admiral insurance company limited - data response assignment

8/6/2019 Admiral Insurance Company Limited - Data Response Assignment

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M004LON:

Finance, funding and legislative frameworks for success

ASSIGNMENT:

Data Response Group Assignment

Prepared by

y Vishal Choudhari -3575987

y MurtazaBalsara -3628065

y Jemy Mohan -3583812

y Joseph Joy -3365872

y AnkitTiwari -3379617

y Godlysam Victor Bruce - 3353570


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A MI A INS AN E MPANY IMITE

. E ecutive Summary:

This report contains data on the economic and regulatory information with critical analysis ofthe financial data for Admiral Insurance Company Limited. It also pasteurizes the

environment in which the company operates with competitor comparison and revealing corecompetencies giving it a competitiveadvantage in the market scenario. Finally we concludethe report with recommendations for the sustainability over a long term.

2. Introduction:

Admiral Group:

Admiral group launched its operation from January 1993. Since then the company had

achieved consistent growth, year on year and now it has well over two million customers and

employs over 3500 staff. Admiral groups core focus is internet and telephone delivery of car

insurance. The groups main market is UK with a 7% share in the private motor market. Thegroup now has got a turnover of 1.08billion. Even when the market was under the shadow

of recession the group continued to grow with an 18% rise in turnover. Admiral has got nodebt, a low risk investment portfolio and a conservative reservingmethodology. The highlight

of the year 2009was 18% increase in the overall customer base.

(Source: Admiral Insurance Company, The annual report 2009)


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(S : A i l I , l t


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3. Economic and egulatory onditions:

3. Interest ate

The Interest Rates in the UK were on a deflating curve after 2007, due to the financial crisis,

to stimulate the demand. This helps built up of inflationary pressure.(www.bankofengland.co.uk)

The Group has seen a sharp fall in investment and interest income, mirroring the substantialfall in interest rates in the UK. The average rate of return on invested sterling funds andfunds on deposit was 1.8% in the first half of 2009, compared to 5.1% in 2008 as a whole

(and 5.5% in H1 2008). The Group has suffered no impairments on any of its invested

assets. (www.admiralgroup.co.uk/pdf/rns/2009 interim.pdf).


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3.2 Inflation and Admiral insurance company

No doubts inflation affects every part of economy either directly or indirectly. Broadly

speaking Admiral insurance company over the years by its effective strategies has

developed a shield which makes Admiral outstanding in economy as well as from its peers.

Broadly speaking Insurance is anything which less matters to Inflation rates in any particularcountry, as it is something which is mandatory for a smooth living. Forexample: We cannot

ignore car insurance at any time we own a motor car as it is required by law to insure yourvehicle. No matter how much is the country or nation is affected by recession or highinflation. Thus this could be called as the significant strength of the insurance service sector.

Admiral insurance is continuously experiencing tremendous growth in its revenue since itsinception. Though Europe is experiencing great fluctuations in inflation rates, Admiral

insurance company employees more than3000 candidates.


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Annual turnover and Net evenue

(Source:http://www.admiralgroup.co.uk/investor/presentations/index.php)

Inflation and Admiral Insurance Company GrowthIt can be easily inferred from the above graph that Admiral Insurance Company has been

very nimble as the years has passed by, no matter what the inflation rates were , it has seenan upward trend in its profits and turnover. Its Growth is not only limited to this, but Admiral

Insurance Company has also seen a 53% increase in customers regarded to previous

years. Further Admiral Insurance Company has a very good competitive advantage which

lies in claim handling, pricing, low expense ratio and many others. Thus these things giveAdmiral Insurance Company a thrust to keep moving in the economy.

0

200

400

600

800

1000

1200

2005 2006 2007 2008 2009

Net Revenue

Annual Turnover


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(Source: www.statistics.gov.uk)

The amount of income left for an individual for spending after payment of taxes is termed as

personal disposable income. The fluctuations in this rate can have a drastic effect on econ-

omy. From the graph it can be incurred that the house hold income is on a high note which isa good indication to all market and service providers. Admiral insurance can rely on thesestats as the healthy disposable income growth rate will encourage theirbusiness.

3. usiness onfidence

In the United Kingdom, the business confidence survey measures the level of optimism that

people who run companies have about the performance of the economy and how they feel

about their organizations prospects. Business confidence surveys can provide useful signs

about the current condition of the economy, because companies often have information

about consumer demand sooner than government statisticians do.

75.0

80.0

85.0

90.0

95.0

100.0

105.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

3.3 Personal Disposable Income of Consumers

Personal Disposable Income of

Consumers


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(Source:

http://www.tradingeconomics.com/Economics/BusinessConfidence.aspx?Symbol=GBP)

3. onsumer onfidence

Interest rates have an effect on consumer and business confidence. A rise in interest rates

discourages investment; it makes firms and consumers less willing to take outrisky invest-

ments and purchases. Even though consumers need value for their money, they are very

price sensitive too. So business confidence plays a great role in any said market. Here the

graph is precisely showing the disgraceful feeling of consumers confidence. This seriously

stagnate any business.

3. evel of egulation

From the 14th January 2005 the FSA has regulated general insurance advice in the UK. The

objective of this decision was to (in part) implement the Insurance Mediation Directive,

setting out the standards that insurers and intermediaries should meet when sellinginsurance and handling claims.

Before a seller can offer you its (UK car insurance) services, it must be authorised by theFSA or be awaiting authorisation. To receive approval it must fulfil a number of requirements

based on its professionalism and competence.


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3. nemployment ate

The unemployment rate of United Kingdom has changed dramatically according to the

National statistics.

As the insurer becomes unemployed, the company adjusts the premium in such a way that

the insurer can benefits from the insurance. From the graph we can make clear that even ifthere were fluctuation the level of unemployment steeply raised from 5% to 10% during the

2008-2010 years showing the evidence of worse recession.

However Admiral has still managed to keep the employee count to 3,541 with a total of75.9m spent on wages, average staff pay being 21,434.62.

(http://worksmart.org.uk/company/company.php?id=03849958&showShareholders)


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4. Financial Performance Analysis:

(Fame A: Admiral Insurance Company, Standard Report)


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4.1 Returnon Shareholders unds:Thi i li the fit ilit t the harehol er

for the apital i ested hi . A healthyratio suggests that the ompany ispro fitableandagoodoption for the investors. Theaveragevalueof theratio forA d-miral Insurance is . %, the lowest being theyear .

4.2Returnon Capital Employed:

(Source: A E/A I A I S A E

E gives a perfect picture of the value that a business gains from its assets and

liabilities. Thegraphclearlyshowsbiggest returnofcapital employed in theyear .Theconsequent years gives the perfect example for inflation hit economy as there is a steepdecline in thecompany E. The interest ratesrosesurprisinglyhighdue to inflationandincreased liabilities therebycausingdip in the E forAdmiral Insurance ompany.

7 97%

3 00%

8.41%

4.64%

1.05%

2005 2006 2007 2008 2009

Retu n OnC pital Employed

Return On Capital Employed


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(Source: FAME/ADMIRAL INSURANCE)

The company had a very slow and steady growth over the years 2005 to 2008 but the

growth been phenomenal over the last two years pointing a 10% steep rise in its current

ratio. Its clear indication that the company assets increased, representing an increase in the

overall customer rates.


Admiral Insurance has been able to maintain a steady Shareholders Liquidity Ratioaveraging 37%, which means that they have been able to maintain the shareholders interestin the company. In the event of Liquidation, all shareholders will receive 656.75m.

0

2

4

6

8

10

12

14

16

2005 2006 2007 2008 2009

4.3 Current Ratio

Current Ratio

0.33

0.34

0.3

0.36

0.37

0.38

0.39

0.4

0.41

0.42

0.43

2005 2006 2007 2008 2009

4.4 Shareholder's Liquidity Ratio

Sharehol er's Liqui ity Ratio


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Due to recession companies are forced to take loans and other services available to prevent

them from bankruptcy. Here the dipping graphs inferAdmirals solvency power reducing by

year on year basis. The main reason can be pointed as the increased interest rates there by

increasing the liabilities. The 0.5% increase in solvency ratio can be seen in 2009 as a signof relief from recession.


The ratio explains about the financial comparison between owners equity to the borrowedfunds.A company with high gearing (high leverage) is more vulnerable to downturns in the

business cycle because the company must continue to service its debt regardless of how

bad sales are.

23.5

24

24.5

25

25.5

26

26.5

27

27.5

28

28.5

2005 2006 2007 2008 2009

4.5 Solvency Ratio

Solvency Ratio

210

220

230

240

250

260

270

280

290

2005 2006 2007 2008 2009

4.6 Gearing Ratio

Gearing


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5. Comparison ith Competitor

ere we compare the financial performa nce of Admiral with one of its major competitorsirect ine Insurance Plc.

Asconcluded from theratioanalysis, it isquiteevident that the Profitability atiosof irectine Insurance Plc are better off than Admiral Insurance ompany. ence irect ines

ability togeneraterevenue incomparison to itscosts isbetterthan Ad miral.

owever on the other hand the Structure atios of Admiral depict a better situationcompared to irect ine. It implies how well Admiral finances its overall operations andgrowth.

ence it wasable tooffer the lowest premiums in themarket and hassurvivedwell even intheeconomiccrisissince .

(Source: ame A, Admiral Standard eport; ame B, irect ine Standard eport(PleasereferAppendix and forthedetaileddata)


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6. PEST Environment

6. P ITI A :

1) Government awareness campaign.2) Government insurance regulation.

6.2 E N MI A :

1) Inflation.

2) Rise in individual disposable income.3)Unstable interest rates.

6.3 S IA :

1) Age limit (17-21).

2) Cultural impact.

3) Population growth.

4) Increasing luxurious lifestyle.5) Consumer buying behaviour.

6.4 TE HN GI A :

1) Price comparison (e-commerce)2) Advanced customer service.3) Internet

6. EGA :

1) Regulatory compensation bill.2) Government legislations


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7. Mic eal Portors Forces for Admiral Insurance ompany

STRETEGIC

POSITION

BARRIERS TO ENTRY

i)Time andcostofentryknowledge

ii)Ecinomiesofscale

iii)Costadvantage

iv)technology barriers

MEDIUM

SUPPLIER

i)Numberofsuppliers.

ii) Switching cost.

iii)Unique service.

iv)Abilitytosubstitute

HIGH

SU STITUTE

i)Substituteperf rman e

ii)Cost ofswit hing

iii)Buyer'swillingness

MEDIUM

BU

ERS

i)Number ofCustomers

ii)Buying volumes

iii)Differen iation

iv)Priceelasticity.

v)Incentives

vi)Switching cost

HI H

COMPETETIVE RIVALRY

i)Industryconcentration

ii)Diversityofcompetetors

iii)Switching cost

MEDIUM


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8. ecommendations:

Admiral despite of doing so well should look forward for expansion in European mar-

ket.

Besides expanding, Admiral can expand its aspects in household insurance market

this can give them a large cover and claims. Admirals insurance should built a strong human Resource Management team, in or-

der to acquire and grip strong management and retain their talents. Lastly, according to us, Admiral Insurance should also provide a personal cover for

the person who has met an accident or damage.

9. onclusion:

Thus, from the above data evidence, it can clearly be inferred that Admiral company

insurance is doing extremely well in its race and is a well-performing insurance company inUnited Kingdom.

From its inception Admiral insurance company has followed a low-cost approach which

makes them grip the market and overcome every uncertain situation easily. With passing ofevery year, Admiral insurance company announces an increased amount profit percentage

which highlights their auspicious growth.

Admiral Insurance Company is highly committed to low cost Insurance approach,plus also

has a well managed human resource ready to face challenges,further Admiral insuranceshows a great value to their Equity holders by provided stupendous rates of interest.

Summing Up all, it could thus be said that Admiral Insurance Company has a great and

healthy future.


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10. References

1. Admiral roup Plc (n. d.) Admiral roup Plc [online]available from [14/ / 11]

. ame A: ame(n. d.) ame [online]available from [14/02/2011]

. ame B: ame(n. d.) ame [online]available from [14/02/2011]

4. Trading Economics(n. d.)United Kingdom Interest ate [online]available from[16/02/2011]

. Bankof England(n. d.) Bankof England [online]available from [16/02/2011]

6. ompanies ouse, Bureau Van ijk(n. d.)yourcompany: A MIRA ... [online]avai l-able from[17/02/2011]

7. oughtonMifflin ompany(n. d.) BusinessResources: ase Study [online]availablefrom [16/02/2011]


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11. APPEN IX

A S. . .T Analysis of A MI A INS AN E MPANY

ST ENGTH

Many product lines

Broad market coverage Good marketing skills

R&D skills and leadership

Brand name repute

Appropriate control systems Ability to manage strategic change

Good financial management

Good competitive strategy Car insurance is compulsory(thus

making Admiral recession-proof

WEAKNESS

Loss of customer goodwill(due to in-

flation) 100% claim is not given on accident

met cars.

OPP

ORT NITIES

enlarge core business

enlarge cost or differentiation advan-

tage enlarge into foreign markets

Apply R&D skills in new areas

Apply brand name capital in new ar-

eas

THR

EATS Increases in domestic competition

Rise in new or substitute products

Increase in regional competition Changes in demographic factors

Good government transport.

Rising labour costs

Slower market growth Uncertain inflation rates.

Petrol/diesel rates

(REFERENCEGUIDE: http://college.cengage.com/business/resources/casestudies/students)


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(B) PESTE Analysis

Political factors

1. Government campaign in travellers awareness, made the public think about the dan-gers and risk of travelling uninsured.

2. Government has implemented the minimum car insurance as third party cover, whichensure the car insurance industry a sale on every car

Economical factors

1. The people in todays economy are more work oriented so that they would prefer to

live with comfort and security, which will facilitate them to go for full insurance cover-age than that of third party coverage.

2. As we are in an economic boom now people would prefer to spend more on service

related industry like health, and insurance which will benefit them with a peaceof

mind.

Social factors

1. The number of young drivers between 17 and 21 who are likely to meet with the ac-

cident than that of elders are tremendously increasing in todays society, this itselfbring out the necessity of can insurance.

2. The increase of racing culture in todays society is also demanding the necessity of

proper car insurance.

3. The average per-personal income of todays society is increasing so that almostevery man could afford a second hand car which brings more business to car insur-

ance companies like admiral.

Tec nological factors

1. The emergence of internet and integrated information technology communication

system enhance the admiral group to increase its sales volume and to reduce trans-action cost

2. The internet allows the customers to compare insurance prices online and this helpadmiral, as a economically feasible insurance provider to grab more customers.

3. Direct line integrated online system allows the people to put their information online

so that the tele-person whom they speak can see all of their information when theycall so that they can deal and fix it immediately.

egal factors

1. The admiral group is benefitted from PROPOSED COMPENSATION BILL, which will

ensure better protection for customers.


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(C) dmiral Ratios

(D)Direct Line Ratios

(Source: ame B, irect ine StandardReport)


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admiral insurance company limited - data response assignment

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