REG-Admiral Group plc results for the six months ended 30 June 2017 <Origin Href="QuoteRef">ADML.L</Origin>
16/08/2017 07:05
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Admiral Group plc results for the six months ended 30 June 2017
16 August 2017
2017 Interim Results Highlights
30 June 2017 30 June 2016 % change
Group's share of profit before tax (*1) £195 million £193 million +1%
Group statutory profit before tax £193 million £190 million +2%
Earnings per share 57.3 pence 55.9 pence +3%
Interim dividend 56.0 p/share 51.0 p/share (62.9 p/share including additional capital return) +10%
Return on equity (*1) 55% 50% +10%
Group turnover (*1) £1.45 billion £1.26 billion +15%
Group net revenue £0.55 billion £0.51 billion +8%
Group customers (*1) 5.46 million 4.82 million +13%
UK insurance customers (*1) 4.34 million 3.90 million +11%
International car insurance customers (*1) 961,200 757,900 +27%
Group's share of price comparison result (*1) £3.1 million profit £1.1 million loss
Statutory price comparison result £2.4 million profit £4.8 million loss
Solvency ratio (post dividend) (*1, 2) 214% 180% +19%
Over 9,000 staff each receive free shares worth a total of £1,800 under the
employee share scheme based on the interim 2017 results
(*1)Alternative Performance Measures - refer to the end of the report for
definition and explanation.
(*2)Refer to capital structure and financial position section later in the
report for further information.
Comment from David Stevens, Group Chief Executive Officer
"The first half of 2017 saw Admiral ambitious in pursuit of both immediate and
longer-term growth opportunities.
"We've grown turnover and customer numbers in our existing businesses by over
13% while also delivering a first half of important "firsts" - the first loans
originated on our new dedicated lending system, the first cars sold on
Confused.com (http://Confused.com), the first vans directly underwritten in
the UK and Spain.
"Most of the adverse impact from the increase in the costs of large injury
claims, resulting from the change in the Ogden discount rate, was captured in
our 2016 second half result. However, some extra costs carry into 2017. In
these circumstances, we are happy to report a marginal increase in
profitability and to deliver a more material increase in the underlying
dividend."
Dividend
The Directors have declared an interim dividend of 56.0 pence per share,
representing a normal dividend of 37.9 pence per share and a special dividend
of 18.1 pence per share. The dividend will be paid on 6 October 2017. The
ex-dividend date is 7 September 2017 and the record date is 8 September 2017.
Management presentation
Analysts and investors will be able to access the Admiral Group management
presentation which commences at 9.00 BST on Wednesday 16 August 2017 by
dialling + 44 (0)20 3059 8125. A copy of the presentation slides will be
available at www.admiralgroup.co.uk
H1 2017 Group overview
Summary of the H1 2017 result
The Group has continued to grow strongly in the first six months of 2017 with
turnover up 15% to £1.45 billion (H1 2016: £1.26 billion) and net revenue 8%
higher at £0.55 billion (H1 2016: £0.51 billion). Customer numbers increased
13% to 5.46 million (30 June 2016: 4.82 million).
The Group's share of pre-tax profit increased to £194.5 million from £193.3
million whilst statutory profit before tax increased to £193.4 million (H1
2016: £189.5 million). Slightly higher UK Insurance profit, a lower loss in
the International Insurance segment and an improved Price Comparison result
were partially offset by higher other Group charges and business development
costs.
The Group's UK Insurance business (private car, household and van) grew
turnover by 11% to £1.14 billion (H1 2016: £1.03 billion) and customer
numbers increased by 11% to 4.3 million from 3.9 million.
UK Insurance profit before tax was slightly higher at £226.2 million (H1
2016: £224.0 million) reflecting the adverse impact of the lower Ogden
discount rate on current period claims costs and profit commission, as well as
a number of other offsetting impacts. The UK results are discussed in
further detail below.
Outside the UK, Admiral's International Insurance businesses grew combined
turnover by 39% to £221.9 million (H1 2016: £159.2 million). Customer
numbers also grew strongly by 27% to 961,200 (30 June 2016: 757,900). In
aggregate the businesses reduced losses to £10.1 million from £12.9 million
mainly due to reduced losses in the Group's US operation, Elephant Auto.
Finally, Admiral's Price Comparison businesses made a combined profit
(excluding minority interests' shares) of £3.1 million (H1 2016: £1.1
million loss), mainly reflecting a reduced loss in the Group's US Price
Comparison business, Compare.com. Confused.com (http://confused.com) in the UK
continued to invest in its new focus on motor-related products and services,
with increased marketing costs leading to a reduced profit of £4.5 million
(H1 2016: £8.3 million). The international price comparison businesses
reported a reduced aggregate loss of £1.4 million (H1 2016: loss £9.4
million) with growing profit in the European operations (£2.0 million, up
from £0.7 million) offset by the loss in Compare.com of £3.4 million (H1
2016: loss £10.1 million).
Earnings per share
Earnings per share increased by 3% to 57.3 pence (H1 2016: 55.9 pence), the
increase being broadly in line with the post-tax profit movements.
Dividends
The Group's dividend policy is to pay 65% of post-tax profits as a normal
dividend and to pay a further special dividend comprising earnings not
required to be held in the Group for solvency or buffers.
The Board has declared a total interim dividend of 56.0 pence per share (£157
million), as follows:
*
37.9 pence per share normal dividend based on the policy of distributing 65%
of post-tax profits; and
*
A special dividend of 18.1 pence per share.
The total 2017 interim dividend is 10% ahead of 2016's interim (51.0 pence per
share, excluding the return of surplus capital of 11.9 pence per share that
was paid with the 2016 interim). The payout ratio is 98% (Interim 2016
excluding the return of surplus capital: 91%).
The Group's solvency position remains strong at 214% after accounting for the
interim dividend.
The payment date is 6 October 2017, ex-dividend date 7 September 2017 and
record date 8 September 2017.
Investments and cash
Admiral's investment strategy was unchanged in 2017 and the Group continued to
invest in the same asset classes as previous years.
The Group's key objective in relation to investments is capital preservation,
with additional priorities including low volatility of returns and high levels
of liquidity. All objectives continue to be met. The Group's Investment
Committee performs regular reviews of its investment strategy to ensure it
continues to deliver the objectives.
Cash and investments analysis
£m 30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Fixed income and debt securities 1,324.3 1,483.3 1,496.4 1,469.2
Money market funds and other fair value instruments 671.0 693.4 968.8 781.0
Cash deposits 247.5 178.7 130.0 170.0
Cash 216.0 295.4 348.6 326.6
Total 2,458.8 2,650.8 2,943.8 2,746.8
The credit quality of the underlying securities has not changed significantly.
Investment and interest income in the first half of 2017 was £23.3 million, a
decrease of £10.1 million on 2016 (£33.4 million). The decrease is mainly
due to the first half of 2016 benefiting from £9 million relating to
movements in accruals relating to quota share reinsurance arrangements.
Excluding that impact, underlying income was broadly flat in the period.
The underlying rate of return (excluding the reinsurance accrual) on the
Group's cash and investments was 1.2% (H1 2016: 1.4%).
Capital structure and financial position
Return on equity for the first half was 55%, up from 50% for the first half of
2016. The increase is due to a combination of an increase in post-tax profits
and lower average equity.
A key feature of the business model is the extensive use of co- and
reinsurance across the Group. The Group's co-insurance and quota share
reinsurance arrangements for the UK Car insurance business are in place until
at least the end of 2018. In 2017 and 2018, the Group's net share is 22%.
Similar long term arrangements are in place in the Group's International
Insurance operations and other UK Insurance businesses.
The Group continues to manage its capital to ensure that all entities within
the Group are able to continue as going concerns and that regulated entities
comfortably meet regulatory capital requirements. Surplus capital within
subsidiaries is paid up to the Group holding company in the form of dividends.
The Group's regulatory capital 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. Due to an extension in model scope the
regulatory application for approval is now expected in late 2018.
The majority of the Group's capital requirement is derived from its European
insurance operations, Admiral Insurance (Gibraltar) Limited (AIGL) and Admiral
Insurance Company Limited (AICL). The estimated (and unaudited) Solvency II
position for the Group at the date of this report was as follows:
Group capital position
Group £bn
Eligible Own Funds (pre 2017 interim dividend) 1.19
2017 interim dividend 0.16
Eligible Own Funds (post 2017 interim dividend) 1.03
Solvency II capital requirement 0.48
Surplus over regulatory capital requirement 0.55
Solvency ratio (post dividend) (*1) 214%
*1 Solvency ratio calculated on a volatility adjusted basis.
The Group's capital includes £200 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
UK Car - incurred loss ratio +5% -26%
UK Car - 1 in 200 catastrophe event -2%
UK Household - 1 in 200 catastrophe event -3%
Interest rate - yield curve down 50 bps -10%
Credit spreads widen 100 bps -4%
Currency - 25% movement in euro and US dollar -3%
ASHE - long term inflation assumption up 0.5% -4%
Taxation
The tax charge reported in the Consolidated Income Statement is £31.5 million
(H1 2016: £36.2 million), which equates to 16.3% (H1 2016: 19.1%) of profit
before tax. The lower effective rate of taxation compared to the prior period
results from lower losses in the Group's US businesses leading to a lower
level of unrecognised deferred tax asset.
The Group's results are presented in the following sections as UK Insurance,
International Car Insurance and Price Comparison.
UK Insurance
£m 30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Turnover (*1) 881.8 1,028.5 1,144.1 2,063.1
Total premiums written (*1) 802.3 933.6 1,022.6 1,862.6
Net insurance premium revenue 193.6 218.2 241.0 454.4
Underwriting profit (*1) 99.5 95.4 105.7 109.2
Profit commission and other income 120.4 128.6 120.5 229.3
UK Insurance profit before tax 219.9 224.0 226.2 338.5
*1 Alternative Performance Measures - refer to the end of this report
for definition and explanation
Split of UK Insurance profit before tax
£m 30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Car 219.2 222.8 224.2 335.8
Household 0.7 1.2 1.6 2.7
Van - - 0.4 -
UK Insurance profit 219.9 224.0 226.2 338.5
Key performance indicators
30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Cars insured at period end 3.18m 3.52m 3.77m 3.65m
Households insured at period end 0.24m 0.38m 0.55m 0.47m
Vans insured at period end - - 0.02m -
Total UK Insurance customers 3.42m 3.90m 4.34m 4.12m
The key highlights for the UK Insurance business for H1 2017 were:
*
Generally favourable conditions in motor and household markets with rates
increasing (notably in Q2 in motor)
*
Improved competitiveness at new business and strong customer retention helped
turnover increase by 11% to £1.14 billion (H1 2016: £1.03 billion) and
customer numbers move 11% higher to 4.34 million (30 June 2016: 3.90 million)
*
UK Insurance profitability was slightly ahead of H1 2016 at £226.2 million
(H1 2016: £224.0 million) with modest improvements in the Car and Household
results and the first small profit from Van insurance
*
Significant releases from booked Car Insurance reserves, though less
substantial on Admiral's original net share than H1 2016 (partly resulting
from a cautious approach to loss ratio projections at 30 June 2017)
*
A reduced (though still significant and prudent) level of relative reserve
margin strength in car insurance reserves (partly due to increased confidence
over the impact of the change in Ogden rate to -0.75%)
*
A further increase in Household Insurance profit, though the total remains
small in the context of the overall result, reflecting the continued
substantial growth of the business and also a cautious approach to setting and
releasing claims reserves and hence profit recognition
UK Car Insurance
£m 30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Turnover (*1) 857.9 993.2 1,082.9 1,987.0
Total premiums written (*1) 779.0 899.7 966.7 1,789.3
Net insurance premium revenue 188.9 210.7 229.7 437.4
Investment income 6.3 24.5 15.8 39.3
Net insurance claims (69.3) (108.9) (108.4) (304.7)
Net insurance expenses (26.2) (30.1) (30.6) (61.0)
Underwriting profit (*1) 99.7 96.2 106.5 111.0
Profit commission 44.2 41.7 28.8 52.7
Underwriting profit plus profit commission 143.9 137.9 135.3 163.7
Net other income 63.3 69.6 66.5 138.6
Instalment income 12.0 15.3 22.4 33.5
UK Car Insurance profit before tax 219.2 222.8 224.2 335.8
*1 Alternative Performance Measures - refer to the end of this report
for definition and explanation
Split of underwriting profit
£m 30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Car insurance 91.5 85.5 99.7 93.6
Additional products 8.2 10.7 6.8 17.4
Underwriting profit 99.7 96.2 106.5 111.0
Key performance indicators
30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Reported Car loss ratio (*1,*2) 58.2% 56.9% 66.5% 73.3%
Reported Car expense ratio (*1,*3) 17.4% 18.1% 16.4% 17.5%
Reported Car combined ratio (*1) 75.6% 75.0% 82.9% 90.8%
Written basis Car expense ratio 16.2% 17.0% 15.8% 16.5%
Reported total combined ratio (*1,*4) 73.1% 72.0% 81.3% 87.5%
Claims reserve releases - original net share (*1,*5) £50.0m £55.9m £44.9m £58.3m
Claims reserve releases - commuted reinsurance (*1,*6) £42.6m £12.8m £47.4m £17.1m
Total claims reserve releases £92.6m £68.7m £92.3m £75.4m
Other Revenue per vehicle £64 £64 £61 £62
*1 Alternative Performance Measures - refer to the end of this report
for definition and explanation
*2 Car loss ratio adjusted to exclude impact of reserve releases on
commuted reinsurance contracts. Reconciliation in note 12b.
*3 Car expense ratio is calculated by including claims handling expenses
that are reported within claims costs in the income statement. Reconciliation
in note 12c.
*4 Reported total combined ratio includes additional products
underwritten by Admiral.
*5 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.
*6 Commuted reinsurance shows releases on the proportion of the account
that was originally ceded under quota share reinsurance contracts but has
since been commuted and hence reported through underwriting and not profit
commission.
The UK Car Insurance business benefited from continued success in attracting
and retaining customers in the competitive UK market and this, together with
higher average premiums, contributed to an increase in turnover of 9% to
£1.08 billion (30 June 2016: £0.99 billion). The number of vehicles insured
also grew by 7% to 3.77 million (30 June 2016: 3.52 million) with volumes
improving in the second quarter.
The UK market saw sustained rate increases during 2016 which have continued
into the first six months of 2017, particularly in the second quarter
following the change in Ogden discount rate referred to below. Admiral
increased its rates in December 2016 in advance of the Ogden change and has
continued to do so throughout the first half.
Whilst the business continued to grow in top line terms, UK Car Insurance
profit was broadly flat at £224.2 million compared to £222.8 million for H1
2016, although the combined ratio was higher at 82.9% (H1 2016: 75.0%).
Despite a number of offsetting items impacting the results, the main driver of
the small increase in profitability is stable projected ultimate loss ratios
during the first half of 2017 and resulting lower reserve releases than would
have been the case had the projections improved materially as discussed
further below. The main items affecting the results were:
*
The higher premium revenue was offset by a slightly higher current year loss
ratio (shown in the table below) and therefore higher net claims costs;
*
Lower reserve releases on Admiral's original net share (approximately £15
million adverse impact) impacted by Ogden and discussed below;
*
Higher reserve releases on the portion of reserves originally reinsured but
since commuted (approximately £35 million positive impact) also discussed
below, leading to higher aggregate net reserve releases across original net
and commuted shares.
*
Lower profit commission income (£12 million adverse impact) resulting from
lower reserve releases (again Ogden impacted);
*
Lower investment return (£9 million adverse impact) as explained in the
Investments and Cash section above.
Combined ratio and underwriting results
UK Car combined ratio 30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Current year loss ratio, excluding releases 86.8% 85.9% 87.5% 87.7%
Reserve releases - original net share 28.5% 29.0% 21.0% 14.4%
Loss ratio net of releases - original net share (*1) 58.3% 56.9% 66.5% 73.3%
Expense ratio 17.4% 18.1% 16.4% 17.5%
Combined ratio - original net share (*1) 75.7% 75.0% 82.9% 90.8%
*1 Ratios calculated on original net share use the proportion of the
portfolio that Admiral wrote on a net basis at the start of the underwriting
year in question.
Change in UK discount rate ('Ogden')
On 27 February 2017, the UK Government announced the outcome of the review of
the discount rate (referred to as the Ogden discount rate) used for
calculating the value of lump sum personal injury compensation. The new rate
is minus 0.75% and applies to all unsettled and new claims from 20 March 2017.
The estimated cost to Admiral, net of tax and reinsurance is approximately
£150 million and is unchanged compared to six months earlier. The majority
of impact, in respect of premiums earned up to the date of change (£105
million pre-tax, £87 million post-tax), was recognised in the form of reduced
2016 profits (resulting from a higher booked 2016 year loss ratio and a
significantly reduced level of reserve release in the second half of 2016).
The balance, along with the impact on business written but unearned at the
date of change, will be recognised in the form of lower reserve releases and
profit commission in the current period and subsequent two to four financial
years as the affected claims settle.
The UK Car Insurance actuarial best estimates reflect the new rate whilst the
booked reserves in the financial statements continue to include a prudent and
significant margin above the best estimates in line with the Group's reserving
approach.
A consultation on the discount rate is due to conclude imminently and the
Group looks forward to reviewing its conclusions when they are reported.
The reported UK Car combined ratio increased to 82.9% from 75.0% (both figures
exclude the impact of reserve releases from commuted reinsurance contracts).
The main reason for the increase is a lower reserve release in the current
period. The levels of releases in the first halves of 2015 and 2016 were
above the long-term average for Admiral and were boosted by significant
improvements in projected ultimate claims costs during those periods.
In the first half of 2017, projected ultimate claims costs on 2016 and prior
accident years have remained stable and therefore not led to such high
releases in 2017 to date. The stable projected ultimate loss ratios are
based on the new Ogden discount rate of -0.75% and are cautiously calculated
for the most recent accident years. The projections assume no improvement or
further deterioration in discount rate that might result from the ongoing
consultation.
Note 5c (ii) to the financial statements analyses reserve releases in the
period.
The slight increase in the current period loss ratio (87.5% v 85.9%) is partly
due to Ogden and also the cautious booked position for the current year.
Although its relative size has decreased since the end of 2016 (when the
impact of the Ogden change had yet to be reflected in the case reserves and
hence a higher margin was appropriate), the financial statements continue to
include a significant and prudent margin above the projected ultimate claims
outcomes.
The reported expense ratio improved to 16.4% from 18.1% mainly reflecting the
change in net retained share in the current period. The written basis expense
ratio also decreased to 15.8% from 17.0%, reflecting the growth in written
premium in the period.
Profit commission
Admiral is potentially able to earn material amounts of profit commission
revenue from co- and reinsurance partners, depending on the profitability of
the insurance business underwritten by the partner. Revenue is recognised in
the income statement in line with the booked loss ratios on Admiral's retained
underwriting.
For H1 2017 profit commission revenue totals £28.8 million, down from £41.7
million in H1 2016. The decrease results from less substantial improvements in
booked loss ratios on prior years than was the case in H1 2016 which in turn
was largely due to the Ogden impact referred to above.
If reserve releases from business that was originally ceded under quota share
reinsurance contracts that have since been commuted, are added to profit
commission, the total for the first six months of 2017 would be £76.2 million
compared to £54.5 million in H1 2016. This increase is a result of the
comparative figure being adversely affected by the impact (£31 million) of
the 2014 underwriting year commutation which was completed in the first half
of 2016. No quota share contracts were commuted in the first half of 2017 as
a result of the change in discount rate, although the ultimate projections of
all years continue to show profitable outcomes.
Note 5b to the financial statements analyses profit commission income by
underwriting year.
Other Revenue
Admiral generates Other Revenue from a portfolio of insurance products that
complement the core car insurance product, and also fees generated over the
life of the policy.
The most material contributors to net Other Revenue are:
*
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 fees and referral income
*
Interest charged to customers paying for cover in instalments
Contribution from Other Revenue (net of costs) increased by 5% to £88.9
million (H1 2016: £84.9 million). Whilst there were a number of smaller
offsetting changes within the total, the main reason for the increase is the
growth in the portfolio in the year.
Other revenue was equivalent to £61 per vehicle (gross of costs; H1 2016:
£64). The decrease reflects a change in allocation of reinsurer vehicle
commission (the change effectively reallocates revenue to profit commission)
offset by an increase in optional legal cover. Net Other Revenue (after
deducting costs) per vehicle was £52 (H1 2016: £56).
UK Car Insurance Other Revenue - analysis of contribution:
£m 30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Contribution from additional products and fees 84.6 90.7 94.3 185.7
Contribution from additional products underwritten by Admiral (*1) 8.2 10.7 6.8 17.4
Instalment income 12.0 15.3 22.4 33.5
Other revenue 104.8 116.7 123.5 236.6
Internal costs (21.3) (21.1) (27.8) (47.1)
Net other revenue 83.5 95.6 95.7 189.5
Other revenue per vehicle (*2) £64 £64 £61 £62
Other revenue per vehicle net of internal costs £55 £56 £52 £54
*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.
Instalment income
Instalment income reflects amounts charged to customers paying for cover in
instalments. During the first half of 2017 Admiral earned £22.4 million from
instalment income, up 46% on the prior period (H1 2016: £15.3 million). The
main reason for this increase is a change to the co-insurance arrangements
resulting in all instalment income from 2017 underwriting year onwards being
retained by Admiral. Other factors affecting the increase are increases in
average premium and customer numbers.
Additional products underwritten by Admiral
Alongside the main motor insurance policy, there are a number of other
products underwritten by Admiral that are provided to customers such as
personal injury insurance, breakdown cover and car hire cover. Contribution
from these products underwritten by Admiral during the first half of 2017 was
£6.8 million (H1 2016: £10.7 million). This is included in underwriting
profit in the income statement, but reallocated to Other Revenue for the
purpose of management key performance indicators.
UK Household Insurance
£m 30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Turnover (*1) 23.9 35.3 48.3 76.1
Total premiums written (*1) 23.3 33.9 43.7 73.3
Underwriting loss (*1) (0.2) (0.9) (0.6) (1.8)
Profit commission and other income 0.9 2.1 2.2 4.5
UK Household insurance profit before tax 0.7 1.2 1.6 2.7
*1 Alternative Performance Measures - refer to the end of this report
for definition and explanation
Key performance indicators
30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Reported household loss ratio 68.1% 74.7% 68.7% 76.5%
Reported household expense ratio 36.2% 37.3% 36.8% 34.1%
Reported household combined ratio 104.3% 112.0% 105.5% 110.6%
Households insured at period end 239,000 381,800 548,200 468,700
The UK Household Insurance business continued its record of strong growth with
the number of properties insured increasing by 44% to 548,200 (30 June 2016:
381,800). Turnover increased by 37% to £48.3 million (H1 2016: £35.3
million) and profit increased to £1.6 million (H1 2016: £1.2 million).
Both loss and expense ratios improved in the first half with the expense ratio
continuing to significantly outperform the market.
During May 2017, the Group ceased operating its commercial vehicle insurance
broker and started underwriting van insurance direct through two brands,
Gladiator and Admiral Van. Admiral offers van insurance and associated
products, typically to small businesses, via telephone and the internet,
including price comparison websites.
International Car Insurance
£m 30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Turnover (*1) 110.3 159.2 221.9 365.9
Total premiums written (*1) 101.0 142.9 197.2 331.3
Net insurance premium revenue 29.7 39.4 58.2 91.3
Investment income - 0.2 0.2 0.4
Net insurance claims (25.4) (32.7) (47.3) (75.5)
Net insurance expenses (18.9) (24.6) (28.1) (46.2)
Underwriting result (*1) (14.6) (17.7) (17.0) (30.0)
Net other income 3.4 4.8 6.9 10.6
International Car Insurance result (11.2) (12.9) (10.1) (19.4)
Key performance indicators
30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Loss ratio (*2) 82% 80% 78% 76%
Expense ratio (*2) 55% 51% 45% 49%
Combined ratio (*3) 137% 131% 123% 125%
Combined ratio, net of Other revenue (*4) 126% 118% 112% 113%
Vehicles insured at period end 631,700 757,900 961,200 864,200
*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 H1 2017:
130%; H1 2016: 145%; H1 2015: 149%.
*4 Combined ratio, net of Other Revenue is calculated on Admiral's net
share of premiums and includes Other Revenue. Including the impact of
reinsurer caps the reported combined ratio, net of Other Revenue would be H1
2017: 118%; H1 2016: 133%; H1 2015: 138%.
Geographical analysis(*1)
30 June 2017 Spain Italy France US Total
Vehicles insured at period end 208,100 462,500 112,500 178,100 961,200
Turnover (£m) 31.2 76.3 28.7 85.7 221.9
31 Dec 2016 Spain Italy France US Total
Vehicles insured at period end 189,200 415,500 91,500 168,000 864,200
Turnover (£m) 49.8 118.2 38.3 159.6 365.9
30 June 2016 Spain Italy France US Total
Vehicles insured at period end 169,850 362,250 75,400 150,400 757,900
Turnover (£m) 22.9 54.7 17.1 64.5 159.2
*1 Alternative Performance Measures - refer to the end of this report
for definition and explanation
Admiral's international insurance businesses continued to grow materially,
adding over 200,000 customers over the year since 30 June 2016, growth of 27%.
Turnover grew by nearly 40% to £221.9 million (H1 2016: £159.2 million).
Turnover and customers in these businesses represent 16% (H1 2016: 16%) and
18% (30 June 2016: 13%) of the Group totals respectively.
A significant improvement in the Elephant Auto results contributed to the
combined ratio net of other revenue improving to 112% from 118%. ConTe also
saw continued positive development of back year reserves. The combined loss
for the international insurance businesses improved to £10.1 million for the
first six months of 2017 (H1 2016: £12.9 million). The improved result at
Elephant and further profit from ConTe were partly offset by losses in Spain
and France due to the strong growth in those businesses.
The expense ratio has improved to 45% (H1 2016: 51%) though remains high in
comparison to Admiral's UK business due to the acquisition costs associated
with the strong growth and also the continued need to build scale.
The European insurance operations in Spain, Italy and France insured 783,100
vehicles at 30 June 2017 - 29% higher than a year earlier (30 June 2016:
607,500). Turnover was up 44% at £136.2 million (H1 2016: £94.7 million).
The consolidated result of the European operations was a loss of £5.0 million
(H1 2016: £2.1 million) with a small profit in Italy offset by investment in
growth in Spain and France. The growth in Spain and France also impacted on
the combined ratio net of other revenue (excluding the impact of reinsurer
caps) which increased to 105% from 99%.
Admiral Seguros (Spain) which launched in 2006 operates under two main brands,
Balumba and Qualitas Auto. Admiral Seguros focused on growth during the first
six months of 2017 and at 30 June 2017 the business insured over 200,000
customers, 23% higher than at 30 June 2016.
The Group's largest international operation is ConTe in Italy, which insured
462,500 vehicles at 30 June 2017, 28% higher than a year earlier. ConTe was
launched in 2008 and in the first six months of 2017 continued to experience
positive development in the projected ultimate outcomes of most underwriting
years allowing further reserve releases in H1 2017 and another reported
profit.
Admiral's youngest and smallest international insurance business is L'olivier
assurance auto, which launched in 2010 in France. L'olivier insured 112,500
vehicles at 30 June 2017, up almost 50% on the prior year and has focused on
growth and accelerating brand development during the year.
In the USA, Admiral underwrites motor insurance in six states (Virginia,
Maryland, Illinois, Texas, Indiana and Tennessee) through its Elephant Auto
business, which launched at the end of 2009. At 30 June 2017 Elephant Auto
insured over 178,000 vehicles, up 18% year-on-year. Turnover for the first
half was £85.7 million, up 33% on the prior period (H1 2016: £64.5 million).
Elephant's loss in the period was £5.1 million, a significant reduction on
the H1 2016 loss of £10.8 million. Elephant improved both key operating
ratios (the loss ratio showing significant improvement) despite the continued
strong growth, whilst the current period result was also less impacted by
severe weather experience compared to the first half of 2016. The combined
ratio net of other revenue improved to 119% from 143%.
Price Comparison
£m 30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Revenue
Car insurance price comparison 42.6 48.6 55.2 97.7
Other 12.6 15.4 17.3 31.5
Total Revenue 55.2 64.0 72.5 129.2
Expenses (63.8) (68.8) (70.1) (132.1)
(Loss)/profit before tax (8.6) (4.8) 2.4 (2.9)
Confused.com profit 4.8 8.3 4.5 16.1
International price comparison result (13.4) (13.1) (2.1) (19.0)
(8.6) (4.8) 2.4 (2.9)
Group's share of (loss)/profit before tax ( *1)
Confused.com profit 4.8 8.3 4.5 16.1
International price comparison result (8.8) (9.4) (1.4) (13.4)
(4.0) (1.1) 3.1 2.7
*1 Alternative Performance Measure - refer to the end of this report for
definition and explanation
UK Price Comparison - Confused.com
In 2016 Confused.com started to differentiate itself by focussing on saving
drivers time and money. A new marketing campaign and range of new products
have contributed to an improvement in brand awareness and increase in income
from motor-related products. However, this was, as expected, offset by a
fall in income from non-motor products such as home and life insurance.
Confused.com turnover remained broadly stable at £44.9 million (H1 2016:
£44.0 million). The high level of competition in the price comparison
market, new marketing campaign and product development required a higher level
of investment and contributed to lower profits in the period of £4.5 million
(H1 2016: £8.3 million).
International Price Comparison
Admiral operates three price comparison businesses outside the UK: in Spain
(Rastreator), France (LeLynx) and the US (Compare.com). Admiral Group owns
75% of Rastreator and 71% of Compare.com.
The combined revenue from the European operations increased by almost a third
to £22.0 million (H1 2016: £16.7 million), reflecting continued growth in
traffic and quotes provided to customers and improved conversion rates. Both
Rastreator and LeLynx continue to enjoy strong brand recognition in their
respective markets.
The Group's share of the combined result for Rastreator and LeLynx was a
profit of £2.0 million (H1 2016: £0.7 million), the increase reflecting
ongoing strong performance from Rastreator which continues to build on its
multi-product strategy covering insurance, telephony and utilities amongst
other product lines, and an improved result from Lelynx. Statutory profit
before tax increased to £2.7 million (H1 2016: £1.2 million).
In the US, Compare.com had a successful first half, exceeding its target of
'marketing break-even' (revenue minus marketing expenses) in selected states
by achieving that nationally. The business delivered substantial
improvements in its main key performance indicators, including reduced cost
per quote and sale metrics while at the same time growing quote and sales
volumes.
As a result, Admiral's share of Compare.com's loss reduced significantly to
£3.4 million before tax (H1 2016: £10.1 million) whilst statutory loss
before tax decreased to £4.8 million (H1 2016: £14.2 million).
Compare.com's plans for the remainder of 2017 and beyond include continuing to
scale marketing activity while further enhancing conversion. Guidance for
the full year 2017 loss for Compare.com (Admiral Group's share) is reduced to
be in the range of $10-15 million.
The combined result for International Price Comparison was therefore a loss of
£1.4 million (H1 2016: loss £9.4 million) - the profit from the European
operations offset by investment in Compare.com. Statutory loss before tax was
£2.1 million (H1 2016: loss £13.1 million).
Preminen, the Group's newest price comparison venture continues to explore the
potential of price comparison in new markets overseas, in partnership with
Mapfre.
Other Group items
£m 30 June 2015 30 June 2016 30 June 2017 31 Dec 2016
Other interest and investment income 3.3 8.7 7.3 13.4
UK Commercial van broking 1.0 0.8 0.7 2.0
Share scheme charges (11.9) (14.7) (16.9) (31.9)
Business development costs (0.5) (2.2) (5.9) (5.8)
Other central overheads (4.7) (3.8) (3.9) (4.1)
Finance charges (5.5) (5.6) (5.6) (11.4)
Other interest and investment income of £7.3 million (30 June 2016: £8.7
million) includes £5.4 million (H1 2016: £Nil) of realised gains on
investments held by the Group parent company and unrealised losses of
£1.1million (H1 2016: £5.5 million unrealised gains) in respect of forward
foreign exchange contracts.
Share scheme charges relate to the Group's two employee share schemes (refer
to note 8 to the financial statements). The increase in the charge is due to
an increase in the number of awards reflecting the increasing Group headcount.
Business development costs include costs associated with potential new
ventures, including investment in Admiral Loans (see below) and Preminen.
Finance charges of £5.6 million (30 June 2016: £5.6 million) mainly
represent interest on the £200 million subordinated notes issued in July 2014
(refer to note 6 to the financial statements).
Admiral Loans
During the first half of 2017, the Group successfully rolled out the first
release of its new technology platform for Admiral Loans. The business
currently distributes unsecured personal loans through the price comparison
channel and also direct to consumers via the Admiral website.
Initial trials have returned encouraging results and consistent with other new
business launches, the Group will employ a test and learn approach and expects
advances to customers to remain insignificant in the context of the Group
balance sheet during 2017. The Group expects the business to make small
losses in its early phase mostly as a result of high fixed costs relative to
the current scale of the business.
Principal Risks and Uncertainties
Admiral has performed a robust assessment of the principal risks facing the
Group, including those which would threaten its business model, future
performance, liquidity and solvency. The result of this assessment is that
the principal risks and uncertainties are consistent with those reported in
the Group's 2016 Annual Report and Accounts, pages 40-43.
UK Exit from the European Union ('Brexit')
The precise timetable for and details of the implementation of the Brexit
referendum decision continue to remain unclear at the date of this report.
Brexit brings risks to the Group including:
*
The potential for market volatility, particularly in interest and exchange
rates
*
the potential for the uncertainty or the emerging terms of exit to trigger or
exacerbate less favourable economic conditions in the UK and other countries
in which Admiral operates (though it is worth noting that car insurance has
tended to be resilient to economic downturns)
*
potential changes to or withdrawal of the right of UK financial services firms
to trade in Europe without the need for locally regulated entities
('passporting')
*
potential changes to the rules relating to the free movement of people between
the UK and the remaining EU member states
The Group continues to develop its plans to be able to deal with the
withdrawal of passporting, should this transpire and, recognising that other
issues may emerge over time, will continue to closely monitor developments
over the coming months and years.
At present, the Group does not foresee a material adverse impact on day to day
operations (including customers or staff), nor does it expect the costs
associated with any Group restructure to be material in the context of the
Group.
Regulatory update
Admiral's businesses operate in numerous regulated markets across the world.
Rules and legislation continue to develop and Admiral works closely with all
of its regulators on these matters.
In particular during 2017 Admiral has worked closely with the FCA on renewal
transparency, governance and information security and with the PRA on internal
model development and the impact of the new Ogden discount rate.
Ongoing legislative and regulatory matters include:
Issue Notes
Change in the Ogden discount rate and ongoing consultation over its future (new rate effective March 2017, consultation ongoing) *
Government measures to reduce whiplash claims costs (expected 2018) *
General Data Protection Regulation ('GDPR') and the UK Data Protection Bill (effective May 2018) *
FCA rules on enhanced transparency in insurance renewals (effective April 2017) *
Insurance Intermediation Directive ('IDD') (to be implemented in the UK in 2018) *
FCA Senior Management and Certification Regime (SM&CR) (expected to come into effect during 2018) *
Disclaimer on forward-looking statements
Certain statements made in this announcement are forward-looking statements.
Such statements are based on current expectations and assumptions and are
subject to a number of known and unknown risks and uncertainties that may
cause actual events or results to differ materially from any expected future
events or results expressed or implied in these forward-looking statements.
Persons receiving this announcement should not place undue reliance on
forward-looking statements. Unless otherwise required by applicable law,
regulation or accounting standard, the Group does not undertake to update or
revise any forward-looking statements, whether as a result of new information,
future developments or otherwise.
Condensed consolidated income statement (unaudited)
6 months ended: Year ended:
30 June 2017 30 June 2016 31 December 2016
Note: £m £m £m
Insurance premium revenue 796.6 635.8 1,353.6
Insurance premium ceded to reinsurers (495.3) (376.1) (804.8)
Net insurance premium revenue 5 301.3 259.7 548.8
Other revenue 7 196.0 176.2 360.6
Profit commission 5 30.0 42.2 54.3
Investment and interest income 6 23.3 33.4 53.1
Net revenue 550.6 511.5 1016.8
Insurance claims and claims handling expenses (612.7) (400.0) (1,103.8)
Insurance claims and claims handling expenses recoverable from reinsurers 447.8 251.6 709.2
Net insurance claims (164.9) (148.4) (394.6)
Operating expenses and share scheme charges 8 (359.5) (316.9) (648.8)
Operating expenses and share scheme charges recoverable from co- and reinsurers 8 172.8 148.9 316.4
Net operating expenses and share scheme charges (186.7) (168.0) (332.4)
Total expenses (351.6) (316.4) (727.0)
Operating profit 199.0 195.1 289.8
Finance costs 6 (5.6) (5.6) (11.4)
Profit before tax 193.4 189.5 278.4
Taxation expense 9 (31.5) (36.2) (64.3)
Profit after tax 161.9 153.3 214.1
Profit after tax attributable to:
Equity holders of the parent 163.2 157.4 222.2
Non-controlling interests (1.3) (4.1) (8.1)
161.9 153.3 214.1
Earnings per share:
Basic 11 57.3p 55.9p 78.7p
Diluted 11 57.2p 55.8p 78.5p
Dividends declared and paid (total) 11 143.7 175.4 349.8
Dividends declared and paid (per share) 11 50.5p 63.4p 126.3p
Condensed consolidated statement of comprehensive income (unaudited)
6 months ended: Year ended:
30 June 2017 30 June 2016 31 December 2016
£m £m £m
Profit for the period 161.9 153.3 214.1Recent news on Admiral
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