Admiral is one of the largest employers in South Wales and employs 7,000 people worldwide.
Admiral’s Chairman, Alastair Lyons, discusses Admiral’s 2013 performance and explains what makes Admiral different.
Confused.com was the UK’s fi rst price comparison website, originally set up in 2002 to provide a car insurance comparison service.
Admiral Technologies has provided IT and technology support to Admiral Group’s operations in different countries across the globe since 2009 and is currently supporting the Group’s French, Spanish and American operations.
I’m not going to dwell on the past and review all the numbers of all the businesses which appear in copious detail later in this document. What I will do is look at the future and explain why today’s baked potato is tomorrow’s steak dinner.
Read more about what Admiral Group does for its staff and customers at: www.admiralgroup.co.uk/culture/csr
In the photo above Admiral’s staff celebrate the Group’s success in winning the Prince’s Trust National Million Makers Challenge. Read more at: www.admiralgroup.co.uk/culture/csr 2 A GREAT Place To Work!
UK private cars > 91% of customers who have submitted a claim would renew with Admiral, based on their claims experience (2012: 90%)
“ The market’s marked cyclicality, with its yo-yo pricing, makes for more of a white knuckle ride for investors in car insurance than in most sectors.”
Total premiums written*3 1,728.8 1,748.7 1,553.0 Net insurance premium revenue 418.6 455.6 425.1
“ Profit from UK Car Insurance increased 6% to £393.9 million (2012: £372.8 million). Profit from underwriting and profit commission increased 35% to 233.4 million (2012: £172.8 million), resulting largely from an improved combined ratio.”
Reserve releases – original net share*1 3.7% 13.2% Loss ratio net of releases – original net share*1 76.4% 68.0% Expense ratio 13.6% 15.0% Combined ratio – original net share*1 90.0% 83.0%
*1 Ratios calculated on original net share use the proportion of the portfolio that Admiral wrote on a net basis at the start of the underwriting year in question.
Profit Commission Admiral is potentially able to earn material amounts of profit commission revenue from co- and reinsurance partners, depending on the profitability of the business. Revenue is recognised in the income statement in line with the booked loss ratios on Admiral’s retained underwriting.
Italy – Milena Mondini CEO, ConTe 2013 was dominated by the reactions to the market’s 2012 92% combined ratio, an improvement of 9 percentage points on 2011. After fi ve consecutive years of price increases coupled with a large stock of reserves, prices unsurprisingly fell, by c.5% in the fi rst three quarters, but this was not coupled with a reversion of the insurance cycle. In fact, there was a minor decrease in the loss ratio at the end of the fi rst half caused by a 3% reduction in claim frequency due to the ongoing fi nancial crisis reducing car usage and fuel consumption.
Price Comparison Strategy > A key part of the Group’s overall strategy is to exploit its UK expertise in Price Comparison and export this overseas > To date Admiral has targeted four markets (Spain, France, Italy and the USA)
comparenow.com’s test launch, which began in March 2013, has been followed by a regional advertising campaign in January 2014. Rollout across the US will take place slowly during 2014. Response to the initial TV campaign has exceeded expectations, but it is very early days.
Admiral has a conservative reserving policy and continues to hold a material margin in its financial statement claims reserves above actuarially determined best estimates.
Best estimate reserves are estimated internally and externally by an independent actuary.
New price comparison businesses have aligned their marketing investment with the extent of improvement in trading key performance indicators such as average cost per quote and conversion ratio. The Group also considers partial disposals of equity to share start-up losses with partners.
The Board also considers the following risks to be significant: Customer/Conduct Risk – failure of products or service to meet customer expectations and failure to address customer complaints promptly or appropriately. Further detail on how Admiral interacts with its customers is set out on page 14 and in the Corporate Responsibility (CR) Report available online.
Non-Executive Director of Murray Income Trust plc Non-Executive Director of the National House Building Council
Jean was Group Chief Risk Offi cer at the Phoenix Group from 2009 until June 2013, during which time she held responsibility for the Group’s relationship with the regulator and founded the Board Risk Committee. Previously, she was Risk Management Director of the Insurance and Investments division of Lloyds TSB and, before that, Head of Compliance and Audit at Scottish Widows. Jean is a Member of the Institute of Chartered Accountants of Scotland.
Non-Executive Director serving on, amongst others, the Boards of: Luxottica Group S.p.A; Teva Pharmaceutical Industries Ltd; Banca Nazionale del Lavoro S.p.A. and COFIDE S.p.A.
Save for matters reserved for decision by the Board, the Chief Executive, with the support of the other Executive Directors, is responsible for proposing the strategy to be adopted by the Group; running the business in accordance with the strategy agreed by the Board; and implementing specific Board decisions relating to the operation of the Group.
The Board has approved a statement that sets out the clear division of responsibilities between the Chairman and the Chief Executive Officer
All shareholders are invited to attend the Company’s Annual General Meeting (AGM). The Chairs of the Audit, Remuneration, Nomination and Group Risk Committees attend the AGM along with the other Directors and are available to answer shareholders’ questions on the activities of the committees they chair. Shareholders are also invited to ask questions during the meeting and have an opportunity to meet with Directors after the formal business of the meeting has been concluded. Details of proxy voting by shareholders, including votes withheld, are made available on request and are placed on the Company’s website following the meeting.
The Committee received a detailed paper from the Deputy Chief Financial Officer which provided an analysis of profit commission, its accounting treatment and the risks to this income stream. In addition, the Committee considered legal advice obtained on the Group’s reinsurance and co-insurance contracts and was able to gain assurance that the profit commission clauses operated effectively, that profit commission was correctly accounted for by the Group, and that it was in accordance with the contractual arrangements that were in place.
Audit Tender The Committee has noted that the Code has introduced new recommendations that audits should be put out for tender at least every 10 years. The last such tender was carried out by the Group in 2006. In view of the high quality of service received by the Group from the auditor; and the fresh perspective provided by the recent rotation of the audit engagement partner in 2011; the Committee recommended that a re-tender process should not be undertaken in 2013 but that the relationship with and effectiveness of KPMG should be kept under review. A resolution for the reappointment of KPMG as auditor will, therefore, be proposed at the forthcoming AGM. There are no contractual obligations that restrict the Group’s choice of external auditor.
The duties and responsibilities of the Committee are set out in Terms of Reference that were approved by the Board in January 2013 and updated and approved in January 2014. The responsibilities of the Committee can be summarised as: > Agreeing the Group’s risk management framework, including the remits of Risk Management Committees that are established within each of the Group’s operational entities and overseeing the risk management functions > Monitoring the Group’s prudential risk exposure, which includes ensuring that the Group’s capital resources and liquidity profi le are appropriate to its needs whilst meeting minimum regulatory requirements, including overseeing and challenging the design and execution of the Group’s stress and scenario testing > Ensuring the adequacy and effectiveness of the Group’s systems and controls for the prevention of fi nancial crime, including prevention of bribery and adequacy of anti-money laundering and data protection systems and controls > Monitoring the adequacy and effectiveness of the Group’s compliance functions > Reviewing the Group’s progress towards achieving Solvency II compliance > Reviewing compliance with Group policies, including the established Reserving Policy and process > Considering and recommending to the Board for approval the Group’s risk appetite, including any changes to the appetite for each material type of risk faced by the Group
In addition to the recruitment of Jean Park and in order to strengthen the Group’s risk capability, the Committee initiated a search for a Group Director of Risk (a non-Board position). External search consultants were engaged and a shortlist of candidates identified. James Armstrong emerged as a strong candidate given his experience in this area whilst working for Lloyds Banking Group and Deloitte. The Committee met with James and recommended that he should be appointed as Director of Risk. The Board approved the recommendation and James will join the Group in March 2014.
To incentivise shareholder value creation, in particular in the form of dividends, management participate in a bonus scheme which directly links their awards to dividends paid to shareholders. Bonus is calculated to be equivalent to dividends that would have been payable during the year on all outstanding DFSS shares awarded but not vested.
Statutory Disclosures Group Results and Dividends The profit for the year, after tax but before dividends, amounted to £286.9 million (2012: £258.4 million).
The Directors declared and paid dividends of £255.8 million during 2013 (2012: £219.3 million) – refer to note 11b for further details.
A further special resolution passed at that meeting granted authority to the Directors to allot equity securities in the Company (up to a maximum of 5% of the issued share capital of the Company) for cash, without regard to the pre-emption provisions of the Companies Act 2006. This authority also expires on the date of the Annual General Meeting to be held on 9 April 2014 and the Directors will seek to renew this authority for the following year.
Responsibility Statement The Directors confirm that to the best of their knowledge: > The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole > The management report required by DTR 4.1.8R (contained in the Strategic Report and the Directors’ Report) includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face
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 they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.
Auditor KPMG Audit plc informed the Company that they wished to formally change the entity which conducts the Company’s audit from KPMG Audit plc to KPMG LLP. KPMG Audit plc has indicated therefore that it will not stand for reappointment at the Company’s 2014 AGM, however KPMG LLP will seek election at this meeting. It is proposed that KPMG LLP are appointed auditors of the Company and they will hold office from the conclusion of the AGM in April 2014 until the conclusion of the next general meeting at which accounts are laid before the Company.
Our Response – Our audit procedures included, among others, critically assessing the contract terms for these arrangements to ascertain whether, taking into account relevant accounting standards, the treatment of the Group’s co-insurance and quota share reinsurance contracts is appropriate. We have also considered the adequacy of the Group’s disclosures and appropriateness of the presentation of transactions and balances with these arrangements.
Basis of Preparation The accounts have been prepared on a going concern basis. In considering the appropriateness of this assumption, the Board have reviewed the Group’s projections for the next twelve months and beyond, including cash flow forecasts and regulatory capital surpluses. The Group has no debt.
(ii) Revenue – Profit Commission 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.
(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.
The Group’s investments in money market liquidity funds and short term debt securities are designated as financial assets at fair value through profit or loss (FVTPL) at inception.
A maturity analysis for insurance contract liabilities is included in note 5.
Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short term-term deposits with original maturities of three months or less.
Total accruals and deferred income as above 100.7 174.8 10f. Obligations Under Finance Leases Analysis of finance lease liabilities: At 31 December 2013 At 31 December 2012
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ep o rt and A cco unts 2013 2013 WAS AN AWARD WINNING YEAR!