Our distinctive culture which has been maintained since launch is definitely worth a further mention. It is a key part of our competitive advantage which we work hard to maintain. It can be distilled into the following areas, and is underpinned by a deep focus and commitment to the customer: • Highly talented team – David Stevens is an outstanding leader who leads a strong, capable and experienced management team which engages the whole business.
Overall we believe that people who like what they do, do it better.
Our focus areas for the Board remain to: • Continue to build on the remarkably special Admiral culture and in so doing putting our people, customers and communities at the heart of what we do; • Continue the history of growth, profitability and innovation; • Invest in the development and growth of our people – we have focused on the quality and development of our senior management team, added to our talent base by some external hires, and reviewed our succession pipeline; and
Admiral takes its role in society very seriously and has an active approach to Corporate Responsibility (more information in the Corporate Social Responsibility Report on the Admiral Group website and on pages 58 to 61). We are proud to be Wales’ only FTSE 100 headquartered company and employ over 7,000 people in South Wales. Our staff play an active part in the communities in which we operate. We carefully consider our impact on the community and environment, including factors such as the green credentials of our buildings, raising funds for multiple charities, and considering the impact of climate change across the business.
David Stevens, CBE Chief Executive Officer 6 March 2019 20 Admiral Group plc · Annual Report and Accounts 2018
ENSURE ADMIRAL REMAINS ONE OF, IF NOT THE, BEST CAR INSURERS IN THE UK
Admiral continues to strengthen its underwriting advantage through improvements in pricing and analytics, and pursuing market-leading claims management practices. Our Claims teams are encouraged to innovate through a test and learn approach, making incremental improvements regularly.
A David: Admiral follows a strategy of focused diversification. We believe there is an opportunity to use the competitive advantages we have developed in UK Motor to build other businesses both in the UK and internationally that can add further value to Admiral and our shareholders. We follow a prudent test and learn approach, without investing a large amount of cash or resources upfront and work with a range of partners to further manage the risk – understanding the opportunity, taking measured steps to understand the challenge and the effectiveness of our solutions, and then learning from that experience and the experience of those who have tried other strategies.
This approach, together with having a very strong and competent leadership team in our international operations as well as new ventures such as Admiral Loans, means that the leadership team are able to focus on the right things at the right time. UK motor continues to be the driver of our profits and hence still remains the key part of our focus and strategy.
We have therefore revised those best estimate UK Motor reserves to be on a 0% Ogden basis, which would ultimately lead to a benefit of between £120 million and £140 million (pre-tax). There’s fair chance the final rate isn’t exactly 0% of course but we think it’s a reasonable estimate based on the information published by the government to date. As shown above, 2018’s profit is £66 million higher as a result of the change and much of the balance (plus or minus any impact of the actual rate when that comes if it’s different to 0%) will flow into results over the next couple of years (as 2018 premium is earned and profit commission recognised). We’ve also set out sensitivities to rates around 0% on page 35.
During December 2018, the Civil Liability Bill, which brings into law changes to the way that the UK personal injury discount rate (‘Ogden’ discount rate) is set, received Royal Assent and is enacted as the Civil Liability Act.
Following the change in Ogden rate assumption, the financial statement reserves continue to hold a prudent and significant margin above actuarial best estimates in line with the Group’s reserving policy.
In line with the dividend policy noted above, the 66 pence per share final dividend can be split between a normal and special element as follows: • 49.6 pence per share reflecting a normal dividend of 65% of post-tax profits; and
One thing that was certainly fast paced and exciting (for the children at least) was the weather that came in with the “Beast from the East” in the opening quarter of the year, which covered most of the country with snow and brought a flurry of household claims. It was our biggest weather event since the Household business launched in 2012, but the quality of service we were able to offer our customers in difficult circumstances was very pleasing.
Spain 2018 was a year of somewhat slower growth, but again strong technical results.
Shortly thereafter, we celebrated the successful completion of the Brexit project with the transfer of the European portfolio to a newly created company in Spain, Admiral Europe Compania de Seguros (AECS). AECS underwrites all policies in continental Europe from 1 January 2019 and we expect it to provide additional governance and support to the future development of our overseas operations.
Our third celebration (what a fantastic celebration period!) was closing the year with the first ever combined profit of €7 million. This is the result of improved metrics in each business, economies of scale and positive development of technical results. ConTe delivered record profits and both L’olivier and Admiral Seguros, again reduced their losses.
For 2019, we’re planning more growth, a continuous focus on quality, new functionalities for self-servicing and the beginning of our product diversification strategy. Some exciting announcements to come…
Operationally, we are providing a better journey and higher service levels to our customers. Expanded and improved digital capabilities allow them to self-service their policies more effectively throughout their lifetime. They can now complete many essential tasks online, including making payments, changing coverage, and reporting a claim. The better digital journey has increased our operational efficiency, as fewer customers are forced to call in for sales, service or claims help. It has also improved customer satisfaction levels as policyholders can more quickly and effortlessly access information and make changes to their policy.
Vehicles insured at period end (m) 0.25 0.59 0.17 0.21 1.22 2017 Spain Italy France US Total
In addition, this provides a new way to communicate and improves our marketing approach towards a better understanding of the benefits we can provide to customers. This has allowed us to develop a strategic transformation of our marketing structure, messages and campaigns.
The business continues to go from strength to strength with a growing team to support important projects that we anticipate will strengthen revenue and profit growth in 2019 and beyond. The plan is to pursue growth and develop new products that will help consumers make the right choices when it comes to insurance, finance, energy and potentially other products very soon.
In addition, the Group’s European price comparison businesses Rastreator and LeLynx have successfully been merged into price comparison companies established in Spain (Comparaseguros Corredia de Seguros) and France (LeLynx SAS) respectively.
This is a particular risk for motor insurance liabilities, where the amount payable for bodily injury claims (particularly large claims) can change significantly during the lifetime of the claim as a result of external risks such as changes in Ogden rates and impacts of increased levels of Periodical Payment Orders.
Admiral earns other revenue from a portfolio of products and other sources.
Admiral continues to scan the risk horizon and monitor any developments to emerging risks, undertaking reviews and assessments of the potential impacts as information becomes available.
We are continually looking for ways to make Admiral a responsible business and engage with stakeholders to improve our impact. In 2018 we established working groups to encourage diversity, launched policies to further benefit employees, and made commitments to reduce waste and energy consumption.
Since 2008 we have worked with the Prince’s Trust, competing in their annual*1 Million Makers competition: to date we have contributed over £1.2 million to this excellent cause. This year alone, our graduate team raised more than £156,000 through a variety of different fundraising schemes, the vast majority of which were supported by staff members.
During the year under review, the Group complied with all the provisions of the UK Corporate Governance Code 2016 (the Code) other than the exception noted below that we reported in the 2017 Annual Report and Accounts and is applicable for the period between 1 January 2018 and 27 February 2018.
Agendas and papers are circulated to the Board electronically in a timely and secure manner in preparation for Board and Committee meetings. The Board agenda is structured by the Chairman in consultation with the Company Secretary and Chief Executive. Routine Board papers are supplemented by information specifically requested by the directors from time to time. All Board and Committee meetings during the year were held in an open atmosphere conducive to robust and constructive challenge and debate. All Directors have, therefore, been able to bring independent judgement to bear on issues such as strategy, risk management, performance, and resources. Additional meetings are called when required and there is contact between meetings, where necessary, to maintain continuity of the Group’s business plan.
duties and obligations. The appointment and removal of the Company Secretary is one of the matters reserved for the Board.
This year the Board evaluation consisted of the Chairman, supported by the Company Secretary, compiling a comprehensive questionnaire that was circulated by the Company Secretary for completion by all directors and Board attendees. The focus of the evaluation was on: the performance of the Board and its effectiveness in managing Board time to ensure there was sufficient time to provide strategic and operational oversight of the Group in the context of the various markets in which it operates; succession planning and consideration of the priorities for change as identified by Board members and attendees.
The performance of the Chief Financial Officer is appraised annually by the Chief Executive Officer, to whom he reports. The Chairman, taking into account the views of the other Directors, reviews the performance of the Chief Executive. The performance of the Chairman is reviewed by the Board led by the Senior Independent Director (“SID”). Following the latest review, the SID
At the Group’s AGM on 26 April 2018, new Articles of Association were approved by shareholders which provide that all directors will retire and offer themselves for re-election at each AGM, in accordance with the UK Corporate Governance Code and the Company’s current practice. Therefore, all Directors will be submitting themselves for re-election by shareholders at the forthcoming AGM. The Board is satisfied that all are properly qualified for their reappointment by virtue of their skills and experience and their contribution to the Board and its Committees.
The Company attaches considerable importance to communications with shareholders and engages with them regularly. Open and frequent dialogue with investors enables them to understand fully the Group’s strategy, objectives and governance. The Investor Relations team has day-today primary responsibility for managing communications with institutional shareholders through a combination of briefings to analysts and institutional shareholders, both at the half-year and full-year results. A number of analysts and investors visited the Group’s Cardiff office during the year to meet with the Executive Directors and senior management in order to get a better understanding of how the Group operates and how it intends to achieve its strategic and operational objectives. Senior executives from the Group’s overseas businesses also visit the UK in order to present to, and meet with, analysts and investors. Site visits and individual discussions with the Executive Directors are also arranged throughout the year with individual shareholders. In September 2018, the Group held an EU Investor Day at its offices in Rome which was attended by almost 40 analysts and investors. The purpose of the event was to provide addition information on the Group’s strategic objectives of the European insurance businesses. The event was a success with positive feedback received from investors that attended.
Membership of the Committee at the end of the year was: Karen Green (Chair), Owen Clarke, Andy Crossley and Mike Brierley, who joined the Committee with effect from 5th October 2018 having attended meetings of the Committee and the Board as a guest from August 2018. Two of the committee’s members are Fellows of the Institute of Chartered Accountants in England and Wales. Given the insurance and financial services experience of the members of the Committee, the Board considers that they have a broad range of skills, experience and knowledge of the insurance sector, which represents the principal market in which the Group operates, and also the areas of consumer lending in which the Group has a small but emerging business, such that they are able to effectively analyse, challenge and debate the issues that fall within the Committee’s remit. The Board is satisfied that the Committee as a whole has competence relevant to the sector in which the Group operates and further considers that a number of members have recent and relevant financial experience. The Company Secretary acts as Secretary to the Committee. The Committee meets at least four times per year and has an agenda linked to events in the Company’s financial calendar and other important issues that arise throughout the year, which fall for consideration by the Committee under its remit.
Given the important judgements involved in estimating outstanding claims, the Committee continued to spend significant time reviewing and challenging the approach and methodology adopted by Management in setting reserves for insurance liabilities in the financial statements to ensure that it remained consistent with the Group’s stated reserving approach to set claims reserves at a prudent level.
The subsidiary boards, Group Risk Committee, UK Risk Management Committee and other UK and overseas Risk Committees receive reports setting out key performance and risk indicators and consider possible control issues brought to their attention by early warning mechanisms that are embedded within the operational units. They, together with the Audit Committee, also receive regular reports from the Internal Audit function, which include recommendations for improvement of the control and operational environment. The Chair of the Group Risk Committee provides a comprehensive written report to the Board of the activities carried out by the Committee on an annual basis. In addition, the Board receives reports from the Chair of the Audit Committee as to its activities, together with copies of the minutes from the subsidiary board meetings and the GRC and Audit Committee.
Quantitative and qualitative assessments of risks are performed as part of the ORSA process. The quantitative assessment (in line with the Group’s capital and solvency projections) considers how the regulatory capital requirements, economic capital needs, own funds and the solvency position of the Company is projected to change over the three year time horizon. It also includes a series of stress tests which assess the Group’s principal risks and uncertainties, identifying and quantifying the operational, financial and solvency impacts of these stresses alongside potential mitigating factors and management actions. Reverse stress tests are also considered as part of the ORSA process to assess the potential risks to Admiral’s viability.
Karen Green has substantial financial services experience including investment banking, private equity and insurance, most recently as the Chief Executive of Aspen UK, which comprised the UK insurance and reinsurance companies of Aspen Insurance Holdings for over 6 years. She also held a number of other senior positions at Aspen including Group Head of Strategy, Corporate Development and Office of the Group CEO. Prior to that, she held various senior corporate finance, M&A and private equity roles at GE Capital Europe and then MMC Capital (now Stonepoint Capital) having started her career as an investment banker at Baring Brothers and then Schroders. She is currently a Non-Executive Director of Phoenix Holdings Group plc, the Council of Lloyd’s of London and Deputy Chair and Acting Chair of Aspen Managing Agency Ltd.
87Admiral Group plc · Annual Report and Accounts 2018 final report on ethnic diversity. The Board considered the composition of its Group and subsidiary Boards, the initiatives that are being implemented to increase diversity and discussed how measures to develop a diverse pipeline of talent as regards Board appointments could be developed and monitored. However, the Group remains strongly supportive of the principle of boardroom diversity, of which gender and ethnicity are important, but not the only, aspects. What is important is diversity of thought, experience and approach and each new appointment must complement what already exists at the Board table. Accordingly, appointments will always be made on merit against objective criteria, including diversity and gender, and not just to achieve an externally prescribed number.
The Group remains committed to providing equal opportunities, eliminating discrimination, and encouraging diversity amongst its workforce both in the UK and overseas. A breakdown of the gender of Directors and senior employees at the end of the financial year together with details of the Group’s Equality, Diversity and Dignity at Work Policy are set out in the Directors’ Report on page 108.
• David Stevens’s salary was increased by 2.5% to £416,048 effective from 1 September 2019 and the cash element of Geraint Jones’s salary was also increased by 2.5% to £251,125, effective from 1 January 2019. These increases are below the average increase across the Group for 2018.
Approximately 3,945 employees from across the Group, as well as the CFO, participate in the DFSS. The Committee recommends for approval by the Board DFSS awards for those executives within its remit and on an aggregate basis for all other participants in the DFSS. For the CFO, all DFSS share awards are subject to performance conditions. For other senior managers and employees at lower organisational levels, a proportion of awards (ranging from 50% to two-thirds) is subject to performance, with performance conditions either in line with those described above, or set based on key performance drivers of the individual’s relevant business unit, and the remainder has no performance conditions attached other than the requirement that the recipient remains an employee of the Group at the date of vesting. Award sizes vary by organisational level and an assessment of both financial and non-financial individual and business unit performance.
In the event that there is a material misalignment with the market or a change in the complexity, responsibility or time commitment required to fulfil an NED role, the Board has discretion to make an appropriate adjustment to the fee level.
This section of the report provides details of how Admiral’s Remuneration Policy was implemented in 2018 and how the Remuneration Committee intends to implement the Remuneration Policy in 2019.
The table below sets out the total single figure remuneration received by each Executive Director for the year ended 31 December 2018 and 31 December 2017.
7. Karen Green was appointed to the Board on 14 December 2018 and her fee includes fees paid for Board and Committee attendance from June 2018 prior to her formal appointment.
The UK Government has introduced legislation that will require all companies with more than 250 employees to publish the ratio of the CEO’s pay, using his single figure remuneration, to that of the 25th percentile, median and 75th percentile total remuneration of the full time equivalent employees.
The CEO pay ratio will likely be relatively stable from one year to the next given David Stevens’ pay does not include any variable components. The CFO pay ratio, however, will vary from year to year as Geraint Jones’ remuneration package is heavily weighted to variable and equity-based components.
5. These figures include reimbursement of £177,104 and £165,000 in 2014 and 2013, respectively, for expenses incurred in respect of the previous CFO’s relocation.
At 31 December 2018, the Company’s issued share capital comprised a single class of shares referred to as ordinary shares. Details of the share capital and shares issued during the year can be found in note 12d.
We consider profit before tax to be the critical benchmark of the performance of the group and consider this benchmark to be suitable having compared to other benchmarks: our materiality equates to 1% of gross earned premium and 3% of equity (2017: 1% of gross earned premium and 2% of equity).
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at 70% of group materiality for the 2018 audit (2017: 70%).
Following the recommendation of the audit committee, we were appointed by shareholders’ approval at the Annual General Meeting on 28 April 2016 to audit the financial statements for the year ending 31 December 2016 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 3 years, covering the years ending 31 December 2016 to 31 December 2018.
Cash and cash equivalents at end of period 7 376.8 326.8
Set out below are disclosures relating to the impact of the adoption of IFRS 9 on the Group. Further details of the specific IFRS 9 accounting policies applied in the period (as well as previous IAS 39 accounting policies applied in the comparative period) are described in more detail in note 7.
Recognition of expected credit losses under IFRS 9 for financial assets at FVOCI, net of tax 7c (0.4)
Notes to the Financial Statements continued For the year ended 31 December 2018
IFRS 16 Leases was issued in early 2016 and is effective from 1 January 2019. The standard specifies how firms will recognise, measure, present and disclose leases. It presents a single lessee accounting model and requires that assets and liabilities be recognised in the Consolidated statement of financial position, other than in the cases where leases are of low value or of a short-term nature of 12 months or less.
Following consideration of the above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future, a period not less than 12 months from the date of this report, and that it is therefore appropriate to adopt the going concern basis in preparing the financial statements.
The accounting policies set out in the notes to the financial statements have, unless otherwise stated, been applied consistently to all periods presented in these Group financial statements.
The consolidated financial statements comprise the results and balances of the Company and all entities controlled by the Company, being its subsidiaries and special purpose entity (together referred to as the Group), for the year ended 31 December 2018 and comparative figures for the year ended 31 December 2017. The financial statements of the Company’s subsidiaries and its special purpose entity are consolidated in the Group financial statements.
Other segment items: – Intangible and tangible asset additions 37.3 30.5 0.9 – – 68.7 *1 Turnover is an Alternative Performance Measure and consists of total premiums written (including co-insurers’ share) and Other Revenue. Refer to the glossary and note 13 for further information.
Under some of the co-insurance and reinsurance contracts under which motor premiums are shared or ceded, profit 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 revenue being recognised when loss and expense ratios used in the preparation of the financial statements move below a contractual threshold.
The Group has entered into certain co-insurance contracts under which insurance risks are shared on a proportional basis, with the coinsurer taking a specific percentage of premium written and being responsible for the same proportion of each claim. The co-insurer therefore takes direct insurance risk from the policyholder and is subsequently directly responsible to the claimant for its proportion of the claim. As the contractual liability is several and not joint, neither the premiums nor claims relating to the co-insurance are included in the income statement. Under the terms of these agreements the co-insurers reimburse the Group for the same proportionate share of the costs of acquiring and administering the business.
Analysis of net releases on UK Motor Insurance: – Net releases on Admiral net share (motor) 66.8 84.6 58.3 92.1 111.4
Total finance costs 11.3 11.4 *1 Interest paid during the year was £11.0 million (2017: £11.1 million).
All assets that are purchased, which require a calculation of impairment, are of considered investment grade or above (i.e. BBB rated or higher), as defined by an external credit rating agency or an assessment from Admiral’s external asset managers. The credit rating of all assets is regularly monitored. As at the year end reporting date, all financial assets are of investment grade and considered low credit risk under IFRS 9. Therefore, these assets remain within stage 1 and a 12 month expected loss is used to calculate the impairment provision required.
The following table sets out information about the credit quality of the loans and advances to customers, measured at amortised cost. Credit grades are used to segment customers by apparent credit risk at the time of acquisition. The Group does not have any purchased or originated credit-impaired (POCI) assets.
• Deposits with well rated institutions are short in duration (one to five years). These are classified as held at amortised cost. Therefore neither the carrying value of the asset, nor the interest return will be impacted by fluctuations in interest rates.
There has been no change in revenue recognition from the comparative period, as revenue recognition was in line with the requirements of IFRS 15.
Revenue outside the scope of IFRS 15 58.9 2.6 – – 61.5 *1 Price comparison revenue excludes £19.3 million (31 December 2017: £19.8 million) of income from other Group companies.
£nil (2017: £nil) was payable to the auditor for other services in the year.
167Admiral Group plc · Annual Report and Accounts 2018 10. TAXATION
Provisions are recognised when a legal or constructive obligation arises as a result of an event that occurred before the balance sheet date, when a cash-outflow relating to this obligation is probable and when the amount can be estimated reliably.
Total turnover 3,282.9 2,958.2 *1 During 2012 Admiral ceased earning Other Revenue from the sale of non-optional legal protection policies. At the same point, the Group began charging its panel of co- and reinsurers a vehicle commission. The substance of these changes meant that the total premiums written increased by the amount of revenue that was previously earned from the sale of non-optional legal protection policies. The vehicle commission included within Other Revenue is therefore eliminated from the turnover measure to avoid double counting.
These financial statements were approved by the Board of Directors on 6 March 2019 and were signed on its behalf by: Geraint Jones Chief Financial Officer
The financial 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 twelve months and beyond, including cash flow forecasts and regulatory capital surpluses.
Total investment and interest income 264.9 310.5 4. INVESTMENTS IN GROUP UNDERTAKINGS
Throughout this report, the Group uses a number of Alternative Performance Measures (APMs); measures that are not required or commonly reported under International Financial Reporting Standards, the Generally Accepted Accounting Principles (GAAP) under which the Group prepares its financial statements.
There are a number of instances within the Annual Report where adjustments are made to this calculation in order to more clearly present the underlying performance of the Group and operating segments within the Group. The calculations of these are presented within note 13c to the accounts and explanation is as follows.
Underwriting year basis Also referred to as the written basis. Claims incurred are allocated to the calendar year in which the policy was underwritten. Underwriting year basis results relate to the 2018 underwriting year, are calculated on the whole account (including co-insurance and reinsurance shares) and include all premiums, claims, expenses incurred and other revenue (for example instalment income and commission income relating to the sale of products that are ancillary to the main insurance policy) relating to policies incepting in the relevant underwriting year.