the capital position, 182%, slightly higher position than at the full year, and it remains very comfortable. The level of surplus in pounds millions has increased. As you will have seen at the end of June, we successfully refinanced our Tier 2 capital. We increased the size to £250 million and bought back most of the 2024 maturing bond.
The movement from full year '22 to half year '23 is set out in the appendix. And that broadly shows half one capital generation offset by the interim dividend and the impact of the new Tier 2 partly offset by the impact of a higher capital requirement, which results from growth. As we're currently in the business written in the second half is more profitable again than in the first half, we would expect capital generation in the second half to be larger.
Most of you, I think, will be familiar that we also track and report solvency under the PRA approved capital add-on as opposed to the numbers here, which feature an updated add-on, which takes account of the latest balance sheet and risk positions. At our request, the PRA has agreed to reduce that approved add-on from just over £80 million to closer to £20 million, which is a significant reduction and so there is now a smaller difference between the updated numbers that you see on this slide and the regulatory approved solvency ratios. Now there's no news to report on internal model development where work and regulatory engagement continued.
And then on the bottom of the slide, the dividend information. The interim dividend, as I mentioned, is 51p per share. That's equal to 89% to the first half post-tax profits in line with our usual practice. I explained earlier the reasons for the change period-on-period despite the flat -- basically flat payout ratios you can see on the slide. And again, there's no change in dividend guidance.
To summarize a few of the key points from the first half, firstly strong claims inflation continues to impact the reported results as the profit on the lower margin '21 and '22 underwriting use is recognized. Our response, mainly in terms of substantial rate increases means much improved profitability on the '23 underwriting years across our businesses.
But in the very short term, the accounting results will continue to be influenced by those '21 and '22 years. We've seen stronger levels of rate increases in various markets in the first half and we expect this to continue through H2 at least. And as usual, we report a strong solvency position. We've successfully refinanced Tier 2 capital, and we're paying out nearly 90% of the first half profits. Over now to Cristina to talk to us about the U.K.
Good morning, everybody. I am going to cover the results for our U.K. Insurance business, starting with the highlights. In 2023, so far, we have seen inflation, which has remained very high. And we have seen very strong price increases, both in the market and in Admiral.
And this trend applies to our both products to the household and motor market. Now interestingly, the impact on the size of our book for those 2 products have been quite different.
So in the case of Motor, we decreased year-on-year upper book size by 7% and 3% compared to the end of last year. And in Household, we grew by 14%, mostly helped by retention. Our price increases starting from last year are feeding through our average premiums, and you can see strong increases in our turnover for both products.
For the rest of the year, we expect a continuation of these trends, price increases for both Admiral and the market. And hopefully, we might start to see cost stabilizing. And then finally, Consumer Duty is life became into effect a couple of weeks ago. In Admiral, we're very committed to delivering good outcomes to our customers and to offer fair value products. So we don't expect any significant financial impact from this reform.
Now let's move to pricing. Let's start with the market. In the first graph, you have market data in blue ABI, which includes new business and renewals, and in red, the Confused index, which focuses on new business prices on price comparison. As you can see, the market has started increasing prices in the second half of last year, but there has been a clear acceleration of price increases as H1 has progressed. Particularly relevant are the increases that we have seen in Q2 as shown by the Confused index and also good to see that in July, price increases in the market have continued to be quite strong.
All in all, looking at Confused, the price increases in the first half of the year have been 23%.
In the second graph, you have Admiral Times Top. Just as a reminder that what this graph shows is the percentage of times where Admiral was cheapest on price comparison, and we indexed this to January '22. Now as you can see, we started increasing prices quite strongly from April last year, and we became much less competitive. What has happened since the end of last year is that as the market has started to do a significant price increases, our competitiveness has improved. This explains why we shrunk by 7%, if you look year-on-year, but less when you compare to the end of last year.
Now a key question that you might be asking is when are we going to go back to growth. Good news is that in the past few weeks, we are seeing our number of customers in Motor stabilizing. So we expect to return to growth in the near future. Now exactly when it's hard to tell, and it will depend on what the rest of the market does with prices. We will continue putting pricing up to account for inflation.
So let's now take a look at the motor claims and let's start with frequency. The graph on the top is road usage interesting in the past few months. We're starting to see very similar levels of miles driven as we saw pre-COVID. However, frequency remains lower than before the pandemic. Two key reasons.
First is the impact of the whiplash reforms. And secondly is that we still see less claims during peak hours.
Moving now to damage inflation. It remains quite high. You can see in the first graph on the bottom, how prices have continued to increase. And we do a bit of a dip down into the reasons for this definitely, repair delays, there is still some pressure on market capacity. Labor cost have been increasing.
Also, when you look at credit hire cost because these claims are taking longer, we're seeing higher cost. On the good news, parts availability is becoming better, which helps ease these repair delays. And also second hand car prices have started to stabilize, as you can see in the second graph on the bottom.
And finally, there has been an increase in theft in the market, although it remains a small part of claims. And then in terms of Bodily injury, quite stable. When you look at the claims that have settled in this first half of the year compared to last year, we don't see significant changes. But a couple of things to take into account. First, in terms of small BI, we still wait for the resolution of the court case on mix injury settlement.
And we expect this at the beginning of next year. And secondly, in terms of large bodily injury, they are developing as expected, but we hold some prudent reserves to take into account for a possible increase in wage inflation.
And finally, in terms of the Ogden rate no further news. We expect to know more in the next 6 to 12 months as we think the rate will be decided at the end of '24 or beginning of '25 and then taking everything into account, it's quite pleasing to see that despite all the challenges at middle claims costs continue to be better than the market.
Now let's move to our household business. We recently celebrated our tenth anniversary since the launch. And in this period, average premiums have remained flat. So basically, when looking at the ABI data, the premium -- the average premium in the first half of '23 has been the same as in the first half of 2013. So this puts into context how pleasing is to see finally clear increases in the market in 2023.
Overall, and according to the ABI, prices in the market -- or sorry, premiums in the market have gone up by 10%. The rationale for this? Inflation, very strong and very clear. The second one is freeze events and weather last year. And then the third reason we believe is the impact of the FCA jeep reform, which put pressure, especially on renewal premiums.
In this environment, Admiral has continued putting prices up. We started in the second half of last year, where we increased about high single digits. And this year, in the first half, we have increased prices even more around 20%. And despite this, we have been able to grow, helped by retention, which continues to be above market levels and our multi proposition. As mentioned, inflation for household has continued to be high.
And also, there are pressures on our supply chain and the market supply chain, partly more pressure has come from the freeze event, and there are still a lot of claims that need to be settled.
So what I want to say is in terms of profitability of our household book, we have seen good profits this first half, but that has been mostly influenced by one-off profit commission coming from the commutation of our reinsurance agreements. And then to finalize, let's take a look at our expectations for the rest of the year.
As I said, continuation of similar trends in terms of prices. Admiral will continue putting prices up in Household and in Motor, and we expect the market to continue doing so. As I said, growth, we hope to continue to see strong price increases in the market, which should help the Admiral Motor book go back to growth. In terms of underwriting performance, we are growing our confidence that for both products, 2023 loss ratio will be better than 2022.
And then in terms of inflation, as I said and held by the CPI news this morning, we expect to see costs starting to stabilize.
So this is it for the U.K. Insurance results, which is a reminder of our core principles. We maintain pricing discipline, and we will continue doing so prioritizing profit over growth. And secondly, we hold very -- or a very prudent approach to our reserves.
And now over to Costin to talk to us more about our international results.
Thanks, Cristina, and good morning, everyone. 2023 has been a very intense year so far in our international businesses. And although the market continues to be challenging, we have made good progress.
In the U.S., we have significantly reduced losses and we minimize capital injections from a group perspective. In Europe, we are profitable on a combined basis with significant growth benefiting from higher premiums and economies of scale.
Moving on to the next slide in our U.S. business Elephant. In line with our stronger objectives, we continue to make progress. both in improving the results and evaluating options for the future, which we will comment on in due course, as Milena already mentioned. Elephant's combined ratio has been improving over time compared to market.
Thanks to the [indiscernible] carrier price increases and bold actions to reduce expenses. Improving the bottom line remains a priority. And in the face of a challenging market with very high claims inflation, we continue to take actions focused on improving the profitability of the portfolio and driving efficiencies by leveraging our strong technology platform.
Moving on to the next slide in our European operations. A very strong half overall. We're almost 2 million happy customers in 14% year-on-year growth, and we were profitable on a combined basis. In all regions, we have a loss ratio competitive advantage over our direct competitors and continue -- and continuous price increases place throughout 2022 and the first half of 2023 have supported this. Our actions have been stronger in Italy and Spain due to the nature of these 2 markets where we have seen a more pronounced downward movement in market premiums in recent years and are now entering a hardening phase of the cycle.
All our European operations have been profitable in their core direct business in the first half of the year. We are continuing to invest in distribution diversification, particularly in Italy and Spain.
However, in Spain, these investments have more than offset the positive contribution from the direct business. But we believe that our strategic investments in brokers and partnerships will provide us with significant opportunities to create long-term value, and we will continue to pursue them with discipline. The economies of scale, the increased adoption of digital services by our customers. and the automation of internal processes have benefited our expense ratio in all the businesses.
In summary, we are very pleased over the results we have achieved and the progress we have made with our strategy. We are conscious that there is more work to do, and we remain focused on medium-term profitability, continuing to balance margin protections and growth in relation to market condition. Thank you.
And now I hand over you to Milena to present the results of the loans business.
Thank you, Costantino. So now a bit more details on Admiral Money. Once again, we are reporting strong performance in the first half of 2023, with a profit increase to £2.7 million. Gross loans balance have grown above £1 billion at a rate of 16% since full year and slowed in comparison to 2022. We remain indeed cautious during this period of economic uncertainty and we closely monitor the impact of the rise in cost of living and higher interest rates on consumers to ensure we remain vigilant for any sign of possible deterioration.
Lending strategy has been proactively calibrated to the latest macroeconomic outlook with action taken to announce assumptions in affordability assessment with more targeted action for those customers deemed to be most at risk. We continue to retain an appropriate prudence in our credit loss provision with coverage remaining at 7.2%, which includes £12.6 million of post model adjustment to account for potential anticipated pressures on our customers. We continue to demonstrate indication of a long-term expense advantage versus the market as an insurance. With a further reduced cost income ratio, down to 38%, which is quite exceptional for a business of this scale.
Looking forward, we anticipate H2 to be a period of modest growth, and therefore, we confirm our guidance in line with what we provided at full year. Now looking a bit more at the future and our strategy. Our strategy remains unchanged with customer and people at very heart. We continue announcing our capabilities, particularly in data and technology, innovating further to develop our core competencies and also transferring them into the new line of business. So let me call out a few examples of the progress we made in the last 6 months.
If you look at the market volatility of the last few years, it's clear to me that speed of change and agility are crucial to succeed and will be even more the case in the future. And we're proud to have completed the transformation from agile to scale agile in U.K. and other European countries. And in Italy, where this change is most mature, this led to halving cycle times and complaints and increase feedback scores every year since. We also increased substantially the adoption of machine learning models that now empower the majority of our U.K. Motor and Household quote, with a positive impact on both loss ratio and conversion rate.
Looking at mobility in under tendency with the rest of U.K. motor book, we increased our share of electric vehicles, and we continue to learn from connected vehicles data and new proposition. Finally, we are pretty proud of Admiral Money cost/income ratio, as just mentioned. And also L'olivier that now alongside contain -- is a positive contributor to our Group P&L. We're also in the process of acquiring Luko, a French household business with around 200,000 policies to reinforce our position in the French household market and also to replicate the synergy that we achieved in the U.K. with our multi proposition.
We thought this was a good moment to do a quick reminder of the main rationale and the focus outside the U.K. Motor Insurance. So the objective for us is to create win-win opportunities for our customers and our shareholders as well as increasing the resilience of our business model. And this not only through diversification of profit but also by strengthening the relationship with our existing customers and their lifetime value. The main focus is only on a few large opportunities where we believe we have a clear right to win that we can leverage on our assets and capabilities to create value.
And this business that can continue to deliver growth and target a good return on equity over time. And to do so with a fast, possibly cheap learning approach with strong discipline, that includes not be afraid to make bold choice when needed.
For example, as we did the 4 Penguin Portals or Compare or this year, where we exited a small French fleet business. We have a strong framework in place for efficient investment and we are organizing ourselves to ensure limited distraction to our core business before the new venture is scaled and its business viability is proved. On the right side, the main current area of focus in dark blue, the business that are mature contributors to the bottom line and in lighter blue, the one that are at earlier stage.
The biggest growth comes from GI products, such as Household and Travel and more recently, Pet insurance for our U.K. Admiral private customer.
And the results are very strong from retention, customer feedback and a growth standpoint. And return on investment is expected to be fast and solid for all. Similarly, for Admiral Money, it's a different business, not an insurance product to start with. But in reality, surprisingly similar in terms of scheme required to succeed and has good synergy with our core business. In addition, there is our first step beyond private customers. That's in U.K. where we're investing to develop a proposition, a stronger proposition for small medium business.
SMB Insurance is an appealing market where we can leverage on our brand and also capture similar trends that support our growth in the U.K. 20 years ago. But distribution is to be proof and it's still early stage.
Finally, beyond U.K., we continue to grow and develop our European business, as Costin just mentioned, where we believe we can replicate a similar position to U.K., although at smaller scale, given this direct distribution is still limited in those markets. But the core of our strengths remain our culture. We do find the purpose, pride and drive in doing what is right by our customer with good feedback score and trying to make their experience better every day and product awards that testify that. What is right by our communities that we continue to support with a focus on employability, having held more than 1,000 people into new job recently and also what is right by our planet.
And I'd like to close where I started with a big thank you to our people that altogether year after year in every country in which we operate, make Admiral one of the greatest places to work.
Well to summarize, the key element of this set of results are a solid profit of £234 million. That is up 4% versus H1 restated under the new accounting standard in challenging market conditions. Premium growth across all business with an expectation of significantly improved profitability of the business written this year but important to remind that this will take time to fit into our reported earnings. A turning cycle, well positioned for future growth, good progress on our new ventures and good progress on our Admiral 2.0 strategy. So our business remains strong and resilient with happy customers and employees.
And that's all for now, and we're very happy to take any questions.
Couple of logistics, let's try to limit questions to 2 and leave some of the most -- more technical question IFRS 17 to our session tomorrow. We will start from the audience, we'll move -- We have a few people listening us from remotely. If you want to ask a question, you have a mic, a microphone on your left and you need to take all the button for all the time that you speak. Otherwise, we cannot hear you. And with that, who would like to start please?
Risha, Deutsche Bank. So two questions for me. In terms of looking at pricing in the U.K. Could you provide a split between renewal pricing and new business pricing and how those have been moving? Because when you look at ABI versus confused.com for the market, that's a big difference. So if you could talk about that for Admiral. And then second, on kind of business mix and diversification. When do you expect Admiral Seguros to break even and start to become profitable now that spend as they are and also an Admiral Pioneer as well. Do you expect it to break even? Or is it essentially a sandbox for testing capabilities for other parts of the business?
Sure. Cristina, do you want to take the first one and Costin the first part of the second one, and I will...
Yes. Regarding new business and renewals, after the FCA jeep reform, the prices tend to be -- to move very similar. So basically, new business prices cannot be cheaper than any even oil price. But we don't give the concrete split between both.
So on Spain, just as a reminder, so the direct business, direct-to-consumer is already profitable, but the investments in distribution diversification are more than offsetting this profit. But we believe that also in these 2 channels, so brokers and bank insurance, we can establish a competitive advantage as we have done on direct businesses. So in this -- but this, we are conscious that will take a bit of time. But we are confident that we can deliver long-term value to the group. So it's difficult to give you a precisely a date, but this is clearly our objective.
And back to your Pioneer point. I think the way I would think about Pioneer is an umbrella name is the entity where we are developing some of our newer business rather than a business per se. And at the moment, the two areas which we are investing in Pioneer, you can think about at the sum of Veygo and small, medium business. So small, medium business, as I mentioned before, is still very early stage. We are in investment phase, and we'll continue to work on enhancing our foundation, and we'll continue to invest in the business and react depending on what we see if it's going to be successful, we'll push it forward, otherwise, we will not.
So it's very early to judge. And Veygo is a business that is growing fast in the last few years. It's very interesting for us strategically because it's mainly targeting young customer and nonstandard insurance product or a non-1-year insurance product, and it's a good window on new trends. And he had some reporting period which was profitable. This half here, as Geraint mentioned, it was impacted by a few large claims and it's still relatively small business and quite volatile.
So it's difficult to make a precise comment on the next reporting period, but solid and growing.
James Pearse from Jefferies. So first one is just on this initial loss pick of 92% in 2023, which, I guess, is back around pre-pandemic levels. Would you expect that to improve further for the full year just given current rate momentum? Or are you quite happy now just to price in line with claims inflation, such that kind of that full year loss ratio kind of remains at the same? And then second one, just on the Consumer duty rules.
So the FCA stated earlier this year that it's looking at premium finance. Can you remind us for a level of APR that you charge when you offer premium finance? And how do you get yourself comfortable that, that current level of APR, sorry, complies with the new rules?
Sure. Geraint, do you want to take the first...
Yes, 92% is the first pick of 2023 underwriting 6 months in. So not fully banking adjust yet. We wouldn't -- you'd expect to see quite a similar pattern in how that develops in the second half of that underwriting. I would imagine compared to the past, subject to what happens, of course, on claims costs. I would -- it's difficult and too early, I think, to comment on what might happen to '24 relative to '23.
But for 2023, you'd expect the book position to improve from the first pick for sure.
Sorry, just to clarify, it's more just kind of that initial 92%, is that -- do you expect that kind of to remain consistent for the full year? And is it not -- I don't mean kind of how it develops more just kind of where you expect it to be at the full year essentially?
I wouldn't comment on what it would be at the full year. So you're talking about where we booked '23 at the end of this year yes?
Essentially, are you kind of planning on pricing in line with claims inflation for the second half? Or do you kind of expect that gap to widen such that 92% improves?
Well, I think the 92% will improve. We, as Cristina mentioned, expect to continue to increase prices in the second half, subject to what we see on claims inflation, but that's definitely our expectation.
And in terms of premium finance, First, the level of APR that we charge is very much in line with the market, I'll say, in the lower end. And secondly, how we get comfortable? Well, even before the introduction of consumer duty, we were doing fair value assessments and we have vented a lot of products in premium finance, and we believe we're offering [indiscernible] to our customers.
Will Hardcastle, UBS. I guess we've historically seen about 20 points of improvement from the initial book to what I'd like to call the ultimate, Ultimate. With the percentile reduction -- I know it's marginal, but just trying to make understand on a go-forward basis, the 94th percentile, would we still expect that sort of broad range going forward? And what if you moved to the mid-level of the range or the 90th percentile, is that still a fair statement to make? And then on the U.K. Motor, Times Top, it's 23% price increases you put through year-to-date.
Obviously, you became more competitive as the year went on. Were your price increases front-end loaded or pretty smooth through the period? I'm trying to ascertain how much of that competitiveness was your action versus market stepping out even further?
Good question. Geraint, do you want to take the first one, Cristina as well.
Yes, the percent reserve position does impact, obviously, how much the booked loss ratio move from its first point to its Ultimate point, the kind of historical average you point to does reflect the fact that we were above the 95th percentile our reserve positions under IFRS 4 and in the past. So that was what was contributing to the size of that loss ratio movement. At 94th percentile it will clearly be lower and at 90th percentile, lower again. It's difficult to comment. I don't think it will be 20 points from first to ultimate, but I don't think we would comment on exactly what that would be.
I'm confident in strong reserve releases moving forward for 2 or 3 reasons, I think.
Firstly, there is a big margin between the first pick and the Ultimate currently for the most recent years. So that obviously gets some round over time. Secondly, we expect, certainly for the most recent underwriting years, there is probably prudence in the projections all the piece. And we'd expect that to unwind over time as well. So that contributes to reserve releases.
And then the final one is the movement in the percentile.
So we've gone from 95 to 94 in U.K. Motor in the first half, Other businesses are actually slightly higher than that. And we would expect the group's reserves on average to be around 90th percentile in time. So that obviously contributes to reserve releases in the near future as well.
For our increases in rates, we have increased prices every month this year. But a bit more in the second quarter than in the first quarter. Yes. And then when comparing to the data, I think in the slide, there are 2x the number 23. So let me just clarify. If you look at the Confused index for the first H1 versus end of last year, prices in the market, new business went up 23% and then the other 23% being posted there is at middle of the year-to-date. So there is like a few weeks more, yes. So that's where very small cup.
On your Slide 29, when you laid out the business diversification going forward, there's no sight of the U.S. there. So is the U.S. not going to be there going forward?
So the reason it is not there is, as we mentioned 6 months ago, we're in the process of looking at option for our U.S. business and try to understand how to maximize the value for our shareholders. And this process is still ongoing and -- so it's a bit early for us to comment about the outcome, but it's a broad range of options. We recognize it's a massive market, large opportunity, but also not an easy one to crack. And so we're trying to understand what's the best way forward for us and our shareholders.
But we'll update you more when we have more to share.
Freya Kong from Bank of America. Firstly, just on solvency, I think adjusted for the debt of 7 points, it was a bit lower year-to-date. And you had higher capital requirements as well from the growth that you've seen. How comfortable are you operating at this level, 182%. And given the outlook for growth is quite strong.
It seems like capital requirements can only continue to increase from here, yet you're paying out around 90% of earnings. Do you think there's a need to retain a little more capital to offset the higher SCR going forward? And then just secondly, the discounting impact, would you be able to quantify that on your current period loss ratio for U.K. Motor H1 this year versus H1 last year?
Yes. So 182% on solvency, I would say -- so just trying to think of the answer the first question and then you asked the second question, it threw me right out. You're right, 182%. So we're very comfortable with that level of solvency. We think that's very comfortable our long-term target, as we said before, it was 150%.
So we think the 30-odd or 30 -- more than 30 points of coverage above that is very strong.
Over the past 15-odd years, we've paid out on average 90% of post-tax profits and have grown very strongly over that time, and we've always managed to fund that growth and capital requirement from a bit to retain profit that we do retain.
And for the foreseeable future, I would expect that to be the case. I certainly hope that the capital requirement grows as our business grows. And subject to me saying something different. We don't change the guidance on dividends for the new year term. There's technical sessions tomorrow on discounting. So I'll just spend more time on it there. We don't give you the current discounting number for the 2023 year. It's very small at this point, but you would expect that the current year claims will be discounted at a greater rate and the '22 full year claims or all of the H1 claims because interest rates clearly now are different. There are interest rates shown in the accounts on how much discounting there is, but we're not yet sure in '23. We will do the full year, obviously.
It's Andrew Crean, Autonomous. A couple of questions. On the consumer duty and the answer to the question you gave -- the FCA very specifically said that comparing your rates to market rates is not something they're looking at. They're looking at value for your own end customers? And secondly, I said -- you said that you were satisfied.
I suppose the question is, is the FCA satisfied? Have you had a narrative with them? And have they sort of said, actually, we're happy with your installment credit rites because it's really up to them, not what you feel.
I think that's the whole point of Consumer Duty. And then the second question is, years ago, you had a session where you gave some targets for profitability of the European businesses. I can't remember whether you hit those targets, I suspect not. Are you prepared to give targets for the profitability of your European businesses going forward because the Spanish business has started in 2006 and is still not profitable, doesn't appear to be a great business, which is what it was pictured as initially.
Cristina, do you want to take the first one?
Yes. Under Europe, absolutely right. It shouldn't be a comfort to say that what we charge in APR or in fees or in any other things being in line with the market, makes it good for the customer, which is answering the question of actually, how much do we charge. But where we get comfort is by doing the fair value assessments that we have done, and we have shared them with the FCA. Now the reality is that Consumer Duty is a different reform than others.
It's much more looking at outcomes and it's much more about, I'll say, the spirit of [indiscernible] than a guidance, yes. Like -- so for example, if you look at other reforms, they were much more prescriptive. So it's hard to know exactly how the FCA will interpret this reform going forward. So, so far, we have ongoing communication with the FCA. They have talked about premium finance in the past they have mentioned in the CEO letter, but they have not so far mentioned anything specific that needs to be changed.
Costin, I start and you add on top on Spain, more specifically. Yes, you're absolutely right. We had the session, I think it was 5 years ago on European business. And I'm mentioning that we were expecting this business to deliver on all accounts written base 30-plus million if I remember correctly in a 5-year horizon. There has been a year in which we matured the target is quite soon like 2, 3 years ago.
So we're already above that level. I think it's important to do -- like that was on all accounts written base. And as we continue to reserve release, we see some of the past year to improve.
I think what -- when you look at reported results, first of all, they are on earn base and there is impact of reinsurance and the way your insurance work in Europe is quite different from U.K. because the terms of the contract is different. Hopefully, they will improve over time as the business improves. And so there is an impact of reinsurance and there is an impact of the earned versus written results.
Having said that, I think one of the big impact is that we are -- it depends on the year, but in the last couple of years, we've been growing the business quite strongly.
And the business in Europe are very front loaded in the sense that there is acquisition cost as a higher proportion of the lifetime value of the customer. And so while we're growing so strongly, of course, that's some impact on profitability. Shall we flat the growth right now, we will be rid and look at all account written base, you will see very different numbers and definitely double-digit minus profit. Spain, I would say, has probably been tougher than France and particularly Italy, where we had -- we've been profitable since a long time and relatively early. I think on a written basis in Italy, we were already profitable year 4, but Spain for complicated, Costin, you want to add some color on Spain?
There is nothing much more to add to what you said almost everything already. But I think that Spain suffered more than other markets in terms of direct market growth. So at the same point, in order to deliver greater value to the group and more profits, we decided to take these investments and widening our distribution opportunities and brokers and bank insurance partnership are going exactly in this direction.
But this will take time. And again, acquisition costs on those 2 channels are even higher than the direct ones. So it will -- so this will also impact short-term return. But overall, I think we believe we have set good foundations everywhere. And with the loss ratio advantage we have built in direct market, we believe that we can also establish similar competitive advantage in other markets, in other channels, and this will pay dividends at some point soon.
Ivan Bokhmat from Barclays. I've got 2 questions. The first one, if possible, going back to the U.K. Motor loss ratio. So on Slide 12, you show the improvement from the 97% you've booked to '22 to 85% in first half '23.
And the 85% seems to be even lower than the numbers you've showed 1 year after for the more profitable years of 2018 and '19, so before COVID. So I'm just wondering if you could try to put the underwriting you've seen of these 6 months in the context of your prior profitability. You think you've now hit the right pricing, the right ROE that you would get from the U.K. Motor? Or do we expect it to improve further from here?
And maybe there is, of course, a slight IFRS 17 discounting element.
And then the second question, I think it's on the turnover growth also in the U.K. Are there any mix elements that affected, whether the growth in essentials products or more young drivers, new car sales with more EVs and so on and so forth. If you could try to help us unpick and perhaps suggest whether it's going to be a tailwind or a headwind going forward, do you think?
Again, you take the first [indiscernible] get on the first and Cristina the second.
There was a clear expectation that we would improve '23 underwriting results versus 2022. That's what you start to see coming through in the numbers that we've presented today. As to whether that's -- we've sort of hit the right level of margin. I think our approach is to not target a combined ratio. What we're trying to do is optimize the volumes to try and maximize the profits over the medium term.
So for us, there is no right to combined ratio. It depends on what the -- what market conditions, what our own profitability is doing and a range about the factors. So that's not necessarily the case that, that's going to be flat or target combined ratio moving forward. It's obviously going to be much better than it was in '22. What happens in the second half? And what happens again in '24 is subject to a lot of moving parts, I think.
And then on the second question, going forward, we expect tailwinds. Basically, we have continued putting prices up strongly in the first half of the year, and it takes time for these price increases through and through so tailwinds. And what has been -- in terms of changes in mix, I think the most significant one has been the weighting of renewals. So a year ago, after the implementation of the FCA pricing reform, I think in the whole market there was a record of renewals. And renewals tend to have lower average premium.
We charge the same price but renewals have a lower average premium. Just to give you a very basic example. Everybody is a year older when they renew, yes? So even at the same pricing levels is lower. So last year, record retention in the markets, yes, there was more weight and ones.
This year, high prices, lots of shopping, a bit more new business. So that is the biggest impact. But I wouldn't say it explains the 20%. It's really the growth in the average premium of both.
Okay. I'm going to take the last 2 and then move on the phone. Sorry, do you want to go first?
It's Kamran Hossain from JPMorgan. Two questions. The first one is on the reserve margin, I see that 95th percentile to 94th percentile is still it's actually a high number. What's the rationale for reducing that margin at this point in the cycle? You've highlighted a ton of uncertainties.
The market is just about recovering. What's the rationale for doing that? And then how quickly do you think you'll move to 90th percentile? The second question is on Ogden. Clearly, I would expect the number to be more positive than it probably is. I think last time, there was a relatively large move back in 2016, the market reacted and priced up. What do you think -- do you think that like a quid pro quo on that this time around if you get a much better number there? Do you think that will offset in pricing?
So quick on the first point, and Geraint, if you want to add anything. I think we have been signaling that we would have moved down the level at the confidence level, the point of the confidence level for a few years. It was kept high quite a lot because of the large swing in the cycle during the pandemic and see what we have seen in the last few years, as something we've been seeing for a while. And so that's part of that process. And when we move to IFRS 17, we clarify that we're going to stay in the range, 85% to 95%.
So that's really part of something that has been signaled for a bit. And in terms of moving down toward the center of the cycle, it's going to be in the next few reporting periods, but we'll see and we'll adjust as we go. Geraint, anything you want to add?
Yes, just sort of why now, why I moved down now question. So part of the uncertainty that you talk about, respectively crystallized and our best estimates. So high inflation on damage claims, potentially higher inflation on injury claims is built into our best estimates. So there's arguably less of a need to hold the margin above the best estimates for that. And Ogden of course, you mentioned the potential change in Ogden discount rate.
So previously, part of our margin was to take care of the fact the Ogden rate could go lower than it currently sits at, and we think that reduced -- that risk is reduced. But the main point is, as Milena said the group becomes more diverse differently correlated sets of reserves. We think it's more appropriate to go down towards that 90th percentile over the few reporting here as Milena mentioned.
The Ogden rate. So a couple of things. First, we agree. We think it could be positive. That's how it looks given current economic conditions.
But there is some uncertainty, first because it's not just a mathematical formula, yes. So there is some subjectivity or some people call political element in the calculation. And we have added some sensitivities in the appendix. But secondly, we don't know if it's going to be a dual rate or a single one yet. So lots of uncertainty. And then what a bit market will price it, I'm pretty certain. I mean the market tends to be rational at least over time, and any changes will be definitely influencing pricing? Yes. Just to say, we have very prudent approach. So we're yet not pricing for it.
Maybe there are some competitors out there that have started to price in some of these potential positive impact.
It's Nick Johnson from Numis. Just thinking about U.K. Motor growth opportunity in the long term. When Henry Engelhart was asked about the sort of market share opportunity, he used to say sort of, I think, slightly tuck-in cheek, obviously, until you get to 100%, there's still a lot to go for. Given your market share today.
Could you just say how you're feeling about the growth opportunity and your ambitions around that in U.K. Motor. And that's in the context, I guess, of your kind of advantage today. I get probably lots changed over the last 5 or 10 years or maybe not much has changed. I'm just interested in the health of the structural growth engine rather than just the impact of the pricing cycle.
Yes, there's definitely much more to go for more than 80% to go for, and I think this didn't change. But as Geraint mentioned before, the way we run the business is really looking at accumulated profit in the medium term, maximize that value. And then depending on where we are in the cycle and what's our expectation for the market and also what competitors do. This may result in growing business, shrinking the business, staying flat. And we try to be very active and very agile.
And this philosophy didn't change. So we'll continue to maximize the cumulative profitability over the medium term.
And so one other question may be, do you have the -- do you have company advantage you can leverage to continue to grow to the cycle? If you look at the data historically, I would say that our competitive advantage to the market is broadly speaking, similar, like, of course, there are years that are higher and lower, but broadly speaking, on average, is similar to what used to be. So I don't see any reason where the conditions are right. We do not grow our market share. And your second point was -- that's the only one, yes.
Okay. So I'm going to take a couple of questions from phone.
Ladies and gentlemen, we now begin the question-and-answer session from the phone. [Operator Instructions] And the first question is from Ashik Musaddi from Morgan Stanley.
Just a couple of questions I have in. I appreciate that there is another call on IFRS 17. But I guess, is it possible to get some color about what is the gap between discounting benefit and unwinding drag? The reason I'm asking this is because I'm just trying to gauge a bit of sense as to whether your combined ratio has a big discounting benefit, let's say, 6, 7 points? Or is it just 1 or 2 points?
I mean normally, short-tail lines, motor businesses are having 2, 3-point benefit only. But given that you're prudent reserving approach, it might be the case that you have a big discounting benefit, which is not reflected in the unwind at this point, i.e., there is more unwind to happen and so that's the gap I'm trying to understand if you can give some color on that gap. Secondly, is it fair to say that your underwriting margins right now is much better than 2018, '19?
Sorry, this is kind of a similar question that Ivan asked earlier. On Slide #12, if I'm reading this slide correctly, what you reported in first half is 80% booked loss ratio, which is expected to get better given that the pricing versus inflation backdrop you have been flagging.
So let's say, even 2 points whether 83% versus you kind of booked 90% in 2018, '19. So would you say that you are in a much better underwriting position right now compared to pre-COVID? The reason I'm asking is just a bit counterintuitive to think about the current inflationary backdrop, but it might be that pricing is just so amazing that underwriting profits is probably at the best ever level.
We've given you undiscounted triangles and obviously discounted loss ratios as well. So you can see the initial impact of how much the discounting reduces the loss ratio and the impact on claims in the current year. And for the past years, we've shown you how much that is in pounds and how that unwinds. And we've also shown you a pattern of over how many years that discounting should unwind. Clearly, the impact on 2023 will be higher than '22 because the interest rate that we use the discount is higher.
And arguably, this is peak discounting view. But you should get a sense of how much discounting is worth from the information we've given you and how -- what period of time that discounting unwinds over to. And we can spend more time on that tomorrow, actually, if you want.
It's too early in the underwriting year or the [indiscernible] Year to comment on what the ultimate outcome of '23 is going to be. And so it's too early to comment, I think, on that one. But the -- you mentioned that inflation has been high for a couple of periods, and that's certainly the case. But it's a cumulative percent rate increase in U.K. Motor over 15 months or so is also fairly large.
So we shouldn't be too surprised to see an improvement in the underwriting year results for this year.
Thanks. Another question from the phone?
There are no further questions from the phone. I will hand back for closing remarks.
My first question is coming towards sort of the back book releases. So your reserve lease is quite strong this half year. How do I tell you that back to your comment about being quite prudent in large BI. Where is that coming from? Is that from specific case reserve releases?
Or is that from a general reduction in margin on that front? And I guess that's sort of tallies with the question around sort of profit commissions as well. With the new IFRS 17, does that mean that you hit your profit commission tranches early? Or will you strip out the discounting? And sort of -- how does that work to the economics of that front?
The second one is sort of clarification on Solvency II. The Solvency II will be impacted by sort of higher capital intensity in H2 as you grow that business, U.K. Motor you plus have Luko in there as well. How do I think about that developing over the next 6 months? And then sort of just coming back to your comment about the fact that the 10% that you retain has helped fund your growth but I guess now you have Admiral Loans in there, which is fairly capital intensive under the Solvency II framework.
So does that mean you're still covering or growing your solvency from here onwards? And if I may, just very cheekily, ask a final question. You mentioned that your claims inflation for the whole year at 10%. What was it in the first half of the year? And what's the delta between the written prices versus the inflation level?
Okay. I think on the reserve release, something worth mentioning is that if you look at the first 6 months, a lot of reserve releases come still from 2020, '21 and paid claims. And we're not observing yet strong inflation in BI. So this supports reserve release, but we've been prudent, both in our case reserve as well as on a buffer -- our buffer on top of it. So I think there may be more inflation on BI coming through in terms of wage inflation, but still early to say.
We'll keep a quite conservative outlook. And just very briefly on claims inflation, we mentioned more or less 10% for the year. It's difficult to have a precise peak and probably we would have -- we wouldn't have not expect such a high level of inflation in the first half. So I think we're always subject to more volatility than usual in terms of inflation. Having said that, this 10% for the year is made by a slightly higher level for the first half -- an expectation of slighter lower level on the second half.
That's probably where I would go. And I think it was a question, Geraint, on IFRS 17
discounting.
There was one about profit commission. So starting from a lower percentile position, does that mean you recognize profit cooker? I think clearly, it does, I think. So the gap in time and the difference between the first pick up loss ratio and Ultimate point, both will be lower. So that would have been a recognition of profit commission sooner, depending on the profitability of the year in question, of course.
I guess with discounting as well, you get an additional lower level of combined ratio as well. So does that mean your profit commission tranches are better as well there?
That question we'll take tomorrow on the recognition of coinsurance profit commission, particularly and quota share reinsurance because of the trip change in the way that gets accounted for now, that also comes to in a different way. So let's take that -- the other question was on capital and capital growth. So the -- and particularly a question on Admiral Money. So Admiral Money is not that capital intense, I would argue. We had roughly 6% of the loan balance is the capital requirement, so it's about £60 million.
We would expect that to grow more modestly in the second half. So we don't expect the capital requirement for loans to grow that much in the second half. As I said earlier, if the business grows, and we think it's the right time to grow then the capital requirement will grow for the insurance business. And I don't expect any change in our ability to fund that through retained profits for the short term for sure.
I'm sorry but then I need to bring it to a close. We're out of time. We'll be around. And thank you very much for your interest, and thank you for coming.