Key messages: 1 Resistant, not proof 2 Freight train gaining speed 3 Headlines don’t mirror reality 4 Fierce competition 5 It’s not just add water and stir 6 Stick to the strategy
• The fact that only one brand has yet to have a presence on any price comparison site and that’s Direct Line. Even all the other RBS insurance brands have joined price comparison panels.
Our reaction to these problems was to spend a lot of energy improving the claims systems and re-calibrating our pricing. Our renewal rate for this season was low enough to lead us to believe our pricing re-calibration had an effect. Now we wait to see how this year’s customers perform.
• Arises out of efficient marketing, focussed distribution and strong pricing activities
The business faces operational risk Operational risk arises across the business in a variety of forms, and if business processes do not function effectively and efficiently, losses may arise. Potential risk areas include: Claims handling; internal or external fraud; computer system failure. The Group has a well developed risk management framework, including a robust set of internal controls, although these can not be relied upon to completely eliminate the risk of loss.
As we note above, a key element of the Group’s strategy is to take what the Group does well in the UK and use this knowledge to establish profitable, sustainable businesses overseas. We do not expect to do this quickly and we do not target a set market share or revenue within fixed timeframes.
Progress • Spain, Balumba.es, October 2006 • Germany, AdmiralDirekt.de, October 2007 • Italy, ConTe.it, May 2008 • USA, operation being developed, launch expected late 2009/early 2010 • France, market being researched, launch date to be determined
Also refer to the section on financial risks for details on credit risk (page 30)
2 � B U s I n E s s R E V I E W
Share scheme charges have continued to increase, as additional awards are made under the Group’s schemes, and the share price on which the charges are based has also increased over time. 2008 was also the first period in which existing awards vested. Refer to note 25 for further detail on the Group’s share schemes.
The total dividend for 2008 (52.5p) is 20% higher than the 43.8p distributed in respect of 2007.
re-election by shareholders. Their letters of appointment may be inspected at the Company's registered office or can be obtained on request from the Company Secretary.
In the view of the Board, the independent non-executive directors are of sufficient calibre and number that their views carry significant weight in the Board's decision making.
The Board receives presentations from senior managers within the various Group companies on a regular basis.
During the year the Committee carried out the following activities :-
· Performance linked – A significant part of Executive Directors’ (excluding Henry Engelhardt and David Stevens) and senior managers’ reward is determined by the Group’s earnings growth. Failure to achieve threshold levels of growth in the Group’s earnings results in reduced or no payout under the Group’s long-term incentive plan.
In addition, commencing with the interim 2009 dividend, the Group will pay a bonus to all holders of unvested DFSS shares. The bonus will equate to the dividend payable on an equivalent number of the ordinary shares of the Group. The Committee felt that having a Group wide bonus aligned with the dividend flow received by investors further aligned the incentive structure with shareholders.
It is the Committee’s general strategy to pay salaries below median levels together with attractive awards under the DFSS bringing the total remuneration to competitive levels for superior performance. With effect from 1 July 2008 Kevin Chidwick’s base salary was increased by 25% to £300,000. Whilst the increase in Kevin Chidwick’s base salary is above inflation the Committee felt that the increased responsibilities taken on during the year justified such an increase. £300,000 remains below the median base salary of FTSE 100 Finance Directors.
Lucy kellaway 3 years commencing 4 September 2006, terminable by either party giving one months’ written notice.
Keith was appointed a Non-executive Director in December 2002. He is Chairman of the Nominations Committee and is also the independent Chairman of Admiral Insurance Company Limited and Inspop.com Limited.
He is also a Non-executive Director of Julian Hodge Bank Limited and is Non-executive Chairman of Atlantic Venture Capital Limited and International Greetings plc.
Employee policies Detailed information on the Group’s employment practices is set out in the Business review.
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 identifiable assets acquired.
Leases under the terms of which the Group assumes substantially all of the risks and rewards of ownership are classed as finance leases. Assets acquired under finance leases are included in property, plant and equipment at fair value on acquisition and are depreciated in the same manner as equivalent owned assets. Finance lease and hire purchase obligations are included in creditors, and the finance costs are spread over the periods of the agreements based on the net amount outstanding.
The following segments represent the principal split of business that is regularly reported to the Group’s Board of Directors, and therefore become the Group’s reportable segments under IFRS 8: 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.
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 allocated to the Other reportable segment.
Carrying amount: Goodwill relates to the acquisition of Group subsidiary EUI Limited (formerly Admiral Insurance Services Limited) in November 1999. It is allocated solely to the UK car insurance segment. As described in the accounting policies, the amortisation of this asset ceased on transition to IFRS on 1 January 2004. All annual impairment reviews since the transition date have indicated that the estimated recoverable value of the asset is greater than the carrying amount and therefore no impairment losses have been recognised.
The amortised cost carrying amount of held to maturity deposits and receivables is a reasonable approximation of fair value.
To mitigate the risk arising from exposure to reinsurers, the Group only conducts business with companies of specified financial strength ratings. In addition, most contracts are operated on a funds withheld basis, which substantially reduces credit risk.
B) Sensitivity of recognised amounts to changes in assumptions: The following table sets out the impact on equity at 31 December 2008 that would result from a 1 per cent change in the loss ratios used for each underwriting year for which material amounts remain outstanding.
Underwriting year: Release as % of net premium revenue 8.5% 12.4% 14.4% 20.7% 22.4%
The amount of deferred tax (expense) / income recognised in the income statement for each of the temporary differences reported overleaf is: Amounts (charged) / credited to income or expense: 31 December 2008
Inspop.com Limited England and Wales Ordinary Internet insurance intermediary 2008 Financial highlights