What we do: Admiral Group is fi rst and foremost a successful car insurer. Since launching in January 1993 we have grown every year and now have 2.75 million customers in fi ve countries. We employ over 4,700 people in nine countries.
Low risk profi ts Admiral has no debt, a low risk investment portfolio, a conservative reserving methodology, and utilises reinsurance agreements to signifi cantly reduce underwriting risk. We generate signifi cant profi ts from insurance products underwritten outside the Group and generate high return on capital invested (59% in 2010).
Strongly cash generative Admiral’s ‘capital-light’ model enables it to return the majority of its profi ts to shareholders as dividends. The total dividend for 2010 was 18% higher than 2009 and represented 94% of post-tax earnings.
Contents: 01 Financial and operating highlights 2010 02 Admiral Group – our markets 04 Chairman’s statement 07 Chief Executive’s statement 10 Business review 10 Group fi nancial review 11 UK Car Insurance 15 UK Car Insurance market review 16 Non-UK Car Insurance 21 Price Comparison 23 Confused.com review 24 Other Group items 27 Principal risks and uncertainties
Board 36 Directors’ report 39 Corporate Governance 48 Remuneration report 53 Independent auditor’s report to the members of Admiral Group plc 55 Consolidated income statement 56 Consolidated statement of comprehensive income 57 Consolidated statement of fi nancial position 58 Consolidated cash fl ow statement 59 Consolidated statement of changes in equity 60 Index to the fi nancial statements 61 Notes to the fi nancial statements 87 Parent Company fi nancial statements 88 Notes to the Parent Company fi nancial statements 91 Consolidated fi nancial summary 92 Directors and advisers Further information
• Three new businesses launched: – LeLynx.fr – French price comparison
Admiral is one of the top three private car insurers in the UK with 10% of the market. The Group also owns Confused.com, one of the UK’s leading price comparison websites (a distribution channel which accounts for over half of car insurance sales in the UK).
A key part of Group strategy is to exploit the knowledge, skills and resource in the established UK businesses to promote expansion overseas (in car insurance and price comparison).
• ConTe in Italy ended its second full year with 86,500 customers
• We exited the German car insurance market with the sale of AdmiralDirekt
• Rastreator in Spain completed its fi rst full year of operation in 2010, generating well over 1 million quotes
In my statement last year I reprised Admiral’s strategy since becoming a public company in 2004, the fi rst two elements being to: • Grow our share of the UK private motor insurance market
• Exploit the knowledge, skills and resources attaching to our established UK businesses to promote our expansion overseas in both private motor and price comparison 2010 was a year of marked progress against these strategic objectives. In turn this translated into strong growth in shareholder value, Admiral delivering a 33% Total Shareholder Return over the 12 months ending 31 December 2010. In accordance with our philosophy of giving all our staff a stake in what they create by making them shareholders, this excellent performance will mean employees will again realise the maximum award of £3,000 free shares in recognition of the achievement in full of the 2010 objectives within the Approved Free Share Scheme. Someone who has been employed since fl otation now has the potential to hold 2,041 shares under this scheme worth £34,000.*
• Recognise the responsibility we have to the communities of which we are a part * Based on the closing share price on 25 February 2011.
Welsh Rugby Admiral Group are delighted to sponsor the Welsh Rugby Union strip for the next three years.
Admiral’s Non-UK Car Insurance turnover increased by 64% over 2009. ConTe in Italy advanced strongly, whilst in Spain, Balumba had 40% more customers by the year-end, despite diffi cult trading conditions. 2010 was our fi rst full year in the US with Elephant Auto and, as such, was a year of building capability and learning how best to position ourselves in this new market. At the end of the year we announced the sale of our German insurance business, AdmiralDirekt. We have made no secret of the fact that we have found the German market the most diffi cult of those entered under our international expansion strategy and there was not, in our view, an early prospect of further investment delivering the required return for our shareholders.
The UK Price Comparison market continued intensely competitive during 2010 with very high levels of media activity from the four key players. Both turnover and profi tability for Confused were consequently markedly down on 2009. In contrast, Rastreator, our aggregator in Spain, achieved very good growth in the year.
We recognise that Admiral now represents a signifi cant part of the communities in Wales where we are based. We identify closely with these communities and are delighted to sponsor the Welsh Rugby Union strip for the next three years. We continue to encourage our staff, wherever they are working, to play an active part in their local community and Admiral provides fi nancial support to not-for-profi t groups in which staff are involved. In 2010 we sponsored organisations and activities as diverse as the Alzheimer’s Society Swansea, the National Theatre of Wales, and the Cardiff Mardi Gras.
Each year we undertake an appraisal of the working of the Board and the Board Committees, and of my effectiveness as Chairman, and seek to identify how we can improve our Board process and its effectiveness in setting, and having oversight of the implementation of, the Group’s strategy. Every three years, of which 2010 was one such, this takes the form of an external review of our effectiveness. Whilst the overall conclusion was that the Board has continued to work very effectively in relation to most dimensions the review also identifi ed clear areas of focus. In particular we recognise that several of our Non-Executive Directors are due to reach their maximum term in the next four years necessitating an effective process of succession planning leading to the recruitment of new directors with generous overlap to maintain continuity of knowledge and Board dynamics.
I am, therefore, delighted that Colin Holmes, until recently Tesco’s UK Commercial Director for Fresh Foods and a member of Tesco’s Group Executive Committee, has accepted our invitation to join the Board and provide succession to the role of Audit Chair when, in due course, Martin Jackson completes his three terms. Colin already has Non-Executive experience having been a member of the Board of Bovis Homes since 2006.
In this section: 07 Chief Executive’s statement 10 Business review 10 Group fi nancial review 11 UK Car Insurance 15 UK Car Insurance market review 16 Non-UK Car Insurance 21 Price Comparison 23 Confused.com review 24 Other Group items 27 Principal risks and uncertainties
We are now home to about 10% of the UK private car insurance market by value. More details on this market and our performance are provided by David Stevens on the following pages.
Besides UK insurance there were other areas in the Group that did well, including: • Growth and development of ConTe in Italy • The continued growth of Rastreator, our price comparison business in Spain
• Slow growth of Elephant Auto in the USA • Diffi cult trading conditions in Spain, which acted as a brake on the development of Balumba • The fall in Confused’s profi ts aligned with ongoing market share decline (Kevin Chidwick gives more details on this business later in this report)
The Board’s decision to exit the German market after three years is a clear indication that ‘young and immature’ does not give even a new business carte blanche to underperform. So 2011 will be dedicated to improving our operations in Spain, Italy, the USA and France. There’s no magic formula and success will defi nitely not be instantaneous, but our goal is to quickly put these businesses on a clear success trajectory. I’m pleased to say that I believe we have the right people in place to do this. I do believe that all of these operations will be successful, albeit, in time.
Already we are successful at exporting our award-winning culture. Our operations in Italy, Spain and the USA all gained entry to their respective country or area lists that measure employee satisfaction. It is a very good feeling to walk into an offi ce, hundreds or even thousands of miles away from one’s own, and know instantly it was cut from the same cloth. Now all we need to do is continue to grow ConTe profi tably, get some price hikes in the Spanish market and generate cheaper quotes in greater volume in the USA!
As you can see, on a lot of measures 2010 was a pretty good year. As you may remember (actually quite unlikely, so I’ll remind you), 2009 was the Year of the Ox: a lot of hard-tilling of the insurance soil. I think 2010 goes down as the Year of the Puppy Dog. It was the Year of the Puppy Dog because when one looks at those highlights it looks like an incredibly cute, cuddly year with a lot of moments that you’ll treasure forever. However, as with a puppy dog, sometimes it wee’d on the fl oor!
Here are a few highlights from 2010 Overall: • Record profi ts of £265.5 million • 32% growth in customer numbers, from 2.08 million to 2.75 million • Record turnover fi gure of £1.58 billion • Record dividend declared, 35.5p/share • 59% return on capital • UK Children’s Christmas Parties attendance tops 1,000!
• Loss ratio after 12 months was 28 percentage points better in 2010 than 2009
Movie Madness 2,300 people attended Admiral’s Movie Madness party at Cardiff International Arena in July and enjoyed funfair rides, movie-themed areas and entertainment from Madness.
Favourable conditions in the Group’s core UK car insurance market were the main driver of a 47% increase in turnover to £1,585 million from £1,077 million. The UK Car Insurance business accounted for 90% of the 2010 total. The number of customers across the Group increased by almost one third to 2.75 million, and 2010 ended with over 195,000 vehicles insured outside the UK.
Pre-tax profi t increased by 23% to £265.5 million, again strongly driven by UK Car Insurance where profi ts increased by one third to £275.8 million. Signifi cant increases in earned premium and ancillary profi ts were the key contributors to the increase.
What we do • The Group’s core business is selling and underwriting private car insurance in the UK through four brands – Admiral, Bell, Diamond and Elephant
UK Car Insurance strategy The strategy for our UK business is unchanged and remains relatively simple: • We aim to manage our existing customer base and future growth in order to maximise profi tability and return on capital over the medium to long term
Our UK Car Insurance business represents 90% of our combined Group turnover in 2010.
• Loss ratio advantage arises from targeted pricing and effi cient claims handling
(We include KPIs on staff and customers in the Corporate Responsibility section later in the Business Review)
Admiral Option Munich Re Swiss Re Hannover Re New Re Mapfre Re XL Re 12 Admiral Group plc | Annual Report 2010 3,500+ Admiral’s core UK Car Insurance business employs over 3,500 people in South Wales, Halifax, Nova Scotia, Canada and Bangalore, India.
UK Car Insurance – Co-insurance and Reinsurance One of the key features of Admiral’s business model (in and outside the UK) is signifi cant use of proportional risk sharing agreements, where insurers outside the Group underwrite a majority of the risk generated, either though co-insurance or reinsurance contracts. All contracts include profi t commission arrangements which allow Admiral to retain a signifi cant portion of the profi t generated.
The two principal advantages of the arrangements are: • Capital effi ciency – the majority of the capital supporting the underwriting is held outside the Group. As Admiral is typically able to retain much of the profi t generated via profi t commission, the return on Group capital is higher than in an insurance company with a standard business model
UK Car Insurance profi t before tax 179.9 206.9 275.8 *1 GAAP = Generally Accepted Accounting Practice *2 Turnover (a non-GAAP measure) comprises total premiums written and other revenue *3 Total premiums written (non-GAAP) includes premium underwritten by co-insurers
Ministry of Fun Staff celebrate Elvis’ birthday as part of a Ministry of Fun activity.
The European and USA arrangements are explained in the Non-UK Car Insurance section on page 16.
Total premiums written in the UK increased by 54% to £1,237.6 million (2009: £804.7 million), whilst the number of vehicles insured at year-end rose by 32% to 2.46 million (2009: 1.86 million).
The 2010 loss ratio, before the impact of reserve releases is 77%, an improvement on the 83% reported in 2009. The reduction is predominantly a result of the positive impact of price rises on premiums earned in the year. The price changes in 2010 should continue to benefi t the loss ratio in 2011.
Reserve releases in 2010 equated to 9% of net UK premium revenue (£23.5 million), down from 16%
After taking the lower level of releases into account, the 2010 loss ratio was 68.3% compared to 66.9% for 2009.
Claims reserving Admiral’s policy is initially to reserve conservatively, above independent and internal projections of ultimate loss ratios. This results in a signifi cant margin being held in reserves to allow for unforeseen adverse development in open claims and creates a position whereby Admiral makes above industry average reserve releases.
The 2010 expense ratio of 15.2% showed a notable improvement on the 18.0% reported in 2009. This was partly due to increases in average premiums, but also refl ects continued effi ciencies in operations as the business grows. Admiral’s UK expense ratio is approximately half the market average.
Top 10 Departments Swansea New Business department scooped the award for best department to work for at Admiral’s own Top 10 Departments awards.
Group Share Plan All employees, regardless of location, are entitled to receive shares in the Group’s Approved Free Share Plan.
Strong growth in customer numbers translated into a signifi cant increase in ancillary profi t in 2010. Net ancillary contribution (after overhead cost allocation), increased by 34% to £142.4 million (2009: £106.3 million). The increase was ahead of vehicle count growth due to an increase in the contribution earned per vehicle (£77 v £72 in 2009). Note that whilst the year-end vehicle count rose by 32% in 2010, the average number of vehicles insured (on which the income per vehicle KPI is measured) increased by 24%.
Ancillary contribution Ancillary contribution is generated from a portfolio of insurance products that complement our core car insurance, and also fees generated over the life of the policy. There is also some (less signifi cant) income from other products unconnected to car insurance.
Overall, the high level of growth and continued strong performance across the Group’s core business led to a one third increase in pre-tax profi ts to £275.8 million (2009: £206.9 million).
Solvency II The Group’s two EU insurance companies (AICL and AIGL) will be subject to the regulations of Solvency II – the EU’s new regulatory regime for insurers which comes into force in 2013. The Group’s Solvency II Implementation Committee (chaired by the Chief Financial Offi cer) continued to work towards ensuring the Group is ready to comply with the new rules in advance of January 2013, and during 2010 focused primarily on the following areas: • Participating in Quantitative Impact Study (QIS) 5 on the proposed new solvency requirement rules
I am told that in surfi ng slang, a ‘double-up’ occurs when two waves combine to create an extra powerful wave. In 2010, Admiral enjoyed a ‘pumpin’ double-up’, a high adrenalin combination of continued rapid growth in sales via price comparison and a dramatic hike in car insurance prices.
The ghastliness of the market results on 2009 (at 123% combined), the exhaustion of material reserve cushions for most players and the lack of investment income led some smaller competitors to exit and most bigger ones to increase rates dramatically during 2010. HSBC closed down their largely broker business with a valedictory combined ratio of over 200%, and RBSI fi nally put their broker-distributed book of private motor out of its misery with the withdrawal of NIG. The pain wasn’t limited to broker-sourced business. Quinn, the higher premium direct specialist, went into administration in March. More importantly, the bigger players concluded enough was enough and pushed through a series of rate increases. Overall new business prices rose by well over 30%, and some segments, notably younger drivers, saw increases of over 50%.
Ultimately, waves always break – the rate of growth in price comparison sales will slow, the cycle will always turn. Some of our competitors will rely on the market-wide cyclical turn to fl oat them back to marginal, and probably temporary, profi tability, but others may have used the shock of recent losses as a catalyst to reinvent themselves as leaner, cleverer competitors. Our own challenge will be twofold. Firstly, to be as effi cient, as nimble and as pleasant a place to work while insuring one in every ten cars in the UK, as we were when we only insured one in every twenty. The second will be to spot the next wave a-coming and line up the board in preparation.
David Stevens, Admiral Group Chief Operating Offi cer, reports on the UK car insurance market.
+32% The number of UK vehicles insured by Admiral rose by 32% during 2010.
What we do The Group has four direct car insurance businesses operating outside the UK: • Balumba (Seville, Spain) is our most mature non-UK business, having enjoyed its fourth full year of trading in 2010. It fi nished the year with 71,000 customers and recorded its fi rst full year profi t in 2010
Non-UK Car Insurance strategy An important element of Group strategy is to use existing expertise in UK car insurance and export this to overseas markets, aiming to create profi table, sustainable and growing businesses. We do not expect to do this quickly and do not set market share or revenue targets within fi xed timeframes.
• Spain, Balumba, October 2006 • Germany, AdmiralDirekt, October 2007 –
now sold • Italy, ConTe, May 2008 • USA, Elephant Auto, October 2009 • France – L’Olivier, December 2010 2) Develop each new operation into a profi table, sustainable business
• All businesses remain in early stages • Balumba has recorded its fi rst full year profi t • ConTe is our largest business outside the UK
with 86,500 customers • AdmiralDirekt was sold in January 2011 3) Minimise where possible the fi nancial impact on the Group
• The Group takes a ‘slow and steady’ approach to expansion and aims to build sustainable businesses before pushing for signifi cant growth
Net insurance claims (9.5) (13.0) (15.9) Net insurance expenses (6.2) (13.0) (16.5)
Non-UK Co-insurance and Reinsurance Signifi cant use of reinsurance is also a feature of the Group’s insurance operations outside the UK.
The arrangements in Europe are generally similar and involve Admiral retaining 35% of the risks, the majority share of 65% being underwritten by Munich Re. The exception is France, where Admiral retains a net 30%, with 70% reinsured among three reinsurers.
All contracts have profi t commission terms that allow Admiral to receive a proportion of the profi t earned on the underwriting once the business reaches cumulative profi tability.
Non-UK Car Insurance Financial Performance Total premium written outside the UK rose to £71.0 million in 2010 from £43.0 million in 2009 (+ 65%). The number of vehicles insured also continued to rise strongly, moving to 195,000, 61% higher than the 121,000 at the end of 2009. Non-UK vehicles now account for 7% of the Group’s total customer base.
There was further positive news with the on-time, under-budget launch of L’Olivier, the Group’s French car insurer, in Paris in December. As with other launches, business volumes will be small for some time whilst different marketing approaches are tested and pricing is calibrated. ConTe in Italy also had a positive year, growing its customer base by over 140% and showing encouraging signs of becoming a sustainable business in the short-term.
The decision was taken in 2010 to sell our German insurer, AdmiralDirekt which had starting writing business in January 2008. The German market posed a number of challenges for the Group, including conservative customers, a small number of dominant and successful incumbents and an operationally challenging ‘busy season’ leading up to 1 January renewals. The Board therefore concluded that the chances of creating a sustainable business in the foreseeable future were not high.
In aggregate, our Non-UK Car Insurance businesses made losses of £8.0 million in 2010, down from £9.5 million in 2009. In context, the 2010 loss is less than 3% of UK Car Insurance profi ts. Each business is considered in more detail below.
Balumba Balumba grew the number of vehicles it insures by over 40% in 2010, closing the year with nearly 71,000 customers (its highest ever level). However, conditions in the Spanish market were tough given the state of the Spanish economy, with very low levels of new or used car sales, very little movement in premium rates and no growth in the market share of direct insurers. Excluding the impact of currency movement, total premium written increased by around 30% to £24 million. Balumba’s rates were broadly unchanged over 2010 as a whole.
On an earned basis, the loss ratio for 2010 was 92%, down from 100% in 2009.
Despite growing by 40% in volume terms, a focus on cost control led to Balumba’s operating expenses falling in 2010, and this led to an improvement in the expense ratio.
The positive contribution from ancillaries to Balumba’s result continued in 2010, with in excess of €75 in contribution generated per policy sold and renewed. This was modestly higher than in 2009, and in total led to Balumba making a profi t for the year of £0.8 million.
Business review continued 650+ At the end of 2010, Admiral’s Non-UK Car Insurance businesses employed over 650 people.
11th best workplace in Italy Admiral Group’s Italian direct insurance brand, ConTe is named the 11th best workplace in Italy.
AdmiralDirekt For reasons noted above, AdmiralDirekt was sold to a German insurer (Itzehoer Versicherungen) in a deal that concluded in early January 2011.
The sale also involved signing a new reinsurance arrangement with Itzehoer, resulting in all premium earned from 1 January 2011 onwards being fully reinsured to Itzehoer. All expenses incurred from January 2011 onwards are also borne by the buyer. The only remaining economic exposure the Group has in Germany is the development of claims relating to accidents prior to 1 January 2011. At the balance sheet date, net reserves for these claims totalled only £1 million.
Elephant is currently focusing on its marketing activity in order to generate higher volumes at an acceptable acquisition cost. Having only operated in Virginia in 2010, Elephant also started selling in adjacent Maryland in early 2011 to improve the effi ciency of its advertising.
L’Olivier Assurances The Group’s new French car insurer launched in Paris late in 2010. The short-term strategy will be based on test and learn and volumes are not expected to be signifi cant for some time. Pre-launch costs were well below £1 million.
The approach taken in the French market is different to other launches in the sense that much of the operational side of the business is outsourced to a specialist external company. This means far greater certainty over expenses and should result in a lower combined ratio in the early stages of the business’s development.
In the UK • Confused.com is an insurance and fi nancial services comparison website • Operating in the UK, the site allows consumers to compare a range of general insurance and fi nancial services products across price and policy benefi ts
Europe • A key part of the Group’s overall strategy is to exploit its UK expertise in insurance and price comparison and expand this overseas
Hot ‘dogs’ Confused.com celebrates launch of pet insurance with hot dogs for all staff.
Operating expenses were broadly fl at at just under £55 million, meaning Confused delivered an operating profi t of £16.9 million, one third lower than 2009’s result. As a consequence of fl at expenses and falling revenue, the operating margin percentage fell to 23.5% from 32.0%.
Rastreator increased the range of products on which it offers comparison during 2010, and now provides quotes on motor, motorcycle, home and life insurance. Motor insurance leads account for over 90% of Rastreator’s total revenue.
LeLynx & Chiarezza Having traded for less than a full year at the end of 2010, fi gures for these two new operations are not yet signifi cant. Combined revenue was around £0.6 million, and the two businesses made an aggregate loss of £3.8 million as they developed market presence through advertising. Further detail will be provided as the businesses become more signifi cant.
Confused.com profi t 25.6 25.7 16.9 Non-UK Price Comparison loss – (0.8) (4.8)
UK Price Comparison – Confused.com In 2010, Confused endured its toughest year since launch, recording falls in market share, revenue and operating profi t. UK price comparison remains a fi ercely competitive market, with substantial amounts spent on advertising by the four main incumbents. Chief Financial Offi cer Kevin Chidwick, who has Board responsibility for Confused, comments further on the market and Confused’s position within it in his review (see opposite).
...and in Italy too Chiarezza, Admiral’s Italian Price Comparison site launches shortly afterwards in February 2010.
Kevin Chidwick, Admiral Group Chief Financial Offi cer, answers some frequently asked questions about our UK Price Comparison business.
It is fair to say that 2010 has been a tough year for Confused. But the business remains profi table with good margins and a signifi cant position in its market. It provides a great service for millions of customers every year and is a well known and well liked brand. It is an important part of the Admiral Group and has, I believe, with good management and some luck, a great future.
Gladiator operating profi t 2.8 2.4 2.7 Group net interest income 6.6 1.1 1.1 Share scheme charges (5.9) (9.2) (15.0)
Share scheme charges The charge in the income statement related to the Group’s two share schemes increased to £15.0 million from £9.2 million for two key reasons: • Higher share price at award: The weighted average share price for shares awarded in 2010 was £13.90 compared to £9.90 in 2009 (+40%)
Average balances held during 2010 were notably higher than 2009, mostly due to the signifi cant increase in business written in the UK. Total investment and interest income rose to £9.5 million (from £8.8 million). The average rate of return on invested sterling funds (composing the vast majority of total balances) was just over 1% in 2010.
Operating cash fl ow 175.5 275.9 281.2 Tax and interest payments (56.9) (49.1) (69.5) Investing cash fl ows
Earnings per share Basic earnings per share rose by 23% to 72.3 pence from 59.0 pence. The change is in line with pre- and post-tax profi t growth.
The Group’s dividend policy is to make distributions after taking into account capital that is required to be held, a) for regulatory purposes; b) to fund expansion activities; and c) as a further prudent buffer against unforeseen events. This policy gives the Directors fl exibility in managing the Group’s capital.
At 31 January 2011, the Company had received notifi cations in accordance with the FSA’s DTRs of the following notifi able interests, in the voting rights in the Company’s issued share capital: Number of shares %
No Fit State Jakko, a member of the No Fit State Circus performs at Admiral’s offi ces as part of the Company’s sponsorship of the alternative circus company.
The Directors have proposed a fi nal dividend for 2010 of 35.5 pence per share. This payment is 19% higher than the second interim dividend for 2009 (29.8 pence).
Principal risks and uncertainties The table below sets out the principal risks currently faced by the Group with further signifi cant risks noted below. The report on corporate governance later in the Annual Report describes the risk management framework in place throughout the Group.
Risk Description and Impact Mitigation 1. UK Car Insurance – erosion of competitive advantage
b) A need to either cut rates, or increase rates at a slower rate than the market in order to continue growth (loss and expense ratio impacts)
Admiral has also been able to increase its market share signifi cantly over recent years, and (to varying degrees) is dependent on the four main UK price comparison websites as an important source of new business and growth. The growth in this distribution channel could slow, cease or reverse, or Admiral could lose one or more of the websites as a source of leads.
The impact on the business would be a less profi table UK Car Insurance result and lower return on capital employed.
The Directors remain confi dent that the key strengths of the business which contribute to the outperformance (including targeted pricing and claims handling on the loss ratio side; lower cost infrastructure, effi cient acquisition costs and cost control on the expense ratio side) are sustainable.
The Directors believe further growth is achievable in the short to medium term without signifi cantly undermining Admiral’s combined ratio advantage. Further growth could bring benefi ts such as economies of scale and additional data which are likely to be benefi cial for pricing.
The Group’s ownership of Confused.com, one of the leading UK price comparison websites helps to mitigate the risk of over-reliance on this distribution channel. Admiral also contributes materially to the revenues of the other businesses and therefore it is not considered probable that a material source of new business would be lost.
The Group is exposed to underwriting risk through its underwriting of motor insurance policies. There is a risk that claims costs could rise signifi cantly above historic or expected levels, for a number of reasons including: a) Legislative changes (for example, periodic payment orders, Ogden discount rate changes)
b) Weather-related catastrophe events (for example severe storm or fl ood)
c) Very large, non-catastrophe individual claims d) Fraud or other changes in claimant behaviour
In the case of legislative changes impacting existing claims, the Group holds an appropriate and explicit buffer in reserves to cover signifi cant changes. In the case of the Ogden discount rate which has the potential to be changed, the ultimate loss ratios projected by our independent actuaries include a buffer to allow for a reduction in the discount rate from 2.5% to 0.5%. We continue to hold an additional buffer in our reserves over and above these projected ultimate outcomes.
The Group has launched eight new operations outside the UK in the past fi ve years. AdmiralDirekt in Germany was sold in early 2011, but there is a continuing risk that one or more of the operations also fails to become a sustainable long-term business.
Confused.com operates in a highly competitive UK market with four main businesses attempting to increase their market share through aggressive media activity.
Confused suffered the effects of a poor media campaign in 2010, and experienced a fall in market share and profi ts. There is a risk that this trend continues in 2011 and beyond.
The impact on the business would be reduced profi tability in the future.
The Directors recognise that Confused’s recent performance was disappointing and largely attribute this to the poor media campaign during 2010. In the UK market, the impact of a poor campaign is felt quickly in the form of lost market share and higher average cost per lead.
There is also scope to increase and improve Confused’s offering in products beyond car insurance – most notably in ‘money’, which is a key element of Confused’s strategy.
Admiral has enjoyed a long-term relationship with one of the world’s strongest reinsurers, Munich Re, which has supported Admiral since 2000. The Group also has strong relationships with a number of other reinsurers, including Amlin, Hannover Re, Mapfre Re, New Re, Swiss Re and XL Re (avoiding reliance on a single partner).
In this section: 29 Corporate Responsibility 34 The Admiral Group Board 36 Directors’ report 39 Corporate Governance 48 Remuneration report 53 Independent auditor’s report to the members of Admiral Group plc
Corporate Responsibility development, management, communication and social aspects of working at Admiral.
The key results relating to morale and whether employees feel that their opinions are important are provided in the table below. There are no specifi c targets with respect to the survey results as the Executive team use the results to look at trends within the scores rather than absolute values.
85% of UK and Canadian employees completed the survey with 3,083 responses. See Fig. 1.
The Group corporate website (admiralgroup.co.uk) contains a copy of this report together with further information on some of the Group’s key policies with respect to our employees, Health & Safety, and environmental reporting.
I am proud to be associated with Admiral 91% 91% 94% 96% 95% I would recommend Admiral as a good place to work 90% 90% 94% 95% 94% I am more likely to stay at Admiral because of
Admiral was again listed as one of The Sunday Times 100 Best Companies to Work For. This is the eleventh year since its fi rst publication and we continue to be very proud to have been included in all 11 years. It provides confi rmation that the efforts made to make Admiral a great place to work are real and not just words in a report.
The table below provides the overall scores (out of 7) compared to the previous three years. See Fig. 3.
The Board and senior managers are very pleased that the results continue to improve, especially in how staff feel about the Company, their personal growth within the Group, and how they feel about their pay and benefi ts compared to similar positions in other companies.
Employees are provided with a wide range of communication tools to assist in understanding the Company’s goals and objectives. We work to communicate this in as many ways as possible. Everyone is encouraged to attend the annual Staff General Meeting (SGM). At this year’s event speeches by Directors, Senior management and guest speakers were replaced by chat show style interviews hosted by ITV Wales presenter Frances Donovan. The SGM is the one occasion each year where all UK employees are brought together and in 2010 three separate SGMs took place on the one day as Newport was added to the list of venues.
Share ownership is a key feature of the remuneration of employees. A full explanation of how both of the Group’s share plans work is provided within the Remuneration Committee report. All UK employees are eligible to receive shares in the Group’s Approved Free Share Plan. Overseas employees receive equivalent awards within the Group’s Discretionary Free Share Plan.
In addition to the Approved Free Share Plan, the Group operates the Discretionary Free Share Plan or DFSS. Unlike many plans of this type the awards are spread throughout the organisation from senior managers to star performers. Star performers are employees who have excelled in their role during the year and who would not normally receive DFSS shares.
Health & Safety The Group is committed to providing a consistently safe and effective working environment for all employees (and contractors, customers and members of the public). In doing so it will, as a minimum, comply with local Health & Safety legislation, but will exceed those requirements should it be necessary to do so in order to deliver its objectives. More details on the Group’s Health & Safety policy can be found in the full CSR report on the Group’s corporate website – admiralgroup.co.uk.
Fig. 4. Employees still Annualised Award No. of shares Total shares No. of employees at Admiral on Leaver no. Award date per employee awarded receiving award maturity date Percentage
A detailed report is produced each month together with a summary, providing details of any measures that have been graded red. The report is discussed at the Risk Management Committee (see Corporate Governance section of this report for details on the RMC) and process or behavioural changes agreed where appropriate.
The TCF management information is now embedded in the culture of the Company. If either a red or amber grade occurs the department manager investigates the issues and provides information on the reason for the score along with a plan to improve the results.
The table below contains some of the key measures from the TCF report. See Fig. 5.
There are over 150 individual TCF measures, each of which is benchmarked to allow the RMC to take an overall view as to whether customers are being treated fairly.
When a complaint is escalated to Central Quality, a dedicated team of Complaint Executives will investigate and discuss the customer’s concerns. If the customer raises any improvements we can make to the business, the Complaint Executives will pass a suggestion to the Complaint Prevention
% Financial Ombudsman Service (FOS) complaints found in favour of Admiral 78% 67% 68% >75% Customer service call answer rate 95% 93% 91% >90% Claims call answer rate 92% 93% 94% >90% Customer Comment form score 9.37 9.39 9.31 >9 Claims Service Customer Comment forms 8.80 8.75 8.65 >8.5 % Customer who would renew following a claim 93% 93% 92% >85% Call Answer rate for complaint lines 91% 93% 93% >90%
Stress Down Day Employees from the claims department donned pyjamas and slippers to support the Samaritans Stress Down Day.
Coordinator. This can be related to a document, system or a procedural problem.
Charitable and Community Admiral plays a positive role in the community through charitable fundraising and encouraging employees to engage with local community partners. We promote payroll giving and provide matched funding for eligible employee initiatives.
Environment The Group is committed to: • Raising and maintaining employee awareness of, and ensuring that everyone is actively engaged in, activities to reduce the impact of the Group’s operations on the environment
The main source of the Group’s carbon emissions is the consumption of electricity and gas in its offi ces. There are large variations in the consumption between offi ces mainly due to the age and the extent of control the Company can exert over the purchase of electricity that can be exerted.
Challenges for 2011 We noted that during 2010 the Group faced a continual challenge to recruit, train, motivate and retain employees across its whole business. This challenge was made all the more signifi cant as volumes surpassed those budgeted for. Planning tools within the business allowed the senior management team to react to the growth, increasing recruitment and training during 2010. The feedback from employees to both the internal staff survey and The Sunday Times 100 Best Companies to Work For award during 2010 has been extremely positive. We must continue to ensure that Admiral remains a great place to work in 2011.
3. Kevin Chidwick (47) Chief Financial Offi cer Kevin is responsible for fi nance, compliance, legal and investments as well as the subsidiary Confused. com. He joined Admiral in 2005, becoming Chief Financial Offi cer in September 2006. Prior to Admiral, Kevin has been in UK fi nancial services for over 25 years. He has held a number of senior roles in other insurance organisations including Finance Director positions at Engage Mutual Assurance and Cigna UK. He is a fellow of the Chartered Institute of Certifi ed Accountants and has an MBA from the London Business School.
5. Lucy Kellaway (51) Non-Executive Director ■ Lucy joined the Board as a Non-Executive Director in September 2006. She is the management columnist on the Financial Times and author of various books. In 20 years on the FT she has been oil correspondent, a Lex columnist and Brussels correspondent. Lucy also joined the Nominations Committee on appointment to the Board.
Martin was appointed Non-Executive Director and Chairman of the Audit Committee in August 2004. He was the Group Finance Director of Friends Provident plc between 2001 and 2003 and Friends’ Provident Life Offi ce between 1999 and 2001. Prior to that he was the Group Finance Director at London & Manchester Group plc from 1992 to 1998, up to the date of its acquisition by Friends’ Provident Life Offi ce. Martin is also a Non-Executive Director of IG Group Holdings plc, Homeserve Membership Limited and Rothesay Life Limited. He is a Fellow of the Institute of Chartered Accountants.
Colin was appointed a Non-Executive Director in December 2010 and joined the Audit and Remuneration Committees upon appointment. Colin is a Chartered Management Accountant and has over 20 years of fi nancial, commercial and operational experience gained through a number of executive positions within Tesco plc. Until recently, he was Tesco’s UK Commercial Director for Fresh Foods and a member of the Group Executive Committee of Tesco plc. Colin has also been an independent Non-Executive Director on the Board of Bovis Homes Group plc since 2006 and Chairman of their Remuneration Committee since 2008.
Key: ▲ Audit Committee member ● Remuneration Committee member ■ Nominations Committee member
Charitable and political donations During the year the Group donated £168,000 (2009: £147,000) to various local and national charities. The Group has never made political donations. Refer to the Business review for further details.
Creditor payment policy It is the policy of the Group to pay all purchase invoices by their due date, and appropriate quality measures are in place to monitor and encourage this. At the end of the year outstanding invoices represented 16 days purchases (2009: 15).
The Directors present their Annual Report and the audited fi nancial statements for the year ended 31 December 2010.
The information that fulfi ls the requirements of the Business review, as required by Section 417 of the Companies Act 2006, and which should be treated as forming part of this report by reference are included in the following sections of the Annual Report: • Chairman’s statement • Chief Executive’s statement • Business review
The Directors declared and paid dividends of £164.7 million during 2010 (2009: £142.4 million) – refer to note 13 for further details.
Directors and their interests The present Directors of the Company are shown on pages 34 and 35 of this report, whilst Directors’ interests in the share capital of the Company are set out in the Remuneration report on pages 51 and 52.
meeting specifi es deadlines for exercising voting rights either by proxy notice or present in person or by proxy in relation to resolutions to be passed at general meeting. All proxy votes are counted and the numbers for, against or withheld in relation to each resolution are announced at the Annual General Meeting (AGM) and published on the Company’s website after the meeting.
There are no restrictions on the transfer of ordinary shares in the Company other than: • certain restrictions may from time to time be imposed by laws and regulations (for example, insider trading laws); and
Appointments of Directors The Company’s Articles of Association (‘the Articles’) give the Directors power to appoint and replace Directors. Under the terms of reference of the Nomination Committee, any appointment must be recommended by the Nominations Committee for approval by the Board of Directors. The Articles also require Directors to retire and submit themselves for election at the fi rst AGM following appointment and all Directors who held offi ce at the time of the two preceding AGMs, to submit themselves for re-election.
However, in accordance with the requirement under the UK Corporate Governance Code for annual election of Directors and best practice guidance that has been issued, all Directors will submit themselves for re-election at the Group’s AGM on 6 May 2011.
Power of the Directors The Directors are responsible for managing the business of the Company and may exercise all powers of the Company subject to the provisions of relevant statutes, to any directions given by special resolution and to the Company’s Memorandum and Articles. The Articles for example, contain specifi c provisions and restrictions concerning the Company’s power to borrow money. Powers relating to the issuing of new shares are also included in the Articles and such authorities are renewed by shareholders at the AGM each year.
Annual General Meeting It is proposed that the next AGM be held at Cardiff City Hall, Cathays Park, Cardiff CF10 3ND on Friday 6 May 2011 at 3.00pm, notice of which will be sent to shareholders with the Annual Report.
Company law requires the Directors to prepare Group and Parent Company fi nancial statements for each fi nancial year. Under that law they are required to prepare the Group fi nancial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and applicable law and have elected to prepare the Parent Company fi nancial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the fi nancial position of the Parent Company and enable them to ensure that its fi nancial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors’ report, Directors’ remuneration report and Corporate Governance statement that comply with that law and those regulations.
Disclosure of information to auditors The Directors who held offi ce at the date of approval of this Directors’ report confi rm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditor is unaware; and each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.
The Combined Code on Corporate Governance This report sets out the Group’s approach to achieving in 2010 the standards of good corporate governance for which it is accountable to the Group’s shareholders. It has been prepared in accordance with the principles set out in the Combined Code on Corporate Governance (the ‘Combined Code’), and details the extent to which the Company has complied with the principles and provisions of the Combined Code. In addition, following the release by the Financial Reporting Council (FRC) of the new UK Corporate Governance Code (the ‘Governance Code’), that became effective for accounting periods beginning on or after 29 June 2010, the Group has considered the requirements of the Governance Code and is taking appropriate steps to ensure compliance with them where it does not already do so.
The Board has adopted a formal schedule of matters specifi cally reserved to it, which is reviewed on an annual basis (this was last carried out on 24 August 2010). Matters reserved to the Board include the approval of: • The Group’s long term objectives and corporate strategy
• The Group’s capital structure • Results and fi nancial reporting • The maintenance and review of the system of internal control and risk management • The Group’s overall risk appetite • Changes to the structure, size and composition of the Board, including new appointments • Succession plans for the Board and senior management • Annual review of its own performance and that of its Board Committees • Key business policies in relation to health and safety and environmental matters • Dividend policy and proposals for dividend payments • Major acquisitions, disposals, and other transactions outside delegated limits • Review of the Group’s overall corporate governance arrangements
The Board met on seven occasions in 2010 with six of these meeting being held over two days. The Board also held a strategy day and visited its operations in Italy. These overseas visits are used to combine the formal business of the Board with an opportunity for Board members, through informal discussion with local management, to obtain a deeper understanding of local market conditions and gain an appreciation of the operational and strategic challenges faced by each of the Group’s overseas operations. The Chairman visits each of these operations every year. In addition, the Non-Executive Directors and the Chairman met during the year without the Executive Directors being present. Agendas and papers are circulated to the Board in a timely manner in preparation for Board and Committee meetings. These papers are supplemented by information specifi cally requested by the Directors from time to time. All Directors are, therefore, 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 frequent contact between meetings, where necessary, to progress the Group’s business.
Board effectiveness The performance and effectiveness of the Board and its Committees is fundamental to the success of the Group and there is a rigorous evaluation each year to assess how well the Board, its Committees, the Directors and the Chairman are performing. In accordance with the Group’s policy of every three years using an external consultant to carry out a formal review of the Board’s performance, an external consultant, who has no connection with the Company, was used by the Group to lead the evaluation process in 2010.
The evaluation process consisted of the completion, by all Directors, of a comprehensive questionnaire evaluating the performance of the Board and its Committees. The questionnaire considered Board processes and their effectiveness; Board composition, Board objectives, Board support, content of discussion and focus at Board meetings and invited Directors to indicate where specifi c improvements could be made. Completion of the questionnaire by each Director was followed by one-to-one discussions between each Director and the external consultant where the Board’s role and structure, process, relationships, and any emerging issues were discussed.
The overall results of the evaluation were summarised in a report prepared by the external consultant who also presented the principal recommendations for review and discussion by the Board in February 2011.
The evaluation concluded that good progress had been achieved in most of the areas identifi ed for action in the last independent Board review in 2007 and that the Board and its Committees had continued to work very effectively in relation to most dimensions. In addition, the Chairman has concluded that each Director contributes effectively and demonstrates full commitment to his/her duties. The following emerged as areas of particular focus going forward: • Non-Executive rotation as individual Directors reach their maximum term over the next four years
• Agreeing clear criteria for the evaluation of performance by line of business and how most effectively to report this to the Board
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 Non-Executive Directors, led by the Senior Independent Director (‘SID’), taking into account the views of the Executive Directors. Following the latest review, the SID considered and discussed with the Chairman the comments and feedback relating to the Chairman’s performance, that had been received from the Directors as part of the Board evaluation questionnaire. Following these discussions with the Chairman, the SID was able to confi rm that the performance of the Chairman continues to be effective, and that the Chairman continues to demonstrate appropriate commitment to his role.
The Board has accepted the Nominations Committee’s assessment of the independence of the six Non-Executive Directors and is not aware of any relationships or circumstances which are likely to affect, or could appear to affect, the judgement of any of them. In the view of the Board, the independent Non-Executive Directors are of suffi cient calibre and number that their views carry signifi cant weight in the Board’s decision making and that they are free from any relationship or circumstance that could affect, or appear to affect, their independent judgement.
Independent Non-Executive Directors are currently appointed for fi xed periods of three years, subject to election by shareholders. The initial three-year period may be extended for two further three-year periods, subject to re-election by shareholders. Their letters of appointment may be inspected at the Company’s registered offi ce or can be obtained on request from the Company Secretary.
Although the Chairman has served in his role since June 2000 the Board remains of the view that he should continue in offi ce notwithstanding that he has completed in excess of nine years as Chairman and the Company’s leading institutional investors have also confi rmed their support for the Board’s express intent. The Chairman, along with all the Directors, will now seek election by shareholders annually.
In December 2010 the Board appointed Colin Holmes as an independent Non-Executive Director. Appointments to the Board are the responsibility of the Board as a whole, acting on the advice and recommendations of the Nominations Committee. Colin Holmes’ appointment followed a formal, rigorous and transparent procedure implemented and led by the Nominations Committee. Although Colin Holmes holds, with Alastair Lyons, a crossdirectorship in Bovis Homes Group Plc, the Board
Alastair Lyons (Chairman) 7 3 Henry Engelhardt (Chief Executive) 7 David Stevens (Chief Operating Offi cer) 7 Kevin Chidwick (Chief Financial Offi cer) 7 Manfred Aldag 5 Colin Holmes* 1 1
Relations with shareholders The Company attaches considerable importance to communications with shareholders and engages with them on a variety of issues. The Investor Relations team has day-to-day primary responsibility for managing communications with institutional shareholders through a combination of briefi ngs to analysts and institutional shareholders, both at the half-year and full year results. A number of analysts and investors visited the Group’s Cardiff offi ce during the year to meet with the Executive Directors and senior management in order to get a better understanding of how the Group operates and how it intends to achieve its strategic and operational objectives. Senior executives from the Group’s overseas businesses also visit the UK in order to present to, and meet with, analysts and investors. Site visits and individual discussions with the Executive Directors are also arranged throughout the year with individual shareholders. Regular dialogue with shareholders helps to ensure that the Company’s strategy is understood and that any issues are addressed in a constructive way.
The Company’s AGM provides a valuable opportunity for the Board to communicate with its shareholders all of whom are invited to attend the AGM. The Chairmen of the Audit, Remuneration, and Nominations Committees attend the AGM along with the other Directors and are available to answer shareholders’ questions on the activities of the Committees they chair.
The Chairman does perform a number of other Non-Executive roles outside the Group and details of these, together with the Chairman’s other commitments, are included in the Chairman’s biography. The Board continues to be satisfi ed that these other commitments are not such as to interfere with the performance of his duties within the Group and will not impact on his ability to allocate suffi cient time to discharge his responsibilities to the Group effectively.
John Sussens has been appointed as the Senior Independent Non-Executive Director. He is available to shareholders if they have concerns that contact through the normal channels of Chairman, Chief Executive, or Chief Financial Offi cer has failed to resolve or for which such contact is inappropriate. He is also responsible for leading the Board’s discussion on the Chairman’s performance and the appointment of a new Chairman, when appropriate.
Professional development On appointment, Directors take part in a comprehensive induction programme where they receive fi nancial and operational information about the Group; details concerning their responsibilities and duties; as well as an introduction to the Group’s governance, regulatory and control environment.
The Audit Committee Constitution and membership The membership at the end of the year was Martin Jackson (Chairman), Keith James, Margaret Johnson and Colin Holmes (appointed 3 December 2010). The Company Secretary acts as Secretary to the Committee. Appointments to the Committee are made on the recommendation of the Nominations Committee and are for a period of up to three years, which may be extended for two further three-year periods, provided the Director remains independent. The Committee meets at least three times per year and has an agenda linked to events in the Company’s fi nancial calendar.
The Committee has formal terms of reference, which were reviewed by the Committee during the year and approved by the Board in December 2010.
The Committee is kept up to date with changes to Accounting Standards and relevant developments in fi nancial reporting, company law, and the various regulatory frameworks through presentations from the Group’s external auditors, Head of Finance, and Company Secretary. In addition members are provided with information on seminars and conferences provided by external bodies. The Terms of Reference of the Audit Committee include all the matters suggested by the Code and have been updated in accordance with the requirements of the Governance Code.
Other individuals such as the Chief Financial Offi cer, Chief Operating Offi cer, Chief Executive, Chairman of the Board, the heads of Risk, Compliance, and Internal Audit and representatives of different parts of the Group may be invited to attend all or part of any meeting as and when appropriate. The external auditors are invited to attend meetings of the Committee on a regular basis.
Confl icts of Interest In compliance with the requirements of the Companies Act 2006 regarding Directors’ duties in relation to confl icts of interest, the Group’s Articles of Association allow the Board to authorise potential confl icts of interest that may arise and to impose such limits as it thinks fi t. The Company has put in place updated procedures to deal with confl icts of interest. These procedures include each Board member completing, annually, a confl ict 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 confl ict 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 confl ict of interest procedures have operated effectively throughout 2010.
Corporate Governance continued re-tender should be reviewed at least every fi ve years and if deemed appropriate a tender for external audit services would be carried out. The last such tender was undertaken in 2006. Following the annual external audit effectiveness review the Committee concluded that the auditor, KPMG was fi t for purpose and recommended that a re-tender process should not be undertaken in 2010 but that the relationship and the effectiveness of KPMG should be kept under review.
In accordance with agreed parameters, the expanding overseas operations in Spain and Italy have or will have their own locally based internal auditors report to the respective country heads. Notwithstanding this, the UK Internal Audit department also carries out reviews of the quality and effectiveness of these overseas Internal Audit functions and where no such function exists reviews the overall system of risk management and internal controls in the overseas businesses.
The Head of Internal Audit in the UK is invited to all 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 overseas internal auditors attend Committee meetings periodically. Committee members receive copies of all Internal Audit reports and are given the opportunity to raise questions on the content and recommendations contained within the reports. The Committee approves the Internal Audit programmes at the start of each calendar year and the activities; the effectiveness and workload of the Internal Audit functions and the adequacy of available resources are monitored throughout the year against progress made in achieving the plans.
The Chairman of the Committee reports to the subsequent meeting of the Board on the key issues covered by the Committee, and the Board also receives copies of the minutes of each meeting. The Chairman of the Committee attends the AGM to respond to any shareholder questions that might be raised on the Committee’s activities.
Summary of key activities during 2010 During the year the Committee reviewed the following: • The Annual Report and interim results • Reports from the Internal Audit departments within the Group on the effectiveness of the Group’s risk management and internal control procedures, details of key audit fi ndings, and actions taken by management to manage and reduce the impact of the risk identifi ed
• Reports from the external auditors on their proposed audit scope, fees, audit, and auditor independence
• Performance of the internal audit department • The effectiveness of the Group’s arrangements in relation to its ‘whistleblowing’ procedures
The Committee reviewed its policy on non-audit services that, amongst other things, requires that the Committee approve all proposals for expenditure with the Group’s auditors of over £30,000 on non-audit services. The policy was last reviewed on 14 November 2010. The Group’s auditors, KPMG Audit plc, provide some non-audit services, the majority of which comprise compliance services related to various taxation issues within the Group, and which are not considered by the Committee to compromise their independence as auditors. The level of non-audit fees is reviewed at each Committee meeting and details are included in the Annual Report.
During the year the Committee carried out a review of its policy of carrying out a tender process for external audit services every fi ve years other than in exceptional circumstances. It was agreed that a decision on whether to complete an external audit
members, the Board decided to initiate a search for an additional Non-Executive Director. The Nominations Committee led this process. The balance of skills, knowledge and experience on the Board was evaluated, and the Committee developed the appropriate specifi cation identifying the need for the successful candidate to have recent and relevant fi nancial experience in order that they may replace the existing Audit Committee Chairman, Martin Jackson, at such time as he decides to step down from that role. The Committee instructed external consultants to advise on and lead the identifi cation and shortlisting of potential candidates. All members of the Committee interviewed the shortlisted candidates and unanimously recommended to the Board that Colin Holmes should be appointed to the Board. The Board approved the Committee’s recommendation and Colin Holmes was formally appointed to the Board on 3 December 2010.
The Committee leads the process for making appointments to the Board or where the appointee is likely to become a Board member. The Committee ensures there is a formal, rigorous and transparent procedure for the appointment of new Directors to the Board through a full evaluation of the skills, knowledge and experience required of Directors. The Committee also ensures plans are in place for orderly succession for appointments to the Board, and reviews the succession plans for other senior management positions. Responsibility for making senior management appointments rests with the Chief Executive.
During 2010, based on an assessment of the size of the Board, the balance of its composition and the length of service of some of the existing Board
The Board is of the view that there is an ongoing process for identifying, evaluating and managing the Group’s internal controls; that it has been in place for the year ended 31 December 2010; and that, up to the date of approval of the Annual Report and Accounts, it is regularly reviewed by the Board and accords with the internal control guidance for Directors provided in the Code.
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 defi ned lines of responsibility. In order to ensure these responsibilities are properly discharged, the Board has delegated the task of supervising risk management and internal control to the Risk Management Committee (RMC) in the UK and appropriate management Committees for the Group’s other UK and overseas entities.
• Reviewed the rules and performance measures of the Group share schemes and recommended for approval the grant, award, allocation or issue of shares under such schemes
• Ensure that the risk management policy approved by the Board is implemented effectively throughout the UK operations
assessment to identify and quantify the risks that their departments face or pose to the Group and the adequacy of the controls in place to mitigate or reduce those risks. Reports are produced showing the most signifi cant risks identifi ed and the controls in place. Internal Audit and the Compliance functions use the risk registers to plan their programme of audits around the most signifi cant risks to the Group to ensure that the controls described are actually in place.
The RMC and other UK and overseas Committees receive reports setting out key performance and risk indicators and considers possible control issues brought to their attention by early warning mechanisms that are embedded within the operational units. The RMC, the Group’s other UK and overseas Committees and the Audit Committee also receive regular reports from their respective Internal Audit functions, which include recommendations for improvement of the control and operational environment. The Board undertakes periodic structured reviews of the Group’s risk map, focusing on the principal assessed exposures and the effectiveness of the mitigation strategies adopted. It receives reports from the Chairman of the Audit Committee as to its activities, together with copies of the minutes of both the RMC and the Audit Committee. In February 2011 the Board carried out the annual review of the effectiveness of the Group’s system of internal controls for the 2010 year by considering documentation from the Audit Committee, taking account of events since 31 December 2010, which includes the Internal Audit Annual Report prepared by the Group’s Head of Internal Audit.
report, and the Committee Chairman attends the Annual General Meeting (AGM) to answer questions from shareholders on the activities of the Committee and its remuneration policies.
Remuneration Policy The Group is committed to the primary objective of maximising shareholder value over time whilst at the same time ensuring that there is a strong link between performance and reward. This is refl ected in the Group’s stated remuneration policy of paying competitive, performance linked and shareholder aligned remuneration packages comprising basic salaries coupled with participation in performancebased share schemes to generate competitive total reward packages for superior performance. The Board is satisfi ed that the adoption of this policy continues to meet the objectives of attracting and retaining executives of the highest quality across the Group.
The Committee reviews the framework and remuneration packages of the Executive Directors and the most senior managers. The main principles underlying the remuneration policy are: • Competitive – The Group aims to combine salaries with attractive performance-related incentives, which provide individuals with the potential for competitive total reward packages for superior performance. Accordingly, base salaries refl ect the role, job size and responsibility together with individual performance and effectiveness. Prevailing market and economic conditions and governance trends are also considered, as are general salary levels throughout the organisation
Scope of report This remuneration report has been prepared according to the requirements of the Companies Act 2006 (the Act), the Listing Rules of the UK Listing Authority and under Regulation 11 of and Schedule 8 to the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 (the Regulations). In addition, the Board has applied the principles of good corporate governance set out in the Combined Code (the ‘Code’) and has sought, where applicable, to apply the principles of the UK Corporate Governance Code (the ‘Governance Code’) which will come into effect for fi nancial years beginning on or after 29 June 2010. The purpose of this report is to set out the Group’s remuneration policy and particularly its application with respect to the Directors.
Remuneration Committee The Board sets the Group’s remuneration policy and, through the authority delegated to it by the Board, the Committee is responsible for making recommendations to the Board on the structure and implementation of the remuneration policy across the Group. The Committee is appointed by the Board and comprises only Non-Executive Directors. The Committee is chaired by John Sussens, the Senior Independent Non-Executive Director, with the other members being Martin Jackson, Margaret Johnson and Colin Holmes, who was appointed to the Committee on 3 December 2010. The Chairman and Chief Executive are invited to meetings where the Committee considers it appropriate to obtain their advice on Group strategy and performance and Senior Executive pay strategy. During the year ended 31 December 2010, the Committee met on eight separate occasions. Its remit includes recommending the remuneration of the Chairman, the Executive Directors, and the Company Secretary; review of the remuneration of senior management; and review of the composition of and awards made under the performance-related incentive schemes.
The EPS targets are such that for full vesting of shares to occur, the average EPS growth over the three-year performance period would have to be approximately 12% per annum (assuming LIBOR averages 2% over the period). Only 10% of shares vest for matching LIBOR over the three-year period. There is then a linear relationship up to full vesting of the award whereby 2.5% of the award vests for each point over LIBOR.
The Group has controls in place to ensure that shares awarded under both schemes operated by the Group within any rolling ten-year period do not exceed 10% of the number of ordinary shares in the capital of the Group in issue at the time of each award.
Executive Directors are allowed, although none currently do, to accept appointments as Non-Executive Directors of companies with prior approval of the Chairman. Approval will only be given where the appointment does not present a confl ict of interest with the Group’s activities and the wider exposure gained will be benefi cial to the development of the individual. Where fees are payable in respect of such appointments these would be passed to the Company.
Executive Directors’ remuneration 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 signifi cant shareholdings held by them, as set out below, provide a suffi cient alignment of their interest in the performance of the Group with the interests of other shareholders.
• Performance linked – A signifi cant part of the Executive Directors’ (excluding Henry Engelhardt and David Stevens) and Senior Managers’ reward, remains shareholder aligned given that it is determined by the Group’s earnings growth versus LIBOR. Failure to achieve threshold levels of growth in the Group’s earnings results in reduced or no payout under the Group’s longterm incentive plan. Executive Directors have agreed to retain a minimum shareholding equal to at least 100% of base salary, which can be built up over a period of fi ve years from the date of appointment
• Transparent – All aspects of the remuneration structure are clear to employees and openly communicated
The Group operates the following benefi ts: • Death in Service scheme, paying three times salary available to all employees following completion of their probationary period
• Group Personal Pension Plan, matching employee contributions up to a maximum 6% of base salary with maximum employer contribution of £4,800. This is available to all employees following completion of their probationary period (Henry Engelhardt and David Stevens have declined to be included in the Plan.)
The performance criterion to determine how many shares vest under the DFSS is the growth in earnings per share (EPS) in excess of a risk free return, defi ned as average three-month LIBOR, over a three-year period. The Committee feels that this is a good indicator of long-term shareholder return with which to align staff incentivisation. The Committee recommends for approval by the Board awards to the Chief Financial Offi cer and other employees under the DFSS.
In light of this, their remuneration packages consist only of a modest base salary (compared to market rates as assessed by the Committee) and benefi ts such as private medical cover, permanent health insurance and death in service cover. The Group does not contribute to any pension arrangements on behalf of these Executive Directors, and they have not participated, nor is it intended that they participate, in any Group share schemes. Their remuneration was reviewed during the year. Henry Engelhardt was awarded a rise of 4.5% taking his salary to £350,000 with effect from 1 April. David Stevens was awarded a rise of 3.1% to £330,000 with effect from 1 April.
The Committee aims to ensure that the overall remuneration of the Chief Financial Offi cer, Kevin Chidwick, is a fair refl ection of his role and responsibilities, and is designed to reward achieving increases in shareholder value.
With effect from 1 October 2010 Kevin Chidwick’s base salary was increased by 11.1% to £400,000. Whilst the increase in Kevin Chidwick’s base salary is above infl ation the Committee felt that the
Colin Holmes 3 years commencing 3 December 2010, terminable by either party giving one month’s written notice.
Non-Executive Directors’ remuneration The Remuneration Committee decides the remuneration of the Chairman after consultation with the Executive Directors. The remuneration of the Non-Executive Directors, including the remuneration of the Committee Chairmen, is decided by the full Board. The Non-Executive Directors do not participate in meetings when Non-Executive Director fees are discussed.
increased responsibilities taken on during the year and his wider contribution to the Group justifi ed such an increase.
Kevin Chidwick received an award of 45,010 DFSS shares on 30 April 2010 with a value at the date of the award of £598,182 and an additional award of 3,000 DFSS shares on 15 December 2010 with a value at the date of award of £46,530. The awards represent the maximum number of shares that could vest after a three-year period and are subject to the performance criteria described above.
Directors’ service contracts The following table summarises the notice periods relating to the service contracts of the Executive Directors serving at 31 December 2010. Notice Notice – Director – Company (months) (months)
The fee structure for Non-Executive Directors was reviewed and amended in 2010 and the revised fee structure is set out below: £
The fee payable to Alastair Lyons in respect of his appointment as Chairman of the Board in 2010 is £180,000 pa which is reviewed annually. The appointment may be terminated by the Chairman on three months’ notice to the Company.
Non-Executive Directors do not have service contracts but each has a letter of appointment. The letters of appointment all require a period of one month’s notice should the Non-Executive Director wish to resign. These letters of appointment are available for inspection at the Company’s registered offi ce during normal business hours and at the AGM.
Directors’ remuneration – Audited Remuneration for the year ended 31 December 2010 was as follows: Base salary Bonuses 2010 2009 and fees and other Benefi ts Total Total
Chairman and Non-Executive Directors Alastair Lyons 180 – – 180 150
*1 Kevin Chidwick received bonuses of £80,000 in lieu of dividends on shares awarded (but not yet vested) under the Group’s DFSS bonus plan.
*2 Keith James’ fees include £7,500 for chairing the Board of Admiral Insurance Company Limited, £15,000 for chairing the Board of Inspop.com Limited and £15,000 for chairing the Group’s Non-UK Price Comparison Board.
Awards to Kevin Chidwick under the DFSS and SIP Price at Value at Value at Final vesting/ At start Awarded Vested At end award award date 31/12/010 or Date of maturity Type of year during year during year of year (£) (£) maturity (£) award date * The closing price of Admiral shares on 31 December 2010 was £15.15 per share.
This report was approved by the Board of Directors on 1 March 2011 and is signed on its behalf by the Committee Chairman: John Sussens Remuneration Committee Chairman
Scope of the audit of the fi nancial statements A description of the scope of an audit of fi nancial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm
• the Group fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the EU
• the Parent Company fi nancial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice
• the fi nancial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group fi nancial statements, Article 4 of the IAS Regulation
• the information given in the Corporate Governance Statement set out on pages 46 and 47 with respect to internal control and risk management systems in relation to fi nancial reporting processes and about share capital structures is consistent with the fi nancial statements
We have audited the fi nancial statements of Admiral Group plc for the year ended 31 December 2010 set out on pages 55 to 89. The fi nancial reporting framework that has been applied in the preparation of the Group fi nancial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The fi nancial reporting framework that has been applied in the preparation of the Parent Company fi nancial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).
Respective responsibilities of Directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 38, the Directors are responsible for the preparation of the fi nancial statements and for being satisfi ed that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the fi nancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
• the Parent Company fi nancial statements and the part of the Directors’ Remuneration report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specifi ed by law are not made; or
• a Corporate Governance statement has not been prepared by the Company
In this section: 55 Consolidated income statement 56 Consolidated statement of comprehensive income 57 Consolidated statement of fi nancial position 58 Consolidated cash fl ow statement 59 Consolidated statement of changes in equity 60 Index to the fi nancial statements
Consolidated statement of fi nancial position as at 31 December 2010
Share premium account 13.1 13.1 Other reserves 4.2 5.0 Retained earnings 332.7 281.8 Total equity attributable to equity holders of the parent 350.3 300.2 Non-controlling interests 0.4 0.6 Total equity 350.7 300.8
LIABILITIES Insurance contracts 18 806.6 532.9 Deferred income tax 24 – 5.7 Trade and other payables 17, 22 561.0 306.8 Current tax liabilities 48.4 31.2 Total liabilities 1,416.0 876.6 Total equity and total liabilities 1,766.7 1,177.4
Profi t after tax 193.6 156.9 Adjustments for non-cash items: – Depreciation 4.6 5.1 – Amortisation of software 2.7 2.2 – Change in unrealised gains on investments (1.3) 0.2 – Other gains and losses 0.9 2.9 – Share scheme charge 26 18.5 13.7 Change in gross insurance contract liabilities 273.7 93.4 Change in reinsurance assets (144.0) (42.3) Change in trade and other receivables, including from policyholders (152.9) (41.1) Change in trade and other payables, including tax and social security 254.3 36.5 Taxation expense 71.9 58.9 Cash fl ows from operating activities, before movements in investments 522.0 286.4 Net cash fl ow into investments (240.8) (10.5) Cash fl ows from operating activities, net of movements in investments 281.2 275.9 Taxation payments (69.5) (49.1) Net cash fl ow from operating activities 211.7 226.8
Cash fl ows from investing activities: Purchases of property, plant and equipment and software (11.1) (11.8) Net cash used in investing activities (11.1) (11.8)
Cash fl ows from fi nancing activities: Capital element of new fi nance leases 0.4 1.4 Repayment of fi nance lease liabilities (0.6) (1.2) Equity dividends paid 13 (164.7) (142.4) Net cash used in fi nancing activities (164.9) (142.2)
Net increase in cash and cash equivalents 35.7 72.8 Cash and cash equivalents at 1 January 211.8 144.3 Effects of changes in foreign exchange rates (0.8) (5.3) Cash and cash equivalents at end of period 20 246.7 211.8
Profi t for the period – – – 156.9 – 156.9 Other comprehensive income Currency translation differences – – (5.3) – – (5.3) Total comprehensive income for the period – – (5.3) 156.9 – 151.6 Transactions with equity holders Dividends – – – (142.4) – (142.4) Issue of shares to non-controlling interests – – – – 0.6 0.6 Share scheme credit – – – 13.7 – 13.7 Deferred tax credit on share scheme credit – – – 1.8 – 1.8 Total transactions with equity holders – – – (126.9) 0.6 (126.3)
Assets held for sale 74, 81 Auditors remuneration 72 Auditors report to members 53 - 54 Basis of preparation 62 Cash and cash equivalents 75, 81 Consolidated cashfl ow statement 58 Consolidated income statement 55 Consolidated statement of changes in equity 59 Consolidated statement of comprehensive income 56 Consolidated statement of fi nancial position 57 Deferred acquisition costs 75
Goodwill 75 Group subsidiaries 86 Insurance contract liabilities 78 - 81 Intangible assets 75 Investment and interest income 71 Loss ratio 79, 80 Net insurance premium revenue 70 Operating expenses 71
Other revenue 70 Parent Company balance sheet 87 Parent Company basis of preparation 88
Adoption of new and revised standards The Group has applied all adopted IFRS and interpretations endorsed by the EU at 31 December 2010, including all amendments to extant standards that are not effective until later accounting periods.
The following IFRSs have been adopted and applied by the Group for the fi rst time in these fi nancial statements: • Amendment to IAS 32 Classifi cation of Rights Issues
Share-based Payment Transactions • Amendments to IFRS 1 Additional exemptions for First Time adopters • Amendments to IFRS1 Limited Exemption from Comparative IFRS 7 disclosures for First Time adopters
• IFRIC 12 Service concession arrangements • IFRIC 15 Agreements for the Construction of real estate • IFRIC 16 Hedges of a Net Investment of a Foreign Operation • IFRIC 17 Distribution of non cash assets to owners • IFRIC 18 Transfer of assets from customers
The fi nancial statements are prepared on the historical cost basis, except for the revaluation of fi nancial assets classifi ed as at fair value through profi t or loss.
Under some of the co-insurance and reinsurance contracts under which motor premiums are shared or ceded, profi t commission may be earned on a particular year of account, which is usually subject to performance criteria such as loss ratios and expense ratios. The commission is dependent on the ultimate outcome of any year, with revenue being recognised when loss and expense ratios used in the preparation of the fi nancial statements move below an agreed threshold.
Revenue from Price Comparison and Gladiator: Commission from these activities is credited to income on the sale of the underlying insurance policy.
The sum of these provisions are compared with projected ultimate costs using a variety of different projection techniques (including incurred and paid chain ladder and an average cost of claim approach) to allow an actuarial assessment of their likely accuracy. They include allowance for unreported claims.
Future changes in claims reserves also impact profi t commission income, as the recognition of this income is dependent on the loss ratio booked in the fi nancial statements, and cash receivable is dependent on actuarial projections of ultimate loss ratios.
Reinsurance assets: Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on the insurance contracts issued by the Group are classifi ed as reinsurance contracts. A contract is only accounted for as an insurance or reinsurance contract where there is signifi cant insurance risk transfer between the insured and the insurer.
The benefi ts to which the Group is entitled under these contracts are held as reinsurance assets.
Translation differences on non-monetary items, such as equities held at fair value through profi t or loss, are reported as part of the fair value gain or loss.
Whilst the Directors consider that the gross provisions for claims and the related reinsurance recoveries are fairly stated on the basis of the information currently available to them, the ultimate liability will vary as a result of subsequent information and events and may result in signifi cant adjustments to the amounts provided.
Leases under the terms of which the Group assumes substantially all of the risks and rewards of ownership are classed as fi nance leases. Assets acquired under fi nance leases are included in property, plant and equipment at fair value on acquisition and are depreciated in the same manner as equivalent owned assets. Finance lease and hire purchase obligations are included in creditors, and the fi nance costs are spread over the periods of the agreements based on the net amount outstanding.
j) Employee benefi ts Pensions: The Group contributes to a number of defi ned contribution personal pension plans for its employees. The contributions payable to these schemes are charged in the accounting period to which they relate.
k) Taxation Income tax on the profi t or loss for the periods presented comprises current and deferred tax.
g) Financial assets – investments and receivables Initial recognition Financial assets within the scope of IAS 39 are classifi ed as fi nancial assets at fair value through profi t or loss, loans and receivables or held to maturity investments. The Group has not held any derivative instruments in the years ending 31 December 2010 and 31 December 2009.
Receivables are stated at their amortised cost less impairment using the effective interest method. Movements in the amortised cost are recognised through the income statement, as are any impairment losses.
Objective evidence of impairment may include default on cash fl ows due from the asset and reported fi nancial diffi culty of the issuer or counterparty.
Current tax related to items recognised directly in other comprehensive income is also recognised in other comprehensive income and not in the income statement.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profi ts will be available against which the asset can be utilised.
The principal temporary differences arise from depreciation of property and equipment and share scheme charges. The resulting deferred tax is charged or credited in the income statement, except in relation to share scheme charges where the amount of tax benefi t credited to the income statement is limited to an equivalent credit calculated on the accounting charge. Any excess is recognised directly in equity.
Non-UK Car Insurance This segment consists of the underwriting of car insurance and the generation of ancillary income outside of the UK. It specifi cally covers the Group operations Balumba in Spain, ConTe in Italy and Elephant Auto in the USA. None of these operations are reportable on an individual basis, based on the threshold requirements in IFRS 8.
The results of our German car insurance business, AdmiralDirekt, which was sold in early 2011 are included in this segment.
Each of the Price Comparison businesses are operating in individual geographical segments but are grouped into one reporting segment as LeLynx, Chiarezza and Rastreator do not individually meet the threshold requirements in IFRS 8.
Other This ‘other’ segment is designed to be comprised of all other operating segments that do not meet the threshold requirements for individual reporting. Currently there is only one such segment, the Gladiator commercial van insurance broking operation, and so it is the results and balances of this operation that comprises the ‘other’ segment.
Non-UK UK Car Car Price Segment Insurance Insurance Comparison Other Eliminations total £m £m £m £m £m £m
Net insurance premium revenue 269.4 18.7 – – – 288.1 Other revenue and profi t commission 249.0 6.7 75.7 11.8 – 343.2 Investment and interest income 8.3 0.1 – – – 8.4
Segment profi t/(loss) before tax 275.8 (8.0) 12.1 2.7 – 282.6 Other central revenue and expenses, including share scheme charges (18.2) Interest income 1.1 Consolidated profi t before tax 265.5 Taxation expense (71.9) Consolidated profi t after tax 193.6 Other segment items: Capital expenditure 6.8 2.6 1.7 0.1 – 11.2 * Turnover is a non-GAAP measure and consists of total premiums written (including co-insurers’ share) and other revenue.
Revenue and results for the corresponding reportable segments for the year ended 31 December 2009 are shown below. 31 December 2009
Segment revenues The UK and Non-UK Car Insurance reportable segments derive all insurance premium income from external policyholders. Revenue within these segments is not derived from an individual policyholder that represents 10% or more of the Group’s total revenue.
Information about geographical locations All material revenues from external customers, and net assets attributed to a foreign country are shown within the Non-UK Car Insurance reportable segment shown above. The revenue and results of the three non-UK Price Comparison businesses, Rastreator, LeLynx and Chiarezza are not yet material enough to be presented as a separate segment.
Unallocated assets and liabilities 30.5 Consolidated net assets 300.8 5. Net insurance premium revenue 31 December 31 December £m £m
Refer to the Business Review for further detail on the sources of revenue.
Acquisition of insurance contracts 20.9 – 20.9 17.3 – 17.3 Administration and other marketing costs 28.0 102.9 130.9 26.0 87.5 113.5
The gross amount of expenses, before recoveries from co-insurers and reinsurers is £333.2 million (2009: £265.0 million). This amount can be reconciled to the total expenses and share scheme charges above of £166.8 million (2009: £140.0 million) as follows: 31 December 31 December £m £m
Gross expenses 333.2 265.0 Co-insurer share of expenses (99.5) (80.6) Expenses, net of co-insurer share 233.7 184.4 Adjustment for deferral of acquisition costs (7.9) (6.1) Expenses, net of co-insurer share (earned basis) 225.8 178.3 Reinsurer share of expenses (earned basis) (59.0) (38.3) Total expenses and share scheme charges 166.8 140.0
11. Staff numbers (including Directors) Average for the year: 2010 2009 Number Number
March 2009 (26.5p per share, paid May 2009) – 69.6 August 2009 (27.7p per share, paid October 2009) – 72.8 March 2010 (29.8p per share, paid April 2010) 78.3 – September 2010 (32.6p per share, paid October 2010) 86.4 – Total dividends 164.7 142.4
The dividends declared in March represent the fi nal dividends paid in respect of the 2008 and 2009 fi nancial years. Dividends declared in August 2009 and September 2010 are interim distributions in respect of 2009 and 2010.
A fi nal dividend of 35.5p per share (£95.3 million) has been declared in respect of the 2010 fi nancial year. Refer to the Chairman’s statement and business review for further details.
Profi t for the fi nancial year after taxation (£m) 193.6 156.9
Weighted average number of shares – diluted 268,221,829 266,062,457 Unadjusted earnings per share – diluted 72.2p 59.0p
The difference between the basic and diluted number of shares at the end of 2010 (being 394,653; 2009: 350,000) relates to awards committed, but not yet issued under the Group’s share schemes. Refer to note 26 for further details.
Net book amount At 1 January 2009 2.1 5.7 2.6 0.6 11.0 Net book amount At 31 December 2009 2.2 6.4 2.5 1.0 12.1
Transferred to ‘assets classifi ed as held for sale’ (0.2) (0.5) (0.1) – (0.8)
Net book amount At 31 December 2010 1.7 8.6 2.5 0.8 13.6 Assets classifi ed as held for sale 0.3 0.7 0.3 0.2 1.5
Goodwill relates to the acquisition of Group subsidiary EUI Limited (formerly Admiral Insurance Services Limited) in November 1999. It is allocated solely to the UK car insurance segment. As described in the accounting policies, the amortisation of this asset ceased on transition to IFRS on 1 January 2004. All annual impairment reviews since the transition date have indicated that the estimated recoverable value of the asset is greater than the carrying amount and therefore no impairment losses have been recognised. Refer to the accounting policy for goodwill for further information.
All investments held at fair value are invested in AAA-rated money market liquidity funds. These funds target a short-term cash return with capital security and low volatility and continue to achieve these goals.
Financial assets: Investments held at fair value 363.6 – – Held to maturity deposits with credit institutions 197.3 54.5 33.4 Receivables – amounts owed by policyholders 341.5 – – Total fi nancial assets 902.4 54.5 33.4 Trade and other receivables 47.9 – – Cash and cash equivalents 246.7 – –
There are several key elements to the risk management environment throughout the Group. These are detailed in full in the Corporate Governance statement. Specifi c considerations for the risks arising from fi nancial assets and liabilities are detailed below.
There are no specifi c concentrations of credit risk with respect to investment counterparties due to the structure of the liquidity funds which invest in a wide range of very short duration, high quality securities. Cash balances and deposits are placed only with credit institutions with a fi nancial strength rating of A or above.
The Group’s fi nancial instruments can be analysed as follows: 31 December 31 December
As noted above, the Group invests in money market liquidity funds, which in turn invest in a mixture of very short dated fi xed and variable rate securities, such as cash deposits, certifi cates of deposits, fl oating rate notes and other commercial paper.
In practice, the Group’s Directors expect actual cashfl ows to be consistent with this maturity profi le except for amounts owed to co-insurers and reinsurers. Of the total amounts owed to co-insurers and reinsurers of £327.4 million (2009: £154.4 million), £218.3 million (2009: £91.3 million) is held under funds withheld arrangements and therefore not expected to be settled within 12 months.
The Group may be exposed to foreign exchange risk through its expanding operations overseas. Although the relative size of these operations means that the risks are relatively small, increasingly volatile foreign exchange rates result in larger potential gains or losses. Assets held to fund insurance liabilities are held in the currency of the liabilities, however surplus assets held as regulatory capital in foreign currencies remain exposed.
The Group hedges certain items of foreseen expenditure using forward contracts and similar instruments. None were outstanding at the balance sheet date.
Fair value The carrying value of all of the Group’s fi nancial assets equate to fair value. For, cash at bank and cash deposits, the fair value approximates to the book value due to their short maturity. For assets held at fair value through profi t and loss, their value equates to level 1 (quoted prices in active markets) of the fair value hierarchy specifi ed in the amendment to IFRS 7.
Objectives, policies and procedures for managing capital The Group manages its capital to ensure that all entities within the Group are able to continue as going concerns and also to ensure that regulated entities comfortably meet regulatory requirements. Excess capital above these levels within subsidiaries is paid up to the Group holding company in the form of dividends on a regular basis.
The Group’s dividend policy is to make distributions after taking into account capital that is required to be held a) for regulatory purposes; b) to fund expansion activities; and c) as a further prudent buffer against unforeseen events. This policy gives the Directors fl exibility in managing the Group’s capital.
18. Reinsurance assets and insurance contract liabilities A) Objectives, policies and procedures for the management of insurance risk: The Group is involved in issuing motor insurance contracts that transfer risk from policyholders to the Group and its underwriting partners.
The Group is committed to establishing premium rates that appropriately price the underwriting risk and exposure. Rates are set utilising a larger than average number of underwriting criteria.
• Use of an outbound telephone team to contact third parties aiming to minimise the potential claims costs and to ensure that more third parties utilise the Group approved repairers
Concentration of insurance risk: The Directors do not believe there are signifi cant concentrations of insurance risk. This is because, although the Group only writes one line of insurance business, the risks are spread across a large number of people and a wide regional base.
B) Sensitivity of recognised amounts to changes in assumptions: The following table sets out the impact on equity at 31 December 2010 that would result from a 1% worsening in the UK loss ratios used for each underwriting year for which material amounts remain outstanding.
Underwriting year: The impact is stated net of reinsurance and includes the change in net insurance claims along with the associated profi t commission movements that result from changes in loss ratios. The fi gures are stated net of tax at the current rate.
The maturity profi le of gross insurance liabilities is as follows: £m £m £m
Analysis of claims incurred (net amounts): £m £m £m £m £m £m
Underwriting year (UK only): Earlier years (36.0) 26.8 20.6 2.7 1.1 –
UK net claims incurred (excluding claims handling costs) (103.6) (93.6) (100.4) (132.4) (184.1)
Underwriting year: 2000 1.1 0.7 0.4 0.4 – 2001 1.9 1.5 0.5 0.5 – 2002 2.3 1.3 – 0.3 0.3 2003 5.1 3.2 2.3 1.2 – 2004 7.9 7.6 6.4 (1.6) 0.8 2005 2.6 12.6 11.0 1.8 – 2006 – 2.6 10.5 7.9 (1.0) 2007 – – 6.9 11.6 2.7 2008 – – – 9.2 10.3 2009 – – – – 10.4 Total net release 20.9 29.5 38.0 31.3 23.5 Net premium revenue 145.0 142.2 169.8 211.9 288.1 Release as % of net premium revenue 14.4% 20.7% 22.4% 14.8% 8.2%
F) Reconciliation of movement in net claims provision: 31 December 31 December £m £m
Net claims provision at start of period 209.4 178.5 Net claims incurred 199.9 146.2 Net claims paid (140.3) (115.3) Net claims provision at end of period 269.0 209.4
Net unearned premium provision at start of period 110.6 90.5 Written in the period 358.5 232.5 Earned in the period (288.5) (212.4) Net unearned premium provision at end of period 180.6 110.6
H) Other disclosures: The Directors are aware that the Ministry of Justice has been reviewing the discount rate used in the calculation of damages awards in bodily injury and fatal claims in the UK (the Ogden tables). Whilst an announcement is expected imminently, at the date the fi nancial statements were approved the discount rate used in these calculations remained at 2.5%.
Including an allowance for the estimated impact of a signifi cant reduction in the discount rate, the Directors remain satisfi ed that the selected reserves included in the fi nancial statements provide an appropriate and consistent margin over projected ultimate loss ratios.
19. Trade and other receivables 31 December 31 December £m £m
21. Non-current assets held for sale On 6 January 2011, the Group disclosed that following exclusive discussions, it had sold its German operation, AdmiralDirekt, to Itzehoer Versicherung (‘Itzehoer’). The insurance contracts generated by AdmiralDirekt and underwritten by the Group in 2011 will be fully reinsured by Itzehoer, and it is intended to transfer 2011 and prior year underwriting business to Itzehoer subject to regulatory and court approval.
The results of the AdmiralDirekt operation in 2010 are not material to the results of the Group and therefore have not been separately presented. The results and balances of AdmiralDirekt are included in the Non-UK Car Insurance segment in note 4.
Of amounts owed to co-insurers and reinsurers, £213.8 million (2009: £93.1 million) are held under funds withheld arrangements.
Less than one year – – – 0.3 – 0.3 Between one and fi ve years 0.2 – 0.2 0.1 – 0.1 More than fi ve years – – – – – –
Brought forward at start of period 5.7 10.3 Movement in period (18.1) (4.6) Carried forward at end of period (12.4) 5.7
The amount of deferred tax (expense)/income recognised in the income statement for each of the temporary differences reported above is: 31 December 31 December £m £m
26. Share capital and share incentive plan 31 December 31 December £m £m
Authorised: 500,000,000 ordinary shares of 0.1p 0.5 0.5 Issued, called up and fully paid: 268,571,725 ordinary shares of 0.1p 0.3 – 266,477,291 ordinary shares of 0.1p – 0.3
During 2010 2,094,434 (2009: 1,935,461) new ordinary shares of 0.1p were issued to the trusts administering the Group’s share schemes.
SIP charge (note i) 5.1 3.6 DFSS charge (note ii) 9.9 5.6 Total share scheme charges 15.0 9.2
The consolidated cash fl ow statement also shows the gross charge in the reconciliation between ‘profi t after tax’ and ‘cash fl ows from operating activities’. The co-insurance share of the charge is included in the ‘change in trade and other payables’ line.
For the 2010 scheme, 50% (2009 scheme: 50%) of the shares awarded at the start of the three-year vesting period are subject to these performance conditions.
SIP H206 scheme 277,387 234,532 SIP H107 scheme 353,444 304,122 DFSS 2007 scheme, 1st award 1,210,781 1,065,964 DFSS 2007 scheme, 2nd award 26,350 19,430 27. Financial commitments The Group was committed to total minimum obligations under operating leases on land and buildings as follows: 31 December 31 December
28. Group subsidiary companies The Parent Company’s subsidiaries (all of which are 100% owned) are as follows: Country of Class of % Subsidiary incorporation shares held Ownership Principal activity
Limited Elephant Insurance Services Limited England and Wales Ordinary 100 Dormant
For further information on how the Group conducts its business across UK and Europe, refer to the business review.
29. Related party transactions a) Mapfre: In 2010, the Group participated in transactions with Mapfre S.A., during the normal course of its Non-UK Car Insurance and Price Comparison operations. Mapfre is a related party of Admiral Group due to its 25% minority interest in Group subsidiary Rastreator.com Limited. Details of the total transactions with Mapfre and balances outstanding as at 31 December are given in the table below. 31 December 2010 31 December 2009
Creditors – falling due within one year Other creditors 6 (90.4) (66.8)
Net current assets/(liabilities) 11.0 (1.7) Total assets less current liabilities 146.0 117.5 Net assets 146.0 117.5
Capital and reserves Called up share capital 8 0.3 0.3 Share premium account 13.1 13.1 Capital redemption reserve – – Profi t and loss account 132.6 104.1
Parent Company accounting policies The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the fi nancial statements: 1. Basis of preparation The accounts have been prepared on a going concern basis. In considering the appropriateness of this assumption, the Board have reviewed the Company’s projections for the next 12 months and beyond, including cash fl ow forecasts and regulatory capital surpluses. The Company has no debt.
In these fi nancial statements the following new standards, abstracts and amendments to standards have been adopted for the fi rst time: • Improvements to FRSs 2010
As permitted by Section 230 of the Companies Act 2006, the profi t and loss account of the Parent Company is not presented. Under FRS 1 (Cash fl ow statements) the Company is exempt from having to present a cash fl ow statement on the grounds that its cash fl ows are included in the Group’s published Consolidated fi nancial statements.
Deferred tax assets are recognised to the extent that they are regarded as recoverable. They are regarded as recoverable to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there will be suffi cient taxable profi ts from which the future reversal of the underlying timing differences can be deducted.
The Company’s subsidiaries are disclosed in note 28 of the Group fi nancial statements.
Trade payables and other liabilities 0.2 – Deferred income tax – 12.3 Corporation tax payable 41.9 20.2 Amounts owed to subsidiaries 48.3 34.3
Issues of share capital – – – – Share scheme charges – – 13.7 13.7
Issues of share capital – – – – Share scheme charges – – 18.5 18.5 8. Share capital Full details of the Company’s share capital are included in the consolidated fi nancial statements that precede these fi nancial statements.
In this section: 91 Consolidated fi nancial summary 92 Directors and advisers Further information
Bankers Lloyds TSB Bank plc City Offi ce Bailey Drive Gillingham Business Park Kent ME08 0LS