Admiral Group PLC (ADM) Q2 2022 Earnings Call Transcript

Admiral Group PLC  (LSE : ADM) Q2 2022 earnings call dated Aug. 10, 2022

Corporate Participants:

Milena Mondini de Focatiis — Group Chief Executive Officer

Geraint Jones — Group Chief Financial Officer

Cristina Nestares — UK Insurance Chief Executive Officer

Adam Gavin — Deputy UK Claims Director

Costantino Moretti — Head of International Insurance

Scott Cargill — Admiral Money Chief Executive Officer

Analysts:

James Pearse — Jefferies Group LLC — Analyst

Thomas Bateman — Joh. Berenberg, Gossler & Co. KG — Analyst

Freya Kong — Bank of America Merrill Lynch — Analyst

Kamran Hossain — JPMorgan Chase & Co. — Analyst

Alexander Evans — Credit Suisse Group AG — Analyst

Ivan Bokhmat — Barclays — Analyst

Greig Paterson — Keefe, Bruyette & Woods, Inc. — Analyst

James Shuck — Citigroup Inc. — Analyst

Faizan Lakhani — HSBC Holdings plc — Analyst

Nick Johnson — Numis Corporation — Analyst

Presentation:

Operator

Good day, and thank you for standing by. Welcome to the Admiral Group Half-Year 2022 Webcast [Operator Instructions].

I would now like to hand the conference over to your speaker today, Milena Mondini, Group CEO. Please go ahead.

Milena Mondini de Focatiis — Group Chief Executive Officer

Hello, everyone, and welcome to Admiral’s half-year 2022 results presentation. We are pleased to report another period of strong growth across the business, excellent customer outcomes and the solid set of results. These results were achieved in a turbulent period not short of challenges. I’m sure we all have been in many talks in the last two years about imminent return to normal post pandemics. That’s clearly not been the case yet.

The team is here with you today, and Geraint, our CFO, will give you more detail on our financial results. Christina and Adam, respectively CEO and Deputy U.K. Claims Director of U.K. Insurance will provide more context around key market trends and elevated claims inflation. They will also explain how we reacted to protect margins and to ensure we remain in a strong position for the future. Costantino, Head of International will talk to us about the growth in the other countries and the challenging conditions in the U.S., and Scott, CEO, Admiral Money will share with you the great progress of our loans business, including a very special milestone. At the end, I will wrap up and open up for questions.

Let’s start with the key highlights. As I just mentioned, the past six months have been challenging for business across the globe. For Motor Insurance, we’ve seen extremely elevated levels of inflation that we currently estimate to lend at 11% for the first half of the year. In addition, at the start of the year, the market had to navigate the implementation of the FCA pricing reform, that came with substantial changes in pricing, increased retention and material reductions as features in the market, with 17% decrease in new business sales. The invasion of Ukraine in February also intensified challenge in the supply chain.

In the face of this turbulent environment, we delivered a solid set of results. First, we grew in every single business and in every single country. We’re very pleased to see that this growth is coming from mainly our customer deciding to stay longer with us and that’s true across the Group, but particularly true in the U.K. where our retention increased by 7 points, benefiting also from the boost of the FCA reform. We delivered GBP251 million of profit across the Group. These, as expected and as we anticipated in March, is materially lower than 2021, the benefit from the unusual circumstances of a pandemic. Putting this in context anyhow, this remains 19% higher compared to the last year pre-pandemic 2019. All the while we have remained cautious for the future and continue to reserve for an uncertain outlook.

Inflation also hit the market overseas, for lesser extent in Continental Europe, but very hard in the U.S., where we report a disappointing results and increased losses for Elephant, our U.S. insurance operation. While we achieved these results, we also made progress on our long-term strategy. We further strengthened our international distribution for the broker and agency channel that were the major source of growth in new business in Italy, in Spain and in U.S. We substantially grew new products in the U.K. I’m proud to announce, we also made our first small profit in Admiral Money, our loans business. Well done to Scott and his team.

So, Admiral is a larger and more diversified business than six months ago, and importantly, is well positioned for the future. Indeed, in typical Admiral style, we increased prices ahead of the market to account for inflation. We continue to be disciplined and we will prioritize margins over growth. And this will allow us to grow once the outlook of the cycle improves.

The last three years have had more than their fair share of challenges, as mentioned. We have witnessed Brexit, war, fuel and chip shortage and COVID-19 and more specifically, to insurance, we have navigated Ogden changes and FCA pricing remedy. Collectively, this event have led to elevated claims inflation and the frequency roller coaster. As you can see in the graph, the average premium recently is no longer in the middle of these two lines, filling to balance out recent trends. It’s clearly lagging claims inflation. Outlook remain uncertain, but as Cristina will share with you later, in Q2, we started to see signs of premium material increasing.

So, how are we managing the business in this period? Let’s step back for a moment and remind ourselves that U.K. has always been strongly cyclical with peaks in combined ratio even higher than the 114% that Ernst Young estimated for this year. And if you look at Admiral results, we see a clear track record of navigating all the past cycle effectively by staying disciplined, spotting and reacting promptly to market trends and prioritizing medium-term profitability versus short-term growth. The consistency of these results over time was made possible by our pricing capabilities and agility, efficient claims management, and a strong experienced team with clear unwavering focus on customers.

So as in the past cycles, we stay disciplined. First, we increased rates briefly across markets, particularly in the U.K. and the U.S. where inflation was higher. And indeed, our growth in Motor came mainly through retention and new distribution channel, rather than higher competitiveness on price comparison side. Second, we effectively implemented the complicated FCA pricing before and we maintained a prudent approach to reserving and a cautious forward-looking view inflation and sustained a high solvency position and provision for loans. And all this without losing sight of the long-term value creation and making substantial progress on diversification.

And our proposition remains unchanged. We continue to deliver operational excellence. The graph on the top left of the slide show the gap in combined ratio between us and the market after 2021. That remains unchanged, if not increased. At the same time, we continue to grow in the core business and beyond, with international business’ annual products now making up more than 40% of our customer base. And it’s great to see the more mature product as Household and Van growing in size and contributed to our profit pool. We continue to be very capital efficient. With a strong ROE, although this year reduced as it was impacted by combination of higher level of equity held in the business and reduced profit from the exceptional highs of the COVID years.

I deeply believe that the glue that underpins this competitive advantage is our unique culture. And being a great place to work is a priority for us as much as our key financials. Admiral people like what to do and that’s why they do it better. And so, it’s very encouraging to see the engagements score saw strong throughout the transition to hybrid working. And our ambition goes beyond the Admiral family. We would like to make a Board a better and more inclusive place to work, and that’s why we recently increased our contribution to the larger community and we’re focusing our effort on employability. Piloting some exciting partnership where we invest the money and our staff time to help people to find jobs.

So what’s next? We continue to progress on our strategy, to ensure that this capability remain exceptional and fit for the future. We believe that the current turbulence adds to the importance of these three pillars, as the agility of Admiral 2.0 and diversification, both make the business even more resilient in time of changes.

Let me give you just a few examples of our progress. Starting with Admiral 2.0. A few months ago, I outlined the launch of our new claim system in U.K. Household and after successful release, we have now rolled out the same system in U.K. Motor, and we’re very excited about the improvements that these would bring to our customers. We are also excited about the advantage, the convenience and the competitiveness of our MultiCover product that is growing and it’s very central to our diversification strategy. Almost 700,000 customers joined Admiral for Van, short-term Motor insurance, Household, Travel, Loans and small business products, and it’s great to see how we managed to transfer some of our competitive advantage from Motor into other lines of business. This will improve the customer proposition, but also loyalty and lifetime value. In a nutshell, a faster, larger, more diversified business.

And with that, I hand over to Geraint, who will go more in details of our financial results.

Geraint Jones — Group Chief Financial Officer

Thanks, Milena. Good morning, everyone. Also through the main points from our first half results, looking at a solid profit and pleasing growth in the topline. Okay. Into a little bit of detail on U.K. Motor profit, loss ratios and reserves, and I’ll cover our capital position and half-year dividend.

First up is the highlights. Worth remembering back to the first half of 2021 when looking at this slide, that was our biggest ever half-year by some distance, with the results very positively impacted by COVID. That benefit has now disappeared and being replaced by elevated claims inflation, particularly in the U.K. and the U.S. and that inflation is leading to higher loss ratios and pressure on industry profitability for 2022 compared to the recent past. And so, inevitably, quite a few of the metrics here are impacted by that very strong comparative period.

Profit GBP251 million and earnings per share at GBP0.67, both lower by around the half and with the payout ratio broadly in line with last year, the dividend based on the first half profit is a similar percentage lower at GBP0.60 per share. The total interim dividend will also include the final tranche of the Penguin Portals proceeds. The lower profit coupled with bigger businesses and more capital back in those businesses has led to a lower return on equity, into the high 30s, has reduced, but still a very respectable number. And our solvency ratio remains in very good shape, about 185%.

Next, a quick check in on what’s happening with customer numbers and revenue. A few more green arrows on show on this slide and generally positive picture. All parts of the Group grew year-on-year and in first half of 2022. Lots going on behind the numbers across, which we will cover through the presentation, but a few points to project.

Firstly, in U.K. Motor, the growth which all came in the first half is largely on the back of improved renewal retention post FCA reform, rather than from new business, as the relative pace of our price rises has reduced competitiveness there. International customer growth, in Europe at least is accelerated into 2022, very encouraging results in difficult markets and U.K. Household growth is also spread out in the first half, which is good to see. Admiral Money had very good periods, as reporting loan balances up around 70% year-on-year and 30% in the first half. We are confident of continued growth in all parts of the Group when the times are right.

As I mentioned, comparisons to 2021 and 2020 are challenging because of the impact of COVID. So this next slide picks a few key metrics and looks back to the first half of 2019, before the pandemic. I am showing you Group customer numbers and profit on the left and the same metrics for the U.K. Insurance business is on the right. We see very decent absolute and annual growth in each measure, solid progression in profits, including as Melena showed earlier, a continued, very strong level of outperformance on combined ratio versus the market in the U.K. and a materially bigger set of businesses, 11% CAGR at Group level, and a very respectable, just under 10% annual growth in customers for the U.K. Insurance business too. And so, comparisons to a period unimpacted by COVID are generally positive.

But for the time being, let’s go back to comparing to last year and look at Group profit. This is the Group income statement by business segment compared to last half-year. I won’t dwell too long as the key drivers are discussed on the slide and throughout the presentation today. Three things I’d point out. Firstly, a significant fall in U.K. Insurance profit as flagged previously. Hopefully the results, also, the reasons are fairly evident. The more detail on the Motor result very shortly.

Good performance in the U.K. Household despite a pretty big impact from exceptional weather in the first half. And second, the worst result of more International Insurance businesses. There was a small but actually pleasing profit from European Motor, given the market context, but it was significantly offset by the U.S. results, where a big jump in claims inflation led to a higher loss ratio and worse results. More on that and our response later on. And finally, the first positive results for Admiral Money. Small admittedly, but it came despite the 70% year-on-year growth in balances and associated acquisition costs that we’ve already seen, and that’s a nice milestone.

U.K. Motor is the big driver of the change. So let’s have a closer look. This is the U.K. Motor income statement versus H1 last year with some notes on the key changes. Hopefully, unsurprisingly, there are three key drivers of the lower results. Firstly, increased claims frequency compared to H1 last year, combined with much higher inflation have led to a higher current period loss ratio as you can see. Just under 20 points higher than the very low figure from last year. Secondly, reserve releases, while still significant at GBP160 million were lower than the prior period, we saw a very large GBP200 million. And thirdly, profit commission. Whilst not especially though at GBP70 million, that was around GBP100 million lower than 2021 and that’s very largely down to the level of profitability in the immediately prior underwriting year.

In H1 ’21, the book loss ratio for the 2020 underwriting year was 69% and already at a profitable level. Compare that to the current period with a book loss ratio for the 2021 year is 87%. So quite a bit higher, not yet booked at a profitable level, and that’s a much more normal pan. That factor accounts for GBP90 million of the difference in profit commission. We’ve included the usual chart on reserve releases and profit commission by underwriting year in the appendix. Covers four periods and clearly shows 2021 H1 as the outline.

Let’s take a deeper look at net loss ratios and reserves. This slide shows two shots. Hopefully they are familiar. On the top, we show the projected loss ratios by accident year, with the change in that projection versus six months ago in the brackets. Movements, generally quite consistent with prior periods and we see improvements across all years. And the bottom chart shows the book loss ratios on an underwriting year basis. A pretty consistent pattern of booked ratios moving down across years and not out of line with the previous periods. And just to note, that the final right hand bar is a six-month, rather than full-year movement.

We are estimating the average claims costs in the first half will be around 11% higher than 2021, a still uncertain number but that’s what’s built into our best estimates. We’ve made appropriate allowance for higher inflation on open claims from back years too. And as usual we don’t so show projection for the current period at this point. Continued improvements in the projected loss ratios are to be expected despite the higher inflation being allowed for.

Let’s move it on the slide when we initially make the projections, we built in the allowance of a greater inflation that we see in the data to allow for unexpected development as we’ve seen in H1 this year. We also unwound some prudence we built in for uncertainties related to COVID in the first half. The margin held in the book reserves in the accounts remains very prudent as you can see from the percentile bullet, that’s hardly changed since the year-end. And therefore, we are confident there will be continued significant reserve releases moving forward.

Moving away now from the results to look at the capital position, then the interim dividend. Solvency is set at the top. We continue to report a strong position, 185%, that’s very much in line with prior periods. So, at the risk of sounding a bit like a broken record, it’s down on a very elevated position in the middle of 2021. We see a 6 point drag from spread movements in the first half and we’ve included some info on investments in the appendix, which covers asset allocation, ratings, performance and the unrealized movements. The bridge in the full year, so the half year solvency position is also set in the appendix. And on the bottom of the slide, we set the interim dividend information. We’re declaring a dividend in two parts again. GBP0.60 per share based on the first-half earnings. That’s a 90% payout ratio. Plus we will pay the final tranche of the Penguin Portals proceeds, as I mentioned earlier, which adds GBP0.45 per share and brings the total interim dividend to GBP1.05.

That’s it from me. But to leave you with a few of the key points. Despite a challenging period and a need to focus on protecting margin over growth in a few markets, our businesses continue to grow with the rate of growth accelerating nicely in several places. Our consistent and conservative approach to reserving has helped us deliver solid result for the first half, nicely higher than the pre-pandemic comparative, and we continue to enjoy a strong solvency position after paying up 90% of the first half earnings as an interim dividend.

I’ll pass you know to Christina and Adam to talk to us about the U.K. Over to you, Cristina.

Cristina Nestares — UK Insurance Chief Executive Officer

Good morning, everyone, and welcome. I’m going to be covering the key results for Motor and Household insurance, including the pricing environment and the outlook for the second half of the year. Adam will do a deep dive on motor claims.

Let’s start with a summary of the highlights. The FCA reform has resulted in a strong retention increase and we believe that a Admiral remains well positioned after the reform. Motor policies have grown by 4%, driven by these strong retention. Claims inflation is currently estimated at around 11%. We have increased both, new business and renewal prices by 16% since March to account for inflation. As we tend to do, Admiral has maintained pricing discipline during this period, which will continue into the second half. And finally, our Household book continues with a strong growth with profit impacted by bad weather in the first quarter of the year.

Moving to pricing environment. Let’s start with Admiral rate changes in comparison to the market. First, to account for the FCA reform, as I mentioned in the full-year presentation, Admiral moved prices in line with the market. We increased new business prices by double digits and reduced renewals at mid-single digits. Secondly, to account for inflation since March, Admiral has increased new business and renewal prices by 16%. A reminder, that since January, our rate changes are aligned for new business and renewals. We have started to see prices in the market increasing. According to the Pearson Ham index, new business premiums in the same period March to July, are up by 7% for the market. On the left, you see a graph of rate changes for Admiral in blue compared to individual peers in gray. It’s indexed to January 2021. This data comes from Pearson Ham premium tracker and it only considers rate changes in price comparison website for new business.

Note, that in the past, we have Sona [Phonetic] graph with time stop. However, this graph is different, as it represents the actual price change of different players. As we can see in the graph, Admiral started increasing prices in March and has continued to increase prices as strongly every month since. It’s important to highlight, that according to our estimates for the business we’re writing today, we can see that our price increases cover the increase in inflation we are currently seeing.

Let’s now review the initial impact of the FCA implementation. The main impact has been an increase in retention and a decrease in the new business market, which has resulted in a decrease in total market GWP. The graph on the right shows Admiral and the market average retention index of 2019. As you can see in the graph, Admiral retention has been higher than the market over the past few years. After the FCA reform, our retention has increased a bit more than the market average. This strong retention explains the growth of the motor book of 4%. Some of this growth is also explained by the growth in market. Admiral has one of the largest books in the motor market. So high retention is always good news. However, we consider our retention in the market and for Admiral will reduce in the next few months as prices continue increasing in the market.

And now over to Adam to talk more about motor claims.

Adam Gavin — Deputy UK Claims Director

Thanks, Cristina, and good morning, everyone.

At the full year results, we talked about emerging trends in claim frequency and inflation. I’d like to start by updating you on those two areas before providing some more detail on bodily injury claims. Starting with new claim volumes. Frequency remains materially lower when compared to pre-pandemic levels. There are no indications at this stage that we will revert to previous levels in the near-term. We’ve had relative stability on new claim volumes over the last quarter, which suggests a structural change in driving habits, and we believe the mobility trends over the summer will add further clarity to the long-term outlook, as well as success or otherwise a hybrid or remote working in the U.K. We’ll also be monitoring the impact of elevated fuel prices during the cost of living crisis to understand whether this drives any further short-term changes.

Moving on to vehicle damage. In March, we talked about the perfect strong inflation in repair costs and second hand vehicle values. As a reminder, these two components of the key drivers for overall damage inflation, both, for our customers and third-party claims. Looking at repair cost first. The market is still experiencing elevated inflation in this area. Inflation continues to be driven by increased labor costs, caused by workforce shortages in the U.K. We’re also seeing greater challenges with parts distribution, which is adding an extra layer of delay and cost to repair claims. Our view remains that we expect these challenges to persist well into 2023. It’s also worth remembering that increase in technology, new vehicles remains a structural driver for repair inflation. And with that in mind, we expect repair inflation to continue into the future after the current volatility has passed.

Finally, on repair. Delays in repairs are impacting claim lifecycles, slowing the recognition inflation on own damage and third party damage. Our advantage in third-party systems is helping us to mitigate some of these pressures, both in terms of inflation and delays.

The other main driver of damage inflation is the increase in the residual value of second hand vehicles, linked to the slowdown in new vehicle production. Of the full year results in March, we are hopeful that some of this inflationary pressure may start to slow as the year went on. And we believe that we could be starting to see signs of that now. The chart on this slide is an updated version of that when we showed you in March. Whilst we are clearly still seeing elevated inflation, there are signs of second hand vehicle values may be starting to decrease.

The outlook for this year remains volatile. However, we are hopeful that over the next 12 to 18 months, we will see further rationalization in the value, as supply of new vehicles increases, especially, when combined with the potential impact of a cost of living crisis on shopping habits in the U.K. We do however expect values to be elevated for the foreseeable future.

Turning to bodily injury claims now. On my next slide, I’ll start with a brief update on the whiplash reforms. We still believe the reforms have materially lowered whiplash frequency. However, delays in settlements are making precise predictions difficult. The last set of data released indicates settlement levels are increasing. So hopeful of greater clarity in the next 6 to 12 months.

Now I’d like to talk about large bodily injury claims and provide some more details on the cost of care. We’ve talked to you previously about the experience and expertise that we have in our large BI team. We believe that this is the foundation, which our strong and consistent advantage on bodily injury claims is based. Large BI claims are inherently volatile. We’ve experienced inflation in areas such as Care and Prosthetics consistently for the last decade or more. These claims are nuanced and often complex, depending on the individual needs of the injured party. Outlier claims are incredibly complex and costly care assumption are not unusual. So we expect and plan for volatility in large bodily injury claim costs/

Focusing specifically on the cost of care, we are expecting the cost of care to rise. The graph on the left of this slide shows the ASHE 6115 care index compared to general wage inflation. We believe that wage inflation is a reasonable proxy for inflation in the cost of care. So based on the current trajectory, we anticipate the actual index will rise, as published, later in the year. Another factor influencing the cost of care is a shortage of care in the U.K. The impacts of the pandemic and Brexit on the U.K. Health and Social Care sector well documented and this has created temporary challenges in place in care in some parts of the U.K., which is naturally having inflationary impact. It’s worth noting, this isn’t a particularly new feature. It’s a chart we’ve been dealing with for a number of years now.

Whilst we’re acutely aware of inflationary risks on the cost of care, it’s important to clarify that we currently aren’t experiencing any material change in our allowance large BI settlement costs. We’re monitoring the situation intensely, staying very close to the data, and are incredibly close ties and weekly meetings between claims, finance, and pricing, allow us full considered judgments on pricing and reserving.

Taking all of these facts across frequency, damage and bodily injury into account, we estimate claims inflation for 2022 to be in the reasonable 11% for the first half. The level of uncertainty in the market makes calculating inflation for 2022 complicated. However, we feel 11% is a suitably prudent reflection of both the current market conditions and the uncertainty and outlook for the remainder of 2022. We feel that our experience, expertise and our prudent reserving policy, which Geraint mentioned earlier, leaves us very well placed to navigate any potentially adverse market conditions in the future.

I’ll now pass you back to Cristina to wrap up on U.K. Insurance.

Cristina Nestares — UK Insurance Chief Executive Officer

Let’s now review the outlook for the rest of the year. For H2 inflation, we don’t expect a material change in current position, but there is a high level of uncertainty as explained by Adam. So, we will continue to monitor closely. There are some positives, frequency, whiplash and prices of second hand cars. However, there is still a high level of uncertainty in the evolution of the macroeconomic conditions and the impact on claims inflation. In terms of our expectation for the pricing for the second half, we believe, market prices will continue to increase during the next few months. We have not yet fully reflecting the current level of inflation.

The FCA pricing reform has already been priced in. However, its full impact might take some time to mature. In particular, its impact on the overall market profitability, including the change in the renewal, new business mix and the lower average premium. For Admiral, in the second half of the year, we will continue with our disciplined pricing approach. We will monitor trends in the market and our own data for inflation and claims outcomes, and will respond quickly to changes. So, in summary, Admiral, as always will continue with its disciplined pricing approach, prioritizing margin over growth in the second half.

Moving on to the Household book. Firstly, I reminded about the FCA reforms in this market. The new business prices increased more than in Motor and we have seen very strong increases by some players. These market movements were aligned with our expectations. The first half of the year with another period of good growth, driven by several factors, namely strong retention and also growth in our MultiCover proposition. However, profits have been impacted by weather events in the first quarter, with an estimated impact of GBP10 million. We continue to invest in making the Household business stronger, by enhancing our pricing structure, improving claims efficiencies, which have helped to some extent to offset inflationary pressures, and invest in technical and digital capabilities.

For the second half, we expect a continuation of these trends. However, British weather remains very unpredictable. We will continue to monitor some sirens, risk into the second half as we’re progressing through an unusual dry summer.

This is all for the U.K. Insurance, and now over to Costantino to talk more about the international results.

Costantino Moretti — Head of International Insurance

Thank you, Cristina. Good morning, everyone. Let’s start with the key messages for International Insurance. The first half of 2022 recorded another period of strong growth across all our European businesses despite very competitive markets, and disappointing performance in the U.S., largely influenced by strong claims inflation. As a reminder of our strategy, we are committed to build a long-term sustainable businesses. leveraging on Admiral competitive advantages, notably, superior risk selection, excellent customer service, and our unique culture.

In Europe, we are prioritizing long-term value creation over short-term results and therefore achieving greater scale is important. I believe our top line performance in Europe is strong given the tough competition and it is a signal that our investments in distribution channel diversification and digital growth are paying off.

In the U.S., the results are disappointing, due to the market loss ratio headwinds. We have taken strong measures to reduce the losses. We expect to see benefits in the coming quarters, although, the market outlook remains uncertain. We will continue to closely monitor the situation, being ready to take further bold action if needed.

I want to thank all our staff across international businesses for their hard work. We continue to promote our unique culture and we are proud that our businesses are ranked in the top tier of the Great Place to Work and our customers rate our brands highly for the quality of products and services.

Now moving to the next slide, where I will drill down on Europe. Our three businesses on a combined basis have 50% more customers and 40% higher turnover than H1 2019, despite the stagnant direct market and downward trending premiums, particularly in Italy, and a bit in Spain. Customer growth is coming from the expansion of distribution channels in Italy and Spain, that now offer their products through our qualifying network of intermediaries, together with directly to the conversion improvement, as well as stronger brands everywhere. The investments we made in recent years to build new distribution capabilities are finally returning value, and it will give us more options to continue to build scale, which is the key strategic priority for us.

Let me also point out, another year of strong growth for L’Olivier, our French business, which has doubled the size of turnover in the last three years. The markets remain highly competitive with large players continue to focus on retaining their customers and new incumbent maintaining a very aggressive pricing strategy to rapidly grow their customer base. Europe recorded slightly lower inflation than U.K. and U.S. during this first half, but we see early signs of premium increases in Q2. In this context, we had room product prices and grow in H1, while always maintaining a disciplined approach to the bottom line outcome.

The financial result is slightly positive on a combined basis, and despite a larger book, has not improved since pre-COVID due to three main reasons. First, strong growth and a significantly higher portion of new business customers that tend to be less profitable than existing customers. Second, sustained investments for building new distribution channels showing positive outcomes in the recent quarters. And finally, strong decreases in average direct market premiums in Italy, which is our largest business, and material influences the combined European results. Despite these market shifts, we believe the Company is well positioned to continue to deliver good results, gaining scale and deliver long-term value to the Group. Although, we expect the markets to remain challenging in the next few months, we’ll keep a cautious approach to running our businesses and I believe we are well positioned to continue building long-term value for the Group in Europe.

Now, moving to the next slide and to the U.S. Elephant, our U.S. business, reported a materially higher loss due to strong claims inflation that reach unprecedented high levels across the market We have taken strong measures to reduce the losses. We expect to see benefits in the coming quarters, although the market outlook remains uncertain and we are ready to take further bold actions if needed.

Looking at the chart on the upper left side of the slide, you can see the huge increase of the market loss ratio by 14 points year-on-year. The drivers of this jump are, first, claims frequency that differently from Europe, breakover to pre-COVID levels already in early 2021 and second, severity, that after a lower steady growth spiked from end of 2021 and into the start of 2022. In particular, out of physical damage loss ratio went from new lows to new highs in just five quarters. Notably, with a significant jump of nearly 10 points in just one month in January 2022.

Consequently, the market adjusted prices accordingly with record high prices increases, but this was insufficient to offset the negative impact of inflation on the loss ratio. This trend affected Elephant and our bottom line deteriorated accordingly. We took strong action in Q1 to protect the bottom line. For example, we increased the new business rates more than 20 points, and we reduced direct acquisition spend by 70%. The little growth registered is all coming from the recently developed agency channel, which helps to gain access to more profitable high tier customers and efficient acquisition cost while the share of direct business has dropped.

In conclusion, we are disappointed with the financial outcome and we will continue to work hard to improve the bottom line, which is our priority. And although, the market outlook remains uncertain, I expect our actions will make an impact.

Thank you. I hand over to Scott to present our fascinating loans business.

Scott Cargill — Admiral Money Chief Executive Officer

Thanks, Costi. Good morning, everyone.

To start my section, a few key highlights on the performance of the Admiral Money business. There has been a strong performance in the first half with gross loan balances growing 68% since half-year ’21 to GBP787 million. Our Customer Payment Performance remains stable and in line with historic trends. We are not seeing a deterioration from customers impacted by the increases to cost of live. We have continued our approach of retaining caution and our provision with coverage of 6.8%. With that, next, we have increased the post model adjustment for an anticipated future cost of living stress. As Melina mentioned, we have reached breakeven for the first time and the focus for H2 remains on sustainable growth with full-year balanced guidance consistent at GBP800 million to GBP950 million.

The first half of 2022 continued on a similar growth trajectory to the second half of ’21 with new business volumes averaging GBP60 million per month. Net interest income for the period has improved in line with balanced growth and with our increased scale, digital focus and tight expense control, our cost-income ratio has also improved well in H1, reducing to 54%. Over 70% of our customers are already being serviced digitally, which serves well for further economies of scale as we continue to grow.

We’ve also seen some important business achievements in half, including maintaining a net promoter score of 72 and achieving our Trustpilot score of 4.7. Our customer payment performance has remained strong and loss performance is better than projections. However, looking forward, we do expect some of our customers to face a challenging period with increases in the cost of living. With this in mind, we have kept the provision conservative at GBP53.5 million, which includes a post model adjustment of 23% or GBP12 million.

To reiterate, we are not currently seeing signs of stress and given the nature of our customer base and the prime focus of our balance sheet, we see a resilient position today and looking forward. Despite the cautious provision, the combination of pleasing income growth with a sharp focus on expenses has made the Admiral Money business breakeven in H1 for the first time and we believe this sets us off on a trajectory we can continue to improve from.

With that, I’ll pass back to Milena to wrap up.

Milena Mondini de Focatiis — Group Chief Executive Officer

To conclude, we are proud of the solid results we delivered, robust performance in U.K. Insurance, further diversification of customer base, with growth and positive development in new products and European Insurance, and strong customer outcomes and loyalty. This is in the context of a deteriorated market environment, which of course we are not immune, but as in the past, we are leveraging on our historical core technical competence and execution to stay ahead of the market. We maintain a cautious and disciplined approach and all these puts us on strong footing once the cycle will reverse.

Our strategy remain unchanged, as well as our confidence in the strength of the business and the medium to long-term outlook. And for these, I’d like to thank all our Admiral team, who is the heart of our business and culture and work incredibly hard to continue to deliver value for all our stakeholders.

Thank you for your time and we are now ready to take questions.

Questions and Answers:

Operator

[Operator Instructions]

Our first question comes from the line of James Pearse from Jefferies. Please go ahead. Your line is open.

James Pearse — Jefferies Group LLC — Analyst

Yes. Good morning, everyone. Congratulations on the results this morning. First question just on your underwriting year loss ratio for 2022. So that’s at 93% in the half year and just wondering how we should expect that to develop in the second half given all the moving parts in terms of pricing, frequency and elevated inflation and perhaps, just directionally, should we expect that to get better or worse?

And then given that 93% loss ratio, how should we think about in terms of the impact on future profit commissions, because I guess 93% loss ratio is higher than what it has been over the last decade?

And then, I just have another question on commutation. So you’ve said that you’ve commuted just a half of your reinsurance covering 2020 underwriting year. Just wondering the reasoning behind that, as I think at this time last year, the majority of your 2019 reinsurance had been commuted. And so, just wondering how we should be thinking about that? Thanks.

Milena Mondini de Focatiis — Group Chief Executive Officer

Thank you, James. Geraint will take the question.

Geraint Jones — Group Chief Financial Officer

Hi, James. Yeah, the 93% — 92.5% is not too out of line with some prior years. I think 2019, 2018, when they were first booked in the accounts, they were at or around that level. So it’s not some especially that outlined. The direction for the second half, I think it’s, to tell you too early to call, but we’re not expecting major change in it. But there’s a lot of things that can push that either way. I think, so I’m not quite ready to make a call on that for the second half of the year yet.

Commutations, we said, I think over the last results. So the results before, that we are moving the timing of the commutations away from 24 months after the start of an underwriting year to 36 months and that’s what you’re seeing now. I think this is all that shift from doing it after two years to doing it after three years. That change shouldn’t or doesn’t result in any real change in the total numbers. It can result in a change in the way profit flows to in the accounts, but nothing material to report on that at this point. It’s just a timing thing.

James Pearse — Jefferies Group LLC — Analyst

Okay. Thanks guys.

Operator

Thank you. We will now take our next question. Please standby. Our next question comes from the line of Thomas Bateman from Berenberg. Please ask your questions slowly. Your line is open.

Thomas Bateman — Joh. Berenberg, Gossler & Co. KG — Analyst

Hi. Hi. Good morning, everybody, and congratulations on the excellent results. Really affirming your position as the premium company in the sector. And just on reserves, could you give a little bit clarity over your PYD guidance? I know you said low 20s in the past. Does that still stand and you alluded to a buffer kind of if inflationary pressures coming. Could you just put a little bit of context around that? How big is it is etc.?

And then similarly, you alluded to some of the COVID allowance being unwound. How much was that? And is there any left?

And I’m just moving onto the loans business, necessary that’s when you’re making a profit. Could you give a bit of color about how you expect that loans business to develop long-term? What do you think the ROE, etc. in the five years time, that will be really helpful. Thank you very much.

Milena Mondini de Focatiis — Group Chief Executive Officer

Thank you. So I think Geraint is going to take the first question on reserves and I would like Cristina and Costi to comment on unwind of the COVID and then we’ll go to Scott on the loans.

Geraint Jones — Group Chief Financial Officer

Hi, Tom. Nice and slowly asked question, simply. I would say on prior year development we’ve guided, I think to expect low to mid-20s if things develop as we expect them to and there are no shocks. I think that guidance holds. I’m confident to say that because of the size of the margin we’ve got in the book reserves in the accounts, that is extremely prudent and very large. And so, yeah, as I always say, I think as things develop, as we expect we’d be looking for low-to-mid 20s reserve releases in terms of the percentage points measured against net premiums. I think that probably holds.

Just then on the COVID buffers, I can do that. We’ve built in some allowance uncertainties that we were seeing in settlement speeds and things like that during the COVID period. We don’t — we’re not going to talk about how much it was. It’s not transformational in the size of the reserve context, but it’s no longer needed. We think there are settlements and those patents have returned to what we think is more normal levels. So, we’ve unwound that, don’t think it’s needed anymore.

Thomas Bateman — Joh. Berenberg, Gossler & Co. KG — Analyst

Just to be clear on the PYD, I’m fairly sure you used to say low 20s. Now you’re saying low-to-mid 20s. Is that correct? So maybe I misunderstood in the past.

Geraint Jones — Group Chief Financial Officer

I think over time we probably used to be mid-teens. That was when the reserve strength was smaller than it’s been in the more recent past. So given the size of that reserve buffer, if things develop as expected, the size we are releasing into the accounts means it’s been larger than that kind of long-term average, which was in the teens. So I would say, low-mid 20s, unless things change.

Thomas Bateman — Joh. Berenberg, Gossler & Co. KG — Analyst

Thank you. And just on loans?

Milena Mondini de Focatiis — Group Chief Executive Officer

Scott, do you want to take the question on a Admiral Money?

Scott Cargill — Admiral Money Chief Executive Officer

Yeah. And Tom, just to give you an idea how we think about, we’re obviously very focused on sustainable growth and we can say how and when to grow just based on the macro, and at the moment, as I mentioned in the presentation, we’re going around GBP60 million per month and that’s disbursals were doing. And if we continue to that level over 18 months, would be in the range of GBP1.2 billion, GBP1.3 billion. S,o as a reasonable estimate for where we may be in the next 18 months.

In terms of the turns, a broad brush we are thinking about, as we target a about a 500 basis point NIM, we’ve shared in the past as fees and ancillaries, so when you think about maybe 2% opex, 2% loss of that scale, you get return on assets 2% to 3%, with just with our capital base gives us an implied ROE of around mid-term, and it’s sort of early for it, so as I think it is business mid-term.

Thomas Bateman — Joh. Berenberg, Gossler & Co. KG — Analyst

That’s lovely. Thanks very much.

Operator

Thank you. We are now going to take our next question. Please standby. Our next question comes from the line of Freya Kong from Bank of America. Please go ahead. Your line is open.

Freya Kong — Bank of America Merrill Lynch — Analyst

Hi. Good morning, guys. Three questions please. That 11% claims inflation figure you provided, was this an average across the first half and did inflation accelerate throughout the half? And what gives you confidence that the 11% is about the right assumption for the full year?

Secondly, in International, the loss in the U.S. was a bit bigger than expected. What is your longer term outlook for this business given the scale seems quite hard to come by?

And third question back on U.K. Motor. You are a very large market participant in this market and you’ve been calling for rate increases for over a year now. What are you seeing in the market that’s prevented this so far and why has it been so undisciplined? Thanks.

Milena Mondini de Focatiis — Group Chief Executive Officer

Thanks. So Adam will answer the first question.

Adam Gavin — Deputy UK Claims Director

Hi, Freya. So the 11% in the first half and we’ve outlined in the presentation, some of the uncertainty in the moving parts around that. So it’s really difficult to say if it’s accelerated or decelerated when you’ve got some of the changes we’ve seen in residual vehicle values and the potential risk around future inflation on the cost of care. So 11% is really our soon to be prudent pick on where we think it will land. We don’t expect material changes to that in the second half of the year, but just noting the uncertainty we’ve outlined previously and what that might do. Thanks.

Milena Mondini de Focatiis — Group Chief Executive Officer

And Costi will pickup the one on U.S. and then Cristina on the U.K pricing.

Costantino Moretti — Head of International Insurance

Good morning. So I said and in the U.S. full-year, disappointed with the financial results and also conscious that we can’t accept the size of losses. We have taken very strong actions and we expect to see results of those in the near-term. It is also fair to say that we have observed that unprecedented level of inflation that hit the world market. No one was immune and Elephant included. This also offset some of the good things we have done in the business to improve results like shifting to six-month policy for example to improve the loss ratio, and shifting towards agency channels, which help us to have access to more profitable customers. So we continue to closely monitor performance, adapt accordingly our strategy and again, ready to take forcible actions if needed.

Cristina Nestares — UK Insurance Chief Executive Officer

And then in terms of the market rates in the U.K., first of all, it’s hard for us to comment on what is different for your different competitors. They might have a different attitude towards growth. However, we have seen signs of the market increasing prices. We quoted Pearson Ham and we said that for new business, price comparison market has increased 7% prices from March to July. I would say that in general, the U.K. Insurance market is rational and we have seen cases of these in changes like Ogden or the FCA pricing implementation. It might take long time, but in general, they tend to be rational. And finally, just to say that in Admiral, we will always,always maintain a disciplined pricing approach.

Freya Kong — Bank of America Merrill Lynch — Analyst

Thank you.

Operator

[Operator Instructions] We are now going to take our next question. Please standby. Our next question comes from the line of Kamran Hossain from JP Morgan. Please go ahead with your question.

Kamran Hossain — JPMorgan Chase & Co. — Analyst

Hi, good morning. Two questions. The first one is on Elephant. Just interested in how long you think it’s going to take to close the gap between claims inflation and pricing? I guess, all the numbers we’ve seen out of the U.S. has been pretty terrible. It sounds like it might take some time for that to recover. So just interested in how long potentially elevated losses from Elephant might last?

The second question on U.K. Motor. My reading or my understanding of kind of what you said today is that you’ve baked in cost is also bad news, so claims inflation etc. We haven’t necessarily recognized so much for the good news, so large bodily BI, being cautious on that frequency, whiplash, etc. Can you maybe kind of talk about how that looks on balance whether they actually this is kind of an abnormal number where it’s pretty prudent or whether you think it’s more balanced and has kind of both good news and bad news baked in? Thank you.

Milena Mondini de Focatiis — Group Chief Executive Officer

Costi?

Costantino Moretti — Head of International Insurance

Yes, on the Elephant, it’s early. It’s early to say and to give specific guidance, but what I can say is that when I refer to strong actions, I mean that we have increased prices significantly more than market and so we move our prices up to 23% and so we see, so we expect to see results coming over in the near-term and we continue to closely watch performance and the progression of business metric and to improve bottom line and improved loss ratio is our key priority there.

Milena Mondini de Focatiis — Group Chief Executive Officer

Maybe, I would just add on that, one of the future of U.S. market differently from U.K. is that the policy tend to be six months policy. So you also have more opportunity to adjust rate. Partial counterbalance to that is that there is a lag time between the moment you decide to or you want to do a rate increase in the moment, you can’t implement it because you need to file on the rate increase to the regulators. But the six months policy feature usually help in being a bit more agile in terms of reacting to markets.

Adam, do you want to pick up the question on claims, overall balance?

Adam Gavin — Deputy UK Claims Director

Hi, Kamran. Thanks. So I think your question is what the moving parts on bodily injury, and the 11%. So if you look at whiplash, we’re baking in some assumptions on claim frequency at day one. What we don’t understand is the drop-off rate after that at the minute, and we want to understand that for another six months or so. So, that may change the dynamic positively, it may not, but we’re not really taking any credit for that at the moment.

Large BI is difficult. It’s volatile and we’ve outlined some of the uncertainty on that. So when we get to places where there’s uncertainty, we tend to respond prudently and we think that our response and our estimates are proportionately prudent. So that’s probably about it on BI.

Kamran Hossain — JPMorgan Chase & Co. — Analyst

Thanks very much.

Operator

Thank you. We are now going to take our next question. Please standby. Our next question comes from the line of Alexander Evans from Credit Suisse. Please go ahead. Your line is open.

Alexander Evans — Credit Suisse Group AG — Analyst

Hi. Thanks for taking my questions. Firstly, I just wanted to understand some of the growth dynamics that you exhibited in the first half. It looks like retention was very positive, but you’re saying you sort of priced ahead of the market here and still growing by 4%. Maybe if you could just give a little bit of color on how you performed in new business relative to the market and what do you think that the big drivers of what you’ve done relative to the market? That would be helpful.

And then secondly, just on bodily injury and reserves. So I just wanted to understand a little bit around what you’re saying around your wage inflation assumptions because if we look at the sort of earnings, that’s sort of 6% to 7% increases. How does that correspond to where you currently are and what does that mean, sort of on a go-forward basis if for these cohorts? Thanks. Sorry, I just to clarify, does that mean that you’ve taken some of the assumption changes already or is that to be done when they ASHE index comes out?

Milena Mondini de Focatiis — Group Chief Executive Officer

Thanks, Alexander. Cristina, do you want to start with U.K.?

Cristina Nestares — UK Insurance Chief Executive Officer

Yes. Our growth of 4% includes some growth of [Indecipherable]. So, when we look at Car, the growth is less than 3%. The main reason, as we discussed for this growth is very high retention, which was the increase then to the FCA was even higher than for the market. And in terms of new business and as you point out, our market share has been dropping strongly in the second quarter as we started putting prices up ahead of the market.

Adam Gavin — Deputy UK Claims Director

Hi, Alexander. So on large bodily injury. We have basic assumptions on inflation, which already within our best estimates and what we’ve done this time is that probably for extra inflation in some parts of large BI, we’ve been through an exercise our actuarial team where we looked at areas of large claims we think may be more susceptible than others to inflation in the build scenarios around that. So I’m not sure we can give any numbers on it, but it’s an actual prudence that we’ve added, based on where we think ASHE is going.

Alexander Evans — Credit Suisse Group AG — Analyst

Thank you.

Operator

Thank you. We are now going to take our next question. Please standby. Our next question comes from the line of Ivan Bokhmat from Barclays. Please go ahead. Your line is open.

Ivan Bokhmat — Barclays — Analyst

Hi. Good morning. Thank you very much. My first question would be a clarification, if possible, on the pricing and the average premium in U.K. Motor. We’ve been talking for a while now about inflation in the mid-to-high single digits. When I look at your average premium in Motor for the first half, it’s down 5%. So I just wanted to understand, how should we think about it going forward and how would those rate increases that you’ve applied now are going to translate into the actual top line of the business? Is there any mix effects that offset the rate increases? Is it just the back book rate adjustments that you had to take earlier in the year that weighed this down? Maybe any color on that would be very useful.

And the second question, please. It’s on the net other revenues, also in the U.K. Insurance. I noticed that there are number of flat or even slightly down in absolute terms, despite a very strong increase in customer numbers. Maybe you could elaborate on what is different? Is it a different buying pattern? Is it the cost of the add-ons that has come down? And what’s kind of outlook you have going forward. Thank you.

Milena Mondini de Focatiis — Group Chief Executive Officer

Thank you. Yes. Good morning. You were asking what are the elements impacting a premium. As you said in the first half of the year, our average premium is down, and that is mostly down to the change in mix resulting in after the FCA pricing change. Basically, renewals has become a bigger proportion of our book and renewal has a lower average premium. So, that is what explain the decrease in premium.

As you also pointed out, it is very clear that the premium in H2, the average premium, it’s going to increase as the prices that we have been putting since March, is there to feed through. So yes, you should definitely expect an increase in average premium coming in the next few months.

Then you asked about additional income. When you look at it by customer, it has actually remained quite flat versus last year, but it’s true that if you look at the last few years, it’s been coming down. We’ve been very open about these and the key reasons behind is, the first one is, move to digital, more customers buy online and they tend to have a lower or they tend to buy less additional products. Secondly, is the whiplash reform, which has meant that the cost of the motor legal protection is higher and we take a smaller margin. And then thirdly, it’s that as frequency comes down, the income that we make at claim stage is also reduced. For the future, we don’t expect a significant change to the additional income that we make per customer.

Ivan Bokhmat — Barclays — Analyst

Thanks a lot.

Operator

Thank you. We will now take our next question. Please standby. Our next question comes from the line of Greig Paterson from KBW. Please go ahead. Your line is open.

Greig Paterson — Keefe, Bruyette & Woods, Inc. — Analyst

Hello, everybody. Can you hear me?

Milena Mondini de Focatiis — Group Chief Executive Officer

Yes, Greg. We can hear you.

Greig Paterson — Keefe, Bruyette & Woods, Inc. — Analyst

Yes. Three quick questions. One is, so it’s a specific number in the first half on a written basis, what was the year-on-year average rate increase. I know you’ve given since whatever, but I just want a year-on- year rate increase.

Second question is, you talked about 11% claims inflation year-on-year. But if you look at miles driven, I mean frequency provides a 25 percentage or 30 percentage points tailwind. So am I correct that that 11% doesn’t include the normalization of driving patterns because when we had a lockdown last year? I’m just trying to understand what is included in that 11% or not?

And then thirdly, I noticed most for the full year last year, you had a negative headwind for reinsurance caps in U.K. Motor which is very unusual. I wonder if you could just explain what’s going on with that? Thank you.

Milena Mondini de Focatiis — Group Chief Executive Officer

Okay. So, I think, Cristina take the first, Adam, the second and then Geraint.

Cristina Nestares — UK Insurance Chief Executive Officer

Yes. Good morning, Greg. In terms of price changes, as we mentioned during the presentation, there are two types of price changes that we have done this year. The first one is related to the implementation of the FCA pricing reform. What we did at the end of December, but really came in force in January was an increase in new business prices of around double digits and we also decreased our renewal rates by mid-single digits. Then after from March we started increasing prices for both new business and renewals to take account of inflation and overall, since then, we have increased prices around 16%.

Adam Gavin — Deputy UK Claims Director

Hi, Greg.

Greig Paterson — Keefe, Bruyette & Woods, Inc. — Analyst

What — Just to answer the question, what was the average year-on-year increase in premium right in the first half of this year versus last year when you take all that into account?

Cristina Nestares — UK Insurance Chief Executive Officer

Greg, I’m happy to comment on the rate increase that we did in the second half of last year. So you can compare it. So during the second half of last year. We maintain our new business prices flat. As you remember, we lost in terms of our time stop because we felt it wasn’t the right time to decrease prices.

Adam Gavin — Deputy UK Claims Director

Hi, Greag.

Greig Paterson — Keefe, Bruyette & Woods, Inc. — Analyst

Renewal prices loss, the second half of last year?

Cristina Nestares — UK Insurance Chief Executive Officer

Greg, as mentioned, what we did with new leases was keep them flat. We reduced a bit renewal prices, but we don’t give concrete figures at this point.

Greig Paterson — Keefe, Bruyette & Woods, Inc. — Analyst

Perfect. Thanks. And then how you delivered….

Adam Gavin — Deputy UK Claims Director

Realization of inflation, Greg. So that doesn’t take frequency reduction into account. So it’s our prudent estimate of claim cost without any change in the frequency.

Greig Paterson — Keefe, Bruyette & Woods, Inc. — Analyst

What was the frequency traded half year and a half year?

Adam Gavin — Deputy UK Claims Director

If you look at where the market is at the minute, the market is sort of around 10% lower. And I think that hasn’t changed materially from the half, in the second half of last year.

Greig Paterson — Keefe, Bruyette & Woods, Inc. — Analyst

And in first half?

Geraint Jones — Group Chief Financial Officer

And it was slightly lower in the first half because there was a lockdown in the first quarter of ’21, Greg, you might remember. So the first you have any business….

Greig Paterson — Keefe, Bruyette & Woods, Inc. — Analyst

So there was a 70% miles driven first half last year, this is 100% now. So I’m just trying to look at like-for-like. First half of last year versus the first half of this year, what was the frequency tailwind?

Adam Gavin — Deputy UK Claims Director

I’m not sure it is tailwind. The other way around. I think so frequency was higher in ’21, sorry in 22 H1 than it was in ’21 H1 for that reason. Sort of figures you talk about Greg and not too far away. But if they are impacted also by whiplash reforms as well, which has obviously reduced frequency.

On the caps on the quota share contracts, there are features in some of the contracts we have on U.K. Motor that effectively cap how much the reinsurer will contribute towards expenses, and so if our expense ratio tips above that cap, then obviously we bear a bigger portion of the cost. It’s sort of comes out in the well, it does come out in the wash through profit commission. So it doesn’t change the overall return to us. But can’t mean if the expense ratio is slightly higher, as it was for example, in the latter part of last year because of the restructure cost, that we bear a higher part of those expenses until it comes back through profit commission.

So that’s what’s happening there. No change to the overall level of profit that we would get from the reinsurance. Slight mix in terms of the lines in the accounts in which it flows.

Operator

Thank you. We are going to take our next question. Please standby. Our next question comes from the line of James Shuck from Citi. Please go ahead. Your line is open.

James Shuck — Citigroup Inc. — Analyst

Hey. Thank you, and good morning. So first question is just on the Ogden rate and the outlook. Do you have any insight into the timing or any potential Ogden review? And can you just remind me what you are actually preserving at in terms of the Ogden rate and any insights into the kind of propensity to take PPI versus posted lumpsum would be helpful?

Secondly, just returning to kind of Slide 19, I think it was, you were talking about U.K. Motor market in general. I mean everyone on that slide, it seems to be pricing ahead of the market and I appreciate that. Some of those lines are probably just the larger players. But if you can who is being so competitive? Not necessarily unless you want to need to mention names, but is it new entrants, smaller players or short tax? Just trying to get a feel because everybody we’re speaking to, no one really seem to get mentioned but it’s them.

And then it’s just a quick final question, if I can. Any insight into how the cost of living crisis will impact kind of what policies are being bought in terms of stripping back some of those features, the outlook for add-on sales and any potential impact on trading behavior and other things that you’d like to highlight as we move into a very difficult recessionary type period? Thank you.

Milena Mondini de Focatiis — Group Chief Executive Officer

Great. Thank you for your questions. So if we think about Ogden, then I think it’s a bit early to comment and to speculate too much at this time, considering that the five-year guidance is during 2024. So we’re quite some time away, a bit too early, but in general, what I would like to remind you that we continue to control reserve very conservatively and make sure that we have a strong position to react to change as they come.

I think based on the number we see, if you had to run the formula now, probably it will result in a rate that is very similar to what we have today, but we need to see how this evolve in the next few years and there is also the potential of a dual rates that can change slightly the landscape. But just — yeah.

And I’m going to pass to Christina on the the second question.

Cristina Nestares — UK Insurance Chief Executive Officer

Yes. I think the second question might because the graph might be a bit misleading. In the graph in the gray lines, it says market, but all of them are individual players. So there is no market average included in that graph. Basically different players having different strategies.

James Shuck — Citigroup Inc. — Analyst

And then just on the cost of living impact?

Milena Mondini de Focatiis — Group Chief Executive Officer

Yes. So in terms of cost of living impact across the business, what we see, we have not seen yet any very material change in terms of the choice that the customer have. We do have for a broad range of product and they can decide, of course, to choose the one that is more suitable to their need and we’re very conscious that customer are suffering a lot of pressure in terms of the inflation, their own cost and try to be as helpful as possible, help the one having financial difficulties. We have dedicated team for financially vulnerable customer. But I would say that in general, at this stage we have not seen very material change in the portfolio and the mix of product and mix of ancillaries, and that’s true for insurance as well as the true for our lending business, and I would say that also across all the countries. But we’ll continue to monitor very closely.

James Shuck — Citigroup Inc. — Analyst

Okay. Sorry, I missed what the actual Ogden discount rate is you do use at the moment?

Geraint Jones — Group Chief Financial Officer

James, in the best estimates, we reserve at the current Ogden rate. But as Melina pointed out, the the buffer above it, covers — I’m sorry, the buffer above the best estimates covers a huge range of very large downside scenarios, including Ogden.

James Shuck — Citigroup Inc. — Analyst

Okay. Great. Thank you very much.

Operator

Thank you. We are now going to take our next question. Please standby. Our next question comes from the line of Faizan Lakhani from HSBC. Please go ahead. Your line is open.

Faizan Lakhani — HSBC Holdings plc — Analyst

Hi. Good morning. Thanks for taking my questions. The first one is, some of your peers are pointing to delays in settlement of large bodily injury claims, whereas I think you suggested that it starts to normalize. I just wanted to compare how you’re seeing that?

The second is once again on an inflation. So talk through a different way. Could you try and provide some indication what the back book releases would have been if you hadn’t loaded for access inflation?

And my next question is on investment income. You seem to have increasing proportion of Triple-A-rated bonds. Given that you are relatively prudent versus the market on the rising interest rates, is there an opportunity for you to sort of tap into a higher interest rate environment and either adjust durations or move down in credit rating to increase that side? Thank you.

Adam Gavin — Deputy UK Claims Director

Hi, Faizan, its Adam here. So on BI settlement speed. I’ll break it down into whiplash and non-whiplash. Obviously whiplash the settlement is still suppressed. We are starting to see them rise. Will hopefully give us further clarity on that in the future. Seemingly, in the next 6 to 12 months, we think the outlook should be a bit clearer. On large BI we made some really great strides during the early days of the pandemic and really decreased our settlement speeds. Naturally that starting to recalibrate a bit in there and was down to settlement speeds normalize in large bodily injury, but obviously these are things we spend a lot of time talking to the actuaries about to make sure that any change in patterns are well accounted for. But we feel back to a more normal position now after a couple of years of a really strong settlement speeds.

Geraint Jones — Group Chief Financial Officer

Faizen, Geraint here. So, size of the release, had we not made the appropriate allowance for inflation, we’re not giving that number. Obviously the movements in the best estimates would have been bigger had we not built in the allowance. On investments we’ve made small shifts I think in the portfolio in the first part of this year, particularly some shift into U.S. government bonds, which provided some, what we thought were very attractive rates and the early part of this year. We’ve not really changed our strategy at all. Don’t expect to change in the short-term and certainly to really think it’s the time to go chasing yield through moving down, up the risk curve.

You are very fair to say that the rate of return that we expect as we reinvest maturities in the second half is quite materially better than it was in the first part of last year, second half of last year. Yeah. GBP4 billion worth of investments there about just under to the outlook is a bit better.

Faizan Lakhani — HSBC Holdings plc — Analyst

So, just coming back to the reserve. So I know you can’t present a figure, but just in terms of 28% reserve releases, even with an inflation load, I mean that’s well above your guidance. Is that just the case that you’ve been so prudent, then you can release well above your sort of normalized guidance?

Geraint Jones — Group Chief Financial Officer

I think it is partly about the level of prudence. It’s partly the release of the uncertainties that we built in for COVID. It’s partly because net earned premium was slightly lower, half year-on-half year. So that helps the percentage. But yes, mainly the level of prudence we built into those reserves in the first place, we’d expect it to be pretty high for the short-term because of the level of the margin.

Operator

Thank you. We are now going to take our next question. Please standby. Our next question comes from the line of Nick Johnson from Numis. Please go ahead. Your line is open.

Nick Johnson — Numis Corporation — Analyst

Thank you, and good morning. Two questions. First one is a follow-up on claims frequency. So, sorry about that. The question is, what level of claims frequency relative to 2019 do you have in current year, best estimate reserves? I’m trying to get a and a feel for how much of the reserve buffer could be eaten up if frequency fully returns to 2019 levels. Thanks.

And the second question is on U.K. Motor customer volumes. So the Slide on 19, it looks like average retention fell in June. Just wondering, have you see a corresponding pickup in new business during the same months given that market retention is also down? Thank you.

Milena Mondini de Focatiis — Group Chief Executive Officer

I am afraid this is also for Adam.

Adam Gavin — Deputy UK Claims Director

Thank you, Milena. So I think the market reporting 10% also reductions versus 2019 and where I think we’re broadly similar in our outlook and broadly similar in where we are from a reserving perspective. As Geraint mentioned, obviously our margins or the best estimate allows us to be secure on that.

Nick Johnson — Numis Corporation — Analyst

Thanks.

Cristina Nestares — UK Insurance Chief Executive Officer

And in terms of retention, it’s not surprising that as we are seeing price increases in the market in new business, we’ve seen an equivalent reduction in retention, both, for the market and for us.

Nick Johnson — Numis Corporation — Analyst

But has there been a pickup in new business for the same time?

Cristina Nestares — UK Insurance Chief Executive Officer

The size of the market has increased a bit, yes. In the case of Admiral, because we are increasing rates higher than the market, we’re actually reducing our share. But yes, there has been a pickup.

Nick Johnson — Numis Corporation — Analyst

Okay. Thank you very much.

Operator

Thank you. We are not taking further questions at this time. So I’ll hand the call back to you.

Milena Mondini de Focatiis — Group Chief Executive Officer

Thank you, all. Thank you for joining us, for your interest and your questions, and I would like also to take the opportunity to thank all the Admiral staff that has been working incredibly hard to deliver these results and to serve our customers. We’re very pleased that once again we can confirm GBP1,8000 through our employee share scheme for our 10,000 colleagues across the globe. Thank you very much, and have a good day.

Operator

[Operator Closing Remarks]