Admiral Group plc · LSE:ADM
Admiral — FY2008 Earnings Presentation
53 slides from Admiral's earnings presentation, March 2009
Slide 1: 2008 Full Year Results
2008 Full Year Results March 2009
Slide 2: Agenda
02/03/2009 14:02:21 Agenda Kevin Chidwick,, Finance Director − Highlights − UK car insurance results − Investments − Reinsurance − Dividend David D id Stevens, St Chief Chi f Operating O ti Officer Offi − UK car insurance market − Price comparison market and Confused.com Henry Engelhardt, Chie
Slide 3: Admiral Is STILL Different
02/03/2009 14:02:21 Admiral Is STILL Different 2004 2005 2006 2007 2008 Highly Profitable a a a a a Fast Growing a a a a a Strongly Cash Generative a a a a a Low Risk Profits a a a a a 3
Slide 4: Highlights
02/03/2009 14:02:21 Highlights Profit up 11% at £202.5 million (2007: £182.1 million) Earnings per share 54.9p (2007: 48.6p) Turnover T up 13% att £910.2 £910 2 million illi (2007 (2007: £808 £808.2 2 million) illi ) Year-end vehicle count up 17% to 1.75m Group Combined Ratio 86% UK anci
Slide 5: Fast Growing
02/03/2009 14:02:21 Fast Growing Historical Revenue Growth (£m)(1) £910m £808m £698m £627m £540m £422m £373m £320m £262m £207m £150m £120m £100m £47m £73m £18m 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 (1) Revenue comprises total premiums written + other revenue
Slide 6: Admiral Group Profits
02/03/2009 14:02:21 Admiral Group Profits Profit before tax (£m) £202.5m 1% £182.1m 13% 2% £147.3m 20% 2% £119.5m 16% 2% 6% 92% 82% 78% 88% -2% 2005 2006 2007 2008 UK car insurance Price comparison Non-UK car insurance Other 6
Slide 7: UK car insurance profit
02/03/2009 14:02:21 UK car insurance profit UK car insurance profit before tax (£m) £179 9m £179.9m £142.2m 27% £121.1m £110.0m 28% 19% 24% 30% 15% 16% 13% 49% % 54% 55% 53% 3% 5% 4% 5% 2005 2006 2007 2008 Underwriting g Profit commission Ancillary ypprofit Other 7
Slide 8: Low Risk Profits - Growing Ancillary Income – UK Motor
02/03/2009 14:02:21 Low Risk Profits - Growing Ancillary Income – UK Motor Ancillary Contribution (£m)(1) Average active vehicles (000s) 1,334 1,504 1,058 1,173 893 £106 3m £106.3m £92.0m 2004 2005 2006 2007 2008 £81.5m £72.5m Contribution per average active vehicle £59.2m £68.5 £69.3 £69.0 £70.7 £6
Slide 9: Reserve releases and profit commissions 2008
02/03/2009 14:02:21 Reserve releases and profit commissions 2008 2007 2008 Reserve £29 5m £29.5m £38 0m £38.0m release Profit £20.4m £34.7m commission PC as % of 69% 91% Analysis of 2008 FY releases (£38.0m) and profit commission (£34.7m): release 25.0 140% 125% 120% 20.0 PC as % of Release 100% Rel
Slide 10: Investment & Interest Income
02/03/2009 14:02:21 Investment & Interest Income Investment & Interest Income as % PBT • Invested in money market f d and funds d cash hddeposits it • Capital secure and no write offs 114% 115% • Achieved 4.9% in 2008 – 78% £24.4m 66% • Expect lower returns in 2009 12% ADMIRAL AXA RSA ZURICH AVIVA F
Slide 11: Admiral Group Solvency
02/03/2009 14:02:21 Admiral Group Solvency £275m £238m 62 £219m 62 S Surplus l 62 over Pillar 1 2006 350% 166 2007 375% 139 122 2008 350% 35 37 47 2006 2007 2008 Pillar 1 solvency (£m) Surplus over Pillar 1 (£m) Goodwill (£m) 11
Slide 12: UK car insurance underwriting
02/03/2009 14:02:21 UK car insurance underwriting 6.25% 7.5% 8.75% 6.25% 7.5% 8.75% 10 0% 10.0% 7.5% 5.0% 40.0% 40.0% 45.0% 50.0% 35.0% 12.5% 7.5% 27.5% 25.0% 25.0% 25.0% 2009 2010 2011 2012 Admiral minimum Admiral option Munich Re Swiss Re New Re Hannover Re (65% Munich Re, 35% Admiral for Spain, G
Slide 13: Dividend
02/03/2009 14:02:21 Dividend Full year dividends Final dividends 2006 2007 2008 £m £m £m Equity 219 238 275 52.5p Goodwill (62) (62) (62) 43.8p Solvency (65) (85) (113) 36.1p 27.8 21.9 18.1 92 91 100 21.9 24.7 Buffer (25) (25) (25) 18.0 International 2006 2007 2008 expansion (5) (5) (5) Normal divid
Slide 14: UK Car Insurance Market
Cumulative performance of all non-UK in 2008 UK Car Insurance Market 14
Slide 15: Market Cycle
02/03/2009 14:02:21 Market Cycle Combined Ratio Premium Inflation v. Year Ago (Deloitte’s, by quarter) 115 +10 ’04 04 ’05 05 ’06 06 ‘07 07 ‘08 08 104 % 11.5 8.4 6.5 4 4.2 3.9 3.6 3 2.3 1.3 1.3 0.2 -1.8 -1 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ‘07 Pre release combined ratio (% of premiu
Slide 16: Distribution Change
02/03/2009 14:02:21 Distribution Change New Business Sales By Channel * Share of TV/Press Spend ** (2008) Volume 2007 2008 Change PC Sites Price Comparison 24 +60% “PC” Sites 38 Internet 27 48 Non PC 52 24 -8% Off-line 48 37 Insurers/brokers -20% *Management estimate. ** Nielsen data. 16
Slide 17: PC Site Growth Drives Admiral Policy Growth
02/03/2009 14:02:21 PC Site Growth Drives Admiral Policy Growth 2007 2008 Market Admiral Market Distribution Share of Sales Distribution Admiral Share Share Share of Sales PC Sites 24 16% 38 15% Internet 27 Non PC 10% 24 6% Off-line 48 2% 37 2% All 100 7% 100 8% 0.7m NB units 0.8m NB units = 12%%ggr
Slide 18: Popular Price Surveys Overstate True Premium Inflation
02/03/2009 14:02:21 Popular Price Surveys Overstate True Premium Inflation Survey Price Changes (%) Admiral Rates (New Business) 7.2 AA* H1 08 H2 08 2008 3.8 +0.2% +3.3% +3.5% 2.5 2.0 -1.1 Admiral - Times Top on Confused Q1 Q2 Q3 Q4 2008 (Indexed; Dec 07 = 100) Deloitte 7.6 100 99 3.3 3.1 0.8 Dec 07
Slide 19: Popular Price Surveys Overstate True Premium Inflation
02/03/2009 14:02:21 Popular Price Surveys Overstate True Premium Inflation Survey Price Changes (%) 7.2 AA* 3.8 2.0 2.5 Inadequate sampling of PC sites • commission waiver -1.1 Q1 Q2 Q3 Q4 2008 • preferential pricing on PC sites Deloitte 7.6 Increased rate transparency 3.3 3.1 0.8 0.3 Q1 Q2 Q3 Q4 20
Slide 20: Benign Claims Environment
02/03/2009 14:02:21 Benign Claims Environment Claim Cost Drivers 2001-2007 Claim Cost Drivers 2008 Frequency (%)* Year on Year Frequency (source: ABI) Q1 Q2 Q3 Q4 2008 v 2007 -4.5% -2% -2% '01 '02 '03 '04 '05 '06 '07 Cost per Vehicle Year (£) -5% -10% Cost of Second-Hand Cars** Average Claim (£) '01
Slide 21: Loss Ratio Projection – End 2007
02/03/2009 14:02:21 Loss Ratio Projection – End 2007 86 Market reported loss ratio* 84 (Dec 07) 77 Admiral projected 77 ultimate loss ratio (Dec 07) 74 71 73 68 69 64 59 54 52 50 2001 2002 2003 2004 2005 2006 2007 * Reported accident year loss ratio with reserve releases allocated back to relevant a
Slide 22: Loss Ratio Projection – End 2008
02/03/2009 14:02:21 Loss Ratio Projection – End 2008 86 84 Market reported loss ratio (Dec 07) 77 Admiral projected ultimate loss ratio (Dec 08) 73 73 (-1) 73 71 72 (-5) 68 69 65 (+1) 58 (-1) 54 Change v. v Dec 07 52 51 (+1) 2001 2002 2003 2004 2005 2006 2007 2008 22
Slide 23: Stable Expense Ratio
02/03/2009 14:02:21 Stable Expense Ratio (1) 28% 29% 27% 29% Market 28% 27% 27% 18% Admiral 17% 16% 15% 17% 16% 15% 15% 2001 2002 2003 2004 2005 2006 2007 2008 Total Market (Earned Basis) Admiral UK (Written Basis) 23
Slide 24: Combined Ratio v Market
02/03/2009 14:02:21 Combined Ratio v Market 113 115 105 99 96 100 95 90 89 89 80 72 73 65 68 2001 2002 2003 2004 2005 2006 2007 2008 Market (excl Admiral) reported loss ratio (before releases) as at Dec 07 07, plus expense ratio ratio. Admiral projected ultimate loss ratio as at Dec 08, plus written
Slide 25: Premium Inflation – Prospects for 2009
02/03/2009 14:02:21 Premium Inflation – Prospects for 2009 Price increase accelerated by: Prices held back by: Frequency shock (theft). 2009 Losses elsewhere BI claims Benign frequency; 130% cost shock Lack of BI shock Faster premium inflation 120% • Lower investment returns ed Ratio (%) • Lower res
Slide 26: Price Comparison Market & Confused.com
Cumulative performance of all non-UK in 2008 Price Comparison Market & Confused.com 26
Slide 27: Confused – Falling Margins & Share
02/03/2009 14:02:21 Confused – Falling Margins & Share Confused Profitability Market Share (% Car Insurance PC Market) (£m) 2007 2008 20 Others 42 17 16 63 14 9 10 6 Confused 58 H2 05 H1 06 H2 06 H1 07 H2 07 H1 08 H2 08 37 Margin 60% 56% 62% 58% 49% 43% 34% 27
Slide 28: Rising Marketing Spend
02/03/2009 14:02:21 Rising Marketing Spend Price Comparison (insurance) TV/Press Spend* Per Percentage Media Spend* Point of Market Share (£m) (£m) £0.79m 23.0 19.6 16.2 14.7 £0.42m 8.5 7.8 8.0 6.1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Confused Others 2007 2008 = Confused = Others * Source: Nielsen; 50% of MSM’s
Slide 29: Rising Marketing Spend
02/03/2009 14:02:21 Rising Marketing Spend Media Spend* Share of “Car Insurance” Paid Clicks (Sept – Oct 08)** (£m) 23.0 19.6 26% 16.2 14.7 8.5 12% 7.8 8.0 6.1 1% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Confused M/supermarket GoCompare Likely Cost Per Sale £50 £100 - £200 * Source: Nielsen; 50% of MSM’s spend alloc
Slide 30: Rising Marketing Spend
02/03/2009 14:02:21 Rising Marketing Spend Media Spend* (£m) +42% 23.0 +221% 19.6 +73% 16.2 14.7 +3% 8.5 8.0 7.8 6.1 Q1 07 Q1 08 Q2 07 Q2 08 Q3 07 Q3 08 Q4 07 Q4 08 * Source: Nielsen; 50% of MSM’s spend allocated to insurance. 30
Slide 31: Confused 2009
02/03/2009 14:02:21 Confused 2009 Improve car insurance competitiveness New quote process and prices page (Dec 08) New TV ads Invest behind success Some increase in “revenue per sale” to reflect - Increased acquisition costs - Confused’s superior delivery v. other PC sites (retention, mid-
Slide 32: International
Cumulative performance of all non-UK in 2008 International 32
Slide 33: Combined performance of all non-UK in 2008
02/03/2009 14:02:21 Combined performance of all non-UK in 2008 Active customers at year end 73,700 Total premium written £26.0m Written expense ratio 65% 2008 underwriting year loss ratio 108% Ancillary contribution per vehicle £47 Admiral result (£4.1m) 33
Slide 34: Spain
02/03/2009 14:02:21 Spain 2008 2007 Active customers at year end 55,400 46,900 T t l written Total itt premium i €26 2 €26.2m €20 7 €20.7m Written expense ratio 44% 54% Underwriting year loss ratio 102% 135% Ancillary contribution per vehicle €72 €67 Admiral result (€1.5m) (€0.9m) 34
Slide 35: Germany Seasonality
02/03/2009 14:02:21 Germany Germany Seasonality Policies ed Monthly P Sales Indexe Jan‐ Feb‐ Mar‐ Apr‐ May‐ Jun‐ Jul‐08 Aug‐ Sep‐ Oct‐ Nov‐ Dec‐ Jan‐ 08 08 08 08 08 08 08 08 08 08 08 09 UK Seasonality olicies Indexxed Monthly Po Sales Jan‐ Feb‐ Mar‐ Apr‐ May‐ Jun‐ Jul‐08 Aug‐ Sep‐ Oct‐ Nov‐ Dec‐ Jan
Slide 36: Germany
02/03/2009 14:02:21 Germany Total written premium ’08 08 €5 4m €5.4m Written expense ratio 132% 2008 Underwriting year loss ratio 142% Policyholders at 1st January ’09 09 30 000 30,000 36
Slide 37: Italy
02/03/2009 14:02:21 Italy Some of the curious things in Italy: Obliged to record calls but not allowed to listen to them Negative loss ratio Active customers at year end 3,400 Total annualised written €1.4m premium 37
Slide 38: The future… U.S.A.
02/03/2009 14:02:21 The future… U.S.A. 38
Slide 39: U.S.A.
02/03/2009 14:02:21 U.S.A. A few f basic b i ffacts t on the th US Market: M k t 250 million vehicles $162 billion premium Average profit margin 2007 = 8% State-level regulation 2-state launch Office in Richmond, Virginia 39
Slide 40: Spanish Price Comparison Website
02/03/2009 14:02:21 Spanish Price Comparison Website Use of internet shopping for car insurance growing Balumba non-aggregator, gg g ,pphone/internet split; p ; 2007 & 2008 more than 80% internet Growth of internet and aggregators 37% of Balumba’s quotes in 2008 from aggregators Rastreator Sim
Slide 41: Strategy
02/03/2009 14:02:21 Strategy The UK market: continued profitable growth The Internet is an irresistible force Take what we know and do well, internet and telephone d li delivery off car iinsurance, and dddo it elsewhere l h Create profitable, profitable growing, growing sustainable businesse
Slide 42: Summary
02/03/2009 14:02:21 Summary Wow! 2008 - Great Year! Record profits Solid dividend Double-digit policyholder growth Sunday Times Top 100 Company to Work For 9 straight years No debt Return on Capital 57% Combined ratio 86% Great momentum for 2009! 42
Slide 43: Appendix
rT ADMIRAL co.uk *Bell Barapuror Poona d.c
Slide 44: Appendices
02/03/2009 14:02:21 Appendices • Summaryy income statement • Balance sheet • Group key performance indicators • UK car insurance co-insurance and reinsurance 2009 • UK car ins insurance rance – underwriting nder riting year ear loss ratio de development elopment • UK car insurance underwriting – 200
Slide 45: Summary income statement
02/03/2009 14:02:21 Summary income statement UK car insurance Price comparison Non-UK car insurance Other Admiral Group 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 Total premiums written 566.0 617.0 690.2 0.6 14.2 26.0 566.6 631.3 716.3 Gross premiums written 195.8 246
Slide 46: Balance sheet
02/03/2009 14:02:21 Balance sheet 2006 2007 2008 £m £m £m ASSETS Property, p y, plant p and equipment q p 7.5 7.7 11.0 Intangible assets 66.8 69.1 75.7 Financial assets 395.9 481.8 586.9 Reinsurance contracts 74.7 131.7 170.6 Deferred income tax 0.0 1.6 0.0 Trade and other receivables 16.9 22.6 25.5
Slide 47: Admiral Group Key Performance Indicators
02/03/2009 14:02:21 Admiral Group Key Performance Indicators KPI 2004 2005 2006 2007 2008 Revenue £540m £627m £698m £808m £910m ancial Customers 1,040,700 1,141,000 1,284,700 1,490,800 1,745,800 Group Fina Group pre-tax profit £98.1m £119.5m £147.3m £182.1m £202.5m Earnings per share 28.4p 32.7p 39.
Slide 48: UK car insurance co-insurance and reinsurance 2009
02/03/2009 14:02:21 UK car insurance co-insurance and reinsurance 2009 Munich Re Swiss Re New Re Hannover Re Munich Re (pre 2007) Share of premium 50% 10% 6.25% 6.25% 65% T Term T att least To l t Dec D 2014 E d D Ends December b 2011 2002 tto 2006 Cost to Admiral Variable, depending Fixed (not disc
Slide 49: Loss Ratio Development by Underwriting Year – UK Motor
02/03/2009 14:02:21 Loss Ratio Development by Underwriting Year – UK Motor 90 89 88 89 85 87 81 80 82 79 79 80 76 73 76 75 73 71 71 70 69 66 66 6464 62 63 65 67 Loss ratiio % 60 58 60 5763 61 5553 55 54 56 53 52 2000 2001 2002 2003 2004 2005 2006 2007 2008 Underwriting year 2000 Accounts 2001 Accoun
Slide 50: UK car insurance underwriting 2003 - 2008
02/03/2009 14:02:21 UK car insurance underwriting 2003 - 2008 5% 5% 7 5% 7.5% 7 5% 7.5% 10% 10% 5% 10% 10% 65% 65% 65% 65% 55% 60% 30% 27.5% 25% 25% 25% 22.5% 2003 2004 2005 2006 2007 2008 Admiral Munich Re Swiss Re Partner Re Converium Re Axis Re 50
Slide 51: Composition of Cash & Investments
02/03/2009 14:02:21 Composition of Cash & Investments 5% 9% 7% 17% 9% 11% 14% 24% 36% 31% 44% 100% 31% 41% 42% 30% 21% 7% 9% 8% 5% ADMIRAL AVIVA RSA AXA ZURICH Cash & Cash equivalents Govt Bonds Non Govt Bonds Equity Other (incl hedge funds & property) Competitor information based on latest portfoli
Slide 52: Asset Class Returns
02/03/2009 14:02:21 Asset Class Returns 10.0% Asset Class Monthly Returns 5.0% 2008 Return Return Cash (7 day LIBID) 5% nvestment R 0.0% £ Gilts 1 ‐ 3 years 4% Monthly In ‐5.0% £ Corporates ( (10%) ) FTSE 100 TSR (28%) ‐10.0% ‐15.0% 7 day LIBID £ Gilts 1 ‐ 3 £ Corporates FTSE 100 TSR Gilt and Corpor
Slide 53: Disclaimer Notice
02/03/2009 14:02:21 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, implied, to and no reliance should be placed on, on the fairness, fairness accuracy, accuracy completeness or corr