Admiral Group Annual Report 2015

FY2015 Annual Report · Admiral Group

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Doing what we do,
and doing it even
better than last year

Admiral Group plc Annual Report and Accounts 2015

About Admiral Group

Doing what
we do best

Admiral Group is one of the UK’s largest and
most profitable car insurance providers, with
over 11% market share and market‑leading
financial results.

The history of the Admiral Group is one of growth, profitability
and innovation. Admiral launched in 1993 with just one brand, zero
customers and 57 members of staff. Besides the UK, the Group
now has operations in Spain, Italy, France and the US, and has
over four million customers.

Admiral’s strategy is simple: To continue to progress in the UK car
insurance market whilst taking what we do well to new markets and
products: keep doing what we’re doing and do it better year after year.

Admiral is one of the largest employers in South Wales and
employs over 8,000 people worldwide.

awards won by the
Group in 2015

A great place to work!

We pride ourselves on being a great place to work, and this
is reflected in the many awards we win. We are particularly
proud of these awards as they are voted for by staff.

Introduction
IFC About Admiral Group
02 Highlights
04 Chairman’s statement

Strategic report
06 Admiral at a glance
08 Chief Executive’s statement
10 Admiral’s business model
12 Admiral’s strategy and KPIs
14 Questions and answers
16 Chief Financial Officer's review
20 UK Insurance review
26 International Car Insurance review
30 Price Comparison review
33 Other Group items
34 Principal risks and uncertainties
38 Our people

Corporate governance
40 Chairman’s introduction
41 Admiral’s governance framework
42 Board of Directors
44 Governance report
48 Report of the Audit Committee
52 Report of the Group Risk Committee
56 Report of the Nomination Committee
58 Report of the Remuneration Committee
59 Directors’ Remuneration Report
69 Directors’ Report

Financial statements
Independent auditor’s report
72
74 Consolidated income statement
75 Consolidated statement

of comprehensive income

76 Consolidated statement of financial position
77 Consolidated cash flow statement
78 Consolidated statement of changes in equity
79 Notes to the financial statements
108 Parent Company financial statements
111 Notes to the Parent Company

financial statements

114 Consolidated financial summary

Other information
115 Glossary
116 Directors and advisors
117 Further information

Chairman’s statement
Alastair Lyons, CBE
From page 4

Admiral at a glance
Our business and operations
From page 6

Chief Executive’s statement
Henry Engelhardt, CBE
From page 8

Investor relations website
Stay up to date with the latest
news and announcements
www.admiralgroup.co.uk

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Admiral’s brands and marketsAdmiral at a glanceOur business and operationsIn the UK, Admiral is one of the largest and most recognised car insurance providers, and the Group includes Confused.com, a leading price comparison website, as well as a growing household insurance business. Outside the UK, the Group has exported the knowledge and experience gained from its UK businesses, and owns four insurance and three price comparison businesses.Our presence spans seven countries1 UKAdmiralBellDiamondelephant.co.ukConfused.comCarfusedAdmiral HouseholdGladiatorAdmiral LawBDE Law2 FranceL’olivier – assurance autoLeLynx3 ItalyConTe4 SpainBalumbaQualitas AutoRastreator Seguros.es5 USAElephant Autocompare.com6 CanadaAdmiral7 IndiaAdmiral SolutionsAdmiral Technologies£1.71 billionTurnover (2014: £1.60 billion)£108 millionTurnover (2014: £108 million)£232 millionTurnover (2014: £206 million)£70 millionTurnover (2014: £55 million)£443 millionPre-tax profit*¹ (2014: £398 million)£22 millionPre-tax loss*¹ (2014: £20 million)£7 millionPre-tax loss*¹,² (2014: profit £4 million)£37 millionPre-tax loss (2014: £25 million)3.30 millionCustomers (2014: 3.15 million)673,000Customers (2014: 592,600)19.5 millionCustomer quotes (2014: 18.4 million)310,400Household customers (2014: 162,600) 146,600Gladiator customers (2014: 143,900)*¹ All segment results exclude share scheme charges. These charges are included in the ‘Other’ segment.*² Price comparison pre-tax results excluding the impact of Minority Interests.Price ComparisonConfused.com, one of the UK’s leading price comparison websites, profitable operations in Spain and France, and a developing business in the USOther Group itemsUK Household Insurance, commercial vehicle insurance broking and other central costs (including share scheme charges and finance costs)UK InsuranceAdmiral is one of the largest and most profitable private car insurers in the UKInternational Car InsuranceGrowing car insurance businesses in Spain, Italy, the US and FranceMarket disciplineUK Insurance reviewUK Insurance strategyThe strategy for Admiral’s UK business is unchanged and remains simple:• The Group aims to grow profitably its share of the UK private motor insurance market whilst maintaining a capital‑efficient structure.• At the same time, Admiral endeavours always to give excellent service to customers, whilst providing a positive environment in which staff can work and develop.Achievements and goalsUK Insurance achievements in 2015Profit before tax increased 11% to £443 million (2014: £398 million)Record number of vehicles insured up 5% at 3.30 million (2014: 3.15 million) Combined ratio improved in 2015 to 78% (2014: 80%)Profit generated from the portfolio of insurance products that complement the core car insurance product of £175 million (2014: £182 million)Strong policy growth in Household to 310,000 (2014: 162,600)95% of customers who have submitted a claim would renew with Admiral, based on their claims experience (2014: 95%)96% of staff say that Admiral is a friendly place to work according to the Great Place to Work survey5th Best Big Company to Work For, The Sunday Times 100 Best Companies to Work For 4th Best Large Workplace in the UK, Great Place to Work InstituteBest Car Insurance Provider in the Personal Finance Awards for the third year in a rowUK Insurance goals for 2016Appropriate rate changes in response to claims trends and market conditionsContinued reserve releases if back years develop as expectedSuccessful transition to new IT system (Guidewire)This will be my last UK insurance review before taking over from Henry as CEO later this year. Next year he’ll be leaving me the responsibility of choosing just the right analogy, after years of Henry’s always entertaining, sometimes illuminating, occasionally enigmatic, choices. That’s just one of the challenges of taking over from Henry, after his 25 years of pretty much faultless stewardship of the company. Perhaps the biggest single advantage I have in tackling this challenge is having watched Henry, over those years, mix the brilliant blend of inspiration, determination, sensitivity and vision that creates, in Admiral, something special for staff and shareholders alike.Given it’s my last UK Insurance Review, I’ll take the long view and start by going back to our early days as a quoted company.For a while, after our flotation, we were without comparison. Or perhaps, more accurately, ‘without comparables’. We were, for a number of years, the only quoted direct personal lines insurer. Analysts and commentators could only half-heartedly benchmark us against a couple of battle-scarred, multi-national, multi-line composites and a mixed selection of Lloyd’s managing agencies. Roll on ten years and the stock market is awash with companies that are primarily direct personal lines insurance companies: ourselves; Direct Line; Esure; most recently Hastings; and, notwithstanding its initial reluctance to acknowledge its insurance-ness, Saga. Ten years ago quoted focused personal lines players (ourselves and a couple of Lloyd’s motor operations) accounted for 5% of the UK motor market. The other 95% was buried within massive global insurers and banks for whom the UK car insurance result was not that big a deal. Now 40% of the UK car insurance market is in the hands of the quoted personal line players.Good news for Admiral? Or bad? Well, both to be honest.The investment community has tended to look askance at a sector whose extreme cyclicality has, over the decades, delivered an unappetising combination of very modest average returns on capital, combined with extreme volatility around that average. Might the market discipline, the extra scrutiny and transparency, the better alignment of manager and owner interests, mean that, in this new world, UK car insurers could lift their game enough, both to push up cross-cycle average returns, and to moderate the ups and downs of the cycle? It’s too early to make a call, but I am somewhat encouraged by premium movements over the last 18 months. Market-wide price increases from mid 2014 and throughout 2015 should mean that the combined ratio for accident year 2015, the most recent worst point of the car insurance cycle, will be materially below the 120% plus combined ratios (on a pure year, before reserve release, basis) that marked the last two worst points (1998/9, 2009/10). If sustained over a decent period of time, evidence of higher and less volatile returns must ultimately increase investor interest in non-life insurance as a whole.So what’s the downside of more quoted focused personal lines players?Market discipline should not only make them more rational managers of their business, it should also make them more effective competitors – more sophisticated pricers, better claims handlers, lower cost operators. It should, in short, help them narrow the long-standing and substantial combined ratio gap between ourselves and themselves. Have they?Not on expense ratios. The market and our own car insurance expense ratio have oscillated, but our relative outperformance has stayed consistent at 12–14 percentage points below market averages. While on household, despite our sub-scale circa 1% market share and our big share of new business versus renewals, we’re already beating the market average expense ratio. What about on claims ratios?It’s hard to know, to be honest. It takes a good three years for enough claims to settle, or at least stabilise, for us to be able to compare ourselves reliably to the market as a whole. What we can say is the 2011/12 years look to be delivering loss ratios of 11–12 percentage points below market averages; less than the 20 percentage points advantage in 2009 (when price comparison neophytes were severely punished); but no less than 2005/6, when we outperformed by 10–11 percentage points.We insured about 1.2 million cars in the UK in 2006, and 3.0 million in 2012. If you’d asked me back in 2006 if we could insure almost three times as many cars in 2011/12, and still maintain the same claims ratio advantage versus the market, I’d have said ‘probably not’.If you ask me now if we have maintained the same claims advantage versus the market in 2015 (now with 3.3 million cars on cover) as in 2006 and in 2012, I’d again say ‘probably not’.But I have been proved wrong before.David StevensChief Operating Officer 2 March 2016ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201521ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201520INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONDavid Stevens, CBE 40% of the UK car insurance market is in the hands of the quoted personal line players.HenryDavid: Henry challenges established wisdom – rejecting doing something a certain way because everyone else does. ‘Admiral is different’ is an expression of Henry's commitment to do things the right way, the best way, rather than the apparently obvious way.UK Car Insurance reviewFrom page 20Price Comparison reviewFocused brand strategy and multi‑product offeringPrice Comparison strategy Admiral’s strategy is to develop websites that allow consumers to compare a range of general insurance, financial services and other products. The international strategy is to exploit the UK expertise in price comparison and export it overseas.AchievementsUK Price Comparison achievements in 2015Quote volumes: 10.7 million (2014: 11.8 million)Continued development of Confused.com beyond motor insurance with encouraging results in home, van and life insuranceLaunch of Carfused, a car buying and selling platformContinued brand development of Brian, the Confused.com robotInternational Price Comparison achievements in 2015Quote volumes: 8.8 million (2014: 6.6 million)Rastreator has reinforced its leadership in Spain with continued growth in quotes Rastreator voted 5th Best Company to Work for in Spain, awarded by Great Place to WorkLeLynx retained its leadership position in the French marketcompare.com has more than 60 auto insurance companies, including half of the top 25, under contract in the USGoalsUK Price Comparison goals for 2016Build brand preference to strengthen market position in core productsDevelop and promote new products and offers in order to have more diversified revenue sources International Price Comparison goals for 2016Rastreator – continued defence of market leading brand and building on its role as a strategic data partner LeLynx – further developing the French aggregator market by exploiting the new Hamon lawcompare.com – continued lowering of acquisition cost while increasing the number of carriers and rates presented to consumersLaunched in 2002 – the Group’s most mature business and a leading UK price comparison website.Confused.com has seen a lot of changes in the market since it pioneered insurance comparison back in 2002, creating an ever growing and profitable industry while offering transparency and savings to British consumers. 13 years later, the market is now mature and commoditised with established players and is characterised by a very high level of competition. In 2015, the price comparison websites have spent more than ever in advertising and other promotional activities to attract customers. At the same time, the price comparison market as a whole did not grow as much as in previous years despite an apparent turn of the price cycle towards the end of the year, as indicated by the Confused/Willis Towers Watson price index. This fiercely competitive environment in a stagnant market, and increasing acquisition costs across every media channel, meant Confused.com had a challenging year in 2015. This resulted in a reduced profit of £12.5 million. We have achieved a lot in 2015 including finalising significant projects such as the launch of the Brian toy promotion and the entire redesign of our websites and customer experience. We have also launched new activities to become the go-to place for car buying with the launch of Carfused.com. These new developments have required investment in 2015 and will need time to transform in actual future profits for Confused while they have hurt the bottom line in the short term. Confused has also gone through organisational change in 2015, to face a market with increased regulation impacting the way price comparison websites operate and more competition, requiring a greater need to stand out. Martin CoriatCEO, Confused.comLaunched in March 2009 – the leading insurance price comparison website in Spain.2015 has been a healthy year for Rastreator both in terms of growth and results. We have reinforced our market leadership in Spain with strong growth in quotes and sales, integrated a new brand, Seguros.es, and also expanded our presence in the market with several new products.Our brand has grown, not only in recognition but also in preference. By communicating our multiproduct strategy effectively and efficiently we should continue to grow our business profitably.Within the insurance business we are proud to deliver a comparison of prices that represents 86% market share and which includes traditional players in our panel. At the same time we keep working on our role of strategic data partner for insurers that work with us, with our annual insurance price index and our Big Data team providing new tools. For 2016, the new ‘Baremo’ law will bring premium increases which will increase shopping in car insurance.Launched in January 2010 – the leading price comparison website in France.2015 was a good year for LeLynx.fr. We decided to take the opportunity offered by the ‘loi Hamon’ – enabling people to switch insurance at any time of the year – to push our investment into more offline and online marketing. Quote volumes and revenues grew as a result. LeLynx maintained its leadership position in the French market. The aggregator market in France grew by 13%. On the one hand, the ‘loi Hamon’ and strong TV investment pushed the market up. On the other, stable insurance prices and aggressive retention focus from insurers slowed it down.Our vision is that the price comparison market will develop, although slower than in the UK, and that LeLynx has the strength to be a leading player. We will focus our efforts on developing our presence within this market in 2016.Launched in March 2013 – the first European-style price comparison website in the US.One shouldn’t forget that the US is 51 distinct auto insurance markets – yes even Washington DC is its own – not one unified market. This means it is hard to find a unified trend across the country. Two things did seem to bind the country together this year, however; lower gasoline prices and continued large advertising. The gas prices correlated strongly with miles driven and subsequently claims frequency while advertising again remained concentrated in the few largest insurers, again topping $6 billion.With 70% of consumers starting their search online, the big advertisers absorb a disproportionate amount of traffic. Countering this trend is the growing, but still small, auto insurance comparison market. compare.com, the largest auto insurance comparison site in the US, was joined this year by other players pushing similar, but different, models. While we continue to operate in 49 of the 51 markets (apologies to Alaska and Hawaii again!), advertising efforts grew to nearly twenty states and included a very successful nationwide TV advertising test.Advertising growth was permitted by the continued expansion of our carrier panel. With over 60 auto insurance brands under contract, including nearly half of the top 25, the average number of rates returned nationwide is now nearly a handful. Volumes are now at the level that all but the very largest carriers view us as a very meaningful potential, and actual, source of business.We again must caution that while we made huge strides and grew substantially, we have just the opportunity for, not the guarantee of, success. Attempting to change singlehandedly, a market of this size is not for the faint of heart. Pitfalls remain. Can we continue to lower acquisition cost? Will carriers continue to join? Will consumers continue to shop via our site? Will competitors complicate or complement our efforts? Only time will tell, but another year of progress means we are closer to success than failure in our effort to transform the market.Elena BetesCEO, RastreatorDiane LarramendyCEO, LeLynxAndrew RoseCEO, compare.comUKSpainFranceUSAADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201531ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201530INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONHenryElena: The level of autonomy and freedom Henry gave us was unique.HenryDiane: Henry told me ‘Never forget how important you will be to the people you manage’. Since then, when times get tough, I try to keep a smile and be kind with everyone at the office.Price Comparison reviewFrom page 30Continuing to grow our international presenceInternational Car Insurance reviewInternational Car Insurance strategy Admiral’s strategy is to exploit the knowledge, skills and resources attached to the established UK businesses to promote expansion overseas in private car insurance. Admiral’s objective is to create profitable, sustainable and growing businesses.AchievementsInternational Car Insurance achievements in 2015Admiral insured 673,000 customers across its Spanish, Italian, American and French operations (2014: 592,600)4th Best Multinational Place to Work in Europe, awarded by Great Place to WorkAdmiral Seguros achieved break-even on an underwriting year basisAdmiral Seguros voted 4th Best Company to Work for in Spain (between 250 and 499 employees), awarded by Great Place to Work Institute ConTe reported its second full year profitConTe grew customer base by 11%ConTe voted 9th Best Medium Company to Work for in ItalyElephant Auto 40% growth in net written premiumElephant Auto became a top 100 auto insurer in the USL’olivier – assurance auto customer base grew by 66% L’olivier – assurance auto continued to develop its brand awareness, launching on TVGoalsInternational Car Insurance goals for 2016Admiral Seguros to increase market share and grow consumer awareness of Qualitas brandConTe increasing investment in brand and technology to leverage the expected cycle turn and grow customers and revenue Elephant Auto to focus on continued growth and improving its combined ratioL’olivier – assurance auto to grow customers and revenue Launched in October 2006 – the most mature of the Group’s international businesses.The highlight of 2015 in Spain? We successfully hit our target of breaking-even on an underwriting year basis; a meaningful achievement given the small size of the Spanish book. Our focus during the year was on improving portfolio quality, strong cost control and making improvements in infrastructure and customer processes. Having used 2015 to consolidate, we now have a strong foundation from which to scale up the business over coming years.Improvements in the Spanish economy during 2015 drove increases in claims frequency in a context of continuing price competition. The result was that the Spanish market may have entered unprofitable underwriting territory for the first time in more than 10 years. The market combined ratio was 96% at the end of 2014. It rose to 99% in H1 2015, and looks to have continued an upward trend in H2.The other big news in 2015 was the passing of an update to the claims ‘Baremo’ law by the Spanish parliament. ‘Baremo’ regulates compensation payouts in bodily injury cases and the change, effective from January 2016, makes large bodily injury claims significantly more expensive. This will provide further upward pressure on market claims costs.We expect that the ‘Baremo’ change will bring some market price reaction and opportunities for growth during 2016. Our focus will be on increasing our market share within the price comparison channel, and growing consumer awareness of our flagship Qualitas brand.Launched in May 2008 – the largest international business within the Group.ConTe recorded its second consecutive year of profit in 2015. Despite challenging market conditions – prices decreasing by 6% – we grew the customer count by 11% to 315,300.For the first time in more than 10 years the average premium for the market fell below €380. Competition was fierce, with a large media spend, rate cuts, special promotions and product innovations, like telematics and alternate payment methods. However, with a market combined ratio still well below 100%, it should not come as any surprise that many firms would be trying to increase the size of their portfolios. I expect further rate cuts in the first half of 2016 but the pace should slow as claims frequency is now on the rise. Transition towards direct distribution progressed at a slower pace than in the past, given that traditional companies led the price and advertising war. Mobile is becoming a major force with around one third of visits to insurance websites coming from mobile devices and price comparison sites grew around 12%.ConTe followed the market with some price reductions but resisted drastic rate cutting. Instead we focused on finding profitable niches within the book, selling other products and services to our customers and retaining customers at renewal. In 2016 ConTe will invest more in its brand, which started in 2015 with our sponsorship of the Serie B football league. We will also invest in technology to help us grow in the future when the market turns and prices rise once again. Technical results were positive, with encouraging claims development. Improved actuarial projections resulted, not only in a profitable 2015 on the back of reserve releases, but also turned 2014 into another profitable underwriting year.Launched in October 2009 – serving four US states (Virginia, Maryland, Illinois and Texas).Comprehensive 2015 market data is not yet available, but it is fair to assume that the US market grew again – from a market of over $180 billion premium in 2014 to around $190 billion in 2015. The market is stable with low cyclicality, but in 2015 the major players complained of increasing claims frequency and talked about raising rates. Distribution channel shift remains slow but inevitable. Market surveys suggest c.25% of all premiums are written direct with new business being c.40%. But it is a sticky market, with only 10% of customers switching annually, so the overall shift in distribution is modest. For Elephant this is somewhat academic as the direct market is enormous and more than enough to satisfy our needs. 40% of new business represents 8 million new business opportunities each year. That’ll do. One feature of 2015 was the emergence of online price comparison – whilst still modest in the US market, it clearly made an impact and is a fast growing proportion of our quote volumes.For Elephant, 2015 was a good year. We grew the business substantially again – with more than 40% growth we wrote $135 million and now have over 140,000 customers. Acquisition economics improved as brand awareness and perception increased nicely in our core markets. New marketing campaigns delivered well. Growth was particularly significant in Virginia and in the US’s 2nd largest auto insurance state, Texas. We have moved into the top 100 US auto insurers with a market share that rounds to a massive 0.1%. The loss ratio came under pressure with increased frequency across the board, but particularly in Texas. Like others, we implemented price increases in the latter part of the year to address the loss ratio. We will be monitoring this carefully as we seek further growth in 2016. We have plenty of market share to go after – both in existing states and beyond – and we will probably expand into new states in the next year or so. We believe the Elephant culture and operating model gives us an opportunity for a competitive advantage in a high expense ratio market. Adjusted for our current lack of scale, Elephant already compares favourably. Launched in December 2010 – the Group’s youngest international car insurance business.2015 was the year of a new law in France (‘loi Hamon’) making switching motor insurance much easier for consumers. This new regulation was in-force from 1 January 2015 and was rolled out progressively all year at each renewal date.To avoid losing market share, large players didn’t increase prices much, at least not enough to compensate for the higher cost of claims. As a consequence, the market combined ratio kept deteriorating, reaching 107%. One would expect 2016 to be a continuation of 2015. Market profitability is unlikely to improve, as claims cost are expected to keep rising, while prices will be stable as a defence against the new law that is now fully effective.L’olivier – assurance auto benefited both from the new regulatory environment and the growth of the price comparison market. It was a year of strong growth as our policy base grew by more than 60%. We’ve been developing our brand awareness with a new TV presence. At the same time, operations were fully in-sourced and a new cutting edge IT system was developed and implemented. 2016 should be another year of strong growth for L’olivier – assurance auto.ItalyMilena MondiniCEO, ConTeUSAKevin ChidwickCEO, Elephant AutoFrancePascal GonzalvezCEO, L’olivier – assurance autoSarah HarrisCEO, Admiral SegurosSpainADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201527ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201526INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONInternational Car Insurance reviewFrom page 26Price Comparison financial reviewNon-GAAP format income statement 2013£m2014£m2015£mRevenueCar insurance price comparison87.281.082.3Other25.526.525.8Total Revenue112.7107.5108.1Operating expenses(92.3)(110.3)(123.6)Operating profit/(loss)20.4(2.8)(15.5)Confused.com profit21.715.812.5International price comparison result(1.3)(18.6)(28.0)20.4(2.8)(15.5)Group share of operating profit/(loss)*¹Confused.com profit21.715.812.5International price comparison result(0.6)(12.2)(19.7)21.13.6(7.2)*¹ Represents the Group’s share of Price Comparison profit/(loss) and excludes the impact of Minority Interests.UK Price Comparison – Confused.comConfused.com faced continuing challenging market conditions and produced a lower result, with revenue 7% lower than 2014 at £75.4 million (2014: £80.8 million) although the trend improved slightly in the second half of the year. Profit also fell to £12.5 million (2014: £15.8 million). Confused.com’s results were impacted by limited overall growth in the price comparison market in the UK as well as fierce competition.Revenue from non-car insurance comparison sources represents over a quarter of total revenue. Confused.com’s operating margin reduced to 17% (2014: 20%).International Price ComparisonAdmiral operates three price comparison businesses outside the UK: in Spain (Rastreator), France (LeLynx) and the US (compare.com).The combined revenue from the European operations in 2015 increased to £28.6 million (2014: £25.3 million), with nearly 30% more quotes provided to customers. Both Rastreator and LeLynx have market-leading positions and strong brand recognition in their respective markets. The Group’s share of the combined result for Rastreator and LeLynx was a profit of £1.8 million (2014: £2.8 million), the reduction reflecting investment in brand awareness outside of motor insurance. Admiral Group owns 75% of Rastreator, with the remaining 25% owned by Mapfre.Following the launch in March 2013 of compare.com, a US comparison operation based in Virginia, the Group has continued to invest in the operation. Admiral Group owns 71% of compare.com, with the remaining 29% owned by White Mountains and Mapfre. During 2015 Admiral’s share of compare.com’s loss was £21.5 million before tax (2014: £15.0 million). Due to the ongoing investment in compare.com, the Group’s share of compare.com’s losses for 2016 will be in the range of $30–35 million. The combined result for International Price Comparison was therefore a loss of £19.7 million (2014: loss £12.2 million) – the profit from Rastreator and LeLynx offset by investment in compare.com.During late 2015 the Group established Preminen, a 50:50 joint venture with Mapfre, to explore the potential of price comparison overseas.Regulatory environmentConfused.com is regulated by the Financial Conduct Authority (FCA) as an insurance intermediary and is subject to all relevant intermediation rules, including those on solvency capital. The European operations are all structured as branches of UK companies, with the UK insurance intermediary permission passported into Europe. compare.com is a regulated insurance agency domiciled in Virginia, US, and licensed in all other US states. 2013£m2014£m2015£mUK Household Insurance result(0.1)(0.1)1.2UK Commercial Vehicle operating profit2.52.21.5Other interest and investment income1.93.76.5Share scheme charges(22.5)(21.2)(27.2)Business development costs(0.3)(0.7)(1.9)Other central overhead(3.5)(3.9)(5.6)Finance charges—(4.6)(11.1)UK Household InsuranceUK Household Insurance was launched in December 2012 under the Admiral brand. The product is underwritten within the Group and in common with other businesses it is supported by proportional reinsurance covering 70% of the risk (shared between Munich Re, 40%, and Swiss Re, 30%). The business enjoyed another year of strong growth with policy numbers increasing by more than 90% to over 310,000 (2014: 162,600). Despite the relatively small size of the Household book, it has generated a small profit and its expense ratio is lower than the UK market ratio. UK Commercial VehicleThe Group operates a Commercial Vehicle insurance broker (Gladiator) offering van insurance and associated products, typically to small businesses. Distribution is via telephone and the internet (including price comparison websites).Gladiator has been impacted by operational changes which, together with a very competitive environment, has resulted in a reduced operating profit of £1.5 million (2014: £2.2 million), although customer numbers increased from 143,900 to 146,600 at the end of 2015.Interest and investment incomeInterest and investment income in 2015 was £6.5 million (2014: £3.7 million). The increase represents a full year’s interest on the gilt holdings purchased with the proceeds of the debt issue. Share scheme chargesThese costs relate to the Group’s two employee share schemes, further detail on which is set out in the notes to the financial statements. The increase in the charge is due to an increase in the number of awards across the Group resulting from headcount growth and the higher share price at the end of 2015.Finance chargesFinance charges of £11.1 million (2014: £4.6 million) represent a full year’s interest on the £200 million subordinated notes which were issued in July 2014 (refer to note 6 to the financial statements for further details).Price Comparison review continuedOther Group itemsHousehold enjoyed another year of strong growthHenryMartin: Henry always suggests the most unexpected option to a problem and ‘How Henry would approach it’ has now become a regular comment in manager meetings.HenryAndrew: One unique thing Henry does is a different poem or rhyme every time he has an out of office notice.ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201533ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201532INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONOther Group items reviewFrom page 33123467507ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 2015ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201506INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONIn summaryRecord profits, turnover again over £2 billion, record dividend, increase of 9% in number of policyholders and profits in ItalyBreak-even result in Admiral Seguros, our Spanish operation, was a great achievementUK business – rate increases ahead of the market, shift in risk profile and continued attention to operational detail all led to an excellent economic outcome I actually started doing end of year commentaries a few years before we went public such that this is my 16th statement. The first one was for the 2000 year and the highlight was the launch of our internet brand, elephant.co.uk. At the end of 2000 we employed 1,300 people on two sites and our turnover that year was £265 million. Compare that with the end of 2015 where we employ over 8,000 people on umpteen sites and turnover was over £2 billion. I would sum up all our results since 2000 as being akin to a seedless watermelon: tasty and refreshing but somehow you always wonder ‘how can that work in the future?’ Every year Admiral’s customer growth and profit growth always seems to take people a bit by surprise. Despite the fact that we’ve prospered in good economic times and bad economic times; that we’ve prospered when prices for car insurance were on the rise and when they weren’t; that we’ve prospered even allowing for investment in new operations outside the UK; and that we’ve done it all organically, without any acquisitions. Despite this history we seem to surprise people when we pop up out of the ground each spring with better results than the year before. 2015 was no exception: record profits, turnover again over £2 billion, record dividend, increase of 9% in number of customers, profits in Italy, break-even in Spain… I would describe 2015 as: the year of the uncut diamond. When the year started many people thought it would turn out to be a lump of coal. But no, as the results detailed in the pages to follow will show, 2015 was no lumpy coal year. How good a year was it? Well, that’s why it’s an uncut diamond. We know there’s certainly good value in there, after all, it’s a diamond, but exactly how much value? Time will tell. A lot of good things happened in 2015. For the sake of allowing you to finish this statement in a conscious state, let me highlight but two. First, and key to the overall result, the UK insurance business. The work we did on the UK business in terms of rate increases ahead of the market (started in, but not limited to, 2014), the shift in the risk profile of the account over time and the continued attention to operational detail all led to an excellent economic outcome. Also, trust me, money from back year releases actually spends exactly the same as any other money. And there’s more where that came from.Following on from the success of ConTe, the break-even result in Admiral Seguros (AS) (actually a profit of €1.4 million), our Spanish operation, was a great achievement. The Spanish market is very different from the UK: it’s short tail, small bodily injury claims, low propensity of consumer shopping, low average premiums, high acquisition costs and little or no market cyclicality… And so over its nine year life we’ve kept AS small, worked on the quality of the business and the efficiency of the operation. But we needed to prove that break-even could be achieved. Anyone who has tried to get a direct operation to break-even on just 160,000 customers, with low average premiums, will tell you that it’s very challenging. A direct operation has overheads that are in place whether there are 160,000 or 1,160,000 customers. And an operation with only 160,000 customers has far less data to work with than a bigger organisation. Chief Executive’s statementHenry Engelhardt, CBEA look at the years according to Henry…2007: The SlothUK car insurance market cycle is turning with sloth-like speed2008: The KoalaA sleepy year on rates...but can be nasty if provoked2009: The OxA lot of hard labour2010: The PuppyA cute, cuddly year2011: The ChameleonQuite useful but changeable2012: The KangarooBounces around but...strong and energetic2013: The baked potatoComfort food: solid yet unflashy2014: The baked AlaskaHot and cold in a single biteSo it is with great pride that I can tell you that Admiral Seguros made a modest profit in 2015. And it is equally with great pride that I will tell you that AS will not break-even in 2016! Now we are ready for growth, but growth in Spain is expensive. So we will return to losses in the near term. But we did not enter this market to create a very small business that breaks even; we are here for a bigger slice of the paella. There were other big successes in the Group in 2015, but I will let others tell those stories. There were also some things that didn’t go according to plan. I’ll definitely let others tell those stories! As most of you know, this is my last CEO commentary. Last May I gave my one year’s notice and so my last day as CEO will be May 12, 2016. I’ll be turning over the CEO role to my longstanding colleague and friend, David Stevens. You may be surprised to know that David’s actually quite a bit younger than I am. But I’m sure he will use his combination of youth and experience to bring Admiral Group to the next level. David and I met almost 30 years ago at business school. We did some great projects together there including one on perfume advertising and another on what a beer bottle says about the beer inside. In 1991 I was recruited by a managing agency at Lloyd’s of London to set up and run what’s become Admiral Group. David was working as a Management Consultant in a blue chip firm but I thought, why not ask him if he’d be interested to join this car insurance start-up? And, much to my surprise, he said ‘yes’! I officially started with Admiral in June 1991 and David came on board in August. One of the keys to the success of our partnership has been to make arguing an art. The next time David and I agree on something I suspect will be the first time. I jest. Sometimes we did agree. I remember once back in 1996… But we do push each other hard and the debates and discussions we have invariably improve the end result. We both like to challenge the status quo and we make each other think. But the real key to success was that we never lost sight of the fact that both of us always had the same goal: make Admiral great. This meant that we walked away from every debate and discussion, no matter how fierce or passionate, as good friends. The other key to success has been to laugh together. We laugh at each other and we laugh at the world around us. I’ve shared more laughs with David than with any person other than my wife (who is still not for sale!). I’m pleased to say too that I will stay on with Admiral on a part-time basis. I’ll help David by managing the price comparison business CEOs.I can also say that I wouldn’t be stepping aside if I didn’t feel we had depth in management below David. If the people working in key roles around the Group today don’t do great things in the future then it will be my fault for not working more closely with them when I had the chance. The true evidence of my confidence in them is that I’m stepping aside to give them space to make their mark. As this is my final CEO commentary I’ll ask you to indulge me as I answer two questions. First, what will I miss when I step down and, second, what am I most proud of in my Admiral years?There are many things that I’ll miss when I step down in May, but let me share three of them with you.I’ll miss coming in each morning and seeing how we did yesterday. I’ll especially miss those days when one of our operations has broken a record – quotes, sales, etc. But I’ll even miss looking at the reserve movements across all the businesses each morning and that nervous moment near the end of the month when the UK claims department puts the reserves on new injury cases… I remember in the very beginning of Admiral we were able to hit the refresh button during the day and find out how many sales had been made up to that minute. But managers were hitting refresh so frequently that the system was grinding to a halt! So we had to move to yesterday reporting. It may be a serious compulsive behaviour issue to look over your shoulder at yesterday all the time, especially for the size of business we’ve become, but it’s still one of the little pleasures for me. Second, I’ll miss the way my PA of 18 years, Julie, says ‘good morning’ in such a positive way every morning, even when it’s dark and wet and cold (most mornings actually) such that you can’t help but think that, yes, maybe it really is a good morning! Lastly, the thing I know for sure I’ll miss most – that’s working with the people I work with. I am very, very lucky to work with people I enjoy working with. No, we don’t always agree on everything and there have certainly been good days and bad days, but I enjoy the challenges we work on together, the conversations, the problems, the attempts at solutions, the coffees and lunches, even the disagreements, and I enjoy seeing the spirit they bring to work every day. Especially that spirit. The people I work with bring with them a rare desire to improve and succeed, as the economist Joseph Schumpeter put it long ago: ‘there is the will to conquer, the impulse to fight, to prove oneself superior to others, to succeed for the sake, not of the fruits of success, but of success itself.’ I look forward to my calls, my meetings and my trips around Admiral Group. And that’s because the people I work with care: they care about what they do, they care about the company, they care about each other and, perhaps most importantly, they care about everyone who works in Admiral Group. I hope that care lasts for a long, long time.Finally, people ask me what I’m most proud of. That’s easy. I’m most proud to be part of an organisation that combines economic success with people being happy to come to work every day. In fact, what I’m really most proud of is that we had the ability to see that IF people are happy in their jobs every day THEN the chances for economic success are greatly enhanced. Thanks for reading. Henry EngelhardtChief Executive Officer 2 March 2016The year of the uncut diamond 2015 – we know there’s certainly good value in there, after all, it’s a diamond, but exactly how much value? Time will tell.Since launching Admiral in 1993, Henry has often described the years through the use of metaphors. Here are a few of his most recent…Henry Engelhardt, CBE I would sum up all our results since 2000 as being akin to a seedless watermelon.INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201509ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 2015082015 in summaryGroup pre-tax profits grew by 6%UK Car Insurance business improved profits by 11% to £443 millionGrowth in our young UK household book to over 300,000 customers Admiral Seguros, our Spanish insurance operation, achieved break-even (on an underwriting year basis*¹) in fiercely competitive market conditionsConTe, our Italian insurance operation, achieved growth and a further year of profitability Elephant Auto in the US achieved strong growth and is preparing to expand its operations into more states Our French motor insurance business, L’olivier – assurance auto, grew stronglyRastreator and LeLynx, our price comparison businesses in Spain and France are market leadersContinued investment in compare.com to build acceptance as a successful distribution channelConfused.com continues to battle in a mature UK market SuccessionAs was announced last May, Henry Engelhardt will step down as Group Chief Executive in May 2016. There is no way to measure adequately the contribution of a founder of a business that has grown from zero to now worth almost £5 billion, employs over 8,000 people and serves more than 4 million customers. When we floated on the London Stock Exchange in 2004 it was under the by-line ‘Admiral is Different’ and this has been something we have always tried to be, not different for the sake of being different, but different to create value for our shareholders. So what makes us different? •That all employees of Admiral are shareholders. •That we distribute each year all our profits over and above what we need to support and grow our business. •That we have the lowest combined ratio amongst our major UK competitors. •That we are the only company to have been in the Sunday Times Best Companies to Work For list every year for the last 15 years. •That all our growth, at home and overseas, has been organic with the Admiral culture strongly embedded wherever we operate.And I could go on much longer. In so many areas of difference the original thinking has stemmed from Henry’s refusal to accept the status quo and the conventional, from his asking ‘Why?’ and from his recruitment of those who think like him and share the same values. When any new employee joins Admiral’s UK operations Henry gives them a piece of a jigsaw – a jigsaw is not complete until every piece is in place, no matter how small it may be; similarly, in Admiral every role has a contribution to make and is to be valued on the merits of the individual, not their status. As Henry said at a recent Staff General Meeting in which over 5,000 staff in the UK take part each year, what will continue to make Admiral different is not what the Board will do ‘but what you, you, you, and you will do’. On behalf of the Board and the entire Group I want to thank Henry for everything he has done over so many years and to say how delighted we all are that he will continue to work within the Group looking after our price comparison businesses around the world.I said that Admiral’s original thinking in part stems from those Henry has recruited and who share the same values. David Stevens, who takes over from Henry as Group CEO, was the second person Henry recruited to work alongside him to found Admiral. For the last seven years David has led the UK business and has been instrumental, alongside Henry, in shaping Admiral’s course and the strong performance that has been achieved. When asked about succession my reply has always been that I am extremely fortunate as Chairman to have two people leading a business, both of whom could be CEO, and one of whom is four years younger than the other! Since we announced Henry’s retirement last year we have been able to implement a seamless transition of leadership.2015 in overviewIn my statement last year I wrote that we recognise that in a cyclical business there are periods for growth, and periods for consolidation, seeking purely to maintain one’s existing market position and focus on building capability to support growth when conditions render that both profitable and sustainable. It is encouraging that in 2015 it was appropriate to grow in four of our five car insurance businesses and particularly that market conditions were right to resume modest growth in the UK. Admiral’s combined ratio advantage compared with the UK motor market as a whole has always made it appropriate to grow when rates start to move upwards, our raising prices at a somewhat lower rate than the market as a whole. This was true of 2015, the improvement in our competitiveness showing through as a 5% growth in our UK motor base which stood at 3.30 million vehicles at the year end. We were also pleased to grow further our young UK household book, itself reaching over 300,000 customers at 31 December. It is well understood that our reserving practice is to adopt a very prudent assessment against the range of possible outcomes whilst claims are in the early stages of development and then to release as we understand better the final cost of the claim. Alongside growth of our book in the UK last year we also experienced pleasing development of past years’ motor claims, allowing us to make a higher than normal release of reserves whilst maintaining a prudent position overall. The turn of the market, strong claims experience, and our low cost culture allowed our UK car insurance business to improve profits by 11% to £443 million.This in turn supported increased investment in our young international car insurance and price comparison businesses, in particular in the US, whilst at the same time growing by 6% the level of Group pre-tax profits as a whole. As a result we now have 673,000 motor customers overseas and our price comparison businesses in France and Spain are market leaders. Our Italian motor insurance business, ConTe, achieved both growth in its book in 2015 and a further year of profitability whilst our French motor business, L’olivier, grew strongly albeit off a low base. Elephant Auto in the US also achieved strong growth and is preparing to expand its operations into further states as it grows towards the scale required of a profitable operation. It was only in Spain that market conditions remained fiercely competitive with falling prices, making growth undesirable and management instead focused on achieving break-even, something the business achieved on an underwriting year basis.Our price comparison operations range from the fully mature and intensely competed market in which Confused.com has to do battle in the UK through to the newly emerging in the US where we will continue our investment in compare.com to build both general market awareness and acceptance by insurers as a successful distribution channel. In the middle of this range we have businesses in France and Spain that, whilst in themselves market-leading, are still developing their channel credentials, both in insurance and other lines of business that lend themselves to internet-based comparison. All of these markets call for creativity to compete successfully, whether it be introducing European-style price comparison to the US market or making the most of the change in French law that makes it easier for consumers to switch motor insurers. Our capital structure and dividend policyWe announced in December how the Prudential Regulatory Authority (PRA) has ruled on what capital we need as Solvency II comes into effect in 2016. As we had anticipated, we entered Solvency II with a significant surplus of actual against required capital. It will, however, be 2017 before we know fully what our Solvency II capital requirement will be, as we have agreed with the PRA to transition from the standard formula to a partial internal model. In the face, therefore, of a degree of ongoing uncertainty we have decided to release this surplus progressively as we transition to the new basis of calculating required capital. The first element is the release of £33 million into the 2015 final special dividend.We have also reviewed the split between normal and special dividends. Since we floated in 2004 we have maintained our normal dividend at 45% of each year’s earnings and then distributed as a special dividend the surplus over and above what we retain to meet regulatory requirements, the future development of our business and appropriate buffers. In practice we have every year distributed 90% or more of each year’s earnings, in the light of which we believe the normal level of dividend is set too low. We are, therefore, raising this to 65% with effect from 2015 but in all other respects our dividend policy remains the same: we expect, for the foreseeable future at least, to continue to distribute, in total, the same proportion of our earnings as in the past. This year’s available surplus allows full year normal and special dividends of £283 million, representing a 96% distribution. Adding to this the above release of surplus capital, and calculating the normal element of the final dividend at 65% of post-tax profits, our full year dividends amount to a normal dividend of 57.9 pence per share, and special dividends of 56.5 pence per share. Other Board changesAt the end of August last year we said goodbye to Manfred Aldag when he retired from Munich Re. With a wealth of insurance experience Manfred made a great contribution to Admiral’s success over the 12 years he served on our Board and he will be much missed, both as a colleague and a friend. Our 2016 AGM will also see the retirement of Lucy Kellaway and Margaret Johnson, both of whom joined the Board in 2006 and will, therefore, have served three full terms as Non-Executive Directors. They will long be remembered for their wise counsel given their ability, coming from outside the world of insurance, to approach sector and company issues from a fresh perspective.During the year we welcomed Manning Rountree and Owen Clarke to the Board. Manning is a senior executive at the White Mountains Insurance Group, a publicly-traded holding company for insurance and financial services interests around the world. Now that Admiral has both developing auto insurance and price comparison businesses in the United States we are fortunate to have someone of Manning’s experience in the US insurance sector joining our Group Board. We already much value his input as a member of the Board of compare.com, our US price comparison business in which White Mountains has an investment. Owen is currently the Chief Investment Officer of Equistone (formerly Barclays Private Equity): he served as a Director of Admiral from 1999 to 2004 when it was a private company having led BPE’s participation in the MBO of Admiral in 1999. I am delighted that Owen is now able to rejoin the Board of Admiral; he has an excellent understanding of our business and a great commercial record, and we look forward to once again benefiting from his experience.Thank you A business is as good as its people and we at Admiral are hugely fortunate to have great people whose commitment, energy and initiative allows us to create great value for our shareholders. My grateful thanks to all who make up the jigsaw that is Admiral. But a business is nothing without customers: my thanks to all our customers for their trust and confidence which we shall do our utmost to ensure are not misplaced. Alastair LyonsChairman 2 March 2016Admiral is differentChairman’s statementAlastair Lyons, CBE A business is as good as its people and we at Admiral are hugely fortunate to have great people whose commitment, energy and initiative allows us to create great value for our shareholders.Alastair Lyons, CBE*¹ Refer to the glossary for the definition of underwriting year basis.INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201505ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201504INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONHighlights
The year in review

Record full year profit

A very positive result from Admiral’s UK Car
Insurance business in 2015 helped the Group

post a very pleasing record full year profit of
£377 million – 6% higher than last year. We’ll also
pay a record dividend on the back of that result.
Geraint Jones
Chief Financial Officer

Group highlights

Group profit before tax*¹ 6% higher at £377 million (2014: £357 million)

Earnings per share 4% higher at 107.3 pence (2014: 103.0 pence)

Final dividend of 63.4*² pence per share, bringing the 2015 total dividend
to 114.4 pence per share, up 16% (2014: 98.4 pence per share)

Return on equity of 49% (2014: 52%)

Group turnover*³ up 8% at £2.12 billion (2014: £1.97 billion)

Group customers up 9% to 4.43 million (2014: 4.05 million)

International Car Insurance turnover up 13% to £232 million, with customers
up 14% to 673,000 (2014: £206 million and 592,600 customers)

Over 8,000 staff eligible to receive free shares worth a total of £3,600
each in the employee share scheme based on the full year 2015 results

2015

Important moments
from our year

*¹ Represents Group’s share of profit before tax after excluding
Minority Interests. Refer to note 12d for a reconciliation to
financial statement line items.

*² Final dividend of 63.4 pence per share includes an additional
return of excess capital of 11.9 pence per share. Refer to Chief
Financial Officer’s statement for further detail.

*³ Turnover is defined as total premiums written (including co-insurers’
share) and Other Revenue (excluding vehicle commission). Refer to
note 12a for a reconciliation to financial statement line items.

Turnover (£billion)

£2.12bn

+8%

2015
2014
2013
2012
2011

2.12

1.97
2.03

2.22
2.19

Customers (million)

4.4m

+9%

2015
2014
2013
2012
2011

4.4
4.1

3.7
3.6

3.4

Earnings per share (pence)

107.3p

+4%

2015
2014
2013
2012
2011

107.3

103.0
104.6
95.1

81.9

Full year dividend per share (pence)

Profit before tax*¹ (£million)

Return on equity (%)

114.4p

+16%

2015
2014
2013
2012
2011

114.4

98.4
99.5

90.6

75.6

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

£376.8m

+6%

2015
2014
2013
2012
2011

376.8

356.5
370.7

344.5

299.0

49%

-6%

2015
2014
2013
2012
2011

58
60
59

February

Admiral Group’s
new headquarters,
T^y Admiral, was
officially opened by
members of the
Welsh rugby team

August

Launch of Carfused.
Carfused is a one-stop
shop that brings insurance,
finance and a huge range
of used and new cars
together all in one place

May

Henry Engelhardt
announced he will
stand down as CEO
of Admiral Group and
David Stevens
(co-founder)
was announced as his
successor as CEO

September

ConTe signed an important partnership with Italian football
league Serie B and became the official sponsor for the
2015–2016 season

October

Admiral was named the
Best Car Insurance
Provider at the Personal
Finance Awards for the
third year running

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

February

Admiral Group was named the 5th
Best Company to Work For in the UK’s
Sunday Times Best Companies to
Work For list. We also received a special
recognition award for being the only
company in the list for each of the 15 years
since the competition began and CEO
Henry Engelhardt won the Best Leader
award for the second year running

Staff satisfaction:
‘I am happy at Admiral’ (%)

84%

2015
2014
2013
2012
2011

88
91
89

Customer satisfaction: ‘Following a
claim, I would renew with Admiral’ (%)

95%

2015
2014
2013
2012
2011

95
95
91
90
91

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONChairman’s statement
Alastair Lyons, CBE

Admiral is different

2015 in summary

Group pre-tax profits grew by 6%

UK Car Insurance business improved profits by 11% to
£443 million

Growth in our young UK household book to over
300,000 customers

Admiral Seguros, our Spanish insurance operation, achieved
break-even (on an underwriting year basis*¹) in fiercely
competitive market conditions

ConTe, our Italian insurance operation, achieved growth
and a further year of profitability

Elephant Auto in the US achieved strong growth and is
preparing to expand its operations into more states

Our French motor insurance business, L’olivier – assurance
auto, grew strongly

Rastreator and LeLynx, our price comparison businesses
in Spain and France are market leaders

A business is as good as its
people and we at Admiral are hugely
fortunate to have great people
whose commitment, energy and
initiative allows us to create great
value for our shareholders.

Succession
As was announced last May, Henry Engelhardt will step down as Group Chief
Executive in May 2016. There is no way to measure adequately the contribution
of a founder of a business that has grown from zero to now worth almost
£5 billion, employs over 8,000 people and serves more than 4 million customers.
When we floated on the London Stock Exchange in 2004 it was under the
by-line ‘Admiral is Different’ and this has been something we have always
tried to be, not different for the sake of being different, but different to create
value for our shareholders.

Continued investment in compare.com to build acceptance
as a successful distribution channel

So what makes us different?
• That all employees of Admiral are shareholders.

Confused.com continues to battle in a mature UK market

Alastair Lyons, CBE

• That we distribute each year all our profits over and above what we need

to support and grow our business.

• That we have the lowest combined ratio amongst our major UK competitors.

• That we are the only company to have been in the Sunday Times Best

Companies to Work For list every year for the last 15 years.

• That all our growth, at home and overseas, has been organic with the

Admiral culture strongly embedded wherever we operate.

And I could go on much longer. In so many areas of difference the original
thinking has stemmed from Henry’s refusal to accept the status quo and the
conventional, from his asking ‘Why?’ and from his recruitment of those who
think like him and share the same values.

When any new employee joins Admiral’s UK operations Henry gives them
a piece of a jigsaw – a jigsaw is not complete until every piece is in place, no
matter how small it may be; similarly, in Admiral every role has a contribution
to make and is to be valued on the merits of the individual, not their status.
As Henry said at a recent Staff General Meeting in which over 5,000 staff in
the UK take part each year, what will continue to make Admiral different is
not what the Board will do ‘but what you, you, you, and you will do’.

On behalf of the Board and the entire Group I want to thank Henry for everything
he has done over so many years and to say how delighted we all are that he
will continue to work within the Group looking after our price comparison
businesses around the world.

I said that Admiral’s original thinking in part stems from those Henry has
recruited and who share the same values. David Stevens, who takes over
from Henry as Group CEO, was the second person Henry recruited to work
alongside him to found Admiral. For the last seven years David has led the
UK business and has been instrumental, alongside Henry, in shaping Admiral’s
course and the strong performance that has been achieved. When asked about
succession my reply has always been that I am extremely fortunate as Chairman

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

*¹ Refer to the glossary for the definition of underwriting year basis.

to have two people leading a business, both of whom could be CEO, and one
of whom is four years younger than the other! Since we announced Henry’s
retirement last year we have been able to implement a seamless transition
of leadership.

2015 in overview
In my statement last year I wrote that we recognise that in a cyclical business
there are periods for growth, and periods for consolidation, seeking purely
to maintain one’s existing market position and focus on building capability to
support growth when conditions render that both profitable and sustainable.
It is encouraging that in 2015 it was appropriate to grow in four of our five
car insurance businesses and particularly that market conditions were right
to resume modest growth in the UK.

Admiral’s combined ratio advantage compared with the UK motor market
as a whole has always made it appropriate to grow when rates start to move
upwards, our raising prices at a somewhat lower rate than the market as a
whole. This was true of 2015, the improvement in our competitiveness showing
through as a 5% growth in our UK motor base which stood at 3.30 million
vehicles at the year end. We were also pleased to grow further our young UK
household book, itself reaching over 300,000 customers at 31 December.

It is well understood that our reserving practice is to adopt a very prudent
assessment against the range of possible outcomes whilst claims are in the early
stages of development and then to release as we understand better the final cost
of the claim. Alongside growth of our book in the UK last year we also experienced
pleasing development of past years’ motor claims, allowing us to make a higher
than normal release of reserves whilst maintaining a prudent position overall.

The turn of the market, strong claims experience, and our low cost culture
allowed our UK car insurance business to improve profits by 11% to £443 million.

This in turn supported increased investment in our young international car
insurance and price comparison businesses, in particular in the US, whilst at
the same time growing by 6% the level of Group pre-tax profits as a whole.

As a result we now have 673,000 motor customers overseas and our price
comparison businesses in France and Spain are market leaders. Our Italian
motor insurance business, ConTe, achieved both growth in its book in 2015
and a further year of profitability whilst our French motor business, L’olivier,
grew strongly albeit off a low base. Elephant Auto in the US also achieved
strong growth and is preparing to expand its operations into further states as it
grows towards the scale required of a profitable operation. It was only in Spain
that market conditions remained fiercely competitive with falling prices,
making growth undesirable and management instead focused on achieving
break-even, something the business achieved on an underwriting year basis.

Our price comparison operations range from the fully mature and intensely
competed market in which Confused.com has to do battle in the UK through
to the newly emerging in the US where we will continue our investment
in compare.com to build both general market awareness and acceptance
by insurers as a successful distribution channel. In the middle of this range we have
businesses in France and Spain that, whilst in themselves market-leading, are still
developing their channel credentials, both in insurance and other lines of business
that lend themselves to internet-based comparison. All of these markets call for
creativity to compete successfully, whether it be introducing European-style price
comparison to the US market or making the most of the change in French
law that makes it easier for consumers to switch motor insurers.

Our capital structure and dividend policy
We announced in December how the Prudential Regulatory Authority (PRA) has
ruled on what capital we need as Solvency II comes into effect in 2016. As we
had anticipated, we entered Solvency II with a significant surplus of actual against
required capital. It will, however, be 2017 before we know fully what our
Solvency II capital requirement will be, as we have agreed with the PRA

to transition from the standard formula to a partial internal model. In the face,
therefore, of a degree of ongoing uncertainty we have decided to release this
surplus progressively as we transition to the new basis of calculating required
capital. The first element is the release of £33 million into the 2015 final
special dividend.

We have also reviewed the split between normal and special dividends. Since
we floated in 2004 we have maintained our normal dividend at 45% of each
year’s earnings and then distributed as a special dividend the surplus over
and above what we retain to meet regulatory requirements, the future
development of our business and appropriate buffers. In practice we have
every year distributed 90% or more of each year’s earnings, in the light of which
we believe the normal level of dividend is set too low. We are, therefore, raising
this to 65% with effect from 2015 but in all other respects our dividend policy
remains the same: we expect, for the foreseeable future at least, to continue
to distribute, in total, the same proportion of our earnings as in the past.

This year’s available surplus allows full year normal and special dividends of
£283 million, representing a 96% distribution. Adding to this the above release
of surplus capital, and calculating the normal element of the final dividend
at 65% of post-tax profits, our full year dividends amount to a normal dividend
of 57.9 pence per share, and special dividends of 56.5 pence per share.

Other Board changes
At the end of August last year we said goodbye to Manfred Aldag when
he retired from Munich Re. With a wealth of insurance experience Manfred
made a great contribution to Admiral’s success over the 12 years he served
on our Board and he will be much missed, both as a colleague and a friend.

Our 2016 AGM will also see the retirement of Lucy Kellaway and Margaret Johnson,
both of whom joined the Board in 2006 and will, therefore, have served three
full terms as Non-Executive Directors. They will long be remembered for their
wise counsel given their ability, coming from outside the world of insurance,
to approach sector and company issues from a fresh perspective.

During the year we welcomed Manning Rountree and Owen Clarke to the Board.
Manning is a senior executive at the White Mountains Insurance Group, a
publicly-traded holding company for insurance and financial services interests
around the world. Now that Admiral has both developing auto insurance and
price comparison businesses in the United States we are fortunate to have
someone of Manning’s experience in the US insurance sector joining our
Group Board. We already much value his input as a member of the Board of
compare.com, our US price comparison business in which White Mountains
has an investment. Owen is currently the Chief Investment Officer of Equistone
(formerly Barclays Private Equity): he served as a Director of Admiral from
1999 to 2004 when it was a private company having led BPE’s participation
in the MBO of Admiral in 1999. I am delighted that Owen is now able to rejoin
the Board of Admiral; he has an excellent understanding of our business and
a great commercial record, and we look forward to once again benefiting
from his experience.

Thank you
A business is as good as its people and we at Admiral are hugely fortunate
to have great people whose commitment, energy and initiative allows us to
create great value for our shareholders. My grateful thanks to all who make
up the jigsaw that is Admiral.

But a business is nothing without customers: my thanks to all our customers
for their trust and confidence which we shall do our utmost to ensure are
not misplaced.

Alastair Lyons
Chairman
2 March 2016

ANNUAL REPORT AND ACCOUNTS 2015 05

ADMIRAL GROUP PLC

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONAdmiral at a glance
Our business and operations

Admiral’s brands
and markets

In the UK, Admiral is one of the largest and
most recognised car insurance providers, and
the Group includes Confused.com, a leading
price comparison website, as well as a growing
household insurance business. Outside the UK, the
Group has exported the knowledge and experience
gained from its UK businesses, and owns four
insurance and three price comparison businesses.

UK Insurance

International Car Insurance

Admiral is one of the largest
and most profitable private
car insurers in the UK

Growing car insurance
businesses in Spain, Italy,
the US and France

UK Car Insurance review
From page 20

International Car Insurance review
From page 26

£1.71 billion

Turnover (2014: £1.60 billion)

£443 million

Pre-tax profit*¹ (2014: £398 million)

3.30 million

Customers (2014: 3.15 million)

£232 million

Turnover (2014: £206 million)

£22 million

Pre-tax loss*¹ (2014: £20 million)

673,000

Customers (2014: 592,600)

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Market disciplineUK Insurance reviewUK Insurance strategyThe strategy for Admiral’s UK business is unchanged and remains simple:• The Group aims to grow profitably its share of the UK private motor insurance market whilst maintaining a capital‑efficient structure.• At the same time, Admiral endeavours always to give excellent service to customers, whilst providing a positive environment in which staff can work and develop.Achievements and goalsUK Insurance achievements in 2015Profit before tax increased 11% to £443 million (2014: £398 million)Record number of vehicles insured up 5% at 3.30 million (2014: 3.15 million) Combined ratio improved in 2015 to 78% (2014: 80%)Profit generated from the portfolio of insurance products that complement the core car insurance product of £175 million (2014: £182 million)Strong policy growth in Household to 310,000 (2014: 162,600)95% of customers who have submitted a claim would renew with Admiral, based on their claims experience (2014: 95%)96% of staff say that Admiral is a friendly place to work according to the Great Place to Work survey5th Best Big Company to Work For, The Sunday Times 100 Best Companies to Work For 4th Best Large Workplace in the UK, Great Place to Work InstituteBest Car Insurance Provider in the Personal Finance Awards for the third year in a rowUK Insurance goals for 2016Appropriate rate changes in response to claims trends and market conditionsContinued reserve releases if back years develop as expectedSuccessful transition to new IT system (Guidewire)This will be my last UK insurance review before taking over from Henry as CEO later this year. Next year he’ll be leaving me the responsibility of choosing just the right analogy, after years of Henry’s always entertaining, sometimes illuminating, occasionally enigmatic, choices. That’s just one of the challenges of taking over from Henry, after his 25 years of pretty much faultless stewardship of the company. Perhaps the biggest single advantage I have in tackling this challenge is having watched Henry, over those years, mix the brilliant blend of inspiration, determination, sensitivity and vision that creates, in Admiral, something special for staff and shareholders alike.Given it’s my last UK Insurance Review, I’ll take the long view and start by going back to our early days as a quoted company.For a while, after our flotation, we were without comparison. Or perhaps, more accurately, ‘without comparables’. We were, for a number of years, the only quoted direct personal lines insurer. Analysts and commentators could only half-heartedly benchmark us against a couple of battle-scarred, multi-national, multi-line composites and a mixed selection of Lloyd’s managing agencies. Roll on ten years and the stock market is awash with companies that are primarily direct personal lines insurance companies: ourselves; Direct Line; Esure; most recently Hastings; and, notwithstanding its initial reluctance to acknowledge its insurance-ness, Saga. Ten years ago quoted focused personal lines players (ourselves and a couple of Lloyd’s motor operations) accounted for 5% of the UK motor market. The other 95% was buried within massive global insurers and banks for whom the UK car insurance result was not that big a deal. Now 40% of the UK car insurance market is in the hands of the quoted personal line players.Good news for Admiral? Or bad? Well, both to be honest.The investment community has tended to look askance at a sector whose extreme cyclicality has, over the decades, delivered an unappetising combination of very modest average returns on capital, combined with extreme volatility around that average. Might the market discipline, the extra scrutiny and transparency, the better alignment of manager and owner interests, mean that, in this new world, UK car insurers could lift their game enough, both to push up cross-cycle average returns, and to moderate the ups and downs of the cycle? It’s too early to make a call, but I am somewhat encouraged by premium movements over the last 18 months. Market-wide price increases from mid 2014 and throughout 2015 should mean that the combined ratio for accident year 2015, the most recent worst point of the car insurance cycle, will be materially below the 120% plus combined ratios (on a pure year, before reserve release, basis) that marked the last two worst points (1998/9, 2009/10). If sustained over a decent period of time, evidence of higher and less volatile returns must ultimately increase investor interest in non-life insurance as a whole.So what’s the downside of more quoted focused personal lines players?Market discipline should not only make them more rational managers of their business, it should also make them more effective competitors – more sophisticated pricers, better claims handlers, lower cost operators. It should, in short, help them narrow the long-standing and substantial combined ratio gap between ourselves and themselves. Have they?Not on expense ratios. The market and our own car insurance expense ratio have oscillated, but our relative outperformance has stayed consistent at 12–14 percentage points below market averages. While on household, despite our sub-scale circa 1% market share and our big share of new business versus renewals, we’re already beating the market average expense ratio. What about on claims ratios?It’s hard to know, to be honest. It takes a good three years for enough claims to settle, or at least stabilise, for us to be able to compare ourselves reliably to the market as a whole. What we can say is the 2011/12 years look to be delivering loss ratios of 11–12 percentage points below market averages; less than the 20 percentage points advantage in 2009 (when price comparison neophytes were severely punished); but no less than 2005/6, when we outperformed by 10–11 percentage points.We insured about 1.2 million cars in the UK in 2006, and 3.0 million in 2012. If you’d asked me back in 2006 if we could insure almost three times as many cars in 2011/12, and still maintain the same claims ratio advantage versus the market, I’d have said ‘probably not’.If you ask me now if we have maintained the same claims advantage versus the market in 2015 (now with 3.3 million cars on cover) as in 2006 and in 2012, I’d again say ‘probably not’.But I have been proved wrong before.David StevensChief Operating Officer 2 March 2016ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201521ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201520INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONDavid Stevens, CBE 40% of the UK car insurance market is in the hands of the quoted personal line players.HenryDavid: Henry challenges established wisdom – rejecting doing something a certain way because everyone else does. ‘Admiral is different’ is an expression of Henry's commitment to do things the right way, the best way, rather than the apparently obvious way.Continuing to grow our international presenceInternational Car Insurance reviewInternational Car Insurance strategy Admiral’s strategy is to exploit the knowledge, skills and resources attached to the established UK businesses to promote expansion overseas in private car insurance. Admiral’s objective is to create profitable, sustainable and growing businesses.AchievementsInternational Car Insurance achievements in 2015Admiral insured 673,000 customers across its Spanish, Italian, American and French operations (2014: 592,600)4th Best Multinational Place to Work in Europe, awarded by Great Place to WorkAdmiral Seguros achieved break-even on an underwriting year basisAdmiral Seguros voted 4th Best Company to Work for in Spain (between 250 and 499 employees), awarded by Great Place to Work Institute ConTe reported its second full year profitConTe grew customer base by 11%ConTe voted 9th Best Medium Company to Work for in ItalyElephant Auto 40% growth in net written premiumElephant Auto became a top 100 auto insurer in the USL’olivier – assurance auto customer base grew by 66% L’olivier – assurance auto continued to develop its brand awareness, launching on TVGoalsInternational Car Insurance goals for 2016Admiral Seguros to increase market share and grow consumer awareness of Qualitas brandConTe increasing investment in brand and technology to leverage the expected cycle turn and grow customers and revenue Elephant Auto to focus on continued growth and improving its combined ratioL’olivier – assurance auto to grow customers and revenue Launched in October 2006 – the most mature of the Group’s international businesses.The highlight of 2015 in Spain? We successfully hit our target of breaking-even on an underwriting year basis; a meaningful achievement given the small size of the Spanish book. Our focus during the year was on improving portfolio quality, strong cost control and making improvements in infrastructure and customer processes. Having used 2015 to consolidate, we now have a strong foundation from which to scale up the business over coming years.Improvements in the Spanish economy during 2015 drove increases in claims frequency in a context of continuing price competition. The result was that the Spanish market may have entered unprofitable underwriting territory for the first time in more than 10 years. The market combined ratio was 96% at the end of 2014. It rose to 99% in H1 2015, and looks to have continued an upward trend in H2.The other big news in 2015 was the passing of an update to the claims ‘Baremo’ law by the Spanish parliament. ‘Baremo’ regulates compensation payouts in bodily injury cases and the change, effective from January 2016, makes large bodily injury claims significantly more expensive. This will provide further upward pressure on market claims costs.We expect that the ‘Baremo’ change will bring some market price reaction and opportunities for growth during 2016. Our focus will be on increasing our market share within the price comparison channel, and growing consumer awareness of our flagship Qualitas brand.Launched in May 2008 – the largest international business within the Group.ConTe recorded its second consecutive year of profit in 2015. Despite challenging market conditions – prices decreasing by 6% – we grew the customer count by 11% to 315,300.For the first time in more than 10 years the average premium for the market fell below €380. Competition was fierce, with a large media spend, rate cuts, special promotions and product innovations, like telematics and alternate payment methods. However, with a market combined ratio still well below 100%, it should not come as any surprise that many firms would be trying to increase the size of their portfolios. I expect further rate cuts in the first half of 2016 but the pace should slow as claims frequency is now on the rise. Transition towards direct distribution progressed at a slower pace than in the past, given that traditional companies led the price and advertising war. Mobile is becoming a major force with around one third of visits to insurance websites coming from mobile devices and price comparison sites grew around 12%.ConTe followed the market with some price reductions but resisted drastic rate cutting. Instead we focused on finding profitable niches within the book, selling other products and services to our customers and retaining customers at renewal. In 2016 ConTe will invest more in its brand, which started in 2015 with our sponsorship of the Serie B football league. We will also invest in technology to help us grow in the future when the market turns and prices rise once again. Technical results were positive, with encouraging claims development. Improved actuarial projections resulted, not only in a profitable 2015 on the back of reserve releases, but also turned 2014 into another profitable underwriting year.Launched in October 2009 – serving four US states (Virginia, Maryland, Illinois and Texas).Comprehensive 2015 market data is not yet available, but it is fair to assume that the US market grew again – from a market of over $180 billion premium in 2014 to around $190 billion in 2015. The market is stable with low cyclicality, but in 2015 the major players complained of increasing claims frequency and talked about raising rates. Distribution channel shift remains slow but inevitable. Market surveys suggest c.25% of all premiums are written direct with new business being c.40%. But it is a sticky market, with only 10% of customers switching annually, so the overall shift in distribution is modest. For Elephant this is somewhat academic as the direct market is enormous and more than enough to satisfy our needs. 40% of new business represents 8 million new business opportunities each year. That’ll do. One feature of 2015 was the emergence of online price comparison – whilst still modest in the US market, it clearly made an impact and is a fast growing proportion of our quote volumes.For Elephant, 2015 was a good year. We grew the business substantially again – with more than 40% growth we wrote $135 million and now have over 140,000 customers. Acquisition economics improved as brand awareness and perception increased nicely in our core markets. New marketing campaigns delivered well. Growth was particularly significant in Virginia and in the US’s 2nd largest auto insurance state, Texas. We have moved into the top 100 US auto insurers with a market share that rounds to a massive 0.1%. The loss ratio came under pressure with increased frequency across the board, but particularly in Texas. Like others, we implemented price increases in the latter part of the year to address the loss ratio. We will be monitoring this carefully as we seek further growth in 2016. We have plenty of market share to go after – both in existing states and beyond – and we will probably expand into new states in the next year or so. We believe the Elephant culture and operating model gives us an opportunity for a competitive advantage in a high expense ratio market. Adjusted for our current lack of scale, Elephant already compares favourably. Launched in December 2010 – the Group’s youngest international car insurance business.2015 was the year of a new law in France (‘loi Hamon’) making switching motor insurance much easier for consumers. This new regulation was in-force from 1 January 2015 and was rolled out progressively all year at each renewal date.To avoid losing market share, large players didn’t increase prices much, at least not enough to compensate for the higher cost of claims. As a consequence, the market combined ratio kept deteriorating, reaching 107%. One would expect 2016 to be a continuation of 2015. Market profitability is unlikely to improve, as claims cost are expected to keep rising, while prices will be stable as a defence against the new law that is now fully effective.L’olivier – assurance auto benefited both from the new regulatory environment and the growth of the price comparison market. It was a year of strong growth as our policy base grew by more than 60%. We’ve been developing our brand awareness with a new TV presence. At the same time, operations were fully in-sourced and a new cutting edge IT system was developed and implemented. 2016 should be another year of strong growth for L’olivier – assurance auto.ItalyMilena MondiniCEO, ConTeUSAKevin ChidwickCEO, Elephant AutoFrancePascal GonzalvezCEO, L’olivier – assurance autoSarah HarrisCEO, Admiral SegurosSpainADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201527ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201526INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONINTRODUCTION

STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

Our presence spans seven countries

UK
Admiral
Bell
Diamond
elephant.co.uk
Confused.com
Carfused
Admiral Household
Gladiator
Admiral Law
BDE Law

2 France
L’olivier – assurance auto
LeLynx

3 Italy
ConTe

4 Spain
Balumba
Qualitas Auto
Rastreator
Seguros.es

5 USA
Elephant Auto
compare.com

6 Canada
Admiral

7 India
Admiral Solutions
Admiral Technologies

Price Comparison

Other Group items

Confused.com, one of
the UK’s leading price
comparison websites,
profitable operations
in Spain and France,
and a developing
business in the US

Other Group items review
From page 33

UK Household Insurance,
commercial vehicle
insurance broking and
other central costs
(including share scheme
charges and finance costs)

Price Comparison review
From page 30

£108 million

Turnover (2014: £108 million)

£7 million

Pre-tax loss*¹,² (2014: profit £4 million)

19.5 million

Customer quotes (2014: 18.4 million)

£70 million

Turnover (2014: £55 million)

£37 million

Pre-tax loss (2014: £25 million)

310,400

146,600

Household customers
(2014: 162,600)

Gladiator customers
(2014: 143,900)

*¹ All segment results exclude share scheme charges. These charges are included in the ‘Other’ segment.

*² Price comparison pre-tax results excluding the impact of Minority Interests.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Price Comparison reviewFocused brand strategy and multi‑product offeringPrice Comparison strategy Admiral’s strategy is to develop websites that allow consumers to compare a range of general insurance, financial services and other products. The international strategy is to exploit the UK expertise in price comparison and export it overseas.AchievementsUK Price Comparison achievements in 2015Quote volumes: 10.7 million (2014: 11.8 million)Continued development of Confused.com beyond motor insurance with encouraging results in home, van and life insuranceLaunch of Carfused, a car buying and selling platformContinued brand development of Brian, the Confused.com robotInternational Price Comparison achievements in 2015Quote volumes: 8.8 million (2014: 6.6 million)Rastreator has reinforced its leadership in Spain with continued growth in quotes Rastreator voted 5th Best Company to Work for in Spain, awarded by Great Place to WorkLeLynx retained its leadership position in the French marketcompare.com has more than 60 auto insurance companies, including half of the top 25, under contract in the USGoalsUK Price Comparison goals for 2016Build brand preference to strengthen market position in core productsDevelop and promote new products and offers in order to have more diversified revenue sources International Price Comparison goals for 2016Rastreator – continued defence of market leading brand and building on its role as a strategic data partner LeLynx – further developing the French aggregator market by exploiting the new Hamon lawcompare.com – continued lowering of acquisition cost while increasing the number of carriers and rates presented to consumersLaunched in 2002 – the Group’s most mature business and a leading UK price comparison website.Confused.com has seen a lot of changes in the market since it pioneered insurance comparison back in 2002, creating an ever growing and profitable industry while offering transparency and savings to British consumers. 13 years later, the market is now mature and commoditised with established players and is characterised by a very high level of competition. In 2015, the price comparison websites have spent more than ever in advertising and other promotional activities to attract customers. At the same time, the price comparison market as a whole did not grow as much as in previous years despite an apparent turn of the price cycle towards the end of the year, as indicated by the Confused/Willis Towers Watson price index. This fiercely competitive environment in a stagnant market, and increasing acquisition costs across every media channel, meant Confused.com had a challenging year in 2015. This resulted in a reduced profit of £12.5 million. We have achieved a lot in 2015 including finalising significant projects such as the launch of the Brian toy promotion and the entire redesign of our websites and customer experience. We have also launched new activities to become the go-to place for car buying with the launch of Carfused.com. These new developments have required investment in 2015 and will need time to transform in actual future profits for Confused while they have hurt the bottom line in the short term. Confused has also gone through organisational change in 2015, to face a market with increased regulation impacting the way price comparison websites operate and more competition, requiring a greater need to stand out. Martin CoriatCEO, Confused.comLaunched in March 2009 – the leading insurance price comparison website in Spain.2015 has been a healthy year for Rastreator both in terms of growth and results. We have reinforced our market leadership in Spain with strong growth in quotes and sales, integrated a new brand, Seguros.es, and also expanded our presence in the market with several new products.Our brand has grown, not only in recognition but also in preference. By communicating our multiproduct strategy effectively and efficiently we should continue to grow our business profitably.Within the insurance business we are proud to deliver a comparison of prices that represents 86% market share and which includes traditional players in our panel. At the same time we keep working on our role of strategic data partner for insurers that work with us, with our annual insurance price index and our Big Data team providing new tools. For 2016, the new ‘Baremo’ law will bring premium increases which will increase shopping in car insurance.Launched in January 2010 – the leading price comparison website in France.2015 was a good year for LeLynx.fr. We decided to take the opportunity offered by the ‘loi Hamon’ – enabling people to switch insurance at any time of the year – to push our investment into more offline and online marketing. Quote volumes and revenues grew as a result. LeLynx maintained its leadership position in the French market. The aggregator market in France grew by 13%. On the one hand, the ‘loi Hamon’ and strong TV investment pushed the market up. On the other, stable insurance prices and aggressive retention focus from insurers slowed it down.Our vision is that the price comparison market will develop, although slower than in the UK, and that LeLynx has the strength to be a leading player. We will focus our efforts on developing our presence within this market in 2016.Launched in March 2013 – the first European-style price comparison website in the US.One shouldn’t forget that the US is 51 distinct auto insurance markets – yes even Washington DC is its own – not one unified market. This means it is hard to find a unified trend across the country. Two things did seem to bind the country together this year, however; lower gasoline prices and continued large advertising. The gas prices correlated strongly with miles driven and subsequently claims frequency while advertising again remained concentrated in the few largest insurers, again topping $6 billion.With 70% of consumers starting their search online, the big advertisers absorb a disproportionate amount of traffic. Countering this trend is the growing, but still small, auto insurance comparison market. compare.com, the largest auto insurance comparison site in the US, was joined this year by other players pushing similar, but different, models. While we continue to operate in 49 of the 51 markets (apologies to Alaska and Hawaii again!), advertising efforts grew to nearly twenty states and included a very successful nationwide TV advertising test.Advertising growth was permitted by the continued expansion of our carrier panel. With over 60 auto insurance brands under contract, including nearly half of the top 25, the average number of rates returned nationwide is now nearly a handful. Volumes are now at the level that all but the very largest carriers view us as a very meaningful potential, and actual, source of business.We again must caution that while we made huge strides and grew substantially, we have just the opportunity for, not the guarantee of, success. Attempting to change singlehandedly, a market of this size is not for the faint of heart. Pitfalls remain. Can we continue to lower acquisition cost? Will carriers continue to join? Will consumers continue to shop via our site? Will competitors complicate or complement our efforts? Only time will tell, but another year of progress means we are closer to success than failure in our effort to transform the market.Elena BetesCEO, RastreatorDiane LarramendyCEO, LeLynxAndrew RoseCEO, compare.comUKSpainFranceUSAADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201531ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201530INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONHenryElena: The level of autonomy and freedom Henry gave us was unique.HenryDiane: Henry told me ‘Never forget how important you will be to the people you manage’. Since then, when times get tough, I try to keep a smile and be kind with everyone at the office.Price Comparison financial reviewNon-GAAP format income statement 2013£m2014£m2015£mRevenueCar insurance price comparison87.281.082.3Other25.526.525.8Total Revenue112.7107.5108.1Operating expenses(92.3)(110.3)(123.6)Operating profit/(loss)20.4(2.8)(15.5)Confused.com profit21.715.812.5International price comparison result(1.3)(18.6)(28.0)20.4(2.8)(15.5)Group share of operating profit/(loss)*¹Confused.com profit21.715.812.5International price comparison result(0.6)(12.2)(19.7)21.13.6(7.2)*¹ Represents the Group’s share of Price Comparison profit/(loss) and excludes the impact of Minority Interests.UK Price Comparison – Confused.comConfused.com faced continuing challenging market conditions and produced a lower result, with revenue 7% lower than 2014 at £75.4 million (2014: £80.8 million) although the trend improved slightly in the second half of the year. Profit also fell to £12.5 million (2014: £15.8 million). Confused.com’s results were impacted by limited overall growth in the price comparison market in the UK as well as fierce competition.Revenue from non-car insurance comparison sources represents over a quarter of total revenue. Confused.com’s operating margin reduced to 17% (2014: 20%).International Price ComparisonAdmiral operates three price comparison businesses outside the UK: in Spain (Rastreator), France (LeLynx) and the US (compare.com).The combined revenue from the European operations in 2015 increased to £28.6 million (2014: £25.3 million), with nearly 30% more quotes provided to customers. Both Rastreator and LeLynx have market-leading positions and strong brand recognition in their respective markets. The Group’s share of the combined result for Rastreator and LeLynx was a profit of £1.8 million (2014: £2.8 million), the reduction reflecting investment in brand awareness outside of motor insurance. Admiral Group owns 75% of Rastreator, with the remaining 25% owned by Mapfre.Following the launch in March 2013 of compare.com, a US comparison operation based in Virginia, the Group has continued to invest in the operation. Admiral Group owns 71% of compare.com, with the remaining 29% owned by White Mountains and Mapfre. During 2015 Admiral’s share of compare.com’s loss was £21.5 million before tax (2014: £15.0 million). Due to the ongoing investment in compare.com, the Group’s share of compare.com’s losses for 2016 will be in the range of $30–35 million. The combined result for International Price Comparison was therefore a loss of £19.7 million (2014: loss £12.2 million) – the profit from Rastreator and LeLynx offset by investment in compare.com.During late 2015 the Group established Preminen, a 50:50 joint venture with Mapfre, to explore the potential of price comparison overseas.Regulatory environmentConfused.com is regulated by the Financial Conduct Authority (FCA) as an insurance intermediary and is subject to all relevant intermediation rules, including those on solvency capital. The European operations are all structured as branches of UK companies, with the UK insurance intermediary permission passported into Europe. compare.com is a regulated insurance agency domiciled in Virginia, US, and licensed in all other US states. 2013£m2014£m2015£mUK Household Insurance result(0.1)(0.1)1.2UK Commercial Vehicle operating profit2.52.21.5Other interest and investment income1.93.76.5Share scheme charges(22.5)(21.2)(27.2)Business development costs(0.3)(0.7)(1.9)Other central overhead(3.5)(3.9)(5.6)Finance charges—(4.6)(11.1)UK Household InsuranceUK Household Insurance was launched in December 2012 under the Admiral brand. The product is underwritten within the Group and in common with other businesses it is supported by proportional reinsurance covering 70% of the risk (shared between Munich Re, 40%, and Swiss Re, 30%). The business enjoyed another year of strong growth with policy numbers increasing by more than 90% to over 310,000 (2014: 162,600). Despite the relatively small size of the Household book, it has generated a small profit and its expense ratio is lower than the UK market ratio. UK Commercial VehicleThe Group operates a Commercial Vehicle insurance broker (Gladiator) offering van insurance and associated products, typically to small businesses. Distribution is via telephone and the internet (including price comparison websites).Gladiator has been impacted by operational changes which, together with a very competitive environment, has resulted in a reduced operating profit of £1.5 million (2014: £2.2 million), although customer numbers increased from 143,900 to 146,600 at the end of 2015.Interest and investment incomeInterest and investment income in 2015 was £6.5 million (2014: £3.7 million). The increase represents a full year’s interest on the gilt holdings purchased with the proceeds of the debt issue. Share scheme chargesThese costs relate to the Group’s two employee share schemes, further detail on which is set out in the notes to the financial statements. The increase in the charge is due to an increase in the number of awards across the Group resulting from headcount growth and the higher share price at the end of 2015.Finance chargesFinance charges of £11.1 million (2014: £4.6 million) represent a full year’s interest on the £200 million subordinated notes which were issued in July 2014 (refer to note 6 to the financial statements for further details).Price Comparison review continuedOther Group itemsHousehold enjoyed another year of strong growthHenryMartin: Henry always suggests the most unexpected option to a problem and ‘How Henry would approach it’ has now become a regular comment in manager meetings.HenryAndrew: One unique thing Henry does is a different poem or rhyme every time he has an out of office notice.ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201533ADMIRAL GROUP PLCANNUAL REPORT AND ACCOUNTS 201532INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONChief Executive’s statement
Henry Engelhardt, CBE

The year of the
uncut diamond

In summary

Record profits, turnover again over £2 billion, record
dividend, increase of 9% in number of policyholders
and profits in Italy

Break-even result in Admiral Seguros, our Spanish
operation, was a great achievement

UK business – rate increases ahead of the market, shift
in risk profile and continued attention to operational
detail all led to an excellent economic outcome

2015 – we know there’s certainly

good value in there, after all, it’s a
diamond, but exactly how much
value? Time will tell.

I actually started doing end of year commentaries a few years before we went
public such that this is my 16th statement. The first one was for the 2000
year and the highlight was the launch of our internet brand, elephant.co.uk.
At the end of 2000 we employed 1,300 people on two sites and our turnover
that year was £265 million. Compare that with the end of 2015 where we employ
over 8,000 people on umpteen sites and turnover was over £2 billion.

I would sum up all our results since 2000 as being akin to a seedless watermelon:
tasty and refreshing but somehow you always wonder ‘how can that work
in the future?’ Every year Admiral’s customer growth and profit growth always
seems to take people a bit by surprise. Despite the fact that we’ve prospered
in good economic times and bad economic times; that we’ve prospered
when prices for car insurance were on the rise and when they weren’t; that
we’ve prospered even allowing for investment in new operations outside the
UK; and that we’ve done it all organically, without any acquisitions. Despite
this history we seem to surprise people when we pop up out of the ground
each spring with better results than the year before.

2015 was no exception: record profits, turnover again over £2 billion, record
dividend, increase of 9% in number of customers, profits in Italy, break-even
in Spain… I would describe 2015 as: the year of the uncut diamond. When
the year started many people thought it would turn out to be a lump of coal.
But no, as the results detailed in the pages to follow will show, 2015 was
no lumpy coal year. How good a year was it? Well, that’s why it’s an uncut
diamond. We know there’s certainly good value in there, after all, it’s a
diamond, but exactly how much value? Time will tell.

A lot of good things happened in 2015. For the sake of allowing you to finish
this statement in a conscious state, let me highlight but two.

First, and key to the overall result, the UK insurance business. The work we did
on the UK business in terms of rate increases ahead of the market (started
in, but not limited to, 2014), the shift in the risk profile of the account over
time and the continued attention to operational detail all led to an excellent
economic outcome. Also, trust me, money from back year releases actually
spends exactly the same as any other money. And there’s more where that
came from.

Following on from the success of ConTe, the break-even result in Admiral
Seguros (AS) (actually a profit of €1.4 million), our Spanish operation, was a great
achievement. The Spanish market is very different from the UK: it’s short tail,
small bodily injury claims, low propensity of consumer shopping, low average
premiums, high acquisition costs and little or no market cyclicality… And so
over its nine year life we’ve kept AS small, worked on the quality of the business
and the efficiency of the operation. But we needed to prove that break-even
could be achieved. Anyone who has tried to get a direct operation to break-even
on just 160,000 customers, with low average premiums, will tell you that it’s
very challenging. A direct operation has overheads that are in place whether
there are 160,000 or 1,160,000 customers. And an operation with only
160,000 customers has far less data to work with than a bigger organisation.

A look at the years according to Henry…

Henry Engelhardt, CBE

Since launching Admiral
in 1993, Henry has often
described the years
through the use of
metaphors. Here are a
few of his most recent…

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

2007: The Sloth
UK car insurance
market cycle is turning
with sloth-like speed

2008: The Koala
A sleepy year on rates...
but can be nasty
if provoked

So it is with great pride that I can tell you that Admiral Seguros made a modest
profit in 2015. And it is equally with great pride that I will tell you that AS will
not break-even in 2016! Now we are ready for growth, but growth in Spain is
expensive. So we will return to losses in the near term. But we did not enter
this market to create a very small business that breaks even; we are here for
a bigger slice of the paella.

There were other big successes in the Group in 2015, but I will let others tell
those stories. There were also some things that didn’t go according to plan.
I’ll definitely let others tell those stories!

As most of you know, this is my last CEO commentary. Last May I gave my
one year’s notice and so my last day as CEO will be May 12, 2016. I’ll be turning
over the CEO role to my longstanding colleague and friend, David Stevens.
You may be surprised to know that David’s actually quite a bit younger than
I am. But I’m sure he will use his combination of youth and experience to
bring Admiral Group to the next level.

David and I met almost 30 years ago at business school. We did some great
projects together there including one on perfume advertising and another
on what a beer bottle says about the beer inside. In 1991 I was recruited by
a managing agency at Lloyd’s of London to set up and run what’s become
Admiral Group. David was working as a Management Consultant in a blue
chip firm but I thought, why not ask him if he’d be interested to join this car
insurance start-up? And, much to my surprise, he said ‘yes’! I officially
started with Admiral in June 1991 and David came on board in August.

One of the keys to the success of our partnership has been to make arguing
an art. The next time David and I agree on something I suspect will be the
first time. I jest. Sometimes we did agree. I remember once back in 1996…
But we do push each other hard and the debates and discussions we have
invariably improve the end result. We both like to challenge the status quo
and we make each other think. But the real key to success was that we never
lost sight of the fact that both of us always had the same goal: make Admiral
great. This meant that we walked away from every debate and discussion, no
matter how fierce or passionate, as good friends. The other key to success
has been to laugh together. We laugh at each other and we laugh at the
world around us. I’ve shared more laughs with David than with any person
other than my wife (who is still not for sale!).

I’m pleased to say too that I will stay on with Admiral on a part-time basis.
I’ll help David by managing the price comparison business CEOs.

I can also say that I wouldn’t be stepping aside if I didn’t feel we had depth in
management below David. If the people working in key roles around the Group
today don’t do great things in the future then it will be my fault for not working more
closely with them when I had the chance. The true evidence of my confidence
in them is that I’m stepping aside to give them space to make their mark.

As this is my final CEO commentary I’ll ask you to indulge me as I answer
two questions. First, what will I miss when I step down and, second, what
am I most proud of in my Admiral years?

There are many things that I’ll miss when I step down in May, but let me
share three of them with you.

I would sum up all
our results since 2000
as being akin to a
seedless watermelon.

I’ll miss coming in each morning and seeing how we did yesterday. I’ll especially
miss those days when one of our operations has broken a record – quotes, sales,
etc. But I’ll even miss looking at the reserve movements across all the businesses
each morning and that nervous moment near the end of the month when the
UK claims department puts the reserves on new injury cases… I remember in
the very beginning of Admiral we were able to hit the refresh button during the
day and find out how many sales had been made up to that minute. But
managers were hitting refresh so frequently that the system was grinding to a
halt! So we had to move to yesterday reporting. It may be a serious compulsive
behaviour issue to look over your shoulder at yesterday all the time, especially for
the size of business we’ve become, but it’s still one of the little pleasures for me.

Second, I’ll miss the way my PA of 18 years, Julie, says ‘good morning’ in
such a positive way every morning, even when it’s dark and wet and cold
(most mornings actually) such that you can’t help but think that, yes, maybe
it really is a good morning!

Lastly, the thing I know for sure I’ll miss most – that’s working with the people
I work with. I am very, very lucky to work with people I enjoy working with. No, we
don’t always agree on everything and there have certainly been good days and
bad days, but I enjoy the challenges we work on together, the conversations,
the problems, the attempts at solutions, the coffees and lunches, even the
disagreements, and I enjoy seeing the spirit they bring to work every day. Especially
that spirit. The people I work with bring with them a rare desire to improve and
succeed, as the economist Joseph Schumpeter put it long ago: ‘there is the will to
conquer, the impulse to fight, to prove oneself superior to others, to succeed for the
sake, not of the fruits of success, but of success itself.’ I look forward to my calls,
my meetings and my trips around Admiral Group. And that’s because the people
I work with care: they care about what they do, they care about the company,
they care about each other and, perhaps most importantly, they care about
everyone who works in Admiral Group. I hope that care lasts for a long, long time.

Finally, people ask me what I’m most proud of. That’s easy. I’m most proud
to be part of an organisation that combines economic success with people
being happy to come to work every day. In fact, what I’m really most proud
of is that we had the ability to see that IF people are happy in their jobs every
day THEN the chances for economic success are greatly enhanced.

Thanks for reading.

Henry Engelhardt
Chief Executive Officer
2 March 2016

2009: The Ox
A lot of hard labour

2010: The Puppy
A cute, cuddly year

2011: The Chameleon
Quite useful
but changeable

2012: The Kangaroo
Bounces around but...
strong and energetic

2013: The baked potato
Comfort food: solid
yet unflashy

2014: The baked Alaska
Hot and cold in a
single bite

ANNUAL REPORT AND ACCOUNTS 2015 09

ADMIRAL GROUP PLC

A look at the years according to Henry…

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONAdmiral’s business model

Prioritising satisfied customers
and happy staff

Efficie
em
plo

Sharing risk with co- and reinsurance partners is
an important part of Admiral’s business and
these relationships are underpinned by
strong underwriting results. Sharing
risk allows Admiral to provide
capital backing for a minority of
its business. This results in a
superior return on capital
for Admiral shareholders
whilst also providing
financial support if
things go wrong.

t c

We go out of our way to make Admiral a GREAT
place to work and believe that if people like
what they do, they’ll do it better. We
have created an environment where
Admiral employees look forward
to coming to work and
providing great service
to customers.

Great pla c e
to w ork

Admiral continues to
focus on bottom-line
profitability in the short,
medium and long term,
and this perspective
guides the decisions we
make across all of our
business operations.
The Group’s strategy is to build
profitable and sustainable business
operations for the long term.

f
i
t

s on
bility

Contr o ll e d test and le

a
r

Satisfied
customers

n
o
i
t
a

R isk mitig
areholder
returns

We are committed to
returning excess capital
to shareholders. At
Admiral we believe that
keeping management
hungry for cash keeps them
focused on the most
important aspects of the
business. We don’t starve our
businesses, but neither do we allow
them the luxury of excess capital.

Chief Financial Officer's review p16
p38
Our people

Valued
customers

Customers who would renew
following a claim (%)

95%

2015
2014
2013

95
95
91

Target:
>85%

Every day revolves around attracting,
keeping and satisfying customers.
We value customers above everything else
and strive to design products that customers
want and that represent value for money.

Our staff and departments are rewarded through
incentive schemes that place emphasis on customer
service, which is crucial to our success.

In 2015 we were honoured to be again voted by
consumers as the Best Motor Insurance Provider at the
Personal Finance Awards for the third year in a row.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Admiral has been in
the Sunday Times
100 Best Companies
to work for list every
year since its inception
which is why in 2015
we won a special award
for that very fact.

Satisfying

Our approach
Risk mitigation

Profit focus

Admiral has always sought to protect
its downside and this is characterised
by: the reinsurance model; a very
conservative approach to claims
reserving; an organic growth strategy;
a test and learn approach of taking
measured steps before investing
further; and a conservative approach
to investment management.

Admiral is focused on bottom-line
profitability in the short, medium and
long term across all its business operations.
We don’t spend too much time thinking
about things like our market share and
size or target customer numbers; these
factors are all by-products, not drivers, of
the decisions that we make that are
focused on generating profits.

Controlled test
and learn
All our growth, at home and overseas,
has been organic. We have built each
business from the ground up, identifying
and understanding the opportunity,
taking measured steps to test how well
we understand the challenge ahead and
the effectiveness of our solutions, and
then to learn from that experience and
from the experience of those who have
tried other strategies.

Customer Services, New Business
and Renewals call answer rates (%)

94%

2015
2014
2013

94
95
92

Target:
>90%

Claims call answer
rate (%)

97%

2015
2014
2013

97
98
95

Target:
>90%

Complaints per
1,000 vehicles

1.0

2015
2014
2013

1.0
1.0
1.2

Target:
<1.4

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONAdmiral’s strategy and KPIs

Doing what we do, and doing it
even better than last year

Our strategy is simple: we aim to
build on our existing strengths.
We’ve broken this down into four
key objectives.

What we’re doing

What this means

Performance

Maintain strong performance of our
UK Car Insurance business

Stay ahead of the competition – in particular
maintaining a material combined ratio advantage.
This means underwriting profitable business and
pricing effectively for risk, providing
great customer service and maintaining
a cost-conscious culture.

Our focus for 2016

Respond to UK market conditions – implement
price changes where appropriate and control
claims and expenses.

Inspiring

CEO Henry Engelhardt
has been awarded the
Best Leader Award
twice in a row by
Sunday Times 100 Best
Companies to Work for.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Presence

Opportunities

Products

Further grow our presence where we are
established in Europe

Take advantage of opportunities presented
by the US auto insurance market

Establish new products which use
our existing expertise

Develop profitable, growing, sustainable businesses
in insurance and price comparison that mirror
the UK model by building on the brand profiles
developed by our strong management teams.

Learn from our experiences in the UK and Europe
and export those learnings to the US. Understand
the US consumer: what insurance cover and
products they want and how they want to buy
them. Educate the US consumer: shopping for
car insurance online is a good thing!

Test and learn approach utilising our existing skills
and expertise to develop products that customers
want and that represent value for money.

Raise the profile of Elephant Auto – grow the
customer base in the existing states in which
we operate and expand into further states.

Continue to develop household as price
comparison becomes a stronger market
for shopping for household cover.

Capitalise on the strong insurer panel developed
on compare.com during 2015 and increase
marketing in key states to raise brand profile.

Continue with the plan:

• Build on ConTe’s second year of profits with

more policy growth.

• Admiral Seguros can break-even on a relatively

small policy base – we now plan to take
advantage of the change in ‘Baremo’ to grow.

• L’olivier – assurance auto to take advantage

of French legislative change and grow.

• Generate further growth from Rastreator and

LeLynx’s market-leading positions in the Spanish
and French price comparison markets by a focused
brand strategy and multi-product offering.

European turnover (£million)

Elephant Auto turnover (£million)

Household customers

£137.7m

-2%

2015
2014
2013
2012

137.7
139.9

147.0

128.8

European customers

532,800

+10%

2015
2014
2013
2012

532,800

483,700

445,000

383,550

310,400

+91%

2015
2014
2013

162,600
43,600

310,400

£94.7m

+43%

94.7

66.3

2015
2014
2013 40.8
2012

30.4

Elephant Auto customers

140,200

+29%

140,200

108,900

2015
2014
2013 70,300
2012

52,450

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

Questions and answers
Henry Engelhardt, David Stevens and Geraint Jones

An exciting,
dynamic organisation

In a year of leadership transition,
what have you been talking about?

Henry-ism: The internet is an irresistible force

25 years in one industry, one company is a long time. Besides
the internet, what has been the biggest change to the car
insurance industry you’ve seen?

Henry: Wow, glad you asked that question! I think the biggest change
has been the sophistication of pricing. When we were working on the
business plan for Admiral we would, literally, go into a broker’s office
and ask for a quote and the broker would take out a laminated paper
with a company’s rating engine on it. He would then go through the
questions with us at the counter, using the paper to do the maths that
would determine the quote. One time we asked the broker for the
laminated paper, he gave it to us and so we had all of General
Accident’s rates!

Another time, we were doing some rate testing before we launched and
we noticed that one firm we were friendly with at the time didn’t rate
for roofers. So we asked the Underwriter, why didn’t he rate for roofers?
He thought for a minute and then said, ‘Don’t like roofers.’

In our early years I’d take the rating table results home with me on the
weekend and come back with three or four rate changes to make.

Today rating is a massive mix of questions, information, multi-dimensional
tables, scoring, etc. Pricing has gone from art to mathematical science.

Henry-ism: The Customer, the customer, the customer

Q What do you see as the next big challenge for the UK motor

insurance industry?

David: In the short term, the biggest single challenge is to work out
how to turn telematics from a high premium niche product accounting
for less than a tenth of market new business volumes, to a mass market
offering. Part of that evolution will, in the medium term, involve increased
co-operation between insurers and vehicle manufacturers.

You have announced an additional return of capital as part of
the ‘special’ dividend for 2015. Could you explain why and
should shareholders expect more of these additional returns?

Geraint: We anticipate that the additional payment of 11.9 pence per share
we’ve announced as part of the final 2015 dividend is the first of a number
of additional special returns to shareholders over the next two to three years
which we expect to total about £150 million to £200 million.

This comes about as a result of Admiral entering the new Solvency II
regime with surplus capital, and, consistent with our belief in not holding
excess capital in the company, we plan to return that surplus to shareholders.

A level of uncertainty associated both with transitioning to the new regime
and our planned application for approval to use an internal model for
solvency capital requirements in 2017 means we will release this surplus
capital gradually over the next couple of years.

David Stevens, CBE
Chief Operating Officer

Henry Engelhardt, CBE
Chief Executive Officer

Geraint Jones
Chief Financial Officer

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Q What are the biggest changes you have seen in Admiral?

Henry: The development of the culture is something I’ve watched with
great pride. We are such a better company today than we were 20-odd
years ago. But we’ve taken the things that just seemed like common
sense to us then, like treating all staff with respect, not being afraid to
say ‘thank you’, having a good time in the office while still working hard
… and we’ve made those the corner-stones of how we work.

Another big change has been our internationalism over the last 10 years.
Not only do we have operations in 5 countries, but we share knowledge
and we also get to know other cultures. As these international operations
have grown, and all of them have faced different challenges, different
from each other and different to the UK, we are all able to learn from
the way those challenges are tackled. It’s interesting to see, for example,
that our Spanish team in Seville supports the IT development for France
and Italy. Despite all the differences we all share some of the Admiral
basics. When you go to an Admiral office, whether it’s in Gurgaon, Richmond,
Seville, Lille or wherever, you know it’s an Admiral office.

Henry-ism: Have fun, satisfy customers, make money

Your Household business is growing. What changes have you
seen and how do you see this market developing?

David: The household market is in the process of being transformed
by price comparison sites. By this time next year, it’s likely that over half
of sales of household policies will be via price comparison sites.

This gives opportunities to new entrants such as ourselves to grow
a significant business cost effectively. In the medium term, the size of
the opportunity will also depend on two, as yet unproved competencies
– the ability to cross-sell to add another source of material, cost effective
acquisition and the ability to price better than competitors to add a
claims ratio advantage to our expense ratio advantage.

Q What does Solvency II mean for Admiral’s dividend policy?

Geraint: Entering the new regime prompted a review of the policy
(which had been in place since we floated in 2004) and we are making
a change to increase the normal dividend level from 45% to 65% of
post-tax profits. We will also continue to return to shareholders excess
capital beyond what we need to keep in the company for solvency
and buffers.

Whilst we don’t expect a change in the total dividend payout ratio for
the foreseeable future, we think that the increase in the normal element
results in a better balance between normal and special, in light of the
fact that Admiral has paid out over 90% of earnings to shareholders every
year since float. Including the final 2015 dividend, we’ve paid out a total
of £2.07 billion in dividends in just over 11 years – 2.9 times the value of
Admiral at IPO.

Henry-ism: The team, the team, the team

Can you fast forward 25 years to see the car insurance
industry and Admiral of the future?

Henry: No.

That’s the short answer. The long answer is that I don’t know what it will
look like, but I know it won’t look like what it looks like today!

My prediction is that there will be many, many more vehicles, including
flying ones. I say this because as vehicles are created that have fewer and
fewer accidents I don’t think they’ll need to be made of heavy metals.
So they will be made of things like plastic, or paper, or bamboo or whatever.
They’ll be lighter and less costly to make (3D printed cars?) and so more
and more people will own more and more cars. And there will still be a
need for insurance, liability, storm damage, vandalism, theft, etc., but
premiums will be very modest. So whereas the UK today is some
27 million private vehicles with premium of, say £11 billion, in 25 years
you might have 50 million vehicles for the same population and premium
of £9 billion. Check back in 2041 and we’ll see if I’m right or not!

The Admiral of the future will be a different organisation. That’s because
Admiral is like a living culture, it’s always changing, to grow something
new... It’s one of the reasons Admiral is such an interesting place to work:
because we never sit still. I suspect we’ll be doing a whole lot more than
car insurance but exactly what I do not know. What I sincerely hope however,
is that Admiral is still run by nice people (nicer than me, for sure!) who
support each other when things don’t go well and know how to celebrate
success when they see it.

Henry-ism: Nothing succeeds like success

How do you see the Group’s strategy changing under
your leadership?

David: Not a lot. It would be surprising if I said anything else given that
I’ve been on the Board and working with Henry throughout our Admiral
life. That’s not to say that our strategy won’t evolve, notably in response
to changes in the markets in which we operate and new markets we
may enter.

You mentioned planning to seek approval to use an internal
model in 2017. What does this mean and what are the steps
to get there?

Geraint: Although Admiral will use the Solvency II Standard Formula
to calculate capital requirement in the initial stages of Solvency II being
live, we plan to apply in 2017 to use our own model for that calculation.
The model will capture all aspects of Admiral’s business and better reflect
our risk profile (something the Standard Formula doesn’t do well, hence
the Capital Add-on).

If we make the application in 2017, the earliest we expect to be able to
use the model for the capital requirement is the end of that year.

One benefit of applying for model approval after a number of other
insurers have been through the process is that we’re able to take the
lessons learned in that first phase and hopefully benefit from them in
our programme. We’ll keep you updated.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

Chief Financial Officer's review

A record profit and
a record dividend

In summary

Record Group full year profit*¹ for 2015 of £377 million
(2014: £357 million)

Record regular dividend of 51.5 pence per share together with
a return of excess capital representing 11.9 pence per share

Record UK car insurance profit of £443 million and
encouraging signs of market rate increases

Over 4.4 million Group customers

Substantial growth in UK household insurance

A very positive result from Admiral’s UK Car Insurance business in 2015 helped
the Group post a very pleasing record full year profit of £377 million – 6%
higher than last year. We’ll also pay a record dividend on the back of that
result (more on which below). The business review that follows contains a
number of financial and operational highlights. I’d draw out:

• Our continued substantial growth in UK household insurance (plus a small
profit, a market-beating expense ratio and very limited exposure to the
terrible UK weather in the latter part of 2015).

• Another profit in ConTe in Italy with continued improvements in prior year

claims reserves.

• The (successful) first stage release of our new IT system, Guidewire, in the UK.

• A successful end to our Solvency II implementation efforts and a very

strong capital position entering the new regime.

• Ending 2015 with over 4.4 million insurance customers (+9%), 25% of which are
in businesses beyond UK car insurance and almost 700,000 outside the UK.

• Of course, the record UK car insurance profit (£443 million), coupled with
5% growth in customer numbers and encouraging signs of market rate
increases in the second half of the year.

• Agreeing extensions to UK car insurance reinsurance agreements out to the

end of 2018.

To balance things a little, Confused.com experienced another tough year and
saw profits fall to £12.5 million from £15.8 million. And, as Kevin explains in
his note, the loss ratio at Elephant Auto came under pressure this year.

Along with hangovers and apocalyptically bad weather, 1 January 2016 also saw the
implementation of the new European Solvency II regime. As we’ve said previously,
Admiral is initially using the Standard Formula to calculate its requirement and has
agreed a capital add-on with the Prudential Regulation Authority which reflects
risks specific to Admiral that aren’t captured by the Standard Formula.

We prepared well for the new regime and go into 2016 with a healthy capital
position. Consistent with our long-standing belief in not holding excess capital
in the company, we intend to return to shareholders funds that aren’t needed
for solvency and buffers. There are though a number of uncertainties that
remain, not least of which is our plan to submit an application for approval
to use an internal model to calculate capital requirements during 2017 and
also the 2016 year-end reassessment of the capital add-on by the PRA. We,
therefore, think it’s prudent to return the capital surplus gradually, whilst the
uncertainty reduces over the next two to three years. The final 2015 dividend
includes the first such additional payment of £33 million or 11.9 pence per
share. We’ll separately identify these returns of capital as we make them.

Turnover (£billion)

Profit before tax*¹ (£million)

£2.12bn

+8%

£376.8m

+6%

2015
2014
2013
2012
2011

2.12

1.97
2.03

2.22
2.19

2015
2014
2013
2012
2011

376.8

356.5
370.7

344.5

299.0

Geraint Jones

*¹ Represents Group’s share of profit before tax after excluding Minority Interests.

Refer to note 12d for a reconciliation to financial statement line items.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

The final 2015 dividend totals
63.4 pence per share (£175 million).
This includes a regular level of
dividend of 51.5 pence per share
equal to 98% of earnings per share,
plus a return of excess capital of
11.9 pence per share.

We are also announcing a change in our dividend policy involving an increase
in the ordinary dividend level (to 65% of post-tax profits from 45%), with a
continuing commitment to distribute whatever earnings we do not need to
retain to support and develop the business. The increased ordinary percentage
results in a more appropriate balance between normal and special dividends,
but for the foreseeable future we expect to see similar total payout ratios to
previous years.

The final 2015 dividend totals 63.4 pence per share (£175 million). This includes
a regular level of dividend of 51.5 pence per share (representing normal and
special elements) equal to 98% of earnings per share, plus the 11.9 pence per
share additional return I refer to above. Further detail on the Solvency II
capital position and dividends is included in the Business Review.

2016 brings monumental change for Admiral Group as one of our founders
Henry Engelhardt retires from full time Group CEO duties. We’re grateful
Henry is staying with the Group to manage the price comparison CEOs, but
there’s no doubt he’ll leave a very big hole. Alastair has paid appropriate tribute
to Henry’s contribution to Admiral earlier in the report (and soon-to-be Group
CEO David has his say shortly), so I’ll just say that I count myself very lucky
to have had the chance to work for Henry and, equally so, that my next boss
and Admiral’s next CEO is David Stevens.

Geraint Jones
Chief Financial Officer
2 March 2016

Group results and dividend
• Pre-tax profits*¹ increased 6% to £376.8 million (2014: £356.5 million).

• UK Car Insurance profit increased by 11% to £443.0 million

(2014: £398.0 million).

• International Car Insurance losses totalled £22.2 million (2014: £19.9 million).

• The combined Price Comparison business made losses of £7.2 million
(2014: profit £3.6 million) reflecting the investment in compare.com.

• Other Group Items, including employee share schemes*² and net debt

financing charges, amounted to a cost of £36.6 million (2014: £24.6 million).

*¹ Represents Group’s share of profit before tax after excluding Minority Interests. Refer to note 12d

for a reconciliation to financial statement line items.

*² Segment and business results exclude share scheme charges which are accounted for in

Other Group Items.

The increase in Group profit was predominantly due to the result of the UK
car insurance business, offset by the ongoing investment in compare.com
– the Group’s US comparison business (Admiral’s share of the loss was
£21.5 million in 2015 (2014: £15.0 million)).

Group turnover of £2.12 billion increased by 8% compared to 2014 (£1.97 billion).
This was mainly due to the impact of growth across the operations and, in
the UK Car Insurance business, improved retention and the impact of an
increase in average premiums. During 2015, the Group increased its customer
base to 4.43 million from 4.05 million at 31 December 2014, year-on-year
growth of around 380,000 (9%).

Further details by segment are set out below.

Earnings per share
Earnings per share increased by 4% to 107.3 pence (2014: 103.0 pence).
The increase is lower than the increase in pre-tax profit due to a slightly
higher effective tax rate in 2015 (21%) compared to 2014 (20%).

Dividends
The Directors have announced a change in the Group’s dividend policy to
increase the ordinary dividend level to 65% of post-tax profits from 45%,
and a continuing commitment to return excess capital to shareholders
beyond what is required to be held to meet solvency requirements and
buffers. The increase in the normal percentage reflects a better balance
between the normal and special elements of the dividend.

In addition, following the calculation of the Group’s regulatory capital requirement
under Solvency II, and the approval of a capital add-on to the Standard
Formula by the Prudential Regulatory Authority (PRA), the Directors have
proposed an additional return of capital representing an element of surplus
capital not required for solvency. The Group will adopt a phased approach to
returning this surplus to shareholders, recognising the Group’s plan to submit
an application for approval to use an internal model to calculate capital
requirements during 2017 and the reassessment of the capital add-on at
the end of 2016.

The special dividend and the additional return of capital are calculated with
reference to distributable reserves after considering capital that is required to
be held a) for regulatory purposes; b) to fund expansion activities; and c) as a
further prudent buffer.

The Directors have therefore proposed a final dividend for the financial year
of 63.4 pence per share.

The final dividend of 63.4 pence per share is, therefore, made up of three elements:

• 33.6 pence per share representing a normal element, based on the
updated dividend policy of distributing 65% of post-tax profits.

• A special element of 17.9 pence per share.

• An additional return of capital of 11.9 pence per share, representing

an element of surplus capital not required for solvency.

The payment date is 3 June 2016, ex-dividend date 12 May 2016 and record
date 13 May 2016.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONChief Financial Officer's review continued

Return on capital
Admiral’s capital efficient and highly profitable business model achieved
a return on equity of 49% (2014: 52%).

A key part of the business model is the extensive use of co- and reinsurance
across the Group which provides both loss protection and capital relief.

Divisional performance highlights
The Group’s UK Car Insurance business accounts for 81% of Group turnover
(2014: 81%) and 75% of customers (2014: 78%). The relative decrease in the
proportion of Group customer numbers is due to the continued growth and
development of the Group’s other businesses, whilst the relative stability of
turnover reflects the premium increases experienced in the UK during 2015.

In 2015, the UK business implemented a number of premium increases as
rates in the market started to rise. The number of vehicles insured in the UK
business increased by 5% to 3.30 million (2014: 3.15 million).

Supported by strong releases from prior year claims reserves on the back of
continued positive development in projected claims costs, the combined ratio
improved to 78.2% (2014: 79.5%) and profit before tax was £443.0 million –
up 11% on 2014’s result of £398.0 million.

Higher average premiums in the competitive UK market with continued
success in attracting and retaining customers, contributed to an increase
in UK turnover of 7% to £1.71 billion (2014: £1.60 billion).

Outside of the UK, Admiral’s International Car Insurance businesses
continue to develop, with combined turnover rising 13% to £232.4 million
(2014: £206.2 million) and customer numbers approaching 700,000 –
an increase of 14% on a year earlier. The 2015 Group results include another
small profit generated by ConTe and improved results for Admiral Seguros
following the achievement of break-even (on an underwriting year basis).
The combined loss from the international insurance operations was higher
in 2015 at £22.2 million (2014: £19.9 million), primarily due to ongoing
investment in France and the US offset by the improved ConTe profit.
The overall international loss equalled 6% of the Group’s profit before tax,
in line with 2014.

Admiral’s Price Comparison businesses made a combined loss of £7.2 million
(2014: profit £3.6 million). In a very competitive UK comparison market,
Confused.com, the Group’s UK Price Comparison business, reported a pre-tax
profit of £12.5 million – £3.3 million lower than 2014’s result. This profit was
offset by a net loss within the international price comparison businesses
where investment in compare.com of £21.5 million (2014: £15.0 million)
outweighed profits from the European price comparison operations,
Rastreator in Spain and LeLynx in France, of £1.8 million (2014: £2.8 million).
This reduced profit reflected increased marketing costs as both businesses
sought to grow market share.

Other Group key performance indicators include:

• Group loss ratio 65.1% (2014: 67.8%) – a reduction in the UK loss ratio resulting

from higher reserve releases alongside a stable international loss ratio.

• Group expense ratio 20.5% (2014: 18.7%) – slight increases in both UK and
international ratios reflecting ongoing investment in international and the
impact of a levy adjustment in the UK.

• Group combined ratio 85.6% (2014: 86.5%).

Investments and cash
Investment strategy
Admiral’s investment strategy was unchanged in 2015 and the Group
continued to invest in the same asset classes as previous years.

The main focus of the Group’s strategy is capital preservation, with
additional priorities including low volatility of returns and high levels
of liquidity. All objectives continue to be met.

A shift in allocation of funds, which commenced in 2014, continued during
the first half of 2015 with a greater proportion invested in fixed income and
other short dated securities (and less in money market funds and deposits).
There has been no significant change in credit quality and over 90% of assets
are rated A- and above.

The Group’s Investment Committee performs regular reviews of the strategy
to ensure it remains appropriate.

Cash and investments analysis

31 December 2015

UK Car
Insurance
£m

International
Car
Insurance
£m

Price
Comparison
£m

Fixed income and
debt securities
Money market funds
Cash deposits
Cash
Total

1,230.0
568.1
244.3
93.8
2,136.2

—
40.0
3.2
94.3
137.5

—
—
—
59.5
59.5

31 December 2014

UK Car
Insurance
£m

International
Car
Insurance
£m

Price
Comparison
£m

822.7
808.6
261.0
101.8
1,994.1

—
96.5
2.1
38.6
137.2

—
—
—
49.0
49.0

Fixed income and
debt securities
Money market funds
Cash deposits
Cash
Total

Other
£m

Total
£m

198.2
19.6
20.1
17.7
255.6

1,428.2
627.7
267.6
265.3
2,588.8

Other
£m

199.1
4.1
—
66.5
269.7

Total
£m

1,021.8
909.2
263.1
255.9
2,450.0

Money market funds, fixed income and debt securities continue to comprise
the majority of the total; 79% at 31 December 2015 and 2014.

Investment and interest income in 2015 was £32.6 million, an increase of
£17.2 million on 2014 (£15.4 million). The increase was due to the full year
impact of the increased allocation of funds to fixed income and other short
dated securities that took place across 2014. Further allocations of funds to
fixed income and other short dated securities continued in 2015. In addition,
investment and interest income for 2014 was offset by an adjustment (of
approximately £8 million) relating to notional investment income being accrued
on quota share reinsurance funds withheld arrangements. The cumulative
accrual at 31 December 2015 is £8 million, unchanged from a year earlier.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

The Group continues to generate significant amounts of cash and its
capital-efficient business model enables the distribution of the majority
of post-tax profits as dividends.

Operating cash flow, before
transfers to investments
Transfers to financial investments
Operating cash flow
Tax and interest payments
Investing cash flows
(capital expenditure)
Financing cash flows (2014 offset
by proceeds of debt issue)

Foreign currency translation impact
Net cash movement
Movement in investment
valuation reserve
Net increase in cash and
financial investments

2013
£m

616.8
(295.3)
321.5
(88.5)

2014
£m

540.2
(286.3)
253.9
(77.0)

2015
£m

509.3
(142.0)
367.3
(63.8)

(10.1)

(47.5)

(43.3)

(250.3)

(1.3)
(28.7)

(64.4)

3.0
68.0

(253.4)

2.6
9.4

—

10.9

(12.6)

266.6

365.2

138.8

The main items contributing to the significant operating cash inflow
are as follows:

Profit after tax
Change in net insurance liabilities
Net change in trade receivables
and liabilities
Non-cash income statement items
Tax and net interest expense
Operating cash flow, before
transfers to investments

2013
£m

286.9
186.2

22.3
38.1
83.3

2014
£m

281.6
187.5

(34.7)
36.7
69.1

2015
£m

291.8
148.7

(55.7)
47.6
76.9

The Group’s regulatory capital from January 2016 will be based on the
Solvency II Standard Formula, with a capital add-on agreed by the PRA
to reflect recognised limitations in the Standard Formula with respect
to Admiral’s business (predominantly in respect of profit commission
arrangements in co- and reinsurance agreements and risks arising from
claims including Periodic Payment Order (PPO) claims).

The capital add-on to the Standard Formula approved by the PRA in
December 2015 will be the subject of a PRA review in December 2016.
The Group plans to submit an application for approval to use an internal
model to calculate capital requirements during 2017.

The majority of the Group’s capital requirement is derived from its European
insurance operations, Admiral Insurance (Gibraltar) Limited (AIGL) and Admiral
Insurance Company Limited (AICL). The estimated (and unaudited) Solvency II
position for the Group at the date of this report for the Group was as follows:

Group

Eligible own funds (pre 2015 final dividend)
2015 final dividend
Eligible Own Funds (post 2015 final dividend)
Solvency II capital requirement
Surplus over regulatory capital requirement
Solvency ratio (post dividend)

£bn

1.03
(0.18)
0.86
(0.42)
0.44
206%

In July 2014, the Group completed the issue of £200 million of ten year
dated subordinated bonds. The rate of interest is fixed at 5.5% and the
bonds mature in July 2024. The bonds qualify as tier two capital under
the Solvency II regulatory regime.

Taxation
The tax charge reported in the Consolidated Income Statement is £76.9 million
(2014: £69.1 million), which equates to 21% (2014: 20%) of profit before tax.
The higher effective rate of taxation compared to 2014 results from reductions
in deferred tax assets relating to losses in the Group’s US businesses.

616.8

540.2

509.3

Henry

Geraint: In response to serious questions about
whether we’d consider selling businesses… His reply
is usually ‘Everything’s for sale… apart from my wife’.

The Group’s results are presented in three segments – UK Car Insurance,
International Car Insurance and Price Comparison. Other Group Items are
summarised in a fourth section.

Total cash plus investments increased by £139 million or 6% (2014: £365 million,
18%). 2014 was boosted by the proceeds of the £200 million bond issue.

Capital structure and financial position
Admiral’s capital-efficient and profitable business model led to a return on
equity of 49% (2014: 52%). A key feature of the business model is the extensive
use of co- and reinsurance across the Group. The Group has agreed terms
with partners to extend its UK motor reinsurance arrangements until the end
of 2018. Extensions have been agreed on similar contract terms and
conditions to those currently in effect, with the exception that it is planned
for the Group to reduce its underwriting share from 25% to 22% with effect
from 2017. Similar long term arrangements are in place in the Group’s
international insurance operations and UK Household Insurance business.

The Group continues to manage its capital to ensure that all entities within
the Group are able to continue as going concerns and that regulated entities
comfortably meet regulatory capital requirements. Surplus capital within
subsidiaries is paid up to the Group holding company in the form of dividends.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

UK Insurance review

Market discipline

UK Insurance strategy

Achievements and goals

The strategy for Admiral’s UK business is
unchanged and remains simple:

• The Group aims to grow profitably its share of
the UK private motor insurance market whilst
maintaining a capital‑efficient structure.

• At the same time, Admiral endeavours always
to give excellent service to customers, whilst
providing a positive environment in which staff
can work and develop.

UK Insurance achievements in 2015
Profit before tax increased 11% to £443 million
(2014: £398 million)

Record number of vehicles insured up 5% at 3.30 million
(2014: 3.15 million)

Combined ratio improved in 2015 to 78% (2014: 80%)

Profit generated from the portfolio of insurance products
that complement the core car insurance product of
£175 million (2014: £182 million)

Strong policy growth in Household to 310,000 (2014: 162,600)

95% of customers who have submitted a claim would
renew with Admiral, based on their claims experience
(2014: 95%)

96% of staff say that Admiral is a friendly place to work
according to the Great Place to Work survey

5th Best Big Company to Work For, The Sunday Times 100
Best Companies to Work For

4th Best Large Workplace in the UK, Great Place
to Work Institute

Best Car Insurance Provider in the Personal Finance
Awards for the third year in a row

UK Insurance goals for 2016
Appropriate rate changes in response to claims trends and
market conditions

Continued reserve releases if back years develop
as expected

Successful transition to new IT system (Guidewire)

David Stevens, CBE

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

This will be my last UK insurance review before taking over from Henry as CEO later
this year. Next year he’ll be leaving me the responsibility of choosing just the right
analogy, after years of Henry’s always entertaining, sometimes illuminating,
occasionally enigmatic, choices. That’s just one of the challenges of taking
over from Henry, after his 25 years of pretty much faultless stewardship of
the company. Perhaps the biggest single advantage I have in tackling this
challenge is having watched Henry, over those years, mix the brilliant blend
of inspiration, determination, sensitivity and vision that creates, in Admiral,
something special for staff and shareholders alike.

Given it’s my last UK Insurance Review, I’ll take the long view and start by
going back to our early days as a quoted company.

For a while, after our flotation, we were without comparison. Or perhaps, more
accurately, ‘without comparables’. We were, for a number of years, the only
quoted direct personal lines insurer. Analysts and commentators could only
half-heartedly benchmark us against a couple of battle-scarred, multi-national,
multi-line composites and a mixed selection of Lloyd’s managing agencies.
Roll on ten years and the stock market is awash with companies that are
primarily direct personal lines insurance companies: ourselves; Direct Line;
Esure; most recently Hastings; and, notwithstanding its initial reluctance
to acknowledge its insurance-ness, Saga. Ten years ago quoted focused
personal lines players (ourselves and a couple of Lloyd’s motor operations)
accounted for 5% of the UK motor market. The other 95% was buried within
massive global insurers and banks for whom the UK car insurance result was
not that big a deal. Now 40% of the UK car insurance market is in the hands
of the quoted personal line players.

Good news for Admiral?

Or bad?

Well, both to be honest.

The investment community has tended to look askance at a sector whose
extreme cyclicality has, over the decades, delivered an unappetising combination
of very modest average returns on capital, combined with extreme volatility
around that average. Might the market discipline, the extra scrutiny and
transparency, the better alignment of manager and owner interests, mean
that, in this new world, UK car insurers could lift their game enough, both
to push up cross-cycle average returns, and to moderate the ups and
downs of the cycle?

It’s too early to make a call, but I am somewhat encouraged by premium
movements over the last 18 months. Market-wide price increases from mid 2014
and throughout 2015 should mean that the combined ratio for accident year
2015, the most recent worst point of the car insurance cycle, will be materially
below the 120% plus combined ratios (on a pure year, before reserve release,
basis) that marked the last two worst points (1998/9, 2009/10). If sustained
over a decent period of time, evidence of higher and less volatile returns
must ultimately increase investor interest in non-life insurance as a whole.

40% of the UK car insurance
market is in the hands of the quoted
personal line players.

So what’s the downside of more quoted focused personal lines players?

Market discipline should not only make them more rational managers of
their business, it should also make them more effective competitors – more
sophisticated pricers, better claims handlers, lower cost operators. It should,
in short, help them narrow the long-standing and substantial combined ratio
gap between ourselves and themselves. Have they?

Not on expense ratios. The market and our own car insurance expense ratio
have oscillated, but our relative outperformance has stayed consistent at
12–14 percentage points below market averages. While on household, despite
our sub-scale circa 1% market share and our big share of new business
versus renewals, we’re already beating the market average expense ratio.

What about on claims ratios?

It’s hard to know, to be honest. It takes a good three years for enough claims
to settle, or at least stabilise, for us to be able to compare ourselves reliably
to the market as a whole. What we can say is the 2011/12 years look to be
delivering loss ratios of 11–12 percentage points below market averages; less
than the 20 percentage points advantage in 2009 (when price comparison
neophytes were severely punished); but no less than 2005/6, when we
outperformed by 10–11 percentage points.

We insured about 1.2 million cars in the UK in 2006, and 3.0 million in 2012.
If you’d asked me back in 2006 if we could insure almost three times as many
cars in 2011/12, and still maintain the same claims ratio advantage versus
the market, I’d have said ‘probably not’.

If you ask me now if we have maintained the same claims advantage versus
the market in 2015 (now with 3.3 million cars on cover) as in 2006 and in
2012, I’d again say ‘probably not’.

But I have been proved wrong before.

David Stevens
Chief Operating Officer
2 March 2016

Henry

David: Henry challenges established wisdom –
rejecting doing something a certain way because
everyone else does. ‘Admiral is different’ is an
expression of Henry's commitment to do things
the right way, the best way, rather than the
apparently obvious way.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION The market and our own

car insurance expense ratio
have oscillated, but our relative
outperformance has stayed
consistent at 12–14 percentage
points below market averages.

UK Insurance review continued

UK Car Insurance financial review
Non-GAAP*¹ format income statement

Turnover*²
Total premiums written*³
Net insurance premium revenue
Investment income
Net insurance claims
Net insurance expenses
Underwriting profit
Profit commission
Underwriting profit plus
profit commission
Net other income
Instalment income
UK Car Insurance profit before tax*4

2013
£m

1,698.9
1,553.0
425.1
12.4
(251.3)
(52.1)
134.1
99.3

233.4
136.8
23.7
393.9

2014
£m

1,602.7
1,453.1
394.3
11.5
(198.3)
(44.6)
162.9
71.8

234.7
140.7
22.6
398.0

2015
£m

1,708.2
1,539.7
386.5
26.1
(161.3)
(52.1)
199.2
85.2

284.4
131.9
26.7
443.0

*¹ GAAP = Generally Accepted Accounting Practice.

*² Turnover (a non-GAAP measure) comprises total premiums written and Other Revenue. Refer to

note 12a for a reconciliation to financial statement line items.

*³ Total premiums written (non-GAAP) includes premium underwritten by co-insurers.

*4 UK Car Insurance profit before tax includes Minority Interests. The Minority Interests’ share

of profit before tax is insignificant.

Split of underwriting profit

Motor
Additional products
Underwriting profit

Key performance indicators

Reported motor loss ratio*¹
Reported motor expense ratio*²
Reported motor combined ratio
Written basis motor expense ratio
Reported total combined ratio*³
Claims reserve releases –
original net share*4
Claims reserve releases –
commuted reinsurance*5
Total claims reserve releases
Vehicles insured at year end
Other Revenue per vehicle

2013
£m

121.8
12.3
134.1

2013

68.0%
15.0%
83.0%
14.5%
81.0%

2014
£m

144.2
18.7
162.9

2014

68.6%
14.4%
83.0%
16.0%
79.5%

2015
£m

183.2
16.0
199.2

2015

64.1%
16.9%
81.0%
16.3%
78.2%

£53.3m

£66.8m

£84.6m

£40.9m
£94.2m
3.02m
£67

£70.6m
£137.4m
3.15m
£67

£88.8m
£173.4m
3.30m
£63

*¹ Motor loss ratio adjusted to exclude impact of reserve releases on commuted reinsurance

contracts. Reconciliation in note 12b.

*² Motor expense ratio is calculated by including claims handling expenses that are reported within

claims costs in the income statement. Reconciliation in note 12c.

*³ Reported total combined ratio includes additional products underwritten by Admiral.

*4 Original net share shows reserve releases on the proportion of the portfolio that Admiral wrote on

a net basis at the start of the underwriting year in question.

*5 Commuted reinsurance shows releases on the proportion of the account that was originally ceded

under quota share reinsurance contracts but has since been commuted and hence reported
through underwriting and not profit commission.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

This year Admiral Group
customers increased to
4.4 million, a record number.

Growing

UK Car Insurance – co-insurance and reinsurance
Admiral (in the UK and internationally) makes significant use of proportional
risk sharing agreements, where insurers outside the Group underwrite a
majority of the risk generated, either through co-insurance or quota share
reinsurance contracts. These arrangements include profit commission terms
which allow Admiral to retain a significant portion of the profit generated.

At 31 December 2015, all material UK quota share reinsurance contracts
for underwriting years up to and including 2013 had been commuted.
All reinsurance for the 2014 and 2015 years remained in effect.

Co-insurance and reinsurance arrangements expose Admiral to two principal risks:

• The risk of reduced availability of co-insurance and reinsurance arrangements.

The two principal advantages of the arrangements are:

• Credit risk of significant counterparties through default of a reinsurer.

• Capital efficiency: a significant proportion of the capital supporting the

underwriting is held outside the Group. As Admiral is typically able to retain
much of the profit generated via profit commission (refer below for further
details), the return on Group capital is higher than in an insurance company
with a standard business model.

• Risk mitigation: co- and reinsurers bear their proportional shares of claims
expenses and hence provide protection should results worsen substantially.

Arrangements for 2016 to 2018
The Group has agreed terms with partners to extend its UK reinsurance
arrangements until the end of 2018. Extensions have been agreed on similar
contract terms and conditions to those currently in effect, with the exception
that it is planned for the Group to reduce its underwriting share from 25% to
22% with effect from 2017.

The proportion underwritten by Munich Re (via Great Lakes, a UK subsidiary
of Munich Re) is on a co-insurance basis, such that 40% of all motor premium
and claims for the 2015 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.

Munich Re will underwrite 40% of the UK business until at least the end of 2018.

All other agreements are quota share reinsurance.

Admiral has options to commute quota share reinsurance contracts and typically
does so after two or three years of an underwriting year’s development when
there is a reasonably certain view on the year’s outcome. There is little or no
impact of commutation on profit or the timing of profit recognition.

After commutation, movements in booked loss ratios result in reduced
or increased net claims costs (and not profit commission).

Details of the potential impact and mitigating factors the Group has in place
are available on pages 34 to 37.

The European and US arrangements are explained in the International
Car Insurance section and the UK Household arrangements are explained
in the Other Group Items section.

UK Car Insurance financial performance
Following an unprecedented period of premium deflation over 2011–2013,
2015 saw prices continue to rise following an early indication of increasing
prices emerging in late 2014. Admiral started to implement rate increases
in early 2014, ahead of the market, and the business performance in 2015
benefited from this pricing strategy. Turnover increased by 7% to over
£1.7 billion and vehicles increased to a record level of 3.3 million.

Profit
Profit from UK Car Insurance increased 11% to £443.0 million (2014: £398.0 million).
Profit from underwriting and profit commission increased by 21% to £284.4 million
(2014: £234.7 million), reflecting an improved combined ratio whilst investment
income increased by £14.6 million to £26.1 million (2014: £11.5 million). The
combined ratio improvement was largely due to higher reserve releases that
resulted from positive claims development, in particular from the 2011, 2012
and 2013 years.

The increase of £14.6 million in investment income was due to the full year
impact of the increased allocation of funds to fixed income and other short
dated securities that took place across 2014. In addition, investment and
interest income for 2014 was offset by an adjustment (of approximately
£8 million) relating to notional investment income being accrued on quota
share reinsurance funds withheld arrangements. Net other income and
instalment income decreased by 3% to £158.6 million (2014: £163.3 million).

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONUK Insurance review continued

Turnover and premiums
UK turnover of £1.71 billion increased by 7% (2014: £1.60 billion) primarily due
to increases in average premiums which also led to a 6% increase in total
premiums written to £1.54 billion (2014: £1.45 billion). The closing vehicle
count increased to a record 3.30 million (2014: 3.15 million). Average written
premium for the year was around £470, up 4% on 2014 (2014: £453), reflecting
rate increases implemented during 2014 offset by portfolio mix changes
(notably a shift in the balance of the portfolio towards renewal business).

Underwriting result and profit commission
The UK Car Insurance motor combined ratio improved in 2015 as shown below:

UK Car Insurance Motor combined ratio

2014

2015

Loss ratio excluding reserve releases from
original net share and commuted reinsurance
Reserve releases – original net share
Loss ratio net of releases –
original net share*¹
Expense ratio
Combined ratio – original net share*¹

86.9%
18.3%

68.6%
14.4%
83.0%

87.7%
23.6%

64.1%
16.9%
81.0%

*¹ Ratios calculated on original net share use the proportion of the portfolio that Admiral wrote

on a net basis at the start of the underwriting year in question.

The reported motor combined ratio improved to 81.0% (2014: 83.0%) (both
figures exclude the impact of reserve releases from commuted reinsurance
contracts). This reflects an improved reported loss ratio of 64.1% (2014: 68.6%),
which was due to the impact of higher reserve releases (£84.6 million v
£66.8 million). These higher releases were possible due to positive claims
development during 2015 that resulted in improvements in the projected
ultimate loss ratios, especially for the 2011 to 2013 underwriting years.

Despite these higher reserve releases in 2015 the margin held in booked
reserves above actuarial best estimates remains significant. Reflecting the
level of uncertainty in motor insurance reserving (particularly relating to the
ultimate costs of very large claims), the margin remains at the upper end
of the Group’s reserving policy.

Excluding reserve releases, the loss ratio increased to 87.7% (2014: 86.9%),
largely due to the impact of lower premiums earned in 2015.

Claims reserving
Admiral’s reserving policy (both within the claims function and in the
financial statements) is initially to reserve conservatively, above
internal and independent projections of ultimate loss ratios. This is
designed to create a margin held in reserves to allow for unforeseen
adverse development in open claims and typically results in Admiral
making above industry average reserve releases. Admiral’s booked
claims reserves continue to include a significant margin above
projected best estimates of ultimate claims costs.

As profit commission income is recognised in the income statement
in line with loss ratios accounted for on Admiral’s own claims
reserves, the reserving policy also results in profit commission income
being deferred and released over time.

The earned motor expense ratio increased to 16.9% from 14.4% due to 2014
benefiting from a one-off adjustment to levy costs (excluding the adjustment
the earned motor expense ratio for 2014 would have been 16.3%).

The projected ultimate loss ratio for Admiral for the 2015 accident year is 82%
(2014 accident year: 77%). The level of projected ultimate loss ratio continues
to reflect the impact of increases in average claims costs and lower earned
average premiums.

The projected ultimate combined ratio (ultimate loss ratio plus written expense
ratio) for Admiral for the 2015 accident year is 97%, in line with 2014. The reported
combined ratio for the UK market (excluding Admiral) for 2014, excluding
reserve releases, was 111%.

Profit commission
Admiral is potentially able to earn material amounts of profit commission
revenue from co- and reinsurance partners, depending on the profitability
of the insurance business underwritten by the partner. Revenue is recognised
in the income statement in line with the booked loss ratios on Admiral’s
retained underwriting.

In 2015 Admiral recognised profit commission revenue of £85.2 million
(2014: £71.8 million) and reserve releases from business that was originally ceded
under quota share reinsurance contracts that have since been commuted
of £88.8 million (2014: £70.6 million). Total income from both of the above
therefore increased significantly to £174.0 million (2014: £142.4 million) due
to improvements in prior year claims costs and the associated reductions in
loss ratios of those years. Note 5c to the financial statements analyses profit
commission income by underwriting year.

When a quota share reinsurance contract is commuted (typically after two or
three years from the start of an underwriting year), further improvement or
deterioration in claims costs are reported within net claims. If the contracts
were not commuted, the movement would be reported in profit commission.

Other Revenue
Admiral generates Other Revenue from a portfolio of insurance products
that complement the core car insurance product, and also fees generated
over the life of the policy.

The most material contributors to net Other Revenue are:

• Profit earned from motor policy upgrade products underwritten by
Admiral, including breakdown, car hire and personal injury covers.

• Profit from other insurance products, not underwritten by Admiral.

• Vehicle commission earned from Admiral’s panel of

co- and reinsurance partners.

• Fees – administration fees and referral income.

• Instalment income – interest charged to customers paying for cover

in instalments.

Contribution from Other Revenue (net of costs) decreased by 4% to £174.6 million
(2014: £182.0 million). The reduction was due to a number of impacts, most
notably a change to reinsurer vehicle commissions (the change reallocates
revenue to profit commission, albeit with a time lag in recognition of approximately
a year) and higher loss ratios on add-on products underwritten by the Group
(as a result of enhancements to product features to benefit customers).

Other Revenue was equivalent to £63 per vehicle (gross of costs) – reflecting
the change in allocation of vehicle commission. Net Other Revenue (after
deducting costs) per vehicle was £54 (2014: £58).

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Regulatory environment
The UK Car Insurance business operates predominantly under the regulation
of the UK Financial Conduct Authority (FCA) and Prudential Regulatory
Authority (PRA), and through a Gibraltar-based insurance company, under
the Financial Services Commission (FSC) in that territory.

The FCA and PRA regulate the Group’s UK registered subsidiaries including
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).

The Group is required to maintain capital at a level prescribed by the lead
regulator for Solvency II purposes, the PRA, and maintains a surplus above
that required level at all times.

UK Car Insurance Other Revenue – analysis of contribution:

Contribution from additional
products and fees
Contribution from additional
products underwritten by Admiral*¹
Instalment income
Other Revenue
Internal costs
Net Other Revenue
Other Revenue per vehicle*²
Other Revenue per vehicle net
of internal costs

2013
£m

170.4

12.3
23.7
206.4
(33.6)
172.8
£67

2014
£m

177.8

18.7
22.6
219.1
(37.1)
182.0
£67

2015
£m

173.7

16.0
26.7
216.4
(41.8)
174.6
£63

£57

£58

£54

*¹ Included in underwriting profit in income statement but re-allocated to Other Revenue for

purpose of KPIs.

*² Other Revenue (before internal costs) divided by average active vehicles, rolling 12 month basis.

Instalment income
Instalment income is interest charged to customers paying for their insurance
in instalments. During 2015 Admiral earned £26.7 million from instalment
income, up 18% on the prior period (2014: £22.6 million) for a number of reasons
including an increase in average premium, customer numbers and the proportion
of customers paying by instalment.

Additional products underwritten by Admiral
There are a number of products that are core to providing car insurance to
customers (including personal injury insurance, breakdown cover and car hire
cover). Contribution from these products underwritten by Admiral during 2015
was £16.0 million (2014: £18.7 million) and this is included in underwriting
profit in the income statement, but reallocated to Other Revenue for the
purpose of management key performance indicators.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
International Car Insurance review

Continuing to grow our
international presence

International Car Insurance strategy

Admiral’s strategy is to exploit the knowledge, skills and
resources attached to the established UK businesses to
promote expansion overseas in private car insurance.
Admiral’s objective is to create profitable, sustainable
and growing businesses.

Achievements

International Car Insurance achievements in 2015
Admiral insured 673,000 customers across its Spanish,
Italian, American and French operations (2014: 592,600)

4th Best Multinational Place to Work in Europe, awarded
by Great Place to Work

Admiral Seguros achieved break-even on an underwriting
year basis

Admiral Seguros voted 4th Best Company to Work for in
Spain (between 250 and 499 employees), awarded by
Great Place to Work Institute

Rastreator voted 5th Best Company to Work For in Spain
(between 250 and 499 employees)

ConTe reported its second full year profit

ConTe grew customer base by 11%

ConTe voted 9th Best Medium Company to Work for in Italy

Elephant Auto 40% growth in net written premium

Elephant Auto became a top 100 auto insurer in the US

L’olivier – assurance auto customer base grew by 66%

L’olivier – assurance auto continued to develop its brand
awareness, launching on TV

Goals

International Car Insurance goals for 2016
Admiral Seguros to increase market share and grow
consumer awareness of Qualitas brand

ConTe increasing investment in brand and technology
to leverage the expected cycle turn and grow customers
and revenue

Elephant Auto to focus on continued growth
and improving its combined ratio

L’olivier – assurance auto to grow customers and revenue

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Spain

Sarah Harris
CEO, Admiral Seguros

Launched in October 2006 –
the most mature of the Group’s
international businesses.

The highlight of 2015 in Spain?

We successfully hit our target of breaking-even on
an underwriting year basis; a meaningful achievement
given the small size of the Spanish book.

Our focus during the year was on improving portfolio
quality, strong cost control and making improvements
in infrastructure and customer processes. Having
used 2015 to consolidate, we now have a strong
foundation from which to scale up the business
over coming years.

Improvements in the Spanish economy during 2015
drove increases in claims frequency in a context
of continuing price competition. The result was that
the Spanish market may have entered unprofitable
underwriting territory for the first time in more than
10 years. The market combined ratio was 96% at
the end of 2014. It rose to 99% in H1 2015, and
looks to have continued an upward trend in H2.

The other big news in 2015 was the passing of an
update to the claims ‘Baremo’ law by the Spanish
parliament. ‘Baremo’ regulates compensation
payouts in bodily injury cases and the change,
effective from January 2016, makes large bodily
injury claims significantly more expensive. This
will provide further upward pressure on market
claims costs.

We expect that the ‘Baremo’ change will bring
some market price reaction and opportunities for
growth during 2016. Our focus will be on increasing
our market share within the price comparison channel,
and growing consumer awareness of our flagship
Qualitas brand.

Italy

Milena Mondini
CEO, ConTe

USA

Kevin Chidwick
CEO, Elephant Auto

France

Pascal Gonzalvez
CEO, L’olivier – assurance auto

Launched in May 2008 –
the largest international
business within the Group.

Launched in October 2009 – serving
four US states (Virginia, Maryland,
Illinois and Texas).

Launched in December 2010 –
the Group’s youngest international
car insurance business.

ConTe recorded its second consecutive year
of profit in 2015. Despite challenging market
conditions – prices decreasing by 6% – we
grew the customer count by 11% to 315,300.

For the first time in more than 10 years the average
premium for the market fell below €380. Competition
was fierce, with a large media spend, rate cuts,
special promotions and product innovations,
like telematics and alternate payment methods.
However, with a market combined ratio still well
below 100%, it should not come as any surprise
that many firms would be trying to increase the
size of their portfolios. I expect further rate cuts
in the first half of 2016 but the pace should slow
as claims frequency is now on the rise.

Transition towards direct distribution progressed at
a slower pace than in the past, given that traditional
companies led the price and advertising war. Mobile
is becoming a major force with around one third
of visits to insurance websites coming from mobile
devices and price comparison sites grew around 12%.

ConTe followed the market with some price
reductions but resisted drastic rate cutting.
Instead we focused on finding profitable niches
within the book, selling other products and services
to our customers and retaining customers at renewal.
In 2016 ConTe will invest more in its brand, which
started in 2015 with our sponsorship of the Serie B
football league. We will also invest in technology
to help us grow in the future when the market
turns and prices rise once again.

Technical results were positive, with encouraging
claims development. Improved actuarial projections
resulted, not only in a profitable 2015 on the back
of reserve releases, but also turned 2014 into
another profitable underwriting year.

Comprehensive 2015 market data is not yet
available, but it is fair to assume that the US market
grew again – from a market of over $180 billion
premium in 2014 to around $190 billion in 2015. The
market is stable with low cyclicality, but in 2015
the major players complained of increasing claims
frequency and talked about raising rates.

Distribution channel shift remains slow but inevitable.
Market surveys suggest c.25% of all premiums are
written direct with new business being c.40%. But it is
a sticky market, with only 10% of customers switching
annually, so the overall shift in distribution is modest.
For Elephant this is somewhat academic as the direct
market is enormous and more than enough to satisfy
our needs. 40% of new business represents 8 million
new business opportunities each year. That’ll do.
One feature of 2015 was the emergence of online
price comparison – whilst still modest in the US
market, it clearly made an impact and is a fast
growing proportion of our quote volumes.

For Elephant, 2015 was a good year. We grew the
business substantially again – with more than 40%
growth we wrote $135 million and now have over
140,000 customers. Acquisition economics improved
as brand awareness and perception increased
nicely in our core markets. New marketing campaigns
delivered well. Growth was particularly significant
in Virginia and in the US’s 2nd largest auto insurance
state, Texas. We have moved into the top 100 US
auto insurers with a market share that rounds to a
massive 0.1%. The loss ratio came under pressure
with increased frequency across the board, but
particularly in Texas. Like others, we implemented
price increases in the latter part of the year to
address the loss ratio. We will be monitoring this
carefully as we seek further growth in 2016. We
have plenty of market share to go after – both in
existing states and beyond – and we will probably
expand into new states in the next year or so.

We believe the Elephant culture and operating model
gives us an opportunity for a competitive advantage in
a high expense ratio market. Adjusted for our current
lack of scale, Elephant already compares favourably.

2015 was the year of a new law in France
(‘loi Hamon’) making switching motor insurance
much easier for consumers. This new regulation
was in-force from 1 January 2015 and was rolled
out progressively all year at each renewal date.

To avoid losing market share, large players didn’t
increase prices much, at least not enough to
compensate for the higher cost of claims. As a
consequence, the market combined ratio kept
deteriorating, reaching 107%. One would expect
2016 to be a continuation of 2015. Market profitability
is unlikely to improve, as claims cost are expected
to keep rising, while prices will be stable as a defence
against the new law that is now fully effective.

L’olivier – assurance auto benefited both from the
new regulatory environment and the growth of the
price comparison market. It was a year of strong
growth as our policy base grew by more than 60%.
We’ve been developing our brand awareness with
a new TV presence. At the same time, operations
were fully in-sourced and a new cutting edge IT
system was developed and implemented.

2016 should be another year of strong growth for
L’olivier – assurance auto.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONInternational Car Insurance review continued

Henry

Sarah: Henry doing call listening in
Spanish and coming up with many
improvements! (That was so impressive).

International Car Insurance financial review
Non-GAAP format income statement
2013
£m

Turnover
Total premiums written
Net insurance premium revenue
Investment income
Net insurance claims
Net insurance expenses
Underwriting result
Net other income
International Car Insurance result

Key performance indicators

Adjusted loss ratio*¹
Adjusted expense ratio*¹
Adjusted combined ratio*²
Adjusted combined ratio,
net of Other Revenue*³
Vehicles insured at period end

187.8
168.3
54.1
—
(49.1)
(32.9)
(27.9)
5.8
(22.1)

2013

91%
49%
140%

2014
£m

206.2
185.4
58.1
0.2
(50.5)
(34.0)
(26.2)
6.3
(19.9)

2014

77%
50%
127%

2015
£m

232.4
213.3
62.3
—
(50.9)
(40.1)
(28.7)
6.5
(22.2)

2015

77%
49%
126%

129%
515,300

116%
592,600

115%
673,000

*¹ Loss ratios and expense ratios have been adjusted to remove the impact of reinsurer caps so the

underlying performance of the business is transparent.

*² Adjusted combined ratio is calculated on Admiral’s net share of premiums and excludes Other
Revenue. It excludes the impact of reinsurer caps. Including the impact of reinsurer caps the
reported combined ratio would be 2015: 146%; 2014: 145%; 2013: 152%.

*³ Adjusted combined ratio, net of Other Revenue is calculated on Admiral’s net share of premiums
and includes Other Revenue. Including the impact of reinsurer caps the reported combined ratio,
net of Other Revenue would be 2015: 136%; 2014: 134%; 2013: 141%.

Geographical analysis

Spain

Italy

France

Total

2015

Vehicles insured
at period end
Turnover (£m)*¹

160,700 315,300
77.9

38.6

56,800 140,200 673,000
232.4

94.7

21.2

Spain

Italy

France

Total

2014

Vehicles insured
at period end
Turnover (£m)*¹

164,400
43.8

285,100
81.9

34,200 108,900 592,600
206.2

66.3

14.2

*¹ Turnover includes total premium written and income generated by the sale of additional products

and services and fees.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

International Car Insurance co-insurance and reinsurance
As noted earlier, Admiral makes significant use of proportional risk sharing
agreements, where insurers outside the Group underwrite a majority of the
risk generated, either through co-insurance or quota share reinsurance contracts.

For the 2015 year Admiral retained 35% (Italy), 30% (France and Spain) and
33% (USA) of the underwriting risk respectively. The arrangements for 2016
will remain the same.

All contracts are subject to certain caps on the reinsurers’ exposures and
all contracts have profit commission terms that allow Admiral to receive
a proportion of the profit earned on the underwriting once the business
reaches cumulative profitability. The contracts include proportional sharing
of Other Revenue.

International Car Insurance financial performance
Admiral’s international insurance businesses continued to grow, adding over
80,000 customers and ending 2015 14% larger than a year earlier. Turnover
grew by 13% to £232.4 million (2014: £206.2 million). Turnover and vehicles in
these businesses represent 11% and 15% of the Group totals respectively, with
turnover up from 10% in 2014 while the customer proportion remained stable.

The adjusted combined ratio remained stable at 126% (2014: 127%). Continued
improvement in ConTe’s prior years claims development and higher net
insurance premium revenue has been offset by continued investment in
operations in France and the US, resulting in an increased loss of £22.2 million
in 2015 (2014: £19.9 million). The adjusted expense ratio decreased slightly
to 49% (2014: 50%). The expense ratio is high in comparison to Admiral’s UK
business because all of the international operations need to continue to grow
to achieve economies of scale. In addition, there are market specific reasons
why the expense ratios are higher, for example higher acquisition costs in
the US cause a strain on the expense ratio when the business is growing.

As the Group’s international insurance operations grow, it is expected that
they will make losses until appropriate scale has been achieved. The Group
is satisfied with the progress each business continues to make towards the
goal of becoming a sustainable, growing, profitable operation.

Admiral Seguros (Spain) was launched in 2006 and is the oldest of Admiral’s
international operations. In 2013, Admiral Seguros launched a second brand
(Qualitas Auto) to complement its original Balumba brand. The business
insured 160,700 customers at the end of 2015, broadly stable on a year earlier.
In 2015, Admiral Seguros focused on cost control and improvements in
infrastructure and customer processes rather than growth and achieved
break-even on an underwriting year basis, although reported a loss on an
IFRS basis.

The Group’s largest international operation is ConTe in Italy, which insured
315,300 vehicles at the end of 2015, up 11% year-on-year. ConTe was launched
in 2008 and in 2015 enjoyed positive development of projected ultimate
claims outcomes on its back years and was able to report a second annual
profit. Despite the releases, the level of conservatism in the booked reserves
at year end remains very strong.

Henry

Milena: Henry suggested a TV ad to capture the
great ConTe atmosphere – he thought our team’s
spirit would be contagious and could instill more
trust in our customers. We forced him to record a
shot and of course, he did the most persuasive
interpretation of all!

Rewarding

Staff are continually rewarded
for their length of service to Admiral

Admiral’s youngest and smallest international insurance business is L’olivier
– assurance auto, which launched in 2010 in France. L’olivier insured 56,800
vehicles at the end of 2015, up over 60% on the prior year and has focused
on brand development during the year.

The consolidated result of Admiral's insurance operations in Spain, Italy and
France was a loss of £7.0 million, a reduction of 33% on 2014 (2014: £10.4 million).
The adjusted combined ratio net of Other Revenue improved to 103% from
105% primarily due to improved claims experience.

In the US, Admiral operates in four states (Virginia, Maryland, Illinois and
Texas) through its Elephant Auto business, which launched at the end of
2009. At the end of 2015 Elephant Auto insured over 140,000 vehicles,
up 29% year-on-year. Elephant Auto's adjusted combined ratio net of
Other Revenue improved from 146% in 2014 to 134% in 2015.

Henry

Pascal: He’s like Merlin the wizard in The Sword
in the Stone. Without a magic wand, he has the
ability to boost and motivate people.

Henry

Kevin: My first SGM presentation – I was super
nervous and stumbled over some words and
made a mistake. I looked down at the front row to
see my boss, not looking cross or concerned, but
just laughing. It completely relaxed me. It speaks
volumes about Henry’s way of making all his
team feel relaxed and able to do their best.

Regulatory environment
Admiral’s European insurance operations are generally subject to the same
regulation as the UK Car Insurance business, details of which are summarised
on page 25, but also comply with local requirements as appropriate.

The Group’s US insurer, Elephant Insurance Company, is regulated by the
Virginia State Corporation Commission’s Bureau of Insurance. The Company
is required to maintain capital at levels prescribed by the regulator and holds
a surplus above these requirements at all times.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONPrice Comparison review

Focused brand strategy
and multi‑product offering

Price Comparison strategy

Admiral’s strategy is to develop websites that allow
consumers to compare a range of general insurance,
financial services and other products. The international
strategy is to exploit the UK expertise in price
comparison and export it overseas.

Achievements

UK Price Comparison achievements in 2015
Quote volumes: 10.7 million (2014: 11.8 million)

Continued development of Confused.com beyond motor
insurance with encouraging results in home, van and
life insurance

Launch of Carfused, a car buying and selling platform

Continued brand development of Brian, the
Confused.com robot

International Price Comparison achievements in 2015
Quote volumes: 8.8 million (2014: 6.6 million)

Rastreator has reinforced its leadership in Spain
with continued growth in quotes

Rastreator voted 5th Best Company to Work for in Spain,
awarded by Great Place to Work

LeLynx retained its leadership position in the French market

compare.com has more than 60 auto insurance companies,
including half of the top 25, under contract in the US

Goals

UK Price Comparison goals for 2016
Build brand preference to strengthen market position in
core products

Develop and promote new products and offers in order to
have more diversified revenue sources

International Price Comparison goals for 2016
Rastreator – continued defence of market leading brand
and building on its role as a strategic data partner

LeLynx – further developing the French aggregator market
by exploiting the new Hamon law

compare.com – continued lowering of acquisition cost
while increasing the number of carriers and rates presented
to consumers

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Martin Coriat
CEO, Confused.com

Launched in 2002 – the Group’s most
mature business and a leading UK
price comparison website.

Confused.com has seen a lot of changes in the
market since it pioneered insurance comparison
back in 2002, creating an ever growing and profitable
industry while offering transparency and savings
to British consumers. 13 years later, the market is
now mature and commoditised with established
players and is characterised by a very high level of
competition. In 2015, the price comparison websites
have spent more than ever in advertising and
other promotional activities to attract customers.
At the same time, the price comparison market as
a whole did not grow as much as in previous
years despite an apparent turn of the price cycle
towards the end of the year, as indicated by the
Confused/Willis Towers Watson price index.

This fiercely competitive environment in a stagnant
market, and increasing acquisition costs across
every media channel, meant Confused.com had
a challenging year in 2015. This resulted in a reduced
profit of £12.5 million.

We have achieved a lot in 2015 including finalising
significant projects such as the launch of the Brian
toy promotion and the entire redesign of our
websites and customer experience. We have also
launched new activities to become the go-to
place for car buying with the launch of Carfused.com.
These new developments have required investment
in 2015 and will need time to transform in actual
future profits for Confused while they have hurt
the bottom line in the short term. Confused has
also gone through organisational change in 2015,
to face a market with increased regulation impacting
the way price comparison websites operate and
more competition, requiring a greater need to
stand out.

Spain

Elena Betes
CEO, Rastreator

France

Diane Larramendy
CEO, LeLynx

USA

Andrew Rose
CEO, compare.com

Launched in March 2009 – the leading
insurance price comparison website
in Spain.

Launched in January 2010 – the
leading price comparison website
in France.

2015 has been a healthy year for Rastreator both
in terms of growth and results. We have reinforced
our market leadership in Spain with strong growth
in quotes and sales, integrated a new brand,
Seguros.es, and also expanded our presence
in the market with several new products.

Our brand has grown, not only in recognition but
also in preference. By communicating our multiproduct
strategy effectively and efficiently we should continue
to grow our business profitably.

Within the insurance business we are proud to deliver
a comparison of prices that represents 86% market
share and which includes traditional players in our
panel. At the same time we keep working on our
role of strategic data partner for insurers that work
with us, with our annual insurance price index and
our Big Data team providing new tools. For 2016,
the new ‘Baremo’ law will bring premium increases
which will increase shopping in car insurance.

2015 was a good year for LeLynx.fr.

We decided to take the opportunity offered by the
‘loi Hamon’ – enabling people to switch insurance
at any time of the year – to push our investment into
more offline and online marketing. Quote volumes
and revenues grew as a result. LeLynx maintained
its leadership position in the French market.

The aggregator market in France grew by 13%.
On the one hand, the ‘loi Hamon’ and strong TV
investment pushed the market up. On the other,
stable insurance prices and aggressive retention
focus from insurers slowed it down.

Our vision is that the price comparison market will
develop, although slower than in the UK, and that
LeLynx has the strength to be a leading player. We will
focus our efforts on developing our presence within
this market in 2016.

Henry

Elena: The level of autonomy
and freedom Henry gave us
was unique.

Henry

Diane: Henry told me
‘Never forget how important
you will be to the people you
manage’. Since then, when
times get tough, I try to
keep a smile and be kind
with everyone at the office.

Launched in March 2013 – the first
European-style price comparison website
in the US.

One shouldn’t forget that the US is 51 distinct auto
insurance markets – yes even Washington DC is its
own – not one unified market. This means it is hard
to find a unified trend across the country. Two things
did seem to bind the country together this year,
however; lower gasoline prices and continued
large advertising. The gas prices correlated strongly
with miles driven and subsequently claims frequency
while advertising again remained concentrated in
the few largest insurers, again topping $6 billion.

With 70% of consumers starting their search online,
the big advertisers absorb a disproportionate
amount of traffic. Countering this trend is the
growing, but still small, auto insurance comparison
market. compare.com, the largest auto insurance
comparison site in the US, was joined this year by
other players pushing similar, but different, models.
While we continue to operate in 49 of the 51 markets
(apologies to Alaska and Hawaii again!), advertising
efforts grew to nearly twenty states and included
a very successful nationwide TV advertising test.

Advertising growth was permitted by the continued
expansion of our carrier panel. With over 60 auto
insurance brands under contract, including nearly
half of the top 25, the average number of rates
returned nationwide is now nearly a handful.
Volumes are now at the level that all but the very
largest carriers view us as a very meaningful
potential, and actual, source of business.

We again must caution that while we made huge
strides and grew substantially, we have just the
opportunity for, not the guarantee of, success.
Attempting to change singlehandedly, a market
of this size is not for the faint of heart. Pitfalls
remain. Can we continue to lower acquisition cost?
Will carriers continue to join? Will consumers
continue to shop via our site? Will competitors
complicate or complement our efforts?

Only time will tell, but another year of progress
means we are closer to success than failure in
our effort to transform the market.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONPrice Comparison review continued

Price Comparison financial review
Non-GAAP format income statement

Revenue
Car insurance price comparison
Other
Total Revenue
Operating expenses
Operating profit/(loss)
Confused.com profit
International price
comparison result

Group share of operating
profit/(loss)*¹
Confused.com profit
International price
comparison result

2013
£m

87.2
25.5
112.7
(92.3)
20.4
21.7

(1.3)
20.4

21.7

(0.6)
21.1

2014
£m

81.0
26.5
107.5
(110.3)
(2.8)
15.8

(18.6)
(2.8)

15.8

(12.2)
3.6

2015
£m

82.3
25.8
108.1
(123.6)
(15.5)
12.5

(28.0)
(15.5)

12.5

(19.7)
(7.2)

*¹ Represents the Group’s share of Price Comparison profit/(loss) and excludes the impact of

Minority Interests.

UK Price Comparison – Confused.com
Confused.com faced continuing challenging market conditions and
produced a lower result, with revenue 7% lower than 2014 at £75.4 million
(2014: £80.8 million) although the trend improved slightly in the second
half of the year. Profit also fell to £12.5 million (2014: £15.8 million).
Confused.com’s results were impacted by limited overall growth in the
price comparison market in the UK as well as fierce competition.

Revenue from non-car insurance comparison sources represents over a
quarter of total revenue. Confused.com’s operating margin reduced to 17%
(2014: 20%).

Henry

Martin: Henry always suggests the most
unexpected option to a problem and ‘How
Henry would approach it’ has now become
a regular comment in manager meetings.

International Price Comparison
Admiral operates three price comparison businesses outside the UK:
in Spain (Rastreator), France (LeLynx) and the US (compare.com).

The combined revenue from the European operations in 2015 increased
to £28.6 million (2014: £25.3 million), with nearly 30% more quotes provided
to customers. Both Rastreator and LeLynx have market-leading positions
and strong brand recognition in their respective markets. The Group’s share
of the combined result for Rastreator and LeLynx was a profit of £1.8 million
(2014: £2.8 million), the reduction reflecting investment in brand awareness
outside of motor insurance. Admiral Group owns 75% of Rastreator, with the
remaining 25% owned by Mapfre.

Following the launch in March 2013 of compare.com, a US comparison
operation based in Virginia, the Group has continued to invest in the operation.
Admiral Group owns 71% of compare.com, with the remaining 29% owned by
White Mountains and Mapfre. During 2015 Admiral’s share of compare.com’s
loss was £21.5 million before tax (2014: £15.0 million). Due to the ongoing
investment in compare.com, the Group’s share of compare.com’s losses
for 2016 will be in the range of $30–35 million.

The combined result for International Price Comparison was therefore a loss
of £19.7 million (2014: loss £12.2 million) – the profit from Rastreator and LeLynx
offset by investment in compare.com.

During late 2015 the Group established Preminen, a 50:50 joint venture with
Mapfre, to explore the potential of price comparison overseas.

Henry

Andrew: One unique thing Henry does is a
different poem or rhyme every time he has
an out of office notice.

Regulatory environment
Confused.com is regulated by the Financial Conduct Authority (FCA) as an
insurance intermediary and is subject to all relevant intermediation rules,
including those on solvency capital.

The European operations are all structured as branches of UK companies,
with the UK insurance intermediary permission passported into Europe.

compare.com is a regulated insurance agency domiciled in Virginia, US, and
licensed in all other US states.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Other Group items

Household enjoyed
another year of strong growth

UK Household Insurance result
UK Commercial Vehicle operating profit
Other interest and investment income
Share scheme charges
Business development costs
Other central overhead
Finance charges

2013
£m

(0.1)
2.5
1.9
(22.5)
(0.3)
(3.5)
—

2014
£m

(0.1)
2.2
3.7
(21.2)
(0.7)
(3.9)
(4.6)

2015
£m

1.2
1.5
6.5
(27.2)
(1.9)
(5.6)
(11.1)

UK Household Insurance
UK Household Insurance was launched in December 2012 under the Admiral
brand. The product is underwritten within the Group and in common with
other businesses it is supported by proportional reinsurance covering 70% of
the risk (shared between Munich Re, 40%, and Swiss Re, 30%). The business
enjoyed another year of strong growth with policy numbers increasing by
more than 90% to over 310,000 (2014: 162,600). Despite the relatively small
size of the Household book, it has generated a small profit and its expense
ratio is lower than the UK market ratio.

UK Commercial Vehicle
The Group operates a Commercial Vehicle insurance broker (Gladiator) offering
van insurance and associated products, typically to small businesses. Distribution
is via telephone and the internet (including price comparison websites).

Gladiator has been impacted by operational changes which, together with a
very competitive environment, has resulted in a reduced operating profit of
£1.5 million (2014: £2.2 million), although customer numbers increased from
143,900 to 146,600 at the end of 2015.

Interest and investment income
Interest and investment income in 2015 was £6.5 million (2014: £3.7 million).
The increase represents a full year’s interest on the gilt holdings purchased
with the proceeds of the debt issue.

Share scheme charges
These costs relate to the Group’s two employee share schemes, further detail
on which is set out in the notes to the financial statements. The increase in
the charge is due to an increase in the number of awards across the Group
resulting from headcount growth and the higher share price at the end of 2015.

Finance charges
Finance charges of £11.1 million (2014: £4.6 million) represent a full year’s
interest on the £200 million subordinated notes which were issued in
July 2014 (refer to note 6 to the financial statements for further details).

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Principal risks and uncertainties

The table below sets out the principal risks which Admiral has identified
through its Enterprise Risk Management Framework (‘ERMF’). The impact
of those risks and actions taken to mitigate them are explained below.

Risk
Insurance risk
Reserving risk in UK and International Insurance

Impact

Mitigating Factors

Admiral is exposed to reserving risk
through its underwriting of motor and
household insurance policies. Claims
reserves in the financial statements
may prove inadequate to cover the
ultimate cost of earned claims which
are by nature uncertain.

This is a particular risk for motor
insurance liabilities, where the ultimate
cost of bodily injury claims (particularly
large claims) can be materially
different to initial estimations.

Adverse run-off leading to higher claims
costs in the financial statements.

Admiral has a conservative reserving policy and holds a significant margin
in its financial statement claims reserves above actuarially determined
best estimates.

Best estimate reserves are estimated both internally and externally by
an independent actuary.

Many of the potential causes of claims shocks are outside the control
of Admiral and the focus is, therefore, on how to prepare for and react
to the occurrence of such events.

The Group continues to make material investments in staff and systems
to work on the identification and prevention of claims fraud.

For very large claims Admiral purchases excess of loss reinsurance, which
mitigates the loss.

Periodical Payment Orders (PPOs) are increasingly used to settle large bodily injury claims

PPOs provide for a regular payment
over an extended time to the
claimant, rather than a single
lump sum payment.

Increased uncertainty of the cost of
significant claims over a longer term.
A requirement to meet these
payments over an extended term.

Regular reviews of both settled and potential PPO cases are undertaken
by the Claims and Actuarial teams, with independent Actuarial opinions
provided as part of the external reserving analysis.

As noted above Admiral has a conservative reserving policy and continues
to hold a material margin in its financial statement claims reserves above
actuarially determined best estimates.

Premium risk

The Group is exposed to the risk that
claims cost on future business is
higher than allowed for in the
premiums charged to customers.

Higher claims costs and loss ratios,
resulting in reduced profits or
underwriting losses.

There are a number of aspects which contribute to Admiral’s strong UK
underwriting results, including:

• Experienced and focused senior management and teams in key business

areas including pricing and claims management;

• Highly data-driven and analytical approach to regular monitoring of

claims and underwriting performance;

• Ability to identify and resolve underperformance promptly through

changes to key performance drivers, particularly pricing; and

• Continuous appraisal of and investment in staff, systems and processes.

Admiral purchases excess of loss reinsurance, designed to mitigate the
impact of very large individual or catastrophe event claims.

The Group continues to work to establish similar capability and expertise
in its newer UK and international businesses.

Admiral purchases excess of loss reinsurance, designed to mitigate the impact
of very large individual or catastrophe event claims. Proportional quota
share reinsurance and co-insurance also mitigate the impact of this risk.

Catastrophe risk

Admiral is exposed to the risk of high
losses due to the occurrence of
man-made catastrophes or natural
weather events.

A large flood or windstorm causes
extensive property damage (both
motor and household) to a significant
proportion of the portfolio, leading to
a large total claims cost in relation to
the event.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Risk
Impact
Insurance risk continued
Reduced availability of co-insurance and reinsurance arrangements

Mitigating Factors

Admiral uses proportional
co-insurance and reinsurance across
its insurance businesses to reduce
its own capital needs (and increase
return on the capital it does hold)
and to mitigate the cost and risk of
establishing new operations.

A potential need to raise additional
capital to support an increased
underwriting share. This could
be in the form of equity or debt.

Admiral mitigates the risk to its reinsurance arrangements by ensuring that
it has a diverse range of financially secure partners. Admiral continues to
enjoy a long term relationship with one of the world’s largest reinsurers,
Munich Re, which has supported Admiral since 2000.

Return on capital might reduce
compared to current levels.

Admiral also has relationships with a number of other reinsurers.

As well as UK Motor, long term arrangements are also in place for UK
Household and International businesses.

There is a risk that support will not be
available in the future if the results and/
or future prospects of either the UK
business or (more realistically) one or
more of the newer operations are not
satisfactory to the co- and/or reinsurers.
Group risk
Erosion of competitive advantage in UK Car Insurance

Admiral typically maintains a
significant combined ratio advantage
over the UK market. This advantage
and/or the level of underwriting profit
(and associated profit commission)
could be eroded.

This risk could be exacerbated by
irrational competitor pricing.

A worse UK Car Insurance result and
lower return on capital employed.

A sustained and uncorrected erosion
of competitive advantage could affect
the ability of Admiral to extend its
reinsurance arrangements, which
might in turn require Admiral
to hold more capital.

Admiral’s focus remains on the wide range of factors that contribute to
Admiral’s combined ratio outperformance of the UK market. Some are
set out on page 34, but in addition:

• Track record of innovation and ability to react quickly to market

conditions and developments; and

• Keen focus on maintaining a low-cost infrastructure and efficient

acquisition costs.

Failure of geographic and/or product expansion

Admiral continues to develop and
support the UK household and
overseas operations.

Higher than planned losses (and
potentially closure costs) and
distraction of key management.

One or more of the operations could
fail to become a sustainable,
profitable long term business.

Product expansion into new areas
could lead to unprofitable business
and increased regulatory risk.

A collective failure of these businesses
would threaten Admiral’s objective to
diversify its earnings by expanding
into new markets and products.

Admiral’s approach to expansion and product development remains
conservative, applying the ‘test and learn’ philosophy that has proven successful
for previous operations. International insurance businesses have executed
cautious launch strategies and are all backed by proportional reinsurance support
which provides substantial mitigation against start-up losses in the early years.

New price comparison businesses have aligned their marketing investment
with the extent of improvement in key performance indicators such as
average cost per quote and conversion ratio. The Group also considers
partial disposals of equity to share start-up losses with partners.

The Directors are mindful of management stretch and regularly assess the
suitability of the management structure in place for Admiral’s new UK and
international operations.

Potential diminution of Other Revenue

Admiral earns Other Revenue
from a portfolio of products
and other sources.

Lower profits from insurance
operations and lower return
on capital.

Admiral continuously assesses the value to its customer of the products
it offers, and makes changes to ensure the products continue to meet
customer needs and offer good value.

The level of this revenue could
diminish due to regulatory or legal
changes, customer behaviour
or market forces.

Admiral seeks to minimise reliance on any single source by earning revenue
from a range of products. This would mitigate the impact of a regulatory
change which might affect a particular product or income stream.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONPrincipal risks and uncertainties continued

Risk
Group risk continued
Competition in UK price comparison

Impact

Admiral is dependent on the four
main UK price comparison websites
as an important source of new
business and growth.

Growth in this distribution channel
could slow, cease or reverse, or
Admiral could lose one or more of the
websites as a source of customers.

A potentially material reduction in UK
Car Insurance new business volumes.

The impact on Confused.com of higher
levels of competition in the price
comparison market, either through the
aggressive activities of existing players
or the entry of significant new
participants would be to lower profits.

However, a more competitive market
might benefit the car insurance business
through lower acquisition costs.

Mitigating Factors

Admiral’s ownership of Confused.com (one of the leading UK price comparison
websites which operates independently of the UK Car Insurance business)
helps to mitigate the risk of over-reliance on this distribution channel.

Admiral also contributes materially to the revenues of other price comparison
businesses and therefore it is not considered probable that a material source
of new business would be lost.

The management of Confused.com maintain a very keen awareness of the
risks of continued competition.

Legal and regulatory risk

Failure to comply with legal
or regulatory requirements
and/or changes.

Unexpected regulatory changes
are introduced.

Exposure to regulatory intervention,
censure and/or enforcement action
through fines and other sanctions.

Mitigated by regular review of the Group’s compliance with current and
proposed requirements (including the General Data Protection Regulation)
and interaction with regulators by Executive Management and the Board.

As the Solvency II regime comes into effect, the Group will commence its
transition to using a Partial Internal Model to calculate its capital requirement.
Whilst the level of Capital Add-On to be applied to the Solvency II Standard
Formula has been agreed with the Prudential Regulation Authority (‘PRA’),
there is an inevitable level of general uncertainty as the new regulatory
regime comes into effect.

There is investment in resources to prepare for a Partial Internal Model
application which is expected to be made during 2017. The project will
have regular progress updates with the Board and Regulators.

Counterparty risk
Credit risk of significant counterparties

Admiral is primarily exposed to
credit risk in the form of a) default
of reinsurer; b) failure of banking
or investment counterparty.

Additional capital may need to be
raised as a result of a major credit
event, dependent on its nature
and severity.

Admiral only conducts business with reinsurers of appropriate financial
strength. In addition, most material reinsurance contracts are operated on
a funds withheld basis, which substantially reduces credit risk, as Admiral
holds the cash received from policyholders as collateral.

One or more counterparties
suffer significant losses leading
to a credit default.

Admiral would also need to ensure
that it continues to have sufficient
liquid assets to meet its claims and
other liabilities as they fell due.

Concentrations of credit risk in respect of investments are managed by investing
in liquidity funds and other mandates which invest in a wide range of short
duration, high quality securities. Cash balances and deposits are placed
only with highly rated credit institutions. Some long term investments are
held in Government bonds.

Admiral considers counterparty exposure frequently and in significant detail,
and has in place appropriate triggers and limits, to mitigate exposure to
individual investment counterparties.

Operational risk
People risk

Failure to recruit, develop and retain
suitable talent.

Unable to successfully carry out Admiral
Group strategy and achieve goals.

We aim to attract, retain and motivate quality staff to deliver quality
customer service and achieve business objectives.

‘People who like what they do, do it better’. We seek to establish a motivational
culture through various staff benefits and rewards underpinned by
communication, equality, recognition and fun.

Admiral is also able to attract and retain staff through the employee
share schemes.

Succession planning is based on targeted recruitment, identifying
potential leaders through internal development, talent management
and retention processes.

Further detail on how Admiral interacts with its employees is set out on
pages 38 to 39 and in the CSR Report available online.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Risk
Operational risk continued
Process risk

Impact

Mitigating Factors

A failure in processes or failure
of their associated controls.

Fraud, unanticipated loss and/or
reputational damage.

Internal controls are in place and monitored to minimise the risk and the
control framework is regularly reviewed.

The internal audit function has an agreed cycle of testing of the adequacy
and effectiveness of controls. The resulting reports are reviewed by the Audit
Committee, Group Risk Committee, Executive Management and the Boards.

Technology risk

Failure to invest in, and successfully
implement, appropriate technology
(particularly Guidewire implementation
in the UK) to support the Group’s
future business development.

Unable to support the required growth
and development essential for future
business success, maintaining
competitor advantage and developing
the Group’s business model.

Regular review of the effectiveness of the Groups IT capability by Executive
Management and the Board.

Strong project governance and oversight of new systems implementations
with external specialist review and assurance where required.

Cyber risk

Financial loss, data loss, business
disruption or damage to the reputation
of the Group from failure of the
information technology systems
derived from internal or
external threats.

Availability of systems and data:
Unable to operate the business for
an indeterminate period, depending
upon the severity of the attack.

Integrity of data: Potential for data
corruption impeding the ability to
place reliance upon it.

Confidentiality of data: Potential for data
breaches or loss of intellectual property.

Outcomes: Potential customer detriment
and/or potential regulatory censure.

Within IT there is a major incident team which is tasked with maintaining
system availability, with Business Continuity Plans (BCP) and Disaster
Recovery (DR) plans in place.

Security controls are in place covering logical and physical assets to reduce
the risk of unauthorised access to data.

Data is backed up to allow for its recovery in the event of corruption.

All staff receive mandatory training around IT Security and Data Protection.

Adherence with Security policies is monitored.

Customer outcome risk

Failure of products, processes
or services to meet customer and
regulator expectations and failure
to address customer complaints
promptly or appropriately.

Potential customer detriment
and/or potential regulatory
censure/enforcement and/or
reputational damage as a result
of Admiral’s action.

Admiral operates the three lines of defence model for overseeing its
products, processes and service. At each stage of the customer journey
customer outcomes are monitored, managed and reported in order to
mitigate customer detriment.

Further detail on how Admiral interacts with its customers is set out on page 10
and in the Corporate Social Responsibility (CSR) Report available online.

https://admiralgroup.co.uk/our-community/corporate-social-responsibility

This Strategic Report was approved by the Board of Directors and signed on its behalf by:

Henry Engelhardt
Chief Executive Officer
2 March 2016

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONOur people

Happy people make
happy customers

Happy people make happy customers and happy
customers make for a successful, thriving company.
Our success goes hand‑in‑hand with having a strong
culture. So our philosophy is a simple yet effective one:
People who enjoy what they do, do it better.

Our approach to people is founded on four key pillars:

Communication
We communicate with people,
people communicate back to us.
We make sure that everyone
knows what’s going on with
the business because people
want to be involved. Our staff
portal, Atlas, is updated daily
with all the news from around
the Group, whether we’ve won
an award or changed a procedure
– our staff will know about it!

Equality
At Admiral we strive to lessen
the obvious divides between
people. There are no company
cars or executive dining rooms;
everyone sits in the same chairs
and eats in the same cafeterias.
Our managers don’t have offices,
all our desks are open plan –
there is no ‘us’ and ‘them’.
Everybody’s a shareholder –
whether working in Canada,
Seville or Swansea you’re a
shareholder and every new
starter gets treated equally.

Recognition
We like to make sure that people
who are doing a good job are
told about it! This can be in the
form of a good word or positive
feedback. But we also like to
‘go big’ – from Star Lunches,
where exceptional performers
are taken out to lunch by Senior
Management, to awards for
length of service. Recognition is a
key part of life at Admiral and we
ensure that great performance,
both individual and collective,
is acknowledged and rewarded.

Fun
Fun is a big component of
working for the Admiral Group.
We celebrate as many events
and occasions as possible!
The Ministry of Fun ensures that
there are great competitions and
activities on a weekly basis for
staff, meaning life is never dull!

Together, these principles create an environment where Admiral employees look
forward to coming to work and give that little extra effort when they’re at work.

Our annual staff survey

One of the most important tools we use to measure employee satisfaction
is our anonymous Staff Survey which provides an insight into what it’s like
to work for us.

Believe this is a friendly place to work
Believe the Admiral Group is truly customer focused
Believe people care about each other here
Would recommend their manager as a good manager

96%

88%
89%
88%

Target:
100%

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

All staff
8,166

Male:Female
3,981

4,185

An award winning year

Here are some of the awards Admiral Group
won in 2015

Awards and achievements in 2015

Sunday Times Best Companies To Work For Special Award 2015 – Best Leader
– Henry Engelhardt

Sunday Times Best Companies To Work For Special Award 2015 – 15 Years –
Special Recognition Award

Sunday Times Best Companies To Work For – 5th

Great Place to Work Best Large Workplace in the UK – 4th

Great Place to Work Best Multinational Workplace in Europe – 4th

Prince’s Trust Million Makers Challenge – 2nd

Nova Scotia’s Top Employers 2015 – Admiral Insurance Services

European Business Awards 2015 – National Champion – United Kingdom
(Employer of the Year)

Great Place to Work Best Workplace in Spain (between 250 – 499 employees)
– 4th Admiral Seguros, 5th Rastreator

Great Place to Work Best Workplace in France (less than 500 employees) – 22nd

Virginia Business Best Places to Work 2015 – 50th

Great Place to Work Best Medium Workplace in Italy – 9th

Special Award – Admiral Million Makers – Prince’s Trust Outstanding Supporter

Best and Most Popular Insurance Website – Website of the Year UK Awards

Personal Finance Awards – Best Motor Insurance Provider 2015/16

To read more about our corporate social
responsibility strategy visit
www.admiralgroup.co.uk

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONChairman’s introduction

The Board is committed to maintaining the
highest standards of corporate governance

Dear Shareholder,
On behalf of the Board I am pleased to present the Corporate Governance
Report for the financial year ended 31 December 2015. The focus of the
Board continues to be on maintaining high standards of corporate governance
which it achieves by ensuring the appropriateness and effectiveness of the
Group’s management and control framework. This Report sets out the Admiral
framework of governance and the approach the Board has taken during 2015
to promote the standards of good corporate governance that are rightly
expected by our shareholders.

We believe that having a sound corporate governance framework enables
effective and efficient decision making and promotes the right balance of
skills and experience to assess and manage the risks in the markets in which
the Group operates.

As you will have seen from my Chairman’s letter earlier in this report, succession
planning has been a key area of focus for the Board in 2015. With Roger Abravanel
and Manfred Aldag stepping down from the Board in April and August 2015
respectively, and with Lucy Kellaway and Margaret Johnson each having
served nine years on the Board during the year and, therefore, stepping
down at the 2016 AGM, the balance and composition of the Board was
reviewed to ensure that the right mix of skills, experience and background
was reflected in the membership of the Board. We were, therefore, pleased
to welcome Penny James, Manning Rountree, and Owen Clarke who joined
the Board respectively at the beginning of the year, in June, and in August.
Penny comes with considerable insurance experience and risk management
skills, whilst Manning brings a deep knowledge of the US insurance market,
and Owen great commercial experience and a strong understanding of
Admiral, its culture and business model, having previously served as a
Director from 1999 until we floated in 2004.

As the next external Board evaluation facilitated by an independent external
consultant will not take place until later this year, the process of evaluating
the Board’s performance this year consisted of each Board member completing
a questionnaire detailing specific areas of focus for the Board including the
composition of the Board, the performance of the Company in capturing
strategic opportunities and the top priorities for improving the Board’s performance
over the coming year. The results of the evaluation and areas for development
were discussed by the Board at the meeting in December 2015 and are set
out in more detail on pages 45 and 46 of this report.

We confirm the Group’s compliance, with the principles and provisions set
out in the UK Corporate Governance Code (the Code) which was revised by
the Financial Reporting Council in September 2014 and is applicable to the
year under review.

This Corporate Governance Report is structured in order to demonstrate to
shareholders that the Board has complied during 2015 in all respects with
each section of the Code – Leadership; Effectiveness; Accountability; and
Relations with Shareholders. Remuneration is dealt with in the separate
Remuneration Report.

Alastair Lyons
Chairman
2 March 2016

We believe that having
a sound corporate governance
framework enables effective
and efficient decision making.

Alastair Lyons, CBE

40 ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2015

Admiral’s governance framework

Corporate structure

Board of Directors

Board Committees

Audit Committee
Membership at
31 December 2015*¹
• Colin Holmes (Chair)
• Annette Court
• Penny James*²
• Margaret Johnson

Meetings during 2015:
7

Group Risk Committee
Membership at
31 December 2015
• Jean Park (Chair)
• Annette Court
• Lucy Kellaway
• Manning Rountree*³
• David Stevens

Meetings during 2015:
6

Nomination Committee
Membership at
31 December 2015
• Alastair Lyons (Chair)
• Colin Holmes
• Lucy Kellaway

Remuneration Committee
Membership at
31 December 2015
• Annette Court (Chair)
• Margaret Johnson
• Jean Park

Meetings during 2015:
2

Meetings during 2015:
6

Read more
From page 58 to 68

Board composition

Gender diversity

*¹ Owen Clarke was appointed to the Board on 19 August 2015
and joined the Audit Committee with effect from 1 January 2016.

*² Penny James was appointed to the Board on 1 January 2015
and joined the Audit Committee with effect from that date.

*³ Manning Rountree was appointed to the Board on 16 June 2015
and joined the Group Risk Committee with effect from that date.

Chairman
1
Executive 3
Non-Executive 8

Male 7
Female 5

Read more about gender diversity
within the Company
On page 69

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONBoard of Directors

Extensive experience in the
direct insurance industry

Alastair Lyons, CBE (62)
Chairman

Henry Engelhardt, CBE (58)
Chief Executive Officer

David Stevens, CBE (54)
Chief Operating Officer

Appointed in 1999
Background and experience
Henry is a founder Director of Admiral and was
recruited by the Brockbank Group in 1991 to set
up the Admiral business.

Prior to joining Admiral, Henry was the original
Marketing and Sales Manager for Churchill Insurance.

Henry has an MBA from INSEAD, a BA from the
University of Michigan and was awarded an honorary
CBE in 2008 for services to business in Wales.

Henry has twice been the recipient of the Sunday
Times Best Leader for Big Companies award.

Appointed in 1999
Current appointments
• Trustee of the Waterloo Foundation

GRC

Background and experience
David is a founder Director of Admiral and was
recruited in 1991 to set up the Admiral business.

Prior to joining Admiral David worked at McKinsey
& Company, in the Financial Interest Group, and
Cadbury Schweppes in the UK and the USA.

David has an MBA from INSEAD and he was
awarded a CBE in 2010 for services to business
and the community in Wales.

Appointed in 2000
Current appointments
• Deputy Chairman of Bovis Homes Group plc

Background and experience
In his executive career Alastair was Chief
Executive Officer (CEO) 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. He
has held numerous non-executive roles in both
private equity and public markets.

He has also been a Non-Executive Director of both the
Department for Transport (DfT) and the Department for
Work and Pensions (DWP), as well as of its predecessor,
the Department of Health and Social Security (DHSS).

A Fellow of the Institute of Chartered Accountants,
he was awarded a CBE in the 2001 Birthday
Honours for services to social security.

Colin Holmes (50)
Senior Independent Director

Penny James (46)
Non-Executive Director

Appointed in 2015
Current appointments
• Group Chief Risk Officer at Prudential

and member of the Prudential plc Board

Background and experience
Penny was previously Director of Group Finance at
Prudential plc from March 2011 until September 2015.

Her previous appointments include being Chief
Finance Officer of Omega Insurance Holdings and UK
General Insurance CFO of Zurich Financial Services.

AC NC

Appointed in 2010
Current appointments
• Chairman of GO Outdoors Ltd
• Chairman of the British Heart Foundation

Retail Committee

• Member of the Chartered Institute of

Management Accountants Advisory Panel

Background and experience
Colin was previously a member of the Executive
Committee of Tesco plc and during his 22 year
career at Tesco held a wide range of positions,
including UK Finance Director and CEO of Tesco
Express. Until 2014 Colin was a Non-Executive
Director at Bovis Homes Group plc where he
chaired the Remuneration Committee.

Colin is a Fellow of the Chartered Institute of
Management Accountants.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Margaret Johnson, OBE (57)
Non-Executive Director

Appointed in 2006
Current appointments
• Group CEO of Leagas Delaney

AC RC

Background and experience
Margaret has worked for the international advertising
agency Leagas Delaney for the past 17 years.

Margaret was awarded an OBE in 2013 in
recognition of her services to the creative
industries and her voluntary work for charities.

Committee membership key

AC Audit Committee member

RC Remuneration Committee member

GRC Group Risk Committee member

Committee Chair

NC Nomination Committee member

Senior Independent Director

Geraint Jones (39)
Chief Financial Officer

Owen Clarke (52)
Non-Executive Director

Annette Court (53)
Non-Executive Director

Appointed in 2014
Background and experience
Geraint is responsible for finance, actuarial,
compliance and investments. He joined Admiral in
2002 and held a number of senior finance positions
including Head of Finance, before being promoted
to Deputy Chief Financial Officer in January 2012
and Chief Financial Officer in August 2014.

A Fellow of the Institute of Chartered Accountants
in England and Wales, Geraint spent the early part
of his career as an external auditor at Ernst & Young
and KPMG.

Appointed in 2015
Current appointments
• Chief Investment Officer of Equistone Partners
Europe (formerly Barclays Private Equity, ‘BPE’)

Appointed in 2012
Current appointments
• Non-Executive Director of Jardine Lloyd

RC AC GRC

Thompson Group plc

Background and experience
Previous Director of Admiral (1999–2004). Led
BPE’s participation in the management buy out.

• Non-Executive Director of Foxtons plc
• Non-Executive Director of Workshare
• Chairman of the Dining Club

Background and experience
Between 2007 and 2010 Annette was CEO of Europe
General Insurance for Zurich Financial Services and
a member of the Group Executive Committee.

Annette is former CEO of the Direct Line Group.
In this role Annette was also a member of the
RBS Group Executive Management Committee.

Annette has previously served as a member on the
Board of the Association of British Insurers (ABI).

Lucy Kellaway (56)
Non-Executive Director

Jean Park (61)
Non-Executive Director

Manning Rountree (43)
Non-Executive Director

Appointed in 2006
Current appointments
• Lucy is a management columnist for the

NC GRC

Financial Times

Background and experience
In her 30 years at the Financial Times Lucy has
been an oil correspondent, a Lex columnist and
Brussels correspondent.

Lucy has authored various books.

GRC RC

Appointed in 2014
Current appointments
• Non-Executive Director of Murray Income Trust plc
• Non-Executive Director of the National House

Building Council

GRC

Appointed in 2015
Current appointments
• Managing Director of White Mountains Capital Inc.,
White Mountains Insurance Group, Ltd. since
March 2009

Background and experience
Jean was Group Chief Risk Officer at the Phoenix
Group from 2009 until June 2013. Previously, she
was Risk Management Director of the Insurance
and Investments division of Lloyds TSB and,
before that, Head of Compliance and Audit at
Scottish Widows.

Jean is a Member of the Institute of Chartered
Accountants of Scotland.

Background and experience
Manning joined White Mountains in 2004
and is the former President of WM Advisors.

Prior to joining White Mountains, Manning
spent two years with Putnam Investments
and three years with McKinsey & Company.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONGovernance report
Leadership and effectiveness

The role of the Board
The Board is the principal decision-making forum for the Group providing
entrepreneurial leadership, both directly and through its Committees, and
delegating authority to the Executive team. The Board is responsible for
organising and directing the affairs of the Group in a manner that is most
likely to promote its success for the benefit of its members as a whole. The
Board is accountable to shareholders for setting and achieving the Group’s
strategic objectives; for the creation and delivery of strong sustainable
financial and operational performance; for ensuring that in carrying out its
duties the Group’s legal and regulatory obligations are being met; and for
ensuring that it operates within appropriately established risk parameters.
The Group’s UK regulated entities are responsible to the Financial Conduct
Authority (FCA) and the Prudential Regulatory Authority (PRA) for ensuring
compliance with the Group’s UK regulatory obligations and that dealings
with the FCA and PRA are handled in a constructive, co-operative and
transparent manner. Similar provisions apply in respect of the Group’s
international businesses with regard to the relevant regulatory authorities
in those overseas jurisdictions in which the Group also operates.

The Board has adopted a formal schedule of matters reserved for the Board’s
consideration. This is monitored by the Company Secretary and reviewed by
the Board on an annual basis. Specific matters reserved to the Board include
the approval of:

• The Group’s long term objectives and corporate strategy.

• Operating and capital budgets, financial results, and any significant

changes to accounting practices or policies.

• The Group’s capital structure.

• Results and financial reporting.

• The system of internal control and risk management.

• The Group’s overall risk appetite.

• Changes to the structure, size and composition of the Board, including

new appointments.

• Succession plans for the Board and senior management.

• Dividend policy and proposals for dividend payments.

• Major acquisitions, disposals, and other transactions outside delegated limits.

• The annual review of its own performance and that of its Board Committees.

• Annual review of the Group’s Board policies.

• The review of the Group’s overall corporate governance arrangements.

Board activity during 2015
At each scheduled meeting the Board receives updates from the Chief Executive,
Chief Operating Officer and Chief Financial Officer as to the financial and
operational performance of the Group and any specific developments in the
areas of the business for which they are directly responsible and of which the
Board should be aware. Items that are considered on an annual basis are
included in an annual schedule of rolling agenda items to ensure that they
are considered at the appropriate point in the financial and regulatory cycle.
Meetings are structured so as to allow for consideration and debate of all
matters. Mindful of the need to ensure effective Director succession through
senior managers below Board level having exposure to and gaining experience
of the operation of the Board, the heads of the Group’s US and Italian direct
insurance businesses and the head of UK Motor (respectively Kevin Chidwick,
Milena Mondini and Cristina Nestares) were invited to attend every Board
meeting and Board dinner.

The Board met on seven occasions in 2015 with six of these meetings being
held over two days.

In addition to the regular consideration of financial and operating performance
and risk management and compliance, the Board received presentations on
a variety of topics including updates from the management teams of each of
the Group’s businesses and regular reviews of progress implementing Solvency II.

In addition to his visits to the Group’s UK operations, the Chairman seeks
to visit each of the Group’s overseas operations every year and Non-Executive
Directors are invited to join either him or the Chief Executive on one or more
of their overseas visits each year. In addition, the Non-Executive Directors and
the Chairman met during the year without the Executive Directors being present.
In order to increase their understanding of the depth and breadth of management
across the Group below Board level, the Non-Executive Directors and the
Chairman also attended two dinners with members of the Group’s senior
management team without the Executive Directors being present. When
management teams present to the Board on their operations they are
invited to join the Board for dinner which gives the opportunity for informal
interaction between Directors and management.

Meetings and attendance

Total meetings held

Alastair Lyons (Chairman)

Henry Engelhardt (Chief Executive Officer)

David Stevens (Chief Operating Officer)

Geraint Jones (Chief Financial Officer)

Roger Abravanel*

Manfred Aldag*

Owen Clarke*

Annette Court

Colin Holmes

Penny James

Margaret Johnson

Lucy Kellaway

Jean Park

Manning Rountree*

* Notes:

Roger Abravanel stepped down from the Board with effect from 29 April 2015.
Manning Rountree joined the Board with effect from 16 June 2015.
Owen Clarke joined the Board with effect from 19 August 2015.
Manfred Aldag stepped down from the Board with effect from 31 August 2015.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Audit
Committee
meetings

Scheduled
Board
meetings

2/3

4/5

2/2

4/4

Group Risk
Committee
meetings

Nomination
Committee
meetings

Remuneration
Committee
meetings

3/3

3/4

Directors are expected to attend all meetings of the Board and the Committees
on which they serve and to devote sufficient time to the Group to perform
their duties. Where Directors are unable to attend meetings they receive
papers for that meeting giving them the opportunity to raise any issues with
the Chairman in advance of the meeting. The number of scheduled Board
meetings and Committee meetings of which they are a member attended
by each Director during 2015 is provided in the table on page 44.

Agendas and papers are circulated to the Board electronically in a timely and
secure manner in preparation for Board and Committee meetings. The Board
agenda is structured by the Chairman in consultation with the Company
Secretary and Chief Executive. Routine Board papers are supplemented
by information specifically requested by the Directors from time to time.
All Board and Committee meetings during the year were held in an open
atmosphere conducive to robust and constructive challenge and debate.
All Directors have, therefore, been able to bring independent judgement to
bear on issues such as strategy, risk management, performance, and resources.
Additional meetings are called when required and there is contact between
meetings, where necessary, to progress the Group’s business.

The Company Secretary
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 advising the Board, through the Chairman, on 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.

Board effectiveness
This year the evaluation of the Board was carried out internally with the
Chairman leading the Board evaluation process. The evaluation considered
the effectiveness and performance of the Board during the year under review
and sought to identify the areas that the Board was prioritising to do differently
in 2016. When considering the evaluation process the Chairman considered
feedback received from each Director after one-to-one meetings held with
him during the year as to areas of focus to improve Board effectiveness.

The evaluation process involved the Chairman circulating an online questionnaire
to all Directors and Board attendees. Respondents were asked to assess the
performance of the Board across a number of areas including: Board composition
to ensure that it was aligned with the Group’s strategic goals; the dynamics
of the Board in the context of assessing whether it was conducive to equal
contribution, candid discussion and critical thinking; the content and format
of management reports coming before the Board; the focus of the Board on

strategic oversight and whether there was sufficient challenge of management
in determining the strategic direction of the Group; and the Board’s assessment
of the top three risks facing the business over the next three to five years.
Respondents were also invited to raise any new issues of significance that
they felt had developed since the last review a year ago and on which they
believed the Board should focus in the coming year.

The results of the review were presented by the Chairman to the Board in
December 2015. Overall the review found that the Board continued to work
effectively and that each Director contributes and demonstrates full
commitment to his/her duties.

The review identified the following areas to which the Board might give
particular focus in 2016:

• Standardising the format of reports that are presented to the Board to adopt
more of a balanced scorecard approach with summaries of performance
against plan for each business detailing the key metrics, with the supporting
financial material included in an appendix.

• Increasing the Board’s understanding of the markets in which it operates,

particularly for the overseas businesses.

• Enhancing the involvement of the Non-Executive Directors in the business
outside of Board meetings by introducing structured UK site visits alongside
the visits scheduled to the Group’s overseas businesses.

• In the context of succession planning, it was felt that visibility to the Board
of potential successors to key positions from within the business could be
improved by increasing the time that Non-Executive Directors spend, on
an informal basis, with the next level of management below Board level to
ensure that these individuals are being developed as part of the Group’s
longer term succession plans.

• Understanding the Group’s performance relative to its main competitors was
highlighted as an area where more could be done to explore the performance
of competitors and understand the differences with how the Group operates.

• Integrating new Board members as Board composition evolves in the

coming year.

• Alignment of the Board agenda to ensure that more time is available to
discuss strategic topics in the context of the development of the Group.

• Consideration of the top strategic issues facing the Company over the next
three to five years including: succession management and continued talent
development; maintaining the Group’s competitive advantage; and
successful delivery of profitable international businesses, particularly in
the US.

Our Board evaluation process

One-to-one meetings

Directors

Board attendees

Chairman

Review previous
recommendations

Assess progress
made

Raise new issues

Results of review

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONGovernance report continued
Leadership and effectiveness continued

Board effectiveness continued
The Chief Executive, to whom they report, appraises annually the performance
of the individual Executive Directors. The Chairman, taking into account the
views of the other Directors, reviews the performance of the Chief Executive.
The performance of the Chairman is reviewed by the Board led by the Senior
Independent Director (‘SID’). Following the latest review, the SID considered
and discussed with the Chairman the comments and feedback that had been
received from the Directors as part of the Chairman’s evaluation questionnaire,
and was able to confirm that the performance of the Chairman continues to
be effective and that he continues to demonstrate appropriate commitment
to his role.

The roles of the Chairman and Chief Executive
The Board has approved a statement that sets out the clear 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 proposing the strategy to be adopted
by the Group; running the business in accordance with the strategy agreed
by the Board; and implementing specific Board decisions relating to the
operation of the Group. The statements of division of responsibilities and
matters reserved for decision by the Board are reviewed annually.

Board balance and independence
Careful consideration continues to be given to Board structure and balance
particularly given two of the Non-Executive Directors, Margaret Johnson and
Lucy Kellaway, will be stepping down from the Board at the AGM in April
having each reached nine years service. In this context the Group continues
to monitor the need to refresh Board and Committee membership in an
orderly manner so as to maintain the continuity of Board process and the
strength of personal interaction which underlies the effectiveness of the
Board as a team. The Board remains satisfied that it has the appropriate
balance of skills, experience, independence and knowledge of the Group to
enable it and its Committees to discharge their duties and responsibilities
effectively, as required by the Code.

The Board currently comprises 12 Directors, the Chairman (who was independent
on appointment), three Executive Directors, and eight independent Non-Executive
Directors. As can be seen from the Directors’ biographies on pages 42 to 43,
the Directors have a broad range of skills and experience and can bring
independent judgement to bear on issues of strategy, performance, resources
and standards of conduct which are integral to the success of the Group.

Appointments to the Board are the responsibility of the Board as a whole,
acting on the advice and recommendations of the Nomination Committee.
The Nomination Committee seeks to balance the retirement and recruitment
of Non-Executive Directors so as to avoid dislocation of Board process by
losing experience and skills ahead of their replacement. Appointments are
made on merit and against objective criteria, having due regard to the benefits
of diversity, including gender, with a view to ensuring the Board has the appropriate
mix of personality, skills, and experience. Following a formal, rigorous and
transparent process led by the Nomination Committee, the Board was delighted
to appoint as independent Non-Executive Directors Penny James with effect
from 1 January 2015, Manning Rountree with effect from 16 June 2015, and
Owen Clarke with effect from 19 August 2015. Penny joined as a member
of the Audit Committee with effect from her appointment, Manning joined
as a member of the Risk Committee on appointment, and Owen joined
the Audit Committee with effect from 1 January 2016. Both Manning and
Owen will be subject to election by shareholders at the forthcoming AGM.

Manning Rountree is Managing Director of White Mountains Capital Inc
(White Mountains) and acts as Board Observer for White Mountains on the
Board of the Group’s US price comparison subsidiary, in which White Mountains
has a minority shareholding. Given the relatively small size of White Mountains’
shareholding in an overseas Group subsidiary company, the Board has
determined that Manning Rountree remains independent in character and

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

The Board is responsible for
organising and directing the affairs
of the Group in a manner that is most
likely to promote its success for the
benefit of its members as a whole.

judgement and that his attendance at Inspop USA LLC Board meetings
does not affect his ability to present an objective, rigorous and constructive
challenge to the assumptions and viewpoints presented by management
and the Board. A process for managing any potential conflicts has been
agreed by the Board such that Manning Rountree will recuse himself from
any Group Board discussions where a potential conflict of interest with his
role with White Mountains has been identified.

The Board, having given thorough consideration to the matter, considers
the eight Non-Executive Directors to be independent 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. It is the view of the Board that the
independent Non-Executive Directors are of sufficient calibre and number
that their views carry significant weight in the Board’s decision making.

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 two further three-year periods subject to re-election by
shareholders. Their letters of appointment may be inspected at the Company’s
registered office or can be obtained on request from the Company Secretary.

Although the Chairman has served in that role since July 2000 the Board
remains of the view that he should continue in office. The Chairman, along
with all the Directors, seeks election by shareholders annually.

Colin Holmes is the Senior Independent Non-Executive Director (SID).
He has the requisite knowledge and experience gained through his Board
position, his Chairmanship of the Audit Committee, and his appointments
to the boards of other companies. He is available to shareholders if they
have concerns that contact through the normal channels of Chairman,
Chief Executive, or Chief Financial Officer has failed to resolve or for which
such contact is inappropriate. He is also responsible for leading the Board’s
discussion on the Chairman’s performance and the appointment of a new
Chairman, as and when appropriate.

In accordance with the requirement under the Code for annual election
of Directors, all Directors will be submitting themselves for re-election
by shareholders at the forthcoming AGM. The Board is satisfied that
all are properly qualified for their reappointment by virtue of their skills
and experience and their contribution to the Board and its Committees.

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
whereby 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, regulatory and control environment.

This induction is supplemented by visits to the Group’s head office in Cardiff
and certain overseas offices, and meetings with members of the senior management
team and their departments. Development and training of Directors is an
ongoing process. 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 table below details the length of service of the Chairman and each of the Non-Executive Directors and illustrates the balance of experience and fresh perspectives.

Director

Date of appointment

Current length of service as a Non-Executive Director at 31 December 2015

Alastair Lyons (Chairman)

1 July 2000

15 yrs 6 mths

Margaret Johnson

Lucy Kellaway

Colin Holmes

Annette Court

Jean Park

Penny James

Manning Rountree

Owen Clarke

4 September 2006

3 December 2010

21 March 2012

17 January 2014

1 January 2015

16 June 2015

19 August 2015

5 yrs 1 mth

3 yrs 9 mths

1 yr 11 mths

1 yr

6 mths

4 mths

9 yrs 4 mths

The Board receives presentations from senior managers within the Group on
a regular basis and Non-Executive Directors are encouraged to make informal
visits to different parts of the Group to meet with local management.

Engagement with shareholders
The Company attaches considerable importance to communications with
shareholders and engages with them regularly. Open and frequent dialogue
with investors enables them to understand fully the Group’s strategy, objectives
and governance. 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. A number of analysts and investors visited
the Group’s Cardiff office during the year to meet with the Executive Directors
and senior management in order to get a better understanding of how the
Group operates and how it intends to achieve its strategic and operational
objectives. Senior executives from the Group’s overseas businesses also visit
the UK in order to present to, and meet with, analysts and investors. Site
visits and individual discussions with the Executive Directors are also
arranged throughout the year with individual shareholders.

In addition the Chairman had individual meetings during the year with major
shareholders and reported to the Board on issues raised with him.

This is supplemented by feedback to the Board on meetings between
management and investors. In addition, the Investor Relations team produces
a quarterly Investor Relations Report that is circulated to the Board for their
consideration. The Report contains an analysis of share price performance; a
summary of analyst reports received during the month and of meetings that
have been held with investors and analysts; together with details of any
significant changes to the shareholders’ register.

The Senior Independent Director has specific responsibility to be available to
investors who have any issues or concerns, and in cases where contact with
the Chairman, Chief Executive Officer and Chief Financial Officer has either
failed to resolve their concerns, or for where such contact is inappropriate.
No such concerns have been raised in the year under review.

All shareholders are invited to attend the Company’s Annual General Meeting
(AGM). The Chairs of the Audit, Remuneration, Nomination and Group Risk
Committees attend the AGM along with the other Directors and are available
to answer shareholders’ questions on the activities of the Committees they

The Group maintains a corporate website (www.admiralgroup.co.uk)
containing a wide range of information of interest to institutional and
private investors. The major shareholders of the Company are listed
on page 70.

chair. Shareholders are also invited to ask questions during the meeting and
have an opportunity to meet with Directors after the formal business of the
meeting has been concluded. Details of proxy voting by shareholders, including
votes withheld, are made available on request and are placed on the Company’s
website following the meeting.

Conflicts of interest
In compliance with the requirements of the Companies Act 2006 regarding
Directors’ duties in relation to conflicts of interest, the Group’s Articles of
Association allow the Board to authorise potential conflicts of interest that
may arise and to impose such limits as it thinks fit. The Company has put in
place procedures to deal with conflicts of interest. These procedures include
each Board member completing, annually, a conflicts of interest questionnaire
that sets out any situation in which they, or their connected persons have, or
could have, a direct or indirect interest that could conflict with the interests
of the Company. Any current Directorships that they, or their connected persons
hold, any advisory roles or trusteeships held, together with any companies in
which they hold more than 1% of the issued share capital are also disclosed.
These procedures were reviewed by the Board in December 2015 and it was
concluded that they continued to operate effectively.

Board Committees
The Board has delegated authority to a number of permanent Committees
to deal with matters in accordance with written Terms of Reference. The principal
Committees of the Board – Audit, Remuneration, Group Risk and Nomination
– all comply fully with the requirements of the Code.

All Committees are chaired by an independent Non-Executive Director, except
the Nomination Committee which is chaired by the Chairman of the Board,
and comprise a majority of independent Non-Executive Directors. Appointments
to the Committees are made on the recommendation of the Nomination
Committee and 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 Committees are constituted with written Terms of Reference that are
reviewed annually to ensure that they remain appropriate and reflect any
changes in good practice and governance. These Terms of Reference are
available on request from the Company Secretary and can also be found on
the Company’s website: www.admiralgroup.co.uk. Directors are fully informed
of all Committee matters by the Committee Chairmen reporting on the
proceedings of their Committee at the subsequent Board meeting. Copies
of Committee minutes are also distributed to the Board. Committees are
authorised to obtain outside legal or other independent professional advice
if they consider it necessary. The Chairman of each Committee attends the
Annual General Meeting to respond to any shareholder questions that might
be raised on the Committee’s activities.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONReport of the Audit Committee
Statement from Colin Holmes, Chairman of the Audit Committee

The Audit Committee’s primary responsibilities are to:

Monitor the integrity of the Group’s financial statements
and any formal announcement relating to the Group’s
financial performance, reviewing any significant financial
reporting judgements which they contain

Keep under review the effectiveness of the Company’s
internal financial controls, internal control and risk
management systems

Review the Group’s procedures for handling allegations
from whistleblowers and for detecting fraud

Monitor and assess the role and effectiveness of the Group’s
Internal Audit functions in the context of the Group’s
overall internal control and risk management systems

Consider and make recommendations to the Board,
to be put to shareholders for their approval at the AGM,
in relation to the appointment, reappointment and
removal of the Group’s external auditor

Review the external auditor’s independence and objectivity
and the effectiveness of the audit process

Review the policy on the engagement of the external
auditor to provide non-audit services, considering the
relevant regulatory guidance regarding the provision
of non-audit services by the external auditor

Colin Holmes

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Dear Shareholder,
I’m pleased to provide an update on the main activities of Admiral’s
Audit Committee during 2015.

The key areas of focus for the Committee during the year have been to provide
support to the Board in its oversight of financial reporting and the control
environment across the Group. The setting of insurance claims reserves continues
to be a key accounting judgement in the Group’s financial statements, and
the Committee placed considerable focus on reviewing the recommendations
of management and discussing the key reserving judgements with the Group’s
independent actuaries and external auditor. In addition, the Committee continued
to monitor the appropriateness of the Group’s system of risk management
and internal control as well as the robustness of the internal and external
audit processes.

The Committee studied a number of control issues, highlighted through a
range of different sources including the Risk Register, Internal Audit and the
Committee’s previous work. One significant focus during the year was on the
area of IT Security and Control, in part due to the major project to transfer the
UK business onto a new bespoke software system. The Committee will remain
focused on this issue during 2016 as the transfer of active business to the new
software platform occurs across the year. On the issue of IT Security the
Committee sought assurance from the Head of IT Security that the action
plan to mitigate against cyber risks remained appropriate and, given the
seriousness of the threat posed to the business from cyber risks, that
actions and recommendations were being dealt with in a timely manner.

Consideration of the implementation of Solvency II and the impact this
would have on the Group took up a considerable amount of the Committee’s
time in 2015 as the Committees considered the Group’s reporting requirements
under the Solvency II regime. The Committee also received an update on the
adoption of IFRIC 21 and continued to monitor changes in accounting standards.

During the year the Committee led the tender process for the Group’s external
audit, which resulted in a recommendation that Deloitte LLP should be
recommended to shareholders as the Group’s auditor at the 2016 AGM.
Over the last 16 years KPMG LLP have undertaken an effective and value
adding external audit for the Group and I would like to express the Committee’s
thanks to all the KPMG staff involved.

Within the Committee itself we welcomed Penny James as a member in early
2015 and Owen Clarke in January of this year. Both of these appointments
have added to the strength and breadth of the Audit Committee. At the AGM
Margaret Johnson steps down from the Board and this Committee and
I would like to thank her for her huge contribution over the last nine years.
I hope you find the above summary, and the more detailed report, both
useful and informative.

Colin Holmes
Chairman of the Audit Committee
2 March 2016

Consideration of the

implementation of Solvency II and
the impact this would have on the
Group took up a considerable amount
of the Committee’s time in 2015
as the Committee considered the
Group’s reporting requirements
under the Solvency II regime.

Summary of key activities during 2015

During the year the Committee reviewed the following:

The Annual Report and interim results.

Reports from the Internal Audit departments within the Group on the effectiveness of the Group’s risk management
and internal control procedures, details of key audit findings, and actions taken by management to manage and
reduce the impact of the risks identified.

Reports from the external auditor on the principal findings from their review of the Group’s systems and controls,
and on their key accounting and audit issues and conclusions on the half and full year reporting.

Reports from the Chair of the Group Risk Committee on the principal risks faced by the Group and the work
undertaken by the Committee to ensure risk is appropriately managed.

Presentations from independent actuaries to assist the Committee in concluding on the adequacy of the
Group’s reserves.

Reports from the external auditor on their proposed audit scope, fees, audit findings, and auditor independence.

Proposals from invited external audit firms as part of the audit tender process.

Performance and effectiveness of the Internal Audit department including review of the results of the external
effectiveness review of Internal Audit.

All reports from Internal Audit including management responses to the conclusions set out in the reports.

Reports and updates on the project and financial controls of the new UK IT system.

The effectiveness of the Group’s Whistleblowing Policy which sets out the arrangements for raising and handling
allegations from whistle blowers.

The Committee also had presentations and discussions on a range of important issues including: IT Security,
deferred tax assets and Solvency II preparatory phase reporting requirements.

Its own Terms of Reference.

Its own effectiveness.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONReport of the Audit Committee continued

Membership

Audit Committee attendance (7 meetings)
Colin Holmes
Annette Court
Penny James
Margaret Johnson

Chair

Member

Did not attend

Membership of the Committee at the end of the year was: Colin Holmes (Chair),
Annette Court, Penny James and Margaret Johnson. The Committee has been
strengthened by the addition of Owen Clarke who joined the Committee with
effect from 1 January 2016 and ensures that with Margaret Johnson stepping
down from the Board in April, the composition of the Committee remains
well balanced. Committee members continue to have a broad range of financial
and business experience such that they are able to effectively analyse,
challenge and debate the issues that fall within the Committee’s remit.

The Company Secretary acts as Secretary to the Committee. The Committee
meets at least four times per year and has an agenda linked to events in the
Company’s financial calendar and other important issues that arise throughout
the year which fall for consideration by the Committee under its remit.

The Board considers that the members of the Committee have the appropriate
competence and experience necessary to contribute meaningfully to the
Committee’s deliberations and further considers that Colin Holmes (Committee
Chair), as a Chartered Management Accountant, has appropriate recent and
relevant financial experience having previously been the UK Finance Director
for Tesco plc.

The Committee is kept up to date with changes to Accounting Standards
and relevant developments in financial reporting, company law, and the various
regulatory frameworks through presentations from the Group’s external
auditor, Chief Financial Officer and Company Secretary. In addition, members
attend relevant seminars and conferences provided by external bodies.
The Terms of Reference of the Audit Committee include all the matters
required under the Code.

Other individuals such as the Chief Financial Officer, Chief Operating Officer,
Chief Executive Officer, Chairman of the Board, the Chief Risk Officer, Heads
of 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 auditor was invited to attend all of the
Committee’s meetings held in 2015, excepting those agenda items when
its own performance/appointment was to be reviewed and provision of
non-audit services discussed. In addition, a number of private meetings
were held between members of the Committee and the auditor.

Significant issues considered by the Committee
After discussion with both management and the external auditor, the Audit
Committee determined that the key risks of misstatement of the Group’s
financial statements related to: insurance liabilities; profit commissions;
and the valuation of deferred tax assets.

of likelihood, to cover any liabilities that can be reasonably assumed to arise
from business earned up to the valuation date. The approach is to ensure
that an appropriate margin is provided above actuarial best estimates to
allow for uncertainty and volatility.

The Committee held separate meetings with the Group’s external actuaries
at which there was challenge and debate on the methodology used and best
estimates developed by the external actuaries and recommended for adoption
by management and the Group’s internal actuary. At these meetings management
provided further information on the reserving levels proposed and were challenged
by the Committee as to their adequacy and level of inherent prudence.

Whilst acknowledging that the setting of reserves to cover future claims
is a complex and judgemental area and having had the opportunity at the
separate meetings referred to above to consider and question the recommended
best estimates, the Committee is satisfied that an appropriate process has
been followed and that there has been scrutiny, challenge and debate to
give confidence that the reserving levels set provide an appropriate margin
above best estimates, though noted the continued high level of prudence
that remains within the reserves.

The Committee also received an update from the auditor regarding the procedures
they had used to test management’s methodology in setting best estimates
and considered the auditor’s assertion that they had challenged the reserving
approach taken by management and were satisfied with management’s
assumptions and that the Group’s approach to setting reserves was in
compliance with current accounting standards.

Profit commission
The Committee considered the impact on profit commission income of future
changes in claims reserves 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. The Committee remained
satisfied that profit commission was correctly accounted for by the Group
and was in accordance with the contractual arrangements that were in place.

The Audit Committee considered the auditor’s overall findings on this area
which indicated that it considered the profit commission recognised was
appropriate in the context of the financial statements as a whole.

Recognition of intra-group trading
The Committee considered and reviewed the accounting treatment, relating
to intra-group trading. In previous years, the auditor had continued to report
an unadjusted difference in relation to intra-group trading between the Group’s
insurance and price comparison businesses and management had opted
not to make the elimination adjustments on the basis that the impact
was immaterial.

However for 2015, management have determined that an adjustment for the
elimination of the intra-group trading should be made within the financial
statements. This change in approach was proposed on the basis that the
materiality of the adjustment of the individual revenue and expense captions
within the income statement was increasing due to the trading between the
Group’s international price comparison entities and the respective insurance
operations in those countries. KPMG had confirmed that they were satisfied
that the proposed treatment was appropriate.

These issues were discussed with management during the year and with the
auditor at the time the Committee reviewed and agreed the auditor’s Group
audit plan; when the auditor reviewed the interim financial statements in
August 2015 and also at the conclusion of the audit of these full year
financial statements.

The Committee fully considered and challenged management on the change
in approach proposed. Following comprehensive review, the Committee
confirmed its acceptance of management’s position on the basis that
accounting for intra-group trading in this way had no profit impact and
that explanatory footnotes would be added to the financial statements.

Insurance liabilities
The Audit Committee considered the provision for claims outstanding comprising
provisions for the estimated cost of settling all claims incurred but unpaid as
at the balance sheet date, whether reported or not. The Board has approved
a Reserving Policy that sets out the methodology by which management
sets reserves in the financial statements that are sufficient, to a high degree

Valuation of deferred tax assets
The Group has both recognised and unrecognised deferred tax assets in respect
of tax losses within its US businesses. There is significant judgement involved
in assessing the probability of realising future taxable profits when operations
are not yet fully established and are currently loss making, and inherent uncertainty
involved in forecasting future taxable profits, which determine the extent to
which deferred tax assets are or are not recognised.

50 ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2015

Valuation of deferred tax assets continued
The Committee had considered the approach proposed by management in
determining the value of these deferred tax assets in the Group’s balance sheet.
It was noted that the probability of the availability of future taxable profits had
been formalised in a policy and was determined by a combination of the
classification of the status of the businesses holding cumulative tax losses
and the business plan profit projections for that business. The policy used by
management classified the Group’s businesses as either: a start up business;
a new business or an established business and used relevant criteria such as
markets and performance against KPIs to assess the status of each business.

During 2015, management had also proposed that for “new businesses”, an
additional stress test to assess the impact of delayed profitability should be
considered. Applying the policy, management proposed that, in relation to
compare.com, as management’s level of confidence in the long-term objectives
of the business continues to be high it was appropriate to continue to hold
an asset in relation to £27 million of losses. For Elephant, management
proposed that, although management’s level of confidence in the future
profitability of the business continued to remain high, the application of the
policy leads to the reversal of the existing deferred tax asset and considered
this to be an appropriately prudent outcome with respect to deferred tax
asset recognition. Given the size of the total deferred tax asset in relation
to US losses at 31 December 2015, KPMG have concluded that it is not a
significant risk in terms of being potentially misstated and are satisfied that
the deferred tax asset has been calculated by management in line with
Admiral’s deferred tax accounting policy.

The Committee challenged management on the application of management’s
deferred tax accounting policy and agreed with the approach proposed
by management.

Misstatements
An adjusted audit difference was reported in relation to the intra-group
trading issue reported above but no unadjusted audit differences were
reported. The Committee confirms that it is satisfied that the auditor has
fulfilled its responsibilities with diligence and professional scepticism.

After reviewing the presentations and reports from management and consulting
where necessary with the auditor, the Committee is satisfied that the financial
statements appropriately address the critical judgements and key estimates
(both in respect to the amounts reported and the disclosures). The Committee is
also satisfied that the significant assumptions used for determining the value
of assets and liabilities have been appropriately scrutinised, challenged and
are sufficiently robust.

Non-audit fees
During the year the Committee reviewed its policy on non-audit services in
the context of EU Audit Reforms, and consultations issued by The Department
for Business, Innovation and Skills (BIS) and the Financial Reporting Council
(FRC). Given the proposed changes in this area, the Committee approved, in
February 2016, a revised Policy that was aligned with current regulatory guidance.
Under the policy, the Group’s statutory auditor would only be engaged to
carry out non-audit work in exceptional circumstances or where there was a
regulatory or tax authority request and where agreed by the Committee.

Unless required by law, regulatory or tax authority, from 2016, any non-audit
services will: a) be subject to prior approval from the Committee and b) in
aggregate, shall not cost more than 70% of the average statutory audit fee
for the past three financial years. In considering whether to approve such
non-audit services, the Committee shall ensure that:

• There is no direct effect, or the effect is clearly inconsequential, on the

non-audit services on the Group’s financial statements;

• The estimation of the effect on the financial statements is documented

and explained in a report to the Committee;

• The non-audit services provided comply with the principle of independence; and

• The audit firm must not place significant reliance on the output of the

non-audit services for the audit work.

The Committee will continue to monitor regulatory developments in this
area to ensure that its policy on non-audit fees adheres to current guidance.

Effectiveness of the external audit process
The Committee undertakes an annual review to assess the independence
and objectivity of the external auditor and the effectiveness of the audit process,
taking into consideration relevant professional and regulatory requirements, the
progress achieved against the agreed audit plan, and the competence with
which the auditor handled the key accounting and audit judgements. Following
this review the Committee concluded that the auditor, KPMG LLP, remained
independent and provided a service that was robust and fit for purpose.

Audit tender
As confirmed in this report last year, given the requirements of the UK Corporate
Governance Code and changes to the EU regulatory framework, the audit for the
year ended 31 December 2016 was put out to tender in 2015. As the Committee
has primary responsibility for making recommendations to the Board
concerning the appointment, reappointment and removal of the external
auditor, the Committee led the tender process. The Group’s auditor, KPMG LLP,
was invited to tender together with Deloitte LLP and PricewaterhouseCoopers LLP.
The tender process involved: the three firms being identified as having the
right level of experience and resource submitting a formal invitation to tender
document; each firm had individual meetings with key members of management
and the Chair of the Audit Committee; and a final presentation to the Committee
was made by each of the tendering firms focusing on the Group’s key business
risks and their proposed audit approach.

Following completion of the transparent and independent audit tender process
and on the recommendation of the Committee, the Board approved that,
Deloitte LLP should be recommended to shareholders as the Group’s
auditor at the 2016 AGM. A resolution to that effect will be proposed at the
AGM. There are no contractual obligations that restrict the Group’s choice of
external auditor. The Committee will continue to keep under review the auditor
appointment as the regulatory changes in this area continue to evolve.

Internal audit
The Group Head of Internal Audit attends all Audit 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.
The Committee reviewed and approved the Group Internal Audit Terms of
Reference which set out the role; objectives; reporting lines and accountability;
authority; independence; and objectivity of the Internal Audit function.
The role and competence of each Internal Audit function across the Group
was also assessed and considered by the Committee. It was agreed that the
Group Head of Internal Audit would have increased responsibility to ensure
the quality of the Internal Audit activities in the Group’s overseas locations.

Members of the Committee also receive all issued audit reports, enabling them
to challenge the reports’ content and related recommendations. The Committee
approves the Internal Audit programmes at the start of each calendar year
whilst the effectiveness and workload of the Internal Audit functions and
the adequacy of available resources are monitored throughout the year.

In accordance with agreed parameters, the overseas operations in Spain, Italy
and the US have their own locally based internal auditors, who report to their
respective country heads. All reports are evaluated by the Group Head of
Internal Audit to ensure the quality and effectiveness of the reported findings.
In addition, the UK Internal Audit department carries out high level governance
reviews of all foreign operations, assessing the internal control frameworks
and system of risk management. The overseas internal auditors attend
Committee meetings periodically.

Committee effectiveness review
As part of the Committee’s detailed annual review of its performance and
processes, each Committee member completed a comprehensive questionnaire
designed to provide objective assessment of the Committee’s performance,
including its effectiveness in monitoring internal and external audit. The Committee
discussed the results of the review and it was concluded that the Committee
and the audit process were effective; that the Committee had full access to
all the information it required; that the Committee had appropriate Terms
of Reference; and that it was adequately discharging its responsibilities.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONReport of the Group Risk Committee
Statement from Jean Park, Chair of the Group Risk Committee

Dear Shareholder,
Having now implemented the Group’s Enterprise Risk Management Framework
(‘ERMF’) and thereby improved the understanding of risks at a Group level
the Committee has focused during the year on developing the Board’s risk
strategy and risk appetite with greater granularity. Risk Owners have agreed a
refreshed suite of Key Risk Indicators with associated triggers and limits. This
has improved the effectiveness of the Committee by placing greater focus
on the main risks affecting the business.

A significant amount of time has been dedicated to achieving compliance
with the Solvency II requirements which have been introduced in January 2016,
in particular, the application for the Group’s regulatory capital add-on. The
Committee has also reviewed the Group’s proposed dividend level, capital
plan and capital buffer in line with the capital policy.

The Committee challenged and reviewed the setting of and outputs from
the regular stress and scenario testing and reverse stress testing. The output
was incorporated into the Own Risk and Solvency Assessment (‘ORSA’)
report for 2015, which the Committee also reviewed.

Regular reports have been received on the risks and progress of the major change
programme responsible for the implementation of a new policy administration
system and data warehouse, known as Project Bolt. The first phase of the
programme was successfully implemented in December 2015.

The focus on monitoring and reporting customer outcome risks continued
during the year and included the introduction of Group minimum compliance
standards, which introduces the levels of compliance resources and monitoring
levels that all Group firms must apply to their respective regulatory obligations.

The composition of the Committee was strengthened by the addition of
Manning Rountree who joined as a member of the Committee in June 2015.

I look forward to continuing the good work this year.

Jean Park
Chair of the Group Risk Committee
2 March 2016

The responsibilities of the Committee
can be summarised as:

Oversee the development, implementation and maintenance
of the Group’s overall Risk Management Framework and
ensure that it is in line with emerging regulatory, corporate
governance and best practice guidelines

Monitoring the Group’s prudential risk exposure, which
includes ensuring that the Group’s capital resources and
liquidity profile are appropriate to its needs whilst meeting
minimum regulatory requirements, including overseeing
and challenging the design and execution of the Group’s
stress and scenario testing

Monitoring the Group’s current and future conduct
risk exposure

Ensuring the adequacy and effectiveness of the Group’s
systems and controls for the prevention of financial crime
and data protection

Monitoring the adequacy and effectiveness of the Group’s
Compliance functions

Reviewing the Group’s progress towards achieving
Solvency II compliance

Reviewing compliance with Group policies, including the
established Reserving Policy and process

Considering and recommending to the Board for approval
the Group’s risk appetite, including any changes to the
appetite for each material type of risk faced by the Group

Approving the annual plans for the Group Risk and
Compliance functions which include reviewing regulatory
developments and regular meetings with the PRA and FCA

The Committee challenged

and reviewed the setting of and
outputs from the regular stress
and scenario testing and reverse
stress testing.

Jean Park

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Summary of key activities during 2015

During the year the Committee:

Reviewed the Group’s updated risk strategy, risk appetite and associated triggers and limits in the context of the
Group’s agreed strategic objectives.

Reviewed the Group’s Enterprise Risk Management Framework and received external assurance on the successful
implementation of the updated framework in line with Solvency II requirements.

Reviewed the Group’s proposed dividend level, capital plan and capital buffer in line with the capital policy.

Reviewed the Group’s regulatory capital add-on application in preparation for the introduction of Solvency II
capital requirements.

Through stress and scenario testing and reverse stress testing, considered in-depth analysis of a number of the
Group’s most significant risk areas, including the potential default of a reinsurer.

Considered the adequacy of risk mitigation measures and contingency plans including a review of the Group’s
reinsurance provisions.

Monitored the Group’s progress towards implementation of Solvency II including approval of a number of new and
revised policies.

Recommended to the Board approval of the 2015 ORSA Report prior to submission to the regulator and approved
the ORSA policy.

Reviewed the executive succession planning processes.

Considered the provisions of the Senior Insurance Managers Regime and approved the Group’s approach.

Reviewed a number of new product propositions.

Received regular updates on IT Security and presentations on a number of key risk topics including cyber risk,
investments and liquidity.

Reviewed regular reports on the risks and progress of the major change programme responsible for the
implementation of a new policy administration system and data warehouse, known as Project Bolt.

Received regular risk monitoring reports on performance of Key Risk Indicators within the overall risk
management framework.

Received regular monitoring reports on UK conduct risk and complaint handling and approved the introduction
of Group minimum compliance standards.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONReport of the Group Risk Committee continued

Composition of the Group Risk Committee (GRC)
Membership at the end of the year was: Jean Park (Chair), Annette Court,
Lucy Kellaway, Manning Rountree and David Stevens. The Company Secretary
acts as Secretary to the Committee.

The Committee met six times during the year.

Group Risk Committee attendance (6 meetings)
Jean Park
Annette Court
Lucy Kellaway
Manning Rountree*¹
David Stevens

Chair

Member

Did not attend

*¹ Manning Rountree was appointed to the Board with effect from 16 June 2015.

Duties and responsibilities of the Group Risk Committee
The duties and responsibilities of the Committee are set out in Terms of
Reference that were approved by the Board in January 2013 and updated
and approved in January 2015.

The Committee Chair reports formally to the Board on its proceedings after
each meeting on all matters within its duties and responsibilities, as set out
in previously circulated minutes to the Board. The Committee Chairperson
also reports on the activities of the Committee in a formal written report
that is submitted to and discussed by the Board every six months.

The work of the Committee is supported by more detailed work undertaken
by executive Risk Management Committees in each of the Group’s operational
entities. At each meeting, the Risk Management Committees consider
significant movements in the operation’s risk profile, any risks that have
arisen and any emerging risks. Risk Management Committees also assess
and monitor any regulatory issues, ensuring that their resolution and the
action taken are appropriately recorded. In the UK, the Risk Management
Committee receives regular information on Conduct Risk, such as complaint
handling reports and other related management information. The Group
Risk Management function reviews and collates information from across the
Group for consideration by the Group Risk Committee.

Internal control and risk management
The Board is ultimately responsible for the Group’s system of risk management
and internal control and, through the Audit Committee, has reviewed the
effectiveness of this system. The system of risk management and internal
control over insurance, operational, market, legal and regulatory risks is designed
to manage rather than eliminate the risk of failure to achieve business objectives
and breaches of risk appetites 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 risks and internal controls; that it has been in
place for the year ended 31 December 2015; 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 UK Corporate Governance Code.

The Board confirms that it has performed a robust assessment of the Group’s
principal risks. These risks, along with explanations of how they are being managed
and mitigated, are included in the Strategic Report on pages 34 to 37.

The Board is responsible for determining the nature and extent of the principal
risks it is willing to take in achieving its strategic objectives. The Board meets
at least seven times a year to discuss the direction of the Company and provide
oversight of the Group’s risk management and internal control systems.
The role and responsibilities of the Board are documented within their
Terms of Reference and these are reviewed annually.

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. As described
above, in order to ensure these responsibilities are properly discharged, the
Board has delegated to the Audit Committee to keep under review the
adequacy and effectiveness of the Company’s internal financial controls,
internal control and risk management systems.

The Board has delegated the development, implementation and maintenance
of the Group’s overall risk management framework to the Group Risk Committee
(‘GRC’). The GRC reports on its activities to the Board and the Audit Committee,
supporting the overall assurance provided by the Audit Committee that the
Group’s internal control, risk management and compliance systems continue
to operate effectively.

The Group has a ‘three lines of defence’ approach to Internal Control.
The Board recognises that the day-to-day responsibility for implementing
policies lies with the senior management, the ‘first line of defence’, whose
operational decisions must take into account risk and how this can be
controlled effectively.

The ‘second line of defence’ describes the Committees and functions that
are in place to provide an oversight of the effective operation of the internal
control framework. The Group Risk Department and the Compliance functions
are part of the second line of defence.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Viability
In accordance with provision C.2.2 of the 2014 revision of the Code, the
Directors have assessed the prospect of the Company over a longer period
than the 12 months required by the ‘Going Concern’ provision. The Board
conducted this review for a period of three years to December 2018. This
assessment has been made taking into account the current financial
position of the Group, the Group’s business plans, the Group’s ‘Own Risk
and Solvency Assessment’ (ORSA) process, and the principal risks and
uncertainties faced by the Group, which are disclosed on page 34 to 37
of the Strategic Report.

The ORSA is performed in line with Solvency II regulations and requires the
Group to demonstrate that it has a detailed understanding of the risks facing
the business over a three-year time horizon. In addition to this the Group
Risk Committee and the Group Board review regular updates to the Group’s
capital and solvency projections.

Quantitative and qualitative assessments of risks are performed as part of
the ORSA process. The quantitative assessment (in line with the Group’s capital
and solvency projections) considers how the regulatory capital requirements,
economic capital needs, own funds and the solvency position of the
Company is projected to change over the three year time horizon. It also
includes a series of stress tests, linked to the Group’s principal risks and
reports the impact of these stresses alongside any mitigating factors that
reduce the impact.

The results of the stress tests form part of the process to set the Group’s
capital risk appetite, which ensures that a buffer on top of the Group’s
regulatory capital requirement is held to protect its capital position against
shocks and stresses.

Based on the results of this analysis, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over this three year period.

The Group Risk Department defines and prescribes the insurance, market
and operational risk assessment processes for the business. It performs
second line reviews, including of the reserving and capital modelling processes,
and undertakes regular reviews of all risks in conjunction with management,
with the results of these reviews recorded in risk registers. Furthermore,
Group Risk records any actual losses or near misses that occur as a consequence
of the crystallisation of risk and analyses the sufficiency of the action taken
to avoid reoccurrence. The Chief Risk Officer has responsibility for ensuring
that managers are aware of their risk management obligations, providing
them with support and advice, and ensuring that risk management strategies
are properly communicated. Reports are produced showing the most significant
risks identified and the controls in place. Internal Audit uses the risk registers
to plan and inform their programme of audits around the most significant
risks to the Group to ensure that the prescribed controls are in place and are
operating effectively.

There is Compliance resource assigned to each operation who review and
report on the first line of defence’s compliance with designated control activities.
The Group Compliance function consolidates these reviews and provides
reports to the Group Risk Committee.

The ‘third line of defence’ describes the independent assurance provided by
the Audit Committee and the Group Internal Audit function that reports to
that Committee. Internal Audit undertakes a programme of risk based audits
covering all aspects of both the first and second lines of defence. The findings
from these audits are reported to all three lines, i.e. management, the executive
and oversight Committees, and the Audit Committee.

The GRC, UK Risk Management Committee and other UK and overseas
Risk Committees receive reports setting out key performance and risk
indicators and consider possible control issues brought to their attention
by early warning mechanisms that are embedded within the operational
units. They, together with the Audit Committee, also receive regular reports
from the Internal Audit function, which include recommendations for
improvement of the control and operational environment. Twice a year
the Chair of the GRC provides a comprehensive written report to the Board
of the activities carried out by GRC. In addition, the Board receives reports
from the Chair of the Audit Committee as to its activities, together with
copies of the minutes of the GRC and Audit Committee.

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 and where necessary provides a high-level challenge to
the steps being taken by the GRC to implement the risk management strategy.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONReport of the Nomination Committee
Statement from Alastair Lyons, Chairman of the Nomination Committee

The Nomination Committee’s primary
responsibilities are to:

Lead the process for making appointments to the Board.

Ensure there is a formal, rigorous and transparent
procedure for the appointment of new Directors to
the Board.

Ensure plans are in place for orderly succession for
appointments to the Board and for other senior
management positions.

Dear Shareholder,
Succession planning has been a key area of focus for the Committee in 2015
given the changes to the composition of the Board that have taken place
during the year with both Roger Abravanel and Manfred Aldag stepping
down from the Board. The composition will change further in the coming
year with Margaret Johnson and Lucy Kellaway retiring at the forthcoming
AGM and Henry Engelhardt stepping down as CEO in May. In this context
and in keeping with its remit to review regularly the composition and
experience of the Board, the Committee led the process of Non-Executive
Board appointments during the year. The Committee carried out a robust
and comprehensive recruitment process resulting in the appointment of
Penny James, Manning Rountree and Owen Clarke, further enhancing the
range of skills, breadth of experience and diversity around the Board table.

The Committee continued the development of a structured succession plan
that would ensure appropriate action was taken well ahead of the dates on
which individuals would be retiring in order to achieve their replacement, if
appropriate, with individuals of the appropriate skills, experience and fit to
the Board.

Alastair Lyons
Chairman of the Nomination Committee
2 March 2016

Alastair Lyons, CBE

The Committee carried out

a robust and comprehensive
recruitment process.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Membership
The membership of the Committee at the year end was Alastair Lyons
(Chairman), Colin Holmes and Lucy Kellaway. The Company Secretary acts
as Secretary to the Committee. The Committee invites the Chief Executive to
attend meetings when it deems appropriate. The Committee met formally on
two occasions in 2015 although members of the Committee corresponded
and met informally on a number of occasions to consider and meet with
individuals that the Committee had identified as possible candidates to join
the Board.

Nomination Committee attendance (2 meetings)
Alastair Lyons
Colin Holmes
Lucy Kellaway

Chair

Member

Did not attend

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 process for the appointment
of new Directors to the Board embracing a full evaluation of the skills,
knowledge and experience required of Directors. The Committee also
ensures plans are in place for orderly succession for appointments to the
Board and reviews the succession plans for other senior management
positions. Responsibility for making senior management appointments
rests with the Chief Executive.

Having secured Penny James as a Non-Executive Director during 2014,
during 2015, having regard to forthcoming retirements and the changing
nature of the Group’s business, the Board initiated a search for two new
Non-Executive Directors. The Group has in place a policy of recruiting well
ahead of impending retirements in order to ensure continuity of knowledge
and Board dynamics. The Committee developed an appropriate specification
for these roles having regard to the required skills and experience. Following
this process, the Committee identified Manning Rountree and Owen Clarke
as best placed to fill the roles identified.

Manning is a senior executive at White Mountains Insurance Group Ltd.,
a publicly-traded, Bermuda-domiciled holding company for insurance and
financial services interests around the world, where he oversees transactions,
mergers and acquisitions and new business development. Until recently,
he also served as President of White Mountains Advisors, the company’s
in-house asset management operation. Prior to joining White Mountains
in 2004, Manning was a consultant at McKinsey & Company, focused on
the insurance, asset management and financial services sectors. He was
also the Director of Corporate Development for Putnam Investments, a
Boston-based asset management company. Manning’s experience in the
US insurance sector will be invaluable as the Group’s auto insurance and
price comparison businesses develop in the US.

Owen is currently the Chief Investment Officer of Equistone (formerly Barclays
Private Equity): he served as a Director of Admiral from 1999–2004 when it
was a private company having led BPE’s participation in the MBO of Admiral
in 1999. Consequently, Owen has an excellent understanding of the Group’s
business and culture, as a well as a great commercial record.

Given Manning’s and Owen’s background, experience and competence, and
the external references that were obtained, the Committee did not consider
it either necessary or appropriate to undertake a full search led by an external
recruitment consultancy.

Each Committee member met separately with Manning and Owen and
agreed that each would bring invaluable experience to the Board. The Board
approved the Committee’s recommendations and following regulatory
approval Manning was formally appointed to the Board with effect from
16 June 2015 and Owen with effect from 19 August 2015.

The Board, at its meeting in April 2015, considered the Group’s current
Succession Plan which considered the senior roles within the Group and
identified whether there was emergency short term cover in place in the
event that an individual left the organisation, and whether there was a
permanent replacement available within the organisation, or whether the
position would need to be filled externally. It also identified where there
were individuals who, with further experience and guidance, would be
capable of moving into particular senior management roles.

The Committee remains satisfied that succession plans for Directors
and senior management are in place to ensure the continued ability of
the Group to implement strategy and compete effectively in the markets
in which it operates.

The Group remains strongly supportive of the principle of boardroom
diversity, of which gender is an important, but not the only, aspect. What is
important is diversity of thought, experience and approach and each new
appointment must complement what already exists at the Board table.
Accordingly, appointments will always be made on merit against objective
criteria, including diversity, and not just to achieve an externally prescribed
number. Given women already constitute over 25% of our plc Board, the
Group has already met the target set for 2015 by Lord Davies in his report:
Women on Boards. The Group remains committed to providing equal
opportunities, eliminating discrimination, and encouraging diversity amongst
its workforce both in the UK and overseas. A breakdown of the gender of
Company Directors and senior employees at the end of the financial year
together with details of the Group’s Equality, Diversity and Dignity at Work
Policy are set out in the Directors’ Report on page 69.

Remuneration Committee
Full details of the membership, responsibilities and activities of the
Remuneration Committee can be found in the Directors’ Remuneration
Report set out on pages 58 to 68.

Detailed information of individual Directors can be found on
pages 42 to 43

Appointments made in the last year

Manning Rountree (43)
Non-Executive Director

Owen Clarke (52)
Non-Executive Director

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONReport of the Remuneration Committee
Statement from Annette Court

I remain confident that the

Group’s Remuneration Policy
supports the view, held by the
Board, that wide share ownership
drives outstanding performance
and promotes the long term
success of the business whilst
remaining in alignment with
shareholder interests.

Annette Court

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Dear Shareholder,
I am pleased to introduce the Directors’ Remuneration Report (the Report)
for the year ended 31 December 2015, which has been prepared by the
Remuneration Committee (the Committee) and approved by the Board.

2015 has been another strong year for the Admiral Group despite challenging
conditions in the cyclical core UK motor insurance market. Earnings per share in
the year were 107.3 pence (2014: 103.0 pence), up 4% on 2014. Return on
equity of was 49% (2014: 52%). Total Shareholder Return was 34% over the
year, placing Admiral in the top quartile of the FTSE 350. Total dividends for
the financial year (including the proposed final dividend of 63.4 pence per share)
will be 114.4 pence per share, representing 108% of our earnings. The Group’s
strategy remains to continue to maximise our position in the UK while taking
what we know and do well, which is internet and telephone delivery of
insurance and price comparison, to our overseas businesses.

Two of the three Executive Directors are founding Directors and receive
remuneration that only comprises salary and modest benefits. The
Committee continues to hold the view that this is appropriate, as their
significant shareholdings provide a sufficient alignment of their interest
with those of other shareholders. In order to provide full transparency of
pay arrangements for our Executive Directors, this Report includes single
figure and comparative data for our CFO as well as for our CEO, as the pay
arrangements for the CFO are more reflective of those for (non-founder)
executives. The Group continues to maintain base salary levels for most
senior management positions at well below the lower quartile of their peer
group in the FTSE 350.

As I noted in my letter last year, the Company undertook in late 2014 and
early 2015 a comprehensive review of the Group’s DFSS (Discretionary Free
Share Scheme) rules. A considerable amount of the Remuneration Committee’s
time in early 2015 was spent consulting with our top shareholders and other
stakeholders on the proposed revisions to the DFSS. The proposed changes
to the DFSS were incorporated into the Group’s Remuneration Policy which
was put to shareholders for approval at the Group’s AGM in April 2015 and
subsequently approved with 96% voting in favour. I remain confident that
the Group’s Remuneration Policy supports the view, held by the Board, that
wide share ownership drives outstanding performance and promotes the
long term success of the business whilst remaining in alignment with
shareholder interests.

In addition to consideration of the proposed DFSS changes set out above,
the Committee also considered the following matters during the year ended
31 December 2015:

• Reviewing the salary arrangements and fee proposals for the Executive

Directors, the Chairman and senior management.

• Reviewing the appropriateness of the performance conditions for the

Free Share Incentive Plan (SIP) awards.

• Reviewing the Company’s performance against the performance

conditions applicable to the DFSS and SIP awards and where appropriate
authorising the vesting of awards.

• Reviewing and authorising the grant of awards under both the DFSS and SIP.

• Reviewing the Committee’s Terms of Reference and recommending

amendments to the Board for approval.

• Approval (subject to shareholder approval) for a sub-plan of the DFSS to

be created in order to take advantage of the changes in France with respect
to the Macron Law.

Annette Court
Chair of the Remuneration Committee
2 March 2016

Directors’ Remuneration Report
Directors’ Remuneration Policy

Remuneration Committee attendance (6 meetings)
Annette Court
Roger Abravanel*
Margaret Johnson
Jean Park

Chair

Member

Did not attend

* Roger Abravanel stepped down from the Board with effect from 29 April 2015.

Compliance statement
This Remuneration Report has been prepared according to the requirements
of the Companies Act 2006 (the Act), Regulation 11 and Schedule 8 of the
Large and Medium-Sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013 and other relevant requirements of the FCA
Listing Rules. In addition, the Board has applied the principles of good corporate
governance set out in the UK Corporate Governance Code (the Code) and has
considered the guidelines issued by its leading shareholders and bodies such
as the Investment Association and the Pensions and Lifetime Savings Association.

The Directors’ Remuneration Policy was approved by shareholders at the
Annual General Meeting (AGM) on 29 April 2015, and took effect from that
date. This section presents a summary of the approved policy, including the
policy table and notes, pay-for-performance charts, the recruitment policy,
and Non-Executive Director appointments. The full policy can be found on
pages 60 to 65 of the 2014 Annual Report and Accounts.

The sections presented below are as disclosed in the 2014 Directors’
Remuneration Report save a number of non-significant changes, as follows:

• References to financial years have been updated where appropriate.

Key principles of Admiral Remuneration arrangements
The Group is committed to the primary objective of maximising shareholder
value over time and ensuring that there is a strong link between performance
and reward. This is reflected in the Group’s stated Remuneration Policy of paying
competitive, performance-linked and shareholder-aligned remuneration packages
comprising basic salaries coupled with participation in performance-based
share schemes to generate competitive total reward packages for superior
performance. The Board is satisfied that the adoption of this policy continues
to meet the objectives of attracting and retaining executives of the highest
quality across the Group.

The Committee reviews the framework and remuneration packages of the
Executive Directors and the most senior managers and recognises the need
to ensure that the Remuneration Policy is firmly linked to the Group’s strategy,
including its risk management approach. In setting the policy and making
remuneration decisions, the Committee takes into account pay and conditions
elsewhere in the Group. The main principles underlying the Remuneration
Policy are:

• Competitive – the Group aims to combine salaries with attractive

performance-related incentives which provide the potential for competitive
total reward packages for the achievement of superior performance. Base
salaries reflect the role, job size and responsibility together with individual
performance and effectiveness. Prevailing market and economic conditions
and developments in governance are also considered, as are general salary
levels throughout the organisation. In considering total remuneration for
the Executive Directors, the Committee takes into account remuneration
in companies of a similar size in the Financial Services sector.

• Performance-linked – a significant part of the Executive Directors’

(excluding the founding Directors) and senior managers’ reward remains
performance-linked and shareholder-aligned.

• Pay-for-performance scenario charts have been updated to reflect latest salaries.

• Transparent – all aspects of the remuneration structure are clear to employees

• Current Non-Executive Director appointment expiry dates have been updated.

and openly communicated.

Remuneration Policy table
This table describes the key components of the remuneration arrangements for Executive Directors for 2015 and beyond.

Purpose and link to strategy

Operation

Opportunity and performance metrics

Base salary
To attract and retain talent by setting base
salaries at levels appropriate for the business.

Salaries are reviewed annually or following
a significant change in responsibilities.

Any salary increases are applied in line with the
outcome of the review.

Salary levels/increases take account of:

• Scope and responsibility of the position.

• Individual performance and effectiveness,
and experience of the individual in the role.

• Average increase awarded across the Group.

Pension
To provide retirement benefits.

The Group operates a Personal Pension Plan,
a Defined Contribution Scheme.

This is available to all employees following
completion of their probationary period.

In respect of existing Executive Directors, it is
anticipated that salary increases will normally be
in line with the increase for the general employee
population over the term of this policy. More
significant increases may be awarded in certain
circumstances including, but not limited to: where
there has been a significant increase in role size
or complexity, to apply salary progression for a
newly appointed Executive Director, or where
the Executive Director’s salary has fallen
significantly behind market.

Where increases are awarded in excess of that
for the general employee population, the
Committee will provide the rationale in the
relevant year’s Annual Report on Remuneration.

The Group matches employee contributions
up to a maximum of 6% of base salary subject
to an overall maximum employer contribution
of £9,000. Salary is the only element of
remuneration that is pensionable.

Henry Engelhardt has declined to be included
in the plan.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONDirectors’ Remuneration Report continued
Directors’ Remuneration Policy continued

Remuneration Policy table continued

Purpose and link to strategy

Operation

Opportunity and performance metrics

Other benefits
To provide competitive benefits.

Discretionary Free Share Scheme (DFSS)
To motivate and reward longer term performance,
aid long term retention of key executive talent,
use capital efficiently, grow profits sustainably
and further strengthen the alignment of the
interests of shareholders and staff.

Includes (but not limited to):

• Death in service scheme.

• Private medical cover.

• Permanent health insurance.

• Relocation, at the Committee’s discretion.

All benefits are non-pensionable.

Benefits may vary by role.

None of the existing Executive Directors received
total taxable benefits exceeding 5% of salary
during the most recent financial year, and it is not
anticipated that the cost of benefits provided will
exceed this level over the term of this policy.

The Committee retains the discretion to approve
a higher cost in exceptional circumstances
(e.g. relocation), or in circumstances driven by
factors outside the Company’s control (e.g.
material increases in insurance premiums).

Executive Directors may be granted awards annually
at the discretion of the Committee. Henry Engelhardt
and David Stevens have declined to participate
given their significant shareholdings.

Awards are generally made as a specific number
of shares and vest after a minimum of three
years subject to Group performance and
continued employment.

Maximum opportunity: £2,000,000. For awards
above £1,000,000 a maximum of 600% of base
salary applies.

Vesting of DFSS awards is subject to the Group’s
performance over a three-year performance
period. The performance measures and respective
weightings may vary year-on-year to reflect
strategic priorities.

Awards are subject to clawback and malus,
i.e. forfeiture or reduction of unvested awards
and recovery of vested awards in exceptional
circumstances (such as material misstatement
or gross misconduct).

Details of the measures, weightings and
performance targets used for specific DFSS
grants are included in the Annual Report
on Remuneration.

Threshold performance will result in vesting
of up to 25% of the maximum award.

DFSS bonus
To further align incentive structures with
shareholder interests through the delivery
of dividend equivalents.

To incentivise shareholder value creation, in particular
in the form of dividends, management participate
in a bonus scheme which directly links their awards
to dividends paid to shareholders. Bonus is calculated
to be equivalent to dividends that would have
been payable during the year on all outstanding
DFSS shares awarded but not vested.

Maximum opportunity: sum equal to dividends
payable during the year on awarded but unvested
DFSS shares.

No bonus is payable unless dividends are payable
on Admiral shares.

Approved Free Share Incentive Plan (SIP)
To encourage share ownership across all
employees using HMRC approved schemes.

All UK employees participate in the SIP (except
Henry Engelhardt and David Stevens, who have
declined to participate). Grants are made twice
a year based on the results of each half year
and vest after three years subject to
continued employment.

The SIP is an all-employee scheme and Executive
Directors participate on the same terms as other
employees. The acquisition of shares is therefore not
subject to the satisfaction of a performance target.

Maximum opportunity is in line with HMRC limits.

Minimum shareholding requirement
To align interests of Executive Directors
with shareholders.

Guideline to be met within five years
of appointment

Two times salary.

The Committee is satisfied that the above Remuneration Policy is in the best interests of shareholders and does not promote excessive risk-taking.
The Committee retains discretion to make non-significant changes to the Remuneration Policy without reverting to shareholders.

60 ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2015

Notes to the Remuneration Policy table
Payments from existing awards
Executive Directors are eligible to receive payment from any award made prior to the approval and implementation of the Remuneration Policy. This includes
all outstanding awards under the DFSS, made prior to the approval of the 2015 DFSS, and awards of DFSS shares that vest 50% on performance and 50% on
continued employment made to the CFO prior to his appointment to the Board.

Remuneration arrangements for founding Directors
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 only of a below market rate salary and benefits such as private medical cover, permanent health insurance
and death in service cover. During 2014 David Stevens joined the Group’s Personal Pension Plan and from October 2014 the Group matched his contributions
under the Plan. The Group does not contribute to any pension arrangements on behalf of Henry Engelhardt. Henry Engelhardt and David Stevens have not
participated, nor is it intended that they participate, in any Group share schemes.

Non-Executive Directors
The Company has entered into letters of appointment with its Non-Executive Directors (NEDs). Summary details of terms and notice periods are included below.

Non-Executive Director

Alastair Lyons

Owen Clarke

Annette Court

Colin Holmes

Penny James

Margaret Johnson

Lucy Kellaway

Jean Park

Manning Rountree

Term

3 years

7 months

3 years

Commencement date

Notice period

1 July 2013

Three months

19 August 2015

21 March 2015

One month

3 December 2013

One month

1 January 2015

One month

4 September 2015

One month

4 September 2015

One month

17 January 2014

16 June 2015

One month

The NEDs are not eligible to participate in the DFSS or DFSS bonus scheme and do not receive any pension contributions.

Pay-for-performance: scenario analysis
The following charts provide an estimate of the potential future reward opportunities for the Executive Directors, and the potential split between the different
elements of pay under three different performance scenarios: ‘Minimum’, ‘On-target’ and ‘Maximum’. As described above, Admiral’s DFSS bonus is directly
aligned with dividends received by our shareholders. As such, there is no ‘threshold’ or ‘target’ performance defined for this element of pay. The figures shown
in the chart below for the CFO’s DFSS bonus include the value of the actual DFSS bonus paid in 2015. Under all scenarios, potential reward opportunities are
based on expected awards for 2016 (in accordance with Admiral’s Remuneration Policy), applied to salaries as at 31 December 2015. The ‘On-target’ column
includes a 20% vesting for DFSS awards which would occur for achieving threshold performance targets.

Chief Executive Officer

Chief Financial Officer

Chief Operating Officer

£1,130k

71%

20%

m
u
m
x
a
M

£485k

45%

22%

33%

t
e
g
r
a
t
-
n
O

£388k

100%

Key

t
e
g
r
a
t
-
n
O

m
u
m
x
a
M

Salary, pension and benefits

Single-year variable

(DFSS bonus)

Multi-year variable (DFSS)

m
u
m
n
M

£401k

100%

£324k
32%

68%

m
u
m
n
M

t
e
g
r
a
t
-
n
O

m
u
m
x
a
M

m
u
m
n
M

*¹ The value of DFSS awards vesting is calculated based on the average share price in the last three months of 2015 (£16.13) and the number of DFSS shares awarded in 2015.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONDirectors’ Remuneration Report continued
Directors’ Remuneration Policy continued

Pay-for-performance: scenario analysis continued
The charts on page 61 exclude the effect of any Company share price movement. For this reason, were the CFO’s DFSS shares to vest in full, his actual total
remuneration may exceed the £ value shown.

Component

Base salary

Pension

Benefits

DFSS

DFSS bonus

Minimum

On-target

Maximum

Annual base salary for 2016

£9,000 annual contribution for CFO and COO; no contribution for CEO

Taxable value of annual benefits provided

0% vesting

20% average vesting

100% vesting

Based on DFSS bonus paid in 2015

Approach to remuneration relating to new appointments
External appointments
In the case of appointing a new Executive Director, the Committee may make use of any of the existing components of remuneration, as follows:

Component

Base salary

Pension

Benefits

SIP

DFSS

Approach

Maximum annual grant value

The base salary will be determined by the Committee with reference to the
scope and responsibility of the position as well as internal relativities and their
current remuneration.

New appointees will be eligible to participate in the Personal Pension Plan with
Group contributions in line with the existing policy.

New appointees will be eligible to receive benefits which may include (but are
not limited to) death in service scheme, private medical cover, and permanent
health insurance.

New appointees will be eligible to participate in the SIP.

New appointees will be granted awards under the DFSS on the same terms as
other Executives, as described in the policy table.

£2,000,000. Awards over £1,000,000 are
subject to a maximum of 600% of base salary.

DFSS bonus

New appointees will be granted awards under the DFSS bonus scheme on the
same terms as other Executives, as described in the policy table.

Linked to Admiral dividend.

The Committee may also make an award in respect of a new appointment to ‘buy out’ incentive arrangements forfeited on leaving a previous employer.
In doing so, the Committee will consider relevant factors including any performance conditions attached to these awards and the likelihood of those
conditions being met to ensure that the value of the buy-outs are no greater than the fair value of the awards they replace. The Committee may also
avail itself of Listing Rule 9.4.2 R if appropriate in respect of buy-out incentive arrangements.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Annual Report on Remuneration

This section of the report provides details of how Admiral’s Remuneration Policy was implemented in 2015 and the remuneration arrangements proposed for 2016.

Remuneration Committee membership in 2015
The Board sets the Group’s Remuneration Policy and, through the authority delegated to it by the Board, the Committee is responsible for making
recommendations to the Board on the structure and implementation of the Remuneration Policy across the Group with consideration to the prevailing
economic climate within the economies in which the Group operates. Its remit includes recommending the remuneration of the Group Board Chairman,
the Executive Directors and the Company Secretary; reviewing the remuneration of senior management; and reviewing the composition of and awards
made under the performance-related incentive schemes.

At the end of 2015 the Committee consisted of Margaret Johnson and Jean Park under the Chairmanship of Annette Court. The Committee met six times
during the year.

The Group Chairman, CEO and Chief Risk Officer are invited to meetings where the Committee considers it appropriate to obtain their advice on Group
strategy and performance and Senior Executive pay strategy. The members of the Committee do not have any personal financial interests (other than
shareholdings), or any conflicts, that relate to the business of the Committee. The Committee members do not have any day-to-day involvement in the
running of the Group.

Advisor to the Committee
During the year, in order to enable the Committee to reach informed decisions on Executive remuneration, advice on market data and trends was obtained
from independent consultants, Kepler Associates, a brand of Mercer (which is part of the MMC group of companies). Kepler reports directly to the Committee
Chair, and is a signatory to and abides by the Code of Conduct for Remuneration Consultants (which can be found at www.remunerationconsultantsgroup.com).
Other than advice on remuneration, no other services were provided by Kepler (or any other part of the MMC group of companies) to the Company. The fees
paid to Kepler in respect of work carried out in 2015 (based on time and materials) totalled £9,400, excluding expenses and VAT.

The Committee undertakes due diligence periodically to ensure that Kepler remains independent of the Company and that the advice provided is impartial
and objective. The Committee is satisfied that the advice provided by Kepler is independent.

In addition, PricewaterhouseCoopers LLP (PwC) provided the Committee with advice on the structure of the Group’s share schemes. The fees paid to PwC
for work during 2015 totalled £52,500, excluding expenses and VAT. The Company Secretary also circulates market survey results as appropriate.

Summary of shareholder voting at the 2015 AGM
The table below shows the results of the binding and advisory votes on the Directors’ Remuneration Policy and Annual Report on Remuneration of the 2014
Directors’ Remuneration Report, respectively, at the 2015 AGM.

Directors’ Remuneration Policy

Total number of votes

208,927,097

% of votes cast

95.5%

Annual Report on Remuneration

Total number of votes

214,100,688

% of votes cast

97.4%

For

Against

9,798,777

4.5%

5,758,227

2.6%

Total votes cast

218,725,874

219,858,915

Abstentions

2,305,207

1.0%

1,172,167

0.5%

In addition, the 2015 DFSS was approved by shareholders at the AGM with a 96.9% vote in favour.

Total single figure of remuneration for Executive Directors (audited)
The table below sets out the total single figure remuneration received by each Executive Director for the year ended 31 December 2015 and the prior year.

Executive Director

Henry Engelhardt

Geraint Jones7

David Stevens

1. Base salary

2. Benefits

3. Pension

2015

2014

2015

2014

2015

2014

£397,345

£392,870

£200,000

£159,000

£373,816

£371,340

£343

£390

£343

£390

£343

£390

n/a

£9,000

£8,982

£3,622

£900

4. SIP

n/a

£3,300

£3,000

n/a

5. DFSS

6. DFSS bonus

n/a

£178,075

£209,418

£104,340

£87,250

n/a

Total
remuneration

£397,688

£393,260

£495,058

£468,040

£377,781

£372,630

The figures have been calculated as follows:

1. Base salary/fee: amount earned for the year.

2. Benefits: the taxable value of annual benefits received in the year.

3. Pension: the value of the Company’s contribution during the year.

4. SIP: the face value at grant.

5. DFSS: the value at vesting of shares vesting on performance over the three-year periods ending 31 December 2015 and 31 December 2014. For the 2015 calculations, given that vesting occurs in October
2016, after the Directors’ Remuneration Report is finalised, the figures are based on the average share price in the last three months of 2015 (£16.13). The 2014 calculations have been trued up based on
the actual share price on vest (£15.43). Henry Engelhardt and David Stevens have declined to participate given their significant shareholdings.

6. DFSS bonus: the bonus equivalent to dividends that were paid during the year on all outstanding DFSS shares awarded but not yet vested.

7.. Geraint Jones was appointed to the Board as CFO on 13 August 2014. For the purpose of this table, his 2014 remuneration includes salary, pension and benefits in respect of the whole of 2014 in order to

provide a comparison with his 2015 remuneration as CFO.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONDirectors’ Remuneration Report continued
Annual Report on Remuneration continued

Total single figure of remuneration for Non-Executive Directors (audited)
The table below sets out the total single figure remuneration received by each NED for the year ended 31 December 2015 and the prior year.

Director

Alastair Lyons

Owen Clarke*¹

Annette Court

Colin Holmes

Penny James*²

Margaret Johnson

Lucy Kellaway

Jean Park

Manning Rountree*³

Roger Abravanel*4

Manfred Aldag*4

Total fees

2015

2014

£232,793

£228,228

£20,237

£89,000

£85,000

£67,000

£75,000

£36,335

£18,333

£6,000

—

£86,383

£80,295

—

£67,000

£63,809

£82,103

—

£55,000

£6,000

*¹ Owen Clarke was appointed to the Board on 19 August 2015.

*² Penny James was appointed to the Board on 1 January 2015.

*³ Manning Rountree was appointed to the Board on 16 June 2015.

*4 Roger Abravanel retired from the Board with effect from 29 April 2015 and Manfred Aldag retired from the Board with effect from 31 August 2015.

Incentive outcomes for financial year to 31 December 2015
DFSS awards vesting on performance to 31 December 2015
Awards were made under the DFSS to Geraint Jones on 10 October 2013. For 50% of the award, vesting is dependent on the Company’s EPS performance in
excess of a risk-free return, defined as average three-month LIBOR, over a three-year period commencing on 1 January 2013. 10% of shares vest for matching
LIBOR, full vesting occurs for outperforming LIBOR by 10% p.a., with straight-line vesting in between. No vesting occurs for EPS growth below LIBOR. For the
remaining 50% of the award, vesting is subject to continued employment only, as the award was made prior to Geraint Jones’ appointment to the Board.
The table below details the Company’s EPS performance against targets and vesting outcome over the performance period ending on 31 December 2015.

Performance period

Executive Director

Interest held

1 January 2013–
31 December 2015

Geraint Jones

8,000

Admiral EPS
index

LIBOR
index

Out-

performance*¹

% vesting*²

113 points

102 points

11 points

n/a*4

38%

100%

Interest
vesting

3,040

8,000

Vesting
date

Estimated

value*³

10 October 2016

£178,075

*¹ 36 points are required for 100% vesting of the EPS-based DFSS award.

*² Overall percentage vesting of Geraint Jones’ 2013 DFSS is 69%.

*³ Calculated based on the average share price in the last three months of 2015 (£16.13).

*4 50% of the award vests on continued employment only.

69% of Geraint Jones’ 2013 DFSS award will vest in October 2016, subject to his continued employment on the vesting date.

DFSS bonus in respect of 2015
The Group paid a bonus to all holders of DFSS shares in 2015, which was equivalent to the dividend payable on all outstanding DFSS shares awarded but
not yet vested. The Committee continues to feel that having a Group-wide bonus equivalent to the dividend flow received by investors further aligns the
incentive structure with shareholders.

In 2015, Geraint Jones received a DFSS bonus of £104,340 (2014: £87,250). Neither Henry Engelhardt nor David Stevens received a DFSS bonus.

From 2015, DFSS bonus payments will be subject to clawback in exceptional circumstances, such as material misstatement or gross misconduct.

Scheme interests awarded in 2015
DFSS
As mentioned in the 2014 report, the Company held a comprehensive review of the DFSS in 2014, and as a result, a number of changes were made to the scheme.

The key changes that have been made to the DFSS include:

• Increased maximum DFSS opportunity of £2 million. Awards above £1 million are subject to a 600% of salary limit;

• Inclusion of 100% performance-related awards for the Group’s most senior managers;

• Two additional performance measures, relative TSR and ROE; and

• Introduction of malus and clawback provisions.

Following the comprehensive review of the DFSS that was carried out in 2014 and early 2015, there are no further amendments proposed to the DFSS, except
for the introduction of a sub-plan for French participants in order to take advantage of changes to the tax regime in France brought by the Macron Law. A resolution
approving the sub-plan will be put to shareholders for approval at the Group’s AGM in April 2016.

In September 2015, Geraint Jones was granted an award under the DFSS of 50,000 shares with a value at the date of award of £743,500 (based on share
price of £14.87), equivalent to 372% of salary. The three-year period over which performance will be measured will be 1 January 2015 to 31 December 2017.
The award is eligible to vest in its entirety on the third anniversary of the date of grant (i.e. September 2018), subject to performance and to continued employment.
Henry Engelhardt and David Stevens again declined to be included given their significant shareholdings.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Scheme interests awarded in 2015 continued
DFSS continued
As disclosed in the 2014 report, awards made in 2015 vest on three-year EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), and
ROE, weighted equally. The performance conditions are summarised in the table below.

Performance measure

EPS growth vs. LIBOR

TSR vs. FTSE 350
(excluding investment companies)

Return on Equity (ROE)

Performance range

Threshold

Maximum

Vesting

Growth in line
with LIBOR

Growth of 10% p.a.
in excess of LIBOR

10% for achieving threshold with straight line
relationship to 100% for maximum performance

Median

Upper quartile

25%

55%

25% for median, with straight line
relationship to 100% for upper quartile

25% for reaching threshold with straight line
relationship to 100% at maximum performance

DFSS awards made in 2015 and future years will be subject to clawback and malus, i.e. forfeiture or reduction of unvested awards and recovery of vested
awards in exceptional circumstances (such as material misstatement or gross misconduct).

SIP
In March and August 2015, Geraint Jones was granted awards under the SIP of 101 shares in March 2015, with a face value of £1,503, and 118 shares in August 2015,
with a face value of £1,795. The shares will vest on 13 March 2018 and 24 August 2018 respectively subject to continued employment only. Henry Engelhardt
and David Stevens again declined to be included given their significant shareholdings.

Exit payments and payments to past Directors
Kevin Chidwick left the Board on 13 August 2014 to focus on his role as CEO of Elephant Auto, and was not an Executive Director during 2015.

Awards were made under the DFSS to Kevin Chidwick on 10 October 2013. Vesting is 100% dependent on the Company’s EPS performance in excess of a risk-free
return over a three-year period commencing on 1 January 2013, and the standard performance targets for the 2013 DFSS awards apply.

The table below details the Company’s EPS performance against targets over the performance period ending on 31 December 2015 and the vesting outcome
for Kevin Chidwick’s 2013 DFSS award.

Performance period

Executive Director

Interest held

Admiral EPS
index

LIBOR
index

Out-

performance*¹

% vesting

Interest
vesting

Vesting
date

Estimated

value*²

1 January 2013–
31 December 2015

Kevin Chidwick

52,250

113 points

102 points

11 points

38%

19,855 10 October 2016

£320,261

*¹ 36 points are required for 100% vesting.

*² Calculated based on the average share price in the last three months of 2015 (£16.13).

Based on performance to 31 December 2015, 38% of Kevin Chidwick’s 2013 DFSS award will vest in October 2016, subject to his continued employment on
the vesting date. Based on performance to 31 December 2014, 36,402 DFSS shares vested to Kevin Chidwick in October 2015. The total value at vest was
£561,646, based on a share price of £15.43. Kevin Chidwick’s unvested 2014 DFSS shares, awarded to him when he was CFO, remain 100% subject to performance.

No exit payments were made to an Executive Director during the year.

Implementation of Remuneration Policy for 2015
Executive Directors
Salary, pension and benefits
Remuneration for the Executive Directors in 2016 will be determined in line with the latest policy. The Committee approved the following base salaries for the
Executive Directors in 2015:

Director

Henry Engelhardt

Geraint Jones

David Stevens

Latest salary

2015 salary

% change

£400,727

£392,870

£210,000

£200,000

£378,767

£371,340

Effective date

1 July 2015

1 January 2016

1 September 2015

As stated in the 2014 report, Geraint Jones was appointed to the Board on a relatively low salary and the Committee expects to make salary increases that
are above general inflation in the next few years to reflect his demonstrated development in the CFO role and the performance of the business. The Committee
will determine the levels of future increases taking into account both his individual and Company performance, and with reference to market pay levels.
Geraint’s current salary of £210,000 continues to be significantly below the median level for companies of a similar size.

Geraint Jones will continue to participate in the Group Personal Pension Plan, where employee contributions are matched up to a maximum 6% of base
salary with maximum employer contribution of £9,000. David Stevens will also continue to participate in the plan, on the same basis as in 2015. As in
previous years, Henry Engelhardt has declined to be included in the plan for 2016. All Executive Directors will continue to receive benefits in line with the policy.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONDirectors’ Remuneration Report continued
Annual Report on Remuneration continued

Implementation of remuneration policy for 2015 continued
Executive Directors continued
DFSS
In advance of each DFSS cycle, the Committee reviews the appropriateness of the performance measures and corresponding targets. Vesting of the 2016
award will be linked to the same three performance measures set for the 2015 awards, i.e. three-year EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding
investment companies), and ROE, weighted equally. The Committee intends to make DFSS awards in September 2016 and it is anticipated that targets will
be the same as those for awards in 2015, as summarised in the table below. The Committee will determine the precise targets closer to the time of making
the awards, later in the year, and will disclose them in the 2016 Annual Report on Remuneration.

Performance measure

EPS growth vs. LIBOR

TSR vs. FTSE 350
(excluding investment companies)

Return on Equity (ROE)

Performance range

Threshold

Maximum

Vesting

Growth in line
with LIBOR

Growth of 10% p.a.
in excess of LIBOR

10% for achieving threshold with straight line
relationship to 100% for maximum performance

Median

Upper quartile

25%

55%

25% for median, with straight line
relationship to 100% for upper quartile

25% for achieving threshold with straight line
relationship to 100% for maximum performance

Chairman and Non-Executive Directors
Fees for the Board Chairman and other Non-Executive Directors were reviewed in January 2016, and increases effective from 1 January 2016 are as follows:

Chairman

NED base fee

Additional fee for chairing:

Audit Committee

Group Risk Committee

Remuneration Committee

Nomination Committee

Additional fee for membership of:

Audit Committee

Group Risk Committee

Additional fee for being Senior Independent Director

2016 fee (p.a.)

Previous fee (p.a.)

£238,612

£57,750

£232,793

£55,000

£21,000

£10,500

£5,250

£12,600

£10,500

£20,000

£10,000

£5,000

£12,000

£10,000

Percentage change in CEO remuneration
The table below shows the percentage change in CEO remuneration from 2014 compared to the average percentage change in remuneration for all other
employees. The analysis is based on a consistent set of employees, i.e. the same individuals appear in the 2014 and 2015 populations. As the CEO does
not participate in the DFSS bonus scheme, to provide a meaningful comparison we have also included data for the CFO.

Salary

Taxable benefits

DFSS bonus*¹

Total

CEO

CFO

Other employees

2015

2014

% change

2015

2014

% change

£397,345

£392,870

£343

—

£390

—

£397,688

£393,260

+1%

-12%

—

+1%

£200,000

£159,000

£343

£104,340

£304,683

£390

£87,250

£246,640

+26%

-12%

+20%

+24%

-10%

16%

*¹ DFSS bonus change represents the change in dividends paid, which is the driver of the level of bonus payable to holders of unvested DFSS shares.

Relative importance of spend on pay
The table below shows the percentage change in dividends and total employee remuneration spend from the financial year ended 31 December 2014 to the
financial year ended 31 December 2015.

Distribution to shareholders

Employee remuneration

2015
£m

316

245

2014
£m

272
209

%
change

+16%

+17%

The Directors are proposing a final dividend for the year ended 31 December 2015 of 63.4 pence per share bringing the total dividend for 2015 to 114.4 pence
per share (2014: 98.4 pence per share).

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

CFO

Incumbent

Pay for performance
The following graph sets out a comparison of Total Shareholder Return (TSR) for Admiral Group plc shares with that of the FTSE 100 Index, of which the
Company is a constituent, over the seven-year period to 31 December 2015. The Directors consider this to be the most appropriate index against which
the Company should be compared. TSR is defined as the percentage change over the period, assuming reinvestment of income.

Historical TSR performance
Growth in the value of a hypothetical £100 holding over the seven years to 31 December 2015

8
0
0
2
r
e
b
m
e
c
e
D

1
3
t
a
d
e
t
s
e
v
n

0
0
1
£
f
o
e
u
a
V

300

250

200

150

100

Admiral

FTSE 100

31/12/08

31/12/09

31/12/10

31/12/11

31/12/12

31/12/13

31/12/14

31/12/15

CEO

2009

2010

2011

2012

2013

2014

2015

CEO single figure of remuneration

£328,027

£343,106

£358,199

£373,759

£387,546

£393,260

£397,688

DFSS vesting outcome (% of maximum)

n/a

2010

n/a

2011

n/a

2012

n/a

2013

n/a

2014

n/a

2014

n/a

2015

2009

Kevin Chidwick

Kevin Chidwick*¹

Geraint Jones*²

Geraint Jones

CFO single figure of remuneration

£632,312

£1,269,535

£1,048,130

£1,431,218

£1,444,443*³

£1,204,164*³,4

£363,551*4

£495,058

DFSS vesting outcome
(% of maximum)

98%

100%

70%

85%

69%

*¹ Kevin Chidwick left the Board on 13 August 2014 to focus on his new role as CEO of Elephant Auto. His 2014 remuneration includes salary, pension and benefits in respect of his service as CFO, his full

year DFSS and his full year DFSS bonus.

*² Geraint Jones was appointed to the Board as CFO on 13 August 2014. His 2014 remuneration includes salary, pension and benefits in respect of his service as CFO, his full year DFSS and his full year

DFSS bonus.

*³ These figures include reimbursement of £177,104 and £165,000 in 2014 and 2013, respectively, for expenses incurred in respect of the previous CFO’s relocation.

*4 These figures have been trued up for the value of the LTIP based on the actual share price on vest (£15.43).

There are no annual bonus outcomes to report in the table as Admiral does not operate any performance-based annual bonus schemes.

Dilution
The Company has controls in place to ensure that shares awarded under the schemes operated by the Company within any rolling ten-year period do not
exceed 10% of the number of ordinary shares in the capital of the Company in issue at the time of each award. As at the end of 2015, the ten year rolling
dilution level was 7.7%.

Interests held by of Directors (audited)
Executive Directors have agreed to (acquire and) retain a beneficial shareholding equal to at least 200% of base salary, which can be built up over a period
of five years from the date of appointment.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

Directors’ Remuneration Report continued
Annual Report on Remuneration continued

Interests held by of Directors (audited) continued
As at 31 December 2015, the Directors held the following interests:

Director

Henry Engelhardt

Geraint Jones*¹

David Stevens

Alastair Lyons

Owen Clarke*4

Annette Court

Colin Holmes

Penny James*4

Margaret Johnson

Lucy Kellaway

Jean Park

Manning Rountree*4

Shares held

Beneficially
owned
outright

Subject to
continued
employment only

32,705,472

n/a

Subject to
performance
conditions

n/a

50,260*²

21,040*³

95,000

9,697,950

n/a

Shareholding
requirement
(% of salary)

Current
shareholding
(% of salary/fee)

Requirement
met?

200%

>200%

Yes

297,152

142,852

—

40,000

—

2,000

—

*¹ Geraint Jones was appointed to the Board on 13 August 2014.

*² Total includes SIP shares both matured and awarded.

*³ Total includes 11,040 shares from the 2013 DFSS award (for which performance has been tested, and due to vest in October 2016 subject to continued employment) and 10,000 shares from the April

2014 DFSS (awarded to Geraint Jones before he was appointed CFO, and due to vest in April 2017 subject to continued employment only).

*4 Owen Clarke, Penny James and Manning Rountree were appointed to the Board on 19 August 2015, 1 January 2015 and 16 June 2015 respectively.

There have been no changes to Directors’ shareholdings since 31 December 2015.

None of the Directors had an interest in the shares of any subsidiary undertaking of the Company or in any significant contracts of the Group.

Current Chief Financial Officer Geraint Jones’ interests in shares under the DFSS and SIP (audited)

Type

DFSS

SIP

Awarded
during year

Vested/matured
during year

At start
of year

16,000

20,000

35,000

—

50,000

128

126

112

116

100

114

—

101

118

At end
of year

—

16,000

20,000

35,000

50,000

—

112

116

100

114

101

118

Price at
award
(£)

£10.73

£12.09

£13.74

£12.27

£14.87

£11.80

£11.82

£13.48

£12.83

£15.06

£13.06

£14.88

£15.21

Value at
award date
(£)

Value at
31/12/15
or maturity
(£)

Date of
award

Final
vesting/
maturity
date

£171,680

£209,418*¹,*²

11/10/2012

11/10/2015

£193,440

£265,440

10/10/2013

10/10/2016

£274,800

£331,800

15/04/2014

15/04/2017

£429,520

£580,650

22/09/2014

22/09/2017

£743,500

£829,500

29/09/2015

29/09/2018

£1,510

£1,489

£1,510

£1,488

£1,506

£1,489

£1,503

£1,795

£2,123*¹

16/03/2012

16/03/2015

£2,090*¹

03/09/2012 03/09/2015

£1,858

£1,924

£1,659

£1,891

£1,676

£1,957

15/03/2013

15/03/2016

02/09/2013 02/09/2016

14/03/2014

14/03/2017

05/09/2014 05/09/2017

13/03/2015

13/03/2018

24/08/2015

24/08/2018

13,573

—

128

126

—

*¹ Value at maturity.

*² The vesting percentage for performance related awards made in 2012 and vesting in 2015 was 69.67%. As awards made to Geraint Jones in 2012 were 50% performance related and 50% non performance

related the blended vesting percentage was 84.83%. This resulted in the lapsing of 2,427 shares from the 16,000 shares awarded in October 2012.

Details of former Chief Financial Officer Kevin Chidwick’s interests in shares under the DFSS and SIP can be found in the 2014 report.

The closing price of Admiral shares on 31 December 2015 was £16.59 per share. Performance conditions for DFSS awards made in 2014 are disclosed in
the 2014 report.

By order of the Board,

Annette Court
Chairman of the Remuneration Committee
2 March 2016

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Directors’ Report

The Directors present their Annual Report and the audited financial
statements for the year ended 31 December 2015.

Statutory disclosures
Group results and dividends
The profit for the year, after tax but before dividends, amounted to £291.8 million
(2014: £281.6 million).

The Directors declared and paid dividends of £274.6 million during 2015
(2014: £273.5 million) – refer to note 11b for further details.

The Directors have proposed a final dividend of £175 million (63.4 pence per share)
payable on 3 June 2016.

Employee policies
Detailed information on the Group’s employment practices is set out in the
Strategic Report and on the corporate website. The Group purchases
appropriate liability insurance for all staff and Directors.

Diversity, ethics and human rights
Admiral Group respects and values the individuality and diversity of every
employee. The Group’s Equality, Diversity and Dignity at Work policy ensures
that every employee is treated equally and fairly and that all employees are
aware of their obligations. The Group is fully committed to the health and
safety and the human rights of its employees regardless of their background.
In addition, the Group maintains a number of employee codes of conduct
regarding appropriate ethical standards in the workplace.

The Group’s principles of respect for human rights, diversity, health and safety
and workplace ethical standards not only apply to staff directly employed by
Admiral, but also to staff employed by the Group’s outsourced partner in
Bangalore, India. To meet this commitment, Admiral Group maintains regular
contact with its outsourcer’s management team and the Group’s senior managers
visit the outsourcer on a regular basis, whilst the Group also provides training
and development to ensure that the team uphold these principles. In addition,
Admiral Group has appointed a manager based permanently at the outsourced
operation, who is responsible for ensuring that the Group’s principles are
adhered to by the outsourced partner, and that the wellbeing of outsourced
staff is monitored.

Gender diversity
The table below provides a breakdown of the gender of Company Directors
and employees at the end of the financial year:

Company Directors*¹

Other senior managers*²

All employees

Male

Female

3,981

4,185

*¹ Company Directors consists of the Board of Directors, as detailed on pages 42 to 43.

*² Other senior managers is as defined in the Companies Act 2006 (Strategic Report and Directors’
Report) and includes persons responsible for planning, directing or controlling the activities of
the Company, or a strategically significant part of the Company, other than Company Directors.
Any other Directors of undertakings included in the consolidated accounts that are not considered
strategically significant have not been included.

Contractual arrangements
The Group considers its co-insurance and reinsurance contracts, as described
in the Strategic Report section on page 23, to be essential to the running of
the Group’s business. No other contractual arrangements are considered to
be essential.

Financial instruments
The objectives and policies for managing risks in relation to financial instruments
held by the Group are set out in note 6 to the financial statements.

Directors and their interests
The present Directors of the Company are shown on pages 42 to 43 of this
Report, whilst Directors’ interests in the share capital of the Company are set
out in the Remuneration Report on pages 67 to 68.

Greenhouse gas emissions
The annual level of greenhouse gas emissions, resulting from activities for
which the Group is responsible, in 2015 was 8,358 CO
equivalent to 1.24 tonnes (2014: 1.19 tonnes) per employee*¹.

e (2014: 6,836 CO
²

e),

The increase in greenhouse gas emissions is due to a higher number of UK
buildings during 2015 as the Group transitioned to its new UK headquarters
in Cardiff and the implementation of a new system that has enabled more
accurate tracking of business travel. In addition, the data includes information
in respect of our US and India operations not previously available.

The data has been prepared with reference to the WRI/WBCSD Greenhouse
Gas Protocol: A Corporate Accounting and Reporting Standard (Revised Edition)
and in accordance with the guidance for corporate reporting issued by the
Department for Environment, Food and Rural Affairs (DEFRA).

There are no material exclusions from this data. Exclusions included figures for
air conditioning from all sites because the information was not available from the
managing agents of the Group’s multiple office locations. In addition, emissions
data from Elephant Auto in the US, both French offices and one of the Indian
offices has been excluded due to difficulties in collecting complete and accurate
data. These locations together total 9% (2014: 8%) of Group headcount.

Detailed information on the Group’s environmental performance and
the methodology for the measurement of greenhouse gas emissions
is available on the corporate website, www.admiralgroup.co.uk.

*¹ Average employee number excludes employees from three offices for which data could

not be collected.

Going concern
Under Provision C.1.3 of the 2014 UK Corporate Governance Code, the Board
is required to report on whether the business is a going concern. In considering
this requirement, the Directors have taken into account the following:

• The Group’s projections for the next 12 months and beyond, in particular the
profit forecasts, regulatory capital surpluses and levels and sources of liquidity.

• The risks included on the Group’s risk register that could impact on the Group’s
financial position and performance, levels of liquidity and solvency over
the next 12 months.

• The risks on the Group’s risk register that could be a threat to the Group’s

business model and capital adequacy.

The Group’s business activities, together with the factors likely to affect its
future development, performance and position are set out in the Strategic
Report. The Strategic Report also includes the Group’s principal risks and
uncertainties on pages 34 to 37. In addition, the governance report includes
the Directors’ statement on the viability of the Group over a three year period.

Following consideration of the above, the Directors have reasonable expectation
that the Group has adequate resources to continue in operation for the foreseeable
future, a period of not less than 12 months from the date of this report, and
that it is therefore appropriate to adopt the going concern basis in preparing
the financial statements.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONDirectors’ Report continued

Share capital, AGM and related matters
Major shareholders
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 Conduct Authority’s (FCA)
Disclosure and Transparency Rules (DTRs) is published on a Regulatory
Information Service and on the Company’s website.

At 31 January 2016, the Company had received notifications in accordance
with the FCA’s DTRs of the following notifiable interests in the voting rights
in the Company’s issued share capital:

Munich Re

Mackenzie Financial Corporation

BlackRock Inc

Number of
shares

28,645,485

10,949,168

9,273,808

10.17%

3.89%

3.29%

The interests of Directors and Officers and their connected persons in the
issued share capital of the Company are given in the Remuneration Report.

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 2015, 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 11d.

On a poll, every member present in person or by proxy and entitled to vote
shall have one vote for every ordinary share held. The notice of the general
meeting specifies deadlines for exercising voting rights either by proxy notice
or present in person or by proxy in relation to resolutions to be passed at
general meeting. All proxy votes are counted and the numbers for, against or
withheld in relation to each resolution are announced at the Annual General
Meeting and published on the Company’s website after the meeting.

There are no restrictions on the transfer of ordinary shares in the Company
other than:

• Certain restrictions may from time to time be imposed by laws and

regulations (for example, insider trading laws).

• Pursuant to the Listing Rules of the FCA 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.

A further special resolution passed at that meeting granted authority to the
Directors to allot equity securities in the Company (up to a maximum of 5%
of the issued share capital of the Company) for cash, without regard to the
pre-emption provisions of the Companies Act 2006. This authority also expires
on the date of the Annual General Meeting to be held on 28 April 2016 and
the Directors will seek to renew this authority for the following year.

In line with the new principles published by the Pre Emption Group in
March 2015 allowing a company the ability to seek authority over a further
5% of the issued ordinary share capital on a non-pre-emptive basis subject
to certain conditions, it is the intention of the Company, at the AGM on
28 April 2016, to seek this additional authority by special resolution and
will confirm in the Notice of AGM that such additional shares are only
issued in connection with a specified acquisition or capital investment.

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 Meetings to submit
themselves for re-election.

However, in accordance with the requirement under the UK Corporate
Governance Code (the Code) for annual election of Directors, all Directors will
submit themselves for re-election at the Group’s Annual General Meeting on
28 April 2016.

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.

Directors’ indemnities and insurance
Directors and Officers insurance cover is in place for all Directors to provide
cover against certain acts or omissions on behalf of the Company. A Deed
Poll of Indemnity was executed in October 2015, indemnifying each of the
Directors, and Company Secretary, in relation to certain losses and liabilities
that they might incur in the course of acting as Directors of the Company.
The Deed Poll of Indemnity is categorised as qualifying third party indemnity
provisions as defined by section 234 of the Companies Act 2006 and
remains in force for all past and present Directors of the Company.

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 are 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 Reinsurance (UK) plc. Details relating
to this agreement are contained in the Strategic Report.

The Board is of the view that it is in the best interests of the Group to attract
and retain the services of the most able and experienced Directors by offering
competitive terms of engagement, including the granting of such indemnities.
Neither the Deed Poll of Indemnity nor insurance cover would provide any
coverage in the event that a Director is proved to have acted fraudulently
or dishonestly.

Power to issue shares
At the last Annual General Meeting, held on 29 April 2015, authority was
given to the Directors to allot unissued relevant securities in the Company up
to a maximum of £92,106, equivalent to one third of the issued share capital
as at 23 March 2015. This authority expires on the date of the Annual General
Meeting to be held on 28 April 2016 and the Directors will seek to renew this
authority for the following year.

Annual General Meeting (AGM)
It is proposed that the next AGM be held at City Hall, Cardiff on
Thursday 28 April 2016 at 2.00pm, notice of which will be sent to
shareholders with the Annual Report.

70 ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2015

Reporting, accountability and audit
UK Corporate Governance Code
Admiral is subject to the UK Corporate Governance Code (the Code), published
by the Financial Reporting Council (FRC) in September 2014 and available
on their website, www.frc.org.uk. The Company’s Annual Report and Accounts,
taken as a whole, addresses the requirements of the 2014 Code.

During the year to 31 December 2015, the Company has in all respects
complied with the provisions of the 2014 Code.

The Directors confirm that the Annual Report and Accounts, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position and
performance, business model and strategy.

Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the Group
and Parent Company financial statements in accordance with applicable law
and regulations.

Company law requires the Directors to prepare Group and Parent Company
financial statements for each financial year. Under that law they are required
to prepare the Group financial statements in accordance with IFRSs as
adopted by the EU and applicable law and have elected to prepare the
Parent Company financial statements in accordance with UK Accounting
Standards, including FRS 101 Reduced Disclosure Framework.

Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and Parent Company and of their profit or loss for that
period. In preparing each of the Group and Parent Company financial
statements, the Directors are required to:

• Select suitable accounting policies and then apply them consistently;

• Make judgements and estimates that are reasonable and prudent;

• For the Group financial statements, state whether they have been prepared

in accordance with IFRSs as adopted by the EU; and

• For the Parent Company financial statements, state whether applicable

UK Accounting Standards, including FRS 101 Reduced Disclosure Framework,
have been followed, subject to any material departures disclosed and
explained in the Parent Company financial statements.

The Directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the Parent Company’s transactions and
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 2006. 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 Strategic Report, Directors’ Report, Directors’ Remuneration
Report and Corporate Governance Statement that complies 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,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and

• The Strategic Report includes a fair review of the development and performance
of the business and the position of the issuer 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 they ought to have taken as a Director to make themselves
aware of any relevant audit information and to establish that the Company’s
auditor is aware of that information.

Change of auditor
In March 2015, the Audit Committee initiated a tender process in respect of
audit services.

The tender process involved inviting appropriately qualified audit firms to
tender for the audit services for Admiral, including all statutory and regulatory
audit work and the audits of Admiral’s international businesses, from the
2016 financial year. A short-list of potential audit firms were invited to meet
key members of management and the Audit Committee, before submitting
a detailed proposal document and presenting to the Audit Committee.

The Audit Committee set specific selection criteria against which each audit
firm was measured with the aim of appointing an external auditor to provide
efficient and effective support, and independent advice to the Committee to
ensure shareholders can be confident that the information provided to them
is accurate, true and fair, and balanced and understandable.

In August 2015, the Audit Committee recommended to the Group Board, and
the Board approved, the proposed appointment of Deloitte LLP as auditor
to the Company and its subsidiaries. Deloitte LLP will replace KPMG LLP
with effect from the 2016 financial year. The appointment is subject to
approval by shareholders at the next Annual General Meeting in April 2016.

By order of the Board,

Mark Waters
Company Secretary
2 March 2016

Geraint Jones
Chief Financial Officer
2 March 2016

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONIndependent auditor’s report
to the members of Admiral Group plc only

Opinions and conclusions arising from our audit
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Admiral Group plc for the year
ended 31 December 2015 set out on pages 74 to 113. In our opinion:

• the financial statements give a true and fair view of the state of the Group’s
and of the parent company’s affairs as at 31 December 2015 and of the
Group’s profit for the year then ended;

• the Group financial statements have been properly prepared in accordance
with International Financial Reporting Standards as adopted by the European
Union (IFRSs as adopted by the EU);

• the parent company financial statements have been properly prepared

in accordance with UK Accounting Standards, including FRS 101 Reduced
Disclosure Framework; and

• the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.

2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements the risks of
material misstatement that had the greatest effect on our audit were as follows.

Insurance liabilities (£1,725.0 million (2014: £1,596.0 million))
Refer to page 50 (Report of the Audit Committee), note 5d (accounting
policy and financial disclosures).

The risk – The provision for claims outstanding comprises the estimated cost
of settling all claims incurred but unpaid at the balance sheet date, whether
reported or not. This is a judgemental and complex area due to the inherent
uncertainty of estimating claims not yet reported, future costs of settling claims,
discount rates and whether customers will be awarded a lump sum claim
or a periodic payment. The amounts involved are potentially significant and
the application of accounting standards to determine the amount, if any, to
be provided as a liability, is inherently subjective. One of the most significant
uncertainties relates to the reserve held for large bodily injury claims and actual
and potential Periodic Payment Order settlements (PPOs). The UK motor
portfolio presents the biggest risk of material misstatement.

Our response – Our audit procedures included testing the controls over the
underwriting and claims process and performing analysis over the trends in
claims frequency and size. Using our actuarial specialists to support us, we
assessed the level of reserves held for incurred claims through evaluating the
competence, capability and objectivity of the Group’s external actuary, assessing
the actuarial methodologies employed, including the use of paid and incurred
chain ladders and the average cost per claim method, challenging key judgements,
for example the extent to which improvements in claims trends are taken
into account in reserve projections, and benchmarking key assumptions
against KPMG sourced market data. In respect of the amounts related to large
bodily injury claims and actual and potential PPOs, we observed the process,
and tested the controls in place, for identifying and assessing the required
reserve for large claims and for updating this reserve as more information
becomes available; observed the process for assessing cases that have the
potential to be settled as PPOs and testing the output for a selection of
cases; and benchmarked the key assumptions made in calculating large
bodily injury claims reserves, including mortality (in the case of PPO cases)
and discount rates applied. The focus of our work is the UK Motor portfolio.

In respect of the margin held above the actuarial best estimate, we assessed
the rationale for this margin including consideration of the level of prudence
within the margin, the consistency with which the underlying judgements
have been applied in relation to the current year and prior periods and the
existence of any bias.

We have also considered the adequacy of the group’s disclosures about the
margin held above the actuarial best estimate, and the degree of estimation
and sensitivity of the claims provision to key assumptions.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Profit commission (£85.4 million (2014: £71.8 million))
Refer to page 50 (Report of the Audit Committee), note 5d (accounting
policy and financial disclosures).

The risk – The recognition of profit commission income from co-insurers
and quota share reinsurers is initially in line with the loss ratios booked in
the financial statements and will vary with movements in the loss ratios.
The recognition of this income is therefore subject to the same level of
estimation as the claims liability noted above until, in the case of quota
share reinsurance, the relevant contracts are commuted, at which point
no further profit commission is recognised. In addition, different contractual
arrangements are in place with the group’s co-insurance and quota share
reinsurance partners and there is a risk that the differences in arrangements
are not appropriately accounted for, resulting in significant misstatement.

Our response – Our audit procedures included, in addition to our procedures
over insurance liabilities noted above, forming an expectation of the profit
commission income based on loss ratios applied and contractual terms
of each arrangement, comparing this to actual profit commission income
recognised and corroborating any changes to the profit commission arrangements
during the year. We have also considered the adequacy of the group’s
disclosures about the arrangements in place.

We continue to perform audit procedures over co-insurance and reinsurance
arrangements. However, given that there are no significant changes to the
underlying contracts and estimation of co-insurance and reinsurance arrangements
this year, we have not assessed this as one of the risks that had the greatest
effect on our audit and, therefore, it is not separately identified in our report
this year.

3. Our application of materiality and an overview of the scope of
our audit
The materiality for the group financial statements as a whole was set at
£16.0 million, determined with reference to a benchmark of group profit before
taxation (of which it represents 4%). We report to the Audit Committee any
corrected or uncorrected identified misstatements exceeding £0.8 million,
in addition to other identified misstatements that warranted reporting on
qualitative grounds.

Of the group’s 12 reporting components, we subjected five to audits for Group
reporting purposes, and three to specified risk-focused audit procedures.
The components for which we performed specified risk-focussed procedures
were not individually financially significant enough to require an audit for
Group reporting purposes, but did present specific individual risks that
needed to be addressed.

The components within the scope of our work accounted for 94% of group
net revenue, 98% of Group profit before tax and 97% of total group assets.

The remaining 6% of total Group net revenue, 2% of group profit before tax
and 3% of total group assets is represented by four reporting components,
none of which individually represented more than 2% of any of total group
net revenue, group profit before tax or total group assets.

For these remaining components, we performed analysis at an aggregated
group level to re-examine our assessment that there were no significant risks
of material misstatement within these.

The Group audit team instructed two component auditors as to the significant
risk focused audit procedures to be performed. The procedures on the remaining
components were performed by the Group audit team. The Group audit
team approved the component materialities, which ranged from £480,000
to £14,000,000, having regard to the mix of size and risk profile of the Group
across the components.

Under the Listing Rules we are required to review:

• the Directors’ statement, set out on pages 55 and 69, in relation to going

concern and longer-term viability; and

• the part of the Corporate Governance Statement on pages 44 to 57 relating
to the company’s compliance with the eleven provisions of the 2014 UK
Corporate Governance Code specified for our review.

We have nothing to report in respect of the above responsibilities.

Scope and responsibilities
As explained more fully in the Directors’ Responsibilities Statement set out
on page 71, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view.
A description of the scope of an audit of financial statements is provided on the
Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate.
This report is made solely to the company’s members as a body and is subject
to important explanations and disclaimers regarding our responsibilities,
published on our website at www.kpmg.com/uk/auditscopeukco2014a,
which are incorporated into this report as if set out in full and should be read
to provide an understanding of the purpose of this report, the work we have
undertaken and the basis of our opinions.

Salim Tharani (Senior Statutory Auditor)
for and on behalf of KPMG LLP,
Statutory Auditor
Chartered Accountants
3 Assembly Square
Britannia Quay
Cardiff
CF10 4AX
2 March 2016

Opinions and conclusions arising from our audit continued
4. Our opinion on other matters prescribed by the Companies Act
2006 is unmodified
In our opinion:

• the part of the Directors’ Remuneration Report to be audited has been

properly prepared in accordance with the Companies Act 2006;

• the information given in the Strategic Report and the Directors’ Report
for the financial year for which the financial statements are prepared is
consistent with the financial statements; and

• the information given in the Corporate Governance Statement set out on
pages 54 to 55 in the Internal Control and Risk Management Statement
with respect to internal control and risk management systems in relation to
financial reporting processes and about share capital structures is consistent
with the financial statements.

5. We have nothing to report on the disclosures of principal risks
Based on the knowledge we acquired during our audit, we have nothing
material to add or draw attention to in relation to:

• the Directors’ statement of the longer-term viability statement on page 55,
concerning the principal risks, their management, and, based on that, the
Directors’ assessment and expectations of the Group’s continuing in
operation over the three years to 2018; or

• the disclosures in note 2 of the financial statements concerning the use

of the going concern basis of accounting.

6. We have nothing to report in respect of the matters on which
we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the
knowledge we acquired during our audit, we have identified other information
in the annual report that contains a material inconsistency with either that
knowledge or the financial statements, a material misstatement of fact, or
that is otherwise misleading.

In particular, we are required to report to you if:

• we have identified material inconsistencies between the knowledge we

acquired during our audit and the Directors’ statement that they consider
that the annual report and financial statements taken as a whole is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Group’s position and performance, business
model and strategy; or

• the Audit Committee Statement does not appropriately address matters

communicated by us to the Audit Committee.

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company,

or returns adequate for our audit have not been received from branches not
visited by us; or

• the parent company financial statements and the part of the Directors’

Remuneration Report to be audited are not in agreement with the
accounting records and returns; or

• certain disclosures of Directors’ remuneration specified by law are not

made; or

• we have not received all the information and explanations we require

for our audit; or

• a Corporate Governance Statement has not been prepared by the company.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Year ended

31 December
2015
£m

31 December
2014
£m

Note

1,130.2

(663.2)

467.0

319.8

85.4

32.6

904.8

(769.1)

542.6

(226.5)

(548.0)

249.5

(298.5)

1,099.7

(634.8)

464.9

332.5

71.8

15.4

884.6

(794.5)

535.4

(259.1)

(501.8)

231.6

(270.2)

(525.0)

(529.3)

379.8

(11.1)

368.7

(76.9)

291.8

300.0

(8.2)

291.8

107.3p

107.1p

274.6

100.0p

355.3

(4.6)

350.7

(69.1)

281.6

285.2

(3.6)

281.6

103.0p

102.8p

273.5

100.0p

Consolidated income statement
For the year ended 31 December 2015

Insurance premium revenue

Insurance premium ceded to reinsurers

Net insurance premium revenue

Other Revenue

Profit commission

Investment and interest income

Net revenue

Insurance claims and claims handling expenses

Insurance claims and claims handling expenses recoverable from reinsurers

Net insurance claims

Operating expenses and share scheme charges

Operating expenses and share scheme charges recoverable from co- and reinsurers

Net operating expenses and share scheme charges

Total expenses

Operating profit

Finance costs

Profit before tax

Taxation expense

Profit after tax

Profit after tax attributable to:

Equity holders of the parent

Non-controlling interests (NCI)

Earnings per share

Basic

Diluted

Dividends declared and paid (total)

Dividends declared and paid (per share)

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Consolidated statement of comprehensive income
For the year ended 31 December 2015

Profit for the period

Other comprehensive income

Items that are or may be reclassified to profit or loss

Movements in fair value reserve

Exchange differences on translation of foreign operations

Other comprehensive income for the period, net of income tax

Total comprehensive income for the period

Total comprehensive income for the period attributable to:

Equity holders of the parent

Non-controlling interests

Year ended

31 December
2015
£m

31 December
2014
£m

291.8

281.6

(12.6)

2.6

(10.0)

281.8

289.5

(7.7)

281.8

10.9

3.0

13.9

295.5

298.6

(3.1)

295.5

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNote

6, 10

As at

31 December
2015
£m

31 December
2014
£m

34.9

142.3

20.6

878.7

537.1

2,323.5

265.3

4,202.4

0.3

13.1

2.7

599.6

615.7

17.2

632.9

32.3

107.2

22.9

829.8

435.3

2,194.1

255.9

3,877.5

0.3

13.1

13.2

540.6

567.2

13.7

580.9

2,295.0

2,097.4

223.9

1,015.0

35.6

3,569.5

4,202.4

203.8

965.8

29.6

3,296.6

3,877.5

Consolidated statement of financial position
As at 31 December 2015

ASSETS

Property and equipment

Intangible assets

Deferred income tax

Reinsurance assets

Insurance and other receivables

Financial investments

Cash and cash equivalents

Total assets

EQUITY

Share capital

Share premium account

Other reserves

Retained earnings

Total equity attributable to equity holders of the parent

Non-controlling interests

Total equity

LIABILITIES

Insurance contracts

Subordinated and other financial liabilities

Trade and other payables

Current tax liabilities

Total liabilities

Total equity and total liabilities

The accompanying notes form part of these financial statements.

These financial statements were approved by the Board of Directors on 2 March 2016 and were signed on its behalf by:

Geraint Jones
Chief Financial Officer
Admiral Group plc

Company Number: 03849958

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Consolidated cash flow statement
For the year ended 31 December 2015

Profit after tax

Adjustments for non-cash items:

– Depreciation

– Amortisation of software

– Other gains and losses

– Share scheme charges

– Investment income on gilts

– Finance costs

Change in gross insurance contract liabilities

Change in reinsurance assets

Change in insurance and other receivables

Change in trade and other payables, including tax and social security

Taxation expense

Cash flows from operating activities, before movements in investments

Net cash flow into investments

Cash flows from operating activities, net of movements in investments

Taxation payments

Net cash flow from operating activities

Cash flows from investing activities

Purchases of property, equipment and software

Interest and investment income received

Net cash used in investing activities

Cash flows from financing activities

Non-controlling interest capital contribution

Proceeds on issue of financial liabilities

Transaction costs on issue of financial liabilities

Finance costs paid

Capital element of new finance lease liabilities

Repayment of finance lease liabilities

Equity dividends paid

Net cash used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at 1 January

Effects of changes in foreign exchange rates

Cash and cash equivalents at end of period

Year ended

31 December
2015
£m

31 December
2014
£m

Note

291.8

281.6

8.2

6.1

0.1

29.5

(7.4)

11.1

197.6

(48.9)

(103.5)

47.8

76.9

509.3

(142.0)

367.3

(63.8)

303.5

(50.7)

7.4

(43.3)

10.7

20.0

—

(11.0)

2.9

(1.4)

(274.6)

(253.4)

6.8

255.9

2.6

265.3

7.1

4.6

(0.2)

23.2

(2.6)

4.6

196.1

(8.6)

14.7

(49.4)

69.1

540.2

(286.3)

253.9

(77.0)

176.9

(50.6)

3.1

(47.5)

8.5

200.0

(0.8)

—

1.4

—

(273.5)

(64.4)

65.0

187.9

3.0

255.9

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONConsolidated statement of changes in equity
For the year ended 31 December 2015

At 1 January 2014

Profit/(loss) for the period

Other comprehensive income

Movements in fair value reserve

Currency translation differences

Total comprehensive income for the period

Transactions with equity holders

Dividends

Share scheme credit

Deferred tax credit on share scheme credit

Contributions by NCIs

Total transactions with equity holders

As at 31 December 2014

At 1 January 2015

Profit/(loss) for the period

Other comprehensive income

Movements in fair value reserve

Currency translation differences

Total comprehensive income for the period

Transactions with equity holders

Dividends

Share scheme credit

Deferred tax credit on share scheme credit

Contributions by NCIs

Changes in ownership interests
without a change in control

Total transactions with equity holders

Attributable to the owners of the Company

Share
capital
£m

0.3

—

Share
premium
account
£m

13.1

—

0.3

—

13.1

—

Fair value
reserve
£m

—

10.9

—

10.9

—

10.9

—

(12.6)

—

(12.6)

—

Foreign
exchange
reserve
£m

(0.2)

—

2.5

—

2.3

—

2.1

—

Retained
profit
and loss
£m

502.6

285.2

—

Total
£m

515.8

285.2

10.9

2.5

285.2

298.6

(273.5)

23.2

3.1

—

23.2

3.1

—

(247.2)

540.6

300.0

567.2

300.0

—

(12.6)

2.1

300.0

289.5

(274.6)

29.5

4.7

(0.1)

29.5

4.7

(0.1)

(0.5)

(241.0)

As at 31 December 2015

0.3

13.1

(1.7)

4.4

599.6

615.7

Non-
controlling
interests
£m

Total equity
£m

8.3

(3.6)

—

0.5

(3.1)

—

8.5

13.7

(8.2)

—

0.5

(7.7)

—

10.7

0.5

11.2

17.2

524.1

281.6

10.9

3.0

295.5

(273.5)

23.2

3.1

8.5

(238.7)

580.9

291.8

(12.6)

2.6

281.8

(274.6)

29.5

4.7

10.6

—

(229.8)

632.9

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Notes to the financial statements
For the year ended 31 December 2015

1. General information
Admiral Group plc is a company incorporated in England and Wales. Its registered
office is at T^y Admiral, David Street, Cardiff, CF10 2EH and its shares are listed
on the London Stock Exchange.

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 Financial
Reporting Standard 101 Reduced Disclosure Framework (FRS 101).

Adoption of new and revised standards
The Group has applied all adopted IFRS and interpretations endorsed by the
EU at 31 December 2015, including all amendments to extant standards that
are not effective until later accounting periods. This is inclusive of:

• Amendments to IAS 16 and IAS 41 (Bearer Plants).

• Amendments to IFRS 11 (Acquisition of interests in joint operations).

• Amendments to IAS 16 and IAS 38 (Clarification of acceptable methods

of depreciation and amortisation).

• Annual improvements to IFRSs (2012–2014 cycle).

• Amendments to IAS 1 (Disclosure initiative).

• Amendments to IAS 27 (Equity method in separate financial statements).

The application of these standards and amendments has not had a material
impact on the Group’s results, financial position and cash flows.

There are a number of standards, amendments to standards and interpretations
that were issued by 31 December 2015 but have either yet to be endorsed by the
EU, or were endorsed shortly after the year end. The following IFRSs have been
issued but have not been applied by the Group in these financial statements:

• IFRS 9 Financial Instruments.

• IFRS 14 Regulatory Deferral Accounts.

• IFRS 15 Revenue from Contracts with Customers.

• IFRS 16 Leases.

• Amendments to IFRS 10, 11 and 12 and IAS 1, 16, 27, 28, 38 and 41.

In 2014, the IASB issued the full, final version of IFRS 9. This version supersedes
all previous versions. The standard has an effective date of 1 January 2018
although earlier application is permitted. The standard includes requirements
relating to the recognition, measurement, impairment and de-recognition
of assets along with general hedge accounting.

IFRS 15 was also issued during 2014 and applies to annual reporting periods
beginning on or after 1 January 2017. The standard introduces a simple, five
step principles-based model to be applied to the accounting of all contracts
with customers.

IFRS 16 Leases was issued in early 2016. The standard specifies how firms will
recognise, measure, present and disclose leases. It presents a single lessee
accounting model and requires that assets and liabilities relating to leases of
greater than 12 months are recognised in the Consolidated Statement of
Financial Position. The standard will apply to reporting periods beginning on
or after 1 January 2019.

The Group is currently assessing the impact of IFRS 9, IFRS 15 and IFRS 16
on its results, financial position and cash flows, along with any impacts of the
other standards and amendments which have yet to be endorsed.

2. Basis of preparation
The accounts have been prepared on a going concern basis. In considering
this requirement, the Directors have taken into account the following:

• The Group’s projections for the next 12 months and beyond, in particular the
profit forecasts, regulatory capital surpluses and levels and sources of liquidity.

• The risks included on the Group’s risk register that could impact on the Group’s
financial performance, levels of liquidity and solvency over the next 12 months.

• The risks on the Group’s risk register that could be a threat to the Group’s

business model and capital adequacy.

The Group’s business activities, together with the factors likely to affect its future
development, performance and position are set out in the Strategic Report.
The Strategic Report also includes the Group’s principal risks and uncertainties.
In addition, the Governance report includes the Directors’ statement on the viability
of the Group over a three year period.

Following consideration of the above, the Directors have reasonable expectation
that the Group has adequate resources to continue in operation for the foreseeable
future, a period not less than 12 months from the date of this report, and that
it is therefore appropriate to adopt the going concern basis in preparing the
financial statements.

Further information regarding the Company’s business activities, together
with the factors likely to affect its future development, performance and
position, is set out in the Strategic Report on pages 6 to 39. Further information
regarding the financial position of the Company, its cash flows, liquidity
position and borrowing facilities are described in the Strategic Report on
pages 17 to 19. In addition, notes 6 and 11 to the financial statements include
the Company’s objectives, policies and processes for managing its capital;
its financial risk management objectives; details of its financial instruments;
and its exposures to credit risk and liquidity risk.

The accounting policies set out in the notes 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 fair value through profit or loss
or as ‘available for sale’. The Group and Company financial statements are
presented in pounds sterling, rounded to the nearest £0.1 million.

Subsidiaries are entities controlled by the Group. The Group controls an entity
when it is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power over
the entity. In assessing control, the Group takes into consideration potential
voting rights that are currently exercisable. The acquisition date is the date
on which control is transferred to the acquirer. The financial statements of
subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases. Losses
applicable to the non-controlling interests in a subsidiary are allocated to
the non-controlling interests even if doing so causes the non-controlling
interests to have a deficit balance.

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. To the extent that a change in an accounting estimate gives rise to
changes in assets and liabilities, it is recognised by adjusting the carrying
amount of the related asset or liability in the period of the change.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION4. Group consolidation and operating segments
4a. Accounting policies
(i) Group consolidation
The consolidated 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 2015 and comparative figures for the year ended
31 December 2014. 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 principal subsidiaries, except
Admiral Law Limited, BDE Law Limited, Inspop USA LLC, the indirect
holding in comparenow.com Insurance Agency LLC, Rastreator.com Limited,
the indirect holding in Comparaseguros Correduría de Seguros, S.L., Sociedad
Unipersonal and Preminen Price Comparison Holdings Limited.

The Parent Company financial statements present information about the
Company as a separate entity and not about its Group. In accordance with
IAS 24, transactions or balances between Group companies that have been
eliminated on consolidation are not reported as related party transactions in
the consolidated financial statements.

(ii) Foreign currency translation
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 pounds sterling, rounded to the nearest £0.1 million, which is
the Group’s presentation currency.

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.

Non-monetary items measured at cost are translated at their historic rate
and non-monetary items held at fair value are translated using the foreign
exchange rate on the date that the fair value was established.

The financial statements of foreign operations whose functional currency
is not pounds sterling are translated into the Group presentation currency
(sterling) as follows:

• Assets and liabilities for each balance sheet presented are translated at the

closing rate at the date of that balance sheet.

• 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).

• All resulting exchange differences are recognised in other comprehensive
income and in a separate component of equity except to the extent that
the translation differences are attributable to non-controlling interests.

On disposal of a foreign operation, the cumulative amount recognised in equity
relating to that particular operation is recognised in the income statement.

3. Critical accounting judgements and estimates
Judgements
In applying the Group’s accounting policies as described in the notes to the
financial statements, management has primarily applied judgement in the
following three areas:

• Calculation of insurance claims reserves:

The Group’s reserving policy requires management to set insurance claims

reserves for the purpose of the financial statements, within a range of
potential outcomes above the projected best estimate outcome, to allow
for unforeseen adverse claims development. Management applies
judgement in determining where, within this range of potential outcomes,
the insurance claims reserves should sit.

• Classification of the Group’s contracts with reinsurers as 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 each
such contract, and if necessary obtains the opinion of an independent expert
at the negotiation stage in order to be able to make this judgement.

• Recognition of deferred tax assets relating to unused tax losses:

Management applies judgement in determining the probability of future
taxable profits of an entity against which to utilise accumulated losses in
determining the recognition of deferred tax assets. In applying this judgement,
management makes an assessment of the reliability of approved business
plan projections using both qualitative and quantitative factors including
the age and status of the business, the Group’s previous experience in
similar markets, historic performance against business plans and the
application of a number of stress and sensitivity tests to the projections.

Estimation techniques used in calculation of claims provisions
and profit commission
Estimation techniques are used in the calculation of the provisions for claims
outstanding, which represent 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 is 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 potential outcome. 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 Group’s independent actuarial advisors project best estimate claims
reserves using a variety of recognised actuarial techniques.

As noted above, the Group’s reserving policy requires management to
reserve within a range of potential outcomes above the projected best
estimate outcome, to allow for unforeseen adverse claims development.

For further detail on objectives, policies and procedures for managing
insurance risk, refer to note 5 of the financial statements.

Future changes in claims reserves also impact profit commission income,
as the measurement 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.

80 ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2015

Notes to the financial statements continuedFor the year ended 31 December 2015
4. Group consolidation and operating segments continued
4b. Segment reporting
The Group has four reportable segments, as described below. These segments represent the principal split of business that is regularly reported to the Group’s
Board of Directors, which is considered to be the Group’s chief operating decision maker in line with IFRS 8 Operating Segments.

UK Car Insurance
The segment consists of the underwriting of car insurance and other products that supplement the car insurance policy. It also includes the generation of
revenue from additional products and fees from underwriting car insurance 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 revenue are not independent of each other and are performed as one business. This mirrors
the approach taken in management reporting.

International Car Insurance
The segment consists of the underwriting of car insurance and the generation of revenue from additional products and fees from underwriting car insurance
outside of the UK. It specifically covers the Group operations Admiral Seguros in Spain, ConTe in Italy, L’olivier – assurance auto in France and Elephant Auto
in the US. None of these operations are reportable on an individual basis, based on the threshold requirements in IFRS 8.

Price Comparison
The segment relates to the Group’s price comparison websites: Confused.com in the UK, Rastreator in Spain, LeLynx in France and compare.com in the US.
Each of the Price Comparison businesses are operating in individual geographical segments but are grouped into one reporting segment as Rastreator, LeLynx
and compare.com do not individually meet the threshold requirements in IFRS 8.

Other
The ‘Other’ segment is designed to be comprised of all other operating segments that do not meet the threshold requirements for individual reporting.
It includes UK household insurance, the Group’s commercial van insurance broker, Gladiator, and commercial van insurance.

Taxes are not allocated across the segments and, as with the corporate activities, are included in the reconciliation to the Consolidated Income Statement
and Consolidated Statement of Financial Position.

An analysis of the Group’s revenue and results for the year ended 31 December 2015, by reportable segment, is shown below. The accounting policies
of the reportable segments are consistent with those presented in the notes to the financial statements for the Group.

Turnover*¹

Net insurance premium revenue

Other Revenue and profit commission

Investment and interest income

Net revenue

Net insurance claims

Expenses

Segment profit/(loss) before tax

Other central revenue and expenses,
including share scheme charges

Investment and interest income

Finance costs

Consolidated profit before tax

Taxation expense

Consolidated profit after tax

Other segment items:

– Capital expenditure

– Depreciation and amortisation

Year ended 31 December 2015

UK Car
Insurance
£m

1,708.2

386.5

285.6

26.1

698.2

(161.3)

(93.9)

443.0

International
Car Insurance
£m

Price
Comparison
£m

232.4

64.5

7.7

—

72.2

(51.6)

(42.8)

(22.2)

108.1

—

108.1

—

108.1

—

(123.6)

(15.5)

Other
£m

70.1

16.0

18.0

—

34.0

(13.6)

(17.7)

2.7

Eliminations*²

£m

(14.2)

—

(14.2)

—

(14.2)

—

14.2

—

62.3

26.9

29.6

27.0

1.4

1.5

4.1

3.8

—

Total
£m

2,104.6

467.0

405.2

26.1

898.3

(226.5)

(263.8)

408.0

(34.7)

6.5

(11.1)

368.7

(76.9)

291.8

97.4

59.2

*¹ Turnover is a non-GAAP measure and consists of total premiums written (including co-insurers’ share) and Other Revenue. Refer to note 12 for further information.

*² Eliminations are in respect of the intra-group trading between the Group’s price comparison and UK and International car insurance entities. No elimination was made in prior periods on the grounds

of materiality.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION4. Group consolidation and operating segments continued
4b. Segment reporting continued
Revenue and results for the corresponding reportable segments for the year ended 31 December 2014 are shown below.

Turnover*¹

Net insurance premium revenue

Other Revenue and profit commission

Investment and interest income

Net revenue

Net insurance claims

Expenses

Segment profit/(loss) before tax

Other central revenue and expenses,
including share scheme charges

Investment and interest income

Finance costs

Consolidated profit before tax

Taxation expense

Consolidated profit after tax

Other segment items:

– Capital expenditure

– Depreciation and amortisation

Year ended 31 December 2014

UK Car
Insurance
£m

1,602.7

394.3

272.2

11.5

678.0

(198.3)

(81.7)

398.0

International
Car Insurance
£m

206.2

58.1

7.1

0.2

65.4

(50.5)

(34.8)

(19.9)

Price
Comparison
£m

107.5

—

107.5

—

107.5

—

(110.3)

(2.8)

Other
£m

54.6

12.5

17.5

—

30.0

(10.3)

(17.6)

2.1

65.1

30.6

21.3

22.1

1.0

1.5

0.2

Eliminations
£m

—

Total
£m

1,971.0

464.9

404.3

11.7

880.9

(259.1)

(244.4)

377.4

(25.8)

3.7

(4.6)

350.7

(69.1)

281.6

88.9

54.4

*¹ Turnover is a non-GAAP measure and consists of total premiums written (including co-insurers’ share) and Other Revenue. Refer to note 12 for further information.

Segment revenues
The UK and International 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 £14.2 million which has been eliminated on consolidation.
In 2014 the total of price comparison revenues from transactions with other reportable segments was £9.5 million and was not eliminated on the grounds
of materiality. In 2015, the intra-group trading amount has grown to £14.2 million. The Directors have therefore decided to amend the accounting policy
such that this has been eliminated for the year ended 31 December 2015, and this policy will be adopted for future periods. There are no other transactions
between reportable segments.

Revenues from external customers for products and services are consistent with the split of reportable segment revenues as shown on page 81.

Information about geographical locations
All material revenues from external customers, and net assets attributed to a foreign country, are shown within the International Car Insurance reportable
segment shown on the previous pages. The revenue and results of the three international Price Comparison businesses, Rastreator, LeLynx and compare.com
are not yet material enough to be presented as a separate segment.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Notes to the financial statements continuedFor the year ended 31 December 20154. Group consolidation and operating segments continued
4b. Segment reporting continued
Segment assets and liabilities
The identifiable segment assets and liabilities at 31 December 2015 are as follows:

Property and equipment

Intangible assets

Reinsurance assets

Insurance and other receivables

Financial investments

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

Consolidated net assets

As at 31 December 2015

UK Car
Insurance
£m

International Car
Insurance
£m

Price
Comparison
£m

30.6

60.5

691.9

551.4

2,042.4

93.8

3,470.6

1,992.3

924.7

2,917.0

553.6

3.0

14.2

159.0

41.5

43.2

94.3

355.2

257.3

55.5

312.8

42.4

1.3

2.3

—

19.2

—

59.5

82.3

—

9.1

73.2

Other
£m

—

65.3

27.8

(0.2)

—

11.8

104.7

45.4

25.7

71.1

33.6

Eliminations
£m

—

(74.8)

—

(74.8)

—

(74.8)

Total
£m

34.9

142.3

878.7

537.1

2,085.6

259.4

3,938.0

2,295.0

1,015.0

3,310.0

628.0

4.9

632.9

Unallocated assets and liabilities consist of other central assets and liabilities, plus 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 International Car Insurance segments is not allocated in arriving at segment profits. This is consistent with
regular reporting to the Board of Directors.

Eliminations represent inter-segment funding and balances included in insurance and other receivables.

The segment assets and liabilities at 31 December 2014 are as follows:

Property and equipment

Intangible assets

Reinsurance assets

Insurance and other receivables

Financial investments

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

Consolidated net assets

As at 31 December 2014

UK Car
Insurance
£m

International Car
Insurance
£m

Price
Comparison
£m

29.0

89.6

677.5

532.2

1,892.3

101.8

3,322.4

1,839.4

900.7

2,740.1

582.3

2.5

12.2

137.9

21.7

98.6

38.6

311.5

228.7

42.4

271.1

40.4

0.7

2.9

—

11.7

—

49.0

64.3

—

7.4

56.9

Other
£m

0.1

2.5

14.4

3.7

(0.1)

16.4

37.0

29.3

15.3

44.6

(7.6)

Eliminations
£m

—

(134.0)

—

(134.0)

—

(134.0)

Total
£m

32.3

107.2

829.8

435.3

1,990.8

205.8

3,601.2

2,097.4

965.8

3,063.2

538.0

42.9

580.9

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION5. Premium, claims and profit commissions
5a. Accounting policies
(i) Revenue – premiums
Premiums relating to insurance contracts are recognised as revenue, net of insurance premium tax, proportionally over the period of cover. Premiums with an
inception date after the end of the period are held in the statement of financial position as deferred revenue. Outstanding collections from policyholders are
recognised within policyholder receivables.

(ii) Revenue – profit commission
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 revenue being recognised when loss and expense ratios used in the preparation of the financial statements move below a contractual threshold.

(iii) Insurance contracts and reinsurance assets
Premiums
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 (net of deferred acquisition costs)
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 and administering the business.

Reinsurance assets
Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on the insurance contracts issued by the Group are
classified as reinsurance contracts. A contract is only accounted for as a reinsurance contract where there is significant insurance risk transfer between the
insured and the insurer.

Reinsurance assets include balances due from reinsurance companies for ceded insurance liabilities. Amounts recoverable from reinsurers are estimated
in a consistent manner with the outstanding claims provisions or settled claims associated with the reinsured policies and in accordance with the relevant
reinsurance contract.

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.

On the commutation of reinsurance contracts, the reinsurer is discharged from all obligations relating to the contract. Reinsurance assets and liabilities relating
to the commuted contracts are settled in the period in which the commutation agreement is signed.

5b. Net insurance premium revenue

Total motor insurance premiums written before co-insurance

Group gross premiums written after co-insurance

Outwards reinsurance premiums

Net insurance premiums written

Change in gross unearned premium provision

Change in reinsurers’ share of unearned premium provision

Net insurance premium revenue

31 December
2015
£m

31 December
2014
£m

1,805.2

1,199.9

(709.8)

490.1

(69.7)

46.6

467.0

1,675.6

1,102.1

(644.9)

457.2

(2.4)

10.1

464.9

The Group’s share of the car insurance business was underwritten by Admiral Insurance (Gibraltar) Limited, Admiral Insurance Company Limited
and Elephant Insurance Company. All contracts are short term in duration, lasting for 10 or 12 months.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Notes to the financial statements continuedFor the year ended 31 December 20155. Premium, claims and profit commissions continued
5c. Profit commission

Underwriting year

2010 and prior

2011

2012

2013

2014

2015

Total profit commission

31 December
2015
£m

31 December
2014
£m

5.3

26.1

36.9

16.9

—

0.2

85.4

19.1

27.8

24.9

—

71.8

5d. Reinsurance assets and insurance contract liabilities
(i) 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 involves uncertainty over the occurrence, amount or timing of claims arising on insurance contracts issued.

Reserving risk is the risk that the value of insurance liabilities established is insufficient to cover the ultimate cost of claims incurred at the balance sheet date,
whether reported or unreported. Other risks include inadequate pricing and reinsurance policies, and inappropriate claims management processes and controls.

The Board of Directors is responsible for the management of insurance risk, although as mentioned in note 6, it has delegated the detailed oversight of risk
management to the Group Risk Committee.

The Group also has a Reserving Committee which comprises senior managers within the finance, claims, pricing and actuarial functions. The Reserving
Committee primarily recommends the approach for UK Car Insurance reserving but also reviews the systems and controls in place to support accurate
reserving and material reserving issues such as Periodic Payment Order (PPO) and claims inflation, which represent the key uncertainties in the amount
or timing of claims settlements.

The Board implements certain policies in order to mitigate and control the level of insurance risk accepted by the Group. These include pricing policies and
claims management and administration processes, in addition to reserving policies and co- and reinsurance arrangements as detailed below.

Reserving policies and controls
Reserving risk is mitigated through a series of processes and controls. The key processes are as follows:

• Regular management and internal actuarial review of individual and aggregate case claim reserves, including regular reporting of management information

and exception reporting of significant movements.

• Regular management and internal actuarial review of large claims, including claims settled or potentially settled by PPOs for which the uncertainty

is increased by factors such as the lifetime of the claimant and movements in the indexation for the cost of future care of the claimant.

• Bi-annual external actuarial review of best estimate claims reserves using a variety of recognised actuarial techniques, including reviews of the potential

ranges around best estimates.

• Use of a reserving policy which informs management’s reserving decisions for the purposes of the Group’s financial statements. As described in note 3,

critical accounting judgements and estimates, the policy determines that reserves should be set within a range above projected best estimate outcomes
to allow for unforeseen adverse claims development.

Co-insurance and reinsurance
As noted in the Strategic Report, the Group shares a significant amount of the motor insurance business generated with external underwriters. In 2015, 40%
of the UK risk was shared under a co-insurance contract, under which the primary risk is borne by the co-insurer. A further 35% of the UK risk was ceded under
quota share reinsurance contracts. Co-insurance and reinsurance contracts are also used in the International Car Insurance businesses. Further detail can be
found in the Strategic Report on page 28.

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.

Concentration of insurance risk
The Directors do not believe there are significant concentrations of insurance risk. This is because, although the Group has historically written only one
significant line of UK insurance business, the risks are spread across a large number of people and a wide regional base. The introduction of the international
car insurance businesses in recent years and the launch of UK household business in 2012 will further contribute to the diversification of the Group’s insurance
risk as these businesses grow.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION5. Premium, claims and profit commissions continued
5d. Reinsurance assets and insurance contract liabilities continued
(ii) Sensitivity of recognised amounts to changes in assumptions
The following table sets out the impact on equity and profit or loss at 31 December 2015 that would result from a 1% movement in the UK motor loss ratios
used for each underwriting year for which material amounts remain outstanding.

Booked loss ratio

Impact of 1% change (£m)

2012

66%

12.7

Underwriting year

2013

76%

11.2

2014

89%

3.2

2015

87%

1.6

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.

(iii) Analysis of recognised amounts

Gross

Claims outstanding*¹

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

Total insurance liabilities – net

*¹ Gross claims outstanding at 31 December 2015 is presented before the deduction of salvage and subrogation recoveries totalling £28.4 million.

The maturity profile of gross insurance liabilities at the end of 2015 is as follows:

Claims outstanding

Unearned premium provision

Total gross insurance liabilities

The maturity profile of gross insurance liabilities at the end of 2014 was as follows:

Claims outstanding

Unearned premium provision

Total gross insurance liabilities

31 December
2015
£m

31 December
2014
£m

1,725.0

570.0

2,295.0

544.8

333.9

878.7

1,180.2

236.1

1,416.3

1–3 years
£m

492.0

142.5

634.5

1–3 years
£m

547.3

103.3

650.6

1,596.0

501.4

2,097.4

538.2

291.6

829.8

1,057.8

209.8

1,267.6

> 3 years
£m

729.5

153.9

883.4

> 3 years
£m

506.1

161.9

668.0

< 1 year
£m

503.5

273.6

777.1

< 1 year
£m

542.6

236.2

778.8

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Notes to the financial statements continuedFor the year ended 31 December 20155. Premium, claims and profit commissions continued
5d. Reinsurance assets and insurance contract liabilities continued
(iv) Analysis of UK car insurance claims incurred
The following tables illustrate the development of gross and net UK Car Insurance claims incurred for the past five financial periods, including the impact
of re-estimation of claims provisions at the end of each financial year. The first table shows actual gross claims incurred, the second shows actual net claims
incurred and the third shows the development of UK loss ratios. Figures are presented on an underwriting year basis.

Analysis of claims incurred (gross amounts)

Underwriting year (UK car only)

2011 and prior

2012

2013

2014

2015

UK gross claims incurred (excluding claims handling costs)

International and other gross claims incurred

Claims handling costs

Total gross claims incurred

Analysis of claims incurred (net amounts)

Underwriting year (UK car only)

2011 and prior

2012

2013

2014

2015

UK net claims incurred (excluding claims handling costs)

International and other net claims incurred

Claims handling costs

Total net claims incurred

UK loss ratio development

Underwriting year (UK only)

2011

2012

2013

2014

2015

Total
£m

(679.6)

(689.3)

(756.1)

(402.5)

Total
£m

(211.7)

(270.8)

(315.1)

(167.7)

Financial year ended 31 December

2011
£m

2012
£m

2013
£m

2014
£m

(694.4)

—

(694.4)

(65.6)

(25.9)

(785.9)

2011
£m

(323.6)

—

(323.6)

(28.3)

(11.9)

(363.8)

(325.5)

(463.7)

—

(789.2)

(113.9)

(26.0)

(929.1)

2012
£m

(148.2)

(191.3)

—

(339.5)

(54.2)

(10.8)

(404.5)

85.1

(335.1)

(421.2)

—

(671.2)

(132.6)

(22.9)

(826.7)

79.5

50.2

(321.4)

(421.9)

—

(613.6)

(159.5)

(21.4)

(794.5)

Financial year ended 31 December

2013
£m

2014
£m

81.4

(139.6)

(175.4)

—

(233.6)

(59.9)

(9.5)

(303.0)

79.5

50.2

(133.9)

(175.8)

—

(180.0)

(70.2)

(8.9)

(259.1)

2015
£m

58.5

69.0

53.3

(334.2)

(402.5)

(555.9)

(190.6)

(22.6)

(769.1)

2015
£m

58.5

69.0

38.5

(139.3)

(167.7)

(141.0)

(76.1)

(9.4)

(226.5)

Financial year ended 31 December

2011

2012

2013

2014

2015

82%

—

76%

84%

—

72%

78%

85%

—

67%

73%

82%

92%

—

62%

66%

76%

89%

87%

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION5. Premium, claims and profit commissions continued
5d. Reinsurance assets and insurance contract liabilities continued
(v) Analysis of claims reserve releases (UK Car Insurance business only)
The following table analyses the impact of movements in prior year claims provisions on a gross and net basis. Figures are presented on an underwriting year basis.

Gross

Underwriting year

2011 and prior

2012

2013

2014

Total gross release (UK Car Insurance)

Total gross release (International Car Insurance)

Total gross release

Net

Underwriting year

2011 and prior

2012

2013

2014

Total net release (UK Car Insurance)

Total net release (International Car Insurance)

Total net release

Analysis of net releases on UK Car Insurance:

– Net releases on Admiral net share

– Releases on commuted quota share reinsurance contracts*¹

Total net release as above

2011
£m

10.3

—

10.3

—

10.3

2011
£m

10.3

—

10.3

—

10.3

7.8

2.5

10.3

Financial year ended 31 December

2012
£m

36.2

—

36.2

—

36.2

2013
£m

85.0

30.8

—

115.8

—

115.8

Financial year ended 31 December

2012
£m

17.6

—

17.6

—

17.6

16.3

1.3

17.6

2013
£m

81.4

12.8

—

94.2

—

94.2

53.3

40.9

94.2

2014
£m

79.5

50.2

18.4

—

148.1

12.6

160.7

2014
£m

79.5

50.2

7.7

—

137.4

6.3

143.7

66.8

70.6

137.4

2015
£m

59.3

69.0

53.4

16.0

197.7

14.0

211.7

2015
£m

59.3

69.0

38.4

6.7

173.4

6.5

179.9

84.6

88.8

173.4

*¹ Admiral typically commutes quota share reinsurance contracts in its UK Car Insurance business 24 or 36 months following the start of the underwriting year. After commutation, any changes in claims
costs on the commuted proportion of the business are reflected within claims costs and are separately analysed here. £88.8 million of releases on commuted quota share contracts is split as follows:
2013: £16.3 million; 2012: £40.3 million; 2011 and prior: £32.2 million.

Profit commission is analysed in note 5c.

(vi) Reconciliation of movement in net claims provision

Net claims reserve at start of period

Net claims incurred (excluding releases)

Net reserve releases

Movement in net claims reserve due to commutation

Net claims paid *¹

Net claims reserve at end of period*²

31 December
2015
£m

31 December
2014
£m

1,057.8

397.1

(179.9)

233.8

(328.6)

1,180.2

863.0

392.9

(143.7)

280.7

(335.1)

1,057.8

*¹ Net claims paid in the year to 31 December 2015 includes salvage and subrogation recoveries of £28.4 million which have been reclassified to insurance and other receivables.

*² The increase in net claims reserve from £1,057.8 million at 31 December 2014 to £1,180.2 million at 31 December 2015 is partly as a result of the increase in the size of gross claims reserves but largely due

to the impact of commutations of reinsurance contracts in the UK Car Insurance business.

(vii) Reconciliation of movement in net unearned premium provision

Net unearned premium provision at start of period

Written in the period

Earned in the period

Net unearned premium provision at end of period

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

31 December
2015
£m

31 December
2014
£m

209.8

490.1

(463.8)

236.1

217.1

457.2

(464.5)

209.8

Notes to the financial statements continuedFor the year ended 31 December 20156. Investments
6a. Accounting policies
(i) Investment income and finance costs
Investment income from financial assets comprises distributions as well as net realised and unrealised gains on financial assets classified as ‘fair value through
profit or loss’, interest income and net realised gains from assets classified as ‘available for sale’, and interest income on holdings in term deposits and gilts.

Finance costs from financial liabilities comprise interest expense on subordinated notes, calculated on the effective interest rate method. The effective interest
rate method calculates the amortised cost of a financial asset or liability (or group of financial assets or financial liabilities) and allocates the interest income or
expense over the expected life of the asset or liability.

(ii) 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), Available for Sale (AFS) assets, loans
and receivables or held to maturity investments.

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 FVTPL at inception.

This designation is permitted under IAS 39, as the investments in money market funds are managed as a group of assets and internal performance evaluation
of this group is conducted on a fair value basis.

The Group’s holdings in Fixed Income and Asset Backed Securities are classified as available for sale (AFS) investments, which is consistent with the intention
for which they were purchased.

The Group’s deposits with credit institutions and gilts are classified as held to maturity investments, which is consistent with the intention for which they were purchased.

Transaction costs associated with the purchase of all financial assets are expensed within the income statement as incurred.

Subsequent measurement
Financial assets at FVTPL are stated at fair value, with any resultant realised or unrealised gain or loss recognised through the income statement.

AFS fixed income and asset backed securities are stated at fair value. Unrealised changes in the fair value of these assets are recognised in Other
Comprehensive Income (OCI). Interest income on debt securities is recognised within profit or loss using the effective interest rate method.

Deposits and gilts 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.

Loans and 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 held at fair value or amortised cost 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 cash flows arising from the asset.

Objective evidence of impairment may include default on cash flows due from the asset and reported financial difficulty of the issuer or counterparty.

Identified impairments of financial assets are recognised in the income statement, except in the case of assets classified as available for sale where unrealised
gains have been recognised through OCI. In this instance, impairments of the asset are first set against the unrealised gain in OCI with any excess being recognised
in the income statement.

De-recognition of financial assets
A financial asset is derecognised when the rights to receive cash flows 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.

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. All cash and cash equivalents are measured at amortised cost.

(iii) Financial liabilities
Initial recognition
The Group’s financial liabilities comprise subordinated notes and other financial liabilities initially recognised at fair value received, net of transaction costs incurred.

Subsequent measurement
Subsequent measurement is at amortised cost using the effective interest method. Movements in the amortised cost are recognised through the income statement.

De-recognition of financial liabilities
A financial liability is derecognised when the obligation under that liability is discharged, cancelled or expires.

(iv) Fair value measurement of assets held at amortised cost
The fair value of gilts and subordinated notes held at amortised cost is calculated with reference to quoted market valuations. See note 6d for a comparison of
fair value and carrying value at the statement of financial position date.

The Group’s deposits are held with well rated institutions; as such the approximate fair value is the book value of the investment as impairment of the capital
is not expected. The amortised cost carrying amount of receivables is a reasonable approximation of fair value.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION6. Investments continued
6b. Investment and interest income

Investment income
Investment return on assets classified as FVTPL
Interest income on available for sale debt securities
Interest income on term deposits with credit institutions
Interest income on held to maturity gilt assets*¹

Unwind of discount on gilts
Notional accrual for reinsurers’ share of investment return

Interest receivable on cash and cash equivalents*¹
Total investment and interest income

*¹ Interest received during the year was £7.4 million (2014: £1.5 million).

6c. Finance costs

Interest payable*¹
Total finance costs

*¹ Interest paid during the year was £11.0 million (2014: £nil).

Finance costs represent interest payable on the £200 million subordinated notes and other financial liabilities.

6d. Financial assets and liabilities
The Group’s financial instruments can be analysed as follows:

Investments held at fair value through profit or loss
Money market funds

Investments classified as available for sale
Available for sale debt securities

Investments classified as held to maturity
Term deposits with credit institutions
Gilts

Total financial investments
Insurance and other receivables
Insurance receivables
Trade and other receivables

Cash and cash equivalents
Total financial assets
Financial liabilities
Subordinated notes
Other borrowings
Trade and other payables
Total financial liabilities

31 December
2015
£m

31 December
2014
£m

2.2
19.2
4.7
6.1
32.2
(0.8)
—
31.4
1.2
32.6

5.4
9.4
5.2
2.6
22.6
(0.4)
(8.3)
13.9
1.5
15.4

31 December
2015
£m

31 December
2014
£m

11.1
11.1

4.6
4.6

31 December
2015
£m

31 December
2014
£m

627.7
627.7

1,230.0
1,230.0

267.6
198.2
465.8
2,323.5

437.0
100.1

265.3
3,125.9

203.9
20.0
1,015.0
1,238.9

909.2
909.2

822.7
822.7

263.1
199.1
462.2
2,194.1

353.3
82.0

255.9
2,885.3

203.8
—
965.8
1,169.6

Financial liabilities are inclusive of £200 million subordinated notes issued on 25 July 2014 at a fixed rate of 5.5% with a redemption date of 25 July 2024.

The notes are unsecured subordinated obligations of the Group and rank pari passu without any preference among themselves. In the event of a winding-up
or bankruptcy, they are to be repaid only after the claims of all other creditors have been met.

There have been no defaults on any of the notes during the year. The Group has the option to defer interest payments on the notes but to date has not
exercised this right. The aggregate fair value of subordinated dated notes at the balance sheet date is disclosed in the table on page 91.

The Group holds a revolving credit facility of £100 million which expires in July 2018. As at 31 December 2015, £20 million was drawn under this agreement
and is included as other borrowings in the table above.

90 ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2015

Notes to the financial statements continuedFor the year ended 31 December 20156. Investments continued
6d. Financial assets and liabilities continued
Fair value measurement
The measurement of investments at the end of the period, for investments held at fair value and short term debt securities held at fair value, is based
on active quoted market values (level one).

The measurement of available for sale debt securities at the end of the period is also based on active quoted market values (level one).

The deposits are held with well rated institutions; as such the approximate fair value is the book value of the investment as impairment of the capital
is not expected. There is no quoted market for these holdings and as such a level two valuation is used. The book value of term deposits is £267.6 million
(2014: £263.1 million).

The amortised cost carrying amount of receivables is a reasonable approximation of fair value. The fair values of gilts and subordinated notes (both level one
valuations) together with their carrying values shown in the Consolidated Statement of Financial Position are as follows:

Financial assets

Gilts

Financial liabilities

Subordinated notes

The maturity profile of financial assets and liabilities at 31 December 2015 is as follows:

31 December 2015

31 December 2014

Carrying
amount
£m

Fair
value
£m

Carrying
amount
£m

Fair
value
£m

198.2

211.7

199.1

216.2

203.9

202.4

203.8

211.2

Financial investments

Investments held at fair value

Term deposits with credit institutions

Available for sale debt securities

Gilts

Total financial investments

Insurance receivables

Trade and other receivables

Cash and cash equivalents

Total financial assets

Financial liabilities

Subordinated notes

Other borrowings

Trade and other payables

Total financial liabilities

The maturity profile of financial assets and liabilities at 31 December 2014 was as follows:

Financial investments

Investments held at fair value

Term deposits with credit institutions

Available for sale debt securities

Gilts

Total financial investments

Insurance receivables

Trade and other receivables

Cash and cash equivalents

Total financial assets

Financial liabilities

Subordinated notes

Trade and other payables

Total financial liabilities

On demand
£m

627.7

107.6

437.2

—

1,172.5

—

265.3

1,437.8

—

On demand
£m

605.4

—

605.4

—

255.9

861.3

—

< 1 year
£m

—

40.0

117.1

0.8

157.9

437.0

100.1

—

695.0

4.7

20.0

1,015.0

1,039.7

< 1 year
£m

303.8

48.6

161.3

0.9

514.6

353.3

82.0

—

949.9

4.6

965.8

970.4

Between
1 and 2 years
£m

—

50.0

201.1

—

251.1

—

> 2 years
£m

—

70.0

474.6

197.4

742.0

—

251.1

742.0

—

Between
1 and 2 years
£m

—

104.5

183.8

—

288.3

—

199.2

—

199.2

> 2 years
£m

—

110.0

477.6

198.2

785.8

—

288.3

785.8

—

199.2

—

199.2

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION6. Investments continued
6d. Financial assets and liabilities continued
Objectives, policies and procedures for managing financial assets and liabilities
The Group’s activities expose it primarily to financial risks of credit risk, interest rate risk, liquidity risk and foreign exchange risk. The Board of Directors has
delegated the task of supervising risk management and internal control to the Group Risk Committee. 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.

Credit risk
The Group defines credit risk as the risk of loss if another party fails to perform its obligations. The key areas of exposure to credit risk for the Group result
through its reinsurance programme, investments, bank deposits and 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, during 2015 and
historically, 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 and the parameters set
for managing the Fixed Income Mandates. Both forms of investment hold a wide range of very short duration, high quality securities. Cash balances and
deposits are placed only with highly rated credit institutions. The detailed holdings are reviewed regularly by the Investment Committee.

To mitigate the risk arising from exposure to reinsurers (in the form of reinsurance recoveries and profit commissions), the Group only conducts business with
companies of appropriate financial strength ratings. In addition, many reinsurance contracts are operated on a funds withheld basis, which substantially
reduces credit risk, as the Group withholds the cash received as collateral.

The other principal form of credit risk is in respect of amounts due from policyholders, largely due to the potential for default by instalment payers. 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 Group’s maximum exposure to credit risk at 31 December 2015 is £3,323.3 million (2014: £3,047.4 million), being the carrying value of financial investments
and cash, and the excess of reinsurance assets over amounts owed to reinsurers under funds withheld arrangements. 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 2015 and 2014
is insignificant.

There were no significant financial assets that were past due at the close of either 2015 or 2014.

The Group’s credit risk exposure to assets with external ratings is as follows:

Financial institutions – Credit institutions

UK Government gilts

Reinsurers

Rating

AAA

BBB and below

31 December
2015
£m

31 December
2014
£m

247.8

679.4

1,230.3

234.0

198.2

266.8

9.2

291.1

625.8

1,216.0

119.6

199.1

207.8

16.3

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.

As noted above, the Group invests the following asset types:

• Money market liquidity funds and cash plus liquidity funds, which in turn invest in a mixture of short dated fixed and variable rate securities, such as cash

deposits, certificates of deposits, floating rate notes and other commercial paper.

• Term deposits with well rated institutions are short in duration (one to five years). These are classified as term and valued at amortised cost. Therefore

neither the carrying value of the asset, nor the interest return will be impacted by fluctuations in interest rates.

• Available for sale debt securities. These securities are held within two segregated mandates. The guidelines of the investments retain a similar credit quality
of the money market funds (all holdings are investment grade). The duration of the securities is relatively short and similar to the duration of the on book
claims liabilities (the average duration is three years).

• UK Government gilts. These are classified as term and valued at amortised cost. Therefore neither the capital value of the gilts, nor the interest return, will be

impacted by fluctuations in interest rates.

The Group also holds a financial liability in the form of £200 million of subordinated notes with a ten year maturity and fixed rate coupon of 5.5%. This liability
is valued at amortised cost and therefore neither the carrying value of the deposits, nor the interest payable, will be impacted by fluctuations in interest rates.

No sensitivity analysis to interest rates has been presented on the grounds of materiality.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Notes to the financial statements continuedFor the year ended 31 December 20156. Investments continued
6d. Financial assets and liabilities continued
Objectives, policies and procedures for managing financial assets and liabilities continued
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 is strongly cash-generative due to the large proportion of revenue 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, meaning that a large proportion of the Group cash and
investments is immediately available.

A breakdown of the Group’s other financial liabilities, trade payables and other payables is shown in note 10.

The subordinated notes have a ten year maturity whereas all trade and other payables will mature within three to six months of the balance sheet date.
(Refer to the maturity profile at the start of this note for further detail.)

In practice, the Group’s Directors expect actual cash flows 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 £764.7 million (2014: £756.5 million), £554.3 million (2014: £585.7 million) is held under funds
withheld arrangements and therefore not expected to be settled within 12 months.

A maturity analysis for insurance contract liabilities is included in note 5. The maturity profile for financial assets is included at the start of this note.

The Group’s Directors believe that the cash flows arising from these assets will be consistent with this profile. Liquidity risk is not, therefore, considered
to be significant.

Foreign exchange risks
Foreign exchange risks arise from unfavourable movements in foreign exchange rates that could adversely impact the valuation of overseas assets and liabilities.

The Group is exposed to foreign exchange risk through its operations overseas. Although the relative size of the international operations means that the risks
are relatively small, increasingly volatile foreign exchange rates could 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.

The Group’s exposures to net assets held in euros and dollars at the balance sheet date were £9.0 million and £87.3 million respectively (2014: £2.2 million
and £72.0 million).

Fair value
For cash at bank and cash deposits and other receivables, the fair value approximates to the book value due to their short maturity. For assets held at fair
value through profit and loss, their value equates to level one (quoted prices in active markets) of the fair value hierarchy.

For gilts and subordinated notes, the fair value is calculated with reference to the quoted market valuation. This is compared to carrying value earlier in this note.

6e. Cash and cash equivalents

Cash at bank and in hand

Total cash and cash equivalents

31 December
2015
£m

31 December
2014
£m

265.3

255.9

Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term term deposits with original maturities of three months or less.

7. Other Revenue
7a. Accounting policy
(i) Contribution from additional products and fees and Other Revenue
Contribution from additional products and fees and Other Revenue includes revenue earned on the sale of products supplementing the core motor insurance
policy, administration and other charges paid by the policyholder, referral fees, revenue from policies paid by instalments and vehicle commission charges
paid by co- and reinsurers. Revenue 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 revenue is recognised immediately. An allowance is made for expected cancellations where the customer
may be entitled to a refund of amounts charged.

Commission from price comparison activities and broking commission earned by Gladiator is credited to revenue on the sale of the underlying insurance policy.

7b. Contribution from additional products and fees and Other Revenue

Contribution from additional products and fees

Price comparison revenue*¹

Other Revenue

Total Other Revenue

*¹ Price comparison revenue excludes £14.2 million (2014: £nil) of income from other Group companies.

Refer to the Strategic Report for further detail on the sources of revenue.

31 December
2015
£m

31 December
2014
£m

182.4

93.9

43.5

319.8

185.6

107.5

39.4

332.5

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION8. Expenses
8a. Accounting policies
(i) Acquisition costs and operating expenses
Acquisition costs incurred in obtaining new and renewal business are charged to the income statement over the period in which those premiums are earned.
All other operating expenses are charged to the income statement in the period that they are incurred.

(ii) Employee benefits
Pensions
The Group contributes to 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 and cash settled compensation schemes for its employees. The fair value of the employee services received in exchange
for the grant of free shares under the equity settled schemes is recognised as an expense, with a corresponding increase in equity. For cash settled schemes,
the fair value of services received are also recognised as an expense, with a corresponding increase in liability.

For equity settled schemes, 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.

For cash settled schemes, the total charge expensed over the vesting period is determined by reference to the closing Admiral Group share price at the end
of the period. Prior to the vesting of each scheme, the closing share price at the end of the reporting period is used as an approximation for the closing share
price at the end of the vesting period. As with equity settled schemes, non-market vesting conditions also impact on the total charge expensed over the
vesting period.

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 8f for further details on share schemes.

8b. Operating expenses and share scheme charges

Acquisition of insurance contracts*¹

Administration and other marketing costs (insurance contracts)

Insurance contract expenses

Administration and other marketing costs (other)

Share scheme charges

Total expenses and share scheme charges

*¹ Acquisition of insurance contracts expense excludes £14.2 million (2014: £nil) of aggregator fees from other Group companies.

Acquisition of insurance contracts

Administration and other marketing costs (insurance contracts)

Insurance contract expenses

Administration and other marketing costs (other)

Share scheme charges

Total expenses and share scheme charges

31 December 2015

Recoverable
from co- and
reinsurers
£m

(57.8)

(175.1)

(232.9)

—

(16.6)

(249.5)

31 December 2014

Recoverable
from co- and
reinsurers
£m

(56.7)

(162.0)

(218.7)

—

(12.9)

(231.6)

Gross
£m

77.5

238.5

316.0

188.2

43.8

548.0

Gross
£m

91.9

209.5

301.4

166.3

34.1

501.8

Net
£m

19.7

63.4

83.1

188.2

27.2

298.5

Net
£m

35.2

47.5

82.7

166.3

21.2

270.2

The £63.4 million (2014: £47.5 million) administration and marketing costs allocated to insurance contracts is principally made up of salary costs.

Analysis of other administration and other marketing costs:

Expenses relating to additional products and fees

Price comparison operating expenses

Other expenses

Total

Refer to note 12 for a reconciliation between insurance contract expenses and the reported expense ratio.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

31 December
2015
£m

31 December
2014
£m

43.0

123.6

21.6

188.2

37.9

110.3

18.1

166.3

Notes to the financial statements continuedFor the year ended 31 December 20158. Expenses continued
8c. Staff costs and other expenses

Salaries

Social security charges

Pension costs

Share scheme charges (see note 8f)

Total staff expenses

Depreciation charge:

– Owned assets

– Leased assets

Amortisation charge:

– Software

– Deferred acquisition costs

Operating lease rentals:

– Buildings

Auditor’s remuneration (including VAT):

– Fees payable for the audit of the Company’s annual accounts

– Fees payable for the audit of the Company’s subsidiary accounts*¹

– Fees payable for other services

Net foreign exchange (gains)/losses

Analysis of fees paid to the auditor for other services:

– Tax compliance services

– Tax advisory services

– Other services

Total as above

31 December 2015

31 December 2014

Total
£m

179.6

16.2

5.6

43.8

245.2

7.9

0.3

6.1

—

14.0

—

0.4

(0.8)

0.1

0.2

0.4

Net
£m

67.6

6.9

2.0

15.2

91.7

2.1

0.1

3.1

44.9

4.5

—

0.3

0.1

(0.8)

—

0.1

Total
£m

155.3

14.6

5.4

34.1

209.4

6.8

0.3

4.6

—

11.2

—

0.3

(1.4)

0.1

0.2

—

0.3

Net
£m

57.9

6.1

1.9

10.7

76.6

2.7

0.1

2.0

42.7

3.7

—

0.2

0.1

(1.4)

—

0.1

—

0.1

*¹ Fees payable for the audit of the Company’s subsidiary accounts have increased c. £0.1 million as a result of additional work relating to the new Guidewire IT system in the UK.

Total and net expenses are before and after co- and reinsurance arrangements respectively.

Refer to the Corporate Governance Report for details of the Audit Committee’s policy on fees paid to the Company’s auditor for non-audit services.
The ratio of non-audit fees to audit fees in 2015 was 88% (2014: 109%).

The amortisation of software and deferred acquisition cost assets is charged to expenses in the income statement.

8d. Staff numbers (including Directors)

Direct customer contact staff

Support staff

Total

8e. Directors’ remuneration
(i) Directors’ remuneration

Directors’ emoluments

Amounts receivable under long term incentive schemes

Company contributions to money purchase pension plans

Total

(ii) Number of Directors

Retirement benefits are accruing to the following number of Directors under:

– Money purchase schemes

– Defined benefit schemes

Average for the year

2015
Number

5,868

1,989

7,857

2014
Number

5,179

1,738

6,917

31 December
2015
£m

31 December
2014
£m

1.7

0.3

—

2.0

0.9

—

2.9

2015
Number

2014
Number

—

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

—

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION8. Expenses continued
8f. Staff share schemes
Analysis of share scheme costs (per the Consolidated Income Statement):

SIP charge (i)

DFSS charge (ii)

Total share scheme charges

31 December
2015
£m

31 December
2014
£m

8.7

18.5

27.2

8.6

12.6

21.2

The share scheme charges reported above are net of the co- and reinsurers share of the cost and therefore differ from the gross charge reported in note 8c
(2015: £43.8 million; 2014: £34.1 million) and the gross credit to reserves reported in the Consolidated Statement of Changes in Equity (2015: £29.5 million;
2014: £23.2 million).

The Consolidated Cash Flow Statement also shows the gross charge in the reconciliation between ‘profit after tax’ and ‘cash flows 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 qualified for awards under the SIP based upon the performance of the Group in each half-year period. The current maximum award for
each year is £3,600 per employee (2014: £3,000 per employee). 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 policy section of the Directors’ 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 2015 scheme is 3,017,900 (2014 scheme: 2,684,798).

The amount of 2014 award that actually vests is 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 three year period the award applies to. For the 2014 scheme, 50% of the
shares awarded at the start of the three year vesting period are subject to these performance conditions.

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.

For awards in 2015 and onwards there are now three performance conditions which the 50% not guaranteed to vest are subject to. These are three-year EPS
growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), and ROE, weighted equally.

Performance measure

EPS growth vs. LIBOR

TSR vs. FTSE 350 (excluding investment companies)

ROE

Performance range

Threshold

Maximum

Growth in line with LIBOR

Growth of 10% p.a. in excess of LIBOR

Median

25%

Upper Quartile

55%

Awards under the DFSS are not eligible for dividends (although a discretionary bonus is currently paid equivalent to the dividend that would have been paid
on the respective shareholding) 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 Directors’ Remuneration Report).

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Notes to the financial statements continuedFor the year ended 31 December 20158. Expenses continued
8f. Staff share schemes continued
(ii) The Discretionary Free Share Scheme (the DFSS) continued
Number of free share awards committed at 31 December 2015

SIP H212 scheme

SIP H113 scheme

SIP H213 scheme

SIP H114 scheme

SIP H214 scheme

SIP H115 scheme

DFSS 2013 scheme 1st award

DFSS 2013 scheme 2nd award

DFSS 2014 scheme 1st award

DFSS 2014 scheme 2nd award

DFSS 2015 scheme 1st award

DFSS 2015 scheme 2nd award

Total awards committed

Awards
outstanding*¹

533,792

603,432

514,500

575,016

536,512

636,603

173,348

2,175,317

203,292

2,481,506

190,275

2,827,625

11,451,218

Vesting
date

March 2016

September 2016

March 2017

September 2017

March 2018

August 2018

March 2016

October 2016

March 2017

September 2017

March 2018

September 2018

*¹ Being the maximum number of awards expected to be made before accounting for expected staff attrition.

During the year ended 31 December 2015, awards under the SIP H211 and H112 schemes and the DFSS 2012 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 2015

SIP H211 scheme

SIP H112 scheme

DFSS 2012 scheme 1st award

DFSS 2012 scheme 2nd award

Original awards

Awards vested

598,400

617,778

181,668

460,032

469,098

111,295

1,979,752

1,486,531

9. Taxation
9a. Accounting policy
Income tax on the profit or loss for the periods presented comprises current and deferred tax.

(i) 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 in other comprehensive income is also recognised in other comprehensive income and not in the income statement.

(ii) 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 have been enacted or substantially enacted
by the balance sheet date and that are expected to apply in the period when the liability is settled or the asset is realised.

The principal temporary differences arise from carried forward losses, depreciation of property and equipment and share scheme charges. 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.

Deferred tax assets relating to carried forward losses are recognised only to the extent that it is probable that future taxable profits will be available against which
the assets can be utilised. The probability of the availability of future taxable profits is determined by a combination of the classification of the status of the
businesses holding cumulative tax losses and the business plan profit projections for that business, subject to appropriate stress testing.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION9. Taxation continued
9b. Taxation

Current tax

Corporation tax on profits for the year

(Over) provision relating to prior periods

Current tax charge

Deferred tax

Current period deferred taxation movement

(Over) provision relating to prior periods

Total tax charge per Consolidated Income Statement

Factors affecting the total tax charge are:

Profit before tax

Corporation tax thereon at effective UK corporation tax rate of 20.25% (2014: 21.50%)

Expenses and provisions not deductible for tax purposes

Non-taxable income

Impact of change in UK tax rate on deferred tax balances

Adjustments relating to prior periods

Impact of different overseas tax rates

Unrecognised deferred tax

Other differences

Total tax charge for the period as above

9c. Deferred income tax asset
Analysis of deferred tax asset

Balance brought forward at 1 January 2014

Tax treatment of share scheme charges through income or expense

Tax treatment of share scheme charges through reserves

Capital allowances

Carried forward losses

Other difference

Balance carried forward at 31 December 2014

Tax treatment of share scheme charges through income or expense

Tax treatment of share scheme charges through reserves

Capital allowances

Carried forward losses

Other difference

Balance carried forward at 31 December 2015

Tax treatment
of share
schemes
£m

Capital
allowances
£m

Carried
forward losses
£m

(4.1)

2.4

(3.1)

—

(4.8)

2.4

(4.7)

—

(7.1)

(3.3)

—

(1.3)

—

(4.6)

—

1.9

—

(7.8)

—

(5.6)

—

(13.4)

—

3.5

—

(2.7)

(9.9)

31 December
2015
£m

31 December
2014
£m

70.9

(1.0)

69.9

7.5

(0.5)

76.9

31 December
2015
£m

368.7

74.7

1.4

(4.8)

0.3

(1.5)

(12.9)

19.7

—

76.9

Other
differences
£m

(1.8)

—

1.7

72.2

(0.4)

71.8

(1.8)

(0.9)

69.1

31 December
2014
£m

350.7

75.4

1.3

(2.2)

—

(1.3)

(11.2)

7.1

—

69.1

Total
£m

(17.0)

2.4

(3.1)

(1.3)

(5.6)

1.7

(0.1)

(22.9)

—

(0.8)

(0.9)

2.4

(4.7)

1.9

3.5

(0.8)

(20.6)

The UK corporation tax rate reduced from 21% to 20% on 1 April 2015. The average effective rate of tax for 2015 is 20.25% (2014: 21.50%). Further reductions
to the main rate of corporation tax to 19% (effective from 1 April 2017) and 18% (effective from 1 April 2020) were substantively enacted on 26 October 2015.
This will reduce the Group’s future current tax charge accordingly.

The deferred tax asset at 31 December 2015 has been calculated based on the rate at which each timing difference is most likely to reverse.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Notes to the financial statements continuedFor the year ended 31 December 20159. Taxation continued
9c. Deferred income tax asset continued
Analysis of deferred tax asset continued
The deferred tax asset relating to carried forward losses of £9.9 million (2014: £13.4 million) relates to losses incurred in the Group’s US price comparison
business compare.com, and is calculated at the local US rate of tax (35%).

Elephant Auto (asset recognised: £nil; unprovided asset: £20.7 million) – the asset is not expected to be recovered over the next seven years. Whilst profits
are expected to be available after 2022, the Group considers these longer term forecasts to be more uncertain and has therefore not recognised an asset
that would only be supported by profits beyond the seven year period.

compare.com (asset recognised: £9.9 million; unprovided asset: £10.6 million) – the asset is expected to be fully recovered over the next five years. The recognised
asset has been limited to the amount supported by forecast cash flows over the next five years. The forecasts and underlying assumptions have been reviewed
and approved by the Board. In addition, the forecasts have been stressed for both revenue and profit reductions and the asset remains recoverable under the
stressed scenarios. The Group considers full recovery of this asset to be probable.

At 31 December 2015 the Group had unused tax losses amounting to £89.6 million (2014: £33.3 million) relating to these businesses, for which no deferred tax
asset has been recognised.

10. Other assets and other liabilities
10a. Accounting policy
(i) Property and equipment, and depreciation
All property 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:

Improvements to short leasehold buildings – four to ten years

Computer equipment

Office equipment

Furniture and fittings

Motor vehicles

– two to four years

– four years

(ii) Impairment of property and equipment
In the case of property 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 fair value
of the asset, less costs to sell and the asset’s value in use. Impairment losses are recognised through the income statement.

(iii) 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 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.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION10. Other assets and other liabilities continued
10a. Accounting policy continued
(iv) Intangible assets
Goodwill
All business combinations are accounted for using the acquisition 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 (CGUs) according to business segment
and is reviewed annually for impairment.

The goodwill held on the balance sheet at 31 December 2015 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 CGUs) 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 fair value of the asset less costs to sell 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 cash flow projections in the value in use calculations is 5.9%
(2014: 6.8%), based on the Group’s weighted average cost of capital, which is in line with the market (source: Bloomberg).

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.

The headroom above the goodwill carrying value is very significant, and there is no foreseeable event that would eliminate this margin.

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 correspond 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 the licence term). Internally generated software
is recognised as an intangible asset, with directly attributable costs incurred in the development stage capitalised. The internally generated software assets are
amortised over the expected useful life of the systems and amortisation commences when the software is available for use.

The carrying value of software 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.

(iv) Provisions, Contingent Liabilities and Contingent Assets
Provisions are recognised when a legal or constructive obligation arises as a result of an event that occurred before the balance sheet date, when a
cash-outflow relating to this obligation is probable and when the amount can be estimated reliably.

Where an obligation exists, but the likelihood of a cash out flow or the amount is uncertain, or where there is a possible obligation arising from a past event
that is contingent on a future event, a contingent liability is disclosed.

Contingent assets are possible assets that arise from past events, whose existence will be confirmed only by the occurrence or non-occurrence of future
events. Where it is probable that a cash inflow will arise from a contingent asset, this is disclosed.

100 ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2015

Notes to the financial statements continuedFor the year ended 31 December 201510. Other assets and other liabilities continued
10b. Property and equipment

Cost
At 1 January 2014
Additions
Disposals
At 31 December 2014
Depreciation
At 1 January 2014
Charge for the year
Disposals
At 31 December 2014
Net book amount
At 1 January 2014
Net book amount
At 31 December 2014
Cost
At 1 January 2015
Additions
Disposals
At 31 December 2015
Depreciation
At 1 January 2015
Charge for the year
Disposals
At 31 December 2015
Net book amount
At 31 December 2015

Improvements
to short
leasehold
buildings
£m

Computer
equipment
£m

Office
equipment
£m

Furniture
and fittings
£m

8.5
16.9
(0.5)
24.9

6.3
1.7
(0.4)
7.6

2.2

17.3

24.9
0.8
—
25.7

7.6
2.4
—
10.0

15.7

32.8
6.8
(0.1)
39.5

26.1
3.6
—
29.7

6.7

9.8

39.5
8.8
(0.5)
47.8

29.7
3.8
(0.1)
33.4

14.4

13.0
1.0
—
14.0

10.4
1.2
—
11.6

2.6

2.4

14.0
1.2
—
15.2

11.6
1.0
—
12.6

2.6

5.3
2.5
—
7.8

4.4
0.6
—
5.0

0.9

2.8

7.8
0.4
—
8.2

5.0
1.0
—
6.0

2.2

Total
£m

59.6
27.2
(0.6)
86.2

47.2
7.1
(0.4)
53.9

12.4

32.3

86.2
11.2
(0.5)
96.9

53.9
8.2
(0.1)
62.0

34.9

The net book value of assets held under finance leases is as follows:

Computer equipment

31 December
2015
£m

3.6

31 December
2014
£m

2.5

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

101

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION10. Other assets and other liabilities continued
10c. Intangible assets

At 1 January 2014
Additions
Amortisation charge
Disposals
At 31 December 2014
Additions
Amortisation charge
Disposals
At 31 December 2015

Goodwill
£m

62.3
—
—
—
62.3
—
—
—
62.3

Deferred
acquisition
costs
£m

19.2
38.3
(42.7)
—
14.8
46.7
(44.9)
—
16.6

Software
£m

11.3
23.4
(4.6)
—
30.1
39.5
(6.1)
(0.1)
63.4

Total
£m

92.8
61.7
(47.3)
—
107.2
86.2
(51.0)
(0.1)
142.3

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. Refer to the accounting policy for goodwill for further information.

31 December
2015
£m

31 December
2014
£m

437.0

92.1

8.0

537.1

353.3

78.4

3.6

435.3

31 December
2015
£m

31 December
2014
£m

35.1

764.7

2.8

28.3

88.5

95.6

1,015.0

24.6

756.5

1.4

20.9

82.2

80.2

965.8

31 December
2015
£m

31 December
2014
£m

53.1

24.4

18.1

95.6

50.9

11.1

18.2

80.2

10d. Insurance and other receivables

Insurance receivables*¹

Trade receivables

Prepayments and accrued income

Total insurance and other receivables

*¹ Insurance receivables at 31 December 2015 includes £28.4 million in respect of salvage and subrogation recoveries.

10e. Trade and other payables

Trade payables

Amounts owed to co-insurers and reinsurers

Finance leases due within 12 months

Other taxation and social security liabilities

Other payables

Accruals and deferred income (see below)

Total trade and other payables

Of amounts owed to co-insurers and reinsurers, £554.3 million (2014: £585.7 million) is held under funds withheld arrangements.

Analysis of accruals and deferred income:

Premium receivable in advance of policy inception

Accrued expenses

Deferred income

Total accruals and deferred income as above

102 ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2015

Notes to the financial statements continuedFor the year ended 31 December 201510. Other assets and other liabilities continued
10f. Obligations under finance leases
Analysis of finance lease liabilities:

Less than one year

Between one and five years

More than five years

At 31 December 2015

At 31 December 2014

Minimum
lease
payments
£m

2.8

—

2.8

Interest
£m

Principal
£m

—

2.8

—

2.8

Minimum
lease
payments
£m

1.4

—

1.4

Interest
£m

Principal
£m

—

1.4

—

1.4

The fair value of the Group’s lease obligations approximates to their carrying amount.

10g. Financial commitments
The Group was committed to total minimum obligations under operating leases on land and buildings as follows:

Minimum payments due on operating leases

Within one year

Within two to five years

Over five years

Total commitments

Operating lease payments represent rentals payable by the Group for its office properties.

11. Share capital
11a. Accounting policies
(i) Share capital
Shares are classified as equity when there is no obligation to transfer cash or other assets.

(ii) Dividends
Dividends are recorded in the period in which they are declared and paid.

11b. Dividends
Dividends were declared and paid as follows:

March 2014 (50.6 pence per share, paid May 2014)

August 2014 (49.4 pence per share, paid October 2014)

March 2015 (49.0 pence per share, paid May 2015)

August 2015 (51.0 pence per share, paid October 2015)

Total dividends

31 December
2015
£m

31 December
2014
£m

10.4

37.0

125.1

172.5

8.5

36.9

115.5

160.9

31 December
2015
£m

31 December
2014
£m

—

134.4

140.2

274.6

138.3

135.2

—

273.5

The dividends declared in March represent the final dividends paid in respect of the 2013 and 2014 financial years. The dividends declared in August
are interim distributions in respect of 2014 and 2015.

A final dividend of 63.4 pence per share (£175 million) has been proposed in respect of the 2015 financial year. Refer to the Chairman’s Statement
and Strategic Report for further detail.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

103

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION11. Share capital continued
11c. Earnings per share

Profit for the financial year after taxation attributable to equity shareholders

Weighted average number of shares – basic

Unadjusted earnings per share – basic

Weighted average number of shares – diluted

Unadjusted earnings per share – diluted

31 December
2015
£m

300.0

31 December
2014
£m

285.2

279,627,738

276,885,828

107.3p

103.0p

280,018,741

277,334,765

107.1p

102.8p

The difference between the basic and diluted number of shares at the end of 2015 (being 391,003; 2014: 448,937) relates to awards committed, but not yet
issued under the Group’s share schemes. Refer to note 8 for further detail.

11d. Share capital

Authorised

500,000,000 ordinary shares of 0.1 pence

Issued, called up and fully paid

281,587,953 ordinary shares of 0.1 pence

278,689,742 ordinary shares of 0.1 pence

31 December
2015
£m

31 December
2014
£m

0.5

0.3

—

0.3

0.5

—

0.3

During 2015 2,898,211 (2014: 2,548,310) new ordinary shares of 0.1 pence were issued to the trusts administering the Group’s share schemes.

948,211 (2014: 748,310) of these were issued to the Admiral Group Share Incentive Plan Trust for the purposes of this share scheme to give a closing number
at 31 December 2015 of 8,180,605 (31 December 2014: 7,232,394). These shares are entitled to receive dividends.

1,950,000 (2014: 1,800,000) were issued to the Admiral Group Employee Benefit Trust for the purposes of the Discretionary Free Share Scheme to give
a closing number at 31 December 2015 of 14,811,948 (31 December 2014: 12,861,948). The Trustees have waived the right to dividend payments, other than
to the extent of 0.001 pence per share, unless and to the extent otherwise directed by the Company from time to time.

The number of shares in issue at flotation was 258,595,400.

11e. Objectives, policies and procedures for managing capital
The Group manages its capital to ensure that all entities within the Group are able to continue as going concerns and also to ensure that regulated entities
meet regulatory requirements with an appropriate margin. Excess capital above these levels within subsidiaries is paid up to the Group holding company
in the form of dividends on a regular basis.

The Group’s dividend policy is to make distributions after taking into account capital that is required to be held a) for regulatory purposes; b) to fund
expansion activities; and c) as a further buffer against unforeseen events. This policy gives the Directors flexibility in managing the Group’s capital.

The Group’s regulatory capital requirements are discussed in the Group Financial Review within the Strategic Report.

104 ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2015

Notes to the financial statements continuedFor the year ended 31 December 201511. Share capital continued
11f. Group subsidiary companies
The Parent Company’s subsidiaries are as follows:

Subsidiary

Able Insurance Services Limited

Admiral Insurance (Gibraltar) Limited

Admiral Insurance Company Limited

Admiral Law Limited

Admiral Life Limited

Admiral Syndicate Limited

Admiral Syndicate Management Limited

BDE Law Limited

Bell Direct Limited

Country of
incorporation

England and Wales

Gibraltar

England and Wales

comparenow.com Insurance Agency LLC

United States of America

Comparaseguros Correduría de Seguros, S.L.,
Sociedad Unipersonal

Spain

Confused.com Limited

Diamond Motor Insurance Services Limited

Elephant Insurance Company

Elephant Insurance Services Limited

Elephant Insurance Services LLC

EUI (France) Limited

EUI Limited

England and Wales

United States of America

England and Wales

United States of America

England and Wales

Inspop Technologies Private Limited

India

Inspop USA LLC

Inspop.com (France) Limited

Inspop.com Limited

Preminen Price Comparison Holdings Limited

Rastreator.com Limited

United States of America

England and Wales

Class of
shares held

Ordinary

%
Ownership

100

71.10
(indirect)

75
(indirect)

100

71.10

100

Principal
activity

Insurance Intermediary

Insurance Company

Legal Company

Dormant

Non Trading

Dormant

Legal Company

Dormant

Insurance Intermediary

Dormant

Insurance Company

Dormant

Insurance Intermediary

Internet technology supplier

Insurance Intermediary

For further information on how the Group conducts its business across the UK, Europe and the US, refer to the Strategic Report.

11g. Related party transactions
Details relating to the remuneration and shareholdings of key management personnel are set out in the Directors’ 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 Executive Directors of Admiral Group plc are key management personnel. Aggregate compensation for the Executive
Directors is disclosed in the Directors’ Remuneration Report on pages 59 to 68.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

105

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION12. Reconciliations
The following tables reconcile significant key performance indicators and non-GAAP measures included in the Strategic Report to items included in the
financial statements.

12a. Reconciliation of turnover to reported total premiums written and Other Revenue as per the financial statements

Total premiums written before co-insurance arrangements per note 5b of financial statements

Other Revenue per note 7b of financial statements

UK vehicle commission*¹

Other*²

Turnover as per note 4b of financial statements

Intra-group income elimination*³

Total turnover

31 December
2015
£m

31 December
2014
£m

1,805.2

319.8

2,125.0

(31.8)

11.4

2,104.6

14.2

2,118.8

1,675.6

332.5

2,008.1

(50.8)

13.7

1,971.0

—

1,971.0

*¹ During 2012 Admiral ceased earning Other Revenue from the sale of non-optional legal protection policies. At the same point, the Group began charging its panel of co- and reinsurers a vehicle

commission. The substance of these changes meant that the total premiums written increased by the amount of revenue that was previously earned from the sale of non-optional legal protection
policies. The vehicle commission included within Other Revenue is therefore eliminated from the turnover measure to avoid double counting.

*² Other reconciling items represent co-insurer and reinsurer shares of Other Revenue in the Group’s International Car Insurance businesses.

*³ Intra-group income elimination relates to price comparison income earned in the Group from other Group companies. This income was not eliminated in 2014 on the grounds of materiality.

12b. Reconciliation of claims incurred to reported Group loss ratio, excluding releases on commuted reinsurance

Net insurance claims

Net claims handling expenses

Reinsurer cap impact

Reserve releases on commuted reinsurance

Other adjustment*¹

Adjusted net claims

Net insurance premium revenue

Other adjustment*¹

Adjusted net insurance premium revenue

Reported loss ratio

31 December 2015

31 December 2014

UK Car
£m

150.5

(9.4)

—

88.8

—

229.9

358.6

—

358.6

64.1%

Group
£m

226.5

(9.4)

(2.9)

88.8

(0.6)

302.4

467.0

(2.2)

464.8

65.1%

UK Car
£m

188.9

(8.9)

—

70.6

—

250.6

365.1

—

365.1

68.6%

Group
£m

259.1

(8.9)

(5.8)

70.6

—

315.0

464.9

—

464.9

67.8%

*¹ Other adjustments relate to additional products underwritten in the Group’s international car insurance businesses. The contribution from these products is reported as ancillary income and as such
the amounts are excluded for the purpose of calculation of loss and expense ratios. No equivalent adjustments have been made to prior period ratios as the equivalent adjustments are insignificant.

106 ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2015

Notes to the financial statements continuedFor the year ended 31 December 201512. Reconciliations continued
12c. Reconciliation of expenses related to insurance contracts to reported Group expense ratio

Net insurance expenses

Net claims handling expenses

Reinsurer cap impact

Intra-group expenses elimination*¹

Other adjustment*²

Adjusted net expenses

Net insurance premium revenue

Other adjustment*¹

Adjusted net insurance premium revenue

Reported expense ratio

31 December 2015

31 December 2014

UK Car
£m

41.5

9.4

—

9.5

—

60.4

358.6

—

358.6

16.9%

Group
£m

83.1

9.4

(9.8)

14.2

(1.6)

95.3

467.0

(2.2)

464.8

20.5%

UK Car
£m

43.5

8.9

—

52.4

365.1

—

365.1

14.4%

Group
£m

82.7

8.9

(4.7)

—

86.9

464.9

—

464.9

18.7%

*¹ The intra-group expenses elimination amount relates to aggregator fees charged by the Group’s price comparison entities to other Group companies. These expenses were not eliminated in 2014 on the

grounds of materiality.

*² Other adjustments relate to additional products underwritten in the Group’s international car insurance businesses. The contribution from these products is reported as ancillary income and as such
the amounts are excluded for the purpose of calculation of loss and expense ratios. No equivalent adjustments have been made to prior period ratios as the equivalent adjustments are insignificant.

12d. Reconciliation of reported profit before tax to adjusted profit before tax

Reported profit before tax per the Consolidated Income Statement

Minority interest share of profit before tax

Adjusted profit before tax

31 December
2015
£m

31 December
2014
£m

368.7

8.1

376.8

350.7

5.8

356.5

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

107

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONParent Company financial statements
Parent Company income statement

Administrative expenses

Operating loss

Investment and interest income

Interest payable

Profit before tax

Taxation expense

Profit after tax

Parent Company Statement of Comprehensive Income

Profit for the period

Other comprehensive income

Items that are or may be reclassified to profit or loss

Other comprehensive income for the period, net of income tax

Total comprehensive income for the period

Year ended

31 December
2015
£m

31 December
2014
£m

(4.8)

305.9

(11.1)

290.0

2.2

292.2

(5.3)

290.6

(4.6)

280.7

2.0

282.7

Year ended

31 December
2015
£m

292.2

31 December
2014
£m

282.7

—

292.2

282.7

108 ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2015

Parent Company statement of financial position

ASSETS

Shares in Group undertakings

Intangible assets

Financial investments

Trade and other receivables

Cash and cash equivalents

Total assets

EQUITY

Share capital

Share premium account

Retained earnings

Total equity

LIABILITIES

Subordinated and other financial liabilities

Trade and other payables

Total liabilities

Total equity and total liabilities

The accompanying notes form part of these financial statements.

These financial statements were approved by the Board of Directors on 2 March 2016 and were signed on its behalf by:

Geraint Jones
Chief Financial Officer
Admiral Group plc

Company Number: 03849958

As at

31 December
2015
£m

31 December
2014
£m

Note

293.5

1.2

234.4

2.0

5.9

537.0

0.3

13.1

255.9

269.3

223.9

43.8

267.7

537.0

243.1

0.7

203.2

2.9

50.0

499.9

0.3

13.1

209.1

222.5

203.8

73.6

277.4

499.9

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

109

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONParent Company financial statements continued
Parent Company statement of changes in equity

At 1 January 2014

Profit for the period

Other comprehensive income

Total comprehensive income for the period

Transactions with equity holders

Dividends

Issues of share capital

Share scheme charges

Total transactions with equity holders

As at 31 December 2014

At 1 January 2015

Profit for the period

Other comprehensive income

Total comprehensive income for the period

Transactions with equity holders

Dividends

Issues of share capital

Share scheme charges

Total transactions with equity holders

As at 31 December 2015

Share
capital
£m

0.3

Share
premium
account
£m

13.1

—

0.3

—

13.1

—

0.3

13.1

Retained
profit
and loss
£m

176.7

282.7

—

282.7

Total
equity
£m

190.1

282.7

—

282.7

(273.5)

—

23.2

—

23.2

(250.3)

209.1

292.2

—

292.2

222.5

292.2

—

292.2

(274.6)

—

29.2

(245.4)

255.9

—

29.2

(245.4)

269.3

110 ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2015

Notes to the Parent Company financial statements
For the year ended 31 December 2015

1. Accounting policies
1.1 Basis of preparation
These financial statements were prepared in accordance with Financial Reporting
Standard 101 Reduced Disclosure Framework (FRS 101). The Company has
transitioned to FRS 101 from previously extant UK Generally Accepted
Accounting Practice for all periods presented. The amendments to FRS 101
(2013/14 Cycle) issued in July 2014 and effective immediately have been
applied. The financial statements are prepared on the historical cost basis
except for the revaluation of financial assets classified as fair value through
the profit or loss.

In preparing these financial statements, the Company applies the recognition,
measurement and disclosure requirements of International Financial Reporting
Standards as adopted by the EU (“Adopted IFRSs”), but makes amendments
where necessary in order to comply with Companies Act 2006 and has set out
below where advantage of the FRS 101 disclosure exemptions has been taken.

1.2 First time application of FRS 100 and FRS 101
In the transition to FRS 101, the Company has applied IFRS 1 whilst ensuring
that its assets and liabilities are measured in compliance with FRS 101. No
transition notes have been prepared for the opening statement of financial
position at 31 December 2013 as there have been no effects of transition
to FRS 101.

This change in the basis of preparation has not materially altered the recognition
and measurement requirements previously applied in accordance with UK
GAAP. Consequently the principal accounting policies are unchanged from
the prior year. The change in basis of preparation has enabled the Company
to take advantage of some of the available disclosure exemptions permitted
by FRS 101 in the financial statements, the most significant of which are
summarised below. There have been no other material amendments to the
disclosure requirements previously applied in accordance with UK GAAP.

The Company has taken advantage of the following disclosure exemptions
under FRS 101:

• FRS 101.8 (d): the requirement of IFRS 7 Financial Instruments: Disclosure

to make disclosures about financial instruments.

• FRS 101.8 (f): the requirement in paragraph 38 of IAS 1 Presentation of
Financial Statements to present comparative information in respect of:

• paragraph 118(3) of IAS 38 Intangible Assets.

• FRS 101.8 (g): the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C,
38D, 40A, 40B, 40C, 40D and 111 of IAS 1 Presentation of Financial Statements
to produce a cash flow statement, a third balance sheet and to make an
explicit and unreserved statement of compliance with IFRSs.

• FRS 101.8 (h): the requirements of IAS 7 Statements of Cash Flows to produce

a cash flow statement.

• FRS 101.8 (i): the requirements of paragraphs 30 and 31 of IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors to include a list of
new IFRSs that have been issued but that have yet to be applied.

• FRS 101.8 (k): the requirements in IAS 24 Related Party Disclosures to
disclose related party transactions entered into between two or more
members of a group, provided that any subsidiary which is a party to
transaction is wholly owned by such a member.

The accounting policies set out below have, unless otherwise stated, been
applied consistently to all periods presented in these financial statements.

1.3 Going concern
The financial statements 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 Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the foreseeable
future. Thus they continue to adopt the going concern basis in preparing
the annual financial statements.

1.4 Shares in Group Undertakings
Shares in Group undertakings are valued at cost less any provision for
impairment in value.

1.5 Employee share schemes
The Company operates a number of share schemes for its employees.
For equity settled 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 increase in equity
in the Company.

1.6 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.

1.7 Financial assets and liabilities
All investments held at fair value at the end of the period are invested
in AAA-rated money market liquidity funds. The measurement of these
investments is based on active quoted market values (level 1).

Investments classified as held to maturity are comprised of UK government
gilts, and are held in the Statement of Financial Position at amortised cost.

Cash and cash equivalents include cash in hand and deposits held at call
with banks. All cash and cash equivalents are measured at amortised cost.

The Company’s financial liabilities comprise subordinated notes which are
held at amortised cost using the effective interest method and a credit
facility held at amortised cost.

2. Shares in Group undertakings

Investments in subsidiary undertakings:

At 1 January 2014

Additions

At 31 December 2014

Additions

At 31 December 2015

£m

212.6

30.5

243.1

50.4

293.5

A full list of the Company’s subsidiaries is disclosed in note 11 of the
consolidated financial statements.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

111

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNotes to the Parent Company financial statements continued
For the year ended 31 December 2015

3. Financial assets and liabilities
The Company’s financial instruments can be analysed as follows:

Investments held at fair value through profit or loss

Money market funds

Investments classified as held to maturity

Term deposits with credit institutions

Gilts

Total financial investments

Trade and other receivables

Cash and cash equivalents

Total financial assets

Financial liabilities

Subordinated notes

Other borrowings

Trade and other payables

Total financial liabilities

31 December
2015
£m

31 December
2014
£m

16.1

20.1

198.2

218.3

234.4

2.0

5.9

242.3

203.9

20.0

43.8

267.7

4.1

—

199.1

203.2

2.9

50.0

256.1

203.8

—

73.6

277.4

31 December 2015

31 December 2014

Carrying
amount
£m

Fair
value
£m

Carrying
amount
£m

Fair
value
£m

198.2

211.7

199.1

216.2

203.9

202.4

203.8

211.2

31 December
2015
£m

31 December
2014
£m

—

2.0

—

2.0

0.1

1.3

1.5

2.9

31 December
2015
£m

31 December
2014
£m

2.1

41.7

43.8

1.4

72.2

73.6

Financial assets

Gilts

Financial liabilities

Subordinated notes

4. Trade and other receivables

Trade and other receivables

Corporation tax recoverable

Amounts owed by subsidiary undertakings

Total trade and other receivables

5. Trade and other payables

Trade and other payables

Amounts owed to subsidiary undertakings

Total trade and other payables

112

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

6. Share capital

Authorised

500,000,000 ordinary shares of 0.1 pence

Issued, called up and fully paid

281,587,953 ordinary shares of 0.1 pence

278,689,742 ordinary shares of 0.1 pence

Dividends were declared and paid as follows:

March 2014 (50.6 pence per share, paid May 2014)

August 2014 (49.4 pence per share, paid October 2014)

March 2015 (49.0 pence per share, paid May 2015)

August 2015 (51.0 pence per share, paid October 2015)

Total dividends

31 December
2015
£m

31 December
2014
£m

0.5

0.3

—

0.3

0.5

—

0.3

31 December
2015
£m

31 December
2014
£m

—

134.4

140.2

274.6

138.3

135.2

—

273.5

The dividends declared in March represent the final dividends paid in respect of the 2013 and 2014 financial years. The dividends declared in August are
interim distributions in respect of 2014 and 2015.

A final dividend of 63.4 pence per share (£175 million) has been proposed in respect of the 2015 financial year. Refer to the Chairman’s Statement and
Strategic Report for further detail.

7. Continued application of Financial Reporting Standard (FRS) 101 – Reduced Disclosure Framework
Following the first time application of FRS 101 Reduced Disclosure Framework in 2015, the Board considers that it is in the best interests of the Group for
Admiral Group plc to continue to apply the FRS 101 Reduced Disclosure Framework in future periods. A shareholder or shareholders holding in aggregate 5%
or more of the total allotted shares in Admiral Group plc may serve objections to the use of the disclosure exemptions on Admiral Group plc, in writing, to its
registered office (T^y Admiral, David Street, Cardiff, CF10 2EH) not later than 30 June 2016.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

113

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONConsolidated financial summary

Basis of preparation
The figures below are as stated in the Group financial statements preceding this financial summary and issued previously. Only selected lines from the income
statement and balance sheet have been included.

2015
£m

1,805.2

467.0

319.8

85.4

32.6

904.8

(226.5)

(298.5)

379.8

(11.1)

368.7

2015
£m

34.9

142.3

20.6

878.7

537.1

2,323.5

265.3

4,202.4

632.9

2,295.0

223.9

1,015.0

35.6

4,202.4

2014
£m

1,675.6

464.9

332.5

71.8

15.4

884.6

(259.1)

(270.2)

355.3

(4.6)

350.7

2014
£m

32.3

107.2

22.9

829.8

435.3

2,194.1

255.9

3,877.5

580.9

2,097.4

203.8

965.8

29.6

3,877.5

2013
£m

1,737.6

483.0

327.8

99.3

14.3

924.4

(303.0)

(251.2)

370.2

—

370.2

2013
£m

12.4

92.8

17.0

821.2

445.6

1,896.9

187.9

3,473.8

524.1

1,901.3

—

1,013.7

34.7

3,473.8

2012
£m

1,897.2

498.9

361.1

108.4

15.9

984.3

(404.5)

(235.2)

344.6

—

344.6

2012
£m

16.5

92.5

15.2

803.0

458.8

1,601.6

216.6

3,204.2

460.7

1,696.9

—

1,006.5

40.1

3,204.2

2011
£m

1,841.3

445.8

349.0

61.8

13.7

870.3

(363.8)

(207.4)

299.1

—

299.1

2011
£m

17.6

87.5

10.3

639.8

476.0

1,159.1

224.6

2,614.9

394.4

1,333.7

—

856.6

30.2

2,614.9

Income statement

Total premiums

Net insurance premium revenue

Other Revenue

Profit commission

Investment and interest income

Net revenue

Net insurance claims

Net expenses

Operating profit

Finance costs

Profit before tax

Balance sheet

Property and equipment

Intangible assets

Deferred income tax

Reinsurance assets

Insurance and other receivables

Financial investments

Cash and cash equivalents

Total assets

Equity

Insurance contracts

Subordinated and other financial liabilities

Trade and other payables

Current tax liabilities

Total equity and total liabilities

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ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Glossary

Accident year

Actuarial best estimate

Claims reserves

Co-insurance

Combined ratio

Commutation

Expense ratio

The year in which an accident occurs, also referred to as the earned basis.

The probability-weighted average of all future claims and cost scenarios calculated using historical data,
actuarial methods and judgement.

A monetary amount set aside for the future payment of incurred claims that have not yet been settled,
thus representing a balance sheet liability.

An arrangement in which two or more insurance companies agree to underwrite insurance business
on a specified portfolio in specified proportions. Each co-insurer is directly liable to the policyholder
for their proportional share.

The sum of the loss ratio and the expense ratio.

An agreement between a ceding insurer and the reinsurer that provides for the valuation, payment,
and complete discharge of all obligations between the parties under a particular reinsurance contract.

The ratio can be calculated on an earned or written basis. Expressed as a percentage, of (i) net operating
expenses, either divided by (ii) written or earned premiums, net of reinsurance.

Insurance market cycle

The tendency for the insurance market to swing between highs and lows of profitability over time,
with the potential to influence premium rates (also known as the ‘underwriting cycle’).

Loss ratio

Net claims

The loss ratio can be calculated on an accident year or underwriting year basis, and is expressed
as a percentage of (i) claims incurred, divided by (ii) net premiums.

The cost of claims incurred in the period, less any claims costs recovered under reinsurance contracts.
It includes both claims payments and movements in claims reserves.

Net insurance premium revenue

Also referred to as net earned premium. The element of premium, less reinsurance premium, earned
in the period.

Premium

Profit commission

Reinsurance

A series of payments are made by the policyholder, typically monthly or annually, for part of or all of the
duration of the contract. Written premium refers to the total amount the policyholder has contracted for,
whereas earned premium refers to the recognition of this premium over the life of the contract.

A provision found in some reinsurance and co-insurance agreements that provides for profit sharing.

Contractual arrangements whereby the Group transfers part or all of the insurance risk accepted to
another insurer. This can be on a quota share basis (a percentage share of premiums, claims and
expenses) or an excess of loss basis (full reinsurance for claims over an agreed value).

Total/Gross/Net premiums written

Total = total premiums written, including co-insurance.
Gross = total premiums written, including reinsurance but excluding co-insurance.
Net

= total premiums written, excluding reinsurance and co-insurance.

Turnover

Ultimate loss ratio

A non-GAAP measure, turnover is the sum of ‘total premiums written’ and ‘Other Revenue’.

The projected ratio for a particular accident year or underwriting year, often used in the calculation
of underwriting profit and profit commission.

Underwriting year

The year in which the policy was incepted.

Underwriting year basis

Also referred to as the written basis. Claims incurred are allocated to the calendar year in which the
policy was underwritten. Underwriting year basis results relate to the 2015 underwriting year, are calculated
on the whole account (including co-insurance and reinsurance shares) and include all premiums, claims,
expenses incurred and Other Revenue (for example instalment income and commission income relating
to the sale of products that are ancillary to the main insurance policy) relating to policies incepting in the
relevant underwriting year.

Written/Earned basis

A policy can be written in one calendar year but earned over a subsequent calendar year.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

115

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONDirectors and advisors

Directors
Alastair Lyons, CBE
Non-Executive Chairman

Henry Engelhardt, CBE
Chief Executive Officer

David Stevens, CBE
Chief Operating Officer

Geraint Jones
Chief Financial Officer

Owen Clarke
Non-Executive Director

Annette Court
Non-Executive Director

Colin Holmes
Non-Executive Director

Penny James
Non-Executive Director

Margaret Johnson, OBE
Non-Executive Director

Lucy Kellaway
Non-Executive Director

Jean Park
Non-Executive Director

Manning Rountree
Non-Executive Director

Company Secretary
Mark Waters
T^y Admiral
David Street
Cardiff CF10 2EH

Auditor
KPMG LLP
3 Assembly Square
Britannia Quay
Cardiff CF10 4AX

Actuarial advisor
Ernst & Young LLP
1 More London Place
London SE1 2AF

Bankers
Lloyds Bank plc
City Office
Bailey Drive
Gillingham Business Park
Kent ME8 0LS

Registrar
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

Joint corporate brokers
Bank of America Merrill Lynch
2 King Edward Street
London EC1A 1HQ

UBS Investment Bank
1 Finsbury Avenue
London EC2M 2PP

Solicitors
Clifford Chance LLP
10 Upper Bank Street
London E14 5JJ

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ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

Corporate website
The Group’s corporate website is at
www.admiralgroup.co.uk. A range of information
about the Admiral Group is presented, including
the Group’s history, financial reports and press
releases, corporate responsibility and governance.

The website also includes the contact details for
investor relations.

Financial calendar
Final 2015 dividend
12 May 2016 – Ex dividend date
13 May 2016 – Record date
3 June 2016 – Payment date

Annual General Meeting
28 April 2016

Interim results
17 August 2016

Admiral Group businesses

UK
Car Insurance:
Admiral www.admiral.com
elephant.co.uk www.elephant.co.uk
Diamond www.diamond.co.uk
Bell www.bell.co.uk

Price Comparison:
Confused.com www.confused.com
Carfused www.carfused.com

Household insurance:
Admiral household insurance www.admiral.com/home-insurance

Van Insurance:
Gladiator www.gladiator.co.uk

The Group does not produce printed copies of
interim results for shareholders unless requested.

The interim results will be available on the
corporate website from 17 August 2016.

Spain
Car Insurance:
Balumba www.balumba.es
Qualitas Auto www.qualitasauto.com

Registered office
T^y Admiral
David Street
Cardiff CF10 2EH

Price Comparison:
Rastreator www.rastreator.com
Seguros.es www.seguros.es

Italy
Car Insurance:
ConTe www.conte.it

USA
Car Insurance:
Elephant Auto www.elephant.com

Price Comparison:
compare.com www.compare.com

France
Car Insurance:
L’olivier – assurance auto www.lolivier.fr

Price Comparison:
LeLynx www.lelynx.fr

The Group’s commitment to environmental issues is reflected in this Annual Report which has
been printed on Amadeus 100 Silk which is made from 100% post-consumer fibres, FSC® certified
and PCF (Process Chlorine Free). Printed in the UK by
using their environmental printing
technology, and vegetable inks were used throughout.
is a CarbonNeutral® company.
Both manufacturing mill and the printer are registered to the Environmental Management System
ISO14001 and are Forest Stewardship Council® (FSC) chain-of-custody certified.

Design Portfolio is committed to planting
trees for every corporate communications
project, in association with Trees for Cities.

ADMIRAL GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2015

117

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
A

2015

was another award winning year!

Special Recognition Award
15 Years – Appeared in the top 100 list every year since
its inception
Sunday Times Best Big Companies to Work For listings, 2015

5th place in the
Sunday Times Best Big Companies to Work For listings, 2015

4th Best
Large UK Workplace
Great Place to Work Institute, 2015

4th Best
Multinational Workplace in Europe,
Great Place to Work Institute, 2015

9th Best
Medium Workplace in Italy
ConTe
Great Place to Work Institute, 2015

4th and 5th Best
Workplace in Spain (between 250 and 499 employees)
4th Admiral Seguros, 5th Rastreator
Great Place to Work Institute, 2015

22nd Best
Workplace in France (fewer than 500 employees)
L’olivier – assurance auto
Great Place to Work Institute, 2015

National Champion – UK Employer of the Year
European Business Awards 2015