annual report 2008
Contents
Admiral Group in 2008
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2008 Financial highlights
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Chairman’s statement
Chief Executive’s statement
Business review
16 UK car insurance
21 Price comparison
23 Non-UK car insurance
26 Other Group items
27 Investments & cash
30 Employees and customers
Governance and Remuneration
34 Corporate governance
42 Remuneration report
The Board of Directors and the Directors’ report
48 The Admiral Group plc board
50 Directors’ Report
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Financial statements
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Independent auditors report
58 Consolidated income statement
59 Consolidated balance sheet
60
Consolidated statement of
recognised income and expenses
61 Consolidated cash flow statement
62 Notes to the financial statements
99 Consolidated financial summary
100 Admiral Group plc parent
company financial statements
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A D M I R A L G R O U P I n 2 0 0 8
Admiral Group in 2008
uk car insurance
1993
1997
1997
2000
•
•
•
•
We are the third largest private car insurer in the UK, insuring 1.6m cars across our four brands.
We grew by 15% in 2008
We sell through direct channels (telephone and internet) and increasingly via comparison
websites
Total insurance premium generated in 2008 was £690m, 12% higher than 2007
Our business is consistently and significantly more profitable than the UK market – the 2008
combined ratio (measuring the ratio of costs to income) was 81%
2008 Performance:
• Customer numbers increased 15% to 1.59m from 1.38m
Strong growth
• Turnover* rose 13% to £805m (2007: £715m)
• Overall profit increased 27% to £180m, from £142m
Profitability
• Combined ratio of 81%, down from 83%
• Ancillary contribution per vehicle up to £70.7 from £69.0
*Turnover (a non-GAAP measure) comprises total premiums written and other revenue
Price comparison
2002
•
•
•
•
•
Launched in 2002, Confused.com is the UK’s leading car insurance comparison website
Confused also offers a comparison service for household insurance, along with a range of
other insurance and financial products
The UK market experienced fierce competition in 2008 – TV and press spend by the industry
increased by approximately 50%
Confused rebuilt and re-launched its website at the end of 2008 and also began a new media
campaign
New Spanish comparison website, Rastreator.es to launch in 2009
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2008 Performance:
Revenue
• Total revenue fell by 4% to £66m from £69m
• Non-car insurance revenue increased 28% to £13m
Profitability
• Profit fell 30% to £26m from £37m
Non-uk car insurance
2006
2007
2008
•
•
•
•
We have launched three new direct car insurance businesses over the past three years
Our aim is to build profitable, sustainable businesses, leveraging our knowledge of the UK car
insurance market
Pleasing progress to date, though challenges experienced in each new market
Aiming to launch a US car insurer in late 2009 / early 2010
2008 Performance:
• Number of customers increased 57% to 73,700 from 46,900
Volumes
• Total premiums generated rose 83% to £26m (60% excluding
currency impact)
Result
• Loss from combined operations £4.1m
Other Group activities
•
•
Total Group cash and financial investments increased 13% to £555m, investment and interest
income steady at £24m
Investment strategy remains very cautious – no write-offs in our portfolios
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The Group’s UK van insurance broker Gladiator increased its customer numbers by 36% in
2008 to nearly 85,000, and increased revenue to £9.5m (+ 27%)
Profits also increased, by 40% to nearly £3m
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f I n A n c I A L h I G h L I G h t s
Financial highlights
Profit before tax (£m)
Earnings per share (p/share)
Full year dividend (p/share)
Net revenue (£m)
Customer numbers (m)
Group combined ratio
2006
147.3
39.8
36.1
311.0
1.29
2007
182.1
48.6
43.8
364.1
1.49
87.3%
85.4%
2008
202.5
54.9
52.5
422.8
1.75
86.4%
Profit before tax
Earnings per share
250
250
200
200
150
150
100
100
£147.3m
£147.3m
£182.1m
£182.1m
£202.5m
£202.5m
2006
2006
2007
2007
2008
2008
50
50
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0
500
500
400
400
300
300
200
200
£311.0m
£311.0m
£364.1m
£364.1m
£422.8m
£422.8m
100
100
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60
50
50
40
40
30
30
20
20
10
10
0
0
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0
0
39.8p
39.8p
48.6p
48.6p
54.9p
54.9p
60
60
50
50
40
40
30
30
20
20
10
10
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0
36.1p
36.1p
43.8p
43.8p
52.5p
52.5p
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
1.29
1.29
1.49
1.49
1.75
1.75
100
100
80
80
60
60
40
40
20
20
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87.3%
87.3%
85.4%
85.4%
86.4%
86.4%
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
£ millionspence 250
200
150
100
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£147.3m
£182.1m
£202.5m
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39.8p
48.6p
54.9p
36.1p
43.8p
52.5p
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2007
2008
2006
2007
2008
1.29
1.49
1.75
87.3%
85.4%
86.4%
2006
2007
2008
2006
2007
2008
250
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500
400
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200
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£147.3m
£182.1m
£202.5m
39.8p
48.6p
54.9p
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2007
2008
2006
2007
2008
£147.3m
£147.3m
£182.1m
£182.1m
£202.5m
£202.5m
Full year dividend
Net revenue
2006
2007
2008
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50
60
60
40
50
50
30
40
40
20
30
30
10
20
20
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10
10
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36.1p
43.8p
52.5p
39.8p
39.8p
48.6p
48.6p
54.9p
54.9p
2006
2007
2008
500
400
60
60
300
50
50
40
40
200
30
30
100
20
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10
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£311.0m
£364.1m
£422.8m
36.1p
36.1p
43.8p
43.8p
52.5p
52.5p
2006
2007
2008
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
100
Customer numbers
Group combined ratio
£311.0m
£364.1m
£422.8m
1.29
1.49
1.75
2006
2007
2008
2006
2007
2008
£311.0m
£311.0m
£364.1m
£364.1m
£422.8m
£422.8m
80
2.0
2.0
60
1.5
1.5
40
1.0
1.0
20
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0.5
0.5
0
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87.3%
85.4%
86.4%
1.29
1.29
1.49
1.49
1.75
1.75
2006
2007
2008
100
100
80
80
60
60
40
40
20
20
0
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87.3%
87.3%
85.4%
85.4%
86.4%
86.4%
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
60
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250
250
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30
200
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1.5
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1.0
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£ millions%millionspence
8 c h A I R M A n ’ s s tAt E M E n t
“
Admiral has
been able to
create 32
new jobs in
Wales over
the past
“
12 months.
Alastair Lyons, CBE
Chairman's statement
Amid all the market turbulence it is
pleasing to be able to report another
year of sustained growth in turnover,
profits, and dividend. Also that in
the gloom of widespread job losses
Admiral has been able to create 326
new jobs in Wales over the past 12
months, not to mention 290 posts
outside the UK. 2008, therefore,
marked another year of successfully
advancing our strategy, being to grow
our share of the UK private motor
market and exploit the knowledge,
skills and resources attaching to
our core business to promote our
expansion overseas and our position
in price comparison.
We estimate that we now account
for some 6% of the UK private motor
market covering 1.6 million vehicles,
15% up on December 2007 and placing
us third in terms of premium in this
market. Since the business floated in
September 2004 our vehicle count
has grown by over 12% p.a. compound,
testament to the relevance of our
customer proposition; the effectiveness
with which the business has seized
the opportunities presented by the
internet and the rise of aggregators; and
continuing innovation such as Admiral
MultiCar. This growth in our book
in 2008 was accompanied by a 17%
increase in profit derived from ancillary
products and services.
The upward trend in pricing that
started to emerge a year ago has
been sustained during 2008. As Henry
Engelhardt discusses more fully in his
CEO’s report, we increased our rates
by around 4%, generally in line with
the market as a whole, whilst claims
frequency continued to fall. Our
established reserving methodology
under which we make a prudent
assessment of claims in their early
stages engendered further significant
releases as these prior year claims aged.
In my statement last year I underlined
the rapid growth of competition
in car insurance price comparison.
With another enormous increase in
marketing expenditure in this sector,
it was inevitable that the market share
held historically by Confused would
reduce, albeit that the overall market
has continued to expand rapidly,
growing by an estimated 60% in 2008.
In determining how much to commit
ourselves we sought to balance our
margin of profitability and defence
of our leadership position. Across
2008 as a whole Confused’s turnover
held broadly steady, being down 4%
on the year, but at a significantly
higher marketing cost such that
Confused profits fell from £37 million
to £26 million. Price comparison now
accounts for 38% of the private motor
market, up from 24% in 2007, and
shows no sign of stopping its growth
which is good news both for Confused
and for the Admiral brands, for which
it represents the principal source of
new business. We would, however,
anticipate that this sector will remain
highly competitive whilst some players
continue to be prepared to incur losses
to attempt to build share.
Having launched Balumba.es in Spain
in 2006 and AdmiralDirekt. de in
Germany in 2007, 2008 was the turn
of ConTe.it in Italy at the end of May.
It has always been the Admiral way
to learn by doing, taking relatively
small and inexpensive steps to test
different approaches and identify
the best way forward. Our expansion
overseas is central to our long-term
strategy of growth of our direct
private motor franchise, and this will
require sustained investment until
we achieve the scale to support
the infrastructure necessary in each
country, and have selected the best
model to write profitable business.
In this context we congratulate our
Spanish team on bringing their loss
ratio at month 12 down from 137% for
the 2007 underwriting year to 102% for
2008 whilst growing their book 18% to
55,000 customers by the year-end. Our
teams in Germany and Italy are both at
an early stage of determining how best
to penetrate their respective markets,
and we now also have a team working
in Richmond, Virginia towards a launch
in the US.
With a very prudent investment
philosophy, only employing cash
deposits or money market funds, it was
inevitable that the sharp fall in general
interest rates should have had an
equivalent impact on our investment
income. 100% of our, and our
policyholders’, money was, however,
secure.
The result for the year was a pre-tax
profit of £202.5 million, an 11% increase
on 2007 off a 13% growth in total
written premiums.
As a principle we return all available
surpluses to shareholders after taking
into account our required solvency,
our overseas expansion plans, and
a prudent margin – currently £25m
– against contingencies. We, therefore,
commit to pay a standard normal
dividend that has grown in line with
our growth in profits based on a
45% pay-out ratio, and pay whatever
remains as available surplus as a
special dividend which will, therefore,
fluctuate from year to year.
This year our normal dividend
amounted to 24.7p per share, and our
special to 27.8p per share, bringing to
£220m the total we have declared as
special dividends since flotation in
September 2004, this being in addition
to £215m normal dividends over the
same period. Total dividends for the
year, therefore, amounted to 52.5p
per share, a 20% increase on last year,
representing a yield of 6.1% based
on the closing share price on 27
February 2009.
Our success reflects both excellent
strategic leadership and first-class
execution by our staff across all
aspects of our operations. Our staff
have been shareholders in Admiral
for the last 9 years, initially under
private equity ownership and now
through the Free Share Schemes
put in place at flotation. We see
this alignment of the interests of
our staff and our shareholders as
fundamental to our success, and we
are strongly of the view that there is
a direct link between our staff being
owners of the business and our having
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been placed for 9 consecutive years
amongst the Sunday Times Top 100
Companies to Work For in the UK. Our
remuneration philosophy combines
base salary and performance-related
shares across our entire business and
we are delighted that achievement
in full of the objectives set for 2008
meant that eligible employees again
realised the maximum award of £3,000
free shares under our Approved
Scheme. The second 3-year period for
the Discretionary Free Share Scheme
significantly exceeded the performance
conditions, qualifying the scheme to
vest the maximum share entitlement
under the individual awards.
Admiral is now one of the largest
private employers in Wales and, as
such, is a significant part of the local
community. The contribution that
the company has made to Wales was
recognised by the award of an honorary
CBE to Henry Engelhardt in April 2008,
on which may I once again extend to
him our hearty congratulations. We
encourage our staff to work with local
projects and we provided financial
support during the year to such
disparate events as the Admiral Cardiff
Big Weekend offering 3 days of quality
live music, and the South Wales Echo
Community Champion Awards.
I would like to take this opportunity
to extend the thanks of the Board
to everyone who has contributed to
another successful year – our staff
at home and overseas; our Board,
executive and non-executive; our
suppliers; and above all our 1.7 million
customers, whose satisfaction
through great products and great
service will provide the basis of our
continuing success.
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Alastair Lyons
Chairman
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1 0 c h I E f E X E c U t I V E ’ s s tAt E M E n t
“
Our strategy is rather
simple: continue our
profitable growth
in the UK and take
what we know and
do well and do it
elsewhere.
“
Henry Engelhardt, CBE
Chief Executive’s statement
At the end of 2008 the
market capitalisation of
Admiral Group was almost
twice that of General Motors.
Funny year 2008!
Normally at this point in my
commentary I like to get right to the
highlights so that shareholders can see
straight away what we accomplished
in the year. This year, however, I think
there are few key messages that I need
to get across and, for those of you who
never read beyond the third paragraph
of these reports, I’d better put them
next to make sure you get them. The
highlights, and there were plenty of
them, will follow, further down the
page.
Key messages:
1 Resistant, not proof
2 Freight train gaining speed
3 Headlines don’t mirror reality
4 Fierce competition
5
6 Stick to the strategy
It’s not just add water and stir
So, for those of you who only do three
paras, thanks for your time. For those
who want to know more, please read on.
Resistant, not proof
Car insurance is probably as good an
industry as there is in a recession. The
very simple fact that it’s compulsory
purchase means consumers aren’t
deciding whether or not to buy it
this year, they’re just asking ‘who
from?’ I don’t think any industry is
airtight, recession-proof, but this one is
recession-resistant – it’s a compulsory
purchase product! I don’t see people
giving up their cars en masse and so
they’ll have to buy the insurance. I
do see consumers shopping around
even more to ensure they get the best
deal. In the UK, I think this additional
shopping, especially when it’s done
on price comparison sites, plays very
nicely in Admiral’s hands, because it
becomes more and more a survival
of the fittest. And we’re one of, if
not the, fittest. And in those markets
where we have fledgling businesses,
additional shopping around will only
make our job easier.
You might now wonder what the
‘gaining speed’ part of the freight train
is all about. Well, we’ve made changes
to our reinsurance arrangements that
will mean we get a greater share of any
underwriting profits in the future. This
means that even if we stand still, we’ll
be more profitable.
A couple of years ago we revised the
existing agreement with Munich Re in
favour of an agreement that goes until
at least 2014. The new agreement gives
us better profit share terms in 2007-
8-9 and then further improvements
in 2010 and beyond. The benefits of
these profit share improvements are
only just starting to hit the bottom
line with releases from the 2007
underwriting year. In addition, in
order to give us greater control over
our book, Munich Re is in the middle
of a multi-year process of stepping
back from underwriting 65% (2006) to
40% (2011). For 2008 they took 55%
and for 2009 they will take 50%. We
have been fortunate to replace this
capacity for 2009, 2010 and 2011 with
other reinsurers, with arrangements
that are shorter in duration and smaller
in size, such that we retain a greater
proportion of the profits than the
Munich Re deal.
In addition to getting a greater share
of the profits through improved
reinsurance arrangements we fully
expect the UK business to grow
further in 2009. The combination of
all these factors means that the low-
risk, capital-lite, high-dividend model
moves forward in 2009.
Headlines don’t mirror
reality
The UK car insurance market remains
a very competitive place. The market
performed pretty much as we forecast
with rates grudgingly (sloth-like?),
inching upwards in 2008. Based
on our data, headlines of 5%-10%
rate increases during the year are
misleading. I don’t know the exact
methodology of either the AA or
Freight Train Gaining Speed
The aforementioned freight train is
our UK direct business. We continue
to grow the number of customers
we serve, premium income, ancillary
revenues and, not surprisingly, our
profits. The number of vehicles we
insure in the UK grew by 15% in 2008.
15%! The profits increased from £142m
to £180m. Other signs of our excellent
performance here are:
• Premium income increased by 12%,
from £617m to £690m;
• Combined ratio fell from 83% to 81%;
• Ancillary income per vehicle rose
from £69 to £71;
All of this was achieved in an
environment where distribution
patterns were changing rapidly and
price hikes were hard to come by.
In particular, we’re really quite
proud of our ability to increase the
ancillary contribution per vehicle,
albeit modestly (£69.00 to £70.70).
Growing or even keeping the ancillary
contribution per vehicle stable is
challenging in the current economic
climate. However, our track record on
this is good and we feel comfortable
that ancillary income per vehicle in
2009 will be close to, if not above, the
2008 figure.
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1 2 c h I E f E X E c U t I V E ’ s s tAt E M E n t
Deloitte’s price trackers but I’d be
surprised if they pick up on special
offers (like Direct Line’s early 2009 offer
of 12 months cover for 10 months cost
implying a 16.6% price reduction) or any
special rates on price comparison sites.
A recent review of prices done solely
on price comparison sites indicated, for
instance, that the best rate offered for a
variety of risks actually declined by 1%
in January 2009.
Rate increases are being muted by the
dominance of price comparison sites,
where consumers naturally drift to the
lowest price offered. One measure
we use to gauge price changes by the
market is the percentage times one
of our brands comes up first on price
comparison sites. This percentage
stayed roughly the same throughout
2008. Meanwhile, during the year we
moved our rates up, on average, 4%.
This leads me to think that the market
moved its rates up about 4% as well.
However, I don’t think this modest
price move means the results for the
market will be poor. In my opinion,
subdued claims inflation, led by
reduced accident frequency, will
result in this year being no worse for
the market than 2007. I think 2008
will again be marked by large reserve
releases by the market as a whole.
It’s not yet clear how rates will trend
in 2009. There are competing factors
that influence the potential of rate
increases and rate decreases. On the
‘rates moving up’ side, there is the
decline in interest rates and therefore
investment income. With firms
earning less investment income there
is added pressure to produce a better
underwriting result. In addition, lower
petrol prices might spur more driving,
which would result in more accidents,
which in turn should lead to price
increases. Already the winter has been
more severe than many recent winters,
with a corresponding rise in frequency.
All of these factors weigh in favour of
rate increases.
On the ‘rates stable or moving down’
side there is lack of intense pain in
the industry. It does not appear that
the industry as a whole is suffering a
lot; combined ratios plus profits from
ancillary products, after releases for
2007 (latest data available) indicate the
market makes a reasonable return on
capital. Economic pain is always the
greatest catalyst for price increases and
if that pain does not exist then insurers
generally do not increase rates. In
addition, the further growth of price
comparison sites means more and
more consumers will get the industry’s
lowest rate, pinning the industry to
rate increases only as dictated by the
slowest mover for any individual risk.
Lastly, the recession might result in
people driving less and, despite the
difficult winter, this would have a
beneficial effect on frequency, which
might lead to insurers deciding to hold
the line on, or even decrease, rates.
All in all, I think it means a bit of a
sleepy year on rates, with the above
cocktail of factors working to produce
rate increases similar to 2008. For
those needing animal imagery I’d
suggest the koala bear. There are a
number of idiosyncrasies about the
koala bear that resonate with similarity
to the UK car insurance market. Here
are three, I leave it to you to pick and
choose which ones best represent the
UK car insurance market: koalas sleep
some 16 hours a day, they can be nasty
if provoked and they are known to
smell quite bad.
Fierce competition
Confused had a pretty good year.
However, as predicted, competition
was fierce and as a result profits
reduced from £37m in 2007 to £26m in
2008. The spend on TV and press by
price comparison sites has gone from
approximately £5.5m in 2006 to £51m
in 2007 to £76m in 2008. Confused’s
portion of this spend has gone from
virtually 100% in 06, to a third of the
spend in 07 to around a fifth of the
The UK car insurance market?
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
H1 07
H2 07
H1 08
H2 08
Price comparison market media spend £m
spend in 08. Simply put, competition
has taken a lot of profit out of this
market through increased marketing
costs, despite continued growth in
the number of people using price
comparison sites. The dominance of
price comparison sites as the method
of choice for buying car insurance in
the UK is reflected by:
• The fact that in 2008 73% of
Admiral’s new business originated
through price comparison sites, up
from 50% in 2007, up from 30% in
2006.
• TV and press advertising by price
comparison sites as a percentage
of all car insurance TV and press
advertising rose from 35% in 2007 to
52% in 2008.
• The fact that only one brand has
yet to have a presence on any
price comparison site and that’s
Direct Line. Even all the other RBS
insurance brands have joined price
comparison panels.
But enough whinging about what a
tough world it is, let me tell you what
Confused is doing to respond. First, we
took the better part of 2008 to rebuild
the quote engine. It’s now faster and
easier for the customer. It also looks
better. Second, we’ve launched a
new TV campaign which, given the
number of times people have seen the
old campaign over the last few years,
will certainly be welcomed by the
British public. Third, we are improving
Confused’s offerings of other products.
In particular we’re seeing growth
in household insurance and energy
comparisons.
It is very hard to predict Confused’s
result for 2009, the sector remains
under intense competitive pressures.
However, the market is still growing
and this, coupled with the changes
Confused made at the end of 2008,
has resulted in Confused producing
the biggest number of car insurance
quotes ever in January 2009. But, I’m
sorry to say, it was not a record month
for profits. The missing data point to
the future is how much money each
of the competitors in this sector is
willing to spend in 2009 to try and
reach, or grow, profitability. If January
is anything to go by then Britain will
be seeing a lot of price comparison
advertising during the year!
It’s not just add water
and stir
We are in the process of sowing
the seeds of our future growth and
success with the development of
our businesses outside the UK. In
10 years time I expect these seeds
to be a forest of profit growth for
the Group. However, the non-UK
operations should not be expected to
make any noticeable return for a few
years. Building profitable, growing,
sustainable direct operations takes
time. Balumba, in Spain, has only just
completed its second full year of
trading, AdmiralDirekt in Germany is
less than two years old and ConTe in
Italy only launched at the very end of
May 2008. The development of these
businesses outside the UK will take
not only time, but also money. Not a
lot of money, but money nonetheless.
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1 c h I E f E X E c U t I V E ’ s s tAt E M E n t
We don’t do things on a grand scale
until we are quite confident of the
result and we work hard to learn as we
go, but as we grow these businesses
on top of each other the capital
requirement increases. This should
not put off investors, as our business
model generates cash and we have no
debt to repay.
Balumba was challenged to improve
its loss ratio in 2008 and it did so. The
loss ratio for 2007 at the end of 2007
was 137%. The loss ratio for 2008 at
the end of 2008 was 102%. We are
looking for continued improvement
in 2009. Improving the loss ratio was
our primary focus during the year and
while we were making adjustments to
pricing and claims management we
pulled back a bit on our advertising
spend, resulting in the number of
customers Balumba services growing
by 8,500, from 46,900 to 55,400 (18%).
Balumba’s earned combined ratio was
165% for the year, compared to 232%
in 2007. Overall however, Balumba
posted a loss of only £1.2m (€1.5m).
This sum appears modest largely due
to the sale of ancillary products and
services to its customers. This is very
nice income to have but the key to
long-term success for Balumba is to
become a good insurer.
The German market is an odd beast
(certainly bigger and arguably even
less friendly than a koala). There is a
season for car insurance in Germany
that runs about 10 weeks, from early
October to early December. There is
very limited activity during the rest of
the year. This comes about because
almost the entire market renews on
a single date, January 1, and consumers
have to give their insurers a month’s
notice to leave them, which means
they have to give notice by the end
of November. After that the only
substantial group of people shopping
are those who are changing vehicle.
Besides the difficult logistics of trying
to gear up for a short sales window, you
lose the ability to test, re-calibrate, re-
test, re-re-calibrate, etc. that we employ
everywhere else. You can test but then
you have to wait 42 weeks to re-calibrate!
There’s good news and bad news from
AdmiralDirekt.de. On the 1st of January
2009 (from the ‘2008 season’) we had
around 30,000 policyholders. This was
at the high end of our expectations.
That’s the good news. The bad news
is that the 8,000 policyholders that
went on risk on January 1, 2008 did
not perform well. The loss ratio for
the 2008 year at the end of 2008
was 142%. Part of this is the volatility
inherent in a small book of business
where one or two large claims make
a big difference. But part of this too
is down to an inexperience in claims
handling and the typically poorer
loss ratios that accompany first year
business.
Our reaction to these problems was
to spend a lot of energy improving
the claims systems and re-calibrating
our pricing. Our renewal rate for this
season was low enough to lead us to
believe our pricing re-calibration had
an effect. Now we wait to see how
this year’s customers perform.
In Italy we were successful in launching
ConTe on schedule and within budget
at the end of May. However, as we’d
seen Balumba and, to some extent,
AdmiralDirekt.de, grow their respective
volumes quickly to the detriment of
their loss ratios, in Italy we put rates
up from the outset to protect the
loss ratio. The result was our writing
just 3,660 policies in the year with
annualised premium income of €1.4m.
However, the 2008 loss ratio at the end
of 2008 was 87%! But the loss ratio on
such a small premium income is subject
to dramatic change with even a single
claim. As the year ended we were re-
calibrating rates to stimulate sales.
In sum, I am pleased with the progress
we’ve made in Spain, Germany and
Italy despite the challenges noted
above. They all hold great potential
for the future.
1 Profit before tax up 11% to £202.5m
Number of customers up 17% to
2
1.75m
3 Turnover up 13% to £910m
4
Combined ratio still well below
90% at 86%
Top 10 in the FT Best Companies To
Work For; 37th in the Sunday Times
Best Companies To Work For in the
UK
5
6 Launched ConTe in Italy
7 Still debt- free
8
Record dividend of 52.5p per share
for the year
Robust return on capital of 57%
(56% 2007)
9
10 Robust return on income of 56%
(57% 2007)
11 Number of people employed in
the Group rose to 3,110 from 2,500
(+24%), we opened a new office in
Newport (Wales, not Rhode Island)
and we’re hiring in every operation!
It is a hugely exciting time within
Admiral Group and I’m glad to be
a part of it. I am fortunate to work
with intelligent, highly motivated, nice
people. I’d like to say a specific thanks
to all the senior managers who are so
dedicated to Admiral Group and to all
the staff in all our offices who work
hard every day to provide a great service
to our customers. I’m looking forward
to another excellent year in 2009.
Henry Engelhardt
Chief Executive Officer
Stick to the strategy
Our strategy has been and continues
to be, rather simple: continue our
profitable growth in the UK and take
what we know and do well and do it
elsewhere. This means expanding our
direct businesses geographically to
take advantage of changing distribution
patterns in countries with large, mature
car insurance markets. I believe that
this is the way to ensure a prosperous
future. For 2009 this means that,
besides continuing to invest in our
Spanish, German and Italian operations,
we are working on a launch in the
United States, the world’s largest car
insurance market.
The business in the US will start small,
one or two states to begin with and, if
successful, expand to other interesting
states. The company, which has yet to
be named, will be based in Richmond,
Va. and should launch either in the final
quarter of 2009 or first quarter of 2010.
Our strategic plan has always shown five
markets to expand into. With the US
coming on-stream that would leave only
the French market left on the list and we
are beginning to investigate this market.
We are also looking to expand the
international presence of our Confused
business. The first launch outside
the UK will again be Spain, with an
operation called Rastreator (a made
up word, but close to ‘rastreador’,
which means tracker). The growth of
internet distribution for car insurance
makes this market interesting for price
comparison. This business should go
live sometime in the first half of 2009.
Highlights
Okay, if anyone’s gotten through all
that, it’s time for some highlights of
2008. I’m proud to say that it was
another excellent year for the Admiral
Group:
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3th best company to
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1 B U s I n E s s R E V I E W
Business review
uk Car Insurance
What we do
• We sell, administer and underwrite private car insurance in the UK through four brands
– Admiral, Bell, Diamond and elephant.co.uk
• Our policies are distributed through direct channels – over the telephone, through our own
websites and also increasingly via price comparison websites
• We are the third largest UK private car insurer, with around 1.6m vehicles insured, generating
total premium of £690m. We estimate the combined market share of our brands is around 6%
• We also generate ancillary income from products and services that complement the
motor insurance
• Our main locations are Cardiff, Swansea and Newport in Wales, though we also operate out of
call centres in Nova Scotia, Canada and Bangalore, India
Our strategy
The strategy for our core car insurance business is relatively straightforward. We aim to manage
our existing client base and future growth in order to maximise profitability over the medium to
long term. At the same time, we endeavour to give excellent service to our customers, whilst
providing a positive environment for our staff to work and develop in.
We measure customer and staff satisfaction through a number of key performance indicators
(KPIs), some of which are outlined in the Customers and Employees sections below.
UK car insurance KPIs:
1) Vehicles insured and growth rate:
• Track record of consistent and significant
growth
• Arises out of efficient marketing, focussed
distribution and strong pricing activities
• Also boosted by innovative products, such
as MultiCar and 10 month policies
1.24
2006
1.38
2007
1.59
2008
87.2%
15.7%
83.4%
16.7%
81.0%
19.0%
71.5%
66.7%
62.0%
2006
2007
2008
Loss ratio
Expense ratio
uk Vehicles
7.5%
10.0%
6.25%
6.25%
10.0%
7.5%
7.5%
7.5%
55.0%
50.0%
45.0%
27.5%
27.5%
25.0%
7.5%
1.59
2008
2009
2010
Admiral
Munich Re
Partner Re
Admiral option
Swiss Re
Hannover Re
New Re
2) Reported combined ratio:
£100.0m
87.2%
£80.0m
£60.0m
£40.0m
£20.0m
£0.0m
£69.3
15.7%
£66.9m
71.5%
2006
2006
83.4%
16.7%
£75.8m
66.7%
2007
2007
£69.0
81.0%
£70.7
£75.00
• Consistent and significant outperformance
£70.00
against the market
19.0%
£89.0m
62.0%
2008
2008
• Loss ratio advantage arises from strong
£65.00
pricing and claims handling operations
1.24
• Expense ratio advantage is acquisition cost
£60.00
driven and also a focus on cost control
2006
1.38
2007
1.59
2008
Loss ratio
Ancillary profit (£m)
Expense ratio
Ancillary income per vehicle (£)
uk Vehicles
7.5%
10.0%
6.25%
6.25%
10.0%
7.5%
7.5%
7.5%
55.0%
50.0%
45.0%
27.5%
27.5%
25.0%
7.5%
1.59
£100.0m
£80.0m
£60.0m
£40.0m
£20.0m
£0.0m
£69.3
£69.0
£70.7
£66.9m
£75.8m
£89.0m
£75.00
£70.00
£65.00
£60.00
2008
2009
2010
2006
2007
2008
Admiral
Munich Re
Partner Re
Admiral option
Hannover Re
Swiss Re
New Re
Ancillary profit (£m)
Ancillary income per vehicle (£)
87.2%
15.7%
83.4%
16.7%
81.0%
19.0%
71.5%
66.7%
62.0%
2006
2007
2008
Loss ratio
Expense ratio
uk Vehicles
1.24
2006
1.38
2007
1.59
2008
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3) Ancillary profit and income per vehicle:
7.5%
10.0%
6.25%
6.25%
10.0%
7.5%
7.5%
7.5%
55.0%
50.0%
45.0%
27.5%
27.5%
25.0%
7.5%
1.59
£100.0m
£80.0m
£60.0m
£40.0m
£20.0m
£0.0m
£69.3
£69.0
£70.7
£66.9m
£75.8m
£89.0m
2008
2009
2010
2006
2007
2008
Admiral
Munich Re
Partner Re
Admiral option
Swiss Re
Hannover Re
New Re
Ancillary profit (£m)
Ancillary income per vehicle (£)
£75.00
£70.00
£65.00
£60.00
• Significant profit generated from
non-underwriting activities
• Strong track record of
introducing and growing non-
underwriting income streams
• Continual development of
products and services in
response to changing customer
needs and industry trends
Financial performance
Non-GAAP format income statement
£m
Turnover*1
Total premiums written*2
Net insurance premium
revenue
Investment income
Net insurance claims
Net insurance expenses
Underwriting profit
Profit commission
Net ancillary income
Other revenue
2006
653.1
566.0
144.9
9.9
(107.1)
(19.2)
28.5
19.9
66.9
5.8
2007
714.9
617.0
140.2
16.7
(97.0)
(19.9)
40.0
20.4
75.8
6.0
2008
804.8
690.2
161.9
17.1
(105.1)
(26.0)
47.9
34.7
89.0
8.3
UK car insurance result
121.1
142.2
179.9
Compound growth rate of
10%, year on year growth 12%
Significant increase in 2008
due to first recognition of
income under improved
arrangements
Compound growth rate 15%,
year on year growth 17%
* 1 Turnover (a non-GAAP measure) comprises total premiums written and other revenue
* 2 Total premiums written (non-GAAP) includes premium underwritten by co-insurers
key performance indicators
Reported loss ratio
2006
71.5%
2007
2008
66.7%
62.0%
Reported expense ratio
15.7%
16.7%
19.0%
Reported combined ratio
87.2%
83.4%
81.0%
Written basis expense ratio
15.8%
16.7%
16.7%
Claims reserve releases
£20.9m £29.5m £38.0m
Releases as % of premium
14.4%
21.0%
23.5%
Profit commission as % of premium
13.7%
14.6%
21.4%
Vehicles insured at year-end
1.24m
1.38m
1.59m
Ancillary income per vehicle
£69.3
£69.0
£70.7
Compound growth
rate of 13%, year on
year growth 15%
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15.7%
83.4%
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81.0%
19.0%
71.5%
66.7%
62.0%
1 8 B U s I n E s s R E V I E W
2006
2007
2008
1.24
2006
1.38
2007
1.59
2008
Loss ratio
Expense ratio
uk Vehicles
Co-insurance and reinsurance arrangements
7.5%
10.0%
6.25%
6.25%
10.0%
7.5%
7.5%
7.5%
55.0%
50.0%
45.0%
27.5%
27.5%
25.0%
7.5%
1.59
£100.0m
£80.0m
£60.0m
£40.0m
£20.0m
£0.0m
£69.3
£69.0
£70.7
£66.9m
£75.8m
£89.0m
£75.00
£70.00
£65.00
£60.00
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2009
2010
2006
2007
2008
Admiral
Munich Re
Partner Re
Admiral option
Swiss Re
Hannover Re
New Re
Ancillary profit (£m)
Ancillary income per vehicle (£)
For the 2008 year, Admiral underwrote 27.5% of the UK premium, up from 22.5% in 2007.
55% of the UK total is underwritten by the Munich Re Group (specifically Great Lakes
Reinsurance (UK) Plc) through a co-insurance agreement, and 17.5% was reinsured to Swiss
Re and Partner Re.
The nature of the co-insurance arrangement is such that 55% of all motor premium and
claims for the 2008 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 incurred in acquiring and administering the motor business.
The principal advantages of this significant use of co- and reinsurance are the reduced
capital requirements and also reduced exposure to underwriting risk. This creates a high
return on shareholder equity and strong cash flows, supporting regular dividends.
The profit commission arrangements in the agreements allow Admiral to participate to a
large extent in the profitability of the total underwriting, and the most recent reinsurance
contracts allow for a significant proportion of the profit to be remitted back to Admiral.
The underwriting arrangements for 2009 have changed compared to 2008: Admiral
will continue to retain a net 27.5%, with Munich Re stepping down to 50% and the
remaining 22.5% split between three reinsurers – Swiss Re (10.0%), Hannover Re (6.25%)
and New Re (6.25%).
UK car insurance financial commentary
The UK business again grew strongly in 2008, increasing total premiums written by 12% from
£617m to £690m and also growing the number of vehicles insured by 15% to 1.59m. A fall in
average premiums accounted for the difference in the growth rates.
Admiral’s premium rates actually increased by around 4% during 2008, but the continued growth
in distribution via price comparison websites partly contributed to a fall in average premiums
written. Also, the mix of the new business and renewal book has shifted very gradually towards
slightly lower premium risks. Our own data on the competitiveness of Admiral’s rates suggests
that market price changes were broadly in line with our own.
The underwriting results of 2008 showed continued improvement, with a combined ratio of 81%
coming in two points better than 83% for 2007. The private motor market reported a combined
ratio (i.e. including the effect of reserve releases) for 2007 of 104% (115% before releases), meaning
Admiral enjoyed a 21 point outperformance in reported results for that year. We do not expect a
material change in the market’s result for 2008.
A D M I R A L G R O U P p l c 1
Overall underwriting profit increased by 20% to £48m (representing just less than one quarter of
total 2008 pre-tax profit).
The loss ratio improved to 62.0% from 66.7%, partly reflecting a larger impact resulting from prior
year reserve surplus releases (positively contributing 23.5% in 2008 v 21.0% in 2007), but equally
the ‘pure year’ ratio (i.e. the loss ratio without the benefit of releases) also improved, to 85.5%
from 87.7%, reflecting better claims experience in the 2008 calendar year compared to 2007.
On the Group’s own underwriting, we continue to reserve initially on a conservative basis, above
actuarial projections of ultimate outcomes. This results in a significant margin being held in
claims reserves to allow for any unforeseen adverse development in open claims. This creates a
position whereby Admiral expects to be able to consistently make well above industry average
reserve releases.
In addition to these releases, there is a significant amount of revenue not yet recognised arising
from profit commissions earned on the premiums that Admiral does not underwrite itself.
Proportionally these balances have become much more significant at the end of 2008 and
consequently we now consider it more appropriate to consider these two parts together when
we determine the quantum of reserve releases. We seek to achieve a consistent level of overall
prudence.
The expense ratio increased to 19.0% from 16.7% in 2007. Part of the increase results from an
accounting impact arising from Admiral retaining more of the 2008 premium (27.5%) than 2007
(22.5%). A further element of the increase arose due to the commission structures of the quota
share reinsurance contracts. On a like for like basis, the expense ratio for 2008 was in line with 2007.
Aside from the underwriting result for Admiral’s own account, another notable feature of the
2008 income statement is the significant increase in profit commission income (up 70% to
£34.7m). This results from a number of factors, including growth in the overall level of premium
written; a higher percentage of business co-/reinsured in 2007 than previous years and continued
improvement in reported loss ratios for previous years. The main contributor however was the
significantly improved profit commission terms to Admiral on co-/reinsurance contracts for the
2007 year and beyond. We recognised the first profit commission income on this year during
2008.
The new quota share contracts which came into effect in January 2009 (with Hannover Re and
New Re) include even more favourable terms for Admiral.
Net income from ancillary products and services has for some time been a key source of profit
for the Group, and 2008 was no exception. Ancillary profit increased by around 17% to £89.0m
from £75.8m. Most of the growth came by way of an increase in the number of vehicles insured
(+15%), whilst there was also a modest increase in the income per vehicle (£70.70 v £69.00).
Ancillary income
A large number of income streams combine to form what is known as ‘ancillary’ income.
Most are products or services that complement the core car insurance product (including a
number of insurance products that are not underwritten by Admiral). A portion of the total is
discretionary.
Although Admiral does not underwrite all the car insurance generated for its own account, it
does retain all ancillary income generated.
The major sources, along with a broad categorisation are set out below:
Discretionary – Breakdown insurance, personal accident insurance, car hire cover, zero
exclusion payment protection insurance
Other – Legal expenses insurance, administration fees
(Discretionary is defined as a product or service in respect of which a customer makes a
decision whether or not to purchase.)
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2 0 B U s I n E s s R E V I E W
Further detail on investment income is set out below.
Regulatory environment
The UK car insurance business operates mainly under the regulation of the UK Financial Services
Authority, and also, by virtue of a Gibraltar based insurance company, under the Financial Services
Commission in that territory.
The FSA regulates two Group companies involved in this business – EUI Limited (an insurance
intermediary) and Admiral Insurance Company Limited (AICL, an insurer), whilst the FSC regulates
Admiral Insurance (Gibraltar) Limited (AIGL, also an insurer).
All three companies are required to maintain capital to levels prescribed by the home regulator,
and all three maintained significant surpluses above those required levels throughout the year.
Treating Customers Fairly (TCF):
FSA regulations require regulated companies to treat their customers fairly, and this has been
an area of significant focus in recent years. Although the Group had a TCF culture along with
management information in place prior to the FSA initiative, improvements have been made
to the management information used in the business, and we report some of the data in the
Customers section below.
Risks and uncertainties
There are a number of factors which could affect the business’ future results and prospects and
the main ones are set out below. This is not intended to be a comprehensive list of all risks and
uncertainties and the business will always be impacted by its competitors and other factors.
The business may be affected by difficult economic conditions
There is a risk that the recession in the UK could adversely affect the UK car insurance business
in a number of ways:
a) Ancillary income – an element of this income stream is discretionary, and whilst it could
be argued that protection products are more important in difficult economic conditions,
consumers could choose to reduce the level of non-mandatory products, which would
impact the Group’s ancillary income
b) Claims – there is a risk of increased fraudulent claims, which would affect the Group’s
underwriting results and also profit commission income
The Group’s insurance business faces inherent claims risk
As with any insurance business, the value of future claims may be different to current
expectations for a number of reasons, many of which are outside the Group’s control. These
could include claims frequency shocks resulting from bad weather, higher claims inflation
resulting from legislative changes. Adverse changes would affect the Group’s underwriting results
and profit commission income.
The business faces operational risk
Operational risk arises across the business in a variety of forms, and if business processes do
not function effectively and efficiently, losses may arise. Potential risk areas include: Claims
handling; internal or external fraud; computer system failure. The Group has a well developed
risk management framework, including a robust set of internal controls, although these can not
be relied upon to completely eliminate the risk of loss.
The business faces regulatory risk
The business is subject to a range of regulatory supervision and should any of it change
significantly, this could materially affect the Group’s operations and the products offered.
Counterparty and other financial risks are discussed in the financial risks section in the notes to
the accounts.
Price comparison
What we do
A D M I R A L G R O U P p l c 2 1
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• Confused.com is an insurance and financial services comparison website
• Operating in the UK, the site allows consumers to compare a range of general insurance and
financial services products across price and policy benefits
• Confused’s income is primarily generated via commissions paid by the product provider on the
sale of an insurance policy or financial product
• We are the UK’s leading car insurance comparison website measured by sales generated.
Confused delivered over 13 million insurance quotes in 2008
Strategy
Confused’s strategy is to become the comparison website of choice in the UK for financial
products, and to maximise the value to the business of each customer relationship.
The Group also plans to capitalise on our experience in the UK by establishing new price
comparison operations overseas.
Success in delivering against this strategy is measured by a wide range of key performance
indicators, including quote volumes, conversion rates, sales, income per sale and cost per sale.
Financial Performance
Non-GAAP format income statement
£m
Revenue:
Motor
Other
Total
Operating expenses
Operating profit
2006
2007
2008
34.3
4.2
38.5
(15.4)
23.1
58.8
10.3
69.1
(32.4)
36.7
52.9
13.2
66.1
(40.5)
25.6
Price comparison financial commentary
Compound growth rate of
24%, year on year decline 10%
Compound growth rate of
71%, year on year growth 28%
Competition in UK price comparison intensified further during 2008, evidenced by substantial
increases in media spends by the major players. The market also saw a number of new entrants.
At the same time, the size of the market (although somewhat difficult to measure precisely)
also grew significantly. We estimate the number of car insurance policies sold through price
comparison websites grew by nearly 60% during 2008 to a point where the channel now
accounts for around 40% of all new business sales.
One of the main effects of the increased competition has been to remove a large amount of the
market’s profitability – as business becomes significantly more expensive to acquire, against only
a modest increase in income per sale. As a dominant and highly profitable player in the market,
Confused’s results inevitably suffered against this backdrop.
In spite of the challenging market conditions, Confused achieved an operating profit of £26m,
and an operating margin of 39%.
Confused did generate notable growth in its activities beyond car insurance. Household
insurance and utilities were particularly strong and contributed to growth in other revenue of
28% (to £13.2m).
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At the end of 2008, Confused launched its rebuilt website, which makes the quote process faster
and easier for customers. It has also launched a new TV advertising campaign early in 2009,
which led to January being a record month for quotes.
The Group is also currently in the process of developing a price comparison business to launch
in Spain, and Rastreator.es (based in Madrid) is expected to start operating there in the first half
of 2009.
Regulatory environment
As an insurance intermediary, Confused is regulated by the UK FSA and is required to comply with
all relevant rules, including those on solvency capital.
The price comparison industry in the UK has attracted a lot of attention from a number of
parties over the past year or two, including a review by the FSA. Confused contributed willingly
to the review and actively responded to the issues raised by the regulator during its course.
Confused tries always to act in the best interests of its users. Price and benefit comparison in
motor and home insurance have made what was a very time consuming process substantially
easier for consumers, and in general the new industry has contributed to better decisions being
made by consumers.
Risks and uncertainties
This section sets out a list of risks which could affect the business’ future results and prospects.
Again, it is not intended to cover all risks and uncertainties.
The business may be affected by difficult economic conditions
Recession in the UK potentially offers an opportunity for Confused as more and more consumers
use comparison websites to search for the best deals. It could also, however, pose a threat
with fewer new car and home purchases possibly leading to fewer price searches than would
otherwise arise. As yet, Confused has seen little evidence of this.
The industry may continue to attract new entrants and fierce competition
As noted above, the price comparison market in the UK, especially in car insurance, has been
extremely competitive over the past two years, leading to a position where the market overall is
currently estimated to be unprofitable. Although these might not appear to be ideal conditions
to attract new players, it remains possible that significant new companies might enter the market,
further increasing competition.
The business faces regulatory risk
Price comparison has attracted attention from a number of bodies, including the FSA and it is
possible that the industry becomes subject to more stringent regulation that is currently in place.
Any such change in regulation might adversely affect Confused’s business.
Counterparty and other financial risks are discussed in the notes to the accounts.
Non-uk car insurance
What we do
A D M I R A L G R O U P p l c 2 3
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• The Group has three direct car insurance operations outside the UK – Balumba.es (based in
Seville) launched in Spain in October 2006; AdmiralDirekt.de (Cologne) started trading a year
later in October 2007 and more recently, ConTe.it (Rome) launched in May 2008
• The business models of each are based closely on the UK car insurance operation –
distribution is through direct telephone and internet channels, and there is significant
reinsurance support for each operation
• The combined operations insured 73,700 vehicles at 31 December 2008 and generated £26m of
premium for the year
Our strategy
As we note above, a key element of the Group’s strategy is to take what the Group does well in
the UK and use this knowledge to establish profitable, sustainable businesses overseas. We do
not expect to do this quickly and we do not target a set market share or revenue within fixed
timeframes.
We expect our new car insurance operations to be relatively small, and loss making in their early
years (how long will depend on the market), until the new business is established and scale is
achieved. Use of proportional reinsurance across the three markets (65% of risks and expenses
are underwritten by Munich Re) helps reduce the financial impact in the early years
The Group Board has also identified the US and France as further key markets in which it plans to
launch. Current expectation is for a launch in the US sometime in late 2009 or early 2010, and in
France some time after that.
Our overseas strategy is summarised in the table below, where we also comment on our progress
to date.
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Objective
1) Establish new, direct car insurance
businesses in our five selected countries
outside the UK (Spain, Germany, Italy, USA
and France)
Italy, ConTe.it, May 2008
Progress
• Spain, Balumba.es, October 2006
• Germany, AdmiralDirekt.de, October 2007
•
• USA, operation being developed, launch
expected late 2009/early 2010
• France, market being researched, launch
date to be determined
2) Develop each new operation into a
profitable, sustainable business
• All three trading operations remain in early
stages and as would be expected, none have
yet reached profitability.
3) Ensure financial impact on Group is
minimised
• 65% reinsurance support secured for all
three existing businesses
• Average pre-launch costs < £1m
• The Group takes a ‘slow and steady’
approach to expansion and aims to build
sustainable businesses before pushing for
significant growth
Year-on-year growth 83%
Financial performance
Non-GAAP format income statement
£m
Turnover
Total premiums written
Net insurance
premium revenue
Investment income
Net insurance claims
Net insurance expenses
Underwriting result
Net ancillary income
Other revenue
Non-uk car
insurance result
2006
2007
2008
0.6
0.6
-
-
-
(0.2)
(0.2)
0.1
-
16.5
14.2
2.0
0.1
(2.8)
(1.8)
(2.5)
1.8
-
29.7
26.0
7.9
0.7
(9.5)
(6.2)
(7.1)
2.8
0.2
(0.1)
(0.7)
(4.1)
Note - Pre-launch costs excluded
A D M I R A L G R O U P p l c 2
i
i
n
n
2
2
0
0
0
0
8
8
A
A
d
d
m
m
i
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a
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l
G
G
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p
key performance indicators
Loss ratio
Expense ratio
Combined ratio
Vehicles insured
at year-end
Ancillary income
per policy
2006
-
-
-
2007
141%
91%
232%
2008
120%
78%
198%
2,200
46,900
73,700
Year-on-year growth 57%
-
£45
£47
Co-insurance and reinsurance arrangements
Underwriting arrangements for Balumba, AdmiralDirekt and ConTe are similar, with the Munich
Re Group underwriting 65% of the risks in each. Admiral retains the remaining 35%.
Such strong reinsurance support is especially valuable in start up operations, as Munich Re
also shares the (post-launch) expenses incurred. The contracts are long-term in nature and
are designed to run for eight years. The reinsurer does have the option for an early exit,
typically after four years, but not before.
The contracts contain profit commission clauses that allow Admiral to participate in the
profitability of the business written by Munich Re, when that business reaches profitability on
a cumulative basis.
Non-UK car insurance financial commentary
The non-UK operations remain a relatively small part of the overall Group result, with total
premium accounting for less than 4% of the Group’s total. Net insurance premium revenue (net
earned premium) amounted to just under £8m.
Balumba:
Balumba accounted for the majority of the non-UK volume, contributing 80% of the total
premium and 75% of the insured vehicles. Its net insurance premium revenue totalled £7.0m. The
key focus at Balumba during 2008 was improving the loss ratio, and whilst significant progress has
been made in this area, management recognise that more improvement is needed. The rate of
growth has been deliberately slowed whilst work continues in this area.
Balumba loss ratio development
Underwriting year
2007
137%
135%
2008
102%
-
After 12 months
After 24 months
Numerous measures have been implemented to address the loss ratio, including:
• Rating increases
• Improvements to the claims function (including resourcing, enhancing the garage network)
• Underwriting control improvements
• Joining the Spanish “knock for knock” claims system
i
h
g
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l
i
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s
4
4
-
-
5
5
2
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8
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7
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3
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4
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1
0
4
2 B U s I n E s s R E V I E W
The reported loss ratio for 2008 improved to 117%, from 141% in 2007. The overall loss for the
period totalled £1.2m (up from a loss of £0.7m in 2007).
Regulatory environment
The Group has taken advantage of the ability to passport UK regulatory permissions into Europe
in structuring the three new businesses. This means that whilst all three have to comply with
local rules and regulations, the main regulator of each is either the FSA or the Gibraltar FSC,
regimes that the Group is very familiar with. Capital requirements are also set by the UK and
Gibraltar regulators.
Risks and uncertainties
Entering new markets
The Group is starting new businesses from scratch in relatively unfamiliar markets. There is a risk
that one of more of these will take longer than planned to become profitable, or even that one
or more will not become profitable.
The Group’s approach to expansion is a ‘slow and steady’ one, aiming to establish profitable
and sustainable businesses before taking on significant amounts of business. This means that
the financial impact of start-up operations is not excessive. Reinsurance support also helps in
this regard.
Insurance, operational and regulatory risks
The non-UK businesses face similar risks to those noted above in respect of the UK car insurance
operation. Refer to page 20 for details.
Also refer to the section on financial risks for details on credit risk (page 30)
Other Group Items
Gladiator
Established in 1998 and based in Swansea, Gladiator is a commercial vehicle insurance broker
offering van insurance and associated products, typically to small businesses. Distribution is via
telephone and internet (including price comparison websites).
Non GAAP income statement and key performance indicators
£m
Revenue
Expenses
Operating profit
Operating margin
2006
2007
2008
5.9
(3.9)
2.0
34%
7.5
(5.5)
2.0
27%
9.5
(6.7)
2.8
29%
Compound and year-on-year
growth 27%
Customer numbers
42,300
62,200
84,900
Compound growth 42%, year-
on-year growth 36%
Gladiator has successfully grown its market share of the UK van insurance market over the past
few years, and achieved a significant increase in profits in 2008 compared to 2007. A material
amount of Gladiator’s business is now distributed through price comparison websites, as this
channel has become more important in the market.
A D M I R A L G R O U P p l c 2
i
i
n
n
2
2
0
0
0
0
8
8
A
A
d
d
m
m
i
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a
a
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l
G
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p
p
Other income statement items
(Non-GAAP)
£m
Group net interest income
Share scheme charges
Expansion costs
Other central overheads
2006
2007
2008
4.5
(0.9)
(0.5)
(0.8)
7.8
(3.0)
(1.4)
(1.3)
6.6
(5.9)
(0.8)
(1.6)
Interest income declined in 2008 compared to 2007 largely due to significant falls in the UK base
interest rate in the last quarter of the year.
Share scheme charges have continued to increase, as additional awards are made under the
Group’s schemes, and the share price on which the charges are based has also increased over
time. 2008 was also the first period in which existing awards vested. Refer to note 25 for further
detail on the Group’s share schemes.
Expansion costs relate to pre-launch expenses incurred in the development of the international
businesses.
Investments and cash
Investment strategy
The Group’s conservative approach to investment was maintained during 2008, with no change in
overall strategy, and little change in where funds were invested.
The key element of Group-wide investment strategy is capital preservation, with additional
priorities focusing on low volatility in returns and high levels of liquidity. The majority of
insurance funds continue to be invested in AAA-rated money market funds, offering cash-like
returns, same day liquidity, low risk and good diversification.
Cash and investments analysis
31 December 2008
UK car
insurance
£m
Price
comparison
£m
Non-UK car
insurance
£m
Other
£m
287.3
100.0
4.0
46.4
437.7
-
-
-
15.6
15.6
23.5
-
-
-
-
-
18.2
60.1
41.7
60.1
Total
£m
310.8
100.0
4.0
140.3
555.1
Liquidity money
market funds
Long term cash
deposits
Short term cash
deposits
Cash
Total
i
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l
i
g
h
t
s
4
4
-
-
5
5
2
0
0
8
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a
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-
7
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1
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-
3
3
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a
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&
3
4
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4
7
&
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4
8
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5
3
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a
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5
4
-
1
0
4
2 8 B U s I n E s s R E V I E W
31 December 2007
UK car
insurance
Price
comparison
Non-UK car
insurance Other
£m
335.6
-
16.4
63.7
415.7
£m
£m
£m
-
-
11.0
4.9
15.9
-
-
-
10.0
-
-
18.0
31.8
10.0
49.8
Total
£m
335.6
-
45.4
110.4
491.4
Liquidity money
market funds
Long term cash
deposits
Short term cash
deposits
Cash
Total
The Group generated total investment and interest income of £24.4m in 2008, similar to the
£24.6m returned in 2007 despite an increase in the value of invested funds and cash in 2008 over
2007. The significant fall in interest rates in the UK and Europe towards the end of 2008 explains
this anomaly. The average rate of return on the Group’s invested sterling funds in 2008 was
around 5.1%, compared to 5.6% in 2007.
The nature of the investments means that returns are closely linked to central bank target interest
rates. The significant cuts in these to date (along with expectation of further cuts) will mean that
the Group’s investment and interest income is expected to be materially lower in 2009.
The Group continues to believe that capital preservation and low volatility are the most critical
investment objectives, and there are no current plans to materially change investment strategy.
The Group continues to generate significant amounts of cash, enabling the Group to pay a
large portion of after-tax profits to shareholders in the form of dividends. No debt financing is
required to fund these payments.
£m
Operating cash flow, before transfers to investments
Transfers to financial investments
Operating cash flow
Tax and interest payments
Investing cash flows
Financing cash flows
Foreign currency translation impact
Net cash movement
Net increase in cash and financial investments
2006
183.8
(1.1)
182.7
(41.9)
(6.0)
(93.6)
(0.1)
41.1
42.8
2007
213.2
(76.8)
136.4
(49.8)
(5.4)
(117.1)
0.4
(35.5)
42.5
2008
251.6
(76.0)
175.6
(57.0)
(11.3)
(128.7)
9.9
(11.5)
63.8
Underwriting only a minority of the insurance generated means that the Group has less of its
cash tied up to support claims reserves than traditional insurers. Cash generated from non-
underwriting activities tends to match profits recognised.
Net cash declined in both 2007 and 2008, though this is offset by large flows into financial
investments. All years show net increases in combined cash and financial investments.
The main items contributing to the significant operating cash inflow are as follows:
A D M I R A L G R O U P p l c 2
£m
Profit after tax
Change in net insurance liabilities
Net change trade receivables and liabilities
Non-cash income statement items
Tax and net interest expense
2006
103.7
19.8
10.6
5.1
44.6
2007
127.4
11.7
10.7
8.4
55.0
2008
144.9
37.6
(5.8)
17.3
57.6
Operating cash flow, before transfers to investments
183.8
213.2
251.6
Other financial items
Taxation
The taxation charge reported in the income statement is £57.6m, which equates to 28.4% of profit
before tax.
Earnings per share
Basic earnings per share rose by 13% to 54.9p from 48.6p. This rate of growth is higher than the
pre-tax profit growth (11%) due to the change in the rate of UK corporation tax from April 2008
(from 30% to 28%).
Dividends
The Directors are proposing a final dividend for 2008 of 26.5p. In line with the Group’s dividend
strategy, this comprises a 12.4p normal element and a 14.1p special distribution, representing an
increase of 14% on the final dividend paid in respect of 2007.
The payment date is 27 May 2009, ex-dividend date 6 May and record date 8 May.
The total dividend for 2008 (52.5p) is 20% higher than the 43.8p distributed in respect of 2007.
Capital structure, financial position
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 comfortably 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 above, 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 further prudent buffer for
unseen events. This policy gives the Directors flexibility in managing the capital requirements of
the Group.
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2
2
0
0
0
0
8
8
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1
0
4
3 0 B U s I n E s s R E V I E W
The Group’s capital continues to be all in equity form, with no debt.
Other than as stated below, as far as the Company is aware, there are no persons with significant
direct or indirect holdings in the Company. Information provided to the Company pursuant to
the Financial Services Authority’s (FSA) Disclosure and Transparency Rules (DTRs) is published on a
Regulatory Information Service and
on the Company’s website.
At 31 December 2008, the company had received notifications in accordance with the FSA’s DTRs
of the following notifiable interests, in the voting rights in the company’s issued share capital:
Munich Re
Blackrock Inc
Capital Group
Fidelity
Newton Investment Managers Ltd
Jupiter Asset Management Ltd
Legal & General Group plc
Number of shares
39,579,400
12,872,216
12,766,870
12,771,422
10,547,511
9,675,157
7,950,924
%
14.96%
4.87%
4.83%
4.83%
3.99%
3.66%
3.01%
The interests of Directors and Officers and their connected persons in the issued share capital of
the company are given in the Remuneration Report.
Financial risk
Detailed analysis of the financial risks faced by the Group is set out in the notes to the accounts,
starting at page 62.
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:
The Sunday Times 100 Best Companies to Work For – Admiral has been included in all nine years
of the publication (one of only two Companies to achieve this) and was ranked 37th overall in the
last list published.
2000
2001
2002
2003
2004
2005
2006
2007
2008
Position
32
42
46
60
20
20
21
57
37
The Financial Times 50 Best Workplaces in the UK – we have been included in all five years of
the publication.
A D M I R A L G R O U P p l c 3 1
Position
2003
7
2004
16
2005
17
2006
8
2007
Top 10*
2008
10
*Positions were not ranked 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. The
survey includes questions relating to a wide range of topics including staff morale, staff
development, management, communication and social aspects of working at Admiral.
The table below sets out a number of key results from the survey over the last three years and
clearly shows that staff feel morale is high within the Company and their own departments and
that management listen to their issues. They also feel that Admiral is truly customer oriented
and treats its customers fairly.
Survey question
Morale is high within Admiral
Morale is high in my department
Taking everything into account I am happy at Admiral
Every effort is made to understand the opinions and thinking of staff
I am proud to be associated with Admiral
I would recommend Admiral as a good place to work
I am more likely to stay at Admiral because of the share schemes
Admiral is truly customer oriented
Admiral treats its customers fairly
2006
2007
2008
76%
87%
92%
74%
91%
90%
69%
90%
86%
89%
82%
87%
73%
91%
90%
71%
88%
84%
90%
90%
90%
86%
94%
94%
71%
90%
87%
The survey results are analysed 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.
Customers
The Group has always regarded its customers as central to the success of the business. As at 31
December 2008 the Group had 1.75m customers, up 17% from 1.49m 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
2008 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 has completed a Treating Customers Fairly Management
Information pack pulling together specific measures that demonstrate that we are consistently
treating our customers fairly. A detailed report is produced each month together with a
summary providing details of measures that have been graded red. The report is discussed at the
The Risk Management Committee (RMC - see Corporate Governance section of this report) and
process or behavioural changes agreed where appropriate.
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8
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4
3 2 B U s I n E s s R E V I E W
The table below contains some of the key measures from the TCF report:
TCF Measure
Complaints per 1000 vehicles
% FOS complaints rejected
Customer service call answer rate
Claims call answer rate
Comment form score
% Customer who would
renew following a claim
June
2008
1.14
50%
93%
97%
9.28
90%
December
2008
Average June-
December 2008
0.95
63%
96%
90%
9.28
93%
1.14
78%
95%
92%
9.25
93%
There are over 150 individual TCF measures, each of which is benchmarked to allow the RMC
to take an overall view as to whether customers are being treated fairly. This has been in place
since July 2008 and the average red grades amounted to 0.51%. 91% of the measures throughout
the period achieved a green grade.
Each quarter the Central Complaints Department produce a report analysing the complaints
received and causes. The report provides a summary of the root causes of the complaints and
actions taken to reduce the risk of complaints due to specific procedures or staff behaviour.
Community
Admiral has adopted a charitable giving policy, which supports the local communities in which its
employees live and work. During 2008, 211 local organisations were helped with a total donation
of £42,791.
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
including a matching scheme whereby the Company matches funds raised for charity in the
workplace.
Environment
The Group’s impact on the environment stems from its use of resources to run its offices in
Cardiff, Swansea and Newport and its overseas branches in Spain, Germany, Italy and Canada.
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 include all of the Group’s offices.
The Group Company Secretary is responsible for the Group’s approach to its impact upon the
environment.
The Group is committed to:
• 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 3
Impact Area
Energy (‘000 Kwh)
Green Energy (‘000
Kwh)
CO2 (tonnes)**
Water (m3)
Waste management:
Total waste
Waste to landfill
Waste recycled
Travel:
Car miles
Rail miles
Air Miles
Usage
2007
6,997
0
4,033
Consumption
measure 2007
321 Kwh/m2
N/A
1.71 tonnes per
employee
Usage
2008
5,670
1,844
3,497
Consumption
measure 2008
221 Kwh/m2
72 Kwh/m2
1.06 tonnes per
employee
14,836
6.28 per employee
19,859
6.03 per employee
239,139 KG
128,278 KG
110,861 KG
279,920
213,357
1,120,537
340,926 KG
176,596 KG
46% recycled
164,330 KG
48% recycled
118 miles per
employee
90 miles per
employee
474 miles per
employee
272,656
405,630
1,789,535
83 miles per
employee
223 miles per
employee
543 miles per
employee
The figures above are for the Group’s worldwide operations.
** The Carbon emissions have been calculated using the Carbon Trust Calculator which uses the
emissions factors published by Defra in April 2008.
Energy
The main source of the Group’s carbon emissions is the consumption of electricity and gas for its
two main UK offices. The Cardiff head office is the older and least efficient, built in the 1960s
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 other UK offices are located in Cardiff and
Newport.
During the last quarter of 2007 electricity supply to the Cardiff office was switched to ‘Green
electricity’ which has been excluded from the carbon emission calculation in the table above and
has lead to a significant reduction in the Group’s absolute CO2 emissions.
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 purchases reinsurance cover to provide significant protection in the
event of catastrophes of this nature.
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3 G O V E R n A n c E & R E M U n E R At I O n
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 2008 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 the Group’s 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 17 December 2008.
The Board met on eight occasions in 2008. The Board also held a strategy day and visited its
operations in Italy. In addition, the Non-executive Directors and the Chairman met during the
year without the Executive Directors being present. 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 Group's business.
All the Directors have access to the advice and services of the Company Secretary. He has
responsibility for ensuring that Board procedures are followed and for governance matters. The
Company Secretary provides updates to the Board on regulatory and corporate governance
issues, new legislation and Directors’ duties and obligations. The appointment and removal of the
Company Secretary is one of the matters reserved for the Board.
During the year the Board carried out an evaluation of itself and its Committees. The process
was facilitated by the Chairman and consisted of the completion of a questionnaire followed
by one-to-one discussions between each Director and the Chairman where the Board’s role and
structure, process and relationships and any emerging issues were discussed. A final detailed
report was circulated to the Board and a number of recommendations agreed. 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.
A D M I R A L G R O U P p l c 3
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. 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
2008 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
4
4
4
4
8
8
7
8
8
8
8
8
8
8
8
2
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 leadership and workings
of the Board, setting its agenda and monitoring its effectiveness. The Chairman is not involved in
the day-to-day management 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 December 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 Nomination 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.
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
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3 G O V E R n A n c E & R E M U n E R At I O n
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 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, Manfred Aldag, Henry Engelhardt and Kevin
Chidwick 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 of which it is a part.
The Board receives presentations from senior managers within the various Group companies 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.
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 Nomination 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.
A D M I R A L G R O U P p l c 3
Board Committees
The principal committees of the Board - Audit, Remuneration and Nomination - 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 Nomination 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 Committee has a formal terms of reference, which were reviewed by the Committee on 19
November 2008 and approved by the Board on 17 December 2008.
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. The Committee is kept up to date with changes to Accounting Standards, relevant
developments in financial reporting, company law and the various regulatory frameworks through
presentations from the Group’s external auditors, Head of Finance and Company Secretary.
In addition members are provided with information on seminars and conferences provided
by external bodies. The Terms of Reference of the Audit Committee include all the 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 of different
parts of the Group may be invited to attend all or part of any meeting as and when appropriate.
The external auditors are invited to attend meetings of the Committee on a regular basis.
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3 8 G O V E R n A n c E & R E M U n E R At I O n
Summary of key activities during 2008
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 including within its overseas operations
· Reports from the external auditors on their proposed audit scope, fees, audit, 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 reviewed its policy on non-audit services that, amongst other things, requires
that the Committee approve all proposals for expenditure with the Group’s auditors of over
£30,000 on non-audit services. The policy was last reviewed on 19 November 2008. The Group’s
auditors, KPMG Audit plc, provide some non-audit services, the majority of which comprise
compliance services related to various taxation issues within the Group, and which are not
considered by the Committee to compromise their independence as auditors. The level of non-
audit fees is reviewed twice a year by the Committee and details are included in 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 auditors on
proportionate liability agreements although the Group has not yet entered into any such
agreement with its auditors.
The Committee also approves the annual compliance review plan and receives copies of
these reports. The Head of Compliance, who has responsibility for the Compliance and Risk
management functions, provides the Committee with a quarterly Compliance 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 invites the Chief
Executive to attend meetings when it deems appropriate.
The Committee has formal terms of reference, which were last reviewed on 17 December 2008
and approved by the Board on 27 February 2009. The Committee met on two occasions
during 2008.
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
A D M I R A L G R O U P p l c 3
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.
During 2008, the Committee discussed succession planning across the Group with the Executive
team. Planning for the most senior management positions was formerly in place but below this,
succession planning within the Group was not fully documented. The People Services Manager
has implemented a process of documenting and improving the approach taken by the Group to
assess and monitor succession planning throughout the Group through the development of a
Talent Management programme.
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 17 December 2008.
The Committee met five times during 2008.
During the year the Committee carried out the following activities :-
· 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.
During the year the Committee purchased consultancy services from Kepler Associates.
In addition, the Company Secretary circulates market survey results as appropriate to enable it to
make judgments 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 2008; 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. 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
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0 G O V E R n A n c E & R E M U n E R At I O n
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 Head of Compliance and the 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 consideration of risk and control as a regular item 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. On 27 February 2009 the Board carried out the annual
assessment for the 2008 year by considering documentation from the Audit Committee, taking
account of events since 31 December 2008.
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 Head of Compliance (who
chairs the meetings), the Risk Officer, 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. The Committee has formal
terms of reference and is required to manage regulatory issues, assess and monitor 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 take
appropriate 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 weaknesses 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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A D M I R A L G R O U P p l c 1
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2 G O V E R n A n c E & R E M U n E R At I O n
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 2002.02.
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 2008, 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; and 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. They were reviewed by the Committee on 19 November 2008.
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 purchased consultancy services from Kepler Associates. In
addition, the Company Secretary circulates market survey results as appropriate.
Remuneration policy
The Group is committed to the primary objective of maximizing 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 aims to pay below-median salaries but with attractive
performance related incentives, which provide individuals with the potential for competitive
total reward packages for superior performance.
· Performance linked – A significant part of Executive Directors’ (excluding Henry Engelhardt and
David Stevens) 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.
A D M I R A L G R O U P p l c 3
The Group operates the following benefits:
· 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 maximum employer contribution of £4,800. This is available to all employees
following completion of their probationary period.
· Permanent Health Insurance policy covering approximately 120 management level staff.
· Private Medical Cover made available to the same staff that are eligible for the Permanent
Health Insurance policy.
· Approved Free Share Incentive Plan (SIP). The SIP is available to all UK 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. Overseas staff receive an award under the Discretionary Free Share Scheme
equivalent to the SIP award made to UK employees.
· 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 strengthening
further the alignment of the interests of staff and shareholders.
Of the Group’s current Executive Directors, only Kevin Chidwick (Finance Director) participates in
this scheme, as Henry Engelhardt and David Stevens have declined to be included.
The current performance criterion to determine 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 13.25% per annum (assuming
LIBOR averages 3% over the period). Only 10% of shares vest for matching LIBOR over the three-
year period. There is then a linear relationship up to full vesting of the award whereby 2.5% of
the award vests for each point over LIBOR.
The plan allows for a maximum award of £400,000 or 600% of basic salary if lower.
Changes made for 2009 awards
For staff below Group Board level the Committee have agreed a change to the award criteria
such that from 2009 awards will be split. 50% of the award will be subject to the above
performance criteria. The other 50% will have no performance criteria attaching, except that
they have to remain employed by the Group for the three-year vesting period. The change was
made in order to assist the group to attract high calibre staff by providing more certainty over
the outcome of vesting awards.
In addition, commencing with the interim 2009 dividend, the Group will pay a bonus to
all holders of unvested DFSS shares. The bonus will equate to the dividend payable on an
equivalent number of the ordinary shares of the Group. The Committee felt that having a Group
wide bonus aligned with the dividend flow received by investors further aligned the incentive
structure with shareholders.
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 Directors have proposed
for approval by shareholders at the AGM on 28 April 2009 that henceforth the 10% total be
applied across both schemes with flexibility to the Board as to what percentage should be
applied to each particular scheme.
The Committee determines the fees for the Chairman of the Board after consultation with the
Executive Directors and review of market data.
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G O V E R n A n c E & R E M U n E R At I O n
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. The fees of the Non-executive Directors were reviewed in December 2008.
Executive Directors are allowed, although 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 such appointments 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 as assessed 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 participated,
nor is it intended that they participate, in any Group share schemes. Their remuneration was
reviewed in September 2008. Henry Engelhardt was awarded a rise of 4.9% taking his salary to
£320,000 and David Stevens awarded a rise of 20% taking his salary to £320,000.
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.
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 below median levels together with attractive
awards under the DFSS bringing the total remuneration to competitive levels for superior
performance. With effect from 1 July 2008 Kevin Chidwick’s base salary was increased by 25% to
£300,000. Whilst the increase in Kevin Chidwick’s base salary is above inflation the Committee
felt that the increased responsibilities taken on during the year justified such an increase.
£300,000 remains below the median base salary of FTSE 100 Finance Directors.
Kevin Chidwick received an award of 48,667 DFSS shares on 29 April 2008 with a value at the
date of the award of £393,229. The awards represent the maximum number of shares that could
vest after a three-year period and are subject to the performance criteria 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 2008.
Kevin Chidwick
Henry Engelhardt
David Stevens
Notice – Director
(months)
Notice – Company
(months)
12
12
12
12
12
12
A D M I R A L G R O U P p l c
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.
The fee structure for Non-executive Directors was reviewed at the end of 2008 and commencing
1 January 2009 is as follows:
Base fee
Plus:
Member of Audit Committee
Senior Independent Director
Chair of Audit Committee
Chair of Nomination Committee
Chair of Remuneration Committee
£
40,000
5,000
5,000
10,000
3,000
5,000
Non-executive Directors are not entitled to bonus payments or pension arrangements, nor do
they participate in the Group’s long term incentive plans.
The Committee determines the Chairman’s remuneration. The fee paid to Alastair Lyons in
respect of his appointment as Chairman of the Board in 2008 was £120,000, of which 25% was
waived. The Chairman’s fee was reviewed in February 2009 and increased to £150,000 from 1
January 2009 with no fee waiver in place.
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Non-executive Directors do not have service contracts but each has a letter of appointment.
The letters of appointment all require a period of one months’ notice should the Non-executive
Director wish to resign. The Chairman’s appointment can be terminated by either party giving 3
month’s notice.
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G O V E R n A n c E & R E M U n E R At I O n
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 100 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 2008. 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.
440
400
360
320
280
240
200
160
120
80
Sept-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sept-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08
Admiral Group plc
FTSE 100
Source: Datastream
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
*Includes 871 shares within the Group’s SIP - details of which are shown below.
** Include amounts held by family members.
Ordinary shares of 0.1p
31 December
2008
31 December
2007
18,679
40,490,720
10,084,000
1,796
40,466,720
10,084,000
562,152
615,600
-
-
-
-
44,500
44,500
-
-
-
-
8,000
8,000
Directors’ remuneration - Audited
Remuneration for the year ended 31 December 2008 was as follows:
A D M I R A L G R O U P p l c
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Executive Directors
Kevin Chidwick
Henry Engelhardt
David Stevens
Chairman and Non-executive Directors
Alastair Lyons *1
Manfred Aldag
Martin Jackson
Keith James *2
Margaret Johnson
Lucy Kellaway
John Sussens
Totals
Base salary
and fees
(£000)
Bonuses
and other
(£000)
Benefits
(£000)
2008
Total
(£000)
2007
Total
(£000)
285
313
283
90
12
36
60
34
31
38
1,182
-
-
-
-
-
-
-
-
-
-
-
5
-
-
-
-
-
-
-
-
-
5
290
313
283
90
12
36
60
34
31
38
1,187
247
298
254
90
6
36
46
34
31
38
1,080
*1 Alastair Lyons waived 25% of his annual fee which is currently £120,000.
*2
Keith James fees include £10,650 for chairing the Board of Admiral Insurance Company Limited and £13,350 for chairing
the Board of Inspop.com Limited.
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
Type At start
of year
Awarded
during
year
Vested
during
year
At end
of year
Price at
award
(£)
Value at
award
date (£)
Value at
31/12/08
* (£)
Date of
award
Final
vesting
date
DFSS
DFSS
DFSS
28,103
21,186
18,480
DFSS
23,000
-
-
-
-
28,103
-
£4.37
£122,810 £252,496**
31/10/05
31/10/08
-
-
21,186
£6.136 £130,000
£192,793
18/04/06 18/04/09
18,480
£6.764 £125,000
£168,168 04/09/06 04/09/09
- 23,000
£10.50 £241,500
£209,300
18/04/07
18/04/10
DFSS
-
48,667
- 48,667
£8.08 £393,229
£442,870 29/04/08
29/04/11
SIP
SIP
SIP
SIP
SIP
213
151
182
-
-
-
-
-
162
163
-
-
-
-
-
213
151
182
162
163
£6.764
£10.284
£8.264
£9.181
£9.195
£1,440
£1,552
£1,504
£1,487
£1,499
£1,938 06/09/06 06/09/09
£1,374 09/03/07 09/03/10
£1,656 04/09/07 04/09/10
£1,474 07/03/08
07/03/11
£1,483 22/08/08
22/08/11
* The closing price of Admiral shares on 31 December 2008 was £9.10 per share.
** The total value of vested shares as at 31 October 2008.
For details of Directors’ responsibilities, please refer to the biographies section.
This report was approved by the Board of Directors on 27 February 2009 and is signed on its
behalf by the Committee Chairman:
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Remuneration Committee Chairman
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8 B O A R D O f D I R E c t O R s
The Board of Directors
Alastair Lyons, CBE (55) - Chairman (N)
Alastair was appointed Chairman of the Company in July 2000. He is also
Non-executive Chairman of Legal Marketing Services, In Retirement Services,
and Cardsave, and Deputy Chairman of Bovis Homes.
He has previously been Chief Executive of the National Provident Institution
and of the National & Provincial Building Society, Managing Director of the
Insurance Division of Abbey National plc, and Director of Corporate Projects at
National Westminster Bank plc. Alastair was also 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, CBE (51) - 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.
Henry was awarded an honorary CBE in April 2008 for services to business
in Wales.
Kevin Chidwick (45) - Finance Director
Kevin is responsible for finance, information technology, compliance and
investments. He joined Admiral in 2005, becoming Finance Director in
September 2006.
Prior to Admiral, Kevin has been in UK financial services for over 20 years. He
has held a number of senior roles in other insurance organisations including,
most recently, Finance Director of 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 (47) - 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.
Lucy Kellaway (49) - Non-executive Director (N)
Lucy joined the board as a Non-executive Director in September 2006. She is
the management columnist on the Financial Times and author of various books.
In 20 years on the FT she has been oil correspondent, a Lex columnist and
Brussels correspondent.
Lucy also joined the Nominations Committee on appointment to the Board.
Manfred Aldag (58) - Non-executive Director (N)
Manfred was appointed a Non-executive Director of the Company in 2003 as a
representative of Munich Re. He graduated from University of Essen and has a
degree in Economics/Business Management (Diplom-Kaufmann).
He has worked for Munich Re since September 1981 and is currently the Senior
Executive Manager responsible for United Kingdom / Ireland.
Margaret Johnson (50) - Non-executive Director (A,R)
Margaret was appointed Non-executive Director of the Company in September
2006. She is currently Group CEO of the international advertising agency
Leagas Delaney and has been with that Company for the past 13 years.
Margaret joined the Group's Audit and Remuneration Committees on
appointment to the Board.
Keith James, OBE (64) - Non-executive Director (A, N)
Keith was appointed a Non-executive Director in December 2002. He is
Chairman of the Nominations Committee and is also the independent
Chairman of Admiral Insurance Company Limited and Inspop.com Limited.
He is also a Non-executive Director of Julian Hodge Bank Limited and is
Non-executive Chairman of Atlantic Venture Capital Limited and International
Greetings plc.
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.
Martin Jackson (60) - Non-executive Director (A, R)
Martin was appointed Non-executive Director and Chairman of the Audit
Committee in August 2004.
He was the Group Finance Director of Friends Provident plc between 2001
and 2003 and Friends’ Provident Life Office between 1999 and 2001. Prior to
that he was the Group 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
Membership Limited and Rothesay Life Limited
He is a Fellow of the Institute of Chartered Accountants.
John Sussens (63) - Non-executive Director (R)
John was appointed the Senior Independent Non-executive Director in August
2004, and is Chairman of the Remuneration Committee. He is also a Non-
executive Director of Cookson plc and Anglo & Overseas Trust plc.
He was the Group Managing Director of Misys plc between 1998 and May
2004 having been on the Board of the Company since 1989. Prior to joining
Misys, he was Manufacturing Director at JC Bamford Excavators Limited.
He was a Non-executive Director at Chubb plc between 2001 and 2003.
Alastair Lyons, CBE
Chairman (N)
Henry Engelhardt, CBE
Chief Executive Officer
Kevin Chidwick
Finance Director
David Stevens
Chief Operating Officer
Lucy Kellaway
Non-executive Director (N)
Manfred Aldag
Non-executive Director (N)
Margaret Johnson
Non-executive Director (A,R)
Martin Jackson
Non-executive Director (A, R)
Keith James, OBE
Non-executive Director (A, N)
John Sussens
Non-executive Director (R)
A D M I R A L G R O U P p l c
A D M I R A L G R O U P p l c
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4
0 D I R E c t O R s ’ R E P O R t
Directors’ report
The Directors present their Annual Report and
the audited financial statements for the year
ended 31 December 2008.
whilst Directors’ interests in the share
capital of the Company are set out in the
Remuneration Report.
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
417 of the Companies Act 2006, 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
· Business review
Group results and dividends
The profit for the year, after tax but before
dividends, amounted to £144.9m (2007:
£127.4m).
The Directors declared and paid dividends of
£128.5m during 2008 (2007: £116.0m) – refer to
note 14 for further details.
The Directors are proposing a final dividend
of £70.0m (26.5p per share), payable on 27
May 2009.
Share capital
Refer to the Business review for the disclosure
of substantial shareholdings in accordance
with Chapter 5 of the Disclosure and
Transparency rules.
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 pages 48 and 49 of this report,
Charitable and political
donations
During the year the Group donated £106,000
(2007: £87,000) to various local and national
charities. The Group has never made political
donations. Refer to the Business review for
further detail.
Employee policies
Detailed information on the Group’s
employment practices is set out in the
Business review.
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 20 days
purchases (2007: 15).
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 2008, 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
A D M I R A L G R O U P p l c 1
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:
· 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
Business review.
Power to issue shares
At the last annual general meeting, held on
29 April 2008, 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
28 April 2009 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 28 April 2009 and the
directors will seek to renew this authority for
the following year.
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 Nomination Committee, any
appointment must be recommended by the
Nomination 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
the Andrew Probert Room, Capital Tower,
Greyfriars Road, Cardiff, CF10 3AZ on Tuesday
28 April 2009 at 3.00pm, 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
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2 D I R E c t O R s ’ R E P O R t
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.
Select suitable accounting policies and then
In preparing each of the Group and Parent
Company financial statements, the Directors
are required to:
·
apply them consistently
·
Make judgments 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
·
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.
Responsibility statement
The directors confirm that to the best of their
knowledge:
· The financial statements, prepared in
accordance with the applicable set of
accounting standards, give a true and fair
view of the assets, liabilities and financial
position and profit or loss of the company
and the undertakings included in the
consolidation taken as a whole; and
· The directors’ report includes a fair view of
the development and performance of the
business and the position of the company
and the undertakings included in the
consolidation taken as a whole, together
with a description of the principal risks and
uncertainties that they face.
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.
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
27 February 2009
A D M I R A L G R O U P p l c 3
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f I n A n c I A L s tAt E M E n t s
A D M I R A L G R O U P p l c
Financial statements
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Independent auditor’s report
8
0
1
Consolidated income statement
Consolidated balance sheet
Consolidated statement of recognised
income and expense
Consolidated cash flow statement
2-8
Notes to the financial statements
Consolidated financial summary
100-10
Admiral Group plc Parent Company
financial statements
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f I n A n c I A L s tAt E M E n t s
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 2008 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 Director’s 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).
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 statement, the Chief
Executive’s statement and the Business 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 2006 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.
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.
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 2008 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 2008 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 2009
A D M I R A L G R O U P p l c
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8 f I n A n c I A L s tAt E M E n t s
Consolidated income statement
Year ended:
31 December
2008
31 December
2007
Note:
£000
£000
301,460
(131,624)
169,836
193,863
34,726
24,381
233,075
(90,839)
142,236
176,878
20,448
24,572
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
422,806
364,134
Insurance claims and claims handling expenses
(213,780)
(172,611)
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)
99,204
(114,576)
(99,763)
(5,924)
(220,263)
72,816
(99,795)
(78,986)
(2,971)
(181,752)
202,543
182,382
(25)
(284)
202,518
182,098
(57,580)
(54,682)
144,938
127,416
54.9p
54.9p
128,515
49.2p
48.6p
48.6p
116,016
44.6p
9
9, 25
12
10
13
15
15
14
14
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
2008
31 December
2007
Note
£000
£000
16
17
18
19
24
18, 20
18, 21
11,002
75,685
586,935
170,594
-
25,501
144,286
7,708
69,063
481,848
131,668
1,629
22,633
155,773
Total assets
1,014,003
870,322
EQuITY
Share capital
Share premium account
Retained earnings
Other reserves
Total equity
LIABILITIES
Insurance contracts
Deferred income tax
Trade and other payables
Current tax liabilities
Total liabilities
25
26
26
26
19
24
18, 22
265
13,145
251,821
10,338
263
13,145
223,828
396
275,569
237,632
439,556
10,327
270,088
18,463
363,060
-
239,593
30,037
738,434
632,690
Total equity and total liabilities
1,014,003
870,322
These financial statements were approved by the Board of Directors on 27 February 2009 and
were signed on its behalf by:
A D M I R A L G R O U P p l c
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Kevin Chidwick
Director
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0 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 recognised directly in equity
31 December
2008
31 December
2007
£000
9,942
9,942
£000
429
429
Profit for the period
144,938
127,416
Total recognised income and expense for the period
154,880
127,845
A D M I R A L G R O U P p l c 1
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December
2008
31
December
2007
£000
144,938
£000
127,416
Note
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Consolidated cash flow statement
Profit after tax
Adjustments for non-cash items:
- Depreciation
- Amortisation of software
- Change in unrealised gains on investments
- Share scheme charge
25
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
3,746
1,390
796
11,320
30
76,496
(38,926)
3,227
725
(1,123)
5,560
6
68,635
(56,979)
(36,466)
(14,772)
30,704
25
57,580
251,633
(76,049)
175,584
(25)
(56,949)
118,610
25,506
284
54,682
213,167
(76,849)
136,318
(284)
(49,477)
86,557
Cash flows from investing activities:
Purchases of property, plant and equipment and software
Net cash used in investing activities
(11,315)
(11,315)
(5,390)
(5,390)
Cash flows from financing activities:
Capital element of new finance leases
Repayment of finance lease liabilities
Equity dividends paid
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Effects of changes in foreign exchange rates
490
(699)
(128,515)
(128,724)
(21,429)
155,773
9,942
Cash and cash equivalents at end of period
21
144,286
457
(1,506)
(116,016)
(117,065)
(35,898)
191,242
429
155,773
4
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2 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
General information
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 2008
and comparative figures for the year ended 31
December 2007. 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).
Adoption of new and revised standards
The Group has applied all adopted IFRS and
interpretations endorsed by the EU at 31
December 2008, including all amendments to
extant standards that are not effective until later
accounting periods, except for those listed below:
· Amendments to IAS 1 Presentation of Financial
Statements: A Revised Presentation
· IFRIC 13 Customer Loyalty Programmes
· Amendment to IFRS 2 Share –Based Payment:
Vesting Conditions and Cancellations
· Amendment to IAS 23 Borrowing Costs
Amendments to IAS 1 Presentation of Financial
Statements: A Revised Presentation is effective
for periods beginning on or after 1 January
2009 and the Group has elected not to adopt
the Amendment in advance of the effective
date. Although it will introduce a number of
changes to the presentation of the primary
financial statements, it will not change the
recognition, measurement or disclosure of
transactions or events that are required by
other IFRS.
IFRIC 13 Customer Loyalty Programmes is
effective for periods beginning on or after
1 July 2008. It is not applicable during the
current accounting period, and on adoption
will not have a material impact on the Group’s
financial statements.
Amendment to IFRS 2 Share –Based Payment:
Vesting Conditions and Cancellations is
effective for periods beginning on or after 1
January 2009. On adoption, it will not have
a material impact on the Group’s financial
statements.
Amendment to IAS 23 Borrowing Costs is also
effective for periods beginning on or after 1
January 2009. It is not applicable during the
current accounting period, and on adoption
will not have a material impact on the Group’s
financial statements.
There are a number of standards, amendments
to standards and interpretations that were
issued by 31 December 2008 but have either
yet to be endorsed by the EU, or were
endorsed shortly after the year end. These are
as follows:
· Amendments to IAS 32 and IAS 1 Puttable
Financial Instruments and Obligations Arising
on Liquidation
· Amendments to IFRS 1 and IAS 27 Cost of an
Investment in a Subsidiary, Jointly Controlled
Entity or Associate
· Improvements to IFRSs (2007)
· Revised IFRS 3 Business Combinations
· Revised IFRS 1 First Time Adoption of IFRS
· IFRIC 12 Service Concession Agreements
· IFRIC 15 Agreements for the Construction of
Real Estate
· IFRIC 16 Hedges of Net Investment in A
Foreign Operation
· IFRIC 17 Distributions of Non-Cash Assets to
Owners
A D M I R A L G R O U P p l c 3
· Amendments to IAS 27 Consolidated and
Separate Financial Statements
· Amendment to IAS 39 Financial Instruments:
Recognition and Measurement: Eligible
Hedged Items
· Amendment to IAS 39 Reclassification of
Financial Assets: Effective Date and Transition
Basis of preparation
The accounts have been prepared on a
going concern basis. In considering the
appropriateness of this assumption, the Board
have reviewed the Group's projections for the
next twelve months and beyond, including
cash flow forecasts and regulatory capital
surpluses. The Group has no debt.
It is not anticipated that any of the standards,
interpretations or amendments above will
have a material impact on the Group’s financial
statements in future periods.
As a result of this review the Directors have
satisfied themselves that it is appropriate to
prepare these financial statements on a going
concern basis.
The following IFRS have been adopted and
applied by the Group for the first time in
these financial statements:
· IFRS 8 Operating Segments
· IFRIC 11 IFRS 2 Group and Treasury Share
Transactions
· IFRIC 14 IAS 19 The Limit of a Defined Benefit
Asset, Minimum Funding Requirements and
their Interaction
· Amendments to IAS 39 and IFRS 7
Reclassification of Financial Instruments
The Group has elected to adopt IFRS 8
Operating Segments in advance of its effective
date (periods beginning on or after 1 January
2009). IFRS 8 introduces the management
approach to segment reporting based on
information presented to the Group’s Board
of Directors. Following adoption of IFRS 8, the
Group’s reporting segments have not changed
significantly but have been sub-divided into a
larger number of segments based in line with
the increasing materiality of certain operations
within the Group. For further information,
refer to note 4 to the financial statements.
IFRIC 11 addresses whether share based payments
accounted for as equity-settled in consolidated
financial statements, should be treated as equity
or cash settled in the subsidiary. As it does not
address treatment in the consolidated financial
statements, it has no impact on the consolidated
financial results or position of the Group for the
current or previous financial years.
IFRIC 14 addresses the accounting treatment of
a defined benefit pension scheme asset and is
therefore not applicable to the Group in the
current or previous financial years.
Amendments to IAS 39 and IFRS 7 address
reclassification of financial assets. The Group
has not reclassified any financial assets so that
standard is also not applicable.
The accounting policies set out in note 3 to
the financial statements 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.
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.
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f I n A n c I A L s tAt E M E n t s
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
Group’s 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. For further detail on objectives,
policies and procedures for managing
insurance risk, refer to note 19 of the financial
statements.
Future changes in claims reserves also impact
profit commission income, as the recognition
of this income is dependent on the loss
ratio booked in the financial statements, and
cash receivable is dependent on actuarial
projections of ultimate loss ratios.
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.
Revenue from Gladiator and Confused.com:
Commission from these activities is credited
to income on the sale of the underlying
insurance policy.
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
or held to maturity deposits.
A D M I R A L G R O U P p l c
b) 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
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.
Translation of financial statements of
foreign operations
The financial statements of foreign operations
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.
On disposal of a foreign operation, the
cumulative amount recognised in equity
relating to that particular operation is
recognised in the income statement.
c) 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
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
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.
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f I n A n c I A L s tAt E M E n t s
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.
d) 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 IAS 38.
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 2008 is allocated solely to the UK
car 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
9.2%, 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
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.
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.
e) 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:
A D M I R A L G R O U P p l c
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.
f) 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.
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.
g) Financial assets – investments and
receivables
Initial recognition
Financial assets within the scope of IAS 39
are classified as financial assets at fair value
through profit or loss (FVTPL), loans and
receivables or held to maturity investments.
The Group has not held any derivative
instruments in the years ending 31 December
2008 and 31 December 2007.
At initial recognition assets are recognised
at fair value and 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 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.
The Group’s deposits with credit institutions
are classified as held to maturity investments
which is consistent with the intention for
which they were purchased.
Subsequent measurement
Financial assets at FVTPL are stated at
fair value, with any resultant gain or loss
recognised through the income statement.
Deposits with fixed maturities, classified as
held to maturity investments are measured
at amortised cost using the effective interest
method. Movements in the amortised cost are
recognised through the income statement, as
are any impairment losses.
Receivables are stated at their amortised cost
less impairment using the effective interest
method. Impairment losses are recognised
through the income statement.
Impairment of financial assets
The Group assesses at each balance sheet
date whether any financial assets or groups
of financial assets are impaired. Financial
assets are impaired where there is evidence
that one or more events occurring after the
initial recognition of the asset, may lead to a
reduction in the estimated future cashflows
arising from the asset.
Objective evidence of impairment may include
default on cashflows due from the asset and
reported financial difficulty of the issuer or
counterparty.
Derecognition of financial assets
A financial asset is derecognised when the
rights to receive cashflows from that asset
have expired or when the Group transfers the
asset and all the attaching substantial risks and
rewards relating to the asset, to a third party.
h) 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.
i) Share capital
Shares are classified as equity when there is
no obligation to transfer cash or other assets.
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8 f I n A n c I A L s tAt E M E n t s
j) 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.
k) 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.
Current tax related to items recognised
directly in equity is recognised in equity and
not in the income statement.
Deferred tax:
Deferred tax is provided in full using the
balance sheet liability method, providing for
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.
l) 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.
A D M I R A L G R O U P p l c
A D M I R A L G R O U P p l c
4. Operating segments
The Group has adopted IFRS 8 Operating Segments in advance of its effective date. IFRS 8
adopts a strict management approach to segment reporting and requires that operating
segments be identified on the same basis as financial information is reported internally to the
chief operating decision maker for the purposes of allocating resources between segments and
assessing their performance.
IAS 14, the previously effective standard on segment reporting, was similar, in that identification
of segments started with internal financial reporting to key management personnel. However its
main focus was on components of the business with similar risks and generating similar returns
which could potentially be very different to the management approach.
The Group’s Directors consider that the adoption of IFRS 8 does not lead to a material change
in the identification of the Group’s segments as the business segments reported to the Group’s
Board of Directors have clearly defined lines of risk and reward. The Board of Directors is
considered to be the chief operating decision maker for the Group.
Under IAS 14 in previous financial years, the primary segments were identified by business type.
No secondary geographical segments were presented on materiality grounds. As described
below the segments presented under IFRS 8 continue to be identified by business type. In
addition, the Group’s Directors consider that the car insurance segment should be sub-divided
into two geographical reportable segments; UK and Non-UK, on the basis of it being useful
information to users of the financial statements rather than the breach of quantitative thresholds
within the standard.
The following segments represent the principal split of business that is regularly reported to the
Group’s Board of Directors, and therefore become the Group’s reportable segments under IFRS 8:
UK car insurance
The segment consists of the underwriting of car insurance and the generation of ancillary income
in the UK. The Directors consider the results of these activities to be reportable as one segment
as the activities carried out in generating the income are not independent of each other and are
performed as one business. This mirrors the approach taken in management reporting.
Price comparison
The segment relates to the Group’s price comparison operation Confused.com. This operation
had previously been combined with the Group’s commercial van insurance broker, Gladiator, to
form an ‘Insurance Broking’ segment. However based on the management reporting approach, the
Directors consider that Price comparison is an independent reportable segment.
Non-UK car insurance
The segment consists of the underwriting of car insurance and the generation of ancillary income
outside of the UK. It specifically covers the Group’s Balumba.es, AdmiralDirekt.de and ConTe.it
operations in Spain, Germany and Italy respectively.
Other
The other segment includes the Gladiator broking operation in addition to certain central
expenses, overseas development expenses, share scheme costs, finance charges and interest.
None of these are reportable segments based on their immateriality.
Taxes are not allocated across the segments and are included for the purposes of reconciliation
to the Income Statement.
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0 f I n A n c I A L s tAt E M E n t s
Segment income, results and other information
An analysis of the Group’s revenue and results for the year ended 31 December 2008, by
reportable segment are shown below. The accounting policies of the reportable segments are
consistent with those presented in note 3 for the Group.
UK car
insurance
Price
comparison
£000
£000
161,947
-
Non–UK
car
insurance
£000
7,889
31 December 2008
Other
£000
Group
£000
-
169,836
149,266
66,143
3,656
9,524
228,589
17,098
-
628
6,655
24,381
Net insurance
premium revenue
Other revenue and
profit commission
Investment and
interest income
Net revenue
328,311
66,143
12,173
16,179
422,806
Net insurance claims
(105,123)
-
(9,453)
-
(114,576)
Expenses
(43,281)
(40,539)
(6,821)
(15,046)
(105,687)
Operating profit
179,907
25,604
(4,101)
1,133
202,543
Finance charges
Segment profit /
(loss) before tax
Unallocated taxation
expense
Group profit after tax
Other segment items:
Interest revenue
Interest expense
Capital expenditure
Depreciation and
amortisation
-
-
-
(25)
(25)
179,907
25,604
(4,101)
1,108
202,518
(57,580)
144,938
6,655
25
25,906
15,960
-
15,330
13,442
-
882
313
-
6,655
9,611
2,131
25
83
74
A D M I R A L G R O U P p l c 1
A D M I R A L G R O U P p l c 1
Restated revenue and results for the corresponding reportable segments for the year ended 31
December 2007 are shown below.
31 December 2007 (Restated)
UK car
insurance
Price
comparison
Non–UK
car
insurance
£000
£000
£000
Other
£000
Group
£000
140,267
-
1,969
-
142,236
118,406
69,159
2,238
7,523
197,326
16,662
-
133
7,777
24,572
Net insurance
premium revenue
Other revenue and
profit commission
Investment and
interest income
Net revenue
275,335
69,159
Net insurance claims
Expenses
(97,019)
(36,124)
-
(32,433)
Operating profit
142,192
36,726
Finance charges
-
-
4,340
(2,776)
(2,223)
(659)
-
15,300
364,134
-
(99,795)
(11,177)
(81,957)
4,123
(284)
182,382
(284)
Segment profit /
(loss) before tax
Unallocated taxation
expense
Group profit after tax
Other segment items:
Interest revenue
Interest expense
Capital expenditure
Depreciation and
amortisation
142,192
36,726
(659)
3,839
182,098
(54,682)
127,416
-
-
11,516
11,243
-
-
335
145
-
-
3,063
942
7,777
284
59
7,777
284
14,973
71
12,401
Segment revenues
The UK and Non–UK car insurance reportable segments derive all insurance premium income
from external policyholders. Revenue within these segments is not derived from an individual
policyholder that represents 10% or more of the Group’s total revenue.
The total of Price comparison revenues from transactions with other reportable segments is
£11,050,000 (2007: £10,784,000).
Revenues from external customers for products and services is consistent with the split of
reportable segment revenues as shown above.
Information about geographical locations
All material revenues from external customers, and net assets attributed to a foreign country
are shown within the Non–UK car insurance reportable segment shown above.
i
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2
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h
a
i
r
m
a
n
’
s
s
t
a
t
e
m
e
n
t
8
-
9
C
h
e
f
i
E
x
e
c
u
t
i
v
e
’
s
1
0
-
1
5
i
B
u
s
n
e
s
s
r
e
v
e
w
i
1
6
-
3
3
R
e
m
u
n
e
r
a
t
i
o
n
G
o
v
e
r
n
a
n
c
e
&
3
4
-
4
7
&
D
i
r
e
c
t
o
r
s
r
e
p
o
r
t
B
o
a
r
d
o
f
D
i
r
e
c
t
o
r
s
4
8
-
5
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
5
4
-
1
0
4
2 f I n A n c I A L s tAt E M E n t s
Segment assets and liabilities
The identifiable segment assets and liabilities at 31 December 2008 are as follows.
31 December 2008
UK car
insurance
Price
comparison
Non–UK
car
insurance
Other Eliminations
£000
£000
£000
£000
£000
Plant, property
and equipment
6,649
1,079
3,112
162
Intangible assets
68,836
Financial assets
549,680
Reinsurance assets
149,521
-
-
-
6,849
37,255
21,073
-
-
-
-
-
-
-
Group
£000
11,002
75,685
586,935
170,594
Trade and other
receivables
Cash and cash
equivalents
Reportable
segment assets
Insurance contract
liabilities
Trade and other
payables
Reportable
segment liabilities
Reportable
segment net assets
Unallocated assets
and liabilities
Total net assets
105,777
6,557
1,415
5,638
(93,886)
25,501
50,295
15,602
18,245
60,144
-
144,286
930,758
23,238
87,949
65,944
(93,886)
1,014,003
406,869
-
32,687
-
-
439,556
261,759
4,080
4,359
46,385
(46,495)
270,088
668,628
4,080
37,046
46,385
(46,495)
709,644
262,130
19,158
50,903
19,559
(47,391)
304,359
(28,790)
275,569
Unallocated assets and liabilities consist of deferred and current corporation tax balances.
These assets and liabilities are not regularly reviewed by the Board of Directors in the reportable
segment format.
There is an asymmetrical allocation of assets and income to the reportable segments, in that
the interest earned on cash and cash equivalent assets deployed in the UK car insurance, Price
comparison and Non-UK car insurance segments is allocated to the Other reportable segment.
Eliminations represent inter-segment funding and balances included in trade and other
receivables and other payables.
The restated segment assets and liabilities at 31 December 2007 are as follows.
31 December 2007 (Restated)
i
i
n
n
2
2
0
0
0
0
8
8
A
A
d
d
m
m
i
i
r
r
a
a
l
l
G
G
r
r
o
o
u
u
p
p
A D M I R A L G R O U P p l c 3
UK car
insurance
Price
comparison
Non–UK
car
insurance
Other
Eliminations
£000
£000
£000
£000
£000
Plant, property
and equipment
6,288
508
760
152
Intangible assets
67,340
Financial assets
476,797
121,758
-
-
-
1,723
5,051
9,910
-
-
-
Group
£000
7,708
69,063
481,848
131,668
-
-
-
-
Reinsurance
assets
Trade and other
receivables
Cash and cash
equivalents
Reportable
segment assets
Insurance contract
liabilities
Trade and other
payables
Reportable
segment liabilities
Reportable
segment net assets
Unallocated assets
and liabilities
Total net assets
18,070
6,325
3,785
8,194
(13,741)
22,633
79,877
15,906
10,166
49,824
-
155,773
770,130
22,739
31,395
58,170
(13,741)
868,693
347,814
-
15,246
-
-
363,060
228,130
4,324
6,300
2,767
(13,741)
239,593
575,944
4,324
21,546
2,767
(1,928)
602,653
194,186
18,415
9,849
55,403
(11,813)
266,040
(28,408)
237,632
i
h
g
h
l
i
g
h
t
s
4
4
-
-
5
5
2
0
0
8
i
F
n
a
n
c
a
i
l
6
-
7
s
t
a
t
e
m
e
n
t
C
h
a
i
r
m
a
n
’
s
s
t
a
t
e
m
e
n
t
8
-
9
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f
i
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c
u
t
i
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e
’
s
1
0
-
1
5
i
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u
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n
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s
s
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v
e
w
i
1
6
-
3
3
R
e
m
u
n
e
r
a
t
i
o
n
G
o
v
e
r
n
a
n
c
e
&
3
4
-
4
7
&
D
i
r
e
c
t
o
r
s
r
e
p
o
r
t
B
o
a
r
d
o
f
D
i
r
e
c
t
o
r
s
4
8
-
5
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
5
4
-
1
0
4
f I n A n c I A L s tAt E M E n t s
5. Net insurance premium revenue
Total motor insurance premiums before co-insurance
Group gross premiums written after co-insurance
Outwards reinsurance premiums
31 December
2008
31 December
2007
£000
716,288
334,665
(140,264)
£000
631,251
260,901
(119,049)
Net insurance premiums written
194,401
141,852
Change in gross unearned premium provision
(33,204)
(27,826)
Change in reinsurers’ share of unearned premium
provision
8,639
28,210
Net insurance premium revenue
169,836
142,236
The Group’s share of the car 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
Revenue from Gladiator
Instalment income earned
31 December
2008
31 December
2007
£000
109,774
66,143
9,524
8,422
£000
94,216
69,159
7,520
5,983
Total other revenue
193,863
176,878
Refer to the Business review for further detail on the sources of revenue.
A D M I R A L G R O U P p l c
i
i
n
n
2
2
0
0
0
0
8
8
A
A
d
d
m
m
i
i
r
r
a
a
l
l
G
G
r
r
o
o
u
u
p
p
31 December
2008
31 December
2007
£000
34,726
£000
20,448
i
h
g
h
l
i
g
h
t
s
4
4
-
-
5
5
2
0
0
8
i
F
n
a
n
c
a
i
7. Profit commission
Total profit commission
Source of profit commission:
Underwriting year:
2003 & prior
2004
2005
2006
2007
Total
2005
£000
3,858
9,110
1,767
-
-
2006
£000
6,770
8,075
4,701
380
-
Financial year:
2008
£000
2,611
5,522
8,846
9,221
8,526
2007
£000
3,657
6,811
8,263
1,717
-
14,735
19,926
20,448
34,726
8. Investment and interest income
Net investment return
Interest receivable
Total investment and interest income
31 December
2008
31 December
2007
£000
17,726
6,655
24,381
£000
16,795
7,777
24,572
l
6
-
7
s
t
a
t
e
m
e
n
t
C
h
a
i
r
m
a
n
’
s
s
t
a
t
e
m
e
n
t
8
-
9
C
h
e
f
i
E
x
e
c
u
t
i
v
e
’
s
1
0
-
1
5
i
B
u
s
n
e
s
s
r
e
v
e
w
i
1
6
-
3
3
R
e
m
u
n
e
r
a
t
i
o
n
G
o
v
e
r
n
a
n
c
e
&
3
4
-
4
7
&
D
i
r
e
c
t
o
r
s
r
e
p
o
r
t
B
o
a
r
d
o
f
D
i
r
e
c
t
o
r
s
4
8
-
5
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
5
4
-
1
0
4
f I n A n c I A L s tAt E M E n t s
9. Expenses and share scheme charges
Insurance
contracts
£000
31 December 2008 31 December 2007
Insurance
contracts
£000
Other
£000
Other
£000
Total
£000
Total
£000
Acquisition
of insurance
contracts
Administration
and other
marketing costs
12,482
-
12,482
8,420
-
8,420
19,726
67,555
87,281
13,314
57,252
70,566
Expenses
32,208
67,555
99,763
21,734
57,252
78,986
Share scheme
charges
Total expenses
and share
scheme charges
-
5,924
5,924
-
2,971
2,971
32,208
73,479
105,687
21,734
60,223
81,957
Analysis of other administration and other marketing costs:
Ancillary sales expenses
Confused.com operating expenses
Gladiator operating expenses
Central overheads
Total
31 December
2008
31 December
2007
£000
17,893
40,539
6,719
2,404
67,555
£000
16,613
32,432
5,520
2,687
57,252
The £19,726,000 (2007: £13,314,000) administration and marketing costs allocated to insurance
contracts is principally made up of salary costs.
A D M I R A L G R O U P p l c
The gross amount of expenses, before recoveries from co-insurers and reinsurers is £211,181,000
(2007: £167,773,000). This amount can be reconciled to the total expenses and share scheme
charges above of £105,687,000 (2007: £81,957,000) as follows:
31 December
2008
31 December
2007
Gross expenses
Co-insurer share of expenses
Expenses, net of co-insurer share
Adjustment for deferral of acquisition costs
£000
211,181
(72,783)
138,398
(5,974)
Expenses, net of co-insurer share (earned basis)
132,424
Reinsurer share of expenses (earned basis)
Total expenses and share scheme charges
(26,737)
105,687
£000
167,773
(66,430)
101,343
(3,687)
97,656
(15,699)
81,957
Reconciliation of expenses related to insurance contracts to reported Group expense ratio:
Insurance contract expenses from above
Add: claims handling expenses
Adjusted expenses
Net insurance premium revenue
Reported expense ratio
31 December
2008
31 December
2007
£000
32,208
4,745
36,953
169,836
21.8%
£000
21,734
3,471
25,205
142,236
17.7%
i
i
n
n
2
2
0
0
0
0
8
8
A
A
d
d
m
m
i
i
r
r
a
a
l
l
G
G
r
r
o
o
u
u
p
p
i
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g
h
l
i
g
h
t
s
4
4
-
-
5
5
2
0
0
8
i
F
n
a
n
c
a
i
l
6
-
7
s
t
a
t
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m
e
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C
h
a
i
r
m
a
n
’
s
s
t
a
t
e
m
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8
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9
C
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c
u
t
i
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e
’
s
1
0
-
1
5
i
B
u
s
n
e
s
s
r
e
v
e
w
i
1
6
-
3
3
R
e
m
u
n
e
r
a
t
i
o
n
G
o
v
e
r
n
a
n
c
e
&
3
4
-
4
7
&
D
i
r
e
c
t
o
r
s
r
e
p
o
r
t
B
o
a
r
d
o
f
D
i
r
e
c
t
o
r
s
4
8
-
5
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
5
4
-
1
0
4
8 f I n A n c I A L s tAt E M E n t s
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)
Total staff expenses
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
31 December
2008
31 December
2007
£000
60,725
7,678
713
11,320
£000
45,022
6,231
588
5,560
80,436
57,401
2,667
1,079
1,390
10,824
3,902
30
186
160
30
162
160
-
160
2,127
1,100
725
8,449
3,018
25
169
85
6
171
85
-
85
The amortisation of software and deferred acquisition cost assets is charged to expenses in the
income statement.
11. Staff numbers (including Directors)
A D M I R A L G R O U P p l c
i
i
n
n
2
2
0
0
0
0
8
8
A
A
d
d
m
m
i
i
r
r
a
a
l
l
G
G
r
r
o
o
u
u
p
p
Direct customer contact staff
Support staff
Total
12. Finance charges
Finance lease interest
Letter of credit charges
Total finance charges
13. Taxation
Current tax
Corporation tax on profits for the year
Over provision relating to prior periods
Current tax charge
Deferred tax
Average for the year
2008
Number
2007
Number
2,354
731
3,085
1,839
525
2,364
31 December
2008
31 December
2007
£000
£000
25
-
25
243
41
284
31 December
2008
31 December
2007
£000
£000
50,104
(4,730)
45,374
56,194
(87)
56,107
Current period deferred taxation movement
12,102
(1,422)
Under / (over) provision relating to prior periods –
deferred tax
104
(3)
Total tax charge per income statement
57,580
54,682
Factors affecting the tax charge are:
Profit before tax
Corporation tax thereon at UK corporation tax rate of 28.5%
(2007: 30%)
Expenses and provisions not deductible for tax purposes
Other differences
Adjustments relating to prior periods
31 December
2008
31 December
2007
£000
£000
202,518
182,098
57,718
54,629
414
(481)
(71)
178
(36)
(89)
i
h
g
h
l
i
g
h
t
s
4
4
-
-
5
5
2
0
0
8
i
F
n
a
n
c
a
i
l
6
-
7
s
t
a
t
e
m
e
n
t
C
h
a
i
r
m
a
n
’
s
s
t
a
t
e
m
e
n
t
8
-
9
C
h
e
f
i
E
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e
c
u
t
i
v
e
’
s
1
0
-
1
5
i
B
u
s
n
e
s
s
r
e
v
e
w
i
1
6
-
3
3
R
e
m
u
n
e
r
a
t
i
o
n
G
o
v
e
r
n
a
n
c
e
&
3
4
-
4
7
&
D
i
r
e
c
t
o
r
s
r
e
p
o
r
t
B
o
a
r
d
o
f
D
i
r
e
c
t
o
r
s
4
8
-
5
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
Tax charge for the period as above
57,580
54,682
5
4
-
1
0
4
8 0 f I n A n c I A L s tAt E M E n t s
14. Dividends
Dividends were declared and paid as follows:
March 2007 (24.0p per share, paid May 2007)
September 2007 (20.6p per share, paid October 2007)
March 2008 (23.2p per share, paid May 2008)
July 2008 (26.0p per share, paid September 2008)
31 December
2008
31 December
2007
-
-
60,473
68,042
62,412
53,604
-
-
Total dividends
128,515
116,016
The dividends declared in March represent the final dividends paid in respect of the 2007
and 2006 financial years. Dividends declared in September 2007 and July 2008 are interim
distributions in respect of 2007 and 2008.
A final dividend of 26.5p per share has been proposed in respect of the 2008 financial year. Refer
to the Chairman’s statement and Business review for further detail.
15. Earnings per share
31 December
2008
31 December
2007
Profit for the financial year after taxation (£000s)
144,938
127,416
Weighted average number of shares – basic
Unadjusted earnings per share – basic
263,821,341
261,981,843
54.9p
48.6p
Weighted average number of shares – diluted
264,188,008
262,291,843
Unadjusted earnings per share – diluted
54.9p
48.6p
The difference between the basic and diluted number of shares at the end of 2008 (being
366,667) relates to awards committed, but not yet issued under the Group’s share schemes.
Refer to note 25 for further detail.
16. Property, plant and equipment
Improvements
to short
leasehold
buildings
Computer
equipment
Office
equipment
Furniture
and
fittings
Motor
vehicles
£000
£000
£000
£000
£000
A D M I R A L G R O U P p l c 8 1
i
i
n
n
2
2
0
0
0
0
8
8
A
A
d
d
m
m
i
i
r
r
a
a
l
l
G
G
r
r
o
o
u
u
p
p
Cost
At 1 January 2007
Additions
Disposals
2,333
413
-
At 31 December 2007
2,746
Depreciation
At 1 January 2007
Charge for the year
Disposals
At 31 December 2007
Net book amount
648
577
-
1,225
11,191
2,129
(6)
13,314
7,348
1,858
(2)
9,204
4,169
781
-
1,812
170
(3)
4,950
1,979
2,716
611
-
3,327
1,350
178
(1)
1,527
At 1 January 2007
1,685
3,843
1,453
462
Net book amount
At 31 December 2007
1,521
4,110
1,623
452
Cost
At 1 January 2008
Additions
Disposals
2,746
1,297
-
13,314
3,534
(10)
4,950
1,837
-
1,979
371
-
At 31 December 2008
4,043
16,838
6,787
2,350
Depreciation
At 1 January 2008
Charge for the year
Disposals
At 31 December 2008
Net book amount
1,225
692
-
1,917
9,204
1,983
(1)
11,186
3,327
841
-
4,168
1,527
227
-
1,754
Total
£000
19,517
3,493
(9)
23,001
12,069
3,227
(3)
12
-
-
12
7
3
-
10
15,293
5
2
12
10
-
22
10
3
-
13
7,448
7,708
23,001
7,049
(10)
30,040
15,293
3,746
(1)
19,038
At 31 December 2008
2,126
5,652
2,619
596
9
11,002
The net book value of assets held under finance leases is as follows:
Computer equipment
31 December
2008
31 December
2007
1,561
2,149
i
h
g
h
l
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-
5
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m
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5
4
-
1
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4
8 2 f I n A n c I A L s tAt E M E n t s
17. Intangible assets
Deferred
acquisition
costs
£000
Goodwill
£000
Software
£000
Total
£000
62,354
-
-
3,445
9,584
(8,449)
958
1,896
(725)
66,757
11,480
(9,174)
Carrying amount:
At 1 January 2007
Additions
Amortisation charge
At 31 December 2007
62,354
4,580
2,129
69,063
Additions
Amortisation charge
Disposals
-
-
-
14,591
(10,824)
-
4,266
(1,390)
(21)
18,857
(12,214)
(21)
At 31 December 2008
62,354
8,347
4,984
75,685
Goodwill relates to the acquisition of Group subsidiary EUI Limited (formerly Admiral Insurance
Services Limited) in November 1999. It is allocated solely to the UK car insurance segment. As
described in the accounting policies, the amortisation of this asset ceased on transition to IFRS
on 1 January 2004. All annual impairment reviews since the transition date have indicated that the
estimated recoverable value of the asset is greater than the carrying amount and therefore no
impairment losses have been recognised.
18. Financial assets and liabilities
The Group’s financial instruments can be analysed as follows:
A D M I R A L G R O U P p l c 8 3
i
i
n
n
2
2
0
0
0
0
8
8
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Financial assets:
Investments held at fair value
Held to maturity deposits with credit institutions
Receivables – amounts owed by policyholders
31 December
2008
31 December
2007
£000
£000
310,831
100,032
176,072
335,608
-
146,240
Total financial assets per consolidated balance sheet
586,935
481,848
Trade and other receivables
Cash and cash equivalents
Financial liabilities:
Trade and other payables
25,501
144,286
22,633
155,773
756,722
660,254
270,088
239,593
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 7 day LIBID return with capital security
and low volatility and continue to achieve these goals.
The amortised cost carrying amount of held to maturity deposits and receivables is a reasonable
approximation of fair value.
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 primarily investing in AAA-rated money market liquidity funds, which
in turn invest in a mixture of very short dated fixed and variable rate securities, such as cash
deposits, 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 these investment funds will not be impacted by rate
movements. The interest rate risk arising is therefore considered to be minimal.
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8 f I n A n c I A L s tAt E M E n t s
The Group also holds a number of fixed rate, longer-term deposits with UK credit institutions
rated A or above. These are classified as held to maturity and valued at amortised cost. Therefore
neither the capital value of the deposits, or the interest return will be impacted by fluctuations
in interest rates.
No sensitivity analysis to interest rates has been presented on materiality grounds.
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. The key areas of exposure to credit risk for the Group
result through its reinsurance programme, investments and bank deposits and to a lesser extent,
policyholder receivables.
Economic and financial market conditions have led the Directors to consider counterparty
exposure more frequently and in significant detail. The Directors consider that the policies and
procedures in place to manage credit exposure continue to be appropriate for the Group’s risk
appetite, and no material credit losses have been experienced by the Group.
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. Cash balances and deposits are placed only with credit institutions with a
financial strength rating of A or above.
To mitigate the risk arising from exposure to reinsurers, the Group only conducts business with
companies of specified financial strength ratings. In addition, most contracts are operated 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
2007 and 2008 is insignificant.
There were no significant financial assets that were past due at the close of either 2008 or 2007.
The Group’s credit risk exposure to assets with external ratings is as follows:
Rating
31 December
2008
31 December
2007
Financial institutions – Money market funds
Financial institutions – Credit institutions
Financial institutions – Credit institutions
Reinsurers
AAA
AA
A
A
£000
310,831
115,613
128,705
64,491
£000
335,608
133,179
22,591
45,546
A D M I R A L G R O U P p l c 8
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.
Although the relative size of the European operations means that the risks are relatively small,
increasingly volatile foreign exchange rates result in larger potential gains or losses. Assets held to
fund insurance liabilities are held in the currency of the liabilities, however surplus assets held as
regulatory capital in foreign currencies remain exposed.
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, a significant portion of 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.
A breakdown of the Group’s financial liabilities – trade and other payables is shown in note 22.
In terms of the maturity profile of these liabilities, all amounts may potentially mature within
12 months of the balance sheet date except for a minority of finance lease liabilities which will
expire after 12 months. (Refer to note 23 for further detail)
In practice, the Group’s Directors expect actual cashflows to be consistent with this maturity
profile except for amounts owed to co-insurers and reinsurers. Of the total amounts owed to
co-insurers and reinsurers of £147.9m (2007: £134.7m), £77.5m (2007: £62.9m) is held under funds
withheld arrangements and therefore not expected to be settled within 12 months.
All financial assets will mature within 12 months. The Group’s Directors believe that the cashflows
arising from these assets will be consistent with this profile.
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
For details of objectives, policies and procedures for managing capital, and external capital
requirements, refer to the Business review.
i
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4
8 f I n A n c I A L s tAt E M E n t s
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 or timing of claims
arising on insurance contracts issued.
The key reserving 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 Risk
Management Committee.
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 Business review above, the Group cedes a significant amount of the motor
insurance business written to external underwriters. In 2008, 55% 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.
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:
A D M I R A L G R O U P p l c 8
· 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 2008 that would result from a
1 per cent change in the loss ratios used for each underwriting year for which material amounts
remain outstanding.
2003
2004
2005
2006
2007
2008
Total
Underwriting year
Loss ratio
53.5%
57.0% 67.0%
78.5%
80.5% 89.0%
Impact of 1% change
(£000s)
1,753
2,235
2,871
2,827
3,196
1,032
13,914
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.
C) Analysis of recognised amounts:
Gross:
Claims outstanding
Unearned premium provision
Total gross insurance liabilities
Recoverable from reinsurers:
Claims outstanding
Unearned premium provision
Total reinsurers’ share of insurance liabilities
Net:
Claims outstanding
Unearned premium provision
31 December
2008
31 December
2007
£000
£000
282,273
157,283
242,576
120,484
439,556
363,060
103,794
66,800
170,594
178,479
90,483
76,055
55,613
131,668
166,521
64,871
Total insurance liabilities – net
268,962
231,392
i
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8 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 2008, 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
Financial year ended 31 December
2004
£000
2005
£000
2006
£000
2007
£000
2008
£000
142,968
170,216
202,421
242,576
282,273
137,075
162,205
127,613
119,625
113,136
-
149,317
138,171
-
-
192,283
178,679
-
-
-
223,688
-
-
-
-
As re-estimated at 31
December 2008
113,136
138,171
178,679
223,688
Gross cumulative overprovision
(29,832)
(32,045)
(23,742)
(18,888)
Net amounts:
Net 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 2008
Financial year ended 31 December
2004
£000
2005
£000
2006
£000
2007
£000
2008
£000
98,120
128,631
154,711
166,521
178,479
93,910
87,761
82,004
77,331
-
122,423
111,964
102,911
-
-
146,435
135,825
-
-
-
154,751
-
-
-
-
77,331
102,911
135,825
154,751
Net cumulative overprovision
(20,789)
(25,720)
(18,886)
(11,770)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
A D M I R A L G R O U P p l c 8
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
2007
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
-
2008
£000
370
494
-
2,311
6,429
10,977
10,528
6,857
Total net release
9,189
17,277
20,904
29,472
37,966
Net premium revenue
107,501
139,454
144,955
142,236
169,836
Release as % of net premium revenue
8.5%
12.4%
14.4%
20.7%
22.4%
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2
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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:
Net claims provision at start of period
Net claims incurred
Net claims paid
31 December
2008
31 December
2007
£000
166,521
109,830
(97,872)
£000
154,711
96,324
(84,514)
Net claims provision at end of period
178,479
166,521
G) Reconciliation of movement in net unearned premium provision:
Net unearned premium provision at start of period
Written in the period
Earned in the period
31 December
2008
31 December
2007
£000
64,871
£000
65,025
194,401
(168,789)
141,851
(142,005)
Net unearned premium provision at end of period
90,483
64,871
20. Trade and other receivables
Trade receivables
Prepayments and accrued income
31 December
2008
31 December
2007
£000
22,266
3,235
£000
20,747
1,886
Total trade and other receivables
25,501
22,633
21. Cash and cash equivalents
Cash at bank and in hand
Cash on short term deposit
A D M I R A L G R O U P p l c 1
i
i
n
n
2
2
0
0
0
0
8
8
A
A
d
d
m
m
i
i
r
r
a
a
l
l
G
G
r
r
o
o
u
u
p
p
31 December
2008
31 December
2007
£000
£000
140,336
3,950
150,902
4,871
i
h
g
h
l
i
g
h
t
s
4
4
-
-
5
5
2
0
0
8
i
F
n
a
n
c
a
i
Total cash and cash equivalents
144,286
155,773
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
2008
31 December
2007
£000
10,760
147,942
126
14
9,492
18,830
82,924
£000
5,960
134,659
345
4
8,557
15,545
74,523
Total trade and other payables
270,088
239,593
Analysis of accruals and deferred income:
Premium receivable in advance of policy inception
Accrued expenses
Deferred income
31 December
2008
31 December
2007
£000
45,567
29,350
8,007
£000
38,477
26,948
9,098
Total accruals and deferred income as above
82,924
74,523
l
6
-
7
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a
t
e
m
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a
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-
9
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i
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s
1
0
-
1
5
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w
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1
6
-
3
3
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a
t
i
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&
3
4
-
4
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&
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s
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p
o
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t
B
o
a
r
d
o
f
D
i
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e
c
t
o
r
s
4
8
-
5
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
5
4
-
1
0
4
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
2008
At 31
December
2007
Minimum
lease
payments
Interest
Principal
Minimum
lease
payments
Interest
Principal
£000
£000
£000
£000
£000
£000
136
15
-
151
10
1
-
11
126
14
-
140
360
4
-
364
15
-
-
15
345
4
-
349
Less than one year
Between one
and five years
More than five years
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 liability / (asset)
Brought forward at start of period
Movement in period
31 December
2008
31 December
2007
£000
(1,629)
11,956
£000
981
(2,610)
Carried forward at end of period
10,327
(1,629)
The net balance provided at the end of the year is made up as follows:
Analysis of net deferred tax liability / (asset):
Tax treatment of Lloyd’s Syndicates
Tax treatment of share scheme charges
Capital allowances
Other differences
Unremitted overseas income
31 December
2008
31 December
2007
£000
-
(2,401)
31
(132)
12,829
£000
541
(2,091)
126
(205)
-
Deferred tax liability / (asset) at end of period
10,327
(1,629)
A D M I R A L G R O U P p l c 3
Deferred tax on unremitted overseas income has been provided to the extent it is likely to
reverse in the foreseeable future.
The amount of deferred tax (expense) / income recognised in the income statement for each of
the temporary differences reported overleaf is:
Amounts (charged) / credited to income or expense:
31 December
2008
31 December
2007
Tax treatment of Lloyd’s Syndicates
Tax treatment of share scheme charges
Capital allowances
Other differences
Unremitted overseas income
£000
541
60
95
(73)
(12,829)
£000
1,395
53
23
(46)
-
Net deferred tax (charged) / credited to income
(12,206)
1,425
The closing deferred tax balances reflect the change in UK corporation tax rate from 30% to 28%
which became effective on 1 April 2008.
The difference between the total movement in the deferred tax balance above and the amount
charged to income relates to deferred tax on share scheme charges that has been credited
directly to equity.
25. Share capital
Authorised:
500,000,000 ordinary shares of 0.1p
500
500
31 December
2008
31 December
2007
£000
£000
Issued, called up and fully paid:
264,541,810 ordinary shares of 0.1p
262,721,426 ordinary shares of 0.1
265
-
265
-
263
263
During 2008 1,820,384 (2007: 1,534,827) new ordinary shares of 0.1p were issued to the trusts
administering the Group’s share schemes.
589,384 (2007: 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.
1,231,000 (2007: 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.
i
i
n
n
2
2
0
0
0
0
8
8
A
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4
4
-
-
5
5
2
0
0
8
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-
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1
6
-
3
3
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u
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a
t
i
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G
o
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n
a
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&
3
4
-
4
7
&
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t
o
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s
r
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p
o
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t
B
o
a
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d
o
f
D
i
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c
t
o
r
s
4
8
-
5
3
i
F
n
a
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c
a
i
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t
a
t
e
m
e
n
t
s
5
4
-
1
0
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
2008
31 December
2007
£000
£000
2,484
3,440
5,924
1,268
1,703
2,971
The share scheme charges reported above are net of the co-insurance share and therefore differ
from the gross charge reported in note 10 (2008: £11,320,000, 2007: £5,560,000) 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 period. 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 prior year profit before
tax. Employees must remain in employment for the holding period (three years from the date of
award) otherwise the shares are 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 DFSS, details of which are contained in the Remuneration report, individuals receive
an award of free shares at no charge. 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 2008
scheme is 1,372,001 (2007 scheme: 964,000).
Individual awards are calculated based on the growth in the Company’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
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 2008:
SIP H205 scheme
SIP H106 scheme
SIP H206 scheme
SIP H107 scheme
SIP H207 scheme
SIP H108 scheme
DFSS 2006 scheme, 1st award
DFSS 2006 scheme, 2nd award
DFSS 2007 scheme 1st award
DFSS 2007 scheme 2nd award
DFSS 2008 scheme 1st award
DFSS 2008 scheme 2nd award
Total awards committed
Vesting
date
March 2009
September 2009
April 2010
September 2010
April 2011
September 2011
April 2009
September 2009
April 2010
December 2010
April 2011
November 2011
Awards
outstanding *
350,034
350,811
277,538
353,444
337,770
352,732
604,187
105,369
1,210,006
26,350
1,285,099
86,902
5,340,242
* – being the maximum number of awards expected to be made before accounting for expected
staff attrition.
During the year ended 31 December 2008, awards under the SIP H105 scheme and the DFSS 2005
scheme vested. The total number of awards vesting for each scheme is as follows.
Number of free share awards vesting during the year ended 31 December 2008:
SIP H105 scheme
DFSS 2005 scheme 1st award
DFSS 2005 scheme 2nd award
Original Awards
Awards vested
581,565
686,143
74,943
468,540
604,962
70,259
i
i
n
n
2
2
0
0
0
0
8
8
A
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m
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4
4
-
-
5
5
2
0
0
8
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s
1
0
-
1
5
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s
s
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w
i
1
6
-
3
3
R
e
m
u
n
e
r
a
t
i
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G
o
v
e
r
n
a
n
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e
&
3
4
-
4
7
&
D
i
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c
t
o
r
s
r
e
p
o
r
t
B
o
a
r
d
o
f
D
i
r
e
c
t
o
r
s
4
8
-
5
3
i
F
n
a
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c
a
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l
s
t
a
t
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m
e
n
t
s
5
4
-
1
0
4
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
261
Share
premium
account
Capital
redemption
reserve
Foreign
exchange
reserve
Retained
profit
and loss
Total
equity
£000
13,145
£000
£000
£000
£000
17
(50)
205,682
219,055
-
-
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
429
-
-
127,416
127,416
(116,016)
(116,016)
-
-
5,560
2
429
5,560
1,186
1,186
As at 1 January 2007
Retained profit for the
period
Dividends
Issues of share capital
Currency translation
differences
Share scheme charges
Deferred tax credit on
share scheme charges
As at 31 December 2007
263
13,145
17
379
223,828
237,632
Retained profit for the
period
Dividends
Issues of share capital
Currency translation
differences
Share scheme charges
Deferred tax credit on
share scheme charges
-
-
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,942
-
-
144,938
144,938
(128,515)
(128,515)
-
-
11,320
2
9,942
11,320
250
250
As at 31 December 2008
265
13,145
17
10,321
251,821
275,569
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:
i
i
n
n
2
2
0
0
0
0
8
8
A
A
d
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m
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G
G
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A D M I R A L G R O U P p l c
Operating leases expiring:
Within one years
Within two to five years
Over five years
Total commitments
31 December
2008
31 December
2007
£000
£000
-
4,139
31,574
35,713
-
2,139
27,357
29,496
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
898
489
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
England and Wales
Ordinary
Gibraltar
Ordinary
General insurance
intermediary
Insurance
Company
Insurance
Company
Admiral Insurance
Company Limited
Admiral Insurance
(Gibraltar) Limited
Able Insurance
Services Limited
England and Wales
Ordinary
Intermediary
Inspop.com Limited
England and Wales
Ordinary
Internet insurance
intermediary
i
h
g
h
l
i
g
h
t
s
4
4
-
-
5
5
2
0
0
8
i
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a
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a
i
l
6
-
7
s
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a
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s
1
0
-
1
5
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1
6
-
3
3
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&
3
4
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4
7
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p
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B
o
a
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D
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c
t
o
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s
4
8
-
5
3
i
F
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a
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5
4
-
1
0
4
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 2008 that require disclosure. Details
relating to the remuneration and shareholdings of key management personnel are set out in the
Remuneration Report. 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.
Consolidated financial summary
Basis of preparation:
A D M I R A L G R O U P p l c
i
i
n
n
2
2
0
0
0
0
8
8
A
A
d
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m
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The 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.
Income statement
Total motor premiums
Net insurance premium revenue
Other revenue
Profit commission
Investment and interest income
2008
£m
716.3
169.8
193.9
34.7
24.4
2007
£m
631.3
142.2
176.9
20.5
24.6
2006
£m
566.6
145.0
131.6
19.9
14.5
2005
£m
533.6
139.5
93.4
14.7
15.5
2004
£m
470.4
107.5
69.5
21.7
11.9
Net revenue
422.8
364.2
311.0
263.1
210.6
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
Deferred income tax
Trade and other payables
Current tax liabilities
Total liabilities
(114.6)
(105.7)
202.5
(99.8)
(82.0)
182.4
(107.1)
(55.5)
148.4
(100.5)
(40.9)
121.7
(74.3)
(28.9)
107.4
2008
£m
11.0
75.7
586.9
170.6
-
25.5
144.3
2007
£m
7.7
69.1
481.8
131.7
1.6
22.6
155.8
2006
£m
7.5
66.8
395.9
74.7
-
16.9
191.2
1,014.0
870.3
753.0
275.6
439.6
-
10.3
270.0
18.5
1,014.0
237.6
363.1
-
-
239.6
30.0
870.3
219.1
294.4
-
1.0
215.1
23.4
2005
£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
753.0
663.6
2004
£m
3.3
66.5
300.7
66.1
-
16.7
119.3
572.6
144.6
216.1
33.1
4.8
164.3
9.7
572.6
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4
4
-
-
5
5
2
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0
8
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s
4
8
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5
3
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5
4
-
1
0
4
1 0 0 f I n A n c I A L s tAt E M E n t s
Parent Company financial statements
101
Parent Company balance sheet
102
Parent Company accounting policies
103
Notes to the Parent Company financial statements
A D M I R A L G R O U P p l c 1 0 1
i
i
n
n
2
2
0
0
0
0
8
8
A
A
d
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As at:
31 December
2008
31 December
2007
£000
108,604
£000
106,604
i
h
g
h
l
i
g
h
t
s
4
4
-
-
5
5
2
0
0
8
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a
i
Parent Company balance sheet
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 (liabilities) /assets
Total assets less current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Profit and loss account
Note:
4
5
6
7
8
-
57,184
57,184
(64,345)
-
(64,345)
4,354
48,114
52,468
(9,987)
(16)
(10,003)
(7,161)
42,465
101,443
149,069
101,443
149,069
265
13,145
17
88,016
263
13,145
17
135,644
101,443
149,069
These financial statements were approved by the Board of Directors on 27 February 2009 and
were signed on its behalf by:
Kevin Chidwick
Director
l
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4
1 0 2 f I n A n c I A L s tAt E M E n t s
Parent Company accounting policies
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
The accounts have been prepared on a going concern basis. In considering the appropriateness
of this assumption, the Board have reviewed the Company's projections for the next twelve
months and beyond, including cash flow forecasts and regulatory capital surpluses. The Company
has no debt.
As a result of this review the Directors have satisfied themselves that it is appropriate to prepare
these financial statements on a going concern basis.
In these financial statements the following new standards, abstracts and amendments to
standards have been adopted for the first time:
· Abstract 41 - ‘FRS 20 – Group and Treasury Share Transactions;
· Amendment to FRS 17 – Retirement Benefits
The adoption of these standards has not had a material impact on either the current year or
comparative figures as Company does not have any direct employees.
The Company has not adopted in advance amendments to FRS 26 relating to reclassification of
financial assets and eligible hedged items which are in effect for accounting periods beginning on
or after 1 July 2008 and 1 January 2009 respectively.
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.
Notes to the Parent Company financial statements
A D M I R A L G R O U P p l c 1 0 3
i
i
n
n
2
2
0
0
0
0
8
8
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4. Fixed asset investments
Investments in subsidiary undertakings:
At 1 January 2007
Additions
At 31 December 2007
Additions
At 31 December 2008
£000
103,804
2,800
106,604
2,000
108,604
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
6. Other creditors – due within one year
Deferred income tax
Corporation tax payable
Amounts owed to subsidiaries
Other creditors
As at:
31 December
2008
31 December
2007
£000
-
-
-
£000
4,348
6
4,354
As at:
31 December
2008
31 December
2007
£000
12,816
8,890
42,590
49
64,345
£000
-
9,931
-
56
9,987
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4
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5
5
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1 0 f I n A n c I A L s tAt E M E n t s
7. Reconciliation of movements in shareholders’ funds
Company figures
At 1 January 2007
Retained profit for the
period
Dividends
Issues of share capital
Share scheme charges
Share
capital
£000
261
Share
premium
account
Capital
reserve
redemption
Retained
profit
and loss
£000
13,145
£000
£000
17
139,048
Total
equity
£000
152,471
-
-
2
-
-
-
-
-
-
-
-
-
107,052
107,052
(116,016)
(116,016)
-
2
5,560
5,560
As at 31 December 2007
263
13,145
17
135,644
149,069
Retained profit for the
period
Dividends
Issues of share capital
Share scheme charges
-
-
2
-
-
-
-
-
-
-
-
-
69,567
69,567
(128,515)
(128,515)
-
2
11,320
11,320
As at 31 December 2008
265
13,145
17
88,016
101,443
8. Share capital
Full details of the Company’s share capital are included in the consolidated financial
statements above.
Directors and advisors
Directors
Alastair Lyons, CBE (Non-executive Chairman)
Henry Engelhardt, CBE (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
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
Registered Number: 03849958. Admiral Group plc, Capital Tower, Greyfriars Road, Cardiff CF10 3AZ
www.admiralgroup.co.uk