Direct Line Insurance Group PLC

LSE:DLG

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, welcome to the Direct Line Group Q1 Trading Update. My name is Cathy and I'll be coordinating your call today. [Operator Instructions] And now I will hand you over to your host, Penny James, to begin. Penny, please go ahead. [Foreign Language] [Technical Difficulty] Ladies and gentlemen, welcome to the Direct Line Group Q1 Trading Update, and now I'll hand you over to your host, Penny James, to begin. Penny, please go ahead.

[Penelope Jane James, CEO & Executive Director]

Thanks, Cathy. Good morning, everyone, and welcome to our first quarter update. Now it's only been, I think, 8 weeks since we presented the full year results. But Neil and I wanted to take the opportunity to kind of give you an update on how Q1 trading has gone, and just as importantly, our operational progress through the first quarter as well. I'm going to leave plenty of time for questions. But first, I just want to run through what I see as the 3 key messages from Q1. So firstly, the Motor markets continued to be impacted by lockdown restrictions in Q1. But there are signs that pricing has stabilized during April, and we're well placed as consumer behavior normalizes. So with the first quarter in kind of full lockdown, claims trends in Q1 were in line with those that we talked about at the full year results, with claims frequency reduced as we've seen in previous lockdowns and severity remaining higher than normal. So we've seen frequency pick up a little bit in April as lockdown restrictions have started to ease, but it still remains well below pre-pandemic levels. Now while these trends have provided a tailwind to earnings, they've also driven more testing market conditions. And that's led to an acceleration in market premium deflation in the quarter as the market took a range of views, I think, on the trajectory of claims frequency going forward for the rest of the year. And that's been exacerbated by continued lower risk mix due to fewer new car sales and fewer new drivers entering the market. So against that backdrop, we've maintained our disciplined underwriting. Against the non-COVID comparative from 2020, we saw a 10% drop in motor gross written premium, which is broadly in line with the markets. But we have focused on protecting the quality of the book with average premiums reduced by 5% against Q1 2020 compared with the market reduction of around 8%. So as we progress through the year and claims frequency increases towards normal levels, we expect the heightened claims severity to put upwards pressure on premiums. It's not surprising, therefore, to see in our latest market data, that April prices were flat in March. So having protected the quality of our books, we remain well placed as the market recovers. My second message is that we continue to build momentum in areas that are less impacted by the pandemic, with strong growth in both Home and Commercial. In Home, the new business markets remained buoyant, and we delivered growth in own brand policy count and premiums, driven by strong trading in both direct and PCW channels. And the Commercial business has had an incredibly strong quarter, delivering over 15% premium growth in both direct and broker channels despite the strong comparative. In NIG, the 16% GWP growth was across all categories. It's the best first quarter growth in over 10 years, reflecting improved pricing sophistication. And it follows on from the excellent customer service maintained throughout the pandemic disruption. And within this 16% rate carry was around 6%. Commercials direct grew premiums by 15% as Tradesman, landlord and Van under the DL4B brand all delivered premium growth through a combination of policy count and strong rate carry. While Churchill as a business has had a record-breaking quarter across all its products, delivering 75% GWP growth year-on-year. At the full year, we said Commercial was the furthest along its transformation journey, and as you can see from the numbers, it's yielding great results, which is both exciting when you look across the personal lines but also reflects our continued focus and investment in the SME segment. Our third message is this, we've continued to make great progress on our transformation to be a data and technology-enabled insurer, while building on our existing strengths. The rollout of our new Motor platform is almost complete. We're now live on all brands and all channels with Churchill fully live and Direct Line following fast behind. And I'm really pleased that the latest rollout for Churchill new business was completed in just 4 weeks, a clear sign that we're delivering at pace. And this is a crucial step towards delivering the improvements in our trading as well as unlocking our operating efficiencies. It is still early days in terms of the rollout, but we're already seeing some of the benefits of the new system come through for Churchill, which is incredibly encouraging and testament to the broader transformation agenda. We've also expanded our own garage repair network with the acquisition of our 22nd auto services repair center, helping us expand our market-leading claims capabilities further, and this will become increasingly important as customers start driving again. Second, our full year results at 2021 was a pivotal year in our transformation journey, and I'm really delighted with the progress we've already made this year, and we're only 1/3 of the way through. So overall then, how do I feel about Q1 and the business going forward? Well, we've made great progress. Our Motor systems almost complete and the benefits are starting to come through. Motor market prices have recently stabilized, and we continued to take share in both Home and Commercial. Today, we've demonstrated that we're building an increasingly competitively advantaged business for future sustainable growth, and we reiterate our existing targets. As lockdown restrictions ease and with our transformation program on track, I feel the business is well positioned heading into the next trading period. Now I'm going to leave it there in terms of comments, but I'll hand back to Cathy to open the line for questions. Thanks, Cathy.

[Operator]

[Operator Instructions] So first, we have questions from Jonathan Denham from Morgan Stanley.

[Jonathan Denham, Equity Analyst]

Firstly, what's made you confident enough to remove the caveats around the 93% to 95% normalized combined ratio range for this year and the medium term? And secondly, just how do you feel about your expense ratio target, given the pressure you're seeing on top line? And what are the additional actions you could take on cost if acquired?

[Penelope Jane James, CEO & Executive Director]

Thanks. Jon. Why don't I take the first one and Neil can take the second one? We've had some quarter earnings-wise. We're kind of feeling more positive about the overall economic environment and the position in the U.K. is in generally in terms of vaccine rollouts and so on and so forth. With pre-Brexit as well, and that seems to have gone from the Motor market perspective relatively cleanly. So a number of factors that kind of been around for some time kind of moving backwards, if you like. So as we look at how we started the year, we felt positive about reiterating the 93% to 95% and some of those cautions and uncertainties felt lower down the radar than they were before, hence the fact that we've adjusted the wording very slightly. So yes. I think Neil will add on that or pick up expenses.

[Neil Manser, Acting Chief Financial Officer]

Thanks, Penny. Let me take this question. Thanks, Jon. So I think, as I said at the full year, increasingly confident of hitting our 20% expense ratio. And I don't think anything in Q1 has changed that. In fact, actually, we've had some good progress during the first quarter. Penny has mentioned the Motor system launch, which has gone faster than expected through this quarter. So that gives us confidence on the -- at least that gives us to generate sustainable cost reduction through that process. That's good. We've also made good progress on the property reorganization we talked about at the full year. And there's a huge number of other initiatives going on across the group. And as we've said before, we won't stop looking. We'll keep on going, keep on challenging ourselves on the right things to do, somewhat even if that doesn't depend on the market, we'll keep on challenging ourselves. I think the other thing worth saying is that the -- obviously, the ratio is a function of both cost and revenue. And as you've seen in this set of numbers, where we have made transformational change, you're seeing the growth come through as you've seen that in Commercial. And that gives us confidence from where we're making change in other parts of the group, we'll see growth, which also support those transformations.

[Penelope Jane James, CEO & Executive Director]

Cathy, do we got any other questions on the line?

[Operator]

Now we have a question from Freya Kong from Bank of America. Freya? I believe that maybe Freya lost her line.[Operator Instructions]

[Penelope Jane James, CEO & Executive Director]

Why don't we move on, Cathy? I'm sure we can come back to Freya if she comes back in.

[Operator]

Sure. I can see that Freya has come back already.

[Freya Kong, Research Analyst]

Can you hear me. Sorry.

[Penelope Jane James, CEO & Executive Director]

Yes, we can.

[Freya Kong, Research Analyst]

Two questions, please. Could you guys give us some quantitative steer on what sort of frequency benefits that you saw in Q1? Would you be tracking ahead of the current 93% to 95% combined ratio target? And secondly, just on expenses again. So you guys previously guided to less than GBP 700 million in 2021. But lastly, you said that, that was at risk. How are you tracking now versus that target?

[Penelope Jane James, CEO & Executive Director]

Why don't I go to frequency? And then I'll hand over to Neil for expenses. So frequency, what have we seen? I mean as in the previous lockdown, clearly, there's been a lot more drivers on the roads and that has driven kind of reduced frequency. What we saw is when closed last year is that in Q2, frequency was down to maybe 1/3 of what it normally is broadly. And it crept up as we move through the year and then reduced a little as we came into the lockdown in Q4. It stepped down again...[Technical Difficulty]

[Operator]

So you can start to answer the questions.

[Penelope Jane James, CEO & Executive Director]

Thanks, Cathy. Apologies. We're having technical issues, but I'm not quite sure at which end, but I think I was halfway through frequency. So broadly, what we're saying, so across last year, big dip in frequency in Q2, and it carried on creeping up all the way through the year, eased up a little bit in Q4. It never got anywhere near pre-pandemic levels. And in Q1, it dropped down again, but not as far as it did in Q2 last year, but very materially down. So what does that mean? It means we saw Q1 with kind of positive earnings compared with what we would have expected otherwise, if you like. So we start the year well.I think in terms of whether we beat 93% to 95%, there's a lot of the years still to go, include the premiums, reduction earnings will start flowing through at the back end of the year. But we're feeling very confident in the range. It will be how we traverse to the second half as to whether we beat that or within that track. Neil?

[Neil Manser, Acting Chief Financial Officer]

Yes. On the cost question, so the GBP 700 million target we set back at the Capital Markets Day or 18 months ago. What we said I think then is that COVID did delay or push to the right, some of the initiatives that we had in place at the time we made the charges. But the full year, I said that we would expect to be on a run rate of GBP 700 million by the end of this year. So if you take that and say, well, last year, we were GBP 72 million. It will be at the run rate at the end of this year and expected costs to be somewhere between the GBP 700 million and the GBP 72 million we had last year by myself.

[Penelope Jane James, CEO & Executive Director]

Cathy, we have another question.

[Operator]

Now we have questions from Greig Paterson from KBW.

[Greig Norman Paterson, MD, Senior VP & United Kingdom Analyst]

Two questions. One is the FCA pricing review has put a headwind on Motor rate for a couple of years now. I was wondering how far we've gone to complete that journey as well we see rate headwind continue for the remaining 3 quarters this year. And interesting will it happen, will we see further rate headroom next year? And that's my first question. And the second one is you're getting very strong positive rate in Commercial. I was wondering if we should expect that to continue for the remaining 3 quarters of this year?

[Penelope Jane James, CEO & Executive Director]

Okay. So PPR, I'm not sure I'd articulate it quite the same as you do, so why don't I do where we are on pricing practices for a second? And then reflect what I think is really happening in the motor market because I'm not sure those 2 things are quite as linked as you articulate them at the moment. So pricing practices, where are we -- as we said at year end, I think we're kind of feeling confident of our preparations. And what's happened -- well, how do we feel about ourselves? Well, we think because of a combination of our diversified business model, the actions that we've already taken across the last 3 years or so. I mean we're ready and pretty well placed to win in a post pricing practices market. And we think that transformation is all about tailored propositions and market-leading efficiency and pricing is still the last -- the right one and having brands with strong service and so on are all pretty critical in sort of a market that potentially has lower levels of shopping. And what's happened in PPR since we last spoke in the last 8 weeks, was not a huge amount. The FCA has put the timing back, which still means it's tight, but it's much more deliverable, it's kind of profitable to achieve it now, I think, whereas before it wasn't. They haven't moved their date of issuance, so I still expect the recs to come out at the end of this month. And I know from talking to the FCA that they're really keen to hit that deadline. So I think they'll be doing everything within their power to achieve that. But the other thing that's happening is we continue to prepare. So whether it's defining internally how we look at the various fair value tests, whether it's building the algorithms, I mean we don't like to let price out of the door that isn't compliance, or whether it's building the various optimization models and so on that will let the traders make their choices as we move through that environment. All of that work is going well, making good progress. So we need the final guidance to know exactly how we will navigate and how we'll choose to navigate because there's still some pretty material questions out there. For instance, whether or not noncash incentives are allowed, we're busy, as others -- as some others are anyway, trialing amazon vouchers as almost go forth in the market to see what the response is. So we prepare the ground for those options and should they still be in the end legislation. But actually, I think as we sit here today, we're confident in our preparations and we await the final rules. Now in terms of whether you can see that in the market, given price, possibly in Home, you can see a bit of it because I think there's not a lot of inflation going through in the home market. And certainly, for us, some of that is because we've been making adjustments on the way on conduct pricing, which we flagged before. And we don't know, but we suspect there may be others in the market. So I think in that market, you can see it. I think in Motor, the dynamics are different. And why don't I sort of step back a little bit, Greg, and talk about what I think we're seeing in the Motor market? Because I think that pricing practices is actually only a small -- a relatively small component of that at the moment. So if -- what's actually going on in Q1 and actually through last quarter last year, where you've got reduced claims and clearly, an earnings tailwind. But as that reduces the input costs in the market quite materially, it's putting pressure on top line rates. And our approach is ever in that period is to look out over the duration of the policy at frequency and its severity expectations and so price accordingly. And when we do that, we've ended up with GWP down around 10%, pretty much in line with the market. About half volume, about half average premium due to pricing reductions and mix, less new cars on the road, that sort of thing. But compared to a market of around 8%, we're off 5%. So we've given up a bit of competitiveness, which you can see in the IFP dropping by 1% to maintain the quality of the book. Now -- what's happening now? Well, I think as we said, our consumer intelligence data shows that pricing flattened in April in the market. We're putting some price through. Clearly, some others in the market are putting some price through as well, which is good to see. And that's not surprising because of the frequency increases through the rest of the year, which has been the dominant factor, I think, driving pricing changes over the last sort of 12 months or so. As so that frequency picks back up, then the severity inflation that we know is happening underneath, but is currently kind of outweighed by what's happening on frequency, that severity inflation will start to show through, I think, more clearly. And I think what you're seeing in the market, Greg, is that -- is kind of a large range of pricing approaches across the market. And I think when you read people's year-end results, you could sort of see and feel that happening. And the reality is not -- this is a data-driven market. We all look back at historic data and project forward. At the moment, it's very difficult to do that with any certainty. So it's a much more hypothesis-led view of what frequency is going to be. And I think that sort of those hypotheses are probably creating a greater spread on pricing than they normally do. And as we move through the rest of this year, I'd kind of expect to see people getting more and more data points on what customer behavior and driving behavior is actually doing, and I think that will narrow the spread of those choices. Any which way, as frequency levels sort of kind of start to normalize wherever that new normal is, that severity inflation will start to show through and put upward pressure on rates. Now as we've always said, have a claims advantage. We've reduced price less than the market. So we feel pretty good about where we're positioned coming into those changes, I'm pretty confident. So I think when I sort of reflect back on your question, I apologize, it's a long-winded answer. I think in Motor, Greg, the factors that are around frequency and severity at the moment are stronger than kind of a positioning into pricing practices, just because the frequency effect is so material, I think. Whereas in Home, where you're not seeing those kind of same scale of frequency effects. Difficult to know who's pricing for what reason, but I suspect that may be more sort of pre-PPR planning kind of going on there. That helps, and I apologize it's a bit long-winded, but...

[Greig Norman Paterson, MD, Senior VP & United Kingdom Analyst]

And then the second question was on Commercial rate, whether we should see the strong rate that you're carrying continue for the next 3 quarters?

[Penelope Jane James, CEO & Executive Director]

Yes. I mean look, we love the SMEs at the market. We think it's got real potential for growth and strong margins, and that's why we've been investing in it. And so it's really great to see kind of the results coming through after all the transformation work on technology and the improved pricing tools and the combination of those coming through. I think -- what are we seeing? I think certainly at the moment, as rates move up in the Commercial market, there are more opportunities coming around than there have been in recent years. So more business is coming to the brokers. So the brokers are looking at it and looking out across the market. And I think that's giving us some of the opportunities. And I think we're gaining the benefit of having given great service through the pandemic and not all of our peers have been able to do that, I think. So we're definitely winning something there. I think in terms of what drives that going forward, well, I think we'll watch with some interest how the U.K. economy emerges from the lockdown and from the sort of various government support measures. But I have to say, we found the SMEs and our customers have been much more resilient than we could have anticipated coming into this. The team have got lots of ideas. They continue to run at the opportunities. So we're still -- we're pretty optimistic whether it runs at 15% all years, don't know. But we're pretty optimistic about the growth in that space over the coming periods.Have we got any more questions?

[Operator]

Now we have a question from Thomas Bateman from Berenberg.

[Thomas Bateman, Analyst]

Just on Commercial Lines. Could you just talk about how you like the market? Can you talk to us about how big do you think this adjustment market is? How big do you think this business could be, hopefully on track to be GBP 600 million this year? I don't know, 5 years down the line, is GBP billion premium in this line of business possible? And just turning to the additional garage that you acquired in Q1, How many more cars does 1 new garage allow you to service? And potentially, could you remind us of the cost advantage of service from those vehicles yourself rather than that by market?

[Penelope Jane James, CEO & Executive Director]

You're going to test me on what the throughput of our new garage is because they vary quite a lot, is the honest answer to that. But across 21 garages, we're doing something around just under 100,000 vehicles a year, to give you a sense. And what I can't tell you is what Newbury is relative to the others, which I can then check after this call, but that should give you a feel. And on the cost advantage, is there a cost advantage? Yes, if there is a considerable cost advantage between our in-house kind of operations and our tier rate suppliers, and we know there's a cost advantage across the market because there are various benchmarking tools across the market available. So we don't give out what that number is, because it's commercially sensitive. But there is definitely a margin there that we can see. So that's kind of -- and I guess I could give you some color around that. Why do you get advantages coming out? There's lots of things that you can do if you own the end-to-end process. So we can decide at the point of call whether we write-off. We've got technology that runs between the repair centers and the claims function at the sort of point of notification that lets us assess the damage at that point, that can use tools and AI and then auto parts from there so that when it arrives -- the car arrives the garage, auto parts are already in, ready to go. And that reduces the repair time and so on and so forth. You can -- we can also invest in sort of technology, understanding car technology in those repair centers. So we've got a new technology center opening in Stretford this year, geared at understanding how to repair and recalibrate ADAS technology, understand the EV technology, look at how to kind of advance paint patterns and paint techniques so that you can contribute towards the net-zero targets in terms of repairing cars, all sorts of things. And all of those things added up to being really professional operation and being more cost advantage and more effective as well as being greener. So there's definitely a benefit there. And I think is -- that benefit, if you like, tightens or becomes more important as volumes in the market start to increase again. So that's what I need to say on car repair centers. In terms of Commercial, how big? Look I mean you know the Commercial market is huge. We're a significant player at the very small end of the market already, and that's where we like to play. So we've talked about the possibility of moving slightly up the scale chain to expand the scale of that market, if you like, opportunity for us. Perhaps sharing that risk with others on route, if you like, and we're certainly looking at that. But it still feels to us that there is a significant SME market out there in our heartland that we are getting very strong targeting, have a really strong operation, and we think there is plenty to go for. So I'll leave it there. I'm not going to put a hand sign on the market side, sorry. Anything that you would want to add there, Neil?

[Neil Manser, Acting Chief Financial Officer]

No. Thank you, Penny.

[Penelope Jane James, CEO & Executive Director]

Brilliant. Thanks. Cathy, anyone else on the line?

[Operator]

Now we have questions from Ming Zhu from Panmure Gordon.

[Ming Zhu, Analyst]

Just 2 questions for me, please. And first, could you just give some color in terms of your motor premium? And what percentage is that from an electric vehicles? And how have you seen that market changing? And what have you done down to preparing for further growth? And my second question, your buyback shows that it's down just over GBP 30 million. And it looks like it hasn't been very effective to your share price. I mean would you consider at the second -- at your half year results for the second GBP 50 million tranche, would you sort of reconsider why it's special?

[Penelope Jane James, CEO & Executive Director]

Let me do -- comment on EVs, and then I'll let Neil comment on buybacks and so on and so forth. So EVs, well, we think -- it's still a relatively small part of the market. I haven't got the number on me, but it's still a relatively small part. We know we are slightly heavier than other players in the market. We've had a strong relationship with Tesla from the get-go. And so we know that all the way along, we've kind of run slightly ahead of the market on EVs. But I think more interesting is how you positioned for -- as that market -- that market is clearly going to grow pretty rapidly from here. And why have we kind of punched slightly heavy in EV? All the way along, we've been trying to learn -- gain learnings ahead of any flip -- heavy flip towards EVs. One of the reasons we've opened the technology center in Stretford is to enable us to train our engineers and our engineers from material suppliers and those human vehicles more broadly on the new technologies because actually, the repair cost profile is different for EVs than it is for other cars. And often, with EVs, you get a lot of additional costs you're increasingly using that in cars. All of those things affect repair -- customer repair times. And we took the view that there wasn't the expertise in the market in most breadth. So we needed to build that in-house, which is what we have done to prepare the ways for that. So that's really how we're viewing kind of that overall, I think. And also doing our bit to try and work out how we can help that transition work successfully across the U.K. not just as an insurer of those vehicles, but as a sort of corporate in the space. So we work with a number of other companies to try and see if we can find a way to make that transition smooth. So we stay close to it. It clearly has a slightly different risk profile that we're getting used to. But yes, that's where the future lies.

[Neil Manser, Acting Chief Financial Officer]

On the buyback. Yes, you're right, we're about GBP 30 million through the first GBP 50 million tranche buyback. I still think it's the right way to go. And in fact, I'd say we're getting a better return of investment today on the shares where we start the buyback, so I think it's the right thing to continue.

[Operator]

Now we have a question from Oliver Steel from Deutsche Bank.

[Oliver George Nigel Steel, Managing Director]

Sorry about that. Can you hear me now?

[Penelope Jane James, CEO & Executive Director]

We can hear you. We're having one of those mornings. So we're going to cut ourselves off once. So yes.

[Oliver George Nigel Steel, Managing Director]

Right. So first question is with the various pricing service show -- I mean, the ABI, I think, at minus 8% year-on-year, but the ones that are more orientated towards new business pricing seem to be off sort of 10% up to 14%. Is that something you recognize that the pricing gap between new and renewal pricing has actually widened over the last 12 months, despite the FCA growth models, new rules they're looking to introduce? And then the second question is thinking about the transformation program on Churchill and Direct Line. How should we be thinking about -- or what we should -- how -- sorry, let's start again. What should we be looking for precisely in terms of the benefits of that coming through in the Motor account at Churchill and Direct Line over the remainder of the year?

[Penelope Jane James, CEO & Executive Director]

Okay. So market statistics. So yes, I think some of the PCW market statistics are suggesting kind of 14% or something like that. I think there's probably 2 things going on in there, Oliver. One is, yes, the new business market has been testing, if you like. So -- and we'll take the heat faster than the renewals market, I think. And you can certainly see some of that happening, I think, or feel some of that happening. And that's why we've lost a bit of competitiveness, and that's why kind of IP has come off a little bit because we've drawn our line in a slightly different place to some others, it looks as though. I think the other thing you have to watch though about those statistics is there is a mix factor in them that isn't stripped out. So when you're losing kind of newer cars from the market, in particular, young drivers from the market because they can't come into the market, whilst that has a pretty muted effect on the overall book, when you include renewals and so on as the ABI do. That has a more marked effect on new business -- on the new business market in relative terms. So I expect those sort of recognized for 14% and 15% and so on and so forth, absolutely. But I think you should be a bit wary of believing that's the automatic price coming out on a risk-adjusted basis, if you like. I think that number is near the ABI sort of space. So that's one. And then in terms of transformation, yes, the benefits come through in layers at different times. What do I mean by that? So for those of you who made the trip to Doncaster, you may remember us talking about the transformation of what it delivers in terms of pricing benefits and how it works. And one of the things we talked about there is the fact that on our old models, you had kind of your pricing model and then you had to translate it almost twice to get it actually into the market and deployed. And in those translations, you lost a lot of -- or we lost a lot of granularity that was intended from the original model. So just by switching on new business, that benefit starts to come through. And so, if you like, the intention of your original pricing tools is deployed much more accurately into the market. So that's benefit one, I think. Then there are other benefits that come through on pricing which can come through -- are available to you relatively immediately. So what do I mean by that? You're able to bring in new sets of pricing data that we were more restricted on before. You can affect pricing changes faster in the market than we could have done before. You can bring product, new product tweaks and changes and enhancements on more straightforwardly, faster and more cost effectively than before. So there are a number of things that, as things evolve, that enable us to maneuver faster, if you like. And that may well be important as we come into pricing practices where nobody will know on day 1 exactly where the market is going to land. So actually being flexible and maneuverable is going to be a pretty key thing. And then you -- then on top of that, you've got what I call the operating efficiencies. And in that space, you get some benefits straightaway as the book builds up because run costs submitted and those sorts of things. But actually, the big benefits are around headcount reductions because you don't have to do as much rekeying activity and so on and just basic sort of operational stuff behind the scenes. And those costs effectively are reflected in the 2 sites, the adjustments we -- closures or reductions that we talked about at the year-end results over a year ago. So reducing in Manchester and closing Ipswich and effectively, the 700 roles that we talked about there or the effect of the new platform rolling through largely. And that kind of builds up as the volume of policies build up over a year. So you should start to watch for those kind of expense benefits, and you should watch for either strengthening loss ratio, even current year loss ratio improvements. Or depending on where the market cycle is, you we may deploy that back into growth an alternative that basically you should see it there. Maybe that's helpful .

[Operator]

We have question from Sachin Lakhani from HSBC.

[Sachin Lakhani]

I have a question on trade. It looks like launching sort of [indiscernible] bit low to high market. It doesn't seem the case anymore. Are you done with the sort of fine-tuning prior to the FCA price review in Home? And then my second question, it just goes back to the net pricing environment. Launches that -- you stated as well the industry this year probably still be a pretty good result. It appears that some times [indiscernible] Is there a case that maybe the market will be softer given the fact that there may have been a little bit of -- or is that an over the past 18 months? [indiscernible] .

[Penelope Jane James, CEO & Executive Director]

Okay. So I think the -- where are we at year end, when we sort of say IFPs increasing sort of [indiscernible] less so broadly because the average premium stopping because a lot of the growth is coming from a price comparison site and from mainly Direct was pretty flat at that point. So what's been happening over the last quarter? Well, new business sales on owned brands were up about 14%. Retentions up as well. The market is pretty buoyant, and you can see that in the news with how sales and so and so forth, so that the Home market remains pretty buoyant overall. The overall kind of premium is up 3.6%, I think, IFPs around 5% year-on-year. So you're seeing growth -- strong growth in Direct, but stronger still growth in price comparisons like business. So -- and what's going in there? Well, sure, we're being kind of competitive on price. We're marketing pretty hard as well. We've had some good deals running, I think, with some of the price comparisons. So It's kind of running on all cylinders, if you like. You've seen average premium coming off by around 3.5%, I think. And some of that is kind of pricing action. So there's still -- we still continue to have some pricing actions in the market to be competitive, but also a little bit of stuff going on around what we call our conduct pricing, which is, as we've always said, we keep tightening the tails and tightening the tails, and that process continues and will continue all the way through the year. But probably the biggest effect in the average premium is the channel mix effect, which has been kind of happening for a couple of years now. So I think when you look across the market, I think the market is probably not putting a lot of pricing inflation through at the moment. And my guess is, there's a bit of a mixture of -- there is some lower input costs. So claims have been down through the various lockdowns and so people may be anticipating that continuing for a while with homeworking, continuing for many and so on and so forth. So you may be seeing some of that. You may be seeing a little bit of positioning pre-PPR. Difficult to tell what choices people are making. And for us, you're seeing a bit of channel mix as well going on. So a little bit of all that bob I think in the home market.

[Sachin Lakhani]

Sorry, just on your own brand growth. You say you're a bit more competitive now. At the end of the year, what does that do to your back book then if you're being a bit more competitive on your new business?

[Penelope Jane James, CEO & Executive Director]

Well, I think there's 2 bits in the sort of back book story -- well, 3, if you include partner brands in there. But 2 main bits. One is what's happening in the tails. And we've said for some time now that we've been at the 5-year tenure, checking every policy that we're comfortable with the margins that where writing were appropriate, we're happy with those. And so we've been kind of happy with that position for some time and therefore, the overall value we're offering in the product. And that tailed kind of still be tight and tightened, but for us, we feel that's pretty much that. Obviously, what the FCA pricing review does is more than that, though. It says any pricing step-ups basically through that period that aren't risk-based need to come out. So you've still got a leveling up process to do over the first handful of years. I think it's very little first-mover advantage and people running into that flat, if you like. So I would be surprised if you see a huge amount of that happening in the market. I think you can see the old products out there where people are starting to put products out there that does that. So I think you'll see on day 1 of pricing practices, I would be surprised if there isn't still a leveling process that has to happen across the market on those early years. People may be in different places on the journey they've gone on what I'd call the tails in the out years.Okay. And the second question has completely escaped me now. I'm sorry about that. Can you remind me?

[Sachin Lakhani]

Reminding myself now. Yes on the motor pricing environment, there's sort of the fact that people had to overrun over the last 18 months in, and reserves have been sort of quite prudent as well. Does that just soften the cycle for longer this time around?

[Penelope Jane James, CEO & Executive Director]

I think this is all about -- I really think this is all about input costs. Really driven by input costs. So the materiality of the shift of frequency, it's -- outweighs kind of pretty much anything else, if you like, in terms of scale. And I think the -- I personally think the key indicator is where people will be assuming that motor frequency ends up. And so we are certainly looking closely at what -- both behavior of our driver sort of our customers are doing, but also some of the indicators around what the economy were doing, and how much work from home people will be doing. What -- whether it's likely to be a staycation or a European holiday year, all of those things, I think, are as a dominant fact certainly in our thinking. We don't, when we look at pricing, look back at how much money we made maybe in motor in months X or months Y and therefore, we can reinvest that in price. It's just not how we think about it. We look forward at what we think the input costs on the policy will be and what margins we need to make, and how competitive the market is in that context. And that's how we make our pricing calls. Can't speak to the decisions that other makes, but I still believe that the biggest single influence here is what's going on in claims costs today and over the forthcoming year. Cathy, next question.

[Operator]

Now we have a question from Alexander Evans from Credit Suisse,

[Alexander Evans, Research Analyst]

So just first one, maybe just on the sort of risk mix angle that you talked about for -- is it possible to give a steer on how much is related to sort of the closing of the economy, none of these new drivers relative to how much of that change is related to what's being passed through on frequency? And then secondly, if I just look on quarter-on-quarter, it looks like your motor growth rate premiums are actually up 1% versus what we're seeing in the market with various indices saying sort of down 6% or even 15%. So is it possible just to give a little bit of an explanation of this and if you're seeing sort of improvement there quarter-on-quarter?

[Penelope Jane James, CEO & Executive Director]

I'm just tumbling on the last question. Let's do the first one because I could follow that one. In terms of our kind of what's going on in GWP and sort of policy. So we've got a 10% fall about half of that is volume. About half of that is average premium. And very broadly -- just slightly difficult one to pick, but very broadly, I'd say about half of that probably is risk mix and half of that's kind of pure pricing effects. You'll be within 0.5% either way, I suspect, if you do that. But that's the kind of the shape. Neil, it looks like you followed the numbers better than I did, on the second part of the question, so .

[Neil Manser, Acting Chief Financial Officer]

Yes. So I think you're comparing Q1 motor to Q4 motor premium. And you're right, it's up slightly on Q4. I wouldn't read over it too much because Q4 tends to be a slightly lower quarter market premium at a market level than the other quarters.

[Operator]

So now we have a question from Ashik Musaddi from JPMorgan.

[Ashik Musaddi, Executive Director and Co]

Just one question I have actually. I mean you mentioned on the FCA review that there is not much happening on the Motor side at the moment, whereas it feels like people have started adjusting on the Home side. I mean what are you doing at the moment? I mean how much have you adjusted either your pricing or your expectations around FCA? What would be your base case expectation where we are going towards would be some good reminder for us.

[Penelope Jane James, CEO & Executive Director]

Look, I mean I think in Motor, I've been clear. Our focus is on frequency, severity and so on and so forth. And just a reminder, we don't yet know what PPR rules are, so we don't actually know how to trade that through the market because we don't know what the lines are that the FCA wants us to check. So we can do some directional stuff, which -- and remember, the kind of biggest issue area from the FCA review is Home. So it's Home and Motor included in. But in terms of the historic back books and so on because of the stickiness of the accounts, Home is the area that kind of with the most issues in. So when I say we've been public all the way along about what we are doing in the Home book to make sure that we are dealing with the tails of that, we continue to do so. I can't tell you. I don't have the magic insight as to what other people are doing in the market and how they construct their prices. But all I would say is, there doesn't look to be a lot of inflation going through the Home book at the moment. And that may be people adjusting pricing, it may be simply that there are less -- fewer less claims coming through. So I don't know. So as I say, I can't speak to what others are doing directly and why they're making the pricing choices they are. So us, yes, clear what we've done on Home, and we continue to take that path. We think that in the long run the book will be stickier post PPR, so we see a little downside in the market at the moment about being competitive ahead of that as long as our long-term tails are moving in the right direction, and that's the way we're thinking about it. And Motor, just focused on other things at the moment. Cathy?

[Operator]

Now we have the final question from Andreas van Embden from Peel Hunt.

[Andreas de Groot van Embden, Financials Analyst]

Just a quick question around the rebates you've been providing in the Motor market since the second quarter of last year. Could you maybe highlight your plans of unwinding these rebates? Is this one-on-one with mileage driven? Or is there something else I need to think about? And how sticky do you think these rebates will be in the remainder of the year?

[Penelope Jane James, CEO & Executive Director]

Yes. We've offered -- what have we done of it? So over the course of the middle of last year, I can't remember the exact date, actually, we offered pretty much all our customers a rebate. And we gave all of those numbers kind of at year end. But what have we done as we've come into this year? We have done 2 things. One is we've made it permanently possible for DL customers to flex their mileage through sort of mileage money-back proposition. And so -- and we would -- we see that as part of the Direct strategy, if you like. I've talked before about tailoring product to individuals. Some of that is having components of a product like DL4B where you can tailor around someone's business. Some of that is increasing, creating sort of more modular products in a personalized space. But actually, people being able to tailor their own motor policy around their own mileage and allowing that to flex over time, we consider that something that is entirely appropriate and consistent with the brand. So that's a kind of permanent offering maybe 10%, 15% of the book has taken that up, something like that. We've also offered, because of the lockdown and because of the fact that they don't have that kind of proposition, we've also offered some of our Churchill customers and PCW customers, refund opportunities, if you like. There'll be opportunities to take a refund, I think it's appropriate through the lockdown. And thus far, something like GBP 1.6 million has been refunded on that, as a result. And around, I think GBP 300,000 has gone to charity. We give a charity option as well when we do that. So that's sort of the scale of the refunds overall, I think. Cathy, is that the last question? Yes.

[Operator]

Yes. So we have no further questions. And Penny, please conclude today's call.

[Penelope Jane James, CEO & Executive Director]

Brilliant. In which case, I'd say thank you to everybody for your time and look forward to seeing you all soon.

[Operator]

So ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.