Docstoc

Slide 1 Welcome to the Admiral Group plc

Document Sample
Slide 1 Welcome to the Admiral Group plc Powered By Docstoc
					                                                                         US Visit

                                                                        October 2005




NOT FOR DISTRIBUTION IN THE UNITED STATES OR TO A U.S. PERSON OR IN CANADA OR JAPAN.
                                                         03/05/2011 01:47:40




  US Visit – October 2005




 UK car insurance market



 Everything you always wanted to know about Admiral……



 Looking Forward




                                                                           2
                                                                                      03/05/2011 01:47:40




  Admiral Overview

 Henry Engelhardt, Chief Executive Officer; David Stevens, Chief Operating Officer

 Sell car insurance and financial products direct to private individuals in the UK

 Launched January 2, 1993
     1 brand, 57 staff, 0 customers

 Today 6 brands, 1,650 staff, >1,050,000 customers, 2004 turnover = £548m

 MBO in 1999 backed by Barclays Private Equity

 Close relationship with Munich Re
     2000 – signed long term reinsurance deal
     2002 – Munich Re takes equity stake




                                                                                                        3
                           03/05/2011 01:47:40




UK Car Insurance Market


A Big Market

    Worth $18 billion


    Over 25 million cars




                                             4
                                                                                                                                                          03/05/2011 01:47:40




        UK Car Insurance Market

          Combined Ratio for UK Motor Market

                       Combined
                       Ratio (% )

                     140%
                     120%
                     100%
                        80%
                        60%
                        40%
                        20%
                           0%
                                        1981
                                                   1983
                                                              1985
                                                                         1987
                                                                                    1989
                                                                                               1991
                                                                                                          1993
                                                                                                                     1995
                                                                                                                              1997
                                                                                                                                     1999
                                                                                                                                            2001
                                                                                                                                                   2003
Source:1985 to 1997 Merrill Lynch Research analysis of DTI returns; 1998 to 2004 EMB analysis of Thesys data on FSA returns




                                                                                                                                                                            5
                                             03/05/2011 01:47:40




UK Car Insurance Market


         The Four Eras of UK Car Insurance


         I.   Broker Domination
         II. Explosion of Directs
         III. Consolidation
         IV. Emergence of the Internet




                                                               6
                                                                                                                   03/05/2011 01:47:40




       Broker Domination

Direct Market Share (% )
60

50
                                                        Direct % Market

40

30

        Preferred            Direct Line
20
        launches              launches                                     Face to face, over-the-counter distribution
10

 0
      1981 1982 1983 1984 1985 1986 1987 1988 1989
                                                                           Comparison software for brokers

Combined Ratio (% )                                                        First directs emerge
140

120

100

80

60

40

20

 0
       1981   1982   1983   1984   1985   1986   1987   1988   1989




                                                                                                                                     7
                                                                                                                             03/05/2011 01:47:40




          Explosion of Directs
Direct Market Share
          60

          50
                                                                         Direct % Market
          40

          30

          20

          10                           Admiral launches                                     Telephone distribution
          0                                                                                  overtakes face-to-face
                1990     1991      1992    1993   1994     1995


Combined Ratio (% )
          140
                                                                                            Direct Line takes off
          120

          100

          80
                                                                                            Over 20 direct brands by 1995
          60

          40

          20

           0
                  1990          1991      1992      1993          1994          1995




                                                                                                                                               8
                                                                                                                              03/05/2011 01:47:40




       Market Consolidation

Market Share
            40
            35
            30
            25                                                       Direct (% Market)
            20
                                                                     Internet (% New
                                                                                          “Dinosaurs” merge for warmth
            15       Royal, Sun First interactive                    Business)
                      Alliance internet site (Eagle                                           Aviva = Commercial Union, General
            10         merge           Star)                                                  Accident, Norwich Union, London &
               5                                                                              Edinburgh, St Paul’s, Sabre, Haven
               0
                                                                                             RSA = Royal, Sun Alliance
                      1996     1997      1998     1999       2000
 Combined                                                                                    Zurich = Zurich, Eagle Star, Preferred
 Ratio (% ) 125
                                                                                             AXA = AXA, Guardian, Provincal
               120


               115
                                                                                          Direct players fall below 10
               110
                                                                                          First interactive internet activity
               105


               100
                      1996      1997      1998        1999    2000



                                                                                                                                                9
                                                                                03/05/2011 01:47:40




  Market – Key Players


   (Share of Market % vehicles)                2004

                                                              Aviva

                                       Other                           Fortis
                                  37                   12
Top 10
                                                              6
         64                                                              RSA
                                                                   5
                                                                  4       Zurich
                                  29
                                                                  4
                                                                          Admiral

 Top 5   26
                                  34              34

 Top 1   10
                                                        RBS
         1996                2004



                                                                                                10
                                                                                                                   03/05/2011 01:47:40




             Emergence of Internet
               60
Market Share
               50                                                         Direct


               40                                                         Internet (% New
                                                                          Business)
               30
                                                                          Aggregators (%
               20                                                         Internet)

               10                                                                            Directs dominate
               0
                     2000        2001      2002     2003     2004

                               Confused.com         Direct Line                              Internet explodes
                                 launches         buys Churchill
Combined
Ratio (% )
               110
               100                                                                           Aggregators emerge
                90
                80
                70
                60
                50
                40
                30
                20
                10
                        2001            2002        2003           2004



                                                                                                                                   11
                                 03/05/2011 01:47:40




  Admiral Is Different




 Highly Profitable          a

 Fast Growing               a


 Strongly Cash Generative   a


 Low Risk Profits           a


                                                 12
                                                                                                                                                                  03/05/2011 01:47:40




       Highly Profitable

                                                                                         Core Profit (£m)(1)
                                                                                                 £100.6m

                                                                         £77.2m

                                                                                                   28%

                                                                          39%
                                                                                                                                                         £56.9m
                                              £55.2m

                                    10%                                                                                                         £48.6m    26%
                                                                                                   16%
                                                50%
                     £38.2m                                               10%                                                                            10%
                                                                                                                                                 30%

                       31%                                                                                                                       16%
                                                                          51%                       56%                                                  64%
                69%
                                                                                                                                                 54%
                       69%                      50%




                   2001            2002                                 2003(2)      2004(3)                                                    H1 04    H1 05
          Ancillary Contribution & Other                           Profit Commission      Underwriting Profit
(1)   Core profit is profit before tax, goodwill amortisation, share scheme charges, bonuses paid in lieu of dividends and interest payable
(2)   2003 split is shown after adding back £6m of Munich Re profit commission accounted for in 2004 but relating to premiu ms earned in 2003
(3)   2004 split is shown after deducting the £6m referred to in (2)




                                                                                                                                                                                  13
                                                                                                                                              03/05/2011 01:47:40




         Fast Growing

                                                                       Historical Revenue Growth (£m)(1)




                                                                                                                   £548m

                                                                                                           £427m
                                                                                                   £379m

                                                                                           £323m

                                                                               £263m                                                         £319m
                                                                                                                                    £269m
                                                                   £207m
                                                                                                                           £207m
                                                         £150m
                                              £120m
                                  £100m
                        £73m
            £47m
 £18m


 1993        1994       1995       1996       1997        1998       1999       2000       2001    2002    2003    2004     H1 03    H1 04    H1 05




(1)   Revenues comprise total premiu ms written + gross other income + investment income




                                                                                                                                                              14
                                                                     03/05/2011 01:47:40




   Strongly Cash Generative - Dividend Policy


 Will reflect Admiral’s long-term earnings and cashflow potential

 Payout ratio not less than 45%

 Total payout for 2005 - £49m




                                                                                     15
                                                            03/05/2011 01:47:40




Combined Ratio


     120   Market

     110   113%             102%
                                           105%

                     106%
     100                           104%
           Admiral
                                                     87%
      90
            91%
                      75%          77%
      80                                   86%

      70
                            71%
      60

      50
           2000      2001   2002   2003   2004    H1 2005




                                                                            16
                                                                                                                                                                                               03/05/2011 01:47:40




          Highly Profitable

                               Expense Ratios(1)                                                                                          Loss Ratios(4)


                   28%           28%
                                                 27%           27%                                                       85%
Market(2)                                                                                             Market(5)
                                                                                 27%
                                                                                                                                       78%                                           78%
                                                                                                                                                      75%           77%
                   22%
             (3)
Admiral                                                                                               Admiral(7)                                                                                       72%
                                 18%                                                                                                                                                   71%
                                                                                                                 69%

                                                15%            16%
                                                                               15%
                                                                                                15%                                                                    61%
                                                                                                                                      57%            56%

                                                                                                                                (6)
              2000            2001           2002          2003            2004          H1 05                       2000             2001         2002           2003           2004          H1 05


                                    Total Market (Earned Basis)                                                                Total Market (Earned Basis)
                                    Admiral (Earned Basis)                                                                     Admiral (Ultimate Earned Basis) June 05

 (1)   Including claims handling expenses                                                              (4)   Excluding claims handling expenses
 (2)   EMB analysis of FSA returns for total UK motor market                                           (5)   Current year claims ratio EMB analysis of FSA returns for UK private motor market
 (3)   Adjusted to exclude non-recurring expenses such as Lloyd’ s costs and 2.5% non-recurring        (6)   2000 earned loss ratio includes claims incurred and premiums earned in 2000 on business written
       expense commission; based on net earned premiums before stop loss costs of £911,000 in 2001           in 1999 underwriting year
       and £607,000 in 2002                                                                            (7)   Actuarial best estimate of ultimate outcome based on actuarial analysis




                                                                                                                                                                                                               17
                                                                                                   03/05/2011 01:47:40


   Highly Profitable
   Ancillary Products

 Significant contributor to Admiral Group’s profitability

 Admiral Group derives ancillary revenues from:
    Legal – provides the insured cover for legal expenses when suing third parties for damages;
       legal expenses cover compulsory on all Admiral Group motor policies since 2002
    Personal accident – provides the insured with cover for personal injury when the insured is at
       fault
    Car hire – provides the insured with a hire car for the period between the accident/loss and the
       repair/replacement of the damaged vehicle
    Payment protection – provides payment protection insurance to customers paying by debit
       card
    Breakdown – provides roadside breakdown assistance

    External leads – revenues from selling leads to third party insurers on motor risks which do not
       meet Admiral Group’s underwriting criteria
    Administration fees – charges made for change of address, mid-term cancellations, etc.




                                                                                                                   18
                                                                                                                                          03/05/2011 01:47:40




         Growing Ancillary Income

         Motor Policies Sold and Renewed (000s)                                                  Ancillary Contribution (£m)(1)

                                                1,155
                                      881
                          767
              667
  585
                                                                           643                                          £59.2m
                                                                  579



                                                                                                               £44.7m
 2000 2001 2002 2003 2004                                        H1 04    H1 05

         Ancillary Contribution per Policy Sold(1)(2)                                                 £34.8m                                £36.0m
                                                                                             £28.4m                              £28.7m
                                      £50.7 £51.2                          £55.9    £23.3m
            £45.3                                                 £49.6
£40.0 £42.5




                                                                                    2000      2001     2002     2003     2004    H1 04      H1 05
2000 2001 2002 2003 2004                                         H1 04      H1 05
(1)   Before allocation of overhead expenses
(2)   Includes new business and renewals, before cancellations




                                                                                                                                                          19
                                             03/05/2011 01:47:40


  Being Different
  Innovative Approach to Market Challenges

 Higher premium target


 Quick quote

 10 month policies


 Multi-brand


 elephant.co.uk


 Confused.com


 Reinsurance structure


                                                             20
                                                                                                                                         03/05/2011 01:47:40


         Multi-Brand Strategy
         Constant Reallocation of Marketing Funds

                    Marketing Efficiency: Yield(1)                                                       Split of Policies In-Force
        £
30.0
                                                                                                       18%
                                                                                                                 27%
                                                                                                                             36%       38%
25.0
                                                                                                       28%

20.0
                                                                                                                 29%
                                                                                                       10%                   27%       25%

15.0
                                                                                                                  8%
                                                                                                                              6%       6%

                                                                                                       44%
10.0                                                                                                             36%
                                                                                                                             31%       31%


 5.0
                 2002                    2003                    2004        H1 05                     2002      2003        2004     H12005
                              Total Yield                          Admiral
                              Bell Direct                          Diamond           Total Policies
                              elephant.co.uk                                         In-force (000s)   679       778         1,008    1,057


(1)   Yield is calculated as new business premiu m per £ of media spend




                                                                                                                                                         21
                                                                                                       03/05/2011 01:47:40


         elephant.co.uk
         Rapid Response to Market Changes

                                                         elephant.co.uk Policies In-Force (000s)


          Launched in 2000                                                                   399

                                                                                      360
          Perceived opportunity in
           internet channel

          Rapid expansion since launch
           - now the Group’s leading
           sales brand
                                                                              205
          Success of elephant.co.uk has
           seen Admiral Group’s
           distribution strategy shift
                                                                      122
           towards internet

                                                               57


                                                     2

                                                    2000      2001    2002    2003    2004   H1 2005

Note: 154k policies were in-force at 30 June 2003




                                                                                                                       22
                                                                                                                                                                        03/05/2011 01:47:40




          Internet

                                                                                                                          (1)
          % of Admiral Group sales started on the Internet


                                                                                                                                                                  78%
                                                                                                                          72%
                                                                                 68%

                                        58%




                                     May 03-                                Nov 03-                                    May 04-                               Nov 04-
                                     Oct 03                                 April 04                                   Oct 04                                April 05



(1)   Source: eBenchmarker’ s estimates of UK online motor market in 2004. eBenchmarkers estimate that survey covers between 80% and 85% of the internet market
       Based on policies sold




                                                                                                                                                                                        23
                                                          03/05/2011 01:47:40




    Confused.com



   Launched pilot for car
    insurance price comparison in                 1373
    2002

   Largely charges fee per sale
    from 23 partners

   Household product launched
    2005                                                 Quotes
                                                         (000s)
                                           590




                                    131


                                    2002   2003   2004


                                                                          24
                                                                                                                                                          03/05/2011 01:47:40




          Capital Efficiency


      % of Required Capital Retained by Admiral (2004)                                                        % of Profit Retained by Admiral (2004)(1)




      Admiral
       25%
                                                                                                                                              Co-/re-
                                                                                                                                            insurance
                                                                         Co-/re-                                                             partners
                                                                                                           Admiral
                                                                       insurance                                                               40%
                                                                                                            60%
                                                                        partners
                                                                          75%




(1)   Admiral Group’ s core profit as % of total profits made, including grossed up underwriting results




                                                                                                                                                                          25
                                                                                           03/05/2011 01:47:40




  Unique Underwriting Structure

Current Share of Gross Written Premiums          Munich Re Coinsurance Agreement

                         2005                Munich Re committed until 2008/9

                                             Admiral receives a proportion of Munich Re’s
      Admiral Group     25.0%
                                              “profit” depending on ultimate adjusted combined
                                              ratio of business coinsured over the length of the
                                              contract
      Munich Re         65.0%
                                             Munich Re’s “profit” = (102% - adjusted combined
                                              ratio) x Munich Re share of premiums

      Axis               5.0%             Adjusted combined ratio    Share of Munich Re profit
                                                    Under 94%              29.5%
      Gen Re             5.0%                       94% - 100%             27.5%
                                                    100% - 102%            22.5%

                                             Growth over 11% requires Munich Re’s permission




                                                                                                           26
                  03/05/2011 01:47:40




Looking Forward




                                  27
                                                                                                                                                          03/05/2011 01:47:40




        Market Profitability – where next?


                       Combined
                       Ratio (% )

                     140%
                     120%
                     100%
                        80%
                        60%
                        40%
                        20%
                           0%
                                        1981
                                                   1983
                                                              1985
                                                                         1987
                                                                                    1989
                                                                                               1991
                                                                                                          1993
                                                                                                                     1995
                                                                                                                              1997
                                                                                                                                     1999
                                                                                                                                            2001
                                                                                                                                                   2003
Source:1985 to 1997 Merrill Lynch Research analysis of DTI returns; 1998 to 2004 EMB analysis of Thesys data on FSA returns




                                                                                                                                                                          28
                                                                                                           03/05/2011 01:47:40




      UK Market – Combined Ratio
Scenario 1                                                  Scenario 2
120                                                         120

115                                                         115

110                                                         110
105                                                         105

100                                                         100

95                                                          95

90                                                          90
85                                                          85

80                                                          80
      2005   2006     2007         2008     2009                     2005      2006   2007   2008   2009
                             120
                             115
         Scenario 3
                             110
                             105
                             100
                             95
                             90
                             85
                             80
                                     2005     2006   2007         2008      2009


                                                                                                                           29
                                                              03/05/2011 01:47:40




Compelling Economics




                                             Freedom to
Superior Loss   +   Superior Expense   =   Price for Growth
   Ratios               Ratios
                                               and Profit




                                                                              30
                                                                 03/05/2011 01:47:40




Admiral Well-Positioned For Growth

   AGL Market Share (2005)

     % Market        % Direct Market   % Internet New Business

                                                19%



                          9%

        5%




                                                                                 31
                                                                     03/05/2011 01:47:40




       Internet
Industry Internet Market Share


              100
               90                                           85
               80                               75
               70
                                   58
               60
               50        47

               40
               30
               20
               10
                  0
                      April 05   April 06*   April 07*   April 08*
 *Estimates



                                                                                     32
                 03/05/2011 01:47:40




Outside the UK




                                 33
                                                                                       Appendices




NOT FOR DISTRIBUTION IN THE UNITED STATES OR TO A U.S. PERSON OR IN CANADA OR JAPAN.
                                                                                                                         03/05/2011 01:47:40




         Summary Income Statement Sheet
                                                                                               H1 05    H1 04    2004

                       Revenue(1)                                                              319.3    269.3    548.0

                       Total premiums written                                                  268.5    233.3    470.4
                       Gross premiums written                                                   94.0    82.4     165.3
                       Net premiums written                                                     79.9    57.9     116.7
                       Net earned premium                                                       63.8    50.0     107.5

                       Investment income                                                         6.1      3.2      8.5
                       Net insurance claims                                                    (47.3)   (33.4)   (74.3)
                       Insurance related expenses                                               (7.9)    (5.4)   (13.8)

                       Underwriting profit                                                      14.7     14.4     27.9

                       Profit commission                                                         5.6    13.7      21.7
                       Gross ancillary revenue                                                  36.0    28.7      59.2
                       Ancillary costs                                                          (6.3)   (5.2)    (10.7)
                       Instalment income                                                         1.7     1.2       2.6
                       Gladiator contribution                                                    0.9     0.8       1.8
                       Inspop.com contribution                                                   2.3     (0.1)     1.3
                       Other charges                                                            (0.3)    (0.1)    (0.5)
                       Interest income                                                           2.3      1.2      3.3

                       Core profit                                                              56.9     54.6    106.6

                       Share scheme charges                                                     (0.1)     4.6       4.1
                       Bonuses in lieu of dividends                                              0.0     (3.4)      3.3
                       Interest payable                                                         (1.2)    (1.2)     (2.5)

                       Profit before tax                                                       55.6      54.6    104.9

                       Adjusted core profit(2)                                                 56.9      48.6    100.6

(1)   Revenue is defined as gross premiu ms written + gross other income + investment income
(2)   2004 comparatives reduced by £6.0 for profit commission. Refer to 2004 Annual Report




                                                                                                                                         35
                                                                                03/05/2011 01:47:40




Summary Balance Sheet
                                              H1 05      H104        FY 04
                                              £000s      £000s       £000s

   ASSETS
   Property, plant and equipment              2,986      5,304       4,668
   Intangible assets                         66,754     65,070      65,148
   Financial assets                         366,875    234,240     300,722
   Reinsurance contracts                     60,699     61,338      66,137
   Cash and cash equivalents                119,176    134,689     119,201
   Trade and other receivables               29,604     27,081      16,739

   Total assets                             646,094    527,722     572,615

   EQUITY
   Share capital                                259         25         259
   Retained earnings                        146,435    116,269      131,213
   Other reserves                            13,519     15,746       13,162

   Total equity                             160,213    132,040      144,634

   LIABILITIES
   Insurance contracts                      241,628     195,255      216,1 07
   Financial liabilities                     29,471      33,072       33,122
   Provisions for other risks and charges          0      7,137             0
   Trade and other payables                  190,066    137,133      164,329
   Deferred income tax                         6,377       2,073        4,838
   Corporation tax liabilities                18,339     21,012        9,585

   Total liabilities                        485,881     395,682      427,981

   Total liabilities and equity             646,094     527,722      572,615




                                                                                                36
                                                                                                                                                                                       03/05/2011 01:47:40




                  Admiral Key Performance Indicators
                                                  KPI                                    2001                     2002                       2003        2004     H1 ‘04      H1 ‘05


                           Quote volumes                                                 4.1m                     4.4m                       4.7m        6.2m      3.2m        4.7m
      Premiums




                           Conversion rates                                              7.9%                     7.9%                       8.1%        8.9%      9.1%        6.0%
                           Active policy units at end of period                      581,957                 678,759                  777,611        1,007,571   910,545   1,057,452
                           % of premiums retained by AGL                                  35%                      20%                        25%        25%        25%        25%


                           Reported earned loss ratio                                     76%                      65%                        52%        67%        64%        72%
      Claims




                           Current best estimate earned loss                              57%                      56%                        61%        71%        -          72%
                                (1)
                           ratio



                                                               (2)
                           Acquisition expense ratio                                     6.4%                     6.7%                       5.4%        5.4%      5.4%        5.1%
      Expenses




                                                                     (2)
                           Non-acquisition expense ratio                                 9.2%                     6.5%                       8.2%        7.0%      5.4%        6.9%
                                                            (2)
                           MIB & other levies ratio                                      2.4%                     2.2%                       2.0%        2.6%      2.8%        2.9%
                                                                     (2)
                           Total operating expense ratio                               18.0%                    15.4%                    15.6%          15.0%     13.6%       14.9%


                           Ancillary contribution per policy sold                       £42.5                    £45.3                       £50.7      £51.2      £49.6      £55.9
                               (3)
                           (£)
      Income
      Other




                                                  (4)
                           Ancillary margin                                            80.2%                    78.6%                    80.2%          81.9%     81.9%       82.4%
                           Instalment income as % of NWP                                 3.6%                     2.8%                       1.4%        2.2%      2.1%        2.1%
                                                    (5)
                           Profit commission                                                   -                        -                £7.4m         £15.7m     £7.7m       £5.7m
(1)              Management best estimate based on actuarial analysis
(2)              Earned expense ratio adjusted for Lloyd’ s costs and non-recurring expense commission, including claims handling costs
(3)              Ancillary contribution = total ancillary income less premiu m payable to product providers
(4)              Margin = ancillary contribution less AISL expenses attributable to ancillaries expressed as a % of ancillary contribution
(5)              Adjusted for 2003 PC £6m




                                                                                                                                                                                                       37
                                                                                                                                                                               03/05/2011 01:47:40




               Disclaimer Notice


This document is being furnished to you solely for your information on a confidential basis and may not be reproduced, redistributed or passed on, in whole or in part, to any other person.

The information contained in this document has not been independently verified and no representation or warranty, express or imp lied, is made as to, and no reliance should be placed on, the
fairness, accuracy, completeness or correctness of the informat ion or opinions contained herein. None of the co mpany, advisers or representatives shall have any liability whatsoever (in
negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document. Unless otherwise stated, all
Financial information contained herein is stated in accordance with generally accepted accounting principles in the UK at the date hereof.

This document is being distributed only to, and is directed at, persons outside the United Kingdom within the meaning of Article 12 of the Financial Services and Markets Act 2000 (Financial
Pro motion) Order 2005 (all such persons together being referred to as "Relevant Persons"). Any person who is not a Relevant Person should not act upon or rely on this document o r any o f
its contents.




                                                                                                                                                                                               38

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:14
posted:5/3/2011
language:English
pages:38