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Core Businesses: Admiral started as a direct private car insurer in the UK in 1993. It now operates through four brands – Admiral, Bell, Diamond and elephant.co.uk.
International Expansion, Germany: AdmiralDirekt, German direct car insurer, launched in October 2007.
International Expansion, France: LeLynx.fr, French price comparison website launched at the start of 2010.
International Expansion, Italy: ConTe, direct car insurer, launched in May 2008.
At the start of 2010, the Group launched Chiarezza.it, an Italian price comparison website.
Rastreator.com, the Group’s Spanish price comparison website, launched in March 2009.
International Expansion, USA: Elephant.com, US direct car insurer, launched in Virginia, in October 2009.
• Operating through four brands, Admiral’s core business is selling, administering and underwriting UK private car insurance
• The business has offi ces in Cardiff, Swansea and Newport in the UK
and also has a call centre branch in Canada £939.1 m UK turnover 17% growth 1.86 m Number of UK customers 17% growth
• The Group owns four, relatively new direct car insurers outside the UK
• Balumba, in Spain enjoyed its third full year of trading in 2009 and ended the year with 50,000 customers
• Confused.com is one of the UK’s leading insurance and fi nancial services comparison websites
• In early 2010, two more non-UK websites started operating – LeLynx.fr in France and Chiarezza.it in Italy £80.5 m Total revenue £24.9 m Price comparison pre-tax profi t
• The Group has a conservative approach to investment and manages a very low risk portfolio. Key priorities are capital preservation, low volatility and high levels of liquidity
With price comparison further increasing its share as a distribution channel for motor insurance, our UK private motor business had another very strong year, growing both its vehicle count and gross premiums by 17%. The 1.9 million cars covered by Admiral brands account, we estimate, for some 7% of the UK market making us the UK’s third largest private motor insurer. This growth in our book in 2009 was accompanied by a 19% increase in profi t derived from ancillary products and services.
• Exploit the knowledge, skills and resources attaching to our established UK businesses to promote our expansion overseas in both private motor and price comparison
• Learn by taking relatively small and inexpensive steps to test different approaches and identify the best way forward
• Operate a ‘capital-light’ business model transferring a signifi cant proportion of our underwriting risk to reinsurance partners, which in turn allows Admiral to distribute the majority of our earnings as dividends
Particular areas of focus have been ensuring the Board spends its time on issues of signifi cance, both operational and strategic, rather than on the reporting of detailed implementation; the management resource required by an ever larger and more complex business; and achieving adequate understanding by our Board of the increasing number of markets in which we have a presence.
Totally in line with our risk-sharing strategy were the agreements we announced in January this year with Munich Re and Hannover Re to broaden and lengthen our existing relationships with these very strongly rated reinsurance providers. Our association with Munich Re dates back to 2000 and may now go past 2020 with the advent of a new 15 year agreement for our US business and the extension of our agreements with them in Spain and Italy also to 15 year terms. We are very pleased to have the confi dence of an institution of Munich Re’s standing to justify its committal to such long-term agreements.
Given our very prudent investment philosophy, exceptionally low interest rates across our business ate into the strong growth in UK car insurance profi ts, leaving Group pre-tax profi ts at £216 million, 7% ahead of the previous year.
Every Admiral employee is included in our Free Share Schemes. As regards the Approved Free Share Scheme the achievement in full of the 2009 objectives will mean employees will again realise the maximum award of £3,000 free shares. Someone who has been employed since fl otation now has the potential to hold 1,820 shares under this scheme worth £22,600*. In line with our straightforward remuneration philosophy of individual reward being simply a combination of base salary and performance-related shares our Discretionary Free Share Scheme has a much wider than normal coverage, with over 1,900 individuals currently holding awards in the scheme. Our strong earnings growth over 2007 to 2009 resulted in the 2007 scheme achieving a 98% vesting percentage.
• 16th in Sunday Times Top 100 Companies to Work For (Special recognition for featuring in every year of the survey.)
One of the great positive stories for us in 2009 was the birth and growth of Rastreator.com, our Spanish price comparison site. Rastreator (sort of ‘tracker dog’ when translated), came to life on March 30. In the autumn we ran our fi rst television campaign and were positively surprised by the volume of quotes we immediately started to do. It appears that price comparison is on the ascendancy in Spain.
AdmiralDirekt and the German car insurance market The German market continues to be the most challenging market we’re in. In its second full year, similar to our experience in Spain, it was necessary to dramatically raise rates and stem the fl ow of new business to improve the underwriting result. Due to the seasonal nature of the market, where the vast majority of renewals are on January 1, the results of all our pricing changes won’t be known until later in 2010. To give you an understanding of the magnitude of the price changes we’ve made, in the ‘season’ of 2008 for business incepting on January 1, 2009 we wrote nearly 17,000 policies. A year later, for policies incepting on Jan. 1, 2010, the fi gure was just short of 3,200. However, we did write quite a bit of business during the year because of people changing cars, probably catalysed by the German government’s cash for clunkers scheme. So at the end of the year the vital statistics looked like this: • 35,000 customers, up 20,000 from 2008 (+133%) • But only up 5,000 from Jan. 1, 2009 (+16.6%) • €15 million gwp versus €5 million in 2008 (+200%) • Loss ratio for 2009 at the end of 2009 of 109% • Combined ratio of, gulp, 238%
The second deal was to reinsure a further 33% of our US venture with Hannover Re, one of our UK partners. Again, this deal serves to reduce our short-term risk in return for some of our profi ts in future years.
Admiral, Confused and the UK car insurance market What a great year! Lots of ever-so-much-more-so sprinkled here. We grew the number of vehicles insured by 17% and produced a combined ratio of 85%. During the year we raised rates by more than 12%. However, you will not see a 12% increase in our average premium as we continue to gently alter the composition of our portfolio towards somewhat lower premium business. Many of our competitors are suffering, with experts predicting a 2009 combined ratio for the market between 115%-120%. It is likely that the market will continue to raise prices in 2010, especially as investment returns are muted. We are in an enviable position of having a combined ratio well below 100% while many of our competitors do not.
Balumba, Rastreator and the Spanish car insurance market Balumba lost €1.4 million for the year, but only €300k in the second half. The challenge for Balumba in 2009 was to get its loss ratio under control and this was achieved through a lot of effort in pricing and claims handling. We needed to create a base of viable customers upon which we can build a business. The price paid for reducing the loss ratio from 102% for the 2008 year at the end of 2008 to 83% for the 2009 year at the end of 2009, was a slightly smaller business. The end of year customer
‘USA, USA, USA’ The biggest seed we planted in 2009 went in the ground in Richmond, Virginia. Elephant Auto Insurance began trading in Virginia on October 5. Elephant is encouraged by the success Geico has enjoyed selling car insurance direct to consumers via phone and internet in the US. Geico’s market share has grown almost 3 percentage points in the fi ve years through 2008 (latest fi gures available), from 5.1% to 7.7%, which, to put this in perspective, is an increase of some $4 billion in written premium. We like other people to pave roads that we can then drive on.
The US is a complicated market, not in the least because it is really 51 different markets, due to stateby -state regulation (all 50 states plus Washington D.C. for those keeping count). Although Elephant launched in October it didn’t write much business in 2009 as it used the time to ensure its systems worked and the pricing engine generated the correct rates. For the record, it wrote 204 vehicles in 2009 and had 4 claims.
All in all So, in 2009 we did pretty much the same things we did in 2008, except ever-so-much-more-so. We grew both top and bottom lines in the UK. We continued to develop our operations in Spain, Germany and Italy and we planted a couple of new seeds, in Spain and the USA. Similar to 2008, I think it will be a year which is only really appreciated at some point in the not-to-distant future, in particular when the foreign operations have developed into growing, profi table, sustainable businesses. The big difference between 2008 and 2009 was the signing of the reinsurance deals, particularly with Munich Re. These deals give us the potential to carry our 50+% return on capital ratio many years into the future.
Elephant Auto Insurance began trading in Richmond, Virginia in October 2009.
Launch of Rastreator, Spain: Launch of Elephant Auto, USA: Based in Madrid, the Group’s fi rst non-UK price comparison business launched in March 2009
How have you managed to grow the number of UK customers by 17% in 2009? Do you expect this growth to continue?
What impact does the growth of price comparison, the resulting transparency of prices and frequent selection of the lowest price, have on your underwriting advantage?
The fact that PC sites increase transparency of prices plays to our strengths in two key respects: 1) In a market for a commoditised product bought predominantly on price, being the lowest cost provider is a powerful competitive advantage.
pay more to compensate for higher risk customers, we price to take advantage of these cross subsidies.
How has Admiral managed to maintain its superior loss ratio whilst increasing market share?
We have an expense ratio of 17% versus the market’s 30%. This is really 14% versus 27% if you exclude the MIB levies of around 3% which all car insurers pay. Our success is simple, low cost, light
The increase in price transparency due to price comparison sites continues to make it more diffi cult for insurers to get announced premium increases to translate into increases in average premiums written, the ‘price comparison drag’ effect. This may result in premium increases continuing for longer than in previous cycles. We agree with predictions that there will be further increases in 2010. The market as a whole is still losing money and reserve releases and investment income have both shrunk dramatically. More price rises are needed.
What have been the key drivers of claims infl ation in 2009?
Whilst it’s diffi cult to talk about the market as a whole, I’m aware that some of our competitors have reported a sudden increase in bodily injury claims frequency in the second half of 2009. We’ve seen a continued increase in the proportion of claims with a bodily injury element, but our experience suggests
Claims well. It will also mean that there is always the threat of certain market or regulatory changes that could impact on some sources, but that other sources will be unaffected. The movement to price comparison has meant it has been more diffi cult to maintain penetration rates, but on the other hand the trend for increasing car insurance premiums has made it easier to defend or improve margins on ancillary products.
Do you think ancillary income per vehicle of around £70 is sustainable?
The Group’s results are presented in three key segments – UK Car Insurance, Price Comparison and Non-UK Car Insurance. We summarise other Group items in a fourth section.
The Admiral Group had another positive year in 2009, with strong top line growth and a continued rise in profi t before tax and earnings per share.
• We are the third largest private car insurer in the UK, with around 1.9 million vehicles insured, generating total premium of £800 million. We estimate the combined market share of our brands is around 7%
• Our main locations are Cardiff, Swansea and Newport, though we also service our customers from call centres in Nova Scotia, Canada and Bangalore, India
• Signifi cant profi t generated from non-underwriting activities – further modest increase in contribution per customer in 2009
• Strong track record of maintaining ancillary income per vehicle such that ancillary profi ts generally increase in line with vehicle growth
• Continual development of products and services in response to changing customer needs and industry trends
UK Car Insurance Financial Performance *1 GAAP = Generally Accepted Accounting Practice *2 Turnover (a non-GAAP measure) comprises total premiums written and other revenue *3 Total premiums written (non-GAAP) includes premium underwritten by co-insurers
Admiral Option Munich Re Swiss Re Partner Re Hannover Re New Re
Whilst, Admiral’s UK results have been consistently profi table for some time, the UK private motor market as a whole remains signifi cantly loss-making. These losses, coupled with a diffi cult investment environment and falling reserve cushions for most insurers have led to material increases in prices.
2009 underwriting profi t fell to £37.6 million from £47.9 million, though was broadly fl at if the fall in investment income is excluded. The reported combined ratio increased to 84.9% from 81.0%; the 4 point move being made up of a 1 point improvement in expense ratio and a 5 point higher loss ratio.
The higher loss ratio was despite an improvement in the 2009 ratio, and was a result of a lower contribution from prior year reserve releases. In 2008, releases contributed £38.0 million to the result, representing 23.5% of earned premium. The 2009 equivalent was £31.3 million or 15.7%. This fall refl ects a market-wide return towards less dramatic levels than seen in recent years, which in turn resulted from overly pessimistic expectations of bodily injury claims infl ation in the early 2000s.
The signifi cantly improved profi t commission terms on the co-insurance and reinsurance arrangements for recent underwriting years continue to be a major factor in the income statement, with the material increase in 2008 v 2007 being followed by a similar rise in 2009. Admiral’s own underwriting result plus profi t commission income amounted to £91.8 million in 2009 – 11% higher than 2008, despite the dramatic fall in investment income.
Our claims reserving approach remains unchanged. We initially reserve conservatively, above independent actuarial projections of the ultimate outcomes. This results in a signifi cant margin being held in reserves to allow for unforeseen adverse development in open claims and creates a position whereby Admiral makes above industry average reserve releases.
The nature of the co-insurance is such that 50% of all motor premium and claims for the 2009 year accrues directly to Great Lakes and does not appear in the Group’s income statement. Similarly, Great Lakes reimburses the Group for its proportional share of expenses incurred in acquiring and administering the motor business.
The profi t commission terms in all the agreements allow Admiral to participate to a large extent in the profi tability of the total underwriting, and the most recent reinsurance contracts allow for a signifi cant proportion of the profi t to be remitted back to Admiral.
Extensions to Munich Re Agreements In January 2010, Admiral announced it had extended the agreements in place with Munich Re in the UK, Spain and Italy and had also signed a new long-term reinsurance arrangement in the USA. Munich Re’s risk and profi t sharing has facilitated the Group’s business ‘capital-light’ business model for a decade and these signifi cant extensions are very positive for its continuation.
The European and US contracts are explained below in the Non-UK Car Insurance section.
Pre-tax profi t increased by 15% to £206.9 million, despite having been held back somewhat by a signifi cant (nearly £10 million or 56%) fall in investment income. Our investment strategy remains cautious and is set out in detail later. UK Car Insurance contributed over 95% of Group profi t in the year.
All three companies are required to maintain capital to levels prescribed by the home regulator, and all three maintained signifi cant surpluses above those required levels throughout the year.
Our two insurers – AICL and AIGL – will both be subject to the new regime, and the Group has been working to ensure the Group will be properly prepared for the introduction of the rules, with particular focus on systems of risk management and governance and also capital requirements.
Ancillary contribution Ancillary contribution is generated from a portfolio of insurance products that complement our core car insurance, and also fees generated over the life of the policy. There is also some (less material) income from other products unconnected to car insurance. (Contribution is reported net of the third party wholesale cost of the product.)
We classify ancillary contribution in three categories: • Compulsory products – primarily legal expenses insurance
• Operating in the UK, the site allows consumers to compare a range of general insurance and fi nancial services products across price and policy benefi ts
• Confused’s strategy is to become the comparison website of choice in the UK for fi nancial products, and to maximise the value to the business of each customer relationship
• The Group’s aim is to take what it knows and does well in the UK and expand this overseas. To date we have targeted three markets.
Alongside enjoying a successful period in operational terms, the Group also sold a 25% minority stake in Rastreator to Mapfre S.A. – Spain’s largest insurer. This partial sale is consistent with Admiral’s approach of working with partners who assist us in achieving profi table growth whilst at the same time reducing risk.
LeLynx.fr and Chiarezza.it In early 2010, two further European price comparison businesses were launched in France (January) and Italy (February). Both opened for business on-time and under budget. In common with other Admiral international launches, both will have modest starts, and will focus during 2010 on developing their website, panel of insurers, and testing various marketing campaigns.
The European operations are all structured as branches of the UK regulated entity, with the UK regulatory permission passported into Europe.
Despite having to spend aggressively on media to defend its market position, Confused delivered a profi t in line with 2008. Whilst Confused maintained its share of car insurance price comparison at around one third (the market leading position), experience in the early part of 2010 provides no evidence that the tremendous levels of media activity from the major players will diminish in the near future.
Despite the substantial competitive pressures and increased media activity, Confused delivered a profi t margin of around one third. This was down on 2008’s result of 39%, but is a positive outcome in the context of the highly competitive UK price comparison market.
Non-UK Car Insurance 1) Establish new, direct car insurance businesses in our fi ve selected countries outside the UK (Spain, Germany, Italy, USA and France)
• All businesses remain in early stages and as would be expected, none have yet reached profi tability
• The Group now has four direct car insurance businesses operating outside the UK at varying stages of development
• Balumba, our fi rst overseas business, which launched in Seville, Spain in October 2006, enjoyed its third full year of trading in 2009 and ended the year with 50,300 customers
• ConTe started operating in Rome, Italy in May 2008 and closed 2009 with 35,500 customers
• Most recently, the Group launched a US business, Elephant Auto, in Richmond, Virginia in October 2009
• We expect new operations to be relatively small, and loss making in their early years (how long will depend on the market), until the business is established and scale is achieved. Use of proportional reinsurance across all markets (see below) helps reduce the fi nancial impact in the early years
• We have identifi ed one further market based on our targeting criteria (France), which we are in the process of researching
• Our overseas strategy is summarised in the table below, where we also comment on our progress to date
Note – total fi gures include Elephant Auto business in 2009
Non-UK Co-insurance and Reinsurance The risk sharing model that has been a feature of the UK business since 2000 is also used in Europe and the USA. As well as providing the capital for the majority of the underwriting, in return for a share of future profi ts, our co-insurance and reinsurance partners bear their proportional share of the postlaunch expenses as well as the underwriting in all non-UK operations.
The arrangements in each market in Europe are similar and involve Admiral retaining 35% of the risks, the majority share of 65% being underwritten by Munich Re.
The German contract was not materially changed and still runs to at least the end of 2011.
Non-UK Car Insurance Financial Performance Total premium written outside the UK rose to £43.0 million in 2009 from £26.0 million in 2008. The number of vehicles insured also rose strongly, to 121,000 from 73,700.
The signifi cant improvements made in the claims area, pricing and underwriting processes have led to a much more satisfactory loss ratio outcome for 2009 compared to earlier years.
As noted in our interim report, one consequence of holding back the growth of the business has been a less positive evolution of the expense ratio. For the fi rst half of 2009, Balumba’s expense ratio (on an accounting basis) was around 55% and this has worsened slightly to just over 60% for the full year. Management expect this measure to improve as the business grows.
The high combined ratio on the portfolio (and lack of notable ancillary profi t) resulted in AdmiralDirekt making a loss of £5.2 million in 2009.
Highlights 04 Chairman’s statement 06 Chief Executive’s statement 10 Business review 10 Q&A on Admiral’s
• Increased share scheme charges (£9.2 million v £5.9 million) – refl ects increased staff numbers and a higher share price in 2009 which drives the accounting charge.
Investments and cash Investment strategy There has been no change to the Group’s investment strategy, though there were relatively small changes in the allocation of funds between investment types in the year. See Fig 1.
Given our strategy, returns on cash and invested funds were predictably low. Total investment and interest income in 2009 amounted to £8.8 million, over 60% lower than the £24.4 million earned in 2008. The weighted average return on invested funds was around 1.2% for the year.
Operating cash fl ow, before transfers to investments 213.2 251.5 286.4
Net increase in cash and fi nancial investments 42.5 63.8 77.8
All years show growth in the total value of cash and investments, and this growth has escalated over time as the total size of the business grows.
Aside from continued growth, the only notable change in 2009 compared to 2008 is that less operating cash fl ow was moved into fi nancial investments. This is largely a timing difference, with a signifi cant movement from cash to investments occurring in January 2010.
The main items contributing to the signifi cant operating cash infl ow are as follows: Profi t after tax 127.4 144.9 156.9 Change in net insurance
Dividends The Directors have declared a second interim dividend for 2009 of 29.8 pence in place of a fi nal dividend. In line with the Group’s dividend strategy, this comprises a 13.7 pence normal element and a 16.1 pence special distribution, representing an increase of 12% on the fi nal dividend paid in respect of 2008.
The payment date is 1 April 2010, ex-dividend date 10 March and record date 12 March.
The total dividend declared for 2009 (57.5 pence) is 10% higher than the 52.5 pence distributed in respect of 2008.
Capital structure, fi nancial position The Group manages its capital to ensure that all entities within the Group are able to continue as going concerns and also to ensure that regulated entities comfortably meet regulatory requirements Excess capital above these levels within subsidiaries is paid up to the Group holding company in the form of dividends on a regular basis.
At Group level, capital is managed in conjunction with dividend policy. As noted above, the policy is to make distributions after taking into account capital that is required to be held for regulatory purposes; for expansion activities; and also as a further prudent buffer against unforeseen events. This policy gives the Directors fl exibility in managing the capital requirements of the Group.
The Group’s capital continues to be held in equity form, with no debt.
Various factors might contribute to the erosion: a) Flat or falling average premiums as Admiral’s portfolio tends towards the market average (expense ratio impact)
Admiral’s UK business has grown consistently since the business was launched in the early 1990’s, and has enjoyed regular outperformance against the market throughout that time.
The impact on the Group could be higher than planned losses (and potentially closure costs) and distraction to key management.
There is a risk that over the medium to long term, the level of ancillary profi t earned per customer will diminish. This might be due to regulatory or legal changes, or customer or market behaviour.
The Group have risk management processes in place such that potential risks to ancillaries are identifi ed and monitored, providing management the time to respond appropriately to any such regulatory changes and minimise fi nancial impacts where possible.
The Directors believe Confused is a strong business and is well positioned to continue to defend its positive position in the UK price comparison market.
Even taking the above into account, there is obviously still uncertainty over the future profi t levels of the business, as it depends to a signifi cant extent on the actions of Confused’s competitors.
Admiral uses proportional co-insurance and reinsurance across its car insurance businesses to reduce its own capital needs (and increase return on the capital it does hold) and to mitigate the cost and risk of establishing new operations.
There is a risk that such support will not be available in the future if the results of either the UK business or one or more of the international operations are not satisfactory.
The impact on the Group would be the need to raise additional capital to support the underwriting. This could be in the form of equity (either reduced dividends or new equity) or debt.
Admiral has long-term reinsurance contracts in place and in early 2010, signifi cant extensions to the existing contracts for the UK, Spain and Italy were agreed. At the same time, new long-term contracts were signed with Munich Re and Hannover Re to support the new US business.
I am proud to be associated with Admiral 91% 91% 94% 96%
I would recommend Admiral as a good place to work 90% 90% 94% 95%
our way to ensure a good working environment. Each year our UK employees have completed an anonymous web-based survey to collect views on what it is like working for Admiral. The survey includes questions relating to a wide range of topics including morale, development, management, communication and social aspects of working at Admiral. In 2009 the survey also included our Canadian employees. During 2010 we are planning to roll out the survey to our overseas businesses.
It is pleasing that all of the survey results in the key areas measuring morale, association with Admiral and how employees feel Admiral treats its customers have improved during 2009 except for the measure ‘Morale is high in my department’. Whilst the score for this measure was still at an impressive 86% the Executive team take responsibility for looking at the areas of the business where morale is lowest.
90% of UK and Canadian employees completed the survey with over 2600 responses. See Fig 1.
Introduction Corporate Responsibility (CR) is embedded throughout the business – in our approach to recruitment and how we treat our employees, our approach to customer service, the contribution we make to our communities and to charities, and how we view our impact upon the environment – CR is a part of everyone’s role at Admiral.
We are particularly proud to have been included in the ‘Management Today’ Most Admired Companies award. The award is voted on by the top companies in the UK across nine criteria. Admiral came 16th overall this year, (2008 – 81st) and was named as Britain’s Most Admired Insurer.
Perhaps the best measures of our employees’ assessment of their working environment are the independent surveys they have completed.
We are very proud to have been included in The Sunday Times 100 Best Companies to Work For in all 10 years since its fi rst publication and received special recognition for being one of only two companies to have achieved this. In the 2010 list we were extremely pleased to be placed in 16th position – an excellent result for Admiral and everyone who works for Admiral. See Fig 2.
Using a methodology refi ned over the past seven years, the organisers have identifi ed the eight key factors that defi ne the best companies to work for in Britain.
Leadership: how people feel about the head of the company and its most senior managers. My company: feelings about the company people work for as opposed to the people they work with. My manager: people’s feelings towards their day-to-day managers. Personal growth: to what extent people feel stretched by their job.
My team: people’s feelings about their colleagues. Fair deal: how happy employees are with their pay and benefi ts.
Giving something back: how much companies are thought to put back into society and the community. Wellbeing: how people feel about stress, pressure and the balance between their work and home life.
The fi nal results were announced on 25 February 2010 and are based on questionnaires completed by UK employees, randomly selected by the organisers. For the 2010 results, surveyed during November 2009, 1,100 employees provided responses – a response rate of 75% of those receiving the questionnaires.
The Board fi rmly believes that share ownership motivates employees, decreases attrition and improves the Group’s recruitment prospects in the regions where its offi ces are located. Indeed, 79% of employees say they are more likely to stay employed with Admiral because of the share schemes.
In addition to the Approved Free Share Scheme, the Group operates the Discretionary Free Share Scheme or DFSS. Unlike many plans of this type the awards are spread throughout the organisation from senior managers to star performers. Star performers are employees who have excelled in their role during the year and who would not normally receive DFSS shares. As at 31 December 2009, 1,900 individuals held awards in the scheme. Our strong earnings growth over 2007 to 2009 resulted in the 2007 scheme achieving a 98% vesting percentage.
The Group is also committed to providing a consistently safe and effective working environment for all employees (and contractors, customers and members of the public). In doing so it will, as a minimum, comply with local health and safety legislation, but will exceed those requirements should it be necessary to do so in order to deliver its objectives.
There are many initiatives in place to ensure that customers are treated fairly, effi ciently and with respect: • Measures programme • Monitoring programme • Comment form analysis • Treating customers fairly reporting • Complaints analysis
Every department has a unique set of quality measures to gauge performance. The measures are updated each year to challenge departments to make continual improvements. The programme is reported every month in the internal Company magazine and awards are presented each year for the best departments. The annual measures bonus provides a fi nancial incentive for employees to drive incremental change throughout the business and was paid out again in full for the 2009 year.
The Group works within the regulatory framework of the Financial Services Authority (FSA) in the UK. One of the FSA’s statutory objectives is to help customers get a fair deal. The Compliance department in the UK has completed a Treating Customers Fairly (TCF) Management Information pack, pulling together specifi c measures that demonstrate we are consistently treating our customers fairly. This will be rolled out to our overseas motor insurance businesses.
Charitable and Community Admiral aims to play a positive role in the community through charitable fundraising and encouraging employees to engage with local community partners. We promote payroll giving and provide matched funding for eligible employee initiatives.
Our charity and community programme focuses on serving the communities near our offi ce locations in Cardiff, Swansea and Newport and since 2007 our overseas locations. The Admiral Community Chest is a fund set up by the Company to provide fi nancial support to employees and their families directly involved with local charities and organisations. The fund has been running for over seven years and in that time we have been able to contribute to over 500 charities and organisations. During 2009, over 160 local organisations throughout the Group’s locations were supported.
The Group also sponsors events within the local community, ranging from the Admiral Cardiff Big Weekend to the Admiral Swansea 10k run.
More information on how Admiral supports local charities and the communities in which its employees live can be found on the Group’s corporate website, admiralgroup.co.uk.
Environment As a motor insurer we are well aware of the human and economic cost of fl oods, storms and extreme weather. Climate change is a risk that is currently on the agenda of all large consumers of resources. Whilst Admiral Group is a relatively small producer of CO2 emissions, it is still committed to reducing its impact on the environment. From green energy purchasing to carbon footprint measurement, and from the recycling of offi ce waste to the sourcing of paper from sustainably managed forests, we continue to make progress in this area.
The Group remains committed to: • Raising and maintaining employee awareness of, and ensuring that everyone is actively engaged in, activities to reduce the impact of the Group’s operations on the environment
Travel Car miles 272,656 83 miles per employee 449,536 124 miles per employee
Air miles 1,789,535 543 miles per employee 1,754,475 484 miles per employee * The carbon emissions have been calculated using the Carbon Trust Calculator, which uses the emissions factors published by Defra in April 2008.
The main source of the Group’s carbon emissions is the consumption of electricity and gas in its offi ces. There are large variations in the consumption between offi ces and the Facilities manager and team will be increasing the level of monitoring to ensure each site is using resources as effi ciently as possible.
Employees are encouraged to recycle where possible and each fl oor has an environmental representative tasked with increasing the levels of recycling and awareness. During 2009 the UK offi ces introduced the Bike to Work scheme, which enables employees to purchase bicycles tax effi ciently to increase cycling to work and decrease use of motor vehicles.
The facilities department is in discussion with the Carbon Trust with the aim of reducing energy consumption. A number of schemes relating to lighting and computer use are being discussed.
Environmental Risks The Group has reviewed the risks facing its business operations as a result of climate change. The volume of motor insurance claims for any given portfolio of business is to a large degree dependent upon weather conditions. The risk associated with climate change is the potential change to claims frequency through the impact of more extreme weather patterns.
Measuring and managing our carbon footprint is no easy task and there are challenges on a number of levels. We strive to improve our collection of data across the business so that our carbon emissions can be reported with increased accuracy across all of our operations.
Keith was appointed a Non-Executive Director in December 2002. He is Chairman of the Nominations
Eversheds LLP from June 1995 to April 2004. He was a
Lucy joined the board as a Non-Executive Director in September 2006. She is the management columnist on the Financial Times and author of various books. In 20 years on the FT she has been oil correspondent, a Lex columnist and Brussels correspondent. Lucy also joined the Nominations Committee on appointment to the Board.
Director of the Insurance Division of Abbey National plc, and Director of Corporate Projects at National Westminster
Bank plc. Alastair was also a Non-Executive Director of the Department for Transport and of the Department for
UK fi nancial services for over 25 years. He has held a number of senior roles in other insurance organisations including Finance Director positions at Engage Mutual
Director, he was appointed Director responsible for pricing in 1996 and claims and pricing in 1999. He was appointed as Chief Operating Offi cer in 2004. He joined Admiral in 1991 from McKinsey & Co. where he worked in the
He has worked for Munich Re since September 1981 and is currently the Senior Executive Manager responsible for
Highlights 04 Chairman’s statement 06 Chief Executive’s statement 10 Business review 32 Governance 32 The Admiral Group Board 34 Directors’ report 37 Corporate governance 44 Remuneration report 49 Independent auditor’s report to the members of Admiral Group plc 51 Financial statements Directors and their interests The present Directors of the Company are shown on pages 32 and 33 of this report, whilst Directors’ interests in the share capital of the Company are set out in the Remuneration report.
At 31 December 2009, 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 24.
The Directors present their Annual Report and the audited fi nancial statements for the year ended 31 December 2009.
The information that fulfi ls the requirements of the Business review, as required by Section 417 of the Companies Act 2006, and which should be treated as forming part of this report by reference is included in the following sections of the Annual Report: • Chairman’s statement • Chief Executive’s statement • Business review
The Directors declared and paid dividends of £142.4 million during 2009 (2008: £128.5 million) – refer to note 13 for further details.
Financial Instruments The objectives and policies for managing risks in relation to fi nancial instruments held by the Group are set out in note 17 to the fi nancial statements.
Power of the Directors The Directors are responsible for managing the business of the Company and may exercise all powers of the Company subject to the provisions of relevant statutes, to any directions given by special resolution and to the Company’s Memorandum and Articles. The Articles for example, contain specifi c provisions and restrictions concerning the Company’s power to borrow money. Powers relating to the issuing of new shares are also included in the Articles and such authorities are renewed by shareholders at the Annual General Meeting each year.
The Group fi nancial statements are required by law and IFRS as adopted by the EU to present fairly the fi nancial position and performance of the Group; the Companies Act 1985 provides in relation to such fi nancial statements that references in the relevant part of that Act to fi nancial statements giving a true and fair view are references to their achieving a fair presentation.
Appointments of Directors The Company’s Articles of Association (‘the Articles’) give the Directors power to appoint and replace Directors. Under the terms of reference of the Nomination Committee, any appointment must be recommended by the Nomination Committee for approval by the Board of Directors. The Articles also require directors to retire and submit themselves for election at the fi rst Annual General Meeting following appointment and all Directors who held offi ce at the time of the two preceding Annual General Meetings, to submit themselves for re-election.
In preparing each of the Group and Parent Company fi nancial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently
• for the Group fi nancial statements, state whether they have been prepared in accordance with IFRS as adopted by the EU
• The Group’s capital structure • Key business policies in relation to health and safety and environmental matters • New Board appointments • Dividend policy and proposals for dividend payments • Major acquisitions, disposals, and other transactions outside delegated limits
The Combined Code on Corporate Governance This report explains key features of the Group’s governance structure, how it applies the principles set out in the revised Combined Code on Corporate Governance (the ‘Code’), and the extent to which the Company has complied with the provisions of the Code. In addition, over the last 12 months the Company, as a large fi nancial institution, has considered the conclusions and recommendations made in the corporate governance reviews undertaken by Sir David Walker, the Financial Reporting Council and the FSA. The Company will continue to monitor how it is proposed that the recommendations made in these various reports and reviews should be implemented and will seek to ensure that it is fully compliant with any resulting changes to the current corporate governance regime.
The Board complied with the Code in all respects during 2009 except for Code D.1.1, which requires that the Senior Independent Director should attend meetings with a range of shareholders. The Company has a comprehensive programme of meetings and dialogue with institutional investors, and the Chairman had individual meetings with the majority of the largest 10 such investors. The views of investors expressed through this dialogue are communicated to the Board as a whole on a regular basis through the investor relations report. All Directors can, therefore, develop an understanding of issues or concerns of major shareholders should any be raised. Feedback from shareholders suggests that these arrangements for communication between the Company and its shareholders continue to be viewed by them as effective. The Senior Independent Director is always available to meet with individual shareholders on request to ensure the Board is aware of any shareholder concerns that cannot be resolved through the routine mechanisms for investor communications.
• The introduction of an annual presentation by the Executive team on each of the key markets in which the Group operates in order to assess strategic objectives and to make changes to implementation plans where necessary
Directors are expected to attend all meetings of the Board and the Committees on which they serve and to devote suffi cient time to the Group to perform their duties. The number of full Board meetings and Committee meetings attended by each Director during 2009 is provided in the table below.
John Sussens has been appointed as the Senior Independent Non-Executive Director. He is available to shareholders if they have concerns that contact through the normal channels of Chairman, Chief Executive, or Group Finance Director has failed to resolve or for which such contact is inappropriate. He is also responsible for leading the the Board’s discussion on the Chairman’s performance and the appointment of a new Chairman, when appropriate.
This induction is supplemented by visits to the Group’s head offi ce in Cardiff, overseas offi ces, and meetings with members of the senior management team and their departments. Throughout their period in offi ce the Directors are regularly updated on the Group’s business; legal matters concerning their role and duties; the competitive environments in which the Group operates; and any other signifi cant changes affecting the Group and the industry of which it is a part.
Board balance and independence The Board currently comprises ten Directors; the Chairman (who was independent on appointment), three Executive Directors, fi ve independent NonExecutive Directors, and one Non-Executive Director, Manfred Aldag, who is employed by a signifi cant shareholder and is not, therefore, considered independent. There is no requirement that the signifi cant shareholder has representation on the Board and, accordingly, Mr Aldag’s appointment is subject to the same appointment and removal process as the other Board Directors. The Board has accepted the Nomination Committee’s assessment of the independence of the fi ve Non-Executive Directors and is not aware of any relationships or circumstances which are likely to affect, or could appear to affect, the judgement of any of them.
Board Committees The principal committees of the Board – Audit, Remuneration, and Nomination – all comply fully with the requirements of the Combined Code. They are all chaired by an independent Director and exclusively comprise, or, in the case of the Nomination Committee (where the Chairman of the Board is a member), have a majority of, independent Directors. The committees are constituted with appropriate written terms of reference that are reviewed annually and minutes of the committee meetings are circulated to the Board.
Relations with shareholders The Investor Relations team has day-to-day primary responsibility for managing communications with institutional shareholders through a combination of briefi ngs to analysts and institutional shareholders, both at the half-year and full year results. A number of analysts and investors visited the Group’s Cardiff offi ce during the year to meet with the Executive Directors and senior management in order to get a better understanding of how the Group operates and how it intends to achieve its strategic and operational objectives. Senior executives from the Group’s overseas businesses also visit the UK in order to present to, and meet with, analysts and investors. Site visits and individual discussions with the Executive Directors are also arranged throughout the year with individual shareholders. Regular dialogue with shareholders helps to ensure that the Company’s strategy is understood and that any issues are addressed in a constructive way.
• Effectiveness of the Group’s system of internal control including within its overseas operations, particularly gaining assurance that the compliance, internal control and risk management processes were operating effectively for each of the overseas entities
The Committee reviewed its policy on non-audit services that, amongst other things, requires that the Committee approve all proposals for expenditure with the Group’s auditors of over £30,000 on nonaudit services. The policy was last reviewed on 14 December 2009. The Group’s auditors, KPMG Audit plc, provide some non-audit services, the majority of which comprise compliance services related to various taxation issues within the Group, and which are not considered by the Committee to compromise their independence as auditors. The level of non-audit fees is reviewed at each Committee meeting and details are included in the Report and Accounts.
The Head of Internal Audit is invited to all Committee meetings and provides a range of presentations and papers to the Committee, through which the Committee monitors the effectiveness of the Group’s internal controls. Committee members receive copies of all internal audit reports and are given the opportunity to raise questions on the content and recommendations contained within the reports. The Committee approves the internal audit programme at the start of each calendar year and monitors the progress made in achieving the plan.
The Committee also approves the annual compliance review plan and receives copies of the resulting reports. The Head of Compliance, who has responsibility for the Compliance and Risk management functions, provides the Committee with quarterly Compliance and Risk Reports summarising activities in these areas.
The Committee has a policy that provision of external audit services be tendered every fi ve years other than in exceptional circumstances. This was last carried out in 2006 when the decision was made to retain the services of the incumbent external auditors. At the same time the external audit partner was rotated.
The Nominations Committee The membership throughout the year was Keith James (Chairman), Lucy Kellaway, and Alastair Lyons. The Company Secretary acts as Secretary to the Committee. The Committee invites the Chief Executive to attend meetings when it deems appropriate.
The Committee leads the process for making appointments to the Board or where the appointee is likely to become a Board member. The Committee ensures there is a formal, rigorous and transparent procedure for the appointment of new Directors to the Board through a full evaluation of the skills, knowledge and experience 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.
The Committee also reviewed the current size, structure, and composition of the Board, to assess whether further appointments are necessary to maintain an appropriate balance of skills and experience within the Board, thereby ensuring that it can continue to provide effective leadership of the Company to support its successful operation within its various marketplaces.
The Committee has formal terms of reference which were reviewed during the year and were approved by the Board in February 2010. The Committee met four times during 2009.
During the year the Committee purchased consultancy services from Kepler Associates. In addition, the Company Secretary circulates market survey results as appropriate to enable the Committee to make judgements on the levels of remuneration appropriate for the Directors and to review the remuneration of the Group’s senior executives. PricewaterhouseCoopers also provided advice on the composition and structure of the Group’s share plans during the year.
The Board is of the view that there is an ongoing process for identifying, evaluating and managing the Group’s internal controls; that it has been in place for the year ended 31 December 2009; and that, up to the date of approval of the Annual Report it is regularly reviewed by the Board and accords with the internal control guidance for Directors provided in the Code.
There are several key elements to the risk management environment throughout the Group. These include the setting of risk management policy at Board level; enforcement of that policy by the Chief Executive; delivery of the policy by the RMC via the Group’s systems of internal control and risk management; and the overall assurance provided by the Audit Committee that the systems operate effectively. The Group will continue to review its risk management structure in the light of any changes that are made to the current corporate governance regime following the recommendations of the Walker review and the subsequent guidance from the FSA.
The Board recognises that the day-to-day responsibility for implementing these policies must lie with the Executive team whose operational decisions must take into account risk and how this can be controlled effectively. The Head of Compliance and the Risk Offi cer take responsibility for ensuring management are aware of their risk management obligations; providing them with support and advice; and ensuring that the risk management strategy is properly communicated. The head of each business unit or business area is required, with the support of the Risk Manager, to undertake a full assessment process to identify and quantify the risks that their departments face or pose to the Group and the adequacy of the controls in place to mitigate or reduce those risks. Reports are produced showing the most signifi cant risks identifi ed and the controls in place. Internal Audit and the Compliance function use the risk registers to plan their programme of audits to ensure that the controls described are actually in place.
The RMC receives reports setting out key performance and risk indicators and considers possible control issues brought to their attention by early warning mechanisms that are embedded within the operational units. The RMC and the Audit Committee also receive regular reports from Internal Audit which include recommendations
The Committee has formal terms of reference that are reviewed on an annual basis. The Committee meets around eight times a year and each Committee member receives an agenda and papers in a timely manner allowing the Committee to make informed decisions and take appropriate actions.
Internal Audit The Internal Audit function assists management by providing them with timely, independent assurance that the controls established are operating effectively. This includes regular reviews of internal control systems and business processes, including compliance systems and procedures, and identifi cation of control weaknesses and recommendations to management on improvements.
BHBi Consultancy Limited carried out an external assessment of the Group’s Internal Audit function in November 2009. The purpose of the assessment was to assess Internal Audits conformity with the standards set by The Institute of internal Auditors; evaluate Internal Audit’s effectiveness in carrying out its defi ned duties and responsibilities; and identify opportunities to enhance its management and work processes. The assessment concluded that the Internal Audit function operates effectively and recommended some process improvements in relation to updating its Charter to recognise the IIA Standards & Code of Ethics, as well as proposing undertaking a benchmarking process to review current resource against peer organisations.
Going concern The fi nancial statements have been prepared on a going concern basis. In considering the appropriateness of this assumption, the Board have reviewed the Group’s projections for the next 12 months and beyond, including cash fl ow forecasts and regulatory capital surpluses. The Group has no debt.
for improvement in the control and operational environment. The Board undertakes periodic structured reviews of the Group’s risk map, focusing on the principal assessed exposures and the effectiveness of the mitigation strategies adopted. It receives reports from the Chairman of the Audit Committee as to its activities, together with copies of the minutes of both the RMC and the Audit Committee. In February 2010 the Board carried out the annual assessment for the 2009 year by considering documentation from the Audit Committee, taking account of events since 31 December 2009, which includes the Internal Audit Annual Report prepared by the Group’s Head of Internal Audit.
The Audit Committee’s ability to provide the appropriate assurance to the Board depends on the provision of periodic and independent confi rmation, primarily by Internal Audit, that the controls established by management are operating effectively and where appropriate provides a high-level challenge to the steps being taken to implement the risk management strategy.
The Risk Management Committee The Committee’s members include the three Executive Directors, the Head of Compliance (who chairs the meetings), the Risk Offi cer, and senior management representatives.
• Performance linked – A signifi cant part of Executive Directors’ (excluding Henry Engelhardt and David Stevens) and senior managers’ reward, remains shareholder aligned given that it is determined by the Group’s earnings growth versus LIBOR. Failure to achieve threshold levels of growth in the Group’s earnings results in reduced or no payout under the Group’s long-term incentive plan. Executive Directors have agreed to retain a minimum shareholding equal to at least 100% of base salary, which can be built up over a period of fi ve years from the date of appointment
• Group Personal Pension Plan, matching employee contributions up to a maximum 6% of base salary with maximum employer contribution of £4,800. This is available to all employees following completion of their probationary period. (Henry Engelhardt and David Stevens have declined to be included in the plan)
• Private Medical Cover, available to approximately 120 management level staff
• Permanent Health Insurance policy covering the same staff that are eligible for Private Medical Cover
Remuneration Committee The Committee is appointed by the Board and comprises only Non-Executive Directors. The Committee is chaired by John Sussens, the Senior Independent Non-Executive Director, with the other members being Martin Jackson and Margaret Johnson. The Chairman and Chief Executive are invited to meetings where the Committee considers it appropriate to obtain their advice on Group strategy and performance and senior executive pay strategy. During the year ended 31 December 2009, the Committee met on four separate occasions. Its remit includes recommending the remuneration of the Chairman, the Executive Directors, and the Company Secretary; review of the remuneration of senior management; and review of the awards made under the performance related incentive schemes.
The Committee is conscious of the maximum allowable awards under the Group’s share schemes and controls are in place to ensure that awards do not exceed 10% of share capital over the 10 year period from 1 January 2005.
Executive Directors are allowed, although none currently do, to accept appointments as NonExecutive Directors of companies with prior approval of the Chairman. Approval will only be given where the appointment does not present a confl ict of interest with the Group’s activities and the wider exposure gained will be benefi cial to the development of the individual. Where fees are payable in respect of such appointments these would be passed to the Company.
The Committee aims to ensure that the remuneration of the Finance Director is fair and in total, in line with market rates, and is designed to reward achieving increases in shareholder value.
With effect from 1 October 2009 Kevin Chidwick’s base salary was increased by 20% to £360,000. Whilst the increase in Kevin Chidwick’s base salary is above infl ation the Committee felt that the increased responsibilities taken on during the year justifi ed such an increase. £360,000 remains below the median base salary of FTSE 100 Finance Directors.
Of the Group’s current executive directors, only Kevin Chidwick (Finance Director) participates in this scheme, as Henry Engelhardt and David Stevens have declined to be included.
The plan allows for a maximum award of £400,000 or 600% of basic salary if lower. However, in order to ensure that the Group’s remuneration structure remains competitive, the Board is proposing at the Group’s forthcoming AGM that, subject to shareholder approval, the maximum award be increased to £1,000,000 or 600% of basic salary if lower.
In addition, the Group pays a bonus to all holders of DFSS shares. The bonus equates to the dividend payable on an equivalent number of the ordinary shares of the Group. The Committee feels that having a Group-wide bonus equivalent to the dividend fl ow received by investors further aligns the incentive structure with shareholders.
Directors’ service contracts The following table summarises the notice periods relating to the service contracts of the Executive Directors serving at 31 December 2009: Notice Director Notice Company
The Company has entered into letters of appointment with its Non-Executive Directors. Summary details of terms and notice periods are included below: Term and notice
Lucy Kellaway 3 years commencing 4 September 2009, terminable by either party giving one month’s written notice.
John Sussens 3 years commencing 1 December 2009, terminable by either party giving one month’s written notice.
Non-Executive Directors’ remuneration The Remuneration Committee decides the remuneration of the Chairman after consultation with the Executive Directors and review of market data. The remuneration of the Non-Executive Directors, including the remuneration of the Committee Chairman, is decided by the full Board. The Non-Executive Directors do not participate in meetings when Non-Executive Director fees are discussed.
The fee structure for Non-Executive Directors was reviewed at the end of 2008 and remains the same in 2009: (£)
The fee payable to Alastair Lyons in respect of his appointment as Chairman of the Board in 2009 is £150,000 p.a. which is reviewed annually. The appointment may be terminated by the Chairman on three months’ notice to the Company.
The Directors consider this to be the most appropriate index against which the Company should be compared: Directors’ shareholdings – Audited Directors’ interests in the ordinary shares of the Company are set out below: Ordinary shares of 0.1p
Directors’ remuneration – Audited Remuneration for the year ended 31 December 2009 was as follows: Base salary Bonuses 2009 2008 and fees and other Benefi ts Total Total
*2 Keith James fees include £10,650 for chairing the Board of Admiral Insurance Company Limited and £13,350 for chairing the Board of Inspop.com Limited.
Awards made under the Discretionary Free Share Scheme (DFSS) and Free Share Incentive Plan (SIP) The table below sets out the awards made to directors under the DFSS and SIP, including the dates of the awards, the value at the time of the award and vesting date.
Awards to Kevin Chidwick under the DFSS and SIP: Price at Value at Value at Final vesting/
Type At start Awarded Vested At end award award date 31/12/09* Date of maturity of year during year during year of year (£) (£) (£) award date * The closing price of Admiral shares on 31 December 2009 was £11.89 per share.
For details of Directors’ responsibilities, please refer to the biographies section.
This report was approved by the Board of Directors on 25 February 2010 and is signed on its behalf by the Committee Chairman: John Sussens Remuneration Committee Chairman
• the fi nancial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the group fi nancial statements, Article 4 of the IAS Regulation
We have audited the fi nancial statements of Admiral Group plc for the year ended 31 December 2009 set out on pages 51 to 81. The fi nancial reporting framework that has been applied in the preparation of the Group fi nancial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The fi nancial reporting framework that has been applied in the preparation of the Parent Company fi nancial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).
Respective responsibilities of Directors and auditors As explained more fully in the Directors’ responsibilities statement set out on pages 35 and 36, the Directors are responsible for the preparation of the fi nancial statements and for being satisfi ed that they give a true and fair view. Our responsibility is to audit the fi nancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Highlights 04 Chairman’s statement 06 Chief Executive’s statement 10 Business review 32 Governance 32 The Admiral Group Board 34 Directors’ report 37 Corporate governance 44 Remuneration report 49 Independent auditor’s report to the members of Admiral Group plc 51 Financial statements 51 Consolidated income statement 52 Consolidated statement of comprehensive income 53 Consolidated statement of fi nancial position 54 Consolidated cash fl ow statement 55 Consolidated statement of changes in equity 56 Notes to the fi nancial statements 78 Parent Company balance sheet 79 Notes to the
• we have not received all the information and explanations we require for our auditor; and
Under the Listing Rules we are required to review: • the Directors’ statement, set out on page 43, in relation to going concern; and
Total comprehensive income for the period attributable to: Equity holders of the parent 151.6 154.8
These fi nancial statements were approved by the Board of Directors on 25 February 2010 and were signed on its behalf by: Kevin Chidwick Director
Consolidated statement of fi nancial position as at 31 December 2009
Profi t after tax 156.9 144.9 Adjustments for non-cash items: – Amortisation of software 2.2 1.4
Net cash used in fi nancing activities (142.2) (128.7) Net increase/(decrease) in cash and cash equivalents 72.8 (21.4) Cash and cash equivalents at 1 January 144.3 155.8
Cash and cash equivalents at end of period 20 211.8 144.3
Share premium exchange Retained Non-controlling capital account reserve profi t and loss interests Total equity £m £m £m £m £m £m
Profi t for the period – – – 144.9 – 144.9
Other comprehensive income Currency translation differences – – 9.9 – – 9.9
Total comprehensive income for the period – – 9.9 144.9 – 154.8 Transactions with equity holders Dividends – – – (128.5) – (128.5)
Issue of shares to non-controlling interests – – – – 0.6 0.6
Deferred tax credit on share scheme credit – – – 1.8 – 1.8
IFRIC 16 Hedges of a net investment of a foreign operation is effective for periods beginning on or after 1 July 2009 and the Group has elected not to adopt the Amendment in advance of the effective date. As the Group does not hedge its net investment in foreign operations, this interpretation is not expected to have a material impact on the Group’s fi nancial statements.
There are a number of standards, amendments to standards and interpretations that were issued by 31 December 2009 but have either yet to be endorsed by the EU, or were endorsed shortly after the year end. These are as follows: • Improvements to IFRSs (2009) • Amendments to IFRS 2 Group cash-settled share-based payment transactions • Amendments to IFRS 1 Additional exemptions for fi rst-time adopters • Revised IAS 24 Related party disclosures • IFRS 9 Financial instruments • IFRIC 19 Extinguishing fi nancial liabilities with equity instruments • Amendment to IFRIC 14 Prepayments of a minimum funding requirement
This standard was issued in November 2009 by the IASB and focuses on the classifi cation and measurement of fi nancial instruments. Under the new standard only two possible classifi cations arise, rather than the four existing classifi cations currently available under IAS 39, and will result in all fi nancial assets being valued at amortised cost or fair value through profi t or loss. Financial liabilities are excluded from the scope of this standard.
1. General information and basis of preparation General information Admiral Group plc is a Company incorporated in England and Wales. Its registered offi ce is at Capital Tower, Greyfriars Road, Cardiff CF10 3AZ and its shares are listed on the London Stock Exchange.
The fi nancial statements comprise the results and balances of the Company and its subsidiaries (together referred to as the Group) for the year ended 31 December 2009 and comparative fi gures for the year ended 31 December 2008. The fi nancial statements of the Company’s subsidiaries are consolidated in the Group fi nancial statements. The Company controls 100% of the voting share capital of all its principal subsidiaries. The Parent Company fi nancial statements present information about the Company as a separate entity and not about its Group. In accordance with International Accounting Standard (IAS) 24, transactions or balances between Group companies that have been eliminated on consolidation are not reported as related party transactions.
The consolidated fi nancial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). The Company has elected to prepare its Parent Company fi nancial statements in accordance with UK Generally Accepted Accounting Practice (GAAP).
Basis of preparation The accounts have been prepared on a going concern basis. In considering the appropriateness of this assumption, the Board have reviewed the Group’s projections for the next 12 months and beyond, including cash fl ow forecasts and regulatory capital surpluses. The Group has no debt.
The accounting policies set out in note 3 to the fi nancial statements have, unless otherwise stated, been applied consistently to all periods presented in these Group fi nancial statements.
Based on the Group’s current fi nancial assets, this standard is not expected to have a material impact on the Group’s fi nancial statements in future periods.
The following IFRS have been adopted and applied by the Group for the fi rst time in these fi nancial statements: • Amendments to IAS 1 Presentation of fi nancial statements: a revised presentation
• Amendments to IFRS 2 Share-based payment: vesting conditions and cancellations
• Amendments to IAS 32 and IAS 1 Puttable fi nancial instruments and obligations arising on liquidation
• Amendments to IFRS 7 Improving disclosures about fi nancial instruments
• IAS 23 Borrowing costs • IFRIC 13 Customer loyalty programmes • Improvements to IFRSs (2008) • Revised IFRS 3 Business combinations • Amendments to IAS 27 Consolidated and separate fi nancial statements • Amendment to IAS 39 Financial instruments: recognition and measurement: eligible hedged items • Revised IFRS 1 First time adoption of IFRS
Following adoption of IAS 1 Presentation of fi nancial statements: a revised presentation, the Group now presents all income and expenses in two separate statements, namely the Consolidated Income Statement and the Consolidated Statement of Comprehensive Income. It also presents a Consolidated Statement of Changes in Equity as a primary statement for the fi rst time and has renamed the Consolidated Balance Sheet the Consolidated Statement of Financial Position. There are no changes to the recognition, measurement or disclosure of transactions as a result of the adoption of this standard.
None of the other standards or interpretations adopted for the fi rst time have had a material impact on the consolidated fi nancial results or position of the Group for the year ended 31 December 2009.
Revenue from Price Comparison and Gladiator Commission from these activities is credited to income on the sale of the underlying insurance policy.
Translation differences on monetary items, are reported as part of the fair value gain or loss. Translation differences on non-monetary items are included in the foreign exchange reserve in equity.
Translation of fi nancial statements of foreign operations The fi nancial statements of foreign operations whose functional currency is not pounds sterling are translated into the Group presentation currency (sterling) as follows: (i) Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet
Estimation techniques used in calculation of claims provisions: Estimation techniques are used in the calculation of the provisions for claims outstanding, which represents 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.
The claims provisions are subject to independent review by the Group’s actuarial advisors. For further detail on objectives, policies and procedures for managing insurance risk, refer to note 18 of the fi nancial statements.
3. Signifi cant accounting policies a) Revenue recognition Premiums, ancillary income and profi t commission Premiums relating to insurance contracts are recognised as revenue proportionally over the period of cover.
Impairment of goodwill The annual impairment review involves comparing the carrying amount to the estimated recoverable amount (by allocating the goodwill to CGUs) and recognising an impairment loss if the recoverable amount is lower. Impairment losses are recognised through the income statement and are not subsequently reversed.
The key assumptions used in the value in use calculations are those regarding growth rates and expected changes in pricing and expenses incurred during the period. Management estimates growth rates and changes in pricing based on past practices and expected future changes in the market.
Deferred acquisition costs Acquisition costs comprise all direct and indirect costs arising from the conclusion of insurance contracts. Deferred acquisition costs represent the proportion of acquisition costs incurred that corresponds to the unearned premiums provision at the balance sheet date. This balance is held as an intangible asset. It is amortised over the term of the contract as premium is earned.
Adjustments to the amounts of claims provisions established in prior years are refl ected in the income statement for the period in which the adjustments are made and disclosed separately if material. The methods used, and the estimates made, are reviewed regularly.
Provision for unexpired risks is made where necessary for the estimated amount required over and above unearned premiums to meet future claims and related expenses.
Co-insurance The Group has entered into certain co-insurance contracts under which insurance risks are shared on a proportional basis, with the co-insurer taking a specifi c percentage of premium written and being responsible for the same proportion of each claim. As the contractual liability is several and not joint, neither the premiums nor claims relating to the co-insurance are included in the income statement. Under the terms of these agreements the co-insurers reimburse the Group for the same proportionate share of the costs of acquiring and administering the business.
The Group’s deposits with credit institutions are classifi ed as held to maturity investments which is consistent with the intention for which they were purchased.
The total charge expensed over the vesting period is determined by reference to the fair value of the free shares granted as determined at the grant date (excluding the impact of non-market vesting
e) Property, plant and equipment and depreciation All property, plant 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: Motor vehicles – 4 years Fixtures, fi ttings and equipment – 4 years Computer equipment – 2 to 4 years Improvements to short leasehold properties – 4 years.
m) Sale of shares to non-controlling interest On the sale of shares to a non-controlling interest a consolidated gain or loss is recognised in the Consolidated Income Statement. The gain or loss is calculated as the difference between the Group’s share of the consideration received in exchange for the non-controlling interest, and the carrying value of the non-controlling share of net assets.
4. Operating segments The Group has four reportable segments, as described below. These segments represent the principal split of business that is regularly reported to the Group’s Board of Directors, which is considered to be the Group’s chief operating decision maker in line with IFRS 8, operating segments.
Other The ‘other’ segment is designed to be comprised all other operating segments that do not meet the threshold requirements for individual reporting. Currently there is only one such segment, the Gladiator commercial van insurance broking operation, and so it is the results and balances of this operation comprises the ‘other’ segment.
2008 comparatives have been restated to remove other corporate revenue, expenses and balances from the ‘other’ segment. These are included in the relevant reconciliations to the Consolidated income statement and balance sheet.
conditions). Non-market conditions such as profi tability targets as well as staff attrition rates are included in assumptions over the number of free shares to vest under the applicable scheme.
Deferred tax Deferred tax is provided in full using the balance sheet liability method, providing for temporary differences arising between the carrying amount of assets and liabilities for accounting purposes, and the amounts used for taxation purposes. It is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised.
The principal temporary differences arise from depreciation of property and equipment, share scheme charges and the tax treatment of overseas profi ts. The resulting deferred tax is charged or credited in the income statement, except in relation to share scheme charges where the amount of tax benefi t credited to the income statement is limited to an equivalent credit calculated on the accounting charge. Any excess is recognised directly in equity.
Segment income, results and other information An analysis of the Group’s revenue and results for the year ended 31 December 2009, by reportable segment are shown below. The accounting policies of the reportable segments are consistent with those presented in note 3 for the Group.
Other segment items: Restated revenue and results for the corresponding reportable segments for the year ended 31 December 2008 are shown below: 31 December 2008 (restated)
Other segment items: *Turnover is a non-GAAP measure and consists of total premiums written (including co-insurers share) and other revenue.
The total of Price Comparison revenues from transactions with other reportable segments is £13.3 million (2008: £11.1 million). These amounts have not been eliminated in order to avoid distorting expense and combined ratios which are key indicators of insurance business. There are no other transactions between reportable segments.
Information about geographical locations All material revenues from external customers, and net assets attributed to a foreign country are shown within the Non-UK Car Insurance reportable segment shown above.
Segment assets and liabilities The identifi able segment assets and liabilities at 31 December 2009 are as follows: UK Car Price Non-UK Segment
Insurance Comparison Car Insurance Other Eliminations total £m £m £m £m £m £m
Eliminations represent inter-segment funding and balances included in trade and other receivables and other payables.
Source of profi t commission: Financial year: Underwriting year: £m £m £m £m 8. Investment and interest income 31 December 31 December £m £m
Insurance Insurance contracts Other Total contracts Other Total £m £m £m £m £m £m
Total expenses and share scheme charges 43.3 96.7 140.0 32.2 73.5 105.7
The £26.0 million (2008: £19.7 million) administration and marketing costs allocated to insurance contracts is principally made up of salary costs.
Parent Company fi nancial statements 81 Five year review 82 Directors and advisers
Current tax Corporation tax on profi ts for the year 63.0 50.1
(Over)/under provision relating to prior periods – deferred tax (0.1) 0.1
The dividends declared in March represent the fi nal dividends paid in respect of the 2007 and 2008 fi nancial years. Dividends declared in July 2008 and August 2009 are interim distributions in respect of 2008 and 2009.
A second interim dividend of 29.8p per share has been declared in respect of the 2009 fi nancial year. Refer to the Chairman’s statement and Business review for further detail.
The difference between the basic and diluted number of shares at the end of 2009 (being 350,000) relates to awards committed, but not yet issued under the Group’s share schemes. Refer to note 24 for further detail.
Further Information 68 Admiral Group plc Annual Report 2009 15. Property, plant and equipment
Net book amount At 31 December 2008 2.1 5.7 2.6 0.6 11.0
The net book value of assets held under fi nance leases is as follows: 31 December 31 December £m £m
69Admiral Group plc Annual Report 2009 17. Financial assets and liabilities The Group’s fi nancial instruments can be analysed as follows: 31 December 31 December
All receivables from policyholders are due within 12 months of the balance sheet date.
Objectives, policies and procedures for managing fi nancial assets and liabilities The Group’s activities expose it primarily to the signifi cant fi nancial risks of credit risk, liquidity risk, interest rate risk and foreign exchange risk. The Board of Directors has delegated the task of supervising risk management and internal control to the Risk Management Committee (RMC). There is also an Investment Committee that makes recommendations to the Board on the Group’s investment strategy.
The other principal form of credit risk is in respect of amounts due from policyholders due to the potential for default by instalment payers. The impact of this is mitigated by the large customer base and low average level of balance recoverable. There is also mitigation by the operation of numerous high and low level controls in this area, including payment on policy acceptance as opposed to inception and automated cancellation procedures for policies in default.
The Group may be exposed to foreign exchange risk through its expanding operations in Europe. Although the relative size of the European operations means that the risks are relatively small, increasingly volatile foreign exchange rates result in larger potential gains or losses. Assets held to fund insurance liabilities are held in the currency of the liabilities, however surplus assets held as regulatory capital in foreign currencies remain exposed .
The Group hedges certain items of foreseen expenditure using forward contracts and other similar instruments.
Liquidity risk Liquidity risk is defi ned as the risk that the Group does not have suffi cient, available, fi nancial resources to enable it to meet its obligations as they fall due, or can only secure them at excessive cost.
A breakdown of the Group’s fi nancial liabilities – trade and other payables is shown in note 20. In terms of the maturity profi le of these liabilities, all amounts may potentially mature within three to six months of the balance sheet date except for a minority of fi nance lease liabilities which will expire after 12 months. (Refer to note 21 for further detail.)
All fi nancial assets will mature within 12 months. The Group’s Directors believe that the cash fl ows arising from these assets will be consistent with this profi le.
Fair value The carrying value of all of the Group’s fi nancial assets equate to fair value. For money market funds, cash at bank and deposits, the fair value approximates to the book value due to their short maturity.
C) Analysis of recognised amounts 31 December 31 December £m £m
D) Analysis of UK claims incurred The following tables illustrate the development of net UK Car Insurance claims incurred for the past fi ve fi nancial periods, including the impact of re-estimation of claims provisions at the end of each fi nancial year. The fi rst table shows actual net claims incurred, and the second shows the development of UK loss ratios. Figures are shown net of reinsurance and are on an underwriting year basis.
F) Reconciliation of movement in net claims provision 31 December 31 December £m £m
Further Information 74 Admiral Group plc Annual Report 2009 21. Trade and other payables 31 December 31 December £m £m
Analysis of accruals and deferred income: 31 December 31 December £m £m
Total accruals and deferred income as above 101.3 82.9 22. Obligations under fi nance leases Analysis of fi nance lease liabilities: Minimum Minimum lease lease payments Interest Principal payments Interest Principal £m £m £m £m £m £m
More than fi ve years – – – – – –
23. Deferred income tax liability 31 December 31 December £m £m
The net balance provided at the end of the year is made up as follows: Analysis of net deferred tax liability: 31 December 31 December £m £m
Deferred tax on unremitted overseas income has been provided to the extent that it is likely to reverse in the foreseeable future.
The amount of deferred tax income/(expense) recognised in the income statement for each of the temporary differences reported above is: Amounts credited/(charged) to income or expense: 31 December 31 December £m £m
1,183,948 (2008: 1,231,000) were issued to the Admiral Group Employee Benefi t Trust for the purposes of the Discretionary Free Share Scheme. The Trustees have waived the right to dividend payments, other than to the extent of 0.001p per share, unless and to the extent otherwise directed by the Company from time to time.
Staff share schemes: Analysis of share scheme costs (per income statement): 31 December 31 December £m £m
Highlights 04 Chairman’s statement 06 Chief Executive’s statement 10 Business review 32 Governance 51 Financial statements 51 Consolidated income statement 52 Consolidated statement of comprehensive income 53 Consolidated statement of fi nancial position 54 Consolidated cash fl ow statement 55 Consolidated statement of changes in equity 56 Notes to the fi nancial statements 78 Parent Company balance sheet 79 Notes to the
The awards are made with reference to the Group’s performance against prior year profi t before tax. Employees must remain in employment for the holding period (three years from the date of award) otherwise the shares are forfeited.
The fair value of shares awarded is either the share price at the date of award, or is estimated at the latest share price available when drawing up the fi nancial statements for awards not yet made (and later adjusted to refl ect the actual share price on the award date). Awards under the SIP are entitled to receive dividends, and hence no adjustment has been made to this fair value.
The range of performance-related awards is as follows: • If the growth in EPS is less than the RFR, no awards vest • EPS growth is equal to RFR – 10% of maximum award vests • To achieve the maximum award, EPS growth has to be 36 points higher than RFR over the three-year period
Awards under the DFSS are not eligible for dividends and hence the fair value of free shares to be awarded under this scheme has been revised downwards to take account of these distributions. The unadjusted fair value is based on the share price at the date on which awards were made (as stated in the Remuneration report).
Number of free share awards committed at 31 December 2009: Awards Vesting outstanding (*1) date
Total awards committed 6,263,805 *1 – being the maximum number of awards expected to be made before accounting for expected staff attrition.
During the year ended 31 December 2009, awards under the SIP H205 and H106 schemes and the DFSS 2006 scheme vested. The total number of awards vesting for each scheme is as follows.
Number of free share awards vesting during the year ended 31 December 2009: Original Awards
Operating lease payments represent rentals payable by the Group for its offi ce properties.
Elephant Insurance Services, LLC United States of America Ordinary Insurance intermediary
Of these principal subsidiaries, Elephant Insurance Company and Elephant Insurance Services, LLC started trading in the year.
The Board considers that only the Board of Directors of Admiral Group plc are key management personnel.
The adoption of these standards has not had a material impact on either the current year or comparative fi gures.
The Parent Company audit fee is not disclosed in these accounts as it is disclosed in the Consolidated fi nancial statements for Admiral Group plc, which precede them at note 10.
The Company’s principal subsidiaries (all of which are 100% directly owned) are disclosed in note 26 of the Group fi nancial statements.
Share scheme charges – – 13.7 13.7 7. Share capital Full details of the Company’s share capital are included in the consolidated fi nancial statements above.
Auditor KPMG Audit plc Marlborough House Fitzalan Court Cardiff CF24 0TE
Directors and advisers Highlights 04 Chairman’s statement 06 Chief Executive’s statement 10 Business review 32 Governance 51 Financial statements 51 Consolidated income statement 52 Consolidated statement of comprehensive income 53 Consolidated statement of fi nancial position 54 Consolidated cash fl ow statement 55 Consolidated statement of changes in equity 56 Notes to the fi nancial statements 78 Parent Company balance sheet 79 Notes to the
Admiral has no debt, a low risk investment portfolio, a conservative reserving methodology, and utilises reinsurance agreements to signifi cantly reduce underwriting risk.
Financial calendar Second interim 2009 dividend 10 March 2010 – Ex dividend date 12 March 2010 – Record date 1 April 2010 – Payment date
This report is printed on Evolution Business that is manufactured from 100% post-consumer ECF (Elemental Chlorine Free) recycled pulp and meets the highest environmental standards.