Company Overview 01 Financial Highlights 02 Chairman’s Statement 06 Our Culture
Strategic Report 12 Group at a Glance 14 What We Do 16 Business Model 18 How We Do It – Our Strategy 20 Chief Executive’s Statement 22 Q&A with David, Cristina, Milena and Geraint 24 Chief Financial Officer’s Review 26 Group Financial Review 31 UK Insurance Review 40 International Car Insurance Review 44 Price Comparison Review 48 Other Group Items 51 Year in Pictures 52 Principal Risks and Uncertainties 58 Being a Responsible Business
*2 Unaudited: refer to capital structure and financial position section later in the report for further information.
126.0p 2017*3 2017*3 2017*3 2017*3 2017*3 2017*3 £476.2m £1.26bn 137.1p 6.51m 126.0p £403.5m £1.13bn 117.2p 5.73m 114.0p £278.4m £1.02bn 78.7p 5.15m 102.5p
Admiral Group has delivered another positive set of results in 2018: record turnover, profit, dividend, strong return on capital, strong solvency ratio and record customer numbers.
0% Ogden basis 0% Ogden basis -0.75% Ogden basis -0.75% Ogden basis
“ On behalf of the Board I would like to thank everyone at Admiral for their continued hard work and contribution to the Group’s results in 2018.”
I continue to be impressed by the energy, dedication and passion shown by all of the 10,000 people at Admiral.
UK insurance continued to be dominated by UK Motor where we grew the number of vehicles we insure by 9% to over 4 million. We have seen some deterioration in the 2018 loss ratio; this has been more than offset by favourable claims development of past years, part of which arises due to the change in the Ogden discount rate. We have reduced our growth in the second part of the year in line with our normal prudent approach and focus on value rather than volume.
We continue to invest resource in improving our core skills in UK Motor including investing in technology to improve our efficiency and the service we provide to customers supporting the continuing shift to online servicing.
We are continuing to invest in our overseas insurance businesses, which is bearing fruit with reduced losses overall and our European insurers delivering overall profits as outlined at our European investor day in September. Turnover and customer numbers are continuing to grow materially by some 20% and 18% respectively and we now have £0.5 billion of combined turnover and 1.2 million customers outside the UK. We remain optimistic in delivering significant long term profit for the Group. In particular, ConTe has seen significant growth, now insuring 580,000 vehicles, and increased profits due to loss ratio improvement. At Elephant Auto in the US we have refined the strategy and are seeing positive loss ratio development as well as improved customer loyalty.
In our Price Comparison (PC) businesses, Confused in the UK increased revenue and profits. In Confused, Rastreator and LeLynx, we continue to invest in a range of market verticals which are growing well as well as investing in delivering an improved customer experience. Our US comparison business, Compare, has experienced challenging market conditions impacted by increased competition for customer acquisition which pushed up marketing spend in 2018. This is reflected in a £32.9 million impairment of the carrying value of the Group’s investment. In addition, our former Admiral CEO, Henry Engelhardt, and his wife, Diane, entered into an agreement to invest in Compare and we look forward to having Henry sharing his expertise as part of the Compare Board.
• Pricing – data analysis lies at the heart of what we do.
• Prudent reserving – continue to hold a material margin in our claims reserves.
• Claims management – consistent positive feedback from customers on the service they receive.
• Controlled test and learn – organic growth with measured expansion steps.
We are proud to be recognised as a Great Place to Work. We were recently awarded the Best large Company to Work For in the UK, as well as the tenth Best Workplace in Europe and third in Italy amongst other similar accolades across the Group.
Our dividend policy remains that we distribute each year the available surplus over and above what we retain to meet regulatory requirements, the future development of our business and appropriate buffers. The Directors have recommended a final dividend of 66p per share (2017: 58p) for the year to 31 December 2018 representing a distribution of 87% of our second half earnings and including an Ogden impact of 11p per share. The 66p per share includes a normal dividend of 65% of post-tax profits (49.6p per share) and a special dividend of 16.4p per share.
This will bring the total dividend for the year to 126p per share, an overall increase of 11% . This represents a payout ratio of 92%.
The Group has delivered a Total Shareholder Return (TSR) of 314% over the last 10 years (as illustrated in the chart on page 105).
We will continue to review all aspects of diversity to ensure that we are well prepared to guide the Group through our next phase of growth.
During the year the Board and each of its Committees undertook reviews of their effectiveness. The conclusions from these reviews provided useful feedback to each body on its performance. Further details are provided in the Corporate Governance Report on pages 64 to 87.
Admiral’s incentive schemes remain distinctive, as our people are shareholders in our business. These are designed to ensure that decisions are made by management to support long-term value growth, that the right behaviours are rewarded and that our people’s interests are aligned with those of shareholders. Our core belief is that over the long-term, share appreciation depends on delivering great outcomes for our customers. Further details are provided in the Remuneration Report on pages 98 to 107.
Colin Holmes stepped down from the Board at the end of 2018 and I would like to thank him for his excellent contribution over the last eight years. He admirably (pun intended) steered the Audit Committee and acted as SID (Senior Independent Director) and a member of the Nominations and Governance Committee.
On behalf of the Board I would like to thank everyone at Admiral for their continued hard work and contribution to the Group’s results in 2018. I would also like to thank our shareholders for their support and confidence. Most of all I would like to thank our customers for placing their business with us.
Our Group CEO, David Stevens, received an email from a customer recently highlighting the fantastic service she received from Nigel in Claims Service. Our customer was going through an extremely difficult time at home where her father had become ill and had entered end of life care. This was then compounded by her vehicle being stolen. Nigel recognised that this customer needed some extra care and attention. He took it upon himself to expedite his investigations and see the claim through to the settlement stage, something not required of him, but in the circumstances, he recognised that this customer needed her claim process to be made as smooth as possible. He had managed to arrange settlement in less than 25 hours. He also arranged for some flowers to be sent to our customer sending all of Admiral’s best wishes at the difficult time they were going through. Fantastic work Nigel, thank you!
The customer said: “Nigel should be recognised for the way he dealt with everything. I never had any concerns that he wouldn’t do what he said, he certainly made everything easy at such a difficult time. I cannot thank Nigel and Admiral Insurance enough and will certainly be recommending Admiral Insurance to family and friends. His manager told me this level of service is typical of Nigel and nothing short of what he does with any of his claims.”
Over 1,600 cars were destroyed on New Year’s Eve 2017, in a car park in Liverpool. Not surprisingly, being one of the largest insurers in the UK, we received a large number of claims from customers caught in the blaze. Thankfully no one was seriously injured, but the impact on customers was severe.
As a market leader in customer service, we waived the excess and allowed No Claims Bonus on every single one of these claims and we have settled almost all the claims in record time.
We firmly believe that a job well done should be appropriately rewarded, be it with a departmental awards ceremony, the award of additional shares, or even just a simple ‘thank you’. Without the hard work and dedication of our staff, we wouldn’t be where we are today. All of our staff receive shares in Admiral - everyone owns part of the business and every job is important and impacts their returns. The share scheme provides an incentive for strong performance, and promotes collaboration towards building a profitable and innovative business.
Being different is what makes us special; we’re proud to represent people of all genders, sexual orientation, ethnicities, and abilities, and are always working towards improved representation throughout the Group. Overall, the Group gender split is improving, and we continue to promote diversity at all management levels.
We work hard, but also encourage our staff to have fun, allowing a balanced work environment that builds strong cohesion among colleagues, and improves morale all round. In fact, we feel that this is so important, we’ve even got our own Ministry of Fun!
Board composition since 2010 of employees believe this is a friendly place to work
We set ourselves the highest standards for customer service and always look to improve. Regular, in-depth customer feedback, a committed Customer Assurance department, and highly-skilled Customer Services representatives all go together to deliver the best possible service. With frequent quality checks and a dedicated training department, our staff are always supported to give high quality care.
People buy insurance with the hope of never having to use it, but in an emergency, we want reliable, efficient service and firm emotional support. This is an integral part of the overall customer experience, and it’s what we’re committed to delivering across the Group.
We’re committed to reducing our environmental impact in any way we can, and our Green Team meets regularly to discuss this. Examples include an energy-conscious approach to choosing new premises, retrofitting energy-saving devices in our existing buildings, reducing non-recyclable cutlery and cup use in our offices. For further information on our efforts, please see pages 58 to 61.
Supporting cancer care facilities and charities in the Cardiff, Swansea, and Newport areas
Admiral offers car, van, household and travel insurance in the UK and the Group includes Confused.com, a leading price comparison website. Outside the UK, Admiral owns four insurance and several price comparison businesses.
The Admiral Group has five insurance and several price comparison operations. It has over 6 million customers and employs over 10,000 staff.
UK Motor Insurance Admiral is one of the largest car insurers in the UK.
• Motor, household, travel insurance • Price comparison • Personal Loans and Car Finance
Admiral continues to focus on bottom-line profitability both in the short, medium and long term, and this perspective guides the decisions we make across all of our business operations. The Group’s strategy is to build profitable and sustainable business operations for the long term.
Purpose Statement Admiral Group’s purpose is to provide: • Good value financial products to our customers
Every day revolves around attracting, keeping and satisfying customers. We value customers above everything else and strive to design products that customers want and that represent value for money.
126p Dividend customers would buy again >9/10 customer satisfaction score following a policy change
We have a clear strategy to achieve our goal of building profitable and sustainable business operations for the long-term.
Maintain our focus on efficient claims management and pricing to underwrite profitable business, a cost conscious culture and great customer service.
Continue to be an efficient business with a focus on expenses and costs.
How We Do It – Our Strategy Strategic Report 2018 “ Our strategy is simple: to continue to progress in the UK car insurance market while taking what we do well to new markets and products: keep doing what we’re doing, and do it better year after year.” David Stevens, CBE – Group Chief Executive Officer
Continue to develop and grow a multi-product strategy in Europe and beyond.
Rastreator, our 75% owned, Madrid-based market leader in price comparison in Spain, took the bold decision to shake up a market it largely dominates for the good of their customers, and ultimately all of their stakeholders. Panel participants had increasingly sought to “game” the system by quoting approximate, and normally overly optimistic, prices, to Rastreator’s customers and then upping the premium during the acceptance process. Although this made the prices look attractive, it was eroding customer trust and not delivering on the fundamental price comparison promise of making shopping easy and efficient.
Our brand is, in many ways unobtrusive. Our ads are visible, but not omnipresent. They’re unlikely to win industry creativity awards. And yet, over 90% of customers have heard of Admiral and preference (“which single insurer do you prefer?”) is up 30% for car insurance and over 100% for home insurance, over the last 3 years.
Voted Best Motor Insurance and Best Insurance Provider in the Personal Finance Awards 2018/19 by UK consumers
Progress in 2018 Only company to be named in Sunday Times Best Companies to Work For since inception in 2001 – 1st in 2019
Continue our focus on profitable growth in which all our staff also benefit through the share scheme
Build on our strong track record of encouraging diversity across the Company
After a decrease in market prices in the first half, we saw prices turning in the second half of the year as a result of claims inflation. These price increases are likely to continue into 2019 assuming current market conditions. Admiral followed our disciplined underwriting approach and kept rates flat in the first half of 2018, and then increased price ahead of the market in the second half of 2018, which led to a slower growth rate in the second half.
Q How will Admiral maintain a competitive edge in the increasingly competitive UK Motor market?
A Cristina: The UK market continues to be competitive, with more rational players entering over the past few years. This has led to a more stable market, which is good for consumers. Almost 50% of the market consists of direct, listed players
Our people are shareholders in the business, and are highly motivated to improve processes, better serve customers, as well as maintain a culture of cost efficiency. Although an intangible measure, I am confident that this underlying culture has a large impact on the way we operate and ultimately contributes to the bottom line.
Q Elephant sharpened its focus in 2017 – how is this approach progressing, and when can we expect it to reach profitability?
A David: The Elephant team continues to pursue the long-term goal of a sustainable, profitable business. To this extent, Alberto Schiavon, Elephant CEO, and his team have been focused on strengthening the business over the past 2 years. The team has focused on attracting and retaining customers that are typically more loyal and improving the combined
A Milena: The European operations achieved an important milestone in 2018 – overall profitability for the first time. ConTe was profitable for the fifth year, Spain close to breakeven, and France still loss-making but growing to achieve scale. ConTe, in particular, had a strong result due to positive market conditions and strong loss ratio performance. In Spain and France, the businesses continue to grow with improvements in loss ratio and positive growth. Building on strong foundations for loss and expense ratio advantage in these markets, as well as having a very strong and experienced management team, I believe they are well on their way to produce meaningful profits for Admiral in the next 5 years.
We have placed particular emphasis on strengthening the operations as a whole and taking advantages of potential synergies as well as transferring skills and knowledge. Examples include establishing an IT team in Spain that provides support for all European operations, and the transferring of anti-fraud expertise developed in Italy to the French and Spanish operations which has resulted in meaningful improvements. In addition, the newly licensed insurance company in Spain which underwrites all European operations as a result of Brexit, should allow us to further maintain strong governance and increase cross-European collaboration.
Q Compare.com saw an impairment in 2018 – does this mean that Admiral has been unable to crack the US market for price comparison?
A David: The US market environment has taken an interesting turn over the past 18 months – combined ratios have improved, resulting in increased growth aspirations for insurers. Positively, this has resulted in more interest by insurers to join the Compare.com panel. Negatively, the slowdown in insurer price increases means consumer shopping has waned somewhat, while insurers have increased competition, and thus costs, in acquisition channels used by compare.com. This directly affects compare.com as a leading price comparison business in the US. This pressure on marketing spend has resulted in a similar loss to 2017.
We believe there is potential for price comparison to disrupt the US market and being an early mover is an advantage – however, it remains a challenging market with consumers taking time to shift towards this channel. As a result of the more challenging market environment, we have revised our business plan and also impaired the carrying value of Compare.com in the parent company balance sheet by £32.9 million.
Full detail on the partial reversal of Ogden is set out on page 27 of this report, but in brief, the passing of the Civil Liability Bill into law in December 2018 means that our best estimate of the discount rate used in the settlement of large injury claims is no longer minus 0.75% (the new rate will be confirmed by early August 2019 at the latest).
• ‘Other’ costs (including share scheme charges, debt interest, central overheads amongst others) were around £19 million higher than 2017. The main reasons were: – Share scheme costs +£14 million – a combination of a) a change in 2017 in the period over which the charge is spread which reduced 2017’s charge; b) a higher scheme vesting resulting from the significantly higher 2018 profit and strong shareholder returns in recent years; and c) the impact of growth in the number of awards in recent periods (which is not expected to increase further).
As noted above, 2018 saw continued improvement in the combined result of our International Insurance operations. At the end of 2015 those businesses had around 670,000 customers and recorded a full year loss of £22 million. By the end of 2018, customer numbers had increased by over 80% to more than 1.2 million, with a very small loss of around £1 million recorded for the year. Great progress across the board.
Earnings per share (Ogden -0.75%) 118.2 p 117.2 p 78.7 p
*1 Alternative Performance Measures – refer to the end of this report for definition and explanation.
• Price comparison recorded aggregate profit (excluding minority interests’ share) of £8.8 million (2017: £7.1 million), mainly driven by the increased profit of Confused.com of £14.3 million (2017: £10.1 million).
The enactment of the legislation marks the start of a process for setting a new rate, with a maximum 230-day timeframe meaning that we will receive a new rate during or before August 2019. As such, the significant majority of relevant open claims at the balance sheet date will be settled under the new rate.
The Group’s best estimate assumption for the new rate, applied at the 2018 year-end is 0%. The setting of this assumption reflects a number of factors including current long-term economic forecasts and analysis released by the Government Actuary Department setting out the approach it is expected to take in recommending the new rate to the Lord Chancellor.
The estimated total impact, net of reinsurance and before tax, of the change in assumption from the current rate of -0.75% to the assumed 0% rate is approximately £120 million to £140 million on an ultimate basis. The majority of the financial impact in respect of premiums earned up to the balance sheet date (£66 million pre-tax, £54 million post-tax) has been recognised in the form of increased 2018 profits.
Earnings per share increased by 17% to 137.1 pence, reflecting the increase in the Group profit as a result of the change in Ogden assumption noted above. Excluding this change, earnings per share would have been 118.2 pence per share (1% higher than 2017).
The Group’s dividend policy is to pay 65% of post-tax profits as a normal dividend and to pay a further special dividend comprising earnings not required to be held in the Group for solvency or buffers.
The Board has proposed a final dividend of 66 pence per share, a 14% increase on the 2017 final dividend of 58 pence per share.
The 66 pence per share reflects the following when taking into account the Ogden benefit: • 55 pence per share (£157 million) on an Ogden -0.75% basis, representing a pay-out of 99% of post-tax profits; and
The total dividend for the 2018 year is 126.0 pence per share, reflecting an 11% increase on 2017 and a 92% payout ratio.
Similar long-term arrangements are in place in the Group’s international insurance operations and the UK Household and Van businesses.
The Group’s Brexit reorganisation means that the Group’s European insurance businesses ConTe (in Italy), Admiral Seguros (in Spain) and L’olivier Assurances (in France) is underwritten from a regulated entity in Spain, Admiral Europe Compañía Seguros (AECS) from 1 January 2019. All existing liabilities and contracts relating to these businesses have been transferred through portfolio transfer processes, also effective from 1 January 2019.
The Group’s regulatory capital is based on the Solvency II Standard Formula, with a capital add-on to reflect recognised limitations in the Standard Formula with respect to Admiral’s business (predominantly in respect of profit commission arrangements in co- and reinsurance agreements and risks arising from claims including Periodic Payment Order (PPO) claims).
The Group continues to develop its partial internal model to form the basis of future capital requirements, although does not expect to submit the application during 2019 and possibly not 2020. In the interim period before submission, the Group will continue to use the current capital add-on basis to calculate its regulatory capital requirement.
The Group’s capital includes £200 million ten year dated subordinated bonds. The rate of interest is fixed at 5.5% and the bonds mature in July 2024. The bonds qualify as tier two capital under the Solvency II regulatory regime.
The main focus of the Group’s strategy is capital preservation, with additional priorities including low volatility of returns and high levels of liquidity. All objectives continue to be met. The Group’s Investment Committee performs regular reviews of the strategy to ensure it remains appropriate.
Money market funds, fixed income and debt securities comprise the majority of the total; 86% at 31 December 2018 (2017: 85%).
Investment and interest income in 2017 was £36.7 million, a reduction of £5.0 million on 2017 (£41.7 million). 2017 benefitted from a gain on the sale of gilt assets and excluding this gain, the total investment and interest income is consistent with 2017.
The main items contributing to the operating cash inflow are as follows: Profit after tax 390.5 331.6 214.1
Total cash plus investments increased to £321.9 million or by 11% (2017: £277.8 million, 10%).
The Group’s results are presented in the following sections as: • UK Insurance – including UK Motor (Car and Van), Household, Travel
Another pleasing aspect of the Household business is the progress we’ve made with our MultiCover offering, which provides convenience and value for money for our customers whilst offering improvements and cost-efficiencies for us as a business. Whilst the market-wide weather events in H1 and subsidence claims in H2 have resulted in a loss for our Household business this year, we believe that we’ve made progress in the underlying business.
I’ve mentioned MultiCover, which is a key element in the future for the UK Insurance segment, but car insurance (and MultiCar, which we launched more than 10 years ago) remains at the centre of what we do and is of course the main source of profit for the Group.
The Civil Liability Bill finally received Royal Assent in late December, leading us to believe that 0% is the most appropriate discount rate to use in valuing large injury claims. Also included in the Bill are the reforms that will simplify and reduce the costs of whiplash claims. Whilst the impacts of that part will unlikely come into force before mid-2020, we believe that the investments we’ve made in our systems and our long-running track record of efficient processing means that we’ll be well-placed to deal with these changes and will pass on the savings to our customers.
Shortly after the end of the year we won Home Insurance Provider of the Year at the Moneyfacts Consumer Awards, which was a great endorsement from our customers and reflects the fantastic culture that’s been a cornerstone of our business since we launched 26 years ago.
Perhaps everyone’s view of an exciting and fast paced life isn’t quite right?
Total UK Insurance customers*1 5.24m 4.62m 4.12m *1 Alternative Performance Measures – refer to the end of this report for definition and explanation.
• Loss ratio performance for 2018 impacted by a combination of worse large bodily injury experience and continued inflation in damage claims
• An increase in the reported motor expense ratio to 18.4% from 16.2% mainly due to a combination of increased levy costs and a change in net retained share at the start of 2017 underwriting year
• Household loss of £3.0 million (2017: £4.1 million profit), impacted by extreme weather and subsidence claims
UK Motor Insurance profit before tax 561.7 461.4 335.1 *1 Alternative Performance Measures – refer to the end of this report for definition and explanation.
• Other revenue (including ancillary products underwritten by Admiral) and instalment income were higher (£243.2 million £204.8 million in 2017) resulting from growth and changes to the arrangement with Munich Re in 2017 where Admiral now retains all instalment income.
Underwriting discipline was maintained in H1 by maintaining flat rates while the market reduced rates. In H2, market prices started to increase in reaction to higher than expected claims inflation. Admiral increased prices ahead of the market in H2 which impacted competitiveness and slowed growth. Turnover was 8% higher at £2.42 billion (2017: £2.25 billion). The numbers of cars insured exceeded four million and vans insured moved past 200,000, leading to 9% growth in total customers to 4.32 million (2017: 3.96 million).
Notable claims trends for Admiral and the market in 2018 include slightly higher overall frequency, a flattening in the rate of improvement in small injury claims frequency and continuing elevated levels of inflation in damage claims costs. Large bodily injury claims costs were also increased in 2018, which was notably higher than the benign large bodily injury claims experience in 2017.
The Group continues to reserve conservatively, setting claims reserves in the financial statements well above actuarial best estimates to create a margin held to allow for unforeseen adverse development.
As noted above, following the Royal Assent of the Civil Liability Bill, which brings into law changes to the way that the UK personal injury discount rate (‘Ogden’ discount rate) is set, the Groups’ best estimate of the Ogden discount rate that will be applicable in the settlement of open claims has moved to 0% (from the existing -0.75% rate)
Increase in Ogden discount rate of 50 basis points (to 0.5%) 76.2 +13%
*2 Estimated impact on solvency ratio is based on the change in Own Funds and SCR resulting from change in the Ogden rate and is presented before the impact of changes in final dividend.
The proportional co- and reinsurance arrangements in place for the Motor business are the same as those reported in the 2017 Annual Report and will continue into 2019.
At 31 December 2018, all private car quota share reinsurance for underwriting years up to and including 2016 has been commuted, meaning Admiral assumes a higher net risk for these years than had the reinsurance been left in place. The 2016 contracts and the remainder of the 2015 contracts were commuted during 2018. Admiral generally elects to commute reinsurance where it makes economic sense to do so.
Note 5 to the financial statements analyses profit commission income and reserve releases by underwriting year.
Admiral makes significant use of proportional risk sharing agreements, where insurers outside the Group underwrite a majority of the risk generated, either through co-insurance or quota share reinsurance contracts. These arrangements include profit commission terms (see below) which allow Admiral to retain a significant portion of the profit generated.
The Group also has other quota share reinsurance arrangements confirmed to the end of 2019 covering 38% of the business written. The Group reduced its net underwriting share from 25% previously to 22% with effect from 2017.
Admiral is potentially able to earn material amounts of profit commission revenue from co- and reinsurance partners, depending on the profitability of the insurance business underwritten by the partner. Revenue is recognised in the income statement in line with the booked loss ratios on Admiral’s retained underwriting.
In April, we also insured our four millionth car in the UK. The first car we insured back in 1993 was an Isuzu Piazza Turbo Coupe 2 Door Saloon and our four millionth car was a Peugeot 108. We marked this milestone with banners in all our buildings thanking staff for all their hard work, Atlas News stories and emails to all staff from our UK CEO, Cristina Nestares.
*2 Other revenue (before internal costs) divided by average active vehicles, rolling 12 month basis.
The most material contributors to net Other Revenue continue to be: • Profit earned from motor policy upgrade products underwritten by Admiral, including breakdown, car hire and personal injury covers; • Revenue from other insurance products, not underwritten by Admiral; • Fees such as administration and cancellation fees; and
Households insured at year end*1 865,800 659,800 468,700 *1 Alternative Performance Measures – refer to the end of this report for definition and explanation.
The reported loss ratio of 92.3% (2017: 73.5%) included around 11 percentage points of weather impact and eight percentage points related to subsidence. Prior year releases contributed a benefit of 4 percentage points, meaning that the underlying attritional loss ratio increased to 77.6% from 75.6% as a result of a combination of slightly lower average premiums and higher costs relating to escape of water and fire claims. Admiral’s expense ratio also continued to improve (28.1%, down from 30.0%) and similar to the motor business, significantly outperforms the market.
This year Innov8 teams focused on six challenges including how we can improve our management and organisation model, and where and how automation can be used to benefit the business, customers and staff. The winning team, as chosen by the judging panel, each win £50 vouchers as well as having the honour of winning. Alongside choosing the winning team the judges also awarded a ‘Star Performer’, the individual who really stood out and impressed them during the final presentations. Winners are announced on Atlas and we also share a video of the presentation on Admiral TV.
Acquisition economics also improved materially through the year. In particular, we worked closely with our sister company, Rastreator, to improve the customer experience for those coming to us via price comparison.
CEO, European Insurance 2018 is likely to remain a memorable year in continental Europe for reaching three important milestones: one million customers, successful delivery of the Brexit project and the first time reaching profitability on a combined basis.
At the very end of the year European insurance celebrated its millionth customer. This came after the celebration of 500,000 customers at the beginning of the year in ConTe, 150,000 customers before the half year in L’olivier and 250,000 customers in December in Admiral Seguros. European insurance closed the year with 18% growth and higher brand awareness in each country despite a slower market in the first half of the year in Spain and Italy.
We believe we have good foundations to continue our journey to become a relevant contributor to group profits in the future.
Those strong foundations allow ConTe to continue to stay focused on our sustainable growth strategy and to maintain an appropriate level of investment in technology and brand.
Our plan to deliver better service is coming to fruition with a strong improvement of our net promoter score and continuously increasing customer satisfaction leading to more loyal customers. Our ambition remains to prove to French customers that a direct insurer can provide service excellence. In this context, we have been developing new capabilities for self-service with a brand new customer portal that is increasingly used by customers leading to better service and more efficiency.
Premiums grew 16%, and we ended the year with 212,600 vehicles in force (17% growth year-on-year) due to higher retention and more vehicles per policy. Attracting customers who retain longer drove our expense ratio down (6 points year-on-year) in the short run and provides the critical foundation to sustainable growth in the long run.
Vehicles insured at period end 1.22m 1.03m 0.86m *1 Alternative Performance Measures – refer to the end of this report for definition and explanation.
*3 Combined ratio is calculated on Admiral’s net share of premiums and excludes Other Revenue. It excludes the impact of reinsurer caps. Including the impact of reinsurer caps the reported combined ratio would be 2018: 113%; 2017: 124%; 2016: 133%.
Vehicles insured at period end (m) 0.22 0.50 0.13 0.18 1.03 *1 Alternative Performance Measures – refer to the end of this report for definition and explanation.
The operations continued to grow strongly in 2018, with customer numbers increasing by 18% to 1.22 million (2017: 1.03 million) and combined turnover rising by 20% to £538.7 million (2017: £449.8 million).
The European insurance operations in Spain, Italy and France surpassed the one million mark to insure 1.01 million vehicles at 31 December 2018 – 19% higher than a year earlier (31 December 2017: 0.85 million). Turnover was up 18% at £324.9 million (2017: £275.3 million). The consolidated result of the businesses was a profit of £6.4 million (2017: loss of £1.9 million) consisting of continuing (and higher) profitability in Italy and lower losses in France and Spain. The combined ratio net of other revenue (excluding the impact of reinsurer caps) improved to 98% from 101% due to the improved claims experience and expense ratio.
Elephant insured 212,600 vehicles at the end of 2018, up by 17% year-on-year. Turnover was £213.8 million, up 23% on the prior year (£174.5 million). Elephant again reduced its loss for the period (to £7.5 million from £12.5 million in 2017) despite the positive growth. Elephant continues to see improvements in customer persistency as a result of the focus on higher retaining customers. The focus on expense ratio through improvements in operational efficiency, as well as loss ratio, translated into a continued improvement in the combined ratio net of other revenue of 115% (119% in 2017).
In our European markets, we have prepared the businesses for Brexit by creating a robust organisational structure. We have also invested in our brands, products and data capabilities to strengthen and diversify our revenue lines.
We are increasing our diversification and leveraging our brands, particularly relevant with the launch of our energy vertical in France and mortgage comparison in Spain.
UK Confused.com has seen and embarked on many changes in its 16-year history, but as the Group’s most mature price comparison business and the company that created the industry, one thing has remained the same - our focus on saving customers time and money.
The price comparison sector remains one of the UK’s biggest advertisers and in 2018 we saw costs increase across most of our marketing channels. This, together with a downturn in insurance prices, and customers using multiple price comparison websites, made the market as competitive as ever. Our interactions with customers also changed during 2018 as GDPR came into force.
In 2019, we don’t expect the competitive environment to ease, but Confused.com will continue its focus on saving time and money for customers which, after all, is what it is all about.
Another highlight of 2018 was the raising of approximately $35 million to fuel and grow compare.com. Admiral entered an agreement with Henry Engelhardt and his wife, Diane, whereby Diane invested $25 million. In addition, Admiral Group provided compare.com up to $10 million by way of a convertible loan instrument, $5 million of which had been drawn down at the year end.
French market growth in 2018 was more volatile following increased marketing spend by incumbents. Whilst the car insurance aggregator market started to show signs of maturity, we saw impressive growth in other insurance products helped by favourable regulation for switching.
In 2018, LeLynx achieved double-digit revenue growth of 10% on the back of a well-founded marketing campaign and focus on diversification of the product range. LeLynx launched a wellreceived comparison tool for energy suppliers, in a new market experiencing rapid growth and simple switching rules for consumers.
Admiral operates four price comparison businesses; in the UK (Confused.com), in Spain (Rastreator), France (LeLynx) and the US (compare.com). Admiral Group owns 75% of Rastreator and 59% of compare.com (2017: 75% of Rastreator; 71% of compare.com).
Combined revenue grew by 5% to £151 million (2017: £143.6 million) and the businesses made a combined profit (excluding minority interests’ shares) of £8.8 million (2017: £7.1 million).
• The UK price comparison market remains very competitive with increasing advertising spend across all marketing channels, however small market share increases led Confused.com to a 10% increase in turnover to £95.1 million (2017: £86.8 million).
The combined revenue from the European operations increased by 4% to £46.3 million (2017: £44.4 million*2), reflecting continued growth in traffic and quotes provided to customers in LeLynx and increased competitive pressures in Spain.
*2 2017 Turnover for Confused.com updated to £86.8 million from originally reported £87.1 million due to new products which no longer fall under Confused.com and have been transferred to the Group.
*1 Alternative Performance Measure – refer to the end of this report for definition and explanation.
Compare.com’s plans for 2019 and beyond include continuing to scale marketing activity and grow volumes. The Group anticipates that the Group’s share of compare.com’s losses for 2019 will be in the range of $7 million to $14 million.
Preminen, the Group’s price comparison venture with Mapfre, continues to explore price comparison in new markets overseas. Rastreator.mx in Mexico has focused on panel development and growth, while Tamoniki, Preminen’s Turkish price comparison website, was launched in 2018.
During 2018 Brexit preparations were finalised and Rastreator and Lelynx are now locally licensed, negating the need to passport insurance intermediary permissions from the UK. Further information on the impact of Brexit on our European operations can be found on page 49.
The annual Staff General Meeting (SGM) started in 1998. All UK-based staff are invited to attend. They are lively and entertaining meetings where the senior managers give presentations about the performance of the company and inform staff of business plans for the coming year. The presentations are informative, but the focus has always been to entertain and inspire staff for the year ahead. This is our only event where senior managers speak to all UK staff face to face on the same day and we think this is a very powerful and effective way to promote a renewed sense of pride in Admiral every year.
Share scheme charges relate to the Group’s two employee share schemes (refer to note 9 to the financial statements). Charges increased by £13.8 million in 2018, to £49 million. The increase in the charge is mainly due to a non-repeating change made in 2017 over which the charge is spread (without this change, the 2017 charge would have been approximately £6 million higher). Other factors for the increase include a change in the vesting outcome assumptions for variable awards (including 2016 which vests in 2019, and reflects the significantly higher profit in 2018) and an increase in the number of awards, reflecting the increasing Group headcount over a three year vesting period.
Other interest and investment income of £2.9 million was lower than in 2017 (£8.4 million). The 2017 result included a £5.4 million realised gain from the sale of investments held by the Group, which was not repeated in 2018. Both 2017 and 2018 include the impact of unrealised losses relating to forward foreign exchange contracts (2018: £2.3 million, 2017: £2.3 million). The higher number in 2016 of £13.4 million benefitted from £6.5 million of unrealised gains from forward contracts.
Other central overheads of £10.8 million continue to reflect the cost of a number of significant Group projects, including the one-off cost of Brexit reorganisation (approximately £3 million) and a number of other nonrecurring costs relating to ongoing Group projects.
Finance charges of £11.3 million (2017: £11.4 million) mainly represent interest on the £200 million subordinated notes issued in July 2014 (refer to note 6 to the financial statements).
Admiral Loans has secured external funding during 2018 (of up to £300 million) through the securitisation of certain loans via transfer to a special purpose entity (“SPE”) which remains under the control of the Group. The securitisation and subsequent issue of notes does not result in a significant transfer of risk from the Group.
The Admiral Loans business grew significantly during 2018, and recorded a pre-tax loss of £11.8 million (increase from pre-tax loss of £4.4 million in 2017). The higher loss predominantly relates to the cost of acquiring new customers which is expensed immediately with interest income recognised over the life of the loan, typically three to four years.
As a result of growth, net interest income increased and expenses also increased driven by factors including the acquisition cost of growth and changes to provisioning.
The Group expects AIGL, the Group’s Gibraltar insurance entity, to be able to continue to carry on trading in an uninterrupted manner after 29 March 2019. This is reliant on the passing of relevant legislation by UK government which is anticipated prior to 29 March.
Brexit continues to bring risks to the Group, which include: • The potential for market volatility, and the potential for the uncertainty or the emerging terms of exit to trigger or exacerbate less favourable economic conditions in the UK and other countries in which Admiral operates (though it is worth noting that car insurance has tended to be resilient to economic downturns; and Admiral Loans has adopted a cautious approach to volumes and credit quality in advance of Brexit. As part of the Own Risk and Solvency Assessment (“ORSA”) process, the Group has performed a stress testing exercise for its Brexit assessment of the impact of a recession through 2019 on the UK insurance business, including the increase in claims costs following a spike in inflation. This includes negative movement in interest rates, currency, investment yields, inflation, unemployment and GDP, alongside a “hard” Brexit (i.e. no deal outcome). Given the results of the stress testing the Group is comfortable that it is able to manage the potential outcomes of such scenarios should they occur.
• Potential changes to the rules relating to the free movement of people between the UK and the remaining EU member states. The Group has followed external advice on planning for the small number of EU citizens working within the UK and UK citizens working in the EU, for the Group.
Other Group Items continued Strategic Report parts with potential impact on claims costs. A working group is in place to manage and review this risk, with commercial negotiations ongoing to mitigate risks arising from a “no deal” Brexit.
At present, the Group does not foresee a material adverse impact on day-today operations (including customers or staff). The Group recognises the potential economic disruption that may arise from a ‘hard’ Brexit. Whilst the Group is comfortable that it is able to manage potential outcomes following the review of the stress testing noted above, it recognises the uncertainties that exist in relation to Brexit and the potential for adverse impacts to the Group’s capital position and future dividend payments. Sensitivities to the Group’s regulatory solvency ratio are presented on page 29, including a number of specific market risk sensitivities. The cost of the restructuring activity has not been material to the Group.
3. The Wales Over 50’s Squash Team proudly flying the flag, helped on their way with sponsorship from Confused.com 4. The deserving winners of this year’s annual management awards at the awards ceremony in Cornerstone, Cardiff.
7. Arianne getting into the spirit of Pride, an event proudly sponsored by the Group and whose message of inclusivity and diversity we wholeheartedly endorse.
8. Employees at Elephant enjoying the glorious sunshine over the summer.
Admiral has a conservative reserving policy and continues to hold a material margin in its financial statement claims reserves above actuarially determined best estimates to cover adverse developments
Catastrophe Risk: Admiral is exposed to the risk of high losses due to the occurrence of man-made catastrophes or natural weather events, potentially increased in frequency and severity due to climate change.
A large flood or windstorm causes extensive property damage (both motor and household) to a significant proportion of the portfolio, leading to a large total claims cost in relation to the event.
There are a number of aspects which contribute to Admiral’s strong UK underwriting results, including: • Experienced and focused senior management and teams in key business areas including pricing and claims management; • Highly data-driven and analytical approach to regular monitoring of claims and underwriting performance; • Capability to identify and resolve underperformance promptly through changes to key performance drivers, particularly pricing; • Continuous appraisal of and investment in staff, systems and processes; and
• Admiral monitors the impact arising from climate change, that is captured as an Emerging Risk.
Admiral uses proportional co- insurance and reinsurance across its insurance businesses to reduce its own capital needs (and increase return on the capital it does hold) and to mitigate the cost and risk of establishing new operations.
There is a risk that 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 develop the UK Household, non-insurance operations such as loans and expand its overseas operations.
One or more of the operations could fail to become a sustainable, profitable long- term business.
Admiral is dependent on the four main UK price comparison websites as an important source of new business and growth.
Admiral’s ownership of Confused.com (one of the leading UK price comparison websites which operates independently of the UK Car Insurance business) helps to mitigate the risk of over- reliance on this distribution channel.
Market wide impacts to the UK insurance sector from potential regulatory changes and initiatives.
There is continued investment in resources to prepare for a Partial Internal Model application. The project provides regular progress updates with the Board and Regulators.
Market volatility (notably very significant reductions in risk free interest rates) can adversely impact the Group’s solvency due to an increased regulatory valuation of claims liabilities, in particular in relation to longer dated potential PPO claims.
Market volatility and adverse developments to macroeconomic factors, including Brexit, can lead to increased risk of defaults on the Loans business.
The Group’s investment strategy focuses on preservation of the amount invested, low volatility of returns and strong liquidity. The majority of the portfolio is invested in high quality fixed income and other debt securities, and money market funds in order to achieve these objectives.
The Group’s mitigation for interest rate risk resulting from long duration PPO liabilities includes a comprehensive level of reinsurance cover and continuing focus on strategies to ensure that the risks relating to both assets and liabilities are appropriately matched.
In particular: Potential customer detriment and/or potential regulatory censure/enforcement and/or reputational damage as a result of Admiral’s action.
We aim to attract, retain and motivate quality staff to deliver quality customer service and achieve business objectives.
Internal controls are in place and monitored to mitigate the risk and the control framework is regularly reviewed.
Regular review of the effectiveness of the Groups IT capability by Executive Management and the Board.
Within IT there is a major incident team which is tasked with maintaining system availability, with business continuity and disaster recovery plans in place.
In addition to the principal risks and uncertainties, Admiral Group monitors emerging risks which could materialise into, or significantly impact existing principal risks and uncertainties. Admiral’s emerging risk framework is a key tool for horizon scanning with developments reported to the relevant Boards and Committees on a regular basis.
“ An important part of our business is to have a positive impact on our customers, our community, our people, and our environment.”
Beyond this we continue to consider other broader changes such as the continued expansion of AI, climate change on the environment, and the move towards electric vehicles which will impact a number of industries such as manufacturing, insurance and beyond.
From procurement and supply chain management, to diversity, fair pay, and inclusion, we have outlined the major initiatives of our corporate social responsibility reporting, identifying the areas that have the most impact on our stakeholders. This allows us to report effectively on the topics that matter most. Here, and in our Corporate Social Responsibility (CSR) report (available on our corporate website), we have taken care to provide useful disclosures with a good level of transparency and accountability to our main stakeholders: our customers, our people, our community, and our environment. It is these four stakeholders who drive the core focus of our Corporate Social Responsibility.
Our Customers Our customers are at the heart of everything that we do, which is why we invest so much time and energy in improving their overall experience.
We also listen to our customers, and are always looking for areas to improve, surveys by using feedback from customer satisfaction surveys, SMS feedback and through social media. We also have a customer assurance team to monitor feedback, manage complaints and proactively improve the customer journey.
We recognise, however, that you can’t please all of the people all of the time, so when things are less than satisfactory, we are responsive. Following negative feedback on social media or review platforms, we’ll adapt our training to resolve any underlying issues. In the worst-case scenario, we’ll sometimes offer goodwill gestures to try and put things right. What’s more, many ideas and solutions come straight from our frontline staff who have the knowledge and experience to help our customers.
Our Environment The state of the Environment is a great concern of ours and we are always looking for ways to reduce our environmental impact.
Our People Our People are our most valuable asset, and we are proud to have such dedicated and hardworking staff in the Group.
Among our different initiatives are an Employee Assistance Programme providing assistance and counselling, a Ministry of Fun promoting fun activities and awards, and a Ministry of Health promoting healthy living and wellness, including free gym access, in-house yoga classes, and discounted flu vaccinations. We also try to encourage healthy eating by providing free fresh fruit in each of our offices to all our staff.
In the 13 years it has been running, we donated more than £1 million in funding through our Community Chest initiative, assisting over 3,500 different groups, clubs, and organisations.
£156,000 raised internally for Million Makers (Prince’s Trust) charity in 2018 for disadvantaged youngsters in Wales.
*1. 2017/18 was the only year since 2008 in which we did not enter a team.
5 million Over customers globally 20th Greatest Place to Work in the
Improved reporting across the Group has allowed us to compile a more comprehensive list of our greenhouse gas (GHG) figures than in previous years which can be found in our full CSR Report. Emissions per capita are worked out by the total emissions for most of the Group with the exception of Elephant and L’olivier emissions, divided by the year’s average staff headcount. All GHG emissions figures are in tonnes of carbon dioxide equivalents (CO2e) and include all six GHGs covered by the Kyoto Protocol. Unfortunately, 2018 saw an increase in emissions, though as the Group grows and our reporting improves, increases will be recorded. Future green policies should see these minimised, with more information on these approaches following in 2019. All of the electricity tariffs we control in the UK use energy from green sources and we will look to procure green tariffs again for all UK sites we control when we come to renew our contracts.
In 2018, we sent 0 tonnes of waste to landfill, recycling 206 tonnes (a combination of 122 tonnes of paper, and 84 tonnes of other recyclables) with a further 244 tonnes incinerated ethically. We are aiming to reduce nonrecycled waste further by increasing staff awareness through Green Week, poster campaigns, and other electronic awareness-raising initiatives. In 2018 we began to phase out single-use plastic cutlery in our UK canteens, replacing them with recyclable models. We took the same approach to single-use plastic cups at the water machines, replacing them with paper cups.
We encourage our staff to be fit and healthy, offering methods to reduce stress, improve focus, and generally aid their mental health and wellbeing. Our partnership with Cardiff Metropolitan University sees regular discounted massage sessions on-site, and meditation workshops are offered for free, with donations offered to the Samye Foundation.
We also participate in the Bike 2 Work scheme, whereby our staff receive heavily subsidised bicycles (from 38% to 48% depending on tax banding) to get them on their bikes rather than commuting by car.
We are committed to reducing the gender pay gap and overall gender imbalance in the Group by targeting structural inequalities and not just by setting arbitrary targets; this way, we are laying the foundations for sustainable, long-term diversity, rather than merely box-ticking.
There is no place for discrimination or harassment in the workplace, and as well as having a sexual harassment policy in place, we seek to reduce institutional imbalances where they are likely to occur. We use a specially-designed online tool to identify any subliminal gender bias in our job listings, which we then remedy. Building on this, we are developing a report that will allow us to monitor several key candidate variables, so we can better identify any biases.
Diversity and inclusivity are integral to any modern business. To ensure that we are being as inclusive as we can, we have several working groups and forums across the business focusing on identifying and rectifying any forms of stigma or bias, to encourage our staff to feel confident and comfortable in who they are, and to ensure that they are treated fairly whatever their background. Age, race, gender, sexual orientation, and disability are some of the areas we tackle. We are firmly committed to being a diverse and fair organisation, as our work with Stonewall Cymru and Race Council Cymru testifies.
We’ve always been keen to encourage development and promotion from within and, given that so many of our senior managers have been with the company for over 10 years, we really think this pays off.
The Strategic Report was approved by the Board of Directors and signed on its behalf by: David Stevens, CBE
Customer outcomes were also considered by the Board in April 2018. The session focused on the Admiral brand and the development of customer experience and oversight, as well as how the Group’s customer journey compared against competitors.
Succession planning remains an area of focus as the Board seeks to ensure that the composition and balance of the Board is reviewed and refreshed where necessary; that continuity is maintained, and that directors with the appropriate skills and experience join the Board to bring fresh perspective and challenge to the Group’s strategy in the markets in which it operates. In this context, there were a number of changes to the composition of the
Board in 2018. I was pleased to welcome Andy Crossley, who joined the Board as a Non-Executive Director and member of the Audit Committee in February 2018, Mike Brierley, who joined the Board as a Non-Executive Director and member of the Audit Committee in October 2018, and Karen Green, who joined the Board as a Non-Executive Director and Chair of the Audit Committee in December 2018. Karen succeeds Colin Holmes, who stepped down as a Non-Executive Director, Senior Independent Director and Chairman of the Audit Committee in December 2018 after 8 years on the Board. I would like to take this opportunity to thank Colin for his loyal service, wise counsel and excellent contribution to the Admiral Group during the time he has been on the Admiral Board.
An externally facilitated evaluation is due to take place later in 2019 and, therefore, the process of evaluating the Board’s performance this year consisted of each Board member completing a questionnaire detailing specific areas of focus for the Board including succession planning and Board composition, the priorities for change, the impact of previous
63Admiral Group plc · Annual Report and Accounts 2018 evaluations, and board expertise to meet future challenges, particularly in the digital and technology sectors. The results of the completed questionnaires then formed the basis for discussion when the results of the evaluation and areas for development were discussed and considered by the Board at the meeting in January 2019. A summary of the outcomes of the Board’s discussion and consideration of the results of the evaluation are set out in more detail at page 68 of this report.
David is a founder Director of Admiral and was recruited in 1991 to set up the Admiral business.
Geraint’s responsibilities include finance, investments and investor relations. He joined Admiral in 2002 and held a number of senior finance positions including Head of Finance, before being promoted to Deputy Chief Financial Officer in January 2012 and Chief Financial Officer in August 2014.
Chief Executive Officer and Director of White Mountains Insurance Group, Ltd.
Non-Executive Director and Chair of Audit Committee at Vitality Health and Vitality Life
Jean was Group Chief Risk Officer at the Phoenix Group from 2009 until June 2013, during which time she held responsibility for the Group’s relationship with the regulator and founded the Board Risk Committee. Previously, she was Risk Management Director of the Insurance and Investments division of Lloyds TSB and, before that, Head of Compliance and Audit at Scottish Widows.
Manning joined White Mountains in 2004 and is the former President of White Mountains Advisors and White Mountains Capital.
Prior to joining White Mountains, Manning spent two years with Putnam Investments and three years with McKinsey & Company.
Andy has 32 years’ experience within the financial services sector, most recently as Chief Financial Officer at Domestic & General Group from 2014 to 2017. He spent 14 years at Prudential plc from 2000 as Director, Group Finance; Group Chief Risk Officer; and CFO and Deputy Chief Executive of Prudential UK. He previously held senior manager roles at Legal & General Group plc, where he was Group Financial Controller, and Lloyds Bank plc. Andy is a Fellow of the Institute of Chartered Accountants.
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; • Operating and capital budgets, financial results, and any significant changes to accounting practices or policies; • The Group’s capital structure; • Results and financial reporting; • The system of internal control and risk management; • The Group’s overall risk appetite; • Changes to the structure, size and composition of the Board, including new appointments; • Succession plans for the Board and senior management; • Dividend policy and proposals for dividend payments; • Major acquisitions, disposals, and other transactions outside delegated limits; • The annual review of its own performance and that of its Board Committees; • Annual review of the Group’s Board policies; and
*1. Annette Court stepped down as a member of the Remuneration Committee when Owen Clarke became Chairman of the Remuneration Committee with effect from 14 May 2018.
*5 Michael Brierley joined the Audit Committee and the Group Board on 5 October 2018.
The questionnaire considered: • Board composition and utilisation of the experience and expertise of board members; • The Board’s understanding of the views and requirements of customers, employees, shareholders, and regulators; Governance Report continued
The results of the review were discussed by the Board in January 2019. It was agreed that good progress had been made in implementing the recommendations identified in the evaluation carried out in 2017, particularly around succession planning and talent development and improvement in the content and quality of Board papers.
The Chairman is primarily responsible for leading the Board, setting its agenda and monitoring its effectiveness. She is supported by the Senior Independent Director, who acts as a sounding board and serves as an intermediary for the other Directors. Neither are involved in the day-to-day management of the Group.
Save for the matters reserved for the Board, the Chief Executive Officer (with the support of the Executive Directors and the Senior Executives) is responsible for proposing the strategy to be adopted by the Group, running the business in accordance with the strategy agreed by the Board and implementing Board decisions.
• Communicates with major shareholders and ensures the Board understands their views.
• Acts as a sounding board for the Chairman and serves as an intermediary for the other Directors.
• Available to shareholders if they have concerns that cannot be resolved through the normal channels.
• Proposes and develops the Group’s strategy, in close consultation with the Chairman and the Board.
• Leads the communication programme with shareholders and other key stakeholders, including staff.
• Ensures management provides the Board with appropriate information and necessary resources.
Manning Rountree is the Chief Executive Officer for White Mountains Insurance Group Limited (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 seven Non-Executive Directors to be independent and is not aware of any relationships or circumstances, other than the above, which are likely to affect, or could appear to affect, the judgement of any of them. It is the view of the Board that the independent Non-Executive Directors have sufficient time available to perform their duties and are of sufficient calibre and number that their views carry significant weight in the Board’s decision making.
Colin Holmes was the Senior Independent Non-Executive Director (SID) for the year under review. Owen Clarke was appointed as SID, subject to regulatory approval, when Colin Holmes stepped down as a Non-Executive Director of the Board with effect from 31 December 2018. The Board is satisfied that Owen has the requisite knowledge and experience gained through his Board position, his Chairmanship of the Remuneration Committee, his membership of the Audit and Nomination and Governance Committees. In addition, Owen has financial services experience, gained through his appointment as Chief Investment Officer of Equistone Partners Europe. Owen is available to shareholders if they have concerns that contact through the normal channels of Chairman, Chief Executive, or Chief Financial Officer have failed to resolve or for which such contact is inappropriate. As Chair of the Remuneration Committee, Owen is also available to discuss remuneration matters with shareholders. 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.
On appointment, Directors take part in a comprehensive induction programme whereby they receive financial and operational information about the Group; details concerning their responsibilities and duties; as well as an introduction to the Group’s governance, regulatory and control environment.
In addition, the Chairman had individual meetings during the year with major shareholders and reported to the Board on issues raised with her.
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 where such contact is inappropriate. No such concerns have been raised in the year under review.
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 110.
The Board has delegated authority to a number of permanent Committees to deal with matters in accordance with written Terms of Reference. The principal Committees of the Board - Audit, Remuneration, Group Risk and Nomination and Governance. Subject to the exception listed above, on page 66, all comply fully with the requirements of the Code.
The Audit Committee Statement from Karen Green, Chair of the Audit Committee
This is my first report as Chair of the Audit Committee having taken over from Colin Holmes, who stepped down in December 2018 after serving for eight years on the Board, including seven years as Audit Chair. I would like to thank Colin for his support and commitment to ensuring an efficient handover process and transition of the Chair position to me. To facilitate this, I attended the meetings of the Board and the Audit Committee as a guest from June 2018 and also undertook a programme of visits and meetings at the Company prior to being appointed to the Board and assuming the Chair of the Committee in December 2018.
The Committee undertook an evaluation of the performance of the external auditor and concluded that Deloitte was working effectively as external auditor. The Committee spent time considering the audit fee proposed for 2018 and discussed with Deloitte on the rationale for the year on year increase in the fee. The Committee also discussed the position in relation to its external audit services contract and considered the timing of tendering for the external audit.
I hope you find the above summary, and the more detailed report, both useful and informative.
The Committee is kept up to date with changes to Accounting Standards and relevant developments in financial reporting, company law, and the various regulatory frameworks through presentations from the Group’s external auditor, Chief Financial Officer and Company Secretary. In addition, members attend relevant seminars and conferences provided by external bodies. The Terms of Reference of the Audit Committee include all the matters required under the Code and are reviewed annually by the Committee.
• Continued updates on the impact of the Ogden rate change and the potential legislative changes to the method of setting the rate in the future; • Presentations from independent actuaries to assist the Committee in concluding on the adequacy of the Group’s reserves; • Initial impact assessment of IFRS 17, the updated standard on insurance contract accounting; • Reports from Deloitte, the external auditor, on their proposed audit scope, plan and findings; • Proposed external audit fee and the drivers of the year on year increase; • Confirmation of the external auditor’s independence; • Performance and effectiveness of the Internal Audit department; • Significant findings from reports from Internal Audit including Management responses to the conclusions set out in the reports; • The effectiveness of the Group’s Whistleblowing Policy which sets out the arrangements for raising and handling allegations from whistle blowers and receiving regular reports on instances of whistleblowing that have been raised; • Reports on the controls in place in respect of the Group’s overseas subsidiaries and in relation to cyber security; • The Committee also had presentations and discussions on a range of other important issues including: the impact of implementing IFRS 9 and IFRS 15, the expected impact of accounting changes due to IFRS 16, an update on the embedding of the Group Minimum Control Standards Framework and Solvency II Technical Provisions and other Solvency II reporting; • The timing and process for tendering for the external audit; • Its own Terms of Reference; • Its own effectiveness; and
• Meetings held with the External Auditors without Management being present.
After discussion with both Management and the external auditor, the Audit Committee determined that the key risks of misstatement of the Group’s financial statements related to insurance liabilities and profit commissions.
These issues were discussed with Management during the year and with the external auditor at the time the Committee reviewed and agreed the external auditor’s Group audit plan; when the external auditor reviewed the interim financial statements in August 2018 and also at the conclusion of the external audit of these full year financial statements.
Given the continued uncertainty around changes to the Ogden discount rate, the Committee kept developments in this area under review to ensure that it was well prepared to manage any impact on its reserves. The Committee received regular updates on the progression of the Civil Liability Bill intended to reform whiplash claims and the calculation of the Ogden discount rate through the various Parliamentary stages and the associated timing considerations for any future changes to the Ogden rate. The Civil Liability Bill was passed on 21 November 2018 and received Royal Assent on 20 December 2018. The latest date for the new Ogden discount rate to be announced is 6 August 2019. The Committee has considered and is satisfied that, despite the considerable uncertainty that remains in relation to the new rate, a 0% Ogden rate reflects an appropriate best estimate assumption for the 2018 financial statements.
The Committee also received an update from the auditor regarding the procedures it had used to test Management’s methodology in setting the reserves and considered the auditor’s assertion that it had challenged the reserving approach taken by Management and was satisfied with Management’s assumptions and that the Group’s approach to setting reserves was in compliance with current accounting standards.
The Committee reviewed and challenged the results of Management’s impairment testing of the Group’s investment in subsidiaries, performed where indicators of impairment were present. An impairment of £32.9 million has been recognised in relation to the Group’s investment in its US price comparison business, Compare.com.
No material unadjusted audit differences were reported by the external auditor. The Committee confirms that it is satisfied that the auditor has fulfilled its responsibilities with diligence and professional scepticism.
The Committee reviewed and approved its policy on non-audit services in February 2018 and was satisfied that it was aligned with current regulatory guidance. Under the policy, the Group’s statutory auditor would only be engaged to carry out non-audit work in exceptional circumstances or where there was a regulatory or tax authority request and where agreed by the Committee.
Unless required by law, regulatory or tax authority 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 in the view of an objective, reasonable and informed third party, would have an inconsequential effect, on the audit services on the Group’s financial statements; • The estimation of the effect on the financial statements is comprehensively documented and explained in a report to the Committee; • The non-audit services provided comply with the principle of independence; and
The Committee approved the fee increase having discussed the rationale for the costs proposed given the growth in and changes to the Group, and also any potential inefficiencies within the audit process.
The Committee confirms it is in compliance with the provisions of the Statutory Audit Services for Large Companies Market Investigation Order 2014 with regard to the requirement for formal tendering every ten years and partner rotation every five years.
Following the external quality assessment of Internal Audit carried out last year, the recommendations to enhance further the efficiency and effectiveness of the internal audit function that came out of that review were considered and implemented.
Members of the Committee also receive all issued audit reports, enabling them to challenge the reports’ content and related recommendations. The Committee approves the Internal Audit programmes at the start of each calendar year whilst the effectiveness and workload of the Internal Audit functions and the adequacy of available resources are monitored throughout the year. The former Chair of the Committee also regularly met with the Group Head of Internal Audit during the year.
As part of the Committee’s detailed annual review of its performance and processes, each Committee member completed a comprehensive questionnaire designed to provide objective assessment of the Committee’s performance, including its effectiveness in monitoring internal and external audit. The Committee discussed the results of the review at the meeting in December and it was concluded that, overall, the Committee and the audit process were effective; that the Committee had full access to all the information it required; that the Committee had appropriate Terms of Reference; and that it was adequately discharging its responsibilities.
During the year the Committee reviewed the Board’s risk strategy and risk appetite across the Group. This included updates on the UK and international businesses as a key part of the Group’s Enterprise Risk Management Framework (‘ERMF’). A further refresh to the suite of Key Risk Indicators with associated triggers and limits was completed. These updates have improved the effectiveness of the Committee by placing greater focus on the main risks affecting the business.
A significant amount of time has continued to be dedicated to developing the Group’s Partial Internal Model for quantifying the Group’s risk exposure. Having approved a change to the model scope in late 2017, much of 2018 focussed on reviewing and challenging the new components of the
The Committee oversaw the successful implementation of the Group conduct risk framework with positive results. The ongoing focus on monitoring and reporting customer outcome risks has included enhanced reporting to demonstrate compliance against the Group minimum standards. This builds on the levels of compliance resources and monitoring that all Group firms must apply to their respective regulatory obligations.
Jean Park Chair of the Group Risk Committee 6 March 2019
“ The Committee oversaw the successful implementation of the Group conduct risk framework with positive results.”
Reviewed the Group’s updated risk strategy, risk appetite and associated triggers and limits in the context of the Group’s agreed strategic objectives
Strategy, IT Security, GDPR and Brexit as part of the Group’s enhanced project governance framework
Received regular monitoring reports on customer outcome risk and complaint handling and reviewed updates to the Group Minimum Standards and Policy Framework
Recommend to the Board approval of the 2018 ORSA Report prior to submission to the regulator and approved the ORSA policy
The duties and responsibilities of the Committee are set out in Terms of Reference that were reviewed during the year and approved by the Board in September 2018.
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; • Monitoring the Group’s current and future conduct risk exposure; • Ensuring the adequacy and effectiveness of the Group’s data protection systems and controls; • Monitoring the adequacy and effectiveness of the Group’s Compliance functions; • Reviewing the Group’s compliance with Solvency II; • Reviewing compliance with Group policies; • 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; • Approving the annual plans for the Group Risk and Compliance functions which include reviewing regulatory developments and regular meetings with the PRA and FCA; • Review the ORSA report each year with recommendations being provided to the Group Board for approval; • Review and approve the Solvency II Actuarial Function Reports on Reinsurance and Underwriting each year; and
• Review and approve the Remuneration report from the CRO to the Remuneration Committee.
The Committee Chairperson reports formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities, as set out in previously circulated minutes to the Board. The Committee Chairperson also reports on the activities of the Committee in a formal written report that is submitted to and discussed by the Board annually.
Committees receive regular information on Conduct Risk, such as complaint handling reports and other related management information. The Group Risk Management function reviews and collates information from across the group for consideration by the GRC.
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 2018; 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 page 52.
As described above, in order to ensure these responsibilities are properly discharged, the Board has delegated to the Audit Committee to keep under review the adequacy and effectiveness of the Company’s internal financial controls, internal control and risk management systems.
The Board has delegated the development, implementation and maintenance of the Group’s overall risk management framework to the Group Risk Committee (“GRC”). The GRC reports on its activities to the Board and the Audit Committee, supporting the overall assurance provided by the Audit Committee that the Group’s internal control, risk management and compliance systems continue to operate effectively.
The Group Risk Department defines and prescribes the insurance, operational, market, credit and group risk assessment processes for the business. It performs second line reviews, including of the capital modelling and business planning processes, and undertakes regular reviews of all risks in conjunction with Management, with the results of these reviews recorded in risk registers collated centrally on the Group risk management system. 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 Group Compliance function provide oversight and review of the first line of defence’s compliance with designated control activities, providing regular reports to the Group Risk Committee.
Internal Audit function that reports to that Committee. Internal Audit undertakes a programme of risk-based audits covering all aspects of both the first and second lines of defence. The findings from these audits are reported to all three lines, i.e. Management, the executive and oversight Committees, and the Audit Committee.
The results of the stress tests form part of the process to set the Group’s capital risk appetite, which ensures that a buffer on top of the Group’s regulatory capital requirement is held to protect its capital position against shocks and stresses. As part of the ORSA process, key strategic decisions including the setting of dividend payments considers the solvency impact against the capital risk appetite. Refer to the Strategic report for information on sensitivities to the reported 2018 solvency ratio position.
Based on the results of this analysis, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over this three year period.
The Committee received regular updates from management on the implementation of the recommendations and considered and approved, in November 2018, the closure of the internal project that had been formed to implement the actions that had come out of the external review and which were designed to strengthen the Group’s existing governance arrangements. This will be followed up by a review of how this is operating in practice in 2019.
In keeping with its remit to review regularly the composition and experience of the Board, succession planning at Group and subsidiary level occupied most of the Committee’s time during the year. Following a robust and transparent recruitment process led by the Committee, Mike Brierley joined the Board as a Non-Executive Director and member of Audit Committee in October 2018. Mike was also appointed Chairman of the Group’s subsidiary, Admiral Financial Services Limited (AFSL), which is the company through which the Group’s loans business is written.
With Colin Holmes stepping down from the Board and as Audit Committee Chair in December 2018, the process of recruiting a replacement began earlier in the year. The Committee carried out an assessment of the requirements for the role and initiated a comprehensive recruitment process to identify the person with the requisite skill set and experience to fulfil the role. Following completion of this process, Karen Green was appointed as Non-Executive Director and Chair of the Audit Committee with effect from December 2018. The appointment of both Mike and Karen further enhances the range of skills, breadth of experience and diversity around the Board table. The Committee will keep under review whether it is appropriate in the next 12 to 24 months to begin the search for another Director with digital expertise.
Following the issue of the revised Corporate Governance Code in July 2018, the Committee spent time considering the enhanced reporting requirements that will be applicable for the Committee next year, when reporting on the Committee’s activities in 2019, particularly as regards the Group’s policy on diversity and inclusion, gender balance of the Group’s senior management and their direct reports and the approach to succession planning.
In line with the requirements of Solvency II, the Senior Insurance Manager Regime, and in accordance with the Group’s Fit and Proper Policy, I also carried out the process of assessment for every person who performs a key function to ensure they meet the requirements in terms of qualifications, capability, honesty and integrity.
The membership of the Committee at the year-end was Annette Court (Chair), Owen Clarke and Justine Roberts, who was appointed following Colin Holmes stepping down from the Committee in December 2018. The Company Secretary acts as Secretary to the Committee. The Committee invites the Chief Executive and/or the Chief Financial Officer to attend meetings when it deems appropriate. The Committee met formally on five occasions in 2018. In addition, members of the Committee corresponded and met informally on a number of occasions to consider and meet with individuals that the Committee had identified as possible candidates to join the Board.
Following this process, the Committee identified Mike Brierley as best placed to fill the role of Non-Executive Director and Chairman of AFSL and Karen Green as Non-Executive Director and Audit Committee Chair.
Each Committee member met separately with Mike and Karen and agreed that they would bring invaluable experience to the Board. The Board approved the Committee’s recommendations and following regulatory approval Mike was formally appointed to the Board with effect from 5 October 2018 and Karen with effect from 14 December 2018.
Given women constitute 40% of our plc Board, the Group has already exceeded the target set by both Lord Davies in his report; Women on Boards, and the Hampton Alexander Review (that builds on the Davies Review), which encourages FTSE 350 companies to achieve at least 33% women on Boards by 2020. The Group is close (29%) to meeting the Hampton Alexander Review target of 33% women’s representation across Executive Committees below Board level and direct reports to those Committees, as shown by the gender diversity table on page 108. In June 2018 the Board reviewed the requirements of the Parker Review’s
In 2018 the Chairman and CEO also signed up to the 30% Club, which aims to develop a diverse pool of talent for all businesses through the efforts of its Chair and CEO members who are committed to better gender balance at all levels of their organisations with a minimum target of 30% women at senior management level by 2020.
The Group’s gender pay gap is already materially lower than the UK average and the industry average for the financial services sector, however, the Group remains committed to reducing it further through a number of initiatives that are being introduced to address the current imbalance of men and women at differing levels of the business.
Staff were inspired to form a LGBT+ network off the back of our participation in the parade when last year, those representing Admiral in the parade decided to keep in touch and they regularly organise meet ups and events together.
The Remuneration Committee A Statement to Shareholders from the Chairman of the Remuneration Committee
“ Admiral has a remuneration structure which reinforces our unique culture and creates strong alignment with our shareholders.”
I am pleased to introduce the Directors’ Remuneration Report for the year ended 31 December 2018, which has been prepared by the Remuneration Committee (the Committee) and approved by the Board.
• Our main incentive plans are a Share Incentive Plan (‘SIP’), which encourages wide share ownership across our employees, and the Discretionary Free Share Scheme (‘DFSS’), which incentivises Earnings per Share growth, Return on Equity and Total Shareholder Return vs. the FTSE 350 (excluding investment companies) over a three-year period.
At the 26 April 2018 AGM, we asked shareholders to approve a new Remuneration Policy, which included updates to align with evolving best practice and regulatory requirements and to improve the alignment of the CFO’s remuneration with both the market and other senior Admiral executives, as well as our Annual Report on Remuneration.
During the year ended 31 December 2018, additional to its regular activities, the Committee also: • Developed and implemented a malus and clawback framework; • Established a fixed/variable pay policy for staff in control functions; • Reviewed the DFSS vesting and bonus arrangements for Executive Directors, senior management and relevant staff (Material Risk Takers) covered under Solvency II; • Agreed changes to the DFSS vesting conditions for our European Insurance businesses, Elephant Auto and Compare.com so that vesting is linked to business unit, rather than Group, performance; • Reviewed remuneration arrangements for Confused and the other European price comparison businesses, replacing DFSS awards with bonuses focused on both profitability and growth; • Reviewed executive and workforce remuneration trends and changes to the UK Corporate Governance Code and best practice guidelines; • Reviewed alignment of the Group’s current remuneration structure with the Living Wage; • Reviewed Admiral’s Gender Pay reporting stats; and
The following Remuneration Policy was approved, and therefore came into effect, at the April 2018 AGM. There have been two minor changes to the Remuneration Policy since the 2018 AGM. These changes are in the Remuneration Policy table and are updates to the malus and clawback provisions for the Discretionary Free Share Scheme (DFSS) and DFSS bonus awards to reflect the malus and clawback policy developed in 2018.
The Group is committed to the primary objective of maximising shareholder value over time in a way that also promotes effective risk management and excellent customer outcomes, and ensuring that there is a strong link between performance and reward. This is reflected in the Group’s stated Remuneration Policy of paying competitive, performance-linked and shareholder-aligned total remuneration packages comprising basic salaries coupled with participation in performance-based share schemes to generate competitive total reward packages for superior performance. The Board is satisfied that the adoption of this Policy continues to meet the objectives of attracting and retaining executives of the highest quality across the Group.
This table describes the key components of the remuneration arrangements for Executive Directors.
In respect of existing Executive Directors, it is anticipated that increases in cash salary, or in the number of salary shares, will normally be in line with the increase for the general employee population over the term of this Policy. More significant increases may be awarded in certain circumstances including, but not limited to: where there has been a significant increase in role size or complexity, to apply salary progression for a newly appointed Executive Director, or where the Executive Director’s salary has fallen significantly behind market.
Awards are subject to malus and clawback provisions, i.e. forfeiture or reduction of unvested awards and recovery of vested awards needs to be awards. Events which may lead to the malus and clawback are set out in the Group’s Malus and Clawback Framework and include material financial misstatement, responsibility for conduct which results in significant loss, material failure of risk management and misconduct.
Maximum opportunity: £2,000,000. For awards above £1,000,000 a maximum of 600% of base salary (excluding any salary shares) applies. Threshold performance will result in vesting of up to 25% of the maximum award.
Maximum opportunity: sum equal to the dividends payable during the year on awarded but unvested DFSS shares, subject also to a possible 20% enhancement based on the Committee’s assessment of the risk metrics scorecard.
The Committee is satisfied that the above Remuneration Policy is in the best interests of shareholders and does not promote excessive risk-taking. The Committee retains discretion to make changes required to satisfy legal or regulatory requirements and other nonsignificant changes to the Remuneration Policy without reverting to shareholders.
David Stevens is a founding Director, and he and the Committee continue to hold the view that his significant shareholding provides sufficient alignment of his interest in the performance of the Group with the interests of other shareholders. In light of this, David Stevens’ remuneration package consists only of a cash salary, benefits such as private medical cover, permanent health insurance and death in service cover, and matching pension contributions from the Company under the Group’s Personal Pension Plan. David Stevens has not participated, nor is it intended that he participates, in any Group share schemes.
Any unvested award will be pro-rated for time with reference to the proportion of the vesting period remaining at termination, unless the Committee determines otherwise1.
Change of control. Any unvested award will be pro-rated for time with reference to the proportion of the vesting period remaining, at the point of change of control, unless the Committee determines otherwise.
For all leavers (with the exception of in the event of termination for cause), in respect of vested DFSS and vested salary share awards that are still subject to a holding period, awards will normally be released in full at the end of the holding period, though the Committee has discretion to determine otherwise, taking into account the circumstances at the time.
The Company has entered into letters of appointment with its Non-Executive Directors (NEDs). Summary details of terms and notice periods are included below.
Mike Brierley 3 years 5 October 2018 5 October 2018 One month
Owen Clarke 3 years 19 August 2015 19 August 2018 One month
Karen Green 3 years 14 December 2018 14 December 2018 One month
Manning Rountree 3 years 16 June 2015 16 June 2018 One month
We have included in the charts above an additional scenario consistent with the remuneration reporting regulations which will come into effect for accounting periods starting 1 January 2019. This scenario ‘Maximum with share price growth’ is based on the same assumptions as used in the ‘Maximum’ scenario but also assuming the share price increases by 50% (as prescribed by the regulations).
In the case of appointing a new Executive Director, the Committee may make use of any of the existing components of remuneration as set out in the Policy Table. The Committee’s policy is to set the remuneration package for a new Executive Director in accordance with the approved Remuneration Policy at the time of the appointment.
The Committee may also make an award in respect of a new Executive Director appointment to ‘buy out’ incentive arrangements forfeited on leaving a previous employer. In doing so, the Committee will consider relevant factors including any performance conditions attached to the forfeited awards and the likelihood of those conditions being met to ensure that the value of the buy-out award is no greater than the fair value of the awards it replaces. The Committee may also avail itself of Listing Rule 9.4.2 R if appropriate in respect of buy-out incentive arrangements.
Remuneration for new Executive Directors appointed by way of internal promotion will similarly be determined in line with the Policy for external appointees, as detailed above. Where an individual has contractual commitments made prior to their promotion to the Board, the Company will continue to honour these arrangements. Incentive opportunities for below-Board employees are typically no higher than for Executive Directors, but measures may vary if necessary.
Executive Directors are permitted to accept appointments as Non-Executive Directors of companies with prior approval of the Group Chairman. Approval will be given only where the appointment does not present a conflict of interest with the Group’s activities, and where the wider exposure gained will be beneficial to the development of the individual.
When determining remuneration, the Committee takes into account best practice guidelines issued by institutional shareholder bodies. The Committee is open to feedback from shareholders on the Remuneration Policy and will continue to monitor trends and developments in corporate governance and market practice to ensure the remuneration structure for our Executive Directors remains appropriate.
At the end of 2018 the Committee consisted of Owen Clarke, Jean Park and Justine Roberts. The Committee met 8 times during the year.
The table below shows the results of the binding vote on the 2018 remuneration policy and the advisory vote on the 2017 Annual Report on Remuneration at the 2018 AGM.
The table below sets out the total single figure remuneration received by each NED for the year ended 31 December 2018 and 31 December 2017.
Karen Green7 £33,171 n/a 1. Annette Court was appointed Chairman of the Board with effect from 26 April 2017 on an annual fee of £300,000 (split £210,000 cash and £90,000 to be used to buy shares – the share fee). For 2018, the fee was increased to £307,500 (£215,250 cash, £92,250 share fee). Due to the timing of the cash payments for the share fee for 2017, the 2017 fee includes only one instalment of £45,000, representing the fee for 6 months. As Annette was in the role of Chairman for 8 months, an additional cash payment of £15,000 representing 2 months of the 2017 fee was paid alongside the first 2018 instalment. A payment of £3,062, in respect of Annette’s annual fee for 2018, was paid in 2019.
3. Andy Crossley was appointed to the Board on 27 February 2018.
Vesting of the award was based 100% on the achievement of performance conditions, being EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), and ROE, weighted equally and all measured over the three-year period 1 January 2016 to 31 December 2018. Over this period, the returns to our shareholders were strong, with TSR in the top of the second quartile versus FTSE350 companies and with ROE of 50%. The combination of these shareholder returns and EPS growth contributed to a vesting level of 87.6%.
The Committee reviewed this vesting outcome and concluded that it was appropriate. In particular, the Committee considered the EPS performance over the period, taking into account the positive impact of the partial reversal of the provisioning for the Ogden rate change two years ago, and concluded that no adjustment should be made to ensure consistency of approach with that taken previously by the Committee for the vesting of the 2014 DFSS awards (where no adjustment was made to neutralise the substantial negative impact on 2016 EPS from the initial provision for the Ogden rate change).
10% for achieving threshold with straight line relationship to 100% for maximum performance 26.2% points in excess of LIBOR
Based on performance, the total amount that will vest to Geraint Jones in September 2019 will therefore be 87.6% of his award (i.e. 43,800 shares), subject to his continued employment on the vesting date.
Vested DFSS awards are subject to clawback provisions. Events which may lead to the application of clawback are set out in the Group’s Malus and Clawback Framework and include material financial misstatement, responsibility for conduct which results in significant losses, material failure of risk management and misconduct.
The Executive Directors will continue to participate in the Group Personal Pension Plan, where employee contributions are matched up to a maximum 6% of base salary with a cap on the maximum employer contribution of £15,000 p.a. The Company will offer individuals a choice between pension contributions and cash in lieu. Both Executive Directors will continue to receive benefits in line with the Policy.
As in prior years, the Committee intends to make an award under the DFSS to Geraint Jones in September 2019. In advance of each DFSS cycle, the Committee reviews the appropriateness of the performance measures and corresponding targets. The Committee will determine the award size to be attached to the 2019 DFSS award closer to the award date (expected to be in September 2019), and will disclose this in the 2019 Annual Report on Remuneration. It is currently anticipated that the vesting of 2019 DFSS award for the CFO will continue to depend on three-year EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), and ROE as well as additional non-financial customer and risk metrics. The Committee believes that the additional emphasis on risk and customer will help to reinforce our focus on risk management and our customers, whilst also more clearly demonstrating alignment of Group remuneration practices with the requirements of Solvency II. As per award size, the Committee will determine the performance conditions and targets to be attached to the 2019 DFSS award closer to the award date, and will disclose them in the 2019 Annual Report on Remuneration.
As in prior years, Geraint Jones will be eligible to receive a DFSS bonus in 2019. The bonus is calculated to be equivalent to dividends that would have been payable during the year on all outstanding DFSS shares and any salary shares awarded but not vested. The DFSS bonus will include a ±20% adjustment based on performance against a set of risk metrics. The details of the risk metrics and any adjustment applied will be provided in the 2019 Annual Report on Remuneration.
The table below shows the percentage change in CEO remuneration from 2017 compared to the average percentage change in remuneration for all other employees. The analysis is based on a consistent set of employees, i.e. the same individuals appear in the 2017 and 2018 populations. As the CEO does not participate in the DFSS bonus scheme, to provide a meaningful comparison we have also included data for the CFO who receives DFSS awards.
1. DFSS bonus change represents the change in dividends paid, which is the driver of the level of bonus payable to holders of unvested DFSS shares.
2. The employee salary change figure of 5% reflected increases, particularly in respect of employee basic pay, that were made to recognise movements in the Minimum Wage and adjustments to reflect local market pressures.
Whilst the legislation does not require Admiral to comply until the 2019 Annual Report, the Committee is cognisant of the interest in this area and has concluded that “early” disclosure in this Annual Report is helpful. Furthermore, given our CEO does not participate in the DFSS, the Committee has also provided the equivalent pay ratios against the CFO single figure remuneration, which includes salary, pension, benefits, DFSS Bonus and vested DFSS awards for the year. The table below sets out the pay ratios for CEO and CFO for the period ended 31 December 2018.
Growth in the value of a hypothetical £100 holding over the 10 years to 31 December 2018.
3. 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.
4. Geraint Jones was appointed to the Board as CFO on 13 August 2014. 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.
6. This figure has been trued up since the 2017 report for the value of the 2015 DFSS based on the actual share price on vest (£20.80).
7. 87.6% of Geraint Jones’ 2016 DFSS award will vest in September 2019 subject to his continued employment on the vesting date.
There are no annual bonus outcomes to report in the table as the Admiral DFSS Bonus is not structured as a traditional annual bonus scheme and consequently a vesting outcome (as a percentage of max) is meaningless.
The Company currently uses newly issued shares to fund the DFSS and SIP. The Company has controls in place to ensure that shares awarded under the incentive schemes operated by the Company within any rolling ten-year period do not exceed 10% (on a net basis) of the number of ordinary shares in the capital of the Company in issue at the time of each award. As at the end of 2018, assuming full vesting of outstanding awards, the maximum number of shares granted under the DFSS and SIP was 100% of shares outstanding. It is currently anticipated that a combination of attrition and actual vesting will result in dilution of less than 10%. As required by the rules of our share schemes, the Company will in any event ensure that the actual dilution level does not exceed 10% in any rolling ten-year period by funding of any vested (and future) DFSS and SIP awards as appropriate with market-purchased shares.
As at 31 December 2018, the Directors held the following interests: Director
2. Total reflects shares from the 2016 DFSS award (performance test has been applied, and award is due to vest in September 2019).
There have been no changes to Directors’ shareholdings since 31 December 2018.
The Directors declared and paid dividends of £332.7 million during 2018 (2017: £300.3 million) – refer to note 12b for further details.
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.
There are a wide range of communication tools used by the Group to communicate with employees, which assists in the understanding of business goals and objectives, including: the staff portal (Atlas), internal newsletters, videos, team briefings, suggestion schemes, staff forums, updates on the staff share scheme and the annual Staff General Meeting (SGM). In the 2018 annual staff survey, 84% of staff were happy with the amount of information they receive about the Company (2017: 83%).
Notes *1 Company Directors consists of the Board of Directors, as detailed on pages 64 to 65.
The objectives and policies for managing risks in relation to financial instruments held by the Group are set out in note 7 to the financial statements.
The present Directors of the Company are shown on pages 64 to 65 of this Report, whilst Directors’ interests in the share capital of the Company are set out in the Remuneration Report on pages 98 to 107.
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report. The Strategic Report also includes the Group’s principal risks and uncertainties. In addition, the governance report includes the Directors’ statement on the viability of the Group over a three year period.
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.
There are no restrictions on the transfer of ordinary shares in the company other than: • Certain restrictions may from time to time be imposed by laws and regulations (for example, insider trading laws); and
At the last Annual General Meeting, held on 26 April 2018, authority was given to the Directors to allot unissued relevant securities in the Company up to a maximum of £95,904, equivalent to one third of the issued share capital as at 20 March 2018. This authority expires on the date of the Annual General Meeting to be held on 25 April 2019 and the Directors will seek to renew this authority for the following year.
A further special resolution passed at that meeting granted authority to the Directors to allot equity securities in the Company (up to a maximum of 5% of the issued share capital of the Company) for cash, without regard to the pre-emption provisions of the Companies Act 2006. This authority also expires on the date of the Annual General Meeting to be held on 25 April 2019 and the Directors will seek to renew this authority for the following year.
In line with the new principles published by the Pre-Emption Group in March 2015, and their template resolutions published in May 2016, allowing a company the ability to seek authority over a further 5% of the issued ordinary share capital on a non-pre-emptive basis subject to certain conditions, it is the intention of the Company, at the AGM on 25 April 2019, to seek this additional authority by special resolution and will confirm in the Notice of AGM that such additional shares are only issued in connection with a specified acquisition or capital investment.
The Articles may only be amended by special resolution of the shareholders.
It is proposed that the next AGM be held at City Hall, Cardiff on Thursday 25 April 2019 at 2.00pm, notice of which will be sent to shareholders with the Annual Report.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • for the Group financial statements, state whether they have been prepared in accordance with IFRS’s as adopted by the EU; and
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.
We have audited the financial statements which comprise: • the Consolidated and Parent Company Income Statements; • the Consolidated and Parent Company Statements of Comprehensive Income; • the Consolidated and Parent Company Statements of Financial Position; • the Consolidated Cash Flow Statement; • the Consolidated and Parent Company Statements of Changes in Equity; • the related notes 1 to 13 to the Group financial statements, excluding the capital adequacy disclosures in note 12e calculated in accordance with the Solvency II regime which are marked as unaudited; and
• the related notes 1 to 12 to the Parent Company financial statements.
The key audit matters identified are the same as the prior year.
Scoping We identified nine reporting components which we determined should be subjected to audits for group reporting purposes this year.
The main changes in component scoping since 2017 are to subject the group’s underwriting division in Spain and the group’s subsidiary Admiral Financial Services Limited (“AFSL”) to full scope audits.
Going concern We have reviewed the directors’ statement in note 2 to the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the group’s and company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements.
Principal risks and viability statement Based solely on reading the directors’ statements and considering whether they were consistent with the knowledge we obtained in the course of the audit, including the knowledge obtained in the evaluation of the directors’ assessment of the group’s and the company’s ability to continue as a going concern, we are required to state whether we have anything material to add or draw attention to in relation to: • the disclosures on pages 52 to 57 that describe the principal risks and explain how they are being managed or mitigated; • the directors’ confirmation on page 52 that they have carried out a robust assessment of the principal risks facing the group, including those that would threaten its business model, future performance, solvency or liquidity; or
• the directors’ explanation on page 84 as to how they have assessed the prospects of the group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We reviewed the reports from management’s external expert actuary and involved our own Deloitte actuarial experts to support our challenge of management’s assumptions. We performed procedures to assess the objectivity and competence of management’s expert.
How the scope of our audit responded to the key audit matter
We have assessed the design and implementation and tested the operating effectiveness of relevant controls associated with the accuracy of the calculation. These controls are designed to ensure that the inputs to the calculation are accurate and include a review by management to check that any requisite changes have been reflected in the form of the detailed calculation.
Key observations Based on the procedures described above, we consider the profit commission income to be appropriately stated.
Materiality £20.7 million (2017: £20.1 million) £1.8 million (2017: £3.8 million)
Basis for determining materiality 5% of profit before tax, adjusted for the movement due to the change in the Ogden rate assumption (2017: 5% of profit before tax).
We adjusted our materiality basis to exclude the impact of the Ogden discount rate change in order to remove year on year volatility.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £1 million (2017: £1 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
The nine financially significant components of the group which were identified in our audit planning are the UK branches of Admiral Insurance (Gibraltar) Limited, Admiral Insurance Company Limited, EUI Limited and Inspop.com Limited, the Italian branch of Admiral Insurance Company Limited, the Italian branch of Admiral Insurance (Gibraltar) Limited, the Spanish branch of Admiral Insurance Company Limited, Admiral Financial Services Limited and the Admiral Group plc parent entity itself.
Additionally, we have completed specific audit procedures, designed to address specific audit risks, for eight further components, including Elephant Insurance Company, a subsidiary entity in the USA.
We engaged local component auditors, being Deloitte member firms in the USA, Italy and Spain, to perform the audit work and specified audit procedures in these respective territories on our behalf. We directed and supervised the work of the component auditors, including through visits to the components and component auditors in Rome, Madrid, Seville and Richmond and remote communication and review of their work.
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon.
In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where we conclude that: • Fair, balanced and understandable – the statement given by the directors that they consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s position and performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; • Audit committee reporting – the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee; or
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, our procedures included the following: • enquiring of management, internal audit, and the audit committee, including obtaining and reviewing supporting documentation, concerning the group’s policies and procedures relating to: – identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance; – detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and
– the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations.
• discussing among the engagement team including significant component audit teams and involving relevant internal specialists, including tax and IT specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. As part of this discussion, we identified potential for fraud in the following areas: – valuation of gross insurance claims reserves; and
• obtaining an understanding of the legal and regulatory frameworks that the group operates in, focusing on those laws and regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the group. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, and relevant tax legislation. In addition, compliance with terms of the group’s regulatory solvency requirements were fundamental to the assessment of the group’s ability to continue as a going concern.
As a result of performing the above, we identified the valuation of gross insurance claims reserves and revenue recognition in respect of profit commission income as key audit matters. The key audit matters section of our report explains the matters in more detail and also describes the specific procedures we performed in response to those key audit matters.
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Directors’ remuneration Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting records and returns.
Mark McQueen (Senior statutory auditor) For and on behalf of Deloitte LLP Statutory Auditor London, United Kingdom
Operating expenses and share scheme charges recoverable from co- and reinsurers 9 418.8 386.6
Profit after tax attributable to: Equity holders of the parent 395.1 334.2
Deferred tax charge in relation to movement in fair value reserve 0.7 (4.1)
These financial statements were approved by the Board of Directors on 6 March 2019 and were signed on its behalf by: Geraint Jones Chief Financial Officer Admiral Group plc
Adjustments for non-cash items: – Amortisation of software 11 15.5 13.8
– Movement in provision for loans and advances to customers 7 8.9 1.3
– Finance costs, including interest expense on funding for loans 6 14.9 11.8
Change in trade and other payables, including tax and social security 159.9 349.5
Cash flows from investing activities: Purchases of property, equipment and software (23.9) (22.7)
Cash flows from financing activities: Non-controlling interest capital contribution 19.3 1.8
Consolidated statement of changes in equity For the year ended 31 December 2018
Deferred tax credit on share scheme credit – – – – – 2.8 2.8 – 2.8
Contributions by NCIs – – – – – – – 1.8 1.8
Movement in hedging reserve – – – (0.3) – – (0.3) – (0.3)
Currency translation differences – – – – 2.2 – 2.2 – 2.2
The Group has branches in Spain, Italy, France, Canada and India as part of its international insurance and price comparison businesses.
The Group has adopted the following IFRS and interpretations during the year, which have been issued and endorsed by the EU: • IFRS 9 “Financial Instruments”.
• Amendments to IFRS 2 “Classification and Measurement of Share-based payment transactions”.
During the year the Group has applied IFRS 9 Financial Instruments with a date of initial application of 1 January 2018, which resulted in changes in accounting policies and the potential for adjustments to the amounts previously recognised in the financial statements in respect of financial instruments.
The adoption of IFRS 9 has resulted in changes to the Group’s accounting policies for recognition, classification and measurement of financial assets and liabilities and impairment of financial assets.
The measurement category and the carrying amount of financial assets and liabilities in accordance with IAS 39 and IFRS 9 at 1 January 2018 are as follows: IAS 39 IFRS 9
Deposits with credit institutions Loans and receivables (Amortised cost) 130.0 Amortised cost 130.0
Loans and advances to customers Loans and receivables (Amortised cost) 66.2 Amortised cost 66.2
The Group has not identified any impact on the consolidated financial statements for the year ending 31 December 2018 as a result of adopting IFRS 15 and therefore no transition adjustment is presented. The disclosures required by IFRS 15 are set out in note 8 to the financial statements.
As at 31 December 2018, the following standards had been endorsed by the EU but are not yet effective: • IFRS 16 Leases (effective date 1 January 2019).
• There will be no adjustment to IFRS equity at the transition date of 1 January 2019.
There are a number of standards, amendments to standards and interpretations that were issued by 31 December 2018 but have either yet to be endorsed by the EU, or were endorsed shortly after the year end. The following IFRSs have been issued but have not been applied by the Group in these financial statements: • IFRS 17 Insurance Contracts.
• Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures”.
IFRS 17 Insurance Contracts was issued in May 2017. The standard will replace IFRS 4, establishing new principles for the recognition, measurement, presentation and disclosure of Insurance contracts within the scope of the standard. The current IASB effective date is 1 January 2021, although the IASB has proposed a delay of one year to the effective date to 1 January 2022.
The accounts have been prepared on a going concern basis. In considering this requirement, the Directors have taken into account the following: • The Group’s projections for the next 12 months and beyond, in particular the profit forecasts, regulatory capital surpluses and levels and sources of liquidity.
The accounting treatment of the SPE has been assessed and it has been concluded that it should be fully consolidated into the Group’s financial statements under IFRS 10. This is due to the fact that despite not having legal ownership, the Group has control of the SPE, being exposed to the returns and having the ability to affect those returns through its power over the SPE.
Estimation techniques are used in the calculation of the provisions for claims outstanding, which represent a projection of the ultimate cost of settling claims that have been incurred prior to the balance sheet date and remain unsettled at the balance sheet date.
The key area where estimation techniques are used is in the ultimate projected cost of reported claims. A secondary area relates to the emergence of claims that occurred prior to the balance sheet date, but had not been reported at that date.
A wide range of factors inform management’s recommendation in setting the margin held above actuarial best estimates, which is subject to approval from the Group’s Reserving and Audit Committees, including: • Reserve KPIs such as the level of margin as a percentage of the ultimate reserve.
• A review of a number of individual and aggregated reserve scenarios which may result in future adverse variance to the ultimate best estimate reserve.
In addition, the internal reserve risk distribution is used to determine the approximate confidence level of the recommended booked reserve position which enables comparison of the reserve strength to previous periods and demonstration of the compliance with IFRS 4.
For further detail on objectives, policies and procedures for managing insurance risk, refer to note 5 of the financial statements.
The Group has four reportable segments, as described below. These segments represent the principal split of business that is regularly reported to the Group’s Board of Directors, which is considered to be the Group’s chief operating decision maker in line with IFRS 8 Operating Segments.
The segment consists of the underwriting of car insurance, van insurance, household insurance, travel insurance and other products that supplement these insurance policies within the UK. 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.
The segment relates to the Group’s price comparison businesses: Confused.com in the UK, Rastreator in Spain, LeLynx in France and compare.com in the US. Each of the price comparison businesses are operating in individual geographical segments but are grouped into one reporting segment as Confused.com, Rastreator, LeLynx and compare.com do not individually meet the threshold requirements in IFRS 8.
An analysis of the Group’s revenue and results for the year ended 31 December 2018, by reportable segment, is shown below. The accounting policies of the reportable segments are materially consistent with those presented in the notes to the financial statements for the Group.
Other segment items: – Intangible and tangible asset additions 43.0 29.8 2.0 2.2 – 77.0 *1 Turnover is an Alternative Performance Measure and consists of total premiums written (including co-insurers’ share) and Other Revenue. Refer to the glossary and note 13 for further information.
Revenue and results for the corresponding reportable segments for the year ended 31 December 2017 are shown below.
Other Revenue and profit commission 316.8 16.7 143.6 10.8 (19.8) 468.1
Revenues from external customers for products and services are consistent with the split of reportable segment revenues as shown on page 133.
All material revenues from external customers, and net assets attributed to a foreign country, are shown within the International Car Insurance reportable segment shown on the previous pages. The revenue and results of the three international Price Comparison businesses, Rastreator, LeLynx and compare.com are not yet material enough to be presented as a separate segment.
The identifiable segment assets and liabilities at 31 December 2018 are as follows: As at 31 December 2018
Net insurance premium revenue 671.8 619.1 *1 Alternative Performance Measures – refer to the end of the report for definition and explanation, and to note 13a for reconciliation to group gross premiums written.
Total profit commission 93.2 67.0 *1 Profit commission for the UK Car business relates solely to co-insurance arrangements and profit commission for the UK Household business relates solely to reinsurance arrangements.
*2 Movement in UK Household profit commission reflects adverse movements in cumulative profit commission recognised in previous periods.
No profit commission has yet been recognised on the 2017 – 2018 underwriting years as the combined ratios calculated from the financial statement loss ratios on these years sit above the threshold for profit commission recognition.
Reserving risk is mitigated through a series of processes and controls. The key processes are as follows: • Regular management and internal actuarial review of individual and aggregate case claim reserves, including regular reporting of management information and exception reporting of significant movements; • Regular management and internal actuarial review of large claims, including claims settled or potentially settled by PPOs for which the uncertainty is increased by factors such as the lifetime of the claimant and movements in the indexation for the cost of future care of the claimant; • Bi-annual external actuarial review of best estimate claims reserves using a variety of recognised actuarial techniques; • Internal actuarial analysis of reserve uncertainty through qualitative analysis, scenario testing and a range of stochastic reserving techniques; Notes to the Financial Statements continued For the year ended 31 December 2018
• Ad hoc external reviews of reserving related processes and assumptions; and
As previously disclosed, Admiral’s reserving policy (both within the claims function and in the financial statements) is initially to reserve conservatively, above internal and independent projections of actuarial best estimates. This is designed to create a margin held in reserves to allow for unforeseen adverse development in open claims and typically results in Admiral making above industry average reserve releases. Admiral’s booked claims reserves continue to include a significant margin above projected best estimates of ultimate claims costs.
As at 31 December 2018, the level of relative reserve margin is lower than that at 31 December 2017, albeit remaining prudent when measured against the internal reserve risk distribution and other market benchmarks.
Other elements of insurance risk include reinsurance risk; the risk of placement of ineffective reinsurance arrangements, or the economic risk of reduced availability of co-insurance and reinsurance arrangements in future periods.
Impact of decrease in assumed Ogden discount rate of 50 basis points (to minus 0.5%) (2017: minus 1.5% compared to minus 0.75%) (94.2) (142.7)
In addition to the sensitivity above, the following table sets out the impact on equity and post-tax profit or loss at 31 December 2018 that would result from a 1% – 3% increase, and a 1%, 3%, and 5% decrease in the UK Car insurance loss ratios used for each underwriting year for which material amounts remain outstanding.
*2 Admiral typically commutes quota share reinsurance contracts in its UK Car Insurance business 24-36 months following the start of the underwriting year. After commutation, claims outstanding from these contracts are included in Admiral’s net claims outstanding balance. Refer to note (v) below.
International insurance gross claims incurred (23.2) (31.8) (65.6) (112.2) (120.8) (131.5) (146.9) (217.8) (278.2) (321.3)
International insurance net claims incurred (9.2) (12.8) (28.3) (48.6) (49.1) (50.5) (51.6) (76.5) (94.2) (107.6)
Total net release (UK Motor Insurance) 137.4 173.4 75.4 165.9 221.0
Total net release (UK Household Insurance) – – – 0.5 1.4
Included within releases on commuted quota share contracts are accruals for additional reserves arising from the commutation of the remaining 2015 and all of the 2016 UK motor quota share contracts. Any future positive developments of this loss ratio would lead to the reversal of the amounts accrued. Refer to the business review earlier in this report for further detail.
Unearned premium provision at end of period 910.7 (608.8) 301.9 6. INVESTMENT INCOME AND COSTS
Finance costs from financial liabilities comprise interest expense on subordinated notes, loan backed securities and credit facilities, calculated on the effective interest rate method. The effective interest rate method calculates the amortised cost of a financial asset or liability (or group of financial assets or financial liabilities) and allocates the interest income or expense over the expected life of the asset or liability.
147Admiral Group plc · Annual Report and Accounts 2018 6b. Investment return £m £m
*2 Total investment return excludes £0.7 million of intra-group interest (2017: £nil).
Finance costs represent interest payable on the £200 million (2017: £200 million) subordinated notes and other financial liabilities.
Total finance costs*1 3.6 0.4 *1 Interest paid in total during the year was £3.1 million (2017: £0.2 million).
Interest expense represents the interest payable on funding for the Admiral loans business, in the form of a credit facility of £200 million (of which £71.5 million was drawn down at 31 December 2018) and loan backed securities through an SPE with funding up to £300 million (of which £168.3 million was drawn down at 31 December 2018).
The classification and subsequent measurement of the financial assets under IFRS 9 depends on: (a) the Group’s business model for managing the financial assets and
• Fair value through other comprehensive income (FVOCI) – assets which are held both to collect contractual cash flows and to sell the asset, where the contractual terms of the financial asset give rise to cash flows which are solely payments of principal and interest on the principal amount outstanding (SPPI), where the asset is not designated as FVTPL.
Movements in the carrying amount are taken through OCI, with the exception of recognition of impairment gains or losses, interest revenue and foreign exchange gains or losses which are recognised in profit or loss. For the Group these assets include Government gilts and debt securities. In addition, IFRS 9 allows an irrevocable election at initial recognition to designate equity investments at FVOCI that otherwise would be held at FVTPL, provided these are not held for trading. The Group has made this election for certain equity investments.
• Fair value through profit or loss (FVTPL) – assets which do not meet the criteria for amortised cost or FVOCI, or which are designated as FVTPL. For the Group these assets include investment liquidity funds investing in short duration assets and derivative financial instruments.
Total financial liabilities 2,245.7 1,865.6 *1 Previously held at FVTPL under IAS 39.
Total financial liabilities – 1,938.4 53.0 254.3 *1 Equity investments totalling £7.8 million do not have a maturity date and are not included in the total above.
The maturity profile of financial assets and liabilities at 31 December 2017 was as follows: On demand £m
Money market funds and derivative financial instruments – 1,071.7 – –
Sub BBB – — 0.4 0.4 *1 The majority of exposure which is ‘Not rated’ stems from a holding in a AAA rated liquidity fund (rated AAAf/S1 by Fitch) which invests in money market instruments collateralised by UK government bonds.
Government gilts and debt securities are measured at FVOCI and as such fall under the scope of the ECL model. These assets are held to match policyholder liabilities or interest on debt liabilities. Selling of these assets has occurred, and is likely to occur in future.
The fair value of the gilts and debt securities is calculated with reference to quoted market valuations and as such take into account future expected credit losses. As a result, no material impairment provision is required. The calculated impairment loss within the fair value is recognised through the Income Statement whilst fair value movements are recognised in other comprehensive income.
If any assets where to be downgraded below BBB the Group would consider these to be have significantly increased in credit risk since inception, therefore enter stage 2 under IFRS 9.
For assets held at fair value through profit and loss, their value equates to level one (quoted prices in active markets) of the fair value hierarchy.
The measurement of debt securities and government gilts is based on active quoted market values (level one).
Equity investments held at fair value are measured at level three of the fair value hierarchy. No further information is provided due to the immateriality of the balance at 31 December 2018.
An assessment has been completed for impairment purposes. Given the short-term duration of these assets and low risk of these assets, no impairment provision has been recognised. This will be regularly tracked and monitored.
Loans and advances to customers – gross carrying amount 310.4 67.4
Due to the size of the provision and sensitivities that could reasonably be applied, this is not considered a critical accounting judgement or key source of estimation uncertainty.
Loans and advances to customers are measured at amortised cost. This is because the assets are held in order to collect contractual cash flows, and the contractual terms of the financial asset give rise to cash flows which are solely payments of principal and interest on the principal amount outstanding.
The amortised cost of loans and advances to customers is a reasonable approximation of fair value.
The expected credit loss model is a three-stage model based on forward looking information regarding changes in the credit quality since origination. Credit risk is measured using a probability of default (PD), exposure at default (EAD) and loss given default (LGD) defined as follows: • Probability of Default (PD): The likelihood of an account default calibrated through analysis of historic customer behaviour.
• Loss Given Default (LGD): The amount of the asset lost if a borrower defaults, determined through a combination of historic recovery performance and expert judgement.
The PD is applied to the EAD balance to calculate the expected loss stemming from each future period based on the likelihood of the customer entering default on the exposure at that point. The LGD is then applied to this loss to calculate the total expected loss excluding recoveries. A forward looking provision is also calculated, as set out later in this note.
The Group will not rebut the presumption within IFRS 9 that loans which are 30 days past due have experienced a significant increase in credit risk.
A loan is deemed to be credit impaired where 4 or more payments have been missed, or where there is a confirmed IVA agreement or debt collection agency instruction. The Group will not rebut the presumption within IFRS 9 that default has occurred when an exposure is greater than 90 days past due, which is consistent with a customer being 4 or more payments in arrears.
Economic downturn and upturn scenarios are given a 25% weighting with the best estimate provision receiving a 50% weighting.
*1 This reflects the internal credit grade given to a customer at origination. This is based on external credit rating information.
Transfers from Stage 2 to Stage 1 2.0 (2.0) – – –
New financial assets originated or purchased 257.1 7.0 2.1 – 266.2
Transfers from Stage 1 to Stage 2 – – – – –
Transfers from Stage 1 to Stage 3 – – – – –
Transfers from Stage 2 to Stage 1 0.1 (0.1) – – –
New financial assets originated or purchased 3.6 0.9 2.0 – 6.5
Total net profit and loss charge in the period 3.8 0.9 3.9 – 8.6
Transfers from Stage 2 to Stage 3 – – – – –
Insurance receivables are also measured at amortised cost. Given the short-term duration of these assets no impairment provision has been recognised.
Impairment. Where a provision is required for these receivables, it is calculated in line with the simplified method for trade receivables per IFRS 9, whereby lifetime expected credit losses are recognised irrelevant of the credit risk. In this case, the provision is based on a combination of: (i) aged debtor analysis
The fair value of subordinated notes (level one valuation) at 31 December 2018 is £211.3 million (2017: £229.2 million).
157Admiral Group plc · Annual Report and Accounts 2018 7h. Objectives, policies and procedures for managing financial assets and liabilities
The risk appetite for the lending business is set with respect to anticipated loan losses over a 12-month period. Management has defined an amber and a red loan loss limit, representing points at which action is required. These limits have been defined by management to reflect the business maturity, the business ambitions and the economic climate. Risk appetite is assessed at least annually, while the limits are continuously monitored.
The amount of bad debt expense relating to policyholder debt charged to the income statement in 2018 and 2017 is insignificant.
Trade receivables and other debtors are also subject to credit risk, although this is mitigated by a review of the credit worthiness of all counterparties prior to them being accepted.
7h. Objectives, policies and procedures for managing financial assets and liabilities continued
• Debt securities are held within two segregated mandates. The guidelines of the investments retain a similar credit quality of the investment funds (all holdings are investment grade). The duration of the securities is relatively short and similar to the duration of the on book claims liabilities (the average duration is three years).
The Group’s Loan portfolio is made up of fixed rate on loans and funded at floating variable rate. The Group has instigated an interest rate swap arrangement in the year. The risk management objective is to eliminate the majority of the Interest Rate risk from the Loans portfolio. This relates to the difference between fixed rate on loans written and floating variable rate on funding.
The Group is strongly cash-generative due to the large proportion of revenue arising from non-underwriting activity. Further, as noted above, a significant portion of insurance funds are invested in investment funds with same day liquidity, meaning that a large proportion of the Group cash and investments is immediately available.
A breakdown of the Group’s other financial liabilities, trade payables and other payables is shown in note 11.
The Group has applied IFRS 15 using the cumulative effect method therefore the comparative information has not been restated and continues to be reported under IAS 18 and IAS 11. No material differences in the accounting treatment between these standards has been identified.
The following is a description of the principle activities within the scope of IFRS 15 from which the Group generates its other revenue.
Price comparison The performance obligation is the provision of insurance intermediary services, at which point the performance obligation is met. Revenue is therefore recognised at a point in time.
Revenue is therefore recognised at a point in time and is collected immediately or in line with direct debit instalments.
Revenue from law firms The performance obligation is the pursuit of the compensation from the other side’s insurer (OSI) on behalf of the customer. Revenue is therefore recognised over time using inputs and the expected value method. Inputs including hours incurred and a 12 month realisable rate are used to calculate the expected value of revenue. Payment is due within 28 days of invoice.
Revenue outside the scope of IFRS 15 80.8 2.7 – – 83.5
The amount of revenue recognised in 2018 from performance obligations satisfied (or partially satisfied) in previous periods is £nil.
Interest receivable on loans and advances to customers is recognised in the Income Statement using the effective interest method, which calculates the amortised cost of the financial asset and allocates the interest income over the expected product life.
For cash settled schemes, the total charge expensed over the vesting period is determined by reference to the closing Admiral Group share price at the end of the period. Prior to the vesting of each scheme, the closing share price at the end of the reporting period is used as an approximation for the closing share price at the end of the vesting period. As with equity settled schemes, non-market vesting conditions also impact on the total charge expensed over the vesting period.
At each balance sheet date, the Group revises its assumptions on the number of shares which will vest with the impact of any change in the assumptions recognised through income.
Operating lease payments, including the effects of any lease incentives, are recognised as an expense in the income statement on a straight-line basis over the lease term. Contingent rentals are recognised as an expense in the period in which they are incurred.
Depreciation charge: Amortisation charge: – Deferred acquisition costs – 50.5 – 48.4
– Fees payable for the audit of the Company’s subsidiary accounts 0.5 0.3 0.3 0.3
– Fees payable for audit related assurance services pursuant to legislation or regulation 0.4 – 0.2 –
Refer to the Corporate Governance Report for details of the Audit Committee’s policy on fees paid to the Company’s auditor for non-audit services. Audit fees are 53% (2017: 54%) of total fees and 47% (2017: 46%) of total fees are for non-audit services, which are classed as audit related assurance services under the FRC rules on non-audit services.
Retirement benefits are accruing to the following number of Directors under: – Money purchase schemes 1 2 9f. Staff share schemes
The total share scheme charges of £76.9 million (2017: £54.4 million) can be analysed between share scheme charges calculated in line with IFRS 2 of £57.3 million (2017: £37.9 million) and other share scheme related costs of £19.6 million (2017: £16.5 million). Net share scheme charges are presented after allocations to co-insurers and reinsurers in line with contractual arrangements.
For awards in 2015 and onwards (therefore including the shares that vested in 2018 under the 2015 scheme) for the majority of employees, 50% of shares awarded are subject to three performance conditions. These are three-year EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), and ROE, weighted equally.
Total awards committed 13,097,030 *1 Being the maximum number of awards committed before accounting for expected staff attrition and vesting conditions.
Number of free share awards vesting during the year ended 31 December 2018
The weighted average market share price at the date of exercise for shares exercised during the year was £20.05 (2017: £18.51).
Corporation tax thereon at effective UK corporation tax rate of 19.0% (2017: 19.25%) 90.5 77.7
Tax treatment of share scheme charges through income or expense (2.4) – – – – (2.4)
Tax treatment of share scheme charges through reserves 2.8 – – – – 2.8
Balance carried forward at 31 December 2017 6.1 (4.5) 2.9 (4.6) 0.4 0.3
The deferred tax asset 31 December 2018 has been calculated based on the rate at which each timing difference is most likely to reverse.
At 31 December 2018 the Group had unused tax losses amounting to £217.5 million (2017: £198.8 million), relating to the Group’s US businesses Elephant Auto and compare.com, for which no deferred tax asset has been recognised.
Where a material obligation exists, but the likelihood of a cash out-flow or the amount is uncertain, or where there is a possible obligation arising from a past event that is contingent on a future event, a contingent liability is disclosed.
Contingent assets are possible assets that arise from past events, whose existence will be confirmed only by the occurrence or nonoccurrence of future events. Where it is probable that a cash-inflow will arise from a contingent asset, this is disclosed.
The net book value of assets held under finance leases is £nil (2017: £nil).
Foreign exchange movement – 0.2 0.2 0.4 *1 Software additions relating to internal development are immaterial in both 2018 and 2017.
Of amounts owed to co-insurers and reinsurers, £1,022.7 million (2017: £938.4 million) is held under funds withheld arrangements.
Rastreator.com believes its application of the exemption is justifiable in line with the EU Directive and is also consistent with the way similar supplies are treated throughout Europe. No formal assessment has been received from the Spanish Tax Authority as at the date of these financial statements, however should a formal assessment be received at a future date Rastreator.com will immediately appeal and is confident of a successful outcome.
The potential liability for the financial years subject to audit is approximately €5 million, though if the exemption is also disallowed in respect of years 2015 to date, the liability could increase up to €18 million. No provision has been made in these financial statements in relation to this matter.
The Group’s capital includes share capital and the share premium account, other reserves which are comprised of the fair value reserve and foreign exchange reserve, and retained earnings.
173Admiral Group plc · Annual Report and Accounts 2018 12c. Earnings per share £m £m
2,300,000 (2017: 2,050,000) shares 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 2018 of 21,161,948 (31 December 2017: 18,861,948). 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.
Registered address: Esentepe MAH. Harman1 SK. Harmanci Giz Plaza 5 1 Sisli/ Istanbul
13a. Reconciliation of turnover to reported gross premiums written and Other Revenue as per the financial statements £m £m
Gross premiums written after co-insurance per note 5b of financial statements 2,166.7 1,927.7
Premiums underwritten through co-insurance arrangements and true up of 2017 gross written premium 587.4 571.7
*2 Other reconciling items represent co-insurer and reinsurer shares of Other Revenue in the Group’s Insurance businesses outside of UK Car Insurance.
177Admiral Group plc · Annual Report and Accounts 2018 13b. Reconciliation of claims incurred to reported loss ratios, excluding releases on commuted reinsurance
Deduct claims handling costs (11.3) (0.5) – (11.8) – – – (11.8)
Impact of weather events (Home) – (3.5) – (3.5) – – – (3.5)
Loss ratio – current period attritional 88.1% 77.6% – 85.3% 86.1% – – 85.2%
Deduct claims handling costs (10.7) (0.4) – (11.1) – – – (11.1)
Prior year release/strengthening – net original share 92.1 0.5 – 92.6 9.5 – 9.5 102.1
Impact of reinsurer caps – – – – (0.1) – (0.1) (0.1)
13c. Reconciliation of expenses related to insurance contracts to reported expense ratios
*2 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 expense ratios.
13d. Reconciliation of statutory profit before tax to Group’s share of profit before tax £m £m
Reported profit before tax per the Consolidated Income Statement 476.2 403.5
Other comprehensive income for the period, net of income tax (1.6) 18.1
Total comprehensive income for the period – – (1.6) 211.4 209.8
Two new accounting standards became effective as of 1 January 2018, IFRS 9 (Financial Instruments) and IFRS 15 (Revenue) which have been adopted in these financial statements.
IFRS 15 (Revenue) introduces a new five-step framework for the recognition of revenue. There is no impact on the adoption of this new standard on these financial statements due to there being no revenue in the scope of this standard.
The Company has taken advantage of the following disclosure exemptions under FRS 101: • FRS 101.8 (d): the requirement of IFRS 7 Financial Instruments: Disclosure to make disclosures about financial instruments; • 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 (i): the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to include a list of new IFRSs that have been issued but that have yet to be applied; and
In applying the Group’s accounting policies as described below management has primarily applied judgement in the impairment testing of the Company’s investments in group undertakings. Management has applied judgement in determining whether the carrying value of the investment or asset may be supported by the recoverable amount calculation based on the ‘value in use’ of the asset (the net present value of future cash-flows arising from the asset).
The requirements of IAS 36 are applied to determine whether it is necessary to recognise any impairment loss with respect to the company’s investments in subsidiaries. When necessary, the entire carrying amount of the investment is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.
From 1 January 2018, the Group has applied IFRS 9. Under IFRS 9, classification of and subsequent measurement of financial assets depend on: • The Group’s business model for managing the asset; and
• Fair value through other comprehensive income (FVOCI): Financial assets that are held for collection of contractual cash flows and selling the assets, where the assets’ cash flows represent solely payments of principal and interest, and that are not designated at FVTPL.
• Fair value through profit or loss (FVTPL): Assets that do not meet the criteria for amortised cost or FVOCI.
In line with the above: • Fixed term deposits are measured at amortised cost with interest income is recognised in the Income Statement.
• Gilts are measured at FVOCI. Unrealised changes in the fair value of these assets are recognised in Other Comprehensive Income (OCI).
• Investments measured at FVTPL are primarily money market funds. Interest income is recognised in the Income statement.
In 2018 a non-cash impairment loss of £32.9 million has been recognised by the parent company in respect of its investment in the Group’s US price comparison business compare.com. The impairment charge is presented within the “Impairment losses” line of the Parent Company Income Statement and reduces the value of the investment to its recoverable amount, being its value in use, of £32.8 million.
The impairment charge reflects challenging market conditions for price comparison in the US.
Compare.com remains loss making at this stage in its development. The cash flows supporting the value in use are based on financial forecasts prepared for a 5 year period.
Notes to the Parent Company Financial Statements continued For the year ended 31 December 2018
A pre-tax discount rate of 12% has been used, calculated using a Capital Asset Pricing Model (CAPM) calculation (using a risk free return plus an appropriate risk premium), given that an asset specific rate is not available from the market. The table below details the impact of a 1% change in the discount rate and terminal value, and a 5% decrease in the year 5 projected profit (and thereby terminal value) on the recoverable amount.
The Board remains confident in the prospects of the business and continues to support compare.com in the achievement of its goals. However, given the challenging US price comparison market conditions there remains considerable uncertainty over the timing and level of the future profitability of the business.
The Company’s financial instruments can be analysed as follows: £m £m
Balance brought forward at 1 January 2017 – – – – – –
Balance carried forward at 31 December 2017 (0.1) – – 4.2 – 4.1
The UK corporation tax rate reduced from 20% to 19% on 1 April 2017. The average effective rate of tax for 2018 is 19% (2017: 19.25%). A further reduction to the main rate of corporation tax to 17% (effective from 1 April 2020) was enacted on 15 September 2016. This will reduce the Company’s future current tax charge accordingly.
187Admiral Group plc · Annual Report and Accounts 2018 7. TRADE AND OTHER RECEIVABLES
Of the above amount, £123.1 million is due in greater than one year (2017: £nil).
Issued, called up and fully paid 290,502,737 ordinary shares of 0.1 pence 0.3 0.3 9b. Dividends
March 2017 (51.5 pence per share, paid June 2017) – 143.7
March 2018 (58.0 pence per share, paid June 2018) 163.3 –
The dividends declared in March represent the final dividends paid in respect of the 2016 and 2017 financial years. The dividends declared in August are interim distributions in respect of 2017 and 2018.
During the year, an SPE was set up in order to secure additional funding for the Admiral loans business. The Company acts as guarantor for certain operational performance conditions of its subsidiary, AFSL, as seller and servicer for the SPE, and indemnifies AFSL in respect of any amount that would have been payable by AFSL for non-compliance with such performance conditions.
Following the first time application of FRS 101 Reduced Disclosure Framework in 2015, the Board considers that it is in the best interests of the Group for Admiral Group plc to continue to apply the FRS 101 Reduced Disclosure Framework in future periods. A shareholder or shareholders holding in aggregate 5% or more of the total allotted shares in Admiral Group plc may serve objections to the use of the disclosure exemptions on Admiral Group plc, in writing, to its registered office (Tŷ Admiral, David Street, Cardiff CF10 2EH) no later than 30 June 2019.
Income statement £m £m £m £m £m *1 Includes net interest income from loans.
These APMs are used by the Group, alongside GAAP measures, for both internal performance analysis and to help shareholders and other users of the Annual Report and financial statements to better understand the Group’s performance in the period in comparison to previous periods and the Group’s competitors.
The table below defines and explains the primary APMs used in this report. Financial APMs are usually derived from financial statement items and are calculated using consistent accounting policies to those applied in the financial statements, unless otherwise stated. Non financial KPIs incorporate information that cannot be derived from the financial statements but provide further insight into the performance and financial position of the Group.
This measure has been presented by the Group in every Annual Report since it became a listed Group in 2004. It reflects the size of the revenue generated by the Group and analysis of this measure over time provides a clear indication of the size and growth of the Group.
This measure is useful in presenting the limit of the Group’s exposure to the expenditure incurred in starting up new businesses and demonstrates the ‘test-and-learn’ strategy employed by the Group to expansion into new territories.
There are a number of instances within the Annual Report where adjustments are made to this calculation in order to more clearly present the underlying performance of the Group and operating segments within the Group. The calculations of these are presented within note 13b to the accounts and explanation is as follows.
International insurance loss ratio: As for the UK motor loss ratio, the international insurance loss ratios presented exclude the underwriting of other products that supplement the car insurance policy. The motor ratio is adjusted to exclude the claims element of the impact of reinsurer caps as inclusion of the impact of the capping of reinsurer claims costs would distort the underlying performance of the business.
Group Customers Group customer numbers reflect the total number of cars, households and vans on cover at the end of the year, across the Group.
ASHE ‘Annual Survey of Hours and Earnings’ – a statistical index that is typically used for calculation inflation of annual payment amounts under Periodic Payment Order (PPO) claims settlements.
The Group typically commutes UK car insurance quota share contracts after 24 months from the start of an underwriting year where it makes economic sense to do so. Although an individual underwriting year may be profitable on an ultimate basis, the margin held in the financial statement claims reserves means that an accounting loss on commutation must be recognised at the point of commutation of the reinsurance contracts. This loss on commutation unwinds in future periods as the financial statement loss ratios develop to ultimate.
Bank of America Merrill Lynch 2 King Edward Street London EC1A 1HQ
The Group’s corporate website is at www.admiralgroup.co.uk. A range of information about the Admiral Group is presented, including the Group’s history, financial reports and press releases, corporate responsibility and governance. The website also includes the contact details for investor relations.
The Group does not produce printed copies of interim results for shareholders unless requested. The interim results will be available on the corporate website from 14 August 2019.