REG-Admiral Group PLC : Results for the year ended 31 December 2015 <Origin Href="QuoteRef">ADML.L</Origin>

AdmiralAnnouncement

03/03/2016 07:10

3 March 2016 
 
 Admiral Group plc announces a record Group profit before tax of £377 million
for the year to 31 December 2015.   
 
  2015 Preliminary Results Highlights                                                
                                        2015              2014              % change   
  Group profit before tax                £377 million     £357 million     +6%        
  Earnings per share                     107.3 pence       103.0 pence       +4%        
  Full year dividend                     114.4 p/share     98.4 p/share      +16%       
  Return on equity                       49%               52%                         
  Group turnover                         £2.12 billion    £1.97 billion    +8%        
  Group customers                        4.43 million      4.05 million      +9%        
  UK customers                           3.30 million      3.15 million      +5%        
  International car insurance                                                        
   Turnover                             £232 million     £206 million     +13%       
   Customers                            673,000           592,600           +14%       
 Over 8,000 staff receive free shares worth a total of £3,600 each under the
employee share scheme based on the full year 2015 results 
 
 Comment from Henry Engelhardt, Group Chief Executive Officer 
 "I would describe 2015 as: the year of the uncut diamond. When the year
started many people thought it would turn out to be a lump of coal. But no,
2015 was no lumpy coal year. 
 
 "A lot of good things happened in 2015. The work we did on the UK business in
terms of rate increases ahead of the market and the continued attention to
operational detail amongst other things, all led to an excellent economic
outcome. Following on from the success last year of our Italian business,
ConTe, which made another small profit in 2015, the break-even result
(underwriting year basis) in Admiral Seguros, our Spanish operation, was also
a great achievement." 
 
 Dividend 
 The Directors have proposed a final dividend of 63.4 pence, representing a
normal dividend of 33.6 pence per share and a special dividend of 29.8 pence
per share.  The special dividend of 29.8 pence per share includes 11.9 pence
per share, reflecting the first element of a phased return of surplus capital
given the Group's Solvency II capital position. The final dividend will be
paid on 3 June 2016.  The ex-dividend date is 12 May 2016 and the record date
is 13 May 2016. 
 
 Management presentation 
 Analysts and investors will be able to access the Admiral Group management
presentation which commences at 9.00 GMT on Thursday 3 March 2016 by dialling
+ 44 (0)20 3059 8125.  A copy of the presentation slides will be available at
www.admiralgroup.co.uk 
 
 Chairman's Statement 
 
 Succession 
 As was announced last May, Henry Engelhardt will step down as Group Chief
Executive in May 2016. There is no way to measure adequately the contribution
of a founder of a business that has grown from zero to now worth almost £5
billion, employs over 8,000 people and serves more than 4 million customers. 
When we floated on the London Stock Exchange in 2004 it was under the by-line
'Admiral is Different' and this has been something we have always tried to be,
not different for the sake of being different, but different to create value
for our shareholders. 
 
 So what makes us different? 
 
 * That all employees of Admiral are shareholders 
 * That we distribute each year all our profits over and above what we need to
support and grow our business 
 * That we have the lowest combined ratio amongst our major UK competitors 
 * That we are the only company to have been in the Sunday Times Best
Companies to Work For list every year for the last 15 years 
 * That all our growth, at home and overseas, has been organic with the
Admiral culture strongly embedded wherever we operate 
 
 
 And I could go on much longer. In so many areas of difference the original
thinking has stemmed from Henry's refusal to accept the status quo and the
conventional, from his asking 'Why?' and from his recruitment of those who
think like him and share the same values. 
 
 When any new employee joins Admiral's UK operations Henry gives them a piece
of a jigsaw  - a jigsaw is not complete until every piece is in place, no
matter how small it may be; similarly, in Admiral every role has a
contribution to make and is to be valued on the merits of the individual, not
their status. As Henry said at a recent Staff General Meeting in which over
5,000 staff in the UK take part each year, what will continue to make Admiral
different is not what the Board will do 'but what you, you, you and you will
do'. 
 
 On behalf of the Board and the entire Group I want to thank Henry for
everything he has done over so many years and to say how delighted we all are
that he will continue to work within the Group looking after our price
comparison businesses around the world. 
 
 I said that Admiral's original thinking in part stems from those Henry has
recruited and who share the same values. David Stevens, who takes over from
Henry as Group CEO, was the second person Henry recruited to work alongside
him to found Admiral. For the last seven years David has led the UK business
and has been instrumental, alongside Henry, in shaping Admiral's course and
the strong performance that has been achieved.  When asked about succession
my reply has always been that I am extremely fortunate as Chairman to have two
people leading a business, both of whom could be CEO, and one of whom is four
years younger than the other! Since we announced Henry's retirement last year
we have been able to implement a seamless transition of leadership. 
 
 2015 in overview 
 In my statement last year I wrote that we recognise that in a cyclical
business there are periods for growth and periods for consolidation, seeking
purely to maintain one's existing market position and focus on building
capability to support growth when conditions render that both profitable and
sustainable. It is encouraging that in 2015 it was appropriate to grow in four
of our five car insurance businesses and particularly that market conditions
were right to resume modest growth in the UK. 
 
 Admiral's combined ratio advantage compared with the UK motor market as a
whole has always made it appropriate to grow when rates start to move upwards,
our raising prices at a somewhat lower rate than the market as a whole. This
was true of 2015, the improvement in our competitiveness showing through as a
5% growth in our UK motor base, which stood at 3.30 million vehicles at the
year end. We were also pleased to grow further our young UK household book,
itself reaching over 300,000 customers at 31 December. 
 
 It is well understood that our reserving practice is to adopt a very prudent
assessment against the range of possible outcomes whilst claims are in the
early stages of development and then to release as we understand better the
final cost of the claim. Alongside growth of our book in the UK last year we
also experienced pleasing development of past years' motor claims, allowing us
to make a higher than normal release of reserves whilst maintaining a prudent
position overall. 
 
 The turn of the market, strong claims experience and our low cost culture
allowed our UK car insurance business to improve profits by 11% to £443
million. This in turn supported increased investment in our young
international car insurance and price comparison businesses, in particular in
the US, whilst at the same time growing by 6% the level of Group pre-tax
profits as a whole. 
 
 As a result we now have 673,000 motor customers overseas and our price
comparison businesses in France and Spain are market leaders. Our Italian
motor insurance business, ConTe, achieved both growth in its book in 2015 and
a further year of profitability whilst our French motor business, L'olivier,
grew strongly albeit off a low base.  Elephant Auto in the US also achieved
strong growth and is preparing to expand its operations into further states as
it grows towards the scale required of a profitable operation. It was only in
Spain that market conditions remained fiercely competitive with falling
prices, making growth undesirable and management instead focused on achieving
break-even, something the business achieved on an underwriting year basis. 
 
 Our price comparison operations range from the fully mature and intensely
competed market in which Confused.com has to do battle in the UK through to
the newly emerging in the US where we will continue our investment in
compare.com to build both general market awareness and acceptance by insurers
as a successful distribution channel. In the middle of this range we have
businesses in France and Spain that, whilst in themselves market-leading, are
still developing their channel credentials, both in insurance and other lines
of business that lend themselves to internet-based comparison.  All of these
markets call for creativity to compete successfully, whether it be introducing
European-style price comparison to the US market or making the most of the
change in French law that makes it easier for consumers to switch motor
insurers. 
 
 Our capital structure and dividend policy 
 We announced in December how the Prudential Regulatory Authority (PRA) has
ruled on what capital we need as Solvency II comes into effect in 2016. As we
had anticipated, we entered Solvency II with a significant surplus of actual
against required capital. It will, however, be 2017 before we know fully what
our Solvency II capital requirement will be, as we have agreed with the PRA to
transition from the standard formula to a partial internal model. In the face,
therefore, of a degree of ongoing uncertainty we have decided to release this
surplus progressively as we transition to the new basis of calculating
required capital. The first element is the release of £33 million into the
2015 final special dividend. 
 
 We have also reviewed the split between normal and special dividends. Since
we floated in 2004 we have maintained our normal dividend at 45% of each
year's earnings and then distributed as a special dividend the surplus over
and above what we retain to meet regulatory requirements, the future
development of our business and appropriate buffers. 
 
 In practice we have every year distributed 90% or more of each year's
earnings, in the light of which we believe the normal level of dividend is set
too low. We are, therefore, raising this to 65% with effect from 2015 but in
all other respects our dividend policy remains the same: we expect, for the
foreseeable future at least, to continue to distribute, in total, the same
proportion of our earnings as in the past. 
 
 This year's available surplus allows full year normal and special dividends
of £283 million, representing a 96% distribution. Adding to this the above
release of surplus capital, and calculating the normal element of the final
dividend at 65% of post-tax profits, our full year dividends amount to a
normal dividend of 57.9p per share, and special dividends of 56.5p per share. 
 
 Other Board changes 
 At the end of August last year we said goodbye to Manfred Aldag when he
retired from Munich Re. With a wealth of insurance experience Manfred made a
great contribution to Admiral's success over the 12 years he served on our
Board and he will be much missed, both as a colleague and a friend. 
 
 Our 2016 AGM will also see the retirement of Lucy Kellaway and Margaret
Johnson, both of whom joined the Board in 2006 and will, therefore, have
served three full terms as non-executive directors. They will long be
remembered for their wise counsel given their ability, coming from outside the
world of insurance, to approach sector and company issues from a fresh
perspective. 
 
 During the year we welcomed Manning Rountree and Owen Clarke to the Board.
Manning is a senior executive at the White Mountains Insurance Group, a
publicly-traded holding company for insurance and financial services interests
around the world. Now that Admiral has both developing auto insurance and
price comparison businesses in the United States we are fortunate to have
someone of Manning's experience in the US insurance sector joining our Group
Board. We already much value his input as a member of the Board of
compare.com, our US price comparison business in which White Mountains has an
investment. Owen is currently the Chief Investment Officer of Equistone
(formerly Barclays Private Equity):  he served as a director of Admiral from
1999 to 2004 when it was a private company having led BPE's participation in
the MBO of Admiral in 1999. I am delighted that Owen is now able to rejoin the
Board of Admiral; he has an excellent understanding of our business and a
great commercial record, and we look forward to once again benefiting from his
experience. 
 
 Thank you 
 A business is as good as its people and we at Admiral are hugely fortunate to
have great people whose commitment, energy and initiative allows us to create
great value for our shareholders.  My grateful thanks to all who make up the
jigsaw that is Admiral. 
 
 But a business is nothing without customers: my thanks to all our customers
for their trust and confidence which we shall do our utmost to ensure are not
misplaced. 
 
 Alastair Lyons 
 Chairman 
 2 March 2016 
 
 Chief Executive's Statement 
 
 I actually started doing end of year commentaries a few years before we went
public such that this is my 16 th statement. The first one was for the 2000
year and the highlight was the launch of our internet brand, elephant.co.uk. 
 
 At the end of 2000 we employed 1,300 people on two sites and our turnover
that year was £265 million. Compare that with the end of 2015 where we employ
over 8,000 people on umpteen sites and turnover was over £2 billion.  
 
 I would sum up all our results since 2000 as being akin to a seedless
watermelon: tasty and refreshing but somehow you always wonder 'how can that
work in the future?' Every year Admiral's customer growth and profit growth
always seems to take people a bit by surprise. Despite the fact that we've
prospered in good economic times and bad economic times; that we've prospered
when prices for car insurance were on the rise and when they weren't; that
we've prospered even allowing for investment in new operations outside the UK;
and that we've done it all organically, without any acquisitions. Despite this
history we seem to surprise people when we pop up out of the ground each
spring with better results than the year before.    
 
 2015 was no exception: record profits, turnover again over £2 billion,
record dividend, increase of 9% in number of customers, profits in Italy,
break-even in Spain.... I would describe 2015 as: the year of the uncut
diamond. When the year started many people thought it would turn out to be a
lump of coal. But no, as the results detailed in the pages to follow will
show, 2015 was no lumpy coal year. How good a year was it? Well, that's why
it's an uncut diamond. We know there's certainly good value in there, after
all, it's a diamond, but exactly how much value? Time will tell.  
 
 A lot of good things happened in 2015. For the sake of allowing you to finish
this statement in a conscious state, let me highlight but two.  
 
 First, and key to the overall result, the UK insurance business. The work we
did on the UK business in terms of rate increases ahead of the market (started
in, but not limited to, 2014), the shift in the risk profile of the account
over time and the continued attention to operational detail all led to an
excellent economic outcome. Also, trust me, money from back year releases
actually spends exactly the same as any other money. And there's more where
that came from. 
 
 Following on from the success of ConTe, the break-even result in Admiral
Seguros (AS) (actually a profit of €1.4 million), our Spanish operation, was
a great achievement. The Spanish market is very different from the UK: it's
short tail, small bodily injury claims, low propensity of consumer shopping,
low average premiums, high acquisition costs and little or no market
cyclicality ... And so over its 9 year life we've kept AS small, worked on the
quality of the business and the efficiency of the operation. But we needed to
prove that break-even could be achieved. Anyone who has tried to get a direct
operation to break-even on just 160,000 customers, with low average premiums,
will tell you that it's very challenging. A direct operation has overheads
that are in place whether there are 160,000 or 1,160,000 customers. And an
operation with only 160,000 customers has far less data to work with than a
bigger organisation. So it is with great pride that I can tell you that
Admiral Seguros made a modest profit in 2015. And it is equally with great
pride that I will tell you that AS will not break-even in 2016! Now we are
ready for growth, but growth in Spain is expensive. So we will return to
losses in the near term. But we did not enter this market to create a very
small business that breaks even; we are here for a bigger slice of the
paella.  
 
 There were other big successes in the Group in 2015, but I will let others
tell those stories. There were also some things that didn't go according to
plan. I'll definitely let others tell those stories!  
 
 As most of you know, this is my last CEO commentary. Last May I gave my one
year's notice and so my last day as CEO will be May 12, 2016. I'll be turning
over the CEO role to my longstanding colleague and friend, David Stevens. You
may be surprised to know that David's actually quite a bit younger than I am.
But I'm sure he will use his combination of youth and experience to bring
Admiral Group to the next level.  
 
 David and I met almost 30 years ago at business school. We did some great
projects together there including one on perfume advertising and another on
what a beer bottle says about the beer inside. In 1991 I was recruited by a
managing agency at Lloyd's of London to set up and run what's become Admiral
Group. David was working as a Management Consultant in a blue chip firm but I
thought, why not ask him if he'd be interested to join this car insurance
start-up? And, much to my surprise, he said 'yes'! I officially started with
Admiral in June 1991 and David came on board in August.  
 
 One of the keys to the success of our partnership has been to make arguing an
art. The next time David and I agree on something I suspect will be the first
time. I jest. Sometimes we did agree. I remember once back in 1996... But we
do push each other hard and the debates and discussions we have invariably
improve the end result. We both like to challenge the status quo and we make
each other think. But the real key to success was that we never lost sight of
the fact that both of us always had the same goal: make Admiral great. This
meant that we walked away from every debate and discussion, no matter how
fierce or passionate, as good friends. The other key to success has been to
laugh together. We laugh at each other and we laugh at the world around us.
I've shared more laughs with David than with any person other than my wife
(who is still not for sale!).  
 
 I'm pleased to say too that I will stay on with Admiral on a part-time basis.
I'll help David by managing the price comparison business CEOs. 
 
 I can also say that I wouldn't be stepping aside if I didn't feel we had
depth in management below David. If the people working in key roles around the
Group today don't do great things in the future then it will be my fault for
not working more closely with them when I had the chance. The true evidence of
my confidence in them is that I'm stepping aside to give them space to make
their mark.  
 
 As this is my final CEO commentary I'll ask you to indulge me as I answer two
questions. First, what will I miss when I step down and, second, what am I
most proud of in my Admiral years? 
 
 There are many things that I'll miss when I step down in May, but let me
share three of them with you. 
 
 I'll miss coming in each morning and seeing how we did yesterday. I'll
especially miss those days when one of our operations has broken a record -
quotes, sales, etc. But I'll even miss looking at the reserve movements across
all the businesses each morning and that nervous moment near the end of the
month when the UK claims department puts the reserves on new injury cases... I
remember in the very beginning of Admiral we were able to hit the refresh
button during the day and find out how many sales had been made up to that
minute. But managers were hitting refresh so frequently that the system was
grinding to a halt! So we had to move to yesterday reporting. It may be a
serious compulsive behaviour issue to look over your shoulder at yesterday all
the time, especially for the size of business we've become, but it's still one
of the little pleasures for me. 
 
 Second, I'll miss the way my PA of 18 years, Julie, says 'good morning' in
such a positive way every morning, even when it's dark and wet and cold (most
mornings actually) such that you can't help but think that, yes, maybe it
really is a good morning!  
 
 Lastly, the thing I know for sure I'll miss most - that's working with the
people I work with. I am very, very lucky to work with people I enjoy working
with. No, we don't always agree on everything and there have certainly been
good days and bad days, but I enjoy the challenges we work on together, the
conversations, the problems, the attempts at solutions, the coffees and
lunches, even the disagreements, and I enjoy seeing the spirit they bring to
work every day. Especially that spirit. 
 
 The people I work with bring with them a rare desire to improve and succeed,
as the economist Joseph Schumpeter put it long ago: 'there is the will to
conquer, the impulse to fight, to prove oneself superior to others, to succeed
for the sake, not of the fruits of success, but of success itself.' I look
forward to my calls, my meetings and my trips around Admiral Group. And that's
because the people I work with care: they care about what they do, they care
about the company, they care about each other and, perhaps most importantly,
they care about everyone who works in Admiral Group. I hope that care lasts
for a long, long time. 
 
 Finally, people ask me what I'm most proud of. That's easy. I'm most proud to
be part of an organisation that combines economic success with people being
happy to come to work every day. In fact, what I'm really most proud of is
that we had the ability to see that IF people are happy in their jobs every
day THEN the chances for economic success are greatly enhanced.  
 
 Thanks for reading.  
 
 Henry Engelhardt 
 Chief Executive Officer 
 2 March 2016 
 
 Chief Financial Officer's Review 
 
 A very positive result from Admiral's UK Car Insurance business in 2015
helped the Group post a very pleasing record full year profit of £377 million
- 6% higher than last year. We'll also pay a record dividend on the back of
that result (more on which below). The business review that follows contains a
number of financial and operational highlights. I'd draw out: 
 
 * Our continued substantial growth in UK household insurance (plus a small
profit, a market-beating expense ratio and very limited exposure to the
terrible UK weather in the latter part of 2015) 
 * Another profit in ConTe in Italy with continued improvements in prior year
claims reserves 
 * The (successful) first stage release of our new IT system, Guidewire, in
the UK 
 * A successful end to our Solvency II implementation efforts and a very
strong capital position entering the new regime 
 * Ending 2015 with over 4.4 million insurance customers (+9%), 25% of which
are in businesses beyond UK car insurance and almost 700,000 outside the UK 
 * Of course, the record UK car insurance profit (£443 million), coupled with
5% growth in customer numbers and encouraging signs of market rate increases
in the second half of the year 
 * Agreeing extensions to UK car insurance reinsurance agreements out to the
end of 2018 
 
 
 To balance things a little, Confused.com experienced another tough year and
saw profits fall to £12.5 million from £15.8 million.  And, as Kevin
explains in his note, the loss ratio at Elephant Auto came under pressure this
year. 
 
 Along with hangovers and apocalyptically bad weather, 1 January 2016 also saw
the implementation of the new European Solvency II regime.  As we've said
previously, Admiral is initially using the Standard Formula to calculate its
requirement and has agreed a capital add-on with the Prudential Regulation
Authority which reflects risks specific to Admiral that aren't captured by the
Standard Formula. 
 
 We prepared well for the new regime and go into 2016 with a healthy capital
position.  Consistent with our long-standing belief in not holding excess
capital in the company, we intend to return to shareholders funds that aren't
needed for solvency and buffers.  There are though a number of uncertainties
that remain, not least of which is our plan to submit an application for
approval to use an internal model to calculate capital requirements during
2017 and also the 2016 year-end reassessment of the capital add-on by the
PRA.  We, therefore, think it's prudent to return the capital surplus
gradually, whilst the uncertainty reduces over the next two to three years. 
The final 2015 dividend includes the first such additional payment of £33
million or 11.9 pence per share.  We'll separately identify these returns of
capital as we make them. 
 
 We are also announcing a change in our dividend policy involving an increase
in the ordinary dividend level (to 65% of post-tax profits from 45%), with a
continuing commitment to distribute whatever earnings we do not need to retain
to support and develop the business.  The increased ordinary percentage
results in a more appropriate balance between normal and special dividends,
but for the foreseeable future we expect to see similar total payout ratios to
previous years.  
 
 The final 2015 dividend totals 63.4 pence per share (£175 million).  This
includes a regular level of dividend of 51.5 pence per share (representing
normal and special elements) equal to 98% of earnings per share, plus the 11.9
pence per share additional return I refer to above.  Further detail on the
Solvency II capital position and dividends is included in the Business Review.

 
 2016 brings monumental change for Admiral Group as one of our founders Henry
Engelhardt retires from full time Group CEO duties.  We're grateful Henry is
staying with the Group to manage the price comparison CEOs, but there's no
doubt he'll leave a very big hole.  Alastair has paid appropriate tribute to
Henry's contribution to Admiral earlier in the report (and soon-to-be Group
CEO David has his say shortly), so I'll just say that I count myself very
lucky to have had the chance to work for Henry and, equally so, that my next
boss and Admiral's next CEO is David Stevens. 
 
 Geraint Jones 
 Chief Financial Officer 
 2 March 2016 
 
 Group Results and Dividend 
 
 * Pre-tax profits *1 increased 6% to £376.8 million (2014: £356.5 million) 
 * UK Car Insurance profit increased by 11% to £443.0 million (2014: £398.0
million) 
 * International Car Insurance losses totalled £22.2 million (2014: £19.9
million) 
 * The combined Price Comparison business made losses of £7.2 million (2014:
profit £3.6 million) reflecting the investment in compare.com 
 * Other Group Items, including employee share schemes *2 and net debt
financing charges, amounted to a cost of £36.6 million (2014: £24.6 million)

 
 
  *1     Represents Group's share of profit before tax after excluding Minority Interests. Refer to note 12d for a reconciliation to financial statement line items.   
  *2      Segment and business results exclude share scheme charges which are accounted for in Other Group Items.                                                       
 The increase in Group profit was predominantly due to the result of the UK
car insurance business, offset by the ongoing investment in compare.com - the
Group's US comparison business (Admiral's share of the loss was £21.5 million
in 2015 (2014: £15.0 million)). 
 
 Group turnover of £2.12 billion increased by 8% compared to 2014 (£1.97
billion). This was mainly due to the impact of growth across the operations
and, in the UK Car Insurance business, improved retention and the impact of an
increase in average premiums. During 2015, the Group increased its customer
base to 4.43 million from 4.05 million at 31 December 2014, year-on-year
growth of around 380,000 (9%). 
 
 Further details by segment are set out below. 
 
 Earnings per share 
 Earnings per share increased by 4% to 107.3 pence (2014: 103.0 pence). The
increase is lower than the increase in pre-tax profit due to a slightly higher
effective tax rate in 2015 (21%) compared to 2014 (20%). 
 
 Dividends 
 The Directors have announced a change in the Group's dividend policy to
increase the ordinary dividend level to 65% of post-tax profits from 45%, and
a continuing commitment to return excess capital to shareholders beyond what
is required to be held to meet solvency requirements and buffers. The increase
in the normal percentage reflects a better balance between the normal and
special elements of the dividend.   
 
 In addition, following the calculation of the Group's regulatory capital
requirement under Solvency II, and the approval of a capital add-on to the
Standard Formula by the Prudential Regulatory Authority (PRA), the Directors
have proposed an additional return of capital representing an element of
surplus capital not required for solvency. The Group will adopt a phased
approach to returning this surplus to shareholders, recognising the Group's
plan to submit an application for approval to use an internal model to
calculate capital requirements during 2017 and the reassessment of the capital
add-on at the end of 2016. 
 
 The special dividend and the additional return of capital are calculated with
reference to distributable reserves after considering capital that is required
to be held a) for regulatory purposes; b) to fund expansion activities; and c)
as a further prudent buffer. 
 
 The Directors have therefore proposed a final dividend for the financial year
of 63.4 pence per share. 
 
 The final dividend of 63.4 pence per share is, therefore, made up of three
elements: 
 
 * 33.6 pence per share representing a normal element, based on the updated
dividend policy of distributing 65% of post-tax profits; 
 * A special element of 17.9 pence per share; and 
 * An additional return of capital of 11.9 per share, representing an element
of surplus capital not required for solvency. 
 
 
 The payment date is 3 June 2016, ex-dividend date 12 May 2016 and record date
13 May 2016. 
 
 Return on capital 
 Admiral's capital efficient and highly profitable business model achieved a
return on equity of 49% (2014: 52%).  
 
 A key part of the business model is the extensive use of co- and reinsurance
across the Group which provides both loss protection and capital relief. 
 
 Divisional performance highlights 
 The Group's UK Car Insurance business accounts for 81% of Group turnover
(2014: 81%) and 75% of customers (2014: 78%). The relative decrease in the
proportion of Group customer numbers is due to the continued growth and
development of the Group's other businesses, whilst the relative stability of
turnover reflects the premium increases experienced in the UK during 2015. 
 
 In 2015, the UK business implemented a number of premium increases as rates
in the market started to rise.  The number of vehicles insured in the UK
business increased by 5% to 3.30 million (2014: 3.15 million). 
 
 Supported by strong releases from prior year claims reserves on the back of
continued positive development in projected claims costs, the combined ratio
improved to 78.2% (2014: 79.5%) and profit before tax was £443.0 million - up
11% on 2014's result of £398.0 million. 
 
 Higher average premiums in the competitive UK market with continued success
in attracting and retaining customers, contributed to an increase in UK
turnover of 7% to £1.71 billion (2014: £1.60 billion). 
 
 Outside of the UK, Admiral's International Car Insurance businesses continue
to develop, with combined turnover rising 13% to £232.4 million (2014:
£206.2 million) and customer numbers approaching 700,000 - an increase of 14%
on a year earlier. The 2015 Group results include another small profit
generated by ConTe and improved results for Admiral Seguros following the
achievement of break-even (on an underwriting year basis). The combined loss
from the international insurance operations was higher in 2015 at £22.2
million (2014: £19.9 million), primarily due to ongoing investment in France
and the US offset by the improved ConTe profit. The overall international loss
equalled 6% of the Group's profit before tax, in line with 2014. 
 
 Admiral's Price Comparison businesses made a combined loss of £7.2 million
(2014: profit £3.6 million). In a very competitive UK comparison market,
Confused.com, the Group's UK Price Comparison business, reported a pre-tax
profit of £12.5 million - £3.3 million lower than 2014's result. This profit
was offset by a net loss within the international price comparison businesses
where investment in compare.com of £21.5 million (2014: £15.0 million)
outweighed profits from the European price comparison operations, Rastreator
in Spain and LeLynx in France, of £1.8 million (2014: £2.8 million).  This
reduced profit reflected increased marketing costs as both businesses sought
to grow market share. 
 
 Other Group key performance indicators include: 
 
 * Group loss ratio 65.1% (2014: 67.8%) - a reduction in the UK loss ratio
resulting from higher reserve releases alongside a stable international loss
ratio; 
 * Group expense ratio 20.5% (2014: 18.7%) - slight increases in both UK and
international ratios reflecting ongoing investment in international and the
impact of a levy adjustment in the UK; and  
 * Group combined ratio 85.6% (2014: 86.5%). 
 
 
 Investments and cash 
 Investment strategy 
 Admiral's investment strategy was unchanged in 2015 and the Group continued
to invest in the same asset classes as previous years. 
 
 The main focus of the Group's strategy is capital preservation, with
additional priorities including low volatility of returns and high levels of
liquidity. All objectives continue to be met. 
 
 A shift in allocation of funds, which commenced in 2014, continued during the
first half of 2015 with a greater proportion invested in fixed income and
other short dated securities (and less in money market funds and deposits).
There has been no significant change in credit quality and over 90% of assets
are rated A- and above.   
 
 The Group's Investment Committee performs regular reviews of the strategy to
ensure it remains appropriate.  
 
 Cash and Investments Analysis 
 
                                     31 December 2015                                               
                                                 International                                  
                                     UK Car       Car              Price                          
                                     Insurance    Insurance        Comparison    Other    Total     
                                     £m          £m              £m           £m      £m       
  Fixed income and debt securities    1,230.0      -                -             198.2    1,428.2   
  Money market funds                  568.1        40.0             -             19.6     627.7     
  Cash deposits                       244.3        3.2              -             20.1     267.6     
  Cash                                93.8         94.3             59.5          17.7     265.3     
  Total                               2,136.2      137.5            59.5          255.6    2,588.8   
                                     31 December 2014                                               
                                                 International                                  
                                     UK Car       Car              Price                          
                                     Insurance    Insurance        Comparison    Other    Total     
                                     £m          £m              £m           £m      £m       
  Fixed income and debt securities    822.7        -                -             199.1    1,021.8   
  Money market funds                  808.6        96.5             -             4.1      909.2     
  Cash deposits                       261.0        2.1              -             -        263.1     
  Cash                                101.8        38.6             49.0          66.5     255.9     
  Total                               1,994.1      137.2            49.0          269.7    2,450.0   
 Money market funds, fixed income and debt securities continue to comprise the
majority of the total; 79% at 31 December 2015 and 2014.     
 
 Investment and interest income in 2015 was £32.6 million, an increase of
£17.2 million on 2014 (£15.4 million). The increase was due to the full year
impact of the increased allocation of funds to fixed income and other short
dated securities that took place across 2014. Further allocations of funds to
fixed income and other short dated securities continued in 2015. In addition,
investment and interest income for 2014 was offset by an adjustment (of
approximately £8 million) relating to notional investment income being
accrued on quota share reinsurance funds withheld arrangements.  The
cumulative accrual at 31 December 2015 is £8 million, unchanged from a year
earlier. 
 
 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. 
 
  £m                                                             2013       2014       2015      
  Operating cash flow, before transfers to investments            616.8      540.2      509.3     
  Transfers to financial investments                              (295.3)    (286.3)    (142.0)   
                                                                                              
  Operating cash flow                                             321.5      253.9      367.3     
  Tax and interest payments                                       (88.5)     (77.0)     (63.8)    
  Investing cash flows (capital expenditure)                      (10.1)     (47.5)     (43.3)    
  Financing cash flows (2014 offset by proceeds of debt issue)    (250.3)    (64.4)     (253.4)   
  Foreign currency translation impact                             (1.3)      3.0        2.6       
  Net cash movement                                               (28.7)     68.0       9.4       
  Movement in investment valuation reserve                        -          10.9       (12.6)    
  Net increase in cash and financial investments                  266.6      365.2      138.8     
 The main items contributing to the significant operating cash inflow are as
follows: 
 
  £m                                                     2013     2014      2015     
  Profit after tax                                        286.9    281.6     291.8    
                                                                                  
  Change in net insurance liabilities                    186.2    187.5     148.7    
  Net change in trade receivables and liabilities         22.3     (34.7)    (55.7)   
  Non-cash income statement items                         38.1     36.7      47.6     
  Tax and net interest expense                           83.3     69.1      76.9     
                                                                                  
  Operating cash flow, before transfers to investments    616.8    540.2     509.3    
 Total cash plus investments increased by £139 million or 6% (2014: £365
million, 18%). 2014 was boosted by the proceeds of the £200 million bond
issue. 
 
 Capital Structure and Financial Position 
 Admiral's capital-efficient and profitable business model led to a return on
equity of 49% (2014: 52%). A key feature of the business model is the
extensive use of co- and reinsurance across the Group. The Group has agreed
terms with partners to extend its UK motor reinsurance arrangements until the
end of 2018. Extensions have been agreed on similar contract terms and
conditions to those currently in effect, with the exception that it is planned
for the Group to reduce its underwriting share from 25% to 22% with effect
from 2017. Similar long term arrangements are in place in the Group's
international insurance operations and UK Household Insurance business. 
 
 The Group continues to manage its capital to ensure that all entities within
the Group are able to continue as going concerns and that regulated entities
comfortably meet regulatory capital requirements. Surplus capital within
subsidiaries is paid up to the Group holding company in the form of dividends.

 
 The Group's regulatory capital from January 2016 will be based on the
Solvency II Standard Formula, with a capital add-on agreed by the PRA to
reflect recognised limitations in the Standard Formula with respect to
Admiral's business (predominantly in respect of profit commission arrangements
in co- and reinsurance agreements and risks arising from claims including
Periodic Payment Order (PPO) claims). 
 
 The capital add-on to the Standard Formula approved by the PRA in December
2015 will be the subject of a PRA review in December 2016. The Group plans to
submit an application for approval to use an internal model to calculate
capital requirements during 2017. 
 
 The majority of the Group's 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                                            £bn     
  Eligible Own Funds (pre 2015 final dividend)     1.03     
  2015 final dividend                              (0.17)   
  Eligible Own Funds (post 2015 final dividend)    0.86     
  Solvency II capital requirement                  (0.42)   
  Surplus over regulatory capital requirement      0.44     
  Solvency ratio (post dividend)                   206%     
 In July 2014, the Group completed the issue of £200 million of ten year
dated subordinated bonds.  The rate of interest is fixed at 5.5% and the
bonds mature in July 2024. The bonds qualify as tier two capital under the
Solvency II regulatory regime. 
 
 Taxation 
 The tax charge reported in the Consolidated Income Statement is £76.9
million (2014: £69.1 million), which equates to 21% (2014: 20%) of profit
before tax. The higher effective rate of taxation compared to 2014 results
from reductions in deferred tax assets relating to losses in the Group's US
businesses. 
 
 The Group's results are presented in three segments - UK Car Insurance,
International Car Insurance and Price Comparison. Other Group Items are
summarised in a fourth section. 
 
 UK Insurance 

 UK Insurance Review - David Stevens, Chief Operating Officer 

 
 This will be my last UK insurance review before taking over from Henry as CEO
later this year. Next year he'll be leaving me the responsibility of choosing
just the right analogy, after years of Henry's always entertaining, sometimes
illuminating, occasionally enigmatic, choices. That's just one of the
challenges of taking over from Henry, after his 25 years of pretty much
faultless stewardship of the company. Perhaps the biggest single advantage I
have in tackling this challenge is having watched Henry, over those years, mix
the brilliant blend of inspiration, determination, sensitivity and vision that
creates, in Admiral, something special for staff and shareholders alike. 
 
 Given it's my last UK Insurance Review, I'll take the long view and start by
going back to our early days as a quoted company. 
 
 For a while, after our flotation, we were without comparison. Or perhaps,
more accurately, 'without comparables'. We were, for a number of years, the
only quoted direct personal lines insurer. Analysts and commentators could
only half-heartedly benchmark us against a couple of battle-scarred,
multi-national, multi-line composites and a mixed selection of Lloyd's
managing agencies. Roll on ten years and the stock market is awash with
companies that are primarily direct personal lines insurance companies:
ourselves; Direct Line; Esure; most recently Hastings; and, notwithstanding
its initial reluctance to acknowledge its insurance-ness, Saga. Ten years ago
quoted focused personal lines players (ourselves and a couple of Lloyd's motor
operations) accounted for 5% of the UK motor market. The other 95% was buried
within massive global insurers and banks for whom the UK car insurance result
was not that big a deal. Now 40% of the UK car insurance market is in the
hands of the quoted personal line players. 
 
 Good news for Admiral? 
 
 Or bad? 
 
 Well, both to be honest. 
 
 The investment community has tended to look askance at a sector whose extreme
cyclicality has, over the decades, delivered an unappetising combination of
very modest average returns on capital, combined with extreme volatility
around that average. Might the market discipline, the extra scrutiny and
transparency, the better alignment of manager and owner interests, mean that,
in this new world, UK car insurers could lift their game enough, both to push
up cross-cycle average returns, and to moderate the ups and downs of the
cycle?  
 
 It's too early to make a call, but I am somewhat encouraged by premium
movements over the last eighteen months. Market-wide price increases from mid
2014 and throughout 2015 should mean that the combined ratio for accident year
2015, the most recent worst point of the car insurance cycle, will be
materially below the 120% plus combined ratios (on a pure year, before reserve
release, basis) that marked the last two worst points (1998/9, 2009/10). If
sustained over a decent period of time, evidence of higher and less volatile
returns must ultimately increase investor interest in non-life insurance as a
whole. 
 
 So what's the downside of more quoted focused personal lines players? 
 
 Market discipline should not only make them more rational managers of their
business, it should also make them more effective competitors - more
sophisticated pricers, better claims handlers and lower cost operators. It
should, in short, help them narrow the long-standing and substantial combined
ratio gap between ourselves and themselves.  Have they? 
 
 Not on expense ratios. The market and our own car insurance expense ratio
have oscillated, but our relative outperformance has stayed consistent at
12-14 percentage points below market averages. While on household, despite our
sub-scale circa 1% market share and our big share of new business versus
renewals, we're already beating the market average expense ratio.  
 
 What about on claims ratios? 
 
 It's hard to know, to be honest. It takes a good three years for enough
claims to settle, or at least stabilise, for us to be able to compare
ourselves reliably to the market as a whole. What we can say is the 2011/12
years look to be delivering loss ratios of 11-12 percentage points below
market averages; less than the 20 percentage points advantage in 2009 (when
price comparison neophytes were severely punished); but no less than 2005/6,
when we outperformed by 10-11 percentage points. 
 
 We insured about 1.2 millions cars in the UK in 2006, and 3.0 million in
2012. If you'd asked me back in 2006 if we could insure almost three times as
many cars in 2011/12, and still maintain the same claims ratio advantage
versus the market, I'd have said "probably not". 
 
 If you ask me now if we have maintained the same claims advantage versus the
market in 2015 (now with 3.3 million cars on cover) as in 2006 and in 2012,
I'd again say "probably not". 
 
 But I have been proved wrong before. 
 
 David Stevens 
 Chief Operating Officer 
 2 March 2016 
 
 UK Car Insurance Financial Review 
 
 Non-GAAP *1 format income statement 
 
  £m                                           2013       2014       2015      
  Turnover *2                                   1,698.9    1,602.7    1,708.2   
  Total premiums written *3                     1,553.0    1,453.1    1,539.7   
                                                                            
  Net insurance premium revenue                425.1      394.3      386.5     
  Investment income                             12.4       11.5       26.1      
  Net insurance claims                          (251.3)    (198.3)    (161.3)   
  Net insurance expenses                        (52.1)     (44.6)     (52.1)    
                                                                            
  Underwriting profit                           134.1      162.9      199.2     
  Profit commission                             99.3       71.8       85.2      
  Underwriting profit plus profit commission    233.4      234.7      284.4     
  Net other income                              136.8      140.7      131.9     
  Instalment income                             23.7       22.6       26.7      
  UK Car Insurance profit before tax *4        393.9      398.0      443.0     
  *1     GAAP = Generally Accepted Accounting Practice.                                                                                                               
  *2      Turnover (a non-GAAP measure) comprises total premiums written and Other Revenue. Refer to note 12a for a reconciliation to financial statement line items.   
  *3      Total premiums written (non-GAAP) includes premium underwritten by co-insurers.                                                                               
  *4      UK Car Insurance profit before tax includes Minority Interests. The Minority Interests' share of profit before tax is insignificant.                         
 Split of underwriting profit 
 
  £m                    2013     2014     2015    
  Motor                  121.8    144.2    183.2   
  Additional products    12.3     18.7     16.0    
  Underwriting profit    134.1    162.9    199.2   
 Key performance indicators 
 
                                                      2013       2014        2015       
  Reported motor loss ratio *1                        68.0%      68.6%       64.1%      
  Reported motor expense ratio *2                      15.0%      14.4%       16.9%      
  Reported motor combined ratio                       83.0%      83.0%       81.0%      
  Written basis motor expense ratio                   14.5%      16.0%       16.3%      
  Reported total combined ratio *3                     81.0%      79.5%       78.2%      
  Claims reserve releases - original net share *4      £53.3m    £66.8m     £84.6m    
  Claims reserve releases - commuted reinsurance *5    £40.9m    £70.6m     £88.8m    
  Total claims reserve releases                        £94.2m    £137.4m    £173.4m   
  Vehicles insured at year end                        3.02m      3.15m       3.30m      
  Other Revenue per vehicle                           £67       £67        £63       
  *1     Motor loss ratio adjusted to exclude impact of reserve releases on commuted reinsurance contracts.  Reconciliation in note 12b.                                                                                                        
  *2      Motor expense ratio is calculated by including claims handling expenses that are reported within claims costs in the income statement. Reconciliation in note 12c.                                                                      
  *3      Reported total combined ratio includes additional products underwritten by Admiral.                                                                                                                                                    
  *4      Original net share shows reserve releases 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 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.   
 UK Car Insurance - co-insurance and reinsurance 
 Admiral (in the UK and internationally) 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. 
 
 The two principal advantages of the arrangements are: 
 
 * Capital efficiency: a significant proportion of the capital supporting the
underwriting is held outside the Group. As Admiral is typically able to retain
much of the profit generated via profit commission (refer below for further
details), the return on Group capital is higher than in an insurance company
with a standard business model. 
 * Risk mitigation: co- and reinsurers bear their proportional shares of
claims expenses and hence provide protection should results worsen
substantially. 
 
 
 Arrangements for 2016 to 2018 
 The Group has agreed terms with partners to extend its UK reinsurance
arrangements until the end of 2018. Extensions have been agreed on similar
contract terms and conditions to those currently in effect, with the exception
that it is planned for the Group to reduce its underwriting share from 25% to
22% with effect from 2017. 
 
 The proportion underwritten by Munich Re (via Great Lakes, a UK subsidiary of
Munich Re) is on a co-insurance basis, such that 40% of all motor premium and
claims for the 2015 year accrues directly to Great Lakes and does not appear
in the Group's income statement. Similarly, Great Lakes reimburses the Group
for its proportional share of expenses incurred in acquiring and administering
the motor business. 
 
 Munich Re will underwrite 40% of the UK business until at least the end of
2018. 
 
 All other agreements are quota share reinsurance. 
 
 Admiral has options to commute quota share reinsurance contracts and
typically does so after two or three years of an underwriting year's
development when there is a reasonably certain view on the year's outcome.
There is little or no impact of commutation on profit or the timing of profit
recognition. 
 
 After commutation, movements in booked loss ratios result in reduced or
increased net claims costs (and not profit commission). 
 
 At 31 December 2015, all material UK quota share reinsurance contracts for
underwriting years up to and including 2013 had been commuted. All reinsurance
for the 2014 and 2015 years remained in effect.  
 
 Co-insurance and reinsurance arrangements expose Admiral to two principal
risks: 
 
 * The risk of reduced availability of co-insurance and reinsurance
arrangements. 
 * Credit risk of significant counterparties through default of a reinsurer. 
 
 
 Details of the potential impact and mitigating factors the Group has in place
will be available in the Group's 2015 Annual Report. 
 
 The European and US arrangements are explained below in the International Car
Insurance section and the UK Household arrangements are explained below in the
Other Group Items section. 
 
 UK Car Insurance Financial Performance 
 Following an unprecedented period of premium deflation over 2011-2013, 2015
saw prices continue to rise following an early indication of increasing prices
emerging in late 2014. Admiral started to implement rate increases in early
2014, ahead of the market, and the business performance in 2015 benefited from
this pricing strategy. Turnover increased by 7% to over £1.7 billion and
vehicles increased to a record level of 3.3 million. 
 
 Profit 
 Profit from UK Car Insurance increased 11% to £443.0 million (2014: £398.0
million). Profit from underwriting and profit commission increased by 21% to
£284.4 million (2014: £234.7 million), reflecting an improved combined ratio
whilst investment income increased by £14.6 million to £26.1 million (2014:
£11.5 million). The combined ratio improvement was largely due to higher
reserve releases that resulted from positive claims development, in particular
from the 2011, 2012 and 2013 years. 
 
 The increase of £14.6 million in investment income was due to the full year
impact of the increased allocation of funds to fixed income and other short
dated securities that took place across 2014. In addition, investment and
interest income for 2014 was offset by an adjustment (of approximately £8
million) relating to notional investment income being accrued on quota share
reinsurance funds withheld arrangements. Net other income and instalment
income decreased by 3% to £158.6 million (2014: £163.3 million). 
 
 Turnover and premiums 
 UK turnover of £1.71 billion increased by 7% (2014: £1.60 billion)
primarily due to increases in average premiums which also led to a 6% increase
in total premiums written to £1.54 billion (2014: £1.45 billion). The
closing vehicle count increased to a record 3.30 million (2014: 3.15 million).
Average written premium for the year was around £470, up 4% on 2014 (2014:
£453), reflecting rate increases implemented during 2014 offset by portfolio
mix changes (notably a shift in the balance of the portfolio towards renewal
business). 
 
 Underwriting result and profit commission 
 The UK Car Insurance motor combined ratio improved in 2015 as shown below: 
 
  UK Car Insurance Motor combined ratio                                                      2014        2015       
  Loss ratio excluding reserve releases from original net share and commuted reinsurance      86.9%      87.7%   
  Reserve releases - original net share                                                      18.3%       23.6%      
  Loss ratio net of releases - original net share *1                                         68.6%       64.1%      
  Expense ratio                                                                              14.4%       16.9%      
  Combined ratio - original net share *1                                                     83.0%       81.0%      
  *1    Ratios calculated on original net share uses the proportion of the portfolio that Admiral wrote on a net basis at the start of the underwriting year in question.   
 The reported motor combined ratio improved to 81.0% (2014: 83.0%) (both
figures exclude the impact of reserve releases from commuted reinsurance
contracts). 
 
 This ref