Half-year report
** **
**16 August 2023**
**2023 Interim Results Highlights**
**Admiral Group reports growth in customers and turnover, with strong profit despite continued challenging market conditions**
** **
*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 turnover^2 £2.24bn £1.85bn +21%
Insurance revenue £1.61bn £1.41bn +14%
Group customers^2,3 9.41m 9.05m +4%
UK Insurance customers^2 7.01m 6.94m +1%
International Insurance customers^2 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 95^th 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 95^th 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 94^th 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.
**UK Insurance**
*£m* *30 June*
* 2023* *30 June*
* 2022* *31 Dec*
* 2022*
Turnover^*1*2 1,708.3 1,409.9 2,784.3
Total premiums written^*1*3 1,581.9 1,298.1 2,555.0
Insurance revenue 1,178.9 1,042.9 2,174.1
*Underwriting result including net investment income^*1* *217.5* *200.8* *301.6*
Co-insurer profit commission and net other revenue 86.4 89.7 208.1
*UK Insurance profit before tax^*1* *303.9* *290.5* *509.7*
*1 Alternative Performance Measures – refer to the end of this report for definition and explanation
*2 Alternative Performance Measures – refer to note 13 for explanation and reconciliation to statutory income statement measures
*3 Total premiums restated for prior periods to include premiums for all underwritten ancillary products. There is a corresponding reduction in Other net income, and no impact on turnover
*Split of UK Insurance profit before tax*
*£m* *30 June*
* 2023* *30 June*
* 2022* *31 Dec*
* 2022*
Motor 298.2 290.9 524.9
Household 8.7 4.3 (10.7)
Travel and Pet (3.0) (4.7) (4.5)
*UK Insurance profit before tax* *303.9* *290.5* *509.7*
** **
**Key performance indicators**
* * *30 June*
* 2023* *30 June*
* 2022* *31 Dec*
* 2022*
Vehicles insured at period end 4.76m 5.14m 4.94m
Households insured at period end 1.67m 1.46m 1.58m
Travel and Pet policies at period end 0.58m 0.34m 0.44m
*Total UK Insurance customers* *7.01m* *6.94m* *6.96m*
*Highlights for the UK Insurance business include: *
· *In UK Motor Insurance:*
· A decrease in customer numbers of 7% to 4.76 million compared to a year earlier (30 June 2022: 5.14 million). Admiral’s price increases to account for claims inflation since Q2 2022 have been more significant than the wider market, though this gap notably narrowed over the first half of 2023. Turnover increased by 20% to £1.5bn from £1.3bn
· Profit growth of 3% to £298 million (v £291 million) as a result of higher investment income and higher reserve releases compared to 2022
· *In UK Household Insurance:*
· Customer numbers grew by of 14% to 1.67 million (30 June 2022: 1.46 million). As in Motor, price increases have led to higher average premiums which contributed to a significant 30% increase in turnover
· Profit grew to £8.7 million (from £4.3 million) as a result of the benefit of the commutation of quota share arrangements on prior underwriting years more than offsetting a higher current period attritional loss ratio, with price increases still earning through
**UK Motor Insurance**
*£m* *30 June*
* 2023* *30 June 2022* *31 Dec*
* 2022*
Turnover^*1 1,520.9 1,271.8 2,493.0
Total premiums written^*1^*2^*4 1,403.4 1,164.1 2,271.3
Gross earned premium^*1 961.2 865.5 1,795.7
Gross other insurance revenue 58.8 55.9 114.0
Insurance revenue 1,020.0 921.4 1,909.7
Insurance revenue net of XoL^*2 994.0 899.8 1,865.1
Insurance expenses^*1*2*3 (220.5) (183.7) (389.6)
Insurance claims incurred net of XoL^*2 (834.2) (721.6) (1,596.0) Insurance claims releases net of XoL^*2 237.1 190.9 327.2
Quota share reinsurance result^*2*3 13.1 16.2 95.2
Movement in onerous loss component net of reinsurance^*2 — (3.1) 5.2
*Underwriting result*^2* *189.5* *198.5* *307.1*
Investment income 50.9 20.9 53.8
Net insurance finance expenses (25.3) (14.5) (36.4)
*Net investment income* *25.6* *6.4* *17.4*
Co-insurer profit commission 44.8 53.8 127.5
Other net income 38.3 32.2 72.9
*UK Motor Insurance profit before tax*^*1 *298.2* *290.9* *524.9*
*1 Alternative Performance Measures – refer to the end of this report for definition and explanation
*2 Alternative Performance Measures – refer to note 13 for explanation and reconciliation to statutory income statement measures
*3 Insurance expenses and quota share reinsurance result excludes gross and reinsurers share of share scheme charges respectively. For share scheme charges refer to Other Group Items
*4 Total premiums restated for prior periods to reflect premiums for all underwritten ancillary products. There is a corresponding reduction in Other net income, and no impact on Turnover
*XoL refers to Excess of Loss (non-proportional) reinsurance; see glossary at end of report for further information
**Key performance indicators**
*30 June*
*2023* *30 June*
*2022* *31 Dec*
*2022*
Reported Motor loss ratio^*1*2 60.1% 59.0% 68.0%
Reported Motor expense ratio^*1*3 22.2% 20.4% 20.9%
Reported Motor combined ratio^*1*2 82.3% 79.4% 88.9%
Reported Motor Insurance service margin^*1*4 19.1% 22.1% 16.5%
Core motor loss ratio before releases^*1*5 92.7% 89.6% 95.7%
Core motor claims releases ^*1*5 (26.9%) (24.1%) (20.0%)
Core motor loss ratio^*1*5 65.8% 65.5% 75.7%
Core motor expense ratio^*1*6 23.4% 21.7% 21.6%
Core motor combined ratio^*1 89.2% 87.2% 97.3%
Core motor written expense ratio^*7 19.5% 19.6% 20.8%
Vehicles insured at period end^*1 4.76m 5.14m 4.94m
Other revenue per vehicle^*8 £60 £59 £58
*1 Alternative Performance Measures – refer to the end of this report for definition and explanation
*2 Reported Motor loss ratio defined as insurance claims incurred and claims releases divided by insurance revenue, net of excess of loss reinsurance. Reconciliation in note 13c
*3 Reported Motor expense ratio defined as insurance expenses divided by insurance revenue, net of excess of loss reinsurance. Reconciliation in note 13c
*4 Reported Motor insurance service margin defined as underwriting result divided by insurance revenue, net of excess of loss reinsurance
*5 Core motor loss ratio defined as insurance claims incurred and claims releases divided by core product insurance premium revenue, net of excess of loss reinsurance. Presented to enable analysis of core motor result excluding other ancillary income. Reconciliation in note 13c
*6 Core motor expense ratio defined as insurance expenses divided by core product insurance premium revenue, net of excess of loss reinsurance. Reconciliation in note 13c
*7 Core motor written expense ratio defined as insurance expenses divided by core product written insurance premium, net of excess of loss reinsurance
*8 Other revenue per vehicle includes other revenue included within insurance revenue. See “Other Revenue” section for explanation and reconciliation
UK Motor profit in the first six months of 2023 was £298.2 million, 3% higher than the same period in 2022 (H1 2022: £290.9 million) as a result of positive development of prior year claims and higher investment income due to a higher interest rate environment. This was partly offset by a higher current period loss ratio, as a result of the premium earned in the period not fully reflecting the significant price increases that started in 2022 and are continuing into H2 2023. Higher net insurance finance expenses as the discounting of claims incurred in higher interest rate environments in 2022 start to unwind, and a higher earned expense ratio, also contributed. On a written basis the expense ratio is flat year on year.
Customer numbers reduced by 7% year-on-year, with a slightly lower reduction in H1 2023 (-3%) compared to H2 2022 (-4%). This was primarily as a result of strong price increases ahead of the market for a large part of the period, although market prices have started to increase more strongly towards the end of H1 2023. Admiral increased prices around 20% across new business and renewals in H1 2023 to reflect continued high claims inflation in the period, which remained above expectation, and will continue to maintain pricing discipline if the current level of claims inflation persists.
Gross earned premium at £961.2 million is 11% higher than H1 2022, reflecting a significant increase in average earned premium as the price increases over the course of the last year, and in particular the last six months, are starting to earn through.
The core motor expense ratio increased to 23.4% (H1 22: 21.7%), as a result of a delay in the pricing increases earning through. The pricing increases are however reflected in the written expense ratio, which remained stable at 19.5% (H1 2022: 19.6%). Insurance expenses are higher in H1 2023, driven by a short-term increased cost of claims handling.
The movement in onerous loss component reflects the movement in the provision for projected claims costs, inclusive of risk adjustment, on unearned premium. During the first half of 2022, the provision increased although was subsequently fully released by the end of 2022 as price increases made through the second half of the year resulted in higher projected profitability on unearned business. At H1 2023, the provision remained at £nil and therefore there is no resulting impact on profit in the period.
*Claims Incurred *
Claims inflation remains high and continues to be influenced by the average costs of repairing vehicles, in turn due to the elevated cost of replacement parts and paint, as well as high labour costs and shortages, which has also led to longer repair times. Used car price inflation has stabilised. Admiral's current estimate of average claims cost inflation for full year 2023 (compared to full year 2022) is approximately 10%, with higher inflation in the first half of 2023, starting to ease in the second half. Claims frequency increased slightly in H1 2023 v H1 2022, likely due to an increase in miles driven, although remains below pre-Covid levels.
The longer-term impacts of inflation on bodily injury claims remains uncertain. Admiral has not observed material changes in inflation for bodily injury claims settled in 2023 to date, when compared to 2022. However, an allowance in the best estimate reserve continues to be held to reflect the potential impacts of higher than historic levels of future wage inflation on certain elements of large bodily injury claims reserves.
Admiral continues to hold a significant and prudent risk adjustment above best estimate reserves which has been reduced slightly (94^th percentile confidence level) when compared to the end of 2022, the reduction being in line with expectations as the Group continues to diversify.
The core motor loss ratio is broadly flat at 65.8% (H1 2022: 65.5%) with offsetting movements in the current period loss ratio and prior year reserve releases, as follows:
*Reported Motor loss ratio^*1*
* * *Core motor loss ratio before releases* *Impact of claims reserve releases * *Core motor loss ratio *
*H1 2022* * * *89.6%* *(24.1%)* *65.5%*
Change in current period loss ratio 3.1% — 3.1%
Change in claims reserve release — (2.8%) (2.8%)
*H1 2023* * * *92.7%* *(26.9%)* *65.8%*
*1 Reported motor loss ratio shown on a discounted basis
· The current period loss ratio increased by 3.1 points which can be primarily attributed to:
· Continued high levels of inflation, particularly in damage claims costs as noted above
· Partially offset by higher average premium in the period following significant price increases, although the full extent of these increases is not yet reflected in earned premium
· The benefit from prior period releases increased by 2.8 points to 26.9%. This includes both the positive development of the best estimate reserve for prior period claims, and the movement in the risk adjustment. The increase in releases in H1 2023 is primarily the result of the small reduction in the risk adjustment from the 95^th percentile to the 94^th percentile, as noted above.
*Quota share reinsurance*
Under IFRS 17, Admiral’s quota share reinsurance result reflects the net movement on ceded premiums, reinsurer margins and expected recoveries (claims and expenses) for each underwriting year on which quota share reinsurance is in place (primarily 2021 underwriting year onwards).
Admiral’s UK motor quota share contracts operate on a funds withheld basis, with Admiral retaining ceded premium (net of the reinsurer margin) which then covers claims and expenses. If an underwriting year is not profitable, investment income is allocated to the withheld fund and used to delay the point at which cash recoveries are collected from the reinsurer. Other features of the arrangements include expense ratio caps and commutation options for Admiral that become available 24-36 months after the start of the underwriting year.
The quota share reinsurance result by underwriting year Is as follows:
*Quota share reinsurance result*
*£m* * * *30 June*
* 2023 * *30 June*
* 2022 * *31 Dec*
* 2022 *
2020 & prior * * 0.3 (2.9) (2.9)
2021 * * (42.6) (4.1) 7.1
2022 * * 45.6 23.2 91.0
2023 * * 9.8 — —
*Total* * * * * *13.1* *16.2* *95.2*
The positive quota share result in H1 2023 is therefore driven by:
· High recoveries on the most recent underwriting years (2022 and 2023) that are still being earned (as a result of the higher current loss ratio)
· Offset by the partial reversal of recoveries that had been previously recognised on the 2021 underwriting year, as a result of favorable developments in loss ratio
In H1 2022, the positive result is driven by:
· Higher recoveries on the most recent underwriting year (2022) due to a higher loss ratio
· Offset by lower recoveries on the 2021 underwriting year due to the favourable development of the loss ratio
· Little impact on underwriting years prior to 2020. By the end of 2021, these underwriting years were all profitable on a booked basis and the full cost of the contract (the reinsurers’ margin) had already been recognised, with no additional expected recoveries. There is therefore no further impact on the income statement in H1 2023 on these years
*Co-insurer profit commission *
Co-insurer profit commission is slightly lower in H1 2023 (£44.8 million) compared to H1 2022 (£53.8 million). In H1 2022, a greater proportion of the reserve releases related to older underwriting years which have lower combined ratios, with the releases therefore attracting higher profit commission. In addition, in H1 2023 no profit commission has been recognised on underwriting years 2021 (which attracted significant reserve releases in H1 2023) and onwards, due to the current combined ratio positions on those years.
*Net investment income*
Net investment income benefitted significantly from the higher yield environment during the first half of 2023, increasing to £25.6 million from £6.4 million in the first half of 2022. Investment income before insurance finance expense more than doubled to £50.9 million (H1 2022: £20.9 million) primarily as a result of the yield environment. Further information on the Group’s investment portfolio and the income generated in the period is provided later in the report.
Net insurance finance expense reflects the unwind of the discounting benefit recognised when claims are initially incurred. The expense has increased significantly in H1 2023 (£25.3 million; H1 2022 £14.5 million) as a result of the significant increase in risk-free interest rates since the start of 2022, with a significant proportion of the insurance finance expense in H1 2023 relating to claims incurred during 2022.
**Other Revenue**
*UK Motor Insurance Other Revenue:*
*£m * *30 June 2023* Within underwriting result Other net income *Total*
Premium and revenue from additional products & fees^*1 53.5 46.3 99.8
Instalment income and administration fees^*2 58.8 12.4 71.2
*Other revenue* *112.3* *58.7* *171.0*
Claims costs and allocated expenses^*3 (31.1) (20.4) (51.5)
*Net other revenue* *81.2* *38.3* *119.5*
*Other revenue per vehicle*^*4 * * * * *£60*
Other revenue per vehicle net of internal costs £50
*£m * *30 June 2022* Within underwriting result Other net income *Total*
Premium and revenue from additional products & fees^*1 53.7 40.3 94.0
Instalment income and administration fees^*2 55.9 16.1 72.0
*Other revenue* *109.6* *56.4* *166.0*
Claims costs and allocated expenses^*3 (25.6) (24.2) (49.8)
*Net other revenue* *84.0* *32.2* *116.2*
*Other revenue per vehicle*^*4 * * * * *£59*
Other revenue per vehicle net of internal costs £48
*£m * *31 Dec 2022* Within underwriting result Other net income *Total*
Premium and revenue from additional products & fees^*1 113.3 90.5 203.8
Instalment income and administration fees^*2 114.0 21.9 135.9
*Other revenue* *227.3* *112.4* *339.7*
Claims costs and allocated expenses^*3 (63.4) (39.5) (102.9)
*Net other revenue* *163.9* *72.9* *236.8*
*Other revenue per vehicle*^*4 * * * * *£58*
Other revenue per vehicle net of internal costs £48
*1 Premium from underwritten ancillaries is recognised within the insurance service result (underwriting result). Other income from non-underwritten products and fees is included within other net income, below the underwriting result but part of the insurance segment result.
*2 Instalment income and administration fees are recognised within insurance revenue (% aligned to Admiral’s share of premium, net of coinsurance) and other revenue (% aligned to co-insurance share of premium).
*3 Claims costs relating to underwritten ancillary products, along with an allocation of related expenses, are recognised within the insurance result. Expenses allocated to the generation of revenue from non-underwritten ancillaries is recognised within other net income.
*4 Other revenue per vehicle (before internal costs) divided by average active vehicles, rolling 12-month basis. Presented here based on all ancillary income; also see note 13c for further information.
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 other revenue continue to be:
· Profit earned from Motor policy upgrade products underwritten by Admiral, including breakdown, car hire and personal injury covers
· Revenue from other insurance products, not underwritten by Admiral
· Fees such as administration and cancellation fees
· Interest charged to customers paying for cover in instalments
Under IFRS17, income from underwritten ancillaries and an allocation of instalment income and administration fees in line with Admiral’s gross share of the core motor product premium, are included within Insurance Revenue in the underwriting result as ‘Gross other insurance revenue’. The remaining income from instalment income, fees as well as income from other non-underwritten ancillary products is presented in other net income.
Overall contribution increased to £119.5 million (H1 2022: £116.2 million), as a result of modestly increased income from additional products and fees as well as a reduction in allocated costs.
Other revenue was equivalent to £60 per vehicle (gross of costs), with net other revenue per vehicle at £50 per vehicle, both slightly up compared to 2022.
*UK Household Insurance *
*£m * *30 June*
* 2023* *30 June*
* 2022* *31 Dec*
* 2022*
Turnover^*1 156.6 120.7 255.4
Total premiums written^*1*3 147.7 116.6 245.7
Gross Insurance revenue 136.2 111.5 236.9
*Underwriting result, net of XoL reinsurance * *(1.4)* *16.8* *(28.8)*
Quota share reinsurance result^*4 6.2 (17.3) 9.2
*Underwriting result*^ *1*2 *4.8* *(0.5)* *(19.6)*
Net insurance investment income 0.4 0.8 1.2
Other income 3.5 4.0 7.7
*UK Household Insurance result before tax* *8.7* *4.3* *(10.7)*
*1 Alternative Performance Measures – refer to the end of this report for definition and explanation *2 Alternative Performance Measures – refer to note 13 for explanation and reconciliation to statutory income statement measures
*3 Total premiums restated for prior periods to reflect premiums for all underwritten ancillary products. There is a corresponding reduction in Other net income, and no impact on turnover
*4 Quota share reinsurance result within the segment result excludes reinsurers’ share of share scheme costs
*Key performance indicators*
*30 June 2023* *30 June 2022* *31 Dec 2022*
Reported Household loss ratio^*1*^2 71.0% 54.0% 81.5%
Reported Household expense ratio^*1*3 30.2% 30.2% 31.4%
Reported Household combined ratio^*1 101.2% 84.2% 112.9%
Household insurance service margin 3.7% (0.4%) (8.8%)
Impact of severe weather and subsidence on reported loss ratio^*1 5.7% 10.0% 29.0%
Impact of severe weather and subsidence on result before tax^*1 (£m) 2.2 9.9 33.3
Households insured at period end (m) 1.67 1.46 1.58
*1 Alternative Performance Measures – refer to the end of this report for definition and explanation
*2 Household loss ratio: Reconciliation in note 13d
*3 Household expense ratio excludes share scheme costs: Reconciliation in note 13d
The UK Household insurance business continued to enjoy good growth with turnover increasing by 30% to £156.6 million (H1 2022: £120.7 million) as Admiral increased prices ahead of the market to reflect higher claims inflation and the weather events at the end of 2022. The number of households insured increased by 14% to 1.67 million (30 June 2022: 1.46 million) with growth in both the price comparison and direct channels, despite challenging market conditions and double-digit price increases made by Admiral during the first half of 2023.
The reported loss ratio increased to 71% (H1 2022: 54%). The impact of weather events on the loss ratio in the period was lower at 6 percentage points (H1 2022: 10 points). The current period attritional loss ratio was higher at 68% (H1 2022: 53%) as a result of higher claims inflation, exacerbated by market supply chain pressures following the December 2022 freeze event. Admiral responded with price increases, the full extent of which will earn through in the second half and into 2024.
Prior period releases, primarily reflecting the unwind of risk adjustment, benefitted the reported loss ratio by 3 percentage points (H1 2022: 9 points), with the lower benefit partly as a result of an increase in the estimate of ultimate cost of the December 2022 freeze event.
Admiral’s expense ratio was broadly in line with the first half of 2022 at 30%, with the impact of continued investment in technology, offset by increasing average premiums and the benefits of increased scale.
The quota share result for the period of £6.2 million profit (H1 2022: loss of £17.3 million) benefitted from a one-off recognition of reinsurer profit commission relating to prior periods following a commutation. The quota share result for H1 2022 was negatively impacted by the original derecognition of that profit commission resulting from the significant weather events as well as a smaller impact in respect of slower recognition of expense recovery from reinsurers.
Profit before tax for the period was £8.7 million (H1 2022: £4.3 million). Excluding the impact of severe weather, profit for the period was lower than the prior period at £10.9 million (H1 2022: £14.2 million), primarily as a result of the higher attritional loss ratio with the impact partially offset by the profit commission benefit noted above.
** **
*UK Insurance Co- and Reinsurance *
Admiral makes significant use of proportional risk sharing agreements (co-insurance and quota share reinsurance) which include profit commission terms that allow Admiral to retain a significant portion of the profit generated.
Munich Re and its subsidiary entity Great Lakes currently underwrite 40% of Admiral’s UK Car insurance business. The details of these arrangements with Munich Re are as set out in the 2022 Annual Report, with agreements in place until at least the end of 2026.
Admiral has other UK Motor quota share agreements confirmed at least to the end of 2024, covering 38% of business written.
For UK Household insurance, Admiral retains 30% and has quota share contracts covering 70% of the book in place until at least the end of 2024.
The Group tends to commute its UK Motor insurance quota share agreements 24-36 months after inception of an underwriting year, assuming there is sufficient confidence in the profitability of the business covered by the reinsurance contract and having assessed the solvency implications of the commutation for the Group and its underwriting subsidiary. During the first half of 2023, there were no significant UK motor commutations. The majority of quota share reinsurance covering 2020 and prior underwriting years was commuted prior to the start of this half year period.
** **
**International Insurance**
*£m* *30 June*
* 2023* *30 June*
* 2022* *31 Dec*
* 2022*
Turnover^*1 464.3 393.7 795.9
Total premiums written^*1*2 437.6 368.9 744.2
Insurance revenue 407.2 357.0 750.0
Insurance revenue net of XoL^*1 396.8 350.7 732.0
Insurance expenses^*1 (125.8) (124.1) (254.6)
Insurance claims net of XoL^*1 (269.7) (239.4) (547.1)
*Underwriting result, net of XoL* *1.3* *(12.8)* *(69.7)*
Quota share reinsurance result^*1*3 (13.1) (4.7) 13.9
Movement in net onerous loss component 0.8 (0.9) (1.0)
*Underwriting result*^*1 *(11.0)* *(18.4)* *(56.8)*
Net investment income 1.9 (0.1) 1.1
Net other revenue 1.5 1.6 (0.5)
*International Insurance loss before tax^*1* *(7.6)* *(16.9)* *(56.2)*
*1 Alternative Performance Measures – refer to the end of this report for definition and explanation*2 Total premiums restated for prior periods to reflect premiums for all underwritten ancillary products. There is a corresponding reduction in Other net income, and no impact on turnover
*3 Quota share reinsurance result within the segment result excludes reinsurers’ share of share scheme costs
*Key performance indicators *
*30 June 2023* *30 June*
*2022* *31 Dec*
*2022*
Loss ratio^*1 68.0% 68.3% 74.7%
Expense ratio^*1 31.6% 35.4% 34.8%
Combined ratio^*1 99.6% 103.7% 109.5%
Insurance service margin^*1 (2.8%) (5.3%) (7.8%)
Customers insured at period end (m) 2.21 1.98 2.08
*1 Alternative Performance Measures – refer to the end of this report for definition and explanation
*International Motor Insurance – Geographical analysis^*1*
*30 June 2023* *Spain* *Italy* *France* *US* *Total*
Vehicles insured at period end 0.46m 1.07m 0.41m 0.22m 2.16m
Turnover (£m) 62.6 145.1 113.4 138.4 459.5
*30 June 2022* *Spain* *Italy* *France* *US* *Total*
Vehicles insured at period end 0.40m 0.92m 0.38m 0.24m 1.94m
Turnover (£m) 51.0 115.3 99.5 127.9 393.7
*31 December 2022* *Spain* *Italy* *France* *US* *Total*
Vehicles insured at period end 0.43m 0.97m 0.40m 0.24m 2.04m
Turnover (£m) 104.6 227.9 190.4 268.5 791.4
*1 Alternative Performance Measures – refer to the end of this report for definition and explanation
** **
*Split of International Insurance result*
£m *30 June*
*2023* *30 June*
*2022* *31 Dec*
*2022*
European Motor 4.7 (1.6) (16.5)
US Motor (10.4) (13.6) (36.4)
Other (1.9) (1.7) (3.3)
*International Insurance loss before tax* *(7.6)* *(16.9)* *(56.2)*
Admiral’s International insurance businesses continued to grow both turnover and customer numbers, with customers increasing by 12% to 2.21 million (30 June 2022: 1.98 million) and turnover growth of 18% to £464.3 million (H1 2022: £393.7 million).
The insurance service margin also improved to -2.8% (H1 2022: -5.3%), driven by the combined ratio. This, together with increased investment income, resulted in a lower reported loss before tax of £7.6 million (H1 2022: £16.9 million).
The combined ratio improved to 99.6% (H1 2022: 103.7%), due to the combined effect of higher premiums as well as the benefits of increased scale in the European businesses and a reduced cost base in the US, which results in an expense ratio improvement to 31.6% (H1 2022: 35.4%). Investment in distribution diversification continued via broker channels and partnerships, to further facilitate long term growth and profitability of these businesses.
The European insurance operations in Spain, Italy and France insured 1.94 million vehicles at 30 June 2023 – 14% higher than a year earlier (30 June 2022: 1.70 million). Motor turnover was up 21% to £321.1 million (H1 2022: £265.8 million), driven by strong price increases and the larger book sizes. The combined European Motor profit was £4.7 million (H1 2022: loss of £1.6 million). The combined ratio reduced to 93% (H1 2022: 94%), as a result of higher average premium and an improved expense ratio, partially offset by high claims inflation.
Inflation continued to persist in the first half of 2023 and has had a material impact on the market results over the past year. As a result, market premiums have increased and market cycles are turning, particularly in Italy and Spain. Admiral continues to focus on medium term profitability to maintain a strong position in navigating the market cycle.
Admiral Seguros (Spain) grew by 13% to 0.46 million customers over the past year (30 June 2022: 0.40 million), within the context of a competitive market with high claims inflation. The business continues to focus on enhancing digital and data capabilities, as well as sustainable growth through distribution diversification through the broker channel and other partnerships.
The Group’s largest international operation, ConTe in Italy, continued to grow strongly and increased vehicles insured by 15% to 1.07 million (30 June 2022: 0.92 million) despite continued price increases. The business continued to focus on risk selection and expense reduction as well as continued growth in the broker channel.
L’olivier assurance (France) continued to grow within the context of a challenging market reflecting lower price increases to manage inflation than in other markets. The customer base increased by 8% to 0.41 million at 30 June 2023 (30 June 2022: 0.38 million). The business has focused on risk selection and loss ratio improvements, together with a marketing focus on digital acquisition to drive growth during the period.
In the US, Admiral underwrites motor insurance through its Elephant Auto business. In the first half of 2023, Elephant focused on materially improving the underwriting result and minimising the capital injection required for the business. The business took strong actions, including through large price increases and a reduction in the cost base, through improved operational efficiencies and efficient use of tech and digitalisation of processes. Turnover increased by 8% to £138.4 million (H1 2022: £127.9 million) reflecting these price increases, whilst the conscious decision to focus on margin over growth led to a decrease in the number of vehicles insured by 8% to 0.22 million (30 June 2022: 0.24 million).
As a result, Elephant is on track in its focus to reduce losses, reporting a lower loss of £10.4 million in the period (H1 2022: £13.6 million loss) and will continue to prioritise improving the loss ratio ahead of growth in the immediate future.
*Admiral Money*
*£m* *30 June*
*2023* *30 June*
*2022* *31 Dec*
*2022*
Total interest income 43.6 25.5 58.7
Interest expense^*1 (12.7) (5.6) (14.1)
*Net interest income* *30.9* *19.9* *44.6*
Other fee income 0.1 0.2 0.3
*Total income* *31.0* *20.1* *44.9*
Credit loss charge (16.6) (9.0) (20.6)
Expenses (11.7) (10.9) (22.2)
*Admiral Money profit before tax* *2.7* *0.2* *2.1*
^ *1 Includes £0.8 million intra-group interest expense (H1 2022: £0.8 million; FY 2022: £1.5 million)
Admiral Money distributes and underwrites unsecured personal loans and car finance products for UK consumers through the comparison channel, credit scoring applications and direct to consumers via the Admiral website. The aim of the proposition is to provide customers with affordable guaranteed rates, ensuring transparency and certainty.
Gross loans balances continued to grow, rising 31% to £1.03 billion at the end of June 2023 (30 June 2022: £0.79 billion), with a £74.6 million (30 June 2022: £53.5 million) expected credit loss provision. This leads to a net loans balance of £0.96 billion (30 June 2022: £0.73 billion).
The business reported a pre-tax profit of £2.7 million (improving from £0.2 million in H1 2022), the third consecutive half year of profit for the business. The improvement was driven largely by strong interest income growth of 55% to £30.9 million (30 June 2022: £19.9 million) driven by growth in the loan portfolio, cost discipline and higher net interest margins.
In 2023, Admiral Money has continued to manage its lending criteria in response to higher inflation and interest rate rises. Credit loss models reflect the latest economic assumptions and post model adjustments to maintain an appropriate level of prudence given the economic outlook. The provision to loans balance coverage ratio remains at 7.2% (31 December 2022: 7.2%), leading to a £21.1 million increase in absolute provision size to £74.6 million. The provision includes post model adjustments of £12.6 million (H1 2022: £12.2 million), reflecting the current uncertainty in the UK economic environment.
Admiral Money is funded through a combination of internal and external funding sources. The external funding is secured against certain loans via a transfer of the rights to the cash-flows to two special purpose entities (“SPEs”). The securitisation and subsequent issue of notes via SPEs does not result in a significant transfer of risk from the Group.
**Other Group Items**
*£m* *30 June*
*2023* *30 June*
*2022* *31 Dec*
*2022*
Share scheme charges (22.7) (26.1) (51.7)
Other central costs^*1 (15.2) (11.0) (15.6)
Admiral Pioneer result^*1 (12.7) (8.8) (13.5)
Business development costs^*1 (7.9) (3.9) (8.8)
Finance charges (6.3) (5.7) (12.1)
Compare.com loss before tax (2.6) (1.7) (2.8)
Other interest and investment income^*1 2.3 8.0 10.1
*Total * *(65.1)* *(49.2)* *(94.4)*
^*1A number of small re-allocations of costs/ income have been made between these lines and UK insurance/ International insurance segment results at FY 2022. These include moving costs related to the French fleet insurance business (closed in H1 2023) out of the Admiral Pioneer operating result, leading to a lower loss in Admiral Pioneer than reported at FY 2022
Share scheme charges relate to the Group’s two employee share schemes. The small reduction in charge in the period is driven primarily by the lower dividend-linked bonuses paid to holders of unvested share awards.
Other central costs consist of Group-related expenses and include the cost of a number of significant Group projects, including the preparation and implementation of the significant new insurance accounting standard, IFRS 17, and the development of the internal capital model. Additional expenses include donations for the Admiral Community fund, and other regulatory projects.
Admiral launched Admiral Pioneer in 2020 to focus on new product diversification opportunities, as part of the investment in product diversification. Pioneer businesses include Veygo (short term and learner driver car insurance in the UK) and small business insurance in the UK. Pioneer reported a loss of £12.7 million in H1 2023 (H1 2022: £8.8 million). This was mainly driven by an increase in large claims experience in Veygo, for which a cautious reserving approach has been adopted, together with continued investment in the small business insurance product.
Business development costs increased to £7.9 million (H1 2022: £3.9 million), primarily attributed to small tests on potential new businesses within the insurance operations across the Group. Admiral took the decision to close its small fleet insurance business in France, which also resulted in modest closure costs.
Finance charges of £6.3 million (H1 2022: £5.7 million) primarily related to interest on the £200 million subordinated notes issued in July 2014 (refer to note 6 to the financial statements).
A loss of £2.6 million (H1 2022: £1.7 million) was attributed to compare.com in the first half of the year, which was a combination of a small loss in the business together with a small loss recognised on disposal. The sale of this US comparison business completed during the period, with no cash exchange as a result, but Admiral receiving a minority share in the acquiring business.
Other interest and investment income decreased to £2.3 million in H1 2023 (H1 2022: £8.0 million), noting that in H1 2022 £4.7 million was attributed to gains from the sale of UK government bonds which was not repeated in the current period.
** **
** **
**Group capital structure and financial position**
**Group capital position (estimated)**
* * * H1 2023*
*£bn* *H1 2022*
*£bn* *YE 2022*
*£bn*
Eligible Own Funds (post-dividend)^*1 1.25 1.24 1.20
Solvency II capital requirement^*2 0.69 0.67 0.66
*Surplus over regulatory capital requirement* *0.56* *0.57* *0.54*
*Solvency ratio (post-dividend)^*3* *182%* *185%* *180%*
^*1HY’23 Own Funds include approximately £250 million of Tier 2 capital following the Group’s recent issue of 10-year subordinated loan notes. YE’22 and HY’22 Own Funds include approximately £200 million of Tier 2 capital.
^*2Solvency capital requirement includes updated, unapproved ‘dynamic’ capital add-on.
^*3Solvency ratio calculated on a volatility adjusted basis
At the date of this report, the Group reports a strong post-dividend solvency ratio of 182%, 2 percentage points higher than reported with the Group’s 2022 year end results. The H1 2023 solvency ratio includes the benefit of the increased Tier 2 capital resulting from the Group’s recent issue of 10.5 year, £250 million subordinated loan notes. At the same time as the new issue, the Group made a tender offer for the existing £200 million subordinated loan notes, due to mature in 2024. £145 million of the 2024 notes were tendered, with the remaining £55 million of 2024 notes excluded from Own Funds at H1 2023.
Excluding the benefit of increased Tier 2 capital, the H1 2023 solvency ratio is 175%, 5 percentage points lower than at YE 2022. Whilst post-dividend Own Funds are broadly consistent with the end of 2022, the increased solvency capital requirement results in the lower solvency ratio. Higher premiums in the Group’s insurance businesses as well as growth in the Group’s loan book result contribute to the increase in solvency capital requirement.
The Group solvency on a regulatory basis as at 30 June 2023 is estimated at 150% (30 June 2022: 164%), primarily as a result of a higher solvency capital requirement. In the regulatory basis, the capital add-on approved by the PRA is fixed and so does not reflect changes in risk profile (primarily profit commission risk) across the underwriting cycle. The ratio at 30 June 2023 is based on the original £81 million fixed capital-add-on, and excludes the benefit of the additional Tier 2 capital which was finalised in early July 2023.
At the Group’s request, the PRA has recently issued notice of an updated Group capital add-on of £24 million, which is lower than the previously approved add-on of £81 million, but higher than the Group’s own assessment of the capital add-on at H1 2023. The Group expects to use this updated add-on in its QRT reporting from Q3 2023. If it were in place at the end of Q2, the estimated regulatory solvency ratio, including the benefit of the additional capital generated post 30 June and the tier 2 issue, would increase to 176%.
The Group continues to develop its partial internal model to form the basis of future capital requirements. The timescale for formal application remains under review. In the interim period before model approval, the current capital add-on basis will continue to be used to calculate the regulatory capital requirement.
** **
**Solvency ratio sensitivities**
*H1 2023* *H1 2022* *YE 2022*
UK Motor – incurred loss ratio +5% -11% -10% -11%
UK Motor – 1 in 200 catastrophe event -1% -1% -1%
UK Household – 1 in 200 catastrophe event -5% -4% -4%
Interest rate – yield curve up 100 bps -3% -1% -2%
Interest rate – yield curve down 100 bps +2% -2% +2%
Credit spreads widen 100 bps -9% -9% -9%
Currency – 25% movement in euro and US dollar -3% -3% -3%
ASHE – long term inflation assumption up 50 bps -2% -3% -3%
Loans – 100% weighting to ‘severe’ scenario^*1 -1% -1% -1%
^*1 Refer to note 7 to the financial statements for further information on the ‘severe’ scenario
*Investments and cash *
Admiral Group’s investment strategy focuses on capital preservation and low volatility of returns. The business follows an asset liability matching strategy to control interest rates, inflation and currency risk. A prudent level of liquidity is held and the investment portfolio has a high-quality credit profile.
*Investment return*
*£m* *30 June *
*2023* *30 June*
*2022* *31 Dec*
*2022*
Underlying investment income yield 3.0% 1.4% 1.6%
Investment return 58.4 27.8 64.1
Unrealised (losses)/gains on derivatives (0.2) 0.4 0.5
Movement in provision for expected credit losses (0.5) 1.4 1.8
*Total investment return * *57.7* *29.6* *66.4*
Investment income for the first half of 2023 was £57.7 million (H1 2022: £29.6 million; FY 2022 £66.4 million). Provisions for expected credit losses moved up slightly, leading to a £0.5 million loss (H1 2022: £1.4 million gain).
The investment return on the Group’s investment portfolio (excluding unrealised gains and losses and the movement in provision for expected credit losses) was £58.4 million in H1 2023 (compared to £27.8 million in H1 2022). The unrealised rate of return was higher at 3.0% (H1 2022 1.4%), mainly as a result of higher reinvestment yields.
The increase in interest rates in H1 2023 resulted in a reduction in the market value of the portfolio of £22.4 million (H1 2022: 173.2 million reduction). That movement is reflected in the statement of other comprehensive income.
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 30 June 2023 was £4,043.9 million (30 June 2022: £3,900.3 million), the higher balance at the end of the current period reflecting proceeds from Admiral’s bond issuance, offset by lower investment market values which is driven by interest rates and dividend payments. The net increase in cash and investments in the period is £143.6 million.
**Cash and investments analysis**
*£m* * * *30 June*
*2023* *30 June*
*2022* * 31 Dec 2022*
Fixed income and debt securities 2,762.3 2,461.6 2,372.7
Money market funds and other fair value instruments 713.1 866.2 934.7
Cash deposits 105.8 65.9 101.4
Cash 462.7 506.6 297.0
*Total* * * *4,043.9* *3,900.3* *3,705.8*
**Taxation**
The tax charge for the period is £60.0 million (H1 2022: £42.9 million), which equates to 25.6% (H1 2022: 19.1%) of profit before tax. The increase in the UK rate of corporation tax to 25% (from 19%) from 1 April 2023 is a significant driver of the increase.
*Principal Risks and Uncertainties*
Admiral has performed a robust assessment of its principal risks and uncertainties (PR&Us), including those which would threaten its business model, future performance, liquidity and solvency. This assessment has concluded that Admiral’s PR&Us are consistent with those reported in the Group’s 2022 Annual Report (pages 114 – 121). However, given the importance of the following topics, additional commentary has been provided on their specific impact on Admiral’s PR&Us: the changing economic outlook, Consumer Duty, cyber and operational resilience, and climate change.
*Changing Economic Outlook *
Admiral continues to closely review the Group’s position in response to ongoing financial market volatility and wider economic uncertainty. Within this focus is given to such factors as: supply chain disruption caused by geopolitical instabilities such as the ongoing Russia-Ukraine conflict and the economic slowdown in China; increased claims and wage inflation; banking uncertainties resulting from the collapse of regional US banks and the UBS rescue of Credit Suisse; and persisting as well as volatile inflation, and pressures on individual household finances, including from increasing mortgage interest rates.
Admiral continues to manage these challenges with a disciplined, long-term approach to pricing, growth and development; and by maintaining a prudent reserving approach to claims. Admiral’s ability to manage market uncertainty is further supported by a prudent approach to investment, with an emphasis on liquidity and good quality short-maturity credit.
Admiral also recognises the importance of supporting its people and customers through this challenging time, for example by, providing support to some UK staff in meeting increased energy costs, as well as working closely with its extended accident network to manage increasing claims costs associated with inflation, energy prices and supply chain disruption.
*Consumer Duty*
Admiral is well-known for its customer-centric approach and are supportive of the aim of enhancing consumer protection and clarity of communications across all financial services firms. The Group has worked hard to ensure we implemented all changes needed to enhance delivery, evidencing and monitoring of customer outcomes – drawing on external subject matter experts and consultations with the regulator to drive and deliver these enhancements. Although Admiral has implemented Consumer Duty, it will, as before, continue to review and evolve its proposition in order to continue to deliver good outcomes and clear communications for our customers.
*Cyber and Operational Resilience*
Admiral has continued to enhance its technology, cyber and operational resilience capabilities, and continues to actively monitor and manage the threats arising in this area. Key developments in these areas include security improvement programmes across the Group, on-going extensive staff training in key areas such as phishing prevention, as well as continued investment in staff and security in and around the Group’s IT infrastructure.
*Climate Change*
Admiral remains committed to recognising and understanding the threats and opportunities posed by climate change to the Group, as well as to mitigating its impact on the environment. Climate-related risks can, to varying degrees, impact on all of Admiral’s business lines, operations, and investments, and may also impact reinsurance arrangements. The Group recognises that while there are risks from delayed action, there are also opportunities from considering the challenges, including the potential to accelerate the Group’s transformation, to build resilience, to drive i