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annual report 2007
K ö l n
Registered Number: 03849958. Admiral Group plc, Capital Tower, Greyfriars Road, Cardiff CF10 3AZ
Registered Number: 03849958. Admiral Group plc, Capital Tower, Greyfriars Road, Cardiff CF10 3AZ
www.admiralgroup.co.uk
www.admiralgroup.co.uk
D i r e c t o r s AnD A Dv i s o r s
A D Mi rA L Gr oU P p l c
Directors and advisors
Notes
Directors
Alastair Lyons CBE (Non-executive Chairman)
Henry Engelhardt (Chief Executive)
Kevin Chidwick (Finance Director)
David Stevens (Chief Operating Officer)
Manfred Aldag (Non-executive Director)
Martin Jackson (Non-executive Director)
Keith James OBE (Non-executive Director)
Margaret Johnson (Non-executive Director)
Lucy Kellaway (Non-executive Director)
John Sussens (Senior Independent Non-executive Director)
Company Secretary
Stuart Clarke
Registered Office
Capital Tower
Greyfriars Road
Cardiff CF10 3AZ
Bankers
Bank of Scotland
Corporate Banking
55 Temple Row
Birmingham B2 5LS
Joint Corporate Brokers
Actuarial advisors
Ernst & Young
1 More Place
London SE1 2AF
HSBC Business Banking
97 Bute Street
Cardiff CF10 5NA
Citigroup Financial Markets
UK Equity Limited
Citigroup Centre
33 Canada Square
London E14 5LB
Solicitor
Norton Rose
3 More London Riverside
London SE1 2AQ
Auditor
KPMG Audit Plc
Marlborough House
Fitzalan Court
Cardiff CF24 0TE
Lloyds TSB Bank Plc
City Office
Bailey Drive
Gillingham Business Park
Kent ME08 0LS
Merrill Lynch International
2 King Edward Street
London EC1A 1HQ
Registrar
Capita IRG Plc
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
A D M I R A L G R O U P p l c 3
Contents
Chairman’s statement
Chief Executive’s statement
Financial review
Corporate governance
Remuneration report
Corporate responsibility
The Board of Directors
Financial statements
6-7
8-13
14-21
22-29
30-35
36-39
40-41
43-94
4 O U R B R A N D S
Our brands
The Group’s first brand, set up in 1993 – mainly targeting
those who traditionally pay higher than average premiums,
including drivers under-35 and those living in big cities.
admiral.com
AdmiralDirekt is the Group's second overseas brand and
launched in Germany in 2007.
admiraldirekt.de
Balumba is the Group’s first overseas brand and launched
in Spain in 2006. balumba.es
Bell was set up in 1997 – its main target market being
drivers with zero or low no claims bonus. bell.co.uk
Confused.com is an intelligent, automated car insurance
shopper. Customers input their details once, and receive
quotes from major car insurance websites.
confused.com
Diamond was created for women in response to a need
in the market place for insurance specifically for young
women drivers, which is not only good value, but also as
hassle free as possible. diamond.co.uk
Elephant.co.uk is the Group’s main online car insurance
service. Elephant passes on cost savings generated by
being an online brand to customers in the form of lower
premiums. elephant.co.uk
Gladiator is the Group’s commercial vehicle insurance
broker that was launched in April 1998. The Company acts
on behalf of several of the largest commercial vehicle
insurers in the UK. gladiator.com
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£0.
50
£0.
40
£0.
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£0.
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£0.
10
0
A D M I R A L G R O U P p l c 5
43.8p
36.1p
Financial highlights
Profit before tax
Full year dividend
2007
2006
s
n
o
i
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M
£
200
150
100
50
0
£182.1m
£147.3m
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F
£0.
50
£0.
40
£0.
30
£0.
20
£0.
10
0
43.8p
36.1p
2007
2006
2007
2006
Net revenue
Closing active vehicles
e
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t
e
N
400
350
300
250
200
150
100
50
0
£364.1m
£311.0m
)
s
0
0
0
(
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o
C
l
1,500
1,200
900
600
300
0
1,491
1,285
2007
2006
2007
2006
Combined ratios
Earnings per share
100
80
60
40
20
0
85.4%
87.3%
£0.50
£0.40
£0.30
£0.20
£0.10
0
48.6p
39.8p
2007
2006
2007
2006
6 C H A I R M A N ’ S S TAT E M E N T
“
A highlight of
2007 was our
admission in
December to the
“
FTSE 100
Alastair Lyons CBE
Chairman's statement
I ended my statement last year by
saying that our strategy remained clear
and straightforward – to continue
to grow our share of the UK direct
private motor market, maximising the
value derived from each customer
relationship, whilst also identifying
profitable opportunities, in particular
our expansion overseas, to exploit
the knowledge, skills and resources
attaching to our core business. As
Henry Engelhardt sets out in detail in
his statement, 2007 was a year in which
the Group made significant progress in
that strategic direction.
In the UK, despite market conditions
remaining challenging, Admiral
increased both underwriting and
ancillary profits whilst substantially
growing the number of vehicles
insured. At the end of the year our
brands covered 1.49 million vehicles,
16% up on December 2006. The 13%
increase achieved in profit derived
from ancillary products and services
is testament to the success we
continue to derive from our focus on
maximising the value of each customer
relationship.
An upward trend in pricing does now
seem to have become established
with a general increase of 4% over the
year as a whole. Whilst only sufficient
to offset general claims inflation,
this breaks a 5 year pattern of flat or
even slightly falling rates. Against this
backdrop we were happy to take back
5% of the underwriting risk when it
came available at the end of last year,
increasing the proportion of gross
premiums underwritten by Admiral in
2008 from 22½% to 27½%.
We have made significant progress
during 2007 with our international
strategy. Balumba.es, the on-line
Spanish motor insurer that we
launched in October 2006, ended
2007 with 47,000 customers – a great
achievement in little over a year
from a standing start. We followed
this with the launch in October 2007
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A D M I R A L G R O U P p l c 7
As at the end of the year we employed
2,500 staff, 90% of whom live and work
in South Wales. This makes Admiral a
significant part of the local community
and we encourage our staff to be
associated with the local projects that
are important to both them and their
families. During 2007 we provided
financial support to 110 such projects. In
addition Admiral sponsored a number
of high profile local events within
South Wales - the Admiral Cardiff Big
Weekend and the Swansea Waterfront
Winterland, of both of which Admiral
was the main sponsor in 2007, together
attracted over 365,000 visitors. More
details of which will be found in the
report on corporate responsibility.
This report also describes the steps
we take to minimise the impact of our
operations on the environment.
May I end by thanking everyone who
has contributed so much to achieve
the successes that I have been able to
outline above – first and foremost our
staff who make Admiral the Company
it is: our executive management team
whose quality of leadership justifies
our being placed for 8 consecutive
years amongst The Sunday Times Top
100 Companies to Work For in the UK:
and our Non-executive Directors for
their commitment and wise counsel.
Alastair Lyons
Chairman
of AdmiralDirekt.de, our new on-
line German motor insurer based in
Cologne, and we announced at the
time of our half-year results that we
were well advanced with plans to
launch into Italy during 2008. Our
teams in each country have built on
the learning of their colleagues who
launched before them and I would
take this opportunity to give them
credit for their enthusiasm, resilience,
and consequent achievements. Staying
with the international theme I should
also mention the establishment of our
new customer service centre in Halifax,
Canada where we now employ directly
over 100 staff helping to share the load
of our long opening hours with our
teams in the UK.
During the year we announced that we
had entered discussions with potential
private equity investors regarding the
sale of a minority interest in our price
comparison business, Confused.com.
Having, however, understood in detail
the implications of such an investment
for the flexibility of Confused’s
ongoing management, the Board
determined that taking such a step
would materially constrain our ability
to maximise Confused’s contribution
to the Group in the medium to long
term. We, therefore, determined that it
was in our shareholders’ best interests
to terminate the discussions and retain
a 100% interest in Confused. We will
continue our strategy of maintaining
Confused’s strong market position in
car insurance price comparison and
developing its potential to extend
into price comparison within other
product areas. 2007 was another very
successful year for Confused, profits
growing by 59% to £37million. As we
have said previously, there is growing
competition in this sector and we
will continue to work hard to defend
our leadership position in this rapidly
expanding market.
In a strongly competitive market we
are pleased to be able to announce a
24% increase in Group pre-tax profits
to £182million off an 11% growth in
total written premiums. Taking into
account the increased solvency capital
required by the higher underwriting
retained in 2008, this allows us to
lift our dividends for the year by 22%
to 43.8p per share (23.2p final: 20.6p
interim).
We have maintained our approach of
considering dividends in two parts.
The first element, being the normal
dividend, is based on a 45% pay-out
ratio. The second element - the special
dividend - derives from our principle
of returning to shareholders available
surpluses, calculated as the Group’s
net assets less its required solvency;
cover against any specific expansion
plans, being at this year-end £5m in
respect of overseas; and a prudent
margin - currently £25m - against
contingencies. Special dividends since
flotation in September 2004 amount
to £146.6m, this being in addition to
£149.5m normal dividends over the
same period.
A highlight of 2007 was our admission
in December to the FTSE 100, an
achievement of which the executive
team can be justifiably proud in slightly
over three years since flotation. Over
this period, taking dividends and share
appreciation together, we achieved a
335% total return for shareholders.
Alignment of the interests of our
staff and our shareholders is one of
our core principles. Our Free Share
Schemes are designed to strengthen
that alignment over time. We are
delighted that strong out-performance
against our plan during 2007 resulted in
eligible employees once again realising
the maximum award of £3,000 free
shares under our Approved Scheme.
The 2007 financial year marked the
end of the first 3-year period for the
Discretionary Free Share Scheme. A
54.8% outperformance of growth in
earnings per share over and above the
risk-free return qualified the scheme to
vest the maximum share entitlement
under the individual awards. Following
the 2007 awards there are now
1,645 employees participating in the
Discretionary Free Share Scheme, itself
consistent with our philosophy of
achievement through teamwork.
8 C H I E F E X E C U T I V E ’ S S TAT E M E N T
“
We had a bumper year
in absolute terms AND
we made great strides
“
towards the creation of
an even better future
Henry Engelhardt
Chief Executive’s statement
2007 was a good year for
the Admiral Group.
I should quit right there!
But I won’t. Why was it a good year?
Well, the Group made more money
than ever before. A lot more. We
made more money by serving more
customers than ever before, which
resulted in a larger turnover than ever
before. All these new records were
set within the context of a challenging,
highly competitive environment.
But those items don’t tell the whole
story. As compelling as they may
be, they only account for part of
the reason why I think the year was
successful. For me, the reason it was
such a good year is that we did all
the good things already mentioned
while simultaneously making large
investments of time and money in
our future. These investments could
easily have retarded our 2007 trading
performance. But they didn’t. We had
a bumper year in absolute terms AND
we made great strides towards the
creation of an even better future.
The list of achievements:
· Profit before tax up 24% to £182m;
· Number of customers up 16% to 1.5m;
· Net revenue up 17% to £364m;
· Turnover* up 16% to £825m;
· Confused record pre-tax profit of
£37m on 13m quotes;
· Combined ratio improved to 85%
from 87%;
· Top 10 in the FT Best Companies To
Work For; 57th in The Sunday Times
Best Companies To Work For in the
UK;
· Invested in Balumba in Spain where
we ended the year with 47,000
customers and £16.6m turnover;
· Invested in AdmiralDirekt.de, our new
operation in Germany that launched
on October 16 and had 9,000
customers on January 1, 2008;
· Began investing in an operation in
Italy which is planned to launch in
2008.
A D M I R A L G R O U P p l c 9
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· Turnover is defined and reconciled in
the financial review below
Only in a few years time, when Spain,
Germany, Italy, etc. are running at full
throttle, will we really appreciate how
good 2007 was. Here’s a closer look
at our results and the UK car insurance
market.
UK Car Insurance:
Sloth-like
The UK car insurance market cycle is
turning with sloth-like speed. Have
you ever seen a sloth up close? Their
muscle control is quite incredible.
You try moving that slowly! (See
http://animals.nationalgeographic.
com/animals/mammals/three-toed-
sloth.html) Sloths are an appropriate
metaphor for the UK car insurance
market today. The market is moving.
But slooooowwwwllllyyyy.
It is just possible that in 2007, on a
written basis, premium inflation for
the market will have outpaced claims
inflation for the first time since 2000.
But, when all the results are tallied, I
think that this move will be modest,
and, as an earned basis lags rate
movements, it won’t fully flow through
to the market’s results until 2008.
We put 4% on our rates during the year
against a claims inflation factor
above 3%.
According to Deloitte, the UK market
average pure year combined ratio for
2006 (latest data available) was 113%,
again confirming the UK’s status as
one of (if not the) most competitive
car insurance markets in the world; a
market where companies are willing to
subsidise consumers. This is the true
power of a free market. For those that
think regulation is the key to lower
prices, just look at the UK. Strange as
it might seem, collectively UK Insurers
seem happy to subsidise consumers, not
once in a while, but for years on end.
As we are fond of saying: Admiral’s
different. We actually are not keen
to subsidise consumers. We’re very
happy to offer a precise rate for every
risk and give a great service to every
customer, but we believe we should
do these things without making a
loss ourselves. The sustainable way
to offer consumers lower rates is to
operate more efficiently than the
competition.
This philosophy manifests itself in our
advantage over the market in both
claims ratio and loss ratio in the UK.
Our UK loss ratio for the year was
66.7% and our expense ratio was 16.7%
for a combined ratio of 83.4%. On a
comparable basis Deloitte predicts that
the market loss ratio will be 79% and
the expense ratio will be 28%, resulting
in a combined ratio, including releases,
of 107%.
UK ancillary income per vehicle
£66
£62
£68
£69
£69
80
70
60
50
40
30
20
10
0
825.0
708.2
638.4
m
£
548.0
427.3
1000
900
800
700
600
500
400
300
200
100
0
Underwriting
£37.5m
Profit commission
£20.4m
Underwriting
£28.3m
Profit commission
£19.9m
11%
21%
2007
£182.1m
20%
48%
13%
19%
16%
2006
£147.3m
52%
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
322
2003
2,033
2004
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
Turnover
Ancillary and other
£87.4m
Confused.com
£36.7m
Ancillary and other
£75.9m
Confused.com
£23.0m
36,727
23,080
So the market is moving, keeping up
with claims inflation, but will we see
a definitive improvement in results?
It looks like the market has found
the corner and is, well, considering
turning. But it hasn’t quite turned yet.
It is somewhat reminiscent of what
happened in 1997-98-99 (showing my
age). In 1997 the market moved up,
maybe a bit faster than claims costs
but in 1998 the market failed to follow
through on those increases, leading to
a combined ratio in excess of 120%.
Only in 1999 did the market start
to move in earnest. 1997 – 98 was
something of a false dawn, which we
might see again in the 2007 – 08 years.
2006
2007
8,823
2005
Confused profit
UK Market Combined Ratio
%
9
1
1
%
7
1
1
%
8
0
1
%
5
0
1
%
4
0
1
%
2
% 1
2
7
1
1
%
0
1
1
%
9
9
%
2
0
% 1
6
9
%
3
2
1
%
9
1
1
%
8
1
1
%
4
1
1
%
1
1
1
%
4
0
1
%
2
0
1
%
1
0
1
%
1
0
1
%
5
0
1
%
5
0
1
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
1985
1986
1994
2006
Sources - 1985 - 1991 ML Research 1991 - 2004 Deloitte analysis of UK motor 2005 - 2006 Deloitte analysis of UK Private motor
2000
2004
2002
2005
2003
2001
1990
1996
1999
1998
1988
1992
1989
1987
1995
1993
1997
1991
1 0 C H I E F E X E C U T I V E ’ S S TAT E M E N T
" The UK car insurance
market cycle is turning
with sloth-like speed "
In addition to a combined ratio more
than 20 points better than the market
average, we also grew the business. Our
UK turnover increased by 14% (£708m
to £808m) and the number of vehicles
we insure rose 13% (1.28m to 1.44m).
Our conservative reserving philosophy
meant we released £29.5m from prior
years into this year’s profit. We build
claims reserves because history tells us
that this is an area that changes quite
quickly. It has not been unusual to
see changes in the claims environment
result in additional costs to all your
open claims, some of which are four
or more years old. So there is a method
to our madness, we reserve in case the
world changes and then release if it does
not. From what I know at the moment,
I do not see any reason to believe that
this pattern will not continue.
The biggest development in the market
in 2007 has been the rapid growth of
price comparison websites as a leading
channel of distribution in the industry.
With the growth in the number of
price comparison sites during the year
and with more sites planned to launch
in 2008, I can only see this growth
trend accelerating.
The important point of this change in
distribution is that small insurers can
get exposure to consumers equal to
that of big insurers. Previously smaller
insurers wouldn’t have the muscle to
get equal exposure. The big insurers,
who could spend a lot of money
advertising and/or be on lots of broker
sites, could dominate the market by the
very fact that they were always visible
to consumers. Now small insurers,
without spending a penny of marketing
money, can get equal time. For car
insurance this is revolutionary stuff.
This means that the market is pinned
to the lowest quote for any given risk.
That is, a single firm could undercut
the entire market or, for any given
risk, one firm could undercut the rest.
Either way, this chain is going to move
only as quickly as the slowest link.
Typically the UK cycle is around seven
years (1985 cyclical worst point, to 1991
worst point, to 1998 worst point).
On an earned basis it looks like 2007
or 2008 will be the worst point in
this cycle, which is 9 or 10 years on
from the previous worst point of 1998.
Think sloths. And if the 2007 rate rises
prove to be a false dawn, think slow-
moving sloths!
Changing Distribution:
The Growth of Price
Comparison
However, when one bemoans the
effect of price comparison sites on the
market keep in mind that the leader in
car insurance price comparison is our
own Confused.com.
Confused had it rather cosy for a
number of years, amassing a market
share of some 65%. But we predicted
back in March 2006 that this market
would be a competition magnet and
we’ve only been surprised at how
long it took for the competition to
materialise. But materialise it has!
At last count there were more than
half a dozen price comparison sites
actively touting for business. Not
surprisingly, consumers have been
seduced by the ease in which they can
now get countless quotes. Overall
ad spend in the market, which had
been on the decline in 2006 began
to rise again in 2007 and continues
to rise, setting new records along the
way. Price comparison sites accounted
for approximately 35% of the car
insurance tv and press spend in 2007.
However, this figure grew throughout
the year and in January 2008 it was
UK ancillary income per vehicle
£66
£62
£68
£69
£69
80
70
60
50
40
30
20
10
0
825.0
708.2
638.4
m
£
548.0
427.3
1000
900
800
700
600
500
400
300
200
100
0
Underwriting
£37.5m
Profit commission
£20.4m
Underwriting
£28.3m
Profit commission
£19.9m
11%
21%
2007
£182.1m
20%
48%
13%
19%
16%
2006
£147.3m
52%
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
36,727
23,080
8,823
2,033
322
2003
2004
2005
2006
2007
Confused profit
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
Turnover
Ancillary and other
£87.4m
Confused.com
£36.7m
Ancillary and other
£75.9m
Confused.com
£23.0m
A D M I R A L G R O U P p l c 1 1
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%
4
0
1
%
2
0
1
%
1
0
1
%
1
0
1
%
5
0
1
%
5
0
1
UK Market Combined Ratio
%
9
1
1
%
7
1
1
%
8
0
1
%
5
0
1
%
4
0
1
%
2
% 1
2
7
1
1
%
0
1
1
%
9
9
%
2
0
% 1
6
9
%
3
2
1
%
9
1
1
%
8
1
1
%
4
1
1
%
1
1
1
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
1985
1986
1994
Sources - 1985 - 1991 ML Research 1991 - 2004 Deloitte analysis of UK motor 2005 - 2006 Deloitte analysis of UK Private motor
2000
2006
2004
2002
2005
2003
2001
1990
1999
1996
1998
1988
1992
1989
1987
1995
1993
1997
1991
67%. Advertising as a stand-alone car
insurance brand to generate direct
quotes has become awfully expensive,
as it is almost impossible for a single
brand to better the proposition of
multiple quotes put forward by price
comparison sites.
Balumba’s combined ratio totalled
232%, with a loss ratio of 141% and
an expense ratio of 91%. The ratio of
expenses to premium written during
the year was 50%, a very credible
figure. Balumba’s result was helped by
contribution from ancillary products.
Given the development of the price
comparison sector, it is not surprising
that Confused’s market share declined
during 2007. However, this decline has
been into a growing market and as a
result its quote and sale volumes have
held up rather well. We accept that
some erosion of share is unavoidable
in the short term but, as we’ve said
previously, we will spend money to
defend our market-leading position.
As you can imagine, there is still
a lot of work to do on Balumba,
particularly in the pricing and claims
areas, although high loss ratios are not
unusual in a Company’s first year of
trading. The key question surrounding
Balumba beginning the year was: could
it market to consumers efficiently?
It appears that the answer to that
question is a resounding ‘yes’ as we
gave over 396,000 quotes in the year.
The launch in Germany, some 50 weeks
after the launch in Spain, was very
satisfying. Most of the German market
renews its car insurance on January
1. In addition, consumers have to give
their insurers one month notice if they
are planning to switch. So the window
for attracting new business is about
8 weeks long, from early October
through early December.
It was imperative that we launch the
operation in October to get some
experience in the ‘season’.
Beyond the UK: Spain,
Germany and Italy
2007 was a dramatic year in the
development of the Group’s business
beyond the UK. Balumba in Spain,
which launched at the end of
October 2006, grew quickly. A year
after Balumba’s start, AdmiralDirekt.
de successfully launched in Germany
and during the year we began
implementation of our plan to launch
in Italy during 2008.
Balumba in Spain ended the year with
47,000 policyholders and a turnover
of £16.6m. It posted a loss of just
£0.7m in its first full year of trading.
1 2 C H I E F E X E C U T I V E ’ S S TAT E M E N T
Almost the end of the
report
I’m proud to say that it was another
very good year for return on capital.
This is the benefit of our model,
where we have reinsurers put up the
capital pro-rata for their share of
the underwriting, but we get profit
commissions from them when we
make profits and we keep the revenue
from everything else we do, like
Confused, for ourselves. Although
we do sacrifice some profit to get
this reinsurance support it gives us a
layer of protection against losses and
serves to make us capital efficient. A
good measure of this is our return on
capital, which in 2007 was 58% (2006:
57%). Another important indicator is
our return on income - 57% in 2007, up
from 53% in 2006.
Finally, the best possible tribute to
our staff: the first lot of free shares
distributed since our 2004 float will
vest in 2008. We want all our staff
to feel like they own part of the
Company and the best way to do that
is to give them part of the Company to
own. We are very pleased that those
who qualified in 2005 and earned
free shares will take control of those
shares later this year. Our staff give a
lot of themselves to the organisation
and it is great to share the fruits of our
communal efforts with every person in
the Company.
Once again, the key test was marketing.
And, once again, we were pleased by
the results. AdmiralDirekt.de made
9,000 sales with income of £1.7m, all
with a policy start date of January 1,
2008. Lo and behold, the first claim
occurred the morning of January 2,
2008, when one of our customers hit a
boar at 5:30 a.m. I suspect this will be
a first claim not soon forgotten!
Project Chianti, otherwise known as
The Italian Job, is moving forward at
pace with an anticipated launch later
in 2008. The operation will be based
in Rome.
Gladiator grows and we
begin to take calls in
Canada
Other notable accomplishments
during the year include the growth
in customer numbers of Gladiator
Commercial and the creation of a call
centre in Halifax, Nova Scotia primarily
to handle evening calls from the UK.
Gladiator is our commercial vehicle
intermediary and it turned in a
profit before tax of £2m. However,
Gladiator increased its customer base
significantly during the year and now
boasts over 62,000 customers up from
43,000 last year (+44%), which bodes
well for the future
A combination of a strong service
ethic and a four-hour time difference
led us to open a call centre in eastern
Canada. We now have almost 100
agents on the phones, taking over
from the UK in the early evening (mid-
afternoon there).
A D M I R A L G R O U P p l c 1 3
3
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Last point of note, at the end of 2007
we joined the FTSE 100. We are the
only Welsh Company in this elite club.
In fact, we are only the second Welsh
Company in history to be in the 100,
the first one having been a member for
9 months back in 1992-93. (I hope that
by the time you read this we’re still a
member!) Our rapid rise into the FTSE
100 is a tribute to all the staff across
our six sites in five countries who are
building a great business by working
hard every day to give customers great
service.
This is a very exciting time for the
Admiral Group and we’re looking
forward to another great year in 2008.
Henry Engelhardt
Chief Executive Officer
1 4 F I N A N C I A L R E V I E W
UK ancillary income per vehicle
£66
£62
£68
£69
£69
80
70
60
50
40
30
20
10
0
825.0
708.2
638.4
m
£
548.0
427.3
1000
900
800
700
600
500
400
300
200
100
0
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
Turnover
Financial review
Key financial highlights
Group profit before tax again grew strongly in 2007 – moving up 24% to £182.1m from £147.3m last
year. Earnings per share grew 22% to 48.6p from 39.8p.
Underwriting profit
Profit commissions
Ancillary and other net income
Confused.com profit
Share scheme, pre-launch and other charges
2007
£000
37,502
20,448
93,363
36,727
(5,942)
2006
£000
28,351
19,926
79,262
23,080
(3,277)
Profit before tax
182,098
147,342
Underwriting
£37.5m
Profit commission
£20.4m
Underwriting
£28.3m
Profit commission
£19.9m
11%
21%
2007
£182.1m
20%
48%
13%
19%
16%
2006
£147.3m
52%
Ancillary and other
£87.4m
Confused.com
£36.7m
Ancillary and other
£75.9m
Confused.com
£23.0m
Group underwriting profits grew significantly in 2007 (by around one third) – this despite a very
slowly turning pricing environment in the UK motor market and the inclusion of a first full year’s
result for Balumba.es (the Group’s Spanish motor insurer).
In UK motor, the Group reduced its share of the underwriting to 22.5% (from 25.0%) in a year
when this cycle possibly hit its worst point. The number customers grew significantly once again:
UK private vehicle count
Spanish private vehicles
Gladiator Commercial vehicles
Total vehicle count
2007
000s
1,382
47
62
1,491
2006
000s
1,240
2
43
1,285
Within the overall increase of 16%, UK vehicles insured grew by 11½%, and Gladiator grew by 47%.
Balumba increased its customer base to end the year at 47,000 (having ended 2006, two months
after launch with around 2,200)
October 2007 saw the successful launch of AdmiralDirekt.de – the Group’s German car insurer,
based in Cologne. In the relatively short period before the end of the year, AdmiralDirekt sold
9,000 policies, generating around £1.7m in premium and ancillary income. Cover for these risks
started 1 January 2008.
A more detailed split of Group profit, including geographical analysis follows below. Each
element is discussed in the following notes.
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
36,727
UK Market Combined Ratio
%
9
1
1
%
7
1
1
%
8
0
1
%
5
0
1
%
4
0
1
%
2
% 1
2
7
1
1
%
0
1
1
%
9
9
%
2
% 1
0
6
9
%
3
2
1
%
9
1
1
%
8
1
1
%
4
1
1
%
1
1
1
%
4
0
1
%
2
0
1
%
1
0
1
%
1
0
1
%
5
0
1
%
5
0
1
23,080
8,823
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
2,033
322
2003
2004
2005
2006
2007
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Confused profit
Sources - 1985 - 1991 ML Research 1991 - 2004 Deloitte analysis of UK motor 2005 - 2006 Deloitte analysis of UK Private motor
1
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A D M I R A L G R O U P p l c 1 5
UK
GROUP
£000
EUROPE
£000
39,976
20,448
91,517
36,727
(2,474)
-
1,846
-
2007
TOTAL
£000
37,502
20,448
93,363
36,727
UK
GROUP
£000
EUROPE
£000
28,541
19,926
79,186
23,080
(190)
-
76
-
2006
TOTAL
£000
28,351
19,926
79,262
23,080
(4,534)
(1,408)
(5,942)
(2,782)
(495)
(3,277)
Underwriting profit
Profit commissions
Ancillary and other net
income
Confused.com profit
Share scheme, pre-launch
and other charges
Profit before tax
184,134
(2,036)
182,098
147,951
(609)
147,342
Europe figures include the results of Balumba in Spain, and set up and pre-launch costs relating
to AdmiralDirekt (Germany) and the Italian business.
Turnover, comprising total premiums written (including premium underwritten by co-insurers),
gross other income and net investment return (as a measure of the combined size of the Group’s
businesses) continued to grow strongly:
UK
GROUP
£000
617,023
174,641
16,662
2007
2006
EUROPE
£000
TOTAL
£000
UK
GROUP
£000
EUROPE
£000
TOTAL
£000
14,228
2,237
133
631,251
176,878
16,795
566,048
560
566,608
131,536
9,925
85
-
131,621
9,925
Total premium written
Other revenue
Net investment return
Turnover
808,326
16,598
824,924
707,509
645
708,154
UK ancillary income per vehicle
£66
£62
£68
£69
£69
80
70
60
50
40
30
20
10
0
825.0
708.2
638.4
548.0
427.3
m
£
1000
900
800
700
600
500
400
300
200
100
0
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
Turnover
A reconciliation of turnover to figures appearing in the income statement is shown at the end of
this review.
Overall growth of 16% was made up of an 11% increase in total premium, a 34% rise in other
revenue (predominantly ancillary income and Confused.com revenue) and a 69% increase in
investment return after a disappointing investment year in 2006. Net revenue in the income
statement increased by 17% to £364m.
Balumba (providing all the European figures above) contributed 2% of total Group turnover.
Profit commission
£20.4m
Underwriting
£28.3m
Profit commission
£19.9m
Underwriting
£37.5m
11%
21%
2007
£182.1m
20%
48%
13%
19%
16%
2006
£147.3m
52%
Ancillary and other
£87.4m
Confused.com
£36.7m
Ancillary and other
£75.9m
Confused.com
£23.0m
2004
2005
2006
2007
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Confused profit
Sources - 1985 - 1991 ML Research 1991 - 2004 Deloitte analysis of UK motor 2005 - 2006 Deloitte analysis of UK Private motor
36,727
UK Market Combined Ratio
%
9
1
1
%
7
1
1
%
8
0
1
%
5
0
1
%
4
0
1
%
2
% 1
2
7
1
1
%
0
1
1
%
9
9
%
2
% 1
0
6
9
%
3
2
1
%
9
1
1
%
8
1
1
%
4
1
1
%
1
1
1
%
4
0
1
%
2
0
1
%
1
0
1
%
1
0
1
%
5
0
1
%
5
0
1
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2,033
322
2003
23,080
8,823
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
1 6 F I N A N C I A L R E V I E W
Underwriting
Underwriting arrangements
During 2007 the Group retained 22.5% (2006: 25%) of UK motor underwriting on a net basis. 60%
of the total is underwritten by Great Lakes Reinsurance (UK) Plc (a subsidiary of Munich Re) under
a long term co-insurance arrangement. The remaining 17.5% is ceded to two reinsurers – Swiss Re,
10.0% and Partner Re, 7.5%.
The nature of the co-insurance arrangement is such that 60% of all motor premium and claims
for the 2007 year accrues directly to Great Lakes and does not appear in the Group’s income
statement. Similarly, Great Lakes reimburses the Group for its proportional share of expenses.
The Group also retains 35% of the risks generated by Balumba in Spain and AdmiralDirekt in
Germany, with 65% being reinsured.
In 2008, the share of the UK motor underwriting retained increases to 27.5% as Great Lakes’ share
declines by the 5% set out in the revised co-insurance arrangement.
Underwriting results
Total premiums increased by around 11% to £631m from £567m – Balumba accounted for around
£14m of this total (having written less than £1m in 2006). The total number of vehicles insured
(excluding Gladiator) rose by around 15% to 1.43m from 1.24m. Balumba grew its customer count
from around 2,000 to 47,000 at the end of the year.
Vehicle growth exceeded premium growth due in part to lower average premiums in Spain and
also in the UK due to mix effects. As noted above, German motor risks sold in the latter part of
2007 do not incept until 2008 and are not included in the premium or results.
Premium rate rises of around 4% have been implemented in the UK and data suggests similar
increases have been seen across the market.
Net insurance premium revenue fell marginally to £142m - due to the decrease in the proportion
of UK premium retained.
The overall loss ratio improved to 68% - four points down from the 72% reported in 2006. The
UK motor ratio improved significantly to 67% from 72%. Balumba’s reported loss ratio in its first
full year of trading is 141%.
Positive development of prior year reserves continued, and the 2007 result includes releases of
almost £30m (up from £21m last year) – improving the loss ratio by around 21 percentage points.
The pure year loss ratio (including Balumba) declined to 88% from 86% in 2006.
The UK expense ratio was 16.7%, up 1 percentage point on the previous year primarily as a
result of lower average premiums resulting from changes in the mix of the portfolio. When the
Balumba figures are included, the Group expense ratio totals 17.7%.
The expense ratio is reconciled to the figures included in the income statement in note 9 below,
whilst the underwriting result is reconciled later in this review.
As a consequence, the Group’s combined ratio improved by two points to 85% (87% in 2006).
Taken together with the increase in premiums, this resulted in a 32% rise in underwriting profits,
to £37.5m from £28.4m.
Part VII transfer
During November 2007, the Group completed the transfer of the remaining liabilities of
Syndicate 2004 (through which the Group underwrote UK private motor insurance from 2000
to 2002) into one of its active insurers - Admiral Insurance Company Limited. Whilst the
transfer has a number of advantages in terms of simplifying Group structure and administrative
requirements, the transfer has not had a material financial impact on the results in 2007.
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A D M I R A L G R O U P p l c 1 7
Profit commission
The Group earns profit commission through its co-insurance and reinsurance arrangements.
The amount receivable is dependent on the volume and profitability of the insurance business,
measured by reference to loss and expense ratios.
Around £20.4m was recognised in 2007, which is £0.5m higher than 2006, although as reported
last year, the 2006 total included £2.0m relating to earlier year contracts (£0.5m in 2007).
The reinsurance contracts entered into with Munich Re in Spain and Germany also have profit
commission clauses, though these require the underwriting results to move into cumulative
profitability before any commission will be earned.
Ancillary and other net income
Ancillary profit
Interest income
Instalment income
Gladiator Commercial profit
UK
GROUP
£000
75,836
7,745
5,936
2,000
2007
2006
EUROPE
£000
TOTAL
£000
UK
GROUP
£000
EUROPE
£000
TOTAL
£000
1,767
77,603
66,946
76
67,022
32
47
-
7,777
5,983
2,000
4,539
5,676
2,025
-
-
-
4,539
5,676
2,025
91,517
1,846
93,363
79,186
76
79,262
Ancillary profit & instalment income
This is primarily made up of commissions and fees earned on sales of insurance products and
services complementing the motor policy, but which are underwritten by external parties. It
continues to be a major component of Group profit.
Net ancillary contribution increased by 16% in 2007 to £78m from £67m, broadly in line with
the growth in vehicles insured. Gross UK ancillary income per average active vehicle was £69
for both years, with no notable change in the component elements. Balumba has also been
successful in selling ancillary products, with income per policy sold of around £45.
UK ancillary income per vehicle
£66
£62
£68
£69
£69
80
70
60
50
40
30
20
10
0
825.0
708.2
638.4
548.0
427.3
m
£
1000
900
800
700
600
500
400
300
200
100
0
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
Turnover
Underwriting
£37.5m
Profit commission
£20.4m
Underwriting
£28.3m
Profit commission
£19.9m
11%
21%
2007
£182.1m
20%
48%
13%
19%
16%
2006
£147.3m
52%
36,727
UK Market Combined Ratio
%
9
1
1
%
7
1
1
%
8
0
1
%
5
0
1
%
4
0
1
%
2
% 1
2
7
1
1
%
0
1
1
%
9
9
%
2
% 1
0
6
9
%
3
2
1
%
9
1
1
%
8
1
1
%
4
1
1
%
1
1
1
%
4
0
1
%
2
0
1
%
1
0
1
%
1
0
1
%
5
0
1
%
5
0
1
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2,033
322
2003
23,080
8,823
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
Ancillary and other
£87.4m
Confused.com
£36.7m
Ancillary and other
£75.9m
Confused.com
£23.0m
2004
2005
2006
2007
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Confused profit
Sources - 1985 - 1991 ML Research 1991 - 2004 Deloitte analysis of UK motor 2005 - 2006 Deloitte analysis of UK Private motor
Gladiator Commercial
Gladiator made a contribution to profit of £2m in 2007, consistent with 2006. In a highly
competitive market, Gladiator grew market share by increasing its customer base by 44% to
62,000. This was partly as a result of new distribution through price comparison sites, and partly
the result of improved conversion from a larger and more comprehensive panel.
Gladiator offered 230,000 quotes in 2007, up 68% on last year. Increased investment in new
business growth meant that Gladiator’s net margin reduced to 27% from 34% in 2006.
1 8 F I N A N C I A L R E V I E W
Confused.com
Confused.com profit
2007
£000
2006
£000
36,727
23,080
Confused enjoyed another year of significant growth in 2007. Increased media activity (along
with the return of large numbers of previous visitors to the site) led to an increase in the total
number of insurance quotes provided by Confused of 43%, to 13.0m from 9.1m in 2006. Revenue
increased by 81% to £69.2m from £38.5m.
Operating profit rose 59% to £36.7m from £23.1m in 2006.
Confused also increased its share of the home and travel insurance markets by improving market
coverage and panel depth, and revenue growth has also been achieved in a number of other
general insurance areas including van and motorbike insurance. Home insurance quotes increased
by almost 80% to 0.9m from 0.5m, whilst Confused also gave 0.5m travel insurance quotes (up
substantially from just over 0.1m last year).
As noted in the Chief Executive’s statement, Confused faced a significant increase in the level
of competition in the motor insurance price comparison market during 2007. In spite of this,
Confused maintained its position as market leader. Advertising spend by the main competitors in
this market has grown substantially over the past year and continues to grow into 2008.
International operations
Balumba has completed its first full year of trading and has progressed well. Management
are pleased with the development of the business, which has grown ahead of plan and is well
positioned to continue to grow market share and move towards profitability. The European
figures above show Balumba made a loss of around £0.7m in the year (the net effect of the
underwriting loss, offset by ancillary profits).
AdmiralDirekt launched successfully in Cologne, Germany during October, just under one year
after Balumba. The German market brings new challenges, not least the large proportion of
motor policies that incept 1 January. AdmiralDirekt sold around 9,000 policies in its short period
of trading, managing to commence operating in time to target the January renewals. The business
will continue to develop its infrastructure over the coming months, building towards the next
peak period in Q4 2008.
The Group’s Italian motor insurer is expected to launch later in the year. The business, based
in Rome, is making made good progress towards launch in all the key areas (management team,
premises, IT system, pricing and marketing).
Earnings per share (EPS)
Earnings per share rose 22% to 48.6p from 39.8p in 2006. The difference in the increase compared
to pre-tax profit growth (which was 23.5%) is due to the issue of new share capital in the year to
the trustees of the Group’s share schemes.
Taxation
The taxation charge reported in the income statement is £54.7m (2006: £43.6m) representing
30.0% of pre-tax profit (2006: 29.6%).
Refer to note 13 to the financial statements for further detail on taxation.
A D M I R A L G R O U P p l c 1 9
Investments and cash
The Group invests its insurance funds in three AAA-rated sterling liquidity funds, which have
performed very consistently in 2007. Against a background of extreme volatility in other asset
classes during the year, the three funds delivered a net return of 5.6%, with the variance between
the highest and lowest fund’s performance in the year being just 0.1%.
The funds target a 7-day LIBID return with capital security and low volatility and they continue to
achieve this.
Of the total Group cash and investments of £491m at the end of the year (2006: £449m), £336m
(2006: £258m) was held in these money market funds.
Total investment return and interest income was £24.6m up substantially from the £14.5m earned
last year. This increase is due in part to the higher level of cash and investments held, but more
to the increase in investment return rates.
Dividends
The Directors propose a final dividend for 2007 of 23.2p per share, which is made up of 11.6p per
share normal element, plus 11.6p per share special distribution based on the Group’s resources at
the end of the year.
The total distribution for 2007 will be 43.8p per share – up 21% on the 36.1p declared in 2006.
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2 0 F I N A N C I A L R E V I E W
Reconciliation of turnover
Insurance premium revenue
Change in gross unearned premium provision
2007
£000
233,075
27,826
2006
£000
188,288
8,090
Group premiums written
260,901
196,378
Add: co-insurer’s share of premium written
370,350
370,230
Total premiums written
Other revenue
Net investment return
Turnover
Reconciliation of underwriting profit
Net insurance premium revenue
Net insurance claims
Net expenses related to insurance contracts
Investment return (see note 8)
631,251
176,878
16,795
566,608
131,621
9,925
824,924
708,154
2007
£000
142,236
(99,795)
(21,734)
16,795
2006
£000
144,955
(107,145)
(19,384)
9,925
Underwriting profit
37,502
28,351
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A D M I R A L G R O U P p l c 2 1
Reconciliation of loss ratios reported
Net insurance claims
Deduct: claims handling costs
Adjusted net insurance claims
Net premium revenue
Loss ratio
Reconciliation of alternative operating ratios
2007
£000
99,795
(3,471)
96,324
142,236
67.7%
2006
£000
107,145
(3,538)
103,607
144,955
71.5%
2007
£000
2006
£000
Profit before tax
182,098
147,342
Income:
Net insurance premium revenue
Other revenue
Return on income
142,236
176,878
144,955
131,621
319,114
276,576
57%
53%
2 2 C O R P O R AT E G O V E R N A N C E
Corporate governance
The Combined Code on Corporate Governance
This report explains key features of the Group’s governance structure, how it applies the
principles set out in the revised Combined Code on Corporate Governance (the ‘Code’), and the
extent to which the Company has complied with the provisions of the Code.
The Board complied with the Combined Code in all respects during 2007 except for Code D.1.1,
which requires that the Senior Independent Director should attend meetings with a range of
shareholders. The Company has a comprehensive programme of meetings and dialogue with
institutional investors. The views of investors expressed through this dialogue are communicated
to the Board as a whole through the investor relations report. All Directors can, therefore,
develop an understanding of issues or concerns of major shareholders should any be raised.
Feedback from shareholders suggests that these arrangements for communication between
the Company and its shareholders continue to be viewed by them as effective. The Senior
Independent Director is always available to meet with individual shareholders on request to
ensure the Board is aware of any shareholder concerns that cannot be resolved through the
routine mechanisms for investor communications.
The Admiral Group Board
The Board is the principal decision making forum for the Group providing leadership either
directly or through its Committees of Directors and delegated authority. It is responsible to
shareholders for setting and achieving its strategic objectives and for its financial and operational
performance. The Board has adopted a formal schedule of matters specifically reserved to it
including corporate strategy, approval of budgets and financial results, policies in relation to risk
management, health and safety and environmental matters, new Board appointments, proposals
for dividend payments and the approval of major transactions. This schedule is reviewed on an
annual basis and was last reviewed on 30 January 2008.
The Board met on eight occasions in 2007. In addition the Board held a strategy day and visited
its operations in Germany. Agendas and papers are circulated to the Board in a timely manner in
preparation for Board and Committee meetings. These papers are supplemented by information
specifically requested by the Directors from time to time. All Directors are, therefore, able to
bring independent judgement to bear on issues such as strategy, performance, and resources.
Additional meetings are called when required and there is frequent contact between meetings,
where necessary, to progress the Company’s business.
During the year the Board carried out an evaluation of itself and its Committees. An external
consultant facilitated the evaluation process. The process consisted of the completion of a
questionnaire followed by one-to-one discussions between each Director and the facilitator. A
final detailed report was discussed at a separate meeting in January 2008 at which the Chairman
presented the findings and the Board had an open discussion resulting in a number of agreed
recommendations. The evaluation concluded that the Board and its Committees performed well
during the year and are effective in meeting their objectives and fulfilling their obligations. The
main recommendations were related to the focus of Board meeting discussions and improving
the process by which Non-executive Directors can arrange to spend time informally with senior
management within the Group.
The Chief Executive, to whom they report, appraises the performance of the individual Executive
Directors annually. The Chairman, taking into account the views of the other Directors, conducts
the performance appraisal of the Chief Executive. The performance of the Chairman is reviewed
by the Non-executive Directors, led by the Senior Independent Non-executive Director (John
Sussens), taking into account the views of the Executive Directors.
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A D M I R A L G R O U P p l c 2 3
John Sussens gave individual feedback to the Chairman and was able to confirm that the
performance of the Chairman continues to be effective, and that the Chairman continues to
demonstrate commitment to his role.
The number of full Board meetings and Committee meetings attended by each Director during
2007 is provided in the table below.
Scheduled
Board
meetings
Audit
Committee
meetings
Nominations
Committee
meetings
Remuneration
Committee
meetings
Total meetings held
Alastair Lyons (Chairman)
Henry Engelhardt
(Chief Executive)
David Stevens
(Chief Operating Officer)
Kevin Chidwick
(Finance Director)
Manfred Aldag
Martin Jackson
Keith James
Margaret Johnson
Lucy Kellaway
John Sussens
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8
8
8
8
6
8
8
7
8
8
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2
2
2
5
5
5
5
The roles of the Chairman and Chief Executive
The Board has approved a statement of the division of responsibilities between the Chairman
and the Chief Executive. The Chairman is primarily responsible for the workings of the Board
and is not involved in the day-to-day aspects of the business. Save for matters reserved for
decision by the Board, the Chief Executive, with the support of the other Executive Directors,
is responsible for the running of the business, carrying out the agreed strategy adopted by the
Board and implementing specific Board decisions relating to the operation of the Group. The
statement of division of responsibilities and matters reserved for decision by the Board were
reviewed in January 2008.
Board balance and independence
The Board currently comprises ten Directors, the Chairman (who was independent on
appointment), three Executive Directors, five independent Non-executive Directors and one
Non-executive Director who is employed by a significant shareholder and is not, therefore,
considered independent. The Board has accepted the Nominations Committee’s assessment of
the independence of the five Non-executive Directors and is not aware of any relationships or
circumstances which are likely to affect, or could appear to affect, the judgement of any of them.
Independent Non-executive Directors are currently appointed for fixed periods of three years,
subject to election by shareholders.
2 4 C O R P O R AT E G O V E R N A N C E
The initial three-year period may be extended for one further three-year period and the Board
may invite the Non-executive Director to serve for a further three-year period, subject to re-
election by shareholders. Their letters of appointment may be inspected at the Company’s
registered office or can be obtained on request from the Company Secretary.
In the view of the Board, the Independent Non-executive Directors are of sufficient calibre and
number that their views carry significant weight in the Board’s decision making.
Details of the Chairman’s other commitments are included in the Chairman’s biography. The
Chairman does perform a number of other non-executive roles outside of the Group but the
Board is satisfied that these are not such as to interfere with the performance of his duties within
the Group.
John Sussens has been appointed as the Senior Independent Non-executive Director. He is
available to shareholders if they have concerns that contact through the normal channels of
Chairman, Chief Executive or Finance Director has failed to resolve or for which such contact is
inappropriate.
In accordance with the Company’s Articles, which provide that a set number of Directors retire
by rotation and stand for re-election at each AGM, David Stevens and John Sussens will retire by
rotation and seek re-election by shareholders at the forthcoming AGM.
The Directors are given access to independent professional advice at the Group’s expense, should
they deem it necessary, to carry out their responsibilities.
Professional development
On appointment, Directors take part in a comprehensive induction programme where they
receive financial and operational information about the Group, details concerning their
responsibilities and duties, as well as an introduction to the Group’s governance and control
environment.
This induction is supplemented by visits to the Group’s head office in Cardiff and meetings with
members of the senior management team and their departments. Throughout their period in
office the Directors are regularly updated on the Group’s business; legal matters concerning
their role and duties; the competitive environments in which the Group operates; and any other
significant changes affecting the Group and the industry in which it operates.
The Board receives presentations from senior managers from within the Group on a regular basis.
Relations with shareholders
The Investor Relations team has day-to-day primary responsibility for managing communications
with institutional shareholders through a combination of briefings to analysts and institutional
shareholders, both at the half-year and full year results. Site visits and individual discussions
with the Executive Directors are also arranged throughout the year with individual shareholders.
Regular dialogue with shareholders helps to ensure that the Company’s strategy is understood
and that any issues are addressed in a constructive way.
In fulfilment of the Chairman’s obligations under the new Combined Code, the Chairman would
give feedback to the Board on issues raised with him by major shareholders, although to date
there have been no such issues.
A D M I R A L G R O U P p l c 2 5
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This is supplemented by monthly feedback to the Board on meetings between management and
investors. External analyst reports are circulated to all the Directors.
The Chairmen of the Audit, Remuneration and Nominations Committees attend the Company’s
Annual General Meeting along with other Directors, and are available to answer shareholders’
questions on the activities of the Committees they chair.
The Group maintains a corporate website (www.admiralgroup.co.uk) containing a wide range of
information of interest to institutional and private investors.
Board Committees
The principal Committees of the Board - Audit, Remuneration and Nominations - all comply fully
with the requirements of the Combined Code. They are all chaired by an independent Director
and exclusively comprise, or, in the case of the Nominations Committee (where the Chairman
of the Board is a member), have a majority of, independent Directors. The Committees are
constituted with appropriate written terms of reference that are reviewed annually and minutes
of the Committee meetings are circulated to the Board.
The Audit Committee
Constitution and membership
The membership at the year-end was Martin Jackson (Chairman), Keith James, and Margaret
Johnson. The Company Secretary acts as Secretary to the Committee. Appointments to the
Committee are for a period of up to three years, which may be extended for two further three
year periods, provided the Director remains independent. The Committee meets at least three
times per year and has an agenda linked to events in the Company’s financial calendar.
The Board considers that the members of the Committee have the appropriate competence
and experience to carry out their duties and further considers that Martin Jackson (Committee
Chairman) has the appropriate recent and relevant financial experience having held the position
of Group Finance Director of Friends Provident Plc between 2001 and 2003 and being a Fellow of
the Institute of Chartered Accountants, which imposes requirements for Continuing Professional
Development. Ongoing training is provided to all members, and this is intended to cover relevant
developments in financial reporting, company law and the various regulatory frameworks. The
Terms of Reference of the Audit Committee include all matters suggested by the Code.
Other individuals such as the Finance Director, Chief Operating Officer, Chief Executive, Chairman
of the Board, the Heads of Risk, Compliance and Internal Audit and representatives from within
the Company may be invited to attend all or part of any meeting as and when appropriate. The
external auditors will be invited to attend meetings of the Committee on a regular basis.
Summary of key activities during 2007
During the year the Committee reviewed the following:
· Annual report and interim results;
· Reports from the Group’s internal audit department on the effectiveness of the Group’s risk
management procedures, details of key audit findings and actions taken by management;
· Effectiveness of the Group’s system of internal control;
2 6 C O R P O R AT E G O V E R N A N C E
· Reports from the external auditors on their audit, proposed audit scope, fees and auditor
independence;
· Performance of the internal audit department through self assessment (the internal audit
department is subject to external assessment once every five years);
· The Group’s ‘whistleblowing’ procedures.
The Committee adopted a policy on non-audit services that, amongst other things, requires that
the Committee approve all proposals for expenditure of over £30,000 on non-audit services.
The policy was last reviewed on 28 November 2007. The Group’s auditors, KPMG Audit plc,
provide some non-audit services, the majority of which comprise compliance services on the
various taxation issues within the Group, and which are not considered by the Committee to
compromise their independence as auditors. In addition, the Committee reviewed the fees with
respect to VAT services in relation to the Group’s Gibraltan insurance Company and agreed that
the work carried out did not compromise the auditor’s independence. The level of non-audit fees
is reviewed at each Committee meeting and details are included in note 10 of the Report and
Accounts.
The Head of Internal Audit is invited to all Committee meetings and provides a range of
presentations and papers to the Committee, through which the Committee monitors the
effectiveness of the Group’s internal controls. Committee members receive copies of all
internal audit reports and are given the opportunity to raise questions on the content and
recommendations contained within the reports. The Committee approves the internal audit
programme at the start of each calendar year and monitors the progress made in achieving the
plan.
During the year, the Committee received a presentation from the Group’s external actuaries, Ernst
& Young, on reserving methodologies used in assessing the Group’s claims reserves.
The Committee also approves the annual compliance review plan and receives copies of these
reports. The Group’s Company Secretary, who has responsibility for the Compliance and Risk
management functions, provides the Committee with a quarterly Compliance Officer’s report
summarising the activities in this area.
The Committee has a policy that provision of external audit services be tendered every five
years. This was last carried out in 2006 when the decision was made to retain the services of the
incumbent external auditors. At the same time the external audit partner was rotated.
The Nominations Committee
The membership at the year-end was Keith James (Chairman), Lucy Kellaway and Alastair Lyons.
The Company Secretary acts as Secretary to the Committee. The Committee normally invites
the Chief Executive to attend meetings.
The Committee has formal terms of reference, which were last reviewed on 22 November 2007.
The Committee met on two occasions during 2007.
The Committee leads the process for making appointments to the Board or where the appointee
is likely to become a Board member. The Committee ensures there is a formal, rigorous and
transparent procedure for the appointment of new Directors to the Board through a full
evaluation of the skills, knowledge and experience of Directors. The Committee also ensures
plans are in place for orderly succession for appointments to the Board, and reviews the plans for
other senior management positions. Responsibility for making senior management appointments
rests with the Chief Executive.
A D M I R A L G R O U P p l c 2 7
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During 2007, the Committee advised the Executive team on the expectations for succession
planning. Planning for the most senior management positions was formerly in place but below
this, succession planning within the Group was not well documented. The People Services
Manager has started a process of documenting and improving the approach taken by the Group
to assess and monitor succession planning throughout the Group.
The Committee reviewed the current Board size, structure, and composition and confirmed that
no further changes were required and that the leadership of the organisation was such that the
Company could continue to compete effectively in the marketplace in which it operates.
The Remuneration Committee
The membership at the year-end was John Sussens (Chairman), Martin Jackson and Margaret
Johnson. The Company Secretary acts as Secretary to the Committee. The Committee invites
the Chief Executive and Chairman to attend the meetings where it deems appropriate.
The Committee has formal terms of reference, which were last reviewed on 22 November 2007.
The Committee met five times during 2007.
During the year the Committee carried out the following tasks:-
· Reviewed the Group’s overall remuneration policy and strategy;
· Recommended for approval individual remuneration packages for Executive Directors, and
Company Secretary;
· Reviewed the rules and performance measures of the Group share schemes and recommended
for approval the grant, award, allocation or issue of shares under such schemes.
A separate remuneration report is included within the Report and Accounts.
The Committee did not use the services of any external consultants during the year but did
receive reports produced by various external agencies to enable it to make judgements on the
levels of remuneration for the Directors and to review the remuneration of the Group’s senior
executives.
Internal control and risk management
The Board is ultimately responsible for the Group’s system of internal control and, through the
Audit Committee, has reviewed the effectiveness of these systems. The systems of internal
control over business, operational, financial and compliance risks are designed to manage rather
than eliminate the risk of failure to achieve business objectives and can only provide reasonable
and not absolute assurance against material misstatement or loss.
The Board is of the view that there is an ongoing process for identifying, evaluating and managing
the Group’s internal controls; that it has been in place for the year ended 31 December 2007; and
that, up to the date of approval of the annual report and accounts, it is regularly reviewed by the
Board and accords with the internal control guidance for Directors provided in the Code.
A key element of the control system is that the Board meets regularly with a formal schedule of
matters reserved to it for decision and has put in place an organisational structure with clearly
defined lines of responsibility.
2 8 C O R P O R AT E G O V E R N A N C E
In order to ensure these responsibilities are properly discharged, the Board has delegated the task
of supervising risk management and internal control to the Risk Management Committee (RMC).
There are several key elements to the risk management environment throughout the Group.
These include the setting of risk management policy at Board level, enforcement of that policy
by the Chief Executive, delivery of the policy by the RMC via the Group’s systems of internal
control and risk management, and the overall assurance provided by the Audit Committee that
the systems operate effectively.
The Board recognises that the day-to-day responsibility for implementing these policies must lie
with the management team, whose operational decisions must take into account risk and how
this can effectively be controlled. The Company Secretary and Risk Officer take responsibility
for ensuring management are aware of their risk management obligations, providing them with
support and advice, and ensuring that the risk management strategy is properly communicated.
The head of each business unit or business area is required, with the support of the Risk Manager,
to undertake a full assessment process to identify and quantify the risks that their departments
face or pose to the Group and the adequacy of the controls in place to mitigate or reduce those
risks. Reports are produced showing the most significant risks identified and the controls in
place. Internal Audit and the Compliance function use the risk registers to plan their programme
of audits to ensure that the controls described are actually in place.
The RMC receives reports setting out key performance and risk indicators and considers possible
control issues brought to their attention by early warning mechanisms that are embedded
within the operational units. The RMC and the Audit Committee also receive regular reports
from Internal Audit, which include recommendations for improvement in the control and
operational environment. The Audit Committee’s role in this area is primarily confined to a high-
level review of the arrangements for internal control although at its discretion the Committee
may well request more detailed information on specific issues should they arise. The Board’s
agenda includes a regular item for consideration of risk and control and receives reports thereon
from the RMC and the Audit Committee. The emphasis is on obtaining the relevant degree of
assurance and not merely reporting by exception. At its March 2008 meeting, the Board carried
out the annual assessment for the 2007 year by considering documentation from the Audit
Committee, taking account of events since 31 December 2007.
The Audit Committee’s ability to provide the appropriate assurance to the Board depends on the
provision of periodic and independent confirmation, primarily by Internal Audit, that the controls
established by management are operating effectively. The Audit Committee reviews the wider
aspects of internal control and risk management, providing a high level challenge to the steps
being taken to implement the risk management strategy.
The Board confirms that there were no significant issues arising during the year under review.
The Risk Management Committee
The Committee’s members include the three Executive Directors, the Group Company Secretary
(who chairs the meetings), the Deputy Compliance Officer, the Risk Manager and senior
management representatives.
One of the Committee’s principal responsibilities is to ensure that the risk management policy
approved by the Board is implemented throughout the Group.
A D M I R A L G R O U P p l c 2 9
The Committee has formal terms of reference and is required to manage regulatory issues, assess
and monitoring reinsurance protection, and ensure that a risk management strategy is effectively
employed by the Group. The Committee meets around 8 times a year and each Committee
member receives an agenda and papers in a timely manner allowing the Committee to make
informed decisions and actions.
The Committee develops policies to ensure compliance with regulation and ensures that
appropriate action is taken by the management team to implement compliant systems and
procedures.
Internal Audit
The Internal Audit function assists management by providing them with timely, independent
assurance that the controls established are operating effectively. This includes regular reviews of
internal control systems and business processes, including compliance systems and procedures,
and identification of control weakness and recommendations to management on improvements.
Going concern
The Directors are satisfied that the Group has adequate resources to continue in operation for
the foreseeable future and therefore consider it appropriate to prepare the financial statements
on the going concern basis.
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Remuneration report
Scope of report
The remuneration report summarises the Group’s remuneration policy and particularly its
application with respect to the Directors. The report also describes how the Group applies the
principles of good corporate governance in relation to Directors’ remuneration in accordance
with the Combined Code and Directors Remuneration Report Regulations 2002.
Remuneration Committee
The Committee is appointed by the Board and comprises only Non-executive Directors. The
Committee is chaired by John Sussens, the Senior Independent Non-executive Director, with the
other members being Martin Jackson and Margaret Johnson. The Chairman and Chief Executive
are invited to meetings where the Committee considers it appropriate to obtain their advice on
the matters under review. During the year ended 31 December 2007, the Committee met on
five separate occasions. Its remit includes recommending the remuneration of the Chairman,
the Executive Directors, and the Company Secretary; review of the remuneration of senior
management; review of the awards made under the performance related incentive schemes.
The Committee’s terms of reference, which are reviewed at least annually and approved by the
Board, are available on the Group’s corporate website and are summarised in the Corporate
Governance Report.
The members of the Committee do not have any personal financial interests or any conflicts
from cross-directorships that relate to the business of the Committee. The members do not
have any day-to-day involvement in the running of the Group.
During the year the Committee did not purchase any consultancy services but the Company
Secretary circulates market survey results as appropriate.
Remuneration policy
The Group is committed to the primary objective of maximising shareholder value over time.
The Committee reviews the framework and remuneration packages of the Executive Directors
and the most senior managers. The main principles underlying the remuneration policy are:
· Competitive – The Group pays below-median salaries but with attractive incentives which
provide opportunity for highly competitive total reward packages for superior performance.
· Performance linked – A significant part of Executive Directors’ and senior managers’ reward is
determined by the Group’s earnings growth. Failure to achieve threshold levels of growth in
the Group’s earnings results in reduced or no payout under the Group’s Long-term incentive
plan.
· Shareholder aligned – A considerable part of the reward is related to the growth in earnings
versus LIBOR. Executive Directors have agreed to retain a minimum shareholding equal to
at least 100% of base salary which can be built up over a period of five years from the date of
appointment.
· Transparent – All aspects of the remuneration structure are clear to employees and openly
communicated.
· Death in Service scheme, paying three times salary available to all employees following
completion of their probationary period.
· Group Personal Pension Plan, matching employee contributions up to a maximum 6% of base
salary with a total annual cap of £4,800. Available to all employees with one year’s service.
· Private Medical Cover, available to approximately 100 management level staff.
· Permanent Health Insurance policy covering the same staff who are eligible for Private
Medical Cover.
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· Approved Free Share Incentive Plan (SIP). The SIP is available to all staff (Henry Engelhardt
and David Stevens have declined to be included in the plan). The maximum annual award
under the SIP is £3,000 per employee. Shares awarded under the SIP are forfeited if the
employee leaves within three years of the award. Awards are made twice a year, based on
the results of each half-year. During 2005, 2006 and 2007 the Group’s results have meant
that qualifying staff have received maximum awards in each year.
· Discretionary Free Share Scheme (DFSS). Awards under the DFSS are distributed on a wider
basis than most plans of this type. The Committee believes that as the DFSS develops and
awards begin to vest in 2008, it will have the effect of reducing staff attrition and creating a
definite alignment of the interests of staff and shareholders.
Of the Group’s current Executive Directors, only Kevin Chidwick (Finance Director) participates
in this scheme.
The performance criterion in determining how many shares vest under the DFSS is the growth
in earnings per share (EPS) in excess of a risk free return, defined as average 3-month LIBOR,
over a three-year period. The Committee feels that this is a good indicator of long-term
shareholder return with which to align staff incentivisation. The Committee recommends
for approval by the Board awards to the Finance Director and other employees under the
DFSS. The EPS targets are such that for full vesting of shares to occur, the average EPS
growth over the three-year performance period would have to be approximately 16% per
annum (assuming LIBOR averages 5% over the period). Only 10% of shares vest for matching
LIBOR over the three-year period. The plan allows for a maximum award of £400,000 or
600% of basic salary if lower.
The Committee is conscious of the maximum allowable awards under both share schemes and
controls are in place to ensure that neither scheme is issued shares in excess of 5% of the Group's
issued share capital over the 10 year period from 1 January 2005.
The Committee determines the fees for the Chairman of the Board after consultation with the
Executive Directors and review of market data. The fees of the Chairman were not subject to
review in 2007. The Chairman waives 25% of his fee.
Non-executive Directors’ remuneration is set by the Chairman and Executive Directors and
approved by the Board as a whole. A summary of their contracts and remuneration is shown
below.
Executive Directors are allowed, or though none currently do, to accept appointments as Non-
executive Directors of companies with prior approval of the Chairman. Approval will only be
given where the appointment does not present a conflict of interest with the Group’s activities
and the wider exposure gained will be beneficial to the development of the individual. Where
fees are payable in respect of each appointment these will be retained by the Company.
Executive Directors’ remuneration
Two of the three Executive Directors (Henry Engelhardt and David Stevens) are founding Directors.
They and the Committee continue to hold the view that the significant shareholdings held by
them provide a sufficient alignment of their interest in the performance of the Group with the
interests of other shareholders.
In light of this, their remuneration packages consist of below-median base salary (compared
to market rates by the Committee) and benefits such as private medical cover, permanent
health insurance and death in service cover. The Group does not contribute to any pension
arrangements on behalf of these Executive Directors, and they have not, nor is it intended
that they will participate in any Group share schemes. Their remuneration was reviewed in
September 2007. Henry Engelhardt was awarded a rise of 5.2% taking his salary to £305,000 and
David Stevens awarded a rise of 6% taking his salary to £265,000
The Committee aims to ensure that the remuneration of the Finance Director is fair and in
total, in-line with market rates, and is designed to provide rewards for achieving increases in
shareholder value.
3 2 R E M U N E R AT I O N R E P O R T
In addition to benefits such as private medical cover, permanent health insurance, death in
service cover and eligibility to the Group’s Personal Pension Plan, there are two main elements to
the Finance Director’s remuneration package:
· Basic annual salary
· Awards under the DFSS.
It is the Committee’s general strategy to pay salaries at or slightly below median levels together
with awards under the DFSS bringing the total remuneration to competitive levels for superior
performance. With effect from 1 October 2007 Kevin Chidwick’s base salary was increased
to £240,000, an increase of 20%. Kevin Chidwick received an award of 23,000 free shares on
18 April 2007 with a value at the date of the award of £241,500. The awards are the maximum
number of shares that could vest after a three-year period and are subject to performance
criteria as described above.
Directors’ service contracts
The following table summarises the notice periods relating to the service contracts of the
Executive Directors serving at 31 December 2007.
Kevin Chidwick
Henry Engelhardt
David Stevens
Notice – Director
(months)
Notice – Company
(months)
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12
12
12
12
12
There is no provision in the Executive Directors’ contracts for compensation to be payable on
early termination of their contract over and above the notice period element.
The Company has entered into letters of appointment with its Non-executive Directors.
Summary details of terms and notice periods are included below.
Term and notice
Alastair Lyons
Manfred Aldag
Martin Jackson
Keith James
Margaret Johnson
Lucy Kellaway
John Sussens
3 years commencing 1 July 2007, terminable by either party
giving three months’ written notice.
Indefinite (terminable on one months’ notice from
either party) – automatically terminates should he cease
employment with Munich Re.
3 years commencing 1 December 2006, terminable by either
party giving one months’ written notice.
3 years commencing 1 December 2006, terminable by either
party giving one months’ written notice.
3 years commencing 4 September 2006, terminable by either
party giving one months’ written notice.
3 years commencing 4 September 2006, terminable by either
party giving one months’ written notice.
3 years commencing 1 December 2006, terminable by either
party giving one months’ written notice.
Given the short notice periods applicable, mitigation issues are unlikely to arise.
Non-executive Directors’ remuneration
The remuneration of the Chairman is decided by the Remuneration Committee and that of the
Non-executive Directors by the full Board. The Non-executive Directors do not participate in
meetings when Non-executive Director fees are discussed.
A D M I R A L G R O U P p l c 3 3
The following tables set out Non-executive fees and expected time commitments.
Expected time commitment (in days) for the Board and Committees:
Audit Remuneration Nominations
3
4-5
1
2-3
1
2-4
Member
Chairman
Other
Senior
Independent
Director
1-3
Board
18
As required
Fees payable (£’000) with respect to Board and Committee membership are as follows:
Audit
Remuneration Nominations
3
5
1
3
1
3
Member
Chairman
Other
Senior
Independent
Director
5
Board
30
120
Total Shareholder Return (TSR)
The following graph sets out a comparison of Total Shareholder Return for Admiral Group
plc shares with that of the FTSE 350 Index, of which the Company is a constituent. The graph
measures the period from the commencement of conditional trading on 23 September 2004
up to 31 December 2007. TSR is defined as the percentage change over the period, assuming
reinvestment of income.
The Directors consider this to be the most appropriate index against which the Company should
be compared.
5
3
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0
3
t
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i
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u
m
e
R
440
4 4 0
400
4 0 0
360
3 6 0
320
3 2 0
280
2 8 0
240
2 4 0
200
2 0 0
160
1 6 0
120
1 2 0
80
8 0
Sep-04 Dec-04 Mar-05 Jun-05
S e p - 0 4 D e c - 0 4 M a r - 0 5
J u n - 0 5
Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07
S e p - 0 5 D e c - 0 5 M a r - 0 6
S e p - 0 7 D e c - 0 7
S e p - 0 6 D e c - 0 6 M a r - 0 7
J u n - 0 6
J u n - 0 7
Source: Datastream
Admiral Group plc
A d m ir a l G r o u p PL C
FTSE 350
F T SE 3 5 0
3 4 R E M U N E R AT I O N R E P O R T
Directors’ shareholdings - Audited
Directors’ interests in the ordinary shares of the Company are set out below:
Executive Directors
Kevin Chidwick*
Henry Engelhardt **
David Stevens ***
Non-executive Directors
Alastair Lyons
Manfred Aldag
Martin Jackson
Keith James
Margaret Johnson
Lucy Kellaway
John Sussens
Ordinary shares of 0.1p
31 December
2007
31 December
2006
1,796
40,466,720
10,084,000
213
40,466,720
19,768,000
615,600
615,600
-
-
-
-
44,500
44,500
-
-
-
-
8,000
8,000
* Kevin Chidwick holds 546 shares (2006: 213) within the Group’s SIP details of which are shown below
** Include amounts held by family members and in trusts settled by family members
*** David Stevens and his wife transferred 9,884,000 shares to The Waterloo Foundation, a charitable foundation they
established in February 2007
Directors’ remuneration - Audited
Remuneration for the year ended 31 December 2007 was as follows:
Executive Directors
Kevin Chidwick *
Henry Engelhardt
David Stevens
Chairman and Non-executive
Directors
Alastair Lyons **
Manfred Aldag
Martin Jackson
Keith James ***
Margaret Johnson
Lucy Kellaway
John Sussens
Base
salary
and fees
Bonuses
and
other
Benefits
2007
Total
2006
Total
(£000)
(£000)
(£000)
(£000)
(£000)
210
298
254
90
6
36
46
34
31
38
34
-
-
-
-
-
-
-
-
-
3
-
-
-
-
-
-
-
-
-
247
298
254
90
6
36
46
34
31
38
75
285
250
75
6
30
38
11
10
35
Totals
1,043
34
3
1,080
815
* £34,000 of other payments to Kevin Chidwick relate to relocation expenses
** Alastair Lyons waives 25% of his annual fee which is currently £120,000
*** Keith James also received £5,000 for chairing the Board of Admiral Insurance Company Limited and £5,000 for chairing
the Board of Inspop.com Limited
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A D M I R A L G R O U P p l c 3 5
Awards made under the Discretionary Free Share Scheme (DFSS) and Free Share Incentive
Plan (SIP)
The table below sets out the awards made to Directors under the DFSS and SIP, including the
dates of the awards, the value at the time of the award and vesting date.
Awards to Kevin Chidwick under the DFSS and SIP
------------Number of shares------------
At start
of year
28,103
21,186
18,480
-
-
-
-
23,000
213
-
-
-
151
182
Type
DFSS
DFSS
DFSS
DFSS
SIP
SIP
SIP
Awarded
during
year
Vested
during
year
At end
of
year
Price
at
award
(£)
Value at
award
(£)
Date of
award
Final
vesting
date
-
-
-
-
-
-
-
28,103
21,186
18,480
23,000
£4.37
£122,810
31/10/05
31/10/08
£6.136
£130,000
18/04/06
18/04/09
£6.764
£125,000 04/09/06
04/09/09
£10.50
£241,500
18/04/07
18/04/10
213
151
182
£6.764
£10.284
£8.264
£1,440 06/09/06
06/09/09
£1,552
09/03/07
09/03/10
£1,504
04/09/07
04/09/10
For details of Directors’ responsibilities, please refer to the biographies section.
This report was approved by the Board of Directors on 3 March 2008 and is signed on its behalf
by the Committee Chairman:
John Sussens
Remuneration Committee Chairman
3 6 C O R P O R AT E R E S P O N S I B I L I T Y
Corporate responsibility
The Admiral Group is committed to dealing fairly and with a high level of integrity with all
its stakeholders. The corporate responsibility report sets out our approach and the way we
measure our success in dealing with each group of stakeholders:
Customers
The Group has always regarded its customers as central to the success of the business. As at 31
December 2007 the Group insured 1.5m vehicles, up 16% from 1.3m the year before. We focus
on open communication with our customers providing high standards of service at all points
in the customer cycle from new business, customer service, renewals, claims and complaints.
The Group's commitment to quality is demonstrated through its Quality Measures Programme.
Everyone in the organisation has a part to play in ensuring a high standard of quality. Every
department in the Group has a unique set of quality measures to gauge performance.. The
measures are updated each year to challenge staff to make continual improvements. The
programme is reported every month in the internal Company magazine and awards are presented
each year for the best departments. The annual measures bonus provides a financial incentive
for staff to drive incremental change throughout the business and was paid out in full for the
2007 year.
As well as this programme, quality representatives throughout the Group monitor the service the
Company provides through the thousands of comment forms it receives back from customers
every month. By listening to customer comments, Admiral can improve the quality of service it
provides.
The Group’s Compliance department is now working on a Treating Customers Fairly management
information pack pulling together specific measures that will demonstrate that we are
consistently treating our customers fairly.
Employees
We believe the happier our staff are, the better they will do their job. This means that we
constantly work to improve our staff’s working environment. We also try to make sure that the
working day for our staff is as fun and rewarding as we can make it.
It is important for employees to understand the Company’s goals and objectives. We work to
communicate this in as many ways as possible. As an example, we encourage staff to attend
our Annual Staff General Meeting (SGM). The SGM is arranged to enable staff to hear the
views of the executive directors and some of the non-executive directors on a wide range of
subjects including the performance of the Group and the market within which we operate; the
experiences of non-executive directors within and outside of the Group; and the Group’s share
plans. We believe that employing well-informed staff will improve motivation and make Admiral
a better place to work.
The best measures of our staff’s assessment of their working environment are the surveys
that they have completed. Following independent measurement by the organisations involved
Admiral has received the following awards:
A D M I R A L G R O U P p l c 3 7
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Staff celebrate the opening of new Swansea office
The Sunday Times 100 Best Companies to Work For – Admiral has been included in all eight
years of the publication and was ranked 57th overall in the last list published.
Position
2001
32
2002
42
2003
46
2004
60
2005
20
2006
20
2007
21
2008
57
The Financial Times 50 Best Workplaces in the UK – we have been included in all five years of
the publication, which has not yet been published for 2008.
Position
2003
7
2004
16
2005
17
2006
8
2007
Top 10*
* Individual positions within the top 10 were not provided in 2007.
The Group also carries out its own annual internal web-based survey both to collect employees’
views on what it is like working for Admiral and to address areas where issues are raised. In 2007,
85% of staff completed the survey (2006, 85%). Overall, the results continued to show that 91%
of employees feel proud to be associated with Admiral, 82% feel that morale is high in their
department and 89% feel that morale is high throughout the Company as a whole.
The survey results are split down by department and each manager is expected to share the
survey results with their team, explore issues and concerns, and then make recommendations to
address them.
3 8 C O R P O R AT E R E S P O N S I B I L I T Y
Community
Admiral has adopted a charitable giving policy, which supports the local communities in which its
employees live and work. During 2007, 110 local organisations were helped with a total donation
of £25,000.
Financial support is an important part of our commitment to our local communities and our
customers. We contribute both as a Company and as individuals through a variety of schemes.
Admiral sponsored Champion Child of Courage Award
Custard pie throwing for charity
Environment
The Group’s impact on the environment stems from its use of resources to run its offices in
Cardiff and Swansea and its communications with customers. In addition, the Group now has
operations in Spain, Germany and will launch in Italy later in 2008. It also operates a call centre
in Halifax, Canada, which employs over 100 staff. The Group does not own the properties that it
occupies and is, therefore, reliant upon the cooperation of the managing agents of the properties
to make changes that could reduce the consumption of energy and water. The figures quoted
for energy use do not yet include overseas properties but travel to and from these businesses
is included within the figures quoted in the table below. In 2008 reporting will be included by
country.
The Group Company Secretary is responsible for the Group’s approach to its impact upon the
environment and during 2007 steps were taken to ensure that systems were put in place to
collect the information necessary to report fully on the Group’s UK operations.
· Raising and maintaining staff awareness of, and ensuring that employees are actively engaged
in, activities to reduce the impact of the Group’s operations on the environment.
· Measuring, monitoring and reporting on the key aspects of the Group’s environmental
performance and regularly reviewing progress to reduce the amount of resources consumed
per employee.
· Reporting key environmental performance indicators, taking into account the ABI’s
Guidelines on Responsible Investment Disclosure and guidance provided by the Department
for Environment, Food and Rural Affairs (Defra).
A D M I R A L G R O U P p l c 3 9
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Impact Area
Energy (‘000 Kwh)
CO2 (tonnes)
Water (m3)
Waste management:
Total waste
Waste to landfill
Waste recycled
Travel
Car miles
Rail miles
Air Miles
Usage
6,997
4,033
14,836
239,139 KG
128,278 KG
110,861 KG
279,920
213,357
1,120,537
* The figures above are for the Group’s UK operations.
Consumption measure
2007
381 Kwh/m2
1.71 tonnes per employee
6.28 per employee
46% recycled
118 miles per employee
90 miles per employee
474 miles per employee
Energy
The main source of the Group’s carbon emissions is the consumption of electricity and gas for its
three UK offices . The Cardiff head office is the older and least efficient , built in the 1960’s and
housing just over 1,200 people. The Swansea office, housing 1,100 staff was built in 2006 and is
therefore a much more efficient building. The third office is also located in Cardiff housing 130
staff.
During the last quarter of 2007 electricity supply to the Cardiff office was switched to ‘Green
electricity’ which is defined in the The Renewables Obligation Order 2002 as the following types
of electricity (in order of importance in 2006-07): landfill gas, On-shore wind, small Hydro <20
MW DNC, Co-firing of biomass with fossil fuel, Biomass, Off-shore wind, Sewage gas, Micro
hydro, Biomass and waste using advanced conversion technology, Photovoltaics and Wave power.
During the year the Group started purchasing re-cycled paper for all internal use and is
investigating sources of recycled paper for communications with customers.
Environmental risks
The Group has reviewed the risks facing its business operations as a result of climate change.
The volume of motor insurance claims for any given portfolio of business is to a large degree
dependent upon weather conditions. The risk associated with climate change is the potential
change to claims frequency through the impact of more extreme weather patterns. It is virtually
impossible to model the potential impact of climate change on claims frequency as the actual
climate change induced outcome for the UK is unknown. However, the Group does assess the
potential costs associated with a number of disaster scenarios such as a major storm in the South
East, major flood on the East Coast, and a complete flooding of the Thames in the London
area. The Group maintains sufficient reinsurance cover to provide protection in the event of
catastrophes of this nature.
The Admiral Group plc Board
Alastair Lyons CBE (54)
Chairman (N)
Alastair was appointed Chairman of the Company
Kevin Chidwick (44)
Finance Director
Kevin is responsible for finance, information
in July 2000. He is also Executive Chairman of
technology, facilities and investments. He
Partners for Finance Limited, and Non-executive
joined Admiral in 2005, becoming a Director in
Chairman of Buy-as-you-View Holdings Limited,
September 2006.
and of Higham Dunnett Shaw plc.
Prior to Admiral, Kevin has been in UK financial
He has previously been Chief Executive of the
services for over 20 years. He has held a number
National Provident Institution and the National
of senior roles in other insurance organisations
& Provincial Building Society, Managing Director
including, most recently, Finance Director of
of the Insurance Division of Abbey National plc,
Engage Mutual Assurance and Cigna UK.
He is a fellow of the Chartered Institute of
Certified Accountants and has an MBA from
London Business School.
David Stevens (46)
Chief Operating Officer
David is a founder Director of Admiral. Initially
the Marketing Director, he was appointed
Director responsible for pricing in 1996 and
claims and pricing in 1999. He was appointed as
Chief Operating Officer in 2004.
He joined Admiral in 1991 from McKinsey & Co.
where he worked in the Financial Interest Group,
London office. Prior to working for McKinsey &
Co, he worked for Cadbury Schweppes in the
United Kingdom and the United States.
David has an MBA from Insead.
and Director of Corporate Projects at National
Westminster Bank plc. Alastair has also been a
Non-executive Director of the Department for
Transport and of the Department for Work and
Pensions.
A Fellow of the Institute of Chartered
Accountants, he was awarded the CBE in the
2001 Birthday Honours for services to social
security.
Henry Engelhardt (50)
Chief Executive Officer
Henry is a founder Director of Admiral and was
recruited by the Brockbank Group in 1991 to set
up the Admiral business.
He was part of the management team that led
the MBO in 1999. Prior to joining Admiral, he
was Marketing and Sales Manager for Churchill
Insurance.
He has substantial experience in direct response
financial services in the United Kingdom, United
States and France. He has an MBA from Insead.
4 0 B O A R D O F D I R E C T O R S
KEY
A - Audit Committee member
R - Remuneration Committee member
N - Nominations Committee member
Directors (names from left to right)
Manfred Aldag
Stuart Clarke (Company Secretary)
Margaret Johnson
Keith James
Kevin Chidwick
Alastair Lyons
Henry Engelhardt
Lucy Kellaway
David Stevens
Martin Jackson
John Sussens
A D M I R A L G R O U P p l c 4 1
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Manfred Aldag (57)
Non-executive Director (N)
Manfred was appointed a Non-executive
Margaret Johnson (49)
Non-executive Director (A,R)
Margaret was appointed Non-executive Director of
Lucy Kellaway (48)
Non-executive Director (N)
Lucy joined the board as a Non-executive
Director of the Company in 2003 as a
the Company in September 2006. She is currently
Director in September 2006. She is the
representative of Munich Re. He graduated
Group CEO of the international advertising agency
management columnist on the Financial Times
from University of Essen and has a degree in
Leagas Delaney and has been with that Company for
and author of various books. In 20 years on
Economics/Business Management (Diplom-
the past 12 years.
Kaufmann).
Margaret joined the Group's Audit and Remuneration
the FT she has been oil correspondent, a Lex
columnist and Brussels correspondent.
He has worked for Munich Re since September
Committees on appointment to the Board.
Lucy also joined the Nominations Committee on
1981 and is currently the Senior Executive
Manager responsible for United Kingdom /
Ireland.
Martin Jackson (59)
Non-executive Director (A, R)
Martin was appointed Non-executive Director
appointment to the Board.
Keith James OBE (63)
Non-executive Director (A, N)
Keith was appointed a Non-executive Director
John Sussens (62)
Non-executive Director (R)
John was appointed the Senior Independent
in December 2002. He is Chairman of the
Non-executive Director in August 2004, and is
Nominations Committee and is also the
Chairman of the Remuneration Committee. He
and Chairman of the Audit Committee in August
Independent Chairman of Admiral Insurance
is also a Non-executive Director of Cookson
2004.
Company Limited and Inspop.com Limited.
plc, Phoenix IT Group Plc, and Anglo & Overseas
He was the Group Finance Director of Friends
He is also a Non-executive Director of Julian
Trust Plc.
Provident plc between 2001 and 2003 and
Hodge Bank Limited and is Non-executive
He was the Group Managing Director of Misys
Friends’ Provident Life Office between 1999
Chairman of Atlantic Venture Capital Limited
plc between 1998 and May 2004 having been on
and 2001. Prior to that he was the Group
and International Greetings plc.
the Board of the Company since 1989. Prior to
Finance Director at London & Manchester
Group plc from 1992 to 1998, up to the date
of its acquisition by Friends’ Provident Life
Office. Martin is also a Non-executive Director
of IG Holdings plc, Homeserve GB Limited and
Rothesay Life Limited
He is a Fellow of the Institute of Chartered
Accountants.
He is a solicitor and was the Chairman of
Eversheds LLP from June 1995 to April 2004. He
was a Non-executive Director of Bank of Wales
plc between 1988 and 2001 and AXA Insurance
Company Limited between 1992 and 2000. Keith
was awarded an OBE in 2005 for services to
business and the community in Wales.
joining Misys, he was Manufacturing Director at
JC Bamford Excavators Limited. He was a Non-
executive Director at Chubb plc between 2001
and 2003.
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A D M I R A L G R O U P p l c 4 3
Financial statements
44-47
Directors’ report
48-49
Independent auditor’s report
50
51
52
53
Consolidated income statement
Consolidated balance sheet
Consolidated statement of recognised
income and expense
Consolidated cash flow statement
54-88
Notes to the financial statements
89
Consolidated financial summary
91-94
Admiral Group plc Parent Company
financial statements
4 4 F I N A N C I A L S TAT E M E N T S
Directors’ report
The Directors present their Annual Report and
the audited financial statements for the year
ended 31 December 2007.
Business review
The Company is the holding Company for the
Admiral Group of companies. The Group’s
principal activity continues to be the selling
and administration of private motor insurance
and related products.
The information that fulfils the requirements
of the Business review, as required by Section
234 ZZB of the Companies Act 1985, and
which should be treated as forming part of
this report by reference are included in the
following sections of the annual report:
· Chairman’s statement.
· Chief Executive’s statement.
· Financial review.
· Principle risks and uncertainties as contained
in note 18
· Corporate responsibility report.
Group results and dividends
The profit for the year, after tax but before
dividends, amounted to £127.4m (2006:
£103.7m).
The Directors declared and paid dividends of
£116.0m during 2007 (2006: £70.1m) – refer to
note 14 for further details.
The Directors are proposing a final dividend of
£60.9m (23.2p per share), payable on 7th May
2008.
Share capital
Other than the holdings of the Directors as
disclosed in the remuneration report, so far as
the Directors are aware, or have been notified
pursuant to section 198 of the Companies Act
1985, the following shareholders have interests
in 3% or more of the ordinary share capital of
the Company at 4 March 2008:
Number of shares
%
Munich Re
39,579,400
15.07%
Newton Investment
Managers
Fidelity
BlackRock Inc
Capital Group
Jupiter Asset
Management
Legal & General
Group Plc
15,032,472
13,465,622
13,019,317
12,766.870
12,361,744
7,950,924
5.72%
5.13%
4.96%
4.86%
4.71%
3.03%
Financial Instruments
The objectives and policies for managing risks
in relation to financial instruments held by the
Group are set out in note 18 to the financial
statements.
Directors and their interests
The present Directors of the Company are
shown on the inside cover of this report,
whilst Directors’ interests in the share
capital of the Company are set out in the
remuneration report.
Charitable and political
donations
During the year the Group donated £87,000
(2006: £38,000) to various local and national
charities. The Group has never made
political donations. Refer to the corporate
responsibility report for further detail.
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A D M I R A L G R O U P p l c 4 5
· pursuant to the Listing Rules of the
Financial Services Authority whereby certain
employees of the Company require the
approval of the Company to deal in the
Company's securities.
The Company has not purchased any of its
own shares during the period.
There are no agreements between the
Company and its Directors or employees
providing for compensation for loss of office
or employment (whether through resignation,
purported redundancy or otherwise) that
occurs because of a takeover bid.
There are a number of agreements that alter
or terminate upon a change of control of the
Company following a takeover bid, such as
commercial contracts. None is considered
to be significant in terms of their impact on
the business of the Group as a whole except
for the long-term co-insurance agreement
in place with Great Lakes Resinsurance (UK)
Plc. Details relating to this agreement are
contained in the Financial Review.
Power to issue shares
At the last annual general meeting, held on 16
May 2007, authority was given to the Directors
to allot unissued relevant securities in the
Company up to a maximum of an amount
equivalent to one third of the shares in issue.
This authority expires on the date of the
annual general meeting to be held on 29 April
2008 and the Directors will seek to renew this
authority for the following year.
A further special resolution passed at that
meeting granted authority to the Directors to
allot equity securities in the Company for cash,
without regard to the pre-emption provisions
of the Companies Act 1985. This authority
also expires on the date of the annual general
meeting to be held on 29 April 2008 and the
Directors will seek to renew this authority for
the following year.
Employee policies
Detailed information on the Group’s
employment practices is set out in the
Corporate responsibility report.
The Group purchases appropriate liability
insurance for all staff and Directors.
Creditor payment policy
It is the policy of the Group to pay all
purchase invoices by their due date, and
appropriate quality measures are in place to
monitor and encourage this. At the end of the
year outstanding invoices represented 15 days
purchases (2006: 18).
Additional information for
shareholders
Where not provided previously in this
Directors' Report, the following provides
the additional information required for
shareholders as a result of the implementation
of the Takeovers Directive into UK law.
At 31 December 2007, the Company's issued
share capital comprised a single class of shares
referred to as ordinary shares. Details of the
share capital and shares issued during the year
can be found in note 25.
On a show of hands at a general meeting of
the Company every holder of shares present
in person and entitled to vote shall have one
vote and on a poll, every member present in
person or by proxy and entitled to vote shall
have one vote for every ordinary share held.
The notice of the general meeting specifies
deadlines for exercising voting rights either
by proxy notice or present in person or by
proxy in relation to resolutions to be passed at
general meeting. All proxy votes are counted
and the numbers for, against or withheld in
relation to each resolution are announced at
the annual general meeting and published on
the Company's website after the meeting.
There are no restrictions on the transfer of
ordinary shares in the Company other than:
· certain restrictions may from time to time
be imposed by laws and regulations (for
example, insider trading laws) and:
4 6 F I N A N C I A L S TAT E M E N T S
Appointments of Directors
The Company’s Articles of Association (“the
Articles”) give the Directors power to appoint
and replace Directors. Under the terms of
reference of the Nominations Committee, any
appointment must be recommended by the
Nominations Committee for approval by the
Board of Directors. The Articles also require
Directors to retire and submit themselves for
election at the first annual general meeting
following appointment and all Directors who
held office at the time of the two preceding
annual general meeting, to submit themselves
for re-election.
Articles of Association
The Articles may only be amended by special
resolution of the shareholders.
Power of the Directors
The Directors are responsible for managing
the business of the Company and may
exercise all powers of the Company subject
to the provisions of relevant statutes, to any
directions given by special resolution and to
the Company’s Memorandum and Articles.
The Articles for example, contain specific
provisions and restrictions concerning the
Company’s power to borrow money. Powers
relating to the issuing of new shares are also
included in the Articles and such authorities
are renewed by shareholders at the annual
general meeting each year.
Annual General Meeting
It is proposed that the next AGM be held at
Cardiff City Hall, Cathays Park, Cardiff
CF10 3ND on Tuesday 29 April 2008 at 2.00pm,
notice of which will be sent to shareholders
with the Annual Report.
Directors’ responsibilities
The Directors are responsible for preparing
the Annual Report and the Group and Parent
Company financial statements, in accordance
with applicable law and regulations.
Company law requires the Directors to
prepare Group and Parent Company financial
statements for each financial year. Under
that law they are required to prepare the
Group financial statements in accordance
with International Financial Reporting
Standards (IFRS) as adopted by the EU and
applicable law and have elected to prepare
the Parent Company financial statements in
accordance with UK Accounting Standards
and applicable law (UK Generally Accepted
Accounting Practice).
The Group financial statements are required
by law and IFRS as adopted by the EU to
present fairly the financial position and
performance of the Group; the Companies
Act 1985 provides in relation to such financial
statements that references in the relevant
part of that Act to financial statements giving
a true and fair view are references to their
achieving a fair presentation.
The Parent Company financial statements are
required by law to give a true and fair view of
the state of affairs of the Parent Company.
In preparing each of the Group and Parent
Company financial statements, the Directors
are required to:
· select suitable accounting policies and then
apply them consistently
· make judgements and estimates that are
reasonable and prudent
· for the Group financial statements, state
whether they have been prepared in
accordance with IFRS as adopted by the EU
· for the Parent Company financial statements,
state whether applicable UK Accounting
Standards have been followed, subject to any
material departures disclosed and explained in
the Parent Company financial statements; and
· prepare the financial statements on the
going concern basis unless it is inappropriate
to presume that the Group and the Parent
Company will continue in business
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A D M I R A L G R O U P p l c 4 7
Auditor
The Company’s auditor, KPMG Audit Plc, has
indicated willingness to continue in office and
resolutions to reappoint it and to authorise
the Directors to fix its remuneration will be
proposed at the Annual General Meeting.
By order of the Board,
Stuart Clarke
Company Secretary
3 March 2008
The Directors are responsible for keeping
proper accounting records that disclose
with reasonable accuracy at any time the
financial position of the Parent Company
and enable them to ensure that its financial
statements comply with the Companies Act
1985. They have general responsibility for
taking such steps as are reasonably open to
them to safeguard the assets of the Group
and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the
Directors are also responsible for preparing
a Directors’ report, Directors’ remuneration
report and Corporate governance statement
that comply with that law and those
regulations.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the UK
governing the preparation and dissemination
of financial statements may differ from
legislation in other jurisdictions.
Disclosure of information to
auditors
The Directors who held office at the date
of approval of this Directors’ report confirm
that, so far as they are each aware, there is
no relevant audit information of which the
Company’s auditor is unaware; and each
Director has taken all the steps that he ought
to have taken as a Director to make himself
aware of any relevant audit information and to
establish that the Company’s auditor is aware
of that information.
4 8 F I N A N C I A L S TAT E M E N T S
We report to you our opinion as to whether
the financial statements give a true and fair
view and whether the financial statements
and the part of the Directors’ Remuneration
Report to be audited have been properly
prepared in accordance with the Companies
Act 1985 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
We also report to you whether in our opinion
the information given in the Directors’ Report
is consistent with the financial statements.
The information given in the Directors’ Report
includes that specific information presented
in the Chairman’s statements, the Chief
Executive’s statement and the financial review
that is cross referred from the business review
section of the Directors’ Report.
In addition we report to you if, in our opinion,
the Company has not kept proper accounting
records, if we have not received all the
information and explanations we require for
our audit, or if information specified by law
regarding Directors’ remuneration and other
transactions is not disclosed.
We review whether the Corporate
Governance Statement reflects the Company’s
compliance with the nine provisions of the
2003 Combined Code specified for our review
by the Listing Rules of the Financial Services
Authority, and we report if it does not. We
are not required to consider whether the
Board’s statements on internal control cover
all risks and controls, or form an opinion on
the effectiveness of the Group’s corporate
governance procedures or its risk and control
procedures.
Independent auditor’s report
to the members of Admiral Group plc
We have audited the Group and Parent
Company financial statements (the ‘’financial
statements’’) of Admiral Group plc for the year
ended 31 December 2007 which comprise the
Group Income Statement, the Parent Company
Profit and Loss Account, the Group and
Parent Company Balance Sheets, the Group
Cash Flow Statement, the Group Statement
of Recognised Income and Expenses and the
related notes. These financial statements have
been prepared under the accounting policies
set out therein. We have also audited the
information in the Directors’ Remuneration
Report that is described as having been
audited.
This report is made solely to the Company’s
members, as a body, in accordance with
section 235 of the Companies Act 1985. Our
audit work has been undertaken so that we
might state to the Company’s members those
matters we are required to state to them in
an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone
other than the Company and the Company’s
members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of
Directors and auditors
The Directors’ responsibilities for preparing
the Annual Report and the Group financial
statements in accordance with applicable
law and International Financial Reporting
Standards (IFRSs) as adopted by the EU, and
for preparing the Parent Company financial
statements and the Directors’ Remuneration
Report in accordance with applicable law
and UK Accounting Standards (UK Generally
Accepted Accounting Practice) are set out in
the Statement of Directors’ Responsibilities in
the Directors' Report.
Our responsibility is to audit the financial
statements and the part of the Directors’
Remuneration Report to be audited in
accordance with relevant legal and regulatory
requirements and International Standards on
Auditing (UK and Ireland).
A D M I R A L G R O U P p l c 4 9
Opinion
In our opinion:
· the Group financial statements give a true and
fair view, in accordance with IFRSs as adopted
by the EU, of the state of the Group’s affairs
as at 31 December 2007 and of its profit for
the year then ended;
· the Group financial statements have been
properly prepared in accordance with the
Companies Act 1985 and Article 4 of the IAS
Regulation;
· the Parent Company financial statements give
a true and fair view, in accordance with UK
Generally Accepted Accounting Practice, of
the state of the Parent Company’s affairs as at
31 December 2007 and of its profit for the
year then ended;
· the Parent Company financial statements and
the part of the Directors’ Remuneration
Report to be audited have been properly
prepared in accordance with the Companies
Act 1985; and
· the information given in the Directors’ Report
is consistent with the financial statements.
KPMG Audit Plc
Chartered Accountants
Registered Auditor
Cardiff
3 March 2008
We read the other information contained
in the Annual Report and consider whether
it is consistent with the audited financial
statements. We consider the implications
for our report if we become aware of
any apparent misstatements or material
inconsistencies with the financial statements.
Our responsibilities do not extend to any
other information.
Basis of audit opinion
We conducted our audit in accordance with
International Standards on Auditing (UK and
Ireland) issued by the Auditing Practices Board.
An audit includes examination, on a test basis,
of evidence relevant to the amounts and
disclosures in the financial statements and the
part of the Directors’ Remuneration Report
to be audited. It also includes an assessment
of the significant estimates and judgments
made by the Directors in the preparation
of the financial statements, and of whether
the accounting policies are appropriate to
the Group’s and Company’s circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to
obtain all the information and explanations
which we considered necessary in order
to provide us with sufficient evidence to
give reasonable assurance that the financial
statements and the part of the Directors’
Remuneration Report to be audited are
free from material misstatement, whether
caused by fraud or other irregularity or error.
In forming our opinion we also evaluated
the overall adequacy of the presentation
of information in the financial statements
and the part of the Directors’ Remuneration
Report to be audited.
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5 0 F I N A N C I A L S TAT E M E N T S
Consolidated income statement
Year ended:
31 December
2007
31 December
2006
Note:
£000
£000
233,075
(90,839)
142,236
176,878
20,448
24,572
188,288
(43,333)
144,955
131,621
19,926
14,464
5
6
7
8
Insurance premium revenue
Insurance premium ceded to reinsurers
Net insurance premium revenue
Other revenue
Profit commission
Investment and interest income
Net revenue
364,134
310,966
Insurance claims and claims handling expenses
(172,611)
(136,472)
Insurance claims and claims handling expenses
recovered from reinsurers
Net insurance claims
Expenses
Share scheme charges
Total expenses
Operating profit
Finance charges
Profit before tax
Taxation expense
Profit after tax attributable to equity holders
of the Company
Earnings per share:
Basic
Diluted
Dividends declared (total)
Dividends declared (per share)
72,816
(99,795)
(78,986)
(2,971)
(181,752)
29,327
(107,145)
(54,528)
(933)
(162,606)
182,382
148,360
(284)
(1,018)
182,098
147,342
(54,682)
(43,620)
127,416
103,722
48.6p
48.6p
116,016
44.6p
39.8p
39.8p
70,104
27.0p
9
9, 25
12
10
13
15
15
14
14
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A D M I R A L G R O U P p l c 5 1
Consolidated balance sheet
ASSETS
Property, plant and equipment
Intangible assets
Financial assets
Reinsurance assets
Deferred income tax
Trade and other receivables
Cash and cash equivalents
As at:
31 December
2007
31 December
2006
Note
£000
£000
16
17
18
19
24
20, 18
21, 18
7,708
69,063
481,848
131,668
1,629
22,633
155,773
7,448
66,757
395,938
74,689
-
16,931
191,242
Total assets
870,322
753,005
EQUITY
Share capital
Share premium account
Retained earnings
Other reserves
25
26
26
26
263
13,145
261
13,145
223,828
205,682
396
(33)
Total equity attributable to equity holders of the
Company
237,632
219,055
LIABILITIES
Insurance contracts
Deferred income tax
Trade and other payables
Current tax liabilities
Total liabilities
19
24
22, 18
363,060
294,425
-
239,593
30,037
981
215,137
23,407
632,690
533,950
Total equity and total liabilities
870,322
753,005
These financial statements were approved by the Board of Directors on 3 March 2008 and were
signed on its behalf by:
Kevin Chidwick
Director
5 2 F I N A N C I A L S TAT E M E N T S
Consolidated statement of recognised income and expense
Exchange differences on translation of foreign operations
Net income / (expense) recognised directly in equity
31 December
2007
31 December
2006
£000
£000
429
429
(50)
(50)
Profit for the period
127,416
103,722
Total recognised income and expense for the period
127,845
103,672
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Consolidated cash flow statement
Note
25
Profit after tax
Adjustments for non-cash items:
- Depreciation
- Amortisation of software
- Unrealised gains on investments
- Share scheme charge
Loss on disposal of property, plant and equipment and
software
Change in gross insurance contract liabilities
Change in reinsurance assets
Change in trade and other receivables, including from
policyholders
Change in trade and other payables, including tax and
social security
Interest expense
Taxation expense
Cash flows from operating activities, before movements
in investments
Net cash flow into investments held at fair value
Cash flows from operating activities, net of movements in
investments
Interest payments
Taxation payments
Net cash flow from operating activities
Cash flows from investing activities:
31
December
2007
31
December
2006
£000
127,416
£000
103,722
3,227
725
(1,123)
5,560
6
68,635
(56,979)
2,489
446
(624)
2,667
151
40,295
(20,523)
(14,772)
(23,150)
25,506
284
54,682
213,167
(76,849)
136,318
(284)
(49,477)
33,652
1,018
43,620
183,763
(1,073)
182,690
(1,018)
(40,931)
86,557
140,741
Purchases of property, plant and equipment and software
(5,390)
(6,046)
Net cash used in investing activities
Cash flows from financing activities:
Repayments of borrowings
Capital element of new finance leases
Repayment of finance lease liabilities
Equity dividends paid
Net cash used in financing activities
Net (increase) / decrease in cash and cash equivalents
Cash and cash equivalents at start of period
Effects of changes in foreign exchange rates
(5,390)
(6,046)
-
457
(1,506)
(116,016)
(117,065)
(35,898)
191,242
429
(22,000)
1,519
(2,970)
(70,104)
(93,555)
41,140
150,152
(50)
Cash and cash equivalents at end of period
21
155,773
191,242
5 4 F I N A N C I A L S TAT E M E N T S
Notes to the financial
statements
1. General information and basis
of preparation
Admiral Group plc is a Company incorporated
in England and Wales. Its registered office is
at Capital Tower, Greyfriars Road, Cardiff CF10
3AZ and its shares are listed on the London
Stock Exchange.
The financial statements comprise the
results and balances of the Company and
its subsidiaries (together referred to as the
Group) for the year ended 31 December 2007
and comparative figures for the year ended 31
December 2006. The financial statements of
the Company’s subsidiaries are consolidated in
the Group financial statements. The Company
controls 100% of the voting share capital of all
its subsidiaries. The Parent Company financial
statements present information about the
Company as a separate entity and not about
its Group. In accordance with International
Accounting Standard (IAS) 24, transactions
or balances between Group companies that
have been eliminated on consolidation are not
reported as related party transactions.
The consolidated financial statements have
been prepared and approved by the Directors
in accordance with International Financial
Reporting Standards (IFRS) as adopted by
the European Union (EU). The Company
has elected to prepare its Parent Company
financial statements in accordance with UK
Generally Accepted Accounting Practice
(GAAP).
The Group has applied all adopted IFRS and
interpretations endorsed by the EU at 31
December 2007, including all amendments to
extant standards that are not effective until
later accounting periods, except for those
listed below:
· IFRS 8 (Operating Segments); and
· IFRIC 11 (IFRS 2: Group and Treasury Share
Transactions’)
IFRS 8 becomes effective for the period
commencing 1 January 2009, whilst IFRIC 11 will
become effective for the period commencing
1 January 2008. The application of either
the standard or the interpretation would not
have had a material impact on these financial
statements.
There are a number of standards, amendments
to standards and interpretations that were
issued by 31 December 2007 but have yet to
be endorsed by the EU. Of these, only the
amendment to IAS 1 (Presentation of financial
statements: a revised presentation) is expected
to have any impact on the Group’s financial
statements. This amendment introduces a
number of changes to the primary financial
statements, but does not change the
recognition, measurement or disclosure of
transactions or events that are required by
other IFRS.
The following IFRS have been adopted and
applied by the Group for the first time in
these financial statements:
· IFRS 7 (Financial instruments: Disclosure); and
· Amendment to IAS 1 (Capital disclosures)
The accounting policies set out below
have, unless otherwise stated, been applied
consistently to all periods presented in these
Group financial statements.
The financial statements are prepared on the
historical cost basis, except for the revaluation
of financial assets classified as at fair value
through profit or loss.
Subsidiaries are entities controlled by the
Group. Control exists when the Group has
the power, directly or indirectly, to govern the
financial and operating policies of an entity
so as to obtain benefits from its activities.
In assessing control, potential voting rights
that are currently exercisable or convertible
are taken into account. The financial
statements of subsidiaries are included in the
consolidated financial statements from the
date that control commences until the date
that control ceases.
The preparation of financial statements
in conformity with adopted IFRS requires
management to make judgements, estimates
and assumptions that affect the application of
policies and reported amounts of assets and
liabilities, income and expenses. The estimates
and associated assumptions are based on
historical experience and various other factors
that are believed to be reasonable under the
circumstances, the results of which form the
basis of making the judgements about carrying
values of assets and liabilities that are not
readily apparent from other sources.
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The estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the
year in which the estimate is reviewed if this
revision affects only that year, or in the year
of the revision and future years if the revision
affects both current and future years.
2. Critical accounting
judgements and estimates
Judgements:
In applying the Group’s accounting policies as
described in note 3, management has primarily
applied judgement in the classification of the
Groups contracts with reinsurers as quota
share reinsurance contracts. A contract is
required to transfer significant insurance risk
in order to be classified as such. Management
reviews all terms and conditions of the
contract, and if necessary obtains the opinion
of an independent expert at the negotiation
stage in order to be able to make these
judgements.
Estimation techniques used in calculation
of claims provisions:
Estimation techniques are used in the
calculation of the provisions for claims
outstanding, which represents a projection of
the ultimate cost of settling claims that have
occurred prior to the balance sheet date and
remain unsettled at the balance sheet date.
The key area where these techniques are used
relates to the ultimate cost of reported claims.
A secondary area relates to the emergence
of claims that occurred prior to the balance
sheet date, but had not been reported at that
date.
The estimates of the ultimate cost of reported
claims are based on the setting of claim
provisions on a case-by-case basis, for all but
the simplest of claims.
The sum of these provisions are compared
with projected ultimate costs using a variety
of different projection techniques (including
incurred and paid chain ladder and an average
cost of claim approach) to allow an actuarial
assessment of their likely accuracy. They
include allowance for unreported claims.
The most significant sensitivity in the use of
the projection techniques arises from any
future step change in claims costs, which
would cause future claim cost inflation to
deviate from historic trends. This is most
likely to arise from a change in the regulatory
or judicial regime that leads to an increase
in awards or legal costs for bodily injury
claims that is significantly above or below the
historical trend.
The claims provisions are subject to
independent review by the Group’s actuarial
advisors.
3. Significant accounting
policies
a) Revenue recognition
Premiums, ancillary income and profit
commission:
Premiums relating to insurance contracts are
recognised as revenue proportionally over the
period of cover.
Income earned on the sale of ancillary
products and income from policies paid
by instalments is credited to the income
statement over the period matching the
Group’s obligations to provide services.
Where the Group has no remaining
contractual obligations, the income is
recognised immediately. An allowance is
made for expected cancellations where the
customer may be entitled to a refund of
ancillary amounts charged.
Under some of the co-insurance and
reinsurance contracts under which motor
premiums are shared or ceded, profit
commission may be earned on a particular
year of account, which is usually subject to
performance criteria such as loss ratios and
expense ratios. The commission is dependent
on the ultimate outcome of any year, with
income being recognised based on loss and
expense ratios used in the preparation of the
financial statements.
Income is allocated to profit commission
in the income statement when the right to
consideration is achieved, and is capable of
reliable measurement.
Revenue from Gladiator Commercial and
Confused.com:
Commission from these activities is credited
to income on the sale of the underlying
insurance policy.
5 6 F I N A N C I A L S TAT E M E N T S
Investment income:
Investment income from financial assets
comprises interest income and net gains (both
realised and unrealised) on financial assets
classified as fair value through profit and loss.
items, such as equities held at fair value
through profit or loss, are reported as part
of the fair value gain or loss. Translation
differences on non-monetary items are
included in the fair value reserve in equity.
b) Segment reporting
The Group’s primary format for segment
reporting is business segments. There is no
secondary segment. A business segment is
defined as a group of assets and operations
engaged in providing products and services
that are subject to risks and returns that are
different from other business segments.
For the Group, the risks and returns of its
insurance broking activities, namely Gladiator
Commercial and Confused.com, are clearly
distinguishable from its motor insurance
segment. This is reflected in the Group’s
management and organisation structure and
internal financial reporting systems.
Management classify the private motor
insurance underwriting and private motor
insurance ancillary income results as one
business segment (private motor insurance).
This is because although the results are
distinguishable between underwriting and
non-underwriting, the activities carried out in
generating the income are not independent of
each other and are carried on as one business.
This mirrors the approach in management
reporting.
c) Foreign currency translation
Functional and presentation currency
Items included in the financial statements
of each of the Group’s entities are measured
using the currency of the primary economic
environment in which the entity operates
(‘the functional currency’). The consolidated
financial statements are presented in
thousands of pounds sterling, which is the
Group’s presentation currency.
Transactions and balances
Foreign currency transactions are translated
into the functional currency using the
exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and
losses resulting from the settlement of such
transactions, and from the translation at year
end exchange rates of monetary assets and
liabilities denominated in foreign currencies
are recognised in the income statement.
Translation differences on non-monetary
Translation of financial statements of
foreign branches
The financial statements of foreign branches
whose functional currency is not pounds
sterling are translated into the Group
presentation currency (sterling) as follows:
(i) Assets and liabilities for each balance
sheet presented are translated at the
closing rate at the date of that balance
sheet;
(ii) Income and expenses for each income
statement are translated at average
exchange rates (unless this average is not a
reasonable approximation of the cumulative
effect of the rates prevailing on the
transaction dates, in which case income
and expenses are translated at the date of
the transaction); and
(iii) All resulting exchange differences are
recognised as a separate component of
equity.
d) Insurance contracts and reinsurance
assets
Premium:
The proportion of premium receivable on
in-force policies relating to unexpired risks is
reported in insurance contract liabilities and
reinsurance assets as the unearned premium
provision – gross and reinsurers’ share
respectively.
Claims:
Claims and claims handling expenses are
charged as incurred, based on the estimated
direct and indirect costs of settling all
liabilities arising on events occurring up to the
balance sheet date.
The provision for claims outstanding
comprises provisions for the estimated cost
of settling all claims incurred but unpaid at
the balance sheet date, whether reported or
not. Anticipated reinsurance recoveries are
disclosed separately as assets.
Whilst the Directors consider that the
gross provisions for claims and the related
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reinsurance recoveries are fairly stated on the
basis of the information currently available to
them, the ultimate liability will vary as a result
of subsequent information and events and
may result in significant adjustments to the
amounts provided.
Adjustments to the amounts of claims
provisions established in prior years are
reflected in the income statement for the
period in which the adjustments are made and
disclosed separately if material. The methods
used, and the estimates made, are reviewed
regularly.
Provision for unexpired risks is made where
necessary for the estimated amount required
over and above unearned premiums to meet
future claims and related expenses.
Co-insurance:
The Group has entered into certain co-
insurance contracts under which insurance
risks are shared on a proportional basis, with
the co-insurer taking a specific percentage of
each premium written and being responsible
for the same proportion of each claim. As
the contractual liability is several and not
joint, neither the premiums nor claims relating
to the co-insurance are included in the
income statement. Under the terms of these
agreements the co-insurers reimburse the
Group for the same proportionate share of
the costs of acquiring the business.
Reinsurance assets:
Contracts entered into by the Group
with reinsurers under which the Group is
compensated for losses on the insurance
contracts issued by the Group are classified
as reinsurance contracts. A contract is only
accounted for as an insurance or reinsurance
contract where there is significant insurance
risk transfer between the insured and the
insurer.
The benefits to which the Group is entitled
under these contracts are held as reinsurance
assets.
The Group assesses its reinsurance assets
for impairment on a regular basis, and in
detail every six months. If there is objective
evidence that the asset is impaired, then the
carrying value will be written down to its
recoverable amount.
e) Intangible assets
Goodwill:
All business combinations are accounted for
using the purchase method. Goodwill has
been recognised in acquisitions of subsidiaries,
and represents the difference between the
cost of the acquisition and the fair value of
the net identifiable assets acquired.
The classification and accounting treatment
of acquisitions occurring before 1 January
2004 have not been reconsidered in preparing
the Group’s opening IFRS balance sheet at 1
January 2004 due to the exemption available
in IFRS 1 (First time adoption).
In respect of acquisitions prior to 1 January
2004, goodwill is included at the transition
date on the basis of its deemed cost, which
represents the amount recorded under UK
GAAP, which was tested for impairment at the
transition date. On transition, amortisation of
goodwill has ceased as required by IFRS.
Goodwill is stated at cost less any
accumulated impairment losses. Goodwill
is allocated to cash generating units (CGU’s)
according to business segment and is reviewed
annually for impairment.
The Goodwill held on the balance sheet at
31 December 2007 is allocated solely to the
private motor insurance segment.
Impairment of goodwill:
The annual impairment review involves
comparing the carrying amount to the
estimated recoverable amount (by allocating
the goodwill to CGU’s) and recognising an
impairment loss if the recoverable amount
is lower. Impairment losses are recognised
through the income statement and are not
subsequently reversed.
The recoverable amount is the greater of the
net realisable value and the value in use of the
CGU.
The value in use calculations use cash flow
projections based on financial budgets
approved by management covering a three
year period. Cash flows beyond this period
are considered, but not included in the
calculation. The discount rate applied to
the cashflow projections in the value in use
calculations is 10.3%, based on the Group’s
weighted average cost of capital.
The key assumptions used in the value in use
calculations are those regarding growth rates
5 8 F I N A N C I A L S TAT E M E N T S
and expected changes in pricing and expenses
incurred during the period. Management
estimates growth rates and changes in pricing
based on past practices and expected future
changes in the market.
g) Leased assets
The rental costs relating to assets held under
operating leases are charged to the income
statement on a straight-line basis over the life
of the lease.
Deferred acquisition costs:
Acquisition costs comprise all direct and
indirect costs arising from the conclusion of
insurance contracts. Deferred acquisition
costs represent the proportion of acquisition
costs incurred that corresponds to the
unearned premiums provision at the balance
sheet date. This balance is held as an
intangible asset. It is amortised over the term
of the contract as premium is earned.
Software:
Purchased software is recognised as an
intangible asset and amortised over its
expected useful life (generally between two
and four years). The carrying value is reviewed
every six months for evidence of impairment,
with the value being written down if any
impairment exists. Impairment may be
reversed if conditions subsequently improve.
f) Property, plant and equipment and
depreciation
All property, plant and equipment is stated
at cost less accumulated depreciation.
Depreciation is calculated using the straight-
line method to write off the cost less
residual values of the assets over their useful
economic lives. These useful economic lives
are as follows:
Motor vehicles
Fixtures, fittings and
equipment
4 years
4 years
Computer equipment
2 to 4 years
Improvements to short
leasehold properties
4 years
Impairment of property, plant and
equipment
In the case of property plant and equipment,
carrying values are reviewed at each balance
sheet date to determine whether there are
any indications of impairment. If any such
indications exist, the asset’s recoverable
amount is estimated and compared to the
carrying value. The carrying value is the higher
of the net realisable value and the asset’s
value in use. Impairment losses are recognised
through the income statement.
Leases under the terms of which the Group
assumes substantially all of the risks and
rewards of ownership are classed as finance
leases. Assets acquired under finance leases
are included in property, plant and equipment
at fair value on acquisition and are depreciated
in the same manner as equivalent owned
assets. Finance lease and hire purchase
obligations are included in creditors, and the
finance costs are spread over the periods of
the agreements based on the net amount
outstanding.
h) Financial assets – investments and
receivables
Financial assets are classified according to the
purpose for which they were acquired. The
Group's investments in money market liquidity
funds are designated as financial assets at
fair value through profit or loss (FVTPL) at
inception.
This designation is permitted under IAS 39, as
the investments in money market funds are
managed as a group of assets and internal
performance evaluation of this group is
conducted on a fair value basis.
Financial assets at FVTPL are stated at
fair value, with any resultant gain or loss
recognised through the income statement.
Receivables are stated at their historic cost
(discounted if material) unless they are
impaired. Impairment losses are recognised
through the income statement.
i) Cash and cash equivalents
Cash and cash equivalents includes cash in
hand, deposits held at call with banks, and
other short-term deposits with original
maturities of three months or less.
j) Share capital
Shares are classified as equity when there is
no obligation to transfer cash or other assets.
k) Loans and borrowings
Interest bearing loans and borrowings
are recognised initially at fair value less
attributable transaction costs. Subsequent to
initial recognition, interest bearing loans and
borrowings are stated at amortised cost with
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temporary differences arising between the
carrying amount of assets and liabilities for
accounting purposes, and the amounts used
for taxation purposes. It is calculated at the
tax rates that are expected to apply in the
period when the liability is settled or the asset
is realised.
A deferred tax asset is recognised only to the
extent that it is probable that future taxable
profits will be available against which the asset
can be utilised.
The principal temporary differences arise
from depreciation of property and equipment,
share scheme charges and the tax treatment
of Lloyd’s profits. The resulting deferred tax is
charged or credited in the income statement,
except in relation to share scheme charges
where the amount of tax benefit credited
to the income statement is limited to an
equivalent credit calculated on the accounting
charge. Any excess is recognised directly in
equity.
n) Government grants
Government grants are recognised in the
financial statements in the period where
it becomes reasonably certain that the
conditions attaching to the grant will be met,
and that the grant will be received.
Grants relating to assets are deducted from
the carrying amount of the asset. The grant is
therefore recognised as income over the life
of the depreciable asset by way of a reduced
depreciation charge.
Grants relating to income are shown as a
deduction in the reported expense.
any difference between cost and redemption
value being recognised in the income
statement over the life of the borrowings on
an effective interest basis.
l) Employee benefits
Pensions:
The Group contributes to a number of defined
contribution personal pension plans for its
employees. The contributions payable to
these schemes are charged in the accounting
period to which they relate.
Employee share schemes:
The Group operates a number of equity
settled compensation schemes for its
employees. For schemes commencing 1
January 2004 and after, the fair value of the
employee services received in exchange
for the grant of free shares under the
schemes is recognised as an expense, with a
corresponding increase in equity.
The total charge expensed over the vesting
period is determined by reference to the fair
value of the free shares granted as determined
at the grant date (excluding the impact of
non-market vesting conditions). Non-market
conditions such as profitability targets as
well as staff attrition rates are included in
assumptions over the number of free shares to
vest under the applicable scheme.
At each balance sheet date, the Group revises
its assumptions on the number of shares to be
granted with the impact of any change in the
assumptions recognised through income.
Refer to note 25 for further details on share
schemes.
m) Taxation
Income tax on the profit or loss for the
periods presented comprises current and
deferred tax.
Current tax:
Current tax is the expected tax payable on
the taxable income for the period, using tax
rates that have been enacted or substantively
enacted by the balance sheet date, and
includes any adjustment to tax payable in
respect of previous periods.
Deferred tax:
Deferred tax is provided in full using the
balance sheet liability method, providing for
6 0 F I N A N C I A L S TAT E M E N T S
4. Segment reporting
Revenue and results for the year ended 31 December 2007, split by business segment are shown
below. Consolidation adjustments represent the elimination of inter-segment trading, specifically
interest charged on inter-company loans.
As noted above, the Directors consider there to be two business segments. These are private
motor insurance and insurance broking (Confused.com and Gladiator Commercial). No
geographical business split has been presented as the results of the Group’s European operations
are not material to the 2007 figures.
31 December 2007
Private motor
insurance
Insurance
broking
Consolidation
adjustment
£000
£000
£000
Net revenue
286,451
77,683
Profit after tax
99,644
27,772
Other segment items :
Depreciation
Amortisation
3,011
9,174
216
-
-
-
-
-
Group
£000
364,134
127,416
3,227
9,174
The segment assets and liabilities at 31 December 2007 and capital expenditure for the year are as
follows. Consolidation adjustments represent the elimination of inter-company balances.
31 December 2007
Private motor
insurance
Insurance
broking
Consolidation
adjustment
£000
£000
£000
Group
£000
842,742
27,722
(1,771) 868,693
597,647
6,778
(1,771) 602,654
Total assets excluding deferred
tax balances
Total liabilities excluding current
and deferred tax balances
Capital expenditure:
Intangible assets
Plant, property and equipment
11,480
3,099
-
394
-
-
11,480
3,493
Revenue and results for the corresponding business segments for the year ended 31 December
2006 are reported below.
A D M I R A L G R O U P p l c 6 1
31 December 2006
Private motor
insurance
Insurance
broking
Consolidation
adjustment
£000
£000
£000
Group
£000
Net revenue
266,168
45,069
(271)
310,966
Profit after tax
85,699
18,023
-
103,722
Other segment items:
Depreciation
Amortisation
2,366
6,508
123
-
-
-
2,489
6,508
The segment assets and liabilities at 31 December 2006 and capital expenditure for the year are
as follows.
31 December 2006
Private motor
insurance
Insurance
broking
Consolidation
adjustment
£000
£000
£000
Group
£000
Total assets
736,160
18,780
(1,935)
753,005
Total liabilities excluding current
and deferred tax balances
506,426
5,071
(1,935)
509,562
Capital expenditure:
Intangible assets
Plant, property and equipment
6,764
5,088
-
364
-
-
6,764
5,452
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5. Net insurance premium revenue
31 December
2007
31 December
2006
£000
£000
Total motor insurance premiums before co-insurance
631,251
566,608
Group gross premiums written after co-insurance
Outwards reinsurance premiums
260,901
(119,049)
196,378
(57,731)
Net insurance premiums written
141,852
138,647
Change in gross unearned premium provision
Change in reinsurers’ share of unearned premium provision
(27,826)
28,210
(8,090)
14,398
Net insurance premium revenue
142,236
144,955
The Group’s share of the UK and Spanish private motor insurance business was underwritten by
Admiral Insurance (Gibraltar) Limited (AIGL) and Admiral Insurance Company Limited (AICL). All
contracts are short-term in duration, lasting for 10 or 12 months.
6. Other revenue
Ancillary revenue
Revenue from Confused.com
Instalment income earned
Revenue from Gladiator Commercial
31 December
2007
31 December
2006
£000
£000
94,216
69,159
5,983
7,520
81,527
38,517
5,676
5,901
Total other revenue
176,878
131,621
Ancillary revenue primarily constitutes commission from sales of insurance products that
complement the motor policy, but which are underwritten by external parties.
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7. Profit commission
A D M I R A L G R O U P p l c 6 3
31 December
2007
31 December
2006
£000
£000
Total profit commission
20,448
19,926
8. Investment and interest income
Net investment return
Interest receivable
31 December
2007
31 December
2006
£000
£000
16,795
7,777
9,925
4,539
Total investment and interest income
24,572
14,464
9. Expenses and share scheme charges
31 December 2007
31 December 2006
Insurance
contracts Other
£000
£000
Total
£000
Insurance
contracts
£000
Other
£000
Total
£000
Acquisition of insurance
contracts
Administration and other
marketing costs
8,420
-
8,420
7,375
-
7,375
13,314
57,252
70,566
12,009
35,144
47,153
Expenses
21,734
57,252
78,986
19,384
35,144
54,528
Share scheme charges
-
2,971
2,971
-
933
933
Total expenses and share
scheme charges
21,734
60,223
81,957
19,384
36,077
55,461
6 4 F I N A N C I A L S TAT E M E N T S
Analysis of other administration and other marketing costs:
Ancillary sales expenses
Confused.com operating expenses
Gladiator Commercial operating expenses
Central overheads
Total
31 December
2007
31 December
2006
£000
£000
16,613
32,432
5,520
2,687
14,505
15,437
3,876
1,326
57,252
35,144
The £13,314,000 (2006: £12,009,000) administration and marketing costs allocated to insurance
contracts is principally made up of salary costs.
The gross amount of expenses, before recoveries from co-insurers and reinsurers is £167,773,000
(2006: £122,343,000). This amount can be reconciled to the total expenses and share scheme
charges above of £81,957,000 (2006: £55,461,000) as follows:
Gross expenses
Co-insurer share of expenses
31 December
2007
31 December
2006
£000
£000
167,773
(66,430)
122,343
(59,075)
Expenses, net of co-insurer share
101,343
63,268
Adjustment for deferral of acquisition costs
(3,687)
(1,044)
Expenses, net of co-insurer share (earned basis)
97,656
62,224
Reinsurer share of expenses (earned basis)
(15,699)
(6,763)
Total expenses and share scheme charges
81,957
55,461
Reconciliation of expenses related to insurance contracts to reported expense ratio:
A D M I R A L G R O U P p l c 6 5
Insurance contract expenses from above
Add: claims handling expenses
Adjusted expenses
Net insurance premium revenue
Reported expense ratio
31 December
2007
31 December
2006
£000
£000
21,734
3,471
19,384
3,538
25,205
22,922
142,236
17.7%
144,955
15.8%
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10. Staff costs and other expenses
Included in profit, before co-insurance arrangements are the following:
Salaries
Social security charges
Pension costs
Share scheme charges (see note 25)
31 December
2007
31 December
2006
£000
£000
45,022
6,231
588
5,560
36,083
3,337
517
2,667
Total staff expenses
57,401
42,604
Depreciation charge:
- Owned assets
- Leased assets
Amortisation charge:
- Software
- Deferred acquisition costs
Operating lease rentals:
- Buildings
Auditor’s remuneration:
- Fees payable for the audit of the Company’s annual
accounts
- Fees payable for the audit of the Company’s subsidiary
accounts
- Fees payable for other services
Loss on disposal of property, plant and equipment
Net foreign exchange gains
Analysis of fees paid to the auditor for other services:
Tax services
Other services
Total as above
2,127
1,100
725
8,449
1,009
1,480
446
6,062
3,018
3,292
25
169
85
6
171
85
-
85
19
154
60
151
-
45
15
60
The amortisation of software and deferred acquisition cost assets is charged to expenses in the
income statement.
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11. Staff numbers (including Directors)
A D M I R A L G R O U P p l c 6 7
Average for the year
2007
Number
2006
Number
1,839
525
2,364
1,593
404
1,997
31 December
2007
31 December
2006
£000
£000
-
243
41
-
284
166
481
221
150
1,018
31 December
2007
31 December
2006
£000
£000
56,194
(87)
56,107
45,430
(648)
44,782
Direct customer contact staff
Support staff
Total
12. Finance charges
Term loan interest
Finance lease interest
Letter of credit charges
Other interest payable
Total finance charges
13.
Taxation
UK Corporation tax
Current charge at 30%
Over provision relating to prior periods – corporation tax
Current tax charge
Deferred tax
Current period deferred taxation movement
(1,422)
(1,249)
(Over) / Under provision relating to prior periods –
deferred tax
(3)
87
Total tax charge per income statement
54,682
43,620
6 8 F I N A N C I A L S TAT E M E N T S
Factors affecting the tax charge are:
31 December
2007
31 December
2006
£000
£000
Profit before taxation
182,098
147,342
Corporation tax thereon at 30%
54,629
44,203
Adjustments in respect of prior year insurance technical
provisions
Expenses and provisions not deductible for tax purposes
Other differences
Adjustments relating to prior periods
-
178
(36)
(89)
17
114
(153)
(561)
Tax charge for the period as above
54,682
43,620
14. Dividends
Dividends were declared and paid as follows:
March 2006 (14.9p per share, paid May 2006)
September 2006 (12.1p per share, paid October 2006)
March 2007 (24.0p per share, paid May 2007)
September 2007 (20.6p per share, paid October 2007)
31 December
2007
31 December
2006
£000
£000
-
-
62,412
53,604
38,667
31,437
-
-
Total dividends
116,016
70,104
The dividends declared in March represent the final dividends paid in respect of the 2006 and
2005 financial years. Dividends declared in September are interim distributions in respect of
2007 and 2006.
A final dividend of 23.2p per share has been proposed in respect of the 2007 financial year.
Refer to the Chairman’s statement and financial review for further detail.
A D M I R A L G R O U P p l c 6 9
15. Earnings per share
31 December
2007
31 December
2006
Profit for the financial year after taxation (£000s)
127,416
103,722
Weighted average number of shares – basic
Earnings per share – basic
261,981,843
260,632,740
48.6p
39.8p
Weighted average number of shares – diluted
262,291,843
260,906,740
Earnings per share – diluted
48.6p
39.8p
The difference between the basic and diluted number of shares at the end of 2007 (being
310,000) relates to awards committed, but not yet issued under the Group’s share schemes.
Refer to note 25 for further detail.
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7 0 F I N A N C I A L S TAT E M E N T S
16. Property, plant and equipment
Improvements
to short
leasehold
buildings
Computer
equipment
Office
equipment
Furniture
and
fittings
Motor
vehicles
£000
£000
£000
£000
£000
Total
£000
Cost
At 1 January 2006
Additions
Disposals
680
1,655
(2)
9,534
1,672
(15)
2,623
1,684
(138)
1,372
441
(1)
12
-
-
14,221
5,452
(156)
At 31 December 2006
2,333
11,191
4,169
1,812
12
19,517
Depreciation
At 1 January 2006
Charge for the year
Disposals
428
220
-
5,603
1,750
(5)
2,320
396
-
1,230
120
-
4
3
-
9,585
2,489
(5)
At 31 December 2006
648
7,348
2,716
1,350
7
12,069
Net book amount
At 1 January 2006
Net book amount
At 31 December 2006
Cost
At 1 January 2007
Additions
Disposals
252
3,931
1,685
3,843
2,333
413
-
11,191
2,129
(6)
303
1,453
4,169
781
-
142
462
1,812
170
(3)
8
5
12
-
-
4,636
7,448
19,517
3,493
(9)
At 31 December 2007
2,746
13,314
4,950
1,979
12
23,001
Depreciation
At 1 January 2007
Charge for the year
Disposals
648
577
-
7,348
1,858
(2)
2,716
611
-
1,350
178
(1)
7
3
-
12,069
3,227
(3)
At 31 December 2007
1,225
9,204
3,327
1,527
10
15,293
Net book amount
At 31 December 2007
1,521
4,110
1,623
452
2
7,708
The net book value of assets held under finance leases is as follows:
A D M I R A L G R O U P p l c 7 1
31 December
2007
31 December
2006
£000
£000
2,149
2,996
Deferred
acquisition
costs
£000
Goodwill
£000
Software
£000
Total
£000
62,354
-
-
3,328
6,179
(6,062)
808
596
(446)
66,490
6,775
(6,508)
Computer equipment
17. Intangible assets
Carrying amount:
At 1 January 2006
Additions
Amortisation charge
At 31 December 2006
62,354
3,445
958
66,757
Additions
Amortisation charge
-
-
9,584
(8,449)
1,896
(725)
11,480
(9,174)
At 31 December 2007
62,354
4,580
2,129
69,063
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18. Financial instruments
The Group’s financial instruments can be analysed as follows:
Financial assets and liabilities
Investments held at fair value
Receivables – amounts owed by policyholders
Total financial assets per consolidated
balance sheet
Trade and other receivables
Cash and cash equivalents
Financial liabilities:
Trade and other payables
31 December
2007
31 December
2006
£000
£000
335,608
146,240
257,634
138,304
481,848
395,938
22,633
155,773
16,931
191,242
660,254
604,111
239,593
215,137
All receivables from policyholders are due within 12 months of the balance sheet date.
All investments held at fair value are invested in AAA-rated money market liquidity funds. These
funds (spread across three very large providers) target a 7day LIBID return with capital security
and low volatility and continue to achieve these goals.
Objectives, policies and procedures for managing financial assets and liabilities
The Group’s activities expose it primarily to the significant financial risks of credit risk, liquidity
risk, interest rate risk and foreign exchange risk. The Board of Directors has delegated the task
of supervising risk management and internal control to the Risk Management Committee (RMC).
There is also an Investment Committee that makes recommendations to the Board on the
Group’s investment strategy.
There are several key elements to the risk management environment throughout the Group.
These are detailed in full in the corporate governance statement. Specific considerations for the
risks arising from financial assets and liabilities are detailed below.
Interest rate risk
The Group considers interest rate risk to be the risk that unfavourable movements in interest
rates could adversely impact on the capital values of financial assets and liabilities. This relates
primarily to investments held at fair value.
The Group has a policy of investing in AAA-rated money market liquidity funds, which invest in
a mixture of very short dated fixed and variable rate securities, such as certificates of deposits,
floating rate notes and other commercial paper.
The funds are not permitted to have an average maturity greater than 60 days and hence are not
subject to large movements in yield and value resulting from changes in market interest rates (as
longer duration fixed income portfolios experience). Returns are likely to closely track the 7 day
LIBID benchmark and hence while the Group’s investment return will vary according to market
interest rates, the capital value of the investment funds will not be impacted by rate movements.
The interest rate risk arising is therefore considered to be minimal.
Although the Group had no financial liabilities at 31 December 2007 or 31 December 2006, it
currently holds a facility of £30m which allows it to draw down interest bearing borrowings on
A D M I R A L G R O U P p l c 7 3
demand. Any such borrowings would be subject to variable interest rate changes, at LIBOR plus a
margin. However the Group has not held any drawn down amounts on this facility since 2005.
Credit risk
The Group defines credit risk as the risk of loss if another party fails to perform its obligations or
fails to perform them in a timely fashion.
Amounts recoverable from reinsurers expose the Group to credit risk. To mitigate this risk, the
Group only conducts business with companies of specified financial strength ratings. In addition,
management also contract with certain reinsurers on a funds withheld basis, which substantially
reduces credit risk.
The other principal form of credit risk is in respect of amounts due from policyholders due to
the potential for default on credit card payments. The impact of this is mitigated by the large
customer base and low average level of balance recoverable. There is also mitigation by the
operation of numerous high and low level controls in this area, including payment on policy
acceptance as opposed to inception and automated cancellation procedures for policies in
default.
The fair value of receivables from policyholders represents the maximum exposure to credit
risk. The Group does not use credit derivatives or similar instruments to mitigate exposure. The
amount of bad debt expense relating to policyholder debt charged to the income statement in
2006 and 2007 is insignificant.
There are no specific concentrations of credit risk with respect to investment counterparties due
to the structure of the liquidity funds which invest in a wide range of very short duration, high
quality securities.
There were no significant financial assets that were past due at the close of either 2007 or 2006.
Foreign exchange risks
Foreign exchange risks arise from unfavourable movements in foreign exchange rates that could
adversely impact the valuation of overseas assets.
The Group may be exposed to foreign exchange risk through its expanding operations in Europe.
However, given the relative size of the European operations, the risks are relatively small. Assets
held to fund insurance liabilities are held in the currency of the liabilities.
A sensitivity analysis based on fluctuations in foreign exchange risk has not been presented on
materiality grounds.
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7 4 F I N A N C I A L S TAT E M E N T S
Liquidity risk
Liquidity risk is defined as the risk that the Group does not have sufficient, available, financial
resources to enable it to meet its obligations as they fall due, or can only secure them at
excessive cost.
The Group has traditionally been strongly cash generative due to the large proportion of profit
arising from non-underwriting activity. Further, as noted above, insurance funds are invested in
money market liquidity funds with same day liquidity features, meaning that the vast majority
of the Group cash and investments are immediately available. The current uncertainty in credit
markets is not likely to impact this. Liquidity risk is therefore considered to be insignificant.
Fair value
The carrying value of all of the Group’s financial assets equate to fair value. For money market
funds, cash at bank and deposits, the fair value approximates to the book value due to their
short maturity.
Objectives, policies and procedures for managing capital
The Group manages its capital to ensure that all entities within the Group are able to continue as
going concerns and also to ensure that regulated entities meet regulatory requirements Excess
capital above these levels within subsidiaries is paid up to the Group holding Company in the
form of dividends on a regular basis.
At Group level, capital is managed in conjunction with dividend policy. As noted in the financial
review, the policy is to make distributions after taking into account capital that is required to be
held for regulatory purposes, for expansion activities and also holding a general capital buffer
£25m (2006: £25m). This policy gives the Directors flexibility in managing the capital requirements
of the Group.
The Group’s capital is all in equity form, with no debt.
External capital requirements
The Group’s business is subject to regulatory and solvency requirements in two main jurisdictions:
Admiral Insurance (Gibraltar) Limited is the only subsidiary incorporated outside the UK. It is an
insurance Company registered in Gibraltar and is regulated by the Commissioner of Insurance of
the Gibraltar Financial Services Commission (FSC).
All other subsidiaries as detailed in Note 29 are incorporated in the UK and most are subject to
the regulatory regime of the Financial Services Authority (FSA).
Both the FSA and the FSC impose specific solvency requirements for capital resources on
regulated subsidiary companies. All companies have comfortably exceeded agreed solvency
targets at all times during the years ended 31 December 2006 and 2007.
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A D M I R A L G R O U P p l c 7 5
19. Reinsurance assets and insurance contract liabilities
A) Objectives. policies and procedures for the management of insurance risk:
The Group is involved in issuing motor insurance contracts that transfer risk from policyholders
to the Group and its underwriting partners.
Insurance risk primarily involves uncertainty over the occurrence, amount and timing of claims
arising on insurance contracts issued. The key risk is that the frequency and / or value of the
claims arising exceeds expectation and the value of insurance liabilities established.
The Board of Directors is responsible for the management of insurance risk, although as
mentioned in note 18, it has delegated the task of supervising risk management to the RMC.
The Board implements certain policies in order to mitigate and control the level of insurance risk
accepted by the Group. These include underwriting partnership arrangements, pricing policies
and claims management and administration policies.
A number of the key elements of these policies and procedures are detailed below:
i) Co-insurance and reinsurance:
As noted in the underwriting structure section of the financial review above, the Group passes
out a significant amount of the motor insurance business written to external underwriters. In
2007, 60% of the risk was shared under a co-insurance contract, under which the primary risk is
borne by the co-insurer.
A further 17.5% was ceded under quota share reinsurance contracts.
As well as these proportional arrangements, an excess of loss reinsurance programme is also
purchased to protect the Group against very large individual claims and catastrophe losses.
ii) Data driven pricing:
The Group’s underwriting philosophy is focused on a sophisticated data-driven approach to
pricing and underwriting and on exploiting the competitive advantages direct insurers enjoy over
traditional insurers through:
· Collating and analysing more comprehensive data from customers;
· Tight control over the pricing guidelines in order to target profitable business sectors; and
· Fast and flexible responsiveness to data analysis and market trends.
The Group is committed to establishing premium rates that appropriately price the underwriting
risk and exposure. Rates are set utilising a larger than average number of underwriting criteria.
The Directors believe that there is a strong link between the increase in depth of data that the
Group has been able to collate over time and the lower than average historic reported loss ratios
enjoyed by the Group.
7 6 F I N A N C I A L S TAT E M E N T S
iii) Effective claims management:
The Group adopts various claims management strategies designed to ensure that claims are paid
at an appropriate level and to minimise the expenses associated with claims management. These
include:
· An effective, computerised workflow system (which along with the appropriate level of
resources employed helps reduce the scope for error and avoids significant backlogs);
· Use of an outbound telephone team to contact third parties aiming to minimise the potential
claims costs and to ensure that more third parties utilise the Group approved repairers;
· Use of sophisticated and innovative methods to check for fraudulent claims.
Concentration of insurance risk:
The Directors do not believe there are significant concentrations of insurance risk. This is because,
although the Group only writes one line of insurance business, the risks are spread across a large
number of people and a wide regional base.
B) Sensitivity of recognised amounts to changes in assumptions:
The following table sets out the impact on equity at 31 December 2007 that would result from a
1 per cent change in the loss ratios used for each underwriting year for which material amounts
remain outstanding.
Underwriting year
2003
2004
2005
2006
2007
Total
Loss ratio
56.0%
62.5%
74.0%
86.0%
89.0%
Impact of 1% change (£000s)
1,214
1,552
2,017
1,822
529
7,134
The impact is stated net of reinsurance and includes the change in net insurance claims along
with the associated profit commission movements that result from changes in loss ratios. The
figures are stated net of tax at the current rate.
A D M I R A L G R O U P p l c 7 7
C) Analysis of recognised amounts:
Gross:
Claims outstanding
Unearned premium provision
31 December
2007
31 December
2006
£000
£000
242,576
120,484
202,421
92,004
Total gross insurance liabilities
363,060
294,425
Recoverable from reinsurers:
Claims outstanding
Unearned premium provision
76,055
55,613
47,710
26,979
Total reinsurers’ share of insurance liabilities
131,668
74,689
Net:
Claims outstanding
Unearned premium provision
166,521
64,871
154,711
65,025
Total insurance liabilities – net
231,392
219,736
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7 8 F I N A N C I A L S TAT E M E N T S
D) Analysis of re-estimation of claims provisions:
The following tables set out the cumulative impact, to 31 December 2007, of the retrospective
re-estimation of claims provisions initially established at the end of the financial years stated.
Figures are shown gross and net of reinsurance. These tables present data on an accident year
basis.
Gross amounts:
Gross claims provision as
originally estimated
Provision re-estimated as of:
One year later
Two years later
Three years later
Four years later
Five years later
As re-estimated at
31 December 2007
Financial year ended 31 December
2003
£000
2004
£000
2005
£000
2006
£000
2007
£000
115,169
142,968
170,216
202,421
242,576
111,599
105,748
100,880
97,850
-
137,075
127,613
119,625
-
-
162,205
149,317
-
-
-
192,283
-
-
-
-
97,850
119,625
149,317
192,283
-
-
-
-
-
-
-
Gross cumulative overprovision
(17,319)
(23,343)
(20,899)
(10,138)
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A D M I R A L G R O U P p l c 7 9
Net amounts:
Financial year ended 31 December
2003
£000
2004
£000
2005
£000
2006
£000
2007
£000
Net claims provision as originally
estimated
75,549
98,120
128,631
154,711
166,521
Provision re-estimated as of:
One year later
Two years later
Three years later
Four years later
Five years later
As re-estimated at
31 December 2007
72,579
67,726
63,954
61,620
-
93,910
87,761
82,004
-
-
122,423
111,964
-
-
-
146,435
-
-
-
-
61,620
82,004
111,964
146,435
Net cumulative overprovision
(13,929)
(16,116)
(16,667)
(8,276)
E) Analysis of net claims provision releases:
The following table analyses the impact of movements in prior year claims provisions, in terms
of their net value, and their impact on the reported loss ratio. This data is presented on an
underwriting year basis.
-
-
-
-
-
-
-
Underwriting year:
2000
2001
2002
2003
2004
2005
2006
Financial year ended 31 December
2004
£000
1,480
2,967
3,229
1,513
-
-
-
2005
£000
370
5,043
5,166
4,622
2,076
-
-
2006
£000
1,110
1,879
2,260
5,084
7,948
2,623
-
2007
£000
740
1,483
1,292
3,235
7,589
12,545
2,588
2003
£000
5,176
7,938
2,975
-
-
-
-
Total net release
16,089
9,189
17,277
20,904
29,472
Net premium revenue
Release as % of net premium revenue
79,327
20.3%
107,501
139,454
144,955
142,236
8.5%
12.4%
14.4%
20.7%
8 0 F I N A N C I A L S TAT E M E N T S
F) Reconciliation of movement in net claims provision:
31 December
2007
31 December
2006
£000
£000
Net claims provision at start of period
154,711
128,631
Net claims incurred
Net claims paid
96,324
(84,514)
103,607
(77,527)
Net claims provision at end of period
166,521
154,711
G) Reconciliation of movement in net unearned premium provision:
31 December
2007
31 December
2006
£000
£000
Net unearned premium provision at start of period
65,025
71,333
Written in the period
Earned in the period
141,851
(142,005)
138,647
(144,955)
Net unearned premium provision at end of period
64,871
65,025
20. Trade and other receivables
Trade receivables
Prepayments and accrued income
31 December
2007
31 December
2006
£000
£000
20,747
1,886
14,982
1,949
Total trade and other receivables
22,633
16,931
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A D M I R A L G R O U P p l c 8 1
21. Cash and cash equivalents
Cash at bank and in hand
Cash on short term deposit
31 December
2007
31 December
2006
£000
£000
150,902
4,871
164,989
26,253
Total cash and cash equivalents
155,773
191,242
Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other
short-term deposits with original maturities of three months or less.
22. Trade and other payables
Trade payables
Amounts owed to co-insurers and reinsurers
Finance leases due within 12 months
Finance leases due after 12 months
Other taxation and social security liabilities
Other payables
Accruals and deferred income (see below)
31 December
2007
31 December
2006
£000
£000
5,960
134,659
345
4
8,557
15,545
74,523
4,601
124,238
1,337
61
4,742
13,708
66,450
Total trade and other payables
239,593
215,137
Analysis of accruals and deferred income:
Premium receivable in advance of policy inception
Accrued expenses
Deferred income
31 December
2007
31 December
2006
£000
£000
38,477
26,948
9,098
31,772
25,456
9,222
Total accruals and deferred income as above
74,523
66,450
8 2 F I N A N C I A L S TAT E M E N T S
23. Obligations under finance leases
Analysis of finance lease liabilities:
At 31 December 2007
At 31 December 2006
Minimum
lease
payments
Interest
Principal
Minimum
lease
payments
Interest
Principal
£000
£000
£000
£000
£000
£000
Less than one year
360
Between one and five
years
More than five years
4
-
364
15
-
-
15
345
1,383
46
1,337
4
-
63
-
2
-
61
-
349
1,446
48
1,398
The average term of leases outstanding is two years. All leases are on a fixed repayment basis
and no arrangements have been entered into for contingent rental payments.
The fair value of the Group’s lease obligations approximates to their carrying amount.
24. Deferred income tax (asset) / liability
Brought forward at start of period
Movement in period
31 December
2007
31 December
2006
£000
£000
981
(2,610)
3,550
(2,569)
Carried forward at end of period
(1,629)
981
The net balance provided at the end of the year is made up as follows:
Analysis of net deferred tax (asset) / liability:
Tax treatment of Lloyd’s Syndicates
Tax treatment of share scheme charges
Capital allowances
Other differences
31 December
2007
31 December
2006
£000
£000
541
(2,091)
126
(205)
1,936
(853)
149
(251)
Deferred tax (asset) / liability at end of period
(1,629)
981
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A D M I R A L G R O U P p l c 8 3
The amount of deferred tax income / (expense) recognised in the income statement for each of
the temporary differences reported above is:
Amounts credited to income or expense:
Tax treatment of Lloyd’s Syndicates
Tax treatment of share scheme charges
Capital allowances
Other differences
31 December
2007
31 December
2006
£000
£000
1,395
53
23
(46)
1,880
(239)
(541)
62
Net deferred tax credited to income
1,425
1,162
The closing deferred tax balance reflects the change in UK corporation tax rate from 30% to 28%
which becomes effective on 1 April 2008. The change in rate does not have a significant impact
on the value of the asset.
25. Share capital
Authorised:
500,000,000 ordinary shares of 0.1p
500
500
31 December
2007
31 December
2006
£000
£000
Issued, called up and fully paid:
262,721,426 ordinary shares of 0.1p
261,186,599 ordinary shares of 0.1p
263
-
263
-
261
261
During 2007, 1,534,827 new ordinary shares of 0.1p were issued to the trusts administering the
Group’s share schemes.
570,827 of these were issued to the Admiral Group Share Incentive Plan Trust for the purposes of
this share scheme. These shares are entitled to receive dividends.
964,000 were issued to the Admiral Group Employee Benefit Trust for the purposes of the
Discretionary Free Share Scheme. The Trustees have waived the right to dividend payments,
other than to the extent of 0.001p per share, unless and to the extent otherwise directed by the
Company from time to time.
8 4 F I N A N C I A L S TAT E M E N T S
Staff share schemes:
Analysis of share scheme costs (per income statement):
SIP charge (note i)
DFSS charge (note ii)
Total share scheme charges
31 December
2007
31 December
2006
£000
£000
1,268
1,703
2,971
495
438
933
The share scheme charges reported above are net of the co-insurance share and therefore differ
from the gross charge reported in note 10 (2007: £5,560,000, 2006: £2,667,000) and the gross
credit to reserves reported in note 26.
The consolidated cashflow statement also shows the gross charge in the reconciliation between
‘profit after tax’ and ‘cashflows from operating activities’. The co-insurance share of the charge is
included in the ‘change in trade and other payables’ line.
(i) The Approved Share Incentive Plan (the SIP)
Eligible employees qualify for awards under the SIP based upon the performance of the Group
in each half-year against budget. The current maximum award for each half-year amounts to
600,000 shares (or a maximum annual award of £3,000 per employee if smaller).
The awards are made with reference to the Group’s performance against its budget. Employees
must remain in employment for the holding period (three years from the date of award),
otherwise the shares will be forfeited.
The fair value of shares awarded is either the share price at the date of award, or is estimated
at the latest share price available when drawing up the financial statements for awards not yet
made (and later adjusted to reflect the actual share price on the award date). Awards under the
SIP are entitled to receive dividends, and hence no adjustment has been made to this fair value.
(ii) The Discretionary Free Share Scheme (the DFSS)
Under the scheme, details of which are contained in the remuneration report, individuals receive
an award of free shares at no charge. A total of 1,645 employees received awards under this
scheme during 2007. Staff must remain in employment until the vesting date in order to receive
shares. The maximum number of shares that can vest relating to the 2007 scheme is 964,000.
Individual awards are calculated based on the growth in the Group's earnings per share (EPS)
relative to a risk free return (RFR), for which LIBOR has been selected as a benchmark. This
performance is measured over the same three-year period.
A D M I R A L G R O U P p l c 8 5
The range of awards is as follows:
· If the growth in EPS is less than the RFR, no awards vest
· EPS growth is equal to RFR – 10% of maximum award vests
· To achieve the maximum award, EPS growth has to be 36 points higher than RFR over the three
year period
Between 10% and 100% of the maximum awards, a linear relationship exists.
Awards under the DFSS are not eligible for dividends and hence the fair value of free shares to be
awarded under this scheme has been revised downwards to take account of these distributions.
The unadjusted fair value is based on the share price at the date on which awards were made as
stated in the remuneration report.
Number of free share awards committed at 31 December 2007:
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SIP H105 scheme
SIP H205 scheme
SIP H106 scheme
SIP H206 scheme
SIP H107 scheme
SIP H207 scheme
DFSS 2005 scheme
DFSS 2006 scheme, 1st award
DFSS 2006 scheme, 2nd award
DFSS 2007 scheme
Total awards committed
Awards
outstanding
(*1)
581,565
330,306
316,328
224,808
346,019
310,000
685,000
604,187
77,248
964,000
4,439,461
Vesting
date
September 2008
March 2009
September 2009
April 2010
September 2010
April 2011
June 2008
April 2009
September 2009
June 2010
*1 – being the maximum number of awards expected to be made before accounting for expected
staff attrition. Of the 4,439,461 share awards outstanding above, 4,129,461 have been issued to the
trusts administering the schemes, and are included in the issued share capital figures above.
8 6 F I N A N C I A L S TAT E M E N T S
26. Analysis of movements in capital and reserves
Share
capital
£000
Share
premium
account
Capital
redemption
reserve
Foreign
exchange
reserve
Retained
profit and
loss
Total
equity
£000
£000
£000
£000
£000
As at 1 January 2006
260
13,145
17
Retained profit for the
period
Dividends
Issues of share capital
Currency translation
differences
Share scheme charges
Deferred tax credit on
share scheme charges
-
-
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(50)
-
-
167,990
181,412
103,722
103,722
(70,104)
(70,104)
-
-
1
(50)
2,667
2,667
1,407
1,407
As at 31 December 2006
261
13,145
17
(50)
205,682
219,055
Retained profit for the
period
Dividends
Issues of share capital
Currency translation
differences
Share scheme charges
Deferred tax credit on
share scheme charges
-
-
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
429
-
-
127,416
127,416
(116,016)
(116,016)
-
-
5,560
2
429
5,560
1,186
1,186
As at 31 December 2007
263
13,145
17
379
223,828
237,632
The capital redemption reserve arose in 2002 on the redemption of shares previously in issue at
below par.
The foreign exchange reserve represents the net gains or losses on translation of the Group’s net
investment in foreign operations.
27. Financial commitments
The Group was committed to total minimum obligations under operating leases on land and
buildings as follows:
A D M I R A L G R O U P p l c 8 7
Operating leases expiring:
Within one years
Within two to five years
Over five years
Total commitments
31 December
2007
31 December
2006
£000
£000
-
2,139
27,357
-
-
33,425
29,496
33,425
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Operating lease payments represent rentals payable by the Group for its office properties.
In addition, the Group had contracted to spend the following on property, plant and equipment
at the end of each period:
31 December
2007
31 December
2006
£000
£000
Expenditure contracted to
489
1,539
28. Group subsidiary companies
The Parent Company’s principal subsidiaries (all of which are 100% directly owned) are as follows:
Subsidiary
incorporation Class of shares held
Principal activity
Country of
EUI Limited
England and Wales
Ordinary
General insurance
intermediary
Admiral Insurance Company
Limited
Admiral Insurance (Gibraltar)
Limited
England and Wales
Ordinary
Insurance Company
Gibraltar
Ordinary
Insurance Company
Admiral Syndicate Limited
England and Wales
Ordinary
England and Wales
Ordinary
Admiral Syndicate
Management Limited
Able Insurance Services
Limited
England and Wales
Ordinary
Intermediary
Inspop.com Limited
England and Wales
Ordinary
Internet insurance
intermediary
Lloyd’s corporate
capital vehicle
Lloyd’s managing
agency
8 8 F I N A N C I A L S TAT E M E N T S
29. Related party transactions
There were no related party transactions occurring during 2007 that require disclosure. Details
relating to the remuneration and shareholdings of key management personnel are set out in the
remuneration report, which will be included in the statutory accounts referred to below. Key
management personnel are able to obtain discounted motor insurance at the same rates as all
other Group staff, typically at a reduction of 15%.
The Board considers that only the Board of Directors of Admiral Group plc are key management
personnel.
A D M I R A L G R O U P p l c 8 9
Consolidated financial summary
The 2007, 2006, 2005 and 2004 figures below are as stated in the financial statements preceding
this financial summary and issued previously. Only selected lines from the income statement and
balance sheet have been included.
Figures for 2003 have not been restated under IFRS, although have been reclassified into the
formats used in these financial statements.
Income statement
Total motor premiums
Net insurance premium revenue
Other revenue
Profit commission
Investment and interest income
Net revenue
Net insurance claims
Total expenses
Operating profit
Balance sheet
Property, plant and equipment
Intangible assets
Financial assets
Reinsurance assets
Deferred income tax
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Insurance contracts
Financial liabilities
Provisions for other liabilities
and charges
Deferred income tax
Trade and other payables
Current tax liabilities
Total liabilities
4
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UK
GAAP
2003
£m
371.6
79.3
50.8
1.4
6.8
138.3
(43.5)
(34.4)
60.4
UK
GAAP
2003
£m
5.8
62.4
241.6
56.7
-
12.5
70.1
IFRS
2006
£m
566.6
145.0
131.6
19.9
14.5
311.0
2005
£m
533.6
139.5
93.4
14.7
15.5
263.1
2007
£m
631.3
142.2
176.9
20.5
24.6
364.2
2004
£m
470.4
107.5
69.5
21.7
11.9
210.6
(99.8)
(82.0)
182.4
(107.1)
(55.5)
148.4
(100.5)
(40.9)
121.7
(74.3)
(28.9)
107.4
IFRS
2006
£m
7.5
66.8
395.9
74.7
-
16.9
191.2
753.0
219.1
294.4
-
-
1.0
215.1
23.4
2005
£m
2004
£m
4.6
66.5
378.7
54.2
-
9.4
150.2
663.6
181.4
254.1
22.0
-
3.6
182.9
19.6
3.3
66.5
300.7
66.1
-
16.7
119.3
144.6
216.1
33.1
-
4.8
164.3
9.7
753.0
663.6
572.6
572.6
449.1
108.1
174.8
35.4
11.7
6.4
104.0
8.7
449.1
2007
£m
7.7
69.1
481.8
131.7
1.6
22.6
155.8
870.3
237.6
363.1
-
-
-
239.6
30.0
870.3
9 0 F I N A N C I A L S TAT E M E N T S
Parent Company financial statements
91
Balance Sheet
92-94
Notes to the financial statements
50
51
52
53
54-88
89
91-94
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A D M I R A L G R O U P p l c 9 1
Parent Company balance sheet
As at:
31 December
2007
31 December
2006
Note:
£000
£000
Fixed asset investments
Current assets
Debtors
Cash at bank and in hand
Creditors – falling due within one year
Other creditors
Accruals and deferred income
Net current assets
Total assets less current liabilities
Creditors – falling due after one year
Loans
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Profit and loss account
4
5
7
6
8
9
106,604
103,804
4,354
48,114
52,468
(9,987)
(16)
(10,003)
91
55,616
55,707
(6,857)
(183)
(7,040)
42,465
48,667
149,069
152,471
-
-
149,069
152,471
263
13,145
17
135,644
261
13,145
17
139,048
149,069
152,471
These financial statements were approved by the Board of Directors on 3 March 2008 and were
signed on its behalf by:
Kevin Chidwick
Director
9 2 F I N A N C I A L S TAT E M E N T S
Notes to the Parent Company financial statements
The following accounting policies have been applied consistently in dealing with items which are
considered material in relation to the financial statements:
1. Basis of preparation and accounting policies
In these financial statements the following new standards have been adopted for the first time:
· FRS 29 ‘Financial Instruments: Disclosures’;
The adoption of this standard has not had a material impact on either the current year or
comparative figures as the standard exempts parent companies in their single-entity financial
statements from preparing such disclosures. Refer to Note 18 in the Admiral Group consolidated
accounts, which precede these accounts, for disclosures that comply with this standard.
The Admiral Group plc Company financial statements have been prepared in accordance with
applicable accounting standards, under the historical cost convention and in accordance with the
provisions of Section 226 of, and Schedule 4 to, the Companies Act 1985.
As permitted by Section 230 of the Companies Act 1985, the profit and loss account of the
Parent Company is not presented. Under FRS 1 (Cash flow statements) the Company is exempt
from having to present a cash flow statement on the grounds that its cash flows are included in
the Group’s published consolidated financial statements.
The Company has taken advantage of the exemption in FRS 8 not to disclose transactions or
balances with its 90% or more owned subsidiary undertakings on the basis that the consolidated
accounts are publicly available.
The Parent Company audit fee is not disclosed in these accounts as it is disclosed in the
consolidated Group accounts, which precede them at note 10.
2. Investments
Investments in subsidiary undertakings are valued at cost less any provision for impairment in
value.
3. Taxation
The charge for taxation is based on the profit for the year and takes into account taxation
deferred because of timing differences between the treatment of certain items for taxation and
accounting purposes.
Deferred tax assets are recognised to the extent that they are regarded as recoverable. They
are regarded as recoverable to the extent that, on the basis of all available evidence, it can be
regarded as more likely than not that there will be sufficient taxable profits from which the
future reversal of the underlying timing differences can be deducted.
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4. Fixed asset investments
A D M I R A L G R O U P p l c 9 3
31 December
2007
31 December
2006
£000
£000
Investments in subsidiary undertakings
106,604
103,804
The Company’s principal subsidiaries (all of which are 100% directly owned) are disclosed in note
28 of the Group financial statements.
5. Debtors
Amounts owed by subsidiary undertakings
Deferred tax asset
31 December
2007
31 December
2006
£000
£000
4,348
6
4,354
86
5
91
6. Loans
Full details of the Company’s debt are included in the consolidated financial statements above.
The note, whilst prepared under IFRS also conforms to UK GAAP.
7. Other creditors – due within one year
Corporation tax payable
Amounts owed to subsidiary undertakings
Other creditors
31 December
2007
31 December
2006
£000
£000
9,931
-
56
6,775
10
72
9,987
6,857
9 4 F I N A N C I A L S TAT E M E N T S
8. Reconciliation of movements in shareholders’ funds
Share
capital
£000
Share
premium
account
Capital
redemption
reserve
Retained
profit and
loss
£000
£000
£000
Total
equity
£000
At 1 January 2006
260
13,145
17
110,269
123,691
Retained profit for the period
Dividends
Issues of share capital
Share scheme charges
-
-
1
-
-
-
-
-
-
-
-
-
96,216
(70,104)
-
2,667
96,216
(70,104)
1
2,667
As at 31 December 2006
261
13,145
17
139,048
152,471
Retained profit for the period
Dividends
Issues of share capital
Share scheme charges
-
-
2
-
-
-
-
-
-
-
-
-
107,052
(116,016)
-
5,560
107,052
(116,016)
2
5,560
As at 31 December 2007
263
13,145
17
135,644
149,069
9. Share capital
Full details of the Company’s share capital are included in the consolidated financial statements
above.
A D M I R A L G R O U P p l c 9 5
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D i r e c t o r s AnD A Dv i s o r s
A D Mi rA L Gr oU P p l c
Directors and advisors
Notes
Directors
Alastair Lyons CBE (Non-executive Chairman)
Henry Engelhardt (Chief Executive)
Kevin Chidwick (Finance Director)
David Stevens (Chief Operating Officer)
Manfred Aldag (Non-executive Director)
Martin Jackson (Non-executive Director)
Keith James OBE (Non-executive Director)
Margaret Johnson (Non-executive Director)
Lucy Kellaway (Non-executive Director)
John Sussens (Senior Independent Non-executive Director)
Company Secretary
Stuart Clarke
Registered Office
Capital Tower
Greyfriars Road
Cardiff CF10 3AZ
Bankers
Bank of Scotland
Corporate Banking
55 Temple Row
Birmingham B2 5LS
Joint Corporate Brokers
Actuarial advisors
Ernst & Young
1 More Place
London SE1 2AF
HSBC Business Banking
97 Bute Street
Cardiff CF10 5NA
Citigroup Financial Markets
UK Equity Limited
Citigroup Centre
33 Canada Square
London E14 5LB
Solicitor
Norton Rose
3 More London Riverside
London SE1 2AQ
Auditor
KPMG Audit Plc
Marlborough House
Fitzalan Court
Cardiff CF24 0TE
Lloyds TSB Bank Plc
City Office
Bailey Drive
Gillingham Business Park
Kent ME08 0LS
Merrill Lynch International
2 King Edward Street
London EC1A 1HQ
Registrar
Capita IRG Plc
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
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7
annual report 2007
K ö l n
Registered Number: 03849958. Admiral Group plc, Capital Tower, Greyfriars Road, Cardiff CF10 3AZ
Registered Number: 03849958. Admiral Group plc, Capital Tower, Greyfriars Road, Cardiff CF10 3AZ
www.admiralgroup.co.uk
www.admiralgroup.co.uk