2016 Full Year Results 8 th March 2017
Agenda Introduction David Stevens, CEO Group overview Geraint Jones, CFO David Stevens, CEO UK Insurance Cristina Nestares, UK Insurance CEO Price Comparison Martin Coriat, Confused.com CEO International Insurance and David Stevens, CEO Wrap up Q&A All 2
2016: Strong growth and solvency position, profits impacted by Ogden Customers Turnover 1 5.15m £2.58bn 16% 22% 2015: £2.12bn 2015: 4.43m Profit before tax 2 Solvency ratio 3 Earnings per share £284m 212% 78.7p 27% 25% 3% 2015: £377m 2015: 206% 2015: 107.3p Return on equity Full year dividend per share 37% 114.4p 24% 2015: 49% 2015: 114.4p Note: (1) Turnover comprises total premiums written plus other revenue. (2) Profit before tax adjusted to exclude minority interest share. (3) Refer to footnote on slide 9. 3
Summary of Ogden impacts Basis Cost • • Estimated ultimate net cost 1 of change from Actuarial best estimates and capital position at 31 December 2016 both on -0.75% Ogden 2.5% to -0.75% approximately £150 million basis • Whole account pre-tax impact 2 of approximately £330 million Ogden Financial statements Capital and other • • Capital position remains very strong with post- Consistent, prudent margin in booked dividend solvency ratio of 212% reserves above increased ultimate loss ratios • • Admiral took pricing action in December; Reported pre-tax profit in 2016 expect market to react approximately £105m lower than if Ogden had remained unchanged • Expect price increases for excess of loss cover • Balance of impact (c.£85m pre-tax) will be • No change to proportional reinsurance / co- reflected over next 3-5 years insurance terms Note: (1) Estimated net financial impact represents the profit impact after reinsurance and taxation at 20%. This represents the financial impact of a change in the discount rate applied to all open claims and projected future claims in respect of business written up to December 2016 settling at the new rate. (2) Represents pre-tax 4 impact before co-insurance and all reinsurance.
Results pre- and post-Ogden Post Ogden Profit before tax 1 Earnings per share Return on equity £284m 78.7p 37% 25% 24% 27% 5% 2015: £377m 2015: 107.3p 2015: 49% Pre Ogden Profit before tax 1 Earnings per share Return on equity £390m 109.6p 49% 3% 2% 2015: £377m 2015: 107.3p 2015: 49% Note: (1) Profit before tax adjusted to exclude minority interest share. 5
Strong growth in turnover and customers Turnover Customers UK Car £1,987m 3.65m 16% 11% Insurance 2015: £1,708m 2015: 3.30m UK £76.1m 469k Household 46% 51% Insurance 2015: £52.0m 2015: 310k International £366m 864k 58% 28% Insurance 2015: £232m 2015: 673k Price £129m 19% Comparison 2015: £108m 6
Analysis of Group Profit Group Profit Before Tax 1 • UK Insurance profit includes UK Car and Household: Pre-Ogden Post-Ogden • Excluding the impact of the change in Ogden, UK Car £357m £377m £390m £284m Insurance profit would have remained stable with growth in premiums offset by lower reserve releases on commuted reinsurance. • UK Household increased profits (to £3m) whilst growing customer base by >50% • International Insurance loss reduced to £19m (2015: £22m); 114% includes another ConTe profit offset by investment in USA and 118% 112% France 119% • Improved price comparison result (£3m profit v loss of £7m) includes a strong result from Confused.com in the UK 1% 1% -2% 1% • Other includes share scheme charges and debt servicing cost -6% -5% -7% -6% -7% -10% -13% -10% 2014 2015 2016 Price Comparison UK Insurance International Car Insurance Other Group Items Note: (1) Profit before tax adjusted to exclude minority interest share. 7
Post dividend solvency position remains strong • Group Solvency Capital Requirements (SCR) based Capital Position 1 on Solvency II Standard Formula plus a Capital Add- On (CAO) • Admiral is developing a partial internal model to £1.07bn £0.14bn calculate the capital requirement and expects to £0.93bn apply for regulatory permission during 2017 • Target solvency coverage range will be confirmed once partial internal model approved. Still expect 125%-150% £0.44bn Factors contributing to solvency ratio change + – Eligible Own Funds Final Dividend (H2) Eligible Own Funds Solvency Capital • Economic profit ++ • Final dividend and (Pre dividend) (Post dividend) Requirement other changes – – • PPO adjustment ++ • Ogden basis – – Solvency ratios • Volatility adjustment + Solvency ratio (Pre Dividend) 245% • Yield curve + Solvency ratio (Post Dividend) 212% Note: (1) Estimated (and unaudited) Solvency II capital position at date of this report (8 March 2017). Figures based on volatility adjusted yield curve at 31 December 2016, regulatory approval received February 2017. Updated Capital Add-On (including deferred tax) remains subject to regulatory approval process. 8
Proposed 2016 final dividend of 51.5p per share Final 2016 dividend Return of Dividend policy 11.9p surplus capital • Admiral will pay 65% of post-tax profits as a 51.5p normal dividend each half-year 51.5p • Admiral expects to continue to distribute all earnings not required to be retained for Special dividend: solvency and buffers 36.5p • Admiral expects Normal plus Special (before additional returns of capital) to be in the order of 90-95% of earnings for foreseeable future Normal dividend (at 65%): 15.0p Dividend Dates H2 2015 H2 2016 Ex-dividend date: 11 th May 2017 • H2 2016 normal plus special dividend = 51.5p per share Record date: 12 th May 2017 (in line with 2015) • Final dividend of £144m vs H2 profit after tax of £65m Payment date: 2 nd June 2017 • Total dividends for 2016 114.4p per share (in line with 2015) 9
Group summary Strong growth in turnover and customers Group profit materially impacted by Ogden change, though improvements seen in International Insurance and Price Comparison results Very strong capital position, with 212% post-dividend solvency ratio Despite reduced H2 profit, proposed final dividend held at 51.5p 10
UK car insurance continues to grow Customers 3.65m 3.30m 3.15m 3.02m 3.02m 2.97m 2.46m 1.86m 2009 2010 2011 2012 2013 2014 2015 2016 Turnover 1 Profit before tax £1,987m £1,708m £105m £443m £336m 2015 2016 2015 2016 Note: (1) Turnover is a non-GAAP measure and consists of total premiums written (including co- insurer’s share) and Other Revenue . 11
Reserve releases are reduced and prior year development of loss ratios only marginally positive due to the discount rate change Admiral releases 3 as % of net earned premium Projected ultimate loss ratio (Admiral 1 vs Market 2 ) 93% 86% 84% 9% 81% 72% 74% 71% 24% 77% (-1%) 74% 74% 18% 16% 14% 68% (-1%) 13% 9% 60% 60% 60% 4% () shows movement Jun 16 to Dec 16 2% 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015 2016 Market Loss Ratio (Dec 15) Admiral Loss Ratio (Dec 16) • Projected ultimate loss ratios reflect Ogden impact • 2016 first projection for ultimate loss ratio of 82% is consistent with 2015 (82%) • Reserves margin remains at the upper end of Admiral’s reserving policy range Note: (1) Independent actuarial projection of ultimate loss ratio on accident year basis. (2) Analysis of PRA returns as at 31 December 2015. Market excludes Admiral. Loss ratio: accident year. (3) Reserve releases based on original net share. 12
On a pure year basis the market was roughly breakeven in 2016 – pre- Ogden 6% 2012 2016 Pre-Ogden Market combined ratio 1 104% at Dec 2015 Estimated ultimate 112% combined ratio 7 Estimated ultimate Premium deflation (2012 100% combined ratio 2 4 - 2016) Return on capital 3 -3% 5 Increase in CPVY (2012 - Return on capital 3 28% 2016) Increase in CPVY (2012 vs 2016) 6 Damage +10% Small BI -4% -8% Large BI +8% Overall +6% change Note: (1) Prior year combined ratio from PRA returns (excludes Admiral). (2) Assumes some further positive development. (3) ROC calculation assumes add-on/investment income averages 11% of premium and capital equals 40% of premium. (4) Change in average earned premium 2012 to 2016 (ABI). (5) CPVY = Cost per vehicle year. (6) Claims 13 inflation based on Institute of Actuaries Third Party Working Party (Sept 2016) and management estimates. (7) Expense ratio estimated to be 29% in 2016 v 30% in 2012.
Ogden rate changes are likely to push market profitability well below zero Ogden impact on CPVY 2 +10% 2016 Pre-Ogden 2016 Post-Ogden Estimated ultimate Estimated ultimate 112% 119% combined ratio 1 combined ratio 3 Return on capital -3% Return on capital -20% -0.75% Ogden Primary insurer impact Reinsurer impact More optimistic More pessimistic • • Price rises yet to fully feed into earned premium Pressures on physical damage costs substantial • • Reinsurers take much of the pain initially Ultimately reinsurers pass on costs Note: (1) Pre-Ogden estimated ultimate combined ratio is based on -3% return on capital with a 40% capital requirement. (2) CPVY = cost per vehicle year and based on management estimate. (3) Post-Ogden estimated combined ratio based on a 29% market expense ratio and -19% return on capital. 14
Supporting and growing our business Household Expense Customer service ratio Claims Retention handling 15
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