ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS

Admiral Group plc Results for the 6 months ended 30 June 2006
5 September 2006
Admiral Group plc (“Admiral” or “the Group”) today announces its results for the six
months ended 30 June 2006.

H1 2006 Highlights♦ Profit before tax up 24% at £68.7 million (H1 2005: £55.6 million)♦ Group turnover up 12% at £359.2 million (H1 2005: £319.3 million)♦ Total motor premiums written up 10% at £294.0 million (H1 2005: £268.5
million)♦ Net income from products and services not underwritten by the Group up 30%
at £45.6 million (H1 2005: £35.2 million)♦ Combined ratio 87.0% (H1 2005: 86.5%)♦ Active customers at period-end up 10% to 1,161,000 from 1,057,000 at 30 June
2005
♦ Confused.com made a profit of £8.7 million (H1 2005: £2.3 million)♦ Interim dividend of 12.1p per share, payable 18 October 2006 – includes
special element of 3.7p per share

Copies of this statement will be sent to all shareholders and will be available from theregistered office.

Comment from Alastair Lyons, Chairman
Our business has continued strongly profitable and cash generative over the last six
months, with profit before tax up 24%. We are, therefore, very pleased to be able todeclare dividends that are 25% higher than at the same point last year.
As we have previously indicated, we have reviewed our future cash needs against funds
accumulated in the business as at the half year. Accordingly we propose a further
special dividend of 3.7p per share in addition to an 8.4p per share normal dividend
based on 45% of after-tax profits.
Our policy remains only to retain within the business what funds we need to provide a
prudent contingency and support our plans for growth.
Since going public in September 2004 Admiral has declared dividends on four occasions
amounting in total to £119m or 46.0p per share. £67m of normal dividends have been
supplemented by £52m of special dividends, these specials accounting for 44% of thetotal amount declared.

1

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS

Comment from Henry Engelhardt, Chief Executive
We’re very pleased with our results for the first half of 2006. We met the needs of ourcustomers, made money and had fun doing it. In fact, we set a record for half-year
profitability at £68.7m. Despite high levels of competition in the UK motor insurance
market our business continues to grow and grow profitably. Confused.com, our leading
car insurance aggregator, saw significant growth in both number of quotes andcontribution.
Our level of claims releases grew to £9.8m. We are on track to release an amount atleast equal to the amount we released last year, however this year we believe that thereleases will not be weighted towards the second half of the year.
Going forward, we plan to maintain our combined ratio advantage over the market while
the number of customers we service continues to grow. As part of our longer-term
strategy we will launch our Spanish operation later this year or early next year and havealready begun looking beyond Spain at other opportunities.

Financial review
Key financial highlights
Group profit before tax rose 24% in the first half of 2006 compared to the same period in
2005, reaching £68.7m.
Profit can be split into the three key elements of the Group’s business: 1) underwriting,2) profit commissions and 3) net other income (most notably ancillary income).
6 months ended:
June
June
2006
2005
£000
£000

Year ended:
December
2005£000

Underwriting profit
Profit commissions
Net other income

13,474
9,639
45,593

14,7305,666
35,19132,361
14,73572,398

Profit before tax

68,70655,587

119,494

The Group’s low risk business model enables it to grow profit significantly in anenvironment of worsening loss ratios (both for the Group and the market as a whole) andin a period of low investment returns. The key features of this model are:oLimited risk retention (25% of the book, through co-insurance and reinsurance
arrangements);oGeneration of substantial non-underwriting income from the whole customer
base (ownership of which is retained) – the proportion of the Group’s profits
earned from non-underwriting was 80% in the six months to June 2006
compared to 74% in the first half of 2005 (and 73% in 2005 as a whole)2

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
oStrong and growing contribution from other broking activities, primarily
Confused.com

Group turnover (comprising total premiums written before co-insurance, gross otherincome and net investment return), which is a measure of the combined size of theGroup’s businesses, also showed good growth (+ 12%):6 months ended:
June
June
2006
2005
£000
£000

Year ended:
December
2005£000

Total premiums written
Gross other income
Net investment return

293,998
61,4703,736

268,462
44,7696,087

533,616
93,405
11,342

Group turnover

359,204

319,318

638,363

The increase reflected growth in premiums written and a significant increase in revenue
generated from non-underwriting sources (primarily ancillary products, Confused.com
and Gladiator Commercial).
The key elements of the Group’s profits are further analysed below.
Underwriting
Underwriting structure
The Group’s underwriting structure is as follows:
65% of the business written continues to be underwritten by Great Lakes (a UKsubsidiary of Munich Re) under a long-term co-insurance contract.
35% of the business is underwritten by the Group through Admiral Insurance (Gibraltar)
Limited (AIGL) and Admiral Insurance Company Limited (AICL). 10% (of the totalbusiness) is ceded via quota share contracts that qualify for deductions in required
solvency capital (5% to Axis Re Europe and 5% to Swiss Reinsurance Company UK
Limited). This means the Group retains 25% of the underwriting on a net basis.
As well as proportional reinsurance, the Group has also arranged an excess of loss
reinsurance programme with a number of reinsurers to protect itself against very large
claims.
For the 2000 to 2002 underwriting years, the Group’s retained share of the motor
business was underwritten through the Group’s Syndicate (Syndicate 2004) at Lloyd’s ofLondon. During July 2006, the Group achieved the release of a significant proportion of
the profits earned by the Group’s Syndicate – amounting to around £24m, net ofamounts retained to meet corporation tax liabilities.

3

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
Underwriting result
Total premiums written increased by 10% to £294m from £268m. With premium rates
largely flat, the growth came from a 10% rise in the number of active customers.
The underwriting result fell to £13.5m from £14.7m in the first half of 2005. Investment
income fell to £3.7m from £6.1m due to adverse conditions in UK bond markets, whilst
the reported combined ratio was consistent at around 87% for both half years.
The pure year loss ratio has moved to 85% from 80% in the first half of 2005 reflecting
the ongoing impact of claims inflation compared to flat premium rates. However, as
shown in note 16 to the interim financial statements, back years continue to releasereserves. The six month results include £9.8m of net releases (compared to £5.2m in
H1 2005). The impact of this is equivalent to a 13 percentage points reduction in thereported loss ratio (8 points in H1 2005) which was 72.3% (H1 2005: 71.6%).
The expense ratio has maintained its previous low level. The reported ratio for the firsthalf is 14.7%, down from 14.9% in the first half of 2005 and 15.1% for 2005 as a whole.
Excluding regulatory levies, the ratio is consistent between half years at around 12%.
The expense ratio is reconciled to the figures included in the income statement in note 6
to the interim financial statements, whilst the underwriting result is reconciled later in thisreview.
Combined ratio development
The Group’s reported combined ratio (being the aggregation of the loss and expense
ratios above) is 87.0%, up from 86.5% in H1 2005 (84.9% for 2005 as a whole). This
continues to compare very favourably to estimated market levels.

Profit commission
The Group earns profit commission through its co-insurance and reinsurance
arrangements. The amount receivable is dependent on the volume and profitability of
the insurance business, measured by reference to loss and expense ratios.
Profit commission – co-insurance
The principal source of profit commission is the long-term co-insurance contract with
Great Lakes. £6.2m was recognised in the first half of 2006, up from the £5.0m
recognised in the same period last year.
A further £2.0m of profit commission (H1 05: £0.1m) relating to earlier underwriting year
(2000 – 2002) contracts with Hibernian Re (100% reinsured into Swiss Re) has also
been recognised in these results. No further material amounts are anticipated relating tothese contracts due to the relative maturity of the underwriting results of these years.

4ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
Profit commission – quota share reinsurance£1.4m of commission has been recognised in respect of quota share arrangements – upfrom £0.6m in the first half of 2005.

Net other income
6 months ended:
June
June
2006
2005
£000
£000

Year ended:
December
2005£000

Ancillary contribution
Confused.com contribution
Aggregate interest receipts
Instalment income
Gladiator contribution
Other expenses and share scheme costs

32,929
8,747
2,066
2,459
979
(1,587)

29,630
2,314
2,268
1,657
900
(1,578)59,092
6,882
4,176
3,768
1,871
(3,391)

Net other income

45,59335,191

72,398

Confused.com earns a proportion of its revenue from Group brands from commission
charged at normal commercial rates. Previously an adjustment was made for these intragroup sales. The impact of this adjustment on the 2005 H1 figures was to decrease
Confused contribution by £0.6m (2005 full year: £1.9m)

Ancillary contribution & instalment income
This primarily involves income earned on sales of insurance products complementing
the motor policy, but which are underwritten by external parties. Net contribution fromthese sales grew by 11% in H1 2006 – largely in line with the growth in premium andpolicies sold.
Average gross ancillary income per motor policy was consistent across all periods at£56.
Instalment income represents charges for payment by instalments on motor policies soldwhich are paid for over the course of the policy life by direct debit.
Confused.com
Confused.com has continued to grow and has recorded a contribution of £8.7m in thefirst half of the year. Motor quotes rose to 3.8m from 1.7m in H1 2005 (+ 124%).
The range of products on which Confused offers prices has increased so that the site
now includes home insurance, travel insurance and a range of other financial products inaddition to the core motor offering. Confused has also increased its coverage of the
motor market.

5

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
Overseas expansion
As reported with the announcement of the 2005 results, the Group plans to launch a
direct motor insurance operation in Spain and work has been continuing to this end
during 2006. Good progress has been made in all the critical areas and the operation
now has all key senior managers in place at a permanent location in Seville. Work isalso well progressed on IT systems, and the business plans to launch late this year or
early in 2007.
A long-term quota share reinsurance contract has been signed with Munich Re(Germany) under which 65% of the Spanish motor insurance business will be ceded.
The contract is effective from when the business commences trading.

Earnings per share (EPS)
Basic EPS has increased by 22% to 18.5p from 15.2p (2005 full year 32.7p). This isbroadly in line with the increase in pre-tax profit (24%) noted above (the difference
relates to a lower effective rate of corporation tax in H1 2005 resulting from utilisation oflosses).

Financial investments, cash and investment return
At the end of the period, the Group held a total of £408.4m in cash and financial
investments – up 11% on the £366.7m held at the end of June 2005. This increase isafter distributions to shareholders of £38.7m during the first half of 2006 (£24.0m in2005).
The total balance is made up as follows:
6 months ended:
June
June
2006
2005
£000
£000

Year ended:
December
2005£000

Liquid funds in underwriting companies:
Government and sovereign bond holdings
Corporate bonds and similar instruments
Deposits with credit institutions
Cash at bank

114,059
164,922
17,24373,606

68,188179,330
21,79946,711

83,071
172,866
40,64639,824

369,830

316,028

336,40738,60050,666

69,682

408,430

366,694

406,089

Liquid funds held outside underwriting companies:
Cash at bank6

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
Net investment return fell sharply in relative and actual terms during the first half of 2006
compared to the same period last year. The fall was due to marked increases in gilt andbond yields resulting from changes in the market’s view of future interest rates and thenegative impact such increases have on capital values of fixed income securities.

Dividends
There has been no change in dividend policy, which is based on the principle of
returning excess cash to shareholders. The Directors expect to make a normal
distribution of at least 45% of post-tax profits each half-year, and will regularly review theGroup's available cash to determine whether it is appropriate for the Company to pay afurther special dividend.
In line with this policy, the Directors have declared an interim dividend for 2006 of 12.1p
per share, which is made up of 8.4p per share normal element, plus 3.7p per sharespecial distribution based on the Group’s resources at the end of the period. The exdividend date is 20 September 2006, the record date 22 September 2006, with payment
following on 18 October 2006.
The interim dividend declared in respect of 2005 was 9.7p, split 6.8p normal, 2.9p
special. (Final dividend for 2005: 14.9p – normal 7.8p, special 7.1p)

Reconciliation of underwriting profit
6 months ended:
June
June
2006
2005
£000
£000

Year ended:
December
2005£000

Net insurance premium revenue
Net insurance claims
Net expenses related to insurance
contracts
Investment return

74,863(55,600)

63,833(47,294)

139,454(100,526)(9,525)
3,736(7,896)
6,087(17,909)
11,342

Underwriting profit

13,474

14,73032,361

6 months ended:
June
June
2006
2005
£000
£000

Year ended:
December
2005£000

Reconciliation of loss ratios reported

Net insurance claims from income
statement
Deduct: claims handling costs

55,600(1,470)47,294(1,611)

100,526(3,202)Adjusted net insurance claims
Net premium revenue
Loss ratio

54,13074,86372.3%

45,683
63,833
71.6%

97,324
139,45469.8%

7

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
Consolidated income statementNote

6 months ended
30 June30 June
2006
2005
£000
£000

Year ended
31 December

2005
£000

Insurance premium revenue
Insurance premium ceded to reinsurers
Net insurance premium revenue

2
2

92,614(17,751)
74,86384,865(21,032)
63,833

176,214(36,760)
139,454

Other revenue
Profit commission
Investment and interest income

34
5

61,4709,639
5,802

44,7695,666
8,355

93,405
14,735
15,518

151,774

122,623

263,112(70,029)(61,334)(121,123)

14,429(55,600)

14,040(47,294)

20,597(100,526)(26,405)(420)(82,425)(18,457)(125)(65,876)(40,492)(438)(141,456)

69,34956,747

121,656(643)(1,160)(2,162)

68,70655,587

119,494(20,613)(16,316)(34,774)

48,09339,271

84,720

Net revenue
Insurance claims and claims handlingexpensesInsurance claims and claims handlingexpenses recovered from reinsurers
Net insurance claims
Expenses
Share scheme charges
Total expenses

6
22

Operating profit
Finance charges

9

Profit before tax
Taxation expense

10

Profit after tax attributable to equity
holders of the Company

Earnings per share:
Basic

11

18.5p

15.2p

32.7p

Diluted

11

18.4p

15.1p

32.7p

Dividends paid (total)
Dividends paid (per share)

12
12

38,66614.9p

24,0499.3p

49,19019.0p

8

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
Consolidated balance sheet

Note

30 June
2006£000

As at:
30 June
2005
£000

13
14
15
16
17
18

66,192
6,741
415,354
68,66011,749129,449

66,754
2,986
366,875
60,69929,604
119,176

66,4904,636
378,747
54,166
9,392
150,152

698,145

646,094

663,583261
13,145
178,61717

259
13,145
146,792
17

260
13,145167,99017

192,040

160,213

181,412281,688904
23,263200,250

241,628
29,471
6,377
18,339190,066

254,130
22,0003,550
19,556
182,935

Total liabilities

506,105

485,881

482,171

Total equity and total liabilities

698,145

646,094

663,583

31 December

2005
£000

ASSETS
Intangible assets
Property, plant and equipment
Financial assets
Reinsurance assets
Trade and other receivables
Cash and cash equivalents
Total assets

EQUITY
Share capital
Share premium account
Retained earnings
Other reserves

22
23
23
23

Total equity

LIABILITIESInsurance contracts
Financial liabilities
Deferred income tax
Current tax liabilities
Trade and other payables

16
19
20
21

Consolidated statement of recognised income and expense
No separate consolidated statement of recognised income and expense has been prepared. The
profit for the period of £48.1m (2005: H1 £39.3m; full year: £84.7m) represents all recognised
income and expenses for all periods.

9

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
Consolidated cash flow statement

Note
Profit after tax
Adjustments for non-cash items:- Depreciation- Amortisation of software- Unrealised losses / (gains) on investments- Share scheme charge
Loss on disposal of property, plant andequipment and software
Change in gross insurance contract liabilities
Change in reinsurance assets
Change in trade and other receivables,
including from policyholders
Change in trade and other payables, including
tax and social security
Interest expense
Taxation expense

6 months ended
30 June30 June
2006
2005
£000
£000

Year ended
31 December

2005
£000

48,09339,271

84,720

1,092
234
893
1,200

867
476
(2,476)
357

1,824
896
893
1,247

27,558(14,494)504
25,521
5,438

503
38,023
11,971(15,760)(35,364)(18,693)

17,918643
20,61325,834
1,160
16,316

18,041
2,162
34,77487,99077,904

176,361

Net cash flow into investments held at fair value
Cash flows from operating activities, net of
movements in investments(23,937)(41,624)(53,413)64,05336,280122,948

Interest payments
Taxation payments(643)(19,551)(1,144)(6,023)(2,617)(26,090)

Net cash flow from operating activities

43,85929,113

94,241

Cash flows from investing activities:
Purchases of property, plant and equipment
and software
Proceeds from sales of property, plant andequipment(3,293)(1,333)(3,999)-8-

Net cash used in investing activities(3,293)(1,325)(3,999)Cash flows from financing activities:
Repayments of borrowings
Capital element of new finance leases
Repayment of finance lease liabilities
Equity dividends paid

(22,000)
1,789(2,392)(38,666)(3,667)
1,097(1,194)(24,049)(10,667)
1,201
(635)
(49,190)

Net cash used in financing activities(61,269)(27,813)(59,291)

Net decrease in cash and cash equivalents(20,703)(25)

30,951150,152
129,449

119,201
119,176

119,201
150,152

Cash flows from operating activities, before
movements in investments

Cash and cash equivalents at 1 January
Cash and cash equivalents at end of period

18

10ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
Notes to the interim financial statements
1.

General information and basis of preparation

Admiral Group plc is a Company incorporated in England and Wales. Its registeredoffice is at Capital Tower, Greyfriars Road, Cardiff CF10 3AZ and its shares are listed on
the London Stock Exchange.
The interim financial statements comprise the results and balances of the Company andits subsidiaries (the Group) for the two six month periods ended 30 June 2005 and 2006
and the year ended 31 December 2005. The financial statements of the Company’s
subsidiaries are consolidated in the Group financial statements. The Company controls
100% of the voting share capital of all its subsidiaries. In accordance with IAS 24,transactions or balances between Group companies that have been eliminated on
consolidation are not reported as related party transactions.
The comparative figures for the financial year ended 31 December 2005 are not theGroup’s Report and Accounts for that financial year, but are derived therefrom. Those
accounts have been reported on by the Company’s auditors and delivered to theRegistrar of Companies. The report of the auditors was unqualified and did not include
any reference to any matters to which the auditors drew attention by way of emphasis
without qualifying their report and did not contain a statement under section 237(2) or (3)of the Companies Act 1985.
The accounting policies applied by the Group in these consolidated interim financial
statements are the same as those applied by the Group in its consolidated financial
statements as at and for the year ended 31 December 2005.

Significant estimates
Estimation techniques used in calculation of claims provisions:
Estimation techniques are used in the calculation of the provisions for claims
outstanding, which represents a projection of the ultimate cost of settling claims thathave occurred prior to the balance sheet date and remain unsettled at the balance sheet
date.
The key area where these techniques are used relates to the ultimate cost of reported
claims. A secondary area relates to the emergence of claims that occurred prior to thebalance sheet date, but had not been reported at that date.
The estimates of the ultimate cost of reported claims are based on the setting of claim
provisions on a case-by-case basis, for all but the simplest of claims.
The sum of these provisions are compared with projected ultimate costs using a variety
of different projection techniques (including incurred and paid chain ladder and an
average cost of claim approach) to allow an actuarial assessment of their likely accuracy
and to include allowance for unreported claims.

11

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
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 todeviate from historic trends. This is most likely to arise from a change in the regulatory
or judicial regime that leads to an increase in awards or legal costs for bodily injury
claims that is significantly above or below the historical trend.
The claims provisions are subject to independent review by the Group’s actuarial
advisors.

2.

Net insurance premium revenue
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Total motor insurance premiums before coinsurance

293,998

268,462

533,616

Group gross premiums written after co-insurance
Outwards reinsurance premiums

102,899(29,966)

93,962(14,075)

186,989(28,052)

Net insurance premiums written

72,93379,887

158,937

Change in gross unearned premium provision
Change in reinsurers’ share of unearned premiumprovision(10,285)(9,097)(10,775)

12,215(6,957)(8,708)Net insurance premium revenue

74,863

63,833

139,454

The insurance business written is direct private motor insurance written in the United
Kingdom. The Group’s share of the business was underwritten by Admiral Insurance(Gibraltar) Limited (AIGL) and Admiral Insurance Company Limited (AICL). All contracts
are short-term in duration, lasting for 10 or 12 months.

3.

Other revenue
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Ancillary revenue
Instalment income earned
Revenue from Confused.com
Revenue from Gladiator Commercial

40,141
2,459
15,8403,030

35,954
1,657
4,614
2,544

72,4703,768
12,044
5,123

Total other revenue

61,47044,76993,405Ancillary revenue primarily constitutes income from sales of insurance products thatcomplement the motor policy, but which are underwritten by external parties.

12

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
4.

Profit commission
30
June
2006
£000

30
June
2005
£000

31
December
2005
£000

9,639

5,666

14,735

30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Net investment return
Interest receivable

3,736
2,066

6,087
2,268

11,342
4,176

Total investment and interest income

5,802

8,355

15,518

Total profit commission

5.

6.

Investment and interest income

ExpensesInsurance
contracts£000

Acquisition of insurance
contracts
Administration andmarketing costs
Sub-total
Share scheme charges
Total expenses

30 June 2006
Other
Total
£000

£000

Insurance
contracts
£000

3,476

-

3,476

6,049

16,8809,525

30 June 2005
Other
Total
£000

£000

3,287

-

3,287

22,9294,609

10,561

15,17016,88026,405

7,896

10,561

18,457

-

420

420

-

125

125

9,525

17,30026,825

7,896

10,686

18,582

13

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
6.

Expenses (continued)
Insurance
contracts£000

31 December 2005
Other
Total
£000

£000

Acquisition of insurance contracts
Administration and marketing costs

6,888
11,021

22,5836,888
33,604Sub-total

17,90922,58340,492

-

438

438

17,90923,02140,930Share scheme charges
Total expenses

The £6,049,000 (2005 H1: £4,609,000; Full year: £11,021,000) administration andmarketing costs allocated to insurance contracts is principally made up of salary costs.

Analysis of other administration and marketing costs:
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Ancillary sales expenses
Confused.com operating expenses
Gladiator Commercial operating expenses
Central overheads
Costs associated with overseas expansion

7,212
7,093
2,051
327
197

6,324
2,300
1,644
293
-

13,378
5,162
3,252
791
-

Total

16,88010,561

22,583

Reconciliation of expenses related to insurance contracts to reported expense
ratio:
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Insurance contract expenses from above
Add: claims handling expenses

9,525
1,470

7,896
1,611

17,9093,202

Adjusted expenses

10,995

9,507

21,111

Net insurance premium revenue
Reported expense ratio

74,863
14.7%

63,833
14.9%

139,454
15.1%

14

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
7.

Staff costs and other expenses

Staff costs and other expenses, before co-insurance arrangements are as follows:
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Salaries
Social security charges
Pension costs
Share scheme charges (see note 22)

17,036
1,568
253
1,200

14,166
1,314
226
357

29,955
2,782
490
1,247

Total staff expenses

20,057

16,063

34,474

197
895

306
561

446
1,378

1,428

1,377

2,969

94
65
-

110
84
504

210
18
91
503

Indirect tax consultancy
Corporate tax services
Other

13
52
-

60
24
-

61
24
6

Total as above

65

84

91

Depreciation charge:- Owned assets- Leased assets
Operating lease rentals:- Buildings
Auditor’s remuneration:- Statutory audit fees
- Other audit fees
- Other services
Loss on disposal of property, plant and equipment

Analysis of fees paid to the auditor for other services:8.

Staff numbers (including directors)
Average for the period:
30
30
31
June
June
December
2006
2005
2005

Direct customer contact staff
Support staff

1,506
383

1,309
320

1,377
339

Total

1,889

1,629

1,716

15

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
9.

Finance charges
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Term loan interest
Finance lease interest
Letter of credit charges
Other

150
378
115
-

896
154
110
-

1,520
388
221
33

Total finance charges

643

1,160

2,162

30
June
2006
£000

30
June
2005
£000

31
December
2005£000

23,25914,77736,051--

11

23,25914,77736,062(2,646)

1,539

(654)

-

-

(634)

20,613

16,316

34,774

30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Profit before taxation

68,70655,587

119,494

Corporation tax thereon at 30%
Utilisation of brought forward tax losses
Adjustments in respect of prior year insurance
technical provisions
Expenses and provisions not deductible for tax
purposes
Other timing differences
Adjustments relating to prior periods

20,613-

16,676(360)

35,848
(421)

-

-

(161)

-

-

152
(21)
(623)

Tax charge for the period as above

20,613

16,316

34,77410.

Taxation

UK Corporation tax
Current charge at 30%
Under provision relating to prior periods –corporation tax
Current tax charge
Deferred tax
Current period deferred taxation movement
Over provision relating to prior periods – deferred
tax
Total tax charge per income statement

Factors affecting the tax charge are:16

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
11.

Earnings per share
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

48,09339,271

84,720Weighted average number of shares – basic
Earnings per share – basic

260,257,778

258,595,400

258,987,515

18.5p

15.2p

32.7p

Weighted average number of shares – diluted
Earnings per share – diluted

260,698,278

259,861,400

259,387,515

18.4p

15.1p

32.7p

30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Profit for the period after taxation

12.

Dividends

Dividends were declared and paid as follows:

March 2005 (9.3p per share, paid May 2005)
September 2005 (9.7p per share, paid October
2005)
March 2006 (14.9p per share, paid May 2006)-

24,04924,04938,666-25,141-

Total dividends

38,66624,04949,190The dividend declared in March 2005 represents the final dividend paid in respect of the2004 financial year (September 2005 – interim payment for 2005). The dividend
declared in March 2006 was the final distribution in respect of 2005.

17

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
13.

Intangible assets
Goodwill

Software

Total

£000

Deferredacquisition
costs
£000

£000

£000

At 1 January 2005
Additions
Amortisation charge

62,354
-

2,794
3,727
(3,281)

1,319
317
(476)

66,467
4,044(3,757)

At 30 June 2005

62,354

3,240

1,160

66,754

At 1 January 2005

62,354

2,794

1,319

66,467-

7,407(6,873)

385
(896)

7,792
(7,769)62,354

3,328

808

66,490-3,307(3,467)

96
(234)

3,403
(3,701)

62,354

3,168

670

66,192Carrying amount:

Additions
Amortisation charge
At 31 December 2005
Additions
Amortisation charge
At 30 June 2006

18

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
14.

Property, plant and equipment
Improvements
to short
leaseholdbuildings

Computerequipment

Officeequipment

Furnitureand fittingsMotorvehicles

Total

1,931
340
(1,818)

6,792
555
-

2,978
71
(512)

1,627
43
(404)

12
-

13,3401,009(2,734)

453

7,347

2,537

1,266

12

11,6151,554
122(1,351)

4,424
534
(1)

2,467
183
(501)

1,545
26
(376)

1
2
-

9,991
867
(2,229)At 30 June 2005

325

4,957

2,149

1,195

3

8,629

Net book amountAt 30 June 2005

128

2,390

388

71

9

2,986

Cost
At 1 January 2005
Additions
Disposals

1,931
567
(1,818)

6,792
2,742
-

2,978
155
(510)

1,627
150
(405)

12
-

13,3403,614(2,733)

680

9,534

2,623

1,372

12

14,2211,554
226(1,352)

4,424
1,179
-

2,467
355
(502)

1,545
61
(376)

1
3
-

9,991
1,824
(2,230)At 31 December 2005

428

5,603

2,320

1,230

4

9,585

Net book amountAt 31 December 2005

252

3,931

303

142

8

4,636

Cost
At 1 January 2006
Additions
Disposals

680
808
-

9,534
902
(5)

2,623
1,151
-

1,372
336
-

12
-

14,221
3,197(5)

At 30 June 2006

1,488

10,431

3,774

1,708

12

17,413

Depreciation
At 1 January 2006
Charge for the year
Disposals

428
34
-

5,603
869
(5)

2,320
138
-

1,230
49
-

4
2
-

9,585
1,092
(5)

At 30 June 2006

462

6,467

2,458

1,279

6

10,672Net book amountAt 30 June 2006

1,026

3,964

1,316

429

6

6,741

Cost
At 1 January 2005
Additions
Disposals
At 30 June 2005
Depreciation
At 1 January 2005
Charge for the year
Disposals

At 31 December 2005
Depreciation
At 1 January 2005
Charge for the year
Disposals

19

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
The net book value of assets held under finance leases is as follows:
30
June
2006
£000

30
June
2005
£000

31
December
2005
£000

3,510
271

2,414
736

2,380
767

3,781

3,150

3,147

30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Investments held at fair value
Receivables – amounts owed by policyholders

278,981
136,373

247,518
119,357

255,937
122,810

Total financial assets

415,354366,875

378,747

Computer equipment
Office equipment

15.

Financial assets

The Group’s financial assets can be analysed as follows:

All receivables from policyholders are due within 12 months of the balance sheet date.
Analysis of investments held at fair value:
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Fixed income securities:
Government bonds
Other listed securities

114,059
151,475

68,188
168,640

83,071
156,071

Variable interest securities:
Other listed securities

13,447

10,69016,795278,981247,518

255,937

20

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
16.

Reinsurance assets and insurance contract liabilities

A)

Analysis of recognised amounts:
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Claims outstanding
Unearned premium provision

187,490
94,198159,392
82,236170,216
83,914

Total gross insurance liabilities

281,688

241,628

254,130

Claims outstanding
Unearned premium provision

43,865
24,79546,367
14,332

41,585
12,581

Total reinsurers’ share of insurance liabilities

68,66060,69954,166Claims outstanding
Unearned premium provision

143,625
69,403113,025
67,904

128,631
71,333

Total insurance liabilities – net

213,028

180,929

199,964

Gross:

Recoverable from reinsurers:

Net:

21

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
B)

Analysis of net claims reserve releases:

The following table analyses the impact of movements in prior year claims provisions, interms of their net value, and their impact on the reported loss ratio. This data ispresented on an underwriting year basis.
Six months ended31
30
December
June
2005
2006
£000
£000

30
June
2005
£000
Underwriting year:
2000
2001
2002
2003
2004
2005

370
1,483
1,937
1,387
-

3,560
3,229
3,235
2,076
-

370
692
1,937
2,311
4,091
437

Total net release

5,177

12,1009,838

Net premium revenue
Release as % of net premium revenue

63,833
8.1%

75,621
16.0%

74,863
13.1%

Financial year ended 31 December
2002
2003
2004
£000
£000
£000

2005
£000

2001
£000
Underwriting year:
2000
2001
2002
2003
2004

3,923
-

6,188
2,490
-

5,176
7,938
2,975
-

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

370
5,043
5,166
4,622
2,076

Total net release

3,923

8,678

16,0899,189

17,277

Net premium revenue
Release as % of net premium revenue

84,135
4.7%

81,336
10.7%

79,327
20.3%

107,501
8.5%

139,454
12.4%

C)

Reconciliation of movement in net claims reserve:
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Net claims reserve at start of period

128,631

98,12098,120Net claims incurred
Net claims paid

54,130(39,136)

45,683(30,778)

97,324(66,813)

Net claims reserve at end of period

143,625

113,025

128,63122

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
D)

Reconciliation of movement in net unearned premium provision:
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Net unearned premium provision at start of period

71,33351,85051,850

Written in the period
Earned in the period

73,499(75,429)

80,539(64,485)

160,244(140,761)

Net unearned premium provision at end of period

69,40367,904

71,333

30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Trade debtors
Prepayments and accrued income

9,739
2,010

27,955
1,649

6,905
2,487

Total trade and other receivables

11,74929,604

9,392

30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Cash at bank and in hand
Cash on short term deposit

112,206
17,243

97,377
21,799109,506
40,646

Total cash and cash equivalents

129,449

119,176

150,152

17.

18.

Trade and other receivables

Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, andother short-term deposits with original maturities of three months or less.
19.

Financial liabilities

Interest bearing bank loans

30
June
2006
£000

30
June
2005
£000

31
December
2005
£000

-

29,471

22,00023

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
Analysis of borrowings:

Repayments falling due within 12 months
Repayments falling due after 12 months

30
June
2006
£000

30
June
2005
£000

31
December
2005
£000

-

11,471
18,00022,000-29,471

22,000

The Group’s £30m debt facility is an unsecured revolving credit arrangement. Interest is
charged on amounts drawn down based on LIBOR plus a margin.
The facility was repaid during February 2006, as the funds were not required. Funds
continue to be available under the facility, which expires in 2008.

20.

Deferred income tax liability
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Brought forward at start of period
Movement in period

3,550(2,646)

4,838
1,539

4,838
(1,288)Carried forward at end of period

904

6,377

3,550

The net balance provided at the end of the current period is made up of a gross deferred
tax liability of £1,170,000 (2005 H1: £6,671,000, full year: £3,816,000) relating to the tax
treatment of Lloyd’s Syndicates, and a deferred tax asset of £266,000 (2005 H1:£294,000, full year; £266,000) in respect of other timing differences.

21.

Trade and other payables
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Trade payables
Amounts owed to co-insurers and reinsurers
Finance leases due within 12 months
Finance leases due after 12 months
Other taxation and social security liabilities
Other payables
Accruals and deferred income (see below)

3,516
111,502
1,796
450
4,809
11,02367,154

3,475
105,325
1,696
491
3,943
13,294
61,842

4,423
98,054
1,963
886
4,174
10,06663,369Total trade and other payables

200,250

190,066

182,935

24

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
Analysis of accruals and deferred income:
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Premium receivable in advance of policy inception
Accrued expenses
Deferred income

33,64424,9498,561

31,62622,0678,149

30,471
24,5598,339

Total accruals and deferred income as above

67,154

61,842

63,369Analysis of finance lease liabilities:
Minimum
lease
payments£000
Less than one year
Between one and fiveyears

At 30 June 2006
Interest
Principal

£000

£000

Minimum
lease
payments
£000

275

20

255

2,059

68

2,334

88

£000

£000

760

34

726

1,991

1,754

293

1,461

2,246

2,514

327

2,187

Minimum
lease
payments£000
Less than one year
Between one and five years

At 30 June 2005
Interest
Principal

At 31 December 2005
Interest
Principal

£000

£000

2,171
921

208
35

1,963
886

3,092

243

2,849

25

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
22.

Share capital
30
June
2006
£000

30
June
2005
£000

31
December
2005
£000

500

500

500

261
-

259
-

260

261

259

260

Authorised:
500,000,000 ordinary shares of 0.1p
Issued, called up and fully paid:
260,720,271 ordinary shares of 0.1p
258,595,400 ordinary shares of 0.1p
259,861,965 ordinary shares of 0.1p

During the first half of 2006, 858,306 new ordinary shares of 0.1p were issued to thetrusts administering the Group’s share schemes.
330,306 of these were issued to the Admiral Group Share Incentive Plan Trust for the
purposes of this share scheme. These shares are entitled to receive dividends.
528,000 were issued to the Admiral Group Employee Benefit Trust for the purposes of
the Admiral Group Senior Executive Restricted Share Plan. The Trustees have waived
the right to dividend payments, other than to the extent of 0.001p per share, unless andto the extent otherwise directed by the Company from time to time.
Staff share schemes:
Analysis of share scheme costs (per income statement):
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

SIP charge (note i)
UFSS charge (note ii)

217
203

54
71

263
175

Total share scheme charges

420

125

438

(i) The Approved Share Incentive Plan (the SIP)
Eligible employees qualify for awards under the SIP based upon the performance of theGroup in each half-year against budget. The current maximum award for the first half ofeach year is £1,500 and £3,000 for the full year per employee.

26

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
For maximum awards to be made, the Group's profit must exceed budget by 11.5 percent. Employees must remain in employment until the vesting date (three years from thedate of award), otherwise the shares will be forfeited (unless they are classed as a ‘good
leaver’).
The fair value of shares awarded is either the share price at the date of award, or isestimated at the latest share price available when drawing up the financial statements
for awards not yet made (and later adjusted to reflect the actual share price on theaward date). Awards under the SIP are entitled to receive dividends, and hence noadjustment has been made to this fair value.

(ii) The Unapproved Free Share Scheme (the UFSS)
Employees are eligible to receive an award of shares at no charge. Staff must remain in
employment until the vesting date (which is three years from the award date) in order forthe shares to vest.
For an award to vest under the 2005 scheme, the total shareholder return (TSR) of
Admiral Group plc shares over the three years 2005 to 2007 must be at least equal to
the TSR of the FTSE 350 index, of which the Company is a constituent. If theCompany’s TSR does not meet this target, no awards will vest under the 2005 UFSS
scheme. This hurdle has been removed for awards made under the 2006 UFSS
scheme.
If this initial hurdle is overcome, individual awards are calculated based on the growth in
the Company’s earnings per share (EPS) relative to a risk free return (RFR), for which
LIBOR has been selected as a benchmark. This performance is measured over thesame three-year period.
The range of awards is as follows:•••

If the growth in EPS is less than the RFR, no awards vest
EPS growth is equal to RFR – 10% of maximum award vests
To achieve the maximum award, EPS growth has to be 36 points higher than
RFR over the three year period

Between 10% and 100% of the maximum awards, a linear relationship exists.
Awards under the UFSS are not eligible for dividends and hence the fair value of freeshares to be awarded under this scheme has been revised downwards to take accountof these distributions. The unadjusted fair value is based on the share price at the dateon which awards were made.

27

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
Number of free share awards committed at 30 June 2006:

SIP H1 05 scheme
SIP H2 05 scheme
SIP H1 06 scheme (estimated)
UFSS 2005 scheme
UFSS 2006 scheme
Total awards committedAwardsoutstanding

Vesting
date

581,565
330,306
440,500
759,697603,209

September 2008
March 2009
September 2009
June 2008
April 2009

2,715,277

This reflects the maximum number of awards expected to be made before accounting forstaff attrition. Of the 2,715,277 share awards outstanding above, 2,142,871 have been
issued to the trusts administering the schemes, and are included in the issued sharecapital figures above.

23.

Analysis of movements in capital and reserves
SharecapitalCapitalredemption
reserve£000

Retained
profit and
loss
£000

Total
equity£000

Sharepremium
account£000

259

13,145

17

131,213

144,634---

39,271(24,049)357

39,271(24,049)357

As at 30 June 2005

259

13,145

17

146,792

160,213

At 1 January 2005

259

13,145

17

131,213

144,634

1---

84,720(49,190)
1,247

84,720(49,190)
1
1,247

260

13,14517

167,990

181,412

1---

48,093(38,666)
1,200

48,093(38,666)
1
1,200

261

13,145

17

178,617

192,040

At 1 January 2005
Retained profit for the period
Dividends
Share scheme charges

Retained profit for the period
Dividends
Issues of share capital
Share scheme charges
As at 31 December 2005
Retained profit for the period
Dividends
Issues of share capital
Share scheme charges
As at 30 June 2006

£000

28

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS
24.

Financial commitments

The Group was committed to obligations under operating leases on land and buildings
as follows:
30
June
2006
£000

30
June
2005
£000

31
December
2005£000

Within one years
Within two to five years
Over five years

22
30
2,475

308
62
1,056

434
52
2,820

Total commitments

2,527

1,426

3,306

Operating leases expiring:In addition, the Group had contracted to spend the following on property, plant andequipment at the end of each period:

Expenditure contracted to

30
June
2006
£000

30
June
2005
£000

31
December
2005
£000

1,021

75

1,342

29

ADMIRAL GROUP PLC
2006 INTERIM FINANCIAL STATEMENTS

Independent review report to Admiral Group plc
Introduction
We have been engaged by the Company to review the financial information for the six
months ended 30 June 2006, which comprise the Group Income Statement, the Group
Balance Sheet, the Group statement of recognised income and expense, the Groupcash flow statement and the related notes. We have read the other information
contained in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
This report is made solely to the company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the Listing Rules of
the Financial Services Authority. Our review has been undertaken so that we mightstate to the Company those matters we are required to state to it in this report and for noother purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this report, orfor the conclusions we have reached.
Directors’ responsibilities
The interim report, including the financial information contained therein, is the
responsibility of and has been approved by the directors. The directors are responsible
for preparing the interim report in accordance with the Listing Rules of the Financial
Services Authority which require that the accounting policies and presentation applied tothe interim figures should be consistent with those applied in preparing the preceding
annual financial statements except where any changes, and the reasons for them, aredisclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
Review of interim financial information issued by the Auditing Practices Board for use in
the United Kingdom. A review consists principally of making enquiries of management
and applying analytical procedures to the financial information and underlying financial
data and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed in accordance with
International Standards on Auditing (UK and Ireland) and therefore provides a lower
level of assurance than an audit. Accordingly, we do not express an audit opinion on thefinancial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that should bemade to the financial information as presented for the six months ended 30 June 2006.
KPMG Audit plc, Cardiff, 4 September 2006.

30