• Total insurance premium generated in 2008 was £690m, 12% higher than 2007 • Our business is consistently and significantly more profitable than the UK market – the 2008 combined ratio (measuring the ratio of costs to income) was 81%
• Total premiums generated rose 83% to £26m (60% excluding currency impact)
Having launched Balumba.es in Spain in 2006 and AdmiralDirekt. de in Germany in 2007, 2008 was the turn of ConTe.it in Italy at the end of May. It has always been the Admiral way to learn by doing, taking relatively small and inexpensive steps to test different approaches and identify the best way forward. Our expansion overseas is central to our long-term strategy of growth of our direct private motor franchise, and this will require sustained investment until we achieve the scale to support the infrastructure necessary in each country, and have selected the best model to write profitable business. In this context we congratulate our Spanish team on bringing their loss ratio at month 12 down from 137% for the 2007 underwriting year to 102% for 2008 whilst growing their book 18% to 55,000 customers by the year-end. Our teams in Germany and Italy are both at an early stage of determining how best to penetrate their respective markets, and we now also have a team working in Richmond, Virginia towards a launch in the US.
Our success reflects both excellent strategic leadership and first-class execution by our staff across all aspects of our operations. Our staff have been shareholders in Admiral for the last 9 years, initially under private equity ownership and now through the Free Share Schemes put in place at flotation. We see this alignment of the interests of our staff and our shareholders as fundamental to our success, and we are strongly of the view that there is a direct link between our staff being owners of the business and our having been placed for 9 consecutive years amongst the Sunday Times Top 100 Companies to Work For in the UK. Our remuneration philosophy combines base salary and performance-related shares across our entire business and we are delighted that achievement in full of the objectives set for 2008 meant that eligible employees again realised the maximum award of £3,000 free shares under our Approved Scheme. The second 3-year period for the Discretionary Free Share Scheme significantly exceeded the performance conditions, qualifying the scheme to vest the maximum share entitlement under the individual awards.
In particular, we’re really quite proud of our ability to increase the ancillary contribution per vehicle, albeit modestly (£69.00 to £70.70). Growing or even keeping the ancillary contribution per vehicle stable is challenging in the current economic climate. However, our track record on this is good and we feel comfortable that ancillary income per vehicle in 2009 will be close to, if not above, the 2008 figure.
• We are the third largest UK private car insurer, with around 1.6m vehicles insured, generating total premium of £690m. We estimate the combined market share of our brands is around 6%
Overall underwriting profit increased by 20% to £48m (representing just less than one quarter of total 2008 pre-tax profit).
Aside from the underwriting result for Admiral’s own account, another notable feature of the 2008 income statement is the significant increase in profit commission income (up 70% to £34.7m). This results from a number of factors, including growth in the overall level of premium written; a higher percentage of business co-/reinsured in 2007 than previous years and continued improvement in reported loss ratios for previous years. The main contributor however was the significantly improved profit commission terms to Admiral on co-/reinsurance contracts for the 2007 year and beyond. We recognised the first profit commission income on this year during 2008.
Net income from ancillary products and services has for some time been a key source of profit for the Group, and 2008 was no exception. Ancillary profit increased by around 17% to £89.0m from £75.8m. Most of the growth came by way of an increase in the number of vehicles insured (+15%), whilst there was also a modest increase in the income per vehicle (£70.70 v £69.00).
Treating Customers Fairly (TCF): FSA regulations require regulated companies to treat their customers fairly, and this has been an area of significant focus in recent years. Although the Group had a TCF culture along with management information in place prior to the FSA initiative, improvements have been made to the management information used in the business, and we report some of the data in the Customers section below.
At the same time, the size of the market (although somewhat difficult to measure precisely) also grew significantly. We estimate the number of car insurance policies sold through price comparison websites grew by nearly 60% during 2008 to a point where the channel now accounts for around 40% of all new business sales.
• All three trading operations remain in early stages and as would be expected, none have yet reached profitability.
The best measures of our staff’s assessment of their working environment are the surveys that they have completed. Following independent measurement by the organisations involved Admiral has received the following awards: The Sunday Times 100 Best Companies to Work For – Admiral has been included in all nine years of the publication (one of only two Companies to achieve this) and was ranked 37th overall in the last list published.
It is virtually impossible to model the potential impact of climate change on claims frequency as the actual climate change induced outcome for the UK is unknown. However, the Group does assess the potential costs associated with a number of disaster scenarios such as a major storm in the South East, major flood on the East Coast, and a complete flooding of the Thames in the London area. The Group purchases reinsurance cover to provide significant protection in the event of catastrophes of this nature.
The Risk Management Committee The Committee’s members include the three Executive Directors, the Head of Compliance (who chairs the meetings), the Risk Officer, and senior management representatives.
Non-executive Directors’ remuneration is set by the Chairman and Executive Directors and approved by the Board as a whole. A summary of their contracts and remuneration is shown below. The fees of the Non-executive Directors were reviewed in December 2008.
Total Shareholder Return (TSR) The following graph sets out a comparison of Total Shareholder Return for Admiral Group plc shares with that of the FTSE 100 Index, of which the Company is a constituent. The graph measures the period from the commencement of conditional trading on 23 September 2004 up to 31 December 2008. TSR is defined as the percentage change over the period, assuming reinvestment of income.
Final vesting date * The closing price of Admiral shares on 31 December 2008 was £9.10 per share. ** The total value of vested shares as at 31 October 2008.
Manfred was appointed a Non-executive Director of the Company in 2003 as a representative of Munich Re. He graduated from University of Essen and has a degree in Economics/Business Management (Diplom-Kaufmann).
Creditor payment policy It is the policy of the Group to pay all purchase invoices by their due date, and appropriate quality measures are in place to monitor and encourage this. At the end of the year outstanding invoices represented 20 days purchases (2007: 15).
Adjustments for non-cash items: - Amortisation of software 1,390 725 - Change in unrealised gains on investments 796 (1,123)
The Group has elected to adopt IFRS 8 Operating Segments in advance of its effective date (periods beginning on or after 1 January 2009). IFRS 8 introduces the management approach to segment reporting based on information presented to the Group’s Board of Directors. Following adoption of IFRS 8, the Group’s reporting segments have not changed significantly but have been sub-divided into a larger number of segments based in line with the increasing materiality of certain operations within the Group. For further information, refer to note 4 to the financial statements.
The Goodwill held on the balance sheet at 31 December 2008 is allocated solely to the UK car insurance segment.
The Group’s financial instruments can be analysed as follows: Financial assets: Investments held at fair value 310,831 335,608
The Group’s credit risk exposure to assets with external ratings is as follows: Rating
The Group may be exposed to foreign exchange risk through its expanding operations in Europe. Although the relative size of the European operations means that the risks are relatively small, increasingly volatile foreign exchange rates result in larger potential gains or losses. Assets held to fund insurance liabilities are held in the currency of the liabilities, however surplus assets held as regulatory capital in foreign currencies remain exposed.
Objectives, policies and procedures for managing capital For details of objectives, policies and procedures for managing capital, and external capital requirements, refer to the Business review.
· An effective, computerised workflow system (which along with the appropriate level of resources employed helps reduce the scope for error and avoids significant backlogs); · Use of an outbound telephone team to contact third parties aiming to minimise the potential claims costs and to ensure that more third parties utilise the Group approved repairers; · Use of sophisticated and innovative methods to check for fraudulent claims.
The closing deferred tax balances reflect the change in UK corporation tax rate from 30% to 28% which became effective on 1 April 2008.
Notes to the Parent Company financial statements 4. Fixed asset investments