5 March 2020
Admiral Group plc announces a record Group profit before tax of £526.1 million for the year
ended 31 December 20192019 Results Highlights
2019

2018

% change£526.1 million£522.6 million£479.3 million£476.2 million

+10%
+10%

Earnings per share148.3 pence

137.1 pence+8%

Full year dividend

140.0 pence

126.0 pence+11%

Return on equity*1

52%

56%

-7%

Group turnover*1
Group net revenue
Group customers*1
UK insurance customers*1
International car insurance customers*1£3.46 billion£1.35 billion
6.98 million
5.48 million
1.42 million£3.28 billion£1.26 billion
6.51 million
5.24 million
1.22 million

+5%
+7%
+7%
+4%
+16%

Group’s share of price comparison profit*1
Statutory price comparison profit£18.0 million£14.7 million£8.8 million£6.6 million

+105%
+123%

190%

194%

-2%

Group’s share of profit before tax*1
Group statutory profit before tax

Solvency ratio (post dividend)*2*1

Alternative Performance Measures - refer to the end of the report for definition and explanation
Unaudited. Refer to capital structure and financial position section later in the report for further information*2

Around 10,000 staff each receive free shares worth up to £3,600 under the employee sharescheme based on the full year 2019 results. All staff will also receive a one-off £500 bonus to reflect
the Group’s strong performance in 2019.
Comment from David Stevens, Group Chief Executive Officer:“Admiral tends, year after year, to exhibit a relentless forward momentum, which my predecessor
described as “going like a freight train”.
“Was 2019 another “freight train” year?
“Very much so. In so many ways.
“It was a year which saw profits exceed £500 million for the first time, on the back of substantial
reserve releases. We crossed the million mark in household policyholders, and added 200,000 new
car insurance customers overseas.
“Alongside this rapid progress on many fronts, some data points were stubbornly stable. The
number of consecutive years amongst the top performers in the “Best Companies” list only nudged
up from 19 years to 20. The percentage of staff saying they are proud to work for Admiral wasstuck in a narrow band in the mid-90’s. As was the percentage of customers who said they wanted
to renew with Admiral following a claim.

1

“Consistently happy staff, consistently happy customers. Hopefully happy shareholders.
“I announced this morning that I am going to be stepping down as CEO in 12 months’ time. I fully
expect that Admiral’s talented senior management, led by our very talented CEO designate, Milena
Mondini, will be more than ready to maintain, or even stoke up, Admiral’s relentless momentum.”
Annette Court, Admiral Group Chair, commented:“I am delighted to report another year of record profit in 2019 and a strong set of results. It wasalso pleasing to receive a recent award as the only company to appear in the Sunday Times Best
Large Company to Work For shortlist every year since the inception of the awards 20 years ago.
These results are testament to our people, who continue to be at the core of our success andhighlight every day the real difference that they make through their focus on great customer
service.
“Following from the announcement today of Admiral’s CEO David Stevens informing the Board of
his intention to retire in twelve months’ time, I’d like to thank him for his amazing contribution
over the past 27 years to Admiral’s success. Since he’s not leaving for another 12 months, I’ll
reserve my fuller accolades until that time.
“Having been through a comprehensive and robust succession process, the Board is confident thatin Milena Mondini we have a natural successor and a leader for the next generation, supported bya very strong management team. Milena brings a deep appreciation of the special Admiral culture,
entrepreneurial spirit, commercial track record and people development skills.”
Dividend
The Board has proposed a final dividend of 77.0 pence per share (2018: 66.0p) representing anormal dividend (65% of post-tax profits) of 56.3 pence and a special dividend of 20.7 pence pershare. The dividend will be paid on 1 June 2020. The ex-dividend date is 7 May 2020 and the record
date is 11 May 2020.
Management presentation
Analysts and investors will be able to access the Admiral Group management presentation which
commences at 11am GMT on Thursday 5 March 2020 by registering at the following link
https://pres.admiralgroup.co.uk/admiral037/vip_connect. A copy of the presentation slides will beavailable at www.admiralgroup.co.uk

2Chair Statement
2019 marks another year of very strong results for Admiral, and also the announcement of achange of leadership. It is hard to sum up the amazing contribution that David has made to theGroup over the last 27 years. As one of the founders he has overseen the business grow from astanding start to become one of the UK’s largest motor insurers, employing over 10,000 people,
serving seven million customers and with a market value today of over £6 billion.
David isn’t going just yet and I don’t want to use up all my accolades until he actually steps down in
12 months’ time. David brings a unique combination of great brainpower, integrity, innovation,
caring and humility. As an individual, his compassion for colleagues and customers alike
encapsulates Admiral’s approach and ethos. Suffice to say, it continues to be a real pleasure towork with him.
Having been through a comprehensive and robust succession process, the Board is confident thatin Milena we have a natural successor and a leader for the next generation. We have a wealth ofmanagement talent at Admiral and bringing this through has always been a central pillar toAdmiral’s management philosophy as the business evolves alongside its customers. Milena brings
a deep appreciation of the special Admiral culture, entrepreneurial spirit, commercial track recordand people development skills.
Looking back at 2019
I am delighted to report another year of strong performance in 2019, beating many records. This isonce again due to our people. They make the real difference at Admiral. Their focus on serving ourcustomers, the distinctive culture and their contribution to the communities in which Admiraloperates is what makes Admiral truly different.
The Group has continued to grow with turnover increasing by 5% to £3.5 billion, whilst customer
numbers are 7% higher than 2018 at 6.98 million. The Group’s share of pre-tax profit increased by
10% to £526 million driven by UK Motor insurance, with strong releases of prior year claims
reserves. Once again we were impacted by Ogden (the Personal Injury Discount Rate). Although thefinal rate was set at -0.25%, and therefore lower than our expectations, we were able to deliversignificantly increased profits resulting in an early trading update to notify the market of higher
than expected profit. Earnings per share rose by 8% and return on equity was 52%. The Group’s
solvency ratio remains robust at 190% (194% at the end of 2018).
This strong performance was due to contributions from businesses across the Group. Particularly ofnote was UK Insurance (Motor, Household, Travel), European insurance and Confused.com. Our
Loans business continues to develop well and we continue to build this business with our usual
cautious approach. We have encountered more challenges in the US, so we still continue tostrengthen fundamentals there.
Focusing on the UK, we maintained a disciplined approach and prioritised profitability over growth,
by increasing prices as a result of continued claims inflation. This led to modest growth over theperiod. The regulatory environment in the UK continues to evolve, with whiplash reform and the
FCA market pricing study being key features of 2019 and into 2020. Approximately 80% of Admiralcustomers shop around at renewal, so we are encouraged that the majority choose to remain with
us and is an indicator of our good customer experience and competitive pricing.
3

As a result of our Brexit restructuring, 1 January 2019 marked the start of operations for our
European insurance hub in Madrid. The hub allows us to underwrite and support our growing
European insurance businesses and ensures that we are well placed for a full range of potential
circumstances without disrupting our customers.
Dividend
Our dividend policy remains that we pay a normal dividend of 65% of post-tax profit and distribute
each year the available surplus over and above what we retain to meet regulatory requirements,
the future development of our business and appropriate buffers. The Directors have recommended
a final dividend of 77 pence per share (2018: 66 pence per share) for the year to 31 December 2019representing a distribution of 90% of our second half earnings.
This will bring the total dividend for the year to 140 pence per share, an overall increase of 11%.
This represents a pay-out ratio of 94%. The Group has delivered a Total Shareholder Return (TSR) of
361% over the last 10 years.
Group Board in 2019
The Board recognises the need for a strong corporate governance framework and supporting
processes across the Group and believes that good governance, with the tone set from the top, is a
key factor in delivering sustainable business performance and creating value for all the Group’s
stakeholders.
We reviewed our Group strategy in 2019 which remains straightforward and highly focused onbuilding customer-centric, sustainable businesses for the long-term. We strive to keep doing what
we’re doing, and do it better year after year.
In our UK insurance business, we remain determined to strengthen our core competitive
advantages and pursue our culture of innovation and test and learn approach. For example, we arecontinuing to deploy technology relating to digital and self-service to improve the customer
experience and overall efficiencies.
We also continue to take what we do well and what we learn to new markets and new products,
both in the UK and abroad. We are agile enough to adapt to evolving business environments andencourage entrepreneurial initiatives to solve challenges and offer the best outcome to ourcustomers, people and investors. One example is the launch of Household insurance in France.
From a governance perspective, we have applied the principles of the new Corporate Governance
Code which ensures that we will continue to take on board the views of all of our stakeholders inour discussions and decision making. As you would expect, we already have strong links with ourpeople and in 2019, the Board revisited and enhanced several areas of focus including our culture,engagement, diversity, our impact on the environment and climate change, and how we give backand participate in the communities in which we operate through our Ministry of Giving.
To ensure that we further enhance the strong links between the Board and Admiral employees, wehave set up an Employee Consultation Group (ECG). This group, elected by employees, meets on aregular basis and provides a two-way link between the Board and wider staff. I and other members

4

of the Board have had the privilege of attending these sessions and I am impressed by the passion
and energy our people have for continuing to shape the business and a real desire to ensure that
we remain a great company to work for. An example of this is considering ways in which we canbetter use flexible working.
There is further work to do to ensure that views of our international employees across the Groupare better represented, so we will be building on this approach over the next twelve months.
Once again Admiral was recognised as a Great Place to Work in 2019. We were awarded the
Sunday Times best company to work for in the UK, 7th best multinational workplace in Europe, 3rdbest workplace for women in the UK and 18th best workplace in the world! Of course, this his
doesn’t happen by accident. We continue to believe that if people like what they do, they do it
better. Our people feel involved because they have a voice, they are shareholders in our business,and they genuinely care.
Having our people as shareholders remains a distinctive element of Admiral’s incentive schemes
These are designed to ensure that decisions are made by management to support long-term value
growth, that the right behaviours are rewarded and that our people’s interests are aligned withthose of shareholders. Our core belief is that over the long-term, share appreciation depends ondelivering great outcomes for our customers.
During the year, I had the pleasure of visiting our operations in the UK, France, Italy, Spain and the
US where I was able to engage with a wide variety of people. It is always wonderful to see theAdmiral culture so deeply ingrained in offices across the globe. This culture was just as clearly
embedded for me at the annual Staff General Meeting and the annual management off-site event.
In 2019, the Board also attended a Claims education session in Newport as part of our ongoing
Board education programme, and we each had the opportunity to engage with claims employees
and visit a local repairer which was very insightful in seeing more evidence of our service inpractice.
The Board and I feel that there is a good balance of experience, skills and knowledge to support
and challenge the management team, and that operations are supported by effective governanceand control systems. There have been no changes to the Board composition in 2019 following
three new appointments in 2018 but the Board and I expect to appoint an additional non-executive
director with a technology background in early 2020. We will continue to review all aspects ofdiversity to ensure that we are well-prepared to guide the Group through our next phase of
growth.
During the year the Board and each of its Committees undertook reviews of their effectiveness. As
part of the three-year cycle we undertook an external effectiveness review of the Board in 2019,
including consideration of the principles of the 2018 Corporate Governance Code. The conclusions
provided useful feedback on its performance.
Our focus areas for the Board remain to:••Continue to build on the remarkably special Admiral culture and in so doing putting ourpeople, customers and wider impact on the community at the heart of what we doContinue the history of growth, profitability and innovation
5

•

•

Invest in the development and growth of our people – we have focused on the quality anddevelopment of our senior management team, added to our talent base by some externalhires, and reviewed our succession pipeline
Ensure excellent governance and the highest standards

Our role in Society
Admiral takes its role in society very seriously and has an active approach to Corporate
Responsibility (more information in Corporate Social Responsibility Report on the Admiral website)
We are proud to be Wales’ only FTSE 100 headquartered company and employ over 7,000 people
in South Wales. Our people play an active part in the communities in which we operate. We
carefully consider our impact on the community and environment, including factors such as thegreen credentials of our buildings, raising funds for multiple charities, and considering the impact
of climate change across the business.
This year we reviewed our responsible investment policy with regard to our ESG positioning. We
aim to be an economically strong and responsible business over the long-term, guided by a clear
purpose, to make a positive and significant impact not just to our customers and our people but tothe economy and society.
Thank you
On behalf of the Board I would like to thank everyone at Admiral for their continued hard work andcontribution to the Group’s results in 2019. I would also like to thank our shareholders for theirsupport and confidence. Most of all I would like to thank our customers for placing their businesswith us.
Annette Court
Group Chair
4 March 2020

6

Chief Executive’s Statement
The combination of a new decade and an imminent, if not immediate, change of leadership at
Admiral provides me with a valid excuse to comment across a longer time period than a typical CEO
statement in an annual report.
Almost a decade ago, my predecessor, Henry, with his inimitable talent for a colourful phrase tolight up a CEO statement, described the company as a “snowball going like a freight train –downhill” (2010’s CEO statement). I know I’m not alone in having enjoyed Henry’s CEO statements,
with his penchant for colourful, often gastronomic, analogies. I confess, however, in this instance, I
might have avoided both “snowball” – with associations of fragility and transience - and “downhill”– with associations of, well… “downhill”; neither of which entirely reassured on the sustainability ofAdmiral’s model.
But I did love “going like a freight train”. A freight train – not racy, not glamourous (who needs a
glamourous insurance company); but progressing ever onwards with a relentless, implacableforward momentum.
That relentless forward momentum has seen us grow, year in year out, over the decade with thenumber of customers we serve growing from 1.9 million to 7.0 million overall, and from just over
100k to 1.4 million beyond the UK, while also growing our profits from £206 million to £526 million.
Did 2019 itself fit into this narrative of relentless momentum?
Very much so. In so many ways.
It was a year which saw profits exceed £500 million for the first time, on the back of substantial
reserve releases. We crossed the million mark in household policyholders and sold our firsthousehold policy beyond the UK. By year end, we had almost sold our 100,000th loan (and have, attime of writing, done so). We believe (hard to prove it) we have become the biggest (non-fleet)
van insurer in the UK, only 2.5 years after starting to underwrite van insurance.
Alongside this rapid progress on many fronts, some data points were stubbornly stable. The
number of consecutive years amongst the top performers in the “Best Places To Work” only
nudged up from 19 years to 20.
The percentage of staff saying they are proud to work for Admiral was stuck in a narrow band in
the mid-90’s. As was the percentage of customers who said they wanted to renew with Admiralfollowing a claim.
Consistently happy staff, consistently happy customers.
Reassuringly stable outcomes, that are fundamental to our relentless forward momentum; amomentum fuelled by a sustainably healthy culture:•••

A culture that, in many different ways, attracts & retains people, at all levels, who are simply
better at their jobs than most of their peers in the industry.
A culture that respects and promotes a set of fundamental skills in risk selection, claim
handling, customer support and expense control that are core to success in insurance.
A culture that emphasises the long term over the short term; long term prosperity ahead ofshort-term financials; a sustainable balance in the outcomes for staff, customers andshareholders.

7

It is a source of huge satisfaction to me, as I contemplate the end of my period of stewardship ofAdmiral, that I will leave a wonderful company in the hands of a wonderful top management teamin Geraint, Cristina, Scott & Elena, very ably supported by great leaders running important
subsidiaries and key Group functions. They are collectively more than capable, of not justsustaining, but also of evolving, Admiral’s potent culture. And I am particularly glad that, in Milena,
I have a successor who has the intelligence, the values, the track record and the clarity of vision totake on the role of Group CEO; to “reinterpret” the culture, to maintain its relevance over the next
decade; to reinforce the elements that remain key to our future success; and, equally importantly,
to set aside elements that will inevitably slip past their “sell-by” date.
Thereby ensuring that Admiral will continue to “go like a freight train” in the years to come.
David Stevens, CBEGroup Chief Executive Officer
4 March 2020

8

Chief Financial Officer’s Review
A headline 10% increase in pre-tax profit - to a new record level - is a really pleasing result, and so
I’ll start my review by looking at what’s driving that very positive move:Group share pre-tax profit £m

2019

2018

ChangeUK Insurance
International Insurance
Comparison
Admiral Loans
Share scheme cost
Other
Profit

597
(1)
18
(8)
(53)
(27)
526

556
(1)
9
(12)
(49)
(24)
479

+41
+9
+4
(4)
(3)
+47

The standout item is the £41m improvement in UK Insurance profit. £11m of that comes from an
improved household result (more below). UK Motor profitability moved ahead by around £30m to£591m.
When trying to assess the change, it’s important to remember that the Ogden Discount Rate (seelater in the report for more detail) has distorted both years’ results. Firstly, 2018 was positively
impacted (£66m) when we changed our assumption of the rate, ahead of its announcement, from 0.75% to 0% at year-end. When the new rate (-0.25%) was announced (mid-2019), 2019’s result
took a hit of around £33m to adjust for our slight optimism. That means that the underlying profit
move is bigger than the £47m in the table above, though the changes in the Ogden rate during theperiod make meaningful comparison difficult. Thankfully we should see some stability in Ogden in
the coming years.
What is clear is that UK motor profit is materially higher in 2019 than prior years. That has been
driven by unusually high UK motor reserve releases that resulted from improved reserve estimatesacross a number of years. This in part is due to some ‘unclogging’ of large claims settlements
caused by the recent certainty, but also generally much more positive trends on big claims than we
expected. Admiral of course is (and I believe always should be) consistently prudent in setting
reserves and normally expects significant releases, but 2019 has been well above average (29% v
21% over the previous five years). Profit commission revenue was also well ahead of recent years.
To give an idea of quantum, if the reserve release for 2019 (defined as reserve releases on
Admiral’s original net share of the business as a percentage of current year net premium revenue)
was in line with the average of the prior five years, Group profit would have been around £430
million to £450 million.
It’s also worth noting that the level of conservatism in the reserves (we usually think of it in termsof the margin above best estimate in percentage terms) is unchanged year-on-year. We were
expecting it to reduce somewhat at 2019 year-end, but the scale and nature of the positive moves
on the back years has led us to continue being as cautious as at the end of 2018 for the time being.
We would expect (though can’t guarantee of course) significant releases again in 2020, thoughpossibly not quite of the magnitude seen in 2019. We might expect the level of conservatism within
the reserves to reduce if 2020 trends are a bit more usual.
A few other observations from the results:9•Within the UK Insurance result above, our Household business made a profit of around£8m. Still relatively small to the Group (it would be over twice as big if the cost of quota
share reinsurance was excluded), but a decent £11m or so improvement on 2018’s
weather-impacted result. The business continued to grow nicely, with 17% more customers
insured. We’re hoping for some improvement in the non-weather loss ratio in the coming
years

•

In contrast (and a bit disappointingly), the International Insurance result remained flat at a
£1m loss in 2019. This comprised a better European result (£9m v £7m) offset by a higher
US loss (£10m v £8m). This four-point-higher-loss-ratio-driven US result is discussed
further below, whilst the overall international result needs to be considered alongside avery healthy 16% growth in the number of active policies at year-end•

The Comparison segment produced a very pleasing (stellar even?) doubling of profit (£18m
v £9m). Confused.com led the way and more detail on that is below. Revenue growth was
also strong at 14%•

Admiral Loans grew its outstanding balances to £455m (+52%) whilst revenue more thandoubled. Importantly, headcount was basically flat, a nice insight into the efficiency of thebusiness. The loss reduced to £8m - in line with expectation and arrears were also in linewith plan•

Finally, ‘other’ costs were up around £8m on last year. The biggest component as you cansee is the Admiral share scheme charge which increased (£49m to £53m) as a result of
improved vesting assumptions (improved financial results and strong shareholder return)and the higher share price. We will also pay all our employees a cash bonus of £500 inrecognition of the huge contribution to the Group’s strong 2019 results (around £6m)

Further details on the numbers are set out throughout the strategic review section of the report.
Highlight – Confused.com
Picking a highlight from such a strong set of results was reassuringly tough. Options included agood turnaround in UK household profit (plus decent growth, surpassing one million customers),
strong growth and an improved result at L’olivier in France, continued great progress in Admiral
Loans (not forgetting the UK motor profit). But there’s one standout for me, so let’s hear a bit
more about Confused.com.
The improvement in performance under Louise and team’s leadership over the past two years has
been stark:
2017
2018
2019
2019 v 2017
Revenue
Operating profit
Operating profit %£87.1m£10.1m12%£95.1m£14.3m15%£112.7m£20.4m
18%

+29%
+102%
+50%

A number of factors have contributed to that very nice doubling of profit v 2017 – even more focus
on profitability and cost efficiency, very notable improvements in marketing, customer experienceand product.

10

From a marketing perspective, brand awareness has significantly improved and, in particular,
spontaneous awareness almost doubled in 2019. No doubt you’ll have enjoyed Confused.com’s
sponsorship of the Rugby World Cup on TV whilst desperately hoping for a Welsh win (Marketing efficiency was also improved.

)

Confused’s product offering is better than it was two years back, as is the customer
journey. Results from products beyond car insurance comparison have improved significantly.
Great work Louise plus Andy, John, Karen, Sam, Steve, Tamsin and the whole Confused.com team!
Less pleasing – Elephant AutoFor balance and as hinted above, a disappointment in 2019 was the reversal in the trend of
improving financials for Elephant Auto and associated write down of the carrying value in theparent company financial statements.
The last few years have seen some great progress at Elephant. Some examples from 2019 include
notable improvements in service levels (leading to a big increase in Net Promotor Score) andtechnology (online self-service as one example), launching a second brand and diversifying
distribution channels, amongst others.
But 2019 will probably be most remembered for a deterioration in loss ratio (2019 underwriting
year is projected around 77% v 74% for 2018 at the same point of development) when we were
expecting the opposite. Much action is being and has been taken (including underwriting rulechanges and significant rate increases) and improving the loss ratio will continue to be a (oractually, the) major area of focus in 2020. Some additional conservatism has also been built into
the booked reserves at the end of 2019.
Partly because of the result being worse than plan, we changed to using shorter-term projections
for the carrying value impairment test. Whilst we remain confident that Elephant’s result will
improve in the short-term, and the business will go onto profitability in the (ideally) not too distantfuture, this led us to conclude that further impairment to the carrying value was required and a£66m charge was taken in the 2019 parent company accounts.
I have faith in our team in Richmond to improve the results in 2020 (no pressure Alberto!).
Finally, I should also give an update on the status of our internal capital model. Our team has
continued its intensive work, with key tasks during 2019 including remediation of previous findings
and having the updated model retested, by independent internal and external
validators. Positively, none of that work has moved the overall capital position materially.
In terms of next steps – we expect to move into a pre-application phase with the PRA and Gibraltar
regulators in the middle of 2020. That process involves an assessment of our application against
the requirements and can last six months. After that there would be a further number of months
for us to fix any issues that came out of that review. Then we’d be in a position to make a formal
application, and realistically we’d now expect that to be in 2021.
In March 2016’s CFO statement I counted myself very lucky to have worked for Admiral’s first CEO,Henry Engelhardt, who was about to retire after a reasonable 25 year shift in charge. The exact
same sentiment applies to my current boss - Admiral’s second CEO and cofounder, David. We’ll
pay fuller tribute when David actually steps down after the transition, so I’ll just say that I’m very
11

delighted we’ve been able to name Milena as David’s successor. Having sat back-to-back to her fora year or so (occasionally getting a word in 😉), I know she’ll do an amazing job as Admiral’s third
CEO and I’m really forward to working with her and continuing to be part of Admiral’s leadershipteam for the foreseeable. Congratulations Milena!
Geraint Jones
Chief Financial Officer
4 March 202012

2019 Group Overview
2019
3.46

2018
3.28

2017
2.96

Underwriting profit including investment income*1
Profit commission
Net other revenue and expenses
Operating profit
Group Statutory profit before tax
Group’s Share of profit before tax*1

238.0
114.9
182.3
535.2
522.6
526.1

211.2
93.2
183.1
487.5
476.2
479.3

177.7
67.0
170.2
414.9
403.5
405.4

UK Insurance
International Insurance
Comparison
Loans
Other
Group’s Share of profit before tax*1

597.4
(0.9)
18.0
(8.4)
(80.0)
526.1

555.6
(1.1)
8.8
(11.8)(72.2)
479.3

465.5(14.3)
7.1(4.4)(48.5)
405.4

Key metrics:
Group loss ratio*1*2Group expense ratio*1*2Group combined ratio*1
Customer numbers (million)

64.9%
23.7%
88.6%
6.98

67.3%
22.9%
90.2%
6.51

66.2%
21.5%
87.7%
5.73

Earnings per share
Dividends
Return on Equity*1
Solvency Ratio

148.3p140.0p52%
190%

137.1p126.0p56%
194%117.2p114.0p55%
205%£m
Turnover (£bn) *1*2

*1
*2

Alternative Performance Measures – refer to the end of this report for definition and explanation
See note 13 for a reconciliation of Turnover and reported loss and expense ratios to the financial statements

Key highlights of the Group’s result for 2019 are as follows:
•
•
•

•

•

Continued growth in turnover (£3.46 billion, up 5% on 2018) and customer numbers (6.98
million, up 7% on 2018)
Group’s share of pre-tax profits of £526.1 million (2018: £479.3 million) and statutory profit
before tax of £522.6 million (2018: £476.2 million)
The main driver of the strong growth in Group profit was a higher UK Insurance result,which benefitted from very positive development in prior years claims costs and elevatedreserve releases and profit commission, partially offset by higher central costs
UK Insurance turnover and customers both increased by 2% and 4% respectively to £2.63
billion and 5.5 million (2018: £2.58 billion and 5.2 million), as the business continued toprioritise margin over volume by increasing rates ahead of the market
UK Household saw strong growth in turnover and customer numbers, with an improved
result of £7.5 million (2018: £3.0 million loss) after more benign weather experience in2019 in comparison to 2018

13

•

•

The European insurance businesses delivered a higher profit of £8.7 million (2018: £6.4
million), offset by an increased loss in the US insurance business (£9.6m in 2019 v £7.5m in2018). The overall international insurance loss was £0.9 million (2018: £1.1 million loss).
The Comparison businesses recorded aggregate profits (excluding minority interests’ share)of £18.0 million (2018: £8.8 million), with the increase mainly driven by a very strong profit
from Confused.com of £20.4 million (2018: £14.3 million)

Change in UK discount rate (‘Ogden’)Following the announcement in mid-2019 by the UK Government, the Ogden discount rate, which
is used in setting personal injury compensation, was changed to minus 0.25% from the existing
minus 0.75% rate that had been in place since February 2017. The change came into effect on 5
August 2019 and the minus 0.25% rate is expected to remain in place for up to the next five years.
Admiral assumed a 0% rate in setting best estimate claims reserves at 31 December 2018 and2018’s pre-tax profit was positively impacted by £66 million as a result of the move from minus
0.75%. As a result of the actual rate being 25 basis points lower than the assumed 0%, 2019’s profit
before tax is adversely impacted by around £33 million.
Earnings per share
Earnings per share increased by 8% to 148.3 pence (2018: 137.1 pence), with growth slightly lower
than the pre-tax profit growth of 10% due to an increase in the weighted average number ofshares.
Dividends
The Group’s dividend policy is to pay 65% of post-tax profits as a normal dividend and to pay afurther special dividend comprising earnings not required to be held in the Group for solvency
capital requirements including management internal risk appetite above the regulatory minimum.
The Board has proposed a final dividend of 77.0 pence per share (approximately £222 million), split
as follows:••

56.3 pence per share normal dividend, based on the dividend policy of distributing 65% of
post-tax profits; plus
A special dividend of 20.7 pence per share

This final dividend is 17% ahead of the 2018 final dividend (66.0 pence per share), with a pay-out
ratio of 90% for H2 2019.
The total dividend for the 2019 financial year is 140.0 pence per share, reflecting an 11% increaseon 2018 and a 94% pay-out ratio.
The payment is due on 1 June 2020, ex-dividend date 7 May 2020 and record date 11 May 2020.
Return on equity
The Group’s return on equity was 52% in 2019, lower than the 56% in 2018. Whilst the Group’s
share of post-tax profits grew by 9%, the group’s share of average equity grew faster at 19%

14

resulting in a lower overall return. The significant growth in profits in the second half of 2019
contributed to the increase in the group’s share of equity.
Capital structure and financial position
The Group’s co-insurance and reinsurance arrangements for the UK Car Insurance business are inplace at least until the end of 2020. The Group’s net retained share of that business is 22%. Munich
Re will underwrite 40% of the business, through co-insurance (30%) and reinsurance (10%)
arrangements, until at least the end of 2020. Extensions beyond 2020 are expected to be
confirmed during the first half of 2020.
Similar longer-term arrangements are in place in the Group’s international insurance operations
and the UK Household and Van businesses.
The Group continues to manage its capital to ensure that all entities are able to continue as going
concerns and that regulated entities comfortably meet regulatory capital requirements. Surplus
capital within subsidiaries is paid up to the Group holding company in the form of dividends.
The Group’s regulatory capital is based on the Solvency II Standard Formula, with a capital add-on
to reflect recognised limitations in the Standard Formula with respect to Admiral’s business(predominantly in respect of profit commission arrangements in co- and reinsurance agreements
and risks arising from claims including Periodic Payment Order (PPO) claims).
The Group continues to develop its partial internal model to form the basis of future capitalrequirements and expects to enter the PRA’s pre-application process during 2020. Formal
application for regulatory approval to use the model is expected to follow in 2021. In the interim
period before submission, the current capital add-on basis will continue to be used to calculate theregulatory capital requirement.
The estimated and unaudited regulatory Solvency II position for the Group at the date of thisreport is as follows:
Group capital position (unaudited)Group
Eligible Own Funds (pre 2019 final dividend)2019 final dividend
Eligible Own Funds (post 2019 final dividend)
Solvency II capital requirement*1
Surplus over regulatory capital requirement
Solvency ratio (post dividend)*2

£bn
1.42
0.22
1.20
0.63
0.57
190%

*1 Solvency capital requirement includes updated capital add-on which is subject to regulatory approval.
*2 Solvency ratio calculated on a volatility adjusted basis.

The Group’s capital includes £200 million ten year dated subordinated bonds. The rate of interest isfixed at 5.5% and the bonds mature in July 2024. The bonds qualify as tier two capital under the
Solvency II regulatory regime.
Estimated sensitivities to the current Group solvency ratio are presented in the table below. Thesesensitivities cover the two most material risk types, insurance risk and market risk, and within these15risks cover the most significant elements of the risk profile. Aside from the catastrophe events,
estimated sensitivities have not been calibrated to individual return periods.
Solvency ratio sensitivities (unaudited)
2019
-23%
-1%
-2%
-5%
-8%
-3%
-3%
-3%

UK Motor – incurred loss ratio +5%
UK Motor – 1 in 200 catastrophe event
UK Household – 1 in 200 catastrophe event
Interest rate – yield curve down 50 bps
Credit spreads widen 100 bps
Currency – 25% movement in euro and US dollar
ASHE – long term inflation assumption up 0.5%
Loans – 100% worsening in experience

2018
-27%
-2%
-2%
-12%
-5%
-3%
-10%
-1%

The sensitivity to interest rates and long-term ASHE inflation is lower at the end of 2019, comparedto the previous year end. This reflects a reduction in the assumption of the number of open claims
that are expected to settle as periodic payment orders.
Taxation
The tax charge reported in the consolidated income statement is £94.2 million (2018: £85.7
million), equating to 18.0 % of pre-tax profit (2018: 18.0%).
Investments and cash
Investment strategy
Admiral Group’s underlying investment strategy remains the same - the main focus is on capitalpreservation, with additional priorities including low volatility of returns, high levels of liquidity andappropriate matching of asset/liability duration and currency. All objectives continue to be met.
The Group’s Investment Committee performs regular reviews of the strategy to ensure it remains
appropriate.
Admiral’s investment approach evolved in two main ways during 2019:• Formal adoption of a responsible investment strategy which focusses on ensuring
Environmental, Social and Governance criteria are considered within investment decision
making• Widening the opportunity set of investments to achieve greater returns without materialchange in market risk capital allocated to investments. Examples included high quality (AAA)asset backed securities, private debt assets and global bond strategies, actively managed on a
total return basis
Cash and investments analysis£mFixed income and debt securities
Money market funds and other fair value instruments
Cash deposits
Cash
Total

2019
1,957.8
1,160.2
116.5
281.7
3,516.2

2018
1,568.6
1,301.1
100.0
376.8
3,346.5

2017
1,493.5
1,074.3
130.0
326.8
3,024.616

Investment and interest income in 2019 was £35.3 million, a decrease of £0.7 million on 2018(£36.0 million). 2019 investment income is negatively impacted by an accrual of £12.9 million
relating to quota share reinsurance arrangements (2018: nil). Excluding this, investment andinterest income in 2019 was £48.2 million, an increase of £12.2 million compared to 2018 due tohigher average balances and an increase in the average rate of return in 2019, partly due to thechanges noted above. Fixed income was increased by rebalancing other holdings, and new
mandates including very high-quality asset backed securities and senior private debt.
The underlying rate of return for the year (excluding accruals related to reinsurance contract funds
withheld) on the Group’s cash and investments was 1.4% (2018: 1.2%).
The Group continues to generate significant amounts of cash and its capital-efficient businessmodel enables the distribution of the majority of post-tax profits as dividends.
Cash flow£m
Operating cash flow, before movements in investments
Transfers to financial investments
Operating cash flow
Tax payments
Investing cash flows (capital expenditure)
Financing cash flows
Loans funding through special purpose entity
Net contributions from non-controlling interests
Foreign currency translation impact
Net cash movement
Movement in unrealised gains on investments
Movement in accrued interest
Net increase in cash and financial investments

2019
518.1
(188.7)329.4(92.8)(33.6)(392.4)
85.9
1.6
6.8
(95.1)
34.6
41.5
169.7

2018
488.5
(248.8)239.7(55.6)(23.9)(346.8)
220.2
19.3
(2.9)
50.0
(26.6)
49.7
321.9

2017
617.6
(229.4)388.2(55.9)(22.7)(310.0)
0.6
0.2
11.2
37.0
277.8

The main items contributing to the operating cash inflow are as follows:£m
Profit after tax

2019
428.4

2018
390.5

2017
331.6

Change in net insurance liabilities
Net change in trade receivables and liabilities
Change in loans and advances to customers
Non-cash income statement items
Taxation expense
Operating cash flow, before movements in investments

50.4
27.4
(168.7)
86.4
94.2
518.1

176.6
14.9
(242.9)
63.7
85.7
488.5

53.2
195.2
(65.2)
30.9
71.9
617.6

Net cash and investments have increased by £169.7 million or 5% (2018: £321.9 million, 11%). The
main drivers include the Group’s share of increase in funding for the Admiral Loans business,increased tax payments in 2019 (due to timing) and increased dividend payments.

17

The Group’s results are presented in the following sections as:•

UK Insurance – including UK Motor (Car and Van), Household, Travel•

International Insurance – including L’olivier (France), Admiral Seguros (Spain), ConTe(Italy), Elephant (US)•Comparison – including Confused.com (UK), LeLynx (France), Rastreator (Spain),Compare.com (US), Preminen (emerging markets)

UK and European Insurance Review – Milena Mondini, Group CEO Designate
What an eventful year! I’m sure that 2019 will remain particularly memorable for breaking the halfbillion profit record. In the UK, unusually high reserve releases in UK motor was the driver, whilst
the European operations showed a combined profit for the second year.
While in the UK, the theme was ‘discipline’ and we slowed growth in a high claims inflation
environment, in Europe, the focus was ‘growth’ (still with discipline) in order to reach economies ofscale and gather more data to improve technical results and customer outcomes.
Our 2019 strategy review has strengthened our belief that sustainable growth for Admiral Groupwill be achieved by building on our competitive advantages and driving product diversification in all
the countries in which we operate. On both points, it has been great to witness stronger
collaboration amongst our insurance businesses across the world over the past twelve months.
Most ongoing business priorities are similar in the different countries: a better digital experiencefor our customers, excellence in analytics, continuous improvements in technology and new
product development, all enabled by new ways of working.
At the same time, we increased focus on product diversification, with a view to deploy our corecompetencies and to better serve our customers. In the UK, we saw our household team hit a key
milestone of 1 million customers, and continued growth in our van and travel insurance businesses.
In Europe, we expanded into the household insurance market with the launch of Homebrella inFrance, a renter focused product, prior to the launch of a fully-fledged renters and ownerproposition in early 2020.
Overall, 2019 was a good year focusing on what we do best, and what we do next – supported by astrong team and an even stronger focus to continue to build a long-term business for the future.
UK Insurance Review – Cristina Nestares, CEO UK Insurance
One of the things I enjoy most about my role at Admiral is that I get an opportunity to visit thevarious sites we have across South Wales, Canada and India and to spend time with the people thatreally make this company. And by that, I mean the people who sell our policies, talk to ourcustomers, and most importantly help them when they need it most – whether that’s to getinsurance for their new car or dealing with their needs if their home has been flooded.
It’s our people’s enthusiasm to come to work that makes Admiral’s culture a little bit different andmakes it a great place to work, which drives forward our desire to improve the service andproducts we offer to customers. And ultimately, providing great service and keeping our customers

18

happy (along with strong, disciplined underwriting capability, of course) drives and delivers our
results each year.
This year’s results are a new high for the business, as very strong back year developments haveresulted in record releases and our highest ever recorded profits. Whilst this release is muchhigher than we’ve seen in recent years and largely influenced by increased settlement speeds due
to Ogden certainty, I believe that it also demonstrates of our market-leading ability to price risks
and our effective claims handling processes.
Moving forward with automation and digital capabilities is fundamental if we’re to ensure that
Admiral maintains its position at the forefront of the insurance market in the UK, and we’ve madestrong strides this year that will help us into the future.
An example is the launch of our InstaQuote household product. Throughout our history, we’ve
recognised that our customers want quick, efficient and value-for-money services, which is exactly
what this tool provides. It’s dramatically reduced the time taken to get a price, which makes lifeeasier for the customer, and has helped us to break through the 1 million customers mark just 7
years after launching! We also won the Moneynet Personal Finance Best Household Insurer award
in 2019!
In addition to improving the household customer journey, we’ve also been enhancing our motor
insurance journey by opening more digital communication routes to help customers interact with
us and make changes via the web and to register claims electronically. The traditional channels arestill available, of course, but many of our customers (both young and old) favour quicker, more
flexible channels of interaction, which have the added benefit of efficiency for us.
In the last couple of years, this increased investment has contributed to the slight increase in our
expense ratio (albeit from a very low base, and with additional levies being the greatest contributor
to the expense ratio increase in 2019). However, these changes leave us well placed to deal withthe challenges and customer demands of 2020 and beyond. The development of digital channels
and automating our back-office processes are also important for the claims reforms (or Civil
Liability Bill) that come into force in the second half of 2020, which should allow us to service
claims under the lower cost regime and pass the savings to customers whilst maintaining ourcompetitive advantage.
Whilst on the topic of regulation and customers, we welcome the pricing study that is being
undertaken by the FCA, particularly in relation to the household market where many customers’
policies have stagnated at a single provider and increased in price for many years. When welaunched Confused.com in 2002, we saw that customers wanted pricing transparency and the bestprice, and the comparison channel has delivered most of our motor and car customers ever since.
We’re therefore very pleased that changes to encourage customers to shop around (as most of ourmotor and home customers already do) and will provide Admiral with further opportunity to growthe Household customer base towards its second million!
In conclusion, I’d like to thank our people for their hard work in 2019 and our customers for theirtrust in us – as ultimately, we are here to serve our customers!

19

UK Insurance review
UK Insurance financial performance£m
Turnover*1
Total premiums written
Net insurance premium revenue
Underwriting profit including investment income*1
Profit commission and other income
Group’s share of UK insurance profit before tax*1

2019
2,635.0
2,321.7
533.2
257.4
340.0
597.4

2018
2,575.7
2,269.8
523.9
227.7
327.9
555.6

2017
2,354.0
2,098.0
491.6
206.2
259.3
465.5

*1

Alternative Performance Measures – refer to note 13 at the end of this report for definition and explanation

Split of UK Insurance profit before tax£m
Motor
HouseholdTravelGroup’s share of UK insurance profit

2019
591.5
7.5
(1.6)
597.4

2018
561.7
(3.0)
(3.1)
555.6

2017
461.4
4.1
465.5

2019
4.37m
1.01m
0.09m
5.47m

2018
4.32m
0.87m
0.05m
5.24m

2017
3.96m
0.66m
4.62m

Key performance indicators
Vehicles insured at year end
Households insured at year end
Travel policies insured at year end
Total UK Insurance customers*1*1

Alternative Performance Measures – refer to the end of the report for definition and explanation.

Key highlights for the UK insurance business for 2019 include:
•

•

•

•
•

Modest growth in Motor customers but continued strong growth in Household with
Admiral increasing rates ahead of the market throughout 2019 for Motor and maintaining
rates for Household
A 5% increase in UK Motor profit to £591.5 million (2018: £561.7 million) primarily as aresult of increased reserve releases due to an increase in the speed of settlements of largebodily injury claims and increased certainty post the change in the Ogden rate in mid-2019
This is partially offset by an adverse change in the ‘one-off’ Ogden impacts (favourable
impact in 2018, adverse impact in 2019). Refer to the UK motor section below for further
analysis of the underlying growth on key metrics such as loss ratio, reserve releases andprofit commission
Household profit of £7.5 million (2018: £3.0 million loss) as a result of more benign
weather experience in 2019
Travel insurance product saw a lower loss of £1.6 million (2018: £3.1 million loss)

20

UK Motor Insurance financial review£mTurnover*1
Total premiums written*1
Net insurance premium revenue
Investment income*2
Net insurance claims
Net insurance expenses
Underwriting profit including investment income*3
Profit commission
Underwriting profit and profit commission
Net other revenue*4
UK Motor Insurance profit before tax

20192,455.3
2,158.5
452.6
30.4(164.7)(74.7)
243.6
112.2
355.8
235.7
591.5

2018
2,423.1
2,132.1
452.5
32.2(189.2)(72.0)
223.5
95.0
318.5
243.2
561.7

2017
2,246.9
2,001.5
433.2
32.6(214.2)(59.7)
191.9
64.7
256.6
204.8
461.4

*1 Alternative Performance Measures – refer to the end of this report for definition and explanation*2 Investment income includes £2.8 million of intra-group interest (2018: £0.7 million; 2017: nil)
*3 Underwriting profit excludes contribution from underwritten ancillaries (included in net other revenue)*4 Net other revenue includes instalment income and contribution from underwritten ancillaries and isanalysed later in the report.

Key performance indicators£m
Reported motor loss ratio*1,*2
Reported motor expense ratio*1,*3
Reported motor combined ratio
Written basis Motor expense ratio
Reported loss ratio before releases
Claims reserve releases – original net share*1,*4
Claims reserve releases – commuted reinsurance*1,*5
Total claims reserve releases
Other Revenue per vehicle
Vehicles insured at year end

2019
60.7%
19.1%
79.8%
18.5%
87.6%

2018
63.5%
18.4%
81.9%
17.5%
88.1%

2017
64.1%
16.2%
80.3%
15.8%
85.3%

£121.7m£121.7m£243.4m£111.4m£109.6m£221.0m£92.1m£73.8m£165.9m

£66
4.37m

£67
4.32m

£64
3.96m

*1 Alternative Performance Measures – refer to the end of this report for definition and explanation*2 Motor loss ratio adjusted to exclude impact of reserve releases on commuted reinsurance contracts.
Reconciliation in note 13b.
*3 Motor expense ratio is calculated by including claims handling expenses that are reported within claims
costs in the income statement. Reconciliation in note 13c.
*4 Original net share shows reserve releases on the proportion of the portfolio that Admiral wrote on a net
basis at the start of the underwriting year in question.
*5 Commuted reinsurance shows releases, net of loss on commutation, on the proportion of the account thatwas originally ceded under quota share reinsurance contracts but has since been commuted and hence
reported in underwriting profit rather than profit commission.

UK Motor profit increased by 5% during 2019 to £591.5 million (2018: £561.7 million) and vehicles
insured rose very modestly to 4.37 million (2018: 4.32 million), whilst the reported combined ratio
improved to 79.8% (2018: 81.9%). Net insurance premium revenue was consistent with the priorperiod. The results were impacted by a number of factors:

21

•The current period loss ratio was 87.6% (2018: 88.1%). As highlighted below, there are anumber of offsetting movements that net to the overall improvement of 0.5%pts:

Reported Motor Loss Ratio

2018
Prior period impact of Ogden change (-0.75% to 0%)
Change in underlying current period loss ratio
Change in underlying claims reserve release2019 (excluding Ogden change)
Add Impact of Ogden change (0% to - 0.25%)
2019

Current
PeriodLoss Ratio
88.1%
-1.5%
86.6%
+1.0%
87.6%

Releases on Reported
Original Net Loss Ratio
Share-24.6%
63.5%
+4.0%
+4.0%
-1.5%
-8.7%
-8.7%
-29.3%
57.3%
+2.4%
+3.4%
-26.9%
60.7%•

The unfavourable Ogden change in 2019 (0% to minus -0.25%) increased the current period
loss ratio by 1.0 ppt. Excluding this impact, the current period loss ratio is 86.6%, which canbe compared to the 2018 ratio of 88.1% (both at Ogden 0%). The underlying improvementof 1.5 ppts reflects a slightly lower level of margin held above the projected ultimate
outcome for the current accident year, when compared to 2018 at the same point.

•

Reserve releases on Admiral’s original net share of business improved the reported loss
ratio by 26.9 ppts in 2019. Excluding the adverse Ogden impact increases this to 29.3 ppts
which is 4.7 ppts higher than in 2018 (24.6 ppts) and well above historical results. The
underlying increase, after excluding the favourable one-off Ogden impact in 2018 is 8.7
ppts.

•

This underlying improvement in the level of reserve release is unusually large and the main
driver of the increase in reported profits. It is the result of a significant level of favourable
development in ultimate projections of prior underwriting years which in turn can bebroadly attributed to an increase in the speed of settlements in larger bodily injury claims
following the confirmation of the new Ogden rate.

•

Despite the significant level of reserve release (in both projected ultimate and financial
statement loss ratios), the margin held above ultimate outcomes in the financial statement
reserves remains both significant and prudent. In both absolute and relative terms, theaggregate level of margin held across current and prior underwriting years, remains
consistent with that held at the end of 2018.

•

Reserve releases from commuted reinsurance and profit commission were higher in 2019,as follows:

22

£m

2018
Prior period Impact of Ogden change (- 0.75% to 0%)
Change in underlying commuted releases
Change in loss on commutation
Change in underlying profit commission
2019 (excluding Ogden change)
Add Impact of Ogden change (0% to minus 0.25%)
2019

Reservereleases –commutedreinsurance
109.6
-17.2
+11.3
+27.0
130.7
-9.1
121.7

Profitcommission

Total

95.0
-18.4
+44.5
121.1
-8.8
112.2

204.6
-35.6
+11.3
+27.0
+44.5
251.8
-17.9
233.9

•

Releases on reserves originally reinsured but since commuted is higher at £121.7 million (v£109.6 million in 2018)•

There are a number of offsetting underlying movements, including a lower impact of theaccounting loss on commutation (2019: £4.9 million; 2018: £31.9 million) and an underlying
improvement in the level of commuted releases in line with the favourable development
noted above, offset by an unfavourable net impact of one-off Ogden changes in both years•

The trend is similar for profit commission which improved to £112.2 million (2018: £95.0
million). Underlying profit commission improved by £44.5m, primarily as a result of thefavourable development of prior underwriting years•

Investment income was slightly lower than 2018 at £30.4 million (2018: £32.2 million) withan underlying increase of £11.1m (due to both an increase in yield and growth in the assetbase) more than offset by notional investment income accruals on reinsurance funds
withheld balances of £12.9 million (2018: £nil)•

The written and reported basis expense ratios increased in 2019 with a number of factors
impacting: non-acquisition costs was the main driver primarily through levies and to alesser extent, investment in IT and claims as the skills and foundations to build further
competitive advantages in these areas are strengthened•

Other revenue (including ancillary products underwritten by Admiral) and instalment
income decreased to £235.7 million (2018: £243.2 million) primarily resulting from lower
contribution from optional ancillaries

Market prices remained subdued during the year with some evidence of increases in the latermonths as a result of elevated levels of claims inflation. Admiral continued to prioritise margin overgrowth, and increased prices ahead of the market. As a result, slight new business growth and good
retention contributed to customer numbers (4.37 million v 4.32 million) and turnover (£2.46 billionv £2.42 billion) being both up by 1%.
Claims and reserves
Notable claims trends for Admiral and the market in 2019 were similar to 2018, including a slowdown in the reduction in small injury claims frequency and continuing inflation in damage claims
costs. The first projection of the impact of large bodily injury claims on the 2019 loss ratio is
consistent with the projection of 2018 at the end of 2018.
23

The Group continues to reserve conservatively, setting claims reserves in the financial statements
well above actuarial best estimates to create a margin held to allow for unforeseen adverse
development.
As noted above, the Group experienced continued positive development of claims costs on
previous underwriting years as a result of increased speed of large bodily injury settlements andincreased certainty related to the Ogden rate, in addition to a small number of positive very large
claims settlements. These factors led to another significant release of reserves in the financial
statements in the period (£121.7 million on Admiral’s original net share, up from £111.4 million).
The margin held in reserves is prudent and significant and remained at a consistent level year-onyear.
UK Car Insurance – co-insurance and reinsurance
Admiral makes significant use of proportional risk sharing agreements, where insurers outside theGroup underwrite a majority of the risk generated, either through co-insurance or quota sharereinsurance contracts. These arrangements include profit commission terms (see below) whichallow Admiral to retain a significant portion of the profit generated.
Munich Re and it’s subsidiary entity, Great Lakes will underwrite 40% of the UK motor business
until at least 2020, with future extension options available to Munich Re until 2022. 30% of thistotal is on a co-insurance basis, with the remaining 10% under a quota share reinsurance
agreement from 2017 onwards.
The Group also has other quota share reinsurance arrangements confirmed to the end of 2020
covering 38% of the business written and expects to extend these or similar arrangements beyond
2020 during the first half of 2020.
The nature of the co-insurance proportion underwritten by Munich Re (via Great Lakes) is such that
30% of all motor premium and claims for the 2019 year accrue directly to Great Lakes and are notreflected in the Group’s financial statements. Similarly, Great Lakes reimburses the Group for its
proportional share of expenses incurred in acquiring and administering this business.
The quota share reinsurance arrangements result in all motor premiums and claims that are ceded
to reinsurers being included in the Group’s financial statements, but these figures are adjusted to
exclude the reinsurer share, resulting in a net result for the Group.
The Group also purchases excess of loss reinsurance to provide protection against large claims andreviews this cover annually. The level of cover purchased for 2020 reduced slightly compared to2019 due to significant increases in market prices for cover.
Profit commission
Admiral is potentially able to earn material amounts of profit commission revenue from co- andreinsurance partners, depending on the profitability of the insurance business underwritten by thepartner. Revenue is recognised in the income statement in line with the booked loss ratios on
Admiral’s retained underwriting.
Note 5c to the financial statements analyses profit commission income by business, type ofcontract and by underwriting year.
24Commutations of quota share reinsurance
Admiral tends to commute its UK Car Insurance quota share reinsurance contracts for anunderwriting year 24 months after inception, assuming there is sufficient confidence in the
profitability of the business covered by the reinsurance contract.
After the commutation is executed, movements in booked loss ratios result in reserve releases (orstrengthening if the booked loss ratio were to increase) rather than reduced or increased
reinsurance claims recoveries or profit commission.
During the first half of 2019, the majority of the 2017 quota share contracts were commuted. At 31
December 2019, quota share reinsurance contracts remained in place for a small portion of 2017
and the full 2018 and 2019 underwriting years. No further contracts were commuted in the second
half of 2019 (as is usual).
As noted above, in 2019 Admiral recognised reserve releases from commuted reinsurance
contracts of £121.7 million (2018: 109.6 million).
Refer to note 5d(v) of the financial statements for further analysis of reserve releases oncommuted quota share reinsurance contracts.
Other Revenue and Instalment Income
UK Motor Insurance Other Revenue – analysis of contribution:£mContribution from additional products & fees
Contribution from additional products
underwritten by Admiral*1
Instalment income
Other revenue
Internal costs
Net other revenue
Other revenue per vehicle*2
Other revenue per vehicle net of internal costs

2019
202.1

2018
206.5

2017
187.3

13.9
83.9
299.9
(64.2)
235.7
£66
£56

13.6
81.4
301.5
(58.3)
243.2
£67
£57

15.0
56.1
258.4
(53.6)
204.8
£64
£54

*1 Included in underwriting profit in income statement but re-allocated to Other Revenue for purpose of
KPIs.
*2 Other revenue (before internal costs) divided by average active vehicles, rolling 12-month basis.

Admiral generates Other revenue from a portfolio of insurance products that complement the corecar insurance product, and also fees generated over the life of the policy.
The most material contributors to net Other revenue continue to be:••••

Profit earned from motor policy upgrade products underwritten by Admiral, including
breakdown, car hire and personal injury covers
Revenue from other insurance products, not underwritten by Admiral
Fees such as administration and cancellation fees
Interest charged to customers paying for cover in instalments

25

Overall contribution (Other revenue net of costs plus instalment income) decreased to £235.7
million (2018: £243.2 million). This is in line with the half year expectation of a small reduction.
Whilst there were a number of smaller offsetting changes within the total, the main reasons for thedecrease is reduced optional ancillary contribution and fees, which reflects an increase intransactions completed digitally and changes to the customer journey. This was slightly offset by anincrease in instalment income primarily due to the growth in the underlying book and an increasein customers paying by instalments.
Other revenue was equivalent to a decrease to £66 per vehicle (gross of costs; 2018: £67), as aresult of the factors mentioned above. Net Other Revenue (after deducting costs) per vehicle was£56 (2018: £57).
UK Household Insurance financial performance£m
Turnover*1
Total premiums written*1
Net insurance premium revenue
Underwriting profit/(loss)*1*2
Profit commission and other income
UK Household insurance profit/(loss)

2019
171.3
154.9
37.2
0.7
6.8
7.5

2018
146.0
131.1
31.2
(6.3)
3.3
(3.0)

2017
107.1
96.5
23.1
(0.8)
4.9
4.1

*1 Alternative Performance Measures – refer to the end of this report for definition and explanation*2 Underwriting profit/(loss) excluding contribution from underwritten ancillaries

Key performance indicators
Reported household loss ratio*1
Reported household expense ratio*1
Reported household combined ratio*1
Impact of extreme weather and subsidence*1
Households insured at year end*1
*1

2019
69.1%
28.9%
98.0%
1,011,900

2018
92.3%
28.1%
120.4%
19.1%
865,800

2017
73.5%
30.0%
103.5%
659,800

Alternative Performance Measures – refer to the end of this report for definition and explanation

The number of properties insured increased by 17% to 1.01 million (2018: 0.87 million). Turnoverincreased by 17% to £171.3 million (2018: £146.0 million). New business market volumes
continued to increase, customer retention remained strong, and shopping increased via thecomparison channels.
2019 saw more benign weather than in 2018. A combined ratio of 98% (2018: 120%) resulted in asmall net underwriting profit of £0.7 million (2018: underwriting loss of £6.3 million), which was
supplemented by net other revenue and profit commission of £6.8 million (2018: £3.3 million).
UK Household insurance – reinsurance
The Group’s Household business is supported by long-term proportional reinsurance arrangements
covering 70% of the risk. In addition, the Group has non-proportional reinsurance to cover the riskof catastrophes stemming from weather events.

26

UK Insurance Regulatory environment
The UK Insurance business operates predominantly under the regulation of:•

the UK Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA) which
regulate the Group’s UK registered subsidiaries including EUI Limited (an insuranceintermediary) and Admiral Insurance Company Limited (AICL; an insurer); and•the Financial Services Commission (FSC), which regulates the Group’s Gibraltar-based
insurance company (Admiral Insurance (Gibraltar) Limited, AIGL), in that territory.

The Group is required to maintain capital at a level prescribed by the lead regulator for Solvency II
purposes, the PRA, and maintains a surplus above that required level at all times.
International Insurance review
Spain – Pascal Gonzalvez – Acting CEO (Sarah Harris is on maternity leave), Admiral Seguros
In 2019, Admiral Seguros accelerated its growth despite difficult market conditions and we finished
the year with more than 290,000 customers.
We managed to increase our new business sales by 16% while the comparison market was
shrinking. This was made possible by the structural changes on Rastreator where the user
experience was significantly improved by guaranteeing the final price to customers, having asignificant impact on conversion. Our strategy to diversify our acquisition channels has also been
bearing fruit with the development of a broker channel that is contributing to the accelerated
growth.
It was pleasing to see our overall technical results moving in the right direction despite challenges
in the cost of growth. Loss ratios are improving on prior years as expected, whilst being slightly
higher than anticipated for the 2019 underwriting year as a result of new business growth. This wasoffset by a decrease in our expense ratio as we improved internal efficiencies.
In 2020, we’re planning to keep exploring alternative acquisition channels. In our core business,
we’re about to launch new initiatives to improve loss ratio (e.g. improved anti-fraud capabilities
and innovation in risk selection). We’ll also be accelerating in improving customer experiencethrough digital capabilities (self-service) and operational optimisation (automation).
France – Pascal Gonzalvez – CEO, L’olivier Assurance
2019 was another year of strong performance for L’olivier Assurance.
It was a year of fast growth despite unfavourable market conditions. Our portfolio increased by
32%, while at the same time the aggregator market (our main acquisition channel) was shrinking.
We're pleased to see our efforts on brand awareness, direct acquisition, and conversion showing
progress and paving the way for further development in the coming years.
Not only did we grow fast, but we also grew stronger. Our portfolio grew while having somesignificant operational improvements. As a consequence, our customers like us more and more!
The benefits of our investments toward an effortless customer journey started to materialise withpeaks in customer satisfaction (net promoter score), persistency, and referrals, to name a few.

27

On the claims side, loss ratios have developed well for prior years, resulting in reserve releases.
However, the business experienced a deterioration in the 2019 loss ratio, partly due to the strong
growth of new business in 2019.
2020 is the beginning of a new chapter for L’olivier as we embark on our multi-product journey andthe launch of a new household insurance product. After launching our insurtech named
Homebrella (a home insurance product for renters and expats in France) in 2019, we’ll also launcha broader household product under the brand L’olivier in early 2020.
We look forward to continuing to #makeithappen ☺
Italy – Costantino Moretti – CEO, ConTe
ConTe closed 2019 with a profit for the sixth year in a row, whilst also achieving significant growthin turnover of 16% year-on-year.
The direct market wasn’t particularly favourable and we experienced single digit growth andchallenging competition, especially via comparison panels. Despite this context, ConTe was able togrow by leveraging on its competitiveness and on the improvements in the digital journey,particularly focussed on mobile.
ConTe is strengthening its competitive positioning in the Italian Market and continuing to invest in
the brand which is steadily increasing awareness among Italian drivers. In 2019 a new advertising
campaign was successfully launched, endorsed by Mr. Carlo Conti, who is one of the most popular
Italian TV anchors.
Our growth is bringing a significant benefit towards achieving scale and is driving an improved
expense ratio. Efficiencies were also gained thanks to investment in technology: digital, robotics
and automation are delivering the expected benefits and continue to offer interesting
opportunities for the future.
Other key metrics of the business improved which demonstrates that ConTe continues to stay
focused on its ‘sustainable growth’ strategy. Although the 2019 loss ratio deteriorated, favourable
prior year development resulted in strong reserve releases.
In a perfect Admiral-style, our people and culture continue to make the difference. We have beenrecognised for another year in a row as one of the best large companies to work for!
USA – Alberto Schiavon – CEO, Elephant Auto
Over the last year Elephant has continued with our strategy to focus on customer retention, toservice these customers efficiently by leveraging technology, and to make Elephant a great insurer
for our shareholders, customers and staff. While we undoubtedly made some great improvements
on many fronts, we have also seen some significant headwinds in our loss experience, slowing
down our speed of progress.
As mentioned at our half year results presentation, Elephant saw a higher than expected claims
ratio, deteriorating by four points compared to 2018. The main driver was increased claims
frequency as well as general market inflation, in particular in damage claims and medical costs. As aconsequence, we took a defensive approach towards margins, at the expense of growth. We
responded with numerous initiatives, including significant rate increases, especially towards certain28

lower-performing segments; and a reduction in our acquisition spend. With regard to the firstpoint, some segments of the book have seen sharp increases with obvious impact on sales andcancellations while allowing us to have better performance on the loss ratio in the coming years. As
per the second point, we have been more selective in some distribution channels, favoring some
online advertising and doing less on traditional media, enabling us to be more efficient in our
spend.
The effect of those efforts is visible in our top line numbers: while vehicles in force remained flat
year on year, our turnover grew to £233 million (2018: £214 million). Most of this turnover growthcomes from a high performing renewal book, giving confidence in our long-term strategy. The lackof policy growth meant that we couldn’t fully leverage economies of scale on our platform, and as aresult delivered a slightly improved expense ratio.
At the same time, Elephant made some significant progress in a number of areas: we further
developed our self-servicing functionalities, especially in claims management; we expanded ouracquisition channels to include some agency business; and we deployed some important newfeatures to our risk selection. We expect that these will ultimately translate into further growth,within profitable segments, at very good incremental costs. Finally, I am grateful to all Elephantemployees for their high level of commitment in delivering such a high volume of projects, and forbuilding such a strong foundation for a sustainable long-term business.
International Car Insurance financial performance£m
Turnover*1
Total premiums written*1
Net insurance premium revenue
Investment income
Net insurance claims
Net insurance expenses
Underwriting result including investment income*1
Net other revenue
International Car Insurance result

2019
623.6
562.6
168.6
1.5
(137.2)(53.0)(20.1)
19.2
(0.9)

2018
538.7
484.3
141.7
1.3
(104.0)(55.8)(16.8)
15.7
(1.1)

2017
449.8
401.4
123.0
0.6
(94.1)(58.0)(28.5)
14.2(14.3)

Key performance indicators
Reported Loss ratio*2
Expense ratio*2
Combined ratio*3
Combined ratio, net of Other Revenue*4

77%
37%
114%
104%

76%
40%
116%
105%

76%
45%
121%
109%

Vehicles insured at period end

1.42m

1.22m

1.03m

*1
*2

*3

Alternative Performance Measures – refer to the end of this report for definition and explanation.
Loss ratios and expense ratios have been adjusted to remove the impact of reinsurer caps so theunderlying performance of the business is transparent.
Combined ratio is calculated on Admiral’s net share of premiums and excludes Other revenue. It excludes
the impact of reinsurer caps. Including the impact of reinsurer caps the reported combined ratio would be
2019: 113%; 2018: 113%; 2017: 124%.

29

*4

Combined ratio, net of Other Revenue is calculated on Admiral’s net share of premiums and includes Other
Revenue. Including the impact of reinsurer caps the reported combined ratio, net of Other Revenue would
be 2019: 102% 2018: 102%; 2017: 112%.

Geographical analysis
2019
Vehicles insured at period end(m)Turnover*1 (£m)

Spain
0.29

Italy
0.69

France
0.23

US
0.21

Total
1.42

78.2

204.2

108.1

233.1

623.6

2018
Vehicles insured at period end(m)Turnover*1 (£m)

Spain
0.25

Italy
0.59

France
0.17

US
0.21

Total
1.22

67.6

176.8

80.5

213.8

538.7

*1

Alternative Performance Measures – refer to the end of this report for definition and explanation

Admiral has four insurance businesses outside the UK: in Spain (Admiral Seguros), Italy (ConTe), theUS (Elephant Auto) and France (L’olivier Assurance).
The operations continued to grow strongly in 2019, with customer numbers increasing by 16% to1.42 million (2018: 1.22 million) and combined turnover rising by 16% to £623.6 million (2018:£538.7 million).
The key features of the International Car insurance results are:
•
•
•
•

•

An aggregate loss of £0.9 million (2018: £1.1 million loss) reflecting an improvement in
performance of the European businesses offset by a deterioration in the US business;
A record profit in the Group’s Italian business ConTe, which also grew its customer base by18%;
A deterioration in Elephant Auto’s result (increased loss from £7.5 million to £9.6 million
year-on-year)
A relatively flat combined ratio (net of other revenue) of 104% (2018: 105%) reflecting
reduced acquisition costs, pricing improvements and operational efficiencies as well as
positive back year development in Europe offset by a deteriorating loss ratio in ElephantAutoContinued investment and improvements in technology, people and the customer
experience across all operations

The combined International expense ratio improved to 37% (2018: 40%) as all businesses grew, andcontinued to pursue operational efficiencies, albeit growth was slower in Elephant as prices wereincreased in response to the loss ratio pressure.
The European insurance operations in Spain, Italy and France insured 1.21 million vehicles at 31
December 2019 – 20% higher than a year earlier (31 December 2018: 1.01 million). Turnover was
up 20% at £390.5 million (2018: £324.9 million). The consolidated result of the businesses was aprofit of £8.7 million (2018: £6.4 million) consisting of continued (and higher) profitability in Italy30

and lower losses in France and Spain. The combined ratio net of other revenue (excluding theimpact of reinsurer caps) improved to 92% from 98% due to the improved claims experience andexpense ratio.
Elephant insured 212,100 vehicles at the end of 2019, broadly flat year-on-year though higher
prices meant turnover was up 9% to £233.1 million (2018: £213.8 million). Elephant’s loss increased
for the period to £9.6 million from £7.5 million in 2018, as a result of adverse claims development.
Elephant responded with enhancements in underwriting and rate increases resulting in a slowdownof growth in the second half of 2019. The expense ratio improved slightly through increased
operational efficiency, a focus on customer experience improvements, and enhancement of thedigital online journey. Elephant continues to see improvements in persistency as a result of the
focus on higher retaining customers. The combined ratio net of other revenue was 118% (115% in2018).
In 2019, a non-cash impairment charge of £65.9 million was recognised in the financial statementsof the parent company with respect to the carrying value of the parent’s investment in ElephantAuto. This follows a change to using shorter-term projections as a result of the adverse loss ratio
experience in 2019. The impairment charge is recognised in the income statement of the parent
company (Refer to note 4 of the Parent Company Financial Statements for further details) and has
no impact on the Group’s consolidated profit for the period or the Group’s 2019 regulatory capital
position.
Elephant continues to focus on improving fundamentals in 2020 with a focus on loss ratio, expense
efficiencies and continued improvement in the customer experience.
International Car Insurance co-insurance and reinsurance
In 2019 Admiral retained 35% (Italy), 30% (France and Spain) and 33% (USA) of the underwriting
risk respectively. The arrangements for 2020 will remain the same in Italy, France and Spain. In theUSA, 50% of the risk will be retained within the Group.
International Car Insurance Regulatory environment
Admiral’s European insurance operations are now primarily regulated by the Spanish insurance
regulator, the DGS. This shift is a result of restructuring completed ahead of Brexit.
The Group’s US insurer, Elephant Insurance Company, is regulated by the Virginia State
Corporation Commission’s Bureau of Insurance.
Both insurers are required to maintain capital at levels prescribed by the regulator and hold asurplus above these requirements at all times.
Comparison Review - Elena Betés - CEO, Comparison Businesses
2019 was a good year for our Comparison businesses. Recognising the benefits of scale in digitalmarkets, we set up a European corporate structure named Penguin Portals, that gives us not only
the framework to achieve our ambition to lead our key European markets, but also a working
environment to deliver scale beyond these markets. This also allows our seven comparison
platforms to take advantage of operational and technological synergies and share expertise.

31

Operationally, each Comparison platform is supported by two technological centres of excellence,
Confused.com in Cardiff and Admiral Technologies in Delhi, allowing for a shared architecture tofacilitate further collaboration and rapid innovation.
Our goal to empower the world to choose better has not changed. We continue to focus on service
diversification and geographic expansion, driven by a desire to innovate the customer experienceleveraging technology and data.
In Europe, we had a strong year, fuelled by Confused.com and growth at LeLynx and with all ourbusinesses improving margins. We successfully diversified our product offering, took some key
verticals in-house, delivered new verticals, reinforced our use of data and grew a B2B infrastructurewhilst continuously improving the customer experience. I’d especially note Rastreator’s effort toprovide more transparency to Spanish customers with accurate prices.
Preminen, our comparison incubator, continues our path of organic expansion in emerging
markets. In 2019 we welcomed GoSahi.com in India as the newest member of our comparison
family. Rastreator.mx in Mexico was awarded the best ecommerce start-up of the year (e-awards),
Tamoniki.com in Turkey is in the process of building the panel and we will soon be incorporating a
new Penguin into the colony.
In the USA, we downsized the business to adjust to market conditions, allowing for increased agility
whilst we further develop our customer proposition.
The results are moving in the right direction and I´m confident that we have a strong foundation tobuild upon our successes in 2019 into the future.
UK – Louise O’Shea – CEO, Confused.com
It’s been 18 years since Confused.com was formed, and we’re still making history. In 2019, ourrevenue exceeded £100m for the first time.
We achieved this by standing firmly on the side of our customers and continuing to differentiate
ourselves against the competition. Confused.com is the brand that cuts through the noise andconfusion in order to help people make clear decisions. Our marketing was more effective, andmore focus was placed on the products our customers need and want beyond car insurance.
Making better use of our data has helped our insurance partners deliver the right product to theright customer for the right price at the right time. All of this and the dedication of the
Confused.com team has resulted in our revenue and profit growing by 19% and 43% year on year,
respectively, and our profit margin improving to over 18% (2018: 15%).
It wasn’t a year without challenges. The highly competitive market continues to necessitate focus
on marketing channel effectiveness and diversification which in 2019 saw us introduce a successful
B2B offering and drive innovation in the customer experience.
In 2020 we’ll continue to make decisions based on what is best for our customers, empowering
them to choose better.

32

Spain – Fernando Summers – CEO, Rastreator
At Rastreator, 2019 has been a year of hard work.
We substantially enhanced the customer experience with our Price Accuracy strategy for insurance,
meaningfully improving our net promoter score. More efficient traffic acquisition led to a 13%
increase in profit.
The proposed joint venture with Acierto and Oakley Capital was a focus area for management in
2019, but due to challenges in completing the transaction within a reasonable timeframe related tothe anti-trust process and associated costs, the final decision was not to proceed. We delivered
modest revenue growth, mainly due to our mortgage broker and data businesses.
We are optimistic about our future in the context of a large market opportunity. We will beworking on further improving the customer experience, increasing customer support through ourprocesses and we will continue developing our broker capabilities – not only for finance products
but also for some insurance products.
I would like to thank the fantastic and enthusiastic team who are always hungry for growth and to
improve the experience for our customers, for all their support in a challenging year. We arelooking forward to the opportunities we see in 2020 and beyond.
France – Itzal Arbide – CEO, LeLynx
2019 was an excellent year full of milestones for LeLynx. We made significant improvements in ouroperational structure and business approach, achieved key product enhancements to better serve
our users and signed new important commercial agreements to improve our offering. As aresult, LeLynx finished 2019 with revenue growth of 19% and also improved profitability.
While motor Insurance comparison mainly benefited from a better online user experience which
improved conversion, energy comparison (launched in 2018) saw great operational improvements
and moved past test and learn phase to become an integrated product for LeLynx in 2019 in linewith our diversification strategy.
Improving the customer experience has been a focus, from improving user pain points andproviding more information, to further improving the journey to allow customers to make the best
choice and receive the best possible service. I am enthusiastic about the evolution of Le Lynx as wehead into 2020 and beyond. We will keep working on user-centric new projects to improve ourcustomer experience and to strengthen our product base.
The French market is large and slowly evolving and LeLynx is perfectly placed to capture that
opportunity.
USA – Allie Feakins – CEO, Compare.com
2019 was a somewhat volatile year for Compare.com. Facing stronger headwinds in cost efficientcustomer acquisition and scalability in the US auto insurance market, we took action to reduce thefixed costs of the business to allow a more agile approach. While we expected to realise some of
the benefits of this decision in 2019, we were also pleasantly surprised by performance
improvements in the second half of the year. Insurers are facing the very same acquisition cost
headwinds, so we made progress expanding our panel and improving our own revenue potential as
well.

33

In 2019, we completed an upgrade to the experience for our customers, improving their journey
whether they are using our website to find information or pursuing our quote journey to view realtime auto insurance prices. We also continued to invest in our technology platform to enable ourmarketing partners to leverage our insurer panel and to enable our insurance partners to leverage
our competitive intelligence data.
In 2020, we don’t expect the competitive environment to ease up, but our objectives will shiftslightly from 2019 as we change our marketing approach, messages and campaigns to explore
opportunities for building deeper customer and partner relationships.
I am optimistic about the future of Compare.com and look forward to 2020 in my new role as CEO.
Emerging Markets – Pedro Tabernero – CEO, Preminen
Preminen had an exciting year of growth and saw the launch of a new comparison business. In
Mexico, Rastreator.mx continues to see positive signs of growth and we are confident in thesustainability of the business. All relevant insurers have joined, and the customer proposition iswell accepted. Tamoniki.com in Turkey has been trading for almost one year, mainly focused onbuilding the panel with a slow but positive evolution.
A new market approach is being tested in India with the launch of Gosahi.com in February 2019, aloan comparison portal that enables users to compare online and get full support during their offline loan application (a complex process in the market) with the collaboration of relevant financial
brokers.
2020 is expected to be the year of consolidation for Rastreator.mx, growth for Tamoniki.com and
Gosahi.com and to also deliver further geographic expansion. Thanks to the Preminen team for the
hard work – we’re looking forward to an even better 2020!
Comparison financial review£mRevenue
Car insurance comparison
Other
Total revenue
ExpensesProfit before tax
Confused.com profit
International comparison result
Group’s share of profit before tax *1
Confused.com profit
International comparison result

2019

2018

2017

119.4
52.2
171.6
(156.9)
14.7

110.1
40.9
151.0
(144.4)
6.6

108.8
34.8
143.6
(138.2)
5.4

20.4
(5.7)
14.7

14.3
(7.7)
6.6

10.1
(4.7)
5.4

20.4
(2.4)
18.0

14.3
(5.5)
8.8

10.1
(3.0)
7.1

*1 Alternative Performance Measure – refer to the end of this report for definition and explanation

34

Admiral has comparison businesses in the UK (Confused.com), Spain (Rastreator), France (LeLynx)
and the US (Compare.com). In addition, Preminen, the Group’s joint venture holding company forcomparison ventures in new markets, oversees operations in Mexico (Rastreator.mx), Turkey(Tamoniki.com) and India (GoSahi.com).
Admiral Group owns 75% of Rastreator, 59% of Compare.com and 50% of Preminen.
In 2019, the Group established a holding company for the European businesses named Penguin
Portals, facilitating greater collaboration and sharing of best practices across the businesses tosupport customer growth and new product development.
Combined revenue grew by 14% to £171.6 million (2018: £151.0 million) and the businesses madea combined profit (excluding minority interests’ shares) of £18.0 million (2018: £8.8 million).
The key features of the Comparison result are:
•

•

•

•

In the UK, Confused.com saw market share increases in motor and home insurancecomparison and efficient media spending leading to significantly increased profit of £20.4
million (2018: £14.3 million)
A loss of £4.3 million (2018: £6.9 million) at Compare.com in the US (Admiral Group share).
Statutory loss before tax was also lower at £7.2 million (2018: £10.0 million). The results
reflect lower sales volumes due to a reduced marketing spend and lower fixed costs
The continental European comparison businesses reported an increased profit of £3.5
million (2018: £1.4 million) reflecting improved customer experience through the digital
customer journey and product diversification, with strong growth at LeLynx in France
Costs for Penguin Portals, and Preminen (which was previously recorded under businessdevelopment costs in ‘Other Group items’) are included in the Comparison segment resultin the ‘other’ section

The UK comparison market remains very competitive with increasing advertising spend across all
marketing channels, however increases in market share across products and a focus on customer
experience resulted in a 19% increase in turnover for Confused.com to £112.7 million (2018: £95.1
million).
The combined revenue from the European operations increased by 8% to £50.1 million (2018:£46.3 million), reflecting continued growth in traffic and customer quotes in LeLynx, and improved
customer experience and product diversification across both operations.
Compare.com lowered losses to £4.3 million (2018: £6.9 million) as a result of downsizing to allow
for a more agile approach, together with reduced marketing spend and increased efficiencies. A
non-cash impairment of £2.0 million in the second half of 2019 (full year impairment total of £27.7
million) was recognised by the parent company in respect of its investment in Compare.com. This
impairment is in line with the reduction in Compare.com’s net assets since half year 2019. The
impairment charge is recognised in the income statement of the parent company and has no
impact on the Group’s consolidated profit for the period or the Group’s 2019 regulatory capital
position.

35

Preminen, the Group’s comparison venture with Mapfre, continues to explore comparison in newmarkets overseas. Rastreator.mx in Mexico and Tamoniki.com in Turkey have focused on panel
development and growth, while GoSahi.com in India was launched in 2019.
Comparison Regulatory environment
Confused.com is regulated by the Financial Conduct Authority (FCA) as an insurance intermediaryand is subject to all relevant intermediation rules, including those on solvency capital.
Rastreator and LeLynx are now locally licensed in Spain and France post the finalisation of Brexit
preparations. Further information on the impact of Brexit on our European operations can befound later in this report.
Compare.com is a regulated insurance agency domiciled in Virginia, US, and licensed in all other US
states.
Other Group Items
Other Group items financial review£mShare scheme charges
Admiral Loans loss before tax
Other interest and investment return
Business development costs
Other central overheads
Finance charges
Other Group items

2019(52.7)
(8.4)
6.0
(2.1)
(20.0)(11.2)(88.4)

2018(49.0)(11.8)
2.9(4.3)(10.5)(11.3)(84.0)

2017(35.2)
(4.4)
8.4
(5.2)
(5.1)
(11.4)(52.9)

Share scheme charges relate to the Group’s two employee share schemes (refer to note 9 to thefinancial statements). Charges increased by £3.7 million in 2019, to £52.7 million reflecting theimproved vesting outcomes resulting from the increased level of profit in 2019 and a higher shareprice.
Other interest and investment income increased to £6.0 million in 2019 (2018: £2.9 million). 2019
includes a lower level of unrealised losses relating to forward foreign exchange contracts compared
to 2018 (2019: £0.1 million, 2018: £2.3 million). The higher number in 2019 was also driven byincreased investment return due to the increased cash holding in the parent company.
Business development costs include costs associated with potential new ventures. The costs
associated with Preminen have now been included in the Comparison section, contributing to thedecrease in business development costs in 2019.
Other central overheads of £20.0 million continue to reflect the cost of a number of significant
group projects. In addition, a £6 million cost relating to a one-off cash bonus of £500 per employee,
is included in 2019 (2018: £nil).
Finance charges of £11.2 million (2018: £11.3 million) represent interest on the £200 million
subordinated notes issued in July 2014 (refer to note 6 to the financial statements).

36

Loans – Scott Cargill – CEO, Admiral Financial Services Limited
We can look back at 2019 with pride at what we delivered but knowing there is still much more to
do with an exciting outlook for the coming years.
In just over two years Admiral Loans has built up a prime loan book totalling £455 million and is
now a relevant participant in what is a large market in the UK. The progress in 2019 wasparticularly pleasing, with customer growth of over 70% – importantly, still within risk appetite. We
improved our economics as we started to benefit from economies of scale. Our customers andemployee scores were strong. And the loss of £8 million was in line with expectation.
Turning to 2020, we expect to benefit from a continued market shift to comparison and creditscore marketplaces which now account for over 20% of personal loans distributed in the UK. I
would therefore expect to see continued growth in our loan balances towards the £700-900 million
range in the next two years that we identified at the 2019 half year results.
We remain acutely aware of and responsive to the macro-economic backdrop in the UK and
anticipate continued investment in our people, technology, product and risk selection capabilities.
I’d like to thank all our staff in Admiral Loans for the tremendous progress we made last year.
£m
Total interest income
Interest expense*1
Net interest income
Other fee income
Total income

2019
30.8
(9.1)
21.7
1.9
23.6

2018
15.0
(4.3)
10.7
0.4
11.2

2017
1.6
(0.4)
1.2
1.2

Expenses
Admiral Loans result(32.0)(8.4)(22.9)(11.8)

(5.6)
(4.4)

*1

Includes £2.8 million intra-group interest expense (2018: £0.7 million; 2017: £nil)

Background
Admiral Loans launched in 2017 and provides unsecured personal loans and car finance products
primarily through the comparison channel.
Loan balances increased during the year to £455 million (2018: £300 million), with just over 5% of
the book being used for car loans and over 15% being to existing Admiral insurance customers. The
12-month default experience remained in line with 2018 at around 2% during 2019 and thebusiness has continued to invest in its operational capabilities and technology.
Admiral Loans is funded through a combination of internal and external funding. The external
portion funds approximately 60% of the current balance through securitisation. The risk andreward of the securitised loans is considered to remain with Admiral.
ResultAdmiral Loans recorded a pre-tax loss of £8.4 million in 2019 (decreased from £11.8 million in2018). The lower loss predominantly reflects the increased interest income in the period, offset toan extent by increased provisions against the loan book due to its growing size.

37

UK Exit from the European Union (‘Brexit’)
Admiral adopted a prudent approach to Brexit and set up new entities in Europe under which theEuropean operations have traded since 1 January 2019. All of the Group’s European insurance
business is now underwritten by a regulated entity in Spain, Admiral Europe Compania Seguros(AECS). The Group’s European comparison businesses Rastreator and LeLynx have successfully
been merged into comparison companies established in Spain (Comparaseguros Corredia deSeguros) and France (LeLynx SAS) respectively.
Brexit continues to bring risks to the Group including:•

The potential for market volatility, and the potential for the uncertainty or the emerging termsof exit to trigger or exacerbate less favourable economic conditions in the UK and othercountries in which Admiral operates (though it is worth noting that car insurance has tended tobe resilient to economic downturns; and Admiral Loans has adopted a cautious approach tovolumes and credit quality in advance of Brexit);•

As part of the Own Risk and Solvency Assessment (“ORSA”) process, the Group has performed astress testing exercise for its assessment of stressed macroeconomic conditions on the UK and
EU insurance and financial service businesses that may result from Brexit, including thepotential increase in claims costs following a spike in inflation. This includes negative
movement in interest rates, currency, investment yields and inflation which could be
experienced post Brexit. Given the results of the stress testing the Group is comfortable that it
is able to manage the potential outcomes of such scenarios should they occur;•

Potential changes to the rules relating to the free movement of people between the UK andthe remaining EU member states. The Group has followed external advice on planning for thesmall number of EU citizens working within the UK and UK citizens working in the EU, for theGroup;•

Potential for impact on the import of car parts with potential impact on claims costs. A working
group is in place to manage and review this risk, with commercial negotiations ongoing to
mitigate risks arising from a “no deal” Brexit;•

Potential operational impacts for the provision of Green Cards for UK customers to continue
driving in the EU. Procedures have been established to manage the operational impacts andensure suitable communication to customers.

At present, the Group does not foresee a material adverse impact on day-to-day operations(including customers or employees). Whilst the Group is comfortable that it is able to manage
potential outcomes following the review of the stress testing noted above, it recognises theuncertainties that exist post Brexit and the potential for adverse impacts to the Group’s capital
position and future dividend payments. Sensitivities to the Group’s regulatory solvency ratio arepresented earlier in this report, including a number of specific market risk sensitivities. The cost of
the restructuring activity was not material to the Group.
Coronavirus (COVID-19)
Admiral is closely monitoring government updates in relation to the coronavirus during recent
months and is considering any potential impacts on the business.

38

The response to date has focussed on the wellbeing of staff in the group’s offices and also inensuring that appropriate plans are in place to ensure that Admiral’s operations can continue toservice customers.
Ongoing stress testing work, overseen by the Group Risk Committee, is focused on operational
resilience plans and potential financial impacts. As the situation develops Admiral will implement
appropriate business continuity plans to mitigate potential impacts.
Principal Risks and Uncertainties
The Group’s 2019 Annual Report will contain an analysis of the Principal Risks and Uncertainties
identified by the Group’s Enterprise Risk Management Framework, along with the impacts of thoserisks and actions taken to mitigate them.
Audit Tender
As referenced in the Group’s 2018 Annual Report, in 2018 the Group’s Audit Committee reported
that it had reviewed the arrangements with the current external auditor and had considered
whether it was appropriate to initiate a tender process in order that the current arrangements
could be reviewed against those offered by other audit firms in the market.
The Committee considered the results of various reviews and consultations on the audit services
market as well as other factors relating to a potential tender process and concluded that it wasappropriate to continue with the planned tender process in 2020. The process will be initiated in
Q2 2020 for an appointment (or reappointment) to be made with effect from 2021, coinciding withthe rotation of the current audit partner. As the Group Audit Committee has primary responsibility
for conducting the tender process and making recommendations to the Board, regarding theappointment, reappointment and removal of the external auditor, it will lead the proposed tender
process. The Committee intends to engage with the Group’s major shareholders to get their viewson the firms that will be invited to participate in the tender and the timetable that has been agreed
for the tender process.
Disclaimer on forward-looking statements
Certain statements made in this announcement are forward-looking statements. Such statements
are based on current expectations and assumptions and are subject to a number of known andunknown risks and uncertainties that may cause actual events or results to differ materially fromany expected future events or results expressed or implied in these forward-looking statements.
Persons receiving this announcement should not place undue reliance on forward-looking
statements. Unless otherwise required by applicable law, regulation or accounting standard, theGroup does not undertake to update or revise any forward-looking statements, whether as a resultof new information, future developments or otherwise.

39

Consolidated income statement
For the year ended 31 December 2019Year ended

Note

Insurance premium revenue
Insurance premium ceded to reinsurers

31 December
2019£m

31 December
2018£m

2,198.4(1,489.0)

2,079.6(1,407.8)

Net insurance premium revenue
Other revenue
Profit commission

5
8
5

709.4
469.9
114.9

671.8
449.2
93.2

Interest income
Interest expense

7
7

30.8
(6.3)

15.0
(3.6)

24.5

11.4

Net interest income from loans
Investment return

6

35.3

36.0

Net revenue
Insurance claims and claims handling expenses
Insurance claims and claims handling expenses recoverable from reinsurers

5

1,354.0(1,568.1)
1,208.8

1,261.6(1,513.8)
1,163.7

Net insurance claims
Operating expenses and share scheme charges
Operating expenses and share scheme charges recoverable from co- and reinsurers

599(359.3)(900.7)441.2(350.1)(842.8)418.8

Net operating expenses and share scheme charges(459.5)(424.0)Total expenses(818.8)(774.1)

Operating profit
Finance costs
Finance costs recoverable from co- and reinsurers

535.2(14.6)
2.0

487.5(11.3)—(12.6)(11.3)

522.6(94.2)

476.2(85.7)

Profit after tax

428.4

390.5

Profit after tax attributable to:Equity holders of the parent
Non-controlling interests (NCI)

432.4
(4.0)

395.1
(4.6)

428.4

390.5

6
6

Net finance costs
Profit before tax
Taxation expense

10

Earnings per share
Basic

12

148.3p137.1p

Diluted12148.0p136.8pDividends declared and paid (total)
Dividends declared and paid (per share)

12
12

367.8
129.0p332.7
118.0p40

Consolidated statement of comprehensive income
For the year ended 31 December 2019Year ended
31 December
2019£m

31 December
2018
£m

428.4

390.5

34.6
(1.5)
(8.9)
(0.9)

(24.0)
0.7
2.2
(0.3)

Other comprehensive income for the period, net of income tax

23.3(21.4)

Total comprehensive income for the period

451.7

369.1

Total comprehensive income for the period attributable to:Equity holders of the parent
Non-controlling interests

456.1
(4.4)

373.7
(4.6)

451.7

369.1

Profit for the period
Other comprehensive income
Items that are or may be reclassified to profit or loss
Movements in fair value reserve
Deferred tax charge in relation to movement in fair value reserve
Exchange differences on translation of foreign operations
Movement in hedging reserve41Consolidated statement of financial position
As at 31 December 2019
As at

Note

31 December
2019£m

31 December
2018
£m

11
11
10
5
6
7
6
6

154.4
160.3
—
2,071.7
1,227.7455.1
3,234.5
281.7

28.1
162.0
0.2
1,883.5
1,082.0
300.2
2,969.7376.8

7,585.4

6,802.5

0.3
13.1
55.1
840.9

0.3
13.1
31.4
713.5

909.4

758.3

9.2

12.8

918.6

771.1

3,975.0
530.1
1,975.9
137.1
0.4
48.3

3,736.4444.2
1,801.5——
49.3

Total liabilities

6,666.8

6,031.4

Total equity and total liabilities

7,585.4

6,802.5

ASSETS
Property and equipment
Intangible assets
Deferred income tax
Reinsurance assets
Insurance and other receivables
Loans and advances to customers
Financial investments
Cash and cash equivalents
Total assets
EQUITY
Share capital
Share premium account
Other reserves
Retained earnings

12
12

Total equity attributable to equity holders of the parent
Non-controlling interests
Total equity
LIABILITIESInsurance contract liabilities
Subordinated and other financial liabilities
Trade and other payables
Lease liabilities
Deferred income tax
Current tax liabilities

5
6
6, 11
6
10
10

The accompanying notes form part of these financial statements.
These financial statements were approved by the Board of Directors on 4 March 2020 and weresigned on its behalf by:
Geraint Jones
Chief Financial Officer
Admiral Group plc

42Consolidated cash flow statement
For the year ended 31 December 2019Year ended
31 December
2019
£m

31
December
2018
£m

428.4

390.5

10
5
5
6, 11
7
11

23.8
18.7
13.8
53.4
(0.6)
(35.3)
12.6
94.2
238.6
(188.2)(147.0)(168.7)
174.4

12.0
15.5
8.9
49.8
(1.4)
(36.0)
14.9
85.7
422.5
(245.9)(145.0)(242.9)
159.9

6

518.1
(2,048.2)
1,847.9
11.6

488.5(1,830.2)
1,573.4
8.0

Cash flows from operating activities, net of movements in investments
Taxation payments

329.4(92.8)

239.7(55.6)Net cash flow from operating activities
Cash flows from investing activities:
Purchases of property, equipment and software

236.6

184.1

(33.6)(23.9)(33.6)(23.9)

1.6
136.2(50.3)(14.0)(10.6)(367.8)

19.3
168.3
51.9
(14.1)—(332.7)

Net cash used in financing activities(304.9)(107.3)

Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effects of changes in foreign exchange rates(101.9)
376.8
6.8

52.9
326.8
(2.9)

281.7

376.8

Note

Profit after tax
Adjustments for non-cash items:– Depreciation of property, plant and equipment and right-of-use assets– Amortisation and impairment of intangible assets– Movement in provision for loans and advances to customers– Share scheme charges– Accrued interest income from loans and advances to customers– Investment return– Finance costs, including unwinding of discounts on lease liabilities– Taxation expense
Change in gross insurance contract liabilities
Change in reinsurance assets
Change in insurance and other receivables
Change in gross loans and advances to customers
Change in trade and other payables, including tax and social security
Cash flows from operating activities, before movements in investments
Purchases of financial instruments
Proceeds on disposal/ maturity of financial instruments
Interest and investment income received

Net cash used in investing activities
Cash flows from financing activities:
Non-controlling interest capital contribution
Proceeds on issue of loan backed securities(Repayment)/proceeds from other financial liabilities
Finance costs paid, including interest expense paid on funding for loans
Repayment of lease liabilities
Equity dividends paid

Cash and cash equivalents at end of period

11
11
7
9
6

11

12

6

43

Consolidated statement of changes in equity
For the year ended 31 December 2019
Attributable to the owners of the Company

Total
£m

Noncontrollinginterests£m

Total
equity
£m

580.3
(0.4)
579.9
395.1

646.1
—
646.1
395.1

9.7
—
9.7
(4.6)

655.8
—
655.8
390.5

—

—

(24.0)—(24.0)

—
(0.3)
—

—
—
2.2

—
—
—

0.7
(0.3)
2.2

—
—
—

0.7
(0.3)
2.2

(23.3)

(0.3)

2.2

395.1

373.7

(4.6)

369.1

—
—

—
—

—
—

—
—

(332.7)56.7(332.7)
56.7

(0.4)
—

(333.1)
56.7

—

—

—

—

—

3.3

3.3

—

3.3

—

—

—

—

—

11.2

11.2

8.1

19.3

Total transactions with equity
holders

—

—

—

—

—

(261.5)(261.5)

7.7(253.8)As at 31 December 2018

0.3

13.1

13.5

(0.3)

18.2

713.5

758.3

12.8

771.1

At 1 January 2018
Initial application of IFRS 9
Adjusted balance at 1 January 2018
Profit/(loss) for the period
Other comprehensive income
Movements in fair value reserve
Deferred tax charge in relation to
movement in fair value reserve
Movement in hedging reserve
Currency translation differences
Total comprehensive income for theperiodTransactions with equity holders
Dividends
Share scheme credit
Deferred tax credit on share scheme
creditChanges in ownership interests
without a change in control

Sharecapital£mSharepremium
account£m

Fair value
reserve£m

Hedging
reserve£m

Foreignexchangereserve£m

Retained
profitand loss
£m

0.3
—
0.3
—

13.1
—
13.1
—

36.4
0.4
36.8
—

—
—
—
—

16.0
—
16.0
—

—

—

(24.0)

—

—
—
—

—
—
—

0.7
—
—

—

—

—
—

44

Consolidated statement of changes in equity (continued)
For the year ended 31 December 2019

Attributable to the owners of the Company
SharecapitalSharepremium
account

Fair value
reserve

Hedging
reserve

Foreignexchangereserve

Retained
profitand loss

Total

£m

£m

£m

£m

£m

£m

£m

£m

£m

As at 31 December 2018

0.3

13.1

13.5

(0.3)

18.2

713.5

758.3

12.8

771.1

Balance at 1 January 2019
Profit/(loss) for the period
Other comprehensive income
Movements in fair value reserve
Deferred tax charge in relation to
movement in fair value reserve
Movement in hedging reserve
Currency translation differences

0.3
—

13.1
—

13.5
—

(0.3)
—

18.2
—

713.5
432.4

758.3
432.4

12.8
(4.0)

771.1
428.4

—

—

34.6

—

—

—

34.6

—

34.6

—
—
—

—
—
—

(1.5)
—
—

—
(0.9)
—

—

—

(8.5)

—

(1.5)
(0.9)
(8.5)

—
—
(0.4)

(1.5)
(0.9)
(8.9)

—

—

33.1

(0.9)

(8.5)

432.4

456.1

(4.4)

451.7

—
—

—
—

—
—

—
—

—
—

(367.8)58.8(367.8)58.8——(367.8)
58.8

—
—

—
—

—
—

—
—

—
—

3.2
—

3.2
—

—
2.2

3.2
2.2

Total comprehensive income for theperiodTransactions with equity holders
Dividends
Share scheme credit
Deferred tax credit on share scheme
creditContributions by NCIs
Changes in ownership interests
without a change in control

Noncontrollinginterests Total equity

—

—

—

—

—

0.8

0.8

(1.4)

(0.6)

Total transactions with equity
holders

—

—

—

—

—

(305.0)(305.0)0.8(304.2)As at 31 December 2019

0.3

13.1

46.6

(1.2)

9.7

840.9

909.4

9.2

918.6

45

Notes to the financial statements
For the year ended 31 December 2019
1. General information
Admiral Group plc is a company incorporated in England and Wales. Its registered office is at Tŷ
Admiral, David Street, Cardiff, CF10 2EH and its shares are listed on the London Stock Exchange.
The consolidated financial statements have been prepared and approved by the Directors inaccordance with International Financial Reporting Standards (IFRS) as adopted by the European
Union (EU). The Company has elected to prepare its Parent Company financial statements inaccordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101).
2. Basis of preparation
The accounts have been prepared on a going concern basis. In considering this requirement, theDirectors have taken into account the following:•••

The Group’s projections for the next 12 months and beyond, in particular the profit
forecasts, regulatory capital surpluses and levels and sources of liquidity.
The risks included on the Group’s risk register that could impact on the Group’s financial
performance, levels of liquidity and solvency over the next 12 months. This includes
consideration of the principal risks and uncertainties and how these are managed andmitigated.
The risks on the Group’s risk register that could be a threat to the Group’s business modeland capital adequacy.

The Group’s business activities, together with the factors likely to affect its future development,
performance and position are set out in the Strategic Report. The Strategic Report also includes theGroup’s principal risks and uncertainties. In addition, the Governance report includes the Directors’
statement on the viability of the Group over a three year period.
Following consideration of the above, the Directors have a reasonable expectation that the Group
has adequate resources to continue in operation for the foreseeable future, a period not less than
12 months from the date of this report, and that it is therefore appropriate to adopt the going
concern basis in preparing the financial statements.
Further information regarding the Company’s business activities, together with the factors likely toaffect its future development, performance and position, is set out in the Strategic Report. Further
information regarding the financial position of the Company, its cash flows, liquidity position andborrowing facilities are also described in the Strategic Report. In addition, notes 6 and 12 to thefinancial statements include the Company’s objectives, policies and processes for managing its
capital; its financial risk management objectives; details of its financial instruments; and its
exposures to credit risk and liquidity risk.
The accounting policies set out in the notes to the financial statements have, unless otherwise
stated, been applied consistently to all periods presented in these Group financial statements.

46

The financial statements are prepared on the historical cost basis, except for the revaluation offinancial assets classified as fair value through profit or loss or as fair value through othercomprehensive income. The Group and Company financial statements are presented in pounds
sterling, rounded to the nearest £0.1 million.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed
to, or has rights to, variable returns from its involvement with the entity and has the ability toaffect those returns through its power over the entity. In assessing control, the Group takes into
consideration potential voting rights that are currently exercisable. The acquisition date is the dateon which control is transferred to the acquirer. The financial statements of subsidiaries areincluded in the consolidated financial statements from the date that control commences until thedate that control ceases. Losses applicable to the non-controlling interests in a subsidiary areallocated to the non-controlling interests even if doing so causes the non-controlling interests tohave a deficit balance.
The Group has securitised certain loans and advances to customers by the transfer of the loans to a
special purpose entity (“SPE”) controlled by the Group. The securitisation enables a subsequentissuance of debt by the SPE to investors who gain the security of the underlying assets as collateral.
The SPE is fully consolidated into the Group financial statements under IFRS 10, as the Group
controls the entity in line with the above definition.
The preparation of financial statements in conformity with adopted IFRS requires management tomake judgements, estimates and assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The estimates and associated assumptions
are based on historical experience and various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis of making the judgements aboutcarrying values of assets and liabilities that are not readily apparent from other sources.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions toaccounting estimates are recognised in the year in which the estimate is reviewed. To the extent
that a change in an accounting estimate gives rise to changes in assets and liabilities, it isrecognised by adjusting the carrying amount of the related asset or liability in the period of thechange.
Adoption of new and revised standards
The Group has adopted the following IFRSs and interpretations during the year, which have been
issued and endorsed by the EU:••••

IFRS 16 “Leases”
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
Annual Improvements to IFRS Standards 2015 – 2017 Cycle
Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures

Other than the impact of IFRS 16 and the Amendments to IFRS 9 and IFRS 7 in respect of interest
rate benchmark reform, further detail of which is provided below, the application of these47

amendments has not had a material impact on the Group’s results, financial position andcashflows.
IFRS 16
During the year the Group has adopted IFRS 16 Leases with a date of initial application of 1 January
2019.
IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Group,
as a lessee, has recognised right-of-use assets representing its right to use the underlying assets
and lease liabilities representing its obligations to make lease payments.
As permitted by the transitional provisions of IFRS 16 the Group has elected to use the modified
retrospective approach, and as such has not restated prior year comparatives (which arepresented, as previously reported, under IAS 17 and related interpretations).
The adjustments arising from transition are recognised in the opening balance sheet on 1 January
2019 and are set out below along with details of the changes in accounting policies relating to IFRS
16 as applied in the period.
a)Definition of a lease and practical expedients applied

Previously, the Group determined at contract inception whether an arrangement was or contained
a lease under IFRIC 4 Determining Whether an Arrangement contains a Lease. The Group now
assesses whether a contract is or contains a lease based on the new definition of a lease, which
under IFRS 16 is where a contract conveys a right to control the use of an identified asset for aperiod of time in exchange for consideration.
The Group has also used the following practical expedients permitted by the standard:
•
•
•

b)

the use of a single discount rate for a portfolio of leases with reasonably similar
characteristics;
the use of hindsight in determining the lease term where the contract contains options toextend or terminate the lease;
the exclusion of initial direct costs for the measurement of the right-of-use assets at thedate of initial application.
Impact of transition

On adoption of IFRS 16, the Group recognised additional right-of-use assets, and additional leaseliabilities in relation to leases which were previously classified as ‘operating leases’ under IAS 17
Leases. The liabilities were measured at the present value of the remaining lease payments,
discounted using the Group’s incremental borrowing rate as of 1 January 2019. The weighted
average incremental borrowing rate (discount rate) applied is 2.4%.
A reconciliation of the Group’s lease liabilities to the operating lease commitment at 31 December
2018 as disclosed in the Group’s consolidated financial statements is shown below.

48

Operating lease commitments disclosed as at 31 December 2018
Impact of extension options exercised before the date of initial application *1
Impact of changes in relation to IFRS 16 treatment*1
Adjusted operating lease commitments under IFRS 16
Impact of discount at the date of initial application
Lease liability recognised at 1 January 2019
Current
Non-current

2019
£m
185.9
12.7
(24.0)
174.6(25.4)
149.2
10.5
138.7

*1 Following a review of lease extension options and variable lease payments during the IFRS 16 transition process, theoperating lease commitments disclosed as at 31 December 2018 have been amended to reflect the impact of adifferent treatment of inflation and VAT within lease agreements, and lease extensions that had occurred before
the transition date but were not previously disclosed.

The associated right-of-use assets have been measured retrospectively, at an amount equal to thelease liability, adjusted by the amount of any prepaid or accrued payments relating to that leaserecognised in the statement of financial position as at 31 December 2018. There were no onerous
lease contracts that would have required an adjustment to the right-of-use assets at the date ofinitial application.
All right-of-use assets relate to property leases held by the Group.
The following adjustment was recognised on the date of initial application:

ROU Lease Assets
Trade and other payables- invoice accrual
Trade and other payables- rent free accrual
Lease Liability

1 January
2019
£m
136.7
1.1
11.4
(149.2)For the Group’s accounting policy in relation to right-of-use assets and lease liabilities, see notes 6
and 11.
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
In September 2019, the IASB issued Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS
39 and IFRS 7. These amendments modify specific hedge accounting requirements to allow hedge
accounting to continue for affected hedges during the period of uncertainty before the hedged
items or hedging instruments affected by the current interest rate benchmarks are amended as aresult of the on‑going interest rate benchmark reforms.
The amendments are relevant to the Group given that it hedges and applies hedge accounting to
its benchmark interest rate exposure.
The application of the amendments impact the Group’s accounting in the following way:•

The Group has floating rate debt, linked to GBP LIBOR, which it hedges using interest rate
swaps. The amendments permit continuation of hedge accounting even though there is49•

uncertainty about the timing and amount of the hedged cash flows due to the interest ratebenchmark reforms.
The Group will retain the cumulative gain or loss in the cash flow hedge reserve fordesignated cash flow hedges that are subject to benchmark interest rate reforms eventhough there is uncertainty arising from the interest rate benchmark reform with respect
to the timing and amount of the cash flows of the hedged items. Should the Group consider
the hedged future cash flows are no longer expected to occur due to reasons other thaninterest rate benchmark reforms, the cumulative gain or loss will be immediately
reclassified to profit or loss.

The Group has chosen to early apply the amendments to IFRS 9 for the reporting period ending 31
December 2019, which are mandatory for annual reporting periods beginning on or after 1 January
2020. Adopting these amendments allows the Group to continue hedge accounting during theperiod of uncertainty arising from interest rate benchmark reforms.
See note 6i for further details.
Standards endorsed but not yet effective
As at 31 December 2019, the following amendments to standards had been endorsed by the EU
but are not yet effective:••

Amendments to IAS 1 and IAS 8: “Definition of Material”
Amendments to references to the Conceptual Framework in IFRS Standards

No significant impact is expected as a result of adopting the above amendments.
Standards yet to be endorsed by the EU
There are a number of standards, amendments to standards and interpretations that were issued
by 31 December 2019 but have either yet to be endorsed by the EU, or were endorsed shortly after
the year end. The following IFRSs have been issued but have not been applied by the Group inthese financial statements:••

IFRS 17 Insurance Contracts;
Amendments to IFRS 3 “Business Combinations”

IFRS 17 – Insurance contracts
IFRS 17 Insurance Contracts was issued in May 2017, with a revised endorsement draft
incorporating a number of proposed amendments issued in June 2019. The standard will replace
IFRS 4, establishing new principles for the recognition, measurement, presentation and disclosureof Insurance contracts within the scope of the standard. The proposed IASB effective date in therevised exposure draft is 1 January 2022, requiring a transition balance sheet at 1 January 2021.
The Group continues to assess the impact of IFRS 17 on its results and financial position, taking into
account the proposals in the revised exposure draft, along with any impacts of the other standards
and amendments which have yet to be endorsed.

50

3. Critical accounting judgements and key sources of estimation uncertainty
In applying the Group’s accounting policies as described in the notes to the financial statements,
the directors are required to make judgements (other than those involving estimations) that have asignificant impact on the amounts recognised and to make estimates and assumptions about thecarrying amounts of assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and other factors that areconsidered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions toaccounting estimates are recognised in the period in which the estimate is revised if the revisionaffects only that period, or in the period of the revision and future periods if the revision affects
both current and future periods.
Critical accounting judgements
The following are the critical judgements, apart from those involving estimations (which arepresented separately below), that the directors have made in the process of applying the Group’s
accounting policies and that have the most significant effect on the amounts recognised in financial
statements.
•

Classification of the Group’s contracts with reinsurers as reinsurance contracts:

A contract is required to transfer significant insurance risk in order to be classified as such.
Management reviews all terms and conditions of each such insurance and reinsurance contract inorder to be able to make this judgement. In particular, all reinsurance contracts (both excess of loss
and quota share contracts) held by the Group have been assessed and it has been concluded that
all contracts transfer significant insurance risk and have therefore been classified and accounted
for as reinsurance contracts within these financial statements.
•

Consolidation of the Group’s special purpose entity (“SPE”)

During 2018 the Group set up an SPE in relation to the Admiral Loans business, whereby the Groupsecuritises certain loans by the transfer of the loans to the SPE. The securitisation enables a
subsequent issue of debt by the SPE to investors who gain the security of the underlying assets as
collateral.
The accounting treatment of the SPE has been assessed and it has been concluded that it should befully consolidated into the Group’s financial statements under IFRS 10. This is due to the fact that
despite not having legal ownership, the Group has control of the SPE, being exposed to the returns
and having the ability to affect those returns through its power over the SPE.
The SPE has therefore been fully consolidated into the Group’s financial statements.
There are two further significant accounting estimates within the financial statements that also
require management to apply judgement:•

Calculation of insurance claims provisions and reinsurance assets:

51

The Group’s reserving policy requires management to set provisions for outstanding claims for the
purpose of the financial statements, above the projected best estimate outcome to allow for
unforeseen adverse claims development. In the application of this policy, Management applies
judgement in:-calculating the best estimate of the gross ultimate total cost of settling claims that havebeen incurred prior to the balance sheet date,-calculating the best estimate of the non-proportional excess of loss reinsurance recoveries
relating to outstanding claims-

and determining where, above the projected best estimate outcomes of gross outstanding
claims and reinsurance recoveries, the insurance claims provisions should sit in line with
the Group’s reserving methodology

Refer to the section on estimation techniques below, and the analysis of Insurance risk in note 5 tothe financial statements for further detail on the development of the Group’s reserving
methodology applied during the period and the calculation of the projected best estimate
outcome.
•Calculation of expected credit loss provision

The Group is required to calculate an expected credit loss (‘ECL’) allowance in respect of thecarrying value of the Admiral Loans book in line with the requirements of IFRS 9. Due to theincrease in the size of the loan book the calculation of the ECL is deemed to be a critical accounting
judgement and includes key sources of estimation uncertainty. Management applies judgement in;-

Determining the appropriate modelling solution for measuring the ECL-

Calibrating and selecting appropriate assumptions-

Setting the criteria for what constitutes a significant increase in credit risk-

Identification of key scenarios to include and determining the credit loss in these instances.

Refer to the section on estimation techniques below, and the analysis in note 7 to the financial
statements for further detail on the Group’s ECL methodology applied in the period.
Key sources of estimation uncertainty•

Calculation of insurance claims provisions and reinsurance assets:

Estimation techniques are used in the calculation of the provisions for claims outstanding, which
represent a projection of the ultimate estimated total cost of settling claims that have been
incurred prior to the balance sheet date and remain unsettled at the balance sheet date, along witha margin to allow for unforeseen adverse claims development.
The primary areas of estimation uncertainty are as follows:52

Calculation of gross best estimate claims provisions
The key area where estimation techniques are used is in the ultimate projected cost of reported
claims, which includes the emergence of claims that occurred prior to the balance sheet date, but
had not been reported at that date.
Independent actuarial advisors project the best estimate claims reserves using a variety of different
recognised actuarial projection techniques (for example incurred and paid chain ladders, and initialexpected assumptions) to allow an actuarial assessment of their potential outcome. This includes
an allowance for unreported claims.
Claims are segmented into groups with similar characteristics and which are expected to develop
and behave similarly, for example bodily injury (attritional and large) and damage claims, withspecific projection methods selected for each head of damage. Key sources of estimation
uncertainty arise from both the selection of the projection methods and the assumptions made insetting claims provisions through the review of historical development of underlying case reserve
estimates, overlaid with emerging market trends.
Allowance is made for changes or uncertainties which may result future claim cost inflation todeviate from historic trends. These uncertainties include:-

Changes in frequency of bodily injury claims-

The effect of inflation on the average cost of bodily injury and damage claims-

The likelihood of bodily injury claims settling as Periodic Payment Orders-

Changes in the regulatory or legal environment that lead to changes in awards for bodily
injury claims and associated legal costs-

Changes to underlying process and methodologies employed in setting case reserve
estimates

Implicit assumptions in the actuarial projections include average cost per claim and average claim
numbers by accident year, future rates of claims inflation and loss ratios by accident year andunderwriting year. These metrics are reviewed and challenged as part of the process for making
allowance for the uncertainties noted.
Calculation of excess of loss reinsurance recoveries
The Group uses excess of loss reinsurance in order to mitigate the impact of large claims. The
reinsurance is non-proportional and recoveries are made on individual claims above the relevant
thresholds.
As for the underlying gross claims, independent actuarial advisors project the best estimate excess
of loss reinsurance recoveries using a variety of actuarial projection techniques that focus on boththe ultimate frequency of reported recoveries and the average size of the recovery.

53

Key sources of estimation uncertainty arise from both the selection of the projection methods andthe assumptions made in calculating the recoveries through the review of historical developmentof underlying case reserve estimates, overlaid with emerging market trends.
The most significant element of the estimation relates to large bodily injury claims. The key
assumption in the calculation of excess of loss recoveries relates to the numbers of large claims in
the Group’s core UK Motor insurance business that will attract recoveries, where the high retention
means that a small number of additional large claims would potentially result in a material increasein the excess of loss recoveries.
Calculation of the margin held for adverse development
A wide range of factors inform management’s recommendation in setting the margin held above
actuarial best estimates, which is subject to approval from the Group’s Reserving and Audit
Committees, including:•Reserve KPIs such as the level of margin as a percentage of the ultimate reserve.

•

Results of stress testing of key assumptions underpinning key actuarial assumptions withinbest estimate reserves.

•

A review of a number of individual and aggregated reserve scenarios which may result in
future adverse variance to the ultimate best estimate reserve.

•

Qualitative assessment of the level of uncertainty and volatility within the reserves and thechange in that assessment compared to previous periods.

In addition, for the Group’s core UK Car Insurance business, the Group’s internal reserve risk
distribution is used to determine the approximate confidence level of the recommended bookedreserve position which enables comparison of the reserve strength to previous periods anddemonstration of the compliance with IFRS 4.
For further detail on objectives, policies and procedures for managing insurance risk, refer to note
5 of the financial statements.
Future changes in claims reserves also impact profit commission income, as the measurement of
this income is dependent on the loss ratio booked in the financial statements, and cash receivable
is dependent on actuarial projections of ultimate loss ratios.
•

Calculation of expected credit loss provision

The key areas of estimation uncertainty are in the calculation of the Probability of Default (PD) inthe base scenario for stage 1 and 2 assets, and the determination, impact assessment andweighting of the forward-looking scenarios.
Note 7 provides detail of the methodology the group has used in the period.
•

Recognition of deferred tax assets relating to unused tax losses:

54

Management is required to determine the probability of an entity generating future taxable profits
against which to utilise accumulated losses in determining the recognition and measurement ofdeferred tax assets. In making this estimation, management makes an assessment of the reliabilityof approved business plan projections using both qualitative and quantitative factors including theage and status of the business, the Group’s previous experience in similar markets, historic
performance against business plans and the application of a number of stress and sensitivity tests
to the projections.
4. Group consolidation and operating segments
4a. Accounting policies(i) Group consolidation
The consolidated financial statements comprise the results and balances of the Company and allentities controlled by the Company, being its subsidiaries and SPE (together referred to as theGroup), for the year ended 31 December 2019 and comparative figures for the year ended 31
December 2018. The financial statements of the Company’s subsidiaries and its SPE are
consolidated in the Group financial statements.
The Company controls 100% of the voting share capital of all its principal subsidiaries, except
Admiral Law Limited, BDE Law Limited (indirect holding), Inspop USA LLC, comparenow.com
Insurance Agency LLC (indirect holding), Rastreator.com Limited, Rastreator Comparador
Correduria De Seguros S.L.U (indirect holding), Preminen Price Comparison Holdings Limited andthe indirect holdings in Preminen Dragon Price Comparison Limited, Preminen Mexico Sociedad
Anonima de Capital Variable, Preminen Online Fiyat Karşılaştırma Hizmetleri Anonim Şirketi,
Preminen Sigorta Brokerlik Anonim Sirketi and Preminen Price Comparison India Private Limited.
The SPE is fully consolidated into the Group financial statements under IFRS 10, whereby the Grouphas control over the SPE.
The Parent Company financial statements present information about the Company as a separate
entity and not about its Group. In accordance with IAS 24, transactions or balances between Group
companies that have been eliminated on consolidation are not reported as related party
transactions in the consolidated financial statements.
(ii) Foreign currency translation
Items included in the financial records of each of the Group’s entities are measured using thecurrency of the primary economic environment in which the entity operates (‘the functional
currency’). The consolidated financial statements are presented in pounds sterling, the Group’s
presentational currency, rounded to the nearest £0.1 million.
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from thesettlement of such transactions and from the translation at year end exchange rates of monetary
assets and liabilities denominated in foreign currencies are recognised in the income statement.

55

Non-monetary items measured at cost are translated at their historic rate and non-monetary items
held at fair value are translated using the foreign exchange rate on the date that the fair value wasestablished.
The financial statements of foreign operations whose functional currency is not pounds sterling aretranslated into the Group presentation currency (sterling) as follows:•

Assets and liabilities for each balance sheet presented are translated at the closing rate at thedate of that balance sheet.

•

Income and expenses for each income statement are translated at average monthly exchange
rates (unless this average is not a reasonable approximation of the cumulative effect of therates prevailing on the transaction dates, in which case income and expenses are translated at
the date of the transaction).

•

All resulting exchange differences are recognised in other comprehensive income and in a
separate component of equity except to the extent that the translation differences are
attributable to non-controlling interests.

On disposal of a foreign operation, the cumulative amount recognised in equity relating to thatparticular operation is recognised in the income statement.
4b. Segment reporting
The Group has four reportable segments, as described below. These segments represent the
principal split of business that is regularly reported to the Group’s Board of Directors, which isconsidered to be the Group’s chief operating decision maker in line with IFRS 8 Operating
Segments.
UK Insurance
The segment consists of the underwriting of car insurance, van insurance, household insurance,
travel insurance and other products that supplement these insurance policies within the UK. It also
includes the generation of revenue from additional products and fees from underwriting insurance
in the UK. The Directors consider the results of these activities to be reportable as one segment as
the activities carried out in generating the revenue are not independent of each other and are
performed as one business. This mirrors the approach taken in management reporting.
International Insurance
The segment consists of the underwriting of car and home insurance and the generation ofrevenue from additional products and fees from underwriting car insurance outside of the UK. It
specifically covers the Group operations Admiral Seguros in Spain, ConTe in Italy, L’olivier
Assurance in France and Elephant Auto in the US. None of these operations are reportable on an
individual basis, based on the threshold requirements in IFRS 8.

56

Comparison
The segment relates to the Group’s comparison businesses: Confused.com in the UK, Rastreator in
Spain, LeLynx in France and compare.com in the US. From 2019, the segment also includes thePreminen entities, which has a head office in Spain and operations in Turkey, Mexico and India (allof which were previously reported in the ‘Other’ segment), and Penguin Portals, the newintermediate holding company of Confused.com, LeLynx and Rastreator.
Each of the comparison businesses are operating in individual geographical segments but aregrouped into one reporting segment, as none of the operating segments individually meet thereporting segment threshold requirements of IFRS 8.
Other
The ‘Other’ segment is designed to be comprised of all other operating segments that do not meet
the threshold requirements for individual reporting. It includes the Admiral Loans business and theGroup’s commercial van insurance broker, Gladiator.
Taxes are not allocated across the segments and, as with the corporate activities, are included in
the reconciliation to the consolidated income statement and consolidated statement of financial
position.
An analysis of the Group’s revenue and results for the year ended 31 December 2019, byreportable segment, is shown below. The accounting policies of the reportable segments arematerially consistent with those presented in the notes to the financial statements for the Group.
Year ended 31 December 2019
UK
Insurance£mInternational
Car Insurance£mComparison
£m

Other
£m

Eliminations*2
£m

Total
£m

2,635.0

623.6

171.6

33.3

(19.4)

3,444.1

Net insurance premium revenue
Other Revenue and profit commission
Investment return

533.2
407.6
30.4

176.2
22.5
1.5

—
171.6
—

—
24.2
—

—
(16.6)
(2.8)

709.4
609.3
29.1

Net revenue
Net insurance claims
Expenses

971.2(215.8)(157.5)200.2(143.5)(57.6)

171.6—(156.9)24.2—(31.5)(19.4)—
19.4

1,347.8(359.3)(384.1)

Segment profit/(loss) before tax

597.9

(0.9)

14.7

(7.3)

—

604.4

Turnover*1

Other central revenue and expenses, including share scheme charges
Investment and interest income
Finance costs*3(76.6)
6.2(11.4)

Consolidated profit before tax*4
Taxation expense

522.6(94.2)

Consolidated profit after tax

428.4

Other segment items:– Intangible and tangible asset
additions– Depreciation and amortisation

88.4
—
94.0
—
*1 Turnover is an Alternative Performance Measure presented before intra-group eliminations and consists of total
premiums written (including co-insurers’ share) and Other revenue. Refer to the glossary and note 13 for further
information.
51.7
57.4

34.5
33.1

1.4
2.3

0.8
1.2

57

*2 Eliminations are in respect of the intra-group trading between the Group’s comparison and UK and International
insurance entities and intra-group interest.
*3 £1.2m of IFRS 16 interest expense (being the Group’s net share of IFRS 16 interest expense) included within Finance
Costs in the Income Statement has been reallocated to individual segments within expenses, in line withmanagement segmental reporting.
*4 Profit before tax above of £522.6m is presented on a statutory basis, being 100% of the result for each entity. This
increases to Group’s share of profit before tax of £526.1m. See note 13f for a reconciliation of the UK Insurance,
International Insurance and Comparison turnover and profit before tax to the Strategic Report.

Revenue and results for the corresponding reportable segments for the year ended 31 December
2018 are shown below.
Year ended 31 December 2018
UK
Insurance£mInternational
Car
Insurance£mComparison£mOther*4£m

Eliminations*2
£m

Total
£m

2,575.7

538.7

151.0

17.5

(19.3)

3,263.6

Net insurance premium revenue
Other Revenue and profit commission
Investment return

523.9
389.5
32.3

147.9
18.6
1.3

—
151.0
—

—
13.3
—

—
(18.6)
(0.7)

671.8
553.8
32.9

Net revenue
Net insurance claims
Expenses

945.7(242.5)(146.5)167.8(107.6)(61.3)

151.0—(144.4)13.3—(26.9)(19.3)—
19.3

1,258.5(350.1)(359.8)Segment profit/(loss) before tax

556.7

(1.1)

6.6

(13.6)—

Turnover*1

548.6

Other central revenue and expenses, including share scheme charges
Investment and interest income(64.2)
3.1

Finance costs(11.3)

Consolidated profit before tax*3

476.2

Taxation expense(85.7)

Consolidated profit after tax

390.5

Other segment items:– Intangible and tangible asset additions– Depreciation and amortisation

43.0
49.7

29.8
26.4

2.0
1.1

2.2
0.8

—
—

77.0
78.0

*1 Turnover is an Alternative Performance Measure presented before intra-group eliminations and consists of total
premiums written (including co-insurers’ share) and Other Revenue. Refer to the glossary and note 13 for further
information.
*2 Eliminations are in respect of the intra-group trading between the Group’s comparison and UK and International
insurance entities.
*3 Profit before tax above of £476.2m is presented on a statutory basis, being 100% of the result for each entity. This
increases to Group’s share of profit before tax of £479.3m. See note 13f for a reconciliation of the UK Insurance,
International Insurance and Comparison turnover and profit before tax to the Strategic Report.
*4 “Other” in 2018 includes £2.5m of expansion costs associated with the Preminen entities (included within “Other
central revenue and expenses, including share scheme charges”). In 2019, the results of the Preminen operations
have been included in the Comparison segment, as those operations have started to generate revenue in the period.
The prior year segmental analysis has not been restated due to the amounts being immaterial.

Segment revenues
The UK and International Car Insurance reportable segments derive all insurance premium income
from external policyholders. Revenue within these segments is not derived from an individual
policyholder that represents 10% or more of the Group’s total revenue.

58

The total of Comparison revenues from transactions with other reportable segments is £19.4
million (2018: £19.3 million) which has been eliminated on consolidation. There are no othertransactions between reportable segments.
Revenues from external customers for products and services are consistent with the split ofreportable segment revenues.
Information about geographical locations
All material revenues from external customers, and net assets attributed to a foreign country, areshown within the International Car Insurance reportable segment shown on the previous pages.
The revenue and results of the international Comparison businesses, Rastreator, LeLynx,
compare.com and the Preminen entities are not yet material enough to be presented as a separate
segment.
Segment assets and liabilities
The identifiable segment assets and liabilities at 31 December 2019 are as follows:
As at 31 December 2019
International
UK
Car
Insurance
Insurance Comparison
£m
£m
£m

Other
£m

Eliminations
£m

Total
£m

Reportable segment assets

6,282.1

966.7

98.7

610.7

(727.3)7,230.9

Reportable segment liabilities

5,232.7

824.4

49.9

942.1

(635.2)

6,413.9

Reportable segment net assets

1,049.4

142.3

48.8

(331.4)(92.1)

817.0

Unallocated assets and liabilities

101.6

Consolidated net assets

918.6

Unallocated assets and liabilities consist of other central assets and liabilities, plus deferred andcurrent corporation tax balances. These assets and liabilities are not regularly reviewed by the
Board of Directors in the reportable segment format.
There is an asymmetrical allocation of assets and income to the reportable segments, in that theinterest earned on cash and cash equivalent assets deployed in the UK Insurance, Comparison andInternational Car Insurance segments is not allocated in arriving at segment profits. This isconsistent with regular reporting to the Board of Directors.
Eliminations represent inter-segment funding, balances included in insurance and other receivables
and deemed loan receivables in respect of securitised loan receivables.
The segment assets and liabilities at 31 December 2018 are as follows:
As at 31 December 2018
UK
Insurance£mInternational
Car
Insurance£mComparison
£m

Other
£m

Eliminations
£m

Total
£m

Reportable segment assets

5,760.5

831.0

89.2

414.9

(552.9)6,542.7

Reportable segment liabilities

4,870.3

702.1

35.0

623.4

(452.8)5,778.0

Reportable segment net assets

890.2

128.9

54.2

(208.5)(100.1)

764.7

59

Unallocated assets and liabilities
Consolidated net assets

6.4
771.1

60

5. Premium, claims and profit commissions
5a. Accounting policies(i) Revenue – premiums
Premiums relating to insurance contracts are recognised as revenue, net of expected cancellations
and insurance premium tax, proportionally over the period of cover. Premiums with an inception
date after the end of the period are held in the statement of financial position as deferred revenue.
Outstanding collections from policyholders related to unexpired risk are recognised withinpolicyholder receivables. A corresponding unearned premium provision is recognised (see note
5a(iii)).
(ii) Revenue – profit commission
Under some of the co-insurance and reinsurance contracts under which motor premiums areshared or ceded, profit commission may be earned on a particular year of account, which is usuallysubject to performance criteria such as loss ratios and expense ratios. The commission isdependent on the ultimate outcome of any year, with revenue being recognised when loss andexpense ratios used in the preparation of the financial statements move below a contractual
threshold.
Profit commission receivable from reinsurance contracts is accounted for in line with IFRS 4,
whereas profit commission receivable from co-insurance contracts is in line with IFRS 15. Further
detail of the policy under IFRS 15 is set out in note 8.
(iii) Insurance contracts and reinsurance assets
Premiums
The proportion of premium receivable on in-force policies relating to unexpired risks is reported ininsurance contract liabilities and reinsurance assets as the unearned premium provision – gross andreinsurers’ share respectively.
ClaimsClaims and claims handling expenses are charged as incurred, based on the estimated direct andindirect costs of settling all liabilities arising on events occurring up to the balance sheet date.
The provision for claims outstanding comprises provisions for the estimated cost of settling all
claims incurred but unpaid at the balance sheet date, whether reported or not. Anticipatedreinsurance recoveries are disclosed separately as assets.
Whilst the Directors consider that the gross provisions for claims and the related reinsurance
recoveries are fairly stated on the basis of the information currently available to them, the ultimate
liability will vary as a result of subsequent information and events and may result in significant
adjustments to the amounts provided.

61

Adjustments to the amounts of claims provisions established in prior years are reflected in theincome statement for the period in which the adjustments are made and disclosed separately ifmaterial. The methods used, and the estimates made, are reviewed regularly.
Provision for unexpired risks is made where necessary for the estimated amount required over andabove unearned premiums (net of deferred acquisition costs) to meet future claims and related
expenses.
Co-insurance
The Group has entered into certain co-insurance contracts under which insurance risks are sharedon a proportional basis, with the co-insurer taking a specific percentage of premium written andbeing responsible for the same proportion of each claim. The co-insurer therefore takes direct
insurance risk from the policyholder and is subsequently directly responsible to the claimant for its
proportion of the claim. As the contractual liability is several and not joint, neither the premiums
nor claims relating to the co-insurance are included in the income statement. Under the terms ofthese agreements the co-insurers reimburse the Group for the same proportionate share of thecosts of acquiring and administering the business.
Reinsurance assets
Contracts entered into by the Group with reinsurers under which the Group is compensated forlosses on the insurance contracts issued by the Group are classified as reinsurance contracts. A
contract is only accounted for as a reinsurance contract where there is significant insurance risk
transfer between the insured and the insurer.
Reinsurance assets are comprised of balances due from reinsurance companies for ceded insurance
liabilities. Amounts recoverable from reinsurers are estimated in a consistent manner with theoutstanding claims provisions or settled claims associated with the reinsured policies and inaccordance with the relevant reinsurance contract.
The Group assesses its reinsurance assets for impairment on a regular basis, and in detail every six
months. If there is objective evidence that the asset is impaired, then the carrying value will be
written down to its recoverable amount.
On the commutation of reinsurance contracts, the reinsurer is discharged from all obligations
relating to the contract. Reinsurance assets and liabilities relating to the commuted contracts aresettled in the period in which the commutation agreement is signed.

62

5b. Net insurance premium revenue
31 December
2019£m

31 December
2018£mTotal insurance premiums written before co-insurance*1

2,884.4

2,754.1

Group gross premiums written after co-insurance
Outwards reinsurance premiums

2,273.7(1,541.4)

2,166.7(1,464.3)

Net insurance premiums written
Change in gross unearned premium provision
Change in reinsurers’ share of unearned premium provision

732.3(75.3)
52.4

702.4(87.1)
56.5

Net insurance premium revenue

709.4

671.8

*1 Alternative Performance Measures – refer to the end of the report for definition and explanation, and to note 13a forreconciliation to group gross premiums written.

The Group’s share of its insurance business was underwritten by Admiral Insurance (Gibraltar)
Limited, Admiral Insurance Company Limited, Admiral Europe Compania Seguros (‘AECS’) andElephant Insurance Company. All contracts are short term in duration, lasting for 10 or 12 months.
5c. Profit commission
31 December
2019£m

31 December
2018£m2014 and prior

23.8

61.1

2015

24.5

11.0

2016

27.5

22.9

2017

36.4

—

Total UK Motor profit commission*1
Total UK Household and International profit commission*1

112.2
2.7

95.0
(1.8)

Total profit commission

114.9

93.2

Underwriting year (UK Motor only)*1 Of the total UK motor profit commission recognised of £112.2m, £95.4m relates to co-insurance arrangements and£16.8m to reinsurance arrangements. The UK Household and International profit commission relates solely toreinsurance arrangements.

No profit commission has yet been recognised on the 2018 – 2019 underwriting years as the
combined ratios calculated from the financial statement loss ratios on these years sit above thethreshold for profit commission recognition.
5d. Reinsurance assets and insurance contract liabilities(i) Objectives, policies and procedures for the management of insurance risk
The Group’s primary business is the issuance of insurance contracts that transfer risk frompolicyholders to the Group and its co-insurance partners.
Insurance risk involves uncertainty over the occurrence, amount or timing of claims arising on
insurance contracts issued. It is primarily comprised of Reserve risk; the risk that the value of
insurance liabilities established is insufficient to cover the ultimate cost of claims incurred at thebalance sheet date, and premium risk; the risk that the claims experience on business written but
not earned is higher than allowed for in the premiums charged to policyholders.

63

The Board of Directors is responsible for the management of insurance risk, although as mentioned
in note 6, it has delegated the detailed oversight of risk management to the Group Risk Committee.
The Group also has a Reserving Committee which comprises senior managers within the finance,
claims, pricing and actuarial functions. The Reserving Committee primarily recommends theapproach for UK Car Insurance reserving but also reviews the systems and controls in place tosupport accurate reserving and material reserving issues such as Periodic Payment Order (PPO) andclaims inflation, which represent the key uncertainties in the amount or timing of claims
settlements.
The Board implements certain policies in order to mitigate and control the level of insurance risk
accepted by the Group. These include pricing policies and claims management and administration
processes, in addition to reserving policies and co- and reinsurance arrangements as detailed
below.
Reserve Risk
Reserving risk is mitigated through a series of processes and controls. The key processes are as
follows:•

Regular management and internal actuarial review of individual and aggregate case claim
reserves, including regular reporting of management information and exception reporting ofsignificant movements;•

Regular management and internal actuarial review of large claims, including claims settled or
potentially settled by PPOs for which the uncertainty is increased by factors such as the
lifetime of the claimant and movements in the indexation for the cost of future care of theclaimant;•

Bi-annual external actuarial review of best estimate claims reserves using a variety ofrecognised actuarial techniques;•Internal actuarial analysis of reserve uncertainty through qualitative analysis, scenario testing
and a range of stochastic reserving techniques;•

Ad hoc external reviews of reserving related processes and assumptions;•

Use of a reserving methodology which informs management’s reserving decisions for the
purposes of the Group’s financial statements. As described in note 3, critical accounting
judgements and estimates, the methodology determines that reserves should be set above
projected best estimate outcomes to allow for unforeseen adverse claims development.

As noted above, the Group shares a significant amount of the insurance business generated withexternal underwriters. As well as these proportional arrangements, excess of loss reinsurance
programmes are also purchased to protect the Group against very large individual claims andcatastrophe losses.

64Claims reserving
As previously disclosed, Admiral’s reserving policy (both within the claims function and in thefinancial statements) is initially to reserve conservatively, above internal and independent
projections of actuarial best estimates. This is designed to create a margin held in reserves to allow
for unforeseen adverse development in open claims and typically results in Admiral making above
industry average reserve releases. Admiral’s booked claims reserves continue to include asignificant margin above projected best estimates of ultimate claims costs.
As at 31 December 2019, the level of relative reserve margin is consistent with that at 31 December
2018, albeit remaining prudent when measured against the internal reserve risk distribution andother market benchmarks.
As profit commission income is recognised in the income statement in line with loss ratios
accounted for on Admiral’s own claims reserves, the reserving policy also results in profit
commission income being deferred and recognised over time.
Premium Risk
As noted above, the Group defines Premium risk as the risk that claims cost on business written but
not yet earned is higher than allowed for in the premiums charged to policyholders. This also
includes catastrophe risk; the risk of incurring significant losses as a result of the occurrence ofmanmade catastrophe or natural weather events.
Key processes and controls operating to mitigate premium risk are as follows:•

Experienced and focused senior management and teams in relevant business areas including
pricing and claims management;•

A data-driven and analytical approach to regular monitoring of claims and underwriting
performance;•

Capability to identify and resolve underperformance promptly through changes to key
performance drivers, in particular pricing.

In addition, as mentioned above, excess of loss reinsurance programmes are also purchased toprotect the Group against very large individual claims and catastrophe losses.
Other elements of insurance risk include reinsurance risk; the risk of placement of ineffective
reinsurance arrangements, or the economic risk of reduced availability of co-insurance andreinsurance arrangements in future periods.
The Group mitigates these risks by ensuring that it has a diverse range of financially securereinsurance partners, including a long-term relationship with Munich Re and a number of othervery large reinsurers.
Concentration of insurance risk
The Directors do not believe there are significant concentrations of insurance risk. This is because,
although the Group has historically written only one significant line of UK insurance business, the65risks are spread across a large number of people and a wide regional base. The International Car
Insurance, UK Household, UK Travel and UK Van businesses further contribute to the diversificationof the Group’s insurance risk.
(ii) Sensitivity of recognised amounts to changes in assumptions
Ogden discount rate
During 2019, following the announcement by the UK Government, the Ogden discount rate which isused in setting personal injury compensation, was changed to minus 0.25% from the existing minus
0.75% rate that had been in place since February 2017. The change came into effect on 5 August 2019
and the minus 0.25% rate is likely to remain in place for up to five years.
The minus 0.25% rate is 25 basis points lower than the assumed rate of 0% that was used in setting
best estimate claims reserves at 31 December 2018. Given the stated timeframes for the update of
the rate, sensitivities to the Ogden discount rate assumption are not presented.
Underwriting year loss ratios – UK Car Insurance
The following table sets out the impact on equity and post-tax profit or loss at 31 December 2019that would result from a 1%, 3% and 5% increase and decrease in the UK Car insurance loss ratios
used for each underwriting year for which material amounts remain outstanding.
Underwriting year
2016

2017

2018

2019

Booked loss ratio

73%

75%

81%

92%

Impact of 1% deterioration in booked loss ratio (£m)
Impact of 3% deterioration in booked loss ratio (£m)
Impact of 5% deterioration in booked loss ratio (£m)
Impact of 1% improvement in booked loss ratio (£m)
Impact of 3% improvement in booked loss ratio (£m)
Impact of 5% improvement in booked loss ratio (£m)

(14.2)(42.4)(69.6)
14.2
42.6
71.0

(15.9)(47.6)(72.6)
15.3
46.3
77.6

(3.8)
(11.3)(18.9)
9.5
33.7
61.7

(2.0)
(5.9)
(9.8)
2.0
5.9
9.8

As above, the impact is stated net of reinsurance and includes the change in net insurance claims
along with the associated profit commission movements that result from changes in loss ratios. The
figures are stated net of tax at the current rate.

66

(iii) Analysis of recognised amounts
31 December
2019£m

31 December
2018
£m

Gross
Claims outstanding*1
Unearned premium provision

2,899.4
1,075.6

2,740.5
995.9

Total gross insurance liabilities

3,975.0

3,736.4

Recoverable from reinsurers
Claims outstanding
Unearned premium provision

1,354.2
717.5

1,220.1
663.4

Total reinsurers’ share of insurance liabilities

2,071.7

1,883.5

Net
Claims outstanding*2
Unearned premium provision

1,545.2
358.1

1,520.4
332.5

Total insurance liabilities – net
1,903.3
1,852.9*1 Gross claims outstanding at 31 December 2019 is presented before the deduction of salvage and subrogation recoveries
totalling £71.7 million (2018: £56.4 million).
*2 Admiral typically commutes quota share reinsurance contracts in its UK Car Insurance business 24-36 months following
the start of the underwriting year. After commutation, claims outstanding from these contracts are included in
Admiral’s net claims outstanding balance. Refer to note (v) below.

The maturity profile of gross insurance liabilities at the end of 2019 is as follows:< 1 year£m

1–3 years£m> 3 years£m

Claims outstanding
Unearned premium provision

813.7
1,075.6

497.0—

1,588.7—

Total gross insurance liabilities

1,889.3

497.0

1,588.7< 1 year£m

1–3 years£m> 3 years£m

Claims outstanding
Unearned premium provision

739.9
995.9

383.7
—

1,616.9—

Total gross insurance liabilities

1,735.8383.7

1,616.9

The maturity profile of gross insurance liabilities at the end of 2018 was as follows:67

(iv) Analysis of claims incurred
The following tables illustrate the development of gross and net UK Insurance and International
Insurance claims incurred for the past ten financial periods, including the impact of re-estimation ofclaims provisions at the end of each financial year. The first table shows actual gross claims
incurred and the second shows actual net claims incurred. Figures are presented on anunderwriting year basis.
Analysis of claims incurred (grossamounts)

Underwriting year (UKinsurance)2010 and prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
UK insurance gross claims
incurred
Underwriting year
(International insurance)*1
2010 and prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
International insurance
gross claims incurred
Other gross claims
incurred
Claims handling costs
Total gross claims incurredFinancial year ended 31 December
2013
2014
2015
£m
£m
£m

2010
£m

2011
£m

2012
£m

2016
£m

2017
£m

2018
£m

2019
£m

Total
£m

(360.3)
—
—
—
—
—
—
—
—
—
(360.3)(250.1)(444.3)
—
—
—
—
—
—
—
—
(694.4)4.2(329.7)(463.7)
—
—
—
—
—
—
—
(789.2)41.7
43.4(334.7)(431.1)——————(680.7)

28.0
51.4
49.8
(325.5)(438.2)—————(634.5)

10.6
47.9
69.2
53.6
(347.1)(428.4)————(594.2)

4.1
(0.9)
8.6
44.4
25.6
(411.2)(529.4)———(858.8)

4.3
26.9
59.9
34.2
17.1
21.7
(463.7)(691.8)——(991.4)

6.4
21.0
30.3
35.2
52.0
53.3
82.1
(615.0)(818.8)—(1,153.5)

16.5
0.5
8.5
8.2
15.7
58.0
54.8
123.1
(546.9)(812.4)(1,074.0)(583.8)(572.1)(581.0)(674.9)(706.6)(856.2)(1,183.7)(1,365.7)(812.4)(31.8)
—
—
—
—
—
—
—
—
—
(31.8)(29.9)(35.7)
—
—
—
—
—
—
—
—
(65.6)(11.5)(42.7)(58.0)
—
—
—
—
—
—
—
(112.2)(0.1)
1.2(53.7)(68.2)——————(120.8)

5.1
5.7
0.7
(57.8)(85.2)—————(131.5)

1.3
1.7
4.0
4.2
(65.5)(92.6)————(146.9)

0.6
4.0
6.0
7.7
4.4
(101.6)(138.9)———(217.8)

0.6
1.2
2.6
3.3
5.8
7.7
(125.3)(174.1)——(278.2)

1.5
1.3
2.0
5.8
5.5
3.1
11.7
(147.3)(204.9)—(321.3)

0.5
1.1
1.5
1.3
2.0
0.1
6.9
16.5
(165.7)(293.8)(429.6)(62.2)(94.9)(103.7)(133.0)(183.3)(245.6)(304.9)(370.6)(293.8)

(7.6)

0.0

(1.7)

(2.2)

(7.1)

(5.4)

(0.1)

(3.6)

(1.1)

—

(17.0)(416.7)(25.9)(785.9)(26.0)(929.1)(22.9)(826.6)(21.4)(794.5)(22.6)(769.1)(27.1)(1,103.8)(35.5)(1,308.7)(37.9)(1,513.8)(64.5)(1,568.1)

68

Analysis of claims incurred (netamounts)

Underwriting year (UKinsurance)2010 and prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
UK insurance net claims
incurred
Underwriting year
(International insurance)2010 and prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
International insurance
net claims incurred
Other net claims incurred
Claims handling costs
Total net claims incurredFinancial year ended 31 December
2013
2014
2015
£m
£m
£m

2010
£m

2011
£m

2012
£m

2016
£m

2017
£m

2018
£m

2019
£m

Total
£m

(184.1)
—
—
—
—
—
—
—
—
—
(184.1)(119.9)(203.7)
—
—
—
—
—
—
—
—
(323.6)2.8(151.1)(196.0)
—
—
—
—
—
—
—
(344.3)41.7
39.7(139.3)(184.4)——————(242.3)

28.0
51.4
49.8
(135.0)(187.0)—————(192.8)

10.6
47.0
69.2
38.4
(144.1)(182.1)————(161.0)

14.0
8.4
19.4
49.3
(16.4)(162.0)(219.4)———(306.7)

11.4
26.2
59.1
36.4
25.3
(2.6)
(180.7)(214.3)——(239.2)

3.6
16.3
30.6
34.7
38.4
42.6
48.1
(182.9)(261.0)—(229.6)

15.5
1.7
4.9
4.4
17.2
48.2
50.7
77.8
(165.2)(258.1)(202.9)(164.1)(102.3)(156.2)(266.6)(255.9)(301.3)(319.4)(426.2)(258.1)(12.8)
—
—
—
—
—
—
—
—
—
(12.8)(13.4)(14.9)
—
—
—
—
—
—
—
—
(28.3)(5.7)(18.7)(24.2)
—
—
—
—
—
—
—
(48.6)(0.1)
0.4(22.8)(26.6)——————(49.1)

2.5
2.9
(0.8)
(23.5)(31.6)—————(50.5)

0.6
0.8
2.0
1.7
(23.3)(33.4)————(51.6)

0.2
2.0
2.2
4.8
1.8
(39.6)(47.9)———(76.5)

0.3
0.6
1.3
0.9
1.8
5.1
(43.5)(60.7)——(94.2)

0.7
0.6
1.0
3.0
2.2
1.3
6.3
(51.5)(71.2)—(107.6)

0.3
0.4
0.7
0.7
0.8
1.3
2.4
5.5
(58.4)(89.6)(135.9)(25.9)(40.6)(39.0)(48.3)(65.3)(82.7)(106.7)(129.6)(89.6)(3.1)(8.5)(208.5)0.0(11.9)(363.8)(0.8)(10.8)(404.5)

(2.1)
(9.5)
(303.0)

(6.9)
(8.9)
(259.1)

(5.4)
(9.4)
(227.4)(0.2)(11.2)(394.6)(2.6)(11.1)(347.1)(1.1)(11.8)(350.1)—(20.5)(359.3)

The table below shows the development of UK Car Insurance loss ratios for the past six financial
periods, presented on an underwriting year basis.
Financial year ended 31 December
UK Car Insurance loss ratio development

Underwriting year (UK Car only)
2014
2015
2016
2017
2018
2019

2014

2015

2016

2017

2018

2019

92%

89%
87%
—
—
—

84%
87%
88%
—
—

81%
83%
84%
87%
—

76%
77%
77%
83%
92%

74%
72%
73%
75%
81%

—

—

—

—

92%

69

(v) Analysis of claims reserve releases
The following table analyses the impact of movements in prior year claims provisions on a grossand net basis. Figures are presented on an underwriting year basis.
Financial year ended 31 December
2014
£m

2015
£m

2016
£m

2017
£m

2018
£m

2019
£m

Underwriting year (UK Motor insurance)
2014 and prior
2015
2016
2017
2018

148.1
—
—
—
—

197.7
—
—
—
—

133.8
1.9
—
—
—

158.3
32.0
23.7
—
—

123.6
50.9
70.6
25.4
—

43.9
47.3
50.6
110.6
83.2

Total gross release (UK Motor Insurance)

148.1

197.7

135.7

214.0

270.5

335.6

Gross

Total gross release (UK Household Insurance)

—

—

—

1.6

4.6

8.3

Total gross release (International Insurance)

12.6

14.0

21.0

23.2

35.2

39.1

Total gross release

160.7

211.7

156.7

238.8

310.3

383.0

2014
£m

2015
£m

2016
£m

2017
£m

2018
£m

2019
£m

Underwriting year (UK Motor Insurance)
2014 and prior
2015
2016
2017
2018

137.4
—
—
—
—

173.4
—
—
—
—

74.6
0.8
—
—
—

158.3
(2.4)
10.0
—
—

123.4
42.5
47.1
8.0
—

43.9
47.3
50.6
75.8
25.8

Total net release (UK Motor Insurance)

137.4

173.4

75.4

165.9

221.0

243.4

Financial year ended 31 December
Net

Total net release (UK Household Insurance)

—

—

—

0.5

1.4

2.5

Total net release (International Insurance)

6.3

6.5

9.9

9.5

13.5

14.4

143.7

179.9

85.3

175.9

235.9

260.3

66.8

84.6

58.3

92.1

111.4

121.7

70.6

88.8

17.1

73.8

109.6

121.7

137.4

173.4

75.4

165.9

221.0

243.4

Total net release
Analysis of net releases on UK Motor Insurance:– Net releases on Admiral net share (motor)– Releases on commuted quota share reinsurance
contracts
Total net release as above

Admiral typically commutes quota share reinsurance contracts in its UK Car Insurance business 24
or 36 months following the start of the underwriting year. After commutation, any changes inclaims costs on the commuted proportion of the business are reflected within claims costs and areseparately analysed here. Releases on commuted quota share contracts are analysed byunderwriting year as follows:70

Financial year ended 31 December
2015
£m

2016
£m

2017
£m

2018
£m

2019
£m

Underwriting year
2014 and prior
2015
2016
2017

88.8
—
—
—

17.1
—
—
—

89.6
(15.8)
—
—

70.6
21.3
17.7
—

23.0
27.7
29.5
41.5

Total releases on commuted quota share reinsurance contracts

88.8

17.1

73.8

109.6

121.7

Profit commission is analysed in note 5c.

(vi) Reconciliation of movement in claims provision
31 December 2019
Gross
£m

Reinsurance
£m

Net
£m

Claims provision at start of period
Claims incurred (excluding releases)
Reserve releases

2,740.5
1,886.6(383.0)Movement in claims provision due to commutation
Claims paid and other movements—(1,220.1)(1,287.6)
122.7
257.1

1,520.4
599.0(260.3)257.1(1,344.7)

773.7(571.0)Claims provision at end of period

2,899.4(1,354.2)

1,545.2

31 December 2018
Gross
£m

Reinsurance
£m

Net
£m

Claims provision at start of period
Claims incurred (excluding releases)
Reserve releases
Movement in claims provision due to commutation
Claims paid and other movements

2,403.2
1,786.2(310.3)—(1,138.6)(1,028.8)(1,212.0)
74.4
310.4
635.9

1,374.4
574.2(235.9)310.4(502.7)

Claims provision at end of period

2,740.5(1,220.1)

1,520.4(viii) Reconciliation of movement in net unearned premium provision
31 December 2019
Gross
£m

Unearned premium provision at start of period
Written in the period
Earned in the period

995.9
2,273.7(2,194.0)

Unearned premium provision at end of period

1,075.6

Reinsurance
£m

Net
£m

(663.4)332.5(1,541.4)
732.3
1,487.3 (706.7)(717.5)358.1

31 December 2018
Gross
£m

Unearned premium provision at start of period
Written in the period
Earned in the period

910.7
2,166.7(2,081.5)

Unearned premium provision at end of period

995.9

Reinsurance
£m

Net
£m

(608.8)301.9(1,464.3)
702.4
1,409.7 (671.8)(663.4)332.5

71

6. Investment Income and costs
6a. Accounting policies
i) Financial assets
Classification and measurement
The classification and subsequent measurement of the financial asset under IFRS 9 depends on:(a) the Group’s business model for managing the financial assets and(b) the contractual cash flow characteristics of the financial asset.
Based on these factors, the financial asset is classified into one of the following categories:•

Amortised cost – assets which are held in order to collect contractual cash flows, andthe contractual terms of the financial asset give rise to cash flows which are solely
payments of principal and interest on the principal amount outstanding (SPPI), where
the asset is not designated as FVTPL.

For the Group, these include deposits with credit institutions, cash and cash equivalents, insurance
receivables, trade and other receivables and loans and advances to customers.
The interest income generated from these assets is included in ‘Investment return’ with the
exception of Loans and advances to customer, where the interest receivable is recognised in ‘Interest
income’.
Impairment is recognised on these assets using the expected credit loss model.
•

Fair value through other comprehensive income (FVOCI) – assets which are held both to collectcontractual cash flows and to sell the asset, where the contractual terms of the financial asset
give rise to cash flows which are solely payments of principal and interest on the principal
amount outstanding (SPPI), where the asset is not designated as FVTPL.

For the Group, these assets include government gilts and debt securities.
In addition, IFRS 9 allows an irrevocable election at initial recognition to designate equity investments
at FVOCI that otherwise would be held at FVTPL, provided these are not held for trading. The Grouphas made this election for certain equity investments.
Movements in the carrying amount are taken through OCI, with the exception of recognition of
impairment gains or losses, interest revenue and foreign exchange gains or losses which arerecognised in profit or loss.
•

Fair value through profit or loss (FVTPL) – assets which do not meet the criteria for amortised
cost or FVOCI, or which are designated as FVTPL.

For the Group these assets include investment liquidity funds investing in short duration assets andderivative financial instruments.

72

A gain or loss on a debt instrument measured at FVTPL which is not part of a hedging relationship is
recognised in profit or loss and presented within ‘Investment return’ in the period in which it arises.
Impairment
The expected credit loss model is used to calculate any impairment to be recognised for all assets
measured at amortised cost, as well as financial investments measured at FVOCI. The generalapproach, which utilises the three-stage model, is used for Loans and advances to customers (seenote 7) whilst impairment for the remaining assets is measured using the simplified approach.
Derecognition
A financial asset is derecognised when the rights to receive cash flows from that asset have expired,or when the Group transfers the asset and all the attached substantial risks and rewards relating to
the asset to a third party.
ii) Financial Liabilities
Classification and subsequent measurement
Subsequent measurement of financial liabilities is at amortised cost using the effective interest
method. Movements in the amortised cost are recognised through the income statement.
Derecognition
A financial liability is derecognised when the obligation under that liability is discharged, cancelled
or expires.

iii) Investment return and finance costs
Investment return from financial assets comprises distributions as well as net realised andunrealised gains on financial assets classified as FVTPL, interest income and net realised gains, netof impairment losses, from financial assets classified as FVOCI, and interest income on holdings indeposits with credit institutions (held at amortised cost).
Finance costs from financial liabilities comprise interest expense on subordinated notes, loan
backed securities, credit facilities and lease liabilities, calculated using the effective interest rate
method. The effective interest rate method calculates the amortised cost of a financial asset or
liability (or group of financial assets or financial liabilities) and allocates the interest income or
expense over the expected life of the asset or liability.

73

6b. Investment return
31 December
2019£m

31 December
2018£mInvestment return
On assets classified as FVTPL
On assets classified as FVOCI*1*3
On assets classified as amortised costs*1

11.4
34.5
1.6

6.3
27.9
3.0

Net unrealised losses
Unrealised losses on forward contracts
Notional accrual for reinsurers’ share of investment return(0.1)(12.9)(2.3)—

Interest receivable on cash and cash equivalents*1

0.8

1.1

Total investment and interest income *2

35.3

36.0

*1 Interest received during the year was £11.6 million (2018: £8.0 million)*2 Total investment return excludes £2.8 million of intra-group interest (2018: £0.7 million)*3 Realised gains/losses on sales of debt securities classified as FVOCI are immaterial

6c. Finance costs
31 December 31 December
2019
2018
£m
£m

Interest payable on subordinated loan notes*1
Interest payable on lease liabilities
Interest recoverable from co and re-insurers

11.4
3.2
(2.0)

11.3
—
—

Total finance costs

12.6

11.3

*1 Interest paid during the year was £14.0 million (2018: £11.0 million)

Finance costs represent interest payable on the £200.0 million (2018: £200.0 million) subordinatednotes and other financial liabilities.
Interest payable on lease liabilities represents the unwinding of the discount on lease liabilities
under IFRS 16 and does not result in a cash payment. Further detail on the transition to IFRS 16 isincluded in note 2.
6d. Financial assets and liabilities
The Group’s financial assets and liabilities can be analysed as follows:74

31 December
2019£m

31 December
2018£mFinancial investments measured at FVTPL
Money market and other similar funds

1,160.2

1,301.1

Financial investments classified as FVOCI
Debt securities
Government gilts

1,776.3
174.0

1,389.9
170.9

Equity investments (designated FVOCI)

1,950.3
7.5

1,560.8
7.8

1,957.8

1,568.6

116.5

100.0

3,234.5

2,969.7

948.9
278.8

842.3
239.7

1,227.7

1,082.0

Loans and advances to customers (note 7)

455.1

300.2

Cash and cash equivalents

281.7

376.8

5,199.0

4,728.7

204.2
304.5
20.0
1.4

204.1
168.3
71.5
0.3

Subordinated and other financial liabilities
Trade and other payables*1
Lease liabilities*2

530.1
1,975.9
137.1

444.2
1,801.5—

Total financial liabilities

2,643.1

2,245.7

Financial assets measured at amortised cost
Deposits with credit institutions
Total financial investments
Other financial assets measured at amortised cost
Insurance receivables
Trade and other receivables
Insurance and other receivables

Total financial assets
Financial liabilities
Subordinated notes
Loan backed securities
Other borrowings
Derivative financial instruments*1 Trade and other payables total balance of £1,975.9m (2018: £1,801.5m) above includes £1,472.1m (2018: £1,349.6m)
in relation to tax and social security, deferred income and reinsurer balances that are outside the scope of IFRS 9.
*2 Lease liabilities of £149.2m were recognised on transition on 1 January 2019. The movement to the balance
presented of £137.1m reflects cash payments in the period offset by the lease interest expense recognised in theincome statement.

75

The maturity profile of financial assets and liabilities under the scope of IFRS 4 & 9 at 31 December
2019 is as follows:
On demand£m< 1 year£m

Between 1 and 2 years£m> 2 years
£m

—
—
—
—

1,145.1
96.5
462.6
—

1.0
20.0
196.6
—

14.0
—
1,117.1
174.0

Total financial investments
Trade and other receivables
Loans and advances to customers
Cash and cash equivalents

—
—
—
281.7

1,704.2
278.8
128.6
—

217.6
—
134.2
—

1,305.1—
192.3—

Total financial assets

281.7

2,111.6

351.8

1,497.4

—
—
—
—

11.0
102.3
20.3
1,725.1

11.0
90.9
—
—

233.0
125.7
—
—

Financial investments
Money market funds and derivative financial instruments
Deposits with credit institutions
Debt securities
Government gilts

Financial liabilities
Subordinated notes
Loan backed securities
Other borrowings
Trade and other payables*1

Total financial liabilities—
1,858.7
101.9
358.7*1 Of the £1,725.1m held within trade and other payables, £1,442.1m do not meet the definition of a financial liability but
fall within the scope of IFRS 4 hence are included in the above maturity profile.

The maturity profile of financial assets and liabilities under the scope of IFRS 9 at 31 December
2018 was as follows:
On demand£mFinancial investments
Money market funds and derivative financial instruments
Deposits with credit institutions
Debt securities
Government gilts< 1 year Between 1 and 2 years£m£m> 2 years
£m

—
—
—
—

1,296.9
60.0
295.3
—

2.1
40.0
210.7
—

2.1
—
883.9
170.9

Total financial investments
Trade and other receivables
Loans and advances to customers
Cash and cash equivalents

—
—
—
376.8

1652.2
239.7
102.1
—

252.8
—
91.2
—

1,056.9—
106.9—

Total financial assets

376.8

1,994.0344.0

1,163.8

Financial liabilities
Subordinated notes
Loan backed securities
Other borrowings
Trade and other payables

—
—
—
—

4.9
60.2
71.8
1,801.5

—
53.0
—
—

199.2
55.1
—
—

Total financial liabilities—

1,938.4

53.0

254.3

*1 Of the £1,801.5m held within trade and other payables, £1,275.9m do not meet the definition of a financial liability but
fall within the scope of IFRS 4 hence are included in the above maturity profile.

76

6e. Financial Investments

FVTPL
£m

FVOCI
£m

Amortised Cost
£m

Total
£m

AAA- AAA
BBB
Sub BBB

414.5
441.2
28.5
13.3

861.0
733.6
304.3
—

68.7
308.5
20.2
0.1

Not rated*1

262.7

58.9

0.7

1,344.2
1,483.3
353.0
13.4
322.3

Total financial investments
1,160.2
1,957.8
398.2
3,516.2*1 The majority (£234.4m) of the unrated exposure stems from money market funds, which are rated AAA, but theunderlying securities are not. These specific exposures are re-purchase agreements. The remaining unrated exposure
is a mixture of private debt (£77.2m) and other holdings (£10.7m).

Classification and Measurement
At initial recognition, the Group measures financial investments at fair value plus or minus, in thecase of financial instruments not measured at fair value through profit and loss, directly
attributable transaction costs. Transaction costs of financial instruments measured at fair value
through profit and loss are expensed to the profit and loss when incurred.
Money market funds and derivative financial instruments are measured at FVTPL. The regulatory
capital within the Group is used to invest in these instruments in addition to any surplus funds
which may be held. Buying and selling activity occurs depending on timing of different cashflows.
Debt securities are measured at FVOCI and as such fall under the scope of the ECL model.
These assets are held to match policyholder liabilities or interest on debt liabilities. If soldbefore maturity, gains or losses on these assets impact the P&L.
Private Equity investments have been designated as being reported through FVOCI due to thesebeing long term, strategic investments. Dividends are recognised in the Income Statement whilst achange in fair values will be reflected in OCI. Given the immaterial amount (£7.5 million) of theseinvestments, detailed levelling disclosures have not been provided.
Impairment
All financial investments held at FVOCI and at amortised cost have been assessed for impairment
using the expected credit loss model under IFRS 9. The assessment has been made based on thecredit ratings of the entities and externally available credit loss ratios.
The fair value of debt securities is calculated with reference to quoted market valuations and assuch take into account future expected credit losses. As a result, no impairment provision isrequired against the book value. The calculated impairment loss within the fair value is recognised
through the Income Statement whilst fair value movements are recognised in other comprehensive
income. Deposits are held with well rated institutions and are held at book value, with impairment
calculated in a similar manner to debt securities.
All assets that are purchased, which require a calculation of impairment, are considered ofinvestment grade or above (i.e. BBB rated or higher), as defined by an external credit rating agency
77

or an assessment from Admiral’s external asset managers. The credit rating of all assets is regularly
monitored. As at the year-end reporting date, the vast majority of financial assets are ofinvestment grade and considered low risk under IFRS 9. These therefore remain within stage 1 anda 12 month expected loss is used to calculate the impairment provision required.
Any assets downgraded below BBB are considered by the Group to have significantly increased in
credit risk since inception, and therefore enter stage 2 under IFRS9.
The impairment provision at 31 December 2019 is £0.9 million (£0.5 million at 31 December2018). Given there is no material change in the credit quality or type of financial assets inthe year and the movement in provision is immaterial, no further disclosure has been made.
Fair value measurement
IFRS 13 requires assets and liabilities that are held at fair value to be classified according to ahierarchy which reflects the observability of significant market inputs, based on three levels.
The table below shows how the financial assets held at fair value have been measured using the fairvalue hierarchy:

Level One (quoted prices in active markets)
Level Two (use of observable inputs)
Level Three (use of significant unobservable
inputs)*1

31 December 201931 December 2018

FVTPL
£m

FVOCI
£m

FVTPL
£m

FVOCI
£m

1,160.2

1,950.3

1,301.1

1,560.8

—

—

—

—

—

7.5

—

7.8

Total
1,160.2*1 No further information is provided due to the immateriality of the balance.

1,957.8

1,301.1

1,568.6

Deposits are held with well rated institutions; as such the approximate fair value is the book value ofthe investments as impairment of the capital is not expected.
6f. Cash and cash equivalents
31 December
2019£m

31 December
2018£mCash at bank and in hand*1
Short-term deposits

281.7
—

376.0
0.8

Total cash and cash equivalents

281.7

376.8

*1 £4.4m of cash is ring-fenced via a bank guarantee. See note 11f for further details.

Cash and cash equivalents includes cash in hand, deposits held at call with banks and other shortterm deposits with original maturities of three months or less. All cash and cash equivalents aremeasured at amortised cost.
An assessment has been completed for impairment purposes. The credit rating of all assets isregularly monitored. As at the year end reporting date all financial assets are of investment grade
or above (i.e. BBB rated or higher) and considered low risk under IFRS 9. These therefore remain
within stage 1 and a 12 month expected loss is used to calculate the impairment provision78

required. Given the short-term duration of these assets and low risk of these assets, no
impairment provision has been recognised.

For cash at bank and cash deposits and other receivables, the fair value approximates to the bookvalue due to their short maturity.
6g. Other Assets
Insurance and other receivables
31 December 31 December
2019
2018
£m
£m

Insurance receivables*1
Trade and other receivables
Prepayments and accrued income
Total insurance and other receivables

948.9
262.8
16.0

842.3
227.0
12.7

1,227.7

1,082.0*1 Insurance receivables at 31 December 2019 include £71.7 million in respect of salvage and subrogation recoveries(2018: £59.3 million).

Insurance receivables
Insurance receivables are measured at amortised cost. Given the short-term duration of theseassets no impairment provision has been recognised.
Trade and other receivables
Classification. Trade and other receivables are measured at amortised cost, being made up ofmultiple types of receivable balances.
Impairment. Where a provision is required for these receivables, it is calculated in line with thesimplified method for trade receivables per IFRS 9, whereby lifetime expected credit losses arerecognised irrelevant of the credit risk. In this case, the provision is based on a combination of(i)aged debtor analysis,(ii)

historic experience of write-offs for each receivable,(iii)

any specific indicators of credit deterioration observed, and(iv)

management judgement.

The level of provision is immaterial.
The amortised cost carrying amount of receivables is a reasonable approximation of fairvalue.
Contract balances
The following table provides information about receivables and contract assets from contracts withcustomers. Both balances are included in Trade and other receivables.

79

31 December
2019£m

31 December
2018
£m

40.3
24.8

32.5
23.4

Receivables
Contract assets

The contract asset relates to the Group’s right to consideration for work undertaken in the law
companies on behalf of clients which is ongoing or where the final fee has not yet been billed. The
contract asset is transferred to trade receivables once the fee has been billed.
Significant changes in the contract asset balance during the period are as follows:

Contract asset balance

31 December
2019£m

At 1 January 2019
Revenue recognised
Transferred to trade receivables
Write-offs

23.4
34.8
(31.8)(1.6)

At 31 December 201924.8

The amount of revenue recognised in 2019 from performance obligations satisfied (or partiallysatisfied) in previous periods is £nil (2018: £nil).

6h.

Financial liabilities

Subordinated notes
Financial liabilities are inclusive of £200.0 million subordinated notes issued on 25 July 2014 at a
fixed rate of 5.5% with a redemption date of 25 July 2024.
The notes are unsecured subordinated obligations of the Group and rank pari passu without any
preference among themselves. In the event of a winding-up or bankruptcy, they are to be repaid
only after the claims of all other creditors have been met.
There have been no defaults on any of the notes during the year. The Group has the option todefer interest payments on the notes but to date has not exercised this right.
The fair value of subordinated notes (level one valuation) at 31 December 2019 is £225.1 million(2018: £211.3 million).
Other borrowings
The Group holds a credit facility of £20.0 million which expires in September 2020. £20.0 million
was drawn under this agreement as at 31 December 2019. The group also hold a revolving credit
facility of £200.0 million which expires in December 2020. As at 31 December 2019, £nil was drawn
down on this facility (2018: £71.5 million). Amounts drawn under their respective agreements areshown within other borrowings in the table above.

80

Loan backed securities
During 2018 an asset backed senior loan note facility of £300.0 million was established inrelation to the Admiral Loans business, which increased to £400.0 million during 2019 (seenote 3 for details of the accounting treatment of this SPE). As at the year end, £304.5 million(2018: £168.3 million) of this facility had been utilised.
Lease liabilities
The Group leases various properties, with rental contracts typically for fixed periods of 5 to 25
years although these may have extension options. Lease terms are negotiated on an individual
basis and contain a wide range of different terms and conditions. The lease agreements do not
impose any covenants, but leased assets may not be used as security for borrowing purposes.
Under IAS 17, all Group leases were classified as operating leases. Operating lease payments,
including the effects of any lease incentives, were recognised in the income statement on astraight-line basis over the lease term.
Under IFRS 16, from 1 January 2019, for each lease a right-of-use asset and corresponding leaseliability are recognised at the date at which the leased asset becomes available for use by theGroup.
The lease liability is initially measured at the present value of remaining lease payments, which
include the following:• fixed payments (including in-substance fixed payments), less any lease incentives
receivable;• variable lease payments that are based on an index or a rate;• payments of penalties for terminating the lease, if the lease term reflects the lessee
exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot
be determined, the Group’s incremental borrowing rate is used, being the rate that the Groupwould have to pay to borrow the funds necessary to obtain an asset of a similar value in a similar
economic environment, with similar terms and conditions. Generally, the Group uses its
incremental borrowing rate as the discount rate.
Subsequently, lease payments are allocated to the lease liability, split between repayments ofprincipal and interest. A finance cost is charged to the profit and loss so as to produce a constantperiod rate of interest on the remaining balance of the lease liability
6i. Objectives, policies and procedures for managing financial assets and liabilities
The Group’s activities expose it primarily to financial risks of credit risk, interest rate risk, liquidity
risk and foreign exchange risk. The Board of Directors has delegated the task of supervising risk
management and internal control to the Group Risk Committee. There is also an Investment
Committee that makes recommendations to the Group and subsidiary Boards on investment
strategy.

81

There are several key elements to the risk management environment throughout the Group. These
are detailed in full in the Corporate Governance Statement. Specific considerations for the risks
arising from financial assets and liabilities are detailed below.
Credit risk
The Group defines credit risk as the risk of loss if another party fails to perform its obligations. The
key areas of exposure to credit risk for the Group result through its reinsurance programme,
investments, bank deposits, loans and advances to customers and policyholder receivables.
The Directors consider credit quality and counterparty exposure frequently and in significant detail.
The Directors consider that the policies and procedures in place to manage credit exposure
continue to be appropriate for the Group’s risk appetite and, during 2019 and historically, nomaterial credit losses have been experienced by the Group.
The impact on equity of a 100 basis point increase in credit spreads at the relevant valuation date,is as follows:
31 December 31 December
2019
2018
£m
£m

Equity54.8

42.3

Financial Investments and cash
Credit and counterparty risk is managed by the Group by investing in high quality money market
funds, and setting suitable parameters for asset managers to adhere to when purchasing debt
securities. Cash balances and deposits are placed only with highly rated credit institutions. The
detailed holdings are reviewed regularly by the Investment Committee.
Invested Assets
As noted above, the Group primarily invests the following asset types:•

Investment funds and cash plus liquidity funds, which in turn invest in a mixture of short-dated
fixed and variable rate securities, such as cash deposits, certificates of deposits, floating rate
notes and other commercial paper.

•

Deposits with well rated institutions are short in duration (one to five years). These areclassified as held at amortised cost. Therefore neither the carrying value of the asset, nor theinterest return will be impacted by fluctuations in interest rates.

•

Debt securities are held within two segregated mandates. The guidelines of the investments
retain a similar credit quality of the investment funds (all holdings are investment grade). The
duration of the securities is relatively short (c. three years) and similar to the duration of theon book claims liabilities (the average duration is three years).

•

UK Government bonds which are classified as FVOCI.

82

Reinsurance assets
To mitigate the risk arising from exposure to reinsurers (in the form of reinsurance recoveries andprofit commissions), the Group only conducts business with companies of appropriate financial
strength ratings. In addition, many reinsurance contracts are operated on a funds withheld basis,
which substantially reduces credit risk, as the Group withholds the cash received frompolicyholders as collateral.
Loans and Advances to Customers
The risk appetite for the lending business is set with respect to anticipated loan losses over a 12month period. Management has defined an amber and a red loan loss limit, representing points at
which action is required. These limits have been defined by management to reflect the businessmaturity, the business ambitions and the economic climate. Risk appetite is assessed at least
annually, while the limits are continuously monitored.
Insurance assets
A further principal form of credit risk is in respect of amounts due from policyholders, largely due
to the potential for default by instalment payers. The impact of this is mitigated by the large
customer base and low average level of balance recoverable. There is also mitigation by theoperation of numerous high- and low-level controls in this area, including payment on policy
acceptance as opposed to inception and automated cancellation procedures for policies in default.
The amount of bad debt expense relating to policyholder debt charged to the income statement in2019 and 2018 is insignificant.
Trade and other receivables
Trade receivables and other debtors are also subject to credit risk, although this is mitigated by areview of the credit worthiness of all counterparties prior to them being accepted.
Other Assets
All other assets are assessed as low credit risk under IFRS 9, with no significant amounts past due or
impaired.
The Group’s credit risk exposure to assets with external ratings is as follows:

RatingFinancial institutions – Credit institutions
Financial institutions – Credit institutions
Financial institutions – Credit institutions
Financial institutions – Credit institutions
UK Government gilts
Reinsurers
Reinsurers
Reinsurers

AAA
AA
A
BBB and below
AA
AA
A
BBB

31 December 31 December
2019
2018
£m
£m

245.1
925.2
1,483.2
688.7
174.0
688.9
160.6
1.7

164.3
942.1
1,501.3
567.9
170.9
458.5
303.6
—

83

The Group’s maximum exposure to credit risk at 31 December 2019 is £4,913.3 million (2018:£4,507.4 million), being the carrying value of financial investments and cash, the carrying value ofloans and advances to customers, and the excess of reinsurance assets over amounts owed toreinsurers under funds withheld arrangements. The Group does not use credit derivatives or similar
instruments to mitigate exposure.
£13.8 million (2018: £9.2 million) was charged to the income statement in respect of movement on
the ECL of loans and advances to customers. Further details are provided in note 7b.
There were no further significant financial assets that were past due at the close of either 2019 or
2018.
Interest rate risk
The Group considers interest rate risk to be the risk that unfavourable movements in interest rates
could adversely impact on the capital values of financial assets and liabilities.
The impact on equity of a 50 basis point increase in interest rates at the relevant valuation date, isas follows:
31 December 31 December
2019
2018
£m
£m

Equity35.4

29.9

Loans and Advances to customers
The Group’s Loan portfolio is made up of fixed rate on loans which are funded at a floating variablerate. The Group has an interest rate swap arrangement, the risk management objective of which is
to eliminate the majority of the interest rate risk from the Loans portfolio. This relates to thedifference between fixed rate on loans written and floating variable rate on funding.
Hedge Accounting
Hedge accounting is applied when the criteria specified in IFRS 9 (including amendments, as set out
above) are met. In line with IFRS9, the gain or loss on the hedged position as at the balance sheet
date is recognised through Other Comprehensive Income.
This results in a hedging reserve at 31 December 2019 (and at 31 December 2018) in relation to theinterest rate swap.
The Group is exposed to GBP LIBOR within its hedge accounting relationships, with the hedged
item including issued GBP LIBOR floating rate debt as disclosed in “Hedge accounting” below. In
addition, the Group has a number of financial assets and liabilities with interest rates linked to GBP
LIBOR that are not included in hedge accounting relationships. Similarly, there are exposures to
non GBP interest rates.
The Group is closely monitoring the market and the output from the various industry working
groups managing the transition to new benchmark interest rates.

84

In response to the announcements, the Group has set up an IBOR transition project which includes
input from a number of areas of the business including risk management, investments, legal,
accounting and systems. The project is under the governance of the Investment Committee, andultimately the Chief Financial Officer who is a member of the Board. The aim of the programme isto understand where IBOR exposures are within the business and prepare and deliver on an action
plan to enable a smooth transition to alternative benchmark rates. The Group intends to have its
transition and fall-back plans in place by the end of 2020.
For the Group’s loan backed securities and related interest rate swaps (which are bilateralagreements) the Group has started discussions with respective counterparties to amend thereference benchmark interest rate which will change to SONIA. The Group aims to finalise thisamendment in the second half of 2020.
For the Group’s RCF and other debt linked to GBP LIBOR and reinsurance funds withheld balances,
the Group will begin a dialogue in 2020 to propose amendments to the fall-back provisions to movefrom GBPLIBOR to SONIA.
Below are details of the hedging instruments and hedged items in scope of the IFRS 9 amendments
due to benchmark interest rate reform, by hedge type. The terms of the hedged items listed match
those of the corresponding hedging instruments.
Hedge type

Instrument type

Maturing in

NominalCash flowhedge

Pay sterling fixed, receive
1-month GBP LIBOR
interest rate swap

2023

£146.3m

Cash flowhedge

Pay sterling fixed, receive
1-month GBP LIBOR
interest rate swap

2024

£274.7m

Hedged item
Portfolio cash
flow hedges ofinterest raterisk on GBP
LIBOR
Portfolio cash
flow hedges ofinterest raterisk on GBPLIBORThe Group will continue to apply the amendments to IFRS 9 until the uncertainty arising from theinterest rate benchmark reforms with respect to the timing and the amount of the underlying cash
flows that the Group is exposed to ends.
Due to the immateriality of the transaction and balance, no further disclosure is made.
Financial Liabilities
The Group also holds a financial liability in the form of £200.0 million of subordinated notes with aten year maturity and fixed rate coupon of 5.5%. This liability is valued at amortised cost andtherefore neither the carrying value of the deposits, nor the interest payable, will be impacted byfluctuations in interest rates.

85

Liquidity risk
Liquidity risk is defined as the risk that the Group does not have sufficient, available financial
resources to enable it to meet its obligations as they fall due, or can only secure them at excessive
cost.
The Group is strongly cash-generative due to the large proportion of revenue arising from nonunderwriting activity. Further, as noted above, a significant portion of insurance funds are invested
in investment funds with same day liquidity, meaning that a large proportion of the Group cash andinvestments is immediately available.
A breakdown of the Group’s other borrowings, trade payables and other payables is shown in note11.
The subordinated notes have a maturity date of July 2024, whereas all trade and other payables
will mature within three to six months of the balance sheet date. (Refer to the maturity profile atthe start of this note for further detail.)
In practice, the Group’s Directors expect actual cash flows to be consistent with this maturity
profile except for amounts owed to co-insurers and reinsurers. Of the total amounts owed to coinsurers and reinsurers of £1,442.1 million (2018: £1,275.9 million), £1,129.6 million (2018:£1,022.7 million) is held under funds withheld arrangements and therefore not expected to besettled within 12 months.
A maturity analysis for insurance contract liabilities is included in note 5. The maturity profile forfinancial assets is included at the start of this note.
The Group’s Directors believe that the cash flows arising from these assets will be consistent withthis profile. Liquidity risk is not, therefore, considered to be significant.
Foreign exchange risk
Foreign exchange risk arises from unfavourable movements in foreign exchange rates that could
adversely impact the valuation of overseas assets and liabilities.
The Group is exposed to foreign exchange risk through its operations overseas. Although therelative size of the international operations means that the risks are relatively small, increasingly
volatile foreign exchange rates could result in larger potential gains or losses. Assets held to fundinsurance liabilities are held in the currency of the liabilities; however, surplus assets held as
regulatory capital in foreign currencies remain exposed.
The Group’s exposure to net assets and profits in currencies other than the reporting currency isimmaterial other than for US dollars and Euros. The Group’s exposure to net assets held in dollars
at the balance sheet date was £40.9 million (2018: £60.7 million); the exposure to net assets held inEuros was £111.8 million (2018: £69.3 million).
The loss before tax derived from business carried out in the US was £18.5 million (2018: £19.2
million). If the Sterling rates with US dollars had strengthened/weakened by 10%, the Group’s
profit before tax for the year would increase/decrease by £1.8 million (2018: £1.8 million).
86

The profit before tax derived from business carried out in Euros was €11.9 million (2018: profit
before tax of €5.4 million). If the Sterling rates with euros had strengthened/weakened by 10%,
the Group’s profit before tax for the year would increase/decrease by £1.0 million (2018: £0.4
million).

87

7. Loans and Advances to Customers
7a. Accounting policies
Loans and advances to customers relate to the Admiral Loans business, consisting of unsecured
personal loans and car finance products.
Classification
Loans and advances to customers are measured at amortised cost. This is because assets are heldin order to collect contractual cash flows and the contractual terms of the financial asset demand
cash inflows which are solely payments of principal and interest on the principal amountoutstanding.
Interest income and expense
Interest income received in relation to loans and advances to customers is calculated using theeffective interest method which allocates interest, and direct and incremental fees and costs overthe expected lives of the assets and liabilities. There has been no change in recognition of interest
income from the comparative period.
Interest expense is calculated following the specific process relating to each source of funding,which is not linked to individual accounts.
Finance leases
Included within Loans and advances to customers are personal contract purchase (PCP) and hire
purchase (HP) arrangements which are classified as finance leases under IFRS 16. A receivableequal to the net investment in the lease has been recognised. The net investment is equal to thegross investment in the lease discounted at the rate implicit in the lease. The impairment
requirements of IAS 36 have been applied to the finance leases held.
Lease interest income is recognised within interest income in the income statement over the termof the lease using the effective interest method.
7b. Loans and advances to customers
31 December 31 December
2019
2018
£m
£m

Loans and advances to customers – gross carrying amount

479.1

310.4

Loans and advances to customers – provision(24.0)(10.2)

Total loans and advances to customers

455.1

300.2

Loans and advances to customers are comprised of the following:88

31 December 31 December
2019
2018
£m
£m

Unsecured personal loans

445.8

294.2

Finance leases

33.3

16.2

Total loans and advances to customers, gross

479.1

310.4

Fair value measurement
The amortised cost of loans and advances to customers on a portfolio basis is considered areasonable approximation of fair value.
Expected credit losses
The expected credit loss model is a three-stage model based on forward looking information
regarding changes in the credit quality since origination. Credit risk is measured using a probabilityof default (PD), exposure at default (EAD) and loss given default (LGD) defined as follows:•

Probability of Default (PD): The likelihood of an account defaulting; calibrated throughanalysis of historic customer behaviour. Where customers have already met the definitionof default this is 100%. For customers that are not in default the PD is determined throughanalysis of historic data at a credit grade level.

•

Exposure at Default (EAD): The amount of balance at the time of default. For loans that are
in arrears the EAD is taken as the current balance, for up to date loans the contractual
outstanding balance in each future month is used.

•

Loss Given Default (LGD): The amount of the asset not recovered following a borrower’s
default, determined through analysis of historic recovery performance.

The PD is applied to the EAD to calculate the expected loss. Where customers are up-to-date the
EAD is effectively the sum of the future month-end balances, as such the PD is converted from anannual rate to a monthly rate before applying it to the EAD. The LGD is then applied to this loss tocalculate the total expected loss including recoveries. A forward-looking provision is also
calculated, as set out later in this note.
Loan assets are segmented into three stages of credit impairment:•

Stage 1 – no significant increase in credit risk of the financial asset since inception;•

Stage 2 – significant increase in credit risk of the financial asset since inception;•

Stage 3 – financial asset is credit impaired.

For assets in stage 1, the allowance is calculated as the expected credit losses from events within
12 months after the reporting date. For assets in stages 2 and 3 the allowance is calculated as the
expected credit loss from events in the remaining lifetime of each asset.
Significant increase in credit risk (SICR) (Stage 2)

89

As explained above, stage 1 assets have an ECL allowing for losses in the next twelve months, stage
2 or 3 assets have an ECL allowing for losses over the remaining lifetime of the contract. An asset
moves to stage 2 when its credit risk has increased significantly since initial recognition. IFRS9 does
not prescribe a definition of significant increase in credit risk (SICR) but does include a rebuttablepresumption that this does occur for loan assets which are 30 days past due (which the Group does
not rebut).
The Group has deemed a SICR to have occurred where:•

the loan is 1 to 3 loan payments in arrears, or•the loan has been in arrears with AFSL in the last six months, or•the customer has a significant level of unsecured debt relative to the point of inception.

Credit Impaired (Stage 3)
The Group does not rebut the presumption within IFRS9 that default has occurred when an
exposure is greater than 90 days past due, which is consistent with a customer being 4 or more
payments in arrears. In addition, a loan is deemed to be credit impaired where
a)
b)
c)
d)

there is an Individual Voluntary Arrangement (‘IVA’) agreement confirmed or proposed, or
customer has started or progressed bankruptcy action, ora repayment plan is in place, or
customer is deceased.

Write off policy
Loans are written off where there is no reasonable expectation of recovery. The Group’s policy is towrite off balances to their estimated net realisable value. Write offs are actioned on a case by casebasis taking into account the operational position and the collections strategy. Given theimmaturity of the loans business, and considerations surrounding potential debt sales in the future,
the Group has to-date operationally written off only a small proportion of the book.
Forward-looking information
Under IFRS9 the provision must reflect an unbiased and probability-weighted amount that isdetermined by evaluating a range of possible outcomes. The means by which the Group hasdetermined this is to run scenario analyses.
Economic scenarios are considered, including an upturn, a downturn and a severe downturn. A
50% weighting is applied to the base scenario and the remaining 50% distributed across the
scenarios as shown below:-

25% Upturn
20% Downturn
5% Severe Downturn90

The key economic driver of the losses from the scenarios is the likelihood of a customer entering
hardship through unemployment. Several customer demographics including age, income and debt
levels are considered with a sensitivity to the specific scenarios considered. For each individual
customer, the sensitivities from each demographic are combined to determine an overallsensitivity.
Management judgement has been used to define the weighting and severity of the different
scenarios based on available data without undue cost or effort. The outcome from the scenarios
have been contrasted to loss rates stemming from loans written over the last decade, including
those from the most recent economic downturn (2007-2009).
Sensitivities to key areas of estimation uncertainty
The key areas of estimation uncertainty identified, as per note 3 to the financial statements, are in
the PD and the forward looking scenarios.
Stage 1 assets represent 95% of the total loan assets; a 0.1% increase in the stage 1 PD, i.e. from
1.8% to 1.9%, would result in a £0.5m (2%) increase in ECL.
The upturn scenario would reduce the ECL allowance by £1.2 million (-5.4%), the downturn would
create an increase of £2.5 million (11.7%) and severe downturn by £30.0 million (138.0%).
Amounts arising from ECL: loans and advances to customers
The Group is exposed to credit risk from the Admiral Loans business which has expanded during
2019.
The following table sets out information about the credit quality of the loans and advances tocustomers measured at amortised cost. Credit grades are used to segment customers by apparent
credit risk at the time of acquisition. Higher grades are the lowest credit risk with each subsequent
grade increasing in expected credit risk. The Group does not have any purchased or originatedcredit-impaired (POCI) assets. These tables are inclusive of the finance lease assets which are heldby the Group, further analysis of these balances can be found in note 7c.
All probability of defaults figures included in this paragraph allow for forward-looking information,i.e. the PDs are a weighted average from the economic scenarios considered. The average
probability of default (PD) in for stage 1 assets is 1.8% (2018: 1.8%) reflecting the expectation ofdefaults within 12 months of the reporting date. The average PD for assets in stage 2 is 58.7%(2018: 5.2%) reflecting expected losses over the remaining life of the assets. The PD for assets instage 3 is 100.0% (2018: 100.0%) as these assets are deemed to have defaulted.

91

31 December
2019

31 December
2018Stage 1
Stage 2
Stage 312- month ECL Lifetime ECL Lifetime ECL
£m
£m
£m

Total
£m

Total
£m

Credit Grade*2
Higher

333.5

3.6

—

337.1

139.5

Medium

112.1

2.6

—

114.7

117.7

Lower

10.6

0.3

—

10.9

48.6

—

—

16.4

16.4

4.6

Gross carrying amount

456.2

6.5

16.4

479.1

310.4

Expected credit loss allowance

(5.6)

(3.4)

(14.4)(23.4)(9.9)

Other loss allowance*1

(0.6)

—

—

(0.6)

(0.3)

450.0

3.1

2.0

455.1

300.2

Credit Impaired

Carrying amount*1 Other loss allowance covers losses due to a reduction in current or future vehicle value or costs associated withrecovery and sale of vehicles.
*2 Credit grade is the internal credit banding given to a customer at origination. This is based on external credit rating
information.

The following tables reconcile the opening and closing gross carrying amount and expected credit
loss allowance.
Stage 112- month ECL£mStage 2Lifetime ECL£mStage 3
Lifetime ECL
£m

Total
£m

296.9

8.9

4.6

310.4

Transfers from Stage 1 to Stage 2

(4.5)

4.5

—

—

Transfers from Stage 1 to Stage 3

(8.2)

—

8.2

—

Transfers from Stage 2 to Stage 1

2.4

(2.4)

-

—

Transfers from Stage 2 to Stage 3

—

(2.7)

2.7

—

Transfers from Stage 3 to Stage 1

—

—

—

—

Transfers from Stage 3 to Stage 2

—

—

—

—

Principal redemption payments(124.9)

(4.5)

(1.3)

(130.7)

New financial assets originated or purchased

294.5

2.7

2.2

299.4

Gross carrying amount as at 31 December 2019

456.2

6.5

16.4

479.1

Gross carrying amount as at 1 January 2019
Transfers

92

Stage 1
12- month ECL£mStage 2Lifetime
ECL£mStage 3
Lifetime
ECL
£m

Total

Expected credit loss allowance as at 1 January 2018

4.4

1.4

4.1

9.9

Movements with a profit and loss impact
Transfers
Transfers from Stage 1 to Stage 2
Transfers from Stage 1 to Stage 3
Transfers from Stage 2 to Stage 1
Transfers from Stage 3 to Stage 1
Changes in PDs/ LGDs/ EADs
New financial assets originated or purchased

(0.1)
(0.3)
0.1
—
(1.8)
3.3

0.2
—
(0.2)
—
0.8
1.2

—
0.5
—
—
7.9
1.9

0.1
0.2
(0.1)
—
6.9
6.4

Total net profit and loss charge in the period

1.2

2.0

10.3

13.5

Expected credit loss allowance as at 31 December 2019

5.6

3.4

14.4

23.4

Other movements with no profit and loss impact
Transfers
Transfers from Stage 2 to Stage 3
Transfers from Stage 3 to Stage 2
Write-offs

—
—
—

(1.0)
—
—

1.0
—
(0.5)

—
—
—

7c. Finance lease receivables
Loans and advances to customers include the following finance leases. The group is the lessor forleases of cars.
31 December
2019£m

31 December
2018£mGross investment in finance leases, receivable
Less than 1 year
Between 1 to 5 years
More than 5 years

8.1
28.9
—

4.9
10.9
—

Unearned finance income

37.0
(4.2)

15.8
(1.9)

Net investment in lease receivables
Less impairment allowance

32.8
(0.4)

13.9
(0.2)

32.4

13.7

6.2
26.6
—

4.1
9.8
—

32.8

13.9

Net investment in finance leases, receivable
Less than 1 year
Between 1 to 5 years
More than 5 years

The net investment in finance leases shown above is net of the unguaranteed residual value of £0.5
million (2018: £0.3 million).

93

7d. Interest Income

Loans and advances to customers

31 December
2019£m

31 December
2018
£m

30.8

15.0

30.8

15.0

Interest receivable on loans and advances to customers is recognised in the Income Statement using
the effective interest method, which calculates the amortised cost of the financial asset and allocatesthe interest income over the expected product life.
7e. Interest expense
31 December 31 December
2019
2018
£m
£m

Interest payable on loan backed securities
Interest payable on other credit facilities

5.6
0.7

1.7
1.9

Total interest expense*1

6.3

3.6

*1 Interest paid in total during the year was £6.3 million (2018: £3.1 million)

Interest expense represents the interest payable on funding for the Admiral Loans business, in theform of credit facilities of £220.0 million (2018: £200.0 million) of which £20.0 million was drawn
down at 31 December 2019 (2018: £71.5 million) and loan backed securities through an SPE of£400.0 million (2018: £300.0 million) of which £304.5 million was drawn down at 31 December
2019 (2018: £168.3 million).

94

8. Other Revenue
8a. Accounting policy(i) Contribution from additional products and fees and Other Revenue
Revenue is credited to the income statement over the period matching the Group’s obligations toprovide services. Where the Group has no remaining obligations, the revenue is recognised
immediately. An allowance is made for expected cancellations where the customer may be entitledto a refund of amounts charged.
Commission from the provision of insurance intermediary services is credited to revenue on thesale of the underlying insurance policy.
There has been no change in revenue recognition from the comparative period.
(ii) Nature of goods and services
The following is a description of the principle activities within the scope of IFRS 15 from which theGroup generates its other revenue.
Products and services
Comparison

Nature, timing of satisfaction of performance obligations andsignificant payment terms
The performance obligation is the provision of insurance intermediaryservices, at which point the performance obligation is met. Revenue istherefore recognised at a point in time.

Fee and commission
revenue: Commission
on underlying
products

The performance obligation is the provision of insuranceintermediary services, at which point the performance obligation ismet. Revenue is therefore recognised at a point in time. Payment of
the commission is due within 30 days of the period close.

Fee and commission
revenue:
Administration fees

The performance obligation is the change requested being made to
the underlying policy, at which point the performance obligation ismet.
Revenue is therefore recognised at a point in time and is collected
immediately or in line with direct debit instalments.

Revenue from law firm The performance obligation is the pursuit of the compensation fromthe other side’s insurer on behalf of the customer. Once the case issettled the performance obligation is fully satisfied. Revenue istherefore recognised over time using the expected value method.
This method values revenue by multiplying hours incurred on open
cases by a 12-month realisable rate. The realisable rate is a
probability weighted transaction price based on settled cases. The
expected value method therefore results in revenue recognised
being constrained to that where there is a high probability of no
significant reversal.

95

Revenue is recognised over time because as the Group has an
enforceable right to payment for performance completed to date
and the work performed to date has no alternative use to the GroupA contract asset is recognised equal to the work performed up to
the balance sheet date but not yet billed. Refer to note 6g for further
detail of this balance.

Profit commission
from co-insurers

Payment is due within 28 days of invoice.
The Group’s profit commission revenue falling within the scope of IFRS
15, ‘Revenue from Contracts with Customers’ relates to a contractual
arrangement between the Group’s insurance intermediary EUI Limited,
and a third party (external to the Group) co-insurer (Great Lakes)
underwriting a share of the UK Car Insurance business generated by EUI
Limited.
The variable consideration, being the profit commission recognised in
respect of each underwriting year at the end of each reporting period, isrecognized at a point in time, and calculated based on a number ofdetailed inputs, the most material of which are as follows:• Premiums, defined as gross premiums ceded including any
instalment income, less reinsurance premium (for excess of loss
reinsurance);• Insurance expenses incurred;•

Claims ratio (more typically referred to as a loss ratio)

Whilst the premiums and insurance expenses related to an underwriting
year are typically fixed at the conclusion of each underwriting year andare not subject to judgement, the claims ratio is calculated from theunderwriting year loss ratios that result from the setting of claims
reserves in the financial statements meaning it is subject to inherent
uncertainty. As stated in note 5d, Admiral’s reserving policy is initiallyto reserve conservatively, above internal and independent projectionsof actuarial best estimates. This is designed to create a margin held inreserves to allow for unforeseen adverse development in open claims.
Admiral’s financial statement loss ratios, used in the calculation of profit
commission income, continue to include a significant margin above
projected best estimates of ultimate claims costs. It is this margin for
uncertainty, included in the financial statement loss ratios, which
creates the constraint over the recognition of the variable consideration,
as using the booked loss ratio rather than the actuarial best estimate
constrains the profit commission income to a level where there is a highprobability of no significant reversal of the revenue recognised.

96The key methods, inputs and assumptions used to estimate the variableconsideration of profit commission are therefore in line with those used
for the calculation of claims liabilities, as set out in note 3 to the annual
report, with further detail also included in note 5. There are no further
critical accounting estimates or judgements in relation to the recognitionof profit commission.

Instalment income on insurance premium paid via instalments is recognised under IFRS 9 using theeffective interest rate, and as such is not within the scope of IFRS 15. Profit commission fromreinsurers is within the scope of IFRS 4, and not within the scope of IFRS 15 Revenue from Contracts
with Customers due to the nature of the income.
Refer to the Strategic Report for further detail on the sources of revenue.
8b. Disaggregation of revenue
In the following tables, other revenue is disaggregated by major products/service lines and timingof revenue recognition. The total revenue disclosed in the table of £584.8 million (2018: £542.4
million) represents total other revenue and profit commission and is disaggregated into thesegments included in note 4.

Year ended 31 December 2019

Major products/ service line
Comparison*1
Instalment income
Fee and commission revenue
Revenue from law firm
Other
Total other revenue
Profit commission
Total other revenue and profit commission
Timing of revenue recognition
Point in time
Over time
Revenue outside the scope of IFRS 15

UK
Insurance£mInternational
Car Insurance£mComparison
£m

Other
£m

Total
£m

—
85.3
162.0
32.9
13.4
293.6
114.0
407.6

—
2.9
18.7
—
—
21.6
0.9
22.5

152.2
—
—
—
—
152.2
—
152.2

—
—
1.9
—
0.6
2.5
—
2.5

152.2
88.2
182.6
32.9
14.0
469.9
114.9
584.8

267.8
35.9
103.9
407.6

18.7
—
3.8
22.5

152.2
—
—
152.2

2.5
—
—
2.5

441.2
35.9
107.7
584.8

97

Year ended 31 December 2018

Major products/ service line
Comparison*1
Instalment income
Fee and commission revenue
Revenue from law firms
Other
Total other revenue
Profit commission
Total other revenue and profit commission
Timing of revenue recognition
Point in time
Over time
Revenue outside the scope of IFRS 15

UK
Insurance£mInternational
Car Insurance£mComparison
£m

Other
£m

Total
£m

—
82.6
172.4
30.5
10.8
296.3
93.2
389.5

—
2.7
15.9
—
—
18.6
—
18.6

131.7
—
—
—
—
131.7
—
131.7

—
—
1.9
—
0.7
2.6
—
2.6

131.7
85.3
190.2
30.5
11.5
449.2
93.2
542.4

275.3
33.4
80.8
389.5

15.9
—
2.7
18.6

131.7
—
—
131.7

2.6
—
—
2.6

425.5
33.4
83.5
542.4

*1 Comparison revenue excludes £19.4 million (31 December 2018: £19.3 million) of income from other Group
companies.

Instalment income is recognised applying the effective interest rate over the term of thepolicy, and is outside the scope of IFRS 15. Profit commission from reinsurers is
recognised under IFRS 4, and is discussed further in note 5 to the financial statements.

9. Expenses
9a. Accounting policies(i) Acquisition costs and operating expenses
Acquisition costs incurred in obtaining new and renewal business are charged to the income
statement over the period in which those premiums are earned. All other operating expenses arecharged to the income statement in the period that they are incurred.
(ii) Employee benefits
As detailed in the Remuneration Committee Report, the key elements of employee remuneration
are:
•
•
•

Base salaries and pension contributions
Share based incentive plans
A discretionary bonus, (the ‘DFSS Bonus’), rather than an annual cash bonus, that is directly
linked to the number of DFSS awards held and actual dividends paid out to shareholders.

Within note 9b, the charges for base salaries and pension contributions (and the related social
security costs) are recognised within insurance contract expenses or administration and othermarketing costs, based on the role of the employee.

98Charges for the share based incentive plans (and related social security costs) and discretionary
bonus are included within “share scheme charges”. These charges are not shown as part of theresult for each reportable segment, or within the expense ratio, due to them being materiallycomprised of an accounting charge in line with IFRS 2 ‘Share based payments’ which does not
result in a cash payment to employees but instead results in a dilution of shares.
The rules of the share schemes ensure that the actual dilution level does not exceed 10% in any
rolling ten-year period, by funding of any vested (and future) DFSS and SIP awards as appropriate
with market-purchased shares. This corresponds to approximately a 1% dilution of share capitaleach year.
Base salaries and pension contributions
Base salaries and the related employer social security costs are charged to the income statement in
the period that they are incurred.
The Group contributes to defined contribution personal pension plans for its employees. The
contributions payable to these schemes are charged in the accounting period to which they relate.
Share based incentive plans and related social security costs
The Group operates a number of equity and cash settled compensation schemes for its employees,
the main ones being:- a Share Incentive Plan (‘SIP’), which is in place for all UK employees encouraging wide shareownership across our employees, and- the Discretionary Free Share Scheme (‘DFSS’). DFSS shares are typically awarded to
managers, and for the majority of employees 50% of the DFSS shares awarded are subject
to three performance conditions being Earnings per Share growth, Return on Equity andTotal Shareholder Return vs. the FTSE 350 (excluding investment companies) over a threeyear period.
For both schemes, employees must remain in employment three years after the award date (i.e. atthe vesting date), otherwise the shares are forfeited.
The majority of these schemes are classed as equity settled under IFRS 2, due to the employees
receiving shares (rather than cash) as consideration for the services provided.
For equity settled schemes, the charge, which reflects the fair value of the employee services
received in exchange for the grant of the free shares, is recognised as an expense, with acorresponding increase in equity, as shown in Consolidated statement of changes in equity (2019:£58.8 million; 2018: £56.7 million).
For the cash settled schemes, the expense recognised for the fair value of services received results
in a corresponding increase in liabilities.
The key drivers and assumptions used to calculate the charge for the schemes over the three year
vesting period are:99-the number of shares awarded, which is set at the start of each scheme. Details of thenumber of shares awarded for each scheme where shares remain unvested is set out innote 9f(ii)-the fair value of the shareso

For the SIP, the fair value of the shares awarded is the share price at the award
date. Awards under the SIP are entitled to receive dividends, and hence noadjustment is made to this fair value.

o

For the DFSS equity settled awards, awards are not eligible for dividends, althougha discretionary bonus is currently paid equivalent to the dividend that would havebeen paid on the shareholding, hence the fair value of the shares is revised
downwards to take account of these expected dividends.

o

For the DFSS cash settled awards, the fair value is based on the share price at thevesting date. The closing share price at the end of each reporting period is used as
an approximation for the closing price at the end of the vesting period.

-

attrition rates, which impact the ultimate number of shares that vest.

-in the case of the DFSS, the vesting rates based on the performance conditions, which also
impact the ultimate number of shares that vest.

The number of shares that have ultimately vested compared to those originally awarded is set out
in note 9f(iii).
At each balance sheet date, the Group revises its assumptions on the number of shares which will
ultimately vest based on the latest forecast information for attrition rates and, for the DFSS, theextent to which the performance conditions are met.
The financial impact as a result of any change in the assumptions is recognised through the income
statement. Any significant changes in assumptions may therefore result in an increased/ decreased
charge in an accounting period as a result of this true-up of the expected cumulative charge
required.
Social security costs on share based incentive plans
Social security costs are incurred by the Group in respect of the share based incentive plans, withthe expense recognised over the vesting period for each share scheme. For the SIP, these costs arepaid when the employees sell the shares after vesting (typically 3-5 years after the grant date). For
the DFSS, the costs are paid immediately upon vesting.
The total social security costs are calculated based on the following:-

The taxable value of the shares, being:o

For the SIP, the lower of the share price at award date and the share price at thebalance sheet date

100

o

For the DFSS, the share price at the balance sheet date;-

the number of shares expected to vest for each scheme, driven by the number of sharesawarded, attrition rates and, for the DFSS, the vesting rate based on performance
conditions;-the appropriate social security rate.

These assumptions are updated at the end of each reporting period. The financial impact as a resultof any change in the assumptions is recognised through the income statement. Any significant
changes in assumptions may therefore result in an increased/ decreased charge in an accounting
period as a result of this true-up of the expected cumulative charge required.
Discretionary bonus on shares allocated but unvested
The cost of the DFSS bonus is recognised and paid in each period equivalent to the dividends onshares allocated to employees that are still entitled to vest, but have not yet vested. The costshown also includes the social security costs on the discretionary bonus. No accrual is made for
future discretionary bonus payments due to there being no contractual obligation for such a bonus
at the balance sheet date.
9b. Operating expenses and share scheme charges
31 December 2019

Gross
£m

Recoverablefrom co- andreinsurers
£m

Net
£m

Acquisition of insurance contracts
Administration and other marketing costs (insurance contracts)

138.0
398.8

(104.9)(307.2)

33.1
91.6

Insurance contract expenses
Administration and other marketing costs (other)
Share scheme charges

536.8
281.4
82.5

(412.1)—(29.1)

124.7
281.4
53.4

Total expenses and share scheme charges

900.7(441.2)459.5

31 December 2018

Gross
£m

Recoverablefrom co- andreinsurers
£m

Net
£m

Acquisition of insurance contracts*1
Administration and other marketing costs (insurance contracts)

135.1
381.6

(103.8)(287.9)31.3
93.7

Insurance contract expenses
Administration and other marketing costs (other)
Share scheme charges

516.7
249.2
76.9

(391.7)—(27.1)

125.0
249.2
49.8

Total expenses and share scheme charges

842.8(418.8)424.0*1 Acquisition of insurance contracts expense excludes £19.4 million (2018: £19.3 million) of aggregator fees from otherGroup companies.

The £91.6 million (2018: £93.7 million) administration and marketing costs allocated to insurance
contracts is principally made up of salary costs.
Analysis of other administration and other marketing costs:
101

31 December 31 December
2019
2018
£m
£m

Expenses relating to additional products and fees
Comparison operating expenses
Loans expenses (including movement on ECL provision)
Other expenses

70.1
156.8
31.9
22.6

63.4
144.4
22.9
18.5

Total

281.4

249.2

Refer to note 13 for a reconciliation between insurance contract expenses and the reported expense
ratio.
9c. Staff costs and other expenses
31 December 201931 December 2018

Total
£m

Net
£m

Total
£m

Net
£m

Salaries
Social security charges
Pension costs
Share scheme charges (see note 9f)

292.2
30.5
13.5
82.5

109.2
12.8
4.8
53.4

268.8
27.2
9.0
76.9

95.7
10.3
3.2
49.8

Total staff expenses

418.7

180.2

381.9

159.0

– Owned assets

11.9

4.1

12.0

3.7

– ROU assets
Amortisation charge:– Software– Deferred acquisition costs
Auditor’s remuneration (including VAT):– Fees payable for the audit of the Company’s annual accounts– Fees payable for the audit of the Company’s subsidiary accounts– Fees payable for audit related assurance services pursuant tolegislation or regulation

11.9

4.6

—

—

17.4
—

5.9
52.8

15.5
—

4.6
50.5

0.1
0.9

—
0.8

—
0.5

—
0.3

0.4

—

0.4

—

Depreciation charge:£32,380 (2018: £nil) was payable to the auditor for other services in the year.
Total and net expenses are before and after co- and reinsurance arrangements respectively.
Refer to the Corporate Governance Report for details of the Audit Committee’s policy on fees paid
to the Company’s auditor for non-audit services. Audit fees are 66% (2018: 53%) of total fees and
31% (2018: 47%) of total fees are for non-audit services, which are classed as audit related
assurance services under the FRC rules on non-audit services.
The amortisation of software and deferred acquisition cost assets is charged to expenses in theincome statement.

102

9d. Staff numbers (including Directors)
Average for the year
2019
Number2018
NumberDirect customer contact staff
Support staff

7,319
3,510

6,845
3,354

Total

10,82910,1999e. Directors’ remuneration(i) Directors’ remuneration
31 December 31 December
2019
2018
£m
£m

Directors’ emoluments
Amounts receivable under SIP and DFSS share schemes
Company contributions to money purchase pension plans

1.7
1.2
—

1.6
1.1
—

Total

2.9

2.7

2019
Number2018
Number11(ii) Number of Directors
Retirement benefits are accruing to the following number of Directors under:– Money purchase schemes

9f. Staff share schemes
Analysis of share scheme costs:
31 December 2019
SIP charge (i)DFSS charge (ii)

Total charge

Gross
£m

Net
£m

Gross
£m

Net
£m

Gross
£m

Net
£m

IFRS 2 charge for equity settled share schemes
IFRS 2 charge for cash settled share schemes

17.3
—

11.9
—

41.5
1.9

26.5
1.0

58.8
1.9

38.4
1.0

Total IFRS 2 charge
Social security costs on IFRS 2 charge
Discretionary bonus on shares allocated but unvested

17.3
1.6
—

11.9
1.2
—

43.4
7.1
13.1

27.5
4.8
8.0

60.7
8.7
13.1

39.4
6.0
8.0

Total share scheme charges

18.9

13.1

63.6

40.3

82.5

53.4

31 December 2018
SIP charge (i)DFSS charge (ii)

Total charge

Gross
£m

Net
£m

Gross
£m

Net
£m

Gross
£m

Net
£m

IFRS 2 charge for equity settled share schemes
IFRS 2 charge for cash settled share schemes

16.4
—

11.2
—

40.3
0.6

25.8
0.3

56.7
0.6

37.0
0.3

Total IFRS 2 charge
Social security costs
Discretionary bonus on shares allocated but unvested

16.4
1.7
—

11.2
1.1
—-

40.9
5.9
12.0

26.1
3.9
7.5

57.3
7.6
12.0

37.3
5.0
7.5

Total share scheme charges

18.1

12.3

58.8

37.5

76.9

49.8

103

Net share scheme charges are presented after allocations to co-insurers (in the UK and Italy) andreinsurers (in the International Insurance businesses). The proportion of net to gross share scheme
charges would be expected to be consistent in each period, at approximately 65%.

Analysis of gross cost2016 and prior
£m

2017
£m

Financial year ended 31 December
Total cumulative
2018
2019
charge to date
£m
£m
£m

Year of share scheme - SIP
2014
9.7
2.1
—
—
11.8
2015
8.6
3.0
2.0
—
13.6
2016
6.2
2.2
5.4
2.1
15.9
2017*1
2.2
1.1
5.5
5.5
14.3
2018*1
—
—
3.5
6.1
9.6
2019*1
—
—
—
3.6
3.6
Gross IFRS 2 costs – SIP
8.4
16.4
17.3
Year of share scheme - DFSS
2014
11.8
3.7
—
—
15.5
2015
9.6
9.4
7.0
—
26.0
2016
5.8
12.8
17.0
9.8
45.4
2017*2
—
3.6
13.0
14.5
31.1
2018*2
—
—
3.9
15.6
19.5
2019*2
—
—
—
3.5
3.5
Gross IFRS 2 costs - DFSS
29.5
40.9
43.4
Total IFRS 2 costs
37.9
57.3
60.7
*1 Awards are made in March and September of each year, and vest over 36 months from award date. On the 2017
scheme, an average of 5 months’ charge remains outstanding, on the 2018 scheme an average of 17 months’ charge
remains outstanding, and on the 2019 schemes an average of 29 months’ charge remains outstanding.
*2 The main award is made in September of each year, with smaller awards made at other points through the year. The
shares vest over 36 months from award date. On the 2017 main DFSS, 9 months’ charge remains outstsanding; on the2018 main DFSS 21 months’ charge remains outstanding, and on the 2019 main DFSS, 33 months’ charge remains
outstanding.

(i) The Approved Share Incentive Plan (the SIP)
Eligible UK based employees qualified for awards under the SIP based upon the performance of theGroup in each half-year period. The maximum award for each year is £3,600 per employee and the
maximum number of shares that can vest relating to the 2019 schemes is 1,113,496 (2018schemes: 1,192,302; 2017 schemes: 1,067,291).
The awards are made at the discretion of the remuneration committee, taking into account theGroup’s performance.
(ii) The Discretionary Free Share Scheme (the DFSS)
Under the DFSS, details of which are contained in the remuneration policy section of the Directors’
Remuneration Report, individuals receive an award of free shares at no charge.
The maximum number of shares that can vest relating to the 2019 schemes is 2,637,196 (2018schemes: 3,373,948; 2017 schemes: 3,205,449).
The vesting percentage for the 2016 DFSS scheme which vested during 2019 was 93.8% (2015 DFSS
scheme: 87.1%).
(ii) Number of free share awards committed at 31 December 2019
104

Awards
outstanding*1

SIP 20172
SIP 2018*2
SIP 2019*2
DFSS 2017*3
DFSS 2018*3
DFSS 2019*3

1,067,291
1,192,302
1,113,496
3,205,449
3,373,948
2,637,196

Total awards committed

12,589,682*1 Being the maximum number of awards committed before accounting for expected staff attrition and vesting conditions*2 Shares are awarded in March and September of each year, and vest three years later*3 The main award is made in September of each year, with smaller awards made at other points through the year(iii) Number of free share awards vesting during the year ended 31 December 2019
During the year ended 31 December 2019, awards under the SIP H116 and H216 schemes and the
DFSS 2016 schemes vested. The total number of awards vesting for each scheme is as follows.
Original
awardsSIP 2016 schemes
DFSS 2016 schemesAwardsvested

1,025,662
797,3113,253,250 2,643,980

The difference between the original and vested awards reflects employee attrition (SIP schemes)
and both employee attrition and the vesting outcomes based on performance conditions noted
above (DFSS schemes).
The weighted average fair value of the shares granted in the year was £18.96 (2018: £17.65).
The weighted average market share price at the date of exercise for shares exercised during theyear was £21.06 (2018: £20.05).

105

10. Taxation
10a. Accounting policy
Income tax on the profit or loss for the periods presented comprises current and deferred tax.
(i) Current tax
Current tax is the expected tax payable on the taxable income for the period, using tax rates thathave been enacted or substantively enacted by the balance sheet date, and includes any
adjustment to tax payable in respect of previous periods.
Current tax related to items recognised in other comprehensive income is also recognised in othercomprehensive income and not in the income statement.
(ii) Deferred tax
Deferred tax is provided in full using the balance sheet liability method, providing for temporary
differences arising between the carrying amount of assets and liabilities for accounting purposes
and the amounts used for taxation purposes.
Deferred tax is calculated at the tax rates that have been enacted or substantially enacted by thebalance sheet date and that are expected to apply in the period when the liability is settled or theasset is realised.
The principal temporary differences arise from carried forward losses, depreciation of property andequipment and share scheme charges. The resulting deferred tax is charged or credited in theincome statement, except in relation to share scheme charges where the amount of tax benefit
credited to the income statement is limited to an equivalent credit calculated on the accounting
charge. Any excess is recognised directly in equity.
Deferred tax assets relating to carried forward losses are recognised only to the extent that it isprobable that future taxable profits will be available against which the assets can be utilised. The
probability of the availability of future taxable profits is determined by a combination of theclassification of the status of the businesses holding cumulative tax losses and the business plan
profit projections for that business, subject to appropriate stress testing.

106

10b. Taxation
31 December 31 December
2019
2018
£m
£m

Current tax
Corporation tax on profits for the year
Under-provision relating to prior periods

91.3
0.5

81.4
0.2

Current tax charge
Deferred tax
Current period deferred taxation movement(Over)/under provision relating to prior periods

91.8

81.6

2.8
(0.4)

3.8
0.3

Total tax charge per consolidated income statement

94.2

85.7

Factors affecting the total tax charge are:
31 December 31 December
2019
2018
£m
£m

Profit before tax

522.6

476.2

Corporation tax thereon at effective UK corporation tax rate of 19.0% (2018: 19.0%)
Expenses and provisions not deductible for tax purposes
Non-taxable income
Impact of change in UK tax rate on deferred tax balances
Adjustments relating to prior periods
Impact of different overseas tax rates
Unrecognised deferred tax

99.3
1.8
(4.9)
0.3
0.1
(8.8)
6.4

90.5
0.7
(6.0)
0.5
0.6
(8.2)
7.6

Total tax charge for the period as above

94.2

85.7

The outstanding corporation tax payable as at 31 December 2019 was £48.3 million (2018: £49.3
million).

107

10c. Deferred income tax asset/(liability)
Analysis of deferred tax asset/(liability)
Tax treatmentof shareschemes£mCapitalallowances£m

Carriedforwardlosses£m

Fair value
reserve£m

Otherdifferences
£m

Total
£m

6.1

(4.5)

2.9

(4.6)

0.4

0.3

(2.2)

—

—

—

—

(2.2)

3.3
—
—
—
—

—
0.9
—
—
—

—
—
(2.9)
—
—

—
—
—
0.7
—

—
—
—
—
0.1

3.3
0.9
(2.9)
0.7
0.1

7.2

(3.6)

—

(3.9)

0.5

0.2

(4.6)

—

—

—

—

(4.6)

3.3
—
—
—
—

—
1.5
—
—
—

—
—
—
—
—

—
—
—
(1.5)
—

—
—
—
—
0.7

3.3
1.5
—
(1.5)
0.7

Balance carried forward at 31 December 2019
5.9
(2.1)
Positive amounts presented above relate to a deferred tax asset position.

—

(5.4)

1.2

(0.4)

Balance brought forward at 1 January 2018
Tax treatment of share scheme charges throughincome or expense
Tax treatment of share scheme charges throughreserves
Capital allowances
Carried forward losses
Movement in fair value reserve
Other difference
Balance carried forward at 31 December 2018
Tax treatment of share scheme charges throughincome or expense
Tax treatment of share scheme charges throughreserves
Capital allowances
Carried forward losses
Movement in fair value reserve
Other difference

The average effective rate of tax for 2019 is 19.0% (2018: 19.0%). A further reduction to the main
rate of corporation tax to 17% (effective from 1 April 2020) was enacted on 15 September 2016 but
is expected to be reversed. This would reduce the Group’s future current tax charge accordingly.
The deferred tax asset in relation to carried forward losses remains at £nil at the year end (2018:£nil) due to uncertainty over the availability of future taxable profits against which to offset utilise
any deferred tax asset (see note 3 for details of how future taxable profits are estimated).
At 31 December 2019 the Group had unused tax losses amounting to £231.3 million (2018: £217.5
million), relating primarily to the Group’s US businesses Elephant Auto and compare.com, for which
no deferred tax asset has been recognised. The earliest expiry date for any of these tax losses is2029. The total aggregated unrecognised deferred tax liabilities on temporary differences
associated with subsidiaries is £nil (2018: £nil).
11. Other assets and other liabilities
11a. Accounting policy(i) Property and equipment, and depreciation
All property and equipment is stated at cost less accumulated depreciation. Depreciation is
calculated using the straight line method to write off the cost less residual values of the assets overtheir useful economic lives. These useful economic lives are as follows:
Improvements to short leasehold buildings–

four to ten years
108Computer equipment–

two to four years

Office equipment–

four years

Furniture and fittings–

four years

Motor vehicles–

four years

Right-of-use assets-

2 – 20 years, aligned to lease agreement

In line with the adoption of IFRS 16, and as set out further in notes 2 and 6h to the financial
statements, a right-of-use asset has been established in relation the Group’s lease arrangements.
The right-of-use asset is measured at cost, which comprises the following:••••

the amount of the initial measurement of lease liability (see notes 2 and 6h to the financial
statements)
any lease payments made at or before the commencement date less any lease incentives
received
any initial direct costs, andrestoration costs.

The right-of-use asset is subsequently depreciated over the shorter of the lease term and theasset’s useful life on a straight-line basis.
The Group does not have any significant leases which qualify for the short-term leases or leases of
low-value assets exemption.
(ii) Impairment of property and equipment
In the case of property and equipment, carrying values are reviewed at each balance sheet date todetermine whether there are any indications of impairment. If any such indications exist, theasset’s recoverable amount is estimated and compared to the carrying value. The carrying value isthe higher of the fair value of the asset, less costs to sell and the asset’s value in use. Impairment
losses are recognised through the income statement.
(iv) Intangible assets
Goodwill
All business combinations are accounted for using the acquisition method. Goodwill has beenrecognised in acquisitions of subsidiaries, and represents the difference between the cost of theacquisition and the fair value of the net identifiable assets acquired.
The classification and accounting treatment of acquisitions occurring before 1 January 2004 havenot been reconsidered in preparing the Group’s opening IFRS balance sheet at 1 January 2004 dueto the exemption available in IFRS 1 (First time adoption). In respect of acquisitions prior to 1
January 2004, goodwill is included at the transition date on the basis of its deemed cost, which
represents the amount recorded under UK GAAP, which was tested for impairment at thetransition date. On transition, amortisation of goodwill has ceased as required by IAS 38.
109

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash
generating units (CGUs) according to business segment and is reviewed annually for impairment.
The goodwill held on the balance sheet at 31 December 2019 and 2018 is allocated solely to the UK
Insurance segment.
Impairment of goodwill
The annual impairment review involves comparing the carrying amount to the estimatedrecoverable amount (by allocating the goodwill to CGUs) and recognising an impairment loss if therecoverable amount is lower. Impairment losses are recognised through the income statement andare not subsequently reversed.
The recoverable amount is the greater of the fair value of the asset less costs to sell and the value
in use of the CGU.
The value in use calculations use cash flow projections based on financial budgets approved bymanagement covering a three year period. Cash flows beyond this period are considered, but notincluded in the calculation.
The key assumptions used in the value in use calculations are those regarding growth rates andexpected changes in pricing and expenses incurred during the period. Management estimates
growth rates and changes in pricing based on past practices and expected future changes in themarket.
The headroom above the goodwill carrying value is very significant, and there is no foreseeable
event that would eliminate this margin.
Deferred acquisition costs
Acquisition costs comprise all direct and indirect costs arising from the conclusion of insurance
contracts. Deferred acquisition costs represent the proportion of acquisition costs incurred that
correspond to the unearned premiums provision at the balance sheet date. This balance is held as
an intangible asset. It is amortised over the term of the contract as premium is earned.
SoftwarePurchased software is recognised as an intangible asset and amortised over its expected useful life
(generally the licence term). Internally generated software is recognised as an intangible asset, withdirectly attributable costs incurred in the development stage capitalised. The internally generated
software assets are amortised over the expected useful life of the systems and amortisationcommences when the software is available for use.
The carrying value of software is reviewed every six months for evidence of impairment, with thevalue being written down if any impairment exists. Impairment may be reversed if conditions
subsequently improve.

110

(iv) Provisions, Contingent Liabilities and Contingent Assets
Provisions are recognised when a legal or constructive obligation arises as a result of an event that
occurred before the balance sheet date, when a cash-outflow relating to this obligation is probableand when the amount can be estimated reliably.
Where a material obligation exists, but the likelihood of a cash out-flow or the amount is uncertain,or where there is a possible obligation arising from a past event that is contingent on a future
event, a contingent liability is disclosed.
Contingent assets are possible assets that arise from past events, whose existence will be
confirmed only by the occurrence or non-occurrence of future events. Where it is probable that acash-inflow will arise from a contingent asset, this is disclosed.

111

11b. Property and equipment
Improvements
to short
leaseholdbuildings£m

Furnitureand fittings£m

ROU
Asset –
Leaseholdbuildings£mComputerequipment£m

Officeequipment
£m

Total
£m

Cost
At 1 January 2018
Additions
Disposals
Transfers
Foreign exchange movement

28.7
3.1
(0.7)
(1.2)
(0.1)

57.2
4.9
(0.1)
—
0.1

19.7
1.9
(0.2)
—
—

9.8
0.1
(0.2)
—
0.1

—
—
—
—
—

115.4
10.0
(1.2)
(1.2)
0.1

At 31 December 2018

29.8

62.1

21.4

9.8

—

123.1

Depreciation
At 1 January 2018
Charge for the year
Disposals
Foreign exchange movement

14.9
2.8
(0.7)
(0.2)

45.9
6.5
(0.1)
—

15.2
1.9
(0.1)
—

8.1
0.8
(0.1)
0.1

—
—
—
—

84.1
12.0
(1.0)
(0.1)

At 31 December 2018

16.8

52.3

17.0

8.9

—

95.0

Net book amountAt 1 January 2018

13.8

11.3

4.5

1.7

—

31.3

Net book amountAt 31 December 2018

13.0

9.8

4.4

0.9

—

28.1

Cost
At 1 January 2019
Initial application of IFRS 16
Additions
Disposals
Transfers
Foreign exchange and other movements*1

29.8
—
4.2
—
(0.4)
(0.2)

62.1
—
9.7
(0.2)
0.1
(0.3)

21.4
—
1.8
(0.6)
—
(0.2)

9.8
—
0.9
(0.2)
0.3
(0.2)

—
136.7
—
—
—
(2.3)

123.1
136.7
16.6
(1.0)
—
(3.2)

At 31 December 2019

33.4

71.4

22.4

10.6

134.4

272.2

Depreciation
At 1 January 2019
Initial application of IFRS 16
Charge for the year
Disposals
Foreign exchange movement

16.8
—
3.2
—
(0.2)

52.3
—
6.7
(0.1)
(0.2)

17.0
—
1.5
—
(0.1)

8.9
—
0.5
(0.2)
(0.1)

—
—
11.9
—
(0.1)

95.0
—
23.8
(0.3)
(0.7)

At 31 December 2019

19.8

58.7

18.4

9.1

11.8

117.8

Net book amountAt 31 December 2019
13.6
12.7
4.0
1.5
122.6
154.4
*1 Within foreign exchange and other movements for the ROU asset, £0.6m relates to remeasurements of the ROU asset
due to amendments to the payment terms of the leasing arrangement.

112

11c. Intangible Assets

Goodwill£mDeferredacquisition
costs
£m

Software*1
£m

Total
£m

At 1 January 2018
Additions
Amortisation charge
Disposals
Transfers
Foreign exchange movement

62.3
—
—
—
—
—

20.6
53.1
(50.5)
—
—
0.2

76.5
13.9
(15.5)
—
1.2
0.2

159.4
67.0
(66.0)—
1.2
0.4

At 31 December 2018
Additions
Amortisation charge
Disposals
Impairment
Transfers
Foreign exchange movement

62.3
—
—
—
—
—
—

23.4
54.8
(52.8)
—
—
—
(0.6)

76.3
17.0
(17.4)
(0.3)
(1.2)
—
(1.2)

162.0
71.8
(70.2)
(0.3)
(1.2)
—
(1.8)

At 31 December 2019

62.3

24.8

73.2

160.3

*1 Software additions relating to internal development are immaterial in both 2019 and 2018

Goodwill relates to the acquisition of Group subsidiary EUI Limited (formerly Admiral Insurance
Services Limited) in November 1999. As described in the accounting policies, the amortisation ofthis asset ceased on transition to IFRS on 1 January 2004. All annual impairment reviews since thetransition date have indicated that the estimated recoverable value of the asset is greater than the
carrying amount and therefore no impairment losses have been recognised. Refer to theaccounting policy for goodwill for further information.
11d. Trade and other payables

31 December 31 December
2019
2018
£m
£m

Trade payables
Amounts owed to co-insurers
Amounts owed to reinsurers
Other taxation and social security liabilities
Other payables
Accruals and deferred income (see below)

37.5
220.8
1,221.3
79.6
188.1
228.6

37.9
153.2
1,122.7
60.4
196.0
231.3

Total trade and other payables

1,975.9

1,801.5

Of amounts owed to co-insurers and reinsurers (recognised under IFRS 4), £1,129.6 million (2018:£1,022.7 million) is held under funds withheld arrangements.

113

Analysis of accruals and deferred income:
31 December 31 December
2019
2018
£m
£m

Premium received in advance of policy inception
Accrued expenses
Deferred income

131.7
57.4
39.5

127.2
64.8
39.3

Total accruals and deferred income as above

228.6

231.3

11e. Leases
Information presented in this note is in accordance with IFRS 16. Comparative information
presented for the year ended 31 December 2018 is in accordance with IAS 17.
Admiral Group plc hold various property under leasing arrangements that are now recognised asright of use assets and lease liabilities. A reconciliation to the prior year operating leasecommitment can be found in note 2b. A maturity analysis of lease liabilities based on contractual
undiscounted cashflows is set out below:
31 December 31 December
2019
2018
£m
£m

Maturity analysis – contractual undiscounted cash flows
Within one year
Between two to five years
Over five years

12.9
47.9
102.0

14.8
54.3
116.8

Total

162.8

185.9

Amounts recognised in the statement of financial position are as follows:
31 December
2019£mLease liabilities
Current
Non-Current

9.7
127.4

Total

137.1

Amounts recognised in the income statement are as follows:
31 December
2019£mInterest payable on lease liabilities under IFRS 16
Interest recoverable from co and re-insurers

3.2
(2.0)
1.2

The Group has no significant financial commitments other than those accounted for as right of use
assets and lease liabilities under IFRS 16.

114

11f. Contingent liabilities
The Groups’ legal entities operate in numerous tax jurisdictions and on a regular basis are subject
to review and enquiry by the relevant tax authority.
Rastreator Comparador Correduria Seguros (“Rastreator Comparador”), the Group’s
Spanish Comparison business, has recently undergone a tax audit in respect of the 2013 and 2014
financial years. As a result of the audit, the Spanish Tax Authority has denied the VAT exemption
relating to insurance intermediary services which Rastreator Comparador has applied. Rastreator
Comparador is appealing this decision via the Spanish Courts and is confident in defending its
position which is, in its view, in line with the EU Directive and is also consistent with the way similar
supplies are treated throughout Europe.
The potential liability for the financial years currently subject to audit is approximately €5m, and, as
identified in note 6, a bank guarantee has been provided to the Spanish Tax Authority for thisamount. If the exemption is also disallowed in respect of later years, the liability could increase to€19m.
The Group is also in early stage discussions on various corporate tax matters with tax authorities in
the UK and Italy.
No provision has been made in these financial statements in relation to the matters noted above.

115

12. Share capital
The Group’s capital includes share capital and the share premium account, other reserves which
are comprised of the fair value reserve and foreign exchange reserve, and retained earnings.
12a. Accounting policies(i) Share capital
Shares are classified as equity when there is no obligation to transfer cash or other assets.
(ii) Dividends
Dividends are recorded in the period in which they are declared and paid.
(iii) Earnings per share
Basic Earnings per share is calculated by dividing profit or loss attributable to equity holders of theGroup parent company, Admiral Group plc by the weighted average number of ordinary shares
during the period.
Diluted Earnings per share is calculated by dividing profit or loss attributable to equity holders of
the Group parent company by the weighted average number of ordinary shares outstanding,adjusted for the effects of all dilutive potential ordinary shares.
12b. Dividends
Dividends were proposed, approved and paid as follows:
31 December 31 December
2019
2018
£m
£m

Proposed March 2018 (58.0 pence per share, approved April 2018, paid June 2018)
Declared August 2018 (60.0 pence per share, paid October 2018)
Proposed March 2019 (66.0 pence per share, approved April 2019, paid June 2019)
Declared August 2019 (63.0 pence per share, paid October 2019)

—
—
188.0
179.8

163.3
169.4
—
—

Total dividends

367.8

332.7

The dividends proposed in March (approved in April) represent the final dividends paid in respectof the 2017 and 2018 financial years. The dividends declared in August are interim distributions in
respect of 2018 and 2019.
A final dividend of 77.0 pence per share (£222 million) has been proposed in respect of the 2019financial year. Refer to the Chairman’s Statement and Strategic Report for further detail.

116

12c. Earnings per share

Profit for the financial year after taxation attributable to equity shareholders
Weighted average number of shares – basic
Unadjusted earnings per share – basic
Weighted average number of shares – diluted
Unadjusted earnings per share – diluted

31 December
2019£m

31 December
2018
£m

432.4

395.1

291,513,714 288,197,247
148.3p137.1p292,094,797 288,845,845
148.0p136.8pThe difference between the basic and diluted number of shares at the end of 2019 (being 581,083;
2018: 648,598) relates to awards committed, but not yet issued under the Group’s share schemes.
Refer to note 9 for further detail.
12d. Share capital
31 December 31 December
2019
2018
£m
£m

Authorised
500,000,000 ordinary shares of 0.1 pence

0.5

0.5

Issued, called up and fully paid
293,686,329 ordinary shares of 0.1 pence
290,502,737 ordinary shares of 0.1 pence

0.3
—

—
0.3

0.3

0.3

During 2019, 3,183,592 (2018: 3,288,475) new ordinary shares of 0.1 pence were issued to thetrusts administering the Group’s share schemes.
883,592 (2018: 988,475) of these were issued to the Admiral Group Share Incentive Plan Trust forthe purposes of this share scheme to give a closing number at 31 December 2019 of 11,628,981 (31December 2018: 10,745,389). Of the shares issued, 4,389,821 remain in the Trust at 31 December
2019 (2018: 4,311,425). These shares are entitled to receive dividends.
2,300,000 (2018: 2,300,000) shares were issued to the Admiral Group Employee Benefit Trust forthe purposes of the Discretionary Free Share Scheme resulting in cumulative shares issued to theTrust of 23,461,948 (31 December 2018: 21,161,948). Of the shares issued 5,823,675 remain in
the Trust at 31 December 2019 (2018: 6,170,927) to be used for future vesting, the remaining
issued shares having vested.
The balance of awards made to employees under the Discretionary Free Share Scheme that havenot either vested or lapsed is 8,691,542 (2018: 9,218,956).
The Trustees have waived the right to dividend payments, other than to the extent of 0.001 pence
per share, unless and to the extent otherwise directed by the Company from time to time.
There is one class of share with no unusual restrictions.

117

12e. Objectives, policies and procedures for managing capital
The Group’s capital management policy defines the Board oversight, risk appetite and tier structureof the Group’s capital in addition to management actions that may be taken in respect of capital,such as dividend payments.
The Group aims to operate a capital-efficient business model by transferring a significant
proportion of underwriting risk to co-insurance and reinsurance partners. This in turn reduces theamount of capital the Group needs to retain to operate and grow, and allows the Group to
distribute the majority of its earnings as dividends.
The Board has determined that it will hold capital as follows:-

Sufficient Solvency II Own Funds to meet all of the Group’s Solvency II capital requirements(over a 1 year and ultimate time horizon).

-An additional contingency to cover unforeseen events and losses that could realisticallyarise. This risk appetite buffer is assessed via stress testing performed on an annual basis
and is calibrated in relation to the one-year regulatory SCR.

The Group’s current risk appetite buffer is 30% above the regulatory SCR. This forms the lower
bound of the longer-term solvency target operating range of 130% to 150%.
The Group’s dividend policy is to:-

Pay a normal dividend equal to 65% of post-tax profits for the period-

Pay a special dividend calculated with reference to distributable reserves and surplus
capital held above the risk appetite buffer.

This policy gives the Directors flexibility in managing the Group’s capital.
As noted above, the Group’s regulatory capital position is calculated under the Solvency II
Framework. The Solvency Capital Requirement is based on the Solvency II Standard Formula, with acapital-add-on to reflect limitations in the Standard Formula with respect to Admiral’s risk profile(predominately in respect of profit commission arrangements in co-and reinsurance agreements
and risks relating to Periodic Payment Order (PPO) claims.
Solvency Ratio (Unaudited)
At the date of this report (4 March 2020), the Group’s regulatory solvency ratio, calculated using acapital add-on that has not been subject to regulatory approval, is 190% (2018: 194%). This
includes the recognition of the 2019 final dividend of 77 pence per share (2018: 66 pence pershare).
The Group’s 2019 Solvency and Financial Condition Report (SFCR) will, when published, disclose asolvency ratio that is calculated at the balance sheet dater rather than annual report date, using
the capital add-on that was most recently subject to regulatory approval. The estimated andunaudited SFCR solvency ratio is 172%, with the reconciliation between this ratio and the 190%
noted above being as follows:118

31 December 31 December
2019
2018
£m
£m

Regulatory Solvency Ratio (Unaudited)
Solvency Ratio reported in the Annual Report
Change in valuation date
Other (including impact of updated, unapproved capital add-on)

190%
(10%)
(8%)

194%
(10%)
(14%)

Solvency Ratio to be reported in the SFCR

172%

170%

Subsidiaries
The Group manages the capital of its subsidiaries to ensure that all entities within the Group areable to continue as going concerns and also to ensure that regulated entities meet regulatory
requirements with an appropriate risk appetite buffer. Excess capital above these levels withinsubsidiaries is paid up to the Group holding company in the form of dividends on a regular basis.

11912f. Group related undertakings
The Parent Company’s subsidiaries are as follows:
Subsidiary

Incorporated in England and Wales
Registered office: Floors 3 & 4 No. 3 Capital Quarter, Cardiff, CF10 4BZ
Admiral Law Limited
Registered office: Admiral House, Queensway, Newport, NP20 4AG
BDE Law Limited
Registered office: Ellipse Ground Floor, Padley Road, Swansea, SA1 8AN
Able Insurance Services Limited
Registered office: Greyfriars House, Greyfriars Road, Cardiff, CF10 3AL
Penguin Portals Limited
Inspop.com Limited
Rastreator.com Limited
Registered office: Tŷ Admiral, David Street, Cardiff, CF10 2EH
EUI Limited
Admiral Insurance Company Limited
Admiral Life Limited
Admiral Syndicate Limited
Admiral Syndicate Management Limited
Bell Direct Limited
Confused.com Limited
Diamond Motor Insurance Services Limited
Elephant Insurance Services Limited
Admiral Financial Services Limited
Preminen Price Comparison Holdings Limited
Preminen Dragon Price Comparison Limited
Incorporated in Gibraltar
Registered office: 1st Floor, 24 College Lane, Gibraltar, GX11 1AA
Admiral Insurance (Gibraltar) Limited
Incorporated in Spain
Registered office: Calle Sanchez Pacheco 85 28002 Madrid
Rastreator Comparador Correduria De Seguros S.L.U.
Admiral Europe Compañía de Seguros, S.A.
Registered office: Calle Albert Einstein, 10 41092 Sevilla
Admiral Intermediary Services S.A.

Class ofshares held

% Ownership

Principal
Activity

Ordinary95

Legal company

Ordinary

95 (indirect)

Legal company

Ordinary

100

Insurance Intermediary

Ordinary
Ordinary
Ordinary

100 Internet-based Comparison Site
100 Internet-based Comparison Site
75 Internet-based Comparison Site

Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary

100
Insurance Intermediary
100
Insurance company
100
Dormant*
100
Dormant*
100
Dormant*
100
Dormant*
100
Dormant*
100
Dormant*
100
Dormant*
100
Financial services company
50 Internet-based Comparison Site
50 (indirect) Internet-based Comparison Site

Ordinary

Ordinary
Ordinary
Ordinary

100

Insurance company

75 (indirect) Internet-based Comparison Site
100
Insurance company
100

Insurance Intermediary120

Incorporated in France:
Registered office: 34 quai de la loire, 75019, Paris
LeLynx SAS
Ordinary
100 Internet-based Comparison Site
Incorporated in the United States of America
Registered office: Deep Run 1; Suite 400, 9950 Maryland Drive, Henrico, VA 23233
Elephant Insurance Company
Ordinary
100
Insurance company
Elephant Insurance Services LLC
Ordinary
100
Insurance intermediary
Grove General Agency Inc
Ordinary
100
Insurance intermediary
Platinum General Agency Inc
Ordinary
100
Insurance intermediary
Registered office: 140 East Shore Drive, Suite 300, Glen Allen, VA 23059
compare.com Insurance Agency LLC
Ordinary 59.25 (indirect) Internet-based Comparison Site
Inspop USA LLC
Ordinary
59.25 Internet-based Comparison Site
Incorporated in Mexico
Registered office: Varsovia, 36, 5th floor, office 501, Colonia Juárez, Cuauhtemoc,
Ciudad de Mexico
Preminen Mexico Sociedad Anonima de Capital Variable
Incorporated in Turkey
Registered office: Esentepe MAH. Harman1 SK. Harmanci Giz Plaza 5 1 Sisli/ Istanbul
Preminen Online Fiyat Karşılaştırma Hizmetleri Anonim Şirketi
Preminen Sigorta Brokerlik Anonim Sirketi
Incorporated in India
Registered office: F-2902, Ireo Grand Arch, Sector 58,, Gurugram,
HARYANA, Gurgaon, Haryana, India, 122011
Preminen Price Comparison India Private Limited

51.25 (indirect) Internet-based Comparison Site

50 (indirect) Internet-based Comparison Site
50 (indirect) Internet-based Comparison Site

50 (indirect) Internet-based Comparison Site

Subsidiaries by virtue of control
The related undertakings below are subsidiaries in accordance with IFRS 10, as Admiral can exercise dominant influence or control overthem:
Registered office: Level 37, 25 Canada Square, Canary Wharf, London, England, E14 5LQ
Seren One Limitedn/a0
Special purpose entity
Associates
Incorporated in China
Registered office: Room 1806, 15th Floor, Block 16, No. 39 East 3rd Ring
Middle Road, Chaoyang District, BeijingLong Yu Science and Technology (Beijing) Co., Ltd
Incorporated in Bahrain
Registered office: 4th Floor, Office 42, LMC Building 852, Road 3618, Block
436, Al Seef District, PO Box 60138, Manama, Bahrain
Preminen MENA Price Comparison

20.25 (indirect) Internet-based Comparison Site

15 (indirect) Internet-based Comparison Site

* Exempt from audit under S479A of Companies Act 2006

For further information on how the Group conducts its business across the UK, Europe and the US,
refer to the Strategic Report.

121

12g. Related party transactions
The Board considers that only the Executive and Non-Executive Directors of Admiral Group plc are
key management personnel.
A summary of the remuneration of key management personnel is as follows, with further detail
relating to the remuneration and shareholdings of key management personnel set out in the
Directors’ Remuneration Report.
Key management personnel received short term employee benefits in the year of £1,957,868(2018: £1,835,302), post-employment benefits of £18,946 (2018: £18,573) and share based
payments of £938,258 (2018: £923,400).
Key management personnel are able to obtain discounted motor insurance at the same rates as allother Group staff, typically at a reduction of 15%.
12h. Post balance sheet events
No events have occurred since the reporting date that materially impact these financial
statements.

12213. Reconciliations
The following tables reconcile significant key performance indicators and non-GAAP measures
included in the Strategic Report to items included in the financial statements.
13a. Reconciliation of turnover to reported gross premiums written and Other Revenue as per thefinancial statements

31 December 31 December
2019
2018
£m
£m

Gross premiums written after co-insurance per note 5b of financial statements
Premiums underwritten through co-insurance arrangements

2,273.7
610.7

2,166.7
587.4

Total premiums written before co-insurance arrangements
Other Revenue
Admiral Loans interest income and other fee income

2,884.4469.9
30.8

2,754.1
449.2
15.4

Other*1

3,385.1
59.0

3,218.7
44.9

Turnover as per note 4b of financial statements
Intra-group income elimination*2

3,444.1
19.4

3,263.6
19.3

Total turnover

3,463.5

3,282.9*1

Other reconciling items represent co-insurer and reinsurer shares of Other Revenue in the Group’s Insurance
businesses outside of UK Car Insurance.

*2

Intra-group income elimination relates to comparison income earned in the Group from other Group companies.

12313b. Reconciliation of claims incurred to reported loss ratios, excluding releases on commuted
reinsurance

UK Motor£m

UK Home£m

UK Other£m

UK Total£mInt. Car£m

Int. Other£mInt. Total
£m

Group
£m

Net insurance claims (note 5)
Deduct claims handling costs
Prior year release/strengthening – net
original share
Prior year release/strengthening –commuted share
Impact of reinsurer caps
Impact of weather events
Impact of subsidence
Attritional current period claims

164.7(11.8)

26.8
(1.1)

24.3
—

215.8
(12.9)

137.2
(7.6)

6.3
—

143.5
(7.6)

359.3
(20.5)

121.7

2.5

—

124.2

14.4

—

14.4

138.6

121.7
—
—
—
396.3

—
—
—
—
28.2

—
—
—
—
24.3

121.7
—
—
—
448.8

—
(0.1)
—
—
143.9

—
—
—
—
6.3

—
(0.1)
—
—
150.2

121.7
(0.1)
—
—
599.0

Net insurance premium revenue

452.6

37.2

43.4

533.2

168.6

7.6

176.2

709.4

Loss ratio – current period attritional
Loss ratio – current period weather
eventsLoss ratio – current period subsidence
eventsLoss ratio – prior year
release/strengthening (net original
share)

87.6%

75.8%

—

84.2%

85.3%

—

—

84.4%

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

(26.9%)(6.7%)—(23.3%)(8.5%)——(19.5%)

Loss ratio – reported

60.7%

69.1%

—

60.9%

76.8%

—

—

64.9%

December 2019124

UK Motor£m

UK Home£m

UK Other£m

UK Total£mInt. Car£m

Int. Other£mInt. Total
£m

Group
£m

Net insurance claims (note 5)
Deduct claims handling costs
Prior year release/strengthening – net
original share
Prior year release/strengthening –commuted share
Impact of reinsurer caps
Impact of weather events
Impact of subsidence
Attritional current period claims

189.2(11.3)

29.3
(0.5)

24.0
—

242.5
(11.8)

104.1
—

3.5
—

107.6
—

350.1
(11.8)

111.4

1.4

—

112.8

13.5

—

13.5

126.3

109.6
—
—
—
398.9

—
—
(3.5)
(2.5)
24.2

—
—
—
—
24.0

109.6
—
(3.5)
(2.5)
447.1

—
4.5
—
—
122.1

—
—
—
—
3.5

—
4.5
—
—
125.6

109.6
4.5
(3.5)
(2.5)
572.7

Net insurance premium revenue

452.5

31.2

40.2

523.9

141.7

6.2

147.9

671.8

Loss ratio – current period attritional
Loss ratio – current period weather
eventsLoss ratio – current period subsidence
eventsLoss ratio – prior year
release/strengthening (net original
share)

88.1%

77.6%

—

85.3%

86.1%

—

—

85.2%

—

11.2%

—

0.7%

—

—

—

0.5%

—

7.9%

—

0.5%

—

—

—

0.4%

(24.6%)(4.4%)—(21.5%)(9.5%)——(18.8%)

Loss ratio – reported*1

63.5%

92.3%

—

65.0%

76.6%

—

—

67.3%

December 2018

*1 The group reported loss ratio has been represented at FY 2019 to include the impact of weather events

13c. Reconciliation of expenses related to insurance contracts to reported expense ratios

UK Motor£m

UK Home£m

UK Other£m

UK Total£mInt. Car £mInt. Other£m

Int.
Total £m

Group
£m

Net insurance expenses (note 9)
Claims handling costs
Intra-group expenses elimination*1
Impact of reinsurer caps
Net IFRS 16 finance costs
Adjusted net insurance expenses

63.4
11.8
10.8
—
0.5
86.5

9.3
1.1
0.4
—
—
10.8

4.9
—
1.1
—
—
6.0

77.6
12.9
12.3
—
0.5
103.3

45.8
7.6
7.1
2.9
0.1
63.5

1.3
—
—
—
—
1.3

47.1
7.6
7.1
2.9
0.1
64.8

124.7
20.5
19.4
2.9
0.6
168.1

Net insurance premium revenue

452.6

37.2

43.4

533.2

168.6

7.6

176.2

709.4

Expense ratio – reported

19.1%

28.9%

—

19.4%

37.6%

—

—

23.7%

December 2019125

December 2018

UK
Motor
£m

UK Home
£m

UK
Other
£m

UK Total£mInt. Car
£m

Int.
Other
£m

Int.
Total £m

Group
£m

Net insurance expenses (note 9)
Claims handling costs
Intra-group expenses elimination*1
Impact of reinsurer caps
Other adjustment*2
Adjusted net insurance expenses

59.7
11.3
12.3
—
—
83.3

7.4
0.5
0.8
—
—
8.7

5.6
—
—
—
—
5.6

72.7
11.8
13.1
—
—
97.6

49.7
—
6.2
0.2
—
56.1

2.6
—
—
—
(2.6)
—

52.3
—
6.2
0.2
(2.6)
56.1

125.0
11.8
19.3
0.2
(2.6)
153.7

Net insurance premium revenue

452.5

31.2

40.2

523.9

141.7

6.2

147.9

671.8

Expense ratio – reported

18.4%

28.1%

—

—

39.6%

—

—

22.9%

*1 The intra-group expenses elimination amount relates to aggregator fees charges by the Group’s comparison entities toother Group companies.
*2 Other adjustments relate to additional products underwritten in the Group’s International Insurance businesses. The
contribution from these products is reported as ancillary income and as such the amounts are excluded for the purposeof calculations of expense ratios.

13d.

Reconciliation of statutory profit before tax to Group’s share of profit before tax
31 December 31 December
2019
2018
£m
£m

Reported profit before tax per the consolidated income statement
Non-controlling interest share of profit before tax

522.6
3.5

476.2
3.1

Group’s share of profit before tax

526.1

479.3

13e. Reconciliation of share scheme charges in Strategic report to Consolidated income statement
and Consolidated statement of changes in equity

31 December 31 December
2019
2018
£m
£m

Net share scheme charges included in Group’s share of profit before tax
Non-controlling interest share of net share scheme charges

52.7
0.7

49.0
0.8

Net share scheme charges included in Group profit before tax

53.4

49.8

126

13f. Reconciliation of note 4 to Strategic Reporti)

UK Insurance

2019

Motor
£m

Household£m

Travel
£m

Total
£m

Turnover2,455.3

171.3

8.4

2,635.0

UK Insurance profit before tax – Strategic reportNon-controlling interest share of PBT

591.5
0.5

7.5
—

(1.6)
—

597.4
0.5

Statutory profit/(loss) before tax

592.0

7.5

(1.6)

597.9

2018

Motor
£m

Household£m

Travel
£m

Total
£m

Turnover2,423.1

146.0

6.6

2,575.7

UK Insurance profit before tax – Strategic reportNon-controlling interest share of PBT

561.7
1.1

(3.0)
—

(3.1)
—

555.6
1.1

Statutory profit/(loss) before tax

562.8

(3.0)

(3.1)

556.7

ii)

International Insurance

2019

Spain
£m

Italy
£m

France
£m

US
£m

Total
£m

Turnover

78.2

204.2
8.7

108.1

233.1

623.6

(9.6)

(0.9)

Profit/(loss) before tax – Strategic Report and Statutory

2018
Turnover
Profit/(loss) before tax – Strategic Report and Statutory

Spain
£m

Italy
£m

France
£m

US
£m

Total
£m

67.6

176.8
6.4

80.5

213.8
(7.5)

538.7
(1.1)

127

iii)

Comparison

2019

Confused£m

European£m

Turnover

112.7

50.1

Group’s share of profit before tax – Strategic ReportNon-controlling interest share of profit/(loss) before tax

20.4
—

3.5
1.0

Statutory profit/(loss) before tax

20.4

4.5

Confused£m

European£m

Turnover95.1

Group’s share of profit before tax – Strategic ReportNon-controlling interest share of profit/(loss) before tax

14.3—

Statutory profit/(loss) before tax

14.3

2018

Compare
£m

Other
£m

Total
£m

7.3

1.5

171.6

(4.3)
(2.9)

(1.6)
(1.4)

18.0
(3.3)

(7.2)

(3.0)

14.7

Compare
£m

Total
£m

46.3

9.7

151.0

1.4
0.9

(6.9)
(3.1)

8.8
(2.2)

2.3

(10.0)

6.6

14. Statutory Information
The financial information set out above does not constitute the company's statutory accounts forthe years ended 31 December 2019 or 2018. Statutory accounts for 2018 have been delivered to
the registrar of companies, and those for 2019 will be delivered in due course. The auditors havereported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to
any matters to which the auditors drew attention by way of emphasis without qualifying theirreport and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

128

Consolidated financial summary (unaudited)
Basis of preparation
The figures below are as stated in the Group financial statements preceding this financial summaryand issued previously. Only selected lines from the income statement and balance sheet have been
included.
Income statement
2019
£m

2018
£m

2017
£m

2016
£m

2015
£m

2,938.6

2,766.4

2,499.4

2,193.9

1,805.2

709.4
494.4
114.9
35.3

671.8
460.6
93.2
36.0

619.1
401.1
67.0
41.7

548.8
360.6
54.3
53.1

467.0
319.8
85.4
32.6

Net revenue
Net insurance claims
Net expenses

1,354.0(359.3)(459.5)

1,261.6(350.1)(424.0)1,128.9(347.1)(366.9)1,016.8(394.6)(332.4)904.8(226.5)(298.5)

Operating profit
Net finance costs

535.2(12.6)

487.5(11.3)

414.9(11.4)

289.8(11.4)

379.8(11.1)

Profit before tax

522.6

476.2

403.5

278.4

368.7

2019
£m

2018
£m

2017
£m

2016
£m

2015
£m

154.4
160.3

31.3
159.4
0.3
1,637.6
939.7
66.2
2,697.8
326.8

32.0
162.3
8.4
1,126.4
784.9

34.9
142.3
20.6
878.7
537.1

2,420.2
326.6

2,323.5
265.3

Total premiums
Net insurance premium revenue
Other Revenue
Profit commission
Investment and interest income

Balance sheet
Property and equipment
Intangible assets
Deferred income tax
Reinsurance assets
Insurance and other receivables
Loans and advances to customers
Financial investments
Cash and cash equivalents

2,071.7
1,227.7455.1
3,234.5
281.7

28.1
162.0
0.2
1,883.5
1,082.0
300.2
2,969.7
376.8

Total assets

7,585.4

6,802.5

5,859.1

4,860.8

4,202.4

EquityInsurance contracts
Subordinated and other financial liabilities
Trade and other payables
Lease liabilities
Deferred income tax
Current tax liabilities

918.6
3,975.0
530.1
1,975.9
137.1
0.4
48.3

771.1
3,736.4444.2
1,801.5655.8
3,313.9224.0
1,641.6

581.7
2,749.5
224.0
1,292.2632.9
2,295.0
223.9
1,015.0

—

—

—

—

—

—

—

—

49.3

23.8

13.4

35.6

Total equity and total liabilities

7,585.4

6,802.5

5,859.1

4,860.8

4,202.4—

129

Glossary
Alternative Performance Measures
Throughout this report, the Group uses a number of Alternative Performance Measures (APMs);
measures that are not required or commonly reported under International Financial ReportingStandards, the Generally Accepted Accounting Principles (GAAP) under which the Group preparesits financial statements.
These APMs are used by the Group, alongside GAAP measures, for both internal performance
analysis and to help shareholders and other users of the Annual Report and financial statements tobetter understand the Group’s performance in the period in comparison to previous periods andthe Group’s competitors.
The table below defines and explains the primary APMs used in this report. Financial APMs areusually derived from financial statement items and are calculated using consistent accounting
policies to those applied in the financial statements, unless otherwise stated. Non financial KPIs
incorporate information that cannot be derived from the financial statements but provide further
insight into the performance and financial position of the Group.
APMs may not necessarily be defined in a consistent manner to similar APMs used by the Group’s
competitors. They should be considered as a supplement rather than a substitute for GAAP
measures.

TurnoverTurnover is defined as total premiums written (as below), other revenue and income
from Admiral Loans. It is reconciled to financial statement line items in note 13a to thefinancial statements.
This measure has been presented by the Group in every Annual Report since it
became a listed Group in 2004. It reflects the total value of the revenue generated by
the Group and analysis of this measure over time provides a clear indication of the sizeand growth of the Group.
The measure was developed as a result of the Group’s business model. The core UK
Car insurance business has historically shared a significant proportion of the risks with
Munich Re, a third party reinsurance Group, through a co-insurance arrangement,with the arrangement subsequently being replicated in some of the Group’s
international insurance operations. Premiums and claims accruing to the external coinsurer are not reflected in the Group’s income statement and therefore presentationof this metric enables users of the Annual Report to see the scale of the Group’s
insurance operations in a way not possible from taking the income statement inisolation.

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Total Premiums Written

Total premiums written are the total forecast premiums, net of forecast cancellations
written in the underwriting year within the Group, including co-insurance. It isreconciled to financial statement line items in note 13a to the financial statements.
This measure has been presented by the Group in every Annual Report since it
became a listed Group in 2004. It reflects the total premiums written by the Group’s
insurance intermediaries and analysis of this measure over time provides a clear
indication of the growth in premiums, irrespective of how co-insurance agreements
have changed over time.
The reasons for presenting this measure are consistent with that for the Turnover
APM noted above.

Group’s share of Profit before Group’s share of profit before tax represents profit before tax, excluding the impact ofTax
Non-controlling Interests. It is reconciled to statutory profit before tax in note 13d tothe financial statements.
This measure is useful in presenting the limit of the Group’s exposure to theexpenditure incurred in starting up new businesses and demonstrates the ‘test-andlearn’ strategy employed by the Group to expansion into new territories.

Underwriting result (profit or For each insurance business an underwriting result is presented showing the segment
loss)
result prior to the inclusion of profit commission, other income contribution andinstalment income. It demonstrates the insurance result, i.e. premium revenue andinvestment income on insurance assets less claims incurred and insurance expenses.
Loss Ratio

Reported loss ratios are expressed as a percentage of claims incurred divided by net
earned premiums.
There are a number of instances within the Annual Report where adjustments are
made to this calculation in order to more clearly present the underlying performanceof the Group and operating segments within the Group. The calculations of these arepresented within note 13b to the accounts and explanation is as follows.
UK reported motor loss ratio: Within the UK insurance segment the Group separately
presents motor ratios, i.e. excluding the underwriting of other products that
supplement the car insurance policy. The motor ratio is adjusted to i) exclude theimpact of reserve releases on commuted reinsurance contracts and ii) exclude claims
handling costs that are reported within claims costs in the income statement.
International insurance loss ratio: As for the UK Motor loss ratio, the international
insurance loss ratios presented exclude the underwriting of other products that
supplement the car insurance policy. The motor ratio is adjusted to exclude the claims
element of the impact of reinsurer caps as inclusion of the impact of the capping ofreinsurer claims costs would distort the underlying performance of the business.
Group loss ratios: Group loss ratios are reported on a consistent basis as the UK andinternational ratios noted above. Adjustments are made to i) exclude the impact ofreserve releases on commuted reinsurance contracts, ii) exclude claims handling costs
that are reported within claims costs in the income statement and iii) exclude theclaims element of the impact of international reinsurer caps.

131Expense Ratio

Reported expense ratios are expressed as a percentage of net operating expenses
divided by net earned premiums.
There are a number of instances within the Annual Report where adjustments are
made to this calculation in order to more clearly present the underlying performanceof the Group and operating segments within the Group. The calculations of these arepresented within note 13c to the accounts and explanation is as follows.
UK reported motor expense ratio: Within the UK insurance segment the Groupseparately presents motor ratios, i.e. excluding the underwriting of other productsthat supplement the car insurance policy. The motor ratio is adjusted to i) include
claims handling costs that are reported within claims costs in the income statement
and ii) include intra-group aggregator fees charged by the UK comparison business to
the UK insurance business.
International insurance expense ratio: As for the UK Motor loss ratio, the international
insurance expense ratios presented exclude the underwriting of other products that
supplement the car insurance policy. The motor ratio is adjusted to i) exclude theexpense element of the impact of reinsurer caps as inclusion of the impact of the
capping of reinsurer expenses would distort the underlying performance of thebusiness and ii) include intra-group aggregator fees charged by the overseas
comparison businesses to the international insurance businesses.
Group expense ratios: Group expense ratios are reported on a consistent basis as the
UK and international ratios noted above. Adjustments are made to i) include claims
handling costs that are reported within claims costs in the income statement, ii)
include intra-group aggregator fees charged by the Group’s comparison businesses to
the Group’s insurance businesses and iii) exclude the expense element of the impact
of international reinsurer caps.

Combined Ratio

Reported combined ratios are the sum of the loss and expense ratios as defined
above. Explanation of these figures is noted above and reconciliation of thecalculations are provided in notes 13b and 13c.

Return on Equity

Return on equity is calculated as profit after tax for the period attributable to equity
holders of the Group divided by the average total equity attributable to equity holdersof the Group in the year. This average is determined by dividing the opening andclosing positions for the year by two.
The relevant figures for this calculation can be found within the consolidated
statement of changes in equity.

Group Customers

Group customer numbers reflect the total number of cars, households and vans oncover at the end of the year, across the Group.
This measure has been presented by the Group in every Annual Report since it
became a listed Group in 2004. It reflects the size of the Group’s customer base andanalysis of this measure over time provides a clear indication of the growth. It is also a
useful indicator of the growing significance to the Group of the different lines ofbusiness and geographic regions.

Effective Tax Rate

Effective tax rate is defined as the approximate tax rate derived from dividing theGroup’s profit before tax by the tax charge going through the income statement. It is ameasure historically presented by the Group and enables users to see how the tax cost
incurred by the Group compares over time and to current corporation tax rates.

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Additional Terminology
There are many other terms used in this report that are specific to the Group or the markets inwhich it operates. These are defined as follows:
Accident year

The year in which an accident occurs, also referred to as the earned basis.

Actuarial best estimate

The probability-weighted average of all future claims and cost scenarios calculatedusing historical data, actuarial methods and judgement.

ASHE‘Annual Survey of Hours and Earnings’ – a statistical index that is typically used for
calculation inflation of annual payment amounts under Periodic Payment Order (PPO)
claims settlements.

Claims reserves

A monetary amount set aside for the future payment of incurred claims that have notyet been settled, thus representing a balance sheet liability.

Co-insurance

An arrangement in which two or more insurance companies agree to underwrite
insurance business on a specified portfolio in specified proportions. Each co-insurer isdirectly liable to the policyholder for their proportional share.

Commutation

An agreement between a ceding insurer and the reinsurer that provides for thevaluation, payment, and complete discharge of all obligations between the parties
under a particular reinsurance contract.
The Group typically commutes UK Car insurance quota share contracts after 24months from the start of an underwriting year where it makes economic sense to do
so. Although an individual underwriting year may be profitable, the margin held in thefinancial statement claims reserves may mean that an accounting loss oncommutation must be recognised at the point of commutation of the reinsurance
contracts. This loss on commutation unwinds in future periods as the financial
statement loss ratios develop to ultimate.

Insurance market cycle

The tendency for the insurance market to swing between highs and lows ofprofitability over time, with the potential to influence premium rates (also known as
the “underwriting cycle”).

Net claims

The cost of claims incurred in the period, less any claims costs recovered underreinsurance contracts. It includes both claims payments and movements in claims
reserves.

Net insurance premium
revenue

Also referred to as net earned premium. The element of premium, less reinsurance
premium, earned in the period.

Ogden discount rate

The discount rate used in calculation of personal injury claims settlements. The rate is
set by the Lord Chancellor.

Periodic Payment Order (PPO) A compensation award as part of a claims settlement that involves making a series ofannual payments to a claimant over their remaining life to cover the costs of the carethey will require.
Premium

A series of payments are made by the policyholder, typically monthly or annually, forpart of or all of the duration of the contract. Written premium refers to the total
amount the policyholder has contracted for, whereas earned premium refers to therecognition of this premium over the life of the contract.

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Profit commission

A clause found in some reinsurance and coinsurance agreements that provides forprofit sharing.

Reinsurance

Contractual arrangements whereby the Group transfers part or all of the insurance
risk accepted to another insurer. This can be on a quota share basis (a percentage
share of premiums, claims and expenses) or an excess of loss basis (full reinsurance forclaims over an agreed value).

Securitisation

A process by which a group of assets, usually loans, is aggregated into a pool, which isused to back the issuance of new securities. A company transfer assets to a special
purpose entity (SPE) which then issues securities backed by the assets.

Special Purpose Entity (SPE)An entity that is created to accomplish a narrow and well-defined objective. There are
specific restrictions or limited around ongoing activities. The Group uses an SPE set up
under a securitisation programme.

Ultimate loss ratio

A projected actuarial best estimate loss ratio for a particular accident year orunderwriting year.

Underwriting year

The year in which the policy was incepted.

Underwriting year basis

Also referred to as the written basis. Claims incurred are allocated to the calendar
year in which the policy was underwritten. Underwriting year basis results arecalculated on the whole account (including co-insurance and reinsurance shares) andinclude all premiums, claims, expenses incurred and other revenue (for example
instalment income and commission income relating to the sale of products that are
ancillary to the main insurance policy) relating to policies incepting in the relevant
underwriting year.

Written/Earned basis

A policy can be written in one calendar year but earned over a subsequent calendar
year.

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