Continued significant improvements in back year claims drive positive Admiral Group results for H1 2020

12 August 2020Continued significant improvements in back year claims drive positive Admiral Group results for H1 2020Admiral Group plc results for the six months ended 30 June 20202020 Interim Results Highlights^*1Alternative Performance Measures – refer to the end of the report for definition and explanation^*2Group Turnover in H1 2020 presented net of the ‘Stay at Home’ premium refund issued to UK motor insurance customers of £97 million. Refer to the Alternative Performance Measures section at the end of this report for further explanation.Over 10,000 staff each receive free shares worth up to £1,800 under the employee share scheme based on the interim 2020 results.Comment from David Stevens, Group Chief Executive Officer“A year ago I described our results as ‘frankly a bit dull’. With the benefit of hindsight there’s a lot to be said for ‘dull’ if the alternative is a global pandemic.“Our response to that pandemic highlighted two of Admiral’s key strengths – competent execution in the short term and sustainable values for the long term. We adapted quickly to the new circumstances, pirouetting from one working model to another and compressing years of learning and development into a matter of weeks through a phenomenal collective effort across the company at all levels. Alongside this adaptability, we also stayed true to our long-term commitment to balanced outcomes for all our stakeholders, notably through our £25 a vehicle ‘Stay at Home’ rebate.“This year’s interims benefit again from our consistently competent underwriting and conservative reserving on past years, feeding into another strong set of results in the core business and beyond. Thank you to all our staff, shareholders and customers who have made this possible.”DividendThe Board has declared an interim dividend of 70.5 pence, made up of a normal dividend of 55.0 pence per share and a special dividend of 15.5 pence per share, 12% higher than the 2019 interim dividend of 63.0 pence per share. The payment represents 85% of first half earnings.In addition, the deferred special dividend from the full year 2019 results of 20.7 pence per share will be paid alongside the 2020 interim dividend. Payment will be on 2 October 2020. The ex-dividend date is 3 September 2020 and the record date is 4  September 2020.Management presentationAnalysts and investors will be able to access the Admiral Group management presentation which commences at 9.00 BST on Wednesday 12 August 2020 by registering at the following link on webcast at https://pres.admiralgroup.co.uk/admiral038 or via conference call at https://pres.admiralgroup.co.uk/admiral038/vip_connect. A copy of the presentation slides will be available at www.admiralgroup.co.ukH1 2020 Group overview*1 Group Turnover in H1 2020 presented net of the ‘Stay at Home’ premium refund issued to UK motor insurance customers of £97 million. Refer to note 13(g) to the financial statements for reconciliation to the net insurance premium impact of £21million.
*2 Alternative Performance Measures – refer to the end of the report for definition and explanation.
*3 See notes 13b and 13c for a reconciliation of reported loss and expense ratios to the financial statements.
^*4The deferred special dividend from 2019 will be paid with the interim 2020 dividend, resulting in a total dividend of 91.2 pence per share, to be paid in October 2020. The 20.7 pence per share is allocated to the 2019 full year dividend in the table.
Covid-19 impact
The unprecedented Covid-19 (‘Covid’) pandemic has impacted the interim results across all our businesses. Lockdown restrictions in the Group’s markets resulted in significantly lower motor insurance claims frequency as customers stayed at home and fewer miles were driven. The UK has lagged other markets due to a later lockdown implementation and lifting of restrictions. In contrast, the US saw a shorter restriction period, particularly in Texas where Admiral writes a large portion of its US business, and hence the claims frequency impact was lower. Quote volumes saw a slowdown in early lockdown, though have recovered strongly in most markets as lockdown restrictions eased.As a result of Covid and the related economic uncertainty, Admiral also paused sales of Travel insurance and lending products in March, cautiously re-entering both markets in the second half of 2020. Admiral Loans is prepared for the strong likelihood of increased arrears experience resulting from an increase in unemployment levels, although no significant increase in the level of defaults has been experienced to date.Admiral maintained a commitment to supporting customers, staff, emergency workers and local communities during the coronavirus crisis, taking several steps and adapting to each market context. These include:–          Customer initiatives included supporting customers through relaxed payment terms, reduced/waived administration fees, premium rate reductions, and providing additional support for emergency workers. In the UK, Admiral announced a £110 million Stay at Home premium refund for all existing motor insurance customers, which amounted to £25 per vehicle on cover.–          Staff initiatives:  The safety of staff has remained of utmost importance, with many employees already working from home before the official government lockdown was in place. Various initiatives were implemented to optimize staff working from home and provide sufficient support. Staff engagement levels are monitored regularly and remain high.
     
All employees were paid their full salaries, and aside from a very small number of staff in France, no staff were furloughed and no support has been sought or received from government schemes.
     
–          Community initiatives: Admiral has supported the community across our global operations through donations and volunteer activities, with Admiral setting up a £6m fund to support charities and communities.Group HighlightsKey highlights for the Group results in H1 2020 include:Group turnover reduced by 4% to £1.69 billion (H1 2019: £1.76 billion) largely as a result of the impact of Covid and the Stay at Home premium refund; excluding the premium refund, turnover increased by 2%. Customer numbers were 6% higher at 7.17 million (30 June 2019: 6.74 million)Group share of pre-tax profits of £286.7 million (H1 2019: £220.2 million) and statutory profit before tax of £286.1 million (H1 2019: £218.2 million), growing by 30% and 31% respectively, primarily as a result of strong prior year reserve releases in the UK and internationally and also some non-recurrence of negative items in 2019 including the £33 million Ogden discount rate impactUK Insurance recorded a 7% reduction in turnover to £1.25 billion (H1 2019: £1.34 billion) due to the impact of the Stay at Home premium refund, with customer numbers growing to 5.58 million (30 June 2019: 5.32 million)Significant profit growth of £59.1 million in UK Insurance, primarily attributable to favourable development in prior year loss ratios for UK Motor, and higher investment income.  Profit growth excluding the impact of the Ogden discount rate impact in H1 2019 (£33.3 million) was £25.8 millionUK Household profit improved in H1 2020 to £5.5 million (H1 2019: £4.2 million) despite bad weather which impacted the current period by around £5.3 millionInternational Insurance businesses made a combined profit of £6.5 million (£2.7 million loss in H1 2019), with continued profit in the European operations and lower losses in the USThe combined International insurance turnover grew by 3% to £329.5 million (H1 2019: £319.5 million) and customer numbers by 10% to 1.49 million (30 June 2019: 1.36 million), both figures negatively impacted by the reduced demand in the early Covid lockdown periodThe Comparison result increased to £13.1 million from £7.4 million in H1 2019, mainly driven by a very strong first half from confused.com in the UKEarnings per shareEarnings per share is 32% higher than in H1 2019 at 82.9 pence (H1 2019: 63.0 pence), broadly consistent with the growth in pre-tax profit.Dividends and solvencyThe 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 a total interim dividend of 91.2 pence per share (approximately £263 million). This comprises an interim dividend in respect of 2020 first half profit of 70.5 pence per share in addition to the 20.7 pence per share special dividend that was deferred in April 2020. The Board is confirming payment of this previously deferred amount based on the Group’s strong financial position and the reduced level of uncertainty in the economic environment compared to earlier in the year.  The 70.5 pence per share interim 2020 dividend is split as follows:55.0 pence per share normal dividend, based on the dividend policy of distributing 65% of the Group’s share of post-tax profits; plusA special dividend of 15.5 pence per shareThe total 2020 interim dividend (excluding the deferred 2019 special dividend) is 12% ahead of the 2019 interim dividend (63.0 pence per share), with a pay-out ratio of 85% of earnings per share. The payment date is 2 October 2020, ex-dividend date 3 September 2020 and record date 4 September 2020.The Group maintained a strong solvency ratio at 186% (post-dividend), which has reduced from 190% at 31 December 2019. Both Own Funds and the Solvency Capital Requirement (SCR) increased in the period. The increase in Own Funds is the result of the strong generation of economic profit, in particular due to favourable movements of projected loss ratios on prior underwriting years, partially offset by the impact of net adverse movements in credit spreads on the Group’s bond portfolios in the period.The Group’s results are presented in the following sections:UK Insurance – including UK Motor (Car and Van), Household and TravelInternational Car Insurance – including L’olivier (France), Admiral Seguros (Spain), ConTe (Italy), and Elephant (US)Comparison – including Confused.com (UK), LeLynx (France), Rastreator (Spain), compare.com (US), and Preminen (new markets)             UK Insurance*1 Alternative Performance Measures – refer to the end of this report for definition and explanationSplit of UK Insurance profit before tax                                                                                                                      Key performance indicators                                                                                                                                           Highlights for the UK insurance business for H1 2020 include:In motor insurance:Reduced premiums, reflecting the Stay at Home premium rebate for customers, premium rate reductions to reflect reduced claims frequency as a result of Covid, and reduced demand in early lockdownAn increase in profit to £310.4 million (H1 2019: £251.7 million). After excluding an adverse impact of £33 million arising from the Ogden discount rate change in the prior period, the increase is primarily a result of strong prior year reserve releases and higher investment income as a result of releases of accruals held for reinsurers’ share of investment income. Current year underwriting profitability is also higher as a result of the lower claims frequency in the periodIn household insurance:Continued growth, with customers 16% higher than one year ago at 1.07 million (30 June 2019: 0.92 million)Profit of £5.5 million (H1 2019: £4.2 million), with positive development on prior year claims offset by bad weather in H1 2020 with an approximate impact of £5 million, net of Flood Re recoveriesUK Motor Insurance*1 Alternative Performance Measures – refer to the end of this report for definition and explanation.
*2 Underwriting profit excludes contribution from underwritten ancillaries (included in net other revenue)
*3 Net other revenue includes instalment income and contribution from underwritten ancillaries and is analysed later in the report.Key performance indicators                                                                                                                                          *1 Alternative Performance Measures – refer to the end of this report for definition and explanation
*2 Motor loss ratio adjusted to exclude impact of reserve releases on commuted reinsurance contracts.
Reconciliation in note 13b.
*3 Motor expense ratio is calculated by including claims handling expenses that are reported within claims costs in the income statement. Reconciliation in note 13c.
*4 Original net share shows reserve releases on the proportion of the account that Admiral wrote on a net basis at the start of the underwriting year in question.
*5 Commuted reinsurance shows releases on the proportion of the account that was originally ceded under quota share reinsurance contracts but has since been commuted and hence reported through underwriting profit and not profit commission.UK Motor profit in the first six months of 2020 was £58.7 million ahead of the same period in 2019 (H1 2020: £310.4 million; H1 2019: £251.7 million). Profit in first half of 2019 was adversely impacted by £33.3 million as a result of the change in Ogden discount rate to -0.25%. Excluding this impact, the increase in profit is £25.4 million.The main driver of lower premium and claims trends for the market and Admiral in the first half of 2020 was the significant reduction in claims frequency as a result of the Covid crisis, followed by a recent recovery (strong in premiums, partial in claims frequency) as lockdown restrictions eased. Premiums in the period were also lower as a result of the Stay at Home premium rebate to customers, rate decreases and reduced demand in early lockdown. The ‘Stay at Home’ premium rebate of £110 million, when adjusted for Insurance Premium Tax (IPT), impacted written premium at the whole account level by £97 million, which is reflected within turnover and total premiums in H1 2020. Highlights for the period were as follows:Net insurance premium revenue was 7.5% lower than H1 2019 at £208.5 million (H1 2019: £225.4 million), with the ‘Stay at Home’ premium rebate to customers having a significant impactInvestment income was £30.6 million, significantly increased from £15.9 million in H1 2019, primarily as a result of releases of accruals held in relation to reinsurance contracts. Excluding these releases, investment income was £17.7 millionThe reported combined ratio improved to 70.7% (H1 2019: 86.5%), with the loss ratio improving to 49.4% (H1 2019: 67.8%) as follows:          In H1 2019, the Ogden discount rate changed to minus 0.25% (best estimate assumption of 0% at 31 December 2018) reducing the UK Motor profit by £33.3 million, and increasing the reported combined ratio by close to 7 percentage pointsExcluding the impact of the Ogden rate change on the prior period, the 2020 H1 loss ratio was just under 8 percentage points lower than H1 2019. Claims experience in the period was heavily impacted by the Covid-19 lockdown, with customers driving less and claims frequency significantly reducedReserve releases on original net share of reserves of £64.2 million (H1 2019: £50.0 million) equated to 31% of premium (H1 2019: 22%). Excluding the impact of the Ogden change in the prior period, releases were 3.7 percentage points higher than H1 2019 (27%). Whilst the releases were broadly consistent in absolute terms (after excluding the impact of the Ogden change in the prior period), the lower premium earned in H1 2020 resulted in the slightly higher percentage.The margin held in the financial statements above the projected best estimate reserves remains appropriately prudent, and is consistent with that held at the end of 2019, in relative terms.          The written basis expense ratio, also impacted by lower premium in the period, is 18.8% for H1 2020 (H1 2019: 17.5%), with the earned expense ratio also higher at 21.3% (H1 2019: 18.7%).  In addition to the lower premium, net insurance expenses were £2.5m higher than H1 2019 (£38.6 million; H1 2019: £36.1 million) with investment in both the digital customer journey in the period and Covid-related remote working capability.      ·Both claims reserve releases from commuted reinsurance and profit commission were higher in H1 2020 than H1 2019, as follows:           Releases on reserves originally reinsured but since commuted were higher at £60.0 million (v £52.8 million in H1 2019). Excluding the impact of the prior period Ogden change, the current year releases are £1.9 million lower at £60.0m (H1 2019: £61.9 million).Profit commission (excluding the prior period Ogden impact) was broadly consistent at £41.1 million (H1 2019: £43.8 million). This aligns with the similar level of reserve releases period on period. Both releases from commuted reinsurance and profit commission are discussed in more detail in the co- and reinsurance section belowMarket prices decreased over the first half of 2020, primarily to reflect the significant reduction in claims frequency during the Covid lockdown period. Part of Admiral’s response to the drop in claims frequency was to pay a Stay at Home refund to reflect lower vehicle usage as well as through reducing rates over the period. The Stay at Home premium refund is fully reflected in the gross written premium for the period.  The number of vehicles insured increased by 2% to 4.42 million (30 June 2019: 4.33 million). Customer retention was strong during the period.Co- and reinsurance, commutations and profit commissionAdmiral makes significant use of proportional risk sharing agreements, where insurers outside the Group underwrites a majority of the risk generated, either through co-insurance or quota share reinsurance contracts. The Group’s net retained share of that business is 22%. These arrangements include profit commission terms which allow Admiral to retain a significant portion of the profit generated. The proportional co- and reinsurance arrangements in place for the motor business are the same as those reported in the 2019 Annual Report and will continue in 2020. Admiral expects to conclude extensions to its UK quota share contracts for the years beyond 2020 in the second half of 2020.As at 30 June 2020, all UK car quota share reinsurance contracts for underwriting years up to 2016 have been commuted, along with the majority of contracts for the 2017 and 2018 underwriting year, meaning Admiral assumes a higher net risk for these years than had the reinsurance been left in place. Other Revenue and Instalment IncomeUK Motor Insurance Other Revenue – analysis of contribution:*1 Included in underwriting profit in income statement but re-allocated to Other Revenue for purpose of KPIs.
*2 Internal costs reflect an allocation of insurance expenses incurred in generating other revenue.
*3 Other revenue (before internal costs) divided by average active vehicles, rolling 12-month basis.Admiral generates Other Revenue from a portfolio of insurance products that complement the core car insurance product, and also fees generated over the life of the policy.The most material contributors to net Other Revenue continue to be:Profit earned from motor policy upgrade products underwritten by Admiral, including breakdown, car hire and personal injury coversRevenue from other insurance products, not underwritten by AdmiralFees such as administration and cancellation feesInterest charged to customers paying for cover in instalmentsOverall contribution (Other Revenue net of costs plus instalment income) was in line with H1 2019 at £117.7 million (H1 2019: £117.7 million). This included a reduction in admin fees and optional ancillary income, partly reflecting more transactions completing digitally and also reflecting the impact of Covid resulting in lower sales and reduced fees. This was partially offset by increased instalment income primarily arising from more customers choosing to pay by monthly instalment. In addition, there was a positive impact from other revenue generated on the Van insurance book.Other revenue was equivalent to £64 per vehicle (gross of costs; H1 2019: £66) and Net Other revenue (after deducting costs) per vehicle was £54 (H1 2019: £56). UK Household Insurance    *1 Alternative Performance Measures – refer to the end of this report for definition and explanation
*2 Underwriting loss excluding contribution from underwritten ancillariesKey performance indicators*1 Alternative Performance Measures – refer to the end of this report for definition and explanationAdmiral’s Household business continued to grow strongly, increasing the number of homes insured by 16% to 1,066,400 (H1 2019: 920,900), with turnover increasing to £87.0 million (H1 2019: £80.0 million). New business market volumes slowed as lockdown was implemented but recovered as restrictions eased. Retention remained strong. Overall, customers have shifted towards using digital channels more for both shopping and reporting claims.The household business reported a profit of £5.5 million (H1 2019: £4.2 million profit) with the result being impacted by weather events in early 2020 costing approximately £5 million, net of recoveries from Flood Re (H1 2019: nil). Excluding the weather impact, the first half of 2020 saw favourable development of prior periods, most notably in relation to escape of water and fire perils.The market saw a reduction in claims frequency in early lockdown which has subsequently recovered to more normal levels. As more people were staying at home during the Covid lockdown, the claims mix for Admiral shifted towards increased claims for damage and reduced escape of water claims.Admiral’s expense ratio increased to 34.2% (H1 2019: 30.1%) as a result of lower than expected premium due to sales disruption during the lockdown period, as well as increased acquisition cost as a result of more online comparison sales and increased investment in digital and claims capabilities. International InsuranceKey performance indicators                                                                                                                                           *1 Alternative Performance Measures – refer to the end of this report for definition and explanation
*2 Loss ratios and expense ratios adjusted to remove the impact of reinsurer caps
*3 Combined ratio is calculated on Admiral’s net share of premiums and excludes Other Revenue. It excludes the impact of reinsurer caps. Including the impact of reinsurer caps the reported combined ratio would be H1 2020: 106%; FY 2019: 113%; H1 2019: 115%; H1 2018: 113%.
*4 Combined ratio, net of Other Revenue is calculated on Admiral’s net share of premiums and includes Other Revenue. Including the impact of reinsurer caps the reported combined ratio, net of Other Revenue would be H1 2020: 93%; FY 2019: 102%; H1 2019: 104%; H1 2018: 102%.Geographical analysis^*1*1 Alternative Performance Measures – refer to the end of this report for definition and explanation International Insurance financial performanceAdmiral’s international insurance businesses continued to grow despite a slowdown resulting from reduced demand during Covid lockdown restrictions, with customer numbers 10% higher than a year earlier and turnover growth of 3% to £329.5 million (H1 2019: £319.5 million).The combined ratio, net of other revenue improved to 95% (H1 2019: 103%).  This was driven both by positive prior year development as well as lower claims costs seen as a result of Covid. The expense ratio deteriorated to 44.8% (H1 2019: 38.4%) as a result of both lower than expected premium in the period as a result of Covid and also an increase in the net retained share of business in the US where the Group now retains a 50% share of the current underwriting year. This results in a temporary increase in expense ratio as the recognition of the increase in earned premium arising from this change, lags the increase in expenses.The European insurance operations in Spain, Italy and France insured 1.27m vehicles at 30 June 2020 – 12% higher than a year earlier (30 June 2019: 1.13m). Turnover was up 7% at £211.1 million (H1 2019: £196.8 million). The businesses recorded a profit of £9.8 million (H1 2019: profit of £3.5 million) with each reporting a positive result. All businesses continued to focus on improving their loss ratio and also experienced positive development of prior year loss ratios. The combined ratio net of other revenue (excluding the impact of reinsurer caps) improved materially to 82% from 93% due to the improved claims experience and growth in other revenue.Admiral Seguros (Spain) grew by 10% to just over 300,000 customers over the past year (30 June 2019: 275,000). The business continued to focus on sustainable growth and increased retention in a competitive market. In addition, the business continued to grow distribution via the broker channel and implemented improvements to the online customer experience.The Group’s largest international operation, ConTe in Italy, continued to perform well and increased vehicles insured by 9% to 712,000 (30 June 2019: 656,000). Retention remained strong during the period and the business continued a focus on improving the loss ratio and risk selection.L’olivier assurances (France) continued to grow strongly, particularly via the direct channel, increasing its customer base by 28% to 261,000 at 30 June 2020. Growth was also facilitated through marketing and product improvements, and the business also experienced strong retention.In the US, Admiral underwrites motor insurance in seven states (Virginia, Maryland, Illinois, Texas, Indiana, Tennessee and Ohio) through its Elephant Auto business. The number of vehicles insured slightly decreased to 218,000 at 30 June 2020 (H1 2019: 222,000) and turnover was also down by 2% to £118.4 million (H1 2019: £122.7 million). The business continued to focus on improving the loss ratio with a cautious approach to growth and improving risk selection capabilities. In addition, the business shifted towards providing policies with a six, rather than twelve month term, based on customer demand and more in line with standard market practice. This resulted in a lower written premium compared to the prior period. Elephant reported a lower loss of £3.3 million (from £6.2 million in H1 2019) due to loss ratio improvements in H1 as a result of the focus to improve loss ratio over the past few periods as well as the impact of Covid, although this was partially offset by increased forbearance in respect of customer payment difficulties and other operational expenses.   Elephant continues to focus on cost control and improving customer service through the digital channel, which has contributed to continued improvement in the expense ratio. Overall, the combined ratio net of other revenue improved to 111% (116% in H1 2019). Comparison*1 Alternative Performance Measure – refer to the end of this report for definition and explanationWhilst the UK comparison market remained competitive in the first half of 2020, Confused.com performed very strongly. Turnover increased by 18% to £63.7 million (H1 2019: £54.2 million) as a result of strong growth in market share for both motor and household insurance. Confused.com continued to improve the customer and product proposition, and improved marketing efficiencies over the period. Profit increased to £13.5 million (H1 2019: £8.7 million). Confused saw a fall in demand for its services in the initial period of lockdown restrictions, though volumes recovered significantly in the latter part of the first half.Admiral operates several comparison businesses outside the UK including Rastreator (Spain), LeLynx (France), compare.com (US) and the Preminen operations in emerging markets.  The Group owns 75% of Rastreator, 59.25% of compare.com and 50% of Preminen.Combined revenue for the continental European operations in the first half of 2020 decreased by 7% to £23.2 million (H1 2019: £25.0 million), as a result of lower quote volumes during the lockdown period. The Group’s share of the combined result for Rastreator and LeLynx was a profit of £0.7 million (H1 2019: £2.1 million).  Performance for both businesses was adversely impacted by Covid, with marketing and other variable costs being reduced in line with the fall in revenue, but fixed costs remaining stable. Similar to Confused.com, Rastreator and LeLynx saw a significant impact on volumes in early lockdown with improvements later in the first half.During the first half of 2020 in the US, Admiral’s share of compare.com’s loss reduced to £0.5 million before tax (H1 2019: £2.8 million).   Compare’s revenue was largely in line with 2019 but the reduced size of the business, following actions taken in 2019, contributed to the reduced expenses and improved result. Preminen continues to explore the potential of comparison in new markets overseas, in partnership with Mapfre. Current operations include Rastreator.mx in Mexico and, GoSahi.com in India with a decision taken during the first half of 2020 to cease operations through Tamoniki.com in Turkey. Other Group ItemsShare scheme charges relate to the Group’s two employee share schemes (refer to note 9 in the financial statements). The decrease in the charge is driven by a reduced number of awards following changes made in 2019, along with a reduced “DFSS bonus” charge due to the lower dividend paid in H1 2020.Business development costs include costs associated with potential new ventures. The costs associated with Preminen were included within the Comparison segment above for the first time in 2019.  Business development costs have remained consistent with H1 2019.Other central costs consist of Group-related expenses and include the cost of a number of significant Group projects, such as the development of the internal model and preparation for the significant new insurance accounting standard, IFRS17. The increase in the period is primarily due to the Covid relief fund of £6.0 million provided in the UK to help support individuals and organisations in need as a result of the pandemic.Finance charges of £5.8 million (H1 2019: £5.5 million) primarily relate to interest on the £200 million subordinated notes issued in July 2014 (refer to note 6 to the financial statements), along with notional finance charges recognized on leases in accordance with IFRS 16.
Admiral Loans ^*1 Includes £1.5 million intra-group interest expense (H1 2019: £1.2 million)Admiral Loans distributes unsecured personal loans and car finance products through the comparison channel and also direct to consumers via the Admiral website.In mid-March 2020, following the rising number of cases of Covid and lockdown in a number of other European countries, the Group made the decision to pause the writing of new loans. Management focused on intense monitoring of the loan portfolio performance and ensuring collection processes were robust and prepared for the strong likelihood of increased arrears experience resulting from increased unemployment. Admiral also extended payment holidays and reduced payment arrangements to some customers according to their needs and in line with regulatory guidance.Gross loan balances totalled £495.5m at the end of June 2020, with a £40.2 million provision, thereby meaning a net loans balance of £455.3 million at the end of the first half of 2020 (net loans balance at 30 June 2019: £420.8 million, 31 December 2019: £455.1 million).  At the balance sheet date, Admiral Loans had not yet seen any significant increase in the level of defaults nor been required to make any significant specific provisions in relation to the impact of the pandemic. It has updated its IFRS9 models with a more cautious set of economic assumptions and refined management overlays to reflect expectations in respect of the behaviour of customers on payment holidays. Admiral Loans uses a probability-weighted combination of scenarios primarily driven by unemployment assumptions.The IFRS9 probability-weighted model outputs supplemented by the payment holiday assumption overlays required a net additional impairment provision of £16.2 million (H1 2019: £6.0 million). For further information, refer to note 7 in the financial statements.Management continues to monitor the market and UK economy closely and has re-entered the market in the second half in a very cautious manner.Admiral Loans is currently funded through a combination of internal funding and further required external funding. The external portion funds approximately 60% of the current loans balance through the securitisation of certain loans via transfer of the rights to the cash-flows to a special purpose entity (“SPE”) which remains under the control of the Group. The securitisation and subsequent issue of notes does not result in a significant transfer of risk from the Group.Result
Admiral Loans recorded a pre-tax loss of £9.4 million in the first half of 2020 (increased from £4.3 million in H1 2019). The higher loss predominantly reflects the increased provision recognised in the period as noted above.Group capital structure and financial positionAdmiral’s capital-efficient and profitable model led to a return on equity of 50% (H1 2019: 47%).  A continuing key feature of the business model is the extensive use of co- and reinsurance across the Group which reduces the level of capital the Group is required to maintain.  The Group continues to manage its capital to ensure that all entities within the Group are able to continue as going concerns and that regulated entities comfortably meet regulatory capital requirements. Surplus capital within subsidiaries is paid up to the Group holding company in the form of dividends.The Group continues to develop its partial internal model to form the basis of calculation of its capital requirement in the future, and expects to submit the formal application in 2021. In the period before submission, the Group will continue to use the current standard formula plus capital add-on basis to calculate its regulatory capital requirement.The estimated Solvency II position for the Group at the date of this report was as follows:Group capital position (estimated)Although slightly reduced from the 2019 year- end position, the Group maintained a strong post-dividend solvency ratio at 186% (FY 2019: 190%). Whilst the surplus over the regulatory capital requirement has increased since 31 December 2019, increases in both Own Funds and SCR of a similar order result in a modest reduction in the ratio. The increase in Own Funds reflects economic profit generated in the period partially offset by adverse movements in credit spreads.The solvency capital requirement includes an updated capital add-on which remains subject to regulatory approval. The solvency ratio based on the previously approved capital add-on that is calculated at the balance sheet date rather than the date of this report, and will be submitted to the regulator within the Q2 Quantitative Reporting Template (QRT) is as follows: The Group’s capital includes £200 million ten year dated subordinated bonds. The rate of interest is fixed at 5.5% and the bonds mature in July 2024.Estimated sensitivities to the current Group solvency ratio are presented in the table below. These sensitivities cover the two most material risk types, insurance risk and market risk, and within these risks cover the most significant elements of the risk profile. Aside from the catastrophe events, estimated sensitivities have not been calibrated to individual return periods. Solvency ratio sensitivitiesThe reduced sensitivity to interest rates reflects changes in asset allocations to better match durations of PPO claims.  For further detail on Loans sensitivities refer to note 7a to the financial statements.Investments and cash
Admiral’s investment strategy was unchanged in H1 2020. The main focus of the Group’s strategy is capital preservation, with additional priorities including low volatility of returns, high levels of liquidity and matching of asset durations with PPO and non-PPO liability durations. All objectives continue to be met. The Group’s Investment Committee performs regular reviews of the strategy to ensure it remains appropriate. Cash and investments analysisInvestment returnNet investment income for the first half of 2020 was £32.0 million (H1 2019: £18.3 million).The investment return on the Group’s investment portfolio excluding unrealised gains and losses, the release of the investment income accruals held in relation to reinsurance contracts and the movement in provision for expected credit losses, was £21.3 million (H1 2019: £23.3 million), with the annualised rate of return being 1.2% (H1 2019: 1.4%). The lower return in the period was reflective of the lower yield environment.Net investment income in the period is positively impacted by the release of the £12.9 million investment income accrual (H1 2019: £4.5m accrual) held in relation to UK motor quota share reinsurance arrangements. These reinsurance contracts typically operate on a ‘funds withheld’ basis, meaning that Admiral retains the reinsurers’ share of premiums, and pays the reinsurers’ share of claims and expenses out of the withheld amounts. Investment income on the withheld fund is accrued and typically released once the projected best estimate loss ratio for the relevant underwriting year results in a profitable outcome.In H1 2020, accruals held in relation to the 2019 underwriting year were released following an improvement in the projected best estimate loss ratio for the underwriting year.The Group continues to generate significant amounts of cash and its capital-efficient business model enables the distribution of the majority of post-tax profits as dividends. Total cash and investments at the end of H1 2020 was £3,748.8 million (FY 2019: £3,516.2 million). The increase in the period includes a draw down on the Group’s revolving credit facility of £86.5 million.TaxationThe tax charge for the period, reported on a statutory basis is £43.1 million (H1 2019: £37.0 million), which equates to 15.1% (H1 2019: 16.9%) of profit before tax.  The reduction in effective tax rate (as defined in the glossary) is driven primarily by an increase in non-taxable income and a lower impact of unrecognised deferred tax due to lower losses in the Group’s US businesses.Principal Risks and UncertaintiesAdmiral has performed a robust assessment of its principal risks and uncertainties, including those which would threaten its business model, future performance, liquidity and solvency.  The result of this assessment has concluded that Admiral’s principal risks and uncertainties are consistent with those reported in the Group’s 2019 Annual Report (pages 67-73). Covid-19
    The impact of Covid on Admiral’s principal risks and uncertainties, as well as the steps taken to appropriately manage these risks is overseen by the Group Risk Committee.  The most significant impacts are set out below.     
    Operational, Regulatory and Strategic Risks
Admiral is exposed to an increased level of operational risk through the implementation of business continuity plans, in addition to regulatory and strategic risks.All but a very small number of essential staff worked from home from the point at which lockdown restrictions were imposed in the Group’s various locations.  As restrictions have eased, the Group is adopting a very cautious approach to reopening offices. Potential impacts to staff physical and mental health have been carefully managed through the pandemic.
 The rollout of hardware and software to support remote working has impacted systems and processes, with appropriate adjustments made in order to mitigate changes or increases in specific risks
 Regulatory risk has increased during the pandemic, with a significant amount of new regulatory guidance issued across the Group’s businesses. Admiral has, and continues to closely monitor this guidance, and has prioritised initiatives for customers (particularly for vulnerable customers) as set out earlier in this report. 
 Strategic risks, including the impact on significant Group projects and product developments and enhancements, have been closely monitored, with appropriate focus and resource dedicated to ensuring that significant projects continue to progress.      
    Market and Credit Risks 
    The Group’s investment portfolio has been impacted by the market volatility and wider economic uncertainty associated with Covid. Robust stress tests have been regularly completed, with the Group continuing to show strong solvency and liquidity positions. This is supported by close monitoring of market movements, with regular reviews by the Group’s Investment Committee, and daily monitoring of underlying exposures by the Group’s Asset Managers. Admiral is also exposed to an increased level of risk of default by personal lending customers as a result of the economic environment and anticipated increases in unemployment. Further information is included in the section headed ‘Admiral Loans’ earlier in this report and in note 7 to the financial statements.      Insurance Risk
    The Group has experienced competing effects as a result of Covid, specifically in relation to premium volumes and claims. Early in the period of lockdown restrictions, new business volumes, along with other revenue, initially reduced, though as restrictions have begun to ease, volumes have increased. The impact of these initially reduced volumes has been offset by a reduction in insurance claims frequency during the lockdown period.  This reduction in claims frequency and volume has been particularly evident in the UK, leading to the Stay at Home premium rebate as referred to earlier in this report.Admiral is taking appropriate mitigating steps with respect to these risks, including continuing to ensure that there is sufficient capacity in the relevant operational areas in order to sell, renew and service policies, and settle claims, increasing the number of options for customers to access and service polices on-line, and through relevant pricing actions.      UK Exit from the European Union (‘Brexit’)
To date Admiral has adopted a prudent approach to Brexit to help mitigate the potential risks associated with a ‘no-deal’ scenario, including the restructuring of the European insurance and price comparison businesses, as well as establishing procedures to monitor and manage potential supply chain changes and communications to customers.The UK exited the EU on 31 January 2020, with the transition period due to end on 31 December 2020. At the date of this report, there remains uncertainty in the trading arrangements between the UK and the EU that will be implemented after the end of the transition period. This along with any associated economic volatility may give rise to impacts across a number of the Group’s principal risks and uncertainties. The Group closely monitors and manages these risks through its Brexit Steering Committee, reporting into the Group Risk Committee at appropriate intervals. Audit TenderThe Group’s 2019 Annual Report referenced that the Group’s Audit Committee had made a decision to conduct an external audit tender process during 2020. Whilst the timelines for the initiation of this process were extended beyond the end of Q2 2020 in order to ensure that a robust and effective process could be run in the current remote working environment, the process has now commenced and is still expected to be completed before the end of 2020. The appointment, or re-appointment of the successful firm will be made with effect from the 2021 financial year, coinciding with the rotation of the current audit partner. The Group’s major shareholders were consulted ahead of the initiation of the process. Disclaimer on forward-looking statementsCertain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and assumptions and are subject to a number of known and unknown risks and uncertainties that may cause actual events or results to differ materially from any expected future events or results expressed or implied in these forward-looking statements.Persons receiving this announcement should not place undue reliance on forward-looking statements. Unless otherwise required by applicable law, regulation or accounting standard, the Group does not undertake to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.
Condensed consolidated income statement (unaudited)            
Condensed consolidated statement of comprehensive income (unaudited)
Condensed consolidated statement of financial position (unaudited)
Condensed consolidated cash flow statement (unaudited)Condensed consolidated statement of changes in equity (unaudited)Condensed consolidated statement of changes in equity (unaudited) (continued)Notes to the financial statements (unaudited)1.       General informationAdmiral Group plc (the “Company”) is a company incorporated in the United Kingdom and registered and domiciled in England and Wales. Its registered office is at Tŷ Admiral, David Street, Cardiff, CF10 2EH and its shares are listed on the London Stock Exchange.The condensed interim financial statements comprise the results and balances of the Company and its subsidiaries (the Group) for the six-month period ended 30 June 2020 and the comparative periods for the six-months ended 30 June 2019 and the year ended 31 December 2019. This condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, and should be read in conjunction with the Group’s last annual consolidated financial statements as at and for the year ended 31 December 2019 (“last annual financial statements”).  They do not include all of the information required for a complete set of IFRS financial statements.  However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group’s financial position and performance since the last annual financial statements.As required by the FCA’s Disclosure and Transparency Rules, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company’s published consolidated financial statements for the year ended 31 December 2019, except where new accounting standards apply as noted below.The financial statements of the Company’s subsidiaries are consolidated in the Group financial statements. In accordance with IAS 24, transactions or balances between Group companies that have been eliminated on consolidation are not reported as related party transactions.The comparative figures for the financial year ended 31 December 2019 are not the Company’s statutory accounts for that financial year. Those accounts have been reported on by the Company’s auditors and delivered to the registrar of companies. The report of the auditors was:unqualified;
 did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and
 did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.The accounts have been prepared on a going concern basis. In considering the appropriateness of this assumption, the Board have reviewed the Group’s projections for the next twelve months and beyond. Further information is given in note 2 below.2.                  Basis of preparationThe condensed set of interim financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company’s published consolidated financial statements for the year ended 31 December 2019.
A number of other IFRS and interpretations have been endorsed by the EU in the period to 30 June 2020 and although they have been adopted by the Group, none of them has had a material impact on the Group’s financial statements.The Group’s assessment of the impact of standards that have yet to be adopted remains consistent with that reported on page 148 of the Group’s 2019 Annual Report.The Directors have made an assessment of going concern, taking into account both current performance and the Group’s outlook.  This considered in detail the impact of the Covid-19 pandemic, and a review of projections for the next 12 months and beyond, incorporating the impact of the Covid-19 pandemic on the Group’s profit forecasts, regulatory capital surpluses and sources of liquidity.In particular, as part of this assessment the Board considered:                               ·The impact of the pandemic on the Group’s profit projections. As part of this analysis, the Board considered the impacts arising from:                                           o    A significantly reduced UK motor claims frequency during the lockdown period as customers stayed at home and were driving less                                           o   The ‘Stay at Home’ premium rebate to UK motor insurance customers announced in April 2020 to reflect the lower claims frequency during the lockdown period                                           o   Changes in premium volumes both through the lockdown period and expected in the future, along with anticipated changes to average premiums across the Group’s insurance businesses                                           o   Potential impacts on the cost of settling claims across all insurance businesses                                           o   Projected trends in other revenue generated by the Group’s insurance business from fees and the sale of ancillary products                                           o   The impact of elevated credit losses in the Group’s Loans business arising from higher unemployment                                           o   Impacts on the projected growth on the Group’s Loan book following a temporary closure to new business                                           o   A potential increase in ongoing costs arising from the implementation and maintenance of business continuity plans                               ·The Group’s solvency position, which has been closely monitored through the period of market volatility experienced to date. Although impacted by market movements, and in particular widening credit spreads, the Group maintains a strong solvency position above target levels                               ·The adequacy of the Group’s liquidity position after considering all of the factors noted above                               ·The results of business plan scenarios and stress tests on the projected profitability, solvency and liquidity positions including the impact of severe downside scenarios that assume further periods of lockdown and the impact of severe economic, credit and trading stresses.                               ·The operational resilience of the Group’s critical functions, including the ability of the Group to provide continuity of service to its customers through a prolonged period of stress                               ·The stability and security aspects of the Group’s IT systems.                               ·Impacts on the Group’s strategic priorities including re-prioritisation of significant Group projects.                               ·The regulatory environment, in particular focusing on regulatory guidance issued by the FCA and the PRA in the UK and ongoing communications between management and the regulator.                               ·A review of the Company’s principal risks and uncertainties and how the assessment of risk may have changed in light of the pandemic.                               ·A review of an ad-hoc Covid-specific ‘Own Risk and Solvency Assessment’ (ORSA).Following consideration of the above, the Directors have reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report, and that it is therefore appropriate to adopt the going concern basis in preparing the interim financial statements.The accounting policies set out in the notes to the financial statements have, unless otherwise stated, been applied consistently to all periods presented in these Group financial statements.The financial statements are prepared on the historical cost basis, except for the revaluation of financial assets classified as fair value through profit or loss or fair value through other comprehensive income. The financial statements are presented in pounds sterling, rounded to the nearest £0.1 million.Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.  The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is reviewed if this revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, it is recognised by adjusting the carrying amount of the related asset or liability in the period of the change.3.                  Critical accounting judgements and estimatesThe Group’s 2019 Annual Report provides full details of significant judgements and estimates used in the application of the Group’s accounting policies.There have been no additional critical judgements or estimates applied in the period.Note 5 provides further information as to the changes in the estimates with respect to the calculation of insurance reserves.Note 7 provides further information as to changes in the estimates with respect to the calculation of the expected credit loss provision for the Admiral Loans business, following the impact of Covid on management’s key judgements and the sources of estimation uncertainty.4.                            Operating segmentsThe Group has four reportable segments; UK Insurance, International Insurance, Comparison and Other, as set out on page 153 of the Group’s 2019 Annual Report.Segment income, results and other informationAn analysis of the Group’s revenue and results for the period ended 30 June 2020, by reportable segment, is shown below. The accounting policies of the reportable segments are consistent with those presented in the notes to the 2019 Group financial statements.*1 Turnover is an Alternative Performance Measure presented before intra-group eliminations and consists of total premiums written (including co-insurers’ share) and Other revenue. Refer to the glossary and note 13 for further information.
*2 Eliminations are in respect of the intra-group trading between the Group’s comparison and UK and International insurance entities and intra-group interest.
*3 £0.4 million of IFRS 16 interest expense (being the Group’s net share of IFRS 16 interest expense) included within Finance Costs in the Income Statement has been reallocated to individual segments within expenses, in line with management segmental reporting.
*4 Profit before tax above of £286.1 million is presented on a statutory basis, being 100% of the result for each entity. That increases to Group’s share of profit before tax of £286.7 million. See note 13f for a reconciliation of the UK Insurance, International Insurance and Comparison turnover and profit before tax to the Strategic Report.
*5 Investment return is reported net of impairment on financial assets, in line with management reporting.Revenue and results for the corresponding reportable segments for the period ended 30 June 2019 are shown below.*1 Turnover is an Alternative Performance Measure presented before intra-group eliminations and consists of total premiums written (including co-insurers’ share) and Other revenue. Refer to the glossary and note 13 for further information.
*2 Eliminations are in respect of the intra-group trading between the Group’s comparison and UK and International insurance entities and intra-group interest.
*3 £0.7 million of IFRS 16 interest expense (being the Group’s net share of IFRS 16 interest expense) included within Finance Costs in the Income Statement has been reallocated to individual segments within expenses, in line with management segmental reporting.
*4 Profit before tax above of £218.2 million is presented on a statutory basis, being 100% of the result for each entity. This increases to Group’s share of profit before tax of £220.2 million. See note 13f for a reconciliation of the UK Insurance, International Insurance and Comparison turnover and profit before taxi to the Strategic Report.
*5 Investment return is reported net of impairment on financial assets, in line with management reporting.Revenue and results for the corresponding reportable segments for the year ended 31 December 2019 are shown below.*1 Turnover is an Alternative Performance Measure presented before intra-group eliminations and consists of total premiums written (including co-insurers’ share) and Other revenue. Refer to the glossary and note 13 for further information.
*2 Eliminations are in respect of the intra-group trading between the Group’s comparison and UK and International insurance entities and intra-group interest.
*3 £1.2 million of IFRS 16 interest expense (being the Group’s net share of IFRS 16 interest expense) included within the Finance Costs in the Income Statement has been reallocated to individual segments within expenses, in line with management segmental reporting.
*4 Profit before tax above of £522.6 million is presented on a statutory basis, being 100% of the result for each entity. That increases to Group’s share of profit before tax of £526.1 million. See note 13f for a reconciliation of the UK Insurance, International Insurance and Comparison turnover and profit before tax to the Strategic Report.
*5 Investment return is reported net of impairment on financial assets, in line with management reporting. Segment revenuesThe UK and International Insurance reportable segments derive all insurance premium income from external policyholders. Revenue within these segments is not derived from an individual policyholder that represents 10% or more of the Group’s total revenue.The total of Comparison revenues from transactions with other reportable segments is £10.0 million (H1 2019: £9.7 million, FY 2019: £19.4 million) which has been eliminated on consolidation, along with £1.5 million of intra-group interest charges (H1 2019: £1.2 million, FY 2019: £2.8 million) related to the UK Insurance and Other segment.  There are no other transactions between reportable segments.Revenues from external customers for products and services is consistent with the split of reportable segment revenues as shown above.Information about geographical locationsAll material revenues from external customers, and net assets attributed to a foreign country relating to car insurance are shown within the International Insurance reportable segment shown above. The revenue and results of the international Comparison businesses; Rastreator, LeLynx, compare.com and Preminen entities are not yet material enough to be presented as a separate segment.
5.                  Premium, Claims and Profit Commissions5a.       Net insurance premium revenue*1 Alternative Performance Measures – refer to the end of the report for definition and explanation, and to note 13a for reconciliation to Group gross premiums writtenThe Group’s share of its insurance business was underwritten by Admiral Insurance (Gibraltar) Limited, Admiral Insurance Company Limited, Admiral Europe Compania Seguros, and Elephant Insurance Company LLC. All contracts are short-term in duration, lasting for 12 months or less.5b.     Profit commission^*1 Of the total UK motor profit commission recognised of £41.1 million (H1 2019: £35.0 million, FY 2019 £112.2 million), £39.6 million (H1 2019: £31.7 million, FY 2019 £95.4 million) relates to co-insurance arrangements and £1.5 million (H1 2019: £3.3 million, FY 2019 £16.8 million) to reinsurance arrangements. The UK Household and International profit commission relates solely to reinsurance arrangements.No profit commission has yet been recognised on the 2019 – 2020 underwriting years as the combined ratios calculated from the financial statement loss ratios on these years sit above the threshold for profit commission recognition.5c.       Reinsurance assets and insurance contract liabilities               (i)                  Analysis of recognised amounts:*1 Gross claims outstanding at 30 June 2020 is presented before the deduction of salvage and subrogation recoveries totaling £68.6 million (30 June 2019: £63.3 million, 31 December 2019: £71.7 million).
*2 Admiral typically commutes quota share reinsurance contracts in its UK Car Insurance business 24-36 months following the start of the underwriting year. After commutation, claims outstanding from these contracts are included in Admiral’s net claims outstanding balance. Refer to note (ii) below.(ii)                Analysis of gross and net claims reserve releases:The following table analyses the impact of movements in prior year claims provisions on a gross and net basis. This data is presented on an underwriting year basis.
Releases on the share of reserves originally reinsured but since commuted are analysed by underwriting year as follows:The table below shows the development of UK Car Insurance loss ratios for the past six financial periods, presented on an underwriting year basis. (iii)              Reconciliation of movement in claims provision               

        (iv)                   Reconciliation of movement in net unearned premium provision
(v)                    Sensitivity of recognised amounts to changes in assumptions:The following table sets out the impact on equity and post-tax profit or loss at 30 June 2020 that would result from a 1%, 3% and 5% deterioration and improvement in the UK Car insurance loss ratios used for each underwriting year for which material amounts remain outstanding.        6.                 Investments income and costs6a.            Investment return*1 – Interest received during the period was £6.6 million (30 June 2019: £8.6 million, 31 December 2019: £11.6 million)*2 – Total investment return excludes £1.5 million of intra-group interest (30 June 2019: £1.2 million, 31 December 2019: £2.8 million)
*3 – Realised gains/losses on sales of debt securities classified as FVOCI are immaterial
*4 – Refer to “Cash and investments analysis” for further detail6b.            Finance costs*1 – Interest paid during the year to date was £6.7 million (30 June 2019: £7.3 million, 31 December 2019: £14.0 million)
*2 – See note 7c for details of credit facilitiesFinance costs include interest payable on the £200.0 million (30 June 2019: £200.0 million, 31 December 2019: £200.0 million) subordinated notes and other financial liabilities.Interest payable on lease liabilities represents the unwinding of the discount on lease liabilities under IFRS 16 and does not result in a cash payment.6c.             Changes in Expected Credit Loss (‘ECL’) provision
6d.            Financial assets and liabilitiesThe Group’s financial instruments can be analysed as follows:*1 Trade and other payables total balance of £1,777.8 million (30 June 2019: £1,811.1 million, 31 December 2019: £1,975.9 million) above includes £1,286.1 million (30 June 2019: £1,371.2 million, 31 December 2019: £1,472.1 million) in relation to tax and social security, deferred income and reinsurer balances that are outside the scope of IFRS 9.All investments held at fair value at the end of the period are invested in money market and bond funds.The measurement of investments at the end of the period, for the majority investments held at fair value, is based on active quoted market values (level one). Equity investments held at fair value are measured at level three of the fair value hierarchy. No further information is provided due to the immateriality of the balance at 30 June 2020.Deposits are held with well rated institutions; as such the approximate fair value is the book value of the investment as impairment of the capital is not expected.The amortised cost carrying amount of receivables is a reasonable approximation of fair value.During the period, an impairment charge of £2.4 million has been recognized in relation to the  Group’s assets held at FVOCI (H1 2019: £0.1 million, FY 2019; £0.3 million).  The credit rating of the Group’s financial assets with an external rating is shown below.*1   The majority (£174.1 million) of the unrated exposure stems from money market funds, which are rated AAA, but the underlying securities are not. These specific exposures are re-purchase agreements. The remaining unrated exposure is a mixture of private debt (£55.5 million) and other holdings (£13.3 million).The fair value of subordinated notes (level one valuation) at 30 June 2020 is £224.4 million (H1 2019: £219.8 million, FY 2019: £225.1 million).6e.            Cash and cash equivalents* £4.4m (H1 2019 and FY 2019: £4.4m) of cash is ring-fenced via a bank guarantee. See note 11d for further details.Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term deposits with original maturities of three months or less.6f.             Insurance and other receivables*1 – Total insurance and other receivables at 30 June 2020 include £68.6 million in respect of salvage and subrogation recoveries (H1 2019: £63.3 million, FY 2019: £71.7 million).
7.       Loans and Advances to Customers 7a.     Loans and advances to customersLoans and advances to customers are comprised of the following:The table below shows the gross carrying value of loans in stages 1 – 3. *1 Other loss allowance covers losses due to a reduction in current or future vehicle value or costs associated with recovery and sale of vehicles.As a result of Covid, a number of adjustments have been made to the key judgements and sources of estimation uncertainty for the calculation of the ECL provision, as explained below.The response to customers who are strained due to Covid related circumstances has been to grant payment holidays. These customers will be unable to go further into arrears as no payments are being called whilst they are on the payment holiday. For the time being these customers are being held within the up-to-date provision, but the provision in the downturn and severe downturn scenarios has been materially increased to reflect their sensitivity to changing economic conditions. Customers who have become unemployed or are considered exceptionally stressed due to Covid have been placed into stage 2, to reflect a recognized significant increase in credit risk.The IFRS 9 provision must reflect an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes. In line with the accounting policy at the year end, the means by which the Group has determined this is to run scenario analyses.  The key economic driver of the losses from the scenarios is the likelihood of a customer entering hardship through unemployment.Management judgement is used to define the weighting and severity of the different scenarios based on available data without undue cost or effort.   The weightings and scenarios used have changed since the year end, with revised assumptions as set out below.The average probability of defaults (PDs) underlying the base scenario have been increased to reflect an economic environment with a 10% unemployment rate. This is a more cautious assumption than the Bank of England’s latest forecast for the end of 2020 of 7.5%, which is considered appropriate given the high level of uncertainty in economic forecasts at the current time.The downturn scenario reflects a 12.3% peak unemployment rate. The customers most impacted by a change in the unemployment rate within the provision are those that are currently up to date.The severe scenario reflects a 10% increase in the monthly inflow to unemployment, resulting in a peak unemployment rate of 15%.The PD by stage has moved since the year end as shown below. The gross balance of loans in stage 2 is now 249% higher than it was at year-end, with 87% relating to up to date customers, resulting in a reduction in overall probability of default in the stage.  Stage 3 is consistent with year-end.Sensitivities to key areas of estimation uncertaintyAt H1 2020, the implied weighted unemployment rate is 11.2%. A downturn only scenario, of a 12.3% unemployment rate, would increase the provision by £1.8m, whilst the upturn scenario would create a reduction of £4m and the severe downturn would increase the ECL allowance by £6.4m.The sensitivity to the severe scenario has reduced since FY 2019, reflecting the assumption of a narrower distribution of economic outcomes following recalibration of the forward-looking element of the provision.  At FY 2019, the severe scenario reflected extreme possibilities, with a lower likelihood of occurrence and therefore lower weighting applied.At H1 2020, the near-term impacts of Covid have been considered alongside the resulting impacts on unemployment. The forward-looking element of the provision is now more closely linked to unemployment assumptions with the scenarios deviating less from the base assumption of a 10% unemployment rate. This 10% unemployment assumption is significantly higher than that implicit in the base case at FY 2019 (c. 4%). The more equal weighting across the upturn and severe scenarios within the calculation of the provision reflects the narrower range of outcomes captured.Credit grade informationCredit grade is the internal credit banding given to a customer at origination and is based on external credit rating information. The credit grading as at 30 June 2020 is as follows:           7b.     Interest incomeInterest receivable on loans and advances to customers is recognised in the Income Statement using the effective interest method, which calculates the amortised cost of the financial asset and allocates the interest income over the expected product life.7c.     Interest expense *1 Interest paid in total during the year to date was £2.5 million  (30 June 2019: £3.1 million, 31 December 2019: £6.3 million)Interest expense represents the interest payable on funding for the Admiral loans business, in the form of credit facilities of £220.0 million (H1 2019 £200.0 million, FY 2019 £220.0 million), of which £106.5 million (H1 2019: £25.0 million; FY 2019: £20.0 million) was drawn down at 30 June 2020 and loan backed securities issued by an SPE with funding up to £400.0 million (H1 2019: £400.0 million, FY 2019 £400.0 million), of which £328.7 million (H1 2019: £253.4; FY 2019: £304.5 million) was drawn down at 30 June 2020.
8.         Other Revenue8a.       Disaggregation of revenueIn the following tables, other revenue is disaggregated by major products/service lines and timing of revenue recognition. The total revenue disclosed in the table of £288.5 million (H1 2019: £269.2 million, FY 2019: £584.8 million) represents total other revenue and profit commission and is disaggregated into the segments included in note 4.

*1 – Comparison revenue excludes £10.0 million (30 June 2019: £9.7 million, 31 December 2019: £19.4 million) of income from other Group companies.Instalment income is recognised applying the effective interest rate over the term of the policy, and is outside the scope of IFRS 15.  Profit commission from reinsurers is recognised under IFRS 4, and is discussed further in note 5 to the financial statements.9.         Expenses9a.       Operating expenses and share scheme charges

*1 – Acquisition of insurance contracts expense excludes £10.0 million (H1 2019: £9.7 million, FY 2019: £19.4 million) of comparison fees from other Group companies.The £59.7 million (H1 2019: £44.3 million, FY 2019: £91.6 million) administration and marketing costs allocated to insurance contracts is principally made up of salary costs.Analysis of other administration and other marketing costs:Refer to note 13 for a reconciliation between insurance contract expenses and the reported expense ratio.9b.       Staff share schemesAnalysis of share scheme costs (per income statement):

For equity settled schemes, the charge, which reflects the fair value of the employee services received in exchange for the grant of the free shares, is recognised as an expense, with a corresponding increase in equity, as shown in the Consolidated Statement of Changes in Equity of £24.9 million (H1 2019: £28.0 million, FY 2019: £58.8 million).For the cash settled schemes, the expense recognised for the fair value of services received results in a corresponding increase in liabilities.Net share scheme charges are presented after allocations to co-insurers (in the UK and Italy) and reinsurers (in the International Insurance businesses). The proportion of net to gross share scheme charges would be expected to be consistent in each period, at approximately 65%.10.              Taxation10a.     TaxationFactors affecting the total tax charge are:The outstanding corporation tax payable as at 30 June 2020 was £10.3 million (H1 2019: £43.0 million; FY 2019: £48.3 million).
10b.       Deferred income tax asset/ (liability)
The average effective rate of tax for 2020 is 19.0% (2019: 19.0%).The deferred tax asset at 30 June 2020 has been calculated based on the rate at which each timing difference is most likely to reverse.At 30 June 2020 the Group had unused tax losses amounting to £233.6 million (H1 2019: £229.0 million, FY 2019: £231.3 million), relating to the Group’s US businesses Elephant Auto and compare.com, for which no deferred tax asset has been recognized.
11.       Other Assets and Other Liabilities11a.     Property and equipment       
11b.     Intangible assets*1 – Software additions relating to internal development are immaterial in both 2020 and 2019*2 – The gross deferred acquisition costs balance at the end of H1 2020 is £73.1 million  (H1 2019: £75.9 million, FY 2019 £74.6 million), with gross additions in the period of £77.9 million (H1 2019: £81.5 million, FY 2019: £163.1 million); gross amortisation of £81.8 million (H1 2019: £77.3 million, FY 2019: £158.5 million) and foreign exchange movements of £2.4 million  (H1 2019: £0.1 million, FY 2019: -£1.6 million)Goodwill relates to the acquisition of Group subsidiary EUI Limited (formerly Admiral Insurance Services Limited) in November 1999. The amortisation of this asset ceased on transition to IFRS on 1 January 2004. All annual impairment reviews since the transition date have indicated that the estimated recoverable value of the asset is greater than the carrying amount and therefore no impairment losses have been recognised. Refer to the accounting policy for goodwill in the 2019 financial statements for further information.
11c.     Trade and other payables               Of amounts owed to reinsurers, £949.2 million (H1 2019: £963.7 million, FY 2019: £1,129.6 million) is held under funds withheld arrangements.11d.   Contingent liabilitiesThe Group’s legal entities operate in numerous tax jurisdictions and on a regular basis are subject to review and enquiry by the relevant tax authority.During 2019, Rastreator Comparador Correduria Seguros (“Rastreator Comparador”), the Group’s Spanish Comparison business, underwent a tax audit in respect of the 2013 and 2014 financial years.  As a result of the audit, the Spanish Tax Authority denied the VAT exemption relating to insurance intermediary services which Rastreator Comparador has applied.  Rastreator Comparador is appealing this decision via the Spanish Courts and is confident in defending its position which is, in its view, in line with the EU Directive and is also consistent with the way similar supplies are treated throughout Europe.The potential liability for the financial years currently subject to audit is approximately €5 million, and, as identified in note 6, a bank guarantee has been provided to the Spanish Tax Authority for this amount. If the exemption is also disallowed in respect of later years, the liability could increase to €19 million.The Group is also in early stage discussions on various corporate tax matters with tax authorities in the UK, Italy and Spain.   To date, these discussions have focused on the transfer pricing arrangements in place between the Group’s intermediaries and insurers, including between entities in the UK and Gibraltar, and Spain and Italy.No provision has been made in these Financial Statements in relation to the matters noted above.12.     Dividends, Earnings and Share Capital12a.   DividendsDividends were proposed, approved and paid as follows.         *1 –56.3 pence of proposed 2019 final dividend of 77.0 pence was approved in April 2020 and paid in June 2020, with the remaining special dividend of 20.7 pence per share being deferred.The dividends proposed in March (approved in April) represent the final dividends paid in respect of the 2018 and 2019 financial years. The dividends declared in August are interim distributions in respect of 2019 and 2020.An interim dividend of 91.2 pence per share (approximately £263 million) has been declared in respect of the 2020 financial year.   This includes the 20.7 pence deferred 2019 special dividend.12b.     Earnings per shareThe difference between the basic and diluted number of shares at the end the period (being 587,290; H1 2019: 666,932, FY 2019: 581,083) relates to awards committed, but not yet issued under the Group’s share schemes.12c.     Share capital
During the first half of 2020, 351,420 (30 June 2019: 447,143; 31 December 2019: 3,183,592) new ordinary shares of 0.1p were issued to the trusts administering the Group’s share schemes.351,420 (30 June 2019: 447,143; 31 December 2019: 883,592) of these were issued to the Admiral Group Share Incentive Plan Trust for the purposes of this share scheme.No shares (30 June 2019: nil; 31 December 2019: 2,300,000) were issued to the Admiral Group Employee Benefit Trust for the purposes of the Discretionary Free Share Scheme.12d.   Objectives, policies and procedures for managing capitalThe Group manages its capital to ensure that all entities within the Group are able to continue as going concerns and also to ensure that regulated entities comfortably meet regulatory requirements. Excess capital above these levels within subsidiaries is paid up to the Group holding company in the form of dividends on a regular basis.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.Refer to the financial review for further information about the Group’s capital structure and financial
position.12e.     Related party transactionsDetails relating to the remuneration and shareholdings of key management personnel are set out in the Directors’ Remuneration Report within the Group’s 2019 Annual Report. Key management personnel are able to obtain discounted motor insurance at the same rates as all other Group staff.The Board considers that Executive and Non-Executive Directors of Admiral Group plc are key management personnel. Aggregate compensation for the Executive and Non-Executive Directors is disclosed in the Directors’ Remuneration Report in the 2019 Annual Report.
13.     ReconciliationsThe following tables reconcile significant KPIs and Alternative Performance Measures included in the financial review above to items included in the financial statements.13a.   Reconciliation of turnover to reported total premiums written and other revenue as per the financial statements                                            *1 – Other reconciling items represent co-insurer and reinsurer shares of Other Revenue in the Group’s Insurance businesses outside of UK Car Insurance.
*2 – Intra-group income elimination related to comparison income earned in the Group from other Group companies.
*3 – See note 13g for the impact of the “Stay at home” premium refund issued to UK motor insurance customers on Turnover in H1 2020.
13b.                 Reconciliation of claims incurred to reported loss ratio, excluding releases on commuted reinsurance^*1 ‘Other’ includes travel insurance (UK) and underwritten ancillaries.
                             13c.     Reconciliation of expenses related to insurance contracts to reported expense ratio

*1 The intra-group expenses elimination amount relates to aggregator fees charges by the Group’s comparison entities to other Group companies.
*2 Other adjustments relate to additional products underwritten in the Group’s International Car Insurance businesses. The contribution from these products is reported as ancillary income and as such the amounts are excluded for the purpose of calculation of expense ratios.
13d.          Reconciliation of reported profit before tax to adjusted profit before tax13e.          Reconciliation of share scheme charges in Strategic report to Consolidated income statement and Consolidated statement of changes in equity13f.          Reconciliation of note 4 to Strategic Reporti)              UK Insurance

ii)             International Insurance

iii)            Comparison

13g.   Reconciliation of Impact of “Stay at Home” premium refund issued to UK motor insurance customers on Turnover, Total written premiums, Gross written premiums and net insurance premium revenue                                            14. Statutory InformationThe financial information set out above does not constitute the company’s statutory accounts. Statutory accounts for 2019 have been delivered to the registrar of companies, and those for 2020 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
Glossary
Alternative Performance MeasuresThroughout this report, the Group uses a number of Alternative Performance Measures (APMs); measures that are not required or commonly reported under International Financial Reporting Standards, the Generally Accepted Accounting Principles (GAAP) under which the Group prepares its financial statements.These APMs are used by the Group, alongside GAAP measures, for both internal performance analysis and to help shareholders and other users of the Annual Report and financial statements to better understand the Group’s performance in the period in comparison to previous periods and the Group’s competitors.The table below defines and explains the primary APMs used in this report. Financial APMs are usually derived from financial statement items and are calculated using consistent accounting policies to those applied in the financial statements, unless otherwise stated. Non financial KPIs incorporate information that cannot be derived from the financial statements but provide further insight into the performance and financial position of the Group.APMs may not necessarily be defined in a consistent manner to similar APMs used by the Group’s competitors. They should be considered as a supplement rather than a substitute for GAAP measures.Additional TerminologyThere are many other terms used in this report that are specific to the Group or the markets in which it operates. These are defined as follows:Responsibility statement of the directors in respect of the half-yearly financial reportWe confirm that to the best of our knowledge:the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;
 the interim management report includes a fair review of the information required by:DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
 DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.By order of the Board,Geraint JonesChief Financial Officer
11 August 2020INDEPENDENT REVIEW REPORT TO ADMIRAL GROUP PLCWe have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated cash flow statement, the condensed consolidated statement of changes in equity and related notes 1 to 14. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.Directors’ responsibilitiesThe half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority.As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” as adopted by the European Union.Our responsibilityOur responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.Scope of reviewWe conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.ConclusionBased on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority.Use of our reportThis report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.Deloitte LLP
Statutory Auditor
London, United Kingdom
11 August 2020