TIDMADM
4 March 2021
2020 Results Highlights
2020 2019 % change
Group's share of profit before
tax*(1) GBP638.4 million GBP526.1 million +21%
Group statutory profit before
tax (continuing operations) GBP608.2 million GBP505.1 million +20%
Earnings per share 179.5 pence 148.3 pence +21%
Full year dividend per share 156.5 pence 140.0 pence +12%
Return on equity*(1) 52% 52% -%
Group turnover*(1) GBP3.55 billion GBP3.46 billion +2%
Group net revenue (continuing
operations) GBP1.31 billion GBP1.21 billion +8%
Group customers*(1) 7.66 million 6.98 million +10%
UK insurance customers*(1) 5.98 million 5.48 million +9%
International car insurance
customers*(1) 1.60 million 1.42 million +13%
Solvency ratio (post
dividend)*(2) 187% 190% -2%
*1 Alternative Performance Measures - refer to the end of the report for
definition and explanation
*2 Unaudited. Refer to capital structure and financial position section
later in the report for further information
Around 10,000 staff each receive free shares worth up to GBP3,600 under
the employee share scheme based on the full year 2020 results.
Comment from Milena Mondini de Focatiis, Group Chief Executive Officer:
"2020 was certainly not an ordinary year, but one that I like to think
of as a 'litmus test' for the business -- where, despite the turbulent
context, we demonstrated strong operational resilience and agility, we
delivered a positive set of financial results, we stayed true to our
values and we did what we believed was right for all our stakeholders.
"Our existing customers chose to stay with us more than ever before, and
we increased the share of those switching from other insurers to Admiral,
resulting in over 650,000 new customers in 2020.
"The year saw profit before tax exceeding GBP600 million, driven by
strong reserve releases and a decrease in claims frequency as people
drove less during lockdowns. We gave back to customers through the
GBP110 million "Admiral Stay at Home Refund" in the UK and substantial
pricing reductions across our operations, and we also supported key
workers and our local communities. Staff remained a priority and we
rapidly transitioned to working from home, while also implementing
flexible working arrangements and other wellbeing initiatives.
"A huge thank you to our customers and our shareholders for their
continued support, to David, on behalf of the Admiral team, for his
invaluable contribution to the business and, most importantly, to all
our colleagues who demonstrated incredible passion, adaptability and
dedication to our business success."
Comment from Annette Court, Group Chair:
"Who knew so much could happen in twelve months! We have faced the
challenges of the global pandemic while ensuring at Admiral we focused
on doing the right thing, went through a successful CEO transition, and
reported another positive set of financial results.
"I'm particularly pleased to mention an improvement of over 5% in
customer Net Promoter Scores across our operations and that we were
voted 14th best workplace in the world on the annual 25 World's Best
Workplaces list.
"I'd like to take the opportunity to thank all our stakeholders for
their support, and the Admiral team for maintaining the special Admiral
spirit and values which gives us a solid foundation for the year ahead!"
Dividend
The Board has proposed a final dividend of 86.0 pence per share (2019:
77.0 pence per share, including the special dividend which was deferred
and subsequently paid alongside the 2020 interim dividend) representing
a normal dividend (65% of post-tax profits) of 63.6 pence per share and
a special dividend of 22.4 pence per share. The dividend will be paid on
4 June 2021. The ex-dividend date is 6 May 2021 and the record date is 7
May 2021.
Management presentation
Analysts and investors will be able to access the Admiral Group
management presentation which commences at 10h30am GMT on Thursday 4
March 2021 by registering on the Admiral website at
https://www.globenewswire.com/Tracker?data=P1GNlTSSKBLtVmkarmRLmlGM1_afPEsh2yJo6y317oZvs0MnM4zuk6E6qicuzjjlhfvaCZs8lMHKLuzL10d40Ibl3q9twmBajs7rpJEqr0Q=
www.admiralgroup.co.uk. A copy of the presentation slides will also be
available on the website.
Chair Statement
Background to the year
What a year this has been! For Admiral the most significant event, apart
from the Covid-19 pandemic of course, has been the announcement that
David Stevens will be retiring as Group CEO and that Milena Mondini de
Focatiis will be succeeding him (as I mentioned in last year's annual
report). This took effect from 1 January 2021 after a successful
transition period - more on this later.
Most of the year has been dominated by the repercussions of the Covid-19
pandemic. Life changed in unimaginable ways for all of our staff and
customers. I am immensely proud of the way that Admiral responded to
this situation. Our people's health and well-being were at the centre of
our response and we remained true to Admiral's values in ensuring they
were protected and allowing them to provide continued support to our
customers. Management communicated quickly and clearly, and it was
evident to all why Admiral remains one of the Best Companies to work
for. Our people rose to the challenge and went above and beyond to
support customers and each other through difficult times.
Most importantly we demonstrated that we were doing the right thing not
only for staff, but also for customers, suppliers, shareholders and the
broader community. A key part of our response was the announcement of
the Admiral Stay at Home premium refund. We announced back in April that
we would give back GBP190 million to customers through a GBP110 million
rebate in the UK as well as pricing reductions across operations and
supporting the communities in which we operate, which included the
launch of a GBP6 million Covid community support fund. This approach was
unique to UK insurers. It was led by management and endorsed by the
Board.
Looking back at 2020
Admiral is reporting a strong performance in 2020 in both reported
profit and growth. This is once again due to our people. They make the
real difference at Admiral. They remain true to our purpose and ensure
that we do the right thing in consideration of all of our stakeholders.
The Group has continued to grow with turnover increasing by 2% to
GBP3.55 billion, whilst customer numbers are 10% higher than 2019 at 7.7
million. The Group's share of pre-tax profit increased by 21% to
GBP638.4 million. Covid impacted the results in all markets in which we
operate, resulting in reduced accident frequencies and lower loss
ratios. We continue to maintain a prudent approach and, as a result,
benefited from strong reserve releases from past years. Earnings per
share rose by 21% and return on equity was 52%. The Group's solvency
ratio remains robust at 187% (190% at the end of 2019).
In the UK the FCA announced a market pricing study for general insurance
which will predominantly affect our motor and household products. This
is still to be finalised, but we anticipate that it will have a
significant impact on the market. We see this as an opportunity to
continue to build on Admiral's strengths and desire to do the right
thing for customers. As a reminder, approximately 80% of Admiral
customers shop around at renewal, so we are encouraged that the majority
choose to remain with us; this being an indicator of our good customer
experience and competitive pricing.
There have been strong contributions across the Group. Apart from UK
Insurance there has been growth in profit and customers from our
European insurers and also Confused.com. In the US we continue to
strengthen the fundamentals of our insurance business.
The Loans business has been impacted by Covid and we took early action
to pause issuing new loans when the pandemic hit and have maintained a
cautious approach since. The loans book remains resilient despite
economic uncertainty largely as a result of our prime customer base and
prudent approach.
Admiral announced the purchase of the Penguin Portals and Preminen
comparison businesses by ZPG Comparison Services Holdings UK Limited
("RVU") in December 2020. The Board believes the decision is a positive
outcome for all stakeholders and provides an opportunity to combine the
strengths of these businesses to allow for continued growth.
Dividend
As a result of the Covid-19 pandemic and regulatory guidance, we
suspended the pay-out of the 2019 final special dividend. We were
subsequently able to pay this out in addition to our half-year dividend
in August with the confidence that we have a strong capital position.
Our dividend policy remains that we pay a normal dividend of 65% of
post-tax profit and distribute each year the available surplus over and
above what we retain to meet regulatory requirements, the future
development of our business and appropriate buffers. The Directors have
recommended a final dividend of 86.0 pence per share (2019: 77.0 pence
per share) for the year to 31 December 2020 representing a distribution
of 89% of our second half earnings.
This will bring the total dividend for the year to 156.5 pence per share,
an overall increase of 12%. This represents a pay-out ratio of 87%. The
Group has delivered a Total Shareholder Return (TSR) of 335% over the
last 10 years.
Group Board in 2020
The Board recognises the need for a strong corporate governance
framework and supporting processes across the Group and believes that
good governance, with the tone set from the top, is a key factor in
delivering sustainable business performance and creating value for all
the Group's stakeholders.
We reviewed our Group strategy in 2020 in the light of the Covid
pandemic. It remains straightforward and highly focused on building
customer-centric, sustainable businesses for the long-term. We strive to
keep doing what we're doing and do it better year after year.
In our UK Insurance business, we remain determined to strengthen our
core competitive advantages and pursue our culture of innovation and
'test and learn' approach. For example, we are continuing to deploy
technology relating to digital and self-service to improve the customer
experience and overall efficiencies.
We also continue to take what we do well and what we learn to new
markets and new products, both in the UK and abroad. We are agile enough
to adapt to evolving business environments and encourage entrepreneurial
initiatives to solve challenges and offer the best outcome to our
customers, people and investors. One example is the launch of Admiral
Pioneer, a team that builds on our traditional test and learn approach
to focus on diversification through new business areas.
From a governance perspective, we have applied the principles of the
Corporate Governance Code which ensures that we will continue to take on
board the views of all of our stakeholders in our discussions and
decision making. As you would expect, we already have strong links with
our people and in 2020, the Board revisited and enhanced several areas
of focus including our culture, engagement, diversity, our impact on the
environment and climate change, and how we give back and participate in
the communities in which we operate through our Ministry of Giving.
Once again Admiral was recognised as a Great Place to Work in 2020 being
14(th) best workplace in the world on the annual 25 World's Best
Workplaces list. We were awarded the Sunday Times 3(rd) best big company
to work for in the UK and a lifetime achievement award for the only
company to be listed for 20 consecutive years. We were also named the
5(th) best workplace for women in the UK. I could go on..! Of course,
this doesn't happen by accident. We continue to believe that if people
like what they do, they do it better. Our people feel involved because
they have a voice, they are shareholders in our business, and they
genuinely care.
Having our people as shareholders remains a distinctive element of
Admiral's incentive schemes. These are designed to ensure that decisions
are made by management to support long-term value growth, that the right
behaviours are rewarded and that our people's interests are aligned with
those of shareholders. Our core belief is that over the long-term, share
appreciation depends on delivering great outcomes for our customers.
Further details will be provided in the Remuneration Report in the 2020
Annual Report.
During the year, I usually visit our overseas operations as well as
being present regularly in South Wales. This year I had the pleasure of
visiting our operations in the UK, France, Italy, Spain and the US, but
all visits were virtual. All Non-Executive Directors participated in a
number of these visits. This allowed us to keep contact with staff
during this difficult period and directly hear their views and the
challenges they faced. The Admiral culture still shines through.
We reviewed the composition of the Board in 2020 and, as I highlighted
in last year's report, we identified the need to appoint someone with a
technology background. I am delighted that JP Rangaswami was appointed
in April. He brings a wealth of experience and has already made an
impact.
The Board and I feel that there is a good balance of experience, skills
and knowledge to support and challenge the management team, and that
operations are supported by effective governance and control systems.
Our focus areas for the Board remain to:
-- Continue to build on the remarkably special Admiral culture and in so
doing putting our people, customers and wider impact on the community at
the heart of what we do
-- Continue the history of growth, profitability and innovation
-- Invest in the development and growth of our people -- we have focused on
the quality and development of our senior management team, added to our
talent base by some external hires, and reviewed our succession pipeline
-- Ensure excellent governance and the highest standards
-- Focus on all aspects of ESG
Our role in Society
Admiral takes its role in society very seriously and has an active
approach to Corporate Responsibility (more information in the
Sustainability Report on the Admiral website.) We are proud to be Wales'
only FTSE 100 headquartered company and employ over 7,000 people in
South Wales. Our people play an active part in the communities in which
we operate. We carefully consider our impact on the community and
environment, including factors such as the green credentials of our
buildings, raising funds for multiple charities, and considering the
impact of climate change across the business.
This year we reviewed our responsible investment policy with regard to
our ESG positioning. The business also verified carbon emissions for our
operations by a third party and these were subsequently offset to become
carbon neutral. We aim to be an economically strong and responsible
business over the long-term, guided by a clear purpose, to make a
positive and significant impact not just on our customers and our people
but on the economy and society.
David and Milena
I would like to thank David Stevens for the amazing contribution he has
made to the Group. As a co-founder (back in 1991), he has contributed
enormously to all the elements that make Admiral so special and
successful, including underwriting, product innovation, the unique
Admiral culture and much more. David has brought a unique combination of
great brainpower, integrity, innovation, caring and humility. Suffice to
say, it has been a real pleasure to work with him. We are grateful that
he will continue to work with Admiral in a part-time advisory capacity
focusing on risk selection, financial services and diversification.
In Milena we have a natural successor and a leader for the next
generation. She brings a deep appreciation of the special Admiral
culture, entrepreneurial spirit, commercial track record and people
development skills. After a smooth transition period, the Board is
confident that, with a very strong and experienced management team, she
will build an even stronger Admiral for the future.
Thank you
On behalf of the Board, I would like to thank everyone at Admiral for
their continued hard work, their adaptability and caring behaviour and
their contribution to the Group's results in 2020. I would also like to
thank our shareholders for their support and confidence. Most of all I
would like to thank our customers for placing their business with us.
Annette Court
Group Chair
3 March 2021
Chief Executive Officer's Statement
In my Insurance Review in last year's annual report, I described 2019 as
an 'eventful year.'
In hindsight, I would change that headline as it was actually pretty
ordinary compared to the twelve months that followed. I had no idea what
2020 would hold!
In early March 2020, the Board announced my appointment as Group CEO
Designate. Succeeding David is a huge honour, as is the opportunity to
lead the company that Henry and David built together; an incredibly
successful business underpinned by a truly unique culture and a
fantastic team.
The morning of that announcement, I thought that I had a long transition
period ahead of me to ensure a smooth handover as well as the
opportunity to visit all of Admiral's subsidiaries around the world
in-person.
Again, the reality turned out to be quite different. The following day,
one of my investor meetings was cancelled because of Covid. Fast-forward
two weeks, and the whole of the UK was in lockdown. And since then, the
months that followed have been characterised by one major change after
another; both at a societal level and in the way that businesses
operate.
We had to very rapidly shift to remote working to ensure that our staff
were safe, a focus which remained our primary concern throughout this
last year. We successfully set up the majority of our staff to work from
home in under a month - a move that we previously thought would take
several years. What a great lesson about the power of focus! This
allowed us to provide continuity to our customers, despite the
logistical and technical challenges.
During the pandemic, the propensity of customers to interact online
increased substantially, leading us to accelerate our digital programs
across the Group. In 2020, we more than doubled the percentage of
digital interactions with our customers in the UK, and we made a lot of
new online functionality available to them.
We believe that our international businesses, operating in countries
where online is not yet the primary distribution channel, will benefit
from this trend in the long run. The same could be true for UK Insurance
lines beyond Motor.
The digital acceleration has also accentuated market interest in
platforms such as Penguins Portals, our global network of comparison
site businesses. Just before the year end, we announced the agreement to
sell Penguin Portals to RVU, subject to regulatory approval. It is the
first time that we are separating from such a significant part of the
Group and from so many great colleagues, who will be missed enormously.
We are hugely proud of what they have achieved and how they have
transformed -- or even created -- the markets in which they operate. We
believe that this was the right choice for the long-term success of
these businesses as they will find additional synergies and
opportunities to further fulfil their ambitions with RVU.
As our different geographies entered lockdown, we also saw material
changes in the underlying drivers of our business performance, primarily
a reduction in motor claims frequency. We were fortunate; our main
reliance on Motor Insurance put us in a privileged position, at a time
when many other businesses were struggling. Naturally, this led to deep
questioning internally: what is our responsibility to our customers who
haven't been able to use our product as much as they had hoped? How
should Admiral support wider society in a time of great economic
uncertainty? And how can Admiral best balance the outcomes for all its
different stakeholders?
We stayed true to our values and did what we believed was right.
In this report, you will read plenty of examples of this such as the
Admiral Stay at Home Refund, where we returned GBP110m in premiums to
our UK customers, and several changes to our products and policy terms
to support key workers. We helped our partners and local communities
through the many initiatives that were supported by Admiral's GBP6m
Covid Support Fund, such as distributing iPads to care homes and
supplies to children being home schooled.
We achieved all this, while continuing to deliver great financial
outcomes for our shareholders and strengthening the foundations of our
business.
More than ever, we wanted to ensure that our products deliver good value,
are fairly priced and therefore affordable and inclusive for more
people. We wanted to help and provide people with more support and peace
of mind for the future. We wanted to look after our customers, our staff,
and our business partners when they need it the most. As always, we
strive to find new ways to do things better, by using data and through
our test and learn approach. Every day and in every circumstance, we
strive for excellence together as a team, as it's ingrained in our
culture. Or, in summary:
"Help more people to look after their future. Always striving for better,
together".
And this is, indeed, our new purpose statement.
Could there be a better moment for the Admiral team to take stock and
reassert what we stand for? It is in difficult and pressurised times
when you can really test and see the true colours of people. Our culture
during the pandemic has not only remained strong but has shone brighter
than ever. Personally, in my 14 years at Admiral, I have never been
prouder to work for this Group.
What I like about this new statement is that you can read it through
different lenses. First, our customers, as we help them to protect,
achieve, and afford what is important to them. Second, our staff, as we
help our colleagues to achieve their potential, build on their strengths,
and improve their future. Third, the larger community, as we not only
provide more employment opportunities in a company that is a great place
to work, but also as we contribute to address challenges such as
diversity and inclusion and climate change.
This alignment of the interests of different stakeholders has always
been a distinctive feature of Admiral and a strength of our business
model. We develop strong long-lasting relationships with our partners in
distribution, reinsurance and claims network, with our customers, who
reward us with strong retention rates and service scores, and, more
importantly, with our staff, who have an impressive average tenure in
the business.
And we manage to do so, not only because we care, but also because we
take a long-term perspective in our decision making. An important
element that underpins this culture is our reward system, which is based
on Admiral shares rather than short-term incentives. Admiral employees
are shareholders.
So, what are our long-term objectives? We remain focused on two main
strategic priorities to strengthen our competitive position and increase
our resilience to potential disruptive changes in mobility and our core
market.
First and foremost, to accelerate the evolution of our core businesses
toward what we call 'Admiral 2.0'. An organisation that leverages on
Admiral's historical strengths but is even more agile. It is digital
first and embraces flexible working practices. But above all else, it is
a company that continues to put the customer at the forefront and
leverages even more on data and advanced analytics to constantly improve
the user experience. As mentioned before, 2020 was a strong year in
that respect; we doubled the number of machine learning models pushed to
production, moved a vast part of the business to scaled agile,
transitioned the majority of customer data to the cloud in our biggest
businesses, and materially improved our Net Promoter Score (NPS) in
every country. But we are also very conscious there is potential to do
much more.
Our second strategic priority is to continue our product diversification
journey, to find new opportunities where we can deploy our competitive
advantage, to develop stronger propositions for our customers and
increase our engagement with them, both through the reinforcement of
existing products, such as Household Insurance and Loans, and through
seeding new ones, both in the UK and internationally. In 2020, we
launched Pet Insurance in Italy, Household Insurance in France, and set
up a new team of "Admiral Pioneers" to explore new opportunities within
the UK.
In addition, one big focus areas in 2021 will be (hopefully) the
adaption to a post-Covid 'new normal,' ensuring that we bring the key
learnings from the past year with us.
We have made the decision to embrace a hybrid working model and offer
much more flexibility to our staff in the future. This reflects our
belief that, very simply, "people who like what they do, do it better"
(Henry Engelhardt, Admiral's founder and first CEO) and will also allow
us to better compete for talent. This year, our staff demonstrated
incredible resilience, the ability to adapt and an impressive
commitment. Despite all the personal, technical, and logistical
challenges, everyone at Admiral worked incredibly hard and delivered
fantastic results. I can't thank my colleagues enough.
A special thank you to all the managers at Admiral as well. Overnight
all of Admiral's senior management team transformed themselves into
Chief Communication Officers to ensure that they were on-hand to support
staff, assist customers, and be there for each other. I take so much
confidence for the future from the strength, the talent, and the
competence of the Admiral team. In the 2021 Great Place to Work survey
90% of respondents said that Admiral is a great place to work. There is
no better testament to our culture and to our people!
I've learnt my lesson by now, and I am not going to define the past year
as another eventful year because -- like all people from Naples -- I
don't like to challenge fate. Not twice. But, looking back, I like to
think of 2020 as the touchstone year for our operational resilience,
agility, and, more importantly, our values and culture.
Milena Mondini de Focatiis
Group Chief Executive Officer
3 March 2021
Chief Financial Officer's Review
Well, 2020 will surely live long in the memory. The awful impact of
Covid-19 overshadowed some quite momentous events at Admiral, including
David's retirement and our announcement at the end of the year of the
disposal of most of our Comparison businesses.
As we've set out throughout this report, we've tried hard to respond to
the pandemic in a balanced way, looking out for the interests of all our
main stakeholders -- customers, staff and shareholders. Hopefully we've
done a reasonable job.
I'll start my review by giving some insight into the main highlights of
our 2020 results.
Group share of pre-tax profit
GBPm 2020 2019 Change
UK Insurance 698 597 +101
International Insurance 9 (1) +10
Admiral Loans (14) (8) (6)
Comparison 31 18 +13
Share scheme cost (54) (53) (1)
Other (32) (27) (5)
Profit 638 526 +112
It feels like half a lifetime ago, but remember that 2019's UK Insurance
result was negatively impacted by a GBP33 million one-off impact from a
change in the Ogden discount rate (resulting in higher claims costs) and
so a fairer year-on-year comparison is profit of GBP638 million compared
to around GBP560 million (+GBP78 million, +14%). Clearly still a very
healthy result, boosted by a significant increase in profit from the UK
business.
Whilst claims from previous years continued to develop positively and
the motor business grew at a decent rate (+9% in customer numbers), a
notably lower accident year loss ratio resulted in the step up in
profit. That lower ratio is inevitably due to lower claims volumes
resulting from significant reductions in miles driven, especially during
the first lockdown but also in the second half. And it comes despite
the GBP100 million+ rebate of premium in May (the only rebate of its
kind in the UK) and significant discounts to existing and new customers
since (to the best of our knowledge greater discounting than many or all
of our competitors).
We expect that the 2021 loss ratio will be higher than 2020, as claims
frequency is very likely to return towards more normal levels and the
impact of discounted policies written in 2020 feed through into premium
earned in 2021.
Our travel insurance business is small relative to the Group and made a
very small loss of around GBP1 million, though of course volumes ended
the year massively behind plan. Admiral doesn't sell business
interruption insurance and so wasn't impacted by the major losses to
that product line.
Other points of interest from the results include:
-- An improved current year loss ratio (and resultant higher profit
commission) boosted the Household business profit to GBP15 million (v
GBP8 million). The business also continued to grow quite nicely
-- The International Insurance result was also positively impacted by
reduced claims frequency and a significantly lower current year loss
ratio. Good growth (in Europe) and continued positive moves in previous
period claims costs also contributed to the result (a profit of GBP9
million v a loss of GBP1 million). All three European insurers were
profitable (GBP14 million in aggregate) and the US loss was lower
year-on-year. Combined growth was 13% in customer numbers
-- Admiral Financial Services reported a loss of GBP14 million in line with
guidance given with our half year results. Higher provisions for
expected credit losses due to Covid-19's impact on the economy were,
unsurprisingly, the key reason. Arrears experience throughout 2020 was
actually very much in line with prior years and the main impacts of
increased unemployment on credit losses are expected to be realised in
2021 after government employment support schemes come to an end
-- Confused.com led the way to an excellent result from the Comparison
businesses (a profit of GBP31 million, up by two thirds). Confused's
revenue increased by nearly 20%, whilst profit was up more than 40% for
the second year in a row
-- Other parts of the income statement were largely in line with 2019,
though the increased share price and profits led to a slight increase in
the share scheme cost and the costs of major projects like the Comparison
disposal led to higher group overheads
Comparison disposal
We announced late in 2020 that we had agreed to sell almost all of the
Group's comparison businesses under the Penguin Portals banner to RVU,
the comparison division of ZPG. As we said at the time, we believe
strongly that the combination of Penguin Portals' strengths, notably in
insurance comparison across Europe, with RVU's strengths beyond
insurance and experience in growth through acquisition, provides a solid
foundation for the combined businesses to grow and prosper.
Total consideration is expected to be around GBP510 million, including
the element attributable to MAPFRE (which owns shares in some of the
businesses in the Penguin group). Admiral's share of the proceeds, net
of transaction costs and the minority interests is expected to be around
GBP450 million (the profit on disposal that would be recognised in the
2021 income statement should be a similar number) which we believe
represents a good outcome for shareholders.
We expect completion to occur in the first half of 2021 after which we
would confirm our intentions for the use of proceeds.
Capital, dividends and Admiral's internal model
In line with our usual practice of distributing the majority of post-tax
profits to shareholders, we have proposed a final dividend of 86 pence
per share, nearly 90% of earnings, and an increase of 12% compared to
the final 2019 dividend (if you include the part that we deferred and
paid later in 2020), broadly in line with the increase in H2 earnings.
The solvency ratio remains very strong at 187%.
Readers of the annual report will be aware that for the past few years,
Admiral has been developing its own internal model to calculate its
capital requirement. This is a complex process and continues to take
longer than we initially expected. In late 2020, the Admiral Board has
decided to take some time to review the model. This will inevitably
lead to a further delay in the likely timing of a formal application to
the regulators to use the model, which we no longer expect to happen in
2021. Our teams continue to work extremely hard on this important
project and we'll provide further updates later in 2021.
Farewell David, welcome Milena
Finally, from me, it would be remiss to gloss over one particularly
significant Admiral moment on the very last day of the year. As my
colleagues have commented earlier in the report, Admiral's second Group
CEO and founder director (and my boss of five years) stepped down
('retired' is a bit strong as David still works in an advisory role for
us).
David, along with Henry and Andrew and the other founding management
team, created an amazing company with a culture that remains healthy and
core to everything we do today. It's impossible to pay adequate tribute
to David's immense contribution to everything Admiral is about, and
he'll be sorely missed as CEO.
Stepping very ably into his shoes is Milena, as Admiral's third CEO in
our 30-year history. We have full confidence in Milena and I'm already
very much enjoying being part of her team.
Here's hoping 2021 is another strong year for Admiral and a much more
cheerful one for us all.
Geraint Jones
Chief Financial Officer
3 March 2021
2020 Group Overview
GBPm 2020 2019 2018
------------------------------------------------ ------ ------ ------
Turnover (GBPbn) *1*2 3.55 3.46 3.28
------------------------------------------------
Underwriting profit including investment
income*1 333.1 238.0 211.2
Profit commission 134.0 114.9 93.2
Net other revenue and expenses (continuing
operations) 153.4 164.7 171.5
Operating profit (continuing operations) 620.5 517.6 475.9
Group Statutory profit before tax (continuing
operations) *3 608.2 505.1 464.6
Group profit before tax (total) *1 637.6 522.6 476.2
Group's Share of profit before tax*1 638.4 526.1 479.3
UK Insurance 698.1 597.4 555.6
International Insurance 8.8 (0.9) (1.1)
Loans (13.8) (8.4) (11.8)
Comparison *3 31.0 18.0 8.8
Other (85.7) (80.0) (72.2)
Group's Share of profit before tax*1 638.4 526.1 479.3
Key metrics:
Group loss ratio*1*2 54.4% 64.9% 67.3%
------------------------------------------------
Group expense ratio*1*2 26.8% 23.7% 22.9%
------------------------------------------------
Group combined ratio*1 81.2% 88.6% 90.2%
------------------------------------------------
Customer numbers (million) 7.66 6.98 6.51
------------------------------------------------
Earnings per share 179.5p 148.3p 137.1p
------------------------------------------------
Dividends 156.5p 140.0p 126.0p
------------------------------------------------
Return on Equity*1 52% 52% 56%
------------------------------------------------
Solvency Ratio 187% 190% 194%
------------------------------------------------
(*1) Alternative Performance Measures -- refer to the end of this report
for definition and explanation
(*2) See note 14 for a reconciliation of Turnover and reported loss and
expense ratios to the financial statements
(*3) See notes 13 and 14 for details of discontinued operations and a
reconciliation of the Strategic Report to the financial statements
Key highlights of the Group's results for 2020 are as follows:
-- Continued growth in turnover (GBP3.55 billion, up 2% on 2019) and
customer numbers (7.66 million, up 10% on 2019)
-- Group's share of pre-tax profits of GBP638.4 million (2019: GBP526.1
million) and Group profit before tax of GBP637.6 million (2019: GBP522.6
million)
-- The main driver of the strong growth in Group profit was a higher UK
Insurance result, which benefitted from reduced claims frequency and
continued strong prior year reserve releases, and also the non-recurrence
of the GBP33 million negative Ogden discount rate impact in 2019
-- UK Insurance turnover and customers increased by 2% and 9% respectively
to GBP2.67 billion and 6.0 million (2019: GBP2.63 billion and 5.5
million), as the business passed claims frequency benefits to customers
by refunding premium and reducing prices
-- UK Household saw strong growth in turnover and customer numbers, with an
improved result of GBP15.4 million (2019: GBP7.5 million profit) as a
result of lower theft and escape of water claims in the period
-- The European insurance businesses delivered a higher profit of GBP13.6
million (2019: GBP8.7 million), and there was a lower loss in the US
insurance business (GBP4.8 million in 2020 v GBP9.6 million in 2019). The
overall international insurance profit was GBP8.8 million (2019: GBP0.9
million loss).
-- The Comparison businesses recorded aggregate profits (excluding minority
interests' share) of GBP31.0 million (2019: GBP18.0 million), with the
increase mainly driven by a very strong profit from Confused.com of
GBP29.4 million (2019: GBP20.4 million)
Covid-19 impact
The Covid-19 ('Covid') pandemic impacted all operations during 2020.
Early lockdown restrictions led to fewer miles driven resulting in a
significant drop in claims frequency for the insurance operations as
more people stayed at home. In addition, the comparison businesses saw a
strong initial drop in quote volumes which recovered strongly in most
markets as lockdown restrictions eased. Less severe restrictions in the
US led to a lower claims' frequency impact.
In response to the economic uncertainty in the first half of the year,
Admiral paused sales of both travel insurance and lending products in
March to limit any potential losses in these businesses. Admiral
cautiously re-entered both markets in the second half of 2020. Admiral
Loans has taken a particularly prudent approach through increasing loan
provisions due to the likelihood of increased arrears experience due to
higher unemployment levels. However, the level of loans defaults has not
experienced a significant increase to date.
Admiral has 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: Admiral supported 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
optimise staff working from home, including providing relevant equipment
as well as wellbeing and mental health support initiatives. 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 local communities across
our global operations through donations and volunteer activities. In
particular, Admiral set up a GBP6 million fund to support charities and
communities, with staff involvement in the allocation of these funds.
Earnings per share
Earnings per share increased by 21% to 179.5 pence (2019: 148.3 pence),
in line with the growth in Admiral's share of pre-tax profit.
Dividends
The Group's dividend policy is to pay 65% of post-tax profits as a
normal dividend and to pay a further special dividend comprising
earnings not required to be held in the Group for solvency capital
requirements including management internal risk appetite above the
regulatory minimum.
The Board has proposed a final dividend of 86.0 pence per share
(approximately GBP250 million), split as follows:
-- 63.6 pence per share normal dividend, based on the dividend policy of
distributing 65% of post-tax profits; plus
-- A special dividend of 22.4 pence per share
This final dividend is 12% ahead of the 2019 final dividend (77.0 pence
per share, including the special dividend which was deferred and
subsequently paid alongside the 2020 interim dividend), with a pay-out
ratio of 89% for H2 2020.
The total dividend for the 2020 financial year is 156.5 pence per share,
reflecting a 12% increase on 2019 and an 87% pay-out ratio.
The payment is due on 4 June 2021, ex-dividend date 6 May 2021 and
record date 7 May 2021.
Return on equity
The Group's return on equity was 52% in 2020, in line with 2019. The
Group's share of total post-tax profits grew by 21%, in line with the
21% growth in the group's share of average equity. The significant
growth in profits in the second half of 2020 contributed to the increase
in the group's share of equity.
Capital structure and financial position
The Group's co-insurance and reinsurance arrangements for the UK Car
Insurance business are in place at least until the end of 2021. The
Group's net retained share of that business is 22%. Munich Re will
underwrite 40% through co-insurance (30%) and reinsurance (10%)
arrangements, until at least the end of 2021. Whilst some agreements
with the Group's other reinsurance partners have already been concluded,
the remaining extensions for business beyond 2021 are expected to be
confirmed during the first half of 2021.
Similar longer-term arrangements are in place in the Group's
international insurance operations and the UK Household and Van
businesses.
The Group continues to manage its capital to ensure that all entities
are able to continue as going concerns and that regulated entities
comfortably meet regulatory capital requirements. Surplus capital within
subsidiaries is paid up to the Group holding company in the form of
dividends.
The Group's regulatory capital is based on the Solvency II Standard
Formula, with a capital add-on to reflect recognised limitations in the
Standard Formula with respect to Admiral's business (predominantly in
respect of profit commission arrangements in co- and reinsurance
agreements and risks arising from claims including Periodic Payment
Order (PPO) claims).
The Group continues to develop its partial internal model to form the
basis of future capital requirements. The expected timescale for formal
application has been extended beyond 2021 as a result of a recent
decision by the Admiral Group Board to review certain aspects of the
model. In the interim period before submission, the current capital
add-on basis will continue to be used to calculate the regulatory
capital requirement.
The estimated and unaudited regulatory Solvency II position for the
Group at the date of this report is as follows:
Group capital position (estimated and unaudited)
2020 2019
Group GBPbn GBPbn
------------------------------------ ------ ------
Eligible Own Funds (pre 2020 final
dividend) 1.72 1.42
2020 final dividend (0.25) (0.22)
Eligible Own Funds (post 2020 final
dividend) 1.47 1.20
Solvency II capital requirement(*1) 0.79 0.63
Surplus over regulatory capital
requirement 0.68 0.57
Solvency ratio (post dividend)(*2) 187% 190%
*1 Solvency capital requirement includes updated capital add-on which
is subject to regulatory approval.
*2 Solvency ratio calculated on a volatility adjusted basis.
Although slightly lower than the 2019 year-end position, the Group
continues to maintain a strong post-dividend solvency ratio at 187%
(2019: 190%). Surplus capital over the regulatory capital requirement
has increased by over GBP100 million in the period, primarily as a
result of the strong profitability of the most recent underwriting
years. The solvency capital requirement has also increased as a result
of the improved underwriting profitability, specifically in relation to
the profit commission that Admiral earns in relation to co-insurance and
reinsurance contracts. Whilst this increase in solvency capital
requirement is lower than the increase in Own Funds, it results in a
modest overall reduction to the solvency ratio.
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 Q4 Quantitative Reporting Template
(QRT) is as follows:
Regulatory solvency ratio (estimated
and unaudited) 2020 2019
----------------------------------------------- ---- -----
Solvency ratio as reported above 187% 190%
Change in valuation date (5%) (10%)
Other (including impact of updated, unapproved
capital add-on) 24% (10%)
Solvency ratio (QRT basis) 206% 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. The bonds qualify as tier two capital under the Solvency II
regulatory regime.
Estimated sensitivities to the current Group solvency ratio are
presented in the table below. These sensitivities cover the two most
material risk types, insurance risk and market risk, and within these
risks cover the most significant elements of the risk profile. Aside
from the catastrophe events, estimated sensitivities have not been
calibrated to individual return periods.
Solvency ratio sensitivities (estimated and unaudited)
2020 2019
UK Motor -- incurred loss ratio +5% -10% -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 -4% -5%
Credit spreads widen 100 bps -6% -8%
Currency -- 25% movement in euro and US dollar -3% -3%
ASHE -- long term inflation assumption up 0.5% -3% -3%
Loans -- severe peak unemployment scenario -1% -4%
The impact of the incurred loss ratio +5% sensitivity is lower than in
the prior year. This is linked to the strong underwriting profitability
on the recent underwriting years and the resulting profit commission
risk that is held in the solvency capital requirement, which reduces in
the loss ratio deterioration scenario, dampening the solvency ratio
sensitivity.
Taxation
The total tax charge reported in the consolidated income statement is
GBP109.8 million (2019: GBP94.2 million), equating to 17.2% of pre-tax
profit (2019: 18.0%). The reduction in the effective tax charge is the
result of higher non-taxable investment income recognised in the year,
and lower losses in the US businesses.
The tax rate equates to 17.5% of pre-tax profit on continuing operations
(2019: 17.6%).
Investments and cash
Investment strategy
Admiral Group's underlying investment strategy remains the same - the
main focus is on capital preservation, with additional priorities
including low volatility of returns, high levels of liquidity and
appropriate matching of asset/liability duration and currency. All
objectives continue to be met. The Group's Investment Committee performs
regular reviews of the strategy to ensure it remains appropriate.
Admiral has adopted a responsible investment strategy to reduce
Environmental, Social and Governance (ESG) related risks, whilst
achieving sustainable long-term returns. Importantly, ESG criteria are
considered within investment decision making and ensures all our asset
managers are signatories of the UN Principles for Responsible Investment
and have strong and credible practices.
Admiral has been challenging and engaging with asset managers to define
methodology which will assess our portfolios against the Paris Accord.
Admiral has recently become a member of the Institutional Investors
Group for Climate Change as a strategy is developed that is consistent
with achieving net zero emissions by 2050. In 2021 Admiral will develop
short and long term targets to achieve this.
In addition, our strategy has focused on widening the opportunity set of
investments to achieve greater returns without material change in market
risk capital allocated to investments. Examples included high quality
(AAA) asset backed securities, private debt assets and global bond
strategies, actively managed on a total return basis. The difficult
conditions in early Spring did not lead to material distress or forced
selling, and asset returns since then have been strong.
Cash and investments analysis
GBPm 2020 2019 2018
--------------------------------------------------- ------- ------- -------
Fixed income and debt securities 2,101.3 1,957.8 1,568.6
Money market funds and other fair value instruments 1,339.3 1,160.2 1,301.1
Cash deposits 65.4 116.5 100.0
Cash 351.7 281.7 376.8
Total 3,857.7 3,516.2 3,346.5
Investment and interest income in 2020 (net of impairment charges) was
GBP52.9 million, an increase of GBP17.6 million on 2019 (GBP35.3
million). Both years have been impacted by adjustments related to
investment income on cash held by Admiral relating to the portion of the
motor insurance business reinsured under quota share contracts. GBP12.9
million of income earned in 2019 was recognised in the 2020 income
statement as the projection of the result of the 2019 underwriting year
improved to a profitable level.
This positive impact was partially offset by higher impairment charges
on assets in 2020 compared to the prior year.
The underlying rate of return for the year (excluding accruals related
to reinsurance contract funds withheld) on the Group's cash and
investments was 1.3% (2019: 1.4%).
The Group continues to generate significant amounts of cash and its
capital-efficient business model enables the distribution of the
majority of post-tax profits as dividends.
Cash flow
GBPm 2020 2019 2018
--------------------------------------------------- ------- ------- -------
Operating cash flow, before movements in
investments 959.8 518.1 488.5
Transfers to financial investments (176.0) (188.7) (248.8)
Operating cash flow 783.8 329.4 239.7
Tax payments (175.0) (92.8) (55.6)
Investing cash flows (capital expenditure) (43.1) (33.6) (23.9)
Financing cash flows (454.3) (392.4) (346.8)
Loans funding through special purpose entity (46.2) 85.9 220.2
Net contributions from non-controlling interests 2.4 1.6 19.3
Foreign currency translation impact 2.4 6.8 (2.9)
Net cash movement 70.0 (95.1) 50.0
--------------------------------------------------- ------- ------- -------
Movement in unrealised gains on investments 40.7 34.6 (26.6)
Movement in accrued interest 54.8 41.5 49.7
Net increase in cash and financial investments 341.5 169.7 321.9
The main items contributing to the operating cash inflow are as follows:
GBPm 2020 2019 2018
----------------------------------------------------- ----- ------- -------
Profit after tax 527.8 428.4 390.5
Change in net insurance liabilities 94.8 50.4 176.6
Net change in trade receivables and liabilities 65.3 27.4 14.9
Change in loans and advances to customers 77.3 (168.7) (242.9)
Non-cash income statement items 84.8 86.4 63.7
Taxation expense 109.8 94.2 85.7
Operating cash flow, before movements in investments 959.8 518.1 488.5
----------------------------------------------------- ----- ------- -------
Net cash and investments have increased by GBP341.5 million or 10%
(2019: GBP169.7 million, 5%). The main drivers include a decrease in
the funding requirements for Admiral Loans business, offset by increased
tax payments in 2020 (due to timing) and increased dividend payments.
The Group's results are presented in the following sections as:
-- UK Insurance -- including UK Motor (Car and Van), Household, Travel
-- International Insurance -- including L'olivier (France), Admiral Seguros
(Spain), ConTe (Italy), Elephant (US)
-- Admiral Loans
-- Comparison -- including Confused.com (UK), LeLynx (France), Rastreator
(Spain), Preminen (emerging markets), Compare.com (US)
-- Other -- including business development costs and other central expenses
UK Insurance Review
UK Insurance Review -- Cristina Nestares, CEO UK Insurance
Admiral's unique culture is one of the fundamental cornerstones to our
success over the last 27 years, so it's a topic we talk about a lot
internally...and in fact, with anyone else that's happy to listen too.
It's difficult to put a finger on exactly what creates that culture.
The open-plan offices? The Ministry of Fun and the ping-pong
competitions that bring people together? Those daily chats at the water
cooler to cross-pollinate ideas? I'm sure that contributes to it...but
I suspect it's a bit more deep-rooted than that, having seen what we've
achieved as we've worked from kitchens, front rooms, bedrooms and camper
vans over the last 10 months without an egg-roulette contest in sight!
And what makes me very proud is that the strength of our culture has
featured extremely prominently during our response to the pandemic, when
it arguably faced its biggest test so far.
We worked furiously hard in those weeks from early March through to
April to protect our team and set them up to work safely from home. We
prioritised those in our claims and service areas to minimise disruption
to those that needed to contact us, and waived policy excesses and gave
free replacement vehicles to key workers because they had enough on
their plate without the additional burden of sorting out broken cars.
We arguably deserved a breather at that point but preferred to go that
extra mile by committing to give back to our customers and the
community. A highlight of course was the GBP110m refund to customers,
which has gone unmatched by competitors, that was issued during May. We
have continued to give back to customers in the form of premium
reductions throughout the second half of the year. The result of that
is that we're now more price competitive at new business and renewals
than we were at the start of the year. We're even making more sales
when we're not the cheapest as a result of the customer goodwill we've
created. And whilst the investment we've made in improving our digital
customer journey will increase the expense ratio in the short term, we
have already seen some of the benefits this will yield in the long term
related to better service and improved efficiency. The resulting
improved online sales journey, coupled with improved competitiveness,
means that we've managed to grow the book more during 2020 than we've
done for a number of years.
Whilst the premium refund made the headlines, a source of equal pride
within Admiral is the difference we've made to individuals in the local
community. Whether that's the provision of comfortable shoes for
healthcare workers on the Covid-19 wards in Cardiff, or the donation of
Ipads to allow elderly care home residents to see their loved ones.
Maybe a bit cheaper than the refund, but incredibly valuable,
nevertheless.
And what's ahead of us in 2021? Having just experienced a challenging
year, full of uncertainties, requiring constant review and immediate
response, I'd say....maybe the same again?
Ok, maybe not exactly the same. But working practices will surely never
be the same again as we embrace more flexible and smarter methods.
We've spent 2020 trying to project the length of lockdowns and the
impact on driving habits....and we'll have the same challenge in reverse
as we try to predict how quickly the vaccine rollout will happen and how
quickly people return to the roads.
There are also the significant legal and regulatory changes that will
come into force over the next 12 months, such as the deflationary
impacts of the whiplash reforms that are finally coming into effect in
May. But much more significantly we'll have the implementation of the
remedies arising from the FCA review into pricing practices that will
require parity across new business and renewal prices. The reforms could
be a game changer for the market, but we are optimistic that it presents
an opportunity for more sophisticated underwriters, including Admiral.
We've further improved our market-leading pricing capability with
investment in a more responsive and advanced cloud-based solution and
already understand the needs of customers that regularly shop around at
each renewal to ensure that they get a competitive price. This leaves
us well placed to rise to the challenges of the new pricing regime,
which are made even more difficult by the uncertainties of the
post-Covid era.
But rather than finishing on what might happen in 2022, I'd like to end
by thanking the team for what did happen in 2020. We've managed to
improve so many aspects of our business in the most difficult
environment since we launched almost three decades ago, and once again
delivered strong profits in both our car and household businesses.
A challenging year, but a great response!
UK Insurance financial performance
GBPm 2020 2019 2018
--------------------------------------------------- ------- ------- -------
Turnover(*1) 2,672.0 2,635.0 2,575.7
Total premiums written 2,373.3 2,321.7 2,269.8
Net insurance premium revenue 539.7 533.2 523.9
Underwriting profit including investment income(*1) 346.5 257.4 227.7
Profit commission and other income 351.6 340.0 327.9
Group's share of UK insurance profit before tax(*1) 698.1 597.4 555.6
(*1) Alternative Performance Measures -- refer to note 14 at the end of
this report for definition and explanation
Split of UK Insurance profit before tax
GBPm 2020 2019 2018
------------------------------------- ----- ----- -----
Motor 683.4 591.5 561.7
Household 15.4 7.5 (3.0)
Travel (0.7) (1.6) (3.1)
Group's share of UK insurance profit 698.1 597.4 555.6
Key performance indicators
2020 2019 2018
---------------------------------------- ----- ----- -----
Vehicles insured at year end(*1) 4.75m 4.37m 4.32m
Households insured at year end(*1) 1.16m 1.01m 0.87m
Travel policies insured at year end(*1) 0.07m 0.09m 0.05m
Total UK Insurance customers(*1) 5.98m 5.47m 5.24m
(*1) Alternative Performance Measures -- refer to the end of the report
for definition and explanation.
Key highlights for the UK insurance business for 2020 include:
-- Strong growth in Motor customers in the second half of the year, combined
with continued strong growth in Household with Admiral reducing rates to
reflect lower claims frequency in 2020 for Motor and slightly reducing
rates for Household
-- A 16% increase in UK Motor profit to GBP683.4 million (2019: GBP591.5
million). When adjusted for the adverse change in the 'one-off' Ogden
impacts of GBP33.3 million (see below), the like-for-like increase in
profit is 10%, primarily as a result of lower current year claims
frequency combined with continued strong releases on prior underwriting
years. Refer to the UK motor section below for further analysis of key
metrics such as loss ratio, reserve releases and profit commission.
-- Household profit of GBP15.4 million (2019: GBP7.5 million profit) as a
result of lower theft and escape of water claims frequency in 2020
despite adverse weather in the first half of 2020
-- Travel insurance recorded a lower loss of GBP0.7 million (2019: GBP1.6
million loss) despite Covid-19, though sales volumes were inevitably
significantly lower than expected
UK Motor Insurance financial review
GBPm 2020 2019 2018
--------------------------------------------------- ------- ------- -------
Turnover(*1) 2,473.8 2,455.3 2,423.1
Total premiums written(*1) 2,193.0 2,158.5 2,132.1
Net insurance premium revenue 451.4 452.6 452.5
Investment income(*2) 50.8 30.4 32.2
--------------------------------------------------- ------- ------- -------
Net insurance claims (97.1) (164.7) (189.2)
Net insurance expenses (77.2) (74.7) (72.0)
Underwriting profit including investment income(*3) 327.9 243.6 223.5
Profit commission 124.7 112.2 95.0
Underwriting profit and profit commission 452.6 355.8 318.5
Net other revenue(*4) 230.8 235.7 243.2
UK Motor Insurance profit before tax 683.4 591.5 561.7
*1 Alternative Performance Measures -- refer to the end of this report
for definition and explanation
*2 Investment income includes GBP2.9 million of intra-group interest
(2019: GBP2.8 million; 2017: GBP0.7 million)
*3 Underwriting profit excludes contribution from underwritten
ancillaries (included in net other revenue)
*4 Net other revenue includes instalment income and contribution from
underwritten ancillaries and is analysed later in the report.
Key performance indicators
GBPm 2020 2019 2018
--------------------------------------------- --------- --------- ---------
Reported motor loss ratio(*1,*2) 49.2% 60.7% 63.5%
Reported motor expense ratio(*1,*3) 19.8% 19.1% 18.4%
Reported motor combined ratio 69.0% 79.8% 81.9%
Written basis motor expense ratio 18.8% 18.5% 17.5%
Reported loss ratio before releases 72.3% 87.6% 88.1%
Claims reserve releases -- original net
share(*1,*4) GBP104.3m GBP121.7m GBP111.4m
Claims reserve releases -- commuted
reinsurance(*1,*5) GBP137.3m GBP121.7m GBP109.6m
Total claims reserve releases GBP241.6m GBP243.4m GBP221.0m
Other Revenue per vehicle GBP61 GBP66 GBP67
Vehicles insured at year end 4.75m 4.37m 4.32m
*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 14b.
*3 Motor expense ratio is calculated by including claims handling
expenses that are reported within claims costs in the income statement.
Reconciliation in note 14c.
*4 Original net share shows reserve releases on the proportion of the
portfolio that Admiral wrote on a net basis at the start of the
underwriting year in question.
*5 Commuted reinsurance shows releases, net of loss on commutation, on
the proportion of the account that was originally ceded under quota
share reinsurance contracts but has since been commuted and hence
reported in underwriting profit rather than profit commission.
UK Motor profit increased by 16% during 2020 to GBP683.4 million (2019:
GBP591.5 million) with the reported combined ratio improving to 69.0%
(2019: 79.8%).
Market prices fell over the period to reflect the decrease in claims
frequency due to fewer miles driven as a result of the Covid pandemic
and lockdowns. Admiral responded to the lower claims frequency with a
'Stay at Home' premium refund to customers, as well as more significant
price reductions than the market. New business growth and good retention
contributed to a 9% increase in customer numbers (4.75 million v 4.37
million), whilst turnover growth was more muted (GBP2.47 billion v
GBP2.46 billion) as a result of the refund and price reductions.
The results were impacted by a number of factors:
--Net insurance premium revenue was broadly consistent with 2019 at
GBP451.4 million (2019: GBP452.6 million) after including the impact of
the premium refund of GBP21.1 million (net of IPT and co-insurance and
reinsurance).
-- The current period loss ratio was 72.3% (2019: 87.6%). As highlighted
below, there are a number of offsetting movements that net to the overall
improvement of 15.3 percentage points:
Reported Motor Loss Ratio
Current Releases on
Period Loss Original Net Reported
Ratio Share Loss Ratio
2019 87.6% -26.9% 60.7%
Prior period impact of Ogden change
(0% to -0.25%) -1.0% -2.4% -3.4%
2019 (excluding Ogden impact) 86.6% -29.3% 57.3%
Change in current period loss ratio -14.3% -- -14.3%
Change in claims reserve releases
-- original net share -- +6.2% +6.2%
-------------------------------------
2020 72.3% -23.1% 49.2%
-------------------------------------
--In 2019, the Ogden discount rate changed to minus 0.25% (a reduction
from the best estimate assumption of 0% at 31 December 2018), reducing
the 2019 UK Motor profit by GBP33.3 million, and increasing the reported
combined ratio by 3 percentage points.
-- Excluding the impact of the Ogden rate change in the prior period, the
2020 reported loss ratio was just over 8 percentage points lower than
2019 (49% v 57%). The significant driver of this improvement was the
current accident period loss ratio which was 14 percentage points better
than 2019 as a result of Covid-19 lockdowns through 2020 and the
associated reductions in claims frequency.
-- Reserve releases on Admiral's original net share of business were strong,
improving the reported loss ratio by just over 23 percentage points in
2020. However, this was 6 percentage points lower than 2019 which had
seen an unusually large reserve release as a result of an increase in the
speed of settlements of bodily injury claims following the confirmation
of the new Ogden rate.
-- The margin held above ultimate outcomes in the financial statement
reserves remains both significant and prudent. In relative terms, it is
broadly consistent that held at the end of 2019.
-- Reserve releases from commuted reinsurance and profit commission were
higher in 2020 than in 2019, with a combined total of GBP262.0 million
(2019: GBP233.9 million), as follows:
Reserve releases
-- commuted
GBPm reinsurance Profit commission Total
2019 121.7 112.2 233.9
Prior period Impact of
Ogden change (0% to -0.25%) +9.0 +8.9 +17.9
2019 (excluding Ogden impact) 130.7 121.1 251.8
Change in commuted releases +6.6 -- +6.6
Change in profit commission -- +3.6 +3.6
-------------------------------
2020 137.3 124.7 262.0
-------------------------------
-- Releases on reserves originally reinsured but since commuted were higher
at GBP137.3 million (v GBP121.7 million in 2019). Excluding the prior
period Ogden impact, the 2020 releases are GBP6.6m higher than 2019, with
an increase in the number of underwriting years that are now reflecting
releases on commuted reinsurance reserves.
-- The trend is similar for profit commission which improved to GBP124.7
million (2019: GBP112.2 million). Underlying profit commission (excluding
the prior period Ogden impact) was broadly consistent with 2019, with a
lower level of profit commission from 2017 and prior underwriting years
being offset by profit commission recognition on the 2018-2020
underwriting years for the first time.
-- For further background on both reserve releases from commuted reinsurance
and profit commission, see the co- and reinsurance section that follows.
-- Investment income was significantly higher than 2019 at GBP50.8 million
(2019: GBP30.4 million). The increase is primarily the result of changes
to investment income on cash held by Admiral relating to the portion of
the book reinsured under quota share contracts. GBP12.9 million of the
income that was allocated to reinsurers in 2019, was subsequently
recognised in the 2020 income statement, creating a favourable impact of
GBP25.8 million, as shown in the table below:
Investment
GBPm Income
2019 30.4
Exclude accruals on reinsurance balances +12.9
2019 (excluding impact of reinsurer
accruals) 43.3
Change in underlying investment income +1.8
Change in provision for asset impairments -7.2
--------------------------------------------
2020 (excluding impact of reinsurer
accruals) 37.9
Release of accruals on reinsurance
balances +12.9
2020 50.8
-------------------------------------------- ----------
-- Excluding movements on reinsurer accruals, underlying investment income
increased by GBP1.8 million primarily as a result of growth in the
investment portfolio, as set out in the review of Investments earlier in
this report. Provisions for asset impairments increased by GBP7.2 million
as a result of economic uncertainty.
-- The reported expense ratio increased to 19.8% in 2020 (2019: 19.1%) with
the written basis ratio also higher (18.8% vs 18.5%). The 'Stay at Home'
premium refund and wider price reductions contributed to the increase in
both ratios, as well as the investment in the period in both the digital
customer journey and Covid- related remote working capability.
-- Other revenue (including ancillary products underwritten by Admiral) and
instalment income decreased to GBP230.8 million (2019: GBP235.7 million)
primarily resulting from lower contribution from optional ancillaries.
Further detail is set out in the Other revenue and instalment income
section below.
Claims and reserves
As noted above, the Covid pandemic and resulting lockdowns led to fewer
miles driven, resulting in significantly lower motor claims frequency in
2020.
There was a slight increase in damage claims costs as garage repair
networks were under pressure and support was provided during lockdown.
In addition, Admiral introduced a number of initiatives during the year
to help front-line NHS staff and other critical workers not
automatically provided for under the policy.
The reduction in miles driven resulting in reduced claims frequency also
resulted in a reduction in large bodily injury claims, although to a
lesser extent than smaller bodily injury and damage claims frequency,
with an increase in the proportion of accidents involving vulnerable
road users such as cyclists and pedestrians.
The first projection of the 2020 accident period loss ratio is notably
lower than 2019 at the same point as a result of these factors.
Admiral also continued to experience positive development on the claims
costs on previous accident years, resulting in another significant
reserve release in the financial statements (GBP104.3 million on
Admiral's original net share of business, vs GBP121.7 million in 2019).
The Group continues to reserve conservatively, setting claims reserves
in the financial statements well above actuarial best estimates to
create a margin held to allow for unforeseen adverse development.
The margin held in reserves is prudent and significant and remained at a
broadly consistent relative level year-on-year.
UK Car Insurance -- co-insurance and reinsurance
Admiral makes significant use of proportional risk sharing agreements,
where insurers outside the Group underwrite a majority of the risk
generated, either through co-insurance or quota share reinsurance
contracts. These arrangements include profit commission terms which
allow Admiral to retain a significant portion of the profit generated.
Munich Re and its subsidiary entity, Great Lakes will underwrite 40% of
the UK motor business until at least the end of 2021. 30% of this total
is on a co-insurance basis, with the remaining 10% being under a quota
share reinsurance agreement from 2017 onwards.
The Group also has other quota share reinsurance arrangements confirmed
to the end of at least 2023, covering 38% of the business written.
Admiral expects to confirm the full allocation of these arrangements
beyond 2021 in the first half of 2021.
The nature of the co-insurance proportion underwritten by Munich Re (via
Great Lakes) is such that 30% of all motor premium and claims for the
2020 year accrue directly to Great Lakes and are not reflected in the
Group's financial statements. Similarly, Great Lakes reimburses the
Group for its proportional share of expenses incurred in acquiring and
administering this business.
The quota share reinsurance arrangements result in all motor premiums
and claims that are ceded to reinsurers being included in the Group's
financial statements, but these figures are adjusted to exclude the
reinsurer share, resulting in a net result for the Group.
The Group also purchases excess of loss reinsurance to provide
protection against large claims and reviews this cover annually. The
level of cover purchased for 2021 is marginally lower than that for 2020
due to continued increases in market prices.
Profit commission
Admiral is potentially able to earn material amounts of profit
commission revenue from co- and reinsurance partners, depending on the
profitability of the insurance business underwritten by the partner.
Revenue is recognised in the income statement in line with the financial
statement loss ratios on Admiral's retained underwriting.
Note 5c to the financial statements analyses profit commission income by
business, type of contract and by underwriting year.
Commutations of quota share reinsurance
Admiral tends to commute its UK Car Insurance quota share reinsurance
contracts 24 months after inception of an underwriting year, assuming
there is sufficient confidence in the profitability of the business
covered by the reinsurance contract.
After the commutation is executed, movements in financial statement loss
ratios result in reserve releases (or strengthening if the loss ratios
were to increase) rather than reduced or increased profit commission.
During the first half of 2020, the majority of the 2018 quota share
contracts were commuted. At 31 December 2020, quota share reinsurance
contracts remained in place for a small portion of 2017 and 2018 and the
full 2019 and 2020 underwriting years. No further contracts were
commuted in the second half of 2020 (as is usual).
Refer to note 5d(v) of the financial statements for further analysis of
reserve releases on commuted quota share reinsurance contracts.
Other Revenue and Instalment Income
UK Motor Insurance Other Revenue -- analysis of contribution:
GBPm 2020 2019 2018
--------------------------------------------------- ------ ------ ------
Contribution from additional products & fees 186.8 202.1 206.5
Contribution from additional products underwritten
by Admiral(*1) 15.1 13.9 13.6
Instalment income 100.9 83.9 81.4
Other revenue 302.8 299.9 301.5
Internal costs (72.0) (64.2) (58.3)
Net other revenue 230.8 235.7 243.2
Other revenue per vehicle(*2) GBP61 GBP66 GBP67
Other revenue per vehicle net of internal costs GBP50 GBP56 GBP57
*1 Included in underwriting profit in income statement but re-allocated
to Other Revenue for purpose of KPIs.
*2 Other revenue (before internal costs) divided by average active
vehicles, rolling 12-month basis.
Admiral generates Other Revenue from a portfolio of insurance products
that complement the core car insurance product, and also fees generated
over the life of the policy.
The most material contributors to net Other revenue continue to be:
-- Profit earned from motor policy upgrade products underwritten by Admiral,
including breakdown, car hire and personal injury covers
-- Revenue from other insurance products, not underwritten by Admiral
-- Fees such as administration and cancellation fees
--Interest charged to customers paying for cover in instalments
Overall contribution (Other revenue net of costs plus instalment income)
decreased to GBP230.8 million (2019: GBP235.7 million). This included a
reduction in administration fees and optional ancillary income, partly
reflecting more transactions completing digitally and also reflecting
the impact of Covid-19 resulting in lower sales and reduced fees. In
addition, lower claims frequency due to Covid-19 led to lower referral
fees from credit hire. These decreases were 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 a decrease to GBP61 per vehicle (gross
of costs; 2019: GBP66), as a result of the factors mentioned above. Net
Other Revenue (after deducting costs) per vehicle was GBP50 (2019:
GBP56).
UK Household Insurance financial performance
GBPm 2020 2019 2018
------------------------------------- ----- ----- -----
Turnover(*1) 193.8 171.3 146.0
Total premiums written(*1) 175.9 154.9 131.1
Net insurance premium revenue 43.2 37.2 31.2
Underwriting profit/(loss)(*1*2) 2.5 0.7 (6.3)
------------------------------------- ----- ----- -----
Profit commission and other income 12.9 6.8 3.3
UK Household insurance profit/(loss) 15.4 7.5 (3.0)
*1 Alternative Performance Measures -- refer to the end of this report
for definition and explanation
*2 Underwriting profit/(loss) excluding contribution from underwritten
ancillaries
Key performance indicators
2020 2019 2018
--------------------------------------------- ----- ----- ------
Reported household loss ratio(*1) 64.8% 69.1% 92.3%
Reported household expense ratio(*1) 29.4% 28.9% 28.1%
Reported household combined ratio(*1) 94.2% 98.0% 120.4%
Impact of extreme weather and subsidence(*1) 5.3% -- 19.1%
Households insured at year end(*1) 1.16m 1.01m 0.87m
(*1) Alternative Performance Measures -- refer to the end of this
report for definition and explanation
The number of households insured increased by 14% to 1.16 million (2019:
1.01 million). Turnover increased by 13% to GBP193.8 million (2019:
GBP171.3 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 market saw a reduction in claims frequency in early lockdown which
subsequently recovered, but returned to lower levels during further
lockdowns. As more people were staying at home, the claims mix for
Admiral shifted towards increased claims for accidental damage and
reduced claims for theft. Escape of water claims severity also reduced.
The result was impacted by weather events in the year, costing
approximately GBP5 million, net of recoveries from Flood Re (2019: nil).
A combined ratio of 94% (2019: 98%) resulted in a net underwriting
profit of GBP2.5 million (2019: underwriting profit of GBP0.7 million),
which was supplemented by net other revenue and profit commission of
GBP12.9 million (2019: GBP6.8 million). The expense ratio was slightly
higher due to increased costs in the shift to working from home.
The increase in profit commission and other income in the year is
attributable to quota share reinsurance profit commission which has
increased primarily due to favourable loss ratio performance in the
recent underwriting years. Other income is broadly consistent year on
year.
UK Household insurance -- reinsurance
The Group's Household business is supported by long-term proportional
reinsurance arrangements covering 70% of the risk. In addition, the
Group has non-proportional reinsurance to cover the risk of catastrophes
stemming from weather events.
UK Insurance Regulatory environment
The UK Insurance business operates predominantly under the regulation
of:
-- the UK Financial Conduct Authority (FCA) and Prudential Regulatory
Authority (PRA) which regulate the Group's UK registered subsidiaries
including EUI Limited (an insurance intermediary) and Admiral Insurance
Company Limited (AICL; an insurer); and
-- the Financial Services Commission (FSC), which regulates the Group's
Gibraltar-based insurance company (Admiral Insurance (Gibraltar) Limited,
AIGL), in that territory.
The Group is required to maintain capital at a level prescribed by the
lead regulator for Solvency II purposes, the PRA, and maintains a
surplus above that required level at all times.
International Insurance review
International Insurance -- Costantino Moretti -- CEO, International
Insurance
In 2020, our European Businesses delivered another profitable year on a
combined basis, and Elephant showed good signs of improvement on the
fundamentals from which to grow a profitable business.
The year was truly unlike any other -- with a focus on overcoming the
challenges presented by Covid-19, whilst at the same time transferring
frequency benefits through price reductions for our customers. In many
countries we offered significant discounts to reflect lower driving
patterns, and in the US we offered a first-in-the-market "work from home
discount."
In the US, Elephant continued to focus on improving technical results,
with customer numbers slightly down. We achieved improvements in the
loss ratio, well beyond Covid frequency impacts, thanks to ongoing
strengthening of risk selection capabilities.
In Europe, we had strong profit performance while still growing in an
austere acquisition environment. Efforts in the expansion into broker
channels in Italy and Spain, and the strong direct acquisition
performance in France, helped grow our customer base by 15% year on year,
bolstered by our strong investment in our brands and digital
initiatives. Despite this, turnover grew by less at 11% due to lower
average premiums. Loss ratio also performed well, with benefits from
Covid frequency trends and positive prior year development.
Indeed, the strong performance of our International Businesses reaffirms
our strategy of building sustainable and profitable businesses through
efficient scaling, a competitive advantage on loss ratio, and by
evolving our capabilities in data, analytics, and digital competencies.
Well done to the international team for another strong year!
France -- Pascal Gonzalvez -- CEO, L'olivier
The years go by, yet they continue look the same: strong performance in
the midst of market adversity and managing the impact of the Covid-19
pandemic.
Despite another year when price comparison website quotes (our main
acquisition channel) were shrinking, our portfolio increased by 26%,
thanks to more loyal customers and more new customers.
Indeed, not only did we manage to keep our customers happy by serving
them with a high quality of service without interruption to the business
during uncertain economic times, but we also hit a new record for Net
Promoter Scores in all departments.
Additionally, we managed to increase the number of new business sales in
a market at half mast, thanks to new acquisition initiatives helped by a
new TV campaign and growing brand awareness.
We also did a soft launch of our new household insurance product under
the brand L'olivier - though at a slower pace than originally planned,
because we decided to put most of our energy on the best response to
deal with the Covid situation. In early 2021, we're about to accelerate
our multi-product journey again.
L'olivier has also started to deploy its strategy in order to meet the
new vision defined for 2023: keep growing fast through accelerated
investments in digital and data. Our new mantra is all about #3D, Data
& Digital to Double. We have set up very high ambitions and we are all
eager to make it happen!
Italy -- Antonio Bagetta -- CEO, ConTe
2020 was unquestionably a year with many challenges and adversities.
Despite this, ConTe excelled with an increase of 12% in active customers,
double-digit growth in new business sales, and (for the first time)
persistency above market average.
In 2020 we made significant steps forward in our ambition to become a
great digital, data driven company with a well-recognised brand,
offering a variety of products and services. We also began offering
customers a multi-product journey.
Our brand awareness is stronger than ever and exceeded 70% during the
year. We have also become an Official Partner of the Italian national
football team, a sponsorship that will give us a great visibility.
During the lockdown period, we improved our business performance thanks
to lower frequencies and to the excellent work done on loss ratio. In
that period, we launched several new initiatives to protect customer
needs (e.g. 'One Month Free' offer) which continued to embed our strong
customer centric approach.
More than ever our people and culture have been a competitive advantage
for ConTe. Despite the challenging year, we sped up our business
transformation towards using Scaled Agile methodology and we celebrated
our highest ever Trust Index of 83% in the Great Place to Work survey.
Spain -- Sarah Harris -- CEO, Admiral Seguros
2020 was another positive year for Admiral Seguros despite the
unexpected challenges presented by Covid. In response to the Pandemic we
made a range of operational changes to support our customers, and
reinvested part of the frequency benefit from lockdowns via discounts.
Despite low price comparison quote volume, we continued to grow the
business, finishing the year with 327,500 policies. This growth was
bolstered by improved customer persistency, achieved via several
operational improvements on customer experience. We also saw good
performance from the newly launched brokers' channel.
Loss ratio was an ongoing priority throughout the year. Our new
antifraud system went live over the summer, and we continued to invest
in analytical talent in risk selection.
On the expense side, we accelerated our digital self-service offering
for customers, particularly around claims-handling.
In 2021 we plan to accelerate multi-channel growth, looking to export
our technical expertise into more traditional distribution channels.
In the core business, we are working on ambitious improvements in claims
and data management and will continue to introduce new digital
capabilities for our customers. Let's go!
US -- Alberto Schiavon -- CEO, Elephant
2020 saw our intense focus on loss ratio improvement begin to bear
fruit. In the first 9 months of 2020 the US market saw a loss ratio
improvement as a result of Covid-19 frequency benefits, with an even
greater improvement due to our intense focus on improving the underlying
loss ratio.
Lower loss ratios across the market paired with flat (or falling) prices
meant increased competition and challenges on new business sales. Early
positive signs from a broker distribution test are giving us alternative
ways for efficient growth.
As unemployment rates increased, many of our customers struggled to pay
us despite Elephant taking several mitigating actions, including a
payment moratorium, and having our best ever customer satisfaction
scores. The effects of losing many of these customers, paired with high
sales competition, meant the book remained flat year over year.
Finally, during 2020 Elephant made great progress towards its digital
transformation strategy, and our customers can now fully self-service
through our online platforms.
As we have been working remotely for almost a year, I have been blessed
to be leading a strong team of highly talented and engaged individuals
who are incredibly committed towards Elephant's success, and I look
forward to a strong performance in 2021.
International Insurance Review
International Insurance financial performance
GBPm 2020 2019 2018
--------------------------------------------------- ------- ------- -------
Turnover(*1) 648.8 623.6 538.7
Total premiums written(*1) 584.0 562.6 484.3
Net insurance premium revenue 204.2 168.6 141.7
Investment income -- 1.5 1.3
Net insurance claims (139.3) (137.2) (104.0)
Net insurance expenses (78.8) (53.0) (55.8)
Underwriting result including investment income(*1) (13.9) (20.1) (16.8)
Net other revenue 22.7 19.2 15.7
International Insurance result 8.8 (0.9) (1.1)
Key performance indicators
Reported Loss ratio(*2) 64.3% 76.8% 76.6%
----------------------------------------- ------ ------ ------
Expense ratio(*2) 43.9% 37.6% 39.6%
Combined ratio(*3) 108.2% 114.4% 116.0%
Combined ratio, net of Other Revenue(*4) 97.9% 103.7% 105.1%
Vehicles insured at period end 1.60m 1.42m 1.22m
(*1) Alternative Performance Measures -- refer to the end of this
report for definition and explanation.
(*2) Loss ratios and expense ratios have been adjusted to remove the
impact of reinsurer caps so the underlying performance of the business
is transparent.
(*3) Combined ratio is calculated on Admiral's net share of premiums
and excludes Other revenue. It excludes the impact of reinsurer caps.
Including the impact of reinsurer caps the reported combined ratio would
be 2020: 107%; 2019: 113%; 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 2020: 96%; 2019: 102% 2018: 102%.
Geographical analysis
2020 Spain Italy France US Total
----------------------------------- ----- ----- ------ ----- -----
Vehicles insured at period end (m) 0.33 0.77 0.29 0.21 1.60
Turnover*(1) (GBPm) 83.9 213.0 139.3 212.6 648.8
2019 Spain Italy France US Total
----------------------------------- ----- ----- ------ ----- -----
Vehicles insured at period end (m) 0.29 0.69 0.23 0.21 1.42
Turnover*(1) (GBPm) 78.2 204.2 108.1 233.1 623.6
(*1) Alternative Performance Measures -- refer to the end of this
report for definition and explanation
Admiral has four insurance businesses outside the UK: Spain (Admiral
Seguros), Italy (ConTe), the US (Elephant Auto) and France (L'olivier
Assurance).
The operations continued a trajectory of positive growth in 2020, with
customer numbers increasing by 13% to 1.60 million (2019: 1.42 million)
and combined turnover rising by 4% to GBP648.8 million (2019: GBP623.6
million).
The key features of the International Car insurance results are:
-- An aggregate profit of GBP8.8 million (2019: GBP0.9 million loss)
reflecting an improvement in performance of both the European and US
businesses due to lower frequency as a result of Covid and underlying
improvements
-- Profits in all of the European businesses for the first time
-- An improvement in Elephant Auto's result (decreased loss from GBP9.6
million to GBP4.8 million year-on-year)
-- A lower combined ratio (net of other revenue) of 98% (2019: 104%)
reflecting lower current year loss ratios and positive back year
development across the businesses, offset to an extent by an increased
expense ratio
-- Continued investment and improvements in technology, people and the
customer experience across all operations
The combined International expense ratio increased to 44% (2019: 37%) as
a result of a number of factors including lower average premium and
increased costs from transitioning to home working as a result of
Covid-19, a higher retained share in the US and changes in reinsurer
contracts in Italy.
The European insurance operations in Spain, Italy and France insured
1.39 million vehicles at 31 December 2020 -- 15% higher than a year
earlier (31 December 2019: 1.21 million). Turnover was up 12% at
GBP436.2 million (2019: GBP390.5 million). The consolidated result of
the businesses was a profit of GBP13.6 million (2019: GBP8.7 million)
consisting of continued profitability in Italy, which was joined by
profitable businesses in France and Spain. The combined ratio net of
other revenue (excluding the impact of reinsurer caps) improved to 89%
from 92% due to the improved claims experience. All businesses continued
to focus on customer and digital improvements, and retention remained
strong.
In the US, Admiral underwrites motor insurance in eight states (Virginia,
Maryland, Illinois, Texas, Indiana, Tennessee, Ohio, Georgia) through
its Elephant Auto business. Elephant insured 208,400 vehicles at the end
of 2020, slightly down year-on-year, and also saw lower turnover of
GBP212.6 million (2019: GBP233.1 million). Elephant's loss for the
period decreased to GBP4.8 million from GBP9.6 million in 2019.
The business shifted towards providing policies with a six, rather than
twelve month term, based on customer demand, which led to lower written
premium compared to the prior period. Elephant continued to focus on
improving the loss ratio through enhancements in underwriting. These
changes contributed to the improved loss ratio in 2020, together with
favourable claims experience due to Covid-19. The combined ratio net of
other revenue was 108% (118% in 2019).
In 2020, a non-cash impairment charge of GBP9.1 million was recognised
in the financial statements of the parent company with respect to the
carrying value of the parent's investment in Elephant Auto. The
impairment charge arises due to a change in the 5 year forecast
resulting from a strategic decision to move to 6 month policies, which
reduces the valuation due to deferring projected underwriting year
profits outside the 5 year forecast period, alongside the impact of
Covid-19 on the future forecast performance of the business. The
impairment charge is recognised in the Income Statement of the parent
company (refer to note 4 of the Parent Company Financial Statements for
further details) and has no impact on the Group's consolidated profit
for the period or the Group's 2020 regulatory capital position.
International Car Insurance co-insurance and reinsurance
In 2020 Admiral retained 35% (Italy) and 30% (France and Spain) and of
the underwriting risk respectively. In the USA, 50% (2019: 33%) of the
risk was retained within the Group.
International Car Insurance Regulatory environment
Admiral's European insurance operations are primarily regulated by the
Spanish insurance regulator, the Direccion General de Seguros (DGS).
The Group's US insurer, Elephant Insurance Company, is regulated by the
Virginia State Corporation Commission's Bureau of Insurance.
Both insurers are required to maintain capital at levels prescribed by
the regulator and hold a surplus above these requirements at all times.
Admiral Loans
Scott Cargill -- CEO, Admiral Financial Services Limited
After three years of significant and sustained progress 2020 will be
remembered as a challenging year for the Admiral Loans business. In
January we wrote our 100,000(th) customer and in Q1 we were writing
record volumes and showing signs of higher margins following the launch
of our new pricing capability. By mid-March our balances had grown to
GBP515 million and we were also seeing all time low loss outcomes
reflecting the continuous improvement in our pricing and risk models.
As the Covid-19 crisis emerged, we took early action on pricing and by
mid-March we paused writing new business entirely. We supported over
4000 customers with payment holidays. Despite the crisis we have seen
good customer payment performance throughout 2020, with default rates
similar to or better than previous periods. In line with the Admiral
approach to insurance reserving, we have taken an appropriately
conservative approach to our loss provision, with around GBP26 million
being added to impairment this year of which some GBP15 million is for
loans which remain up to date giving us a total coverage ratio of 10.4%
and 5.8% on up to date loans as we enter 2021.
As with any young business the balance of focus is often on growth and
new customer acquisition. 2020 has encouraged the business to
accelerate investment into existing customer management, both in
self-service and collection capabilities. As a result, as an end to end
loans operation, we undoubtedly finish the year stronger than we
entered.
Admiral Loans started cautiously writing new business in July and will
return to balance sheet growth again in 2021 with a renewed focus on our
mission to provide affordable, flexible and convenient lending solutions
to UK customers. Our proposition will remain focused on real rate
lending to give customers transparency and certainty in their lending
decisions. I'd like to thank the Admiral Loans team for their resilience
and focus in 2020, and with them, I look forward to further
strengthening the business and prioritising our customers in the coming
year.
Loans Financial Review
GBPm 2020 2019 2018
---------------------------------- ------ ------ ------
Total interest income 36.8 30.8 15.0
Interest expense(*1) (10.1) (9.1) (4.3)
Net interest income 26.7 21.7 10.7
Other fee income (*2) 2.1 1.9 0.4
Total income 28.8 23.6 11.1
Movement in expected credit loss
provision and write-off of Loans (25.8) (14.3) (10.2)
Expenses (16.8) (17.7) (12.7)
Admiral Loans result (13.8) (8.4) (11.8)
---------------------------------- ------ ------ ------
(*1) Includes GBP2.9 million intra-group interest expense (2019: GBP2.8
million; 2018: GBP0.7 million)
(*2) Includes GBP0.5 million intra-group income (2019: GBPnil; 2018:
GBPnil)
Admiral Loans offers a range of unsecured personal loans and car finance
products through comparison channels and also direct to consumers via
the Admiral website.
In mid-March 2020, the decision was made to pause the writing of new
loans. Management focused on the close monitoring of the existing loan
portfolio performance and ensuring collection processes were robust and
prepared for the likelihood of increased arrears experience resulting
from increased unemployment. Admiral also extended payment deferrals and
reduced payment arrangements to some customers according to their needs
and in line with regulatory guidance.
From July 2020 Admiral re-started lending with cautious underwriting
criteria adjusted to reflect the new economic conditions following
Covid-19. Lending volumes have gradually increased throughout the second
half of 2020, but remained significantly below pre-Covid levels.
Gross loan balances totalled GBP401.8 million (2019: GBP479.1 million),
with a GBP42.0 million (2019: GBP24.0 million) provision, generating a
net loans balance of GBP359.8 million (2019: GBP455.1 million). Admiral
Loans updated its expected credit loss models with a more cautious set
of economic assumptions and management overlays to reflect the latest
expectations of performance. This update led to an GBP18.0 million net
additional impairment provision (2019: GBP13.8 million), with a higher
provision to loan balance coverage ratio of 10.4% (2019: 5.0%). The
total expected credit loss charge including write-offs was GBP25.8
million (2019: GBP14.3 million). For further information, refer to note
7 in the financial statements.
Admiral Loans recorded a pre-tax loss of GBP13.8 million in 2020
(increased from GBP8.4 million in 2019). The higher loss predominantly
reflects the increased charge for expected credit losses, as a result of
higher UK unemployment due to Covid-19.
Interest income in the period grew due to the increased size of the
average loan book over the period.
Admiral Loans is currently funded through a combination of internal and
external funding. The external portion funds approximately 65% 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.
Comparison Review
Elena Betés Novoa -- CEO, Comparison Platforms
2020 will be an unforgettable year, sweet & sour, ending on a high note.
The sour part -- our platforms were strongly affected by the Covid-19
pandemic around the world. We were able to react quicker than local
players in some geographies leveraging on international data points and
to develop contingency plans not only to reduce the impact into our
results but also to help our partners, teams and society as much as we
could. Nonetheless, we were impacted financially.
The effect was stronger on businesses where we are more linked to
transactions such as buying a car or house, which was more relevant to
Le Lynx and Rastreator, and less in Confused.com that proved highly
resilient linked to the ingrained switching behaviour of the UK market.
We decided to discontinue our platforms in Turkey, Tamoniki, and in
India, GoSahi -- we believe that expanding platforms requires difficult
decisions to be made based on KPIs and market learnings at a healthy
incubator stage.
The sweet part - the strong ownership and accountability from all our
teams, the immediate adaptability to the new reality and even more
importantly, the steps made to disrupt our way of working and our
operating models has made a crisis a clear opportunity and made us
stronger, as a team.
We could be extremely proud after all, we close the year delivering
strong revenue growth of 11%, and a positive margin improvement of 85%.
All our platforms are moving in the right strategic and financial
direction.
The strong ending was the announcement in December that Admiral Group
agreed to sell the majority of its comparison platforms to RVU, the
comparison division of ZPG. We look forward to growing and learning from
them under a multi-country, and multi-product digital ecosystem.
I will be grateful forever to Admiral Group, for providing us with the
most valuable asset, our culture, the capability to dream bigger and the
support to find the optimal structure to develop and keep our purpose:
Empowering the world to choose better.
Comparison Review Highlights
Comparison financial review
GBPm 2020 2019 2018
Revenue
Car insurance comparison 123.8 119.4 110.1
Other 66.2 52.2 40.9
Total revenue 190.0 171.6 151.0
Expenses (159.8) (156.9) (144.4)
Profit before tax 30.2 14.7 6.6
Confused.com profit 29.4 20.4 14.3
International comparison result 0.8 (5.7) (7.7)
30.2 14.7 6.6
Group's share of profit before tax (*1)
Confused.com profit 29.4 20.4 14.3
International comparison result 1.6 (2.4) (5.5)
31.0 18.0 8.8
*1 Alternative Performance Measure -- refer to the end of this report
for definition and explanation
The comparison result includes Admirals' comparison businesses in the UK
(Confused.com), Spain (Rastreator), France (LeLynx) and the US
(Compare.com). In addition, Preminen, the Group's joint venture holding
company for comparison ventures in new markets, includes operations in
Mexico (Rastreator.mx).
Admiral Group owns 75% of Rastreator, 58% of Compare.com and 50% of
Preminen.
Combined revenue grew by 11% to GBP190.0 million (2019: GBP171.6
million) and the businesses made a combined profit (excluding minority
interests' shares) of GBP31.0 million (2019: GBP18.0 million).
The key features of the Comparison result are:
-- In the UK, Confused.com saw market share increases in motor and home
insurance comparison leading to significantly increased profit of GBP29.4
million (2019: GBP20.4 million)
-- The continental European comparison businesses reported an increased
profit of GBP3.6 million (2019: GBP3.5 million)
-- Compare.com in the US reduced its pre-tax loss to GBP1.3 million (2019:
GBP4.3 million)
-- Net expenses for the Preminen operations and Penguin Portals totalled
GBP0.7 million (Admiral Group share), reflecting investment in new
businesses and good progress in Rastreator Mexico, which delivered a
small profit
Sale of Comparison businesses
Admiral announced in December 2020 that it had reached an agreement with
ZPG Comparison Services Holdings UK Limited ("RVU") that RVU will
purchase Penguin Portals Group ("Penguin Portals", comprising online
comparison portals Confused.com, Rastreator.com and LeLynx.fr and its
50% share of Preminen Price Comparison Holdings Limited ("Preminen") and
the Group's technology operation, Admiral Technologies.
Completion of the transaction is subject to customary regulatory and
competition authority approvals and is expected to close in the first
half of 2021. Further information on the discontinued operations can be
found in note 13 in the financial statements.
Compare.com, the Group's US comparison operation will be retained by
Admiral.
Other Group Items
Other Group items financial review
GBPm 2020 2019(*1) 2018(*1)
------------------------------------- ------ -------- --------
Share scheme charges (53.8) (52.7) (49.0)
Other interest and investment return 4.9 6.0 2.9
Business development costs (1.8) (2.1) (4.3)
Other central overheads (22.9) (20.0) (10.5)
Finance charges (12.1) (11.2) (11.3)
Other Group items (85.7) (80.0) (72.2)
------------------------------------- ------ -------- --------
*1 Re-presented to reflect Admiral Loans being presented separately.
Share scheme charges relate to the Group's two employee share schemes
(refer to note 9 to the financial statements). Charges increased by
GBP1.1 million in 2020, to GBP53.8 million reflecting the higher share
price during 2020.
Other interest and investment income decreased to GBP4.9 million in 2020
(2019: GBP6.0 million). The higher number in 2019 was driven by
increased investment return due to the increased cash holding in the
parent company in that year.
Business development costs include costs associated with potential new
ventures. During the year Admiral established Admiral Pioneer, a team
focusing on new product diversification opportunities in the UK, which
incurred development costs of GBP0.8 million.
Other central overheads of GBP22.9 million include the GBP6 million
Covid-19 relief fund as announced by the Group in the year, costs of
circa GBP4 million in relation to the sale of the comparison businesses
and continued spend on a number of significant group projects including
IMAP and IFRS 17.
Finance charges of GBP12.1 million (2019: GBP11.2 million) primarily
represent interest on the GBP200 million subordinated notes issued in
July 2014, as well as a small charge on the additional Group facilities
in place (refer to note 6 to the financial statements).
Covid-19 Risk considerations
Covid-19, which was declared a pandemic by the World Health Organisation
on 11 March 2020, has impacted in all jurisdictions in which Admiral
Group operates. It has caused, and continues to cause, impacts on
individuals, on businesses, and on the real economy. Covid-19 has not
introduced any new principal risks into the business, but has instead
acted as a driver of existing principal and emerging risks.
The initial impact from the pandemic saw an increase in operational risk
as offices shut and working from home capacity rapidly expanded, with
related increases in IT, change and security risks. It also impacted
premium risk, due to changing driving patterns, and market risk, due to
declining markets and increased volatility, amongst other principal
risks. Covid-19 has also inherently increased credit risk. During the
initial months of the pandemic weekly Board reporting was initiated,
with updates on operational impacts, business plan reforecasting, as
well as solvency and liquidity monitoring and forecasting. To aid risk
oversight, the Group Risk Committee also increased frequency of meetings
to fortnightly. With the increase in home-working, more controls were
being performed by staff while working from home (e.g., call
monitoring). The internal control environment was continuously assessed
and monitored throughout, and regular communication issued through local
business unit emergency response teams, business unit risk management
committees and Boards, and Group committees and Group Board.
As the pandemic has continued, many of these initial impacts have abated,
most notably operational risk, as remote-working solutions become more
robust and as the business becomes used to a hybrid way of working, with
a mix of office- and home-based workers. There could be, however, a
potential risk to Admiral's culture if staff do not work regularly in
close proximity for an extended period. With the emergence of a second
or subsequent waves, local, regional and national lockdowns have been or
will be enacted, meaning that there remains increased uncertainty
regarding driving patterns, claims experience and market volatility.
With the UK expected to see recessionary conditions and increasing
unemployment, there could be a deterioration in credit performance at
AFSL. Risks continue to be monitored and reported on as per the ERMF.
--Covid-19 has also impacted emerging risks. It led to some delays to
emerging legal and regulatory risks, as the focus has been on pandemic
response, while emerging social, political and economic risks may be
accelerating, driven by changing customer behaviours and expectations,
in particular. The impact on the environment and climate change is
unknown, given competing drivers.
Principal Risks and Uncertainties
The Group's 2020 Annual Report will contain an analysis of the Principal
Risks and Uncertainties identified by the Group's Enterprise Risk
Management Framework, along with the impacts of those risks and actions
taken to mitigate them.
Disclaimer on forward-looking statements
Certain statements made in this announcement are forward-looking
statements. Such statements are based on current expectations and
assumptions and are subject to a number of known and unknown risks and
uncertainties that may cause actual events or results to differ
materially from any expected future events or results expressed or
implied in these forward-looking statements.
Persons receiving this announcement should not place undue reliance on
forward-looking statements. Unless otherwise required by applicable law,
regulation or accounting standard, the Group does not undertake to
update or revise any forward-looking statements, whether as a result of
new information, future developments or otherwise.
Consolidated income statement
For the year ended 31 December 2020
Year ended
Re-presented
31 December 31 December
2020 2019
Continuing operations Note GBPm GBPm
Insurance premium revenue 2,265.3 2,198.4
Insurance premium ceded to reinsurers (1,513.7) (1,489.0)
Net insurance premium revenue 5 751.6 709.4
Other revenue 8 329.4 324.3
Profit commission 5 134.0 114.9
Interest income 7 36.8 30.8
Interest expense 7 (7.2) (6.3)
Net interest income from loans 29.6 24.5
Investment return -- interest income at effective
interest rate 6 33.9 36.4
Investment return - other 6 26.8 (0.7)
Net revenue 1,305.3 1,208.8
Insurance claims and claims handling expenses 5 (1,318.6) (1,568.1)
Insurance claims and claims handling expenses recoverable
from reinsurers 1,025.4 1,208.8
Net insurance claims 5 (293.2) (359.3)
Operating expenses and share scheme charges 9 (814.6) (758.9)
Operating expenses and share scheme charges recoverable
from co- and reinsurers 9 456.6 441.2
Expected credit losses 6,9 (33.6) (14.2)
Net operating expenses and share scheme charges (391.6) (331.9)
Total expenses (684.8) (691.2)
Operating profit 620.5 517.6
Finance costs 6 (14.3) (14.5)
Finance costs recoverable from co- and reinsurers 6 2.0 2.0
Net finance costs (12.3) (12.5)
Profit before tax from continuing operations 608.2 505.1
Taxation expense 10 (106.2) (89.2)
Profit after tax from continuing operations 502.0 415.9
Profit before tax from discontinued operations 13 29.4 17.5
Taxation expense 13 (3.6) (5.0)
Profit after tax from discontinued operations 25.8 12.5
Profit after tax from continuing and discontinued
operations 527.8 428.4
Profit after tax attributable to:
Equity holders of the parent 528.8 432.4
Non-controlling interests (NCI) (1.0) (4.0)
527.8 428.4
Earnings per share -- from continuing operations
Basic 12 170.7p 143.7p
Diluted 12 170.4p 143.4p
Earnings per share - from continuing and discontinued
operations
Basic 12 179.5p 148.3p
Diluted 12 179.2p 148.0p
Dividends declared and paid (total) 12 425.7 367.8
Dividends declared and paid (per share) 12 147.5p 129.0p
------------
Consolidated statement of comprehensive income
For the year ended 31 December 2020
Year ended
31 December 31 December
2020 2019
GBPm GBPm
------------
Profit for the period -- from continuing and discontinued
operations 527.8 428.4
Other comprehensive income
Items that are or may be reclassified to profit or
loss
Movements in fair value reserve 40.6 34.6
Deferred tax charge in relation to movement in fair
value reserve (1.8) (1.5)
Exchange differences on translation of foreign operations 3.5 (8.9)
Movement in hedging reserve (2.4) (0.9)
Other comprehensive income for the period, net of
income tax 39.9 23.3
Total comprehensive income for the period 567.7 451.7
Total comprehensive income for the period attributable
to:
Equity holders of the parent 568.6 456.1
Non-controlling interests (0.9) (4.4)
567.7 451.7
Consolidated statement of financial position
As at 31 December 2020
As at
31 December 31 December
2020 2019
Note GBPm GBPm
ASSETS
Property and equipment 11 140.4 154.4
Intangible assets 11 166.7 160.3
Corporation tax asset 10 22.9 --
Reinsurance assets 5 2,083.2 2,071.7
Loans and advances to customers 7 359.8 455.1
Insurance and other receivables 6 1,182.0 1,227.7
Financial investments 6 3,506.0 3,234.5
Cash and cash equivalents 6 298.2 281.7
Assets associated with disposal group held for sale 13 83.0 --
Total assets 7,842.2 7,585.4
EQUITY
Share capital 12 0.3 0.3
Share premium account 13.1 13.1
Other reserves 12 94.9 55.1
Retained earnings 1,004.4 840.9
Total equity attributable to equity holders of the
parent 1,112.7 909.4
Non-controlling interests 10.7 9.2
Total equity 1,123.4 918.6
LIABILITIES
Insurance contract liabilities 5 4,081.3 3,975.0
Subordinated and other financial liabilities 6 488.6 530.1
Trade and other payables 6, 11 1,991.2 1,975.9
Lease liabilities 6 122.8 137.1
Deferred income tax 10 0.9 0.4
Current tax liabilities 10 -- 48.3
Liabilities associated with disposal group held for
sale 13 34.0 --
Total liabilities 6,718.8 6,666.8
Total equity and total liabilities 7,842.2 7,585.4
The accompanying notes form part of these financial statements.
These financial statements were approved by the Board of Directors on 3
March 2021 and were signed on its behalf by:
Geraint Jones
Chief Financial Officer
Admiral Group plc
Consolidated cash flow statement
For the year ended 31 December 2020
Year ended
31 December 31 December
2020 2019
Note GBPm GBPm
-----------
Profit after tax -- from continuing and discontinued
operations 527.8 428.4
Adjustments for non-cash items:
-- Depreciation of property, plant and equipment and
right-of-use assets 11 23.6 23.8
-- Impairment of property, plant and equipment and
right-of-use assets 11 3.1 --
-- Amortisation and impairment of intangible assets 11 19.2 18.7
-- Movement in expected credit loss provision 6 25.8 13.8
-- Share scheme charges 9 54.0 53.4
-- Accrued interest income from loans and advances
to customers 0.2 (0.6)
-- Interest expense on funding for loans and advances
to customers 7.2 --
-- Investment return 6 (60.7) (35.3)
-- Finance costs, including unwinding of discounts
on lease liabilities 12.4 12.6
-- Taxation expense 10 109.8 94.2
Change in gross insurance contract liabilities 5 106.3 238.6
Change in reinsurance assets 5 (11.5) (188.2)
Change in insurance and other receivables 6, 11 25.1 (147.0)
Change in gross loans and advances to customers 7 77.3 (168.7)
Change in trade and other payables, including tax
and social security 11 40.2 174.4
Cash flows from operating activities, before movements
in investments 959.8 518.1
Purchases of financial instruments (2,389.2) (2,048.2)
Proceeds on disposal/ maturity of financial instruments 2,203.1 1,847.9
Interest and investment income received 6 10.1 11.6
Cash flows from operating activities, net of movements
in investments 783.8 329.4
Taxation payments (175.0) (92.8)
Net cash flow from operating activities 608.8 236.6
Cash flows from investing activities:
Purchases of property, equipment and software 11 (43.1) (33.6)
Net cash used in investing activities (43.1) (33.6)
Cash flows from financing activities:
Non-controlling interest capital contribution 2.4 1.6
(Repayment of)/proceeds on issue of loan backed
securities 6 (46.3) 136.2
Proceeds/(repayments) from other financial liabilities 6 0.1 (50.3)
Finance costs paid, including interest expense paid
on funding for loans 6,7 (19.2) (14.0)
Repayment of lease liabilities 6 (9.4) (10.6)
Equity dividends paid 12 (425.7) (367.8)
Net cash used in financing activities (498.1) (304.9)
Net increase / (decrease) in cash and cash equivalents 67.6 (101.9)
Cash and cash equivalents at 1 January 281.7 376.8
Effects of changes in foreign exchange rates 2.4 6.8
Cash and cash equivalents at end of period 6 351.7 281.7
Consolidated statement of changes in equity
For the year ended 31 December 2020
Attributable to the owners of the Company
Share Foreign Retained Non-
Share premium Fair value exchange profit controlling
capital account reserve Hedging reserve reserve and loss Total interests Total equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- -------- ---------- ----------------- --------- --------- -------
At 1 January 2019 0.3 13.1 13.5 (0.3) 18.2 713.5 758.3 12.8 771.1
Profit/(loss) for the period -- from continuing and
discontinued operations -- -- -- -- -- 432.4 432.4 (4.0) 428.4
Other comprehensive income
Movements in fair value reserve -- -- 34.6 -- -- -- 34.6 -- 34.6
Deferred tax charge in relation to movement in fair
value reserve -- -- (1.5) -- -- -- (1.5) -- (1.5)
Movement in hedging reserve -- -- -- (0.9) (0.9) -- (0.9)
Currency translation differences -- -- -- -- (8.5) -- (8.5) (0.4) (8.9)
Total comprehensive income for the period -- -- 33.1 (0.9) (8.5) 432.4 456.1 (4.4) 451.7
Transactions with equity holders
Dividends -- -- -- -- -- (367.8) (367.8) -- (367.8)
Share scheme credit -- -- -- -- -- 58.8 58.8 -- 58.8
Deferred tax credit on share scheme credit -- -- -- -- -- 3.2 3.2 -- 3.2
Contributions by NCIs -- -- -- -- -- -- -- 2.2 2.2
Changes in ownership interests without a change in
control -- -- -- -- -- 0.8 0.8 (1.4) (0.6)
Total transactions with equity holders -- -- -- -- -- (305.0) (305.0) 0.8 (304.2)
---------------------------------------------------- -------- -------- ---------- ----------------- --------- --------- ------- ------------ ------------
As at 31 December 2019 0.3 13.1 46.6 (1.2) 9.7 840.9 909.4 9.2 918.6
Consolidated statement of changes in equity (continued)
For the year ended 31 December 2020
Attributable to the owners of the Company
Share Foreign Retained Non-
Share premium Fair value exchange profit controlling
capital account reserve Hedging reserve reserve and loss Total interests Total equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- ---------- ----------------- --------- --------- -------
As at 31 December 2019 0.3 13.1 46.6 (1.2) 9.7 840.9 909.4 9.2 918.6
Balance 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 -- from continuing and
discontinued operations -- -- -- -- -- 528.8 528.8 (1.0) 527.8
Other comprehensive income
Movements in fair value reserve -- -- 40.6 -- -- -- 40.6 -- 40.6
Deferred tax charge in relation to movement in fair
value reserve -- -- (1.8) -- -- -- (1.8) -- (1.8)
Movement in hedging reserve -- -- -- (2.4) (2.4) -- (2.4)
Currency translation differences -- -- -- -- 3.4 -- 3.4 0.1 3.5
Total comprehensive income for the period -- -- 38.8 (2.4) 3.4 528.8 568.6 (0.9) 567.7
Transactions with equity holders
Dividends -- -- -- -- -- (425.7) (425.7) -- (425.7)
Share scheme credit -- -- -- -- -- 53.8 53.8 -- 53.8
Deferred tax credit on share scheme credit -- -- -- -- -- 6.6 6.6 -- 6.6
Contributions by NCIs -- -- -- -- -- -- -- 2.2 2.2
Changes in ownership interests without a change in
control -- -- -- -- -- -- -- 0.2 0.2
Total transactions with equity holders -- -- -- -- -- (365.3) (365.3) 2.4 (362.9)
As at 31 December 2020 0.3 13.1 85.4 (3.6) 13.1 1,004.4 1,112.7 10.7 1,123.4
Notes to the financial statements
For the year ended 31 December 2020
1. General information
Admiral Group plc is a company incorporated in England and Wales. Its
registered office is at T Admiral, David Street, Cardiff, CF10 2EH and
its shares are listed on the London Stock Exchange.
The consolidated financial statements have been prepared and approved by
the Directors in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006, and
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union. The
Company has elected to prepare its Parent Company financial statements
in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101).
2. Basis of preparation
The consolidated financial statements have been prepared on a Going
Concern basis. In making this going concern assessment, the Directors
have considered in detail the impact of the Covid-19 pandemic on the
Group's financial position and performance, including the projection of
the Group's profits, regulatory capital surpluses and sources of
liquidity for the next 12 months and beyond.
In particular, as part of this assessment the Board considered updated
projections of performance and profitability a number of times during
the pandemic, with some key highlights including:
-- The impact of the pandemic on the Group's profit projections, including:
-- The continuation of reduced motor insurance claims frequency when
compared to pre-pandemic levels
-- Changes in premium rates and projected policy volumes across the
Group's insurance businesses
-- Potential impacts on the cost of settling claims across all
insurance businesses, including those arising from initiatives
launched to help critical worker customers such as excess waivers
and free hire cars
-- Projected trends in other revenue generated by the Group's
insurance business from fees and the sale of ancillary products
-- The impact of elevated credit losses in the Group's Loans business
arising from higher unemployment rates, arising from long-term
economic stress
-- Impacts on the projected growth on the Group's Loan book following
the temporary closure to new business
-- A potential increase in ongoing costs arising from the
implementation and maintenance of business continuity plans and
potential future hybrid working strategies.
-- The Group's solvency position, which has been closely monitored through
periods of market volatility experienced to date. Although impacted by
market movements, and in particular widening credit spreads at the outset
of the pandemic, these positions have largely reversed, with less
volatile market movements experienced during the second half of 2020. The
Group continues to maintain 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 severe adverse 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 emerging risk may have changed in light of the pandemic
-- A review of an ad-hoc Covid-specific 'Own Risk and Solvency Assessment'
(ORSA)
Other material factors considered, outside of the pandemic, include:
-- The impacts of the UK-EU Brexit trade agreement that came into effect on
1 January 2021, on the Group's UK businesses.
-- The sale of the Group price comparison businesses, Penguin Portals and
Preminen along with the intention to return a majority of net proceeds
back to shareholders after completion of the transaction.
Following consideration of all 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
consolidated financial statements.
--Further information regarding the Company's business activities,
together with the factors likely to affect its future development,
performance and position, is set out in the Strategic Report. Further
information regarding the financial position of the Company, its cash
flows, liquidity position and borrowing facilities are also described in
the Strategic Report. In addition, notes 6 and 12 to the financial
statements include the Company's objectives, policies and processes for
managing its capital; its financial risk management objectives; details
of its financial instruments; and its exposures to credit risk and
liquidity risk.
The accounting policies set out in the notes to the financial statements
have, unless otherwise stated, been applied consistently to all periods
presented in these Group financial statements.
The financial statements are prepared on the historical cost basis,
except for the revaluation of financial assets classified as fair value
through profit or loss or as fair value through other comprehensive
income. The Group and Company financial statements are presented in
pounds sterling, rounded to the nearest GBP0.1 million.
Cash flows from operating activities before movements in investments
include all cashflows in relation to the Group's insurance and
reinsurance activities, and cash flows in respect of loans and advances
issued to customers. Cash flows from financing activities include the
cash flows on issues of loan backed securities, lease liabilities and
other financial liabilities.
Subsidiaries are entities controlled by the Group. The Group controls an
entity when it is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. In assessing control, the
Group takes into consideration potential voting rights that are
currently exercisable. The acquisition date is the date on which control
is transferred to the acquirer. The financial statements of subsidiaries
are included in the consolidated financial statements from the date that
control commences until the date that control ceases. Losses applicable
to the non-controlling interests in a subsidiary are allocated to the
non-controlling interests even if doing so causes the non-controlling
interests to have a deficit balance.
The Group has securitised certain loans and advances to customers by the
transfer of the loans to a special purpose entity ("SPE") controlled by
the Group. The securitisation enables a subsequent issuance of debt by
the SPE to investors who gain the security of the underlying assets as
collateral. The SPE is fully consolidated into the Group financial
statements under IFRS 10, as the Group controls the entity in line with
the above definition.
The preparation of financial statements in conformity with adopted IFRS
requires management to make judgements, estimates and assumptions that
affect the application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other factors
that are believed to be reasonable under the circumstances, the results
of which form the basis of making the judgements about carrying values
of assets and liabilities that are not readily apparent from other
sources.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the year in
which the estimate is reviewed. To the extent that a change in an
accounting estimate gives rise to changes in assets and liabilities, it
is recognised by adjusting the carrying amount of the related asset or
liability in the period of the change.
Adoption of new and revised standards
The Group has adopted the following IFRSs and interpretations during the
year, which have been issued and endorsed:
-- Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39, IFRS 7,
IFRS 4 and IFRS 16 Interest Rate Benchmark Reform -- Phase 2)
-- Amendment to IFRS 16 Leases Covid-19 Related Rent Concessions
-- Amendments to IFRS 3 Business Combinations
-- Amendments to IAS 1 and IAS 8: Definition of Material
-- Amendments to References to the Conceptual Framework in IFRS Standards
Other than the impact of the Amendments to IFRS 9 and IFRS 7 in respect
of interest rate benchmark reform, further detail of which is provided
below, the application of these amendments has not had a material impact
on the Group's results, financial position and cashflows.
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 IFRS 7,
IFRS 4 and IFRS 16)
In September 2019, the IASB issued Interest Rate Benchmark Reform
(Amendments to IFRS 9, IAS 39 and IFRS 7). These amendments modify
specific hedge accounting requirements to allow hedge accounting to
continue for affected hedges during the period of uncertainty before the
hedged items or hedging instruments affected by the current interest
rate benchmarks are amended as a result of the on-going interest rate
benchmark reforms. The Group early adopted this standard for the
period ending 31 December 2019.
In addition, Phase 2 of the Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4
and IFRS 16 was issued in August 2020, and relates to issues that could
affect financial reporting when an IBOR is replaced with an alternative
benchmark interest rate.
The amendments are relevant to the Group given that it applies hedge
accounting to its benchmark interest rate exposures. The application of
the amendments impacts the Group's accounting in the following ways:
-- The Group had floating rate debt on its loan backed securities, linked to
GBP LIBOR up until 15th June 2020 when those arrangements were renewed
and rebased to SONIA at the same time;
-- The floating rate debt and interest rate cashflow hedges that are taken
out in relation to the loan backed securities were moved to arrangements
linked to SONIA on 15th June 2020, to align the rebasing with the renewal
of the loan backed facilities as set out above
The Group has chosen to early apply the Phase 2 Amendments for the
reporting period ending 31 December 2020, which are mandatory for annual
reporting periods beginning on or after 1 January 2021. Adopting these
amendments early enables the Group to reflect the effects of
transitioning from interbank offered rates (IBOR) to alternative
benchmark interest rates without giving rise to accounting impacts, such
as the de-recognition of the interest rate hedge that was moved from
LIBOR to SONIA in the year, that would not provide useful information to
users of financial statements.
See note 6j for further details.
New and revised IFRS Standards in issue but not yet effective
At the date of authorisation of these financial statements, the Group
has not applied the following new and revised IFRS Standards that have
been issued but are not yet effective:
-- IFRS 17 Insurance Contracts
-- IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
-- Amendments to IAS 1 Classification of Liabilities as Current or
Non-current
-- Amendments to IFRS 3 Reference to the Conceptual Framework
-- Amendments to IAS 16 Property, Plant and Equipment--Proceeds before
Intended Use
-- Amendments to IAS 37 Onerous Contracts -- Cost of Fulfilling a Contract
-- Annual Improvements to IFRS Standards 2018-2020 Cycle: Amendments to IFRS
1 First-time Adoption of International Financial Reporting Standards,
IFRS 9 Financial Instruments, IFRS 16 Leases, and IAS 41 Agriculture
The directors do not expect that the adoption of the Standards listed
above will have a material impact on the financial statements of the
Group in future periods, except as noted below:
IFRS 17 -- Insurance contracts
IFRS 17 establishes the principles for the recognition, measurement,
presentation and disclosure of insurance contracts and supersedes IFRS 4
Insurance Contracts. IFRS 17 outlines a general model, which is
simplified if certain criteria are met by measuring the liability for
remaining coverage using the premium allocation approach.
In June 2020, the IASB issued Amendments to IFRS 17 to address concerns
and implementation challenges that were identified after IFRS 17 was
published. The amendments defer the date of initial application of IFRS
17 (incorporating the amendments) to annual reporting periods beginning
on or after 1 January 2023, requiring a transition balance sheet at 1
January 2022.
The Group continues to assess the impact of IFRS 17 on its results and
financial position.
3. Critical accounting judgements and key sources of estimation
uncertainty
In applying the Group's accounting policies as described in the notes to
the financial statements, the directors are required to make judgements
(other than those involving estimations) that have a significant impact
on the amounts recognised and to make estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated assumptions
are based on historical experience and other factors that are considered
to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that period,
or in the period of the revision and future periods if the revision
affects both current and future periods.
Critical accounting judgements
The following are the critical judgements, apart from those involving
estimations (which are presented separately below), that the directors
have made in the process of applying the Group's accounting policies and
that have the most significant effect on the amounts recognised in
financial statements.
--Classification of the Group's contracts with reinsurers as reinsurance
contracts:
A contract is required to transfer significant insurance risk in order
to be classified as such. Management reviews all terms and conditions of
each such insurance and reinsurance contract in order to be able to make
this judgement. In particular, all reinsurance contracts (both excess of
loss and quota share contracts) held by the Group have been assessed and
it has been concluded that all contracts transfer significant insurance
risk and have therefore been classified and accounted for as reinsurance
contracts within these financial statements.
--Consolidation of the Group's special purpose entity ("SPE")
During 2018 the Group set up an SPE in relation to the Admiral Loans
business, whereby the Group securitises certain loans by the transfer of
the loans to the SPE. The securitisation enables a subsequent issue of
debt by the SPE to investors who gain the security of the underlying
assets as collateral.
The accounting treatment of the SPE has been assessed and it has been
concluded that it should be fully consolidated into the Group's
financial statements under IFRS 10. This is due to the fact that
despite not having legal ownership, the Group has control of the SPE,
being exposed to the returns and having the ability to affect those
returns through its power over the SPE.
The SPE has therefore been fully consolidated into the Group's financial
statements.
--Classification of disposal group as held for sale, and presentation of
discontinued operations
In order for a disposal group to be recognised as held for sale under
IFRS 5, a sale has to be considered highly probable and the disposal
group must be available for immediate sale in its present condition
subject only to terms that are usual and customary.
As set out in note 13 to these financial statements, on 29th December
2020, the Group announced that it had reached an agreement with ZPG
Comparison Services Holdings UK Limited ("RVU") that RVU will purchase
the Penguin Portals Group ("Penguin Portals", comprising online
comparison portals Confused.com, Rastreator.com and LeLynx.fr and the
Group's technology operation Admiral Technologies) and its 50% share of
Preminen Price Comparison Holdings Limited ("Preminen") (including its
subsidiaries and associates). Management considers that, given the
announcement which is supported by a signed Sales and Purchase Agreement
(SPA), and the expectation that the sale will be completed in the first
half of 2021 subject to regulatory approval, the transaction meets the
highly probable criteria and therefore these businesses are presented as
a disposal group held for sale in the financial statements.
The disposal group is also considered to meet the criteria of a
discontinued operation, being a part of a single co-ordinated plan to
dispose of a separate major line of business. The results of the
discontinued operation have therefore been presented separately on the
Income Statement, with prior year comparatives also re-presented.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of
estimation uncertainty at the reporting period that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year, are
discussed below.
--Calculation of insurance claims provisions and reinsurance assets
The Group's reserving policy requires management to set provisions for
outstanding claims for the purpose of the financial statements, above
the projected best estimate outcome to allow for unforeseen adverse
claims development. In the application of this policy, Management
applies judgement in:
-- calculating the best estimate of the gross ultimate total cost of
settling claims that have been incurred prior to the balance sheet date,
-- calculating the best estimate of the non-proportional excess of loss
reinsurance recoveries relating to outstanding claims, and
-- determining where, above the projected best estimate outcomes of gross
outstanding claims and reinsurance recoveries, the insurance claims
provisions should sit in line with the Group's reserving methodology.
Estimation techniques are used in the calculation of the provisions for
claims outstanding, which represent a projection of the ultimate
estimated total cost of settling claims that have been incurred prior to
the balance sheet date and remain unsettled at the balance sheet date,
along with a margin to allow for unforeseen adverse claims development.
The primary areas of estimation uncertainty are as follows:
1) Calculation of gross best estimate claims provisions
The key area where estimation techniques are used is in the ultimate
projected cost of reported claims, which includes the emergence of
claims that occurred prior to the balance sheet date, but had not been
reported at that date.
The Group, utilising internal actuarial teams, projects the best
estimate claims reserves using a variety of different recognised
actuarial projection techniques (for example incurred and paid chain
ladders, and initial expected assumptions) to allow an actuarial
assessment of their potential outcome. This includes an allowance for
unreported claims. The projection techniques are subject to review by an
independent external actuarial specialist to provide an impartial
assessment.
Claims are segmented into groups with similar characteristics and which
are expected to develop and behave similarly, for example bodily injury
(attritional and large) and damage claims, with specific projection
methods selected for each head of damage. Key sources of estimation
uncertainty arise from both the selection of the projection methods and
the assumptions made in setting claims provisions through the review of
historical development of underlying case reserve estimates, overlaid
with emerging market trends.
Allowance is made for changes arising from the internal and external
environment which may cause future claim cost inflation to deviate from
that seen in historic data. Examples of these factors include:
-- Changes in the reporting patterns of claims impacting the frequency of
bodily injury claims;
-- Emerging inflationary trends on the average cost of bodily injury and
damage claims;
-- The likelihood of bodily injury claims settling as Periodic Payment
Orders;
-- Changes in the regulatory or legal environment that lead to changes in
awards for bodily injury claims and associated legal costs;
-- Changes to the underlying process and methodologies employed in setting
and reviewing case reserve estimates.
Implicit assumptions in the actuarial projections include average cost
per claim and average claim numbers by accident year, future rates of
claims inflation and loss ratios by accident year and underwriting year.
These metrics are reviewed and challenged as part of the process for
making allowance for the uncertainties noted.
2) Calculation of excess of loss reinsurance recoveries
The Group uses excess of loss reinsurance in order to mitigate the
impact of large claims. The reinsurance is non-proportional and
recoveries are made on individual claims above the relevant thresholds.
As for the underlying gross claims, actuarial teams project the best
estimate excess of loss reinsurance recoveries using a variety of
actuarial projection techniques that focus on both the ultimate
frequency of reported recoveries and the average size of the recovery.
Key sources of estimation uncertainty arise from both the selection of
the projection methods and the assumptions made in calculating the
recoveries through the review of historical development of underlying
case reserve estimates, overlaid with emerging market trends.
The most significant element of the estimation relates to large bodily
injury claims. The key assumption in the calculation of excess of loss
recoveries relates to the numbers of large claims in the Group's core UK
Motor insurance business that will attract recoveries, where the high
retention means that a small number of additional large claims would
potentially result in a material increase in the excess of loss
recoveries.
3) Calculation of the margin held for adverse development
A wide range of factors inform management's recommendation in setting
the margin held above actuarial best estimates, which is subject to
approval from the Group's Reserving and Audit Committees, including:
-- Reserve KPIs such as the level of margin as a percentage of the ultimate
reserve;
-- Results of stress testing of key assumptions underpinning key actuarial
assumptions within best estimate reserves;
-- A review of a number of individual and aggregated reserve scenarios which
may result in future adverse variance to the ultimate best estimate
reserve;
-- Qualitative assessment of the level of uncertainty and volatility within
the reserves and the change in that assessment compared to previous
periods.
In addition, for the Group's core UK Car Insurance business, the Group's
internal reserve risk distribution is used to determine the approximate
confidence level of the recommended booked reserve position which
enables comparison of the reserve strength to previous periods and
demonstration of the compliance with IFRS 4.
For sensitivities in respect of the claims reserves, refer to note
5d(ii) of the financial statements. Note that these sensitivities are
provided based on booked loss ratios, as it is impracticable to
disaggregate the assumptions further, but for the disaggregated
assumptions it is reasonably possible, on the basis of existing
knowledge, that outcomes within the next financial year that are
different from the assumption could require a material adjustment to the
carrying amount.
For further detail on objectives, policies and procedures for managing
Insurance Risk, refer to note 5 of the financial statements.
Future changes in claims reserves also impact profit commission income,
as the measurement of this income is dependent on the loss ratio booked
in the financial statements, and cash receivable is dependent on
actuarial projections of ultimate loss ratios.
--Calculation of expected credit loss provision
The Group is required to calculate an expected credit loss ('ECL')
allowance in respect of the carrying value of the Admiral Loans book in
line with the requirements of IFRS 9. Due to the size of the loan book
and the increased uncertainty given the impact of Covid-19, the
calculation of the ECL is deemed to be a critical accounting judgement
and includes key sources of estimation uncertainty. Management applies
judgement in:
-- Determining the appropriate modelling solution for measuring the ECL;
-- Calibrating and selecting appropriate assumptions;
-- Setting the criteria for what constitutes a significant increase in
credit risk;
-- Identification of key scenarios to include and determining the credit
loss in these instances.
The key areas of estimation uncertainty are in the calculation of the
Probability of Default (PD) in the base scenario for stage 1 and 2
assets, and the determination, impact assessment and weighting of the
forward-looking scenarios.
Refer to the analysis in note 7 to the financial statements for further
detail on the Group's ECL methodology applied in the period.
4. Group consolidation and operating segments
4a. Accounting policies
(i) Group consolidation
The consolidated financial statements comprise the results and balances
of the Company and all entities controlled by the Company, being its
subsidiaries and SPE (together referred to as the Group), for the year
ended 31 December 2020 and comparative figures for the year ended 31
December 2019. The financial statements of the Company's subsidiaries
and its SPE are consolidated in the Group financial statements.
The Company controls 100% of the voting share capital of all its
principal subsidiaries, except Admiral Law Limited, Inspop USA LLC,
comparenow.com Insurance Agency LLC (indirect holding), Rastreator.com
Limited, Rastreator Comparador Correduria De Seguros S.L.U (indirect
holding), Preminen Price Comparison Holdings Limited and the indirect
holdings in Preminen Dragon Price Comparison Limited, Preminen Mexico
Sociedad Anonima de Capital Variable, and Preminen Price Comparison
India Private Limited.
The SPE is fully consolidated into the Group financial statements under
IFRS 10, whereby the Group has control over the SPE.
The Parent Company financial statements present information about the
Company as a separate entity and not about its Group. In accordance with
IAS 24, transactions or balances between Group companies that have been
eliminated on consolidation are not reported as related party
transactions in the consolidated financial statements.
(ii) Foreign currency translation
Items included in the financial records of each of the Group's entities
are measured using the currency of the primary economic environment in
which the entity operates ('the functional currency'). The consolidated
financial statements are presented in pounds sterling, the Group's
presentational currency, rounded to the nearest GBP0.1 million.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement.
Non-monetary items measured at cost are translated at their historic
rate and non-monetary items held at fair value are translated using the
foreign exchange rate on the date that the fair value was established.
The financial statements of foreign operations whose functional currency
is not pounds sterling are translated into the Group presentation
currency (sterling) as follows:
-- Assets and liabilities for each balance sheet presented are translated at
the closing rate at the date of that balance sheet.
-- Income and expenses for each income statement are translated at average
monthly exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at
the date of the transaction).
-- All resulting exchange differences are recognised in other comprehensive
income and in a separate component of equity except to the extent that
the translation differences are attributable to non-controlling
interests.
On disposal of a foreign operation, the cumulative amount recognised in
equity relating to that particular operation is recognised in the income
statement.
4b. Segment reporting
The Group has five reportable segments, as described below. These
segments represent the principal split of business that is regularly
reported to the Group's Board of Directors, which is considered to be
the Group's chief operating decision maker in line with IFRS 8 Operating
Segments.
Note that as a result of the planned sale of the comparison businesses
(other than compare.com) and growth of the Admiral Loans business, the
Group's reportable segments have changed, so that compare.com is now
presented within "other" and Admiral Loans is presented as a separate
segment. Accordingly, the Group has restated the previously reported
segment information for the year ended 31 December 2019.
UK Insurance
The segment consists of the underwriting of car insurance, van insurance,
household insurance, travel insurance and other products that supplement
these insurance policies within the UK. It also includes the generation
of revenue from additional products and fees from underwriting insurance
in the UK. The Directors consider the results of these activities to be
reportable as one segment as the activities carried out in generating
the revenue are not independent of each other and are performed as one
business. This mirrors the approach taken in management reporting.
International Insurance
The segment consists of the underwriting of car and home insurance and
the generation of revenue from additional products and fees from
underwriting car insurance outside of the UK. It specifically covers the
Group operations Admiral Seguros in Spain, ConTe in Italy, L'olivier
Assurance in France and Elephant Auto in the US. None of these
operations are reportable on an individual basis, based on the threshold
requirements in IFRS 8.
Discontinued (Comparison)
As set out in note 13 to the financial statements, on 29 December 2020
the Group announced its planned sale of the majority of its comparison
businesses. As such, these operations are considered a disposal group
and are presented as discontinued operations in both 2020 and 2019.
The segment relates to the Group's comparison businesses: Confused.com
in the UK, Rastreator in Spain, LeLynx in France, and the Preminen
entities, which have a head office in Spain and operations in Mexico and
India, and Penguin Portals, the intermediate holding company of
Confused.com, LeLynx and Rastreator.
Each of the comparison businesses are operating in individual
geographical segments but are grouped into one reporting segment, as
none of the operating segments individually meet the reporting segment
threshold requirements of IFRS 8.
Admiral Loans
The segment relates to the Admiral Loans business launched in 2017,
which provides unsecured personal loans and car finance products in the
UK, primarily through the comparison channel.
Other
The 'Other' segment is designed to be comprised of all other operating
segments that are not separately reported to the Group's Board of
Directors and do not meet the threshold requirements for individual
reporting. It includes compare.com, the US comparison business, and
Admiral Pioneer.
Taxes are not allocated across the segments and, as with the corporate
activities, are included in the reconciliation to the consolidated
income statement and consolidated statement of financial position.
An analysis of the Group's revenue and results for the year ended 31
December 2020, by reportable segment, is shown below. The accounting
policies of the reportable segments are materially consistent with those
presented in the notes to the financial statements for the Group.
Year ended 31 December 2020
UK International Discontinued Admiral Total
Insurance Insurance (Comparison)(*6) Loans Other Eliminations(*2) (continuing) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- ------------- ----------------- ------- ----- ---------------- ------------- -------
Turnover(*1) 2,672.0 648.8 183.9 38.4 6.8 (22.2) 3,365.8 3,527.7
Net insurance premium
revenue 539.8 211.8 -- -- -- -- 751.6 751.6
Other Revenue and
profit commission 427.9 27.4 183.9 1.6 6.7 (22.2) 463.4 625.3
Net interest income -- -- -- 26.7 -- 2.9 29.6 29.6
Investment return(*5) 50.8 -- -- 0.5 -- (3.3) 48.0 48.0
Net revenue 1,018.5 239.2 183.9 28.8 6.7 (22.6) 1,292.6 1,454.5
Net insurance claims (150.2) (143.0) -- -- -- -- (293.2) (293.2)
Expenses (170.0) (87.4) (151.4) (42.6) (9.8) 22.2 (309.6) (439.0)
Segment profit/(loss)
before tax 698.3 8.8 32.5 (13.8) (3.1) (0.4) 689.8 722.3
Other central revenue and expenses,
including share scheme charges (74.8) (77.9)
Investment and interest
income 4.9 4.9
Finance costs(*3) (11.7) (11.7)
Consolidated profit
before tax(*4) 608.2 637.6
Taxation expense (106.2) (109.8)
Consolidated profit
after tax 502.0 527.8
Other segment items:
-- Intangible and
tangible asset additions 59.1 43.0 1.6 0.2 0.5 102.8 104.4
-- Depreciation
and amortisation 57.2 41.5 1.8 0.9 0.4 100.0 101.8
-- 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 14 for further information.
-- Eliminations are in respect of the intra-group trading between the
Group's comparison and UK and International insurance entities and
intra-group interest. Of the GBP22.2 million elimination of other
revenue and profit commission, GBP22.0 million relates to discontinued
operations, with the remaining GBP0.2 million relating to Compare.com
-- 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.
-- Profit before tax above of GBP637.6 million is presented on a
statutory basis, being 100% of the result for each entity. This increases
to the Group's share of profit before tax of GBP638.4 million. See note
14f for a reconciliation of the UK Insurance, International Insurance and
Comparison turnover and profit before tax to the Strategic Report.
-- Investment return is reported net of impairment on financial assets, in
line with management reporting.
-- See note 13 for further detail on discontinued operations.
Revenue and results for the corresponding reportable segments for the
year ended 31 December 2019 are shown below.
Re-presented
Year ended 31 December 2019
UK International Discontinued Admiral Total
Insurance Insurance (Comparison)(*6) Loans Other Eliminations(*2) (continuing) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- ------------- ----------------- ------- ------ ---------------- ------------- -------
Turnover(*1) 2,635.0 623.6 164.3 32.7 7.9 (19.4) 3,298.5 3,444.1
Net insurance premium
revenue 533.2 176.2 -- -- -- -- 709.4 709.4
Other Revenue and
profit commission 407.6 22.5 164.3 1.9 7.9 (19.4) 439.2 584.8
Net interest income -- -- -- 21.7 -- 2.8 24.5 24.5
Investment return(*5) 30.4 1.5 -- -- -- (2.8) 29.1 29.1
Net revenue 971.2 200.2 164.3 23.6 7.9 (19.4) 1,202.2 1,347.8
Net insurance claims (215.8) (143.5) -- -- -- -- (359.3) (359.3)
Expenses (157.5) (57.6) (142.4) (32.0) (14.0) 19.4 (260.4) (384.1)
Segment profit/(loss)
before tax 597.9 (0.9) 21.9 (8.4) (6.1) -- 582.5 604.4
Other central revenue and expenses,
including share scheme charges (72.3) (76.6)
Investment and interest
income 6.2 6.2
Finance costs(*4) (11.3) (11.4)
Consolidated profit
before tax(*3) 505.1 522.6
Taxation expense (89.2) (94.2)
Consolidated profit
after tax 415.9 428.4
Other segment items:
-- Intangible and
tangible asset additions 51.7 34.5 1.4 0.8 -- -- 87.0 88.4
-- Depreciation and
amortisation 57.4 33.1 1.8 1.2 0.5 -- 92.2 94.0
-- 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 14 for further information.
*2 Eliminations are in respect of the intra-group trading between the
Group's comparison and UK and International insurance entities. Of the
GBP19.4 million elimination of other revenue and profit commission,
GBP18.7 million relates to discontinued operations, with the remaining
GBP0.7 million relating to Compare.com.
*3 Profit before tax above of GBP522.6 million is presented on a
statutory basis, being 100% of the result for each entity. This
increases to the Group's share of profit before tax of GBP526.1 million.
See note 14f for a reconciliation of the UK Insurance, International
Insurance and Comparison turnover and profit before tax to the Strategic
Report.
*4 GBP1.2 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.
*5 Investment return is reported net of impairment on financial assets,
in line with management reporting.
*6 See note 13 for further detail on discontinued operations.
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 Discontinued (comparison) revenues from transactions with
other reportable segments is GBP22.0 million (2019: GBP18.7 million)
which has been eliminated on consolidation, along with GBP0.2 million
(2019: GBP0.7 million) of revenues from compare.com that are also
eliminated on consolidation.
Revenues from external customers for products and services are
consistent with the split of reportable segment revenues.
Information about geographical locations
All material revenues from external customers, and net assets attributed
to a foreign country, are shown within the International Insurance
reportable segment shown on the previous pages. The revenue and results
of the international Comparison businesses, Rastreator, LeLynx,
compare.com and the Preminen entities are not material enough to be
presented as a separate segment.
Segment assets and liabilities
The identifiable segment assets and liabilities at 31 December 2020 are
as follows:
As at 31 December 2020
----------------------------------------------------------------------------------
UK International Discontinued Admiral
Insurance Insurance (comparison) Loans Other Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Reportable segment
assets 6,446.7 1,006.0 112.6 427.3 226.1 (702.9) 7,515.8
Reportable segment
liabilities 5,359.5 858.4 57.0 426.5 461.4 (654.2) 6,508.6
Reportable segment
net assets 1,087.2 147.6 55.6 0.8 (235.3) (48.7) 1,007.2
Unallocated assets
and liabilities 116.2
Consolidated net
assets 1,123.4
Unallocated assets and liabilities consist of other central assets and
liabilities, plus deferred and current corporation tax balances. These
assets and liabilities are not regularly reviewed by the Board of
Directors in the reportable segment format.
There is an asymmetrical allocation of assets and income to the
reportable segments, in that the interest earned on cash and cash
equivalent assets deployed in the UK Insurance, Comparison and
International Insurance segments is not allocated in arriving at segment
profits. This is consistent with regular reporting to the Board of
Directors.
Eliminations represent inter-segment funding, balances included in
insurance and other receivables and deemed loan receivables in respect
of securitised loan receivables.
The segment assets and liabilities at 31 December 2019 are as follows:
As at 31 December 2019 (re-presented)
---------------------------------------------------------------------------------
UK International Admiral
Insurance Insurance Discontinued Loans Other Eliminations Total
GBPm GBPm (comparison) GBPm GBPm GBPm GBPm
Reportable segment
assets 6,282.1 966.7 83.8 531.4 269.8 (902.9) 7,230.9
Reportable segment
liabilities 5,232.7 824.4 43.6 524.8 599.1 (810.7) 6,413.9
Reportable segment
net assets 1,049.4 142.3 40.2 6.6 (329.3) (92.2) 817.0
Unallocated assets
and liabilities 101.6
Consolidated net
assets 918.6
5. Premium, claims and profit commissions
5a. Accounting policies
(i) Revenue -- premiums
Premiums relating to insurance contracts are recognised as revenue, net
of expected cancellations and insurance premium tax, proportionally over
the period of cover. Premiums with an inception date after the end of
the period are held in the statement of financial position as deferred
revenue. Outstanding collections from policyholders related to unexpired
risk are recognised within policyholder receivables. A corresponding
unearned premium provision is recognised (see note 5a(iii)).
In the UK, in 2020 the Group announced a Stay at Home premium refund for
all existing motor insurance customers, which amounted to GBP97.3
million net of insurance premium tax. The impact of this was to reduce
gross insurance premium revenue (i.e. excluding co-insurer share of
total premiums written) by GBP70.0m, and to reduce net insurance premium
revenue by GBP21.1 million. The full impact of the refund has been
reflected in the current period. See note 14g for further details.
(ii) Revenue -- profit commission
Under some of the co-insurance and reinsurance contracts under which
motor premiums are shared or ceded, profit commission may be earned on a
particular year of account, which is usually subject to performance
criteria such as loss ratios and expense ratios. The commission is
dependent on the ultimate outcome of any year, with revenue being
recognised when loss and expense ratios used in the preparation of the
financial statements move below a contractual threshold.
Profit commission receivable from reinsurance contracts is accounted for
in line with IFRS 4, whereas profit commission receivable from
co-insurance contracts is in line with IFRS 15. Further detail of the
policy under IFRS 15 is set out in note 8.
(iii) Insurance contracts and reinsurance assets
Premiums
The proportion of premium receivable on in-force policies relating to
unexpired risks is reported in insurance contract liabilities and
reinsurance assets as the unearned premium provision -- gross and
reinsurers' share respectively.
Claims
Claims and claims handling expenses are charged as incurred, based on
the estimated direct and indirect costs of settling all liabilities
arising on events occurring up to the balance sheet date.
The provision for claims outstanding comprises provisions for the
estimated cost of settling all claims incurred but unpaid at the balance
sheet date, whether reported or not. Anticipated reinsurance recoveries
are disclosed separately as assets.
Whilst the Directors consider that the gross provisions for claims and
the related reinsurance recoveries are fairly stated on the basis of the
information currently available to them, the ultimate liability will
vary as a result of subsequent information and events and may result in
significant adjustments to the amounts provided.
Adjustments to the amounts of claims provisions established in prior
years are reflected in the income statement for the period in which the
adjustments are made and disclosed separately if material. The methods
used, and the estimates made, are reviewed regularly.
Provision for unexpired risks is made where necessary for the estimated
amount required over and above unearned premiums (net of deferred
acquisition costs) to meet future claims and related expenses.
Co-insurance
The Group has entered into certain co-insurance contracts under which
insurance risks are shared on a proportional basis, with the co-insurer
taking a specific percentage of premium written and being responsible
for the same proportion of each claim. The co-insurer therefore takes
direct insurance risk from the policyholder and is subsequently directly
responsible to the claimant for its proportion of the claim. As the
contractual liability is several and not joint, neither the premiums nor
claims relating to the co-insurance are included in the income
statement. Under the terms of these agreements the co-insurers reimburse
the Group for the same proportionate share of the costs of acquiring and
administering the business.
Reinsurance assets
Contracts entered into by the Group with reinsurers under which the
Group is compensated for losses on the insurance contracts issued by the
Group are classified as reinsurance contracts. A contract is only
accounted for as a reinsurance contract where there is significant
insurance risk transfer between the insured and the insurer.
Reinsurance assets are comprised of balances due from reinsurance
companies for ceded insurance liabilities. Amounts recoverable from
reinsurers are estimated in a consistent manner with the outstanding
claims provisions or settled claims associated with the reinsured
policies and in accordance with the relevant reinsurance contract.
The Group assesses its reinsurance assets for impairment on a regular
basis, and in detail every six months. If there is objective evidence
that the asset is impaired, then the carrying value will be written down
to its recoverable amount.
On the commutation of reinsurance contracts, the reinsurer is discharged
from all obligations relating to the contract. Reinsurance assets and
liabilities relating to the commuted contracts are settled in the period
in which the commutation agreement is signed.
5b. Net insurance premium revenue
31 December 31 December
2020(*1) 2019
GBPm GBPm
Total insurance premiums written before
co-insurance(*2) 2,957.2 2,884.4
Group gross premiums written after co-insurance 2,344.0 2,273.7
Outwards reinsurance premiums (1,555.9) (1,541.4)
Net insurance premiums written 788.1 732.3
Change in gross unearned premium provision (78.7) (75.3)
Change in reinsurers' share of unearned premium
provision 42.2 52.4
Net insurance premium revenue 751.6 709.4
*1 See note 14g for the impact of the "stay at home" premium refund
issued to UK motor insurance customers on premiums written and net
insurance premium revenue
*2 Alternative Performance Measures -- refer to the end of the report
for definition and explanation, and to note 14a for reconciliation to
group gross premiums written.
The Group's share of its insurance business was underwritten by Admiral
Insurance (Gibraltar) Limited, Admiral Insurance Company Limited,
Admiral Europe Compania Seguros ('AECS') and Elephant Insurance Company.
The vast majority of contracts are short term in duration, lasting for
10 or 12 months.
5c. Profit commission
31 December 31 December
2020 2019
GBPm GBPm
Underwriting year (UK Motor only)
2015 and prior 38.2 48.3
2016 25.1 27.5
2017 23.3 36.4
2018 5.5 --
2019 20.9 --
2020 11.7 --
Total UK Motor profit commission(*1) 124.7 112.2
---------------------------------------------------- ----------- -----------
Total UK Household and International profit
commission(*1) 9.3 2.7
Total profit commission 134.0 114.9
*1 Of the total UK motor profit commission recognised of GBP124.7
million, GBP102.3 million relates to co-insurance arrangements and
GBP22.4 million to reinsurance arrangements. The UK Household and
International profit commission relates solely to reinsurance
arrangements.
Sensitivities of the recognition of profit commission to movements in
the booked loss ratio are shown in note 5d(ii).
5d. Reinsurance assets and insurance contract liabilities
(i) Objectives, policies and procedures for the management of insurance
risk
The Group's primary business is the issuance of insurance contracts that
transfer risk from policyholders to the Group and its co-insurance
partners.
Insurance risk involves uncertainty over the occurrence, amount or
timing of claims arising on insurance contracts issued. It is primarily
comprised of Reserve risk; the risk that the value of insurance
liabilities established is insufficient to cover the ultimate cost of
claims incurred at the balance sheet date, and premium risk; the risk
that the claims experience on business written but not earned is higher
than allowed for in the premiums charged to policyholders.
The Board of Directors is responsible for the management of insurance
risk, although as mentioned in note 6, it has delegated the detailed
oversight of risk management to the Group Risk Committee.
The Group also has a Reserving Committee which comprises senior managers
within the finance, claims, pricing and actuarial functions. The
Reserving Committee primarily recommends the approach for UK Car
Insurance reserving but also reviews the systems and controls in place
to support accurate reserving and considers material reserving issues
such as large bodily injury claims frequency and severity.
The Board implements certain policies in order to mitigate and control
the level of insurance risk accepted by the Group. These include pricing
policies and claims management and administration processes, in addition
to reserving policies and co- and reinsurance arrangements as detailed
below.
Reserve Risk
Reserving risk is mitigated through a series of processes and controls.
The key processes are as follows:
-- Regular management and internal actuarial review of individual and
aggregate case claim reserves, including regular reporting of management
information and exception reporting of significant movements;
-- Regular management and internal actuarial review of large claims,
including claims settled or potentially settled by PPOs for which the
uncertainty is increased by factors such as the lifetime of the claimant
and movements in the indexation for the cost of future care of the
claimant;
-- Bi-annual external actuarial review of best estimate claims reserves
using a variety of recognised actuarial techniques;
-- Internal actuarial analysis of reserve uncertainty through qualitative
analysis, scenario testing and a range of stochastic reserving
techniques;
-- Ad hoc external reviews of reserving related processes and assumptions;
-- Use of a reserving methodology which informs management's reserving
decisions for the purposes of the Group's financial statements. As
described in note 3, critical accounting judgements and estimates, the
methodology determines that reserves should be set above projected best
estimate outcomes to allow for unforeseen adverse claims development.
As noted above, the Group shares a significant amount of the insurance
business generated with external underwriters. As well as these
proportional arrangements, excess of loss reinsurance programmes are
also purchased to protect the Group against very large individual claims
and catastrophe losses.
Claims reserving
As previously disclosed, Admiral's reserving policy (both within the
claims function and in the financial statements) is initially to reserve
conservatively, above internal and independent projections of actuarial
best estimates. This is designed to create a margin held in reserves to
allow for unforeseen adverse development in open claims and typically
results in Admiral making above industry average reserve releases.
Admiral's booked claims reserves continue to include a significant
margin above projected best estimates of ultimate claims costs.
As at 31 December 2020, the level of relative reserve margin is
consistent with that at 31 December 2019, albeit remaining prudent when
measured against the internal reserve risk distribution and other market
benchmarks.
As profit commission income is recognised in the income statement in
line with loss ratios accounted for on Admiral's own claims reserves,
the reserving policy also results in profit commission income being
deferred and recognised over time.
Premium Risk
As noted above, the Group defines Premium risk as the risk that claims
cost on business written but not yet earned is higher than allowed for
in the premiums charged to policyholders. This also includes catastrophe
risk; the risk of incurring significant losses as a result of the
occurrence of manmade catastrophe or natural weather events.
Key processes and controls operating to mitigate premium risk are as
follows:
-- Experienced and focused senior management and teams in relevant business
areas including pricing and claims management;
-- A data-driven and analytical approach to regular monitoring of claims and
underwriting performance;
-- Capability to identify and resolve underperformance promptly through
changes to key performance drivers, in particular pricing.
In addition, as mentioned above, excess of loss reinsurance programmes
are also purchased to protect the Group against very large individual
claims and catastrophe losses.
Other elements of insurance risk include reinsurance risk; the risk of
placement of ineffective reinsurance arrangements, or the economic risk
of reduced availability of co-insurance and reinsurance arrangements in
future periods.
The Group mitigates these risks by ensuring that it has a diverse range
of financially secure reinsurance partners, including a long-term
relationship with Munich Re and a number of other very large reinsurers.
Concentration of insurance risk
The Directors do not believe there are significant concentrations of
insurance risk. This is because, although the Group has historically
written only one significant line of UK insurance business, the risks
are spread across a large number of people and a wide regional base. The
International Car Insurance, UK Household, UK Travel and UK Van
businesses further contribute to the diversification of the Group's
insurance risk.
Information regarding reinsurance credit risk is provided in note 6j to
the financial statements.
(ii) Sensitivity of recognised amounts to changes in assumptions
Underwriting year loss ratios -- UK Car Insurance
The following table sets out the impact on equity and post-tax profit or
loss at 31 December 2020 that would result from a 1%, 3% and 5% increase
and decrease in the UK Car insurance loss ratios used for each
underwriting year for which material amounts remain outstanding. This
includes the impact on profit commission of the respective changes in
booked loss ratios, which are also shown separately below.
Total impact on Income Statement (including profit
commission) Underwriting year
2017 2018 2019 2020
------ ------ ------
Booked loss ratio 70% 78% 76% 72%
Impact of 1% deterioration in booked loss ratio
(GBPm) (14.3) (11.6) (8.8) (3.2)
Impact of 3% deterioration in booked loss ratio
(GBPm) (43.5) (31.8) (28.6) (9.4)
Impact of 5% deterioration in booked loss ratio
(GBPm) (71.7) (52.2) (39.3) (14.8)
Impact of 1% improvement in booked loss ratio
(GBPm) 14.9 13.0 15.8 3.2
Impact of 3% improvement in booked loss ratio
(GBPm) 44.1 42.3 44.2 9.7
Impact of 5% improvement in booked loss ratio
(GBPm) 73.2 72.1 72.5 16.6
As above, the impact is stated net of reinsurance and includes the
change in net insurance claims along with the associated profit
commission movements that result from changes in loss ratios. The
figures are stated net of tax at the current rate.
The following table sets out the impact on equity and post-tax profit or
loss at 31 December 2020 that would result from a 1%, 3% and 5% increase
and decrease in the UK Car insurance loss ratios used for each
underwriting year for which material amounts remain outstanding, on
profit commission only.
Impact on profit commission only Underwriting year
2017 2018 2019 2020
----- ------ -----
Booked loss ratio 70% 78% 76% 72%
Impact of 1% deterioration in booked loss ratio
(GBPm) (4.1) (2.7) (6.3) (1.9)
Impact of 3% deterioration in booked loss ratio
(GBPm) (12.8) (5.1) (21.0) (5.4)
Impact of 5% deterioration in booked loss ratio
(GBPm) (20.6) (7.8) (26.8) (8.1)
Impact of 1% improvement in booked loss ratio
(GBPm) 4.7 4.1 13.3 1.9
Impact of 3% improvement in booked loss ratio
(GBPm) 13.4 15.7 36.7 5.7
Impact of 5% improvement in booked loss ratio
(GBPm) 22.1 27.7 60.0 10.0
Sensitivities to key assumptions in the best estimate reserves have not
been presented, given the significant and prudent margin held above best
estimate reserves and the co- and reinsurance arrangements that are also
considered when determining the net impact on the income statement. The
underwriting year sensitivities presented above are considered to
provide relevant and transparent information on the changes to key
inputs to the financial statements.
(iii) Analysis of recognised amounts
31 December 31 December
2020 2019
GBPm GBPm
Gross
Claims outstanding(*1) 2,919.9 2,899.4
Unearned premium provision 1,161.4 1,075.6
Total gross insurance liabilities 4,081.3 3,975.0
Recoverable from reinsurers
Claims outstanding 1,319.3 1,354.2
Unearned premium provision 763.9 717.5
Total reinsurers' share of insurance liabilities 2,083.2 2,071.7
Net
Claims outstanding(*2) 1,600.6 1,545.2
Unearned premium provision 397.5 358.1
Total insurance liabilities -- net 1,998.1 1,903.3
-- Gross claims outstanding at 31 December 2020 is presented before the
deduction of salvage and subrogation recoveries totalling GBP70.5 million
(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 (v) below.
(iv) Analysis of claims incurred
The following tables illustrate the development of gross and net UK
Insurance and International Insurance claims incurred for the past ten
financial periods, including the impact of re-estimation of claims
provisions at the end of each financial year. The first table shows
actual gross claims incurred and the second shows actual net claims
incurred. Figures are presented on an underwriting year basis.
Financial year ended 31 December
Analysis of claims
incurred (gross 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total
amounts) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Underwriting
year (UK insurance)
2011 and prior (694.4) (325.5) 85.1 79.4 58.5 3.2 31.2 27.4 17.0 8.3 (709.8)
2012 -- (463.7) (334.7) 49.8 69.2 8.6 59.9 30.3 8.5 6.3 (565.8)
2013 -- -- (431.1) (325.5) 53.6 44.4 34.2 35.2 8.2 15.4 (565.6)
2014 -- -- -- (438.2) (347.1) 25.6 17.1 52.0 15.7 22.5 (652.4)
2015 -- -- -- -- (428.4) (411.2) 21.7 53.3 58.0 34.0 (672.6)
2016 -- -- -- -- -- (529.4) (463.7) 82.1 54.8 46.1 (810.1)
2017 -- -- -- -- -- -- (691.8) (615.0) 123.1 79.5 (1,104.2)
2018 -- -- -- -- -- -- -- (818.8) (546.9) 52.8 (1,312.9)
2019 -- -- -- -- -- -- -- -- (812.4) (476.2) (1,288.6)
2020 -- -- -- -- -- -- -- -- -- (697.4) (697.4)
UK insurance
gross claims
incurred (694.4) (789.2) (680.7) (634.5) (594.2) (858.8) (991.4) (1,153.5) (1,074.0) (908.7)
Underwriting
year (International
insurance)(*1)
2011 and prior (65.6) (54.2) 1.1 10.8 3.0 4.6 1.8 2.8 1.6 0.4 (93.7)
2012 -- (58.0) (53.7) 0.7 4.0 6.0 2.6 2.0 1.5 (0.8) (95.7)
2013 -- -- (68.2) (57.8) 4.2 7.7 3.3 5.8 1.3 0.2 (103.5)
2014 -- -- -- (85.2) (65.5) 4.4 5.8 5.5 2.0 (0.4) (133.4)
2015 -- -- -- -- (92.6) (101.6) 7.7 3.1 0.1 (0.1) (183.4)
2016 -- -- -- -- -- (138.9) (125.3) 11.7 6.9 3.6 (242.0)
2017 -- -- -- -- -- -- (174.1) (147.3) 16.5 8.6 (296.3)
2018 -- -- -- -- -- -- -- (204.9) (165.7) 20.1 (350.5)
2019 -- -- -- -- -- -- -- -- (293.8) (141.2) (435.0)
2020 -- -- -- -- -- -- -- -- -- (233.6) (233.6)
International
insurance gross
claims incurred (65.6) (112.2) (120.8) (131.5) (146.9) (217.8) (278.2) (321.3) (429.6) (343.2)
Other gross claims
incurred 0.0 (1.7) (2.2) (7.1) (5.4) (0.1) (3.6) (1.1) -- --
Claims handling
costs (25.9) (26.0) (22.9) (21.4) (22.6) (27.1) (35.5) (37.9) (64.5) (66.7)
Total gross claims
incurred (785.9) (929.1) (826.6) (794.5) (769.1) (1,103.8) (1,308.7) (1,513.8) (1,568.1) (1,318.6)
Financial year ended 31 December
Analysis of claims
incurred (net 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total
amounts) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Underwriting year
(UK insurance)
2011 and prior (323.6) (148.3) 81.4 79.4 57.6 22.4 37.6 19.9 17.2 3.4 (153.0)
2012 -- (196.0) (139.3) 49.8 69.2 19.4 59.1 30.6 4.9 8.2 (94.1)
2013 -- -- (184.4) (135.0) 38.4 49.3 36.4 34.7 4.4 13.7 (142.5)
2014 -- -- -- (187.0) (144.1) (16.4) 25.3 38.4 17.2 18.6 (248.0)
2015 -- -- -- -- (182.1) (162.0) (2.6) 42.6 48.2 26.1 (229.8)
2016 -- -- -- -- -- (219.4) (180.7) 48.1 50.7 46.6 (254.7)
2017 -- -- -- -- -- -- (214.3) (182.9) 77.8 67.1 (252.3)
2018 -- -- -- -- -- -- -- (261.0) (165.2) 40.6 (385.6)
2019 -- -- -- -- -- -- -- -- (258.1) (142.5) (400.6)
2020 -- -- -- -- -- -- -- -- -- (218.5) (218.5)
UK insurance net
claims incurred (323.6) (344.3) (242.3) (192.8) (161.0) (306.7) (239.2) (229.6) (202.9) (136.7)
Underwriting year
(International
insurance)
2011 and prior (28.3) (24.4) 0.3 5.4 1.4 2.2 0.9 1.3 0.7 0.3 (40.2)
2012 -- (24.2) (22.8) (0.8) 2.0 2.2 1.3 1.0 0.7 (0.4) (41.0)
2013 -- -- (26.6) (23.5) 1.7 4.8 0.9 3.0 0.7 0.1 (38.9)
2014 -- -- -- (31.6) (23.3) 1.8 1.8 2.2 0.8 (0.1) (48.4)
2015 -- -- -- -- (33.4) (39.6) 5.1 1.3 1.3 -- (65.3)
2016 -- -- -- -- -- (47.9) (43.5) 6.3 2.4 1.5 (81.2)
2017 -- -- -- -- -- -- (60.7) (51.5) 5.5 3.2 (103.5)
2018 -- -- -- -- -- -- -- (71.2) (58.4) 7.8 (121.8)
2019 -- -- -- -- -- -- -- -- (89.6) (50.1) (139.7)
2020 -- -- -- -- -- -- -- -- -- (95.4) (95.4)
International
insurance net
claims incurred (28.3) (48.6) (49.1) (50.5) (51.6) (76.5) (94.2) (107.6) (135.9) (133.1)
------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Other net claims
incurred 0.0 (0.8) (2.1) (6.9) (5.4) (0.2) (2.6) (1.1) -- --
Claims handling
costs (11.9) (10.8) (9.5) (8.9) (9.4) (11.2) (11.1) (11.8) (20.5) (23.4)
Total net claims
incurred (363.8) (404.5) (303.0) (259.1) (227.4) (394.6) (347.1) (350.1) (359.3) (293.2)
The table below shows the development of UK Car Insurance loss ratios
for the past six financial periods, presented on an underwriting year
basis.
Financial year ended 31 December
UK Car Insurance loss ratio
development 2015 2016 2017 2018 2019 2020
------ ----- ----- ----- -----
Underwriting year (UK Car only)
2015 87% 87% 83% 77% 72% 69%
2016 -- 88% 84% 77% 73% 68%
2017 -- -- 87% 83% 75% 70%
2018 -- -- -- 92% 81% 78%
2019 -- -- -- -- 92% 76%
2020 -- -- -- -- -- 72%
(v) Analysis of claims reserve releases
The following table analyses the impact of movements in prior year
claims provisions on a gross and net basis. Figures are presented on an
underwriting year basis, other than for the 2019 year which is presented
on an accident year basis due to the impact of Covid-19.
Financial year ended 31 December
2015 2016 2017 2018 2019 2020
Gross GBPm GBPm GBPm GBPm GBPm GBPm
Underwriting year (UK Motor
insurance)
2015 and prior 197.7 135.7 190.3 174.5 91.2 69.9
2016 -- -- 23.7 70.6 50.6 46.3
2017 -- -- -- 25.4 110.6 69.8
2018 -- -- -- -- 83.2 57.3
2019 -- -- -- -- -- 54.8
Total gross release (UK Motor
Insurance) 197.7 135.7 214.0 270.5 335.6 298.1
---------------------------------- ------ ------ ----- ----- ----- -----
Total gross release (UK Household
Insurance) -- -- 1.6 4.6 8.3 9.2
Total gross release (International
Insurance) 14.0 21.0 23.2 35.2 39.1 53.2
Total gross release 211.7 156.7 238.8 310.3 383.0 360.5
Financial year ended 31 December
2015 2016 2017 2018 2019 2020
Net GBPm GBPm GBPm GBPm GBPm GBPm
----- ----- ----- ----- -----
Underwriting year (UK Motor Insurance)
2015 and prior 173.4 75.4 155.9 165.9 91.2 69.9
2016 -- -- 10.0 47.1 50.6 46.3
2017 -- -- -- 8.0 75.8 67.7
2018 -- -- -- -- 25.8 40.7
2019 -- -- -- -- -- 17.0
Total net release (UK Motor Insurance) 173.4 75.4 165.9 221.0 243.4 241.6
---------------------------------------------------------- ----- ----- ----- ----- ----- -----
Total net release (UK Household Insurance) -- -- 0.5 1.4 2.5 2.8
Total net release (International Insurance) 6.5 9.9 9.5 13.5 14.4 18.6
Total net release 179.9 85.3 175.9 235.9 260.3 263.0
Analysis of net releases on UK Motor Insurance:
-- Net releases on Admiral net share (UK motor) 84.6 58.3 92.1 111.4 121.7 104.3
-- Releases on commuted quota share reinsurance contracts
(UK motor) 88.8 17.1 73.8 109.6 121.7 137.3
Total net release as above 173.4 75.4 165.9 221.0 243.4 241.6
Admiral typically commutes quota share reinsurance contracts in its UK
Car Insurance business 24 or 36 months following the start of the
underwriting year. After commutation, any changes in claims costs on the
commuted proportion of the business are reflected within claims costs
and are separately analysed here. Releases on commuted quota share
contracts are analysed by underwriting year as follows:
Financial year ended 31 December
2016 2017 2018 2019 2020
GBPm GBPm GBPm GBPm GBPm
----- ----- ----- ------
Underwriting year
2015 and prior 17.1 73.8 91.9 50.7 40.9
2016 -- -- 17.7 29.5 27.0
2017 -- -- -- 41.5 46.0
2018 -- -- -- -- 23.4
Total releases on commuted quota share reinsurance
contracts 17.1 73.8 109.6 121.7 137.3
--------------------------------------------------- ----- ----- ----- ----- ------
Profit commission is analysed in note 5c.
(vi) Reconciliation of movement in claims provision
31 December 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 claims handling costs and
releases) 1,612.4 (1,079.6) 532.8
Reserve releases (360.5) 97.5 (263.0)
Movement in claims provision due to commutation -- 352.7 352.7
Claims paid and other movements (1,231.4) 664.3 (567.1)
Claims provision at end of period 2,919.9 (1,319.3) 1,600.6
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 claims handling costs and
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
(vii) Reconciliation of movement in net unearned premium provision
31 December 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 2,344.0 (1,555.9) 788.1
Earned in the period (2,265.3) 1,513.7 (751.6)
Translation differences 7.1 (4.2) 2.9
Unearned premium provision at end of period 1,161.4 (763.9) 397.5
--------------------------------------------- --------- ----------- -------
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
--------------------------------------------- --------- ----------- -------
6. Investment Income and costs
6a. Accounting policies
i) Financial assets
Classification and measurement
The classification and subsequent measurement of the financial asset
under IFRS 9 depends on:
1. the Group's business model for managing the financial assets and
2. the contractual cash flow characteristics of the financial asset.
Based on these factors, the financial asset is classified into one of
the following categories:
--Amortised cost -- assets which are held in order to collect
contractual cash flows, and the contractual terms of the financial asset
give rise to cash flows which are solely payments of principal and
interest on the principal amount outstanding (SPPI), where the asset is
not designated as FVTPL.
For the Group, these include deposits with credit institutions, cash and
cash equivalents, insurance receivables, trade and other receivables and
loans and advances to customers.
The interest income generated from these assets is included in
'Investment return' with the exception of Loans and advances to customer,
where the interest receivable is recognised in 'Interest income'.
Impairment is recognised on these assets using the expected credit loss
model.
--Fair value through other comprehensive income (FVOCI) -- assets which
are held both to collect contractual cash flows and to sell the asset,
where the contractual terms of the financial asset give rise to cash
flows which are solely payments of principal and interest on the
principal amount outstanding (SPPI), where the asset is not designated
as FVTPL.
For the Group, these assets include government and corporate debt.
In addition, IFRS 9 allows an irrevocable election at initial
recognition to designate equity investments at FVOCI that otherwise
would be held at FVTPL, provided these are not held for trading. The
Group has made this election for certain equity investments.
Movements in the carrying amount are taken through OCI, with the
exception of recognition of impairment gains or losses, interest revenue
and foreign exchange gains or losses which are recognised in profit or
loss.
--Fair value through profit or loss (FVTPL) -- assets which do not meet
the criteria for amortised cost or FVOCI, or which are designated as
FVTPL.
For the Group these assets include liquidity funds investing in short
duration assets and derivative financial instruments.
A gain or loss on disposal of an investment measured at FVOCI is
presented within 'Investment return' in the period in which it arises.
Impairment
The expected credit loss model is used to calculate any impairment to be
recognised for all assets measured at amortised cost, as well as
financial investments measured at FVOCI. The general approach, which
utilises the three-stage model, is used for Loans and advances to
customers (see note 7) whilst impairment for the remaining assets is
measured using the simplified approach.
Derecognition
A financial asset is derecognised when the rights to receive cash flows
from that asset have expired, or when the Group transfers the asset and
all the attached substantial risks and rewards relating to the asset to
a third party.
ii) Financial Liabilities
Classification and subsequent measurement
All financial liabilities are classified as subsequently measured at
amortised cost using the effective interest method, except for
derivatives that are classified at fair value through profit or loss and
subsequently measured at fair value.
Movements in the amortised cost are recognised through the income
statement.
Derecognition
A financial liability is derecognised when the obligation under that
liability is discharged, cancelled or expires.
iii) Investment return and finance costs
Investment return from financial assets comprises distributions as well
as net realised and unrealised gains on financial assets classified as
FVTPL, interest income and net realised gains from financial assets
classified as FVOCI, and interest income from financial assets
classified as Amortised cost.
Finance costs from financial liabilities comprise interest expense on
subordinated notes, loan backed securities, credit facilities and lease
liabilities, calculated using the effective interest rate method. The
effective interest rate method calculates the amortised cost of a
financial asset or liability (or group of financial assets or financial
liabilities) and allocates the interest income or expense over the
expected life of the asset or liability.
6b. Investment return
Re-presented(*4)
31 December 31 December
2020 2019
GBPm GBPm
At At
EIR Other Total EIR Other Total
Investment return
On assets classified as FVTPL -- 8.5 8.5 -- 11.4 11.4
On assets classified as
FVOCI(*1*3) 32.5 5.0 37.5 34.8 0.1 34.9
On assets classified as amortised
costs(*1) 1.4 -- 1.4 1.6 -- 1.6
Net unrealised losses
Unrealised losses on forward
contracts -- -- -- -- (0.1) (0.1)
Accrual for reinsurers' share
of investment return -- 12.9 12.9 -- (12.9) (12.9)
Interest receivable on cash and
cash equivalents(*1) -- 0.4 0.4 -- 0.8 0.8
Total investment and interest
income (*2) 33.9 26.8 60.7 36.4 (0.7) 35.7
*1 Interest received during the year was GBP10.1 million (2019: GBP11.6
million)
*2 Total investment return excludes GBP2.9 million of intra-group
interest (2019: GBP2.8 million)
*3 Realised gains on sales of debt securities classified as FVOCI are
GBP5.0 million (2019: GBPnil)
*4 2019 Investment return re-presented to show interest expense at
effective interest rate separately, and to exclude the movement on
expected credit loss provisions now shown as a separate expense.
6c. Finance costs
Re-presented
31 December 31 December
2020 2019
Continuing operations GBPm GBPm
Interest payable on subordinated loan notes
and other credit facilities(*1*2) 11.7 11.4
Interest payable on lease liabilities (*1) 2.6 3.1
Interest recoverable from co and re-insurers (2.0) (2.0)
Total finance costs on continuing operations 12.3 12.5
*1 Interest paid during the year was GBP14.0 million (2019: GBP14.0
million)
*2 See note 7e for details of credit facilities
Finance costs represent interest payable on the GBP200.0 million (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.
6d. Expected credit losses
31 December 31 December
2020 2019
Note GBPm GBPm
Expected credit losses on financial
investments 6f 7.8 0.4
Expected credit losses on Loans and advances
to customers(*1) 7b 25.8 13.8
Total expense for expected credit losses 33.6 14.2
*1 Includes GBP7.8 million of write-offs, with total movement in the
expected credit loss provision being GBP25.8 million.
See note 6f and note 7b for details of the impairment methodology.
6e. Financial assets and liabilities
The Group's financial assets and liabilities can be analysed as follows:
31 December 31 December
2020 2019
Continuing operations GBPm GBPm
Financial investments measured at FVTPL
Money market and other similar funds 1,339.3 1,160.2
Financial investments classified as FVOCI
Debt securities 1,912.7 1,776.3
Government gilts 177.3 174.0
2,090.0 1,950.3
Equity investments (designated FVOCI) 11.3 7.5
2,101.3 1,957.8
Financial assets measured at amortised cost
Deposits with credit institutions 65.4 116.5
Total financial investments 3,506.0 3,234.5
Other financial assets
Insurance receivables 977.9 948.9
Trade and other receivables (measured at amortised
cost) 204.1 278.8
Insurance and other receivables 1,182.0 1,227.7
Loans and advances to customers (note 7) 359.8 455.1
Cash and cash equivalents 298.2 281.7
Total financial assets from continuing operations 5,346.0 5,199.0
Financial liabilities
Subordinated notes 204.3 204.2
Loan backed securities 260.7 304.5
Other borrowings 20.0 20.0
Derivative financial instruments 3.6 1.4
Subordinated and other financial liabilities 488.6 530.1
Trade and other payables(*1) 1,991.2 1,975.9
Lease liabilities 122.8 137.1
Total financial liabilities 2,602.6 2,643.1
*1 Trade and other payables total balance of GBP1,991.2 million (2019:
GBP1,975.9 million) above includes GBP1,502.6 million (2019: GBP1,491.3
million) in relation to tax and social security, deferred income and
reinsurer balances that are outside the scope of IFRS 9.
The maturity profile of financial assets and liabilities under the scope
of IFRS 4 & 9 at 31 December 2020 is as follows:
On demand < 1 year Between 1 and 2 years > 2 years
GBPm GBPm GBPm GBPm
Financial investments
Money market funds and
derivative financial
instruments -- 1,339.3 -- --
Deposits with credit
institutions -- 55.4 10.0 --
Debt securities -- 202.7 429.1 1,280.9
Government gilts -- -- -- 177.3
Total financial
investments -- 1,597.4 439.1 1,458.2
Trade and other
receivables -- 204.1 -- --
Loans and advances to
customers -- 116.9 125.6 117.3
Cash and cash
equivalents 298.2 -- -- --
Total financial assets 298.2 1,918.4 564.7 1,575.5
Financial liabilities
Subordinated notes -- 11.0 11.0 222.0
Loan backed securities -- 102.7 83.8 86.1
Other borrowings -- 20.3 -- --
Trade and other
payables(*1) -- 1,751.4 -- --
Total financial
liabilities -- 1,885.4 94.8 308.1
----------------------- --------- -------- --------------------- ---------
*1 Of the GBP1,751.4 million held within trade and other payables in
the maturity table, GBP1,262.8 million do not meet the definition of a
financial liability under IFRS 9 but fall within the scope of IFRS 4
hence are included in the above maturity profile.
The maturity profile of financial assets and liabilities under the scope
of IFRS 4 & 9 at 31 December 2019 was as follows:
On demand < 1 year Between 1 and 2 years > 2 years
GBPm GBPm GBPm GBPm
Financial investments
Money market funds and
derivative financial
instruments -- 1,145.1 1.0 14.0
Deposits with credit
institutions -- 96.5 20.0 --
Debt securities -- 462.6 196.6 1,117.1
Government gilts -- -- -- 174.0
Total financial
investments -- 1,704.2 217.6 1,305.1
Trade and other
receivables -- 278.8 -- --
Loans and advances to
customers -- 128.6 134.2 192.3
Cash and cash
equivalents 281.7 -- -- --
Total financial assets 281.7 2,111.6 351.8 1,497.4
Financial liabilities
Subordinated notes -- 11.0 11.0 233.0
Loan backed securities -- 102.3 90.9 125.7
Other borrowings -- 20.3 -- --
Trade and other
payables -- 1,705.9 -- --
Total financial
liabilities -- 1,839.5 101.9 358.7
*1 Of the GBP1,705.9 million held within trade and other payables,
GBP1,221.3 million do not meet the definition of a financial liability
under IFRS 9 but fall within the scope of IFRS 4 hence are included in
the above maturity profile.
The maturity profile of gross insurance liabilities at the end of 2020
is as follows:
< 1 year 1--3 years > 3 years
GBPm GBPm GBPm
Claims outstanding 874.3 816.3 1,229.3
Unearned premium provision 1,161.4 -- --
Total gross insurance liabilities 2,035.7 816.3 1,229.3
The maturity profile of gross insurance liabilities at the end of 2019
was as follows:
< 1 year 1--3 years > 3 years
GBPm GBPm GBPm
Claims outstanding 813.7 497.0 1,588.7
Unearned premium provision 1,075.6 -- --
Total gross insurance liabilities 1,889.3 497.0 1,588.7
6f. Financial Investments
31 December 2020
FVTPL FVOCI Amortised Cost(*2) Total
GBPm GBPm GBPm GBPm
AAA- AA 471.9 889.7 38.8 1,400.4
A 637.0 756.7 325.9 1,719.6
BBB 52.3 380.1 52.3 484.7
Sub BBB 31.7 -- 0.1 31.8
Not rated(*1) 146.4 74.8 -- 221.2
Total financial investments 1,339.3 2,101.3 417.1 3,857.7
-- The majority (GBP136.7 million) of the unrated exposure stems from
money market funds, which are rated AAA, but the underlying securities
are not. These specific exposures are repurchase agreements. The
remaining unrated exposure is a mixture of private debt (GBP70.3 million)
and other holdings (GBP14.2 million).
*2 Investments held at amortised cost comprise deposits with credit
institutions, and cash (including cash held by discontinued operations
of GBP53.5 million)
31 December 2019
FVTPL FVOCI Amortised Cost(*2) Total
GBPm GBPm GBPm GBPm
AAA- AA 414.5 861.0 68.7 1,344.2
A 441.2 733.6 308.5 1,483.3
BBB 28.5 304.3 20.2 353.0
Sub BBB 13.3 -- 0.1 13.4
Not rated(*1) 262.7 58.9 0.7 322.3
Total financial investments 1,160.2 1,957.8 398.2 3,516.2
*1 The majority (GBP234.4m) of the unrated exposure stems from money
market funds, which are rated AAA, but the underlying securities are
not. These specific exposures are repurchase agreements. The remaining
unrated exposure is a mixture of private debt (GBP77.2m) and other
holdings (GBP10.7m).
Classification and Measurement
At initial recognition, the Group measures financial investments at fair
value plus or minus, in the case of financial instruments not measured
at fair value through profit and loss, directly attributable transaction
costs. Transaction costs of financial instruments measured at fair value
through profit and loss are expensed to the profit and loss when
incurred.
Money market funds and derivative financial instruments are measured at
FVTPL. The regulatory capital within the Group is used to invest in
these instruments in addition to any surplus funds which may be held.
Buying and selling activity occurs depending on timing of different
cashflows.
Debt securities are measured at FVOCI and as such fall under the scope
of the ECL model. These assets are held to match policyholder
liabilities or interest on debt liabilities. If sold before maturity,
gains or losses on these assets impact the P&L.
Private Equity investments have been designated as being reported
through FVOCI due to these being long term, strategic investments.
Dividends are recognised in the Income Statement whilst a change in fair
values will be reflected in OCI. Given the immaterial amount (GBP11.3
million) of these investments, detailed levelling disclosures have not
been provided.
Impairment
All financial investments held at FVOCI and at amortised cost have been
assessed for impairment using the expected credit loss model under IFRS
9. The assessment has been made based on the credit ratings of the
entities and externally available credit loss ratios.
The fair value of debt securities is calculated with reference to quoted
market valuations and as such take into account future expected credit
losses. As a result, no impairment provision is required against the
book value. The calculated impairment loss within the fair value is
recognised through the Income Statement whilst fair value movements are
recognised in other comprehensive income. Deposits are held with well
rated institutions and are held at book value, with impairment
calculated in a similar manner to debt securities.
All assets which require a calculation of impairment, are considered
based on an external credit rating agency or an assessment from
Admiral's external asset managers. The credit rating of all assets is
regularly monitored. As at the year-end reporting date, the vast
majority of financial assets are of investment grade and considered low
risk under IFRS 9. These therefore remain within stage 1 and a 12-month
expected loss is used to calculate the impairment provision required.
Any assets below BBB are considered by the Group to have significantly
increased in credit risk, and therefore are stage 2 under IFRS9.
The impairment provision at 31 December 2020 is GBP8.7 million (GBP0.9
million at 31 December 2019). Given there is no material change in the
credit quality or type of financial assets in the year and the movement
in provision is immaterial, no further disclosure has been made.
Fair value measurement
IFRS 13 requires assets and liabilities that are held at fair value to
be classified according to a hierarchy which reflects the observability
of significant market inputs, based on three levels.
The table below shows how the financial assets held at fair value have
been measured using the fair value hierarchy:
31 December 2020 31 December 2019
FVTPL FVOCI FVTPL FVOCI
GBPm GBPm GBPm GBPm
Level One (quoted prices in active
markets) 1,339.3 2,090.0 1,160.2 1,950.3
Level Two (use of observable inputs) -- -- -- --
Level Three (use of significant
unobservable inputs)(*1) -- 11.3 -- 7.5
Total 1,339.3 2,101.3 1,160.2 1,957.8
-------------------------------------- -------- -------- -------- --------
*1 No further information is provided due to the immateriality of the
balance.
Deposits are held with well rated institutions; as such the approximate
fair value is the book value of the investments as impairment of the
capital is not expected.
6g. Cash and cash equivalents
31 December 31 December
2020 2019
Continuing operations GBPm GBPm
Cash at bank and in hand(*1) 298.2 281.7
Short-term deposits -- --
Total cash and cash equivalents 298.2 281.7
*1 GBP4.4 million of cash is ring-fenced via a bank guarantee. See note
11f for further details.
Total cash and cash equivalents, including discontinued operations, is
GBP351.7 million (2019: GBP281.7 million).
Cash and cash equivalents includes cash in hand, deposits held at call
with banks and other short-term deposits with original maturities of
three months or less. All cash and cash equivalents are measured at
amortised cost.
An assessment has been completed for impairment purposes in line with
that set out in note 6f above. Given the short-term duration of these
assets and low risk of these assets, no impairment provision has been
recognised.
For cash at bank and cash deposits and other receivables, the fair value
approximates to the book value due to their short maturity.
6h. Other Assets
Insurance and other receivables
31 December 31 December
2020 2019
Continuing operations GBPm GBPm
Insurance receivables(*1) 977.9 948.9
Trade and other receivables 179.0 262.8
Prepayments and accrued income 25.1 16.0
Total insurance and other receivables 1,182.0 1,227.7
*1 Insurance receivables at 31 December 2020 include GBP70.5 million in
respect of salvage and subrogation recoveries (2019: GBP71.7 million).
Insurance receivables
Insurance receivables are measured at historic cost. Given the
short-term duration of these assets no bad debt provision has been
recognised.
Trade and other receivables
Classification. Trade and other receivables are measured at amortised
cost, being made up of multiple types of receivable balances.
Impairment. Where a provision is required for these receivables, it is
calculated in line with the simplified method for trade receivables per
IFRS 9, whereby lifetime expected credit losses are recognised
irrelevant of the credit risk. In this case, the provision is based on a
combination of
1. aged debtor analysis,
2. historic experience of write-offs for each receivable,
3. any specific indicators of credit deterioration observed, and
4. management judgement.
The level of provision is immaterial.
The amortised cost carrying amount of receivables is a reasonable
approximation of fair value.
Contract balances
The following table provides information about receivables and contract
assets from contracts with customers. Both balances are included in
Trade and other receivables.
Re-presented
31 December 31 December
2020 2019
Continuing operations GBPm GBPm
Receivables 13.8 22.0
Contract assets 23.7 24.8
The contract asset relates to the Group's right to consideration for
work undertaken in the law companies on behalf of clients which is
ongoing or where the final fee has not yet been billed. The contract
asset is transferred to trade receivables once the fee has been billed.
Significant changes in the contract asset balance during the period are
as follows:
31 December
2020
Contract asset balance GBPm
---------------------------------
At 1 January 2020 24.8
Revenue recognised 25.5
Transferred to trade receivables (27.8)
Write-backs 1.2
At 31 December 2020 23.7
--------------------------------- -----------
The amount of revenue recognised in 2020 from performance obligations
satisfied (or partially satisfied) in previous periods in relation to
the above contract balances is GBPnil (2019: GBPnil). See note 5c for
details of profit commission recognised on previous underwriting years.
6i. Financial and lease liabilities
31 December 2020
--------------------------------------------------------------------------------------------
Subordinated Lease
Notes Loan backed securities Other borrowings and derivatives liabilities Total
GBPm GBPm GBPm GBPm GBPm
Financial liability at the start of the period 204.2 304.5 21.4 137.1 667.2
Interest payable per Income Statement 11.1 6.2 1.6 2.6 21.5
Cashflows (11.0) (50.0) (1.5) (12.4) (74.9)
Other FX and non cash movements -- -- 2.1 (0.4) 1.7
Transferred to assets associated with disposal group
held for sale -- -- -- (4.1) (4.1)
Financial liability at the end of the period 204.3 260.7 23.6 122.8 611.4
----------------------------------------------------- ------------ ---------------------- -------------------------------- ------------ ------
31 December 2019
-------------------------------------------------------------------------------------------
Subordinated Lease
Notes Loan backed securities Other borrowings and derivatives liabilities Total
GBPm GBPm GBPm GBPm GBPm
Financial
liability
at the
start of
the period 204.1 168.3 71.8 -- 444.2
Recognition
of lease
liabilities
under IFRS
16 -- -- -- 149.2 149.2
Interest
payable per
Income
Statement 11.4 -- -- 3.2 14.6
Cashflows (11.0) 136.2 (50.3) (13.6) 61.3
Other FX and
non-cash
movements (0.3) -- (0.1) (1.7) (2.1)
Financial
liability
at the end
of the
period 204.2 304.5 21.4 137.1 667.2
------------ ------------ ---------------------- -------------------------------- ------------ -----
Subordinated notes
Financial liabilities are inclusive of GBP200.0 million subordinated
notes issued on 25 July 2014 at a fixed rate of 5.5% with a redemption
date of 25 July 2024.
The notes are unsecured subordinated obligations of the Group and rank
pari passu without any preference among themselves. In the event of a
winding-up or bankruptcy, they are to be repaid only after the claims of
all other creditors have been met.
There have been no defaults on any of the notes during the year. The
Group has the option to defer interest payments on the notes but to date
has not exercised this right.
The fair value of subordinated notes (level one valuation based on
quoted prices in active markets) at 31 December 2020 is GBP222.9 million
(2019: GBP225.1 million).
Other borrowings
The Group holds a credit facility of GBP20.0 million which expires in
August 2021. GBP20.0 million was drawn under this agreement as at 31
December 2020 (2019: GBP20.0 million). The Group also hold a revolving
credit facility of GBP200.0 million which expires in June 2021. As at
31 December 2020, GBPnil was drawn down on this facility (2019: GBPnil).
Amounts drawn under their respective agreements are shown within other
borrowings in the table above.
The carrying value is a reasonable approximation of fair value.
Loan backed securities
An asset backed senior loan note facility of GBP400.0 million has been
established in relation to the Admiral Loans business (see note 3 for
details of the accounting treatment of this SPE). As at the year end,
GBP260.7 million (2019: GBP304.5 million) of this facility had been
utilised.
The carrying value is a reasonable approximation of fair value.
Lease liabilities
The Group leases various properties, with rental contracts typically for
fixed periods of 5 to 25 years although these may have extension
options. Lease terms are negotiated on an individual basis and contain a
wide range of different terms and conditions. The lease agreements do
not impose any covenants, but leased assets may not be used as security
for borrowing purposes.
Under IFRS 16, from 1 January 2019, for each lease a right-of-use asset
and corresponding lease liability are recognised at the date at which
the leased asset becomes available for use by the Group.
The lease liability is initially measured at the present value of
remaining lease payments, which include the following:
-- fixed payments (including in-substance fixed payments), less any lease
incentives receivable;
-- variable lease payments that are based on an index or a rate;
-- payments of penalties for terminating the lease, if the lease term
reflects the lessee exercising that option.
The lease payments are discounted using the interest rate implicit in
the lease. If that rate cannot be determined, the Group's incremental
borrowing rate is used, being the rate that the Group would have to pay
to borrow the funds necessary to obtain an asset of a similar value in a
similar economic environment, with similar terms and conditions.
Generally, the Group uses its incremental borrowing rate as the discount
rate.
Subsequently, lease payments are allocated to the lease liability, split
between repayments of principal and interest. A finance cost is charged
to the profit and loss so as to produce a constant period rate of
interest on the remaining balance of the lease liability
7. Loans and Advances to Customers
7a. Accounting policies
Loans and advances to customers relate to the Admiral Loans business,
consisting of unsecured personal loans and car finance products.
Classification
Loans and advances to customers are measured at amortised cost. This is
because assets are held in order to collect contractual cash flows and
the contractual terms of the financial asset demand cash inflows which
are solely payments of principal and interest on the principal amount
outstanding.
Interest income and expense
Interest income received in relation to loans and advances to customers
is calculated using the effective interest method which allocates
interest, direct and incremental fees and costs over the expected lives
of the assets and liabilities. There has been no change in recognition
of interest income from the comparative period.
Interest expense is calculated using the process appropriate to each
source of funding, which is not linked to individual accounts.
Finance leases
Included within Loans and advances to customers are personal contract
purchase (PCP) and hire purchase (HP) arrangements which are classified
as finance leases under IFRS 16. A receivable equal to the net
investment in the lease has been recognised. The net investment is equal
to the gross investment in the lease discounted at the rate implicit in
the lease.
Lease interest income is recognised within interest income in the income
statement over the term of the lease using the effective interest
method.
7b. Loans and advances to customers
31 December 31 December
2020 2019
GBPm GBPm
Loans and advances to customers -- gross carrying
amount 401.8 479.1
Loans and advances to customers -- provision (42.0) (24.0)
Total loans and advances to customers 359.8 455.1
-------------------------------------------------- ----------- -----------
Loans and advances to customers are comprised of the following:
31 December 31 December
2020 2019
GBPm GBPm
Unsecured personal loans 371.3 445.8
Finance leases 30.5 33.3
Total loans and advances to customers, gross 401.8 479.1
--------------------------------------------- ----------- -----------
Fair value measurement
The loans and advances are recognised at fair value at the point of
origination and then subsequently on an amortised cost basis. This is
deemed a reasonable approximation of fair value.
Expected credit losses
The expected credit loss model is a three-stage model based on forward
looking information regarding changes in the credit quality since
origination. Credit risk is measured using a probability of default (PD),
exposure at default (EAD) and loss given default (LGD) defined as
follows:
-- Probability of Default (PD): The likelihood of an account defaulting;
calibrated through analysis of historic customer behaviour. Where
customers have already met the definition of default this is 100%. For
customers that are not in default the PD is determined through analysis
of historic data at a credit grade level. A behavioural PD is then used
after 6 months based on observed default rates by month on book and risk
grade.
-- Exposure at Default (EAD): The amount of balance at the time of default.
For loans that are in arrears the EAD is taken as the current balance,
for up to date loans the contractual outstanding balance in each future
month is used.
-- Loss Given Default (LGD): The amount of the asset not recovered following
a borrower's default, determined through analysis of historic recovery
performance.
The PD is applied to the EAD to calculate the expected loss excluding
recoveries. Where customers are up-to-date the EAD is effectively the
sum of the future month-end balances, as such the PD is converted from
an annual rate to a monthly rate before applying it to the EAD. The LGD
is then applied to this loss to calculate the total expected loss
including recoveries. A forward-looking provision is also calculated,
as set out later in this note.
Loan assets are segmented into three stages of credit impairment:
-- Stage 1 -- no significant increase in credit risk of the financial asset
since inception;
-- Stage 2 -- significant increase in credit risk of the financial asset
since inception;
-- Stage 3 -- financial asset is credit impaired.
For assets in stage 1, the allowance is calculated as the expected
credit losses from events within 12 months after the reporting date. For
assets in stages 2 and 3 the allowance is calculated as the expected
credit loss from events in the remaining lifetime of each asset.
Significant increase in credit risk (SICR) (Stage 2)
As explained above, stage 1 assets have an ECL allowing for losses in
the next twelve months, stage 2 or 3 assets have an ECL allowing for
losses over the remaining lifetime of the contract. An asset moves to
stage 2 when its credit risk has increased significantly since initial
recognition. IFRS9 does not prescribe a definition of significant
increase in credit risk (SICR) but does include a rebuttable presumption
that this does occur for loan assets which are 30 days past due (which
the Group does not rebut).
The Group has deemed a SICR to have occurred where:
-- the loan is 1 to 3 loan payments in arrears, or
-- the loan has been in arrears with the Group in the last six months, or
-- the customer has a significant level of unsecured debt relative to the
point of inception, or
-- the risk grading score has fallen outside of current new business risk
appetite, or
-- the customer has made contact with the business to inform that they have
been impacted by Covid-19.
Credit Impaired (Stage 3)
The Group does not rebut the presumption within IFRS9 that default has
occurred when an exposure is greater than 90 days past due, which is
consistent with a customer being 4 or more payments in arrears. In
addition, a loan is deemed to be credit impaired where
1. there is an Individual Voluntary Arrangement ('IVA') agreement confirmed
or proposed, or
2. customer has started or progressed bankruptcy action, or
3. a repayment plan is in place, or
4. customer is deceased.
Write off policy
Loans are written off where there is no reasonable expectation of
recovery. The Group's policy is to write off balances to their estimated
net realisable value. Write offs are actioned on a case by case basis
taking into account the operational position and the collections
strategy. Given the relative immaturity of the loans business, and
considerations surrounding potential debt sales in the future, the Group
has to-date operationally written off only a small proportion of the
book.
Forward-looking information
Under IFRS9 the provision must reflect an unbiased and
probability-weighted amount that is determined by evaluating a range of
possible outcomes. The means by which the Group has determined this is
to run scenario analyses.
Management judgment has been used to define the weighting and severity
of the different scenarios based on available data without undue cost or
effort.
The key economic driver of the losses from the scenarios is the
likelihood of a customer entering hardship through unemployment.
Unemployment forecasts include a risk grade split of PD based on the
correlation between grade-level default rates observed relative to the
change in unemployment rates in the previous downturn, adjusted for the
unemployment forecast expected in the current economic environment.
The scenario weighting assumptions used are detailed below, along with
the unemployment rate assumed in each scenario at 31 December 2020.
31 December 31 December
31 December 2020 2020 2019
Scenario peak Unemployment rate Weighting Weighting
Base 8.2% 40% 50%
Upturn 7.0% 5% 25%
Downturn 9.3% 25% 20%
--------- -------------------------------- ----------- -----------
Severe 10.7% 30% 5%
The macro economic environment outlook has significantly altered since
the prior year due to the Covid-19 pandemic and associated economic
shock. This led to an overall increase in unemployment forecasts, with
weightings skewed more towards downturn and severe scenarios.
In addition to unemployment, several customer characteristics including
employment status, employment industry, debt levels and whether the
customer has communicated to us an impact due to Covid-19 are
considered. For each customer, the sensitivities from each
characteristic are combined to determine an overall sensitivity.
Sensitivities to key areas of estimation uncertainty
The key areas of estimation uncertainty identified, as per note 3 to the
financial statements, are in the PD and the forward-looking scenarios.
31 December 31 December
31 December 2020 31 December 2019
2020 Sensitivity 2019 Sensitivity
Weighting GBPm Weighting GBPm
Base 40% (2.0) 50% (1.7)
Upturn 5% (4.9) 25% (2.9)
Downturn 25% 0.3 20% 0.8
--------- ----------- ------------ ----------- ------------
Severe 30% 3.2 5% 28.3
The sensitivities in the above tables show the variance to ECL that
would be expected if the given scenario unfolded rather than the
weighted position the provision is based on. At 31 December 2020 the
implied weighted unemployment rate is 9.2%: the table shows that in a
downturn scenario with a 9.3% unemployment rate the provision would
increase by GBP0.3 million, whilst the upturn would reduce the provision
by GBP4.9 million, base case reduce by GBP2.0 million and severe
increase the provision by GBP3.2 million.
The sensitivity to the severe scenario has reduced year on year, but
increased against the upturn scenario as the scenarios now have a
narrower range, with a higher weighting towards the downturn and severe
cases. This recalibration follows consideration of the Covid-19 pandemic
and the resulting macro impact on unemployment.
Stage 1 assets represent 85% of the total loan assets; a 0.1% increase
in the stage 1 PD, i.e. from 4.8% to 4.9%, would result in a GBP0.5
million (5%) increase in ECL.
Amounts arising from ECL: loans and advances to customers
The Group is exposed to credit risk from the Admiral Loans business.
The following table sets out information about the credit quality of the
loans and advances to customers measured at amortised cost. Credit
grades are used to segment customers by apparent credit risk at the time
of acquisition. Higher grades are the lowest credit risk with each
subsequent grade increasing in expected credit risk. The Group does not
have any purchased or originated credit impaired (POCI) assets. These
tables are inclusive of the finance lease assets which are held by the
Group, further analysis of these balances can be found in note 7c.
All probability of defaults figures included in this paragraph allow for
forward-looking information, i.e. the PDs are a weighted average from
the economic scenarios considered. The average probability of default
(PD) in for stage 1 assets is 4.8% (2019: 1.8%) reflecting the
expectation of defaults within 12 months of the reporting date. The
average PD for assets in stage 2 is 67.0% (2019: 58.7%) reflecting
expected losses over the remaining life of the assets. The PD for assets
in stage 3 is 100.0% (2019: 100.0%) as these assets are deemed to have
defaulted.
31 December 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(*2)
Higher 251.8 17.8 -- 269.6 337.1
Medium 77.3 16.8 -- 94.1 114.7
Lower 14.1 2.9 -- 17.0 10.9
Credit
Impaired -- -- 21.1 21.1 16.4
Gross carrying
amount 343.2 37.5 21.1 401.8 479.1
Expected
credit loss
allowance (10.9) (12.7) (17.9) (41.5) (23.4)
Other loss
allowance(*1) (0.5) -- -- (0.5) (0.6)
Carrying amount 331.8 24.8 3.2 359.8 455.1
------------------ -------------- ------------- ------------- ----------- -----------
*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.
-- Credit grade is the internal credit banding given to a customer at
origination. This is based on external credit rating information.
The following tables reconcile the opening and closing gross carrying
amount and expected credit loss allowance.
Stage 1 Stage 2 Stage 3
12- month ECL Lifetime ECL Lifetime ECL Total
2020 GBPm GBPm GBPm GBPm
Gross carrying amount
as at 1 January 2020 456.2 6.5 16.4 479.1
Transfers
Transfers from
Stage 1 to Stage
2 (26.5) 26.5 -- --
Transfers from
Stage 1 to Stage
3 (9.5) -- 9.5 --
Transfers from
Stage 2 to Stage
1 0.8 (0.8) -- --
Transfers from
Stage 2 to Stage
3 -- (2.6) 2.6 --
Transfers from
Stage 3 to Stage 1 -- -- -- --
Transfers from
Stage 3 to Stage 2 -- -- -- --
Principal redemption
payments (180.0) (1.3) (1.6) (182.9)
Write offs -- -- (7.7) (7.7)
New financial assets
originated or
purchased 102.2 9.2 1.9 113.3
Gross carrying amount
as at 31 December
2020 343.2 37.5 21.1 401.8
Stage 1 Stage 2 Stage 3
12- month ECL Lifetime ECL Lifetime ECL Total
2019 GBPm GBPm GBPm GBPm
Gross carrying amount
as at 1 January 2019 296.9 8.9 4.6 310.4
Transfers
Transfers from
Stage 1 to Stage
2 (4.5) 4.5 -- --
Transfers from
Stage 1 to Stage
3 (8.2) -- 8.2 --
Transfers from
Stage 2 to Stage
1 2.4 (2.4) - --
Transfers from
Stage 2 to Stage
3 -- (2.7) 2.7 --
Transfers from
Stage 3 to Stage 1 -- -- -- --
Transfers from
Stage 3 to Stage 2 -- -- -- --
Principal redemption
payments (124.9) (4.5) (0.8) (130.2)
Write-offs -- -- (0.5) (0.5)
New financial assets
originated or
purchased 294.5 2.7 2.2 299.4
Gross carrying amount
as at 31 December
2019 456.2 6.5 16.4 479.1
Stage 1 Stage 2 Stage 3
12- month ECL Lifetime ECL Lifetime ECL
2020 GBPm GBPm GBPm Total
Expected credit loss
allowance as at 1
January 2020 5.6 3.4 14.4 23.4
Movements with a profit
and loss impact
Transfers
Transfers from Stage
1 to Stage 2 (0.7) 1.1 -- 0.4
Transfers from Stage
1 to Stage 3 (0.2) -- 0.4 0.2
Transfers from Stage
2 to Stage 1 0.2 (0.4) -- (0.2)
Transfers from Stage
3 to Stage 1 0.1 -- (0.1) --
Changes in PDs/ LGDs/
EADs 2.4 5.2 9.3 16.9
New financial assets
originated or purchased 3.5 3.4 1.6 8.5
Total net profit and loss
charge in the period 5.3 9.3 11.2 25.8
------------------------- -------------- ------------- ------------- -----
Write-offs -- -- (7.7) (7.7)
Expected credit loss
allowance as at 31
December 2020 10.9 12.7 17.9 41.5
Other movements with no
profit and loss impact
Transfers
Transfers from Stage
2 to Stage 3 -- (2.4) 2.4 --
Transfers from Stage
3 to Stage 2 -- 0.1 (0.1) --
Stage 1 Stage 2 Stage 3
12- month ECL Lifetime ECL Lifetime ECL
2019 GBPm GBPm GBPm Total
Expected credit loss
allowance as at 1
January 2019 4.4 1.4 4.1 9.9
Movements with a profit
and loss impact
Transfers
Transfers from Stage
1 to Stage 2 (0.1) 0.2 -- 0.1
Transfers from Stage
1 to Stage 3 (0.3) -- 0.5 0.2
Transfers from Stage
2 to Stage 1 0.1 (0.2) -- (0.1)
Transfers from Stage
3 to Stage 1 -- -- -- --
Changes in PDs/ LGDs/
EADs (1.8) 0.8 7.9 6.9
New financial assets
originated or purchased 3.3 1.2 1.9 6.4
Total net profit and loss
charge in the period 1.2 2.0 10.3 13.5
------------------------- -------------- ------------- ------------- -----
Expected credit loss
allowance as at 31
December 2019 5.6 3.4 14.4 23.4
Other movements with no
profit and loss impact
Transfers
Transfers from Stage
2 to Stage 3 -- (1.0) 1.0 --
Transfers from Stage
3 to Stage 2 -- -- -- --
Write-offs -- -- (0.5) (0.5)
7c. Finance lease receivables
Loans and advances to customers include the following finance leases.
The group is the lessor for leases of cars.
31 December 31 December
2020 2019
GBPm GBPm
Gross investment in finance leases, receivable
Less than 1 year 8.4 8.1
Between 1 to 5 years 24.9 28.9
More than 5 years -- --
33.3 37.0
Unearned finance income (3.3) (4.2)
Net investment in lease receivables 30.0 32.8
Less impairment allowance (0.8) (0.4)
29.2 32.4
Net investment in finance leases, receivable
Less than 1 year 6.7 6.2
Between 1 to 5 years 23.3 26.6
More than 5 years -- --
30.0 32.8
The net investment in finance leases shown above is net of the
unguaranteed residual value of GBP0.5 million (2019: GBP0.5 million).
7d. Interest Income
31 December 31 December
2020 2019
GBPm GBPm
Loans and advances to customers 36.8 30.8
36.8 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.
7e. Interest expense
31 December 31 December
2020 2019
GBPm GBPm
Interest payable on loan backed securities 6.2 5.6
Interest payable on other credit facilities 1.0 0.7
Total interest expense(*1) 7.2 6.3
*1 Interest paid in total during the year was GBP5.2 million (2019:
GBP6.3 million)
Interest expense represents the interest payable on loan backed
securities through an SPE of GBP400.0 million (2019: GBP400.0 million)
of which GBP260.7 million was drawn down at 31 December 2020 (2019:
GBP304.5 million), and funding specifically allocated to the Admiral
Loans business, in the form of credit facilities of GBP120.0 million
(2019: GBP120.0 million) of which GBP20.0 million was drawn down at 31
December 2020 (2019: GBP20.0 million). Admiral Group also has a further
credit facility of GBP100.0 million (2019: GBP100.0 million) of which
GBPnil was drawn down at 31 December 2020 (2019: GBPnil).
8. Other Revenue
8a. Accounting policy
(i) Contribution from additional products and fees and Other Revenue
Revenue is credited to the income statement over the period matching the
Group's obligations to provide services. Where the Group has no
remaining obligations, the revenue is recognised immediately. An
allowance is made for expected cancellations where the customer may be
entitled to a refund of amounts charged.
Commission from the provision of insurance intermediary services is
credited to revenue on the sale of the underlying insurance policy.
There has been no change in revenue recognition from the comparative
period.
(ii) Nature of goods and services
The following is a description of the principle activities within the
scope of IFRS 15 from which the Group generates its other revenue.
Products and services Nature, timing of satisfaction of performance
obligations and significant payment terms
------------------------ --------------------------------------------------------
Comparison The performance obligation is the provision
of insurance intermediary
services, at which point the performance obligation
is met. Revenue is therefore recognised at a
point in time.
------------------------ --------------------------------------------------------
Fee and commission The performance obligation is the provision
revenue: Commission of insurance intermediary services, at which
on underlying products point the performance obligation is met. Revenue
is therefore recognised at a point in time.
Payment of the commission is due within 30 days
of the period close.
------------------------ --------------------------------------------------------
Fee and commission The performance obligation is the change requested
revenue: Administration being made to the underlying policy, at which
fees point the performance obligation is met.
Revenue is therefore recognised at a point in
time and is collected
immediately or in line with direct debit instalments.
------------------------ --------------------------------------------------------
Revenue from law The performance obligation is the pursuit of
firm the compensation from the other side's insurer
on behalf of the customer. Once the case is
settled the performance obligation is fully
satisfied. Revenue is therefore recognised over
time using the expected value method. This method
values revenue by multiplying hours incurred
on open cases by a 12-month realisable rate.
The realisable rate is a probability weighted
transaction price based on settled cases. The
expected value method therefore results in revenue
recognised being constrained to that where there
is a high probability of no significant reversal.
Revenue is recognised over time because as the
Group has an enforceable right to payment for
performance completed to date and the work performed
to date has no alternative use to the Group
A contract asset is recognised equal to the
work performed up to the balance sheet date
but not yet billed. Refer to note 6g for further
detail of this balance.
Payment is due within 28 days of invoice.
------------------------ --------------------------------------------------------
Profit commission The Group's profit commission revenue falling
from co-insurers within the scope of IFRS 15, 'Revenue from Contracts
with Customers' relates to a contractual arrangement
between the Group's insurance intermediary EUI
Limited, and a third party (external to the
Group) co-insurer (Great Lakes) underwriting
a share of the UK Car Insurance business generated
by EUI Limited.
The variable consideration, being the profit
commission recognised in respect of each underwriting
year at the end of each reporting period, is
recognised at a point in time, and calculated
based on a number of detailed inputs, the most
material of which are as follows:
-- Premiums, defined as gross premiums ceded includin
g
any instalment income, less reinsurance premium (f
or
excess of loss reinsurance);
-- Insurance expenses incurred;
-- Claims ratio (more typically referred to as a loss
ratio)
Whilst the premiums and insurance expenses related
to an underwriting year are typically fixed
at the conclusion of each underwriting year
and are not subject to judgement, the claims
ratio is calculated from the underwriting year
loss ratios that result from the setting of
claims reserves in the financial statements
meaning it is subject to inherent uncertainty.
As stated in note 5d, Admiral's reserving policy
is initially to reserve conservatively, above
internal and independent projections of actuarial
best estimates. This is designed to create a
margin held in reserves to allow for unforeseen
adverse development in open claims.
Admiral's financial statement loss ratios, used
in the calculation of profit commission income,
continue to include a significant margin above
projected best estimates of ultimate claims
costs. It is this margin for uncertainty, included
in the financial statement loss ratios, which
creates the constraint over the recognition
of the variable consideration, as using the
booked loss ratio rather than the actuarial
best estimate constrains the profit commission
income to a level where there is a high probability
of no significant reversal of the revenue recognised.
The key methods, inputs and assumptions used
to estimate the variable consideration of profit
commission are therefore in line with those
used for the calculation of claims liabilities,
as set out in note 3 to the financial statements,
with further detail also included in note 5.
There are no further critical accounting estimates
or judgements in relation to the recognition
of profit
commission.
------------------------ --------------------------------------------------------
Instalment income on insurance premium paid via instalments is using the
effective interest rate, and as such is not within the scope of IFRS 15.
Profit commission from reinsurers is within the scope of IFRS 4, and not
within the scope of IFRS 15 Revenue from Contracts with Customers due to
the nature of the income.
8b. Disaggregation of revenue
In the following tables, other revenue is disaggregated by major
products/service lines and timing of revenue recognition. The total
revenue disclosed in the table of GBP625.3 million (2019: GBP584.8
million) represents total other revenue and profit commission and is
disaggregated into the segments included in note 4.
Year ended 31 December 2020
UK International Admiral Total Comparison
Insurance Insurance Loans Other (continuing) (discontinued)(*2) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Major products/ service
line
Comparison(*1) -- -- -- 5.9 5.9 161.9 167.8
Instalment income 102.4 4.0 -- -- 106.4 -- 106.4
Fee and commission
revenue 155.3 21.8 1.6 -- 178.7 -- 178.7
Revenue from law firm 26.7 -- -- -- 26.7 -- 26.7
Other 11.1 -- -- 0.6 11.7 -- 11.7
Total other revenue 295.5 25.8 1.6 6.5 329.4 161.9 491.3
Profit commission 132.4 1.6 -- -- 134.0 -- 134.0
Total other revenue
and profit commission 427.9 27.4 1.6 6.5 463.4 161.9 625.3
Timing of revenue
recognition
Point in time 267.1 21.8 1.6 6.5 297.0 161.9 458.9
Over time 28.4 -- -- -- 28.4 -- 28.4
Revenue outside the
scope of IFRS 15 132.4 5.6 -- -- 138.0 -- 138.0
427.9 27.4 1.6 6.5 463.4 161.9 625.3
Re-presented
Year ended 31 December 2019
International Admiral Total Discontinued
UK Insurance Insurance Loans Other (continuing) (Comparison)(*2) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Major products/ service
line
Comparison(*1) -- -- -- 6.6 6.6 145.6 152.2
Instalment income 85.3 2.9 -- -- 88.2 -- 88.2
Fee and commission revenue 162.0 18.7 1.9 -- 182.6 -- 182.6
Revenue from law firms 32.9 -- -- -- 32.9 -- 32.9
Other 13.4 -- -- 0.6 14.0 -- 14.0
Total other revenue 293.6 21.6 1.9 7.2 324.3 145.6 469.9
Profit commission 114.0 0.9 -- -- 114.9 -- 114.9
Total other revenue and
profit commission 407.6 22.5 1.9 7.2 439.2 145.6 584.8
Timing of revenue
recognition
Point in time 267.8 18.7 1.9 7.2 295.6 145.6 441.2
Over time 35.9 -- -- -- 35.9 -- 35.9
Revenue outside the scope
of IFRS 15 103.9 3.8 -- -- 107.7 -- 107.7
407.6 22.5 1.9 7.2 439.2 145.6 584.8
-- Comparison revenue excludes GBP22.2 million (31 December 2019: GBP19.4
million) of income from other Group companies, including GBP22.0 million
(2019: GBP18.7 million) from discontinued operations.
-- See note 13 for further detail on discontinued operations.
Instalment income is recognised applying the effective interest rate
over the term of the policy, and is outside the scope of IFRS 15.
Profit commission from reinsurers is recognised under IFRS 4, and is
discussed further in note 5 to the financial statements.
9. Expenses
9a. Accounting policies
(i) Acquisition costs and operating expenses
Acquisition costs incurred in obtaining new and renewal business are
charged to the income statement over the period in which those premiums
are earned. All other operating expenses are charged to the income
statement in the period that they are incurred.
(ii) Employee benefits
As detailed in the Remuneration Committee Report, the key elements of
employee remuneration are:
-- Base salaries and pension contributions
-- Share based incentive plans
-- A discretionary bonus, (the 'DFSS Bonus'), rather than an annual cash
bonus, that is directly linked to the number of DFSS awards held and
actual dividends paid out to shareholders.
Within note 9b, the charges for base salaries and pension contributions
(and the related social security costs) are recognised within insurance
contract expenses or administration and other marketing costs, based on
the role of the employee.
Charges for the share based incentive plans (and related social security
costs) and discretionary bonus are included within "share scheme
charges". These charges are not shown as part of the result for each
reportable segment, or within the expense ratio, due to them being
materially comprised of an accounting charge in line with IFRS 2 'Share
based payments' which does not result in a cash payment to employees but
instead results in a dilution of shares.
The rules of the share schemes ensure that the actual dilution level
does not exceed 10% in any rolling ten-year period, by funding of any
vested (and future) DFSS and SIP awards as appropriate with
market-purchased shares. This corresponds to approximately a 1% dilution
of share capital each year.
Base salaries and pension contributions
Base salaries and the related employer social security costs are charged
to the income statement in the period that they are incurred.
The Group contributes to defined contribution personal pension plans for
its employees. The contributions payable to these schemes are charged
in the accounting period to which they relate.
Share based incentive plans and related social security costs
The Group operates a number of equity and cash settled compensation
schemes for its employees, the main ones being:
-- a Share Incentive Plan ('SIP'), which is in place for all UK employees
encouraging wide share ownership across employees, and
-- the Discretionary Free Share Scheme ('DFSS'). DFSS shares are typically
awarded to managers, and for the majority of employees 50% of the DFSS
shares awarded are subject to three performance conditions being Earnings
per Share growth, Return on Equity and Total Shareholder Return vs. the
FTSE 350 (excluding investment companies) over a three-year period.
For both schemes, employees must remain in employment three years after
the award date (i.e. at the vesting date), otherwise the shares are
forfeited.
The majority of these schemes are classed as equity settled under IFRS
2, due to the employees receiving shares (rather than cash) as
consideration for the services provided.
For equity settled schemes, the charge, which reflects the fair value of
the employee services received in exchange for the grant of the free
shares, is recognised as an expense, with a corresponding increase in
equity, as shown in Consolidated statement of changes in equity (2020:
GBP53.8 million; 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.
The key drivers and assumptions used to calculate the charge for the
schemes over the three year vesting period are:
-- the number of shares awarded, which is set at the start of each scheme.
Details of the number of shares awarded for each scheme where shares
remain unvested is set out in note 9f(ii)
-- the fair value of the shares
-- For the SIP, the fair value of the shares awarded is the share
price at the award date. Awards under the SIP are entitled to
receive dividends, and hence no adjustment is made to this fair
value.
-- For the DFSS equity settled awards, awards are not eligible for
dividends, although a discretionary bonus is currently paid
equivalent to the dividend that would have been paid on the
shareholding, hence the fair value of the shares is revised
downwards to take account of these expected dividends.
-- For the DFSS cash settled awards, the fair value is based on the
share price at the vesting date. The closing share price at the
end of each reporting period is used as an approximation for the
closing price at the end of the vesting period.
-- staff attrition rates, which impact the ultimate number of shares that
vest.
-- in the case of the DFSS, the vesting rates based on the performance
conditions, which also impact the ultimate number of shares that vest.
The number of shares that have ultimately vested compared to those
originally awarded is set out in note 9f(iii).
At each balance sheet date, the Group revises its assumptions on the
number of shares which will ultimately vest based on the latest forecast
information for attrition rates and, for the DFSS, the extent to which
the performance conditions are met.
The financial impact as a result of any change in the assumptions is
recognised through the income statement. Any significant changes in
assumptions may therefore result in an increased/ decreased charge in an
accounting period as a result of this true-up of the expected cumulative
charge required.
Social security costs on share-based incentive plans
Social security costs are incurred by the Group in respect of the
share-based incentive plans, with the expense recognised over the
vesting period for each share scheme. For the SIP, these costs are paid
when the employees sell the shares after vesting (typically 3-5 years
after the grant date). For the DFSS, the costs are paid immediately
upon vesting.
The total social security costs are calculated based on the following:
-- The taxable value of the shares, being:
-- For the SIP, the lower of the share price at award date and the
share price at the balance sheet date
-- For the DFSS, the share price at the balance sheet date;
-- the number of shares expected to vest for each scheme, driven by the
number of shares awarded, attrition rates and, for the DFSS, the vesting
rate based on performance conditions;
-- the appropriate social security rate.
These assumptions are updated at the end of each reporting period. The
financial impact as a result of any change in the assumptions is
recognised through the income statement. Any significant changes in
assumptions may therefore result in an increased/ decreased charge in an
accounting period as a result of this true-up of the expected cumulative
charge required.
Discretionary bonus on shares allocated but unvested
The cost of the DFSS bonus is recognised and paid in each period
equivalent to the dividends on shares allocated to employees that are
still entitled to vest, but have not yet vested. The cost shown also
includes the social security costs on the discretionary bonus. No
accrual is made for future discretionary bonus payments due to there
being no contractual obligation for such a bonus at the balance sheet
date.
9b. Operating expenses and share scheme charges
31 December 2020
Recoverable
from co- and
Gross reinsurers Net
Continuing operations GBPm GBPm GBPm
Acquisition of insurance contracts 166.2 (106.8) 59.4
Administration and other marketing costs (insurance
contracts) 437.4 (321.0) 116.4
Insurance contract expenses 603.6 (427.8) 175.8
Administration and other marketing costs (other) 131.3 -- 131.3
Share scheme charges 79.7 (28.8) 50.9
Movement in expected credit loss provision 33.6 -- 33.6
Total expenses and share scheme charges -- continuing
operations 848.2 (456.6) 391.6
Re-presented
31 December 2019
Recoverable
from co- and
Gross reinsurers Net
Continuing operations GBPm GBPm GBPm
Acquisition of insurance contracts(*1) 156.7 (104.9) 51.8
Administration and other marketing costs (insurance
contracts) 398.8 (307.2) 91.6
Insurance contract expenses 555.5 (412.1) 143.4
Administration and other marketing costs (other) 125.2 -- 125.2
Share scheme charges 78.2 (29.1) 49.1
Movement in expected credit loss provision 14.2 -- 14.2
Total expenses and share scheme charges -- continuing
operations 773.1 (441.2) 331.9
*1 Acquisition of insurance contracts expense excludes GBP0.2 million
(2019: GBP0.7 million) of aggregator fees from other Group companies.
The GBP116.4 million (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:
Re-presented
31 December 31 December
2020 2019
Continuing operations GBPm GBPm
Expenses relating to additional products
and fees 80.6 70.1
Loans expenses (excluding movement on
ECL provision) 16.8 18.5
Other expenses 33.9 36.6
Total (continuing operations) 131.3 125.2
Refer to note 14 for a reconciliation between insurance contract
expenses and the reported expense ratio.
9c. Staff costs and other expenses
Re-presented
31 December 2020 31 December 2019
Total Net Total Net
Continuing operations GBPm GBPm GBPm GBPm
----------- ----------
Salaries 298.8 100.1 271.9 88.9
Social security charges 32.6 11.6 27.8 9.7
Pension costs 16.2 5.4 13.0 4.2
Share scheme charges (see note 9f) 79.7 50.6 78.2 49.1
Total staff expenses 427.3 167.7 390.9 151.9
Depreciation charge:
-- Owned assets 12.0 3.0 11.2 3.3
-- ROU assets 10.0 2.9 11.1 3.7
Amortisation charge:
-- Software 19.1 5.6 17.2 5.1
-- Deferred acquisition costs 188.4 59.0 158.5 52.8
Auditor's remuneration (including VAT) (total Group):
-- Fees payable for the audit of the Company's annual
accounts 0.1 0.1 0.1 0.1
-- Fees payable for the audit of the Company's subsidiary
accounts 1.2 0.6 0.9 0.8
-- Fees payable for audit related assurance services
pursuant to legislation or regulation 0.5 -- 0.4 --
GBP8,880 (inclusive of VAT) (2019: GBP32,380) was payable to the auditor
for other services in the year.
Total and net expenses are before and after co- and reinsurance
arrangements respectively.
Refer to the Corporate Governance Report for details of the Audit
Committee's policy on fees paid to the Company's auditor for non-audit
services. Audit fees are 70% (2019: 66%) of total fees and 30% (2019:
31%) of total fees are for non-audit services, which are classed as
audit related assurance services under the FRC rules on non-audit
services.
The amortisation of software and deferred acquisition cost assets is
charged to expenses in the income statement.
9d. Staff numbers (including Directors)
Average for the year
2020 2019
Number Number
----------
Direct customer contact staff 7,278 7,319
Support staff 3,559 3,510
Total 10,837 10,829
9e. Directors' remuneration
(i) Directors' remuneration
31 December 31 December
2020 2019
GBPm GBPm
Directors' emoluments 2.1 1.7
Amounts receivable under SIP and DFSS share schemes 2.7 1.2
Company contributions to money purchase pension
plans -- --
Total 4.8 2.9
(ii) Number of Directors
2020 2019
Number Number
Retirement benefits are accruing to the following
number of Directors under:
-- Money purchase schemes 3 1
9f. Staff share schemes
Total share scheme costs for the Group, including discontinued
operations share scheme costs of GBP3.1 million (2019: GBP4.3 million)
are analysed below:
31 December 2020
SIP charge (i) DFSS charge (ii) Total charge
------------------ --------------
Gross Net Gross Net Gross Net
GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- --------
IFRS 2 charge for
equity settled
share schemes 18.0 12.4 35.8 23.3 53.8 35.7
IFRS 2 charge for
cash settled share
schemes -- -- 4.2 2.5 4.2 2.5
Total IFRS 2 charge 18.0 12.4 40.0 25.8 58.0 38.2
Social security
costs on IFRS 2
charge 1.6 1.0 8.7 5.9 10.3 6.9
Discretionary bonus
on shares allocated
but unvested -- -- 14.5 8.9 14.5 8.9
Total share scheme
charges 19.6 13.4 63.2 40.6 82.8 54.0
-------------------- ------- ------- -------- -------- ------ ------
31 December 2019
SIP charge (i) DFSS charge (ii) Total charge
---------------- ------------------ --------------
Gross Net Gross Net Gross Net
GBPm GBPm GBPm GBPm GBPm GBPm
------- --------
IFRS 2 charge for
equity settled
share schemes 17.3 11.9 41.5 26.5 58.8 38.4
IFRS 2 charge for
cash settled share
schemes -- -- 1.9 1.0 1.9 1.0
Total IFRS 2 charge 17.3 11.9 43.4 27.5 60.7 39.4
Social security
costs 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
-------------------- ------- ------- -------- -------- ------ ------
Net share scheme charges are presented after allocations to co-insurers
(in the UK and Italy) and reinsurers (in the International Insurance
businesses). The proportion of net to gross share scheme charges would
be expected to be consistent in each period, at approximately 65%.
Financial year ended 31 December
Total cumulative
2017 and charge to
Analysis of gross prior 2018 2019 2020 date
cost GBPm GBPm GBPm GBPm GBPm
Year of share scheme
- SIP
2015 11.6 2.0 -- -- 13.6
2016 8.2 5.4 2.1 -- 15.7
2017 3.3 5.5 5.5 2.4 16.7
2018(*1) -- 3.5 6.1 6.1 15.7
2019(*1) -- -- 3.6 6.2 9.8
2020(*1) -- -- -- 3.3 3.3
Gross IFRS 2 costs
-- SIP 16.4 17.3 18.0
Year of share scheme
- DFSS
2015 19.0 7.0 -- -- 26.0
2016 18.6 17.0 9.8 -- 45.4
2017 3.6 13.0 14.5 6.7 37.8
2018(*2) -- 3.9 15.6 17.4 36.9
2019(*2) -- -- 3.5 11.1 14.6
2020(*2) -- -- -- 4.8 4.8
Gross IFRS 2 costs
- DFSS 40.9 43.4 40.0
--------------------- -------- ------ ----- ----- ----------------
Total IFRS 2 costs 57.3 60.7 58.0
*1 Awards are made in March and September of each year, and vest over 36
months from award date. On the 2018 scheme, an average of 5 months'
charge remains outstanding, on the 2019 scheme an average of 17 months'
charge remains outstanding, and on the 2020 schemes an average of 29
months' charge remains outstanding.
*2 The main award is made in September of each year, with smaller awards
made at other points through the year. The shares vest over 36 months
from award date. On the 2018 main DFSS, 9 months' charge remains
outstanding; on the 2019 main DFSS 21 months' charge remains outstanding,
and on the 2020 main DFSS, 33 months' charge remains outstanding.
(i) The Approved Share Incentive Plan (the SIP)
Eligible UK based employees qualify for awards under the SIP based upon
the performance of the Group in each half-year period. The maximum award
for each year is GBP3,600 per employee and the maximum number of shares
that can vest relating to the 2020 schemes is 982,643 (2019 schemes:
1,113,496; 2018 schemes: 1,192,302).
The awards are made at the discretion of the Remuneration Committee,
taking into account the Group's performance.
(ii) The Discretionary Free Share Scheme (the DFSS)
Under the DFSS, details of which are contained in the remuneration
policy section of the Directors' Remuneration Report, individuals
receive an award of free shares at no charge.
The maximum number of shares that can vest relating to the 2020 schemes
is 2,795,261 (2019 scheme: 2,637,196; 2018 schemes: 3,373,948).
The vesting percentage for most employees for the 2017 DFSS scheme which
vested during 2020 was 94.4% (2016 DFSS scheme: 93.8%).
(ii) Number of free share awards committed at 31 December 2020
Awards
outstanding(*1)
SIP 2018(*2) 1,192,302
SIP 2019(*2) 1,113,496
SIP 2020(*2) 982,643
DFSS 2018(*3) 3,373,948
DFSS 2019(*3) 2,637,196
DFSS 2020(*3) 2,795,261
Total awards committed 12,094,846
----------------------- ----------------
*1 Being the maximum number of awards committed before accounting for
expected staff attrition and vesting conditions
*2 Shares are awarded in March and September of each year, and vest
three years later
*3 The main award is made in September of each year, with smaller awards
made at other points through the year
(iii) Number of free share awards vesting during the year ended 31
December 2020
During the year ended 31 December 2020, awards under the SIP H117 and
H217 schemes and the DFSS 2017 schemes vested. The total number of
awards vesting for each scheme is as follows.
Original awards Awards vested
SIP 2017 schemes 1,067,291 841,940
DFSS 2017 schemes 3,205,449 2,627,669
The difference between the original and vested awards reflects employee
attrition (SIP schemes) and both employee attrition and the vesting
outcomes based on performance conditions noted above (DFSS schemes).
The weighted average fair value of the shares granted in the year was
GBP23.13 (2019: GBP18.96).
The weighted average market share price at the date of exercise for
shares exercised during the year was GBP25.60 (2019: GBP21.06).
10. Taxation
10a. Accounting policy
Income tax on the profit or loss for the periods presented comprises
current and deferred tax.
(i) Current tax
Current tax is the expected tax payable on the taxable income for the
period, using tax rates that have been enacted or substantively enacted
by the balance sheet date, and includes any adjustment to tax payable in
respect of previous periods.
Current tax related to items recognised in other comprehensive income is
also recognised in other comprehensive income and not in the income
statement.
(ii) Deferred tax
Deferred tax is provided in full using the balance sheet liability
method, providing for temporary differences arising between the carrying
amount of assets and liabilities for accounting purposes and the amounts
used for taxation purposes.
Deferred tax is calculated at the tax rates that have been enacted or
substantially enacted by the balance sheet date and that are expected to
apply in the period when the liability is settled or the asset is
realised.
The principal temporary differences arise from carried forward losses,
depreciation of property and equipment and share scheme charges. The
resulting deferred tax is charged or credited in the income statement,
except in relation to share scheme charges where the amount of tax
benefit credited to the income statement is limited to an equivalent
credit calculated on the accounting charge. Any excess is recognised
directly in equity.
Deferred tax assets relating to carried forward losses are recognised
only to the extent that it is probable that future taxable profits will
be available against which the assets can be utilised. The probability
of the availability of future taxable profits is determined by a
combination of the classification of the status of the businesses
holding cumulative tax losses and the business plan profit projections
for that business, subject to appropriate stress testing.
10b. Taxation
31 December 31 December
2020 2019
Continuing operations GBPm GBPm
Current tax
Corporation tax on profits for the year 101.6 87.1
Under-provision relating to prior periods 0.6 (0.3)
Current tax charge 102.2 86.8
Deferred tax
Current period deferred taxation movement 4.0 2.8
(Over) provision relating to prior periods -- (0.4)
Total tax charge per consolidated income statement 106.2 89.2
Factors affecting the total tax charge are:
31 December 31 December
2020 2019
Continuing operations GBPm GBPm
Profit before tax 608.2 505.1
Corporation tax thereon at effective UK corporation
tax rate of 19.0% (2018: 19.0%) 115.5 96.0
Expenses and provisions not deductible for tax
purposes 0.7 1.8
Non-taxable income (10.5) (4.9)
Impact of change in UK tax rate on deferred tax
balances 0.4 0.3
Adjustments relating to prior periods 0.6 (0.7)
Impact of different overseas tax rates (1.6) (9.0)
Unrecognised deferred tax 1.1 5.7
Total tax charge for the period as above 106.2 89.2
---------------------------------------------------- ----------- -----------
The corporation tax receivable for continuing operations as at 31
December 2020 was GBP22.9 million (2019: GBP48.3 million payable).
See note 13 for details of the corporation tax charge on discontinued
operations, and the related corporation tax balance at 31 December 2020.
10c. Deferred income tax asset/(liability)
Analysis of deferred tax asset/ (liability)
Tax treatment
of share Capital Carried Other
schemes allowances forward losses Fair value reserve differences Total
GBPm GBPm GBPm GBPm GBPm GBPm
Balance brought forward at 1 January 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 difference -- -- -- -- 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 (3.2) -- -- -- -- (3.2)
Tax treatment of share scheme charges through
reserves 6.6 -- -- -- -- 6.6
Capital allowances -- 0.7 -- -- -- 0.7
Carried forward losses -- -- 2.9 -- -- 2.9
Movement in fair value reserve -- -- -- (1.8) -- (1.8)
Transferred to disposal group held for sale (0.5) (0.3) (2.9) -- (0.5) (4.2)
Other difference -- -- -- -- (1.5) (1.5)
Balance carried forward at 31 December 2020 8.8 (1.7) -- (7.2) (0.8) (0.9)
Positive amounts presented above relate to a deferred tax asset
position.
The average effective rate of tax for 2020 is 19.0% (2019: 19.0%). An
increase to the main rate of corporation tax in the UK to 25% was
announced in the 2021 Budget, and is expected to come into effect in
2023. This will increase the Group's future tax charge accordingly.
The deferred tax asset in relation to carried forward losses (for
continuing operations) remains at GBPnil at the year end (2019: GBPnil)
due to uncertainty over the availability of future taxable profits
against which to offset utilise any deferred tax asset.
At 31 December 2020 the Group had unused tax losses amounting to
GBP236.8 million (2019: GBP231.3 million), relating primarily to the
Group's US businesses Elephant Auto and compare.com, for which no
deferred tax asset has been recognised. The earliest expiry date for any
of these tax losses is 2029. The total aggregated unrecognised deferred
tax liabilities on temporary differences associated with subsidiaries is
GBPnil (2019: GBPnil).
11. Other assets and other liabilities
11a. Accounting policy
(i) Property and equipment, and depreciation
All property and equipment is stated at cost less accumulated
depreciation. Depreciation is calculated using the straight line method
to write off the cost less residual values of the assets over their
useful economic lives. These useful economic lives are as follows:
Improvements to short leasehold buildings -- four to
ten years
Computer equipment -- two to four years
Office equipment -- four years
Furniture and fittings -- four years
Motor vehicles -- four years
Right-of-use assets
-- two -- twenty years, aligned to lease agreement
In line with IFRS 16, and as set out further in note 6i to the financial
statements, a right-of-use asset has been established in relation the
Group's lease arrangements.
The right-of-use asset is measured at cost, which comprises the
following:
-- the amount of the initial measurement of lease liability (see notes 2 and
6h to the financial statements)
-- any lease payments made at or before the commencement date less any lease
incentives received
-- any initial direct costs, and
-- restoration costs.
The right-of-use asset is subsequently depreciated over the shorter of
the lease term and the asset's useful life on a straight-line basis.
The Group does not have any significant leases which qualify for the
short-term leases or leases of low-value assets exemption.
(ii) Impairment of property and equipment
In the case of property and equipment, carrying values are reviewed at
each balance sheet date to determine whether there are any indications
of impairment. If any such indications exist, the asset's recoverable
amount is estimated and compared to the carrying value. The carrying
value is the higher of the fair value of the asset, less costs to sell
and the asset's value in use. Impairment losses are recognised through
the income statement.
(iv) Intangible assets
Goodwill
All business combinations are accounted for using the acquisition
method. Goodwill has been recognised in acquisitions of subsidiaries,
and represents the difference between the cost of the acquisition and
the fair value of the net identifiable assets acquired.
The classification and accounting treatment of acquisitions occurring
before 1 January 2004 have not been reconsidered in preparing the
Group's opening IFRS balance sheet at 1 January 2004 due to the
exemption available in IFRS 1 (First time adoption). In respect of
acquisitions prior to 1 January 2004, goodwill is included at the
transition date on the basis of its deemed cost, which represents the
amount recorded under UK GAAP, which was tested for impairment at the
transition date. On transition, amortisation of goodwill has ceased as
required by IAS 38.
Goodwill is stated at cost less any accumulated impairment losses.
Goodwill is allocated to cash generating units (CGUs) according to
business segment and is reviewed annually for impairment.
The goodwill held on the balance sheet at 31 December 2020 and 2019 is
allocated solely to the UK Insurance segment.
Impairment of goodwill
The annual impairment review involves comparing the carrying amount to
the estimated recoverable amount (by allocating the goodwill to CGUs)
and recognising an impairment loss if the recoverable amount is lower.
Impairment losses are recognised through the income statement and are
not subsequently reversed.
The recoverable amount is the greater of the fair value of the asset
less costs to sell and the value in use of the CGU.
The value in use calculations use cash flow projections based on
financial budgets approved by management covering a period of up to
three years. Cash flows beyond this period are considered, but not
included in the calculation.
The key assumptions used in the value in use calculations are those
regarding revenue growth, along with expected changes in pricing and
expenses incurred during the forecast period. Management estimates
revenue growth rates and changes in pricing based on past practices and
expected future changes in the market.
The headroom above the goodwill carrying value is very significant, and
there is no foreseeable event that would eliminate this margin.
Deferred acquisition costs
Acquisition costs comprise all direct and indirect costs arising from
the conclusion of insurance contracts. Deferred acquisition costs
represent the proportion of acquisition costs incurred that correspond
to the unearned premiums provision at the balance sheet date. This
balance is held as an intangible asset. It is amortised over the term of
the contract as premium is earned.
Software
Purchased software is recognised as an intangible asset and amortised
over its expected useful life (generally the licence term). Internally
generated software is recognised as an intangible asset, with directly
attributable costs incurred in the development stage capitalised. The
internally generated software assets are amortised over the expected
useful life of the systems and amortisation commences when the software
is available for use.
The carrying value of software is reviewed every six months for evidence
of impairment, with the value being written down if any impairment
exists. Impairment may be reversed if conditions subsequently improve.
(iv) Provisions, Contingent Liabilities and Contingent Assets
Provisions are recognised when a legal or constructive obligation arises
as a result of an event that occurred before the balance sheet date,
when a cash-outflow relating to this obligation is probable and when the
amount can be estimated reliably.
Where a material obligation exists, but the likelihood of a cash
out-flow or the amount is uncertain, or where there is a possible
obligation arising from a past event that is contingent on a future
event, a contingent liability is disclosed.
Contingent assets are possible assets that arise from past events, whose
existence will be confirmed only by the occurrence or non-occurrence of
future events. Where it is probable that a cash-inflow will arise from a
contingent asset, this is disclosed.
11b. Property and equipment
ROU
Improvements to short leasehold buildings Computer equipment Office equipment Furniture and fittings Asset -- Leasehold buildings Total
GBPm GBPm GBPm GBPm GBPm GBPm
Cost
At 1 January 2019 29.8 62.1 21.4 9.8 -- 123.1
Initial application of IFRS 16 -- -- -- -- 136.7 136.7
Additions 4.2 9.7 1.8 0.9 -- 16.6
Disposals -- (0.2) (0.6) (0.2) -- (1.0)
Transfers (0.4) 0.1 -- 0.3 -- --
Foreign exchange and other movements (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 and other movements(*1) (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 1 January 2019 13.0 9.8 4.4 0.9 -- 28.1
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
Transfer of assets associated with disposal group
held for sale (1.2) (6.2) (0.9) (0.2) (5.5) (14.0)
Additions 3.1 14.1 0.8 0.2 0.1 18.3
Impairment -- -- -- -- (3.1) (3.1)
Disposals -- (0.6) -- (0.3) (1.8) (2.7)
Foreign exchange and other movements 0.7 (0.1) 0.3 (0.1) 0.1 0.9
At 31 December 2020 36.0 78.6 22.6 10.2 124.2 271.6
Depreciation
At 1 January 2020 19.8 58.7 18.4 9.1 11.8 117.8
Transfer of depreciation associated with disposal
group held for sale (0.6) (5.2) (0.5) (0.2) (1.6) (8.1)
Charge for the year 3.7 6.8 1.8 0.5 10.8 23.6
Disposals -- (0.7) -- (0.2) (1.5) (2.4)
Foreign exchange and other movements 0.1 -- 0.3 (0.1) -- 0.3
At 31 December 2020 23.0 59.6 20.0 9.1 19.5 131.2
Net book amount
At 31 December 2020 13.0 19.0 2.6 1.1 104.7 140.4
*1 Within foreign exchange and other movements for the ROU asset,
GBP0.6 million relates to remeasurements of the ROU asset due to
amendments to the payment terms of the leasing arrangement.
11c. Intangible Assets
Deferred
acquisition
Goodwill costs Software(*1) Total
GBPm GBPm GBPm GBPm
At 1 January 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 -- 61.3 24.8 86.1
Amortisation charge -- (59.0) (19.2) (78.2)
Disposals -- -- (1.2) (1.2)
Transfer of assets associated with disposal group
held for sale -- -- (1.2) (1.2)
Foreign exchange movement -- 0.2 0.7 0.9
At 31 December 2020 62.3 27.3 77.1 166.7
(*1) Software additions relating to internal development are
immaterial in both 2020 and 2019. Gross carrying amount and accumulated
amortisation of software as at the end of 2020 are GBP184.8 million
(2019: GBP168.1 million) and GBP107.7 million respectively (2019:
GBP94.9 million).
Goodwill relates to the acquisition of Group subsidiary EUI Limited
(formerly Admiral Insurance Services Limited) in November 1999. As
described in the accounting policies, the amortisation of this asset
ceased on transition to IFRS on 1 January 2004. All annual impairment
reviews since the transition date have indicated that the estimated
recoverable value of the asset is greater than the carrying amount and
therefore no impairment losses have been recognised.
Only one year of forecasts is required to support the recoverable value
of goodwill above. Given the short time period used to support the
recoverable amount, no terminal growth rate or discounting is applied.
Refer to the accounting policy for goodwill for further information.
An analysis of deferred acquisition costs is given in the table below:
Gross Reinsurance Net
GBPm GBPm GBPm
------- ----------- ------
At 1 January 2019 71.6 (48.2) 23.4
Additions 163.1 (108.3) 54.8
Amortisation (158.5) 105.7 (52.8)
Foreign exchange movement (1.6) 1.0 (0.6)
At 31 December 2019 74.6 (49.8) 24.8
-------------------------- ------- ----------- ------
Additions 168.4 (107.1) 61.3
Amortisation (166.4) 107.4 (59.0)
Foreign exchange movement 1.0 (0.8) 0.2
At 31 December 2020 77.6 (50.3) 27.3
11d. Trade and other payables
Restated*
31 December 31 December
2020 2019
GBPm GBPm
Trade payables 34.9 37.5
Amounts owed to co-insurers 240.9 220.8
Amounts owed to reinsurers 1,262.8 1,221.3
Other taxation and social security liabilities 72.9 79.6
Other payables 135.6 160.2
Accruals and deferred income (see below) 244.1 256.5
Total trade and other payables 1,991.2 1,975.9
* Other payables and Accruals and deferred income balances in 2019 have
been restated to better reflect the nature of the underlying balances.
Of amounts owed to reinsurers (recognised under IFRS 4), GBP1,175.1
million (2019: GBP1,129.6 million) is held under funds withheld
arrangements.
Analysis of accruals and deferred income:
Restated*
31 December 31 December
2020 2019
GBPm GBPm
Premium received in advance of policy inception 98.3 131.7
Accrued expenses 77.2 66.1
Deferred income 68.6 58.7
Total accruals and deferred income as above 244.1 256.5
* Accrued expenses and Deferred income balances in 2019 have been
restated to better reflect the nature of the underlying balances.
11e. Leases
Admiral Group plc hold various property under leasing arrangements that
are now recognised as right of use assets and lease liabilities. A
maturity analysis of lease liabilities based on contractual undiscounted
cashflows is set out below:
31 December 31 December
2020 2019
GBPm GBPm
Maturity analysis -- contractual undiscounted cash
flows
Within one year 13.8 12.9
Between two to five years 42.4 47.9
Between five to ten years 39.1 45.3
Over ten years 50.0 56.7
Total 145.3 162.8
Amounts recognised in the statement of financial position are as
follows:
31 December 31 December
2020 2019
GBPm GBPm
Lease liabilities
Current 11.0 9.7
Non-Current 111.8 127.4
Total 122.8 137.1
See note 11b for right of use assets depreciation and the carrying
amount of right of use asset at the end of the reporting period. Only
one class of underlying assets is identified as leasehold buildings.
Total cash outflows in relation to leases is disclosed under 6i.
The Group has no significant financial commitments other than those
accounted for as right of use assets and lease liabilities under IFRS
16.
11f. Contingent liabilities
The Groups' legal entities operate in numerous tax jurisdictions and on
a regular basis are subject to review and enquiry by the relevant tax
authority.
Rastreator Comparador Correduria Seguros ("Rastreator Comparador"), the
Group's Spanish Comparison business, has undergone a tax audit in
respect of the 2013 and 2014 financial years. As a result of the audit,
the Spanish Tax Authority has denied the VAT exemption relating to
insurance intermediary services which Rastreator Comparador has applied.
Rastreator Comparador is appealing this decision via the Spanish Courts
and is confident in defending its position which is, in its view, in
line with the EU Directive and is also consistent with the way similar
supplies are treated throughout Europe.
The potential liability for the financial years currently subject to
audit is approximately 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,
with further notification of the 2016 year also now having been received
from the Spanish Tax Authority, the liability could increase to EUR24
million. If this matter has not been resolved prior to the disposal of
Rastreator Comparador, the contingent liability will remain with the
Group.
The Group is also in discussions on various corporate tax matters,
enquiries and investigations 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.
No provision has been made in these financial statements in relation to
the matters noted above.
The Group is, from time to time, subject to threatened or actual
litigation and/or legal and/or regulatory disputes, investigations or
similar actions both in the UK and overseas. All potentially material
matters are assessed, with the assistance of external advisers if
appropriate, and in cases where it is concluded that it is more likely
than not that a payment will be made, a provision is established to
reflect the best estimate of the liability. In some cases it will not be
possible to form a view, for example if the facts are unclear or because
further time is needed to properly assess the merits of the case. No
provisions are held in relation to such matters. In these circumstances,
specific disclosure of a contingent liability will be made where
material. The Directors do not consider that the final outcome of any
such current case will have a material adverse effect on the Group's
financial position, operations or cash flows.
12. Share capital
The Group's capital includes share capital and the share premium account,
other reserves which are comprised of the fair value reserve, hedging
reserve and foreign exchange reserve, and retained earnings.
12a. Accounting policies
(i) Share capital
Shares are classified as equity when there is no obligation to transfer
cash or other assets.
(ii) Dividends
Dividends are recorded in the period in which they are declared and
paid.
(iii) Earnings per share
Basic earnings per share is calculated by dividing profit or loss
attributable to equity holders of the Group parent company, Admiral
Group plc by the weighted average number of ordinary shares during the
period.
Diluted earnings per share is calculated by dividing profit or loss
attributable to equity holders of the Group parent company by the
weighted average number of ordinary shares outstanding, adjusted for the
effects of all dilutive potential ordinary shares.
12b. Dividends
Dividends were proposed, approved and paid as follows:
31 December 31 December
2020 2019
GBPm GBPm
Proposed March 2019 (66.0 pence per share, approved
April 2019, paid June 2019) -- 188.0
Declared August 2019 (63.0 pence per share, paid October
2019) -- 179.8
Proposed March 2020 (77.0 pence per share, 56.3 pence
per share approved April 2020 and paid June 2020) 162.3 --
Declared August 2020 (91.2 pence per share, including
20.7 pence per share deferred, paid October 2020) 263.4 --
Total dividends 425.7 367.8
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, with the deferred 20.7 pence per share special dividend
relating to the 2019 financial year included in the 2020 interim
dividend.
A final dividend of 86.0 pence per share (GBP250 million) has been
proposed in respect of the 2020 financial year. Refer to the Chairman's
Statement and Strategic Report for further detail.
12c. Earnings per share
Re-presented
31 December 31 December
2020 2019
GBPm GBPm
Profit for the financial year after taxation
attributable to equity shareholders --
continuing operations 502.9 418.9
Profit for the financial year after taxation
attributable to equity shareholders --
discontinued operations 25.9 13.5
Profit for the financial year after taxation
attributable to equity shareholders --
continuing and discontinued operations 528.8 432.4
Weighted average number of shares -- basic 294,563,978 291,513,714
Unadjusted earnings per share -- basic
-- continuing operations 170.7p 143.7p
Unadjusted earnings per share -- basic
-- discontinued operations 8.8p 4.6p
Unadjusted earnings per share -- basic
-- continuing and discontinued operations 179.5p 148.3p
Weighted average number of shares -- diluted 295,034,233 292,094,797
Unadjusted earnings per share -- diluted 170.4p 143.4p
-- continuing operations
Unadjusted earnings per share -- basic 8.8p 4.6p
-- discontinued operations
Unadjusted earnings per share -- diluted 179.2p 148.0p
-- continuing and discontinued operations
The difference between the basic and diluted number of shares at the end
of 2020 (being 470,255 2019: 581,083) relates to awards committed, but
not yet issued under the Group's share schemes. Refer to note 9 for
further detail.
12d. Share capital
31 December 31 December
2020 2019
GBPm GBPm
Authorised
500,000,000 ordinary shares of 0.1 pence 0.5 0.5
Issued, called up and fully paid
296,692,063 ordinary shares of 0.1 pence 0.3 --
293,686,329 ordinary shares of 0.1 pence -- 0.3
0.3 0.3
----------------------------------------- ----------- -----------
During 2020, 3,005,734 (2019: 3,183,592) new ordinary shares of 0.1
pence were issued to the trusts administering the Group's share schemes.
755,734 (2019: 883,592) of these were issued to the Admiral Group Share
Incentive Plan Trust for the purposes of this share scheme resulting in
cumulative shares issued to the Trust at 31 December 2020 of 12,384,715
(31 December 2019: 11,628,981). Of the shares issued, 4,331,860 remain
in the Trust at 31 December 2020 (2019: 4,389,821). These shares are
entitled to receive dividends.
2,250,000 (2019: 2,300,000) shares were issued to the Admiral Group
Employee Benefit Trust for the purposes of the Discretionary Free Share
Scheme resulting in cumulative shares issued to the Trust of 25,711,948
(31 December 2019: 23,461,948). Of the shares issued 5,447,441 remain
in the Trust at 31 December 2020 (2019: 5,823,675) to be used for future
vesting, the remaining issued shares having vested.
The balance of awards made to employees under the Discretionary Free
Share Scheme that have not either vested or lapsed is 8,277,428 (2019:
8,691,542).
The Trustees have waived the right to dividend payments, other than to
the extent of 0.001 pence per share, unless and to the extent otherwise
directed by the Company from time to time.
There is one class of share with no unusual restrictions.
12e. Objectives, policies and procedures for managing capital
The Group's capital management policy defines the Board oversight, risk
appetite and tier structure of the Group's capital in addition to
management actions that may be taken in respect of capital, such as
dividend payments.
The Group aims to operate a capital-efficient business model by
transferring a significant proportion of underwriting risk to
co-insurance and reinsurance partners. This in turn reduces the amount
of capital the Group needs to retain to operate and grow, and allows the
Group to distribute the majority of its earnings as dividends.
The Board has determined that it will hold capital as follows:
-- Sufficient Solvency II Own Funds to meet all of the Group's Solvency II
capital requirements (over a 1 year and ultimate time horizon).
-- An additional contingency to cover unforeseen events and losses that
could realistically arise. This risk appetite buffer is assessed via
stress testing performed on an annual basis and is calibrated in relation
to the one-year regulatory SCR.
The Group's current risk appetite buffer is 30% above the regulatory
SCR.
The Group's dividend policy is to:
-- Pay a normal dividend equal to 65% of post-tax profits for the period
-- Pay a special dividend calculated with reference to distributable
reserves and surplus capital held above the risk appetite buffer.
This policy gives the Directors flexibility in managing the Group's
capital.
As noted above, the Group's regulatory capital position is calculated
under the Solvency II Framework. The Solvency Capital Requirement is
based on the Solvency II Standard Formula, with a capital-add-on to
reflect limitations in the Standard Formula with respect to Admiral's
risk profile (predominately in respect of profit commission arrangements
in co-and reinsurance agreements and risks relating to Periodic Payment
Order (PPO) claims).
Solvency Ratio (unaudited)
At the date of this report (3 March 2021), the Group's regulatory
solvency ratio, calculated using a capital add-on that has not been
subject to regulatory approval, is 187% (2019: 190%). This includes the
recognition of the 2020 final dividend of 86 pence per share (2019: 77
pence per share).
The Group's 2020 Solvency and Financial Condition Report (SFCR) will,
when published, disclose a solvency ratio that is calculated at the
balance sheet date rather than annual report date, using the capital
add-on that was most recently subject to regulatory approval. The
estimated and unaudited SFCR solvency ratio is 206%, with the
reconciliation between this ratio and the 187% noted above being as
follows:
31 December 31 December
2020 2019
GBPm GBPm
Regulatory Solvency Ratio (Unaudited)
Solvency Ratio reported in this report 187% 190%
Change in valuation date (5%) (10%)
Other (including impact of updated, unapproved capital
add-on) 24% (10%)
Solvency Ratio to be reported in the SFCR 206% 170%
------------------------------------------------------- ----------- -----------
Subsidiaries
The Group manages the capital of its subsidiaries to ensure that all
entities within the Group are able to continue as going concerns and
also to ensure that regulated entities meet regulatory requirements with
an appropriate risk appetite buffer. Excess capital above these levels
within subsidiaries is paid up to the Group holding company in the form
of dividends on a regular basis.
12f. Group related undertakings
The Parent Company's subsidiaries are as follows:
Subsidiary Class % Ownership Principal
of Activity
shares
held
Incorporated in England and Wales
Registered office: Floor 3 No. 3 Capital
Quarter, Cardiff, CF10 4BZ
Admiral Law Limited Ordinary 95 Legal company
Registered office: Admiral House,
Queensway, Newport, NP20 4AG
BDE Law Limited Ordinary 95 (indirect) Dormant*
Registered office: Floor 4 No. 3 Capital
Quarter, Cardiff, CF10 4BZ
Able Insurance Services Limited Ordinary 100 Insurance
Intermediary
Registered office: Greyfriars House, Greyfriars
Road, Cardiff, CF10 3AL
Penguin Portals Limited Ordinary 100 Internet-based
Inspop.com Limited Ordinary 100 Comparison Site
Internet-based
Comparison Site
Rastreator.com Limited Ordinary 75 Internet-based
Comparison Site
Registered office: T Admiral, David
Street, Cardiff, CF10 2EH
EUI Limited Ordinary 100 Insurance
Intermediary
Admiral Insurance Company Limited Ordinary 100 Insurance company
Admiral Life Limited Ordinary 100 Dormant(*)
Admiral Syndicate Limited Ordinary 100 Dormant(*)
Admiral Syndicate Management Limited Ordinary 100 Dormant(*)
Bell Direct Limited Ordinary 100 Dormant(*)
Confused.com Limited Ordinary 100 Dormant(*)
Diamond Motor Insurance Services Limited Ordinary 100 Dormant(*)
Elephant Insurance Services Limited Ordinary 100 Dormant(*)
Admiral Financial Services Limited Ordinary 100 Financial services
company
Preminen Price Comparison Holdings Ordinary 50 Internet-based
Limited Comparison Site
Preminen Dragon Price Comparison Limited Ordinary 50 (indirect) Internet-based
Comparison Site
Incorporated in Gibraltar
Registered office: 1st Floor, 24 College
Lane, Gibraltar, GX11 1AA
Admiral Insurance (Gibraltar) Limited Ordinary 100 Insurance company
Incorporated in Spain
Registered office: Calle Sanchez Pacheco
85 28002 Madrid
Rastreator Comparador Correduria De Ordinary 75 Internet-based
Seguros S.L.U. (indirect) Comparison Site
Admiral Europe CompañÃa Ordinary 100 Insurance company
de Seguros, S.A.
Registered office: Calle Albert Einstein,
10 41092 Sevilla
Admiral Intermediary Services S.A. Ordinary 100 Insurance
Intermediary
Incorporated in France:
Registered office: 34 quai de la loire,
75019, Paris
LeLynx SAS Ordinary 100 Internet-based
Comparison Site
Incorporated in the United States
of America
Registered office: Deep Run 1; Suite 400,
9950 Mayland Drive, Henrico, VA 23233
Elephant Insurance Company Ordinary 100 Insurance company
Grove General Agency Inc Ordinary 100 Insurance intermediary
(indirect)
Platinum General Agency Inc Ordinary 100 Insurance intermediary
(indirect)
Registered office: Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801
Elephant Insurance Services LLC Ordinary 100 Insurance intermediary
Elephant Holding Company Ordinary 100 Insurance intermediary
(indirect)
Registered office: 6802 Paragon Place Suite
410 Richmond, VA 23230
compare.com Insurance Agency LLC Ordinary 58.14 Internet-based
(indirect) Comparison Site
Inspop USA LLC Ordinary 58.14 Internet-based
Comparison Site
Incorporated in Mexico
Registered office: Varsovia, 36, 5th floor, office 501, Colonia Juárez,
Cuauhtemoc, Ciudad de Mexico
https://maps.google.com/?q=Varsovia,+36,+5th+floor,+office+501,+Colonia+Ju%C3%A1
rez,+Cuauhtemoc,+Ciudad+de+Mexico&entry=gmail&source=g
Preminen Mexico Sociedad Anonima de Capital 51.25 Internet-based
Variable (indirect) Comparison Site
Incorporated in India
Registered office: F-2902, Ireo Grand
Arch, Sector 58,, Gurugram, HARYANA,
Gurgaon, Haryana, India, 122011
Preminen Price Comparison India Private 50 Internet-based
Limited (indirect) Comparison Site
Subsidiaries by virtue of control
The related undertakings below are subsidiaries in accordance with
IFRS 10, as Admiral can exercise dominant influence or control
over them:
Registered office: 10(th) Floor, 5 Churchill Place, London, E14
5HU
Seren One Limited n/a 0 Special purpose
entity
Associates
Incorporated in China
Registered office: Room 1806, 15th
Floor, Block 16, No. 39 East 3rd Ring
Middle Road, Chaoyang District, Beijing
Long Yu Science and Technology (Beijing) 20.25 Dormant
Co., Ltd (indirect)
Incorporated in Bahrain
Registered office: 4(th) Floor, Office
42, LMC Building 852, Road 3618, Block
436, Al Seef District, PO Box 60138,
Manama, Bahrain
Preminen MENA Price Comparison 15 Internet-based
(indirect) Comparison Site
* Exempt from audit under S479A of Companies Act 2006
For further information on how the Group conducts its business across
the UK, Europe and the US, refer to the Strategic Report.
12g. Related party transactions
The Board considers that only the Executive and Non-Executive Directors
of Admiral Group plc are key management personnel.
A summary of the remuneration of key management personnel is as follows,
with further detail relating to the remuneration and shareholdings of
key management personnel set out in the Directors' Remuneration Report.
Key management personnel received short term employee benefits in the
year of GBP2,522,280 (2019: GBP1,957,868), post-employment benefits of
GBP22,999 (2019: GBP18,946) and share based payments of GBP2,249,425
(2019: GBP938,258). Key management personnel are able to obtain
discounted motor insurance at the same rates as all other Group staff,
typically at a reduction of 15%.
12h. Post balance sheet events
No events have occurred since the reporting date that materially impact
these financial statements.
13. Discontinued Operations
13a. Accounting Policy
Disposal groups are classified as held for sale in accordance with IFRS
5 if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use and a sale is considered
highly probable. A discontinued operation is a component of the business
that has been disposed of or is classified as held for sale and
represents a separate major line of business, or is part of a single
co-ordinated plan to dispose of such a line of business.
The disposal group is measured at the lower of carrying value and fair
value less costs to sell. Assets within a disposal group that is
classified as held for sale are measured at the lower of their carrying
amount and fair value less costs to sell, except for assets which are
specified under IFRS 5 which shall continue to be measured in accordance
with the applicable standard. These assets include, deferred tax assets,
assets arising from employee benefits, financial assets within the scope
of IFRS 9 and contractual rights under insurance contracts as defined in
IFRS 4.
The assets and liabilities of a disposal group classified as held for
sale are presented separately from the other assets and liabilities in
the Statement of Financial Position. Non-current assets within a
disposal group are not depreciated or amortised from the point of
classification as held for sale.
The results of discontinued operations are presented separately in the
Statement of Comprehensive Income. The result comprises the profit or
loss after tax from discontinued operations and other comprehensive
income attributable to discontinued operations. In the period in which
an operation is first classified as discontinued, the Income Statement,
Statement of Comprehensive Income and applicable notes are represented
to present those operations as discontinued.
13b. Description
On the 29(th) December 2020, the Group announced that it had reached an
agreement with ZPG Comparison Services Holdings UK Limited ("RVU") that
RVU will purchase the Penguin Portals Group ("Penguin Portals",
comprising online comparison portals Confused.com, Rastreator.com and
LeLynx.fr and the Group's technology operation Admiral Technologies) and
its 50% share of Preminen Price Comparison Holdings Limited
("Preminen"). MAPFRE will also sell its 25% holding in Rastreator and
50% holding in Preminen as part of the transaction.
As such, management consider these entities to meet the definition of a
disposal group as set out under IFRS 5 above.
The total transaction value, including the amount attributable to MAPFRE,
is GBP508 million plus a further amount that will accrue until the date
of completion of the Proposed Transaction ("Transaction Value"). The
Transaction Value shall be satisfied in cash at completion of the
Proposed Transaction subject to certain adjustments. The proceeds to
Admiral, net of minority interests and transaction costs, will be around
GBP450 million. As noted above, the final transaction value will depend
on the completion date.
At 31(st) December 2020, the Group retains control and continues to
consolidate the Penguin Portals Group and Preminen Price Comparison
Holdings Limited. The sale is subject to regulatory approval but is
expected to be completed within the first half of 2021 and will result
in a loss of control. The disposal group is measured at its carrying
value as this is lower than the fair value of the agreed sale price less
transaction costs.
The disposal group is included within the "Discontinued (comparison)"
operating segment as stated in note 4.
13c. Financial performance and cash flow information
Financial information relating to the discontinued operations for the
financial year ending 31 December 2020 and 2019 are presented below:
31 December 2020 31 December 2019
Gross Eliminations Net Gross Eliminations Net
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue (Other
Revenue) 183.9 (22.0) 161.9 164.3 (18.7) 145.6
Interest Income -- -- -- -- -- --
Net Revenue 183.9 (22.0) 161.9 164.3 (18.7) 145.6
Operating expenses
and share scheme
charges (154.4) 22.0 (132.4) (146.7) 18.7 (128.0)
Operating profit 29.5 -- 29.5 17.6 -- 17.6
Finance costs (0.1) -- (0.1) (0.1) -- (0.1)
Profit before tax
from discontinued
operations 29.4 -- 29.4 17.5 -- 17.5
Taxation expense (3.6) -- (3.6) (5.0) -- (5.0)
Profit after tax
from discontinued
operations 25.8 -- 25.8 12.5 -- 12.5
Operating expenses and share scheme charges include GBP3.1 million
(2019: GBP4.3 million) of share scheme expenses that are not included in
the segmental result in note 4. The net cash flows incurred by the
disposal group are as follows:
31 December 31 December
2020 2019
GBPm GBPm
Net cash inflow from operating activities 36.1 21.9
Net cash (outflow) from investing activities (1.0) (1.5)
Net cash (outflow) from financing activities (15.9) (16.8)
Net cash inflow from discontinued operations 19.2 3.6
13d. Assets held for sale
31 December
2020
GBPm
Assets Note
Property and equipment 11b 5.9
Intangible assets 11c 1.2
Deferred tax asset 10c 4.2
Trade and other receivables 18.2
Cash and cash equivalents 53.5
Assets associated with disposal group held for
sale 83.0
Liabilities
Trade and other payables 24.9
Lease liabilities 4.1
Corporation tax liability 5.0
Liabilities directly associated with disposal group
held for sale 34.0
---------------------------------------------------- ---- -----------
14. Reconciliations
The following tables reconcile significant key performance indicators
and non-GAAP measures included in the Strategic Report to items included
in the financial statements.
14a. Reconciliation of turnover to reported gross premiums written and
Other Revenue as per the financial statements
31 December 31 December
2020 2019
GBPm GBPm
Gross premiums written after co-insurance per note
5b of financial statements 2,344.0 2,273.7
Premiums underwritten through co-insurance
arrangements 613.2 610.7
Total premiums written 2,957.2 2,884.4
Other Revenue -- continuing operations 329.4 324.3
Other Revenue -- discontinued operations 161.9 145.6
Admiral Loans interest income 36.8 30.8
3,485.3 3,385.1
Other(*1) 42.4 59.0
Turnover as per note 4b of financial statements 3,527.7 3,444.1
Intra-group income elimination(*2) 22.2 19.4
Total turnover 3,549.9 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 relates to comparison income
earned in the Group from other Group companies
(*3) See note 14g for the impact of the "Stay at home" premium refund
issued to UK motor insurance customers on Turnover in H1 2020.
14b. Reconciliation of claims incurred to reported loss ratios,
excluding releases on commuted reinsurance
Int. Int.
UK Motor UK Home UK Other UK Total Int. Other Total Group
December 2020 GBPm GBPm GBPm GBPm Car GBPm GBPm GBPm GBPm
Net insurance claims
(note 5) 97.1 29.3 23.8 150.2 139.3 3.7 143.0 293.2
Deduct claims handling
costs (12.3) (1.3) -- (13.6) (9.8) -- (9.8) (23.4)
Prior year release/strengthening
-- net original share 104.3 2.8 -- 107.1 18.6 -- 18.6 125.7
Prior year release/strengthening
-- commuted share 137.3 -- -- 137.3 -- -- -- 137.3
Impact of reinsurer
caps -- -- -- -- 1.9 -- 1.9 1.9
Impact of weather events -- (2.3) -- (2.3) -- -- -- (2.3)
Attritional current
period claims 326.4 28.5 23.8 378.7 150.0 3.7 153.7 532.4
-------- ------- -------- -------- --------- ------ ------ -------
Net insurance premium
revenue 451.4 43.2 45.2 539.8 204.2 7.6 211.8 751.6
Loss ratio -- current
period attritional 72.3% 65.9% -- 70.2% 73.4% -- -- 70.8%
Loss ratio -- current
period weather events -- 5.3% -- 0.4% -- -- -- 0.3%
Loss ratio -- prior
year release/strengthening
(net original share) (23.1%) (6.4%) -- (19.8%) (9.1%) -- -- (16.7%)
Loss ratio -- reported 49.2% 64.8% -- 50.8% 64.3% -- -- 54.4%
Int. Int.
UK Motor UK Home UK Other UK Total Int. Other Total Group
December 2019 GBPm GBPm GBPm GBPm Car GBPm GBPm GBPm GBPm
Net insurance claims
(note 5) 164.7 26.8 24.3 215.8 137.2 6.3 143.5 359.3
Deduct claims handling
costs (11.8) (1.1) -- (12.9) (7.6) -- (7.6) (20.5)
Prior year release/strengthening
-- net original share 121.7 2.5 -- 124.2 14.4 -- 14.4 138.6
Prior year release/strengthening
-- commuted share 121.7 -- -- 121.7 -- -- -- 121.7
Impact of reinsurer
caps -- -- -- -- (0.1) -- (0.1) (0.1)
Impact of weather events -- -- -- -- -- -- -- --
Impact of subsidence -- -- -- -- -- -- -- --
Attritional current
period claims 396.3 28.2 24.3 448.8 143.9 6.3 150.2 599.0
Net insurance premium
revenue 452.6 37.2 43.4 533.2 168.6 7.6 176.2 709.4
Loss ratio -- current
period attritional 87.6% 75.8% -- 84.2% 85.3% -- -- 84.4%
Loss ratio -- 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%
14c. Reconciliation of expenses related to insurance contracts to
reported expense ratios
Int. Int.
UK Motor UK Home UK Other UK Total Int. Car Other Total Group
December 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net insurance expenses
(note 9) 76.7 11.4 5.2 93.3 78.5 4.0 82.5 175.8
Claims handling costs 12.3 1.3 -- 13.6 9.8 -- 9.8 23.4
Intra-group expenses
elimination(*1) -- -- -- -- 0.2 -- 0.2 0.2
Impact of reinsurer
caps -- -- -- -- 1.1 -- 1.1 1.1
Net IFRS 16 finance
costs 0.5 -- -- 0.5 0.1 -- 0.1 0.6
Adjusted net insurance
expenses 89.5 12.7 5.2 107.4 89.7 4.0 93.7 201.1
Net insurance premium
revenue 451.4 43.2 45.2 539.8 204.2 7.6 211.8 751.6
Expense ratio --
reported 19.8% 29.4% -- 19.9% 43.9% -- -- 26.8%
Int. Int.
UK Motor UK Home UK Other UK Total Int. Car Other Total Group
December 2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net insurance expenses
(note 9) 74.2 9.7 6.0 89.9 52.2 1.3 53.5 143.4
Claims handling costs 11.8 1.1 -- 12.9 7.6 -- 7.6 20.5
Intra-group expenses
elimination(*1) -- -- -- -- 0.7 -- 0.7 0.7
Impact of reinsurer
caps -- -- -- -- 2.9 -- 2.9 2.9
Net IFRS 16 finance
costs 0.5 -- -- 0.5 0.1 -- 0.1 0.6
Adjusted net insurance
expenses 86.5 10.8 6.0 103.3 63.5 1.3 64.8 168.1
Net insurance premium
revenue 452.6 37.2 43.4 533.2 168.6 7.6 176.2 709.4
Expense ratio --
reported 19.1% 28.9% -- 19.4% 37.6% -- -- 23.7%
*1 The intra-group expenses elimination amount relates to aggregator
fees charges by the Group's comparison business, Compare.com to other
Group companies: given the re-presentation of other comparison
businesses to discontinued operations, those expenses are now included
in net insurance expenses in note 9, as acquisition costs.
14d. Reconciliation of statutory profit before tax to Group's
share of profit before tax, and Profit after tax
31 December 31 December
2020 2019
GBPm GBPm
Reported profit before tax per the consolidated income
statement -- continuing operations 608.2 505.1
Non-controlling share of profit before tax -- continuing
operations 0.9 3.0
Group's share of profit before tax -- continuing
operations 609.1 508.1
Reported profit before tax per note 13 -- discontinued
operations 29.4 17.5
Non-controlling interest share of profit before tax
-- discontinued operations (0.1) 0.5
Group's share of profit before tax -- discontinued
operations 29.3 18.0
Reported Group profit before tax -- continuing and
discontinued operations 637.6 522.6
Non-controlling interest share of profit before tax
-- continuing and discontinued operations 0.8 3.5
Group's share of profit before tax -- continuing and
discontinued operations 638.4 526.1
31 December 31 December
2020 2019
GBPm GBPm
Reported profit after tax per the consolidated income
statement -- continuing operations 502.0 415.9
Non-controlling share of profit after tax -- continuing
operations 0.9 3.0
Group's share of profit after tax -- continuing
operations 502.9 418.9
Reported profit after tax per note 13 -- discontinued
operations 25.8 12.5
Non-controlling interest share of profit after tax
-- discontinued operations 0.1 1.0
Group's share of profit after tax -- discontinued
operations 25.9 13.5
Reported profit after tax per consolidated income
statement -- continuing and discontinued operations 527.8 428.4
Non-controlling interest share of profit after tax
-- continuing and discontinued operations 1.0 4.0
Group's share of profit after tax -- continuing and
discontinued operations (SOCIE) 528.8 432.4
14e. Reconciliation of share scheme charges in Strategic report to
Consolidated Income Statement and Consolidated Statement of Changes in
Equity
31 December 31 December
2020 2019
GBPm GBPm
Net share scheme charges included in Group's share
of profit before tax 53.8 52.7
Non-controlling interest share of net share scheme
charges 0.2 0.7
Net share scheme charges included in Group profit
before tax 54.0 53.4
14f. Reconciliation of note 4 to Strategic Report
i) UK Insurance
Motor Household Travel Total
2020 GBPm GBPm GBPm GBPm
Turnover 2,473.8 193.8 4.4 2,672.0
UK Insurance profit before tax --
Strategic report 683.4 15.4 (0.7) 698.1
Non-controlling interest share of PBT 0.2 -- -- 0.2
Statutory profit/(loss) before tax 683.6 15.4 (0.7) 698.3
Motor Household Travel Total
2019 GBPm GBPm GBPm GBPm
Turnover 2,455.3 171.3 8.4 2,635.0
UK Insurance profit before tax --
Strategic report 591.5 7.5 (1.6) 597.4
Non-controlling interest share of PBT 0.5 -- -- 0.5
Statutory profit/(loss) before tax 592.0 7.5 (1.6) 597.9
ii) International Insurance
Spain Italy France US Total
2020 GBPm GBPm GBPm GBPm GBPm
Turnover 83.9 213.0 139.3 212.6 648.8
Profit/(loss) before tax -- Strategic
Report and Statutory 13.6 (4.8) 8.8
------------------------------------------ --------------------
Spain Italy France US Total
2019 GBPm GBPm GBPm GBPm GBPm
Turnover 78.2 204.2 108.1 233.1 623.6
Profit/(loss) before tax -- Strategic
Report and Statutory 8.7 (9.6) (0.9)
------------------------------------------ --------------------
iii) Comparison
Discontinued Continuing Total
Confused European Other Total Compare Total
2020 GBPm GBPm GBPm (discontinued) (other) GBPm
-------------------------------
Turnover 133.5 48.5 1.9 183.9 6.1 190.0
Group's share of profit before
tax -- Strategic Report 29.4 3.6 (0.7) 32.3 (1.3) 31.0
Non-controlling interest
share of profit/(loss) before
tax -- 0.9 (0.7) 0.2 (1.0) (0.8)
Statutory profit/(loss) before
tax excluding share scheme
charges (*1) 29.4 4.5 (1.4) 32.5 (2.3) 30.2
(*1) When share scheme charges are included, the statutory profit for
discontinued operations is GBP29.4 million. See note 13 for further
information.
Discontinued Continuing Total
-------------------------
Confused European Other Total Compare Total(*1)
2019 -- Re-presented(*1) GBPm GBPm GBPm (discontinued) (other) GBPm
Turnover 112.7 50.1 1.5 164.3 7.3 171.6
Group's share of profit
before tax -- Strategic
Report 20.4 3.5 (1.6) 22.3 (4.3) 18.0
Non-controlling interest
share of profit/(loss)
before tax -- 1.0 (1.4) (0.4) (2.9) (3.3)
Statutory profit/(loss)
before tax 20.4 4.5 (3.0) 21.9 (7.2) 14.7
(*1) When share scheme charges are included, the statutory profit for
discontinued operations is GBP17.5 million. See note 13 for further
information.
14g. 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
31 December
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
and gross earned premium 70.0
Reinsurer share of premium refund on reinsurers'
written and earned premium (48.9)
Impact of premium refund on net insurance premium
revenue (written and earned) 21.1
Whilst the impact on premium in the period is GBP21.1 million, the
ultimate impact is expected to be the substantial majority of the total
premium refunded due to the Group's co- and reinsurance profit
commission arrangements. The majority of this has been reflected in the
current year.
Consolidated financial summary (unaudited)
Basis of preparation
The figures below are as stated in the Group financial statements
preceding this financial summary and issued previously. Only selected
lines from the income statement and balance sheet have been included.
Income statement
2020 2019 2018 2017 2016
GBPm GBPm GBPm GBPm GBPm
Total premiums 2,957.3 2,938.6 2,766.4 2,499.4 2,193.9
Net insurance premium revenue 751.6 709.4 671.8 619.1 548.8
Other Revenue 520.9 494.4 460.6 401.1 360.6
Profit commission 134.0 114.9 93.2 67.0 54.3
Investment and interest income 60.7 35.3 36.0 41.7 53.1
Net revenue 1,467.2 1,354.0 1,261.6 1,128.9 1,016.8
Net insurance claims (293.2) (359.3) (350.1) (347.1) (394.6)
Net expenses (524.0) (459.5) (424.0) (366.9) (332.4)
Operating profit 650.0 535.2 487.5 414.9 289.8
Net finance costs (12.4) (12.6) (11.3) (11.4) (11.4)
Profit before tax 637.6 522.6 476.2 403.5 278.4
Balance sheet
2020 2019 2018 2017 2016
GBPm GBPm GBPm GBPm GBPm
Property and equipment 146.3 154.4 28.1 31.3 32.0
Intangible assets 167.9 160.3 162.0 159.4 162.3
Deferred income tax 3.3 -- 0.2 0.3 8.4
Corporation tax 17.9 -- -- -- --
Reinsurance assets 2,083.2 2,071.7 1,883.5 1,637.6 1,126.4
Insurance and other receivables 1,200.2 1,227.7 1,082.0 939.7 784.9
Loans and advances to customers 359.8 455.1 300.2 66.2 --
Financial investments 3,506.0 3,234.5 2,969.7 2,697.8 2,420.2
Cash and cash equivalents 351.7 281.7 376.8 326.8 326.6
Total assets 7,836.3 7,585.4 6,802.5 5,859.1 4,860.8
--------------------------------- ------- ------- ------- ------- -------
Equity 1,123.4 918.6 771.1 655.8 581.7
Insurance contracts 4,081.3 3,975.0 3,736.4 3,313.9 2,749.5
Subordinated and other financial
liabilities 488.6 530.1 444.2 224.0 224.0
Trade and other payables 2,016.1 1,975.9 1,801.5 1,641.6 1,292.2
Lease liabilities 126.9 137.1 -- -- --
Deferred income tax -- 0.4 -- -- --
Current tax liabilities -- 48.3 49.3 23.8 13.4
Total equity and total
liabilities 7,836.3 7,585.4 6,802.5 5,859.1 4,860.8
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 14a 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
Written premiums, net of forecast cancellations written
in the underwriting year within the Group, including
co-insurance. It is reconciled to financial statement
line items in note 14a 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 of Group's share of profit before tax represents
Profit before Tax profit before tax, excluding the impact of Non-controlling
Interests. It is reconciled to statutory profit
before tax in note 14d to the financial statements.
This measure is useful in presenting the limit
of the Group's exposure to the expenditure incurred
in starting up new businesses and demonstrates
the 'test-and-learn' strategy employed by the
Group to expansion into new territories.
Underwriting result For each insurance business an underwriting result
including investment is presented showing the segment result prior
income (profit to the inclusion of profit commission, other
or loss) 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 14b 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 14c 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 14b
and 14c.
Return on Equity Return on equity is calculated as profit after
tax for the period attributable to equity holders
of the Group divided by the average total equity
attributable to equity holders of the Group in
the year. This average is determined by dividing
the opening and closing positions for the year
by two.
The relevant figures for this calculation can
be found within the consolidated statement of
changes in equity.
Group Customers Group customer numbers reflect the total number
of cars, households and vans on cover at the
end of the year, across the Group.
This measure has been presented by the Group
in every Annual Report since it became a listed
Group in 2004. It reflects the size of the Group's
customer base and analysis of this measure over
time provides a clear indication of the growth.
It is also a useful indicator of the growing
significance to the Group of the different lines
of business and geographic regions.
Effective Tax Rate Effective tax rate is defined as the approximate
tax rate derived from dividing the Group's profit
before tax by the tax charge going through the
income statement. It is a measure historically
presented by the Group and enables users to see
how the tax cost incurred by the Group compares
over time and to current corporation tax rates.
Additional Terminology
There are many other terms used in this report that are specific to the
Group or the markets in which it operates. These are defined as follows:
Accident year The year in which an accident occurs, also referred
to as the earned basis.
--------------------- -------------------------------------------------------
Actuarial best The probability-weighted average of all future
estimate claims and cost scenarios calculated using historical
data, actuarial methods and judgement.
ASHE 'Annual Survey of Hours and Earnings' -- a statistical
index that is typically used for calculation
inflation of annual payment amounts under Periodic
Payment Order (PPO) claims settlements.
Claims reserves A monetary amount set aside for the future payment
of incurred claims that have not yet been settled,
thus representing a balance sheet liability.
Co-insurance An arrangement in which two or more insurance
companies agree to underwrite insurance business
on a specified portfolio in specified proportions.
Each co-insurer is directly liable to the policyholder
for their proportional share.
Commutation An agreement between a ceding insurer and the
reinsurer that provides for the valuation, payment,
and complete discharge of all obligations between
the parties under a particular reinsurance contract.
The Group typically commutes UK Car insurance
quota share contracts after 24 months from the
start of an underwriting year where it makes
economic sense to do so. Although an individual
underwriting year may be profitable, the margin
held in the financial statement claims reserves
may mean that an accounting loss on commutation
must be recognised at the point of commutation
of the reinsurance contracts. This loss on commutation
unwinds in future periods as the financial statement
loss ratios develop to ultimate.
Insurance market The tendency for the insurance market to swing
cycle between highs and lows of profitability over
time, with the potential to influence premium
rates (also known as the "underwriting cycle").
Net claims The cost of claims incurred in the period, less
any claims costs recovered under reinsurance
contracts. It includes both claims payments and
movements in claims reserves.
Net insurance premium Also referred to as net earned premium. The element
revenue of premium, less reinsurance premium, earned
in the period.
Ogden discount The discount rate used in calculation of personal
rate injury claims settlements. The rate is set by
the Lord Chancellor.
Periodic Payment A compensation award as part of a claims settlement
Order (PPO) that involves making a series of annual payments
to a claimant over their remaining life to cover
the costs of the care they will require.
Premium A series of payments are made by the policyholder,
typically monthly or annually, for part of or
all of the duration of the contract. Written
premium refers to the total amount the policyholder
has contracted for, whereas earned premium refers
to the recognition of this premium over the life
of the contract.
Profit commission A clause found in some reinsurance and coinsurance
agreements that provides for profit sharing.
Reinsurance Contractual arrangements whereby the Group transfers
part or all of the insurance risk accepted to
another insurer. This can be on a quota share
basis (a percentage share of premiums, claims
and expenses) or an excess of loss basis (full
reinsurance for claims over an agreed value).
Securitisation A process by which a group of assets, usually
loans, is aggregated into a pool, which is used
to back the issuance of new securities. A company
transfer assets to a special purpose entity (SPE)
which then issues securities backed by the assets.
Special Purpose An entity that is created to accomplish a narrow
Entity (SPE) and well-defined objective. There are specific
restrictions or limited around ongoing activities.
The Group uses an SPE set up under a securitisation
programme.
Ultimate loss ratio A projected actuarial best estimate loss ratio
for a particular accident year or underwriting
year.
Underwriting year The year in which the policy was incepted.
Underwriting year Also referred to as the written basis. Claims
basis incurred are allocated to the calendar year in
which the policy was underwritten. Underwriting
year basis results are calculated on the whole
account (including co-insurance and reinsurance
shares) and include all premiums, claims, expenses
incurred and other revenue (for example instalment
income and commission income relating to the
sale of products that are ancillary to the main
insurance policy) relating to policies incepting
in the relevant underwriting year.
Written/Earned A policy can be written in one calendar year
basis but earned over a subsequent calendar year.
(END) Dow Jones Newswires
March 04, 2021 02:00 ET (07:00 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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