Admiral Group plc · LSE:ADM
Admiral — H1 2007 Earnings Presentation
39 slides from Admiral's earnings presentation, September 2007
Slide 1: 2007 Half Year Results
2007 Half Year Results September 2007
Slide 2: Admiral Is STILL Different
Admiral Is STILL Different 2004 2005 2006 2007 Highly Profitable a a a a Fast Growing a a a a Low Risk Profits a a a a Strongly Cash Generative a a a a 2
Slide 3: Highlights
Highlights Profit up 26% at £86.3m (H1 2006: £68.7m) Total interim dividend of 20.6p, up 70% (H1 2006: 12.1p) Group turnover up 16% at £417.8m (H1 2006: £359.2m) Profit from ancillary products and services up 15% to £37.7m (H1 2006: £32.9m) Vehicle count up 16% to 1.4m (H1 2006: 1.2m) Co
Slide 4: Fast Growing
Fast Growing Historical Revenue Growth (£m)(1) £708m £638m £548m £427m £379m £323m £263m £207m £150m £120m £100m £73m £47m £18m 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 £418m £359m £319m H1 05 H1 06 H1 07 (1) Revenue comprises total premiums written + other revenue + all
Slide 5: Highly Profitable
Highly Profitable Profit before tax (£m) £147.3m £86.3m £119.5m 17% £98.1m £68.7m £74.0m 11% 20% £50.3m £55.6m 23% 27% 14% 13% 10% 2002 2003 (1) (2) 2004 2005 2006 59% 53% 49% Non-underwriting result Confused Profit commission Underwriting profit H1 05 H1 06 H1 07 (1) £6m Munich Re profit commission
Slide 6: Low Risk Profits - Growing Ancillary Income – UK Motor
Low Risk Profits - Growing Ancillary Income – UK Motor Average active vehicles (000s) Ancillary Contribution (£m)(1) 1,256 1,173 1,111 1,058 893 728 £81.5m £72.5m 2003 2004 2005 2006 H106 H107 £59.2m Contribution per average active vehicle £44.7m £45.3m £68.50 £69.30 £69.20 £68.40 £40.1m £66.30 £36.
Slide 7: Confused.com
Confused.com £23.1m (1) Profit £8.8m £19.7m £2.0m £0.3m £14.3m 2003 2004 2005 2006 £8.7m H1 06 H2 06 H1 07 (1) Confused profit includes revenue from Group brands. 7
Slide 8: Confused.com
Confused.com Quotes Revenue per quote 9.0m 7.1m £5.83 5.0m £5.10 4.1m 4.1m £5.06 £4.54 £4.81 £3.59 1.4m 0.6m 2003 2004 2005 2006 H1 06 H2 06 H1 07 H1 2006 H2 2006 H1 2007 Other Home Motor Other Motor 8
Slide 9: Media Spend
Media Spend Car insurance TV and press spend (£m) 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Non price comparison media spend Price comparison spend Source: AC Nielsen 9
Slide 10: Media Spend
Media Spend Car insurance TV and press spend (£m) 6.00 5.00 4.00 3.00 2.00 1.00 0.00 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Confused spend Other price comparison Source: AC Nielsen 10
Slide 11: The Market
The Market
Slide 12: Underwriting Performance – Expense Ratio
Underwriting Performance – Expense Ratio UK Expense Ratio Advantage(1) (1) 28% 29% 27% Market 27% 28% 27% 18% 16% 16% Admiral 15% 15% 16% 15% 01 02 03 04 05 06 07 20 20 20 20 20 20 H1 Total Market (Earned Basis) Admiral (Earned Basis) (1) Including claims handling expenses. Market: UK Motor 2001–200
Slide 13: Underwriting Performance – Loss Ratio
Underwriting Performance – Loss Ratio Loss Ratios – End ‘06 (4) Loss Ratios – Q2 ‘07 (4) 78% 83% 78% 84% Market(1) 78% 78% 83% 75% 77% 76% Market(1) 75% 77% 76% 70% 67% 64% (-3%) 62% (-2%) 54% 54% 54% 51% 50% (+1%) 54% Admiral Admiral 2001 2002 2003 2004 2005 2006 2001 2002 2003 2004 2005 2006 Total
Slide 14: Drivers of Market Profitability
Drivers of Market Profitability Combined Ratio Excluding Reserve Releases (%) 116 2006 v 2005 113 Predicted Actual 111 Average Premium + 1.1% - 1.8% Claim Frequency + 1.6% + 6.1% Claim Inflation + 4.5% - 4.7% ’05 ’06 ’06 Actual Predicted Actual Source EMB Analysis of Treasury Returns (2006 excluding
Slide 15: Frequency & Cost – Long-Term Trends
Frequency & Cost – Long-Term Trends Frequency (%) 17.7 - 1.0% p 17.4 .a. 16.9 16.8 16.5 15.9 Cost per Vehicle Year 306 303 p.a. +2.3% 289 287 '01 '02 '03 '04 '05 '06 275 276 Average Claim (£1) . +3.3% p.a 1906 1821 1710 1740 1554 1586 '01 '02 '03 '04 '05 '06 '01 '02 '03 '04 '05 '06 Source: EMB Analy
Slide 16: Private Motor Profitability
Private Motor Profitability The Cycle is Dead Long Live The Cycle Combined Ratio After Releases (% Premium) Combined Ratio Before Releases (% Premium) 123 125 123 120 119 120 115 114 113 113 110 110 105 105 105 104 102 103 104 103 102 104 100 101 94 91 % 8.4 % 6.5 4 4.2 3.9 3.6 3 2.3 1.3 1.3 0.2 -1.
Slide 17: When Will Reserve Releases Reduce?
When Will Reserve Releases Reduce? Private Motor – Paid / Incurred* First Half Results Announcements 49 48 47 47 H107 Reserve Releases (£m) 46 H107 H106 Aviva 245 140 + 75% RSA 175 67 + 161% '02 '03 '04 '05 '06 * Source: EMB Analysis of Treasury Returns. Comprehensive cover only. 17
Slide 18: Pricing Activity
Pricing Activity (% Change) 2.0 2.2 2.2 2.1 AA Shoparound Market 0.9 Deloittes Best -0.1 -0.3 Price Q3 06 Q4 06 Q1 07 Q2 07 Jul-07 3.1 -1.4 -1.6 1.9 Admiral 0.7 0.7 -0.5 Conversion * – July 06 Conversion* – July 07 Non-Price Comparison 100 Non-Price Comparison 103 * Average of direct to site convers
Slide 19: The Long View
The Long View Market Share (units) 1996-2006 - Shrinkers 1996 2001 2006 48.3 Zurich 8.5 Axa 34.8 8.9 5.0 5.6 25.2 RSA 13.5 5.5 7.6 1.8 5.4 Aviva 17.4 16.6 12.5 * Market share of FSA reporting firms pus Admiral. Allocation of companies to their 2006 owners. (e.g. Guardian in 1996 to “Axa”). 19
Slide 20: The Long View
The Long View Market Shares (units) 1996-2006* - Growers 1996 2001 2006 49.7 5.3 6.4 36.3 2.4 5.2 26.0 Admiral 1.5 4.2 Fortis 38.0 28.7 20.3 RBS * Market share of FSA reporting firms plus Admiral. Allocation of acquired companies to their 2006 owners. (e.g. Churchill in 1996 to “RBS”). 20
Slide 21: Price Comparison – New Growers & Shrinkers ?
Price Comparison – New Growers & Shrinkers ? Market Share (units)* 2001 2004 2006 100 100 100 Other 28.9 25.1 29.9 25.2 Shrinkers 24.8 34.8 Growers 45.3 49.7 36.3 21
Slide 22: Price Comparison – New Rules
Price Comparison – New Rules 2001 2004 2006 ’06 v ’04 Unit Growth RBS 38.0 35.2 + 64% Keys to Success 5.1 3.1 28.7 NIG 3.1 * Low expense ratio + 1% 32.1 32.9 Direct 25.6 * Accurate pricing * Maximum add-on revenue 5 3.9 5.5 Zurich + 41% 4.1 5.3 2.4 Admiral + 28% 22
Slide 23: Admiral goes international
Admiral goes international 23
Slide 24: AdmiralDirekt.de
N, AdmiralDirekt.de a =| -.
Slide 25: Admiral goes international
Admiral goes international 25
Slide 26: Italy: a large profitable market
Italy: a large profitable market (£b) Gross Written Premiums 15.0 14.0 14.4 14.4 14.6 •Second •Second biggest biggest market market in in Europe: Europe: 13.3 13.0 11.4 12.3 15% MOD £14.6 £14.6 bb 11.0 10.7 9.7 9.0 7.0 •Highest •Highest vehicle vehicle density: density: 85% MTPL 0.86 per person 0.86
Slide 27: Italian market evolution
Italian market evolution 6% 3% Agents Italy is still dominated by tied agents, Direct Others 91% Internet Penetration Online Insurance B2C +28% +20% 60% 300 £ m but online business is growing fast 40% 200 20% 100 0% 0% 2003 2006 2005 2006 Direct Indemnity / reduced litigation costs No tied-agents ma
Slide 28: Investments
Investments H1 06 £408m H1 07 £460m 4% 23% 27% 40% 9% 68% 29% 5.2% Gilts Bonds Money Market Funds Other deposits Cash Other deposits Cash £11.3m 2.9% Money Market Funds SWIP (Lloyds) Global Liquidity £5.8m Insight (HBOS) Liquidity Fund HSBC Sterling Liquidity Fund H1 2006 H1 2007 AAA Rated Investm
Slide 29: Solvency Capital
Solvency Capital Admiral option on UK premium retention 60% 55% 50% 45% 40% 5% 7.5% 10% 7.5% 30% 7.5% 22.5% 10% 15% 10% 22.5% 25% 25% 25% 25% 2007 2008 2009 2010 2011 Admiral minimum Admiral optional Swiss Re Partner Re Munich Re Must be at least 25% from 2008 Spain and Germany premium - split 3
Slide 30: Dividends
Dividends 20.6p 50% 12.1p 9.7p 31% 30% 40% 50% 69% 70% H1 2005 H1 2006 H1 2007 Normal Dividend Special Dividend H1 2007 dividend = £54m 30
Slide 31: Strongly Cash Generative - Dividend
Strongly Cash Generative - Dividend £m Total equity 220 Goodwill (62) Solvency capital (74) 84 Buffer (25) International expansion (5) Dividend 54 Interim dividend 20.6p per share: Ex-dividend –19 September 2007 Record date – 21 September 2007 Payment date – 17 October 2007 31
Slide 32: Admiral Is STILL Different
Admiral Is STILL Different 2004 2005 2006 2007 Highly Profitable a a a a Fast Growing a a a a Low Risk Profits a a a a Strongly Cash Generative a a a a 32
Slide 33: Supplementary Information
Supplementary I nformation = ADMIRAL Diamond A co.uk “Bell ®Perapiator PY. nassaeem — y NY pis bE
Slide 34: Financials
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Slide 35: Admiral Key Performance Indicators – UK Motor
Admiral Key Performance Indicators – UK Motor KPI 2003 2004 2005 2006 H1 06 H1 07 Premiums Quote volumes 4.7m 6.2m 9.8m 15.4m 7.6m 11.2m Conversion rate 8.1% 8.9% 5.8% 4.0% 4.2% 3.2% Active vehicles at end of period 777,611 1,007,571 1,104,480 1,240,169 1,168,002 1,335,196 % of premiums retained by
Slide 36: Summary Income Statement
Summary Income Statement H1 06 H1 07 £m £m Group Turnover 359.2 417.8 Total premiums written 294.0 324.6 Gross premiums written 102.9 132.5 Net premiums written 72.9 72.8 Net earned premium 74.9 71.6 Investment income 3.7 7.3 Net insurance claims (55.6) (54.2) Insurance related expenses (9.5) (10.1)
Slide 37: Summary Balance Sheet
Summary Balance Sheet December December June 2005 2006 2007 £m £m £m ASSETS Property, plant and equipment 4.6 7.5 7.2 Intangible assets 66.5 66.8 67.6 Financial assets 378.7 395.9 470.1 Deferred tax asset - - 0.4 Reinsurance assets 54.2 74.7 108.5 Trade and other receivables 9.4 16.9 20.6 Cash and c
Slide 38: Earnings per share (eps)
Earnings per share (eps) 39.8 32.7 25.6 23.0 18.5 16.8 2003 2004 2005 2006 H1 06 H1 07 Earnings per share (p) 38
Slide 39: Disclaimer Notice
Disclaimer Notice The information contained in this document has not been independently verified and no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or opinions contained her