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Admiral Investor Day

Admiral Investor Day. 16 October 2009. Agenda . Kevin Chidwick, Finance Director Introduction Q3 Group Highlights Henry Engelhardt, Group Chief Executive Officer International, A long term strategy Cristina Nestares, balumba.es CEO and Christophe Sanchez, balumba.es COO

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Admiral Investor Day

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  1. Admiral Investor Day 16 October 2009

  2. Agenda • Kevin Chidwick, Finance Director • Introduction • Q3 Group Highlights • Henry Engelhardt, Group Chief Executive Officer • International, A long term strategy • Cristina Nestares, balumba.es CEO and Christophe Sanchez, balumba.es COO • Spanish Car Insurance Market • Balumba.es • Elena Betés, Rastreator.com CEO • Spanish Price Comparison Market • Rastreator.com • Questions & Answers 2

  3. A quick reminder... Admiral is different • Strong underwriting profits • High ancillary revenue per vehicle • Consistent year on year revenue & profit growth • UK car insurance currently the key driver • Low risk balance sheet • Use of reinsurance reducing underwriting risk Low Risk Profits HighlyProfitable FastGrowing • Return on Capital 54% (H1 09) • Dividend yield 5% Strongly Cash Generative 3

  4. How are we doing? Q3 2009 Highlights • Group turnover Q3 09 increased by 22% v Q3 08 to £294m • Total number of customers increased 17% to 2.01m • UK vehicles insured rose 16% to 1.81m • UK ancillary income per vehicle remains stable • Confused.com turnover increased, margins steady • Turnover from non-UK car insurance Q3 09 increased by 53% v Q3 08 to £10.3m • Launched Elephant, our new US car insurance operation, on 5th October 2009 4 Figures quoted are for the quarter ended 30 September 2009, with the percentage movements reflecting the movement from the comparative position in Q3 2008.

  5. Success of UK Car insurance enables long term international strategy Combined Ratio – Admiral vs Market • Sustained long term combined ratio advantage over the market • H1 09 UK car insurance PBT was £101.2m, 96% of group profits • UK car insurance will be the key profit driver for 2009 • 7% market share, plenty of room for continued, profitable growth • In H1 09, invested £4.1m in international and paid a dividend of £74m * Reported accident year loss ratio with reserve releases allocated back to relevant accident year, source: EMB Analysis of FSA returns ** Ernst & Young projected ultimate loss ratios 5

  6. International – A long term strategy 6

  7. Simple strategy THE INTERNET IS AN IRRESISTIBLE FORCE • Take what we know and do well and do it elsewhere • Direct car insurance • Price comparison • Target large, mature markets • Channel conflict • Small slice for a happy life • Modest investment • Take it slowly • Don’t spend a lot • Create profitable, growing, sustainable businesses 7

  8. German Market German Market – “Expense plus Loss” Ratio** • Cyclical market, currently deteriorating • 37m vehicles, €13bn premium** • Around 20% of customers shop* • A little over 10% of customers switch* • Direct and online are growing Gross of reserve releases: averaged 10% in period shown, 08 CR was 98% net of reserve releases Direct share of New Business (%)*** Growth of Price Comparison (%)**** • Online growth is being driven by aggregators • ~20% new business sales are on line * Source market research study “Wechseltatigkeit in der Ktz-Versicherung 2008 ** GDV Bruttoergebnisse Zeitreihe 1976 – 2008 *** Management estimate based on competitor reports **** Management estimate based on price comparison businesses’ reports 8

  9. Italian Market Italian Market Combined Ratio* • Cyclical market, deteriorating from a good point • 38m vehicles, €17.6bn premium* • Around 20% of customers shop** • A little over 10% of customers switch** Direct Share of New Business Sales (%)*** • Growth of Direct continues in 2009 • Online is growing; online direct and broker is ~3%** • Price comparison is very small ~0.2%**, but set to grow, three PC sites, two launched in 2009. * Source: Ania “L’assiccurazione Italiana ” ** Management estimate *** Ania - "Premi del lavoro diretto italiano 2008" 9

  10. US Market US Market Combined Ratio* • Cyclical market, deteriorating from a good point • 250m vehicles, $162bn premium • Around 30% of customers shop • Around 15% of customers switch • Direct and online are growing • Online is dominated by direct specialists Direct share of market (%)** Online sales (millions)*** Insurers’ shares of online sales (%)*** * Source: AM Best ** Source: IIA BA (2006), AM Best (2007) *** Source: Comscore 2009 Online Auto Insurance Report 10

  11. French Market Online share of New Business Sales (%)* • 31m vehicles, €17.7bn premium** • Around 30% of customers shop*** • Around 15% of customers switch** • Direct & online is growing • Price comparison is ~7% of NB distribution*** • Dominated by Assurland, 200,000 sales, €15m revenue. * Source: Management estimate based on Forrester’s & Benchmark Group data ** FFSA – Association of French Insurers *** Management estimate (based on market research) 11

  12. Planting seeds.... Oct 09 Virginia, USA Mar 09 PC in Spain Oct 07 Germany May 08 Italy Oct 06 Spain PC operations in Italy & France Vehicles Jun 09 48,100 37,500 14,800 N/A 0 Admiral Result (PBT H1 09) Pre-launch costs <£1.5m Pre-launch costs ~£250k (€2.5m) (€1.0m) (€1.1m) • Modest investment • Organic growth takes time 12

  13. Building insurance operations takes time 13 * PAT has been adjusted to today’s values using annual Retail Prices Index: annual index numbers of retail prices 1948-2008 (RPI)

  14. Here to tell you a little bit more - The Spanish team Cristina Nestares Christophe Sanchez Elena Betés 14

  15. 15 15

  16. Meeting agenda Part 1 Part 2 • Spanish Market • balumba.es 16

  17. Meeting agenda Part 1 Part 2 • Spanish Market • balumba.es 17

  18. Large and profitable market Market GWP (€b) Market combined ratio Growth 8% 7% 4% 4% 2% -2% -7% Source: ICEA 18

  19. Direct Players are growing market share Direct GWP (€b) Direct media spend (€m) MS 5,9% 6,9% 7,7% 8,4% 8,9% 9,3% 9,5% Source: ICEA and Infoadex 19

  20. Currently a broker and agent dominated market Split new business sales Distribution Study, 2007 Channel used for research Survey, 2009 • Data from different sources is variable • Phone and internet distribution are growing Source: ICEA 2007 Distribution Study and ICEA 2009 Study for car insurance clients 20

  21. Google Impressions (m) Google Cost per Click (€) Online increasingly interests motor insurers Source: Google information based on main players in the sector, June 2009 21 21 21

  22. Meeting agenda Part 2 Part 1 • Spanish Market • balumba.es 22

  23. Who we are? Size Launch Introduction to Balumba • 48,100  policy holders, €21.5m premium (year to June 09) • 250 staff including 10 senior managers • Located in Seville; just moved to new premises • Spanish branch of Admiral and wholly owned by Admiral Group • Provides car insurance via telephone, internet and price comparison • Quota share reinsurance agreement with Munich Re at 65% • Launched in October 2006 • First TV campaign in May 2007 23 23

  24. Loss Ratio after 6 months Active Policy Base Loss ratio is our main focus • Our main focus has been and continues to be to reduce Loss Ratio • APB has fallen as we have reduced our media spend and increased prices 24 24

  25. UW year loss ratio development Loss Ratio NB and RN, 2008 Loss ratio has decreased significantly Loss Ratio RN and NB, 2008 -21% • Loss Ratio for 2009 H1 has improved significantly • However, the ratio still needs to mature • Renewals book performs much better than New Business book 25 25

  26. Rate changes performed Balumba Pricing: leveraging on UK experience • Leverage on UK model • Active involvement of Peter Marissen, Group Pricing Director • Use of statistical models based on UK experience • Spanish rate structures specific but based on the UK system • Experienced pricing department • Pricing manager and senior pricing analyst come from competitors • Quick and frequent rate changes 26

  27. Questions asked to clients Balumba Pricing: an extensive use of data • More questions and more detailed answers • Use of external data • High quality data • Collected directly from customer • Sales force monitoring • Independent Underwriting team • Data Driven decisions Source: Balumba internal research 27

  28. Claims in Spain Like in the UK, it´s about motor claims But, there are some significant differences! 28 28

  29. Claims in Spain: what´s different? 29 29 Source: ICEA, Balumba research

  30. Claims in Spain: trends 30 30

  31. Claims in Balumba: highlights 31 31

  32. Claims in Balumba: highlights (II) 32 32

  33. Ancillary contribution per policy Positive results for ancillaries • Current Offer: • Non-discretionary ancillaries: legal and personal accident • Discretionary ancillaries: breakdown, premium personal accident insurance and traffic convictions protection • A good start • Renewals has similar penetration to New Business • Ancillaries offered in aggregators • Resilient to crisis • Testing new opportunities 33 33

  34. Know-how from Admiral Direct Model Location Inherited Admiral’s cost culture • Strict cost control through annual budget • Test small and then grow • Transfer of ideas like media spend and staff planning • The direct model provides cost advantages • ~1/3 policies are started and completed on internet • Low staff cost • Less staff turnover • Low offices cost 34 34

  35. Active Policy Base Media Spend (€m) Growth – the story so far • Balumba decrease in active policy base • Reduction in media spend since 2008 • Increase in prices • Very competitive market in 2009 Balumba share of voice* 6% 3% 2% *Balumba share of voice based on Infoadex data 35

  36. Origin of Balumba quotes Internet, a foundation for growth • Growing importance of online and price comparison • Balumba is Internet focused: • Brand characteristics • Continuous testing and improvement of our website and quote engine • Strong natural search positions • Leverage UK expertise • Modern, powerful & flexible IT systems 36 36

  37. Knowledge from other countries Price Comparison Media Spend Growth in the future • Brought features from other countries • Incorporated best practices from UK like credit card • Analyzing strategies used in UK like Multicar or second brand • We expect it to grow in the future • Balumba is well placed in the price comparison universe • Analyze specialized products and features • Increasing media spend and foot print • Cautiously, maintaining control on loss ratio 37 37

  38. Summary • Significant loss ratio improvement achieved • Cost focus culture means volume will drive expense ratio improvements • Resilient ancillaries and testing growth potential • Modest investment: very small losses • Controlled growth is currently our main focus *Combined ratio resulting from adding the underwriting year loss ratio and the written expense ratio 38

  39. Agenda • Price comparisons: Spanish market • About Rastreator.com • Summary

  40. Consumers are ready to welcome insurance comparison sites AVERAGE PREMIUM on auto insurance has decreased PRICE is the main motive given to select the auto insurance SWITCHERS increased as % from the new business COMPARING has become a popular activity before buying Source: Study for car insurance clients , ICEA 2009

  41. Insurers are already present on Price Comparison 90% 10% On price comparison in some form Not on price comparison Part of the same group

  42. Multiple models to price comparison but all small volumes

  43. The largest aggregator is still small but growing • Indexed to 100 in May 07, shows growth in quotes generated to Balumba from Arpem the leading aggregator on the market

  44. Agenda • Price comparisons: Spanish market • About Rastreator.com • Summary

  45. Transfer Confused.com business model Free to customer “on your side” Scalability Initial focus on car insurance, then expanding into other products First on TV Customer database Cost conscious culture People

  46. The team, the team, the team…. Previous experience: • Suppliers: Linea Directa, puntoseguro.com • Mkt: ya.com, British Airways, Cepsa, Grupo Publicis, Carat • IT: ebookers, firsteuropa Set up cost: £250k

  47. In House technology to maximize flexibility • We leverage the new .net platform developed from Confused • We set up a strong technology team based in New Delhi, giving us speed and quality on a competitive cost • We developed business information from Insurers based on Confused Business Intelligence (Corbis) • Focus on usability and reducing drop off

  48. One question per page….

  49. Fast process…

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