Admiral Group Plc · LSE:ADM
Admiral — FY2014 Earnings Presentation
67 slides from Admiral's earnings presentation, Mar 5, 2015
Slide 1: 2014 Full Year Results
2014 Full Year Results 5th March 2015
Slide 2: Main headlines
Main headlines The year of the Baked Alaska: hot and cold at the same time Strategy invest in businesses outside of UK car insurance continue profitable growth trajectory of core business focus on providing long term value for investors Calculated investment today for future benefit 2
Slide 3: Agenda
Agenda Henry Engelhardt, CEO Group Overview Geraint Jones, CFO David Stevens, COO UK Update Stuart Morgan, Head of Service Milena Mondini, ConTe CEO International Elena Betes, Rastreator CEO Wrap Up Henry Engelhardt, CEO Q&A All 3
Slide 4: 2014 at a glance
2014 at a glance Group profit before tax1 down 4% at £357 million (2013: £371 million) Return on equity of 52% (2013: 58%) Group turnover down 3% at £1.97 billion (2013: £2.03 billion) Group customers up 10% to 4.0 million (2013: 3.7 million) Earnings per share down 2% at 103.0 pence (2013
Slide 5: A hot and cold year
A hot and cold year Hot Group customers up 10% to 4.0 million (2013: 3.7 million) ConTe, biggest international insurance operation, turned profitable Record profits at Rastreator and LeLynx (combined PBT up +47% to £2.8m) Cold Challenging UK market due to cyclicality Confused faced competi
Slide 6: Turnover reflects falling premiums in the UK
Turnover reflects falling premiums in the UK Admiral Group Turnover1 £2,215m £2,190m £2,030m £1,971m £1,585m £1,077m £910m £808m £698m £627m £540m £422m £373m £320m £262m £150m£207m £120m £18m £47m£73m £100m 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20
Slide 7: Increasing contribution from International businesses
Increasing contribution from International businesses Group Turnover £1,971m £1,585m 12% 5% 88% 95% 2010 2014 UK (Insurance and Confused.com) International (Insurance and Price Comparison) 7
Slide 8: Growing success of International Price Comparison
Growing success of International Price Comparison Group Price Comparison Turnover Group Price Comparison Quotes £108m 18m 16m 25% 11% 36% £76m 5% 89% 75% 95% 64% 2010 2014 2010 2014 Confused.com International PC Confused.com International PC 8
Slide 9: Analysis of Group profit
Analysis of Group profit Group Profit Before Tax £371m £357m UK Car Insurance profit up 1% at £398 6% 1% million (2013: £394 million) £266m Overall Price Comparison results impacted by investment in compare.com 4% (Group share of loss £15 million) 106% 111% ConTe.it made a small profit and ove
Slide 10: UK Car Insurance response to market conditions
UK Car Insurance response to market conditions UK Car Insurance UK Car Insurance Customers Turnover and Total Premiums Written £1.7bn £1.6bn 3.2m £1.6bn 3.0m 3.0m £1.5bn 3.0m 2.5m Stable vehicle 1.9m count Turnover Total Premiums Written 2009 2010 2011 2012 2013 2014 2013 2014 Reduced total premiu
Slide 11: UK Car Insurance combined ratio remains stable in 2014
UK Car Insurance combined ratio remains stable in 2014 Expense, Loss and Combined Ratios (Motor Only) 99% 83.0% 84.9% 72% 68.0% 68.6% 27% 15.0% 16.3% UK Market Admiral (2013) Admiral (2014) UK Market Admiral (2013) Admiral (2014) UK Market Admiral (2013) Admiral (2014) (2013) (2013) (2013) Expense R
Slide 12: UK Car Insurance: reserve releases
UK Car Insurance: reserve releases Admiral UK Reserve Releases as a % of Earned Premium 18% 16% 13% 9% 9% 4% 2% 2004-2009 2010-2014 2010 2011 2012 2013 2014 average average Higher releases due to positive claims experience in respect of earlier accident years in 2013 and 2014 resulting in improved
Slide 13: Growth for International Car Insurance...
Growth for International Car Insurance... International Car Insurance International Car Insurance Turnover Vehicles Under Cover £206m 593k £188m 515k £78m 195k 2010 2013 2014 2010 2013 2014 13
Slide 14: ... and improved results
... and improved results International Car Insurance International Car Insurance Reported Combined Ratio 1 Loss Before Tax 166% 140% 127% 2010 2013 2014 81% 49% 50% £8m 85% 91% 77% £20m 2010 2013 2014 £22m Loss Ratio Expense Ratio Combined Ratio Note: (1) Reported combined ratio calculated on a whol
Slide 15: The Internet remains an irresistible force
The Internet remains an irresistible force Rastreator and LeLynx Quotes Generated 6.2m 5.1m 1.6m 2010 2013 2014 Rastreator and LeLynx result £2.8m £1.9m -£2.8m 2010 2013 2014 15
Slide 16: Capital position is strong in run-up to Solvency II
Capital position is strong in run-up to Solvency II £705m IGD coverage pre-final dividend 588% £200m IGD coverage post-final dividend 474% £505m £289m £120m Capital 1 Total regulatory IGD Capital Capital requirement requirement 31 Dec 2014 Group capital requirements in 2015 set by UK Bond st
Slide 17: Proposed Final Dividend of 49.0p per share
Proposed Final Dividend of 49.0p per share Earnings and Dividend Per Share 95% 95% 50.6p 49.0p 94% 104.6p Dividend Dates 35.5p 103.0p Ex-dividend date: 7 May 2015 Record date: 8 May 2015 72.3p Payment date: 29 May 2015 48.9p 49.4p 32.6p EPS DPS EPS DPS EPS DPS FY 2010 FY 2013 FY 2014 EPS Interim DPS
Slide 18: Agenda
Agenda Henry Engelhardt, CEO Group Overview Geraint Jones, CFO David Stevens, COO UK Update Stuart Morgan, Head of Service Milena Mondini, ConTe CEO International Elena Betes, Rastreator CEO Wrap Up Henry Engelhardt, CEO Q&A All 18
Slide 19: The return of claim inflation: higher frequency
The return of claim inflation: higher frequency Small Bodily Injury claims frequency has a structural tendency to increase (Market Data) 100,000 90,000 80,000 70,000 60,000 50,000 LASPO introduction April 2013 Portal extension July 2013 40,000 30,000 20,000 10,000 0 May Dec 2012 2014 No. of Claim No
Slide 20: Redistribution of claims costs
Redistribution of claims costs Claims costs settling on a new trend following LASPO (Market Data) 4,500 LASPO introduction April 2013 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 Average general damage Average lawyer fees 1 Source: Road Traffic A
Slide 21: Higher overall claims frequency
Higher overall claims frequency Falling fuel prices may contribute to higher overall claims frequency due to increased driving (Market Data) 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Claims frequency Petrol prices (% change vs same quarter pr
Slide 22: Reforms in the pipeline unlikely to have material impact
Reforms in the pipeline unlikely to have material impact Medco Whiplash Reform Programme Due to start in April 2015 Medical instruction in whiplash cases Ensure accreditation and independence of medical experts ✔ New fixed fees may reduce average spend for medical reports − Limited expected im
Slide 23: Large BI claims drive continuing underlying inflation
Large BI claims drive continuing underlying inflation Split of claim costs between Non-BI, Small-BI, and Large BI claims Ongoing effects of Jackson and LASPO reforms expected to generate a reduction in legal costs associated with large BI 2014 claims. However, the expected reduction of legal costs i
Slide 24: UK Car Insurance: Admiral vs Market expense ratio
UK Car Insurance: Admiral vs Market expense ratio Admiral’s expense advantage relative to the Market remains very significant Lower claims handling costs Claims handling expenses per claim down 8% 31% 29% 29% 27% 26% 26% Better retention 14% gap Better retention has driven a 9% reduction in 14%
Slide 25: UK Car insurance market cycle may be turning
UK Car insurance market cycle may be turning ABI Motor Insurance Premium Tracker 0.5% -2.5% -5.3% -6.5% -7.7% -7.7% -8.9% -8.9% -8.6% -9.4% -10.8% -10.3% -12.0% -13.7% -13.7% -14.2% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 y-o-y (% change) Cumulative (% change from Q1 2012) Source: ABI Motor Insurance Prem
Slide 26: Admiral has reduced competitiveness as margins have fallen
Admiral has reduced competitiveness as margins have fallen Admiral Group % top in aggregators1 (when quote provided) 120 100 80 60 40 20 0 Q1 Q2 Q3 Q4 2014 Price increases from Q2 2014 onwards Cyclical pressures more pronounced in younger driver2 segment leading to reduction in share: 5% reducti
Slide 27: Back years have developed very positively, but early projections of 2014 are less positive
Back years have developed very positively, but early projections of 2014 are less positive Projected Ultimate Loss Ratio Projected Ultimate Loss Ratio Admiral vs Market Reconciliation 96% 6% (2%) 10% 88% 89% 87% 79% 79% 76% 75% 70% 70% (-1) 70% (-2) 82% 68% (-4) 66% (-2) 68% 64% (-1) 2007 2008 2009
Slide 28: UK Business outlook
UK Business outlook Further price increases expected for 2015 due to: - pressure from claims inflation leading to - a turn in the cycle Continued material reserve releases if claims develop as expected 28
Slide 29: Agenda
Agenda Henry Engelhardt, CEO Group Overview Geraint Jones, CFO David Stevens, COO UK Update Stuart Morgan, Head of Service Milena Mondini, ConTe CEO International Elena Betes, Rastreator CEO Wrap Up Henry Engelhardt, CEO Q&A All 29
Slide 30: International Car Insurance businesses
International Car Insurance businesses Launched: Oct 2009 Launched: Oct 2006 Geographical presence: Launched: Dec 2010 Launched: May 2008 • Virginia • Texas • Illinois • Maryland Launched: Mar 2013 Turnover Total Premiums Written Vehicles Under Cover 593k £206m £185m £188m £168m 515k £78m £71m 195k
Slide 31: Growing international car insurance top line
Growing international car insurance top line Turnover Vehicles Under Cover £206m 593k £188m 515k €102m 285k €110m 280k $109m 109k $64m 70k 34k €15m €18m 29k 164k €48m €54m 137k 2013 2014 2013 2014 % of % of 9% Group 10% 14% Group 15% Admiral Seguros L'olivier Elephant ConTe Admiral Seguros L'olivier
Slide 32: International insurance expansion with limited call on Group P&L
International insurance expansion with limited call on Group P&L Loss Before Tax Combined 2006 to 2014 cumulative results ratio1 166% 140% 127% Total pre-tax losses £98m 2010 2013 2014 Total Group Profit £2.38bn % 4.1% £8m £20m £22m % Group PBT invested 7% 6% 6% Note: (1) Reported combined ratio cal
Slide 33: Spain: growing success in a challenging market
Spain: growing success in a challenging market Profitable market in a shrinking economy. Insurance price increases expected due to Turnover Market Update €54m change in Baremo, recovery of fuel €48m consumption and a 20% increase in car sales. Growth has been sustained by the continued success of Qu
Slide 34: France: building foundations for future growth
France: building foundations for future growth Limited price increases not compensating Turnover Market Update for a worsening market combined ratio mainly due to claims inflation. €18m €15m Building solid business foundations, from L’olivier 2013 2014 in-sourcing of operations to modernisation perf
Slide 35: USA: substantial top line growth
USA: substantial top line growth Biggest car insurance market in the world, Turnover slowly evolving towards more direct Market Update distribution. $109m Nascent online price comparison market. $64m Customer base grew substantially, also thanks to a strengthening renewal 2013 2014 Elephant book. pe
Slide 36: Italy: focus on improving profitability of existing book
Italy: focus on improving profitability of existing book Turning point in insurance cycle determined by strong price reductions and limited claims frequency decrease. Turnover Direct market suffered from innovative Market Update propositions and aggressive media €110m €102m investments, particularly
Slide 37: ConTe has reported its first profit
ConTe has reported its first profit Launch 2008 2009 2010 2011 2012 2013 2014 108% 106% Italian Market 103% Combined Ratio 90% 88% Growth Further growth Consolidation Transferring Admiral’s UK competitive advantage internationally: Low cost structure Focus on pricing Efficiency in claims handl
Slide 38: International insurance outlook
International insurance outlook Huge growth opportunity Market Gross Written Premiums Total international Total markets = £154bn £116bn Admiral’s combined share 0.1% Current £16bn £14bn £22bn £8bn ($34bn) USA France Italy Spain Significant opportunity to keep growing and to increase international in
Slide 39: Price Comparison businesses
Price Comparison businesses Launched: Mar 2013 Launched: Mar 2009 Launched: Mar 2002 Launched: Jan 2010 Combined Turnover Combined PBT £2m £25m £27m £3m £22m £4m £17m £16m £88m (£3m) (£3m) £72m £81m (£15m) 2010 2013 2014 2010 2013 2014 Confused.com International PCs Confused.com Rastreator + LeLynx
Slide 40: Confused.com: continuing to innovate in a competitive environment
Confused.com: continuing to innovate in a competitive environment Motor price comparison sales y-o-y % change (market data1) 5% Limited aggregator market growth (0-2%) caused by 3% falling premiums (-4%2 vs 2013). 0% The Market -3% Market remains fiercely competitive. Q1 14 Q2 14 Q3 14 Q4 14 Confuse
Slide 41: European expansion: growing success of Rastreator and LeLynx
European expansion: growing success of Rastreator and LeLynx Launched: Mar 2009 Launched: Jan 2010 Break-even: 2011 Break-even: 2013 Combined Quotes Generated Combined PBT 6.2m 5.1m €3.5m €2.3m 2013 2014 2013 2014 41
Slide 42: European expansion: Rastreator and LeLynx brands are leading
European expansion: Rastreator and LeLynx brands are leading Rastreator - Google Trends brand searches Rastreator Arpem Acierto Kelisto Seguros.es LeLynx - Google Trends brand searches LeLynx les furets assurland Source: Google Trends, as at 31 Dec 2014 42
Slide 43: European expansion: strategic pillars
European expansion: strategic pillars Both brands have a high awareness1 in their markets: Rastreator 91% and LeLynx 75%. Preferred Brand Target is to be the preferred brand in each market. Working on long term proposition from a customer perspective. Current usage frequency is lower than in the UK.
Slide 44: USA expansion: compare.com
USA expansion: compare.com The Market Price comparison growing but still largely nascent. The Brand 40 insurers signed, 27 insurers on the panel including recognised brands and 8 of the top 20 players. The Panel Rates returned per customer increased by average 12% m-o-m over the year. Considerable i
Slide 45: International Price Comparison outlook
International Price Comparison outlook ... more opportunities for future growth 45
Slide 46: Agenda
Agenda Henry Engelhardt, CEO Group Overview Geraint Jones, CFO David Stevens, COO UK Update Stuart Morgan, Head of Service Milena Mondini, ConTe CEO International Elena Betes, Rastreator CEO Wrap Up Henry Engelhardt, CEO Q&A All 46
Slide 47: Summary
Summary Group overview Investing in many different markets, all with great potential, all with different competitive landscapes and timetable to success UK market update UK Car Insurance profits in the future are likely to be more cyclically influenced than before International insurance operati
Slide 48: A great place to work!
A great place to work! 39 5 3 4 3 23 8 9 5 50 48
Slide 49: 2014 at a glance
2014 at a glance Group profit before tax down 4% at £357 million (2013: £371 million) Return on equity of 52% (2013: 58%) Group turnover down 3% at £1.97 billion (2013: £2.03 billion) Group customers up 10% to 4.0 million (2013: 3.7 million) Earnings per share down 2% at 103.0 pence (2013:
Slide 50: Agenda
Agenda Henry Engelhardt, CEO Group Overview Geraint Jones, CFO David Stevens, COO UK Update Stuart Morgan, Head of Service Milena Mondini, ConTe CEO International Elena Betes, Rastreator CEO Wrap Up Henry Engelhardt, CEO Q&A All 50
Slide 51: Appendix
Appendix
Slide 52: Admiral Group Key Performance Indicators
Admiral Group Key Performance Indicators KPI 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Group Financial Turnover £m 627 698 808 910 1,077 1,585 2,190 2,215 2,030 1,971 Customers m 1.1 1.3 1.5 1.7 2.1 2.7 3.4 3.6 3.7 4.0 Group share of pre-tax profit £m 119.5 147.3 182.1 202.5 215.8 265.5 299.
Slide 53: Summary Income Statement
Summary Income Statement UK Car Insurance International Car Insurance Price Comparison Other Admiral Group 2012 2013 2014 2012 2013 2014 2012 2013 2014 2012 2013 2014 2012 2013 2014 Turnover 1,936.2 1,698.9 1,602.7 162.9 187.8 206.2 103.5 112.7 107.5 12.5 30.8 54.6 2,215.1 2,030.2 1,971.0 Total prem
Slide 54: Balance Sheet
Balance Sheet December 2012 December 2013 December 2014 £m £m £m ASSETS Property, plant and equipment 16.5 12.4 32.3 Intangible assets 92.5 92.8 107.2 Reinsurance contracts 803.0 821.2 829.8 Financial assets 2,005.1 2,265.0 2,547.4 Deferred income tax 15.2 17.0 22.9 Trade and other receivables 55.3
Slide 55: Group Profit Before Tax reconciliation
Group Profit Before Tax reconciliation Reconciliation from Statutory to Adjusted Profit Before Tax (£1m) Admiral has four operations with shared £7m ownership: Rastreator (Admiral share of ownership 75.0%); compare.com (67.8%); Admiral Law and BDE Law (90.0%) Profit or losses in period accruing
Slide 56: UK Car Insurance: Admiral vs Market Ultimate Loss Ratio, Expense Ratio and Combined Ratio
UK Car Insurance: Admiral vs Market Ultimate Loss Ratio, Expense Ratio and Combined Ratio Projected Ultimate Loss Ratio: Admiral vs Market Expense Ratio: Admiral vs Market 96% (-1%) 30% 31% 88% (-1%) 29% 29% 89% (-1%) 27% 26% 26% 87% (-1%) 79% (-2%) 79% 76% (-2%) 17% 17% 17% 14% 15% 13% 13% 75% 70%
Slide 57: UK Car Insurance: Ultimate Loss Ratio development by accident year
UK Car Insurance: Ultimate Loss Ratio development by accident year 77% 77% 76% 76% 76% 75% 74% 73% 73% 73% 72% 72% 71% 71% 71% 71% 71% 71% 71% 70% 70% 70% 69% 68% 66% 66% 64% AY 2008 AY 2009 AY 2010 AY 2011 AY 2012 AY 2013 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 57
Slide 58: UK Car Insurance: Booked Loss Ratio development by underwriting year
UK Car Insurance: Booked Loss Ratio development by underwriting year UK Car Insurance Booked Loss Ratio (%) Sensitivity of Booked Loss Ratio Development by Financial Year (colour-coded) Split by Underwriting Year (x axis) Underwriting year 2011 2012 2013 85% Booked loss ratio 67% 73% 82% 84% 82% 82%
Slide 59: Consistent high Return on Equity
Consistent high Return on Equity Admiral Group Return on Equity 59% 59% 60% 58% 56% 57% 52% 52% 54% 52% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Admiral has consistently achieved a high ROE Efficient use of capital - extensive use of co- and reinsurance - recent extensions to contracts
Slide 60: UK Car Insurance: underwriting arrangements
UK Car Insurance: underwriting arrangements Reinsurance arrangements pre-commutations Post-commutations (at 31 Dec 2014) 2.5% 2.5% 4.0% 5.0% 5.0% 2.5% 4% 3.0% 3.0% 3% 8.75% 8.75% 8.75% 8.75% 8.75% 8.75% 8.75% 7.5% 7.5% 9.0% 9.0% 9.0% 40% 40% 7.5% 9% 45% 13.25% 13.25% 13.25% 12.25% 12.25% 13.25% 13.2
Slide 61: Admiral's inaugural bond issue was a success
Admiral’s inaugural bond issue was a success Bond: £200 million ✔ • Opportune time to strengthen and diversify capital resources. ✔ Coupon Rate 5.5% • Make a prudent transition into Solvency II in 2016, with the attendant capital requirements Investment Return and buffers. 2.8% from investment of ✔
Slide 62: Admiral's investment strategy is low risk
Admiral’s investment strategy is low risk Investments Breakdown Investment and Interest Income FY 13: £2,085m FY 14: £2,452m £15.9m £15.4m £14.3m Cash Gilts £13.7m 9% 8% Money Cash Cash market deposits Money 11% funds 14% market 25% £9.5m funds 67% CASH+ Short- 12% dated Fixed debt income Cash secur
Slide 63: The return of claim inflation: higher general damages
The return of claim inflation: higher general damages MOJ Portal cases proceeding to Stage 3 (litigation) have more than doubled since 2013 (Market Data) 1% 2% 2% 3% 3% 3% 4% 4% 1% 2% 2% 2% 1% 2% 2% 2% 98% 96% 96% 95% 96% 95% 94% 94% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 Exit at Stage 1 Exit at Stage 2
Slide 64: International Car Insurance market statistics
International Car Insurance market statistics (2014) (2014) (2014) (2014) Gross Written Premium £8bn £11bn £117bn £14bn Direct insurer share of 21% 3% 25% 9% market of total market of total market of total market of total market Vehicles 22m 35m 220m 43m Combined Ratio 98% 107% 102% 90%-92% 64
Slide 65: Key definitions
Key definitions Term Definition The year in which an accident takes place. It is also referred to as the earned basis or the calendar year basis. Accident Year Claims incurred are allocated to the calendar year in which the accident took place. The year in which the policy was incepted. It is also r
Slide 66: Admiral's Brands
A oe Admiral’s Brands balumbo oi Confused | gouatitas Ad m i ra | Yast Rastreator.com Contfe.it LeLynx.fr @ Elephant cOmpare.com Volivier P_| Bell @GvapiaTor 66
Slide 67: 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