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CONTENTS

Directors
Alastair Lyons CBE (Non-executive Chairman)
Henry Engelhardt (Chief Executive)
Andrew Probert (Finance and IT Director)
David Stevens (Chief Operating Officer)
Manfred Aldag (Non-executive director)
Martin Jackson (Non-executive director – appointed 19 August 2004)
Keith James OBE (Non-executive director)
John Sussens (Non-executive director – appointed 19 August 2004)
Resigning during 2004 (both 7 September):Owen Clarke
Pratt Thompson

Company Secretary
Stuart Clarke

Registered Office
Auditor
KPMG Audit Plc
Marlborough House
Fitzalan Court
Cardiff CF24 0TE

Lloyds TSB Bank Plc
City Office
Bailey Drive
Gillingham Business Park
Kent ME08 0LS

Capital Tower
Greyfriars Road
Cardiff CF10 3AZ

Actuarial advisors
Ernst & Young
1 More Place
London SE1 2AF

Bankers

Bank of Scotland
Corporate Banking
55 Temple Row
Birmingham B2 LS

Our brands

PAG E 0 1

Financial highlights

PAG E 0 2

Chairman's statement

PAG E 0 3 - 0 4

Chief Executive's statement

PAG E 0 5 - 1 0

Financial review

PAG E 1 1 - 1 9

Corporate governance

PAG E 2 0 - 2 7

Remuneration report

PAG E 2 8 - 3 0

Corporate responsibility

PAG E 3 1 - 3 4

The Admiral Group plc Board

PAG E 3 5 - 3 6

Directors’ report

PAG E 37- 3 8

Independent auditor’s report

Joint Corporate Brokers
Merrill Lynch International
2 King Edward Street
London EC1A 1HQContents

Citigroup Financial Markets
UK Equity Limited
Citigroup Centre
33 Canada Square
London E14 5LB

Registrar

Solicitor

Capita IRG Plc
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

Norton Rose
Kempson House
Camomile Street
London EC3A 7AN

PAG E 3 9

Consolidated profit and loss account

PAG E 4 1 - 4 2

Consolidated balance sheet

PAG E 4 3 - 4 4Company balance sheet

PAG E 4 5

Consolidated cash flow statement

PAG E 4 6

Accounting policies

PAG E 47- 4 9

Notes to the financial statements

PAG E 5 0 - 67

Consolidated financial summary

PAG E 6 8

Notice of Annual General Meeting

PAG E 6 9 -7 2

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9:59 amPage 4PAGES 01 02

Our brands

Financial highlights
2004

Bell was set up in 1997 – its main target market being drivers with zero or low no claims bonus.
www.bell.co.uk

2003

Confused.com is an intelligent, automated car insurance shopper. Customers input their details once,and receive quotes from major car insurance websites. www.confused.com£101.0m£ 5 7. 2 melephant.co.uk is the Group’s main online car insurance service. Elephant passes on cost savings
generated by being an online brand to customers in the form of lower premiums.
www.elephant.co.uk

2003£548.0m£ 4 2 7. 3 m

A D J U S T E D C O M B I N E D R AT I O S 3

www.admiralgroup.co.uk

2003£100.6m£ 7 7. 2 m

CLOSING ACTIVE CUSTOMERS

2004

Gladiator Commercial is the Group’s commercial vehicle insurance broker that was launched in
April 1998. The company acts on behalf of several of the largest commercial vehicle insurers in the UK
www.gladiator.com

2004

2003

GROUP TURNOVER2

2004

Diamond was created for women in response to a need in the market place for insurance specificallyfor young women drivers, which is not only good value, but also as hassle free as possible.
www.diamond.co.uk

ADJUSTED GROUP CORE PROFITS1

P R O F I T B E F O R E TA X

The Group’s first brand, set up in 1993 – mainly targeting those who traditionally pay higher than
average premiums, including drivers under-35 and those living in big cities. www.admiral.com

82.0%

6 7. 7 %

2004

2003

1,041,000

808,000

ADJUSTED EARNINGS PER SHARE4

2004

2003

2 6 .9 p

15.2p

1. Refer to page 19 in the financial review
2. Group turnover includes total premiums, gross other income plus allocated investment return. Total premiums comprise grossmotor insurance premiums written by the Group, before co-insurance and reinsurance
3. 2003 figure adjusted for non-recurring Lloyd’s charges
4. 2004 EPS adjusted for exceptional tax credit on ESOT share award. Refer to note 20

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PAGES 03 04

Chairman’s statement

Alastair Lyons, Admiral Group plc Chairman

As one recent report on the everchanging role of the Chairman put it, theprime job of the Chairman is to run the
Board, not the organisation: that is thejob of the Chief Executive. It is for the
Board, led by the Chairman, to ensurethat the Company has strategies, qualityof management, and all the resources –financial, human, technology – to create
wealth on a consistent basis. At thesame time, the Chairman has to ensurethat the business is run with value andintegrity, not only meeting governancecodes but also the expectations ofcustomers, employees, suppliers andwider stakeholders.
This is a remit that I am very happy toembrace as Chairman. I shall, therefore,
leave it to Henry Engelhardt, our Chief
Executive, to review in detail theachievements of the Group during an
exceptional year and shall content
myself with the headlines.
In every year since I became Chairman in
2000, following the Management Buyout of Admiral backed by Barclays
Private Equity, the Group has moved
strongly forward, increasing both thevalue of business written and its
profitability. During 2004 we havesecured our 1 millionth customer, written£470m total premiums and achieved pretax profits of £101m, with an outstanding
82.0% combined ratio. The sustained
growth in franchise and profitability that
Admiral’s distinctive business model has

a distinctive culture of openness,
informality, team work and delegation of
responsibility made possible byexcellent management information andeffective control systems.

our executive team gives me confidence
in our Board’s ability to chart an effective
strategy for Admiral and identify correctly
the resources we require to implement
this strategy.

Our listing brought with it significant
changes to our Board. Owen Clarke andPratt Thompson, who respectively had
represented the interests of Barclays
Private Equity and XL, stepped down as
non-executive directors. Our thanks tothem for many years of active
involvement and sound advice andsupport. In their place we have been
joined by Martin Jackson and John
Sussens. Martin brings a wealth ofexperience of financial management in
the insurance sector, having, as FinanceDirector, taken Friends Provident throughdemutualisation. We are delighted tohave him as Chairman of our Audit

Admiral’s strategy is clear andstraightforward – to continue to grow ourshare of the direct private motor market,“Our philosophy is to give people theopportunity to develop to their full potential.”
made possible underpinned the highpoint of 2004 – the Company’s highly
successful listing in a difficult market for
new issues, valuing the business at £711m,
some 12 years after it was first conceived
by the senior executive team that leads
it today.
It was hugely satisfying to follow thissuccess by winning Business of the Yearat the 2004 National Business Awards, amuch deserved reflection of our listing
positioning – “Admiral is different”. To
create that difference, Admiral combinescommercial creativity, exemplified by its
reinsurance structure, high ratio ofancillary sales, and multi-branding, with

Committee. John’s significant exposure
to the quoted sector, having served formany years as Managing Director ofMisys and now also as a non-executive
director of Cookson, makes him wellqualified to be our Senior Independent
Director and Chairman of ourRemuneration Committee. My thanks
also to Manfred Aldag and Keith Jamesfor their continuing contributions during
a year which made exceptional demands
on our non-executives.
The combination of the different
experiences and perspectives of our
non-executives with the energy, clarityof purpose and depth of knowledge ofalso established a senior executive shareplan under which awards are determinedaccording to growth in Group earnings
per share.
The Group is well capitalised with aproven approach to reserving, and withsolvency ratios in both the UK and
Gibraltar, which carry an appropriate“We are pleased to be able to propose a final
dividend for 2004 of 9.3p per share.”maximising the value derived from eachcustomer relationship. Along the way wewill identify profitable opportunities to
exploit the knowledge, skills andresources attaching to our core business.
As an example, Confused, the intelligent
automated car insurance shopper that we
set up in 2000, last year handled 1.4
million quotes.

margin over minimum solvency statutory
requirements. Our business model isstrongly cash generative, with year-end
non-regulated cash balances increasingfrom £30m to £50m. In addition relief forthe cost of the ESOT distribution atlisting created an abnormally low tax
charge in the 2004 accounts which will
reduce Admiral’s tax payment in 2005.

Our continued successful development
reflects not only the quality of our
executive directors but also the strength
in depth of Admiral’s management and its
whole team. Our philosophy is to give
people the opportunity to develop to
their full potential, and ongoing alignmentof interest between staff andshareholders is one of our core principles.
We were, therefore, delighted that somany of our staff – 1,418 out of a total of
1,616 – were able to participate in the
distribution of shares on listing as aconsequence of our Employee ShareOwnership Trust (ESOT). As this ceased atlisting we have established a replacement
scheme under which all employees will
receive a bi-annual grant of free sharessubject to the achievement of challenging
pre-determined performance criteria
based on Group profitability. We have

Consistent with our principle of
returning excess cash to ourshareholders we are, therefore, pleased
to be able to propose a two-part final
dividend for 2004. The first element,

representing 3.1 pence per share is basedon a 45% pay-out ratio, the actual
amount paid reflecting our listing partway through the financial year. The
second special element of 6.2 pence pershare reflects the abnormally low tax
charge in 2004. We shall maintain apolicy of reviewing our available free
cash to determine whether or not theCompany is able to pay further special
dividends from time to time in addition
to a consistent normal pay-out ratio.
In conclusion, I am very confident in
Admiral’s ability to pass the test of
clarity of strategy, quality ofmanagement, and adequacy of resources
to continue consistently to create value
for all our shareholders.

Alastair Lyons
Chairman
18 March 2005

Admiral Group senior managers at the London Stock Exchange

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PAGES 05 06

Chief Executive’s statement
lot of effort into making Admiral a great
Company and the listing was another,albeit highly visible, tick in our scorecardof success.
So, let’s get into the meaty bits. Let me
try and list some of the other things thatbrought a smile to our faces in 2004:• made a record core profit of £100.6m,
up 30% from 2003
• core profit per share was 38.9p, up 30%
from 29.9p in 2003
• total turnover for the year was £548m,
up 28% from 2003
Henry Engelhardt, CEO, with Andrew Probert, Finance Director and David Stevens, Chief Operating Officer
at the London Stock Exchange

Have you ever had one of those days
where everything seems to go right? You
know, a day where there’s hardly any
traffic getting to the office and all thelights are green, a day where someone
comes to your office for a meeting andbrings you a really nice coffee, a day
where the rain stops just when you comeout of the building, a day where you tell
the kids dinner’s ready and they
immediately turn off the telly and go to
the table, a day where … well, you get the
picture: a day where everything seems togo spot on right?
Well, 2004 was that kind of year for theAdmiral Group.

© Post Magazine, April 2004

As you will see from reading theseaccounts, this was a smashing year for theGroup. Smashing as in smashing records
for things like: profit, premium income,expense ratio and more.
Clearly the highlight reel starts with our
successful public offering and listing on
the London Stock Exchange; changing
our status from a private Company to a
public Company.
What stands out for me is that a large
number of investors who previously didn’tknow much (anything?) about us decided
that ours was a Company worth buying a
stake in. It was a highlight because
everyone at Admiral (in particular, thefinance and communications
departments) pitched in and worked
together to ensure that the process ofgoing public was a smooth one. It wasalso a highlight because it was a validationof all the hard work we have put into ourbusiness over 12 years; becoming quoted
was a tangible, cumulative measurementof our achievements. Admiral didn’t justpop up in the summer of 2004 anddecide to be a publicly quoted Company.
Over 12 years a lot of people have put a• premium income grew to £470m, up
27% from 2003
• produced a combined ratio of 82%• gave more than 6.25m quotes, ofwhich 5m started on the internet (82%)• ended the year with more than
1,000,000 customers• experienced continued improvement
in loss ratios across all the back years• crystallised the Staff Trust with a valueof £57m upon listing• won Business of the Year at the
National Business Awards• named by The Sunday Times as the20th best place to work in the UK in its‘Top 100 Places To Work in the UK’competition. This listing is in its fifth
year and we’re one of only 11 firms to
be in the list in all five years• named by the Financial Times as the
16th Best Workplace in the UK and oneof the Top 100 Workplaces in the EU• winner of the Best small/mid cap IPO of
the Year at the Financial News Awards• had over 250 children at our Staff
Children’s Christmas party (up morethan 25% on 2003)• wow!

What We Do:
For those of you looking through our
accounts for the first time, Admiral’s
primary business is to sell car insurance
direct to the public in the UK. We are notyour typical insurance underwriting
operation as we primarily distributeinsurance on behalf of reinsurance
partners, taking only 25% of theunderwriting risk for our own account.
However, we do own all our customers
and have the ability to sell other products
and services to them.
We operate through a number oftargeted brands: Admiral (younger drivers,
London area), Diamond (women drivers),
Elephant.co.uk (internet users) and Bell.
We have two other brands, Gladiator
Commercial, which operates as anintermediary in the commercial vehicle
market, and Confused.com, which
operates as an internet ‘shopper’ for
car insurance.
2004 was our 12th year of trading. The
first 7 were in a Lloyd’s of London
environment. However, toward the end of
1999 Management teamed up with
Barclays Private Equity to buy thebusiness. The result of this transaction
was the creation of Admiral Group Ltd.
(AGL) as the holding Company. In
September of 2004 we listed theCompany on the London Stock Exchange.

In 2004 75% of our premium wasunderwritten by two external reinsurers.
Therefore, the Group’s net premium
written was £117m. In 2005 Admiral Groupwill once again take 25% of the premiumincome to its own account. Munich Re,
through Great Lakes, will take 65%, Axis
and Gen Re will each take 5% respectively.
Some key numbers from the accounts
which follow:• loss ratio 67% up from 52% in 2003
Admiral Group plc is named Business of the Year at
the National Business Awards

This is our first set of accounts as AdmiralGroup plc, a public Company.
In 1999 we also put in place a long-termco-insurance agreement with Great Lakes
UK, a wholly-owned subsidiary of MunichRe, the world’s largest reinsurer. In 2001
we extended this agreement and it
currently runs through at least 2008. In
2002 Munich Re also became ashareholder in AGL and it currently owns
14% of the Group.

Key Performance Information:
Our total premium written for 2004,
before sharing premium with ourreinsurance partners, was £470m,
accounting for 86% of our total turnover.
The number of customers we service rose
to 1,041,000 from 808,000 (+29%). All our
growth has been organic.

“There is the will to conquer, the impulse to fight, toprove oneself superior to others. There is the joy ofcreating, of getting things done, or simply
exercising one's energy and ingenuity.”
Joseph Shumpeter• earned expense ratio, less government
levies, down to 12.5% from 13.5%• combined ratio, including all levies,
82%, up from last year’s phenomenal
67.7%• income from products and services we
do not underwrite totalled £69.5m up
from £50.8m (+37%)
The movement in loss ratio from 52% lastyear to 67% in 2004 is to be expected.
The 52% represented a year with a large
percentage of releases from previous
years. It is the reflection of the quality of
those back year results which has been acatalyst to our explosive growth in 2004.
It made sense to accelerate growth on
the back of fantastic results. But suchgrowth meant we had to sacrifice somemargin. However, the 2004 loss ratio of
67% leaves plenty of margin and on amuch larger base. This is a superb resultand only pales when compared to 2003!
The change in loss ratio across years ischaracterised by a slightly less goodunderlying trend, proportionally lesssubstantial back-year releases and theaforementioned growth, in excess of 25%.
Without any releases taken into accountthe loss ratio move was modest, from
72% to 75%.

Page 10C H I E F E X E C U T I V E ’ S S TAT E M E N T

The UK Car Insurance Market
Cycle: Drive Carefully
Last year I said that the car insurance
market was turning, albeit slowly. I
explained that premiums would not keep
up with claims inflation in 2004. And thisis, indeed, what has happened. On
average, rates probably fell by 2-4%
across the market, while claims costs
continued to rise faster than inflation at
4-6%. Therefore, when all the results are• consolidation• reduced investment returns• the growth of direct writers
Market consolidation has meant that
where previously it took some 10 firms toaccount for 50% market share, this figure
is now accounted for by two firms (RoyalBank of Scotland and Aviva). As these two

I don’t see a great deal of change to thislandscape in 2005. Certainly the first halfof the year will be characterised byintense marketing spend. When somecompanies begin to fall short of theirrespective targets (they can’t all hit
target!), while, simultaneously, thedeterioration of results from previous
years begins to filter through, it will resultin two reactions: some firms will cut rates
to ensure hitting volume targets, despite
the offsetting reduction in margins, whileothers will reduce their targets to moreachievable levels, while maintaining
margins. On balance I believe rates will bestatic during the year.
Our own business is somewhat insulated
from this deterioration by two factors.
First, our results historically have been

C O M B I N E D R AT I O S F O R U K M OTO R M A R K E T ( % )
140%
120%
100%
80%
60%
40%

4

5
00

F2

03

02

00
F2

20

20

00

01
20

20

99
19

98

20%

19

The private car market finished 2003 witha combined ratio around 102%. The resultfor 2004 is unlikely to be better than
104%. In previous cycles, the worst pointin one cycle is typically seven years fromthe worst point in the next cycle. 1991
was the worst year of that cycle andseven years later 1998 was the worst yearof the next cycle. In both 1991 and 1998
combined ratios were around 120%. We
are now seven years on from 1998 andthe market’s combined ratio is nowhere
near 120%. To my mind, this indicates therise of a new cyclical pattern. I think thispattern will be characterised by being
more gentle, less good in the good times
and correspondingly less bad in the badtimes. The reasons for this new pattern lie
in the changing dynamics of the market.
There are three key factors which haveprovoked such change:

97

Ancillary income moved forward largely
due to the increased customer count. To
put this income into context, I’ve done alittle calculation where the ancillary
income is added to earned premium togive a ‘big picture’ combined ratio. I think
this gives an interesting measure of theentire business. Expressed in this way, thecombined ratio would have been 59%!
Here’s another interesting calculation: wemade £101m on income of £195m, a ratioof 52%.

tallied, the market should show
deterioration of several points.

19

The expense ratio, not including
government levies, moved downwards by
1.0% from 2003, a reduction of 7%. This
reflects our continued efficiency
improvements. However, do not expect
swingeing cuts in the expense ratio going
forward. It is one of our strengths that we
use our efficiency to help ourunderwriting selectivity. Because we are
efficient, particularly in generating quotes,
we can afford to convert fewer quotes
into business. In this way we are helping
ensure that we only take the right risks at
the right prices. The end result is a better
combined ratio. If we concentrated on
reducing the expense ratio it may turnout to be a false economy, as it mightcome at the expense of the loss ratio
through reduced selectivity. So, forinstance, we could cut the marketingbudget and do fewer quotes, but thenwe’d need to convert more of them to hit
target. To convert more quotes we’d haveto be less selective. Clearly, the more
selective we can be the better our loss
ratio should be. As we’ve already said
publicly, we intend to reduce our growthrate in 2005 through the use of selective
price increases.

96

The bar chart above shows thedevelopment of the loss ratios for theback years on an underwriting year basis.
The years noted at the bottom of thechart are the underwriting years. The
coloured bars represent the reported loss
ratios published in the Annual Accounts
over the last five years. So, for example, inthe 2003 Accounts the loss ratio for the
2001 underwriting year was 63%, downfrom 71% in the previous year’s accounts.

19

UNDERWRITING YEAR

95

2004

19

2003

94

2002

19

2001

93

2000

The growth of direct writing which, I
estimate, now accounts for more than
50% of the market, means quicker
response times to changes in market
pricing. In the past, changes in rates bycompetitors weren’t visible tounderwriters for several months and thencouldn’t be responded to for several
months. I believe that this led to over-

19

2004

That’s the long-range outlook for themarket. Looking at the next 12 months,
the good times the market has enjoyedover the last few years have resulted in
more firms looking for greater market
share. I believe that if you could add up
the policy numbers from all the businessplans of all the firms in the market you
would account for more policies thanactually exist. At the moment, the battle
for market share is being waged in the
media. As consumers can probably testify
to, there does not seem to be a corner of
the UK that doesn’t seem to besubmerged in car insurance advertising.

92

20%

PAGES 07 08

the movements of the market will be lesssevere, with the best times of the cycle
less good than previous cycles and theworst times of the cycle less bad.

19

2003

91

40%

19

2002

90

60%

The loss of large investment returns fromthe halcyon days of the 90s also puts
more pressure on the insurance result,which in turn should provide morestability to the market.

89

2001

19

80%

19

2000

87

100%

firms have a great deal to lose from large
rate reductions and they are both under
the watchful eye of the public arena, I
believe that their large market share is aforce for market stability.

19

D E V E L O P M E N T O F U N D E RW R I T I N G Y E A R L O S S R AT I O S ( % )86

C H I E F E X E C U T I V E ’ S S TAT E M E N T

19

9:59 am85

5/4/051913531 Admiral AR a/w

Source: 1985 to 1997 Merrill Lynch Research analysis of DTI returns; 1998 to 2003 EMB analysis of Thesys data on FSA returns; 2004 & 2005 Deloitte

corrections in anticipation of continued
trends. Now, direct writers see very
quickly through their daily conversion
data what the market as a whole is doing
and individual firms can react by changing
rates from one day to the next. I believethat this leads to a greater number ofsmaller corrections and serves to further
reduce the volatility in the market.
In short, I believe that the market is still
cyclical and there is no reason to thinkthat it won’t remain so. However, I believe

The respective marketing coffers ofcompanies in the market have beenswollen and the result is a record spend,around £100m on TV and in the press
alone in 2004. This figure is some 40%
higher than the same figure in 2003. This
increase partly ties into the share growthof direct operations, who use advertising
to get custom rather than using
intermediaries. But it is also a reflectionof appetite for business.

far better than the market average andtherefore, despite tighter margins our
result is still rather profitable. Second, ourunique underwriting structure means wehave a limited share of our own result,which reduces profits in the good times,
but also reduces the effect of narrowing
margins in the less good times. And, as we
continue to grow our customer base, we
continue to grow our ancillary revenues.
All in all it should result in sustainable,
profitable growth going forward.

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A Brief Explanation of Why
Our Results Are So Good!
Some explanation of our excellent
numbers lies with our ability to make theinternet work. This is also a source ofconfidence in our future. Our 2004
internet results exceeded our forecasts
and, in the absolute, are quite stunning.
(Except for changing the year from 2003
to 2004 this was exactly what I wrote lastyear. It’s not that I’m being lazy, it’s justthat it’s still true!) Of the more than 6.2m
quotes we did last year 82% started on
the internet. Around 71% of all our sales
came from these internet quotes. I
believe that there is still growth to be hadin internet distribution, albeit probably
less rampant than before. As we areamong the leaders in the internet deliveryof car insurance we are well placed forcontinued success through this channel inthe coming years. (In 2004 we had some 1billion hits to our websites!)C H I E F E X E C U T I V E ’ S S TAT E M E N T

Elephant’s end-of-year customer countreached 360,000 (up over 75% from theyear before). Elephant quote volumes
were up from 2.0m in 2003 to 2.5m in
2004. Elephant is now the biggest brandin the Group. A tremendous achievement
considering it launched only in August
2000. The other brands all grew thenumber of customers they service in2004 as well, Diamond by 18%, Admiral by
11% and Bell by 4%.

Beyond Direct Response Car
Insurance:
It was also yet another good year for
Gladiator Commercial. Gladiator sells van
insurance, largely to private tradesmen,
as an intermediary. Admiral Group does
not take any underwriting risk with thisbusiness. At the end of 2004 Gladiator’scustomer count stood at 33,000 andit contributed £1.8m to the Group’s
bottom line.

Q U OT E VO L U M E S S P L I T BY P H O N E A N D I N T E R N E T
7, 0 0 0

Quotes 000’s

6,000
5,000
4,000
3,000
2,000
1,000

2000

2001
Phone Quotes

C U STO M E R S BY B R A N D
31 DECEMBER 2004

2002

2003
Internet Quotes

2004

2004 was a huge growth year for
Confused.com. Confused.com is anintelligent, automated car insurance
shopper. Simply put, all a customer has
to do is put his or her details into
Confused.com and Confused then goesout to the major car insurance websites,
populates the appropriate fields, andbrings the customer back a list of prices.
One-stop shopping! Confused goes out
to direct operations as well asintermediary sites. It generated over 1.37m
quotes up from 590k in 2003. A great dealof Confused’s growth is coming fromword of mouth, the most powerful formof advertising. We fully expect Confused
to grow substantially in 2005. Inspop.com
Ltd, the trading Company which owns
Confused.com, made a profit in 2004of £2.1m, most of which is down toConfused. This compares to a profitof £300k last year.

Structural Changes:
In September 2004 we took theCompany public on the London Stock
Exchange. In spite of a difficult market for
new offerings, the Admiral listing went
well. We priced just above the middle of
the range and the offer was more than 10times oversubscribed. By the end of theyear the share price had risen from thelisting price of £2.75 to £3.23.
We did not take on any additional debt
in the year. We did pay down the
anticipated portion of our existing debt
and the appropriate amount of interest(£4m). As at year-end our debt figure
was £33m. To put this in context, interest
cover was 42 times for 2004. (Thismeans profits were 42 times theinterest payable!)2004 – Please Put It In
An Aerosol Spray Can For
Future Use
All in all it was a brilliant year. From thefacts and figures at hand we still believe
we are the most efficient and, pound forpound, the most profitable firm in the
UK motor insurance market. Our goal is
to continue to write the above sentence
for the annual accounts year after year
after year.
It’s been a great year beyond the results
too. Shortly after we did theManagement Buyout (MBO) in 1999 we
set up the Staff Trust. When the firm
went public in September the value of
this Trust was £57m. Over 1,400 membersof staff shared in the value of this Trust.
The amount each member of staff
received was greatly influenced by how
loyal they’d been to the Group.
The best day of my working life was the
day after the listing when my fellow

executive directors and I walked throughour offices congratulating staff on theirsuccess. Staff were not only pleased
because of the financial gain they wereabout to realise but, what impressed me
most, was the fierce pride they showed in
the Group and its success. All our staff
have played a key part in the success ofthe business and the listing publicly
recognised them for such. The staff werevery grateful to management for going

PAGES 09 10

investment in Admiral in 1999. Again, here
was an individual who believed in ourpotential. Over the course of the last five
years I’ve come to know Owen quite welland learned a number of things from him,
most notably a) the art of stepping backto weigh alternatives, b) how to better
blend rational thought with emotion andc) that you actually can trust a venture
capitalist! I am sorry to lose him from our
Board but certainly wish him continued“All our staff have played a key part in the
success of the business.”out of its way to include them in thefinancial side of the Group’s success. In
return management was very grateful tothe staff for making Admiral such a
success. As I said, it was a very special day,one I will never forget.
There were a number of firms and many
individuals who helped make the listing a
success. However, given my limited pagecount, I only have room to carve one
individual from the pack. I’d like to say a
personal thanks to Andrew Sibbald of
Lexicon Partners. Andrew was key to thisachievement, not only for the good
advice he gave (note: he didn’t really ‘give’
it, we did pay him!) but really for instillingin us the belief that the stock market
would be open for a good Company
with a good business and that we weresuch a Company.
As Alastair has noted, the makeup of our
Board has changed. In particular two nonexecutive directors have stepped down,
Pratt Thomson and Owen Clarke. We
wish both gentlemen well and thankthem for their respective contributions
over the years. In particular, I’d like tothank Owen, who was the driving force
behind Barclays Private Equity’s

success for the future. I’d also like towelcome Martin Jackson and John
Sussens to the Board. I’m sure I have a lot
to learn from both of these experienced(but still young!) businessmen.
Last, but in no way least, I’d like to thank
Alastair for all his efforts and guidance inwhat was a very challenging year, andManfred and Keith, our other nonexecutive directors for all theircommitment to our business. I’d also liketo say a special thanks to my fellow
executive directors, David Stevens andAndrew Probert. We’ve come a long way
together and as a team we only seem toget stronger with time. Finally, a thanks toall our brilliant senior managers for, as per
usual, stepping in while we did that float
thing and making the business sing.

Henry Engelhardt
Chief Executive Officer
18 March 2005

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FINANCIAL REVIEWFINANCIAL REVIEWPAGES 11 12

Financial review
Key financial highlights
Profit before tax increased significantly during 2004, up from £57.2m to £101.0m.
The Group also achieved significant core profit growth – of over 30% during 2004, as shown in the table below.

A further measure used by the directors to assess the growth in the size of the business is ‘Group turnover’ – which includes total
premiums written, gross other income and net investment return, all as reported on the face of the profit and loss account. The
Group has also achieved substantial growth in this measure, as shown below:

The directors use core profit as an effective assessment of the underlying profitability of the Group. This measure can be split
into the three key elements of the Group’s business model – 1) underwriting profits, 2) profit commissions and 3) net otherincome (in particular ancillary income).

Analysis of core profit

2004
£000

2003
£000

Underwriting profit
Profit commissions
Net other income
Unadjusted total
Profit commission adjustment(1)27,96921,67356,916
106,558(5,994)31,048
1,447
38,701
71,196
5,994

Adjusted Group core profit

100,564

77,190Analysis of group turnover

2004
£000

2003
£000

Total premium
Gross other income
Net investment return

470,400
69,4578,135

371,600
50,7834,881Group turnover

547,992

427,264

Turnover has increased by 28% in 2004 with compounded growth over the five years of over 20%.

GROUP TURNOVER
500,000

2004’s core profit of £100.6m (a reconciliation to which is set out later in this section on page 19), equates to a growth rate ofover 30% on 2003, and compounded annual growth of almost 51% since 2000 – the first year in which consolidated accounts
were drawn up for the Group.

400,000£ 000’s(1) During 2004 £5,994,000 of profit commission relating to the 2003 financial year became recognisablein accordance with the Group’s accounting policy for such commissions and is, therefore, included in
the 2004 results in the statutory accounts. The directors believe this amount should be reallocatedback to 2003 for the purposes of comparing 2004 against 2003.

300,000
200,000
100,000

CORE PROFIT GROWTH

2000

100,000

2001

2002

2003

2004

80,000£ 000’s

As noted, the Group generates profits from three principal sources:• the share of the motor insurance business it retains and underwrites itself

60,000• profit commission earned from the Group’s co-insurance and reinsurance partners
40,000• intermediary activities – primarily the selling of ancillary motor products, but also from Gladiator Commercial and Confused.com

20,000

2000

2001

Underwriting profit / (loss)

2002

2003

Profit commissions

2004
Net other income

The hybrid nature of the business significantly reduces the volatility of earnings inherent in motor insurance and has some
important advantages. Firstly, the Group currently only underwrites 25% of the motor insurance it sells. The Group therefore,materially limits its downside exposure, whilst retaining the potential, through the profit commission arrangements in place, togenerate potentially significant income from the other 75% of the business depending upon the underwriting results achieved.
The second key advantage comes from retaining ownership of the entire customer base. This means the Group is able to generate
substantial non-insurance income from all policyholders.

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FINANCIAL REVIEWFINANCIAL REVIEW

Underwriting

A full understanding of the impact of reserve releases on the Group’s results is important. The table below sets out net reserve
releases (by underwriting year) included in the financial statements since the 2001 financial year (no releases were included in
the 2000 financial statements as this was the first year the Group underwrote premiums and prepared consolidated accounts):

Underwriting structure
The underwriting arrangements in place for 2004 were unchanged on the previous year. 65% of the total business wasunderwritten by Great Lakes Reinsurance (UK) Plc (Great Lakes – a UK subsidiary of Munich Re currently rated A+ by A M Best)
under a co-insurance arrangement. (This is in contrast to a reinsurance contract and means Great Lakes is the primary risk
carrier on this portion of the book.)
The remaining 35% is underwritten through two Admiral Group entities – Admiral Insurance Company Limited (AICL) and
Admiral Insurance (Gibraltar) Limited (AIGL), both of which commenced trading in 2003. 10% of the total business wasreinsured to Converium Re (Converium) under a proportional quota share contract through AIGL (as in 2003) on a funds
withheld basis. The net effect of this is that the Group retained a net share of 25% of the total book.
The quota share contract with Converium was terminated at the end of 2004 and has been replaced with two new contracts(each for 5% of the total book) – with Gen Re (part of the Berkshire Hathaway Group and rated AAA by Standard & Poors) andAxis Re (rated A by Standard & Poors).
As well as proportional reinsurance, the Group has also arranged an excess of loss reinsurance programme with a number ofreinsurers to protect itself (along with its co-insurance and reinsurance partners) against very large claims.
For the 2000 to 2002 underwriting years, the Group’s retained share of the motor business was underwritten through theGroup’s Syndicate (Syndicate 2004) at Lloyd’s of London. The Group is currently managing the run-off of Syndicate 2004, andthe last year of account (2002) remained open at the end of 2004. A decision is to be made during 2005 as to the closure of
the 2002 year, and the release of any remaining capital held at Lloyd’s.
Underwriting results
In 2004, the Group has again generated significant underwriting profits, reflecting both superior loss and expense ratios. The
aggregate of these – the combined ratio – is again expected to rank highly in the UK motor market and has led to anunderwriting profit of £28.0m (before reinsurance profit commissions), compared to £31.0m in 2003. This decrease is due to a
combination of the higher loss ratios experienced on the more recent underwriting years (a factor of the motor insurance
cycle) and the higher level of reserve releases realised in 2003 following the favourable development of the earlier
underwriting years.
Growth in total premium written was 27% in 2004, up from £371.6m to £470.4m. This was due to targeted increases inmarketing spend, and the continuing, highly successful development of elephant.co.uk – the Group’s internet-only brand. This
growth generated an increase in the Group’s market share, and an even more notable increase in its share of the internet motor
market.
Premium rates were on average around 3% lower in 2004 than in 2003. This reduction was implemented as a strategy to takeadvantage of the Group’s superior combined ratio to help achieve the substantial growth in both policies and premiums
written while delivering attractive combined ratios, both for the Group and our reinsurers.
2004’s loss ratio (excluding claims handling expenses – which are allocated to net claims incurred but are included in expenses
for this analysis) is 67.0%, up from 52.1% in 2003. The 2003 ratio was flattered by substantial reserve releases (£16.1m) resulting
from the favourable development of earlier underwriting years. The 2003 releases accounted for a reduction of over 20 points
in the reported loss ratio, compared to £9.2m of releases, or an 8.5 point reduction in the loss ratio in 2004.

PAGES 13 14

Analysis of reserve releases
2004
£000

2003
£000

2002
£000

2001
£000

Underwriting year
2000
2001
2002
2003

1,480
2,967
3,229
1,513

5,176
7,938
2,975
-

6,188
2,490
-

3,923
-

Total net release
Net earned premium
Releases as % of premium

9,189
107,501
8.5%

16,08979,32720.3%

8,678
81,336
10.7%

3,923
84,135
4.7%

This pattern of releases reflects consistent downward revision of loss ratios across all underwriting years, in response to consistently
favourable development of these years.
The Chief Executive’s Statement refers to this development in some detail and presents a graph which sets out the developmentof the loss ratios by underwriting year over the past five years.
As regards expense ratios, the Group’s direct distribution model, focussed on the internet and telesales, is highly cost effective –especially in terms of the cost of acquiring new business. Passing on a share of these costs to its co-insurance and reinsurance
partners also means the Group is able to benefit from economies of scale.
Continued growth of internet sourced business has, along with tight control of costs within the Group, led to a further
improvement in the expense ratio (including claims handling costs) to 15.0% in 2004, down from 15.6% in 2003. These ratios arederived as follows:

Adjusted expense ratio

2004
£000

2003
£000

Net earned premium

107,501

79,327

Net operating expenses per technical accountadd back: claims handling costs
deduct: non-recurring Lloyd’s charges

13,7962,352-

10,3082,230(193)

Adjusted net technical expenses

16,14812,345Adjusted expense ratio

15.0%

15.6%

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FINANCIAL REVIEWFINANCIAL REVIEWPAGES 15 16

C O M B I N E D R AT I O D E V E L O P M E N T
120.0%

A further £1.9m of profit commission was recognised during 2004 (£0.3m in 2003) under co-insurance arrangements relating toearlier underwriting year contracts with Swiss Re. An additional £1.2m should become due (based on current reported loss ratios)from Swiss Re when the 2002 year of account within the Syndicate is closed or the profit commission is received from Swiss Re.
This did not occur at the end of 2004 as the Board of the Managing Agent, Admiral Syndicate Management Limited felt that a
number of opportunities were still to be examined for closing the 2002 year.

100.0%
80.0%
60.0%

Net other income

40.0%This figure can be further analysed as follows:
2004
£000

20.0%

2000

2001
Expense ratio

2002
Loss ratio

2003

2004

Combined ratio

The Group’s adjusted combined ratio (being the aggregation of the loss and expense ratios above) for 2004 is 82.0%, compared to67.7% in 2003. The increase is primarily due to the reserve releases in 2003 as discussed above. Once again it is expected that the
combined ratio will rank the Group towards the top of the UK market.

Ancillary contribution
Instalment income
Gladiator contribution
Gross Inspop.com contribution
Net Inspop.com
consolidation adjustments*
Net Inspop.com contribution / (deficit)
Aggregate interest receipts
Other Group / central overheads

2003
£000

£000

£000

48,493
2,603
1,756
2,033

35,856
1,257
1,575
322

(750)

(721)

Net other income

1,283
3,348
(567)

(399)
1,166
(754)

56,91638,701* adjustments relate to intra-group sales. Confused.com is a trading name of Inspop.com Limited.

Profit Commission
The Group receives profit commission through both its proportional co-insurance and reinsurance arrangements. The amount ofcommission receivable is dependent on the volume and profitability of the insurance business, measured by reference to loss andexpense ratios.
Profit commission – Quota share reinsurance
For the 2003 and 2004 underwriting years, the Group earned profit commission from Converium, depending on the loss ratio
returned on these underwriting years. During 2004, £3.1m of commission was recognised, compared to £1.2m in 2003. This contract is
operated on a funds withheld basis.

As noted above, the Group is able to use its direct customer contact model to generate significant intermediary revenue throughsales of ancillary products to the customer base. This represents the majority of net other income. The products involved areprimarily insurance products that complement the motor policy, but which are underwritten by external parties. The contribution
above is largely commission earned on such sales. Net contribution from ancillary sales grew by over 35% during the year, withaverage gross income per motor policy amounting to £51.20 (2003: £50.70).

Financial investments, cash and indebtedness
All aspects of the Group’s business generate significant operating cash inflows. At 31 December 2004, the Group held a totalof £322.6m in cash and financial investments (2003: £239.0m) – an increase of 35% on 2003:

The new quota share contracts that came into effect on 1 January 2005 have similar profit commission arrangements.

2004
£000

Profit commission – Co-insurance
The Group also receives profit commission from Great Lakes, based on the size and profitability of the business written. £16.7m ofcommission has been recognised in the 2004 results, although, as referred to in the financial highlights section above, £6.0m of thiscommission relates to premium earned in 2003.

Non-regulated cash
Regulated cash
Total cash

50,09638,515

Deposits with credit institutions
Government and sovereign bond holdings
Corporate bonds and similar instruments
Total financial investments

30,59042,980160,438

Grand total cash plus investments

2003
£000

£000

£000

30,03540,04088,61170,07524,46463,52580,936

234,008

168,925

322,619

239,000

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Financial investments, cash and indebtedness (cont.)

The Group has considered the impact of the ‘stable platform’ of IFRS standards on the financial results to 31 December 2004 andthe position at the balance sheet date. The directors are confident that, based on the guidance currently in existence, no material
reconciling items (other than in respect of accounting for dividends and goodwill amortisation) will be required when the 2004
figures are restated and reconciled in 2005.

The Group has four managed investment funds in which the majority of the insurance funds are invested. Three of these (one eachfor Syndicate 2004, AICL and AIGL) are managed by Alliance Capital Management, whilst the fourth (another AIGL fund) is managed
by Lloyds TSB International.
Investment strategy is set by the Group Investment Committee (and approved by the Boards of directors of the relevant entity). The
strategy is conservative, with much of the funds invested in high quality corporate or government bonds. No investments are made inequity shares.
Group cash holdings earn interest at just below the UK base interest rate.
At 31 December 2004, the Group had £33.1m (2003: £35.4m) of debt in respect of a commercial loan facility drawn down in 2002.
£4.3m in capital and interest was repaid during the year with a further £4.1m on 3 January 2005. The original arrangement included a£10m revolving credit facility that the directors cancelled in 2004 as it was unlikely to be required.
Refer to note 21 to the accounts for further details on the Group’s debt.

Dividends
The directors have established a dividend policy based on the principle of returning excess cash to shareholders. In accordance withthis principle they would expect to make a normal distribution of at least 45% of post-tax profits, and to review regularly theGroup's available cash to determine whether it is appropriate for the Company to pay a further special dividend.
The directors have, therefore, declared final dividends totalling 9.3p per share on 18 March 2005. These comprise a normal
dividend of 3.1p per share and a special dividend of 6.2p per share. The normal dividend took into account our listing part way
through the financial year and is based on a 45% pay-out ratio, adjusted for the exceptional tax credit. The special dividend
reflected the abnormally low tax charge in the 2004 accounts resulting from relief for the cost of the ESOT distribution onlisting which will reduce the Group's tax payment in 2005.
In addition dividends of £52.0m were paid during 2004 prior to the Company's listing.

Taxation

PAGES 17 18

Employee share schemes
This section is split into two – the first covers the Admiral Employee Share Ownership Trust (ESOT) established in 2000, and underwhich no further grants are to be made. The second section deals with the new schemes that will take effect in 2005, under which
no awards have yet been made.
1. Admiral ESOTThe Group established an ESOT during 2000, under which a specified number of Admiral Group Limited shares were to be madeavailable for issue to the Trust if the Group listed or if it was subject to take-over. Staff have been granted units since 2000, whichgave them a proportional entitlement (at no cost) in the shares to be issued.
The listing in September 2004 triggered an issue of shares to the Trust immediately prior to the listing. Full details of the associatedtransaction (and the impact of share reorganisation) are set out in note 20 to the accounts. The effect of the listing on the Trust wasthat staff who held units became holders of shares in Admiral Group plc equating to an 8% stake worth £57m at listing.
2. New share scheme arrangements
The Board is strongly of the view that actual or prospective share ownership plays a key role in staff incentivisation (across all levels– not restricted to executives or senior management). Given that no further awards are possible under the ESOT, new arrangements
have, therefore, been established in its place.
As noted above, the current executive directors, with the support of the Board, are of the opinion that their shareholdings provide
appropriate incentivisation to maximise shareholder return. For this reason, none of the current executive directors will participate
in the new share schemes (nor did they in the ESOT).

The total taxation charge reported in the profit and loss account is £14.4m (2003: £18.0m) representing 14.3% (2003: 31.5%) of pre-tax
profits. The significant decrease in the effective tax rate is mostly due to the impact of the ESOT share awards made during the year,
which attracted a significant deduction for corporation tax purposes.

Two new schemes have been put in place under which awards will be made with effect from the 2005 financial year. The maximum
annual award under these schemes will be no more than 1% of the issued share capital.

A charge for the employer’s National Insurance contributions arising from the share provision (£7.2m) has been included in the profit
and loss account. The tax deduction on this charge was accrued in previous years.

The Approved Share Incentive Plan (SIP)

Refer to notes 8 and 20 to the accounts for further detail on taxation and the ESOT.

International Financial Reporting Standards (IFRS)From 1 January 2005, EU regulations require companies listed on regulated markets in the EU to prepare their consolidated accounts
under IFRS. The Admiral Group consolidated accounts for 2005 will, therefore be prepared under IFRS, as opposed to UK GAAP.
2004 comparative information must also be restated.
Reconciliations of profit and shareholders’ equity will be provided in order to set out the major differences between the 2004 UK
GAAP and IFRS numbers.

This scheme is intended to replace the previous staff profit share scheme, and is open to all staff, (excluding current executive
directors) of Admiral Group plc.
The maximum to be awarded under the SIP will be £3,000 per employee per annum, with the awards being subject to a three-year
vesting period. As the scheme is Inland Revenue approved, the awards will be free of income tax after 5 years. The £3,000 limit will
be based on the market value of the shares at the date of award.
Awards will be made twice a year, based on the stand-alone results of each half-year. Inland Revenue rules dictate that staff
must hold the shares for three years before being able to sell them, but dividends will be payable during the vesting period. If
a member of staff leaves the Group before the end of the three year period, without being a ‘good leaver’, they get no benefit
from the shares not yet vested.
A linear relationship will exist between the size of the award and the percentage over the Group’s budgeted core profit achieved.
Awards will start to be made if the Group achieves over 90% of its budgeted core profit and full award will be made if the Groupexceeds 111.5% of its budgeted core profit.

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FINANCIAL REVIEWC O R P O R AT E G O V E R N A N C E

PAGES 19 20

Corporate governance
Admiral Group Senior Executive Restricted Share Plan

Introduction

The Admiral Group Board

This scheme is not Inland Revenue approved, and is open to Group employees of a certain level of seniority, excluding the current
executive directors of the Group.

In the period leading up to theCompany’s listing on 28 September 2004,
the Board implemented a number ofchanges to the governance environment.
These were actioned in order to achievea structure that ensured the interests ofall shareholders were best served
following the changes brought about by
the listing, and further to ensure that theprovisions of the Combined CodePrinciples of Good Governance and Codeof Best Practice (the Combined Code) are
fully complied with.

The Group is controlled by its Board of
directors. The Board is responsible for theproper management of the Group as well
as setting the Group’s strategic goals andobjectives, ensuring the necessaryfinancial and other resources are madeavailable to meet them, and measuring
progress towards achieving them. The
Board is ultimately responsible toshareholders for the financial andoperational success of the Group.

The main performance criteria will be the growth in earnings per share (EPS) in excess of a risk free return (RFR), defined as average 3month LIBOR, over a three year period. The Board feels that this is a good indicator of long-term shareholder return and aligns seniorstaff incentivisation with total shareholder return.
For any shares to vest, the Group’s Total Shareholder Return (TSR) must at least match the TSR of the FTSE 350 over the three year
vesting period.
If the Group’s TSR matches or exceeds that produced by the FTSE 350, the following measures will be applied to the Group’s growthin EPS to calculate the amount of shares to vest:• if the Group’s EPS growth over the vesting period equals the RFR then each individual will receive 10% of their maximum award• to obtain the maximum award, the Group’s EPS growth would have to average 10 percentage points better than the returnavailable for a cash investment – the RFR
For the purposes of calculating EPS for 2004 as the base value for the computation of the awards, the tax credit resulting from the
ESOT will be adjusted to reflect a more normalised tax charge. The 2004 EPS will also be adjusted to reflect changes arising fromInternational Accounting Standards, specifically the goodwill write-off.
Approximately 250 staff will be included within the plan, commensurate with the Group’s philosophy that real difference can beachieved by incentivising staff that have direct control over customer interaction as well as the Group’s most senior managers.
Award proposals are submitted to the Remuneration Committee by the executive directors. Individual awards in excess of 100% ofsalary require individual discussion and justification to the Committee.
The plan includes provision for a maximum individual award equal to the lower of £400,000 or 600% of salary. Such an amount isincluded to provide flexibility for future succession planning in the most senior positions.

Reconciliation of profit before tax to adjusted core profit

Profit before tax
Add back: interest payable
Add back: goodwill amortisation(Deduct) / add back:share scheme (credit) / charges
Add back: bonuses paid in lieu of dividends

2004
£000

2003
£000

101,000
2,451
3,906

57,244
3,146
3,906(4,144)
3,345

6,900
-

Core profit

106,558

71,196

Profit commission adjustment(5,994)

5,994

Adjusted core profit

100,564

77,190The changes primarily involved some
restructuring of the Board and its subCommittees. The Board is satisfied that
the Group complied with the provisionsof the Combined Code on corporate
governance, issued by the Financial
Reporting Council in July 2003, from thedate of listing, with the exception relating
to paragraphs C.3.1 and B.2.1 of the
Combined Code, which state that the
Audit and Remuneration Committees
should comprise three independent nonexecutive directors. The Group’s
Committees had only two independent
non-executive members. The Board iscurrently actively recruiting a new
independent non-executive director
who will join both Committees on
appointment.
The details below focus on the structuresthat existed at the balance sheet date (andat the date the Annual Report was signed).

• implementation of the strategies andpolicies of the Group as determinedby the Board• day to day monitoring of the operating
and financial results against plans
and budgets• prioritising the allocation of capital,technical and human resources• developing and implementing risk
management systems

The Board, which meets at least eighttimes a year, has a schedule of mattersreserved for its approval which include:

The Board is aware of its responsibilities
to carry out performance evaluation on
itself, its Committees and individual
directors and is committed toundertaking each on an annual basis.

• setting Group strategy and approving
an annual budget and medium-term
projections

The roles of the Chairman andChief Executive• reviewing operational and financial
performance• approving major acquisitions,divestments and capital expenditure• reviewing the Group’s systems offinancial control and risk management• ensuring that appropriate management
and succession plans are in place• approving Board, Board Committee andCompany Secretarial appointments• approving policies relating to director's
remuneration and the severance of
director's contracts• ensuring that a satisfactory dialogue
takes place with shareholders
The Board has delegated the following
responsibilities to the Executive
Management team:• the development andrecommendation of strategic plansthat reflect the longer-term objectives
and priorities established by the Board

The division of responsibilities between
the Chairman of the Board, Alastair
Lyons, and the Chief Executive, Henry
Engelhardt, is clearly defined in written
job specifications and has been
approved by the Board.

Directors and Directors’
independence
The Board currently comprises the
Chairman (whom the Board considers to
be independent), three independent
non-executive directors, one nonindependent non-executive director andthree executive directors. Including the
Chairman, the independent nonexecutive directors represent 50%of the Board.
The independent directors are of
sufficient calibre and number that theirviews carry significant weight in the
Board's decision making.

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C O R P O R AT E G O V E R N A N C E

The directors are given access toindependent professional advice at theGroup's expense, should they deem itnecessary, to carry out their
responsibilities.

Professional development

John Sussens - Senior Independent Director

The Board has appointed John Sussens
as Senior Independent Director. He is
always available to meet shareholders
on request and ensure that the Board isaware of shareholder concerns not
resolved through the existingmechanisms for investor
communication.
Details of the Chairman's professional
commitments are included in the
Chairman's biography. The Chairman
does perform a number of other nonexecutive roles outside of the Group but
the Board is satisfied that these are notsuch as to interfere with theperformance of the Chairman's duties
within the Group.
The Board considers that the Chairman
and all but one of its non-executive
directors are independent directors inaccordance with the criteria set out in
the Combined Code. The other, Manfred
Aldag, by reference to his association
with Munich Re, represents a significant
shareholder and for this reason is notconsidered to be an independent nonexecutive director.

On appointment, directors take part in acomprehensive induction programme
where they receive financial andoperational information about theGroup, details concerning their
responsibilities and duties, as well as an
introduction to the Group’s governanceand control environment.
The induction is supplemented by visits
to the Group's two locations andmeetings with members of the senior
management team and theirdepartments. Throughout their period in
office the directors are continually
updated on the Group's business, legal
matters concerning their role and duties,
the competitive environments in which
the Group operates and any otherchanges affecting the Group and theindustry in which it operates.

Re-election
Subject to the Company's Articles
of Association, the Companies Act
and satisfactory annual performance
evaluation, non-executive directors
are appointed without a maximum
period of appointment. Their contracts
may, however, be terminated by either
party giving one month's notice, or threemonths for the Chairman (withoutcompensation).

The Board is conscious of therequirement of the Combined Code andat such a time as a non-executive
director’s length of service goes beyond
that recommended to be considered
independent, the board will review theposition. Manfred Aldag’s appointment is
contingent upon his continued
employment with Munich Re.

The Company Secretary
The Company Secretary is responsible
for advising the Board through the
Chairman on all governance matters.
The directors have access to the advice
and services of the Company
Secretary. The Company’s Articles of
Association and the schedule ofmatters reserved to the Board for
decision provide that appointment andremoval of the Company Secretary is amatter for the Board.

Information
Reports and papers are circulated to thedirectors in a timely manner in
preparation for Board and Committee
meetings. These papers aresupplemented by information
specifically requested by the directors
from time to time.
The non-executive directors receive
monthly management accounts andother regular management reports andinformation, enabling them to scrutinise
the Group's performance against agreed
objectives and budgets.

Relations with shareholders
In fulfilment of the Chairman's
obligations under the new Combined
Code, the Chairman gives feedback to
the Board on issues raised with him bymajor shareholders, although to datethere have been no such issues. This issupplemented by monthly feedback to
the Board on meetings between
management and investors. External
analyst reports are circulated to all
the directors.
All directors will attend the Annual
General Meeting, and shareholders will
be invited to ask questions during themeeting and to meet the directors after
the formal proceedings have ended. The
Company's first Annual General Meeting
since listing will be held on 18 May 2005.

PAGES 21 22

The Group maintains a corporatewebsite (www.admiralgroup.co.uk)
containing a wide range of informationof interest to institutional and private
investors. Management has regular
discussions with institutional investors
and responds to ad hoc requests fordiscussions and information frominstitutional shareholders.
Major shareholders will be given theopportunity to meet new non-executive
directors on appointment.

Board Committees
The number of full Board meetings andCommittee meetings attended by eachdirector during 2004 was as set out below.
The figures in brackets indicate themaximum number of meetings during
2004 in which each director was a Board
or Committee member.

Attendance at Board and Committee meetings

Alastair Lyons (Chairman)
Henry Engelhardt (Chief Executive)
Andrew Probert
David Stevens
Manfred Aldag
Martin Jackson
Keith JamesJohn Sussens
Owen Clarke
Pratt Thompson

ScheduledBoard
meetings

Audit
Committee
meetings

10 (10)10 (10)10 (10)10 (10)8 (10)4 (5)
9 (10)
4 (5)
6 (6)
5 (6)

3 (3)

Nominations Remuneration
Committee
Committee
meetings
meetings

2 (2)

1 (1)
1 (1)

2 (2)
2 (2)
5 (5)

0 (0)
2 (2)

1 (1)

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C O R P O R AT E G O V E R N A N C E

C O R P O R AT E G O V E R N A N C E

The Audit Committee
Constitution and membership
The constitution of the Audit Committee
was amended prior to the Company’s
listing in order to establish a structurethat best suited the Group’s needs andmoves towards compliance with the
Combined Code and in particular theSmith Guidance on Audit Committees.
The membership in place at the year-end
was as set out below:

Ongoing training is provided to allmembers, and this is intended to cover
relevant developments in financial
reporting, company law and the various
regulatory frameworks.
The Committee’s objective, authority
and relationship with the Board

Martin Jackson - Audit Committee Chairman

The Audit Committee Structure
Committee members (both independent
non-executive directors)

Martin Jackson (Chairman)
Keith James

Committee Secretary

The Company Secretary

Having the right to attend all meetings

The Chairman and any non-executive
director of the Company

Invited to attend

The Internal Audit manager
Andrew Probert (Group Finance Director)
Henry Engelhardt(Group Chief Executive Officer)

The Compliance Officer
External audit partner/manager**A representative from the external auditor is required to attend the meeting at which the Annual
Report is approved for recommendation to the Group Board.

In addition to the above, other Group
employees or external parties areinvited to attend where the Committee
considers this appropriate. The Internal
Audit manager has unfettered access to
the Committee.
The Committee is required to meet atleast three times per annum, and has met
five times during 2004. As noted above,
all members attended all meetings.
Martin Jackson and Keith James receive£5,000 each in remuneration for theirmembership. This is included in theiraggregate remuneration figures set out inthe remuneration report.
The Board considers that the membersof the Committee have the appropriatecompetence and experience to carryout their duties and further considers
that Martin Jackson (Committee
Chairman) has the appropriate recent
and relevant experience as defined in
the Combined Code.

The terms of reference set out theobjectives of the Committee and areavailable on the Group’s website. This isto ‘ensure the effectiveness andappropriateness of the systems ofinternal control and risk management bywhich the management of the Groupand its subsidiaries ensure full compliancewith the requirements of all relevant
regulations and legislation’.
The Committee is authorised toinvestigate any activity within its termsof reference and to seek any information
it requires from employees in order todischarge its duties. This includes fullaccess to all records of the Group –including relevant external reports.
The Committee reviews its terms ofreference annually, and also assesses its
own effectiveness. The Group Board
also performs a similar review of theCommittee on an annual basis.
The Committee is authorised (at theGroup’s expense) to obtain independent
legal or other professional advice if itfeels this is necessary. The Board has
undertaken to provide the Committeewith all the appropriate resources toallow it to discharge its duties.

In the event of dispute or disagreement
between the Committee and the Board,adequate time must be devoted toattempt to resolve the issue. In the eventthat no resolution can be reached, theCommittee has the right to include areport on the issue to shareholders in theGroup’s Annual Report.
The Committee’s Chairman is required topresent to the Board, at least three times
annually, on the Committee’s activities.
Summary of key activities
The key activities within the remit of theCommittee are as follows:
1. Financial reporting matters
The Committee is charged with
monitoring the integrity of the Group’s
financial statements (including
accompanying narrative statements) alongwith any formal announcements relating
to the Group’s financial performance –especially where this is of a pricesensitive nature.
The Committee’s reviews of the above
focus on inter alia the following areas:• critical accounting policies and anychanges therein• disclosure and treatment of significant
transactions• key areas of judgement• issues and adjustments arising fromaudit
• compliance with relevant accounting,regulatory and legal requirements• review of representation lettersrequested by the external auditors
The Committee, after due considerationof all relevant issues (including those set
out above) makes recommendations to
the Board as to whether the Annual
Report (or other financial report) should
be approved, and also reviews and makes
recommendations on any report issued
by the external auditor.

PAGES 23 24

2. Internal control and Risk
Management Strategy

4. Auditor’s independence andobjectivity

The Committee regularly reviews theGroup’s approach to internal control andthe overall Admiral Risk Management
Strategy. In this context, the Committee
works closely with the Group’s Risk
Management Committee, whose
activities are described later in thisstatement.

The Audit Committee regularly monitors
the non-audit services being provided to
the Group by its external auditor and in2005 will develop a formal Auditor
Independence Policy.

The findings of all internal and external
investigations into internal control andrisk management are reviewed, along withmanagement’s response to the same.
The Committee also reviews theeffectiveness of processes in placethroughout the Group to identify, assess
and manage business risks. It is also
responsible for reviewing and approving
the statement on internal control and risk
management that is included later in thisstatement.
3. Internal audit
The Committee is responsible formonitoring and reviewing theeffectiveness of the Group’s Internal
Audit function. This involves, inter alia:• reviewing, assessing and approving theannual internal audit programme• considering the appropriateness of theresource, remit and other terms ofreference of the internal audit function• receiving, on a regular basis, reports on
the work of internal audit and updates
on the progress through the work
programme• meeting with the Internal Audit
Manager and Compliance Officer at
least once annually, without theattendance of management

The policy will include four key principles
that underpin the provision of non-audit
services by the external auditor. The
auditor should not:• audit its own firm’s work
• make management decisions
for the Group• have a mutuality of financial interest
with the Group, or• be put in the role of advocate
for the Group
Prior approval of the Committee isrequired for any services provided by
the external auditor where the fee islikely to be in excess of £30,000. In any
case, activities that may be perceived
to be in conflict with the role of theexternal auditor must be submitted to
the Committee for approval prior
to engagement, regardless of theamounts involved.
Details of the amounts paid to theexternal auditor during the year for audit
and other services are set out in thenotes to the financial statements.
5. Whistleblowing
The Committee reviews and assesses theprocedures put in place throughout theGroup to enable employees to raise
concerns (in confidence) over any possible
wrongdoing in relation to financial
reporting or other matters. The
Committee ensures that the arrangements
in place allow for reasonable,
independent investigation of the mattersand appropriate follow-up action.

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9:59 amPage 28C O R P O R AT E G O V E R N A N C E

The Nominations Committee
As with the Audit Committee, the current
membership of the Committee waschanged on 19 August 2004 prior tolisting. The Committee is currently
chaired by Keith James, with the othermembers being Manfred Aldag andAlastair Lyons. (Prior to this the members
were Alastair Lyons, Manfred Aldag andOwen Clarke, who resigned from theBoard on 7 September 2004).
During the year and prior to this reorganisation, the Committee initiated thesearch for two independent nonexecutive directors. The Board began theprocess by defining the requirements of
the roles considering the plans for listing,and identifying the core competencies
required of the candidates to carry outthat role.
The selection process was initiatedby an external recruitment firm andthe Committee presented the Board
with two recommended candidates
after interviewing a number of possible
candidates. The search resulted in theappointment of Martin Jackson andJohn Sussens.
The Nominations Committee’s termsof reference can be found on theGroup’s website.
The key responsibilities of theCommittee are:• assessment of the current Board –including size, structure, membership,
responsibilities• recommend appointment ofBoard members• succession planning for executives andsenior management• recommendation of candidates forsenior positions within the GroupC O R P O R AT E G O V E R N A N C E• ensuring that Committees of the Board
are appropriately resourced

In addition the Committee will review theGroup’s remuneration policy in relation to:Internal control and risk
management

Any director appointed in the year
is subject to automatic resignation andre-election by shareholders at the first
Annual General Meeting of theCompany after their appointment.

• its competitors and industry norms

Overall responsibility for risk and theGroup’s systems of internal control lies
with the Board. In order to ensure these
responsibilities are properly discharged,
the Board has delegated the task ofsupervising risk management and internal
control to the Risk Management
Committee – which is discussed further
below. In accordance with the Combined
Code, the Board (through the Risk
Management Committee and the systems
and processes set out below) has ensured
that there is an ongoing process for
identifying, evaluating and managing therisks faced by the business. Such systems
have operated during the financial year
and up to the date of this report. The
Group’s Risk Management Strategy isregularly reviewed by the Board.

Remuneration Committee
As with the Audit and Nominations
Committees, the current membershipof the Committee was changed on
19 August 2004 prior to listing. The
Committee is chaired by John Sussens,with the other member being Martin
Jackson. Prior to this, membershipconsisted of Alastair Lyons, Henry
Engelhardt and Owen Clarke (whoresigned from the Board on
7 September 2004).
The Committee met once during the year
to approve the individual remuneration
packages for the executive directors.
The Committee’s principal responsibilities are:• setting, reviewing and recommending to
the Board for approval the Group’s
overall remuneration policy and strategy• setting, reviewing and approving
individual remuneration packages
for executive directors and the
Chairman, including terms andconditions of employment andany changes to packages• reviewing the salary structure andterms, conditions and benefits of
employment of other Group Executive
Committee members, and• approving the rules and launch of any
Group share, share option or cash
based incentive scheme and the grant,
award, allocation or issue of shares,
share options or payments undersuch schemes• compensation commitment• contract periods
The Committee’s terms of reference areavailable on the Group’s website.

Other executive Committees
The Investment Committee
The Committee is chaired by the Group
Finance Director, with the other members
being the Chief Operating Officer and theGroup Company Secretary.
The Committee’s principal responsibilities are:• determining and recommending
investment strategy• monitoring the performance ofinvested funds and external
investment managers• treasury management over all
Group cash
In addition to the above, the Group’s
senior managers meet on a monthly basis,
as do departmental managers. Brand
managers meet with the Chief Executive
on a weekly basis. These meetings covera wide range and varying level of issues,
including brand performance, operational
matters and other business issues.

The Group’s system of internal control isdesigned to manage, rather than eliminate
the risk of failure to achieve businessobjectives, and is only designed toprovide reasonable, not absoluteassurance against material misstatement
or loss. The Board has reviewed theeffectiveness of internal controls
during 2004.
There are several key elements to therisk management environment
throughout the Group. These include
the setting of risk management policy
at Board level, enforcement of thatpolicy by the Chief Executive, deliveryof the policy by the Risk Management
Committee via the Group’s systems
of internal control and risk management
and the overall assurance provided by
the Audit Committee that the systems
operate effectively.
The Board recognises that the day-to-day
responsibility for implementing thesepolicies must lie with the management
team, whose operational decisions musttake into account risk and how this canbe effectively controlled. The

PAGES 25 26Compliance Officer takes responsibility
for ensuring management are aware of
their risk management obligations,providing them with support and advice
and ensuring that the Risk Management
Strategy is properly communicated.
The Audit Committee’s ability to provide
the appropriate assurance to the Board
depends on the provision by Internal
Audit of periodic and independentconfirmation that the controls
established by management are operating
effectively. The Audit Committee reviews
the wider aspects of internal control andrisk management, providing a high level
challenge to the steps being taken to
implement the Risk Management Strategy.
The Risk Management Committee
The Committee’s members include
the three executive directors, theCompliance Officer and the Group
Company Secretary.
One of the Committee’s principal
responsibilities is to ensure that the Risk
Management Strategy approved by the
Board is implemented throughout theGroup. The Committee is expected to:• assess the nature and extent of therisks facing the Group and determine
an appropriate risk appetite in respectof these• consider the likelihood of occurrenceof the risks identified and assess theCompany’s ability to manage these risks• prepare relevant and useful risk
management information for use by
the Audit Committee and Board
Another key responsibility is to assess theextent of regulation applying to authorised
companies within the Group. The
Committee develops policies to ensurecompliance with such regulation andensures that appropriate action is takenby the management team to implement
compliant systems and procedures.

The Compliance Officer
The Compliance Officer provides support
to the Risk Management Committee.
Primarily he is responsible for interpreting
regulatory requirements and determining
how they apply to the regulatedcompanies within the Admiral Group.
He will recommend compliant coursesof action for the Risk Management
Committee to consider and if approved,
adopt. He provides support and advice
to the management team, helping themto comply with their regulatory
responsibilities.
The Compliance Officer is responsible fordeveloping and implementing a risk-based
compliance monitoring programme. He
monitors to ensure that compliance withregulatory requirements is maintained,
reporting to the Risk Management
Committee with recommended coursesof action should he have any concerns.
A quarterly Report of the Compliance
Officer is issued to the Boards of theGroup's regulated companies thathighlights any compliance matters ofnote. In 2005 this report will also be
issued to the Audit Committee.
The Compliance Officer also carries
responsibility for the Risk Management
controlled function. In this role, he assists
in determining a suitable Risk
Management Strategy and provides
support and advice to the Risk
Management Committee and to
managers responsible for implementing
the strategy.

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9:59 amPage 30C O R P O R AT E G O V E R N A N C EInternal Audit
The Internal Audit function assists
management by providing them withtimely, independent assurance that thecontrols established are operating
effectively. This includes:• regular reviews of internal control
systems and business processes,
including compliance systems andprocedures• identification of control weakness andrecommendations to management on
improvements and fixes• contributing to the design of the Risk
Management Strategy, and supporting
management in its implementation

The regulatory environment
As a provider of financial services, theGroup (through its trading subsidiaries) is
subject to a significant amount ofregulation from a range of bodies. The
Group is therefore exposed to a level ofregulatory risk. Adherence to theseregulations is the ultimate responsibilityof the Boards of each regulated subsidiary
and also the Approved Persons
sponsored by that Company.
An overview of the regulatory regimes inwhich the Group operates is as follows:
Underwriting entities
Prior to the 2003 financial year, theinsurance business retained by the Groupwas underwritten through Syndicate
2004, which, along with the Group’s
Lloyd’s Managing Agency was regulatedby Lloyd’s of London. As such, the Grouphas been obliged to comply with Lloyd’s
Acts, Byelaws and Codes of Practice forsome time and hence has operated arobust control and risk management
environment since (and prior to) the MBO
and formation of the Admiral Group inlate 1999.

R E M U N E R AT I O N R E P O R T

As discussed in the financial review,
Syndicate 2004 is now in run-off,although this element of the business isstill regulated by Lloyd’s (which itself is
now regulated by the FSA).
Since 2003, the Group’s retained
insurance risk has been underwritten
through two insurance companies –Admiral Insurance Company Limited(AICL) and Admiral Insurance (Gibraltar)
Limited (AIGL).
AICL is a UK incorporated company
operating wholly in the UK, and isregulated by the FSA. The Company issubject to the rules set out in the FSA
Handbook. This most notably included
the Prudential Sourcebook for Insurers –IPRU (INS) until 31 December 2004, when
the FSA ‘switched-on’ the Integrated
Prudential Sourcebook (PRU). This
guidance supersedes IPRU (INS) andrelated rules. The new rules have been incirculation for some time, and the Grouphas fully prepared for their arrival.
AIGL is incorporated and authorised in
Gibraltar (although currently only
underwrites UK motor insurance business),and is regulated by the Gibraltar Financial
Services Commission (FSC). The rules andguidance applicable to AIGL issued by the
FSC must comply with EU legislation (asmust the FSA rules) and are similar to
those applicable to AICL in the UK.
Intermediary businesses
Up to 14 January 2005, two of the Group’s
insurance intermediaries – Admiral
Insurance Services Limited (AISL) and Able
Insurance Services Limited (Able) were
voluntarily regulated by the General
Insurance Standards Council (GISC) andwere obliged to comply with the GISC
Private Customer Code.

From 14 January 2005, the GISC regime
was replaced by statutory regulation of
insurance intermediaries by the FSA. AISL
and Able, along with a further Group
intermediary, Inspop.com Limited (Inspop)
have received Scope of Permission
Notices and are authorised to tradeunder the new intermediary regime.
The three intermediaries are now also
subject to the rules set out in the FSA
Handbook, most notably, the Insurance
Conduct of Business Sourcebook (ICOB).
The applicable rules add another level ofregulatory burden on the Group, although
this was anticipated and well planned for.
A significant amount of the Compliance
Officer’s time and resource has been
focussed on ensuring the intermediaries
fully comply with the regulatory
requirements. The Board is satisfied thiswas the case when the new intermediary
regulation came into effect, a fortnight
after the balance sheet date.

Going concern
The directors are satisfied that the Group
has adequate resources to continue inoperation for the foreseeable future andtherefore consider it appropriate toprepare the financial statements on thegoing concern basis.

PAGES 27 28

Remuneration report
The following report has been approvedby the Remuneration Committee (theCommittee) and the Board for submission
to shareholders.
The Committee is chaired by John
Sussens, with the other member being
Martin Jackson. Both are independent
non-executive directors. Prior to theCompany’s listing on the London Stock
Exchange the members were Alastair
Lyons, Henry Engelhardt and Owen
Clarke (who resigned from the Board
on 7 September 2004). The Chairman
and Chief Executive are invited tomeetings as appropriate.

Executive director
remuneration policy
The current executive directors are
all founding directors. They and theCommittee have taken the view thatthe significant shareholdings held bythem provide a sufficient alignmentof their interest in the performanceof the Group with the interests of othershareholders. The Committee has not,therefore, established a specificperformance-related element within
their total remuneration.

In light of this, their remuneration
packages consist of base salary(benchmarked against market rates by theCommittee) and benefits such as private
medical cover, permanent healthinsurance and death in service cover.
The Group does not contribute to any
pension arrangements on behalf of theexecutive directors, and it is not intended
that they will participate in any Group
share schemes.

During the year the Committee did notpurchase any consultancy services.

Directors’ service contracts
The Company entered into new service
contracts with the three executive
directors in September 2004 which
supersede all previous agreements. New
notice periods have been agreed, which
are set out opposite.
There is no provision in the executive
directors’ contracts for compensation to
be payable on early termination of theircontract over and above the notice
period element.
The Company has also entered into
letters of appointment with its nonexecutive directors. Summary detailsof terms and notice are set out opposite.
Again, there is no provision forcompensation for early terminationof the appointments.

Notice – director(month)Notice – Company(months)

Henry Engelhardt

12

18

Andrew Probert

66David Stevens

1212Term and notice
Alastair Lyons

Indefinite (terminable on three months’ notice from either party)

Manfred Aldag

Indefinite (terminable on one month’s notice from either party) –automatically terminates should Manfred cease employment with
Munich Re

Martin Jackson

Indefinite (terminable on one month’s notice from either party)

Keith James

Indefinite (terminable on one month’s notice from either party)

John Sussens

Indefinite (terminable on one month’s notice from either party)

The remuneration of non-executive directors is decided by the full Board, thenon-executive directors abstaining.

5/4/05

9:59 amPage 32

R E M U N E R AT I O N R E P O R T

R E M U N E R AT I O N R E P O R T

Directors’ remuneration(audited)Remuneration for the year ended
31 December is as set out opposite.

Base salaryand fees(£000)

Bonuses

Benefits(£000)(£000)

2004
Total(£000)

2003
Total(£000)

Executive directors
Henry Engelhardt
Andrew Probert
David Stevens

260
180
216

–
–
–

–
–
–

260
180
216

270
162
210

Non-executive directors
Alastair Lyons *Manfred Aldag
Martin Jackson
Keith JamesJohn Sussens

74
12
11
36
13

–
–
–
–
–

–
–
–
–
–

74
12
11
36
13

50
–
–
35
–

15
–

–
–

–
–

15
–

19
–

817

–

–

817

746

Non-executive directors
resigning during 2004
Owen Clarke
Pratt Thompson
Totals* With effect from August 2004 Alastair Lyons has agreed to waive 25% of his annual fee.

Directors’ shareholdings(audited)
Directors’ interests in the ordinary sharesof the Company are as set out opposite.
As a result of the listing on September 28
2004, the Company’s share capital was
significantly restructured. Refer tonote 23 for further detail.

31 Dec 2004
ordinaryshares of
0.1p
Executive directors
Henry Engelhardt *Andrew Probert
David Stevens *40,466,720
5,250,000
19,768,000

A sharesof 10p–––31 December 2003
B shares C sharesof 10pof 10p33,201
4,150
16,600

2,930
850
2,600

Total

36,131
5,000
19,200Non-executive directors
Alastair Lyons
Manfred Aldag
Martin Jackson
Keith JamesJohn Sussens

915,600––
42,000
8,000

–
–
–
–
–

–
–
–
–
–

872
–
–
–
–

872
–
–
–
–

Non-executive directors
resigning during 2004
Owen Clarke
Pratt Thompson

–
–

590
–

–
–

–
–

590
–

PAGES 29 30

Share options (audited)
Keith James received and exercised options
over 56,000 0.1p shares in Admiral Groupplc on 7 and 9 September respectively.
No other director received or holds
share options.

Held at
1 January
2004

Options
grantedOptions Held at 31
exercised December
2004–

56,000(56,000)

Keith JamesThe exercise price was 0.1p per share andthere was no charge for the grant of theoptions. The fair value of each share at
exercise was £2.75. The gain on the exerciseof the options was £154,000, which is notincluded in the detailed remuneration table
above. The options were granted torecompense Keith James for time, over andabove that required by his terms of
appointment, spent working with theBoard in preparation for the listing.

Total shareholder return120

The graph opposite sets out a comparisonof total shareholder return for AdmiralGroup plc shares with that of the FTSE
350 Index, of which the Company is aconstituent. The graph measures theperiod from the commencement ofconditional listing on 23 September 2004
up to 31 December 2004.

115

The directors consider this is the mostappropriate index against which theCompany should be compared and theindex is also the benchmark against
which future Executive Restricted SharePlan awards will be assessed.
This report was approved by the Board of
directors on 18 March 2005 and is signed
on its behalf by the Committee Chairman.

* Include amounts held by family members and in trusts settled by family members.

John Sussens
Remuneration Committee Chairman
18 March 2005

VA L U E ( £ )13531 Admiral AR a/w

110
105
100
95
90
8 OCT
2004

23 OCT
2004

7 NOV
2004
Admiral22 NOV
2004

7 DEC
2004
FTSE 350

22 DEC
2004–

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C O R P O R AT E R E S P O N S I B I L I T Y

C O R P O R AT E R E S P O N S I B I L I T Y

PAGES 31 32

focus oncorporate

responsibility

The Admiral Group is committed tomaintaining high standards of integrity
and fair dealing with all stakeholders andthis translates into its actions and policies
towards staff, the community in which
the Group operates and in which staff
live and also the impact of the Group’s
operations on the environment.

The Admiral Group is committed
to maintaining high standardsof integrity and fair dealing withall stakeholders
concerning the Group is communicated.

Workplace
The Group aims to provide a workplace
which staff consider to be one of thebest places to work and has a philosophy
that staff are more productive if they
enjoy what they do and where they do it.
The Group’s efforts to this end have beenrecognised with a growing number ofawards including:• The Sunday Times 100 Best
Companies to work for – included in
all five years (20th place in the latest
list)• The Financial Times 100 Best
Workplaces in the UK – included
in both years of the award• 100 Best Workplaces in the EU –included in both years lists

Admiral is once again named one of 100 Best
Companies to Work For

As discussed in the remuneration report,
the Board believes that equity
shareholdings play a vital role in staff
incentivisation (across all levels) and theoriginal scheme which was set up in 2000
(the ESOT) crystallised during 2004 on
the Company’s listing. As has been well
documented, a large majority of staff
benefited from the ESOT, with average
financial awards in the region of £40,000.

In order to help achieve these aims, theGroup provides employees with regular
information on its financial performance,other information that concerns themand provides a forum for employee
representatives to give their views on theGroup’s activities. Every member of staff
is also invited to attend a Staff General
Meeting where a variety of information
Ysgol Hendre Deaf Blind Centre received adonation from Henry's Pot

Oliver! - Port Talbot Youth Theatre received a donation from Henry's Pot

New schemes have been established toreplace the ESOT, under which awards
will be made in 2005. The Board feels
strongly that this type of compensation is
the most effective way to align theinterests of Group employees with thoseof shareholders.
In considering applications for
employment from disabled people, theGroup ensures fair consideration is given
to the abilities and aptitudes of theapplicant, while having regard to therequirements of the job for which he or
she has applied. Employees who become
unable to carry out the job for which
they are employed are given individual
consideration and depending on theAdmiral Brand Manager, Jane Stone with the ugly sisters. Admiral sponsored one week of the Cinderella pantomime in Cardiff.

nature, severity and duration of thedisability, may be considered foralternative work. The Group continues totrain and encourage the careerdevelopment of disabled persons
in its employment.

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C O R P O R AT E R E S P O N S I B I L I T Y

PAGES 33 34Children having fun at the Admiral Kids Christmas Party in Swansea

Admiral sponsored the massive Admiral Cardiff Big Weekend

Community
The Group is a leading employer in theSouth Wales region in which it operates
and has staff living across a large numberof communities. The Group encourages
its employees to get involved within local
communities and takes pride in the levelof involvement.
The Group supports a large number of
local charities and organisations throughits ‘Henry’s Pot’ scheme. This fund wasstarted in 1999 and allows staff to apply
for a donation or sponsorship towards
organisations they or their families areconnected with. During 2004, well over
80 awards were made to a wide variety
or organisations.

As well as these contributions, the Groupbacks a large number of events within
South Wales including:• South Wales Echo Champion Childof Courage Award• Admiral Cardiff Big Weekend• the Sir Steve Redgrave Charitable Trustthrough the Admiral brand. The Trustaims to improve the quality ofchildren’s lives, especially in relation
to medical, social, educational andeconomic needs within the UK• the Swansea Bay Festival• the cabaret marquee at the Cardiff
Lesbian and Gay Mardi Gras
• Dylan Thomas literary prize• the Christmas pantomime at the
New Theatre in Cardiff• free bus service for New Year’s Eve
in Cardiff
In addition to local initiatives, the Groupalso supports a number of much larger
charities through its brands. During 2004,
these included:• WellBeing of Women through the
Diamond brand. This charity is the only
national charity funding vital research
into all aspects of women’s
reproductive health. WellBeing of
Women’s mission is to bring an end
to the fear and suffering caused byreproductive health problems. Theirwork is dedicated to raising awarenessand funds to invest in new medical
research• the Born Free Foundation throughelephant.co.uk. This international
wildlife charity works to reduce animal
suffering and to encourage people
around the world to treat all animals
with respect. Born Free believes thatwildlife belongs in the wild and isdedicated to the conservation of rare
species in their natural habitat, and thephasing out of traditional zoos

Environment
As a large organisation, the Group
recognises that whilst its operations do
not impact on the environment as muchas more industrial entities, it can put inplace practices to minimise the impact
its operations do have.
The key elements of the Group’s
environmental policies are:• widespread recycling schemes(including paper, cups and cans, PCs,printing and photocopying cartridges)Children having fun at the Admiral Kids Christmas
Party in Cardiff• use of energy efficient light bulbs• use of water purifying machines
instead of plastic bottles• staff are offered loans and discounts
to incentivise the use of public
transport

Total awards to these three organisations
during 2004 were over £55,000.
Henry Engelhardt and rugby legend, Gareth Edwards
present the award for the South Wales Champion
Child of Courage 2004

Jane Stone with two drag queens, Admiral sponsors the Cabaret Marqueeat the Cardiff Lesbian and Gay Mardi Gras

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DIRECTORSDIRECTORSPAGES 35 36

The Admiral Group plc Board
Andrew Probert (52)Finance & IT Director

David Stevens (42)
Chief Operating Officer

Andrew is responsible for finance,
information technology, facilities andcommercial negotiations. He is a foundermanager, joining Admiral in 1992, being
appointed a director in 1995.

David is a founder director of Admiral.
Initially the Marketing Director, he wasappointed director responsible for
pricing in 1996 and claims and pricing in
1999. He was appointed as Chief
Operating Officer in 2004.

Prior to that, he was Chief Financial
Officer of two life insurance companies
and several Lloyd’s brokers. He is a
Fellow of the Institute of Chartered
Accountants.
Andrew Probert

David Stevens

He joined Admiral in 1991 from McKinsey& Co where he worked in the Financial
Interest Group, London office. Prior toworking for McKinsey & Co, he worked
for Cadbury Schweppes in the United
Kingdom and the United States.
David has an MBA from Insead.

(left to right) David Stevens, Manfred Aldag, Stuart Clarke (Company Secretary), Henry Engelhardt, Alastair Lyons, Martin Jackson, Andrew Probert, Keith James and John Sussens
Manfred Aldag

Alastair Lyons

Manfred Aldag (53)Non-executive director (N)Martin Jackson (56)Non-executive director (A, R)

Manfred was appointed a non-executive
director of the Company in 2003 asa representative of Munich Re. He
graduated from University of Essen andhas a degree in economics/business
management (Diplom-Kaufmann).

Martin was appointed non-executive
director and Chairman of the Audit
Committee in August 2004.

He has worked for Munich Re since
September 1981 and is currently thesenior executive manager responsible
for Northern Europe (United Kingdom,
Ireland, Netherlands and theNordic countries).

Martin Jackson

He was the Group Finance Director of
Friends Provident plc between 2001 and2003 and Friends’ Provident Life Office
between 1999 and 2001. Prior to that hewas the Group Finance Director at London& Manchester Group plc from 1992 to1998, up to the date of its acquisition
by Friends’ Provident Life Office.
He is a Fellow of the Institute ofChartered Accountants.

Alastair Lyons CBE (51)
Chairman (N)Henry Engelhardt, (47)
Chief Executive Officer

Keith James OBE (60)Non-executive director (A, N)

John Sussens (59)Non-executive director (R)Alastair was appointed Chairman of theCompany in July 2000. He is also currently
Executive Chairman of Partners for
Finance Limited, non-executive Chairmanof Buy as you View Holdings Limited anda non-executive director of the
Department for Transport.

Henry is a founder director of Admiraland was recruited by the Brockbank
Group in 1991 to set up the Admiralbusiness.

Keith was appointed a non-executive
director in December 2002. He is
Chairman of the Nominations Committee.

John was appointed the Senior
Independent Non-Executive Director
in August 2004, and is Chairman of theRemuneration Committee. He is also a
non-executive director of Cookson plc,
Phoenix IT Group plc, Searchspace Ltd
and Anglo & Overseas Trust plc.

He has previously been Chief Executiveof the National Provident Institution and
the National & Provincial Building Society,
Managing Director of the Insurance
Division of Abbey National plc, andDirector of Corporate Projects at
National Westminster Bank plc.
A Fellow of the Institute of Chartered
Accountants, he was awarded a CBEin the 2001 Birthday Honours for services
to social security.

He is also a non-executive director of
Julian Hodge Bank Limited, HTV Group
Limited, International Greetings plc andAtlantic Venture Capital Limited.

He was part of the management teamthat led the MBO in 1999. Prior to joining
Admiral, he was Marketing and SalesManager for Churchill Insurance.

Henry Engelhardt

He has substantial experience in direct
response financial services in the United
Kingdom, United States and France. He
has an MBA from Insead.

Keith JamesKEY

He is a solicitor and was the Chairman ofEversheds LLP (formerly Eversheds) from
June 1995 to April 2004. He was a nonexecutive director of Bank of Wales plc
between 1998 and 2001 and AXA
Insurance Company Limited between
1992 and 2000. Keith was awarded on
OBE in 2005 for services to business andthe community in Wales.

A - Audit Committee member

John Sussens

R - Remuneration Committee member

He was the Group Managing Directorof Misys plc between 1998 and
May 2004 having been on the boardof the Company since 1989. Prior tojoining Misys, he was Manufacturing
Director at JC Bamford Excavators
Limited. He was a non-executive director
at Chubb plc between 2001 and 2003.

N - Nominations Committee member

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D I R E C TO R S ’ R E P O RT

D I R E C TO R S ’ R E P O RTPAGES 37 38

Directors’ report
The directors present their Annual Report
and the audited financial statements forthe year ended 31 December 2004.

Principal activity, business
review and future
developments
The Company is the holding Company for
the Admiral Group of companies. The
Group’s principal activity continues to be
the selling and administration of private
motor insurance and related products.
Detailed descriptions of the Group’s
activities, results and prospects arecontained in the Chairman’s statement,
the Chief Executive’s statement and thefinancial review.

Group results and dividends
The profit for the year, after tax but
before dividends, amounted to £86.6m(2003: £39.2m).
Dividends totalling £52.0m were paid
during 2004. In addition, the directors areproposing a final dividend of 9.3p per
share, payable on 25 May 2005.

Share Capital

Annual General Meeting

As a consequence of the listing of the Company’s shares on the London Stock
Exchange in September 2004, the Company’s share capital has been increased from
254,706 ordinary shares of 10p each to 258,595,400 ordinary shares of 0.1p each.
Further details of share capital movements are set out in note 23 to the accounts.

It is proposed that the next AGM
be held at The Celtic Manor Resort,
Coldra Woods, Chepstow Rd, Newport,
Gwent NP18 1HQ on 18 May 2005, at
11.00 am, notice of which is set out
at the back of the report and accounts.

Other than the holdings of the directors as disclosed in the remuneration report, so
far as the directors are aware, or have been notified pursuant to section 198 of theCompanies Act 1985, the following shareholders have interests in 3% or more of theordinary share capital of the Company at 18 March 2005:

Numberof shares%

Munich Re

37,479,400

14.49%

Barclays Plc

33,465,850

12.94%

Fidelity Investments

15,558,000

6.02%

Goldman Sachs Group, Inc

13,219,390

5.11%

Jupiter Asset Management

12,361,774

4.78%

Directors and their interests

Employee policies

The present directors of the Company
are shown on the inside cover of thisreport, whilst directors’ interests in theshare capital of the Company are set out
in the remuneration report.

Detailed information on the Group’s
employment practices is set out in thecorporate responsibility report.

Charitable and political
donationsCreditor payment policy

During the year the Group donated£75,000 (2003: £41,000) to various local
and national charities. The Group has
never made political donations. Referto the corporate responsibility reportfor further detail.

The Group purchases appropriate liability
insurance for all staff and directors.

It is the policy of the Group to pay allpurchase invoices by their due date, andappropriate quality measures are in place
to monitor and encourage this. At theend of the year outstanding invoices
represented 24 days purchases (2003: 19).

Directors’ responsibilities
Company law requires the directors to
prepare financial statements for eachfinancial year which give a true and fairview of the state of affairs of theCompany and Group and of the profit orloss for that period. In preparing thosefinancial statements, the directors are
required to:• select suitable accounting policies
and then apply them consistently• make judgements and estimates thatare reasonable and prudent• state whether applicable accounting
standards have been followed, subject
to any material departures disclosed
and explained in the financial
statements• prepare the financial statements on
the going concern basis unless it isinappropriate to presume that theGroup will continue in business

The directors are responsible for keeping
proper accounting records which disclosewith reasonable accuracy at any time thefinancial position of the Company and toenable them to ensure that the financial
statements comply with the Companies
Act 1985. They have general responsibility
for taking such steps as are reasonably
open to them to safeguard the assets of
the Group and to prevent and detectfraud and other irregularities.

Auditor
The Company’s auditor, KPMG Audit Plc,
has indicated willingness to continue in
office and as stated above, resolutions toreappoint it and to authorise thedirectors to fix its remuneration will be
proposed at the Annual General Meeting.
By order of the Board

Stuart Clarke
Company Secretary
18 March 2005

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Independent auditor’s reportto the members of Admiral Group plc
We have audited the financial
statements on pages 41 to 67. We havealso audited the information in the
directors’ remuneration report that is
described as having been audited.
This report is made solely to thecompany’s members, as a body, in
accordance with section 235 of theCompanies Act 1985. Our audit work
has been undertaken so that we mightstate to the company’s members thosematters we are required to state tothem in an auditor’s report and for noother purpose. To the fullest extent
permitted by law, we do not accept orassume responsibility to anyone otherthan the company and the company's
members as a body, for our audit work,for this report, or for the opinions wehave formed.

Respective responsibilities of
directors and auditors
The directors are responsible forpreparing the Annual Report and the
directors’ remuneration report. As
described on page 38, this includes
responsibility for preparing the financial
statements in accordance withapplicable United Kingdom law andaccounting standards. Our
responsibilities, as independent auditors,
are established in the United Kingdom
by statute, the Auditing Practices Board,
the Listing Rules of the Financial
Services Authority, and by our
profession's ethical guidance.
We report to you our opinion as towhether the financial statements give atrue and fair view and whether thefinancial statements and the part of thedirectors' remuneration report to beaudited have been properly prepared inaccordance with the Companies Act

1985. We also report to you if, in our
opinion, the directors' report is notconsistent with the financial statements,
if the company has not kept properaccounting records, if we have notreceived all the information andexplanations we require for our audit, or
if information specified by law regarding
directors' remuneration and transactions
with the group is not disclosed.
We review whether the corporate
governance statement on page 20 to 27
reflects the company's compliance with
the nine provisions of the 2003 FRC Codespecified for our review by the Listing
Rules, and we report if it does not. We
are not required to consider whether theboard's statements on internal control
cover all risks and controls, or form an
opinion on the effectiveness of thegroup's corporate governance proceduresor its risk and control procedures.
We read the other information
contained in the Annual Report,
including the corporate governancestatement and the unaudited part ofthe directors' remuneration report, andconsider whether it is consistent withthe audited financial statements. We
consider the implications for our report
if we become aware of any apparent
misstatements or materialinconsistencies with the financial
statements.

also includes an assessment of thesignificant estimates and judgements
made by the directors in the
preparation of the financial statements,and of whether the accounting policies
are appropriate to the group's
circumstances, consistently applied andadequately disclosed.
We planned and performed our audit soas to obtain all the information andexplanations which we considerednecessary in order to provide us with
sufficient evidence to give reasonableassurance that the financial statements
and the part of the directors'
remuneration report to be audited arefree from material misstatement,
whether caused by fraud or otherirregularity or error. In forming our
opinion we also evaluated the overall
adequacy of the presentation of
information in the financial statements
and the part of the directors'
remuneration report to be audited.

OpinionBasis of audit opinion

In our opinion the financial statements
give a true and fair view of the state ofaffairs of the company and the group as
at 31 December 2004 and of the profitof the group for the year then ended;and the financial statements and thepart of the directors' remuneration
report to be audited have been
properly prepared in accordance with
the Companies Act 1985.

We conducted our audit in accordancewith Auditing Standards issued by the
Auditing Practices Board. An audit
includes examination, on a test basis, ofevidence relevant to the amounts anddisclosures in the financial statements
and the part of the directors'
remuneration report to be audited. It

KPMG Audit Plc
Registered Auditor
Cardiff
18 March 2005

Financial statements
and notes

13531 Admiral AR a/w

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Consolidated profit and loss account – Technical account (general business)
For the year ended 31 December 2004
Notes

2004
£000

Total premiums written

3

Gross premiums written
Outwards reinsurance premiums
Net premiums written

3

£000

£000

470,400
165,343(48,606)

7

371,600

Balance on the technical account91,296

Investment income
Net unrealised losses on investments
Investment expenses and charges
Other income
Profit commission – agency business

17,046(9,236)(11,969)

107,501

79,327

3,069

1,178

8,135
,401

4,881
,705

119,106

86,091Other charges:- Amortisation of goodwill- ESOT / share scheme credit / (charges)- Bonuses in lieu of dividends- Other- Total other charges
Allocated investment return transferredto the technical accountInterest receivable
Interest payable

Claims paid:- Gross amount- Reinsurers’ share- Net claims paid
Change in the provision for claims:- Gross amount- Reinsurers’ share- Net change in claims provisions

£000

£000

31,0387
9£000
32,226

8,602
(197)
(270)
69,457
18,604

7,599(2,518)(200)
50,783269(3,906)
4,144(3,345)(15,889)(18,996)(3,906)(6,900)(13,248)(24,054)20
7(8,135)

Operating profit
Total technical income

2003(29,015)

4,243

9

2004
£000

£000

129,851(38,555)(13,479)

Earned premiums, net of reinsurance

Notes

2003

116,737

Change in the gross provision forunearned premiums
Change in the provision for unearned
premiums, reinsurers’ share
Change in net unearned premium provision

Profit commission – insurance business
Allocated investment return transferredfrom the non-technical accountInterest receivable

Consolidated profit and loss account – Non-technical accountFor the year ended 31 December 2004

(74,805)
23,104(55,233)
16,154(51,701)(27,799)
5,228(39,079)
9,309(13,787)(22,571)

Profit on ordinary activities before taxation
Taxation on ordinary activities
excluding ESOT share award
Exceptional tax credit on ESOT share award

7
7

8
8

(4,881)
69,06526,998100,103

59,224

3,348(2,451)

1,166(3,146)

101,000

57,244(31,385)
16,985(18,031)(14,400)(18,031)

86,600(76,045)

39,213-

10,555

39,213(4,478)Claims incurred, net of reinsurance(74,272)(43,557)

Profit for the financial year after tax
Dividends paid and proposed

Balance on technical account before net operating expenses

44,83442,534Retained profit for the financial year

Net operating expenses(13,796)(10,308)

Basic and diluted earnings per share - unadjusted

11

33.5p

15.2p

31,03832,226

Basic and diluted earnings per share - adjusted

11

26.9p

15.2p

Balance on technical account4

10

There were no acquisitions in the financial year, and no operations were discontinued. All income and expenditure
therefore relates to continuing operations.
There are no recognised gains and losses in either year other than those reported above in the profit and loss account.
In accordance with the amendment to FRS 3 (Reporting Financial Performance), no note of historical cost profits has
been prepared, as the Group’s only material gains and losses on assets relate to the holding and disposal of investments.

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PAGES 43 44

Consolidated balance sheet
At 31 December 2004

AssetsConsolidated balance sheet
At 31 December 2004

Notes

2004
£000

Intangible assets

12

Other financial investments

14

Reinsurers’ share of technical provisions
Provision for unearned premiums
Claims outstanding

22
22

2003
£000

£000

58,448

168,925

17,046
39,62066,137

Debtors
Debtors arising out of direct insurance operations
Debtors arising out of reinsurance operations
Other debtors

16

99,3905,470
7,549

56,666
73,611
2,622
5,099

112,409
Other assets
Cash at bank and in hand
Cash on short term deposit
Tangible assets

15

88,131
480
4,668

54,957
15,1185,849

Prepayments and accrued income
Deferred acquisition costs
Other prepayments and accrued income

Total assets

2,794
1,634

75,924
2,270
1,561

4,428

3,831

568,709449,032

2004£000

Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Profit and loss accountShareholders’ funds attributable to equity interests

23
24
24
24

Creditors – falling due within one year
Creditors arising out of reinsurance operations
Loans
Other creditors including taxationand social security
Accruals and deferred income

2003
£000

259
13,14517
103,258£000

73,139142,968

108,166

59,660115,169
216,1074,838

19

174,829
18,105

21

91,347
11,45548,867
6,423

17
18

54,11450,39024,83336,368207,306

Creditors – falling due after one year
Loans
Other creditors
Accruals and deferred income

Total liabilities

21
17
18

£000

25
15,74692,395
116,679

Technical provisions
Provision for unearned premiums
Claims outstanding
Provisions for other risks and charges

81,332

93,279Notes£000
62,354

234,008

21,28944,848

Liabilities

21,667741
1,371

116,491
29,0001,741
700

23,77931,441

568,709449,032

These financial statements were approved by the Board of directors on 18 March 2005 and were signed on its behalf by:Andrew Probert
Director

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PAGES 45 46Company balance sheet
At 31 December 2004

Consolidated cash flow statement
For the year ended 31 December 2004

Notes

2004
£000

Fixed asset investments

13

Current assets
Debtors
Cash at bank and in hand

2003
£000

£000

103,804

2,519
25,587

21
17
18

£000
101,804(11,455)(29,345)(258)(6,423)(2,060)(252)(8,735)
17,910Total assets less current liabilities

90,852

119,714

Capital expenditure
Purchases of fixed assets
Sales of fixed assets

21

23
24
24
24

(21,667)

2003
£000

£000

157,517

3,348(2,418)£000
96,2291,166(4,120)930(2,954)(15,060)(10,428)(1,394)15

Equity dividends paid

Net assets(2,921)20(1,379)(2,901)(51,996)-(29,000)(21,667)(29,000)

69,18590,714259
13,14517
55,76425
15,74674,943

69,18590,714

These financial statements were approved by the Board of directors on 18 March 2005 and were signed on its behalf by:Andrew Probert
Director

27

Taxation
UK Corporation tax paid

(41,058)(12,952)

Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Profit and loss accountNet cash inflow from operating activities

26,645

Net current (liabilities) / assets

Creditors – falling due after one year
Loans

2004
£000

Returns on investments and servicing of financeInterest received
Interest paid

21,555
5,090
28,106

Creditors – falling due within one year
Loans
Other creditors
Accruals and deferred income

Notes

Financing
Issues of ordinary shares
Expenses related to share issue
Repayment of loan capital
Net movement in finance lease capital

Cash flows were invested as follows:
Increase in cash
Debt and other fixed income securities(2,354)(2,333)(1,509)(12,333)
32(6,196)(12,301)

83,816

67,645

18,53665,2807,079
60,566

83,816

67,645

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N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

PAGES 47 48

Notes to the financial statements for the year ended 31 December 2004

1. Basis of preparation

2. Accounting policies

The Group financial statements, which
consolidate the financial statements of
the Company and its wholly owned
subsidiary undertakings, have been
prepared in accordance with theprovisions of Section 255A of, andSchedule 9A to, the Companies Act 1985.
The balance sheet of the parent
Company is prepared in accordance withthe provisions of Section 226 of, andSchedule 4 to, the Companies Act 1985.

The following accounting policies havebeen applied consistently in dealing withitems which are considered material to
the group’s financial statements.

The financial statements have also been
prepared in accordance with applicableaccounting standards and comply with
the Statement of Recommended Practice(“SORP”) issued by the Associationof British Insurers as revised in
November 2003.

b) Premiums

As permitted by Section 230 of theCompanies Act 1985, the profit andloss account of the parent Company
is not presented.

a) Basis of accounting for generalinsurance business
General insurance business is accounted
for on an annual basis.

General insurance business written
premiums comprise the premiums oncontracts entered into during the year,
which incept during the current financial
year. Premiums are disclosed gross ofcommission payable to intermediaries
and exclude taxes and levies basedon premiums.
The provision for unearned premiums
comprises the proportion of grosspremiums written which, it is estimated,
will be earned in the following or
subsequent financial years. It is computed
separately for each insurance contract
using the daily pro-rata method.
c) Claims
Claims incurred in respect of generalbusiness consist of claims and claims
handling expenses paid during the period
together with the movement in theprovision of outstanding claims.

The provision for claims outstanding
comprises provisions for the estimatedcost of settling all claims incurred but
unpaid at the balance sheet date,whether reported or not. Anticipatedreinsurance recoveries are disclosed
separately as assets.
Whilst the directors consider that thegross 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 insignificant adjustments to the amounts
provided.
Adjustments to the amounts of claims
provisions established in prior years arereflected in the financial statements forthe period in which the adjustments are
made and disclosed separately if material.
The methods used, and the estimates
made, are reviewed regularly.
d) Acquisition costs
Acquisition costs comprise all direct andindirect costs arising from the conclusionof insurance contracts. Deferredacquisition costs represent the proportionof acquisition costs incurred that
corresponds to the unearned premiums
provision at the balance sheet date.

e) Guarantee fund and other leviesg) Profit commission

Provision is made at the balance sheet
date for levies declared by the Financial
Services Compensation Scheme andMotor Insurers’ Bureau before completionof the financial statements. Provision is
also made if it is more likely than not thata levy will be raised based on premiumincome which has already beenrecognised in the financial statements.

Under some of the co-insurance andreinsurance contracts the Group is party
to, profit commission may be earned on aparticular year of account, which isusually subject to performance criteriasuch as loss ratios and expense ratios. The
commission is dependent on the ultimate
outcome of any year, with commission
being recognised based on loss andexpense ratios used in the preparation of
the statutory accounts.

f) Fixed assets and depreciation
Fixed assets are stated at cost lessdepreciation. Depreciation is provided towrite off the cost less estimated residual
value of tangible assets in equal
instalments of their estimated useful
economic lives as follows:
Motor vehicles

4 years

Fixtures, fittingsand equipment

4 years

Computer equipment
and software

2-4 years

Improvement to shortlease-hold properties

4 years

The income is allocated to the technicalaccount (under the caption “Profit
commission – insurance business”) if thecommission is earned by one of theGroup’s regulated insurance companies,or alternatively to the non-technicalaccount (under the caption “Profit
commission – agency business”) if earned
by other companies.
Profit commission is recognised in the
profit and loss account when the right toconsideration is achieved, and is capableof reliable measurement.
h) Leases
The rental costs relating to operatingleases are charged to the profit and loss
account on a straight-line basis over thelife of the lease.
Assets acquired under finance leases orhire purchase contracts are included intangible assets at fair value on acquisition
and are depreciated in the same manneras equivalent owned assets. Finance leaseand hire purchase obligations areincluded in creditors, and the financecosts are spread over the periods ofthe agreements based on the net
amount outstanding.

i) Ancillary income, commission andother income
Ancillary income is credited to the profit
and loss account over the period
matching the Group’s obligations toprovide services. Where the Group has
no remaining contractual obligations,the income is recognised immediately.
A provision is made for expectedcancellations where the customer may
be entitled to a refund of ancillaryamounts charged.
Instalment income is credited to the
profit and loss account in line with theearning of the motor premium to which
the instalment income relates. Provision ismade for expected cancellations.
Commission from broking activities iscredited to the profit and loss account on
the sale of the underlying insurance policy.
j) Investments
Listed investments are stated at midmarket value on the balance sheet date,or on the last stock exchange trading
day before the balance sheet date.
Investments in subsidiary undertakings
are valued at cost less any provision for
impairment in value.
k) Investment return
Income from investments is accounted
for on an accruals basis.
Realised gains or losses represent thedifference between net sales proceeds
and purchase price or in the case ofinvestments valued at amortised cost,the latest carrying value.

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N O T E S T O T H E F I N A N C I A L S TAT E M E N T Sk) Investment return (cont.)

3. Analysis of underwriting results

Unrealised gains and losses oninvestments represent the difference
between the current value ofinvestments at the balance sheet date
and their purchase price. The movementin unrealised investment gains/losses
includes an adjustment for previously
recognised unrealised gains/losses oninvestments disposed of in theaccounting period.
Investment return (including realised andthe movement in unrealised investment
gains and losses) on investments
attributable to the general business andassociated shareholders’ funds isreported in the non-technical account.
An allocation is made from the nontechnical account to the generalbusiness technical account of thelonger-term investment return on
investments supporting the generalinsurance technical provisions andrelated shareholders’ funds.

Deferred tax assets are recognised tothe extent that they are regarded as
recoverable. They are regarded as
recoverable to the extent that, on thebasis of all available evidence, it canbe regarded as more likely than notthat there will be suitable taxable
profits from which the future reversalof the underlying timing differences
can be deducted.
m) Goodwill
Goodwill arising on acquisitions, being
the difference between the fair value ofthe purchase consideration and the fairvalue of net assets acquired, iscapitalised in the balance sheet andamortised on a straight line basis over its
estimated useful life. The useful life ofeach acquisition is determined at thetime of acquisition, and reviewed
annually to ensure the life assigned
remains appropriate.
n) Pensionsl) Taxation
The charge for taxation is based on
the profit for the year and takes into
account taxation deferred becauseof timing differences between thetreatment of certain items for taxation
and accounting purposes.

The Group operates a number ofdefined contribution personal pension
plans for its employees. The
contributions payable to these schemes
are charged in the accounting period
to which they relate.

PAGES 49 50

All insurance business written during both financial years is direct private motor insurance written in the United Kingdom. During
2004, the Group’s share of the business was underwritten by Admiral Insurance (Gibraltar) Limited (AIGL) and Admiral Insurance
Company Limited (AICL).
2004
£000

2003
£000

Motor insurance – total premiums written
Co-insurers’ share of total premiums

470,400(305,760)

371,600(241,540)Group share of total premiums
Adjustment for prior year cancellation premium

164,640703

130,060(209)

Gross premiums written per technical account

165,343

129,851

AIGL, which is registered in Gibraltar, had gross premiums written of £144,001,000 during 2004 (2003: £118,443,000), profit before
taxation of £18,170,000 (2003: £4,851,000) and net assets of £36,032,000 (2003: £19,862,000).

4. Net operating expenses
2004
£000

2003
£000

Total administrative expenses incurred
Expenses recovered from co-insurers
Gross acquisition costs payable
Movement in deferred acquisition costs
Gross expense and reinsurance commissions receivable
Movement in deferred element of gross reinsurance commission receivable
Lloyd’s charges

55,827(45,098)
8,464
(688)
(4,873)
164-

44,788(37,002)6,654(1,402)(3,710)787
193

Net operating expenses

13,796

10,308Staff profit share scheme charges included in administrative expenses above

2,708

1,932

Under the terms of the group's co-insurance arrangements, a proportion of the Group’s total expenses are incurred on behalfof the co-insurers, and are reimbursed.

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N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

5. Profit on ordinary activities before taxation

7. Net interest, other income and other charges

PAGES 51 52

Profit on ordinary activities before taxation is stated after charging the following items:

Depreciation charge:- Owned assets- Leased assets
Operating lease rentals:- Machinery and equipment- Buildings
Auditor’s remuneration:- Statutory audit fees (including Company £12,000 (2003: £6,000))- Other audit fees (Company £nil)- Other services (Company £nil, 2003: £23,000)
Loss on disposal of tangible assets

2004
£000

2003
£000

915
1,641

1,283
1,575

1,574

1,444

160
16
116
4

106
11
76
875

In 2004, fees of £827,000 were paid to the Group’s auditor in respect of professional services relating to the listing, which havebeen debited against the share premium account.

Bank and other interest receivable
Allocated to technical account
Allocated to non-technical accountStaff costs (including directors)
2004
£000

2003
£000

Salaries
Social security costs
Pension costs
Staff profit share scheme charge

26,338
2,406
399
2,708

23,651
2,158
308
1,932

Sub total before share scheme charges

31,851

28,049

Employee and director share scheme (credit) / charges (also refer to note 20)(4,144)

6,900

Staff numbers (including directors)

Average for the year
2004
2003
NumberNumberDirect customer contact staff
Support staff

1,242
301

1,078
284

Total

1,543

1,362

Details of directors’ remuneration are set out in the remuneration report.

2003
£000

401
3,348

705
1,166

3,749

1,871

Interest receivable allocated to the technical account relates to interest earned on the Funds at Lloyd’s (being regulatory capital
held in support of the run-off of Syndicate 2004).

Interest payable
Commercial loan interest
Finance lease interest
Letter of credit charges

Profit before tax, using longer-term investment return assumptions is not materially different to the reported profit before tax
using actual investment returns.

6. Employee costs

2004
£000

Other income
Revenue from ancillary sales
Commission from broker operations
Instalment income
Other

Other charges
Costs associated with ancillary sales
Broker operations operating costs
Other costs

2004
£000

2003
£000

2,020
256
175

2,142
270
734

2,451

3,146

2004
£000

2003
£000

59,175
4,475
2,603
3,204

44,687
3,767
1,257
1,072

69,45750,783

2004
£000

2003
£000

10,682
2,719
2,488

8,831
2,096
2,321

15,88913,248

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8. Taxation on profit on ordinary activities

9. Profit commission
2004
£000

2003
£000

31,342(16,985)
1,571
15,92815,192(107)
15,085

(651)
(877)

2,946
-

14,40018,031

2004
£000

2003
£000

Profit on ordinary activities before taxation

101,000

57,244

Corporation tax thereon at 30%
Exceptional ESOT tax relief (refer to note 20)
Utilisation of brought forward tax losses
Syndicate profits taxed on Lloyd’s basis
Adjustments in respect of prior year insurance technical provisions
Provisions previously disallowed, now deductible for corporation tax
Expenses and provisions not deductible for tax purposes
Other timing differences
Impact of using lower tax rate
Adjustments relating to prior years

30,300(16,985)
(582)
4,270
(216)
(3,485)
1,201
(138)
(8)
1,571

17,173(105)(5,251)
3,291
93
(9)
(107)

10. Dividends

Current tax charge for the year

15,92815,085

UK Corporation tax
Current year charge at 30% (2003: 30%)
Tax relief in respect of ESOT share provision
Under / (over) provision relating to prior years – corporation tax
Current tax charge
Deferred tax
Current year deferred taxation movement(Over) provision relating to prior years – deferred tax
Total tax charge per profit and loss accountFactors affecting the current tax charge are as follows:

Profit commission receivable
Insurance business – allocated to the technical accountAgency business – allocated to the non-technical account

PAGES 53 54

2004
£000

2003
£000

3,069
18,604

1,178
269

21,673

1,447

During 2004, profit commission was recognised in relation to the Group’s co-insurance and reinsurance arrangements, being
credited to the technical and non-technical accounts respectively. Of the £18,604,000 recognised to 31 December 2004 in the
non-technical account, £5,994,000 was attributable to premiums earned in the year to 31 December 2003.
The element relating to 2003 became capable of reliable measurement during 2004, as the basis of calculation of the profit
commission was formalised and agreed between parties. Following this agreement, co-insurance profit commission will accrue
in proportion to premiums earned.
Refer also to the financial review for details of further profit commission receivable on the closure of the Syndicate’s final openyear of account.

2004
£000

2003
£000

Dividends paid:
1. 2 March 2004 (£55.67 per share)
2. 2 August 2004 (£148.45 per share)

14,17937,817-

Total dividends paid

51,996-

Dividends proposed (9.3p per share) payable 25 May 2005

24,049-Total dividends

76,045-

Dividends paid during 2004 were paid before the Company’s share capital was reorganised (described in note 23) in advance of thelisting. Both dividends paid per share figures above reflect share capital in issue at the time the dividend was paid.

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N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

11. Earnings per share

13. Investments in subsidiary undertakings

Unadjusted EPS
Profit for the financial year after taxation
Weighted average number of shares (basic and adjusted)
Unadjusted earnings per share (basic and diluted)
Adjusted EPS
Profit for the financial year after tax
Deduct exceptional ESOT tax credit (note 20)
Adjusted profit after tax
Adjusted earnings per share (basic and diluted)

2004
£000

2003
£000

86,600258,595,400
33.5p

39,213
258,595,400
15.2p

PAGES 55 56

2004
2003
Company cost Company cost
£000
£000
Investments in group undertakings

103,804

101,804

The only movement in the year related to a £2m capital injection in Admiral Insurance Company Limited.
The Company’s principal subsidiaries (all of which are 100% directly owned) are as follows:

86,600(16,985)
69,61526.9p

39,21339,21315.2p

In accordance with the provision of FRS 14 (Earnings per share), the number of shares included in the EPS calculations for 2003
and 2004 has been adjusted to assume all bonus share issues arose at the start of 2003.
Details of the reorganisation of the Company’s share capital that took place before the Company’s flotation during September 2004
is set out in note 23.
The two elements of the capital reorganisation that were not bonus issues (i.e. the subscription for shares by the ESOT and thesubdivision) had no impact on the resources of the Group, and hence it has been assumed these also arose at the start of 2003.

Subsidiary

Country of incorporation

Class of shares held

Principal activity

Admiral Insurance Services Limited
Admiral Insurance Company Limited
Admiral Insurance (Gibraltar) Limited
Admiral Syndicate Limited

England and Wales
England and Wales
Gibraltar
England and Wales

Ordinary
Ordinary
Ordinary
Ordinary

Admiral Syndicate Management Limited

England and Wales

Ordinary

Able Insurance Services Limited
Inspop.com Limited

England and Wales
England and Wales

Ordinary
Ordinary

Service company
Insurance company
Insurance company
Lloyd’s corporate
capital vehicle
Lloyd’s managing
agencyIntermediary
Internet services

31 December 2004
Historic Cost Market Value
£000
£000

31 December 2003
Historic Cost Market Value
£000
£000

An adjusted EPS figure has been presented to eliminate the impact of the exceptional tax credit arising on the crystallisationof the ESOT which occurred during 2004.

14. Other financial investments
12. Intangible assets
Group
£000
Cost
At 31 December 2003 and 2004

78,879Amortisation
At 1 January 2004
Charged during the year
At 31 December 2004

16,525
3,906
20,431

Net book amountAt 31 December 2004

58,448At 31 December 2003

62,354

All of the above goodwill is currently being amortised over a 20 year useful life.

Group

Debt and other fixed income securities
Deposits with credit institutions

203,615
30,590203,418
30,590146,979
24,464144,461
24,464

234,205

234,008

171,443

168,925

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N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

15. Tangible assets

16. Debtors arising out of direct insurance operations
Improvements toshort leaseholdbuildings

Computerequipment
and software

Officeequipment

Furnitureand fittingsMotorvehicles

Total

£000

£000

£000

£000

£000

£000

Cost
At 1 January 2004
Additions
Disposals

1,658
278
(5)

13,861
867
(342)

2,785
193
-

1,583
44
-

12
-

At 31 December 2004

1,931

14,386

2,978

1,627

Depreciation
At 1 January 2004
Charge for the year
Disposals

1,405
149
-

9,023
2,004
(328)

2,127
340
-

At 31 December 2004

1,554

10,699Net book amountAt 31 December 2004

377

At 31 December 2003

253

Group
2004
£000

Company
2004
£000

Group
2003
£000

Company
2003£000

97,304
2,086-

72,678933-

19,887
1,394(347)

99,390-73,611-

12

20,934

17. Other creditors including taxation and social security

1,483
62
-

1
-

14,038
2,556
(328)

Group
2004
£000

Company
2004
£000

Group
2003
£000

Company
2003
£000

2,467

1,545

1

16,266

3,687

511

82

11

4,668

4,838

658

100

-

5,849

9,585
24,0493,236
1,543
15,701-

5,246
24,049
50

8,717
2,570
2,052
11,494
-

1,455
605

54,11429,34524,833

2,060

Group
2004
£000

Company
2004
£000

Group
2003
£000

Company
2003
£000

741

-

1,741

-

Amounts owed by policyholders
Commission due

Amounts falling due within one year
Corporation tax payable
Dividends payable
Other tax and social security
Finance leases
Other creditors
Amounts owed to subsidiary companies

Net book amounts include the following amounts relating to leased assets:

Computer equipment and software
Office equipment
Furniture and fittings

PAGES 57 58

2004
£000

2003
£000

2,849
83
-

4,187
125
-

2,932

4,312

Amounts falling due within one year
Finance leases

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N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

18. Accruals and deferred income

20. Employee and director share schemes
Group
2004
£000

Amounts falling due within one year
Premiums receivable in advance of policy inception
Claims handling expenses
Motor Insurers’ Bureau levy
Deferred income
Other

Company
2004
£000

Group
2003
£000

Company
2003£000

PAGES 59 60

2004
£000

2003
£000

ESOT1
Directors’ share options2(4,452)
308

6,900
-

Total share scheme charges(4,144)

6,900

23,9605,865
12,032
7,513
1,020

258

16,495
5,289
5,797
5,190
3,597

252

50,390258

36,368

252

Group
2004
£000

Company
2004
£000

Group
2003
£000

Company
2003
£000

1,371

-

700

-

1,371

-

700

-

Deferred taxation1
£000

ESOT2
£000

Total
£000

No further awards are to be made to the ESOT and the provision in the balance sheet at 31 December 2004 is nil.

Balance at 1 January 2004
Movement in the financial year

6,366
(1,528)

11,739(11,739)

18,105(13,267)

Tax relief

Balance at 31 December 2004

4,838

-

4,838

Amounts falling due within one year
Claims handling expenses

19. Provisions for other risks and charges

1. Employee Share Ownership Trust (ESOT)The Group established an ESOT during 2000, under which a number of Admiral Group shares were to be made available forsubscription by the Trust on the event of a sale or listing of the Company’s shares.
The flotation of the Company’s shares on 23 September 2004 triggered an issue of shares to the Trust, prior to the listingtaking place.
The number of shares that were initially to be made available to the Trust was 14,706 C ordinary shares. However, following thereorganisation of the Company’s capital (as set out in note 23), the actual number of shares held in the Trust at flotation was
20,588,400 ordinary 0.1p shares. The Trust benefited from bonus issues to the same extent as ordinary shareholders.
The total value of shares issued to the Trust was £56.6m at flotation – representing 8% of the value of the Group at listing.
The cumulative charge recognised in the Group accounts up to 31 December 2004 in respect of the ESOT is £7.2m, being theemployer’s National Insurance charge on the share awards to employees. Up to 31 December 2003, the Group had made provisionof £11.7m, in the expectation that it would have to fund the Trust’s subscription for shares at their full market value. As the Trust was
only eventually funded at the share’s par value, the Group’s 2004 profit and loss account includes a credit of £4.5m, representing therelease of the provision made in excess of the employer’s National Insurance charge.

The Group benefited from a corporation tax deduction in respect of the award of shares to its employees under the ESOT.
The tax credit of £17.0m (being 30% of the market value of the shares at listing) is shown as an exceptional item in the profit
and loss account.

1. Deferred tax
The net balance provided at the end of the current year is made up of a gross deferred tax liability of £5,132,000 (2003: £8,878,000)
relating to the tax treatment of Lloyd’s Syndicates, and a deferred tax asset of £294,000 (2003: £2,512,000) in respect of other timing
differences.
At the year-end, there was an unprovided deferred tax asset of £531,000 (2003: £1,113,000) relating to losses carried forward.
There was a deferred tax asset provided in the Company accounts at the year-end of £5,000 (2003: £nil). There was an unprovided
asset of £171,000 (2003: £171,000) relating to carried forward losses at the year-end.

2. Directors’ share options
Two non-executive directors within the Admiral group (one, Keith James, a director of Admiral Group plc) were issued with shareoptions during September 2004. Each was granted (free of charge) options over 56,000 Admiral Group plc 0.1p ordinary shares, andeach exercised their options shortly after grant, also during September 2004. The exercise price per share was 0.1p, and the fairvalue of each option at grant and exercise was £2.75.
The 2004 profit and loss account includes a charge of £308,000 in respect of these options.
No director was granted options during 2003 and no director held unexercised options at 31 December 2003 or 2004.

2. Employee Share Ownership Trust (ESOT)
Refer to note 20.

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N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

21. Loans

22. Technical provisions and estimation techniques (cont.)

The Company’s debt consists of a facility negotiated in 2002 with Lloyds TSB and Bank of Scotland. This consists of a £40m
term loan (paid down during the year to £33m), along with a £10m revolving credit facility that was cancelled by the directors
during 2004. The term loan is to be repaid according to a set repayment schedule over six years from October 2002.

2004

Gross
£000

Reinsurance
£000

Net
£000

Claims reserve brought forward
Provision movement – current year
Releases of prior year reserves

115,169
42,040(14,241)

39,62010,280(5,052)75,54931,760(9,189)Claims reserve carried forward

142,968

44,84898,120

2003

Gross
£000

Reinsurance
£000

Net
£000

Claims reserve brought forward
Provision movement – current year
Releases of prior year reserves

124,478
19,894(29,203)53,407(673)(13,114)71,071
20,567(16,089)

Claims reserve carried forward

115,169

39,62075,549Interest is charged on amounts drawn down based on three elements:a) LIBORPAGES 61 62b) A margin – as set out in the facility agreement, varying between 1.25% and 2.25%c) A “mandatory costs” contribution – currently around 0.01%
Accrued interest is paid off at the end of quarterly interest periods. Security granted in respect of the facility is in the formof fixed and floating charges over most Group assets (excluding assets subject to regulatory restriction) and charges overthe shares in some subsidiary companies.
Amounts outstanding (including accrued interest) at 31 December were as follows:
2004
£000

2003
£000

Repayable
Within one year
Two to five years
Greater than five years

11,455
21,667-

6,423
29,000-Total outstanding

33,12235,423

22. Technical provisions and estimation techniques

Total

Estimation techniques are used in the calculation of the technical provision for claims outstanding, which represents a projectionof the ultimate cost of settling claims that have occurred prior to the end of 2004 and remain unsettled at the end 2004.
The key area where these techniques are used relates to the ultimate cost of reported claims. A secondary area relates to theemergence of claims that occurred prior to the end of 2004, but had not been reported at the year-end.

Gross
£000
At 31 December 2004
Claims outstanding
Unearned premiums

Estimation techniques used in calculation of claims reserves

142,968
73,139

Reinsurance£000
44,84821,289Net£000

The estimates of the ultimate cost of reported claims are based on the accurate setting of claim reserves on a case by case basis,
for all but the simplest of claims.

98,12051,850The sum of these reserves are compared with projected ultimate costs using a variety of different projection techniques(including incurred and paid chain ladder and an average cost of claim approach) to allow an actuarial assessment of their likely
accuracy and to include allowance for unreported claims.

216,107

66,137

149,970

Gross
£000

Reinsurance
£000

Net
£000

At 31 December 2003
Claims outstanding
Unearned premiums

115,169
59,66039,62017,04675,54942,614

Total

174,829

56,666

118,163

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 thehistorical trend.
The claims provisions are subject to annual independent review by the Group’s actuarial advisors.

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N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

23. Share capital

24. Reconciliation of movements in shareholders’ funds

Authorised

2004
£000

2003
£000

500
-

13
6
3
3
2

500

27

Issued, called up and fully paid

2004
£000

2003
£000

258,595,400 ordinary shares of 0.1p
132,488 A ordinary shares of 10p
60,176 B ordinary shares of 10p
12,042 C ordinary shares of 10p
29,836 D ordinary shares of 10p
20,164 E ordinary shares of 10p

259
-

13
6
1
3
2

259

25

500,000,000 ordinary shares of 0.1p
132,488 A ordinary shares of 10p
60,176 B ordinary shares of 10p
27,500 C ordinary shares of 10p
29,836 D ordinary shares of 10p
20,164 E ordinary shares of 10p

Share capital reorganisation
As a result of the re-registration of the Company as a public limited company and the listing during 2004, significant
reorganisations of the share capital were effected during the year. These can be summarised as follows:• On 7 September 2004, the authorised share capital was increased to £54,032.80 by the creation of 132,488 new A shares,
60,176 new B shares, 27,500 new C shares, 29,836 new D shares and 20,164 new E shares• Also on 7 September, the directors capitalised £25,470.60 of the Company’s share premium account and the sum was used
to effect a one for one bonus issue. This resulted in the issued share capital being increased to 264,976 A shares, 120,352 B
shares, 24,084 C shares, 59,672 D share and 40,328 E shares• On 17 September 2004, according to the provisions of the Company’s Articles, the Company re-purchased 123,104 A shares,
27,722 D shares and 18,736 E shares for aggregate consideration of one penny. These shares were then cancelled• Also on 17 September, the ESOT subscribed for 29,412 new C shares, fully paid for consideration of £2,941.20• On the same date, following the Company’s re-registration as a public company, the share capital of the Company (issued
and unissued) was re-designated ordinary shares of 10p and then each share sub-divided into 100 ordinary shares of 0.1p
The authorised share capital was increased to 500,000,000 ordinary shares of 0.1p
• Also on the same date, the directors capitalised a further £221,557.20 of the share premium account and effected a further
bonus issue of six new to one existing share. Following the exercise of options by two Group directors of 56,000 ordinary
shares each, this resulted in the issued capital being increased to 258,595,400 ordinary shares of 0.1p each, which was theyear-end position
All ordinary shares in issue at 31 December 2004 have the same rights.

PAGES 63 64

SharecapitalSharepremium
account

Capitalredemption
reserve

Profit andlossaccount

Total

£000

£000

£000

£000

£000

At 1 January 2004
Profit for the financial year
Issues of share capital1
Share issue expenses
Dividends
Share option charges2
Cancellation of shares3

25
251
(17)

15,746(247)(2,354)-17

92,39586,600(76,045)308-

108,166
86,6004(2,354)(76,045)308-

At 31 December 2004

259

13,14517

103,258

116,679

SharecapitalSharepremium
account

Capitalredemption
reserve

Profit andlossaccount

Total

£000

£000

£000

£000

£000

At 1 January 2004
Profit for the financial year
Issues of share capital1
Share issue expenses
Dividends
Share option charges2
Cancellation of shares3

25
251
(17)

15,746(247)(2,354)-17

74,94356,558(76,045)308-

90,71456,5584(2,354)(76,045)308-

At 31 December 2004

259

13,14517

55,764

69,185Group

Company

Notes
1. Refer to note 23 for full details of share capital movements in 2004.
2. Relates to the exercise of options by two directors during 2004 – refer to note 20 for further detail.
3. As set out in note 23, the Company’s Articles provided for the cancellation of a number of shares (the “deferred shares”)
immediately prior to a flotation of the Company’s shares. These were repurchased at an amount below par, with the balancetransferred to a capital redemption reserve.

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N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

25. Financial commitments

27. Cash flow statement

Annual commitments of the Group under non-cancellable operating leases are as follows:a) Reconciliation of operating profit to net cash inflow from operating activities:

31 December 2004

2004
£000

2003
£000

Operating profit
Add back / (deduct):- Depreciation charge- Amortisation charge- Unrealised losses on investments- Employer’s National Insurance charge on share schemes- ESOT (credit) / charge- Share option charges
Loss on disposal of tangible assets
Change in gross technical provisions
Change in reinsurers’ share of technical provisions
Change in debtors and prepayments
Change in creditors and accruals - excluding tax and social security
Change in tax and social security creditor

100,103

59,224

2,556
3,906
197
(7,284)(4,452)308
441,278(9,471)(31,674)
61,380
666

2,858
3,906
2,518
6,900
875
19,706(3,259)(7,992)
10,071
1,422

Net cash inflow from operating activities

157,517

96,229

2004
£000

2003
£000

Net cash inflow for the financial year:
Cash flow
Portfolio investments
Movement in financing
Movement arising from cashflows
Changes in market values

18,53665,2803,810
87,626(197)

7,079
60,566
12,38480,029(2,518)

Total movement in portfolio investments, net of financing
Opening portfolio investments, net of financing

87,429199,784

77,511
122,273

Closing portfolio investments, net of financing

287,213

199,784

31 December 2003

Operating leases which expire:

Land andbuildings
£000

Other
£000

Land andbuildings
£000

Other
£000

Within one year
In the second to fifth year inclusive
Over five years

509
1,465

-

16
460
1,147

-

1,974

-

1,623

-

At the year-end, the Group had contracted to spend approximately £373,000 on tangible assets during 2005 (2003: £167,000 during2004). The Company itself does not hold tangible assets, and was not committed to any expenditure after 31 December 2004.

PAGES 65 66b) Movement in opening and closing portfolio of investments, net of financing:

26. Contingent liabilities
The Group had no contingent liabilities at the year-end, other than those arising out of insurance contracts, and other agreements
entered into in the normal course of business.

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N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

C O N S O L I D AT E D F I N A N C I A L S U M M A RY

27. Cash flow statement (cont.)

Profit and loss account

2004
£000

2003
£000

2002
£000

2001
£000

2000
£000

Total premiums written

470,400

371,600

333,000

284,415232,000

Net earned premium
Profit commission – insurance business
Allocated investment return
Net claims incurred
Net operating expenses
Technical account balance

107,501
3,069
8,536(74,272)(13,796)
31,03879,327
1,178
5,586(43,557)(10,308)
32,226

81,336
6,145(52,566)(7,729)27,186

84,135
4,055(63,933)(12,927)
11,33040,392
2,095(36,682)(6,637)(832)

Profit commission – agency businessNet other income

18,60450,461

269
26,72919,38819,936

15,246

Operating profit
Net interest
Profit before taxation
Taxation
Profit after taxation
Dividends
Retained profit

100,103
897
101,000(14,400)
86,600(76,045)
10,55559,224(1,980)57,244(18,031)
39,21339,213

46,574(3,623)42,951(12,014)30,93730,93731,266(3,831)
27,435(9,099)18,336
18,336

14,414(3,654)
10,760(6,851)
3,909
3,909

Balance sheet

2004
£000

2003
£000

2002
£000

2001
£000

2000
£000

AssetsIntangible assets
Financial investments
Reinsurers’ share of technical provisions
Debtors
Cash
Tangible assets
Prepayments and accrued income

58,448234,008
66,137
112,40988,611
4,668
4,428

62,354
168,925
56,666
81,33270,075
5,849
3,831

66,260110,877
53,40773,72862,996
6,681
3,443

71,94593,912
106,41282,272
33,218
7,261
10,49275,54545,98558,253
77,69928,356
4,644
8,993

Total assets

568,709449,032

377,392

405,512299,475

Liabilities
Shareholders’ funds
Gross technical provisions
Creditors due within one year
Creditors due after one year
Provisions for other risks and charges

116,679
216,107207,306
23,7794,838

108,166
174,829
116,491
31,441
18,105

68,953
155,123
96,83548,222
8,259

22,268208,495
106,291
68,458-

3,932
116,507
95,201
83,835-

Total liabilities

568,709449,032

377,392

405,512299,475c) Movements in cash, portfolio investments and financing:
2004

At 1
January
2004
£000

Cash
Flow

Market

At 31

Value

December£000

changes
£000

2004
£000

54,957
15,11833,174(14,638)-

88,131
480

70,075

18,536-

88,611

Fixed income and other debt securities
Deposits with credit institutions
Finance leases
Loans

144,461
24,464(3,793)(35,423)

59,154
6,126
1,509
2,301

(197)
-

203,418
30,590(2,284)(33,122)

Total

199,784

87,626(197)

287,2132003

At 1
January
2003
£000

Cash
Flow

Market

At 31

Value

December£000

changes
£000

2003
£000

50,021
12,975

4,936
2,143

-

54,957
15,11862,996

7,079-

70,075

Fixed income and other debt securities
Deposits with credit institutions
Finance leases
Loans

90,09920,778(3,761)(47,839)

56,8803,686(32)12,416(2,518)-144,461
24,464(3,793)(35,423)

Total

122,273

80,029(2,518)

199,784

Cash at bank and in hand
Cash on short term deposit

Cash at bank and in hand
Cash on short term deposit

28. Related party transactions
There were no related party transactions occurring during 2004 that require disclosure.

PAGES 67 68

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NOTICE OF ANNUAL GENERAL MEETINGNOTICE OF ANNUAL GENERAL MEETINGPAGES 69 70

Notice of Annual General Meeting
Notice is hereby given that the Annual
General Meeting of Admiral Group plc
will be held on Wednesday 18 May at
11.00am at The Celtic Manor Hotel,
Coldra Woods, Newport, South Wales,
NP18 1HQ.

Ordinary Business1. To receive the reports of the directors
and the audited accounts of theCompany for the year ended 31
December 2004
2. To approve the directors’
remuneration report set out on pages
28 to 30 for the year ended 31
December 2004
3. To declare a final dividend on theordinary shares of the Company forthe year ended 31 December 2004 of
9.3 pence per ordinary share
4. To re-elect Alastair Lyons CBE (Nonexecutive Chairman and a member of
the Nominations Committee) as adirector of the Company
5. To re-elect Henry Engelhardt (Chief
Executive Officer) as a director of theCompany
6. To re-elect David Stevens (Chief
Operating Officer) as a director of theCompany
7. To re-elect Andrew Probert (FinanceDirector) as a director of theCompany
8. To re-elect Manfred Aldag (Nonexecutive director and member of theNominations Committee) as adirector of the Company
9. To re-elect Martin Jackson (Nonexecutive director, Chairman of the
Audit Committee and member of theRemuneration Committee) as adirector of the Company

10.To re-elect Keith James OBE (Nonexecutive director, Chairman of theNominations Committee and memberof the Audit Committee) as a directorof the Company
11. To re-elect John Sussens (Senior
Independent Non-Executive Director
and Chairman of the Remuneration
Committee) as a director of theCompany
Martin Jackson and John Sussens havejoined the Board during the last year andnone of the other current directors of theCompany submitted themselves for
retirement and re-election at the two
Annual General Meetings of theCompany that took place prior to thelisting. Accordingly, as a matter of goodorder, all of the current directors of theCompany believe that they should retireand submit themselves for re-election at
this Annual General Meeting, the firstsuch meeting following the listing.
Biographical details of all of the directors
may be found in the Annual Report of
the Company on pages 35 to 36.
12. To re-appoint KPMG Audit plc as theauditor of the Company from theconclusion of this meeting until theconclusion of the next General
Meeting at which accounts are laid
and to authorise the directors todetermine their remuneration

Special BusinessTo consider and, if thought fit, to pass thefollowing resolution which will be
proposed as an Ordinary Resolution:
13. That the directors be generally andunconditionally authorised pursuant
to Section 80 of the Companies Act
1985 (the “Act”) to exercise all thepowers of the Company to allot

relevant securities (within themeaning of that section) up to an
aggregate nominal amount of £86,200
provided that this authority shall
expire (unless previously renewed,
varied or revoked by the company inGeneral Meeting) 15 months after thedate of the passing of this resolution,or, if earlier, at the conclusion of thenext Annual General Meeting of theCompany after the date of thepassing of this resolution, but so that
this authority shall allow the
Company to make before the expiryof this authority offers or agreements
which would or might require relevant
securities to be allotted after such
expiry and notwithstanding such
expiry the directors may allot relevant
securities in pursuance of such offers
or agreements.
Section 80 of the Companies Act 1985
provides that the directors of a company
cannot issue new shares in its capital
without the approval of its shareholders.
Accordingly, the purpose of thisresolution is to give the directors of theCompany authority to issue new shares in
the capital of the Company up to a
maximum amount of £86,200, which isapproximately equivalent to 33.3% of theissued share capital of the Company as at
11 April 2005. Authority for this alreadyexists by virtue of a resolution dated 17
September 2004. However, the directors
feel that as a matter of good order itshould be reaffirmed. This resolution willallow the directors of the Company
flexibility to act in the best interests of
the Company and its shareholders by
issuing new shares in appropriate
circumstances.

To consider and, if thought fit, to pass thefollowing resolutions which will be
proposed as Special Resolutions:
14. Subject to passing Resolution 13, thatthe directors be and they are hereby
empowered pursuant to section 95 of
the Act to allot equity securities (asdefined in section 94(2) of the Act
and as amended by the Regulations)for cash pursuant to the authority
conferred by Resolution 13 above as if
section 89(1) of the Act did not apply
to such an allotment provided that
this power shall be limited to theallotment of such equity securities:a) in connection with an offer of
equity securities by way of rights
to the holders of the ordinary
shares in proportion (as nearly as
may be practicable) to theirholdings on a record date fixed by
the directors (but subject to
exclusions or other arrangements
as the directors may consider
necessary or expedient to deal
with any legal or practicalproblems under the laws of any
territory or the requirements ofany regulatory body or stock
exchange in any territory or inconnection with fractional
entitlements or otherwise
howsoever) andb) otherwise than pursuant to subparagraph a) above up to a
maximum aggregate nominal
amount equal to £12,930
Provided that this power shall, unlesspreviously revoked or varied by
special resolution of the Company inGeneral Meeting, expire 15 months
after the date of the passing of thisresolution or, if earlier, at theconclusion of the next Annual
General Meeting of the Company
after the date of the passing of thisresolution save that the Company
may, before the expiry of such
power, make offers or agreements
which would or might require equity
securities to be allotted after such
expiry and the directors may allot
equity securities in pursuance of suchoffers or agreements as if the power
conferred hereby had not expired.
For the purposes of this resolution,
the “Regulations” means The
Companies (Acquisition of Own
Shares) (Treasury Shares)
Regulations 2003.
Section 89 of the Companies Act 1985
gives existing shareholders in a company
certain pre-emption rights with respect
to allotments of new shares. A company
can only disapply these rights with theapproval of its shareholders. Accordingly
the purpose of this resolution is toallow the directors of the Company toallot ordinary shares in the Company for
cash, or to transfer treasury shares for
cash, other than to its existing
shareholders on a pre-emptive basis up
to a maximum amount of £12,930 whichis equivalent to 5% of the issued
ordinary share capital of the Company
as at 11 April 2005 and is in line with therecommended guidelines issued byinstitutional investor bodies. As with
Resolution 13, authority already exists
for this by virtue of a resolution dated 17
September 2004. However, the directors
feel that as a matter of good order itshould be reaffirmed.
15. That the Company be generally andunconditionally authorised to makeone or more market purchases (within

the meaning of Section 163(3) of theCompanies Act 1985) on the London
Stock Exchange of ordinary shares of
0.1p in the capital of the Company(ordinary shares) provided that:a) the maximum aggregate number ofordinary shares authorised to bepurchased is 12,900,000(representing 4.99% of the issued
ordinary share capital)b) the minimum price which may be
paid for an ordinary share is 0.1pc) the maximum price which may be
paid for an ordinary share is anamount equal to 105% of theaverage of the middle market
quotations for an ordinary share as
derived from The London Stock
Exchange Daily Official List for thefive business days immediately
preceding the day on which theordinary share is purchased,
exclusive of expensesd) the authority conferred by thisresolution shall, unless renewed,
expire on the date falling 15
months after the date of thepassing of this resolution, or, if
earlier, at the conclusion of thenext Annual General Meeting of
the Company ande) the Company may make a contract
to purchase ordinary shares under
this authority before the expiry of
the authority which will or may be
executed wholly or partly after the
expiry of the authority, and may
make a purchase of ordinary sharesin pursuance of any such contract

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The directors consider, in certain
circumstances, that it may be appropriate
and in the best interest of shareholders
generally for the Company to purchaseits own shares. This resolution gives
authority for the Company to purchase
up to 12,900,000 ordinary shares which isapproximately equivalent to 4.99% of theissued share capital of the Company as
at 11 April 2005. The directors have no
specific plans to exercise any authority
granted by this resolution, but will keep
the matter under review and will only
make purchases where, in the light ofprevailing market conditions, they
consider it will result in an increase inearnings per ordinary share in the
Company.
The Companies (Acquisition of Own
Shares) (Treasury Shares) Regulations
2003 (which came into force on 1
December 2003) enable companies toretain any of their own shares they havepurchased as treasury shares with aview to their possible re-issue at a later
date, rather than cancelling them as thelaw previously required. The Company
will consider holding any of its own
shares that it purchases pursuant to thisresolution as treasury shares, which will
give the directors flexibility in the
management of the capital base of theCompany. No dividends will be paid on
treasury shares while held in treasury,and no voting rights will attach to them.
16. That the Articles of Association of theCompany be amended by the deletionof Article 168.1 and the substitution
therefore of the following:

NOTICE OF ANNUAL GENERAL MEETING“168.1 Subject to the provisions of theAct, but without prejudice to any
indemnity to which he may beotherwise entitled, each director,
alternate director, secretary or otherofficer of the Company may, at thediscretion of the Board, be
indemnified out of the assets of theCompany against all costs, charges,
losses, damages and liabilities
incurred by him in the actual or
purported execution and/or
discharge of his duties or exercise of
his powers and/or otherwise inrelation to or in connection with his
duties, powers or office, provided
that this Article 168.1 shall be deemed
not to provide for, or entitle any such
person to, indemnification to theextent that it would cause this Article
168.1, or any element of it, to betreated as void under the Act’’.

Recommendation

Notes

Your Board considers each of the
proposed resolutions to be in the bestinterests of the Company and its
shareholders as a whole. Accordingly,
your directors unanimously recommendthat you vote in favour of the resolutions
as they intend to do in respect of theirown beneficial shareholdings.

1. A member entitled to attend and vote at theAnnual General Meeting (‘AGM’) may appoint a
proxy (who need not be a member of theCompany) to attend and, on a poll, to vote on
his or her behalf. In order to be valid an
appointment of proxy must be returned by oneof the following methods:

The Companies (Audit, Investigations andCommunity Enterprise) Act 2004 makeschanges to section 310 of the Companies
Act 1985 in relation to theindemnification of directors bycompanies for liabilities arising inconnection with the performance of theirfunctions. Consequently the Company
will be able, at the discretion of theBoard and subject to the Companies Act
1985, to indemnify the directors for costs
and losses incurred by them in facing anddefending liability in civil, criminal andregulatory proceedings. This change
comes into force on 6 April 2005.

REGISTERED OFFICE
Capital Tower
Greyfriars Road
Cardiff CF10 3AZ
Registered No. 3849958

By order of the Board

Stuart Clarke
Company Secretary
11 April 2005

• in hard copy form by post, by courier or byhand to the Company’s registrars, Capita
Registrars, Proxy Department, The Registry,
34 Beckenham Road, Beckenham, Kent, BR3
4TU or• if you hold your shares in certificated formand have your share certificate to hand,
online at www.capitaregistrars.com byfollowing the instructions provided or• in the case of CREST members, by utilising
the CREST electronic proxy appointment
service in accordance with the procedures
set out below
and in each case instructions must be received
not less than 48 hours before the time of themeeting. Appointment of a proxy does notpreclude a member from attending the meetingand voting in person.
2. For an appointment of proxy returned in hard
copy to be valid, it must be completed anddeposited (together with any power ofattorney or other written authority underwhich it is signed or a copy of such authority
notarially certified or in some other way
approved by the directors) with Capita
Registrars, Proxy Department, The Registry, 34
Beckenham Road, Beckenham, Kent BR3 4TU,
not less than 48 hours before the meeting.
3. CREST members who wish to appoint a proxyor proxies by utilising the CREST electronic
proxy appointment service may do so by
utilising the procedures described in the CREST

Manual. CREST Personal Members or other
CREST sponsored members, and those CREST
members who have appointed a voting service
provider(s), should refer to their CREST sponsor
or voting service provider(s), who will be able
to take the appropriate action on their behalf.
In order for a proxy appointment made bymeans of CREST to be valid, the appropriate
CREST message (a ‘CREST Proxy Instruction’)must be properly authenticated in accordancewith CRESTCo’s specifications and must containthe information required for such instructions,as described in the CREST Manual. The
message, regardless of whether it relates to theappointment of a proxy or to an amendment
to the instruction given to a previously
appointed proxy must, in order to be valid, betransmitted so as to be received by the issuer’s
agent (ID RA10) by the latest time(s) for receipt
of proxy appointments specified in the noticeof meeting. For this purpose, the time ofreceipt will be taken to be the time (asdetermined by the timestamp applied to themessage by the CREST Applications Host) fromwhich the issuer’s agent is able to retrieve themessage by enquiry to CREST in the mannerprescribed by CREST. The Company may treat
as invalid a CREST Proxy Instruction in thecircumstances set out in Regulation 35(5)(a) of
the Uncertificated Securities Regulations 2001.
CREST members and, where applicable, their
CREST sponsors or voting service providers
should note that CRESTCo does not makeavailable special procedures in CREST for any
particular messages. Normal system timings andlimitations will therefore apply in relation to
the input of CREST Proxy Instructions. It is the
responsibility of the CREST member concerned
to take (or, if the CREST member is a CREST
personal member or sponsored member or has
appointed a voting service provider(s), to
procure that his CREST sponsor or voting

PAGES 71 72

service provider(s) take(s)) such action as shallbe necessary to ensure that a message istransmitted by means of the CREST system byany particular time. In this connection, CREST
members and, where applicable, their CREST
sponsors or voting service providers arereferred, in particular, to those sections of the
CREST Manual concerning practical limitationsof the CREST system and timings
4. In the case of joint holdings, only one holder
may sign and the vote of the senior who
tenders a vote shall be accepted to the
exclusion of the votes of the other joint
holders, seniority for this purpose being
determined by the order in which the names
stand in the Register of members in respect of
joint holdings.
5. Pursuant to Regulation 41 of the UncertificatedSecurities Regulations 2001, in order to be able
to attend and vote at the AGM or any
adjourned meeting, (and also for the purposesof calculating how many votes a person may
cast), a person must have his/her nameentered on the register of members of theCompany by 6.00pm on 16 May 2005 (or6.00pm on the date two days before any
adjourned meeting). Changes to entries on theregister of members after this time shall be
disregarded in determining the rights of any
person to attend or vote at the meeting.
6. The register of Directors’ interests kept by theCompany under Section 325 of the Companies
Act 1985 will be available for inspection at themeeting from 10.45am until the conclusion of
the meeting.
7. Copies of the executive directors’ service
contracts and the non-executive directors’
terms of appointment will be available forinspection at the meeting from 10.45am until
the conclusion of the meeting.

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Registered Number: 03849958. Admiral Group plc. Capital Tower, Greyfriars Road, Cardiff CF10 3AZ
www.admiralgroup.co.uk