Admiral Insurance Company Limited - Data Response Assignment
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Transcript of 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.
(Source: FAME/ADMIRAL INSURANCE)
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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(Source: FAME/ADMIRAL INSURANCE)
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.
(Source: FAME/ADMIRAL INSURANCE)
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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THE E