Admiral Group plc (OTCPK:AMIGF) Half Year 2022 Earnings Conference Call August 10, 2022 5:30 AM ET
Company Participants
Milena Mondini – Chief Executive Officer
Geraint Jones – Group Chief Financial Officer
Cristina Nestares – Chief Executive Officer-UK
Adam Gavin – Deputy Head-Motor Claims
Costantino Moretti – Head-International Insurance
Scott Cargill – Chief Executive Officer-Admiral Money
Conference Call Participants
James Pearse – Jefferies
Thomas Bateman – Berenberg
Freya Kong – Bank of America
Kamran Hossain – JPMorgan
Alexander Evans – Credit Suisse
Ivan Bokhmat – Barclays
Greig Paterson – KBW
James Shuck – Citi
Faizan Lakhani – HSBC
Nick Johnson – Numis
Milena Mondini
Hello, everyone, and welcome to Admiral’s Half Year 2022 Results Presentation. We’re pleased to report another period of strong growth across the business, excellent customer outcomes, and a 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, Geraint, our CFO, will give you more detail on our financial results; Cristina and Adam, respectively CEO and Deputy UK Claims Director of UK 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 of 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 land 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 reduction as we charge in the market with 17% decrease in new business sales, the invasion of Ukraine in February also intensify challenge in the supply chain.
In the face of this turbulent environment, we deliver 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 UK where our retention increased by 7 points benefiting also from the boost of the FCA reform. We deliver £251 million of profit across the group. These, as expected and as we anticipated in March, is materially lower than 2021 that 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, to a 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’re achieving 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 the larger and more diversified business than six months ago, and importantly is well-positioned for the future. Indeed, in a 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’ve witnessed Brexit, war, fuel and chip shortage and COVID-19, and more specifically to insurance we have navigated Ogden changes and the FCA pricing remedy. Collectively, these events 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, failing to balance out recent trends, it’s clearly lagging claims inflation. Outlook remained 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 we look at Admiral results, we see a clear track record of navigating old 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, we flee across markets, particularly in the UK and 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 site. Second, we effectively implemented the complicated FCA pricing reform, and we maintained a prudent approach to reserving and a cautious forward-looking view of inflation and sustain a high solvency position and provision for loans, and all these 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 slides 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 and new products now making up more than 40% of our customer base. And it’s great to see the more mature product as a household and bond 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 a 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 liked what they do and that’s why they do it better. And so it’s very encouraging to see the engagement score so strong throughout the transition to hybrid working. And our ambition goes beyond the Admiral family. Would like to make a broad, 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 in time of changes.
Let me give you just a few example of our progress. Starting with Admiral 2.0, a few months ago, I outlined the launch of our new claim system in UK Household. And after a successful release, we have now rolled out to the same system in UK Motor. And we’re very excited about the improvements that these will bring to our customers. We are also excited about the advantage, the convenience and the competitiveness of our multi-cover product that is growing and is very central to our diversification strategy.
Almost 700,000 customers join Admiral for bond, shorter motor insurance, household travel loans and small business products. And it’s great to see how we manage to transfer some of our competitive advantage from motor into other lines of business. This will improve 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 over more in details of our financial results.
Geraint Jones
Thanks Milena. Good morning, everyone. I’ll talk through the main points from our first half results, looking at a solid profit and pleasing growth in the top line. I get 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 highlight worth remembering back to the first off 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 been replaced by elevated claims inflation, particularly in the UK 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 of £251 million and earnings per share at £0.67 are both lower by around a half. And with a payout ratio broadly in line with last year, the dividend based on the first half profit is a similar percentage lower at $0.60 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 as 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. Generally positive picture, all parts of the group grew year-on-year and in the first half of 2022. Lots going on, behind the numbers, of course, which I will cover through the presentation, but a few points to product.
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 divisive pace of our price rises has reduced competitiveness there.
International customer growth in Europe at least has accelerated into 2022 very encouraging results in difficult markets and U.K. Household growth has also spread up in the first half, which is good to see.
Admiral Money had a very good period and is reporting loan balances up around 70% year-on-year and 30% in the first half. We’re 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. And so this next slide picks a few key metrics and looks back to the first half of 2019 before the pandemic.
I’m showing here Group customer numbers and profit on the left and the same metrics for the UK Insurance businesses on the right. We see very decent, absolute and annual growth in each measure, solid progression in profits, including as Milena showed earlier, a continued and very strong level of outperformance on combined ratio versus the market in the UK 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 UK Insurance business too.
And so comparisons to a period and impacted 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 UK Insurance profit as flagged previously. Hopefully, the results, sort of the reasons are fairly evident, but more detail on the Motor result very shortly. Good performance from UK Household, despite a pretty big impact from exceptional weather in the first half.
And second, the worst result from our International Insurance businesses. There was a small and actually pleasing profit from European Motor given the market context, but it was significantly offset by the U.S. result, where a big jumping claims inflation led to a higher loss ratio and worse result. More on that in our response later on.
And finally, the first positive result for Admiral Money, small admittedly, but it came despite the 70% year-on-year growth imbalances 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 result. 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 £160 million, were lower than the prior period, which show a very large £200 million. And thirdly, profit commission, whilst not especially though at £70 million, that was around a £100 million lower than 2021. And that’s very largely down to the level of profitability in the immediately prior underwriting year.
In H1 2021 the book loss ratio for the 2020 underwriting year was 69% and already at a profitable level. Compare that to the current period with the book loss ratio for the 2021 year, is at 87%. So quite a bit higher and not yet booked at a profitable level. And that’s a much more normal pattern. That factor accounts for £90 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. It covers four periods and clearly shows 2021 H1 as the outlier.
Let’s take a deeper look now at loss ratios and reserves. This slide shows two charts, hopefully they are familiar. On the top we show the projected loss ratios by accident year with a change in that projection versus six months ago in the brackets. The movements are 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 a note that the final right hand bar is a six-month rather than full year movement.
We are estimating that average claims costs in the first half will be around 11% higher than 2021. That’s clearly still an uncertain number, but that’s what’s built into our best estimate. We’ve made appropriate allowance for higher inflation on open claims from back years too. And as usual, we don’t show a 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. And as noted on the slide, when we initially made the projections, we build an allowance for greater inflation than 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 booked reserves in the accounts remains very prudent, as you can see from the percentile bullet, and that’s hardly changed since the year-end. And therefore, we’re confident there will be continued significant reserve releases moving forward.
Moving away now from the results to look at the capital position and the interim dividend. Solvency is set out at the top. We continue to report a strong position at 185%. That’s very much in line with prior periods though 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 six-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 from the full year to the half year solvency position is also set out in the appendix.
And on the bottom of the slide, we set out the interim dividend information. We’re declaring a dividend in two parts again, firstly, £0.60 per share based on the first half earnings. That’s a 90% payout ratio. Plus, we’ll pay the final tranche of the Penguin Portals proceeds, as I mentioned earlier, which adds £0.45 per share and brings the total interim dividend to £0.105.
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 and with the rate of growth accelerating nicely in several places. Our consistent and conservative approach to reserving has helped us deliver a solid result for the first half, nicely higher than the pre-pandemic comparative. And we continue to enjoy a strong solvency position after paying out 90% of the first half earnings as an interim dividend.
I’ll pass you now to Cristina and Adam to talk to us about the U.K. Over to you, Cristina.
Cristina Nestares
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 Admiral remains well-positioned after the reform. Motor policies have grown by 4%, driven by this 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 move prices in line with the market. We increased new business prices by double-digits and reduce renewals by 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 the Pearson Ham premium tracker, and it only consider rate changes in price comparison website for new business. Note that in the past, we have shown a 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 strongly every month since. It’s important to highlight that according to our estimates, for the business we’re writing today, we consider 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 indexed to 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 bond. Admiral has one of the largest books in the motor market. So high retention is always good news. However, we can see that 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
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 of hybrid and remote working in the UK. 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 a perfect storm of inflation in repair costs and secondhand vehicle values. As a reminder, these two components are the key drivers for overall damage inflation, both for our customers and third-party claims. Looking at repair costs 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 UK.
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 increasing technology in new vehicles remains a structural driver of 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 life cycles, slowing the recognition of inflation on own damage and third-party damage. Our advantage in third-party assistance 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 secondhand vehicles linked to the slowdown in new vehicle production. At the full year results in March, we were 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 the one we showed you in March. Whilst we are clearly still seeing elevated inflation, there are signs that secondhand vehicle values may be starting to decrease. The outlook for this year remains volatile. However, we are hopeful that over the next 12 months to 18 months, we will see further rationalization in the value and supply of new vehicles increases, especially when combined with the potential impacts of a cost of living crisis on shopping habits in the UK. 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 that settlement levels are increasing, so hopeful of greater clarity in the next 6 months 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 on 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 claim is an incredibly complex and costly care regimes 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 the 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 ASHE index will rise when it’s published later in the year.
Another factor influencing the cost of care is a shortage of cares in the UK. The impacts of the pandemic and Brexit on the UK health and social care sector are well-documented, and this has created temporary challenges in placing carers in some parts of the UK, which is naturally having an inflationary impact. It’s worth noting this isn’t a particularly new feature. It’s a challenge we’ve been dealing with for a number of years now.
Whilst we’re acutely aware of the inflationary risks on the cost of care, it’s important to clarify that we currently aren’t experiencing any material changes in our large BI settlement costs. We’re monitoring the situation intensely, staying very close to the data, and our incredibly close ties and weekly meetings within claims, finance and pricing allow us form considered judgments on pricing and reserving.
Taking all of these factors across frequency, damage and bodily injury into account, we estimate claims inflation for 2022 to be in the region of 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 resilient 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 UK Insurance.
Cristina Nestares
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 secondhand 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 as they’ve 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, a reminder 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 was another period of good growth, driven by several factors, namely strong retention and also growth in our multi-cover proposition.
However, profits have been impacted by weather events in the first quarter, with an estimated impact of £10 million. We continue investing 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 investing 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 subsidence risk into the second half as we’re progressing through an unusual dry summer. This is all for the UK Insurance and now over to Costi to talk more about the international results.
Costantino Moretti
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 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’ll 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 the 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 were I drill down on Europe. Our three businesses on a combined basis have 50% more customers and 40% higher turnover than H1 2019 despite a 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 a qualified network of intermediaries, together with direct digital conversion improvements 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 France business, which has doubled the size of turnover in the last three years. The markets remain highly competitive with large players continuing to focus on retaining their customers and new incumbents maintaining a very aggressive pricing strategy to rapidly grow their customer base.
Europe recorded slightly lower inflation than UK and U.S. during this first half, but we see early signs of premium increases in Q2. In this context, we had room to adapt 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 materially influences the combined European results.
Despite this market shift, we believe that ConTe 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, reports a materially higher loss due to strong claims inflation that reached and presented high levels across the market. We have taken strong measures to reduce 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 recovered to pre-COVID levels already in early 2021.
And second, severity that after a slower 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 grow registered is all coming from the recently developed agency channel, which helps to gain access to more profitable high-tier customers at an 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 remain uncertain, I expect our actions will make an impact.
Thank you. I hand over to Scott to present our fascinating loans business.
Scott Cargill
Thanks, Costi. Good morning, everyone. To start my section, a few key highlights on the performance of the Admiral Money business. It has been a strong performance in the first half with gross loan balances growing 68% since half year 2021 to £787 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 living. We have continued our approach of retaining caution and our provision with coverage of 6.8%. Within this, we have increased the post-model adjustment for an anticipated future cost of living stress.
As Milena mentioned, we have reached breakeven for the first time, and the focus for H2 remains on sustainable growth with full year balance guidance consistent at £800 million to £950 million. The first half of 2022 continued on a similar growth trajectory to the second half of 2021, with new business volumes averaging £60 million per month.
Net interest income for the period has improved in line with balanced growth. And with our entity skill, digital focus and tight expense control, our cost to income ratio has also improved well in H1, reducing to 54%. Over 70% of our customers are already being serviced digitally, which sets us up well for further economies of scale as we continue to grow.
We’ve also seen some important business achievements in the half, including maintaining a net promoter score of 72, and achieving a trust pallet 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 provision conservative at £53.5 million, which includes a post-model adjustment of 23% or £12 million.
To reiterate, we’re 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
To conclude, we are proud of the solid results we deliver, robust performance in UK 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’re 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 this puts us on strong footing once the cycle will revert. Our strategy remain unchanged as well as our confidence in the strength of the business and the medium to long-term outlook. And for this, I’d like to thank all 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’re now ready to take questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from the line of James Pearse from Jefferies. Please go ahead. Your line is open.
James Pearse
Yes. Good morning, everyone. Congratulations on the results this morning. First question is just on your underwriting year loss ratio for 2022. So that’s at 93% in the half year. I’m 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 that in terms of the impact on future profit commissions? Because I guess that 93% loss ratio is higher than what it has been over the last decade.
And then I just have another question on commutations. So you said that you’ve commuted just over half of your reinsurance covering the 2020 underwriting year. I’m just wondering the reasoning behind that as I think this time last year the majority of your 2019 reinsurance has been commuted. So just wondering how we should be thinking about that. Thanks.
Milena Mondini
Thank you, James. Geraint will take the question.
Geraint Jones
Hi, James. Yes, the 93% – 92.5% is not too out of line with some of our earlier years. I think 2019, 2018, when they were first booked in the accounts, they were at or around that level. So it’s not especially that outlying. Now direction for the second half, I think it’s a tiny bit early to call. We’re not expecting a 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 at the last results or the results before that we were 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. So it’s a start of 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 where profit flows to in the accounts, but nothing material to report on that at this point. It’s just a timing thing, I think.
James Pearse
Okay. Thanks, guys.
Operator
Thank you. We will now take our next question – our next question comes from the line of Thomas Bateman from Berenberg. Please ask your question slowly. Your line is open.
Thomas Bateman
Hi, good morning, everybody. Congratulations on the excellent results, really affirming the bullishness at the premium company in the sector. Just on reserves, could you give a little bit of clarity over your PYD guidance? I know you said low 20s in the past. Does that still stand? And you alluded to a buffer for kind of inflationary pressures coming. Could you just put a little bit of context around that, how big it is, et cetera?
And then similarly, you alluded to some of the COVID allowance being unwound. How much was that? And is there any left? And just moving on to loans business, nice that you are finally 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, et cetera, do you think that could be in five years’ time maybe? That’d be really helpful. Thanks very much.
Milena Mondini
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 the unwind of the COVID, and then we’ll go to Scott on the loans.
Geraint Jones
Hi, Tom. Nice and slowly asked the question perfectly. 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, yes, as I always say, I think if 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 earned premiums. So I think that probably holds.
Just one on COVID buffers, we’ve taken COVID buffers, I can do that. We’d 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 those settlements and those patterns have returned to what we think is more normal level. So we’ve unwound that. I don’t think it’s needed anymore.
Thomas Bateman
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? Or maybe have I misunderstood in the past?
Geraint Jones
I think over time, we probably – it used to be mid-teens. And 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 and the size of it 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
And just on loans?
Milena Mondini
Costi, do you want to take the question on Admiral Money?
Costantino Moretti
Yes. Tom, just to give you an idea of how we think about it. We’re obviously very focused on sustainable growth, and we kind of decided how and when to grow just based on the macro. At the moment, as I mentioned in the presentation, we’re growing around £60 million per month. That’s the type of dispersals we’re doing. And if we continue to that level, over 18 months would be in the range of £1.2 billion, £1.3 billion.
So that’s a reasonable estimate for where we may be in the next 18 months. In terms of returns, a broad brush way of thinking about it is we target around about a 600 basis point NIM. We’ve shared that in the past. That’s before fees in ancillaries. So, when you think about maybe a 2% OpEx, 2% losses at scale, you’re getting to a return on asset 2% to 3%, which with our capital base gives us an implied ROE of around in the sort of early to mid-30s. So that’s how we’re thinking about the business midterm.
Thomas Bateman
That’s lovely. Thank you very much.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Freya Kong from Bank of America. Please go ahead. Your line is open.
Freya Kong
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 scale seems quite hard to come by? And third question is back on UK 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
Thanks. So, Adam will answer the first question.
Adam Gavin
Hi, Freya. So the 11% for the first half and we’ve outlined in the presentation some of the uncertainty and 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 the 11% is really our — excuse me, 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
And Costantino will pick up the one on U.S. and then Cristina on UK pricing.
Costantino Moretti
Good morning. So as I said, in the U.S., we are 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 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 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 further bold actions if needed.
Cristina Nestares
And then in terms of the market rates in the UK, first of all, it’s hard for us to comment on what [indiscernible ] besides your different competitors, they might have a different attitude towards growth. However, we have seen signs of the market increase in 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 UK insurance market is rational, and we have seen cases of this in changes like Ogden or the FCA pricing implementation, it might take a long time. But in general, they tend to be rational. And finally, just to say that in Admiral, we will always maintain a disciplined pricing approach.
Freya Kong
Thank you.
Operator
[Operator Instructions] Our next question comes from the line of Kamran Hossain from JPMorgan. Please go ahead with your question.
Kamran Hossain
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. have 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 UK Motor, am I reading or my understanding of kind of what you said today is that you’ve baked in quite a lot of the bad news, so claims inflation, et cetera. You haven’t necessarily recognized so much for the good news. So large bodily BI being cautious on that frequency, whiplash, et cetera. Can you maybe kind of talk about how that looks on balance, whether actually this is kind of an Admiral number where it’s pretty prudent or whether you think it is more balanced than it has kind of both good news and bad news baton.
Milena Mondini
Yes. Costi?
Costantino Moretti
Yes. On Elephant, 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 moved up prices up to 23%. And we — 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 improve loss ratio is our key priority there.
Milena Mondini
Maybe I would just add on that, that one of the features of U.S. market differently from UK 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 implement it because you need to file all 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
Hi, Kamran, thanks. And so you think your question is about 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 rates after that at the minute, and we will 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, yes, and that’s probably about it on BI.
Kamran Hossain
Thanks very much.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Alexander Evans from Credit Suisse. Please go ahead, your line is open.
Alexander Evans
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 the big drivers of what you’ve done relative to the market there, that would be helpful.
And then secondly, just on bodily injury and reserves. 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 for these cohorts? Thanks. Sorry, just to clarify, does that mean that you have taken some of the assumption changes already? Or is that to be done when the ASHE index comes out?
Milena Mondini
Thanks, Alexander. Cristina, do you want to start with UK?
Cristina Nestares
Yes. Thank you. Yes, our growth of 4% includes some growth for bonds. So when we look at car, the growth is up [indiscernible]. 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, 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
Alexander, so on large bodily injury, we have basic assumptions on inflation, which are already within our best estimates. And what we’ve done this time is that probably for extra inflation in some parts of the large BI. We’ve been through an exercise our actuarial team where we’ve looked at areas of large claims where we think may be more susceptible than others to inflation and the build scenarios around that. So I’m not sure we can give any firm numbers on it, but it’s an actual layer of prudence that we’ve added based on where we think ASHE is going.
Alexander Evans
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
Hi, good morning. Thank you very much. My first question would be a clarification, if possible, on the pricing and the average premium in UK 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 of it’s down 5%. So I just want 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 UK Insurance. I noticed that the number is flat or even slightly down in absolute terms, despite a very strong increase in customer numbers. Maybe you could elaborate on what is different there? Is it a different buying pattern? Is it the cost of the add-ons that have come down? And what kind of outlook you have going forward? Thank you.
Milena Mondini
Thank you. Cristina?
Cristina Nestares
Yes, morning. You were asking what are the elements impacting 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 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 explains the decrease in premium. As you also pointed out, it’s very clear that the premium in H2, the average premium, it’s going to increase as the prices that we haven’t put in since March start 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 this and the key reasons behind, the first one is a 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 is 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.
Operator
Thank you. We will now take our nest question. Please standby. Our next question comes from the line Greig Paterson from KBW. Please go ahead. Your line is open.
Greig Paterson
Hello, everybody. Can you hear me?
Operator
Yes, Greig, we can hear you.
Greig Paterson
Yes. Three quick questions. One is just 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 the year whatever, but I just want the 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 to 30 percentage points hit the tailwind.
So am I correct that, that 11% doesn’t include the normalization of driving patterns because maybe we had a lockdown last year. I was just trying to understand what is included in that 11% or not? And then thirdly, I noticed last – for the full year last year, you had a negative headwind for reinsurance caps in UK. Motor, which is very unusual. I wonder if you could just explain what’s going on with that. Thank you.
Milena Mondini
Okay. So I think, Cristina take the first, Adam the second and then Geraint.
Cristina Nestares
Yes. Good morning, Greig. 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, 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%.
Greig Paterson
But what – just to answer that question, what was the average year-on-year increase in – of rate in the first half of this year versus last year, when you take it all that into account?
Cristina Nestares
Greig, the – I’m happy to comment on the rate increase as we did in the second half of last year, so you can compare it. So during the second half of last year, we maintained 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.
Greig Paterson
And renewal prices last – the second half of last year?
Cristina Nestares
Greig, as mentioned, what we did with new business was keep them flat. We reduced a bit renewal prices, but we don’t give concrete figures at this point.
Greig Paterson
Perfect. Thanks.
Adam Gavin
Yes, the 11% inflation, Greig. So that doesn’t take fringe reduction into account. So it’s our prudent estimate of claim cost without any change to frequency.
Greig Paterson
What was the frequency headwind half year on half year?
Adam Gavin
If we 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 and the second half of last year.
Geraint Jones
It was slightly lower in the first half because there was a lockdown in the first quarter of 2021, Greig, you might remember. So the first half of this year versus the first half…
Greig Paterson
So there was a 70% miles driven first half of last year versus 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?
Geraint Jones
I’m not sure it’s a tailwind. So the other way around, I think. So frequency was higher in 2021 – sorry, in 2022 H1 than it was in 2021 H1 for that reason. The sort of figures you’re talking about, Greig, are not too far away, but they’re impacted also by whiplash reform as well, which has obviously reduced the 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 sort of comes out in – well, it does come out in the wash through profit commissions. So it doesn’t change the overall return to us, but can 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 reinsurers, but it’s a slight mix in terms of the lines in the accounts in which it flows.
Operator
Thank you. We’re going to take our next question. Please stand-by. Our next question comes from the line of James Shuck from Citi. Please go ahead. Your line is open.
James Shuck
Hi. Thank you, and good morning. So first question is just on the Ogden rate and outlook. Do you have any insight into the timing of any potential Ogden review? And can you just remind me what you’re actually preserving at in terms of the Ogden rate? And any insights into the kind of propensity to take a PPO versus a lump sum would be helpful?
Secondly, just returning to kind of Slide 19, I think it was, when talking about the U.K. Motor market in general. I mean everyone on that slide seems to be pricing ahead of the market. And appreciate that some of those lines are probably just the larger players. But who is it, who was being so competitive, necessarily unless you want to need to mention names, but is it new entrants? Is it smaller players? Is it Insurtech? Just trying to get a feel already because everybody we’re speaking to, no one really seems to be admitting, but its there.
And then 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 kind of stripping back some of those features, the outlook for add-on sales and any potential impacts on driving behavior and other things that you’d like to highlight as we move into a very difficult recessionary type period? Thank you.
Milena Mondini
Great. Thank you for your question. So if you think about Ogden, I think it’s a bit early to comment and to speculate too much at this time, considering that the five years guidance is due in 2024. So we’re quite some time away, a bit early. But in general, what I would like to remind is that we continue to reserve very conservatively and make sure that we have a strong position to react to the change as they come.
I think based on the number we see, if we had to rerun the formula now probably the exercise results in a rate that is very similar to what we have today. But we’ll need to see how this evolves in the next few years. And there’s also the potential of a dual rate that can change slightly the landscape. But just – yes, and I’m going to pass to Cristina on the second question.
Cristina Nestares
Yes. I think the second question might be because the graph may 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 into the graph. Basically, different players having different strategies.
James Shuck
And then just on the cost of living impact?
Milena Mondini
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 customer has. We do offer a broad range of products, and they can decide, of course, to choose the one that is more suitable to their need. And we’re very conscious that customers are suffering a lot of pressure in terms of the inflation on their own cost and try to be as helpful as possible, help the onetime financial difficulties. We have a 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 through for our lending business. And I would say that’s also across all the countries. But we’ll continue to monitor very closely.
James Shuck
Okay. Sorry, I missed what the actual Ogden discount rate is you do use at the moment.
Geraint Jones
James, in the best estimates we reserve at the current Ogden rate. But as Milena pointed out, 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
Okay. Great. Thank you very much.
Operator
Thank you. [Operator Instructions]Our next question comes from the line of Faizan Lakhani from HSBC. Please go ahead. Your line is open.
Faizan Lakhani
Good morning. Thanks for taking my questions. The first one is some of your peers are pointing to a delay in settlement of large bodily injury claims, whereas I think you suggested that, that has started to normalize. I just wanted to compare how you’re seeing that. The second is once again on inflation. I just want to ask sort of in a different way. Could you try and provide some indication what the back book releases would have been if you hadn’t loaded for excess inflation?
And my next question is on investment income. You seem to have increased the proportion of AAA co-rated bonds, given that you are relatively prudent versus the market and the rising interest rates, is there an opportunity for you to sort of tap into that high interest rate environment and either adjust your duration or move down the credit rating to increase that side? Thank you.
Adam Gavin
Hi, Faizan, it’s Adam here. So on BI settlement speed, I’ll break it down into whiplash and non-whiplash. Obviously, whiplash, the settlements are still suppressed. We are starting to see them rise. We’ll hopefully give us further clarity on that in the future, assuming in the next six 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’s starting to recalibrate a bit now, and we’re starting to see 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 we’re back to a more normal position now after a couple of years of really strong settlement speeds.
Geraint Jones
Faizan, its Geraint here. The 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 shifts into U.S. government bonds, which provided some – what we thought were very attractive rates in the early part of this year.
We’ve not really changed our strategy at all. Don’t expect to change it in the short-term and certainly don’t really think it’s the time to go chasing yield through moving down or up the risk curve. Yes, 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 and second half of last year. Yes, £4 billion worth of investments there or thereabouts just under. So the outlook is a bit better.
Faizan Lakhani
So just coming back to the reserve really. So I know you can’t present the figure, but just in terms of your 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 and you can release well above your sort of normalized guidance?
Geraint Jones
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. [Operator Instructions] Our next question comes from the line of Nick Johnson from Numis. Please go ahead. Your line is open.
Nick Johnson
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 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 UK Motor customer volumes. So the slide on 19, it looks like Admiral retention fell in June. Just wondering, have you seen a corresponding pickup in new business during the same month, given that market retention is also down? Thank you.
Milena Mondini
I’m afraid this is also for Adam.
Adam Gavin
Thank you, Milena. So I think the market is reporting 10% or so 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 margin on top of best estimate allows us to be secure on that.
Nick Johnson
Thanks.
Milena Mondini
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
But has there been a pickup in new business at the same time?
Milena Mondini
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
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
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 £1,800 through our employee share scheme for our 10,000 colleagues across the globe. Thank you very much, and have a good day.
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