TIDMADM
12 August 2020
Continued significant improvements in back year claims drive positive
Admiral Group results for H1 2020
Admiral Group plc results for the six months ended 30 June 2020
2020 Interim Results Highlights
30 June 2020 30 June 2019 % change
Group's share of profit before
tax(*1) GBP286.7 million GBP220.2 million +30%
Group statutory profit before
tax GBP286.1 million GBP218.2 million +31%
Earnings per share 82.9 pence 63.0 pence +32%
Interim dividend 70.5 pence 63.0 pence +12%
Payment of deferred special
dividend 20.7 pence - -
Return on equity(*1) 50% 47% +7%
Group turnover(*1*2) GBP1.69 billion GBP1.76 billion -4%
Group net revenue GBP0.69 billion GBP0.65 billion +6%
Group customers(*1) 7.17 million 6.74 million +6%
UK Insurance customers(*1) 5.58 million 5.32 million +5%
International Insurance
customers(*1) 1.49 million 1.36 million +10%
Group's share of Comparison
profit(*1) GBP13.1 million GBP7.4 million +78%
Statutory Comparison profit GBP12.5 million GBP5.4 million +131%
Solvency ratio (post dividend) 186% 190%
(*1) Alternative Performance Measures - refer to the end of the report
for definition and explanation
(*2) Group Turnover in H1 2020 presented net of the 'Stay at Home'
premium refund issued to UK motor insurance customers of GBP97 million.
Refer to the Alternative Performance Measures section at the end of this
report for further explanation.
Over 10,000 staff each receive free shares worth up to GBP1,800 under
the employee share scheme based on the interim 2020 results.
Comment from David Stevens, Group Chief Executive Officer
"A year ago I described our results as 'frankly a bit dull'. With the
benefit of hindsight there's a lot to be said for 'dull' if the
alternative is a global pandemic.
"Our response to that pandemic highlighted two of Admiral's key
strengths -- competent execution in the short term and sustainable
values for the long term. We adapted quickly to the new circumstances,
pirouetting from one working model to another and compressing years of
learning and development into a matter of weeks through a phenomenal
collective effort across the company at all levels. Alongside this
adaptability, we also stayed true to our long-term commitment to
balanced outcomes for all our stakeholders, notably through our GBP25 a
vehicle 'Stay at Home' rebate.
"This year's interims benefit again from our consistently competent
underwriting and conservative reserving on past years, feeding into
another strong set of results in the core business and beyond. Thank you
to all our staff, shareholders and customers who have made this
possible."
Dividend
The Board has declared an interim dividend of 70.5 pence, made up of a
normal dividend of 55.0 pence per share and a special dividend of 15.5
pence per share, 12% higher than the 2019 interim dividend of 63.0 pence
per share. The payment represents 85% of first half earnings.
In addition, the deferred special dividend from the full year 2019
results of 20.7 pence per share will be paid alongside the 2020 interim
dividend. Payment will be on 2 October 2020. The ex-dividend date is 3
September 2020 and the record date is 4 September 2020.
Management presentation
Analysts and investors will be able to access the Admiral Group
management presentation which commences at 9.00 BST on Wednesday 12
August 2020 by registering at the following link on webcast at
https://pres.admiralgroup.co.uk/admiral038 or via conference call at
https://pres.admiralgroup.co.uk/admiral038/vip_connect. A copy of the
presentation slides will be available at www.admiralgroup.co.uk
H1 2020 Group overview
30 June 30 June 30 June 31 Dec
GBPm 2018 2019 2020 2019
--------------------------------- ------------- ---------- ---------- ------------
Turnover (GBPbn) (*1*2) 1.66 1.76 1.69 3.46
---------------------------------
Underwriting profit including
investment income(*2) 93.4 96.0 152.7 238.0
Profit commission 29.6 36.1 44.6 114.9
Net other revenue and
expenses(*2) 93.3 92.3 95.0 182.3
Operating profit 216.3 224.4 292.3 535.2
Group statutory profit before
tax 210.7 218.2 286.1 522.6
Group's share of profit before
tax 211.7 220.2 286.7 526.1
---------------------------------
Analysis of profit:
UK Insurance 247.0 254.7 313.8 597.4
International Insurance (0.6) (2.7) 6.5 (0.9)
Comparison 3.5 7.4 13.1 18.0
Admiral Loans (6.4) (4.3) (9.4) (8.4)
Other (31.8) (34.9) (37.3) (80.0)
Group's share of profit before
tax(*2) 211.7 220.2 286.7 526.1
---------------------------------
Key metrics
Group loss ratio(*2*3) 65.2% 69.1% 54.7% 64.9%
Group expense ratio(*2*3) 22.2% 23.2% 28.3% 23.7%
Group combined ratio(*2) 87.4% 92.3% 83.0% 88.6%
Customer numbers (million)
(*2) 6.23 6.74 7.17 6.98
Earnings per share 61.6 p 63.0 p 82.9 p 148.3 p
Dividend per share(*4) 60.0 p 63.0 p 70.5 p 140.0 p
Return on Equity(*2) 54% 47% 50% 52%
Solvency ratio(*2) 196% 190% 186% 190%
---------------------------------
*1 Group Turnover in H1 2020 presented net of the 'Stay at Home' premium
refund issued to UK motor insurance customers of GBP97 million. Refer to
note 13(g) to the financial statements for reconciliation to the net
insurance premium impact of GBP21million.
*2 Alternative Performance Measures -- refer to the end of the report
for definition and explanation.
*3 See notes 13b and 13c for a reconciliation of reported loss and
expense ratios to the financial statements.
(*4) The deferred special dividend from 2019 will be paid with the
interim 2020 dividend, resulting in a total dividend of 91.2 pence per
share, to be paid in October 2020. The 20.7 pence per share is allocated
to the 2019 full year dividend in the table.
Covid-19 impact
The unprecedented Covid-19 ('Covid') pandemic has impacted the interim
results across all our businesses. Lockdown restrictions in the Group's
markets resulted in significantly lower motor insurance claims frequency
as customers stayed at home and fewer miles were driven. The UK has
lagged other markets due to a later lockdown implementation and lifting
of restrictions. In contrast, the US saw a shorter restriction period,
particularly in Texas where Admiral writes a large portion of its US
business, and hence the claims frequency impact was lower. Quote volumes
saw a slowdown in early lockdown, though have recovered strongly in most
markets as lockdown restrictions eased.
As a result of Covid and the related economic uncertainty, Admiral also
paused sales of Travel insurance and lending products in March,
cautiously re-entering both markets in the second half of 2020. Admiral
Loans is prepared for the strong likelihood of increased arrears
experience resulting from an increase in unemployment levels, although
no significant increase in the level of defaults has been experienced to
date.
Admiral maintained a commitment to supporting customers, staff,
emergency workers and local communities during the coronavirus crisis,
taking several steps and adapting to each market context. These include:
- Customer initiatives included supporting customers through
relaxed payment terms, reduced/waived administration fees, premium rate
reductions, and providing additional support for emergency workers. In
the UK, Admiral announced a GBP110 million Stay at Home premium refund
for all existing motor insurance customers, which amounted to GBP25 per
vehicle on cover.
- Staff initiatives: The safety of staff has remained of
utmost importance, with many employees already working from home before
the official government lockdown was in place. Various initiatives were
implemented to optimize staff working from home and provide sufficient
support. Staff engagement levels are monitored regularly and remain
high.
All employees were paid their full salaries, and aside from a very small
number of staff in France, no staff were furloughed and no support has
been sought or received from government schemes.
- Community initiatives: Admiral has supported the community
across our global operations through donations and volunteer activities,
with Admiral setting up a GBP6m fund to support charities and
communities.
Group Highlights
Key highlights for the Group results in H1 2020 include:
-- Group turnover reduced by 4% to GBP1.69 billion (H1 2019: GBP1.76
billion) largely as a result of the impact of Covid and the Stay at Home
premium refund; excluding the premium refund, turnover increased by 2%.
Customer numbers were 6% higher at 7.17 million (30 June 2019: 6.74
million)
-- Group share of pre-tax profits of GBP286.7 million (H1 2019: GBP220.2
million) and statutory profit before tax of GBP286.1 million (H1 2019:
GBP218.2 million), growing by 30% and 31% respectively, primarily as a
result of strong prior year reserve releases in the UK and
internationally and also some non-recurrence of negative items in 2019
including the GBP33 million Ogden discount rate impact
-- UK Insurance recorded a 7% reduction in turnover to GBP1.25 billion (H1
2019: GBP1.34 billion) due to the impact of the Stay at Home premium
refund, with customer numbers growing to 5.58 million (30 June 2019: 5.32
million)
-- Significant profit growth of GBP59.1 million in UK Insurance, primarily
attributable to favourable development in prior year loss ratios for UK
Motor, and higher investment income. Profit growth excluding the impact
of the Ogden discount rate impact in H1 2019 (GBP33.3 million) was
GBP25.8 million
-- UK Household profit improved in H1 2020 to GBP5.5 million (H1 2019:
GBP4.2 million) despite bad weather which impacted the current period by
around GBP5.3 million
-- International Insurance businesses made a combined profit of GBP6.5
million (GBP2.7 million loss in H1 2019), with continued profit in the
European operations and lower losses in the US
-- The combined International insurance turnover grew by 3% to GBP329.5
million (H1 2019: GBP319.5 million) and customer numbers by 10% to 1.49
million (30 June 2019: 1.36 million), both figures negatively impacted by
the reduced demand in the early Covid lockdown period
-- The Comparison result increased to GBP13.1 million from GBP7.4 million in
H1 2019, mainly driven by a very strong first half from confused.com in
the UK
Earnings per share
Earnings per share is 32% higher than in H1 2019 at 82.9 pence (H1 2019:
63.0 pence), broadly consistent with the growth in pre-tax profit.
Dividends and solvency
The Group's dividend policy is to pay 65% of post-tax profits as a
normal dividend and to pay a further special dividend comprising
earnings not required to be held in the Group for solvency or buffers.
The Board has declared a total interim dividend of 91.2 pence per share
(approximately GBP263 million). This comprises an interim dividend in
respect of 2020 first half profit of 70.5 pence per share in addition to
the 20.7 pence per share special dividend that was deferred in April
2020. The Board is confirming payment of this previously deferred amount
based on the Group's strong financial position and the reduced level of
uncertainty in the economic environment compared to earlier in the year.
The 70.5 pence per share interim 2020 dividend is split as follows:
-- 55.0 pence per share normal dividend, based on the dividend policy of
distributing 65% of the Group's share of post-tax profits; plus
-- A special dividend of 15.5 pence per share
The total 2020 interim dividend (excluding the deferred 2019 special
dividend) is 12% ahead of the 2019 interim dividend (63.0 pence per
share), with a pay-out ratio of 85% of earnings per share.
The payment date is 2 October 2020, ex-dividend date 3 September 2020
and record date 4 September 2020.
The Group maintained a strong solvency ratio at 186% (post-dividend),
which has reduced from 190% at 31 December 2019. Both Own Funds and the
Solvency Capital Requirement (SCR) increased in the period. The increase
in Own Funds is the result of the strong generation of economic profit,
in particular due to favourable movements of projected loss ratios on
prior underwriting years, partially offset by the impact of net adverse
movements in credit spreads on the Group's bond portfolios in the
period.
The Group's results are presented in the following sections:
-- UK Insurance -- including UK Motor (Car and Van), Household and Travel
-- International Car Insurance -- including L'olivier (France), Admiral
Seguros (Spain), ConTe (Italy), and Elephant (US)
-- Comparison -- including Confused.com (UK), LeLynx (France), Rastreator
(Spain), compare.com (US), and Preminen (new markets)
UK Insurance
30 June 30 June 30 June 31 Dec
GBPm 2018 2019 2020 2019
-------------------------------- ------------- ---------- ---------- ------------
Turnover(*1) 1,319.1 1,338.8 1,248.4 2,635.0
--------------------------------
Total premiums written(*1) 1,167.1 1,186.0 1,101.6 2,321.7
--------------------------------
Net insurance premium revenue 254.6 264.7 251.7 533.2
--------------------------------
Underwriting profit including
investment income(*1) 101.6 106.7 158.1 257.4
--------------------------------
Profit commission and other
income 145.4 148.0 155.7 340.0
--------------------------------
UK Insurance profit before
tax 247.0 254.7 313.8 597.4
--------------------------------
*1 Alternative Performance Measures -- refer to the end of this report
for definition and explanation
Split of UK Insurance profit before tax
30 June 30 June 30 June 31 Dec
GBPm 2018 2019 2020 2019
---------------------- ---------- ---------- ------------
Motor 249.5 251.7 310.4 591.5
Household (1.9) 4.2 5.5 7.5
Travel (0.6) (1.2) (2.1) (1.6)
----------------------
UK Insurance profit 247.0 254.7 313.8 597.4
----------------------
Key performance indicators
30 June 30 June 30 June 31 Dec
GBPm 2018 2019 2020 2019
------------------------------- ---------- ---------- ------------
Vehicles insured at period
end 4.26m 4.33m 4.42m 4.37m
Households insured at period
end 0.78m 0.92m 1.07m 1.01m
Travel Insurance customers 0.03m 0.07m 0.09m 0.09m
-------------------------------
Total UK Insurance customers 5.07m 5.32m 5.58m 5.47m
-------------------------------
Highlights for the UK insurance business for H1 2020 include:
In motor insurance:
-- Reduced premiums, reflecting the Stay at Home premium rebate for
customers, premium rate reductions to reflect reduced claims frequency as
a result of Covid, and reduced demand in early lockdown
-- An increase in profit to GBP310.4 million (H1 2019: GBP251.7 million).
After excluding an adverse impact of GBP33 million arising from the Ogden
discount rate change in the prior period, the increase is primarily a
result of strong prior year reserve releases and higher investment income
as a result of releases of accruals held for reinsurers' share of
investment income. Current year underwriting profitability is also higher
as a result of the lower claims frequency in the period
In household insurance:
-- Continued growth, with customers 16% higher than one year ago at 1.07
million (30 June 2019: 0.92 million)
-- Profit of GBP5.5 million (H1 2019: GBP4.2 million), with positive
development on prior year claims offset by bad weather in H1 2020 with an
approximate impact of GBP5 million, net of Flood Re recoveries
UK Motor Insurance
30 June 30 June 30 June 31 Dec
GBPm 2018 2019 2020 2019
----------------------------------- ------------ ---------- ---------- ------------
Turnover(*1) 1,247.2 1,255.2 1,158.3 2,455.3
-----------------------------------
Total premiums written(*1) 1,102.3 1,110.1 1,019.8 2,158.5
-----------------------------------
Net insurance premium revenue 221.1 225.4 208.5 452.6
Investment income 15.8 15.9 30.6 30.4
Net insurance claims (104.1) (106.2) (48.9) (164.7)
Net insurance expenses (33.9) (36.1) (38.6) (74.7)
-----------------------------------
Underwriting profit(*1*2) 98.9 99.0 151.6 243.6
Profit commission 30.8 35.0 41.1 112.2
-----------------------------------
Underwriting profit and profit
commission 129.7 134.0 192.7 355.8
Net other revenue(*3) 119.8 117.7 117.7 235.7
-----------------------------------
UK Motor Insurance profit before
tax 249.5 251.7 310.4 591.5
-----------------------------------
*1 Alternative Performance Measures -- refer to the end of this report
for definition and explanation.
*2 Underwriting profit excludes contribution from underwritten
ancillaries (included in net other revenue)
*3 Net other revenue includes instalment income and contribution from
underwritten ancillaries and is analysed later in the report.
Key performance indicators
30 June 30 June 30 June 31 Dec
2018 2019 2020 2019
------------- ---------- ---------- ------------
Reported Motor loss
ratio(*1,*2) 60.3% 67.8% 49.4% 60.7%
Reported Motor expense
ratio(*1,*3) 17.9% 18.7% 21.3% 19.1%
Reported Motor combined ratio 78.2% 86.5% 70.7% 79.8%
-------------------------------
Written basis Motor expense
ratio 17.1% 17.5% 18.8% 18.5%
-------------------------------
Reported loss ratio before
releases 85.9% 90.0% 80.2% 87.6%
-------------------------------
Claims reserve releases --
original net share(*1,*4) GBP56.5m GBP50.0m GBP64.2m GBP121.7m
Claims reserve releases --
commuted reinsurance(*1,*5) GBP35.2m GBP52.8m GBP60.0m GBP121.7m
Total claims reserve releases GBP91.7m GBP102.8m GBP124.2m GBP243.4m
-------------------------------
Vehicles insured at period
end 4.26m 4.33m 4.42m 4.37m
-------------------------------
Other Revenue per vehicle GBP67 GBP66 GBP64 GBP66
-------------------------------
*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
account that Admiral wrote on a net basis at the start of the
underwriting year in question.
*5 Commuted reinsurance shows releases on the proportion of the account
that was originally ceded under quota share reinsurance contracts but
has since been commuted and hence reported through underwriting profit
and not profit commission.
UK Motor profit in the first six months of 2020 was GBP58.7 million
ahead of the same period in 2019 (H1 2020: GBP310.4 million; H1 2019:
GBP251.7 million). Profit in first half of 2019 was adversely impacted
by GBP33.3 million as a result of the change in Ogden discount rate to
-0.25%. Excluding this impact, the increase in profit is GBP25.4
million.
The main driver of lower premium and claims trends for the market and
Admiral in the first half of 2020 was the significant reduction in
claims frequency as a result of the Covid crisis, followed by a recent
recovery (strong in premiums, partial in claims frequency) as lockdown
restrictions eased. Premiums in the period were also lower as a result
of the Stay at Home premium rebate to customers, rate decreases and
reduced demand in early lockdown. The 'Stay at Home' premium rebate of
GBP110 million, when adjusted for Insurance Premium Tax (IPT), impacted
written premium at the whole account level by GBP97 million, which is
reflected within turnover and total premiums in H1 2020.
Highlights for the period were as follows:
-- Net insurance premium revenue was 7.5% lower than H1 2019 at GBP208.5
million (H1 2019: GBP225.4 million), with the 'Stay at Home' premium
rebate to customers having a significant impact
-- Investment income was GBP30.6 million, significantly increased from
GBP15.9 million in H1 2019, primarily as a result of releases of accruals
held in relation to reinsurance contracts. Excluding these releases,
investment income was GBP17.7 million
-- The reported combined ratio improved to 70.7% (H1 2019: 86.5%), with the
loss ratio improving to 49.4% (H1 2019: 67.8%) as follows:
Reported Motor loss ratio
Reported Impact of
Loss ratio claims reserve
before releases - net Reported
releases original share Loss Ratio
H1 2019 90.0% -22.2% 67.8%
Impact of Ogden change (0% to
-0.25%) -1.9% -4.9% -6.8%
H1 2019 (excluding Ogden impact) 88.1% -27.1% 61.0%
Change in current period loss
ratio -7.9% -- -7.9%
Change in claims reserve release
-- original net share -- -3.7% -3.7%
H1 2020 80.2% -30.8% 49.4%
------------------------------------ ----------- --------------- -----------
-- In H1 2019, the Ogden discount rate changed to minus 0.25% (best estimate
assumption of 0% at 31 December 2018) reducing the UK Motor profit by
GBP33.3 million, and increasing the reported combined ratio by close to 7
percentage points
-- Excluding the impact of the Ogden rate change on the prior period, the
2020 H1 loss ratio was just under 8 percentage points lower than H1 2019.
Claims experience in the period was heavily impacted by the Covid-19
lockdown, with customers driving less and claims frequency significantly
reduced
-- Reserve releases on original net share of reserves of GBP64.2 million (H1
2019: GBP50.0 million) equated to 31% of premium (H1 2019: 22%).
Excluding the impact of the Ogden change in the prior period, releases
were 3.7 percentage points higher than H1 2019 (27%). Whilst the releases
were broadly consistent in absolute terms (after excluding the impact of
the Ogden change in the prior period), the lower premium earned in H1
2020 resulted in the slightly higher percentage.
-- The margin held in the financial statements above the projected best
estimate reserves remains appropriately prudent, and is consistent with
that held at the end of 2019, in relative terms.
The written basis expense ratio, also impacted by lower premium in the
period, is 18.8% for H1 2020 (H1 2019: 17.5%), with the earned expense
ratio also higher at 21.3% (H1 2019: 18.7%). In addition to the lower
premium, net insurance expenses were GBP2.5m higher than H1 2019
(GBP38.6 million; H1 2019: GBP36.1 million) with investment in both the
digital customer journey in the period and Covid-related remote working
capability.
--Both claims reserve releases from commuted reinsurance and profit
commission were higher in H1 2020 than H1 2019, as follows:
Reserve releases
-- commuted Profit
GBPm reinsurance commission Total
H1 2019 52.8 35.0 87.8
Impact of Ogden change (0% to -0.25%) 9.1 8.8 17.9
H1 2019 (excluding Ogden impact) 61.9 43.8 105.7
------------------------------------------
Change in reserve releases on commuted
reinsurance -1.9 -- -1.9
Change in profit commission -- -2.7 -2.7
------------------------------------------
H1 2020 60.0 41.1 101.1
------------------------------------------
-- Releases on reserves originally reinsured but since commuted were higher
at GBP60.0 million (v GBP52.8 million in H1 2019). Excluding the impact
of the prior period Ogden change, the current year releases are GBP1.9
million lower at GBP60.0m (H1 2019: GBP61.9 million).
-- Profit commission (excluding the prior period Ogden impact) was broadly
consistent at GBP41.1 million (H1 2019: GBP43.8 million). This aligns
with the similar level of reserve releases period on period.
-- Both releases from commuted reinsurance and profit commission are
discussed in more detail in the co- and reinsurance section below
Market prices decreased over the first half of 2020, primarily to
reflect the significant reduction in claims frequency during the Covid
lockdown period. Part of Admiral's response to the drop in claims
frequency was to pay a Stay at Home refund to reflect lower vehicle
usage as well as through reducing rates over the period. The Stay at
Home premium refund is fully reflected in the gross written premium for
the period. The number of vehicles insured increased by 2% to 4.42
million (30 June 2019: 4.33 million). Customer retention was strong
during the period.
Co- and reinsurance, commutations and profit commission
Admiral makes significant use of proportional risk sharing agreements,
where insurers outside the Group underwrites a majority of the risk
generated, either through co-insurance or quota share reinsurance
contracts. The Group's net retained share of that business is 22%. These
arrangements include profit commission terms which allow Admiral to
retain a significant portion of the profit generated. The proportional
co- and reinsurance arrangements in place for the motor business are the
same as those reported in the 2019 Annual Report and will continue in
2020. Admiral expects to conclude extensions to its UK quota share
contracts for the years beyond 2020 in the second half of 2020.
Admiral tends to commute its UK Car Insurance quota share reinsurance
contracts for an underwriting year 24 months from inception, assuming
there is sufficient confidence in the profitability of the business
covered by the reinsurance contract.
As at 30 June 2020, all UK car quota share reinsurance contracts for
underwriting years up to 2016 have been commuted, along with the
majority of contracts for the 2017 and 2018 underwriting year, meaning
Admiral assumes a higher net risk for these years than had the
reinsurance been left in place.
Other Revenue and Instalment Income
UK Motor Insurance Other Revenue -- analysis of contribution:
30 30 30
June June June 31 Dec
GBPm 2018 2019 2020 2019
--------------------------------------------------- ------ ------ ------ ------
Contribution from additional products & fees 105.6 102.4 95.6 202.1
Contribution from additional products underwritten
by Admiral(*1) 5.9 7.9 8.6 13.9
Instalment income 37.5 42.0 47.6 83.9
Other revenue 149.0 152.3 151.8 299.9
Internal costs(*2) (29.2) (34.6) (34.1) (64.2)
Net other revenue 119.8 117.7 117.7 235.7
Other revenue per vehicle(*3) GBP67 GBP66 GBP64 GBP66
--------------------------------------------------- ------ ------ ------ ------
Other revenue per vehicle net of internal costs GBP57 GBP56 GBP54 GBP56
*1 Included in underwriting profit in income statement but re-allocated
to Other Revenue for purpose of KPIs.
*2 Internal costs reflect an allocation of insurance expenses incurred
in generating other revenue.
*3 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)
was in line with H1 2019 at GBP117.7 million (H1 2019: GBP117.7
million). This included a reduction in admin fees and optional ancillary
income, partly reflecting more transactions completing digitally and
also reflecting the impact of Covid resulting in lower sales and reduced
fees. This was partially offset by increased instalment income primarily
arising from more customers choosing to pay by monthly instalment. In
addition, there was a positive impact from other revenue generated on
the Van insurance book.
Other revenue was equivalent to GBP64 per vehicle (gross of costs; H1
2019: GBP66) and Net Other revenue (after deducting costs) per vehicle
was GBP54 (H1 2019: GBP56).
UK Household Insurance
GBPm 30 June 2018 30 June 2019 30 June 2020 31 Dec 2019
--------------------- ------------ ------------ ------------ -----------
Turnover(*1) 68.3 80.0 87.0 171.3
Total premiums
written(*1) 61.3 72.2 78.7 154.9
Net insurance premium
revenue 14.7 18.1 20.9 37.2
Underwriting
result(1*2) (2.9) 0.6 (0.7) 0.7
Profit commission and
other income 1.0 3.6 6.2 6.8
--------------------- ------------ ------------ ------------ -----------
UK Household
insurance
profit/(loss) (1.9) 4.2 5.5 7.5
*1 Alternative Performance Measures -- refer to the end of this report
for definition and explanation
*2 Underwriting loss excluding contribution from underwritten
ancillaries
Key performance indicators
30 June 2018 30 June 2019 30 June 2020 31 Dec 2019
--------------------- ------------ ------------ ------------ -----------
Reported household
loss ratio(*1) 87.6% 66.8% 69.0% 69.1%
Reported household
expense ratio(*1) 32.1% 30.1% 34.2% 28.9%
Reported household
combined ratio(*1) 119.7% 96.9% 103.2% 98.0%
Impact of extreme
weather and
subsidence(*1) 25.3% -- 11.1% --
Households insured at
period end (m) 0.78 0.92 1.07 1.01
--------------------- ------------ ------------ ------------ -----------
*1 Alternative Performance Measures -- refer to the end of this report
for definition and explanation
Admiral's Household business continued to grow strongly, increasing the
number of homes insured by 16% to 1,066,400 (H1 2019: 920,900), with
turnover increasing to GBP87.0 million (H1 2019: GBP80.0 million). New
business market volumes slowed as lockdown was implemented but recovered
as restrictions eased. Retention remained strong. Overall, customers
have shifted towards using digital channels more for both shopping and
reporting claims.
The household business reported a profit of GBP5.5 million (H1 2019:
GBP4.2 million profit) with the result being impacted by weather events
in early 2020 costing approximately GBP5 million, net of recoveries from
Flood Re (H1 2019: nil). Excluding the weather impact, the first half of
2020 saw favourable development of prior periods, most notably in
relation to escape of water and fire perils.
The market saw a reduction in claims frequency in early lockdown which
has subsequently recovered to more normal levels. As more people were
staying at home during the Covid lockdown, the claims mix for Admiral
shifted towards increased claims for damage and reduced escape of water
claims.
Admiral's expense ratio increased to 34.2% (H1 2019: 30.1%) as a result
of lower than expected premium due to sales disruption during the
lockdown period, as well as increased acquisition cost as a result of
more online comparison sales and increased investment in digital and
claims capabilities.
International Insurance
30 June 30 June 30 June 31 Dec
GBPm 2018 2019 2020 2019
------------------------------ ---------- ---------- ---------- ----------
Turnover(*1) 260.1 319.5 329.5 623.6
------------------------------ ---------- ---------- ----------
Total premiums written(*1) 234.0 288.0 297.6 562.6
------------------------------ ---------- ---------- ----------
Net insurance premium
revenue 66.2 80.6 95.5 168.6
------------------------------ ---------- ---------- ----------
Investment income 0.6 0.9 (0.1) 1.5
------------------------------ ---------- ---------- ----------
Net insurance claims (49.7) (66.0) (63.3) (137.2)
------------------------------ ---------- ---------- ----------
Net insurance expenses (25.3) (26.7) (37.7) (53.0)
------------------------------ ---------- ---------- ----------
Underwriting result(*1) (8.2) (11.2) (5.6) (20.1)
------------------------------ ---------- ---------- ----------
Net other income 7.6 8.5 12.1 19.2
------------------------------ ---------- ---------- ----------
International Car Insurance
result (0.6) (2.7) 6.5 (0.9)
------------------------------ ---------- ---------- ----------
Key performance indicators
30 June 30 June 30 June 31 Dec
2018 2019 2020 2019
------------------------------- ------------ ---------- ---------- -----------
Loss ratio(*2) 78% 76% 63% 77%
Expense ratio(*2) 39% 38% 45% 37%
-------------------------------
Combined ratio(*3) 117% 114% 108% 114%
-------------------------------
Combined ratio, net of Other
revenue(*4) 106% 103% 95% 104%
-------------------------------
Claims reserve releases
(GBPm) 6.1 9.0 11.7 14.4
-------------------------------
Vehicles insured at period
end 1.12m 1.36m 1.49m 1.42m
-------------------------------
*1 Alternative Performance Measures -- refer to the end of this report
for definition and explanation
*2 Loss ratios and expense ratios adjusted to remove the impact of
reinsurer caps
*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 H1 2020: 106%; FY 2019: 113%; H1 2019: 115%; H1 2018: 113%.
*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 H1 2020: 93%; FY 2019: 102%; H1 2019: 104%; H1 2018: 102%.
Geographical analysis(*1)
30 June 2020 Spain Italy France US Total
----------------------------- ----- ----- ------ ----- -----
Vehicles insured at period
end 0.30m 0.71m 0.26m 0.22m 1.49m
-----------------------------
Turnover (GBPm) 40.8 106.2 64.1 118.4 329.5
-----------------------------
30 June 2019 Spain Italy France US Total
-----------------------------
Vehicles insured at period
end 0.28m 0.66m 0.20m 0.22m 1.36m
-----------------------------
Turnover (GBPm) 40.2 105.2 51.4 122.7 319.5
-----------------------------
31 Dec 2019 Spain Italy France US Total
-----------------------------
Vehicles insured at period
end 0.29m 0.69m 0.23m 0.21m 1.42m
-----------------------------
Turnover (GBPm) 78.2 204.2 108.1 233.1 623.6
-----------------------------
*1 Alternative Performance Measures -- refer to the end of this report
for definition and explanation
International Insurance financial performance
Admiral's international insurance businesses continued to grow despite a
slowdown resulting from reduced demand during Covid lockdown
restrictions, with customer numbers 10% higher than a year earlier and
turnover growth of 3% to GBP329.5 million (H1 2019: GBP319.5 million).
The combined ratio, net of other revenue improved to 95% (H1 2019:
103%). This was driven both by positive prior year development as well
as lower claims costs seen as a result of Covid.
The expense ratio deteriorated to 44.8% (H1 2019: 38.4%) as a result of
both lower than expected premium in the period as a result of Covid and
also an increase in the net retained share of business in the US where
the Group now retains a 50% share of the current underwriting year. This
results in a temporary increase in expense ratio as the recognition of
the increase in earned premium arising from this change, lags the
increase in expenses.
The European insurance operations in Spain, Italy and France insured
1.27m vehicles at 30 June 2020 -- 12% higher than a year earlier (30
June 2019: 1.13m). Turnover was up 7% at GBP211.1 million (H1 2019:
GBP196.8 million). The businesses recorded a profit of GBP9.8 million
(H1 2019: profit of GBP3.5 million) with each reporting a positive
result. All businesses continued to focus on improving their loss ratio
and also experienced positive development of prior year loss ratios. The
combined ratio net of other revenue (excluding the impact of reinsurer
caps) improved materially to 82% from 93% due to the improved claims
experience and growth in other revenue.
Admiral Seguros (Spain) grew by 10% to just over 300,000 customers over
the past year (30 June 2019: 275,000). The business continued to focus
on sustainable growth and increased retention in a competitive market.
In addition, the business continued to grow distribution via the broker
channel and implemented improvements to the online customer experience.
The Group's largest international operation, ConTe in Italy, continued
to perform well and increased vehicles insured by 9% to 712,000 (30 June
2019: 656,000). Retention remained strong during the period and the
business continued a focus on improving the loss ratio and risk
selection.
L'olivier assurances (France) continued to grow strongly, particularly
via the direct channel, increasing its customer base by 28% to 261,000
at 30 June 2020. Growth was also facilitated through marketing and
product improvements, and the business also experienced strong
retention.
In the US, Admiral underwrites motor insurance in seven states (Virginia,
Maryland, Illinois, Texas, Indiana, Tennessee and Ohio) through its
Elephant Auto business. The number of vehicles insured slightly
decreased to 218,000 at 30 June 2020 (H1 2019: 222,000) and turnover was
also down by 2% to GBP118.4 million (H1 2019: GBP122.7 million). The
business continued to focus on improving the loss ratio with a cautious
approach to growth and improving risk selection capabilities. In
addition, the business shifted towards providing policies with a six,
rather than twelve month term, based on customer demand and more in line
with standard market practice. This resulted in a lower written premium
compared to the prior period.
Elephant reported a lower loss of GBP3.3 million (from GBP6.2 million in
H1 2019) due to loss ratio improvements in H1 as a result of the focus
to improve loss ratio over the past few periods as well as the impact of
Covid, although this was partially offset by increased forbearance in
respect of customer payment difficulties and other operational expenses.
Elephant continues to focus on cost control and improving customer
service through the digital channel, which has contributed to continued
improvement in the expense ratio. Overall, the combined ratio net of
other revenue improved to 111% (116% in H1 2019).
Comparison
30 June 30 June 30 June 31 Dec
GBPm 2018 2019 2020 2019
------------------------------- ------------- ---------- ---------- ----------
Revenue
Car insurance comparison 57.0 59.0 61.8 119.4
Other 19.6 24.4 28.9 52.2
------------------------------- ----------
Total Revenue 76.6 83.4 90.7 171.6
Expenses (74.0) (78.0) (78.2) (156.9)
------------------------------- ----------
Profit before tax 2.6 5.4 12.5 14.7
------------------------------- ----------
Confused.com profit 5.8 8.7 13.5 20.4
International comparison
result (3.2) (3.3) (1.0) (5.7)
------------------------------- ----------
Statutory profit before tax 2.6 5.4 12.5 14.7
----------
Confused.com profit 5.8 8.7 13.5 20.4
International comparison
result (2.3) (1.3) (0.4) (2.4)
------------------------------- ----------
Group's share of profit before
tax(*1) 3.5 7.4 13.1 18.0
----------
*1 Alternative Performance Measure -- refer to the end of this report
for definition and explanation
Whilst the UK comparison market remained competitive in the first half
of 2020, Confused.com performed very strongly. Turnover increased by 18%
to GBP63.7 million (H1 2019: GBP54.2 million) as a result of strong
growth in market share for both motor and household insurance.
Confused.com continued to improve the customer and product proposition,
and improved marketing efficiencies over the period. Profit increased to
GBP13.5 million (H1 2019: GBP8.7 million). Confused saw a fall in demand
for its services in the initial period of lockdown restrictions, though
volumes recovered significantly in the latter part of the first half.
Admiral operates several comparison businesses outside the UK including
Rastreator (Spain), LeLynx (France), compare.com (US) and the Preminen
operations in emerging markets. The Group owns 75% of Rastreator,
59.25% of compare.com and 50% of Preminen.
Combined revenue for the continental European operations in the first
half of 2020 decreased by 7% to GBP23.2 million (H1 2019: GBP25.0
million), as a result of lower quote volumes during the lockdown period.
The Group's share of the combined result for Rastreator and LeLynx was a
profit of GBP0.7 million (H1 2019: GBP2.1 million). Performance for
both businesses was adversely impacted by Covid, with marketing and
other variable costs being reduced in line with the fall in revenue, but
fixed costs remaining stable. Similar to Confused.com, Rastreator and
LeLynx saw a significant impact on volumes in early lockdown with
improvements later in the first half.
During the first half of 2020 in the US, Admiral's share of
compare.com's loss reduced to GBP0.5 million before tax (H1 2019: GBP2.8
million). Compare's revenue was largely in line with 2019 but the
reduced size of the business, following actions taken in 2019,
contributed to the reduced expenses and improved result.
Preminen continues to explore the potential of comparison in new markets
overseas, in partnership with Mapfre. Current operations include
Rastreator.mx in Mexico and, GoSahi.com in India with a decision taken
during the first half of 2020 to cease operations through Tamoniki.com
in Turkey.
Other Group Items
30 June 30 June 30 June 31 Dec
GBPm 2018 2019 2020 2019
--------------------------------- ---------- ---------- ---------- ---------
Share scheme charges (21.6) (26.2) (22.8) (52.7)
Admiral Loans loss before
tax (6.4) (4.3) (9.4) (8.4)
Other interest and investment
income 1.1 2.7 3.0 6.0
Business development costs (2.0) (0.4) (0.5) (2.1)
Other central overheads (3.7) (5.5) (11.2) (20.0)
Finance charges (5.6) (5.5) (5.8) (11.2)
Group's share of other group
items (38.2) (39.2) (46.7) (88.4)
--------------------------------- ---------- ---------- ---------- ---------
Share scheme charges relate to the Group's two employee share schemes
(refer to note 9 in the financial statements). The decrease in the
charge is driven by a reduced number of awards following changes made in
2019, along with a reduced "DFSS bonus" charge due to the lower dividend
paid in H1 2020.
Business development costs include costs associated with potential new
ventures. The costs associated with Preminen were included within the
Comparison segment above for the first time in 2019. Business
development costs have remained consistent with H1 2019.
Other central costs consist of Group-related expenses and include the
cost of a number of significant Group projects, such as the development
of the internal model and preparation for the significant new insurance
accounting standard, IFRS17. The increase in the period is primarily due
to the Covid relief fund of GBP6.0 million provided in the UK to help
support individuals and organisations in need as a result of the
pandemic.
Finance charges of GBP5.8 million (H1 2019: GBP5.5 million) primarily
relate to interest on the GBP200 million subordinated notes issued in
July 2014 (refer to note 6 to the financial statements), along with
notional finance charges recognized on leases in accordance with IFRS
16.
Admiral Loans
30 June 30 June 30 June 31 Dec
GBPm 2018 2019 2020 2019
------------------------------------- ------- ------- ------- ------
Total interest income 5.1 13.3 19.8 30.8
Interest expense (1.2) (4.1) (5.1) (9.1)
-------------------------------------
Net interest income 3.9 9.2 14.7 21.7
Other fee income -- 0.9 0.9 1.9
-------------------------------------
Total income 3.9 10.1 15.6 23.6
-------------------------------------
Movement on provision for expected
credit losses (4.1) (6.0) (16.2) (13.8)
-------------------------------------
Operating expenses (6.2) (8.4) (8.8) (18.2)
-------------------------------------
Loss before tax (6.4) (4.3) (9.4) (8.4)
-------------------------------------
(*1) Includes GBP1.5 million intra-group interest expense (H1 2019:
GBP1.2 million)
Admiral Loans distributes unsecured personal loans and car finance
products through the comparison channel and also direct to consumers via
the Admiral website.
In mid-March 2020, following the rising number of cases of Covid and
lockdown in a number of other European countries, the Group made the
decision to pause the writing of new loans. Management focused on
intense monitoring of the loan portfolio performance and ensuring
collection processes were robust and prepared for the strong likelihood
of increased arrears experience resulting from increased unemployment.
Admiral also extended payment holidays and reduced payment arrangements
to some customers according to their needs and in line with regulatory
guidance.
Gross loan balances totalled GBP495.5m at the end of June 2020, with a
GBP40.2 million provision, thereby meaning a net loans balance of
GBP455.3 million at the end of the first half of 2020 (net loans balance
at 30 June 2019: GBP420.8 million, 31 December 2019: GBP455.1 million).
At the balance sheet date, Admiral Loans had not yet seen any
significant increase in the level of defaults nor been required to make
any significant specific provisions in relation to the impact of the
pandemic. It has updated its IFRS9 models with a more cautious set of
economic assumptions and refined management overlays to reflect
expectations in respect of the behaviour of customers on payment
holidays. Admiral Loans uses a probability-weighted combination of
scenarios primarily driven by unemployment assumptions.
The IFRS9 probability-weighted model outputs supplemented by the payment
holiday assumption overlays required a net additional impairment
provision of GBP16.2 million (H1 2019: GBP6.0 million). For further
information, refer to note 7 in the financial statements.
Management continues to monitor the market and UK economy closely and
has re-entered the market in the second half in a very cautious manner.
Admiral Loans is currently funded through a combination of internal
funding and further required external funding. The external portion
funds approximately 60% of the current loans balance through the
securitisation of certain loans via transfer of the rights to the
cash-flows to a special purpose entity ("SPE") which remains under the
control of the Group. The securitisation and subsequent issue of notes
does not result in a significant transfer of risk from the Group.
Result
Admiral Loans recorded a pre-tax loss of GBP9.4 million in the first
half of 2020 (increased from GBP4.3 million in H1 2019). The higher loss
predominantly reflects the increased provision recognised in the period
as noted above.
Group capital structure and financial position
Admiral's capital-efficient and profitable model led to a return on
equity of 50% (H1 2019: 47%). A continuing key feature of the business
model is the extensive use of co- and reinsurance across the Group which
reduces the level of capital the Group is required to maintain.
The Group continues to manage its capital to ensure that all entities
within the Group are able to continue as going concerns and that
regulated entities comfortably meet regulatory capital requirements.
Surplus capital within subsidiaries is paid up to the Group holding
company in the form of dividends.
The Group continues to develop its partial internal model to form the
basis of calculation of its capital requirement in the future, and
expects to submit the formal application in 2021. In the period before
submission, the Group will continue to use the current standard formula
plus capital add-on basis to calculate its regulatory capital
requirement.
The estimated Solvency II position for the Group at the date of this
report was as follows:
Group capital position (estimated)
30 June 2020 31 Dec 2019
GBPbn GBPbn
---------------------------------------------- ------------ -----------
Eligible Own Funds (pre dividend) 1.47 1.42
Dividend (0.20) (0.22)
----------------------------------------------
Eligible Own Funds (post dividend) 1.27 1.20
Solvency II capital requirement(*1) 0.68 0.63
----------------------------------------------
Surplus over regulatory capital requirement 0.59 0.57
----------------------------------------------
Solvency ratio (post dividend) 186% 190%
----------------------------------------------
Although slightly reduced from the 2019 year- end position, the Group
maintained a strong post-dividend solvency ratio at 186% (FY 2019:
190%). Whilst the surplus over the regulatory capital requirement has
increased since 31 December 2019, increases in both Own Funds and SCR of
a similar order result in a modest reduction in the ratio. The increase
in Own Funds reflects economic profit generated in the period partially
offset by adverse movements in credit spreads.
The solvency capital requirement includes an updated capital add-on
which remains subject to regulatory approval. The solvency ratio based
on the previously approved capital add-on that is calculated at the
balance sheet date rather than the date of this report, and will be
submitted to the regulator within the Q2 Quantitative Reporting Template
(QRT) is as follows:
Regulatory solvency ratio (estimated) 30 June 2020 31 Dec 2019
------------------------------------------------- ------------ -----------
Solvency ratio as reported above 186% 190%
Change in valuation date (7%) (10%)
Other (including impact of updated, unapproved
capital add-on) (10%) (10%)
Solvency ratio (QRT basis) 169% 170%
------------------------------------------------- ------------ -----------
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.
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
30 June 2020 31 Dec 2019
--------------------------------------- ------------------ -----------------
UK Motor -- incurred loss ratio
+5% -23% -23%
UK Motor -- 1 in 200 catastrophe
event -1% -1%
UK Household -- 1 in 200 catastrophe
event -2% -2%
Interest rate -- yield curve down
50 bps -3% -5%
Credit spreads widen 100 bps -9% -8%
Currency -- 25% movement in euro
and US dollar -3% -3%
ASHE -- long term inflation assumption
up 0.5% -3% -3%
Loans -- 100% weighting to severe
scenario -1% -3%
------------------ -----------------
The reduced sensitivity to interest rates reflects changes in asset
allocations to better match durations of PPO claims.
For further detail on Loans sensitivities refer to note 7a to the
financial statements.
Investments and cash
Admiral's investment strategy was unchanged in H1 2020. The main focus
of the Group's strategy is capital preservation, with additional
priorities including low volatility of returns, high levels of liquidity
and matching of asset durations with PPO and non-PPO liability
durations. All objectives continue to be met. The Group's Investment
Committee performs regular reviews of the strategy to ensure it remains
appropriate.
Cash and investments analysis
30 June 30 June 30 June 31 Dec
GBPm 2018 2019 2020 2019
------------------------------- ----------- ---------- ---------- ------------
Fixed income and debt
securities 1,542.5 1,827.6 2,024.1 1,957.8
Money market funds and other
fair value
instruments 1,203.8 1,029.3 1,243.4 1,160.2
Cash deposits 130.0 88.7 85.0 116.5
Cash 309.5 461.4 396.3 281.7
------------------------------- ----------
Total 3,185.8 3,407.0 3,748.8 3,516.2
------------------------------- ----------
Investment return
30 June 30 June 31 Dec
GBPm 2018 2019 30 June 2020 2019
----------------------------------- ------- ------- ------------ ------
Investment return 18.6 23.3 21.3 48.6
Movement on accruals held for
reinsurers -- (4.5) 12.9 (12.9)
Unrealised (gains)/losses (1.4) (0.4) 0.2 (0.1)
Movement in provision for expected
credit losses -- (0.1) (2.4) (0.3)
Net Investment income 17.2 18.3 32.0 35.3
Net investment income for the first half of 2020 was GBP32.0 million (H1
2019: GBP18.3 million).
The investment return on the Group's investment portfolio excluding
unrealised gains and losses, the release of the investment income
accruals held in relation to reinsurance contracts and the movement in
provision for expected credit losses, was GBP21.3 million (H1 2019:
GBP23.3 million), with the annualised rate of return being 1.2% (H1
2019: 1.4%). The lower return in the period was reflective of the lower
yield environment.
Net investment income in the period is positively impacted by the
release of the GBP12.9 million investment income accrual (H1 2019:
GBP4.5m accrual) held in relation to UK motor quota share reinsurance
arrangements. These reinsurance contracts typically operate on a 'funds
withheld' basis, meaning that Admiral retains the reinsurers' share of
premiums, and pays the reinsurers' share of claims and expenses out of
the withheld amounts. Investment income on the withheld fund is accrued
and typically released once the projected best estimate loss ratio for
the relevant underwriting year results in a profitable outcome.
In H1 2020, accruals held in relation to the 2019 underwriting year were
released following an improvement in the projected best estimate loss
ratio for the underwriting year.
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. Total cash and investments at
the end of H1 2020 was GBP3,748.8 million (FY 2019: GBP3,516.2 million).
The increase in the period includes a draw down on the Group's revolving
credit facility of GBP86.5 million.
Taxation
The tax charge for the period, reported on a statutory basis is GBP43.1
million (H1 2019: GBP37.0 million), which equates to 15.1% (H1 2019:
16.9%) of profit before tax. The reduction in effective tax rate (as
defined in the glossary) is driven primarily by an increase in
non-taxable income and a lower impact of unrecognised deferred tax due
to lower losses in the Group's US businesses.
Principal Risks and Uncertainties
Admiral has performed a robust assessment of its principal risks and
uncertainties, including those which would threaten its business model,
future performance, liquidity and solvency. The result of this
assessment has concluded that Admiral's principal risks and
uncertainties are consistent with those reported in the Group's 2019
Annual Report (pages 67-73).
Covid-19
The impact of Covid on Admiral's principal risks and uncertainties, as
well as the steps taken to appropriately manage these risks is overseen
by the Group Risk Committee. The most significant impacts are set out
below.
Operational, Regulatory and Strategic Risks
Admiral is exposed to an increased level of operational risk through the
implementation of business continuity plans, in addition to regulatory
and strategic risks.
-- All but a very small number of essential staff worked from home from the
point at which lockdown restrictions were imposed in the Group's various
locations. As restrictions have eased, the Group is adopting a very
cautious approach to reopening offices. Potential impacts to staff
physical and mental health have been carefully managed through the
pandemic.
-- The rollout of hardware and software to support remote working has
impacted systems and processes, with appropriate adjustments made in
order to mitigate changes or increases in specific risks
-- Regulatory risk has increased during the pandemic, with a significant
amount of new regulatory guidance issued across the Group's businesses.
Admiral has, and continues to closely monitor this guidance, and has
prioritised initiatives for customers (particularly for vulnerable
customers) as set out earlier in this report.
-- Strategic risks, including the impact on significant Group projects and
product developments and enhancements, have been closely monitored, with
appropriate focus and resource dedicated to ensuring that significant
projects continue to progress.
Market and Credit Risks
The Group's investment portfolio has been impacted by the market
volatility and wider economic uncertainty associated with Covid. Robust
stress tests have been regularly completed, with the Group continuing to
show strong solvency and liquidity positions. This is supported by close
monitoring of market movements, with regular reviews by the Group's
Investment Committee, and daily monitoring of underlying exposures by
the Group's Asset Managers.
Admiral is also exposed to an increased level of risk of default by
personal lending customers as a result of the economic environment and
anticipated increases in unemployment. Further information is included
in the section headed 'Admiral Loans' earlier in this report and in note
7 to the financial statements.
Insurance Risk
The Group has experienced competing effects as a result of Covid,
specifically in relation to premium volumes and claims. Early in the
period of lockdown restrictions, new business volumes, along with other
revenue, initially reduced, though as restrictions have begun to ease,
volumes have increased. The impact of these initially reduced volumes
has been offset by a reduction in insurance claims frequency during the
lockdown period. This reduction in claims frequency and volume has been
particularly evident in the UK, leading to the Stay at Home premium
rebate as referred to earlier in this report.
Admiral is taking appropriate mitigating steps with respect to these
risks, including continuing to ensure that there is sufficient capacity
in the relevant operational areas in order to sell, renew and service
policies, and settle claims, increasing the number of options for
customers to access and service polices on-line, and through relevant
pricing actions.
UK Exit from the European Union ('Brexit')
To date Admiral has adopted a prudent approach to Brexit to help
mitigate the potential risks associated with a 'no-deal' scenario,
including the restructuring of the European insurance and price
comparison businesses, as well as establishing procedures to monitor and
manage potential supply chain changes and communications to customers.
The UK exited the EU on 31 January 2020, with the transition period due
to end on 31 December 2020. At the date of this report, there remains
uncertainty in the trading arrangements between the UK and the EU that
will be implemented after the end of the transition period. This along
with any associated economic volatility may give rise to impacts across
a number of the Group's principal risks and uncertainties. The Group
closely monitors and manages these risks through its Brexit Steering
Committee, reporting into the Group Risk Committee at appropriate
intervals.
Audit Tender
The Group's 2019 Annual Report referenced that the Group's Audit
Committee had made a decision to conduct an external audit tender
process during 2020. Whilst the timelines for the initiation of this
process were extended beyond the end of Q2 2020 in order to ensure that
a robust and effective process could be run in the current remote
working environment, the process has now commenced and is still expected
to be completed before the end of 2020. The appointment, or
re-appointment of the successful firm will be made with effect from the
2021 financial year, coinciding with the rotation of the current audit
partner. The Group's major shareholders were consulted ahead of the
initiation of the 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.
Condensed consolidated income statement (unaudited)
6 months ended Year ended
30 June 30 June 31 December
2020 2019 2019
Note GBPm GBPm GBPm
----------- --------------
Insurance premium revenue 1,063.4 1,080.4 2,198.4
Insurance premium ceded to reinsurers (712.6) (731.2) (1,489.0)
Net insurance premium revenue 5 350.8 349.2 709.4
Other revenue 8 243.9 233.1 469.9
Profit commission 5 44.6 36.1 114.9
Interest income 7 19.8 13.3 30.8
Interest expense 7 (3.8) (2.9) (6.3)
Net interest income from loans 16.0 10.4 24.5
Investment return 6 34.4 18.4 35.6
Net revenue 689.7 647.2 1,354.3
Insurance claims and claims handling
expenses (611.6) (788.3) (1,568.1)
Insurance claims and claims handling
expenses recoverable from reinsurers 470.3 588.3 1,208.8
Net insurance claims (141.3) (200.0) (359.3)
Operating expenses and share scheme
charges 9 (460.7) (431.9) (886.9)
Operating expenses and share scheme
charges recoverable from co- and reinsurers 9 223.2 215.2 441.2
Net operating expenses and share scheme
charges (237.5) (216.7) (445.7)
Changes in the expected credit loss
provision 6 (18.6) (6.1) (14.1)
Total expenses (397.4) (422.8) (819.1)
Operating profit 292.3 224.4 535.2
Finance costs 6 (7.3) (7.5) (14.6)
Finance costs recoverable from co-
and reinsurers 6 1.1 1.3 2.0
Net finance costs (6.2) (6.2) (12.6)
Profit before tax 286.1 218.2 522.6
Taxation expense 10 (43.1) (37.0) (94.2)
Profit after tax 243.0 181.2 428.4
Profit after tax attributable to:
Equity holders of the parent 243.7 183.2 432.4
Non-controlling interests (NCI) (0.7) (2.0) (4.0)
243.0 181.2 428.4
Earnings per share
Basic 12 82.9p 63.0p 148.3p
Diluted 12 82.8p 62.9p 148.0p
Dividends declared and paid (total) 12 162.3 188.0 367.8
Dividends declared and paid (per share) 12 56.3p 66.0p 129.0p
--------------
Condensed consolidated statement of comprehensive income (unaudited)
6 months ended Year ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
-------
Profit for the period 243.0 181.2 428.4
Other comprehensive income
Items that are or may be reclassified
to profit or loss
Movements in fair value reserve 17.7 29.6 34.6
Deferred tax charge in relation to
movement in fair value reserve (1.5) (1.4) (1.5)
Exchange differences on translation
of foreign operations 11.7 (0.7) (8.9)
Movement in hedging reserve (3.6) (1.3) (0.9)
Other comprehensive income for the
period, net of income tax 24.3 26.2 23.3
Total comprehensive income for the
period 267.3 207.4 451.7
Total comprehensive income for the
period attributable to:
Equity holders of the parent 267.5 209.5 456.1
Non-controlling interests (0.2) (2.1) (4.4)
267.3 207.4 451.7
Condensed consolidated statement of financial position (unaudited)
As at
30 June 30 June 31 December
2020 2019 2019
Note GBPm GBPm GBPm
------- -----------
ASSETS
Property and equipment 11 150.7 163.0 154.4
Intangible assets 11 162.2 158.9 160.3
Deferred income tax 10 2.1 5.3 --
Reinsurance assets 5 1,891.6 1,885.9 2,071.7
Insurance and other receivables 6 1,227.7 1,192.4 1,227.7
Loans and advances to customers 7 455.3 420.8 455.1
Financial investments 6 3,352.5 2,945.6 3,234.5
Cash and cash equivalents 6 396.3 461.4 281.7
Total assets 7,638.4 7,233.3 7,585.4
EQUITY
Share capital 12 0.3 0.3 0.3
Share premium account 13.1 13.1 13.1
Other reserves 78.9 57.7 55.1
Retained earnings 947.4 740.0 840.9
Total equity attributable to equity
holders of the parent 1,039.7 811.1 909.4
Non-controlling interests 11.2 11.5 9.2
Total equity 1,050.9 822.6 918.6
LIABILITIES
Insurance contracts 5 4,022.6 3,929.1 3,975.0
Subordinated and other financial
liabilities 6 644.2 484.5 530.1
Trade and other payables 6, 11 1,777.8 1,811.1 1,975.9
Lease liabilities 6 132.6 143.0 137.1
Deferred income tax 10 -- -- 0.4
Current tax liabilities 10 10.3 43.0 48.3
Total liabilities 6,587.5 6,410.7 6,666.8
Total equity and total liabilities 7,638.4 7,233.3 7,585.4
Condensed consolidated cash flow statement (unaudited)
6 months ended Year ended
30 June 30 June 31 December
2020 2019 2019
Note GBPm GBPm GBPm
---------- -----------
Profit after tax 243.0 181.2 428.4
Adjustments for non-cash items
- Depreciation of property, plant and
equipment and right-of-use assets 11 12.8 12.3 23.8
- Amortisation and impairment of intangible
assets 11 8.9 8.2 18.7
- Movement in provision for loans and
advances to customers 7 16.2 6.0 13.8
- Share scheme charges 9 22.9 26.5 53.4
- Accrued interest income from loans and
advances to customers (0.2) (1.7) (0.6)
- Accrued interest expense from loans
and advances to customers 1.3 -- --
- Investment return 6 (34.4) (18.3) (35.3)
- Finance costs, including unwinding of
discounts on lease liabilities 6 6.2 9.1 12.6
- Taxation expense 10 43.1 37.0 94.2
Change in gross insurance contract liabilities 5 47.6 192.7 238.6
Change in reinsurance assets 5 180.1 (2.4) (188.2)
Change in insurance and other receivables 6, 11 (1.7) (112.1) (147.0)
Change in loans and advances to customers 7 (16.4) (126.6) (168.7)
Change in trade and other payables, including
tax and social security 11 (198.1) 9.6 174.4
Cash flows from operating activities,
before movements in investments 331.3 221.5 518.1
Purchases of financial instruments (1,170.7) (905.9) (2,048.2)
Proceeds on disposal/ maturity of financial
instruments 1,106.1 985.2 1,847.9
Interest and investment income received 6 6.6 8.6 11.6
Cash flows from operating activities,
net of movements in investments 273.3 309.4 329.4
Taxation payments (87.0) (47.4) (92.8)
Net cash flow from operating activities 186.3 262.0 236.6
Cash flows from investing activities:
Purchases of property, equipment and software (15.3) (13.5) (33.6)
Net cash used in investing activities (15.3) (13.5) (33.6)
Cash flows from financing activities:
Non-controlling interest capital contribution 2.2 1.6 1.6
Proceeds on issue of loan backed securities 24.1 85.1 136.2
(Repayment)/proceeds from other financial
liabilities 86.5 (46.5) (50.3)
Finance costs paid, including interest
expense paid on funding for loans 6 (6.7) (10.4) (14.0)
Repayment of lease liabilities (4.3) (5.5) (10.6)
Equity dividends paid 12 (162.3) (188.0) (367.8)
Net cash used in financing activities (60.5) (163.7) (304.9)
Net increase / (decrease) in cash and
cash equivalents 110.5 84.8 (101.9)
Cash and cash equivalents at 1 January 281.7 376.8 376.8
Effects of changes in foreign exchange
rates 4.1 (0.2) 6.8
Cash and cash equivalents at end of period 6 396.3 461.4 281.7
Condensed consolidated statement of changes in equity (unaudited)
Attributable to the owners of the Company
Share Fair Foreign Retained
Share premium value Hedging exchange profit Non-controlling Total
Capital account reserve reserve reserve and loss Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- -------- -------- --------- --------- -------
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 -- -- -- -- -- 183.2 183.2 (2.0) 181.2
Other comprehensive
income
Movements in fair value
reserve -- -- 29.6 -- -- -- 29.6 -- 29.6
Deferred tax charge
in relation to movement
in fair value reserve -- -- (1.4) -- -- -- (1.4) -- (1.4)
Movement in hedging
reserves -- -- -- (1.3) -- -- (1.3) -- (1.3)
Currency translation
differences -- -- -- -- (0.6) -- (0.6) (0.1) (0.7)
Total comprehensive
income for the period -- -- 28.2 (1.3) (0.6) 183.2 209.5 (2.1) 207.4
Transactions with equity
holders
Dividends -- -- -- -- -- (188.0) (188.0) -- (188.0)
Share scheme credit -- -- -- -- -- 28.0 28.0 -- 28.0
Deferred tax credit
on share scheme credit -- -- -- -- -- 2.5 2.5 -- 2.5
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 -- -- -- -- -- (156.7) (156.7) 0.8 (155.9)
As at 30 June 2019 0.3 13.1 41.7 (1.6) 17.6 740.0 811.1 11.5 822.6
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 transaction 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
Condensed consolidated statement of changes in equity (unaudited)
(continued)
Attributable to the owners of the Company
Share Fair Foreign Retained
Share premium value Hedging exchange profit Non-controlling Total
Capital account reserve reserve reserve and loss Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- -------- -------- --------- --------- -------
At 1 January 2020 0.3 13.1 46.6 (1.2) 9.7 840.9 909.4 9.2 918.6
Profit/(loss) for
the period -- -- -- -- -- 243.7 243.7 (0.7) 243.0
Other comprehensive
income
Movements in fair
value reserve -- -- 17.7 -- -- -- 17.7 -- 17.7
Deferred tax charge
in relation to movement
in fair value reserve -- -- (1.5) -- -- -- (1.5) -- (1.5)
Movement in hedging
reserve -- -- -- (3.6) -- -- (3.6) -- (3.6)
Currency translation
differences -- -- -- -- 11.2 -- 11.2 0.5 11.7
Total comprehensive
income for the period -- -- 16.2 (3.6) 11.2 243.7 267.5 (0.2) 267.3
Transactions with
equity holders
Dividends -- -- -- -- -- (162.3) (162.3) -- (162.3)
Share scheme credit -- -- -- -- -- 24.9 24.9 -- 24.9
Deferred tax credit
on share scheme credit -- -- -- -- -- 0.2 0.2 -- 0.2
Contributions by
NCIs -- -- -- -- -- -- -- 2.2 2.2
Total transactions
with equity holders -- -- -- -- -- (137.2) (137.2) 2.2 (135.0)
------------------------- -------- -------- -------- -------- --------- --------- ------- --------------- -------
As at 30 June 2020 0.3 13.1 62.8 (4.8) 20.9 947.4 1,039.7 11.2 1,050.9
Notes to the financial statements (unaudited)
1. General information
Admiral Group plc (the "Company") is a company incorporated in the
United Kingdom and registered and domiciled 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 condensed interim financial statements comprise the results and
balances of the Company and its subsidiaries (the Group) for the
six-month period ended 30 June 2020 and the comparative periods for the
six-months ended 30 June 2019 and the year ended 31 December 2019. This
condensed set of financial statements has been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU, and should
be read in conjunction with the Group's last annual consolidated
financial statements as at and for the year ended 31 December 2019
("last annual financial statements"). They do not include all of the
information required for a complete set of IFRS financial statements.
However, selected explanatory notes are included to explain events and
transactions that are significant to an understanding of the changes in
the Group's financial position and performance since the last annual
financial statements.
As required by the FCA's Disclosure and Transparency Rules, the
condensed set of financial statements has been prepared applying the
accounting policies and presentation that were applied in the
preparation of the Company's published consolidated financial statements
for the year ended 31 December 2019, except where new accounting
standards apply as noted below.
The financial statements of the Company's subsidiaries are consolidated
in the Group financial statements. In accordance with IAS 24,
transactions or balances between Group companies that have been
eliminated on consolidation are not reported as related party
transactions.
The comparative figures for the financial year ended 31 December 2019
are not the Company's statutory accounts for that financial year. Those
accounts have been reported on by the Company's auditors and delivered
to the registrar of companies. The report of the auditors was:
1. unqualified;
2. did not include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report; and
3. did not contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
The accounts have been prepared on a going concern basis. In considering
the appropriateness of this assumption, the Board have reviewed the
Group's projections for the next twelve months and beyond. Further
information is given in note 2 below.
2. Basis of preparation
The condensed set of interim financial statements have been prepared
applying the accounting policies and presentation that were applied in
the preparation of the Company's published consolidated financial
statements for the year ended 31 December 2019.
A number of other IFRS and interpretations have been endorsed by the EU
in the period to 30 June 2020 and although they have been adopted by the
Group, none of them has had a material impact on the Group's financial
statements.
The Group's assessment of the impact of standards that have yet to be
adopted remains consistent with that reported on page 148 of the Group's
2019 Annual Report.
The Directors have made an assessment of going concern, taking into
account both current performance and the Group's outlook. This
considered in detail the impact of the Covid-19 pandemic, and a review
of projections for the next 12 months and beyond, incorporating the
impact of the Covid-19 pandemic on the Group's profit forecasts,
regulatory capital surpluses and sources of liquidity.
In particular, as part of this assessment the Board considered:
--The impact of the pandemic on the Group's profit projections. As part
of this analysis, the Board considered the impacts arising from:
o A significantly reduced UK motor claims frequency during the
lockdown period as customers stayed at home and were driving less
o The 'Stay at Home' premium rebate to UK motor insurance customers
announced in April 2020 to reflect the lower claims frequency during the
lockdown period
o Changes in premium volumes both through the lockdown period and
expected in the future, along with anticipated changes to average
premiums across the Group's insurance businesses
o Potential impacts on the cost of settling claims across all
insurance businesses
o Projected trends in other revenue generated by the Group's insurance
business from fees and the sale of ancillary products
o The impact of elevated credit losses in the Group's Loans business
arising from higher unemployment
o Impacts on the projected growth on the Group's Loan book following a
temporary closure to new business
o A potential increase in ongoing costs arising from the
implementation and maintenance of business continuity plans
--The Group's solvency position, which has been closely monitored
through the period of market volatility experienced to date. Although
impacted by market movements, and in particular widening credit spreads,
the Group maintains a strong solvency position above target levels
--The adequacy of the Group's liquidity position after considering all
of the factors noted above
--The results of business plan scenarios and stress tests on the
projected profitability, solvency and liquidity positions including the
impact of severe downside scenarios that assume further periods of
lockdown and the impact of severe economic, credit and trading stresses.
--The operational resilience of the Group's critical functions,
including the ability of the Group to provide continuity of service to
its customers through a prolonged period of stress
--The stability and security aspects of the Group's IT systems.
--Impacts on the Group's strategic priorities including
re-prioritisation of significant Group projects.
--The regulatory environment, in particular focusing on regulatory
guidance issued by the FCA and the PRA in the UK and ongoing
communications between management and the regulator.
--A review of the Company's principal risks and uncertainties and how
the assessment of risk may have changed in light of the pandemic.
--A review of an ad-hoc Covid-specific 'Own Risk and Solvency
Assessment' (ORSA).
Following consideration of the above, the Directors have reasonable
expectation that the Group has adequate resources to continue in
operation for the foreseeable future, a period of 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 interim
financial statements.
The accounting policies set out in the notes to the financial statements
have, unless otherwise stated, been applied consistently to all periods
presented in these Group financial statements.
The financial statements are prepared on the historical cost basis,
except for the revaluation of financial assets classified as fair value
through profit or loss or fair value through other comprehensive income.
The financial statements are presented in pounds sterling, rounded to
the nearest GBP0.1 million.
Subsidiaries are entities controlled by the Group. The Group controls an
entity when it is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. In assessing control, the
Group takes into consideration potential voting rights that are
currently exercisable. The acquisition date is the date on which control
is transferred to the acquirer. The financial statements of subsidiaries
are included in the consolidated financial statements from the date that
control commences until the date that control ceases. Losses applicable
to the non-controlling interests in a subsidiary are allocated to the
non-controlling interests even if doing so causes the non-controlling
interests to have a deficit balance. The preparation of financial
statements requires management to make judgements, estimates and
assumptions that affect the application of policies and reported amounts
of assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and various
other factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making the judgements about
carrying values of assets and liabilities that are not readily apparent
from other sources.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in
which the estimate is reviewed if this revision affects only that period,
or in the period of the revision and future periods if the revision
affects both current and future periods. To the extent that a change in
an accounting estimate gives rise to changes in assets and liabilities,
it is recognised by adjusting the carrying amount of the related asset
or liability in the period of the change.
3. Critical accounting judgements and estimates
The Group's 2019 Annual Report provides full details of significant
judgements and estimates used in the application of the Group's
accounting policies.
There have been no additional critical judgements or estimates applied
in the period.
Note 5 provides further information as to the changes in the estimates
with respect to the calculation of insurance reserves.
Note 7 provides further information as to changes in the estimates with
respect to the calculation of the expected credit loss provision for the
Admiral Loans business, following the impact of Covid on management's
key judgements and the sources of estimation uncertainty.
4. Operating segments
The Group has four reportable segments; UK Insurance, International
Insurance, Comparison and Other, as set out on page 153 of the Group's
2019 Annual Report.
Segment income, results and other information
An analysis of the Group's revenue and results for the period ended 30
June 2020, by reportable segment, is shown below. The accounting
policies of the reportable segments are consistent with those presented
in the notes to the 2019 Group financial statements.
Half-year ended 30 June 2020
International
UK Insurance Insurance Comparison Other Eliminations(*2) Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------- ------ ---------------- -------
Turnover(*1) 1,248.4 329.5 90.7 21.0 (10.0) 1,679.6
Net insurance premium revenue 251.7 99.1 -- -- -- 350.8
Other revenue and profit
commission 191.8 14.8 90.7 15.9 (8.7) 304.5
Investment return(*5) 30.6 (0.1) -- -- (1.5) 29.0
Net revenue 474.1 113.8 90.7 15.9 (10.2) 684.3
Net insurance claims (76.2) (65.1) -- -- -- (141.3)
Expenses(*3*5) (83.9) (42.2) (78.2) (25.3) 10.0 (219.6)
Segment profit/(loss) before
tax 314.0 6.5 12.5 (9.4) (0.2) 323.4
Other central revenue and expenses, including
share scheme charges (34.5)
Investment and interest income 3.0
Finance costs(*3*5) (5.8)
Consolidated profit before
tax(*4) 286.1
Taxation expense (43.1)
Consolidated profit after
tax 243.0
*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 GBP0.4 million 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 GBP286.1 million is presented on a
statutory basis, being 100% of the result for each entity. That
increases to Group's share of profit before tax of GBP286.7 million. See
note 13f for a reconciliation of the UK Insurance, International
Insurance and Comparison turnover and profit before tax to the Strategic
Report.
*5 Investment return is reported net of impairment on financial assets,
in line with management reporting.
Revenue and results for the corresponding reportable segments for the
period ended 30 June 2019 are shown below.
Half-year ended 30 June 2019
International
UK Insurance Car Insurance Comparison Other Eliminations(*2) Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ----------- ------ ---------------- -------
Turnover(*1) 1,338.8 319.5 83.4 14.5 (9.7) 1,746.5
Net insurance premium revenue 264.7 84.5 -- -- -- 349.2
Other revenue and profit
commission 184.1 10.1 83.4 10.5 (8.5) 279.6
Investment return(*5) 15.9 0.9 -- -- (1.2) 15.6
Net revenue 464.7 95.5 83.4 10.5 (9.7) 644.4
Net insurance claims (130.1) (69.9) -- -- -- (200.0)
Expenses(*3*5) (79.7) (28.3) (78.0) (14.3) 9.7 (190.6)
Segment profit/(loss) before
tax 254.9 (2.7) 5.4 (3.8) -- 253.8
Other central revenue and expenses, including
share scheme charges (32.8)
Investment and interest income 2.7
Finance costs(*5) (5.5)
Consolidated profit before
tax(*4) 218.2
Taxation expense (37.0)
Consolidated profit after
tax 181.2
*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 GBP0.7 million 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 GBP218.2 million 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 GBP220.2 million. See
note 13f for a reconciliation of the UK Insurance, International
Insurance and Comparison turnover and profit before taxi to the
Strategic Report.
*5 Investment return is reported net of impairment on financial assets,
in line with management reporting.
Revenue and results for the corresponding reportable segments for the
year ended 31 December 2019 are shown below.
Year ended 31 December 2019
International
UK 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(*5) 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(*3*5) (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(*5) (11.4)
Consolidated profit before
tax 522.6
Taxation expense (94.2)
Consolidated profit after
tax 428.4
*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 GBP1.2 million of IFRS 16 interest expense (being the Group's net
share of IFRS 16 interest expense) included within the 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 GBP522.6 million is presented on a
statutory basis, being 100% of the result for each entity. That
increases to Group's share of profit before tax of GBP526.1 million. See
note 13f for a reconciliation of the UK Insurance, International
Insurance and Comparison turnover and profit before tax to the Strategic
Report.
*5 Investment return is reported net of impairment on financial assets,
in line with management reporting.
Segment revenues
The UK and International 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 GBP10.0 million (H1 2019: GBP9.7 million, FY 2019: GBP19.4
million) which has been eliminated on consolidation, along with GBP1.5
million of intra-group interest charges (H1 2019: GBP1.2 million, FY
2019: GBP2.8 million) related to the UK Insurance and Other segment.
There are no other transactions between reportable segments.
Revenues from external customers for products and services is consistent
with the split of reportable segment revenues as shown above.
Information about geographical locations
All material revenues from external customers, and net assets attributed
to a foreign country relating to car insurance are shown within the
International Insurance reportable segment shown above. The revenue and
results of the international Comparison businesses; Rastreator, LeLynx,
compare.com and Preminen entities are not yet material enough to be
presented as a separate segment.
5. Premium, Claims and Profit Commissions
5a. Net insurance premium revenue
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
---------------------------------------- ------------- -------------
Total insurance premiums written before
co-insurance(*1) 1,399.3 1,474.0 2,884.4
Group gross premiums written after
co-insurance 1,119.8 1,161.1 2,273.7
Outwards reinsurance premiums (741.3) (784.5) (1,541.4)
Net insurance premiums written 378.5 376.6 732.3
Change in gross unearned premium
provision (56.4) (80.7) (75.3)
Change in reinsurers' share of unearned
premium provision 28.7 53.3 52.4
Net insurance premium revenue 350.8 349.2 709.4
*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, and Elephant Insurance Company LLC. All
contracts are short-term in duration, lasting for 12 months or less.
5b. Profit commission
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
------------- ----------- ---------------
Underwriting year (UK car only)
2015 & prior 26.4 13.9 48.3
2016 7.7 9.7 27.5
2017 6.2 11.4 36.4
2018 0.8 -- --
2019 -- -- --
2020 -- -- --
Total UK motor profit
commission(*1) 41.1 35.0 112.2
Total UK household profit
commission(*1) 3.5 1.1 2.7
Total profit commission 44.6 36.1 114.9
(*1) Of the total UK motor profit commission recognised of GBP41.1
million (H1 2019: GBP35.0 million, FY 2019 GBP112.2 million), GBP39.6
million (H1 2019: GBP31.7 million, FY 2019 GBP95.4 million) relates to
co-insurance arrangements and GBP1.5 million (H1 2019: GBP3.3 million,
FY 2019 GBP16.8 million) to reinsurance arrangements. The UK Household
and International profit commission relates solely to reinsurance
arrangements.
No profit commission has yet been recognised on the 2019 -- 2020
underwriting years as the combined ratios calculated from the financial
statement loss ratios on these years sit above the threshold for profit
commission recognition.
5c. Reinsurance assets and insurance contract liabilities
(i) Analysis of recognised amounts:
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Gross
Claims outstanding(*1) 2,872.7 2,851.5 2,899.4
Unearned premium provision 1,149.9 1,077.6 1,075.6
-----------
Total gross insurance liabilities 4,022.6 3,929.1 3,975.0
-----------
Recoverable from reinsurers
Claims outstanding 1,137.0 1,168.9 1,354.2
Unearned premium provision 754.6 717.0 717.5
-----------
Total reinsurers share of insurance
liabilities 1,891.6 1,885.9 2,071.7
-----------
Net
Claims outstanding(*2) 1,735.7 1,682.6 1,545.2
Unearned premium provision 395.3 360.6 358.1
-----------
Total insurance liabilities - net 2,131.0 2,043.2 1,903.3
-----------
*1 Gross claims outstanding at 30 June 2020 is presented before the
deduction of salvage and subrogation recoveries totaling GBP68.6 million
(30 June 2019: GBP63.3 million, 31 December 2019: GBP71.7 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 (ii) below.
(ii) Analysis of gross and net claims reserve releases:
The following table analyses the impact of movements in prior year
claims provisions on a gross and net basis. This data is presented on an
underwriting year basis.
30 June 30 June 31 December
2020 2019 2019
Gross GBPm GBPm GBPm
----------- -----------
Underwriting year (UK Motor Insurance):
2015 & prior 47.4 32.6 91.2
2016 15.8 19.0 50.6
2017 22.4 63.6 110.6
2018 22.2 24.2 83.2
2019 71.3 -- --
Total gross release (UK Motor
Insurance) 179.1 139.4 335.6
Total gross release (UK Household
Insurance) 9.4 9.0 8.3
Total gross release (International
Car Insurance) 34.1 23.6 39.1
Total Gross Release 222.6 172.0 383.0
30 June 30 June 31 December
2020 2019 2019
Net GBPm GBPm GBPm
----------- -----------
Underwriting year (UK Motor Insurance):
2015 & prior 47.4 32.6 91.2
2016 15.8 19.0 50.6
2017 21.8 43.6 75.8
2018 17.0 7.6 25.8
2019 22.2 -- --
Total net release (UK Motor Insurance) 124.2 102.8 243.4
Total net release (UK Household
Insurance) 2.8 2.7 2.5
Total net release (International Car
Insurance) 11.7 9.0 14.4
Total net release 138.7 114.5 260.3
Analysis of net releases on UK Motor
Insurance
- Net releases on Admiral net share
(motor) 64.2 50.0 121.7
- Releases on commuted quota share
reinsurance contracts 60.0 52.8 121.7
Total net releases as above 124.2 102.8 243.4
Releases on the share of reserves originally reinsured but since
commuted are analysed by underwriting year as follows:
30 June 30 June 31 December
2020 2019 2019
Net GBPm GBPm GBPm
----------- -----------
Underwriting year:
2015 & prior 27.7 18.0 50.7
2016 9.2 11.1 29.5
2017 13.0 23.7 41.5
2018 10.1 -- --
Total releases on commuted quota share
reinsurance contracts 60.0 52.8 121.7
--------------------------------------- ----------- ----------- -----------
The table below shows the development of UK Car Insurance loss ratios
for the past six financial periods, presented on an underwriting year
basis.
31 December 30 June
---- ----------------------
UK Car Insurance loss
ratio development 2015 2016 2017 2018 2019 2020
Underwriting year (UK
Car only)
2015 87% 87% 83% 77% 72% 70%
2016 -- 88% 84% 77% 73% 71%
2017 -- -- 87% 83% 75% 74%
2018 -- -- -- 92% 81% 80%
2019 -- -- -- -- 92% 82%
2020 -- -- -- -- -- 70%
(iii) Reconciliation of movement in claims provision
30 June 2020
Gross Reinsurance Net
GBPm GBPm GBPm
----------- -------
Claims provision at start of period 2,899.4 (1,354.2) 1,545.2
Claims incurred (excluding releases) 801.8 (533.1) 268.7
Reserve releases (222.6) 83.9 (138.7)
Movement in claims provision due
to commutation -- 352.7 352.7
Claims paid and other movements (605.9) 313.7 (292.2)
Claims provision at end of period 2,872.7 (1,137.0) 1,735.7
30 June 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) 928.3 (623.9) 304.4
Reserve releases (172.0) 57.5 (114.5)
Movement in claims provision due
to commutation -- 257.1 257.1
Claims paid and other movements (645.3) 360.5 (284.8)
Claims provision at end of period 2,851.5 (1,168.9) 1,682.6
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
(iv) Reconciliation of movement in net unearned
premium provision
30 June 2020
Gross Reinsurance Net
GBPm GBPm GBPm
----------- -------
Unearned premium provision at start
of period 1,075.6 (717.5) 358.1
Written in the period 1,119.8 (741.3) 378.5
Earned in the period (1,063.4) 712.6 (350.8)
Exchange differences on translation
of foreign operations 17.9 (8.4) 9.5
Unearned premium provision at end
of period 1,149.9 (754.6) 395.3
30 June 2019
Gross Reinsurance Net
GBPm GBPm GBPm
----------- -------
Unearned premium provision at start
of period 995.9 (663.4) 332.5
Written in the period 1,161.1 (784.5) 376.6
Earned in the period (1,079.4) 730.9 (348.5)
Unearned premium provision at end
of period 1,077.6 (717.0) 360.6
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
(v) Sensitivity of recognised amounts to changes in
assumptions:
The following table sets out the impact on equity and post-tax profit or
loss at 30 June 2020 that would result from a 1%, 3% and 5%
deterioration and improvement 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 - 30 June 2020 71% 74% 80% 82%
Impact of 1% deterioration in booked loss
ratio (GBPm) (14.2) (15.2) (10.5) (3.2)
Impact of 3% deterioration in booked loss
ratio (GBPm) (42.6) (45.7) (30.9) (9.7)
Impact of 5% deterioration in booked loss
ratio (GBPm) (70.4) (75.8) (51.1) (16.2)
Impact of 1% improvement in booked loss ratio
(GBPm) 14.2 15.5 12.0 3.2
Impact of 3% improvement in booked loss ratio
(GBPm) 42.6 46.9 39.1 12.0
Impact of 5% improvement in booked loss ratio
(GBPm) 71.0 78.3 70.7 21.2
6. Investments income and costs
6a. Investment return
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
------- ------- -----------
Investment return
On assets classified as FVTPL 3.3 4.3 11.4
On debt securities classified as FVOCI(*1,*3) 17.0 17.1 34.8
On assets classified as amortised
cost(*1) 0.7 0.9 1.6
Net unrealised losses
Unrealised gains/(losses) on forward
contracts 0.2 (0.4) (0.1)
Change in accrual for reinsurers share
of investment return(*4) 12.9 (4.5) (12.9)
Interest receivable on cash and cash
equivalents(*1) 0.3 1.0 0.8
Total investment and interest income(*2) 34.4 18.4 35.6
*1 -- Interest received during the period was GBP6.6 million (30 June
2019: GBP8.6 million, 31 December 2019: GBP11.6 million)
*2 -- Total investment return excludes GBP1.5 million of intra-group
interest (30 June 2019: GBP1.2 million, 31 December 2019: GBP2.8
million)
*3 - Realised gains/losses on sales of debt securities classified as
FVOCI are immaterial
*4 -- Refer to "Cash and investments analysis" for further detail
6b. Finance costs
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
------- ------- -----------
Interest payable on subordinated loan
notes(*1) 5.5 5.5 11.4
Interest payable on credit facilities(*2) 0.3 -- --
Interest payable on Lease Liabilities 1.5 2.0 3.2
Interest recoverable from co and re-insurers (1.1) (1.3) (2.0)
Total finance costs 6.2 6.2 12.6
*1 - Interest paid during the year to date was GBP6.7 million (30 June
2019: GBP7.3 million, 31 December 2019: GBP14.0 million)
*2 -- See note 7c for details of credit facilities
Finance costs include interest payable on the GBP200.0 million (30 June
2019: GBP200.0 million, 31 December 2019: 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.
6c. Changes in Expected Credit Loss ('ECL') provision
30 June 30 June 31 December
2020 2019 2019
Note GBPm GBPm GBPm
------- ------- -----------
Changes on Financial investments
ECL provision 6d 2.4 0.1 0.3
Changes on Loans and advances to
customers ECL provision 7a 16.2 6.0 13.8
Total changes in ECL provision 18.6 6.1 14.1
6d. Financial assets and liabilities
The Group's financial instruments can be analysed as follows:
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Financial investments measured at FVTPL
Money market and other similar funds 1,243.4 1,029.3 1,160.2
Financial investments classified as
FVOCI
Debt securities 1,833.6 1,645.1 1,776.3
Government gilts 180.0 174.8 174.0
2,013.6 1,819.9 1,950.3
Equity investments (designated FVOCI) 10.5 7.7 7.5
2,024.1 1,827.6 1,957.8
Financial assets measured at amortised
cost
Deposits with credit institutions 85.0 88.7 116.5
Total financial investments 3,352.5 2,945.6 3,234.5
Other financial assets measured at
amortised cost
Insurances receivables 971.6 930.9 948.9
Trade and other receivables 256.1 261.5 278.8
Insurance and other receivables 1,227.7 1,192.4 1,227.7
Loans and advances to customers (note
7) 455.3 420.8 455.1
Cash and cash equivalents 396.3 461.4 281.7
Total financial assets 5,431.8 5,020.2 5,199.0
Financial liabilities
Subordinated notes 204.2 204.1 204.2
Loan backed securities 328.6 253.4 304.5
Other borrowings 106.5 25.0 20.0
Derivative financial instruments 4.9 2.0 1.4
Subordinated and other financial liabilities 644.2 484.5 530.1
Trade and other payables(*1) 1,777.8 1,811.1 1,975.9
Lease liabilities 132.6 143.0 137.1
Total financial liabilities 2,554.6 2,438.6 2,643.1
*1 Trade and other payables total balance of GBP1,777.8 million (30 June
2019: GBP1,811.1 million, 31 December 2019: GBP1,975.9 million) above
includes GBP1,286.1 million (30 June 2019: GBP1,371.2 million, 31
December 2019: GBP1,472.1 million) in relation to tax and social
security, deferred income and reinsurer balances that are outside the
scope of IFRS 9.
All investments held at fair value at the end of the period are invested
in money market and bond funds.
The measurement of investments at the end of the period, for the
majority investments held at fair value, is based on active quoted
market values (level one). Equity investments held at fair value are
measured at level three of the fair value hierarchy. No further
information is provided due to the immateriality of the balance at 30
June 2020.
Deposits are held with well rated institutions; as such the approximate
fair value is the book value of the investment as impairment of the
capital is not expected.
The amortised cost carrying amount of receivables is a reasonable
approximation of fair value.
During the period, an impairment charge of GBP2.4 million has been
recognized in relation to the Group's assets held at FVOCI (H1 2019:
GBP0.1 million, FY 2019; GBP0.3 million). The credit rating of the
Group's financial assets with an external rating is shown below.
FVTPL FVOCI Amortised Cost Total
GBPm GBPm GBPm GBPm
AAA- AA 403.9 1,008.3 58.9 1,471.1
A 577.8 635.7 373.4 1,586.9
BBB 46.5 323.3 48.9 418.7
Sub BBB 29.1 -- -- 29.1
Not rated(*1) 186.1 56.8 -- 242.9
Total financial investments 1,243.4 2,024.1 481.2 3,748.7
*1 The majority (GBP174.1 million) 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 (GBP55.5
million) and other holdings (GBP13.3 million).
The fair value of subordinated notes (level one valuation) at 30 June
2020 is GBP224.4 million (H1 2019: GBP219.8 million, FY 2019: GBP225.1
million).
6e. Cash and cash equivalents
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Cash at bank and in hand* 396.3 461.4 281.7
Total cash and cash equivalents 396.3 461.4 281.7
-------------------------------- ------- ------- -----------
* GBP4.4m (H1 2019 and FY 2019: GBP4.4m) of cash is ring-fenced via a
bank guarantee. See note 11d 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.
6f. Insurance and other receivables
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Insurance receivables 971.6 930.9 948.9
Trade and other receivables 237.4 245.3 262.8
Prepayments and accrued income 18.7 16.2 16.0
Total insurance and other receivables(*1) 1,227.7 1,192.4 1,227.7
*1 -- Total insurance and other receivables at 30 June 2020 include
GBP68.6 million in respect of salvage and subrogation recoveries (H1
2019: GBP63.3 million, FY 2019: GBP71.7 million).
7. Loans and Advances to Customers
7a. Loans and advances to customers
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Loans and advances to customers -- gross carrying
amount 495.5 437.0 479.1
Loans and advances to customers -- provision (40.2) (16.2) (24.0)
Total loans and advances to customers 455.3 420.8 455.1
Loans and advances to customers are comprised of the following:
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Unsecured personal loans 463.7 402.0 445.8
Finance leases 31.8 35.0 33.3
Total loans and advances to customers, gross 495.5 437.0 479.1
--------------------------------------------- ------- ------- -----------
The table below shows the gross carrying value of loans in stages 1 --
3.
30 June 30 June 31 December
2020 2019 2019
Gross carrying amount Expected credit loss allowance Other loss allowance*1 Carrying amount Carrying amount Carrying amount
GBPm GBPm GBPm GBPm GBPm GBPm
Stage
1 451.5 (13.7) (0.5) 437.3 414.5 450.0
Stage
2 22.5 (7.2) -- 15.3 5.6 3.1
Stage
3 21.5 (18.8) -- 2.7 0.7 2.0
Total 495.5 (39.7) (0.5) 455.3 420.8 455.1
*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.
As a result of Covid, a number of adjustments have been made to the key
judgements and sources of estimation uncertainty for the calculation of
the ECL provision, as explained below.
The response to customers who are strained due to Covid related
circumstances has been to grant payment holidays. These customers will
be unable to go further into arrears as no payments are being called
whilst they are on the payment holiday. For the time being these
customers are being held within the up-to-date provision, but the
provision in the downturn and severe downturn scenarios has been
materially increased to reflect their sensitivity to changing economic
conditions. Customers who have become unemployed or are considered
exceptionally stressed due to Covid have been placed into stage 2, to
reflect a recognized significant increase in credit risk.
The IFRS 9 provision must reflect an unbiased and probability-weighted
amount that is determined by evaluating a range of possible outcomes. In
line with the accounting policy at the year end, the means by which the
Group has determined this is to run scenario analyses. The key economic
driver of the losses from the scenarios is the likelihood of a customer
entering hardship through unemployment.
Management judgement is used to define the weighting and severity of the
different scenarios based on available data without undue cost or
effort. The weightings and scenarios used have changed since the year
end, with revised assumptions as set out below.
Unemployment
31 Dec 2019 Movement 30 Jun 2020 rate
--------- ----------- -------- -----------
Base 50% - 50% 10%
Upturn 25% -15% 10% 8.8%
Downturn 20% +5% 25% 12.3%
Severe 5% +10% 15% 15.0%
--------- ----------- -------- -----------
The average probability of defaults (PDs) underlying the base scenario
have been increased to reflect an economic environment with a 10%
unemployment rate. This is a more cautious assumption than the Bank of
England's latest forecast for the end of 2020 of 7.5%, which is
considered appropriate given the high level of uncertainty in economic
forecasts at the current time.
The downturn scenario reflects a 12.3% peak unemployment rate. The
customers most impacted by a change in the unemployment rate within the
provision are those that are currently up to date.
The severe scenario reflects a 10% increase in the monthly inflow to
unemployment, resulting in a peak unemployment rate of 15%.
The PD by stage has moved since the year end as shown below. The gross
balance of loans in stage 2 is now 249% higher than it was at year-end,
with 87% relating to up to date customers, resulting in a reduction in
overall probability of default in the stage. Stage 3 is consistent with
year-end.
PD 31 Dec 2019 30 June 2020
-------- ----------- ------------
Stage 1 1.8% 3.6%
Stage 2 58.7% 35.7%
Stage 3 100% 100%
-------- ----------- ------------
Sensitivities to key areas of estimation uncertainty
Sensitivity Sensitivity
31 Dec 2019 (GBPm) 30 Jun 2020 (GBPm)
---------
Base 50% - 50% -
Upturn 25% -1.2 10% -4.0
Downturn 20% 2.5 25% 1.8
Severe 5% 30.0 15% 6.4
---------
At H1 2020, the implied weighted unemployment rate is 11.2%. A downturn
only scenario, of a 12.3% unemployment rate, would increase the
provision by GBP1.8m, whilst the upturn scenario would create a
reduction of GBP4m and the severe downturn would increase the ECL
allowance by GBP6.4m.
The sensitivity to the severe scenario has reduced since FY 2019,
reflecting the assumption of a narrower distribution of economic
outcomes following recalibration of the forward-looking element of the
provision. At FY 2019, the severe scenario reflected extreme
possibilities, with a lower likelihood of occurrence and therefore lower
weighting applied.
At H1 2020, the near-term impacts of Covid have been considered
alongside the resulting impacts on unemployment. The forward-looking
element of the provision is now more closely linked to unemployment
assumptions with the scenarios deviating less from the base assumption
of a 10% unemployment rate. This 10% unemployment assumption is
significantly higher than that implicit in the base case at FY 2019 (c.
4%). The more equal weighting across the upturn and severe scenarios
within the calculation of the provision reflects the narrower range of
outcomes captured.
Credit grade information
Credit grade is the internal credit banding given to a customer at
origination and is based on external credit rating information. The
credit grading as at 30 June 2020 is as follows:
30 June 31 December
2020 2019
Stage 1 Stage 2 Stage 3
12- month ECL Lifetime ECL Lifetime ECL Total Total
GBPm GBPm GBPm GBPm GBPm
Credit
Grade
Higher 323.6 11.6 -- 335.2 337.1
Medium 109.3 9.0 -- 118.3 114.7
Lower 18.6 1.9 -- 20.5 10.9
Credit
Impaired -- -- 21.5 21.5 16.4
Gross
carrying
amount 451.5 22.5 21.5 495.5 479.1
7b. Interest income
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Loans and advances to customers 19.8 13.3 30.8
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.
7c. Interest expense
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
--------------------------------- ------------- ------------- -----------------
Interest payable on Loan backed
securities 3.2 2.6 5.6
Interest payable on other credit
facilities 0.6 0.3 0.7
------------- ------------- -----------------
Total interest expense(*1) 3.8 2.9 6.3
------------- ------------- -----------------
*1 Interest paid in total during the year to date was GBP2.5 million
(30 June 2019: GBP3.1 million, 31 December 2019: GBP6.3 million)
Interest expense represents the interest payable on funding for the
Admiral loans business, in the form of credit facilities of GBP220.0
million (H1 2019 GBP200.0 million, FY 2019 GBP220.0 million), of which
GBP106.5 million (H1 2019: GBP25.0 million; FY 2019: GBP20.0 million)
was drawn down at 30 June 2020 and loan backed securities issued by an
SPE with funding up to GBP400.0 million (H1 2019: GBP400.0 million, FY
2019 GBP400.0 million), of which GBP328.7 million (H1 2019: GBP253.4; FY
2019: GBP304.5 million) was drawn down at 30 June 2020.
8. Other Revenue
8a. 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 GBP288.5 million (H1 2019: GBP269.2
million, FY 2019: GBP584.8 million) represents total other revenue and
profit commission and is disaggregated into the segments included in
note 4.
Half-year ended 30 June 2020
International
UK Insurance Car Insurance Comparison Other Total
GBPm GBPm GBPm GBPm GBPm
-------------- ----------- ----- -----
Major products/service line
Comparison(*1) -- -- 80.7 -- 80.7
Instalment income 48.4 2.0 -- -- 50.4
Fee and commission revenue 78.6 12.8 -- 0.9 92.3
Revenue from law firms 17.2 -- -- -- 17.2
Other 3.0 -- -- 0.3 3.3
Total other revenue 147.2 14.8 80.7 1.2 243.9
Profit commission 44.6 -- -- -- 44.6
Total other revenue and profit
commission 191.8 14.8 80.7 1.2 288.5
Timing of revenue recognition
Point in time 120.7 12.8 80.7 1.2 215.4
Over time 17.7 -- -- -- 17.7
Revenue outside the scope of IFRS
15 53.4 2.0 -- -- 55.4
191.8 14.8 80.7 1.2 288.5
Half-year ended 30 June 2019
International
UK Insurance Car Insurance Comparison Other Total
GBPm GBPm GBPm GBPm GBPm
-------------- ----------- ----- -----
Major products/ service line
Comparison(*1) -- -- 73.7 -- 73.7
Instalment income 42.7 1.5 -- -- 44.2
Fee and commission revenue 83.8 8.7 -- 0.9 93.4
Revenue from law firms 15.6 -- -- -- 15.6
Other 5.9 -- -- 0.3 6.2
Total other revenue 148.0 10.2 73.7 1.2 233.1
Profit commission 36.1 -- -- -- 36.1
Total other revenue and profit
commission 184.1 10.2 73.7 1.2 269.2
Timing of revenue recognition
Point in time 120.0 8.7 73.7 1.2 203.6
Over time 17.0 -- -- -- 17.0
Revenue outside the scope of IFRS
15 47.1 1.5 -- -- 48.6
184.1 10.2 73.7 1.2 269.2
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 firms 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
*1 -- Comparison revenue excludes GBP10.0 million (30 June 2019: GBP9.7
million, 31 December 2019: GBP19.4 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. Operating expenses and share scheme charges
30 June 2020
Recoverable
from co- and
Gross reinsurers Net
GBPm GBPm GBPm
Acquisition of insurance contracts(*1) 70.2 (52.6) 17.6
Administration and other marketing costs (insurance
contracts) 217.9 (158.2) 59.7
Insurance contract expenses 288.1 (210.8) 77.3
Administration and other marketing costs (other) 137.3 -- 137.3
Share scheme charges 35.3 (12.4) 22.9
Net expenses and share scheme charges 460.7 (223.2) 237.5
30 June 2019
Recoverable
from co- and
Gross reinsurers Net
GBPm GBPm GBPm
Acquisition of insurance contracts(*1) 67.6 (51.6) 16.0
Administration and other marketing costs (insurance
contracts) 193.9 (149.6) 44.3
Insurance contract expenses 261.5 (201.2) 60.3
Administration and other marketing costs (other) 129.9 -- 129.9
Share scheme charges 40.5 (14.0) 26.5
Net expenses and share scheme charges 431.9 (215.2) 216.7
31 December 2019
Recoverable
from co- and
Gross reinsurers Net
GBPm GBPm GBPm
Acquisition of insurance contracts(*1) 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) 267.6 -- 267.6
Share scheme charges 82.5 (29.1) 53.4
Net expenses and share scheme charges 886.9 (441.2) 445.7
*1 -- Acquisition of insurance contracts expense excludes GBP10.0
million (H1 2019: GBP9.7 million, FY 2019: GBP19.4 million) of
comparison fees from other Group companies.
The GBP59.7 million (H1 2019: GBP44.3 million, FY 2019: GBP91.6 million)
administration and marketing costs allocated to insurance contracts is
principally made up of salary costs.
Analysis of other administration and other marketing costs:
30 June 30 June
2020 2019 31 December 2019
GBPm GBPm GBPm
Expenses relating to additional products
and fees 38.4 37.4 70.1
Comparison operating expenses 78.2 78.0 156.8
Loans expenses 8.7 8.4 18.1
Other expenses 12.0 6.1 22.6
Total 137.3 129.9 267.6
Refer to note 13 for a reconciliation between insurance contract
expenses and the reported expense ratio.
9b. Staff share schemes
Analysis of share scheme costs (per income statement):
30 June 2020
SIP charge DFSS charge Total charge
------------- --------------
Gross Net Gross Net Gross Net
GBPm GBPm GBPm GBPm GBPm GBPm
----- ----- -----
IFRS 2 charge for equity
settled share schemes 8.8 6.0 16.1 10.6 24.9 16.6
IFRS 2 charge for cash
settled share schemes -- -- 1.3 0.8 1.3 0.8
Total IFRS 2 charge 8.8 6.0 17.4 11.4 26.2 17.4
Social security costs on IFRS
2 charge 0.8 0.5 2.8 1.8 3.6 2.3
Discretionary bonus on shares
allocated but unvested -- -- 5.5 3.2 5.5 3.2
Total share scheme charges 9.6 6.5 25.7 16.4 35.3 22.9
----------------------------- ----- ----- ------ ----- ------ ------
30 June 2019
SIP charge) DFSS charge Total charge
------------- ------------- --------------
Gross Net Gross Net Gross Net
GBPm GBPm GBPm GBPm GBPm GBPm
----- -----
IFRS 2 charge for equity
settled share schemes 8.5 5.9 19.4 13.0 27.9 18.9
IFRS 2 charge for cash
settled share schemes -- -- 0.8 0.4 0.8 0.4
Total IFRS 2 charge 8.5 5.9 20.2 13.4 28.7 19.3
Social security costs 0.9 0.6 4.3 2.7 5.2 3.3
Discretionary bonus on
shares allocated but
unvested -- --- 6.6 3.9 6.6 3.9
Total share scheme charges 9.4 6.5 31.1 20.0 40.5 26.5
---------------------------- ------ ----- ------ ----- ------ ------
31 December 2019
SIP charge DFSS charge 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
----------------------------- ----- ----- ------ ----- ------ ------
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 the Consolidated Statement of Changes in Equity of
GBP24.9 million (H1 2019: GBP28.0 million, FY 2019: GBP58.8 million).
For the cash settled schemes, the expense recognised for the fair value
of services received results in a corresponding increase in liabilities.
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%.
10. Taxation
10a. Taxation
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Current tax
Corporation tax on profits for the year 46.9 41.0 91.3
Under provision relating to prior periods -- -- 0.5
Current tax charge 46.9 41.0 91.8
Deferred tax
Current period deferred taxation movement (3.8) (4.0) 2.8
Under provision relating to prior periods -- -- (0.4)
Total tax charge per Consolidated Income
Statement 43.1 37.0 94.2
Factors affecting the total tax charge are:
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Profit before tax 286.1 218.2 522.6
Corporation tax thereon at effective UK corporation
tax rate of 19.0% (2018: 19.0%) 54.4 41.5 99.3
Expenses and provisions not deductible for
tax purposes -- -- 1.8
Non-taxable income (5.8) (2.2) (4.9)
Impact of change in UK tax rate on deferred
tax balances (0.6) (1.0) 0.3
Adjustments relating to prior periods -- -- 0.1
Impact of different overseas tax rates (5.8) (3.7) (8.8)
Unrecognised deferred tax 0.9 2.4 6.4
Total tax charge for the period as above 43.1 37.0 94.2
---------------------------------------------------- ------- ------- -----------
The outstanding corporation tax payable as at 30 June 2020 was GBP10.3
million (H1 2019: GBP43.0 million; FY 2019: GBP48.3 million).
10b. Deferred income tax asset/ (liability)
Tax treatment Carried Fair
of share Capital forward value Other
schemes allowances losses reserve differences Total
GBPm GBPm GBPm GBPm GBPm GBPm
Balance brought forward at
1 January 2019 7.2 (3.6) -- (3.9) 0.5 0.2
Tax treatment of share scheme
charges through income or
expense 4.0 -- -- -- -- 4.0
Tax treatment of share scheme
charges through reserves 2.5 -- -- -- -- 2.5
Capital allowances -- (0.1) -- -- -- (0.1)
Movement in fair value reserve -- -- -- (1.4) -- (1.4)
Other difference -- -- -- -- 0.1 0.1
Balance carried forward at
30 June 2019 13.7 (3.7) -- (5.3) 0.6 5.3
Balance carried forward at
1 January 2019 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 differences -- -- -- -- 0.7 0.7
Balance carried forward at
31 December 2019 5.9 (2.1) -- (5.4) 1.2 (0.4)
Tax treatment of share scheme
charges through income or
expense 3.6 -- -- -- -- 3.6
Tax treatment of share scheme
charges through reserves 0.2 -- -- -- -- 0.2
Capital allowances -- 0.2 -- -- -- 0.2
Movement in fair value reserve -- -- -- (1.5) -- (1.5)
Other differences -- -- -- -- -- --
Balance carried forward 30
June 2020 9.7 (1.9) -- (6.9) 1.2 2.1
The average effective rate of tax for 2020 is 19.0% (2019: 19.0%).
The deferred tax asset at 30 June 2020 has been calculated based on the
rate at which each timing difference is most likely to reverse.
At 30 June 2020 the Group had unused tax losses amounting to GBP233.6
million (H1 2019: GBP229.0 million, FY 2019: GBP231.3 million), relating
to the Group's US businesses Elephant Auto and compare.com, for which no
deferred tax asset has been recognized.
11. Other Assets and Other Liabilities
11a. Property and equipment
Improvements
to short ROU Asset
leasehold Computer Office Furniture -- Leasehold
buildings equipment equipment and fittings buildings Total
GBPm GBPm GBPm GBPm GBPm GBPm
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 3.1 6.4 0.3 0.3 -- 10.1
Disposals -- -- -- -- -- --
Foreign exchange
movement 0.1 0.1 -- -- 0.4 0.6
At 30 June 2019 33.0 68.6 21.7 10.1 137.1 270.5
Depreciation
At 1 January 2019 16.8 52.3 17.0 8.9 -- 95.0
Initial application of
IFRS 16 -- -- -- -- -- --
Charge for the year 1.6 3.1 0.7 0.2 6.7 12.3
Disposals -- -- -- -- -- --
Foreign exchange
movement -- 0.1 0.1 -- -- 0.2
At 30 June 2019 18.4 55.5 17.8 9.1 6.7 107.5
Net book amount
At 1 January 2019 13.0 9.8 4.4 0.9 -- 28.1
Net book amount
At 30 June 2019 14.6 13.1 3.9 1.0 130.4 163.0
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
movement (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
Cost
At 1 January 2020 33.4 71.4 22.4 10.6 134.4 272.2
Additions 1.5 5.4 0.2 0.7 0.3 8.1
Disposals -- -- (0.4) (0.1) (0.8) (1.3)
Foreign exchange
movement 0.3 0.5 0.4 0.2 1.5 2.9
At 30 June 2020 35.2 77.3 22.6 11.4 135.4 281.9
Depreciation
At 1 January 2020 19.8 58.7 18.4 9.1 11.8 117.8
Charge for the year 1.7 3.4 1.1 0.6 6.0 12.8
Disposals -- -- (0.2) (0.1) (0.1) (0.4)
Foreign exchange
movement 0.2 0.3 0.1 0.1 0.3 1.0
At 30 June 2020 21.7 62.4 19.4 9.7 18.0 131.2
Net book amount
At 30 June 2020 13.5 14.9 3.2 1.7 117.4 150.7
11b. Intangible assets
Deferred
acquisition
Goodwill costs Software(*1) Total
GBPm GBPm(*2) GBPm GBPm
At 1 January 2019 62.3 23.4 76.3 162.0
Additions -- 27.2 3.4 30.6
Amortisation charge -- (25.5) (8.2) (33.7)
Disposals -- -- -- --
Transfers -- -- -- --
Foreign exchange movement -- -- -- --
At 30 June 2019 62.3 25.1 71.5 158.9
At 1 January 2019 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
Additions -- 28.5 7.5 36.0
Amortisation charge -- (27.7) (8.9) (36.6)
Disposals -- -- -- --
Transfers -- -- -- --
Foreign exchange movement -- 0.9 1.6 2.5
At 30 June 2020 62.3 26.5 73.4 162.2
*1 -- Software additions relating to internal development are immaterial
in both 2020 and 2019
*2 - The gross deferred acquisition costs balance at the end of H1 2020
is GBP73.1 million (H1 2019: GBP75.9 million, FY 2019 GBP74.6 million),
with gross additions in the period of GBP77.9 million (H1 2019: GBP81.5
million, FY 2019: GBP163.1 million); gross amortisation of GBP81.8
million (H1 2019: GBP77.3 million, FY 2019: GBP158.5 million) and
foreign exchange movements of GBP2.4 million (H1 2019: GBP0.1 million,
FY 2019: -GBP1.6 million)
Goodwill relates to the acquisition of Group subsidiary EUI Limited
(formerly Admiral Insurance Services Limited) in November 1999. The
amortisation of this asset ceased on transition to IFRS on 1 January
2004. All annual impairment reviews since the transition date have
indicated that the estimated recoverable value of the asset is greater
than the carrying amount and therefore no impairment losses have been
recognised. Refer to the accounting policy for goodwill in the 2019
financial statements for further information.
11c. Trade and other payables
30 June 30 June
2020 2019 31 December 2019
GBPm GBPm GBPm
Trade payables 30.9 44.0 37.5
Amounts owed to co-insurers 198.3 149.4 220.8
Amounts owed to reinsurers 1,067.6 1,093.9 1,221.3
Other taxation and social security
liabilities 79.6 82.8 79.6
Other payables 201.7 180.9 188.1
Accruals and deferred income 199.7 260.1 228.6
Total trade and other payables 1,777.8 1,811.1 1,975.9
Of amounts owed to reinsurers, GBP949.2 million (H1 2019: GBP963.7
million, FY 2019: GBP1,129.6 million) is held under funds withheld
arrangements.
11d. Contingent liabilities
The Group's legal entities operate in numerous tax jurisdictions and on
a regular basis are subject to review and enquiry by the relevant tax
authority.
During 2019, Rastreator Comparador Correduria Seguros ("Rastreator
Comparador"), the Group's Spanish Comparison business, underwent a tax
audit in respect of the 2013 and 2014 financial years. As a result of
the audit, the Spanish Tax Authority 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 EUR5 million, 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 EUR19 million.
The Group is also in early stage discussions on various corporate tax
matters with tax authorities in the UK, Italy and Spain. To date,
these discussions have focused on the transfer pricing arrangements in
place between the Group's intermediaries and insurers, including between
entities in the UK and Gibraltar, and Spain and Italy.
No provision has been made in these Financial Statements in relation to
the matters noted above.
12. Dividends, Earnings and Share Capital
12a. Dividends
Dividends were proposed, approved and paid as follows.
30 June 30 June
2020 2019 31 December 2019
GBPm GBPm GBPm
Proposed March 2019 (66.0 pence per share, approved
April 2019, paid June 2019) -- 188.0 188.0
Declared August 2019 (63.0 pence per share, paid October
2019) -- -- 179.8
Proposed, March 2020 (77.0 pence per share, 56.3p
approved April 2020 and paid June 2020)(*1) 162.3 -- --
Total 162.3 188.0 367.8
*1 --56.3 pence of proposed 2019 final dividend of 77.0 pence was
approved in April 2020 and paid in June 2020, with the remaining special
dividend of 20.7 pence per share being deferred.
The dividends proposed in March (approved in April) represent the final
dividends paid in respect of the 2018 and 2019 financial years. The
dividends declared in August are interim distributions in respect of
2019 and 2020.
An interim dividend of 91.2 pence per share (approximately GBP263
million) has been declared in respect of the 2020 financial year. This
includes the 20.7 pence deferred 2019 special dividend.
12b. Earnings per share
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Profit for the financial year after taxation attributable
to equity shareholders 243.7 183.2 432.4
Weighted average number of shares -- basic 293,877,486 290,734,955 291,513,714
Unadjusted earnings per share -- basic 82.9p 63.0p 148.3p
Weighted average number of shares -- diluted 294,464,776 291,401,887 292,094,797
Unadjusted earnings per share - diluted 82.8p 62.9p 148.0p
The difference between the basic and diluted number of shares at the end
the period (being 587,290; H1 2019: 666,932, FY 2019: 581,083) relates
to awards committed, but not yet issued under the Group's share schemes.
12c. Share capital
30 June 30 June
2020 2019 31 December 2019
GBPm GBPm GBPm
Authorised
500,000,000 ordinary shares of 0.1 pence 0.5 0.5 0.5
Issued, called up and fully paid
293,686,329 ordinary shares of 0.1p -- -- 0.3
290,949,880 ordinary shares of 0.1p -- 0.3 --
294,037,749 ordinary shares of 0.1p 0.3 -- --
0.3 0.3 0.3
During the first half of 2020, 351,420 (30 June 2019: 447,143; 31
December 2019: 3,183,592) new ordinary shares of 0.1p were issued to the
trusts administering the Group's share schemes.
351,420 (30 June 2019: 447,143; 31 December 2019: 883,592) of these were
issued to the Admiral Group Share Incentive Plan Trust for the purposes
of this share scheme.
No shares (30 June 2019: nil; 31 December 2019: 2,300,000) were issued
to the Admiral Group Employee Benefit Trust for the purposes of the
Discretionary Free Share Scheme.
12d. Objectives, policies and procedures for managing capital
The Group manages its capital to ensure that all entities within the
Group are able to continue as going concerns and also to ensure that
regulated entities comfortably meet regulatory requirements. Excess
capital above these levels within subsidiaries is paid up to the Group
holding company in the form of dividends on a regular basis.
The Group's dividend policy is to pay 65% of post-tax profits as a
normal dividend and to pay a further special dividend comprising
earnings not required to be held in the Group for solvency or buffers.
Refer to the financial review for further information about the Group's
capital structure and financial
position.
12e. Related party transactions
Details relating to the remuneration and shareholdings of key management
personnel are set out in the Directors' Remuneration Report within the
Group's 2019 Annual Report. Key management personnel are able to obtain
discounted motor insurance at the same rates as all other Group staff.
The Board considers that Executive and Non-Executive Directors of
Admiral Group plc are key management personnel. Aggregate compensation
for the Executive and Non-Executive Directors is disclosed in the
Directors' Remuneration Report in the 2019 Annual Report.
13. Reconciliations
The following tables reconcile significant KPIs and Alternative
Performance Measures included in the financial review above to items
included in the financial statements.
13a. Reconciliation of turnover to reported total premiums written and
other revenue as per the financial statements
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Gross premiums written after co-insurance
per note 5a of financial statements 1,119.8 1,161.1 2,273.7
Premiums underwritten through co-insurance
arrangements 279.5 312.9 610.7
Total premiums written before co-insurance
arrangements 1,399.3 1,474.0 2,884.4
Other Revenue 243.9 233.1 469.9
Admiral Loans interest income and other
fee income 19.8 13.3 30.8
1,663.0 1,720.4 3,385.1
Other(*1) 16.6 26.1 59.0
Turnover as per note 4 of financial statements 1,679.6 1,746.5 3,444.1
Intra-group income elimination(*2) 10.0 9.7 19.4
Total turnover(*3) 1,689.6 1,756.2 3,463.5
*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 related to comparison income earned
in the Group from other Group companies.
*3 -- See note 13g for the impact of the "Stay at home" premium refund
issued to UK motor insurance customers on Turnover in H1 2020.
13b. Reconciliation of claims incurred to reported loss
ratio, excluding releases on commuted reinsurance
Int. Int.
UK Motor UK Home UK Other(*1) UK Total Int. Other Total Group
June 2020 GBPm GBPm GBPm GBPm Car GBPm GBPm GBPm GBPm
Net insurance claims 48.9 15.0 12.3 76.2 63.3 1.8 65.1 141.3
Deduct claims handling
costs (5.9) (0.6) -- (6.5) (4.8) -- (4.8) (11.3)
Prior year release/strengthening
-- net original share 64.2 2.8 -- 67.0 11.7 -- 11.7 78.7
Prior year release/strengthening
-- commuted share 60.0 -- -- 60.0 -- -- -- 60.0
Impact of reinsurer
caps -- -- -- -- 1.8 -- 1.8 1.8
Impact of weather
events -- (2.3) -- (2.3) -- -- -- (2.3)
Attritional current
period claims 167.2 14.9 12.3 194.4 72.0 1.8 73.8 268.2
-------- ------- ------------ -------- --------- ------ ------ -------
Net insurance premium
revenue 208.5 20.9 22.3 251.7 95.5 3.6 99.1 350.8
Loss ratio -- current
period attritional 80.2% 71.3% -- -- 75.4% -- -- 76.4%
Loss ratio -- current
period weather events -- 11.1% -- -- -- -- -- 0.7%
Loss ratio -- prior
year release/strengthening
(net original share) (30.8%) (13.4%) -- -- (12.2%) -- -- (22.4%)
Loss ratio -- reported 49.4% 69.0% -- -- 63.2% -- -- 54.7%
(*1) 'Other' includes travel insurance (UK) and underwritten
ancillaries.
Int. Int.
UK Motor UK Home UK Other UK Total Int. Other Total Group
June 2019 GBPm GBPm GBPm GBPm Car GBPm GBPm GBPm GBPm
Net insurance claims 106.2 12.6 11.3 130.1 66.0 3.9 69.9 200.0
Deduct claims handling
costs (6.1) (0.5) -- (6.6) (3.6) -- (3.6) (10.2)
Prior year release/strengthening
-- net original share 50.0 2.7 -- 52.7 9.0 -- 9.0 61.7
Prior year release/strengthening
-- commuted share 52.8 -- -- 52.8 -- -- -- 52.8
Impact of reinsurer
caps -- -- -- -- (1.5) -- (1.5) (1.5)
Impact of weather
events -- -- -- -- -- -- -- --
Attritional current
period claims 202.9 14.8 11.3 229.0 69.9 3.9 73.8 302.8
-------- ------- -------- -------- --------- ------ ------ -------
Net insurance premium
revenue 225.4 18.1 21.2 264.7 80.6 3.9 84.5 349.2
Loss ratio -- current
period attritional 90.0% 81.7% -- -- 86.7% -- -- 86.8%
Loss ratio -- prior
year release/strengthening
(net original share) (22.2%) (14.9%) -- -- (11.2%) -- -- (17.7%)
Loss ratio -- reported 67.8% 66.8% -- -- 75.5% -- -- 69.1%
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 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%
13c. Reconciliation of expenses related to insurance contracts to
reported expense ratio
Int. Int. Int.
UK Motor UK Home UK Other UK Total Car Other Total Group
June 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net insurance expenses 32.6 5.8 2.1 40.5 35.0 1.8 36.8 77.3
Claims handling costs 5.9 0.6 -- 6.5 4.8 -- 4.8 11.3
Intra-group expenses
elimination(*1) 5.8 0.8 0.7 7.3 2.7 -- 2.7 10.0
Impact of reinsurer
caps -- -- -- -- 0.3 -- 0.3 0.3
Net IFRS 16 finance
costs 0.2 -- -- 0.2 -- -- -- 0.2
Other adjustment(*2) -- -- -- -- -- -- -- --
Adjusted net insurance
expenses 44.5 7.2 2.8 54.5 42.8 1.8 44.6 99.1
Net insurance premium
revenue 208.5 20.9 22.3 251.7 95.5 3.6 99.1 350.8
Expense ratio --
reported 21.3% 34.2% -- -- 44.8% -- -- 28.3%
Int. Int. Int.
UK Motor UK Home UK Other UK Total Car Other Total Group
June 2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net insurance expenses 30.1 4.5 2.6 37.2 23.0 0.1 23.1 60.3
Claims handling costs 6.1 0.5 -- 6.6 3.6 -- 3.6 10.2
Intra-group expenses
elimination(*1) 5.7 0.4 -- 6.1 3.6 -- 3.6 9.7
Impact of reinsurer
caps -- -- -- -- 0.6 -- 0.6 0.6
Net IFRS 16 finance
costs 0.3 -- -- 0.3 0.1 -- 0.1 0.4
Other adjustment(*2) -- -- -- -- -- (0.1) (0.1) (0.1)
Adjusted net insurance
expenses 42.2 5.4 2.6 50.2 30.9 -- 30.9 81.1
Net insurance premium
revenue 225.4 18.1 21.2 264.7 80.6 3.9 84.5 349.2
Expense ratio --
reported 18.7% 30.1% -- -- 38.4% -- -- 23.2%
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 expenses 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
Other adjustment(*2) 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%
*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 Car Insurance businesses. The contribution from
these products is reported as ancillary income and as such the amounts
are excluded for the purpose of calculation of expense ratios.
13d. Reconciliation of reported profit before tax to adjusted
profit before tax
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Reported profit before tax per the condensed consolidated
income statement 286.1 218.2 522.6
Non-controlling interest share of profit before tax 0.6 2.0 3.5
Group's share of profit before tax 286.7 220.2 526.1
13e. Reconciliation of share scheme charges in Strategic report
to Consolidated income statement and Consolidated statement of changes
in equity
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Net share scheme charges included in Group's share
of profit before tax 22.8 26.2 52.7
Non-controlling interest share of net share scheme
charges 0.1 0.3 0.7
Net share scheme charges included in Group profit
before tax 22.9 26.5 53.4
13f. Reconciliation of note 4 to Strategic Report
i) UK Insurance
Motor Household Travel Total
30 June 2020 GBPm GBPm GBPm GBPm
Turnover 1,158.3 87.0 3.1 1,248.4
UK Insurance profit before tax --
Strategic report 310.4 5.5 (2.1) 313.8
Non-controlling interest share of PBT 0.2 -- -- 0.2
Statutory profit/(loss) before tax 310.6 5.5 (2.1) 314.0
Motor Household Travel Total
30 June 2019 GBPm GBPm GBPm GBPm
Turnover 1,255.2 80.0 3.6 1,338.8
UK Insurance profit before tax --
Strategic report 251.7 4.2 (1.2) 254.7
Non-controlling interest share of PBT 0.2 -- -- 0.2
Statutory profit/(loss) before tax 251.9 4.2 (1.2) 254.9
Motor Household Travel Total
31 December 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
ii) International Insurance
Spain Italy France US Total
30 June 2020 GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ----- ----- ------ ----- -----
Turnover 40.8 106.2 64.1 118.4 329.5
Profit/(loss) before tax -- Strategic
Report and Statutory 9.8 (3.3) 6.5
------------------------------------------ --------------------
Spain Italy France US Total
30 June 2019 GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ----- ----- ------ ----- -----
Turnover 40.2 105.2 51.4 122.7 319.5
Profit/(loss) before tax -- Strategic
Report and Statutory 3.5 (6.2) (2.7)
------------------------------------------ --------------------
Spain Italy France US Total
31 December 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)
------------------------------------------ --------------------
iii) Comparison
Confused European Compare Other Total
30 June 2020 GBPm GBPm GBPm GBPm GBPm
Turnover 63.7 23.2 3.1 0.7 90.7
Group's share of profit before tax -- Strategic Report 13.5 0.7 (0.5) (0.6) 13.1
Non-controlling interest share of profit/(loss) before
tax -- 0.3 (0.3) (0.6) (0.6)
Statutory profit/(loss) before tax 13.5 1.0 (0.8) (1.2) 12.5
Confused European Compare Other Total
30 June 2019 GBPm GBPm GBPm GBPm GBPm
Turnover 54.2 25.0 3.6 0.6 83.4
Group's share of profit before tax -- Strategic Report 8.7 2.1 (2.8) (0.6) 7.4
Non-controlling interest share of profit/(loss) before
tax -- 0.5 (1.9) (0.6) (2.0)
Statutory profit/(loss) before tax 8.7 2.6 (4.7) (1.2) 5.4
Confused European Compare Other Total
31 December 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
13g. Reconciliation of Impact of "Stay at Home" premium refund issued
to UK motor insurance customers on Turnover, Total written premiums,
Gross written premiums and net insurance premium revenue
30 June
2020
GBPm
Total "stay at home" premium refund issued to
UK motor insurance customers 110.0
Insurance premium tax (12.7)
Impact of premium refund on turnover and total
written premium 97.3
Co-insurer share of premium refund (27.3)
Impact of premium refund on gross written premium 70.0
Reinsurer share of premium refund (48.9)
Impact of premium refund on net insurance premium
revenue 21.1
14. Statutory Information
The financial information set out above does not constitute the
company's statutory accounts. Statutory accounts for 2019 have been
delivered to the registrar of companies, and those for 2020 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.
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.
In 2020 a "Stay at Home" premium rebate of GBP25 per
vehicle was issued to UK motor insurance customers. The
total refunded was GBP110 million. Of this total, GBP97
million has been reflected within the 2020 total premiums
written, and therefore, turnover metric, with the remaining
amount reflecting insurance premium tax.
----------------- ---------------------------------------------------------------
Total Premiums Total premiums written are the total forecast premiums,
Written 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.
As noted in the Turnover metric above, in 2020 a reduction
of GBP97 million has been reflected within 2020 total
premiums written, to reflect the "Stay at Home" premium
rebate.
Group's share Group's share of profit before tax represents profit
of Profit before before tax, excluding the impact of Non-controlling Interests.
Tax 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 For each insurance business an underwriting result is
result (profit presented showing the segment result prior to the inclusion
or loss) 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 Effective tax rate is defined as the approximate tax
Rate 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 claims
estimate 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 between
cycle 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 Also referred to as net earned premium. The element of
premium revenue premium, less reinsurance premium, earned in the period.
Ogden discount The discount rate used in calculation of personal injury
rate claims settlements. The rate is set by the Lord Chancellor.
Periodic Payment A compensation award as part of a claims settlement that
Order (PPO) 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 A clause found in some reinsurance and coinsurance agreements
commission 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 and
Entity (SPE) 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 A projected actuarial best estimate loss ratio for a
ratio particular accident year or underwriting year.
Underwriting The year in which the policy was incepted.
year
Underwriting Also referred to as the written basis. Claims incurred
year basis 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 but earned
basis over a subsequent calendar year.
Responsibility statement of the directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU;
-- the interim management report includes a fair review of the information
required by:
1. DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
2. DTR 4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place in the first six months
of the current financial year and that have materially affected
the financial position or performance of the entity during that
period; and any changes in the related party transactions
described in the last annual report that could do so.
By order of the Board,
Geraint Jones
Chief Financial Officer
11 August 2020
INDEPENDENT REVIEW REPORT TO ADMIRAL GROUP PLC
We have been engaged by the company to review the condensed set of
financial statements in the half-yearly financial report for the six
months ended 30 June 2020 which comprises the condensed consolidated
income statement, the condensed consolidated statement of comprehensive
income, the condensed consolidated statement of financial position, the
condensed consolidated cash flow statement, the condensed consolidated
statement of changes in equity and related notes 1 to 14. We have read
the other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing
the half-yearly financial report in accordance with the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with International
Accounting Standard 34 "Interim Financial Reporting" as adopted by the
European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the
condensed set of financial statements in the half-yearly financial
report based on our review.
Scope of review
We conducted our review in accordance with International Standard on
Review Engagements (UK and Ireland) 2410 "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity" issued
by the Financial Reporting Council for use in the United Kingdom. A
review of interim financial information consists of making inquiries,
primarily of persons responsible for financial and accounting matters,
and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not
enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2020 is
not prepared, in all material respects, in accordance with International
Accounting Standard 34 as adopted by the European Union and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the Independent
Auditor of the Entity" issued by the Financial Reporting Council. Our
work has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review report
and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the company,
for our review work, for this report, or for the conclusions we have
formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
11 August 2020
(END) Dow Jones Newswires
August 12, 2020 02:00 ET (06:00 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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