Aviva plc (AV) Earnings Call Transcript

Good morning and welcome to today's in-focus session, showcasing our UKGI Personal Lines business. It's great to be able to welcome so many of you to Aviva in person. This is the first in-focus session we've actually been able to host. As you know, our in-focus sessions are designed to help you understand how we are transforming performance, building momentum in all our businesses as we seek to achieve sustainable long-term growth. With me today, Adam Winslow, CEO, General Insurance business in the U.K. and Ireland; and Owen Morris, MD of UKGI Personal Lines. Before they begin, I'd like to highlight a few important points. As you know, from our recent results announcements, quarter-by-quarter, we have continued to deliver on our strategic ambitions. We are building upon a unique position of market strength with a clear strategy to drive profitable growth. This underpins sustainable cash generation supporting the group in meeting its financial targets and delivering our dividend and capital return promises. And the UK Personal Lines business plays a core role in this. Our UKGI business represents around 20% of the group's own fund generation in 2021. And around half of this comes from our Personal Lines business. This business has a strong performance track record, providing cash generation operating profit and access to customers for the Aviva Group. It is customer-centric and is diversified across both product and distribution. And performance in 2022 has been very strong, particularly in the context of the current market conditions. So before we get into the detail, a brief update on our overall GI business across the U.K., Ireland and Canada, which continued to trade positively over the closing months of 2022. We continue to price appropriately for inflation, especially in UK Personal Lines, where we have been responding at pace to emerging data and trends. Weather experience has been an area of focus across the industry over the past few weeks. And for Aviva, our weather experience across the whole of 2022 was broadly in line with our long-term averages. This includes estimated costs of around GBP 50 million for the December U.K. freeze. At our full year results in March, we expect to be able to report a group combined ratio of around 94.6%, which is consistent with the guidance at our Q3 trading update in November. This is a strong result and testament to our disciplined delivery in challenging market conditions. It is, of course, at this stage, still subject to audit and finalization procedures. So now back to Personal Lines. We continue to see a very positive outlook for this business. And as Adam will be setting out an ambitious plan based upon the strong track record and the strong and profitable growth opportunities, which are all underpinned with excellent technical foundations. These ambitions are challenging and, of course, dependent on future market conditions. What's most important, of course, [indiscernible] due to prioritize margins and won't chase top line growth at the expense of profitability. And with that, I'll pass it over to you, Adam.

Thank you, Charlotte, and good morning, everyone. It's a pleasure to be here today to talk to you about our excellent Personal Lines business. We have, and at scale, leading Personal Lines business with strong diversification by product and distribution, exceptional technical foundations, the leading brand and firm control over claims and inflation. But what does it take to win in Personal Lines? I believe there are 5 critical success factors. The first is customer and brand. This is mainly a market where customers buy via price comparison websites or PCWs. As long as your price is competitive, it's your brand that really drives sales conversion. And on PCWs, the Aviva brand enjoys a more than 4x better click-through rate versus non-Aviva brands when positioned third or fourth on the page. And this is a material advantage that drives profitable growth for us. The second is technical foundations and efficiency, both of which we excel at. The third is scale, particularly in retail, which is the largest segment of the market. To be a leader, you must be strong in retail and in turn, that means being strong in motor. We are, but we plan to grow retail further. The 4 factors claims and supply chain, particularly true today for obvious reasons. We focus on keeping indemnity costs low and having rapid feedback loops, ensuring that we can act quickly to address inflationary pressures as they emerge. And lastly, these factors allow us to be diversified but focused. That doesn't mean doing everything everywhere for everyone, but instead making smart focused choices about where we allocate our capital to generate strong returns. And Aviva is well positioned across each of these success factors and is consistently one of the top 4 market players, each of whom have around a 10% share. Aviva strengths have been driving improved performance and despite challenging market conditions, we are winning. We've moved up to #3 in volumes, outperforming versus peers on combined ratio at half year '22 as we came out of COVID and into the new normal post-general insurance pricing practices market. So the Personal Lines market is around GBP 25 billion of gross written premium in size, with Motor & Home together making up about 75% of that volume. Half is sold direct or via PCWs by players using their own brands and underwriting capacity, and we call the segment retail. Half is sold by brokers and partners using someone else's underwriting capacity, and we call this nonretail. Most of the market profit is in retail and particularly, as you can see on the slide, in Motor. Aviva has clear headroom to grow here for its current 8% market share. But the market is undergoing significant change. We see several factors at work and are well placed across all of these market dynamics and indeed, some of them may drive an improvement in our relative competitiveness. Starting with regulatory, we were well prepared for the pricing practices reforms. Over the last 5 years, we've been taking proactive pricing action, significantly reducing the new business versus renewal differential. In terms of retail and digitization, about 90% of motor and about 75% of home customers now buy via PCWs. We have the strongest U.K. brand, and our customer franchise means we are incredibly well placed to take advantage here, already adding over 1 million policies since launching Aviva online which is our Aviva branded PCW play at the end of 2020. On inflation, we acted quickly and believe we rated ahead of the market. We disclosed rates of 8% to 10% in motor and 9% to 11% in home at the end of Q3, and that looks broadly the same at year-end with a 9% to 11% range for both motor and home. And on cost of living, we've launched new propositions, for example, Quote Me Happy essentials, which offers quality insurance at a more affordable price. So let's dive a little deeper by looking firstly at our diversified portfolio. By product, we're not reliant on any single class of business. We are #1 in home and heading towards #1 in high-net-worth post the Azur completion. And travel is returning strongly post COVID. And we have a targeted healthy share of motor. And this diversification means we have less exposure to motor churn or claims inflation and importantly, access to sizable and stable home back books. Post pricing practices, retention is up by 8 points in direct motor and 3 points in home partnerships. Secondly, we have diversified distribution. Here, we'll be focusing on retail, where we have plenty of headroom to grow, particularly given our leading brand, technical data and pricing foundations. Given our strong growth from our investment in Aviva PCW and Aviva Zero, we see this as a strong foundation to build from as we continue to invest in this channel. We've already sold more than 65,000 of Aviva Zero policies for around GBP 30 million of gross written premium since launch less than 12 months ago. Some of you will be aware that Aviva Zero has an embedded carbon offset feature, which appeals to many of our customers, but it's much more than just that. It's also a leading tech stack and offers transformational pricing speed and sophistication. We're already #1 in nonretail distribution and have been for a number of years, fueled by our leadership in bank partnerships. Partnerships remains a strategically important channel for us where we're looking to both digitize the customer journey with partners that we have and to win new ones. And lastly, I want to touch on consistent profitability. Here, we can see that both retail and nonretail have been profitable over the long term. But as retail offers materially better margins by an average of around 8 points, this is where we've been focusing our efforts to profitably grow the portfolio. Our position today comes from a multiyear effort to transform performance. Phase 1 was portfolio reshaping, maintaining our #1 position in bancassurance, but dialing up retail to access more of those profit pools and aggressively simplify the business. Phase 2, which we're in now, continues to focus on mass market and mass affluent customers in retail. And since last year, strong specialist growth in high-net-worth where the acquisitions of both AXA XL and the Azur teams are on track to make us the leading player. So the shape of our portfolio is moving more towards retail and specialist intermediated, all of that supported by a simpler underlying model, which in turn supports an improving combined over time. We've already reduced the number of products and applications materially by over 2/3 in products and around 1/3 in applications in the last 2 years. This obviously helps reduce cost, which allows us to price more competitively and supports us in meeting our growth ambitions. In Phase 3, we'll maintain our emphasis on retail distribution, motor, home and travel products, looking to engines like Aviva Zero as we reengineer our portfolio around attractive profitable areas. That will leave us by 2027 with a majority retail business that is significantly simpler and more efficient. We expect it to generate around GBP 3 billion of revenue, which implies a 5% CAGR over the next 4 years, all at a sub-94% combined. Right now, in current market conditions, we are, of course, prioritizing profit and rate discipline over top line growth, particularly in the retail motor market, where we've focused our attention on dealing with inflation. That said, I'm still very pleased to say that we've grown gross written premium in 2022, albeit reducing motor by 4%. So how have we achieved that turnaround? And a big factor has been Owen and his team. First, this is a team of specialists with high levels of technical expertise. We have actuaries, underwriters and data experts, the very skills needed to compete and win in a highly competitive and technically demanding marketplace. Second, it's been assembled from right across the market with extensive experience between them. And we'll soon be announcing an exciting new hire as a Marketing Director from one of our key competitors. Third, to team with focus. Each business owner is clear on their customer segmentation strategy and targets and each are complementary to one another and to the whole. And lastly, it's a performing team. Personal Lines has an engaged and diverse workforce. The team understand are bought into and delivering on our strategy. So in summary, we have a diversified scale, simpler business, led by a leading team, which is growing underlying profits. We're clear on our priorities and targets, which are aligned with Aviva central strategy built around customer growth, efficiency and sustainability. Taking those one by one at a Personal Lines level, that means being a trusted customer champion and growing our retail customer base to more than GBP 5 million. means becoming a diversified growth engine driving towards that GBP 3 billion gross written premium business. It means forging first-class foundations, giving us a target overall combined of less than 94%. And lastly, it means leading on sustainability, supporting the group in achieving its own net zero targets by 2040. These ambitions are challenging and, of course, depend on future market conditions. What's more important is that we'll continue to prioritize margins and won't simply chase top line growth at the expense of underlying profitability. I'm going to talk through each of these priorities, starting with customer. Our business is built around our customer-led brand segmentation. Each segment has clear and differentiated leadership, customer propositions, distribution channels and service models. We have a deliberate targeted play for each customer group in the market. For a customer who wants good cover at the lowest possible price, they can buy a Quote Me Happy essentials product via PCW for around GBP 40 less on average than an Aviva-branded PCW policy, albeit with different and lesser features. By way of contrast, for a high-net-worth customer and Owen and the team only deal with select high-net-worth broker partners underwrite each risk individually and give a one-to-one personal claims service. These are obviously very different approaches, but they're tailored to the needs of specific customer groups. Both propositions work, both make money and both enjoy excellent customer feedback. In between those 2, of course, we have Aviva PCW and Aviva Zero focused on the mass market customer base. Well Aviva Direct looks for cross-sell opportunities in the mass affluent customer segment. We also have unparalleled reach via the U.K.'s major banks to other mass affluent customers. Our service story is one of leadership, innovation and increasing efficiency. Our TNPS performance is strong between 33 and 36 points for our main Aviva brands and an RNPS of Aviva score is around 7 points better versus the market level. These scores of course, achieved in the context of real-world supply chain disruption, and we have the #1 insurance brand. We continue to invest in our brand, having recently launched a new national media campaign. So we have excellent foundations to work from, but we have far greater ambitions for our retail business. We want to complete our work to ensure all the customer journeys can be completed online, and we want to grow voice and digital assistance services to replace legacy phone demand. We will maintain human support using AI to identify when it's needed and prioritize that voice-based support and service, particularly for vulnerable customers. Through doing this, we drive not only great customer outcomes, but also great commercial outcomes, too. And we're targeting here a 43% reduction in cost per policy by 2024, with 26% of that already achieved. And we're looking to grow our percentage of online servicing to 78%, which is where we are today, and then up to 85% of servicing online overall. Lastly, we have the Aviva customer franchise where we have proven cross-sell capabilities. Nearly half of our direct sales are to multiproduct customers. And in turn, those multiproduct customers have nearly a 7-point higher retention rate. That's very important to us, and we're focused on driving multiproduct sales where it makes sense to do so for our customers. To fully utilize this capability, we're working hard to increase the absolute number of Aviva customers we can reach. And there are initiatives underway across the wider group to grow our marketing permissions for all customers. As a result, we've already seen an increase of around 2.5 million customers with marketing permissions between 2021 and 2022. And we expect this to rise to around 55% of all customers in 2023 through MyAviva customer journey enhancements, third-party data enrichment and ongoing simplification of our marketing preference processes. And this utilization of customer relationships is already underway with beneficial relationship pricing for our pension customers being automatically applied to their Aviva PCW motor quotes, which has driven improved conversion. So in summary, we're already a scale provider with 3.4 million retail customers. With our brand reach and strong distribution assets, we can grow that base, but even more excitingly, with increased levels of permissions and our proven cross-sell capability, we can accelerate sales to existing customers and drive higher penetration and long-term retention. We believe there is real commercial upside here. On to growth. We play across all channels and see attractive segments in all of them, but our particular focus is on retail and high-net-worth. Our rationale for our growth strategies is fairly simple. This is a retail-dominated market with half of all the Personal Lines volume. Both retail and high-net-worth demonstrate growth potential from their current base. We have healthy market shares already in partner and broker, but we have more headroom to grow in both retail and high-net-worth. And both are attractive profit pools. Retail is the largest profit engine for us and for the market. And high-net-worth is a growing segment with low price sensitivity but very high service sensitivity, which allows us to write consistently in the low 90s combined given our underwriting capabilities. And lastly, we believe we have the best high-net-worth team in the market, plus a consistently well-performing retail asset. We already have the foundations. We're simply scaling them up. At a portfolio level, our strategy is to grow and rebalance from majority nonretail to majority retail distribution in order to exploit the market's most attractive profit pools. In totality, we plan to double our retail business and reengineer our nonretail portfolio to maintain our #1 scale, but with a laser focus on returns. That will deliver our overall combined a sub-94 and increased operating profit to more than GBP 200 million a year by 2027. We'll achieve our ambition to become around a GBP 3 billion business writing at that 94% combined through our focus on profitable segments and by widening our competitive footprint. One important point for you to take away is that this combined ambition isn't dependent on improved efficiency. It's about repivoting the existing portfolio towards these more profitable segments of the market. But as you'd expect, we are still laser-focused on efficiency, which will, of course, help support growth through more competitive pricing. Retail will become the majority of our business by next year. On growth, we have a range of distinct brands with focused customer propositions, each with key priorities and target segments to maximize coverage and growth potential. And we've already seen significant growth in PCW that's been achieved with healthy profitability with an average combined for the last 5 years in the low 90s. Looking ahead, this multi-brand targeted approach underpinned by our leading technical foundations will generate significant growth as we reshape our portfolio. On to nonretail. First, we have our significant growth engine of high-net-worth, operating from the mid- to ultra-high-net-worth customer segments. This capability has been added through acquisition, and we're now firmly on course to be the #1 team in the market, which opens up material higher-margin growth opportunities for us. The AXA XL acquisition saw 90% client retention, which is impressive. We have distribution access via brokers asking us to grow and access to customers via our commercial SME and succession wealth businesses. Turning to mass market broker, we're being selective about the business we write, working with specialists to expand our market reach and more attractive returns and ruthlessly optimizing that broker portfolio for profitability. That doesn't mean we're shrinking the business. It simply means we're being selective about what we do and who we work with to maximize returns, but still with a growth mindset. In partnerships, we already have a leading scale position today, but we are evolving that position for tomorrow, and we're looking to the future. Today, we're the main provider of home, travel and gadget insurance to the U.K.'s main banks and renewed the home and travel deal last year with TSB to run until 2028. This partnership strength in home is a major component of our #1 home market position and share. Our strategy in this core book is shifting the model from branch to digital, reflecting changing customer buying behaviors to win new partners to access new and growing customer groups. And these long-term partnerships place us in a great position as the market evolves through the digitization and regulatory shifts we discussed at the start. Accordingly, we believe there will be opportunities to further strengthen our position in home and travel in the short to medium term. And lastly, we see partnerships remaining as a key distribution route for the future. We recognize that our markets will change in the long term with more insurance embedded and partner propositions accessed by customers in potentially new ways. And at this point, I'll hand you over to Owen to take you through the strength of our technical foundations, sustainability and tell you a little bit more about innovation. Thank you.

Thank you, Adam, and good morning, everyone. So far, we've talked about our customer strategy and growth opportunities. The key underpin of those are the technical foundations within our personalized business. This is a price-driven deeply technical, highly competitive market. Our technical foundations need to be exceptionally strong to compete, create returns and win, and I'm pleased to say they are. First, technical capabilities. We believe we have the largest and most experienced pricing team in the market. Second, we've recognized customer capability and service with a lead over the market in NPS and brand. And third, we have an experienced claims team and are investing further to enhance journeys and improved indemnity outcomes. And finally, we've continued to improve and simplify our business, reducing our product estate by 2/3 in the last 2 years. This gives us the foundations upon which to grow profitably and sustainably. We have considerable capability in data science and machine learning, not just in pricing but across the value chain to support these foundations. In data science, we have over 70 analysts and machine learning engineers dedicated to Personal Lines. And via Aviva Zero, we're now looking to deploy the next generation of AI and machine learning models to step change our market competitiveness. In pricing and underwriting, we deploy real-time price optimization across all retail, motor and home products and brands. We utilized well in excess of 1,000 individual features sourced from 40 external data sources blended with unique internal customer insights and our significant claims data assets to produce highly granular and accurate views of projected costs. In 2022 alone, we added 27 new features, including road segment level traffic patterns and driver behavior. In customer service, we use natural language processing and speech analytics to deliver a better, more personalized customer experience and greater efficiency. And lastly, in claims. Over 80 claims decision points are supported by data science to drive optimal decisions fraud detection, indemnity and improved customer outcomes. In isolation, each of these is important, but it's the connectivity of this circle that is key. It is here that we have clear strength. In the speed with which we ingest a vast range of data points, automate identification of trends, apply judgment and our insight and use these to deploy prices that are predictive for future claims costs, not just models of the past. 10 years ago, we started deploying real-time price optimization with our granular [ multi-apparel ] rating. 5 years ago, we were the first to start deploying machine learning live into our technical pricing. And we continue to evolve working to deploy fully automated machine learning models that are more predictive for future claims costs and respond rapidly to changes in claims or market trends. Given the depth of experience sitting around our technical strengths, this is a capability we will continue to invest in and maximize to support our strategy. Moving to our operations. Within our motor claims team, one our differentiators is Solus, our wholly owned car repair network. It currently manages 36% of all our motor claims, while our approved network of motor repairs more widely, which include Solus managed around 80%. Solus gives us the best capability to serve our customers with 12-day key-to-key times, faster market rates with a very low complaint rate, the ability to manage supply chain costs with lower average cost in the market and more recently reduced supply chain disruption through digital prediagnosis and 24-hour operations. For context, Solus has about 1,000 staff across 21 sites and operates nationally aligned to volume density. We have a deliberate claims routing strategy to Solus with expansion plans to move its coverage of our motor claims to 50% with our planned new sites highlighted here in the Southwest and the Northeast of the country. On inflation, we are in exceptional times, not unprecedented, but certainly not market conditions, the like of which we have seen for many years. Our leadership team have significant depth for Personal Lines experience and have been through many market cycles. This combined with our technical foundations, and sophisticated feedback leaps gives us a strong platform to deal with what has been a challenging inflation environment. We acted quickly. We recognized the emerging issue in September '21 and reprojected our forecast scenarios every 2 weeks through Q4 2021 and 2022. And clearly, a key response has been our disciplined and early action in rating, reflecting our forecasts. In Q3, Amanda referenced, we have increased Motor new business rates by an average of 15% and Home by 8%. These equivalent numbers are now plus 20% for Motor and plus 13% for Home as we have continued to apply rate in the fourth quarter to mitigate claims inflation. Rate is not the only lever to combat inflation. Supply chain control and efficiency is a key asset. This gives us better, deeper data into the supply chain, enabling us to segment costs, not at a macro level, but in a granular way. For example, we identified the vehicle manufacturers, which were being most impacted by parts supply chain disruption and have targeted inflationary loadings to reflect such granular insights. To our fourth pillar, sustainability. We are committed to playing a key role in the delivery of the Aviva sustainability ambition. In climate, we're working towards net zero across claims and underwriting. In communities, we're focused on inclusivity, funding an industry-wide working group to tackle that subject in the context of the cost of living crisis. And we've made great progress on sustainability. We're just below 40% of women in senior management positions and engagement scores, the highest ever in Personal Lines. We also consider sustainability through a business lens, which brings me on to innovation. We recognize that our markets are changing, and with that comes both opportunity and the need to future-proof our business. Aviva Zero takes our technical foundations to the next stage, having 3 core features that we have built: first, a leading personalized to tech stack; second, transformational pricing speed and sophistication; and third, a sustainable motor proposition where we attract customer appeal, iterate and scale up. We've already sold more than 65,000 policies with GBP 30 million of GWP since launch less than 12 months ago. Together, these give us significant advantages dealing with instant real-time data. For example, we can take a trading decision, make the change fully test and deploy within 10 minutes and see the impacts immediately. We're excited at the prospects here and Zero will be a vital part of our retail growth plan. So exciting time to the Personal Lines business. And with that, I'll hand back to Adam to close and take us into Q&A.

As we've demonstrated today, we have strength across all the elements of customer, brand, technical foundations, retail, claims, supply chain and diversification. This provides us with a robust platform for profitable growth, and we're confident it can be delivered. Let me leave you with why we will win. Our Personal Lines business has headroom to grow in profitable and actionable growth opportunities in attractive market segments, particularly retail and high-net-worth. It has a scale portfolio already delivering strong performance against the market and competitors in a challenging environment. It has leading diversification across both products and distribution with deliberate targeted brand and customer segmentation powered by the #1 brand in the market. It has a deeply focused and experienced team, bringing excellent technical foundations in key skill sets such as pricing and machine learning deployed right across the business. It has industry leadership in sustainability and, finally, a key role in contributing to the wider Aviva group, providing cash, operating profit and crucially access and growth to mass market and mass affluent customers. We're proud of what we've achieved in our Personal Lines business so far, but also genuinely excited about where we can take the business next. Thank you. And with that, I will hand back to Charlotte.

Thank you, Adam. And Q&A. [Operator Instructions] So with that, Who wants to go first? Do you want to bring just here?

This is Ashik Musaddi from Morgan Stanley. Just a couple of questions. Could you just remind us about your reinsurance strategy in the Personal Lines business? And what you're seeing at the moment in terms of -- is it going to be a drag in terms of margins? That's what we are hearing from the reinsurers. So any color on that would be helpful. And secondly, with respect to inflation, I mean, clearly, Direct Line gave some update last week where -- they mentioned that inflation has picked up again in fourth quarter versus third quarter because in third quarter, there was a view that inflation pricing is more or less matching each other, but in fourth quarter, things went backwards again. So what are you seeing in terms of inflation versus pricing for your own book, both in Motor as well as in Home.

Okay. So let me take the reinsurance first, and then hand over to you for the inflation question. So look, reinsurance, it's been a topic that's been out there. We've really had a difficult renewal seasonal round, hardest market, I think, since about 2001. And particularly, if you think of the cat cover, there, the markets really didn't open up until just before Christmas, which is very much unprecedented. So I think if you look and the sort of data that we're hearing is that across property cat loss protection, if you risk adjust it and look at the inflation, for [indiscernible], it was as much as 75% price increases. Now we achieved pricing at a fraction of that. I assure you and terms hard and significantly across the market, but we made very few concessions and have fought very hard to keep consistent wording. So our cover is in place. Our placement is complete. That said, there were some changes to the structure compared to the previous year, both in terms of higher retention and more limited reinstatements. And these changes were necessary just simply for the market conditions that I've explained. It does mean a bit more risk has been retained, which has had a modest impact on our capital requirements. But we're satisfied that the outcome gives us a program that enables us to execute on our business plans, as we intended. And I think that's not necessarily the case across the market. So we could see some change in some ability to trade. Outside of the cat protection for us, certainly, other lines small or no rate increases. And then I think the other thing to watch is that the motor bodily injury, reinsurance comes renewal halfway through the year. So that's another point to watch. But overall, we're happy with the placements.

And if I take the question on inflation. You asked about the bridge between the third and the fourth quarter. I did note that we did see some rise up in the fourth quarter. So the 8% to 10% for motor became 9% to 11%. But it was 9% to 11% for home in the third quarter and 9% to 11% for home in the fourth quarter. And what I'd point you back to here is I think it's quite difficult to compare and contrast across the market because everyone sort of input set is going to differ. The example here being things like Solus that actually has a 3% to 5% cost advantage compared to the wider market. So the 2 weekly process that Owen talked about takes a very granular set of Aviva specific inputs to create effectively then an inflation number, which then effectively translates through to the technical price and the rates you heard Owen talk about in the market. But those inputs and outputs will, I think, differ by market participants.

Okay just find somebody holding their hands up.

Steven Haywood from HSBC. You've given the combined ratios for the retail and the nonretail, can you break them down for us between the claims ratio and the admin ratio and the acquisition ratio for both the retail and the nonretail so we can see where there is potential scope for improvement on those ones? And then secondly, the Court of Appeal gave a judgment on the mixed motor claims couple of days ago. Can you give us your view on what the Court of Appeal has said and whether this is going to lead to any particular increase in your reserves?

I think Owen and I will take the first part together, and then I'll come back to the Court of Appeal question. We aren't going to give a granular breakdown of our combined further than we've disclosed in the pack. Just to remind you what we've said, we said our retail business has delivered low 90s really across the cycle for a number of years, and our nonretail is around 8 points higher than that. And we've pointed you [indiscernible] a combined for high-net-worth in the low 90s as well. I don't know Owen whether you want to provide any further detail?

No, just to say that I think that 8 points reflects the fact that you get better retention rates, gets all the things described around better acquisition costs and you get to keep all the things in that value chain and build that, say that, better relationship with the customer. So those are the things that we want to maximize and push there.

And in terms of the motor claims judgment that came at the back end of last week, this is linked to effectively tariff claims through the portal. I genuinely think it's too early to answer the what's the read across into market practice. That judgment only came out, I think, on Thursday or Friday, last week. It's fair to say, I think there is a question in the wider market, whether that will lead to some increased claims farming as we saw pre-reform. But I think very early to point to any specific data that supports that conclusion. So as you'd expect, we keep a very watchful eye on this and all of the other inputs into our models and look to price appropriately for the behaviors and trends that we see in the market.

It's Farooq Hanif from JPMorgan. Just on the whole technical expertise side, we hear a lot from different companies about machine learning, about techniques, and it's very hard for us to appraise. What can you give us in terms of the advantages that you think you have either in terms of margin or speed to market in terms of pricing over your peers. I mean, how can we judge that advantage because it's obviously something that you started early. Second question, going back to inflation. There's been some concern recently about bodily injury inflation and care costs. And I'm just wondering what your thoughts are on that and how you feel like you've anticipated that?

Owen, why don't you take that?

So in terms of technical expertise, look, everyone is going to say they've got brilliant pricing teams, I think. When I look at our capabilities, that track record of delivering change. So if you think about 10, 15 years ago when we launched Quote Me Happy, we grew very rapidly into the market with that launch, and that was founded on exceptional pricing back then. I think when we look at our current level of capabilities, I did ask our team to sort of add up how many rate changes or whatever we made, and we added up for Aviva Online, which is our motor PCW play. And it was over 100 last year alone, just in one product and one brand. So we've got lots of agility, lots of skill and a track record of delivering it. I think the most exciting opportunity for us is our segment level penetration sales is 15% market share for low-risk drivers driving newer vehicles. Our actual opportunity is to deploy those foundations in some of those other segments that Adam is describing. And then in terms of...

Inflation, bodily injury and care costs.

Yes. So in terms of inflation, bodily injury and care costs, we look really closely at wage inflation indices to do that because I think that's obviously the bit [indiscernible] mind. So we picked various different indices and then mark our rates to that slightly below damage, but certainly reflective of wage inflation.

Okay. We can go over there.

So first, slightly linked to the previous question, but you've been top 3 in your markets for a long time. #1 and #2 seem to be relatively entrenched, not only on AI, but broadly speaking, where do you see your differentiating competitive advantage? The other one, if you can just quickly revisit on reinsurance. If you can give a little bit more clarity on the attachment points for cat risk to the extent that you're able, that would be very helpful.

I'll just cover the reinsurance. So I'm not going to give you any more detail on reinsurance today. Any more detail we'll cover on the 9th of March.

And in the first question, the sort of that competitive advantage or the differentiation. I'll ask Owen to comment more specifically in motor. But remind you against the competitive peer group, we hold advantages in home. We hold advantages in travel today. We've got some advantages and high-net-worth that we are building on. And so the headroom opportunity, I'd orientate you back towards motor. In terms of the levers, I think we've tried to address a number of them during our remarks, but things like the brand, obviously, have a big competitive advantage. Aviva is a really well-known, well-trusted brand when it appears in price comparison website rankings, then you saw that click-through advantage or you heard rather that click-through advantage we pointed to. And I think the skills and expertise right throughout the business then including coming into the claims and supply chain, things like the wholly owned motor-repair network, there is only one of our peers that owns an equivalent network. The rest of the market effectively uses open market partnerships or opportunities. And so I think there are a number of proof points we've tried to indicate that we believe in aggregate will allow us to compete to win and gain share where it's sensible and prudent to do so. But Owen perhaps you'd like to just sort of talk about Motor in more specific detail.

Yes. I'll come back to when we look -- when I came into the business and looked at the penetration we've got in those low risk drivers in kind of new vehicles, it's really leading, but we simply don't have that share in some of the other segments, such as Quote Me Happy Essentials and some of those other parts of the market we're describing. I think the upside is considerable simply by taking our skills there and deploying them in that context to serve new customers that we're underrepresented in. And I think the second advantage is around the depth of our deep data so that the length of claims data we have, the size of those assets, the ability to deploy those learnings on top across the different parts of our business gives us a real unique advantage there, too.

Alan Devlin from Goldman Sachs. A couple of questions. First of all, on the -- you mentioned your pricing if the -- and you've never get the inflation better than some of your peers. How do you expect to play that in 2023. If the market does have to catch up and push pricing ahead of claims inflation, will you take advantage in [indiscernible] pricing and grow market share and hit that GBP 3 billion target earlier? Or will you look to focus on margins at that 94% target? And then the second question on distribution, obviously, you benefited from particularly from Aviva brand being on the PCWs and building the retail, but you push that pricing practices review, how do you think distribution actually kind of evolves over the next 5 to 10 years, what PCW become less important. And the one kind of partnership didn't match was OEMs. Will they become important distributors of more insurance products in the future?

Why don't I take the first part; Owen, you take the second. So look, we believe with the rating numbers we talked about that we did successfully navigate the inflationary challenges in 2022. I'm not going to give you a forward-looking view of our pricing strategy into 2023. I think what I'd draw you back to is our need to balance the need to rate sensibly and cover for inflation. And if we can do that and grow simultaneously. We will obviously look to do so. However, and -- I draw you back to what happened in motor last year, where we can't do that and where it doesn't make sense to do so. Our primary target is a profitability is a sub-94% combined target, rather than a pure top line growth target. So we're always mindful of the ability to grow and look to find those sensible opportunities, but we need to be sensible and cautious as we do so. Owen?

Yes. So on distribution, I think if we go back to, say, prepricing practices, I think we called reasonably, well, what we thought would happen to the different components of the market as we went through '21 to '22, and we're pretty pleased with how that landed. I think the way we think about it going forward is given the price walking won't happen, you will see slightly lower renewal increases across the market. That's probably not that big. It's probably a small single-digit percentage would be my estimate. That will cause renewal rates to rise, which is a good thing for big established players and to build those trusted relationships with customers. I think you will, as a result, and actually, the size of the increase is generally what drives people to shop, see slightly less new business. Do I think it will be that material in terms of overall strategic change? No. But it's certainly an effect that we'll -- and we'll see how that levels out over the coming year or 2. That would be my thought on that. And then building to your question, OEMs. Absolutely, I think there's a potential that, that will happen and that change will come, I think we're preparing ourselves for it with things like Aviva Zero. So one of the reasons for that data layer that really runs through that platform is to be able to deal with connected motor data as and when that arises. I think also in terms of things like electric vehicles, we tend to over index by about 40% on electric vehicles relative to combustion engines, reflecting our sort of low-risk newer vehicle segments. So I think we're well placed when that market does move in that direction. But yes, it's something we're watching very closely.

[indiscernible] from HSBC. My 2 questions. First is on since COVID, we've seen a reduction in claims frequency potentially structurally. But as said, [indiscernible] pointed to Q4 seeing an uptick in claims frequency, what are your views in terms of reduction in claims frequency versus pre-COVID level? And the second is on the household market. Their data points suggest that there still remains a differential between new and renewal business pricing. At the half year is around 30%, given the fact that you have quite a large back book, do you still expect to do some more work in terms of adjusting for that new renewal differential?

Owen, you take part one, I'll take part 2?

Yes. So in terms of COVID reduction and sort of systemic change, I think -- there's definitely something about mindset and thinking about where we are now and understanding the patterns now and projecting forward. I think it's very easy to go 3 years back, but it's starting to get less relevant. So we're very much focused on projecting frequency out. I think in terms of what do we see in terms of frequency, the key things we look at are things like driving patterns, as I said in my presentation, those are the sorts of things I look at for indicators of where I think frequency is going to go where the new normal is going to settle. I think actually, we got it very close actually in terms of when we thought -- where we thought COVID would come out. I think everyone remains very vigilant on frequency as we go through '23 to make sure those patterns don't shift. And if they do, we get ahead of them. And I think those are lead indicators of driver behavior and traffic densities that sort of stuff will help that.

[indiscernible] mentioned home frequency as well as it seems that you just...

Yes. So on home frequency, we've certainly seen some home frequency drops since COVID, particular things -- some sort of -- slightly more attritional-type perils. I think that has enabled us essentially to -- within our rating to effectively take a little bit of -- when we think about inflation, we said inflation is 9% to 11%. Our home rating is at 8% against that. That's a combined renewal, new business split. And the difference, of course, is the frequency reduction. So we've certainly rated ahead of inflation in our view, on home.