Financial statements 82 Independent Auditor’s Report 88 Consolidated Income statement 89 Consolidated statement of comprehensive income 90 Consolidated statement of financial position 91 Consolidated cash flow statement 92 Consolidated statement of changes in equity 93 Notes to the financial statements 133 Parent Company Financial Statements 136 Notes to Parent Company
Group’s share of price comparison profit before tax*1 of £2.7 million (2015: loss of £7.2 million)
The essence of Admiral On the one hand Admiral has changed enormously, on the other not very much at all. Fundamental to our success remains our culture – Admiral is different in the way in which we engage and lead our people: in demonstrating in so many practical ways that everyone matters regardless of their role: in how we motivate their aiming for continuous improvement in everything they do: in our use of teamwork and our openness to share and support others to do a great job, whether or not they are in the same department, business, or even country: in our use of wide share ownership, both actual and potential, as a driver of common purpose. To maintain a culture requires it to be continually reinforced – to be lived by our leaders in the way in which they interact with those they lead: to be trained into our people as part of our development plans: to be the basis on which we select those who should be promoted to greater responsibility. I consider one of our management’s greatest achievements to be that as we have broadened our base, both geographically and by business-line, we have been able to establish that culture in these new businesses. Whichever of Admiral’s offices I visit, from Seville to Swansea, I know I am in Admiral because of the way in which our people interact with our customers and with each other; their quest to identify the small changes in what we do and how we do it that, taken together, create a big competitive difference; and their openness to discuss problems and willingness to embrace the thoughts of others.
would view the new products as relevant to their existing relationship with Admiral or because the new line of business uses experience and skills that we have developed for car insurance. Our current piloting of personal loans is a case in point here, whilst our UK household insurance portfolio of 470,000 policies and already profitable three years after launch is a great example of a line of business that has passed successfully from pilot into full production.
“The agent who set up my policy, Kath, was excellent. She was extremely efficient and was able to quickly sort out a quote for me based on two vehicles and a household on a multi-product policy. She was also able to cancel the previous two policies. I don’t know what you’re feeding these folks, but these aren’t just normal agents, they’re some kind of ‘super-agents’” UK New Business
UK Household Insurance Admiral has a growing UK household insurance business.
Price Comparison Develop websites that allow consumers to compare a range of general insurance, financial services and other products.
Without the Ogden change, the Group’s share of pre-tax profit would have been £390 million, of which the UK Car Insurance business would have contributed £441 million, in line with last year. Our combined international insurance businesses improved their result (£19 million loss v £22 million loss) whilst the comparison operations recorded a profit of £3 million after making losses of £7 million in 2015. On a statutory basis, the price comparison result is a loss of £3 million compared to a loss of £16 million last year.
The Solvency II balance sheet technical provisions are also now on a minus 0.75% Ogden basis.
Increasing market prices, whilst good for profitability, does however bring some additional scrutiny both from the media and regulators. Following the focus during the previous hardening part of the cycle, the Government announced a number of changes in February 2017, which are aimed at reducing the costs of small bodily injury claims and therefore the cost of motor insurance.
Investing in our core “ We’ve always approached pricing in a rational way, growing when we think it’s the right time, and holding back when the market is looking less attractive.”
• Underlying positive back year claims development, though lower reserve releases on the portion of reserves originally reinsured but now commuted
Value for money We build insurance around our customers and strive to design and offer products that customers want and that provide the right level of protection at the right price.
We had hoped that the Baremo would trigger a price reaction and insurance shopping. Many companies did raise prices towards the beginning of the year, but changes were muted and not enough to encourage consumers to shop around. We expect 2016 will turn out to be another unprofitable year for the market as a whole.
The direct channel now represents around 12% of the overall motor market in Italy and the comparison sites are growing at an encouraging pace.
Fun We encourage our staff to take part, to have fun, to do something a bit wild or to just spend some time with their colleagues outside of work. We firmly believe that people who enjoy what they do deliver outstanding performance for our customers and Admiral’s success is built upon that.
The regulatory agenda was quite busy in 2016 and we are constantly working with the regulator to build an even more consumer focused product and offer in an ever changing technological landscape.
Our vision is still positive on the French market and we remain competitive in an increasingly crowded environment. We are focused on maintaining our position as one of the market leaders, based on delivering a superior product and customer experience.
“I would like to express my deepest satisfaction for this Insurance Company. After having been involved in an accident with a complicated evolution, I have received the total reimbursement of the damages. I would like to point out the work conducted by your agent who with competence, courtesy and non common helpfulness satisfied my needs completely.”
A sustained and uncorrected erosion of competitive advantage could affect the ability of Admiral to extend its reinsurance arrangements, which might in turn require Admiral to hold more capital.
Additional capital may need to be raised as a result of a major credit event, dependent on its nature and severity.
Operational Risk arises within all areas of the business. The principal categories of operational risk for Admiral are: • People
The following recommendations were identified in review as areas to which the Board might give particular focus in 2017 in order to enhance the Board’s effectiveness: • Greater Board visibility of potential successors to key positions from within the business was an area of focus identified in last year’s Board evaluation. It was recommended that Non-Executive Directors spend time, on an informal basis, with the next level of management below Board level to ensure that these individuals are being developed as part of the Group’s longer term succession plans. Although some progress has been made in this area during 2016 with succession plans and talent management on the Board agenda, the evaluation this year recommended the development of a more structured and robust process for management development and succession planning identifying a greater number of potential future leaders of the business; • Keep strategic focus and development at the top of the Board’s agenda. This continues the theme identified in last year’s evaluation to ensure that more time is available in the Board agenda to discuss strategic topics in the context of the development of the Group; • Standardising the format of reports that are presented to the Board was identified as an area for improvement in last year’s evaluation. Although progress had been made, it was identified this year that further improvements could be made to review the length and level of detail of some reports with more Executive Summaries, particularly for technical reports; • Hold more Board meetings in Cardiff in order to give Non-Executive Directors greater exposure to more up and coming managers thereby helping with succession planning and management development. The introduction of sessions organised around Board meetings for NonExecutive Directors to visit, and receive presentations from, the Group’s main UK business units now gives Non-Executive Directors more of an opportunity to see the Group’s main business units as part of their continuing induction and exposure to the Group’s culture; • Develop a clear recruitment strategy for Board appointments to encompass future skills and identify the characteristics of directors that will be of benefit to the Board together with the development of a clear process to be adopted by the Nomination Committee in appointing directors; • The Non-Executive Directors should meet in private on a more regular basis with the CEO also invited periodically to these sessions where matters such as succession planning and management development are being discussed; • Consider in greater depth matters such as competitors, understanding the customers of today and tomorrow, digital, cyber and technical matters such as capital allocation, pricing analytics and operations.
Independent Non-Executive Directors are currently appointed for fixed periods of three years, subject to election by shareholders. The initial three-year period may be extended for two further threeyear periods subject to re-election by shareholders. Their letters of appointment may be inspected at the Company’s registered office or can be obtained on request from the Company Secretary.
Governance Report continued 52 Admiral Group plc · Annual Report and Accounts 2016
A significant amount of time has been dedicated to developing the Group’s Partial Internal Model for Solvency II with an application due to be submitted to the regulators in 2017. In the interim period the Group continues to maintain a regulatory capital addon to cover risks not captured within the standard formula. The Committee has also reviewed the Group’s proposed dividend level, capital plan and capital buffer in line with the capital policy. Further Solvency II applications relating to Undertaking Specific Parameters (USPs) and the Volatility Adjustment (VA) have also been submitted with approval granted for the latter in February 2017.
The work of the Committee is supported by more detailed work undertaken by executive Risk Management Committees in each of the Group’s operational entities. At each meeting, the Risk Management Committees consider significant movements in the operation’s risk profile, any risks that have arisen and any emerging risks. Risk Management Committees also assess and monitor any regulatory issues, ensuring that their resolution and the action taken are appropriately recorded. In the UK, the Risk Management Committee receives regular information on Conduct Risk, such as complaint handling reports and other related management information. The Group Risk Management function reviews and collates information from across the group for consideration by the Group Risk Committee.
Key principles of Admiral’s remuneration arrangements The Group is committed to the primary objective of maximising shareholder value over time and ensuring that there is a strong link between performance and reward. This is reflected in the Group’s stated Remuneration Policy of paying competitive, performancelinked and shareholder-aligned remuneration packages comprising basic salaries coupled with participation in performance-based share schemes to generate competitive total reward packages for superior performance. The Board is satisfied that the adoption of this policy continues to meet the objectives of attracting and retaining executives of the highest quality across the Group.
In the UK, the Group matches employee contributions up to a maximum of 6% of base salary subject to an overall maximum employer contribution of £9,000. Salary is the only element of remuneration that is pensionable.
Vesting of DFSS awards is subject to the Group’s performance over a three-year performance period. The performance measures and respective weightings may vary year-on-year to reflect strategic priorities.
Lucy Kellaway2 £23,450 £67,000 1. Justine Roberts was appointed to the Board on 17 June 2016.
Implementation of remuneration policy for 2017 continued Chairman and Non-Executive Directors
31 Dec 08 31 Dec 1631 Dec 1531 Dec 1431 Dec 1331 Dec 1231 Dec 11
Communication There are a wide range of communication tools used by the Group to communicate to employees which assists in the understanding of business goals and objectives including; the staff portal (Atlas), internal newsletters, videos, team briefings, suggestion schemes, staff forums, updates on the staff share scheme and the annual Staff General Meeting (SGM). In the 2016 annual staff survey, 84% of staff were happy with the amount of information they receive about the company (2015: 85%).
• Pursuant to the Listing Rules of the FCA whereby certain employees of the Company require the approval of the Company to deal in the Company’s securities.
The materiality that we used in the current year was £14 million which was determined on the basis of 5% of pre-tax profit.
Additionally, we have completed specific audit procedures in respect of two further components which, although not financially significant, did present specific audit risks which needed to be addressed.
Insurance claims and claims handling expenses recoverable from reinsurers 709.2 542.6
Consolidated statement of financial position As at 31 December 2016 90 Admiral Group plc · Annual Report and Accounts 2016
Movements in fair value reserve – – (12.6) – – (12.6) – (12.6)
Deferred tax credit on share scheme credit – – – – 0.5 0.5 – 0.5
• Recognition of deferred tax assets relating to unused tax losses: Management applies judgement in determining the probability of future taxable profits of an entity against which to utilise accumulated losses in determining the recognition of deferred tax assets. In applying this judgement, management makes an assessment of the reliability of approved business plan projections using both qualitative and quantitative factors including the age 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.
Estimation techniques used in calculation of claims provisions and profit commission Estimation techniques are used in the calculation of the provisions for claims outstanding, which represent a projection of the ultimate cost of settling claims that have occurred prior to the balance sheet date and remain unsettled at the balance sheet date.
Other segment items: – Intangible and tangible asset additions 62.3 18.7 1.4 4.1 – 86.5 *1 2015 comparatives have been restated to be consistent with the segment splits applied in 2016, whereby UK Household Insurance is included within the UK Insurance segment. Previously the results of the UK Household business were reported within the Other segment as they were not considered a material part of the UK result.
The total of Price Comparison revenues from transactions with other reportable segments is £20.8 million (2015: £14.2 million) which has been eliminated on consolidation. There are no other transactions between reportable segments.
Impact of increase in assumed Ogden discount rate of 75 basis points (to 0%) 125.7 68.7
Financial Statements: Notes to the Financial Statements 106 Admiral Group plc · Annual Report and Accounts 2016
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 113Admiral Group plc · Annual Report and Accounts 2016
Analysis of accruals and deferred income: Premium receivable in advance of policy inception 92.4 53.1
2,000,000 (2015: 1,950,000) were issued to the Admiral Group Employee Benefit Trust for the purposes of the Discretionary Free Share Scheme to give a closing number at 31 December 2016 of 16,811,948 (31 December 2015: 14,811,948). 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.
Long Yu Science and Technology (Beijing) CO., Limited Ordinary 20.5 (indirect) Insurance Intermediary
Statutory profit before tax per the Consolidated Income Statement 278.4 368.7
1.3 Going concern The financial statements have been prepared on a going concern basis. In considering the appropriateness of this assumption, the Board have reviewed the Company's projections for the next twelve months and beyond, including cash flow forecasts and regulatory capital surpluses.
1.8 Financial assets and liabilities All investments held at fair value at the end of the period are invested in AAA-rated money market liquidity funds. The measurement of these investments is based on active quoted market values (level 1).
The amortised cost carrying amount of receivables is a reasonable approximation of fair value. The fair values of gilts and subordinated notes (both level one valuations) together with their carrying values shown in the Statement of Financial Position are as follows: Carrying amount £m