Driven by our purpose, our business model focuses on our unique core competencies to create value for our customers, our people, our shareholders and our wider stakeholder community.
In 2019, our BAME (Black, Asian, Minority, Ethnic) forum met regularly to prepare for Black History Month Wales (BHMW) and to sponsor the 2019 BHMW National Youth Awards. These important awards highlighted the achievements of young people from African and African Caribbean heritage living in Wales, aged between 13 and 20 years of age.
Share Scheme Our share ownership scheme aims to reward and recognise our employees for their own progress, as well as the overall performance of the Group.
Communities “ Giving back to our communities is an integral part of Admiral’s culture”
In 2019, ConTe employees also dedicated time to various projects around Rome, such as renovating stables for horses used in rehabilitation programmes and restoring a playground in Rome’s suburbs.
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 (as illustrated in the chart on page 121).
“ It’s great to have Directors and employees from various departments in the same room, on a regular basis, having healthy and open debate on different topics.”
Third Best Workplace for Women in the UK, Great Places to Work
Customers are at the heart of our business operations, and we are committed to providing them with good value financial products, and excellent and convenient service.
We perceive that key material issues for our customers generally relate to good value financial products, excellent customer service, and fair and reasonable treatment.
All customer facing staff are trained to support vulnerable customers, and customers can be assured that appropriate measures are in place to treat all customers fairly.
Why we engage Examples of how we engage Examples of actions taken in 2019
A culture of giving and a sense of responsibility for the community is shared across the whole group.
• Our facilities department measures and monitors key aspects of our environmental performance and regularly reviews progress
• Our Cardiff and Newport offices are rated BREEAM Excellent for exceeding sustainability benchmarks above regulatory requirements
• Named 1st in the Sunday Times Best Big Companies to Work For in 2019
4 • Formed Penguin Portals platform combining Comparison businesses outside the US to allow for greater learning and synergies
2 Penguin Portals network brings together Confused.com, Rastreator. com, LeLynx.fr, Rastreator.mx, Tamoniki.com, GoSahi.com
*1 Alternative Performance Measures – refer to the end of this report for definition and explanation. *2 See note 13 for a reconciliation of Turnover and reported loss and expense ratios to the Financial Statements.
• 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)
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 of scale and gather more data to improve technical results and customer outcomes.
• 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, the aggregate level of margin held across current and prior underwriting years, remains consistent with that held at the end of 2018.
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.
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 growth comes from a high performing renewal book, giving confidence in our long-term strategy. The lack of policy growth meant that we couldn’t fully leverage economies of scale on our platform, and as a result delivered a slightly improved expense ratio.
The operations continued to grow strongly in 2019, with customer numbers increasing by 16% to 1.42 million (2018: 1.22 million) and combined turnover rising by 16% to £623.6 million (2018: £538.7 million).
Elephant responded with enhancements in underwriting and rate increases resulting in a slowdown of 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 the digital 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% in 2018).
Elephant continues to focus on improving fundamentals in 2020 with a focus on loss ratio, expense efficiencies and continued improvement in the customer experience.
Both insurers are required to maintain capital at levels prescribed by the regulator and hold a surplus above these requirements at all times.
profit growing by 19% and 43% year-onyear, respectively, and our profit margin improving to over 18% (2018: 15%).
We will be working on further improving the customer experience, increasing customer support through our processes and we will continue developing our broker capabilities – not only for finance products but also for some insurance products.
Spain At Rastreator, 2019 has been a year of hard work.
• 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 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.
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 the business has continued to invest in its operational capabilities and technology.
“ We strive to have a positive, long lasting impact on our customers, our community, our people and our environment.”
In 2019 we initiated a Climate Change Risk Project with a steering committee meeting monthly to understand the current and potential future risks and impact on the business. We also published our first Diversity and Inclusion report and made strides in reducing waste and energy consumption. From an investment perspective, we also formalised our Responsible Investment Policy, which includes ensuring that all of our external asset managers are signatories to the PRI and that we consider sustainability factors when making our investment decisions.
7 To find out more about our third party and supplier policies refer to our CSR report
Playing an active role in building a sustainable future for all
The Board, with support from the Group Risk Committee and the Group Risk function, undertakes a regular and robust assessment of the principal and emerging risks facing the Group. These risks have been summarised as those which would threaten its business model, future performance, liquidity and solvency.
These long-term arrangements are in place throughout the UK and International businesses.
Admiral only conducts business with reinsurers of appropriate financial strength. In addition, major reinsurance contracts are operated on a funds-withheld basis, which substantially reduces credit risk, as Admiral holds the cash received as collateral.
Emerging Risks are represented graphically, capturing an assessment of their impact and date of crystallization ranging from less than one year to greater than five years, while also categorising them into the following four broad segments: (a) legal and regulatory, such as IFRS 17; (b) socio-political and economic, such as Brexit; (c) environmental, such as physical and transition climate change risks; and (d) technology, capturing advances in vehicle technology.
The purpose of the Policy is to consider Environmental, Social and Governance (ESG) factors and risks, and to achieve more sustainable long term returns. In particular, the Policy requires ESG considerations to be integrated in each step of investment decision-making and Admiral has set requirements for the asset managers it employs.
At each scheduled meeting the Board receives updates from the Chief Executive Officer and Chief Financial Officer as to the financial and operational performance of the Group and any specific developments in the areas of the business for which they are directly responsible and of which the Board should be aware. In addition, there is an update provided at each Board on the matters discussed and considered at each of the Group’s principal subsidiary Board meetings. An annual schedule of agenda items is reviewed and updated at each meeting to ensure that items are considered at the appropriate point in the financial and regulatory cycle. Meetings are structured so as to allow for consideration and debate of all matters. The Group CEO Designate and the CEO of UK Insurance (respectively Milena Mondini de Focatiis and Cristina Nestares) together with the Chief Risk Officer (James Armstrong) are invited to attend every Board meeting and regular Board dinners. This has proved an effective means of ensuring that senior managers below Board level have exposure to and gain experience of the operation of the Board.
In line with the Group’s succession and development planning processes, the CEO succession process has been conducted over the last few years driven by the Nominations and Governance Committee and Group Board. This included evaluation and development of internal candidates and a thorough benchmarking of potential candidates using external evaluators.
Board Committees The Board has delegated authority to a number of permanent Committees to deal with matters in accordance with written Terms of Reference. The principal Committees of the Board – Audit, Remuneration, Group Risk and Nomination and Governance all comply fully with the requirements of the Code.
Membership Membership of the Committee at the end of the year was: Karen Green (Chair), Andy Crossley and Mike Brierley. As referenced above, Owen Clarke stepped down as a member of the Committee with effect from 31 December 2019, and I would like to thank him for his input and contribution. Two of the Committee’s members are Fellows of the Institute of Chartered Accountants in England and Wales. Given the insurance and financial services experience of the members of the Committee, the Board considers that they have a broad range of skills, experience and knowledge of the insurance sector, which represents the principal market in which the Group operates, and also the area of consumer lending in which the Group has a small but emerging business, such that they are able to effectively analyse, challenge and debate the issues that fall within the Committee’s remit. The Board is satisfied that the Committee as a whole has competence relevant to the sectors in which the Group operates and further considers that a number of its members have recent and relevant financial experience. The Company Secretary acts as Secretary to the Committee. The Committee meets at least six times per year and has an agenda linked to events in the Company’s financial calendar and other important issues that arise throughout the year, which fall for consideration by the Committee under its remit.
Misstatements No material unadjusted audit differences were reported by the external auditor. The Committee confirms that it is satisfied that the auditor has fulfilled its responsibilities with diligence and appropriate professional scepticism.
Summary of key activities in 2019 During the year the Committee: • Reviewed the Group’s updated risk strategy, risk appetite and associated triggers and limits in the context of the Group’s agreed strategic objectives.
• Reviewed the Group’s regulatory capital add-on application as part of Solvency II capital requirements.
The Board confirms that it has performed a robust assessment of the Group’s principal and emerging risks. These risks, along with explanations of how they are being managed and mitigated, are included in the Strategic Report on pages 66 to 73. The Board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives. This assessment supports the Board in monitoring the integrity of the Group’s reported Financial Statements.
First Line of Defence The Board recognises that the dayto -day responsibility for implementing policies for risk identification, assessment and management lies with the senior management, whose operational decisions must take into account risk and how this can be controlled effectively.
In order to mitigate the implications of a number of possible Brexit scenarios, the Group restructured the European Insurance and price comparison businesses, with the establishment of new insurance and intermediary companies in Spain. This ensures that the Group can continue servicing its European customers after the UK withdraws from the European Union. The governance of the new Spanish companies is now running effectively.
Dear Shareholder, Given the role played by the Committee in the selection process for a new CEO, succession planning has inevitably been a key focus of the Committee and occupied most of the Committee’s time during the year as the composition and experience of the Board at a Group and subsidiary level was regularly reviewed. The Committee also reviewed the leadership needs of the organisation and the pipeline of talent within the organisation.
• Our main incentive plans are the Share Incentive Plan (‘SIP’), which encourages wide share ownership across our employees, and the Discretionary Free Share Scheme (‘DFSS’). DFSS primarily incentivises Earnings per Share growth, Return on Equity and Total Shareholder Return vs. the FTSE 350 (excluding investment companies) over a three-year period. For the CFO, vesting is also dependent on performance against a scorecard of risk and customer-based measures. In some business units the Groupwide performance measures are replaced by business unit measures.
• In September 2019, Geraint Jones was also granted an award under the DFSS of 45,000 shares, equivalent to £945,000 or 376% of his cash salary. This compares with an award of 50,000 shares, equivalent to £1,020,000 in 2018. Whilst the general intention is to keep the number of DFSS shares granted to individual participants the same each year, during 2019 the Committee reviewed the aggregate quantum of DFSS awards offered to all employees and concluded that a 10% reduction in the number of shares awarded to most participants was appropriate to help ensure dilution to shareholders from the employee share schemes is managed effectively. This award will vest on three-year EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), ROE and the average outcomes of the scorecard risk and customer measures used to assess DFSS bonus adjustments over the performance period. David Stevens again declined an award of DFSS shares given his significant shareholding. Further details on the CFO’s award can be found on page 117. Geraint Jones will receive a DFSS award in 2020 which will be in line with the approved Policy. Further details can be found on page 119.
“ I would like to thank our shareholders for approving our Annual Report on Remuneration at the April 2019 AGM which was approved by 99.8% of our shareholders.”
To attract and retain talent by setting base salaries at levels appropriate for the business.
Around 3,300 employees from across the Group, as well as the CFO, participate in the DFSS. The Committee recommends for approval by the Board DFSS awards for those Executives within its remit and on an aggregate basis for all other participants in the DFSS. For the CFO, all DFSS share awards are subject to performance conditions. For other senior managers and employees at lower organisational levels, a proportion of awards (ranging from half to two-thirds) is subject to performance, with performance conditions either in line with those described above, or set based on key performance drivers of the individual’s relevant business unit, and the remainder has no performance conditions attached other than the requirement that the recipient remains an employee of the Group at the date of vesting. Award sizes vary by organisational level and an assessment of both financial and non-financial individual and business unit performance.
Death, injury or disability, redundancy, retirement or any other reasons the Committee may determine.
In the 2019 annual staff survey, 83% of staff were happy with the amount of information they receive about the Company (2018: 84%).
Key audit matters The key audit matters that we identified in the current year were: • Valuation of gross insurance claims reserves; • Valuation of projected excess of loss reinsurance recoveries; and
• the directors’ explanation on pages 96 to 97 as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
The Group’s gross insurance claims reserves total £2,899 million as at 31 December 2019 (2018 year-end: £2,740 million). The judgements which are made by management in determining the valuation of claims reserves are by far the most significant, in terms of their impact on the Group’s financial position. Setting these claims reserves is an inherently subjective exercise and small changes in underlying assumptions such as average frequency or average severity may have a material impact on the overall year-end result reported. We therefore consider that this account balance contains potential fraud risks.
We benchmarked management’s frequency assumptions against available industry working party data and considered the comparison in the context of the risk profile of Admiral’s portfolio and the year-on-year changes in these assumptions.
We undertook a graphical analysis of incurred development patterns to assess and challenge management’s severity assumptions. We benchmarked the average cost per claim assumptions against available third party industry data in the context of this incurred development analysis.
There is significant uncertainty around the future performance of the business and, therefore, it is possible that there may be further impairments in the future, or that the impairment may be reversed, based on how the business performs.
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the Financial Statements as a whole. Group performance materiality was set at 70% of Group materiality for the 2019 audit (2018: 70%). In determining performance materiality, we considered factors including: • our risk assessment, including our assessment of the Group’s overall control environment and that we consider it appropriate to rely on controls over a number of business processes; and
– valuation of investment in subsidiaries (Admiral Group plc parent company only).
Movements in fair value reserve – – (24.0) – – – (24.0) – (24.0)
Total transactions with equity holders – – – – – (261.5) (261.5) 7.7 (253.8)
Share scheme credit – – – – – 58.8 58.8 – 58.8
3. Critical accounting judgements and key sources of estimation uncertainty continued Refer to the section on estimation techniques below, and the analysis of Insurance risk in note 5 to the 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.
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 booked reserve position which enables comparison of the reserve strength to previous periods and demonstration of the compliance with IFRS 4.
Note 7 provides detail of the methodology the group has used in the period.
The SPE is fully consolidated into the Group Financial Statements under IFRS 10, whereby the Group has control over the SPE.
The Group’s share of its insurance business was underwritten by Admiral Insurance (Gibraltar) Limited, Admiral Insurance Company Limited, Admiral Europe Compañia Seguros and Elephant Insurance Company LLC. All contracts are short term in duration, lasting for 10 or 12 months.
Total profit commission 114.9 93.2 *1 Of the total UK motor profit commission recognised of £112.2 million, £95.4 million relates to co-insurance arrangements and £16.8 million to reinsurance arrangements. The UK Household and International profit commission relates solely to reinsurance arrangements.
Impact of 5% deterioration in booked loss ratio (£m) (69.6) (72.6) (18.9) (9.8)
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).
Total net release (UK Motor Insurance) 137.4 173.4 75.4 165.9 221.0 243.4
The impairment provision at 31 December 2019 is £0.9 million (£0.5 million at 31 December 2018). Given there is no material change in the credit quality or type of financial assets in the year and the movement in provision is immaterial, no further disclosure has been made.
As at 31 December 2019 and 31 December 2018, the level of provision is immaterial.
The Group’s exposure to net assets and profits in currencies other than the reporting currency is immaterial other than for US dollars and Euros. The Group’s exposure to net assets held in US dollars at the balance sheet date was £40.9 million (2018: £60.7 million); the exposure to net assets held in Euros was £111.8 million (2018: £69.3 million).
Loans are written off where there is no reasonable expectation of recovery. The Group’s policy is to write off balances to their estimated net realisable value. Write offs are actioned on a case by case basis taking into account the operational position and the collections strategy. Given the immaturity 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.
Total net profit and loss charge in the period 1.2 2.0 10.3 13.5
Base salaries and the related employer social security costs are charged to the income statement in the period that they are incurred.
The key drivers and assumptions used to calculate the charge for the schemes over the three year vesting period are: • the number of shares awarded, which is set at the start of each scheme. Details of the number of shares awarded for each scheme where shares remain unvested is set out in note 9f(ii)
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, the extent to which the performance conditions are met.
Net share scheme charges are presented after allocations to co-insurers (in the UK and Italy) and reinsurers (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%.
Deferred tax is calculated at the tax rates that have been enacted or substantively enacted by the balance sheet date and that are expected to apply in the period when the liability is settled or the asset is realised.
The right-of-use asset is subsequently depreciated over the shorter of the lease term and the asset’s useful life on a straight-line basis.
*2 The gross deferred acquisition costs balance at the end of 2019 is £74.6 million (2018: £71.6 million; 2017: £65.5 million), with gross additions in the year of £163.1 million (2018: £159.6 million); gross amortisation of £158.5 million (2018: £154.7 million) and foreign exchange movements of -£1.6 million (2018: +£1.2 million).
During 2019, 3,183,592 (2018: 3,288,475) new ordinary shares of 0.1 pence were issued to the trusts administering the Group’s share schemes.
Registered office: Esentepe MAH. Harman1 SK. Harmanci Giz Plaza 5 1 Sisli/ Istanbul
Loss ratio – current period attritional 87.6% 75.8% – 84.2% 85.3% – – 84.4%
Net share scheme charges included in Group’s share of profit before tax 52.7 49.0
In preparing these Financial Statements, the Company applies the recognition, measurement and disclosure requirements of International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”), but makes amendments where necessary in order to comply with Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.
Under IFRS 9, classification and subsequent measurement of financial assets depend on: • The Company’s business model for managing the asset; and
Notes to the Parent Company Financial Statements continued For the year ended 31 December 2019 4. Investments in Group undertakings £m
The value in use calculation has been performed using a pre-tax discount rate of 11.7%, calculated using a Capital Asset Pricing Model (CAPM) calculation (using a risk free return plus an appropriate risk premium), given that an asset specific rate is not available from the market.
The carrying value is based on fair value less costs to sell, for which the Group’s share of net assets has been used as a reasonable approximation following a review of the carrying value of those assets compared to fair value, using tier 3 of the fair value hierarchy..
The Group typically commutes UK Car insurance quota share contracts after 24 months 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 the financial statement claims reserves may mean that an accounting loss on commutation 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.