Admiral Group is one of the UK’s largest and most profitable car insurance providers, with over 11% market share and market‑leading financial results.
Admiral is one of the largest employers in South Wales and employs over 8,000 people worldwide.
Strategic report 06 Admiral at a glance 08 Chief Executive’s statement 10 Admiral’s business model 12 Admiral’s strategy and KPIs 14 Questions and answers 16 Chief Financial Officer's review 20 UK Insurance review 26 International Car Insurance review 30 Price Comparison review 33 Other Group items 34 Principal risks and uncertainties 38 Our people
Corporate governance 40 Chairman’s introduction 41 Admiral’s governance framework 42 Board of Directors 44 Governance report 48 Report of the Audit Committee 52 Report of the Group Risk Committee 56 Report of the Nomination Committee 58 Report of the Remuneration Committee 59 Directors’ Remuneration Report 69 Directors’ Report
Financial statements 72 Independent auditor’s report 74 Consolidated income statement 75 Consolidated statement of comprehensive income 76 Consolidated statement of financial position 77 Consolidated cash flow statement 78 Consolidated statement of changes in equity 79 Notes to the financial statements 108 Parent Company financial statements 111 Notes to the Parent Company financial statements 114 Consolidated financial summary
In the UK, Admiral is one of the largest and most recognised car insurance providers, and the Group includes Confused.com, a leading price comparison website, as well as a growing household insurance business. Outside the UK, the Group has exported the knowledge and experience gained from its UK businesses, and owns four insurance and three price comparison businesses.
Our presence spans seven countries 1 UK Admiral Bell Diamond elephant.co.uk Confused.com Carfused Admiral Household Gladiator Admiral Law BDE Law 2 France L’olivier – assurance auto LeLynx 3 Italy ConTe 4 Spain Balumba Qualitas Auto Rastreator Seguros.es 5 USA Elephant Auto compare.com 6 Canada Admiral 7 India Admiral Solutions Admiral Technologies £1.71 billion Turnover (2014: £1.60 billion)
*² Price comparison pre-tax results excluding the impact of Minority Interests.
UK Insurance goals for 2016Appropriate rate changes in response to claims trends and market conditions
For a while, after our flotation, we were without comparison. Or perhaps, more accurately, ‘without comparables’. We were, for a number of years, the only quoted direct personal lines insurer. Analysts and commentators could only half-heartedly benchmark us against a couple of battle-scarred, multi-national, multi-line composites and a mixed selection of Lloyd’s managing agencies. Roll on ten years and the stock market is awash with companies that are primarily direct personal lines insurance companies: ourselves; Direct Line; Esure; most recently Hastings; and, notwithstanding its initial reluctance to acknowledge its insurance-ness, Saga. Ten years ago quoted focused personal lines players (ourselves and a couple of Lloyd’s motor operations) accounted for 5% of the UK motor market. The other 95% was buried within massive global insurers and banks for whom the UK car insurance result was not that big a deal. Now 40% of the UK car insurance market is in the hands of the quoted personal line players.
The investment community has tended to look askance at a sector whose extreme cyclicality has, over the decades, delivered an unappetising combination of very modest average returns on capital, combined with extreme volatility around that average. Might the market discipline, the extra scrutiny and transparency, the better alignment of manager and owner interests, mean that, in this new world, UK car insurers could lift their game enough, both to push up cross-cycle average returns, and to moderate the ups and downs of the cycle?
It’s too early to make a call, but I am somewhat encouraged by premium movements over the last 18 months. Market-wide price increases from mid 2014 and throughout 2015 should mean that the combined ratio for accident year 2015, the most recent worst point of the car insurance cycle, will be materially below the 120% plus combined ratios (on a pure year, before reserve release, basis) that marked the last two worst points (1998/9, 2009/10). If sustained over a decent period of time, evidence of higher and less volatile returns must ultimately increase investor interest in non-life insurance as a whole.
Not on expense ratios. The market and our own car insurance expense ratio have oscillated, but our relative outperformance has stayed consistent at 12–14 percentage points below market averages. While on household, despite our sub-scale circa 1% market share and our big share of new business versus renewals, we’re already beating the market average expense ratio.
UK Price Comparison achievements in 2015Quote volumes: 10.7 million (2014: 11.8 million)
Rastreator voted 5th Best Company to Work for in Spain, awarded by Great Place to Work
UK Price Comparison goals for 2016Build brand preference to strengthen market position in core products
Develop and promote new products and offers in order to have more diversified revenue sources
Launched in March 2009 – the leading insurance price comparison website in Spain.
The aggregator market in France grew by 13%. On the one hand, the ‘loi Hamon’ and strong TV investment pushed the market up. On the other, stable insurance prices and aggressive retention focus from insurers slowed it down.
Our vision is that the price comparison market will develop, although slower than in the UK, and that LeLynx has the strength to be a leading player. We will focus our efforts on developing our presence within this market in 2016.
We again must caution that while we made huge strides and grew substantially, we have just the opportunity for, not the guarantee of, success. Attempting to change singlehandedly, a market of this size is not for the faint of heart. Pitfalls remain. Can we continue to lower acquisition cost? Will carriers continue to join? Will consumers continue to shop via our site? Will competitors complicate or complement our efforts?
ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 2015 31ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201530
International Car Insurance achievements in 2015Admiral insured 673,000 customers across its Spanish, Italian, American and French operations (2014: 592,600)
Admiral Seguros voted 4th Best Company to Work for in Spain (between 250 and 499 employees), awarded by Great Place to Work Institute
We successfully hit our target of breaking-even on an underwriting year basis; a meaningful achievement given the small size of the Spanish book.
For the first time in more than 10 years the average premium for the market fell below €380. Competition was fierce, with a large media spend, rate cuts, special promotions and product innovations, like telematics and alternate payment methods. However, with a market combined ratio still well below 100%, it should not come as any surprise that many firms would be trying to increase the size of their portfolios. I expect further rate cuts in the first half of 2016 but the pace should slow as claims frequency is now on the rise.
We believe the Elephant culture and operating model gives us an opportunity for a competitive advantage in a high expense ratio market. Adjusted for our current lack of scale, Elephant already compares favourably.
International Price ComparisonAdmiral operates three price comparison businesses outside the UK: in Spain (Rastreator), France (LeLynx) and the US (compare.com).
Regulatory environmentConfused.com is regulated by the Financial Conduct Authority (FCA) as an insurance intermediary and is subject to all relevant intermediation rules, including those on solvency capital.
UK Commercial VehicleThe Group operates a Commercial Vehicle insurance broker (Gladiator) offering van insurance and associated products, typically to small businesses. Distribution is via telephone and the internet (including price comparison websites).
Gladiator has been impacted by operational changes which, together with a very competitive environment, has resulted in a reduced operating profit of £1.5 million (2014: £2.2 million), although customer numbers increased from 143,900 to 146,600 at the end of 2015.
Admiral at a glance Our business and operations From page 6
Break-even result in Admiral Seguros, our Spanish operation, was a great achievement
UK business – rate increases ahead of the market, shift in risk profile and continued attention to operational detail all led to an excellent economic outcome
Following on from the success of ConTe, the break-even result in Admiral Seguros (AS) (actually a profit of €1.4 million), our Spanish operation, was a great achievement. The Spanish market is very different from the UK: it’s short tail, small bodily injury claims, low propensity of consumer shopping, low average premiums, high acquisition costs and little or no market cyclicality… And so over its nine year life we’ve kept AS small, worked on the quality of the business and the efficiency of the operation. But we needed to prove that break-even could be achieved. Anyone who has tried to get a direct operation to break-even on just 160,000 customers, with low average premiums, will tell you that it’s very challenging. A direct operation has overheads that are in place whether there are 160,000 or 1,160,000 customers. And an operation with only 160,000 customers has far less data to work with than a bigger organisation.
So it is with great pride that I can tell you that Admiral Seguros made a modest profit in 2015. And it is equally with great pride that I will tell you that AS will not break-even in 2016! Now we are ready for growth, but growth in Spain is expensive. So we will return to losses in the near term. But we did not enter this market to create a very small business that breaks even; we are here for a bigger slice of the paella.
I’m pleased to say too that I will stay on with Admiral on a part-time basis. I’ll help David by managing the price comparison business CEOs.
The year of the uncut diamond 2015 – we know there’s certainly good value in there, after all, it’s a diamond, but exactly how much value? Time will tell.
Our French motor insurance business, L’olivier – assurance auto, grew strongly
Rastreator and LeLynx, our price comparison businesses in Spain and France are market leaders
Succession As was announced last May, Henry Engelhardt will step down as Group Chief Executive in May 2016. There is no way to measure adequately the contribution of a founder of a business that has grown from zero to now worth almost £5 billion, employs over 8,000 people and serves more than 4 million customers. When we floated on the London Stock Exchange in 2004 it was under the by-line ‘Admiral is Different’ and this has been something we have always tried to be, not different for the sake of being different, but different to create value for our shareholders.
When any new employee joins Admiral’s UK operations Henry gives them a piece of a jigsaw – a jigsaw is not complete until every piece is in place, no matter how small it may be; similarly, in Admiral every role has a contribution to make and is to be valued on the merits of the individual, not their status. As Henry said at a recent Staff General Meeting in which over 5,000 staff in the UK take part each year, what will continue to make Admiral different is not what the Board will do ‘but what you, you, you, and you will do’.
On behalf of the Board and the entire Group I want to thank Henry for everything he has done over so many years and to say how delighted we all are that he will continue to work within the Group looking after our price comparison businesses around the world.
I said that Admiral’s original thinking in part stems from those Henry has recruited and who share the same values. David Stevens, who takes over from Henry as Group CEO, was the second person Henry recruited to work alongside him to found Admiral. For the last seven years David has led the UK business and has been instrumental, alongside Henry, in shaping Admiral’s course and the strong performance that has been achieved. When asked about succession my reply has always been that I am extremely fortunate as Chairman to have two people leading a business, both of whom could be CEO, and one of whom is four years younger than the other! Since we announced Henry’s retirement last year we have been able to implement a seamless transition of leadership.
Admiral’s combined ratio advantage compared with the UK motor market as a whole has always made it appropriate to grow when rates start to move upwards, our raising prices at a somewhat lower rate than the market as a whole. This was true of 2015, the improvement in our competitiveness showing through as a 5% growth in our UK motor base which stood at 3.30 million vehicles at the year end. We were also pleased to grow further our young UK household book, itself reaching over 300,000 customers at 31 December.
Our price comparison operations range from the fully mature and intensely competed market in which Confused.com has to do battle in the UK through to the newly emerging in the US where we will continue our investment in compare.com to build both general market awareness and acceptance by insurers as a successful distribution channel. In the middle of this range we have businesses in France and Spain that, whilst in themselves market-leading, are still developing their channel credentials, both in insurance and other lines of business that lend themselves to internet-based comparison. All of these markets call for creativity to compete successfully, whether it be introducing European-style price comparison to the US market or making the most of the change in French law that makes it easier for consumers to switch motor insurers.
Our capital structure and dividend policy We announced in December how the Prudential Regulatory Authority (PRA) has ruled on what capital we need as Solvency II comes into effect in 2016. As we had anticipated, we entered Solvency II with a significant surplus of actual against required capital. It will, however, be 2017 before we know fully what our Solvency II capital requirement will be, as we have agreed with the PRA
Thank you A business is as good as its people and we at Admiral are hugely fortunate to have great people whose commitment, energy and initiative allows us to create great value for our shareholders. My grateful thanks to all who make up the jigsaw that is Admiral.
*¹ Refer to the glossary for the definition of underwriting year basis.
Group profit before tax*¹ 6% higher at £377 million (2014: £357 million)
Earnings per share 4% higher at 107.3 pence (2014: 103.0 pence)
Final dividend of 63.4*² pence per share, bringing the 2015 total dividend to 114.4 pence per share, up 16% (2014: 98.4 pence per share)
International Car Insurance turnover up 13% to £232 million, with customers up 14% to 673,000 (2014: £206 million and 592,600 customers)
*¹ Represents Group’s share of profit before tax after excluding Minority Interests. Refer to note 12d for a reconciliation to financial statement line items.
A very positive result from Admiral’s UK Car Insurance business in 2015 helped the Group post a very pleasing record full year profit of £377 million – 6% higher than last year. We’ll also pay a record dividend on the back of that result. Geraint Jones Chief Financial Officer
Customer satisfaction: ‘Following a claim, I would renew with Admiral’ (%)
Continued investment in compare.com to build acceptance as a successful distribution channel
And I could go on much longer. In so many areas of difference the original thinking has stemmed from Henry’s refusal to accept the status quo and the conventional, from his asking ‘Why?’ and from his recruitment of those who think like him and share the same values.
I said that Admiral’s original thinking in part stems from those Henry has recruited and who share the same values. David Stevens, who takes over from Henry as Group CEO, was the second person Henry recruited to work alongside him to found Admiral. For the last seven years David has led the UK business and has been instrumental, alongside Henry, in shaping Admiral’s course and the strong performance that has been achieved. When asked about succession my reply has always been that I am extremely fortunate as Chairman
*¹ Refer to the glossary for the definition of underwriting year basis.ADMIRAL GROUP PLC
It is well understood that our reserving practice is to adopt a very prudent assessment against the range of possible outcomes whilst claims are in the early stages of development and then to release as we understand better the final cost of the claim. Alongside growth of our book in the UK last year we also experienced pleasing development of past years’ motor claims, allowing us to make a higher than normal release of reserves whilst maintaining a prudent position overall.
Other Board changes At the end of August last year we said goodbye to Manfred Aldag when he retired from Munich Re. With a wealth of insurance experience Manfred made a great contribution to Admiral’s success over the 12 years he served on our Board and he will be much missed, both as a colleague and a friend.
Our 2016 AGM will also see the retirement of Lucy Kellaway and Margaret Johnson, both of whom joined the Board in 2006 and will, therefore, have served three full terms as Non-Executive Directors. They will long be remembered for their wise counsel given their ability, coming from outside the world of insurance, to approach sector and company issues from a fresh perspective.
During the year we welcomed Manning Rountree and Owen Clarke to the Board. Manning is a senior executive at the White Mountains Insurance Group, a publicly-traded holding company for insurance and financial services interests around the world. Now that Admiral has both developing auto insurance and price comparison businesses in the United States we are fortunate to have someone of Manning’s experience in the US insurance sector joining our Group Board. We already much value his input as a member of the Board of compare.com, our US price comparison business in which White Mountains has an investment. Owen is currently the Chief Investment Officer of Equistone (formerly Barclays Private Equity): he served as a Director of Admiral from 1999 to 2004 when it was a private company having led BPE’s participation in the MBO of Admiral in 1999. I am delighted that Owen is now able to rejoin the Board of Admiral; he has an excellent understanding of our business and a great commercial record, and we look forward to once again benefiting from his experience.
But a business is nothing without customers: my thanks to all our customers for their trust and confidence which we shall do our utmost to ensure are not misplaced.
David: Henry challenges established wisdom – rejecting doing something a certain way because everyone else does. ‘Admiral is different’ is an expression of Henry's commitment to do things the right way, the best way, rather than the apparently obvious way.
Elephant Auto to focus on continued growth and improving its combined ratio
Our focus during the year was on improving portfolio quality, strong cost control and making improvements in infrastructure and customer processes. Having used 2015 to consolidate, we now have a strong foundation from which to scale up the business over coming years.
Improvements in the Spanish economy during 2015 drove increases in claims frequency in a context of continuing price competition. The result was that the Spanish market may have entered unprofitable underwriting territory for the first time in more than 10 years. The market combined ratio was 96% at the end of 2014. It rose to 99% in H1 2015, and looks to have continued an upward trend in H2.
Technical results were positive, with encouraging claims development. Improved actuarial projections resulted, not only in a profitable 2015 on the back of reserve releases, but also turned 2014 into another profitable underwriting year.
Launched in December 2010 – the Group’s youngest international car insurance business.
2016 should be another year of strong growth for L’olivier – assurance auto.
Confused.com, one of the UK’s leading price comparison websites, profitable operations in Spain and France, and a developing business in the US
UK Price Comparison achievements in 2015 Quote volumes: 10.7 million (2014: 11.8 million)
International Price Comparison achievements in 2015 Quote volumes: 8.8 million (2014: 6.6 million)
Rastreator has reinforced its leadership in Spain with continued growth in quotes
We decided to take the opportunity offered by the ‘loi Hamon’ – enabling people to switch insurance at any time of the year – to push our investment into more offline and online marketing. Quote volumes and revenues grew as a result. LeLynx maintained its leadership position in the French market.
Price Comparison financial review Non-GAAP format income statement £m £m £m
Following the launch in March 2013 of compare.com, a US comparison operation based in Virginia, the Group has continued to invest in the operation. Admiral Group owns 71% of compare.com, with the remaining 29% owned by White Mountains and Mapfre. During 2015 Admiral’s share of compare.com’s loss was £21.5 million before tax (2014: £15.0 million). Due to the ongoing investment in compare.com, the Group’s share of compare.com’s losses for 2016 will be in the range of $30–35 million.
The combined result for International Price Comparison was therefore a loss of £19.7 million (2014: loss £12.2 million) – the profit from Rastreator and LeLynx offset by investment in compare.com.
UK Household Insurance UK Household Insurance was launched in December 2012 under the Admiral brand. The product is underwritten within the Group and in common with other businesses it is supported by proportional reinsurance covering 70% of the risk (shared between Munich Re, 40%, and Swiss Re, 30%). The business enjoyed another year of strong growth with policy numbers increasing by more than 90% to over 310,000 (2014: 162,600). Despite the relatively small size of the Household book, it has generated a small profit and its expense ratio is lower than the UK market ratio.
Finance charges Finance charges of £11.1 million (2014: £4.6 million) represent a full year’s interest on the £200 million subordinated notes which were issued in July 2014 (refer to note 6 to the financial statements for further details).
Record profits, turnover again over £2 billion, record dividend, increase of 9% in number of policyholders and profits in Italy
Since launching Admiral in 1993, Henry has often described the years through the use of metaphors. Here are a few of his most recent…
2009: The Ox A lot of hard labour 2010: The Puppy A cute, cuddly year 2011: The Chameleon Quite useful but changeable 2012: The Kangaroo Bounces around but... strong and energetic 2013: The baked potato Comfort food: solid yet unflashy 2014: The baked Alaska Hot and cold in a single bite
As most of you know, this is my last CEO commentary. Last May I gave my one year’s notice and so my last day as CEO will be May 12, 2016. I’ll be turning over the CEO role to my longstanding colleague and friend, David Stevens. You may be surprised to know that David’s actually quite a bit younger than I am. But I’m sure he will use his combination of youth and experience to bring Admiral Group to the next level.
Second, I’ll miss the way my PA of 18 years, Julie, says ‘good morning’ in such a positive way every morning, even when it’s dark and wet and cold (most mornings actually) such that you can’t help but think that, yes, maybe it really is a good morning!
Our staff and departments are rewarded through incentive schemes that place emphasis on customer service, which is crucial to our success.
In 2015 we were honoured to be again voted by consumers as the Best Motor Insurance Provider at the Personal Finance Awards for the third year in a row.
Admiral continues to focus on bottom-line profitability in the short, medium and long term, and this perspective guides the decisions we make across all of our business operations. The Group’s strategy is to build profitable and sustainable business operations for the long term.
Admiral has been in the Sunday Times 100 Best Companies to work for list every year since its inception which is why in 2015 we won a special award for that very fact.
Admiral is focused on bottom-line profitability in the short, medium and long term across all its business operations. We don’t spend too much time thinking about things like our market share and size or target customer numbers; these factors are all by-products, not drivers, of the decisions that we make that are focused on generating profits.
Controlled test and learn All our growth, at home and overseas, has been organic. We have built each business from the ground up, identifying and understanding the opportunity, taking measured steps to test how well we understand the challenge ahead and the effectiveness of our solutions, and then to learn from that experience and from the experience of those who have tried other strategies.
Inspiring CEO Henry Engelhardt has been awarded the Best Leader Award twice in a row by Sunday Times 100 Best Companies to Work for.
Stay ahead of the competition – in particular maintaining a material combined ratio advantage. This means underwriting profitable business and pricing effectively for risk, providing great customer service and maintaining a cost-conscious culture.
Continue with the plan: • Build on ConTe’s second year of profits with more policy growth.
• L’olivier – assurance auto to take advantage of French legislative change and grow.
Continue to develop household as price comparison becomes a stronger market for shopping for household cover.
Capitalise on the strong insurer panel developed on compare.com during 2015 and increase marketing in key states to raise brand profile.
Take advantage of opportunities presented by the US auto insurance market
Test and learn approach utilising our existing skills and expertise to develop products that customers want and that represent value for money.
Develop profitable, growing, sustainable businesses in insurance and price comparison that mirror the UK model by building on the brand profiles developed by our strong management teams.
Learn from our experiences in the UK and Europe and export those learnings to the US. Understand the US consumer: what insurance cover and products they want and how they want to buy them. Educate the US consumer: shopping for car insurance online is a good thing!
In our early years I’d take the rating table results home with me on the weekend and come back with three or four rate changes to make.
Today rating is a massive mix of questions, information, multi-dimensional tables, scoring, etc. Pricing has gone from art to mathematical science.
Q What do you see as the next big challenge for the UK motor insurance industry?
A David: In the short term, the biggest single challenge is to work out how to turn telematics from a high premium niche product accounting for less than a tenth of market new business volumes, to a mass market offering. Part of that evolution will, in the medium term, involve increased co-operation between insurers and vehicle manufacturers.
A level of uncertainty associated both with transitioning to the new regime and our planned application for approval to use an internal model for solvency capital requirements in 2017 means we will release this surplus capital gradually over the next couple of years.
Another big change has been our internationalism over the last 10 years. Not only do we have operations in 5 countries, but we share knowledge and we also get to know other cultures. As these international operations have grown, and all of them have faced different challenges, different from each other and different to the UK, we are all able to learn from the way those challenges are tackled. It’s interesting to see, for example, that our Spanish team in Seville supports the IT development for France and Italy. Despite all the differences we all share some of the Admiral basics. When you go to an Admiral office, whether it’s in Gurgaon, Richmond, Seville, Lille or wherever, you know it’s an Admiral office.
A David: The household market is in the process of being transformed by price comparison sites. By this time next year, it’s likely that over half of sales of household policies will be via price comparison sites.
This gives opportunities to new entrants such as ourselves to grow a significant business cost effectively. In the medium term, the size of the opportunity will also depend on two, as yet unproved competencies – the ability to cross-sell to add another source of material, cost effective acquisition and the ability to price better than competitors to add a claims ratio advantage to our expense ratio advantage.
A Geraint: Entering the new regime prompted a review of the policy (which had been in place since we floated in 2004) and we are making a change to increase the normal dividend level from 45% to 65% of post-tax profits. We will also continue to return to shareholders excess capital beyond what we need to keep in the company for solvency and buffers.
tQ Can you fast forward 25 years to see the car insurance industry and Admiral of the future?
The Admiral of the future will be a different organisation. That’s because Admiral is like a living culture, it’s always changing, to grow something new... It’s one of the reasons Admiral is such an interesting place to work: because we never sit still. I suspect we’ll be doing a whole lot more than car insurance but exactly what I do not know. What I sincerely hope however, is that Admiral is still run by nice people (nicer than me, for sure!) who support each other when things don’t go well and know how to celebrate success when they see it.
Q You mentioned planning to seek approval to use an internal model in 2017. What does this mean and what are the steps to get there?
Record Group full year profit*¹ for 2015 of £377 million (2014: £357 million)
Record regular dividend of 51.5 pence per share together with a return of excess capital representing 11.9 pence per share
A very positive result from Admiral’s UK Car Insurance business in 2015 helped the Group post a very pleasing record full year profit of £377 million – 6% higher than last year. We’ll also pay a record dividend on the back of that result (more on which below). The business review that follows contains a number of financial and operational highlights. I’d draw out: • Our continued substantial growth in UK household insurance (plus a small profit, a market-beating expense ratio and very limited exposure to the terrible UK weather in the latter part of 2015).
• Another profit in ConTe in Italy with continued improvements in prior year claims reserves.
• The (successful) first stage release of our new IT system, Guidewire, in the UK.
• Of course, the record UK car insurance profit (£443 million), coupled with 5% growth in customer numbers and encouraging signs of market rate increases in the second half of the year.
Along with hangovers and apocalyptically bad weather, 1 January 2016 also saw the implementation of the new European Solvency II regime. As we’ve said previously, Admiral is initially using the Standard Formula to calculate its requirement and has agreed a capital add-on with the Prudential Regulation Authority which reflects risks specific to Admiral that aren’t captured by the Standard Formula.
We are also announcing a change in our dividend policy involving an increase in the ordinary dividend level (to 65% of post-tax profits from 45%), with a continuing commitment to distribute whatever earnings we do not need to retain to support and develop the business. The increased ordinary percentage results in a more appropriate balance between normal and special dividends, but for the foreseeable future we expect to see similar total payout ratios to previous years.
2016 brings monumental change for Admiral Group as one of our founders Henry Engelhardt retires from full time Group CEO duties. We’re grateful Henry is staying with the Group to manage the price comparison CEOs, but there’s no doubt he’ll leave a very big hole. Alastair has paid appropriate tribute to Henry’s contribution to Admiral earlier in the report (and soon-to-be Group CEO David has his say shortly), so I’ll just say that I count myself very lucky to have had the chance to work for Henry and, equally so, that my next boss and Admiral’s next CEO is David Stevens.
Group results and dividend • Pre-tax profits*¹ increased 6% to £376.8 million (2014: £356.5 million).
*² Segment and business results exclude share scheme charges which are accounted for in Other Group Items.
The increase in Group profit was predominantly due to the result of the UK car insurance business, offset by the ongoing investment in compare.com – the Group’s US comparison business (Admiral’s share of the loss was £21.5 million in 2015 (2014: £15.0 million)).
Group turnover of £2.12 billion increased by 8% compared to 2014 (£1.97 billion). This was mainly due to the impact of growth across the operations and, in the UK Car Insurance business, improved retention and the impact of an increase in average premiums. During 2015, the Group increased its customer base to 4.43 million from 4.05 million at 31 December 2014, year-on-year growth of around 380,000 (9%).
Dividends The Directors have announced a change in the Group’s dividend policy to increase the ordinary dividend level to 65% of post-tax profits from 45%, and a continuing commitment to return excess capital to shareholders beyond what is required to be held to meet solvency requirements and buffers. The increase in the normal percentage reflects a better balance between the normal and special elements of the dividend.
In addition, following the calculation of the Group’s regulatory capital requirement under Solvency II, and the approval of a capital add-on to the Standard Formula by the Prudential Regulatory Authority (PRA), the Directors have proposed an additional return of capital representing an element of surplus capital not required for solvency. The Group will adopt a phased approach to returning this surplus to shareholders, recognising the Group’s plan to submit an application for approval to use an internal model to calculate capital requirements during 2017 and the reassessment of the capital add-on at the end of 2016.
The special dividend and the additional return of capital are calculated with reference to distributable reserves after considering capital that is required to be held a) for regulatory purposes; b) to fund expansion activities; and c) as a further prudent buffer.
The Directors have therefore proposed a final dividend for the financial year of 63.4 pence per share.
The final dividend of 63.4 pence per share is, therefore, made up of three elements: • 33.6 pence per share representing a normal element, based on the updated dividend policy of distributing 65% of post-tax profits.
Return on capital Admiral’s capital efficient and highly profitable business model achieved a return on equity of 49% (2014: 52%).
Supported by strong releases from prior year claims reserves on the back of continued positive development in projected claims costs, the combined ratio improved to 78.2% (2014: 79.5%) and profit before tax was £443.0 million – up 11% on 2014’s result of £398.0 million.
Other Group key performance indicators include: • Group loss ratio 65.1% (2014: 67.8%) – a reduction in the UK loss ratio resulting from higher reserve releases alongside a stable international loss ratio.
• Group expense ratio 20.5% (2014: 18.7%) – slight increases in both UK and international ratios reflecting ongoing investment in international and the impact of a levy adjustment in the UK.
Investments and cash Investment strategy Admiral’s investment strategy was unchanged in 2015 and the Group continued to invest in the same asset classes as previous years.
A shift in allocation of funds, which commenced in 2014, continued during the first half of 2015 with a greater proportion invested in fixed income and other short dated securities (and less in money market funds and deposits). There has been no significant change in credit quality and over 90% of assets are rated A- and above.
Total cash plus investments increased by £139 million or 6% (2014: £365 million, 18%). 2014 was boosted by the proceeds of the £200 million bond issue.
Capital structure and financial position Admiral’s capital-efficient and profitable business model led to a return on equity of 49% (2014: 52%). A key feature of the business model is the extensive use of co- and reinsurance across the Group. The Group has agreed terms with partners to extend its UK motor reinsurance arrangements until the end of 2018. Extensions have been agreed on similar contract terms and conditions to those currently in effect, with the exception that it is planned for the Group to reduce its underwriting share from 25% to 22% with effect from 2017. Similar long term arrangements are in place in the Group’s international insurance operations and UK Household Insurance business.
The capital add-on to the Standard Formula approved by the PRA in December 2015 will be the subject of a PRA review in December 2016. The Group plans to submit an application for approval to use an internal model to calculate capital requirements during 2017.
The majority of the Group’s capital requirement is derived from its European insurance operations, Admiral Insurance (Gibraltar) Limited (AIGL) and Admiral Insurance Company Limited (AICL). The estimated (and unaudited) Solvency II position for the Group at the date of this report for the Group was as follows: Group £bn
Eligible own funds (pre 2015 final dividend) 1.03 2015 final dividend (0.18)
In July 2014, the Group completed the issue of £200 million of ten year dated subordinated bonds. The rate of interest is fixed at 5.5% and the bonds mature in July 2024. The bonds qualify as tier two capital under the Solvency II regulatory regime.
UK Insurance achievements in 2015 Profit before tax increased 11% to £443 million (2014: £398 million)
Profit generated from the portfolio of insurance products that complement the core car insurance product of £175 million (2014: £182 million)
Best Car Insurance Provider in the Personal Finance Awards for the third year in a row
So what’s the downside of more quoted focused personal lines players?
We insured about 1.2 million cars in the UK in 2006, and 3.0 million in 2012. If you’d asked me back in 2006 if we could insure almost three times as many cars in 2011/12, and still maintain the same claims ratio advantage versus the market, I’d have said ‘probably not’.
40% of the UK car insurance market is in the hands of the quoted personal line players.
UK Car Insurance financial review Non-GAAP*¹ format income statement £m £m £m
*4 UK Car Insurance profit before tax includes Minority Interests. The Minority Interests’ share of profit before tax is insignificant.
*5 Commuted reinsurance shows releases on the proportion of the account that was originally ceded under quota share reinsurance contracts but has since been commuted and hence reported through underwriting and not profit commission.
The market and our own car insurance expense ratio have oscillated, but our relative outperformance has stayed consistent at 12–14 percentage points below market averages.
• Risk mitigation: co- and reinsurers bear their proportional shares of claims expenses and hence provide protection should results worsen substantially.
Arrangements for 2016 to 2018 The Group has agreed terms with partners to extend its UK reinsurance arrangements until the end of 2018. Extensions have been agreed on similar contract terms and conditions to those currently in effect, with the exception that it is planned for the Group to reduce its underwriting share from 25% to 22% with effect from 2017.
Munich Re will underwrite 40% of the UK business until at least the end of 2018.
Details of the potential impact and mitigating factors the Group has in place are available on pages 34 to 37.
The European and US arrangements are explained in the International Car Insurance section and the UK Household arrangements are explained in the Other Group Items section.
UK Car Insurance financial performance Following an unprecedented period of premium deflation over 2011–2013, 2015 saw prices continue to rise following an early indication of increasing prices emerging in late 2014. Admiral started to implement rate increases in early 2014, ahead of the market, and the business performance in 2015 benefited from this pricing strategy. Turnover increased by 7% to over £1.7 billion and vehicles increased to a record level of 3.3 million.
Profit Profit from UK Car Insurance increased 11% to £443.0 million (2014: £398.0 million). Profit from underwriting and profit commission increased by 21% to £284.4 million (2014: £234.7 million), reflecting an improved combined ratio whilst investment income increased by £14.6 million to £26.1 million (2014: £11.5 million). The combined ratio improvement was largely due to higher reserve releases that resulted from positive claims development, in particular from the 2011, 2012 and 2013 years.
The reported motor combined ratio improved to 81.0% (2014: 83.0%) (both figures exclude the impact of reserve releases from commuted reinsurance contracts). This reflects an improved reported loss ratio of 64.1% (2014: 68.6%), which was due to the impact of higher reserve releases (£84.6 million v £66.8 million). These higher releases were possible due to positive claims development during 2015 that resulted in improvements in the projected ultimate loss ratios, especially for the 2011 to 2013 underwriting years.
Despite these higher reserve releases in 2015 the margin held in booked reserves above actuarial best estimates remains significant. Reflecting the level of uncertainty in motor insurance reserving (particularly relating to the ultimate costs of very large claims), the margin remains at the upper end of the Group’s reserving policy.
Claims reserving Admiral’s reserving policy (both within the claims function and in the financial statements) is initially to reserve conservatively, above internal and independent projections of ultimate loss ratios. 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 a significant margin above projected best estimates of ultimate claims costs.
The earned motor expense ratio increased to 16.9% from 14.4% due to 2014 benefiting from a one-off adjustment to levy costs (excluding the adjustment the earned motor expense ratio for 2014 would have been 16.3%).
In 2015 Admiral recognised profit commission revenue of £85.2 million (2014: £71.8 million) and reserve releases from business that was originally ceded under quota share reinsurance contracts that have since been commuted of £88.8 million (2014: £70.6 million). Total income from both of the above therefore increased significantly to £174.0 million (2014: £142.4 million) due to improvements in prior year claims costs and the associated reductions in loss ratios of those years. Note 5c to the financial statements analyses profit commission income by underwriting year.
The most material contributors to net Other Revenue are: • Profit earned from motor policy upgrade products underwritten by Admiral, including breakdown, car hire and personal injury covers.
UK Car Insurance Other Revenue – analysis of contribution: £m £m £m
Other Revenue per vehicle net of internal costs £57 £58 £54 *¹ Included in underwriting profit in income statement but re-allocated to Other Revenue for purpose of KPIs.
Additional products underwritten by Admiral There are a number of products that are core to providing car insurance to customers (including personal injury insurance, breakdown cover and car hire cover). Contribution from these products underwritten by Admiral during 2015 was £16.0 million (2014: £18.7 million) and this is included in underwriting profit in the income statement, but reallocated to Other Revenue for the purpose of management key performance indicators.
Regulatory environment The UK Car Insurance business operates predominantly under the regulation of the UK Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA), and through a Gibraltar-based insurance company, under the Financial Services Commission (FSC) in that territory.
Rastreator voted 5th Best Company to Work For in Spain (between 250 and 499 employees)
Elephant Auto became a top 100 auto insurer in the US
ConTe increasing investment in brand and technology to leverage the expected cycle turn and grow customers and revenue
Transition towards direct distribution progressed at a slower pace than in the past, given that traditional companies led the price and advertising war. Mobile is becoming a major force with around one third of visits to insurance websites coming from mobile devices and price comparison sites grew around 12%.
Launched in October 2009 – serving four US states (Virginia, Maryland, Illinois and Texas).
For Elephant, 2015 was a good year. We grew the business substantially again – with more than 40% growth we wrote $135 million and now have over 140,000 customers. Acquisition economics improved as brand awareness and perception increased nicely in our core markets. New marketing campaigns delivered well. Growth was particularly significant in Virginia and in the US’s 2nd largest auto insurance state, Texas. We have moved into the top 100 US auto insurers with a market share that rounds to a massive 0.1%. The loss ratio came under pressure with increased frequency across the board, but particularly in Texas. Like others, we implemented price increases in the latter part of the year to address the loss ratio. We will be monitoring this carefully as we seek further growth in 2016. We have plenty of market share to go after – both in existing states and beyond – and we will probably expand into new states in the next year or so.
Vehicles insured at period end 515,300 592,600 673,000 *¹ Loss ratios and expense ratios have been adjusted to remove the impact of reinsurer caps so the underlying performance of the business is transparent.
*² Adjusted 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 2015: 146%; 2014: 145%; 2013: 152%.
For the 2015 year Admiral retained 35% (Italy), 30% (France and Spain) and 33% (USA) of the underwriting risk respectively. The arrangements for 2016 will remain the same.
All contracts are subject to certain caps on the reinsurers’ exposures and all contracts have profit commission terms that allow Admiral to receive a proportion of the profit earned on the underwriting once the business reaches cumulative profitability. The contracts include proportional sharing of Other Revenue.
International Car Insurance financial performance Admiral’s international insurance businesses continued to grow, adding over 80,000 customers and ending 2015 14% larger than a year earlier. Turnover grew by 13% to £232.4 million (2014: £206.2 million). Turnover and vehicles in these businesses represent 11% and 15% of the Group totals respectively, with turnover up from 10% in 2014 while the customer proportion remained stable.
The adjusted combined ratio remained stable at 126% (2014: 127%). Continued improvement in ConTe’s prior years claims development and higher net insurance premium revenue has been offset by continued investment in operations in France and the US, resulting in an increased loss of £22.2 million in 2015 (2014: £19.9 million). The adjusted expense ratio decreased slightly to 49% (2014: 50%). The expense ratio is high in comparison to Admiral’s UK business because all of the international operations need to continue to grow to achieve economies of scale. In addition, there are market specific reasons why the expense ratios are higher, for example higher acquisition costs in the US cause a strain on the expense ratio when the business is growing.
Milena: Henry suggested a TV ad to capture the great ConTe atmosphere – he thought our team’s spirit would be contagious and could instill more trust in our customers. We forced him to record a shot and of course, he did the most persuasive interpretation of all!
Sarah: Henry doing call listening in Spanish and coming up with many improvements! (That was so impressive).
Admiral’s youngest and smallest international insurance business is L’olivier – assurance auto, which launched in 2010 in France. L’olivier insured 56,800 vehicles at the end of 2015, up over 60% on the prior year and has focused on brand development during the year.
The consolidated result of Admiral's insurance operations in Spain, Italy and France was a loss of £7.0 million, a reduction of 33% on 2014 (2014: £10.4 million). The adjusted combined ratio net of Other Revenue improved to 103% from 105% primarily due to improved claims experience.
Pascal: He’s like Merlin the wizard in The Sword in the Stone. Without a magic wand, he has the ability to boost and motivate people.
Kevin: My first SGM presentation – I was super nervous and stumbled over some words and made a mistake. I looked down at the front row to see my boss, not looking cross or concerned, but just laughing. It completely relaxed me. It speaks volumes about Henry’s way of making all his team feel relaxed and able to do their best.
Launched in January 2010 – the leading price comparison website in France.
Elena: The level of autonomy and freedom Henry gave us was unique.
UK Price Comparison – Confused.com Confused.com faced continuing challenging market conditions and produced a lower result, with revenue 7% lower than 2014 at £75.4 million (2014: £80.8 million) although the trend improved slightly in the second half of the year. Profit also fell to £12.5 million (2014: £15.8 million). Confused.com’s results were impacted by limited overall growth in the price comparison market in the UK as well as fierce competition.
UK Commercial Vehicle The Group operates a Commercial Vehicle insurance broker (Gladiator) offering van insurance and associated products, typically to small businesses. Distribution is via telephone and the internet (including price comparison websites).
This is a particular risk for motor insurance liabilities, where the ultimate cost of bodily injury claims (particularly large claims) can be materially different to initial estimations.
Admiral has a conservative reserving policy and holds a significant margin in its financial statement claims reserves above actuarially determined best estimates.
The Group continues to make material investments in staff and systems to work on the identification and prevention of claims fraud.
Periodical Payment Orders (PPOs) are increasingly used to settle large bodily injury claims
Admiral is exposed to the risk of high losses due to the occurrence of man-made catastrophes or natural weather events.
A worse UK Car Insurance result and lower return on capital employed.
• Keen focus on maintaining a low-cost infrastructure and efficient acquisition costs.
Admiral’s approach to expansion and product development remains conservative, applying the ‘test and learn’ philosophy that has proven successful for previous operations. International insurance businesses have executed cautious launch strategies and are all backed by proportional reinsurance support which provides substantial mitigation against start-up losses in the early years.
New price comparison businesses have aligned their marketing investment with the extent of improvement in key performance indicators such as average cost per quote and conversion ratio. The Group also considers partial disposals of equity to share start-up losses with partners.
The level of this revenue could diminish due to regulatory or legal changes, customer behaviour or market forces.
As the Solvency II regime comes into effect, the Group will commence its transition to using a Partial Internal Model to calculate its capital requirement. Whilst the level of Capital Add-On to be applied to the Solvency II Standard Formula has been agreed with the Prudential Regulation Authority (‘PRA’), there is an inevitable level of general uncertainty as the new regulatory regime comes into effect.
There is investment in resources to prepare for a Partial Internal Model application which is expected to be made during 2017. The project will have regular progress updates with the Board and Regulators.
Admiral is primarily exposed to credit risk in the form of a) default of reinsurer; b) failure of banking or investment counterparty.
Admiral only conducts business with reinsurers of appropriate financial strength. In addition, most material reinsurance contracts are operated on a funds withheld basis, which substantially reduces credit risk, as Admiral holds the cash received from policyholders as collateral.
Admiral considers counterparty exposure frequently and in significant detail, and has in place appropriate triggers and limits, to mitigate exposure to individual investment counterparties.
‘People who like what they do, do it better’. We seek to establish a motivational culture through various staff benefits and rewards underpinned by communication, equality, recognition and fun.
Admiral is also able to attract and retain staff through the employee share schemes.
Further detail on how Admiral interacts with its employees is set out on pages 38 to 39 and in the CSR Report available online.
Internal controls are in place and monitored to minimise the risk and the control framework is regularly reviewed.
Failure to invest in, and successfully implement, appropriate technology (particularly Guidewire implementation in the UK) to support the Group’s future business development.
Strong project governance and oversight of new systems implementations with external specialist review and assurance where required.
Availability of systems and data: Unable to operate the business for an indeterminate period, depending upon the severity of the attack.
Integrity of data: Potential for data corruption impeding the ability to place reliance upon it.
Security controls are in place covering logical and physical assets to reduce the risk of unauthorised access to data.
Potential customer detriment and/or potential regulatory censure/enforcement and/or reputational damage as a result of Admiral’s action.
Further detail on how Admiral interacts with its customers is set out on page 10 and in the Corporate Social Responsibility (CSR) Report available online.
Happy people make happy customers and happy customers make for a successful, thriving company. Our success goes hand‑in‑hand with having a strong culture. So our philosophy is a simple yet effective one: People who enjoy what they do, do it better.
One of the most important tools we use to measure employee satisfaction is our anonymous Staff Survey which provides an insight into what it’s like to work for us.
Together, these principles create an environment where Admiral employees look forward to coming to work and give that little extra effort when they’re at work.
An award winning year Here are some of the awards Admiral Group won in 2015
Sunday Times Best Companies To Work For Special Award 2015 – 15 Years – Special Recognition Award
Great Place to Work Best Large Workplace in the UK – 4th
Great Place to Work Best Multinational Workplace in Europe – 4th
Great Place to Work Best Workplace in France (less than 500 employees) – 22nd
Special Award – Admiral Million Makers – Prince’s Trust Outstanding Supporter
This Corporate Governance Report is structured in order to demonstrate to shareholders that the Board has complied during 2015 in all respects with each section of the Code – Leadership; Effectiveness; Accountability; and Relations with Shareholders. Remuneration is dealt with in the separate Remuneration Report.
Remuneration Committee Membership at 31 December 2015 • Annette Court (Chair)
Read more about gender diversity within the Company On page 69
*² Penny James was appointed to the Board on 1 January 2015 and joined the Audit Committee with effect from that date.
*³ Manning Rountree was appointed to the Board on 16 June 2015 and joined the Group Risk Committee with effect from that date.
Appointed in 1999 Background and experience Henry is a founder Director of Admiral and was recruited by the Brockbank Group in 1991 to set up the Admiral business.
• Member of the Chartered Institute of Management Accountants Advisory Panel
Margaret was awarded an OBE in 2013 in recognition of her services to the creative industries and her voluntary work for charities.
Appointed in 2014 Background and experience Geraint is responsible for finance, actuarial, compliance and investments. He joined Admiral in 2002 and held a number of senior finance positions including Head of Finance, before being promoted to Deputy Chief Financial Officer in January 2012 and Chief Financial Officer in August 2014.
Current appointments • Chief Investment Officer of Equistone Partners Europe (formerly Barclays Private Equity, ‘BPE’)
Background and experience Previous Director of Admiral (1999–2004). Led BPE’s participation in the management buy out.
Current appointments • Non-Executive Director of Jardine Lloyd Thompson Group plc
Annette is former CEO of the Direct Line Group. In this role Annette was also a member of the RBS Group Executive Management Committee.
Annette has previously served as a member on the Board of the Association of British Insurers (ABI).
Current appointments • Lucy is a management columnist for the Financial Times
Background and experience Jean was Group Chief Risk Officer at the Phoenix Group from 2009 until June 2013. Previously, she was Risk Management Director of the Insurance and Investments division of Lloyds TSB and, before that, Head of Compliance and Audit at Scottish Widows.
Current appointments • Managing Director of White Mountains Capital Inc., White Mountains Insurance Group, Ltd. since March 2009
Background and experience Manning joined White Mountains in 2004 and is the former President of WM Advisors.
• Changes to the structure, size and composition of the Board, including new appointments.
In addition to the regular consideration of financial and operating performance and risk management and compliance, the Board received presentations on a variety of topics including updates from the management teams of each of the Group’s businesses and regular reviews of progress implementing Solvency II.
In addition to his visits to the Group’s UK operations, the Chairman seeks to visit each of the Group’s overseas operations every year and Non-Executive Directors are invited to join either him or the Chief Executive on one or more of their overseas visits each year. In addition, the Non-Executive Directors and the Chairman met during the year without the Executive Directors being present. In order to increase their understanding of the depth and breadth of management across the Group below Board level, the Non-Executive Directors and the Chairman also attended two dinners with members of the Group’s senior management team without the Executive Directors being present. When management teams present to the Board on their operations they are invited to join the Board for dinner which gives the opportunity for informal interaction between Directors and management.
Agendas and papers are circulated to the Board electronically in a timely and secure manner in preparation for Board and Committee meetings. The Board agenda is structured by the Chairman in consultation with the Company Secretary and Chief Executive. Routine Board papers are supplemented by information specifically requested by the Directors from time to time. All Board and Committee meetings during the year were held in an open atmosphere conducive to robust and constructive challenge and debate. All Directors have, therefore, been able to bring independent judgement to bear on issues such as strategy, risk management, performance, and resources. Additional meetings are called when required and there is contact between meetings, where necessary, to progress the Group’s business.
The evaluation process involved the Chairman circulating an online questionnaire to all Directors and Board attendees. Respondents were asked to assess the performance of the Board across a number of areas including: Board composition to ensure that it was aligned with the Group’s strategic goals; the dynamics of the Board in the context of assessing whether it was conducive to equal contribution, candid discussion and critical thinking; the content and format of management reports coming before the Board; the focus of the Board on strategic oversight and whether there was sufficient challenge of management in determining the strategic direction of the Group; and the Board’s assessment of the top three risks facing the business over the next three to five years. Respondents were also invited to raise any new issues of significance that they felt had developed since the last review a year ago and on which they believed the Board should focus in the coming year.
The review identified the following areas to which the Board might give particular focus in 2016: • Standardising the format of reports that are presented to the Board to adopt more of a balanced scorecard approach with summaries of performance against plan for each business detailing the key metrics, with the supporting financial material included in an appendix.
• Consideration of the top strategic issues facing the Company over the next three to five years including: succession management and continued talent development; maintaining the Group’s competitive advantage; and successful delivery of profitable international businesses, particularly in the US.
Board effectiveness continued The Chief Executive, to whom they report, appraises annually the performance of the individual Executive Directors. The Chairman, taking into account the views of the other Directors, reviews the performance of the Chief Executive. The performance of the Chairman is reviewed by the Board led by the Senior Independent Director (‘SID’). Following the latest review, the SID considered and discussed with the Chairman the comments and feedback that had been received from the Directors as part of the Chairman’s evaluation questionnaire, and was able to confirm that the performance of the Chairman continues to be effective and that he continues to demonstrate appropriate commitment to his role.
The roles of the Chairman and Chief Executive The Board has approved a statement that sets out the clear division of responsibilities between the Chairman and the Chief Executive. The Chairman is primarily responsible for the leadership and workings of the Board, setting its agenda, and monitoring its effectiveness. The Chairman is not involved in the day-to-day management of the business. Save for matters reserved for decision by the Board, the Chief Executive, with the support of the other Executive Directors, is responsible for proposing the strategy to be adopted by the Group; running the business in accordance with the strategy agreed by the Board; and implementing specific Board decisions relating to the operation of the Group. The statements of division of responsibilities and matters reserved for decision by the Board are reviewed annually.
Board balance and independence Careful consideration continues to be given to Board structure and balance particularly given two of the Non-Executive Directors, Margaret Johnson and Lucy Kellaway, will be stepping down from the Board at the AGM in April having each reached nine years service. In this context the Group continues to monitor the need to refresh Board and Committee membership in an orderly manner so as to maintain the continuity of Board process and the strength of personal interaction which underlies the effectiveness of the Board as a team. The Board remains satisfied that it has the appropriate balance of skills, experience, independence and knowledge of the Group to enable it and its Committees to discharge their duties and responsibilities effectively, as required by the Code.
The Board currently comprises 12 Directors, the Chairman (who was independent on appointment), three Executive Directors, and eight independent Non-Executive Directors. As can be seen from the Directors’ biographies on pages 42 to 43, the Directors have a broad range of skills and experience and can bring independent judgement to bear on issues of strategy, performance, resources and standards of conduct which are integral to the success of the Group.
In accordance with the requirement under the Code for annual election of Directors, all Directors will be submitting themselves for re-election by shareholders at the forthcoming AGM. The Board is satisfied that all are properly qualified for their reappointment by virtue of their skills and experience and their contribution to the Board and its Committees.
Conflicts of interest In compliance with the requirements of the Companies Act 2006 regarding Directors’ duties in relation to conflicts of interest, the Group’s Articles of Association allow the Board to authorise potential conflicts of interest that may arise and to impose such limits as it thinks fit. The Company has put in place procedures to deal with conflicts of interest. These procedures include each Board member completing, annually, a conflicts of interest questionnaire that sets out any situation in which they, or their connected persons have, or could have, a direct or indirect interest that could conflict with the interests of the Company. Any current Directorships that they, or their connected persons hold, any advisory roles or trusteeships held, together with any companies in which they hold more than 1% of the issued share capital are also disclosed. These procedures were reviewed by the Board in December 2015 and it was concluded that they continued to operate effectively.
The Audit Committee’s primary responsibilities are to: Monitor the integrity of the Group’s financial statements and any formal announcement relating to the Group’s financial performance, reviewing any significant financial reporting judgements which they contain
Review the Group’s procedures for handling allegations from whistleblowers and for detecting fraud
Monitor and assess the role and effectiveness of the Group’s Internal Audit functions in the context of the Group’s overall internal control and risk management systems
The Committee studied a number of control issues, highlighted through a range of different sources including the Risk Register, Internal Audit and the Committee’s previous work. One significant focus during the year was on the area of IT Security and Control, in part due to the major project to transfer the UK business onto a new bespoke software system. The Committee will remain focused on this issue during 2016 as the transfer of active business to the new software platform occurs across the year. On the issue of IT Security the Committee sought assurance from the Head of IT Security that the action plan to mitigate against cyber risks remained appropriate and, given the seriousness of the threat posed to the business from cyber risks, that actions and recommendations were being dealt with in a timely manner.
During the year the Committee led the tender process for the Group’s external audit, which resulted in a recommendation that Deloitte LLP should be recommended to shareholders as the Group’s auditor at the 2016 AGM. Over the last 16 years KPMG LLP have undertaken an effective and value adding external audit for the Group and I would like to express the Committee’s thanks to all the KPMG staff involved.
Reports from the Chair of the Group Risk Committee on the principal risks faced by the Group and the work undertaken by the Committee to ensure risk is appropriately managed.
Proposals from invited external audit firms as part of the audit tender process.
The Committee also had presentations and discussions on a range of important issues including: IT Security, deferred tax assets and Solvency II preparatory phase reporting requirements.
Membership of the Committee at the end of the year was: Colin Holmes (Chair), Annette Court, Penny James and Margaret Johnson. The Committee has been strengthened by the addition of Owen Clarke who joined the Committee with effect from 1 January 2016 and ensures that with Margaret Johnson stepping down from the Board in April, the composition of the Committee remains well balanced. Committee members continue to have a broad range of financial and business experience such that they are able to effectively analyse, challenge and debate the issues that fall within the Committee’s remit.
Significant issues considered by the Committee After discussion with both management and the external auditor, the Audit Committee determined that the key risks of misstatement of the Group’s financial statements related to: insurance liabilities; profit commissions; and the valuation of deferred tax assets.
Insurance liabilities The Audit Committee considered the provision for claims outstanding comprising provisions for the estimated cost of settling all claims incurred but unpaid as at the balance sheet date, whether reported or not. The Board has approved a Reserving Policy that sets out the methodology by which management sets reserves in the financial statements that are sufficient, to a high degree of likelihood, to cover any liabilities that can be reasonably assumed to arise from business earned up to the valuation date. The approach is to ensure that an appropriate margin is provided above actuarial best estimates to allow for uncertainty and volatility.
The Committee held separate meetings with the Group’s external actuaries at which there was challenge and debate on the methodology used and best estimates developed by the external actuaries and recommended for adoption by management and the Group’s internal actuary. At these meetings management provided further information on the reserving levels proposed and were challenged by the Committee as to their adequacy and level of inherent prudence.
However for 2015, management have determined that an adjustment for the elimination of the intra-group trading should be made within the financial statements. This change in approach was proposed on the basis that the materiality of the adjustment of the individual revenue and expense captions within the income statement was increasing due to the trading between the Group’s international price comparison entities and the respective insurance operations in those countries. KPMG had confirmed that they were satisfied that the proposed treatment was appropriate.
The Committee fully considered and challenged management on the change in approach proposed. Following comprehensive review, the Committee confirmed its acceptance of management’s position on the basis that accounting for intra-group trading in this way had no profit impact and that explanatory footnotes would be added to the financial statements.
Valuation of deferred tax assets continued The Committee had considered the approach proposed by management in determining the value of these deferred tax assets in the Group’s balance sheet. It was noted that the probability of the availability of future taxable profits had been formalised in a policy and was determined by a combination of the classification of the status of the businesses holding cumulative tax losses and the business plan profit projections for that business. The policy used by management classified the Group’s businesses as either: a start up business; a new business or an established business and used relevant criteria such as markets and performance against KPIs to assess the status of each business.
The Committee challenged management on the application of management’s deferred tax accounting policy and agreed with the approach proposed by management.
After reviewing the presentations and reports from management and consulting where necessary with the auditor, the Committee is satisfied that the financial statements appropriately address the critical judgements and key estimates (both in respect to the amounts reported and the disclosures). The Committee is also satisfied that the significant assumptions used for determining the value of assets and liabilities have been appropriately scrutinised, challenged and are sufficiently robust.
Internal audit The Group Head of Internal Audit attends all Audit Committee meetings and provides a range of presentations and papers to the Committee, through which the Committee monitors the effectiveness of the Group’s internal controls. The Committee reviewed and approved the Group Internal Audit Terms of Reference which set out the role; objectives; reporting lines and accountability; authority; independence; and objectivity of the Internal Audit function. The role and competence of each Internal Audit function across the Group was also assessed and considered by the Committee. It was agreed that the Group Head of Internal Audit would have increased responsibility to ensure the quality of the Internal Audit activities in the Group’s overseas locations.
Committee effectiveness review As part of the Committee’s detailed annual review of its performance and processes, each Committee member completed a comprehensive questionnaire designed to provide objective assessment of the Committee’s performance, including its effectiveness in monitoring internal and external audit. The Committee discussed the results of the review and it was concluded that the Committee and the audit process were effective; that the Committee had full access to all the information it required; that the Committee had appropriate Terms of Reference; and that it was adequately discharging its responsibilities.
The Committee challenged and reviewed the setting of and outputs from the regular stress and scenario testing and reverse stress testing. The output was incorporated into the Own Risk and Solvency Assessment (‘ORSA’) report for 2015, which the Committee also reviewed.
The focus on monitoring and reporting customer outcome risks continued during the year and included the introduction of Group minimum compliance standards, which introduces the levels of compliance resources and monitoring levels that all Group firms must apply to their respective regulatory obligations.
Reviewing compliance with Group policies, including the established Reserving Policy and process
Through stress and scenario testing and reverse stress testing, considered in-depth analysis of a number of the Group’s most significant risk areas, including the potential default of a reinsurer.
Recommended to the Board approval of the 2015 ORSA Report prior to submission to the regulator and approved the ORSA policy.
Considered the provisions of the Senior Insurance Managers Regime and approved the Group’s approach.
Received regular updates on IT Security and presentations on a number of key risk topics including cyber risk, investments and liquidity.
Received regular monitoring reports on UK conduct risk and complaint handling and approved the introduction of Group minimum compliance standards.
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.
Internal control and risk management The Board is ultimately responsible for the Group’s system of risk management and internal control and, through the Audit Committee, has reviewed the effectiveness of this system. The system of risk management and internal control over insurance, operational, market, legal and regulatory risks is designed to manage rather than eliminate the risk of failure to achieve business objectives and breaches of risk appetites and can only provide reasonable and not absolute assurance against material misstatement or loss.
The Board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives. The Board meets at least seven times a year to discuss the direction of the Company and provide oversight of the Group’s risk management and internal control systems. The role and responsibilities of the Board are documented within their Terms of Reference and these are reviewed annually.
A key element of the control system is that the Board meets regularly with a formal schedule of matters reserved to it for decision and has put in place an organisational structure with clearly defined lines of responsibility. As described above, in order to ensure these responsibilities are properly discharged, the Board has delegated to the Audit Committee to keep under review the adequacy and effectiveness of the Company’s internal financial controls, internal control and risk management systems.
The Group has a ‘three lines of defence’ approach to Internal Control. The Board recognises that the day-to-day responsibility for implementing policies lies with the senior management, the ‘first line of defence’, whose operational decisions must take into account risk and how this can be controlled effectively.
The ‘third line of defence’ describes the independent assurance provided by the Audit Committee and the Group Internal Audit function that reports to that Committee. Internal Audit undertakes a programme of risk based audits covering all aspects of both the first and second lines of defence. The findings from these audits are reported to all three lines, i.e. management, the executive and oversight Committees, and the Audit Committee.
The GRC, UK Risk Management Committee and other UK and overseas Risk Committees receive reports setting out key performance and risk indicators and consider possible control issues brought to their attention by early warning mechanisms that are embedded within the operational units. They, together with the Audit Committee, also receive regular reports from the Internal Audit function, which include recommendations for improvement of the control and operational environment. Twice a year the Chair of the GRC provides a comprehensive written report to the Board of the activities carried out by GRC. In addition, the Board receives reports from the Chair of the Audit Committee as to its activities, together with copies of the minutes of the GRC and Audit Committee.
The Audit Committee’s ability to provide the appropriate assurance to the Board depends on the provision of periodic and independent confirmation, primarily by Internal Audit, that the controls established by management are operating effectively and where necessary provides a high-level challenge to the steps being taken by the GRC to implement the risk management strategy.
Viability In accordance with provision C.2.2 of the 2014 revision of the Code, the Directors have assessed the prospect of the Company over a longer period than the 12 months required by the ‘Going Concern’ provision. The Board conducted this review for a period of three years to December 2018. This assessment has been made taking into account the current financial position of the Group, the Group’s business plans, the Group’s ‘Own Risk and Solvency Assessment’ (ORSA) process, and the principal risks and uncertainties faced by the Group, which are disclosed on page 34 to 37 of the Strategic Report.
The results of the stress tests form part of the process to set the Group’s capital risk appetite, which ensures that a buffer on top of the Group’s regulatory capital requirement is held to protect its capital position against shocks and stresses.
Report of the Nomination Committee Statement from Alastair Lyons, Chairman of the Nomination Committee
The Committee continued the development of a structured succession plan that would ensure appropriate action was taken well ahead of the dates on which individuals would be retiring in order to achieve their replacement, if appropriate, with individuals of the appropriate skills, experience and fit to the Board.
The Nomination Committee’s primary responsibilities are to: Lead the process for making appointments to the Board.
Ensure there is a formal, rigorous and transparent procedure for the appointment of new Directors to the Board.
The Committee carried out a robust and comprehensive recruitment process.Alastair Lyons, CBE
Membership The membership of the Committee at the year end was Alastair Lyons (Chairman), Colin Holmes and Lucy Kellaway. The Company Secretary acts as Secretary to the Committee. The Committee invites the Chief Executive to attend meetings when it deems appropriate. The Committee met formally on two occasions in 2015 although members of the Committee corresponded and met informally on a number of occasions to consider and meet with individuals that the Committee had identified as possible candidates to join the Board.
Having secured Penny James as a Non-Executive Director during 2014, during 2015, having regard to forthcoming retirements and the changing nature of the Group’s business, the Board initiated a search for two new Non-Executive Directors. The Group has in place a policy of recruiting well ahead of impending retirements in order to ensure continuity of knowledge and Board dynamics. The Committee developed an appropriate specification for these roles having regard to the required skills and experience. Following this process, the Committee identified Manning Rountree and Owen Clarke as best placed to fill the roles identified.
Owen is currently the Chief Investment Officer of Equistone (formerly Barclays Private Equity): he served as a Director of Admiral from 1999–2004 when it was a private company having led BPE’s participation in the MBO of Admiral in 1999. Consequently, Owen has an excellent understanding of the Group’s business and culture, as a well as a great commercial record.
Given Manning’s and Owen’s background, experience and competence, and the external references that were obtained, the Committee did not consider it either necessary or appropriate to undertake a full search led by an external recruitment consultancy.
Each Committee member met separately with Manning and Owen and agreed that each would bring invaluable experience to the Board. The Board approved the Committee’s recommendations and following regulatory approval Manning was formally appointed to the Board with effect from 16 June 2015 and Owen with effect from 19 August 2015.
The Group remains strongly supportive of the principle of boardroom diversity, of which gender is an important, but not the only, aspect. What is important is diversity of thought, experience and approach and each new appointment must complement what already exists at the Board table. Accordingly, appointments will always be made on merit against objective criteria, including diversity, and not just to achieve an externally prescribed number. Given women already constitute over 25% of our plc Board, the Group has already met the target set for 2015 by Lord Davies in his report: Women on Boards. The Group remains committed to providing equal opportunities, eliminating discrimination, and encouraging diversity amongst its workforce both in the UK and overseas. A breakdown of the gender of Company Directors and senior employees at the end of the financial year together with details of the Group’s Equality, Diversity and Dignity at Work Policy are set out in the Directors’ Report on page 69.
2015 has been another strong year for the Admiral Group despite challenging conditions in the cyclical core UK motor insurance market. Earnings per share in the year were 107.3 pence (2014: 103.0 pence), up 4% on 2014. Return on equity of was 49% (2014: 52%). Total Shareholder Return was 34% over the year, placing Admiral in the top quartile of the FTSE 350. Total dividends for the financial year (including the proposed final dividend of 63.4 pence per share) will be 114.4 pence per share, representing 108% of our earnings. The Group’s strategy remains to continue to maximise our position in the UK while taking what we know and do well, which is internet and telephone delivery of insurance and price comparison, to our overseas businesses.
• Approval (subject to shareholder approval) for a sub-plan of the DFSS to be created in order to take advantage of the changes in France with respect to the Macron Law.
I remain confident that the Group’s Remuneration Policy supports the view, held by the Board, that wide share ownership drives outstanding performance and promotes the long term success of the business whilst remaining in alignment with shareholder interests.
In respect of existing Executive Directors, it is anticipated that salary increases will normally be in line with the increase for the general employee population over the term of this policy. More significant increases may be awarded in certain circumstances including, but not limited to: where there has been a significant increase in role size or complexity, to apply salary progression for a newly appointed Executive Director, or where the Executive Director’s salary has fallen significantly behind market.
Maximum opportunity: sum equal to dividends payable during the year on awarded but unvested DFSS shares.
Minimum shareholding requirement To align interests of Executive Directors with shareholders.
Remuneration arrangements for founding Directors Two of the three Executive Directors (Henry Engelhardt and David Stevens) are founding Directors. They and the Committee continue to hold the view that the significant shareholdings held by them provide a sufficient alignment of their interest in the performance of the Group with the interests of other shareholders. In light of this, their remuneration packages consist only of a below market rate salary and benefits such as private medical cover, permanent health insurance and death in service cover. During 2014 David Stevens joined the Group’s Personal Pension Plan and from October 2014 the Group matched his contributions under the Plan. The Group does not contribute to any pension arrangements on behalf of Henry Engelhardt. Henry Engelhardt and David Stevens have not participated, nor is it intended that they participate, in any Group share schemes.
Pay-for-performance: scenario analysis The following charts provide an estimate of the potential future reward opportunities for the Executive Directors, and the potential split between the different elements of pay under three different performance scenarios: ‘Minimum’, ‘On-target’ and ‘Maximum’. As described above, Admiral’s DFSS bonus is directly aligned with dividends received by our shareholders. As such, there is no ‘threshold’ or ‘target’ performance defined for this element of pay. The figures shown in the chart below for the CFO’s DFSS bonus include the value of the actual DFSS bonus paid in 2015. Under all scenarios, potential reward opportunities are based on expected awards for 2016 (in accordance with Admiral’s Remuneration Policy), applied to salaries as at 31 December 2015. The ‘On-target’ column includes a 20% vesting for DFSS awards which would occur for achieving threshold performance targets.
Advisor to the Committee During the year, in order to enable the Committee to reach informed decisions on Executive remuneration, advice on market data and trends was obtained from independent consultants, Kepler Associates, a brand of Mercer (which is part of the MMC group of companies). Kepler reports directly to the Committee Chair, and is a signatory to and abides by the Code of Conduct for Remuneration Consultants (which can be found at www.remunerationconsultantsgroup.com). Other than advice on remuneration, no other services were provided by Kepler (or any other part of the MMC group of companies) to the Company. The fees paid to Kepler in respect of work carried out in 2015 (based on time and materials) totalled £9,400, excluding expenses and VAT.
Annual Report on Remuneration Total number of votes 214,100,688 5,758,227 219,858,915 1,172,167
5. DFSS: the value at vesting of shares vesting on performance over the three-year periods ending 31 December 2015 and 31 December 2014. For the 2015 calculations, given that vesting occurs in October 2016, after the Directors’ Remuneration Report is finalised, the figures are based on the average share price in the last three months of 2015 (£16.13). The 2014 calculations have been trued up based on the actual share price on vest (£15.43). Henry Engelhardt and David Stevens have declined to participate given their significant shareholdings.
7.. Geraint Jones was appointed to the Board as CFO on 13 August 2014. For the purpose of this table, his 2014 remuneration includes salary, pension and benefits in respect of the whole of 2014 in order to provide a comparison with his 2015 remuneration as CFO.
*4 Roger Abravanel retired from the Board with effect from 29 April 2015 and Manfred Aldag retired from the Board with effect from 31 August 2015.
Geraint Jones *¹ 36 points are required for 100% vesting of the EPS-based DFSS award.
*² Overall percentage vesting of Geraint Jones’ 2013 DFSS is 69%.
69% of Geraint Jones’ 2013 DFSS award will vest in October 2016, subject to his continued employment on the vesting date.
From 2015, DFSS bonus payments will be subject to clawback in exceptional circumstances, such as material misstatement or gross misconduct.
Scheme interests awarded in 2015 DFSS As mentioned in the 2014 report, the Company held a comprehensive review of the DFSS in 2014, and as a result, a number of changes were made to the scheme.
The key changes that have been made to the DFSS include: • Increased maximum DFSS opportunity of £2 million. Awards above £1 million are subject to a 600% of salary limit; • Inclusion of 100% performance-related awards for the Group’s most senior managers; • Two additional performance measures, relative TSR and ROE; and
In September 2015, Geraint Jones was granted an award under the DFSS of 50,000 shares with a value at the date of award of £743,500 (based on share price of £14.87), equivalent to 372% of salary. The three-year period over which performance will be measured will be 1 January 2015 to 31 December 2017. The award is eligible to vest in its entirety on the third anniversary of the date of grant (i.e. September 2018), subject to performance and to continued employment. Henry Engelhardt and David Stevens again declined to be included given their significant shareholdings.
Scheme interests awarded in 2015 continued DFSS continued As disclosed in the 2014 report, awards made in 2015 vest on three-year EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), and ROE, weighted equally. The performance conditions are summarised in the table below.
SIP In March and August 2015, Geraint Jones was granted awards under the SIP of 101 shares in March 2015, with a face value of £1,503, and 118 shares in August 2015, with a face value of £1,795. The shares will vest on 13 March 2018 and 24 August 2018 respectively subject to continued employment only. Henry Engelhardt and David Stevens again declined to be included given their significant shareholdings.
Exit payments and payments to past Directors Kevin Chidwick left the Board on 13 August 2014 to focus on his role as CEO of Elephant Auto, and was not an Executive Director during 2015.
1 January 2013– 31 December 2015 Kevin Chidwick 52,250 113 points 102 points 11 points 38% 19,855 10 October 2016 £320,261 *¹ 36 points are required for 100% vesting.
*² Calculated based on the average share price in the last three months of 2015 (£16.13).
Implementation of Remuneration Policy for 2015 Executive Directors Salary, pension and benefits Remuneration for the Executive Directors in 2016 will be determined in line with the latest policy. The Committee approved the following base salaries for the Executive Directors in 2015: Director Latest salary 2015 salary % change Effective date
Return on Equity (ROE) 25% 55% 25% for achieving threshold with straight line relationship to 100% for maximum performance
Percentage change in CEO remuneration The table below shows the percentage change in CEO remuneration from 2014 compared to the average percentage change in remuneration for all other employees. The analysis is based on a consistent set of employees, i.e. the same individuals appear in the 2014 and 2015 populations. As the CEO does not participate in the DFSS bonus scheme, to provide a meaningful comparison we have also included data for the CFO.
CEO CFO Other employees *¹ DFSS bonus change represents the change in dividends paid, which is the driver of the level of bonus payable to holders of unvested DFSS shares.
Relative importance of spend on pay The table below shows the percentage change in dividends and total employee remuneration spend from the financial year ended 31 December 2014 to the financial year ended 31 December 2015.
The Directors are proposing a final dividend for the year ended 31 December 2015 of 63.4 pence per share bringing the total dividend for 2015 to 114.4 pence per share (2014: 98.4 pence per share).
D ec em b er 31/12/08 31/12/09 31/12/10 31/12/11 31/12/12 31/12/13 31/12/1531/12/14
DFSS vesting outcome (% of maximum) n/a n/a n/a n/a n/a n/a n/a
Incumbent Kevin Chidwick Kevin Chidwick Kevin Chidwick Kevin Chidwick Kevin Chidwick Kevin Chidwick*¹ Geraint Jones*² Geraint Jones
DFSS vesting outcome (% of maximum) 98% 100% 100% 100% 100% 70% 85% 69%
*² Geraint Jones was appointed to the Board as CFO on 13 August 2014. His 2014 remuneration includes salary, pension and benefits in respect of his service as CFO, his full year DFSS and his full year DFSS bonus.
*4 These figures have been trued up for the value of the LTIP based on the actual share price on vest (£15.43).
Dilution The Company has controls in place to ensure that shares awarded under the schemes operated by the Company within any rolling ten-year period do not exceed 10% of the number of ordinary shares in the capital of the Company in issue at the time of each award. As at the end of 2015, the ten year rolling dilution level was 7.7%.
Interests held by of Directors (audited) continued As at 31 December 2015, the Directors held the following interests: Shares held
There have been no changes to Directors’ shareholdings since 31 December 2015.
*² The vesting percentage for performance related awards made in 2012 and vesting in 2015 was 69.67%. As awards made to Geraint Jones in 2012 were 50% performance related and 50% non performance related the blended vesting percentage was 84.83%. This resulted in the lapsing of 2,427 shares from the 16,000 shares awarded in October 2012.
The closing price of Admiral shares on 31 December 2015 was £16.59 per share. Performance conditions for DFSS awards made in 2014 are disclosed in the 2014 report.
Statutory disclosures Group results and dividends The profit for the year, after tax but before dividends, amounted to £291.8 million (2014: £281.6 million).
The Directors have proposed a final dividend of £175 million (63.4 pence per share) payable on 3 June 2016.
Employee policies Detailed information on the Group’s employment practices is set out in the Strategic Report and on the corporate website. The Group purchases appropriate liability insurance for all staff and Directors.
Contractual arrangements The Group considers its co-insurance and reinsurance contracts, as described in the Strategic Report section on page 23, to be essential to the running of the Group’s business. No other contractual arrangements are considered to be essential.
The increase in greenhouse gas emissions is due to a higher number of UK buildings during 2015 as the Group transitioned to its new UK headquarters in Cardiff and the implementation of a new system that has enabled more accurate tracking of business travel. In addition, the data includes information in respect of our US and India operations not previously available.
There are no material exclusions from this data. Exclusions included figures for air conditioning from all sites because the information was not available from the managing agents of the Group’s multiple office locations. In addition, emissions data from Elephant Auto in the US, both French offices and one of the Indian offices has been excluded due to difficulties in collecting complete and accurate data. These locations together total 9% (2014: 8%) of Group headcount.
*¹ Average employee number excludes employees from three offices for which data could not be collected.
Going concern Under Provision C.1.3 of the 2014 UK Corporate Governance Code, the Board is required to report on whether the business is a going concern. In considering this requirement, the Directors 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 position and performance, levels of liquidity and solvency over the next 12 months.
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 the Group’s principal risks and uncertainties on pages 34 to 37. In addition, the governance report includes the Directors’ statement on the viability of the Group over a three year period.
Power to issue shares At the last Annual General Meeting, held on 29 April 2015, authority was given to the Directors to allot unissued relevant securities in the Company up to a maximum of £92,106, equivalent to one third of the issued share capital as at 23 March 2015. This authority expires on the date of the Annual General Meeting to be held on 28 April 2016 and the Directors will seek to renew this authority for the following year.
A further special resolution passed at that meeting granted authority to the Directors to allot equity securities in the Company (up to a maximum of 5% of the issued share capital of the Company) for cash, without regard to the pre-emption provisions of the Companies Act 2006. This authority also expires on the date of the Annual General Meeting to be held on 28 April 2016 and the Directors will seek to renew this authority for the following year.
In line with the new principles published by the Pre Emption Group in March 2015 allowing a company the ability to seek authority over a further 5% of the issued ordinary share capital on a non-pre-emptive basis subject to certain conditions, it is the intention of the Company, at the AGM on 28 April 2016, to seek this additional authority by special resolution and will confirm in the Notice of AGM that such additional shares are only issued in connection with a specified acquisition or capital investment.
However, in accordance with the requirement under the UK Corporate Governance Code (the Code) for annual election of Directors, all Directors will submit themselves for re-election at the Group’s Annual General Meeting on 28 April 2016.
Annual General Meeting (AGM) It is proposed that the next AGM be held at City Hall, Cardiff on Thursday 28 April 2016 at 2.00pm, notice of which will be sent to shareholders with the Annual Report.
During the year to 31 December 2015, the Company has in all respects complied with the provisions of the 2014 Code.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to: • Select suitable accounting policies and then apply them consistently; • Make judgements and estimates that are reasonable and prudent; • For the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
Opinions and conclusions arising from our audit 1. Our opinion on the financial statements is unmodified We have audited the financial statements of Admiral Group plc for the year ended 31 December 2015 set out on pages 74 to 113. In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2015 and of the Group’s profit for the year then ended; • the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU); • the parent company financial statements have been properly prepared in accordance with UK Accounting Standards, including FRS 101 Reduced Disclosure Framework; and
Insurance liabilities (£1,725.0 million (2014: £1,596.0 million)) Refer to page 50 (Report of the Audit Committee), note 5d (accounting policy and financial disclosures).
We have also considered the adequacy of the group’s disclosures about the margin held above the actuarial best estimate, and the degree of estimation and sensitivity of the claims provision to key assumptions.
Profit commission (£85.4 million (2014: £71.8 million)) Refer to page 50 (Report of the Audit Committee), note 5d (accounting policy and financial disclosures).
The components within the scope of our work accounted for 94% of group net revenue, 98% of Group profit before tax and 97% of total group assets.
Opinions and conclusions arising from our audit continued 4. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified In our opinion: • the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
• the part of the Corporate Governance Statement on pages 44 to 57 relating to the company’s compliance with the eleven provisions of the 2014 UK Corporate Governance Code specified for our review.
Scope and responsibilities As explained more fully in the Directors’ Responsibilities Statement set out on page 71, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the company’s members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.
Insurance claims and claims handling expenses recoverable from reinsurers 542.6 535.4
Operating expenses and share scheme charges recoverable from co- and reinsurers 8 249.5 231.6
Consolidated cash flow statement For the year ended 31 December 2015
Cash flows from operating activities, before movements in investments 509.3 540.2
Cash flows from operating activities, net of movements in investments 367.3 253.9
Cash and cash equivalents at end of period 6 265.3 255.9
Contributions by NCIs — — — — — — 8.5 8.5
Profit/(loss) for the period — — — — 300.0 300.0 (8.2) 291.8
Total comprehensive income for the period — — (12.6) 2.1 300.0 289.5 (7.7) 281.8
Share scheme credit — — — — 29.5 29.5 — 29.5
Deferred tax credit on share scheme credit — — — — 4.7 4.7 — 4.7
Changes in ownership interests without a change in control — — — — (0.5) (0.5) 0.5 —
Notes to the financial statements For the year ended 31 December 2015 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.
Adoption of new and revised standards The Group has applied all adopted IFRS and interpretations endorsed by the EU at 31 December 2015, including all amendments to extant standards that are not effective until later accounting periods. This is inclusive of: • Amendments to IAS 16 and IAS 41 (Bearer Plants).
• Amendments to IAS 16 and IAS 38 (Clarification of acceptable methods of depreciation and amortisation).
• Amendments to IAS 27 (Equity method in separate financial statements).
The application of these standards and amendments has not had a material impact on the Group’s results, financial position and cash flows.
There are a number of standards, amendments to standards and interpretations that were issued by 31 December 2015 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 in these financial statements: • IFRS 9 Financial Instruments.
In 2014, the IASB issued the full, final version of IFRS 9. This version supersedes all previous versions. The standard has an effective date of 1 January 2018 although earlier application is permitted. The standard includes requirements relating to the recognition, measurement, impairment and de-recognition of assets along with general hedge accounting.
IFRS 15 was also issued during 2014 and applies to annual reporting periods beginning on or after 1 January 2017. The standard introduces a simple, five step principles-based model to be applied to the accounting of all contracts with customers.
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 the Group’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.
Further information regarding the Company’s business activities, together with the factors likely to affect its future development, performance and position, is set out in the Strategic Report on pages 6 to 39. Further information regarding the financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the Strategic Report on pages 17 to 19. In addition, notes 6 and 11 to the financial 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 financial statements are prepared on the historical cost basis, except for the revaluation of financial assets classified as fair value through profit or loss or as ‘available for sale’. The Group and Company financial statements are presented in pounds sterling, rounded to the nearest £0.1 million.
• 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 contract, and if necessary obtains the opinion of an independent expert at the negotiation stage in order to be able to make this judgement.
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.
Price Comparison The segment relates to the Group’s price comparison websites: Confused.com in the UK, Rastreator in Spain, LeLynx in France and compare.com in the US. Each of the Price Comparison businesses are operating in individual geographical segments but are grouped into one reporting segment as Rastreator, LeLynx and compare.com do not individually meet the threshold requirements in IFRS 8.
Notes to the financial statements continued For the year ended 31 December 2015 4. Group consolidation and operating segments continued 4b. Segment reporting continued Revenue and results for the corresponding reportable segments for the year ended 31 December 2014 are shown below.
Other Revenue and profit commission 272.2 7.1 107.5 17.5 — 404.3
The total of Price Comparison revenues from transactions with other reportable segments is £14.2 million which has been eliminated on consolidation. In 2014 the total of price comparison revenues from transactions with other reportable segments was £9.5 million and was not eliminated on the grounds of materiality. In 2015, the intra-group trading amount has grown to £14.2 million. The Directors have therefore decided to amend the accounting policy such that this has been eliminated for the year ended 31 December 2015, and this policy will be adopted for future periods. There are no other transactions between reportable segments.
Revenues from external customers for products and services are consistent with the split of reportable segment revenues as shown on page 81.
Segment assets and liabilities The identifiable segment assets and liabilities at 31 December 2015 are as follows: As at 31 December 2015
There is an asymmetrical allocation of assets and income to the reportable segments, in that the interest earned on cash and cash equivalent assets deployed in the UK Car Insurance, Price Comparison and International Car Insurance segments is not allocated in arriving at segment profits. This is consistent with regular reporting to the Board of Directors.
The segment assets and liabilities at 31 December 2014 are as follows: As at 31 December 2014
Notes to the financial statements continued For the year ended 31 December 2015 5. Premium, claims and profit commissions 5a. Accounting policies
• Bi-annual external actuarial review of best estimate claims reserves using a variety of recognised actuarial techniques, including reviews of the potential ranges around best estimates.
Co-insurance and reinsurance As noted in the Strategic Report, the Group shares a significant amount of the motor insurance business generated with external underwriters. In 2015, 40% of the UK risk was shared under a co-insurance contract, under which the primary risk is borne by the co-insurer. A further 35% of the UK risk was ceded under quota share reinsurance contracts. Co-insurance and reinsurance contracts are also used in the International Car Insurance businesses. Further detail can be found in the Strategic Report on page 28.
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, the risks are spread across a large number of people and a wide regional base. The introduction of the international car insurance businesses in recent years and the launch of UK household business in 2012 will further contribute to the diversification of the Group’s insurance risk as these businesses grow.
UK gross claims incurred (excluding claims handling costs) (694.4) (789.2) (671.2) (613.6) (555.9)
UK net claims incurred (excluding claims handling costs) (323.6) (339.5) (233.6) (180.0) (141.0)
Total gross release (UK Car Insurance) 10.3 36.2 115.8 148.1 197.7
Total gross release (International Car Insurance) — — — 12.6 14.0
Total net release (UK Car Insurance) 10.3 17.6 94.2 137.4 173.4
Analysis of net releases on UK Car Insurance: – Net releases on Admiral net share 7.8 16.3 53.3 66.8 84.6
– Releases on commuted quota share reinsurance contracts*¹ 2.5 1.3 40.9 70.6 88.8
Total net release as above 10.3 17.6 94.2 137.4 173.4 *¹ 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 in claims costs on the commuted proportion of the business are reflected within claims costs and are separately analysed here. £88.8 million of releases on commuted quota share contracts is split as follows: 2013: £16.3 million; 2012: £40.3 million; 2011 and prior: £32.2 million.
(vii) Reconciliation of movement in net unearned premium provision £m £m
The Group’s investments in money market liquidity funds are designated as FVTPL at inception.
AFS fixed income and asset backed securities are stated at fair value. Unrealised changes in the fair value of these assets are recognised in Other Comprehensive Income (OCI). Interest income on debt securities is recognised within profit or loss using the effective interest rate method.
Impairment of financial assets The Group assesses at each balance sheet date whether any financial assets or groups of financial assets held at fair value or amortised cost are impaired. Financial assets are impaired where there is evidence that one or more events occurring after the initial recognition of the asset, may lead to a reduction in the estimated future cash flows arising from the asset.
Objective evidence of impairment may include default on cash flows due from the asset and reported financial difficulty of the issuer or counterparty.
(iii) Financial liabilities Initial recognition The Group’s financial liabilities comprise subordinated notes and other financial liabilities initially recognised at fair value received, net of transaction costs incurred.
(iv) Fair value measurement of assets held at amortised cost The fair value of gilts and subordinated notes held at amortised cost is calculated with reference to quoted market valuations. See note 6d for a comparison of fair value and carrying value at the statement of financial position date.
Total investment and interest income 32.6 15.4 *¹ Interest received during the year was £7.4 million (2014: £1.5 million).
6d. Financial assets and liabilities The Group’s financial instruments can be analysed as follows: £m £m
There have been no defaults on any of the notes during the year. The Group has the option to defer interest payments on the notes but to date has not exercised this right. The aggregate fair value of subordinated dated notes at the balance sheet date is disclosed in the table on page 91.
The deposits are held with well rated institutions; as such the approximate fair value is the book value of the investment as impairment of the capital is not expected. There is no quoted market for these holdings and as such a level two valuation is used. The book value of term deposits is £267.6 million (2014: £263.1 million).
The maturity profile of financial assets and liabilities at 31 December 2015 is as follows: On demand £m
Economic and financial market conditions have led the Directors to consider counterparty exposure more 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 2015 and historically, no material credit losses have been experienced by the Group.
There are no specific concentrations of credit risk with respect to investment counterparties due to the structure of the liquidity funds and the parameters set for managing the Fixed Income Mandates. Both forms of investment hold a wide range of very short duration, high quality securities. Cash balances and deposits are placed only with highly rated credit institutions. The detailed holdings are reviewed regularly by the Investment Committee.
The Group’s maximum exposure to credit risk at 31 December 2015 is £3,323.3 million (2014: £3,047.4 million), being the carrying value of financial investments and cash, and the excess of reinsurance assets over amounts owed to reinsurers under funds withheld arrangements. The Group does not use credit derivatives or similar instruments to mitigate exposure. The amount of bad debt expense relating to policyholder debt charged to the income statement in 2015 and 2014 is insignificant.
There were no significant financial assets that were past due at the close of either 2015 or 2014.
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.
ANNUAL REPORT AND ACCOUNTS 2015 6. Investments continued 6d. Financial assets and liabilities continued
Objectives, policies and procedures for managing financial assets and liabilities continued 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.
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 co-insurers and reinsurers of £764.7 million (2014: £756.5 million), £554.3 million (2014: £585.7 million) is held under funds withheld arrangements and therefore not expected to be settled within 12 months.
Foreign exchange risks Foreign exchange risks arise from unfavourable movements in foreign exchange rates that could adversely impact the valuation of overseas assets and liabilities.
7b. Contribution from additional products and fees and Other Revenue £m £m
(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 are charged to the income statement in the period that they are incurred.
Total expenses and share scheme charges 548.0 (249.5) 298.5 *¹ Acquisition of insurance contracts expense excludes £14.2 million (2014: £nil) of aggregator fees from other Group companies.
ANNUAL REPORT AND ACCOUNTS 2015 8. Expenses continued 8c. Staff costs and other expenses
*¹ Fees payable for the audit of the Company’s subsidiary accounts have increased c. £0.1 million as a result of additional work relating to the new Guidewire IT system in the UK.
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. The ratio of non-audit fees to audit fees in 2015 was 88% (2014: 109%).
Retirement benefits are accruing to the following number of Directors under: – Money purchase schemes 2 2
The share scheme charges reported above are net of the co- and reinsurers share of the cost and therefore differ from the gross charge reported in note 8c (2015: £43.8 million; 2014: £34.1 million) and the gross credit to reserves reported in the Consolidated Statement of Changes in Equity (2015: £29.5 million; 2014: £23.2 million).
The Consolidated Cash Flow Statement also shows the gross charge in the reconciliation between ‘profit after tax’ and ‘cash flows from operating activities’. The co-insurance share of the charge is included in the change in trade and other payables line.
For awards in 2015 and onwards there are now three performance conditions which the 50% not guaranteed to vest are subject to. These are three-year EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), and ROE, weighted equally.
Awards under the DFSS are not eligible for dividends (although a discretionary bonus is currently paid equivalent to the dividend that would have been paid on the respective shareholding) and hence the fair value of free shares to be awarded under this scheme has been revised downwards to take account of these distributions. The unadjusted fair value is based on the share price at the date on which awards were made (as stated in the Directors’ Remuneration Report).
Number of free share awards vesting during the year ended 31 December 2015 Original awards Awards vested
Current tax related to items recognised in other comprehensive income is also recognised in other comprehensive 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. It is calculated at the tax rates that have been enacted or substantially 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.
Deferred tax assets relating to carried forward losses are recognised only to the extent that it is probable 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 the classification of the status of the businesses holding cumulative tax losses and the business plan profit projections for that business, subject to appropriate stress testing.
Analysis of deferred tax asset Tax treatment of share schemes £m
Balance brought forward at 1 January 2014 (4.1) (3.3) (7.8) (1.8) (17.0)
Balance carried forward at 31 December 2014 (4.8) (4.6) (13.4) (0.1) (22.9)
Tax treatment of share scheme charges through reserves (4.7) — — — (4.7)
Balance carried forward at 31 December 2015 (7.1) (2.7) (9.9) (0.9) (20.6)
Analysis of deferred tax asset continued The deferred tax asset relating to carried forward losses of £9.9 million (2014: £13.4 million) relates to losses incurred in the Group’s US price comparison business compare.com, and is calculated at the local US rate of tax (35%).
Elephant Auto (asset recognised: £nil; unprovided asset: £20.7 million) – the asset is not expected to be recovered over the next seven years. Whilst profits are expected to be available after 2022, the Group considers these longer term forecasts to be more uncertain and has therefore not recognised an asset that would only be supported by profits beyond the seven year period.
(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 over their useful economic lives. These useful economic lives are as follows: Improvements to short leasehold buildings – four to ten years
(iii) Leased assets The rental costs relating to assets held under operating leases are charged to the income statement on a straight line basis over the life of the lease.
Notes to the financial statements continued For the year ended 31 December 2015 10. Other assets and other liabilities continued 10a. Accounting policy continued
The goodwill held on the balance sheet at 31 December 2015 is allocated solely to the UK Car Insurance segment.
The value in use calculations use cash flow projections based on financial budgets approved by management covering a three year period. Cash flows beyond this period are considered, but not included in the calculation. The discount rate applied to the cash flow projections in the value in use calculations is 5.9% (2014: 6.8%), based on the Group’s weighted average cost of capital, which is in line with the market (source: Bloomberg).
Where an 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.
ANNUAL REPORT AND ACCOUNTS 2015 10. Other assets and other liabilities continued 10b. Property and equipment
Notes to the financial statements continued For the year ended 31 December 2015 10. Other assets and other liabilities continued 10c. Intangible assets
Of amounts owed to co-insurers and reinsurers, £554.3 million (2014: £585.7 million) is held under funds withheld arrangements.
ANNUAL REPORT AND ACCOUNTS 2015 10. Other assets and other liabilities continued 10f. Obligations under finance leases Analysis of finance lease liabilities: At 31 December 2015 At 31 December 2014
(i) Share capital Shares are classified as equity when there is no obligation to transfer cash or other assets.
The dividends declared in March represent the final dividends paid in respect of the 2013 and 2014 financial years. The dividends declared in August are interim distributions in respect of 2014 and 2015.
Notes to the financial statements continued For the year ended 31 December 2015 11. Share capital continued 11c. Earnings per share £m £m
Profit for the financial year after taxation attributable to equity shareholders 300.0 285.2
948,211 (2014: 748,310) of these were issued to the Admiral Group Share Incentive Plan Trust for the purposes of this share scheme to give a closing number at 31 December 2015 of 8,180,605 (31 December 2014: 7,232,394). These shares are entitled to receive dividends.
Able Insurance Services Limited England and Wales Ordinary 100 Insurance Intermediary
Admiral Insurance Company Limited England and Wales Ordinary 100 Insurance Company
Diamond Motor Insurance Services Limited England and Wales Ordinary 100 Dormant
Preminen Price Comparison Holdings Limited England and Wales Ordinary 50 Insurance Intermediary
Notes to the financial statements continued For the year ended 31 December 2015 12. 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.
12a. Reconciliation of turnover to reported total premiums written and Other Revenue as per the financial statements £m £m
Total premiums written before co-insurance arrangements per note 5b of financial statements 1,805.2 1,675.6
Total turnover 2,118.8 1,971.0 *¹ During 2012 Admiral ceased earning Other Revenue from the sale of non-optional legal protection policies. At the same point, the Group began charging its panel of co- and reinsurers a vehicle commission. The substance of these changes meant that the total premiums written increased by the amount of revenue that was previously earned from the sale of non-optional legal protection policies. The vehicle commission included within Other Revenue is therefore eliminated from the turnover measure to avoid double counting.
12b. Reconciliation of claims incurred to reported Group loss ratio, excluding releases on commuted reinsurance
ANNUAL REPORT AND ACCOUNTS 2015 12. Reconciliations continued 12c. Reconciliation of expenses related to insurance contracts to reported Group expense ratio
12d. Reconciliation of reported profit before tax to adjusted profit before tax £m £m
Parent Company Statement of Comprehensive Income Year ended 31 December £m £m
Items that are or may be reclassified to profit or loss — —
Other comprehensive income for the period, net of income tax — —
Parent Company financial statements continued Parent Company statement of changes in equity
Notes to the Parent Company financial statements For the year ended 31 December 2015 1. Accounting policies 1.1 Basis of preparation These financial statements were prepared in accordance with Financial Reporting
Standard 101 Reduced Disclosure Framework (FRS 101). The Company has transitioned to FRS 101 from previously extant UK Generally Accepted Accounting Practice for all periods presented. The amendments to FRS 101 (2013/14 Cycle) issued in July 2014 and effective immediately have been applied. The financial statements are prepared on the historical cost basis except for the revaluation of financial assets classified as fair value through the profit or loss.
This change in the basis of preparation has not materially altered the recognition and measurement requirements previously applied in accordance with UK GAAP. Consequently the principal accounting policies are unchanged from the prior year. The change in basis of preparation has enabled the Company to take advantage of some of the available disclosure exemptions permitted by FRS 101 in the financial statements, the most significant of which are summarised below. There have been no other material amendments to the disclosure requirements previously applied in accordance with UK GAAP.
• FRS 101.8 (i): the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to include a list of new IFRSs that have been issued but that have yet to be applied.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements.
1.5 Employee share schemes The Company operates a number of share schemes for its employees. For equity settled schemes commencing 1 January 2004 and after, the fair value of the employee services received in exchange for the grant of free shares under the schemes is recognised as an increase in equity in the Company.
1.6 Taxation The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes.
The Company’s financial liabilities comprise subordinated notes which are held at amortised cost using the effective interest method and a credit facility held at amortised cost.
March 2014 (50.6 pence per share, paid May 2014) — 138.3
August 2014 (49.4 pence per share, paid October 2014) — 135.2
7. Continued application of Financial Reporting Standard (FRS) 101 – Reduced Disclosure Framework Following the first time application of FRS 101 Reduced Disclosure Framework in 2015, the Board considers that it is in the best interests of the Group for Admiral Group plc to continue to apply the FRS 101 Reduced Disclosure Framework in future periods. A shareholder or shareholders holding in aggregate 5% or more of the total allotted shares in Admiral Group plc may serve objections to the use of the disclosure exemptions on Admiral Group plc, in writing, to its registered office (Tŷ Admiral, David Street, Cardiff, CF10 2EH) not later than 30 June 2016.
Combined ratio The sum of the loss ratio and the expense ratio.
Insurance market cycle The tendency for the insurance market to swing between highs and lows of profitability over time, with the potential to influence premium rates (also known as the ‘underwriting cycle’).
Net insurance premium revenue Also referred to as net earned premium. The element of premium, less reinsurance premium, earned in the period.
Profit commission A provision found in some reinsurance and co-insurance agreements that provides for profit sharing.
Total/Gross/Net premiums written Total = total premiums written, including co-insurance. Gross = total premiums written, including reinsurance but excluding co-insurance. Net = total premiums written, excluding reinsurance and co-insurance.
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 relate to the 2015 underwriting year, are calculated on the whole account (including co-insurance and reinsurance shares) and include 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.
Actuarial advisor Ernst & Young LLP 1 More London Place London SE1 2AF
Bankers Lloyds Bank plc City Office Bailey Drive Gillingham Business Park Kent ME8 0LS
Registrar Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
The Group’s commitment to environmental issues is reflected in this Annual Report which has been printed on Amadeus 100 Silk which is made from 100% post-consumer fibres, FSC® certified and PCF (Process Chlorine Free). Printed in the UK by using their environmental printing technology, and vegetable inks were used throughout. is a CarbonNeutral® company. Both manufacturing mill and the printer are registered to the Environmental Management System ISO14001 and are Forest Stewardship Council® (FSC) chain-of-custody certified.
The interim results will be available on the corporate website from 17 August 2016.
Special Recognition Award 15 Years – Appeared in the top 100 list every year since its inception Sunday Times Best Big Companies to Work For listings, 2015