2010 Half Year Results 25 August 2010
Agenda Kevin Chidwick, Finance Director K i Chid i k Fi Di t Group results Confused Di id Dividend d David Stevens, Chief Operating Officer UK Market UK Market Admiral vs Market Henry Engelhardt, Chief Executive Officer International businesses Alastair Lyons, Chairman S Summary Questions 2
Admiral is STILL different Highly 2004 Profitable Highly 2009 009 Profitable Generative ✔ ✔ Fast Fast Growing G 2008 Growing Low Risk Profits Highly Strongly Cash Highly Low Risk Profitable Profitable 2 2 Profits 0 0 0 0 Fast 5 5 Fast Fast G Growing Growing Generative ✔ Generati ✔ Strongly Cash Low Risk Low Risk Profits Generative Profits Strongly Cash 2010 10 Strongly Cash C sh Highly 2006 Generative Profitable Highly Profitable St ongly Cash ✔ ✔ H i g h l y y F st Fast P P Fast t r o f i t a Growing b l e F 2007 Growing a s t Low Risk G r o w i n Profits g Low Risk L Low Ri o w Strongly C R R i i s s k k P r o f i Generative t s Profits S t r o n g l y C a G s Strongly Cash h e n e r a t i v e S Generative 3
Highlights Profit before tax up 21% at £126.9 million (H1 2009: £105.3 million) Turnover up 33% at £720.5 million (H1 2009: £540.1 million) Vehicle count up 23% to 2.37 million from 1.92 million at 30 June 2009 Profit from UK car insurance up 30% to £131.5 million (H1 2009: £101.2m) UK ancillaries per vehicle up 5% to £74.50 (H1 2009: £70.80) Balumba makes a profit (of €25k) for the first time Interim dividend of 32.6p per share (2009 interim: 27.7p) 4
Fast growing Half yearly revenue (£m) (1) (1) Half yearly revenue (£m) Historical annual revenue (£m) (1) (1) Historical annual revenue (£m) 721 721 1,077 910 540 808 463 698 410 627 540 422 373 373 320 262 207 150 73 100 120 47 18 (1) Revenue comprises total premiums written + other revenue 5
Admiral Group profits Half yearly profit before tax (£m) Half yearly profit before tax (£m) £126.9m 7% Key drivers Key drivers Annual profit before tax (£m) Annual profit before tax (£m) £105.3m £215.8m £100.3m Price 11% £202 5m £202.5m comparison i 15% UK car UK car insurance 104% 96% 86% N Non UK car UK insurance 2008 2009 1% 1% -3% -2% -6% -4% 21% -5% Overall result H1 08 H1 09 H1 10 Confused Other UK car insurance International 6
UK car insurance profits UK car insurance UK car insurance Half yearly profit before tax (£m) Half yearly profit before tax (£m) £131.5m Key drivers Key drivers UK car insurance UK car insurance Annual profit before tax (£m) Annual profit before tax (£m) 18% Underwriting £101.2m result result £206.9m £206.9m £179.9m £86.0m 22% 28% Profit commissions 27% 27% 23% 17% Ancillaries Ancillaries 50% 51% 51% 2008 2008 2009 2009 4% 4% 5% UK car 30% insurance H1 08 H1 09 H1 10 Profit Commission Ancillary Other Underwriting 7
UK car insurance – profit commissions increasing due to improved reinsurance terms Half yearly profit commissions Half yearly profit commissions & reserve releases & reserve releases 213% 36.9 Improved reinsurance terms: 22.7 Driving the increase in profit commissions g p 14.3 Consistent conservative reserving: we consider 123% both profit commissions and our retained share of underwriting g 78% 17.3 18.4 18 4 18.4 H1 08 H1 09 H1 10 Reserve releases (£m) Profit commissions (£m) PC as % of release 8
UK car insurance – strong ancillary income growth Ancillary contribution per active vehicle (1) Ancillary contribution per active 71 1 71.1 70.8 70 8 74 5 74.5 69.3 69.0 70.7 72.0 2006 2007 2008 2009 H1 08 H1 09 H1 10 Active average active vehicles 18% increased 18% to 1.91m i d 18% t 1 91 Ancillary contribution (1) up by 27% 27% to £77.7 million Ancillary contribution per active 5% vehicle (1) increased 5% to £74 50 vehicle (1) increased 5% to £74.50 (1) Before allocation of overhead expenses 9
UK price comparison – tough competition, advertising remains the main differentiator Confused market share** Confused market share** Media spend* (£m) Media spend* (£m) £33m £32m £31m £31m £30m £30m 32% 32% 31% 27% H2 08 H1 09 H2 09 H1 10 H2 08 H1 09 H2 09 H1 10 Confused Go Compare Compare The Market Moneysupermarket* Tesco Other * Source: Neilson , 50% of Moneysupermaket and Uswitch allocated to car insurance ** Source: Management estimate 10
UK price comparison, Confused H1 2010 TV advertisement lacked the required impact Confused revenue (£m) Confused revenue (£m) Confused profits (£m) Confused profits (£m) 53% 43% 80 39% 32% 69 66 27% 27% 40 40 37 37 37 37 24% 26 2007 2008 2009 H1 08 H1 09 H1 10 26 16 Confused non Confused non- -car insurance revenues as car insurance revenues as 11 9 % total revenue % total revenue 2007 2007 2008 2008 2009 2009 H1 08 H1 08 H1 09 H1 09 H1 10 H1 10 Profits (£m) Profit margin 23 22 22 19 20 15 Expect continued pressure on margins Will defend market share New TV campaign for Q3/Q4 2010 p g 2007 2008 2009 H1 08 H1 09 H1 10 11
Dividend 32.6p H1 08 H1 08 H1 09 H1 09 H1 10 H1 10 27.7p £m £m £m 26.0p Total equity 256 282 322 17.5 14.9 Goodwill (62) (62) (62) 13.7 Solvency capital (95) (116) (142) 99 99 104 104 118 118 15.1 12.8 12.3 Buffer (30) (30) (30) Dividend 69 74 88 H1 08 H1 09 H1 10 Normal dividend Special dividend H1 2010 – 32.6p per share Ex-dividend – 6 October 2010 Record date – 8 October 2010 Payment date – 20 October 2010 12
13 UK car insurance market
UK Market 1. UK Market 1. UK Market 2. Admiral vs Market 14
UK Market – 2009 headline results significantly worse Initial accident year combined ratio (%GWP) Initial accident year combined ratio (%GWP) 123.0 115.1 115.3 Reported combined ratio after releases Reported combined ratio after releases p (%GWP) (%GWP) 2007 2007 2008 2008 2009 2009 Expense ratio Loss ratio (AY initial) 122.0 Reserve releases (%GWP) Reserve releases (%GWP) 107.5 103.6 11.5 8.4 8 4 7.8 6.5 3.9 2007 2008 2009 1.3 1.0 2003 2004 2005 2006 2007 2008 2009 Source: EMB analysis of FSA returns 15
UK Market – significant claims cost inflation in 2009 in contrast to recent benign experience Frequency (%) Frequency (%) Cost per insured vehicle Cost per insured vehicle 1 ‐ 3 ‐ 1 ‐ 2 ‐ 2 ‐ 4 ‐ 3 ‐ 5 9 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 6 5 Frequency % YoY change % Average claim Average claim 1 1 1 0 ‐ 1 02 03 04 05 06 07 08 09 Cost per vehicle YoY change % 10 8 8 8 8 6 3 2 2 2 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 Average claims YoY change % Source: EMB analysis of FSA returns 16
But shouldn’t the claims inflation have been offset by high reported premium increases? 2008 & 2009 2008 & 2009 – – premium Increases premium Increases 25 25 Time lag for announced increases 23 to flow through into earnings: 20 Implied earned ncrease (%) equivalent* 2009 premium increase 15 14 (%) Premium in AA shoparound 9.1 10 (comp) Deloitte 8.8 5 0 0 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 AA shoparound comp (YOY%) Deloitte (YOY%) * Implied earned equivalent is a weighted average of the quarterly YoY% indices increases. It is weighted by the number of months expected to be earned in 2009 (assuming all 12 month policies). For example, of business written in Q1 08, on average 1.5 months will earn in 2009, for Q2 08 4.5 months will earn in 2009, and so on. 17
So what happened to the 2009 premium increases? Headline increases (per market indices) versus Headline increases (per market indices) versus Difference between headline increases Difference between headline increases actual increases (per FSA returns) actual increases (per FSA returns) and actual increases (%)** and actual increases (%)** 20 reases (%) 15 9 9 9 6 6 10 premium inc 4 5 2 ‐ Annual Ave '00 to '07 '08 '09 ‐ 5 '06 ‐ 10 00 00 03 03 06 06 09 09 Suggests 2009 PC drag in the region of 5% Suggests 2009 PC drag in the region of 5% – 10% 10% Increase in average premium (based on FSA returns) Traditional indices misleading: Earned equivalent AA market average* Underweight on PC prices Indices overstate premium increases Only new business prices Overstatement has widened PC is changing the rules for renewals prices * AA market average = AA market average (comp) 00 to 08,, earned equivalent (EE) for premium indices for any given year is the average of increases for that year and the prior year. The 2009 earned equivalent figure is calculated on a quarterly basis from the AA shoparound / Deloittes as outlined on previous page. ** Difference between the earned equivalent AA market average (as defined above) and the actual increase per market FSA returns (as per EMB analysis of FSA returns) 18
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