Admiral Group plc (LON:ADM) has announced its 2023 interim results highlights.
| Six months ended: | |||
| 30 June 2023 | 30 June 2022 | % change vs. 2022 | |
| Group profit before tax 1 | £233.9m | £224.6m | +4% |
| Earnings per share 1 | 57.6p | 60.8p | -5% |
| Interim dividend per share | 51.0p | 60.0p | -15% |
| Special dividend per share from sale of Penguin Portals comparison businesses | — | 45.0p | — |
| Return on equity 1 2 | 39% | 36% | +3pts |
| Group turnover2 | £2.24bn | £1.85bn | +21% |
| Insurance revenue | £1.61bn | £1.41bn | +14% |
| Group customers2,3 | 9.41m | 9.05m | +4% |
| UK Insurance customers2 | 7.01m | 6.94m | +1% |
| International Insurance customers2 | 2.21m | 1.98m | +12% |
| Admiral Money gross loans balances | £1.03bn | £0.79bn | +31% |
| Solvency ratio (post-dividend) 2 | 182% | 185% | -3pts |
1 2022 Group profit before tax, Earnings per share, and Return on equity restated following the implementation of IFRS 17. Further information follows later in the report.
2 Alternative Performance Measures – refer to the end of the report for definition and explanation.
3 2022 Customer numbers restated – refer to the end of the report for definition and explanation.
Around 10,000 employees each receive free share awards worth up to £1,800 under the employee share scheme based on the interim 2023 results.
Comment from Milena Mondini de Focatiis, Group Chief Executive Officer
“The Group has once again delivered a solid performance and strong growth in the context of a challenging market, although we believe that the cycle is turning. In the first half of the year, profit was £234 million, turnover was up 21 per cent to £2.2 billion and our Group customer base grew 4 per cent.
“Inflation persists, but we have navigated the cycle well, maintaining pricing discipline and a focus on medium-term profitability. We recognise that these are challenging times for many people and we are committed to being there for them when they need us the most, delivering good service and competitively priced products while also actively managing our costs.
“Our UK Motor business delivered a profit of £298 million in the first half of 2023. As we increased prices well ahead of the market last year, our active vehicle base reduced over the period, but we are on a strong footing to leverage improving market conditions.
“We continue to enhance our capabilities, particularly in data and technology, and we are innovating to further develop our core competences and enrich our customer proposition.“We are making good progress on our diversification strategy, with our non-UK Motor products delivering 19 per cent customer growth, and our UK Household business and European Motor business delivering profits of £8.7 million and £4.7 million, respectively. It was also another positive and profitable period for Admiral Money, with the business taking a cautious approach whilst growing loans balances by 31 per cent.
“I am pleased to say that we remain strongly capitalised and, thanks to the hard work of my colleagues across all of our markets, we now serve even more customers, and are very well-positioned for a more encouraging outlook.”
Dividend
The Board has declared an interim dividend of 51.0 pence per share (2022 interim: 60.0 pence per share, plus 45.0 pence per share special dividend from the sale of Penguin Portals) representing a normal dividend (65% of post-tax profits) of 38.0 pence per share and a special dividend of 13.0 pence per share. The interim dividend will be paid on 6 October 2023. The ex-dividend date is 7 September 2023 and the record date is 8 September 2023.
Management presentation
Analysts and investors will be able to access the Admiral Group management presentation which commences at 10.30 BST on Wednesday 16 August 2023 by registering at the following link to attend the presentation in person, or access the presentation live via webcast or conference call: 2023 Interim Results | Admiral Group Plc. A copy of the presentation slides will be available at the following link: Results, reports and presentations | Admiral Group Plc (www.admiralgroup.co.uk).
H1 2023 Group overview
| £m | 30 June 2023 | 30 June 2022 | % change vs. 2022 | |
| Group turnover (£bn) *1*2 | 2.24 | 1.85 | +21% | |
| Net insurance and investment result | 181.4 | 165.2 | +10% | |
| Net interest income from financial services | 31.7 | 20.6 | +54% | |
| Other income and expenses | 27.1 | 44.7 | -39% | |
| Operating profit*1*2 | 240.2 | 230.5 | +4% | |
| Group profit before tax*1*2 | 233.9 | 224.6 | +4% | |
| Analysis of profit*1: | ||||
| UK Insurance | 303.9 | 290.5 | +5% | |
| International Insurance | (7.6) | (16.9) | +55% | |
| International Insurance – European Motor | 4.7 | (1.6) | nm | |
| International Insurance – US Motor | (10.4) | (13.6) | nm | |
| International Insurance – Other | (1.9) | (1.7) | nm | |
| Admiral Money | 2.7 | 0.2 | nm | |
| Other | (65.1) | (49.2) | -32% | |
| Group profit before tax*1 | 233.9 | 224.6 | +4% | |
| Key metrics | ||||
| Reported Group loss ratio*1*2 *3 | 63.5% | 61.1% | +2pts | |
| Reported Group expense ratio*1*2 *3 | 26.3% | 26.0% | — | |
| Reported Group combined ratio*1 *3 | 89.8% | 87.1% | +3pts | |
| Insurance service margin*2 *3 | 10.7% | 12.1% | -1pts | |
| Customer numbers (million)*1 | 9.41 | 9.05 | +4% | |
| Earnings per share *1 | 57.6p | 60.8p | -5% | |
| Interim dividend per share | 51.0p | 60.0p | -15% | |
| Special dividend from sale of Penguin Portals | — | 45.0p | — | |
| Return on equity*1*3 | 39% | 36% | +3pts | |
| Solvency ratio*2 | 182% | 185% | -3pts |
*1 Operating profit, profit before tax (including analysis by segment), Earnings per share, return on equity, and reported group loss, expense ratio and combined ratios restated following the implementation of IFRS 17. See later in the report for further details
*2 Alternative Performance Measures – refer to the end of the report for definition and explanation
*3 Reported Group loss and expense ratios are calculated on a basis inclusive of all insurance revenue – this includes insurance premium revenue plus revenue from underwritten ancillaries, an allocation of instalment and administration fees/related commissions, net of excess of loss reinsurance. See glossary for an explanation of the ratios and note 13b for a reconciliation of reported loss and expense ratios, and insurance service margin, to the financial statements
nm – not meaningful
Group Highlights
Admiral reports another solid set of results for the first half of 2023 against a backdrop of continuing elevated levels of claims inflation. Highlights are as follows:
·9.4 million Group customers at 30 June 2023, up 4% despite challenging market conditions and a focus across the Group on prioritising margin over growth
·Group turnover over 20% higher as rate increases across the Group to address claims inflation led to significant increases in average premium
·Group pre-tax profits of £234 million, 4% higher compared to the first half of 2022, restated on an IFRS 17 basis
·The UK Insurance business generated strong year-on-year growth in turnover (+21%) due to significant rate increases in UK Motor in response to elevated claims inflation. Admiral continued to increase rates in the first half and market rates started to increase more strongly, with the gap between Admiral and the wider market appearing to narrow. UK Motor customer numbers reduced by 3% in the first half of the year
·UK Insurance profit was £304 million, 5% higher than 2022 (£291 million) positively impacted by higher investment income and higher reserve releases, offset in part by higher claims incurred as the less profitable 2022 underwriting year impacted the result
·Positive performance from UK Household, with pre-tax profit of £9 million and customers up 14% to 1.7 million. Turnover was up strongly due to price increases in response to inflation
·An improved International Insurance result (loss of £8 million v loss of £17 million in H1 2022), impacted by reduced losses in US Motor Insurance and a return to profit in European Motor insurance
·Another encouraging period for Admiral Money, with a 31% increase in loans balances compared to 30 June 2022, reported profit of £2.7 million (H1 2022: £0.2 million) and strong credit loss provisions maintained
Earnings per share
Earnings per share for the first half is 57.6 pence (H1 2022: 60.8 pence), lower despite the growth in pre-tax profit, as a result of a higher effective tax rate in the first half of 2023 compared to the first half of 2022. The increase in the UK corporation tax rate to 25% (from 19%) from 1 April 2023 is a significant driver of the higher effective rate.
Return on equity
The Group’s return on equity was 39% in the first half of 2023, 3 points higher than the 36% reported in H1 2022. Average equity for H1 2023 is lower than H1 2022 as a result of the transition to IFRS 17 and higher dividends were paid out compared to profits recognised on an IFRS 17 basis. 2022 full year post-tax profits on an IFRS 17 basis were £86 million lower than those reported under the previous standard, IFRS 4. Further information on the restatement of 2022 financials follows later in the report.
Dividends and solvency
The Group’s dividend policy is to pay 65% of post-tax profits as a normal dividend and to pay a further special dividend comprising earnings not required to be held in the Group for solvency or buffers.
The Board has declared an interim dividend of 51.0 pence per share (approximately £152 million) split as follows:
- 38.0 pence per share normal dividend
- A special dividend of 13.0 pence per share
The 2023 interim dividend reflects a pay-out ratio of 89% of earnings per share. 51.0 pence per share is 15% lower than the interim 2022 dividend (60.0 pence per share). Although the interim 2022 dividend reflected a broadly consistent 90% pay-out of earnings on an IFRS 4 basis, restating 2022 earnings to an IFRS 17 basis results in a higher equivalent pay-out ratio for H1 2022 of 99%.
The total 2022 interim dividend also included the additional special dividend of 45.0 pence per share, reflecting the final payment of the phased return to shareholders of the proceeds from the sale of the Penguin Portals comparison businesses which completed in 2021. The total 2022 interim dividend was 105.0 pence per share.
The 2023 interim dividend payment date is 6 October 2023, ex-dividend date 7 September 2023 and record date 8 September 2023.
The Group reports a strong post-dividend solvency ratio of 182%. The ratio has increased by 2 percentage points compared to the end of 2022. The increase of approximately 7 percentage points resulting from the replacement of the £200 million 2024 maturity tier two bond with the newly issued £250 million 2033 tier two bond, is partially offset by an underlying reduction of 5 percentage points, primarily due to an increase in the Group’s solvency capital requirement of approximately £30 million. Growth in premium across the Group’s insurance businesses and growth in the Group’s loans book contribute to the increase in solvency capital requirement.
Re-statement of prior period comparatives following IFRS 17 adoption
IFRS 17, the new insurance contracts accounting standard has been effective from 1 January 2023. As a result, the opening balance sheet as at 1 January 2022 and 2022 comparative income statements at both 30 June 2022 and 31 December 2022 have been restated under IFRS 17, using a fully retrospective approach (i.e. as though IFRS 17 had always been in place).
The new accounting policies and choices adopted in the implementation of IFRS 17 are disclosed in the notes to these financial statements. Both the policies and transition impact are consistent with the key accounting policy decisions and transition impact set out on page 234 of the 2022 Annual Report.
Throughout this report, the Group’s results under IFRS 17 at 30 June 2023 are compared to the 30 June 2022 comparatives which have been restated under IFRS 17.
At both H1 2022 and FY 2022, IFRS 17 reported profits are lower than IFRS 4 reported profits. The difference primarily arises as a result of differences in the movements in reserve strength or risk adjustment position over 2022 under each standard. Under IFRS 4, Admiral moved down to the 95th percentile over the course of 2022, with a greater proportion of this move taking place in H2 2022. Under IFRS 17, Admiral moved down to the 95th percentile at the transition date of 1 January 2022, and remained at that percentile during 2022. This results in lower reserve releases under IFRS 17 in 2022, and therefore lower profit. The difference in profit is much more pronounced in H2 as the reserve strength movement in H2 2022 under IFRS4 was more significant.
Note 2 to the financial statements provides further information regarding the key factors driving the differences between the IFRS 4 and IFRS 17 reported results in 2022.
IFRS 17 impacts in 2023
As noted, all 2023 numbers are reported under IFRS17 and compared to the restated IFRS 17 results in 2022.
Some elements to note regarding the impacts of IFRS 17 on the half year 2023 results:
- The change in accounting standard does not lead to significant differences in profit in H1 2023, assuming a similar risk adjustment movement in the period
- A small positive net discounting benefit (current year claims discount minus unwind of previous years’ claims) is offset by small decrease in quota share recoveries
- Reserves are still very prudent, around the 94th percentile for UK Motor, having reduced slightly from 2022
The Group’s results are presented in the following sections:
- UK Insurance – including UK Motor (Car and Van), Household, Travel and Pet
- International Insurance – including L’olivier (France), Admiral Seguros (Spain), ConTe (Italy), and Elephant (US)
- Admiral Money
- Other Group Items – including compare.com (US comparison) and Admiral Pioneer
Economic background
Continuing elevated inflation was a key feature of the first half of the year, including in the Group’s main UK market. Together with supply chain pressures and labour shortages, this has resulted in continued and high claims inflation in 2023 across most markets in which Admiral operates.
The main drivers of this claims inflation continue to be higher repair costs, longer repair timescales and higher expected levels of wage inflation which impacts the projected costs of bodily injury claims. Used car prices continue to be one of the largest contributors to damage inflation, although they have stabilised at the elevated levels of the last 18 months.
Admiral continues to focus on medium term profitability, and has maintained a disciplined approach to business volumes, increasing prices to reflect the elevated claims inflation. The Group customer base has continued to grow, although this disciplined approach has resulted in slower growth in some businesses, and reduced customers in the UK Motor business (though there are clear signs the gap between Admiral’s price increases and those implemented by the market is narrowing). The Group continues to set claims reserves cautiously.
Admiral Money has continued to grow its consumer loans book, with a prudent approach to growth and evolving underwriting criteria to reflect the macroeconomic environment and potential financial impact on consumers. The business continues to hold appropriately cautious provisions for credit losses.
