Admiral Group plc results for the six months en...
29 August 2013
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 million)
- Number of vehicles up 3% to 3.6 million (H1 2012: 3.5 million)
- Return on capital 57% (H1 2012: 61%)
- Over 6,600 employees eligible to receive £1,500 of shares each via the Employee Share Scheme, based on the H1 2013 result
- Named 2nd Best Large Workplace in the UK and 2nd Best Multinational Workplace in Europe by the Great Place to Work Institute
Henry Engelhardt, Chief Executive Officer, commented:
"I'm really pleased with our results in the first half of 2013. Any time you can increase profits by 6% when competitors are cutting prices you've got to be happy.
"We didn't grow the UK insurance business, which was great news because of the competitive environment. We were able to increase profits largely due to excellent claims experience. In addition, Confused.com had a great first half, increasing its profits by over 20%.
"Outside the UK all our operations made good progress towards their goal of building profitable, growing and sustainable businesses. Our insurance operations in the US, Spain, Italy and France now account for more than 13% of all our customers. I'm particularly proud of our European price comparison businesses, Rastreator in Spain and Le Lynx in France, both of which were profitable in the period.
"All in all it has been a busy, exciting and profitable first half of 2013 and we are poised to meet our expectations for the full year. We continue to give great service and prices to millions of motorists which gives us great confidence in the future."
Alastair Lyons, Chairman, said:
"Our policy remains to distribute available surpluses to shareholders, after taking account of regulatory capital, funds to support our plans for growth plus a prudent contingency. With a further increase in profit in the first half of 2013, our interim dividend increases to 48.9 pence per share, which represents 98% of post-tax earnings."
Interim dividend
The interim dividend of 48.9 pence per share will be paid on 11 October 2013. The ex-dividend date is 11 September 2013 and the record date is 13 September 2013. The dividend consists of a normal dividend of 22.5 pence per share and a special dividend of 26.4 pence per share.
Management presentation
Analysts and investors will be able to access the Admiral Group management presentation, which commences at 8.30am on Thursday 29 August 2013, by dialling +44 203 059 8125.
A copy of the presentation slides and webcast, along with a PDF version of this interim results announcement, will be available at www.admiralgroup.co.uk
Group key performance indicators
| H1 2011 | H1 2012 | H1 2013 | FY 2012 | ||
| Turnover[*1] | £1,104.4m | £1,169.3m | £1,089.1m | £2,215.1m | |
| Net revenue | £425.1m | £488.4m | £454.8m | £984.3m | |
| Number of vehicles | 3.15m | 3.50m | 3.60m | 3.55m | |
| Loss ratio[*2] | 77.3% | 79.7% | 68.8% | 79.2% | |
| Expense ratio | 16.7% | 16.3% | 20.2% | 17.7% | |
| Combined ratio[*2] | 94.0% | 96.0% | 89.0% | 96.9% | |
| Profit before tax | £160.6m | £171.8m | £181.4m | £344.6m | |
| Earnings per share | 43.3p | 47.3p | 50.1p | 95.1p | |
| Dividend per share | 39.1p | 45.1p | 48.9p | 90.6p | |
| Return on capital | 63% | 61% | 57% | 60% |
[*1] Turnover comprises total premiums written and other revenue
[*2] Loss ratio restated to show the result only on premium originally underwritten by Admiral. Result in H1 2013 including releases from commuted reinsurance contracts would have been a loss ratio of 59.5% and the combined ratio 79.7%. Refer below for details.
Key Group Highlights
Admiral continued to grow Group pre-tax profit in the first half of 2013 to £181.4 million, up 6% on the prior year (H1 2012: £171.8 million). The growth was driven by an improved combined ratio, primarily due to positive claims experience in the Group's core UK Car Insurance business.
Group turnover of £1,089.1 million decreased by 7% compared to the first half of 2012 (£1,169.3 million). This was mainly driven by reductions in average premiums in the UK Car Insurance business.
During H1 2013, the Group increased its vehicle base by 50,000 to 3.60 million. Year-on-year growth was nearly 100,000 (3%).
The Group loss ratio improved to 68.8% (H1 2012: 79.7%), primarily due to positive UK claims experience driving higher reserve releases. There was also an improvement in the International Insurance loss ratio.
The Group expense ratio increased to 20.2% (H1 2012: 16.3%) mainly due to the positive impact on the prior year figure of a one-off adjustment, along with the increasing relative size of the International Insurance businesses (which currently operate at a higher expense ratio than the UK).
Admiral's strategy in its core UK Car Insurance market is unchanged. The focus on margin over volume resulted in a flat vehicle count (3.02 million), whilst pre-tax profit increased 5% to £192.7 million (H1 2012: £183.3 million) due to an improvement in the Combined Ratio to 81.1% from 89.7%. This was against a backdrop of falling premium rates and intense competition as some competitors sought to add market share.
Admiral's International Car Insurance businesses continued to grow, delivering an overall increase in turnover of 20% to £95.5 million and insuring 25% more vehicles at 30 June 2013 compared with a year earlier. These four operations now account for 9% of total turnover and 13% of vehicles.
During the first half of 2013, the International Car Insurance businesses lost £10.8 million compared to £8.9 million in the first half of 2012. This reflected increased marketing spend, predominantly in Spain and the USA. The loss equated to 6% of the Group profit before tax for the period.
Admiral's Price Comparison businesses generated pre-tax profit of £9.9 million, 22% ahead of the £8.1 million result of H1 2012. This was primarily driven by a 21% increase in profit at Confused.com to £10.2 million (H1 2012: £8.4 million).
Admiral's capital efficient and highly profitable business model led to return on capital of 57% (H1 2012: 61%). A key part of the business model is the extensive use of co- and reinsurance across the Group. During the first half of 2013 Admiral announced extensions to its UK reinsurance arrangements until at least the end of 2015, while its UK co-insurance agreement runs to at least the end of 2016.
Earnings per share increased by 6% to 50.1 pence (H1 2012: 47.3 pence) and an interim dividend of 48.9 pence per share has been declared (8% higher than the interim 2012 payment of 45.1 pence) - a payout ratio of 98% (H1 2012: 95%).
At the core of Admiral's success is a skilled and motivated workforce and the Group invests significant time and money in four key areas to underpin this: communication; equality; reward and recognition; and fun. During the first half of 2013 the Group received numerous awards in recognition of this investment:
- Second Best Large Place to Work in the UK
- Second Best Multinational Place to Work in Europe
- Fifth Best Company to Work For in Spain
- Eighth Best Large Workplace in Canada
- Ninth Best Small to Medium Workplace in Italy
- Eighteenth Best Workplace in Virginia USA
At 30 June 2013 the Group employed over 6,600 members of staff, of which nearly 5,000 are employed in the UK.
The Group's results are presented in three key segments - UK Car Insurance, International Car Insurance and Price Comparison. Other Group items are summarised in a fourth section.
UK Car Insurance
Non-GAAP[*1] format income statement
| £m | H1 2011 | H1 2012 | H1 2013 | FY 2012 | |
| Turnover[*2] | 999.3 | 1,030.0 | 924.5 | 1,936.2 | |
| Total premiums written[*3] | 881.7 | 922.8 | 851.7 | 1,748.7 | |
| Net insurance premium revenue[*4] | 190.0 | 226.8 | 214.6 | 455.6 | |
| Investment income | 3.4 | 5.9 | 5.6 | 13.9 | |
| Net insurance claims[*5] | (151.0) | (179.7) | (125.2) | (355.1) | |
| Net insurance expenses | (20.7) | (21.9) | (26.3) | (50.0) | |
| Underwriting profit | 21.7 | 31.1 | 68.7 | 64.4 | |
| Profit commission[*5] | 45.3 | 47.8 | 40.4 | 108.4 | |
| Underwriting profit plus profit commission | 67.0 | 78.9 | 109.1 | 172.8 | |
| Net other income[*6] | 90.7 | 90.1 | 71.2 | 170.9 | |
| Instalment income | 10.5 | 14.3 | 12.4 | 29.1 | |
| UK Car Insurance profit before tax | 168.2 | 183.3 | 192.7 | 372.8 | |
[*1] GAAP = Generally Accepted Accounting Practice
[*2] Turnover (a non-GAAP measure) comprises total premiums written and other revenue
[*3] Total premiums written (non-GAAP) includes premium underwritten by co-insurers
[*4] Net insurance premium revenue in H1 2013 includes £6.8 million of premium (H1 2012: £nil) related to additional products underwritten by Admiral - refer to page 9 for details.
[*5] H1 2013 net insurance claims include £22.5 million of reserve releases from commuted reinsurance contracts (H1 2012: £1.9 million). Had these contracts not been commuted, these releases would have been recognised through profit commission. Refer to Note 4c to the financial statements.
[*6] H1 2013 number impacted by changes relating to motor legal expenses insurance and vehicle commission - refer below for details.
Split of underwriting profit
| £m | H1 2011 | H1 2012 | H1 2013 | FY 2012 | |
| Motor | 21.7 | 31.1 | 65.0 | 59.6 | |
| Additional products | - | - | 3.7 | 4.8 | |
| Underwriting profit | 21.7 | 31.1 | 68.7 | 64.4 | |
Key performance indicators
| H1 2011 | H1 2012 | H1 2013 | FY 2012 | ||
| Reported motor loss ratio[*1] | 76.1% | 77.5% | 67.2% | 76.4% | |
| Reported motor expense ratio[*2] | 14.1% | 12.2% | 15.0% | 13.6% | |
| Reported motor combined ratio | 90.2% | 89.7% | 82.2% | 90.0% | |
| Written basis motor expense ratio | 12.8% | 12.6% | 13.7% | 13.0% | |
| Reported total combined ratio[*3] | 90.2% | 89.7% | 81.1% | 89.2% | |
| Claims reserve releases[*4] | £4.0m | £10.9m | £52.2m | £17.6m | |
| Vehicles insured at period-end | 2.83m | 3.02m | 3.02m | 3.02m | |
| Other Revenue per vehicle | £86 | £82 | £73 | £79 |
[*1] Motor loss ratio adjusted to exclude impact of reserve releases on commuted reinsurance contracts. Before adjustment, the reported loss ratio is 56.4% for H1 2013 (FY 2012: 76.1%; H1 2012:76.7%; H1 2011: 76.3%)
[*2] Motor expense ratio is calculated by including claims handling expenses that are reported within claims costs. Refer to Note 7b to the financial statements
[*3] Reported total combined ratio includes additional products underwritten by Admiral
[*4] H1 2013 claims reserve releases include £22.5 million of releases from commuted reinsurance contracts. Refer to Note 4c to the financial statements
| UK Underwriting Arrangements for 2013 to 2015 | ||||||||||||||||||||||||||||||||||||||||
| During the first half of 2013 the Group extended its UK reinsurance arrangements such that capacity is fully placed until the end of 2015. The underwriting splits are as follows: | ||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
| The proportion underwritten by 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 2013 year accrues directly to Great Lakes and does not appear in the Group's income statement. Great Lakes reimburses the Group for its proportional share of expenses incurred in acquiring and administering the motor business. | ||||||||||||||||||||||||||||||||||||||||
| That contract will run until at least the end of 2016, and will see Great Lakes co-insure 40% of the UK business for the remaining period. Admiral has committed to retain at least 25% for the duration, whilst the allocation of the balance is at Admiral's discretion. | ||||||||||||||||||||||||||||||||||||||||
| 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. There is little or no impact on profit or the timing of profit recognition from commutation. | ||||||||||||||||||||||||||||||||||||||||
| After commutation, movements in booked loss ratios result in reduced or increased net claims costs (and not profit commission). | ||||||||||||||||||||||||||||||||||||||||
| At 30 June 2013, all material UK quota share reinsurance contracts for underwriting years up to and including 2010 have been commuted. For the 2011 year, of the original 32.5% of the business that was reinsured, contracts covering 27.5% of the business have been commuted. All reinsurance for the 2012 and 2013 years remains in effect. Refer below for further details. |
UK Car Insurance Financial Performance
After two years of significant rate increases in 2010 and 2011, the UK market is now in its second year of being more price competitive. Admiral's UK business has maintained a stable vehicle count and has focussed on margin rather than seeking to grow market share.
Profit from UK Car Insurance increased by 5% to £192.7 million (H1 2012: £183.3 million). Profit from underwriting and profit commission increased by 38% to £109.1 million (H1 2012: £78.9 million) driven predominantly by an improved combined ratio and the change in arrangements related to motor legal expenses insurance during H1 2012, which resulted in a reallocation of revenue from Other Revenue to premium. This latter change also contributed to a reduction in net other income and instalment income of 20% to £83.6 million (H1 2012: £104.4 million). Refer below for further detail.
UK turnover of £924.5 million decreased by 10% compared to H1 2012 (£1,030.0 million). This was primarily due to reductions in average premiums which led to an 8% reduction in total premiums written (£851.7 million compared to £922.8 million). The closing vehicle count has been broadly flat at 3.02 million since the end of June 2012.
The reduction in total premium was driven largely by rate cuts of around 7% (year-on-year) on new business which, combined with portfolio mix changes contributed to a 10% reduction in average premium for new business.
There was a significant improvement in the reported motor combined ratio, which reduced to 82.2% from 89.7% (both figures exclude the impact of reserve releases from commuted reinsurance contracts - refer below).
The improvement was driven by a material reduction in the reported loss ratio to 67.2% from 77.5%, which was due to materially higher reserve releases (£29.7 million v £9.0 million in H1 2012 excluding reserve releases from commuted reinsurance contracts). These higher releases were possible due to the positive claims experience during 2012 and the first half of 2013, which resulted in improvements in the projected ultimate loss ratios, especially for the 2010 to 2012 underwriting years.
In addition to the reserve releases from the net share of the business originally underwritten by Admiral (H1 2013: £29.7 million), there were reserve releases of £22.5 million (H1 2012: £1.9 million) from business that was originally ceded under quota share reinsurance contracts that have since been commuted. Refer to Note 4c for further detail.
Excluding reserve releases, the loss ratio was stable at around 81.5%. Admiral's booked claims reserves continue to include a significant margin above projected best estimates of ultimate claims costs.
The earned motor expense ratio increased to 15.0% from 12.2%, mainly due to the prior year benefitting from a one-off adjustment relating to levy costs. The reduction in average written premiums was the main reason the written basis expense ratio increased to 13.7% from 12.6%.
The projected ultimate combined ratio for Admiral for the 2012 accident year is 84%, compared to 81% for 2011 (the increase was due to falling premium rates in 2012). The reported combined ratio for the UK market for 2012, excluding reserve releases, was 108%.
| Profit Commission |
| Admiral is potentially able to earn material amounts of profit commission revenue from co- and reinsurance partners, depending on the profitability of the business. Revenue is recognised in the income statement in line with the booked loss ratios on Admiral's retained underwriting. |
| In H1 2013 Admiral recognised profit commission revenue of £40.4 million, down from £47.8 million in H1 2012. The decrease came despite a material improvement in the reported combined ratio and is distorted by the impact of commutations of reinsurance contracts (as referred to above). |
| When a quota share reinsurance contract is commuted (typically after two or three years from the start of an underwriting year), further improvement or deterioration in claims costs are reported within net claims. If the contracts were not commuted, the movement would be reported in profit commission. |
| If releases, from business that was originally ceded under quota share reinsurance contracts that have since been commuted, are added to profit commission, the total for H1 2013 rises to £62.9 million compared to £49.7 million in H1 2012, an increase of 27%. |
Other Revenue
Admiral generates Other Revenue from a portfolio of insurance products that complement the core car insurance product, and also fees generated over the life of the policy.
Other Revenue (net of costs and including contribution from additional products underwritten by Admiral) decreased by 16% to £87.3 million (H1 2012: £104.4 million). This was equivalent to £73 per vehicle (gross of costs) - down from £79 at the end of 2012 and £82 at the end of H1 2012.
The £6 reduction in Other Revenue per vehicle from FY 2012 to H1 2013 was due to changing accounting recognition and treatment (-£5) and true economic changes (-£1) as follows:
Changing accounting recognition and treatment
- Change to accounting recognition and treatment of motor legal expenses insurance (MLEI) and vehicle commission (-£3), profit has been reallocated from Other Revenue to Underwriting.
- Change to underwriting arrangements for additional products impacting the timing of revenue recognition (-£2), which will reverse in time.
True economic changes
- Reduction in income earned from personal injury referral fees (-£2)
- Reduction in instalment income reflecting lower average premiums (-£1)
- Other offsetting movements (+£2)
Other Revenue - analysis of contribution:
| £m | H1 2011 | H1 2012 | H1 2013 | FY 2012 | |
| Contribution from additional products and fees | 107.1 | 108.0 | 86.2 | 205.2 | |
| Contribution from additional products underwritten by Admiral[*1] | - | - | 3.7 | 4.8 | |
| Instalment income | 10.5 | 14.3 | 12.4 | 29.1 | |
| Other Revenue | 117.6 | 122.3 | 102.3 | 239.1 | |
| Internal costs | (16.4) | (17.9) | (15.0) | (34.3) | |
| Net Other Revenue | 101.2 | 104.4 | 87.3 | 204.8 | |
| Other Revenue per vehicle[*2] | £86 | £82 | £73 | £79 |
[*1] Included in underwriting profit in income statement but re-allocated to Other Revenue for purpose of KPIs
[*2] Other Revenue (before internal costs) divided by average active vehicles, rolling twelve month basis
Motor Legal Expenses Insurance (MLEI) and Vehicle Commission
As previously noted, with effect from 1 April 2012, Admiral no longer earns Other Revenue from the sale of MLEI. In addition, the Group began charging its panel of co- and reinsurers a vehicle commission. Admiral's car insurance policies continue to include MLEI as an integral feature and there has been no impact on customers in the level of cover or cost of policies as a result of this change. The overall economic impact of these two changes is not significant although there are differences in the timing of revenue recognition.
During the period the intra-group element of vehicle commission totalling £9.7 million was eliminated (from the insurance expenses and Other Revenue lines in the income statement). The accounting recognition and treatment of MLEI and vehicle commission reduced Other Revenue per vehicle by approximately £3 during the first half of 2013 and an additional £3 during the second half of 2013. There is no profit impact of the elimination as profit is reallocated from Other Revenue to Underwriting. Further details are provided in Note 3.
Referral Fees
As previously reported, personal injury referral fees were banned with effect from 1 April 2013. The ban reduced Admiral's Other Revenue per vehicle by around £2 compared to the end of 2012 and will reduce it by a further £3 by the end of 2013. Admiral expects this reduction in revenue will be offset by reductions in claims costs.
In addition, in H1 2013 Admiral earned £7.3 million in credit hire referral fees. Admiral notes that the UK Competition Commission is undertaking a review of the car insurance market and a potential outcome of the review is regulatory change resulting in a reduction or elimination of these fees. Admiral expects any such reduction in revenue would be offset by reductions in claims costs.
Additional Products Underwritten by Admiral
There are a number of products which are core to providing car insurance to customers (including personal injury insurance, breakdown cover and car hire cover). During the second half of 2012 Admiral began to underwrite the majority of these within the Group (they were previously underwritten by external insurers). The advantages of doing this include improved products for customers and increased control and flexibility with regards to their features and terms.
Contribution from these products underwritten by Admiral during H1 2013 was £3.7 million and this is included in underwriting profit in the income statement, but reallocated to Other Revenue for the purpose of management key performance indicators.
The accounting recognition and treatment of additional products underwritten by Admiral has reduced Other Revenue per vehicle by approximately £2 during the first half of 2013, which will reverse by the end of 2013. This is caused by a change from recognising some of the revenue at the point of sale to recognising revenue over the life of the policy.
Instalment Income
Instalment income is interest charged to customers paying for cover in instalments. During the first half of 2013 Admiral earned £12.4 million, down 13% on the prior period (H1 2012: £14.3 million) from instalment income. This reduced Admiral's Other Revenue per vehicle by around £1 compared to the end of 2012.
Instalment charges are calculated as a percentage of premium and therefore a reduction in average premium leads to a reduction in instalment income.
Admiral Law and BDE Law
During H1 2013, Admiral entered into two joint ventures with law firms Lyons Davidson and Cordner Lewis to form Admiral Law and BDE Law. Both ventures were granted alternative business structure (ABS) licenses by the Solicitors' Regulation Authority.
Bringing the provision of legal services into the Group will allow Admiral to administer a claim throughout the process and offer a materially better quality of service.
New and proposed reforms to the handling of bodily injury claims mean that the businesses are not expected to make a material contribution to Group profits in the foreseeable future.
International Car Insurance
Non-GAAP format income statement
| £m | H1 2011 | H1 2012 | H1 2013 | FY 2012 | |
| Turnover | 53.9 | 79.7 | 95.5 | 162.9 | |
| Total premiums written | 49.5 | 74.4 | 85.5 | 148.5 | |
| Net insurance premium revenue | 11.5 | 19.7 | 26.4 | 43.3 | |
| Investment income | 0.1 | 0.1 | - | 0.1 | |
| Net insurance claims | (11.1) | (20.5) | (23.3) | (49.4) | |
| Net insurance expenses | (6.9) | (12.6) | (16.9) | (27.4) | |
| Underwriting result | (6.4) | (13.3) | (13.8) | (33.4) | |
| Net other income | 3.6 | 4.3 | 2.9 | 8.9 | |
| Other revenue and charges | (0.4) | 0.1 | 0.1 | - | |
| International Car Insurance loss before tax | (3.2) | (8.9) | (10.8) | (24.5) | |
Key Performance Indicators
| H1 2011 | H1 2012 | H1 2013 | FY 2012 | ||
| Reported loss ratio | 97% | 104% | 88% | 114% | |
| Reported expense ratio | 60% | 64% | 64% | 63% | |
| Reported combined ratio[*1] | 157% | 168% | 152% | 177% | |
| Reported combined ratio, net of Other Revenue[*2] | 125% | 146% | 141% | 157% | |
| Vehicles insured at period-end | 235,900 | 385,600 | 481,400 | 436,000 |
[*1] Reported combined ratio is calculated on Admiral's net share of premiums and excludes Other Revenue.
[*2] Reported combined ratio, net of Other Revenue is calculated on Admiral's net share of premiums and includes Other Revenue.
Geographical Analysis
30 June 2013
| Spain | Italy | France | USA | Total | |
| Vehicles insured at period end | 118,550 | 278,550 | 22,300 | 62,000 | 481,400 |
| Turnover (£m)[*1] | 19.3 | 50.4 | 6.5 | 19.3 | 95.5 |
30 June 2012
| Spain | Italy | France | USA | Total | |
| Vehicles insured at period end | 98,300 | 237,900 | 10,000 | 39,400 | 385,600 |
| Turnover (£m)[*1] | 17.3 | 44.8 | 4.2 | 13.4 | 79.7 |
[*1] Turnover includes total premium written and income generated by the sale of additional products and services and fees
International Car Insurance Financial Performance
The Group has car insurance businesses in four markets outside the UK - in Spain (Admiral Seguros), Italy (ConTe), the USA (Elephant Auto) and France (L'olivier Assurances). The operations were launched between 2006 and 2010 and are at different stages in their development.
Each operation continues to grow and make progress towards the Group's strategic aim of establishing growing, sustainable, profitable car insurance businesses outside the UK. As these operations grow, it is expected that they will make losses until appropriate scale has been achieved.
The combined operations insured 481,400 vehicles at 30 June 2013 - 25% higher than a year earlier (H1 2012: 385,600). Turnover was £95.5 million, up almost 20% compared to H1 2012. Vehicles and turnover from outside the UK represent 13% and 9% of the Group totals respectively, up from 11% and 7% in H1 2012.
The total International Insurance loss was £10.8 million, up from £8.9 million in H1 2012. Growth in each business led to an increase in net insurance premium revenue of 34% to £26.4 million (H1 2012: £19.7 million), whilst the combined ratio improved to 152% from 168%. The lower combined ratio was driven by a 16 percentage point improvement in the loss ratio to 88% (H1 2012: 104%) whilst the expense ratio remained stable at 64% (H1 2012: 64%).
Admiral Seguros (Spain) was launched in 2006 and is the oldest of Admiral's international operations. During the first half of the year, Admiral Seguros launched a second brand (Qualitas Auto) to complement its original Balumba brand. The business insured nearly 120,000 customers at the end of June 2013, 21% more than a year earlier.
The Group's largest international operation is ConTe in Italy which had nearly 280,000 vehicles at the end of June 2013, up 17% year-on-year. ConTe was launched in 2008 and is benefitting from a shift towards direct distribution of car insurance in Italy, along with generally favourable market conditions since launch. Claims experience in ConTe in H1 2013 was more stable than during 2012 and prior years.
Admiral's youngest and smallest international insurance business is L'olivier Assurances, launched in 2010 in France. L'olivier insured 22,000 vehicles at the end of June 2013, up over 120% on a year earlier. L'oliver was established with a different start-up business model to Admiral's other international operations, with certain functions outsourced in order to keep expenses low in the initial phases of development.
The consolidated result of Admiral's insurance operations in Spain, Italy and France was a loss of £3.9 million compared to £4.2 million in H1 2012. The combined ratio[*1] improved to 116% from 133% primarily due to improved claims experience.
In the USA, Admiral operates in four states (Virginia, Maryland, Illinois and Texas) through its Elephant Auto business, which launched in 2009. At the end of June 2013, Elephant insured nearly 62,000 vehicles, up around 60% year-on-year. Elephant's expense ratio is currently high as the business is spending significant amounts on advertising to develop the Elephant brand and grow the portfolio. Elephant's written combined ratio[*1] improved from 196% in H1 2012 to 149% in H1 2013 primarily driven by an improved expense ratio due to vehicle count growth.
[*1] European combined ratio is calculated on the earned basis, Elephant combined ratio is calculated on the written basis. Both combined ratios are calculated on 100% of underwritten premium (including co and reinsurer's share) and include the results from the sale of additional products and services and fees.
Price Comparison
Non-GAAP format income statement
| £m | H1 2011 | H1 2012 | H1 2013 | FY 2012 | |
| Revenue: | |||||
| Motor | 36.7 | 43.0 | 45.3 | 82.5 | |
| Other | 8.7 | 10.3 | 12.2 | 21.0 | |
| Total | 45.4 | 53.3 | 57.5 | 103.5 | |
| Operating expenses | (40.4) | (45.2) | (47.6) | (85.5) | |
| Operating profit | 5.0 | 8.1 | 9.9 | 18.0 |
(note - all figures except H1 2013 include Chiarezza, sold in H1 2012)
UK Price Comparison - Confused.com
The UK market remains highly competitive, with four players continuing to dominate market share and advertising spend. Confused had a positive half-year, held market share broadly steady in its core car insurance comparison market and increased total revenue by 4% to £44.8 million (H1 2012: £43.2 million). Revenue from other products was stable at 20% of total revenue. Operating margin improved to 23%, resulting in profit for Confused of £10.2 million - up from £8.4 million in H1 2012.
International Price Comparison
The Group operates three price comparison businesses outside the UK; in Spain (Rastreator), France (LeLynx) and USA (comparenow.com).
The newest of these operations - comparenow.com - was launched in Virginia, USA in March 2013. In the first half of the year the operation has incurred staff and IT costs and marketing expenses totalling £1.1 million. Admiral Group owns 79% of comparenow.com.
Revenue from Rastreator and LeLynx increased 25% to £12.7 million in H1 2013 (H1 2012: £10.1 million) reflecting increased quote volumes and improved conversion rates. Total quotes generated across all products increased by 15% to 2.6 million. The combined result for Rastreator and LyLynx was a profit of £0.8 million compared to a loss of £0.2 million in H1 2012. Admiral Group owns 75% of Rastreator.
The combined result for International Price Comparison was a loss of £0.3 million (H1 2012: £0.3 million).
Other Group Items
| £m | H1 2011 | H1 2012 | H1 2013 | FY 2012 | |
| UK Commercial Vehicle operating profit | 1.2 | 1.3 | 1.4 | 2.5 | |
| Group net interest income | 1.6 | 0.9 | 1.1 | 1.9 | |
| Share scheme charges | (10.8) | (9.9) | (10.5) | (20.6) | |
| Business development costs | (0.4) | (0.8) | (0.8) | (2.1) | |
| Other central overheads | (1.0) | (2.2) | (1.6) | (3.4) |
UK Commercial Vehicle
The Group operates a commercial vehicle insurance broker (Gladiator) offering van insurance and associated products, typically to small businesses. In a very competitive market Gladiator was able to increase its customer base by 13% to 103,000 and increase operating profit to £1.4 million.
Share Scheme Charges
These costs relate to the Group's two share schemes. The increase in the charge is largely due to a higher share price at the end of H1 2013 compared to 30 June 2012.
Business Development Costs
Business development costs of £0.8 million in H1 2013 primarily relate to pre-launch costs of comparenow.com and initial running costs of UK Household Insurance.
UK Household Insurance was launched in December 2012. The product is underwritten within the Group and common with other businesses it is supported by proportional reinsurance covering 70% of the underwriting risk (shared between Munich Re, 40% and Swiss Re, 30%). Further detail will be provided as the business grows.
Other Central Overheads
Other central overheads include Group Directors' remuneration and other Group central costs
Investments and Cash
Investment Strategy
There has been no change in the Group's cautious investment strategy. Funds continue to be held either in money market funds, short-dated debt securities, in term deposits or as cash at bank. The Group performs regular reviews of this strategy to ensure it remains appropriate.
The key focus is capital preservation, with additional priorities being low volatility of return and high levels of liquidity. All objectives continue to be met.
Cash and investments analysis
| 30 June 2013 | |||||
| UK Car Insurance | International Car Insurance | Price Comparison | Other | Total | |
| £m | £m | £m | £m | £m | |
| Money market funds and short-dated debt securities | 1,312.3 | 91.9 | - | 57.8 | 1,462.0 |
| Cash deposits | 307.2 | 4.0 | - | - | 311.2 |
| Cash | 113.3 | 48.8 | 28.6 | 14.9 | 205.6 |
| Total | 1,732.8 | 144.7 | 28.6 | 72.7 | 1,978.8 |
| 31 December 2012 | |||||
| UK Car Insurance | International Car Insurance | Price Comparison | Other | Total | |
| £m | £m | £m | £m | £m | |
| Money market funds and short-dated debt securities | 1,074.5 | 76.7 | - | 74.6 | 1,225.8 |
| Cash deposits | 370.5 | 5.3 | - | - | 375.8 |
| Cash | 125.0 | 50.2 | 25.4 | 16.0 | 216.6 |
| Total | 1,570.0 | 132.2 | 25.4 | 90.6 | 1,818.2 |
| 30 June 2012 | |||||
| UK Car Insurance | International Car Insurance | Price Comparison | Other | Total | |
| £m | £m | £m | £m | £m | |
| Money market funds | 906.5 | 48.5 | - | 5.2 | 960.2 |
| Cash deposits | 361.9 | 4.5 | - | 18.9 | 385.3 |
| Cash | 148.0 | 68.4 | 24.6 | 36.1 | 277.1 |
| Total | 1,416.4 | 121.4 | 24.6 | 60.2 | 1,622.6 |
Money market funds and short-dated debt securities comprise the majority of the total - 74% at 30 June 2013, up from 67% at 31 December 2012.
Investment return and interest income totalled £6.7 million in H1 2013, down compared to H1 2012 (£6.9 million), with a rate of return of just under 1%.
The Group continues to generate substantial amounts of cash, and its capital efficient business model enables the distribution of the majority of post-tax profits as dividends.
Other financial items
Taxation
The tax charge reported in the income statement is £44.4 million (H1 2012: £43.6 million), which equates to 24.5% (H1 2012: 25.4%) of profit before tax. The lower effective rate of taxation compared to 2012 results from reductions in the rate of UK corporation tax in 2012 and 2013.
Earnings per share
Basic earnings per share rose by 6% to 50.1 pence from 47.3 pence in H1 2012. The change is broadly in line with pre- and post-tax profit growth (the difference being largely related to the lower effective rate of corporation tax in H1 2013).
Dividends
The Directors have proposed an interim dividend for the financial year of 48.9 pence per share, which is 8% higher than the interim payment in 2012. It is equal to 98% of earnings per share.
The dividend is made up of a 22.5 pence normal element, based on the stated dividend policy of distributing 45% of post-tax profits, and a further special element of 26.4 pence. The special dividend is 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 payment date is 11 October 2013, ex-dividend date 11 September and record date 13 September.
Capital Structure, Financial Position
The Group continues to manage its capital to ensure that all entities within the Group are able to continue as going concerns and also to ensure that regulated entities comfortably meet regulatory capital requirements Excess capital above these levels within subsidiaries is paid up to the Group holding company in the form of dividends on a regular basis.
Capital continues to be held in equity form, with no debt.
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 minimum capital requirements and surplus position at the end of H1 2013 for those companies, along with the overall Group position was as follows:
| £m | AIGL | AICL | Group |
| Net assets less goodwill | £187m | £98m | £428m |
| Minimum capital requirement | £75m | £25m | £119m |
| Surplus over minimum requirement | £112m | £73m | £309m |
| Total (current year) regulatory capital requirement | £225m | ||
| Surplus over regulatory capital requirement[*1] | £203m |
[*1] Before accounting for the 2013 Interim Dividend of £134 million
Principal Risks and Uncertainties
The principal risks and uncertainties facing the Group are set out in Note 12 to this half-yearly financial report.
Condensed consolidated income statement
| 6 months ended | Year ended | |||
| 30 June 2013 | 30 June 2012 | 31 December 2012 | ||
| Note | £m | £m | £m | |
| Insurance premium revenue | 4 | 570.3 | 560.5 | 1,156.5 |
| Insurance premium ceded to reinsurers | 4 | (328.9) | (314.0) | (657.6) |
| Net insurance premium revenue | 241.4 | 246.5 | 498.9 | |
| Other revenue | 6 | 166.3 | 187.2 | 361.1 |
| Profit commission | 4 | 40.4 | 47.8 | 108.4 |
| Investment and interest income | 5 | 6.7 | 6.9 | 15.9 |
| Net revenue | 454.8 | 488.4 | 984.3 | |
| Insurance claims and claims handling expenses | (414.2) | (456.7) | (929.1) | |
| Insurance claims and claims handling expenses recoverable from reinsurers | 265.4 | 256.5 | 524.6 | |
| Net insurance claims | (148.8) | (200.2) | (404.5) | |
| Operating expenses | 7 | (114.1) | (106.5) | (214.6) |
| Share scheme charges | 7 | (10.5) | (9.9) | (20.6) |
| Total expenses | (273.4) | (316.6) | (639.7) | |
| Profit before tax | 181.4 | 171.8 | 344.6 | |
| Taxation expense | 8 | (44.4) | (43.6) | (86.2) |
| Profit after tax | 137.0 | 128.2 | 258.4 | |
| Profit after tax attributable to: | ||||
| Equity holders of the parent | 137.2 | 128.1 | 258.4 | |
| Non-controlling interests | (0.2) | 0.1 | - | |
| 137.0 | 128.2 | 258.4 | ||
| Earnings per share: | ||||
| Basic | 10 | 50.1p | 47.3p | 95.1p |
| Diluted | 10 | 50.0p | 47.2p | 94.9p |
| Dividends declared and paid (total) | 10 | 123.1 | 98.0 | 219.3 |
| Dividends declared and paid (per share) | 10 | 45.5p | 36.5p | 81.6p |
Condensed consolidated statement of comprehensive income
| 6 months ended | Year ended | |||
| 30 June 2013 | 30 June 2012 | 31 December 2012 | ||
| £m | £m | £m | ||
| Profit for the period | 137.0 | 128.2 | 258.4 | |
| Other comprehensive income | ||||
| Exchange differences on translation | ||||
| of foreign operations | 4.6 | (1.1) | (2.7) | |
| Other comprehensive income for the | ||||
| period, net of income tax | 4.6 | (1.1) | (2.7) | |
| Total comprehensive income for the period | 141.6 | 127.1 | 255.7 | |
| Total comprehensive income for the period, attributable to: | ||||
| Equity holders of the parent | 141.6 | 127.0 | 255.9 | |
| Non-controlling interests | - | 0.1 | (0.2) | |
| 141.6 | 127.1 | 255.7 |
Condensed consolidated statement of financial position
| As at: | ||||
| 30 June 2013 | 30 June 2012 | 31 December 2012 | ||
| Note | £m | £m | £m | |
| ASSETS | ||||
| Property and equipment | 9 | 15.3 | 16.4 | 16.5 |
| Intangible assets | 9 | 92.8 | 88.9 | 92.5 |
| Deferred income tax | 8 | 15.9 | 10.0 | 15.2 |
| Reinsurance assets | 4 | 733.3 | 723.6 | 803.0 |
| Trade and other receivables | 9 | 75.4 | 65.7 | 55.3 |
| Financial assets | 5 | 2,194.0 | 1,793.6 | 2,005.1 |
| Cash and cash equivalents | 5 | 205.6 | 277.1 | 216.6 |
| Total assets | 3,332.3 | 2,975.3 | 3,204.2 | |
| EQUITY | ||||
| Share capital | 10 | 0.3 | 0.3 | 0.3 |
| Share premium account | 13.1 | 13.1 | 13.1 | |
| Other reserves | 5.1 | 2.1 | 0.7 | |
| Retained earnings | 471.9 | 419.6 | 443.0 | |
| Total equity attributable to equity holders of the parent | 490.4 | 435.1 | 457.1 | |
| Non-controlling interests | 3.2 | 5.2 | 3.6 | |
| Total equity | 493.6 | 440.3 | 460.7 | |
| LIABILITIES | ||||
| Insurance contracts | 4 | 1,836.8 | 1,586.4 | 1,696.9 |
| Trade and other payables | 9 | 961.4 | 910.0 | 1,006.5 |
| Current tax liabilities | 40.5 | 38.6 | 40.1 | |
| Total liabilities | 2,838.7 | 2,535.0 | 2,743.5 | |
| Total equity and total liabilities | 3,332.3 | 2,975.3 | 3,204.2 | |
Condensed consolidated cash flow statement
| 6 months ended | Year ended | |||
| 30 June 2013 | 30 June 2012 | 31 December 2012 | ||
| Note | £m | £m | £m | |
| Profit after tax | 137.0 | 128.2 | 258.4 | |
| Adjustments for non-cash items: | ||||
| - Depreciation | 4.1 | 3.4 | 6.6 | |
| - Amortisation of software | 2.8 | 1.8 | 4.1 | |
| - Change in unrealised gains on investments | (0.6) | 2.6 | (0.6) | |
| - Other gains and losses | - | 0.1 | 0.6 | |
| - Share scheme charge | 12.6 | 10.7 | 23.7 | |
| Change in gross insurance contract liabilities | 139.9 | 252.7 | 363.2 | |
| Change in reinsurance assets | 69.7 | (83.8) | (163.2) | |
| Change in trade and other receivables, including from policyholders | (39.8) | (39.7) | 13.1 | |
| Change in trade and other payables, including tax and social security | (41.6) | 53.5 | 149.9 | |
| Taxation expense | 44.4 | 43.6 | 86.2 | |
| Cash flows from operating activities, before movements in investments | 328.5 | 373.1 | 742.0 | |
| Net cash flow into investments | (171.6) | (189.0) | (441.9) | |
| Cash flows from operating activities, net of movements in investments | 156.9 | 184.1 | 300.1 | |
| Taxation payments | (42.5) | (33.4) | (79.7) | |
| Net cash flow from operating activities | 114.4 | 150.7 | 220.4 | |
| Cash flows from investing activities: | ||||
| Purchases of property and equipment and software | (6.5) | (3.7) | (10.9) | |
| Net cash used in investing activities | (6.5) | (3.7) | (10.9) | |
| Cash flows from financing activities: | ||||
| Non-controlling interests capital contribution | - | 4.6 | 4.6 | |
| Repayment of finance lease liabilities | (0.2) | - | (0.1) | |
| Equity dividends paid | (123.1) | (98.0) | (219.3) | |
| Net cash used in financing activities | (123.3) | (93.4) | (214.8) | |
| Net (decrease) / increase in cash and cash equivalents | (15.4) | 53.6 | (5.3) | |
| Cash and cash equivalents at 1 January | 216.6 | 224.6 | 224.6 | |
| Effects of changes in foreign exchange rates | 4.4 | (1.1) | (2.7) | |
| Cash and cash equivalents at end of period | 5 | 205.6 | 277.1 | 216.6 |
Condensed consolidated statement of changes in equity
| Share capital | Share premium account | Foreign exchange reserve | Retained profit and loss | Non-controlling interests | Total equity | |
| £m | £m | £m | £m | £m | £m | |
| At 1 January 2012 | 0.3 | 13.1 | 3.2 | 377.3 | 0.5 | 394.4 |
| Profit for the period | - | - | - | 128.1 | 0.1 | 128.2 |
| Other comprehensive income | ||||||
| Currency translation differences | - | - | (1.1) | - | - | (1.1) |
| Total comprehensive income for the period | - | - | (1.1) | 128.1 | 0.1 | 127.1 |
| Transactions with equity-holders | ||||||
| Dividends | - | - | - | (98.0) | - | (98.0) |
| Share scheme credit | - | - | - | 10.7 | - | 10.7 |
| Deferred tax credit on share scheme charge | - | - | - | 1.5 | - | 1.5 |
| Non-controlling interests capital contribution | - | - | - | - | 4.6 | 4.6 |
| Total transactions with equity-holders | - | - | - | (85.8) | 4.6 | (81.2) |
| As at 30 June 2012 | 0.3 | 13.1 | 2.1 | 419.6 | 5.2 | 440.3 |
| At 1 January 2012 | 0.3 | 13.1 | 3.2 | 377.3 | 0.5 | 394.4 |
| Profit for the period | - | - | - | 258.4 | - | 258.4 |
| Other comprehensive income | ||||||
| Currency translation differences | - | - | (2.5) | - | (0.2) | (2.7) |
| Total comprehensive income for the period | - | - | (2.5) | 258.4 | (0.2) | 255.7 |
| Transactions with equity-holders | ||||||
| Dividends | - | - | - | (219.3) | - | (219.3) |
| Share scheme credit | - | - | - | 23.7 | - | 23.7 |
| Deferred tax charge on share scheme charge | - | - | - | 1.5 | - | 1.5 |
| Transactions with non-controlling interests | - | - | - | 1.4 | 3.3 | 4.7 |
| Total transactions with equity-holders | - | - | - | (192.7) | 3.3 | (189.4) |
| As at 31 December 2012 | 0.3 | 13.1 | 0.7 | 443.0 | 3.6 | 460.7 |
Condensed consolidated statement of changes in equity (continued)
| Share capital | Share premium account | Foreign exchange reserve | Retained profit and loss | Non-controlling interests | Total equity | |
| £m | £m | £m | £m | £m | £m | |
| At 1 January 2013 | 0.3 | 13.1 | 0.7 | 443.0 | 3.6 | 460.7 |
| Profit for the period | - | - | - | 137.2 | (0.2) | 137.0 |
| Other comprehensive income | ||||||
| Currency translation differences | - | - | 4.4 | - | 0.2 | 4.6 |
| Total comprehensive income for the period | - | - | 4.4 | 137.2 | - | 141.6 |
| Transactions with equity-holders | ||||||
| Dividends | - | - | - | (123.1) | - | (123.1) |
| Share scheme credit | - | - | - | 12.6 | - | 12.6 |
| Deferred tax credit on share scheme charge | - | - | - | 2.2 | - | 2.2 |
| Transactions with non-controlling interests | - | - | - | - | (0.4) | (0.4) |
| Total transactions with equity-holders | - | - | - | (108.3) | (0.4) | (108.7) |
| As at 30 June 2013 | 0.3 | 13.1 | 5.1 | 471.9 | 3.2 | 493.6 |
Notes to the condensed interim financial statements
1. General information and basis of preparation
Admiral Group plc is a Company incorporated in England and Wales. Its registered office is at Capital Tower, Greyfriars Road, Cardiff CF10 3AZ and its shares are listed on the London Stock Exchange.
The condensed interim financial statements comprise the results and balances of the Company and its subsidiaries (the Group) for the six-month period ended 30 June 2013 and the comparative periods for the 6-month period ended 30 June 2012 and the year ended 31 December 2012. This condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. As required by the FCA's Disclosure and Transparency Rules, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the year ended 31 December 2012.
The financial statements of the Company's subsidiaries are consolidated in the Group financial statements. In accordance with IAS 24, transactions or balances between Group companies that have been eliminated on consolidation are not reported as related party transactions.
The comparative figures for the financial year ended 31 December 2012 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was
i. unqualified,
ii did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and
iii did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The accounts have been prepared on a going concern basis. In considering the appropriateness of this assumption, the Board have reviewed the Group's projections for the next twelve months and beyond, including cash flow forecasts and regulatory capital surpluses. The Group has no debt.
Accounting policies
The condensed set of interim financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the year ended 31 December 2012. A number of other IFRS and interpretations have been endorsed by the EU in the period to 30 June 2013 and although they have been adopted by the Group, none of them has had a material impact on the Group's financial statements.
2. Critical accounting judgements and estimates
The Group's 2012 Annual Report provides full details of significant judgements and estimates used in the application of the Group's accounting policies. There have been no significant changes to these judgements and estimates during the period.
Estimation techniques used in calculation of claims provisions
Estimation techniques are used in the calculation of the provisions for claims outstanding, which represents a projection of the ultimate cost of settling claims that have occurred prior to the balance sheet date and remain unsettled at the balance sheet date.
The key area where these techniques are used relates to the ultimate cost of reported claims. A secondary area relates to the emergence of claims that occurred prior to the balance sheet date, but had not been reported at that date.
The estimates of the ultimate cost of reported claims are based on the setting of claim provisions on a case-by-case basis, for all but the simplest of claims.
The sum of these provisions are compared with projected ultimate costs using a variety of different projection techniques (including incurred and paid chain ladder and an average cost of claim approach) to allow an actuarial assessment of their likely accuracy. They include allowance for unreported claims.
The most significant sensitivity in the use of the projection techniques arises from any future step change in claims costs, which would cause future claim cost inflation to deviate from historic trends. This is most likely to arise from a change in the regulatory or judicial regime that leads to an increase in awards or legal costs for bodily injury claims that is significantly above or below the historical trend.
The claims provisions are subject to independent review by the Group's actuarial advisors.
Management's reserving policy is to reserve at a level above best estimate projections to allow for unforeseen adverse claims development. Future changes in claims reserves also impact profit commission income, as the recognition of this income is dependant on the loss ratio booked in the financial statements, and cash receivable is dependant on actuarial projections of ultimate loss ratios.
Refer to Note 4 for an analysis on the changes in estimates of claims provisions for each underwriting year.
3. Operating segments
3a. Segment reporting
The Group has four reportable segments, as described below. These segments represent the principal split of business that is regularly reported to the Group's Board of Directors, which is considered to be the Group's chief operating decision maker in line with IFRS 8, Operating Segments.
UK Car Insurance
The segment consists of the underwriting of car insurance and other products that supplement the car insurance policy. It also includes the generation of ancillary income from underwriting car insurance in the UK. The Directors consider the results of these activities to be reportable as one segment as the activities carried out in generating the income are not independent of each other and are performed as one business. This mirrors the approach taken in management reporting.
International Car Insurance
The segment consists of the underwriting of car insurance and the generation of ancillary income outside of the UK. It specifically covers the Group operations Admiral Seguros in Spain, ConTe in Italy, L'olivier Assurances in France and Elephant Auto in the USA. None of these operations are reportable on an individual basis, based on the threshold requirements in IFRS 8.
Price Comparison
The segment relates to the Group's price comparison websites Confused.com in the UK, Rastreator in Spain, LeLynx in France and Comparenow in the USA. Each of the Price Comparison businesses are operating in individual geographical segments but are grouped into one reporting segment as Rastreator, LeLynx and Comparenow do not individually meet the threshold requirements in IFRS 8.
The results of the Group's Italian price comparison business, Chiarezza, which was sold during the period to 30 June 2012, are included in this segment up to the date of disposal in the comparative results.
Other
The 'Other' segment is designed to be comprised of all other operating segments that do not meet the threshold requirements for individual reporting. It includes the Group's commercial van insurance broker, Gladiator, and other insurance underwriting operations which are included in this segment for the first time. It is the results and balances of these operations that comprise the 'Other' segment.
Taxes are not allocated across the segments and, as with the corporate activities, are included in the reconciliation to the Condensed Consolidated Income Statement and Condensed Consolidated Statement of Financial Position.
Segment income, results and other information
An analysis of the Group's revenue and results for the period ended 30 June 2013, by reportable segment are shown below. The accounting policies of the reportable segments are consistent with those presented in Note 3 in the 2012 Group financial statements.
| 30 June 2013 | ||||||
| UK Car Insurance | International Car Insurance | Price Comparison | Other | Eliminations | Segment total | |
| £m | £m | £m | £m | £m | £m | |
| Turnover[*1] | 924.5 | 95.5 | 57.5 | 11.6 | - | 1,089.1 |
| Net insurance premium revenue | 214.6 | 26.4 | - | 0.4 | - | 241.4 |
| Other revenue and profit commission | 139.0 | 3.4 | 57.5 | 6.8 | - | 206.7 |
| Investment and interest income | 5.6 | - | - | - | - | 5.6 |
| Net revenue | 359.2 | 29.8 | 57.5 | 7.2 | - | 453.7 |
| Net insurance claims | (125.2) | (23.3) | - | (0.3) | - | (148.8) |
| Expenses | (41.3) | (17.3) | (47.6) | (5.8) | - | (112.0) |
| Segment profit / (loss) before tax | 192.7 | (10.8) | 9.9 | 1.1 | - | 192.9 |
| Other central revenue and expenses, including share scheme charges | (12.6) | |||||
| Interest income | 1.1 | |||||
| Consolidated profit before tax | 181.4 | |||||
| Taxation expense | (44.4) | |||||
| Consolidated profit after tax | 137.0 | |||||
| Reportable segment assets | 3,012.4 | 270.4 | 40.0 | (9.0) | (52.0) | 3,261.8 |
| Unallocated assets | 70.5 | |||||
| Consolidated assets | 3,332.3 | |||||
[*1] Turnover is a non-GAAP measure and consists of total premiums written (including co-insurers share) and other revenue.
Revenue and results for the corresponding reportable segments for the period ended 30 June 2012 are shown below.
| 30 June 2012 | ||||||
| UK Car Insurance | International Car Insurance | Price Comparison | Other | Eliminations | Segment total | |
| £m | £m | £m | £m | £m | £m | |
| Turnover[*1] | 1,030.0 | 79.7 | 53.3 | 6.3 | - | 1,169.3 |
| Net insurance premium revenue | 226.8 | 19.7 | - | - | - | 246.5 |
| Other revenue and profit commission | 170.1 | 5.3 | 53.3 | 6.3 | - | 235.0 |
| Investment and interest income | 5.9 | 0.1 | - | - | - | 6.0 |
| Net revenue | 402.8 | 25.1 | 53.3 | 6.3 | - | 487.5 |
| Net insurance claims | (179.7) | (20.5) | - | - | - | (200.2) |
| Expenses | (39.8) | (13.5) | (45.2) | (5.0) | - | (103.5) |
| Segment profit / (loss) before tax | 183.3 | (8.9) | 8.1 | 1.3 | - | 183.8 |
| Other central revenue and expenses, including share scheme charges | (12.9) | |||||
| Interest income | 0.9 | |||||
| Consolidated profit before tax | 171.8 | |||||
| Taxation expense | (43.6) | |||||
| Consolidated profit after tax | 128.2 | |||||
| Reportable segment assets | 2,682.9 | 241.8 | 35.3 | 71.9 | (66.6) | 2,965.3 |
| Unallocated assets | 10.0 | |||||
| Consolidated assets | 2,975.3 | |||||
[*1] Turnover is a non-GAAP measure and consists of total premiums written (including co-insurers share) and other revenue.
Revenue and results for the corresponding reportable segments for the year ended 31 December 2012 are shown below.
| 31 December 2012 | ||||||
| UK Car Insurance | International Car Insurance | Price Comparison | Other | Eliminations | Segment total | |
| £m | £m | £m | £m | £m | £m | |
| Turnover[*1] | 1,936.2 | 162.9 | 103.5 | 12.5 | - | 2,215.1 |
| Net insurance premium revenue | 455.6 | 43.3 | - | - | - | 498.9 |
| Other revenue and profit commission | 342.7 | 10.8 | 103.5 | 12.5 | - | 469.5 |
| Investment and interest income | 13.9 | 0.1 | - | - | - | 14.0 |
| Net revenue | 812.2 | 54.2 | 103.5 | 12.5 | - | 982.4 |
| Net insurance claims | (355.1) | (49.4) | - | - | - | (404.5) |
| Expenses | (84.3) | (29.3) | (85.5) | (10.0) | - | (209.1) |
| Segment profit / (loss) before tax | 372.8 | (24.5) | 18.0 | 2.5 | - | 368.8 |
| Other central revenue and expenses, including share scheme charges | (26.1) | |||||
| Interest income | 1.9 | |||||
| Consolidated profit before tax | 344.6 | |||||
| Taxation expense | (86.2) | |||||
| Consolidated profit after tax | 258.4 | |||||
| Reportable segment assets | 2,863.2 | 229.4 | 37.2 | 15.6 | (41.4) | 3,104.0 |
| Unallocated assets | 100.2 | |||||
| Consolidated assets | 3,204.2 | |||||
[*1] Turnover is a non-GAAP measure and consists of total premiums written (including co-insurers share) and other revenue.
Segment revenues
The UK and International Car Insurance reportable segments derive all insurance premium income from external policyholders. Revenue within these segments is not derived from an individual policyholder that represents 10% or more of the Group's total revenue.
The total of Price Comparison revenues from transactions with other reportable segments is £7.4 million (H1 2012: £6.9million, FY 2012: £13.0 million). These amounts have not been eliminated as the Directors consider this to result in a better overall presentation of the financial statements. The impact on the financial statements in the current and prior periods is not material. There are no other transactions between reportable segments.
Within the UK Car Insurance segment, transactions between the Group's intermediary and the Group's insurance companies relating to vehicle commission totalling £9.7m have been eliminated (from the insurance expenses and other revenue lines in the income statement) on the basis that the non-elimination would have materially distorted the presentation of key performance indicators. The equivalent amounts in prior periods have not been eliminated as there is no resulting material distortion of key performance indicators.
Information about geographical locations
All material revenues from external customers, and net assets attributed to a foreign country are shown within the International Car Insurance reportable segment above. The revenue and results of the International Price Comparison businesses, Rastreator, LeLynx and Comparenow are not yet material enough to be presented as a separate segment.
4. Premium, Claims and Profit Commissions
4a. Net insurance premium revenue
| 30 June 2013 | 30 June 2012 | 31 December 2012 | |
| £m | £m | £m | |
| Total motor insurance premiums before co-insurance | 942.0 | 997.2 | 1,897.2 |
| Group gross premiums written after co-insurance | 581.1 | 614.1 | 1,167.2 |
| Outwards reinsurance premiums | (329.4) | (360.6) | (679.1) |
| Net insurance premiums written | 251.7 | 253.5 | 488.1 |
| Change in gross unearned premium provision | (10.8) | (53.6) | (10.7) |
| Change in reinsurers' share of unearned premium provision | 0.5 | 46.6 | 21.5 |
| Net insurance premium revenue | 241.4 | 246.5 | 498.9 |
The Group's share of the car insurance business was underwritten by Admiral Insurance (Gibraltar) Limited, Admiral Insurance Company Limited and Elephant Insurance Company. All contracts are short-term in duration, lasting for 10 or 12 months.
4b. Profit commissions
| 30 June 2013 | 30 June 2012 | 31 December 2012 | |
| £m | £m | £m | |
| Underwriting year: | |||
| 2009 & prior | (0.6) | (0.6) | (2.3) |
| 2010 | 14.1 | 8.2 | 9.4 |
| 2011 | 15.3 | 39.5 | 98.1 |
| 2012 | 11.6 | 0.7 | 3.2 |
| Total profit commission | 40.4 | 47.8 | 108.4 |
4c. Reinsurance assets and insurance contract liabilities
i) Analysis of recognised amounts:
| 30 June 2013 | 30 June 2012 | 31 December 2012 | |
| £m | £m | £m | |
| Gross: | |||
| Claims outstanding | 1,273.9 | 969.1 | 1,147.7 |
| Unearned premium provision | 562.9 | 617.3 | 549.2 |
| Total gross insurance liabilities | 1,836.8 | 1,586.4 | 1,696.9 |
| Recoverable from reinsurers: | |||
| Claims outstanding | 413.9 | 366.5 | 487.3 |
| Unearned premium provision | 319.4 | 357.1 | 315.7 |
| Total reinsurers' share of insurance liabilities | 733.3 | 723.6 | 803.0 |
| Net: | |||
| Claims outstanding[*1] | 860.0 | 602.6 | 660.4 |
| Unearned premium provision | 243.5 | 260.2 | 233.5 |
| Total insurance liabilities - net | 1,103.5 | 862.8 | 893.3 |
[*1] Admiral typically commutes quota share reinsurance contracts in its UK Car Insurance business 24 or 36 months following the start of the underwriting year. After commutation, claims outstanding from these contracts are included in Admiral's net claims outstanding balance. Refer to Note iii) below.
ii) Analysis of net claims reserve releases:
The following table analyses the impact of movements in prior year UK claims provisions, in terms of their net value. The data is presented on an underwriting year basis.
| 30 June 2013 | 30 June 2012 | 31 December 2012 | |
| £m | £m | £m | |
| Underwriting year: | |||
| 2009 & prior | 1.5 | - | (5.5) |
| 2010 | 20.6 | 5.5 | 8.4 |
| 2011 | 23.3 | 5.4 | 14.7 |
| 2012 | 6.8 | - | - |
| Total net reserve release | 52.2 | 10.9 | 17.6 |
| Net releases on Admiral net share*1 | 29.7 | 9.0 | 16.3 |
| Releases on commuted quota share reinsurance contracts*1 | 22.5 | 1.9 | 1.3 |
| Total net release as above | 52.2 | 10.9 | 17.6 |
[*1] Admiral typically commutes quota share reinsurance contracts in its UK Car Insurance business 24 or 36 months following the start of the underwriting year. After commutation, any changes in claims costs on the commuted proportion of the business are reflected within claims costs and are separately analysed here. £22.5 million of releases on commuted quota share reinsurance contracts is split as follows: 2011: £11.7 million; 2010: £10.3 million; 2009 & prior: £0.5 million.
Profit commission is analysed in Note 4b.
iii) Reconciliation of movement in net claims reserve:
| 30 June 2013 | 30 June 2012 | 31 December 2012 | |
| £m | £m | £m | |
| Net claims reserve at start of period | 660.4 | 446.9 | 446.9 |
| Net claims incurred (excluding releases) | 195.8 | 205.3 | 411.3 |
| Net reserve releases | (52.2) | (10.9) | (17.6) |
| Movement in net claims provision due to commutation | 208.7 | 102.2 | 102.2 |
| Net claims paid | (152.7) | (140.9) | (282.4) |
| Net claims reserve at end of period[*1] | 860.0 | 602.6 | 660.4 |
[*1] The increase in net claims reserve from £602.6 million at 30 June 2012 to £860.0 million is partly a result of the increase in the size of the gross claims reserves but largely due to the impact of commutations of reinsurance contracts in the UK Car Insurance business.
iv) Reconciliation of movement in net unearned premium provision:
| 30 June 2013 | 30 June 2012 | 31 December 2012 | |
| £m | £m | £m | |
| Net unearned premium provision at start of period | 233.5 | 247.0 | 247.0 |
| Written in the period | 251.7 | 253.5 | 488.1 |
| Earned in the period | (241.7) | (240.3) | (501.6) |
| Net unearned premium provision at end of period | 243.5 | 260.2 | 233.5 |
5. Investments
5a. Investment and interest income
| 30 June 2013 | 30 June 2012 | 31 December 2012 | |
| £m | £m | £m | |
| Net investment return | 5.6 | 6.0 | 14.0 |
| Interest receivable | 1.1 | 0.9 | 1.9 |
| Total investment and interest income | 6.7 | 6.9 | 15.9 |
5b. Financial assets and liabilities
The Group's financial instruments can be analysed as follows:
| 30 June 2013 | 30 June 2012 | 31 December 2012 | |
| £m | £m | £m | |
| Investments held at fair value | 1,260.4 | 760.2 | 1,025.4 |
| Short dated debt securities held at fair value | 201.6 | - | - |
| Held to maturity deposits with credit institutions | 311.2 | 385.3 | 375.8 |
| Held to maturity short dated debt securities | - | 200.0 | 200.4 |
| Receivables - amounts owed by policyholders | 420.8 | 448.1 | 403.5 |
| Total financial assets | 2,194.0 | 1,793.6 | 2,005.1 |
| Trade and other receivables | 75.4 | 65.7 | 55.3 |
| Cash and cash equivalents | 205.6 | 277.1 | 216.6 |
| 2,475.0 | 2,136.4 | 2,277.0 | |
| Financial liabilities: | |||
| Trade and other payables | 961.4 | 910.0 | 1,006.5 |
All receivables from policyholders are due within 12 months of the balance sheet date.
All investments held at fair value are invested in AAA-rated money market liquidity funds. These funds target a short-term cash return with capital security and low volatility and continue to achieve these goals. The fair value measurement at the end of the period for investments held at fair value and short term debt securities equates to the book value of these assets, and is based on an active quoted market value (level 1). Short term debt securities have been reclassified to fair value through profit and loss at the start of the period following the adoption of IFRS 13 Fair value measurement and subsequent level 1 classification. The amortised cost carrying amount of deposits and receivables is a reasonable approximation of fair value.
5c. Cash and cash equivalents
| 30 June 2013 | 30 June 2012 | 31 December 2012 | |
| £m | £m | £m | |
| Cash at bank and in hand | 205.6 | 277.1 | 216.6 |
| Total cash and cash equivalents | 205.6 | 277.1 | 216.6 |
Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term deposits with original maturities of three months or less.
6. Other revenue
| 30 June 2013 | 30 June 2012 | 31 December 2012 | |
| £m | £m | £m | |
| Contribution from additional products and fees | 89.5 | 113.1 | 215.7 |
| Price Comparison revenue | 57.5 | 53.3 | 103.5 |
| Other revenue | 19.3 | 20.8 | 41.9 |
| Total other revenue | 166.3 | 187.2 | 361.1 |
7. Expenses
7a. Operating expenses and share scheme charges
