of customers would buy again2 (2018: 98%) average waiting time for a Customer
courses hosted by the Admiral Academy in 2019 of our staff believe people at work are treated fairly regardless of their race or ethnic origin1 1 Group-wide results to the 2019 Great Place to Work Survey. Results were based on 8,543 responses. 96% responded positively, 3% responded as neutral and 1% as negative 2 More detail surrounding the SIP and the DFSS can be found on page 108 of UK based employees employed for more than one year, own shares in Admiral Group2
To ensure that we further enhance the strong links between the Board and Admiral employees, we have set up an Employee Consultation Group (ECG). This group, elected by employees, meets on a regular basis and provides a two-way link between the Board and wider staff. I and other members of the Board have had the privilege of attending these sessions and I am impressed by the passion and energy our people have for continuing to shape the business and a real desire to ensure that we remain a great company to work for. An example of this is considering ways in which we can better use flexible working.
2 In 2019, at least one NED attended three of the five ECG meetings, and at least one senior manager attended every meeting.
The decision to bring our international comparison platforms together under one management platform will improve our customers experience as the Group benefits from leveraging technology and data.
The Board takes all updates into account when considering the long term consequences of its strategies and business plan.
• Respond to market conditions through effective pricing and growing at the right time
• Continue to maximise and leverage data-based decision making 2020 Focus KPIs (Financial and non-financial)
• Continue to provide a platform that attracts customers and improves the customer experience
ConTe, Admiral Seguros, L’olivier and Elephant all made strides with their respective digital offerings by increasing the range of features available to customers3.
New European Insurance Hub Following Brexit, our new European Insurance Hub (AECS) began trading in January 2019, providing underwriting services for our European businesses.
We’re number one! We were named the Best Big Company to Work For in the UK
This was a particularly strong set of results with another record profit and record dividend – what are the drivers, and can we expect similar performance in the future? [Geraint]
For more information relating to how the Group views risk relating to climate change please refer to page 97.
Admiral’s investment approach evolved in two main ways during 2019: • Formal adoption of a responsible investment strategy which focusses on ensuring Environmental, Social and Governance criteria are considered within investment decision making
At the same time, we increased focus on product diversification, with a view to deploy our core competencies and to better serve our customers.
UK Motor Insurance profit before tax 591.5 561.7 461.4 *1 Alternative Performance Measures – refer to the end of this report for definition and explanation.
• Reserve releases on Admiral’s original net share of business improved the reported loss ratio by 26.9 ppts in 2019. Excluding the adverse Ogden impact increases this to 29.3 ppts which is 4.7 ppts higher than in 2018 (24.6 ppts) and well above historical results. The underlying increase, after excluding the favourable one-off Ogden impact in 2018 is 8.7 ppts.
• Releases on reserves originally reinsured but since commuted is higher at £121.7 million (2018: £109.6 million)
The number of properties insured increased by 17% to 1.01 million (2018: 0.87 million). Turnover increased by 17% to £171.3 million (2018: £146.0 million). New business market volumes continued to increase, customer retention remained strong, and shopping increased via the comparison channels.
Admiral has four insurance businesses outside the UK: in Spain (Admiral Seguros), Italy (ConTe), the US (Elephant Auto) and France (L’olivier Assurance).
While we expected to realise some of the benefits of this decision in 2019, we were also pleasantly surprised by performance improvements in the second half of the year. Insurers are facing the very same acquisition cost headwinds, so we made progress expanding our panel and improving our own revenue potential as well.
A new market approach is being tested in India with the launch of Gosahi.com in February 2019, a loan comparison portal that enables users to compare online and get full support during their off-line loan application (a complex process in the market) with the collaboration of relevant financial brokers.
• The continental European comparison businesses reported an increased profit of £3.5 million (2018: £1.4 million) reflecting improved customer experience through the digital customer journey and product diversification, with strong growth at LeLynx in France
• Costs for Penguin Portals, and Preminen (which was previously recorded under business development costs in ‘Other Group items’) are included in the Comparison segment result in the ‘other’ section
Various initiatives across the Group promote diversity and inclusion, such as our headline sponsorship of Pride Cymru over the summer. Importantly, as a global business with growing international operations, our community impact now increasingly stretches across different parts of the globe.
• Reward and Recognition: All our people receive the same number of shares4 through our Approved Free Share Plan (SIP). Managers additionally receive shares through a DFSS bonus, linked to company performance
Building and maintaining strong, long- term relationships with our external network of partners and suppliers
In 2019 members of our senior leadership team and our Board, met with several of our largest shareholders to discuss a range of topics relating to the Company and its performance in an open and honest fashion. The insights that such discussions provide reinforce the importance of two-way communication as a key element of our stakeholder engagement programme.
This section also includes a description of Admiral’s approach to identify, manage and govern emerging risks.
Admiral continuously assesses the value to its customer of the products it offers and makes changes to ensure the products continue to meet customer needs and offer good value.
Growth in developing businesses could exceed the scale of infrastructure of the operation.
Risk: Admiral typically maintains a significant combined ratio advantage over the UK market. This advantage and/or the level of underwriting profit (and associated profit commission) could be eroded.
Risk: Legal and Regulatory risk may arise where Admiral fail to comply with legal or regulatory requirements and/or changes in an accurate, timely manner, such as the introduction of IFRS 17 and the FCA review in General Insurance Pricing Practices.
Assurance is gained through external reviews and benchmarking exercises ensuring Admiral is compliant with legal and regulatory requirements.
Emerging Risks Initiative. The framework documents the management practices and procedures in managing emerging risks: identifying and assessing risks thorough analysis and the quantification of the potential impact to Admiral, as well as the precautionary deployment of management actions and mitigating controls.
The performance of the Chief Financial Officer is appraised annually by the Chief Executive Officer, to whom he reports. The Chair, taking into account the views of the other Directors, reviews the performance of the Chief Executive Officer.
Following candidate interviews and presentations, Milena Mondini de Focatiis was selected as the preferred CEO candidate, subject to regulatory approval.
• Runs the Board and sets its agenda, with an emphasis on strategic issues.
• Ensures the Board has effective decision-making processes and applies sufficient challenge to proposals.
The Senior Independent Director has specific responsibility to be available to investors who have any issues or concerns, and in cases where contact with the Chair, Chief Executive Officer and Chief Financial Officer has either failed to resolve their concerns, or where such contact is inappropriate. No such concerns have been raised in the year under review.
Whilst acknowledging that the setting of reserves for claims which will settle in the future is a complex and judgemental area and having had the opportunity at the separate meetings referred to above to consider and question the recommended best estimates, the Committee is satisfied that an appropriate process has been followed and that there has been sufficient scrutiny, challenge and debate to give confidence that the reserving levels set provide an appropriate margin above best estimates, noting the consistent level of prudence that remains within the reserves.
The auditor, through its own actuarial specialist, obtained assurance over the objectivity and competence of the Group’s external actuary and had challenged the appropriateness and implementation of the methodology to ensure that consistency in approach to excess of loss reinsurance recoveries within the best estimate reserves was appropriate.
The impairment in Elephant Auto of £65.9 million reflected the reduction of the previous carrying amount (£105.8 million) to its recoverable amount, being value in use. The Committee reviewed and challenged the cash-flows supporting the value in use calculations, including the underlying financial forecasts and key assumptions supporting the cash-flows such as forecast loss and expense ratios. Key assumptions within the cash-flows were challenged, including the discount rate, tax rate and terminal value of the business. The Committee also heard from its auditor on the results of its audit tests performed on management’s projections.
With varying degrees of impact, climate change will affect many of Admiral’s PR&U. While the effects of physical risks and transition risks will be felt by different parts of the business, and over different time frames, taken together the largest impacts are expected to be in non-life premium (pricing) risk, reinsurance risk, and strategic risk. Other risks and opportunities have been considered, and their impacts assessed.
The Committee continued to monitor the implementation of the recommendations contained in the external review of the Group’s governance arrangements that was carried out in 2018. A further external governance review was also initiated during the year which focused on assessing the effectiveness of the implementation of the recommendations from the previous external governance review carried out in 2018. The Committee received regular updates from management on the progress of the review and, at the meeting in August, received an update from the senior members of the external team that were carrying out the review. The Committee also considered the results of the review and approved the plan proposed by management to implement the recommendations designed to strengthen the Group’s existing governance arrangements.
The Group’s Gender Pay Gap is already materially lower than the UK average and the industry average for the financial services sector, however, the Group remains committed to reducing it further through a number of initiatives that are being introduced to address the current imbalance of men and women at differing levels of the business.
The Remuneration Committee Statement to Shareholders from the Chairman of the Remuneration Committee
Decisions made by the Remuneration Committee in 2019 on Executive Director compensation Taking into account the approved remuneration structure and Admiral’s business performance, the Committee made the following decisions during 2019: • Based on performance to 31 December 2019, 88.8% of the DFSS award granted in 2017 will vest. The EPS condition was achieved, vesting at 100% of this element and the ROE condition was partially achieved, vesting at 97.9% of this element. The TSR condition vested at 68.4% of this element. This means that 44,400 of the 50,000 DFSS shares awarded to Geraint Jones, will vest on 26 September 2020. The Committee reviewed this vesting outcome and concluded that it was appropriate.
Unless otherwise stated, information contained within this Remuneration Report is unaudited.
Awards may be in the form of nil or nominal priced options or conditional shares. Awards vest after a minimum of three years subject to Group performance and continued employment.
All eligible UK employees participate in the SIP (except David Stevens, who has declined to participate). Grants are made twice a year based on the results of each half year and vest after three years subject to continued employment.
The Company operates a personal pension scheme which is available to all employees once they have completed their probationary period. For all employees including the Executive Directors, the Company matches the contribution up to a maximum of 6% of salary up to an overall maximum of £15,000.
Considerations of Shareholder Views When determining remuneration, the Committee takes into account best practice guidelines issued by institutional shareholder bodies. The Committee is open to feedback from shareholders on the Remuneration Policy and will continue to monitor trends and developments in corporate governance and market practice to ensure the remuneration structure for our Executive Directors remains appropriate.
David Stevens*1 *1 David Stevens does not participate in any incentive plan given his significant shareholdings.
6. Michael Brierley was appointed to the Board on 5 October 2018 and his fee includes fees paid for Board and Committee attendance prior to his formal appointment.
As at 31 December 2019, the Directors held the following interests: Director
The closing price of Admiral shares on 31 December 2019 was £23.09 per share.
For information on how the Directors have engaged with employees during the financial year and how Directors have had regard to employee interests during the financial year when making strategic decisions, please refer to the Strategic Report on page 15.
The Directors present their Annual Report and the audited Financial Statements for the year ended 31 December 2019.
Notes 1 Company Directors consists of the Board of Directors, as detailed on pages 76 to 77.
• the related notes 1 to 12 to the Parent Company Financial Statements.
Following the transfer of European insurance business, the Italian and Spanish divisions of the Group’s underwriting entities, Admiral Insurance (Gibraltar) Limited (“AIGL”) and Admiral Insurance Company Limited (“AICL”), were dissolved meaning that these no longer form significant components of the Group for the 2019 audit.
During 2019, we have identified an additional key audit matter pertaining to the valuation of projected excess of loss reinsurance recoveries related to the UK Car Insurance business underwritten by the Group following an enhancement to the methodology applied in calculating such recoveries during the current period.
Specifically, our significant areas of focus are management’s selection of the frequency and severity assumptions for large bodily injury claims arising in the UK Car Insurance business. These particular claims result in higher individual claims reserves and are more judgemental, in terms of the development of the ultimate losses, due to the longer-term nature of the Group’s exposure (compared to property damage claims).
Admiral Group plc, the Group’s parent entity, holds its investment in the US insurance subsidiary, Elephant Insurance Company LLC (“Elephant”), at cost less impairment. The pre-impairment value of this investment was £106 million (2018: £106 million).
Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows: Group Financial Statements Parent company Financial Statements
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 four years, covering the years ending 31 December 2016 to 31 December 2019.
Total equity attributable to equity holders of the parent 909.4 758.3
Changes in ownership interests without a change in control – – – – – 0.8 0.8 (1.4) (0.6)
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.
During the year the Group has adopted IFRS 16 Leases with a date of initial application of 1 January 2019.
– Changes to underlying process and methodologies employed in setting case reserve estimates.
The key areas of estimation uncertainty are in the calculation of the Probability of Default (PD) in the base scenario for stage 1 and 2 assets, and the determination, impact assessment and weighting of the forward-looking scenarios.
Impact of 5% improvement in booked loss ratio (£m) 71.0 77.6 61.7 9.8
The table below shows the development of UK Car Insurance loss ratios for the past six financial periods, presented on an underwriting year basis.
Financial year ended 31 December £m £m £m £m £m £m
Level One (quoted prices in active markets) 1,160.2 1,950.3 1,301.1 1,560.8
Level Three (use of significant unobservable inputs)*1 – 7.5 – 7.8 *1 No further information is provided due to the immateriality of the balance.
The Directors consider credit quality and counterparty exposure 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 2019 and historically, no material credit losses have been experienced by the Group.
The impact on equity of a 100 basis point increase in credit spreads at the relevant valuation date, is as follows: £m £m
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 ratings. In addition, many reinsurance contracts are operated on a funds withheld basis, which substantially reduces credit risk, as the Group withholds the cash received from policyholders as collateral.
A breakdown of the Group’s other borrowings, trade payables and other payables is shown in note 11.
The subordinated notes have a maturity date of July 2024, whereas all trade and other payables will mature within three to six months of the balance sheet date (refer to the maturity profile at the start of this note for further detail).
Interest expense is calculated following the specific process relating to each source of funding, which is not linked to individual accounts.
The net investment in finance leases shown above is net of the unguaranteed residual value of £0.5 million (2018: £0.3 million).
For the cash settled schemes, the expense recognised for the fair value of services received results in a corresponding increase in liabilities.
Acquisition costs comprise all direct and indirect costs arising from the conclusion of insurance contracts. Deferred acquisition costs represent the proportion of acquisition costs incurred that correspond to the unearned premiums provision at the balance sheet date. This balance is held as an intangible asset. It is amortised over the term of the contract as premium is earned.
Registered office: F-2902, Ireo Grand Arch, Sector 58, Gurugram, HARYANA, Gurgaon, Haryana, India, 122011
Prior year release/strengthening – net original share 111.4 1.4 – 112.8 13.5 – 13.5 126.3
Impact of reinsurer caps – – – – 2.9 – 2.9 2.9
As noted above, a more cautious view of Management’s forecast has been used in the valuation as it is recognised that the improvements arising from the actions taken will be evidenced through 2020 and 2021. If the projected loss ratio improvement does not materialise, a further impairment charge may be required in 2020 or in subsequent years.
Balance brought forward at 1 January 2018 (0.1) – – 4.2 – 4.1
UK reported motor expense ratio: Within the UK insurance segment the Group separately presents motor ratios, i.e. excluding the underwriting of other products that supplement the car insurance policy. The motor ratio is adjusted to i) include claims handling costs that are reported within claims costs in the Income Statement and ii) include intra-group aggregator fees charged by the UK comparison business to the UK insurance business.
International insurance expense ratio: As for the UK Motor loss ratio, the International insurance expense ratios presented exclude the underwriting of other products that supplement the car insurance policy. The motor ratio is adjusted to i) exclude the expense element of the impact of reinsurer caps as inclusion of the impact of the capping of reinsurer expenses would distort the underlying performance of the business and ii) include intra-group aggregator fees charged by the overseas comparison businesses to the International insurance businesses.