TIDMADM
17 August 2016
H1 2016 Group Highlights
H1 2016 H1 2015 % change
Group profit before tax(*1) GBP193 million GBP186 million +4%
Earnings per share 55.9 pence 54.8 pence +2%
Interim dividend 62.9 p/share 51.0 p/share +23%
Return on equity 49% 50%
Group turnover(*2) GBP1.26 billion GBP1.06 billion +19%
Group customers 4.82 million 4.19 million +15%
UK Car Insurance
Turnover GBP993 million GBP858 million +16%
Customers 3.52 million 3.18 million +11%
International Car Insurance
Turnover GBP159 million GBP110 million +44%
Customers 757,900 631,700 +20%
Solvency ratio (post dividend) 180% 206% (FY 2015)
David Stevens, Chief Executive Officer, commented:
"What a great time to take on the stewardship of Admiral. The last six
months have shown the enduring, and indeed increasing, strength of the
UK business and has seen a step change upwards in growth from our
developing international businesses.
In the core UK car insurance business, we've benefitted from an
increasingly rational motor market with evidence of a move towards a
less violent cycle. Prices have been rising, and we've used this
opportunity to grow our motor book strongly. Meanwhile, the growth of
our household book continued apace, demonstrating our ability to expand
successfully beyond our car insurance core in the UK.
Overseas, Elephant launched into two new states and our
longer-established European insurance operations, collectively, moved
tantalisingly close to profitability, while also accelerating the rate
of growth and investing more in promoting our brands. All our price
comparison businesses, including Confused, grew rapidly.
I'm very happy to be able to pick up where Henry left off, with yet
another Admiral record for both turnover and profits."
[*1] Profit or loss figures represent Group's share of profit or loss
before tax excluding minority interests. Statutory profit before tax
increased 4% to GBP189.5 million (H1 2015: GBP181.7 million)
[*2] Turnover is a non-GAAP measure and consists of total premiums
written (including co-insurer's share) and Other revenue
Management presentation
Analysts and investors will be able to access the Admiral Group
management presentation, which commences at 9.00am on Wednesday 17
August 2016, by dialling +44 203 059 8125.
A copy of the presentation slides and webcast, along with a PDF version
of this interim results announcement, will be available at
www.admiralgroup.co.uk.
Group overview
The first half of 2016 has been a positive period for the Group with
strong growth in turnover and customer numbers, both to record levels.
Pre-tax profit also increased to a new record for a first half.
The Group's main UK Car Insurance business enjoyed favourable market
conditions and delivered particularly positive results, seeing a 16%
increase in turnover, a 217,000 increase in customer numbers and a
record H1 result of GBP222.8 million. UK Household Insurance also
recorded continued strong growth (reaching 382,000 customers), improved
key metrics (including expense ratio) and another profitable half year.
Outside the UK, Admiral's International Insurance businesses grew
turnover (44%) and customer numbers (13%) strongly and at faster rates
than in recent periods. Encouraging progress was made in combined ratio
terms, and although in aggregate the segment recorded losses of GBP12.9
million (up from GBP11.2 million) mainly as a result of the growth in
the US and France, ConTe recorded another profitable six month period.
And finally in Price Comparison, results were also encouraging:
Confused.com http://confused.com in the UK grew revenue and saw a
significant increase in profit to GBP8.3 million from GBP4.8 million;
the Group's European operations retained leadership positions in their
respective markets; and continued encouraging progress in developing the
panel of insurers and key metrics was made in the US at compare.com
http://compare.com .
As a result of the positive performance and first half profit along with
a strong solvency position, Admiral has also declared a record interim
dividend of GBP174.7 million (62.9 pence per share), up from GBP140.2
million (51.0 pence per share) for H1 2015. The interim dividend
includes GBP33 million (11.9 pence per share) of additional return of
capital as a result of the strong solvency ratio.
As noted further into the report, the UK's decision to leave the EU
(Brexit) resulted in market volatility which impacted the solvency ratio
(which nonetheless remains strong at 180%, or 196% on a volatility
adjusted basis). Brexit brings some additional risks to the Group which
are discussed later in the report.
Business performance, along with further detail on Brexit and dividends
is set out in the following sections.
Group key performance indicators
H1 2014 H1 2015 H1 2016 FY 2015
Turnover(*1) GBP1,037m GBP1,058m GBP1,261m GBP2,119m
Net revenue GBP445m GBP448m GBP512m GBP905m
Number of customers 3.94m 4.19m 4.82m 4.43m
Loss ratio(*2, *3) 67.1% 60.8% 59.5% 65.1%
Expense ratio(*2, *3) 18.0% 21.9% 22.7% 20.5%
Combined ratio(*2, *3) 85.1% 82.7% 82.2% 85.6%
Profit before tax(*4) GBP185m GBP186m GBP193m GBP377m
Earnings per share 52.7p 54.8p 55.9p 107.3p
Dividend per share 49.4p 51.0p 62.9p 114.4p
Return on equity 54% 50% 49% 49%
Solvency ratio(*5) - - 180% 206%
[*1] Turnover is a non-GAAP measure and consists of total premiums
written (including co-insurer's share) and Other revenue, refer to Note
12a for reconciliation to income statement.
[*2] Loss ratios presented to exclude releases on business that was
originally ceded under quota share reinsurance contracts. Result in H1
2016 including releases from commuted reinsurance contracts would have
been a loss ratio of 54.5% and combined ratio of 77.2%.
[*3] Loss and expense ratios exclude the impact of reinsurer cap
accruals, refer to Note 12b and 12c.
[*4] Profit before tax adjusted to exclude minority interests' share,
refer to Note 12d for reconciliation to statutory profit.
[*5] Solvency ratio is estimated and unaudited and reflects the
Solvency II position at the date of this report. H1 2016 solvency ratio
on a volatility adjusted basis is 196%.
Earnings per share
Earnings per share increased by 2% to 55.9 pence (H1 2015: 54.8 pence).
The increase is lower than the increase in pre-tax profit due to the
higher effective tax rate.
Dividends
The Group's dividend policy is to pay 65% of post-tax profits as a
normal dividend and to pay a further special dividend comprising
earnings not required to be held in the Group for solvency or buffers.
The Group entered into the new Solvency II regime in January with
surplus capital and is returning additional capital to shareholders in a
phased manner, up to the first half of 2018. The current expectation is
for the total additional return on capital to be in the region of GBP100
million - GBP150 million.
The Directors have declared a total interim dividend of 62.9 pence per
share (GBP174.7 million), comprising three elements,
-- 36.8 pence per share normal dividend;
-- A special dividend of 14.2 pence per share; and
-- A further additional return of capital of 11.9 pence per share,
representing an element of surplus capital not required for solvency as
noted above.
The normal and special elements total 51.0 pence per share, in line with
the total interim dividend for 2015. The additional special element of
11.9 pence per (GBP33 million) is the second instalment of the
additional returns of capital referred to above.
The total 2016 interim dividend is 23% ahead of the interim 2015
dividend.
The payment date is 7 October 2016, ex-dividend date 8 September 2016
and record date 9 September 2016.
Divisional Performance Highlights
-- UK Car Insurance profit increased by 2% to GBP222.8 million (H1 2015:
GBP219.2 million).
-- International Car Insurance losses totalled GBP12.9 million (H1 2015:
GBP11.2 million).
-- Admiral Group's share of Price Comparison losses totalled GBP1.1 million
(H1 2015: loss of GBP4.0 million) reflecting higher profit from
Confused.com, offset by continued investment in compare.com.
-- The net cost from Other Group Items, including employee share schemes and
net debt financing charges, amounted to a cost of GBP15.6 million (H1
2015: GBP17.7 million).
In the six months to 30 June 2016 Admiral continued to grow its share of
the UK private motor insurance market, resulting in a total customer
base of 3.52 million (H1 2015: 3.18 million). During this period Admiral
implemented a number of premium increases. The improvement in pre-tax
profit was mainly due to an improved Combined Ratio of 72.0% (H1 2015:
73.1%) and higher reported investment income.
Admiral's International Car Insurance businesses also continued to grow,
achieving an increase in turnover of 44% to GBP159.2 million (H1 2015:
GBP110.3 million) and insuring 20% more vehicles at 30 June 2016
compared with a year earlier. As a result of this continued strong
growth in the first half, development of the businesses produced losses
of GBP12.9 million compared to GBP11.2 million in the first half of 2015
although the combined ratio improved to 131% at H1 2016 from 137% at H1
2015. The higher loss was mainly driven by the continuing investment in
the Group's US insurance operation, Elephant. The overall international
insurance loss equated to 7% of the Group's profit before tax for the
period (H1 2015: 6%).
Admiral's Price Comparison businesses made a combined loss of GBP1.1
million (H1 2015: GBP4.0 million) excluding minority interests' share.
This improvement was due to a significantly improved result from the
Group's UK Price Comparison business, Confused.com. In International
Price Comparison, the Group continued to invest in compare.com, the
Group's US operation, which reported a loss of GBP10.1 million (H1 2015:
GBP10.4 million) offsetting the profit from the Group's European Price
Comparison operations.
Investments and Cash
Analysis of cash and investments:
30 June 2016 31 December 2015 30 June 2015
GBPm GBPm GBPm
Fixed income and debt securities 1,483.3 1,428.2 1,324.3
Money market funds 693.4 627.7 671.0
Cash deposits 178.7 267.6 247.5
Cash 295.4 265.3 216.0
Total 2,650.8 2,588.8 2,458.8
Money market funds, fixed income and debt securities continue to
comprise the majority of the total; 82% at 30 June 2016 compared with
81% at 30 June 2015.
Investment return and interest income increased by GBP23.8 million to
GBP33.4 million in H1 2016 (H1 2015: GBP9.6 million). GBP14.3 million of
the increase is due to movements in accruals relating to quota share
reinsurance arrangements, with the balance due to additional investment
income earned on higher average balances. Refer to page 10 for further
detail on the movement of quota share reinsurance accruals.
The underlying rate of return (excluding the reinsurance accrual) on the
Group's cash and investments was 1.4% (H1 2015: 1.2%).
Capital Structure and Financial Position
Admiral's capital-efficient and profitable business model led to a
return on equity of 49% (H1 2015: 50%). A key feature of the business
model is the extensive use of co- and reinsurance across the Group. The
Group's quota share reinsurance arrangements for the UK car insurance
business are in place until at least the end of 2018. In 2017 and 2018,
the Group will reduce its net share of that business from 25% to 22%.
Similar long term arrangements are in place in the Group's International
Insurance operations and UK Household Insurance business.
The Group continues to manage its capital to ensure that all entities
within the Group are able to continue as going concerns and that
regulated entities comfortably meet regulatory capital requirements.
Surplus capital within subsidiaries is paid up to the Group holding
company in the form of dividends.
The Group's regulatory capital from January 2016 is based on the
Solvency II Standard Formula, with a capital add-on agreed by the PRA to
reflect recognised limitations in the Standard Formula with respect to
Admiral's business (predominantly in respect of profit commission
arrangements in co- and reinsurance agreements and risks arising from
Periodic Payment Order (PPO) claims).
The capital add-on to the Standard Formula approved by the PRA in
December 2015 will be the subject of a review in December 2016. The
Group plans to submit an application for approval to use an internal
model to calculate capital requirements during 2017.
The majority of the Group's current capital requirement is derived from
its European insurance operations, Admiral Insurance (Gibraltar) Limited
(AIGL) and Admiral Insurance Company Limited (AICL). The estimated (and
unaudited) Solvency II position for the Group at the date of this report
was as follows:
Group GBPbn
Eligible Own Funds (pre 2016 interim dividend) 1.02
2016 interim dividend 0.17
Eligible Own Funds (post 2016 interim dividend) 0.85
Solvency II capital requirement 0.47
Surplus over regulatory capital requirement 0.38
Solvency ratio(*1) 180%
[*1] Solvency ratio on a volatility adjusted basis is 196%.
In July 2014, the Group completed the issue of GBP200 million of ten
year dated subordinated bonds. The rate of interest is fixed at 5.5% and
the bonds mature in July 2024. The bonds qualify as lower tier two
capital under the Solvency II regulatory regime and are included in the
Own Funds figures in the table above.
Significant downwards movements in risk free interest rates during 2016
(especially post the EU referendum result in June) led to an increase in
the regulatory valuation of the UK car insurance business claims
liabilities and a consequent reduction in the value of the Group's Own
Funds. This amounted to a downwards movement of approximately 20% in
solvency ratio terms following the EU referendum result. The Directors
are satisfied that the Group's solvency position as noted above includes
a strong level of buffer above capital requirements.
An application has been made to the PRA and the Gibraltar FSC for the
use of a volatility adjusted yield curve in discounting claims
liabilities. If approved, the impact of the volatility adjustment would
be an improvement in the solvency ratio reported above to 196%.
Estimated sensitivities to the current Group solvency ratio (excluding
the volatility adjustment) of 180% are presented in the table below.
These sensitivities cover the two most material risk types, insurance
risk and market risk, and within these risks cover the most significant
elements of the risk profile. Aside from the catastrophe events,
estimated sensitivities have not been calibrated to individual return
periods.
UK Motor - incurred loss ratio +5% -26%
UK Motor - 1 in 200 catastrophe event -1%
UK Household - 1 in 200 catastrophe event -2%
Interest rate - yield curve down 50 bps -26%
Credit spreads widen 100 bps -4%
Currency - 25% movement in euro and US dollar -2%
ASHE - long term inflation assumption up 0.5% -20%
Taxation
The tax charge reported in the income statement is GBP36.2 million (H1
2015: GBP33.4 million) which equates to 19.1% (H1 2015: 18.4%) of profit
before tax. The higher effective rate of tax compared to the prior year
results from the impact of losses in the Group's US operations,
partially offset by a reduction in the rate of UK corporation tax. The
average rate of UK corporation tax in 2016 is 20.0% (2015: 20.25%).
UK Exit from the European Union ('Brexit')
On 23 June 2016, the UK voted in a referendum to leave the EU. At the
date of this report, the timetable for and details of the implementation
of this decision remain unclear.
Market volatility that resulted from Brexit (notably very significant
reductions in risk free interest rates) has adversely impacted the
Group's solvency position at the end of the first half. This is due to
an increased regulatory valuation of claims liabilities, in particular
in relation to longer dated potential PPO claims, and hence reduced
capital.
As discussed above, the solvency ratio remains very strong at 180% (196%
on a volatility adjusted basis) after the interim dividend is accounted
for. The Directors are satisfied this represents a very satisfactory
level of surplus above regulatory requirements and buffers.
Brexit also brings additional risks including:
-- potential further market volatility, particularly in interest and
exchange rates
-- the potential for the uncertainty or the emerging terms of exit regarding
Brexit to trigger or exacerbate less favourable economic conditions in
the UK and other countries in which Admiral operates (though it is worth
noting that car insurance has tended to be resilient to economic
downturns)
-- potential changes to or withdrawal of the right of UK financial services
firms to trade in Europe without the need for locally regulated entities
('passporting')
-- potential changes to the rules relating to the free movement of people
between the UK and EU member states
The Group will closely monitor developments over the coming months and
years and will take appropriate steps to deal with the outcomes. At the
current time the Group does not foresee a material adverse impact on day
to day operations (including customers or staff), whilst recognising
that other issues may emerge over time.
The Group's results are presented in three key segments - UK Car
Insurance, International Car Insurance and Price Comparison. Other Group
items are summarised in a fourth section.
UK Car Insurance
Non-GAAP(*1) format income statement
GBPm H1 2014 H1 2015 H1 2016 FY 2015
Turnover(*2) 849.8 857.9 993.2 1,708.2
Total premiums written(*3) 776.0 779.0 899.7 1,539.7
Net insurance premium revenue 197.9 188.9 210.7 386.5
Investment income 6.0 6.3 24.5 26.1
Net insurance claims (92.6) (69.3) (108.9) (161.3)
Net insurance expenses (21.7) (26.2) (30.1) (52.1)
Underwriting profit 89.6 99.7 96.2 199.2
Profit commission 35.8 44.2 41.7 85.2
Underwriting profit plus profit
commission 125.4 143.9 137.9 284.4
Net other income 71.2 63.3 69.6 131.9
Instalment income 11.1 12.0 15.3 26.7
UK Car Insurance profit before tax 207.7 219.2 222.8 443.0
[*1] GAAP = Generally Accepted Accounting Practice
[*2] Turnover is a non-GAAP measure and consists of total premiums
written (including co-insurer's share) and Other revenue. Refer to Note
12a for a reconciliation to financial statement line items
[*3] Total premiums written is a non-GAAP measure and includes premium
underwritten by co-insurers
Split of underwriting profit
GBPm H1 2014 H1 2015 H1 2016 FY 2015
Motor 80.0 91.5 85.5 183.2
Additional products 9.6 8.2 10.7 16.0
Underwriting profit 89.6 99.7 96.2 199.2
Segment key performance indicators
H1 2014 H1 2015 H1 2016 FY 2015
Reported motor loss
ratio(*1) 66.0% 58.2% 56.9% 64.1%
Reported motor expense
ratio(*2) 14.2% 17.4% 18.1% 16.9%
Reported motor combined
ratio 80.2% 75.6% 75.0% 81.0%
Written basis motor expense
ratio 15.2% 16.2% 17.0% 16.3%
Reported total combined
ratio(*3) 76.8% 73.1% 72.0% 78.2%
Claims reserve releases -
original net share(*4) GBP35.4m GBP50.0m GBP55.9m GBP84.6m
Claims reserve releases -
commuted reinsurance(*5) GBP37.7m GBP42.6m GBP12.8m GBP88.8m
Total claims reserve
releases GBP73.1m GBP92.6m GBP68.7m GBP173.4m
Vehicles insured at
period-end 3.15m 3.18m 3.52m 3.30m
Other Revenue per vehicle GBP67 GBP64 GBP64 GBP63
[*1] Motor loss ratio adjusted to exclude impact of reserve releases on
commuted reinsurance contracts. Reconciliation in Note 12b.
[*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.
[*3] Reported total combined ratio includes additional products
underwritten by Admiral.
[*4] Original net share shows reserve releases excluding the commuted
share.
[*5] Commuted reinsurance shows releases on the proportion of the
account that was originally ceded under quota share reinsurance
contracts but has since been commuted and hence reported through the
underwriting result and not profit commission.
UK Car Insurance Financial Performance
Admiral delivered strong growth in turnover and customers in its UK Car
Insurance business in H1, taking advantage of favourable market
conditions with increasing prices and shopping activity. Profit was
also higher in H1 2016 (GBP222.8 million v GBP219.2 million) with a
number of factors contributing to the change:
-- Higher net insurance premium revenue (GBP210.7 million v GBP188.9
million) resulting from the growth in the portfolio over the past year
-- An improved combined ratio (72.0% v 73.1%) with positive back year claims
development slightly offset by a higher expense ratio as a result of
strong growth in new business
-- Higher contribution from Other Revenue sources (GBP84.9 million v GBP75.3
million) resulting from growth in the portfolio
-- Higher investment return (GBP24.5 million v GBP6.3 million) as explained
in the Investments and Cash section above
-- Lower reserve releases on the portion of the business originally ceded
under quota share reinsurance contracts (GBP12.8 million v GBP42.6
million) as explained further below
Admiral continued to increase its prices in the first half and saw
average premiums written increase by around 3%.
As a result of a larger book and increasing prices, UK turnover of
GBP993.2 million was 16% higher (H1 2015: GBP857.9 million) and total
premiums written increased by 15% to GBP899.7 million (H1 2015: GBP779.0
million).
Claims reserving
Admiral's reserving policy (both within the claims function and in the
financial statements) is initially to reserve conservatively, above
internal and independent projections of ultimate loss ratios. This is
designed to create a margin held in reserves to allow for unforeseen
adverse development in open claims and typically results in Admiral
making above industry average reserve releases. Admiral's booked claims
reserves continue to include a significant margin above projected best
estimates of ultimate claims costs.
The reported motor loss ratio improved to 56.9% from 58.2% mainly due to
higher reserve releases of GBP55.9 million (H1 2015: GBP50.0 million),
excluding reserve releases from commuted reinsurance contracts. These
higher releases were due to positive claims cost development in the
first half of 2016, which led to significant improvements in projected
ultimate claims costs on business earned to the end of June 2016 (in
particular for the 2012 to 2013 underwriting years). Notwithstanding
these higher reserve releases, Admiral continues to hold a material
margin in reserves against the level of uncertainty in the ultimate
costs of claims. This margin, expressed as a percentage of the actuarial
best estimate, was marginally lower at 30 June 2016 compared to the end
of 2015. If claims continue to develop as expected, there is scope for
further reserve releases in the future.
Commutations of quota share reinsurance
Admiral tends to commute its UK Car Insurance quota share reinsurance
contracts for an underwriting year 24 months from inception, assuming
there is sufficient confidence in the profitability of the business
covered by the reinsurance contract.
After the commutation is executed, movements in booked loss ratios
result in reserve releases (or strengthening if the booked loss ratio
were to increase) rather than reduced or increased reinsurance claims
recoveries or profit commission.
During H1 2016, reinsurance contracts covering the 2014 underwriting
year were commuted. Whilst there is a satisfactory level of confidence
in the ultimate outcome of that year, Admiral's prudent approach to
booking loss ratios, which tend to improve over time from an initial
cautious level to the ultimate outcome, has meant that the 2014 year is
booked at a loss making combined ratio level.
As a result of the commutation, no reinsurance recovery is accounted for
on the 2014 year and the net claims incurred for the 2014 year have
increased by GBP31.8 million, with Admiral taking a larger net share of
the year.
Note that the ultimate projection of the 2014 year continues to show a
profitable outcome.
A further impact of the 2014 year commutation is a release of an accrual
held for notional investment income relating to the funds-withheld
nature of the contract. As noted on page 5, movements in the notional
investment income accruals resulted in an increase in investment income
of GBP14.3 million compared to the first half of 2015.
Excluding reserve releases, the reported motor loss ratio improved to
85.8% (H1 2015: 86.8%). The improvement in ratio reflects more
favourable loss ratio assumptions for business earned in the current six
month period compared to the prior period, given the achieved price
increases.
The most recent projection of the ultimate combined ratio for the 2015
accident year is 94% up from 90% for 2014, with the increase largely
attributable to lower average earned premium in 2015 compared to 2014.
The market combined ratio for 2015, excluding prior year reserve
releases is 115%.
The earned motor expense ratio increased modestly to 18.1% from 17.4%
mainly reflecting the increase in acquisition costs resulting from the
strong growth in new business. The written basis expense ratio also
increased to 17.0% from 16.2%.
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.
In H1 2016 Admiral recognised profit commission revenue of GBP41.7
million, a decrease of 6% from GBP44.2 million in H1 2015. The decrease
arose from the higher loss ratio on the 2014 underwriting year compared
to previous underwriting years at the same stage of development.
As noted above, when a quota share reinsurance contract is commuted
(typically after two years from the start of an underwriting year),
further improvement or deterioration in claims costs are reported within
net claims. If the contracts were not commuted, the movement would be
reported in profit commission.
If releases, from business that was originally ceded under quota share
reinsurance contracts that have since been commuted, are added to profit
commission, the total for H1 2016 rises to GBP54.5 million compared to
GBP86.8 million in H1 2015, a decrease of 37%. The decrease mainly
arises as a result of the 2014 underwriting year commutation which is
discussed above.
Other Revenue
Admiral generates Other Revenue from a portfolio of insurance products
that complement the core car insurance product, and also fees generated
over the life of the policy.
The most material contributors to net Other Revenue are:
-- Revenue earned from motor policy upgrade products underwritten by Admiral,
including breakdown, car hire and personal injury covers
-- Revenue from other insurance products, not underwritten by Admiral
-- Fees such as administration fees and referral income
-- Interest charged to customers paying for cover in instalments
Contribution from Other Revenue increased by 13% to GBP84.9 million (H1
2015: GBP75.3 million). Whilst there were a number of smaller offsetting
changes within the total, the main reason for the increase is the growth
in the portfolio over the period.
Other Revenue per vehicle remained stable at GBP64 (H1 2015: GBP64). Net
of costs, Other Revenue per vehicle was GBP56 (H1 2015: GBP55).
UK Car Insurance Other Revenue - analysis of contribution:
GBPm H1 2014 H1 2015 H1 2016 FY 2015
Contribution from additional products and fees 89.6 84.6 90.7 173.7
Contribution from additional products underwritten
by Admiral(*1) 9.6 8.2 10.7 16.0
Instalment income 11.1 12.0 15.3 26.7
Other Revenue 110.3 104.8 116.7 216.4
Internal costs (18.4) (21.3) (21.1) (41.8)
Net Other Revenue 91.9 83.5 95.6 174.6
Other Revenue per vehicle(*2) GBP67 GBP64 GBP64 GBP63
Other Revenue per vehicle net of internal costs
GBP58 GBP55 GBP56 GBP54
[*1] Included in underwriting profit in income statement but
re-allocated to Other Revenue for purpose of KPIs.
[*2] Other Revenue (before internal costs) divided by average active
vehicles, rolling twelve month basis.
Instalment Income
Instalment income reflects amounts charged to customers paying for cover
in instalments. During the first half of 2016 Admiral earned GBP15.3
million, up GBP3.3 million on the prior period (H1 2015: GBP12.0
million) from instalment income. The increase is due to rising average
premiums and customer growth.
Additional products underwritten by Admiral
Besides car insurance, there are a number of other products underwritten
by Admiral that are core to providing motor insurance to customers
(personal injury insurance, breakdown cover and car hire cover).
Contribution from these products during the first half of 2016 was
GBP10.7 million (H1 2015: GBP8.2 million). This is included in
underwriting profit in the income statement, but reallocated to Other
Revenue for the purpose of management key performance indicators.
International Car Insurance
Non-GAAP format income statement
GBPm H1 2014 H1 2015 H1 2016 FY 2015
Turnover 104.3 110.3 159.2 232.4
Total premiums written 94.1 101.0 142.9 213.3
Net insurance premium revenue 27.8 29.7 39.4 62.3
Investment income 0.1 - 0.2 -
Net insurance claims (27.6) (25.4) (32.7) (50.9)
Net insurance expenses (18.9) (18.9) (24.6) (40.1)
Underwriting result (18.6) (14.6) (17.7) (28.7)
Net other income 3.1 3.4 4.8 6.5
International Car Insurance loss before
tax (15.5) (11.2) (12.9) (22.2)
Key Performance Indicators
H1 2014 H1 2015 H1 2016 FY 2015
Adjusted loss ratio(*1) 92% 82% 80% 77%
Adjusted expense ratio(*1) 47% 55% 51% 49%
Adjusted combined ratio(*2) 139% 137% 131% 126%
Adjusted combined ratio, net of Other
Revenue(*3) 128% 126% 118% 115%
Vehicles insured at period-end 555,600 631,700 757,900 673,000
[*1] Adjusted reported loss ratio and adjusted reported expense ratio
have been adjusted to remove the impact of reinsurer caps so the
underlying performance of the business is transparent.
[*2] Adjusted reported combined ratio is calculated on Admiral's net
share of premiums and excludes Other Revenue. It has been adjusted to
remove the impact of reinsurer caps. Including the impact of reinsurer
caps the reported combined ratio would be H1 2014: 167%; H1 2015: 149%;
H1 2016: 145%; FY 2015: 146%.
[*3] Reported combined ratio, net of Other Revenue is calculated on
Admiral's net share of premiums and includes Other Revenue. Including
the impact of reinsurer caps the reported combined ratio, net of Other
Revenue would be H1 2014: 156%; H1 2015: 138%; HY 2016: 133%; FY 2015:
136%.
Geographical Analysis
H1 2016
Spain Italy France USA Total
Customers insured 169,850 362,250 75,400 150,400 757,900
Turnover (GBPm)(*1) 22.9 54.7 17.1 64.5 159.2
FY 2015
Spain Italy France USA Total
Customers insured 160,700 315,300 56,800 140,200 673,000
Turnover (GBPm)(*1) 38.6 77.9 21.2 94.7 232.4
H1 2015
Spain Italy France USA Total
Customers insured 168,750 298,000 43,450 121,500 631,700
Turnover (GBPm)(*1) 20.0 38.9 9.8 41.6 110.3
[*1] Turnover includes total premium written and income generated by
the sale of additional products and services and fees
International Car Insurance Financial Performance
The Group has car insurance businesses in four markets outside the UK -
in Spain (Admiral Seguros), Italy (ConTe), the USA (Elephant Auto) and
France (L'olivier - assurance auto). The operations were launched
between 2006 and 2010. As the businesses develop, it is expected that
they will make losses until appropriate scale has been achieved
(generally expected to occur 6-10 years after launch, though this
timescale will vary subject to market conditions amongst other things).
The combined operations insured 757,900 vehicles at 30 June 2016 - 20%
higher than a year earlier (H1 2015: 631,700). Turnover was GBP159.2
million, up 44% compared to H1 2015. Customers and turnover from outside
the UK represent 16% and 13% of the Group totals respectively, up from
15% and 10% in H1 2015.
The total International Insurance loss for the period was GBP12.9
million, an increase on GBP11.2 million in H1 2015, mainly due to the
ongoing investment in growing the US and French operations. The loss
ratio improved to 80% (H1 2015: 82%), and the expense ratio also
improved to 51% (H1 2015: 55%). The combined ratio therefore decreased
to 131% (H1 2015: 137%).
The European operations in Spain, Italy and France insured 607,500
vehicles at 30 June 2016 - 19% higher than a year earlier (H1 2015:
510,200). Turnover was up 38% at GBP94.7 million (H1 2015: GBP68.7
million). The consolidated result of Admiral's European insurance
operations was a loss of GBP2.1 million compared to GBP3.2 million in H1
2015, with a small profit in ConTe offset by losses in Spain and France.
The combined ratio improved to 114% from 115% primarily due to an
improvement in claims performance.
Admiral Seguros (Spain) was launched in 2006 and is the oldest of
Admiral's international operations. It trades under the Balumba and
Qualitas Auto brands. During 2015 Admiral Seguros focused on cost
control rather than growth, to achieve break-even (on an underwriting
year basis) and as a result customer numbers reduced slightly in the
second half of 2015. In contrast, during the first six months of 2016
Admiral Seguros focused on growth to take advantage of a growing Spanish
market and at 30 June 2016 the business insured 169,850 customers, 1%
higher than a year earlier and 6% higher than 31 December 2015.
The Group's largest international operation is ConTe in Italy with over
360,000 vehicles insured at the end of June 2016, 22% higher than a year
earlier. During the first half of 2016, ConTe achieved another small
profit as a result of positive development in the projected ultimate
outcomes of most underwriting years allowing further reserve releases in
H1 2016. Despite this, ConTe continues to hold a prudent margin in its
claims reserves above actuarial best estimate.
Admiral's youngest and smallest international insurance business is
L'olivier - assurance auto, launched in 2010 in France. L'olivier
insured 75,400 vehicles at the end of June 2016, up 74% on a year
earlier.
In the USA, Admiral underwrites motor insurance in six states (Virginia,
Maryland, Illinois, Texas, Indiana and Tennessee) through its Elephant
Auto business, which launched in 2009. At the end of June 2016, Elephant
insured over 150,000 vehicles, up 24% year-on-year. Turnover was GBP64.5
million, up 55% compared to H1 2015. Elephant's result for the period
was a loss of GBP10.8 million, compared to GBP8.0 million in H1 2015,
reflecting ongoing investment in the business. Elephant Auto's adjusted
combined ratio net of Other Revenue improved to 143% (H1 2015: 159%).
Price Comparison
Non-GAAP format income statement
GBPm H1 2014 H1 2015 H1 2016 FY 2015
Revenue:
Car insurance price comparison 43.2 42.6 48.6 82.3
Other 13.9 12.6 15.4 25.8
Total 57.1 55.2 64.0 108.1
Operating expenses (53.1) (63.8) (68.8) (123.6)
Operating profit/(loss) 4.0 (8.6) (4.8) (15.5)
Confused.com profit 9.1 4.8 8.3 12.5
International price comparison result (5.1) (13.4) (13.1) (28.0)
4.0 (8.6) (4.8) (15.5)
Group share of operating
profit/(loss):(*1)
Confused.com profit 9.1 4.8 8.3 12.5
International price comparison
result(*1) (3.2) (8.8) (9.4) (19.7)
5.9 (4.0) (1.1) (7.2)
[*1] Represents the Group's share of Price Comparison profit/ (loss) and
excludes the impact of Minority Interests.
UK Price Comparison - Confused.com
The UK price comparison market remains fiercely competitive, but
favourable market conditions (rising prices and more shopping activity)
in the first half saw more visitors to Confused.com's website and
consequently higher quote volumes. This in turn led to higher revenue
(GBP44.0 million v GBP38.9 million) and increased profitability (GBP8.3
million v GBP4.8 million). Revenue from other products remained stable
at 24% of total revenue (H1 2015: 24%). Confused.com's operating margin
improved to 19% (H1 2015: 12%).
International Price Comparison
The Group operates three price comparison businesses outside the UK; in
Spain (Rastreator), France (LeLynx) and USA (compare.com).
The combined revenue from the European operations in H1 2016 increased
by 16% to GBP16.7 million (H1 2015: GBP14.4 million) reflecting an
increase of 9% in quote volumes and improved conversion rates. Both
Rastreator and LeLynx have market-leading positions and strong brand
recognition in their respective markets. The Group's share of the
combined result for Rastreator and LeLynx was a profit of GBP0.7 million
(H1 2015: GBP1.6 million) with the decrease mainly due to the continuing
development of multi product offerings and the brands in both countries.
Admiral Group owns 75% of Rastreator, with the remaining 25% owned by
Mapfre.
The Group continues to invest in compare.com, its US comparison
operation. During H1 2016 Admiral's share of compare.com's loss was
GBP10.1 million before tax, broadly in line with the prior period
(GBP10.4 million). With sustained investment in compare.com, the Group's
share of compare.com's losses for the 2016 full year is expected to be
in the range of $30 to $35 million.
The Group's share of the combined result for International Price
Comparison was, therefore, a loss of GBP9.4 million (H1 2015: loss of
GBP8.8 million) - the profit from European price comparison offset by
investment in compare.com.
Other Group Items
GBPm H1 2014 H1 2015 H1 2016 FY 2015
UK Household Insurance result 0.5 0.6 1.2 1.2
UK Commercial Vehicle operating profit 1.5 1.0 0.8 1.5
Other interest and investment income 0.6 3.3 8.7 6.5
Share scheme charges (12.5) (11.9) (14.7) (27.2)
Business development costs (0.2) (0.5) (2.2) (1.9)
Other central overheads and charges (2.8) (4.7) (3.8) (5.6)
Finance charges - (5.5) (5.6) (11.1)
UK Household Insurance
UK Household Insurance was launched in December 2012 under the Admiral
brand. The product is underwritten within the Group and in common with
other businesses it is supported by proportional reinsurance covering
70% of the risk (shared between Munich Re, 40%, and Swiss Re, 30%).
The business enjoyed another period of strong growth with policy numbers
increasing by more than 60% to over 380,000 (H1 2015: 239,000). Profit
from Household doubled from a year earlier to GBP1.2 million (H1 2015:
GBP0.6 million) and its expense ratio is already materially lower than
the UK market ratio.
UK Commercial Vehicle
The Group operates a Commercial Vehicle insurance broker (Gladiator)
offering van insurance and associated products, typically to small
businesses. Distribution is via telephone and the internet (including
price comparison websites).
Gladiator has been impacted by operational changes which, together with
a very competitive environment, have resulted in a reduced operating
profit of GBP0.8 million (H1 2015: GBP1.0 million), although customer
numbers increased by 13% to 161,000 at the end of June 2016 (H1 2015:
143,000).
Other interest and investment income
Other interest and investment income includes GBP5.5 million (H1 2015:
GBPnil) of unrealised gains on forward foreign exchange contracts which
have been impacted in H1 2016 by downward movements in the value of
sterling following the UK's decision to leave the European Union. These
gains have the potential to reverse over time as the contracts expire.
Share scheme charges
These costs relate to the Group's two employee share schemes, further
detail on which is set out in the notes to the financial statements. The
increase in the charge is due to an increase in the number of awards
across the Group resulting from headcount growth and the higher share
price.
Finance charges
Finance charges primarily reflect interest on the GBP200 million
subordinated loan notes issued in July 2014 of GBP5.5 million (H1 2015:
GBP5.5 million). Refer to note 6 to the financial statements for
further details.
Principal Risks and Uncertainties
Admiral has performed a robust assessment of the principal risks facing
Admiral, including those which would threaten its business model, future
performance, liquidity and solvency. The result of this assessment is
that the principal risks and uncertainties are consistent with those
reported in the Group's 2015 Annual Report and Accounts, pages 34-37.
Admiral notes that emerging risks have arisen as a result of the UK's
decision to leave the EU and the potential decisions that will be made
in negotiating the exit.
Further detail on Brexit is included on page 7.
Disclaimer on forward-looking statements
Certain statements made in this announcement are forward-looking
statements. Such statements are based on current expectations and
assumptions and are subject to a number of known and unknown risks and
uncertainties that may cause actual events or results to differ
materially from any expected future events or results expressed or
implied in these forward-looking statements.
Persons receiving this announcement should not place undue reliance on
forward-looking statements. Unless otherwise required by applicable law,
regulation or accounting standard, the Group does not undertake to
update or revise any forward-looking statements, whether as a result of
new information, future developments or otherwise.
Condensed consolidated income statement (unaudited)
6
months
ended: Year ended:
31
30 June 30 June December
2016 2015 2015
Note: GBPm GBPm GBPm
Insurance premium revenue 635.8 549.6 1,130.2
Insurance premium ceded to reinsurers (376.1) (320.7) (663.2)
Net insurance premium revenue 5 259.7 228.9 467.0
Other revenue 7 176.2 165.0 319.8
Profit commission 5 42.2 44.2 85.4
Investment and interest income 6 33.4 9.6 32.6
Net revenue 511.5 447.7 904.8
Insurance claims and claims handling expenses (400.0) (352.3) (769.1)
Insurance claims and claims handling expenses recoverable
from reinsurers 251.6 250.9 542.6
Net insurance claims (148.4) (101.4) (226.5)
Operating expenses and share scheme charges 8 (316.9) (279.0) (548.0)
Operating expenses and share scheme charges recoverable
from co- and reinsurers 8 148.9 119.9 249.5
Net operating expenses and share scheme charges (168.0) (159.1) (298.5)
Total expenses (316.4) (260.5) (525.0)
Operating profit 195.1 187.2 379.8
Finance costs 6 (5.6) (5.5) (11.1)
Profit before tax 189.5 181.7 368.7
Taxation expense 9 (36.2) (33.4) (76.9)
Profit after tax 153.3 148.3 291.8
Profit after tax attributable to:
Equity holders of the parent 157.4 152.9 300.0
Non-controlling interests (4.1) (4.6) (8.2)
153.3 148.3 291.8
Earnings per share:
Basic 11 55.9p 54.8p 107.3p
Diluted 11 55.8p 54.7p 107.1p
Dividends declared and paid (total) 11 175.4 134.4 274.6
Dividends declared and paid (per share) 11 63.4p 49.0p 100.0p
Condensed consolidated statement of comprehensive income (unaudited)
6
months
ended: Year ended:
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Profit for the period 153.3 148.3 291.8
Other comprehensive income
Items that are or may be reclassified to profit or
loss
Movements in fair value reserve 20.9 (8.8) (12.6)
Exchange differences on translation of foreign operations 12.1 (1.3) 2.6
Other comprehensive income for the period, net of
income tax 33.0 (10.1) (10.0)
Total comprehensive income for the period 186.3 138.2 281.8
Total comprehensive income for the period attributable
to:
Equity holders of the parent 189.2 142.8 289.5
Non-controlling interests (2.9) (4.6) (7.7)
186.3 138.2 281.8
Condensed consolidated statement of financial position (unaudited)
As at:
31
30 June 30 June December
2016 2015 2015
Note: GBPm GBPm GBPm
ASSETS
Property and equipment 10 33.9 32.3 34.9
Intangible assets 10 156.2 119.3 142.3
Deferred income tax 9 25.4 29.5 20.6
Reinsurance assets 5 914.1 720.5 878.7
Insurance and other receivables 6, 10 697.4 499.3 537.1
Financial investments 6 2,355.4 2,242.8 2,323.5
Cash and cash equivalents 6 295.4 216.0 265.3
Total assets 4,477.8 3,859.7 4,202.4
EQUITY
Share capital 11 0.3 0.3 0.3
Share premium account 13.1 13.1 13.1
Fair value reserve 19.2 2.1 (1.7)
Foreign exchange reserve 15.3 1.0 4.4
Retained profit and loss 600.6 574.2 599.6
Total equity attributable to equity holders of the
parent 648.5 590.7 615.7
Non-controlling interests 14.1 8.9 17.2
Total equity 662.6 599.6 632.9
LIABILITIES
Insurance contracts 5 2,484.2 2,148.3 2,295.0
Subordinated and other financial liabilities 6 223.9 203.8 223.9
Trade and other payables 6, 10 1,070.8 876.2 1,015.0
Current tax liabilities 36.3 31.8 35.6
Total liabilities 3,815.2 3,260.1 3,569.5
Total equity and total liabilities 4,477.8 3,859.7 4,202.4
Condensed consolidated cash flow statement (unaudited)
6 months ended: Year ended:
30 June Restated(*1) Restated(*1)
2016 30 June 2015 31 December 2015
Note: GBPm GBPm GBPm
Profit after tax 153.3 148.3 291.8
Adjustments for non-cash items:
- Depreciation 10 5.2 3.9 8.2
- Amortisation of software 10 5.5 2.6 6.1
- Other gains and losses 1.2 (2.4) 3.2
- Share scheme charges 14.2 12.9 29.5
- Investment and interest income 6 (33.4) (9.6) (32.6)
- Finance costs 6 5.6 5.5 11.1
- Taxation expense 9 36.2 33.4 76.9
Change in gross insurance contract liabilities 189.2 50.9 197.6
Change in reinsurance assets (35.4) 109.3 (48.9)
Change in insurance and other receivables (164.7) (64.2) (103.5)
Change in trade and other payables, including tax
and social security 56.8 (88.5) 47.8
Cash flows from operating activities, before movements
in investments 233.7 202.1 487.2
Purchases of financial instruments (142.7) (359.8) (542.0)
Proceeds on disposal/ maturity of financial instruments 157.0 309.9 420.9
Interest and investment income received 5.6 4.8 8.6
Cash flows from operating activities, net of movements
in investments 253.6 157.0 374.7
Taxation payments (36.6) (35.6) (63.8)
Taxation receipts 1.1 - -
Net cash flow from operating activities 218.1 121.4 310.9
Cash flows from investing activities:
Purchases of property, equipment and software (17.3) (18.9) (47.8)
Net cash used in investing activities (17.3) (18.9) (47.8)
Cash flows from financing activities:
Non-controlling interest capital contribution (0.2) (0.2) 10.7
Proceeds on issue of financial liabilities - - 20.0
Finance costs paid (5.5) (5.5) (11.0)
Repayment of finance lease liabilities (1.7) (1.0) (1.4)
Equity dividends paid 11 (175.4) (134.4) (274.6)
Net cash used in financing activities (182.8) (141.1) (256.3)
Net increase / (decrease) in cash and cash equivalents 18.0 (38.6) 6.8
Cash and cash equivalents at 1 January 265.3 255.9 255.9
Effects of changes in foreign exchange rates 12.1 (1.3) 2.6
Cash and cash equivalents at end of period 6 295.4 216.0 265.3
[*1] Refer to note 2 for details.
Consolidated statement of changes in equity (unaudited)
Attributable to the owners of the company
Retained
Share Fair Foreign profit
Share premium value exchange and Total
capital account reserve reserve loss Total NCI(*1) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2015 0.3 13.1 10.9 2.3 540.6 567.2 13.7 580.9
Profit for the period - - - - 152.9 152.9 (4.6) 148.3
Other comprehensive income
Movements in fair value reserve - - (8.8) - - (8.8) - (8.8)
Currency translation differences - - - (1.3) - (1.3) - (1.3)
Total comprehensive income for the period - - (8.8) (1.3) 152.9 142.8 (4.6) 138.2
Transactions with equity-holders
Dividends - - - - (134.4) (134.4) - (134.4)
Share scheme credit - - - - 12.9 12.9 - 12.9
Deferred tax credit on share scheme credit - - - - 2.2 2.2 - 2.2
Contributions by NCIs - - - - - - (0.2) (0.2)
Total transactions with equity-holders - - - - (119.3) (119.3) (0.2) (119.5)
As at 30 June 2015 0.3 13.1 2.1 1.0 574.2 590.7 8.9 599.6
At 1 January 2015 0.3 13.1 10.9 2.3 540.6 567.2 13.7 580.9
Profit for the period - - - - 300.0 300.0 (8.2) 291.8
Other comprehensive income
Movements in fair value reserve - - (12.6) - - (12.6) - (12.6)
Currency translation differences - - - 2.1 - 2.1 0.5 2.6
Total comprehensive income for the period - - (12.6) 2.1 300.0 289.5 (7.7) 281.8
Transactions with equity-holders
Dividends - - - - (274.6) (274.6) - (274.6)
Share scheme credit - - - - 29.5 29.5 - 29.5
Deferred tax credit on share scheme credit - - - - 4.7 4.7 - 4.7
Contributions by NCIs - - - - (0.1) (0.1) 10.7 10.6
Changes in ownership interests without a change in
control - - - - (0.5) (0.5) 0.5 -
Total transactions with equity-holders - - - - (241.0) (241.0) 11.2 (229.8)
As at 31 December 2015 0.3 13.1 (1.7) 4.4 599.6 615.7 17.2 632.9
Attributable to the owners of the company
Retained
Share Fair Foreign profit
Share premium value exchange and Total
capital account reserve reserve loss Total NCI(*1) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2016 0.3 13.1 (1.7) 4.4 599.6 615.7 17.2 632.9
Profit for the period - - - - 157.4 157.4 (4.1) 153.3
Other comprehensive income
Movements in fair value reserve - - 20.9 - - 20.9 - 20.9
Currency translation differences - - - 10.9 - 10.9 1.2 12.1
Total comprehensive income for the period - - 20.9 10.9 157.4 189.2 (2.9) 186.3
Transactions with equity-holders
Dividends - - - - (175.4) (175.4) - (175.4)
Share scheme credit - - - - 14.2 14.2 - 14.2
Deferred tax credit on share scheme credit - - - - 4.8 4.8 - 4.8
Contributions by NCIs - - - - - - (0.2) (0.2)
Total transactions with equity-holders - - - - (156.4) (156.4) (0.2) (156.6)
As at 30 June 2016 0.3 13.1 19.2 15.3 600.6 648.5 14.1 662.6
[*1] Non-controlling interests
Notes to the financial statements (unaudited)
1. General information
Admiral Group plc is a Company incorporated in England and Wales. Its
registered office is at Ty Admiral, David Street, Cardiff CF10 2EH and
its shares are listed on the London Stock Exchange.
The condensed interim financial statements comprise the results and
balances of the Company and its subsidiaries (the Group) for the
six-month period ended 30 June 2016 and the comparative periods for the
six-months ended 30 June 2015 and the year ended 31 December 2015. This
condensed set of financial statements has been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU.
As required by the FCA's Disclosure and Transparency Rules, the
condensed set of financial statements has been prepared applying the
accounting policies and presentation that were applied in the
preparation of the Company's published consolidated financial statements
for the year ended 31 December 2015.
The financial statements of the Company's subsidiaries are consolidated
in the Group financial statements. In accordance with IAS 24,
transactions or balances between Group companies that have been
eliminated on consolidation are not reported as related party
transactions.
The comparative figures for the financial year ended 31 December 2015
are not the Company's statutory accounts for that financial year. Those
accounts have been reported on by the Company's auditors and delivered
to the registrar of companies. The report of the auditors was:
1. unqualified;
2. did not include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report; and
3. did not contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
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.
Further information is given in the Basis of preparation below.
2. Basis of preparation
The condensed set of interim financial statements have been prepared
applying the accounting policies and presentation that were applied in
the preparation of the Company's published consolidated financial
statements for the year ended 31 December 2015. A number of other IFRS
and interpretations have been endorsed by the EU in the period to 30
June 2016 and although they have been adopted by the Group, none of them
has had a material impact on the Group's financial statements.
The accounts have been prepared on a going concern basis. In considering
this requirement, the Directors have taken into account the following:
-- The Group's projections for the next 12 months and beyond, in particular
the profit forecasts, regulatory capital surpluses and levels and sources
of liquidity.
-- The risks included on the Group's risk register that could impact on the
Group's financial performance, levels of liquidity and solvency over the
next 12 months.
-- The risks on the Group's risk register that could be a threat to the
Group's business model and capital adequacy.
The Group's business activities, together with the factors likely to
affect its future development, performance and position are set out in
the Strategic Report in the 2015 Annual Report. Updates to the Group's
principal risks and uncertainties since the 2015 year end are included
in the business review preceding these financial statements. In addition,
the Governance report in the 2015 Annual Report includes the Directors'
statement on the viability of the Group over a three year period.
Following consideration of the above, the Directors have 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 financial statements are prepared on the historical cost basis,
except for the revaluation of financial assets classified as fair value
through profit or loss or as 'available for sale'. The Group and Company
financial statements are presented in pounds sterling, rounded to the
nearest GBP0.1 million.
Subsidiaries are entities controlled by the Group. The Group controls an
entity when it is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. In assessing control, the
Group takes into consideration potential voting rights that are
currently exercisable. The acquisition date is the date on which control
is transferred to the acquirer. The financial statements of subsidiaries
are included in the consolidated financial statements from the date that
control commences until the date that control ceases. Losses applicable
to the non-controlling interests in a subsidiary are allocated to the
non-controlling interests even if doing so causes the non-controlling
interests to have a deficit balance.
The preparation of financial statements requires management to make
judgements, estimates and assumptions that affect the application of
policies and reported amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis
of making the judgements about carrying values of assets and liabilities
that are not readily apparent from other sources.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in
which the estimate is reviewed if this revision affects only that period,
or in the period of the revision and future periods if the revision
affects both current and future periods. To the extent that a change in
an accounting estimate gives rise to changes in assets and liabilities,
it is recognised by adjusting the carrying amount of the related asset
or liability in the period of the change.
Re-presentation of Comparative Information
Comparative amounts within the Condensed consolidated cash flow
statement relating to investments have been re-presented. Net cash
flows into investments have been analysed into purchases of financial
instruments and proceeds from financial instruments. Additionally,
investment return and interest income on financial investments are now
captured within the adjustments to profit after tax for non-cash items.
There is no impact on total cash and cash equivalents or on net cash
flow from operating activities for any period.
3. Critical accounting judgements and estimates
The Group's 2015 Annual Report provides full details of significant
judgements and estimates used in the application of the Group's
accounting policies. There have been no significant changes to these
judgements and estimates during the period.
Judgements
In applying the Group's accounting policies, management has primarily
applied judgement in the following three areas:
-- Calculation of insurance claims reserves:
The Group's reserving policy requires management to set insurance claims
reserves for the purpose of the financial statements, within a range of
potential outcomes above the projected best estimate outcome, to allow
for unforeseen adverse claims development. Management applies judgement
in determining where, within this range of potential outcomes, the
insurance claims reserves should sit.
-- Classification of the Group's contracts with reinsurers as reinsurance
contracts:
A contract is required to transfer significant insurance risk in order
to be classified as such. Management reviews all terms and conditions of
each such contract, and if necessary obtains the opinion of an
independent expert at the negotiation stage in order to be able to make
this judgement.
-- Recognition of deferred tax assets relating to unused tax losses:
Management applies judgement in determining the probability of future
taxable profits of an entity against which to utilise accumulated losses
in determining the recognition of deferred tax assets. In applying this
judgement, management makes an assessment of the reliability of approved
business plan projections using both qualitative and quantitative
factors including the age and status of the business, the Group's
previous experience in similar markets, historic performance against
business plans and the application of a number of stress and sensitivity
tests to the projections.
Estimation techniques used in calculation of claims provisions and
profit commission:
Estimation techniques are used in the calculation of the provisions for
claims outstanding, which represent a projection of the ultimate cost of
settling claims that have occurred prior to the balance sheet date and
remain unsettled at the balance sheet date.
The key area where these techniques are used relates to the ultimate
cost of reported claims. A secondary area relates to the emergence of
claims that occurred prior to the balance sheet date, but had not been
reported at that date.
The estimates of the ultimate cost of reported claims are based on the
setting of claim provisions on a case-by-case basis, for all but the
simplest of claims.
The sum of these provisions is compared with projected ultimate costs
using a variety of different projection techniques (including incurred
and paid chain ladder and an average cost of claim approach) to allow an
actuarial assessment of their potential outcome. They include allowance
for unreported claims.
The most significant sensitivity in the use of the projection techniques
arises from any future step change in claims costs, which would cause
future claim cost inflation to deviate from historic trends. This is
most likely to arise from a change in the regulatory or judicial regime
that leads to an increase in awards or legal costs for bodily injury
claims that is significantly above or below the historical trend.
The Group's independent actuarial advisors project best estimate claims
reserves using a variety of recognised actuarial techniques.
As noted above, the Group's reserving policy requires management to
reserve within a range of potential outcomes above the projected best
estimate outcome, to allow for unforeseen adverse claims development.
Future changes in claims reserves also impact profit commission income,
as the measurement of this income is dependent on the loss ratio booked
in the financial statements, and cash receivable is dependent on
actuarial projections of ultimate loss ratios.
4. Operating segments
The Group has four reportable segments, as described below. These
segments represent the principal split of business that is regularly
reported to the Group's Board of Directors, which is considered to be
the Group's chief operating decision maker in line with IFRS 8 Operating
Segments.
UK Car Insurance
The segment consists of the underwriting of car insurance and other
products that supplement the car insurance policy. It also includes the
generation of revenue from additional products and fees from
underwriting car insurance 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 revenue are not independent of each other
and are performed as one business. This mirrors the approach taken in
management reporting.
International Car Insurance
The segment consists of the underwriting of car insurance and the
generation of revenue from additional products and fees, from
underwriting car insurance outside of the UK. It specifically covers the
Group operations Admiral Seguros in Spain, ConTe in Italy, L'olivier
assurance auto in France and Elephant Auto in the USA. None of these
operations are reportable on an individual basis, based on the threshold
requirements in IFRS 8.
Price Comparison
The segment relates to the Group's price comparison websites;
Confused.com in the UK, Rastreator in Spain, LeLynx in France and
compare.com in the USA. Each of the Price Comparison businesses are
operating in individual geographical segments but are grouped into one
reporting segment as Rastreator, LeLynx and compare.com do not
individually meet the threshold requirements in IFRS 8.
Other
The 'Other' segment is designed to be comprised of all other operating
segments that do not meet the threshold requirements for individual
reporting. It includes UK household insurance, the Group's commercial
van insurance broker, Gladiator, and commercial van insurance.
Taxes are not allocated across the segments and, as with the corporate
activities, are included in the reconciliation to the Consolidated
Income Statement and Consolidated Statement of Financial Position.
Segment income, results and other information
An analysis of the Group's revenue and results for the period ended 30
June 2016, by reportable segment are shown below. The accounting
policies of the reportable segments are consistent with those presented
in the notes to the 2015 Group financial statements.
30 June 2016
International
UK Car Car Price Segment
Insurance Insurance Comparison Other Eliminations(*2) total
GBPm GBPm GBPm GBPm GBPm GBPm
Turnover(*1) 993.2 159.2 64.0 44.3 (9.8) 1,250.9
Net insurance
premium
revenue 210.7 41.3 - 7.7 - 259.7
Other revenue
and profit
commission 147.7 5.6 64.0 10.9 (9.8) 218.4
Investment and
interest
income 24.5 0.2 - - - 24.7
Net revenue 382.9 47.1 64.0 18.6 (9.8) 502.8
Net insurance
claims (108.9) (33.7) - (5.8) - (148.4)
Expenses (51.2) (26.3) (68.8) (10.8) 9.8 (147.3)
Segment profit
/ (loss)
before tax 222.8 (12.9) (4.8) 2.0 - 207.1
Other central revenue and expenses, including share
scheme charges (20.7)
Interest and investment
income 8.7
Finance costs (5.6)
Consolidated profit before
tax 189.5
Taxation
expense (36.2)
Consolidated profit after
tax 153.3
[*1] Turnover is a non-GAAP measure and consists of total premiums
written (including co-insurers share) and Other revenue. Refer to note
12 for further information.
[*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 H1 2015 on the grounds of
materiality.
Revenue and results for the corresponding reportable segments for the
period ended 30 June 2015 are shown below.
30 June 2015
International
UK Car Car Price Segment
Insurance Insurance Comparison Other Eliminations(*2) total
GBPm GBPm GBPm GBPm GBPm GBPm
Turnover(*1) 857.9 110.3 55.2 34.1 - 1,057.5
Net insurance
premium
revenue 188.9 31.8 - 8.2 - 228.9
Other revenue
and profit
commission 140.8 4.0 55.2 9.2 - 209.2
Investment and
interest
income 6.3 - - - - 6.3
Net revenue 336.0 35.8 55.2 17.4 - 444.4
Net insurance
claims (69.3) (25.6) - (6.5) - (101.4)
Expenses (47.5) (21.4) (63.8) (9.3) - (142.0)
Segment profit /
(loss) before
tax 219.2 (11.2) (8.6) 1.6 - 201.0
Other central revenue and expenses, including share
scheme charges (17.1)
Interest income 3.3
Finance costs (5.5)
Consolidated profit before
tax 181.7
Taxation expense (33.4)
Consolidated profit after
tax 148.3
Revenue and results for the corresponding reportable segments for the
year ended 31 December 2015 are shown below.
31 December 2015
International
UK Car Car Price Segment
Insurance Insurance Comparison Other Eliminations(*2) total
GBPm GBPm GBPm GBPm GBPm GBPm
Turnover(*1) 1,708.2 232.4 108.1 70.1 (14.2) 2,104.6
Net insurance
premium
revenue 386.5 64.5 - 16.0 - 467.0
Other revenue
and profit
commission 285.6 7.7 108.1 18.0 (14.2) 405.2
Investment and
interest
income 26.1 - - - - 26.1
Net revenue 698.2 72.2 108.1 34.0 (14.2) 898.3
Net insurance
claims (161.3) (51.6) - (13.6) - (226.5)
Expenses (93.9) (42.8) (123.6) (17.7) 14.2 (263.8)
Segment profit
/ (loss)
before tax 443.0 (22.2) (15.5) 2.7 - 408.0
Other central revenue and expenses, including share
scheme charges (34.7)
Interest and investment
income 6.5
Finance costs (11.1)
Consolidated profit before
tax 368.7
Taxation expense (76.9)
Consolidated profit after
tax 291.8
Segment revenues
The UK and International Car Insurance reportable segments derive all
insurance premium income from external policyholders. Revenue within
these segments is not derived from an individual policyholder that
represents 10% or more of the Group's total revenue.
The total of Price Comparison revenues from transactions with other
reportable segments is GBP9.8 million (FY 2015: GBP14.2 million) which
has been eliminated on consolidation. In H1 2015 the total of price
comparison revenues from transactions with other reportable segments was
GBP7.2 million and was not eliminated on the grounds of materiality.
There are no other transactions between reportable segments.
Revenues from external customers for products and services is consistent
with the split of reportable segment revenues as shown above.
Information about geographical locations
All material revenues from external customers, and net assets attributed
to a foreign country relating to car insurance are shown within the
International Car Insurance reportable segment shown above. The revenue
and results of the three International Price Comparison businesses;
Rastreator, LeLynx and compare.com are not yet material enough to be
presented as a separate segment.
5. Premium, Claims and Profit Commissions
5a. Net insurance premium revenue
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Total insurance premiums before co-insurance 1,076.5 904.9 1,805.2
Group gross premiums written after co-insurance 717.8 597.9 1,199.9
Outwards reinsurance premiums (425.2) (351.2) (709.8)
Net insurance premiums written 292.6 246.7 490.1
Change in gross unearned premium provision (82.3) (48.3) (69.7)
Change in reinsurers' share of unearned premium
provision 49.4 30.5 46.6
Net insurance premium revenue 259.7 228.9 467.0
The Group's share of the car insurance business was underwritten by
Admiral Insurance (Gibraltar) Limited, Admiral Insurance Company Limited
and Elephant Insurance Company. All contracts are short-term in duration,
lasting for 10 or 12 months.
5b. Profit commission
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Underwriting year:
2010 & prior 1.4 2.9 5.3
2011 3.7 12.1 26.1
2012 14.8 19.0 36.9
2013 21.8 10.2 16.9
2014 - - -
2015 0.5 - 0.2
Total profit commission 42.2 44.2 85.4
5c. Reinsurance assets and insurance contract liabilities
(i) Analysis of recognised amounts:
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Gross:
Claims outstanding(*1) 1,819.9 1,603.9 1,725.0
Unearned premium provision 664.3 544.4 570.0
Total gross insurance liabilities 2,484.2 2,148.3 2,295.0
Recoverable from reinsurers:
Claims outstanding 523.9 403.5 544.8
Unearned premium provision 390.2 317.0 333.9
Total reinsurers' share of insurance liabilities 914.1 720.5 878.7
Net:
Claims outstanding(*2) 1,296.0 1,200.4 1,180.2
Unearned premium provision 274.1 227.4 236.1
Total insurance liabilities - net 1,570.1 1,427.8 1,416.3
[*1] Gross claims outstanding at 30 June 2016 is presented before the
deduction of salvage and subrogation recoveries totalling GBP30.4
million (H1 2015: GBPnil, FY 2015: GBP28.4 million).
[*2] Admiral typically commutes quota share reinsurance contracts in
its UK Car Insurance business 24-36 months following the start of the
underwriting year. After commutation, claims outstanding from these
contracts are included in Admiral's net claims outstanding balance.
Refer to Note (iii) below.
(ii) Analysis of gross and net claims reserve releases:
The following table analyses the impact of movements in prior year
claims provisions on a gross and net basis. This data is presented on
an underwriting year basis.
30 30 31
June June December
2016 2015 2015
Gross GBPm GBPm GBPm
Underwriting year:
2011 & prior 7.3 27.1 59.3
2012 27.5 35.3 69.0
2013 42.4 38.3 53.4
2014 47.0 16.0 16.0
2015 9.2 - -
Total gross release (UK Car Insurance) 133.4 116.7 197.7
Total gross release (International Car Insurance) 9.2 5.9 14.0
Total gross release 142.6 122.6 211.7
30 30 31
June June December
2016 2015 2015
Net GBPm GBPm GBPm
Underwriting year:
2011 & prior 7.3 27.1 59.3
2012 27.5 35.3 69.0
2013 42.4 23.5 38.4
2014 (12.3) 6.7 6.7
2015 3.8 - -
Total net release (UK Car Insurance) 68.7 92.6 173.4
Total net release (International Car Insurance) 4.4 2.8 6.5
Total net release 73.1 95.4 179.9
Releases on Admiral's original net share 55.9 50.0 84.6
Releases on commuted quota share reinsurance
contracts 12.8 42.6 88.8
Total net release (UK Car Insurance) as above 68.7 92.6 173.4
Releases on commuted quota share contracts are analysed by underwriting
year as follows:
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Underwriting year:
2011 & prior 3.9 14.5 32.2
2012 16.0 20.6 40.3
2013 24.7 7.5 16.3
2014 (31.8) - -
Total releases on commuted quota share reinsurance
contracts 12.8 42.6 88.8
Profit commission is analysed in note 5b.
Included within releases on commuted quota share contracts are accruals
for additional reserves arising from the commutation of 2014 year UK
motor quota share contracts. Refer to the business review earlier in
this report for further detail.
31 December: 30 June
UK loss ratio development 2011 2012 2013 2014 2015 2016
Underwriting year (UK motor only)
2011 82% 76% 72% 67% 62% 61%
2012 - 84% 78% 73% 66% 64%
2013 - - 85% 82% 76% 71%
2014 - - - 92% 89% 83%
2015 - - - - 87% 85%
(iii) Reconciliation of movement in claims provision:
30 June 2016
Gross Reinsurance Net
GBPm GBPm GBPm
Claims provision at 1 January 2016 1,725.0 (544.8) 1,180.2
Claims incurred (excluding releases) 603.2 (387.3) 215.9
Reserve releases (142.6) 69.5 (73.1)
Movement in claims provision due to commutation - 186.2 186.2
Claims paid and other movements (365.7) 152.5 (213.2)
Claims provision at 30 June 2016 1,819.9 (523.9) 1,296.0
30 June 2015
Gross Reinsurance Net
GBPm GBPm GBPm
Claims provision at 1 January 2015 1,596.0 (538.2) 1,057.8
Claims incurred (excluding releases) 462.3 (270.2) 192.1
Reserve releases (122.6) 27.2 (95.4)
Movement in claims provision due to commutation - 233.8 233.8
Claims paid and other movements (331.8) 143.9 (187.9)
Claims provision at 30 June 2015 1,603.9 (403.5) 1,200.4
31 December 2015
Gross Reinsurance Net
GBPm GBPm GBPm
Claims provision at 1 January 2015 1,596.0 (538.2) 1,057.8
Claims incurred (excluding releases) 963.4 (566.3) 397.1
Reserve releases (211.7) 31.8 (179.9)
Movement in claims provision due to commutation - 233.8 233.8
Claims paid and other movements (622.7) 294.1 (328.6)
Claims provision at 31 December 2015 1,725.0 (544.8) 1,180.2
(iv) Reconciliation of movement in net unearned premium provision:
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Net unearned premium provision at start of period 236.1 209.8 209.8
Written in the period 292.6 246.7 490.1
Earned in the period (254.6) (229.1) (463.8)
Net unearned premium provision at end of period 274.1 227.4 236.1
6. Investments
6a. Investment and interest income
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Investment income:
Investment return on assets classified as FVTPL 1.6 1.9 2.2
Unrealised gains on forward contracts 5.5 - -
Interest income on available for sale debt securities 11.5 7.3 19.2
Interest income on term deposits with credit
institutions 2.5 2.2 4.7
Interest income on held to maturity gilt assets 3.0 3.0 6.1
Net investment return 24.1 14.4 32.2
Unwind of discount on gilts (0.4) (0.4) (0.8)
Notional accrual for reinsurers' share of investment
return 9.2 (5.1) -
32.9 8.9 31.4
Interest receivable on cash and cash equivalents 0.5 0.7 1.2
Total investment and interest income 33.4 9.6 32.6
6b. Finance costs
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Interest payable 5.6 5.5 11.1
Total finance costs 5.6 5.5 11.1
6c. Financial assets and liabilities
The Group's financial instruments can be analysed as follows:
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Investments held at fair value through profit and
loss:
Money market funds 693.4 671.0 627.7
Investments classified as available for sale:
Available for sale debt securities 1,285.5 1,122.6 1,230.0
Investments classified as held to maturity:
Term deposits with credit institutions 178.7 247.5 267.6
UK government gilts 197.8 201.7 198.2
Total financial investments 2,355.4 2,242.8 2,323.5
Insurance and other receivables:
Amounts owed by policyholders 551.6 398.3 437.0
Trade and other receivables 145.8 101.0 100.1
Cash and cash equivalents 295.4 216.0 265.3
Total financial assets 3,348.2 2,958.1 3,125.9
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Financial liabilities:
Subordinated notes 203.9 203.8 203.9
Other borrowings 20.0 - 20.0
Trade and other payables 1,070.8 876.2 1,015.0
Total financial liabilities 1,294.7 1,080.0 1,238.9
All investments held at fair value at the end of the period are invested
in AAA-rated money market liquidity funds.
The measurement of these investments is based on active quoted market
values (level one).
Available for sale debt securities include holdings in fixed income and
other debt securities, and are held at fair value with interest income
recognised in the income statement and unrealised movements in fair
value taken through other comprehensive income.
Investments classified as held to maturity are comprised of term
deposits and UK government gilts, and are held in the Condensed
consolidated statement of financial position at amortised cost.
Term deposits are held with well rated institutions and as such the fair
value of these investments is considered to approximate to the carrying
value as impairment of the capital is not expected. There is no quoted
market for these holdings and as such a level two valuation is used. The
carrying value of term deposits is GBP178.7 million (H1 2015: GBP247.5
million, FY 2015: GBP267.6 million).
The fair value of the holding of UK government gilts at 30 June 2016 is
GBP233.2 million (level one valuation) (H1 2015: GBP209.7 million, FY
2015: GBP211.7 million). The fair value of subordinated notes (level
one valuation) at 30 June 2016 is GBP199.0 million (H1 2015: GBP198.8
million, FY 2015: GBP202.4 million).
Insurance and other receivables are also valued at amortised cost in the
Condensed consolidated statement of financial position. This carrying
value is a reasonable approximation of fair value.
6d. Cash and cash equivalents
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Cash at bank and in hand 295.4 216.0 265.3
Total cash and cash equivalents 295.4 216.0 265.3
Cash and cash equivalents includes cash in hand, deposits held at call
with banks, and other short term deposits with original maturities of
three months or less.
7. Other Revenue
7a. Contribution from additional products and fees and other
revenue
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Contribution from additional products and fees 96.8 89.0 182.4
Price Comparison revenue(*1) 54.2 55.2 93.9
Other revenue 25.2 20.8 43.5
Total other revenue 176.2 165.0 319.8
[*1] Price comparison revenue excludes GBP9.8 million (H1 2015: GBPnil,
FY 2015: GBP14.2 million) of income from other Group companies.
8. Expenses
8a. Operating expenses and share scheme charges
30 June 2016
Recoverable
from co-
and
Gross reinsurers Net
GBPm GBPm GBPm
Acquisition of insurance contracts(*1) 44.1 (34.2) 9.9
Administration and other marketing costs (insurance
contracts) 144.3 (105.6) 38.7
Insurance contract expenses 188.4 (139.8) 48.6
Administration and other marketing costs (Other) 104.7 - 104.7
Share scheme charges 23.8 (9.1) 14.7
Total expenses and share scheme charges 316.9 (148.9) 168.0
30 June 2015
Recoverable
from co-
and
Gross reinsurers Net
GBPm GBPm GBPm
Acquisition of insurance contracts 44.5 (27.3) 17.2
Administration and other marketing costs (insurance
contracts) 117.3 (85.1) 32.2
Insurance contract expenses 161.8 (112.4) 49.4
Administration and other marketing costs (Other) 97.8 - 97.8
Share scheme charges 19.4 (7.5) 11.9
Total expenses and share scheme charges 279.0 (119.9) 159.1
31 December 2015
Recoverable
from co-
and
Gross reinsurers Net
GBPm GBPm GBPm
Acquisition of insurance contracts(*1) 77.5 (57.8) 19.7
Administration and other marketing costs (insurance
contracts) 238.5 (175.1) 63.4
Insurance contract expenses 316.0 (232.9) 83.1
Administration and other marketing costs (Other) 188.2 - 188.2
Share scheme charges 43.8 (16.6) 27.2
Total expenses and share scheme charges 548.0 (249.5) 298.5
[*1] Acquisition of insurance contracts expense excludes GBP9.8 million
(H1 2015: GBPnil, FY 2015: GBP14.2 million) of price comparison fees
from other Group companies.
The GBP38.7 million (H1 2015: GBP32.2 million, FY 2015: GBP63.4 million)
administration and marketing costs allocated to insurance contracts is
principally made up of salary costs.
Analysis of other administration and other marketing costs
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Expenses relating to additional products and fees 22.3 21.9 43.0
Price Comparison operating expenses 68.8 63.8 123.6
Other expenses 13.6 12.1 21.6
Total 104.7 97.8 188.2
Refer to note 12 for a reconciliation between insurance contract
expenses and the reported expense ratio.
8b. Staff share schemes
Analysis of share scheme costs (per income statement):
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Share Incentive Plan (SIP) charge 5.1 4.7 8.7
Discretionary Free Share Scheme (DFSS) charge 9.6 7.2 18.5
Total share scheme charges 14.7 11.9 27.2
The share scheme charges reported above are net of the co- and
reinsurers share of the cost and therefore differ from the gross charge
reported in the gross credit to reserves reported in the consolidated
statement of changes in equity (H1 2016: GBP14.2 million, H1 2015:
GBP12.9 million, FY 2015: GBP29.5 million).
The consolidated cash flow statement also shows the gross charge in the
reconciliation between 'profit after tax' and 'cash flows from operating
activities'. The co-insurance share of the charge is included in the
'change in trade and other payables' line.
9. Taxation
9a. Taxation
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
UK Corporation tax
Current charge at 20% (2015: 20.25%) 36.5 37.9 70.9
(Over) provision relating to prior periods - corporation
tax - - (1.0)
Current tax charge 36.5 37.9 69.9
Deferred tax
Current period deferred taxation movement (0.3) (4.5) 7.5
(Over) provision relating to prior periods - deferred
tax - - (0.5)
Total tax charge per income statement 36.2 33.4 76.9
Factors affecting the total tax charge are:
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Profit before taxation 189.5 181.7 368.7
Corporation tax thereon at 20% (2015: 20.25%) 37.9 36.8 74.7
Expenses and provisions not deductible for tax
purposes - - 1.4
Non-taxable income (4.5) - (4.8)
Impact of change in UK tax rate on deferred tax
balances - - 0.3
Adjustments relating to prior periods - - (1.5)
Impact of different overseas tax rates (5.5) (6.0) (12.9)
Unrecognised deferred tax 8.8 2.4 19.7
Other differences (0.5) 0.2 -
Tax charge for the period as above 36.2 33.4 76.9
9b. Deferred income tax (asset)
Tax
treatment Carried
of share Capital forward Other
Analysis of deferred tax (asset) schemes allowances losses differences Total
GBPm GBPm GBPm GBPm GBPm
Balance brought forward at 1 January 2015 (4.8) (4.6) (13.4) (0.1) (22.9)
Tax treatment of share scheme charges through income
or expense (0.7) - - - (0.7)
Tax treatment of share scheme charges through
reserves (2.2) - - - (2.2)
Capital allowances - 1.3 - - 1.3
Carried forward losses - - (4.0) - (4.0)
Other difference - - - (1.0) (1.0)
Balance carried forward 30 June 2015 (7.7) (3.3) (17.4) (1.1) (29.5)
Balance brought forward at 1 January 2015 (4.8) (4.6) (13.4) (0.1) (22.9)
Tax treatment of share scheme charges through income
or expense 2.4 - - - 2.4
Tax treatment of share scheme charges through
reserves (4.7) - - - (4.7)
Capital allowances - 1.9 - - 1.9
Carried forward losses - - 3.5 - 3.5
Other difference - - - (0.8) (0.8)
Balance carried forward 31 December 2015 (7.1) (2.7) (9.9) (0.9) (20.6)
Tax treatment of share scheme charges through income
or expense (0.5) - - - (0.5)
Tax treatment of share scheme charges through
reserves (4.8) - - - (4.8)
Capital allowances - 0.5 - - 0.5
Carried forward losses - - - - -
Other difference - - - - -
Balance carried forward 30 June 2016 (12.4) (2.2) (9.9) (0.9) (25.4)
The UK corporation tax rate reduced from 21% to 20% on 1 April 2015. The
average effective rate of tax for 2016 is 20.0% (2015: 20.25%). Further
reductions to the main rate of corporation tax to 19% (effective from 1
April 2017) and 18% (effective from 1 April 2020) were substantively
enacted on 26 October 2015. This will reduce the Group's future current
tax charge accordingly. The deferred tax asset at 30 June 2016 has been
calculated based on the rate at which each timing difference is most
likely to reverse.
The deferred tax asset relating to carried forward losses of GBP9.9
million relates to losses incurred in the Group's US price comparison
business compare.com, and is calculated at the local US rate of tax
(35%). The recognised asset has been limited to the amount supported by
forecast cash flows over the next five years. The forecasts and
underlying assumptions have been reviewed and approved by the Board. In
addition, the forecasts have been stressed for both revenue and profit
reductions and the asset remains recoverable under the stressed
scenarios.
At 30 June 2016 the Group had unused tax losses amounting to GBP114.6
million (H1 2015: GBP45.4 million, FY 2015: GBP89.6 million), relating
to the Group's US businesses Elephant Auto and compare.com, for which no
deferred tax asset has been recognised.
10. Other assets and other liabilities
10a. Property and equipment
Furniture
Leasehold Computer Office and
improvements equipment equipment fittings Total
GBPm GBPm GBPm GBPm GBPm
Cost
At 1 January
2015 24.9 39.5 14.0 7.8 86.2
Additions 0.3 3.8 0.2 - 4.3
Disposals - (0.5) - - (0.5)
At 30 June
2015 25.2 42.8 14.2 7.8 90.0
Depreciation
At 1 January
2015 7.6 29.7 11.6 5.0 53.9
Charge for
the year 1.1 2.1 0.3 0.4 3.9
Disposals - (0.1) - - (0.1)
At 30 June
2015 8.7 31.7 11.9 5.4 57.7
Net book
amount
At 30 June
2015 16.5 11.1 2.3 2.4 32.3
Cost
At 1 January
2015 24.9 39.5 14.0 7.8 86.2
Additions 0.8 8.8 1.2 0.4 11.2
Disposals - (0.5) - - (0.5)
At 31
December
2015 25.7 47.8 15.2 8.2 96.9
Depreciation
At 1 January
2015 7.6 29.7 11.6 5.0 53.9
Charge for
the year 2.4 3.8 1.0 1.0 8.2
Disposals - (0.1) - - (0.1)
At 31
December
2015 10.0 33.4 12.6 6.0 62.0
Net book
amount
At 31
December
2015 15.7 14.4 2.6 2.2 34.9
Cost
At 1 January
2016 25.7 47.8 15.2 8.2 96.9
Additions 0.5 2.6 0.3 0.4 3.8
Disposals - - (0.2) - (0.2)
Foreign
exchange
movement 0.4 0.5 0.6 0.2 1.7
At 30 June
2016 26.6 50.9 15.9 8.8 102.2
Depreciation
At 1 January
2016 10.0 33.4 12.6 6.0 62.0
Charge for
the year 0.8 3.6 0.5 0.3 5.2
Disposals - - (0.1) - (0.1)
Foreign
exchange
movement 0.2 0.4 0.5 0.1 1.2
At 30 June
2016 11.0 37.4 13.5 6.4 68.3
Net book
amount
At 30 June
2016 15.6 13.5 2.4 2.4 33.9
10b. Intangible assets
Deferred acquisition
Goodwill costs(*1) Software Total
GBPm GBPm GBPm GBPm
Carrying amount:
At 1 January 2015 62.3 14.8 30.1 107.2
Additions - 17.1 14.6 31.7
Amortisation charge - (16.9) (2.6) (19.5)
Disposals - - (0.1) (0.1)
At 30 June 2015 62.3 15.0 42.0 119.3
At 1 January 2015 62.3 14.8 30.1 107.2
Additions - 35.8 39.5 75.3
Amortisation charge - (34.0) (6.1) (40.1)
Disposals - - (0.1) (0.1)
At 31 December 2015 62.3 16.6 63.4 142.3
Additions - 23.2 14.1 37.3
Amortisation charge - (19.7) (5.5) (25.2)
Disposals - - (0.1) (0.1)
Foreign exchange movement - 0.9 1.0 1.9
At 30 June 2016 62.3 21.0 72.9 156.2
[*1] Deferred acquisition costs additions and amortisation charges
from prior periods have been re-presented to reflect appropriate net of
reinsurance movements in each period. There are no changes to the
carried forward or brought forward deferred acquisition costs balance
for any period.
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. 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. Refer to
the accounting policy for goodwill in the 2015 financial statements for
further information.
10c. Insurance and other receivables
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Insurance receivables(*1) 551.6 398.3 437.0
Trade receivables 141.4 89.1 92.1
Prepayments and accrued income 4.4 11.9 8.0
Total insurance and other receivables 697.4 499.3 537.1
[*1] Insurance receivables at 30 June 2016 includes GBP30.4 million in
respect of salvage and subrogation recoveries (H1 2015: GBPnil, FY 2015:
GBP28.4 million).
10d. Trade and other payables
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Trade payables 23.9 22.8 35.1
Amounts owed to co-insurers and reinsurers 746.0 632.9 764.7
Finance leases due within 12 months 1.8 0.4 2.8
Other taxation and social security liabilities 43.1 25.7 28.3
Other payables 130.5 117.2 88.5
Accruals and deferred income 125.5 77.2 95.6
Total trade and other payables 1,070.8 876.2 1,015.0
Of amounts owed to co-insurers and reinsurers, GBP500.2 million (H1
2015: GBP475.6 million, FY 2015: GBP554.3 million) is held under funds
withheld arrangements.
11. Share capital
11a. Dividends
Dividends were declared and paid as follows.
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
March 2015 (49.0 pence per share, paid May 2015) - 134.4 134.4
August 2015 (51.0 pence per share, paid October 2015) - - 140.2
March 2016 (63.4 pence per share, paid May 2016) 175.4 - -
Total dividends 175.4 134.4 274.6
The dividend declared in March 2015 represented the final dividend paid
in respect of the 2014 financial year (August 2015 - interim dividend
for 2015). The dividend declared in March 2016 was the final dividend
paid in respect of the 2015 financial year.
An interim dividend of 62.9 pence per share (GBP174.7 million) has been
declared in respect of the 2016 financial year.
11b. Earnings per share
30 30 31
June June December
2016 2015 2015
Profit for the period after taxation attributable
to equity share-holders (GBPm) 157.4 152.9 300.0
Weighted average number of shares - basic 281,806,787 278,930,161 279,627,738
Unadjusted earnings per share - basic 55.9p 54.8p 107.3p
Weighted average number of shares - diluted 282,194,592 279,399,127 280,018,741
Unadjusted earnings per share - diluted 55.8p 54.7p 107.1p
The difference between the basic and diluted number of shares at the end
the period (being 387,805; H1 2015: 468,966, FY 2015: 391,003) relates
to awards committed, but not yet issued under the Group's share schemes.
11c. Share capital
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Authorised:
500,000,000 ordinary shares of 0.1p 0.5 0.5 0.5
Issued, called up and fully paid:
279,108,163 ordinary shares of 0.1p - 0.3 -
281,587,953 ordinary shares of 0.1p - - 0.3
281,967,266 ordinary shares of 0.1p 0.3 - -
0.3 0.3 0.3
During the first half of 2016 379,313 (H1 2015: 418,421) new ordinary
shares of 0.1p were issued to the trusts administering the Group's share
schemes.
379,313 (H1 2015: 418,421) of these were issued to the Admiral Group
Share Incentive Plan Trust for the purposes of this share scheme to give
a closing number at H1 2016 of 8,559,918 (H1 2015: 7,650,815). These
shares are entitled to receive dividends.
No shares (H1 2015: nil) were issued to the Admiral Group Employee
Benefit Trust for the purposes of the Discretionary Free Share Scheme to
give a closing number at H1 2016 of 14,811,948 (H1 2015: 12,861,948).
The Trustees have waived the right to dividend payments, other than to
the extent of 0.001p per share, unless and to the extent otherwise
directed by the Company from time to time.
The number of shares in issue at flotation was 258,595,400.
11d. Objectives, policies and procedures for managing capital
The Group manages its capital to ensure that all entities within the
Group are able to continue as going concerns and also to ensure that
regulated entities comfortably meet regulatory requirements. Excess
capital above these levels within subsidiaries is paid up to the Group
holding company in the form of dividends on a regular basis.
The Group's dividend policy is to make distributions after taking into
account capital that is required to be held a) for regulatory purposes;
b) to fund expansion activities; and c) as a further prudent buffer
against unforeseen events. This policy gives the Directors flexibility
in managing the Group's capital.
Refer to the business review for further information about the Group's
capital structure and financial position.
11e. Related party transactions
Details relating to the remuneration and shareholdings of key management
personnel are set out in the Directors' Remuneration Report within the
Group's 2015 Annual Report. Key management personnel are able to obtain
discounted motor insurance at the same rates as all other Group staff,
typically at a reduction of 15%.
The Board considers that Executive and Non-Executive Directors of
Admiral Group plc are key management personnel. Aggregate compensation
for the Executive and Non-Executive Directors is disclosed in the
Directors' Remuneration Report in the 2015 Annual Report.
12. Reconciliations
The following tables reconcile significant KPIs and alternative
performance measures included in the financial review above to items
included in the financial statements.
12a. Reconciliation of turnover to reported total premiums written
and Other revenue as per the financial statements
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Total Premiums Written before co-insurance arrangements
per note 5a of financial statements 1,076.5 904.9 1,805.2
Other revenue per note 7a of financial statements 176.2 165.0 319.8
1,252.7 1,069.9 2,125.0
UK vehicle commission(*1) (12.5) (17.7) (31.8)
Other(*2) 10.7 5.3 11.4
Turnover as per note 4 of financial statements 1,250.9 1,057.5 2,104.6
Intra-group income elimination*3 9.8 - 14.2
Total turnover 1,260.7 1,057.5 2,118.8
[*1] During 2012 Admiral ceased earning other revenue from the sale of
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 legal
protection policies. The vehicle commission included within Other
revenue is therefore eliminated from the Turnover measure to avoid
double-counting.
[*2] Other reconciling items represent co-insurer and reinsurer shares
of Other revenue in the Group's International Car Insurance businesses.
[*3] Intra-group income elimination relates to price comparison income
earned in the Group from other Group companies. This income was not
eliminated in H1 2015 on the grounds of materiality.
12b. Reconciliation of claims incurred to reported Group loss ratio,
excluding releases on commuted reinsurance
30 June 2016 30 June 2015 31 December 2015
UK motor Group UK motor Group UK motor Group
GBPm GBPm GBPm GBPm GBPm GBPm
Net insurance claims 102.4 148.4 64.0 101.4 150.5 226.5
Net claims handling
expenses (5.5) (5.6) (4.8) (4.8) (9.4) (9.4)
Reinsurer cap impact - (1.3) - (1.1) - (2.9)
Reserve releases on
commuted
reinsurance 12.8 12.8 42.6 42.6 88.8 88.8
Other adjustment(*1) - (1.0) - (0.1) - (0.6)
Adjusted net claims 109.7 153.3 101.8 138.0 229.9 302.4
Net insurance
premium revenue 192.9 259.7 174.9 228.9 358.6 467.0
Other adjustment(*1) - (1.9) - (2.1) - (2.2)
Adjusted net
insurance premium
revenue 192.9 257.8 174.9 226.8 358.6 464.8
Reported loss ratio 56.9% 59.5% 58.2% 60.8% 64.1% 65.1%
[*1] 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.
12c. Reconciliation of expenses related to insurance contracts to
reported Group expense ratio
30 June 2016 30 June 2015 31 December 2015
UK motor Group UK motor Group UK motor Group
GBPm GBPm GBPm GBPm GBPm GBPm
Net insurance
expenses 22.6 48.6 25.7 49.4 41.5 83.1
Net claims handling
expenses 5.5 5.6 4.8 4.8 9.4 9.4
Reinsurer cap
impacts - (4.5) - (2.6) - (9.8)
Intra-group expenses
elimination(*1) 6.9 9.8 - - 9.5 14.2
Other adjustment(*2) - (0.9) - (2.0) - (1.6)
Adjusted net
expenses 35.0 58.6 30.5 49.6 60.4 95.3
Net insurance
premium revenue 192.9 259.7 174.9 228.9 358.6 467.0
Other adjustment(*2) - (1.9) - (2.1) - (2.2)
Adjusted net
insurance premium
revenue 192.9 257.8 174.9 226.8 358.6 464.8
Reported expense
ratio 18.1% 22.7% 17.4% 21.9% 16.9% 20.5%
[*1] The intra-group expenses elimination amount relates to aggregator
fees charged by the Group's price comparison entities to other Group
companies. These expenses were not eliminated in H1 2015 on the grounds
of materiality.
[*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.
12d. Reconciliation of reported profit before tax to adjusted
profit before tax
30 30 31
June June December
2016 2015 2015
GBPm GBPm GBPm
Reported profit before tax per the condensed consolidated
income statement 189.5 181.7 368.7
Non-controlling interest share of profit before tax 3.8 4.4 8.1
Adjusted profit before tax 193.3 186.1 376.8
13. Statutory information
The financial information set out above does not constitute the
company's statutory accounts. Statutory accounts for 2015 have been
delivered to the registrar of companies, and those for 2016 will be
delivered in due course. The auditors have reported on those accounts;
their reports were (i) unqualified, (ii) did not include a reference to
any matters to which the auditors drew attention by way of emphasis
without qualifying their report and (iii) did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006.
Responsibility statement of the directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU;
-- the interim management report includes a fair review of the information
required by:
1. DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
2. DTR 4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place in the first six months
of the current financial year and that have materially affected
the financial position or performance of the entity during that
period; and any changes in the related party transactions
described in the last annual report that could do so.
By order of the Board,
Geraint Jones
Chief Financial Officer
16 August 2016
INDEPENDENT REVIEW REPORT TO ADMIRAL GROUP PLC (the company)
We have been engaged by the company to review the condensed set of
financial statements in the half-yearly financial report for the six
months ended 30 June 2016 which comprises the condensed consolidated
income statement, condensed consolidated statement of comprehensive
income, condensed consolidated statement of financial position,
condensed consolidated cash flow statement, condensed consolidated
statement of changes in equity and related notes 1 to 13. We have read
the other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the Independent
Auditor of the Entity" issued by the Auditing Practices Board. Our work
has been undertaken so that we might state to the company those matters
we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company, for
our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing
the half-yearly financial report in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with International
Accounting Standard 34 "Interim Financial Reporting" as adopted by the
European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the
condensed set of financial statements in the half-yearly financial
report based on our review.
Scope of review
We conducted our review in accordance with International Standard on
Review Engagements (UK and Ireland) 2410 "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity" issued
by the Auditing Practices Board for use in the United Kingdom. A review
of interim financial information consists of making inquiries, primarily
of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK and Ireland) and consequently
does not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2016 is
not prepared, in all material respects, in accordance with International
Accounting Standard 34 as adopted by the European Union and the
Disclosure and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London, UK
16 August 2016
This announcement is distributed by NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Admiral Group PLC via Globenewswire
HUG#2035549
http://www.admiralgroup.co.uk
(END) Dow Jones Newswires
August 17, 2016 02:00 ET (06:00 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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