Admiral offers motor, household and travel insurance. Other businesses in the UK include comparison website Confused.com, law firm Admiral Law Limited and Admiral Financial Services Limited offering personal loans and car finance.
Diversity split across the Group 51% Female, 49% Male (2018: 51% Female, 49% Male)
Company Overview 01 Our Purpose 02 Group at a Glance 04 What we do 06 Customers 08 People 10 Communities
Strategic Report 12 Chair’s Statement 16 Our Business Model 18 Stakeholder Engagement 24 How we do it – Our Strategy 26 Our Strategy in Action 28 Chief Executive’s Statement 30 A Year in Pictures 32 Q&A with David, Cristina, Milena and Geraint 34 Chief Financial Officer’s Review 37 Group Financial Review 42 Insurance Review 43 UK Insurance Review 50 International Insurance Review 54 Comparison Review 58 Other Group Items 60 Being a Responsible Business 66 Principal Risks and Uncertainties
Financial Statements 129 Independent Auditor’s Report 140 Consolidated Income Statement 141 Consolidated Statement of Comprehensive Income 142 Consolidated Statement of Financial Position 143 Consolidated Cash Flow Statement 144 Consolidated Statement of Changes in Equity 145 Notes to the Financial Statements 213 Parent Company Financial Statements 216 Notes to the Parent Company Financial Statements 224 Consolidated Financial Summary (unaudited)
Admiral Group is one of the UK’s largest and most recognised motor insurance providers, with market leading financial results.
About Us Admiral Group is a UK based company, specialising in motor, home, and travel insurance.
In 2019 Admiral was ranked 4th Best Workplace in the UK, 7th Best Multinational Workplace in Europe, and 18th Best Workplace in the World in the Great Place to Work rankings.
Additional Information 03Admiral Group plc · Annual Report and Accounts 2019
Admiral is one of the largest car and van insurers in the UK.
Confused.com, one of the UK’s leading comparison websites, profitable operations in Spain and France, and a developing business in the US.
Read more on page 50 Read more on page 54 Read more on page 58
Cristina Nestares, our UK Insurance CEO, shares a customer commentary every month in which she talks about customer stories, changes to processes that have helped improve the customer experience, and comments that we’ve received. Cristina also awards the title of monthly Customer Champion to one of our customer facing agents who have received 10/10 on all questions asked in SMS feedback.
Additionally, Cristina’s presentation at the 2019 Staff General Meeting (SGM) centred on the customer and the importance of delivering great service.
National Customer Service Week In October we hosted National Customer Service Week, to raise further awareness of the importance of customer service and to celebrate the great service that our staff deliver. We shared several news articles on our staff Intranet, the results of our recent customer surveys, and ongoing customer initiatives from across the business. We also shared a series of videos across the week, which demonstrated how the customer is valued across the business.
“Customers are at the heart of what we do” We strive to provide dependable and efficient customer service and work hard to ensure that customers can get the most suitable products for their needs.
The Above and Beyond Initiative We actively encourage our staff to exceed our customers’ expectations. An example of this can be seen with our ‘Above and Beyond’ initiative within our New Business department. Last summer one of our Canadian call handlers, Mary-Ellen, spoke to a UK customer who commented how nice it would be to have some Canadian Kraft Peanut Butter.
Mary-Ellen decided to accept the mission. Mary-Ellen purchased a large jar of peanut butter, which was brought back to the UK by a visiting trainer and posted to the customer along with a card thanking them for choosing to insure with us!
At the event, senior managers shared insights from their own careers, and the night concluded with the crowning of the winners, marking another fantastic year of dedicated service.
Satisfied Customers We strive to ensure that our customers are satisfied with our service. One way we measure this is through feedback, as demonstrated by the results below.
“People who like what they do, do it better” At Admiral, we strive to create an environment where people look forward to coming to work. We want our employees to feel happy, supported, and willing to give that little bit extra. We truly believe that our unique culture is integral to our success as a business.
86% of our employees think that our Facilities contribute to a good working environment.
Embracing challenges and changes Admiral aims to protect its data by implementing the necessary measure to withstand a cyber-attack. In 2019 we provided all employees – including contractors – with three security training sessions. The training covered a variety of topics, which included password complexity, tailgating, risks of USB devices, data classification, suspicious emails, and phishing. In addition to this, we provided further targeted training for those identified as high-risk users.
We are also audited by external auditors on an annual basis, carry out regular security risk assessments and we operate in accordance with the NIST Cyber Security Framework.
Annual Staff General Meeting (SGM) Since 1998, all UK-based employees are invited to attend the SGM to listen to lively and engaging presentations about company performance and forward-looking business plans. Our senior managers address everyone, including our offices around the globe, via a live streaming link.
Our SGM is informative and fun, and extremely important to us in terms of communicating the same message directly to all employees together. We find this to be a powerful and effective way to promote a renewed sense of pride in Admiral each year.
‘Ask David’ is an initiative available to all employees via the Admiral intranet, which promotes direct communication with the Group CEO. Employees can ask David any questions that they might have, and suggest business improvements. One request that David received in 2019 was a request for the business to create a Multi-faith room in Admiral Group House in Swansea; a private space for persons of any faith (or none) to spend time in prayer.
Movers, Shakers and Legacy Makers At Admiral, we pride ourselves on celebrating the differences among our people.
Family Focus: Parent’s Open Day We pride ourselves in providing our people with a happy, supportive, and productive working environment, and run a variety of initiatives that encourage our employees to involve their families in our company culture.
In 2019, Admiral Seguros opened its office to parents and close relatives, with the aim to provide them with an understanding of a day in the working life of their loved one, and to share insights about our history, business, and culture.
After a tour of the office, visitors were invited to spend time with their family members and learn more about their roles. Feedback from the open day was positive and helped our employees better communicate with their families about their roles and responsibilities within the Group.
All employees employed at Admiral for one year or more receive the same number of shares through our Approved Free Share Plan (SIP). Some management receive additional shares through the Discretionary Free Share Scheme (DFSS).
Diversity Our Diversity and Inclusion Working Groups include forums for LGB+, gender, age, ethnicity, social mobility, and disability to ensure that we recruit, develop, and retain a diverse group of employees. We work with organisations such as Autism Spectrum Connections Cymru to offer placements for people with autism within Admiral.
Our employees play a key role in how we engage with our communities, and we continuously support initiatives suggested by our employees to drive change both inside, and outside of, the business.
In 2018, Admiral committed £400,000 to fund four charity projects in South Wales across 2019 and 2020. The charities were chosen following suggestions put forward by employees and a vote. One of those chosen is Llamau, a charity supporting young people at risk of homelessness.
In 2019, Llamau launched a Learning 4 Life programme in Newport and, with our support, they were able to employ a full-time tutor to deliver training. The centre currently welcomes eight learners each week and provides support to help improve their basic skills and to progress through further learning, employment and volunteering.
Admiral Seguros’ support for Pulseras Rosas ranges from monthly donations from staff to support for specific projects such as providing free psychological therapy for people affected by cancer and their families.
This year, as part of our longstanding partnership with Pride Cymru, we were headline sponsors of Wales’ largest annual celebration of LGBT+ equality and diversity: Pride Cymru’s Big Weekend.
Over 50 employees along with their partners, family, and friends participated in the Cardiff parade accompanied by our Inspire Choir, which is made up of employees from offices across Wales. After the parade, the choir rounded up the weekend with a performance on the main stage.
Every year, Admiral’s Green Team organises a Green Awareness Week in Ty Admiral, our Cardiff head office, raising awareness about the ways in which employees can act more sustainably. In 2019, a range of local, environmentally-friendly businesses were invited to Ty Admiral, demonstrating alternative ways in which our staff can minimise their environmental impact.
This year, our ConTe office in Italy raised funds for two important children’s shelters: La Casa di Andrea and La Grande Casa di Peter Pan, which host children from all over the world in need of care. The funds were used to help restore their facilities so that they can provide a better environment for the children.
Sustainable Impact We aim to reduce our emissions as much as possible and, where possible, we procure our electricity from renewable sources. In circumstances where we can’t source renewable energy, we work hard to reduce our environmental impact, aligning our environmental policy with sustainable growth and efficient resource management.
to be donated to four charities over 2019 and 2020 of our employees feel good about the work we do in our communities1 tonnes CO2e per employee (2018: 0.39 tonnes)
2019 marks another year of very strong results for Admiral, and also the announcement of a change of leadership. It is hard to sum up the amazing contribution that David has made to the Group over the last 27 years. As one of the founders he has overseen the business grow from a standing start to become one of the UK’s largest motor insurers, employing over 11,000 people, serving almost seven million customers and with a market value today of over £6 billion.
David isn’t going just yet and I don’t want to use up all my accolades until he actually steps down in 12 months’ time. David brings a unique combination of great brainpower, integrity, innovation, caring and humility. As an individual, his compassion for colleagues and customers alike encapsulates Admiral’s approach and ethos. Suffice to say, it continues to be a real pleasure to work with him.
Looking back at 2019 I am delighted to report another year of strong performance in 2019, beating many records. This is once again due to our people. They make the real difference at Admiral. Their focus on serving our customers, the distinctive culture and their contribution to the communities in which Admiral operates is what makes Admiral truly different.
In 2019 we reviewed our Mental Health Strategy, and appointed Charlotte Bennett, Chair of Admiral’s Diversity and Inclusion Forum, as our ‘Healthy Heads Ambassador’.
All of our people services executives are trained in Mental Health First Aid and Suicide intervention skills training. Our Employee Assistance Programme (EAP) also offers guidance and signposting relating to concerns, whether financial, relational, legal or other.
Once again Admiral was recognised as a Great Place to Work in 2019. We were awarded the Sunday Times Best Company to Work For in the UK, 7th Best Multinational Workplace in Europe, 3rd Best Workplace for Women in the UK and 18th Best Workplace in the World! Of course, this doesn’t happen by accident. We continue to believe that if people like what they do, they do it better. Our people feel involved because they have a voice, they are shareholders in our business, and they genuinely care.
Having our people as shareholders remains a distinctive element of Admiral’s incentive schemes. 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 102 to 123.
During the year, I had the pleasure of visiting our operations in the UK, France, Italy, Spain and the US where I was able to engage with a wide variety of people. It is always wonderful to see the Admiral culture so deeply ingrained in offices across the globe. This culture was just as clearly embedded for me at the annual Staff General Meeting and the annual management off-site event. In 2019, the Board also attended a Claims education session in Newport as part of our ongoing Board education programme, and we each had the opportunity to engage with claims employees and visit a local repairer which was very insightful in seeing more evidence of our service in practice.
The Board and I feel that there is a good balance of experience, skills and knowledge to support and challenge the management team, and that operations are supported by effective governance and control systems. There have been no changes to the Board composition in 2019 following three new appointments in 2018 but the Board and I expect to appoint an additional Non-Executive Director with a technology background in early 2020. We will continue to review all aspects of diversity to ensure that we are wellprepared 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. As part of the threeyear cycle we undertook an external effectiveness review of the Board in 2019, including consideration of the principles of the 2018 Corporate Governance Code. The conclusions provided useful feedback on its performance. Further details are provided in the Corporate Governance Report on pages 74 to 87.
Our focus areas for the Board remain to: • Continue to build on the remarkably special Admiral culture and in so doing putting our people, customers and wider impact on the community at the heart of what we do
Thank you On behalf of the Board I would like to thank everyone at Admiral for their continued hard work and contribution to the Group’s results in 2019. 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.
• Employees submit questions or topics to their ECG representative in person, or via Atlas (our online portal)
• ECG representatives remain visible and accessible to employees, to discuss topics raised and addressed
• The visibility and transparency of employee opinion is increased and strengthened
Ensuring there is a constant flow of communication in all directions is integral to our culture.
First Best Big Company to Work for in the UK in 2019, Sunday Times Best Company Awards
Our Community £400k+ to fund charities (of employee choice) in South Wales in 2019/2020
Best Motor Insurance Provider and Best Insurance Provider: Customer Service – Personal Finance Awards, 2019
Driven by our purpose, our business model builds on core competencies that set us apart in order to create value for our customers, our people, our shareholders, and our wider stakeholder community.
Section 172(1) Statement At the start of 2019, we undertook a review to assess and capture how the Board incorporates the views of key stakeholders in the decisions made for the long term success of the Group.
The Board receives updates on the treatment of existing customers, and on ensuring fair outcomes throughout the customer journey. Customer and employee feedback is fed into Board discussions which ultimately shapes strategic decisions, including plans related to digital investment and future diversification.
The Board also received annual feedback on the Conduct Risk framework.
We decided to launch a new insurance product for landlords, as part of the UK Household book.
We aim to retain our reputation as a desirable and attractive place for our people to work.
Staff are encouraged to engage across multiple channels including website chats and face-to-face. We also engage via: • 1:1 meeting with managers
The Board receives updates relating to gender and diversity, and the maintenance of the corporate culture and values.
The Group CEO and CFO host our Staff SGM (which allows for questions to be raised to the Board), and also host numerous forums with staff members.
In 2019 our staff completed over 200,000 online courses, and 96 employees gained Institute of Leadership and Management (ILM) qualifications through the Admiral Academy.
In 2019 we created a Workplace Support Team to provide support for those with physical disabilities. We also began research to publish a Diversity and Inclusion Report in 2020.
Our staff are rewarded with fair and competitive pay and remuneration structure, and benefit from various reward and recognition schemes.
The table below highlights the interests of our key stakeholders, our integrated engagement methods and examples of actions taken during the year. We also share how we measure our approach to incorporating stakeholders in decision making, and show how our purpose ultimately benefits our key stakeholders.
The Board discussed their current approach to corporate governance and engagement in relation to; the interests of our people, employees, communities, stakeholders, external partners, and our impact on the environment. The Board reviewed a stakeholder map and agreed that the six below stakeholder groups were of strategic importance to the Group’s operations. Key discussions were held related with the internal relationship owners within Admiral Group, on our existing engagement methods, feedback processes, and the activities and plans for the year. The Board also considered how improvements in the effectiveness of our engagement strategies could be made.
The Board recognises the growing trend in digital and automation capabilities across the financial services sector and is taking steps to prepare the Group for long term success in a digital world.
We engage with our customers in a variety of ways, through: • Our Customer Service teams
Increased range of products available (such as Landlord Insurance, new products from Veygo.)
We believe that a happy workplace inspires employees to give that little bit extra. We want employee insights to continue to play a part in facilitating the Admiral Group Board discussions and decision-making processes.
• #1 Best Big Company to Work for UK in 2019
• Results relating to the Annual Culture Matrix Report (a review of culture related metrics and tolerances)
In 2019 we expanded our manager training to include ‘Stress Awareness’ and ‘Emotional Resilience,’ to further support our employees.
Our Business Model page 16 of our customers are satisfied with their service experience
Our employees drive our community engagement, because they both nominate and choose which initiatives we support. We engage in a number of ways, including: • Partnerships with recruitment bodies
Our International businesses actively participated in fundraising activities for a number of charities.
We have a dedicated Ministry of Giving that will donate £400k over 2019/2020 to four charities chosen by employees.
Aside from financial contributions, Admiral provides a wealth of learning, development and employment opportunities. The sense of support for the community is shared across the Group.
The Group engages regularly with shareholders through frequent and open dialogue. Investor engagement fosters long term strategic understanding of Admiral’s strategy.
Our Investor Relations calendar consists of various activities. Examples of how we engage directly and indirectly include: • Roadshows
The Board considers the long term consequences of its investment strategies for its stakeholders and ensures that all of our external asset managers are signatories to the Principles for Responsible Investment.
We are Wales’ largest private sector employer and believe it is our responsibility to provide employment opportunities for those in the local area whilst training and developing our staff. We are committed to promoting and recognising diversity both within Admiral, and in the communities in which we operate.
Over £25,000 was raised and donated by our UK operations to a charity dealing with homelessness on the streets of South Wales.
Throughout 2019 we held the Gold Health Standard award, awarded by the Welsh Assembly Government (after gaining re-accreditation in 2017).
The Board also recognises the growing importance of ESG factors in investment decision making.
The Chair and Senior Independent Director met with large shareholders at Corporate Governance meetings.
Dividend Policy page 38 of our staff feel good about the ways in which we contribute to communities
The Board receives regular updates on; • all proportional risk sharing agreements including co-insurance and reinsurance contracts
The Board visited the Group’s garage network to understand why and how it has changed, and why it needs to evolve further as repairs become more complex and sophisticated.
The Board is mindful that it is increasingly important to demonstrate responsible business behaviour with regards to the environment.
• Promoting video and telephone conferencing systems between the international businesses to reduce travel
• The Group Risk Committee and the Board receive updates from our Climate Change Project Group, on which our CFO and CRO both sit.
The Group’s relationship with its reinsurers continues to be an integral part of the Group’s business model and plans.
A number of major suppliers are also deemed to be of strategic importance to the Group.
Insights and new developments are shared between our garage partners and internal teams relating to how vehicles are becoming more technically complex and sophisticated.
Our compliance, audit, procurement and due diligence frameworks outline our expectations for responsible business behaviour and provide insight into our culture and approach.
We aim to reduce our environmental footprint and encourage responsible behaviour. Employee directed activities include; • Regular updates from the ‘Green Team’, an internal working group
At Board level; • Directors receive updates on our Responsible Investment Policy, and give feedback relating to investments and topics for consideration.
Partnership with envoPAP (to use carbon neutral paper across all of our UK offices).
• Ensuring our asset managers are signed up to the PRI guidelines
Increased awareness and understanding of environmentally responsible behaver among our employees.
Our facilities team are exploring ways in which a third party can verify our emissions in 2020.
Proposed development of a separate entity In April the Board received a strategy review update which included the proposal to develop a separate entity, to allow for the development and consideration of potential new products that might be beneficial to the Group and its stakeholders in the future. The Board noted that the primary purpose of setting up the proposed entity was for the benefit of customers by giving them access to more financial products and services that were appropriately priced and would be offered with excellent customer service. The proposal was also determined to be consistent with the Group’s goal of product diversification.
In October 2019, the Board approved the proposal and agreed that setting up the strategic entity to develop new products would benefit customers and would create long term value for the Group, which in turns creates value for customers, staff and shareholders.
The Groups reinsurance and co-insurance partners are integral to the Group’s five-year business plan.
Investing in our Core Ensure Admiral remains one of, if not, the best insurers in the UK.
Sustained Competitive Advantage 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
• Continue to take advantage of growth opportunities in UK Motor and Household
3 • Strengthening foundations in short-term Van Insurance businesses, resulting in continued growth
• Identify and develop new products for customers that add value
International Insurance Develop profitable, growing, sustainable insurance businesses that mirror the UK model.
5 • Overall, customers grew by 16% across our International Insurance businesses
• 3rd Best Large Employer for Women in the UK (Great Place to Work) for the 2nd year in a row
• Continue to develop our people by offering opportunities for training and development, as well as providing interesting career opportunities
The underlying strategy for Admiral remains unchanged and is highly focused on building customer-centric, sustainable businesses for the long-term. We strive to keep doing what we’re doing, and do it better year after year. The Board and senior management team undertake a focused annual review of our strategy and our approach, as well as a consideration of potential challenges and risks.
1 • Market leading combined ratio • Voted Best Motor Insurer for the 7th year in a row, and
Best Insurance Provider – Customer Service for the 2nd year in a row in the Personal Finance Awards 2019
Continued Growth and Profitability Profitably grow our UK private Motor and Household insurance operations.
Comparison Develop websites that allow consumers to compare a range of general insurance, financial services and other products.
• Further develop Admiral Loans and offer UK customers a better range of products and an improved online buying experience
People Driven Workplace Motivating our people to do things better for our customers and the wider community, leading to better service and good returns for our shareholders
• Listed in the Sunday Times Best Big Companies to Work For Ranking for the 20th year in a row
• Continue to encourage and respond to employee feedback and improve
• Ensure our people enjoy coming to work £597.4m UK Insurance profit (Group’s share of profit before tax)
International Insurance customers growth in loans balances, with lower loss of £8.4m (2018: loss of £11.8m)
In 2019, we worked hard to increase the digital contact options available to our customers and have seen over a 70% uplift in the percentage of customers who contact our customer services department digitally. This includes expanding our webchat capabilities, and in 2019 we have seen over a 170% increase in the number of customers who contact our customer services department via this channel.
In 2019, we enabled Admiral customers to instantly update more of their policy and payment details online through the MyAccount portal. This is a continuation of our journey into true self-service and we will continue to offer additional self-service options in the future. MyAccount has been used more and more by customers, with a 60% uptake in the volume of online selfservice amendments made in 2019.1 1 Source: Management Information
We launched our Household business in the UK in 2012, with the ambition to deliver growth and profits beyond Car Insurance in the UK. In December 2019, less than seven years later, we were delighted to welcome our one millionth customer on cover!
In 2008, Henry Engelhardt, then CEO of Admiral Group, commented that ‘Our strategy is simple: continue our profitable growth in the UK and take what we know and do it elsewhere.’
Today, we can certainly attribute a proportion of our success to our ‘test and learn’ culture, further demonstrated in 2019 with the launch of our niche Household insurance offering in France under the brand ‘Homebrella.’
Within our International Insurance operations, 2019 was a year of building on our competitive advantages, collaborating closely with each other and improving a range of online functionality features.
From a strategic perspective, this will enable us to realise operational synergies, particularly with regard to our use of technology. The ultimate objective is to provide transparency on available products which will help our customers make decisions and improve their experience.
Penguin Portals has both the advantage of understanding the needs and expectations of local markets, and access to global data-insights to identify shared opportunities for success across geographical borders. The Group will also be able to leverage experience gleaned from the launch of Confused.com in 2002, the first comparison platform in the UK.
In 2019, we brought our comparison businesses outside the US together under the management of one organisation named Penguin Portals2 – creating the largest network of comparison businesses for financial services.
Risks that could impact investing in our future include: • Reserving Risk in the UK and International Insurance
“ Consistently happy staff, consistently happy customers. Reassuringly stable outcomes, that are fundamental to our relentless forward momentum; a momentum fuelled by a sustainably healthy culture.”
Almost a decade ago, my predecessor, Henry, with his inimitable talent for a colourful phrase to light up a CEO statement, described the Company as a “snowball going like a freight train – downhill” (2010’s CEO statement). I know I’m not alone in having enjoyed Henry’s CEO statements, with his penchant for colourful, often gastronomic, analogies. I confess, however, in this instance, I might have avoided both “snowball” – with associations of fragility and transience – and “downhill” – with associations of, well.. “downhill”; neither of which entirely reassured on the sustainability of Admiral’s model.
It was a year which saw profits exceed £500 million for the first time, on the back of substantial reserve releases. We crossed the million mark in household policyholders and sold our first household policy beyond the UK. By year end, we had almost sold our 100,000th loan (and have, at time of writing, done so). We believe (hard to prove it) we have become the biggest (non-fleet) van insurer in the UK, only 2.5 years after starting to underwrite van insurance.
It is a source of huge satisfaction to me, as I contemplate the end of my period of stewardship of Admiral, that I will leave a wonderful Company in the hands of a wonderful top management team in Geraint, Cristina, Scott & Elena, very ably supported by great leaders running important subsidiaries and key Group functions. They are collectively more than capable, of not just sustaining, but also of evolving, Admiral’s potent culture. And I am particularly glad that, in Milena, I have a successor who has the intelligence, the values, the track record and the clarity of vision to take on the role of Group CEO; to reinterpret the culture, to maintain its relevance over the next decade; to reinforce the elements that remain key to our future success; and, equally importantly, to set aside elements that will inevitably slip past their sell-by date.
David Stevens, CBE Group Chief Executive Officer 1. Alternative performance measure (APM) – refer to Glossary for definition and explanation, and to note 13 for reconciliation to Financial Statements
Sponsorship of the Newport Half Marathon 2019 marked Admiral's 6th year sponsoring the Newport Half Marathon, an event which helps to raise funds for St David's Hospice care in South Wales.
Festival of Rugby In May, Admiral and the Welsh Rugby Union hosted a Festival of Rugby, a fun filled afternoon of rugby activities for over 200 children.
Admiral Rewards is launched Admiral Rewards helps our customers pay for their insurance premiums via cash rewards from thousands of big-name brands.
Our managers go on the phones Renewals Operations Managers took to the phones to better understand the complexities that frontline employees face and to look for ways in which we can improve.
Launch of Landlord Insurance With a growing demand and a clear market gap, Admiral’s Household team developed a brand-new product launched in July: Landlord Insurance.
In December our UK Household Insurance team reached one million customers on cover, a testament to our longterm sustainable approach to growth.
Homebrella Insurance launch This year we expanded our product portfolio in France with the roll out of ‘Homebrella’ our niche household insurance product.
Admiral's 1st Active Awards December marked the first ‘Admiral Active Awards’ to celebrate how staying active can contribute to teamwork, better physical and better mental health.
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.
Q&A with David, Milena, Geraint and Cristina 2019 was another challenging year for pricing and claims inflation in the
The above-mentioned factors are likely to impact prices in 2020, however there are also elements which may influence prices in the opposite direction. From a regulatory perspective, the focus is on the customer, where whiplash claims are likely to result in a decrease in average premiums as the hopedfor savings are passed on to consumers. In addition, the FCA are conducting a market pricing study to ensure customers are not penalised for loyalty and are fairly priced – the outcome of the study is expected in the first half of 2020, and may put pressure on some insurers to adjust, and potentially lower premiums for some or all of their customer base.
It is thus difficult to say with certainty that market prices are turning, and to what extent – although early signs do seem to show a slight increase overall which would not be surprising given the claims inflation the market has experienced.
In addition, we have invested internally to strengthen our technology, analytics and cyber capabilities for the future. This also includes an investment in skilled staff to better service our customers and strengthen our IT capabilities.
As customer needs change with a desire to do more business online, Admiral continues to work on enhancing digital and online capabilities and the underlying IT infrastructure. This strategy inevitably leads to an investment in the early phase, but we hope to reap the rewards in the medium to long term as more customers use our online platform. Ultimately our objective is to increase conversion, offer better customer experience, and improve efficiencies.
A lot has been achieved in 2019 in Elephant, our US insurer. The technology we deploy in the US is arguably the most advanced in the Group, and the technology team the most agile. We offer, and our policyholders regularly use, a wider array of self-service options. We know from feedback from distribution partners that our click-to-sale ratio is industry leading, on the back of a very effective online and offline journey. Our customer satisfaction ratings continue to climb month after month.
Milena, you have recently taken leadership of both the UK and
We conducted a Group strategic review in 2019, which I was very involved in as the strategy of the UK and European business is fundamental to the long-term future of the Group. The outcome of this review was a reinforcement of our core competencies as we continue to strengthen the foundations in each of these businesses. At the same time, we continue to focus on the future both from the perspective of keeping up with various trends such as technology and ways of working, and product diversification to drive growth.
In addition, I strongly believe that the power of the team is greater than the individual, and so the European CEOs and I have worked together closely and focused on transferring learning and leveraging operational synergies over the past few years. This has resulted in several initiatives such as the team in ConTe (Italy) sharing their sophisticated fraud capabilities, and the establishment of a team that supports information technology across the European businesses. The UK forms an extension of this, where key learnings from our core and most developed business are transferred to our smaller operations, and vice versa.
There has been an increased focus on ESG and Sustainability in the past year or so – what is Admiral doing to ensure a sustainable business with a positive impact on the wider environment? [David]
Admiral has always been committed to running a business that is sustainable over the long term. This includes having a positive impact on all our stakeholders including our customers, people and shareholders, as well as our partners and the wider community and environment. The Board remains committed to good governance practices and has ensured adherence to the Corporate Governance Code.
This commitment to have a wider positive impact has continued to be an important part of the business in 2019, and we have taken several steps forward – for example, with the formalisation of our Employee Consultation Group to create a platform for employees to engage with management and Board, the creation of a Climate Change project working group to consider the impact of Climate Change, a formalised Responsible Investment policy, and continued efforts to engage with the Community and provide a platform for employees to give back.
We are very proud to create a working environment where our people feel motivated and engaged to come to work – as we believe that people who like what they do, do it better. From this perspective, being named as the Best Big Business to Work for in the UK by the Sunday Times in 2019 was a real honour.
“ Admiral of course is (and I believe always should be) consistently prudent in setting reserves and normally expects significant releases, but 2019 has been well above average.”
A headline 10% increase in pre-tax profit – to a new record level – is a really pleasing result, and so I’ll start my review by looking at what’s driving that very positive move.
When trying to assess the change, it’s important to remember that the Ogden Discount Rate (see page 38 for more detail) has distorted both years’ results. Firstly, 2018 was positively impacted (£66 million) when we changed our assumption of the rate ahead of its announcement from -0.75% to 0% at year end. When the new rate (-0.25%) was announced (mid-2019), 2019’s result took a hit of around £33 million to adjust for our slight optimism. That means that the underlying profit move is bigger than the £47 million in the table above, though the changes in the Ogden rate during the period make meaningful comparison difficult. Thankfully we should see some stability in Ogden in the coming years.
What is clear is that UK Motor profit is materially higher in 2019 than prior years. That has been driven by unusually high UK Motor reserve releases that resulted from improved reserve estimates across a number of years. This in part is due to some ‘unclogging’ of large claims settlements caused by the recent certainty, but also generally much more positive trends on big claims than we expected. Admiral of course is (and I believe always should be) consistently prudent in setting reserves and normally expects significant releases, but 2019 has been well above average (29% v 21% over the previous five years). Profit commission revenue was also well ahead of recent years.
To give an idea of quantum, if the reserve release for 2019 (defined as reserve releases on Admiral’s original net share of the business as a percentage of current year net premium revenue) was in line with the average of the prior five years, Group profit would have been around £430 million to £450 million.
A few other observations from the results: • Within the UK Insurance result above, our Household business made a profit of around £8 million. Still relatively small to the Group (it would be over twice as big if the cost of quota share reinsurance was excluded), but a decent £11 million or so improvement on 2018’s weather-impacted result. The business continued to grow nicely, with 17% more customers insured. We’re hoping for some improvement in the non-weather loss ratio in the coming years
• In contrast (and a bit disappointingly), the International Insurance result remained flat at a £1 million loss in 2019. This comprised a better European result (£9 million v £7 million) offset by a higher US loss (£10 million v £8 million). This four-point-higher-loss-ratio-driven US result is discussed further opposite, whilst the overall international result needs to be considered alongside a very healthy 16% growth in the number of active policies at year end
The improvement in performance under Louise and team’s leadership over the past two years has been stark: A number of factors have contributed to that very nice doubling of profit v 2017 – even more focus on profitability and cost efficiency, very notable improvements in marketing, customer experience and product.
Great work Louise plus Andy, John, Karen, Sam, Steve, Tamsin and the whole Confused. com team!
Less pleasing – Elephant Auto For balance and as hinted above, a disappointment in 2019 was the reversal in the trend of improving financials for Elephant Auto and associated write down of the carrying value in the parent company financial statements.
In 2019, a Climate Change-Related Risks Project was initiated by the Board, to understand current and potential future risks arising from climate-related change, to understand disclosure and reporting requirements (as compared to current practices), and to ensure that there is appropriate governance around managing climate-related risks.
During the year, Admiral completed three climate change stress tests for submission to the PRA as part of the 2019 General Insurance Stress Test programme.
Partly because of the result being worse than plan, we changed to using shorterterm projections for the carrying value impairment test. Whilst we remain confident that Elephant’s result will improve in the short term, and the business will go onto profitability in the (ideally) not too distant future, this led us to conclude that further impairment to the carrying value was required and a £66 million charge was taken in the 2019 parent company accounts.
Finally, I should also give an update on the status of our internal capital model. Our team has continued its intensive work, with key tasks during 2019 including remediation of previous findings and having the updated model retested, by independent internal and external validators. Positively, none of that work has moved the overall capital position materially.
“ The main driver of the strong growth in Group profit was a higher UK insurance result.”
Key highlights of the Group’s result in 2019 are as follows: • Continued growth in turnover (£3.46 billion, up 5% on 2018) and customer numbers (6.98 million, up 7% on 2018)
• The main driver of the strong growth in Group profit was a higher UK Insurance result, which benefitted from very positive development in prior years claims costs and elevated reserve releases and profit commission, partially offset by higher central costs
• UK Insurance turnover and customers both increased by 2% and 4% respectively to £2.63 billion and 5.5 million (2018: £2.58 billion and 5.2 million), as the business continued to prioritise margin over volume by increasing rates ahead of the market
• UK Household saw strong growth in turnover and customer numbers, with an improved result of £7.5 million (2018: £3.0 million loss) after more benign weather experience in 2019 in comparison to 2018
Change in UK discount rate (‘Ogden’) Following the announcement in mid2019 by the UK Government, the Ogden discount rate, which is used in setting personal injury compensation, was changed to -0.25% from the existing -0.75% rate that had been in place since February 2017. The change came into effect on 5 August 2019 and the -0.25% rate is expected to remain in place for up to the next five years.
The Board has proposed a final dividend of 77.0 pence per share (approximately £222 million), split as follows: • 56.3 pence per share normal dividend, based on the dividend policy of distributing 65% of post tax profits; plus
The payment is due on 1 June 2020, exdividend date 7 May 2020 and record date 11 May 2020.
The Group continues to manage its capital to ensure that all entities are able to continue as going concerns and that regulated entities comfortably meet regulatory capital requirements. Surplus capital within subsidiaries is paid up to the Group holding company in the form of dividends.
The estimated and unaudited regulatory Solvency II position for the Group at the date of this report is as follows: Group capital position (unaudited)
Eligible Own Funds (pre 2019 final dividend) 1.42 2019 final dividend 0.22
The sensitivity to interest rates and long-term ASHE inflation is lower at the end of 2019, compared to the previous year end. This reflects a reduction in the assumption of the number of open claims that are expected to settle as periodic payment orders.
Admiral Group’s underlying investment strategy remains the same – the main focus is on capital preservation, with additional priorities including low volatility of returns, high levels of liquidity and appropriate matching of asset/liability duration and currency. All objectives continue to be met. The Group’s Investment Committee performs regular reviews of the strategy to ensure it remains appropriate.
The underlying rate of return for the year (excluding accruals related to reinsurance contract funds withheld) on the Group’s cash and investments was 1.4% (2018: 1.2%).
The Group continues to generate significant amounts of cash and its capital-efficient business model enables the distribution of the majority of post tax profits as dividends.
The main items contributing to the operating cash inflow are as follows: Profit after tax 428.4 390.5 331.6
Net cash and investments have increased by £169.7 million or 5% (2018: £321.9 million, 11%). The main drivers include the Group’s share of increase in funding for the Admiral Loans business, increased tax payments in 2019 (due to timing) and increased dividend payments.
• International Insurance – including L’olivier (France), Admiral Seguros (Spain), ConTe (Italy), Elephant (US)
• Comparison – including Confused.com (UK), LeLynx (France), Rastreator (Spain), Compare.com (US), Preminen (emerging markets)
Most ongoing business priorities are similar in the different countries: a better digital experience for our customers, excellence in analytics, continuous improvements in technology and new product development, all enabled by new ways of working.
International Car Insurance – vehicles insured at year end 1.42m (2018: 1.22m)
One of the things I enjoy most about my role at Admiral is that I get an opportunity to visit the various sites we have across South Wales, Canada and India and to spend time with the people that really make this Company. And by that, I mean the people who sell our policies, talk to our customers, and most importantly help them when they need it most – whether that’s to get insurance for their new car or dealing with their needs if their home has been flooded.
It’s our people’s enthusiasm to come to work that makes Admiral’s culture a little bit different and makes it a great place to work, which drives forward our desire to improve the service and products we offer to customers. And ultimately, providing great service and keeping our customers happy (along with strong, disciplined underwriting capability, of course) drives and delivers our results each year.
Moving forward with automation and digital capabilities is fundamental if we’re to ensure that Admiral maintains its position at the forefront of the insurance market in the UK, and we’ve made strong strides this year that will help us into the future.
In addition to improving the Household customer journey, we’ve also been enhancing our Motor Insurance journey by opening more digital communication routes to help customers interact with us and make changes via the web and to register claims electronically. The traditional channels are still available, of course, but many of our customers (both young and old) favour quicker, more flexible channels of interaction, which have the added benefit of efficiency for us.
Whilst on the topic of regulation and customers, we welcome the pricing study that is being undertaken by the FCA, particularly in relation to the household market where many customers’ policies have stagnated at a single provider and increased in price for many years. When we launched Confused.com in 2002, we saw that customers wanted pricing transparency and the best price, and the comparison channel has delivered most of our Motor and Household customers ever since. We’re therefore very pleased that changes to encourage customers to shop around (as most of our Motor and home customers already do) will provide Admiral with further opportunity to grow the Household customer base towards its second million!
Group’s share of UK insurance profit before tax 597.4 555.6 465.5
Total UK Insurance customers*1 5.47m 5.24m 4.62m *1 Alternative Performance Measures – refer to the end of the report for definition and explanation.
Key highlights for the UK Insurance business for 2019 include: • Modest growth in Motor customers but continued strong growth in Household with Admiral increasing rates ahead of the market throughout 2019 for Motor and maintaining rates for Household
• A 5% increase in UK Motor profit to £591.5 million (2018: £561.7 million) primarily as a result of increased reserve releases due to an increase in the speed of settlements of large bodily injury claims and increased certainty post the change in the Ogden rate in mid-2019
• Household profit of £7.5 million (2018: £3.0 million loss) as a result of more benign weather experience in 2019
• Travel Insurance product saw a lower loss of £1.6 million (2018: £3.1 million loss)
*2 Investment income includes £2.8 million of intra-group interest (2018: £0.7 million; 2017: nil).
*3 Underwriting profit excludes contribution from underwritten ancillaries (included in net other revenue).
*4 Net other revenue includes instalment income and contribution from underwritten ancillaries and is analysed later in the report.
Vehicles insured at year end 4.37m 4.32m 3.96m *1 Alternative Performance Measures – refer to the end of this report for definition and explanation.
*3 Motor expense ratio is calculated by including claims handling expenses that are reported within claims costs in the income statement. Reconciliation in note 13c.
*5 Commuted reinsurance shows releases, net of loss on commutation, on the proportion of the account that was originally ceded under quota share reinsurance contracts but has since been commuted and hence reported in underwriting profit rather than profit commission.
Prior period impact of Ogden change (-0.75% to 0%) – +4.0% +4.0%
• The unfavourable Ogden change in 2019 (0% to -0.25%) increased the current period loss ratio by 1.0 ppt. Excluding this impact, the current period loss ratio is 86.6%, which can be compared to the 2018 ratio of 88.1% (both at Ogden 0%). The underlying improvement of 1.5 ppts reflects a slightly lower level of margin held above the projected ultimate outcome for the current accident year, when compared to 2018 at the same point.
Prior period Impact of Ogden change (-0.75% to 0%) -17.2 -18.4 -35.6
• The written and reported basis expense ratios increased in 2019 with a number of factors impacting: non-acquisition costs was the main driver primarily through levies and to a lesser extent, investment in IT and claims as the skills and foundations to build further competitive advantages in these areas are strengthened
Claims and reserves Notable claims trends for Admiral and the market in 2019 were similar to 2018, including a slow-down in the reduction in small injury claims frequency and continuing inflation in damage claims costs. The first projection of the impact of large bodily injury claims on the 2019 loss ratio is consistent with the projection of 2018 at the end of 2018.
As noted above, the Group experienced continued positive development of claims costs on previous underwriting years as a result of increased speed of large bodily injury settlements and increased certainty related to the Ogden rate, in addition to a small number of positive very large claims settlements. These factors led to another significant release of reserves in the Financial Statements in the period (£121.7 million on Admiral’s original net share, up from £111.4 million). The margin held in reserves is prudent and significant and remained at a consistent level year-on-year.
UK Car Insurance – co-insurance and reinsurance 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 2020 covering 38% of the business written and expects to extend these or similar arrangements beyond 2020 during the first half of 2020.
The nature of the co-insurance proportion underwritten by Munich Re (via Great Lakes) is such that 30% of all motor premium and claims for the 2019 year accrue directly to Great Lakes and are not reflected in the Group’s Financial Statements. Similarly, Great Lakes reimburses the Group for its proportional share of expenses incurred in acquiring and administering this business.
The Group also purchases excess of loss reinsurance to provide protection against large claims and reviews this cover annually. The level of cover purchased for 2020 reduced slightly compared to 2019 due to significant increases in market prices for cover.
Commutations of quota share reinsurance Admiral tends to commute its UK Car Insurance quota share reinsurance contracts for an underwriting year 24 months after inception, assuming there is sufficient confidence in the profitability of the business covered by the reinsurance contract.
Other revenue per vehicle net of internal costs £56 £57 £54 *1 Included in underwriting profit in income statement but re-allocated to Other Revenue for purpose of KPIs *2 Other revenue (before internal costs) divided by average active vehicles, rolling 12-month basis
Other revenue was equivalent to a decrease to £66 per vehicle (gross of costs; 2018: £67), as a result of the factors mentioned above. Net Other Revenue (after deducting costs) per vehicle was £56 (2018: £57).
2019 saw more benign weather than in 2018. A combined ratio of 98% (2018: 120%) resulted in a small net underwriting profit of £0.7 million (2018: underwriting loss of £6.3 million), which was supplemented by net other revenue and profit commission of £6.8 million (2018: £3.3 million).
UK Household Insurance – reinsurance The Group’s Household business is supported by long-term proportional reinsurance arrangements covering 70% of the risk. In addition, the Group has non-proportional reinsurance to cover the risk of catastrophes stemming from weather events.
UK Insurance regulatory environment The UK Insurance business operates predominantly under the regulation of: • the UK Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA) which regulate the Group’s UK registered subsidiaries including EUI Limited (an insurance intermediary) and Admiral Insurance Company Limited (AICL; an insurer); and
• the Financial Services Commission (FSC), which regulates the Group’s Gibraltar-based insurance company (Admiral Insurance (Gibraltar) Limited, AIGL), in that territory.
2020 is the beginning of a new chapter for L’olivier as we embark on our multiproduct journey and the launch of a new household insurance product. After launching our insurtech named Homebrella (a home insurance product for renters and expats in France) in 2019, we’ll also launch a broader household product under the brand L’olivier in early 2020.
The direct market wasn’t particularly favourable and we experienced single digit growth and challenging competition, especially via comparison panels. Despite this context, ConTe was able to grow by leveraging on its competitiveness and on the improvements in the digital journey, particularly focused on mobile.
ConTe is strengthening its competitive positioning in the Italian Market and continuing to invest in the brand which is steadily increasing awareness among Italian drivers. In 2019 a new advertising campaign was successfully launched, endorsed by Mr. Carlo Conti, who is one of the most popular Italian TV anchors.
Other key metrics of the business improved which demonstrates that ConTe continues to stay focused on its ‘sustainable growth’ strategy. Although the 2019 loss ratio deteriorated, favourable prior year development resulted in strong reserve releases.
In a perfect Admiral-style, our people and culture continue to make the difference. We have been recognised for another year in a row as one of the best large companies to work for!
While we undoubtedly made some great improvements on many fronts, we have also seen some significant headwinds in our loss experience, slowing down our speed of progress.
Vehicles insured at period end (m) 0.25 0.59 0.17 0.21 1.22 *1 Alternative Performance Measures – refer to the end of this report for definition and explanation
The key features of the International Car insurance results are: • An aggregate loss of £0.9 million (2018: £1.1 million loss) reflecting an improvement in performance of the European businesses offset by a deterioration in the US business; • A record profit in the Group’s Italian business ConTe, which also grew its customer base by 18%; • A deterioration in Elephant Auto’s result (increased loss from £7.5 million to £9.6 million year-on-year)
The European insurance operations in Spain, Italy and France insured 1.21 million vehicles at 31 December 2019 – 20% higher than a year earlier (31 December 2018: 1.01 million). Turnover was up 20% at £390.5 million (2018: £324.9 million). The consolidated result of the businesses was a profit of £8.7 million (2018: £6.4 million) consisting of continued (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 92% from 98% due to the improved claims experience and expense ratio.
Elephant insured 212,100 vehicles at the end of 2019, broadly flat year-on-year though higher prices meant turnover was up 9% to £233.1 million (2018: £213.8 million). Elephant’s loss increased for the period to £9.6 million from £7.5 million in 2018, as a result of adverse claims development.
In 2019, a non-cash impairment charge of £65.9 million was recognised in the Financial Statements of the parent company with respect to the carrying value of the parent’s investment in Elephant Auto. This follows a change to using shorter-term projections as a result of the adverse loss ratio experience in 2019. The impairment charge is recognised in the income statement of the parent company (Refer to note 4 of the Parent Company Financial Statements for further details) and has no impact on the Group’s consolidated profit for the period or the Group’s 2019 regulatory capital position.
Operationally, each Comparison platform is supported by two technological centres of excellence, Confused.com in Cardiff and Admiral Technologies in Delhi, allowing for a shared architecture to facilitate further collaboration and rapid innovation.
In Europe, we had a strong year, fuelled by Confused.com and growth at LeLynx and with all our businesses improving margins. We successfully diversified our product offering, took some key verticals in-house, delivered new verticals, reinforced our use of data and grew a B2B infrastructure whilst continuously improving the customer experience. I’d especially note
Rastreator’s effort to provide more transparency to Spanish customers with accurate prices.
Preminen, our comparison incubator, continues our path of organic expansion in emerging markets. In 2019 we welcomed GoSahi.com in India as the newest member of our comparison family. Rastreator.mx in Mexico was awarded the best ecommerce start-up of the year (e-awards), Tamoniki. com in Turkey is in the process of building the panel and we will soon be incorporating a new Penguin into the colony.
The results are moving in the right direction and I´m confident that we have a strong foundation to build upon our successes in 2019 into the future.
Global 2019 was a good year for our Comparison businesses. Recognising the benefits of scale in digital markets, we set up a European corporate structure named Penguin Portals, that gives us not only the framework to achieve our ambition to lead our key European markets, but also a working environment to deliver scale beyond these markets. This also allows our seven comparison platforms to take advantage of operational and technological synergies and share expertise.
We are optimistic about our future in the context of a large market opportunity.
France 2019 was an excellent year full of milestones for LeLynx. We made significant improvements in our operational structure and business approach, achieved key product enhancements to better serve our users and signed new important commercial agreements to improve our offering. As a result, LeLynx finished 2019 with revenue growth of 19% and also improved profitability.
In 2019, we completed an upgrade to the experience for our customers, improving their journey whether they are using our website to find information or pursuing our quote journey to view real-time auto insurance prices. We also continued to invest in our technology platform to enable our marketing partners to leverage our insurer panel and to enable our insurance partners to leverage our competitive intelligence data.
In 2020, we don’t expect the competitive environment to ease up, but our objectives will shift slightly from 2019 as we change our marketing approach, messages and campaigns to explore opportunities for building deeper customer and partner relationships.
USA 2019 was a somewhat volatile year for Compare.com. Facing stronger headwinds in cost efficient customer acquisition and scalability in the US auto insurance market, we took action to reduce the fixed costs of the business to allow a more agile approach.
All relevant insurers have joined, and the customer proposition is well accepted. Tamoniki.com in Turkey has been trading for almost one year, mainly focused on building the panel with a slow but positive evolution.
In 2019, the Group established a holding company for the European businesses named Penguin Portals, facilitating greater collaboration and sharing of best practices across the businesses to support customer growth and new product development.
Preminen, the Group’s comparison venture with Mapfre, continues to explore comparison in new markets overseas. Rastreator.mx in Mexico and Tamoniki.com in Turkey have focused on panel development and growth, while GoSahi.com in India was launched in 2019.
Confused.com is regulated by the Financial Conduct Authority (FCA) as an insurance intermediary and is subject to all relevant intermediation rules, including those on solvency capital.
Rastreator and LeLynx are now locally licensed in Spain and France post the finalisation of Brexit preparations. Further information on the impact of Brexit on our European operations can be found on page 59.
In just over two years Admiral Loans has built up a prime loan book totalling £455 million and is now a relevant participant in what is a large market in the UK. The progress in 2019 was particularly pleasing, with customer growth of over 70% – importantly, still within risk appetite. We improved our economics as we started to benefit from economies of scale. Our customers and employee scores were strong. And the loss of £8 million was in line with expectation.
Loans We can look back at 2019 with pride at what we delivered but knowing there is still much more to do with an exciting outlook for the coming years.
Other interest and investment income increased to £6.0 million in 2019 (2018: £2.9 million). 2019 includes a lower level of unrealised losses relating to forward foreign exchange contracts compared to 2018 (2019: £0.1 million, 2018: £2.3 million). The higher number in 2019 was also driven by increased investment return due to the increased cash holding in the parent company.
Business development costs include costs associated with potential new ventures. The costs associated with Preminen have now been included in the Comparison section, contributing to the decrease in business development costs in 2019.
Finance charges of £11.2 million (2018: £11.3 million) represent interest on the £200 million subordinated notes issued in July 2014 (refer to note 6 to the Financial Statements).
*1 Includes £2.8 million intra-group interest expense (2018: £0.7 million; 2017: £nil)
Background Admiral Loans launched in 2017 and provides unsecured personal loans and car finance products primarily through the comparison channel.
Admiral Loans is funded through a combination of internal and external funding. The external portion funds approximately 60% of the current balance through securitisation. The risk and reward of the securitised loans is considered to remain with Admiral.
Result Admiral Loans recorded a pre-tax loss of £8.4 million in 2019 (decreased from £11.8 million in 2018). The lower loss predominantly reflects the increased interest income in the period, offset to an extent by increased provisions against the loan book due to its growing size.
UK Exit from the European Union (‘Brexit’) Admiral adopted a prudent approach to Brexit and set up new entities in Europe under which the European operations have traded since 1 January 2019. All of the Group’s European insurance business is now underwritten by a regulated entity in Spain, Admiral Europe Compania Seguros (AECS). The Group’s European comparison businesses Rastreator and LeLynx have successfully been merged into comparison companies established in Spain (Comparaseguros Corredia de Seguros) and France (LeLynx SAS) respectively.
Brexit continues to bring risks to the Group including: • 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 assessment of the stressed macroeconomic conditions on the
UK and EU insurance and financial service businesses that may result from Brexit, including the potential increase in claims costs following a spike in inflation. This includes negative movement in interest rates, currency, investment yields and inflation which could be experienced post Brexit. 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; • Potential for impact on the import of car 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; • Potential operational impacts for the provision of Green Cards for UK customers to continue driving in the EU. Procedures have been established to manage the operational impacts and ensure suitable communication to customers.
At present, the Group does not foresee a material adverse impact on day-to-day operations (including customers or employees). 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 post 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 earlier in this report, including a number of specific market risk sensitivities. The cost of the restructuring activity was not material to the Group.
Read more on page 64 0.36 tonnes CO2e per employee (2018: 0.39 tonnes)
By considering the needs of, and feedback from, our immediate stakeholders and the wider communities in which we operate, we strive to continually enhance our approach to being a responsible business.
Operationally, 2019 was a year of continued investment to sustain our competitive advantage and improve the customer journey. Across our international operations we continued upon our path towards long-term value creation by replicating the sustainable insurance business model that we have refined in the UK.
We strive to provide exceptional service and an effortless experience for our customers. From our front-line employees to our senior managers, all levels of the business act with customer satisfaction in mind, as reflected by initiatives such as Kudos and The Above & Beyond Initiative3.
Here, there and Alistair In 2019 Alistair Hargreaves, UK Insurance Chief Operating Officer, started an initiative to visit different departments within our claims function each month to listen to calls, and discover cases with excellent outcomes for both the customer and the business. Alistair then shares his learnings with the rest of the business through our internal intranet.
“We believe economic success and being a responsible business work hand in hand with each other.”
David Stevens, CBE Group Chief Executive Officer 2 For more information please refer to our 2019 Corporate Social Responsibility (CSR) report 3 Refer to page 06 in Our Customer section 97% customers were happy with their service in 2019
• Continue to improve upon the products and services that we offer to customers
• Complete our Ministry of Giving commitment to give £400,000 to fund four charity projects in South Wales over 2019 and 2020
We ensure that we have a talent development pipeline with skills and knowledge to maintain the long-term success of our business. We also strive to offer our employees an inclusive environment where our people feel happy, supported and motivated within their roles. We maintain the Group’s unique culture with the help of Admiral’s four pillars: • Communication: Effective and transparent communication is at the heart of our culture and is promoted across all levels of the organisation
• We commit to increase female representation at executive level to 40% by 2023
Training and Development We offer bespoke training to our people at all levels of the business. From comprehensive induction periods, online courses, talent development plans and sponsorship for professional qualifications, we have a range of initiatives in place so that our people have the skills and knowledge they need to develop professionally and succeed in their roles.
For more information please refer to page 07 of our 2019 Corporate Social Responsibility (CSR) report
Our key external stakeholders include (but are not limited to); Co- and Reinsurance Partners, Regulators, Government/Welsh Assembly, the FCA, the PRA, trade bodies, distribution partners, tax authorities, procurement partners, garage networks, suppliers and advisers. The Group seeks only to engage with suppliers and partners that meet our high standards and adhere to our best practice policies7. By working closely with strategic partners, we can further demonstrate our commitment to be a market leader of products and services.
• Continue to actively engage with our co- and reinsurance partners
• The Investor Relations team, senior management and Group Board will continue to hold regular meetings and engage with our investors
• We will continue our dividend policy to pay 65% of post tax profits as a normal dividend
Our approach to being a responsible business remains grounded in our founding principles. We maintain our embedded ‘test and learn’ approach across the entire business, driving sustainable, long-term growth whilst also ensuring the daily needs of the business and our stakeholders are always considered, and the impact of our decisions closely monitored.
• Voted Best Home Insurer in the 2019 Insurance Choice Awards
• Number one in the Sunday Times Best Big Companies to Work For ranking
• Number seven in the Great Place to Work Best Workplaces in Europe ranking
• Our Cardiff office has achieved a BREEAM ranking of ‘Excellent’
8 For more information on the Climate Change working group refer to page 97
We are signatory to the following initiatives: • Inclusive Behaviours in Insurance Pledge
Whistleblowing Policy • We ensure our employees feel comfortable raising any concerns, provide guidance on ways to report issues and assure employees that all concerns are dealt with seriously.
Procurement Policy • We provide policy and framework guidelines for all Admiral Group procurement activity in order to maintain the highest standards of integrity.
Environmental Policy • As part of our vision for sustainable growth and our focus on profitability, we continuously work to better measure, record and reduce our Greenhouse Gas emissions.
Equality, Diversity and Dignity and Work Policy • We are committed to ensure any type of unfair discrimination including harassment, victimisation, favouritism and bullying is not accepted.
Sexual Harassment Policy • Admiral does not tolerate any form of sexual harassment in the workplace or at work related events and is committed to treating all complaints and incidents seriously.
For more information relating to these policies, please see our corporate website.
ESG – Our Focus Admiral continues to consider its stakeholders to ensure it builds a long-term sustainable business for the future in terms of Environmental, Social and Governance (ESG) factors. We have incorporated our response to ESG considerations throughout our Annual Report and Corporate Social Responsibility (CSR) Report and are engaging in active dialogue with various ESG indices and the Carbon Disclosure Project (CDP) to establish if there are any areas where we can better communicate what we are doing.
For an overview of these policies, please see our corporate website.
Principal risks have been considered against each of our strategic objectives.
Risk: Admiral is exposed to reserving risk through its underwriting of motor and household insurance policies. Claims reserves in the Financial Statements may prove inadequate to cover the ultimate cost of claims which are by nature uncertain.
PPO claims are capital intensive owing to increased uncertainty of the cost of significant claims over a longer term.
Risk: The Group is exposed to the risk that inappropriate premiums are charged for its insurance products leading to either insufficient premiums to cover claims cost or uncompetitive rates leading to reduced business volumes.
• Continuous appraisal of and investment in staff, systems and processes; and
Admiral purchases excess of loss reinsurance, designed to mitigate the impact of very large individual or catastrophe event claims.
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 or at an uneconomical price 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 seeks to minimise reliance on any single source by earning revenue from a range of products. This would mitigate the impact of regulatory or market changes or changes in consumer behaviour which might affect a particular product or income stream.
Risk: As per the Group’s diversification strategy, Admiral continues to develop the UK Household, non-insurance operations such as Loans and expand its overseas operations.
Admiral’s approach to expansion and product development remains conservative, applying the ‘test and learn’ philosophy that has proven successful for previous operations. International insurance businesses have generally executed cautious launch strategies and are all backed by proportional reinsurance support which provides substantial mitigation against start-up losses in the early years.
New comparison businesses have aligned their marketing investment with the extent of improvement in key performance indicators such as average cost per quote and conversion ratio. The Group also seeks to establish strategic partnerships for developing new businesses to share start-up losses with partners.
A worse UK Motor Insurance result and lower return on capital employed.
A sustained and uncorrected erosion of competitive advantage could affect the ability of Admiral to maintain its reinsurance arrangements, which might in turn require Admiral to hold more capital.
Admiral’s focus remains on the wide range of factors that contribute to Admiral’s combined ratio outperformance of the UK Motor market. Some are set out earlier in the Strategic Report, but in addition: • Track record of innovation and ability to react quickly to market conditions and developments; and
Risk: Admiral is primarily exposed to credit risk in the form of a) default of reinsurer; b) failure of banking or investment counterparty.
One or more counterparties could suffer significant losses leading to a credit default.
AFSL exposes the Group to credit risk in relation to customer defaults on its lending business.
Admiral continuously monitors the credit quality of our counterparties within Board approved limits, adjusting its credit rules and pricing accordingly. Continuous monitoring of the credit quality of our counterparties within approved set limits.
A potentially material reduction in UK Motor Insurance new business volumes.
Regular review of the Group’s compliance with current and proposed requirements and interaction with regulators by Executive Management and the Board.
Enhanced project governance is a key control in managing regulatory change.
Risk: Market risk arises as a result of fluctuations in the value of market prices of investment assets, liabilities, or the income from our investment portfolio.
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.
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 investment strategies. This includes consideration of hedging options for these liabilities, with hedging arrangements recently implemented for settled PPOs. The creation of the Spanish insurance company AECS has not materially altered the exposure to net assets and liabilities in currencies other than pounds sterling which remain relatively low for the Group.
Admiral being unable to service its customers or making poor business decisions due to lack of system availability, data integrity and data confidentiality.
At each stage of the customer journey, customer outcomes are monitored, managed and reported in order to mitigate customer detriment.
Admiral continues to invest in its Security Programme in order to mitigate Information Security risks, including evolving Cyber risk.
Admiral operates the three lines of defence model for overseeing its products, processes and service.
Reporting on such emerging risks and opportunities is provided to the GRC and relevant Boards and is incorporated into the Group ORSA Report.
During the year, the Board and the Nomination and Governance Committee led a comprehensive and transparent selection process for a new CEO. Following suitable candidate interviews and presentations, Milena Mondini de Focatiis was selected as the preferred CEO candidate. Further details of the selection process are set out later in this report on page 84.
During the year the Board focused on enhancing communication with its staff to ensure that the mechanisms in place for engagement with them remained appropriate. In this context, the Board engaged with the employees through the Employee Consultation Group (ECG) which was launched successfully, comprising elected staff representatives from across the Group with one of the Non-Executive Directors attending, on rotation, three of the five ECG meetings held during the year. Going forward, it is intended that a Non-Executive Director will attend each ECG meeting. Non-Executive Directors were able to see how effectively the ECG was functioning as a forum for staff consultation, gathering staff opinion and fostering a safe environment to raise matters of interest and generate ideas. In addition, attendance at ECG meetings also gave the Non-Executive Directors an opportunity to feed back on specific agenda items that were discussed at the Board. Representatives from the ECG regularly attended Board meetings to update the Board on the matters and issues discussed at ECG meetings and to participate in relevant matters considered by the Board. Further information on the operation of the ECG can be found in the Directors’ Report on page 124 and in the s172 statement in the Strategic Report at pages 18 and 19.
Succession planning and diversity remain key areas of focus for the Board and the Nomination and Governance Committee as we seek 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 and from a diverse range of backgrounds join the Board to bring fresh perspective and challenge to the Group’s strategy in the markets in which it operates. The Board continues to focus on promoting diversity of gender and social and ethnic background to enhance diversity across its employees and executive pipeline.
During the year, an externally facilitated evaluation of the Board’s performance was led by independent external consultant, Ian White, to ensure that the Board continued to operate effectively and that it was acting on the recommendations from its previous reviews. 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 82 of this report.
The Board reviewed its objectives in December to ensure that they remained appropriate and that the Board’s time could be allocated to those areas that will be most important to the Group in the coming year. The objectives will be kept under regular review to ensure that they remain appropriate for the challenges and issues that will need to be addressed as the business continues to evolve and develop.
Geraint joined Admiral in 2002 and held several 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. Geraint is responsible for finance, investments and investor relations.
Karen Green is the former CEO of Aspen UK, comprising the principal UK insurance and reinsurance companies of Aspen Insurance Holdings. Other senior Aspen positions included Group Head of Strategy, Corporate Development, Office of the Group CEO and she was a member of the Group Executive Committee for 12 years. Prior to that, she held various corporate finance, M&A and private equity roles at GE Capital Europe and Stonepoint Capital having started her career in investment banking at Baring Brothers and Schroders.
Appointed to the Board in 2012, appointed to Chair in 2017
Appointed to the Board in 1999, appointed to CEO in 2016
Appointed in 2014 Appointed in 2018 Appointed in 2018 1 Admiral Group subsidiary entity
Chairman of Equistone Partners Europe, ‘Equistone’ (formerly Barclays Private Equity, ‘BPE’)
Justine founded Mumsnet in 2000 and is responsible for creation, strategic direction and overall leadership. In May 2011, Justine founded Gransnet, a sister site to Mumsnet, for the over-50s. Before that Justine was a freelance football and cricket journalist for the Times and Daily Telegraph, after working for Deutsche Bank, managing the South African equity operation in the US.
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.
Appointed in 2016 Appointed in 2015 Appointed in 2014 Appointed in 2015 Appointed in 2018
Compliance with the UK Corporate Governance Code The UK Corporate Governance Code 2018 (the Code) was applicable for the Group during the year under review, and the Group applied the principles and complied with the provisions of the Code except for parts of provisions 36 and 41 that relate to the introduction of a post employment shareholding policy and engagement with the workforce to explain alignment of Executive remuneration with wider Company pay policy, respectively.
Set out in the following pages is an explanation of how we have applied the principles and related provisions of the Code during the year.
These requirements include being signatories to the UN Principles of Responsible Investing, having an integrated ESG analysis to inform decision making, and having ESG reporting in place. Admiral will also monitor the ESG-risks carefully and for the impact investments, monitor versus the social impact target. Through time, monitoring and analysis of underlying securities may lead to disinvestment, and the Policy may evolve as opportunities arise and responsible investment practices develop.
Board Leadership and Company Purpose The Board is responsible for promoting the long term, sustainable success of the Group and its shareholders and is the principal decision-making forum for the Group, providing entrepreneurial leadership, both directly and through its Committees, and delegating authority to the Executive team. The Board has determined the Group’s purpose which represents its values and strategy and is satisfied that it is aligned with the culture of the Group.
The Board is responsible for organising and directing the affairs of the Group in a manner that generates and preserves value over the long term. Through the strong governance framework that it has in place the Board is able to deliver on its strategy of providing strong sustainable financial and operational performance. The Board is also accountable for ensuring that in carrying out its duties the Group’s legal and regulatory obligations are being met; and for ensuring that it operates within appropriately established risk parameters.
The Group’s UK regulated entities are accountable to the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) for ensuring compliance with the Group’s UK regulatory obligations and that dealings with the FCA and PRA are handled in a constructive, co-operative and transparent manner. Similar provisions apply in respect of the Group’s international businesses with regard to the relevant regulatory authorities in those overseas jurisdictions in which the Group also operates.
• The annual review of its own performance and that of its Board Committees
The Board met on eight occasions in 2019 with all these meetings being held over one or two days and one of the meetings being a separate strategy meeting held offsite.
• Standing agenda item at each Board for an update from the Company Secretary on the project that had been initiated to ensure that the requirements of the UK Corporate Governance Code were fully met; • Update from the Group’s lawyers, Clifford Chance, on Directors’ responsibilities under the Companies Act and s172 in particular; • Considered the results of the external Board Effectiveness Review; • Succession planning and Group talent management update; • Reviewed and approved revised Matters Reserved for the Board; • Update session on the implementation of Senior Managers & Certification Regime (SM&CR)
• Updates from the Chair of the Employee Consultation Group in January, April, August and December with representatives from the ECG attending the Board in August and December; • Update on culture and people; • Updates on gender and diversity at the meetings in January and June; • In March, an update on Group talent management; • Board session in March on the impact of climate change and its importance for the Group; • Presentation on customer outcomes and consideration of a stakeholder map that identified the Group’s main stakeholders and engagement processes and mechanisms that were in place; • Presentation on distribution partners.
• Strategy review update in January and June; • Group Strategy Review at the Group strategy session in October which also considered product diversification and motor evolution.
• Updates on cyber security and the measures in place across the Group
• Continued focus on maintaining the Group’s culture to ensure the Group remains a great place to work for its employees; • Monitor the evolution and development of the Employee Consultation Group (ECG) that was operational in 2019 to ensure that the views of the staff are fully considered by the Board and that there is appropriate interaction between the Board and the members of the ECG to ensure that the views of staff on matters raised at the ECG are properly considered by the Board in decisions that are made by it; • Ensuring that gender and diversity are appropriately considered and that there is a diverse pipeline of talent available for succession planning for senior roles; • Ongoing review of the agreed objectives of the Board to ensure that they are appropriately covered in the Board timetable for the year; • Continue to keep under review the Group’s technology and digital capabilities to ensure they are appropriate as the Group looks to explore opportunities beyond car insurance; • Understand more deeply our competitors’ capabilities in the important markets in which we operate and gain a deeper understanding of our customers across the Group and what insights this brings; • Ensure that there is continued Board oversight of the Group’s Environmental Social and Governance (ESG) responsibilities with particular focus on the impact of climate change; • Continue to devote Board time to consideration of the views of the Group’s key stakeholders in implementing the Group’s strategy and ensure there is regular engagement through appropriate channels.
Justine Roberts was unable to attend the Remuneration Committee meeting on 20 February as she was overseas and, due to technical difficulties, was not able to dial in to the meeting as anticipated. Due to a prior commitment, Justine was also unable to attend the Nomination and Governance Committee on 19 November which was an additional meeting that was called at short notice.
Agendas and papers are circulated to the Board electronically in a timely and secure manner in preparation for Board and Committee meetings. The Board agenda is structured by the Chair in consultation with the Company Secretary and Chief Executive Officer. Routine Board papers are supplemented by information specifically requested by the Directors from time to time. All Board and Committee meetings during the year were held in an open atmosphere conducive to robust and constructive challenge and debate. All Directors have, therefore, been able to bring independent judgement to bear on issues such as strategy, risk management, performance, and resources. Additional meetings are called when required and there is contact between meetings, where necessary, to progress the Group’s business.
All the Directors have access to the advice and services of the Company Secretary. He has responsibility for ensuring that Board procedures are followed and for advising the Board, through the Chair, on governance matters. The Company Secretary provides updates to the Board on regulatory and corporate governance issues, new legislation, and Directors’ duties and obligations. The appointment and removal of the Company Secretary is one of the matters reserved for the Board.
During the year, the Board received assurance from management that it had effectively embedded the Group’s purpose within operational processes and policies and the alignment of value to rewards and incentives. This is achieved through a framework of embedding that considers Group policies, procedures and processes to determine how the Group purpose is delivered, how outcomes are monitored and reported, and performance reviewed by the Board. The Board was also satisfied that the incentives, rewards and promotion were aligned with the Group’s values.
In January, the Board received an update on culture and people which considered the Group’s culture and how it related to the Group’s purpose, values and culture, the approach to investing in and rewarding employees and how culture was monitored across the Group. The Board reviewed the variety of initiatives that have been introduced to support the Group’s culture including: a compensation and promotion structure based on meritocracy, star lunches where staff are recognised for their performance and are invited to attend a lunch with a senior manager, Group Top 10 competition in which all departments compete in a highly contested Group wide competition to present to a panel of senior managers on a different subject each year in order to be awarded the best department, Annual Manager Awards, local reward and recognition programmes and High five feedback programmes where employees can submit feedback on colleagues across departments who have given great service.
The Board continues to keep under review the monitoring of Group culture to ensure that it is aligned with the Group’s purpose, values and strategy as the business continues to evolve and develop. In October, the Board approved a culture scorecard matrix to provide a benchmark to monitor culture across the Group, to ensure it is aligned with our purpose and values; and provide greater Board insight through formal reporting of both areas of strength and potential areas of development. The scorecard matrix is produced quarterly and reported through the Group’s Conduct Risk Framework and shared with the Board for challenge and review. The scores are supported by comments made by staff relating to specific survey questions to provide further insight. Tolerances are set at a level to ensure we continue to work hard to maintain our great culture and challenge us to improve.
Board Evaluation Having last carried out an external Board evaluation in 2016, and in accordance with the Code requirement that FTSE 350 companies should carry out an externally facilitated evaluation of the Board at least every 3 years, this year the Board evaluation process was led by Ian White. Ian is an independent external consultant with experience of evaluating and making recommendations to enhance Board effectiveness of a number of listed and other companies. Other than being a customer of one of the Group’s subsidiaries, Ian has no connection with the Group or any of the Board Directors.
The evaluation process comprised the completion of an online questionnaire that was sent to all Board members and regular Board attendees. The questionnaire considered: • Board composition together with the utilisation of the experience and expertise of Board members; • Board dynamics and the interaction between the Chair, NonExecutive Directors and management; • Leadership and succession planning including the oversight of the Group’s processes for managing, developing and retaining talent; • Understanding by the Board of the prevailing culture within the Group; • Quality, timeliness of delivery and presentation of Board papers and Board support; • Time management and operational performance of Board and Committee meetings; • Risk management and the effectiveness of the Board in considering the Group’s risk management framework and internal controls; • The effectiveness of the Board’s strategic and operational oversight; • Priorities for change that would enhance Board performance.
Key recommendations identified in the 2019 review to enhance the Board’s effectiveness included: • increased focus on the need to enhance the Board’s expertise in technology; • ensuring that there continued to be appropriate challenge from the Board on the matters discussed and consideration given to ways this could be enhanced; • increasing the number of scheduled NED only sessions to ensure that there was appropriate opportunity for the NEDs to discuss matters affecting the Group without management present; • continued focus on using Board and Committee time more effectively through making sure that Board papers and meeting agendas are drafted appropriately to allow for effective consideration of the matters to be discussed; • further enhancement to the use of Board paper templates and existing guidelines for the production of Board papers to ensure that the Board’s time was used effectively; • existing induction plans for new Board Directors should be tailored to ensure they are appropriate for the level of experience of the new Board members; • the number of Board education and training sessions should be regularly reviewed to ensure that the needs of the Board in certain areas was being addressed.
A specialist Executive Search firm, Russell Reynolds Associates (RRA) was appointed to conduct a full external market search, working to a role specification approved by the Board, to identify potential external candidates and evaluate internal candidates.
Milena joined Admiral in 2007 and was appointed Group CEO Designate in July 2019. She has been a member of the leadership team throughout her time at Admiral, has extensive experience of the Group’s operations and has attended and actively contributed at Board meetings as an observer since 2011. Her previous roles include being CEO of ConTe.it, Admiral’s Italian insurance business which she founded in 2008.
Board composition, balance and independence Careful consideration continues to be given to the independence, composition and balance of the Board. As a result, the Group continues to monitor the need to refresh Board and Committee membership in an orderly manner so as to maintain the continuity of Board process and the strength of personal interaction which underlies the effectiveness of the Board as a team. The Board remains satisfied that it has the appropriate balance of skills, experience, independence and knowledge of the Group to enable it and its Committees to discharge their duties and responsibilities effectively, as required by the Code. In addition, the Directors are aware of their legal duties to act in a way they consider, in good faith, will be most likely to promote the success of the Company for its shareholders, as well as considering the interests of other stakeholders.
The Board has approved a statement that sets out the clear division of responsibilities between the Chair, Chief Executive Officer and Senior Independent Director. This and matters reserved for decision by the Board are reviewed annually.
• Acts as a sounding board for the Chair and serves as an intermediary for the other Directors.
• Works with the Chair and other Directors/shareholders to resolve significant issues where necessary.
• Ensures operational policies and practices drive appropriate behaviour, in line with the Group’s culture.
The table below details the length of service of the Chair and each of the Non-Executive Directors and illustrates the balance of experience and fresh perspectives.
Director Date of appointment Current length of service as a Non-Executive Director at 31 December 2019
The Board currently comprises ten Directors, the Chair (who was independent on appointment), two Executive Directors, and seven independent Non-Executive Directors. As can be seen from the Directors’ biographies on pages 76 to 77, the Directors have a broad range of skills and experience and can bring independent judgement to bear on issues of strategy, performance, risk management, resources and standards of conduct which are integral to the success of the Group.
Appointments to the Board are the responsibility of the Board as a whole, acting on the advice and recommendations of the Nomination and Governance Committee. The Nomination and Governance Committee seeks to balance the retirement and recruitment of Non-Executive Directors ahead of their replacement so as to avoid dislocation of Board process by losing experience and skills. The Board is mindful of the need to promote diversity in appointments to the Group Board and across the Group. Appointments are made on merit and against objective criteria, having due regard to the benefits of diversity, including gender, with a view to ensuring the Board has the appropriate mix of personality, skills, and experience. Further information on the process used in relation to appointments and the approach to succession planning and how both support the development of a diverse pipeline are set out in the report of the Nomination and Governance Committee at page 99.
As set out in the Group’s Articles of Association, all Directors will retire and offer themselves for re-election at each AGM, in accordance with the UK Corporate Governance Code and the Company’s current practice. Therefore, all Directors will be submitting themselves for re-election by shareholders at the forthcoming AGM. The Board is satisfied that all are properly qualified for their reappointment by virtue of their skills and experience and their contribution to the Board and its Committees.
Communication and interaction with shareholders remain very important and engagement with them occurs on a regular basis. Open and frequent dialogue with investors enables them to understand fully the Group’s strategy, objectives and governance. The Investor Relations team has day-to-day primary responsibility for managing communications with institutional shareholders through a combination of briefings to analysts and institutional shareholders, both at the half-year and full-year results and on other occasions such as roadshows and conferences. A number of analysts and investors visited the Group’s Cardiff office during the year to meet with the Executive Directors and senior management in order to get a better understanding of how the Group operates and how it intends to achieve its strategic and operational objectives. Senior executives from the Group’s overseas businesses also visit the UK in order to present to, and meet with, analysts and investors. Site visits and individual discussions with the Executive Directors are also arranged throughout the year with individual shareholders.
In addition, the Chair and Senior Independent Director had individual meetings during the year with major shareholders to understand their views on governance and performance against strategy and reported to the Board on any significant issues raised with them.
Engagement with other stakeholders The regular channels of communication with both the FCA and PRA that existed throughout the year were supplemented by the FCA and PRA being invited to attend Board meetings in 2019. The FCA attended the Board in October 2019 which gave the Board an opportunity to hear directly the views of the regulator and to understand, and challenge them on, the rationale for their decisions to the extent that they impact the Group.
This has been my first full year as Chair of the Group Audit Committee, and I am pleased to set out in this report an update on the main activities of the Committee in 2019. I would also like to take this opportunity on behalf of the Committee to thank Owen Clarke, who stepped down from the Committee at the end of December 2019, having been a member for four years, for his input and contribution. Owen Clarke remained a member of the Committee following his appointment as the Senior Independent Director in December 2018 to provide continuity given the appointment of three new Committee members between February and December 2018.
Providing support to the Board in its oversight of financial reporting and the control environment across the Group has remained a key area of focus of the Committee during the year. The setting of insurance claims reserves to ensure consistency with the Group’s agreed reserving methodology is a key accounting judgement in the Group’s Financial Statements (as set out in note 3 to the Financial Statements), and the Committee continues to place considerable focus on this area and also monitors the Group’s reserving process. The Committee challenged the key reserving assumptions and judgements, movements, emerging trends and analysis of uncertainties underlying the analysis of outstanding claims proposed by management alongside that of the Group’s external actuarial advisers and external auditor, Deloitte. The Committee reviewed the announcement by the UK Government that with effect from 5 August 2019, the Ogden discount rate, which is used in setting personal injury compensation, would be changed to minus 0.25% from the existing minus 0.75% rate that had been in place since February 2017, and challenged management’s assessment of the impact of the new discount rate on the cost of claims.
The Committee continued to spend time considering the valuation of the parent company’s investment in its subsidiaries and the results of management’s impairment testing, in particular the appropriateness of the underlying assumptions and forecasts used, and the stresses applied to the forecasts. Impairment testing considerations in relation to the Group’s US businesses, Compare.com and Elephant, received particular attention during the year as the Committee reviewed management’s recommendation to impair the carrying value of the Group’s investment in these businesses.
“ This has been my first full year as Chair of the Group Audit Committee, and I am pleased to set out in this report an update on the main activities of the Committee in 2019.”
In addition, the Committee continued to monitor the appropriateness of the Group’s system of risk management and internal control and reviewed the Group’s Minimum Control Standards’ Framework to ensure that these continued to develop in line with the business and that a consistent approach to the control frameworks was deployed across the Group. The Committee maintained a close focus on the UK insurance business and also reviewed overseas subsidiaries and the Group’s loans business.
The Committee also continued to keep under review the proposed changes to the external audit market following the publications of the CMA, Kingman and Brydon reviews.
Other individuals such as the Chair of the Board, Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, Chief Actuary, Heads of Compliance and Internal Audit, and representatives of different parts of the Group may be invited to attend all or part of any meeting as and when appropriate. The Chair of the Audit Committee meets privately with the Head of Internal Audit on a regular basis and the Committee also held a private meeting with the Head of Internal Audit. The external auditor was invited to attend all of the Committee’s meetings held in 2019, excepting those agenda items when its own performance/appointment was to be reviewed. In addition, two private meetings were held between members of the Committee and the auditor. The Chair and other Committee members also held several private meetings with the auditor during the year.
Summary of key activities during 2019 The agenda for the meetings taking place during the year are agreed by the Committee Chair and detail the matters to be discussed and considered at each meeting. There were seven scheduled Committee meetings held during the year (with two of these meetings focused on reserving matters in conjunction with the half year and full year reporting). In addition, there were three additional meetings that were called to address particular issues that had arisen during the year. The agendas are updated regularly to allow for new items to be included.
During the year the Committee reviewed the following: • The Annual Report and interim results, including key accounting judgements and disclosures; • The Group Solvency and Financial Condition Report; • Reports from the Internal Audit departments within the Group on the effectiveness of the Group’s risk management and internal control procedures, approval of the 2020 Audit Plan including resourcing levels, details of key audit findings, and actions taken by management to manage and reduce the impact of the risks identified; • Performance and effectiveness of the Internal Audit department; • A summary of the key findings from all reports from Internal Audit including management responses to the conclusions set out in the reports; • Reports from the external auditor including the management letter highlighting system and control recommendations, key accounting and audit issues and conclusions on the half year and full year reporting; • A Report from the Chair of the Group Risk Committee on the principal risks faced by the Group and the work undertaken by the Group Risk Committee to ensure risk is appropriately managed; • Presentations from the Group’s external actuarial experts to assist the Committee in concluding on the adequacy of the Group’s reserves; The Audit Committee continued
These significant 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 2019 and also at the conclusion of the external audit of these full year Financial Statements.
The impairment in Compare.com reflected the reduction of the previous carrying amount (£32.8 million) of the Group’s investment to its recoverable amount (£5.1 million), being its fair value less costs to sell and equivalent to Group’s share of net assets of the business at 31 December 2019. In performing its review, the Committee challenged the cash-flows supporting value in use calculations and the use of net asset value as fair value less costs to sell.
After reviewing the presentations and reports from management and consulting where necessary with the auditor, the Committee is satisfied that the Financial Statements appropriately address the critical judgements and key sources of estimation uncertainty (both in respect to the amounts reported and the disclosures). The Committee is also satisfied that the significant assumptions used for determining the value of assets and liabilities have been appropriately scrutinised, challenged and are sufficiently robust.
Non-audit fees The Committee reviewed and approved its policy on non-audit services in February 2019 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 services in exceptional circumstances or where there was a regulatory request and where agreed by the Committee.
The Committee will continue to monitor regulatory developments in this area, noting the introduction of a revised Ethical Standard effective from 15 March 2020, to ensure that its policy on non-audit fees adheres to current guidance and best practice.
Effectiveness of the external audit process The Committee undertakes an annual review to assess the independence and objectivity of the external auditor and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements, the progress achieved against the agreed audit plan, and the competence with which the auditor handled the key accounting and audit judgements. As part of its review, the Committee considered, inter alia, the following: the output of an online questionnaire completed by all Committee members and relevant members of the Group’s Finance and Internal Audit functions; the findings of the FRC EQA published in July 2019 and the external auditor’s firm wide transparency report, an updated version of which was published in 2019. Following this review, the Committee concluded that the auditor, Deloitte LLP, remained independent and provided a service that was robust and fit for purpose. Mark McQueen has been Deloitte’s senior statutory audit partner for the Group since Deloitte were appointed the Group’s external auditors in April 2016.
Audit fee During 2019, the Committee reviewed and approved the audit fee proposal for the 2019 year end Group audit. The agreed fee for the audit and other assurance related services for 2019 is £1.3 million (2018: £0.9 million), with the increase reflecting changes to the scope of the audit, resulting from growth in and changes to the Group’s businesses.
The Committee approved the fee increase having discussed with the auditor the rationale for the costs proposed and any potential inefficiencies within the audit process.
As such, a recommendation from the Committee was put to the Board for a tender process to be initiated in Q2 2020 for an appointment (or reappointment) to be made with effect from 2021, coinciding with the rotation of the current audit partner. As the Committee has primary responsibility for conducting the tender process and making recommendations to the Board, regarding the appointment, reappointment and removal of the external auditor, it will lead the proposed tender process. The Committee intends to engage with the Group’s major shareholders to get their views on the firms that will be invited to participate in the tender and the timetable that has been agreed for the tender process.
The Committee confirms it is in compliance with the provisions of the Statutory Audit Services for Large Companies Market Investigation Order 2014.
Internal Audit The Group Head of Internal Audit attended all scheduled Audit Committee meetings and provided a range of presentations and papers to the Committee, through which the Committee monitors the effectiveness of the Group’s internal controls. The Committee reviewed and approved the Group Internal Audit Terms of Reference which set out the role; objectives; reporting lines and accountability; authority; independence; and objectivity of the Internal Audit function. The role and competence of each Internal Audit function across the Group was also assessed and considered by the Committee. The Group Head of Internal Audit continues to have responsibility to ensure the quality of the Internal Audit activities in the Group’s overseas locations.
During the year, the Committee considered and approved the appointment of a new Group Head of Internal Audit. Following a thorough search process, supported by an external search firm, an internal candidate was appointed pending the requisite regulatory approvals.
In accordance with agreed parameters, the overseas operations in Spain, Italy, France and the US have their own locally based internal auditors, who report to their respective country heads. All reports are evaluated by the Group Head of Internal Audit to ensure the quality and effectiveness of the reported findings. In addition, the UK Internal Audit department carries out high level governance reviews of all foreign operations, assessing the internal control frameworks and system of risk management. The overseas internal auditors attend Committee meetings periodically and the Committee received an update from the internal auditor of the Group’s insurance business in Italy on the activities of the audit function and the audit reports and recommendations that had been issued.
Committee effectiveness review As part of the Committee’s detailed annual review of its performance and processes, each Committee member completed a comprehensive questionnaire designed to provide objective assessment of the Committee’s performance, including its effectiveness in monitoring internal and external audit. The Committee discussed the results of the review at the meeting in December and 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.
Against the background of political uncertainty in 2019, the Committee received confirmation of the successful completion of the AECS related portfolio transfer at the beginning of the year, mitigating the potential risks associated with a “no deal” Brexit for the Group’s customers in Europe. 2019 started with the trading of that business and Spanish based Intermediary, Admiral Intermediary Services (AIS). Throughout the year, the Committee also received updates on the progress of the initial governance and management actions of AECS. In the UK, the Committee received regular updates on preparations for Brexit in the lead up to anticipated departures from the EU in October 2019 and January 2020. Given Admiral’s consistently prudent approach to Brexit, the Committee considered the potential requirements for a “no deal” outcome and associated operational management decisions.
A significant amount of time has been spent overseeing the development of the Admiral Internal Model (“AIM”) which is used to capture and quantify all material risks within the Group and calculate the solvency capital requirement. Much of 2019 has been focused on the enhancement of the model following feedback from previous independent validation cycles. The current cycle of validation is being supported by Ernst & Young (EY) for the first time.
The Group continues to maintain a regulatory capital add-on to cover risks not captured within the Standard Formula. The Committee has also reviewed the Group’s proposed dividend level, capital plan and capital buffer in line with the capital policy. The review considered several sensitivities, stress tests and scenarios including assessing the uncertainty around future changes to the Ogden discount rate. The Group continues to make use of Undertaking Specific Parameters (USPs) for Admiral Insurance (Gibraltar) Limited (AIGL) and the Volatility Adjustment (VA) across its UK insurance entities.
The Committee challenged and reviewed the setting of, and outputs from the regular stress and scenario testing and reverse stress testing, with a greater emphasis on the principal risks and uncertainties facing the Group as well as the on-going legal, regulatory and political uncertainty. The output was incorporated into the Own Risk and Solvency Assessment (‘ORSA’) report for 2019, which the Committee also reviewed prior to Board approval.
The Group’s project governance framework has enabled the Committee to have oversight of the material projects and change programmes within the Group. The Committee oversaw key developments to these projects, with regular updates provided throughout the year. Detailed project reviews were facilitated as required by the Committee, in particular, those related to cyber security and the use of Cloud based technology.
The on-going focus on monitoring and reporting customer outcome risks was enhanced through the continued embedding of the Group conduct risk framework. The Group minimum standards were enhanced to reflect the continued growth of non-UK insurance businesses.
The Group Risk Committee Statement from Jean Park, Chair of the Group Risk Committee
“ As Chair of the Group Risk Committee, I am pleased to present the Committee’s report for 2019.”
Composition of the Group Risk Committee Membership at the end of the year was: Jean Park (Chair), Annette Court, and Manning Rountree with Mark Waters acting as Secretary to the Committee.
Duties and Responsibilities of the Group Risk Committee The duties and responsibilities of the Committee are set out in Terms of Reference that were reviewed and approved by the Board.
• 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.
• Reviewing the ORSA report each year with recommendations being provided to the Group Board for approval.
The Committee Chair reports formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities, as set out in previously circulated minutes to the Board. The Committee Chair also reports on the activities of the Committee in a formal written report that is submitted to and discussed by the Board annually.
• Received regular monitoring reports on customer outcome risk and reviewed updates to the Group Minimum Standards and Policy Framework.
• Reviewed the Group’s proposed dividend level, capital plan and capital buffer in line with the capital policy.
• Through stress and scenario testing and reverse stress testing, considered indepth analysis of a number of the Group’s most significant risk areas.
• Recommended to the Board approval of the 2019 ORSA Report prior to submission to the regulator and approved the ORSA policy.
• Dedicated a significant amount of time to developing the Admiral Internal Model, receiving regular updates on the progress of the IMAP project and providing challenge to key project work streams, in particular the model validation.
• Received regular updates in relation to key programmes of work including IT Strategy, IT Security, GDPR and Brexit as part of the Group’s enhanced project governance framework.
The Board meets at least seven times a year to discuss the direction of the Group and provide oversight of the Group’s risk management and internal control systems.
The Board has delegated to the Audit Committee the review of the adequacy and effectiveness of the Company’s internal financial controls, internal control and risk management systems.
The subsidiary boards, GRC, UK and overseas Risk Management Committees receive reports setting out key performance and risk indicators and consider possible control issues brought to their attention by early warning mechanisms that are embedded within the operational units. They, together with the Audit Committee, also receive regular reports from the Internal Audit function, which include recommendations for improvement of the control and operational environment.
Every year, the Group undertakes an ‘Own Risk and Solvency Assessment’ (ORSA), which sets out a detailed consideration of the principal risks and uncertainties facing the Group over a three-year time horizon and considers current and projected levels of solvency and liquidity over the period. The ORSA is the main source of evidence used by the Board to assess viability. Given the additional uncertainty inherent in projecting beyond a three-year period, the assessment of viability has been performed over a three-year period.
Third Line of Defence The ‘third line of defence’ comprises the independent assurance provided by the
The Group operates a ‘three lines of defence’ approach to Risk and Internal Control.
Risk Officer and comprises the Corporate Governance functions and Committees that are in place to provide oversight of the effective operation of the internal control framework. The Corporate Governance functions facilitate the Group Policy Framework and Group Minimum Standards covering risk management and controls for all material risks to the Group. The functions perform second line reviews, including of the capital modelling and business planning processes to support the Board’s assessment of the Group’s on-going viability. Regular reviews of all risks are undertaken in conjunction with senior management, with the results of these reviews recorded in risk registers and reported to the appropriate governance
In the UK, procedures have been established to monitor and manage potential supply chain changes and communications to customers.
Climate Change In 2019 the Group set up a Climate Change-Related Risks Project (discussed elsewhere in the Annual Report) in order to: (1) understand current and potential future risks and opportunities arising from climate-related change; (2) understand disclosure and reporting requirements; and (3) determine how to incorporate climate-related risks into BAU risk management. Climate change-related risks can broadly be categorised as physical risks, such as increasingly severe weather events which arise from changes in the climate, and transition risks which will arise from any move towards a low carbon economy. Admiral is following Task Force on Climate-related Financial Disclosures (TCFD) recommendations in identifying, managing, reporting and disclosing climate change-related risks.
The GRC retains primary oversight responsibility for climate change-related risks and opportunities, which are reported within the consolidated risk report (CRR). It has delegated authority from the Board for overseeing risk management activities. It advises the Board on Admiral’s Principal Risks and Uncertainties (PR&U), as well as on emerging risks, and reviews the Company’s management of these risks. It is anticipated that climate change-related risk will remain an emerging risk for the foreseeable future. Emerging risks are monitored and updated (as required) on a monthly basis. If deemed material enough, the impact from climate change-related risk will be included in Admiral’s PR&U, which are updated on a biannual basis, and captured by the Enterprise Risk Management Framework. A similar process will be followed at subsidiary level, for those subsidiaries deemed to be exposed. The day-to-day responsibility for managing and reporting on climate change-related risk sits with the Group Risk team with overall responsibility held by the Group CRO.
Physical risks will impact many lines of business, including motor, household and travel. Transition risks, however, may have the bigger impact in the short-tomedium term due to potential changes in government policy and consumer behaviour, especially in scenarios limiting post industrial temperature rises to 1.5 or 2 degrees (i.e. aligned with the 2016 Paris Agreement). Some climate change-related transition risks were holistically captured in Admiral’s Group Strategy Review exercise, completed in 2019, and follow-on projects are ongoing to ensure that climate change is considered in setting the strategic direction of the Group.
The TCFD proposes a framework for understanding climate change-related risks, which Admiral Group follows. Risk management follows an internally developed framework for emerging risks. Risk identification incorporates both internal and external viewpoints: external sources are scanned for all possible risks posed by climate change, which are then narrowed and refined using internal expertise and knowledge of the Group’s business model and strategy. Risks are then assessed using both qualitative analysis, to prioritise risks, and quantitative analysis, to understand their impact on the business.
Reviewed the Group’s updated risk strategy, risk appetite and associated triggers and limits in the context of the Group’s agreed strategic objectives.
Summary of Key Activities in 2019 During the year the Committee: Received regular monitoring reports on customer outcome risk and reviewed updates to the Group Minimum Standards and Policy Framework.
Reviewed the Group’s regulatory capital add-on application as part of Solvency II capital requirements.
Received regular updates in relation to key programmes of work including IT Strategy, IT
Security, GDPR and Brexit as part of the Group’s enhanced project governance framework.
Dedicated a significant amount of time to developing the Admiral Internal Model, receiving regular updates on the progress of the IMAP project and providing challenge to key project work streams, in particular the model validation.
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 Group Non-Executive Directors, the Chairs of the Group’s material subsidiaries and the CEO to ensure they meet the requirements in terms of qualifications, capability, honesty and integrity.
Board Composition The Committee reviewed the results of the external Board evaluation that was carried out this year by external consultant, Ian White. The Committee was satisfied that the evaluation was conducted in a comprehensive and diligent manner with Ian having face to face contact with all Board members and regular Board attendees. Ian discussed the results of the evaluation questionnaires that had been completed and considered any particular comments raised by Board members and attendees. At its meeting in January, the Committee considered the results of the evaluation relating to the composition of the Board. The Committee considered the specific recommendations which included that the Board should continue to keep diversity under regular review and should focus on introducing more innovative approaches to recruitment. In addition, in terms of skills, there was a recognition that technology was a key area that the Board should focus on and the Committee has initiated an external search for a new Board member with expertise in this area and who can enhance the breadth of skills and diversity currently represented across the Board.
Talent management continues to be a key area of focus and the Board, at its meeting in March 2019, considered talent management within the Group and discussed the initiatives that were being put in place to progress the development of an internal “talent list” to ensure that highly talented individuals across the Group are properly recognised and are encouraged to progress. Identifying talented and high-potential staff below existing manager level, allows for a more tailored approach to meet their development needs, which ensure that their potential is recognised and maximised. In addition, our existing training and development opportunities have been enhanced to include more tailored programmes and the introduction of a more comprehensive mentoring programme. A wide-ranging project is also underway to redesign our end-to-end performance management process, which will underpin many of these initiatives to identify and maximise talent across all levels of the business.
In addition, in April the Committee received an update on the activities of the Group’s Diversity Forum that meets regularly with the purpose of exploring ways to further improve diversity and inclusion across the Group. The Diversity Forum is made up of six workstreams focusing on: gender, ethnicity, disability, LGBT+, age and social mobility. A number of initiatives have been introduced for each workstream such as reviewing and overhauling relevant policies including improvements made to the parental leave and maternity policies and greater awareness of the consideration of flexible working in certain positions. In addition, initiatives have been introduced to consult and engage with staff who are members of minority groups to understand how they feel and what would make a difference to them in the workplace. A review of our literature, websites and social media was also carried out to ensure that, as an employer, we portray an image to potential new joiners that supports our diverse and inclusive culture.
The Board continues to monitor the requirements of the Parker Review’s report on ethnic diversity in the context of the composition of its Group and subsidiary Boards, the initiatives that are being implemented to increase diversity and discussed how measures to develop a diverse pipeline of talent as regards Board appointments could be developed and monitored.
The Group also continued to focus on achieving the goals of the Women in Finance Charter, which the Group signed up to in 2018. The Charter is a government initiative that encourages participating firms in the financial services sector to support the progression of women into senior roles by focusing on the executive pipeline and the mid-tier level of management. The Group remains committed to meeting the target of 40% women in the Senior Executive team by December 2023 and to improving on the current position of 32%.
In 2018 the Chair 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 remains committed to providing equal opportunities, eliminating discrimination, and encouraging diversity amongst its employees both in the UK and overseas. A breakdown of the gender of Directors and senior employees at the end of the financial year together with details of the Group’s Equality, Diversity and Dignity at Work Policy are set out in the Directors’ Report on page 125.
Neurodiversity training Admiral is proud to be a diverse workplace and is always looking at the ways in which we support our staff members to help them succeed.
In 2019 Admiral Academy introduced training around dyslexia and other areas of neurodiversity. The training aims to increase awareness, challenge perceptions, and highlight examples of support or adjustments that may benefit individuals in the workplace.
In the second half of 2019, Admiral Academy trained 159 management employees including trainers, coaches, and operations managers. An additional 126 employees in non-management positions were trained on a condensed course enabling a safe space for individuals to ask questions about their own experiences or that of family, children, or partners. The Academy has received positive feedback, and this training will be delivered to more staff members in 2020.
Dear Shareholder, I am pleased to introduce the Directors’ Remuneration Report for the year ended 31 December 2019, which has been prepared by the Remuneration Committee (the ‘Committee’) and approved by the Board.
• Pensions for the Executive Directors are fully aligned with that offered to the workforce, set at a maximum level of 6% of base salary subject to an overall maximum employer contribution of £15,000.
• We pay a bonus (the ‘DFSS Bonus’) that is equivalent to the actual dividends paid out to shareholders calculated on the number of unvested DFSS awards held. It is important to note that this is in place of, not additional to, a conventional cash bonus scheme. This approach is aligned to Admiral’s culture by prioritising collective, longer term success after short term, individual performance and also provides a direct link to shareholder pay-outs. The DFSS bonus payable to the CFO for the 2019 performance year onwards will be subject to a +/- 20% adjustment based on performance against a scorecard of risk and customer-measures.
Remuneration for the wider workforce and the CEO pay ratio During the year, the Committee also reviewed the remuneration arrangements and structure offered to the wider workforce and used this as an input in its decisions on Executive compensation. Overall the Committee found that the remuneration offered to the wider workforce was consistent with that offered to the Executive Directors and senior management and supported the unique culture of the Company including focus on collective success. The approach to salary reviews is consistent throughout the organisation as is the employer pension contribution which is up to 6% of salary (up to a £15,000 cap) for all Admiral employees based in the UK including the CEO and CFO. Further details can be found on page 120.
• Reviewed workforce remuneration, including alignment of the Group’s current remuneration structure with the Living Wage
• Undertook an evaluation of the Committee’s performance during the yearReviewed the Committee’s terms of reference
• Pension, benefits and SIP includes 2019 pension contribution of £3,970 and £14,976 for the CEO and CFO respectively
• DFSS value for the CFO relates to 88.8% of his 2017 DFSS award vesting
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.
Remuneration Policy table This table describes the key components of the remuneration arrangements for Executive Directors.
The salary shares are granted as a fixed number of shares. The number granted is reviewed and may be adjusted by the Committee if there has been a significant change in share price.
To motivate and reward longer term performance, aid long term retention of key Executive talent, use capital efficiently, grow profits sustainably and further strengthen the alignment of the interests of shareholders and staff.
Executive Directors may be granted awards annually at the discretion of the Committee. David Stevens has declined to participate given his significant shareholding.
For DFSS awards made in 2018 and subsequent years, a two-year holding period applies to vested awards, during which time Executive Directors may not sell the vested awards except to cover tax liabilities.
Awards are subject to malus and clawback provisions, i.e. forfeiture or reduction of unvested awards and recovery of vested awards. Events which may lead to the application of 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 losses, material failure of risk management and misconduct.
Maximum opportunity: sum equal to the dividends payable during the year on awarded but unvested DFSS shares, subject also to a possible 20% increase based on performance against a set of customer and risk measures.
The Company’s approach to annual salary reviews is consistent across the Group, with consideration given to the role size, experience required, individual performance and pay levels in comparable companies.
In general, the Remuneration Policy which applies to other senior Executives is consistent with that for Executive Directors. Remuneration is typically linked to Company and individual performance in a way that reinforces shareholder value creation.
All holders of DFSS awards receive the DFSS bonus with the bonus for a number of senior managers, being adjusted for performance against a scorecard of risk and customer measures.
All UK employees who have served a minimum tenure at Admiral are eligible to participate in the SIP on the same terms. Most overseas employees receive an equivalent award to the UK SIP awards and these awards have no performance measures attached.
There is no provision in the Executive Directors’ contracts for compensation to be payable on early termination of their contract over and above the notice period element. The Executive Directors’ service contracts are available to view at the Company’s registered office.
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 otherwise.
Jean Park 3 years 17 January 2014 17 January 2020 One month
To attract and retain NEDs of the highest calibre with experience relevant to the Company.
Additional fees are payable for acting as Senior Independent Director or as Chair or member of a Board Committee as appropriate, and may be payable as appropriate in relation to other additional responsibilities (e.g. attending meetings overseas).
Fees are paid in a mix of cash and Company shares for the Company Chair, and in cash for other Non-Executive Directors. The Board retains discretion to vary the mix or determine that fees are paid entirely in cash or Company shares.
Fee levels are set by reference to NED fees at companies of a similar size and complexity. It is anticipated that NED fee increases will normally be in line with the increase for the general employee population over the term of this Policy.
In the event that there is a material misalignment with the market or a change in the complexity, responsibility or time commitment required to fulfil a NED role, the Board has discretion to make an appropriate adjustment to the fee level.
Pay-for-Performance: Scenario Analysis The following charts provide an estimate of the potential future reward opportunities for the Executive Directors, and the potential split between the different elements of pay under four different performance scenarios: ‘Minimum’, ‘On-target’, ‘Maximum’ and ‘Maximum with share price growth’.
As described above, Admiral’s DFSS bonus is directly aligned with dividends received by our shareholders, with a final adjustment for risk. Whilst the CFO’s final DFSS bonus outcome may be adjusted upwards or downwards for risk by up to 20% in any given year, it is anticipated that the average adjustment over the long term will be close to 0%. The figures shown in the chart below for the CFO’s DFSS bonus therefore include the value of the actual DFSS bonus paid in 2019 as an illustration of the value he might receive. Under all scenarios, potential reward opportunities are based on the Remuneration Policy, applied to salaries as at 1 January 2020.
DFSS • 0% vesting • 20% average vesting • 100% vesting • 100% vesting plus 50% share price appreciation
In determining the appropriate remuneration for a new Executive Director, the Committee will consider all relevant factors to ensure that arrangements are in the best interests of the Company and its shareholders. Where an individual is appointed on an initial base salary that is below market, any shortfall may be managed with phased increases over a period of time, subject to the individual’s performance and development in the role. This may result in above-average salary increases during this period.
Other Directorships 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.
The Group Chairman, CEO, CFO and CRO are invited to meetings where the Committee considers it appropriate to obtain their advice on Group strategy and performance and Senior Executive pay strategy. The members of the Committee do not have any personal financial interests (other than shareholdings), or any conflicts, that relate to the business of the Committee. The Committee members do not have any day-to-day involvement in the running of the Group.
Summary of Shareholder Voting at the 2019 AGM The table below shows the results of the binding vote on the Remuneration Policy at the 2018 AGM and the advisory vote on the 2018 Annual Report on Remuneration at the 2019 AGM.
This section of the report provides details of how Admiral’s Remuneration Policy was implemented in 2019 and how the Remuneration Committee intends to implement the Remuneration Policy in 2020.
Total Single Figure of Remuneration for Executive Directors (audited) The table below sets out the total single figure remuneration received by each Executive Director for the years ended 31 December 2019 and 31 December 2018.
5. DFSS: the value at vesting of shares vesting on performance over the three-year periods ending 31 December 2019 and 31 December 2018. For the 2019 figures, given that vesting occurs after the 2019 Directors’ Remuneration Report is finalised, the figures are based on the average share price in the last three months of 2019 (£21.05). The 2018 figures have been trued up based on the actual share price on vest (£21.00). For 2019, a favourable movement of £130,980 is included in the DFSS value, attributable to an increase in the share price over the vesting period. For 2018, £9,198 of the DFSS value is attributable to share price appreciation over the vesting period.
2. Owen Clarke became the Senior Independent Director on 31 December 2019. His fee for undertaking this role is £11,025 which was paid on top of his base fee and Committee fees.
3. Karen Green was appointed to the Board on 14 December 2018 and became the Chair of the Audit Committee. Her fee for 2018 includes fees paid for Board and Committee attendance from June 2018 prior to her formal appointment.
4. Jean Park’s fees for 2018 and 2019 include additional fees relating to her position as Chair of the Group Risk Committee and is in recognition of the increased time commitment required of her as a consequence of Solvency II regulations and the Internal Model Application Process.
Incentive Outcomes for Financial Year to 31 December 2019 (audited) DFSS Awards Vesting on Performance to 31 December 2019
On 26 September 2017, Geraint Jones was granted an award under the DFSS of 50,000 shares with a value at the date of award of £905,000 (based on a grant date share price of £18.10), equivalent to 369% of salary at date of grant.
The table below details the Company’s performance against targets and the resulting vesting outcome.
DFSS Bonus in Respect of 2019 In line with the Remuneration Policy, the Group paid a bonus to all holders of DFSS shares in 2019, which was equivalent to the dividend payable on all outstanding DFSS shares awarded but not yet vested. The 2019 Bonus for the CFO also includes a +/- 20% adjustment to the DFSS Bonus based on performance of a set of risk and customer metrics, which for 2019 was grouped into four categories measured over two six-month periods as follows: Category What was considered Weighting
Conduct Risk Management Information (CRMI) metrics 11 different metrics covering claim settlement times, complaint volumes, complaint handling times, and % of fair customer outcomes identified through monitoring.
Internal stakeholder feedback on Geraint Jones’s performance relating to risk and customer outcomes.
Precise details of the measures used in the scorecard are not disclosed as the Committee considers them to be commercially sensitive. The overall outcome was assessed to be a 108.8% multiplier to the DFSS Bonus paid for H1 2019 and a 113.3% multiplier to the DFSS Bonus paid for H2 2019 (to be paid in 2020).
In addition, Geraint Jones’s DFSS bonus is subject to a further risk adjustment (negative only) to take into account risk events which are considered to have a material customer, regulatory or financial impact.
These outcomes reflect broadly on target performance across most of the categories set out above and a strong performance in H2 2019 on CRMI metrics, where the majority of the monthly assessments were deemed to be good with a small amount of ones for improvement.
The overall DFSS Bonus paid to Geraint Jones for 2019 was £201,600 (2018: £180,000).
David Stevens did not receive a DFSS bonus as he does not participate in the DFSS.
In September 2019, Geraint Jones was granted an award under the DFSS of 45,000 shares (a reduction from 50,000 in 2018) with a value at the date of award of £945,000 (based on share price of £21.00, equivalent to 376% of base salary). Whilst the general intention for the DFSS is to keep the number of DFSS shares granted to individual participants the same each year, the Committee reviewed during 2019 the aggregate quantum of DFSS awards offered to all employees and concluded that a 10% reduction in the number of shares was appropriate to help ensure dilution to shareholders from the employee share schemes is managed effectively.
26.67% Median Upper quartile 25% for median, with straight line relationship to 100% for upper quartile
Payments to Past Directors (audited) No payments were made to a past Director during the year.
Salaries for the Executive Directors in 2020 will be determined in line with the proposed Remuneration Policy, subject to shareholder approval. David Stevens’ salary will be increased by 2.5%, effective 1 September 2020. The CFO’s cash salary was increased by 2.7% effective 1 January 2020 to £258,000, and he will continue to be granted an award of 5,000 salary shares, unchanged from 2018 and 2019. These will be granted in two tranches of 2,500. The salary share award will vest after three years subject to continued employment. An additional two-year holding period will apply, during which time shares may not be sold, save to meet income tax, NI or other regulatory obligations. Malus and clawback provisions will apply during the vesting and holding periods. The salary share award is not included in base salary when calculating the CFO’s pension benefit.
CEO and CFO pay ratio The table below sets out the pay ratios for the CEO and CFO for the periods ended 31 December 2018 and 31 December 2019.
The Committee has considered the pay data for the three employees identified and believes that it fairly reflects pay at the relevant quartiles amongst our UK workforce. The three individuals identified were full time employees during the year. None received an exceptional incentive award which would otherwise inflate their pay figures. No adjustments or assumptions were made by the Committee with the total remuneration of these employees calculated in accordance with the methodology used to calculate the single figure of the CEO and CFO. It should be noted that the lower quartile and median employees were not in receipt of DFSS bonus and/or DFSS vesting in the year.
The pay ratios for 2019 vs. 2018 have remained consistent. As the CEO declines to participate in the share schemes, movements in his remuneration and hence the CEO pay ratio are relatively modest. A significant proportion of the CFO’s remuneration is dependent on the Company’s performance and therefore it may vary more materially, resulting in movements in the CFO pay ratio from year to year. However, the reward policies and structures applying to the CFO are broadly aligned with those of the wider workforce and therefore consistent performance is likely to lead to a broadly consistent CFO pay ratio, as evident in 2019.
Relative Importance of Spend on Pay The table below shows the percentage change in dividends and total employee remuneration spend from the financial year ended 31 December 2018 to the financial year ended 31 December 2019.
Pay for Performance The following graph sets out a comparison of Total Shareholder Return (TSR) for Admiral Group plc shares with that of the FTSE 100 and FTSE 350 indices, of which the Company is a constituent, over the ten-year period to 31 December 2019. The Directors consider these to be the most appropriate indices against which the Company should be compared. TSR is defined as the percentage change over the period, assuming reinvestment of income.
Dec 09 Dec 10 Dec 12 Dec 15Dec 11 Dec 14Dec 13 Dec 16 Dec 17 Dec 19Dec 18
1. Henry Engelhardt stepped down from the Board on 13 May 2016. His 2016 remuneration includes salary and benefits in respect of his service as CEO.
4. This figure has been trued up since the 2018 report for the value of the 2016 DFSS based on the actual share price on vest (£21.00).
2. Total reflects shares from the 2017 DFSS award (performance test has been applied, and award is due to vest in September 2020) and salary shares awarded in 2018 and 2019.
There have been no changes to Directors’ shareholdings since 31 December 2019.
Value at 31 Dec 2019 or maturity (£) Date of Award
The Board recognises the importance of engaging with its workforce and does so through a combination of informal and formal channels. In order to ensure that there is an effective means by which the views of the workforce can be heard, the Board has sought to enhance and formalise its existing employee engagement arrangements with the establishment of an Employee Consultation Group (ECG). Membership of the ECG comprises elected staff representatives and the remit of the ECG is to act as a forum for staff consultation, gathering staff opinion and fostering a safe environment to raise matters of interest and generate ideas. There were five ECG meetings during the year with a range of topics discussed. The three meetings from June were each attended by a different Non-Executive Director who reported back to the Board on the matters discussed and the actions that had been agreed at the meeting. It is intended that there will continue to be a different Non-Executive Director attending each ECG meeting, on rotation. Having different Non-Executive Directors attending each meeting gives all of them an opportunity to engage with the workforce directly and to hear first-hand the issues and matters that are affecting employees.
The Board has determined that the operation of the ECG is an effective means of engaging with employees in order to understand the matters that concern them and are able to have regard to the specific interests of employees in the decisions that are made at Board level. The Board will ensure that the ECG continues to develop and evolve as an effective employee engagement forum and that regular interaction with the Board is maintained.
The Group encourages involvement in the performance of the business through the participation by the majority of the Group’s employees in the Group’s Share Incentive Plan (SIP) under which they are given shares in the Company. This share ownership gives employees a good understanding of the financial and economic factors that could affect the Company’s performance.
The customer remains central to the Group’s culture and the Board considered customer outcomes at a presentation it received in April, which focused on the customer centric measures and monitoring that is already in place to ensure that customers are treated fairly and that their needs are met. As a result of the presentation the Board had a greater understanding of the need to invest in tools and initiatives that would enable customer service agents to have the ability to continue to provide excellent service for customers. In addition, the Board asked for a further update, which was provided to the Board in August. The update extended to cover the Group’s pricing practices framework which was set up to produce fair outcomes for its customers, enabled the Board to understand the outcomes on customers of our pricing practices.
Admiral has signed up to the Women in Finance Charter and was named the 3rd place in the Great Place to Work for Women in 2019. Our Diversity Forum promotes gender equality in the workplace and has been instrumental in driving improvements in the Group’s parental leave policy. 2019 also marked the 20th year of Company sponsorship for Cardiff Pride and saw the launch of a social network for LGBT employees. The Company also celebrated LGBT History Month in February 2019 hosting an exhibition of Welsh LGBT+ Icons and Allies at the Cardiff office. February 2019 also saw the launch of training sessions for managers to raise awareness of gender identity.
All staff receive compulsory anti-bribery training when they join the Group and refresher training is provided on an annual basis. In addition, the Group has various forums that allow employees to communicate directly with managers on an informal, and, if necessary, an anonymous basis, that helps to create an environment where staff feel comfortable raising matters that are of concern to them.
2 Other senior managers is as defined in the Companies Act 2006 (Strategic Report and Directors’ Report) and includes persons responsible for planning, directing or controlling the activities of the Company, or a strategically significant part of the Company, other than Company Directors. Any other Directors of undertakings included in the consolidated accounts that are not considered strategically significant have not been included.
The Group will support any employee who is disabled or has a life threatening illness and help them to contribute to the Group as long as their health allows.
The Group considers its co-insurance and reinsurance contracts, as described in the Strategic Report, to be essential to the running of the Group’s business. A number of these arrangements include features that allow for reinsurers to recover losses incurred under certain scenarios considered remote by the Group Board. No other contractual arrangements are considered to be essential.
The objectives and policies for managing risks in relation to financial instruments held by the Group are set out in note 6 to the Financial Statements.
The present Directors of the Company are shown on pages 76 to 77 of this Report, whilst Directors’ interests in the share capital of the Company are set out in the Remuneration Report on pages 102 to 123.
Under Provision 30 of the 2018 UK Corporate Governance Code, the Board is required to report on whether the business is a going concern. 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.
Following consideration of the above, the Directors have reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report, and that it is therefore appropriate to adopt the going concern basis in preparing the Financial Statements.
The interests of Directors and Officers and their connected persons in the issued share capital of the Company are given in the Remuneration Report.
*1 Average employee number excludes employees from offices for which data could not be collected
At 31 December 2019, the Company’s issued share capital comprised a single class of shares referred to as ordinary shares. Details of the share capital and shares issued during the year can be found in note 12d.
At the last Annual General Meeting, held on 25 April 2019, authority was given to the Directors to allot unissued relevant securities in the Company up to a maximum of £96,834, equivalent to one third of the issued share capital as at 18 March 2019. This authority expires on the date of the Annual General Meeting to be held on 30 April 2020 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 30 April 2020 and the Directors will seek to renew this authority for the following year.
Corporate Governance Code and the Company’s current practice. Therefore, all Directors will be submitting themselves for re-election by shareholders at the forthcoming AGM.
It is proposed that the next AGM be held at City Hall, Cardiff on Thursday 30 April 2020 at 2.00pm, notice of which will be sent to shareholders with the Annual Report.
Admiral is subject to the UK Corporate Governance Code (the Code), published by the Financial Reporting Council (FRC) in July 2018 and available on their website, www. frc.org.uk. The Company’s Annual Report and Accounts, taken as a whole, addresses the requirements of the 2018 Code.
The UK Corporate Governance Code 2018 (the Code) was applicable for the Group during the year under review, and the Group has applied the principles and complied with the provisions of the Code except with regard to non-compliance with the provisions as set out in the Corporate Governance Report on page 78.
The Board is ultimately responsible for the Group’s system of risk management and internal control and, through the Audit Committee, has reviewed the effectiveness of the Group’s internal control and risk management arrangements relating to the financial reporting process and the principal risks facing the business. The Board is satisfied that the Group’s internal control and risk management framework is prudent and effective and that, through the Audit Committee and Group Risk Management Committee, risk can be assessed, managed and assurance given that all material controls are reviewed and monitored.
Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • for the Group Financial Statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; • for the parent company financial statements, state whether applicable UK Accounting Standards, including FRS 101 Reduced Disclosure Framework, have been followed, subject to any material departures disclosed and explained in the parent company financial statements.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its Financial Statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
The Directors confirm that to the best of their knowledge: • the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
In our opinion: • the Financial Statements of Admiral Group plc (the ‘parent company’) and its subsidiaries (the ‘Group’) give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2019 and of the Group’s profit for the year then ended; • the Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; • the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
• the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the Financial Statements section of our report.
Within this report, any new key audit matters are identified with ↑ and any key audit matters which are the same as the prior year identified with →.
Specific audit procedures were completed in respect of two further components which, although not financially significant, did present some specific audit risks which needed to be addressed.
The main changes in component scoping since 2018 relate to the Brexit restructuring of the Group, whereby the European insurance business is now underwritten through the Group’s Spanish incorporated underwriter Admiral Europe Compañía de Seguros (“AECS”) which forms a significant component of the Group.
We have also removed one key audit matter from the 2018 audit, being the recognition of profit commission income. This is because the profit commission calculation is mechanical in nature and has not been subject to change during either the current or prior period. Moreover, there have been no changes to the underlying profit commission agreements or any one-off adjustments which would result in additional complexity during the current period.
Furthermore, we have identified an additional key audit matter in respect of the audit of the parent company financial statements related to the valuation of its investment in the Group’s US insurance subsidiary, Elephant Insurance Company LLC (“Elephant”). We have determined this to be a key audit matter for the current period as Elephant’s trading losses were larger than forecast in the year-ended 31 December 2019, which gave rise to an indication of impairment.
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.
We considered as part of our risk assessment the nature of the Group, its business model and related risks including where relevant the impact of Brexit, the requirements of the applicable financial reporting framework and the system of internal control. We evaluated the directors’ assessment of the Group’s ability to continue as a going concern, including challenging the underlying data and key assumptions used to make the assessment, and evaluated the directors’ plans for future actions in relation to their going concern assessment.
We are also required to report whether the directors’ statement relating to the prospects of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In line with the Group's accounting policy, management adds a margin to the actuarial best estimate to arrive at the booked gross claims reserves. This margin reflects the inherent uncertainty in estimating the ultimate losses on claims, over and above that which can be projected actuarially as a best estimate based on underlying claims development data. This is a significant area of management judgement and, therefore, a focus of our audit. Specifically, the consistency of the level of prudence within the margin for the UK Car Insurance reserves is our key area of focus.
We inspected the reports from management’s external expert actuary and involved our own Deloitte actuarial specialists to support our challenge of management’s assumptions, including the frequency and severity assumptions for large bodily injury claims. We performed procedures to assess the objectivity and competence of management’s expert.
We challenged management’s qualitative and quantitative justifications for the margin held over the actuarial best estimate reserves through review of management’s accounting judgement papers and testing the internal controls governing the claims distribution model. We analysed the consistency of prudence within the booked margin against previous reporting periods in the context of the underlying uncertainty in incurred claims development and challenged management’s support for the booked position.
Key observations Based on the procedures described above, we consider that the booked reserves remain appropriate and in line with the Group’s prudent accounting policy.
The methodologies which are applied in determining the valuation of the excess of loss reinsurance recoveries are significant in terms of their impact on the Group’s financial performance and therefore represent a key audit matter for the Group. Projecting such recoveries is an inherently subjective exercise and changes in methodologies may have a material impact on the reported year-end result for the Group.
We have assessed the design and implementation and tested the operating effectiveness of relevant controls relating to the projection of the excess of loss reinsurance recoveries. These controls include those concerning the oversight and challenge of management’s external expert actuary by management and the Audit Committee.
We inspected the reports from management’s external expert actuary and involved our own Deloitte actuarial specialists to support our challenge of management’s assumptions and methodologies applied in projecting the excess of loss reinsurance recoveries. We performed procedures to assess the objectivity and competence of management’s expert. Furthermore, with the involvement of our actuarial specialists, we performed additional diagnostics and reviewed the results to assess whether the methodology had been implemented as described.
We compared management’s frequency assumptions for excess of loss reinsurance recoveries against the frequency assumptions for large bodily injury claims to assess the consistency in the underlying assumptions applied to derive the gross and net insurance claims reserves.
An impairment should be recognised when the carrying value of an investment exceeds the recoverable amount, which is, itself, the higher of the value in use and the fair value less costs to sell. The value in use is determined using a discounted cash flow calculation, which involves significant management judgement.
Refer to page 92 in the Audit Committee report where this is included as a significant issue and note 1.5 and note 4 in the parent company financial statements which refer to this matter. The impairment charge recognised for 2019 totalled £66 million (2018: £nil) and consequently the carrying value of the investment in Elephant totals £40 million (2018: £106 million).
We have assessed the design and implementation of relevant controls relating to the impairment analysis performed by management. These controls include those concerning the oversight and challenge of management by the Audit Committee.
We inspected the calculations and agreed that the cash flows used were based on the latest five-year plan approved by the Group board.
We enquired of and challenged management on the business plans of Elephant, to assess whether they are consistent with the assumptions used in estimating future cash flows.
We also sought independent audit evidence relating to the future of the US motor insurance market, utilising market research papers published by the Deloitte member firm in the US, and put this to management as part of our challenge, where this was contrary to their assertions.
Finally, we considered whether events or transactions that occurred after the year-end but before the reporting date affect the conclusions reached on the carrying values of the assets and associated disclosures.
Key observations Based on the procedures described above, we consider that the impairment booked and the carrying value of the investment in Elephant is appropriate.
We define materiality as the magnitude of misstatement in the Financial Statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
Basis for determining materiality 5% of profit before tax (2018: 5% of profit before tax, adjusted for the movement due to the change in the Ogden rate assumption).
We have adjusted the basis for the determination of materiality in the current period to use an average net asset measure in order to remove the volatility associated with the timing of dividend payments from the parent company.
In the prior period we adjusted our materiality basis to exclude the impact of the Ogden discount rate change in order to remove year on year volatility. Following the announcement of the new Ogden discount rate in July 2019 we are satisfied that no such adjustment is required for the 2019 audit.
The parent company primarily exists as the holding company which carries investments in group subsidiaries and is the issuer of listed securities. We consider that net assets is the critical benchmark for the company. The measure uses a two-year average of net assets which we consider appropriate given the inherent volatility associated with the timing of dividend payments.
When determining materiality for the parent company, we also considered the appropriateness of this materiality for the consolidation of this set of Financial Statements to the Group’s results.
• our past experience of the audit, which has indicated a low number of uncorrected misstatements identified in prior periods.
In 2018, we identified six of these as significant reporting components and nine in totality. The changes in component scoping since 2018 are in classifying the Group’s overseas underwriting entities in Spain and US, Admiral Europe Compañía de Seguros and Elephant Insurance Company LLC respectively, as significant components of the Group due to the increase in their size relative to the consolidated group. The Italian divisions of Admiral Insurance (Gibraltar) Limited and Admiral Insurance Company Limited, as well as the Spanish division of Admiral Insurance Company Limited no longer form significant components of the Group following the transfer of European policies to Admiral Europe Compañía de Seguros effective from 1 January 2019.
Additionally, we have completed specific audit procedures, designed to address specific audit risks, for two (2018: eight) further components.
We engaged local component auditors, being Deloitte member firms in the US and Spain, to perform the audit work in these respective territories on our behalf. We directed and supervised the work of the component auditors, including through visits to the operations in Rome, Madrid, Seville and Richmond and remote communication and review of their work.
Our opinion on the Financial Statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error.
In preparing the Financial Statements, the directors are responsible for assessing the Group's and the parent company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
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.
We identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, and then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.
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; – 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 actuarial, 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 for UK Car Insurance; – valuation of projected excess of loss reinsurance recoveries for UK Car Insurance; and
As a result of performing the above, we identified the valuation of gross insurance claims reserves and valuation of projected excess of loss reinsurance recoveries 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 addition to the above, our procedures to respond to risks identified included the following: • reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and regulations discussed above; • enquiring of management, the Audit Committee and in-house legal counsel concerning actual and potential litigation and claims; • performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud; • reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with HMRC, the Financial Conduct Authority and the Prudential Regulation Authority; and
Consistency of the audit report with the additional report to the Audit Committee
Insurance claims and claims handling expenses recoverable from reinsurers 1,208.8 1,163.7
Operating expenses and share scheme charges recoverable from co- and reinsurers 9 441.2 418.8
Profit after tax attributable to: Equity holders of the parent 432.4 395.1
Total comprehensive income for the period attributable to: Equity holders of the parent 456.1 373.7
These Financial Statements were approved by the Board of Directors on 4 March 2020 and were signed on its behalf by: Geraint Jones
Adjustments for non-cash items: – Depreciation of property, plant and equipment and right-of-use assets 11 23.8 12.0
– Finance costs, including unwinding of discounts on lease liabilities 12.6 14.9
Change in gross loans and advances to customers 7 (168.7) (242.9)
Change in trade and other payables, including tax and social security 11 174.4 159.9
Cash flows from operating activities, before movements in investments 518.1 488.5
Cash flows from investing activities: Purchases of property, equipment and software 11 (33.6) (23.9)
Cash flows from financing activities: Non-controlling interest capital contribution 1.6 19.3
Net (decrease) / increase in cash and cash equivalents (101.9) 52.9
Consolidated Statement of Changes in Equity For the year ended 31 December 2019
Total comprehensive income for the period – – (23.3) (0.3) 2.2 395.1 373.7 (4.6) 369.1
Changes in ownership interests without a change in control – – – – – 11.2 11.2 8.1 19.3
Profit/(loss) for the period – – – – – 432.4 432.4 (4.0) 428.4
Deferred tax charge in relation to movement in fair value reserve – – (1.5) – – – (1.5) – (1.5)
Movement in hedging reserve – – – (0.9) – – (0.9) – (0.9)
Total comprehensive income for the period – – 33.1 (0.9) (8.5) 432.4 456.1 (4.4) 451.7
Deferred tax credit on share scheme credit – – – – – 3.2 3.2 – 3.2
The consolidated Financial Statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). The Company has elected to prepare its Parent Company Financial Statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101).
• The risks included on the Group’s risk register that could impact on the Group’s financial performance, levels of liquidity and solvency over the next 12 months. This includes consideration of the principal risks and uncertainties and how these are managed and mitigated, as disclosed on pages 66 to 73 of the Annual Report.
Further information regarding the Company’s business activities, together with the factors likely to affect its future development, performance and position, is set out in the Strategic Report. Further information regarding the financial position of the Company, its cash flows, liquidity position and borrowing facilities are also described in the Strategic Report. In addition, notes 6 and 12 to the Financial Statements include the Company’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit risk and liquidity risk.
The Financial Statements are prepared on the historical cost basis, except for the revaluation of financial assets classified as fair value through profit or loss or as fair value through other comprehensive income. The Group and Company Financial Statements are presented in pounds sterling, rounded to the nearest £0.1 million.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The Financial Statements of subsidiaries are included in the consolidated Financial Statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.
The Group has securitised certain loans and advances to customers by the transfer of the loans to a special purpose entity (“SPE”) controlled by the Group. The securitisation enables a subsequent issuance of debt by the SPE to investors who gain the security of the underlying assets as collateral. The SPE is fully consolidated into the Group Financial Statements under IFRS 10, as the Group controls the entity in line with the above definition.
The preparation of Financial Statements in conformity with adopted IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources.
Notes to the Financial Statements For the year ended 31 December 2019
2. Basis of preparation continued The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is reviewed. To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, it is recognised by adjusting the carrying amount of the related asset or liability in the period of the change.
Other than the impact of IFRS 16 and the Amendments to IFRS 9 and IFRS 7 in respect of interest rate benchmark reform, further detail of which is provided below, the application of these amendments has not had a material impact on the Group’s results, financial position and cashflows.
The adjustments arising from transition are recognised in the opening balance sheet on 1 January 2019 and are set out below along with details of the changes in accounting policies relating to IFRS 16 as applied in the period.
On adoption of IFRS 16, the Group recognised additional right-of-use assets, and additional lease liabilities in relation to leases which were previously classified as ‘operating leases’ under IAS 17 Leases. The liabilities were measured at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate as of 1 January 2019. The weighted average incremental borrowing rate (discount rate) applied is 2.4%.
A reconciliation of the Group’s lease liabilities to the operating lease commitment at 31 December 2018 as disclosed in the Group’s consolidated Financial Statements is shown below.
Impact of extension options exercised before the date of initial application*1 12.7
Non-current 138.7 *1 Following a review of lease extension options and variable lease payments during the IFRS 16 transition process, the operating lease commitments disclosed as at 31 December 2018 have been amended to reflect the impact of a different treatment of inflation and VAT within lease agreements, and lease extensions that had occurred before the transition date but were not previously disclosed.
All right-of-use assets relate to property leases held by the Group.
The amendments are relevant to the Group given that it hedges and applies hedge accounting to its benchmark interest rate exposure.
The application of the amendments impact the Group’s accounting in the following way: • The Group has floating rate debt, linked to GBP LIBOR, which it hedges using interest rate swaps. The amendments permit continuation of hedge accounting even though there is uncertainty about the timing and amount of the hedged cash flows due to the interest rate benchmark reforms.
No significant impact is expected as a result of adopting the above amendments.
There are a number of standards, amendments to standards and interpretations that were issued by 31 December 2019 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 IFRS 3 “Business Combinations”.
IFRS 17 Insurance Contracts was issued in May 2017, with a revised endorsement draft incorporating a number of proposed amendments issued in June 2019. 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 proposed IASB effective date in the revised exposure draft is 1 January 2022, requiring a transition balance sheet at 1 January 2021.
3. Critical accounting judgements and key sources of estimation uncertainty In applying the Group’s accounting policies as described in the notes to the Financial Statements, the directors are required to make judgements (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
• Classification of the Group’s contracts with reinsurers as reinsurance contracts: A contract is required to transfer significant insurance risk in order to be classified as such. Management reviews all terms and conditions of each such insurance and reinsurance contract in order to be able to make this judgement. In particular, all reinsurance contracts (both excess of loss and quota share contracts) held by the Group have been assessed and it has been concluded that all contracts transfer significant insurance risk and have therefore been classified and accounted for as reinsurance contracts within these Financial Statements.
During 2018 the Group set up an SPE in relation to the Admiral Loans business, whereby the Group securitises certain loans by the transfer of the loans to the SPE. The securitisation enables a subsequent issue of debt by the SPE to investors who gain the security of the underlying assets as collateral.
The SPE has therefore been fully consolidated into the Group’s Financial Statements.
Refer to the section on estimation techniques below, and the analysis in note 7 to the Financial Statements for further detail on the Group’s ECL methodology applied in the period.
The key area where estimation techniques are used is in the ultimate projected cost of reported claims, which includes the emergence of claims that occurred prior to the balance sheet date, but had not been reported at that date.
Claims are segmented into groups with similar characteristics and which are expected to develop and behave similarly, for example bodily injury (attritional and large) and damage claims, with specific projection methods selected for each head of damage. Key sources of estimation uncertainty arise from both the selection of the projection methods and the assumptions made in setting claims provisions through the review of historical development of underlying case reserve estimates, overlaid with emerging market trends.
Allowance is made for changes or uncertainties which may result future claim cost inflation to deviate from historic trends. These uncertainties include: • Changes in frequency of bodily injury claims; – The effect of inflation on the average cost of bodily injury and damage claims; – The likelihood of bodily injury claims settling as Periodic Payment Orders; – Changes in the regulatory or legal environment that lead to changes in awards for bodily injury claims and associated legal costs; and
The Group uses excess of loss reinsurance in order to mitigate the impact of large claims. The reinsurance is non-proportional and recoveries are made on individual claims above the relevant thresholds.
Key sources of estimation uncertainty arise from both the selection of the projection methods and the assumptions made in calculating the recoveries through the review of historical development of underlying case reserve estimates, overlaid with emerging market trends.
The most significant element of the estimation relates to large bodily injury claims. The key assumption in the calculation of excess of loss recoveries relates to the numbers of large claims in the Group’s core UK Motor insurance business that will attract recoveries, where the high retention means that a small number of additional large claims would potentially result in a material increase in the excess of loss recoveries.
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; – Results of stress testing of key assumptions underpinning key actuarial assumptions within best estimate reserves; – A review of a number of individual and aggregated reserve scenarios which may result in future adverse variance to the ultimate best estimate reserve; and
• Recognition of deferred tax assets relating to unused tax losses
Management is required to determine the probability of an entity generating future taxable profits against which to utilise accumulated losses in determining the recognition and measurement of deferred tax assets. In making this estimation, management makes an assessment of the reliability of approved business plan projections using both qualitative and quantitative factors including the age and status of the business, the Group’s previous experience in similar markets, historic performance against business plans and the application of a number of stress and sensitivity tests to the projections.
The Company controls 100% of the voting share capital of all its principal subsidiaries, except Admiral Law Limited, BDE Law Limited (indirect holding), Inspop USA LLC, comparenow.com Insurance Agency LLC (indirect holding), Rastreator.com Limited, Rastreator Comparador Correduria De Seguros S.L.U (indirect holding), Preminen Price Comparison Holdings Limited and the indirect holdings in Preminen Dragon Price Comparison Limited, Preminen Mexico Sociedad Anonima de Capital Variable, Preminen Online Fiyat Karşılaştırma Hizmetleri Anonim Şirketi, Preminen Sigorta Brokerlik Anonim Şirketi and Preminen Price Comparison India Private Limited.
The Financial Statements of foreign operations whose functional currency is not pounds sterling are translated into the Group presentation currency (sterling) as follows: • Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet.
• Income and expenses for each income statement are translated at average monthly exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the date of the transaction).
The segment consists of the underwriting of car and home insurance and the generation of revenue from additional products and fees from underwriting car and home insurance outside of the UK. It specifically covers the Group operations Admiral Seguros in Spain, ConTe in Italy, L’olivier-Assurance in France and Elephant Auto in the US. None of these operations are reportable on an individual basis, based on the threshold requirements in IFRS 8.
The segment relates to the Group’s comparison businesses: Confused.com in the UK, Rastreator in Spain, LeLynx in France and Compare.com in the US. From 2019, the segment also includes the Preminen entities, which has a head office in Spain and operations in Turkey, Mexico and India (all of which were previously reported in the ‘Other’ segment), and Penguin Portals, the new intermediate holding company of Confused.com, LeLynx and Rastreator.
Each of the comparison businesses are operating in individual geographical segments but are grouped into one reporting segment, as none of the operating segments individually meet the reporting segment threshold requirements of IFRS 8.
Other Revenue and profit commission 407.6 22.5 171.6 24.2 (16.6) 609.3
*3 £1.2 million of IFRS 16 interest expense (being the Group’s net share of IFRS 16 interest expense) included within Finance Costs in the Income Statement has been reallocated to individual segments within expenses, in line with management segmental reporting.
*4 Profit before tax above of £522.6 million is presented on a statutory basis, being 100% of the result for each entity. This increases to Group’s share of profit before tax of £526.1 million. See note 13f for a reconciliation of the UK Insurance, International Insurance and Comparison turnover and profit before tax to the Strategic Report.
Revenue and results for the corresponding reportable segments for the year ended 31 December 2018 are shown below.
International Insurance £m Comparison £m Other*4 £m Eliminations*2 £m Total £m
Other Revenue and profit commission 389.5 18.6 151.0 13.3 (18.6) 553.8
*3 Profit before tax above of £476.2 million is presented on a statutory basis, being 100% of the result for each entity. This increases to Group’s share of profit before tax of £479.3 million. See note 13f for a reconciliation of the UK Insurance, International Insurance and Comparison turnover and profit before tax to the Strategic Report.
*4 “Other” in 2018 includes £2.5 million of expansion costs associated with the Preminen entities (included within “Other central revenue and expenses, including share scheme charges”). In 2019, the results of the Preminen operations have been included in the Comparison segment, as those operations have started to generate revenue in the period. The prior year segmental analysis has not been restated due to the amounts being immaterial.