Admiral’s strategy is simple: To continue to progress in the UK car insurance market whilst taking what we do well to new markets and products: keep doing what we’re doing and do it better year after year.
Investor relations website Stay up to date with the latest news and announcements www.admiralgroup.co.uk
The strategy for Admiral’s UK business is unchanged and remains simple: • The Group aims to grow profitably its share of the UK private motor insurance market whilst maintaining a capital‑efficient structure.
UK Insurance achievements in 2015Profit before tax increased 11% to £443 million (2014: £398 million)
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Continued development of Confused.com beyond motor insurance with encouraging results in home, van and life insurance
International Price Comparison achievements in 2015Quote volumes: 8.8 million (2014: 6.6 million)
International Price Comparison goals for 2016Rastreator – continued defence of market leading brand and building on its role as a strategic data partner
Launched in 2002 – the Group’s most mature business and a leading UK price comparison website.
One shouldn’t forget that the US is 51 distinct auto insurance markets – yes even Washington DC is its own – not one unified market. This means it is hard to find a unified trend across the country. Two things did seem to bind the country together this year, however; lower gasoline prices and continued large advertising. The gas prices correlated strongly with miles driven and subsequently claims frequency while advertising again remained concentrated in the few largest insurers, again topping $6 billion.
Admiral’s strategy is to exploit the knowledge, skills and resources attached to the established UK businesses to promote expansion overseas in private car insurance. Admiral’s objective is to create profitable, sustainable and growing businesses.
International Car Insurance goals for 2016Admiral Seguros to increase market share and grow consumer awareness of Qualitas brand
We expect that the ‘Baremo’ change will bring some market price reaction and opportunities for growth during 2016. Our focus will be on increasing our market share within the price comparison channel, and growing consumer awareness of our flagship Qualitas brand.
ConTe followed the market with some price reductions but resisted drastic rate cutting. Instead we focused on finding profitable niches within the book, selling other products and services to our customers and retaining customers at renewal. In 2016 ConTe will invest more in its brand, which started in 2015 with our sponsorship of the Serie B football league. We will also invest in technology to help us grow in the future when the market turns and prices rise once again.
Distribution channel shift remains slow but inevitable. Market surveys suggest c.25% of all premiums are written direct with new business being c.40%. But it is a sticky market, with only 10% of customers switching annually, so the overall shift in distribution is modest. For Elephant this is somewhat academic as the direct market is enormous and more than enough to satisfy our needs. 40% of new business represents 8 million new business opportunities each year. That’ll do. One feature of 2015 was the emergence of online price comparison – whilst still modest in the US market, it clearly made an impact and is a fast growing proportion of our quote volumes.
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Price Comparison financial reviewNon-GAAP format income statement 2013£m 2014£m 2015£mRevenueCar insurance price comparison 87.2 81.0 82.3Other 25.5 26.5 25.8Total Revenue 112.7 107.5 108.1Operating expenses (92.3) (110.3) (123.6)Operating profit/(loss) 20.4 (2.8) (15.5)Confused.com profit 21.7 15.8 12.5International price comparison result (1.3) (18.6) (28.0)20.4 (2.8) (15.5)Group share of operating profit/(loss)*¹Confused.com profit 21.7 15.8 12.5International price comparison result (0.6) (12.2) (19.7)21.1 3.6 (7.2)
UK Price Comparison – Confused.comConfused.com faced continuing challenging market conditions and produced a lower result, with revenue 7% lower than 2014 at £75.4 million (2014: £80.8 million) although the trend improved slightly in the second half of the year. Profit also fell to £12.5 million (2014: £15.8 million). Confused.com’s results were impacted by limited overall growth in the price comparison market in the UK as well as fierce competition.
Revenue from non-car insurance comparison sources represents over a quarter of total revenue. Confused.com’s operating margin reduced to 17% (2014: 20%).
The combined revenue from the European operations in 2015 increased to £28.6 million (2014: £25.3 million), with nearly 30% more quotes provided to customers. Both Rastreator and LeLynx have market-leading positions and strong brand recognition in their respective markets. The Group’s share of the combined result for Rastreator and LeLynx was a profit of £1.8 million (2014: £2.8 million), the reduction reflecting investment in brand awareness outside of motor insurance. Admiral Group owns 75% of Rastreator, with the remaining 25% owned by Mapfre.
During late 2015 the Group established Preminen, a 50:50 joint venture with Mapfre, to explore the potential of price comparison overseas.
compare.com is a regulated insurance agency domiciled in Virginia, US, and licensed in all other US states.
2013£m 2014£m 2015£mUK Household Insurance result (0.1) (0.1) 1.2UK Commercial Vehicle operating profit 2.5 2.2 1.5Other interest and investment income 1.9 3.7 6.5Share scheme charges (22.5) (21.2) (27.2)Business development costs (0.3) (0.7) (1.9)Other central overhead (3.5) (3.9) (5.6)Finance charges — (4.6) (11.1)
UK Household InsuranceUK Household Insurance was launched in December 2012 under the Admiral brand. The product is underwritten within the Group and in common with other businesses it is supported by proportional reinsurance covering 70% of the risk (shared between Munich Re, 40%, and Swiss Re, 30%). The business enjoyed another year of strong growth with policy numbers increasing by more than 90% to over 310,000 (2014: 162,600). Despite the relatively small size of the Household book, it has generated a small profit and its expense ratio is lower than the UK market ratio.
Share scheme chargesThese costs relate to the Group’s two employee share schemes, further detail on which is set out in the notes to the financial statements. The increase in the charge is due to an increase in the number of awards across the Group resulting from headcount growth and the higher share price at the end of 2015.
Finance chargesFinance charges of £11.1 million (2014: £4.6 million) represent a full year’s interest on the £200 million subordinated notes which were issued in July 2014 (refer to note 6 to the financial statements for further details).
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First, and key to the overall result, the UK insurance business. The work we did on the UK business in terms of rate increases ahead of the market (started in, but not limited to, 2014), the shift in the risk profile of the account over time and the continued attention to operational detail all led to an excellent economic outcome. Also, trust me, money from back year releases actually spends exactly the same as any other money. And there’s more where that came from.
2007: The Sloth UK car insurance market cycle is turning with sloth-like speed 2008: The Koala A sleepy year on rates...
but can be nasty if provoked 2009: The Ox A lot of hard labour 2010: The Puppy A cute, cuddly year 2011: The Chameleon Quite useful but changeable 2012: The Kangaroo Bounces around but... strong and energetic 2013: The baked potato Comfort food: solid yet unflashy 2014: The baked Alaska Hot and cold in a single bite
David and I met almost 30 years ago at business school. We did some great projects together there including one on perfume advertising and another on what a beer bottle says about the beer inside. In 1991 I was recruited by a managing agency at Lloyd’s of London to set up and run what’s become Admiral Group. David was working as a Management Consultant in a blue chip firm but I thought, why not ask him if he’d be interested to join this car insurance start-up? And, much to my surprise, he said ‘yes’! I officially started with Admiral in June 1991 and David came on board in August.
I’ll miss coming in each morning and seeing how we did yesterday. I’ll especially miss those days when one of our operations has broken a record – quotes, sales, etc. But I’ll even miss looking at the reserve movements across all the businesses each morning and that nervous moment near the end of the month when the UK claims department puts the reserves on new injury cases… I remember in the very beginning of Admiral we were able to hit the refresh button during the day and find out how many sales had been made up to that minute. But managers were hitting refresh so frequently that the system was grinding to a halt! So we had to move to yesterday reporting. It may be a serious compulsive behaviour issue to look over your shoulder at yesterday all the time, especially for the size of business we’ve become, but it’s still one of the little pleasures for me.
Finally, people ask me what I’m most proud of. That’s easy. I’m most proud to be part of an organisation that combines economic success with people being happy to come to work every day. In fact, what I’m really most proud of is that we had the ability to see that IF people are happy in their jobs every day THEN the chances for economic success are greatly enhanced.
Chief Executive’s statement Henry Engelhardt, CBE From page 8 2015 in summary
• That we distribute each year all our profits over and above what we need to support and grow our business.
• That we are the only company to have been in the Sunday Times Best Companies to Work For list every year for the last 15 years.
• That all our growth, at home and overseas, has been organic with the Admiral culture strongly embedded wherever we operate.
2015 in overview In my statement last year I wrote that we recognise that in a cyclical business there are periods for growth, and periods for consolidation, seeking purely to maintain one’s existing market position and focus on building capability to support growth when conditions render that both profitable and sustainable. It is encouraging that in 2015 it was appropriate to grow in four of our five car insurance businesses and particularly that market conditions were right to resume modest growth in the UK.
As a result we now have 673,000 motor customers overseas and our price comparison businesses in France and Spain are market leaders. Our Italian motor insurance business, ConTe, achieved both growth in its book in 2015 and a further year of profitability whilst our French motor business, L’olivier, grew strongly albeit off a low base. Elephant Auto in the US also achieved strong growth and is preparing to expand its operations into further states as it grows towards the scale required of a profitable operation. It was only in Spain that market conditions remained fiercely competitive with falling prices, making growth undesirable and management instead focused on achieving break-even, something the business achieved on an underwriting year basis.
to transition from the standard formula to a partial internal model. In the face, therefore, of a degree of ongoing uncertainty we have decided to release this surplus progressively as we transition to the new basis of calculating required capital. The first element is the release of £33 million into the 2015 final special dividend.
We have also reviewed the split between normal and special dividends. Since we floated in 2004 we have maintained our normal dividend at 45% of each year’s earnings and then distributed as a special dividend the surplus over and above what we retain to meet regulatory requirements, the future development of our business and appropriate buffers. In practice we have every year distributed 90% or more of each year’s earnings, in the light of which we believe the normal level of dividend is set too low. We are, therefore, raising this to 65% with effect from 2015 but in all other respects our dividend policy remains the same: we expect, for the foreseeable future at least, to continue to distribute, in total, the same proportion of our earnings as in the past.
This year’s available surplus allows full year normal and special dividends of £283 million, representing a 96% distribution. Adding to this the above release of surplus capital, and calculating the normal element of the final dividend at 65% of post-tax profits, our full year dividends amount to a normal dividend of 57.9 pence per share, and special dividends of 56.5 pence per share.
Over 8,000 staff eligible to receive free shares worth a total of £3,600 each in the employee share scheme based on the full year 2015 results
*² Final dividend of 63.4 pence per share includes an additional return of excess capital of 11.9 pence per share. Refer to Chief Financial Officer’s statement for further detail.
*³ Turnover is defined as total premiums written (including co-insurers’ share) and Other Revenue (excluding vehicle commission). Refer to note 12a for a reconciliation to financial statement line items.
Best Company to Work For in the UK’s Sunday Times Best Companies to
Work For list. We also received a special recognition award for being the only company in the list for each of the 15 years since the competition began and CEO Henry Engelhardt won the Best Leader award for the second year running
May Henry Engelhardt announced he will stand down as CEO of Admiral Group and
Best Car Insurance Provider at the Personal Finance Awards for the third year running
February Admiral Group’s new headquarters, Tŷ Admiral, was officially opened by members of the
UK Car Insurance business improved profits by 11% to £443 million
Growth in our young UK household book to over 300,000 customers
Admiral Seguros, our Spanish insurance operation, achieved break-even (on an underwriting year basis*¹) in fiercely competitive market conditions
ConTe, our Italian insurance operation, achieved growth and a further year of profitability
So what makes us different? • That all employees of Admiral are shareholders.
• That we have the lowest combined ratio amongst our major UK competitors.
to have two people leading a business, both of whom could be CEO, and one of whom is four years younger than the other! Since we announced Henry’s retirement last year we have been able to implement a seamless transition of leadership.
This in turn supported increased investment in our young international car insurance and price comparison businesses, in particular in the US, whilst at the same time growing by 6% the level of Group pre-tax profits as a whole.
Given it’s my last UK Insurance Review, I’ll take the long view and start by going back to our early days as a quoted company.
International Car Insurance achievements in 2015 Admiral insured 673,000 customers across its Spanish, Italian, American and French operations (2014: 592,600)
L’olivier – assurance auto continued to develop its brand awareness, launching on TV
Launched in October 2006 – the most mature of the Group’s international businesses.
Launched in May 2008 – the largest international business within the Group.
Comprehensive 2015 market data is not yet available, but it is fair to assume that the US market grew again – from a market of over $180 billion premium in 2014 to around $190 billion in 2015. The market is stable with low cyclicality, but in 2015 the major players complained of increasing claims frequency and talked about raising rates.
2015 was the year of a new law in France (‘loi Hamon’) making switching motor insurance much easier for consumers. This new regulation was in-force from 1 January 2015 and was rolled out progressively all year at each renewal date.
To avoid losing market share, large players didn’t increase prices much, at least not enough to compensate for the higher cost of claims. As a consequence, the market combined ratio kept deteriorating, reaching 107%. One would expect 2016 to be a continuation of 2015. Market profitability is unlikely to improve, as claims cost are expected to keep rising, while prices will be stable as a defence against the new law that is now fully effective.
1 UK Admiral Bell Diamond elephant.co.uk Confused.com Carfused Admiral Household Gladiator Admiral Law BDE Law 2 France L’olivier – assurance auto LeLynx 3 Italy ConTe 4 Spain Balumba Qualitas Auto Rastreator Seguros.es 5 USA Elephant Auto compare.com 6 Canada Admiral 7 India Admiral Solutions Admiral Technologies £108 million Turnover (2014: £108 million)
*¹ All segment results exclude share scheme charges. These charges are included in the ‘Other’ segment.
Admiral’s strategy is to develop websites that allow consumers to compare a range of general insurance, financial services and other products. The international strategy is to exploit the UK expertise in price comparison and export it overseas.
LeLynx retained its leadership position in the French market compare.com has more than 60 auto insurance companies, including half of the top 25, under contract in the US
International Price Comparison goals for 2016 Rastreator – continued defence of market leading brand and building on its role as a strategic data partner
We have achieved a lot in 2015 including finalising significant projects such as the launch of the Brian toy promotion and the entire redesign of our websites and customer experience. We have also launched new activities to become the go-to place for car buying with the launch of Carfused.com. These new developments have required investment in 2015 and will need time to transform in actual future profits for Confused while they have hurt the bottom line in the short term. Confused has also gone through organisational change in 2015, to face a market with increased regulation impacting the way price comparison websites operate and more competition, requiring a greater need to stand out.
With 70% of consumers starting their search online, the big advertisers absorb a disproportionate amount of traffic. Countering this trend is the growing, but still small, auto insurance comparison market. compare.com, the largest auto insurance comparison site in the US, was joined this year by other players pushing similar, but different, models. While we continue to operate in 49 of the 51 markets (apologies to Alaska and Hawaii again!), advertising efforts grew to nearly twenty states and included a very successful nationwide TV advertising test.
Advertising growth was permitted by the continued expansion of our carrier panel. With over 60 auto insurance brands under contract, including nearly half of the top 25, the average number of rates returned nationwide is now nearly a handful. Volumes are now at the level that all but the very largest carriers view us as a very meaningful potential, and actual, source of business.
Only time will tell, but another year of progress means we are closer to success than failure in our effort to transform the market.
*¹ Represents the Group’s share of Price Comparison profit/(loss) and excludes the impact of Minority Interests.
International Price Comparison Admiral operates three price comparison businesses outside the UK: in Spain (Rastreator), France (LeLynx) and the US (compare.com).
Interest and investment income Interest and investment income in 2015 was £6.5 million (2014: £3.7 million). The increase represents a full year’s interest on the gilt holdings purchased with the proceeds of the debt issue.
A lot of good things happened in 2015. For the sake of allowing you to finish this statement in a conscious state, let me highlight but two.
One of the keys to the success of our partnership has been to make arguing an art. The next time David and I agree on something I suspect will be the first time. I jest. Sometimes we did agree. I remember once back in 1996… But we do push each other hard and the debates and discussions we have invariably improve the end result. We both like to challenge the status quo and we make each other think. But the real key to success was that we never lost sight of the fact that both of us always had the same goal: make Admiral great. This meant that we walked away from every debate and discussion, no matter how fierce or passionate, as good friends. The other key to success has been to laugh together. We laugh at each other and we laugh at the world around us. I’ve shared more laughs with David than with any person other than my wife (who is still not for sale!).
I can also say that I wouldn’t be stepping aside if I didn’t feel we had depth in management below David. If the people working in key roles around the Group today don’t do great things in the future then it will be my fault for not working more closely with them when I had the chance. The true evidence of my confidence in them is that I’m stepping aside to give them space to make their mark.
As this is my final CEO commentary I’ll ask you to indulge me as I answer two questions. First, what will I miss when I step down and, second, what am I most proud of in my Admiral years?
Lastly, the thing I know for sure I’ll miss most – that’s working with the people I work with. I am very, very lucky to work with people I enjoy working with. No, we don’t always agree on everything and there have certainly been good days and bad days, but I enjoy the challenges we work on together, the conversations, the problems, the attempts at solutions, the coffees and lunches, even the disagreements, and I enjoy seeing the spirit they bring to work every day. Especially that spirit. The people I work with bring with them a rare desire to improve and succeed, as the economist Joseph Schumpeter put it long ago: ‘there is the will to conquer, the impulse to fight, to prove oneself superior to others, to succeed for the sake, not of the fruits of success, but of success itself.’ I look forward to my calls, my meetings and my trips around Admiral Group. And that’s because the people I work with care: they care about what they do, they care about the company, they care about each other and, perhaps most importantly, they care about everyone who works in Admiral Group. I hope that care lasts for a long, long time.
I would sum up all our results since 2000 as being akin to a seedless watermelon.
G re at place Efficient capital retu rn s profitability to w ork employm ent
Sharing risk with co- and reinsurance partners is an important part of Admiral’s business and these relationships are underpinned by strong underwriting results. Sharing risk allows Admiral to provide capital backing for a minority of its business. This results in a superior return on capital for Admiral shareholders whilst also providing financial support if things go wrong.
We are committed to returning excess capital to shareholders. At Admiral we believe that keeping management hungry for cash keeps them focused on the most important aspects of the business. We don’t starve our businesses, but neither do we allow them the luxury of excess capital.
Admiral has always sought to protect its downside and this is characterised by: the reinsurance model; a very conservative approach to claims reserving; an organic growth strategy; a test and learn approach of taking measured steps before investing further; and a conservative approach to investment management.
Doing what we do, and doing it even better than last year
Our strategy is simple: we aim to build on our existing strengths. We’ve broken this down into four key objectives.
• Admiral Seguros can break-even on a relatively small policy base – we now plan to take advantage of the change in ‘Baremo’ to grow.
Q 25 years in one industry, one company is a long time. Besides the internet, what has been the biggest change to the car insurance industry you’ve seen?
A Henry: Wow, glad you asked that question! I think the biggest change has been the sophistication of pricing. When we were working on the business plan for Admiral we would, literally, go into a broker’s office and ask for a quote and the broker would take out a laminated paper with a company’s rating engine on it. He would then go through the questions with us at the counter, using the paper to do the maths that would determine the quote. One time we asked the broker for the laminated paper, he gave it to us and so we had all of General Accident’s rates!
Another time, we were doing some rate testing before we launched and we noticed that one firm we were friendly with at the time didn’t rate for roofers. So we asked the Underwriter, why didn’t he rate for roofers? He thought for a minute and then said, ‘Don’t like roofers.’
Q You have announced an additional return of capital as part of the ‘special’ dividend for 2015. Could you explain why and should shareholders expect more of these additional returns?
A Geraint: We anticipate that the additional payment of 11.9 pence per share we’ve announced as part of the final 2015 dividend is the first of a number of additional special returns to shareholders over the next two to three years which we expect to total about £150 million to £200 million.
This comes about as a result of Admiral entering the new Solvency II regime with surplus capital, and, consistent with our belief in not holding excess capital in the company, we plan to return that surplus to shareholders.
Q What are the biggest changes you have seen in Admiral?
Q Your Household business is growing. What changes have you seen and how do you see this market developing?
Whilst we don’t expect a change in the total dividend payout ratio for the foreseeable future, we think that the increase in the normal element results in a better balance between normal and special, in light of the fact that Admiral has paid out over 90% of earnings to shareholders every year since float. Including the final 2015 dividend, we’ve paid out a total of £2.07 billion in dividends in just over 11 years – 2.9 times the value of Admiral at IPO.
That’s the short answer. The long answer is that I don’t know what it will look like, but I know it won’t look like what it looks like today!
My prediction is that there will be many, many more vehicles, including flying ones. I say this because as vehicles are created that have fewer and fewer accidents I don’t think they’ll need to be made of heavy metals. So they will be made of things like plastic, or paper, or bamboo or whatever. They’ll be lighter and less costly to make (3D printed cars?) and so more and more people will own more and more cars. And there will still be a need for insurance, liability, storm damage, vandalism, theft, etc., but premiums will be very modest. So whereas the UK today is some 27 million private vehicles with premium of, say £11 billion, in 25 years you might have 50 million vehicles for the same population and premium of £9 billion. Check back in 2041 and we’ll see if I’m right or not!
A David: Not a lot. It would be surprising if I said anything else given that I’ve been on the Board and working with Henry throughout our Admiral life. That’s not to say that our strategy won’t evolve, notably in response to changes in the markets in which we operate and new markets we may enter.
A Geraint: Although Admiral will use the Solvency II Standard Formula to calculate capital requirement in the initial stages of Solvency II being live, we plan to apply in 2017 to use our own model for that calculation. The model will capture all aspects of Admiral’s business and better reflect our risk profile (something the Standard Formula doesn’t do well, hence the Capital Add-on).
If we make the application in 2017, the earliest we expect to be able to use the model for the capital requirement is the end of that year.
Record UK car insurance profit of £443 million and encouraging signs of market rate increases
• A successful end to our Solvency II implementation efforts and a very strong capital position entering the new regime.
• Ending 2015 with over 4.4 million insurance customers (+9%), 25% of which are in businesses beyond UK car insurance and almost 700,000 outside the UK.
• Agreeing extensions to UK car insurance reinsurance agreements out to the end of 2018.
To balance things a little, Confused.com experienced another tough year and saw profits fall to £12.5 million from £15.8 million. And, as Kevin explains in his note, the loss ratio at Elephant Auto came under pressure this year.
We prepared well for the new regime and go into 2016 with a healthy capital position. Consistent with our long-standing belief in not holding excess capital in the company, we intend to return to shareholders funds that aren’t needed for solvency and buffers. There are though a number of uncertainties that remain, not least of which is our plan to submit an application for approval to use an internal model to calculate capital requirements during 2017 and also the 2016 year-end reassessment of the capital add-on by the PRA. We, therefore, think it’s prudent to return the capital surplus gradually, whilst the uncertainty reduces over the next two to three years. The final 2015 dividend includes the first such additional payment of £33 million or 11.9 pence per share. We’ll separately identify these returns of capital as we make them.
The final 2015 dividend totals 63.4 pence per share (£175 million). This includes a regular level of dividend of 51.5 pence per share (representing normal and special elements) equal to 98% of earnings per share, plus the 11.9 pence per share additional return I refer to above. Further detail on the Solvency II capital position and dividends is included in the Business Review.
• UK Car Insurance profit increased by 11% to £443.0 million (2014: £398.0 million).
• International Car Insurance losses totalled £22.2 million (2014: £19.9 million).
• The combined Price Comparison business made losses of £7.2 million (2014: profit £3.6 million) reflecting the investment in compare.com.
• Other Group Items, including employee share schemes*² and net debt financing charges, amounted to a cost of £36.6 million (2014: £24.6 million).
Earnings per share Earnings per share increased by 4% to 107.3 pence (2014: 103.0 pence). The increase is lower than the increase in pre-tax profit due to a slightly higher effective tax rate in 2015 (21%) compared to 2014 (20%).
• An additional return of capital of 11.9 pence per share, representing an element of surplus capital not required for solvency.
The payment date is 3 June 2016, ex-dividend date 12 May 2016 and record date 13 May 2016.
The final 2015 dividend totals 63.4 pence per share (£175 million). This includes a regular level of dividend of 51.5 pence per share equal to 98% of earnings per share, plus a return of excess capital of 11.9 pence per share.
A key part of the business model is the extensive use of co- and reinsurance across the Group which provides both loss protection and capital relief.
Divisional performance highlights The Group’s UK Car Insurance business accounts for 81% of Group turnover (2014: 81%) and 75% of customers (2014: 78%). The relative decrease in the proportion of Group customer numbers is due to the continued growth and development of the Group’s other businesses, whilst the relative stability of turnover reflects the premium increases experienced in the UK during 2015.
In 2015, the UK business implemented a number of premium increases as rates in the market started to rise. The number of vehicles insured in the UK business increased by 5% to 3.30 million (2014: 3.15 million).
Higher average premiums in the competitive UK market with continued success in attracting and retaining customers, contributed to an increase in UK turnover of 7% to £1.71 billion (2014: £1.60 billion).
Outside of the UK, Admiral’s International Car Insurance businesses continue to develop, with combined turnover rising 13% to £232.4 million (2014: £206.2 million) and customer numbers approaching 700,000 – an increase of 14% on a year earlier. The 2015 Group results include another small profit generated by ConTe and improved results for Admiral Seguros following the achievement of break-even (on an underwriting year basis). The combined loss from the international insurance operations was higher in 2015 at £22.2 million (2014: £19.9 million), primarily due to ongoing investment in France and the US offset by the improved ConTe profit. The overall international loss equalled 6% of the Group’s profit before tax, in line with 2014.
Admiral’s Price Comparison businesses made a combined loss of £7.2 million (2014: profit £3.6 million). In a very competitive UK comparison market, Confused.com, the Group’s UK Price Comparison business, reported a pre-tax profit of £12.5 million – £3.3 million lower than 2014’s result. This profit was offset by a net loss within the international price comparison businesses where investment in compare.com of £21.5 million (2014: £15.0 million) outweighed profits from the European price comparison operations, Rastreator in Spain and LeLynx in France, of £1.8 million (2014: £2.8 million). This reduced profit reflected increased marketing costs as both businesses sought to grow market share.
Money market funds, fixed income and debt securities continue to comprise the majority of the total; 79% at 31 December 2015 and 2014.
Investment and interest income in 2015 was £32.6 million, an increase of £17.2 million on 2014 (£15.4 million). The increase was due to the full year impact of the increased allocation of funds to fixed income and other short dated securities that took place across 2014. Further allocations of funds to fixed income and other short dated securities continued in 2015. In addition, investment and interest income for 2014 was offset by an adjustment (of approximately £8 million) relating to notional investment income being accrued on quota share reinsurance funds withheld arrangements. The cumulative accrual at 31 December 2015 is £8 million, unchanged from a year earlier.
The main items contributing to the significant operating cash inflow are as follows: £m 2014 £m £m
The Group’s regulatory capital from January 2016 will be based on the Solvency II Standard Formula, with a capital add-on agreed by the PRA to reflect recognised limitations in the Standard Formula with respect to Admiral’s business (predominantly in respect of profit commission arrangements in co- and reinsurance agreements and risks arising from claims including Periodic Payment Order (PPO) claims).
Taxation The tax charge reported in the Consolidated Income Statement is £76.9 million (2014: £69.1 million), which equates to 21% (2014: 20%) of profit before tax. The higher effective rate of taxation compared to 2014 results from reductions in deferred tax assets relating to losses in the Group’s US businesses.
Geraint: In response to serious questions about whether we’d consider selling businesses… His reply is usually ‘Everything’s for sale… apart from my wife’.
• At the same time, Admiral endeavours always to give excellent service to customers, whilst providing a positive environment in which staff can work and develop.
Record number of vehicles insured up 5% at 3.30 million (2014: 3.15 million)
96% of staff say that Admiral is a friendly place to work according to the Great Place to Work survey 5th Best Big Company to Work For, The Sunday Times 100 Best Companies to Work For 4th Best Large Workplace in the UK, Great Place to Work Institute
UK Insurance goals for 2016 Appropriate rate changes in response to claims trends and market conditions
Market discipline should not only make them more rational managers of their business, it should also make them more effective competitors – more sophisticated pricers, better claims handlers, lower cost operators. It should, in short, help them narrow the long-standing and substantial combined ratio gap between ourselves and themselves. Have they?
If you ask me now if we have maintained the same claims advantage versus the market in 2015 (now with 3.3 million cars on cover) as in 2006 and in 2012, I’d again say ‘probably not’.
UK Car Insurance profit before tax*4 393.9 398.0 443.0 *¹ GAAP = Generally Accepted Accounting Practice.
*² Turnover (a non-GAAP measure) comprises total premiums written and Other Revenue. Refer to note 12a for a reconciliation to financial statement line items.
Other Revenue per vehicle £67 £67 £63 *¹ Motor loss ratio adjusted to exclude impact of reserve releases on commuted reinsurance contracts. Reconciliation in note 12b.
*³ Reported total combined ratio includes additional products underwritten by Admiral.
This year Admiral Group customers increased to 4.4 million, a record number.
UK Car Insurance – co-insurance and reinsurance Admiral (in the UK and internationally) makes significant use of proportional risk sharing agreements, where insurers outside the Group underwrite a majority of the risk generated, either through co-insurance or quota share reinsurance contracts. These arrangements include profit commission terms which allow Admiral to retain a significant portion of the profit generated.
The two principal advantages of the arrangements are: • Capital efficiency: a significant proportion of the capital supporting the underwriting is held outside the Group. As Admiral is typically able to retain much of the profit generated via profit commission (refer below for further details), the return on Group capital is higher than in an insurance company with a standard business model.
The proportion underwritten by Munich Re (via Great Lakes, a UK subsidiary of Munich Re) is on a co-insurance basis, such that 40% of all motor premium and claims for the 2015 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.
At 31 December 2015, all material UK quota share reinsurance contracts for underwriting years up to and including 2013 had been commuted. All reinsurance for the 2014 and 2015 years remained in effect.
• Credit risk of significant counterparties through default of a reinsurer.
The increase of £14.6 million in investment income was due to the full year impact of the increased allocation of funds to fixed income and other short dated securities that took place across 2014. In addition, investment and interest income for 2014 was offset by an adjustment (of approximately £8 million) relating to notional investment income being accrued on quota share reinsurance funds withheld arrangements. Net other income and instalment income decreased by 3% to £158.6 million (2014: £163.3 million).
Turnover and premiums UK turnover of £1.71 billion increased by 7% (2014: £1.60 billion) primarily due to increases in average premiums which also led to a 6% increase in total premiums written to £1.54 billion (2014: £1.45 billion). The closing vehicle count increased to a record 3.30 million (2014: 3.15 million). Average written premium for the year was around £470, up 4% on 2014 (2014: £453), reflecting rate increases implemented during 2014 offset by portfolio mix changes (notably a shift in the balance of the portfolio towards renewal business).
Underwriting result and profit commission The UK Car Insurance motor combined ratio improved in 2015 as shown below: UK Car Insurance Motor combined ratio 2014 2015
Loss ratio excluding reserve releases from original net share and commuted reinsurance 86.9% 87.7%
Loss ratio net of releases – original net share*¹ 68.6% 64.1%
*¹ Ratios calculated on original net share use the proportion of the portfolio that Admiral wrote on a net basis at the start of the underwriting year in question.
The projected ultimate loss ratio for Admiral for the 2015 accident year is 82% (2014 accident year: 77%). The level of projected ultimate loss ratio continues to reflect the impact of increases in average claims costs and lower earned average premiums.
When a quota share reinsurance contract is commuted (typically after two or three years from the start of an underwriting year), further improvement or deterioration in claims costs are reported within net claims. If the contracts were not commuted, the movement would be reported in profit commission.
• Vehicle commission earned from Admiral’s panel of co- and reinsurance partners.
Contribution from Other Revenue (net of costs) decreased by 4% to £174.6 million (2014: £182.0 million). The reduction was due to a number of impacts, most notably a change to reinsurer vehicle commissions (the change reallocates revenue to profit commission, albeit with a time lag in recognition of approximately a year) and higher loss ratios on add-on products underwritten by the Group (as a result of enhancements to product features to benefit customers).
Other Revenue was equivalent to £63 per vehicle (gross of costs) – reflecting the change in allocation of vehicle commission. Net Other Revenue (after deducting costs) per vehicle was £54 (2014: £58).
*² Other Revenue (before internal costs) divided by average active vehicles, rolling 12 month basis.
The Group is required to maintain capital at a level prescribed by the lead regulator for Solvency II purposes, the PRA, and maintains a surplus above that required level at all times.
4th Best Multinational Place to Work in Europe, awarded by Great Place to Work
ConTe voted 9th Best Medium Company to Work for in Italy
The other big news in 2015 was the passing of an update to the claims ‘Baremo’ law by the Spanish parliament. ‘Baremo’ regulates compensation payouts in bodily injury cases and the change, effective from January 2016, makes large bodily injury claims significantly more expensive. This will provide further upward pressure on market claims costs.
L’olivier – assurance auto benefited both from the new regulatory environment and the growth of the price comparison market. It was a year of strong growth as our policy base grew by more than 60%. We’ve been developing our brand awareness with a new TV presence. At the same time, operations were fully in-sourced and a new cutting edge IT system was developed and implemented.
Vehicles insured at period end 164,400 285,100 34,200 108,900 592,600 *¹ Turnover includes total premium written and income generated by the sale of additional products and services and fees.
Admiral Seguros (Spain) was launched in 2006 and is the oldest of Admiral’s international operations. In 2013, Admiral Seguros launched a second brand (Qualitas Auto) to complement its original Balumba brand. The business insured 160,700 customers at the end of 2015, broadly stable on a year earlier. In 2015, Admiral Seguros focused on cost control and improvements in infrastructure and customer processes rather than growth and achieved break-even on an underwriting year basis, although reported a loss on an IFRS basis.
The Group’s largest international operation is ConTe in Italy, which insured 315,300 vehicles at the end of 2015, up 11% year-on-year. ConTe was launched in 2008 and in 2015 enjoyed positive development of projected ultimate claims outcomes on its back years and was able to report a second annual profit. Despite the releases, the level of conservatism in the booked reserves at year end remains very strong.
Rewarding Staff are continually rewarded for their length of service to Admiral
In the US, Admiral operates in four states (Virginia, Maryland, Illinois and Texas) through its Elephant Auto business, which launched at the end of 2009. At the end of 2015 Elephant Auto insured over 140,000 vehicles, up 29% year-on-year. Elephant Auto's adjusted combined ratio net of Other Revenue improved from 146% in 2014 to 134% in 2015.
Regulatory environment Admiral’s European insurance operations are generally subject to the same regulation as the UK Car Insurance business, details of which are summarised on page 25, but also comply with local requirements as appropriate.
LeLynx – further developing the French aggregator market by exploiting the new Hamon law compare.com – continued lowering of acquisition cost while increasing the number of carriers and rates presented to consumers
Confused.com has seen a lot of changes in the market since it pioneered insurance comparison back in 2002, creating an ever growing and profitable industry while offering transparency and savings to British consumers. 13 years later, the market is now mature and commoditised with established players and is characterised by a very high level of competition. In 2015, the price comparison websites have spent more than ever in advertising and other promotional activities to attract customers. At the same time, the price comparison market as a whole did not grow as much as in previous years despite an apparent turn of the price cycle towards the end of the year, as indicated by the Confused/Willis Towers Watson price index.
This fiercely competitive environment in a stagnant market, and increasing acquisition costs across every media channel, meant Confused.com had a challenging year in 2015. This resulted in a reduced profit of £12.5 million.
2015 has been a healthy year for Rastreator both in terms of growth and results. We have reinforced our market leadership in Spain with strong growth in quotes and sales, integrated a new brand, Seguros.es, and also expanded our presence in the market with several new products.
Within the insurance business we are proud to deliver a comparison of prices that represents 86% market share and which includes traditional players in our panel. At the same time we keep working on our role of strategic data partner for insurers that work with us, with our annual insurance price index and our Big Data team providing new tools. For 2016, the new ‘Baremo’ law will bring premium increases which will increase shopping in car insurance.
Launched in March 2013 – the first European-style price comparison website in the US.
Diane: Henry told me ‘Never forget how important you will be to the people you manage’. Since then, when times get tough, I try to keep a smile and be kind with everyone at the office.
Martin: Henry always suggests the most unexpected option to a problem and ‘How Henry would approach it’ has now become a regular comment in manager meetings.
Andrew: One unique thing Henry does is a different poem or rhyme every time he has an out of office notice.
Share scheme charges These costs relate to the Group’s two employee share schemes, further detail on which is set out in the notes to the financial statements. The increase in the charge is due to an increase in the number of awards across the Group resulting from headcount growth and the higher share price at the end of 2015.
PPOs provide for a regular payment over an extended time to the claimant, rather than a single lump sum payment.
Increased uncertainty of the cost of significant claims over a longer term. A requirement to meet these payments over an extended term.
As noted above Admiral has a conservative reserving policy and continues to hold a material margin in its financial statement claims reserves above actuarially determined best estimates.
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; • Highly data-driven and analytical approach to regular monitoring of claims and underwriting performance; • Ability to identify and resolve underperformance promptly through changes to key performance drivers, particularly pricing; and
Admiral purchases excess of loss reinsurance, designed to mitigate the impact of very large individual or catastrophe event claims. Proportional quota share reinsurance and co-insurance also mitigate the impact of this risk.
There is a risk that support will not be available in the future if the results and/ or future prospects of either the UK business or (more realistically) one or more of the newer operations are not satisfactory to the co- and/or reinsurers.
Admiral mitigates the risk to its reinsurance arrangements by ensuring that it has a diverse range of financially secure partners. Admiral continues to enjoy a long term relationship with one of the world’s largest reinsurers, Munich Re, which has supported Admiral since 2000.
Admiral’s focus remains on the wide range of factors that contribute to Admiral’s combined ratio outperformance of the UK market. Some are set out on page 34, but in addition: • Track record of innovation and ability to react quickly to market conditions and developments; and
Admiral continues to develop and support the UK household and overseas operations.
Admiral earns Other Revenue from a portfolio of products and other sources.
The impact on Confused.com of higher levels of competition in the price comparison market, either through the aggressive activities of existing players or the entry of significant new participants would be to lower profits.
One or more counterparties suffer significant losses leading to a credit default.
Concentrations of credit risk in respect of investments are managed by investing in liquidity funds and other mandates 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.
The internal audit function has an agreed cycle of testing of the adequacy and effectiveness of controls. The resulting reports are reviewed by the Audit Committee, Group Risk Committee, Executive Management and the Boards.
Unable to support the required growth and development essential for future business success, maintaining competitor advantage and developing the Group’s business model.
Financial loss, data loss, business disruption or damage to the reputation of the Group from failure of the information technology systems derived from internal or external threats.
Confidentiality of data: Potential for data breaches or loss of intellectual property.
Within IT there is a major incident team which is tasked with maintaining system availability, with Business Continuity Plans (BCP) and Disaster Recovery (DR) plans in place.
All staff receive mandatory training around IT Security and Data Protection.
Failure of products, processes or services to meet customer and regulator expectations and failure to address customer complaints promptly or appropriately.
Our approach to people is founded on four key pillars: Communication We communicate with people, people communicate back to us. We make sure that everyone knows what’s going on with the business because people want to be involved. Our staff portal, Atlas, is updated daily with all the news from around the Group, whether we’ve won an award or changed a procedure – our staff will know about it!
Equality At Admiral we strive to lessen the obvious divides between people. There are no company cars or executive dining rooms; everyone sits in the same chairs and eats in the same cafeterias. Our managers don’t have offices, all our desks are open plan – there is no ‘us’ and ‘them’. Everybody’s a shareholder – whether working in Canada, Seville or Swansea you’re a shareholder and every new starter gets treated equally.
Recognition We like to make sure that people who are doing a good job are told about it! This can be in the form of a good word or positive feedback. But we also like to ‘go big’ – from Star Lunches, where exceptional performers are taken out to lunch by Senior Management, to awards for length of service. Recognition is a key part of life at Admiral and we ensure that great performance, both individual and collective, is acknowledged and rewarded.
Fun Fun is a big component of working for the Admiral Group. We celebrate as many events and occasions as possible! The Ministry of Fun ensures that there are great competitions and activities on a weekly basis for staff, meaning life is never dull!
European Business Awards 2015 – National Champion – United Kingdom (Employer of the Year)
Great Place to Work Best Workplace in Spain (between 250 – 499 employees) – 4th Admiral Seguros, 5th Rastreator
Great Place to Work Best Medium Workplace in Italy – 9th
Best and Most Popular Insurance Website – Website of the Year UK Awards
Dear Shareholder, On behalf of the Board I am pleased to present the Corporate Governance Report for the financial year ended 31 December 2015. 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 2015 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.
As you will have seen from my Chairman’s letter earlier in this report, succession planning has been a key area of focus for the Board in 2015. With Roger Abravanel and Manfred Aldag stepping down from the Board in April and August 2015 respectively, and with Lucy Kellaway and Margaret Johnson each having served nine years on the Board during the year and, therefore, stepping down at the 2016 AGM, the balance and composition of the Board was reviewed to ensure that the right mix of skills, experience and background was reflected in the membership of the Board. We were, therefore, pleased to welcome Penny James, Manning Rountree, and Owen Clarke who joined the Board respectively at the beginning of the year, in June, and in August. Penny comes with considerable insurance experience and risk management skills, whilst Manning brings a deep knowledge of the US insurance market, and Owen great commercial experience and a strong understanding of Admiral, its culture and business model, having previously served as a Director from 1999 until we floated in 2004.
As the next external Board evaluation facilitated by an independent external consultant will not take place until later this year, the process of evaluating the Board’s performance this year consisted of each Board member completing a questionnaire detailing specific areas of focus for the Board including the composition of the Board, the performance of the Company in capturing strategic opportunities and the top priorities for improving the Board’s performance over the coming year. The results of the evaluation and areas for development were discussed by the Board at the meeting in December 2015 and are set out in more detail on pages 45 and 46 of this report.
We confirm the Group’s compliance, with the principles and provisions set out in the UK Corporate Governance Code (the Code) which was revised by the Financial Reporting Council in September 2014 and is applicable to the year under review.
The Board is committed to maintaining the highest standards of corporate governance
We believe that having a sound corporate governance framework enables effective and efficient decision making.
Audit Committee Membership at 31 December 2015*¹ • Colin Holmes (Chair)
Nomination Committee Membership at 31 December 2015 • Alastair Lyons (Chair)
Group Risk Committee Membership at 31 December 2015 • Jean Park (Chair)
Gender diversity *¹ Owen Clarke was appointed to the Board on 19 August 2015 and joined the Audit Committee with effect from 1 January 2016.
Background and experience In his executive career Alastair was Chief Executive Officer (CEO) of the National Provident Institution and of the National & Provincial Building Society, Managing Director of the Insurance Division of Abbey National plc and Director of Corporate Projects at National Westminster Bank plc. He has held numerous non-executive roles in both private equity and public markets.
Henry has an MBA from INSEAD, a BA from the University of Michigan and was awarded an honorary CBE in 2008 for services to business in Wales.
Henry has twice been the recipient of the Sunday Times Best Leader for Big Companies award.
Background and experience David is a founder Director of Admiral and was recruited in 1991 to set up the Admiral business.
Prior to joining Admiral David worked at McKinsey & Company, in the Financial Interest Group, and Cadbury Schweppes in the UK and the USA.
Background and experience Colin was previously a member of the Executive Committee of Tesco plc and during his 22 year career at Tesco held a wide range of positions, including UK Finance Director and CEO of Tesco Express. Until 2014 Colin was a Non-Executive Director at Bovis Homes Group plc where he chaired the Remuneration Committee.
Colin is a Fellow of the Chartered Institute of Management Accountants.
Current appointments • Group Chief Risk Officer at Prudential and member of the Prudential plc Board
Background and experience Penny was previously Director of Group Finance at Prudential plc from March 2011 until September 2015.
Her previous appointments include being Chief Finance Officer of Omega Insurance Holdings and UK General Insurance CFO of Zurich Financial Services.
Appointed in 2006 AC RC Current appointments • Group CEO of Leagas Delaney
Background and experience Margaret has worked for the international advertising agency Leagas Delaney for the past 17 years.
Background and experience In her 30 years at the Financial Times Lucy has been an oil correspondent, a Lex columnist and Brussels correspondent.
Jean is a Member of the Institute of Chartered Accountants of Scotland.
The Board has adopted a formal schedule of matters reserved for the Board’s consideration. This is monitored by the Company Secretary and reviewed by the Board on an annual basis. Specific matters reserved to the Board include the approval of: • The Group’s long term objectives and corporate strategy.
• The annual review of its own performance and that of its Board Committees.
Board activity during 2015 At each scheduled meeting the Board receives updates from the Chief Executive, Chief Operating Officer and Chief Financial Officer as to the financial and operational performance of the Group and any specific developments in the areas of the business for which they are directly responsible and of which the Board should be aware. Items that are considered on an annual basis are included in an annual schedule of rolling agenda items to ensure that they are considered at the appropriate point in the financial and regulatory cycle. Meetings are structured so as to allow for consideration and debate of all matters. Mindful of the need to ensure effective Director succession through senior managers below Board level having exposure to and gaining experience of the operation of the Board, the heads of the Group’s US and Italian direct insurance businesses and the head of UK Motor (respectively Kevin Chidwick, Milena Mondini and Cristina Nestares) were invited to attend every Board meeting and Board dinner.
The Board met on seven occasions in 2015 with six of these meetings being held over two days.
Manning Rountree* 4/4 3/3 * Notes: Roger Abravanel stepped down from the Board with effect from 29 April 2015. Manning Rountree joined the Board with effect from 16 June 2015. Owen Clarke joined the Board with effect from 19 August 2015. Manfred Aldag stepped down from the Board with effect from 31 August 2015.
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 2015 is provided in the table on page 44.
Board effectiveness This year the evaluation of the Board was carried out internally with the Chairman leading the Board evaluation process. The evaluation considered the effectiveness and performance of the Board during the year under review and sought to identify the areas that the Board was prioritising to do differently in 2016. When considering the evaluation process the Chairman considered feedback received from each Director after one-to-one meetings held with him during the year as to areas of focus to improve Board effectiveness.
• Increasing the Board’s understanding of the markets in which it operates, particularly for the overseas businesses.
• Enhancing the involvement of the Non-Executive Directors in the business outside of Board meetings by introducing structured UK site visits alongside the visits scheduled to the Group’s overseas businesses.
• In the context of succession planning, it was felt that visibility to the Board of potential successors to key positions from within the business could be improved by increasing the time that Non-Executive Directors spend, on an informal basis, with the next level of management below Board level to ensure that these individuals are being developed as part of the Group’s longer term succession plans.
• Understanding the Group’s performance relative to its main competitors was highlighted as an area where more could be done to explore the performance of competitors and understand the differences with how the Group operates.
• Integrating new Board members as Board composition evolves in the coming year.
• Alignment of the Board agenda to ensure that more time is available to discuss strategic topics in the context of the development 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 Committee. The Nomination Committee seeks to balance the retirement and recruitment of Non-Executive Directors so as to avoid dislocation of Board process by losing experience and skills ahead of their replacement. Appointments are made on merit and against objective criteria, having due regard to the benefits of diversity, including gender, with a view to ensuring the Board has the appropriate mix of personality, skills, and experience. Following a formal, rigorous and transparent process led by the Nomination Committee, the Board was delighted to appoint as independent Non-Executive Directors Penny James with effect from 1 January 2015, Manning Rountree with effect from 16 June 2015, and Owen Clarke with effect from 19 August 2015. Penny joined as a member of the Audit Committee with effect from her appointment, Manning joined as a member of the Risk Committee on appointment, and Owen joined the Audit Committee with effect from 1 January 2016. Both Manning and Owen will be subject to election by shareholders at the forthcoming AGM.
Manning Rountree is Managing Director of White Mountains Capital Inc (White Mountains) and acts as Board Observer for White Mountains on the Board of the Group’s US price comparison subsidiary, in which White Mountains has a minority shareholding. Given the relatively small size of White Mountains’ shareholding in an overseas Group subsidiary company, the Board has determined that Manning Rountree remains independent in character and judgement and that his attendance at Inspop USA LLC Board meetings does not affect his ability to present an objective, rigorous and constructive challenge to the assumptions and viewpoints presented by management and the Board. A process for managing any potential conflicts has been agreed by the Board such that Manning Rountree will recuse himself from any Group Board discussions where a potential conflict of interest with his role with White Mountains has been identified.
The Board, having given thorough consideration to the matter, considers the eight Non-Executive Directors to be independent 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. It is the view of the Board that the independent Non-Executive Directors are of sufficient calibre and number that their views carry significant weight in the Board’s decision making.
Colin Holmes is the Senior Independent Non-Executive 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 has failed to resolve or for which such contact is inappropriate. He is also responsible for leading the Board’s discussion on the Chairman’s performance and the appointment of a new Chairman, as and when appropriate.
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 receives presentations from senior managers within the Group on a regular basis and Non-Executive Directors are encouraged to make informal visits to different parts of the Group to meet with local management.
The Senior Independent Director has specific responsibility to be available to investors who have any issues or concerns, and in cases where contact with the Chairman, Chief Executive Officer and Chief Financial Officer has either failed to resolve their concerns, or for where such contact is inappropriate. No such concerns have been raised in the year under review.
All shareholders are invited to attend the Company’s Annual General Meeting (AGM). The Chairs of the Audit, Remuneration, Nomination 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.
Director Date of appointment Current length of service as a Non-Executive Director at 31 December 2015
Owen Clarke 19 August 2015 6 mths 1 yr 11 mths 5 yrs 1 mth 3 yrs 9 mths 1 yr 9 yrs 4 mths 9 yrs 4 mths 15 yrs 6 mths 4 mths
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 70.
Keep under review the effectiveness of the Company’s internal financial controls, internal control and risk management systems
Consider and make recommendations to the Board, to be put to shareholders for their approval at the AGM, in relation to the appointment, reappointment and removal of the Group’s external auditor
Review the external auditor’s independence and objectivity and the effectiveness of the audit process
Review the policy on the engagement of the external auditor to provide non-audit services, considering the relevant regulatory guidance regarding the provision of non-audit services by the external auditor
Dear Shareholder, I’m pleased to provide an update on the main activities of Admiral’s Audit Committee during 2015.
Consideration of the implementation of Solvency II and the impact this would have on the Group took up a considerable amount of the Committee’s time in 2015 as the Committees considered the Group’s reporting requirements under the Solvency II regime. The Committee also received an update on the adoption of IFRIC 21 and continued to monitor changes in accounting standards.
Consideration of the implementation of Solvency II and the impact this would have on the Group took up a considerable amount of the Committee’s time in 2015 as the Committee considered the Group’s reporting requirements under the Solvency II regime.Colin Holmes
During the year the Committee reviewed the following: The Annual Report and interim results.
Reports from the Internal Audit departments within the Group on the effectiveness of the Group’s risk management and internal control procedures, details of key audit findings, and actions taken by management to manage and reduce the impact of the risks identified.
Reports from the external auditor on the principal findings from their review of the Group’s systems and controls, and on their key accounting and audit issues and conclusions on the half and full year reporting.
Presentations from independent actuaries to assist the Committee in concluding on the adequacy of the Group’s reserves.
Reports from the external auditor on their proposed audit scope, fees, audit findings, and auditor independence.
Performance and effectiveness of the Internal Audit department including review of the results of the external effectiveness review of Internal Audit.
All reports from Internal Audit including management responses to the conclusions set out in the reports.
Reports and updates on the project and financial controls of the new UK IT system.
The effectiveness of the Group’s Whistleblowing Policy which sets out the arrangements for raising and handling allegations from whistle blowers.
Other individuals such as the Chief Financial Officer, Chief Operating Officer, Chief Executive Officer, Chairman of the Board, the Chief Risk Officer, Heads of Compliance and Internal Audit, and representatives of different parts of the Group may be invited to attend all or part of any meeting as and when appropriate. The external auditor was invited to attend all of the Committee’s meetings held in 2015, excepting those agenda items when its own performance/appointment was to be reviewed and provision of non-audit services discussed. In addition, a number of private meetings were held between members of the Committee and the auditor.
These issues were discussed with management during the year and with the auditor at the time the Committee reviewed and agreed the auditor’s Group audit plan; when the auditor reviewed the interim financial statements in August 2015 and also at the conclusion of the audit of these full year financial statements.
Recognition of intra-group trading The Committee considered and reviewed the accounting treatment, relating to intra-group trading. In previous years, the auditor had continued to report an unadjusted difference in relation to intra-group trading between the Group’s insurance and price comparison businesses and management had opted not to make the elimination adjustments on the basis that the impact was immaterial.
Valuation of deferred tax assets The Group has both recognised and unrecognised deferred tax assets in respect of tax losses within its US businesses. There is significant judgement involved in assessing the probability of realising future taxable profits when operations are not yet fully established and are currently loss making, and inherent uncertainty involved in forecasting future taxable profits, which determine the extent to which deferred tax assets are or are not recognised.
During 2015, management had also proposed that for “new businesses”, an additional stress test to assess the impact of delayed profitability should be considered. Applying the policy, management proposed that, in relation to compare.com, as management’s level of confidence in the long-term objectives of the business continues to be high it was appropriate to continue to hold an asset in relation to £27 million of losses. For Elephant, management proposed that, although management’s level of confidence in the future profitability of the business continued to remain high, the application of the policy leads to the reversal of the existing deferred tax asset and considered this to be an appropriately prudent outcome with respect to deferred tax asset recognition. Given the size of the total deferred tax asset in relation to US losses at 31 December 2015, KPMG have concluded that it is not a significant risk in terms of being potentially misstated and are satisfied that the deferred tax asset has been calculated by management in line with Admiral’s deferred tax accounting policy.
Misstatements An adjusted audit difference was reported in relation to the intra-group trading issue reported above but no unadjusted audit differences were reported. The Committee confirms that it is satisfied that the auditor has fulfilled its responsibilities with diligence and professional scepticism.
Unless required by law, regulatory or tax authority, from 2016, any non-audit services will: a) be subject to prior approval from the Committee and b) in aggregate, shall not cost more than 70% of the average statutory audit fee for the past three financial years. In considering whether to approve such non-audit services, the Committee shall ensure that: • There is no direct effect, or the effect is clearly inconsequential, on the non-audit services on the Group’s financial statements; • The estimation of the effect on the financial statements is documented and explained in a report to the Committee; • The non-audit services provided comply with the principle of independence; and
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 judgements. Following this review the Committee concluded that the auditor, KPMG LLP, remained independent and provided a service that was robust and fit for purpose.
Audit tender As confirmed in this report last year, given the requirements of the UK Corporate Governance Code and changes to the EU regulatory framework, the audit for the year ended 31 December 2016 was put out to tender in 2015. As the Committee has primary responsibility for making recommendations to the Board concerning the appointment, reappointment and removal of the external auditor, the Committee led the tender process. The Group’s auditor, KPMG LLP, was invited to tender together with Deloitte LLP and PricewaterhouseCoopers LLP. The tender process involved: the three firms being identified as having the right level of experience and resource submitting a formal invitation to tender document; each firm had individual meetings with key members of management and the Chair of the Audit Committee; and a final presentation to the Committee was made by each of the tendering firms focusing on the Group’s key business risks and their proposed audit approach.
Following completion of the transparent and independent audit tender process and on the recommendation of the Committee, the Board approved that, Deloitte LLP should be recommended to shareholders as the Group’s auditor at the 2016 AGM. A resolution to that effect will be proposed at the AGM. There are no contractual obligations that restrict the Group’s choice of external auditor. The Committee will continue to keep under review the auditor appointment as the regulatory changes in this area continue to evolve.
In accordance with agreed parameters, the overseas operations in Spain, Italy and the US have their own locally based internal auditors, who report to their respective country heads. All reports are evaluated by the Group Head of Internal Audit to ensure the quality and effectiveness of the reported findings. In addition, the UK Internal Audit department carries out high level governance reviews of all foreign operations, assessing the internal control frameworks and system of risk management. The overseas internal auditors attend Committee meetings periodically.
Report of the Group Risk Committee Statement from Jean Park, Chair of the Group Risk Committee
Dear Shareholder, Having now implemented the Group’s Enterprise Risk Management Framework (‘ERMF’) and thereby improved the understanding of risks at a Group level the Committee has focused during the year on developing the Board’s risk strategy and risk appetite with greater granularity. Risk Owners have agreed a refreshed suite of Key Risk Indicators with associated triggers and limits. This has improved the effectiveness of the Committee by placing greater focus on the main risks affecting the business.
The composition of the Committee was strengthened by the addition of Manning Rountree who joined as a member of the Committee in June 2015.
Jean Park Chair of the Group Risk Committee 2 March 2016
The responsibilities of the Committee can be summarised as: Oversee the development, implementation and maintenance of the Group’s overall Risk Management Framework and ensure that it is in line with emerging regulatory, corporate governance and best practice guidelines
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
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
The Committee challenged and reviewed the setting of and outputs from the regular stress and scenario testing and reverse stress testing.
During the year the Committee: Reviewed the Group’s updated risk strategy, risk appetite and associated triggers and limits in the context of the Group’s agreed strategic objectives.
Reviewed the Group’s Enterprise Risk Management Framework and received external assurance on the successful implementation of the updated framework in line with Solvency II requirements.
Reviewed the Group’s regulatory capital add-on application in preparation for the introduction of Solvency II capital requirements.
Reviewed regular reports on the risks and progress of the major change programme responsible for the implementation of a new policy administration system and data warehouse, known as Project Bolt.
Received regular risk monitoring reports on performance of Key Risk Indicators within the overall risk management framework.
Composition of the Group Risk Committee (GRC) Membership at the end of the year was: Jean Park (Chair), Annette Court, Lucy Kellaway, Manning Rountree and David Stevens. The Company Secretary acts as Secretary to the Committee.
Duties and responsibilities of the Group Risk Committee The duties and responsibilities of the Committee are set out in Terms of Reference that were approved by the Board in January 2013 and updated and approved in January 2015.
The Committee Chair reports formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities, as set out in previously circulated minutes to the Board. The Committee Chairperson also reports on the activities of the Committee in a formal written report that is submitted to and discussed by the Board every six months.
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 2015; 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 confirms that it has performed a robust assessment of the Group’s principal risks. These risks, along with explanations of how they are being managed and mitigated, are included in the Strategic Report on pages 34 to 37.
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.
Chair Member Did not attend *¹ Manning Rountree was appointed to the Board with effect from 16 June 2015.
The Group Risk Department defines and prescribes the insurance, market and operational risk assessment processes for the business. It performs second line reviews, including of the reserving and capital modelling processes, and undertakes regular reviews of all risks in conjunction with management, with the results of these reviews recorded in risk registers. Furthermore, Group Risk records any actual losses or near misses that occur as a consequence of the crystallisation of risk and analyses the sufficiency of the action taken to avoid reoccurrence. The Chief Risk Officer has responsibility for ensuring that managers are aware of their risk management obligations, providing them with support and advice, and ensuring that risk management strategies are properly communicated. Reports are produced showing the most significant risks identified and the controls in place. Internal Audit uses the risk registers to plan and inform their programme of audits around the most significant risks to the Group to ensure that the prescribed controls are in place and are operating effectively.
The ORSA is performed in line with Solvency II regulations and requires the Group to demonstrate that it has a detailed understanding of the risks facing the business over a three-year time horizon. In addition to this the Group Risk Committee and the Group Board review regular updates to the Group’s capital and solvency projections.
Quantitative and qualitative assessments of risks are performed as part of the ORSA process. The quantitative assessment (in line with the Group’s capital and solvency projections) considers how the regulatory capital requirements, economic capital needs, own funds and the solvency position of the Company is projected to change over the three year time horizon. It also includes a series of stress tests, linked to the Group’s principal risks and reports the impact of these stresses alongside any mitigating factors that reduce the impact.
Dear Shareholder, Succession planning has been a key area of focus for the Committee in 2015 given the changes to the composition of the Board that have taken place during the year with both Roger Abravanel and Manfred Aldag stepping down from the Board. The composition will change further in the coming year with Margaret Johnson and Lucy Kellaway retiring at the forthcoming AGM and Henry Engelhardt stepping down as CEO in May. 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 and comprehensive recruitment process resulting in the appointment of Penny James, Manning Rountree and Owen Clarke, further enhancing the range of skills, breadth of experience and diversity around the Board table.
Ensure plans are in place for orderly succession for appointments to the Board and for other senior management positions.
The Board, at its meeting in April 2015, considered the Group’s current Succession Plan which considered the senior roles within the Group and identified whether there was emergency short term cover in place in the event that an individual left the organisation, and whether there was a permanent replacement available within the organisation, or whether the position would need to be filled externally. It also identified where there were individuals who, with further experience and guidance, would be capable of moving into particular senior management roles.
Remuneration Committee Full details of the membership, responsibilities and activities of the Remuneration Committee can be found in the Directors’ Remuneration Report set out on pages 58 to 68.
Dear Shareholder, I am pleased to introduce the Directors’ Remuneration Report (the Report) for the year ended 31 December 2015, which has been prepared by the Remuneration Committee (the Committee) and approved by the Board.
Two of the three Executive Directors are founding Directors and receive remuneration that only comprises salary and modest benefits. The Committee continues to hold the view that this is appropriate, as their significant shareholdings provide a sufficient alignment of their interest with those of other shareholders. In order to provide full transparency of pay arrangements for our Executive Directors, this Report includes single figure and comparative data for our CFO as well as for our CEO, as the pay arrangements for the CFO are more reflective of those for (non-founder) executives. The Group continues to maintain base salary levels for most senior management positions at well below the lower quartile of their peer group in the FTSE 350.
In addition to consideration of the proposed DFSS changes set out above, the Committee also considered the following matters during the year ended 31 December 2015: • Reviewing the salary arrangements and fee proposals for the Executive Directors, the Chairman and senior management.
• Reviewing the appropriateness of the performance conditions for the 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.
Compliance statement This Remuneration Report has been prepared according to the requirements of the Companies Act 2006 (the Act), Regulation 11 and Schedule 8 of the Large and Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and other relevant requirements of the FCA Listing Rules. In addition, the Board has applied the principles of good corporate governance set out in the UK Corporate Governance Code (the Code) and has considered the guidelines issued by its leading shareholders and bodies such as the Investment Association and the Pensions and Lifetime Savings Association.
The sections presented below are as disclosed in the 2014 Directors’ Remuneration Report save a number of non-significant changes, as follows: • References to financial years have been updated where appropriate.
• Pay-for-performance scenario charts have been updated to reflect latest salaries.
The Committee reviews the framework and remuneration packages of the Executive Directors and the most senior managers and recognises the need to ensure that the Remuneration Policy is firmly linked to the Group’s strategy, including its risk management approach. In setting the policy and making remuneration decisions, the Committee takes into account pay and conditions elsewhere in the Group. The main principles underlying the Remuneration Policy are: • Competitive – the Group aims to combine salaries with attractive performance-related incentives which provide the potential for competitive total reward packages for the achievement of superior performance. Base salaries reflect the role, job size and responsibility together with individual performance and effectiveness. Prevailing market and economic conditions and developments in governance are also considered, as are general salary levels throughout the organisation. In considering total remuneration for the Executive Directors, the Committee takes into account remuneration in companies of a similar size in the Financial Services sector.
• Performance-linked – a significant part of the Executive Directors’ (excluding the founding Directors) and senior managers’ reward remains performance-linked and shareholder-aligned.
• Transparent – all aspects of the remuneration structure are clear to employees and openly communicated.
Remuneration Policy table This table describes the key components of the remuneration arrangements for Executive Directors for 2015 and beyond.
Base salary To attract and retain talent by setting base salaries at levels appropriate for the business.
Chair Member Did not attend * Roger Abravanel stepped down from the Board with effect from 29 April 2015.
Approved Free Share Incentive Plan (SIP) To encourage share ownership across all employees using HMRC approved schemes.
Notes to the Remuneration Policy table Payments from existing awards Executive Directors are eligible to receive payment from any award made prior to the approval and implementation of the Remuneration Policy. This includes all outstanding awards under the DFSS, made prior to the approval of the 2015 DFSS, and awards of DFSS shares that vest 50% on performance and 50% on continued employment made to the CFO prior to his appointment to the Board.
*¹ The value of DFSS awards vesting is calculated based on the average share price in the last three months of 2015 (£16.13) and the number of DFSS shares awarded in 2015.
Pay-for-performance: scenario analysis continued The charts on page 61 exclude the effect of any Company share price movement. For this reason, were the CFO’s DFSS shares to vest in full, his actual total remuneration may exceed the £ value shown.
Base salary The base salary will be determined by the Committee with reference to the scope and responsibility of the position as well as internal relativities and their current remuneration.
DFSS New appointees will be granted awards under the DFSS on the same terms as other Executives, as described in the policy table.
Remuneration Committee membership in 2015 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 2015 the Committee consisted of Margaret Johnson and Jean Park under the Chairmanship of Annette Court. The Committee met six times during the year.
The Group Chairman, CEO and Chief Risk Officer are invited to meetings where the Committee considers it appropriate to obtain their advice on Group strategy and performance and Senior Executive pay strategy. The members of the Committee do not have any personal financial interests (other than shareholdings), or any conflicts, that relate to the business of the Committee. The Committee members do not have any day-to-day involvement in the running of the Group.
In addition, PricewaterhouseCoopers LLP (PwC) provided the Committee with advice on the structure of the Group’s share schemes. The fees paid to PwC for work during 2015 totalled £52,500, excluding expenses and VAT. The Company Secretary also circulates market survey results as appropriate.
Summary of shareholder voting at the 2015 AGM The table below shows the results of the binding and advisory votes on the Directors’ Remuneration Policy and Annual Report on Remuneration of the 2014 Directors’ Remuneration Report, respectively, at the 2015 AGM.
Directors’ Remuneration Policy Total number of votes 208,927,097 9,798,777 218,725,874 2,305,207
In addition, the 2015 DFSS was approved by shareholders at the AGM with a 96.9% vote in favour.
Total single figure of remuneration for Executive Directors (audited) The table below sets out the total single figure remuneration received by each Executive Director for the year ended 31 December 2015 and the prior year.
Total single figure of remuneration for Non-Executive Directors (audited) The table below sets out the total single figure remuneration received by each NED for the year ended 31 December 2015 and the prior year.
Manfred Aldag*4 £6,000 £6,000 *¹ Owen Clarke was appointed to the Board on 19 August 2015.
*² Penny James was appointed to the Board on 1 January 2015.
*³ Manning Rountree was appointed to the Board on 16 June 2015.
Incentive outcomes for financial year to 31 December 2015 DFSS awards vesting on performance to 31 December 2015 Awards were made under the DFSS to Geraint Jones on 10 October 2013. For 50% of the award, vesting is dependent on the Company’s EPS performance in excess of a risk-free return, defined as average three-month LIBOR, over a three-year period commencing on 1 January 2013. 10% of shares vest for matching LIBOR, full vesting occurs for outperforming LIBOR by 10% p.a., with straight-line vesting in between. No vesting occurs for EPS growth below LIBOR. For the remaining 50% of the award, vesting is subject to continued employment only, as the award was made prior to Geraint Jones’ appointment to the Board. The table below details the Company’s EPS performance against targets and vesting outcome over the performance period ending on 31 December 2015.
*³ Calculated based on the average share price in the last three months of 2015 (£16.13).
In 2015, Geraint Jones received a DFSS bonus of £104,340 (2014: £87,250). Neither Henry Engelhardt nor David Stevens received a DFSS bonus.
Following the comprehensive review of the DFSS that was carried out in 2014 and early 2015, there are no further amendments proposed to the DFSS, except for the introduction of a sub-plan for French participants in order to take advantage of changes to the tax regime in France brought by the Macron Law. A resolution approving the sub-plan will be put to shareholders for approval at the Group’s AGM in April 2016.
Return on Equity (ROE) 25% 55% 25% for reaching threshold with straight line relationship to 100% at maximum performance
DFSS awards made in 2015 and future years will be subject to clawback and malus, i.e. forfeiture or reduction of unvested awards and recovery of vested awards in exceptional circumstances (such as material misstatement or gross misconduct).
The table below details the Company’s EPS performance against targets over the performance period ending on 31 December 2015 and the vesting outcome for Kevin Chidwick’s 2013 DFSS award.
As stated in the 2014 report, Geraint Jones was appointed to the Board on a relatively low salary and the Committee expects to make salary increases that are above general inflation in the next few years to reflect his demonstrated development in the CFO role and the performance of the business. The Committee will determine the levels of future increases taking into account both his individual and Company performance, and with reference to market pay levels. Geraint’s current salary of £210,000 continues to be significantly below the median level for companies of a similar size.
Geraint Jones will continue to participate in the Group Personal Pension Plan, where employee contributions are matched up to a maximum 6% of base salary with maximum employer contribution of £9,000. David Stevens will also continue to participate in the plan, on the same basis as in 2015. As in previous years, Henry Engelhardt has declined to be included in the plan for 2016. All Executive Directors will continue to receive benefits in line with the policy.
Implementation of remuneration policy for 2015 continued Executive Directors continued DFSS In advance of each DFSS cycle, the Committee reviews the appropriateness of the performance measures and corresponding targets. Vesting of the 2016 award will be linked to the same three performance measures set for the 2015 awards, i.e. three-year EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), and ROE, weighted equally. The Committee intends to make DFSS awards in September 2016 and it is anticipated that targets will be the same as those for awards in 2015, as summarised in the table below. The Committee will determine the precise targets closer to the time of making the awards, later in the year, and will disclose them in the 2016 Annual Report on Remuneration.
Pay for performance The following graph sets out a comparison of Total Shareholder Return (TSR) for Admiral Group plc shares with that of the FTSE 100 Index, of which the Company is a constituent, over the seven-year period to 31 December 2015. The Directors consider this to be the most appropriate index against which the Company should be compared. TSR is defined as the percentage change over the period, assuming reinvestment of income.
Historical TSR performance Growth in the value of a hypothetical £100 holding over the seven years to 31 December 2015
CEO single figure of remuneration £328,027 £343,106 £358,199 £373,759 £387,546 £393,260 £397,688
*¹ Kevin Chidwick left the Board on 13 August 2014 to focus on his new role as CEO of Elephant Auto. His 2014 remuneration includes salary, pension and benefits in respect of his service as CFO, his full year DFSS and his full year DFSS bonus.
*³ These figures include reimbursement of £177,104 and £165,000 in 2014 and 2013, respectively, for expenses incurred in respect of the previous CFO’s relocation.
There are no annual bonus outcomes to report in the table as Admiral does not operate any performance-based annual bonus schemes.
*¹ Geraint Jones was appointed to the Board on 13 August 2014.
*³ Total includes 11,040 shares from the 2013 DFSS award (for which performance has been tested, and due to vest in October 2016 subject to continued employment) and 10,000 shares from the April 2014 DFSS (awarded to Geraint Jones before he was appointed CFO, and due to vest in April 2017 subject to continued employment only).
*4 Owen Clarke, Penny James and Manning Rountree were appointed to the Board on 19 August 2015, 1 January 2015 and 16 June 2015 respectively.
The Directors present their Annual Report and the audited financial statements for the year ended 31 December 2015.
The Directors declared and paid dividends of £274.6 million during 2015 (2014: £273.5 million) – refer to note 11b for further details.
Diversity, ethics and human rights Admiral Group respects and values the individuality and diversity of every employee. The Group’s Equality, Diversity and Dignity at Work policy ensures that every employee is treated equally and fairly and that all employees are aware of their obligations. The Group is fully committed to the health and safety and the human rights of its employees regardless of their background. In addition, the Group maintains a number of employee codes of conduct regarding appropriate ethical standards in the workplace.
All employees 3,981 4,185 *¹ Company Directors consists of the Board of Directors, as detailed on pages 42 to 43.
*² Other senior managers is as defined in the Companies Act 2006 (Strategic Report and Directors’ Report) and includes persons responsible for planning, directing or controlling the activities of the Company, or a strategically significant part of the Company, other than Company Directors. Any other Directors of undertakings included in the consolidated accounts that are not considered strategically significant have not been included.
Greenhouse gas emissions The annual level of greenhouse gas emissions, resulting from activities for which the Group is responsible, in 2015 was 8,358 CO
² e), equivalent to 1.24 tonnes (2014: 1.19 tonnes) per employee*¹.
Following consideration of the above, the Directors have reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report, and that it is therefore appropriate to adopt the going concern basis in preparing the financial statements.
Share capital, AGM and related matters Major shareholders Other than as stated below, as far as the Company is aware, there are no persons with significant direct or indirect holdings in the Company. Information provided to the Company pursuant to the Financial Conduct Authority’s (FCA) Disclosure and Transparency Rules (DTRs) is published on a Regulatory Information Service and on the Company’s website.
At 31 January 2016, 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 %
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 specific 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.
Directors’ indemnities and insurance Directors and Officers insurance cover is in place for all Directors to provide cover against certain acts or omissions on behalf of the Company. A Deed Poll of Indemnity was executed in October 2015, indemnifying each of the Directors, and Company Secretary, in relation to certain losses and liabilities that they might incur in the course of acting as Directors of the Company. The Deed Poll of Indemnity is categorised as qualifying third party indemnity provisions as defined by section 234 of the Companies Act 2006 and remains in force for all past and present Directors of the Company.
• For the Parent Company financial statements, state whether applicable UK Accounting Standards, including FRS 101 Reduced Disclosure Framework, have been followed, subject to any material departures disclosed and explained in the Parent Company financial statements.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
Responsibility statement The Directors confirm that to the best of their knowledge: • The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
• The Strategic Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
Change of auditor In March 2015, the Audit Committee initiated a tender process in respect of audit services.
The tender process involved inviting appropriately qualified audit firms to tender for the audit services for Admiral, including all statutory and regulatory audit work and the audits of Admiral’s international businesses, from the 2016 financial year. A short-list of potential audit firms were invited to meet key members of management and the Audit Committee, before submitting a detailed proposal document and presenting to the Audit Committee.
The Audit Committee set specific selection criteria against which each audit firm was measured with the aim of appointing an external auditor to provide efficient and effective support, and independent advice to the Committee to ensure shareholders can be confident that the information provided to them is accurate, true and fair, and balanced and understandable.
In August 2015, the Audit Committee recommended to the Group Board, and the Board approved, the proposed appointment of Deloitte LLP as auditor to the Company and its subsidiaries. Deloitte LLP will replace KPMG LLP with effect from the 2016 financial year. The appointment is subject to approval by shareholders at the next Annual General Meeting in April 2016.
2. Our assessment of risks of material misstatement In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the greatest effect on our audit were as follows.
The risk – The provision for claims outstanding comprises the estimated cost of settling all claims incurred but unpaid at the balance sheet date, whether reported or not. This is a judgemental and complex area due to the inherent uncertainty of estimating claims not yet reported, future costs of settling claims, discount rates and whether customers will be awarded a lump sum claim or a periodic payment. The amounts involved are potentially significant and the application of accounting standards to determine the amount, if any, to be provided as a liability, is inherently subjective. One of the most significant uncertainties relates to the reserve held for large bodily injury claims and actual and potential Periodic Payment Order settlements (PPOs). The UK motor portfolio presents the biggest risk of material misstatement.
Our response – Our audit procedures included testing the controls over the underwriting and claims process and performing analysis over the trends in claims frequency and size. Using our actuarial specialists to support us, we assessed the level of reserves held for incurred claims through evaluating the competence, capability and objectivity of the Group’s external actuary, assessing the actuarial methodologies employed, including the use of paid and incurred chain ladders and the average cost per claim method, challenging key judgements, for example the extent to which improvements in claims trends are taken into account in reserve projections, and benchmarking key assumptions against KPMG sourced market data. In respect of the amounts related to large bodily injury claims and actual and potential PPOs, we observed the process, and tested the controls in place, for identifying and assessing the required reserve for large claims and for updating this reserve as more information becomes available; observed the process for assessing cases that have the potential to be settled as PPOs and testing the output for a selection of cases; and benchmarked the key assumptions made in calculating large bodily injury claims reserves, including mortality (in the case of PPO cases) and discount rates applied. The focus of our work is the UK Motor portfolio.
In respect of the margin held above the actuarial best estimate, we assessed the rationale for this margin including consideration of the level of prudence within the margin, the consistency with which the underlying judgements have been applied in relation to the current year and prior periods and the existence of any bias.
The risk – The recognition of profit commission income from co-insurers and quota share reinsurers is initially in line with the loss ratios booked in the financial statements and will vary with movements in the loss ratios. The recognition of this income is therefore subject to the same level of estimation as the claims liability noted above until, in the case of quota share reinsurance, the relevant contracts are commuted, at which point no further profit commission is recognised. In addition, different contractual arrangements are in place with the group’s co-insurance and quota share reinsurance partners and there is a risk that the differences in arrangements are not appropriately accounted for, resulting in significant misstatement.
Our response – Our audit procedures included, in addition to our procedures over insurance liabilities noted above, forming an expectation of the profit commission income based on loss ratios applied and contractual terms of each arrangement, comparing this to actual profit commission income recognised and corroborating any changes to the profit commission arrangements during the year. We have also considered the adequacy of the group’s disclosures about the arrangements in place.
We continue to perform audit procedures over co-insurance and reinsurance arrangements. However, given that there are no significant changes to the underlying contracts and estimation of co-insurance and reinsurance arrangements this year, we have not assessed this as one of the risks that had the greatest effect on our audit and, therefore, it is not separately identified in our report this year.
3. Our application of materiality and an overview of the scope of our audit The materiality for the group financial statements as a whole was set at £16.0 million, determined with reference to a benchmark of group profit before taxation (of which it represents 4%). We report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.8 million, in addition to other identified misstatements that warranted reporting on qualitative grounds.
Of the group’s 12 reporting components, we subjected five to audits for Group reporting purposes, and three to specified risk-focused audit procedures. The components for which we performed specified risk-focussed procedures were not individually financially significant enough to require an audit for Group reporting purposes, but did present specific individual risks that needed to be addressed.
The remaining 6% of total Group net revenue, 2% of group profit before tax and 3% of total group assets is represented by four reporting components, none of which individually represented more than 2% of any of total group net revenue, group profit before tax or total group assets.
For these remaining components, we performed analysis at an aggregated group level to re-examine our assessment that there were no significant risks of material misstatement within these.
• the disclosures in note 2 of the financial statements concerning the use of the going concern basis of accounting.
• the Audit Committee Statement does not appropriately address matters communicated by us to the Audit Committee.
Under the Listing Rules we are required to review: • the Directors’ statement, set out on pages 55 and 69, in relation to going concern and longer-term viability; and
Total comprehensive income for the period attributable to: Equity holders of the parent 289.5 298.6
Total equity attributable to equity holders of the parent 615.7 567.2
These financial statements were approved by the Board of Directors on 2 March 2016 and were signed on its behalf by: Geraint Jones Chief Financial Officer Admiral Group plc
Change in trade and other payables, including tax and social security 47.8 (49.4)
Share scheme credit — — — — 23.2 23.2 — 23.2
Movements in fair value reserve — — (12.6) — — (12.6) — (12.6)
Total transactions with equity holders — — — — (241.0) (241.0) 11.2 (229.8)
• Amendments to IFRS 11 (Acquisition of interests in joint operations).
• Amendments to IFRS 10, 11 and 12 and IAS 1, 16, 27, 28, 38 and 41.
The Group is currently assessing the impact of IFRS 9, IFRS 15 and IFRS 16 on its results, financial position and cash flows, along with any impacts of the other standards and amendments which have yet to be endorsed.
Following consideration of the above, the Directors have reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future, a period not less than 12 months from the date of this report, and that it is therefore appropriate to adopt the going concern basis in preparing the financial statements.
The preparation of financial statements in conformity with adopted IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources.
Notes to the financial statements continued For the year ended 31 December 2015 3. Critical accounting judgements and estimates Judgements In applying the Group’s accounting policies as described in the notes to the financial statements, management has primarily applied judgement in the following three areas: • Calculation of insurance claims reserves: The Group’s reserving policy requires management to set insurance claims reserves for the purpose of the financial statements, within a range of potential outcomes above the projected best estimate outcome, to allow for unforeseen adverse claims development. Management applies judgement in determining where, within this range of potential outcomes, the insurance claims reserves should sit.
The Group’s independent actuarial advisors project best estimate claims reserves using a variety of recognised actuarial techniques.
Future changes in claims reserves also impact profit commission income, as the measurement of this income is dependent on the loss ratio booked in the financial statements, and cash receivable is dependent on actuarial projections of ultimate loss ratios.
(i) Group consolidation The consolidated financial statements comprise the results and balances of the Company and its subsidiaries (together referred to as the Group) for the year ended 31 December 2015 and comparative figures for the year ended 31 December 2014. The financial statements of the Company’s subsidiaries are consolidated in the Group financial statements. The Company controls 100% of the voting share capital of all its principal subsidiaries, except Admiral Law Limited, BDE Law Limited, Inspop USA LLC, the indirect holding in comparenow.com Insurance Agency LLC, Rastreator.com Limited, the indirect holding in Comparaseguros Correduría de Seguros, S.L., Sociedad Unipersonal and Preminen Price Comparison Holdings Limited.
(ii) Foreign currency translation Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in pounds sterling, rounded to the nearest £0.1 million, which is the Group’s presentation currency.
On disposal of a foreign operation, the cumulative amount recognised in equity relating to that particular operation is recognised in the income statement.
ANNUAL REPORT AND ACCOUNTS 2015 4. Group consolidation and operating segments continued 4b. Segment reporting The Group has four reportable segments, as described below. These segments represent the principal split of business that is regularly reported to the Group’s Board of Directors, which is considered to be the Group’s chief operating decision maker in line with IFRS 8 Operating Segments.
UK Car Insurance The segment consists of the underwriting of car insurance and other products that supplement the car insurance policy. It also includes the generation of revenue from additional products and fees from underwriting car insurance in the UK. The Directors consider the results of these activities to be reportable as one segment as the activities carried out in generating the revenue are not independent of each other and are performed as one business. This mirrors the approach taken in management reporting.
Other The ‘Other’ segment is designed to be comprised of all other operating segments that do not meet the threshold requirements for individual reporting. It includes UK household insurance, the Group’s commercial van insurance broker, Gladiator, and commercial van insurance.
An analysis of the Group’s revenue and results for the year ended 31 December 2015, 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.
Other Revenue and profit commission 285.6 7.7 108.1 18.0 (14.2) 405.2
Other segment items: *¹ Turnover is a non-GAAP measure and consists of total premiums written (including co-insurers’ share) and Other Revenue. Refer to note 12 for further information.
ANNUAL REPORT AND ACCOUNTS 2015 4. Group consolidation and operating segments continued 4b. Segment reporting continued
(i) Revenue – premiums 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.
(ii) Revenue – profit commission 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.
Reinsurance assets Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on the insurance contracts issued by the Group are classified as reinsurance contracts. A contract is only accounted for as a reinsurance contract where there is significant insurance risk transfer between the insured and the insurer.
ANNUAL REPORT AND ACCOUNTS 2015 5. Premium, claims and profit commissions continued 5c. Profit commission £m £m
Total profit commission 85.4 71.8 5d. Reinsurance assets and insurance contract liabilities
(i) Objectives, policies and procedures for the management of insurance risk The Group is involved in issuing motor insurance contracts that transfer risk from policyholders to the Group and its underwriting partners.
Insurance risk involves uncertainty over the occurrence, amount or timing of claims arising on insurance contracts issued.
The Group also has a Reserving Committee which comprises senior managers within the finance, claims, pricing and actuarial functions. The Reserving Committee primarily recommends the approach for UK Car Insurance reserving but also reviews the systems and controls in place to support accurate reserving and material reserving issues such as Periodic Payment Order (PPO) and claims inflation, which represent the key uncertainties in the amount or timing of claims settlements.
The Board implements certain policies in order to mitigate and control the level of insurance risk accepted by the Group. These include pricing policies and claims management and administration processes, in addition to reserving policies and co- and reinsurance arrangements as detailed below.
Reserving policies and controls Reserving risk is mitigated through a series of processes and controls. The key processes are as follows: • Regular management and internal actuarial review of individual and aggregate case claim reserves, including regular reporting of management information and exception reporting of significant movements.
• Regular management and internal actuarial review of large claims, including claims settled or potentially settled by PPOs for which the uncertainty is increased by factors such as the lifetime of the claimant and movements in the indexation for the cost of future care of the claimant.
• Use of a reserving policy 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 policy determines that reserves should be set within a range above projected best estimate outcomes to allow for unforeseen adverse claims development.
(ii) Sensitivity of recognised amounts to changes in assumptions The following table sets out the impact on equity and profit or loss at 31 December 2015 that would result from a 1% movement in the UK motor loss ratios used for each underwriting year for which material amounts remain outstanding.
ANNUAL REPORT AND ACCOUNTS 2015 5. Premium, claims and profit commissions continued 5d. Reinsurance assets and insurance contract liabilities continued
(iv) Analysis of UK car insurance claims incurred The following tables illustrate the development of gross and net UK Car Insurance claims incurred for the past five financial periods, including the impact of re-estimation of claims provisions at the end of each financial year. The first table shows actual gross claims incurred, the second shows actual net claims incurred and the third shows the development of UK loss ratios. Figures are presented on an underwriting year basis.
International and other gross claims incurred (65.6) (113.9) (132.6) (159.5) (190.6)
(v) Analysis of claims reserve releases (UK Car Insurance business only) The following table analyses the impact of movements in prior year claims provisions on a gross and net basis. Figures are presented on an underwriting year basis.
Total net release (International Car Insurance) — — — 6.3 6.5
Net claims reserve at end of period*² 1,180.2 1,057.8 *¹ Net claims paid in the year to 31 December 2015 includes salvage and subrogation recoveries of £28.4 million which have been reclassified to insurance and other receivables.
*² The increase in net claims reserve from £1,057.8 million at 31 December 2014 to £1,180.2 million at 31 December 2015 is partly as a result of the increase in the size of gross claims reserves but largely due to the impact of commutations of reinsurance contracts in the UK Car Insurance business.
(i) Investment income and finance costs Investment income from financial assets comprises distributions as well as net realised and unrealised gains on financial assets classified as ‘fair value through profit or loss’, interest income and net realised gains from assets classified as ‘available for sale’, and interest income on holdings in term deposits and gilts.
(ii) Financial assets – investments and receivables Initial recognition Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss (FVTPL), Available for Sale (AFS) assets, loans and receivables or held to maturity investments.
Subsequent measurement Financial assets at FVTPL are stated at fair value, with any resultant realised or unrealised gain or loss recognised through the income statement.
Subsequent measurement Subsequent measurement is at amortised cost using the effective interest method. Movements in the amortised cost are recognised through the income statement.
De-recognition of financial liabilities A financial liability is derecognised when the obligation under that liability is discharged, cancelled or expires.
The Group’s 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. The amortised cost carrying amount of receivables is a reasonable approximation of fair value.
Notes to the financial statements continued For the year ended 31 December 2015 6. Investments continued 6b. Investment and interest income £m £m
Total finance costs 11.1 4.6 *¹ Interest paid during the year was £11.0 million (2014: £nil).
The Group holds a revolving credit facility of £100 million which expires in July 2018. As at 31 December 2015, £20 million was drawn under this agreement and is included as other borrowings in the table above.
The measurement of available for sale debt securities at the end of the period is also based on active quoted market values (level one).
The maturity profile of financial assets and liabilities at 31 December 2014 was as follows: On demand £m
Notes to the financial statements continued For the year ended 31 December 2015 6. Investments continued 6d. Financial assets and liabilities continued
• UK Government gilts. These are classified as term and valued at amortised cost. Therefore neither the capital value of the gilts, nor the interest return, will be impacted by fluctuations in interest rates.
(i) Contribution from additional products and fees and Other Revenue Contribution from additional products and fees and Other Revenue includes revenue earned on the sale of products supplementing the core motor insurance policy, administration and other charges paid by the policyholder, referral fees, revenue from policies paid by instalments and vehicle commission charges paid by co- and reinsurers. Revenue is credited to the income statement over the period matching the Group’s obligations to provide services. Where the Group has no remaining contractual obligations, the revenue is recognised immediately. An allowance is made for expected cancellations where the customer may be entitled to a refund of amounts charged.
Commission from price comparison activities and broking commission earned by Gladiator is credited to revenue on the sale of the underlying insurance policy.
Total Other Revenue 319.8 332.5 *¹ Price comparison revenue excludes £14.2 million (2014: £nil) of income from other Group companies.
Depreciation charge: Amortisation charge: – Deferred acquisition costs — 44.9 — 42.7
Operating lease rentals: Auditor’s remuneration (including VAT): – Fees payable for the audit of the Company’s annual accounts — — — —
– Fees payable for the audit of the Company’s subsidiary accounts*¹ 0.4 0.3 0.3 0.2
Notes to the financial statements continued For the year ended 31 December 2015 8. Expenses continued 8f. Staff share schemes Analysis of share scheme costs (per the Consolidated Income Statement): £m £m
(i) The Approved Share Incentive Plan (the SIP) Eligible employees qualified for awards under the SIP based upon the performance of the Group in each half-year period. The current maximum award for each year is £3,600 per employee (2014: £3,000 per employee). The awards are made with reference to the Group’s performance against prior year profit before tax. Employees must remain in employment for the holding period (three years from the date of award) otherwise the shares are forfeited.
(ii) The Discretionary Free Share Scheme (the DFSS) Under the DFSS, details of which are contained in the remuneration policy section of the Directors’ Remuneration Report, individuals receive an award of free shares at no charge. Staff must remain in employment until the vesting date in order to receive shares. The maximum number of shares that can vest relating to the 2015 scheme is 3,017,900 (2014 scheme: 2,684,798).
The amount of 2014 award that actually vests is based on the growth in the Company’s earnings per share (EPS) relative to a risk free return (RFR), for which LIBOR has been selected as a benchmark. This performance is measured over the three year period the award applies to. For the 2014 scheme, 50% of the shares awarded at the start of the three year vesting period are subject to these performance conditions.
EPS growth vs. LIBOR Growth in line with LIBOR Growth of 10% p.a. in excess of LIBOR
ANNUAL REPORT AND ACCOUNTS 2015 8. Expenses continued 8f. Staff share schemes continued
Total awards committed 11,451,218 *¹ Being the maximum number of awards expected to be made before accounting for expected staff attrition.
During the year ended 31 December 2015, awards under the SIP H211 and H112 schemes and the DFSS 2012 scheme vested. The total number of awards vesting for each scheme is as follows.
DFSS 2012 scheme 2nd award 1,979,752 1,486,531 9. Taxation 9a. Accounting policy Income tax on the profit or loss for the periods presented comprises current and deferred tax.
(i) Current tax 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.
Notes to the financial statements continued For the year ended 31 December 2015 9. Taxation continued 9b. Taxation £m £m
Corporation tax thereon at effective UK corporation tax rate of 20.25% (2014: 21.50%) 74.7 75.4
Impact of change in UK tax rate on deferred tax balances 0.3 —
Tax treatment of share scheme charges through income or expense 2.4 — — — 2.4
The UK corporation tax rate reduced from 21% to 20% on 1 April 2015. The average effective rate of tax for 2015 is 20.25% (2014: 21.50%). Further reductions to the main rate of corporation tax to 19% (effective from 1 April 2017) and 18% (effective from 1 April 2020) were substantively enacted on 26 October 2015. This will reduce the Group’s future current tax charge accordingly.
ANNUAL REPORT AND ACCOUNTS 2015 9. Taxation continued 9c. Deferred income tax asset continued
compare.com (asset recognised: £9.9 million; unprovided asset: £10.6 million) – the asset is expected to be fully recovered over the next five years. The recognised asset has been limited to the amount supported by forecast cash flows over the next five years. The forecasts and underlying assumptions have been reviewed and approved by the Board. In addition, the forecasts have been stressed for both revenue and profit reductions and the asset remains recoverable under the stressed scenarios. The Group considers full recovery of this asset to be probable.
Leases under the terms of which the Group assumes substantially all of the risks and rewards of ownership are classed as finance leases. Assets acquired under finance leases are included in property and equipment at fair value on acquisition and are depreciated in the same manner as equivalent owned assets. Finance lease and hire purchase obligations are included in creditors and the finance costs are spread over the periods of the agreements based on the net amount outstanding.
(iv) Provisions, Contingent Liabilities and Contingent Assets Provisions are recognised when a legal or constructive obligation arises as a result of an event that occurred before the balance sheet date, when a cash-outflow relating to this obligation is probable and when the amount can be estimated reliably.
Total insurance and other receivables 537.1 435.3 *¹ Insurance receivables at 31 December 2015 includes £28.4 million in respect of salvage and subrogation recoveries.
10g. Financial commitments The Group was committed to total minimum obligations under operating leases on land and buildings as follows: £m £m
The difference between the basic and diluted number of shares at the end of 2015 (being 391,003; 2014: 448,937) relates to awards committed, but not yet issued under the Group’s share schemes. Refer to note 8 for further detail.
Issued, called up and fully paid 281,587,953 ordinary shares of 0.1 pence 0.3 —
During 2015 2,898,211 (2014: 2,548,310) new ordinary shares of 0.1 pence were issued to the trusts administering the Group’s share schemes.
1,950,000 (2014: 1,800,000) were issued to the Admiral Group Employee Benefit Trust for the purposes of the Discretionary Free Share Scheme to give a closing number at 31 December 2015 of 14,811,948 (31 December 2014: 12,861,948). The Trustees have waived the right to dividend payments, other than to the extent of 0.001 pence per share, unless and to the extent otherwise directed by the Company from time to time.
Elephant Insurance Services LLC United States of America Ordinary 100 Insurance Intermediary
Inspop USA LLC United States of America Ordinary 71.10 Insurance Intermediary
The Board considers that only the Executive Directors of Admiral Group plc are key management personnel. Aggregate compensation for the Executive Directors is disclosed in the Directors’ Remuneration Report on pages 59 to 68.
*² Other reconciling items represent co-insurer and reinsurer shares of Other Revenue in the Group’s International Car Insurance businesses.
*³ Intra-group income elimination relates to price comparison income earned in the Group from other Group companies. This income was not eliminated in 2014 on the grounds of materiality.
Adjusted net insurance premium revenue 358.6 464.8 365.1 464.9 *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. No equivalent adjustments have been made to prior period ratios as the equivalent adjustments are insignificant.
Adjusted net insurance premium revenue 358.6 464.8 365.1 464.9 *¹ The intra-group expenses elimination amount relates to aggregator fees charged by the Group’s price comparison entities to other Group companies. These expenses were not eliminated in 2014 on the grounds of materiality.
Reported profit before tax per the Consolidated Income Statement 368.7 350.7
1.2 First time application of FRS 100 and FRS 101 In the transition to FRS 101, the Company has applied IFRS 1 whilst ensuring that its assets and liabilities are measured in compliance with FRS 101. No transition notes have been prepared for the opening statement of financial position at 31 December 2013 as there have been no effects of transition to FRS 101.
• FRS 101.8 (f): the requirement in paragraph 38 of IAS 1 Presentation of Financial Statements to present comparative information in respect of: • paragraph 118(3) of IAS 38 Intangible Assets.
• FRS 101.8 (g): the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D and 111 of IAS 1 Presentation of Financial Statements to produce a cash flow statement, a third balance sheet and to make an explicit and unreserved statement of compliance with IFRSs.
• FRS 101.8 (h): the requirements of IAS 7 Statements of Cash Flows to produce a cash flow statement.
• FRS 101.8 (k): the requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to transaction is wholly owned by such a member.
1.3 Going concern The financial statements have been prepared on a going concern basis. In considering the appropriateness of this assumption, the Board have reviewed the Company’s projections for the next twelve months and beyond, including cash flow forecasts and regulatory capital surpluses.
1.4 Shares in Group Undertakings Shares in Group undertakings are valued at cost less any provision for impairment in value.
1.7 Financial assets and liabilities All investments held at fair value at the end of the period are invested in AAA-rated money market liquidity funds. The measurement of these investments is based on active quoted market values (level 1).
Notes to the Parent Company financial statements continued For the year ended 31 December 2015 3. Financial assets and liabilities The Company’s financial instruments can be analysed as follows: £m £m
Total trade and other receivables 2.0 2.9 5. Trade and other payables £m £m
March 2015 (49.0 pence per share, paid May 2015) 134.4 —
August 2015 (51.0 pence per share, paid October 2015) 140.2 —
A final dividend of 63.4 pence per share (£175 million) has been proposed in respect of the 2015 financial year. Refer to the Chairman’s Statement and Strategic Report for further detail.
Accident year The year in which an accident occurs, also referred to as the earned basis.
Turnover A non-GAAP measure, turnover is the sum of ‘total premiums written’ and ‘Other Revenue’.
Company Secretary Mark Waters Tŷ Admiral David Street Cardiff CF10 2EH
Auditor KPMG LLP 3 Assembly Square Britannia Quay Cardiff CF10 4AX
Solicitors Clifford Chance LLP 10 Upper Bank Street London E14 5JJ
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Financial calendar Final 2015 dividend 12 May 2016 – Ex dividend date 13 May 2016 – Record date 3 June 2016 – Payment date
National Champion – UK Employer of the Year European Business Awards 2015 4th and 5th Best Workplace in Spain (between 250 and 499 employees) 4th Admiral Seguros, 5th Rastreator Great Place to Work Institute, 2015 22nd Best Workplace in France (fewer than 500 employees) L’olivier – assurance auto Great Place to Work Institute, 2015 4th Best Large UK Workplace Great Place to Work Institute, 2015 9th Best Medium Workplace in Italy ConTe Great Place to Work Institute, 2015 4th Best Multinational Workplace in Europe, Great Place to Work Institute, 2015 5th place in the Sunday Times Best Big Companies to Work For listings, 2015