Admiral is born Launched on January 2nd with just one brand, zero insured vehicles and 57 members of staff.
Today we have over 5 million customers worldwide, 17 brands and 9,000 staff. Over the last 25 years we have continued to strengthen our UK businesses and grow our international operations.
Strategic report 04 Chairman’s statement 08 Chief Executive’s statement 10 Q&A with David, Cristina and Geraint 12 How we do it – our business model 13 How we do it – our strategy 14 Chief Financial Officer’s review 16 Group financial review 19 UK Insurance review 24 International Car Insurance review 28 Price Comparison review 31 Other Group items 32 25 years of investing in our future 33 Principal risks and uncertainties 38 Being a responsible business
Financial statements 86 Independent Auditor’s Report 94 Consolidated Income statement 95 Consolidated statement of comprehensive income 96 Consolidated statement of financial position 97 Consolidated cash flow statement 98 Consolidated statement of changes in equity 99 Notes to the financial statements 141 Parent Company Financial Statements 144 Notes to Parent Company Financial Statements 151 Consolidated Financial Summary
Admiral website went live making us the first UK direct insurer with an internet presence.
elephant.co.uk launched: The UK’s first brand to offer a complete online solution to car insurance.
Group Chief Executive Officer 02 Admiral Group plc · Annual Report and Accounts 2017
The Admiral Group IPO The Admiral Group floated on the London Stock Exchange with an initial share price of £2.75.
I am delighted and honoured to have taken over the helm as the Chairman of Admiral at the AGM in April 2017. My predecessor, Alastair Lyons, who ably steered the ship for over 16 years, has left some large shoes to fill. I would like to thank him for his service and enabling a smooth transition.
2017 Overview Admiral Group has delivered another record set of results in 2017: record turnover and profit, strong return on capital, strong solvency ratio and record customer numbers.
The Group has continued to grow strongly with turnover increasing by 15% to £2.96 billion. Customer numbers increased 11% to over 5.7 million.
In UK Insurance, there was another strong performance from the Group’s core UK Motor business where the number of insured vehicles grew by 8% to 3.96 million. In line with usual trends, profitability benefited from significant prior year reserve releases.
2017 saw the successful launch of our inhouse underwritten van insurance product and, most recently, the launch of our new travel insurance product.
Most significantly, we have launched personal loans, firstly unsecured, then car finance as part of our new Admiral Financial Services business. We expect this to be an increasingly significant part of our business in future.
We are continuing to invest in our overseas insurance businesses, bearing fruit with reduced losses overall (despite the impact of Hurricane Harvey in the US) and another year of profits in ConTe. Turnover and customer numbers are continuing to grow materially by some 23% and 20% respectively and we now have £0.5 billion of combined turnover and over one million customers outside the UK. We believe we are on the cusp of delivering long term profit for the Group.
What makes Admiral different? Our successful model which has been maintained since launch is definitely worth a further mention. It can be distilled into the following areas: • Highly talented team – David Stevens leads a strong, capable and experienced management team which engages the whole business
• Pricing – data analysis lies at the heart of what we do
• Controlled test and learn – organic growth with measured expansion steps
Dividend The Directors have proposed a final dividend of 58.0 pence per share (2016: 51.5 pence) for the year to 31 December 2017, representing a distribution of 97% of our second half earnings. This included a normal dividend (65% of post-tax profits) of 39.5 pence per share and a further special dividend of 18.5 pence per share comprising earnings not required to be held in the Group for solvency or buffers.
The business has delivered a Total Shareholder Return (TSR) of 382% over the last 9 years (as illustrated in the chart on page 79).
Corporate governance and Board changes The Board recognises the need for a strong corporate governance framework and supporting processes across the Group and believes that good governance, with tone set from the top, is a key factor in delivering sustainable business performance and creating value for all the Group’s stakeholders.
Tŷ Admiral opened The Group’s new headquarters, Tŷ Admiral, was officially opened by members of the Welsh rugby team.
Penny James stepped down from the Board effective from 8 September 2017 following a change in her Executive role, and I would like to thank her for her valuable contribution. Owen Clarke was announced as taking the Remuneration Committee chair in April, subject to regulatory approval. We are in the process of seeking additional Board members, and in February 2018 appointed Andy Crossley to the Board as a NonExecutive Director and member of the Audit Committee.
Thank you On behalf of the Board I would like to thank everyone at Admiral for their continued hard work and contribution to the Group’s results in 2017. This coming year is an exciting one as we hope to continue the Group’s growth trajectory, building on our fledgling loans business and other businesses in UK motor, UK non-motor and overseas insurance and price comparison businesses.
We have an amazing, distinctive culture at Admiral that values agility and entrepreneurial drive, rigour and depth of thought and a collaborative team approach that puts customers first. We invest in our people and provide exciting opportunities for them to develop their careers. We are proud to continue to be one of the leading places to work, not only in the UK but in all the countries in which we operate, and were delighted to be recognised for the first time in the ‘Great Place to Work 25 World’s Best Workplaces 2017’, being placed 23rd. What a fantastic achievement!
In the nineties, the industry was dominated by large, often grossly inefficient, multiproduct, composite insurers with too many layers and top heavy structures. Most of those are long gone, under the pressure from upstarts like Admiral and other, lower-cost, Admiral-like, operators who have followed in our footsteps. So much the better for the customer and an example of the creative destruction which explains the success of competitive free markets.
With “an intention to renew after a claim” score of consistently well over 90% (94.5% in 2017 to be precise) we deliver for our customers at the moment of truth. And you cannot build four million plus customers in the fiercely competitive UK insurance market without delivering a good customer experience.
If I’m proud of our outperformance on expense compared to the bulk of the car insurance market, I’m doubly proud of our expense ratio advantage in our relatively new and rapidly growing home insurance operation – doubly proud because our cost advantage over the market is not ten percentage points, but nearer twenty points. Again, this allows us to be the top most often on price comparison sites, while also making a profit. Admittedly, as yet, a small one, but watch this space.
How do we achieve lower costs while delivering a great product (5 star Defaqto ratings available across all Admiral’s Motor products) and (normally) a positive customer experience, and why don’t most of our competitors manage all three?
Well, it’s not just about the constant pursuit of efficiencies by a loyal and motivated team of employee shareholders (because all of us are both). It’s also about another great driver of growth in long-term prosperity in free market economies – innovation. Throughout our life major innovations such as Confused.com, the first insurance price comparison site; MultiCar and now 08 Admiral Group plc · Annual Report and Accounts 2017
Leading telematics provider and new products include short-term and car sharing insurance
Voted 2nd in Sunday Times Best Companies to Work For in UK
My priorities Last year I outlined my priorities, which I indicated would be my priorities for a number of years to come. Here’s how we are doing…
Q Admiral has recently launched its personal lending business. Can you give us an update and also explain why you think now is a good time to enter the market with uncertain economic times ahead?
A Geraint: It’s still early days for Admiral Loans, though we’re very pleased with the way things are going so far. We think we have a very strong team, a good system and the signs so far are really positive.
We of course recognise that an economic downturn could adversely affect loan credit losses. Our approach to loan underwriting is to minimise the possible adverse impact of such a downturn in our book by focusing on segments which have historically demonstrated better resilience in times of stress.
Ultimately downturns tend to be followed by upturns and by building and learning now, we hope to be in a position to benefit from a subsequent upturn as a competent player operating at an adequate scale.
I have no doubt this approach will be valuable in helping us through to a sustainable scale and an ultimately profitable operation.
A Geraint: Our team continues to do a great job building the model and putting in place the numerous processes and documents that are also needed for a successful application. We’re still on track to make our submission to the regulator by the end of 2018. At this point we’re not anticipating a significant change in the Group’s capital position under the model, though of course the outcome isn’t fully in our hands and so there is still some uncertainty over what that future position looks like.
A David: There are widely varying views on when to expect autonomous technology but considerably less uncertainty about the impact; once we are in a world of autonomous vehicles, the requirement for motor insurance, as we currently know it, will change. What future motor insurance looks like is up for debate. We believe that the timescale for autonomous vehicles to become a meaningful part of the motor car parc is decades rather than sooner. Given the continued growth in developed and developing markets in the interim period, we believe there continues to be an opportunity for growth and for some interesting challenges where manual and autonomous vehicles are on the roads together.
Ultimately, we recognise that as claims frequency falls as a result of sophisticated autonomous technology, average motor insurance premiums will reduce which could have a significant impact on our revenue and profits. We expect to see the impact mitigated by growth in other non-life insurance products and growth in personal lending. We will continue to explore other products to offset potentially lower levels of motor premium in the future.
A Cristina: In late December 2016, in anticipation of a change in the Ogden discount rate we increased our 2017 excess of loss reinsurance with no significant price increase. During 2017 reinsurers responded to the change in Ogden by significantly increasing their prices. For 2018, we reviewed the level of cover we required and returned closer to historic levels but at a higher cost. The temporary competitive disadvantage we experienced in 2016 has been reduced and we are back on a level playing field.
Q The UK Motor market is increasingly competitive – is Admiral at risk of losing its competitive edge?
A Cristina: It is a competitive market and one that looks significantly different from ten years ago (or even 25 years ago) when the primary players were large composite multiline insurers. We are now in an environment where around 45% of the UK motor market is in the hands of a small number of focused direct players, including Admiral. This focus, inevitably, leads to a superior performance by these players, but there is still significant inefficiency in the market as a whole. Whilst market data has become difficult to access, we believe our underwriting advantage against the market is still significant and that we continue to maintain largely the same margin on expense ratio that we did ten years ago.
“ Our strategy has always been about building value over the longer term, by developing sustainable profitable businesses”
We go out of our way to make Admiral a GREAT place to work and believe that if people like what they do, they’ll do it better. We have created an environment where Admiral employees look forward to coming to work and providing great service to customers.
Valued loyal customers 12 Admiral Group plc · Annual Report and Accounts 2017
Continued Growth Continue to take advantage of growth opportunities in UK motor and household.
Focus on customer retention by putting customers at the front of all that we do.
Price Comparison Build on the different strategies in the UK, Europe and the US, to match consumer demands.
International Insurance Pursue our path towards long-term value creation in Europe and the US.
Results No last minute change to the Ogden discount rate made for a somewhat smoother year-end and it was pleasing to deliver a record profit with lots of positives from around the Group. Performance of our various businesses is covered in detail in the Strategic Report and whilst it’s hard to choose highlights from many potentials, I’ll try anyway: • A nice, continued improvement in the International Insurance result (£22 million loss in 2015, £19 million in ‘16, £14 million in ‘17)
• Breaking through one million customers outside the UK in September 2017
• And of course, a record UK Insurance profit of £466 million.
Further detail on these latter points can be found on pages 30, 146 and 31 respectively.
Brexit We have made good progress on preparing the Group to be able to continue trading in Europe should, as seems highly likely, we lose the ability to passport our UK regulatory licenses into those markets.
In terms of insurance, we have made applications to the regulator in Spain for permission to underwrite all the EU insurance business (Admiral Seguros, ConTe and L’olivier) from there and expect to have everything up and running in advance of any hard deadline that might eventually become clear.
Spain made sense for us for a number of reasons, not least the fact that we already have people and infrastructure in Madrid and Seville and of course an existing relationship with the regulator.
Things are more straightforward on the price comparison side where we are setting up new, locally regulated entities in Spain and France through which Rastreator and LeLynx will trade. Again, we expect these moves to be complete in good time.
The cost of the restructuring work will not be material to the Group and we don’t expect there to be material impact on the Group’s regulatory capital position as a result of the restructure.
I'm looking forward to continued growth and progress across the Group in 2018.
Chief Financial Officer 15Admiral Group plc · Annual Report and Accounts 2017
The payment date is 1 June 2018, ex-dividend date 10 May 2018 and record date 11 May 2018.
Return on equity Admiral’s capital efficient and highly profitable business model achieved a return on equity of 55% (2016: 37%).
A key part of Admiral’s business model is the extensive use of co- and reinsurance across the Group which provides both loss protection and capital relief and, when combined with high levels of profitability, leads to a superior return on equity.
Capital structure and financial position The Group’s co-insurance and quota share reinsurance arrangements for the UK Car Insurance business are in place until at least the end of 2019. The Group‘s net retained share of that business is 22%. Munich Re will underwrite 40% of the business (through co-insurance and quota share reinsurance arrangements) until at least the end of 2020.
Similar long-term arrangements are in place in the Group’s International Insurance operations and UK Household Insurance business.
Eligible Own Funds (pre 2017 final dividend) 1.25 2017 final dividend 0.16
The main focus of the Group’s strategy is preservation of amounts invested, with additional priorities including low volatility of returns and high levels of liquidity. The Group’s Investment Committee performs regular reviews of the strategy to ensure it remains appropriate.
Money market funds, fixed income and debt securities comprise the majority of the total; 85% at 31 December 2017 (2016: 82%).
Investment and interest income in 2017 was £41.7 million, a reduction of £11.4 million on 2016 (£53.1 million). There are a number of partially offsetting variances: 2016 benefitted from £9.2 million of income relating to the release of an accrual relating to quota share reinsurance arrangements, which wasn’t repeated in 2017. In addition, there is a negative variance of £8.8 million relating to unrealised gains and losses on forward exchange contracts, offset by a one-off gain in 2017 relating to the realised gains on sale of government gilt assets of £5.4 million.
Total cash plus investments increased by £277.8 million or 10% (2016: £158.0 million, 6%).
Whilst we are proud of our track record of pricing and claims handling, what actually allows us to grow and generate profits each year is that our customers trust us to not only offer competitive prices, but also to provide excellent service. That is regularly supported by a number of customer KPIs we track continuously, whether in the form of direct feedback, retention rates or complaint figures. As a result it was disappointing that we made an error in the way we disclosed prior year premiums on some customer notices during the second quarter of the year. However, having recognised the error, I was very encouraged with the dedication of our people, from a number of different departments, to pull together and correct the issue, and to quickly provide remediation to our affected customers. Whilst not in the ideal circumstances, it was another example of the great team spirit and culture that still exists 25 years on from our launch.
Aside from Car Insurance, our Household business performed very well once again, and continues to show significant promise. We benefitted from another benign year
“ One of the cornerstones of Admiral’s success is of course our strong underwriting record, which has enabled us to consistently grow profits over the last 25 years.”
in terms of weather to deliver a strong underwriting result, whilst at the same time growing the book by more than 40% to insure more than 650,000 homes by the end of the year. That was achieved through a combination of strong retention, which is delivering a growing renewal book, and also very strong new business performance both through the growing price comparison channel and, very pleasingly, through the direct channel which further confirms the strength of the Admiral brand. Cumulative profits of £7.8 million after only 5 years without the benefit of a large renewal book is a very good sign for the future.
Whilst the van and travel markets are considerably smaller than car and home, we’re confident that they will follow in their footsteps and expand Admiral’s footprint, customer base and profits in the coming years.
Financial Statements Additional InformationCorporate GovernanceStrategic ReportIntroduction 19Admiral Group plc · Annual Report and Accounts 2017
Total UK Insurance customers 4.62m 4.12m 3.61m *1 Alternative Performance Measures – refer to the Glossary for definition and explanation.
*4 Reported total combined ratio includes additional products underwritten by Admiral.
*6 Commuted reinsurance shows releases on the proportion of the account that was originally ceded under quota share reinsurance contracts but has since been commuted and hence reported through underwriting and not profit commission.
The key highlights for the UK Insurance business in 2017 were: • Generally favourable conditions in motor and household markets with motor rates increasing sharply in Q2, impacted by the change in Ogden, followed by some price reductions later in the year
The strong performance of UK motor in 2017 reflects: • Higher premium revenue and a lower current year loss ratio and therefore reduced net claims costs
• Higher reserve releases on the portion of reserves originally reinsured but since commuted (approximately £57 million positive impact), leading to higher aggregate net reserve releases across original net and commuted shares
• Lower investment return (£7 million adverse impact) mainly related to nonrecurring items in 2016 as explained in the Investments and cash section above
• Higher ancillary income (£16 million positive impact) mainly as a result of higher instalment income (impact £22 million) as a result of a change in the coinsurance arrangements with Munich Re.
The UK market saw rate increases during 2017, particularly from Q2 in response to the change in Ogden discount rate (below), before the market-wide favourable experience on bodily injury frequency led to price decreases. Admiral increased its rates in December 2016 in advance of the Ogden change and this impacted competitiveness in the first few months of 2017. This improved in Q2 as the market increased prices in response to the Ogden change and Admiral continued to increase prices during the first six months of 2017 before responding to market conditions and reducing prices in the latter part of the year.
Underwriting result and profit commission The UK Car Insurance combined ratio is shown below: UK Car Insurance combined ratio 2017 2016 2015
Loss ratio excluding reserve releases from original net share and commuted reinsurance 85.3% 87.7% 87.7%
Loss ratio net of releases – original net share*1 63.8% 73.3% 64.1%
The reported UK Motor combined ratio decreased to 80.0% from 90.8% (both figures exclude the impact of reserve releases from commuted reinsurance contracts). The main reason for the decrease is a significantly higher reserve release in the current period, which is mainly a result of the impact on the 2016 figures of the change in the Ogden rate.
During 2017, projected ultimate claims costs on the most recent accident years have continued to develop positively. The projected ultimate loss ratios are based on the new Ogden discount rate of minus 0.75% and are cautiously calculated for the most recent accident years but which, nevertheless, have shown improvements in development. The projections assume no improvement or further deterioration in discount rate that might result from the ongoing consultation.
The reported Car expense ratio decreased to 16.2% from 17.5% mainly reflecting the change in net retained share in the current year. The written basis expense ratio also improved to 15.8% from 16.5% for similar reasons.
Change in UK discount rate (‘Ogden’) On 27 February 2017, the UK Government announced the outcome of the review of the discount rate (referred to as the Ogden discount rate) used for calculating the value of lump sum personal injury compensation. The new rate is minus 0.75% and applies to all unsettled and new claims from 20 March 2017.
As noted above, the UK Motor Insurance actuarial best estimates reflect the new rate of minus 0.75%. Although its relative size has reduced since the end of 2016, the financial statements continue to include a significant and prudent margin above the projected ultimate claims outcomes.
The Government’s review of the discount rate and the process by which the rate is set continue and the Group looks forward to reviewing its conclusions when they are reported.
Decrease in Ogden discount rate of 75 basis points (to minus 1.5%) (142.7) -16%
The Group also purchases excess of loss reinsurance to provide protection against large claims and reviews this cover annually. For 2017 the Group increased its excess of loss cover as a result of the anticipated change in the Ogden discount rate and the potential impact on large claims. For 2018, the Group has reduced this level of cover to be back in line with more recent levels.
In 2017 Admiral recognised UK Car Insurance profit commission revenue of £64.7 million up from £52.7 million in 2016. The increase from 2016 arose mainly due to the improvements in the booked loss ratios on prior years, although both 2017 and 2016 profit commission was impacted by the change in Ogden (as above).
Other revenue was equivalent to £64 per vehicle (gross of costs; 2016: £62). The majority of the increase reflects increases in instalment income (above) and optional legal cover.
UK Household Insurance was launched in December 2012 under the Admiral brand.
The UK Household Insurance business continued to grow strongly and increased the number of properties insured by 41% to 659,800 (2016: 468,700). Turnover increased by 41% to £107.1 million (2016: £76.1 million) and profit increased to £4.1 million (2016: £2.7 million). This reflects the continued substantial growth of the business and also a cautious approach to setting and releasing claims reserves and hence profit recognition.
The reported loss ratio improved in 2017 to 73.5% from 76.5% due to relatively benign weather and strong underwriting. During 2017 the business gained scale, improved retention and increased the proportion of customers buying direct, leading to an improving expense ratio and one that significantly outperforms the market.
A key question for Admiral is ‘can we be a successful insurer outside the UK?’ My short answer is ‘yes’, although results and speed of growth vary country by country, depending on the maturity of the business and direct channel uptake in the local market.
All three businesses are growing, have solid operations and processes, recognized brands, experienced and talented management and a clearly customer-focused Admiral culture. With this, I’m confident we will continue to build our success stories in Europe and I look forward to another year of growth.
During 2017, Elephant Insurance made good progress towards becoming a growing, profitable, sustainable company centered around our customers. Our key focus was on attracting, servicing and retaining more customers with a longer policy lifetime.
Alberto Schiavon CEO, Elephant Auto 25 years ago, I was… …travelling by car in Canada and US with my brother.
25 years ago, I was… …at school and playing tennis and having fun windsurfing!
Moderated price increases in the market were not strong enough to compensate for higher claims costs and market profitability isn’t likely to improve much in 2017. The market motor combined ratio is expected to be around 105%.
What’s next? L’olivier needs to keep growing and build scale in order to provide sustainable profits to Admiral Group. Service quality will be a key lever to achieve this goal and our ambition is to prove to French customers that a direct insurer can provide service excellence. Our vision by 2020 is to be in the top three direct motor insurers in France, providing a high service quality and using one of the most sophisticated approaches to pricing and underwriting in the French market.
The 2017 market combined ratio should be around 100% while for the direct part of the market it should already be above 100%, and as a consequence a timid market cycle upturn is now more likely than one year ago.
In 2017 Admiral Seguros continued our path of sustainable growth. We increased customers by almost 20%, with strong technical results.
The Spanish market grew premium by about 3%. Price competition means that insurers are not passing to customers the full impact of claims cost inflation from the new “Baremo” (regulating compensation for bodily injury cases).
*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 2017: 124%; 2016: 133%; 2015: 146%.
Vehicles insured at period end (m) 0.19 0.41 0.09 0.17 0.86 *1 Alternative Performance Measures – refer to the end of this report for definition and explanation
In 2017, Admiral's International Insurance businesses continued to grow strongly. Combined turnover grew by 23% to £449.8 million (2016: £365.9 million) and customer numbers also grew by 20% to 1.03 million (2016: 0.86 million). In aggregate the businesses reduced losses to £14.3 million from £19.4 million.
• An improved combined ratio of 121% reflecting reduced acquisition costs, positive back year development and improvements in pricing
• An increase in the claims reserves margin held above actuarial best estimates in France and Spain to mirror the same conservative approach already adopted in the UK and Italy.
The consolidated result of the European operations was a combined loss of £1.9 million for the year (2016: loss £3.7 million) including a strong second half of the year which saw profits of £3.1 million. The combined results reflect the profit in Italy offset by investment in growth in Spain and France. The growth in Spain and France also impacted on the combined ratio net of other revenue (excluding the impact of reinsurer caps) which increased to 103% (2016: 101%).
Elephant’s loss for the period was £12.5 million, down from £15.7 million in 2016. Elephant improved both key operating ratios despite the continued strong growth and the impact of the severe weather in Texas. The combined ratio net of other revenue improved to 119% from 130%. The impact of the hurricane on the 2017 result was approximately £2.9 million.
International Car Insurance co-insurance and reinsurance In 2017 Admiral retained 35% (Italy), 30% (France and Spain) and 33% (US) of the underwriting risk respectively. The arrangements for 2018 will remain the same.
International Car Insurance regulatory environment Admiral’s European insurance operations are currently subject to the same regulation as the UK Car Insurance business, details of which are summarised above, but also comply with local requirements as appropriate. Further information on the potential impact of Brexit on the European insurance operations can be found on page 31.
Our original market, the UK, gives us some guidelines for the expected development of PCWs around the world; first, we expect digital insurance comparison will grow substantially - it is still under-penetrated around the world; and second, there are a limited number of players that will succeed in each country.
Admiral has driven organic international expansion in PCW around the world: Spain (Rastreator.com), France (LeLynx.fr), Italy (Chiarreza.it), US (Compare.com), China (Duobi), Mexico (Rastreator.mx) and more coming.
Being based in several locations allows us to anticipate customer needs and to promote innovation. Developing our own platforms gives us scalability. We believe that our world requires some disruption to improve customer experience.
In all countries, brand development and investment is required to attract relevant traffic, however our core, car insurance, provides us sufficient margin and potential to create relevant brands to leverage the diversification.
Strategically, we hope to keep expanding and play relevant roles in the markets we are in. Big challenges and big opportunities in a business model with low barriers to entry but high barriers to lead and succeed.
In 2017, the French market became more competitive for aggregators - strong competitors and a significant new entrant helped grow the market. The French economy showed signs of change, growth and digitalization with insurance aggregation seeing double digit market growth.
Our 2018 priorities remain similar to 2017: focus on operational execution, build our brand equity to grow the market and expand our product range to make the most of media investment and brand equity.
I am proud of our Rastreator team; strong and committed in our ambition and attitude.
25 years ago, I was… …a member of Champion Under 13 French Junior Rugby league team. I loved that feeling of collective victory.
25 years ago, I was… …on my first solo summer abroad in Canterbury, UK, where I stayed with a local family – a summer that changed my perspective!
The UK price comparison market is developed and extremely competitive, with over 70% of car insurance new business originating from price comparison. The competitive environment shows no signs of diminishing as the top four price comparison websites spent in excess of £110 million on TV advertising alone, and we have seen increased acquisition costs across most of our media channels.
2017 was a year of challenges for US auto insurance. Frequency continued to be problematic with the blame laid at the feet of miles driven and distracted driving and a series of hurricanes added to the complications for the industry. Insurers looked to raise prices - and they did - differing amounts at different times in different markets. Our marketing followed the opportunities, going into and out of states and specific markets, but all the while growing.
All of the above allowed us to continue our national TV advertising campaign as well as expand digital marketing into 2/3rd of the states. While the competitive landscape remains largely unchanged, we are encouraged to see our pseudo-competitors raising money and getting new leadership. We remain in a mode of trying to grow comparison as a category in the US before we have to directly compete with other comparison sites.
2018 looks to be an exciting year for Compare. com. We remain confident, but always cautiously optimistic, about our opportunity for success.
*1 Alternative Performance Measure – refer to the Glossary for definition and explanation
The key features of the Price Comparison results are: • A significantly reduced loss of £7.1 million (2016: £16.4 million) at Compare.com in the US (Admiral Group share). Statutory loss before tax decreased to £10.0 million from £22.8 million. The results reflect the continued focus on efficient marketing which delivered growing sales volumes
• The European price comparison businesses reported a record profit of £4.1 million (2016: £2.7 million) reflecting ongoing, strong performance from Rastreator which continues to build on its multiproduct strategy and an improved result from LeLynx.
Confused.com turnover increased marginally to £87.1 million (2016: £85.7 million). The high level of competition in the price comparison market and pursuit of the new strategy of Drivers Win, required a significant level of investment and contributed to significantly lower profits during 2017.
Price Comparison regulatory environment Confused.com is regulated by the Financial Conduct Authority (FCA) as an insurance intermediary and is subject to all relevant intermediation rules, including those on solvency capital.
The European operations are currently structured as branches of UK companies, with the UK insurance intermediary permission passported into Europe. Further information on the potential impact of Brexit on the European price comparison operations can be found on page 31.
Compare.com is a regulated insurance agency domiciled in Virginia, US, and licensed in all other US states.
Other interest and investment income of £8.4 million (2016: £13.4 million) includes £5.4 million (2016: £Nil) of realised gains on investments held by the Group parent company and unrealised losses of £2.3 million (2016: £6.5 million unrealised gains) in respect of forward foreign exchange contracts.
Finance charges of £11.4 million (2016: £11.4 million) mainly represent interest on the £200 million subordinated notes issued in July 2014 (refer to note 6 to the financial statements).
Separately, two new locally licensed intermediaries will be established through which Rastreator and LeLynx will trade in Spain and France.
• The potential for the uncertainty or the emerging terms of exit to trigger or exacerbate less favourable economic conditions in the UK and other countries in which Admiral operates (though it is worth noting that car insurance has tended to be resilient to economic downturns)
European Car Insurance A record profit in the Group’s Italian business
ConTe, which also grew its customer base to 0.5 million customers.
Admiral is exposed to reserving risk through its underwriting of motor and household insurance policies. Claims reserves in the financial statements may prove inadequate to cover the ultimate cost of claims which are by nature uncertain.
This is a particular risk for motor insurance liabilities, where the amount payable for bodily injury claims (particularly large claims) can change significantly during the lifetime of the claim as a result of external risks such as changes in Ogden rates and impacts of increased levels of Periodic Payment Orders (PPO).
Adverse run-off leading to higher claims costs in the financial statements.
Admiral has a conservative reserving policy and continues to hold a material margin in its financial statement claims reserves above actuarially determined best estimates to cover adverse developments.
For very large claims Admiral purchases excess of loss reinsurance, which mitigates a portion of the loss.
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.
A large flood or windstorm could cause extensive property damage (both motor and household) to a significant proportion of the portfolio, leading to a large total claims cost in relation to the event.
There are a number of aspects which contribute to Admiral’s strong UK underwriting results, including: • Experienced and focused senior management and teams in key business areas including pricing and claims management
Admiral seeks to minimise reliance on any single source by earning revenue from a range of products. This would mitigate the impact of a regulatory change which might affect a particular product or income stream.
Principal risks and uncertainties continued 34 Admiral Group plc · Annual Report and Accounts 2017
Admiral continues to develop the UK Household, non-insurance operations such as Loans and expand its overseas operations.
One or more of the operations could fail to become a sustainable, profitable long-term business.
New price comparison businesses have aligned their marketing investment with the extent of improvement in key performance indicators such as average cost per quote and conversion ratio. The Group also accepts partial disposals of equity to share start-up losses with partners.
A potentially material reduction in UK Car Insurance new business volumes.
Concentrations of credit risk are managed by investing in liquidity funds which invest in a wide range of short duration, high quality securities. Cash balances and deposits are placed only with highly rated credit institutions. Some long-term investments are held in Government bonds to further mitigate the exposure to credit risk.
Market risk arises as a result of fluctuations in the value of market prices of investment assets, liabilities, or the income from the Group’s investment portfolio.
The Group has relatively low exposure to net assets currencies other than pounds sterling.
Principal risks and uncertainties continued 36 Admiral Group plc · Annual Report and Accounts 2017
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.
Operational risk arises within all areas of the business. The principal categories of operational risk for Admiral are: • People • Information security • Outsourcing • Processes • Business continuity • Project risk • IT Systems • Customer outcomes
The internal audit function has an agreed cycle of testing of the adequacy and effectiveness of controls.
Regular review of the effectiveness of the Group’s IT capability by Executive management and the Board.
Enhanced project governance and oversight of new systems implementations with external specialist review and assurance where required.
Data is backed up to allow for its recovery in the event of corruption.
Admiral operates the three lines of defence model for overseeing its products, processes and service. At each stage of the customer journey customer outcomes are monitored, managed and reported in order to mitigate customer detriment.
This year Admiral celebrates its 25th Birthday and we aren’t resting on our laurels, we are continuously looking for ways to improve the impact we have as a business, whether that is the formation of the Ministry of Giving to facilitate giving back to the local community, the employee assistance programme to aid our employees through difficult times or the Admiral Green month to encourage people to think more about their impact on the environment.
Our business is centred on four significant stakeholders; our customers, our people, our communities, and our environment. It is these four stakeholders who drive the core focus of our corporate social responsibility strategy.
If you are interested in finding out more about our impact as a business then our Corporate Social Responsibility Report can be found on our website.
Environment 38 Admiral Group plc · Annual Report and Accounts 2017
Our involvement in our communities doesn’t just consist of monetary donations, we also encourage our staff to get their hands dirty and help local causes. This year we saw a team from UK customer services helping a DIY SOS big build, a team from UK claims volunteering at an animal shelter and countless marathons ran.
“This year we held our first Admiral Green Month, reaching out to staff to make Admiral a greener place to work.”
" I feel like a proud father when I think about all the amazing things that our staff do for each other, for customers and for our local community. They are an inspiration to me and I know they inspire each other and people in their communities." – Ceri Assiratti, Head of People Services
We encourage our staff to use their initiative and go the extra mile for the customer, below is one of the many notable examples from 2017: One of our policyholders was involved in an accident and required an urgent settlement to allow her to get back and forth to chemotherapy treatment. The customer didn’t have a hire car ancillary, however, we thought outside the box and hired the customer a car for a week to allow her time to purchase a new car.
On the day of the claim, the customer was too ill to get her belongings out of the car and a family member was going to help her. We kept the policy active and didn’t instruct salvage until the car was emptied. This took the pressure off the customer and allowed her time to remove her belongings in a time frame that suited her.
of staff think Admiral is a friendly place to work 40 Admiral Group plc · Annual Report and Accounts 2017
People Services executives make our Equal Opportunities and Discrimination Policy clear to all members of staff during induction, and it is also available in our Big Book, which outlines company policy for all staff.
Diversity We are very proud of our diversity at Admiral and anti-discrimination is something we take very seriously. We provide a supportive working environment for all of our employees. All of our People Services executives receive training in diversity and equal opportunities; this includes our confidential advice and support officers. Recently we have set up a diversity working group who focus on promoting diversity across genders, ethnicities and disabilities. Promotions and opportunities are made on a merit basis and are open to everyone in the organisation with the right skills regardless of age, disability, gender, racial or ethnic origin, religion or beliefs or sexual orientation.
Rewards We try to inspire staff to go above and beyond in their everyday roles, and rewards and recognition are a key part of that. One way we recognise our employees’ achievements is with different prestigious internal awards throughout the year. We also encourage everyday recognition, through departmental schemes such as the hi-five scheme. Our customers share a lot of personal data with us and we have a responsibility to keep this safe. We do this by training all our staff on our Data Handling Process and Data Policy, and ensure that every member of staff receives training on cyber security.
DFSS shares are awarded to managers and senior roles within the UK and overseas from the CFO to Senior Customer Representatives (SCR). The amount awarded depends upon the employees position and also upon the number of shares available to the scheme.
The fun we had last year All teams in Admiral have regular away days to build team spirit and inspire and encourage people to enjoy coming to work. All departments have a budget per head for fun money, which can be put towards afternoons out. Examples of afternoons out taken by teams in the last 12 months include; circus skills at NoFit State Circus, pizza making, completing a muddy assault course, duck herding and many more.
Dear Shareholder, On behalf of the Board I am pleased to present the Corporate Governance Report for the financial year ended 31 December 2017. The focus of the Board continues to be on maintaining high standards of corporate governance which it achieves by ensuring the appropriateness and effectiveness of the Group’s management and control framework. This Report sets out the Admiral framework of governance and the approach the Board has taken during 2017 to promote the standards of good corporate governance that are rightly expected by our shareholders.
We believe that having a sound corporate governance framework enables effective and efficient decision making and promotes the right balance of skills and experience to assess and manage the risks in the markets in which the Group operates. An external review of the Group’s governance arrangements was carried out during the year and the completed report was considered by the Board at the January 2018 Board meeting. The recommendations, contained in the report, to strengthen the Group’s existing governance arrangements so they remain fit for purpose in the future will be an area of focus for the Board in 2018 as new entities are established and board constituents change.
Changes to the composition of the Board in 2017 have meant that succession planning has continued to be a key area of focus. I succeeded Alastair Lyons as Chairman in April 2017 after he retired from the Board at the AGM in April 2017 after serving for 16 years. Due to a change in her executive role, Non-Executive Director and member of the Audit Committee, Penny James, also stepped down from the Board in September 2017.
This Corporate Governance Report is structured in order to demonstrate to shareholders how the Board has sought during the year to comply with each section of the Code - Leadership; Effectiveness; Accountability; and Relations with Shareholders. Remuneration is dealt with in the separate Remuneration Report.
Chairman 42 Admiral Group plc · Annual Report and Accounts 2017
Originally appointed to the Board in 1999, subsequently appointed as CEO in 2016
Background and experience: Between 2007 and 2010 Annette was CEO of Europe General Insurance for Zurich Financial Services and a member of the Group Executive Committee.
Appointed in 2012 (originally appointed to the Board in 2012, subsequently appointed as Chairman in 2017)
25 years ago… …aside from being in lower sixth I was playing guitar in a punk/heavy metal band. We were dreaming of big things, though sadly it wasn’t to be.
Board of Directors continued 25 years ago, I was… …eagerly awaiting the imminent arrival of our first child.
25 years ago, I was… …watching my now grown up son take his first steps.
Background and experience: Justine founded Mumsnet in 2000 and is responsible for creation, strategic direction and overall management. In May 2011, Justine founded Gransnet, a sister site to Mumsnet, for the over50s. Before that Justine was a freelance football and cricket journalist for the Times and Daily Telegraph, after working for Deutsche Bank, managing the South African equity operation in US.
Background and experience: Previous roles include Chairman of GoOutdoors and NonExecutive Director at Bovis Homes Group plc. Until 2010 Colin was a member of the Executive Committee of Tesco plc and during a 22 year career at Tesco held a wide range of positions, including UK Finance Director and CEO of Tesco Express. He is a Fellow of the Chartered Institute of Management Accountants.
Background and experience: Previous Director of Admiral (1999-2004). Led BPE’s participation in the Management Buy Out.
Background and experience: Andy has 31 years’ experience within the financial services sector, most recently as Chief Financial Officer at Domestic & General Group from 2014 to 2017. He spent 14 years at Prudential Plc from 2000 as Director, Group Finance; Group Chief Risk Officer; and CFO and Deputy Chief Executive of Prudential UK. He previously held senior manager roles at Legal & General Group Plc, where he was Group Financial Controller, and Lloyds Bank Plc. Andy is a Fellow of the Institute of Chartered Accountants.
Nomination and Governance Committee member Senior Independent Director 45Admiral Group plc · Annual Report and Accounts 2017
The Board is the principal decisionmaking forum for the Group providing entrepreneurial leadership, both directly and through its Committees, and delegating authority to the Executive team. The Board is responsible for organising and directing the affairs of the Group in a manner that is most likely to promote its success for the benefit of its members as a whole. The Board is accountable to shareholders for setting and achieving the Group’s strategic objectives; for the creation and delivery of strong sustainable financial and operational performance; for ensuring that in carrying out its duties the Group’s legal and regulatory obligations are being met; and for ensuring that it operates within appropriately established risk parameters. The Group’s UK regulated entities are responsible to the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) for ensuring compliance with the Group’s UK regulatory obligations and that dealings with the FCA and PRA are handled in a constructive, cooperative and transparent manner. Similar provisions apply in respect of the Group’s international businesses with regard to the relevant regulatory authorities in those overseas jurisdictions in which the Group also operates.
• Operating and capital budgets, financial results, and any significant changes to accounting practices or policies
Compliance with the UK Corporate Governance Code During the year under review and up to the date of this report, the Group complied with all the provisions of the UK Corporate Governance Code 2016 (the Code) other than the exception noted below.
• Provision C.3.1 – (regarding having at least three independent Non-Executive Directors serving on the Audit Committee) Penny James, who served as an independent Non-Executive member of the Audit Committee, stepped down as a Non-Executive Director on 8 September 2017 following a change in her Executive role. From this date up to the appointment of Andy Crossley as an independent Non-Executive member of the Board and Audit Committee on 27 February 2018 the Audit Committee only had two independent Non-Executive members and did not meet the Code requirements to have at least three independent Non-Executive members. The Group fully complied with this requirement apart from this period from 8 September 2017 to 27 February 2018 and held three meetings during the period, two of which Andy Crossley attended.
In addition to her visits to the Group’s UK operations, the Chairman has sought to visit each of the Group’s overseas operations this year and Non-Executive Directors are invited to join either her or the Chief Executive on one or more of their overseas visits each year. In addition, the Non-Executive Directors and the Chairman met during the year without the Executive Directors being present. Non-Executive Directors also attended briefing sessions in Cardiff on different aspects of the Group’s UK business. In order to increase their understanding of the depth and breadth of management across the Group below Board level, the Non-Executive Directors and the Chairman also attended a dinner with members of the Group’s senior management team without the Executive Directors being present. When management teams present to the Board on their operations they are invited to join the Board for dinner which gives the opportunity for informal interaction between directors and management.
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 2017 is provided in the table below.
*4 Annette Court did not attend the Remuneration Committee meeting at which her remuneration as Group Chairman was discussed.
*5 Justine Roberts joined the Remuneration Committee on 26 April 2017.
Board effectiveness Following the external Board evaluation that was carried out last year, this year sought to focus on the recommendations coming out of that evaluation together with a review of the Board’s effectiveness and particular areas of focus. The Board evaluation, consisted of the Chairman, supported by the Company Secretary, compiling a comprehensive questionnaire that was circulated by the Company Secretary for completion by all Directors and Board attendees.
• The effectiveness of the Board in considering the Group’s risk management framework and internal controls
The results of the review were discussed by the Board in January 2018. Overall the review found that the Board continued to work effectively and that each Director demonstrates full commitment to his/ her duties and contributes in an open and transparent way, enabling a detailed level of debate and discussion around material matters affecting the Group. The review also identified good awareness by the Board of the governance and regulatory environment in which the Group operates and the main risks impacting the Group and how they should be managed and mitigated.
Following last year’s feedback, the Board has spent more time on considering succession plans and senior management evaluation and development. A number of recommendations were identified in the review as areas for the Board to give particular focus in 2018 in order to enhance the Board’s effectiveness. These included: greater understanding of the views of customers of today and tomorrow; major investors and focus on the technological issues facing the Group, particularly around cyber security; consideration of the composition of the Board in the context of there being appropriate Board experience as the Group looks to explore opportunities in other product and geographical areas; Board dynamics and improving the content and quality of information provided to the Board so that the Board could focus more easily on the key areas for discussion and decision; and Board oversight of company processes for managing, developing and retaining talent was highlighted as an important area that would need continued Board focus in the coming year.
The Board currently comprises nine Directors, the Chairman (who was independent on appointment), two Executive Directors, and six independent NonExecutive Directors. As can be seen from the Directors’ biographies on pages 43 to 45, the Directors have a broad range of skills and experience and can bring independent judgement to bear on issues of strategy, performance, risk management, resources and standards of conduct which are integral to the success of the Group.
Appointments to the Board are the responsibility of the Board as a whole, acting on the advice and recommendations of the Nomination and Governance Committee. The Nomination and Governance 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 and Governance Committee, the Board was pleased to appoint Andy Crossley as an independent Non-Executive Director with effect from 27 February 2018. Andy will be subject to election by shareholders at the forthcoming AGM.
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.
This induction is supplemented by visits to the Group’s head office in Cardiff and certain overseas offices, and meetings with members of the senior management team and their departments. Development and training of Directors is an ongoing process. Throughout their period in office the Directors are
Date of Appointment Current length of service as a Non-Executive Director at 31 December 2017 49Admiral Group plc · Annual Report and Accounts 2017
In addition the Chairman had individual meetings during the year with major shareholders and reported to the Board on issues raised with her.
All shareholders are invited to attend the Company’s Annual General Meeting (AGM). The Chairs of the Audit, Remuneration, Nomination and Governance and Group Risk Committees attend the AGM along with the other Directors and are available to answer shareholders’ questions on the activities of the Committees they chair. Shareholders are also invited to ask questions during the meeting and have an opportunity to meet with Directors after the formal business of the meeting has been concluded. Details of proxy voting by shareholders, including votes withheld, are made available on request and are placed on the Company’s website following the meeting.
The Group maintains a corporate website (www.admiralgroup.co.uk) containing a wide range of information of interest to institutional and private investors. The major shareholders of the Company are listed on page 83.
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 2017 and it was concluded that they continued to operate effectively.
Last year was Deloitte’s first as the Group’s auditor and therefore the Committee undertook an evaluation of their performance. The conclusion was that Deloitte was working effectively as external auditor, although a number of actions were agreed to help deliver all of the potential benefits. The audit fee for 2017 also had focus from the Committee with details of the year-on-year increase given later in this report.
The Internal Audit team underwent an external quality assessment which resulted in a strong endorsement of the internal audit function. A number of helpful recommendations were made which have been accepted by the Head of Internal Audit.
Chairman of the Audit Committee 51Admiral Group plc · Annual Report and Accounts 2017
Reports from the Chair of the Group Risk Committee on the principal risks faced by the Group and the work undertaken by the
Reports from the Deloitte, the external auditor, on their proposed audit scope, plan and findings
Membership Membership of the Committee at the end of the year was: Colin Holmes (Chair), and Owen Clarke. As stated earlier in this report, Penny James stepped down from the Board in 8 September 2017 following a change in her Executive role. For the period from September 2017 to 27 February 2018 the Committee did not have three Independent Non-Executive members as required under the Code. Andy Crossley has now joined the Board as a Non-Executive Director and member of the Audit Committee. Given Andy’s insurance and financial services experience, the Board considers that Committee members have a broad range of skills, experience and knowledge of the insurance sector such that they are able to effectively analyse, challenge and debate the issues that fall within the Committee’s remit and are satisfied that the Committee as a whole has competence relevant to the sector in which the company operates. The Board further considers that Colin Holmes (Committee Chair), as a Chartered Management Accountant, has appropriate recent and relevant financial experience having previously been the UK Finance Director for Tesco plc.
The Company Secretary acts as Secretary to the Committee. The Committee meets at least four times per year and has an agenda linked to events in the Company’s financial calendar and other important issues that arise throughout the year which fall for consideration by the Committee under its remit.
The Audit Committee’s primary responsibilities are to: • Monitor the integrity of the Group’s financial statements and any formal announcement relating to the Group’s financial performance, reviewing any significant financial reporting judgements which they contain
• Review the Group’s procedures for handling allegations from whistleblowers and for detecting fraud
• Monitor and assess the role and effectiveness of the Group’s Internal Audit functions in the context of the Group’s overall internal control and risk management systems
• Review the external auditor’s independence and objectivity and the effectiveness of the audit process
Valuation of Insurance Claims Reserves 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. The Committee spent time with management during the year to understand the rationale behind the enhanced methodology that was being proposed and process by which it would be reflected in the financial statements reserves at the full and half year. The Committee was satisfied that the methodology was consistent with the Group’s stated reserving approach and appropriate in the context of the Group setting claims reserves at a prudent level.
The Committee held separate meetings with the external actuaries at which there was challenge and debate on the best estimates developed by the external actuaries. At these meetings management provided further information on the reserving levels proposed and were challenged by the Committee as to their adequacy and level of inherent prudence.
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 note the continued high level of prudence that remains within the reserves.
The Audit Committee considered the auditor’s overall findings on this area which indicated that the profit commission recognised was considered appropriate in the context of the financial statements as a whole.
Misstatements No material unadjusted audit differences were reported by the external auditor. The Committee confirms that it is satisfied that the auditor has fulfilled its responsibilities with diligence and professional scepticism.
The Audit Committee continued 54 Admiral Group plc · Annual Report and Accounts 2017
Committee is satisfied that the financial statements appropriately address the critical judgements and key estimates (both in respect to the amounts reported and the disclosures). The Committee is also satisfied that the significant assumptions used for determining the value of assets and liabilities have been appropriately scrutinised, challenged and are sufficiently robust.
Non-Audit fees The Committee reviewed and approved its policy on non-audit services in April 2017, and were satisfied that it was aligned with current regulatory guidance. Under the policy, the Group’s statutory auditor would only be engaged to carry out non-audit work in exceptional circumstances or where there was a regulatory or tax authority request and where agreed by the Committee.
The Committee will continue to monitor regulatory developments in this area to ensure that its policy on non-audit fees adheres to current guidance.
Effectiveness of the External Audit Process The Committee undertakes an annual review to assess the independence and objectivity of the external auditor and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements, the progress achieved against the agreed audit plan, and the competence with which the auditor handled the key accounting and audit judgments. Following this review the Committee concluded that the auditor, Deloitte LLP, remained independent and provided a service that was robust and fit for purpose.
Audit fee During 2017, the Committee reviewed and approved the audit fee proposal for the 2017 year-end Group audit. The agreed fee for the audit and other assurance related services for 2017 is £490,000, an increase on the fee initially agreed for 2016 of £420,000. The main reasons for the increase were: • Additional costs incurred during the course of the 2016 audit which are recurring in 2017, primarily reflecting areas where an increased level of substantive audit testing was employed than had been initially planned; • An increased audit scope in areas of the Group outside of UK Car Insurance, reflecting the increased growth, complexity and materiality of these businesses to the Group as a whole; and
• The impact of changes to the regulatory environment, including the introduction of EU rules in relation to Public Interest Entities and the update to Auditing Standards.
The Committee approved the fee increase having provided robust challenge to the auditor on the elimination of first year transition costs and any potential inefficiencies within the audit process.
Committee effectiveness review As part of the Committee’s detailed annual review of its performance and processes, each Committee member completed a comprehensive questionnaire designed to provide objective assessment of the Committee’s performance, including its effectiveness in monitoring internal and external audit. The Committee discussed the results of the review and it was concluded that, overall, the Committee and the audit process were effective; that the Committee had full access to all the information it required; that the Committee had appropriate Terms of Reference; and that it was adequately discharging its responsibilities.
The Committee continues to focus on key operational risks that affect the Group. The risk event process for identifying, reporting and remediating events has developed further and the Committee has spent time reviewing any major risk events reported during the year (including consideration of the work required to remediate the issues arising from the work on the prior year renewal notification). In addition, the full programme of work, agreed last year, to reduce cyber risk has been progressed. This programme will also support the data protection work as the Group seeks to comply with the upcoming GDPR requirements.
The Committee challenged and reviewed the setting of and outputs from the regular stress and scenario testing and reverse stress testing. The output was incorporated into the Own Risk and Solvency Assessment (‘ORSA’) report for 2017, which the Committee also reviewed.
Finally, the Committee has devoted time to the work on Brexit to help set up appropriate EU based entities to enable the smooth transition of European business written within the Group. This work will no doubt continue throughout the next 12 months and regular reporting will be provided at key milestones on the project lifecycle.
Statement to Shareholders from the Chairman of the Group Risk Committee
Received regular monitoring reports on customer outcome risk and complaint handling and reviewed updates to the Group minimum compliance standards and Policy Framework
Received updates on the impact of a number of risk events throughout 2017 including Ogden,
Reviewed the Group’s regulatory capital addon application as part of Solvency II capital requirements
Reviewed the Group’s updated risk strategy, risk appetite and associated triggers and limits in the context of the
Composition of the Group Risk Committee Membership at the end of the year was: Annette Court, Jean Park (Chair), Manning Rountree and David Stevens. The Company Secretary acts as Secretary to the Committee.
• Monitoring the Group’s prudential risk exposure, which includes ensuring that the Group’s capital resources and liquidity profile are appropriate to its needs whilst meeting minimum regulatory requirements, including overseeing and challenging the design and execution of the Group’s stress and scenario testing
• Ensuring the adequacy and effectiveness of the Group’s systems and controls for the prevention of financial crime, data protection systems and controls
• Monitoring the adequacy and effectiveness of the Group’s Compliance functions
• Reviewing compliance with Group policies, including the established Reserving Policy and process
• Considering, and recommending to the Board for approval, the Group’s risk appetite, including any changes to the appetite for each material type of risk faced by the Group
• Review the ORSA report each year with recommendations being provided to the Group Board for approval
• Review and approve the Solvency II actuarial function reports on reinsurance and underwriting each year
The Board is of the view that there is an ongoing process for identifying, evaluating and managing the Group’s risks and internal controls; that it has been in place for the year ended 31 December 2017; and that, up to the date of approval of the Annual Report and Accounts, it is regularly reviewed by the Board and accords with the internal control guidance for Directors provided in the UK Corporate Governance Code.
The Board has delegated the development, implementation and maintenance of the Group’s overall risk management framework to the Group Risk Committee (“GRC”). The GRC 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 and subsidiary 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 GRC and Audit Committee.
Statement from Annette Court, Chairman of the Nomination and Governance Committee
In addition, the Committee now also has responsibility for addressing any conflict of interest issues in respect of appointments to these Boards and will advise the Group Board on whether the conflict should be authorised and whether any conditions should be applied to the authorisation.
Succession planning has again been a key area of focus for the Committee during the year. Non-Executive Director, Penny James left the Board in September 2017 due to change in her Executive role and the focus had been both on finding a replacement for Penny as well implementing the Group’s strategy of progressively refreshing the skills on the Board. In this context 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 Andy Crossley on 27 February 2018, further enhancing the range of skills, breadth of experience and diversity around the Board table.
The Committee continued the development of a structured succession plan that would ensure appropriate action was taken well in advance of dates by which Non-Executive Directors approach their ninth year of service in order to achieve their replacement, if appropriate, with individuals of the appropriate skills, experience and fit to the Board. External recruitment consultants have been engaged to lead the search for further Non-Executive appointments, particularly those with marketing and digital expertise.
In accordance with the requirements of Solvency II and the Senior Insurance Manager Regime, the Committee also reviewed and approved the Group’s Fit and Proper Policy which sets out the process of assessment for every person who performs a key function to ensure that they meet the requirements in terms of qualifications, capability, honesty and integrity.
Board composition and changes The Committee leads the process for making appointments to the Board or where the appointee is likely to become a Board member. The Committee ensures there is a formal, rigorous and transparent process for the appointment of new Directors to the Board embracing a full evaluation of the skills, knowledge and experience required of Directors. The Committee also ensures plans are in place for orderly succession for appointments to the Board and reviews the succession plans for other senior management positions. Responsibility for making senior management appointments rests with the Chief Executive.
Andy has 31 years’ experience within the financial services sector, most recently as Chief Financial Officer at Domestic & General Group from 2014 to 2017.
He spent 14 years at Prudential Plc from 2000 as Director, Group Finance; Group Chief Risk Officer; and CFO and Deputy Chief Executive of Prudential UK. He previously held senior manager roles at Legal & General Group Plc, where he was Group Financial Controller, and Lloyds Bank Plc. Andy is a Fellow of the Institute of Chartered Accountants.
Succession planning and talent management Talent management continues to be a key area of focus and the Board, at its meeting in June 2017, considered talent management within the Group and identified where there were individuals who, with further experience and guidance, might be capable of moving into particular senior management roles. The Committee remains satisfied that succession plans for Directors and senior management are in place to ensure the continued ability of the Group to implement strategy and compete effectively in the markets in which it operates.
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 82. In addition, the Committee will review, during 2018, the Parker Review’s final report on ethnic diversity and will focus on its “Beyond One by ‘21” recommendation. As part of their review, the Committee will focus on how the Group should develop a process to identify, develop and promote ethnic diversity such that a pipeline of suitable candidates is available for consideration for future Board and senior manager positions. However, the Group remains strongly supportive of the principle of boardroom diversity, of which gender and ethnicity are important, but not the only, aspects. 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.
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 pages 82 to 85.
I am pleased to introduce the Directors’ Remuneration Report for the year ended 31 December 2017, which has been prepared by the Remuneration Committee (the Committee) and approved by the Board. This is the first report I have prepared since being proposed as new Committee Chairman, to replace Annette Court. I am currently undertaking the role of asking Chairman, whilst my permanent appointment remains subject to regulatory approval.
It is against a similar backdrop that the Committee revisited the Remuneration Policy in 2017. The Committee continues to support the view that share ownership amongst staff is important, as it drives outstanding performance, promotes long-term success, reinforces a long-term focus on the customer, encourages appropriate risk management, and maintains shareholder alignment.
One of the two Executive Directors, the CEO David Stevens, is a founding Director and receives remuneration that comprises only 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.
• Reviewing the appropriateness of the performance conditions for the 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 approval of the Group’s Material Risk Takers in accordance with the requirements of Solvency II regime and reviewed the Solvency II Remuneration Policy
• Considered the terms of engagement with the Group’s Remuneration Consultants; • Reviewing the Gender Pay reporting requirements
Based on performance to 31 December 2017, 74.3% of the DFSS award made in 2015 will vest. The EPS condition was partially achieved, vesting at 41.0% of this element; and the ROE condition was also partially achieved, vesting at 81.9% of the element. The TSR condition vested at 100% of the element.
Resolutions to approve the proposed Remuneration Policy (subject to a binding vote) and the Annual Report on Remuneration (subject to an advisory vote) will be put to our shareholders at the AGM in April 2018. I am available to meet and discuss our Remuneration Policy with shareholders.
Extension of the overall DFSS time horizon with the introduction of a mandatory two-year holding period on vested awards, effective from awards made in 2018
Annual award of 5,000 salary shares to the CFO, vesting after three years subject to continued employment, with additional twoyear holding period
Dec 08 Dec 10 Dec 12 Dec 15Dec 09 Dec 11 Dec 14Dec 13 Dec 16 Dec 17 9 Year TSR Performance: Admiral vs. FTSE 100 and FTSE 350 indices Growth in the value of a hypothetical £100 holding over the nine years to 31 December 2017.
The Remuneration Committee is seeking shareholder approval for an updated Remuneration Policy at the 2018 AGM. The key changes to the previous Policy are as follows: • Annual award of 5,000 salary shares to the CFO, vesting after three years subject to continued employment, with additional two-year holding period
• Adjustment to the DFSS bonus to be based on risk performance
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 total package – the Group aims to deliver total remuneration packages that are market-competitive, taking into account the role, job size, responsibility, and the individual’s performance and effectiveness. Prevailing market and economic conditions and developments in governance are also considered, as are general salary levels throughout the organisation
• Long-term perspective – a significant part of senior executives’ remuneration is based on the achievement of stretching performance targets that support the delivery of the Group’s strategy and shareholder value. The extended performance and vesting horizons promote a long-term perspective that is appropriate to the insurance sector
• Open and honest culture – the Group has a strong culture of focussing on collective success, whilst still recognising individual contribution to the Group’s performance, and this is reflected in our remuneration structure across the business
Salary levels/increases take account of: • Scope and responsibility of the position
• Individual performance and effectiveness, and experience of the individual in the role
In respect of existing Executive Directors, it is anticipated that increases in cash salary or the number of salary shares will normally be in line with the increase for the general employee population over the term of this Policy. More significant increases may be awarded in certain circumstances including, but not limited to: where there has been a significant increase in role size or complexity, to apply salary progression for a newly appointed Executive Director, or where the Executive Director’s salary has fallen significantly behind market.
The Group operates a Personal Pension Plan, a Defined Contribution Scheme.
In the UK, the Group matches employee contributions up to a maximum of 6% of base salary subject to an overall maximum employer contribution of £15,000, or provides the equivalent value in cash. Base salary is the only element of remuneration that is pensionable.
The Committee retains the discretion to approve a higher cost in exceptional circumstances (e.g. relocation), or in circumstances driven by factors outside the Company’s control (e.g. material increases in healthcare insurance premiums).
Vesting of DFSS awards is subject to the Group’s performance over a three-year performance period. The performance measures may include EPS, ROE and relative TSR or other measures selected by the Committee, as appropriate. Measures will typically be weighted equally unless the Committee determines otherwise to reflect strategic priorities. Details of the measures, weightings and performance targets used for specific DFSS grants are included in the relevant year’s Annual Report on Remuneration.
To incentivise shareholder value creation, in particular in the form of dividends, management participate in a bonus scheme which directly links their awards to dividends paid to shareholders. Bonus is calculated to be equivalent to dividends that would have been payable during the year on all outstanding DFSS shares awarded but not vested, including salary share for the CFO.
Guideline to be met within five years or the later of the introduction of the guidelines and an Executive Director’s appointment.
Vesting under the DFSS is currently linked to EPS vs. LIBOR, ROE, and relative TSR. EPS vs. LIBOR has been selected as a performance measure as the Committee feels it is a strong indicator of both long-term shareholder return and the underlying financial performance of the business. It is transparent and visible and provides good line-of-sight to executives. ROE has been selected as the Committee believes that a returns metric reinforces the focus on capital efficiency and delivery of strong returns for our shareholders, thereby further strengthening the alignment of incentives with Admiral’s strategy. The third DFSS measure is relative TSR vs. the FTSE 350 (excluding investment companies). This has been selected to reflect value creation for Admiral’s shareholders as compared with the general market. The specific performance measures and their respective weightings in respect of each DFSS award may vary to reflect the strategic priorities at the time of the award.
In general, the Remuneration Policy which applies to other senior executives is consistent with that for Executive Directors. Remuneration is typically linked to Company and individual performance in a way that reinforces shareholder value creation.
Approximately 2,300 employees from across the Group, as well as the CFO, participate in the DFSS. The Committee recommends for approval by the Board DFFS awards for those Executives within its remit and on an aggregate basis for all other participants in the DFSS. For the CFO, all DFSS share awards are subject to performance conditions. For other senior managers and employees at lower organisational levels, a proportion of awards (ranging from 50% to two-thirds) is subject to performance, and the remainder has no performance conditions attached other than the requirement that the recipient remains an employee of the Group at the date of vesting. Award sizes vary by organisational level and an assessment of individual performance and non-financial business unit performance. All holders of DFSS awards receive the DFSS bonus. Overseas employees receive an equivalent award to the UK SIP awards under the DFSS. These awards have no performance measures attached.
Change of control Any unvested award will be pro-rated for time with reference to the proportion of the vesting period remaining at change of control, and extent to which the Committee determines that the performance conditions have been met or are likely to be met at the point of change of control, unless the Committee determines otherwise.
Death, injury or disability, redundancy, retirement or any other reasons the Committee may determine
Any unvested award will be pro-rated for time with reference to the proportion of the vesting period remaining at termination, and performance, unless the Committee determines otherwise
Service contracts and leaver/change of control provisions continued For all leavers (with the exception of termination for cause). In respect of vested DFSS and vested salary share awards that are still subject to a holding period, awards will normally be released in full at the end of the holding period, though the Committee has discretion to determine otherwise, taking into account the circumstances at the time.
The NEDs are not eligible to participate in the DFSS or DFSS bonus scheme and do not receive any pension contributions.
The value of DFSS awards is calculated based on the average share price in the last three months of 2017 (£18.88) and the number of DFSS shares awarded in 2017 (50,000 shares) and salary shares expected to be awarded in 2018 (5,000 shares, subject to shareholder approval).
Base salary • Annual cash salary and salary shares (CFO only) for 2018
Approach to Remuneration relating to new Executive Director appointments External appointments
Considerations of shareholder views When determining remuneration, the Committee takes into account best practice guidelines issued by institutional shareholder bodies. The Committee is open to feedback from shareholders on Remuneration Policy and will continue to monitor trends and developments in corporate governance and market practice to ensure the remuneration structure for our Executive Directors remains appropriate.
Considerations of regulatory requirements The Committee regularly reviews the Remuneration Policy and structure in the context of Solvency II remuneration guidance. The Chief Risk Officer periodically attends Committee meetings as part of this process and provides support to the Committee in understanding any riskrelated implications of remuneration decisions. Whilst the Remuneration Policy includes several features which help ensure compliance with current regulatory guidance, the Committee reserves the discretion to adjust the Remuneration Policy, and its execution, to take into account any developments in such regulatory guidance.
Remuneration Committee membership in 2017 The Board sets the Group’s Remuneration Policy and, through the authority delegated to it by the Board, the Committee is responsible for making recommendations to the Board on the structure and implementation of the Remuneration Policy across the Group with consideration to the prevailing economic climate within the economies in which the Group operates. Its remit includes recommending the remuneration of the Group Board Chairman, the Executive Directors and the Company Secretary; reviewing the remuneration of senior management; and reviewing the composition of and awards made under the performance-related incentive schemes.
At the end of 2017 the Committee consisted of Owen Clarke, Jean Park, Justine Roberts and Annette Court. Owen Clarke joined the Remuneration Committee with effect from 28 April 2016 and was proposed as the Chairman of the Committee on 26 April 2017. Owen Clarke is currently the Acting Chairman of the Committee as his appointment remains subject to regulatory approval. Justine Roberts joined the Committee with effect from 26 April 2017. Annette Court was the Chair of the Committee until the date of the 2017 AGM (26 April 2017) when she was appointed as Non-Executive Chair of Admiral and remains a member of the Committee pending the conclusion of Owen Clarke’s regulatory application process. The Committee met seven times during the year.
Advisor to the Committee During the year, in order to enable the Committee to reach informed decisions on Executive remuneration, advice on market data and trends was obtained from independent consultants, Mercer Kepler. Mercer Kepler reports directly to the Committee Chairman, and is a signatory to and abides by the Code of Conduct for Remuneration Consultants (which can be found at www.remunerationconsultantsgroup.com). Other than advice on remuneration, no other services were provided by Mercer Kepler (or any other part of the MMC group of companies) to the Company. The fees paid to Mercer Kepler in respect of work carried out in 2017 (based on time and materials) totalled £48,430, excluding expenses and VAT.
The Committee undertakes due diligence periodically to ensure that Mercer Kepler remains independent of the Company and that the advice provided is impartial and objective. The Committee is satisfied that the advice provided by Mercer Kepler is independent.
Summary of shareholder voting at the 2017 AGM The table below shows the result of the advisory vote on the 2016 Annual Report on Remuneration at the 2017 AGM.
For Against Total votes cast Abstentions 2016 Annual Report on Remuneration
3. Pension: the value of the Company’s contribution during the year.
5. DFSS: the value at vesting of shares vesting on performance over the three-year periods ending 31 December 2017 and 31 December 2016. For the 2017 figures, given that vesting occurs after the 2017 Directors’ Remuneration Report is finalised, the figures are based on the average share price in the last three months of 2017 (£18.88). The 2016 figures have been trued up based on the actual share price on vest (£20.24).
Manning Rountree £70,350 £70,350 1. Alastair Lyons retired from the Board with effect from 26 April 2017.
6. Justine Roberts was appointed to the Board on 17 June 2016.
Incentive outcomes for financial year to 31 December 2017 (audited) DFSS awards vesting on performance to 31 December 2017
10% for achieving threshold with straight line relationship to 100% for maximum performance 12.4% points. in excess of LIBOR
Vested DFSS awards are subject to clawback provisions in exceptional circumstances, such as material misstatement or gross misconduct.
In line with the Remuneration Policy, the Group paid a bonus to all holders of DFSS shares in 2017, which was equivalent to the dividend payable on all outstanding DFSS shares awarded but not yet vested. The Committee continues to believe that having a bonus equivalent to the dividend flow received by investors further aligns the incentive structure with shareholders.
Median Upper quartile 25% for median, with straight line relationship to 100% for upper quartile
DFSS awards are subject to clawback and malus provisions, i.e. forfeiture or reduction of unvested awards and recovery of vested awards in exceptional circumstances (such as material misstatement or gross misconduct).
Exit payments (audited) No exit payments were made to an Executive Director during the year.
The Committee believes that structuring the CFO’s salary increase as an award of shares, rather than cash, is better aligned with shareholders, is consistent with our philosophy of low cash awards balanced by the award of shares, and more effectively supports the CFO’s retention. The proposed change will bring the CFO’s package closer to market (though it will remain in the bottom quartile). It also reflects a move towards improving internal consistency between the CFO’s remuneration structure and that of the broader Admiral executive team below Board, for whom a proportion of their share awards are subject to continued employment but not subject to the DFSS vesting criteria.
As in prior years, the Committee intends to make an award under the DFSS to Geraint Jones in September 2018. In advance of each DFSS cycle, the Committee reviews the appropriateness of the performance measures and corresponding targets. The Committee will determine the award size and performance conditions to be attached to the 2018 DFSS award closer to the award date (expected to be in September 2018), and will disclose them in the 2018 Annual Report on Remuneration.
Additional fee for being Senior Independent Director £11,025 £10,500 1. The 2018 fee for the Board Chairman increased by 2.5% from £300,000 to £307,500 and comprises a cash fee of £215,250 and a share fee of £92,250 with which the Chairman is required under a Share Agreement entered into with the Group to use the net proceeds in two equal instalments to purchase Group shares after the Group’s Full Year Results and Half Year Results are announced each year.
2. Annette Court was appointed as Board Chairman on 26 April 2017 on an annual fee of £300,000. The annual fee payable to the previous Chairman, Alastair Lyons, was £244,577.
3. The fee payable to Jean Park, Chair of the Group Risk Committee, includes an additional fee of £20,000 per annum with effect from 1 January 2017 until 31 December 2018 in recognition of the increased time commitment required of her as a consequence of the Solvency II regulations and Internal Model Application Process.
Relative importance of spend on pay The table below shows the percentage change in dividends and total employee remuneration spend from the financial year ended 31 December 2016 to the financial year ended 31 December 2017.
The Directors are proposing a final dividend for the year ended 31 December 2017 of 58 pence per share bringing the total dividend for 2017 to 114.0 pence per share (2016: 114.4 pence per share).
Pay for performance The following graph sets out a comparison of TSR for Admiral Group plc shares with that of the FTSE 100 and FTSE 350 indices, of which the Company is a constituent, over the nine-year period to 31 December 2017. The Directors consider these to be the most appropriate indices against which the Company should be compared. TSR is defined as the percentage change over the period, assuming reinvestment of income.
9 Year TSR Performance: Admiral vs. FTSE 100 and FTSE 350 indices Growth in the value of a hypothetical £100 holding over the nine years to 31 December 2017.
CEO single figure of remuneration £328,027 £343,106 £358,199 £373,759 £387,546 £393,260 £397,688 £148,776 £246,023 £395,019
DFSS vesting outcome (% of maximum) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
CFO single figure of remuneration £632,312 £1,269,535 £1,048,130 £1,431,218 £1,444,4435 £1,204,1645 £363,551 £539,704 £599,5396 £1,113,117
6. This figure has been trued up since the 2016 report for the value of the 2014 DFSS based on the actual share price on vest (£20.24).
There are no annual bonus outcomes to report in the table as the Admiral DFSS bonus is not structured as a traditional annual bonus scheme and consequently a vesting outcome (as a percentage of max) is meaningless.
Dec 08 Dec 10 Dec 12 Dec 15Dec 09 Dec 11 Dec 14Dec 13 Dec 16 Dec 17 79Admiral Group plc · Annual Report and Accounts 2017
Dilution The Company currently uses newly issued shares to fund the DFSS and SIP. The Company has controls in place to ensure that shares awarded under the incentive schemes operated by the Company within any rolling ten-year period do not exceed 10% of the number of ordinary shares in the capital of the Company in issue at the time of each award. As at the end of 2017, the ten-year rolling dilution level was 9.45% on a gross basis and 8.51% on a net basis, after taking account of future attrition and performance vesting in the DFSS. The Company would consider using a mixture of newly issued shares and market purchase shares to fund the DFSS in the future.
As at 31 December 2017, the Directors held the following interests: Director
2. Total reflects shares from the 2015 DFSS award (performance test has been applied, and award is due to vest in September 2018).
None of the Directors had an interest in the shares of any subsidiary undertaking of the Company or in any significant contracts of the Group.
Value at 31 Dec 2017 or maturity (£) Date of award Final vesting/ maturity date 1. Value at maturity.
2. The vesting percentage for performance related awards made in 2014 was 0%. The award made to Geraint Jones in April 2014 was 50% performance related and 50% non-performance related and therefore the blended vesting percentage was 50%. This resulted in the lapsing of 10,000 shares. The value at maturity relates only to shares vested.
Acting Chairman of the Remuneration Committee 81Admiral Group plc · Annual Report and Accounts 2017
The Directors present their Annual Report and the audited financial statements for the year ended 31 December 2017.
The Directors have proposed a final dividend of £163 million (58 pence per share) payable on 1 June 2018.
There are a wide range of communication tools used by the Group to communicate to employees which assists in the understanding of business goals and objectives including; the staff portal (Atlas), internal newsletters, videos, team briefings, suggestion schemes, staff forums, updates on the staff share scheme and the annual Staff General Meeting (SGM). In the 2017 annual staff survey, 83% of staff were happy with the amount of information they receive about the company (2016: 84%).
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.
The present Directors of the Company are shown on pages 43 to 45 of this Report, whilst Directors’ interests in the share capital of the Company are set out in the Remuneration Report on pages 62 to 81.
The annual level of greenhouse gas emissions, resulting from activities for which the Group is responsible, in 2017 was 3,642 CO2e (2016: 3,764 CO2e), equivalent to 0.42 tonnes (2016: 0.45 tonnes) per employee*1. In accordance with GHG Protocol Scope 2 guidance released 20 January 2015, Admiral is exempt from reporting greenhouse gas emissions from electricity supply to the three largest UK offices which meets the GHG Protocol Corporate Standard. Note that 2016 has been restated to exclude one of the US offices for comparability as the data is not available for 2017 reporting.
There are no material exclusions from this data. Exclusions included figures for air conditioning from all sites because the information was not available from the managing agents of the Group’s multiple office locations.
*1 Average employee number excludes employees from offices for which data could not be collected.
• The risks On the Group’s risk register that could be a threat to the Group’s business model and capital adequacy.
At 31 January 2018, the Company had received notifications in accordance with the FCA’s DTRs of the following notifiable interests in the voting rights in the Company’s issued share capital: Number of shares %
At 31 December 2017, the Company’s issued share capital comprised a single class of shares referred to as ordinary shares. Details of the share capital and shares issued during the year can be found in note 11d.
There are a number of agreements that alter or terminate upon a change of control of the Company following a takeover bid, such as commercial contracts. None are considered to be significant in terms of their impact on the business of the Group as a whole except for the long term co-insurance agreement in place with Great Lakes Insurance SE. Details relating to this agreement are contained in the Strategic Report.
In line with the new principles published by the Pre-Emption Group in March 2015, and their template resolutions published in May 2016, allowing a company the ability to seek authority over a further 5% of the issued ordinary share capital on a non-pre-emptive basis subject to certain conditions, it is the intention of the Company, at the AGM on 26 April 2018, to seek this additional authority by special resolution and will confirm in the Notice of AGM that such additional shares are only issued in connection with a specified acquisition or capital investment.
The Company’s Articles of Association (the Articles) give the Directors power to appoint and replace Directors. Under the Terms of Reference of the Nomination and Governance Committee, any appointment must be recommended by the Nomination and Governance Committee for approval by the Board of Directors. The Articles also require Directors to retire and submit themselves for election at the first Annual General Meeting following appointment and all Directors who held office at the time of the two preceding Annual General Meetings to submit themselves for re-election.
The Board is of the view that it is in the best interests of the Group to attract and retain the services of the most able and experienced Directors by offering competitive terms of engagement, including the granting of such indemnities.
Directors’ Report Continued 84 Admiral Group plc · Annual Report and Accounts 2017
During the year to 31 December 2017, the Company has in all respects complied with the provisions of the 2016 Code except with regard to non-compliance with the provisions as set out in the corporate governance report at page 46.
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
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Company’s auditor, Deloitte LLP, has indicated a willingness to continue in office and resolutions to reappoint it and to authorise the Directors to fix its remuneration will be proposed at the Annual General Meeting.
Company Secretary Chief Financial Officer 85Admiral Group plc · Annual Report and Accounts 2017
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 2017 and of the group’s profit for the year then ended; • the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (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 Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company.
Materiality The materiality that we used in the current year was £20m which was determined on the basis of 5% of profit before tax.
The components within the scope of our audit procedures account for 93% of the group’s profits and losses before tax (2016: 94%), 91% of revenue (2016: 87%) and 91% of the group’s net assets (2016: 95%).
We have reviewed the directors’ statement in note 2 to the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the group’s and company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements.
• the directors’ explanation on page 59 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.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matters identified this year are in line with those identified in the 2016 audit.
In line with the group's accounting policy, management adds a margin to the actuarial best estimate to arrive at the booked gross claims reserves. This margin reflects the inherent uncertainty in estimating the ultimate losses on claims, over and above that which can be projected actuarially based on underlying claims development data. This is a significant area of management judgement and, therefore, a focus of our audit. Specifically, the margin in the UK Car Insurance reserves, related to large bodily injury claims, is our key area of focus in respect of the margins included.
Where there was a movement in the perceived level of prudence in the booked reserves, or a change in methodology, we assessed this against the applicable accounting standard (IFRS 4: Insurance Contracts). Where there was a change in methodology, we assessed this against IFRS 4 and IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors).
Key observations Based on our procedures above, we consider the booked reserves remain appropriate and in line with the Group’s prudent accounting policy.
Independent Auditor’s Report continued 88 Admiral Group plc · Annual Report and Accounts 2017
The auditing standards prescribe that a risk of fraud in revenue recognition should be presumed for all trading groups and companies. We therefore performed an assessment of the group’s classes of revenue transactions to identify the areas where there was a potential for fraud through possible manipulation of this balance.
In our view, the profit commission income earned by the group, which, on a consolidated basis, consists of amounts due from the group’s co-insurer of £64.7m (2016: £54.3m), represents a revenue class for which there is an incentive to fraudulently overstate the amounts recorded. Accordingly, we have determined that the accuracy of profit commission income due from the group’s co-insurance arrangement includes elements which constitute a significant risk of material misstatement for the group financial statements and therefore identified this as a key audit matter.
We tested and were able to rely upon the key controls associated with changes in the calculation; which are controls designed to ensure that the inputs to the calculation are accurate and the review by management which is performed to check that the requisite changes have been reflected in the detailed calculation.
Our substantive response constituted inspection of the applicable co-insurance contracts to evaluate the form and content of management’s calculation and a substantive analytical review. We developed an independent expectation of the commission income to recognise, based upon our understanding of the contracts and using the loss ratios audited as part of our insurance reserves testing, compared that to the output of management’s calculation and then investigated any differences.
Key observations Based on our procedures above, we considered the profit commission to be appropriately calculated.
Basis for determining materiality 5% of profit before tax (2016: 5%) 3% of net assets (2016: 3%)
The parent company primarily exists as the holding company which carries investments in group subsidiaries and is the issuer of listed securities. We consider that net assets is the critical benchmark for the company.
Group materiality 90 Admiral Group plc · Annual Report and Accounts 2017
The two further group components which were subject to full scope audit engagements this year were the Italian branches of Admiral Insurance Company Limited and Admiral Insurance (Gibraltar) Limited, each audited to a component materiality of £1.6m. Combined, they contribute the majority of the European insurance segment’s results and represent 7% of the group’s gross earned premium and 7% of the gross insurance reserves reported. The change in scope since 2016 represents the growing significance of the Italian business to the group’s global underwriting activities.
Additionally, we have completed specific audit procedures, designed to address specific audit risks, for Elephant Insurance Company, a subsidiary company incorporated in the USA, and the Spanish branch of Admiral Insurance Company Limited.
For the remaining components, which were not subject to audit or specified audit procedures, we performed analysis at an aggregated group level to re-assess our evaluation that there were no significant risks of material misstatement presented by any of these components. The components within the scope of our audit procedures account for 93% of the group’s profits and losses before tax, 92% of revenue and 92% of the group’s net assets (2016: 94% of profits and losses before tax, 87% of revenue and 95% of net assets).
The directors are responsible for the other information. The other information comprises the information included in the annual report other than the financial statements and our auditor’s report thereon.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where we conclude that: • Fair, balanced and understandable – the statement given by the directors that they consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s position and performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
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, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Independent Auditor’s Report continued 92 Admiral Group plc · Annual Report and Accounts 2017
Following the recommendation of the audit committee, we were appointed by shareholders’ approval at the Annual General Meeting on 28 April 2016 to audit the financial statements for the year ending 31 December 2016 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 2 years, covering the years ending 31 December 2016 to 31 December 2017.
Statutory Auditor London, United Kingdom 93Admiral Group plc · Annual Report and Accounts 2017
Profit after tax attributable to: Equity holders of the parent 334.2 222.2
Consolidated statement of comprehensive income For the year ended 31 December 2017
Items that are or may be reclassified to profit or loss
Company Number: 03849958 96 Admiral Group plc · Annual Report and Accounts 2017
Change in trade and other payables, including tax and social security 349.5 279.9
Cash flows from operating activities, net of movements in investments 387.8 507.0
Cash flows from investing activities: Purchases of property, equipment and software (22.7) (31.6)
Cash flows from financing activities: Non-controlling interest capital contribution 1.8 (0.2)
Contributions by NCIs – – – – – – 1.8 1.8
Total transactions with equity holders – – – – (259.6) (259.6) 1.8 (257.8)
Notes to the financial statements 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 Group has adopted the following IFRSs and interpretations during the year, which have been issued and endorsed by the EU: • Amendments to IAS 7 (Disclosure Initiative) and IAS 12 (Recognition of Deferred Tax Assets for Unrealised Losses).
There is an impact of applying the expected loss model for the first time, with the application of IFRS 9 resulting in earlier impairment charges and the potential for increased volatility. This impact has been assessed and is currently immaterial, at less than £0.5 million as at 31 December 2017.
The Group plans to adopt IFRS 9 as of 1 January 2018, in line with its effective date.
The Group is planning on using the modified retrospective approach on transition, which will result in a cumulative adjustment to retained earnings as at 1 January 2018. The impact on the Consolidated income statement in future periods is expected to be immaterial.
IFRS 16 Leases was issued in early 2016 and is effective from 1 January 2019. The standard specifies how firms will recognise, measure, present and disclose leases. It presents a single lessee accounting model and requires that assets and liabilities to be recognised in the Consolidated statement of financial position, other than in the cases where leases are of low value or of a short-term nature of 12 months or less.
The Group expects to apply the modified retrospective approach to transition that is permitted under IFRS 16. Impact assessments performed to date conclude that: – Property leases represent the most significant class of lease held by the Group that will be impacted by the new standard.
– The presentation of the Consolidated statement of financial position is expected to be significantly impacted, with material lease liabilities and ‘Right of Use’ assets being included for the first time.
The profile of lease related expense recognised in the Consolidated income statement is not expected to change materially.
IFRS 17 Insurance Contracts was issued in May 2017. The standard will replace IFRS 4, establishing new principles for the recognition, measurement, presentation and disclosure of Insurance contracts within the scope of the standard. The standard will apply to reporting periods beginning on or after 1 January 2021.
• The risks included on the Group’s risk register that could impact on the Group’s financial performance, levels of liquidity and solvency over the next 12 months.
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, above the projected best estimate outcome, to allow for unforeseen adverse claims development. Management applies judgement in determining where, above the projected best estimate outcome, the insurance claims reserves should sit in line with the Group's reserving methodology. Refer to the section on estimation techniques below. Above the projected best estimate outcome the insurance claims reserves should sit, in line with the Group’s reserving methodology. Refer to the section on estimation techniques below, and the analysis of Insurance risk in note 5 to the financial statements for further detail on the development of the Group’s reserving methodology applied during the period and the calculation of the projected best estimate outcome.
Estimation techniques used in calculation of claims provisions and profit commission
Estimation techniques are used in the calculation of the provisions for claims outstanding, which represent a projection of the ultimate cost of settling claims that have occurred prior to the balance sheet date and remain unsettled at the balance sheet date.
Notes to the Financial Statements continued For the year ended 31 December 2017 4. Group consolidation and operating segments 4a. Accounting policies
Non-monetary items measured at cost are translated at their historic rate and non-monetary items held at fair value are translated using the foreign exchange rate on the date that the fair value was established.
The financial statements of foreign operations whose functional currency is not pounds sterling are translated into the Group presentation currency (sterling) as follows: • Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet.
During the period, the Group launched a UK Van Insurance product that is included within the UK Insurance segment. The results from the Group’s commercial van broker Gladiator continue to be presented within the ‘Other’ segment.
An analysis of the Group’s revenue and results for the year ended 31 December 2017, by reportable segment, is shown below. The accounting policies of the reportable segments are consistent with those presented in the notes to the financial statements for the Group.
Revenue and results for the corresponding reportable segments for the year ended 31 December 2016 are shown below.
Other segment items: – Intangible and tangible asset additions 46.2 28.9 0.4 4.2 – 79.7 *1 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.
Notes to the Financial Statements continued For the year ended 31 December 2017 4. Group consolidation and operating segments continued 4b. Segment reporting continued
The UK and International Car Insurance reportable segments derive all insurance premium income from external policyholders. Revenue within these segments is not derived from an individual policyholder that represents 10% or more of the Group’s total revenue.
Revenues from external customers for products and services are consistent with the split of reportable segment revenues as shown on page 103.
All material revenues from external customers, and net assets attributed to a foreign country, are shown within the International Car Insurance reportable segment shown on the previous pages. The revenue and results of the three international Price Comparison businesses, Rastreator, LeLynx and Compare.com are not yet material enough to be presented as a separate segment.
There is an asymmetrical allocation of assets and income to the reportable segments, in that the interest earned on cash and cash equivalent assets deployed in the UK Insurance, Price Comparison and International Car Insurance segments is not allocated in arriving at segment profits. This is consistent with regular reporting to the Board of Directors.
Premiums relating to insurance contracts are recognised as revenue, net of insurance premium tax, proportionally over the period of cover. Premiums with an inception date after the end of the period are held in the statement of financial position as deferred revenue. Outstanding collections from policyholders are recognised within policyholder receivables.
Under some of the co-insurance and reinsurance contracts under which motor premiums are shared or ceded, profit commission may be earned on a particular year of account, which is usually subject to performance criteria such as loss ratios and expense ratios. The commission is dependent on the ultimate outcome of any year, with revenue being recognised when loss and expense ratios used in the preparation of the financial statements move below a contractual threshold. Profit commission receivable from reinsurance contracts is accounted for in line with IFRS 4, whereas profit commission receivable from co-insurance contracts is in line with IAS 18.
Total profit commission 67.0 54.3 *1 Profit commission for the UK Car business relates solely to co-insurance arrangements and profit commission for the UK Household business relates solely to reinsurance arrangements.
No profit commission has yet been recognised on the 2014 – 2017 underwriting years as the combined ratios calculated from the financial statement loss ratios on these years sit above the threshold for profit commission recognition.
• 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
• 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.
• Results of stress testing of key assumptions underpinning key actuarial assumptions within best estimate reserves
• A review of a number of individual and aggregated reserve scenarios which may result in future adverse variance to the ultimate best estimate reserve
• Qualitative assessment of the level of uncertainty and volatility within the reserves and the change in that assessment compared to previous periods.
As profit commission income is recognised in the income statement in line with loss ratios accounted for on Admiral’s own claims reserves, the reserving policy also results in profit commission income being deferred and recognised over time.
Key processes and controls operating to mitigate premium risk are as follows: • Experienced and focused senior management and teams in relevant business areas including pricing and claims management
• A data-driven and analytical approach to regular monitoring of claims and underwriting performance
As noted above, the gross and reinsurers share of insurance liabilities in these financial statements are prepared on the basis of an Ogden discount rate of minus 0.75%. On 7 September 2017, the Lord Chancellor announced draft legislation to change the way in which the Ogden discount rate is set, with initial indications being that the new discount rate could be set between 0% and 1%.
Impact of increase in assumed Ogden discount rate of 75 basis points (to 0%) 85.6 68.7
Impact of decrease in assumed Ogden discount rate of 75 basis points (to minus 1.5%) (142.7) (102.1)
The impacts are stated net of co-insurance reinsurance and include the impact on net insurance claims along with the associated profit commission movements that result from the change in the Ogden rate.
The maturity profile of gross insurance liabilities at the end of 2017 is as follows: < 1 year £m 1–3 years £m > 3 years £m
Total gross insurance liabilities 1,473.1 700.1 576.3 110 Admiral Group plc · Annual Report and Accounts 2017
International insurance gross claims incurred (23.5) (23.2) (31.8) (65.6) (112.2) (120.8) (131.5) (146.9) (217.8) (278.2)
International insurance net claims incurred (8.2) (9.2) (12.8) (28.3) (48.6) (49.1) (50.5) (51.6) (76.5) (94.2)
Analysis of net releases on UK Insurance: – Net releases on Admiral net share 53.3 66.8 84.6 58.3 92.6
Total net release as above 94.2 137.4 173.4 75.4 166.4 113Admiral Group plc · Annual Report and Accounts 2017
Admiral typically commutes quota share reinsurance contracts in its UK Car Insurance business 24 or 36 months following the start of the underwriting year. After commutation, any changes in claims costs on the commuted proportion of the business are reflected within claims costs and are separately analysed here. Releases on commuted quota share contracts are analysed by underwriting year as follows: Financial year ended 31 December £m £m 2015 £m £m £m
Total releases on commuted quota share reinsurance contracts 40.9 70.6 88.8 17.1 73.8
Claims provision at end of period 2,030.8 (701.6) 1,329.2 114 Admiral Group plc · Annual Report and Accounts 2017
The Group’s holdings in Fixed Income and Asset Backed Securities are classified as AFS investments, which is consistent with the intention for which they were purchased.
Government gilts are also classified as AFS investments, in line with IAS 39, due to a reclassification in the period following the disposal of a portion of the holding.
Deposits held with credit institutions are classified as loans and receivables, in line with the nature of these deposits, with 2016 comparatives restated to reflect this more appropriate classification of these assets.
Transaction costs associated with the purchase of all financial assets are expensed within the income statement as incurred.
Notes to the Financial Statements continued For the year ended 31 December 2017 6. Investments continued 6a. Accounting policies continued
Financial assets at FVTPL are stated at fair value, with any resultant realised or unrealised gain or loss recognised through the income statement.
Investments classified as available for sale are stated at fair value. Unrealised changes in the fair value of these assets are recognised in Other Comprehensive Income (OCI). Interest income is recognised within profit or loss using the effective interest rate method.
Loans and receivables are stated at their amortised cost less impairment using the effective interest method. Impairment losses are recognised through the income statement.
Subsequent measurement is at amortised cost using the effective interest method. Movements in the amortised cost are recognised through the income statement.
The Group’s deposits are held with well rated institutions; as such the fair value approximates to the book value of the investment based on the interest rates of the instruments, credit risk movements and durations of the assets. The amortised cost carrying amount of receivables is a reasonable approximation of fair value.
Release of accrual for reinsurers’ share of investment returns – 9.2
Finance costs represent interest payable on the £200 million (2016: £200 million) subordinated notes and other financial liabilities.
The Group’s financial instruments can be analysed as follows: £m £m
Total financial liabilities 1,865.6 1,516.2 *1 2016 comparatives have been restated to present deposits held with credit institutions as loans and receivables, as this is considered to be a more appropriate classification of these assets.
There have been no defaults on any of the notes during the year. The Group has the option to defer interest payments on the notes but to date has not exercised this right. The aggregate fair value of subordinated dated notes at the balance sheet date is disclosed in the table below.
The Group holds two revolving credit facilities of £100 million each. As at 31 December 2017, £20 million (2016: £20 million) was drawn under these agreements as shown within other borrowings in the table above.
The measurement of investments at the end of the period, for the majority of investments held at fair value and those classified as available for sale, is based on active quoted market values (level one). An immaterial amount of investments held at fair value are measured at level three of the fair value hierarchy. No further information is provided due to the immateriality of the balance at 31 December 2017.
Deposits are held with well rated institutions; as such the approximate fair value is the book value of the investment as impairment of the capital is not expected. There is no quoted market for these holdings and as such a level two valuation is used. The book value of deposits is £130.0 million (2016: £170.0 million).
Total financial liabilities – 1,666.4 – 199.2 119Admiral Group plc · Annual Report and Accounts 2017
There were no significant financial assets that were past due at the close of either 2017 or 2016.
• 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 investment 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).
The Group’s Directors believe that the cash flows arising from these assets will be consistent with this profile. Liquidity risk is not, therefore, considered to be significant.
The Group’s exposure to net assets and profits in currencies other than the reporting currency is immaterial other than for US dollars. The Group’s exposure to net assets held in dollars at the balance sheet date was £55.1million (2016: £70.5 million).
The loss before tax derived from business carried out in the US was £23.4 million (2016: £39.1 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 £2.2 million (2016: £3.6 million).
Total other revenue 401.1 360.6 *1 Price comparison revenue excludes £19.8 million (2016: £20.8 million) of income from other Group companies.
Notes to the Financial Statements continued For the year ended 31 December 2017 8. Expenses continued 8a. Accounting policies continued
Leases which do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased items are classified as operating leases. The Group has entered into a number of non-cancellable operating lease arrangements for properties and other assets. The leases have varying terms, escalation values and renewal rights.
The £79.0 million (2016: £71.3 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 58.9 49.9
– Fees payable for the audit of the Company’s subsidiary accounts 0.3 0.3 0.2 0.2
Refer to the Corporate Governance Report for details of the Audit Committee’s policy on fees paid to the Company’s auditor for non-audit services. The ratio of non-audit fees to audit fees in 2017 was 54% (2016: 82%).
Support staff 3,157 2,605 125Admiral Group plc · Annual Report and Accounts 2017
Retirement benefits are accruing to the following number of Directors under: – Money purchase schemes 2 2 8f. Staff share schemes
The range of awards is as follows: • If the growth in EPS is less than the RFR, no awards vest.
• To achieve the maximum award, EPS growth has to be 36 points higher than RFR over the three year period.
For awards in 2016 and onwards there are now three performance conditions which the 50% not guaranteed to vest are subject to. These are three-year EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), and ROE, weighted equally.
Awards under the DFSS are not eligible for dividends (although a discretionary bonus is currently paid equivalent to the dividend that would have been paid on the respective shareholding) and hence the fair value of free shares to be awarded under this scheme has been revised downwards to take account of these distributions.
Current tax is the expected tax payable on the taxable income for the period, using tax rates that have been enacted or substantively enacted by the balance sheet date, and includes any adjustment to tax payable in respect of previous periods.
The principal temporary differences arise from carried forward losses, depreciation of property and equipment and share scheme charges. The resulting deferred tax is charged or credited in the income statement, except in relation to share scheme charges where the amount of tax benefit credited to the income statement is limited to an equivalent credit calculated on the accounting charge. Any excess is recognised directly in equity.
Balance brought forward at 1 January 2016 7.1 2.7 9.9 – 0.9 20.6
The UK corporation tax rate reduced from 20% to 19% on 1 April 2017. The average effective rate of tax for 2017 is 19.25% (2016: 20.00%). A further reduction to the main rate of corporation tax to 17% (effective from 1 April 2020) was enacted on 15 September 2016. This will reduce the Group’s future current tax charge accordingly.
All property and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using the straight line method to write off the cost less residual values of the assets over their useful economic lives. These useful economic lives are as follows: Improvements to short leasehold buildings – four to ten years Computer equipment – two to four years Office equipment – four years Furniture and fittings – four years Motor vehicles – four years
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.
Notes to the Financial Statements continued For the year ended 31 December 2017 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 – 4.4 132 Admiral Group plc · Annual Report and Accounts 2017
Loans and advances to customers relate to the Admiral loans business.
Total accruals and deferred income as above 241.4 166.0 10g. Obligations under finance leases
The Group was committed to total minimum obligations under operating leases on land and buildings as follows: £m
Profit for the financial year after taxation attributable to equity shareholders 334.2 222.2
The difference between the basic and diluted number of shares at the end of 2017 (being 586,753; 2016: 614,357) relates to awards committed, but not yet issued under the Group’s share schemes. Refer to note 8 for further detail.
Notes to the Financial Statements continued For the year ended 31 December 2017 11. Share capital continued 11d. Share capital £m
During 2017 2,861,992 (2016: 2,764,317) new ordinary shares of 0.1 pence were issued to the trusts administering the Group’s share schemes.
811,992 (2016: 764,317) of these were issued to the Admiral Group Share Incentive Plan Trust for the purposes of this share scheme to give a closing number at 31 December 2017 of 9,756,914 (31 December 2016: 8,944,922). These shares are entitled to receive dividends.
Registered office: 514 JMD Regent Square, Mehrauli Gurgaon Road, Gurgaon, 122001, India
Registered office: 140 East Shore Drive, Suite 300, Glen Allen, VA 23059 compare.com Insurance Agency LLC Ordinary 71.1 (indirect) Insurance Intermediary
Preminen Mexico Sociedad Anonima de Capital Variable Ordinary 51.25 (indirect) Insurance intermediary
Gross premiums written after co-insurance per note 5b of financial statements 1,927.7 1,482.0
Total turnover 2,958.2 2,575.8 *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 nonoptional legal protection policies. The vehicle commission included within other revenue is therefore eliminated from the turnover measure to avoid double counting.
Reserve releases on commuted reinsurance 73.8 – 73.8 17.1 – 17.1
Adjusted net insurance premium revenue 429.1 123.0 614.6 404.3 91.3 545.8 *1 Other adjustments relate to additional products underwritten in the Group’s international car insurance businesses. The contribution from these products is reported as ancillary income and as such the amounts are excluded for the purpose of calculation of loss and expense ratios.
Adjusted net insurance premium revenue 429.1 123.0 614.6 404.3 91.3 545.8 *1 The intra-group expenses elimination amount relates to aggregator fees charged by the Group’s price comparison entities to other Group companies.
12d. Reconciliation of statutory profit before tax to Group’s share of profit before tax
Approximate impact of reduction in UK Ogden discount rate in 2016 – 105.4
Notes to the Financial Statements continued 140 Admiral Group plc · Annual Report and Accounts 2017
Items that are or may be reclassified to profit or loss – –
Deferred tax charge in relation to movements in fair value reserve – – (4.2) – (4.2)
Total comprehensive income for the period – – 18.1 267.5 285.6
Deferred tax on share scheme credit – – – – –
The Company has taken advantage of the following disclosure exemptions under FRS 101: • FRS 101.8 (d): the requirement of IFRS 7 Financial Instruments: Disclosure to make disclosures about financial instruments
Notes to the Parent Company Financial Statements 144 Admiral Group plc · Annual Report and Accounts 2017
Government gilts are classified as AFS investments, in line with IAS 39 due to a reclassification in the period following the disposal of a portion of the holding.
Deposits held with credit institutions are classified as loans and receivables, in line with the nature of these deposits, with the 2016 comparative restated to reflect this more appropriate classification of these assets.
2. Administrative expenses Included within administrative expenses are re-charges of £1.6 million (2016: £1.4 million) relating to employees within the Group who perform services on behalf of the Company. No staff are directly employed by the Company.
In 2017 a non-cash impairment loss of £25 million has been recognised by the Parent Company in respect of its investment in the Group’s US insurance business Elephant Auto. The impairment charge is presented within the “Impairment losses” line of the Parent Company Income Statement and reduces the value of the investment to its recoverable amount, being its value in use, of £100 million.
The impairment charge coincided with a review of the long-term strategy of Elephant by its management team and subsequent approval by the Board. During 2017, additional capital of £16 million was provided to Elephant to continue to maintain a strong surplus over regulatory requirements. Elephant remains loss making at this stage in its development, which is in line with its long-term plan. Whilst the long-term plan did support the carrying value of the subsidiary, impairment was considered appropriate following the results of a number of stress tests applied to the plans.
A pre-tax discount rate of 11% has been used, calculated using a Capital Asset Pricing Model (CAPM) calculation (using a risk free return plus an appropriate risk premium), given that an asset specific rate is not available from the market.
During 2017 the management team at Elephant has been strengthened and a number of important operational improvements have been made. Although success is not certain, the Board remains confident in the prospects of the business and continues to support Elephant in the achievement of its goals. The impairment charge has no impact on the Group’s profit for the period or capital position.
Notes to the Parent Company Financial Statements continued 148 Admiral Group plc · Annual Report and Accounts 2017
Balance brought forward at 1 January 2016 – – – – – –
Tax treatment of share scheme charges through income or expense – – – – – –
Balance carried forward at 31 December 2016 – – – – – –
Tax treatment of share scheme charges through income or expense (0.1) – – – – (0.1)
The deferred tax liability at 31 December 2017 has been calculated based on the rate at which each timing difference is most likely to reverse.
Total trade and other payables 189.4 209.2 8. Share capital and reserves Capital within the Company is comprised of share capital and the share premium account, the fair value reserve (which reflects movements in the fair value of assets classified as available for sale, as reclassified in the period) and retained earnings.
August 2016 (62.9 pence per share, paid October 2016) – 174.4
March 2017 (51.5 pence per share, paid June 2017) 143.7 –
Income statement 2017 £m 2016 £m 2015 £m 2014 £m £m
Balance sheet 2017 £m 2016 £m 2015 £m 2014 £m £m
Glossary 152 Admiral Group plc · Annual Report and Accounts 2017
Combined Ratio Reported combined ratios are the sum of the loss and expense ratios as defined above. Explanation of these figures is noted above and reconciliation of the calculations are provided in notes 12b and 12c.
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 the calculation of inflation in the annual payment amounts under Periodic Payment Order (PPO) claims settlements.
Also referred to as the written basis. Claims incurred are allocated to the calendar year in which the policy was underwritten. Underwriting year basis results relate to the relevant underwriting year, are calculated on the whole account (including co-insurance and reinsurance shares) and include all premiums, claims, expenses incurred and other revenue (for example instalment income and commission income relating to the sale of products that are ancillary to the main insurance policy) relating to policies incepting in the relevant underwriting year.
Glossary continued 154 Admiral Group plc · Annual Report and Accounts 2017
As referred to on page 2 of this report, the Group’s 2016 annual report disclosed financial highlights including and excluding the impact of the change in Ogden discount rate as follows: • Group’s share of profit before tax (Pre Ogden) of £389.7 million (2015: £376.8 million)
• Group’s share of profit before tax (Post Ogden) of £284.3 million (2015: £376.8 million)
• Group statutory profit before tax of £278.4 million (2015: £368.7 million)
• Earnings per share (Pre Ogden) of 109.6 pence (2015: 107.3 pence)
• Statutory price comparison result of £2.9 million loss (2015: loss of £15.5 million)
• Almost 9,000 staff eligible to receive free shares worth a total of £3,600 each in the employee share scheme based on the full year 2016 results 155Admiral Group plc · Annual Report and Accounts 2017
Joint corporate brokers Bank of America Merrill Lynch 2 King Edward Street London EC1A 1HQ
Corporate website The Group’s corporate website is at www.admiralgroup.co.uk. A range of information about the Admiral Group is presented, including the Group’s history, financial reports and press releases, corporate responsibility and governance.