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Article Excerpt
ALASTAIR LYONS, GROUP CHAIRMAN, ADMIRAL GROUP PLC: Okay. Well, good morning, ladies and gentlemen, and welcome to Admiral's fifth presentation of its annual results since we started in 2004. I'm very conscious that many such presentations during this results season are going to be full of sharp falls in turnover and profitability, full of costing cutting and redundancy programs, full of management changes, curtailment of growth plans, and certainly as far as the sector financial sector is concerned, full of the collapse of investment values and balance sheets.
I'm, therefore, delighted that once again, Admiral is different from all of that; that we're going to be able this morning to talk to you about strong business growth and record profits, the creation over the last year of over 600 jobs, a strong secure balance sheet, and also the next stage in our overseas development plans. And I forgot, actually we're not going to talk to you about any management changes.
Our team here will be already familiar to I think most of you. We have Kevin Chidwick, our Finance Director; David Stevens, our Chief Operating Officer; and Henry Engelhardt, our Chief Executive. We've also with us today two people who I'd like to point out to you, [Peter Spencer] from Admiral Direct, our German operation, and Christophe Sanchez -- where's Christophe? There's Christophe -- who is from Balumba in Spain. And both of -- they are available to answer questions for you after the presentation on their respective operations.
What we'd like to do this morning is the following, if we may. Kevin will take you through the highlights of results and talk about the UK car insurance results and sales, talk about investments, reinsurance and dividend. Then David will pick that up and talk more in detail about the UK car insurance market and what we see to be the trends going on there, and about the price comparison market and where confused.com is positioned. And then Henry will take the international businesses and then put it all in context and lead into the question and answer session which will follow, including those who aren't actually here in the room.
So without further ado, let me hand over to Kevin.
KEVIN CHIDWICK, FINANCE DIRECTOR, ADMIRAL GROUP PLC: Thank you very much, Alastair. Good morning, everybody. As Alastair said, we are absolutely thrilled to be able to share with you our 2008 results today and share with you some new records for the Admiral Group; a record in terms of our number of customers that we're now serving across our various businesses, a new record on turnover and premiums, another new record for the number of people we're employing in the UK and our others units around Europe as well. But perhaps most importantly, we're sharing with you today new records for profit for the business and also for dividends coming back to shareholders.
And we have been saying I think for some time now that we'd like you to think about the Admiral model as being somewhat different typically, to the typical insurance business. And it's the kind of model which is able to produce a very good return on capital for our shareholders whilst at the same time growing the business at a good rate and producing a strong dividend yield in a -- what we believe to be a low risk model. And so I think and I hope you'll agree that the 2008 results are further evidence of the validity and the strength of that model.
So if we look at a few highlights, there they are; profits of GBP2.5 million, up 11% on 2007's number. Our turnover has grown another 13% to over GBP900 million. Our combined ratio for the Group is 86%, or 81% just for the UK. And our dividend, as you can see here, with the final dividend to the first half dividend is another new record for the Group, 52.5p as total.
To put that in some perspective, this is our turnover chart going back from the very beginning, from 1993 when we first launched the business. We've got 16 data points on this graph now; 16 years of consistent steady growth year-on-year, all of it organic. There are no acquisitions in here at all, and very pleased we've been able to add another GBP100 million to our turnover in 2008 to bring it beyond the GBP900 million mark.
So if we turn that profit now in a bit more detail. This graph splits out our profit by the major parts of our business. So, for instance, if you look at the 2008 line, the GBP202 million there, but down at the bottom if you can see a small blue slither below the line, the minus 2%, that's the losses that we've made on our international businesses. And Henry will give you a report in a few more minutes about how they're getting along. The green part at the top is the confused business, 13% of the total. David is going to talk some more about that in a few moments as well. So I'm going to concentrate on the red part which is, of course, still the dominant part of the graph which is, of course, our UK car insurance result.
And here is that UK car insurance result split out in some more detail as well. Of the GBP202 million, about GBP180 million of it was made from UK car insurance. And this is a slide you'll probably be more familiar to you. It splits out the result by the typical components of the UK result. So the red part at the top is our underwriting results, the profits we make on the underwriting we take on our own accounts. I'm sure most of you are very familiar with; we take about 27.5% of the total for our own balance sheet. The rest of it we share with reinsurers and coinsurers.
But the UK result, as I said earlier, was a combined ratio of 81%, which is a lot, which included an expense ratio of 19% and a loss ratio of 62%, which was helped by a very substantial reserve release of some GBP38 million, which I'll talk a bit more about in a few moments.
The profit commission is the green part. They've grown very substantially this year as well, making up 19% of the total, much more than in prior years; GBP35 million. That's the profits we get back from our reinsurance, coinsurance partners on the underwriting profits we make for them which sit alongside our own.
And then the rest of it is the ancillary income which, as you can see from the graph here in the dark blue, makes up just under half of the total. And if I talk a little bit more about that next, this splits the ancillary income out. This is the ancillary income that I'm sure most of you are very familiar with is the revenues that we get from two major sources. Either products which the customer chooses to buy alongside his car insurance policy, things such as breakdown cover or personal injury cover or car hire; or the second major source would be from products and services, revenue income streams which are not things that the customer necessarily will have to choose to buy; the things that happen alongside or are connected to the car insurance policy such as administration charges on policy changes or waste leads that we sell to other insurers. And it's the second part of the ancillary income revenue stream which makes up somewhat more than half of the total.
So here on the graph you can see the -- this is the income number now rather than the profit number. So the income number for ancillary contribution GBP106 million in 2008. That's a growth of about 17% on the 2007 number, which is substantially as a result of the 15% growth we've seen in our UK car insurance numbers of vehicles in 2008, but also because we've been able to grow slightly the ancillary income per vehicle in the year. So that's shown on the left hand side here. It's gone up from GBP69 in 2007 to just shy of GBP71 in 2008.
And I would make a comment here, because I think has been the subject of some comment in recent months, and I would say that we're not seeing any evidence at the moment of anything that would change our view on ancillary income going forward to be any material difference to what is currently coming out as an ancillary income per vehicle. So our guidance on this point would be pretty much the same as our guidance has been in the past, which is to expect it to be about the same per vehicle and to look to model ancillary income in line with your own view about how you think we'll be able to grow our vehicle numbers in the UK.
I now want to go back to the point about reserve releases and profit commission, and they are both substantial this year compared to prior years. And the table on the top left there shows that. Both of the numbers quite a bit bigger than the numbers were in 2007. But also, and the point I wanted to highlight here was that the relativity between the two has changed somewhat in 2008. You can see on the table there profit commissions have moved up from 69% of reserve releases to 91% of reserve releases in 2008.
And the two are, of course, very closely connected, because we book the profit commissions on the profits we get back from our reinsurers at the same time as we book the reserve releases on the prior years that those profit commissions relate to.
And I've tried to illustrate that point in the graph that's shown on the right hand side of the slide there. I've taken the two numbers, the reserve releases of GBP38 million in the red, and the profit commissions of GBP35 million in the blue, and spread them back over the underwriting years to which they related.
So you see, for instance, in -- of those GBP38 million of profit reserve releases we had in 2008, GBP6.9 million of it related to the 2007 underwriting year. And similarly, GBP8.5 million of profit commission related to the underwriting at '07.
And the important point on this slide is the green line, which is to show that profit commissions, where they had been running at about 80% or so of reserve releases on prior years, in 2007 has made a step change up to 125% of reserve releases. And that's a trend which we expect to continue going forward because of, particularly in 2007, the impact of the new Munich rearrangements which we agreed late in 2006 which started in '07 and now -- just now beginning to have an impact on our P&L account. And also the new reinsurance deals, the more recent ones, are somewhat more remunerative to Admiral than the old deals were. So those two factors together are making profit commissions that much more significant.
And so we think it makes sense now, and we're thinking about the prior -- the impact of prior year release -- of changes in our P&L, to think about profit commissions and reserve releases together. And when we look at those two items together and think about the stock of, if you like, stock if I can use that word of the two added together, the number of that -- that number at the end of 2008 was pretty much the same as it was at the beginning of 2008.
And we would guide for 2009, or we would expect for 2009, that the P&L impact of prior year changes, when you look at the two items added together, will...
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