The history of the Admiral Group is one of growth, profitability and innovation. Admiral launched in 1993 with just one brand, zero customers and 57 members of staff. Besides the UK, the Group now has operations in Spain, Italy, France and the US, and has over four million customers.
A great place to work! We pride ourselves on being a great place to work, and this is reflected in the many awards we win. We are particularly proud of these awards as they are voted for by staff.
95% of customers who have submitted a claim would renew with Admiral, based on their claims experience (2014: 95%)
This will be my last UK insurance review before taking over from Henry as CEO later this year. Next year he’ll be leaving me the responsibility of choosing just the right analogy, after years of Henry’s always entertaining, sometimes illuminating, occasionally enigmatic, choices. That’s just one of the challenges of taking over from Henry, after his 25 years of pretty much faultless stewardship of the company. Perhaps the biggest single advantage I have in tackling this challenge is having watched Henry, over those years, mix the brilliant blend of inspiration, determination, sensitivity and vision that creates, in Admiral, something special for staff and shareholders alike.
I actually started doing end of year commentaries a few years before we went public such that this is my 16th statement. The first one was for the 2000 year and the highlight was the launch of our internet brand, elephant.co.uk. At the end of 2000 we employed 1,300 people on two sites and our turnover that year was £265 million. Compare that with the end of 2015 where we employ over 8,000 people on umpteen sites and turnover was over £2 billion.
There are many things that I’ll miss when I step down in May, but let me share three of them with you.
Carfused is a one-stop shop that brings insurance, finance and a huge range of used and new cars together all in one place
Our brand has grown, not only in recognition but also in preference. By communicating our multiproduct strategy effectively and efficiently we should continue to grow our business profitably.
2015 was no exception: record profits, turnover again over £2 billion, record dividend, increase of 9% in number of customers, profits in Italy, break-even in Spain… I would describe 2015 as: the year of the uncut diamond. When the year started many people thought it would turn out to be a lump of coal. But no, as the results detailed in the pages to follow will show, 2015 was no lumpy coal year. How good a year was it? Well, that’s why it’s an uncut diamond. We know there’s certainly good value in there, after all, it’s a diamond, but exactly how much value? Time will tell.
Respond to UK market conditions – implement price changes where appropriate and control claims and expenses.
• Generate further growth from Rastreator and LeLynx’s market-leading positions in the Spanish and French price comparison markets by a focused brand strategy and multi-product offering.
Raise the profile of Elephant Auto – grow the customer base in the existing states in which we operate and expand into further states.
Q How do you see the Group’s strategy changing under your leadership?
One benefit of applying for model approval after a number of other insurers have been through the process is that we’re able to take the lessons learned in that first phase and hopefully benefit from them in our programme. We’ll keep you updated.
Financing cash flows (2014 offset by proceeds of debt issue) (250.3) (64.4) (253.4)
It’s hard to know, to be honest. It takes a good three years for enough claims to settle, or at least stabilise, for us to be able to compare ourselves reliably to the market as a whole. What we can say is the 2011/12 years look to be delivering loss ratios of 11–12 percentage points below market averages; less than the 20 percentage points advantage in 2009 (when price comparison neophytes were severely punished); but no less than 2005/6, when we outperformed by 10–11 percentage points.
*² Motor expense ratio is calculated by including claims handling expenses that are reported within claims costs in the income statement. Reconciliation in note 12c.
Admiral has options to commute quota share reinsurance contracts and typically does so after two or three years of an underwriting year’s development when there is a reasonably certain view on the year’s outcome. There is little or no impact of commutation on profit or the timing of profit recognition.
Instalment income Instalment income is interest charged to customers paying for their insurance in instalments. During 2015 Admiral earned £26.7 million from instalment income, up 18% on the prior period (2014: £22.6 million) for a number of reasons including an increase in average premium, customer numbers and the proportion of customers paying by instalment.
This Strategic Report was approved by the Board of Directors and signed on its behalf by: Henry Engelhardt Chief Executive Officer
• Operating and capital budgets, financial results, and any significant changes to accounting practices or policies.
Within the Committee itself we welcomed Penny James as a member in early 2015 and Owen Clarke in January of this year. Both of these appointments have added to the strength and breadth of the Audit Committee. At the AGM Margaret Johnson steps down from the Board and this Committee and I would like to thank her for her huge contribution over the last nine years. I hope you find the above summary, and the more detailed report, both useful and informative.
Non-audit fees During the year the Committee reviewed its policy on non-audit services in the context of EU Audit Reforms, and consultations issued by The Department for Business, Innovation and Skills (BIS) and the Financial Reporting Council (FRC). Given the proposed changes in this area, the Committee approved, in February 2016, a revised Policy that was aligned with current regulatory guidance. Under the policy, the Group’s statutory auditor would only be engaged to carry out non-audit work in exceptional circumstances or where there was a regulatory or tax authority request and where agreed by the Committee.
A significant amount of time has been dedicated to achieving compliance with the Solvency II requirements which have been introduced in January 2016, in particular, the application for the Group’s regulatory capital add-on. The Committee has also reviewed the Group’s proposed dividend level, capital plan and capital buffer in line with the capital policy.
Ensuring the adequacy and effectiveness of the Group’s systems and controls for the prevention of financial crime and data protection
Approving the annual plans for the Group Risk and Compliance functions which include reviewing regulatory developments and regular meetings with the PRA and FCA
Monitored the Group’s progress towards implementation of Solvency II including approval of a number of new and revised policies.
Manning is a senior executive at White Mountains Insurance Group Ltd., a publicly-traded, Bermuda-domiciled holding company for insurance and financial services interests around the world, where he oversees transactions, mergers and acquisitions and new business development. Until recently, he also served as President of White Mountains Advisors, the company’s in-house asset management operation. Prior to joining White Mountains in 2004, Manning was a consultant at McKinsey & Company, focused on the insurance, asset management and financial services sectors. He was also the Director of Corporate Development for Putnam Investments, a Boston-based asset management company. Manning’s experience in the US insurance sector will be invaluable as the Group’s auto insurance and price comparison businesses develop in the US.
Key principles of Admiral Remuneration arrangements The Group is committed to the primary objective of maximising shareholder value over time and ensuring that there is a strong link between performance and reward. This is reflected in the Group’s stated Remuneration Policy of paying competitive, performance-linked and shareholder-aligned remuneration packages comprising basic salaries coupled with participation in performance-based share schemes to generate competitive total reward packages for superior performance. The Board is satisfied that the adoption of this policy continues to meet the objectives of attracting and retaining executives of the highest quality across the Group.
Pension £9,000 annual contribution for CFO and COO; no contribution for CEO
This section of the report provides details of how Admiral’s Remuneration Policy was implemented in 2015 and the remuneration arrangements proposed for 2016.
DFSS bonus in respect of 2015 The Group paid a bonus to all holders of DFSS shares in 2015, which was equivalent to the dividend payable on all outstanding DFSS shares awarded but not yet vested. The Committee continues to feel that having a Group-wide bonus equivalent to the dividend flow received by investors further aligns the incentive structure with shareholders.
Interests held by of Directors (audited) Executive Directors have agreed to (acquire and) retain a beneficial shareholding equal to at least 200% of base salary, which can be built up over a period of five years from the date of appointment.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Company financial statements in accordance with UK Accounting Standards, including FRS 101 Reduced Disclosure Framework.
• the information given in the Corporate Governance Statement set out on pages 54 to 55 in the Internal Control and Risk Management Statement with respect to internal control and risk management systems in relation to financial reporting processes and about share capital structures is consistent with the financial statements.
6. We have nothing to report in respect of the matters on which we are required to report by exception Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.
Profit after tax attributable to: Equity holders of the parent 300.0 285.2
Consolidated statement of comprehensive income For the year ended 31 December 2015
Profit/(loss) for the period — — — — 285.2 285.2 (3.6) 281.6
*² Eliminations are in respect of the intra-group trading between the Group’s price comparison and UK and International car insurance entities. No elimination was made in prior periods on the grounds of materiality.
(iii) Insurance contracts and reinsurance assets Premiums 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.
Notes to the financial statements continued For the year ended 31 December 2015 5. Premium, claims and profit commissions continued 5d. Reinsurance assets and insurance contract liabilities continued
Identified impairments of financial assets are recognised in the income statement, except in the case of assets classified as available for sale where unrealised gains have been recognised through OCI. In this instance, impairments of the asset are first set against the unrealised gain in OCI with any excess being recognised in the income statement.
Objectives, policies and procedures for managing financial assets and liabilities The Group’s activities expose it primarily to financial risks of credit risk, interest rate risk, liquidity risk and foreign exchange risk. The Board of Directors has delegated the task of supervising risk management and internal control to the Group Risk Committee. There is also an Investment Committee that makes recommendations to the Board on the Group’s investment strategy.
The Group’s exposures to net assets held in euros and dollars at the balance sheet date were £9.0 million and £87.3 million respectively (2014: £2.2 million and £72.0 million).
Employee share schemes The Group operates a number of equity and cash settled compensation schemes for its employees. The fair value of the employee services received in exchange for the grant of free shares under the equity settled schemes is recognised as an expense, with a corresponding increase in equity. For cash settled schemes, the fair value of services received are also recognised as an expense, with a corresponding increase in liability.
Total tax charge for the period as above 76.9 69.1 9c. Deferred income tax asset
The deferred tax asset at 31 December 2015 has been calculated based on the rate at which each timing difference is most likely to reverse.
At 31 December 2015 the Group had unused tax losses amounting to £89.6 million (2014: £33.3 million) relating to these businesses, for which no deferred tax asset has been recognised.
ANNUAL REPORT AND ACCOUNTS 2015 11. Share capital continued 11f. Group subsidiary companies The Parent Company’s subsidiaries are as follows: Subsidiary
*² Other adjustments relate to additional products underwritten in the Group’s international car insurance businesses. The contribution from these products is reported as ancillary income and as such the amounts are excluded for the purpose of calculation of loss and expense ratios. No equivalent adjustments have been made to prior period ratios as the equivalent adjustments are insignificant.