TIDMADM
5 March 2020
Admiral Group plc announces a record Group profit before tax of GBP526.1
million for the year ended 31 December 2019
2019 Results Highlights
2019 2018 % change
Group's share of profit before GBP526.1 GBP479.3
tax(*1) million million +10%
GBP522.6 GBP476.2
Group statutory profit before tax million million +10%
Earnings per share 148.3 pence 137.1 pence +8%
Full year dividend 140.0 pence 126.0 pence +11%
Return on equity(*1) 52% 56% -7%
Group turnover(*1) GBP3.46 billion GBP3.28 billion +5%
Group net revenue GBP1.35 billion GBP1.26 billion +7%
Group customers(*1) 6.98 million 6.51 million +7%
UK insurance customers(*1) 5.48 million 5.24 million +4%
International car insurance
customers(*1) 1.42 million 1.22 million +16%
Group's share of price comparison
profit(*1) GBP18.0 million GBP8.8 million +105%
Statutory price comparison profit GBP14.7 million GBP6.6 million +123%
Solvency ratio (post dividend)(*2) 190% 194% -2%
(*1) Alternative Performance Measures - refer to the end of the report
for definition and explanation
(*2) Unaudited. Refer to capital structure and financial position
section later in the report for further information
Around 10,000 staff each receive free shares worth up to GBP3,600 under
the employee share scheme based on the full year 2019 results. All staff
will also receive a one-off GBP500 bonus to reflect the Group's strong
performance in 2019.
Comment from David Stevens, Group Chief Executive Officer:
"Admiral tends, year after year, to exhibit a relentless forward
momentum, which my predecessor described as "going like a freight
train".
"Was 2019 another "freight train" year?
"Very much so. In so many ways.
"It was a year which saw profits exceed GBP500 million for the first
time, on the back of substantial reserve releases. We crossed the
million mark in household policyholders, and added 200,000 new car
insurance customers overseas.
"Alongside this rapid progress on many fronts, some data points were
stubbornly stable. The number of consecutive years amongst the top
performers in the "Best Companies" list only nudged up from 19 years to
20. The percentage of staff saying they are proud to work for Admiral
was stuck in a narrow band in the mid-90's. As was the percentage of
customers who said they wanted to renew with Admiral following a claim.
"Consistently happy staff, consistently happy customers. Hopefully
happy shareholders.
"I announced this morning that I am going to be stepping down as CEO in
12 months' time. I fully expect that Admiral's talented senior
management, led by our very talented CEO designate, Milena Mondini, will
be more than ready to maintain, or even stoke up, Admiral's relentless
momentum."
Annette Court, Admiral Group Chair, commented:
"I am delighted to report another year of record profit in 2019 and a
strong set of results. It was also pleasing to receive a recent award as
the only company to appear in the Sunday Times Best Large Company to
Work For shortlist every year since the inception of the awards 20 years
ago. These results are testament to our people, who continue to be at
the core of our success and highlight every day the real difference that
they make through their focus on great customer service.
"Following from the announcement today of Admiral's CEO David Stevens
informing the Board of his intention to retire in twelve months' time,
I'd like to thank him for his amazing contribution over the past 27
years to Admiral's success. Since he's not leaving for another 12 months,
I'll reserve my fuller accolades until that time.
"Having been through a comprehensive and robust succession process, the
Board is confident that in Milena Mondini we have a natural successor
and a leader for the next generation, supported by a very strong
management team. Milena brings a deep appreciation of the special
Admiral culture, entrepreneurial spirit, commercial track record and
people development skills."
Dividend
The Board has proposed a final dividend of 77.0 pence per share (2018:
66.0p) representing a normal dividend (65% of post-tax profits) of 56.3
pence and a special dividend of 20.7 pence per share. The dividend will
be paid on 1 June 2020. The ex-dividend date is 7 May 2020 and the
record date is 11 May 2020.
Management presentation
Analysts and investors will be able to access the Admiral Group
management presentation which commences at 11am GMT on Thursday 5 March
2020 by registering at the following link
https://pres.admiralgroup.co.uk/admiral037/vip_connect. A copy of the
presentation slides will be available at www.admiralgroup.co.uk
Chair Statement
2019 marks another year of very strong results for Admiral, and also the
announcement of a change of leadership. It is hard to sum up the amazing
contribution that David has made to the Group over the last 27 years.
As one of the founders he has overseen the business grow from a standing
start to become one of the UK's largest motor insurers, employing over
10,000 people, serving seven million customers and with a market value
today of over GBP6 billion.
David isn't going just yet and I don't want to use up all my accolades
until he actually steps down in 12 months' time. David brings a unique
combination of great brainpower, integrity, innovation, caring and
humility. As an individual, his compassion for colleagues and customers
alike encapsulates Admiral's approach and ethos. Suffice to say, it
continues to be a real pleasure to work with him.
Having been through a comprehensive and robust succession process, the
Board is confident that in Milena we have a natural successor and a
leader for the next generation. We have a wealth of management talent
at Admiral and bringing this through has always been a central pillar to
Admiral's management philosophy as the business evolves alongside its
customers. Milena brings a deep appreciation of the special Admiral
culture, entrepreneurial spirit, commercial track record and people
development skills.
Looking back at 2019
I am delighted to report another year of strong performance in 2019,
beating many records. This is once again due to our people. They make
the real difference at Admiral. Their focus on serving our customers,
the distinctive culture and their contribution to the communities in
which Admiral operates is what makes Admiral truly different.
The Group has continued to grow with turnover increasing by 5% to GBP3.5
billion, whilst customer numbers are 7% higher than 2018 at 6.98
million. The Group's share of pre-tax profit increased by 10% to GBP526
million driven by UK Motor insurance, with strong releases of prior year
claims reserves. Once again we were impacted by Ogden (the Personal
Injury Discount Rate). Although the final rate was set at -0.25%, and
therefore lower than our expectations, we were able to deliver
significantly increased profits resulting in an early trading update to
notify the market of higher than expected profit. Earnings per share
rose by 8% and return on equity was 52%. The Group's solvency ratio
remains robust at 190% (194% at the end of 2018).
This strong performance was due to contributions from businesses across
the Group. Particularly of note was UK Insurance (Motor, Household,
Travel), European insurance and Confused.com. Our Loans business
continues to develop well and we continue to build this business with
our usual cautious approach. We have encountered more challenges in the
US, so we still continue to strengthen fundamentals there.
Focusing on the UK, we maintained a disciplined approach and prioritised
profitability over growth, by increasing prices as a result of continued
claims inflation. This led to modest growth over the period. The
regulatory environment in the UK continues to evolve, with whiplash
reform and the FCA market pricing study being key features of 2019 and
into 2020. Approximately 80% of Admiral customers shop around at renewal,
so we are encouraged that the majority choose to remain with us and is
an indicator of our good customer experience and competitive pricing.
As a result of our Brexit restructuring, 1 January 2019 marked the start
of operations for our European insurance hub in Madrid. The hub allows
us to underwrite and support our growing European insurance businesses
and ensures that we are well placed for a full range of potential
circumstances without disrupting our customers.
Dividend
Our dividend policy remains that we pay a normal dividend of 65% of
post-tax profit and distribute each year the available surplus over and
above what we retain to meet regulatory requirements, the future
development of our business and appropriate buffers. The Directors have
recommended a final dividend of 77 pence per share (2018: 66 pence per
share) for the year to 31 December 2019 representing a distribution of
90% of our second half earnings.
This will bring the total dividend for the year to 140 pence per share,
an overall increase of 11%. This represents a pay-out ratio of 94%. The
Group has delivered a Total Shareholder Return (TSR) of 361% over the
last 10 years.
Group Board in 2019
The Board recognises the need for a strong corporate governance
framework and supporting processes across the Group and believes that
good governance, with the tone set from the top, is a key factor in
delivering sustainable business performance and creating value for all
the Group's stakeholders.
We reviewed our Group strategy in 2019 which remains straightforward and
highly focused on building customer-centric, sustainable businesses for
the long-term. We strive to keep doing what we're doing, and do it
better year after year.
In our UK insurance business, we remain determined to strengthen our
core competitive advantages and pursue our culture of innovation and
test and learn approach. For example, we are continuing to deploy
technology relating to digital and self-service to improve the customer
experience and overall efficiencies.
We also continue to take what we do well and what we learn to new
markets and new products, both in the UK and abroad. We are agile enough
to adapt to evolving business environments and encourage entrepreneurial
initiatives to solve challenges and offer the best outcome to our
customers, people and investors. One example is the launch of Household
insurance in France.
From a governance perspective, we have applied the principles of the new
Corporate Governance Code which ensures that we will continue to take on
board the views of all of our stakeholders in our discussions and
decision making. As you would expect, we already have strong links with
our people and in 2019, the Board revisited and enhanced several areas
of focus including our culture, engagement, diversity, our impact on the
environment and climate change, and how we give back and participate in
the communities in which we operate through our Ministry of Giving.
To ensure that we further enhance the strong links between the Board and
Admiral employees, we have set up an Employee Consultation Group (ECG).
This group, elected by employees, meets on a regular basis and provides
a two-way link between the Board and wider staff. I and other members of
the Board have had the privilege of attending these sessions and I am
impressed by the passion and energy our people have for continuing to
shape the business and a real desire to ensure that we remain a great
company to work for. An example of this is considering ways in which we
can better use flexible working.
There is further work to do to ensure that views of our international
employees across the Group are better represented, so we will be
building on this approach over the next twelve months.
Once again Admiral was recognised as a Great Place to Work in 2019. We
were awarded the Sunday Times best company to work for in the UK, 7(th)
best multinational workplace in Europe, 3(rd) best workplace for women
in the UK and 18(th) best workplace in the world! Of course, this his
doesn't happen by accident. We continue to believe that if people like
what they do, they do it better. Our people feel involved because they
have a voice, they are shareholders in our business, and they genuinely
care.
Having our people as shareholders remains a distinctive element of
Admiral's incentive schemes These are designed to ensure that decisions
are made by management to support long-term value growth, that the right
behaviours are rewarded and that our people's interests are aligned with
those of shareholders. Our core belief is that over the long-term, share
appreciation depends on delivering great outcomes for our customers.
During the year, I had the pleasure of visiting our operations in the UK,
France, Italy, Spain and the US where I was able to engage with a wide
variety of people. It is always wonderful to see the Admiral culture so
deeply ingrained in offices across the globe. This culture was just as
clearly embedded for me at the annual Staff General Meeting and the
annual management off-site event. In 2019, the Board also attended a
Claims education session in Newport as part of our ongoing Board
education programme, and we each had the opportunity to engage with
claims employees and visit a local repairer which was very insightful in
seeing more evidence of our service in practice.
The Board and I feel that there is a good balance of experience, skills
and knowledge to support and challenge the management team, and that
operations are supported by effective governance and control systems.
There have been no changes to the Board composition in 2019 following
three new appointments in 2018 but the Board and I expect to appoint an
additional non-executive director with a technology background in early
2020. We will continue to review all aspects of diversity to ensure that
we are well-prepared to guide the Group through our next phase of
growth.
During the year the Board and each of its Committees undertook reviews
of their effectiveness. As part of the three-year cycle we undertook an
external effectiveness review of the Board in 2019, including
consideration of the principles of the 2018 Corporate Governance Code.
The conclusions provided useful feedback on its performance.
Our focus areas for the Board remain to:
-- Continue to build on the remarkably special Admiral culture and in so
doing putting our people, customers and wider impact on the community at
the heart of what we do
-- Continue the history of growth, profitability and innovation
-- Invest in the development and growth of our people -- we have focused on
the quality and development of our senior management team, added to our
talent base by some external hires, and reviewed our succession pipeline
--Ensure excellent governance and the highest standards
Our role in Society
Admiral takes its role in society very seriously and has an active
approach to Corporate Responsibility (more information in Corporate
Social Responsibility Report on the Admiral website) We are proud to be
Wales' only FTSE 100 headquartered company and employ over 7,000 people
in South Wales. Our people play an active part in the communities in
which we operate. We carefully consider our impact on the community and
environment, including factors such as the green credentials of our
buildings, raising funds for multiple charities, and considering the
impact of climate change across the business.
This year we reviewed our responsible investment policy with regard to
our ESG positioning. We aim to be an economically strong and responsible
business over the long-term, guided by a clear purpose, to make a
positive and significant impact not just to our customers and our people
but to the economy and society.
Thank you
On behalf of the Board I would like to thank everyone at Admiral for
their continued hard work and contribution to the Group's results in
2019. I would also like to thank our shareholders for their support and
confidence. Most of all I would like to thank our customers for placing
their business with us.
Annette Court
Group Chair
4 March 2020
Chief Executive's Statement
The combination of a new decade and an imminent, if not immediate,
change of leadership at Admiral provides me with a valid excuse to
comment across a longer time period than a typical CEO statement in an
annual report.
Almost a decade ago, my predecessor, Henry, with his inimitable talent
for a colourful phrase to light up a CEO statement, described the
company as a "snowball going like a freight train -- downhill" (2010's
CEO statement). I know I'm not alone in having enjoyed Henry's CEO
statements, with his penchant for colourful, often gastronomic,
analogies. I confess, however, in this instance, I might have avoided
both "snowball" -- with associations of fragility and transience - and
"downhill" -- with associations of, well... "downhill"; neither of which
entirely reassured on the sustainability of Admiral's model.
But I did love "going like a freight train". A freight train -- not
racy, not glamourous (who needs a glamourous insurance company); but
progressing ever onwards with a relentless, implacable forward momentum.
That relentless forward momentum has seen us grow, year in year out,
over the decade with the number of customers we serve growing from 1.9
million to 7.0 million overall, and from just over 100k to 1.4 million
beyond the UK, while also growing our profits from GBP206 million to
GBP526 million.
Did 2019 itself fit into this narrative of relentless momentum?
Very much so. In so many ways.
It was a year which saw profits exceed GBP500 million for the first time,
on the back of substantial reserve releases. We crossed the million
mark in household policyholders and sold our first household policy
beyond the UK. By year end, we had almost sold our 100,000th loan (and
have, at time of writing, done so). We believe (hard to prove it) we
have become the biggest (non-fleet) van insurer in the UK, only 2.5
years after starting to underwrite van insurance.
Alongside this rapid progress on many fronts, some data points were
stubbornly stable. The number of consecutive years amongst the top
performers in the "Best Places To Work" only nudged up from 19 years to
20.
The percentage of staff saying they are proud to work for Admiral was
stuck in a narrow band in the mid-90's. As was the percentage of
customers who said they wanted to renew with Admiral following a claim.
Consistently happy staff, consistently happy customers.
Reassuringly stable outcomes, that are fundamental to our relentless
forward momentum; a momentum fuelled by a sustainably healthy culture:
-- A culture that, in many different ways, attracts & retains people, at all
levels, who are simply better at their jobs than most of their peers in
the industry.
-- A culture that respects and promotes a set of fundamental skills in risk
selection, claim handling, customer support and expense control that are
core to success in insurance.
-- A culture that emphasises the long term over the short term; long term
prosperity ahead of short-term financials; a sustainable balance in the
outcomes for staff, customers and shareholders.
It is a source of huge satisfaction to me, as I contemplate the end of
my period of stewardship of Admiral, that I will leave a wonderful
company in the hands of a wonderful top management team in Geraint,
Cristina, Scott & Elena, very ably supported by great leaders running
important subsidiaries and key Group functions. They are collectively
more than capable, of not just sustaining, but also of evolving,
Admiral's potent culture. And I am particularly glad that, in Milena, I
have a successor who has the intelligence, the values, the track record
and the clarity of vision to take on the role of Group CEO; to
"reinterpret" the culture, to maintain its relevance over the next
decade; to reinforce the elements that remain key to our future success;
and, equally importantly, to set aside elements that will inevitably
slip past their "sell-by" date.
Thereby ensuring that Admiral will continue to "go like a freight train"
in the years to come.
David Stevens, CBE
Group Chief Executive Officer
4 March 2020
Chief Financial Officer's Review
A headline 10% increase in pre-tax profit - to a new record level - is a
really pleasing result, and so I'll start my review by looking at what's
driving that very positive move:
Group share pre-tax profit
GBPm 2019 2018 Change
UK Insurance 597 556 +41
International Insurance (1) (1) -
Comparison 18 9 +9
Admiral Loans (8) (12) +4
Share scheme cost (53) (49) (4)
Other (27) (24) (3)
Profit 526 479 +47
The standout item is the GBP41m improvement in UK Insurance profit.
GBP11m of that comes from an improved household result (more below). UK
Motor profitability moved ahead by around GBP30m to GBP591m.
When trying to assess the change, it's important to remember that the
Ogden Discount Rate (see later in the report for more detail) has
distorted both years' results. Firstly, 2018 was positively impacted
(GBP66m) when we changed our assumption of the rate, ahead of its
announcement, from -0.75% to 0% at year-end. When the new rate (-0.25%)
was announced (mid-2019), 2019's result took a hit of around GBP33m to
adjust for our slight optimism. That means that the underlying profit
move is bigger than the GBP47m in the table above, though the changes in
the Ogden rate during the period make meaningful comparison difficult.
Thankfully we should see some stability in Ogden in the coming years.
What is clear is that UK motor profit is materially higher in 2019 than
prior years. That has been driven by unusually high UK motor reserve
releases that resulted from improved reserve estimates across a number
of years. This in part is due to some 'unclogging' of large claims
settlements caused by the recent certainty, but also generally much more
positive trends on big claims than we expected. Admiral of course is
(and I believe always should be) consistently prudent in setting
reserves and normally expects significant releases, but 2019 has been
well above average (29% v 21% over the previous five years). Profit
commission revenue was also well ahead of recent years.
To give an idea of quantum, if the reserve release for 2019 (defined as
reserve releases on Admiral's original net share of the business as a
percentage of current year net premium revenue) was in line with the
average of the prior five years, Group profit would have been around
GBP430 million to GBP450 million.
It's also worth noting that the level of conservatism in the reserves
(we usually think of it in terms of the margin above best estimate in
percentage terms) is unchanged year-on-year. We were expecting it to
reduce somewhat at 2019 year-end, but the scale and nature of the
positive moves on the back years has led us to continue being as
cautious as at the end of 2018 for the time being.
We would expect (though can't guarantee of course) significant releases
again in 2020, though possibly not quite of the magnitude seen in 2019.
We might expect the level of conservatism within the reserves to reduce
if 2020 trends are a bit more usual.
A few other observations from the results:
-- Within the UK Insurance result above, our Household business made a
profit of around GBP8m. Still relatively small to the Group (it would be
over twice as big if the cost of quota share reinsurance was excluded),
but a decent GBP11m or so improvement on 2018's weather-impacted
result. The business continued to grow nicely, with 17% more customers
insured. We're hoping for some improvement in the non-weather loss ratio
in the coming years
-- In contrast (and a bit disappointingly), the International Insurance
result remained flat at a GBP1m loss in 2019. This comprised a better
European result (GBP9m v GBP7m) offset by a higher US loss (GBP10m v
GBP8m). This four-point-higher-loss-ratio-driven US result is discussed
further below, whilst the overall international result needs to be
considered alongside a very healthy 16% growth in the number of active
policies at year-end
-- The Comparison segment produced a very pleasing (stellar even?) doubling
of profit (GBP18m v GBP9m). Confused.com led the way and more detail on
that is below. Revenue growth was also strong at 14%
-- Admiral Loans grew its outstanding balances to GBP455m (+52%) whilst
revenue more than doubled. Importantly, headcount was basically flat, a
nice insight into the efficiency of the business. The loss reduced to
GBP8m - in line with expectation and arrears were also in line with plan
--Finally, 'other' costs were up around GBP8m on last year. The biggest
component as you can see is the Admiral share scheme charge which
increased (GBP49m to GBP53m) as a result of improved vesting assumptions
(improved financial results and strong shareholder return) and the
higher share price. We will also pay all our employees a cash bonus of
GBP500 in recognition of the huge contribution to the Group's strong
2019 results (around GBP6m)
Further details on the numbers are set out throughout the strategic
review section of the report.
Highlight -- Confused.com
Picking a highlight from such a strong set of results was reassuringly
tough. Options included a good turnaround in UK household profit (plus
decent growth, surpassing one million customers), strong growth and an
improved result at L'olivier in France, continued great progress in
Admiral Loans (not forgetting the UK motor profit). But there's one
standout for me, so let's hear a bit more about Confused.com.
The improvement in performance under Louise and team's leadership over
the past two years has been stark:
2017 2018 2019 2019 v 2017
Revenue GBP87.1m GBP95.1m GBP112.7m +29%
Operating profit GBP10.1m GBP14.3m GBP20.4m +102%
Operating profit
% 12% 15% 18% +50%
A number of factors have contributed to that very nice doubling of
profit v 2017 -- even more focus on profitability and cost efficiency,
very notable improvements in marketing, customer experience and product.
From a marketing perspective, brand awareness has significantly improved
and, in particular, spontaneous awareness almost doubled in 2019. No
doubt you'll have enjoyed Confused.com's sponsorship of the Rugby World
Cup on TV whilst desperately hoping for a Welsh win. Marketing
efficiency was also improved.
Confused's product offering is better than it was two years back, as is
the customer journey. Results from products beyond car insurance
comparison have improved significantly.
Great work Louise plus Andy, John, Karen, Sam, Steve, Tamsin and the
whole Confused.com team!
Less pleasing -- Elephant Auto
For balance and as hinted above, a disappointment in 2019 was the
reversal in the trend of improving financials for Elephant Auto and
associated write down of the carrying value in the parent company
financial statements.
The last few years have seen some great progress at Elephant. Some
examples from 2019 include notable improvements in service levels
(leading to a big increase in Net Promotor Score) and technology (online
self-service as one example), launching a second brand and diversifying
distribution channels, amongst others.
But 2019 will probably be most remembered for a deterioration in loss
ratio (2019 underwriting year is projected around 77% v 74% for 2018 at
the same point of development) when we were expecting the opposite.
Much action is being and has been taken (including underwriting rule
changes and significant rate increases) and improving the loss ratio
will continue to be a (or actually, the) major area of focus in 2020.
Some additional conservatism has also been built into the booked
reserves at the end of 2019.
Partly because of the result being worse than plan, we changed to using
shorter-term projections for the carrying value impairment test. Whilst
we remain confident that Elephant's result will improve in the
short-term, and the business will go onto profitability in the (ideally)
not too distant future, this led us to conclude that further impairment
to the carrying value was required and a GBP66m charge was taken in the
2019 parent company accounts.
I have faith in our team in Richmond to improve the results in 2020 (no
pressure Alberto!).
Finally, I should also give an update on the status of our internal
capital model. Our team has continued its intensive work, with key tasks
during 2019 including remediation of previous findings and having the
updated model retested, by independent internal and external validators.
Positively, none of that work has moved the overall capital position
materially.
In terms of next steps -- we expect to move into a pre-application phase
with the PRA and Gibraltar regulators in the middle of 2020. That
process involves an assessment of our application against the
requirements and can last six months. After that there would be a
further number of months for us to fix any issues that came out of that
review. Then we'd be in a position to make a formal application, and
realistically we'd now expect that to be in 2021.
In March 2016's CFO statement I counted myself very lucky to have worked
for Admiral's first CEO, Henry Engelhardt, who was about to retire after
a reasonable 25 year shift in charge. The exact same sentiment applies
to my current boss - Admiral's second CEO and cofounder, David. We'll
pay fuller tribute when David actually steps down after the transition,
so I'll just say that I'm very delighted we've been able to name Milena
as David's successor. Having sat back-to-back to her for a year or so
(occasionally getting a word in), I know she'll do an amazing job as
Admiral's third CEO and I'm really forward to working with her and
continuing to be part of Admiral's leadership team for the foreseeable.
Congratulations Milena!
Geraint Jones
Chief Financial Officer
4 March 2020
2019 Group Overview
GBPm 2019 2018 2017
Turnover (GBPbn) *1*2 3.46 3.28 2.96
Underwriting profit including investment
income*1 238.0 211.2 177.7
Profit commission 114.9 93.2 67.0
Net other revenue and expenses 182.3 183.1 170.2
Operating profit 535.2 487.5 414.9
Group Statutory profit before tax 522.6 476.2 403.5
Group's Share of profit before tax*1 526.1 479.3 405.4
UK Insurance 597.4 555.6 465.5
International Insurance (0.9) (1.1) (14.3)
Comparison 18.0 8.8 7.1
Loans (8.4) (11.8) (4.4)
Other (80.0) (72.2) (48.5)
Group's Share of profit before tax*1 526.1 479.3 405.4
Key metrics:
Group loss ratio*1*2 64.9% 67.3% 66.2%
Group expense ratio*1*2 23.7% 22.9% 21.5%
Group combined ratio*1 88.6% 90.2% 87.7%
Customer numbers (million) 6.98 6.51 5.73
Earnings per share 148.3p 137.1p 117.2p
Dividends 140.0p 126.0p 114.0p
Return on Equity*1 52% 56% 55%
Solvency Ratio 190% 194% 205%
(*1) Alternative Performance Measures -- refer to the end of this report
for definition and explanation
(*2) See note 13 for a reconciliation of Turnover and reported loss and
expense ratios to the financial statements
Key highlights of the Group's result for 2019 are as follows:
-- Continued growth in turnover (GBP3.46 billion, up 5% on 2018) and
customer numbers (6.98 million, up 7% on 2018)
-- Group's share of pre-tax profits of GBP526.1 million (2018: GBP479.3
million) and statutory profit before tax of GBP522.6 million (2018:
GBP476.2 million)
-- The main driver of the strong growth in Group profit was a higher UK
Insurance result, which benefitted from very positive development in
prior years claims costs and elevated reserve releases and profit
commission, partially offset by higher central costs
-- UK Insurance turnover and customers both increased by 2% and 4%
respectively to GBP2.63 billion and 5.5 million (2018: GBP2.58 billion
and 5.2 million), as the business continued to prioritise margin over
volume by increasing rates ahead of the market
-- UK Household saw strong growth in turnover and customer numbers, with an
improved result of GBP7.5 million (2018: GBP3.0 million loss) after more
benign weather experience in 2019 in comparison to 2018
-- The European insurance businesses delivered a higher profit of GBP8.7
million (2018: GBP6.4 million), offset by an increased loss in the US
insurance business (GBP9.6m in 2019 v GBP7.5m in 2018). The overall
international insurance loss was GBP0.9 million (2018: GBP1.1 million
loss).
--The Comparison businesses recorded aggregate profits (excluding
minority interests' share) of GBP18.0 million (2018: GBP8.8 million),
with the increase mainly driven by a very strong profit from
Confused.com of GBP20.4 million (2018: GBP14.3 million)
Change in UK discount rate ('Ogden')
Following the announcement in mid-2019 by the UK Government, the Ogden
discount rate, which is used in setting personal injury compensation,
was changed to minus 0.25% from the existing minus 0.75% rate that had
been in place since February 2017. The change came into effect on 5
August 2019 and the minus 0.25% rate is expected to remain in place for
up to the next five years.
Admiral assumed a 0% rate in setting best estimate claims reserves at 31
December 2018 and 2018's pre-tax profit was positively impacted by GBP66
million as a result of the move from minus 0.75%. As a result of the
actual rate being 25 basis points lower than the assumed 0%, 2019's
profit before tax is adversely impacted by around GBP33 million.
Earnings per share
Earnings per share increased by 8% to 148.3 pence (2018: 137.1 pence),
with growth slightly lower than the pre-tax profit growth of 10% due to
an increase in the weighted average number of shares.
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 capital
requirements including management internal risk appetite above the
regulatory minimum.
The Board has proposed a final dividend of 77.0 pence per share
(approximately GBP222 million), split as follows:
-- 56.3 pence per share normal dividend, based on the dividend policy of
distributing 65% of post-tax profits; plus
-- A special dividend of 20.7 pence per share
This final dividend is 17% ahead of the 2018 final dividend (66.0 pence
per share), with a pay-out ratio of 90% for H2 2019.
The total dividend for the 2019 financial year is 140.0 pence per share,
reflecting an 11% increase on 2018 and a 94% pay-out ratio.
The payment is due on 1 June 2020, ex-dividend date 7 May 2020 and
record date 11 May 2020.
Return on equity
The Group's return on equity was 52% in 2019, lower than the 56% in
2018. Whilst the Group's share of post-tax profits grew by 9%, the
group's share of average equity grew faster at 19% resulting in a lower
overall return. The significant growth in profits in the second half of
2019 contributed to the increase in the group's share of equity.
Capital structure and financial position
The Group's co-insurance and reinsurance arrangements for the UK Car
Insurance business are in place at least until the end of 2020. The
Group's net retained share of that business is 22%. Munich Re will
underwrite 40% of the business, through co-insurance (30%) and
reinsurance (10%) arrangements, until at least the end of 2020.
Extensions beyond 2020 are expected to be confirmed during the first
half of 2020.
Similar longer-term arrangements are in place in the Group's
international insurance operations and the UK Household and Van
businesses.
The Group continues to manage its capital to ensure that all entities
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 is based on the Solvency II Standard
Formula, with a capital add-on 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 claims including Periodic Payment
Order (PPO) claims).
The Group continues to develop its partial internal model to form the
basis of future capital requirements and expects to enter the PRA's
pre-application process during 2020. Formal application for regulatory
approval to use the model is expected to follow in 2021. In the interim
period before submission, the current capital add-on basis will continue
to be used to calculate the regulatory capital requirement.
The estimated and unaudited regulatory Solvency II position for the
Group at the date of this report is as follows:
Group capital position (unaudited)
Group GBPbn
---------------------------------------------- -----
Eligible Own Funds (pre 2019 final dividend) 1.42
2019 final dividend 0.22
Eligible Own Funds (post 2019 final dividend) 1.20
Solvency II capital requirement(*1) 0.63
Surplus over regulatory capital requirement 0.57
Solvency ratio (post dividend)(*2) 190%
*1 Solvency capital requirement includes updated capital add-on which
is subject to regulatory approval.
*2 Solvency ratio calculated on a volatility adjusted basis.
The Group's capital includes GBP200 million 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 tier two capital under the Solvency II
regulatory regime.
Estimated sensitivities to the current Group solvency ratio 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.
Solvency ratio sensitivities (unaudited)
2019 2018
UK Motor -- incurred loss ratio +5% -23% -27%
UK Motor -- 1 in 200 catastrophe event -1% -2%
UK Household -- 1 in 200 catastrophe event -2% -2%
Interest rate -- yield curve down 50 bps -5% -12%
Credit spreads widen 100 bps -8% -5%
Currency -- 25% movement in euro and US dollar -3% -3%
ASHE -- long term inflation assumption up 0.5% -3% -10%
Loans -- 100% worsening in experience -3% -1%
The sensitivity to interest rates and long-term ASHE inflation is lower
at the end of 2019, compared to the previous year end. This reflects a
reduction in the assumption of the number of open claims that are
expected to settle as periodic payment orders.
Taxation
The tax charge reported in the consolidated income statement is GBP94.2
million (2018: GBP85.7 million), equating to 18.0 % of pre-tax profit
(2018: 18.0%).
Investments and cash
Investment strategy
Admiral Group's underlying investment strategy remains the same - the
main focus is on capital preservation, with additional priorities
including low volatility of returns, high levels of liquidity and
appropriate matching of asset/liability duration and currency. All
objectives continue to be met. The Group's Investment Committee performs
regular reviews of the strategy to ensure it remains appropriate.
Admiral's investment approach evolved in two main ways during 2019:
-- Formal adoption of a responsible investment strategy which focusses on
ensuring Environmental, Social and Governance criteria are considered
within investment decision making
-- Widening the opportunity set of investments to achieve greater returns
without material change in market risk capital allocated to investments.
Examples included high quality (AAA) asset backed securities, private
debt assets and global bond strategies, actively managed on a total
return basis
Cash and investments analysis
GBPm 2019 2018 2017
--------------------------------------------------- ------- ------- -------
Fixed income and debt securities 1,957.8 1,568.6 1,493.5
Money market funds and other fair value instruments 1,160.2 1,301.1 1,074.3
Cash deposits 116.5 100.0 130.0
Cash 281.7 376.8 326.8
Total 3,516.2 3,346.5 3,024.6
Investment and interest income in 2019 was GBP35.3 million, a decrease
of GBP0.7 million on 2018 (GBP36.0 million). 2019 investment income is
negatively impacted by an accrual of GBP12.9 million relating to quota
share reinsurance arrangements (2018: nil). Excluding this, investment
and interest income in 2019 was GBP48.2 million, an increase of GBP12.2
million compared to 2018 due to higher average balances and an increase
in the average rate of return in 2019, partly due to the changes noted
above. Fixed income was increased by rebalancing other holdings, and new
mandates including very high-quality asset backed securities and senior
private debt.
The underlying rate of return for the year (excluding accruals related
to reinsurance contract funds withheld) on the Group's cash and
investments was 1.4% (2018: 1.2%).
The Group continues to generate significant amounts of cash and its
capital-efficient business model enables the distribution of the
majority of post-tax profits as dividends.
Cash flow
GBPm 2019 2018 2017
--------------------------------------------------- ------- ------- -------
Operating cash flow, before movements in
investments 518.1 488.5 617.6
Transfers to financial investments (188.7) (248.8) (229.4)
Operating cash flow 329.4 239.7 388.2
Tax payments (92.8) (55.6) (55.9)
Investing cash flows (capital expenditure) (33.6) (23.9) (22.7)
Financing cash flows (392.4) (346.8) (310.0)
Loans funding through special purpose entity 85.9 220.2 -
Net contributions from non-controlling interests 1.6 19.3 -
Foreign currency translation impact 6.8 (2.9) 0.6
Net cash movement (95.1) 50.0 0.2
--------------------------------------------------- ------- ------- -------
Movement in unrealised gains on investments 34.6 (26.6) 11.2
Movement in accrued interest 41.5 49.7 37.0
Net increase in cash and financial investments 169.7 321.9 277.8
The main items contributing to the operating cash inflow are as follows:
GBPm 2019 2018 2017
---------------------------------------------------- ------- ------- ------
Profit after tax 428.4 390.5 331.6
Change in net insurance liabilities 50.4 176.6 53.2
Net change in trade receivables and liabilities 27.4 14.9 195.2
Change in loans and advances to customers (168.7) (242.9) (65.2)
Non-cash income statement items 86.4 63.7 30.9
Taxation expense 94.2 85.7 71.9
Operating cash flow, before movements in investments 518.1 488.5 617.6
---------------------------------------------------- ------- ------- ------
Net cash and investments have increased by GBP169.7 million or 5% (2018:
GBP321.9 million, 11%). The main drivers include the Group's share of
increase in funding for the Admiral Loans business, increased tax
payments in 2019 (due to timing) and increased dividend payments.
The Group's results are presented in the following sections as:
-- UK Insurance -- including UK Motor (Car and Van), Household, Travel
-- International Insurance -- including L'olivier (France), Admiral Seguros
(Spain), ConTe (Italy), Elephant (US)
-- Comparison -- including Confused.com (UK), LeLynx (France), Rastreator
(Spain), Compare.com (US), Preminen (emerging markets)
UK and European Insurance Review -- Milena Mondini, Group CEO Designate
What an eventful year! I'm sure that 2019 will remain particularly
memorable for breaking the half billion profit record. In the UK,
unusually high reserve releases in UK motor was the driver, whilst the
European operations showed a combined profit for the second year.
While in the UK, the theme was 'discipline' and we slowed growth in a
high claims inflation environment, in Europe, the focus was 'growth'
(still with discipline) in order to reach economies of scale and gather
more data to improve technical results and customer outcomes.
Our 2019 strategy review has strengthened our belief that sustainable
growth for Admiral Group will be achieved by building on our competitive
advantages and driving product diversification in all the countries in
which we operate. On both points, it has been great to witness stronger
collaboration amongst our insurance businesses across the world over the
past twelve months.
Most ongoing business priorities are similar in the different countries:
a better digital experience for our customers, excellence in analytics,
continuous improvements in technology and new product development, all
enabled by new ways of working.
At the same time, we increased focus on product diversification, with a
view to deploy our core competencies and to better serve our customers.
In the UK, we saw our household team hit a key milestone of 1 million
customers, and continued growth in our van and travel insurance
businesses. In Europe, we expanded into the household insurance market
with the launch of Homebrella in France, a renter focused product, prior
to the launch of a fully-fledged renters and owner proposition in early
2020.
Overall, 2019 was a good year focusing on what we do best, and what we
do next -- supported by a strong team and an even stronger focus to
continue to build a long-term business for the future.
UK Insurance Review -- Cristina Nestares, CEO UK Insurance
One of the things I enjoy most about my role at Admiral is that I get an
opportunity to visit the various sites we have across South Wales,
Canada and India and to spend time with the people that really make this
company. And by that, I mean the people who sell our policies, talk to
our customers, and most importantly help them when they need it most --
whether that's to get insurance for their new car or dealing with their
needs if their home has been flooded.
It's our people's enthusiasm to come to work that makes Admiral's
culture a little bit different and makes it a great place to work, which
drives forward our desire to improve the service and products we offer
to customers. And ultimately, providing great service and keeping our
customers happy (along with strong, disciplined underwriting capability,
of course) drives and delivers our results each year.
This year's results are a new high for the business, as very strong back
year developments have resulted in record releases and our highest ever
recorded profits. Whilst this release is much higher than we've seen in
recent years and largely influenced by increased settlement speeds due
to Ogden certainty, I believe that it also demonstrates of our
market-leading ability to price risks and our effective claims handling
processes.
Moving forward with automation and digital capabilities is fundamental
if we're to ensure that Admiral maintains its position at the forefront
of the insurance market in the UK, and we've made strong strides this
year that will help us into the future.
An example is the launch of our InstaQuote household product.
Throughout our history, we've recognised that our customers want quick,
efficient and value-for-money services, which is exactly what this tool
provides. It's dramatically reduced the time taken to get a price,
which makes life easier for the customer, and has helped us to break
through the 1 million customers mark just 7 years after launching! We
also won the Moneynet Personal Finance Best Household Insurer award in
2019!
In addition to improving the household customer journey, we've also been
enhancing our motor insurance journey by opening more digital
communication routes to help customers interact with us and make changes
via the web and to register claims electronically. The traditional
channels are still available, of course, but many of our customers (both
young and old) favour quicker, more flexible channels of interaction,
which have the added benefit of efficiency for us.
In the last couple of years, this increased investment has contributed
to the slight increase in our expense ratio (albeit from a very low base,
and with additional levies being the greatest contributor to the expense
ratio increase in 2019). However, these changes leave us well placed to
deal with the challenges and customer demands of 2020 and beyond. The
development of digital channels and automating our back-office processes
are also important for the claims reforms (or Civil Liability Bill) that
come into force in the second half of 2020, which should allow us to
service claims under the lower cost regime and pass the savings to
customers whilst maintaining our competitive advantage.
Whilst on the topic of regulation and customers, we welcome the pricing
study that is being undertaken by the FCA, particularly in relation to
the household market where many customers' policies have stagnated at a
single provider and increased in price for many years. When we launched
Confused.com in 2002, we saw that customers wanted pricing transparency
and the best price, and the comparison channel has delivered most of our
motor and car customers ever since. We're therefore very pleased that
changes to encourage customers to shop around (as most of our motor and
home customers already do) and will provide Admiral with further
opportunity to grow the Household customer base towards its second
million!
In conclusion, I'd like to thank our people for their hard work in 2019
and our customers for their trust in us -- as ultimately, we are here to
serve our customers!
UK Insurance review
UK Insurance financial performance
GBPm 2019 2018 2017
--------------------------------------------------- ------- ------- -------
Turnover(*1) 2,635.0 2,575.7 2,354.0
Total premiums written 2,321.7 2,269.8 2,098.0
Net insurance premium revenue 533.2 523.9 491.6
Underwriting profit including investment income(*1) 257.4 227.7 206.2
Profit commission and other income 340.0 327.9 259.3
Group's share of UK insurance profit before tax(*1) 597.4 555.6 465.5
(*1) Alternative Performance Measures -- refer to note 13 at the end of
this report for definition and explanation
Split of UK Insurance profit before tax
GBPm 2019 2018 2017
------------------------------------- ----- ----- -----
Motor 591.5 561.7 461.4
Household 7.5 (3.0) 4.1
Travel (1.6) (3.1) -
Group's share of UK insurance profit 597.4 555.6 465.5
Key performance indicators
2019 2018 2017
------------------------------------ ----- ----- -----
Vehicles insured at year end 4.37m 4.32m 3.96m
Households insured at year end 1.01m 0.87m 0.66m
Travel policies insured at year end 0.09m 0.05m -
Total UK Insurance customers(*1) 5.47m 5.24m 4.62m
(*1) Alternative Performance Measures -- refer to the end of the report
for definition and explanation.
Key highlights for the UK insurance business for 2019 include:
-- Modest growth in Motor customers but continued strong growth in Household
with Admiral increasing rates ahead of the market throughout 2019 for
Motor and maintaining rates for Household
-- A 5% increase in UK Motor profit to GBP591.5 million (2018: GBP561.7
million) primarily as a result of increased reserve releases due to an
increase in the speed of settlements of large bodily injury claims and
increased certainty post the change in the Ogden rate in mid-2019
-- This is partially offset by an adverse change in the 'one-off' Ogden
impacts (favourable impact in 2018, adverse impact in 2019). Refer to the
UK motor section below for further analysis of the underlying growth on
key metrics such as loss ratio, reserve releases and profit commission
-- Household profit of GBP7.5 million (2018: GBP3.0 million loss) as a
result of more benign weather experience in 2019
-- Travel insurance product saw a lower loss of GBP1.6 million (2018: GBP3.1
million loss)
UK Motor Insurance financial review
GBPm 2019 2018 2017
--------------------------------------------------- ------- ------- -------
Turnover(*1) 2,455.3 2,423.1 2,246.9
Total premiums written(*1) 2,158.5 2,132.1 2,001.5
Net insurance premium revenue 452.6 452.5 433.2
Investment income(*2) 30.4 32.2 32.6
--------------------------------------------------- ------- ------- -------
Net insurance claims (164.7) (189.2) (214.2)
Net insurance expenses (74.7) (72.0) (59.7)
Underwriting profit including investment income(*3) 243.6 223.5 191.9
Profit commission 112.2 95.0 64.7
Underwriting profit and profit commission 355.8 318.5 256.6
Net other revenue(*4) 235.7 243.2 204.8
UK Motor Insurance profit before tax 591.5 561.7 461.4
*1 Alternative Performance Measures -- refer to the end of this report
for definition and explanation
*2 Investment income includes GBP2.8 million of intra-group interest
(2018: GBP0.7 million; 2017: nil)
*3 Underwriting profit excludes contribution from underwritten
ancillaries (included in net other revenue)
*4 Net other revenue includes instalment income and contribution from
underwritten ancillaries and is analysed later in the report.
Key performance indicators
GBPm 2019 2018 2017
--------------------------------------------- --------- --------- ---------
Reported motor loss ratio(*1,*2) 60.7% 63.5% 64.1%
Reported motor expense ratio(*1,*3) 19.1% 18.4% 16.2%
Reported motor combined ratio 79.8% 81.9% 80.3%
Written basis Motor expense ratio 18.5% 17.5% 15.8%
Reported loss ratio before releases 87.6% 88.1% 85.3%
Claims reserve releases -- original net
share(*1,*4) GBP121.7m GBP111.4m GBP92.1m
Claims reserve releases -- commuted
reinsurance(*1,*5) GBP121.7m GBP109.6m GBP73.8m
Total claims reserve releases GBP243.4m GBP221.0m GBP165.9m
Other Revenue per vehicle GBP66 GBP67 GBP64
Vehicles insured at year end 4.37m 4.32m 3.96m
*1 Alternative Performance Measures -- refer to the end of this report
for definition and explanation
*2 Motor loss ratio adjusted to exclude impact of reserve releases on
commuted reinsurance contracts. Reconciliation in note 13b.
*3 Motor expense ratio is calculated by including claims handling
expenses that are reported within claims costs in the income statement.
Reconciliation in note 13c.
*4 Original net share shows reserve releases on the proportion of the
portfolio that Admiral wrote on a net basis at the start of the
underwriting year in question.
*5 Commuted reinsurance shows releases, net of loss on commutation, on
the proportion of the account that was originally ceded under quota
share reinsurance contracts but has since been commuted and hence
reported in underwriting profit rather than profit commission.
UK Motor profit increased by 5% during 2019 to GBP591.5 million (2018:
GBP561.7 million) and vehicles insured rose very modestly to 4.37
million (2018: 4.32 million), whilst the reported combined ratio
improved to 79.8% (2018: 81.9%). Net insurance premium revenue was
consistent with the prior period. The results were impacted by a number
of factors:
-- The current period loss ratio was 87.6% (2018: 88.1%). As highlighted
below, there are a number of offsetting movements that net to the overall
improvement of 0.5%pts:
Reported Motor Loss Ratio
Current Releases on
Period Loss Original Net Reported
Ratio Share Loss Ratio
2018 88.1% -24.6% 63.5%
Prior period impact of Ogden change
(-0.75% to 0%) - +4.0% +4.0%
Change in underlying current period
loss ratio -1.5% - -1.5%
Change in underlying claims reserve
release - -8.7% -8.7%
2019 (excluding Ogden change) 86.6% -29.3% 57.3%
Add Impact of Ogden change (0% to
- 0.25%) +1.0% +2.4% +3.4%
-------------------------------------
2019 87.6% -26.9% 60.7%
-------------------------------------
-- The unfavourable Ogden change in 2019 (0% to minus -0.25%) increased the
current period loss ratio by 1.0 ppt. Excluding this impact, the current
period loss ratio is 86.6%, which can be compared to the 2018 ratio of
88.1% (both at Ogden 0%). The underlying improvement of 1.5 ppts reflects
a slightly lower level of margin held above the projected ultimate
outcome for the current accident year, when compared to 2018 at the same
point.
-- Reserve releases on Admiral's original net share of business improved the
reported loss ratio by 26.9 ppts in 2019. Excluding the adverse Ogden
impact increases this to 29.3 ppts which is 4.7 ppts higher than in 2018
(24.6 ppts) and well above historical results. The underlying increase,
after excluding the favourable one-off Ogden impact in 2018 is 8.7 ppts.
-- This underlying improvement in the level of reserve release is unusually
large and the main driver of the increase in reported profits. It is the
result of a significant level of favourable development in ultimate
projections of prior underwriting years which in turn can be broadly
attributed to an increase in the speed of settlements in larger bodily
injury claims following the confirmation of the new Ogden rate.
-- Despite the significant level of reserve release (in both projected
ultimate and financial statement loss ratios), the margin held above
ultimate outcomes in the financial statement reserves remains both
significant and prudent. In both absolute and relative terms, the
aggregate level of margin held across current and prior underwriting
years, remains consistent with that held at the end of 2018.
-- Reserve releases from commuted reinsurance and profit commission were
higher in 2019, as follows:
Reserve
releases
-- commuted Profit
GBPm reinsurance commission Total
2018 109.6 95.0 204.6
Prior period Impact of Ogden change
(- 0.75% to 0%) -17.2 -18.4 -35.6
Change in underlying commuted releases +11.3 - +11.3
Change in loss on commutation +27.0 - +27.0
Change in underlying profit commission - +44.5 +44.5
----------------------------------------
2019 (excluding Ogden change) 130.7 121.1 251.8
Add Impact of Ogden change (0% to
minus 0.25%) -9.1 -8.8 -17.9
----------------------------------------
2019 121.7 112.2 233.9
----------------------------------------
-- Releases on reserves originally reinsured but since commuted is higher at
GBP121.7 million (v GBP109.6 million in 2018)
-- There are a number of offsetting underlying movements, including a lower
impact of the accounting loss on commutation (2019: GBP4.9 million; 2018:
GBP31.9 million) and an underlying improvement in the level of commuted
releases in line with the favourable development noted above, offset by
an unfavourable net impact of one-off Ogden changes in both years
-- The trend is similar for profit commission which improved to GBP112.2
million (2018: GBP95.0 million). Underlying profit commission improved by
GBP44.5m, primarily as a result of the favourable development of prior
underwriting years
-- Investment income was slightly lower than 2018 at GBP30.4 million (2018:
GBP32.2 million) with an underlying increase of GBP11.1m (due to both an
increase in yield and growth in the asset base) more than offset by
notional investment income accruals on reinsurance funds withheld
balances of GBP12.9 million (2018: GBPnil)
-- The written and reported basis expense ratios increased in 2019 with a
number of factors impacting: non-acquisition costs was the main driver
primarily through levies and to a lesser extent, investment in IT and
claims as the skills and foundations to build further competitive
advantages in these areas are strengthened
-- Other revenue (including ancillary products underwritten by Admiral) and
instalment income decreased to GBP235.7 million (2018: GBP243.2 million)
primarily resulting from lower contribution from optional ancillaries
Market prices remained subdued during the year with some evidence of
increases in the later months as a result of elevated levels of claims
inflation. Admiral continued to prioritise margin over growth, and
increased prices ahead of the market. As a result, slight new business
growth and good retention contributed to customer numbers (4.37 million
v 4.32 million) and turnover (GBP2.46 billion v GBP2.42 billion) being
both up by 1%.
Claims and reserves
Notable claims trends for Admiral and the market in 2019 were similar to
2018, including a slow-down in the reduction in small injury claims
frequency and continuing inflation in damage claims costs. The first
projection of the impact of large bodily injury claims on the 2019 loss
ratio is consistent with the projection of 2018 at the end of 2018.
The Group continues to reserve conservatively, setting claims reserves
in the financial statements well above actuarial best estimates to
create a margin held to allow for unforeseen adverse development.
As noted above, the Group experienced continued positive development of
claims costs on previous underwriting years as a result of increased
speed of large bodily injury settlements and increased certainty related
to the Ogden rate, in addition to a small number of positive very large
claims settlements. These factors led to another significant release of
reserves in the financial statements in the period (GBP121.7 million on
Admiral's original net share, up from GBP111.4 million). The margin held
in reserves is prudent and significant and remained at a consistent
level year-on-year.
UK Car Insurance -- co-insurance and reinsurance
Admiral makes significant use of proportional risk sharing agreements,
where insurers outside the Group underwrite a majority of the risk
generated, either through co-insurance or quota share reinsurance
contracts. These arrangements include profit commission terms (see
below) which allow Admiral to retain a significant portion of the profit
generated.
Munich Re and it's subsidiary entity, Great Lakes will underwrite 40% of
the UK motor business until at least 2020, with future extension options
available to Munich Re until 2022. 30% of this total is on a
co-insurance basis, with the remaining 10% under a quota share
reinsurance agreement from 2017 onwards.
The Group also has other quota share reinsurance arrangements confirmed
to the end of 2020 covering 38% of the business written and expects to
extend these or similar arrangements beyond 2020 during the first half
of 2020.
The nature of the co-insurance proportion underwritten by Munich Re (via
Great Lakes) is such that 30% of all motor premium and claims for the
2019 year accrue directly to Great Lakes and are not reflected in the
Group's financial statements. Similarly, Great Lakes reimburses the
Group for its proportional share of expenses incurred in acquiring and
administering this business.
The quota share reinsurance arrangements result in all motor premiums
and claims that are ceded to reinsurers being included in the Group's
financial statements, but these figures are adjusted to exclude the
reinsurer share, resulting in a net result for the Group.
The Group also purchases excess of loss reinsurance to provide
protection against large claims and reviews this cover annually. The
level of cover purchased for 2020 reduced slightly compared to 2019 due
to significant increases in market prices for cover.
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 insurance business underwritten by the partner.
Revenue is recognised in the income statement in line with the booked
loss ratios on Admiral's retained underwriting.
Note 5c to the financial statements analyses profit commission income by
business, type of contract and by underwriting year.
Commutations of quota share reinsurance
Admiral tends to commute its UK Car Insurance quota share reinsurance
contracts for an underwriting year 24 months after 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 the first half of 2019, the majority of the 2017 quota share
contracts were commuted. At 31 December 2019, quota share reinsurance
contracts remained in place for a small portion of 2017 and the full
2018 and 2019 underwriting years. No further contracts were commuted in
the second half of 2019 (as is usual).
As noted above, in 2019 Admiral recognised reserve releases from
commuted reinsurance contracts of GBP121.7 million (2018: 109.6
million).
Refer to note 5d(v) of the financial statements for further analysis of
reserve releases on commuted quota share reinsurance contracts.
Other Revenue and Instalment Income
UK Motor Insurance Other Revenue -- analysis of contribution:
GBPm 2019 2018 2017
--------------------------------------------------- ------ ------ ------
Contribution from additional products & fees 202.1 206.5 187.3
Contribution from additional products underwritten
by Admiral(*1) 13.9 13.6 15.0
Instalment income 83.9 81.4 56.1
Other revenue 299.9 301.5 258.4
Internal costs (64.2) (58.3) (53.6)
Net other revenue 235.7 243.2 204.8
Other revenue per vehicle(*2) GBP66 GBP67 GBP64
--------------------------------------------------- ------ ------ ------
Other revenue per vehicle net of internal costs GBP56 GBP57 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 12-month basis.
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 continue to be:
-- Profit 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 and cancellation fees
--Interest charged to customers paying for cover in instalments
Overall contribution (Other revenue net of costs plus instalment income)
decreased to GBP235.7 million (2018: GBP243.2 million). This is in line
with the half year expectation of a small reduction. Whilst there were a
number of smaller offsetting changes within the total, the main reasons
for the decrease is reduced optional ancillary contribution and fees,
which reflects an increase in transactions completed digitally and
changes to the customer journey. This was slightly offset by an increase
in instalment income primarily due to the growth in the underlying book
and an increase in customers paying by instalments.
Other revenue was equivalent to a decrease to GBP66 per vehicle (gross
of costs; 2018: GBP67), as a result of the factors mentioned above. Net
Other Revenue (after deducting costs) per vehicle was GBP56 (2018:
GBP57).
UK Household Insurance financial performance
GBPm 2019 2018 2017
------------------------------------- ----- ----- -----
Turnover(*1) 171.3 146.0 107.1
Total premiums written(*1) 154.9 131.1 96.5
Net insurance premium revenue 37.2 31.2 23.1
Underwriting profit/(loss)(*1*2) 0.7 (6.3) (0.8)
------------------------------------- ----- ----- -----
Profit commission and other income 6.8 3.3 4.9
UK Household insurance profit/(loss) 7.5 (3.0) 4.1
*1 Alternative Performance Measures -- refer to the end of this report
for definition and explanation
*2 Underwriting profit/(loss) excluding contribution from underwritten
ancillaries
Key performance indicators
2019 2018 2017
--------------------------------------------- --------- ------- -------
Reported household loss ratio(*1) 69.1% 92.3% 73.5%
Reported household expense ratio(*1) 28.9% 28.1% 30.0%
Reported household combined ratio(*1) 98.0% 120.4% 103.5%
Impact of extreme weather and subsidence(*1) - 19.1% -
Households insured at year end(*1) 1,011,900 865,800 659,800
(*1) Alternative Performance Measures -- refer to the end of this
report for definition and explanation
The number of properties insured increased by 17% to 1.01 million (2018:
0.87 million). Turnover increased by 17% to GBP171.3 million (2018:
GBP146.0 million). New business market volumes continued to increase,
customer retention remained strong, and shopping increased via the
comparison channels.
2019 saw more benign weather than in 2018. A combined ratio of 98%
(2018: 120%) resulted in a small net underwriting profit of GBP0.7
million (2018: underwriting loss of GBP6.3 million), which was
supplemented by net other revenue and profit commission of GBP6.8
million (2018: GBP3.3 million).
UK Household insurance -- reinsurance
The Group's Household business is supported by long-term proportional
reinsurance arrangements covering 70% of the risk. In addition, the
Group has non-proportional reinsurance to cover the risk of catastrophes
stemming from weather events.
UK Insurance Regulatory environment
The UK Insurance business operates predominantly under the regulation
of:
-- the UK Financial Conduct Authority (FCA) and Prudential Regulatory
Authority (PRA) which regulate the Group's UK registered subsidiaries
including EUI Limited (an insurance intermediary) and Admiral Insurance
Company Limited (AICL; an insurer); and
-- the Financial Services Commission (FSC), which regulates the Group's
Gibraltar-based insurance company (Admiral Insurance (Gibraltar) Limited,
AIGL), in that territory.
The Group is required to maintain capital at a level prescribed by the
lead regulator for Solvency II purposes, the PRA, and maintains a
surplus above that required level at all times.
International Insurance review
Spain -- Pascal Gonzalvez -- Acting CEO (Sarah Harris is on maternity
leave), Admiral Seguros
In 2019, Admiral Seguros accelerated its growth despite difficult market
conditions and we finished the year with more than 290,000 customers.
We managed to increase our new business sales by 16% while the
comparison market was shrinking. This was made possible by the
structural changes on Rastreator where the user experience was
significantly improved by guaranteeing the final price to customers,
having a significant impact on conversion. Our strategy to diversify our
acquisition channels has also been bearing fruit with the development of
a broker channel that is contributing to the accelerated growth.
It was pleasing to see our overall technical results moving in the right
direction despite challenges in the cost of growth. Loss ratios are
improving on prior years as expected, whilst being slightly higher than
anticipated for the 2019 underwriting year as a result of new business
growth. This was offset by a decrease in our expense ratio as we
improved internal efficiencies.
In 2020, we're planning to keep exploring alternative acquisition
channels. In our core business, we're about to launch new initiatives
to improve loss ratio (e.g. improved anti-fraud capabilities and
innovation in risk selection). We'll also be accelerating in improving
customer experience through digital capabilities (self-service) and
operational optimisation (automation).
France -- Pascal Gonzalvez -- CEO, L'olivier Assurance
2019 was another year of strong performance for L'olivier Assurance.
It was a year of fast growth despite unfavourable market conditions.
Our portfolio increased by 32%, while at the same time the aggregator
market (our main acquisition channel) was shrinking. We're pleased to
see our efforts on brand awareness, direct acquisition, and conversion
showing progress and paving the way for further development in the
coming years.
Not only did we grow fast, but we also grew stronger. Our portfolio
grew while having some significant operational improvements. As a
consequence, our customers like us more and more! The benefits of our
investments toward an effortless customer journey started to materialise
with peaks in customer satisfaction (net promoter score), persistency,
and referrals, to name a few.
On the claims side, loss ratios have developed well for prior years,
resulting in reserve releases. However, the business experienced a
deterioration in the 2019 loss ratio, partly due to the strong growth of
new business in 2019.
2020 is the beginning of a new chapter for L'olivier as we embark on our
multi-product journey and the launch of a new household insurance
product. After launching our insurtech named Homebrella (a home
insurance product for renters and expats in France) in 2019, we'll also
launch a broader household product under the brand L'olivier in early
2020.
We look forward to continuing to #makeithappen J
Italy -- Costantino Moretti -- CEO, ConTe
ConTe closed 2019 with a profit for the sixth year in a row, whilst also
achieving significant growth in turnover of 16% year-on-year.
The direct market wasn't particularly favourable and we experienced
single digit growth and challenging competition, especially via
comparison panels. Despite this context, ConTe was able to grow by
leveraging on its competitiveness and on the improvements in the digital
journey, particularly focussed on mobile.
ConTe is strengthening its competitive positioning in the Italian Market
and continuing to invest in the brand which is steadily increasing
awareness among Italian drivers. In 2019 a new advertising campaign was
successfully launched, endorsed by Mr. Carlo Conti, who is one of the
most popular Italian TV anchors.
Our growth is bringing a significant benefit towards achieving scale and
is driving an improved expense ratio. Efficiencies were also gained
thanks to investment in technology: digital, robotics and automation are
delivering the expected benefits and continue to offer interesting
opportunities for the future.
Other key metrics of the business improved which demonstrates that ConTe
continues to stay focused on its 'sustainable growth' strategy. Although
the 2019 loss ratio deteriorated, favourable prior year development
resulted in strong reserve releases.
In a perfect Admiral-style, our people and culture continue to make the
difference. We have been recognised for another year in a row as one of
the best large companies to work for!
USA -- Alberto Schiavon -- CEO, Elephant Auto
Over the last year Elephant has continued with our strategy to focus on
customer retention, to service these customers efficiently by leveraging
technology, and to make Elephant a great insurer for our shareholders,
customers and staff. While we undoubtedly made some great improvements
on many fronts, we have also seen some significant headwinds in our loss
experience, slowing down our speed of progress.
As mentioned at our half year results presentation, Elephant saw a
higher than expected claims ratio, deteriorating by four points compared
to 2018. The main driver was increased claims frequency as well as
general market inflation, in particular in damage claims and medical
costs. As a consequence, we took a defensive approach towards margins,
at the expense of growth. We responded with numerous initiatives,
including significant rate increases, especially towards certain
lower-performing segments; and a reduction in our acquisition spend.
With regard to the first point, some segments of the book have seen
sharp increases with obvious impact on sales and cancellations while
allowing us to have better performance on the loss ratio in the coming
years. As per the second point, we have been more selective in some
distribution channels, favoring some online advertising and doing less
on traditional media, enabling us to be more efficient in our spend.
The effect of those efforts is visible in our top line numbers: while
vehicles in force remained flat year on year, our turnover grew to
GBP233 million (2018: GBP214 million). Most of this turnover growth
comes from a high performing renewal book, giving confidence in our
long-term strategy. The lack of policy growth meant that we couldn't
fully leverage economies of scale on our platform, and as a result
delivered a slightly improved expense ratio.
At the same time, Elephant made some significant progress in a number of
areas: we further developed our self-servicing functionalities,
especially in claims management; we expanded our acquisition channels to
include some agency business; and we deployed some important new
features to our risk selection. We expect that these will ultimately
translate into further growth, within profitable segments, at very good
incremental costs. Finally, I am grateful to all Elephant employees for
their high level of commitment in delivering such a high volume of
projects, and for building such a strong foundation for a sustainable
long-term business.
International Car Insurance financial performance
GBPm 2019 2018 2017
---------------------------------------------------- ------- ------- ------
Turnover(*1) 623.6 538.7 449.8
Total premiums written(*1) 562.6 484.3 401.4
Net insurance premium revenue 168.6 141.7 123.0
Investment income 1.5 1.3 0.6
Net insurance claims (137.2) (104.0) (94.1)
Net insurance expenses (53.0) (55.8) (58.0)
Underwriting result including investment income(*1) (20.1) (16.8) (28.5)
Net other revenue 19.2 15.7 14.2
International Car Insurance result (0.9) (1.1) (14.3)
Key performance indicators
Reported Loss ratio(*2) 77% 76% 76%
----------------------------------------- ----- ----- -----
Expense ratio(*2) 37% 40% 45%
Combined ratio(*3) 114% 116% 121%
Combined ratio, net of Other Revenue(*4) 104% 105% 109%
Vehicles insured at period end 1.42m 1.22m 1.03m
(*1) Alternative Performance Measures -- refer to the end of this
report for definition and explanation.
(*2) Loss ratios and expense ratios have been adjusted to remove the
impact of reinsurer caps so the underlying performance of the business
is transparent.
(*3) Combined ratio is calculated on Admiral's net share of premiums
and excludes Other revenue. It excludes the impact of reinsurer caps.
Including the impact of reinsurer caps the reported combined ratio would
be 2019: 113%; 2018: 113%; 2017: 124%.
(*4) 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 2019: 102% 2018: 102%; 2017: 112%.
Geographical analysis
2019 Spain Italy France US Total
----------------------------------- ----- ----- ------ ----- -----
Vehicles insured at period end (m) 0.29 0.69 0.23 0.21 1.42
Turnover*(1) (GBPm) 78.2 204.2 108.1 233.1 623.6
2018 Spain Italy France US Total
----------------------------------- ----- ----- ------ ----- -----
Vehicles insured at period end (m) 0.25 0.59 0.17 0.21 1.22
Turnover*(1) (GBPm) 67.6 176.8 80.5 213.8 538.7
(*1) Alternative Performance Measures -- refer to the end of this
report for definition and explanation
Admiral has four insurance businesses outside the UK: in Spain (Admiral
Seguros), Italy (ConTe), the US (Elephant Auto) and France (L'olivier
Assurance).
The operations continued to grow strongly in 2019, with customer numbers
increasing by 16% to 1.42 million (2018: 1.22 million) and combined
turnover rising by 16% to GBP623.6 million (2018: GBP538.7 million).
The key features of the International Car insurance results are:
-- An aggregate loss of GBP0.9 million (2018: GBP1.1 million loss)
reflecting an improvement in performance of the European businesses
offset by a deterioration in the US business;
-- A record profit in the Group's Italian business ConTe, which also grew
its customer base by 18%;
-- A deterioration in Elephant Auto's result (increased loss from GBP7.5
million to GBP9.6 million year-on-year)
-- A relatively flat combined ratio (net of other revenue) of 104% (2018:
105%) reflecting reduced acquisition costs, pricing improvements and
operational efficiencies as well as positive back year development in
Europe offset by a deteriorating loss ratio in Elephant Auto
--Continued investment and improvements in technology, people and the
customer experience across all operations
The combined International expense ratio improved to 37% (2018: 40%) as
all businesses grew, and continued to pursue operational efficiencies,
albeit growth was slower in Elephant as prices were increased in
response to the loss ratio pressure.
The European insurance operations in Spain, Italy and France insured
1.21 million vehicles at 31 December 2019 -- 20% higher than a year
earlier (31 December 2018: 1.01 million). Turnover was up 20% at
GBP390.5 million (2018: GBP324.9 million). The consolidated result of
the businesses was a profit of GBP8.7 million (2018: GBP6.4 million)
consisting of continued (and higher) profitability in Italy and lower
losses in France and Spain. The combined ratio net of other revenue
(excluding the impact of reinsurer caps) improved to 92% from 98% due to
the improved claims experience and expense ratio.
Elephant insured 212,100 vehicles at the end of 2019, broadly flat
year-on-year though higher prices meant turnover was up 9% to GBP233.1
million (2018: GBP213.8 million). Elephant's loss increased for the
period to GBP9.6 million from GBP7.5 million in 2018, as a result of
adverse claims development.
Elephant responded with enhancements in underwriting and rate increases
resulting in a slowdown of growth in the second half of 2019. The
expense ratio improved slightly through increased operational efficiency,
a focus on customer experience improvements, and enhancement of the
digital online journey. Elephant continues to see improvements in
persistency as a result of the focus on higher retaining customers. The
combined ratio net of other revenue was 118% (115% in 2018).
In 2019, a non-cash impairment charge of GBP65.9 million was recognised
in the financial statements of the parent company with respect to the
carrying value of the parent's investment in Elephant Auto. This follows
a change to using shorter-term projections as a result of the adverse
loss ratio experience in 2019. The impairment charge is recognised in
the income statement of the parent company (Refer to note 4 of the
Parent Company Financial Statements for further details) and has no
impact on the Group's consolidated profit for the period or the Group's
2019 regulatory capital position.
Elephant continues to focus on improving fundamentals in 2020 with a
focus on loss ratio, expense efficiencies and continued improvement in
the customer experience.
International Car Insurance co-insurance and reinsurance
In 2019 Admiral retained 35% (Italy), 30% (France and Spain) and 33%
(USA) of the underwriting risk respectively. The arrangements for 2020
will remain the same in Italy, France and Spain. In the USA, 50% of the
risk will be retained within the Group.
International Car Insurance Regulatory environment
Admiral's European insurance operations are now primarily regulated by
the Spanish insurance regulator, the DGS. This shift is a result of
restructuring completed ahead of Brexit.
The Group's US insurer, Elephant Insurance Company, is regulated by the
Virginia State Corporation Commission's Bureau of Insurance.
Both insurers are required to maintain capital at levels prescribed by
the regulator and hold a surplus above these requirements at all times.
Comparison Review - Elena Betés - CEO, Comparison Businesses
2019 was a good year for our Comparison businesses. Recognising the
benefits of scale in digital markets, we set up a European corporate
structure named Penguin Portals, that gives us not only the framework to
achieve our ambition to lead our key European markets, but also a
working environment to deliver scale beyond these markets. This also
allows our seven comparison platforms to take advantage of operational
and technological synergies and share expertise.
Operationally, each Comparison platform is supported by two
technological centres of excellence, Confused.com in Cardiff and Admiral
Technologies in Delhi, allowing for a shared architecture to facilitate
further collaboration and rapid innovation.
Our goal to empower the world to choose better has not changed. We
continue to focus on service diversification and geographic expansion,
driven by a desire to innovate the customer experience leveraging
technology and data.
In Europe, we had a strong year, fuelled by Confused.com and growth at
LeLynx and with all our businesses improving margins. We successfully
diversified our product offering, took some key verticals in-house,
delivered new verticals, reinforced our use of data and grew a B2B
infrastructure whilst continuously improving the customer experience.
I'd especially note Rastreator's effort to provide more transparency to
Spanish customers with accurate prices.
Preminen, our comparison incubator, continues our path of organic
expansion in emerging markets. In 2019 we welcomed GoSahi.com in India
as the newest member of our comparison family. Rastreator.mx
https://www.globenewswire.com/Tracker?data=2wqafLEOxDEN7bjsoNY3Kaj9Xn2crCy2nGMVr1DUqpOZpG2Og30Bj562Xr-JqxyQ76NwsgoaVA7L3k4CnIAkKA==
in Mexico was awarded the best ecommerce start-up of the year (e-awards),
Tamoniki.com in Turkey is in the process of building the panel and we
will soon be incorporating a new Penguin into the colony.
In the USA, we downsized the business to adjust to market conditions,
allowing for increased agility whilst we further develop our customer
proposition.
The results are moving in the right direction and I'm confident that we
have a strong foundation to build upon our successes in 2019 into the
future.
UK -- Louise O'Shea -- CEO, Confused.com
It's been 18 years since Confused.com was formed, and we're still making
history. In 2019, our revenue exceeded GBP100m for the first time.
We achieved this by standing firmly on the side of our customers and
continuing to differentiate ourselves against the competition.
Confused.com is the brand that cuts through the noise and confusion in
order to help people make clear decisions. Our marketing was more
effective, and more focus was placed on the products our customers need
and want beyond car insurance. Making better use of our data has helped
our insurance partners deliver the right product to the right customer
for the right price at the right time. All of this and the dedication of
the Confused.com team has resulted in our revenue and profit growing by
19% and 43% year on year, respectively, and our profit margin improving
to over 18% (2018: 15%).
It wasn't a year without challenges. The highly competitive market
continues to necessitate focus on marketing channel effectiveness and
diversification which in 2019 saw us introduce a successful B2B offering
and drive innovation in the customer experience.
In 2020 we'll continue to make decisions based on what is best for our
customers, empowering them to choose better.
Spain -- Fernando Summers -- CEO, Rastreator
At Rastreator, 2019 has been a year of hard work.
We substantially enhanced the customer experience with our Price
Accuracy strategy for insurance, meaningfully improving our net promoter
score. More efficient traffic acquisition led to a 13% increase in
profit.
The proposed joint venture with Acierto and Oakley Capital was a focus
area for management in 2019, but due to challenges in completing the
transaction within a reasonable timeframe related to the anti-trust
process and associated costs, the final decision was not to proceed. We
delivered modest revenue growth, mainly due to our mortgage broker and
data businesses.
We are optimistic about our future in the context of a large market
opportunity. We will be working on further improving the customer
experience, increasing customer support through our processes and we
will continue developing our broker capabilities -- not only for finance
products but also for some insurance products.
I would like to thank the fantastic and enthusiastic team who are always
hungry for growth and to improve the experience for our customers, for
all their support in a challenging year. We are looking forward to the
opportunities we see in 2020 and beyond.
France -- Itzal Arbide -- CEO, LeLynx
2019 was an excellent year full of milestones for LeLynx. We made
significant improvements in our operational structure and business
approach, achieved key product enhancements to better serve our users
and signed new important commercial agreements to improve our offering.
As a result, LeLynx finished 2019 with revenue growth of 19% and also
improved profitability.
While motor Insurance comparison mainly benefited from a better online
user experience which improved conversion, energy comparison (launched
in 2018) saw great operational improvements and moved past test and
learn phase to become an integrated product for LeLynx in 2019 in line
with our diversification strategy.
Improving the customer experience has been a focus, from improving user
pain points and providing more information, to further improving the
journey to allow customers to make the best choice and receive the best
possible service. I am enthusiastic about the evolution of Le Lynx as we
head into 2020 and beyond. We will keep working on user-centric new
projects to improve our customer experience and to strengthen our
product base.
The French market is large and slowly evolving and LeLynx is perfectly
placed to capture that opportunity.
USA -- Allie Feakins -- CEO, Compare.com
2019 was a somewhat volatile year for Compare.com. Facing stronger
headwinds in cost efficient customer acquisition and scalability in the
US auto insurance market, we took action to reduce the fixed costs of
the business to allow a more agile approach. While we expected to
realise some of the benefits of this decision in 2019, we were also
pleasantly surprised by performance improvements in the second half of
the year. Insurers are facing the very same acquisition cost headwinds,
so we made progress expanding our panel and improving our own revenue
potential as well.
In 2019, we completed an upgrade to the experience for our customers,
improving their journey whether they are using our website to find
information or pursuing our quote journey to view real-time auto
insurance prices. We also continued to invest in our technology
platform to enable our marketing partners to leverage our insurer panel
and to enable our insurance partners to leverage our competitive
intelligence data.
In 2020, we don't expect the competitive environment to ease up, but our
objectives will shift slightly from 2019 as we change our marketing
approach, messages and campaigns to explore opportunities for building
deeper customer and partner relationships.
I am optimistic about the future of Compare.com and look forward to 2020
in my new role as CEO.
Emerging Markets -- Pedro Tabernero -- CEO, Preminen
Preminen had an exciting year of growth and saw the launch of a new
comparison business. In Mexico, Rastreator.mx
https://www.globenewswire.com/Tracker?data=2wqafLEOxDEN7bjsoNY3KTgrpKMyIbOVneHIMwSJrHN5xwDw0vyrFH6aEGXqaQulDoAwOPfJB1vjcQ06NZEDHw==
continues to see positive signs of growth and we are confident in the
sustainability of the business. All relevant insurers have joined, and
the customer proposition is well accepted. Tamoniki.com in Turkey has
been trading for almost one year, mainly focused on building the panel
with a slow but positive evolution.
A new market approach is being tested in India with the launch of
Gosahi.com in February 2019, a loan comparison portal that enables users
to compare online and get full support during their off-line loan
application (a complex process in the market) with the collaboration of
relevant financial brokers.
2020 is expected to be the year of consolidation for Rastreator.mx,
growth for Tamoniki.com and Gosahi.com and to also deliver further
geographic expansion. Thanks to the Preminen team for the hard work --
we're looking forward to an even better 2020!
Comparison financial review
GBPm 2019 2018 2017
Revenue
Car insurance comparison 119.4 110.1 108.8
Other 52.2 40.9 34.8
Total revenue 171.6 151.0 143.6
Expenses (156.9) (144.4) (138.2)
Profit before tax 14.7 6.6 5.4
Confused.com profit 20.4 14.3 10.1
International comparison result (5.7) (7.7) (4.7)
14.7 6.6 5.4
Group's share of profit before tax (*1)
Confused.com profit 20.4 14.3 10.1
International comparison result (2.4) (5.5) (3.0)
18.0 8.8 7.1
*1 Alternative Performance Measure -- refer to the end of this report
for definition and explanation
Admiral has comparison businesses in the UK (Confused.com), Spain
(Rastreator), France (LeLynx) and the US (Compare.com). In addition,
Preminen, the Group's joint venture holding company for comparison
ventures in new markets, oversees operations in Mexico (Rastreator.mx),
Turkey (Tamoniki.com) and India (GoSahi.com).
Admiral Group owns 75% of Rastreator, 59% of Compare.com and 50% of
Preminen.
In 2019, the Group established a holding company for the European
businesses named Penguin Portals, facilitating greater collaboration and
sharing of best practices across the businesses to support customer
growth and new product development.
Combined revenue grew by 14% to GBP171.6 million (2018: GBP151.0
million) and the businesses made a combined profit (excluding minority
interests' shares) of GBP18.0 million (2018: GBP8.8 million).
The key features of the Comparison result are:
-- In the UK, Confused.com saw market share increases in motor and home
insurance comparison and efficient media spending leading to
significantly increased profit of GBP20.4 million (2018: GBP14.3 million)
-- A loss of GBP4.3 million (2018: GBP6.9 million) at Compare.com in the US
(Admiral Group share). Statutory loss before tax was also lower at GBP7.2
million (2018: GBP10.0 million). The results reflect lower sales volumes
due to a reduced marketing spend and lower fixed costs
-- The continental European comparison businesses reported an increased
profit of GBP3.5 million (2018: GBP1.4 million) reflecting improved
customer experience through the digital customer journey and product
diversification, with strong growth at LeLynx in France
--Costs for Penguin Portals, and Preminen (which was previously recorded
under business development costs in 'Other Group items') are included in
the Comparison segment result in the 'other' section
The UK comparison market remains very competitive with increasing
advertising spend across all marketing channels, however increases in
market share across products and a focus on customer experience resulted
in a 19% increase in turnover for Confused.com to GBP112.7 million
(2018: GBP95.1 million).
The combined revenue from the European operations increased by 8% to
GBP50.1 million (2018: GBP46.3 million), reflecting continued growth in
traffic and customer quotes in LeLynx, and improved customer experience
and product diversification across both operations.
Compare.com lowered losses to GBP4.3 million (2018: GBP6.9 million) as a
result of downsizing to allow for a more agile approach, together with
reduced marketing spend and increased efficiencies. A non-cash
impairment of GBP2.0 million in the second half of 2019 (full year
impairment total of GBP27.7 million) was recognised by the parent
company in respect of its investment in Compare.com. This impairment is
in line with the reduction in Compare.com's net assets since half year
2019. The impairment charge is recognised in the income statement of the
parent company and has no impact on the Group's consolidated profit for
the period or the Group's 2019 regulatory capital position.
Preminen, the Group's comparison venture with Mapfre, continues to
explore comparison in new markets overseas. Rastreator.mx in Mexico and
Tamoniki.com in Turkey have focused on panel development and growth,
while GoSahi.com in India was launched in 2019.
Comparison Regulatory environment
Confused.com is regulated by the Financial Conduct Authority (FCA) as an
insurance intermediary and is subject to all relevant intermediation
rules, including those on solvency capital.
Rastreator and LeLynx are now locally licensed in Spain and France post
the finalisation of Brexit preparations. Further information on the
impact of Brexit on our European operations can be found later in this
report.
Compare.com is a regulated insurance agency domiciled in Virginia, US,
and licensed in all other US states.
Other Group Items
Other Group items financial review
GBPm 2019 2018 2017
------------------------------------- ------ ------ ------
Share scheme charges (52.7) (49.0) (35.2)
Admiral Loans loss before tax (8.4) (11.8) (4.4)
Other interest and investment return 6.0 2.9 8.4
Business development costs (2.1) (4.3) (5.2)
Other central overheads (20.0) (10.5) (5.1)
Finance charges (11.2) (11.3) (11.4)
Other Group items (88.4) (84.0) (52.9)
------------------------------------- ------ ------ ------
Share scheme charges relate to the Group's two employee share schemes
(refer to note 9 to the financial statements). Charges increased by
GBP3.7 million in 2019, to GBP52.7 million reflecting the improved
vesting outcomes resulting from the increased level of profit in 2019
and a higher share price.
Other interest and investment income increased to GBP6.0 million in 2019
(2018: GBP2.9 million). 2019 includes a lower level of unrealised losses
relating to forward foreign exchange contracts compared to 2018 (2019:
GBP0.1 million, 2018: GBP2.3 million). The higher number in 2019 was
also driven by increased investment return due to the increased cash
holding in the parent company.
Business development costs include costs associated with potential new
ventures. The costs associated with Preminen have now been included in
the Comparison section, contributing to the decrease in business
development costs in 2019.
Other central overheads of GBP20.0 million continue to reflect the cost
of a number of significant group projects. In addition, a GBP6 million
cost relating to a one-off cash bonus of GBP500 per employee, is
included in 2019 (2018: GBPnil).
Finance charges of GBP11.2 million (2018: GBP11.3 million) represent
interest on the GBP200 million subordinated notes issued in July 2014
(refer to note 6 to the financial statements).
Loans -- Scott Cargill -- CEO, Admiral Financial Services Limited
We can look back at 2019 with pride at what we delivered but knowing
there is still much more to do with an exciting outlook for the coming
years.
In just over two years Admiral Loans has built up a prime loan book
totalling GBP455 million and is now a relevant participant in what is a
large market in the UK. The progress in 2019 was particularly pleasing,
with customer growth of over 70% -- importantly, still within risk
appetite. We improved our economics as we started to benefit from
economies of scale. Our customers and employee scores were strong. And
the loss of GBP8 million was in line with expectation.
Turning to 2020, we expect to benefit from a continued market shift to
comparison and credit score marketplaces which now account for over 20%
of personal loans distributed in the UK. I would therefore expect to see
continued growth in our loan balances towards the GBP700-900 million
range in the next two years that we identified at the 2019 half year
results.
We remain acutely aware of and responsive to the macro-economic backdrop
in the UK and anticipate continued investment in our people, technology,
product and risk selection capabilities. I'd like to thank all our staff
in Admiral Loans for the tremendous progress we made last year.
GBPm 2019 2018 2017
---------------------- ------ ------ -----
Total interest income 30.8 15.0 1.6
Interest expense(*1) (9.1) (4.3) (0.4)
Net interest income 21.7 10.7 1.2
Other fee income 1.9 0.4 -
Total income 23.6 11.2 1.2
Expenses (32.0) (22.9) (5.6)
Admiral Loans result (8.4) (11.8) (4.4)
---------------------- ------ ------ -----
(*1) Includes GBP2.8 million intra-group interest expense (2018: GBP0.7
million; 2017: GBPnil)
Background
Admiral Loans launched in 2017 and provides unsecured personal loans and
car finance products primarily through the comparison channel.
Loan balances increased during the year to GBP455 million (2018: GBP300
million), with just over 5% of the book being used for car loans and
over 15% being to existing Admiral insurance customers. The 12-month
default experience remained in line with 2018 at around 2% during 2019
and the business has continued to invest in its operational capabilities
and technology.
Admiral Loans is funded through a combination of internal and external
funding. The external portion funds approximately 60% of the current
balance through securitisation. The risk and reward of the securitised
loans is considered to remain with Admiral.
Result
Admiral Loans recorded a pre-tax loss of GBP8.4 million in 2019
(decreased from GBP11.8 million in 2018). The lower loss predominantly
reflects the increased interest income in the period, offset to an
extent by increased provisions against the loan book due to its growing
size.
UK Exit from the European Union ('Brexit')
Admiral adopted a prudent approach to Brexit and set up new entities in
Europe under which the European operations have traded since 1 January
2019. All of the Group's European insurance business is now underwritten
by a regulated entity in Spain, Admiral Europe Compania Seguros (AECS).
The Group's European comparison businesses Rastreator and LeLynx have
successfully been merged into comparison companies established in Spain
(Comparaseguros Corredia de Seguros) and France (LeLynx SAS)
respectively.
Brexit continues to bring risks to the Group including:
-- The potential for market volatility, and the potential for the
uncertainty or the emerging terms of exit 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; and Admiral Loans has adopted a
cautious approach to volumes and credit quality in advance of Brexit);
-- As part of the Own Risk and Solvency Assessment ("ORSA") process, the
Group has performed a stress testing exercise for its assessment of the
stressed macroeconomic conditions on the UK and EU insurance and
financial service businesses that may result from Brexit, including the
potential increase in claims costs following a spike in inflation. This
includes negative movement in interest rates, currency, investment yields
and inflation which could be experienced post Brexit. Given the results
of the stress testing the Group is comfortable that it is able to manage
the potential outcomes of such scenarios should they occur;
-- Potential changes to the rules relating to the free movement of people
between the UK and the remaining EU member states. The Group has followed
external advice on planning for the small number of EU citizens working
within the UK and UK citizens working in the EU, for the Group;
-- Potential for impact on the import of car parts with potential impact on
claims costs. A working group is in place to manage and review this risk,
with commercial negotiations ongoing to mitigate risks arising from a "no
deal" Brexit;
-- Potential operational impacts for the provision of Green Cards for UK
customers to continue driving in the EU. Procedures have been
established to manage the operational impacts and ensure suitable
communication to customers.
At present, the Group does not foresee a material adverse impact on
day-to-day operations (including customers or employees). Whilst the
Group is comfortable that it is able to manage potential outcomes
following the review of the stress testing noted above, it recognises
the uncertainties that exist post Brexit and the potential for adverse
impacts to the Group's capital position and future dividend payments.
Sensitivities to the Group's regulatory solvency ratio are presented
earlier in this report, including a number of specific market risk
sensitivities. The cost of the restructuring activity was not material
to the Group.
Coronavirus (COVID-19)
Admiral is closely monitoring government updates in relation to the
coronavirus during recent months and is considering any potential
impacts on the business.
The response to date has focussed on the wellbeing of staff in the
group's offices and also in ensuring that appropriate plans are in place
to ensure that Admiral's operations can continue to service customers.
Ongoing stress testing work, overseen by the Group Risk Committee, is
focused on operational resilience plans and potential financial impacts.
As the situation develops Admiral will implement appropriate business
continuity plans to mitigate potential impacts.
Principal Risks and Uncertainties
The Group's 2019 Annual Report will contain an analysis of the Principal
Risks and Uncertainties identified by the Group's Enterprise Risk
Management Framework, along with the impacts of those risks and actions
taken to mitigate them.
Audit Tender
As referenced in the Group's 2018 Annual Report, in 2018 the Group's
Audit Committee reported that it had reviewed the arrangements with the
current external auditor and had considered whether it was appropriate
to initiate a tender process in order that the current arrangements
could be reviewed against those offered by other audit firms in the
market.
The Committee considered the results of various reviews and
consultations on the audit services market as well as other factors
relating to a potential tender process and concluded that it was
appropriate to continue with the planned tender process in 2020. The
process will be initiated in Q2 2020 for an appointment (or
reappointment) to be made with effect from 2021, coinciding with the
rotation of the current audit partner. As the Group Audit Committee has
primary responsibility for conducting the tender process and making
recommendations to the Board, regarding the appointment, reappointment
and removal of the external auditor, it will lead the proposed tender
process. The Committee intends to engage with the Group's major
shareholders to get their views on the firms that will be invited to
participate in the tender and the timetable that has been agreed for the
tender process.
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.
Consolidated income statement
For the year ended 31 December 2019
Year ended
31 December 31 December
2019 2018
Note GBPm GBPm
-----------
Insurance premium revenue 2,198.4 2,079.6
Insurance premium ceded to reinsurers (1,489.0) (1,407.8)
Net insurance premium revenue 5 709.4 671.8
Other revenue 8 469.9 449.2
Profit commission 5 114.9 93.2
Interest income 7 30.8 15.0
Interest expense 7 (6.3) (3.6)
Net interest income from loans 24.5 11.4
Investment return 6 35.3 36.0
Net revenue 1,354.0 1,261.6
Insurance claims and claims handling expenses 5 (1,568.1) (1,513.8)
Insurance claims and claims handling expenses recoverable
from reinsurers 1,208.8 1,163.7
Net insurance claims 5 (359.3) (350.1)
Operating expenses and share scheme charges 9 (900.7) (842.8)
Operating expenses and share scheme charges recoverable
from co- and reinsurers 9 441.2 418.8
Net operating expenses and share scheme charges (459.5) (424.0)
Total expenses (818.8) (774.1)
Operating profit 535.2 487.5
Finance costs 6 (14.6) (11.3)
Finance costs recoverable from co- and reinsurers 6 2.0 --
Net finance costs (12.6) (11.3)
Profit before tax 522.6 476.2
Taxation expense 10 (94.2) (85.7)
Profit after tax 428.4 390.5
Profit after tax attributable to:
Equity holders of the parent 432.4 395.1
Non-controlling interests (NCI) (4.0) (4.6)
428.4 390.5
Earnings per share
Basic 12 148.3p 137.1p
Diluted 12 148.0p 136.8p
Dividends declared and paid (total) 12 367.8 332.7
Dividends declared and paid (per share) 12 129.0p 118.0p
-----------
Consolidated statement of comprehensive income
For the year ended 31 December 2019
Year ended
31 December 31 December
2019 2018
GBPm GBPm
------------
Profit for the period 428.4 390.5
Other comprehensive income
Items that are or may be reclassified to profit or
loss
Movements in fair value reserve 34.6 (24.0)
Deferred tax charge in relation to movement in fair
value reserve (1.5) 0.7
Exchange differences on translation of foreign
operations (8.9) 2.2
Movement in hedging reserve (0.9) (0.3)
Other comprehensive income for the period, net of
income tax 23.3 (21.4)
Total comprehensive income for the period 451.7 369.1
Total comprehensive income for the period attributable
to:
Equity holders of the parent 456.1 373.7
Non-controlling interests (4.4) (4.6)
451.7 369.1
Consolidated statement of financial position
As at 31 December 2019
As at
31 December 31 December
2019 2018
Note GBPm GBPm
-------------
ASSETS
Property and equipment 11 154.4 28.1
Intangible assets 11 160.3 162.0
Deferred income tax 10 -- 0.2
Reinsurance assets 5 2,071.7 1,883.5
Insurance and other receivables 6 1,227.7 1,082.0
Loans and advances to customers 7 455.1 300.2
Financial investments 6 3,234.5 2,969.7
Cash and cash equivalents 6 281.7 376.8
Total assets 7,585.4 6,802.5
EQUITY
Share capital 12 0.3 0.3
Share premium account 13.1 13.1
Other reserves 12 55.1 31.4
Retained earnings 840.9 713.5
Total equity attributable to equity holders of the
parent 909.4 758.3
Non-controlling interests 9.2 12.8
Total equity 918.6 771.1
LIABILITIES
Insurance contract liabilities 5 3,975.0 3,736.4
Subordinated and other financial liabilities 6 530.1 444.2
Trade and other payables 6, 11 1,975.9 1,801.5
Lease liabilities 6 137.1 --
Deferred income tax 10 0.4 --
Current tax liabilities 10 48.3 49.3
Total liabilities 6,666.8 6,031.4
Total equity and total liabilities 7,585.4 6,802.5
The accompanying notes form part of these financial statements.
These financial statements were approved by the Board of Directors on 4
March 2020 and were signed on its behalf by:
Geraint Jones
Chief Financial Officer
Admiral Group plc
Consolidated cash flow statement
For the year ended 31 December 2019
Year ended
31 December 31 December
2019 2018
Note GBPm GBPm
-----------
Profit after tax 428.4 390.5
Adjustments for non-cash items:
-- Depreciation of property, plant and equipment and
right-of-use assets 11 23.8 12.0
-- Amortisation and impairment of intangible assets 11 18.7 15.5
-- Movement in provision for loans and advances to
customers 7 13.8 8.9
-- Share scheme charges 9 53.4 49.8
-- Accrued interest income from loans and advances
to customers (0.6) (1.4)
-- Investment return 6 (35.3) (36.0)
-- Finance costs, including unwinding of discounts
on lease liabilities 12.6 14.9
-- Taxation expense 10 94.2 85.7
Change in gross insurance contract liabilities 5 238.6 422.5
Change in reinsurance assets 5 (188.2) (245.9)
Change in insurance and other receivables 6, 11 (147.0) (145.0)
Change in gross loans and advances to customers 7 (168.7) (242.9)
Change in trade and other payables, including tax
and social security 11 174.4 159.9
Cash flows from operating activities, before movements
in investments 518.1 488.5
Purchases of financial instruments (2,048.2) (1,830.2)
Proceeds on disposal/ maturity of financial instruments 1,847.9 1,573.4
Interest and investment income received 6 11.6 8.0
Cash flows from operating activities, net of movements
in investments 329.4 239.7
Taxation payments (92.8) (55.6)
Net cash flow from operating activities 236.6 184.1
Cash flows from investing activities:
Purchases of property, equipment and software 11 (33.6) (23.9)
Net cash used in investing activities (33.6) (23.9)
Cash flows from financing activities:
Non-controlling interest capital contribution 1.6 19.3
Proceeds on issue of loan backed securities 136.2 168.3
(Repayment)/proceeds from other financial liabilities (50.3) 51.9
Finance costs paid, including interest expense paid
on funding for loans (14.0) (14.1)
Repayment of lease liabilities (10.6) --
Equity dividends paid 12 (367.8) (332.7)
Net cash used in financing activities (304.9) (107.3)
Net (decrease) / increase in cash and cash equivalents (101.9) 52.9
Cash and cash equivalents at 1 January 376.8 326.8
Effects of changes in foreign exchange rates 6.8 (2.9)
Cash and cash equivalents at end of period 6 281.7 376.8
Consolidated statement of changes in equity
For the year ended 31 December 2019
Attributable to the owners of the Company
Share Foreign Retained Non-
Share premium Fair value exchange profit controlling
capital account reserve Hedging reserve reserve and loss Total interests Total equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- -------- ---------- ----------------- --------- --------- -------
At 1 January 2018 0.3 13.1 36.4 -- 16.0 580.3 646.1 9.7 655.8
Initial application of IFRS 9 -- -- 0.4 -- -- (0.4) -- -- --
Adjusted balance at 1 January 2018 0.3 13.1 36.8 -- 16.0 579.9 646.1 9.7 655.8
Profit/(loss) for the period -- -- -- -- -- 395.1 395.1 (4.6) 390.5
Other comprehensive income
Movements in fair value reserve -- -- (24.0) -- -- -- (24.0) -- (24.0)
Deferred tax charge in relation to movement in fair
value reserve -- -- 0.7 -- -- -- 0.7 -- 0.7
Movement in hedging reserve -- -- -- (0.3) -- -- (0.3) -- (0.3)
Currency translation differences -- -- -- -- 2.2 -- 2.2 -- 2.2
Total comprehensive income for the period -- -- (23.3) (0.3) 2.2 395.1 373.7 (4.6) 369.1
Transactions with equity holders
Dividends -- -- -- -- -- (332.7) (332.7) (0.4) (333.1)
Share scheme credit -- -- -- -- -- 56.7 56.7 -- 56.7
Deferred tax credit on share scheme credit -- -- -- -- -- 3.3 3.3 -- 3.3
Changes in ownership interests without a change in
control -- -- -- -- -- 11.2 11.2 8.1 19.3
Total transactions with equity holders -- -- -- -- -- (261.5) (261.5) 7.7 (253.8)
---------------------------------------------------- -------- -------- ---------- ----------------- --------- --------- ------- ------------ ------------
As at 31 December 2018 0.3 13.1 13.5 (0.3) 18.2 713.5 758.3 12.8 771.1
Consolidated statement of changes in equity (continued)
For the year ended 31 December 2019
Attributable to the owners of the Company
---------------------------------------------------- -------- ---------------------------------------------------------------------- ------------ ------------
Share Foreign Retained Non-
Share premium Fair value exchange profit controlling
capital account reserve Hedging reserve reserve and loss Total interests Total equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 31 December 2018 0.3 13.1 13.5 (0.3) 18.2 713.5 758.3 12.8 771.1
Balance at 1 January 2019 0.3 13.1 13.5 (0.3) 18.2 713.5 758.3 12.8 771.1
Profit/(loss) for the period -- -- -- -- -- 432.4 432.4 (4.0) 428.4
Other comprehensive income
Movements in fair value reserve -- -- 34.6 -- -- -- 34.6 -- 34.6
Deferred tax charge in relation to movement in fair
value reserve -- -- (1.5) -- -- -- (1.5) -- (1.5)
Movement in hedging reserve -- -- -- (0.9) (0.9) -- (0.9)
Currency translation differences -- -- -- -- (8.5) -- (8.5) (0.4) (8.9)
Total comprehensive income for the period -- -- 33.1 (0.9) (8.5) 432.4 456.1 (4.4) 451.7
Transactions with equity holders
Dividends -- -- -- -- -- (367.8) (367.8) -- (367.8)
Share scheme credit -- -- -- -- -- 58.8 58.8 -- 58.8
Deferred tax credit on share scheme credit -- -- -- -- -- 3.2 3.2 -- 3.2
Contributions by NCIs -- -- -- -- -- -- -- 2.2 2.2
Changes in ownership interests without a change in
control -- -- -- -- -- 0.8 0.8 (1.4) (0.6)
Total transactions with equity holders -- -- -- -- -- (305.0) (305.0) 0.8 (304.2)
As at 31 December 2019 0.3 13.1 46.6 (1.2) 9.7 840.9 909.4 9.2 918.6
Notes to the financial statements
For the year ended 31 December 2019
1. General information
Admiral Group plc is a company incorporated in England and Wales. Its
registered office is at T Admiral, David Street, Cardiff, CF10 2EH and
its shares are listed on the London Stock Exchange.
The consolidated financial statements have been prepared and approved by
the Directors in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union (EU). The Company has
elected to prepare its Parent Company financial statements in accordance
with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS
101).
2. Basis of preparation
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. This includes consideration of the principal risks and
uncertainties and how these are managed and mitigated.
-- 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. The Strategic Report also includes the Group's
principal risks and uncertainties. In addition, the Governance report
includes the Directors' statement on the viability of the Group over a
three year period.
Following consideration of the above, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operation for the foreseeable future, a period not less than 12 months
from the date of this report, and that it is therefore appropriate to
adopt the going concern basis in preparing the financial statements.
Further information regarding the Company's business activities,
together with the factors likely to affect its future development,
performance and position, is set out in the Strategic Report. Further
information regarding the financial position of the Company, its cash
flows, liquidity position and borrowing facilities are also described in
the Strategic Report. In addition, notes 6 and 12 to the financial
statements include the Company's objectives, policies and processes for
managing its capital; its financial risk management objectives; details
of its financial instruments; and its exposures to credit risk and
liquidity risk.
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 fair value through other comprehensive
income. 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 Group has securitised certain loans and advances to customers by the
transfer of the loans to a special purpose entity ("SPE") controlled by
the Group. The securitisation enables a subsequent issuance of debt by
the SPE to investors who gain the security of the underlying assets as
collateral. The SPE is fully consolidated into the Group financial
statements under IFRS 10, as the Group controls the entity in line with
the above definition.
The preparation of financial statements in conformity with adopted IFRS
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 year in
which the estimate is reviewed. 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.
Adoption of new and revised standards
The Group has adopted the following IFRSs and interpretations during the
year, which have been issued and endorsed by the EU:
-- IFRS 16 "Leases"
-- Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
-- Annual Improvements to IFRS Standards 2015 -- 2017 Cycle
-- Amendments to IAS 28: Long-term Interests in Associates and Joint
Ventures
Other than the impact of IFRS 16 and the Amendments to IFRS 9 and IFRS 7
in respect of interest rate benchmark reform, further detail of which is
provided below, the application of these amendments has not had a
material impact on the Group's results, financial position and
cashflows.
IFRS 16
During the year the Group has adopted IFRS 16 Leases with a date of
initial application of 1 January 2019.
IFRS 16 introduced a single, on-balance sheet accounting model for
lessees. As a result, the Group, as a lessee, has recognised
right-of-use assets representing its right to use the underlying assets
and lease liabilities representing its obligations to make lease
payments.
As permitted by the transitional provisions of IFRS 16 the Group has
elected to use the modified retrospective approach, and as such has not
restated prior year comparatives (which are presented, as previously
reported, under IAS 17 and related interpretations).
The adjustments arising from transition are recognised in the opening
balance sheet on 1 January 2019 and are set out below along with details
of the changes in accounting policies relating to IFRS 16 as applied in
the period.
a) Definition of a lease and practical expedients applied
Previously, the Group determined at contract inception whether an
arrangement was or contained a lease under IFRIC 4 Determining Whether
an Arrangement contains a Lease. The Group now assesses whether a
contract is or contains a lease based on the new definition of a lease,
which under IFRS 16 is where a contract conveys a right to control the
use of an identified asset for a period of time in exchange for
consideration.
The Group has also used the following practical expedients permitted by
the standard:
-- the use of a single discount rate for a portfolio of leases with
reasonably similar characteristics;
-- the use of hindsight in determining the lease term where the contract
contains options to extend or terminate the lease;
-- the exclusion of initial direct costs for the measurement of the
right-of-use assets at the date of initial application.
b) Impact of transition
On adoption of IFRS 16, the Group recognised additional right-of-use
assets, and additional lease liabilities in relation to leases which
were previously classified as 'operating leases' under IAS 17 Leases.
The liabilities were measured at the present value of the remaining
lease payments, discounted using the Group's incremental borrowing rate
as of 1 January 2019. The weighted average incremental borrowing rate
(discount rate) applied is 2.4%.
A reconciliation of the Group's lease liabilities to the operating lease
commitment at 31 December 2018 as disclosed in the Group's consolidated
financial statements is shown below.
2019
GBPm
------------------------------------------------------- ------------
Operating lease commitments disclosed as at
31 December 2018 185.9
Impact of extension options exercised before
the date of initial application(*1) 12.7
Impact of changes in relation to IFRS 16 treatment(*1) (24.0)
Adjusted operating lease commitments under IFRS
16 174.6
Impact of discount at the date of initial application (25.4)
Lease liability recognised at 1 January 2019 149.2
Current 10.5
Non-current 138.7
------------
*1 Following a review of lease extension options and variable lease
payments during the IFRS 16 transition process, the operating lease
commitments disclosed as at 31 December 2018 have been amended to
reflect the impact of a different treatment of inflation and VAT within
lease agreements, and lease extensions that had occurred before the
transition date but were not previously disclosed.
The associated right-of-use assets have been measured retrospectively,
at an amount equal to the lease liability, adjusted by the amount of any
prepaid or accrued payments relating to that lease recognised in the
statement of financial position as at 31 December 2018. There were no
onerous lease contracts that would have required an adjustment to the
right-of-use assets at the date of initial application.
All right-of-use assets relate to property leases held by the Group.
The following adjustment was recognised on the date of initial
application:
1 January 2019
GBPm
-------------------------------------------------- --------------------
ROU Lease Assets 136.7
Trade and other payables- invoice accrual 1.1
Trade and other payables- rent free accrual 11.4
Lease Liability (149.2)
-------------------------------------------------- --------------------
For the Group's accounting policy in relation to right-of-use assets and
lease liabilities, see notes 6 and 11.
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
In September 2019, the IASB issued Interest Rate Benchmark Reform --
Amendments to IFRS 9, IAS 39 and IFRS 7. These amendments modify
specific hedge accounting requirements to allow hedge accounting to
continue for affected hedges during the period of uncertainty before the
hedged items or hedging instruments affected by the current interest
rate benchmarks are amended as a result of the on--going interest rate
benchmark reforms.
The amendments are relevant to the Group given that it hedges and
applies hedge accounting to its benchmark interest rate exposure.
The application of the amendments impact the Group's accounting in the
following way:
-- The Group has floating rate debt, linked to GBP LIBOR, which it hedges
using interest rate swaps. The amendments permit continuation of hedge
accounting even though there is uncertainty about the timing and amount
of the hedged cash flows due to the interest rate benchmark reforms.
-- The Group will retain the cumulative gain or loss in the cash flow hedge
reserve for designated cash flow hedges that are subject to benchmark
interest rate reforms even though there is uncertainty arising from the
interest rate benchmark reform with respect to the timing and amount of
the cash flows of the hedged items. Should the Group consider the hedged
future cash flows are no longer expected to occur due to reasons other
than interest rate benchmark reforms, the cumulative gain or loss will be
immediately reclassified to profit or loss.
The Group has chosen to early apply the amendments to IFRS 9 for the
reporting period ending 31 December 2019, which are mandatory for annual
reporting periods beginning on or after 1 January 2020. Adopting these
amendments allows the Group to continue hedge accounting during the
period of uncertainty arising from interest rate benchmark reforms.
See note 6i for further details.
Standards endorsed but not yet effective
As at 31 December 2019, the following amendments to standards had been
endorsed by the EU but are not yet effective:
-- Amendments to IAS 1 and IAS 8: "Definition of Material"
-- Amendments to references to the Conceptual Framework in IFRS Standards
No significant impact is expected as a result of adopting the above
amendments.
Standards yet to be endorsed by the EU
There are a number of standards, amendments to standards and
interpretations that were issued by 31 December 2019 but have either yet
to be endorsed by the EU, or were endorsed shortly after the year end.
The following IFRSs have been issued but have not been applied by the
Group in these financial statements:
-- IFRS 17 Insurance Contracts;
-- Amendments to IFRS 3 "Business Combinations"
IFRS 17 -- Insurance contracts
IFRS 17 Insurance Contracts was issued in May 2017, with a revised
endorsement draft incorporating a number of proposed amendments issued
in June 2019. The standard will replace IFRS 4, establishing new
principles for the recognition, measurement, presentation and disclosure
of Insurance contracts within the scope of the standard. The proposed
IASB effective date in the revised exposure draft is 1 January 2022,
requiring a transition balance sheet at 1 January 2021.
The Group continues to assess the impact of IFRS 17 on its results and
financial position, taking into account the proposals in the revised
exposure draft, along with any impacts of the other standards and
amendments which have yet to be endorsed.
3. Critical accounting judgements and key sources of estimation
uncertainty
In applying the Group's accounting policies as described in the notes to
the financial statements, the directors are required to make judgements
(other than those involving estimations) that have a significant impact
on the amounts recognised and to make estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated assumptions
are based on historical experience and other factors that are considered
to be relevant. Actual results may differ from these estimates.
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 revised if the revision affects only that period,
or in the period of the revision and future periods if the revision
affects both current and future periods.
Critical accounting judgements
The following are the critical judgements, apart from those involving
estimations (which are presented separately below), that the directors
have made in the process of applying the Group's accounting policies and
that have the most significant effect on the amounts recognised in
financial statements.
--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 insurance and reinsurance contract in order to be able to make
this judgement. In particular, all reinsurance contracts (both excess of
loss and quota share contracts) held by the Group have been assessed and
it has been concluded that all contracts transfer significant insurance
risk and have therefore been classified and accounted for as reinsurance
contracts within these financial statements.
--Consolidation of the Group's special purpose entity ("SPE")
During 2018 the Group set up an SPE in relation to the Admiral Loans
business, whereby the Group securitises certain loans by the transfer of
the loans to the SPE. The securitisation enables a subsequent issue of
debt by the SPE to investors who gain the security of the underlying
assets as collateral.
The accounting treatment of the SPE has been assessed and it has been
concluded that it should be fully consolidated into the Group's
financial statements under IFRS 10. This is due to the fact that
despite not having legal ownership, the Group has control of the SPE,
being exposed to the returns and having the ability to affect those
returns through its power over the SPE.
The SPE has therefore been fully consolidated into the Group's financial
statements.
There are two further significant accounting estimates within the
financial statements that also require management to apply judgement:
--Calculation of insurance claims provisions and reinsurance assets:
The Group's reserving policy requires management to set provisions for
outstanding claims for the purpose of the financial statements, above
the projected best estimate outcome to allow for unforeseen adverse
claims development. In the application of this policy, Management
applies judgement in:
-- calculating the best estimate of the gross ultimate total cost of
settling claims that have been incurred prior to the balance sheet date,
-- calculating the best estimate of the non-proportional excess of loss
reinsurance recoveries relating to outstanding claims
-- and determining where, above the projected best estimate outcomes of
gross outstanding claims and reinsurance recoveries, the insurance claims
provisions should sit in line with the Group's reserving methodology
Refer to the section on estimation techniques below, and the analysis of
Insurance risk in note 5 to the financial statements for further detail
on the development of the Group's reserving methodology applied during
the period and the calculation of the projected best estimate outcome.
--Calculation of expected credit loss provision
The Group is required to calculate an expected credit loss ('ECL')
allowance in respect of the carrying value of the Admiral Loans book in
line with the requirements of IFRS 9. Due to the increase in the size of
the loan book the calculation of the ECL is deemed to be a critical
accounting judgement and includes key sources of estimation uncertainty.
Management applies judgement in;
-- Determining the appropriate modelling solution for measuring the ECL
-- Calibrating and selecting appropriate assumptions
-- Setting the criteria for what constitutes a significant increase in
credit risk
-- Identification of key scenarios to include and determining the credit
loss in these instances.
Refer to the section on estimation techniques below, and the analysis in
note 7 to the financial statements for further detail on the Group's ECL
methodology applied in the period.
Key sources of estimation uncertainty
--Calculation of insurance claims provisions and reinsurance assets:
Estimation techniques are used in the calculation of the provisions for
claims outstanding, which represent a projection of the ultimate
estimated total cost of settling claims that have been incurred prior to
the balance sheet date and remain unsettled at the balance sheet date,
along with a margin to allow for unforeseen adverse claims development.
The primary areas of estimation uncertainty are as follows:
Calculation of gross best estimate claims provisions
The key area where estimation techniques are used is in the ultimate
projected cost of reported claims, which includes the emergence of
claims that occurred prior to the balance sheet date, but had not been
reported at that date.
Independent actuarial advisors project the best estimate claims reserves
using a variety of different recognised actuarial projection techniques
(for example incurred and paid chain ladders, and initial expected
assumptions) to allow an actuarial assessment of their potential
outcome. This includes an allowance for unreported claims.
Claims are segmented into groups with similar characteristics and which
are expected to develop and behave similarly, for example bodily injury
(attritional and large) and damage claims, with specific projection
methods selected for each head of damage. Key sources of estimation
uncertainty arise from both the selection of the projection methods and
the assumptions made in setting claims provisions through the review of
historical development of underlying case reserve estimates, overlaid
with emerging market trends.
Allowance is made for changes or uncertainties which may result future
claim cost inflation to deviate from historic trends. These
uncertainties include:
-- Changes in frequency of bodily injury claims
-- The effect of inflation on the average cost of bodily injury and damage
claims
-- The likelihood of bodily injury claims settling as Periodic Payment
Orders
-- Changes in the regulatory or legal environment that lead to changes in
awards for bodily injury claims and associated legal costs
-- Changes to underlying process and methodologies employed in setting case
reserve estimates
Implicit assumptions in the actuarial projections include average cost
per claim and average claim numbers by accident year, future rates of
claims inflation and loss ratios by accident year and underwriting year.
These metrics are reviewed and challenged as part of the process for
making allowance for the uncertainties noted.
Calculation of excess of loss reinsurance recoveries
The Group uses excess of loss reinsurance in order to mitigate the
impact of large claims. The reinsurance is non-proportional and
recoveries are made on individual claims above the relevant thresholds.
As for the underlying gross claims, independent actuarial advisors
project the best estimate excess of loss reinsurance recoveries using a
variety of actuarial projection techniques that focus on both the
ultimate frequency of reported recoveries and the average size of the
recovery.
Key sources of estimation uncertainty arise from both the selection of
the projection methods and the assumptions made in calculating the
recoveries through the review of historical development of underlying
case reserve estimates, overlaid with emerging market trends.
The most significant element of the estimation relates to large bodily
injury claims. The key assumption in the calculation of excess of loss
recoveries relates to the numbers of large claims in the Group's core UK
Motor insurance business that will attract recoveries, where the high
retention means that a small number of additional large claims would
potentially result in a material increase in the excess of loss
recoveries.
Calculation of the margin held for adverse development
A wide range of factors inform management's recommendation in setting
the margin held above actuarial best estimates, which is subject to
approval from the Group's Reserving and Audit Committees, including:
-- Reserve KPIs such as the level of margin as a percentage of the ultimate
reserve.
-- Results of stress testing of key assumptions underpinning key actuarial
assumptions within best estimate reserves.
-- A review of a number of individual and aggregated reserve scenarios which
may result in future adverse variance to the ultimate best estimate
reserve.
-- Qualitative assessment of the level of uncertainty and volatility within
the reserves and the change in that assessment compared to previous
periods.
In addition, for the Group's core UK Car Insurance business, the Group's
internal reserve risk distribution is used to determine the approximate
confidence level of the recommended booked reserve position which
enables comparison of the reserve strength to previous periods and
demonstration of the compliance with IFRS 4.
For further detail on objectives, policies and procedures for managing
insurance risk, refer to note 5 of the financial statements.
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.
--Calculation of expected credit loss provision
The key areas of estimation uncertainty are in the calculation of the
Probability of Default (PD) in the base scenario for stage 1 and 2
assets, and the determination, impact assessment and weighting of the
forward-looking scenarios.
Note 7 provides detail of the methodology the group has used in the
period.
--Recognition of deferred tax assets relating to unused tax losses:
Management is required to determine the probability of an entity
generating future taxable profits against which to utilise accumulated
losses in determining the recognition and measurement of deferred tax
assets. In making this estimation, 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.
4. Group consolidation and operating segments
4a. Accounting policies
(i) Group consolidation
The consolidated financial statements comprise the results and balances
of the Company and all entities controlled by the Company, being its
subsidiaries and SPE (together referred to as the Group), for the year
ended 31 December 2019 and comparative figures for the year ended 31
December 2018. The financial statements of the Company's subsidiaries
and its SPE are consolidated in the Group financial statements.
The Company controls 100% of the voting share capital of all its
principal subsidiaries, except Admiral Law Limited, BDE Law Limited
(indirect holding), Inspop USA LLC, comparenow.com Insurance Agency LLC
(indirect holding), Rastreator.com Limited, Rastreator Comparador
Correduria De Seguros S.L.U (indirect holding), Preminen Price
Comparison Holdings Limited and the indirect holdings in Preminen Dragon
Price Comparison Limited, Preminen Mexico Sociedad Anonima de Capital
Variable, Preminen Online Fiyat Kar ıla tırma Hizmetleri
Anonim irketi, Preminen Sigorta Brokerlik Anonim Sirketi and Preminen
Price Comparison India Private Limited.
The SPE is fully consolidated into the Group financial statements under
IFRS 10, whereby the Group has control over the SPE.
The Parent Company financial statements present information about the
Company as a separate entity and not about its Group. In accordance with
IAS 24, transactions or balances between Group companies that have been
eliminated on consolidation are not reported as related party
transactions in the consolidated financial statements.
(ii) Foreign currency translation
Items included in the financial records of each of the Group's entities
are measured using the currency of the primary economic environment in
which the entity operates ('the functional currency'). The consolidated
financial statements are presented in pounds sterling, the Group's
presentational currency, rounded to the nearest GBP0.1 million.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement.
Non-monetary items measured at cost are translated at their historic
rate and non-monetary items held at fair value are translated using the
foreign exchange rate on the date that the fair value was established.
The financial statements of foreign operations whose functional currency
is not pounds sterling are translated into the Group presentation
currency (sterling) as follows:
-- Assets and liabilities for each balance sheet presented are translated at
the closing rate at the date of that balance sheet.
-- Income and expenses for each income statement are translated at average
monthly exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at
the date of the transaction).
-- All resulting exchange differences are recognised in other comprehensive
income and in a separate component of equity except to the extent that
the translation differences are attributable to non-controlling
interests.
On disposal of a foreign operation, the cumulative amount recognised in
equity relating to that particular operation is recognised in the income
statement.
4b. Segment reporting
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 Insurance
The segment consists of the underwriting of car insurance, van insurance,
household insurance, travel insurance and other products that supplement
these insurance policies within the UK. It also includes the generation
of revenue from additional products and fees from underwriting 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 Insurance
The segment consists of the underwriting of car and home 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 in France and Elephant Auto in the US. None of these
operations are reportable on an individual basis, based on the threshold
requirements in IFRS 8.
Comparison
The segment relates to the Group's comparison businesses: Confused.com
in the UK, Rastreator in Spain, LeLynx in France and compare.com in the
US. From 2019, the segment also includes the Preminen entities, which
has a head office in Spain and operations in Turkey, Mexico and India
(all of which were previously reported in the 'Other' segment), and
Penguin Portals, the new intermediate holding company of Confused.com,
LeLynx and Rastreator.
Each of the comparison businesses are operating in individual
geographical segments but are grouped into one reporting segment, as
none of the operating segments individually meet the reporting segment
threshold requirements of 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 the Admiral Loans business and the Group's
commercial van insurance broker, Gladiator.
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.
An analysis of the Group's revenue and results for the year ended 31
December 2019, by reportable segment, is shown below. The accounting
policies of the reportable segments are materially consistent with those
presented in the notes to the financial statements for the Group.
Year ended 31 December 2019
UK International
Insurance Car Insurance Comparison Other Eliminations(*2) Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ---------- ------ ---------------- -------
Turnover(*1) 2,635.0 623.6 171.6 33.3 (19.4) 3,444.1
Net insurance
premium
revenue 533.2 176.2 -- -- -- 709.4
Other Revenue
and profit
commission 407.6 22.5 171.6 24.2 (16.6) 609.3
Investment
return 30.4 1.5 -- -- (2.8) 29.1
Net revenue 971.2 200.2 171.6 24.2 (19.4) 1,347.8
Net insurance
claims (215.8) (143.5) -- -- -- (359.3)
Expenses (157.5) (57.6) (156.9) (31.5) 19.4 (384.1)
Segment
profit/(loss)
before tax 597.9 (0.9) 14.7 (7.3) -- 604.4
Other central revenue and expenses, including share
scheme charges (76.6)
Investment and
interest
income 6.2
Finance
costs(*3) (11.4)
Consolidated
profit before
tax(*4) 522.6
Taxation expense (94.2)
Consolidated
profit after
tax 428.4
Other segment
items:
-- Intangible
and tangible
asset
additions 51.7 34.5 1.4 0.8 -- 88.4
-- Depreciation
and
amortisation 57.4 33.1 2.3 1.2 -- 94.0
*1 Turnover is an Alternative Performance Measure presented before
intra-group eliminations and consists of total premiums written
(including co-insurers' share) and Other revenue. Refer to the glossary
and note 13 for further information.
*2 Eliminations are in respect of the intra-group trading between the
Group's comparison and UK and International insurance entities and
intra-group interest.
*3 GBP1.2m of IFRS 16 interest expense (being the Group's net share of
IFRS 16 interest expense) included within Finance Costs in the Income
Statement has been reallocated to individual segments within expenses,
in line with management segmental reporting.
*4 Profit before tax above of GBP522.6m is presented on a statutory
basis, being 100% of the result for each entity. This increases to
Group's share of profit before tax of GBP526.1m. See note 13f for a
reconciliation of the UK Insurance, International Insurance and
Comparison turnover and profit before tax to the Strategic Report.
Revenue and results for the corresponding reportable segments for the
year ended 31 December 2018 are shown below.
Year ended 31 December 2018
UK International
Insurance Car Insurance Comparison Other(*4) Eliminations(*2) Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ---------- --------- ---------------- -------
Turnover(*1) 2,575.7 538.7 151.0 17.5 (19.3) 3,263.6
Net insurance
premium
revenue 523.9 147.9 -- -- -- 671.8
Other Revenue
and profit
commission 389.5 18.6 151.0 13.3 (18.6) 553.8
Investment
return 32.3 1.3 -- -- (0.7) 32.9
Net revenue 945.7 167.8 151.0 13.3 (19.3) 1,258.5
Net insurance
claims (242.5) (107.6) -- -- -- (350.1)
Expenses (146.5) (61.3) (144.4) (26.9) 19.3 (359.8)
Segment
profit/(loss)
before tax 556.7 (1.1) 6.6 (13.6) -- 548.6
Other central revenue and expenses, including share
scheme charges (64.2)
Investment and
interest
income 3.1
Finance costs (11.3)
Consolidated
profit before
tax(*3) 476.2
Taxation expense (85.7)
Consolidated
profit after
tax 390.5
Other segment
items:
-- Intangible
and tangible
asset
additions 43.0 29.8 2.0 2.2 -- 77.0
-- Depreciation
and
amortisation 49.7 26.4 1.1 0.8 -- 78.0
*1 Turnover is an Alternative Performance Measure presented before
intra-group eliminations and consists of total premiums written
(including co-insurers' share) and Other Revenue. Refer to the glossary
and note 13 for further information.
*2 Eliminations are in respect of the intra-group trading between the
Group's comparison and UK and International insurance entities.
*3 Profit before tax above of GBP476.2m is presented on a statutory
basis, being 100% of the result for each entity. This increases to
Group's share of profit before tax of GBP479.3m. See note 13f for a
reconciliation of the UK Insurance, International Insurance and
Comparison turnover and profit before tax to the Strategic Report.
*4 "Other" in 2018 includes GBP2.5m of expansion costs associated with
the Preminen entities (included within "Other central revenue and
expenses, including share scheme charges"). In 2019, the results of the
Preminen operations have been included in the Comparison segment, as
those operations have started to generate revenue in the period. The
prior year segmental analysis has not been restated due to the amounts
being immaterial.
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 Comparison revenues from transactions with other reportable
segments is GBP19.4 million (2018: GBP19.3 million) which has been
eliminated on consolidation. There are no other transactions between
reportable segments.
Revenues from external customers for products and services are
consistent with the split of reportable segment revenues.
Information about geographical locations
All material revenues from external customers, and net assets attributed
to a foreign country, are shown within the International Car Insurance
reportable segment shown on the previous pages. The revenue and results
of the international Comparison businesses, Rastreator, LeLynx,
compare.com and the Preminen entities are not yet material enough to be
presented as a separate segment.
Segment assets and liabilities
The identifiable segment assets and liabilities at 31 December 2019 are
as follows:
As at 31 December 2019
UK International Car
Insurance Insurance Comparison Other Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------------ ------- ------------ -------
Reportable
segment
assets 6,282.1 966.7 98.7 610.7 (727.3) 7,230.9
Reportable
segment
liabilities 5,232.7 824.4 49.9 942.1 (635.2) 6,413.9
Reportable
segment net
assets 1,049.4 142.3 48.8 (331.4) (92.1) 817.0
Unallocated
assets and
liabilities 101.6
Consolidated
net assets 918.6
Unallocated assets and liabilities consist of other central assets and
liabilities, plus deferred and current corporation tax balances. These
assets and liabilities are not regularly reviewed by the Board of
Directors in the reportable segment format.
There is an asymmetrical allocation of assets and income to the
reportable segments, in that the interest earned on cash and cash
equivalent assets deployed in the UK Insurance, Comparison and
International Car Insurance segments is not allocated in arriving at
segment profits. This is consistent with regular reporting to the Board
of Directors.
Eliminations represent inter-segment funding, balances included in
insurance and other receivables and deemed loan receivables in respect
of securitised loan receivables.
The segment assets and liabilities at 31 December 2018 are as follows:
As at 31 December 2018
UK International Car
Insurance Insurance Comparison Other Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------------ ------- ------------ -------
Reportable
segment
assets 5,760.5 831.0 89.2 414.9 (552.9) 6,542.7
Reportable
segment
liabilities 4,870.3 702.1 35.0 623.4 (452.8) 5,778.0
Reportable
segment net
assets 890.2 128.9 54.2 (208.5) (100.1) 764.7
Unallocated
assets and
liabilities 6.4
Consolidated
net assets 771.1
5. Premium, claims and profit commissions
5a. Accounting policies
(i) Revenue -- premiums
Premiums relating to insurance contracts are recognised as revenue, net
of expected cancellations and insurance premium tax, proportionally over
the period of cover. Premiums with an inception date after the end of
the period are held in the statement of financial position as deferred
revenue. Outstanding collections from policyholders related to unexpired
risk are recognised within policyholder receivables. A corresponding
unearned premium provision is recognised (see note 5a(iii)).
(ii) Revenue -- profit commission
Under some of the co-insurance and reinsurance contracts under which
motor premiums are shared or ceded, profit commission may be earned on a
particular year of account, which is usually subject to performance
criteria such as loss ratios and expense ratios. The commission is
dependent on the ultimate outcome of any year, with revenue being
recognised when loss and expense ratios used in the preparation of the
financial statements move below a contractual threshold.
Profit commission receivable from reinsurance contracts is accounted for
in line with IFRS 4, whereas profit commission receivable from
co-insurance contracts is in line with IFRS 15. Further detail of the
policy under IFRS 15 is set out in note 8.
(iii) Insurance contracts and reinsurance assets
Premiums
The proportion of premium receivable on in-force policies relating to
unexpired risks is reported in insurance contract liabilities and
reinsurance assets as the unearned premium provision -- gross and
reinsurers' share respectively.
Claims
Claims and claims handling expenses are charged as incurred, based on
the estimated direct and indirect costs of settling all liabilities
arising on events occurring up to the balance sheet date.
The provision for claims outstanding comprises provisions for the
estimated cost of settling all claims incurred but unpaid at the balance
sheet date, whether reported or not. Anticipated reinsurance recoveries
are disclosed separately as assets.
Whilst the Directors consider that the gross provisions for claims and
the related reinsurance recoveries are fairly stated on the basis of the
information currently available to them, the ultimate liability will
vary as a result of subsequent information and events and may result in
significant adjustments to the amounts provided.
Adjustments to the amounts of claims provisions established in prior
years are reflected in the income statement for the period in which the
adjustments are made and disclosed separately if material. The methods
used, and the estimates made, are reviewed regularly.
Provision for unexpired risks is made where necessary for the estimated
amount required over and above unearned premiums (net of deferred
acquisition costs) to meet future claims and related expenses.
Co-insurance
The Group has entered into certain co-insurance contracts under which
insurance risks are shared on a proportional basis, with the co-insurer
taking a specific percentage of premium written and being responsible
for the same proportion of each claim. The co-insurer therefore takes
direct insurance risk from the policyholder and is subsequently directly
responsible to the claimant for its proportion of the claim. As the
contractual liability is several and not joint, neither the premiums nor
claims relating to the co-insurance are included in the income
statement. Under the terms of these agreements the co-insurers reimburse
the Group for the same proportionate share of the costs of acquiring and
administering the business.
Reinsurance assets
Contracts entered into by the Group with reinsurers under which the
Group is compensated for losses on the insurance contracts issued by the
Group are classified as reinsurance contracts. A contract is only
accounted for as a reinsurance contract where there is significant
insurance risk transfer between the insured and the insurer.
Reinsurance assets are comprised of balances due from reinsurance
companies for ceded insurance liabilities. Amounts recoverable from
reinsurers are estimated in a consistent manner with the outstanding
claims provisions or settled claims associated with the reinsured
policies and in accordance with the relevant reinsurance contract.
The Group assesses its reinsurance assets for impairment on a regular
basis, and in detail every six months. If there is objective evidence
that the asset is impaired, then the carrying value will be written down
to its recoverable amount.
On the commutation of reinsurance contracts, the reinsurer is discharged
from all obligations relating to the contract. Reinsurance assets and
liabilities relating to the commuted contracts are settled in the period
in which the commutation agreement is signed.
5b. Net insurance premium revenue
31 December 31 December
2019 2018
GBPm GBPm
Total insurance premiums written before
co-insurance(*1) 2,884.4 2,754.1
Group gross premiums written after co-insurance 2,273.7 2,166.7
Outwards reinsurance premiums (1,541.4) (1,464.3)
Net insurance premiums written 732.3 702.4
Change in gross unearned premium provision (75.3) (87.1)
Change in reinsurers' share of unearned premium
provision 52.4 56.5
Net insurance premium revenue 709.4 671.8
*1 Alternative Performance Measures -- refer to the end of the report
for definition and explanation, and to note 13a for reconciliation to
group gross premiums written.
The Group's share of its insurance business was underwritten by Admiral
Insurance (Gibraltar) Limited, Admiral Insurance Company Limited,
Admiral Europe Compania Seguros ('AECS') and Elephant Insurance Company.
All contracts are short term in duration, lasting for 10 or 12 months.
5c. Profit commission
31 December 31 December
2019 2018
GBPm GBPm
Underwriting year (UK Motor only)
2014 and prior 23.8 61.1
2015 24.5 11.0
2016 27.5 22.9
2017 36.4 --
Total UK Motor profit commission(*1) 112.2 95.0
---------------------------------------------------- ----------- -----------
Total UK Household and International profit
commission(*1) 2.7 (1.8)
Total profit commission 114.9 93.2
---------------------------------------------------- ----------- -----------
*1 Of the total UK motor profit commission recognised of GBP112.2m,
GBP95.4m relates to co-insurance arrangements and GBP16.8m to
reinsurance arrangements. The UK Household and International profit
commission relates solely to reinsurance arrangements.
No profit commission has yet been recognised on the 2018 -- 2019
underwriting years as the combined ratios calculated from the financial
statement loss ratios on these years sit above the threshold for profit
commission recognition.
5d. Reinsurance assets and insurance contract liabilities
(i) Objectives, policies and procedures for the management of insurance
risk
The Group's primary business is the issuance of insurance contracts that
transfer risk from policyholders to the Group and its co-insurance
partners.
Insurance risk involves uncertainty over the occurrence, amount or
timing of claims arising on insurance contracts issued. It is primarily
comprised of Reserve risk; the risk that the value of insurance
liabilities established is insufficient to cover the ultimate cost of
claims incurred at the balance sheet date, and premium risk; the risk
that the claims experience on business written but not earned is higher
than allowed for in the premiums charged to policyholders.
The Board of Directors is responsible for the management of insurance
risk, although as mentioned in note 6, it has delegated the detailed
oversight of risk management to the Group Risk Committee.
The Group also has a Reserving Committee which comprises senior managers
within the finance, claims, pricing and actuarial functions. The
Reserving Committee primarily recommends the approach for UK Car
Insurance reserving but also reviews the systems and controls in place
to support accurate reserving and material reserving issues such as
Periodic Payment Order (PPO) and claims inflation, which represent the
key uncertainties in the amount or timing of claims settlements.
The Board implements certain policies in order to mitigate and control
the level of insurance risk accepted by the Group. These include pricing
policies and claims management and administration processes, in addition
to reserving policies and co- and reinsurance arrangements as detailed
below.
Reserve Risk
Reserving risk is mitigated through a series of processes and controls.
The key processes are as follows:
-- Regular management and internal actuarial review of individual and
aggregate case claim reserves, including regular reporting of management
information and exception reporting of significant movements;
-- Regular management and internal actuarial review of large claims,
including claims settled or potentially settled by PPOs for which the
uncertainty is increased by factors such as the lifetime of the claimant
and movements in the indexation for the cost of future care of the
claimant;
-- Bi-annual external actuarial review of best estimate claims reserves
using a variety of recognised actuarial techniques;
-- Internal actuarial analysis of reserve uncertainty through qualitative
analysis, scenario testing and a range of stochastic reserving
techniques;
-- Ad hoc external reviews of reserving related processes and assumptions;
-- Use of a reserving methodology which informs management's reserving
decisions for the purposes of the Group's financial statements. As
described in note 3, critical accounting judgements and estimates, the
methodology determines that reserves should be set above projected best
estimate outcomes to allow for unforeseen adverse claims development.
As noted above, the Group shares a significant amount of the insurance
business generated with external underwriters. As well as these
proportional arrangements, excess of loss reinsurance programmes are
also purchased to protect the Group against very large individual claims
and catastrophe losses.
Claims reserving
As previously disclosed, 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 actuarial
best estimates. 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.
As at 31 December 2019, the level of relative reserve margin is
consistent with that at 31 December 2018, albeit remaining prudent when
measured against the internal reserve risk distribution and other market
benchmarks.
As profit commission income is recognised in the income statement in
line with loss ratios accounted for on Admiral's own claims reserves,
the reserving policy also results in profit commission income being
deferred and recognised over time.
Premium Risk
As noted above, the Group defines Premium risk as the risk that claims
cost on business written but not yet earned is higher than allowed for
in the premiums charged to policyholders. This also includes catastrophe
risk; the risk of incurring significant losses as a result of the
occurrence of manmade catastrophe or natural weather events.
Key processes and controls operating to mitigate premium risk are as
follows:
-- Experienced and focused senior management and teams in relevant business
areas including pricing and claims management;
-- A data-driven and analytical approach to regular monitoring of claims and
underwriting performance;
-- Capability to identify and resolve underperformance promptly through
changes to key performance drivers, in particular pricing.
In addition, as mentioned above, excess of loss reinsurance programmes
are also purchased to protect the Group against very large individual
claims and catastrophe losses.
Other elements of insurance risk include reinsurance risk; the risk of
placement of ineffective reinsurance arrangements, or the economic risk
of reduced availability of co-insurance and reinsurance arrangements in
future periods.
The Group mitigates these risks by ensuring that it has a diverse range
of financially secure reinsurance partners, including a long-term
relationship with Munich Re and a number of other very large reinsurers.
Concentration of insurance risk
The Directors do not believe there are significant concentrations of
insurance risk. This is because, although the Group has historically
written only one significant line of UK insurance business, the risks
are spread across a large number of people and a wide regional base. The
International Car Insurance, UK Household, UK Travel and UK Van
businesses further contribute to the diversification of the Group's
insurance risk.
(ii) Sensitivity of recognised amounts to changes in assumptions
Ogden discount rate
During 2019, following the announcement by the UK Government, the Ogden
discount rate which is used in setting personal injury compensation, was
changed to minus 0.25% from the existing minus 0.75% rate that had been
in place since February 2017. The change came into effect on 5 August
2019 and the minus 0.25% rate is likely to remain in place for up to
five years.
The minus 0.25% rate is 25 basis points lower than the assumed rate of
0% that was used in setting best estimate claims reserves at 31 December
2018. Given the stated timeframes for the update of the rate,
sensitivities to the Ogden discount rate assumption are not presented.
Underwriting year loss ratios -- UK Car Insurance
The following table sets out the impact on equity and post-tax profit or
loss at 31 December 2019 that would result from a 1%, 3% and 5% increase
and decrease in the UK Car insurance loss ratios used for each
underwriting year for which material amounts remain outstanding.
Underwriting year
2016 2017 2018 2019
------ ------ -----
Booked loss ratio 73% 75% 81% 92%
Impact of 1% deterioration in booked loss ratio
(GBPm) (14.2) (15.9) (3.8) (2.0)
Impact of 3% deterioration in booked loss ratio
(GBPm) (42.4) (47.6) (11.3) (5.9)
Impact of 5% deterioration in booked loss ratio
(GBPm) (69.6) (72.6) (18.9) (9.8)
Impact of 1% improvement in booked loss ratio
(GBPm) 14.2 15.3 9.5 2.0
Impact of 3% improvement in booked loss ratio
(GBPm) 42.6 46.3 33.7 5.9
Impact of 5% improvement in booked loss ratio
(GBPm) 71.0 77.6 61.7 9.8
As above, the impact is stated net of reinsurance and includes the
change in net insurance claims along with the associated profit
commission movements that result from changes in loss ratios. The
figures are stated net of tax at the current rate.
(iii) Analysis of recognised amounts
31 December 31 December
2019 2018
GBPm GBPm
Gross
Claims outstanding(*1) 2,899.4 2,740.5
Unearned premium provision 1,075.6 995.9
Total gross insurance liabilities 3,975.0 3,736.4
Recoverable from reinsurers
Claims outstanding 1,354.2 1,220.1
Unearned premium provision 717.5 663.4
Total reinsurers' share of insurance liabilities 2,071.7 1,883.5
Net
Claims outstanding(*2) 1,545.2 1,520.4
Unearned premium provision 358.1 332.5
Total insurance liabilities -- net 1,903.3 1,852.9
*1 Gross claims outstanding at 31 December 2019 is presented before the
deduction of salvage and subrogation recoveries totalling GBP71.7
million (2018: GBP56.4 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 (v) below.
The maturity profile of gross insurance liabilities at the end of 2019
is as follows:
< 1 year 1--3 years > 3 years
GBPm GBPm GBPm
Claims outstanding 813.7 497.0 1,588.7
Unearned premium provision 1,075.6 -- --
Total gross insurance liabilities 1,889.3 497.0 1,588.7
The maturity profile of gross insurance liabilities at the end of 2018
was as follows:
< 1 year 1--3 years > 3 years
GBPm GBPm GBPm
Claims outstanding 739.9 383.7 1,616.9
Unearned premium provision 995.9 -- --
Total gross insurance liabilities 1,735.8 383.7 1,616.9
(iv) Analysis of claims incurred
The following tables illustrate the development of gross and net UK
Insurance and International Insurance claims incurred for the past ten
financial periods, including the impact of re-estimation of claims
provisions at the end of each financial year. The first table shows
actual gross claims incurred and the second shows actual net claims
incurred. Figures are presented on an underwriting year basis.
Financial year ended 31 December
Analysis of claims
incurred (gross 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
amounts) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Underwriting year
(UK insurance)
2010 and prior (360.3) (250.1) 4.2 41.7 28.0 10.6 4.1 4.3 6.4 16.5
2011 -- (444.3) (329.7) 43.4 51.4 47.9 (0.9) 26.9 21.0 0.5 (583.8)
2012 -- -- (463.7) (334.7) 49.8 69.2 8.6 59.9 30.3 8.5 (572.1)
2013 -- -- -- (431.1) (325.5) 53.6 44.4 34.2 35.2 8.2 (581.0)
2014 -- -- -- -- (438.2) (347.1) 25.6 17.1 52.0 15.7 (674.9)
2015 -- -- -- -- -- (428.4) (411.2) 21.7 53.3 58.0 (706.6)
2016 -- -- -- -- -- -- (529.4) (463.7) 82.1 54.8 (856.2)
2017 -- -- -- -- -- -- -- (691.8) (615.0) 123.1 (1,183.7)
2018 -- -- -- -- -- -- -- -- (818.8) (546.9) (1,365.7)
2019 -- -- -- -- -- -- -- -- -- (812.4) (812.4)
UK insurance gross
claims incurred (360.3) (694.4) (789.2) (680.7) (634.5) (594.2) (858.8) (991.4) (1,153.5) (1,074.0)
Underwriting year
(International
insurance)(*1)
2010 and prior (31.8) (29.9) (11.5) (0.1) 5.1 1.3 0.6 0.6 1.5 0.5
2011 -- (35.7) (42.7) 1.2 5.7 1.7 4.0 1.2 1.3 1.1 (62.2)
2012 -- -- (58.0) (53.7) 0.7 4.0 6.0 2.6 2.0 1.5 (94.9)
2013 -- -- -- (68.2) (57.8) 4.2 7.7 3.3 5.8 1.3 (103.7)
2014 -- -- -- -- (85.2) (65.5) 4.4 5.8 5.5 2.0 (133.0)
2015 -- -- -- -- -- (92.6) (101.6) 7.7 3.1 0.1 (183.3)
2016 -- -- -- -- -- -- (138.9) (125.3) 11.7 6.9 (245.6)
2017 -- -- -- -- -- -- -- (174.1) (147.3) 16.5 (304.9)
2018 -- -- -- -- -- -- -- -- (204.9) (165.7) (370.6)
2019 -- -- -- -- -- -- -- -- -- (293.8) (293.8)
International
insurance gross
claims incurred (31.8) (65.6) (112.2) (120.8) (131.5) (146.9) (217.8) (278.2) (321.3) (429.6)
Other gross claims
incurred (7.6) 0.0 (1.7) (2.2) (7.1) (5.4) (0.1) (3.6) (1.1) --
Claims handling
costs (17.0) (25.9) (26.0) (22.9) (21.4) (22.6) (27.1) (35.5) (37.9) (64.5)
Total gross claims
incurred (416.7) (785.9) (929.1) (826.6) (794.5) (769.1) (1,103.8) (1,308.7) (1,513.8) (1,568.1)
Financial year ended 31 December
Analysis of claims
incurred (net 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
amounts) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Underwriting year
(UK insurance)
2010 and prior (184.1) (119.9) 2.8 41.7 28.0 10.6 14.0 11.4 3.6 15.5
2011 -- (203.7) (151.1) 39.7 51.4 47.0 8.4 26.2 16.3 1.7 (164.1)
2012 -- -- (196.0) (139.3) 49.8 69.2 19.4 59.1 30.6 4.9 (102.3)
2013 -- -- -- (184.4) (135.0) 38.4 49.3 36.4 34.7 4.4 (156.2)
2014 -- -- -- -- (187.0) (144.1) (16.4) 25.3 38.4 17.2 (266.6)
2015 -- -- -- -- -- (182.1) (162.0) (2.6) 42.6 48.2 (255.9)
2016 -- -- -- -- -- -- (219.4) (180.7) 48.1 50.7 (301.3)
2017 -- -- -- -- -- -- -- (214.3) (182.9) 77.8 (319.4)
2018 -- -- -- -- -- -- -- -- (261.0) (165.2) (426.2)
2019 -- -- -- -- -- -- -- -- -- (258.1) (258.1)
UK insurance net
claims incurred (184.1) (323.6) (344.3) (242.3) (192.8) (161.0) (306.7) (239.2) (229.6) (202.9)
Underwriting year
(International
insurance)
2010 and prior (12.8) (13.4) (5.7) (0.1) 2.5 0.6 0.2 0.3 0.7 0.3
2011 -- (14.9) (18.7) 0.4 2.9 0.8 2.0 0.6 0.6 0.4 (25.9)
2012 -- -- (24.2) (22.8) (0.8) 2.0 2.2 1.3 1.0 0.7 (40.6)
2013 -- -- -- (26.6) (23.5) 1.7 4.8 0.9 3.0 0.7 (39.0)
2014 -- -- -- -- (31.6) (23.3) 1.8 1.8 2.2 0.8 (48.3)
2015 -- -- -- -- -- (33.4) (39.6) 5.1 1.3 1.3 (65.3)
2016 -- -- -- -- -- -- (47.9) (43.5) 6.3 2.4 (82.7)
2017 -- -- -- -- -- -- -- (60.7) (51.5) 5.5 (106.7)
2018 -- -- -- -- -- -- -- -- (71.2) (58.4) (129.6)
2019 -- -- -- -- -- -- -- -- -- (89.6) (89.6)
International
insurance net
claims incurred (12.8) (28.3) (48.6) (49.1) (50.5) (51.6) (76.5) (94.2) (107.6) (135.9)
------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Other net claims
incurred (3.1) 0.0 (0.8) (2.1) (6.9) (5.4) (0.2) (2.6) (1.1) --
Claims handling
costs (8.5) (11.9) (10.8) (9.5) (8.9) (9.4) (11.2) (11.1) (11.8) (20.5)
Total net claims
incurred (208.5) (363.8) (404.5) (303.0) (259.1) (227.4) (394.6) (347.1) (350.1) (359.3)
The table below shows the development of UK Car Insurance loss ratios
for the past six financial periods, presented on an underwriting year
basis.
Financial year ended 31 December
UK Car Insurance loss ratio
development 2014 2015 2016 2017 2018 2019
------ ----- ----- ----- -----
Underwriting year (UK Car only)
2014 92% 89% 84% 81% 76% 74%
2015 87% 87% 83% 77% 72%
2016 -- 88% 84% 77% 73%
2017 -- -- 87% 83% 75%
2018 -- -- -- 92% 81%
2019 -- -- -- -- 92%
(v) Analysis of claims reserve releases
The following table analyses the impact of movements in prior year
claims provisions on a gross and net basis. Figures are presented on an
underwriting year basis.
Financial year ended 31 December
2014 2015 2016 2017 2018 2019
Gross GBPm GBPm GBPm GBPm GBPm GBPm
Underwriting year (UK Motor
insurance)
2014 and prior 148.1 197.7 133.8 158.3 123.6 43.9
2015 -- -- 1.9 32.0 50.9 47.3
2016 -- -- -- 23.7 70.6 50.6
2017 -- -- -- -- 25.4 110.6
2018 -- -- -- -- -- 83.2
Total gross release (UK Motor
Insurance) 148.1 197.7 135.7 214.0 270.5 335.6
---------------------------------- ------ ------ ----- ----- ----- -----
Total gross release (UK Household
Insurance) -- -- -- 1.6 4.6 8.3
Total gross release (International
Insurance) 12.6 14.0 21.0 23.2 35.2 39.1
Total gross release 160.7 211.7 156.7 238.8 310.3 383.0
Financial year ended 31 December
2015 2016 2017 2018 2019
Net 2014 GBPm GBPm GBPm GBPm GBPm GBPm
----- ----- ----- ----- -----
Underwriting year (UK Motor
Insurance)
2014 and prior 137.4 173.4 74.6 158.3 123.4 43.9
2015 -- -- 0.8 (2.4) 42.5 47.3
2016 -- -- -- 10.0 47.1 50.6
2017 -- -- -- -- 8.0 75.8
2018 -- -- -- -- -- 25.8
Total net release (UK Motor
Insurance) 137.4 173.4 75.4 165.9 221.0 243.4
-------------------------------- --------- ----- ----- ----- ----- -----
Total net release (UK Household
Insurance) -- -- -- 0.5 1.4 2.5
Total net release (International
Insurance) 6.3 6.5 9.9 9.5 13.5 14.4
Total net release 143.7 179.9 85.3 175.9 235.9 260.3
Analysis of net releases on UK
Motor Insurance:
-- Net releases on Admiral net
share (motor) 66.8 84.6 58.3 92.1 111.4 121.7
-- Releases on commuted quota
share reinsurance contracts 70.6 88.8 17.1 73.8 109.6 121.7
Total net release as above 137.4 173.4 75.4 165.9 221.0 243.4
Admiral typically commutes quota share reinsurance contracts in its UK
Car Insurance business 24 or 36 months following the start of the
underwriting year. After commutation, any changes in claims costs on the
commuted proportion of the business are reflected within claims costs
and are separately analysed here. Releases on commuted quota share
contracts are analysed by underwriting year as follows:
Financial year ended 31 December
2015 2016 2017 2018 2019
GBPm GBPm GBPm GBPm GBPm
----- ------ ----- ------
Underwriting year
2014 and prior 88.8 17.1 89.6 70.6 23.0
2015 -- -- (15.8) 21.3 27.7
2016 -- -- -- 17.7 29.5
2017 -- -- -- -- 41.5
Total releases on commuted quota share reinsurance
contracts 88.8 17.1 73.8 109.6 121.7
--------------------------------------------------- ----- ----- ------ ----- ------
Profit commission is analysed in note 5c.
(vi) Reconciliation of movement in claims provision
31 December 2019
Gross Reinsurance Net
GBPm GBPm GBPm
----------- -------
Claims provision at start of period 2,740.5 (1,220.1) 1,520.4
Claims incurred (excluding releases) 1,886.6 (1,287.6) 599.0
Reserve releases (383.0) 122.7 (260.3)
Movement in claims provision due to
commutation -- 257.1 257.1
Claims paid and other movements (1,344.7) 773.7 (571.0)
Claims provision at end of period 2,899.4 (1,354.2) 1,545.2
31 December 2018
Gross Reinsurance Net
GBPm GBPm GBPm
----------- -------
Claims provision at start of period 2,403.2 (1,028.8) 1,374.4
Claims incurred (excluding releases) 1,786.2 (1,212.0) 574.2
Reserve releases (310.3) 74.4 (235.9)
Movement in claims provision due to
commutation -- 310.4 310.4
Claims paid and other movements (1,138.6) 635.9 (502.7)
Claims provision at end of period 2,740.5 (1,220.1) 1,520.4
(viii) Reconciliation of movement in net unearned premium provision
31 December 2019
Gross Reinsurance Net
GBPm GBPm GBPm
----------- -------
Unearned premium provision at start of period 995.9 (663.4) 332.5
Written in the period 2,273.7 (1,541.4) 732.3
Earned in the period (2,194.0) 1,487.3 (706.7)
Unearned premium provision at end of period 1,075.6 (717.5) 358.1
--------------------------------------------- --------- ----------- -------
31 December 2018
Gross Reinsurance Net
GBPm GBPm GBPm
----------- -------
Unearned premium provision at start of period 910.7 (608.8) 301.9
Written in the period 2,166.7 (1,464.3) 702.4
Earned in the period (2,081.5) 1,409.7 (671.8)
Unearned premium provision at end of period 995.9 (663.4) 332.5
--------------------------------------------- --------- ----------- -------
6. Investment Income and costs
6a. Accounting policies
i) Financial assets
Classification and measurement
The classification and subsequent measurement of the financial asset
under IFRS 9 depends on:
1. the Group's business model for managing the financial assets and
2. the contractual cash flow characteristics of the financial asset.
Based on these factors, the financial asset is classified into one of
the following categories:
--Amortised cost -- assets which are held in order to collect
contractual cash flows, and the contractual terms of the financial asset
give rise to cash flows which are solely payments of principal and
interest on the principal amount outstanding (SPPI), where the asset is
not designated as FVTPL.
For the Group, these include deposits with credit institutions, cash and
cash equivalents, insurance receivables, trade and other receivables and
loans and advances to customers.
The interest income generated from these assets is included in
'Investment return' with the exception of Loans and advances to customer,
where the interest receivable is recognised in 'Interest income'.
Impairment is recognised on these assets using the expected credit loss
model.
--Fair value through other comprehensive income (FVOCI) -- assets which
are held both to collect contractual cash flows and to sell the asset,
where the contractual terms of the financial asset give rise to cash
flows which are solely payments of principal and interest on the
principal amount outstanding (SPPI), where the asset is not designated
as FVTPL.
For the Group, these assets include government gilts and debt
securities.
In addition, IFRS 9 allows an irrevocable election at initial
recognition to designate equity investments at FVOCI that otherwise
would be held at FVTPL, provided these are not held for trading. The
Group has made this election for certain equity investments.
Movements in the carrying amount are taken through OCI, with the
exception of recognition of impairment gains or losses, interest revenue
and foreign exchange gains or losses which are recognised in profit or
loss.
--Fair value through profit or loss (FVTPL) -- assets which do not meet
the criteria for amortised cost or FVOCI, or which are designated as
FVTPL.
For the Group these assets include investment liquidity funds investing
in short duration assets and derivative financial instruments.
A gain or loss on a debt instrument measured at FVTPL which is not part
of a hedging relationship is recognised in profit or loss and presented
within 'Investment return' in the period in which it arises.
Impairment
The expected credit loss model is used to calculate any impairment to be
recognised for all assets measured at amortised cost, as well as
financial investments measured at FVOCI. The general approach, which
utilises the three-stage model, is used for Loans and advances to
customers (see note 7) whilst impairment for the remaining assets is
measured using the simplified approach.
Derecognition
A financial asset is derecognised when the rights to receive cash flows
from that asset have expired, or when the Group transfers the asset and
all the attached substantial risks and rewards relating to the asset to
a third party.
ii) Financial Liabilities
Classification and subsequent measurement
Subsequent measurement of financial liabilities is at amortised cost
using the effective interest method. Movements in the amortised cost are
recognised through the income statement.
Derecognition
A financial liability is derecognised when the obligation under that
liability is discharged, cancelled or expires.
iii) Investment return and finance costs
Investment return from financial assets comprises distributions as well
as net realised and unrealised gains on financial assets classified as
FVTPL, interest income and net realised gains, net of impairment losses,
from financial assets classified as FVOCI, and interest income on
holdings in deposits with credit institutions (held at amortised cost).
Finance costs from financial liabilities comprise interest expense on
subordinated notes, loan backed securities, credit facilities and lease
liabilities, calculated using the effective interest rate method. The
effective interest rate method calculates the amortised cost of a
financial asset or liability (or group of financial assets or financial
liabilities) and allocates the interest income or expense over the
expected life of the asset or liability.
6b. Investment return
31 December 31 December
2019 2018
GBPm GBPm
Investment return
On assets classified as FVTPL 11.4 6.3
On assets classified as FVOCI(*1*3) 34.5 27.9
On assets classified as amortised costs(*1) 1.6 3.0
Net unrealised losses
Unrealised losses on forward contracts (0.1) (2.3)
Notional accrual for reinsurers' share of investment
return (12.9) --
Interest receivable on cash and cash equivalents(*1) 0.8 1.1
Total investment and interest income (*2) 35.3 36.0
*1 Interest received during the year was GBP11.6 million (2018: GBP8.0
million)
*2 Total investment return excludes GBP2.8 million of intra-group
interest (2018: GBP0.7 million)
*3 Realised gains/losses on sales of debt securities classified as FVOCI
are immaterial
6c. Finance costs
31 December 31 December
2019 2018
GBPm GBPm
Interest payable on subordinated loan notes(*1) 11.4 11.3
Interest payable on lease liabilities 3.2 --
Interest recoverable from co and re-insurers (2.0) --
Total finance costs 12.6 11.3
*1 Interest paid during the year was GBP14.0 million (2018: GBP11.0
million)
Finance costs represent interest payable on the GBP200.0 million (2018:
GBP200.0 million) subordinated notes and other financial liabilities.
Interest payable on lease liabilities represents the unwinding of the
discount on lease liabilities under IFRS 16 and does not result in a
cash payment. Further detail on the transition to IFRS 16 is included in
note 2.
6d. Financial assets and liabilities
The Group's financial assets and liabilities can be analysed as follows:
31 December 31 December
2019 2018
GBPm GBPm
Financial investments measured at FVTPL
Money market and other similar funds 1,160.2 1,301.1
Financial investments classified as FVOCI
Debt securities 1,776.3 1,389.9
Government gilts 174.0 170.9
1,950.3 1,560.8
Equity investments (designated FVOCI) 7.5 7.8
1,957.8 1,568.6
Financial assets measured at amortised cost
Deposits with credit institutions 116.5 100.0
Total financial investments 3,234.5 2,969.7
Other financial assets measured at amortised cost
Insurance receivables 948.9 842.3
Trade and other receivables 278.8 239.7
Insurance and other receivables 1,227.7 1,082.0
Loans and advances to customers (note 7) 455.1 300.2
Cash and cash equivalents 281.7 376.8
Total financial assets 5,199.0 4,728.7
Financial liabilities
Subordinated notes 204.2 204.1
Loan backed securities 304.5 168.3
Other borrowings 20.0 71.5
Derivative financial instruments 1.4 0.3
Subordinated and other financial liabilities 530.1 444.2
Trade and other payables(*1) 1,975.9 1,801.5
Lease liabilities(*2) 137.1 --
Total financial liabilities 2,643.1 2,245.7
*1 Trade and other payables total balance of GBP1,975.9m (2018:
GBP1,801.5m) above includes GBP1,472.1m (2018: GBP1,349.6m) in relation
to tax and social security, deferred income and reinsurer balances that
are outside the scope of IFRS 9.
*2 Lease liabilities of GBP149.2m were recognised on transition on 1
January 2019. The movement to the balance presented of GBP137.1m
reflects cash payments in the period offset by the lease interest
expense recognised in the income statement.
The maturity profile of financial assets and liabilities under the scope
of IFRS 4 & 9 at 31 December 2019 is as follows:
On demand < 1 year Between 1 and 2 years > 2 years
GBPm GBPm GBPm GBPm
Financial investments
Money market funds and
derivative financial
instruments -- 1,145.1 1.0 14.0
Deposits with credit
institutions -- 96.5 20.0 --
Debt securities -- 462.6 196.6 1,117.1
Government gilts -- -- -- 174.0
Total financial
investments -- 1,704.2 217.6 1,305.1
Trade and other
receivables -- 278.8 -- --
Loans and advances to
customers -- 128.6 134.2 192.3
Cash and cash
equivalents 281.7 -- -- --
Total financial assets 281.7 2,111.6 351.8 1,497.4
Financial liabilities
Subordinated notes -- 11.0 11.0 233.0
Loan backed securities -- 102.3 90.9 125.7
Other borrowings -- 20.3 -- --
Trade and other
payables(*1) -- 1,725.1 -- --
Total financial
liabilities -- 1,858.7 101.9 358.7
----------------------- --------- -------- --------------------- ---------
*1 Of the GBP1,725.1m held within trade and other payables, GBP1,442.1m
do not meet the definition of a financial liability but fall within the
scope of IFRS 4 hence are included in the above maturity profile.
The maturity profile of financial assets and liabilities under the scope
of IFRS 9 at 31 December 2018 was as follows:
On demand < 1 year Between 1 and 2 years > 2 years
GBPm GBPm GBPm GBPm
Financial investments
Money market funds and
derivative financial
instruments -- 1,296.9 2.1 2.1
Deposits with credit
institutions -- 60.0 40.0 --
Debt securities -- 295.3 210.7 883.9
Government gilts -- -- -- 170.9
Total financial
investments -- 1652.2 252.8 1,056.9
Trade and other
receivables -- 239.7 -- --
Loans and advances to
customers -- 102.1 91.2 106.9
Cash and cash
equivalents 376.8 -- -- --
Total financial assets 376.8 1,994.0 344.0 1,163.8
Financial liabilities
Subordinated notes -- 4.9 -- 199.2
Loan backed securities -- 60.2 53.0 55.1
Other borrowings -- 71.8 -- --
Trade and other
payables -- 1,801.5 -- --
Total financial
liabilities -- 1,938.4 53.0 254.3
*1 Of the GBP1,801.5m held within trade and other payables, GBP1,275.9m
do not meet the definition of a financial liability but fall within the
scope of IFRS 4 hence are included in the above maturity profile.
6e. Financial Investments
FVTPL FVOCI Amortised Cost Total
GBPm GBPm GBPm GBPm
AAA- AA 414.5 861.0 68.7 1,344.2
A 441.2 733.6 308.5 1,483.3
BBB 28.5 304.3 20.2 353.0
Sub BBB 13.3 -- 0.1 13.4
Not rated(*1) 262.7 58.9 0.7 322.3
Total financial investments 1,160.2 1,957.8 398.2 3,516.2
*1 The majority (GBP234.4m) of the unrated exposure stems from money
market funds, which are rated AAA, but the underlying securities are
not. These specific exposures are re-purchase agreements. The remaining
unrated exposure is a mixture of private debt (GBP77.2m) and other
holdings (GBP10.7m).
Classification and Measurement
At initial recognition, the Group measures financial investments at fair
value plus or minus, in the case of financial instruments not measured
at fair value through profit and loss, directly attributable transaction
costs. Transaction costs of financial instruments measured at fair value
through profit and loss are expensed to the profit and loss when
incurred.
Money market funds and derivative financial instruments are measured at
FVTPL. The regulatory capital within the Group is used to invest in
these instruments in addition to any surplus funds which may be held.
Buying and selling activity occurs depending on timing of different
cashflows.
Debt securities are measured at FVOCI and as such fall under the scope
of the ECL model. These assets are held to match policyholder
liabilities or interest on debt liabilities. If sold before maturity,
gains or losses on these assets impact the P&L.
Private Equity investments have been designated as being reported
through FVOCI due to these being long term, strategic investments.
Dividends are recognised in the Income Statement whilst a change in fair
values will be reflected in OCI. Given the immaterial amount (GBP7.5
million) of these investments, detailed levelling disclosures have not
been provided.
Impairment
All financial investments held at FVOCI and at amortised cost have been
assessed for impairment using the expected credit loss model under IFRS
9. The assessment has been made based on the credit ratings of the
entities and externally available credit loss ratios.
The fair value of debt securities is calculated with reference to quoted
market valuations and as such take into account future expected credit
losses. As a result, no impairment provision is required against the
book value. The calculated impairment loss within the fair value is
recognised through the Income Statement whilst fair value movements are
recognised in other comprehensive income. Deposits are held with well
rated institutions and are held at book value, with impairment
calculated in a similar manner to debt securities.
All assets that are purchased, which require a calculation of impairment,
are considered of investment grade or above (i.e. BBB rated or higher),
as defined by an external credit rating agency or an assessment from
Admiral's external asset managers. The credit rating of all assets is
regularly monitored. As at the year-end reporting date, the vast
majority of financial assets are of investment grade and considered low
risk under IFRS 9. These therefore remain within stage 1 and a 12 month
expected loss is used to calculate the impairment provision required.
Any assets downgraded below BBB are considered by the Group to have
significantly increased in credit risk since inception, and therefore
enter stage 2 under IFRS9.
The impairment provision at 31 December 2019 is GBP0.9 million (GBP0.5
million at 31 December 2018). Given there is no material change in the
credit quality or type of financial assets in the year and the movement
in provision is immaterial, no further disclosure has been made.
Fair value measurement
IFRS 13 requires assets and liabilities that are held at fair value to
be classified according to a hierarchy which reflects the observability
of significant market inputs, based on three levels.
The table below shows how the financial assets held at fair value have
been measured using the fair value hierarchy:
31 December 2019 31 December 2018
FVTPL FVOCI FVTPL FVOCI
GBPm GBPm GBPm GBPm
Level One (quoted prices in active
markets) 1,160.2 1,950.3 1,301.1 1,560.8
Level Two (use of observable inputs) -- -- -- --
Level Three (use of significant
unobservable inputs)(*1) -- 7.5 -- 7.8
Total 1,160.2 1,957.8 1,301.1 1,568.6
-------------------------------------- -------- -------- -------- --------
*1 No further information is provided due to the immateriality of the
balance.
Deposits are held with well rated institutions; as such the approximate
fair value is the book value of the investments as impairment of the
capital is not expected.
6f. Cash and cash equivalents
31 December 31 December
2019 2018
GBPm GBPm
Cash at bank and in hand(*1) 281.7 376.0
Short-term deposits -- 0.8
Total cash and cash equivalents 281.7 376.8
*1 GBP4.4m of cash is ring-fenced via a bank guarantee. See note 11f for
further details.
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. All cash and cash equivalents are measured at
amortised cost.
An assessment has been completed for impairment purposes. The credit
rating of all assets is regularly monitored. As at the year end
reporting date all financial assets are of investment grade or above
(i.e. BBB rated or higher) and considered low risk under IFRS 9. These
therefore remain within stage 1 and a 12 month expected loss is used to
calculate the impairment provision required. Given the short-term
duration of these assets and low risk of these assets, no impairment
provision has been recognised.
For cash at bank and cash deposits and other receivables, the fair value
approximates to the book value due to their short maturity.
6g. Other Assets
Insurance and other receivables
31 December 31 December
2019 2018
GBPm GBPm
Insurance receivables(*1) 948.9 842.3
Trade and other receivables 262.8 227.0
Prepayments and accrued income 16.0 12.7
Total insurance and other receivables 1,227.7 1,082.0
*1 Insurance receivables at 31 December 2019 include GBP71.7 million in
respect of salvage and subrogation recoveries (2018: GBP59.3 million).
Insurance receivables
Insurance receivables are measured at amortised cost. Given the
short-term duration of these assets no impairment provision has been
recognised.
Trade and other receivables
Classification. Trade and other receivables are measured at amortised
cost, being made up of multiple types of receivable balances.
Impairment. Where a provision is required for these receivables, it is
calculated in line with the simplified method for trade receivables per
IFRS 9, whereby lifetime expected credit losses are recognised
irrelevant of the credit risk. In this case, the provision is based on a
combination of
1. aged debtor analysis,
2. historic experience of write-offs for each receivable,
3. any specific indicators of credit deterioration observed, and
4. management judgement.
The level of provision is immaterial.
The amortised cost carrying amount of receivables is a reasonable
approximation of fair value.
Contract balances
The following table provides information about receivables and contract
assets from contracts with customers. Both balances are included in
Trade and other receivables.
31 December 31 December
2019 2018
GBPm GBPm
Receivables 40.3 32.5
Contract assets 24.8 23.4
The contract asset relates to the Group's right to consideration for
work undertaken in the law companies on behalf of clients which is
ongoing or where the final fee has not yet been billed. The contract
asset is transferred to trade receivables once the fee has been billed.
Significant changes in the contract asset balance during the period are
as follows:
31 December
2019
Contract asset balance GBPm
---------------------------------
At 1 January 2019 23.4
Revenue recognised 34.8
Transferred to trade receivables (31.8)
Write-offs (1.6)
At 31 December 2019 24.8
--------------------------------- -----------
The amount of revenue recognised in 2019 from performance obligations
satisfied (or partially satisfied) in previous periods is GBPnil (2018:
GBPnil).
6h. Financial liabilities
Subordinated notes
Financial liabilities are inclusive of GBP200.0 million subordinated
notes issued on 25 July 2014 at a fixed rate of 5.5% with a redemption
date of 25 July 2024.
The notes are unsecured subordinated obligations of the Group and rank
pari passu without any preference among themselves. In the event of a
winding-up or bankruptcy, they are to be repaid only after the claims of
all other creditors have been met.
There have been no defaults on any of the notes during the year. The
Group has the option to defer interest payments on the notes but to date
has not exercised this right.
The fair value of subordinated notes (level one valuation) at 31
December 2019 is GBP225.1 million (2018: GBP211.3 million).
Other borrowings
The Group holds a credit facility of GBP20.0 million which expires in
September 2020. GBP20.0 million was drawn under this agreement as at 31
December 2019. The group also hold a revolving credit facility of
GBP200.0 million which expires in December 2020. As at 31 December
2019, GBPnil was drawn down on this facility (2018: GBP71.5 million).
Amounts drawn under their respective agreements are shown within other
borrowings in the table above.
Loan backed securities
During 2018 an asset backed senior loan note facility of GBP300.0
million was established in relation to the Admiral Loans business, which
increased to GBP400.0 million during 2019 (see note 3 for details of the
accounting treatment of this SPE). As at the year end, GBP304.5 million
(2018: GBP168.3 million) of this facility had been utilised.
Lease liabilities
The Group leases various properties, with rental contracts typically for
fixed periods of 5 to 25 years although these may have extension
options. Lease terms are negotiated on an individual basis and contain a
wide range of different terms and conditions. The lease agreements do
not impose any covenants, but leased assets may not be used as security
for borrowing purposes.
Under IAS 17, all Group leases were classified as operating leases.
Operating lease payments, including the effects of any lease incentives,
were recognised in the income statement on a straight-line basis over
the lease term.
Under IFRS 16, from 1 January 2019, for each lease a right-of-use asset
and corresponding lease liability are recognised at the date at which
the leased asset becomes available for use by the Group.
The lease liability is initially measured at the present value of
remaining lease payments, which include the following:
-- fixed payments (including in-substance fixed payments), less any lease
incentives receivable;
-- variable lease payments that are based on an index or a rate;
-- payments of penalties for terminating the lease, if the lease term
reflects the lessee exercising that option.
The lease payments are discounted using the interest rate implicit in
the lease. If that rate cannot be determined, the Group's incremental
borrowing rate is used, being the rate that the Group would have to pay
to borrow the funds necessary to obtain an asset of a similar value in a
similar economic environment, with similar terms and conditions.
Generally, the Group uses its incremental borrowing rate as the discount
rate.
Subsequently, lease payments are allocated to the lease liability, split
between repayments of principal and interest. A finance cost is charged
to the profit and loss so as to produce a constant period rate of
interest on the remaining balance of the lease liability
6i. Objectives, policies and procedures for managing financial assets
and liabilities
The Group's activities expose it primarily to financial risks of credit
risk, interest rate risk, liquidity risk and foreign exchange risk. The
Board of Directors has delegated the task of supervising risk management
and internal control to the Group Risk Committee. There is also an
Investment Committee that makes recommendations to the Group and
subsidiary Boards on investment strategy.
There are several key elements to the risk management environment
throughout the Group. These are detailed in full in the Corporate
Governance Statement. Specific considerations for the risks arising from
financial assets and liabilities are detailed below.
Credit risk
The Group defines credit risk as the risk of loss if another party fails
to perform its obligations. The key areas of exposure to credit risk for
the Group result through its reinsurance programme, investments, bank
deposits, loans and advances to customers and policyholder receivables.
The Directors consider credit quality and counterparty exposure
frequently and in significant detail. The Directors consider that the
policies and procedures in place to manage credit exposure continue to
be appropriate for the Group's risk appetite and, during 2019 and
historically, no material credit losses have been experienced by the
Group.
The impact on equity of a 100 basis point increase in credit spreads at
the relevant valuation date, is as follows:
31 December 31 December
2019 2018
GBPm GBPm
Equity 54.8 42.3
Financial Investments and cash
Credit and counterparty risk is managed by the Group by investing in
high quality money market funds, and setting suitable parameters for
asset managers to adhere to when purchasing debt securities. Cash
balances and deposits are placed only with highly rated credit
institutions. The detailed holdings are reviewed regularly by the
Investment Committee.
Invested Assets
As noted above, the Group primarily invests the following asset types:
-- Investment funds and cash plus liquidity funds, which in turn invest in a
mixture of short-dated fixed and variable rate securities, such as cash
deposits, certificates of deposits, floating rate notes and other
commercial paper.
-- Deposits with well rated institutions are short in duration (one to five
years). These are classified as held at amortised cost. Therefore neither
the carrying value of the asset, nor the interest return will be impacted
by fluctuations in interest rates.
-- Debt securities are held within two segregated mandates. The guidelines
of the investments retain a similar credit quality of the investment
funds (all holdings are investment grade). The duration of the securities
is relatively short (c. three years) and similar to the duration of the
on book claims liabilities (the average duration is three years).
-- UK Government bonds which are classified as FVOCI.
Reinsurance assets
To mitigate the risk arising from exposure to reinsurers (in the form of
reinsurance recoveries and profit commissions), the Group only conducts
business with companies of appropriate financial strength ratings. In
addition, many reinsurance contracts are operated on a funds withheld
basis, which substantially reduces credit risk, as the Group withholds
the cash received from policyholders as collateral.
Loans and Advances to Customers
The risk appetite for the lending business is set with respect to
anticipated loan losses over a 12-month period. Management has defined
an amber and a red loan loss limit, representing points at which action
is required. These limits have been defined by management to reflect the
business maturity, the business ambitions and the economic climate. Risk
appetite is assessed at least annually, while the limits are
continuously monitored.
Insurance assets
A further principal form of credit risk is in respect of amounts due
from policyholders, largely due to the potential for default by
instalment payers. The impact of this is mitigated by the large customer
base and low average level of balance recoverable. There is also
mitigation by the operation of numerous high- and low-level controls in
this area, including payment on policy acceptance as opposed to
inception and automated cancellation procedures for policies in default.
The amount of bad debt expense relating to policyholder debt charged to
the income statement in 2019 and 2018 is insignificant.
Trade and other receivables
Trade receivables and other debtors are also subject to credit risk,
although this is mitigated by a review of the credit worthiness of all
counterparties prior to them being accepted.
Other Assets
All other assets are assessed as low credit risk under IFRS 9, with no
significant amounts past due or impaired.
The Group's credit risk exposure to assets with external ratings is as
follows:
31 December 31 December
2019 2018
Rating GBPm GBPm
Financial institutions -- Credit
institutions AAA 245.1 164.3
Financial institutions -- Credit
institutions AA 925.2 942.1
Financial institutions -- Credit
institutions A 1,483.2 1,501.3
Financial institutions -- Credit
institutions BBB and below 688.7 567.9
UK Government gilts AA 174.0 170.9
Reinsurers AA 688.9 458.5
Reinsurers A 160.6 303.6
Reinsurers BBB 1.7 --
The Group's maximum exposure to credit risk at 31 December 2019 is
GBP4,913.3 million (2018: GBP4,507.4 million), being the carrying value
of financial investments and cash, the carrying value of loans and
advances to customers, and the excess of reinsurance assets over amounts
owed to reinsurers under funds withheld arrangements. The Group does not
use credit derivatives or similar instruments to mitigate exposure.
GBP13.8 million (2018: GBP9.2 million) was charged to the income
statement in respect of movement on the ECL of loans and advances to
customers. Further details are provided in note 7b.
There were no further significant financial assets that were past due at
the close of either 2019 or 2018.
Interest rate risk
The Group considers interest rate risk to be the risk that unfavourable
movements in interest rates could adversely impact on the capital values
of financial assets and liabilities.
The impact on equity of a 50 basis point increase in interest rates at
the relevant valuation date, is as follows:
31 December 31 December
2019 2018
GBPm GBPm
Equity 35.4 29.9
Loans and Advances to customers
The Group's Loan portfolio is made up of fixed rate on loans which are
funded at a floating variable rate. The Group has an interest rate swap
arrangement, the risk management objective of which is to eliminate the
majority of the interest rate risk from the Loans portfolio. This
relates to the difference between fixed rate on loans written and
floating variable rate on funding.
Hedge Accounting
Hedge accounting is applied when the criteria specified in IFRS 9
(including amendments, as set out above) are met. In line with IFRS9,
the gain or loss on the hedged position as at the balance sheet date is
recognised through Other Comprehensive Income.
This results in a hedging reserve at 31 December 2019 (and at 31
December 2018) in relation to the interest rate swap.
The Group is exposed to GBP LIBOR within its hedge accounting
relationships, with the hedged item including issued GBP LIBOR floating
rate debt as disclosed in "Hedge accounting" below. In addition, the
Group has a number of financial assets and liabilities with interest
rates linked to GBP LIBOR that are not included in hedge accounting
relationships. Similarly, there are exposures to non GBP interest rates.
The Group is closely monitoring the market and the output from the
various industry working groups managing the transition to new benchmark
interest rates.
In response to the announcements, the Group has set up an IBOR
transition project which includes input from a number of areas of the
business including risk management, investments, legal, accounting and
systems. The project is under the governance of the Investment Committee,
and ultimately the Chief Financial Officer who is a member of the Board.
The aim of the programme is to understand where IBOR exposures are
within the business and prepare and deliver on an action plan to enable
a smooth transition to alternative benchmark rates. The Group intends to
have its transition and fall-back plans in place by the end of 2020.
For the Group's loan backed securities and related interest rate swaps
(which are bilateral agreements) the Group has started discussions with
respective counterparties to amend the reference benchmark interest rate
which will change to SONIA. The Group aims to finalise this amendment in
the second half of 2020.
For the Group's RCF and other debt linked to GBP LIBOR and reinsurance
funds withheld balances, the Group will begin a dialogue in 2020 to
propose amendments to the fall-back provisions to move from GBPLIBOR to
SONIA.
Below are details of the hedging instruments and hedged items in scope
of the IFRS 9 amendments due to benchmark interest rate reform, by hedge
type. The terms of the hedged items listed match those of the
corresponding hedging instruments.
Hedge Instrument type Maturing Nominal Hedged item
type in
Cash Pay sterling fixed, receive 1-month GBP LIBOR interest 2023 GBP146.3m Portfolio cash flow hedges of interest rate risk on
flow rate swap GBP LIBOR
hedge
Cash Pay sterling fixed, receive 1-month GBP LIBOR interest 2024 GBP274.7m Portfolio cash flow hedges of interest rate risk on
flow rate swap GBP LIBOR
hedge
---------------------------------------------------
The Group will continue to apply the amendments to IFRS 9 until the
uncertainty arising from the interest rate benchmark reforms with
respect to the timing and the amount of the underlying cash flows that
the Group is exposed to ends.
Due to the immateriality of the transaction and balance, no further
disclosure is made.
Financial Liabilities
The Group also holds a financial liability in the form of GBP200.0
million of subordinated notes with a ten year maturity and fixed rate
coupon of 5.5%. This liability is valued at amortised cost and therefore
neither the carrying value of the deposits, nor the interest payable,
will be impacted by fluctuations in interest rates.
Liquidity risk
Liquidity risk is defined as the risk that the Group does not have
sufficient, available financial resources to enable it to meet its
obligations as they fall due, or can only secure them at excessive cost.
The Group is strongly cash-generative due to the large proportion of
revenue arising from non-underwriting activity. Further, as noted above,
a significant portion of insurance funds are invested in investment
funds with same day liquidity, meaning that a large proportion of the
Group cash and investments is immediately available.
A breakdown of the Group's other borrowings, trade payables and other
payables is shown in note 11.
The subordinated notes have a maturity date of July 2024, whereas all
trade and other payables will mature within three to six months of the
balance sheet date. (Refer to the maturity profile at the start of this
note for further detail.)
In practice, the Group's Directors expect actual cash flows to be
consistent with this maturity profile except for amounts owed to
co-insurers and reinsurers. Of the total amounts owed to co-insurers and
reinsurers of GBP1,442.1 million (2018: GBP1,275.9 million), GBP1,129.6
million (2018: GBP1,022.7 million) is held under funds withheld
arrangements and therefore not expected to be settled within 12 months.
A maturity analysis for insurance contract liabilities is included in
note 5. The maturity profile for financial assets is included at the
start of this note.
The Group's Directors believe that the cash flows arising from these
assets will be consistent with this profile. Liquidity risk is not,
therefore, considered to be significant.
Foreign exchange risk
Foreign exchange risk arises from unfavourable movements in foreign
exchange rates that could adversely impact the valuation of overseas
assets and liabilities.
The Group is exposed to foreign exchange risk through its operations
overseas. Although the relative size of the international operations
means that the risks are relatively small, increasingly volatile foreign
exchange rates could result in larger potential gains or losses. Assets
held to fund insurance liabilities are held in the currency of the
liabilities; however, surplus assets held as regulatory capital in
foreign currencies remain exposed.
The Group's exposure to net assets and profits in currencies other than
the reporting currency is immaterial other than for US dollars and
Euros. The Group's exposure to net assets held in dollars at the balance
sheet date was GBP40.9 million (2018: GBP60.7 million); the exposure to
net assets held in Euros was GBP111.8 million (2018: GBP69.3 million).
The loss before tax derived from business carried out in the US was
GBP18.5 million (2018: GBP19.2 million). If the Sterling rates with US
dollars had strengthened/weakened by 10%, the Group's profit before tax
for the year would increase/decrease by GBP1.8 million (2018: GBP1.8
million).
The profit before tax derived from business carried out in Euros was
EUR11.9 million (2018: profit before tax of EUR5.4 million). If the
Sterling rates with euros had strengthened/weakened by 10%, the Group's
profit before tax for the year would increase/decrease by GBP1.0 million
(2018: GBP0.4 million).
7. Loans and Advances to Customers
7a. Accounting policies
Loans and advances to customers relate to the Admiral Loans business,
consisting of unsecured personal loans and car finance products.
Classification
Loans and advances to customers are measured at amortised cost. This is
because assets are held in order to collect contractual cash flows and
the contractual terms of the financial asset demand cash inflows which
are solely payments of principal and interest on the principal amount
outstanding.
Interest income and expense
Interest income received in relation to loans and advances to customers
is calculated using the effective interest method which allocates
interest, and direct and incremental fees and costs over the expected
lives of the assets and liabilities. There has been no change in
recognition of interest income from the comparative period.
Interest expense is calculated following the specific process relating
to each source of funding, which is not linked to individual accounts.
Finance leases
Included within Loans and advances to customers are personal contract
purchase (PCP) and hire purchase (HP) arrangements which are classified
as finance leases under IFRS 16. A receivable equal to the net
investment in the lease has been recognised. The net investment is equal
to the gross investment in the lease discounted at the rate implicit in
the lease. The impairment requirements of IAS 36 have been applied to
the finance leases held.
Lease interest income is recognised within interest income in the income
statement over the term of the lease using the effective interest
method.
7b. Loans and advances to customers
31 December 31 December
2019 2018
GBPm GBPm
Loans and advances to customers -- gross carrying
amount 479.1 310.4
Loans and advances to customers -- provision (24.0) (10.2)
Total loans and advances to customers 455.1 300.2
-------------------------------------------------- ----------- -----------
Loans and advances to customers are comprised of the following:
31 December 31 December
2019 2018
GBPm GBPm
Unsecured personal loans 445.8 294.2
Finance leases 33.3 16.2
Total loans and advances to customers, gross 479.1 310.4
--------------------------------------------- ----------- -----------
Fair value measurement
The amortised cost of loans and advances to customers on a portfolio
basis is considered a reasonable approximation of fair value.
Expected credit losses
The expected credit loss model is a three-stage model based on forward
looking information regarding changes in the credit quality since
origination. Credit risk is measured using a probability of default (PD),
exposure at default (EAD) and loss given default (LGD) defined as
follows:
-- Probability of Default (PD): The likelihood of an account defaulting;
calibrated through analysis of historic customer behaviour. Where
customers have already met the definition of default this is 100%. For
customers that are not in default the PD is determined through analysis
of historic data at a credit grade level.
-- Exposure at Default (EAD): The amount of balance at the time of default.
For loans that are in arrears the EAD is taken as the current balance,
for up to date loans the contractual outstanding balance in each future
month is used.
-- Loss Given Default (LGD): The amount of the asset not recovered following
a borrower's default, determined through analysis of historic recovery
performance.
The PD is applied to the EAD to calculate the expected loss. Where
customers are up-to-date the EAD is effectively the sum of the future
month-end balances, as such the PD is converted from an annual rate to a
monthly rate before applying it to the EAD. The LGD is then applied to
this loss to calculate the total expected loss including recoveries. A
forward-looking provision is also calculated, as set out later in this
note.
Loan assets are segmented into three stages of credit impairment:
-- Stage 1 -- no significant increase in credit risk of the financial asset
since inception;
-- Stage 2 -- significant increase in credit risk of the financial asset
since inception;
-- Stage 3 -- financial asset is credit impaired.
For assets in stage 1, the allowance is calculated as the expected
credit losses from events within 12 months after the reporting date. For
assets in stages 2 and 3 the allowance is calculated as the expected
credit loss from events in the remaining lifetime of each asset.
Significant increase in credit risk (SICR) (Stage 2)
As explained above, stage 1 assets have an ECL allowing for losses in
the next twelve months, stage 2 or 3 assets have an ECL allowing for
losses over the remaining lifetime of the contract. An asset moves to
stage 2 when its credit risk has increased significantly since initial
recognition. IFRS9 does not prescribe a definition of significant
increase in credit risk (SICR) but does include a rebuttable presumption
that this does occur for loan assets which are 30 days past due (which
the Group does not rebut).
The Group has deemed a SICR to have occurred where:
-- the loan is 1 to 3 loan payments in arrears, or
-- the loan has been in arrears with AFSL in the last six months, or
-- the customer has a significant level of unsecured debt relative to the
point of inception.
Credit Impaired (Stage 3)
The Group does not rebut the presumption within IFRS9 that default has
occurred when an exposure is greater than 90 days past due, which is
consistent with a customer being 4 or more payments in arrears. In
addition, a loan is deemed to be credit impaired where
1. there is an Individual Voluntary Arrangement ('IVA') agreement confirmed
or proposed, or
2. customer has started or progressed bankruptcy action, or
3. a repayment plan is in place, or
4. customer is deceased.
Write off policy
Loans are written off where there is no reasonable expectation of
recovery. The Group's policy is to write off balances to their estimated
net realisable value. Write offs are actioned on a case by case basis
taking into account the operational position and the collections
strategy. Given the immaturity of the loans business, and considerations
surrounding potential debt sales in the future, the Group has to-date
operationally written off only a small proportion of the book.
Forward-looking information
Under IFRS9 the provision must reflect an unbiased and
probability-weighted amount that is determined by evaluating a range of
possible outcomes. The means by which the Group has determined this is
to run scenario analyses.
Economic scenarios are considered, including an upturn, a downturn and a
severe downturn. A 50% weighting is applied to the base scenario and the
remaining 50% distributed across the scenarios as shown below:
-- 25% Upturn
-- 20% Downturn
-- 5% Severe Downturn
The key economic driver of the losses from the scenarios is the
likelihood of a customer entering hardship through unemployment. Several
customer demographics including age, income and debt levels are
considered with a sensitivity to the specific scenarios considered. For
each individual customer, the sensitivities from each demographic are
combined to determine an overall sensitivity.
Management judgement has been used to define the weighting and severity
of the different scenarios based on available data without undue cost or
effort. The outcome from the scenarios have been contrasted to loss
rates stemming from loans written over the last decade, including those
from the most recent economic downturn (2007-2009).
Sensitivities to key areas of estimation uncertainty
The key areas of estimation uncertainty identified, as per note 3 to the
financial statements, are in the PD and the forward looking scenarios.
Stage 1 assets represent 95% of the total loan assets; a 0.1% increase
in the stage 1 PD, i.e. from 1.8% to 1.9%, would result in a GBP0.5m
(2%) increase in ECL.
The upturn scenario would reduce the ECL allowance by GBP1.2 million
(-5.4%), the downturn would create an increase of GBP2.5 million (11.7%)
and severe downturn by GBP30.0 million (138.0%).
Amounts arising from ECL: loans and advances to customers
The Group is exposed to credit risk from the Admiral Loans business
which has expanded during 2019.
The following table sets out information about the credit quality of the
loans and advances to customers measured at amortised cost. Credit
grades are used to segment customers by apparent credit risk at the time
of acquisition. Higher grades are the lowest credit risk with each
subsequent grade increasing in expected credit risk. The Group does not
have any purchased or originated credit-impaired (POCI) assets. These
tables are inclusive of the finance lease assets which are held by the
Group, further analysis of these balances can be found in note 7c.
All probability of defaults figures included in this paragraph allow for
forward-looking information, i.e. the PDs are a weighted average from
the economic scenarios considered. The average probability of default
(PD) in for stage 1 assets is 1.8% (2018: 1.8%) reflecting the
expectation of defaults within 12 months of the reporting date. The
average PD for assets in stage 2 is 58.7% (2018: 5.2%) reflecting
expected losses over the remaining life of the assets. The PD for assets
in stage 3 is 100.0% (2018: 100.0%) as these assets are deemed to have
defaulted.
31 December 31 December
2019 2018
Stage 1 Stage 2 Stage 3
12- month ECL Lifetime ECL Lifetime ECL Total Total
GBPm GBPm GBPm GBPm GBPm
Credit
Grade(*2)
Higher 333.5 3.6 -- 337.1 139.5
Medium 112.1 2.6 -- 114.7 117.7
Lower 10.6 0.3 -- 10.9 48.6
Credit
Impaired -- -- 16.4 16.4 4.6
Gross carrying
amount 456.2 6.5 16.4 479.1 310.4
Expected
credit loss
allowance (5.6) (3.4) (14.4) (23.4) (9.9)
Other loss
allowance(*1) (0.6) -- -- (0.6) (0.3)
Carrying amount 450.0 3.1 2.0 455.1 300.2
--------------- -------------- ------------- ------------- ----------- -----------
*1 Other loss allowance covers losses due to a reduction in current or
future vehicle value or costs associated with recovery and sale of
vehicles.
-- Credit grade is the internal credit banding given to a customer at
origination. This is based on external credit rating information.
The following tables reconcile the opening and closing gross carrying
amount and expected credit loss allowance.
Stage 1 Stage 2 Stage 3
12- month ECL Lifetime ECL Lifetime ECL Total
GBPm GBPm GBPm GBPm
Gross carrying amount
as at 1 January 2019 296.9 8.9 4.6 310.4
Transfers
Transfers from Stage 1
to Stage 2 (4.5) 4.5 -- --
Transfers from Stage 1
to Stage 3 (8.2) -- 8.2 --
Transfers from Stage 2
to Stage 1 2.4 (2.4) - --
Transfers from Stage 2
to Stage 3 -- (2.7) 2.7 --
Transfers from Stage 3
to Stage 1 -- -- -- --
Transfers from Stage 3
to Stage 2 -- -- -- --
Principal redemption
payments (124.9) (4.5) (1.3) (130.7)
New financial assets
originated or
purchased 294.5 2.7 2.2 299.4
Gross carrying amount
as at 31 December
2019 456.2 6.5 16.4 479.1
Stage 1 Stage 2 Stage 3
12- month ECL Lifetime ECL Lifetime ECL
GBPm GBPm GBPm Total
Expected credit loss
allowance as at 1
January 2018 4.4 1.4 4.1 9.9
Movements with a profit
and loss impact
Transfers
Transfers from Stage 1
to Stage 2 (0.1) 0.2 -- 0.1
Transfers from Stage 1
to Stage 3 (0.3) -- 0.5 0.2
Transfers from Stage 2
to Stage 1 0.1 (0.2) -- (0.1)
Transfers from Stage 3
to Stage 1 -- -- -- --
Changes in PDs/ LGDs/
EADs (1.8) 0.8 7.9 6.9
New financial assets
originated or purchased 3.3 1.2 1.9 6.4
Total net profit and loss
charge in the period 1.2 2.0 10.3 13.5
------------------------- -------------- ------------- ------------- -----
Expected credit loss
allowance as at 31
December 2019 5.6 3.4 14.4 23.4
Other movements with no
profit and loss impact
Transfers
Transfers from Stage 2
to Stage 3 -- (1.0) 1.0 --
Transfers from Stage 3 -- -- -- --
to Stage 2
Write-offs -- -- (0.5) --
7c. Finance lease receivables
Loans and advances to customers include the following finance leases.
The group is the lessor for leases of cars.
31 December 31 December
2019 2018
GBPm GBPm
Gross investment in finance leases, receivable
Less than 1 year 8.1 4.9
Between 1 to 5 years 28.9 10.9
More than 5 years -- --
37.0 15.8
Unearned finance income (4.2) (1.9)
Net investment in lease receivables 32.8 13.9
Less impairment allowance (0.4) (0.2)
32.4 13.7
Net investment in finance leases, receivable
Less than 1 year 6.2 4.1
Between 1 to 5 years 26.6 9.8
More than 5 years -- --
32.8 13.9
The net investment in finance leases shown above is net of the
unguaranteed residual value of GBP0.5 million (2018: GBP0.3 million).
7d. Interest Income
31 December 31 December
2019 2018
GBPm GBPm
Loans and advances to customers 30.8 15.0
30.8 15.0
-------------------------------- ----------- -----------
Interest receivable on loans and advances to customers is recognised in
the Income Statement using the effective interest method, which
calculates the amortised cost of the financial asset and allocates the
interest income over the expected product life.
7e. Interest expense
31 December 31 December
2019 2018
GBPm GBPm
Interest payable on loan backed securities 5.6 1.7
Interest payable on other credit facilities 0.7 1.9
Total interest expense(*1) 6.3 3.6
*1 Interest paid in total during the year was GBP6.3 million (2018:
GBP3.1 million)
Interest expense represents the interest payable on funding for the
Admiral Loans business, in the form of credit facilities of GBP220.0
million (2018: GBP200.0 million) of which GBP20.0 million was drawn down
at 31 December 2019 (2018: GBP71.5 million) and loan backed securities
through an SPE of GBP400.0 million (2018: GBP300.0 million) of which
GBP304.5 million was drawn down at 31 December 2019 (2018: GBP168.3
million).
8. Other Revenue
8a. Accounting policy
(i) Contribution from additional products and fees and Other Revenue
Revenue is credited to the income statement over the period matching the
Group's obligations to provide services. Where the Group has no
remaining obligations, the revenue is recognised immediately. An
allowance is made for expected cancellations where the customer may be
entitled to a refund of amounts charged.
Commission from the provision of insurance intermediary services is
credited to revenue on the sale of the underlying insurance policy.
There has been no change in revenue recognition from the comparative
period.
(ii) Nature of goods and services
The following is a description of the principle activities within the
scope of IFRS 15 from which the Group generates its other revenue.
Products and services Nature, timing of satisfaction of performance
obligations and significant payment terms
------------------------ --------------------------------------------------------
Comparison The performance obligation is the provision
of insurance intermediary
services, at which point the performance obligation
is met. Revenue is therefore recognised at a
point in time.
------------------------ --------------------------------------------------------
Fee and commission The performance obligation is the provision
revenue: Commission of insurance intermediary services, at which
on underlying products point the performance obligation is met. Revenue
is therefore recognised at a point in time.
Payment of the commission is due within 30 days
of the period close.
------------------------ --------------------------------------------------------
Fee and commission The performance obligation is the change requested
revenue: Administration being made to the underlying policy, at which
fees point the performance obligation is met.
Revenue is therefore recognised at a point in
time and is collected
immediately or in line with direct debit instalments.
------------------------ --------------------------------------------------------
Revenue from law The performance obligation is the pursuit of
firm the compensation from the other side's insurer
on behalf of the customer. Once the case is
settled the performance obligation is fully
satisfied. Revenue is therefore recognised over
time using the expected value method. This method
values revenue by multiplying hours incurred
on open cases by a 12-month realisable rate.
The realisable rate is a probability weighted
transaction price based on settled cases. The
expected value method therefore results in revenue
recognised being constrained to that where there
is a high probability of no significant reversal.
Revenue is recognised over time because as the
Group has an enforceable right to payment for
performance completed to date and the work performed
to date has no alternative use to the Group
A contract asset is recognised equal to the
work performed up to the balance sheet date
but not yet billed. Refer to note 6g for further
detail of this balance.
Payment is due within 28 days of invoice.
------------------------ --------------------------------------------------------
Profit commission The Group's profit commission revenue falling
from co-insurers within the scope of IFRS 15, 'Revenue from Contracts
with Customers' relates to a contractual arrangement
between the Group's insurance intermediary EUI
Limited, and a third party (external to the
Group) co-insurer (Great Lakes) underwriting
a share of the UK Car Insurance business generated
by EUI Limited.
The variable consideration, being the profit
commission recognised in respect of each underwriting
year at the end of each reporting period, is
recognized at a point in time, and calculated
based on a number of detailed inputs, the most
material of which are as follows:
-- Premiums, defined as gross premiums ceded includin
g
any instalment income, less reinsurance premium (f
or
excess of loss reinsurance);
-- Insurance expenses incurred;
-- Claims ratio (more typically referred to as a loss
ratio)
Whilst the premiums and insurance expenses related
to an underwriting year are typically fixed
at the conclusion of each underwriting year
and are not subject to judgement, the claims
ratio is calculated from the underwriting year
loss ratios that result from the setting of
claims reserves in the financial statements
meaning it is subject to inherent uncertainty.
As stated in note 5d, Admiral's reserving policy
is initially to reserve conservatively, above
internal and independent projections of actuarial
best estimates. This is designed to create a
margin held in reserves to allow for unforeseen
adverse development in open claims.
Admiral's financial statement loss ratios, used
in the calculation of profit commission income,
continue to include a significant margin above
projected best estimates of ultimate claims
costs. It is this margin for uncertainty, included
in the financial statement loss ratios, which
creates the constraint over the recognition
of the variable consideration, as using the
booked loss ratio rather than the actuarial
best estimate constrains the profit commission
income to a level where there is a high probability
of no significant reversal of the revenue recognised.
The key methods, inputs and assumptions used
to estimate the variable consideration of profit
commission are therefore in line with those
used for the calculation of claims liabilities,
as set out in note 3 to the annual report, with
further detail also included in note 5. There
are no further critical accounting estimates
or judgements in relation to the recognition
of profit
commission.
------------------------ --------------------------------------------------------
Instalment income on insurance premium paid via instalments is
recognised under IFRS 9 using the effective interest rate, and as such
is not within the scope of IFRS 15. Profit commission from reinsurers
is within the scope of IFRS 4, and not within the scope of IFRS 15
Revenue from Contracts with Customers due to the nature of the income.
Refer to the Strategic Report for further detail on the sources of
revenue.
8b. Disaggregation of revenue
In the following tables, other revenue is disaggregated by major
products/service lines and timing of revenue recognition. The total
revenue disclosed in the table of GBP584.8 million (2018: GBP542.4
million) represents total other revenue and profit commission and is
disaggregated into the segments included in note 4.
Year ended 31 December 2019
International
UK Insurance Car Insurance Comparison Other Total
GBPm GBPm GBPm GBPm GBPm
-------------- ----------- ----- -----
Major products/ service line
Comparison(*1) -- -- 152.2 -- 152.2
Instalment income 85.3 2.9 -- -- 88.2
Fee and commission revenue 162.0 18.7 -- 1.9 182.6
Revenue from law firm 32.9 -- -- -- 32.9
Other 13.4 -- -- 0.6 14.0
Total other revenue 293.6 21.6 152.2 2.5 469.9
Profit commission 114.0 0.9 -- -- 114.9
Total other revenue and profit
commission 407.6 22.5 152.2 2.5 584.8
Timing of revenue recognition
Point in time 267.8 18.7 152.2 2.5 441.2
Over time 35.9 -- -- -- 35.9
Revenue outside the scope of IFRS
15 103.9 3.8 -- -- 107.7
407.6 22.5 152.2 2.5 584.8
Year ended 31 December 2018
International
UK Insurance Car Insurance Comparison Other Total
GBPm GBPm GBPm GBPm GBPm
-------------- ----------- ----- -----
Major products/ service line
Comparison(*1) -- -- 131.7 -- 131.7
Instalment income 82.6 2.7 -- -- 85.3
Fee and commission revenue 172.4 15.9 -- 1.9 190.2
Revenue from law firms 30.5 -- -- -- 30.5
Other 10.8 -- -- 0.7 11.5
Total other revenue 296.3 18.6 131.7 2.6 449.2
Profit commission 93.2 -- -- -- 93.2
Total other revenue and profit
commission 389.5 18.6 131.7 2.6 542.4
Timing of revenue recognition
Point in time 275.3 15.9 131.7 2.6 425.5
Over time 33.4 -- -- -- 33.4
Revenue outside the scope of IFRS
15 80.8 2.7 -- -- 83.5
389.5 18.6 131.7 2.6 542.4
*1 Comparison revenue excludes GBP19.4 million (31 December 2018:
GBP19.3 million) of income from other Group companies.
Instalment income is recognised applying the effective interest rate
over the term of the policy, and is outside the scope of IFRS 15.
Profit commission from reinsurers is recognised under IFRS 4, and is
discussed further in note 5 to the financial statements.
9. Expenses
9a. Accounting policies
(i) Acquisition costs and operating expenses
Acquisition costs incurred in obtaining new and renewal business are
charged to the income statement over the period in which those premiums
are earned. All other operating expenses are charged to the income
statement in the period that they are incurred.
(ii) Employee benefits
As detailed in the Remuneration Committee Report, the key elements of
employee remuneration are:
-- Base salaries and pension contributions
-- Share based incentive plans
-- A discretionary bonus, (the 'DFSS Bonus'), rather than an annual cash
bonus, that is directly linked to the number of DFSS awards held and
actual dividends paid out to shareholders.
Within note 9b, the charges for base salaries and pension contributions
(and the related social security costs) are recognised within insurance
contract expenses or administration and other marketing costs, based on
the role of the employee.
Charges for the share based incentive plans (and related social security
costs) and discretionary bonus are included within "share scheme
charges". These charges are not shown as part of the result for each
reportable segment, or within the expense ratio, due to them being
materially comprised of an accounting charge in line with IFRS 2 'Share
based payments' which does not result in a cash payment to employees but
instead results in a dilution of shares.
The rules of the share schemes ensure that the actual dilution level
does not exceed 10% in any rolling ten-year period, by funding of any
vested (and future) DFSS and SIP awards as appropriate with
market-purchased shares. This corresponds to approximately a 1% dilution
of share capital each year.
Base salaries and pension contributions
Base salaries and the related employer social security costs are charged
to the income statement in the period that they are incurred.
The Group contributes to defined contribution personal pension plans for
its employees. The contributions payable to these schemes are charged
in the accounting period to which they relate.
Share based incentive plans and related social security costs
The Group operates a number of equity and cash settled compensation
schemes for its employees, the main ones being:
-- a Share Incentive Plan ('SIP'), which is in place for all UK employees
encouraging wide share ownership across our employees, and
-- the Discretionary Free Share Scheme ('DFSS'). DFSS shares are typically
awarded to managers, and for the majority of employees 50% of the DFSS
shares awarded are subject to three performance conditions being Earnings
per Share growth, Return on Equity and Total Shareholder Return vs. the
FTSE 350 (excluding investment companies) over a three-year period.
For both schemes, employees must remain in employment three years after
the award date (i.e. at the vesting date), otherwise the shares are
forfeited.
The majority of these schemes are classed as equity settled under IFRS
2, due to the employees receiving shares (rather than cash) as
consideration for the services provided.
For equity settled schemes, the charge, which reflects the fair value of
the employee services received in exchange for the grant of the free
shares, is recognised as an expense, with a corresponding increase in
equity, as shown in Consolidated statement of changes in equity (2019:
GBP58.8 million; 2018: GBP56.7 million).
For the cash settled schemes, the expense recognised for the fair value
of services received results in a corresponding increase in liabilities.
The key drivers and assumptions used to calculate the charge for the
schemes over the three year vesting period are:
-- the number of shares awarded, which is set at the start of each scheme.
Details of the number of shares awarded for each scheme where shares
remain unvested is set out in note 9f(ii)
-- the fair value of the shares
-- For the SIP, the fair value of the shares awarded is the share
price at the award date. Awards under the SIP are entitled to
receive dividends, and hence no adjustment is made to this fair
value.
-- For the DFSS equity settled awards, awards are not eligible for
dividends, although a discretionary bonus is currently paid
equivalent to the dividend that would have been paid on the
shareholding, hence the fair value of the shares is revised
downwards to take account of these expected dividends.
-- For the DFSS cash settled awards, the fair value is based on the
share price at the vesting date. The closing share price at the
end of each reporting period is used as an approximation for the
closing price at the end of the vesting period.
-- attrition rates, which impact the ultimate number of shares that vest.
-- in the case of the DFSS, the vesting rates based on the performance
conditions, which also impact the ultimate number of shares that vest.
The number of shares that have ultimately vested compared to those
originally awarded is set out in note 9f(iii).
At each balance sheet date, the Group revises its assumptions on the
number of shares which will ultimately vest based on the latest forecast
information for attrition rates and, for the DFSS, the extent to which
the performance conditions are met.
The financial impact as a result of any change in the assumptions is
recognised through the income statement. Any significant changes in
assumptions may therefore result in an increased/ decreased charge in an
accounting period as a result of this true-up of the expected cumulative
charge required.
Social security costs on share based incentive plans
Social security costs are incurred by the Group in respect of the share
based incentive plans, with the expense recognised over the vesting
period for each share scheme. For the SIP, these costs are paid when
the employees sell the shares after vesting (typically 3-5 years after
the grant date). For the DFSS, the costs are paid immediately upon
vesting.
The total social security costs are calculated based on the following:
-- The taxable value of the shares, being:
-- For the SIP, the lower of the share price at award date and the
share price at the balance sheet date
-- For the DFSS, the share price at the balance sheet date;
-- the number of shares expected to vest for each scheme, driven by the
number of shares awarded, attrition rates and, for the DFSS, the vesting
rate based on performance conditions;
-- the appropriate social security rate.
These assumptions are updated at the end of each reporting period. The
financial impact as a result of any change in the assumptions is
recognised through the income statement. Any significant changes in
assumptions may therefore result in an increased/ decreased charge in an
accounting period as a result of this true-up of the expected cumulative
charge required.
Discretionary bonus on shares allocated but unvested
The cost of the DFSS bonus is recognised and paid in each period
equivalent to the dividends on shares allocated to employees that are
still entitled to vest, but have not yet vested. The cost shown also
includes the social security costs on the discretionary bonus. No
accrual is made for future discretionary bonus payments due to there
being no contractual obligation for such a bonus at the balance sheet
date.
9b. Operating expenses and share scheme charges
31 December 2019
Recoverable
from co- and
Gross reinsurers Net
GBPm GBPm GBPm
Acquisition of insurance contracts 138.0 (104.9) 33.1
Administration and other marketing costs (insurance
contracts) 398.8 (307.2) 91.6
Insurance contract expenses 536.8 (412.1) 124.7
Administration and other marketing costs (other) 281.4 -- 281.4
Share scheme charges 82.5 (29.1) 53.4
Total expenses and share scheme charges 900.7 (441.2) 459.5
31 December 2018
Recoverable
from co- and
Gross reinsurers Net
GBPm GBPm GBPm
Acquisition of insurance contracts(*1) 135.1 (103.8) 31.3
Administration and other marketing costs (insurance
contracts) 381.6 (287.9) 93.7
Insurance contract expenses 516.7 (391.7) 125.0
Administration and other marketing costs (other) 249.2 -- 249.2
Share scheme charges 76.9 (27.1) 49.8
Total expenses and share scheme charges 842.8 (418.8) 424.0
*1 Acquisition of insurance contracts expense excludes GBP19.4 million
(2018: GBP19.3 million) of aggregator fees from other Group companies.
The GBP91.6 million (2018: GBP93.7 million) administration and marketing
costs allocated to insurance contracts is principally made up of salary
costs.
Analysis of other administration and other marketing costs:
31 December 31 December
2019 2018
GBPm GBPm
Expenses relating to additional products and fees 70.1 63.4
Comparison operating expenses 156.8 144.4
Loans expenses (including movement on ECL provision) 31.9 22.9
Other expenses 22.6 18.5
Total 281.4 249.2
Refer to note 13 for a reconciliation between insurance contract
expenses and the reported expense ratio.
9c. Staff costs and other expenses
31 December 31 December
2019 2018
Total Net Total Net
GBPm GBPm GBPm GBPm
-------- --------
Salaries 292.2 109.2 268.8 95.7
Social security charges 30.5 12.8 27.2 10.3
Pension costs 13.5 4.8 9.0 3.2
Share scheme charges (see note 9f) 82.5 53.4 76.9 49.8
Total staff expenses 418.7 180.2 381.9 159.0
Depreciation charge:
-- Owned assets 11.9 4.1 12.0 3.7
-- ROU assets 11.9 4.6 -- --
Amortisation charge:
-- Software 17.4 5.9 15.5 4.6
-- Deferred acquisition costs -- 52.8 -- 50.5
Auditor's remuneration (including VAT):
-- Fees payable for the audit of the Company's annual
accounts 0.1 -- -- --
-- Fees payable for the audit of the Company's subsidiary
accounts 0.9 0.8 0.5 0.3
-- Fees payable for audit related assurance services
pursuant to legislation or regulation 0.4 -- 0.4 --
GBP32,380 (2018: GBPnil) was payable to the auditor for other services
in the year.
Total and net expenses are before and after co- and reinsurance
arrangements respectively.
Refer to the Corporate Governance Report for details of the Audit
Committee's policy on fees paid to the Company's auditor for non-audit
services. Audit fees are 66% (2018: 53%) of total fees and 31% (2018:
47%) of total fees are for non-audit services, which are classed as
audit related assurance services under the FRC rules on non-audit
services.
The amortisation of software and deferred acquisition cost assets is
charged to expenses in the income statement.
9d. Staff numbers (including Directors)
Average for the year
2019 2018
Number Number
----------
Direct customer contact staff 7,319 6,845
Support staff 3,510 3,354
Total 10,829 10,199
9e. Directors' remuneration
(i) Directors' remuneration
31 December 31 December
2019 2018
GBPm GBPm
Directors' emoluments 1.7 1.6
Amounts receivable under SIP and DFSS share schemes 1.2 1.1
Company contributions to money purchase pension
plans -- --
Total 2.9 2.7
(ii) Number of Directors
2019 2018
Number Number
Retirement benefits are accruing to the following
number of Directors under:
-- Money purchase schemes 1 1
9f. Staff share schemes
Analysis of share scheme costs:
31 December 2019
SIP charge (i) DFSS charge (ii) Total charge
------------------ --------------
Gross Net Gross Net Gross Net
GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- --------
IFRS 2 charge for
equity settled
share schemes 17.3 11.9 41.5 26.5 58.8 38.4
IFRS 2 charge for
cash settled share
schemes -- -- 1.9 1.0 1.9 1.0
Total IFRS 2 charge 17.3 11.9 43.4 27.5 60.7 39.4
Social security
costs on IFRS 2
charge 1.6 1.2 7.1 4.8 8.7 6.0
Discretionary bonus
on shares allocated
but unvested -- -- 13.1 8.0 13.1 8.0
Total share scheme
charges 18.9 13.1 63.6 40.3 82.5 53.4
-------------------- ------- ------- -------- -------- ------ ------
31 December 2018
SIP charge (i) DFSS charge (ii) Total charge
---------------- ------------------ --------------
Gross Net Gross Net Gross Net
GBPm GBPm GBPm GBPm GBPm GBPm
------- --------
IFRS 2 charge for
equity settled
share schemes 16.4 11.2 40.3 25.8 56.7 37.0
IFRS 2 charge for
cash settled share
schemes -- -- 0.6 0.3 0.6 0.3
Total IFRS 2 charge 16.4 11.2 40.9 26.1 57.3 37.3
Social security
costs 1.7 1.1 5.9 3.9 7.6 5.0
Discretionary bonus
on shares allocated
but unvested -- --- 12.0 7.5 12.0 7.5
Total share scheme
charges 18.1 12.3 58.8 37.5 76.9 49.8
-------------------- ------- ------- -------- -------- ------ ------
Net share scheme charges are presented after allocations to co-insurers
(in the UK and Italy) and reinsurers (in the International Insurance
businesses). The proportion of net to gross share scheme charges would
be expected to be consistent in each period, at approximately 65%.
Financial year ended 31 December
Total cumulative
2016 and charge to
Analysis of gross prior 2017 2018 2019 date
cost GBPm GBPm GBPm GBPm GBPm
Year of share scheme
- SIP
2014 9.7 2.1 -- -- 11.8
2015 8.6 3.0 2.0 -- 13.6
2016 6.2 2.2 5.4 2.1 15.9
2017(*1) 2.2 1.1 5.5 5.5 14.3
2018(*1) -- -- 3.5 6.1 9.6
2019(*1) -- -- -- 3.6 3.6
Gross IFRS 2 costs
-- SIP 8.4 16.4 17.3
Year of share scheme
- DFSS
2014 11.8 3.7 -- -- 15.5
2015 9.6 9.4 7.0 -- 26.0
2016 5.8 12.8 17.0 9.8 45.4
2017(*2) -- 3.6 13.0 14.5 31.1
2018(*2) -- -- 3.9 15.6 19.5
2019(*2) -- -- -- 3.5 3.5
Gross IFRS 2 costs
- DFSS 29.5 40.9 43.4
--------------------- -------- ------ ----- ----- ----------------
Total IFRS 2 costs 37.9 57.3 60.7
*1 Awards are made in March and September of each year, and vest over 36
months from award date. On the 2017 scheme, an average of 5 months'
charge remains outstanding, on the 2018 scheme an average of 17 months'
charge remains outstanding, and on the 2019 schemes an average of 29
months' charge remains outstanding.
*2 The main award is made in September of each year, with smaller awards
made at other points through the year. The shares vest over 36 months
from award date. On the 2017 main DFSS, 9 months' charge remains
outstsanding; on the 2018 main DFSS 21 months' charge remains
outstanding, and on the 2019 main DFSS, 33 months' charge remains
outstanding.
(i) The Approved Share Incentive Plan (the SIP)
Eligible UK based employees qualified for awards under the SIP based
upon the performance of the Group in each half-year period. The maximum
award for each year is GBP3,600 per employee and the maximum number of
shares that can vest relating to the 2019 schemes is 1,113,496 (2018
schemes: 1,192,302; 2017 schemes: 1,067,291).
The awards are made at the discretion of the remuneration committee,
taking into account the Group's performance.
(ii) The Discretionary Free Share Scheme (the DFSS)
Under the DFSS, details of which are contained in the remuneration
policy section of the Directors' Remuneration Report, individuals
receive an award of free shares at no charge.
The maximum number of shares that can vest relating to the 2019 schemes
is 2,637,196 (2018 schemes: 3,373,948; 2017 schemes: 3,205,449).
The vesting percentage for the 2016 DFSS scheme which vested during 2019
was 93.8% (2015 DFSS scheme: 87.1%).
(ii) Number of free share awards committed at 31 December 2019
Awards
outstanding(*1)
SIP 2017(2) 1,067,291
SIP 2018(*2) 1,192,302
SIP 2019(*2) 1,113,496
DFSS 2017(*3) 3,205,449
DFSS 2018(*3) 3,373,948
DFSS 2019(*3) 2,637,196
Total awards committed 12,589,682
----------------------- ----------------
*1 Being the maximum number of awards committed before accounting for
expected staff attrition and vesting conditions
*2 Shares are awarded in March and September of each year, and vest
three years later
*3 The main award is made in September of each year, with smaller awards
made at other points through the year
(iii) Number of free share awards vesting during the year ended 31
December 2019
During the year ended 31 December 2019, awards under the SIP H116 and
H216 schemes and the DFSS 2016 schemes vested. The total number of
awards vesting for each scheme is as follows.
Original awards Awards vested
SIP 2016 schemes 1,025,662 797,311
DFSS 2016 schemes 3,253,250 2,643,980
The difference between the original and vested awards reflects employee
attrition (SIP schemes) and both employee attrition and the vesting
outcomes based on performance conditions noted above (DFSS schemes).
The weighted average fair value of the shares granted in the year was
GBP18.96 (2018: GBP17.65).
The weighted average market share price at the date of exercise for
shares exercised during the year was GBP21.06 (2018: GBP20.05).
10. Taxation
10a. Accounting policy
Income tax on the profit or loss for the periods presented comprises
current and deferred tax.
(i) Current tax
Current tax is the expected tax payable on the taxable income for the
period, using tax rates that have been enacted or substantively enacted
by the balance sheet date, and includes any adjustment to tax payable in
respect of previous periods.
Current tax related to items recognised in other comprehensive income is
also recognised in other comprehensive income and not in the income
statement.
(ii) Deferred tax
Deferred tax is provided in full using the balance sheet liability
method, providing for temporary differences arising between the carrying
amount of assets and liabilities for accounting purposes and the amounts
used for taxation purposes.
Deferred tax is calculated at the tax rates that have been enacted or
substantially enacted by the balance sheet date and that are expected to
apply in the period when the liability is settled or the asset is
realised.
The principal temporary differences arise from carried forward losses,
depreciation of property and equipment and share scheme charges. The
resulting deferred tax is charged or credited in the income statement,
except in relation to share scheme charges where the amount of tax
benefit credited to the income statement is limited to an equivalent
credit calculated on the accounting charge. Any excess is recognised
directly in equity.
Deferred tax assets relating to carried forward losses are recognised
only to the extent that it is probable that future taxable profits will
be available against which the assets can be utilised. The probability
of the availability of future taxable profits is determined by a
combination of the classification of the status of the businesses
holding cumulative tax losses and the business plan profit projections
for that business, subject to appropriate stress testing.
10b. Taxation
31 December 31 December
2019 2018
GBPm GBPm
Current tax
Corporation tax on profits for the year 91.3 81.4
Under-provision relating to prior periods 0.5 0.2
Current tax charge 91.8 81.6
Deferred tax
Current period deferred taxation movement 2.8 3.8
(Over)/under provision relating to prior periods (0.4) 0.3
Total tax charge per consolidated income statement 94.2 85.7
Factors affecting the total tax charge are:
31 December 31 December
2019 2018
GBPm GBPm
Profit before tax 522.6 476.2
Corporation tax thereon at effective UK corporation
tax rate of 19.0% (2018: 19.0%) 99.3 90.5
Expenses and provisions not deductible for tax
purposes 1.8 0.7
Non-taxable income (4.9) (6.0)
Impact of change in UK tax rate on deferred tax
balances 0.3 0.5
Adjustments relating to prior periods 0.1 0.6
Impact of different overseas tax rates (8.8) (8.2)
Unrecognised deferred tax 6.4 7.6
Total tax charge for the period as above 94.2 85.7
---------------------------------------------------- ----------- -----------
The outstanding corporation tax payable as at 31 December 2019 was
GBP48.3 million (2018: GBP49.3 million).
10c. Deferred income tax asset/(liability)
Analysis of deferred tax asset/(liability)
Tax treatment
of share Capital Carried Other
schemes allowances forward losses Fair value reserve differences Total
GBPm GBPm GBPm GBPm GBPm GBPm
Balance brought forward at 1 January 2018 6.1 (4.5) 2.9 (4.6) 0.4 0.3
Tax treatment of share scheme charges through income
or expense (2.2) -- -- -- -- (2.2)
Tax treatment of share scheme charges through
reserves 3.3 -- -- -- -- 3.3
Capital allowances -- 0.9 -- -- -- 0.9
Carried forward losses -- -- (2.9) -- -- (2.9)
Movement in fair value reserve -- -- -- 0.7 -- 0.7
Other difference -- -- -- -- 0.1 0.1
Balance carried forward at 31 December 2018 7.2 (3.6) -- (3.9) 0.5 0.2
Tax treatment of share scheme charges through income
or expense (4.6) -- -- -- -- (4.6)
Tax treatment of share scheme charges through
reserves 3.3 -- -- -- -- 3.3
Capital allowances -- 1.5 -- -- -- 1.5
Carried forward losses -- -- -- -- -- --
Movement in fair value reserve -- -- -- (1.5) -- (1.5)
Other difference -- -- -- -- 0.7 0.7
Balance carried forward at 31 December 2019 5.9 (2.1) -- (5.4) 1.2 (0.4)
Positive amounts presented above relate to a deferred tax asset
position.
The average effective rate of tax for 2019 is 19.0% (2018: 19.0%). A
further reduction to the main rate of corporation tax to 17% (effective
from 1 April 2020) was enacted on 15 September 2016 but is expected to
be reversed. This would reduce the Group's future current tax charge
accordingly.
The deferred tax asset in relation to carried forward losses remains at
GBPnil at the year end (2018: GBPnil) due to uncertainty over the
availability of future taxable profits against which to offset utilise
any deferred tax asset (see note 3 for details of how future taxable
profits are estimated).
At 31 December 2019 the Group had unused tax losses amounting to
GBP231.3 million (2018: GBP217.5 million), relating primarily to the
Group's US businesses Elephant Auto and compare.com, for which no
deferred tax asset has been recognised. The earliest expiry date for any
of these tax losses is 2029. The total aggregated unrecognised deferred
tax liabilities on temporary differences associated with subsidiaries is
GBPnil (2018: GBPnil).
11. Other assets and other liabilities
11a. Accounting policy
(i) Property and equipment, and depreciation
All property and equipment is stated at cost less accumulated
depreciation. Depreciation is calculated using the straight line method
to write off the cost less residual values of the assets over their
useful economic lives. These useful economic lives are as follows:
Improvements to short leasehold buildings -- four to
ten years
Computer equipment -- two to four years
Office equipment -- four years
Furniture and fittings -- four years
Motor vehicles -- four years
Right-of-use assets - 2 -- 20 years, aligned to lease agreement
In line with the adoption of IFRS 16, and as set out further in notes 2
and 6h to the financial statements, a right-of-use asset has been
established in relation the Group's lease arrangements.
The right-of-use asset is measured at cost, which comprises the
following:
-- the amount of the initial measurement of lease liability (see notes 2 and
6h to the financial statements)
-- any lease payments made at or before the commencement date less any lease
incentives received
-- any initial direct costs, and
-- restoration costs.
The right-of-use asset is subsequently depreciated over the shorter of
the lease term and the asset's useful life on a straight-line basis.
The Group does not have any significant leases which qualify for the
short-term leases or leases of low-value assets exemption.
(ii) Impairment of property and equipment
In the case of property and equipment, carrying values are reviewed at
each balance sheet date to determine whether there are any indications
of impairment. If any such indications exist, the asset's recoverable
amount is estimated and compared to the carrying value. The carrying
value is the higher of the fair value of the asset, less costs to sell
and the asset's value in use. Impairment losses are recognised through
the income statement.
(iv) Intangible assets
Goodwill
All business combinations are accounted for using the acquisition
method. Goodwill has been recognised in acquisitions of subsidiaries,
and represents the difference between the cost of the acquisition and
the fair value of the net identifiable assets acquired.
The classification and accounting treatment of acquisitions occurring
before 1 January 2004 have not been reconsidered in preparing the
Group's opening IFRS balance sheet at 1 January 2004 due to the
exemption available in IFRS 1 (First time adoption). In respect of
acquisitions prior to 1 January 2004, goodwill is included at the
transition date on the basis of its deemed cost, which represents the
amount recorded under UK GAAP, which was tested for impairment at the
transition date. On transition, amortisation of goodwill has ceased as
required by IAS 38.
Goodwill is stated at cost less any accumulated impairment losses.
Goodwill is allocated to cash generating units (CGUs) according to
business segment and is reviewed annually for impairment.
The goodwill held on the balance sheet at 31 December 2019 and 2018 is
allocated solely to the UK Insurance segment.
Impairment of goodwill
The annual impairment review involves comparing the carrying amount to
the estimated recoverable amount (by allocating the goodwill to CGUs)
and recognising an impairment loss if the recoverable amount is lower.
Impairment losses are recognised through the income statement and are
not subsequently reversed.
The recoverable amount is the greater of the fair value of the asset
less costs to sell and the value in use of the CGU.
The value in use calculations use cash flow projections based on
financial budgets approved by management covering a three year period.
Cash flows beyond this period are considered, but not included in the
calculation.
The key assumptions used in the value in use calculations are those
regarding growth rates and expected changes in pricing and expenses
incurred during the period. Management estimates growth rates and
changes in pricing based on past practices and expected future changes
in the market.
The headroom above the goodwill carrying value is very significant, and
there is no foreseeable event that would eliminate this margin.
Deferred acquisition costs
Acquisition costs comprise all direct and indirect costs arising from
the conclusion of insurance contracts. Deferred acquisition costs
represent the proportion of acquisition costs incurred that correspond
to the unearned premiums provision at the balance sheet date. This
balance is held as an intangible asset. It is amortised over the term of
the contract as premium is earned.
Software
Purchased software is recognised as an intangible asset and amortised
over its expected useful life (generally the licence term). Internally
generated software is recognised as an intangible asset, with directly
attributable costs incurred in the development stage capitalised. The
internally generated software assets are amortised over the expected
useful life of the systems and amortisation commences when the software
is available for use.
The carrying value of software is reviewed every six months for evidence
of impairment, with the value being written down if any impairment
exists. Impairment may be reversed if conditions subsequently improve.
(iv) Provisions, Contingent Liabilities and Contingent Assets
Provisions are recognised when a legal or constructive obligation arises
as a result of an event that occurred before the balance sheet date,
when a cash-outflow relating to this obligation is probable and when the
amount can be estimated reliably.
Where a material obligation exists, but the likelihood of a cash
out-flow or the amount is uncertain, or where there is a possible
obligation arising from a past event that is contingent on a future
event, a contingent liability is disclosed.
Contingent assets are possible assets that arise from past events, whose
existence will be confirmed only by the occurrence or non-occurrence of
future events. Where it is probable that a cash-inflow will arise from a
contingent asset, this is disclosed.
11b. Property and equipment
ROU
Improvements to short leasehold buildings Computer equipment Office equipment Furniture and fittings Asset -- Leasehold buildings Total
GBPm GBPm GBPm GBPm GBPm GBPm
Cost
At 1 January
2018 28.7 57.2 19.7 9.8 -- 115.4
Additions 3.1 4.9 1.9 0.1 -- 10.0
Disposals (0.7) (0.1) (0.2) (0.2) -- (1.2)
Transfers (1.2) -- -- -- -- (1.2)
Foreign
exchange
movement (0.1) 0.1 -- 0.1 -- 0.1
At 31 December
2018 29.8 62.1 21.4 9.8 -- 123.1
Depreciation
At 1 January
2018 14.9 45.9 15.2 8.1 -- 84.1
Charge for the
year 2.8 6.5 1.9 0.8 -- 12.0
Disposals (0.7) (0.1) (0.1) (0.1) -- (1.0)
Foreign
exchange
movement (0.2) -- -- 0.1 -- (0.1)
At 31 December
2018 16.8 52.3 17.0 8.9 -- 95.0
Net book
amount
At 1 January
2018 13.8 11.3 4.5 1.7 -- 31.3
Net book
amount
At 31 December
2018 13.0 9.8 4.4 0.9 -- 28.1
Cost
At 1 January
2019 29.8 62.1 21.4 9.8 -- 123.1
Initial
application
of IFRS 16 -- -- -- -- 136.7 136.7
Additions 4.2 9.7 1.8 0.9 -- 16.6
Disposals -- (0.2) (0.6) (0.2) -- (1.0)
Transfers (0.4) 0.1 -- 0.3 -- --
Foreign
exchange and
other
movements(*1) (0.2) (0.3) (0.2) (0.2) (2.3) (3.2)
At 31 December
2019 33.4 71.4 22.4 10.6 134.4 272.2
Depreciation
At 1 January
2019 16.8 52.3 17.0 8.9 -- 95.0
Initial
application of
IFRS 16 -- -- -- -- -- --
Charge for the
year 3.2 6.7 1.5 0.5 11.9 23.8
Disposals -- (0.1) -- (0.2) -- (0.3)
Foreign
exchange
movement (0.2) (0.2) (0.1) (0.1) (0.1) (0.7)
At 31 December
2019 19.8 58.7 18.4 9.1 11.8 117.8
Net book
amount
At 31 December
2019 13.6 12.7 4.0 1.5 122.6 154.4
*1 Within foreign exchange and other movements for the ROU asset,
GBP0.6m relates to remeasurements of the ROU asset due to amendments to
the payment terms of the leasing arrangement.
11c. Intangible Assets
Deferred
acquisition
Goodwill costs Software(*1) Total
GBPm GBPm GBPm GBPm
At 1 January 2018 62.3 20.6 76.5 159.4
Additions -- 53.1 13.9 67.0
Amortisation charge -- (50.5) (15.5) (66.0)
Disposals -- -- -- --
Transfers -- -- 1.2 1.2
Foreign exchange movement -- 0.2 0.2 0.4
At 31 December 2018 62.3 23.4 76.3 162.0
Additions -- 54.8 17.0 71.8
Amortisation charge -- (52.8) (17.4) (70.2)
Disposals -- -- (0.3) (0.3)
Impairment -- -- (1.2) (1.2)
Transfers -- -- -- --
Foreign exchange movement -- (0.6) (1.2) (1.8)
At 31 December 2019 62.3 24.8 73.2 160.3
*1 Software additions relating to internal development are immaterial in
both 2019 and 2018
Goodwill relates to the acquisition of Group subsidiary EUI Limited
(formerly Admiral Insurance Services Limited) in November 1999. As
described in the accounting policies, the amortisation of this asset
ceased on transition to IFRS on 1 January 2004. All annual impairment
reviews since the transition date have indicated that the estimated
recoverable value of the asset is greater than the carrying amount and
therefore no impairment losses have been recognised. Refer to the
accounting policy for goodwill for further information.
11d. Trade and other payables
31 December 31 December
2019 2018
GBPm GBPm
Trade payables 37.5 37.9
Amounts owed to co-insurers 220.8 153.2
Amounts owed to reinsurers 1,221.3 1,122.7
Other taxation and social security liabilities 79.6 60.4
Other payables 188.1 196.0
Accruals and deferred income (see below) 228.6 231.3
Total trade and other payables 1,975.9 1,801.5
Of amounts owed to co-insurers and reinsurers (recognised under IFRS 4),
GBP1,129.6 million (2018: GBP1,022.7 million) is held under funds
withheld arrangements.
Analysis of accruals and deferred income:
31 December 31 December
2019 2018
GBPm GBPm
Premium received in advance of policy inception 131.7 127.2
Accrued expenses 57.4 64.8
Deferred income 39.5 39.3
Total accruals and deferred income as above 228.6 231.3
11e. Leases
Information presented in this note is in accordance with IFRS 16.
Comparative information presented for the year ended 31 December 2018 is
in accordance with IAS 17.
Admiral Group plc hold various property under leasing arrangements that
are now recognised as right of use assets and lease liabilities. A
reconciliation to the prior year operating lease commitment can be found
in note 2b. A maturity analysis of lease liabilities based on
contractual undiscounted cashflows is set out below:
31 December 31 December
2019 2018
GBPm GBPm
Maturity analysis -- contractual undiscounted cash
flows
Within one year 12.9 14.8
Between two to five years 47.9 54.3
Over five years 102.0 116.8
Total 162.8 185.9
Amounts recognised in the statement of financial position are as
follows:
31 December
2019
GBPm
Lease liabilities
Current 9.7
Non-Current 127.4
Total 137.1
Amounts recognised in the income statement are as follows:
31 December
2019
GBPm
Interest payable on lease liabilities under IFRS 16 3.2
Interest recoverable from co and re-insurers (2.0)
1.2
---------------------------------------------------- -----------
The Group has no significant financial commitments other than those
accounted for as right of use assets and lease liabilities under IFRS
16.
11f. Contingent liabilities
The Groups' legal entities operate in numerous tax jurisdictions and on
a regular basis are subject to review and enquiry by the relevant tax
authority.
Rastreator Comparador Correduria Seguros ("Rastreator Comparador"), the
Group's Spanish Comparison business, has recently undergone a tax audit
in respect of the 2013 and 2014 financial years. As a result of the
audit, the Spanish Tax Authority has denied the VAT exemption relating
to insurance intermediary services which Rastreator Comparador has
applied. Rastreator Comparador is appealing this decision via the
Spanish Courts and is confident in defending its position which is, in
its view, in line with the EU Directive and is also consistent with the
way similar supplies are treated throughout Europe.
The potential liability for the financial years currently subject to
audit is approximately EUR5m, and, as identified in note 6, a bank
guarantee has been provided to the Spanish Tax Authority for this
amount. If the exemption is also disallowed in respect of later years,
the liability could increase to EUR19m.
The Group is also in early stage discussions on various corporate tax
matters with tax authorities in the UK and Italy.
No provision has been made in these financial statements in relation to
the matters noted above.
12. Share capital
The Group's capital includes share capital and the share premium account,
other reserves which are comprised of the fair value reserve and foreign
exchange reserve, and retained earnings.
12a. Accounting policies
(i) Share capital
Shares are classified as equity when there is no obligation to transfer
cash or other assets.
(ii) Dividends
Dividends are recorded in the period in which they are declared and
paid.
(iii) Earnings per share
Basic Earnings per share is calculated by dividing profit or loss
attributable to equity holders of the Group parent company, Admiral
Group plc by the weighted average number of ordinary shares during the
period.
Diluted Earnings per share is calculated by dividing profit or loss
attributable to equity holders of the Group parent company by the
weighted average number of ordinary shares outstanding, adjusted for the
effects of all dilutive potential ordinary shares.
12b. Dividends
Dividends were proposed, approved and paid as follows:
31 December 31 December
2019 2018
GBPm GBPm
Proposed March 2018 (58.0 pence per share, approved
April 2018, paid June 2018) -- 163.3
Declared August 2018 (60.0 pence per share, paid October
2018) -- 169.4
Proposed March 2019 (66.0 pence per share, approved
April 2019, paid June 2019) 188.0 --
Declared August 2019 (63.0 pence per share, paid October
2019) 179.8 --
Total dividends 367.8 332.7
The dividends proposed in March (approved in April) represent the final
dividends paid in respect of the 2017 and 2018 financial years. The
dividends declared in August are interim distributions in respect of
2018 and 2019.
A final dividend of 77.0 pence per share (GBP222 million) has been
proposed in respect of the 2019 financial year. Refer to the Chairman's
Statement and Strategic Report for further detail.
12c. Earnings per share
31 December 31 December
2019 2018
GBPm GBPm
Profit for the financial year after taxation attributable
to equity shareholders 432.4 395.1
Weighted average number of shares -- basic 291,513,714 288,197,247
Unadjusted earnings per share -- basic 148.3p 137.1p
Weighted average number of shares -- diluted 292,094,797 288,845,845
Unadjusted earnings per share -- diluted 148.0p 136.8p
The difference between the basic and diluted number of shares at the end
of 2019 (being 581,083; 2018: 648,598) relates to awards committed, but
not yet issued under the Group's share schemes. Refer to note 9 for
further detail.
12d. Share capital
31 December 31 December
2019 2018
GBPm GBPm
Authorised
500,000,000 ordinary shares of 0.1 pence 0.5 0.5
Issued, called up and fully paid
293,686,329 ordinary shares of 0.1 pence 0.3 --
290,502,737 ordinary shares of 0.1 pence -- 0.3
0.3 0.3
----------------------------------------- ----------- -----------
During 2019, 3,183,592 (2018: 3,288,475) new ordinary shares of 0.1
pence were issued to the trusts administering the Group's share schemes.
883,592 (2018: 988,475) 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 31 December 2019 of 11,628,981 (31 December 2018:
10,745,389). Of the shares issued, 4,389,821 remain in the Trust at 31
December 2019 (2018: 4,311,425). These shares are entitled to receive
dividends.
2,300,000 (2018: 2,300,000) shares were issued to the Admiral Group
Employee Benefit Trust for the purposes of the Discretionary Free Share
Scheme resulting in cumulative shares issued to the Trust of 23,461,948
(31 December 2018: 21,161,948). Of the shares issued 5,823,675 remain
in the Trust at 31 December 2019 (2018: 6,170,927) to be used for future
vesting, the remaining issued shares having vested.
The balance of awards made to employees under the Discretionary Free
Share Scheme that have not either vested or lapsed is 8,691,542 (2018:
9,218,956).
The Trustees have waived the right to dividend payments, other than to
the extent of 0.001 pence per share, unless and to the extent otherwise
directed by the Company from time to time.
There is one class of share with no unusual restrictions.
12e. Objectives, policies and procedures for managing capital
The Group's capital management policy defines the Board oversight, risk
appetite and tier structure of the Group's capital in addition to
management actions that may be taken in respect of capital, such as
dividend payments.
The Group aims to operate a capital-efficient business model by
transferring a significant proportion of underwriting risk to
co-insurance and reinsurance partners. This in turn reduces the amount
of capital the Group needs to retain to operate and grow, and allows the
Group to distribute the majority of its earnings as dividends.
The Board has determined that it will hold capital as follows:
-- Sufficient Solvency II Own Funds to meet all of the Group's Solvency II
capital requirements (over a 1 year and ultimate time horizon).
-- An additional contingency to cover unforeseen events and losses that
could realistically arise. This risk appetite buffer is assessed via
stress testing performed on an annual basis and is calibrated in relation
to the one-year regulatory SCR.
The Group's current risk appetite buffer is 30% above the regulatory
SCR. This forms the lower bound of the longer-term solvency target
operating range of 130% to 150%.
The Group's dividend policy is to:
-- Pay a normal dividend equal to 65% of post-tax profits for the period
-- Pay a special dividend calculated with reference to distributable
reserves and surplus capital held above the risk appetite buffer.
This policy gives the Directors flexibility in managing the Group's
capital.
As noted above, the Group's regulatory capital position is calculated
under the Solvency II Framework. The Solvency Capital Requirement is
based on the Solvency II Standard Formula, with a capital-add-on to
reflect limitations in the Standard Formula with respect to Admiral's
risk profile (predominately in respect of profit commission arrangements
in co-and reinsurance agreements and risks relating to Periodic Payment
Order (PPO) claims.
Solvency Ratio (Unaudited)
At the date of this report (4 March 2020), the Group's regulatory
solvency ratio, calculated using a capital add-on that has not been
subject to regulatory approval, is 190% (2018: 194%). This includes the
recognition of the 2019 final dividend of 77 pence per share (2018: 66
pence per share).
The Group's 2019 Solvency and Financial Condition Report (SFCR) will,
when published, disclose a solvency ratio that is calculated at the
balance sheet dater rather than annual report date, using the capital
add-on that was most recently subject to regulatory approval. The
estimated and unaudited SFCR solvency ratio is 172%, with the
reconciliation between this ratio and the 190% noted above being as
follows:
31 December 31 December
2019 2018
GBPm GBPm
Regulatory Solvency Ratio (Unaudited)
Solvency Ratio reported in the Annual Report 190% 194%
Change in valuation date (10%) (10%)
Other (including impact of updated, unapproved capital
add-on) (8%) (14%)
Solvency Ratio to be reported in the SFCR 172% 170%
------------------------------------------------------- ----------- -----------
Subsidiaries
The Group manages the capital of its subsidiaries to ensure that all
entities within the Group are able to continue as going concerns and
also to ensure that regulated entities meet regulatory requirements with
an appropriate risk appetite buffer. Excess capital above these levels
within subsidiaries is paid up to the Group holding company in the form
of dividends on a regular basis.
12f. Group related undertakings
The Parent Company's subsidiaries are as follows:
Subsidiary Class % Ownership Principal
of Activity
shares
held
Incorporated in England and Wales
Registered office: Floors 3 & 4 No. 3 Capital
Quarter, Cardiff, CF10 4BZ
Admiral Law Limited Ordinary 95 Legal company
Registered office: Admiral House,
Queensway, Newport, NP20 4AG
BDE Law Limited Ordinary 95 (indirect) Legal company
Registered office: Ellipse Ground Floor,
Padley Road, Swansea, SA1 8AN
Able Insurance Services Limited Ordinary 100 Insurance
Intermediary
Registered office: Greyfriars House, Greyfriars
Road, Cardiff, CF10 3AL
Penguin Portals Limited Ordinary 100 Internet-based
Inspop.com Limited Ordinary 100 Comparison Site
Internet-based
Comparison Site
Rastreator.com Limited Ordinary 75 Internet-based
Comparison Site
Registered office: T Admiral, David
Street, Cardiff, CF10 2EH
EUI Limited Ordinary 100 Insurance
Intermediary
Admiral Insurance Company Limited Ordinary 100 Insurance company
Admiral Life Limited Ordinary 100 Dormant(*)
Admiral Syndicate Limited Ordinary 100 Dormant(*)
Admiral Syndicate Management Limited Ordinary 100 Dormant(*)
Bell Direct Limited Ordinary 100 Dormant(*)
Confused.com Limited Ordinary 100 Dormant(*)
Diamond Motor Insurance Services Ordinary 100 Dormant(*)
Limited
Elephant Insurance Services Limited Ordinary 100 Dormant(*)
Admiral Financial Services Limited Ordinary 100 Financial services
company
Preminen Price Comparison Holdings Ordinary 50 Internet-based
Limited Comparison Site
Preminen Dragon Price Comparison Ordinary 50 (indirect) Internet-based
Limited Comparison Site
Incorporated in Gibraltar
Registered office: 1st Floor, 24 College
Lane, Gibraltar, GX11 1AA
Admiral Insurance (Gibraltar) Limited Ordinary 100 Insurance company
Incorporated in Spain
Registered office: Calle Sanchez Pacheco
85 28002 Madrid
Rastreator Comparador Correduria De Ordinary 75 Internet-based
Seguros S.L.U. (indirect) Comparison Site
Admiral Europe CompañÃa Ordinary 100 Insurance company
de Seguros, S.A.
Registered office: Calle Albert Einstein,
10 41092 Sevilla
Admiral Intermediary Services S.A. Ordinary 100 Insurance
Intermediary
Incorporated in France:
Registered office: 34 quai de la loire,
75019, Paris
LeLynx SAS Ordinary 100 Internet-based
Comparison Site
Incorporated in the United States
of America
Registered office: Deep Run 1; Suite 400,
9950 Maryland Drive, Henrico, VA 23233
Elephant Insurance Company Ordinary 100 Insurance company
Elephant Insurance Services LLC Ordinary 100 Insurance
intermediary
Grove General Agency Inc Ordinary 100 Insurance
intermediary
Platinum General Agency Inc Ordinary 100 Insurance
intermediary
Registered office: 140 East Shore Drive,
Suite 300, Glen Allen, VA 23059
compare.com Insurance Agency LLC Ordinary 59.25 Internet-based
(indirect) Comparison Site
Inspop USA LLC Ordinary 59.25 Internet-based
Comparison Site
Incorporated in Mexico
Registered office: Varsovia, 36, 5th floor, office 501, Colonia Juárez,
Cuauhtemoc, Ciudad de Mexico
https://maps.google.com/?q=Varsovia,+36,+5th+floor,+office+501,+Colonia+Ju%C3%A1
rez,+Cuauhtemoc,+Ciudad+de+Mexico&entry=gmail&source=g
Preminen Mexico Sociedad Anonima de Capital 51.25 Internet-based
Variable (indirect) Comparison Site
Incorporated in Turkey
Registered office: Esentepe MAH. Harman1 SK. Harmanci Giz Plaza
5 1 Sisli/ Istanbul
Preminen Online Fiyat Kar ıla 50 (indirect) Internet-based
tırma Hizmetleri Anonim irketi 50 (indirect) Comparison Site
Preminen Sigorta Brokerlik Anonim Internet-based
Sirketi Comparison Site
Incorporated in India
Registered office: F-2902, Ireo Grand
Arch, Sector 58,, Gurugram, HARYANA,
Gurgaon, Haryana, India, 122011
Preminen Price Comparison India Private 50 (indirect) Internet-based
Limited Comparison Site
Subsidiaries by virtue of control
The related undertakings below are subsidiaries in accordance with
IFRS 10, as Admiral can exercise dominant influence or control
over them:
Registered office: Level 37, 25 Canada Square, Canary Wharf, London,
England, E14 5LQ
Seren One Limited n/a 0 Special purpose
entity
Associates
Incorporated in China
Registered office: Room 1806, 15th
Floor, Block 16, No. 39 East 3rd Ring
Middle Road, Chaoyang District, Beijing
Long Yu Science and Technology (Beijing) 20.25 Internet-based
Co., Ltd (indirect) Comparison Site
Incorporated in Bahrain
Registered office: 4(th) Floor, Office
42, LMC Building 852, Road 3618, Block
436, Al Seef District, PO Box 60138,
Manama, Bahrain
Preminen MENA Price Comparison 15 (indirect) Internet-based
Comparison Site
* Exempt from audit under S479A of Companies Act 2006
For further information on how the Group conducts its business across
the UK, Europe and the US, refer to the Strategic Report.
12g. Related party transactions
The Board considers that only the Executive and Non-Executive Directors
of Admiral Group plc are key management personnel.
A summary of the remuneration of key management personnel is as follows,
with further detail relating to the remuneration and shareholdings of
key management personnel set out in the Directors' Remuneration Report.
Key management personnel received short term employee benefits in the
year of GBP1,957,868 (2018: GBP1,835,302), post-employment benefits of
GBP18,946 (2018: GBP18,573) and share based payments of GBP938,258
(2018: GBP923,400).
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%.
12h. Post balance sheet events
No events have occurred since the reporting date that materially impact
these financial statements.
13. Reconciliations
The following tables reconcile significant key performance indicators
and non-GAAP measures included in the Strategic Report to items included
in the financial statements.
13a. Reconciliation of turnover to reported gross premiums written and
Other Revenue as per the financial statements
31 December 31 December
2019 2018
GBPm GBPm
Gross premiums written after co-insurance per note
5b of financial statements 2,273.7 2,166.7
Premiums underwritten through co-insurance
arrangements 610.7 587.4
Total premiums written before co-insurance
arrangements 2,884.4 2,754.1
Other Revenue 469.9 449.2
Admiral Loans interest income and other fee income 30.8 15.4
3,385.1 3,218.7
Other(*1) 59.0 44.9
Turnover as per note 4b of financial statements 3,444.1 3,263.6
Intra-group income elimination(*2) 19.4 19.3
Total turnover 3,463.5 3,282.9
(*1) Other reconciling items represent co-insurer and reinsurer shares
of Other Revenue in the Group's Insurance businesses outside of UK Car
Insurance.
(*2) Intra-group income elimination relates to comparison income
earned in the Group from other Group companies.
13b. Reconciliation of claims incurred to reported loss ratios,
excluding releases on commuted reinsurance
Int. Int. Int.
UK Motor UK Home UK Other UK Total Car Other Total Group
December 2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net insurance claims
(note 5) 164.7 26.8 24.3 215.8 137.2 6.3 143.5 359.3
Deduct claims handling
costs (11.8) (1.1) -- (12.9) (7.6) -- (7.6) (20.5)
Prior year release/strengthening
-- net original share 121.7 2.5 -- 124.2 14.4 -- 14.4 138.6
Prior year release/strengthening
-- commuted share 121.7 -- -- 121.7 -- -- -- 121.7
Impact of reinsurer
caps -- -- -- -- (0.1) -- (0.1) (0.1)
Impact of weather events -- -- -- -- -- -- -- --
Impact of subsidence -- -- -- -- -- -- -- --
Attritional current
period claims 396.3 28.2 24.3 448.8 143.9 6.3 150.2 599.0
Net insurance premium
revenue 452.6 37.2 43.4 533.2 168.6 7.6 176.2 709.4
Loss ratio -- current
period attritional 87.6% 75.8% -- 84.2% 85.3% -- -- 84.4%
Loss ratio -- current
period weather events -- -- -- -- -- -- -- --
Loss ratio -- current
period subsidence events -- -- -- -- -- -- -- --
Loss ratio -- prior
year release/strengthening
(net original share) (26.9%) (6.7%) -- (23.3%) (8.5%) -- -- (19.5%)
Loss ratio -- reported 60.7% 69.1% -- 60.9% 76.8% -- -- 64.9%
Int. Int. Int.
UK Motor UK Home UK Other UK Total Car Other Total Group
December 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net insurance claims
(note 5) 189.2 29.3 24.0 242.5 104.1 3.5 107.6 350.1
Deduct claims handling
costs (11.3) (0.5) -- (11.8) -- -- -- (11.8)
Prior year release/strengthening
-- net original share 111.4 1.4 -- 112.8 13.5 -- 13.5 126.3
Prior year release/strengthening
-- commuted share 109.6 -- -- 109.6 -- -- -- 109.6
Impact of reinsurer
caps -- -- -- -- 4.5 -- 4.5 4.5
Impact of weather events -- (3.5) -- (3.5) -- -- -- (3.5)
Impact of subsidence -- (2.5) -- (2.5) -- -- -- (2.5)
Attritional current
period claims 398.9 24.2 24.0 447.1 122.1 3.5 125.6 572.7
Net insurance premium
revenue 452.5 31.2 40.2 523.9 141.7 6.2 147.9 671.8
Loss ratio -- current
period attritional 88.1% 77.6% -- 85.3% 86.1% -- -- 85.2%
Loss ratio -- current
period weather events -- 11.2% -- 0.7% -- -- -- 0.5%
Loss ratio -- current
period subsidence events -- 7.9% -- 0.5% -- -- -- 0.4%
Loss ratio -- prior
year release/strengthening
(net original share) (24.6%) (4.4%) -- (21.5%) (9.5%) -- -- (18.8%)
Loss ratio -- reported(*1) 63.5% 92.3% -- 65.0% 76.6% -- -- 67.3%
*1 The group reported loss ratio has been represented at FY 2019 to
include the impact of weather events
13c. Reconciliation of expenses related to insurance contracts to
reported expense ratios
Int. Int.
UK Motor UK Home UK Other UK Total Int. Car Other Total Group
December 2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net insurance expenses
(note 9) 63.4 9.3 4.9 77.6 45.8 1.3 47.1 124.7
Claims handling costs 11.8 1.1 -- 12.9 7.6 -- 7.6 20.5
Intra-group expenses
elimination(*1) 10.8 0.4 1.1 12.3 7.1 -- 7.1 19.4
Impact of reinsurer
caps -- -- -- -- 2.9 -- 2.9 2.9
Net IFRS 16 finance
costs 0.5 -- -- 0.5 0.1 -- 0.1 0.6
Adjusted net insurance
expenses 86.5 10.8 6.0 103.3 63.5 1.3 64.8 168.1
-------- ------- -------- -------- -------- ------ ------ -----
Net insurance premium
revenue 452.6 37.2 43.4 533.2 168.6 7.6 176.2 709.4
Expense ratio --
reported 19.1% 28.9% -- 19.4% 37.6% -- -- 23.7%
Int. Int. Int.
UK Motor UK Home UK Other UK Total Car Other Total Group
December 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net insurance expenses
(note 9) 59.7 7.4 5.6 72.7 49.7 2.6 52.3 125.0
Claims handling costs 11.3 0.5 -- 11.8 -- -- -- 11.8
Intra-group expenses
elimination(*1) 12.3 0.8 -- 13.1 6.2 -- 6.2 19.3
Impact of reinsurer
caps -- -- -- -- 0.2 -- 0.2 0.2
Other adjustment(*2) -- -- -- -- -- (2.6) (2.6) (2.6)
Adjusted net insurance
expenses 83.3 8.7 5.6 97.6 56.1 -- 56.1 153.7
Net insurance premium
revenue 452.5 31.2 40.2 523.9 141.7 6.2 147.9 671.8
Expense ratio --
reported 18.4% 28.1% -- -- 39.6% -- -- 22.9%
*1 The intra-group expenses elimination amount relates to aggregator
fees charges by the Group's comparison entities to other Group
companies.
*2 Other adjustments relate to additional products underwritten in the
Group's International Insurance businesses. The contribution from these
products is reported as ancillary income and as such the amounts are
excluded for the purpose of calculations of expense ratios.
13d. Reconciliation of statutory profit before tax to Group's
share of profit before tax
31 December 31 December
2019 2018
GBPm GBPm
Reported profit before tax per the consolidated income
statement 522.6 476.2
Non-controlling interest share of profit before tax 3.5 3.1
Group's share of profit before tax 526.1 479.3
13e. Reconciliation of share scheme charges in Strategic report to
Consolidated income statement and Consolidated statement of changes in
equity
31 December 31 December
2019 2018
GBPm GBPm
Net share scheme charges included in Group's share
of profit before tax 52.7 49.0
Non-controlling interest share of net share scheme
charges 0.7 0.8
Net share scheme charges included in Group profit
before tax 53.4 49.8
13f. Reconciliation of note 4 to Strategic Report
i) UK Insurance
Motor Household Travel Total
2019 GBPm GBPm GBPm GBPm
Turnover 2,455.3 171.3 8.4 2,635.0
UK Insurance profit before tax --
Strategic report 591.5 7.5 (1.6) 597.4
Non-controlling interest share of PBT 0.5 -- -- 0.5
Statutory profit/(loss) before tax 592.0 7.5 (1.6) 597.9
Motor Household Travel Total
2018 GBPm GBPm GBPm GBPm
Turnover 2,423.1 146.0 6.6 2,575.7
UK Insurance profit before tax --
Strategic report 561.7 (3.0) (3.1) 555.6
Non-controlling interest share of PBT 1.1 -- -- 1.1
Statutory profit/(loss) before tax 562.8 (3.0) (3.1) 556.7
ii) International Insurance
Spain Italy France US Total
2019 GBPm GBPm GBPm GBPm GBPm
Turnover 78.2 204.2 108.1 233.1 623.6
Profit/(loss) before tax -- Strategic
Report and Statutory 8.7 (9.6) (0.9)
Spain Italy France US Total
2018 GBPm GBPm GBPm GBPm GBPm
Turnover 67.6 176.8 80.5 213.8 538.7
Profit/(loss) before tax -- Strategic
Report and Statutory 6.4 (7.5) (1.1)
iii) Comparison
Confused European Compare Other Total
2019 GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------
Turnover 112.7 50.1 7.3 1.5 171.6
Group's share of profit before tax -- Strategic Report 20.4 3.5 (4.3) (1.6) 18.0
Non-controlling interest share of profit/(loss) before
tax -- 1.0 (2.9) (1.4) (3.3)
Statutory profit/(loss) before tax 20.4 4.5 (7.2) (3.0) 14.7
Confused European Compare Total
2018 GBPm GBPm GBPm GBPm
Turnover 95.1 46.3 9.7 151.0
Group's share of profit before tax -- Strategic Report 14.3 1.4 (6.9) 8.8
Non-controlling interest share of profit/(loss) before
tax -- 0.9 (3.1) (2.2)
Statutory profit/(loss) before tax 14.3 2.3 (10.0) 6.6
14. Statutory Information
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 December 2019 or
2018. Statutory accounts for 2018 have been delivered to the registrar
of companies, and those for 2019 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.
Consolidated financial summary (unaudited)
Basis of preparation
The figures below are as stated in the Group financial statements
preceding this financial summary and issued previously. Only selected
lines from the income statement and balance sheet have been included.
Income statement
2019 2018 2017 2016 2015
GBPm GBPm GBPm GBPm GBPm
Total premiums 2,938.6 2,766.4 2,499.4 2,193.9 1,805.2
Net insurance premium revenue 709.4 671.8 619.1 548.8 467.0
Other Revenue 494.4 460.6 401.1 360.6 319.8
Profit commission 114.9 93.2 67.0 54.3 85.4
Investment and interest income 35.3 36.0 41.7 53.1 32.6
Net revenue 1,354.0 1,261.6 1,128.9 1,016.8 904.8
Net insurance claims (359.3) (350.1) (347.1) (394.6) (226.5)
Net expenses (459.5) (424.0) (366.9) (332.4) (298.5)
Operating profit 535.2 487.5 414.9 289.8 379.8
Net finance costs (12.6) (11.3) (11.4) (11.4) (11.1)
Profit before tax 522.6 476.2 403.5 278.4 368.7
Balance sheet
2019 2018 2017 2016 2015
GBPm GBPm GBPm GBPm GBPm
Property and equipment 154.4 28.1 31.3 32.0 34.9
Intangible assets 160.3 162.0 159.4 162.3 142.3
Deferred income tax -- 0.2 0.3 8.4 20.6
Reinsurance assets 2,071.7 1,883.5 1,637.6 1,126.4 878.7
Insurance and other receivables 1,227.7 1,082.0 939.7 784.9 537.1
Loans and advances to customers 455.1 300.2 66.2
Financial investments 3,234.5 2,969.7 2,697.8 2,420.2 2,323.5
Cash and cash equivalents 281.7 376.8 326.8 326.6 265.3
Total assets 7,585.4 6,802.5 5,859.1 4,860.8 4,202.4
--------------------------------- ------- ------- ------- ------- -------
Equity 918.6 771.1 655.8 581.7 632.9
Insurance contracts 3,975.0 3,736.4 3,313.9 2,749.5 2,295.0
Subordinated and other financial
liabilities 530.1 444.2 224.0 224.0 223.9
Trade and other payables 1,975.9 1,801.5 1,641.6 1,292.2 1,015.0
Lease liabilities 137.1 -- -- -- --
Deferred income tax 0.4 -- -- -- --
Current tax liabilities 48.3 49.3 23.8 13.4 35.6
Total equity and total
liabilities 7,585.4 6,802.5 5,859.1 4,860.8 4,202.4
Glossary
Alternative Performance Measures
Throughout this report, the Group uses a number of Alternative
Performance Measures (APMs); measures that are not required or commonly
reported under International Financial Reporting Standards, the
Generally Accepted Accounting Principles (GAAP) under which the Group
prepares its financial statements.
These APMs are used by the Group, alongside GAAP measures, for both
internal performance analysis and to help shareholders and other users
of the Annual Report and financial statements to better understand the
Group's performance in the period in comparison to previous periods and
the Group's competitors.
The table below defines and explains the primary APMs used in this
report. Financial APMs are usually derived from financial statement
items and are calculated using consistent accounting policies to those
applied in the financial statements, unless otherwise stated. Non
financial KPIs incorporate information that cannot be derived from the
financial statements but provide further insight into the performance
and financial position of the Group.
APMs may not necessarily be defined in a consistent manner to similar
APMs used by the Group's competitors. They should be considered as a
supplement rather than a substitute for GAAP measures.
Turnover Turnover is defined as total premiums written
(as below), other revenue and income from Admiral
Loans. It is reconciled to financial statement
line items in note 13a to the financial statements.
This measure has been presented by the Group
in every Annual Report since it became a listed
Group in 2004. It reflects the total value of
the revenue generated by the Group and analysis
of this measure over time provides a clear indication
of the size and growth of the Group.
The measure was developed as a result of the
Group's business model. The core UK Car insurance
business has historically shared a significant
proportion of the risks with Munich Re, a third
party reinsurance Group, through a co-insurance
arrangement, with the arrangement subsequently
being replicated in some of the Group's international
insurance operations. Premiums and claims accruing
to the external co-insurer are not reflected
in the Group's income statement and therefore
presentation of this metric enables users of
the Annual Report to see the scale of the Group's
insurance operations in a way not possible from
taking the income statement in isolation.
------------------- -----------------------------------------------------------
Total Premiums Total premiums written are the total forecast
Written premiums, net of forecast cancellations written
in the underwriting year within the Group, including
co-insurance. It is reconciled to financial statement
line items in note 13a to the financial statements.
This measure has been presented by the Group
in every Annual Report since it became a listed
Group in 2004. It reflects the total premiums
written by the Group's insurance intermediaries
and analysis of this measure over time provides
a clear indication of the growth in premiums,
irrespective of how co-insurance agreements have
changed over time.
The reasons for presenting this measure are consistent
with that for the Turnover APM noted above.
Group's share of Group's share of profit before tax represents
Profit before Tax profit before tax, excluding the impact of Non-controlling
Interests. It is reconciled to statutory profit
before tax in note 13d to the financial statements.
This measure is useful in presenting the limit
of the Group's exposure to the expenditure incurred
in starting up new businesses and demonstrates
the 'test-and-learn' strategy employed by the
Group to expansion into new territories.
Underwriting result For each insurance business an underwriting result
(profit or loss) is presented showing the segment result prior
to the inclusion of profit commission, other
income contribution and instalment income. It
demonstrates the insurance result, i.e. premium
revenue and investment income on insurance assets
less claims incurred and insurance expenses.
Loss Ratio Reported loss ratios are expressed as a percentage
of claims incurred divided by net earned premiums.
There are a number of instances within the Annual
Report where adjustments are made to this calculation
in order to more clearly present the underlying
performance of the Group and operating segments
within the Group. The calculations of these are
presented within note 13b to the accounts and
explanation is as follows.
UK reported motor loss ratio: Within the UK insurance
segment the Group separately presents motor ratios,
i.e. excluding the underwriting of other products
that supplement the car insurance policy. The
motor ratio is adjusted to i) exclude the impact
of reserve releases on commuted reinsurance contracts
and ii) exclude claims handling costs that are
reported within claims costs in the income statement.
International insurance loss ratio: As for the
UK Motor loss ratio, the international insurance
loss ratios presented exclude the underwriting
of other products that supplement the car insurance
policy. The motor ratio is adjusted to exclude
the claims element of the impact of reinsurer
caps as inclusion of the impact of the capping
of reinsurer claims costs would distort the underlying
performance of the business.
Group loss ratios: Group loss ratios are reported
on a consistent basis as the UK and international
ratios noted above. Adjustments are made to i)
exclude the impact of reserve releases on commuted
reinsurance contracts, ii) exclude claims handling
costs that are reported within claims costs in
the income statement and iii) exclude the claims
element of the impact of international reinsurer
caps.
Expense Ratio Reported expense ratios are expressed as a percentage
of net operating expenses divided by net earned
premiums.
There are a number of instances within the Annual
Report where adjustments are made to this calculation
in order to more clearly present the underlying
performance of the Group and operating segments
within the Group. The calculations of these are
presented within note 13c to the accounts and
explanation is as follows.
UK reported motor expense ratio: Within the UK
insurance segment the Group separately presents
motor ratios, i.e. excluding the underwriting
of other products that supplement the car insurance
policy. The motor ratio is adjusted to i) include
claims handling costs that are reported within
claims costs in the income statement and ii)
include intra-group aggregator fees charged by
the UK comparison business to the UK insurance
business.
International insurance expense ratio: As for
the UK Motor loss ratio, the international insurance
expense ratios presented exclude the underwriting
of other products that supplement the car insurance
policy. The motor ratio is adjusted to i) exclude
the expense element of the impact of reinsurer
caps as inclusion of the impact of the capping
of reinsurer expenses would distort the underlying
performance of the business and ii) include intra-group
aggregator fees charged by the overseas comparison
businesses to the international insurance businesses.
Group expense ratios: Group expense ratios are
reported on a consistent basis as the UK and
international ratios noted above. Adjustments
are made to i) include claims handling costs
that are reported within claims costs in the
income statement, ii) include intra-group aggregator
fees charged by the Group's comparison businesses
to the Group's insurance businesses and iii)
exclude the expense element of the impact of
international reinsurer caps.
Combined Ratio Reported combined ratios are the sum of the loss
and expense ratios as defined above. Explanation
of these figures is noted above and reconciliation
of the calculations are provided in notes 13b
and 13c.
Return on Equity Return on equity is calculated as profit after
tax for the period attributable to equity holders
of the Group divided by the average total equity
attributable to equity holders of the Group in
the year. This average is determined by dividing
the opening and closing positions for the year
by two.
The relevant figures for this calculation can
be found within the consolidated statement of
changes in equity.
Group Customers Group customer numbers reflect the total number
of cars, households and vans on cover at the
end of the year, across the Group.
This measure has been presented by the Group
in every Annual Report since it became a listed
Group in 2004. It reflects the size of the Group's
customer base and analysis of this measure over
time provides a clear indication of the growth.
It is also a useful indicator of the growing
significance to the Group of the different lines
of business and geographic regions.
Effective Tax Rate Effective tax rate is defined as the approximate
tax rate derived from dividing the Group's profit
before tax by the tax charge going through the
income statement. It is a measure historically
presented by the Group and enables users to see
how the tax cost incurred by the Group compares
over time and to current corporation tax rates.
Additional Terminology
There are many other terms used in this report that are specific to the
Group or the markets in which it operates. These are defined as follows:
Accident year The year in which an accident occurs, also referred
to as the earned basis.
--------------------- -------------------------------------------------------
Actuarial best The probability-weighted average of all future
estimate claims and cost scenarios calculated using historical
data, actuarial methods and judgement.
ASHE 'Annual Survey of Hours and Earnings' -- a statistical
index that is typically used for calculation
inflation of annual payment amounts under Periodic
Payment Order (PPO) claims settlements.
Claims reserves A monetary amount set aside for the future payment
of incurred claims that have not yet been settled,
thus representing a balance sheet liability.
Co-insurance An arrangement in which two or more insurance
companies agree to underwrite insurance business
on a specified portfolio in specified proportions.
Each co-insurer is directly liable to the policyholder
for their proportional share.
Commutation An agreement between a ceding insurer and the
reinsurer that provides for the valuation, payment,
and complete discharge of all obligations between
the parties under a particular reinsurance contract.
The Group typically commutes UK Car insurance
quota share contracts after 24 months from the
start of an underwriting year where it makes
economic sense to do so. Although an individual
underwriting year may be profitable, the margin
held in the financial statement claims reserves
may mean that an accounting loss on commutation
must be recognised at the point of commutation
of the reinsurance contracts. This loss on commutation
unwinds in future periods as the financial statement
loss ratios develop to ultimate.
Insurance market The tendency for the insurance market to swing
cycle between highs and lows of profitability over
time, with the potential to influence premium
rates (also known as the "underwriting cycle").
Net claims The cost of claims incurred in the period, less
any claims costs recovered under reinsurance
contracts. It includes both claims payments and
movements in claims reserves.
Net insurance premium Also referred to as net earned premium. The element
revenue of premium, less reinsurance premium, earned
in the period.
Ogden discount The discount rate used in calculation of personal
rate injury claims settlements. The rate is set by
the Lord Chancellor.
Periodic Payment A compensation award as part of a claims settlement
Order (PPO) that involves making a series of annual payments
to a claimant over their remaining life to cover
the costs of the care they will require.
Premium A series of payments are made by the policyholder,
typically monthly or annually, for part of or
all of the duration of the contract. Written
premium refers to the total amount the policyholder
has contracted for, whereas earned premium refers
to the recognition of this premium over the life
of the contract.
Profit commission A clause found in some reinsurance and coinsurance
agreements that provides for profit sharing.
Reinsurance Contractual arrangements whereby the Group transfers
part or all of the insurance risk accepted to
another insurer. This can be on a quota share
basis (a percentage share of premiums, claims
and expenses) or an excess of loss basis (full
reinsurance for claims over an agreed value).
Securitisation A process by which a group of assets, usually
loans, is aggregated into a pool, which is used
to back the issuance of new securities. A company
transfer assets to a special purpose entity (SPE)
which then issues securities backed by the assets.
Special Purpose An entity that is created to accomplish a narrow
Entity (SPE) and well-defined objective. There are specific
restrictions or limited around ongoing activities.
The Group uses an SPE set up under a securitisation
programme.
Ultimate loss ratio A projected actuarial best estimate loss ratio
for a particular accident year or underwriting
year.
Underwriting year The year in which the policy was incepted.
Underwriting year Also referred to as the written basis. Claims
basis incurred are allocated to the calendar year in
which the policy was underwritten. Underwriting
year basis results are calculated on the whole
account (including co-insurance and reinsurance
shares) and include all premiums, claims, expenses
incurred and other revenue (for example instalment
income and commission income relating to the
sale of products that are ancillary to the main
insurance policy) relating to policies incepting
in the relevant underwriting year.
Written/Earned A policy can be written in one calendar year
basis but earned over a subsequent calendar year.
(END) Dow Jones Newswires
March 05, 2020 02:00 ET (07:00 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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