Financial calendar Final 2012 dividend 1 May 2013 – Ex dividend date 3 May 2013 – Record date 24 May 2013 – Payment date
Before we attack the next 20 years, let’s take a look at the 20th!
But some things don’t change. The market average expense ratio in 1993 was 26%. Last year, after two decades of industry consolidation, I.T. investment, adaption of direct distribution, exploitation of the internet, the industry average expense ratio was 26%. Admiral’s was 13%; delivering an eighteenth year of better-than-industry average expense ratio, and a tenth year of beating it by over ten percentage points.
• Significant profit generated alongside motor underwriting – £205 million profit generated in 2012.
The improved combined ratio, along with the significant growth in the size of the business since 2009, has led to a material increase in profit commission income recognised in 2012 – at £108.4 million compared to £61.8 million (though the comparative figure was subdued by the disappointing claims experience in 2011). Note 4c to the financial statements analyses profit commission income by underwriting year.
UK Car Insurance Other Revenue – Analysis of Contribution: Underwritten ancillary profit – – 4.8
International Car Insurance Strategy An important element of Group strategy is to exploit the knowledge, skills and resources attaching to Admiral’s established UK businesses in order to promote expansion overseas in both private car insurance and price comparison. Admiral’s objective is to create profitable, sustainable and growing businesses, aiming where possible to minimise any negative financial impact on the Group.
Revenue from non-car insurance comparison sources increased in actual terms and continued to represent around one fifth of total revenue. Confused.com’s operating margin improved slightly to 22% (2011: 21%).
The key results concerning morale, and whether employees feel that their opinions are important, are provided in the table on the previous page. There are no specific targets with respect to the survey results as the Executive team use the data to identify trends in employee perception, rather than absolute values.
90-Day Challenge Since 2008 we have had a close relationship with the Prince’s Trust, the UK’s leading youth charity dedicated to helping disadvantaged young people to enter into work, education or training. We have won the Prince’s Trust Cymru (Wales) regional fundraising competition each of the last three years.
We would like to thank all of our staff for their commitment in supporting the Prince’s Trust, and we look forward to further supporting the charity in 2013.
• To review the policy on the engagement of the external auditor to provide non-audit services, considering the relevant regulatory guidance regarding the provision of non-audit services by the external auditor.
During the year the Committee reviewed its policy on non-audit services that sets out the procedure for approval, by the Committee, of expenditure with the Group’s auditors of over £30,000, including the process where it is necessary for approval of such work to be given outside of the normal Committee meeting timetable. Such circumstances will require the approval of the Audit Committee Chair who will consider and approve such fees on behalf of the Committee. Such approval of fees in excess of £30,000 will then be notified by the Committee Chair to the next Committee meeting following approval. The Group’s auditors, KPMG Audit plc, provide some non-audit services, the majority of which comprise compliance services related to various taxation issues within the Group, and which are not considered by the Committee to compromise their independence as auditors. The level of non-audit fees is reviewed at each Committee meeting and details are included in note 6 to the financial statements.
The Committee undertakes an annual review to assess the independence and objectivity of the external auditors 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 auditors handled the key accounting and audit judgements. Following this review the Committee concluded that the auditor, KPMG, remained independent and provided a service that was robust and fit for purpose. There are no contractual obligations that restrict the Group’s choice of external auditor. It was agreed that a decision on whether to re-tender the external audit should be made at least every five years. The last such tender was carried out in 2006. In view of the high quality of service received by the Group; the fresh perspective provided by the recent rotation of the audit engagement partner in 2011; and the continued competitiveness of their audit fee, the Committee recommended that a re-tender process should not be undertaken in 2012 but that the relationship with and effectiveness of KPMG should be kept under review. A resolution for the reappointment of KPMG as auditors will, therefore, be proposed at the forthcoming AGM. The Company is mindful of the September 2012 Corporate Governance Code, which applies to its next reporting period and includes a provision to put the external audit out to tender at least every ten years.
In March 2013 the Board carried out the annual review of the effectiveness of the Group’s system of internal controls for the 2012 year, also taking account of events since 31 December 2012, by considering documentation from the Audit Committee including the Internal Audit Annual Report prepared by the Group’s Head of Internal Audit.
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 16 days purchases (2011: 14 days). The Group is a signatary to the prompt payment code.
Disclosure of Information to Auditors The Directors who held office at the date of approval of this Directors’ report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditor is unaware; and each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.
The Committee feels EPS vs. LIBOR is a strong indicator of long-term shareholder return
Manfred Aldag Indefinite n/a Terminable on one month’s notice from either party – automatically terminates should he cease employment with Munich Re
Investment and interest income 5 15.9 13.7 Net revenue 984.3 870.3 Insurance claims and claims handling expenses (929.1) (785.9) Insurance claims and claims handling expenses recoverable from reinsurers 524.6 422.1 Net insurance claims (404.5) (363.8)
Other comprehensive income for the period, net of income tax (2.7) (1.0)
Other: The ‘other’ segment is designed to be comprised of all other operating segments that do not meet the threshold requirements for individual reporting. Currently there is only one such segment, the Gladiator commercial van insurance broking operation, and so it is the results and balances of this operation comprises the ‘other’ segment.
The Group launched a UK Household insurance product at the end of 2012. There are no transactions relating to household insurance within any of the segments reported below.
Concentration of insurance risk: The Directors do not believe there are significant concentrations of insurance risk. This is because, although the Group has historically written only one line of insurance business, the risks are spread across a large number of people and a wide regional base.
Recoverable from reinsurers: Claims outstanding 487.3 334.2 Unearned premium provision 315.7 305.6 Total reinsurers’ share of insurance liabilities 803.0 639.8
Net: Claims outstanding 660.4 446.9 Unearned premium provision 233.5 247.0 Total insurance liabilities – net 893.3 693.9
(iv) Analysis of UK claims incurred: The following tables illustrate the development of net UK Car Insurance claims incurred for the past four financial periods, including the impact of re-estimation of claims provisions at the end of each financial year. The first table shows actual net claims incurred, and the second shows the development of UK loss ratios. Figures are shown net of reinsurance and are on an underwriting year basis.
• Derecognition of financial assets A financial asset is derecognised when the rights to receive cash flows 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.
5b Investment and interest income 31 December 2012 £m 31 December 2011 £m
Economic and financial market conditions have led the Directors to consider counterparty exposure more frequently and in significant detail. The Directors consider that the policies and procedures in place to manage credit exposure continue to be appropriate for the Group’s risk appetite, and during 2012 and historically no material credit losses have been experienced by the Group.
To mitigate the risk arising from exposure to reinsurers (in the form of reinsurance recoveries and profit commissions), the Group only conducts business with companies of appropriate financial strength. In addition, most reinsurance contracts are operated on a funds withheld basis, which substantially reduces credit risk, as the Group holds the cash received as collateral.
Notes to the Financial Statements continued 78 Admiral Group plc Annual Report 2012
Reconciliation of expenses related to insurance contracts to reported Group expense ratio: £m
SIP H208 scheme 477,432 396,549 SIP H109 scheme 396,200 340,060 DFSS 2009 scheme, 1st award 1,313,865 1,166,379 DFSS 2009 scheme, 2nd award 127,020 81,855
Deferred tax Current period deferred taxation movement (2.8) (0.8) (Over)/under provision relating to prior periods – deferred tax (0.6) 1.5 Total tax charge per income statement 86.2 77.8
Profit before tax 344.6 299.1 Corporation tax thereon at effective UK corporation tax rate of 24.5% (2011: 26.5%) 84.4 79.3 Expenses and provisions not deductible for tax purposes 1.4 0.1 Difference in tax rates 0.7 0.5 Adjustments relating to prior periods (0.4) (1.7) Other differences 0.1 (0.4) Total tax charge for the period as above 86.2 77.8
Profit for the financial year after taxation attributable to equity shareholders (£m) 258.4 221.2 Weighted average number of shares – basic 271,714,535 269,903,301 Unadjusted earnings per share – basic 95.1p 81.9p Weighted average number of shares – diluted 272,403,242 270,782,526 Unadjusted earnings per share – diluted 94.9p 81.7p
A full list of the Company’s subsidiaries is disclosed in note 10 of the Group financial statements.