2012 Half Year Results 30 th August 2012 Agenda Henry Engelhardt, - PowerPoint PPT Presentation

2012 Half Year Results 30 th August 2012

Agenda Henry Engelhardt, Chief Executive Officer  Overview Kevin Chidwick, Finance Director  Results David Stevens, Chief Operating Officer  UK Car Insurance Henry Engelhardt, Chief Executive Officer  International Q&A 2

A reminder of what makes us different  Profit before tax up 7% to £172 million Profitable  Focused on delivering profit growth  Over 3.5 million vehicles insured  100% organic, long term approach Growing  Growth adjusted according to market conditions  No debt  Cash balances conservatively managed Low risk  Loss protection through use of co- and reinsurance  Strong cashflow  Record interim dividend of 45.1 pence per share Cash generative  High dividend payout ratio  Significant share distributions throughout organisation Aligned interests  Significant level of share ownership among executives High return on capital 3

H1 2012 Overview  Strong financial position with return on capital of 61%  Highly capital efficient  Cautious investment approach  Sustained performance in the UK with profit before tax up 9%  In H1 2012 it made sense to grow more modestly than in the past  No repeat of 2011’s abnormal claims experience in H1 2012  Improvement in prior year claims  Strong growth in international businesses with vehicles up 63%  Customers are increasingly shopping through price comparison  Improved expense ratios in each geography 4

Results Kevin Chidwick

H1 2012 Results Profit before tax up 7% at £171.8 million (H1 2011: £160.6 million)  Return on capital 61% (H1 2011: 63%)  Turnover up 6% at £1.2 billion (H1 2011: £1.1 billion)  Group vehicle count up 11% to 3.50 million (H1 2011: 3.15 million)  Group combined ratio 95% (H1 2011: 94%); UK combined ratio 89% (H1 2011: 90%)  Basic earnings per share rose by 9% to 47.3 pence (H1 2011: 43.3 pence)  Interim dividend per share up 15% to 45.1 pence (H1 2011: 39.1 pence)  6

Group profit before tax has increased 7% to £172 million  The Group’s core UK Car Insurance £171.8m operation accounted for £183 million of 5% £160.6m Group profit before tax 5% £126.9m  The Group continued to invest and make 7% progress in overseas expansion in car £105.3m insurance and price comparison 10% 107%  Confused.com performed well in a highly 105% competitive environment contributing 104% £8 million to profit before tax 96%  The Group’s employee share scheme costs account for the majority of “Other” -5% -4% category. 6,500 employees participate in -5% -6% -6% -6% the scheme H1 09 H1 10 H1 11 H1 12 UK car insurance UK price comparison International Other 7

Admiral‟s investment strategy is low risk Admiral Group Cash & Investments £1,623m  Funds continue to be held in money 17% market funds, term deposits or as cash  Our key focus is capital preservation, with £1,165m 24% an additional priority being a focus on low volatility of investment return 24%  As at 30 th June 2012 the Group held only 26% 2% of total funds in Spain and Italy to operate our businesses there 59% 50% H1 2011 H1 2012 Money market funds Long-term cash deposits Cash 8

Admiral generates a significant surplus of capital Admiral Group Solvency £378m  There are a number of measures of £332m solvency – the minimum required capital is set by the Insurance Groups Directive (IGD)  Admiral holds capital above IGD £220m requirements in accordance with each £203m operation’s local regulatory risk -based rules  As the Solvency II regulation currently £118m £109m stands, we expect there to be no material change to the level of capital required to run the business Total equity Total Required Total equity Total Required less solvency IGD capital less solvency IGD capital goodwill capital goodwill capital FY 2011 H1 2012 9

Admiral is paying an interim dividend of 45.1 pence per share Admiral Group Half Year Dividend Per Share H1 Dividend Calculation 45.1p H1 11 H1 12 39.1p £m £m 32.6p Shareholder equity 392 435 23.8p 27.7p Goodwill -62 -62 19.7p Solvency capital -194 -220 17.5p 136 152 14.9p Buffer -30 -30 Dividend 106 122 21.3p 19.4p 15.1p 12.8p H1 2012 – 45.1 pence per share H1 09 H1 10 H1 11 H1 12 Ex-dividend date – 12 th September 2012 Normal Special Record date – 14 th September 2012 Payment date – 12 th October 2012 H1 09 H1 10 H1 11 H1 12 % 98% 98% 90% 95% Payout Note: Normal dividend is calculated as 45% of post tax profits. 10

UK Car Insurance David Stevens

Overview of H1 2012 for UK car insurance  UK Profit Before Tax up 9% at £183 million (H1 2011: £168 million)  UK vehicle count up 7% to 3.0 million (H1 2011: 2.8 million)  H1 annualised growth rate in the order of 4%  Combined ratio 89% (H1 2011: 90% and H2 2011: 92%)  No repeat of 2011’s abnormal claims experience in H1 2012  Improvements in prior year ultimate loss ratio projections  Prudently not taken the full credit for improved loss ratios  Other revenue per vehicle £82 (H1 2011: £86)  Lower, due to change in recognition of contribution from Legal Cover 12

The UK car insurance market has returned to profitability Market Rate Movements 2009 to H1 2012 Market Combined Ratio* (excludes Admiral) (New Business Only) 127% 19% 18% 17% 17% 120% 117% 115% 13% 12% 110% 107% 10% 7% 100% 5% 5% 3% 3% 2005 2006 2007 2008 2009 2010 2011 -2%  Improvement in combined ratio primarily driven by premium increases -6%  Long term market trend of falling claims H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 H1 12 frequency continues Confused / Towers Watson  Share of claims with bodily injury element AA Shoparound (Non-aggregator) continues to rise *Source: Towers Watson analysis of FSA returns as at 31 December 2011. Pure accident year loss ratio plus expense ratio. 13

In H1 2012 it made sense to grow more modestly than in the past Admiral Total UK Vehicles and Growth Rate 3,025  2010 and 2011 was an optimum time to 2,827 grow 2,123  Modest growth was sensible in H1 2012  As we gained increasing certainty 1,732 1,484 over claims evolution  And avoided the risk of chasing 33% 23% market rates down 17% 11% 7% H1 08 H1 09 H1 10 H1 11 H1 12 UK Vehicles Covered ('000s) Growth Rate 14

Claims trends have been encouraging Movement in 2010 and 2011 Accident Year Ultimate Loss Ratio Projections 6%  In H1 2012 there have been improvements in ultimate loss ratio projections 3% 0% 0%  We have prudently not taken the full credit for these improvements into H1 2012 income -1% statement -3% Deterioration in Q3 Stability in Q4 2011 Improvements in H1 2011 2012 2010 Accident Year 2011 Accident Year Admiral UK Reserve Releases as % of Earned Premium  In addition back year reserve releases have slightly increased 21.0% 23.5% 15.7% 12.4% 14.4%  As previously flagged reserve releases are 8.5% 8.7% unlikely to return to their historic levels 4.8% 2.5% 2004 2005 2006 2007 2008 2009 2010 2011 H1 12 15

Admiral is focused on keeping costs low Expense Ratio Admiral vs Market* 30% 29% 29% 29% 28% 28% 24% 17% 17% 17% 16% 15% 14% 13% 13% 2005 2006 2007 2008 2009 2010 2011 H1 2012 Market (earned basis)* Admiral UK (written basis) * Source: Towers Watson analysis of FSA returns as at 31 December 2011. Market excludes Admiral. If the expense ratio is adjusted to exclude UKI the 2010 and 2011 results would be 27% and 26% respectively. 16

Average premiums are falling, mainly due to portfolio changes Admiral‟s average premium Changes to Admiral‟s portfolio over time (Indexed to 100 in 2009) 2010 2011 H1 2012 H1 2010 2011 Over 35 2012 Average years £573 £637 £616 Premium* 98 99 106 Movement 23% 11% -3% H1 Zero No 2010 2011 2012 Claims Bonus 110 107 93 *Calculation: total written premium divided by average of opening and closing vehicle count. H1 2012 vehicle count divided in two. 17

Regulatory changes have been well flagged Regulatory changes Implications for Admiral Personal injury referral fees  Already well understood potential reductions in  A ban was announced in September 2011 “Other Revenue” per vehicle  Implementation of ban due in April 2013 Mid-2013 - c£7 at risk for personal injury referrals Mid-2014? - c£6 at risk for credit hire referrals Credit hire referral fees  Offsetting improvements in claims costs  OFT identified credit hire as an area of focus  Considering referral to Competition  Impacts all insurers and brokers Commission, decision to be made in October 2012 Add-on products and services receiving increased attention  Impacts all insurers and brokers  FCA stated it is their intention to review this area 18