Absolute focus on delivering what the customer wants 4.3m UK customers
Strategic report 04 Chairman’s statement 08 What we do and where we work 12 How we do it – our model 14 How we do it – our strategy 16 Chief Executive’s Statement 18 Chief Financial Officer’s review 20 Group financial review 23 UK Insurance review 30 International Car Insurance review 36 Price Comparison review 40 Principal risks and uncertainties
Corporate Governance 44 Governance overview 46 Board of Directors 48 Governance Report 54 The Audit Committee 58 The Group Risk Committee 62 The Nomination Committee 64 The Remuneration Committee 65 Directors’ Remuneration Report 78 Directors’ Report
What a great… place to work Read more on Page 34
Introduction: Highlights 02 Admiral Group plc · Annual Report and Accounts 2016
“ 2016 saw very strong advances in turnover (a record and 22% higher than 2015), customer numbers (another record at 5.2 million) and net revenue (up 13% to £1 billion)”
Earnings per share (Pre Ogden) of 109.6 pence (2015: 107.3 pence)
Earnings per share (Post Ogden) of 78.7 pence (2015: 107.3 pence)
Final dividend of 51.5 pence per share, bringing full year dividend to 114.4 pence per share (2015: 114.4 pence)
Statutory price comparison result of £2.9 million loss (2015: loss of £15.5 million)
Financial highlights £389.7m 109.6p £2.58bn 5.15m £383.8m £1.02bn 114.4p £284.3m 78.7p £278.4m
*2 Refer to capital and financial position section for further information pre Ogden pre Ogden pre Ogden pre Ogden post Ogden post Ogden post Ogden post Ogden 03Admiral Group plc · Annual Report and Accounts 2016
“ I have thoroughly enjoyed every year I have chaired Admiral. It is a special business”
Test and learn has always been core to Admiral’s culture. Rather than spending a lot of time analysing an opportunity from every perspective and then committing a large investment we would rather make a small investment of time and/or money quickly and learn by doing. Partnering test and learn is the willingness to acknowledge openly when something hasn’t worked and either change or move on recognising these as opportunities to improve rather than mistakes for which blame should be attributed. This approach of test and learn is central to our assessing which we will pursue seriously amongst the other business lines that could complement our core strengths in car insurance, either because our customers 512k customers just in the UK
Alastair Lyons, CBE Chairman 04 Admiral Group plc · Annual Report and Accounts 2016
Whilst we devote time and resource to exploring new opportunities outside of car insurance we also recognise fully that this remains our core focus with significant potential for growth beyond our current 13% market share as and when it is the right point in the cycle to grow. So the capability required to develop our business must be, and is, incremental to, rather than dilutive of, our core. We continue to invest as much thought and resource as we ever have in improving the effectiveness of our motor insurance proposition, whether it be in pricing analytics, claims management, or customer self-service. However we also recognise that if we are to develop successfully new lines of business such as personal loans we need to add new skills and experience to our existing management whilst at the same time assimilating this new talent within our distinctive culture.
We are also strong believers in the potential of partnership to combine the skills, experience and resources of others with those that Admiral has developed and to share both risk and reward when entering new markets, particularly those that require material levels of investment. Our long term partnership with Munich Re has lasted for 17 years and is committed through to at least 2020 in the UK: we are partnering with Mapfre in Spanish and US price comparison and in Preminen, our price comparison incubator: White Mountains, the US insurance venture capital specialist, is also invested alongside Admiral in compare.com
2016 in overview This year’s performance is testament to our focussing successfully on our core UK motor business, our book growing by 11% to 3.6 million cars, a 13% market share whilst UK motor generated profits of £441 million (before the impact of the Ogden rate change), maintaining last year’s level. The UK motor profit after the impact of the Ogden change is £336 million. We have continued to take advantage of firm market conditions to move prices ahead a little more slowly than the average of the market allowing us to grow our book whilst returning a good underwriting result for Admiral and its reinsurance partners. Effective pricing supported by data analysis and predictive modelling, and really insightful claims management underpin our success and we are always looking for new ways to make risk analysis more reflective of the characteristics of the individual driver. In this vein we believe we are now the largest deployer of telematics in the UK.
Our price comparison sector combines a highly competitive operation in a largely mature market (Confused); market-leading players with large market shares but whose challenge is growth in markets where there is little incentive for customers to look to switch insurers (Rastreator and LeLynx); and a business that is seeking to rewrite the rules of insurance customer engagement (compare.com). Across the piece our combined price comparison operations made a small profit, supported by encouraging progress by Confused as it seeks to establish a differentiated market positioning as ‘No. 1 for car savings’.
The team May last year marked the retirement of Henry Engelhardt after 25 years as Chief Executive albeit I am delighted he is continuing to give us some of his time working in the UK and overseas. That the transition from Henry to David Stevens has been seamless is itself testament to Admiral’s culture of teamwork and open management. Henry always said that he would time his retirement when he judged the business had the required depth of management and over the years the Board has focussed on understanding the talent emerging within the business and how it has been, and is planned to be, developed. It is, therefore, very gratifying to see David now ably supported by Cristina Nestares leading the UK Insurance business, with Alistair Hargreaves working alongside her, and by Milena Mondini leading the European insurance businesses. Cristina and Milena have both been with Admiral for 11 years having founded, and successfully developed, our Spanish and Italian insurance businesses and then broadened their management responsibilities leading to their current roles. Alistair has been with Admiral eight years, having begun his career in finance and investor relations and then taken increasingly significant management roles within the UK motor business. Development and recruitment of management talent is a core enabler of Admiral’s continued growth and development and I am very encouraged by the quality and potential of those I meet in middle and senior management positions as I spend time across our various businesses.
Thank you I have thoroughly enjoyed every year I have chaired Admiral. It is a special business because of the way in which it does business, its absolute focus on delivering what the customer wants, and its beliefs that if people enjoy what they are doing and own part of the business that employs them they will do a better job. In the same way as Admiral seeks to assess the right price for each driver as an individual so it respects the contribution of each individual who works with us, caring about their well-being and giving them the opportunity to develop and progress to fulfil their individual potential. It is a company with which I am very proud to have been associated and I thank everyone in Admiral with whom I have worked for a great experience.
With a core business in such good form, a nursery of other businesses at varying stages of maturity, and a hothouse of opportunities which may or may not take root and get planted out, but most of all with the people we have in the business, I am confident that Admiral will continue to develop and prosper over the next 16 years as it has over the last.
Our year in pictures 1. ConTe winning 2nd best large work place 2016 in Great Place to Work® in Italy 2016 2. Henry and Diane’s gift of £1,000 to each member of staff 3. Confused.com’s new advertising campaign with James Corden 4. David’s first day as CEO
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 07Admiral Group plc · Annual Report and Accounts 2016
Admiral offers motor and household insurance in the UK and the Group includes Confused.com, a leading price comparison website. Outside the UK, Admiral owns four insurance and three price comparison businesses.
Offices across the globe 10 Admiral Group plc · Annual Report and Accounts 2016
“Spoke to both Gabrielle and Josh. They were both extremely professional and friendly. I am very happy with the service provided today, I feel they both went above and beyond to ensure I got the best quote possible. I am very happy to be staying with Diamond for another year :)”
“Abbey was amazing throughout the calls she made for several days to get me a better deal for my two cars and home insurance, She’s definitely a good sales person, very enthusiastic and intelligent.”
Our strategy is simple: To continue to grow in the UK insurance market whilst taking what we do well to new markets and products.
Sustained Competitive Advantage Maintain strong performance of our UK Car Insurance business.
Respond to 2017 market conditions and price effectively to underwrite profitable business whilst providing customer value for money. Maintain a cost conscious culture with a focus on expenses and costs.
Focus on the UK driver centric strategy and develop new products to help UK drivers save time and money.
Take advantage of growth opportunities and disruption in the UK motor and household insurance markets to grow the UK insurance business.
Identify whether there are products outside of insurance in the UK that play to our strengths. Test and learn and understand if there is an opportunity to create a competitive advantage and differentiation.
Test and learn from Admiral Loans – primarily unsecured personal lending initially focused on our existing customer base but with the potential to expand beyond that.
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 15Admiral Group plc · Annual Report and Accounts 2016 pre Ogden post Ogden
Very few people can claim to have contributed as much to Admiral’s success as Alastair Lyons. So it’d be wrong to start my first Chief Executive report with anything other than a tribute to his contribution over the last 16 years. The Board collectively, Admiral’s senior managers, and Henry and myself in particular, have benefitted from his wisdom, experience and thoughtfulness, and during our (occasional) moments of crisis, his composure.
In his statement, Alastair has laid out the transformation, in scale and breadth, of Admiral over the 16 years of his stewardship. He describes how 2016 has been another year of substantial growth both in our core UK car insurance business and across the Group as a whole.
Rather than re-visit 2016 myself (and to duck the challenge of trying to find a pithy culinary metaphor to describe the year – see previous Chief Executive Statements), I’ll look forward and answer a question some shareholders may be asking. Namely: “Should I sell Admiral and buy Insurtech?”
For those of you with limited time, or for whom the suspense is too much, the short answer, in my view, is “no”. Read on for a longer answer.
Insurtech is generating lots of excitement. Visiting investment bankers, who historically would have arrived with fat packs on attractive big ticket acquisitions, now also include charts showing the explosive growth in Insurtech, along with a busy “Insurtech landscape” page, packed with the colourful logos of whizzily named Insurtech start-ups, bunched (sometimes shoe-horned) into helpful categories (“sharing economy”, “P2P”, “mobile insurance”, “telematics”, “auto comparison”, “short term cover”). A big brand consulting firm recently shared the results of a survey suggesting that “insurance CEO’s” expect new entrants to capture 30% of the insurance market over the next five years.
I say that not because the ideas emerging aren’t interesting, far from it. Nor because many of the Insurtech pioneers aren’t very bright and creative (and it’s great to see that creativity focussed on insurance).
The second reason is that Admiral already, in many important respects, is “Insurtech”. The two most fundamental Insurtech sectors; “fundamental” in terms of their ability to transform the competitive landscape and substantially re-distribute market share, are “auto-comparison” and “telematics”. On “auto-comparison” we are leading players with established businesses in the UK, Spain and France and a pioneering, potentially transformational US price comparison business in compare.com. And as for “telematics”, we sell telematics-based car insurance in three countries and in the UK we are, by some margin, the largest player in the market with over 200,000 live policies. Beyond those sectors, our ever-evolving range of products (“Airbnb” home insurance, Admiral short-term cover, insurance cover for the peer to peer car sharing sites) show we’re not neglecting the interesting, if at this point more marginal, emerging opportunities. Admiral’s success has always been about embracing change when that’s in the interest of our customers and shareholders. So stick with us and enjoy the best of insurance, and Insurtech, all in one bundle.
My priorities for the forthcoming year are set out below. I expect them to remain my priorities for a number of years to come.
Admiral has built its success on doing car insurance more effectively that its peers. Maintaining our lead in cost efficiency, rigorous risk selection and effective claims management has required Admiral to keep evolving and innovating and we need to continue to do so in the future.
Demonstrate Admiral can be a great car insurer beyond the UK
Our insurance operations beyond the UK are at different stages of development and relative competitive competence. Mobilising, ideally, all the collective talents of the Group, to ensure most, or all, of these operations become sources of sustainable profitable growth is a priority.
I don’t run Admiral purely for the benefit of shareholders. It’s important that those of us who work for Admiral are glad we do, most of the time. Happily, what’s good for staff is normally good for shareholders. A key reason for Admiral’s success over the last 25 years has been the loyalty of talented staff to the company, and the collective sense of shared endeavour that has helped us do lots of things a little better than our competitors.
My priorities 17Admiral Group plc · Annual Report and Accounts 2016
It’s tempting to focus almost entirely on Ogden in writing a review of 2016’s results, but whilst it deserves attention (and it’s coming), there is more to talk about.
If forced to describe the year in one word, for me it would be Growth. 2016 saw very strong advances in turnover (a record and 22% higher than 2015), customer numbers (another record at 5.2 million) and net revenue (up 13% to £1 billion). Whilst UK motor grew healthily, our businesses in other markets (including UK household) grew very nicely and continue to represent a bigger share of the Group’s KPIs.
Our international operations in insurance and comparison continued to make meaningful and pleasing progress against their objectives.
• 1,035,000 – customers beyond UK Insurance, up 215,000 in a year.
• 100% – all UK insurance new business now transacted on the new policy system, Guidewire.
• Record profits at Rastreator in Spain and another profit (for the third successive financial year) from ConTe in Italy.
We estimate that the ultimate cost (net of reinsurance and tax) on open claims and claims arising on business written to the date of change of a move to minus 0.75% from 2.5% will be approximately £150 million.
The reduction in profit in 2016 means that a large portion of the impact of the change has been recognised already, with the balance (something in the order of £65 million posttax ) to be reflected in the coming years in the form of lower reserve releases and profit commission than would otherwise have been the case with an unchanged rate.
Ogden is of course only one variable involved in estimating the reserves, and as you would expect of Admiral, our booked reserves in the financial statements continue to include a prudent and significant margin above best estimates, the size of which is largely in line in relative terms with a year earlier.
The solvency ratio is above where we expect to operate in the medium to long term (no change on our previously indicated 125%150 %). However we consider it prudent to maintain a higher ratio in the near term as we move towards submission of our application to use an internal model to calculate our solvency capital requirement later in the year (we’re still hoping to ‘go live’ with the model in 2018). For the foreseeable future, we envisage dividends will be in the order of 90-95% of earnings.
In terms of the future impact of higher injury costs resulting from the substantially lower discount rate, we expect that pricing action (including our own material pre-emptive rate changes in December 2016 and most likely more to follow) should mean profitability on business written after the date of the change will not be materially adversely affected.
Admiral currently has three insurers and two comparison businesses in continental Europe, all benefitting from passporting arrangements. Although the UK is very early in the process of extricating itself from the EU, there is clearly a risk we lose access to these markets via the passporting mechanism.
Chairman Finally, at the 2017 AGM we will say farewell to Alastair, our Chairman of over 16 years. David’s tribute sums up Alastair’s contribution eloquently so I’ll just say that I’ve hugely admired Alastair as a Chairman and colleague since I’ve worked with him. We will miss him greatly. We’re fortunate to have an extremely capable successor in Annette who’s been on the Board since 2012. My best wishes go to both.
2016 Group overview The Group has seen strong growth in 2016 with turnover up 22% to £2.58 billion (2015: £2.12 billion). Net revenue increased by 13% to £1.02 billion (2015: £0.90 billion). Customer numbers were 16% higher at 5.15 million (2015: 4.43 million).
Other Group key performance indicators include: • Group loss ratio 72.0% post Ogden, 64.2% pre Ogden (2015: 65.1%) – an improved international ratio offset by an Ogdenimpacted higher UK car insurance ratio; • Group expense ratio 22.4% (2015: 20.5%) – an increased UK ratio reflecting an increase in acquisition costs resulting from growth offset by a small improvement in the international ratio; and
• Group combined ratio 94.4% post Ogden, 86.7% pre Ogden (2015: 85.6%).
Dividends The Group’s dividend policy is to pay 65% of post-tax profits as a normal dividend and to pay a further special dividend comprising earnings not required to be held in the Group for solvency or buffers.
The final dividend is in line with the final 2015 dividend (excluding the return of surplus capital of 11.9 pence per share that was paid with the final 2015 dividend).
The total dividend for the 2016 financial year is 114.4 pence per share (including 11.9 pence return of surplus capital), in line with 2015 (which also included 11.9 pence return of surplus capital).
The payment date is 2 June 2017, ex- dividend date 11 May 2017 and record date 12 May 2017.
Return on equity The impact of the changed Ogden discount rate on profit has led to a reduction in return on equity to 37% from 49%. Had the rate remained unchanged, return on equity would have been in line with 2015.
Money market funds and other fair value instruments 909.2 627.7 781.0
Investment and interest income in 2016 was £53.1 million, an increase of £20.5 million on 2015 (£32.6 million). £9.2 million of the increase is due to a release of an accrual relating to quota share reinsurance arrangements, whilst £4.9 million of the increase relates to unrealised gains on forward foreign exchange contracts. The balance is due to additional investment income earned on higher average balances.
The main items contributing to the operating cash inflow are as follows: Profit after tax 281.6 291.8 214.1
The change in rate has been treated as an adjusting post balance sheet event and the UK motor actuarial best estimates and Solvency II technical provisions have been prepared on the basis of the new rate. The booked reserves in the financial statements continue to include a prudent and significant margin above the actuarial best estimates in line with the Group’s reserving policy.
The majority of the financial impact in respect of premiums earned up to the date of change (£105 million pre-tax, £87 million post-tax), has been recognised in the form of reduced 2016 profits. The balance, along with the impact on business written but unearned at the date of change, will be recognised in the form of lower reserve releases and profit commission over the subsequent three to five financial years as the affected claims settle.
The Group anticipates that if UK market pricing adjusts future premiums to reflect the lower Ogden rate, there will be no significant impact on future business and its profitability after the change. The Group is confident that its strong capital position, along with its prudent approach to claims reserving, will allow it to manage the outcome without significant change to its business or long term financial outlook.
Investments and cash Investment strategy Admiral’s investment strategy was unchanged in 2016 and the Group continued to invest in the same asset classes as previous years.
Taxation The tax charge reported in the Consolidated Income Statement is £64.3 million (2015: £76.9 million), which equates to 23.1% (2015: 20.9%) of profit before tax. The higher effective rate of taxation compared to 2015 results from the unrecognised deferred tax asset arising on losses in the Group’s US businesses.
The Group’s regulatory capital from January 2016 is based on the Solvency II Standard Formula, with a capital add-on to reflect recognised limitations in the Standard Formula with respect to Admiral’s business (predominantly in respect of profit commission arrangements in co- and reinsurance agreements and risks arising from claims including Periodic Payment Order (PPO) claims).
*1 Solvency capital requirement includes updated capital add-on which is subject to regulatory approval. *2 Solvency ratio calculated on a volatility adjusted basis.
Whilst the return to growth in our car insurance business was encouraging, the 50% growth of our household business was particularly impressive, to end the year with nearly 470,000 customers. A key driver of that growth was an improvement in our online customer journey, but equally pleasing was that growth was driven both by a growing price comparison market and more customers being drawn directly to our household product.
Aside from top line growth, we benefitted from another relatively benign year in terms of weather events, and an improvement in claims frequency. We made some efficiency gains from our increased size and website development, and the small decrease in the underlying expense ratio (despite the addition of the Flood Re levy in the year) contributed to another improvement in the reported result. We expect distribution to continue moving towards price comparison in 2017, which will enable us to continue growing our book in a very familiar channel.
Finally, the mention of efficiency and an ability to react to changes (whether externally or internally driven) brings me onto the IT transformation process we have undertaken to replace the insurance policy system that we selected before we launched back in 1993. It served us amazingly well for the first 20+ years, but the Guidewire platform we’ve successfully rolled out over the last 12 months is a key development that will enable us to continue testing, learning and growing and succeeding. In summary, a big change that will paradoxically allow us to remain the same innovative company we’ve always been.
Other Revenue per vehicle £67 £63 £62 *1 Alternative performance measures – refer to the Glossary on page 141 for definition and explanation.
*2 Motor loss ratio adjusted to exclude impact of reserve releases on commuted reinsurance contracts. Reconciliation in note 12b.
*5 Original net share shows reserve releases on the proportion of the portfolio that Admiral wrote on a net basis at the start of the underwriting year in question.
Claims reserving Admiral’s reserving policy (both within the claims function and in the financial statements) is initially to reserve conservatively, above internal and independent projections of actuarial best estimates. This is designed to create a margin held in reserves to allow for unforeseen adverse development in open claims and typically results in Admiral making above industry average reserve releases. Admiral’s booked claims reserves continue to include a significant margin above projected best estimates of ultimate claims costs.
Underwriting result and profit commission The UK Car Insurance motor combined ratio is shown below: UK Car Insurance Motor combined ratio 2014 2015 2016
Loss ratio excluding reserve releases from original net share and commuted reinsurance 86.9% 87.7% 87.7%
Profit As a result of the impact of the change in Ogden, profit was lower in 2016 (£335.8 million v £443.0 million in 2015). Excluding the Ogden impact, profit would have been £441 million. The combined ratio increased to 87.5% (2015: 78.2%), or 77.8% pre Ogden. The underlying UK Car insurance profit was also impacted by a number of other factors: • Significantly higher net insurance premium revenue (£437.4 million v £386.5 million) resulting from the growth in the portfolio over the past year
The earned motor expense ratio increased modestly to 17.5% from 16.9% mainly reflecting the increase in acquisition costs resulting from the strong growth in the business. The written basis expense ratio also increased to 16.5% from 16.3% for similar reasons.
Excluding reserve releases, the loss ratio remained flat at 87.7% (2015: 87.7%). Excluding the Ogden impact, the loss ratio before reserve releases would have improved to 85.6% as a result of the more favourable loss ratio assumptions for business earned during 2016 compared to 2015.
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 25Admiral Group plc · Annual Report and Accounts 2016
The nature of the co-insurance proportion underwritten by Munich Re (via Great Lakes, a subsidiary of Munich Re) is such that 30% of all motor premium and claims for the 2017 year will accrue directly to Great Lakes and will not appear in the Group’s income statement. Similarly, Great Lakes reimburses the Group for its proportional share of expenses incurred in acquiring and administering the motor business. This share was 40% previously.
Admiral has options to commute quota share reinsurance contracts and typically does so after two or three years of an underwriting year’s development when there is a reasonably certain view on the year’s outcome.
At 31 December 2016, all material UK quota share reinsurance contracts for underwriting years up to and including 2014 had been commuted. All reinsurance for the 2015 and 2016 years remain in effect.
UK Household Insurance – reinsurance The Group’s Household business is also supported by proportional reinsurance arrangements covering 70% of the risk. For the 2016 year the business is shared between Munich Re, 40% and Swiss Re, 30%. The arrangements for 2017 will remain the same. In addition, the Group has nonproportional reinsurance to cover the risk of catastrophes stemming from weather events.
During 2016, reinsurance contracts covering the 2014 underwriting year were commuted. Whilst there is a satisfactory level of confidence in the ultimate outcome of that year, Admiral’s prudent approach to booking loss ratios, which tend to improve over time from an initial cautious level to the ultimate outcome, has meant that the 2014 year is booked at a loss making combined ratio. Refer to note 5 (vi) of the financial statements for analysis of reserve releases on commuted quota share reinsurance contracts.
The ultimate projection of the 2014 year continues to show a profitable outcome.
A further impact of the 2014 year commutation is a release of an accrual held for notional investment income relating to the funds-withheld nature of the contract. As noted on page 21, movements in the notional investment income accruals resulted in an increase in investment income of £9.2 million compared to 2015.
UK Household insurance (loss)/profit before tax (0.1) 1.2 2.7 *1 Alternative performance measures – refer to the Glossary on page 141 for further detail and explanation.
UK Household Insurance financial performance UK Household Insurance was launched in December 2012 under the Admiral brand.
UK Car Insurance Other Revenue – analysis of contribution: Contribution from additional products and fees 177.8 173.7 185.7
Claim was settled without difficulties and return by train and taxi the same day, choice of hours and terms and the agent was very kind.”
Communication We want our customers to feel fully informed; to know what the next step in the process is, whether that is making a payment for a policy or knowing which garage will be repairing their vehicle. At times of stress, clear communication is important and we want our customers to know that everything is under control.
International Car Insurance strategy Admiral’s strategy is to exploit the knowledge, skills and resources attached to the established UK businesses to promote expansion overseas in private car insurance. Admiral’s objective is to create profitable, sustainable and growing businesses.
It was a year of change in the Spanish market, with the introduction of the new “Baremo” regulating indemnities paid in bodily injury cases. The Baremo change increases claims costs, especially for more serious injuries. It adds pressure to an auto-insurance market that reported underwriting losses in 2015 for the first time in more than a decade.
In this context we made strong progress against our growth objective. Both acquisition and retention processes were significantly improved. We modernised our website allowing customers to buy from us more easily. Investment in our Qualitas Auto brand – via a campaign starring Pierce Brosnan – raised brand awareness to 57%. Meanwhile, strong technical results allowed us to reduce prices and take a larger share of the price comparison channel.
Putting together all the pieces of the puzzle, 2016 was a good year, where ConTe grew again and invested to reinforce technological capabilities and brand awareness and, as a consequence, built a solid basis for sustainable growth in the future.
We estimate claims inflation to be running at circa 3–5% and premium increases at circa 5–7%. 2016 has seen claims frequency increasing across the industry as miles driven has increased. Texas in particular has seen some large price increases this year as unusually severe weather events in the first half of the year caused claims to spike in the state.
Elephant also grew again in 2016. Written premium increased 46% to $198 million, as we increased our turnover in each of our existing states as well as launching into two new states in the year. Elephant started writing car insurance in Indiana and
*3 Combined ratio is calculated on Admiral’s net share of premiums and excludes Other Revenue. It excludes the impact of reinsurer caps. Including the impact of reinsurer caps the reported combined ratio would be 2016: 133%; 2015: 146%; 2014: 145%.
Vehicles insured at period end 189,200 415,500 91,500 168,000 864,200 2015 Spain Italy France US Total
Vehicles insured at period end 160,700 315,300 56,800 140,200 673,000 *1 Alternative performance measures – refer to the Glossary on page 141 for definition and explanation.
International Car Insurance financial performance Admiral’s international insurance businesses continued to grow by 28%, adding over 191,000 customers during the year. Turnover grew by 57% to £365.9 million (2015: £232.4 million). Net revenue increased by 49% to £107.3 million (2015: £72.2 million). Turnover and customers in these businesses represent 14% (2015: 11%) and 17% (2015: 15%) of the Group totals respectively.
The combined ratio improved marginally to 125% (2015: 126%). Continued improvement in ConTe’s prior years claims development and higher net insurance premium revenue has been offset by continued investment in operations in France and the US, resulting in an decreased loss of £19.4 million in 2016 (2015: £22.2 million). The expense ratio has remained level at 49% (2015: 49%). The expense ratio is high in comparison to Admiral’s UK business because of high acquisition costs as the businesses grow and also the continued need to build scale. There are also market specific reasons why the expense ratios are higher, for example higher acquisition costs in the US cause a strain on the expense ratio when the business is growing.
Admiral Seguros (Spain) which launched in 2006 is the oldest of Admiral’s international operations and operates under two brands, Balumba and Qualitas Auto. Admiral Seguros focused on growth in 2016, following the achievement of break-even on an underwriting year basis in 2015, and took advantage of market conditions resulting in growth of 18% and ending the year with 189,200 customers at the end of 2016.
I called to update my payment information and was greeted by the warm and considerate voice of Patrice. She courteously and rapidly addressed all of my concerns, resolved the reason for my call and offered further assistance. It is no small matter for me that in the process she considerably discounted the price of my policy and insured my continued patronage of Elephant Insurance”
The Group’s largest international operation is ConTe in Italy, which insured 415,500 vehicles at the end of 2016, up 32% on 2015. ConTe was launched in 2008 and in 2016 continued to experience positive development in the projected ultimate outcomes of most underwriting years allowing further reserve releases in 2016 and a third year of profits. Despite this, ConTe continues to hold a prudent margin in its claims reserves above actuarial best estimate.
Admiral’s youngest and smallest international insurance business is L’olivier – assurance auto, which launched in 2010 in France. L’olivier insured 91,500 vehicles at the end of 2016, up over 60% on the prior year and has focused on growth and accelerating brand development during the year.
The consolidated result of Admiral’s insurance operations in Spain, Italy and France was a loss of £3.7 million, almost 50% down on 2015 (2015: £7.0 million). The combined ratio net of other revenue (excluding the impact of reinsurer caps) improved to 99% from 103% primarily due to improved claims experience.
In the USA, Admiral underwrites motor insurance in six states (Virginia, Maryland, Illinois, Texas, Indiana and Tennessee) through its Elephant Auto business, which launched at the end of 2009. At the end of 2016 Elephant Auto insured over 168,000 vehicles, up 20% year-on-year. Turnover was £159.6 million, up almost 70% on the prior year (2015: £94.7 million). Elephant’s result for the period was a loss of £15.7 million, which is broadly consistent with £15.2 million in 2015, despite significant growth, and reflects the ongoing investment in the business. Elephant Auto’s combined ratio net of other revenue improved from 134% in 2015 to 130% in 2016.
International Car Insurance co-insurance and reinsurance As noted earlier, Admiral makes significant use of proportional risk sharing agreements, where insurers outside the Group underwrite a majority of the risk generated, either through co-insurance or quota share reinsurance contracts.
For the 2016 year Admiral retained 35% (Italy), 30% (France and Spain) and 33% (USA) of the underwriting risk respectively. The arrangements for 2017 will remain the same.
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 33Admiral Group plc · Annual Report and Accounts 2016
Strategic Report: People and culture 34 Admiral Group plc · Annual Report and Accounts 2016
Reward and Recognition We believe in sharing Admiral’s success with our staff, but reward and recognition is more than just money; it is about praising people for good performance, providing feedback or simply saying ‘thank you’ for a job well done.
In the last year we achieved recognition for creating an exceptional working environment and picked up 12 national and international awards for best work place.
Happy people make happy customers and happy customers make for a successful, thriving company. Our success goes hand-in-hand with having a strong culture. So our philosophy is a simple yet effective one: People who enjoy what they do, do it better.
Confused.com has seen a lot of changes in the market since it pioneered insurance comparison back in 2002, creating a growing and profitable industry while offering transparency and savings to British consumers.
Confused.com benefited from this market growth but also its new strategic direction, taken half way through the year, to focus on motor-related products and services. As a result, Confused.com’s revenue, profit and profit margin all increased to £86 million, £16.1 million and 19% respectively. (2015: £75 million; £12.5 million; and 17%).
A number of significant projects have been completed in the last 18 months, including investment in our platform to improve conversion with a redesign of our website to allow better customer experience. In addition, we have reviewed our online marketing capabilities and established a new brand position as a car savings specialist to improve acquisition costs and grow our customer base.
Price Comparison strategy Admiral’s strategy is to develop websites that allow consumers to compare a range of general insurance, financial services and other products. The international strategy is to exploit the UK expertise in price comparison and export it overseas.
During 2016 we continued with our growth, in terms of traffic, quotes and sales and therefore in results. We have consolidated our leadership position not only in car insurance comparison but also in other insurance products, and in our other verticals, telephony and finance.
We are already working with more than 150 partners, which include most of the biggest service providers in Spain - insurers, telecoms and banks. We have increased our reach and site visit frequency across all product lines, building on our brand awareness and preference.
In early 2016, we also saw our largest auto insurance comparison competitor – Google – make the decision to withdraw for their own strategic reasons, which gave us the opportunity to use earmarked IT resources to broaden our relationships with key partners into even more states. We even added a partner in Hawaii, so we can now quote in 50 of the 51 markets. Other players continued to press into the comparison market with similar, but different, models. The state-by-state and carrier-by-carrier nature of the US insurance market gives us a solid foothold as the largest auto insurance comparison site in the US.
While delivering a smaller than planned loss in 2016 it was on a smaller than planned business. We remain very cognizant that we are one of Admiral’s largest investments and while we do have the great opportunity to transform the US market we do not yet have the guarantee of doing so. In fact we anticipate delivering continued losses in 2017 depending on the dynamics and scale of the business and the overall behavior of the market.
Based on the 2015 results, our expectations of the impact of Loi Hamon, in terms of changing behavior in 2016, were optimistic, however, the aggregator market only grew by 1%. The French consumer has not yet taken advantage of the opportunity to change their insurance provider, even if the process has been simplified substantially.
In an effort to unblock the market and as a way to build trust, LeLynx launched a TV campaign based on a well known celebrity.
(compare.com). Admiral Group owns 75% of Rastreator, with the remaining 25% owned by Mapfre. Admiral Group owns 71% of compare.com, with the remaining 29% owned by White Mountains and Mapfre.
*1 Alternative performance measures – refer to the Glossary on page 141 for further detail and explanation.
Finance charges of £11.4 million (2015: £11.1 million) mainly represents interest on the £200 million subordinated notes issued in July 2014 (refer to note 6 to the financial statements).
Market volatility, including that which resulted from the Brexit vote (notably very significant reductions in risk free interest rates) adversely impacted the Group’s solvency position reported in the interim results in August 2016. This was due to an increased regulatory valuation of claims liabilities, in particular in relation to longer dated potential PPO claims, and hence reduced capital. Since August 2016, market volatility has reduced, risk free interest rates have increased and the Group has received approval to use a volatility adjusted yield curve in discounting claim liabilities. This has led to a reduced regulatory valuation of claims liabilities and a stronger solvency position.
As discussed above, the solvency ratio remains very strong at 212% after the proposed final dividend is accounted for. The Directors are satisfied this represents a very satisfactory level of surplus above regulatory requirements and buffers.
Brexit also brings additional risks including: • potential further market volatility, particularly in interest and exchange rates
• potential changes to the rules relating to the free movement of people between the UK and EU member states
Admiral holds a margin in booked reserves to cover changes impacting claims. Furthermore, Admiral continues to hold an additional margin in its reserves in excess of the projected ultimate outcomes to cover other potential claim shocks.
Regular reviews of both settled and potential PPO cases are undertaken by the Claims and Actuarial teams, with independent Actuarial opinions provided as part of the external reserving analysis.
One or more of the operations could fail to become a sustainable, profitable long term business.
The Directors are mindful of management stretch and regularly assess the suitability of the infrastructure and management structure in place for Admiral’s new UK and international operations.
Admiral continues to enjoy a long term relationship with one of the world’s largest reinsurers, Munich Re, which has supported Admiral since 2000.
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 41Admiral Group plc · Annual Report and Accounts 2016
Admiral’s ownership of Confused.com (one of the leading UK price comparison websites which operates independently of the UK Car Insurance business) helps to mitigate the risk of overreliance on this distribution channel.
Mitigated by regular review of the Group’s compliance with current and proposed requirements (including the General Data Protection Regulation) and interaction with regulators by Executive Management and the Board.
There is investment in resources to prepare for a Partial Internal Model application, which is expected to be made during 2017. The project will have regular progress updates with the Board and Regulators.
Admiral would also need to ensure that it continues to have sufficient liquid assets to meet its claims and other liabilities as they fell due.
The Group’s low appetite for market risk results in an investment strategy that focuses on capital preservation, low volatility of returns and strong liquidity. The majority of the portfolio is invested in high quality fixed income and other debt securities, and money market funds in order to achieve these objectives.
In particular: Potential customer detriment and/or potential regulatory censure/ enforcement and/or reputational damage as a result of Admiral’s action.
Admiral continues to invest in its Security Programme in order to mitigate Information Security risks.
This Strategic Report was approved by the Board of Directors and signed on its behalf by: David Stevens, CBE Chief Executive Officer 7 March 2017
*2 Penny James joined the Nomination Committee with effect from 28 April 2016.
Membership at 31 December 2016 ••Colin Holmes (Chair) ••Owen Clarke*1 ••Annette Court ••Penny James
As I highlighted in last year’s annual report, the Board undertook an externally facilitated evaluation this year, being three years after the last external evaluation. This was facilitated by Ian White, an independent external consultant with extensive experience of carrying out board evaluations of listed companies. The process of evaluating the Board’s performance this year consisted of each Board member completing a questionnaire detailing specific areas of focus for the Board including succession planning and Board composition, the priorities for change, the impact of previous evaluations, and board expertise to meet future challenges. The completed questionnaires then formed the basis for discussion during the separate meetings that Ian had with each Board member and attendee. Ian presented the results of the evaluation and areas for development to the Board at the meeting in February 2017. A summary of the outcomes of the Board’s discussion and consideration of the results of the evaluation are set out in more detail at page 49 of this report.
We confirm the Group’s compliance with the principles and provisions set out in the UK Corporate Governance Code 2014 (the Code) which is applicable to the year under review. A new version of the Code was introduced in September 2016 and will apply to the Group’s 2017 financial year: we will report on the implementation of the new responsibilities set out in the Code in next year’s report.
This Corporate Governance Report is structured in order to demonstrate to shareholders that the Board has complied during 2016 in all respects with each section of the Code - Leadership; Effectiveness; Accountability; and Relations with Shareholders. Remuneration is dealt with in the separate Remuneration Report.
Background and experience: In his executive career Alastair has been Chief Executive Officer (CEO) of the National Provident Institution and of the National & Provincial Building Society, Managing Director of the Insurance Division of Abbey National plc and Director of Corporate Projects at National Westminster Bank plc. He has held numerous non-executive roles in both private equity and the public market, having most recently been appointed chairman of Welsh Water.
He has also been a Non-Executive Director of both the Department for Transport (DfT) and the Department for Work and Pensions (DWP), as well as of its predecessor, the Department of Health and Social Security (DHSS).
Originally appointed to the Board in 1999, subsequently appointed to CEO role in 2016
Background and experience: Jean was Group Chief Risk Officer at the Phoenix Group from 2009 until June 2013, during which time she held responsibility for the Group’s relationship with the regulator and founded the Board Risk Committee. Previously, she was Risk Management Director of the Insurance and Investments division of Lloyds TSB and, before that, Head of Compliance and Audit at Scottish Widows.
Background and experience: Geraint is responsible for finance, actuarial, compliance and investments. He joined Admiral in 2002 and held a number of senior finance positions including Head of Finance, before being promoted to Deputy Chief Financial Officer in January 2012 and Chief Financial Officer in August 2014.
Current Appointments: Group Chief Risk Officer at Prudential and member of the Prudential plc Board.
Current Appointments: Chief Investment Officer of Equistone Partners Europe (formerly Barclays Private Equity, ‘BPE’).
Background and experience: Manning joined White Mountains in 2004 and is the former President of WM Advisors.
Justine was awarded a CBE in the 2017 New Year’s honours list for services to the economy.
Current Appointments: Chair of the British Heart Foundation Retail Committee Member of the Chartered Institute of Management Accountants Advisory Panel
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 47Admiral Group plc · Annual Report and Accounts 2016
Board activity during 2016 At each scheduled meeting the Board receives updates from the Chief Executive and Chief Financial Officer as to the financial and operational performance of the Group and any specific developments in the areas of the business for which they are directly responsible and of which the Board should be aware. Items that are considered on an annual basis are included in an annual schedule of rolling agenda items to ensure that they are considered at the appropriate point in the financial and regulatory cycle. Meetings are structured so as to allow for consideration and debate of all matters. The heads of the Group’s US and European insurance businesses and the head of UK Insurance (respectively Kevin Chidwick, Milena Mondini and Cristina Nestares) are invited to attend every Board meeting and Board dinner. This has proved an effective means of ensuring that senior managers below Board level have exposure to and gain experience of the operation of the Board.
The Board met on seven occasions in 2016 with all these meetings being held over two days and one of the meetings being a separate strategy meeting held offsite. In addition to the seven scheduled meetings, there were two additional unscheduled telephone meetings that were called at short notice.
In addition to the regular consideration of financial and operating performance and risk management and compliance, the Board received presentations on a variety of topics including updates from the management teams of each of the Group’s businesses and regular reviews of Solvency II related activities.
Meetings and attendance Directors are expected to attend all meetings of the Board and the Committees on which they serve and to devote sufficient time to the Group to perform their duties. Where Directors are unable to attend meetings they receive papers for that meeting giving them the opportunity to raise any issues with the Chairman in advance of the meeting. The number of scheduled Board meetings and Committee meetings of which they are a member attended by each Director during 2016 is provided in the table below.
*3 Lucy Kellaway stepped down from the Board with effect from 28 April 2016.
White. Ian is an independent external consultant with experience of evaluating and making recommendations to improve Board effectiveness of a number of listed companies. Other than being a customer of one of the Group’s subsidiaries, Ian has no connection with the Group.
The Chairman, supported by the Company Secretary and in consultation with Ian, compiled a comprehensive questionnaire that was circulated by the Company Secretary for completion by all Directors and Board attendees.
The questionnaire considered: • Time management of Board meetings; • Board composition and dynamics; • The effectiveness of the Board in considering the Group’s risk management framework and internal controls; • The Board’s strategic and operational oversight; • Succession planning including the oversight of the Group’s processes for managing, developing and retaining talent; • Management of group subsidiaries; • Content of discussion and focus at Board meetings; and
The roles of the Chairman and Chief Executive The Board has approved a statement that sets out the clear division of responsibilities between the Chairman and the Chief Executive. The Chairman is primarily responsible for the leadership and workings of the Board, setting its agenda, and monitoring its effectiveness. The Chairman is not involved in the day-today management of the business. Save for matters reserved for decision by the Board, the Chief Executive, with the support of the other Executive Director and the senior executives, is responsible for proposing the strategy to be adopted by the Group; running the business in accordance with the strategy agreed by the Board; and implementing specific Board decisions relating to the operation of the Group. The statements of division of responsibilities and matters reserved for decision by the Board are reviewed annually.
Appointments to the Board are the responsibility of the Board as a whole, acting on the advice and recommendations of the Nomination Committee. The Nomination Committee seeks to balance the retirement and recruitment of Non-Executive Directors ahead of their replacement so as to avoid dislocation of Board process by losing experience and skills. Appointments are made on merit and against objective criteria, having due regard to the benefits of diversity, including gender, with a view to ensuring the Board has the appropriate mix of personality, skills, and experience. Following a formal, rigorous and transparent process led by the Nomination Committee, the Board was delighted to appoint Justine Roberts as an independent Non-Executive Director with effect from 17 June 2016. Justine will be subject to election by shareholders at the forthcoming AGM.
16 years 6 months 4 years 9 months 6 years 1 month
Date of Appointment Current length of service as a Non-Executive Director at 31 December 2016
The Board, having given thorough consideration to the matter, considers the seven Non-Executive Directors to be independent and is not aware of any relationships or circumstances, other than the above, which are likely to affect, or could appear to affect, the judgement of any of them. It is the view of the Board that the independent Non-Executive Directors are of sufficient calibre and number that their views carry significant weight in the Board’s decision making.
Colin Holmes is the Senior Independent NonExecutive Director (SID). He has the requisite knowledge and experience gained through his Board position, his Chairmanship of the Audit Committee, and his appointments to the boards of other companies. He is available to shareholders if they have concerns that contact through the normal channels of Chairman, Chief Executive, or Chief Financial Officer have 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, as and when appropriate. Full details of the process of selecting a new Chairman are set out in the Nomination Report on pages 62 and 63.
Engagement with shareholders The Company attaches considerable importance to communications with shareholders and engages with them regularly. Open and frequent dialogue with investors enables them to understand fully the Group’s strategy, objectives and governance. The Investor Relations team has day-to-day primary responsibility for managing communications with institutional shareholders through a combination of briefings 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 office 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.
Conflicts of interest In compliance with the requirements of the Companies Act 2006 regarding Directors’ duties in relation to conflicts of interest, the Group’s Articles of Association allow the Board to authorise potential conflicts of interest that may arise and to impose such limits as it thinks fit. The Company has put in place a Conflicts of Interest Policy to deal with conflicts of interest. These procedures include each Board member completing, annually, a conflicts of interest questionnaire that sets out any situation in which they, or their connected persons have, or could have, a direct or indirect interest that could conflict with the interests of the Company. Any current directorships that they, or their connected persons hold, any advisory roles or trusteeships held, together with any companies in which they hold more than 1% of the issued share capital are also disclosed. These procedures were reviewed by the Board in April 2016 and it was concluded that they continued to operate effectively.
Board committees The Board has delegated authority to a number of permanent Committees to deal with matters in accordance with written Terms of Reference. The principal Committees of the Board - Audit, Remuneration, Group Risk and Nomination - all comply fully with the requirements of the Code.
Summary of key activities during 2016 The agenda for the meetings taking place during the year are agreed by the Committee Chairman and detail the matters to be discussed and considered at each meeting. The agenda are updated regularly to allow for new items to be included.
During the year the Committee reviewed the following: The Annual Report and interim results
Reports from the external auditor on the principal findings from their review of the Group’s systems and controls, and on their key accounting and audit issues and conclusions on the half and full year reporting
Presentations from independent actuaries to assist the Committee in concluding on the adequacy of the Group’s reserves
Reports from the external auditor on their proposed audit scope, fees, audit findings, and auditor independence
All reports from Internal Audit including management responses to the conclusions set out in the reports
The Committee also had presentations and discussions on a range of important issues including: IT Security, controls in overseas subsidiaries, deferred tax assets and Solvency II preparatory phase reporting requirements
The Audit Committee 54 Admiral Group plc · Annual Report and Accounts 2016
The Committee reviewed the Group’s reserving policy to ensure that it remained appropriate under the requirements of Solvency II. In addition, the Committee continued to monitor the appropriateness of the Group’s system of risk management and internal control as well as the robustness of the internal and external audit processes.
Consideration of the impact of the Group’s new reporting requirements under Solvency II continued to take up a considerable amount of the Committee’s time in 2016.
Membership Membership of the Committee at the end of the year was: Colin Holmes (Chair), Annette Court, Penny James and Owen Clarke who joined the Committee with effect from 1 January 2016.
Other individuals such as the Chairman of the Board, Chief Executive Officer, Chief Financial Officer, the Chief Risk Officer, Heads of 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 auditor was invited to attend all of the Committee’s meetings held in 2016, excepting those agenda items when its own performance/appointment was to be reviewed and provision of non-audit services discussed. In addition, a number of private meetings were held between members of the Committee and the auditor.
Significant issues considered by the Committee After discussion with both management and the external auditor, the Audit Committee determined that the key risks of misstatement of the Group’s financial statements related to insurance liabilities and profit commissions.
Insurance liabilities Given the important judgements involved in estimating outstanding claims the Committee continued to spend significant time reviewing and challenging the approach and methodology adopted by management in setting reserves for insurance liabilities in the financial statements. The Committee noted the proposals of management to continue to enhance the methodology applied and were supportive of these plans.
Whilst acknowledging that the setting of reserves to cover future claims is a complex and judgemental area and having had the opportunity at the separate meetings referred to above to consider and question the recommended best estimates, the Committee is satisfied that an appropriate process has been followed and that there has been scrutiny, challenge and debate to give confidence that the reserving levels set provide an appropriate margin above best estimates, though noted the continued high level of prudence that remains within the reserves.
The Audit Committee continued 56 Admiral Group plc · Annual Report and Accounts 2016
• The audit firm must not place significant reliance on the output of the non-audit services for the audit work.
Audit tender As noted in this report last year, and in compliance with the requirements of the Competition & Markets Authority’s Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014, the Group completed a transparent and independent audit tender process in 2015. Following this process, Deloitte LLP was recommended to shareholders as the Group’s auditor at the AGM in April 2016 and a resolution passed to that effect.
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“ A significant amount of time has been dedicated to developing the Group’s Partial Internal Model for Solvency II with an application due to be submitted to the regulators in 2017.”
Reviewed the Group’s proposed dividend level, capital plan and capital buffer in line with the capital policy
Reviewed the Group’s regulatory capital add-on application as part of Solvency II capital requirements
Recommended to the Board approval of the 2016 ORSA Report prior to submission to the regulator and approved the ORSA policy
Received regular monitoring reports on conduct risk and complaint handling and approved the introduction of Group minimum compliance standards.
Dear Shareholder, During the year the Committee has focused on embedding the Board’s risk strategy and risk appetite across the Group. This has been established as a key part of the Group’s Enterprise Risk Management Framework (‘ERMF’). A further refresh to the suite of Key Risk Indicators with associated triggers and limits was completed. These updates have improved the effectiveness of the risk management system by placing greater focus on the main risks affecting the business.
During the first half of 2016 the volatility of the yield curves led to increased volatility in the Solvency Ratio as a result of the interest rate risks associated with settled and potential PPOs. The increase in yield curves through the second half of 2016 as well as further mitigating actions has led to a reduced exposure to interest rate risk at year end 2016.
Regular reports have been received on the risks and progress of the major change programme responsible for the implementation of a new policy administration system and data warehouse, known as Project Bolt. The first phase of the programme was successfully implemented in December 2015 and continued to be rolled out to other brands throughout 2016.
The Committee Chairperson reports formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities, as set out in previously circulated minutes to the Board. The Committee Chairperson also reports on the activities of the Committee in a formal written report that is submitted to and discussed by the Board every six months.
Internal Control And Risk Management Statement The Board is ultimately responsible for the Group’s system of risk management and internal control and, through the Audit Committee, has reviewed the effectiveness of this system. The system of risk management and internal control over insurance, operational, market, credit and group risks is designed to manage rather than eliminate the risk of failure to achieve business objectives and breaches of risk appetites and can only provide reasonable and not absolute assurance against material misstatement or loss.
The Board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives. The Board meets at least seven times a year to discuss the direction of the company and provide oversight of the Group’s risk management and internal control systems. The role and responsibilities of the Board are documented within their Terms of Reference and these are reviewed annually.
The Board has delegated the development, implementation and maintenance of the Group’s overall risk management framework to the Group Risk Committee. The Group Risk Committee reports on its activities to the Board and the Audit Committee, supporting the overall assurance provided by the Audit Committee that the Group’s internal control, risk management and compliance systems continue to operate effectively.
The Group has a ‘three lines of defence’ approach to Internal Control, including those controls that relate to the financial reporting process. The Board recognises that the day-to-day responsibility for implementing policies lies with the senior management, the ‘first line of defence’, whose operational decisions must take into account risk and how this can be controlled effectively.
There is Compliance resource assigned to each operation who review and report on the first line of defence’s compliance with designated control activities. The Group Compliance function consolidates these reviews and provides reports to the Group Risk Committee.
The Group Risk Committee, UK Risk Management Committee and other UK and overseas Risk Committees receive reports setting out key performance and risk indicators and consider possible control issues brought to their attention by early warning mechanisms that are embedded within the operational units. They, together with the Audit Committee, also receive regular reports from the Internal Audit function, which include recommendations for improvement of the control and operational environment. The Chair of the Group Risk Committee provides a comprehensive written report to the Board of the activities carried out by the Committee on an annual basis. In addition, the Board receives reports from the Chair of the Audit Committee as to its activities, together with copies of the minutes of the Group Risk Committee and Audit Committee.
Viability In accordance with provision C.2.2 of the 2014 revision of the Code, the Directors have assessed the prospect of the Company over a longer period than the 12 months required by the ‘Going Concern’ provision. The Board conducted this review for a period of three years to December 2019. This assessment has been made taking into account the current financial position of the Group, the Group’s business plans, the Group’s ‘Own Risk and Solvency Assessment’ (ORSA) process, and the principal risks and uncertainties faced by the Group, which are disclosed on pages 40 to 43 of the Strategic Report.
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Dear Shareholder, Succession planning has clearly been a key area of focus for the Committee during the year. We were pleased to welcome Non-Executive Director, Penny James, who joined the Committee in April following Lucy Kellaway stepping down from Board at the AGM in April 2016. Given the significance of the appointment of Chairman and in order to ensure that a formal, rigorous and transparent process was followed, it was agreed by the Board in June 2016 that the new Chairman should be decided by the whole Board but excluding myself and any Non-Executive Directors who declared themselves as candidates. The Chairman succession process was led by Penny James. Penny led a Selection Board consisting of all Board members excluding the current Chairman and any directors who declared themselves as candidates. Further details of the comprehensive succession process that was followed are set out later in this report.
In addition to the Chairman succession process and in keeping with its remit to review regularly the composition and experience of the Board, the Committee led the process of Non-Executive Board appointments during the year. The Committee carried out a robust recruitment process resulting in the appointment of Justine Roberts in June 2016, further enhancing the range of skills, breadth of experience and diversity around the Board table.
In accordance with the requirements of Solvency II and the Senior Insurance Manager Regime, the Committee reviewed and approved the Group’s Fit and Proper
The membership of the Committee at the year end was Alastair Lyons (Chairman), Colin Holmes and Penny James. The Company Secretary acts as Secretary to the Committee. The Committee invites the Chief Executive to attend meetings when it deems appropriate. The Committee met formally on two occasions in 2016 although members of the Committee corresponded and met informally on a number of occasions to consider and meet with individuals that the Committee had identified as possible candidates to join the Board.
The proposed suitability criteria were then discussed and agreed by the whole Board at its October meeting. At this meeting it was also agreed to appoint external search firm, Zygos, to assist with the process based on their depth of experience and understanding of the requirements of a FTSE 100 Chairman. Zygos carried out psychometric testing of, and had individual meetings with, each of the candidates. The candidates were benchmarked against the external marketplace with the assistance of Zygos, considering their knowledge of the other potential candidates and their relative strengths. Each internal candidate held individual sessions with Selection Panel members and the CEO and presented to the Selection Board at the December Board meeting in order to explain their view of the role and answer any questions raised.
Each Committee member met separately with Justine and agreed that she would bring invaluable experience to the Board. The Board approved the Committee’s recommendations and following regulatory approval Justine was formally appointed to the Board with effect from 17 June 2016.
The Group remains strongly supportive of the principle of boardroom diversity, of which gender is an important, but not the only, aspect. What is important is diversity of thought, experience and approach and each new appointment must complement what already exists at the Board table. Accordingly, appointments will always be made on merit against objective criteria, including diversity, and not just to achieve an externally prescribed number. Given women constitute 40% of our plc Board, the Group has already met the target set by both Lord Davies in his report: Women on Boards, and the Hampton Alexander Review (that builds on the Davies Review) which encourages FTSE 350 companies to achieve at least 33% women on Boards by 2020. The Group also already meets the Hampton Alexander Review target of 33% women’s representation across executive committees below Board level and direct reports to those committees, as shown by the gender diversity table on page 44. The Group remains committed to providing equal opportunities, eliminating discrimination, and encouraging diversity amongst its workforce both in the UK and overseas. A breakdown of the gender of Company Directors and senior employees at the end of the financial year together with details of the Group’s Equality, Diversity and Dignity at Work Policy are set out in the Directors’ Report on page 78.
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Dear Shareholder, I am pleased to introduce the Directors’ Remuneration Report (the Report) for the year ended 31 December 2016, which has been prepared by the Remuneration Committee (the Committee) and approved by the Board.
2016 has been another strong year for the Admiral Group, though key metrics were materially impacted by the Ogden discount rate change. Earnings per share in the year were 78.7 pence (2015: 107.3 pence) and Return on Equity was 37% (2015: 49%). Total dividends for the financial year (including the proposed final dividend of 51.5 pence per share) will be 114.4 pence per share.
One of the two Executive Directors, CEO David Stevens is a founding Director and receives remuneration that only comprises salary and modest benefits. The Committee continues to hold the view that this is appropriate, as his significant shareholding provides a sufficient alignment of his interest with those of other shareholders. In order to provide full transparency of pay arrangements for the other Executive Director, CFO Geraint Jones, this Report includes single figure and comparative data for him as well as for our CEO, as the pay arrangements for the CFO are more reflective of those for (nonfounder ) executives.
Much of the focus of the Committee’s work in the second half of 2017 will be preparatory work including consultation with shareholders and key stakeholders as the Group prepares to put its Remuneration Policy before shareholders at the AGM in 2018.
The Committee considered the following matters during the year ended 31 December 2016: • Reviewing the salary arrangements and fee proposals for the Executive Directors, the Chairman and senior management; • Reviewing the appropriateness of the performance conditions for the Discretionary Free Share Scheme (DFSS) and Free Share Incentive Plan (SIP) awards; • Reviewing the Company’s performance against the performance conditions applicable to the DFSS and SIP awards and where appropriate authorising the vesting of awards; • Reviewing and authorising the grant of awards under both the DFSS and SIP; • Reviewing the Committee’s Terms of Reference and recommending amendments to the Board for approval; • Considering and approving the Group’s Material Risk Takers in accordance with the requirements of Solvency II regime; • Reviewing the impact of the Living Wage on the Group’s current remuneration structure; • Reviewing the new Gender Pay reporting requirements.
Annette Court Chairman of the Remuneration Committee 7 March 2017 64 Admiral Group plc · Annual Report and Accounts 2016
Compliance statement This Remuneration Report has been prepared according to the requirements of the Companies Act 2006 (the Act), Regulation 11 and Schedule 8 of the Large and Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and other relevant requirements of the FCA Listing Rules. In addition, the Board has applied the principles of good corporate governance set out in the UK Corporate Governance Code (the Code) and has considered the guidelines issued by its leading shareholders and bodies such as the Investment Association and the Pensions and Lifetime Savings Association. Unless otherwise stated, information contained within this Remuneration report is unaudited.
The Directors’ Remuneration Policy was approved by shareholders at the Annual General Meeting (AGM) on 29 April 2015, and took effect from that date. This section presents a summary of the approved policy, including the policy table and notes, pay-forperformance charts, the recruitment policy, and Non-Executive Director appointments.
The sections presented below are as disclosed in the prior year save a number of non-significant changes, as follows: • References to financial years have been updated where appropriate; • Pay-for-performance scenario charts have been updated to reflect latest salaries; • Current Non-Executive Director appointment expiry dates have been updated; and
The Committee reviews the framework and remuneration packages of the Executive Directors and the most senior managers and recognises the need to ensure that the Remuneration Policy is firmly linked to the Group’s strategy, including its risk management approach. In setting the policy and making remuneration decisions, the Committee takes into account pay and conditions elsewhere in the Group. The main principles underlying the Remuneration Policy are: • Competitive – the Group aims to combine salaries with attractive performancerelated incentives which provide the potential for competitive total reward packages for the achievement of superior performance. Base salaries reflect the role, job size and responsibility together with individual performance and effectiveness. Prevailing market and economic conditions and developments in governance are also considered, as are general salary levels throughout the organisation. In considering total remuneration for the Executive Directors, the Committee takes into account remuneration in companies of a similar size in the Financial Services sector; • Performance-linked – a significant part of the Executive Directors’ (excluding the founding Director) and senior managers’ reward remains performance-linked and shareholder-aligned; and
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None of the existing Executive Directors received total taxable benefits exceeding 5% of salary during the most recent financial year, and it is not anticipated that the cost of benefits provided will exceed this level over the term of this policy.
Directors’ Remuneration Report continued 66 Admiral Group plc · Annual Report and Accounts 2016
Awards are subject to clawback and malus, i.e. forfeiture or reduction of unvested awards and recovery of vested awards in exceptional circumstances (such as material misstatement or gross misconduct).
Details of the measures, weightings and performance targets used for specific DFSS grants are included in the Annual Report on Remuneration.
All UK employees participate in the SIP (except David Stevens, who has declined to participate). Grants are made twice a year based on the results of each half year and vest after three years subject to continued employment.
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 67Admiral Group plc · Annual Report and Accounts 2016
Remuneration arrangements for David Stevens (founding Director) David Stevens is a founding Director, and he and the Committee continue to hold the view that his significant shareholding provides sufficient alignment of his interest in the performance of the Group with the interests of other shareholders. In light of this, David Stevens’ remuneration package consists only of a below market rate salary, benefits such as private medical cover, permanent health insurance and death in service cover, and matching pension contributions from the Company under the Group’s Personal Pension Plan. David Stevens has not participated, nor is it intended that he participates, in any Group share schemes.
Non-Executive Directors The Company has entered into letters of appointment with its Non-Executive Directors (NEDs). Summary details of terms and notice periods are included below.
Alastair Lyons1 Nine months 26 days 1 July 2016 Three months
Manning Rountree 3 years 16 June 2015 One month 1. On 25 January 2017, Alastair Lyons gave the Company the required three months written notice that he will be retiring as Chairman and Non-Executive Director of the Company at the Company’s Annual General Meeting on 26 April 2017
Benefits New appointees will be eligible to receive benefits which may include (but are not limited to) death in service scheme, private medical cover, and permanent health insurance.
The Group Chairman, CEO, CFO and Chief Risk Officer are invited to meetings where the Committee considers it appropriate to obtain their advice on Group strategy and performance and Senior Executive pay strategy. The members of the Committee do not have any personal financial interests (other than shareholdings), or any conflicts, that relate to the business of the Committee. The Committee members do not have any day-to-day involvement in the running of the Group.
The 2015 DFSS was approved by shareholders at the 2015 AGM with a 96.9% vote in favour and the amended rules of the 2015 DFSS were approved by shareholders at the 2016 AGM with a 97.2% vote in favour.
Directors’ Remuneration Report continued 70 Admiral Group plc · Annual Report and Accounts 2016
Executive Director 1. Base salary 2. Benefits 3. Pension 4. SIP 5. DFSS 6. DFSS bonus Total remuneration
Total single figure of remuneration for Non-Executive Directors (audited) The table below sets out the total single figure remuneration received by each NED for the year ended 31 December 2016 and the prior year.
Incentive outcomes for financial year to 31 December 2016 (audited) DFSS awards vesting on performance to 31 December 2016 Awards were made under the DFSS to Geraint Jones on 15 April 2014 and in 22 September 2014. For the April award, vesting for 50% of the award is dependent on the Company’s EPS performance in excess of a risk-free return, defined as average three-month LIBOR, over a threeyear period commencing on 1 January 2014. 10% of shares vest for matching LIBOR, full vesting occurs for outperforming LIBOR by 10% p.a., with straight-line vesting in between. No vesting occurs for EPS growth below LIBOR. For the remaining 50% of the April award, vesting is subject to continued employment only, as the award was made prior to Geraint Jones’ appointment to the Board. For the September award, vesting of 100% of the award is dependent on the Company’s EPS performance, and the targets are the same as for the April award.
Geraint Jones 1. 36 points are required for 100% vesting of the EPS-based DFSS award.
3. Calculated based on the average share price in the last three months of 2016 (£19.06).
50% and 0% of Geraint Jones’ April and September 2014 DFSS awards, respectively, will vest in April 2017 and September 2017, respectively, subject to his continued employment on the vesting dates.
DFSS bonus in respect of 2016 The Group paid a bonus to all holders of DFSS shares in 2016, which was equivalent to the dividend payable on all outstanding DFSS shares awarded but not yet vested. The Committee continues to feel that having a bonus equivalent to the dividend flow received by investors further aligns the incentive structure with shareholders.
Scheme interests granted in 2016 (audited) DFSS In September 2016, Geraint Jones was granted an award under the DFSS of 50,000 shares with a value at the date of award of £1,039,500 (based on share price of £20.79), equivalent to 495% of salary. The three-year period over which performance will be measured is 1 January 2016 to 31 December 2018. The award is eligible to vest in its entirety on the third anniversary of the date of grant (i.e. September 2019), subject to performance and to continued employment. David Stevens again declined to be included given his significant shareholding.
The award will vest on three-year EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), and ROE, weighted equally. The performance conditions are summarised in the table below.
As stated in previous reports, Geraint Jones was appointed to the Board on a relatively low salary and the Committee expects to make salary increases in the first few years of his appointment that are above general inflation to reflect his demonstrated development in the CFO role and the performance of the business. The Committee will determine the levels of future increases taking into account both his individual and Company performance, and with reference to market pay levels. Geraint’s current salary of £245,000 continues to be in the lower quartile for FTSE 100 companies of a similar size.
Geraint Jones will continue to participate in the Group Personal Pension Plan, where employee contributions are matched up to a maximum 6% of base salary with maximum employer contribution of £9,000. David Stevens will also continue to participate in the plan, on the same basis as in 2015. Both Executive Directors will continue to receive benefits in line with the policy.
In advance of each DFSS cycle, the Committee reviews the appropriateness of the performance measures and corresponding targets. Vesting of the 2017 award will be linked to the same three performance measures set for the 2016 awards, i.e. three-year EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), and ROE, weighted equally. The Committee intends to make DFSS awards in October 2017 and it is anticipated that targets will be the same as those for awards in 2016, as summarised in the table below. The Committee will determine the precise targets closer to the time of making the awards, later in the year, and will disclose them in the 2017 Annual Report on Remuneration.
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 73Admiral Group plc · Annual Report and Accounts 2016
The Directors are proposing a final dividend for the year ended 31 December 2016 of 51.5 pence per share bringing the total dividend for 2016 to 114.4 pence per share (2015: 114.4 pence per share).
1. The 2017 fee for the Board Chairman is the agreed fee for current Chairman, Alastair Lyons 2. It was determined that Jean Park, Chair of the Group Risk Committee, should receive an additional fee of £20,000 per annum with effect from 1 January 2016 until 31 December 2017 in recognition of the increased time commitment required of her as a consequence of the Solvency II regulations and Internal Model Application Process.
Directors’ Remuneration Report continued 74 Admiral Group plc · Annual Report and Accounts 2016
DFSS vesting outcome (% of maximum) 98% 100% 100% 100% 100% 70% 85% 69% 50% and 0%7 1. Henry Engelhard stepped down from the Board on 13 May 2016. His 2016 remuneration includes salary and benefits in respect of his service as CEO.
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 75Admiral Group plc · Annual Report and Accounts 2016
As at 31 December 2016, the Directors held the following interests: Director
2. Total reflects 10,000 shares from the April 2014 DFSS award (performance test has been applied to the relevant portion, and award is due to vest in April 2017 subject to continued employment) and 0 shares from the September 2014 DFSS (performance test has been applied, and award is due to mature in September 2017).
Details of former CFO Kevin Chidwick’s interests in shares under the DFSS and SIP awarded to him in respect of his service as an Executive Director can be found in the 2014 report.
The closing price of Admiral shares on 31 December 2016 was £18.18 per share.
The Directors declared and paid dividends of £349.8 million during 2016 (2015: £274.6 million) – refer to note 11b for further details.
Gender diversity The table below provides a breakdown of the gender of Company Directors and employees at the end of the financial year: Male Female
Notes *1 Company Directors consists of the Board of Directors, as detailed on pages 46 and 47.
The transparency of our communication philosophy extends to senior managers and Directors, who sit amongst their teams which encourages a dialogue between staff of all levels of seniority across all areas of our business. Furthermore, our Chief Executive Officer operates an ‘open door’ policy so if any member of our staff wants to ask him a question, they can email him directly through our ‘Ask David’ intranet initiative. Our senior managers and Directors also participate in regular online chats with staff.
Financial instruments The objectives and policies for managing risks in relation to financial instruments held by the Group are set out in note 6 to the financial statements.
Directors and their interests The present Directors of the Company are shown on pages 46 and 47 of this Report, whilst Directors’ interests in the share capital of the Company are set out in the Remuneration Report on page 76.
There are no material exclusions from this data. Exclusions include figures for air conditioning from all sites because the information is not available from the managing agents of the Group’s multiple office locations.
Power to issue shares At the last Annual General Meeting, held on 28 April 2016, authority was given to the Directors to allot unissued relevant securities in the Company up to a maximum of £93,049, equivalent to one third of the issued share capital as at 18 March 2016. This authority expires on the date of the Annual General Meeting to be held on 26 April 2017 and the Directors will seek to renew this authority for the following year.
Reporting, accountability and audit UK Corporate Governance Code Admiral is subject to the UK Corporate Governance Code (the Code), published by the Financial Reporting Council (FRC) in September 2014 and available on their website, www.frc.org.uk. The Company’s Annual Report and Accounts, taken as a whole, addresses the requirements of the 2014 Code.
During the year to 31 December 2016, the Company has in all respects complied with the provisions of the 2014 Code.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; • for the parent company financial statements, state whether applicable UK Accounting Standards, including FRS 101 Reduced Disclosure Framework, have been followed, subject to any material departures disclosed and explained in the parent company financial statements.
In our opinion: • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2016 and of the group’s and the parent company’s profit for the year then ended; • the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; • the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 101 “Reduced Disclosure Framework”; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 101 “Reduced Disclosure Framework”.
• the directors’ explanation on page 61 as to how they have assessed the prospects of the group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
Independence We are required to comply with the Financial Reporting Council’s Ethical Standards for Auditors and confirm that we are independent of the group and we have fulfilled our other ethical responsibilities in accordance with those standards.
We confirm that we are independent of the group and we have fulfilled our other ethical responsibilities in accordance with those standards. We also confirm we have not provided any of the prohibited non-audit services referred to in those standards.
Our assessment of risks of material misstatement The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. The key risks identified this year are in line with those identified by the previous auditor in 2015.
Risk description The group’s gross insurance claims reserves total £2,031 million (2015: £1,725 million). The judgements which are made by management in determining the valuation of incurred but not reported (“IBNR”) claims reserves are by far the most significant, in terms of their impact on the Group’s financial position. Setting these claims reserves is an inherently subjective exercise and small changes in underlying assumptions may have a material impact on the overall year end result reported.
We have identified a key risk of misstatement in respect of management’s selection of assumptions and estimates underpinning the incurred but not reported (“IBNR”) claims reserves, specifically around periodic payment orders (“PPOs”) and the ultimate severity of large bodily injury claims arising in the UK Car Insurance business. These particular claims result in higher individual claims reserves and are more judgmental in terms of the development of the ultimate losses which will be incurred – due to the longer-term nature of the Group’s exposure – than the lower value attritional losses which are more common in the normal course of business.
Refer to page 56 in the audit committee report where this is included as a significant issue, note 5d and note 3 in the financial statements which refer to this matter.
We tested the completeness and accuracy of the underlying claims and exposure data used in the actuarial calculations by performing reconciliations of the relevant data back to audited financial information.
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 83Admiral Group plc · Annual Report and Accounts 2016
Amongst the most significant inputs to the calculations are the loss ratios resulting from the gross insurance reserves booked in the financial statements, which is discussed as a separate risk, above. This is because the setting of reserves will affect the claims incurred in a given underwriting year, thus driving the loss ratios which determine the amount of profit commission to be recognised in the year.
Refer to page 57 in the audit committee report where this is included as a significant issue, note 5c and note 3 in the financial statements which refer to this matter.
Following the announcement of the new Ogden rate, we reassessed the profit commission calculation to test the loss ratios being used in the final calculations had been adjusted for the impact of the Ogden rate change.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Group materiality £14 million (2015: £16 million was used by the previous auditors).
In 2015, the previous auditors set materiality at 4% of pre-tax profit.
We consider profit before taxation to be the critical benchmark of the performance of the group and consider this measure to be suitable having compared to other benchmarks: our materiality equates to 1% of gross earned premium and 2% of equity.
We determine performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at 70% of Group materiality for the 2016 audit.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.7m (2015: £0.8m was used by the previous auditors), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.PBT
The financially significant components of the group which were identified in our audit planning are Admiral Insurance (Gibraltar) Limited, Admiral Insurance Company Limited, EUI Limited, Inspop.com Limited and the Admiral Group plc parent entity itself. In 2015, the previous auditor also identified five significant reporting components. Each of these components was subjected to a full-scope audit for group reporting purposes, completed to individual component materiality levels which ranged from £660,000 to £11.8m (the previous auditor disclosed the following range in 2015: £480,000 to £14m), dependent upon the relative significance of each individual component.
Additionally, we have completed specific audit procedures, designed to address specific audit risks, for the Elephant Insurance Company and Inspop USA LLC components of the group, each of which is a subsidiary company incorporated in the USA. Accordingly, we engaged a local component auditor, the Deloitte member firm in the USA, to perform these specified audit procedures on our behalf. We directed and supervised the work of the component auditor, including through visits to the component and component auditor and remote communication and review of their work.
Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors’ statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed.
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team and independent partner reviews.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Profit after tax attributable to: Equity holders of the parent 222.2 300.0
Other comprehensive income for the period, net of income tax 51.0 (10.0)
Cash flows from operating activities, before movements in investments 525.1 487.2
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 91Admiral Group plc · Annual Report and Accounts 2016
Profit/(loss) for the period – – – – 300.0 300.0 (8.2) 291.8
Total comprehensive income for the period – – (12.6) 2.1 300.0 289.5 (7.7) 281.8
Movements in fair value reserve – – 30.3 – – 30.3 – 30.3
Deferred tax charge in relation to movement in fair value reserve
Total comprehensive income for the period – – 29.8 19.3 222.2 271.3 (6.2) 265.1
Share scheme credit – – – – 33.2 33.2 – 33.2
1. General information Admiral Group plc is a company incorporated in England and Wales. Its registered office is at Tŷ Admiral, David Street, Cardiff, CF10 2EH and its shares are listed on the London Stock Exchange.
The application of these amendments has not had a material impact on the Group’s results, financial position and cash flows.
In 2016, the following standards, both with an effective date of 1 January 2018, were endorsed by the EU: • IFRS 9 Financial Instruments; and
In late 2016, the IASB confirmed that the effective date for IFRS 17 ‘Insurance Contracts’ will be 1 January 2021, with the full standard expected to be issued during the first half of 2017. The 2021 effective date means that the timescale is in line with that specified in an amendment to IFRS 4, the existing Insurance Contracts standard, which permits the deferral of the adoption of IFRS 9 for up to three years from the 1 January 2018 effective date. The Group expects to take advantage of this deferral approach and delay its adoption of IFRS 9 until 1 January 2021 to align with the effective date of IFRS 17.
Following the issuance of the full and final version of IFRS 17, the Group plans to perform a detailed impact assessment of the implementation of IFRS 17 and IFRS 9 on its results, financial position and cash-flows during 2017.
The Group is currently assessing the impact of IFRS 16 on its results, financial position and cash flows, along with any impacts of the other standards and amendments which have yet to be endorsed.
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 93Admiral Group plc · Annual Report and Accounts 2016
Notes to the Financial Statements continued For the year ended 31 December 2016 2. Basis of preparation continued Following consideration of the above, the Directors have reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future, a period not less than 12 months from the date of this report, and that it is therefore appropriate to adopt the going concern basis in preparing the financial statements.
Further information regarding the Company’s business activities, together with the factors likely to affect its future development, performance and position, is set out in the Strategic Report. Further information regarding the financial position of the Company, its cash flows, liquidity position and borrowing facilities are also described in the Strategic Report. In addition, notes 6 and 11 to the financial statements include the Company’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit risk and liquidity risk.
Re-presentation of comparative information Comparative amounts within the consolidated cash flow statement relating to investments have been re-presented. Net cash flows into investments have been analysed into purchases of financial instruments and proceeds from financial instruments. Additionally, investment return and interest income on financial investments are now captured within the adjustments to profit after tax for non-cash items. There is no impact on total cash and cash equivalents or on net cash flow from operating activities for any period.
In addition there are two further significant accounting estimates within the financial statements that also require management to apply judgement: • Calculation of insurance claims reserves: The Group’s reserving methodology requires management to set insurance claims reserves for the purpose of the financial statements, within a range of potential outcomes above the projected best estimate outcome, to allow for unforeseen adverse claims development. Management applies judgement in determining where, within this range of potential outcomes, the insurance claims reserves should sit. Refer to the section on estimation techniques below for further detail on the calculation of the projected best estimate outcome.
As noted above, the Group’s reserving policy requires management to reserve within a range of potential outcomes above the projected best estimate outcome, to allow for unforeseen adverse claims development.
4. Group consolidation and operating segments 4a. Accounting policies (i) Group consolidation
• Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the date of the transaction).
Notes to the Financial Statements continued For the year ended 31 December 2016 4. Group consolidation and operating segments continued 4b. Segment reporting The Group has four reportable segments, as described below. These segments represent the principal split of business that is regularly reported to the Group’s Board of Directors, which is considered to be the Group’s chief operating decision maker in line with IFRS 8 Operating Segments.
The segment consists of the underwriting of car insurance and the generation of revenue from additional products and fees from underwriting car insurance outside of the UK. It specifically covers the Group operations Admiral Seguros in Spain, ConTe in Italy, L’olivier - assurance auto in France and Elephant Auto in the US. None of these operations are reportable on an individual basis, based on the threshold requirements in IFRS 8.
The segment relates to the Group’s price comparison businesses: Confused.com in the UK, Rastreator in Spain, LeLynx in France and compare.com in the US. Each of the price comparison businesses are operating in individual geographical segments but are grouped into one reporting segment as Rastreator, LeLynx and compare.com do not individually meet the threshold requirements in IFRS 8.
The ‘Other’ segment is designed to be comprised of all other operating segments that do not meet the threshold requirements for individual reporting. It includes the Group’s commercial van insurance broker, Gladiator, and commercial van insurance.
*2 Eliminations are in respect of the intra-group trading between the Group’s price comparison and UK and International insurance entities.
Financial Statements: Notes to the Financial Statements 96 Admiral Group plc · Annual Report and Accounts 2016
*2 Turnover is an Alternative Performance Measure and consists of total premiums written (including co-insurers’ share) and Other Revenue. Refer to the glossary and note 12 for further information.
*3 Eliminations are in respect of the intra-group trading between the Group’s price comparison and UK and International insurance entities.
Revenues from external customers for products and services are consistent with the split of reportable segment revenues as shown on page 96.
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Notes to the Financial Statements continued For the year ended 31 December 2016 4. Group consolidation and operating segments continued 4b. Segment reporting continued Segment assets and liabilities
The identifiable segment assets and liabilities at 31 December 2016 are as follows: As at 31 December 2016
Consolidated net assets 632.9 *1 2015 comparatives have been restated to be consistent with the segment splits applied in 2016, whereby UK Household Insurance is included within the UK Insurance segment. Previously the results of the UK Household business were reported within the Other segment as they were not considered a material part of the UK result.
Financial Statements: Notes to the Financial Statements 98 Admiral Group plc · Annual Report and Accounts 2016
Claims and claims handling expenses are charged as incurred, based on the estimated direct and indirect costs of settling all liabilities arising on events occurring up to the balance sheet date.
Provision for unexpired risks is made where necessary for the estimated amount required over and above unearned premiums (net of deferred acquisition costs) to meet future claims and related expenses.
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 classified as reinsurance contracts. A contract is only accounted for as a reinsurance contract where there is significant insurance risk transfer between the insured and the insurer.
Notes to the Financial Statements continued For the year ended 31 December 2016 5. Premium, claims and profit commissions continued 5b. Net insurance premium revenue
5d. Reinsurance assets and insurance contract liabilities (i) Objectives, policies and procedures for the management of insurance risk
Reserving risk is mitigated through a series of processes and controls. The key processes are as follows: • Regular management and internal actuarial review of individual and aggregate case claim reserves, including regular reporting of management information and exception reporting of significant movements; • Regular management and internal actuarial review of large claims, including claims settled or potentially settled by PPOs for which the uncertainty is increased by factors such as the lifetime of the claimant and movements in the indexation for the cost of future care of the claimant; • Bi-annual external actuarial review of best estimate claims reserves using a variety of recognised actuarial techniques; • Internal actuarial analysis of reserve uncertainty through qualitative analysis, scenario testing and a range of stochastic reserving techniques; • Ad hoc external reviews of reserving related processes and assumptions; • Use of a reserving methodology which informs management’s reserving decisions for the purposes of the Group’s financial statements. As described in note 3, critical accounting judgements and estimates, the methodology determines that reserves should be set within a range above projected best estimate outcomes to allow for unforeseen adverse claims development.
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On 27 February 2017, the Lord Chancellor announced a change in the Ogden discount rate, which is used in the calculation of personal injury claims compensation in the UK. The change reduced the discount rate from 2.5% to minus 0.75%. This change has been reflected in the gross and reinsurers' share of insurance liabilities reported in these financial statements. Refer to the following section for sensitivities in this key assumption.
Total gross insurance liabilities 1,073.5 492.0 729.5 *1 Maturity profile for 2015 has been restated to recognise the maturity of the unearned premium provision within 1 year. The analysis presented previously presented the maturity of claims liabilities expected to arise from the provision.
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Notes to the Financial Statements continued For the year ended 31 December 2016 5. Premium, claims and profit commissions continued 5d. Reinsurance assets and insurance contract liabilities continued (vi) Analysis of claims reserve releases
– Releases on commuted quota share reinsurance contracts 1.3 40.9 70.6 88.8 17.1
*2 The increase in net claims reserve from £1,180.2 million at 31 December 2015 to £1,329.2 million at 31 December 2016 is partly as a result of the increase in the size of gross claims reserves but largely due to the impact of commutations of reinsurance contracts in the UK Car Insurance business.
Notes to the Financial Statements continued For the year ended 31 December 2016 6. Investments 6a. Accounting policies (i) Investment income and finance costs
Investment income from financial assets comprises distributions as well as net realised and unrealised gains on financial assets classified as ‘fair value through profit or loss’ (FVTPL), interest income and net realised gains from assets classified as ‘available for sale’ (AFS), and interest income on holdings in term deposits and gilts.
Finance costs from financial liabilities comprise interest expense on subordinated notes, calculated on the effective interest rate method. The effective interest rate method calculates the amortised cost of a financial asset or liability (or group of financial assets or financial liabilities) and allocates the interest income or expense over the expected life of the asset or liability.
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short term deposits with original maturities of three months or less. All cash and cash equivalents are measured at amortised cost.
A financial liability is derecognised when the obligation under that liability is discharged, cancelled or expires.
The fair value of gilts and subordinated notes held at amortised cost is calculated with reference to quoted market valuations. See note 6d for a comparison of fair value and carrying value at the statement of financial position date.
Total finance costs 11.4 11.1 *1 Interest paid during the year was £11.3 million (2015: £11.0 million).
Financial liabilities are inclusive of £200 million subordinated notes issued on 25 July 2014 at a fixed rate of 5.5% with a redemption date of 25 July 2024.
The Group holds a revolving credit facility of £100 million which expires in July 2018. As at 31 December 2016, £20 million was drawn under this agreement and is included as other borrowings in the table above.
The measurement of AFS debt securities at the end of the period is also based on active quoted market values (level one).
Notes to the Financial Statements continued For the year ended 31 December 2016 6. Investments continued 6d. Financial assets and liabilities continued The maturity profile of financial assets and liabilities at 31 December 2015 was as follows: On demand £m
The Group’s activities expose it primarily to financial risks of credit risk, interest rate risk, liquidity risk and foreign exchange risk. The Board of Directors has delegated the task of supervising risk management and internal control to the Group Risk Committee. There is also an Investment Committee that makes recommendations to the Board on the Group’s investment strategy.
Economic and financial market conditions have led the Directors to consider counterparty exposure more frequently and in significant detail. The Directors consider that the policies and procedures in place to manage credit exposure continue to be appropriate for the Group’s risk appetite and, during 2016 and historically, no material credit losses have been experienced by the Group.
To mitigate the risk arising from exposure to reinsurers (in the form of reinsurance recoveries and profit commissions), the Group only conducts business with companies of appropriate financial strength ratings. In addition, many reinsurance contracts are operated on a funds withheld basis, which substantially reduces credit risk, as the Group withholds the cash received as collateral.
Financial Statements: Notes to the Financial Statements 112 Admiral Group plc · Annual Report and Accounts 2016
There were no significant financial assets that were past due at the close of either 2016 or 2015.
• Term deposits with well rated institutions are short in duration (one to five years). These are classified as term and valued at amortised cost. Therefore neither the carrying value of the asset, nor the interest return will be impacted by fluctuations in interest rates.
• Available for sale debt securities. These securities are held within two segregated mandates. The guidelines of the investments retain a similar credit quality of the money market funds (all holdings are investment grade). The duration of the securities is relatively short and similar to the duration of the on book claims liabilities (the average duration is three years).
Notes to the Financial Statements continued For the year ended 31 December 2016 6. Investments continued 6d. Financial assets and liabilities continued Liquidity risk
In practice, the Group’s Directors expect actual cash flows to be consistent with this maturity profile except for amounts owed to co-insurers and reinsurers. Of the total amounts owed to co-insurers and reinsurers of £938.0 million (2015: £764.7 million), £610.1 million (2015: £554.3 million) is held under funds withheld arrangements and therefore not expected to be settled within 12 months.
A maturity analysis for insurance contract liabilities is included in note 5. The maturity profile for financial assets is included at the start of this note.
The loss before tax derived from business carried out in the US was £39.1 million (2015: £45.9 million). If the Sterling rates with US dollars had strengthened/weakened by 10%, the Group’s profit before tax for the year would increase/decrease by £3.6 million (2015: £4.2 million).
Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short term term deposits with original maturities of three months or less.
The Group operates a number of equity and cash settled compensation schemes for its employees. The fair value of the employee services received in exchange for the grant of free shares under the equity settled schemes is recognised as an expense, with a corresponding increase in equity. For cash settled schemes, the fair value of services received are also recognised as an expense, with a corresponding increase in liability.
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Notes to the Financial Statements continued For the year ended 31 December 2016 8. Expenses continued 8a. Accounting policies continued (iii) Leases
The £71.3 million (2015: £63.4 million) administration and marketing costs allocated to insurance contracts is principally made up of salary costs.
Analysis of other administration and other marketing costs: Expenses relating to additional products and fees 49.9 43.0
– Fees payable for the audit of the Company’s subsidiary accounts 0.2 0.2 0.4 0.3
– Fees payable for audit related assurance services pursuant to legislation or regulation 0.2 0.1 – –
Analysis of fees paid to the auditor for other services: – Tax compliance services – – 0.1 –
Total as above – – 0.4 0.1 *1 Fees payable to the auditor for other services in year ended 31 December 2015 were paid to the previous auditor, KPMG LLP.
8f. Staff share schemes Analysis of share scheme costs (per the Consolidated Income Statement): SIP charge (i) 9.9 8.7
The share scheme charges reported above are net of the co- and reinsurers' share of the cost and therefore differ from the gross charge reported in note 8c (2016: £50.3 million; 2015: £43.8 million) and the gross credit to reserves reported in the Consolidated Statement of Changes in Equity (2016: £33.2 million; 2015: £29.5 million).
The amount of 2016 award that actually vests is based on the growth in the Company’s earnings per share (EPS) relative to a risk free return (RFR), for which LIBOR has been selected as a benchmark. This performance is measured over the three year period the award applies to. For the 2016 scheme, 50% of the shares awarded at the start of the three year vesting period are subject to these performance conditions.
Notes to the Financial Statements continued For the year ended 31 December 2016 8. Expenses continued 8f. Staff share schemes continued Number of free share awards committed at 31 December 2016
Total awards committed 12,239,825 *1 Being the maximum number of awards expected to be made before accounting for expected staff attrition
During the year ended 31 December 2016, awards under the SIP H212 and H113 schemes and the DFSS 2013 scheme vested. The total number of awards vesting for each scheme is as follows.
9. Taxation 9a. Accounting policy Income tax on the profit or loss for the periods presented comprises current and deferred tax.
Factors affecting the total tax charge are: Profit before tax 278.4 368.7
Balance carried forward at 31 December 2016 5.7 (2.4) 4.9 0.2 8.4
Positive amounts presented above relate to a deferred tax asset position.
The UK corporation tax rate reduced from 21% to 20% on 1 April 2015. The average effective rate of tax for 2016 is 20.00% (2015: 20.25%). Further reductions to the main rate of corporation tax to 19% (effective from 1 April 2017) and 17% (effective from 1 April 2020) were enacted on 26 October 2015 and 15 September 2016 respectively. This will reduce the Group’s future current tax charge accordingly.
The deferred tax asset relating to carried forward losses of £4.9 million relates to losses incurred in the Group’s US price comparison business compare.com, and is calculated at the local US rate of tax (35%). The recognised asset has been limited to the amount supported by forecast cash flows over the next five years. The forecasts and underlying assumptions have been reviewed and approved by the Board. In addition, the forecasts have been stressed for both revenue and profit reductions and the asset remains recoverable under the stressed scenarios.
In the case of property and equipment, carrying values are reviewed at each balance sheet date to determine whether there are any indications of impairment. If any such indications exist, the asset’s recoverable amount is estimated and compared to the carrying value. The carrying value is the higher of the fair value of the asset, less costs to sell and the asset’s value in use. Impairment losses are recognised through the income statement.
Financial Statements: Notes to the Financial Statements 122 Admiral Group plc · Annual Report and Accounts 2016
Where an obligation exists, but the likelihood of a cash out-flow or the amount is uncertain, or where there is a possible obligation arising from a past event that is contingent on a future event, a contingent liability is disclosed.
Notes to the Financial Statements continued For the year ended 31 December 2016 10. Other assets and other liabilities continued 10b. Property and equipment
The net book value of assets held under finance leases is as follows: Computer equipment 4.4 5.7
Foreign exchange movement – 1.5 1.5 3.0 *1 Deferred acquisition costs additions and amortisation charges from prior periods have been re-presented to reflect appropriate net of reinsurance movements in each period. There are no changes to the carried forward or brought forward deferred acquisition costs balance for any period.
Total insurance and other receivables 784.9 537.1 *1 Insurance receivables at 31 December 2016 includes £37.7 million in respect of salvage and subrogation recoveries.
Notes to the Financial Statements continued For the year ended 31 December 2016 10. Other assets and other liabilities continued 10e. Trade and other payables
Financial Statements: Notes to the Financial Statements 126 Admiral Group plc · Annual Report and Accounts 2016
Shares are classified as equity when there is no obligation to transfer cash or other assets.
11b. Dividends Dividends were declared and paid as follows: March 2015 (49.0 pence per share, paid May 2015) – 134.4
A final dividend of 51.5 pence per share (£144 million) has been proposed in respect of the 2016 financial year. Refer to the Strategic Report for further detail.
Profit for the financial year after taxation attributable to equity shareholders 222.2 300.0
The difference between the basic and diluted number of shares at the end of 2016 (being 614,357; 2015: 391,003) relates to awards committed, but not yet issued under the Group’s share schemes. Refer to note 8 for further detail.
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 127Admiral Group plc · Annual Report and Accounts 2016
Notes to the Financial Statements continued For the year ended 31 December 2016 11. Share capital continued 11d. Share capital
During 2016 2,764,317 (2015: 2,898,211) new ordinary shares of 0.1 pence were issued to the trusts administering the Group’s share schemes.
The number of shares in issue at flotation was 258,595,400. There is one class of share with no unusual restrictions.
11e. 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 meet regulatory requirements with an appropriate margin. 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 regulatory capital requirements are discussed in the Group Financial Review within the Strategic Report.
Registered office: Deep Run 1; Suite 400, 9950 Mayland Drive, Henrico, VA 23233
Total turnover 2,575.8 2,118.8 *1 During 2012 Admiral ceased earning Other Revenue from the sale of non-optional legal protection policies. At the same point, the Group began charging its panel of co- and reinsurers a vehicle commission. The substance of these changes meant that the total premiums written increased by the amount of revenue that was previously earned from the sale of non-optional legal protection policies. The vehicle commission included within Other Revenue is therefore eliminated from the turnover measure to avoid double counting.
*2 Other reconciling items represent co-insurer and reinsurer shares of Other Revenue in the Group’s International Car Insurance businesses.
12b. Reconciliation of claims incurred to reported loss ratios, excluding releases on commuted reinsurance
Reserve releases on commuted reinsurance 17.1 – 17.1 88.8 – 88.8
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 131Admiral Group plc · Annual Report and Accounts 2016
These financial statements were approved by the Board of Directors on 7 March 2017 and were signed on its behalf by: Geraint Jones Chief Financial Officer Admiral Group plc
Parent Company Financial Statements continued 134 Admiral Group plc · Annual Report and Accounts 2016
1. Accounting policies 1.1 Basis of preparation These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101). The amendments to FRS 101 (2015/16 Cycle) issued in June 2016 and effective immediately have been applied. The financial statements are prepared on the historical cost basis except for the revaluation of financial assets classified as fair value through profit or loss.
• FRS 101.8 (i): the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to include a list of new IFRSs that have been issued but that have yet to be applied
In calculating the net present value of future cash-flows, management has made assumptions over the timing and amount of underlying profit projections of the relevant undertakings, long term growth rates in those projections and the discount rate applied to those projections that is appropriate to reflect the market’s view of the risk of the relevant investment.
Notes to Parent Company Financial Statements For the year ended 31 December 2016 136 Admiral Group plc · Annual Report and Accounts 2016
1.5 Shares in Group Undertakings Shares in Group undertakings are valued at cost less any provision for impairment in value.
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 137Admiral Group plc · Annual Report and Accounts 2016
The dividends declared in March represent the final dividends paid in respect of the 2014 and 2015 financial years. The dividends declared in August are interim distributions in respect of 2015 and 2016.
6. Continued application of Financial Reporting Standard (FRS) 101 – Reduced Disclosure Framework Following the first time application of FRS 101 Reduced Disclosure Framework in 2015, the Board considers that it is in the best interests of the Group for Admiral Group plc to continue to apply the FRS 101 Reduced Disclosure Framework in future periods. A shareholder or shareholders holding in aggregate 5% or more of the total allotted shares in Admiral Group plc may serve objections to the use of the disclosure exemptions on Admiral Group plc, in writing, to its registered office (Tŷ Admiral, David Street, Cardiff CF10 2EH) no later than 30 June 2017.
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 139Admiral Group plc · Annual Report and Accounts 2016
Alternative Performance Measures Throughout this report, the Group uses a number of Alternative Performance Measures (APMs); measures that are not required or commonly reported under International Financial Reporting Standards, the Generally Accepted Accounting Principles (GAAP) under which the Group prepares its financial statements.
This measure has been presented by the Group in every Annual Report since it became a listed Group in 2004. It reflects the size of the revenue generated by the Group and analysis of this measure over time provides a clear indication of the growth in this revenue.
The reasons for presenting this measure are consistent with that for the Turnover APM noted above.
For each insurance business an underwriting result is presented showing the segment result prior to the inclusion of profit commission, other income contribution and instalment income. It demonstrates the insurance result, i.e. premium revenue and investment income less claims incurred and insurance expenses.
There are a number of instances within the Annual Report where adjustments are made to this calculation in order to more clearly present the underlying performance of the Group and operating segments within the Group. The calculations of these are presented within note 12b to the accounts and explanation is as follows.
Return on Equity Return on equity is calculated as profit before tax for the period attributable to equity holders of the Group divided by the average total equity attributable to equity holders of the Group in the year. This average is determined by dividing the opening and closing positions for the year by two.
The relevant figures for this calculation can be found within the Consolidated Statement of Changes in Equity.
ASHE ‘Annual Survey of Hours and Earnings’ – a statistical index that is typically used for calculating inflation of annual payment amounts under Periodic Payment Order (PPO) claims settlements.
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 143Admiral Group plc · Annual Report and Accounts 2016
Financial calendar Final 2016 dividend 11 May 2017 – Ex dividend date 12 May 2017 – Record date 2 June 2017 – Payment date
The interim results will be available on the corporate website from 16 August 2017.
Financial Statements Additional InformationCorporate GovernanceStrategic Report Introduction 145Admiral Group plc · Annual Report and Accounts 2016