Hello, everyone, and welcome to the Direct Line Group IFRS 17 teaching call. My name is Daisy, and I'll be coordinating your call today. You will have the opportunity to ask a question. If you would like to register a question, please press star one on your telephone keypad. Please kindly only ask two questions to allow everyone the chance. I would now like to hand the call over to your host, Neil Manser, the Chief Financial Officer at Direct Line Group to begin. Neil, please go ahead. Thanks, Daisy, and morning, everyone, and thank you for joining us for our IFRS 17 briefing this morning. Now, I know you've sat through many of these presentations over the past few weeks, so I'm going to keep the comments up front brief, only referencing a few pages in the pack we sent out, and then we can get into any questions you have. The key messages we want you to take away from today are set out on slide two. First, and most importantly, these accounting changes do not impact the economics of our business or our dividend paying capacity. Secondly, the standards will drive several presentational changes in the income statement and balance sheet, which we think improves comparability between companies and should be beneficial for investors. Thirdly, the accounting choices we've made will improve alignment between reported earnings and capital generation under Solvency II. Fourthly, we expect there to be a modest reduction in equity on transition, largely due to the treatment of acquisition expenses. We expect similar reserve strength with reserves set at around the 75% confidence level. Finally, we plan to use net insurance margin as our key performance measure, and we'll set out our targets on this basis alongside our full-year 2022 results. Let's take each of these points in a bit more detail. I'm going to start on slide five to orientate you around the high-level income statement before I go into our policy choices. It's important to state here that this is the management view of the income statement, and the statutory view will be a slightly different presentation. We have a new headline revenue measure that replaces net earned premium called net insurance contract revenue. This will now include elements of other income as well as premium. After deducting net claims expenses, we arrive at the Insurance Service Results. This replaces the underwriting results and again includes elements of other income currently reported separately, for example, installment income. On the management view, we intend to report operating profits as the insurance service result plus investment income and non-insurance activities. Below operating profit, we will capture the changes in fair value of assets and the movement of discounting liabilities in one place. There are a number of more detailed changes to where elements of income and costs will be reported. These are set out on slides eight and nine. Let's turn to the accounting policy choices on slide six. The accounting choices we've made are designed to improve alignment between earnings and capital generation. Our contracts qualify for the Premium Allocation Approach or PAA, as virtually all of our insurance and reinsurance contracts are for one year, we'll continue to earn on a straight line basis. For next year, premiums will include installment income and other similar income, which will also be earned on a straight line basis. Moving down to acquisition costs, where today we defer these to the balance sheet. For next year, we'll expense all our costs as incurred, which again brings it into line with the treatment under Solvency II. The nation of claims are the biggest change under IFRS 17. Today, we discount only our PPO liabilities, under IFRS 17, we will discount all of our claims liabilities. This means there will be much closer alignment between IFRS and Solvency II, with small differences only arising from the illiquidity premium used under IFRS versus the volatility adjustment used under Solvency II. For debt securities, we've chosen to recognize unrealized gains and losses in the income statement to match our liabilities rather than in equity as they are today. On slide seven, you can see that in addition to the measurement changes, the standard introduces new terms and acronyms for the components of claims reserves. The chart shows that the current IFRS 4 management margin is removed under IFRS 17 and Events Not In the Data or ENIDs are added. A risk adjustment is then applied around the 75% confidence level before the total is discounted. There are two new acronyms that I suspect by now you're familiar with, the BEL or best estimate liability and the LIC or liability for incurred claims. In summary, we will hold a similar level of reserve strength and the changes bring us much closer in alignment with Solvency II. I'm going to move to slide 10 and the opening balance sheet. The headline is that there is a modest reduction in equity and the waterfall shows the main movements. The removal of deferred acquisition costs is largely offset by a reduction in claims liabilities, including discounting. As you can see, the changes are straightforward. Finally, a few words on KPI on slide 11. As I mentioned up front, we've opted to change our headline metric from combined ratio to net insurance margin. There are a few reasons for this. The main reason is that we believe it's a better measure of how we run our business, as it includes income that currently sits outside of the combined ratio. We also think it's easier to compare insurers on this basis. Lastly, it's a measure that is more in line with other retail industries. We will set out our targets on this basis alongside our full-year 2022 results. That's all I want to cover today. You can see that the changes for us are relatively straightforward, and we believe the way we present the P&L going forward will be helpful. I'll now hand back to Daisy to open the line for your questions. Thank you. If you would like to register a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure you are unmuted locally. Please kindly only ask two questions to allow others the chance. That's star followed by one on your telephone keypad to register a question. Our first question today comes from Freya Kong from Bank of America. Freya, please go ahead. Your line is open. Freya. Hi, good morning. Hi, Neil. Just checking on the breakdown of the insurance contract revenues. Are you going to give us a split of the NEP and the other income or installment income? Are we going to get that sort of granular detail? Secondly, am I right in thinking that you're going to put the discounting of liabilities for insurance finance expenses below the operating profit? Thanks. Thanks, Freya. Yes, on the first one, we should get all the detail in the notes of the accounts. We'll split out the movement, the premium line, and then the contribution from other income into the insurance, contract revenue. You should be able to see, you should be able to see all that quite clearly when we come through. Mm-hmm. Then on the discounting, what we've done is we're gonna put all that through one line. It's in the net finance expenses number. That captures all the discounting impacts in the market movements. It's all in one place. Okay, that's below the operating profit because this is your management view, right? Yeah. Exactly. Exactly. Okay. Okay, cool. All right. It's more comparable to what we have now, I guess. Yeah, we're trying to create a line that is a clear line, for you to judge our performance against. Okay, thank you. Thank you. Our next question is from Thomas Bateman from Berenberg. Thomas, please go ahead. Your line is open. Hi, good morning. Thanks for taking my questions. Just the first on the discount rate. Can you just give us a bit of a guidance that maybe the level of discount rates that you're using? You know, what the illiquidity premium might be? The second question is just on the DAC. Can you just give us an idea in terms of 'cause I assume, we'll have a slightly higher cost next year and slightly lower costs moving forward. Can you just give some kind of order of magnitude of that? Thank you. On the first question, illiquidity premium, it depends where you are on the curve. For short duration, it's pretty minimal actually. As you go further out, it becomes greater. It's, I would say the further you go out, it's somewhere between 100 basis points and 200 basis points, but it would depend a lot on where markets are, and obviously it's changed quite a lot over the course of this year. It's very, quite minimal short term. Gets increasingly greater as you go out through the curve. I didn't quite understand the second question. Can you say it again, Tom? Yeah. Because we're changing from deferring acquisition costs, I guess we have slightly higher costs in year one, as you write them off. Is that fair? Maybe what's the impact of deferring the costs, next year? Yeah. I get you. I'm sorry. It depends very much on the growth rates. In a normal year, you wouldn't. In a year where you're fairly flat in terms of your new business flows, you wouldn't actually expect to see any difference because you unwind the DAC is equivalent to your new acquisition costs going in. Clearly, in a year, if you have very strong growth, you will see some new business strain coming through. It will very much depend on the new business growth year on year to assess whether that's a drag or a positive. Okay, answered. Thank you. Thank you. As a reminder, if you would like to register a question, please press Star followed by one on your telephone keypad. Our next question today is from Faizan Lakhani from HSBC. Faizan, please go ahead. Your line is open. Hi, Faizan. Morning. How How are you doing? I just had a question on Solvency II in terms of the flow from IFRS 17 now into capital generation. Currently, you have sort of a CapEx strain in there. Will that still be there, going forward? I just want to understand that clearly. Thanks, Michael. What we've tried to do is align as much as we can. Clearly, there are some things that will not align between IFRS earnings and Solvency II. Our CapEx is one of them. We'll continue to amortize through the IFRS 17 P&L. In the Solvency II effective CapEx, we'll take you the internals are written off, and then you'll see the CapEx going through the Solvency II. It'll be the same as today. We can't align that because the accounting treatment is just different. Okay. Thank you. Second question, obviously currently all of your guidance is set on current IFRS thinking in terms of combined ratio targets and so on. Will you be providing revised guidance and will that broadly match in terms of waterfall to what we have right now? We'll do all that at year-end, Faizan. We go, what we're very keen is that we can take you on the walk between existing targets and those targets under IFRS 17. Okay. It's not a case of you'll be looking to change the targets. It's more just sort of a new way of looking at them. Yeah. Yeah. It would have to be restated because of the different numbers going in. We'll take you through that journey at the year-end. Great. Thank you very much. Thank you. Our next question is from William Hawkins from KBW. William, please go ahead. Your line is open. Hello. Hey, Neil, thank you. Again, apologies if my questions betray ignorance because this is a learning process. A couple of things that you guys are doing seem to be quite different from what I thought was the emerging standard under the CFO Forum. I just want to clarify whether it's my understanding that's wrong or whether you've deliberately deviated, and if so, what the logic behind that is. My first understanding is that the big companies across Europe applying the PAA, the liability volatility from interest rate movements on past periods is being taken through OCI rather than through the main P&L. It seems to me that, again, unless I've misunderstood, that yours is carrying on going through the P&L. Secondly, your combined ratio definition seems quite materially different. I mean, the other companies are sort of seeming to deviate. They seem to balance towards claims and expenses divided by gross earned premiums. You seem to have a very different metric. I mean, I'm not making a statement about what's better or worse. I'm just trying to understand, you know, if there are differences, and if so, why they're there. Thank you. Thanks, Will. On the first one, I don't think we're intentionally different. I mean, we've just chosen to put everything through the P&L because we think that's a simpler approach. Have everything in one place rather than trying to bifurcate between P&L and OCI or balance sheet and P&L. I think that's actually easier for people. No, no intention to be different. We just think actually that's an easier way to capture it all. On the second one, you know, internally we now quite debate about what the right metric going forward. We think the metric should reflect your business model rather than just pure accounting. That's why we've moved to a more retail type metric, because combined ratios never really worked for retail insurance. Some of the companies you're referring to will might be less retail and more commercial, as an example. Actually we have, we generate quite a lot of income outside the combined ratio. We think actually to make it more, actually easier for investors to understand, moving to a margin measure or a retail margin measure is actually easier. Certainly if you were a pure commercial insurer, then combined ratio still does make some sense. Although I would say, well, it seems to be lots of different. From stuff I read, lots of different definitions for how people get to a combined ratio, even under IFRS 17. Yeah, for sure. Got it. Thank you. Thanks to your colleagues for the hard work. Thanks, Will. Thank you. Our next question is from Ben Cohen from Investec. Ben, please go ahead. Your line is open. Hi there. Good morning, everyone. I had two questions, please. Apologies if the line's a bit crackly. How material do you expect onerous contracts to be in the sort of, in the course of, you know, in the course of time? Where do you see on what sort of lines do you think that would be incurred and how quickly will they sort of unwind? The second question was just what sort of length of history will we get to compare for the new metrics, particularly, I suppose, around your replacement for the combined ratio, but also maybe with regards to reserving? Are there gonna be any material changes in terms of how the reserve triangles would look? Thanks. Thanks, Ben. On first onerous contracts, we don't expect any onerous contracts. Partly that's because we're expensing acquisition costs upfront, which is normally where you would potentially see onerous contracts, where you've got very high new business growth. Because we're expensing that, we wouldn't expect any of the contracts to be onerous on an accounting basis. In terms of history of disclosure reserving, our intention was to do effectively a 10 year reserve triangle. I haven't seen it yet. Hopefully there's no nothing odd in there that would prevent us doing that, but that's certainly the intention. It'd be gross of discounting. We should make sure we see how that looks, make sure it does make sense for you. On the margin, let me take that one away. I mean, clearly we'll have it for, the years that we're doing IFRS 17 for. You can kind of, You can work up a crude estimate of it from the current IFRS 4 P&L actually. Let me take that away, see if we can, we can improve that slightly with a bit of history. Okay, great. Thank you. Thank you. Before we take our next question, I would just like to do one final reminder. If you would like to register a question, please press star followed by one on your telephone keypad. Our next question is from Rhea Shah from Deutsche Bank. Rhea, please go ahead. Your line is open. Thanks for the presentation, Neil. Just two questions. How should we think about reserve releases going forward? Secondly, I completely understand that there's no change to your dividend paying capacity. Will you be linking the dividend to IFRS earnings going forward, or just using the same policy that you currently have? Thanks, Rhea. Morning. I'm gonna say no change actually to both of those. I mean, given the reserve strength is similar under IFRS 4 and IFRS 17, there shouldn't be any accounting reason for a change in the reserve releases coming through. On dividend, again, no change at the moment. That's, the current policy is pretty clear, I hope. Yeah. Thank you. Thanks. Thank you. We have no further questions. I'll hand back over for any closing remarks. Thank you all. I really appreciate it. We're never quite sure how long it'll run because you're probably all quite bored of IFRS 17 presentations by now, although I know there are a few more this week. I really appreciate the questions. If you have anything else, then please just pick up the phone to Paul or me and we'll try and work it through. Otherwise, have a fantastic, slightly snowy day. Thank you everyone for joining today's call. You may now disconnect your lines and have a lovely day.