Admiral Group Plc · LSE:ADM
Admiral — H1 2013 Earnings Presentation
65 slides from Admiral's earnings presentation, Aug 29, 2013
Slide 1: 2013 Half Year Results
2013 Half Year Results 29th August 2013
Slide 2: Agenda
Agenda Key Messages Henry Engelhardt, CEO Financial Review Geraint Jones, Deputy CFO UK David Stevens, COO USA Kevin Chidwick, CFO & CEO of Elephant Auto Europe Cristina Nestares, European Manager Price comparison Henry Engelhardt, CEO Q&A All 2
Slide 3: H1 2013 Group Results
H1 2013 Group Results Profit before tax up 6% to £181.4 million (H1 2012: £171.8 million) Earnings per share up 6% to 50.1 pence (H1 2012: 47.3 pence) Interim dividend up 8% to 48.9 pence per share (2012 interim: 45.1 pence per share, 2012 final: 45.5 pence per share) Turnover down 7% to £1,
Slide 4: Eight years of profit growth since IPO
Eight years of profit growth since IPO H1 Group Profit Before Tax £181m £172m £161m £127m £105m £100m £86m £69m £56m H1 05 H1 06 H1 07 H1 08 H1 09 H1 10 H1 11 H1 12 H1 13 4
Slide 5: H1 2013 Key Messages
H1 2013 Key Messages Strong financial position Highly capital efficient with return on capital of 57% Highly cash generative with a record interim dividend of 48.9 pence per share In the UK, focus on profit not market share Competitive market environment – not the right time for us to grow
Slide 6: Financial Results
Financial Results Geraint Jones, Deputy CFO
Slide 7: Group Financial Highlights
Group Financial Highlights Components of Group Turnover1 Components of Group PBT £1,104m £1,169m 7% £1,089m £181m 5% 5% 9% £172m 4% 6% 5% £161m 5% 3% £721m £127m 106% 5% 6% 106% 5% 105% 90% 88% 85% 104% 89% -3% -2% -5% -6% -6% -6% -6% -6% H1 10 H1 11 H1 12 H1 13 H1 10 H1 11 H1 12 H1 13 UK car insura
Slide 8: UK Car Insurance Highlights
UK Car Insurance Highlights Turnover(i) and Total Premiums Written Expense Ratio and Loss Ratio 79.0% 77.5% 2 £1,030m 1 67.2% £925m £923m £852m -10% -8% 26.0% 12.6% 13.7% Turnover Total premiums written Expense ratio (ii) Loss ratio (iii) H1 2012 H1 2013 UK Market (2012) Admiral H1 12 Admiral H1 13
Slide 9: UK Car Insurance Highlights
UK Car Insurance Highlights UK Car Insurance Profit Before Tax £183.3m £192.7m £97.0m £104.4 m • UK Car Insurance PBT up 5% to £193 million £32.8m • Other Revenue impacted by loss of personal £29.2m injury referral fees £49.7m £62.9m • Adjustments due to reclassifications; refer to appendix for furt
Slide 10: International Car Insurance Highlights
International Car Insurance Highlights Turnover(i) and Total Premiums Written Loss Before Tax £95.5m H1 12 H1 13 £85.5m £79.7m £74.4m -£8.9m -£10.8m Turnover Total premiums written Reported Combined Ratios(ii) H1 12 H1 13 168% Vehicle Count (‘000s) 152% 481 64% 386 64% 104% 88% H1 12 H1 13 H1 12 H1
Slide 11: Capital and Solvency
Capital and Solvency Admiral Group Return on Capital(i) Capital and Solvency(ii) 63% £428m 61% £395m 58% 57% 54% £264m £240m £122m £119m H1 09 H1 10 H1 11 H1 12 H1 13 FY 2012 H1 13 Total equity less goodwill Total solvency capital Required IGD capital • Admiral has consistently achieved a high ROCE
Slide 12: Admiral is paying an interim dividend of 48.9 pence per share
Admiral is paying an interim dividend of 48.9 pence per share Admiral’s dividend policy is to distribute available surpluses to shareholders £428m £264m Total Solvency Equity Capital £30m Less Buffer Goodwill £164m Available £134m for Dividend H1 2013: Dividend 48.9p per share Admiral Group Half Yea
Slide 13: UK Results
UK Results David Stevens, COO
Slide 14: 1. Market overview 2. Admiral performance
1. Market overview 2. Admiral performance
Slide 15: Prices continue to fall in 2013
Prices continue to fall in 2013 Confused.com / Towers Watson Market Premium Rate Movements 12% Some exaggeration of deflation 9% Young driver distortion post 7% 7% gender neutrality 5% Telematics distortion 4% 3% 3% 3% 2%2% 0% 0% 0% ... but genuinely heading 0% downwards -2% -2% -2% -3% Ag
Slide 16: Admiral's vehicle count is flat, although a few players have been looking for growth
Admiral’s vehicle count is flat, although a few players have been looking for growth If Admiral customers leave us, where do they go?(i) How does this look relative to market share(ii)? 2.4 2.4 10% 9% 9% 8% 1.8 Higher take up of Admiral’s lost customers 6% relative to market share 3% 3% 3% 0.8 0.7 0
Slide 17: Appetite for market share reflects very benign claims patterns
Appetite for market share reflects very benign claims patterns Overall claims volumes continue to fall... ... and new small bodily injury claims are down since April H1 Claims Frequency Year on Year Growth - (private motor)(i) New Small BI claims (ii) 16.0% 32% 26% Introduction 14.4% of changes 12.8
Slide 18: But... small bodily injury and the market is adaptive
But... Small bodily injury is not a huge ... and the market is adaptive percentage of overall claims costs... Market Frequency of Reported Bodily Admiral Claims Costs(i) Injury Claims in calendar period(ii) 1.48% Small BI <£10k 1.39% Non-BI MOJ Portal Large BI 1.23% >£10k 1.13% 2010 Q3 2007 Q1 2007
Slide 19: Market prospects – market combined ratio
Market prospects – market combined ratio Admiral view: Short, sharp cycle 120% 119% ? 107% 106% 105% 105% 104% 103% ? 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Market (excl Admiral) reported combined ratio 19
Slide 20: 1. Market overview 2. Admiral performance
1. Market overview 2. Admiral performance
Slide 21: Admiral's price cuts lag the market, and our mix has also changed
Admiral’s price cuts lag the market, and our mix has also changed How often does Admiral rank first on price comparison sites? (i) Movements in Admiral’s average premiums(ii) H1 12 v H1 13 (indexed 2012 = 100) 100 Average new business premium 84 76 Down 10% Average renewal business premium Down 3% 2
Slide 22: Benign claims patterns are being reflected in reported combined ratios
Benign claims patterns are being reflected in reported combined ratios Reported combined ratio: Admiral v Market Claims reserve releases (Admiral net share) 119% 120% 24% 107% 106% 21% 105% 104% 105% 103% 16% 14% 14% 12% 9% 91% 4% 90% 2% 87% 85% 85% 84% 83% 82% 81% 2005 2006 2007 2008 2009 2010 2011
Slide 23: A combination of factors has led to lower reported other revenue per vehicle
A combination of factors has led to lower reported other revenue per vehicle Other Revenue Per Vehicle(i) Reconciliation Accounting/timing -£3 True True economic impact Accounting/timing -£2 economic -£2 +£1 impact -£3 +£2 -£3 £79 £73 £69? Dec-12 Impact of Timing Loss of PI Other Jun-13 Impact of Ti
Slide 24: Summary
Summary Market conditions and claims environment Competitive environment is putting pressure on prices But claims trends are currently positive Admiral performance and prospects We have continued to reduce prices in 2013 but have lagged the market because this is not the right time for us to g
Slide 25: New developments...
New developments... Telematics Household Various product trials ongoing On all four UK price comparison sites Bell from Admiral from August 2013 Little Box Long term support from re-insurers New app launched in H1 13 Motormate by Confused.com Building competitive household business
Slide 26: International Results
International Results Kevin Chidwick, CFO and CEO of Elephant Insurance Cristina Nestares, European Manager
Slide 27: Elephant Auto Results
Elephant Auto Results Kevin Chidwick, CFO and CEO of Elephant Insurance
Slide 28: Motor Insurance Market in the USA...
Motor Insurance Market in the USA... $172bn premium1 200m vehicles 51 states 30% Shop 10% Switch 3 3 Total Market Shoppers Switchers Market Combined Ratios2 Market Share Leaders – Total market1 98% 98% 99% 99% State Farm 17.9% Allstate 10.1% 35% 34% 34% 34% Geico 9.7% Progressive 8.4% Farmers 6.0% 6
Slide 29: Our unique culture plays to Admiral's strengths
... plays to Admiral’s strengths Admiral’s Business Model US Auto Insurance Market Low cost structure Average expense ratio 34%1 Our unique culture Efficiency in claims handling Average claims handling costs 12%1 Focus on pricing Incumbent systems Few pricing State specific regulation adjustments Di
Slide 30: We are making steady progress
We are making steady progress Vehicles in Force 62k H1 12 = 196% Combined Ratio1 39k H1 13 = 149% Amortised Cost per Vehicle Sale2 (Virginia) H1 12 H1 13 Total Written Premium + Other Income £19.3m £13.4m H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 13 30 H1 12 H1 13 Oct 2009 Jan 2011 July 2011 Nov 2011 N
Slide 31: The US market looks promising for Elephant
The US market looks promising for Elephant Direct distribution is increasingly important The US market has huge potential 2009 – 2012 Growth in Premium(i) 22% 3% Non direct Direct New Elephant Total Business Market Vehicle count Market Recent M&A Activity Market Share Virginia, Maryland, 2009 2011
Slide 32: European Insurance Results
European Insurance Results Cristina Nestares, European Manager
Slide 33: Motor Insurance Market in Spain
Motor Insurance Market in Spain Market Gross Written Premium €10.6bn premium 22m vehicles €11.5bn €11.3bn €10.6bn 2010 2011 2012 Market Combined Ratio Distribution Shift Direct insurers are investing heavily in media and promotions to attract new customers 96% 96% 97% Rapid growth of price compa
Slide 34: Motor Insurance Market in Italy
Motor Insurance Market in Italy Market Gross Written Premium €20.2bn premium 37m vehicles €20.7bn €19.9bn €20.2bn 2010 2011 2012 Market Combined Ratio Distribution Shift Shift to direct insurance, year on year growth of c10% 103% 101% Rapid growth of price comparison 92% New regulation abolish
Slide 35: Motor Insurance Market in France
Motor Insurance Market in France Market Gross Written Premium €18bn premium €18bn 32m vehicles €17bn €16bn 2010 2011 2012 Market Combined Ratio Distribution Shift Rapid growth of price comparison o Increased TV spend 105% 102% 103% 102% o New players Hamon Law will make cancellations easier 2010
Slide 36: Admiral's strengths are relevant in each market
Admiral’s strengths are relevant in each market Admiral’s Business Model 1 Pricing capabilities Replicating our UK model Low cost structure Asking more questions Having a larger footprint Our unique culture Efficiency in claims handling Most 2 Change in distribution important right Fast grow
Slide 37: Vehicle count has increased in each operation
Vehicle count has increased in each operation Growth in Vehicles By Country 279k Admiral Seguros 238k 119k 98k 22k 10k H1 2012 H1 2013 H1 2012 H1 2013 H1 2012 H1 2013 37
Slide 38: European Consolidated Results
Results in the first half of 2013 reflect good progress but, as ever, there is more work to do... European Consolidated Results Total Premium Written Combined Ratio1 Loss before tax2 + Other Income £76.2m 133% H1 2012 H1 2013 £66.3m 116% (£3.8m) (£4.2m) H1 2012 H1 2013 H1 2012 H1 2013 5th 9th Best P
Slide 39: Price Comparison
Price Comparison Henry Engelhardt, CEO
Slide 40: The internet is an irresistible force
The internet is an irresistible force Market New Business Sales via Price Comparison France Spain 13% 10% 4% 3% 2010 2012 2010 2012 UK 64% USA 52% 0% 2010 2012 Source: Management information 40
Slide 41: European price comparison makes money
European price comparison makes money Six Month Results Number of Quotes Generated H1 12 H1 13 Movement 2.6m Turnover £10.1m £12.7m £2.6m 26% 2.2m Expenses (£10.3m) (£11.9m) (£1.6m) 16% Profit/(loss) (£0.2m) £0.8m £1.0m >100% before tax H1 2012 H1 2013 Note: Total Price Comparison Profits are made u
Slide 42: Confused profits up 21%
Confused profits up 21% Profit Before Tax Six Month Results £10.2m £8.2m £8.4m H1 12 H1 13 Movement Turnover £43.2m £44.8m £1.6m 4% Expenses (£34.8m) (£34.6m) £0.2m (1%) Profit before £8.4m £10.2m £1.8m 21% tax H1 2011 H1 2012 H1 2013 Note: Total Price Comparison Profits are made up of European Prof
Slide 43: Recap
Recap
Slide 44: Admiral's Outlook
Admiral’s Outlook UK Insurance Not the right time for us to grow ... but positive developments in claims experience ... and despite large releases, the margin over best estimate has increased International Insurance Committed to ongoing investment ... because each is showing good progress
Slide 45: H1 2013 Group Results
H1 2013 Group Results Profit before tax up 6% to £181.4 million (H1 2012: £171.8 million) Earnings per share up 6% to 50.1 pence (H1 2012: 47.3 pence) Interim dividend up 8% to 48.9 pence per share (2012 interim: 45.1 pence per share) Turnover down 7% to £1,089 million (H1 2012: £1,169 milli
Slide 46: Q&A
Q&A
Slide 47: Appendix
Appendix
Slide 48: Appendices
Appendices Admiral Group Key Performance Indicators Summary Income Statement Balance Sheet UK Car Insurance Impact of accounting classifications Underwriting arrangements Co- and reinsurance 2013 terms Booked loss ratio development by underwriting year Admiral v Market ultimate l
Slide 49: Admiral Group Key Performance Indicators
Admiral Group Key Performance Indicators KPI 2004 2005 2006 2007 2008 2009 2010 2011 2012 H1 10 H1 11 H1 12 H1 13 Group Financial Turnover £m 540 627 698 808 910 1,077 1,585 2,190 2,215 721 1,104 1,169 1,089 Vehicles (000) 1,041 1,141 1,285 1,491 1,746 2,076 2,748 3,360 3,550 2,373 3,154 3,502 3,600
Slide 50: Summary Income Statement
Summary Income Statement International Car UK Car Insurance Insurance Price Comparison Other Admiral Group £m H1 11 H1 12 H1 13 H1 11 H1 12 H1 13 H1 11 H1 12 H1 13 H1 11 H1 12 H1 13 H1 11 H1 12 H1 13 Turnover 999.3 1,030.0 924.5 53.9 79.7 95.5 45.4 53.3 57.5 5.8 6.3 11.6 1,104.4 1,169.3 1,089.1 Tota
Slide 51: Balance Sheet
Balance Sheet December June 2012 2012 June 2013 £m £m £m ASSETS Property, plant and equipment 16.4 16.5 15.3 Intangible assets 88.9 92.5 92.8 Reinsurance contracts 723.6 803.0 733.3 Financial assets 1,793.6 2,005.1 2,194.0 Deferred income tax 10.0 15.2 15.9 Trade and other receivables 65.7 55.3 75.4
Slide 52: Impact of accounting classifications
Impact of accounting classifications There have been a number of accounting classification There is no impact on UK Car Insurance H1 13 PBT changes that impact on the presentation of results in from the accounting reclassifications the income statement. Three of these adjustments are significant and
Slide 53: In H1 2012 we made an adjustment to our Other Revenue and Premium accounting
In H1 2012 we made an adjustment to our Other Revenue and Premium accounting that deferred £16 million from PBT at the FY 2012 (change 1) H1 2012 FY 2012 • During H1 2012 we no longer earned • At the FY 2012 there was no impact of this Other Revenue from the sale of legal change on Underwriting prof
Slide 54: In H1 2013 there has been a further adjustment that has no impact on PBT
In H1 2013 there has been a further adjustment that has no impact on PBT As Reported FY If it was Difference Full Year 2012 Before Any 2012 restated now (Reported Commentary UK Car Insurance ONLY Change (Change 1) (Change 2) to Restated) Total premiums written £1,686m £1,749m £1,749m Net earned prem
Slide 55: Underwriting Arrangements
Underwriting Arrangements Reinsurance arrangements – pre-commutations Post commutations (at 30 June 2013) 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 3% 3% 4% 5% 5.0% 3% 3% 8.75% 8.75% 8.75% 8.75% 8.75% 8.75% 8.75% 7.5% 7.5% 7.5% 9% 9% 7.5% 7.5% 50% 45% 40% 11.25% 13.25% 13.25% 13.25% 12.25% 13.25% 13.25% 40% 40%
Slide 56: Co-insurance and Reinsurance 2013 Terms
Co-insurance and Reinsurance 2013 Terms Munich Re Swiss Re New Re Mapfre Re Hannover Re XL Re Proportional* co- Type Proportional* reinsurance insurance Share of premium 40% 7.5% 13.25% 3.0% 8.75% 2.5% At least to To end December Term At least to December 2015 December 2016 2013 Variable, depending
Slide 57: Booked Loss Ratio Development By Underwriting Year
Booked Loss Ratio Development By Underwriting Year UK Booked Loss Ratio (%) Development by Financial Period (colour-coded) Split by Underwriting Year (x axis) 84 82 84 81 78 77 75 77 77 77 75 76 74 72 2009 2010 2011 2012 Underwriting Year Underwriting Year Underwriting Year Underwriting Year 2009 20
Slide 58: Admiral v Market Ultimate Loss Ratio and Combined Ratio
Admiral v Market Ultimate Loss Ratio and Combined Ratio Projected Ultimate Loss Ratio: Admiral v Market Ultimate Combined Ratio: Admiral v Market 97% (-1%) 126% 89% 90% 120% (-1%) 118% 117% (-1%) 88% 108% 78% 104% (-1%) 81% 76% 93% (-1%) 74% 88% 88% 88% 71% 71% (-2%) 71% 84% 81% 68% (-1%) ( ) shows
Slide 59: Ultimate Loss Ratio Projections 2011 to 2012
Ultimate Loss Ratio Projections 2011 to 2012 71% 68% 0% +2% +3% -2% 2011 ULR Change in average Large BI Small BI Non BI 2012 ULR premium (>£500k) (<£500k) Source: Management information, accident year basis, figures shown are gross of excess of loss insurance. Small BI is capped at £500k. 59
Slide 60: Motor regulatory reforms update
Motor regulatory reforms update What has happened? Effective Date Implications for Admiral Revenue Other Personal injury referral fee ban (LASPO) – ATE and Well flagged reductions in Other Revenue per vehicle (c£6), possible 1st April 2013 success fees cease to be recoverable associated reductions i
Slide 61: Admiral v Market Expense Ratio
Admiral v Market Expense Ratio Expense Ratio: Admiral v Market(i) 30% 31% 28% 29% 27% 27% 26% 26% 16% 17% 17% 17% 15% 14% 14% 13% 13% 2005 2006 2007 2008 2009 2010 2011 2012 H1 13 Market (earned basis) Admiral UK (written basis) Expense Ratio Components(ii) Admiral 6% 6% 2% = 14% Market 12% 8% 6% =
Slide 62: Admiral's investment strategy is low risk
Admiral’s investment strategy is low risk Investments Breakdown Investment and Interest Income FY 12: £1,818m H1 13: £1,979m £6.9m £6.7m Cash Cash 12% 10% £5.1m Money Long term Money Long term market deposits market £3.6m funds & 16% funds & deposits short short 21% dated debt dated debt securities
Slide 63: 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 accident took place. The year in which the policy was incepted. It is also refer
Slide 64: Admiral's Brands
Ua or Admiral’s Brands balumba Confused Seguros de coche 5 | aQualitas re lag Auto © Rastreator.com seu : LeLynx.fr Conte. it @ Elephant roliVier assurances elephant.co. uk p O now a Bell Faraviator 64
Slide 65: 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