What we do: Admiral is different: Admiral Group’s core focus is internet and telephone delivery of car insurance. Since launching in January 1993 the Group has achieved consistent year-on-year growth and now has over two million customers and employs over 3,500 staff.
Consistent year-on-year growth, maintained in 2009 with an 18% rise in turnover.
Building an international business The Group is the third largest private car insurer in the UK with a market share of around 7%. It also owns Confused.com, the UK’s leading car insurance price comparison website.
Part of the Group’s strategy is to exploit what it knows and does well in the UK, predominantly being internet and telephone delivery of car insurance, to promote expansion overseas.
International Expansion, Spain: The fi rst step in international expansion, Balumba a direct car insurer, launched in October 2006.
• In Germany, AdmiralDirekt started underwriting in January 2008; fi nishing 2009 with 35,000 cars insured
• ConTe, in Italy sold its fi rst policy in May 2008. It insured 35,500 cars at the end of 2009
• Most recently, in October 2009, Elephant Auto launched in Virginia USA
• In March 2009, the Group launched Rastreator.com, its fi rst price comparison business outside the UK, in Spain
• Gladiator, the Group’s UK van insurance broker increased its customer numbers by 10% to over 93,000 in 2009 £633 m Group cash and investments 14% growth £8.8 m Investment and interest income 64% decrease
Highlights for 2009 £2.4 m Gladiator pre-tax profi t 14% decrease
As regards our expansion overseas, in October Elephant Auto Insurance sold its fi rst policies in the state of Virginia, adding the US to the list of Spain, Germany, and Italy in which we have established private motor insurers over the past 4 years. As Henry Engelhardt discusses in his CEO’s report, we have learned signifi cantly more about each of these markets over the past 12 months. Balumba, our business in Spain, has focused with positive results on further reducing its loss ratio ahead of resuming policy growth. Our German business, AdmiralDirekt, also concentrated in its second year on its underwriting result, generating a steady fl ow of new business through the year rather than competing aggressively in the 1 January renewal market. In Italy ConTe now has 35,000 customers at the end of its fi rst full fi nancial year. Overall the Group now has some 120,000 customers outside the UK.
Since becoming a public company in 2004 Admiral’s strategy has been clear and straightforward, being to: • Grow our share of the UK private motor insurance market
The milestones of the past year mark another successful 12 months implementing this strategic direction.
* based on the closing share price on 26 February 2010
We continue to encourage our staff, wherever they are working, to play an active part in their local community. Through our Community Chest giving scheme we supported around 150 organisations, charities, and sports teams during 2009 covering causes as disparate as the Ystradgynlais Community Car Scheme and Halifax County Soccer in Canada. The Admiral Cardiff Big Weekend was the UK’s largest free festival during 2009.
Our Board has spent a lot of time during 2009 discussing the learning that we should take from the events of the last 18 months and the conclusions arrived at by Sir David Walker, the Financial Reporting Council, and the FSA. Each year we undertake an appraisal of the working of the Board and the Board committees, and of my effectiveness as chairman, and seek to identify how we can improve our Board process and its effectiveness in setting, and having oversight of the implementation of, the Group’s strategy.
Too often one fails to say “thank you” often enough – to recognise how good people feel when they know that they, and what they do, are appreciated. Let me, therefore, be absolutely clear how much I, on behalf of the Board of Admiral, appreciate what everyone has contributed to achieving another successful year, in particular the commitment, energy, and enthusiasm of our directors, managers, and staff.
Against the backdrop of an estimated 20% growth in motor insurance price comparison, Confused maintained its share at close to one-third of this market, with profi ts comparable to 2008. We have now started to take the learning from Confused into other markets, launching Rastreator.com in Spain in March 2009, followed by LeLynx.fr in France and Chiarezza.it in Italy in early 2010. We are delighted to have Mapfre, Spain’s leading insurance group, as our 25% partner in Rastreator.
We will distribute 97% of post-tax earnings, our full year dividends amounting to 57.5 pence per share, 10% up on our declaration for 2008. Our normal dividend, growing in line with our growth in profi ts based on a 45% pay-out ratio, amounted to 26.5 pence per share, whilst our available surplus, after taking into account our required solvency, provision for our overseas expansion plans, and a margin for contingencies, made possible a special dividend of 31.0 pence per share. We have paid such a special dividend as part of every distribution we have made since becoming a public company – in total £303 million, 51% of overall dividends.
(Yet) Another analogy 2009 was the year of the ox. This was a year where we did a lot of hard labour, tilling the car insurance soil as it were. The hard work certainly isn’t over yet but we’re one year closer to meeting our goal of creating profi table, sustainable, growing businesses outside the UK. Meanwhile, 2009 in the UK was an ox on steroids.
The model lives on We did three deals during the year that served to reinforce our low-risk, high-return-on-capital model. The biggest of these was with Munich Re, where they will be our reinsurance partner in the UK, Spain, Italy and the USA possibly to 2020 and beyond. The most important point to take from this deal is that it not only reduces our risk, it drastically reduces the amount of capital we’ll need to grow our operations. In turn, this means that if we can create successful businesses outside the UK we will perpetuate the cash generative model we have established far into the future.
2009 was an ever-so-much-more-so year. That is to say, it was a lot like 2008 but ever-so-much-more-so. For those of you who are fans of the author Robert McCloskey, you will know that ever-so-much-moreso is a colourless, tasteless, odourless chemical which makes things, well, ever-so-much-more-so: sprinkle it on a soft bed, the bed becomes softer; add it to a fi ne glass of wine and the wine is even fi ner, etc. Well, I think somebody sprinkled it on Admiral Group and so 2009 was like 2008, only… ever-so-much-more-so.
In 2009 we made more money than ever before, we put two new pins in the Group map and took a giant step towards perpetuating our model well into the future. Here are the highlights: • Record profi ts of £215.8 million • Turnover clears £1,000,000,000 for the fi rst time! • Group combined ratio of 92% • Launch of Elephant Auto, our insurance business in the USA • Launch of Rastreator.com, a price comparison site in Spain • 17% customer growth in the UK • Confused profi ts of £25.7 million • Balumba 2009 loss ratio at 83% • Signed an even longer-term, long-term reinsurance agreement with Munich Re 2009 Awards
• Management Today’s 16th Most Admired Company and Britain’s Most Admired Insurer £1 bn+ 2009 Group turnover cleared £1bn for the fi rst time
ConTe and the Italian car insurance market ConTe completed its fi rst full year of trading in 2009. We are very pleased with the progress of this operation. It ended the year with: • 35,500 customers at year-end • €12.5 million gwp • 2009 calendar year loss ratio of 99% • Expense ratio of 145%
Although the loss ratio for 2009 might look high, for a fi rst year book of business in a new country it’s actually quite encouraging (far better than Spain or Germany in either their fi rst full year). However, a note of caution, the book is still very young and the numbers quite volatile.
It appears that some Italian insurers are suffering, as rates appear to have gone up in the latter part of the year. ConTe has put through three substantial rate increases since the fi rst of December and is still selling at a brisk pace.
In February 2010 we launched our price comparison business in Italy, Chiarezza.it, which translates to ‘clarity’.
The third deal was to sell 25% of our Spanish price comparison business, Rastreator.com, to Mapfre, Spain’s leading insurer. Once again, this is a deal that sharply reduces the need for our own capital and, therefore, reduces our risk. It also begins a relationship with a highly respected insurance group.
As most of our philosophies go, this one too is quite simple: we are happy to share some of our future profi ts in return for: • reduced risk; and • less use of our own capital
The result is far less volatility in our results and, unusually for an insurance company, growth coupled with cash generation. The beauty of the way we run the model is illustrated by the fact that despite all our investment in future growth during 2009 we made more money than we’ve ever made before! (And this new record was achieved despite investment returns seemingly from the land of Lilliput.) And, even with growth rates nearing 20%, we are, once again, paying a record dividend.
Confused also had a good year in what continues to be a hyper-competitive market. Confused profi ts were £25.7 million, almost the same as 2008 (£25.6 million). Our excellent ad campaign featuring real customers, which paled only in comparison to the meerkat campaign from one of our competitors, allowed us to hold steady at around one third market share. There is no doubt that 2010 will again be a challenging year in the price comparison industry.
One positive development in the market has been the growth of price comparison sites. In 2009 we did 4.7 million aggregator quotes, up substantially from 2008. However, the real force in the market is HUK Coburg, an uber-effi cient mutual that, unlike other insurers, doesn’t seem to be feeling much pain despite the cycle at or nearing its nadir. Other insurers appear to be raising rates, with about half the fi rms in the market raising their rates for January 1 business.
We will take 33% of the risk on Elephant, with Munich Re and Hannover Re each taking 33% respectively. In 2010 Elephant will concentrate on getting things to work in Virginia before it considers trading in an additional state.
Vive La France! On January 18, 2010 we launched LeLynx.fr, a price comparison business in France, a country we think is ripe for a move towards internet distribution of car insurance. At this point there’s really not a whole lot more to say about this!
Another source of pride in our Company’s development was the fact that we are one of only two fi rms to be included in the Sunday Times Best Companies To Work For in the UK list all 10 years it has been compiled. We have a very simple philosophy: if people like what they do, they’ll do it better. So we go out of our way to make Admiral a great place to work. And the people who work here think it is.
So to all those many people who helped make 2009 another excellent year for Admiral Group: keep smiling!
“ We have a simple philosophy: if people like what they do, they’ll do it better.”
Elephant Auto, Admiral’s only business outside Europe, started operations in Virginia,
Kevin Chidwick, Admiral Group Finance Director, answers some frequently asked questions on Admiral’s UK Car Insurance Business
In 2009 the share of new business sales from price comparison (PC) websites increased by a fi fth to around 45%. This is good news for us. In the last couple of years we’ve focused on PC distribution and have built around 15% market share of PC business. Compare this to our current 7% share of the whole market and you can see why this was a helpful driver of Admiral’s growth.
Price transparency exposes less effi cient insurers with higher costs, who might otherwise make a good living off over-priced business.
The reason we have been able to do this better than others is down to many factors, however I’d highlight two key contributors, fi rstly our culture; we’re focused on car insurance and car insurance alone and we’re not afraid to do things differently, and secondly being data driven; we’re hungry for data, ways to analyse data, and the results of our analysis drives our decisions.
When Admiral launched in 1993 the focus was on younger, city drivers, an under-exploited subsection of the market. Although Admiral still has a disproportionate share of these types of drivers, for several years we have written business for the whole market, helping us to grow. Our strong pricing capability enables us to identify cross subsidies across the market, i.e. where lower risk customers
How do you think Admiral’s 12% increases in premiums in 2009 compared with the UK market? Do you expect increases to continue? How will premium rate increases translate to improvements in loss ratio performance?
We think our price increases were broadly consistent with increases in the market as a whole. I say this because the percentage of times our brands came top on price comparison websites at the start of 2009 and at the end of 2009 was about the same, which suggests our relative price competitiveness stayed about the same.
Premiums this is a long-term trend rather than a sudden change. This pressure on claims is moderated by overall claims frequency in 2009 remaining low, with the exception of a blip of higher frequency in December 2009 and January 2010 due to the snow and bad weather. It takes time to see claims severity trends, but our current expectation for 2009 claims infl ation is that it will be similar to 2008, relatively modest compared to earlier years, but well above RPI.
We’ve been successful at maintaining our ancillary income per vehicle since we fl oated in 2004 and we expect this to continue. One reason for this is that the ancillary revenue is generated from a range of products and services rather than a single product. Having a range of sources means that, of course, some things will be going well whilst others less
As part of the Group’s growing international activities, two new businesses were launched in 2009: Rastreator.com, our Spanish price comparison website started offering car insurance quotes in March 2009, and later in the year Elephant Auto started selling private car insurance in Virginia, USA.
Pre-tax profi t increased by 7% to £215.8 million. The rate of growth was below that seen in recent years for two main reasons – fi rstly, and most signifi cantly, a £15 million (60%) fall in investment and interest income resulting from lower yields, and secondly, continuing investment in our new businesses overseas.
• We also generate ancillary income from products and services that complement the motor insurance
The strategy for our core UK business remains relatively simple: • We aim to manage our existing client base and future growth in order to maximise profi tability and return on capital over the medium to long term
• At the same time, we endeavour always to give excellent service to our customers, whilst providing a positive environment for our staff in which to work and develop in
Admiral increased its base premium rates by around 12% in 2009, the largest annual increase for nearly a decade. However, Admiral’s average written premium in 2009 did not change materially compared to 2008. This refl ected portfolio mix changes and the growing infl uence of price comparison websites (which we estimate now generate around 45% of all new business transacted in the UK), where customers generally transact at the cheapest price, resulting in market average written premiums not rising at the same rate as reported price changes.
Admiral’s UK expense ratio of 18% compares very favourably to the market average fi gure of around 30%. This signifi cant (and sustained) advantage results in part from a portfolio with a higher average premium than the market, but also from lower infrastructure and acquisition costs. Admiral’s written basis expense ratio improved modestly in 2009 to just under 17%.
UK Car Insurance – Co-insurance and Reinsurance Arrangements In 2009, Admiral underwrote a net 27.5% of UK premiums (in line with 2008). 50% of the UK total is underwritten by the Munich Re Group (specifi cally Great Lakes Reinsurance (UK) Plc) through a long-term co-insurance agreement, and 22.5% was proportionally reinsured to Swiss Re (10.0%), Hannover Re (6.25%) and New Re (6.25%).
UK Car Insurance Financial Performance The Group’s core business grew strongly in 2009, with 17% more vehicles insured at the end of the year compared to December 2008 and a similar increase in written premium.
All employees, regardless of location, are entitled to receive shares in the Group’s Approved
Regulatory environment The UK car insurance business operates mainly under the regulation of the UK Financial Services Authority, and also, through a Gibraltar-based insurance company, under the Financial Services Commission in that territory.
Solvency II The most signifi cant area of regulatory change for a number of years is the Europe-wide Solvency II project, which will result (from the end of 2012) in new rules on solvency and risk management for European insurers.
Treating Customers Fairly (TCF) FSA regulations require regulated companies to treat their customers fairly, and this has been an area of signifi cant focus in recent years. The Group has had a TCF culture along with comprehensive management information in place for some years, and we report some of the data in the Customers section below.
In determining the quantum of releases from prior years, we seek to maintain a consistent level of prudence in reserves, taken together with ‘reserves’ of profi t commission based on actuarial projections of ultimate loss ratios that are, however, yet to be recognised at the balance sheet date.
It is worth repeating that although Admiral does not underwrite all the car insurance generated for its own account, it does retain all ancillary income generated.
• Confused’s income is primarily generated via commissions paid by the product provider on the sale of an insurance policy or fi nancial product
• Confused is the UK’s leading car insurance comparison website measured by sales generated
• Rastreator.com, our Spanish insurance comparison website, launched in March 2009
• Rastreator allows customers to compare car and motorcycle insurance prices
• The Group’s French comparison website, LeLynx.fr, launched in Paris in January 2010
• Most recently, Chiarezza.it, based in Milan, Italy, started operating in February 2010
Rastreator.com Having only started business in March 2009, the post-launch results for Rastreator in 2009 are not signifi cant in the Group context.
The focus for Rastreator in 2010 is to work to become top of mind in insurance price comparison in Spain and also an important strategic partner for insurers based on sales volumes generated.
Following the successful roll-out of Confused’s new website early in the year accompanied by the ‘Testimonials’ TV campaign, the main story of 2009 was yet another year of fi erce competition among the four key players in UK price comparison.
The most signifi cant of the non-motor products remains household insurance comparison, but there is also notable contribution from van and life insurance as well as a growing capability in comparison of money products such as credit cards and loans.
• Spain, Balumba.es, October 2006 • Germany, AdmiralDirekt.de, October 2007 • Italy, ConTe.it, May 2008 • USA, Elephant.com, October 2009 • France – market being researched 2) Develop each new operation into a profi table, sustainable business
• Balumba in Spain was fi rst to launch and during 2009 made good progress towards becoming a sustainable business 3) Minimise where possible the fi nancial impact on the Group
• 65% reinsurance support in place in Europe • Elephant.com has reinsurance support for two thirds of its business • The Group takes a ‘slow and steady’ approach to expansion and aims to build sustainable businesses before pushing for signifi cant growth
• AdmiralDirekt (Cologne, Germany) launched a year after Balumba, writing business from January 2008. It had 35,000 insured vehicles at December 2009
• As we noted earlier, an important element of Group strategy is to take what we do well in the UK and use our experience to establish profi table, sustainable businesses overseas. We will not do this quickly and we do not set market share or revenue targets within fi xed timeframes
The contracts in place for Germany, Italy and the USA include proportional sharing of ancillary profi ts.
Changes to Munich Re Agreements As noted in the UK Car Insurance section above, in early 2010, Admiral signed revisions to the Munich Re agreements in both Spain and Italy to extend the terms to a total of 15 years (though with options for Munich Re to exit earlier subject to various conditions). Both agreements have also been revised to include a stronger alignment of long term interests and higher profi t commissions for Admiral if results are very positive.
The eldest of the four operations – Balumba in Spain – is only just over three years old and as should be expected for new car insurance businesses, none has yet reached the scale or maturity to be profi table. When a business reaches this milestone will depend on the individual market, though we would not expect it to happen for at least four or fi ve years.
The combined businesses lost a total of £9.5 million in 2009, up from £4.1 million in 2008. The higher loss is partly a factor of more businesses operating for the full period, and each business bearing a combined ratio in excess of 100% on a higher level of earned premium.
Balumba After having contracted in size over the fi rst half of 2009 whilst management focused on improving the loss ratio, Balumba started to grow again in the second half and ended the year with 50,300 customers. This is 10% fewer than at December 2008, but 4% more than at 30 June 2009.
Balumba continues to generate very positive ancillary contribution, with over €70 earned on average per customer. This strong performance has contributed to a positive movement in the overall result, with only £0.3 million of the full year loss of £1.3 million arising in the second half of the year.
The current focus in Spain is to recommence growing the portfolio at an acceptable level of acquisition cost, whilst remaining focused on achieving an acceptable loss ratio.
AdmiralDirekt Germany continues to be the market which offers the greatest challenge among our new businesses. The 1 January renewal ‘season’ and an extremely competitive pricing environment are two of the factors that contribute.
Despite focusing on the replacement car market rather than the 1 January renewal season, AdmiralDirekt grew its customer base relatively signifi cantly during the fi rst half of 2009, fi nishing the year with around 35,000 cars insured compared to 15,000 a year earlier.
Even including the material impact of one very large claim (accounting for around 6 percentage points) the 2009 loss ratio has improved notably compared to 2008, though with a large proportion of customers being new, a relatively poor loss ratio is to be expected. Material price increases, a growing proportion of renewal customers as well as continued development in the claims area are among the actions taken by management to further the improvement into 2010.
A small base of earned premium is vulnerable to the impact of large claims, and one such claim in the second half of the year has led to a worsening of the loss ratio since we reported interim results. The 2009 ratio is still below 100%, and with the vast majority of the portfolio made up of new business customers, the result is encouraging.
Elephant Auto The Group launched its latest new car insurance business in Virginia, USA in October 2009. The period from launch to the end of the year was used to test and embed the systems and very little business was written until the start of 2010.
The business currently just underwrites Virginia based risks, though it is actively researching a number of further states with a view to beginning to write business outside Virginia if and when the Virginia business produces satisfactory results.
UK Car Insurance 12 Group review 13 UK Car Insurance 17 Price Comparison 19 Non-UK Car Insurance 22 Other Group Items 24 Principal risks and uncertainties 26 Corporate responsibility 32 Governance 51 Financial statements
Insurance Comparison Car Insurance Other Total £m £m £m £m £m
Gladiator’s operating profi t margin reduced to around 23% from 29% in 2008, refl ecting this increased competition. Operating profi t fell from £2.8 million to £2.4 million.
Other income statement items Other notable items in the income statement are: • Net interest income – substantial reduction from £6.6 million to £1.1 million refl ecting signifi cantly lower cash returns
The key element of Group-wide investment strategy is capital preservation, with additional priorities focussing on low volatility in returns and high levels of liquidity.
There has been some movement of cash out of money market funds into cash deposits (maximum term 12 months) in order to secure higher rates of return than were being generated by the funds. A level of liquidity has been sacrifi ced, but a high proportion of funds continue to be immediately available. Our objectives noted above have always been achieved.
Other fi nancial items Taxation The taxation charge reported in the income statement is £58.9 million, which equates to 27.3% of profi t before tax.
At 5 March 2010, the Company had received notifi cations in accordance with the FSA’s DTRs of the following notifi able interests, in the voting rights in the Company’s issued share capital: Number of shares %
The interests of Directors and Offi cers and their connected persons in the issued share capital of the company are given in the Remuneration report.
Principal risks and uncertainties 1. UK Car Insurance – erosion of competitive advantage
As the UK business continues to steadily gain market share, there is a risk that Admiral’s advantage – both in loss and expense ratio terms – will erode. Measured by the combined ratio, Admiral’s UK Car Insurance underwriting is typically around 25 to 30 percentage points more profi table than the market.
The impact on the business would be a loss profi table underwriting result and lower return on capital employed.
In addition, the Directors believe further growth is achievable in the medium term without undermining Admiral’s combined ratio advantage. Further growth could bring benefi ts such as economies of scale and additional data points which are likely to be benefi cial for pricing.
New price comparison businesses also focus on modest starts with low set-up costs and relatively small initial media spend budgets. This tends to mean that the losses the new operations could incur are minimised whilst management assess the likelihood of the business succeeding.
Admiral earns ancillary profi ts from a portfolio of products and seeks to minimise reliance on any single item. This would mitigate the impact of a regulatory change which affected a particular product or income stream.
Confused.com operates in a highly competitive market with four businesses attempting to increase their market share through aggressive media activity.
There is a risk that despite Confused currently enjoying a market leading position, it will not succeed in maintaining this position or will have to advertise even more aggressively to defend share.
Admiral has relationships with a number of reinsurers reducing reliance on an individual reinsurer.
UK Car Insurance 12 Group review 13 UK Car Insurance 17 Price comparison 19 Non-UK Car Insurance 24 Principal risks and uncertainties 26 Corporate responsibility 32 Governance 51 Financial statements
Taking everything into account I am happy at Admiral 92% 87% 90% 91%
Every effort is made to understand the opinions and thinking of employees 74% 73% 86% 87%
I am more likely to stay at Admiral because of the share schemes 69% 71% 71% 79%
This report gives an overview of our approach and highlights some of our achievements during 2009 and the challenges for 2010.
During 2009 we won a number of awards supporting our commitment to CR and these are detailed in each section of the CR report.
Employees The people working at Admiral are our key asset. We have a simple philosophy – if people like what they do, they will do it better. So we go out of
The table below provides the overall scores (out of 7) compared to the previous two years. See Fig 3.
It is important for employees to understand the Company’s goals and objectives. We work to communicate this in as many ways as possible. Everyone is encouraged to attend the annual Staff General Meeting (SGM). The SGM is arranged to enable employees to hear the views of the Executive Directors and some of the Non-Executive Directors on a wide range of subjects which in 2009 included the performance of the Group and the market within which we operate; the experiences of Non-Executive Directors within and outside of the Group; and the Group’s share plans. We believe that being wellinformed improves motivation and makes Admiral a better place to work.
Share ownership is a key feature of the remuneration of employees. All employees, regardless of location, are eligible to receive shares in the Group’s Approved Free Share Plan. Awards under this plan are made twice a year, following the interim and fi nal results announcements. The level of awards is linked to the fi nancial performance over the six-month period compared to the same period 12 months ago. Overseas employees receive equivalent awards within the Group’s Discretionary Free Share Scheme.
The awards to date are shown in the table below. An employee who was working at Admiral before 1 January 2005 would have received, up to the end of 2009, 1,820 shares. If none of the shares had been sold, these shares would be worth £21,640 on 31 December 2009 (based on the closing share price of £11.89). 851 of the 1,820 shares have reached maturity and are available to sell. See Fig 4.
The Remuneration Committee report provides details of the performance measures for vesting of the DFSS.
Customers Taking care of our customers is key to the current and future success of the Group. As at 31 December 2009 the Group had 2.08 million customers, up 18% from 1.75 million the year before.
Award No. shares Total Shares No. of employees at Admiral on Leaver no. Award date per employee awarded receiving award maturity date Percentage
As well as this programme, quality representatives throughout Admiral monitor the service the Company provides through the thousands of comment forms it receives back from customers every month. By listening to customer comments, we can improve the quality of service we provide.
A detailed report is produced each month together with a summary, providing details of measures that have been graded red. The report is discussed at the Risk Management Committee (see Corporate Governance section of this report for details on the RMC) and process or behavioural changes agreed where appropriate.
The table below contains some of the key measures from the TCF report: See Fig 5.
% FOS complaints found in favour of Admiral 78% 67% >75%
% Customer who would renew following a claim 93% 93% >85%
There are over 150 individual TCF measures, each of which is benchmarked to allow the RMC to take an overall view as to whether customers are being treated fairly. During 2009 the average red grades amounted to 1.23%. 91% of the measures throughout the period achieved a green grade.
Each quarter the Central Complaints Department produce a report analysing the complaints received and causes. The report provides a summary of the root causes of the complaints and actions taken to reduce the risk of complaints due to specifi c procedures or behaviour.
The Group’s impact on the environment stems from its use of resources to run its offi ces in Cardiff, Swansea and Newport and its overseas branches in Spain, Germany, Italy, Canada and now the US. The Group does not own the properties that it occupies and is, therefore, reliant upon the cooperation of the managing agents of the properties to make changes that reduce the consumption of energy and water. The fi gures quoted include all of the Group’s offi ces.
• Reporting key environmental performance indicators, taking into account the ABI’s Guidelines on Responsible Investment Disclosure and guidance provided by the Department for Environment, Food and Rural Affairs (Defra) See Fig 6.
Rail miles 405,630 223 miles per employee 449,924 124 miles per employee
Water usage increased to 6.3 cubic metres per employee. This was a result of a major leak in the Cardiff offi ces during 2009 that emptied both main header tanks each containing 10,000 gallons of water.
We also introduced the liftshare scheme during 2009 in conjunction with liftshare. liftshare is the largest carshare network in the UK and provides a free service to the local business community by providing a car-share scheme helping to reduce parking issues, saving employees money and reducing local pollution and congestion. As well as providing this facility, the Group operates an interest-free loan scheme for advance payment of public transport costs.
Challenges for 2010 The Group faces a continual challenge to recruit, train, motivate and retain employees across its whole business. Whilst it appears that morale across the Group is excellent, there are small areas where this is not the case and it will be a challenge to identify and increase the morale within these areas to match how employees feel about the Company as a whole.
Chairman of the Audit Committee in August 2004. He was the Group Finance Director of Friends Provident plc between 2001 and 2003 and Friends’ Provident Life Offi ce between 1999 and 2001. Prior to that he was the Group
Finance Director at London & Manchester Group plc from 1992 to 1998, up to the date of its acquisition by Friends’
Rothesay Life Limited. He is a Fellow of the Institute of
Non-Executive Director of Bank of Wales plc between 1988 and 2001 and AXA Insurance Company Limited between 1992 and 2000. Keith was awarded an OBE in 2005 for services to business and the community in Wales.
Delaney and has been with that Company for the past 13 years. Margaret joined the Group’s Audit and
Executive Director in August 2004, and is Chairman of the Remuneration Committee. He is also a Non-Executive
Marketing Services, In Retirement Services, and Cardsave, and Deputy Chairman of Bovis Homes. He has previously been Chief Executive of the National Provident Institution and of the National & Provincial Building Society, Managing
Henry Engelhardt, CBE (52) – Chief Executive Offi cer Henry is a founder Director of Admiral and was recruited by the Brockbank Group in 1991 to set up the Admiral business. He was part of the management team that led the MBO in 1999. Prior to joining Admiral, he was Marketing and Sales Manager for Churchill Insurance. He has substantial experience in direct response fi nancial services in the United Kingdom, United States and France. He has an MBA from Insead. Henry was awarded an honorary
Kevin Chidwick (46) – Finance Director Kevin is responsible for fi nance and investments as well as
USA. He joined Admiral in 2005, becoming Finance Director in September 2006. Prior to Admiral, Kevin has been in
Assurance and Cigna UK. He is a fellow of the Chartered
David Stevens (48) – Chief Operating Offi cer David is a founder Director of Admiral. Initially the Marketing
Company in 2003 as a representative of Munich Re. He graduated from University of Essen and has a degree in
Charitable and political donations During the year the Group donated £147,000 (2008: £106,000) to various local and national charities. The Group has never made political donations. Refer to the Business review for further detail.
Creditor payment policy It is the policy of the Group to pay all purchase invoices by their due date, and appropriate quality measures are in place to monitor and encourage this. At the end of the year outstanding invoices represented 15 days purchases (2008: 20).
Additional information for shareholders Where not provided previously in this Directors’ report, the following provides the additional information required for shareholders as a result of the implementation of the Takeovers Directive into UK law.
On a show of hands at a general meeting of the Company every holder of shares present in person and entitled to vote shall have one vote and on a poll, every member present in person or by proxy and entitled to vote shall have one vote for every ordinary share held. The notice of the general meeting specifi es deadlines for exercising voting rights either by proxy notice or present in person or by proxy in relation to resolutions to be passed at general meeting. All proxy votes are counted and the numbers for, against or withheld in relation to each resolution are announced at the Annual General Meeting and published on the Company’s website after the meeting.
The Directors have declared a second interim dividend of £79.4 million (29.8 pence per share), payable on 1 April 2010.
Annual General Meeting It is proposed that the next AGM be held at the Cardiff City Hall, Cathays Park, Cardiff CF10 3ND on Wednesday 28 April 2010 at 3.00pm, notice of which will be sent to shareholders with the Annual Report.
Directors’ responsibilities The Directors are responsible for preparing the Annual Report and the Group and Parent Company fi nancial statements, in accordance with applicable law and regulations.
The Parent Company fi nancial statements are required by law to give a true and fair view of the state of affairs of the Parent Company.
There are no restrictions on the transfer of ordinary shares in the Company other than: • certain restrictions may from time to time be imposed by laws and regulations (for example, insider trading laws)
Power to issue shares At the last Annual General Meeting, held on 28 April 2009, authority was given to the Directors to allot unissued relevant securities in the Company up to a maximum of an amount equivalent to one third of the shares in issue. This authority expires on the date of the Annual General Meeting to be held on 28 April 2010 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 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 28 April 2010 and the Directors will seek to renew this authority for the following year.
Responsibility statement The Directors confi rm that to the best of their knowledge: • The fi nancial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities and fi nancial position and profi t or loss of the Company and the undertakings included in the consolidation taken as a whole
• for the Parent Company fi nancial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Parent Company fi nancial statements
The Admiral Group Board The Board is the principal decision making forum for the Group both providing leadership, either directly or through its committees of Directors, and delegating authority to the Executive team in a manner that will promote the success of the Group and is consistent with good coporate governance practice. The Board is accountable to shareholders for setting and achieving the Group’s strategic objectives and for the creation and delivery of strong sustainable fi nancial and operational performance. The Board is also responsible to the Financial Services Authority (FSA) for ensuring compliance with the Group’s UK regulatory obligations.
The Board has adopted a formal schedule of matters specifi cally reserved to it which is reviewed on an annual basis (this was last carried out on 15 December 2009). Matters reserved to the Board include the approval of: • The Group’s long term objectives and corporate strategy
The Board met on seven occasions in 2009. The Board also held a strategy day and visited its operations in Germany and Spain. In addition, the Non-Executive Directors and the Chairman met during the year without the Executive Directors being present. Agendas and papers are circulated to the Board in a timely manner in preparation for Board and Committee meetings. These papers are supplemented by information specifi cally requested by the Directors from time to time. All Directors are, therefore, 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 frequent contact between meetings, where necessary, to progress the Group’s business.
A fi nal detailed report was circulated to, and discussed by, the Board and a number of recommendations for improvement in certain processes were agreed including: • A move for Board meetings to be held over two days to allow the Board to consider more effectively the operational and strategic issues that affect the Group, given the breadth of markets in which it now operates
• An increase in the Board’s exposure to the next level of senior management in order to support the Board’s assessment of the Group’s succession planning process
The Chief Executive, to whom they report, appraises annually the performance of the individual Executive Directors. The Chairman, taking into account the views of the other Directors, conducts the performance appraisal of the Chief Executive. The performance of the Chairman is reviewed by the Non-Executive Directors, led by the Senior Independent Director (‘SID’), taking into account the views of the Executive Directors. The SID gave personal feedback to the Chairman and was able to confi rm that the performance of the Chairman continues to be effective, and that the Chairman continues to demonstrate commitment to his role.
The Directors 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 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.
The evaluation concluded that the Board and its Committees performed well during the year and are effective in meeting their objectives and fulfi lling their obligations. In addition, the Chairman has concluded that each director contributes effectively and demonstrates full commitment to his/her duties.
Details of the Chairman’s other commitments are included in the Chairman’s biography. The Chairman does perform a number of other non-executive roles outside the Group but the Board is satisfi ed that these are not such as to interfere with the performance of his duties within the Group.
In accordance with the Company’s Articles, which provide that a set number of directors retire by rotation and stand for re-election at each AGM, Martin Jackson, Keith James, Margaret Johnson, and Lucy Kellaway will retire by rotation and seek re-election by shareholders at the forthcoming AGM.
Given that the Chairman has served in his role since June 2000 he will now seek re-election by shareholders annually. As the Board was minded to ask him to continue in offi ce notwithstanding that he had completed nine years as Chairman, the Company’s leading institutional investors were approached to seek their views. They confi rmed their support for the Board’s expressed intent.
Professional development On appointment, Directors take part in a comprehensive induction programme where they receive fi nancial and operational information about the Group; details concerning their responsibilities and duties; as well as an introduction to the Group’s governance and control environment.
The roles of the Chairman and Chief Executive The Board has approved a statement of the division of responsibilities between the Chairman and the Chief Executive. The Chairman is primarily responsible for the leadership and workings of the Board, setting its agenda, and monitoring its effectiveness. The Chairman is not involved in the day-to-day management of the business. Save for matters reserved for decision by the Board, the Chief Executive, with the support of the other Executive Directors, is responsible for proposing the strategy to be adopted by the Group; the running of the business in accordance with the strategy agreed by the Board; and implementing specifi c Board decisions relating to the operation of the Group. The statement of division of responsibilities and matters reserved for decision by the Board were reviewed in December 2009.
Independent Non-Executive Directors are currently appointed for fi xed periods of three years, subject to election by shareholders.
The initial three-year period may be extended for one further three-year period and the Board may invite the Non-Executive Director to serve for a further three-year period, subject to re-election by shareholders. Their letters of appointment may be inspected at the Company’s registered offi ce or can be obtained on request from the Company Secretary.
In the view of the Board, the independent NonExecutive Directors are of suffi cient calibre and number that their views carry signifi cant weight in the Board’s decision making and that they are free from any relationship or circumstance that could affect, or appear to affect, their independent judgement.
The Audit Committee Constitution and membership The membership throughout the year was Martin Jackson (Chairman), Keith James, and Margaret Johnson. The Company Secretary acts as Secretary to the Committee. Appointments to the Committee are for a period of up to three years, which may be extended for two further three year periods, provided the Director remains independent. The Committee meets at least three times per year and has an agenda linked to events in the Company’s fi nancial calendar.
The Committee has formal terms of reference which were reviewed by the Committee during the year and approved by the Board in February 2010.
Other individuals such as the Finance Director, Chief Operating Offi cer, Chief Executive Offi cer, Chairman of the Board, the Heads of Risk, Compliance, and Internal Audit and representatives of different parts of the Group may be invited to attend all or part of any meeting as and when appropriate. The external auditors are invited to attend meetings of the Committee on a regular basis.
This is supplemented by monthly feedback to the Board on meetings between management and investors. External analysts’ reports are circulated to all Directors. In addition, the Investor Relations team produces a monthly Investor Relations Report that is circulated to the Board. The Report contains an analysis of share price performance; a summary of analyst reports received during the month and of meetings that have been held with investors and analysts; together with details of any signifi cant changes to the shareholders’ register.
The Chairmen of the Audit, Remuneration, and Nomination Committees attend the Company’s Annual General Meeting along with the other Directors, and are available to answer shareholders’ questions on the activities of the committees they chair.
Summary of key activities during 2009 During the year the Committee reviewed the following: • The Annual Report and interim results • Reports from the Group’s internal audit department on the effectiveness of the Group’s risk management procedures, details of key audit fi ndings, and actions taken by management
• Performance of the internal audit department, with input from the external review referred to below
During the year, the Committee received a presentation from the Group’s actuaries on reserving methodology. They also provided market insights and identifi ed emerging trends.
In addition to the evaluation of the Committee’s effectiveness undertaken by the Board, the Committee also carried out a more detailed review of its own performance. The key fi nding was that governance of overseas operation and the interaction with the Committee remit should be kept under continual review as the overseas operations grow.
During 2009, the Committee continued to discuss with the Executive team the succession planning across the Group to identify and develop those individuals within the organisation who have the potential and necessary skills to succeed the current members of the Executive team. Following these discussions a Succession Plan was produced by the People Services Manager and presented to the Committee at the meeting in July 2009. This Succession Plan considered the senior roles within the Group and identifi ed whether there was emergency short term cover in place in the event that the individual left the organisation, whether there was a permanent replacement available within the organisation, or whether the position would need to be fi lled externally. It also identifi ed where there were individuals who would be capable of moving into particular roles following the gaining of further experience.
Highlights 04 Chairman’s statement 06 Chief Executive’s statement 10 Business review 32 Governance 32 The Admiral Group Board 34 Directors’ report 37 Corporate governance 44 Remuneration report 49 Independent auditor’s report to the members of Admiral Group plc 51 Financial statements
Remuneration Committee The membership throughout the year was John Sussens (Chairman), Martin Jackson, and Margaret Johnson. The Company Secretary acts as Secretary to the Committee. The Committee invites the Chief Executive and Chairman to attend meetings where it deems appropriate.
Internal control and risk management The Board is ultimately responsible for the Group’s system of internal control and, through the Audit Committee, has reviewed the effectiveness of these systems. The systems of internal control over business, operational, fi nancial, and compliance risks are designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.
A key element of the control system is that the Board meets regularly with a formal schedule of matters reserved to it for decision and has put in place an organisational structure with clearly defi ned lines of responsibility. In order to ensure these responsibilities are properly discharged, the Board has delegated the task of supervising risk management and internal control to the Risk Management Committee (RMC) in the UK and appropriate management committees for overseas entities.
• Identify and monitor any UK regulatory issues and ensure that their resolution and action is appropriately recorded
• Assess and monitor reinsurance protection • Advising management committees for the Group’s overseas operations
Highlights 04 Chairman’s statement 06 Chief Executive’s statement 10 Business review 32 Governance 32 The Admiral Group plc Board 34 Directors’ report 37 Corporate governance 44 Remuneration report 49 Independent auditor’s report to the members of Admiral Group plc 51 Financial statements Remuneration policy The Group is committed to the primary objective of maximising shareholder value over time whilst at the same time ensuring that there is a strong link between performance and reward. The Committee reviews the framework and remuneration packages of the Executive Directors and the most senior managers. The main principles underlying the remuneration policy are: • Competitive – The Group aims to pay belowmedian salaries but with attractive performancerelated incentives, which provide individuals with the potential for competitive total reward packages for superior performance
• Approved Free Share Incentive Plan (SIP). The SIP is available to all UK staff (Henry Engelhardt and David Stevens have declined to be included in the plan). The maximum annual award under the SIP is £3,000 per employee. Shares awarded under the SIP are forfeited if the employee leaves within three
The Committee’s terms of reference, which are reviewed at least annually and approved by the Board, are available on the Group’s corporate website and are summarised in the Corporate Governance Report. The Committee reviewed them on 14 December 2009.
During the year the Committee purchased consultancy services from Kepler Associates. In addition, the Company Secretary circulates market survey results as appropriate.
Executive Directors’ remuneration Two of the three Executive Directors (Henry Engelhardt and David Stevens) are founding Directors. They and the Committee continue to hold the view that the signifi cant shareholdings held by them provide a suffi cient alignment of their interest in the performance of the Group with the interests of other shareholders.
In light of this, their remuneration packages consist of below-median base salary (compared to market rates as assessed by the Committee) and benefi ts such as private medical cover, permanent health insurance and death in service cover. The Group does not contribute to any pension arrangements on behalf of these Executive Directors, and they have not participated, nor is it intended that they participate, in any Group share schemes. Their remuneration was reviewed in September 2008. Henry Engelhardt was awarded a rise of 4.7% taking his salary to £335,000 with effect from 1 July and David Stevens’ salary was unchanged at £320,000.
In addition to benefi ts such as private medical cover, permanent health insurance, death in service cover and eligibility for the Group’s Personal Pension Plan, there are two main elements to the Finance Director’s remuneration package: • Basic annual salary • Awards under the DFSS
years of the award. Awards are made twice a year, based on the results of each half-year. Overseas staff receive an award under the Discretionary Free Share Scheme equivalent to the SIP award made to UK employees
• Discretionary Free Share Scheme (DFSS). Awards under the DFSS are distributed on a wider basis than is the case for most plans of this type. The Committee believes that as the DFSS develops, and awards continue to vest it will have the effect of reducing staff attrition and strengthening further the alignment of the interests of staff and shareholders
The performance criterion to determine how many shares vest under the DFSS is the growth in earnings per share (EPS) in excess of a risk free return, defi ned as average three-month LIBOR, over a three-year period. The Committee feels that this is a good indicator of long-term shareholder return with which to align staff incentivisation. The Committee recommends for approval by the Board awards to the Finance Director and other employees under the DFSS.
From 2009, for staff below Group Board level awards will be split. 50% of the award will be subject to the above performance criteria. The other 50% will have no performance criteria attaching. The change was made in order to assist the Group to attract high calibre staff by providing more certainty over the outcome of vesting awards.
Highlights 04 Chairman’s statement 06 Chief Executive’s statement 10 Business review 32 Governance 32 The Admiral Group plc Board 34 Directors’ report 37 Corporate governance 44 Remuneration report 49 Independent auditor’s report to the members of Admiral Group plc 51 Financial statements 46 Admiral Group plc Annual Report 2009
Alastair Lyons 3 years commencing 1 July 2007, terminable by either party giving three months’
Manfred Aldag Indefi nite (terminable on one month’s notice from either party) – automatically terminates should he cease employment with Munich Re.
Martin Jackson 3 years commencing 1 December 2009, terminable by either party giving one month’s written notice.
Keith James 3 years commencing 1 December 2009, terminable by either party giving one month’s written notice.
Margaret Johnson 3 years commencing 4 September 2009, terminable by either party giving one month’s written notice.
Non-Executive Directors do not have service contracts but each has a letter of appointment. The letters of appointment all require a period of one month’s notice should the Non-Executive Director wish to resign.
John Sussens 8,000 8,000 * Includes 1,182 shares within the Group’s SIP details of which are shown below. Of these 213 have reached their three-year maturity date.
Chairman and Non-Executive Directors *1 Kevin Chidwick received a bonus of £32,000 in lieu of dividends on shares awarded (but not yet vested) under the Group’s DFSS
Scope of the audit of the fi nancial statements A description of the scope of an audit of fi nancial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/UKP
• the information given in the Corporate Governance Statement set out on pages 42 and 43 with respect to internal control and risk management systems in relation to fi nancial reporting processes and about share capital structures is consistent with the fi nancial statements
• a Corporate Governance Statement has not been prepared by the Company
• the part of the Corporate Governance statement on page 37 relating to the Company’s compliance with the nine provisions of the June 2008 Combined Code specifi ed for our review.
for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants Marlborough House Fitzalan Court Fitzalan Road Cardiff CF24 2LP
Insurance claims and claims handling expenses recovered from reinsurers 131.4 99.2
Profi t after tax attributable to: Equity holders of the parent 156.9 144.9
Other comprehensive income for the period, net of income tax (5.3) 9.9 Total comprehensive income for the period 151.6 154.8
Consolidated statement of comprehensive income for the year ended 31 December 2009
Total equity attributable to equity holders of the parent 300.2 275.5 Non-controlling interests 0.6 –
Consolidated cash fl ow statement for the year ended 31 December 2009 31 December 31 December
Change in trade and other receivables, including from policyholders (41.1) (36.5)
Change in trade and other payables, including tax and social security 36.5 30.7
Cash fl ows from operating activities, before movements in investments 286.4 251.5 Net cash fl ow into investments (10.5) (76.0)
Cash fl ows from operating activities, net of movements in investments 275.9 175.5
Net cash fl ow from operating activities 226.8 118.6 Cash fl ows from investing activities: Purchases of property, plant and equipment and software (11.8) (11.3)
Cash fl ows from fi nancing activities: Capital element of new fi nance leases 1.4 0.5
Consolidated statement of changes in equity for the year ended 31 December 2009
Deferred tax credit on share scheme credit – – – 0.3 – 0.3
Total transactions with equity holders – – – (116.9) – (116.9)
Profi t for the period – – – 156.9 – 156.9
Other comprehensive income Currency translation differences – – (5.3) – – (5.3)
Total comprehensive income for the period – – (5.3) 156.9 – 151.6 Transactions with equity holders Dividends – – – (142.4) – (142.4)
Total transactions with equity holders – – – (126.9) 0.6 (126.3)
IFRICs 12, 15, 17 and 18, and the amendment to IAS 32 are effective for periods beginning on or after 30 March 2009, 1 January 2010, 1 November 2009, 1 November 2009 and 1 February 2010 respectively. None of these interpretations have been applied during the current accounting period, and on adoption will not have a material impact on the Group’s fi nancial statements.
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The fi nancial statements of subsidiaries are included in the consolidated fi nancial statements from the date that control commences until the date that control ceases.
The preparation of fi nancial 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. 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 if this revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.
• Amendments to IFRS1 and IAS 27 Cost of investment in a subsidiary, jointly controlled entity or associate
The requirements of IFRS 7, Financial instruments, disclosures are met through note 17 to the fi nancial statements. This includes the enhanced disclosures about fair value measurements required under the amendment to IFRS 7 that has been adopted for the fi rst time.
Under some of the co-insurance and reinsurance contracts under which motor premiums are shared or ceded, profi t commission may be earned on a particular year of account, which is usually subject to performance criteria such as loss ratios and expense ratios. The commission is dependent on the ultimate outcome of any year, with income being recognised based on loss and expense ratios used in the preparation of the fi nancial statements.
Investment income Investment income from fi nancial assets comprises interest income and net gains (both realised and unrealised) on fi nancial assets classifi ed as fair value through profi t and loss or held to maturity deposits.
b) Foreign currency translation Functional and presentation currency Items included in the fi nancial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated fi nancial statements are presented in millions of pounds sterling, which is the Group’s presentation currency.
(ii) Income and expenses for each income statement are translated at average 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)
Income earned on the sale of ancillary products and income from policies paid by instalments is credited to the income statement over the period matching the Group’s obligations to provide services. Where the Group has no remaining contractual obligations, the income is recognised immediately. An allowance is made for expected cancellations where the customer may be entitled to a refund of ancillary amounts charged.
d) Intangible assets Goodwill All business combinations are accounted for using the purchase method. Goodwill has been recognised in acquisitions of subsidiaries, and represents the difference between the cost of the acquisition and the fair value of the net identifi able assets acquired.
The Goodwill held on the balance sheet at 31 December 2009 is allocated solely to the UK Car Insurance segment.
The value in use calculations use cash fl ow projections based on fi nancial budgets approved by management covering a three-year period. Cash fl ows beyond this period are considered, but not included in the calculation. The discount rate applied to the cash fl ow projections in the value in use calculations is 8.9% (2008: 9.2%), based on the Group’s weighted average cost of capital (source: Bloomberg).
c) Insurance contracts and reinsurance assets Premium The proportion of premium receivable on in-force policies relating to unexpired risks is reported in insurance contract liabilities and reinsurance assets as the unearned premium provision – gross and reinsurers’ share respectively.
Reinsurance assets Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on the insurance contracts issued by the Group are classifi ed as reinsurance contracts. A contract is only accounted for as an insurance or reinsurance contract where there is signifi cant insurance risk transfer between the insured and the insurer.
Deposits with fi xed maturities, classifi ed as held to maturity investments are measured at amortised cost using the effective interest method. Movements in the amortised cost are recognised through the income statement, as are any impairment losses.
Receivables are stated at their amortised cost less impairment using the effective interest method. Impairment losses are recognised through the income statement.
Impairment of fi nancial assets The Group assesses at each balance sheet date whether any fi nancial assets or groups of fi nancial assets are impaired. Financial assets are impaired where there is evidence that one or more events occurring after the initial recognition of the asset, may lead to a reduction in the estimated future cash fl ows arising from the asset.
Derecognition of fi nancial assets A fi nancial asset is derecognised when the rights to receive cashfl ows from that asset have expired or when the Group transfers the asset and all the attaching substantial risks and rewards relating to the asset, to a third party.
i) Share capital Shares are classifi ed as equity when there is no obligation to transfer cash or other assets.
j) Employee benefi ts Pensions The Group contributes to a number of defi ned contribution personal pension plans for its employees. The contributions payable to these schemes are charged in the accounting period to which they relate.
g) Financial assets – investments and receivables Initial recognition Financial assets within the scope of IAS 39 are classifi ed as fi nancial assets at fair value through profi t or loss, loans and receivables or held to maturity investments. The Group has not held any derivative instruments in the years ending 31 December 2009 and 31 December 2008.
The non-controlling interest is recognised as a separate component of equity.
UK Car Insurance The segment consists of the underwriting of car insurance and the generation of ancillary income in the UK. The Directors consider the results of these activities to be reportable as one segment as the activities carried out in generating the income are not independent of each other and are performed as one business. This mirrors the approach taken in management reporting.
Price Comparison The segment relates to the Group’s price comparison websites Confused.com in the UK and Rastreator.com in Spain. Rastreator.com was launched in May 2009, and is therefore included in this price comparison segment for the fi rst time in 2009.
Current tax Current tax is the expected tax payable on the taxable income for the period, using tax rates that have been enacted or substantively enacted by the balance sheet date, and includes any adjustment to tax payable in respect of previous periods.
l) Government grants Government grants are recognised in the fi nancial statements in the period where it becomes reasonably certain that the conditions attaching to the grant will be met, and that the grant will be received.
Insurance Comparison Car Insurance Other total £m £m £m £m £m
Other revenue and profi t commission 149.3 66.1 3.7 9.5 228.6
There is an asymmetrical allocation of assets and income to the reportable segments, in that the interest earned on cash and cash equivalent assets deployed in the UK Car Insurance, Price Comparison and Non-UK Car Insurance segments is not allocated in arriving at segment profi ts. This is consistent with regular management reporting.
The restated segment assets and liabilities at 31 December 2008 are as follows: 31 December 2008 (restated)
Further Information 64 Admiral Group plc Annual Report 2009 5. Net insurance premium revenue 31 December 31 December £m £m
65Admiral Group plc Annual Report 2009 9. Expenses and share scheme charges
Analysis of other administration and other marketing costs: 31 December 31 December £m £m
Reconciliation of expenses related to insurance contracts to reported Group expense ratio: 31 December 31 December £m £m
Further Information 66 Admiral Group plc Annual Report 2009 10. Staff costs and other expenses Included in profi t, before co-insurance arrangements are the following: 31 December 31 December £m £m
Operating lease rentals: Auditor’s remuneration: – Fees payable for the audit of the Company’s annual accounts – –
– Fees payable for the audit of the Company’s subsidiary accounts 0.2 0.2
Analysis of fees paid to the auditor for other services: Tax services 0.1 0.2
67Admiral Group plc Annual Report 2009 12. Taxation 31 December 31 December £m £m
Corporation tax thereon at UK corporation tax rate of 28% (2008: 28.5%) 60.4 57.7
Tax charge for the period as above 58.9 57.6 13. Dividends Dividends were declared and paid as follows: 31 December 31 December £m £m
Net book amount At 31 December 2009 2.2 6.4 2.5 1.0 12.1
Interest rate risk The Group considers interest rate risk to be the risk that unfavourable movements in interest rates could adversely impact on the capital values of fi nancial assets and liabilities. This relates primarily to investments held at fair value.
The funds are not permitted to have an average maturity greater than 60 days and hence are not subject to large movements in yield and value resulting from changes in market interest rates (as longer duration fi xed income portfolios can experience). Returns are likely to closely track the LIBID benchmark and hence while the Group’s investment return will vary according to market interest rates, the capital value of these investment funds will not be impacted by rate movements. The interest rate risk arising is therefore considered to be minimal.
Credit risk The Group defi nes credit risk as the risk of loss if another party fails to perform its obligations or fails to perform them in a timely fashion. The key areas of exposure to credit risk for the Group result through its reinsurance programme, investments, bank deposits and policyholder receivables.
To mitigate the risk arising from exposure to reinsurers, the Group only conducts business with companies of specifi ed fi nancial strength ratings. In addition, most contracts are operated on a funds withheld basis, which substantially reduces credit risk.
The fair value of receivables from policyholders represents the maximum exposure to credit risk. The group does not use credit derivatives or similar instruments to mitigate exposure. The amount of bad debt expense relating to policyholder debt charged to the income statement in 2008 and 2009 is insignifi cant.
There were no signifi cant fi nancial assets that were past due at the close of either 2009 or 2008.
The Group has traditionally been strongly cash generative due to the large proportion of profi t arising from non-underwriting activity. Further, as noted above, a signifi cant portion of insurance funds are invested in money market liquidity funds with same day liquidity features, meaning that the vast majority of the Group cash and investments are immediately available. The current uncertainty in credit markets is not likely to impact this.
In practice, the Group’s Directors expect actual cash fl ows to be consistent with this maturity profi le except for amounts owed to co-insurers and reinsurers. Of the total amounts owed to co-insurers and reinsurers of £154.4 million (2008: £147.9 million), £91.3 million (2007: £77.5 million) is held under funds withheld arrangements and therefore not expected to be settled within 12 months.
Objectives, policies and procedures for managing capital Refer to Business review for objectives, policies and procedures for managing capital and external capital requirements.
18. Reinsurance assets and insurance contract liabilities A) Objectives, policies and procedures for the management of insurance risk The Group is involved in issuing motor insurance contracts that transfer risk from policyholders to the Group and its underwriting partners.
The Board of Directors is responsible for the management of insurance risk, although as mentioned in note 17, it has delegated the task of supervising risk management to the Risk Management Committee (RMC).
A number of the key elements of these policies and procedures are detailed below: i) Co-insurance and reinsurance As noted in the Business review, the Group cedes a signifi cant amount of the motor insurance business written to external underwriters. In 2009, 50% of the UK risk was shared under a co-insurance contract, under which the primary risk is borne by the co-insurer.
ii) Data-driven pricing The Group’s underwriting philosophy is focused on a sophisticated data-driven approach to pricing and underwriting and on exploiting the competitive advantages direct insurers enjoy over traditional insurers through: • Collating and analysing more comprehensive data from customers • Tight control over the pricing guidelines in order to target profi table business sectors • Fast and fl exible responsiveness to data analysis and market trends
iii) Effective claims management The Group adopts various claims management strategies designed to ensure that claims are paid at an appropriate level and to minimise the expenses associated with claims management. These include: • An effective, computerised workfl ow system (which along with the appropriate level of resources employed helps reduce the scope for error and avoids signifi cant backlogs)
Concentration of insurance risk The Directors do not believe there are signifi cant concentrations of insurance risk. This is because, although the Group only writes one line of insurance business, the risks are spread across a large number of people and a wide regional base.
B) Sensitivity of recognised amounts to changes in assumptions The following table sets out the impact on equity at 31 December 2009 that would result from a 1% worsening in the UK loss ratios used for each underwriting year for which material amounts remain outstanding.
Underwriting year (UK only): Earlier years (22.1) 18.3 14.3 9.6 0.9
Claims handling costs and other amounts (4.1) (3.5) (3.4) (4.7) (5.7)
E) Analysis of net claims provision releases The following table analyses the impact of movements in prior year claims provisions, in terms of their net value, and their impact on the reported loss ratio. This data is presented on an underwriting year basis.
Underwriting year: Release as % of net premium revenue 12.4% 14.4% 20.7% 22.4% 14.8%
Net unearned premium provision at end of period 110.6 90.5 19. Trade and other receivables 31 December 31 December £m £m
Total trade and other receivables 32.7 25.5 20. Cash and cash equivalents 31 December 31 December £m £m
Of amounts owed to co-insurers and reinsurers, £93.1 million (2008: £77.5 million) is held under funds withheld arrangements.
Between one and fi ve years 0.1 – 0.1 – – –
During 2009 1,935,461 (2008:1,820,384) new ordinary shares of 0.1p were issued to the trusts administering the Group’s share schemes.
751,513 (2008: 589,384) of these were issued to the Admiral Group Share Incentive Plan Trust for the purposes of this share scheme. These shares are entitled to receive dividends.
The share scheme charges reported above are net of the co-insurance share and therefore differ from the gross charge reported in note 10 (2009: £13.7 million, 2008: £11.3 million) and the gross credit to reserves reported in the Consolidated statement of changes in equity.
The Consolidated cash fl ow statement also shows the gross charge in the reconciliation between ‘profi t after tax’ and ‘cash fl ows from operating activities’. The co-insurance share of the charge is included in the ‘change in trade and other payables’ line.
(i) The Approved Share Incentive Plan (the SIP) Eligible employees qualify for awards under the SIP based upon the performance of the Group in each half-year period. The current maximum award for each half-year amounts to 600,000 shares (or a maximum annual award of £3,000 per employee if smaller).
(ii) The Discretionary Free Share Scheme (the DFSS) Under the DFSS, details of which are contained in the Remuneration policy section of the Remuneration report, individuals receive an award of free shares at no charge. Staff must remain in employment until the vesting date in order to receive shares. The maximum number of shares that can vest relating to the 2008 scheme is 1,438,426 (2008 scheme: 1,393,283).
For the 2009 scheme, 50% (2008 scheme: 100%) of the shares awarded at the start of the three year vesting period are subject to these performance conditions.
DFSS 2006 scheme 2nd award 77,248 72,369 25. Financial commitments The Group was committed to total minimum obligations under operating leases on land and buildings as follows: 31 December 31 December
Expenditure contracted to – 0.9 26. Group subsidiary companies The Parent Company’s principal subsidiaries (all of which are 100% directly owned) are as follows: Subsidiary Country of incorporation Class of shares held Principal activity
For further information on how the Group conducts its business across UK and Europe, refer to the Business review.
27. Related party transactions There were no material transactions with related parties occurring during 2009 that require disclosure. Details relating to the remuneration and shareholdings of key management personnel are set out in the Remuneration report. Key management personnel are able to obtain discounted motor insurance at the same rates as all other Group staff, typically at a reduction of 15%.
Parent Company accounting policies The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the fi nancial statements: 1. Basis of preparation The Parent Company fi nancial statements have been prepared on a going concern basis. In considering the appropriateness of this assumption, the Board have reviewed the Company’s projections for the next 12 months and beyond, including cash fl ow forecasts and regulatory capital surpluses. The Company has no debt.
In these fi nancial statements the following new standards, abstracts and amendments to standards have been adopted for the fi rst time: • Amendment to FRS 29 Financial instruments: disclosures • Amendment to FRS 20 Vesting conditions and cancellations • Improvements to FRSs
The amendment to FRS 20, vesting conditions and cancellations amends the defi nition of vesting conditions, to include only service and performance conditions. This clarifi cation has not impacted the share scheme accounting in the Parent Company
The Admiral Group plc Company fi nancial statements have been prepared in accordance with applicable accounting standards, under the historical cost convention and in accordance with the provisions of Section 296 to the Companies Act 2006.
As permitted by Section 230 of the Companies Act 2006, the profi t and loss account of the Parent Company is not presented. Under FRS 1 (Cash fl ow statements) the Company is exempt from having to present a cash fl ow statement on the grounds that its cash fl ows are included in the Group’s published consolidated fi nancial statements.
Refer to note 27 of the Consolidated fi nancial statements for disclosure of related party transactions.
3. Taxation The charge for taxation is based on the profi t for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes.
5. Other creditors – due within one year 31 December 31 December £m £m
Share premium Retained capital account profi t and loss Total equity
Basis of preparation: The fi gures below are as stated in the Group fi nancial statements preceding this fi nancial summary and issued previously. Only selected lines from the income statement and balance sheet have been included.
The Group’s main market is the UK, with a 7% share of the private motor market through four brands; Admiral, Elephant,
In 2006 the Group began expanding organically in other markets and now has four non-UK car insurance operations
(in Spain, Germany, Italy and the US) and three non-UK price comparison websites (in Spain, France and Italy).
Admiral’s ‘capital-light’ model and high ancillary profi ts enable it to return the majority of its profi ts to shareholders as dividends. 2009’s dividends represented 97% of post-tax profi ts.
Interim results 2010 The Group does not produce printed copies of interim results for shareholders unless requested.
The interim results will be available on the corporate website from 25 August 2010.