People who likewhat they do,
do it better
Admiral Group plc
Annual Report and Accounts 2014

ABOUT ADMIRAL GROUP

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

The history of the Admiral Group is one of growth,
profitability and innovation. Admiral launched
in 1993 with just one brand, zero customers and
57 members of staff. The Group now has operationsin Spain, Italy, France and the US, and has over four
million customers.
Admiral’s strategy is simple: To continue to progressin the UK Car Insurance market whilst taking what
we do well to new markets and products: keep doing
what we’re doing and do it better year after year.
Admiral is one of the largest employers in South Walesand has over 7,000 people worldwide.
Find out more about how people makeour businesses work from page 12

INTRODUCTION

Chairman’s Statement
Alastair Lyons, CBE
From page 04

STRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

Admiral’s businesses
and operations
From page 06

OTHER INFORMATION

Chief Executive’s Statement
Henry Engelhardt, CBE
From page 08

Introduction
IFC About Admiral Group
02 Introduction
04 Chairman’s Statement
Strategic report
06 Admiral’s businesses and operations
08 Chief Executive’s Statement
10 10 years from float
12 Admiral’s business model
14 Admiral’s strategy
16 Questions and Answers
18 Group Financial Review
22 UK Insurance Review
28 International Car Insurance Review
32 Price Comparison Review
35 Other Group Items
36 Principal risks and uncertainties
StaceyAdvanced MOJ handler

Corporate governance
40 Chairman’s introduction
41 Admiral’s governance framework
42 Board of Directors
44 Governance Report
49 Report of the Audit Committee
53 Report of the Group Risk Committee
56 Report of the Nomination Committee
58 Report of the Remuneration Committee
60 Directors’ Remuneration Report
73 Directors’ Report
Financial statements
76 Independent Auditor’s Report
78 Consolidated Income Statement
79 Consolidated Statement of Comprehensive Income
80 Consolidated Statement of Financial Position
81 Consolidated Cash Flow Statement
82 Consolidated Statement of Changes in Equity
83 Notes to the financial statements
111 Parent Company financial statements
112 Notes to the Parent Company financial statements
114 Consolidated financial summary
Other information
115 Glossary
116 Directors and advisors
117 Further information
ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201401

INTRODUCTION

Another good year
2014 was another good year for the Admiral Group. The current
year result included an increase in profit from the UK Car Insurance
business and, encouragingly, a profit from ConTe in Italy, whichbrings to three (out of seven) the number of businesses outside
the UK that contribute positively to the Group’s result.”*1

Geraint Jones
Chief Financial Officer

Customers (million)

-3%

+9%

14

11

12

13

4.1

13

2.7

12

3.7

10

3.6

@@ Return on equity of 52% (2013: 58%)

1,971@@ Final dividend of 49.0 pence per share, bringing
the 2014 total dividend to 98.4 pence per share
down 1% (2013: 99.5 pence per share)

2,030

11

1,585

@@ Earnings per share 2% lower at 103.0 pence(2013: 104.6 pence)

3.4

4.1m

£1,971m
2,215@@ Group profit before tax*2 4% lower at £356.5 million(2013: £370.7 million)

Turnover (£million)

2,190

Group highlights

1014@@ Group turnover down 3% at £1.97 billion(2013: £2.03 billion)*3@@ Group customers up 9% to 4.05 million(2013: 3.70 million)

Profit before tax*1 (£million)

Return on equity (%)@@ International car insurance turnover up 10% to£206 million, with customers up 15% to 592,600(2013: £188 million and 515,300 customers)

-4%

-10%
59

59

60

58

13

14

10

11

12

13

52

356.5

52%

370.7

344.5

299.0

@@ Over 7,000 staff to receive free shares worth£3,000 in the employee share scheme

265.8£356.5m Segment result, excludes share scheme charges. These charges are includedin the ‘Other’ segment*1*2

Represents Group’s share of profit before tax after excluding Minority Interests Turnover is defined as total premiums written (including co-insurers’ share)and Other Revenue (excluding vehicle commission)

*3

10

11

12

14

Another busy year
Important moments in 2014:

June
Admiral named third best
workplace in Europe

02

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

July
Admiral announced a successful
inaugural bond offering of £200 million

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

Chelsea
Customer Consultant

A Great Place to Work!
We pride ourselves on being a great place to work, and this isreflected in the many awards we win. We are particularly proudof these awards as they are voted for by staff.
Read more about our people on page 15

Earnings per share (pence)

103.0p

98.4

90.6
12

13

14

Best
Workplaces

95%

95

Europe

91

78

88

91

89

88

78%

11

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

92

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

10

90

14

75.6

103.0

13

91

104.6

12

68.1

95.1

72.3

81.9
11

-1%

99.5

98.4p

-2%

10

Full year dividend per share(pence)Read more about what
we’ve achieved over thelast ten years from page 10
10

11

12

13

14

10

11

AugustAdmiral announced Geraint Jones as
new Chief Financial Officer (CFO) and
Executive Director

12

13

14

September

November

Admiral celebrates 10 years
since flotation on the London
Stock Exchange
ADMIRAL GROUP PLC

Admiral was named the Best Car
Insurance Provider at the Personal FinanceAwards for the second year running
ANNUAL REPORT AND ACCOUNTS 201403

CHAIRMAN’S STATEMENT

Straightforward andhighly focused strategy
The Admiral team has set about building
private motor businesses in five countries,
price comparison businesses in four,and a household insurance businessin the UK.”
Alastair Lyons, CBE
Chairman2014 in summary@@ The UK motor insurance market
was again characterised byfalling prices@@ Italy is the Group’s largest businessoutside the UK with almost halfof our overseas customers@@ An assessment of the Frenchmarket suggests the potential
for accelerated growth of direct
motor insurance, benefiting both
LeLynx and L’olivier Assurances@@ In the US and Spain, growthcame from expanding theaccessible market@@ Rastreator and LeLynx holdleading positions in theirrespective markets in Spainand France@@ Confused.com faces verystrong competition that
has impacted conversion
and hence profitability@@ Compare.com is making
progress and we are planninga material increase next year
in promotional support

04

ANNUAL REPORT AND ACCOUNTS 2014

Our strategy
In my statement last year I listed what I regarded
to be the top ten attributes that had contributed
in great measure to Admiral’s success over thelast ten years that it has been a listed company.
I spoke of management; our culture; ouremployees; focus; pricing; claims management;
controlled test and learn; low cost; low capital
employed; and low risk.
Admiral has applied these consistently to deliver
against a straightforward highly focused strategy– to make the most of the market-leading
positions we have developed in the UK in direct
motor insurance and price comparison andapply our learning in these sectors in overseas
markets of appropriate scale, structure andstage of development. Applying the tenetsof controlled test and learn, low capital
employed and low risk, the Admiral team has
set about building private motor businesses
in five countries, price comparison businesses
in four, and a household insurance businessin the UK. We have then sought to embedin these new businesses our management
capability, our culture and the quality of
our employees.
Organic growth, whilst slower, requires muchless capital than growth by acquisition andavoids the significant risk associated withbuying where one has little or no knowledge.
By taking incremental steps one is able toconstruct, in all important respects, theplatform one wants for the future, taking
advantage to the degree relevant to eachspecific market of our differentiation in areas
such as pricing and claims management.

WWW.ADMIRALGROUP.CO.UK

Notwithstanding this step-by-step approachof test and learn, whilst each of our overseas
businesses began life as a business plan
Admiral now has nearly 600,000 customers
outside the UK. It will, however, still be someyears before these businesses, all at varying
stages in their growth and required investment,
make the material contribution to Group
profits of which we believe they are capable.
As now the second largest insurer of private
cars in the UK Admiral’s fortunes will, therefore,
be driven for the foreseeable future by the
UK motor insurance cycle.
2014 in overview
We recognise that in a cyclical businessthere are periods for growth, and periods
for consolidation, seeking purely to maintain
one’s existing market position and focus onbuilding capability to support growth whenconditions render that both profitable andsustainable. 2014 was such a period of
consolidation for three out of our five motor
insurance businesses.
As a consequence our pre-tax profits, before
reflecting our first material investment in our
new US comparison business, were broadly
flat on the previous year and our overall Group
profits were £14 million lower at £357 million.
The UK motor insurance market was again
characterised by falling prices, albeit that thesustained reduction since the market turned in2010 now appears to be running out of steam.

INTRODUCTIONSTRATEGIC REPORTOur aim through this period has been to
maximise value rather than volume, maintaining
our book at around three million customers
and focusing on a major systems upgrade thatis scheduled to complete in 2015. When delivered,this will enable us to retain our flexibility andresponsiveness when it is right to resume thegrowth of our UK business. As we test, welearn how to improve our effectiveness acrossall aspects of our operations whether it bemarketing; pricing; sales; customer service;or claims handling. Then we institutionalise
what we have learned by building this learning
into the systems that support the processes
we operate. Through processes, systems anddetailed timely management information wecan be confident that all our people undertake
their activities in a controlled, efficient way.
We can also assess what it is relevant to seek toexport alongside our culture to other markets.
We have also had major systems development
taking place in our operations in Italy and France
as these businesses prepare for the next stage
in their growth. Italy is our largest businessoutside the UK with almost half of our overseas
customers. As in the UK, with growth of thebook unattractive in an environment of falling
prices, the Italian business has focused onbuilding its learning into a new operating
platform that we believe will provide competitive
advantage when the market turns. In France,
the youngest of our overseas insurance
operations, we had adopted a different
outsourced start-up model to get into themarket quickly, cost-effectively and at low risk.
Four years on from launch our initial assessmentof the French market suggests the potential
for accelerated growth of direct motor insurance
supported both by the growth of pricecomparison, in part reflecting the successof our own market-leading business LeLynx,
and by the recently implemented change
in the law making it easier for customers toswitch insurance providers. Hence our moveto bring all our functions in-house onto ourown platform now that we understand what
the French market needs.
In the US and Spain growth came fromexpanding the accessible market – in thecase of Elephant Auto in the US by buildingon the entry into Texas in 2013, and for
Admiral Seguros in Spain through the additionof a second brand, Qualitas Auto.
In price comparison we have continued toachieve strong growth outside the UK, withboth Rastreator and Le Lynx holding leading
positions in their respective markets in Spainand France. By contrast, price comparison in
the UK has continued to be challenging, with
Confused.com facing very strong competition
that has impacted conversion and hence
profitability. In the US, compare.com launchedin 2013 as the first truly European-styleaggregator as distinct from lead generators.

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

We believe it is for ourinvestors rather thanAdmiral to determine
how they wish to invest
funds surplus to therequirements ofour business.”
Whilst early days, it is making encouraging
progress both with consumers and insurer
partners and we are planning a material
increase next year in the commitment ofpromotional support, following our samephilosophy of test and learn.
Our capital structure
Our low risk approach to our business withsignificant use of reinsurance has made it possible
to maintain low levels of capital employed.
However in 2014 we recognised that favourable
capital markets and very reasonable rates ofinterest created the opportunity to strengthen
and diversify our capital resources as we makea prudent transition into Solvency II in 2016,
with the attendant regulatory capitalrequirement and buffers. Raising £200 millionof additional capital in the form of ten-yeartier two subordinated notes also sets us up
well for the growth we expect from all ourbusinesses in the coming years whilst being
consistent with our existing dividend policy.
Dividends
Our dividend policy has been clear since
flotation – we believe it is for our investors
rather than Admiral to determine how theywish to invest funds surplus to the requirementsof our business. We, therefore, distribute eachyear the available surplus over and above what
we retain to meet regulatory requirements,
the future development of our business andappropriate buffers, in particular, the buffer
required during a period of transition between
two different capital regimes. We also believethat the year-on-year progression of our dividend
should largely mirror the movement in after-tax
profits, subject to any abnormal demands on
our capital resources.

ADMIRAL GROUP PLC

OTHER INFORMATION

Our final dividend for 2014 is therefore proposed
at 49.0 pence per share, resulting in a full year
dividend of 98.4 pence per share, within 1% of
the 2013 full year dividend, against a backdropof after-tax profits themselves 2% lower thanlast year. This comprises a normal dividend of
22.5 pence per share and a special dividend of
26.5 pence per share, bringing to £915 million
the total of special dividends paid to shareholders
since flotation, in addition to our £839 million
normal dividends paid over this period.
Board changes
With its distinctive culture and focus on making
Admiral a great place to work the Company
enjoys strong levels of retention amongst
employees, management and Directors alike.
Senior Executives in the Group have either
been with Admiral since the Company listed
ten years ago or since their respective overseas
business was formed. To encourage retentionof our people, and therefore of their skills andexperience, we seek to provide managementwith development opportunities that allow us topromote from within. I was, therefore, delighted
to welcome Geraint Jones to the Board at
the time of our interim results, succeeding
Kevin Chidwick as CFO, who will now focus
solely on his role as CEO of Elephant Autoin the US. Geraint has been with Admiral’sfinance team since 2002, having been our
Deputy CFO since 2012.
Roger Abravanel will not be seeking re-election
at the forthcoming Annual General Meetingand I would like to thank him for his contribution
to the Board, in particular the insight he has
provided us into the Italian market. Balancing
the loss of Roger we are delighted to welcome
Penny James to the Board as a Non-Executive
Director and member of the Audit Committee.
Penny has been Director of Group Finance atPrudential plc since March 2011 and brings awealth of commercial and financial experience
to her role with Admiral.
Thank you
To our employees for their commitment andenthusiasm; to our management for theirleadership and inspiration; to our shareholders
for their support and confidence; but most of
all to our customers for their business and choiceof Admiral in preference to others in the highly
competitive markets in which we operate.

Alastair Lyons, CBE
Chairman
4 March 2015

ANNUAL REPORT AND ACCOUNTS 201405

ADMIRAL’S BUSINESSES AND OPERATIONS

Admiral’s brands
and markets
In the UK, Admiral is one of the largest and most recognised car insurance
providers, and the Admiral Group includes Confused.com, one of theleading price comparison websites, as well as a budding household
insurance business. Outside the UK, the Group has exported theknowledge and experience gained from its UK businesses andowns four insurance and three price comparison businesses.

Our presence
An international presence
spanning seven countries:

A UK

AdmiralBell
Confused.com
elephant.co.uk
Diamond
Gladiator
Admiral Household
BDE Law
Admiral Law
BFrance

Italy

C

USA

Elephant Autocompare.com

CanadaAdmiralD SpainBalumba
Qualitas Auto
Rastreator

Our people

06

D

G

F

ConTe

B

E

E

LeLynxL’olivier AssurancesCAF

G India

Admiral Solutions
Admiral Technologies

David Stevens
Admiral, UK

ANNUAL REPORT AND ACCOUNTS 2014

Cristina Nestares
Admiral Seguros,
Spain

WWW.ADMIRALGROUP.CO.UK

Milena Mondini
ConTe, Italy

Kevin Chidwick
Elephant Auto, USA

INTRODUCTION

1STRATEGIC REPORTUK Car Insurance
Read the review from page 22

FINANCIAL STATEMENTS

OTHER INFORMATION

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

TurnoverPre-tax profit*1

Customers

2013: £1,699 million (-6%)

2013: £394 million (+1%)

2013: 3.0 million (+7%)£1,603 million

2

CORPORATE GOVERNANCE

International
Car Insurance£398 million

3.2 million

Growing car insurance businessesin Spain, Italy, the US and France

Read the review from page 28

TurnoverPre-tax loss*1

Customers

2013: £188 million (+10%)

2013: £22 million (-9%)

2013: 515,300 (+15%)£206 million

3

Price Comparison
Read the review from page 32£20 million

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

TurnoverPre-tax profit*1,2

Customer quotes

2013: £113 million (-4%)

2013: £21 million (-81%)

2013: 18.7 million (-2%)£108 million

4592,600£4 million

Household Insurance, commercial
Other Group Items UK
vehicle insurance broking and other
Read the review on page 35

18.4 million

Householdcentral costs (including share scheme
charges and finance costs)

TurnoverPre-tax loss

Gladiator customers

2013: £31 million (+77%)

2013: £22 million (+14%)

2013: 117,900 (+22%)£55 million£25 million*1

All segment results exclude share scheme charges. These charges are included in the ‘Other’ segment*2

Price Comparison pre-tax profit excluding Minority Interests
ADMIRAL GROUP PLC

143,900

ANNUAL REPORT AND ACCOUNTS 201407

CHIEF EXECUTIVE’S STATEMENT

A hot and cold year

Admiral Group’s 2014 was the yearof the Baked Alaska – hot and coldin a single bite.”Henry Engelhardt, CBE
Chief Executive Officer

In summary

Admiral Group’s 2014 was the year of the
Baked Alaska – hot and cold in a single bite.

@@ We’re investing in many different
markets, all with great potential,
all with different competitive
landscapes and timetables
to success

The cold? For the first time since we went public
and the first time this century, Admiral Group
did not post a record profit. We still made alot of money and had an enviable 52% returnon equity, but, alas, the 2014 result is being
dragged down by cyclicality and everythingelse, in sum, still required investment.

@@ UK profits in the future arelikely to be far more cyclically
influenced than before@@ Longer term there will be greaterbalance as reliance on the UK
Car Insurance portfolio reduces

2014 goes down as the yearof the Baked Alaska

The hot? Profits emerging from some of thosebusinesses outside the UK, including profit from
ConTe, our Italian insurance business (in its
sixth full year of operation) and record profits
at Rastreator and LeLynx, our price comparison
businesses in Spain and France, respectively.
My impression is that CEO statements aresupposed to present a veneer of progressagainst a backdrop of challenging conditions:“the mountain was a tricky climb, the climate
inhospitable, but we a) did it, b) are doing itor c) will soon do it”.
This statement is not going to follow that
common pattern.
What I will do is try to put you in my chair. What
do I worry about? What do I look forward to?
I will not be going over each business one ata time as Alastair has already provided a quick
review of the businesses and further on in thisreport is a commentary from each of the business
CEOs and plenty of numbers that will give youa lot of detail about those operations.

Let me start by reiterating our strategy:
continue prosperous growth in the UK Car
Insurance market while developing growing,profitable, sustainable businesses outside the
UK and in the UK beyond car insurance.
So with that strategy in mind, what do I worry
about? Here we go then, in David Lettermanstyle, my Top Ten Worries for 2015 (as written
in January) from least worrying worry to mostworrying worry:
10.	We don’t get our mobile phone accessstrategy right in ConTe (Italy).
9. 	That we won’t be able to stretch far enoughto take advantage of new opportunities
put in front of us.
8. 	An upward move in Baremo, which governs
the costs of bodily injury claims in Spain,
fails to materialise so price hikes in themarket also fail to materialise and therefore
there is a lot less shopping for car insurance.
7. 	French consumers refuse to believe they
can now easily leave their insurer, which,due to the new law, Loi Hamon, is now thecase. Allez les Français réveillez-vous!
6.	Confused’s Get a Free Brian Toy campaign
does not resonate with consumers and myhouse ends up decorated in Brian Toys.
5.	My wife telling me she’s pregnant.
4.	Solvency II brings higher capital requirements
than we’re currently expecting and reduces
the efficiency of our business model.
3.	Compare.com can’t reduce its cost per
quote or cost per sale to a profitable level.
2.	Guidewire, our new computer systemcurrently being built and tested, doesn’t
work efficiently in the UK or in France (it iscurrently running successfully in the US).

08

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

INTRODUCTIONSTRATEGIC REPORT

Customers (million)

4.1

3.7

3.6

2.7

3.4

+9%

11

12

13

14

Return on equity (%)

52%

11

12

13

52

58

60

59

59

-10%

10

14

Profit before tax*1 (£million)£356.5m

356.5

12

370.7

11

344.5

299.0

265.8

-4%

10

13

14

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

Full year dividend per share(pence)

12

98.4

11

90.6

75.6

68.1
10

99.5

98.4p
-1%

FINANCIAL STATEMENTS

All of the above worries, cumulatively,
just about total my number one worry.
The number one worry in this hit paradeof worries is always number one on myworry list: irrational competitors.

4.1m

10

CORPORATE GOVERNANCE

13

14

These are competitors who either don’t mind
if they lose lots of money (perhaps it’s evenin their plans) or fool themselves in believing
they won’t lose lots of money (but eventually
they do) or don’t realise they are actually losing
lots of money (and, again, eventually they do).
So they act irrationally and buy business andin the world of car insurance irrational they
may be, but they’re unlikely to pay the pricefor that irrationality for several years.
So things can look jolly nice for them forquite a period of time (growth is good, right?).
And the rest of the world is left with a choice:
be rational in response, which means you
lose a lot of business, or join the ranks of
the irrational and sacrifice profits. That’s the
position we found ourselves in, in the UK during
2014 as we tried to slalom our way throughthe poorest part of the UK cycle. Our growthin vehicles insured, achieved in the first half ofthe year, was a modest 4%. Our rates went up
during the year across all customer segments.
As our rates went up, our competitivenessdeclined. However, due to these rate increases,
we feel we are in a better place starting 2015,
and there are signs that the market is now
raising rates which, given our superior expense
ratio in particular, would give us the choiceof continuing to raise rates or growing ourcustomer count.
But I must admit, I don’t lose a lot of sleep over
the UK in particular because the CEO of our
UK business is David Stevens, one of the foundersof Admiral. As one of our Non‑Executive
Directors recently put it: there is no one morequalified to run the UK business. The ‘no one’did not mean ‘no one in Admiral’, or ‘no one
in the UK’ or even ‘no one in Europe’, it wasa very clear: no one. And I couldn’t agree more.
To find out if David’s sleeping well or not you’ll
have to turn a few pages to read his report.
As David takes responsibility for the UK, I spend
a lot of time with our businesses outside the UK.
In particular, I spent a couple of weeks towards
the end of 2014 with our insurance business inSeville, Admiral Seguros (brands: Qualitas Autoand Balumba), and the desire for success fromevery person I met, in every part of the business,
was contagious. I always leave Seville moreenergised than when I arrive. I don’t usually
talk about specific goals for the year ahead in
this report, but I’ll share this one with you: thegoal for Admiral Seguros in 2015 is break-evenon a written premium basis. I’m going to go out
on a limb now and say that I am very confident
the team will succeed in reaching this goal.

OTHER INFORMATION

So here’s my Top Ten Things I’m Looking
Forward To in 2015:10.	Successful use of mobile phones for
consumers, particularly in ConTe (Italy).
9. 	Continued, efficient growth in Elephant Auto(US), particularly in Texas.
8.	Continued sector dominance for
Rastreator and growth, particularly
in telephony comparison.
7.	Big quote volumes for LeLynx (France)
due to the introduction of the Loi Hamon.
6. Watching the Cubs win the World Series.
5.	Seeing Group revenue climb back above£2 billion.
4.	We can’t get Brian Toys made fast enoughto meet demand.
3.	Success of the new compare.com TV
campaign coupled with lots of wordof mouth.
2. Break-even in Admiral Seguros (Spain).
And the number one thing I’m looking
forward to: David taking the odd afternoon
off because he has nothing to worry aboutbecause results from the UK are so good.
Let me conclude by saying that we’re investingin many different markets, all with great potential,
all with different competitive landscapes andtimetables to success. I could spin a bit of veneer
about the value we’re creating even without
profits, but the truth of the matter is that in thepast these investments were overshadowed byever-growing profitability in the UK; in the past
the UK business seemed immune to market
cyclicality. But now we are just too big to be
immune. And I think it’s very fair to say too thatthe competition is improving, which, besides
being very annoying, demands that we improve
too and I can assure you that we are working
flat out to do so. The upshot is that UK profits
in the future are likely to be far more cyclically
influenced than before and so for the next
few years the Group result is likely to follow
this cyclical pattern. Longer term, in our view,
there will be less UK cyclicality in the result
as our reliance on the UK Car Insurance
portfolio reduces.
I’m sad to see the consecutive profit recordgo, it was a source of great pride. But, like thehot versus cold of Baked Alaska, I’m also glad
to see it go, because it means we’re investingin our future and not afraid to sacrifice someof the present to do so.

Henry Engelhardt
Chief Executive Officer
4 March 2015

Read more about our
financial performanceon pages 18 to 21

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201409

10 YEAR HIGHLIGHTS

Celebrating 10 years
since flotation
Since Admiral listed on the London Stock Exchange in 2004,
it has transformed from a company based solely in the UK,
to a company that today has insurance and price comparison
businesses in five countries in Europe and the US.
All its growth has been based on an approach oftest and learn and applying Admiral’s expertiseto new products and markets.
2009
Rastreator.com, a pricecomparison website,launches in Madrid, Spain.

2005
Admiral launches Multicar,
enabling UK customers to
insure two or more cars on
the same policy, with allcars eligible for a discount.

2007
AdmiralDirekt.de launches
in Cologne, selling car
insurance in Germany.

Elephant Auto Insurance
launches in Richmond,
Virginia selling car
insurance in the US.

2004

2006

2008

On 23 September, Admiral floats on the London
Stock Exchange with a share price of £2.75 andmarket capitalisation of £711 million.

Balumba.es launches inSeville, selling car
insurance in Spain.

ConTe.it launches
in Rome, selling car
insurance in Italy.

3 OFFICESIN THE UK

1,500 STAFF

EMPLOYED DIRECTLY BY ADMIRAL

1 MILLIONCUSTOMERSIN THE UK

341%

High shareholder returns
Over the past ten years, Admiral’s Total Shareholder
Returns are in excess of 750%

75%
17%
2004

10

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

2005

2006

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION2014
As of 31 December, the closing share price is£13.23 and Admiral has a market capitalisationof £3.6 billion.
Admiral has distributed over £1.6 billion
to shareholders since float.

18 OFFICES2010

IN 9 COUNTRIESLeLynx, a price comparison website,launches in Paris, France.

2012

OVER 7,000 STAFF
EMPLOYED DIRECTLY BY ADMIRAL

Admiral launches UK
household insurance.

Chiarezza.it, a car insurance pricecomparison website, launches in
Milan, Italy.

OVER 4 MILLIONCUSTOMERS

Chiarezza.it, the Group’s
Italian price comparison
website, is sold.

L’olivier Assurances launches in Paris
selling car insurance in France.

ACROSS 5 COUNTRIES Compare.com (formerlycomparenow.com) simplified its
name in February 2015 to betteralign with its services

*1

2011

2013

AdmiralDirekt.de is sold.

Compare.com*1, a pricecomparison website,launches in the US.
Qualitas Auto launches inSeville, selling car insurancein Spain.

793%
715%

658%
564%
467%
363%

351%

308%

2007

2008

2009

2010

2011
ADMIRAL GROUP PLC

2012

2013

ANNUAL REPORT AND ACCOUNTS 2014

2014
11

ADMIRAL’S BUSINESS MODEL

Maximising our potential
Our track record of strong growth is based on a low riskbusiness model that places great emphasis on customer
satisfaction and staff wellbeing.

A great place to work

We go out of our way tomake this a GREAT place towork. There are four pillars to
our culture: communication,equality, reward and fun. It is
upon these pillars that theperformance of our staff rests.

Low capital employed

A great place
to workLow capital
employment

Sharing risk with co- andreinsurance partners is an
important part of Admiral’sbusiness. Our model is basedon reinsurance relationships
underpinned by strong
underwriting results, with
Admiral itself only providing
the capital backing for aminority of its business.

Satisfiedcustomers
Profitability

Admiral continues to focus
on profitability both in the
short, medium and longterm, and will continue to dowhat is right for the longterm success of the business.

Shareholder
returns

Profitability

Shareholder returns

We believe that keeping
management hungry for cash
keeps them focused on themost important aspects ofthe business. We don’t starve
our businesses, but neither
do we allow them the luxuryof excess capital.

Putting customers at the heartof our business model
We value our customers above everything elseand believe that good service and customer
satisfaction are crucial for success. Our staff anddepartments are rewarded through incentive
schemes that place emphasis on the qualityof service provided to our customers.
Every day revolves around attracting, keeping
and satisfying customers and the Group strives
to design products that customers want andthat represent value for money.

In 2014 consumers voted Admiral the Best
Motor Insurance Provider at the Personal
Finance Awards for the second year in a row.

WHO AREOUR CUSTOMERS?

Awards 2014/15

WINNER

Best Car Insurance

12

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

Admiral tends not to focus on particularmarket segments, but aims to offer
great value products and services
to all customers in its markets.

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATIONOUR STRENGTHSOUR APPROACH

Many companies document their culture at length but
the best way to understand Admiral’s culture is to spend
a day in one of our offices to appreciate the depth of staff
engagement with a business of which they all own a part;the vibrancy of the working environment; the commitment
to the customer; and the engrained desire to produce a
quality output and continuously improve that quality.

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

PeopleProfit focus

We believe that if people enjoy what they do, they do a
better job – in 2014 Admiral was voted the 2nd Best Large
Workplace in the UK by the Great Place to Work Instituteand was awarded the FTSE Female Pipeline Award, which
recognises Admiral for the success of women in its workplace.
Admiral has been in The Sunday Times 100 Best Companies
to Work For in the UK every year the list has been compiled
and was 2nd in this year’s list. We also win numerous awards
in our overseas businesses reflecting the successful exportof the Admiral culture to those newer businesses.

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

Focus

Controlled test and learn

Admiral has spent more than 20 years refining how best to
provide the service people look for from their car insurer,
and the last 13 years developing Price Comparison. It isonly since the advent of Admiral Household Insurance in2012 that the Group has dedicated any material effort
outside private motor insurance and price comparison.

Admiral Group has been built from the ground up, taking
measured steps to test how well we understand the challengeahead and the effectiveness of our solutions, and then to learn
from that experience and from the experience of those whohave tried other strategies. That is how the Admiral teamhas set about building private motor businesses in fivecountries, price comparison businesses in four, and ahousehold insurance business in the UK.

CultureComplaints per
1,000 vehicles

98%

1.0

12

13

n/a*1

>85%

1.0

13

>90%

1.2

12

<1.4

1.2

95

>90%

94

92

91

90

Claims callanswer rate (%)

98

95%

95

95%

Customer Services, New
Business and Renewals
call answer rates*1 (%)

95

Customers who
would renew
following a claim (%)

Risk aversion

12

13

14

12

13

14

14
*1

14

2012 data is unavailable due to changes in reporting

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201413

ADMIRAL’S STRATEGY

Doing what we do, and doingit even better than last year
Our strategy is simple: we aim
to build on our existing strengths.

1	Maintain strong
performance of our
UK Car Insurance business

What this means
Stay ahead of the competition – in particularmaintaining a material combined ratio advantage.
This means underwriting profitable businessand pricing effectively for risk, providing greatcustomer service and maintaining a cost
conscious culture.

Our focus for 2015
Respond to UK market conditions; implement
price increases, control claims and expenses.

2	Exploit opportunities
presented by the US
car insurance market

What this means
Learn from our experiences in the UK and Europe
and export those learnings (including
sophisticated pricing techniques) to the US.
Understand the US consumer: what insurance
cover and products they want and how theywant to buy them. Educate the US consumer:
shopping for car insurance online is a good thing!

Our focus for 2015
Grow the customer base in the states in which
we operate and raise the profile of Elephant Auto.
This will be supported by the separate
development of our price comparison website,
compare.com, and focused marketing inimportant states to spread the understandingof price comparison and increase the numberof visitors to both our compare.com andElephant Auto websites.

3	Further grow ourpresence in Europe

What this means
Develop profitable, growing, sustainablebusinesses in insurance and price comparison
that mirror the UK model. This means buildingon the market profiles developed by ourstrong management teams.

Our focus for 2015
Capitalise on ConTe’s performance in 2014 andgrow the premium base. Generate further growthfrom Rastreator and LeLynx’s market-leading
positions in the Spanish and French pricecomparison markets. Admiral Seguros tofollow ConTe to break-even.
L’olivier Assurances to capitalise on its new
infrastructure and grow following the introductionof the Hamon Law, which allows consumers
to switch insurers any time after one year
without penalty.

4	Establish new products
which use ourexisting expertise

What this means
Test and learn approach to utilising ourexisting skills and expertise to develop
products that customers want and that
represent value for money.

Our focus for 2015
Continue to focus on household as more
people embrace price comparison shopping
for household cover. Control household costs
to support a below market average expense
ratio whilst maintaining control over pricing
and claims to produce a good loss ratio.

Our success has been based on having
the right people with the right skills.
We believe that good service and customer satisfaction
is crucial for success. Our strategy is delivered throughour people; they are crucial to our success.

14

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

Sav
Claims correspondentGary
IT support

Expanding internationallyIn recent years Admiral Group has expanded acrossEurope and to the US. An important attribute tosuccess in these markets is our staff. We have created
office environments to help motivate staff, combining
the best of what’s been learned over time in the
UK with local habits and traditions.

Aligned interests
Admiral staff across all locations are awarded
a stake in the Group shortly after they join.
MartinCEO of confused.com

ClaireTrainer

A quality service
Everyone in the organisation
has a part to play in ensuring
quality, so departments within
the Group are measured against
sets of quality measures, which
are meant to be a challenge;
people have to work hard toachieve them, but they arestill achievable.

Brian
Liability correspondent

To learn about our diversity, ethics andhuman rights, please turn to the
Directors’ Report on page 73

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2014

15

Q&A

Questions and answers
with Henry Engelhardt, David Stevens and Geraint Jones

In the last 12 months we have had a lot of questions
from investors and analysts alike. Here we try toanswer some of them.

Henry
Alastair’s statement indicates that the
downturn in the Group result is dueto the investment in compare.com.
How long do you see the investment
continuing and when will you know
if the model works in the US?
With price comparison operations, theamount of investment in the early years
roughly equates to the loss, as the earnings
profile is very much driven by marketing
spend. Both Rastreator and LeLynx were
profitable within three years of launch.

Compare.com continues to make good
progress in the US which justifies theongoing investment we have outlined for2015. We have focused marketing spend on
the larger US states of California, Illinois, Texas
and Virginia. We continue to view the internet
as an irresistible force and believe more andmore consumers will turn to the internet for
more and more shopping opportunities.
Feedback from US consumers is positive and,as you will see from Andrew Rose’s (compare.com
CEO) report, with more than 40 auto insurance
carriers under contract, it’s an attractive choicefor insurers as well.

David Stevens
Chief Operating Officer

16

ANNUAL REPORT AND ACCOUNTS 2014

Geraint Jones
Chief Financial Officer

WWW.ADMIRALGROUP.CO.UK

Quick questions
What is your most memorable
Admiral moment?
The day we floated on the Stock Exchange
and next day when we went around theoffices offering (little) bottles of champagne
to every member of staff. That was a very
happy group!

Henry Engelhardt
Chief Executive Officer

INTRODUCTIONSTRATEGIC REPORT

It’s great that ConTe has made aprofit and you are optimistic that
Admiral Seguros will follow suit.
Is this a watershed year for theinternational businesses?
We have always said that insurance businesses
will take between six to ten years to break-even,due mainly to the start-up costs and the highexpense ratio in the early years when premiums
and customers are low. It is very encouraging
that ConTe has produced its first profits at thelower end of this target period, in year six, albeit
those profits came from back year releases
rather than current year results. I’m confident
Admiral Seguros will break even in 2015.
This is in spite of very challenging economic
conditions in Europe which have particularly
affected both ConTe and Admiral Seguros.
Admiral is in the business of building profitable,
sustainable and growing businesses and we
expect the European operations to build on
their performance to date and to match growth
aspirations to local market conditions.
We would expect Elephant Auto to follow thissix to ten year profile and, given the size of the
US market, probably to be at the outer end of
this target period, but we are already in year five,so halfway there! We have already achieved
so much in establishing Elephant Auto as adirect insurer in an agent driven market. The
development of an active price comparison
market, led by compare.com, can only
accelerate change.

You (and the team) have built
a fantastic business over the last
21 years. What would you like to see
your eventual successor aim for?
There’s definitely success in succession at
Admiral. I am fully convinced that the groupof young senior managers we’ve got in ourGroup are brighter and more inventive thenthose of us moving on over the next few
years. These managers have already spenta number of years in the Group and so we’vealso been able to brainwash them with theway we do things. Not only are these peopleinteresting and talented, but they are also
hungry to succeed.
If we cannot find our future leaders from thisgroup then I will have done my job very poorly.
And we certainly don’t want that to be thecase, do we?!

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

We attempt to soften the profit impact of thecycle by raising rates earlier than our competitors
in bad times and ceasing to raise them earlier
in the good times.
Our reserving philosophy has always been andremains conservative and consistent across time
– we claim to take full credit for an underwriting
profit only when it has a very high degree ofcertainty, which typically involves waiting acouple of years.

Quick questions
What are you most likely to becaught doing outside of work?
Sneaking a taramasalata on Digestives.

Alastair’s statement makes referenceto ‘a major systems upgrade’ in theUK, so what have you been up to andhow will this impact the UK business?
Henry has also made reference in his statement
to Guidewire being implemented in the UK
and France. We already use Guidewire in our
US operation.
We’ve been going for 20 years now and thetime has come for an overhaul of our insurance
administration system. We expect to be able
to deliver better service at a somewhat lower
cost with our new systems.
Although it’s a big and complex project, I am
confident that we are dedicating the rightlevel of internal and external expertise toensure a successful implementation.

Admiral has always prided itself on
being a low-cost operation, but you
are investing in systems, facilities andstaff. How will this affect yourhistorical expense ratio advantage?
Our expense ratio advantage over ourcompetitors runs at over ten percentage points
and has done for years. We see the investments
we are making as important to maintainingthat advantage.

Geraint
David
Henry’s statement indicates that
Admiral is now too big to be immune
to the cyclicality in the UK market.
What does that mean for Admiral’s
UK loss ratio, reserves andreserve releases?
The underwriting margin we earn per policy
rises and falls as the insurance cycle drives
prices up and down. Historically, when we hada small market share we had the opportunity
to offset falling margin per policy through arapid growth in policies. Now we have roughly
12% of the market it’s neither possible noradvisable to grow strongly during periods offalling margin – especially now that the pricecomparison market has largely reached maturity.

Admiral is a cash generative businesswith a high dividend payout. If you
needed capital, why not just reducethe dividend? Why did you issue debt?
As Alastair mentioned in his statement, werecognised that favourable capital markets
offered an opportunity to strengthen anddiversify the capital base. The bond counts
towards capital in the current and future solvency
regimes and we believe it was a prudent courseof action as we make the transition into the
new Solvency II regime in 2016.

OTHER INFORMATIONIn terms of dividends, we continue to believe
firmly in not holding excess capital in the Groupand will again distribute 95% of earnings in2014 – the same level as 2013.

How does the level of reserve
conservatism compare to previous
years and will Solvency II change yourapproach to reserving?
Admiral has always reserved cautiously –initially setting provisions well above theprojected ultimate outcomes. This tends tolead to higher than industry-average releases
and you’ll see from the results that we haveseen an increase in releases in 2014, which was
due to some very positive development on
the back years. However, despite the large
releases there has been no deterioration in
the level of conservatism in the reserves.
Solvency II will bring numerous changes to theGroup, from the way capital requirements arecalculated to our structure of risk management
and the way Admiral’s results and business arereported to regulators and to the public.
Despite this, I don’t see Admiral’s cautious
approach to reserving changing under the
new regime.

Quick questions
What is your favourite album?
It’s almost impossible to pick one, but if
I absolutely had to it would be Appetite for
Destruction, Guns n’ Roses.... shaped mymusical tastes for good.

There has been a lot of talk about
the potential impact of Solvency II
on capital and dividends. So what
will be the impact on capital andhow might this affect Admiral’s
dividend policy?
As I mention in my statement, whilst someuncertainty still remains, based on what weknow today, we expect the level of capitalrequirement for the Group in 2016 to be not
too dissimilar from that agreed by the PRA
under the UK ICAS rules for 2015.
I don’t foresee any change to Admiral’sphilosophy on dividends and expect theGroup to continue distributing to shareholders
capital we don’t need to keep within theGroup for solvency, growth or for contingencies.
Based on what we know today, I don’t expect
material changes for the foreseeable future in
the level of dividends in terms of the percentage
of earnings distributed.

The increased level of capital will also support
our growth aspirations for all Admiral’s businesses
in the coming years.

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201417

GROUP FINANCIAL REVIEW

2014 was another strong year
for the Admiral GroupThe final dividend proposed for 2014 is
49.0 pence per share – bringing the total
dividend to 98.4 pence per share, within
1% of the total 2013 dividend. That
represents a payout ratio of 95% andbrings to £271 million the full year
dividend (£271 million last year).”Geraint Jones
Chief Financial Officer

In summary@@ The Group’s UK Car Insurance
business accounts for 81% ofGroup turnover (2013: 84%) and
78% of customers (2013: 82%)@@ ConTe, our Italian car insurance
business, joined our Frenchand Spanish price comparison
businesses in now contributing
positively to the Group’s result@@ Our insurance operations inFrance, Spain and the UScontinue to require investment,
though we remain encouragedby the progress made and haveconfidence in the operations
and their future profitability@@ The UK Household Insurance
business enjoyed anotheryear of strong growth in policy
numbers and again achieved
break-even

18

ANNUAL REPORT AND ACCOUNTS 20142014 was another strong year for Admiral, withgood financial results and lots of encouraging
progress in businesses across the Group. Earnings
per share at 103.0 pence was slightly lower
than 2013 (104.6 pence), though the 2014
result included a further, small increase inprofit from the UK Car Insurance business
and, encouragingly, a small profit from ConTe,
Admiral’s Italian insurance business. Taken
together with Rastreator and LeLynx, this brings
to three (out of seven) the number of businesses
outside the UK that contribute positively to
the Group’s result.
As noted earlier in this report, the main reason for
the fall in 2014’s result was the investment madein the US comparison business compare.com(Admiral’s share of the loss was £15 million
pre-tax). We believe this new business hasdeveloped well and has great potential. We willcontinue to invest in attracting customers to
the website and growing the business, to theextent that compare.com is expected to posta loss in the region of £20 million to £30 million
in 2015 (based on Admiral’s 68% ownership).
Our insurance operations in France, Spainand the US are still loss-making, although the
combined loss for all international operations
has reduced to £19.9 million from £22.1 million.
We continue to be encouraged by progress
made and have confidence in the operations
and their future profitability. Admiral’s UK
Household Insurance business enjoyed anotheryear of very strong growth in policy numbers
and another broadly break-even financial
result. Much more detail on the performanceof each of the businesses is set out on thefollowing pages.

WWW.ADMIRALGROUP.CO.UK

Alastair has articulated Admiral’s dividend
policy in his statement and I won’t repeat it
here. The final dividend proposed for 2014 is
49.0 pence per share – a 3% reduction comparedto the final 2013 payment. The full year dividendfor 2014 is £271 million (2013: £271 million)
equating to a payout ratio of 95% of earnings.
Consistent with our approach to the calculationof the interim 2014 dividend, we have, at year
end, retained a significant margin over current
economic capital requirements to ensure asmooth transition to the new Solvency II
regulatory regime coming into effect inJanuary 2016. We are making very good
progress towards full compliance with thevarious requirements of the regulation and
expect clarity in the coming months on the levelof capital requirement that will apply next year.
Acknowledging that some uncertainty remains,based on what we know today, we expect thelevel of capital requirement in 2016 to be not
too dissimilar to the current ICAS requirements.
And finally, we were pleased to complete
successfully the issue of Admiral’s first publicbond in July 2014, which both strengthened
and diversified the capital available to the Group.
The net annual cost of the £200 million ten-year
subordinated notes (lower tier two capital under
the current regime and expected to qualify
as tier two under Solvency II) is approximately£4.5 million per year: we welcome this new setof investors in the Admiral Group.

Geraint Jones
Chief Financial Officer
4 March 2015

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

Turnover (£million)

Group results and dividend@@ Admiral Group’s share of pre-tax profits decreased in 2014 by 4% to £356.5 million(2013: £370.7 million).

-3%@@ UK Car Insurance profit increased by 1% to £398.0 million (2013: £393.9 million).

10@@ International Car Insurance losses totalled £19.9 million (2013: £22.1 million).
1,971

2,030

2,215

1,585

2,190

£1,971m@@ Other Group Items, including employee share schemes and net debt financing charges,
amounted to a cost of £24.6 million (2013: £22.0 million).
11

12

13

14

Profit before tax*1 (£million)£356.5m

11

12

13

356.5

370.7

344.5

299.0

265.8

-4%

10

14

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

Earnings per share (pence)

103.0p

11

12

13

103.0

104.6

95.1

81.9

72.3

-2%

10

14

Full year dividend per share(pence)

12

98.4

11

90.6

75.6

68.1

-1%

99.5

98.4p

10

@@ Admiral Group’s share of Price Comparison profit totalled £3.6 million (2013: £21.1 million)
reflecting the investment in compare.com.

13

14

Note: Segment and business results also exclude share scheme charges which are accounted
for in Other Group Items

Further details by segment are set out below.
The decrease in Group profit was predominantly
due to the increased investment made incompare.com – the Group’s US comparison
business (Admiral’s share of the loss was£15.0 million in 2014).
Group turnover of £1,971.0 million decreased
by 3% compared to 2013 (£2,030.2 million).
This was mainly due to reductions in averagepremiums in the UK Car Insurance business.
During 2014, the Group increased its customer
base to 4.05 million from 3.70 million at
31 December 2013, year-on-year growthof just under 355,000.
Earnings per share decreased by 2% to103.0 pence (2013: 104.6 pence). The decreaseis lower than the 5% decrease in pre-tax profit
due to the lower effective rate of corporation
tax in 2014.
Total dividends paid and proposed for thefinancial year amount to 98.4 pence per share(£271 million), a decrease of 1% on the previous
year (2013: 99.5 pence, £271 million). This is equal
to 95% of post-tax profits. The final dividend
proposed is 49.0 pence per share (3% lower
than the final 2013 dividend of 50.6 pence).
The final dividend is made up of a 22.5 pence
normal element, based on the stated dividend
policy of distributing 45% of post-tax profits,
and a further special element of 26.5 pence.
The special dividend is calculated by reference
to distributable reserves after taking into
account solvency requirements and a margin
for contingencies.
The payment date is 29 May 2015, theex-dividend date is 7 May and the record
date is 8 May.
Divisional performance highlights
The Group’s UK Car Insurance business accounts
for 81% of Group turnover (2013: 84%) and
78% of customers (2013: 82%). The relative
decreases are due to the continued growthand development of the Group’s otherbusinesses, leading to lower concentrationof the core business.
In 2014, the UK business continued to focus
on margin rather than volume, in the face ofvery strong competition in the UK market and

ADMIRAL GROUP PLC

continued pressure on rates, but increased
marginally the number of vehicles insured to
3.2 million (2013: 3.0 million). Supported bystrong releases from prior year claims reserveson the back of continued positive developmentin projected claims costs, and an improved
expense ratio, the combined ratio improved
to 79.5% (2013: 81.0%) and profit before tax
was £398.0 million – up 1% on 2013’s resultof £393.9 million.
Lower average premiums in the competitive
UK market, in part offset by success inincreasing the number of renewal customers,
contributed to a reduction in UK turnover of
6% to £1,602.7 million (2013: £1,698.9 million).
Outside of the UK, Admiral’s International
Car Insurance businesses continue to develop,with combined turnover rising 10% to£206.2 million (2013: £187.8 million) andcustomer numbers almost reaching 600,000 –an increase of 15% on a year earlier. The 2014
Group results include a small profit generated
by ConTe. The combined loss from theinternational insurance operations was lower
in 2014 at £19.9 million (2013: £22.1 million),primarily due to improved claims experienceand the impact of the ConTe profit.
In a very competitive UK comparison market,
Confused.com, the Group’s UK Price Comparison
business, reported a pre-tax profit of £15.8 million– £5.9 million lower than 2013’s result. Outside
the UK, the European Price Comparison
businesses (Rastreator in Spain and LeLynx
in France) contributed a combined profit of£2.8 million (2013: £1.9 million) to the Group’s
profits. During the year, the Group invested
in growing compare.com, its US comparison
business, and the Group’s share of the pre-tax
loss was £15.0 million.
Other Group key performance indicators include:@@ Group loss ratio 69.0% (2013: 69.2%) –a marginal reduction in the UK loss ratio
resulting from higher reserve releases
together with a significant improvementin the international loss ratio.
@@ Group expense ratio 19.7% (2013: 19.9%) –a slight decrease in the UK ratio offset by
an increased international ratio.
@@ Group combined ratio 88.7% (2013: 89.1%).

ANNUAL REPORT AND ACCOUNTS 2014

19

GROUP FINANCIAL REVIEW CONTINUED

Investments and cash
Investment strategy
Admiral maintained a low risk investment strategy throughout the year and continued to invest
in the same broad asset classes as previous years.
The main focus of the Group’s investment strategy is capital preservation, with additional priorities
including low volatility of returns and high levels of liquidity. All objectives continue to be met.
The Group’s Investment Committee performs regular reviews of the strategy to ensure it
remains appropriate.
Cash and investments analysis
31 December 2014
UK CarInsurance£mInternational
Car
Insurance£m

Price
Comparison
£m

Other
£m

Total
£m

Fixed income anddebt securities

822.7

—

—

199.1

1,021.8

Money market funds

808.6

96.5

—

4.1

909.2

Cash deposits

261.0

2.1

—

—

263.1

Cash

101.8

38.6

49.0

66.5

255.9

Total

1,994.1

137.2

49.0

269.7

2,450.0

UK CarInsurance£mInternational
Car
Insurance
£m

Other
£m

Total
£m

31 December 2013
Price
Comparison£mFixed income anddebt securities

202.4

—

—

—

202.4

Money market funds

1,278.2

98.4

—

29.5

1,406.1
288.4

Cash deposits

286.0

2.4

—

—

Cash

101.6

35.7

38.7

11.9

187.9

Total

1,868.2

136.5

38.7

41.4

2,084.8

There has been a change in the allocation of funds during 2014, with a greater proportion invested
in fixed income and other short dated securities (and less in money market funds and deposits).
This change has been made in order to increase yield without materially increasing risk. This change
has not resulted in a material change in credit quality and only a moderate increase in average
duration, due to the features of the underlying investments.
Money market funds, fixed income and debt securities comprise the majority of the total; 79%
at 31 December 2014, up from 77% at 31 December 2013.
Investment and interest income in 2014 was £15.4 million, up 8% on 2013 (£14.3 million). The increase
was due to higher average balances along with the increased allocation of funds to fixed income
and other short dated securities that took place across 2014. The increase would have been greater
but was partially offset by an adjustment (of approximately £8 million) relating to notional
investment income on quota share reinsurance funds withheld arrangements. If the combined
ratio on the 2014 underwriting year (for the UK Car Insurance business) reduces to profitablelevels, this adjustment will reverse.
The Group continues to generate significant amounts of cash and its capital-efficient businessmodel enables the distribution of the majority of post-tax profits as dividends.
2012
£m

2013
£m

2014
£m

Operating cash flow, before transfers to investments

742.0

616.8

540.2

Transfers to financial investments(441.9)(295.3)(286.3)Operating cash flow

300.1

321.5

253.9

Tax and interest payments(79.7)(88.5)(77.0)

Investing cash flows (capital expenditure)(10.9)(10.1)(47.5)

Financing cash flows (dividends offset by proceedsof debt issue)(64.4)(214.8)(250.3)Foreign currency translation impact

(2.7)

(1.3)

3.0

Net cash movement(8.0)(28.7)

68.0

Movement in investment valuation reserve
Net increase in cash and financial investments
20

ANNUAL REPORT AND ACCOUNTS 2014

—

—

10.9

434.5

266.6

365.2

WWW.ADMIRALGROUP.CO.UK

The Group continues
to generate substantial
amounts of cash andits capital-efficientbusiness model
enables the distributionof the majority of
post-tax profits
as dividends.”

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

The main items contributing to the significant operating cash inflow are as follows:
2012
£m

2013
£m

2014
£m

Profit after tax

258.4

286.9

281.6

Change in net insurance liabilities

200.0

186.2

187.5

Net change in trade receivables and liabilities

163.0

22.3

(34.7)

Non‑cash income statement items

34.4

38.1

36.7

Tax and net interest expense

86.2

83.3

69.1

Operating cash flow, before transfers to investments

742.0

616.8

540.2

Total cash plus investments increased by £365 million or 18% (2013: £267 million, 15%). The netchange in actual cash balances was less significant, as funds were transferred into investments.
Capital structure and financial position
Admiral’s capital-efficient and profitable business model led to a return on equity of 52% (2013: 58%).
A key feature of the business model is the extensive use of co- and reinsurance across the Group.
During 2013 and in early 2014 Admiral announced extensions to its UK co- and reinsurance
arrangements with capacity fully allocated until at least the end of 2016 and Munich Re committed
to underwriting 40% of our UK motor business until at least the end of 2018. Similar long termarrangements are in place in the Group’s international insurance operations and UK Household
Insurance business.
The Group continues to manage its capital to ensure that all entities within the Group are able
to continue as going concerns and that regulated entities comfortably meet regulatory capitalrequirements. Surplus capital within subsidiaries is paid up to the Group holding company inthe form of dividends.
In July 2014, the Group completed the issue of £200 million of ten-year dated subordinated bonds.
The rate of interest is fixed at 5.5% and the bonds mature in July 2024. The bonds qualify as lower
tier two capital under the current regulatory capital regime and are expected to qualify as tier two
capital under Solvency II.
The majority of the Group’s capital requirement is derived from its European insurance operations,
Admiral Insurance (Gibraltar) Limited (AIGL) and Admiral Insurance Company Limited (AICL) under
their respective local regulations. The minimum capital requirements and surplus position at theend of 2014 for those companies, along with the overall Group position, were as follows:
AIGL
£m

AICL
£m

Group
£m

Capital*1

187

77

705

Minimum regulatory capital requirement

77

27

120

Surplus over minimum requirement

110

50

585

Actual capital requirement*2

289

Surplus over regulatory capital requirement

416

*1

Before accounting for the 2014 final dividend of £136 million. Comprises tangible equity plus debt

*2

Based on the sum of the individual capital requirements of Group subsidiaries at 31 December 2014

During 2015, the Group’s capital requirement will be assessed under the ICAS regime in the
UK with Individual Capital Guidance (ICG) applied by the Prudential Regulatory Authority (PRA)
as appropriate. The Group expects to hold a significant buffer above ICG throughout 2015.

ADMIRAL GROUP PLC

OTHER INFORMATION

Solvency II
During 2014 further requirements and guidancecontinued to be issued on implementing theSolvency II regulatory regime in the EU aheadof the effective date of 1 January 2016.
Solvency II aims to provide an EU-wide setof capital requirement and risk management
standards. Principal themes include risk-based
capital, market-consistent balance sheets and
Own Risk and Solvency Assessments (ORSA).
The Directors do not believe, based on
guidance issued to date, that there will bea material change in the level of the Group’s
capital surplus as a result of the new regime
compared to the surplus expected during
2015. The Group is making good progress
towards full compliance with the various
requirements of the regulation and expects
clarity in the coming months on the level ofcapital requirement that will apply from 2016.
Taxation
The tax charge reported in the Consolidated
Income Statement is £69.1 million (2013:£83.3 million), which equates to 19.7%(2013: 22.5%) of profit before tax. The lower
effective rate of taxation compared to 2013
predominantly results from reductions in therate of UK corporation tax in 2013 and 2014,
but is also impacted by deferred tax movements
relating to losses in the Group’s US businesses.
The average rate of UK corporation tax in 2014
was 21.50% (2013: 23.25%). The average rate
will fall to 20.25% in 2015 and 20.00% in 2016.

Quick questions
What is your most memorable
Admiral moment?
They mainly involve singing… either withthe band at the floor 22 Christmas party
in 2011, or in front of 5,000 Germans
at the Oktoberfest in Munich.
The Group’s results are presented in threesegments – UK Car Insurance, International
Car Insurance and Price Comparison. Other
Group Items are summarised in a fourth section.

ANNUAL REPORT AND ACCOUNTS 201421

UK INSURANCE REVIEWUK Car Insurance remains
a key part of the business
UK Insurance strategy
The strategy for Admiral’s UK businessis unchanged and remains simple:@@ The Group aims to grow profitably its shareof the UK private motor insurance market whilst
maintaining a capital-efficient structure.
@@ At the same time, Admiral endeavours always
to give excellent service to customers, whilst
providing a positive environment in which
staff can work and develop.
David Stevens
Chief Operating Officer

After over two
years of almost
unprecedented
premium deflation,
premiums across the
car insurance market
stabilised in thesecond half of 2014,
and even began todrift up.”
Quick questions
TV or radio – Radio
Home or abroad – Abroad
Trainers or shoes – Shoes
Tea or coffee – Tea
Bus or walk – Bus
Call or text – Call
Chips or mash – Mash

22

ANNUAL REPORT AND ACCOUNTS 2014

The avid readers (or possibly reader) of my UK
review will have noted its subtle rebranding
from UK Car Insurance Review to UK Insurance
Review – a nod to Admiral’s entry into thesecond biggest non-life market in the UK –household insurance.
Maybe the rebranding’s premature. Car insurance
still accounts for the vast majority of our turnover
and almost all our profits. So I’ll write aboutthat first.
After over two years of almost unprecedented
premium deflation, premiums across the car
insurance market stabilised in the second halfof 2014, and even began to drift up. This is partly
simply a normal, cyclical point of inflection, andpartly a response to the return to ‘businessas usual’ in terms of claims inflation, following
the largely one-off benefits in 2013 of changes
in the rules around small bodily injury claims.
This probably means that the point of lowest
profitability was around the end of 2014 (in terms
of ultimate profitability of newly written business,though not necessarily in terms of currently
reported profitability).
Within an overall cycle there are often mini-cycles
that make subsets of the market relatively
more or less attractive. A combination offactors has made the younger driver segment
more challenging than the market as a wholeat this particular juncture. This has partly been
an equal and opposite reaction to the panic
premium hikes and withdrawals of 2010/11,

WWW.ADMIRALGROUP.CO.UK

with a number of important competitors
re-embracing the segment in 2013/14. It’s also
partly a dislocation caused by the impact oftelematics. Telematics, though largely irrelevant
for the market as a whole, is important in theyounger driver segment. Whatever the potential
in the long run, in the short term, becauseof the extra expenses involved and the sizeof the discounts required to overcome customer
resistance, it has reduced the profitability of theyoung driver segment. This segment is, andis likely to remain, a significant minority ofour business, but its importance to us shrank
somewhat during 2014 through relatively
higher price increases, as we responded
to these pressures.
Across all segments, we started increasing
our new business prices in May and renewal
prices in July, and by year end had implemented
a series of price increases cumulatively, inpercentage terms, in the high single digits.
We anticipate further price increases during 2015,
reversing some of the margin reduction of thelast two to three years. However, longer term
followers of our Company will appreciatethat price increases today are a case of ‘jam
tomorrow’ in profit terms – any year’s actual
profitability is essentially reflected in reported
profitability over the following two to three years,
due to our cautious approach to recognisingunderwriting profit. Still, it’s good to be headingin the right direction.

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

Achievements and goals
UK Insurance achievements in 2014@@ Profit before tax increased 1% to £398 million (2013: £394 million).
@@ Combined ratio remained broadly flat in 2014 at 80% (2013: 81%).
@@ Profit generated from the portfolio of insurance products thatcomplement the core car insurance product of £182 million(2013: £173 million).

@@ 2nd Best Large Workplace in the UK, Great Place to Work Institute.
@@ Best Car Insurance Provider in the Personal Finance Awards
for the second year in a row.
@@ Britain’s Most Admired Company in the Life Assurance andInsurance sector.
@@ FTSE Female Pipeline Award. This award recognises Admiral
for the success of women in its workplace.

@@ Strong growth in Household with a break-even result.
@@ 95% of customers who have submitted a claim would renew with
Admiral, based on their claims experience (2013: 91%).
@@ 94% of staff say that Admiral is a friendly place to work according
to the Best Workplaces survey.
@@ 2nd Best Big Company to Work For, The Sunday Times 100 Best
Companies to Work For.

UK Insurance goals for 2015@@ Appropriate rate increases in response to claims trends andmarket conditions.
@@ Continued reserve releases if back years develop as expected.
@@ Successful transition to new IT system (Guidewire).

And what about our Household business?
Two years on and we insure more households
than we did cars two years from our launch asa motor insurer, and we’re growing fast as more
and more people embrace price comparison
shopping for household cover. Results areencouraging. Our strategic bet is that we canmaterially undercut the 40%+ expense ratiosof many of the established players, while alsodelivering a decent loss ratio outcome. Our
expense ratio, on a written basis, is alreadyactually below market average and our loss ratio
is also encouraging. We have, of course, (andhere’s a hostage to fortune, given the time lagfrom written to read) benefited, along withother players, from unusually benign weather,notwithstanding increasing tabloid ‘weather
bomb’ hysteria. So, it’s ‘so far, so good’, but it
is early days.

Kerry
Claims
Accounts Clerk

David Stevens
Chief Operating Officer
4 March 2015

Service with a smile
The customer is the centre of everything we do, and our mostimportant stakeholder. I feel a sense of pride in the work I do,
by ensuring I do my utmost to leave each customer I speak
to with a smile on their face.
Read more about our people on page 15

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201423

UK INSURANCE REVIEW CONTINUED

UK Car Insurance financial review
Non-GAAP*1 format income statement
2012
£m

2013
£m

2014
£m

Turnover*2

1,936.2

1,698.9

1,602.7

Total premiums written*3

1,748.7

1,553.0

1,453.1

Net insurance premium revenue

455.6

425.1

394.3

Investment income

13.9

12.4

11.5

Net insurance claims(355.1)(251.3)(198.3)

Net insurance expenses(50.0)(52.1)(44.6)

Underwriting profit

64.4

134.1

162.9

Profit commission

108.4

99.3

71.8

Underwriting profit plus profit commission

172.8

233.4

234.7

Net other income

170.9

136.8

140.7

Instalment income

29.1

23.7

22.6

UK Car Insurance profit before tax*4

372.8

393.9

398.0

*1

GAAP – Generally Accepted Accounting Practice Turnover (a non-GAAP measure) comprises total premiums written and Other Revenue. Refer to note 12
for a reconciliation to financial statement line items*2 Total premiums written (non-GAAP) includes premium underwritten by co-insurers*3 UK Car Insurance profit before tax includes Minority Interests. The Minority Interests’ share of profit before tax
is insignificant*4

Split of underwriting profit
2012
£m

2013
£m

2014
£m

Motor

59.6

121.8

144.2

Additional products

4.8

12.3

18.7

Underwriting profit

64.4

134.1

162.9

Key performance indicators
2012

2013

2014

Reported motor loss ratio*1

76.4%

68.0%

68.6%

Reported motor expense ratio*2

13.6%

15.0%

14.4%

Reported motor combined ratio

90.0%

83.0%

83.0%

Written basis motor expense ratio

13.0%

14.5%

16.0%

Reported total combined ratio*3

89.1%

81.0%

79.5%
£66.8mClaims reserve releases – original net share£16.3m£53.3mClaims reserve releases – commuted reinsurance*5£1.3m£40.9m£70.6mTotal claims reserve releases£17.6m

£94.2m£137.4m

Vehicles insured at year end

3.02m

3.02m

3.15m

Other Revenue per vehicle

£79

£67

£67

*4

 Motor loss ratio adjusted to exclude impact of reserve releases on commuted reinsurance contracts.
Reconciliation in note 12b*1 Motor expense ratio is calculated by including claims handling expenses that are reported within claims
costs in the income statement. Reconciliation in note 12c*2 Reported total combined ratio includes additional products underwritten by Admiral*3 Original net share shows reserve releases on the proportion of the portfolio that Admiral wrote on a net
basis at the start of the underwriting year in question*4 Commuted reinsurance shows releases on the proportion of the account that was originally ceded underquota share reinsurance contracts but has since been commuted and hence reported through underwriting andnot profit commission*5

24

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

Profit from UK Car
Insurance increased
1% to £398.0 million(2013: £393.9 million).
Profit from underwriting
and profit commission
increased marginallyto £234.7 million(2013: £233.4 million),resulting froman improved
combined ratio.”INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

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

The two principal advantages of thearrangements are:@@ Capital efficiency: a significant proportionof the capital supporting the underwritingis held outside the Group. As Admiral
is typically able to retain much of the
profit generated via profit commission(refer below for further details), the returnon Group capital is higher than in an
insurance company with a standard
business model.
@@ Risk mitigation: co- and reinsurers bear
their proportional shares of claims
expenses and hence provide protection
should results worsen substantially.

Arrangements for 2014 to 2016
In early 2014 the Group was pleased to announce extensions to its arrangements
such that capacity is fully placed until the end of 2016. The underwriting splits canbe summarised as follows:
2014

2015

2016

Admiral

25.00%

25.00%

25.00%

Great Lakes (Munich Re)

40.00%

40.00%

40.00%New Re13.25%

12.25%

12.25%

Swiss Re

9.00%

9.00%

9.00%

Hannover Re

8.75%

8.75%

8.75%

Mapfre Re

4.00%

5.00%

5.00%

100.00%100.00%100.00%Total
The proportion underwritten by Great Lakes(a UK subsidiary of Munich Re) is on aco-insurance basis, such that 40% of all
motor premium and claims for the 2014
year accrues directly to Great Lakes anddoes not appear in the Group’s income
statement. Similarly, Great Lakes reimburses
the Group for its proportional share of
expenses incurred in acquiring andadministering the motor business.
Great Lakes will underwrite 40% of the
UK business until at least the end of 2018.
All other agreements are quota
share reinsurance.
Admiral has options to commute quota
share reinsurance contracts and typicallydoes so after two or three years of anunderwriting year’s development when
there is a reasonably certain view on theyear’s outcome. There is little or no impact
of commutation on profit or the timing of
profit recognition.

After commutation, movements in booked
loss ratios result in reduced or increased net
claims costs (and not profit commission).
At 31 December 2014, all material UK quota
share reinsurance contracts for underwriting
years up to and including 2012 have beencommuted. All reinsurance for the 2013
and 2014 years remained in effect.

OTHER INFORMATIONUK Car Insurance financial performance2014 was the third successive year of premium
reductions in the UK Car Insurance market.
Admiral’s response has been to prioritise margin
protection rather than attempting to growmarket share materially. As a consequence,
although strong renewal retention figures led
to a 4% increase in vehicles insured, turnoverfell to £1.6 billion from £1.7 billion. In the latterpart of 2014, some evidence emerged of prices
in the market increasing, though not yet in amaterial way.
ProfitProfit from UK Car Insurance increased 1% to£398.0 million (2013: £393.9 million). Profit fromunderwriting and profit commission increased
marginally to £234.7 million (2013: £233.4 million),resulting from an improved combined ratio
offsetting a reduction in net insurance premium
revenue. The combined ratio improvement waslargely due to higher reserve releases that
resulted from positive claims development, inparticular from the 2011, 2012 and 2013 years. Net
other income and instalment income increased
by 2% to £163.3 million (2013: £160.5 million).
Turnover and premiums
UK turnover of £1,602.7 million decreased by
6% (2013: £1,698.9 million) primarily due toreductions in average premiums which also
led to a 6% reduction in total premiums written
to £1,453.1 million (2013: £1,553.0 million). The
closing vehicle count increased to 3.15 million(2013: 3.02 million). Average written premiumfor the year was around £453 down 10% on
2013 (2013: £505), largely a result of rate cuts
made in 2013 along with portfolio mix changes(notably a shift in the balance of the portfolio
towards renewal business).

Co-insurance and reinsurance arrangements
expose Admiral to two principal risks:@@ The risk of reduced availabilityof co‑insurance and reinsurance
arrangements.
@@ Credit risk of significant counterparties
through default of a reinsurer.
Details of the potential impact andmitigating factors the Group has inplace are available on pages 36 to 38.
The European and US arrangements
are explained in the International
Car Insurance section and the UK
Household arrangements are explainedin the Other Group Items section.

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201425

UK INSURANCE REVIEW CONTINUED

Underwriting result and profit commission
The UK Car Insurance motor combined ratio remained stable in 2014 as follows:
2013

2014

Loss ratio excluding reserve releases from original net shareand commuted reinsurance

81.2%

86.9%

Reserve releases – original net share

13.2%

18.3%

Loss ratio net of releases – original net share*1

68.0%

68.6%

Expense ratio

15.0%

14.4%

Combined ratio – original net share*1

83.0%

83.0%

UK Car Insurance Motor combined ratio

The reported
motor combined
ratio remained
stable at 83.0%(2013: 83.0%).” Ratios calculated on original net share uses the proportion of the portfolio that Admiral wrote on a net basis
at the start of the underwriting year in question*1

The reported motor combined ratio remained
stable at 83.0% (2013: 83.0%) (both figures
exclude the impact of reserve releases from
commuted reinsurance contracts). This reflects
a marginally increased reported loss ratio of
68.6% (2013: 68.0%), which was due to theimpact of falling premiums offset by higher
reserve releases (£66.8 million vs. £53.3 million).

These higher releases were possible due
to positive claims development during 2014
that resulted in improvements in the projected
ultimate loss ratios, especially for the 2011
to 2013 underwriting years.
Excluding reserve releases, the loss ratio
increased to 86.9% (2013: 81.2%), largely
due to the impact of falling premiums.

Claims reserving
Admiral’s reserving policy (both within the claims function and in the financial statements)
is initially to reserve conservatively, above internal and independent projections of ultimate
loss ratios. This is designed to create a margin held in reserves to allow for unforeseen
adverse development in open claims and typically results in Admiral making above industry
average reserve releases. Admiral’s booked claims reserves continue to include a significant
margin above projected best estimates of ultimate claims costs.
As profit commission income is recognised in the income statement in line with loss ratios
accounted for on Admiral’s own claims reserves, the reserving policy also results in profit
commission income being deferred and released over time.
The earned motor expense ratio decreased
to 14.4% from 15.0% due to the current year
benefiting from a one-off adjustment to levy
costs as a result of a change in accounting
standards. Excluding the adjustment the earned
motor expense ratio would have increased to
16.3%, the increase being due to lower averagepremiums (which also led to an increase in thewritten basis expense ratio to around 16%
from 15%).

The projected ultimate loss ratio for Admiral
for the 2014 accident year is 82% (2013 accident
year: 68%). The increase between years is due
to a combination of lower average premiums
and increases in average claims costs.
The projected ultimate combined ratio (ultimate
loss ratio plus written expense ratio) for Admiral
for the 2014 accident year is 97%, comparedto 85% for 2013, resulting from the increased
loss ratio. The reported combined ratio for thewhole UK market (excluding Admiral) for 2013,
excluding reserve releases, was 108%.

JohnnySenior Customer Representative

Helping drive
my career!
Each department in Admiral
has their own training teams.
The customer service teamhave recently launched a new
training plan with programmes
designed to help staff develop
in their own roles, as well asclimb up the ladder.
Read more about our peopleon page 15

26

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

Profit commission
Admiral is potentially able to earn material amounts of profit commission revenue fromco- and reinsurance partners, depending on the profitability of the business. Revenue
is recognised in the income statement in line with the booked loss ratios on Admiral’s
retained underwriting.
In 2014 Admiral recognised profit commission revenue of £71.8 million (2013: £99.3 million)
and reserve releases from business that was originally ceded under quota share reinsurance
contracts that have since been commuted of £70.6 million (2013: £40.9 million). Total income
from both of the above therefore increased marginally to £142.4 million (2013: £140.2 million)
due to improvements in prior year claims costs. Note 5c to the financial statements analyses
profit commission income by underwriting year.
When a quota share reinsurance contract is commuted (typically after two or three years
from the start of an underwriting year), further improvement or deterioration in claims
costs are reported within net claims. If the contracts were not commuted, the movement
would be reported in profit commission.
Total profit (excluding investment income) from car insurance underwriting of £144.2 million
and profit commission of £71.8 million decreased, by 2% to £216.0 million from £221.1 million
in 2013.

OTHER INFORMATION

Instalment income
Instalment income is interest charged tocustomers paying for their insurance ininstalments. During 2014 Admiral earned£22.6 million from instalment income, down
5% on the prior period (2013: £23.7 million).
Instalment charges are calculated asa percentage of premium and therefore
a reduction in average premium leads
to a reduction in instalment income.
Additional products underwritten by Admiral
There are a number of products that are core
to providing car insurance to customers (including
personal injury insurance, breakdown coverand car hire cover). Contribution from theseproducts underwritten by Admiral during
2014 was £18.7 million and this is included
in underwriting profit in the income statement,
but reallocated to Other Revenue for the purposeof management key performance indicators.
Regulatory environment
The UK Car Insurance business operates
predominantly under the regulation of the
UK Financial Conduct Authority (FCA) and
Prudential Regulatory Authority (PRA), andthrough a Gibraltar-based insurance company,
under the Financial Services Commission(FSC) in that territory.

Other Revenue
Admiral generates Other Revenue from a portfolio of insurance products that complement
the core car insurance product, and also fees generated over the life of the policy.
The most material contributors to net Other Revenue are:@@ Profit earned from motor policy upgrade products underwritten by Admiral, including
breakdown, car hire and personal injury covers.

@@ Instalment income – interest charged to customers paying for cover in instalments.

The FCA and PRA regulate the Group’s UK
registered subsidiaries including EUI Limited(an insurance intermediary) and Admiral
Insurance Company Limited (AICL; an insurer),
whilst the FSC regulates Admiral Insurance(Gibraltar) Limited (AIGL; also an insurer).

Other Revenue (net of costs and including contribution from additional products underwritten
by Admiral) increased by 5% to £182.0 million (2013: £172.8 million). This was equivalent to£67 per vehicle (gross of costs) – consistent with 2013. Net Other Revenue (after deducting
costs) per vehicle was £58 (2013: £57).

All three companies are required to maintaincapital at levels prescribed by their regulator,
and all three maintain surpluses above thoserequired levels at all times.

@@ Profit from other insurance products, not underwritten by Admiral.
@@ Vehicle commission.
@@ Fees – administration fees and referral income.

UK Car Insurance Other Revenue – analysis of contribution:

Contribution from additional products and fees

2012
£m

2013
£m

2014
£m

205.2

170.4

177.8

Contribution from additional products underwritten
by Admiral*1

4.8

12.3

18.7

Instalment income

29.1

23.7

22.6

Other Revenue

239.1

206.4

219.1

Internal costs(34.3)(33.6)(37.1)Net Other Revenue

204.8

172.8

182.0

Other Revenue per vehicle*2

£79

£67

£67

Other Revenue per vehicle net of internal costs

£68

£57

£58

*1

Included in underwriting profit in income statement but re-allocated to Other Revenue for purpose of KPIs

*2

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

ADMIRAL GROUP PLC

FCA review into insurance add-on products
In September 2014, the FCA released theoutcomes of its investigations into insurance‘add-ons’, i.e. those insurance products thatare sold alongside the core car insurance product,
resulting in the introduction of a small numberof reforms, including greater disclosures onthese products. The impact of these reforms
on Admiral’s longer term profitability is not
currently considered to be material.

ANNUAL REPORT AND ACCOUNTS 201427

INTERNATIONAL CAR INSURANCE REVIEW

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

Admiral has four direct car insurance businesses operating outside the UK:

Spain

Italy

Admiral Seguros (Seville, Spain)
The most mature of the Group’s
international businesses, having
traded since October 2006. The
business trades via two brands:
Balumba and Qualitas Auto

ConTe (Rome, Italy)
Launched in May 2008, ConTe is
the largest of the non-UK insurers
within the Group

Cristina Nestares
CEO, Admiral Seguros

Milena Mondini
CEO, ConTeThe Spanish market has continued with the same trends of the past
few years: profitable but shrinking. In 2014, gross written premium
decreased by a further 1.5%, a modest decrease compared to theprevious years. The market combined ratio looks set to remain
below 100% – it finished 2013 at 99% and we expect a similar resultfor 2014 with H1 finishing at 98%. This makes it below 100% for morethan 10 years in succession.

The 2013 Italian insurance market reported a combined ratio of 88%!
As a result, and not unsurprisingly, 2014 was characterised by strong pricereductions and aggressive competition. With an average premium decreaseof c.6%, almost stable claims cost and a modest frequency decrease(c.3%), the insurance cycle finally turned. The combined ratio increased
and it is expected to increase further in 2015, also reflecting higher fuelconsumption driven by fuel price reductions.

During 2014 there were some modest positive signs in the economy
including a 20% increase in car sales, a shift in the declining trend offuel consumption and signs of an increase in claims frequency. This
trend coupled with an expected change in Baremo (BI costs) may
result in price increases in the market. The aggregator market grew
by only 4%, despite the launch of a new aggregator, with Rastreator
continuing to lead the market growth.

During 2014, whilst price comparison continued its unstoppable growth
and the number of customers using their mobile phones to access insurancesites doubled, the voice of the major traditional groups was also very
prominent, with innovative propositions and aggressive media investments.

Despite the difficult economic conditions, Admiral Seguros enjoyedanother year of growth. Turnover grew by 8% and policy count by
20%, finishing the year with 164,000 customers on our books. This
growth is mainly due to the continued success of our second brand,
Qualitas Auto, launched in 2013. In addition, we have continued
working to improve the offering to our customers and at the end of
the year we launched our motorbike insurance product and started
testing a telematics product.

Despite this competitive context, ConTe’s policy base grew slightly(+2%) and with a lower acquisition cost. Whilst defending the top line
has been a major challenge, ConTe has focused primarily on increasing
the profitability of the existing book, optimising the cost structure, improving
portfolio quality and continued investments in underwriting and anti‑fraud
processes and product innovation. We believe that we now have a muchstronger foundation to scale up the business when the market conditions
become more favourable.
Highlight of the year? An extremely positive development of the backyears, leading ConTe to report a profit for the first time in its life!

As Henry has mentioned, we hope that 2015 will be an important
year for Admiral Seguros as our challenge is to break-even on anunderwriting year basis. Given the small size of our book this is achallenging task!

28

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

Achievements

Goals

International Car Insurance achievements in 2014@@ Admiral insured 592,600 customers across its Spanish, Italian,
American and French operations (2013: 515,300).

International Car Insurance goals for 2015@@ Admiral Seguros targeting break-even on written basis.

@@ 3rd Best Multinational Place to Work in Europe,
awarded by Great Place to Work.
@@ Admiral Seguros increased turnover by 8% and policy countby 20%.
@@ Admiral Seguros launched motorbike insurance.

@@ ConTe to leverage the expected cycle turn and grow customers
and revenue.
@@ Elephant Auto to focus on continued growth and improving
its combined ratio.
@@ L’olivier Assurances to grow customers and revenue.

@@ Admiral Seguros voted 8th Best Company to Work for in Spain,
awarded by Great Place to Work.
@@ ConTe reported its first profit.
@@ ConTe voted 9th Best Company to Work for in Italy, awarded
by Great Place to Work.
@@ Elephant Auto grew its customer base by more than 50%.
@@ Elephant Auto voted 4th Top Work Places 2014 (Medium),awarded by Richmond Times-Dispatch.
@@ L’olivier Assurances – conversion from out-sourced
to in‑sourced operation completed.

USA

FranceElephant Auto (Virginia, US)
Launched in October 2009 andprovides car insurance in four US
states (Virginia, Maryland, Illinois
and Texas) with a combined
market size larger than the UK

L’olivier Assurances (Paris, France)
The Group’s youngest (andsmallest) international car
insurance business, launched
in December 2010

Kevin Chidwick
CEO, Elephant Auto

The US market is represented by 200 million vehicles and $180
billion of premium. It is the biggest car insurance market in the worldand each year it moves a little bit more towards the direct
distribution model that is so familiar to UK readers. Direct, which iswhat Elephant does, is about 25% of the market, but is estimated to
be roughly 40% of new business. The US has a nascent online pricecomparison market and compare.com is a significant contributor tothat emerging channel.
In terms of pricing, there is no excitement to report from the US.
Collective data for 2014 is not available, but industry analysis would
suggest that claims inflation continued its long term trend of benign
but persistent increases and prices seem to have followed suit. So priceinflation of around 3–5% was once again the direction in which theindustry moved in, in the year.
2014 was a good year for Elephant. Our business grew its customer
base by more than 50% in 2014 whilst once again delivering goodacquisition economics in its core markets. The business also made anumber of significant infrastructure improvements in the year andgrew its renewal book substantially, both of which augur well for the
future.

Pascal Gonzalvez
CEO, L’olivier Assurances

In 2014, the French motor insurance market continued to grow modestly.
After many years of improvement, the claims frequency pattern increased,
especially for bodily injury. This increasing frequency together with higher
claim costs and limited price increases led to a worsening market
combined ratio.
For L’olivier Assurances, 2014 was a special year devoted to the fullin-sourcing of its operations with controlled growth. We successfullycompleted the development of a modern infrastructure, with a new
cutting-edge IT system and in-house operations, opening a new officein the north of France. With the right infrastructure and control of ourown operations, we’re convinced L’olivier Assurances now has all thelevers to make the most of its competitive advantage going forward.
The main objective for 2015 is to gain market share. The new regulatoryenvironment (from 1st January 2015) which reinforces rights for consumers
should support this objective. Motorists can now switch insurance providers
anytime after one year without penalty and that should make the motor
insurance market more fluid. In this context, L’olivier Assurances is planning
to invest more in its brand and grow faster in 2015.

We continue to sell insurance in four states – Virginia, Maryland,
Texas and Illinois. At some point we will look to expand beyond
these states, but it is true to say that there is plenty of opportunity togrow within these existing four markets. Those states have 34 million
vehicles in them – making them larger in aggregate than the UK
market. With 109,000 customers at year end, Elephant still has
plenty of market share left to go for.

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201429

INTERNATIONAL CAR INSURANCE REVIEW CONTINUEDInternational Car Insurance financial performance
Non-GAAP format income statement
2012
£m

2013
£m

2014
£m

Turnover

162.9

187.8

206.2

Total premiums written

148.5

168.3

185.4

Net insurance premium revenue

43.3

54.1

58.1

Investment income

0.1

—

0.2

Net insurance claims(49.4)(49.1)(50.5)Net insurance expenses(27.4)(32.9)(34.0)

Underwriting result(33.4)(27.9)(26.2)Net other income

8.9

5.8

6.3

Other Revenue and charges

—

—

—

(24.5)(22.1)(19.9)

2012

2013

2014

Adjusted loss ratio*1

114%

91%

77%

Adjusted expense ratio*1

54%

49%

50%

Adjusted combined ratio*2

168%

140%

127%

International Car Insurance result
Key performance indicators

Adjusted Reported combined ratio, net of
Other Revenue*3
Vehicles insured at period end

147%

129%

116%

436,000

515,300

592,600 Loss ratios and expense ratios have been adjusted to remove the impact of reinsurer caps so the underlying
performance of the business is transparent*1 Adjusted combined ratio is calculated on Admiral’s net share of premiums and excludes Other Revenue.
It excludes the impact of reinsurer caps. Including the impact of reinsurer caps the reported combined
ratio would be 2014: 145%; 2013: 152%; 2012: 177%*2

 Adjusted combined ratio, net of Other Revenue is calculated on Admiral’s net share of premiums andincludes Other Revenue. Including the impact of reinsurer caps the reported combined ratio, net of Other
Revenue would be 2014: 134%; 2013: 141%; 2012: 157%

*3

Geographical analysis
Spain

Italy

FranceUSA

Total

Vehicles insured
at period end

164,400

285,100

34,200108,900

592,600

Turnover (£m)*1

43.8

81.9

14.2

66.3

206.2

Vehicles insured
at period end

136,500

279,900

28,60070,300515,300

Turnover (£m)*1

40.6

93.4

13.0

40.8

187.8

2014

2013

 Turnover includes total premium written and income generated by the sale of additional products and services
and fees*1International Car Insurance co‑insurance and reinsurance
As noted earlier, Admiral makes significant use of proportional risk sharing agreements,
where insurers outside the Group underwrite a majority of the risk generated, either
through co-insurance or quota share reinsurance contracts.
For the 2014 year Admiral retained 35% (Italy), 30% (France and Spain) and 33% (USA)of the underwriting risk respectively. The arrangements for 2015 will remain the same.
All contracts are subject to certain caps on the reinsurers’ exposures and all contracts haveprofit commission terms that allow Admiral to receive a proportion of the profit earned on
the underwriting once the business reaches cumulative profitability. The contracts include
proportional sharing of Other Revenue.

30

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

International Car Insurance
financial performance
Admiral’s international insurance businesses(in aggregate and individually) continued togrow, adding over 77,000 customers andending 2014 15% larger than a year earlier.
Turnover grew by 10% to £206.2 million(2013: £187.8 million). Vehicles and turnoverfrom these businesses represent 15% and
10% of the Group totals respectively, up
from 14% and 9% in 2013.
Improved prior year claims development,
especially in ConTe in Italy, led to an improvementin the adjusted combined ratio, which decreased
from 140% to 127%. This improvement, in
conjunction with higher net insurance premium
revenue, led to a lower loss of £19.9 million
in 2014, down from £22.1 million in 2013.
As noted, the lower combined ratio was a
result of an improvement in the loss ratio to77% (2013: 91%), whilst the expense ratio was
broadly flat at 50% (2013: 49%). The expense
ratio is high in comparison to Admiral’s UK
business because all of the international
operations need to continue to grow to achieve
economies of scale. In addition, there are market
specific reasons why the expense ratios arehigher, for example higher acquisition costsin the US.
As the Group’s international insurance operations
grow, it is expected that they will make losses
until appropriate scale has been achieved. The
Group is satisfied with the progress each business
continues to make towards the goal of becoming
a sustainable, growing, profitable operation.
Admiral Seguros (Spain) was launched in 2006
and is the oldest of Admiral’s international
operations. In 2013, Admiral Seguros launcheda second brand (Qualitas Auto) to complement
its original Balumba brand. The business insured
164,400 customers at the end of 2014, 20%
more than a year earlier.
The Group’s largest international operation is
ConTe in Italy, which insured 285,100 vehicles
at the end of 2014, up 2% year-on-year. ConTe
was launched in 2008 and has benefited froma period of generally favourable market
conditions, which has recently come to an
end. ConTe enjoyed positive developmentof projected ultimate claims outcomes on
its back years during 2014 and was able torecord its first profit on the back of strong
reserve releases. Despite the releases, thelevel of conservatism in the booked reservesat year end increased compared to theposition at the end of 2013.

INTRODUCTIONSTRATEGIC REPORT

Admiral’s youngest and smallest international
insurance business is L’olivier Assurances,
launched in 2010 in France. L’olivier Assurances
insured 34,200 vehicles at the end of 2014, up
almost 20% on the prior year. L’olivier Assurances
was initially established with a different start-up
model to Admiral’s other operations, with certain
functions outsourced to keep expenses low in
the initial phases of development. During 2014
L’olivier Assurances has brought a number ofthese functions in-house and vehicle countgrowth was intentionally lower.
The consolidated result of Admiral’s insurance
operations in Spain, Italy and France was aloss of £10.4 million (2013: £11.7 million). The
combined ratio*1 improved to 136% from 138%
primarily due to improved claims experience.

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

People who like what they do, do it better!
Admiral puts a lot of effort into making sure staff enjoy theirjob. Each month a different department is elected ministryof fun, and is responsible for coordinating competitions,and fun activities.
Read more about our people on page 15

RichardRenewals Consultant

In the US, Admiral operates in four states(Virginia, Maryland, Illinois and Texas) throughits Elephant Auto business, which launched at
the end of 2009. At the end of 2014 ElephantAuto insured almost 109,000 vehicles, up by
55% year-on-year. Elephant Auto’s expense
ratio is currently high as the business is spending
significant amounts on advertising to develop
the Elephant Auto brand and grow the portfolio.
Elephant Auto’s written combined ratio*1
improved from 152% in 2013 to 141% in 2014
primarily resulting from an improved expense
ratio due to vehicle count growth.
 European combined ratio is calculated on the earned
basis, and Elephant Auto combined ratio is
calculated on the written basis due to market
claims patterns. Both combined ratios arecalculated on 100% of underwritten premium(including co- and reinsurers’ share) and include theresults from the sale of additional products andservices and fees

*1

Regulatory environment
Admiral’s European insurance operations are
generally subject to the same regulation as the
UK Car Insurance business, details of which
are summarised on page 27, but also comply
with local requirements as appropriate.
The Group’s US insurer, Elephant Insurance
Company, is regulated by the Virginia State
Corporation Commission’s Bureau of Insurance.
The Company is required to maintain capitalat levels prescribed by the regulator and holds
a surplus above these requirements at all times.

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2014

31

PRICE COMPARISON REVIEWTaking what
we do well, overseas
Price Comparison strategy
Admiral’s strategy is to develop websites thatallow consumers to compare a range of generalinsurance and financial services products acrossprice and policy benefits. The international
strategy is to exploit the UK expertise in pricecomparison and export it overseas.

UK

Spain

Confused.com (Cardiff, UK)
The most mature of the Group’s
price comparison businesses,
having traded since 2002 andone of the UK’s leading pricecomparison websites.

Rastreator (Madrid, Spain)
Launched in March 2009, offers
comparison on motor, home,
motorcycle and life insurance,and now the leading pricecomparison site in Spain.

Elena Betes
CEO, Rastreator

Martin Coriat
CEO, Confused.com

The UK Car Insurance price comparison market is characterised bythree aspects:

Five and a half years after Rastreator´s launch, we maintain our leading
position in Spain’s rising price comparison world.

@@ It is one of, if not the, most mature in Europe, with almost 70%
of new business sales in the market originating via price comparison. A
consequence of this high level of adoption, together with a reduction of
car insurance premiums in 2014 for the third year in a row, is that the pricecomparison market as a whole did not grow as much as in previous years.

During 2014, we implemented our strategic goals, firstly developing
not just the leading brand but also a preferred brand, and secondly
becoming a portal that is recognised as a source of transparency on
insurance, telephony, finance and energy costs, helping all users tosimplify their lives.

@@ It remains a highly competitive market of four principal players,
with persistently high levels of marketing spend.

Focusing on insurance, Rastreator´s panel now represents 85% of the
Spanish market, the strongest panel in Spain. In 2014 we offered the first
Spanish car insurance price index, Rastreator-Deloitte, which indicatedthat price reductions have slowed and that we may see increases during
2015. Our leadership puts us in the right place to benefit from this, as
price increases will always produce an increase in customer shopping
for car insurance.

@@ The market is also on the verge of commoditisation with less andless differentiation between the different players in customer minds.
Overall the context in which Confused operates has changed over thelast 12 months and this makes the market more challenging for incumbents.
As a result of this highly competitive environment, Confused had achallenging year in 2014 and reported a reduced profit of £16 million.
This reduction in profit is driven by the limited growth in the market
and the impact of changes made by Google to its natural searchalgorithms impacting Confused’s search engine optimisation (SEO)
position early in the year, but also reflects our relative media spend
and advertising effectiveness.
Beyond the comparison of car insurance, Confused.com continues to findsuccess in other products such as the comparison of home and life insurance.

During 2014 Rastreator agreed to acquire seguros.es, a broker competitor.
Once the acquisition is completed in 2015, we believe this will allow us
to increase market share and broaden our platform.
Our brand recognition of 91% has allowed us to successfully expand
our comparison lines and all have grown substantially, as demonstrated
by a 24% increase in our quotes.
Finally, Rastreator received awards for the Best Website of the Yearand the Most Popular Website during the year.

During the year the price comparison sector has come under further
scrutiny from the Financial Conduct Authority (FCA) and the Competition
and Market Authority (CMA). Both the CMA and the FCA released
remedies that Confused welcomed, as their main focus is on the need toprovide sufficient, clear and consistent product information to consumers.
32

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

Achievements

Goals

UK Price Comparison achievements in 2014@@ Confused.com continued success in non-motor products
such as comparison of home and life insurance.

UK Price Comparison goals for 2015@@ Leverage Confused.com’s brand icon to build preference and loyalty
and strengthen market position.

@@ Brand development of Brian, the Confused.com robot.

@@ Develop and promote new products and offers in order to havemore diversified revenue sources.

International Price Comparison achievements in 2014@@ Quote volumes: combined 6.6 million (2013: 5.1 million).
@@ Rastreator won Best Website of the Year in Spain,
awarded by eAwards Barcelona 2014.
@@ Rastreator agreed to acquire seguros.es.
@@ LeLynx strengthened its leading position in the insurance
price comparison market in France.
@@ Compare.com TV advertising launched in January 2014.

International Price Comparison goals in 2015@@ Rastreator – continued defence of market-leading positionin car insurance comparison and further development ofother comparison services.
@@ LeLynx – exploitation of the new Hamon law in France.
@@ Compare.com – continued lowering of acquisition cost while increasing
the number of carriers and rates presented to consumers.

@@ Compare.com has more than 40 auto insurance companies,
including eight of the top 20, under contract.
@@ Compare.com returned rates in 49 of the 51 US markets.

FranceUSA

LeLynx (Paris, France)
Launched in January 2010 andoffers comparison on a rangeof products: the leading pricecomparison site in France.

Compare.com (Virginia, USA)
Launched in March 2013 and offers
comparison on motor insurance:
the first European-style pricecomparison site in the US.

Andrew Rose
CEO, compare.com

Diane Larramendy
CEO, LeLynx

In 2014, LeLynx strengthened its leading position in the insurance
price comparison market in France. With solid incumbent
competitors when we launched back in 2010, LeLynx is proud tohave achieved this leadership in such a short time.
All players are now looking forward to the new Hamon law, whichshould bring flexibility to the insurance sector. This law, which was
published at the very end of the year, will enable customers to switch
insurers at any time after one year easily and without financial penalties.
LeLynx is now a well recognised brand with an experienced team,hence the business is very well positioned to make the most of thelegislative changes.

The US market is clearly divided between those insurers that advertiseand those that don’t. With nearly $3 billion of the $6 billion insurance
advertising dollars concentrated in the top four insurers, the remainingc.300 players look for ways to compete for a greater share of the thirdof consumers that shop for insurance annually. Comparison sites, likecompare.com, provide them with an easy route to do that. With morethan 40 auto insurance companies, including eight of the top 20, now
under contract with compare.com, it makes it an attractive choice for
consumers too.
In 2014, compare.com returned rates in 49 of the 51 US markets (sorry
Alaska and Hawaii!), but we focused effort on California, Illinois, Texas
and Virginia, where the number of potential rates returned to consumers
was maximized. Compare.com accelerated its advertising, yielding
more than a million rates to interested consumers.
In May 2014 insurance industry guru Brian Sullivan claimed that comparisonsites were one of the biggest trends of the year. We think his prognostication
was good, as compare.com was joined by an array of new entrants andre-energized existing players in the broader aggregator space.
We hope Brian will be proven right as consumers are ultimately undefeatedin pursuit of simplicity and transparency – something compare.com
delivers in spades.
As optimistic as our future may look, we caution that success is notguaranteed. Pitfalls remain on numerous sides. Will companies continue
to join and then return rates for a money saving experience for consumers?
Will consumers follow through and actually switch insurers? Will competitors
join too quickly and depress the revenue per sale earned?
All that said, we remain positive and intend to continue to invest in what
we believe will be a transformative force in the market.
ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2014

33

PRICE COMPARISON REVIEW CONTINUED

Price Comparison financial performance
Non-GAAP format income statement
2012
£m

2013
£m

2014
£m

Revenue
Car insurance price comparison

82.5

87.2

81.0

Other

21.0

25.5

26.5

Total Revenue

103.5

112.7

107.5

Operating expenses(85.5)(92.3)(110.3)Operating profit/(loss)

18.0

20.4

(2.8)

Confused.com profit

18.2

21.7

15.8

(0.2)

(1.3)

(18.6)

18.0

20.4

(2.8)

Confused.com profit

18.2

21.7

15.8

International Price Comparison result*1

(0.6)

(0.6)

(12.2)

17.6

21.1

3.6

International Price Comparison result*1
Group share of operating profit/(loss)*2 Excludes pre-launch costs. 2012 figures include results of Chiarezza.it, which was sold in April 2012.
The disposal did not have material impact on the income statement*1*2

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

UK Price Comparison – Confused.com
Confused.com produced a reduced result,with revenue 8% lower at £80.8 million(2013: £87.7 million) and profit down 27%
to £15.8 million (2013: £21.7 million).
Revenue from non-car insurance comparison
sources increased in actual terms and now
represents over a quarter of total revenue.
Confused.com’s operating margin reduced
to 20% (2013: 25%).
International Price Comparison
Following the sale of the Italian Price Comparison
operation (Chiarezza.it) during H1 2012 and thelaunch in Q1 2013 of a new operation in the US,
Admiral now operates three Price Comparison
businesses outside the UK: in Spain (Rastreator),
France (LeLynx) and the US (compare.com).
The combined revenue from the European
operations in 2014 remained stable despitea weakening Euro at £25.3 million (2013:£25.0 million), with 20% more quotes provided.
Both Rastreator and LeLynx have market-leading
positions and strong brand recognition in theirrespective markets. The Group’s share of the
combined result for Rastreator and LeLynx wasa record profit of £2.8 million (2013: £1.9 million)
reflecting increased quote volumes and improved
conversion rates. The acquisition of seguros.es
by Rastreator will allow Rastreator to increase
its market share, but it is not expected to have

34

ANNUAL REPORT AND ACCOUNTS 2014a material impact on the Group financial
statements when completed in 2015. AdmiralGroup owns 75% of Rastreator, with theremaining 25% owned by Mapfre.
Following the launch in March 2013 ofcompare.com, a US comparison operation
based in Virginia, the Group has continued toinvest in the operation. During 2014 Admiral’sshare of compare.com’s loss was £15 million
before tax.
The combined result for International Price
Comparison was therefore a loss of £12.2 million(2013: £0.6 million) – the profit from Rastreatorand LeLynx offset by investment in compare.com.
Regulatory environment
Confused.com is regulated by the Financial
Conduct Authority (FCA) as an insuranceintermediary and is subject to all relevantintermediation rules, including those on
solvency capital.
The European operations are all structured
as branches of UK companies, with the UK
insurance intermediary permission passported
into Europe.
Compare.com is a regulated insurance agency
domiciled in Virginia, US, and licensed in allother US states.

WWW.ADMIRALGROUP.CO.UK

Revenue fromnon‑car insurancecomparison sources
increased in actual
terms and now
represents overa quarter of
total revenue.”INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATIONOTHER GROUP ITEMSThe UK household
insurance businessenjoyed anotheryear of strong
growth.”

2012
£m

2013
£m

2014
£m

UK Household Insurance result

—

(0.1)

(0.1)

UK Commercial Vehicle operating profit

2.5

2.5

2.2

Other interest and investment income

1.9

1.9

3.7

(20.6)(22.5)(21.2)(0.7)

Share scheme charges
Business development costs

(2.1)

(0.3)

Other central overhead

(3.4)

(3.5)

(3.9)

Finance charges

—

—

(4.6)

UK Household Insurance
UK Household Insurance was launched in
December 2012 under the Admiral brand.
The product is underwritten within the Groupand in common with other businesses it is
supported by proportional reinsurance covering
70% of the risk (shared between Munich Re, 40%,
and Swiss Re, 30%). The business enjoyedanother year of strong growth in policy
numbers and another broadly break-even
financial result.
UK Commercial Vehicle
The Group operates a Commercial Vehicle
insurance broker (Gladiator) offering van
insurance and associated products, typicallyto small businesses. Distribution is via
telephone and internet (including pricecomparison websites).
UK Commercial Vehicle operating profit in theyear decreased to £2.2 million from £2.5 million,
although customer numbers increased from117,900 at the end of 2013 to 143,900 at theend of 2014.

Interest income
Interest income in 2014 was £3.7 million(2013: £1.9 million). The increase is materially
due to the gilt holdings purchased with theproceeds of the debt issue.
Share scheme charges
These costs relate to the Group’s two employee
share schemes, further detail on which is set
out in the notes to the financial statements. The
decrease in the charge is due to a combinationof a lower share price at the end of 2014
compared to 2013 offset by an increase in thenumber of awards across the Group resulting
from headcount growth.
Other central overheads
Other central overheads include Group Directors’
remuneration and other Group central costs.
Finance charges
Finance charges of £4.6 million (2013: £nil)
represent interest on the £200 million
subordinated notes (refer to note 6 to thefinancial statements for further details).

Celebrating excellent
performance
We host a series of annual
award ceremonies to reward
and recognise our people,
both for their own individual
achievements and for thecollective performance of
their team, department or site.

Dan
Trainer

Read more about our peopleon page 15

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201435

PRINCIPAL RISKS AND UNCERTAINTIESThe table below sets out the principal risks Admiral has identified through its Enterprise
Risk Management Framework (ERMF) as having the potential for a material adverse affecton Admiral’s profitability and solvency. The report on Corporate Governance on pages 44
to 48 describes the ERMF in place throughout the Group.

RISK

IMPACT

MITIGATING FACTORS

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

Adverse run-off leading to higher
claims costs in the financial statements.
Also, resultant loss of profit commission
from proportional co-insurance andreinsurance arrangements.

Admiral has a conservative reserving policy and continues to hold a material
margin in its financial statement claims reserves above actuarially determined
best estimates.
Best estimate reserves are estimated both internally and externally by anindependent actuary.
Many of the potential causes of claims shocks are outside the control ofAdmiral (for example legislative changes or changes in the Ogden discountrate) and the focus is, therefore, on how to prepare for and react to theoccurrence of such events.
Admiral holds a margin in booked reserves to cover significant legislativechanges impacting earned claims. Furthermore, Admiral continues to hold anadditional margin in its reserves in excess of the projected ultimate outcomesto cover other potential claim shocks.
The Group continues to make material investments in staff and systems towork on the identification and prevention of claims fraud.
For very large claims Admiral purchases excess of loss reinsurance, which
mitigates the loss to the selected deductible amount.

Underwriting risk in UK and International Car Insurance
The Group is exposed to the riskthat claims costs on business written
and earned in the future is higher
than expected.
This might arise due to very large orcatastrophic man-made or natural
individual or multiple claims.

Higher claims costs and loss
ratios, reducing profitability or
resulting in underwriting losses.
Also, resultant loss of profit
commission from proportional
co-insurance andreinsurance arrangements.

There are a number of aspects which contribute to Admiral’s strong UK
underwriting results, including:@@ Experienced and focused senior management and teams in key business areas
including pricing and claims management.
@@ Highly data-driven and analytical approach to regular monitoring of claims
and underwriting performance.
@@ Capability to identify and resolve underperformance promptly throughchanges to key performance drivers, particularly pricing.
@@ Continuous appraisal of and investment in staff, systems and processes.
Admiral purchases excess of loss reinsurance, designed to mitigate the impactof very large individual or catastrophe event claims.
The Group continues to work to establish similar capability and expertise in its
newer UK and international businesses.

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

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

Admiral mitigates the risk to its reinsurance arrangements by ensuring thatit has a diverse range of financially secure partners. Admiral has enjoyed a longterm relationship with one of the world’s largest reinsurers, Munich Re, which
has supported Admiral since 2000.

Return on equity might reducecompared to current levels.

Admiral also has relationships with a number of other reinsurers, including
Amlin Re, Hannover Re, XL Re, Mapfre Re, New Re and Swiss Re.

There is a risk that support will
not be available in the future if theresults and/or future prospectsof either the UK business or (morerealistically) one or more of thenewer operations are not satisfactory
for the co- and/or reinsurers.

36

ANNUAL REPORT AND ACCOUNTS 2014

In the UK, reinsurance arrangements have been agreed until at least theend of 2016, reflecting confidence in the Admiral UK Car Insurance business.
The long term co-insurance agreement with Munich Re (covering 40% of the
UK Car Insurance business) will remain in place until at least the end of 2018.
Long term arrangements are also in place for international andhousehold businesses.

WWW.ADMIRALGROUP.CO.UK

INTRODUCTIONRISKSTRATEGIC REPORTCORPORATE GOVERNANCE

IMPACT

FINANCIAL STATEMENTS

OTHER INFORMATIONMITIGATING FACTORSStrategic risk
Erosion of competitive advantage in UK Car Insurance
Admiral typically maintains asignificant combined ratio advantage
over the UK market.
This advantage and/or the level ofunderwriting profit (and associatedprofit commission) could be eroded.
This risk could be exacerbated byirrational competitors.

A worse UK Car Insurance result andlower return on equity.
A sustained and uncorrected erosionof competitive advantage could
affect the ability of Admiral to extend
its reinsurance arrangements, whichmight in turn require Admiral to holdmore capital.

Admiral’s focus remains on the wide range of factors that contribute to Admiral’s
combined ratio outperformance of the UK market. Some are set out on page 36,
but in addition:@@ Track record of innovation and ability to react quickly to market conditions anddevelopments.
@@ Keen focus on maintaining a low-cost infrastructure and efficient acquisition costs.

Failure of geographic and/or product expansion
Admiral continues to develop andsupport the UK household andoverseas operations.

Higher than planned losses (andpotentially closure costs) anddistraction of key management.

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

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

Admiral’s approach to expansion remains conservative, applying the ‘test
and learn’ philosophy that has proven successful for previous operations.
International insurance businesses have executed cautious launch strategies
and are all backed by proportional reinsurance support which provides
substantial mitigation against start-up losses in the early years.
New price comparison businesses have aligned their marketing investment
with the extent of improvement in key performance indicators such as average
cost per quote and conversion ratio. The Group also accepts partial disposals
of equity to share start-up losses with partners.
The Directors are mindful of management stretch and regularly assess thesuitability of the management structure in place for Admiral’s new UK andinternational operations.
The new UK Household Insurance business is backed by proportional
reinsurance support which provides mitigation against start-up losses
and excess of loss reinsurance which mitigates potential losses fromcatastrophe events.

Group risk
Potential diminution of Other Revenue
Admiral earns Other Revenue
from a portfolio of products
and other sources.

Lower profits from insurance operations
and lower return on equity.

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

Admiral continuously assesses the value to its customers of the products it offers,
and makes changes to ensure the products continue to meet customer needs andoffer good value.
Admiral seeks to minimise reliance on any single source by earning revenue
from a range of products. This mitigates the impact of a regulatory change
which might affect a particular product or income stream.

Competition in UK Price Comparison
Admiral is dependent on thefour main UK price comparison
websites as an important sourceof new business and growth.
Growth in this distribution channel
could slow, cease or reverse, orAdmiral could lose one or moreof the websites as a sourceof customers.

A potentially material reduction in UK
Car Insurance new business volumes.
The impact on Confused.com ofhigher levels of competition in theprice comparison market, either
through the aggressive activities
of existing players or the entry ofsignificant new participants, would
be to lower profits.

Admiral’s ownership of Confused.com (one of the leading UK price comparison
websites which operates independently of the UK Car Insurance business) helps
to mitigate the risk of over-reliance on this distribution channel.
Admiral also contributes materially to the revenues of other price comparison
businesses and therefore it is not considered probable that a material sourceof new business would be lost.
The management of Confused.com maintain a very keen awareness of therisks of continued competition.

However, a more competitivemarket might benefit the UK Car
Insurance business throughlower acquisition costs.

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201437

PRINCIPAL RISKS AND UNCERTAINTIES CONTINUEDRISKIMPACT

MITIGATING FACTORS

Credit risk
Credit risk of significant counterparties
Admiral is primarily exposed tocredit risk in the form of a) defaultof reinsurer and b) failure of banking
or investment counterparty.

Additional capital may need to beraised as a result of a major credit event,dependent on its nature and severity.
Admiral would also need to ensurethat it had sufficient liquid assets tomeet its claims and other liabilities
as they fell due.

Admiral only conducts business with reinsurers of appropriate financial
strength. In addition, most reinsurance contracts are operated on a funds
withheld basis, which substantially reduces credit risk, as Admiral holds the
cash received as collateral.
With respect to investment counterparties, there are no specific concentrationsof credit risk due to the structure of the liquidity funds which invest in a wide
range of short duration, high quality securities. Cash balances and deposits
are placed only with highly rated credit institutions. Some long term investments
are held in Government bonds to further mitigate the exposure to credit risk.
Admiral considers counterparty exposure frequently and in significant
detail, and has in place appropriate triggers and limits, to mitigate exposure
to individual investment counterparties.

Conduct risk
Failure of products, processes orservice to meet customer andregulator expectations and failure
to address customer complaints
promptly or appropriately. Further
detail on how Admiral interacts
with its customers is set out on
page 12 and in the Corporate
Social Responsibility (CSR) Reportavailable online.

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

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

Unable to successfully carry out AdmiralGroup strategy and achieve goals.

Strong Company culture underpinned by communication, equality, reward,
recognition and fun.

Failure of projects would most likely
result in additional costs for the Group.

@@ Objectives and personal development plans.

Operational risk
People risk
Failure to recruit, develop and retain
suitable talent. Further detail on how
Admiral interacts with its employees
is set out on page 13 and in the CSR
Report available online.

@@ Understanding gained through staff surveys and team meetings.
@@ Succession and graduate plans.

In addition, the risk of project
failure. More specifically, projects
relating to system upgrades andSolvency II.

@@ Sponsorship programme designed to give staff benefits and develop pridein brand(s).
@@ Employee share ownership scheme.

IT risk
Failure to invest in, and successfully
implement, appropriate technology(particularly Guidewire
implementation in the UK) tosupport the Group’s future businessdevelopment, mitigated by regularreview of the effectiveness of theGroup’s IT capability by Executive
management and the Board. In
addition, the emerging risk relating
to IT security and cyber risk are areasof growing focus for the Group.

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

@@ Regular review of the effectiveness of the Group’s IT capability by Executive
management and the Board.

Exposure to regulatory intervention
and/or censure and/or enforcement
action through fines and other tools
available to the regulator.

Mitigated by regular review of the Group’s compliance with current and proposed
requirements and interaction with regulators by Executive management andthe Board.

@@ Strong governance and oversight of major systems developments.

Regulatory risk
Failure to comply with regulatory
requirements and/or changes. In
particular, the risk of non-compliancewith Solvency II requirements
ahead of 1st January 2016.

Solvency II progress has primarily been mitigated through significant investment
in resources for the Solvency II Project, with regular communication with boththe Board and the regulators on progress against the agreed project plan.

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

Henry Engelhardt
Chief Executive Officer
4 March 201538

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

Admiral serves areal social purpose
Our business is to protect
people, as much as we can,from the adverse consequencesof car accidents, or fromdamage to their home.
In addition to providing
protection for our customers,
we aim to contribute positively
to the wider communities inwhich we operate.

We centre our businesson four of our significant
stakeholders
These four stakeholders also drive the corefocus of our corporate social responsibility
strategy: our customers, our people, ourcommunity and our environment.
To read more about our corporatesocial responsibility strategy visit
www.admiralgroup.co.uk

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201439

CHAIRMAN’S INTRODUCTION

The Board remains committed tomaintaining the highest standardsof corporate governance.”
Alastair Lyons, CBE
ChairmanDear Shareholder,
On behalf of the Board I am pleased to present the Corporate Governance Report for the financial
year ended 31 December 2014. The Board remains committed to maintaining the highest standardsof corporate governance. This Report sets out the Admiral framework of governance and theapproach the Board has taken during 2014 to achieve the standards of good corporate governancefor which it is accountable to the Group’s shareholders.
We also confirm the Group’s compliance, with the principles and provisions set out in the UK
Corporate Governance Code (the Code), which was revised by the Financial Reporting Council in
September 2012 and is applicable to the year under review. The Group is mindful that a new versionof the Code was issued in September 2014 and applies to accounting periods beginning on or after
1 October 2014. The Group has considered the provisions contained in the revised Code and intends
to report compliance against the revised code in the 2015 Annual Report.
We believe that having a sound corporate governance framework enables effective and efficientdecision making and ensures that there is the right balance of skills and experience to assess andmanage the risks in the markets in which the Group operates and inherent in the Group’s activities.
However, we also believe that good governance should be proportionate and that individual
responsibility and accountability should not be lost within a multi-layered committee structurethat distances senior management from the day-to-day reality of operational activity.
As the Group undertook in 2013 an external Board evaluation facilitated by an independent external
consultant, the evaluation process this year consisted of each Board member completing a questionnairedetailing the extent to which the Board had achieved each of the recommendations identified in the2013 external evaluation together with Board members identifying areas where further review was
required to ensure that the Board continued to operate effectively. The results of the evaluation
and areas for development are set out in more detail on page 46 of this report
This Corporate Governance Report is structured in order to demonstrate to shareholders thatthe Board has complied during 2014 in all respects with each section of the Code – Leadership;
Effectiveness; Accountability; and Relations with Shareholders. Remuneration is dealt with in
the separate Directors’ Remuneration Report.

Alastair Lyons, CBE
Chairman
4 March 201540

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATIONADMIRAL’S GOVERNANCE FRAMEWORK

We believe that having a sound corporate governance framework
enables effective and efficient decision making and ensures that thereis the right balance of skills and experience to assess and manage therisks in the markets in which the Group operates and inherent in theGroup’s activities.
However, we also believe that good governance should be proportionate
and that individual responsibility and accountability should not belost within a multi-layered committee structure that distances senior
management from the day to day reality of operational activity.”
Alastair Lyons, CBE
Chairman

Board composition

Corporate structure
The Board of Directors

Executive/Non-Executive
as at 4 March 2015

Board Committees

Remuneration Committee

Audit Committee

Membership at 31 December 2014:

Membership at 31 December 2014*2:

Chairman (1)8%@@ Annette Court (Chair)@@ Colin Holmes (Chair)

Executive (3)25%@@ Margaret Johnson@@ Margaret Johnson

Non-Executive (8)67%@@ Roger Abravanel@@ Annette Court*1@@ Jean Park
Meetings during 2014:

Meetings during 2014:8

Read more on
pages 58 to 72

6

Read more on
pages 49 to 52

Gender diversity
as at 4 March 2015

Male (7)

58%

Female (5)42%

Nomination Committee

Group Risk Committee

Membership at 31 December 2014:

Membership at 31 December 2014:@@ Alastair Lyons (Chair)@@ Jean Park (Chair)@@ Lucy Kellaway@@ Annette Court@@ Colin Holmes@@ Lucy Kellaway@@ David Stevens
Meetings during 2014:

Meetings during 2014:

1

Read more about gender
diversity within the
Company on page 73

Read more on
pages 56 to 57

5

Read more on
pages 53 to 55 Roger Abravanel will not be seeking re-election at Admiral Group plc’s forthcoming Annual General
Meeting on 29 April 2015 and will be stepping down as a Non-Executive Director of Admiral Group plc
effective from that date*1

 Penny James was appointed to the Board on 1 January 2015 and joined the Audit Committee with effectfrom that date

*2

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201441

BOARD OF DIRECTORSNC

Alastair Lyons, CBE (61)Henry Engelhardt, CBE (57)Geraint Jones (38)

Non-Executive Chairman,
appointed in July 2000

Chief Executive Officer,
appointed in October 1999

Chief Financial Officer,
appointed in August 2014@@ Non-Executive Chairman of the Towergate
Insurance Group@@ Trustee of the Wales Millennium Centre (WMC)

Geraint is responsible for finance, actuarial, complianceand investments. He joined Admiral in 2002 andhas since held a number of senior finance positions,
including Head of Finance, before being promoted
to Deputy Chief Financial Officer in January 2012.
A Fellow of the Institute of Chartered Accountantsin England and Wales, Geraint has also worked
as an external auditor at Ernst & Young and KPMG.

@@ Non-Executive Chairman of Serco Group plc@@ Group Deputy Chairman of Bovis Homes Group plc
In his executive career Alastair has been Chief
Executive Officer (CEO) of the National Provident
Institution and of the National & Provincial Building
Society, Managing Director of the Insurance Divisionof Abbey National plc and Director of Corporate
Projects at National Westminster Bank plc. He has
also been a Non-Executive Director of both the
Department for Transport (DfT) and the Department
for Work and Pensions (DWP), as well as of its
predecessor, the Department of Health and Social
Security (DHSS).

@@ Trustee of the Moondance Foundation
Henry is a founder Director of Admiral and was
recruited by the Brockbank Group in 1991 to set
up the Admiral business. Henry has an MBA fromINSEAD, a BA from the University of Michigan and
was awarded an honorary CBE in 2008 for services
to business in Wales.

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

GRC

RC

David Stevens, CBE (53)Roger Abravanel* (68)

Manfred Aldag (64)

Chief Operating Officer,
appointed in October 1999

Non-Executive Director,
appointed in March 2012

Non-Executive Director,
appointed in March 2003@@ Trustee of the Waterloo Foundation@@ Non-Executive Director serving on, amongst
others, the Boards of: Teva PharmaceuticalIndustries Ltd, Banca Nazionale del Lavoro S.p.A.
and COFIDE S.p.A.

@@ Chief Executive Manager of Munich Re,
responsible for UK, Ireland, Netherlands,
Nordics, Baltics and Russia

David is a founder Director of Admiral and was recruitedin 1991 to set up the Admiral business. Prior to joining
Admiral David worked at McKinsey & Co, in the
Financial Interest Group, and Cadbury Schweppesin the UK and the US. David has an MBA fromINSEAD and he was awarded a CBE in 2010 forservices to business and the community in Wales.

@@ Board member of the Italian Institute of Technology@@ Chairman of the INSEAD Advisory Group in Italy
Roger has significant international consulting experience
having been with McKinsey and Co. from 1972 until his
retirement, as Director Emeritus, in 2006. Roger holds an
MBA from INSEAD. Roger has authored several books
and currently writes for an Italian daily newspaper.
* Roger Abravanel will not be seeking re-election
at Admiral Group plc’s forthcoming Annual
General Meeting on 29 April 2015 and will be
stepping down as a Non-Executive Director of
Admiral Group plc effective from that date.

42

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

Manfred graduated from University of Essen witha degree in economics and business management.
Since 1981, Manfred has been working for Munich Re.

INTRODUCTIONSTRATEGIC REPORTRCCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

SID

AC

AC

GRC

NC

AC

Annette Court (52)Colin Holmes (49)

Penny James (45)Non-Executive Director,
appointed in March 2012

Non-Executive Director,
appointed in December 2010

Non-Executive Director,
appointed in January 2015@@ Non-Executive Director of Jardine Lloyd
Thompson Group plc@@ Chairman of GO Outdoors Ltd@@ Director of Group Finance at Prudential plc

Colin was formerly a member of the Executive
Committee of Tesco plc and during his 22 year careerat Tesco held a wide range of positions, including
UK Finance Director and CEO of Tesco Express.
Previously, Colin was a Non-Executive Directorof Bovis Homes Group plc, where he chaired theRemuneration Committee. Colin is a CharteredManagement Accountant and a member of theInstitute’s Advisory Panel.

Between 2007 and 2011 Penny was Group Chief
Financial Officer of Omega Insurance Holdings.
Prior to this, Penny spent 12 years with Zurich
Financial Services where she held a number ofsenior finance roles including Chief Financial
Officer of the UK General Insurance division
and a Director of Eagle Star Insurance. Pennyis a Member of the Institute of Chartered
Accountants in England and Wales.

AC

GRC

GRC

RC

NC

RC

Margaret Johnson, OBE (56)

Lucy Kellaway (55)Jean Park (60)

Non-Executive Director,
appointed in September 2006

Non-Executive Director,
appointed in September 2006

Non-Executive Director,
appointed in January 2014@@ Group Chief Executive Officer of Leagas Delaney@@ Lucy is a management columnist
on the Financial Times@@ Non-Executive Director of Murray Income Trust plc@@ Non-Executive Director of Foxtons plc@@ Non-Executive Director of Workshare
Between 2007 and 2010 Annette was CEO of Europe
General Insurance for Zurich Financial Services and amember of the Group Executive Committee. Annette
is former CEO of the Direct Line Group (formerly known
as RBS Insurance). In this role Annette was also amember of the RBS Group Executive Management
Committee. Annette has previously served as a member
on the Board of the Association of British Insurers (ABI).

Margaret has worked for the international advertising
agency Leagas Delaney for the past 16 years. Margaret
was awarded an OBE in 2013 in recognition of her
services to the creative industries and her voluntary
work for charities.

In her 21 years at the Financial Times Lucy has beenan oil correspondent, a Lex columnist and Brussels
correspondent. Lucy has authored various books.

@@ Non-Executive Director of the National House
Building Council
Jean was Group Chief Risk Officer at the Phoenix Group
from 2009 until June 2013, during which time she held
responsibility for the Group’s relationship with theregulator and founded the Board Risk Committee.
Previously, she was Risk Management Director of
the Insurance and Investments division of Lloyds TSB
and, before that, Head of Compliance and Auditat Scottish Widows. Jean is a Member of theInstitute of Chartered Accountants of Scotland.

Committee key
RC
ACNomination Committee member

Remuneration Committee member

NC

Audit Committee member

GRC Group Risk Committee member

ADMIRAL GROUP PLC

Committee Chairman
SID

Senior Independent Director

ANNUAL REPORT AND ACCOUNTS 201443

GOVERNANCE REPORT

Leadership

The role of the Board
The Board is the principal decision-making
forum for the Group providing entrepreneurial
leadership, both directly and through its
Committees, and delegating authority to the
Executive team. The Board is responsible fororganising and directing the affairs of the Groupin a manner that is most likely to promote its
success for the benefit of its members as a whole.
The Board is accountable to shareholders forsetting and achieving the Group’s strategic
objectives; for the creation and delivery ofstrong sustainable financial and operational
performance; for ensuring that in carryingout its duties the Group’s legal and regulatory
obligations are being met; and for ensuringthat it operates within appropriately establishedrisk parameters. The Group’s UK regulated
entities are responsible to the Financial Conduct
Authority (FCA) and the Prudential Regulatory
Authority (PRA) for ensuring compliance with
the Group’s UK regulatory obligations and that
dealings with the FCA and PRA are handled
in a constructive, co-operative and transparent
manner. Similar provisions apply in respect of
the Group’s international businesses with regard
to the relevant regulatory authorities in thoseoverseas jurisdictions in which the Groupalso operates.
The Board has adopted a formal schedule ofmatters reserved for the Board’s consideration.
This is monitored by the Company Secretaryand reviewed by the Board on an annual basis.
Specific matters reserved for the Board
include the approval of:@@ The Group’s long term objectives andcorporate strategy.
@@ Operating and capital budgets, financial
results, and any significant changes toaccounting practices or policies.
@@ The Group’s capital structure.
@@ Results and financial reporting.
@@ The system of internal control andrisk management.
@@ The Group’s overall risk appetite.
@@ Changes to the structure, size andcomposition of the Board, including
new appointments.
@@ Succession plans for the Board andsenior management.
@@ Dividend policy and proposals for
dividend payments.
@@ Major acquisitions, disposals and othertransactions outside delegated limits.
@@ The annual review of its own performanceand that of its Board Committees.

Board activity during 2014
At each scheduled meeting the Board receives
updates from the Chief Executive, Chief
Operating Officer and Chief Financial Officer
on the financial and operational performanceof the Group and any specific developmentsin the areas of the business for which they are
directly responsible and of which the Board
should be aware. Items that are consideredon an annual basis are included in an annual
schedule of rolling agenda items to ensurethat they are considered at the appropriate
point in the financial and regulatory cycle.
Meetings are structured so as to allow forconsideration and debate of all matters.
Mindful of the need to ensure effective Director
succession through senior managers below
Board level having exposure to and gaining
experience of the operation of the Board, theheads of the Group’s US, Italian and Spanish
direct insurance businesses (respectively
Kevin Chidwick, Milena Mondini and Cristina
Nestares) are invited to attend every Board
meeting and Board dinner, as was the Group’s
Deputy Chief Financial Officer, Geraint Jones,
until his appointment as Chief Financial Officer
in August 2014.
The Board met on seven occasions in 2014 withsix of these meetings being held over two days.
The Board also held an additional telephonemeeting to consider and respond to the formal
notification of the PRA’s Individual Capital
Guidance (ICG) with respect to the Group.
Unfortunately, given prior commitments, Manfred
Aldag and Roger Abravanel were unable to join
this telephone meeting.
In addition to the regular consideration offinancial and operating performance and risk
management and compliance, the Board
considered each of the Group’s businesses in
depth once during the year, receiving detailed
presentations from the businesses’ management
teams on their strategy, plans and performance.
The Board also considered specific presentations
on a variety of topics associated with the Group’s
strategy and development
The Chairman seeks to visit each of theGroup’s overseas operations every year and
Non-Executive Directors are invited to join either
him or the Chief Executive on one or more of
their overseas visits each year. In addition, theNon-Executive Directors and the Chairman
met during the year without the Executive
Directors being present. In order to increase
their understanding of the operation of theGroup below Board level, the Non-Executive
Directors and the Chairman also attended adinner with members of the Group’s senior
management team without the Executive
Directors being present.

@@ Annual review of the Group’s Board policies.
@@ The review of the Group’s overall corporate
governance arrangements.

44

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

The Board is accountable
to shareholders forsetting and achieving
the Group’s strategic
objectives; for thecreation and deliveryof strong sustainablefinancial and operational
performance; forensuring that in carryingout its duties the Group’s
legal and regulatory
obligations are being
met; and for ensuringthat it operates withinappropriately establishedrisk parameters.”

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

Meetings and attendanceDirectors are expected to attend all meetings of the Board and the Committees on which they
serve and to devote sufficient time to the Group to perform their duties. Where Directors areunable to attend meetings they receive papers for that meeting giving them the opportunity toraise any issues with the Chairman in advance of the meeting. The number of scheduled Board
meetings and Committee meetings of which they are a member attended by each Director
during 2014 is provided in the table below.
ScheduledBoard
meetings

Audit
Committee
meetings

Group Risk
Committee
meetings

Nomination
Committee
meetings

Remuneration
Committee
meetings

Total meetings held

7

6

5

1

8

Alastair Lyons(Chairman)

7

Henry Engelhardt(Chief Executive Officer)

7

Kevin Chidwick(Chief Financial Officer)

5/5

Geraint Jones(Chief Financial Officer)

2/2David Stevens(Chief Operating Officer)

7

Roger Abravanel

6

Manfred Aldag

6

Annette Court

7

6

Colin Holmes

7

6Martin Jackson

3/3

1

5
6
5

5/5
1

2/2

3/3

Margaret Johnson

7

Lucy Kellaway

7

3/3

7

4/4

7

3/3

2/2

3/3

Jean ParkJohn Sussens

John Sussens and Martin Jackson stepped downfrom the Board with effect from 9 April 2014.
Jean Park joined the Group Risk Committee
on appointment from 17 January 2014 andattended all Group Risk Committee meetings
held after this time.
Lucy Kellaway joined the Group Risk Committee
from April 2014 and attended all Group Risk
Committee meetings after this time.
Annette Court took over as Chair of theRemuneration Committee from April 2014
and attended all Remuneration Committee
meetings held after this time.
Kevin Chidwick stepped down as Group
Chief Financial Officer and was succeeded by
Geraint Jones with effect from 13 August 2014.
Both Kevin and Geraint attended all Board
meetings as required in their roles as CFO.
The Nomination Committee met formallyon one occasion in 2014 although membersof the Committee corresponded and met
informally on a number of occasions to
consider and meet with individuals that
the Committee had identified as possible
candidates to join the Board.

681Agendas and papers are circulated to the Board
electronically in a timely and secure manner in
preparation for Board and Committee meetings.
The Board agenda is carefully structured by the
Chairman in consultation with the Company
Secretary and Chief Executive. These papers
are supplemented by information specificallyrequested by the Directors from time to time.
All Board and Committee meetings during theyear were held in an open atmosphere conducive
to robust and constructive challenge and debate.
All Directors have, therefore, been able to bring
independent judgement to bear on issues suchas strategy, risk management, performanceand resources. Additional meetings are called
when required and there is contact between
meetings, where necessary, to progress theGroup’s business.
The Company Secretary
All the Directors have access to the advice
and services of the Company Secretary. He has
responsibility for ensuring that Board proceduresare followed and for advising the Board, throughthe Chairman, on governance matters. The
Company Secretary provides updates to theBoard on regulatory and corporate governanceissues, new legislation and Directors’ duties
and obligations. The appointment and removalof the Company Secretary is one of the mattersreserved for the Board.

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201445

GOVERNANCE REPORT CONTINUED

Effectiveness

Our Board evaluation process
One-to-one meetings

Directors
Review previous
recommendations

Chairman

Assess progress
madeRaise new issues

Board attendees

Results of review

Board effectivenessAs the Board carried out an externally facilitatedevaluation of the Board last year, led by anindependent external consultant, this year
the Chairman led an internal Board evaluation
process. As well as considering the effectivenessand performance of the Board, the objectiveof the evaluation was to assess progress madeagainst the recommendations from the lastevaluation in order to continue the developmentof the collective contribution of the Board
as a whole and also the effectiveness of eachindividual Director. When considering theevaluation process, the Chairman consideredfeedback received from Directors after
one-to‑one meetings held with him during
the year as to areas of focus to improve
Board effectiveness.
The evaluation process involved the Chairman
circulating to all Directors and Board attendees,
the recommendations from the 2013 Board
effectiveness review and inviting respondents
to assess progress made and comment on each
recommendation. Respondents were also
invited to raise any new issues of significancethat they felt had developed since the last
review a year ago and on which they believed
the Board should focus in the coming year.
The results of the review were presented by
the Chairman to the Board in January 2015.
Overall the review found that good progress
had been made against most recommendations,that the Board continued to work effectively andthat each Director contributes and demonstrates
full commitment to his/her duties.

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ANNUAL REPORT AND ACCOUNTS 2014

The particular areas identified by the Board
during the 2014 review where further progress
was required included:@@ Although good progress had been made by
the Chair of Risk to develop the appropriate
strategy to achieve the requisite balance andfocus between procedural and substantive
aspects of risk and to create the mostefficient and effective reporting materials,
it was felt that further work was needed
to embed fully the Group’s risk framework
within the organisation.
@@ Focus on finding the right balance to ensurethat gaps in international experience wereaddressed through greater competitive
analysis or contributions from external
experts such that the collective knowledgeof the Board does not become ‘UK centric’.
@@ Reinforcement of the approach to createa clear structure in presentation materials
that show the original forecast, the agreed
approach and any assumptions made at
the time and the bridge to the current
position showing changes to current
forecast and suggested approach.
@@ Inviting external experts to present on
customers, competitors and/or societal
trends every one–two years to provoke
thinking and debate in advance of likely
changes in customer preferences orcompetitor practices. It was felt that
although some progress had been madethere was still the opportunity throughexternal presentations to lift the perspectiveof the Board, spending more time on thestrategic context for the business and lesson its routine operating activity.

WWW.ADMIRALGROUP.CO.UK

The Chief Executive, to whom they report,
appraises annually the performance of theindividual Executive Directors. The Chairman,
taking into account the views of the other
Directors, reviews the performance of the
Chief Executive (who is also appraised byan internal 360-degree feedback process).
The performance of the Chairman is reviewed
by the Board led by the Senior Independent
Director (SID). Following the latest review,the SID considered and discussed with the
Chairman the comments and feedback that
had been received from the Directors as partof the Chairman’s evaluation questionnaire,
and was able to confirm that the performanceof the Chairman continues to be effective andthat he continues to demonstrate appropriate
commitment to his role.
The roles of the Chairman
and Chief Executive
The Board has approved a statement that sets
out the clear division of responsibilities between
the Chairman and the Chief Executive. The
Chairman is primarily responsible for theleadership and workings of the Board, setting
its agenda and monitoring its effectiveness.
The Chairman is not involved in the day-to-day
management of the business. Save for mattersreserved for decision by the Board, the Chief
Executive, with the support of the other
Executive Directors, is responsible for proposing
the strategy to be adopted by the Group; runningthe business in accordance with the strategy
agreed by the Board; and implementing
specific Board decisions relating to theoperation of the Group. The statementsof division of responsibilities and mattersreserved for decision by the Board arereviewed annually.

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

Board balance and independence
The composition of the Board evolved during
the year as John Sussens and Martin Jackson
stepped down from the Board after nine years’service. Careful consideration continues to begiven to Board structure and balance particularly
given another two Directors will reach nine years’service in the next two years. In this context theGroup continues to monitor the need to refresh
Board and Committee membership in an orderly
manner so as to maintain the continuity ofBoard process and the strength of personal
interaction which underlies the effectivenessof the Board as a team. The Board remains
satisfied that it has the appropriate balanceof skills, experience, independence andknowledge of the Group to enable it andits Committees to discharge their duties
and responsibilities effectively, as requiredby the Code.

In the context of two of the Non-Executive
Directors reaching their maximum term overthe next two years, the Nomination Committee
initiated the process of recruiting a Non-Executive
Director to ensure that the balance andcomposition of the Board was maintained.
Appointments to the Board are the responsibilityof the Board as a whole, acting on the advice
and recommendations of the Nomination
Committee. Appointments are made on meritand against objective criteria, having due regard
to the benefits of diversity, including gender.
Following a formal, rigorous and transparent
process implemented and led by the Nomination
Committee, the Board was delighted to appoint
Penny James as an independent Non-Executive
Director with effect from 1 January 2015. Pennyjoined as a member of the Audit Committee
on appointment and will be subject to election
by shareholders at the forthcoming AGM.

The Board currently comprises 12 Directors,
the Chairman (who was independent on
appointment), three Executive Directors,
seven independent Non-Executive Directors,
and one Non-Executive Director, Manfred Aldag,
who is employed by a significant shareholder
and is not, therefore, considered independent.
There is no requirement that the significant
shareholder has representation on the Board
and, accordingly, Mr Aldag’s appointment issubject to the same appointment and removal
process as the other Board Directors. As canbe seen from the Directors’ biographies on
pages 42 to 43, the Directors have a broad
range of skills and experience and can bring
independent judgement to bear on issues ofstrategy, performance, resources and standardsof conduct which are integral to the successof the Group.

The Board, having given thorough consideration
to the matter, considers seven of theNon‑Executive Directors to be independentand is not aware of any relationships orcircumstances which are likely to affect,
or could appear to affect, the judgementof any of them. It is the view of the Board thatthe independent Non-Executive Directors
are of sufficient calibre and number that theirviews carry significant weight in the Board’s
decision making.
Independent Non-Executive Directors are
currently appointed for fixed periods of three
years, subject to election by shareholders.
The initial three-year period may be extended
for two further three-year periods subject tore-election by shareholders. Their letters of
appointment may be inspected at the Company’s
registered office or can be obtained on requestfrom the Company Secretary.
Although the Chairman has served in that rolesince July 2000 the Board remains of the viewthat he should continue in office. The Chairman,
along with all the Directors, seeks election byshareholders annually.

OTHER INFORMATIONThe Chairman performs a number of othernon-executive roles outside the Group anddetails of these are included in the Chairman’s
biography. The Board continues to be satisfied
that these other commitments are not such as
to interfere with the performance of his duties
within the Group and will not impact on his
ability to allocate sufficient time to discharge
effectively his responsibilities to the Group.
John Sussens stepped down as the Senior
Independent Non-Executive Director (SID)
in April 2014 and was succeeded by Colin
Holmes, who has the requisite knowledge andexperience gained through his Board tenure
and Chairmanship of the Audit Committee.
He is available to shareholders if they haveconcerns that contact through the normal
channels of Chairman, Chief Executive orChief Financial Officer has failed to resolve
or for which such contact is inappropriate.
He is also responsible for leading the Board’s
discussion on the Chairman’s performanceand the appointment of a new Chairman,
as and when appropriate. From April 2014,
Annette Court replaced John Sussens as
Chair of the Remuneration Committee
and Jean Park replaced Martin Jackson
as Chair of the Group Risk Committee.
Roger Abravanel will not be seeking re-election
at the forthcoming AGM and will step downfrom the Board on 29 April 2015.
In accordance with the requirement under
the Code for annual election of Directors,
all Directors, except for Roger Abravanel,
will be submitting themselves for re-election
by shareholders at the forthcoming AGM.
The Board is satisfied that all are properly
qualified for their reappointment by virtue of
their skills and experience and their contribution
to the Board and its Committees.
The Directors are given access to independent
professional advice at the Group’s expense,
should they deem it necessary to carry out
their responsibilities.

Current length of service as a Non-Executive Director at 31 December 2014
The table below details the length of service of the Chairman and each of the Non-Executive Directors and illustrates the balance of experienceand fresh perspectives.
Director

Date of appointment

Current length of service as a Non-Executive Director at 31 December 2014

Alastair Lyons (Chairman)

1 July 2000

Manfred Aldag

13 March 2003

Margaret Johnson

4 September 2006

8 yrs 4 mths

Lucy Kellaway

4 September 2006

8 yrs 4 mths

Colin Holmes

3 December 2010

Roger Abravanel

6 March 2012

2 yrs 10 mths

Annette Court

21 March 2012

2 yrs 9 mths

Jean Park

17 January 2014

Penny James

1 January 2015

14 yrs 6 mths
11 yrs 9 mths

4 yrs 1 mth

11 mthsn/a

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201447

GOVERNANCE REPORT CONTINUED

Effectiveness continued

Professional development
On appointment, Directors take part in
a comprehensive induction programme
whereby they receive financial and operational
information about the Group; details concerning
their responsibilities and duties; as well as
an introduction to the Group’s governance,
regulatory and control environment.
This induction is supplemented by visits to
the Group’s head office in Cardiff and overseas
offices, and meetings with members of the senior
management team and their departments.
Development and training of Directors is an
ongoing process. Throughout their period
in office the Directors are regularly updated
on the Group’s business; legal mattersconcerning their role and duties; the competitiveenvironments in which the Group operates;
and any other significant changes affecting
the Group and the industry of which it is apart. All Board members are also encouraged
to attend relevant training courses at theCompany’s expense.
The Board receives presentations from senior
managers within the Group on a regular basis
and Non-Executive Directors are encouraged
to make informal visits to different parts of theGroup to meet with local management.
Engagement with shareholders
The Company attaches considerable importanceto communications with shareholders andengages with them regularly. Open andfrequent dialogue with investors enables
them to understand fully the Group’s strategy,
objectives and governance. The Investor
Relations team has day-to-day primary
responsibility for managing communications
with institutional shareholders through a
combination of briefings to analysts andinstitutional shareholders, both at the half year
and full year results. A number of analysts
and investors visited the Group’s Cardiff officeduring the year to meet with the Executive
Directors and senior management in orderto get a better understanding of how theGroup operates and how it intends to achieve
its strategic and operational objectives. Senior
Executives from the Group’s overseas businesses
also visit the UK in order to present to, andmeet with, analysts and investors. Site visits
and individual discussions with the Executive
Directors are also arranged throughout theyear with individual shareholders.
In addition the Chairman had individual meetings
during the year with major shareholders andreported to the Board on issues raised with him.
This is supplemented by feedback to theBoard on meetings between management andinvestors. In addition, the Investor Relations
team produces a quarterly Investor Relations

48

ANNUAL REPORT AND ACCOUNTS 2014

Report that is circulated to the Board for theirconsideration. The Report contains an analysisof share price performance; a summary of analyst
reports received during the month and of
meetings that have been held with investors
and analysts; together with details of any
significant changes to the shareholders’ register.
The Senior Independent Director has specificresponsibility to be available to investors who
have any issues or concerns, and in cases wherecontact with the Chairman, Chief Executive
and Chief Financial Officer has either failed
to resolve their concerns, or for where suchcontact is inappropriate. No such concerns
have been raised in the year under review.
All shareholders are invited to attend theCompany’s Annual General Meeting (AGM).
The Chairs of the Audit, Remuneration,
Nomination and Group Risk Committees attend
the AGM along with the other Directors and areavailable to answer shareholders’ questions
on the activities of the Committees they chair.
Shareholders are also invited to ask questions
during the meeting and have an opportunity
to meet with Directors after the formal businessof the meeting has been concluded. Details of
proxy voting by shareholders, including votes
withheld, are made available on request andare placed on the Company’s website following
the meeting.
The Group maintains a corporatewebsite (www.admiralgroup.co.uk)
containing a wide range of informationof interest to institutional and private
investors. The major shareholders of
the Company are listed on page 74.
Conflicts of interest
In compliance with the requirements of theCompanies Act 2006 regarding Directors’ duties
in relation to conflicts of interest, the Group’s
Articles of Association allow the Board toauthorise potential conflicts of interest that may
arise and to impose such limits as it thinks fit.
The Company has put in place procedures todeal with conflicts of interest. These procedures
include each Board member completing,annually, a conflict of interest questionnairethat sets out any situation in which they,or their connected persons have, or could
have, a direct or indirect interest that could
conflict with the interests of the Company.
Any current directorships that they, or theirconnected persons hold, any advisory roles
or trusteeships held, together with any
companies in which they hold more than 1%of the issued share capital are also disclosed.
These procedures were reviewed by the Board
in November 2014 and it was concluded thatthey continued to operate effectively.

WWW.ADMIRALGROUP.CO.UK

The Company attaches
considerable importanceto communications
with shareholders andengages with them
regularly. Open andfrequent dialogue
with investors enables
them to understandfully the Group’s
strategy, objectives
and governance.”
Board Committees
The Board has delegated authority to a numberof permanent Committees to deal with mattersin accordance with written Terms of Reference.
The principal Committees of the Board – Audit,
Remuneration, Group Risk and Nomination– all comply fully with the requirements of
the Code.
All Committees are chaired by an independent
Director, except the Nomination Committee
which is chaired by the Chairman of the Board,and comprise a majority of independent
Directors. Appointments to the Committees
are made on the recommendation of theNomination Committee and are for a periodof up to three years, which may be extended
for two further three-year periods, provided
the Director remains independent. The
Committees are constituted with written
Terms of Reference that are reviewed annually
to ensure that they remain appropriate andreflect any changes in good practice andgovernance. These Terms of Reference areavailable on request from the Company
Secretary and can also be found on the
Company’s website: www.admiralgroup.co.uk.
Directors are fully informed of all Committee
matters by the Committee Chairs reportingon the proceedings of their Committee atthe subsequent Board meeting. Copies ofCommittee minutes are also distributed to
the Board. Committees are authorised toobtain outside legal or other independent
professional advice if they consider it
necessary. The Chair of each Committee
attends the Annual General Meeting to
respond to any shareholder questions thatmight be raised on the Committee’s activities.

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATIONREPORT OF THE AUDIT COMMITTEEStatement from Colin Holmes

The key areas of focus have been to provide support
to the Board in its oversight of financial reporting
and the control environment across the Group.”Colin Holmes
Chairman of the Audit Committee

Dear Shareholder,I’m pleased to provide an update on the main activities of Admiral’s Audit
Committee during 2014.
The key areas of focus for the Committee during the year have been to provide
support to the Board in its oversight of financial reporting and the control
environment across the Group. The setting of insurance claims reserves continues
to be a key accounting judgement in the Group’s financial statements, and theCommittee placed considerable focus on reviewing the recommendations ofmanagement and discussing the key reserving judgements with the Group’s
independent actuaries and external auditor. In addition, the Committee continued
to monitor the appropriateness of the Group’s system of risk management andinternal controls as well as the robustness of the Internal and External Audit processes.
The Committee studied a number of key control issues, highlighted througha range of different sources including the risk register, Internal Audit and theCommittee’s previous work. In each case the Committee found the responses
and action plans from management appropriate to the issues raised. With theplanned implementation in 2015 of a new IT system in the UK business theCommittee received regular updates from the project’s manager, ensuring thatthe impact of implementation issues were being fully considered and mitigatedagainst. The Committee also reviewed with the Head of IT the plans of thebusiness to ensure that IT security issues are being appropriately managed.
The growing materiality of the Group’s international businesses has been a key
focus of the Committee, with presentations from the key CEOs and an improved
oversight of the businesses’ audit activities. Also during the year the Groupissued its first public bond, with the Committee reviewing the accuracy andcompleteness of the financial information being provided as part of the prospectus.
Finally as previously communicated the Group plans to tender the External
Audit of the Group to coincide with the rotation of the current KPMG audit
partner. In preparation for the tender process the Committee has spent time
considering how it will manage this process to ensure the Group continues
to have a strong External Audit team into the future.
The Committee continues to provide strong oversight of the Group and I would
like to thank all those who have made this possible. In particular I would like tothank my two colleagues, Margaret Johnson and Annette Court, for their invaluable
contribution over the last year, and equally to welcome Penny James to theCommittee following her appointment to the Board in January.
I hope you find the above summary, and the more detailed report, both usefuland informative.

The Audit Committee’s primary
responsibilities are to:@@ Monitor the integrity of the Group’s
financial statements and any formal
announcement relating to the Group’s
financial performance, reviewing any
significant financial reporting
judgements that they contain.
@@ Keep under review the effectivenessof the Group’s internal financial
controls, internal control and risk
management systems.
@@ Review the Group’s proceduresfor handling allegations from
whistleblowers and for detecting fraud.
@@ Monitor and assess the roleand effectiveness of the Group’s
Internal Audit functions in thecontext of the Group’s overall
internal control and risk
management systems.
@@ Consider and make recommendations
to the Board, to be put to shareholders
for their approval at the AGM,
in relation to the appointment,
reappointment and removal of
the Group’s external auditor.
@@ Review the external auditor’s
independence and objectivity
and the effectiveness of theaudit process.
@@ Review the policy on the engagementof the external auditor to provide
non-audit services, considering
the relevant regulatory guidance
regarding the provision of non-audit
services by the external auditor.

Colin Holmes
Chairman of the Audit Committee
4 March 2015

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201449

REPORT OF THE AUDIT COMMITTEE CONTINUED

Summary of key activities during 2014
During the year the Committee reviewed the following:@@ The Annual Report and interim results.
@@ Reports from the Internal Audit departments within the Group on the effectiveness of the Group’s risk management
and internal control procedures, details of key audit findings and actions taken by management to manage andreduce the impact of the risks identified.
@@ Reports from the external auditor on the principal findings from its review of the Group’s systems and controls, andon the key accounting and audit issues and conclusions on the half and full year reporting.
@@ Reports from the Chair of the Group Risk Committee on the principal risks faced by the Group and the work
undertaken by the Committee to ensure risk is appropriately managed.
@@ Presentations from independent actuaries to assist the Committee in concluding on the adequacy of theGroup’s reserves.
@@ Reports from the external auditor on the proposed audit scope, fees, audit findings, and auditor independence.
@@ The proposed Internal Audit plans for both the UK and international businesses.
@@ Performance and effectiveness of the Internal Audit departments including review of the results of the external
effectiveness review of Internal Audit.
@@ Significant findings from Internal Audit including management responses to the conclusions set out in the reports.
@@ Reports from the CEO and Internal Auditors of the significant international businesses.
@@ The effectiveness of the Group’s Whistleblowing Policy, which sets out the arrangements for raising and handlingallegations from whistleblowers.
@@ The effectiveness of the procedures for detecting fraud.
@@ The Committee also received presentations and discussions on a range of important issues including: IT Security;
the Group’s Excess of Loss arrangements; Periodic Payment Order (PPO) identification; reserving and the impact
on the Group of the introduction of the Gender Directive in the context of considering whether any portfolio
shifts could lead to material changes in claims development patterns and impact the appropriateness of claims
estimation at the year end.
@@ The plans and governance of the project to implement a new IT system for the UK business in 2015.
@@ The accuracy and completeness of the financial information contained within the prospectus for the Group’s publicbond issue.
@@ The pre-planning work to facilitate a smooth and effective tender of the External Audit work.
@@ Its own Terms of Reference.
@@ Its own effectiveness.

50

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

INTRODUCTIONSTRATEGIC REPORTMembership
Audit Committee attendance (6 meetings)

Colin Holmes
Margaret Johnson
Annette Court
ChairmanMemberDid not attend

Membership of the Committee at the end of
the year was: Colin Holmes (Chair), Margaret
Johnson and Annette Court, with Penny Jamesjoining the Committee with effect from her
appointment as a Non-Executive Director on
1 January 2015. Composition of the Committee
is well balanced, with Committee members
having a broad range of financial and businessexperience such that they are able to effectively
analyse, challenge and debate the issues thatfall within the Committee’s remit.
The Company Secretary acts as Secretary to theCommittee. The Committee meets at least fourtimes per year and has an agenda linked toevents in the Group’s financial calendar andother important issues that arise throughout
the year which fall for consideration by theCommittee under its remit.
The Board considers that the members of theCommittee have the appropriate competence
and experience necessary to contributemeaningfully to the Committee’s deliberations
and further considers that Colin Holmes (Chair),as a Chartered Management Accountant,
has appropriate recent and relevant financial
experience having previously been the UK
Finance Director for Tesco plc. Penny Jamesis currently Director of Group Finance atPrudential plc.
The Committee is kept up to date withchanges to Accounting Standards and relevant
developments in financial reporting, company
law and the various regulatory frameworks
through presentations from the Group’s
external auditor, Chief Financial Officer andCompany Secretary. In addition, members
attend relevant seminars and conferences
provided by external bodies. The Terms ofReference of the Audit Committee include
all the matters required under the Code.
Other individuals such as the Chief Financial
Officer, the Chief Operating Officer, the Chief
Executive Officer, the Chairman of the Board,
the Director of Risk, Compliance and Internal
Audit, and representatives of different parts of
the Group may be invited to attend all or partof any meeting as and when appropriate. The
external auditor was invited to attend all of theCommittee’s meetings held in 2014, excepting
those agenda items when its own performance
was to be reviewed and provision of non-audit
services discussed. In addition, a number ofprivate meetings were held between membersof the Committee and the auditor.

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

Significant issues consideredby the Committee
After discussion with both management andthe external auditor, the Audit Committee
determined that the key risks of misstatementof the Group’s financial statements related to:insurance liabilities; profit commissions; andboth co-insurance and reinsurance contracts.
These issues were discussed with management
during the year and with the auditor at thetime the Committee reviewed and agreed theauditor’s Group audit plan, when the auditor
reviewed the interim financial statements inAugust 2014 and also at the conclusion of theaudit of these full year financial statements.
Insurance liabilities
The Audit Committee considered the provision
for claims outstanding comprising provisions
for the estimated cost of settling all claims
incurred but unpaid as at the balance sheet
date, whether reported or not. The Board
has approved a Reserving Policy that sets
out the methodology by which management
sets reserves in the financial statements. The
approach is to ensure that an appropriate margin
is provided above actuarial best estimatesto allow for uncertainty and volatility.
The Committee held separate meetings with
the Group’s external actuaries at which there
was challenge and debate of the methodology
used and best estimates developed by theexternal actuaries and recommended for
adoption by management. At these meetings
management provided further informationon the reserving levels proposed and werechallenged by the Committee as to theiradequacy and level of prudency. In particular,
the Committee reviewed the process for
identifying and grading cases which potentiallywould settle as Payment Protection Orders(PPO). The Committee was satisfied that PPOs
were being appropriately identified andreserved for.
The Committee also discussed the Reserving
Letter sent to insurance CEOs by the Prudential
Regulatory Authority (PRA) which set out the
PRA’s reserving expectations for firms; theirapproach to reviewing firms’ reserving processes
and reserve levels; and forthcoming Solvency IIrequirements. The Committee discussed andapproved a response with management thatreiterated the Group’s strong reserving processes
and methodology set out in the Group’s
Reserving Policy and the clear process bywhich the matters raised in the PRA’s letter
could be addressed.
Whilst acknowledging that the setting ofreserves to cover future claims is a complex
and judgemental area and having had theopportunity at the separate meetings referred
to above to consider and question therecommended best estimates, the Committee
is satisfied that an appropriate process has
been followed and that there has been scrutiny,
challenge and debate to give confidence thatthe reserving levels set provide an appropriate
margin above best estimates and allowed fora level of prudency.
ADMIRAL GROUP PLC

OTHER INFORMATIONThe Committee also received an update fromthe auditor regarding the procedures used totest management’s methodology in setting
best estimates and considered the auditor’s
assertion that they had challenged the reserving
approach taken by management and considered
compliance with current accounting standards.
Based on this and the reserving process, theCommittee was satisfied with the Group’s
approach to setting reserves.
Profit commission
The Committee considered the impact on profit
commission income of future changes in claims
reserves as the recognition of this income isdependent on the loss ratio booked in thefinancial statements and cash receivable isdependent on actuarial projections of ultimate
loss ratios. The Committee remained satisfied
that profit commission was correctly accounted
for by the Group and was in accordance with thecontractual arrangements that were in place.
Co-insurance and reinsurance
The Group has in place a number of proportionalrisk sharing agreements, where insurers outside
the Group underwrite a majority of the risk
generated, either through co-insurance orreinsurance contracts. There is judgement
involved in the assessment of whether significant
risk has transferred which impacts on theappropriate accounting.
In particular, the Committee considered theaccounting treatment of the caps contained in
the Group’s international quota share reinsurance
contracts that limited the losses of the reinsurer
when certain combined ratio and/or expense
ratio limits had been breached. The Committee
discussed the accounting options available
to account for these cap accruals and had
challenged management as to the merit of theaccounting options available. The Committee
accepted the view of management that themost appropriate presentation was to allocate
the impact of expense ratio caps to insurance
expenses and to split the impact of combined
ratio caps between insurance expenses andinsurance claims.
The Committee considered key accounting
judgements as part of its review and approvalof Group financial statements at interim andyear end meetings. The Committee received
reporting from the Group Finance team that
supported key accounting estimates andjudgements and this formed the basis for theCommittee’s discussion. Risk transfer wasconsidered on a periodic basis or more
frequently in the case of changes to contractual
arrangements. In the light of the information
received by the Committee, the Committee
considered that the appropriate risk transfer
had taken place.

ANNUAL REPORT AND ACCOUNTS 201451

REPORT OF THE AUDIT COMMITTEE CONTINUED

Recognition of intra-group trading
The Committee considered and reviewed an
unadjusted difference, reported by the external
auditor, relating to intra-group trading which had
not been eliminated on consolidation.
Management confirmed to the Committee thatthe auditor continued to report an unadjusted
difference in relation to intra-group trading
between the Group’s insurance and pricecomparison operations. Management had
opted not to make the elimination adjustments
as the effect would have a misleading impact
on the key ratios for the business as typicallyused by the industry and also to maintainconsistency with prior years. KPMG confirmedthat although this was an unadjusted difference,
it was both immaterial and consistent withprior years.
The Committee fully considered and challenged
management on the approach they hadtaken not to make elimination adjustmentson the grounds of immateriality. Following
comprehensive review, the Committee
confirmed its acceptance of management’s
position on the basis that accounting for
intra-group trading in this way was acceptablegiven the immateriality of the sums involved
and resulted in a better overall presentationof the financial statements.
IFRIC 21 levies
The impact of IFRIC 21 on levies was consideredby management and the Group’s auditor, with
the implication to Admiral being on the amounts
it pays to the Motor Insurers Bureau and the
Financial Services Compensation Scheme. The
standard is not mandatory until 2015 but theCommittee agreed with management that in
the interest of transparency it was appropriate
for the Group to early adopt, with full disclosureof its implications being provided in the Reportand Accounts.
Deferred tax assets
The Group’s two US operations – ElephantAuto and compare.com, are both loss-making,reflecting the stage of development of eachbusiness. The Committee discussed the potential
deferred tax assets (DTA) recommended bymanagement in relation to the accumulated
losses carried forward at the balance sheet datefor both operations. The Committee concluded
that the proposed assets were consistent withthe accounting standard.
Misstatements
The Committee considered all misstatements
reported by the auditor and were satisfied
that no material amounts remain unadjusted.
The Committee confirms that it is satisfied
that the auditor has fulfilled its responsibilities
with diligence and professional scepticism.
After reviewing the presentations and reports
from management and consulting where
necessary with the auditor, the Committee
is satisfied that the financial statements
appropriately address the critical judgements
and key estimates (both in respect to the amounts
reported and the disclosures). The Committee

52

ANNUAL REPORT AND ACCOUNTS 2014is also satisfied that the significant assumptions
used for determining the value of assets andliabilities have been appropriately scrutinised,challenged and are sufficiently robust.
Non-audit fees
During the year the Committee reviewed its
policy on non-audit services that sets out theprocedure for approval, by the Committee,
of expenditure with the Group’s auditorof over £30,000, including the process where
it is necessary for approval of such work to
be given outside of the normal Committee
meeting timetable. Such circumstances will
require the approval of the Audit Committee
Chair, who will consider and approve such feeson behalf of the Committee and will ensurethat auditor independence and objectivity
are not compromised. Such approval of feesin excess of £30,000 will then be notified by
the Committee Chair to the next Committee
meeting following approval.
The Group’s auditor, KPMG LLP, provides
some non-audit services, the majority of which
comprise compliance and advisory services
related to various taxation issues within theGroup, and which are not considered by theCommittee to compromise their independence
and objectivity as auditor. This decision istypically based on the merit of using KPMG’sexisting knowledge of the Group’s business;
their particular expertise in relation to theadvice sought on each relevant transaction
and the consequent value added and inherent
saving of fees. The level of non-audit fees isreviewed at each Committee meeting anddetails are included in the Annual Report.
The Committee also considered the implicationsof both the forthcoming tender of the External
Audit and the potential adoption by the UK
of EU legislation that prohibits auditors fromcarrying out certain non-audit services including
tax and other consultancy. The Committee
will continue to track developments to ensure
the Group will be able to comply with future
legislation and guidance in this area.
Effectiveness of the External Audit process
The Committee undertakes an annual review
to assess the independence and objectivityof the external auditor and the effectivenessof the audit process, taking into consideration
relevant professional and regulatory
requirements, the progress achieved against
the agreed audit plan, and the competencewith which the auditor handles the key accounting
and audit judgements. Following this review
the Committee concluded that the auditor,
KPMG LLP, remained independent and provided
a service that was robust and fit for purpose.
Audit tender
The Committee confirmed in last year’s Annual
Report that it was the Group’s intention to put
the External Audit services contract out to tenderat the end of the five-year rotation of thecurrent audit engagement partner. Although
the transitional rules under the EU legislation
give the Group the option to delay the tender
process until 2022, the Committee remains of
WWW.ADMIRALGROUP.CO.UK

the view that the audit for the year ending
31 December 2016 will be put out to tenderin 2015.
In view of the high quality of service received
by the Group from the current external auditor,
and the above intention to undertake a fulltender of the audit for the 2016 financial year,
the Committee recommends the reappointment
of KPMG for the next financial year. A resolution
for the reappointment of KPMG as auditor will,
therefore, be proposed at the forthcoming AGM.
There are no contractual obligations that restrict
the Group’s choice of external auditor.
Internal Audit
The Group Head of Internal Audit attends all
Audit Committee meetings and provides arange of presentations and papers to theCommittee, through which the Committeemonitors the effectiveness of the Group’s
internal controls. The Committee reviewed
and approved the Group Internal Audit Termsof Reference which set out the role; objectives;
reporting lines and accountability; authority;
independence; and objectivity of the Internal
Audit function. The role and competence ofeach Internal Audit function across the Group
was also assessed and considered by theCommittee. It was agreed that the Group
Head of Internal Audit would have increased
responsibility over the Internal Audit activities
in the Group’s overseas locations.
Members of the Committee also receive
all issued audit reports, enabling them tochallenge the reports’ content and related
recommendations. The Committee approves
the Internal Audit programmes at the start ofeach calendar year whilst the effectivenessand workload of the Internal Audit functions
and the adequacy of available resources aremonitored throughout the year.
In accordance with agreed parameters, theoverseas businesses of ConTe, Admiral Seguros
and Elephant have their own locally based
internal auditors, who report to their respective
CEOs. All reports are evaluated by the Group
Head of Internal Audit to ensure the quality
and effectiveness of the reported findings.
In addition, the UK Internal Audit department
carries out high level governance reviews of
all foreign operations, assessing the internal
control frameworks and system of risk
management. The overseas internal auditors
attend Committee meetings periodically.
Committee effectiveness review
As part of the Committee’s detailed annual review
of its performance and processes, eachCommittee member completed a comprehensive
questionnaire designed to provide objective
assessment of the Committee’s performance,
including its effectiveness in monitoring Internaland External Audit. The Committee discussed
the results of the review and it was concluded
that the Committee and the audit process
were effective; that the Committee had fullaccess to all the information it required; that
the Committee had appropriate Terms ofReference; and that it was adequately
discharging its responsibilities.

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FINANCIAL STATEMENTS

OTHER INFORMATIONREPORT OF THE GROUP RISK COMMITTEEStatement from Jean ParkThe Committee has focused on
developing the Board’s approved risk
strategy and risk appetite.”
Jean Park
Chair of the Group Risk Committee

Dear Shareholder,As you are aware, I took over the Chair of the Group Risk Committee
in April 2014. At a similar time we appointed a new Director of Risk,
James Armstrong, and subsequently we have spent significant timebuilding on the risk management activities undertaken by the Group.
During the year the Committee has focused on developing the Board’s
approved risk strategy and risk appetite to a more granular level. Thishas been developed as part of the Group’s Enterprise Risk Management
Framework (ERMF). A significant amount of time has been dedicatedto Solvency II work. In particular, the GRC signed off the annual Own Risk
and Solvency Assessment (ORSA) report towards the end of the year aswell as approving a number of new policies required as part of the overallsystems of governance.
I look forward to continuing the good work of 2014 this year as we movetowards the implementation of Solvency II.

Jean Park
Chair of the Group Risk Committee
4 March 2015

The Group Risk Committee’s
responsibilities can besummarised as:@@ Agreeing the Group’s risk
management framework, including
the remits of Risk Management
Committees that are establishedwithin each of the Group’s operational
entities and overseeing the risk
management functions.
@@ Monitoring the Group’s prudential
risk exposure, which includes
ensuring that the Group’s capital
resources and liquidity profile areappropriate to its needs whilst
meeting minimum regulatory
requirements, including overseeing
and challenging the design andexecution of the Group’s stress andscenario testing.
@@ Monitoring the Group’s current
and future conduct risk exposure.
@@ Ensuring the adequacy andeffectiveness of the Group’s systems
and controls for the prevention offinancial crime, including preventionof bribery and adequacy of anti-money
laundering and data protection
systems and controls.
@@ Monitoring the adequacy andeffectiveness of the Group’s
Compliance functions.
@@ Reviewing the Group’s progress
towards achieving Solvency II
compliance.
@@ Reviewing compliance with Group
policies, including the established
Reserving Policy and process.
@@ Considering and recommending to
the Board for approval the Group’s
risk appetite, including any changes
to the appetite for each material
type of risk faced by the Group.

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REPORT OF THE GROUP RISK COMMITTEE CONTINUED

Summary of key activities in 2014
During the year the Committee:@@ Reviewed the Group’s updated risk strategy in the context of the Group’s agreed strategic objectives.
@@ Reviewed the Group’s updated risk appetite including an updated suite of Key Risk Indicators (KRIs) with associatedtriggers and limits.
@@ Reviewed the Group’s Enterprise Risk Management Framework in preparation for Solvency II implementation.
@@ Considered the adequacy of risk mitigation measures and contingency plans.
@@ Oversaw the development of customer outcome risks and the aggregation of these risks into tier one categories
that will be used for reporting purposes in 2015. This included the establishment of a Conduct Risk Committee thatmanages the Conduct Risk MI on behalf of the business.
@@ Monitored the Group’s progress towards implementation of Solvency II and plans for compliance with the EIOPA
interim guidelines.
@@ Reviewed the Group’s proposed dividend level in line with the capital policy.
@@ Approved the 2014 ORSA policy.
@@ Recommended to the Board approval of the 2014 ORSA Report prior to submission to the UK and Gibraltar regulators.
@@ Reviewed in-depth analysis of a number of the Group’s most significant risk areas, including insurance risk in the UK
Car Insurance operation.
@@ Monitored KRIs within the overall risk management framework.
@@ Provided quarterly written reports to the Group Board on conduct risk and complaints.
@@ Reviewed its own Terms of Reference.
@@ Approved the Terms of Reference for the Group Asset and Liability Committee (GALCO).
@@ Approved the new Terms of Reference for the UK Risk Management Committee following the creation of the GALCO.
@@ Approved a number of new/revised key risk management policies in preparation for Solvency II.
@@ Received internal presentations on a number of key risk areas including ORSA and capital modelling.
@@ Reviewed the progress and risks associated with the IT project responsible for the implementation of a new policy
administration system and data warehouse.

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FINANCIAL STATEMENTS

Membership
Membership at the end of the year was: Annette Court, Lucy Kellaway, Jean Park (Chair) andDavid Stevens.
The Company Secretary acts as Secretary to the Committee. The Committee met five times
during the year.
Group Risk Committee attendance (5 meetings)

Jean ParkDavid Stevens
Martin Jackson
Lucy Kellaway
John Sussens
Annette Court
ChairmanMemberDid not attend

Duties and responsibilities
The duties and responsibilities of the Committee
are set out in Terms of Reference that wereapproved by the Board in January 2013 andupdated and approved in January 2015. The
responsibilities of the Committee can besummarised on page 53.
The work of the Committee is supported bymore detailed work undertaken by executive
Risk Management Committees in each of theGroup’s operational entities. The membershipof the UK Risk Management Committee includes
the Group Chief Operating Officer, Group
Chief Financial Officer and Group Director of
Risk. Membership of the other UK and overseas
Committees includes the Managing Directorof the operation. At each meeting, the Risk
Management Committees consider significant
movements in the operation’s risk profile, anyrisks that have arisen and any emerging risks.
Risk Management Committees also assess
and monitor any regulatory issues, ensuringthat their resolution and the action taken areappropriately recorded. In the UK, the Risk
Management Committee receives regular
information on Conduct Risk, such as complainthandling reports and other related
management information.
The Committee Chair reports formally to theBoard on its proceedings after each meetingon all matters within its duties and responsibilities,
as set out in previously circulated minutes tothe Board. The Committee Chair also reportson the activities of the Committee in a formal
written report that is submitted to and discussed
by the Board every six months.
Following a review of the Committee
effectiveness in December 2013, the Committee
has overseen development of an Enterprise
Risk Management Framework. The aim of theframework is to improve the understanding ofrisks at a Group level to help evaluate strategic
opportunities and support the preparation for
Solvency II implementation in 2016. The newframework includes an updated Risk Strategy
alongside a refreshed suite of KRIs withassociated triggers and limits. This has also

included the development of the Conduct
Risk MI Framework, with the introductionof a new suite of metrics for monitoring
the key risks in this area. These updates have
improved the effectiveness of the Committee
by enabling greater focus on the main risks
affecting the business.
Internal control and risk management
The Board is ultimately responsible for theGroup’s system of internal control and, throughthe Audit Committee, has reviewed theeffectiveness of these systems. The systems
of internal control over business, operational,
financial, and compliance risks are designed
to manage rather than eliminate the risk offailure to achieve business objectives andcan only provide reasonable and not absoluteassurance against material misstatement or loss.
The Board is of the view that there is an ongoingprocess for identifying, evaluating and managing
the Group’s internal controls; that it has beenin place for the year ended 31 December 2014;
and that, up to the date of approval of theAnnual Report and Accounts, it is regularly
reviewed by the Board and accords with theinternal control guidance for Directors provided
in the Code.
A key element of the control system is that theBoard meets regularly with a formal scheduleof matters reserved to it for decision and has put
in place an organisational structure with clearly
defined lines of responsibility. As describedabove, in order to ensure these responsibilities
are properly discharged, the Board has delegated
the task of supervision of risk management to
the Group Risk Committee (GRC) and of internal
control to the Group Audit Committee.
There are several key elements to the risk
management environment throughout theGroup. These include the setting of risk
management strategy, risk appetite and risk
policy, and the oversight of the activities of theGroup Risk function by the GRC; disseminationof that policy by the Chief Executive; deliveryof the policy by the UK Risk Management
Committee and the Group’s other UK and

ADMIRAL GROUP PLC

OTHER INFORMATION

overseas entities through the applicationof the Group’s systems of internal control andrisk management; and the overall assurance
provided to the Audit Committee by Internal
Audit that the systems operate effectively.
The Board recognises that the day-to-day
responsibility for implementing these policies
must lie with the senior management whose
operational decisions must take into accountrisk and how this can be controlled effectively.
The GRC reports on its activities to the Audit
Committee in support of the overall assurance
provided by the Audit Committee that theGroup’s risk management and compliancesystems operate effectively.
The Group Risk function defines and prescribes
the financial and operational risk assessment
processes for the business; performs secondline reviews, including reserving and capitalmodelling processes; maintains the risk registers;
undertakes regular reviews of these risks inconjunction with line management; delivers
the Own Risk and Solvency Assessment (ORSA);
and records any actual losses or near missesthat occur as a consequence of the realisationof risk. The Director of Risk has responsibility
for ensuring that managers are aware of theirrisk management obligations, providing themwith support and advice, and ensuring thatthe risk management strategy is properly
communicated. Reports are produced showing
the most significant risks identified and thecontrols in place. Internal Audit uses the risk
registers to plan and inform their programmeof audits around the most significant risks to
the Group to ensure that the prescribed controls
are in place and are operating effectively.
The GRC receives reports setting out key
performance and risk indicators and considers
possible control issues brought to its attention
by early warning mechanisms that are embedded
within the operational units. It, together with
the Audit Committee, also receives regular
reports from the relevant Internal Audit functions,which include recommendations for improvementof the control and operational environment.
Twice a year the Chair of the Group Risk
Committee provides a comprehensive written
report to the Board on the Group’s risk appetite,risk strategy and risk management policy
considering the principal assessed exposuresand the effectiveness of the mitigation
strategies adopted.
The Audit Committee reports to the Boardon the appropriateness and effectivenessof the risk management systems and internal
controls (including financial controls). Where
appropriate, the Committee provides ahigh-level challenge to the steps being takenby the GRC to implement the risk management
strategy. The Internal Audit functions undertake
regular reviews of internal control systems
and business processes, identifying control
weaknesses and making recommendations
to management on improvements where
necessary. Internal Audit also reviews theeffectiveness of the Group Risk function.

ANNUAL REPORT AND ACCOUNTS 201455

REPORT OF THE NOMINATION COMMITTEEStatement from Alastair Lyons

The Committee continued the developmentof a clear structured succession plan.”
Alastair Lyons
Chairman of the Nomination Committee

Dear Shareholder,
In accordance with its remit to review regularly the composition andexperience of the Board, the focus and attention of the Committee during theyear was on succession planning. The Committee led the process of Executive
and Non-Executive Board appointments given Kevin Chidwick’s move todevote himself full-time to the role of CEO of Elephant Auto, the Group’s US
insurance business, entailing his stepping down from the role of CFO and frommembership of the Board, and John Sussens and Martin Jackson stepped
down from their Non-Executive roles on the Board during the year after theirallotted nine years. The Committee assessed the appropriateness of Geraint
Jones, the Deputy CFO, to succeed Kevin Chidwick as CFO and carried out arobust and comprehensive Non-Executive recruitment process resulting in theappointment of Penny James. This appointment further enhanced the rangeof skills, breadth of experience and diversity around the Board table.
In the context of several Directors retiring from the Board over the next
two years, the Committee continued the development of a clear structured
succession plan that would ensure appropriate action was taken well aheadof the dates on which individuals would be retiring in order to achieve theirreplacement, if appropriate, with individuals of the appropriate skills,
experience and fit to the Board.
Given that Roger Abravanel will not be seeking re-election at the forthcoming
AGM, the Nomination Committee will consider the appropriate size andcomposition of the Board going forward.

Alastair Lyons
Chairman of the Nomination Committee
4 March 201556

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The Nomination Committee’s
primary responsibilities are to:@@ Lead the process for making
appointments to the Board.
@@ Ensure there is a formal, rigorous
and transparent procedure for theappointment of new Directors to
the Board.
@@ Ensure plans are in place for orderly
succession for appointments to theBoard and for other senior
management positions.

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

Membership
The membership of the Committee at the year
end was Alastair Lyons (Chairman), Colin
Holmes and Lucy Kellaway. The Company
Secretary acts as Secretary to the Committee.
The Committee invites the Chief Executive toattend meetings when it deems appropriate.
The Nomination Committee met formally on
one occasion in 2014 although members of theCommittee corresponded and met informallyon a number of occasions to consider andmeet with individuals that the Committee
had identified as possible candidates to join
the Board.

Appointments
Following this process, the Committee identified
Penny James, who has extensive insurance
experience in particular in her current role as
Director of Group Finance at Prudential plc
since March 2011 and her previous appointments
as Chief Finance Officer of Omega Insurance
Holdings and UK General Insurance CFO
of Zurich Financial Services. Given Penny’s
background, experience and competence,and the external references that were obtained,
the Committee did not consider it either
necessary or appropriate to undertake a fullsearch led by an external recruitment consultancy.

Nomination Committee attendance (1 meeting)

Each Committee member met separately
with Penny and agreed that she would bringinvaluable insurance experience to the Board
given her current role with Prudential plc.
The Board approved the Committee’s
recommendation and following regulatory
approval Penny was formally appointed to
the Board with effect from 1 January 2015.

Alastair Lyons
Lucy Kellaway
Colin Holmes
ChairmanMemberDid not attend

Duties and responsibilities
The Committee leads the process for making
appointments to the Board or where theappointee is likely to become a Board member.
The Committee ensures there is a formal,
rigorous and transparent procedure for theappointment of new Directors to the Board
through a full evaluation of the skills, knowledge
and experience required of Directors. The
Committee also ensures plans are in placefor orderly succession for appointments to
the Board and reviews the succession plansfor other senior management positions.
Responsibility for making senior management
appointments rests with the Chief Executive.
During the year
During 2014, having regard to the length ofservice of some of the existing Board members,
the Board decided to initiate a search for a
new Non-Executive Director to join the Boardand to ensure continuity across the process of
succession that will ensue over the next coupleof years. The Group has in place a policy ofrecruiting well ahead of impending retirements
in order to ensure continuity of knowledge and
Board dynamics.
The Nomination Committee led this process
and assessed the balance of skills, knowledge,
independence, diversity and experience on
the Board. The Committee developed an
appropriate specification for this role identifying
the need for the successful candidate to haveinsurance experience and a technical accounting
qualification, with preferably experience in asenior finance role within the insurance sector.

In August 2014 the Committee recommended
for approval by the Board the appointment of
Geraint Jones as Chief Financial Officer (CFO).
Geraint took over from Kevin Chidwick, who
was handing over his CFO duties to focus on
his role in the US as CEO of the Group’s rapidly
growing Elephant Auto Insurance business.
Despite stepping off the Board, Kevin continues
to be involved in Group matters and to attend
and contribute to all Group Board meetings.
Geraint joined Admiral in 2002 and has sincethen held a number of senior finance positions
including Head of Finance, before being
promoted to Deputy Chief Financial Officer
in January 2012. A Fellow of the Institute ofChartered Accountants in England and Wales,
Geraint has also worked as an external auditor
at Ernst & Young and KPMG. Geraint’s
appointment demonstrates the depth of talentthat exists within Admiral’s senior management
team and his deep understanding of Admiral’sbusiness and culture, coupled with strong
leadership and financial skills, made him thenatural choice to succeed Kevin as CFO.
Detailed information of individual
Directors can be found on
pages 42 to 43
Succession plan
The Board, at its meeting in March 2014,
considered the Group’s current Succession
Plan, which considered the senior roles within
the Group and identified whether there was
emergency short term cover in place in theevent that an individual left the organisation,
and whether there was a permanent replacement
available within the organisation, or whether
the position would need to be filled externally.
It also identified where there were individuals
who, with further experience and guidance,
would be capable of moving into particularsenior management roles.

ADMIRAL GROUP PLC

OTHER INFORMATIONAt this meeting the emerging talent acrossthe Group was discussed in detail with the
Executive team identifying key individuals
within the organisation who had impressedin their current roles and who had thepotential to contribute to the business byworking on projects in other areas of theGroup. Such exposure would also assist
with their development in order that, at theappropriate time, they might be in a position
to succeed to senior management positions.
The Committee remains satisfied thatsuccession plans for Directors and senior
management are in place to ensure thecontinued ability of the Group to implement
its strategy and compete effectively in themarkets in which it operates.
Board diversity
The Group remains strongly supportive of
the principle of boardroom diversity, of which
gender is an important, but not the only, aspect.
What is important is diversity of thought,
experience and approach, and each new
appointment must complement what alreadyexists at the Board table. Accordingly,
appointments will always be made on merit
against objective criteria, including diversity,and not just to achieve an externally prescribed
number. Given five of the twelve current
members of the Group Board are women,
the Group has already met the target set for2015 by Lord Davies in his report: Womenon Boards. The Group remains committed
to providing equal opportunities, eliminating
discrimination and encouraging diversity
amongst its workforce both in the UK andoverseas. A breakdown of the gender ofCompany Directors and senior employees
at the end of the financial year together
with details of the Group’s Equality, Diversity
and Dignity at Work Policy are set out in the
Directors’ Report on pages 73 to 75.
Remuneration Committee
Full details of the membership, responsibilities
and activities of the Remuneration Committee
can be found in the Directors’ Remuneration
Report set out on pages 60 to 72.
Appointments made in the last year

Geraint Jones
Chief Financial
Officer, appointed
in August 2014

Penny James
Non-Executive
Director, appointed
in January 2015

ANNUAL REPORT AND ACCOUNTS 201457

REPORT OF THE REMUNERATION COMMITTEEStatement from Annette Court

A number of changes are proposed to the
DFSS to ensure that senior managers remain
motivated and are appropriately rewarded.”
Annette Court
Chairman of the Remuneration Committee

Dear Shareholder,I am pleased to introduce the Directors’ Remuneration Report (the Report) for the year ended 31 December 2014, which
has been prepared by the Remuneration Committee (the Committee) and approved by the Board. This is the first report
I have prepared in my capacity as new Committee Chairman, a role I assumed on 9 April 2014, replacing John Sussens.
2014 has been another good year for the Admiral Group despite challenging conditions in the cyclical core UK motor
insurance market. Earnings per share in the year were 103.0 pence (2013: 104.6 pence) with a return on equity of 52%(2013: 58%). Total dividends for the financial year (including the proposed final dividend of 49.0 pence per share) will
be 98.4 pence per share, representing 95% of our earnings. The Group’s strategy remains to continue to maximise ourposition in the UK while taking what we know and do well, which is internet and telephone delivery of car insurance andprice comparison, to our overseas businesses.
Two of the three Executive Directors are founding Directors and receive remuneration that comprises salary and modest
benefits only. The Committee continues to hold the view that this is appropriate, as their significant shareholdings provide
a sufficient alignment of their interest with those of other shareholders. In order to provide full transparency of pay arrangementsfor our Executive Directors, this Report includes single figure and comparative data for our CFO as well as for our CEO,as the pay arrangements for the CFO are more reflective of those for (non-founder) executives.
My predecessor, John, advised in his letter last year that one of the Group’s share plans – the DFSS (Discretionary Free Share
Scheme) – is due to expire in 2015, and that the Company would carry out a comprehensive review of the plan in the context
of the Group’s Remuneration Policy in 2014, with any proposed changes put to shareholders for approval at the Group’s
AGM in 2015. The review took into account the changes to the business in both size and geography since the last review
in 2004, shortly after flotation, and recent trends in FTSE incentive design and pay levels particularly in the context of theGroup maintaining base salary levels for most senior management positions at well below the lower quartile of their peergroup in the FTSE 350.
As a result of the review, a number of changes are proposed to the DFSS in order to ensure that senior managers remain
motivated; are appropriately rewarded and that the Group continues to be an attractive employer that talented individuals
want to join, whilst at the same time providing appropriate incentives, and rewards, for the 2,300 employees that participate
in the DFSS across the Group. I am confident that the proposed changes will continue to support the view, held by the
Board, that share ownership drives outstanding performance and promotes the long term success of the business whilst
remaining in alignment with shareholder interests.
The key changes that have been proposed to the DFSS are:@@ Increased maximum DFSS opportunity of £2 million. For awards above £1 million, a maximum of 600% of base salary
applies. We would only expect to utilise the increased maximum award in certain particular circumstances such as therecruitment of a new Executive Director. In this case, we would provide an explanation in our Annual Report on Remuneration.
@@ Introduction of 100% performance related awards to key senior employees where their award exceeds a threshold.
@@ In addition to Earnings per Share (EPS), two additional performance measures in the DFSS: relative Total Shareholder
Return (TSR) and Return on Equity (ROE). The exact measures for each award may vary to reflect strategic priorities.
For the 2015 awards, it is intended that vesting will be linked one third to each of EPS, TSR and ROE.
@@ Introduction of malus and clawback provisions to allow the recovery of both vested and unvested awards, for example,
in the event of gross misconduct or misstatement.

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OTHER INFORMATION

During the early part of 2015, we consulted with our top shareholders on the proposed revisions to the DFSS. Feedback
has been positive and we hope to receive your support for both the revised DFSS and the revised Remuneration Policy
at the upcoming AGM.
In addition to consideration of the proposed DFSS changes set out above, the Committee also considered the following
matters during the year ended 31 December 2014:@@ Reviewing the salary arrangements and fee proposals for the Executive Directors, the Chairman and senior management.
@@ Reviewing the appropriateness of the performance conditions for the Free Share Incentive Plan (SIP) awards.
@@ Reviewing the Group’s two key share plans to ensure both are up to date with current legislation.
@@ Reviewing the maximum limit for shares distributed via the SIP.
@@ Reviewing the Company’s performance against the performance conditions applicable to the DFSS and SIP awards
and where appropriate authorising the vesting of awards.
@@ Reviewing and authorising the grant of awards under both the DFSS and SIP.
@@ Reviewing minimum shareholding requirements for Executive Directors.
@@ Reviewing the Committee’s Terms of Reference and recommending amendments to the Board for approval.

Annette Court
Chairman of the Remuneration Committee
4 March 2015

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ANNUAL REPORT AND ACCOUNTS 2014

59

DIRECTORS’ REMUNERATION REPORT

Directors’ Remuneration Policy

Compliance statement
This Remuneration Report has been preparedaccording to the requirements of the Companies
Act 2006 (the Act), Regulation 11 and Schedule 8of the Large and Medium-Sized Companies andGroups (Accounts and Reports) (Amendment)
Regulations 2013 and other relevant requirementsof the FCA Listing Rules. In addition, the Board
has applied the principles of good corporate
governance set out in the UK Corporate
Governance Code (the Code) and has
considered the guidelines issued by its
leading shareholders and bodies such as
the Association of British Insurers and the
National Association of Pension Funds.
This section of the report sets out the policy
for Executive Directors which shareholders are
asked to approve at the 2015 Annual General
Meeting (AGM). The Committee intends that
this policy will formally come into effect fromthe date of the 2015 AGM.
Remuneration paid to Executive Directors
in 2014 and remuneration arrangements
proposed for 2015 are set out in the Annual
Report on Remuneration.

Key principles of Admiral
remuneration arrangements
The Group is committed to the primary objectiveof maximising shareholder value over timeand ensuring that there is a strong link between
performance and reward. This is reflected in
the Group’s stated Remuneration Policy of
paying competitive, performance-linked andshareholder-aligned remuneration packages
comprising basic salaries coupled withparticipation in performance-based shareschemes to generate competitive total reward
packages for superior performance. The Board
is satisfied that the adoption of this policy
continues to meet the objectives of attracting
and retaining executives of the highest quality
across the Group.
The Committee reviews the framework andremuneration packages of the Executive
Directors and the most senior managers andrecognises the need to ensure that the
Remuneration Policy is firmly linked to theGroup’s strategy, including its risk management
approach. In setting the policy and making
remuneration decisions, the Committee takes
into account pay and conditions elsewhere in
the Group.

The main principles underlying the Remuneration
Policy are:@@ Competitive – the Group aims to combine
salaries with attractive performance-related
incentives which provide the potential forcompetitive total reward packages for theachievement of superior performance.
Base salaries reflect the role, job size andresponsibility together with individual
performance and effectiveness. Prevailingmarket and economic conditions anddevelopments in governance are also
considered, as are general salary levels
throughout the organisation. In considering
total remuneration for the Executive
Directors, the Committee takes into
account remuneration in companies of asimilar size in the Financial Services sector.
@@ Performance-linked – a significant partof the Executive Directors’ (excluding thefounding Directors) and senior managers’
reward remains performance-linked andshareholder-aligned.
@@ Transparent – all aspects of the remuneration
structure are clear to employees andopenly communicated.

Remuneration policy table
This table describes the key components of the remuneration arrangements for Executive Directors for 2015 and beyond.
Purpose and link to strategy

Operation

Opportunity and performance metrics

Base salary
To attract and retain talent by setting basesalaries at levels appropriate for the business.

Salaries are reviewed annually or following asignificant change in responsibilities.

Any salary increases are applied in line withthe outcome of the review.

Salary levels/increases take account of:In respect of existing Executive Directors,
it is anticipated that salary increases will
normally be in line with the increase forthe general employee population over
the term of this policy. More significant
increases may be awarded in certain
circumstances including, but not limited to:where there has been a significant increasein role size or complexity, to apply salary
progression for a newly appointed
Executive Director, or where the Executive
Director’s salary has fallen significantly
behind market.

@@ Scope and responsibility of the position.
@@ Individual performance and effectiveness,and experience of the individual in the role.
@@ Average increase awarded across the Group.

Where increases are awarded in excess ofthat for the general employee population,
the Committee will provide the rationale
in the relevant year’s Annual Report
on Remuneration.

PensionTo provide retirement benefits.

The Group operates a Personal Pension Plan,a Defined Contribution Scheme.
This is available to all employees following
completion of their probationary period.

The Group matches employee contributions
up to a maximum of 6% of base salary subject
to an overall maximum employer contributionof £9,000. Salary is the only element of
remuneration that is pensionable.
Henry Engelhardt has declined to be
included in the plan.

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OTHER INFORMATION

Purpose and link to strategy

Operation

Opportunity and performance metrics

Other benefits
To provide competitive benefits.

Includes (but not limited to):Benefits may vary by role.

@@ Death in service scheme.

None of the existing Executive Directors
received total taxable benefits exceeding
5% of salary (excluding relocation) during
the most recent financial year, and it is not
anticipated that the cost of benefits
provided will exceed this level over theterm of this policy.

@@ Private medical cover.
@@ Permanent health insurance.
@@ Relocation, at the Committee’s discretion.
All benefits are non-pensionable.

The Committee retains the discretion
to approve a higher cost in exceptional
circumstances (e.g. relocation), or incircumstances driven by factors outside
the Company’s control (e.g. material
increases in insurance premiums).

Discretionary Free Share Scheme (DFSS)
To motivate and reward longer term
performance, aid long term retention of key
executive talent, use capital efficiently, growprofits sustainably and further strengthen
the alignment of the interests ofshareholders and staff.

DFSS bonus
To further align incentive structures withshareholder interests through the deliveryof dividend equivalents.

Executive Directors may be granted awards
annually at the discretion of the Committee.
Henry Engelhardt and David Stevens havedeclined to participate given their significant
shareholdings.
Awards are generally made as a specificnumber of shares and vest after a minimumof three years subject to Group performanceand continued employment.

Maximum opportunity: £2 million. For awards
above £1 million a maximum of 600% ofbase salary applies.
Vesting of DFSS awards is subject to theGroup’s performance over a three-year
performance period. The performancemeasures and respective weightings
may vary year-on-year to reflect
strategic priorities.

Awards are subject to clawback and malus,
i.e. forfeiture or reduction of unvested
awards and recovery of vested awards in
exceptional circumstances (such as material
misstatement or gross misconduct).

Details of the measures, weightings andperformance targets used for specific DFSS
grants are included in the Annual Report
on Remuneration.

To incentivise shareholder value creation,in particular in the form of dividends,
management participate in a bonus scheme
which directly links their awards to dividends
paid to shareholders. Bonus is calculated tobe equivalent to dividends that would havebeen payable during the year on all outstanding
DFSS shares awarded but not vested.

Maximum opportunity: sum equal todividends payable during the year onawarded but unvested DFSS shares.

Threshold performance will result in vestingof up to 25% of the maximum award.

No bonus is payable unless dividends arepayable on Admiral shares.

DFSS bonus payments are subject to clawbackin exceptional circumstances (such as material
misstatement or gross misconduct).

Approved Free Share Incentive Plan (SIP)
To encourage share ownership across all
employees using HMRC approved schemes.

Minimum shareholding requirement
To align interests of Executive Directors
with shareholders.

All UK employees participate in the SIP(except Henry Engelhardt and David Stevens,
who have declined to participate). Grants are
made twice a year based on the results ofeach half year and vest after three years
subject to continued employment.

The SIP is an all-employee scheme andExecutive Directors participate on the sameterms as other employees. The acquisition ofshares is therefore not subject to thesatisfaction of a performance target.

Guideline to be met within five years
of appointment.

Two times salary.

Maximum opportunity is in line with
HMRC limits.

The Committee is satisfied that the above Remuneration Policy is in the best interests of shareholders and does not promote excessive risk-taking.
The Committee retains discretion to make non-significant changes to the Remuneration Policy without reverting to shareholders.

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Directors’ Remuneration Policy continued

Notes to the remuneration policy table
Payments from existing awards
Executive Directors are eligible to receive payment from any award made prior to the approval and implementation of the Remuneration Policy.
This includes all outstanding awards under the DFSS, made prior to the approval of the 2015 DFSS, and awards of DFSS shares that vest 50% on
performance and 50% on continued employment made to the new CFO prior to his appointment to the Board.
Selection of performance measures
EPS vs. LIBOR has been selected as a performance measure for awards under both the existing and 2015 DFSS as the Committee feels it is a strong
indicator of both long term shareholder return and the underlying financial performance of the business. It is transparent and visible and provides
good line-of-sight to executives. For awards to be made in 2015, two further measures will be added. The first additional measure is TSR vs. theFTSE 350 (excluding investment companies), selected to reflect value creation for Admiral’s shareholders as compared with the general market.
The second additional measure is ROE, selected as the Committee believes that ROE reinforces the focus on capital efficiency and delivery of strong
returns for our shareholders, thereby further strengthening the alignment of management’s incentives with Admiral’s strategy. The specific performancemeasures and their respective weightings in respect of each DFSS award may vary to reflect the strategic priorities at the time of the award.
Performance targets are set to be stretching and achievable, taking into account the Company’s strategic priorities and the economic environment
in which the Company operates. The financial targets are set taking into account a range of reference points including the Group’s strategic planand broker forecasts for both Admiral and its insurance peers. The Committee believes that the performance targets set are stretching, provide
motivation, and that maximum outcomes are only available for outstanding performance.
Remuneration policy for other employees
The Company’s approach to annual salary reviews is consistent across the Group, with consideration given to the role size, experience required,individual performance and pay levels in comparable companies.
In general, the Remuneration Policy which applies to other senior executives is consistent with that for Executive Directors. Remuneration is typicallylinked to Company and individual performance in a way that reinforces shareholder value creation.
Approximately 2,300 employees from across the Group, as well as the CFO, participate in the DFSS. The Committee recommends for approval by
the Board awards to all participants under the DFSS. For the CFO and around 20 senior managers, all share awards are subject to the performance
conditions detailed in the policy table. For employees at lower organisational levels, awards are split: 50% of the award is subject to the same performance
conditions and the other 50% has no performance conditions attached other than the requirement that the recipient remains an employee of theGroup at the date of vesting. Award sizes vary by organisational level. All holders of DFSS awards receive the DFSS bonus. Overseas employees
receive an equivalent award to the UK SIP awards under the DFSS. These awards have no performance measures attached.
All employees are eligible to participate in the SIP on the same terms.
Remuneration arrangements for founding Directors
Two of the three Executive Directors (Henry Engelhardt and David Stevens) are founding Directors. They and the Committee continue to hold theview that the significant shareholdings held by them provide a sufficient alignment of their interest in the performance of the Group with the interestsof other shareholders. In light of this, their remuneration packages consist only of a below market rate salary and benefits such as private medical
cover, permanent health insurance and death in service cover. During the year David Stevens joined the Group’s Personal Pension Plan and from
October 2014 the Group matched his contributions under the Plan. The Group does not contribute to any pension arrangements on behalf ofHenry Engelhardt. Henry Engelhardt and David Stevens have not participated, nor is it intended that they participate, in any Group share schemes.
Service contracts and leaver/change of control provisions
The Company’s policy is to limit termination payments on termination to pre-established contractual arrangements. In the event that the employmentof an Executive Director is terminated, any compensation payable will be determined in accordance with the terms of the service contract between
the Company and the employee, as well as the rules of any incentive plans. Under normal circumstances, Executive Directors are entitled to receive
termination payments in lieu of notice based on base salary and compensation for loss of benefits. The Company has the ability to pay such sums
in instalments, requiring the Executive Director to mitigate loss over the relevant period. The notice period for all Executive Directors is one year.
There is no provision in the Executive Directors’ contracts for compensation to be payable on early termination of their contract over and above
the notice period element. Executive Director service contracts are available to view at the Company’s registered office.
Executive Director

Date of appointment

Henry Engelhardt

22 October 1999

David Stevens

22 October 1999

Geraint Jones

13 August 2014

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OTHER INFORMATION

When considering termination payments, the Committee reviews all potential incentive outcomes to ensure they are fair to both shareholders andparticipants. The table below summarises how the awards under the DFSS and DFSS bonus scheme are typically treated in specific circumstances,with the final treatment remaining subject to the Committee’s discretion:
Plan

Scenario

Timing of vesting

Treatment of awards

DFSS

Resignation

Awards lapse

n/aDeath, injury or disability, redundancy, retirement or
any other reasons the Committee may determine

Normal vesting date

Any outstanding award will be pro-rated for timeand performance.

Change of control

Immediately

Any outstanding award will be pro-rated for time andextent to which the Committee determines that theperformance conditions have been met or are likely
to be met at the point of change of control.

Resignation

n/a

n/a

Death, injury or disability, redundancy, retirement or
any other reasons the Committee may determine

n/a

Not payable after the event.

Change of control

n/a

Not payable after the event.

DFSS bonus

Non-Executive Directors
The Company has entered into letters of appointment with its Non-Executive Directors (NEDs). Summary details of terms and notice periods areincluded below.
NED

Term

Commencement date

Notice period

Alastair Lyons

3 years

1 July 2013

Three months

Roger Abravanel

3 years

6 March 2012

One month

Manfred Aldag

Indefinite

n/a

One month – automatically terminates should
he cease employment with Munich Re

Annette Court

3 years

21 March 2015

One monthColin Holmes

3 years

3 December 2013

One month

Penny James

3 years

1 January 2015

One month

Margaret Johnson

3 years

4 September 2012

One month

Lucy Kellaway

3 years

4 September 2012

One month

Jean Park

3 years

17 January 2014

One month

The NEDs are not eligible to participate in the DFSS or DFSS bonus scheme and do not receive any pension contributions.
Details of the policy on NED fees are set out in the table below:
Purpose and link to strategy

Operation

Opportunity and performance metrics

To attract and retain NEDs of the Fees are reviewed annually.
highest calibre with experience
The Group Chairman fee is determined by therelevant to the Company
Committee after consultation with the Executive
Directors. The NED fees are determined by
the Group Chairman together with the
Executive Directors.
Additional fees are payable for acting as Senior
Independent Director or as Chair or memberof a Board Committee as appropriate, and may bepayable as appropriate in relation to other additional
responsibilities (e.g. attending meetings overseas).

Any fee increases are applied in line with theoutcome of the review.
The current Group Chairman, as with the founding
Directors, holds a significant shareholding in theGroup and this is reflected in the size of his fee,
which is materially below that of Chairs oforganisations of similar size and complexity.

Fee levels are reviewed by reference to timecommitment and responsibility.
Fees are currently paid entirely in cash, but the Board
retains discretion to part-pay fees in Company shares.

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DIRECTORS’ REMUNERATION REPORT CONTINUED

Directors’ Remuneration Policy continued

Pay-for-performance: scenario analysis
The following charts provide an estimate of the potential future reward opportunities for the Executive Directors, and the potential split between
the different elements of pay under three different performance scenarios: ‘Minimum’, ‘On-target’ and ‘Maximum’. As described on page 61,
Admiral’s DFSS bonus is directly aligned with dividends received by shareholders. As such, there is no ‘threshold’ or ‘target’ performance definedfor this element of pay. The figures shown in the chart below for the CFO’s DFSS bonus include the value of the actual DFSS bonus paid in 2014.
Under all scenarios, potential reward opportunities are based on expected awards for 2015 (in accordance with Admiral’s Remuneration Policy),
applied to salaries as at 31 December 2014. The ‘On-target’ column includes a 20% vesting for DFSS awards which would occur for achieving
threshold performance targets.
Chief Executive Officer

Chief Financial Officer

Chief Operating Officer£1,497k

80%£537k£381k £381k £381k

14%
Maximum

100% 100% 100%

Key
Maximum

6%39%

On-target

16%

71%

On-target

45%

Minimum

Maximum

On-target

Minimum

100% 100% 100%

£297k
29%

Minimum£393k £393k £393k

Salary, pension and benefits	Single-year variable (DFSS bonus)
Multi-year variable (DFSS)The charts above exclude the effect of any Company share price movement. For this reason, were the CFO’s DFSS shares to vest in full, his actual
total remuneration may exceed the £ value shown in the chart above.
Component

Minimum

On-target

Maximum

Base salary

Annual base salary for 2015

Pension£9,000 annual contribution for CFO and COO; no contribution for CEO

Benefits

Taxable value of annual benefits provided

DFSS

0% vesting

DFSS bonus

20% average vesting

100% vesting

Based on DFSS bonus paid in 2014

Approach to remuneration relating to new appointments
External appointments
In the case of appointing a new Executive Director, the Committee may make use of any of the existing components of remuneration, as follows:
Component

Approach

Base salary

The base salary will be determined by the Committee with reference
to the scope and responsibility of the position as well as internal
relativities and their current remuneration.

Maximum annual grant value

PensionNew appointees will be eligible to participate in the Personal Pension
Plan with Group contributions in line with the existing policy.

Benefits

New appointees will be eligible to receive benefits which may include(but are not limited to) death in service scheme, private medical cover,and permanent health insurance.

SIP

New appointees will be eligible to participate in the SIP.

DFSS

New appointees will be granted awards under the DFSS on the sameterms as other Executives, as described in the policy table.

DFSS bonus

New appointees will be granted awards under the DFSS bonus schemeon the same terms as other Executives, as described in the policy table.

£2 million. Awards over £1 million are subject to a
maximum of 600% of base salary.
Linked to Admiral dividend.

The Committee may also make an award in respect of a new appointment to ‘buy out’ incentive arrangements forfeited on leaving a previous employer.
In doing so, the Committee will consider relevant factors including any performance conditions attached to these awards and the likelihood of
those conditions being met to ensure that the value of the buy-outs are no greater than the fair value of the awards they replace. The Committee
may also avail itself of Listing Rule 9.4.2 R if appropriate in respect of buy-out incentive arrangements.

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OTHER INFORMATIONInternal appointments
Remuneration for new Executive Directors appointed by way of internal promotion will similarly be determined in line with the policy for external
appointees, as detailed on page 64. Where an individual has contractual commitments made prior to their promotion to the Board, the Company
will continue to honour these arrangements. Incentive opportunities for below Board employees are typically no higher than for Executive Directors,
but measures may vary if necessary.
NED recruitment
In recruiting a new Non-Executive Director, the Committee will use the policy as set out in the table on page 63. A base fee would be payable for Board
membership, with additional fees payable for acting as Senior Independent Director or as Chair or member of a Board Committee as appropriate.
Other directorships
Executive Directors are permitted to, although none currently do, accept appointments as Non-Executive Directors of companies with prior approvalof the Group Chairman. Approval will only be given where the appointment does not present a conflict of interest with the Group’s activities andthe wider exposure gained will be beneficial to the development of the individual.
Considerations of conditions elsewhere in the GroupThe Committee considers the pay and employment conditions elsewhere in the Group when determining remuneration for Executive Directors. Whilst
the Committee does not currently consult specifically with employees on the Executive Remuneration Policy, it consults with and receives updates
on employee pay arrangements from the Head of People Services and takes this into consideration when reviewing Executive remuneration.
Considerations of shareholder views
When determining remuneration, the Committee takes into account best practice guidelines issued by institutional shareholder bodies. The Committee
is open to feedback from shareholders on Remuneration Policy and will continue to monitor trends and developments in corporate governanceand market practice to ensure the structure of the Executive remuneration remains appropriate.
Further detail on the votes received on the Directors’ Remuneration Policy and Annual Report on Remuneration are provided in the Annual Report
on Remuneration.

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Annual Report on Remuneration

This section of the report provides details of how Admiral’s Remuneration Policy was implemented in 2014 and the remuneration arrangements
proposed for 2015.
Remuneration Committee membership in 2014
The Board sets the Group’s Remuneration Policy and, through the authority delegated to it by the Board, the Committee is responsible for making
recommendations to the Board on the structure and implementation of the Remuneration Policy across the Group with consideration to the prevailing
economic climate within the economies in which the Group operates. Its remit includes recommending the remuneration of the Group Board Chairman,
the Executive Directors and the Company Secretary; reviewing the remuneration of senior management; and reviewing the composition of andawards made under the performance-related incentive schemes.
At the end of 2014 the Committee consisted of Margaret Johnson, Roger Abravanel and Jean Park under the Chairmanship of Annette Court.
The Committee met eight times during the year.
The Group Chairman and CEO are invited to meetings where the Committee considers it appropriate to obtain their advice on Group strategy andperformance and Senior Executive pay strategy. The members of the Committee do not have any personal financial interests (other than shareholdings), or
any conflicts, that relate to the business of the Committee. The Committee members do not have any day-to-day involvement in the running of the Group.
Advisor to the Committee
During the year, in order to enable the Committee to reach informed decisions on Executive remuneration, advice on market data and trends was
obtained from independent consultants, Kepler Associates. Kepler reports directly to the Committee Chair and is a signatory to the Code of Conduct
for Remuneration Consultants (which can be found at www.remunerationconsultantsgroup.com). Kepler does not provide any other services to theGroup. The fees paid to Kepler in respect of work carried out in 2014 (based on time and materials) totalled £4,135, excluding expenses and VAT.
The Committee undertakes due diligence periodically to ensure that Kepler remains independent of the Company and that the advice provided
is impartial and objective. The Committee is satisfied that the advice provided by Kepler is independent.
In addition, PricewaterhouseCoopers LLP (PwC) provided the Committee with advice on the structure of the Group’s share schemes. The fees paid
to PwC for work during 2014 totalled £8,200, excluding expenses and VAT. The Company Secretary also circulates market survey results as appropriate.
Summary of shareholder voting at the 2014 AGM
The table below shows the results of the binding and advisory votes on the Directors’ Remuneration Policy and Annual Report on Remunerationof the 2014 Directors’ Remuneration Report, respectively, at the 2014 AGM.
Directors’ Remuneration Policy

Total number of votes

For

AgainstTotal votes cast

Abstentions

202,909,688

3,045,740

205,955,428

2,548,073

208,420,224

82,528% of votes cast
Annual Report on Remuneration

Total number of votes

98.5%

1.5%

207,649,080

771,144

99.6%

0.4%

% of votes cast

1.2%
0.0%

Total single figure of remuneration for Executive Directors (audited)
The table below sets out the total single figure remuneration received by each Executive Director for the year ended 31 December 2014 and the prior year.
1. Base salary

2. Benefits

3. Pension

4. SIP

5. DFSS

6. DFSS bonus

7. OtherTotal
remuneration

2014£392,870

£390

n/a

n/a

n/a

n/a

n/a

£393,2602013£387,147

£399

n/a

n/a

n/a

n/a

n/a

£387,546

2014£60,263£150£3,470£3,000£171,228£87,250n/a£325,361

2013

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

2014

£371,340

£390

£900

n/a

n/a

n/a

n/a

£372,630

2013£364,130

£399

n/a

n/a

n/a

n/a

n/a

£364,529

2014£280,126£240£5,523£3,000£459,598£176,525£177,104£1,102,116

2013£443,289£399£9,000£3,000£675,075£148,680£165,000£1,444,443

Executive Director

Henry Engelhardt
Geraint Jones8
David Stevens
Kevin Chidwick9

The figures have been calculated as follows:
1. Base salary/fee: amount earned for the year.
2. Benefits: the taxable value of annual benefits received in the year.
3. Pension: the value of the Company’s contribution during the year.
4. SIP: the face value at grant.
5.	DFSS: the value at vesting of shares vesting on performance over the three-year periods ending 31 December 2014 and 31 December 2013. For the 2014
calculations, given that vesting occurs in October 2015, after the Directors’ Remuneration Report is finalised, the figures are based on the average share pricein the last three months of 2014 (£12.62). The 2013 calculations have been based on the actual share price on vest (£13.50).
6.	DFSS bonus: the value at grant of bonus equivalent to dividends that would have been payable during the year on all outstanding DFSS shares awarded but
not yet vested.
7.	Kevin Chidwick was paid £177,104 in 2014 (2013: £165,000) to reimburse him for expenses incurred in relation to his being based in the US after taking on CEO
responsibility for the Group’s US insurer Elephant Auto.
8.	Geraint Jones was appointed to the Board as CFO on 13 August 2014. His 2014 remuneration includes salary, pension and benefits in respect of his service as
CFO, his full year DFSS and his full year DFSS bonus.
9.	Kevin Chidwick left the Board on 13 August 2014 to focus on his new role as CEO of Elephant Auto. His 2014 remuneration includes salary, pension andbenefits in respect of his service as CFO, his full year DFSS and his full year DFSS bonus.

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Total single figure of remuneration for Non-Executive Directors (audited)
The table below sets out the total single figure remuneration received by each NED for the year ended 31 December 2014 and the prior year.
Total fees
2014

2013

Alastair Lyons£228,228£228,228

Roger Abravanel£55,000£50,000

Manfred Aldag£6,000£6,000Annette Court£86,383£74,000

Colin Holmes£80,295£70,000

Margaret Johnson£67,000£62,000

Lucy Kellaway£63,809£50,000

Jean Park*1£82,103—

Martin Jackson*2£20,769£70,000

John Sussens*2£21,323£72,000

Director Jean Park was appointed to the Board on 17 January 2014. Her total single figure remuneration for 2014 includes amounts relating to the month immediately
prior to her appointment to the Board when she prepared for and attended, as an observer, a Group Risk Committee meeting and Group Board meeting*1*2

Martin Jackson and John Sussens retired from the Board with effect from 9 April 2014

Incentive outcomes for financial year to 31 December 2014
DFSS awards vesting on performance to 31 December 2014
Awards were made under the DFSS to Kevin Chidwick and Geraint Jones on 11 October 2012. Vesting is dependent on the Company’s EPS
performance in excess of a risk-free return, defined as average three-month LIBOR, over a three-year period commencing on 1 January 2012.
10% of shares vest for matching LIBOR, full vesting occurs for outperforming LIBOR by 10% p.a., with straight-line vesting in between. No vesting
occurs for EPS growth below LIBOR. The table below details the Company’s EPS performance against targets and vesting outcomes over the
performance period ending on 31 December 2014.
Performance period

1 Jan 2012 – 31 Dec 2014
*1

Executive Director

Interest held

Geraint Jones*3

16,000Kevin Chidwick

52,250Admiral EPS
index

LIBOR
index

Outperformance*1

126 points 102 points

24 points% vestingInterest
vesting

Vestingdate

Estimatedvalue*2

85%

13,568

11 Oct 2015

£171,22870%

36,418

11 Oct 2015

£459,598

36 points are required for 100% vesting*2

Calculated based on the average share price in the last three months of 2014 (£12.62)*3

Only 50% of Geraint Jones’ 2012 DFSS award was subject to performance, as the award was made prior to his appointment to the Board

DFSS bonus in respect of 2014
The Group paid a bonus to all holders of DFSS shares in 2014, which was equivalent to the dividend payable on all outstanding DFSS sharesawarded but not yet vested. The Committee continues to feel that having a Group-wide bonus equivalent to the dividend flow received byinvestors further aligns the incentive structure with shareholders.
In 2014, Kevin Chidwick and Geraint Jones received DFSS bonuses of £176,525 and £87,250, respectively (2013 – Kevin Chidwick: £148,680).
Scheme interests awarded in 2014
DFSS
In September 2014, Kevin Chidwick was granted an award under the DFSS of 35,000 shares with a value at the date of award of £429,520.
Following his appointment as CFO, in September 2014 Geraint Jones was granted an award of 35,000 shares with a value at the date of awardof £429,520. The three-year period over which performance will be measured will be 1 January 2014 to 31 December 2016. The award is eligible
to vest in its entirety on the third anniversary of the date of grant (i.e. October 2016), subject to performance and to continued employment.
Henry Engelhardt and David Stevens again declined to be included given their significant shareholdings.
Geraint Jones was also granted an award in April 2014 of 20,000 shares with a value at date of award of £274,800. As this award was made prior
to his appointment to the Board, only 50% of this award is subject to performance.

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DIRECTORS’ REMUNERATION REPORT CONTINUED

Annual Report on Remuneration continued

Scheme interests awarded in 2014 continued
DFSS continued
Awards made up to and including 2014 vest based on EPS growth vs. LIBOR, as outlined on page 61.
Type of award

Discretionary Free Share Scheme

Face value of awards granted in 2014

CEO: n/a
CFO (Geraint Jones): 20,000 shares on 15 April 2014 with a value at the date of award of £274,800(based on share price of £13.74) (50% of the award is subject to performance); and 35,000 shareson 22 September 2014 with a value at the date of award of £429,520 (based on share price of£12.272) (100% of the award is subject to performance).
COO: n/aPrevious CFO (Kevin Chidwick): 35,000 shares on 22 September 2014 with a value at the dateof award of £429,520 (based on share price of £12.272)

Performance period

3 years from 1 January 2014

Performance conditions

Growth in EPS vs. LIBOR

Threshold (10% vests)

Growth in line with LIBOR over 3 years

Maximum (100% vests)

Growth of 10% p.a. in excess of LIBOR over 3 years

SIP
In March and September 2014, Kevin Chidwick and Geraint Jones were granted awards under the SIP of 100 shares in March 2014, with a face valueof £1,506, and 114 shares in September 2014, with a face value of £1,489. The shares will vest on 14 March and 5 September 2017 respectively
subject to continued employment only. Henry Engelhardt and David Stevens again declined to be included given their significant shareholdings.
Exit payments and payments to past Directors
No payments were made during the year. Unvested DFSS shares awarded to Kevin Chidwick during the period he was CFO remain subject to100% performance.
Implementation of remuneration policy for 2015
Executive Directors
Salary, pension and benefits
Remuneration for the Executive Directors in 2015 will be determined in line with the latest policy. The Committee approved the following basesalaries for the Executive Directors in 2014:
Director

Latest salary2014 salary% change

Effective date

Henry Engelhardt£392,870£392,870—

1 July 2014

Geraint Jones£200,000£156,000

28%

1 January 2015

David Stevens£371,340£371,340—

1 September 2014

Geraint Jones was appointed to the Board on a relatively low salary and the Committee expects to make salary increases that are above general
inflation in the next few years to reflect his demonstrated development in the CFO role and the performance of the business. The Committee will
determine the levels of future increases taking into account both his individual and Company performance, and with reference to market pay levels.
Geraint’s current salary of £200,000 is significantly below the median level for companies of a similar size.
Geraint Jones will continue to participate in the Group Personal Pension Plan, where employee contributions are matched up to a maximum
6% of base salary with maximum employer contribution of £9,000. David Stevens will also continue to participate in the plan, on the same basis
as in 2014. As in previous years, Henry Engelhardt has declined to be included in the plan for 2014. All Executive Directors will continue to receive
benefits in line with the policy.
DFSS
The Company held a comprehensive review of the DFSS in 2014, taking into account the changes to the business in both size and geography since
the last review in 2004, and recent trends in FTSE incentive design and pay levels. As a result of the review, a number of changes to the DFSS havebeen proposed in order to ensure that senior managers remain motivated; are appropriately rewarded; and that the Group continues to be an
attractive employer that talented individuals want to join whilst at the same time providing appropriate incentives, and rewards, for the 2,300
employees that participate in the DFSS across the Group.
The key changes that have been made to the DFSS include:@@ Increased maximum DFSS opportunity of £2 million. Awards above £1 million are subject to a 600% of salary limit.
@@ Inclusion of 100% performance related awards for approximately 20 of the Group’s most senior managers.
@@ Two additional performance measures in the DFSS: relative TSR and ROE.
@@ Introduction of malus and clawback provisions.

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ANNUAL REPORT AND ACCOUNTS 2014

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INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

In advance of each DFSS cycle, the Committee reviews the appropriateness of the performance measures and corresponding targets. Vesting of
the 2015 award will be linked to three-year EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), and ROE, weighted equally.
The Committee intends to make DFSS awards in September 2015 and indicative targets are shown in the table below.
Performance range
Performance measure

EPS growth vs. LIBORTSR vs. FTSE 350(excluding investment companies)

ThresholdMaximum

Vesting

Growth in linewith LIBOR

Growth of 10% p.a.
in excess of LIBOR

10% for reaching threshold with straight line
relationship to 100% at maximum performance.

MedianTop quartile

25% for median, with straight line
relationship to 100% for top quartile.

25%

55%

25% for reaching threshold with straight line
relationship to 100% at maximum performance.

ROE

The Committee will determine the precise targets closer to the time of making the awards, later in the year, and will disclose them in the 2015
Annual Report on Remuneration.
Chairman and Non-Executive Directors
The fee payable to the Chairman of the Board is £232,793 p.a. with effect from 1 January 2015. The basic fee payable to each NED is £55,000 p.a.
The fees payable for chairing the Audit, Group, Risk, Remuneration and Nomination Committees are £20,000, £20,000, £10,000 and £5,000 p.a.,respectively. The additional fee paid for being Senior Independent Director is £10,000 p.a. The fees payable for membership of the Audit andGroup Risk Committees are £12,000 p.a. each.
Percentage change in CEO remuneration
The table below shows the percentage change in CEO remuneration from 2013 compared to the average percentage change in remuneration
for all other employees. The analysis is based on a consistent set of employees, i.e. the same individuals appear in the 2013 and 2014 populations.
As the CEO does not participate in the DFSS bonus scheme, to provide a meaningful comparison, we have also included data for the CFO.
CEOSalaryTaxable benefits
DFSS bonus*3
Total
*1

CFO

2014

2013

% change£392,870£387,147

1%

£390

£399

-2%

2014

Other employees
2013% change£340,389*1£443,289-23%% change3%£177,494*2£165,399

7%

-2%

—

—

—

£263,775*4£148,680

77%-1%£393,260£387,546

1%£781,658£757,368

3%

3%

Based on the sum of remuneration paid to Kevin Chidwick up to and including 13 August 2014 and to Geraint Jones from 13 August 2014

*2

In January 2014 Kevin Chidwick was provided with a cash reimbursement of 177,104 in relation to expenses incurred in his relocation to the US*3

DFSS bonus change represents the change in dividends paid, which is the driver of the level of bonus payable to holders of unvested DFSS shares*4

CFO DFSS bonus includes full DFSS bonus paid to both Geraint Jones (£87,250) and Kevin Chidwick (£176,525) during the year

Relative importance of spend on pay
The table below shows the percentage change in dividends and total employee remuneration spend from the financial year ended 31 December 2013
to the financial year ended 31 December 2014.
2014
£m

2013
£m

Distribution to shareholders

271

271

—

Employee remuneration

209

205

2%

%
changeThe Directors are proposing a final dividend for the year ended 31 December 2014 of 49.0 pence per share bringing the total dividend for 2014
to 98.4 pence per share (2013: 99.5 pence per share).

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2014

69

DIRECTORS’ REMUNERATION REPORT CONTINUED

Annual Report on Remuneration continued

Pay for performance
The following graph sets out a comparison of Total Shareholder Return (TSR) for Admiral Group plc shares with that of the FTSE 100 Index, ofwhich the Company is a constituent, over the six-year period to 31 December 2014. The Directors consider this to be the most appropriate index
against which the Company should be compared. TSR is defined as the percentage change over the period, assuming reinvestment of income.
Historical TSR performance
Growth in the value of a hypothetical £100 holding over the six years to 31 December 2014

Value of £100 invested at 31 December 2008

220
200
180
160
140
120
100
80
60

Admiral40

FTSE100
Source: Thomson Reuters Datastream

20
031/12/08

31/12/09

31/12/10

31/12/11

31/12/12

31/12/13

31/12/14

2009

2010

2011

2012

2013

2014

£328,027£343,106£358,199£373,759£387,546£393,260

DFSS vesting outcome (% of maximum)

n/a

n/a

n/a

n/a

n/a

n/a

CFO

2009

2010

2011

2012

2013

2014

Kevin Chidwick

Kevin Chidwick

Kevin Chidwick

Kevin Chidwick

Kevin Chidwick£632,312£1,269,535£1,048,130£1,431,218£1,444,443

98%

100%

100%

100%

100%

CEO

CEO single figure of remuneration

Incumbent

CFO single figure of remuneration
DFSS vesting outcome (% of maximum)
*1

2014

Kevin Chidwick*1

Geraint Jones£1,102,116£325,361

70%

85%

*1

These figures include reimbursement of £177,104 and £165,000 in 2014 and 2013, respectively, for expenses incurred in respect of the previous CFO’s relocation

Annual bonus outcome has been excluded as Admiral does not operate any performance-based annual bonus schemes.
Dilution
The Company has controls in place to ensure that shares awarded under the schemes operated by the Company within any rolling ten-year period
do not exceed 10% of the number of ordinary shares in the capital of the Company in issue at the time of each award.

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ANNUAL REPORT AND ACCOUNTS 2014

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INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

Total shareholdings of Directors (audited)
Executive Directors have agreed to (acquire and) retain a beneficial shareholding equal to at least 200% of base salary, which can be built up overa period of five years from the date of appointment.
As at 31 December 2014, the Directors have the following shareholdings:
Shares held
Beneficiallyownedoutright

Director

Henry Engelhardt

Subject toperformance
conditions

Shareholding
requirement(% of salary)

Current
shareholding(% of salary/fee)

Requirementmet?

34,005,472

n/a

200%

>200%

Yes

Geraint Jones*1

42,741*3

87,000*4

200%

>200%

Yes

David Stevens

9,881,950

n/a

200%

>200%

Yes

Kevin Chidwick

98,458*2*3

Alastair Lyons
Roger Abravanel—

Manfred Aldag

1,919

Annette Court—

Colin Holmes

40,000Margaret Johnson—

Lucy Kellaway—

Jean Park*5—*1

139,500

312,152

Geraint Jones was appointed to the Board on 13 August 2014*2

Kevin Chidwick left the Board on 13 August 2014*3

Total includes SIP shares both matured and awarded*4

Total includes 26,000 unvested DFSS shares, awarded to Geraint Jones before he was appointed CFO, that are not subject to performance conditions*5

Jean Park was appointed to the Board on 17 January 2014

There have been no changes to Directors’ shareholdings since 31 December 2014.
None of the Directors had an interest in the shares of any subsidiary undertaking of the Company or in any significant contracts of the Group.
Current Chief Financial Officer Geraint Jones’ interests in shares under the DFSS and SIP (audited)Type

At startof yearAwardedduring year

Vested/matured
during year

At endof yearPrice ataward(£)

Value ataward date(£)

Value at31/12/14
or maturity(£)

Date of
award

Final
vesting/maturity
date

DFSS

16,000—16,000—£16.39£262,240£216,024*1

15/04/2011

15/04/2014

DFSS

16,000——16,000£10.73£171,680£211,680

11/10/2012

11/10/2015

DFSS

16,000——16,000£12.09£193,440£211,680

10/10/2013

10/10/2016

DFSS

—

20,000—20,000£13.74£274,800£264,600

15/04/2014

15/04/2017

DFSS

—

35,000—35,000£12.27£429,520£463,050

22/09/2014

22/09/2017

SIP

90

—

90

—

£16.78£1,510£1,350*1

08/03/2011

08/03/2014

SIP

110

—

110

—

£13.52£1,487£1,418*1

05/09/2011

05/09/2014

SIP

128

—

—

128

£11.80£1,510£1,693

16/03/2012

16/03/2015

SIP

126

—

—

126

£11.82£1,489£1,66703/09/2012

03/09/2015

SIP

112

—

—

112

£13.48£1,510£1,482

15/03/2013

15/03/2016

SIP

116

—

—

116

£12.83£1,488£1,53502/09/2013

02/09/2016

SIP

—

100

—

100

£15.06£1,506£1,323

14/03/2014

14/03/2017

SIP

—

114

—

114

£13.06£1,489£1,50805/09/2014

05/09/2017*1

Value at maturity

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2014

71

DIRECTORS’ REMUNERATION REPORT CONTINUED

Annual Report on Remuneration continued

Former Chief Financial Officer Kevin Chidwick’s interests in shares under the DFSS and SIP (audited)
Value ataward date(£)

Value at31/12/14
or maturity(£)

Date of
award

Final
vesting/maturity
date

Type

At startof yearAwardedduring year

Vested/matured
during year

At endof yearPrice at
award
(£)

DFSS

50,000—50,000—£16.39£819,500£675,075*1

15/04/2011

15/04/2014

DFSS

52,250——52,250£10.73£560,643£691,268

11/10/2012

11/10/2015

DFSS

52,250——52,250£12.09£631,703£691,268

10/10/2013

10/10/2016

DFSS

—

35,000—35,000£12.27£429,520£463,050

22/09/2014

22/09/2017

SIP

90

—

90

—

£16.78£1,510£1,350*1

08/03/2011

08/03/2014

SIP

110

—

110

—

£13.52£1,487£1,418*1

05/09/2011

05/09/2014

SIP

128

—

—

128

£11.80£1,510£1,693

16/03/2012

16/03/2015

SIP

126

—

—

126

£11.82£1,489£1,66703/09/2012

03/09/2015

SIP

112

—

—

112

£13.48£1,510£1,482

15/03/2013

15/03/2016

SIP

116

—

—

116

£12.83£1,488£1,53502/09/2013

02/09/2016

SIP

—

100

—

100

£15.06£1,506£1,323

14/03/2014

14/03/2017

SIP

—

114

—

114

£13.06£1,489£1,50805/09/2014

05/09/2017*1

Value at maturity

The closing price of Admiral shares on 31 December 2014 was £13.23 per share. Performance conditions for DFSS awards made in 2012 and 2013
are the same as those for awards made in 2014, as detailed in the Remuneration Policy table.
By Order of the Board,

Annette Court
Chairman of the Remuneration Committee
4 March 201572

ANNUAL REPORT AND ACCOUNTS 2014

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INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATIONDIRECTORS’ REPORTThe Directors present their Annual Report andthe audited financial statements for the year
ended 31 December 2014.
Statutory disclosures
Group results and dividends
The profit for the year, after tax but before
dividends, amounted to £281.6 million(2013: £286.9 million).
The Directors declared and paid dividends of£273.5 million during 2014 (2013: £255.8 million)– refer to note 11b for further details.
The Directors have proposed a final dividendof £136 million (49.0 pence per share) payable
on 29 May 2015.

Gender diversity
The table below provides a breakdown of thegender of Company Directors and employees
at the end of the financial year:
Male

Company Directors

Other senior managers*2
All employees

The Group’s principles of respect for humanrights, diversity, health and safety and workplace
ethical standards not only apply to staff directly
employed by Admiral, but also to staff employedby the Group’s outsourced partner in Bangalore,
India. To meet this commitment, Admiral Group
maintains regular contact with its outsourcer’s
management team and the Group’s senior
managers visit the outsourcer on a regular basis,
whilst the Group also provides training anddevelopment to ensure that the team upholdthese principles. In addition, Admiral Group
has appointed a manager based permanently
at the outsourced operation, who is responsible
for ensuring that the Group’s principles areadhered to by the outsourced partner, and thatthe wellbeing of outsourced staff is monitored.

Female

7

4

22

12

3,598

3,601

 Company Directors consists of the Boardof Directors, as detailed on pages 42 to 43,
excluding Penny James who was appointed
to the Board on 1 January 2015*1

 Other senior managers is as defined in the
Companies Act 2006 (Strategic Report andDirectors’ Report) and includes persons
responsible for planning, directing or controllingthe activities of the Company, or a strategicallysignificant part of the Company, other thanCompany Directors. Any other Directors ofundertakings included in the consolidated
accounts that are not considered strategicallysignificant have not been included*2

Employee policies
Detailed information on the Group’s employment
practices is set out in the Strategic Report andon the corporate website. The Group purchases
appropriate liability insurance for all staff
and Directors.
Diversity, ethics and human rights
Admiral Group respects and values theindividuality and diversity of every employee.
The Group’s Equality, Diversity and Dignity at
Work policy ensures that every employee istreated equally and fairly and that all employees
are aware of their obligations. The Group is
fully committed to the health and safety andthe human rights of its employees regardlessof their background. In addition, the Group
maintains a number of employee codes ofconduct regarding appropriate ethicalstandards in the workplace.

*1

Contractual arrangements
The Group considers its co-insurance andreinsurance contracts, as described in theStrategic Report section on page 25 to be
essential to the running of the Group’sbusiness. No other contractual arrangements
are considered to be essential.
Financial instruments
The objectives and policies for managing
risks in relation to financial instruments heldby the Group are set out in note 6 to thefinancial statements.
Directors and their interests
The present Directors of the Company are shownon pages 42 to 43 of this Report, whilst Directors’interests in the share capital of the Company
are set out in the Remuneration Report on
page 71.

The data has been prepared with reference tothe WRI/WBCSD Greenhouse Gas Protocol:
A Corporate Accounting and ReportingStandard (Revised Edition) and in accordancewith the guidance for corporate reporting
issued by the Department for Environment,
Food and Rural Affairs (DEFRA).
There are no material exclusions from thisdata. Exclusions included figures for gas, airconditioning and water because the information
was not available from the managing agentsof the Group’s multiple office locations. In
addition, emissions data from the US, France
and one of the Indian offices has been excluded
due to difficulties in collecting complete andaccurate data. These locations together total
8% (2013: 7%) of Group headcount and are
therefore considered immaterial.
Detailed information on the Group’s
environmental performance and themethodology for the measurementof greenhouse gas emissions isavailable on the corporate website,www.admiralgroup.co.uk.
Going concern
The Directors consider that the Group has
adequate financial resources to continue
operating for the foreseeable future andthat it is therefore appropriate to adopt thegoing concern basis in preparing the financial
statements. In considering the appropriatenessof this assumption, the Board has reviewed
the Group’s projections for the next 12 months
and beyond, including cash flow forecasts andregulatory capital surpluses.

Greenhouse gas emissions
The annual level of greenhouse gas emissions,
resulting from activities for which the Groupis responsible, in 2014 was 6,836 CO2e (2013:
6,383 CO2e), equivalent to 1.19 tonnes (2013:1.11 tonnes) per employee*1. Please note thatthe comparative figures have changed sincethe 2013 Annual Report, reflecting a validation
process and different locations included in
the measure.
 Average employee number excludes employees
from three offices for which data could not
be collected.

*1

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ANNUAL REPORT AND ACCOUNTS 2014

73

DIRECTORS’ REPORT CONTINUED

Share capital, AGM and related matters
Major shareholders
Other than as stated below, as far as the Company is aware, there are no persons with significant
direct or indirect holdings in the Company. Information provided to the Company pursuant to
the Financial Conduct Authority’s (FCA) Disclosure and Transparency Rules (DTRs) is published
on a Regulatory Information Service and on the Company’s website.
At 30 January 2015, the Company had received notifications in accordance with the FCA’s DTRsof the following notifiable interests in the voting rights in the Company’s issued share capital:
Number ofshares%Munich Re

28,599,400

10.26%

Manning & Napier Advisors

13,866,579

4.98%

Mackenzie Financial Corporation

11,790,994

4.23%

The interests of Directors and Officers andtheir connected persons in the issued sharecapital of the Company are given in the
Remuneration Report.
Additional information for shareholders
Where not provided previously in this Directors'
Report, the following provides the additional
information required for shareholders as a resultof the implementation of the Takeovers
Directive into UK law.
At 31 December 2014, the Company's issued
share capital comprised a single class of sharesreferred to as ordinary shares. Details of theshare capital and shares issued during the year
can be found in note 11d.
On a poll, every member present in person orby proxy and entitled to vote shall have one
vote for every ordinary share held. The noticeof the general meeting specifies deadlines forexercising voting rights either by proxy noticeor present in person or by proxy in relation toresolutions to be passed at general meeting.
All proxy votes are counted and the numbers
for, against or withheld in relation to eachresolution are announced at the Annual General
Meeting and published on the Company's
website after the meeting.
There are no restrictions on the transfer ofordinary shares in the Company other than:@@ Certain restrictions may from time to time
be imposed by laws and regulations (forexample, insider trading laws).
@@ Pursuant to the Listing Rules of the FCA
whereby certain employees of the Company
require the approval of the Company todeal in the Company's securities.

74

ANNUAL REPORT AND ACCOUNTS 2014

The Company has not purchased any of its
own shares during the period.
There are no agreements between the Company
and its Directors or employees providing forcompensation for loss of office or employment(whether through resignation, purported
redundancy or otherwise) that occurs becauseof a takeover bid.
There are a number of agreements that alteror terminate upon a change of control of theCompany following a takeover bid, such ascommercial contracts. None are considered
to be significant in terms of their impact on
the business of the Group as a whole except
for the long term co-insurance agreement inplace with Great Lakes Reinsurance (UK) plc.
Details relating to this agreement arecontained in the Strategic Report.
Power to issue shares
At the last Annual General Meeting, heldon 9 April 2014, authority was given to the
Directors to allot unissued relevant securities
in the Company up to a maximum of £91,127,
equivalent to one third of the issued sharecapital as at 7 March 2014. This authority expireson the date of the Annual General Meeting to
be held on 29 April 2015 and the Directors willseek to renew this authority for the following year.
A further special resolution passed at thatmeeting granted authority to the Directors
to allot equity securities in the Company(up to a maximum of 5% of the issued sharecapital of the Company) for cash, without
regard to the pre-emption provisions of theCompanies Act 2006. This authority also
expires on the date of the Annual General
Meeting to be held on 29 April 2015 and the
Directors will seek to renew this authority forthe following year.

WWW.ADMIRALGROUP.CO.UK

Appointments of Directors
The Company’s Articles of Association (theArticles) give the Directors power to appoint
and replace Directors. Under the Terms ofReference of the Nomination Committee, any
appointment must be recommended by the
Nomination Committee for approval by the
Board of Directors. The Articles also require
Directors to retire and submit themselves forelection at the first Annual General Meeting
following appointment and all Directors whoheld office at the time of the two preceding
Annual General Meetings to submit themselves
for re-election.
However, in accordance with the requirement
under the UK Corporate Governance Code(the Code) for annual election of Directors, all
Directors, except for Roger Abravanel, will submit
themselves for re-election at the Group's
Annual General Meeting on 29 April 2015.
Articles of Association
The Articles may only be amended by special
resolution of the shareholders.
Power of the Directors
The Directors are responsible for managing thebusiness of the Company and may exercise all
powers of the Company subject to the provisionsof relevant statutes, to any directions given
by special resolution and to the Company’s
Memorandum and Articles. The Articles, forexample, contain specific provisions andrestrictions concerning the Company’s power
to borrow money. Powers relating to theissuing of new shares are also included in the
Articles and such authorities are renewed byshareholders at the Annual General Meeting
each year.
Annual General Meeting (AGM)
It is proposed that the next AGM be held at
The Old Library, Cardiff CF10 3ND on Wednesday
29 April 2015 at 2.00pm, notice of which will besent to shareholders with the Annual Report.

INTRODUCTIONSTRATEGIC REPORT

Reporting, accountability and audit
UK Corporate Governance Code
Admiral is subject to the UK
Corporate Governance Code,published by the Financial Reporting
Council (FRC) and available on theirwebsite, www.frc.org.uk.
The FRC issued a revised version of the Codein September 2014 which applies to companies
with a financial year beginning on or after
1 October 2014. Therefore, the edition of theCode published in September 2012 applied
throughout the financial year ending
31 December 2014. The Company’s Annual
Report and Accounts, taken as a whole,addresses the requirements of the 2012 Code.
During the year to 31 December 2014, theCompany has in all respects complied withthe provisions of the 2012 Code.
The Directors confirm that the Annual
Report and Accounts, taken as a whole, is fair,balanced and understandable and provides
the information necessary for shareholders toassess the Company’s performance, businessmodel and strategy.
Directors’ responsibilities
The Directors are responsible for preparing
the Annual Report and the Group and Parent
Company financial statements, in accordancewith applicable law and regulations.
Company law requires the Directors to prepareGroup and Parent Company financial statements
for each financial year. Under that law they
are required to prepare the Group financial
statements in accordance with International
Financial Reporting Standards (IFRS) as adopted
by the EU and applicable law and have elected
to prepare the Parent Company financial
statements in accordance with UK AccountingStandards and applicable law (UK Generally
Accepted Accounting Practice).
Under company law the Directors must not
approve the financial statements unless they aresatisfied that they give a true and fair viewof the state of affairs of the Group and Parent
Company and of their profit or loss forthat period.

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATIONIn preparing each of the Group and Parent
Company financial statements, the Directors
are required to:

Responsibility statement
The Directors confirm that to the best of
their knowledge:@@ Select suitable accounting policies andthen apply them consistently.

@@ The financial statements, prepared inaccordance with the applicable set ofaccounting standards, give a true and fairview of the assets, liabilities, financial
position and profit or loss of the Company
and the undertakings included in the
consolidation taken as a whole; and@@ Make judgements and estimates that arereasonable and prudent.
@@ For the Group financial statements, state
whether they have been prepared inaccordance with IFRS as adopted by the EU.
@@ For the Parent Company financial
statements, state whether applicable UK
Accounting Standards have been followed,
subject to any material departures
disclosed and explained in the Parent
Company financial statements.
@@ Prepare the financial statements on thegoing concern basis unless it is inappropriate
to presume that the Group and the Parent
Company will continue in business.
The Directors are responsible for keeping
proper accounting records that disclose withreasonable accuracy at any time the financial
position of the Parent Company and enable
them to ensure that its financial statementscomply with the Companies Act 2006. They
have general responsibility for taking such
steps as are reasonably open to them tosafeguard the assets of the Group and to preventand detect fraud and other irregularities.
Under applicable law and regulations, theDirectors are also responsible for preparing
a Strategic Report, Directors’ Report, Directors’
Remuneration Report and Corporate GovernanceStatement that comply with that law andthose regulations.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the UK
governing the preparation and disseminationof financial statements may differ fromlegislation in other jurisdictions.

@@ The management report required by DTR
4.1.8R (contained in the Strategic Report
and the Directors’ Report) includes a fairreview of the development and performanceof the business and the position of theCompany and the undertakings includedin the consolidation taken as a whole,
together with a description of the principal
risks and uncertainties that they face.
Disclosure of information to auditors
The Directors who held office at the date of
approval of this Directors’ Report confirm that,so far as they are each aware, there is no relevant
audit information of which the Company’s
auditor is unaware; and each Director hastaken all the steps that they ought to havetaken as a Director to make themselves awareof any relevant audit information and toestablish that the Company’s auditor is awareof that information.
Auditor
The Company’s auditor, KPMG LLP, has
indicated willingness to continue in office
and resolutions to reappoint it and to authorise
the Directors to fix its remuneration will be
proposed at the Annual General Meeting.
By Order of the Board,

Mark Waters
Company Secretary
4 March 2015

Geraint Jones
Chief Financial Officer
4 March 2015

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201475

INDEPENDENT AUDITOR’S REPORTTO THE MEMBERS OF ADMIRAL GROUP PLC ONLY

Opinions and conclusions arisingfrom our audit
1. Our opinion on the financial
statements is unmodified
We have audited the financial statementsof Admiral Group plc for the year ended
31 December 2014 set out on pages 78
to 113. In our opinion:@@ the financial statements give a true andfair view of the state of the Group’s andof the Parent Company’s affairs as at
31 December 2014 and of the Group’s
profit for the year then ended;@@ the Group financial statements havebeen properly prepared in accordancewith International Financial ReportingStandards as adopted by the European
Union (IFRSs as adopted by the EU);@@ the Parent Company financial statements
have been properly prepared in accordancewith UK Accounting Standards; and@@ the financial statements have been preparedin accordance with the requirements of theCompanies Act 2006 and, as regards theGroup financial statements, Article 4 of the
IAS Regulation.
2. Our assessment of risks
of material misstatement
In arriving at our audit opinion above on
the financial statements the risks of material
misstatement that had the greatest effecton our audit were as follows.
Insurance liabilities (£2,097.4 million)
Refer to page 51 (Audit CommitteeStatement), note 5d (accounting policy
and financial disclosures).
@@ The risk – The provision for claims
outstanding comprises the estimated costof settling all claims incurred but unpaid atthe balance sheet date, whether reported
or not. This is a judgemental and complex
area due to the inherent uncertainty of
estimating claims not yet reported, future
costs of settling claims, discount rates
and whether customers will be awarded
a lump sum claim or a periodic payment.
The amounts involved are potentiallysignificant and the application of
accounting standards to determine theamount, if any, to be provided as a liability,
is inherently subjective. One of the mostsignificant uncertainties relates to thereserve held for large bodily injury claims
and actual and potential Periodic Payment
Order settlements (PPOs). The UK motor
portfolio presents the biggest risk ofmaterial misstatement.

76

ANNUAL REPORT AND ACCOUNTS 2014@@ Our response – Our audit procedures
included testing the controls over theunderwriting and claims process andperforming substantive analysis over
the trends in claims frequency and size.
Using our actuarial specialists to support
us, we assessed the level of reserves held
for incurred claims through evaluating
the competence, capability and objectivityof the Group’s external actuary, assessing
the actuarial methodologies employed,
including the use of paid and incurred chain
ladders and the average cost per claim
method, challenging key judgements, forexample the extent to which improvements
in claims trends are taken into account inreserve projections, and benchmarking key
assumptions against KPMG sourced market
data. In respect of the amounts related tolarge bodily injury claims and actual andpotential PPOs, we investigated the process
for identifying and assessing the required
reserve for large claims and for updating
this reserve as more information becomes
available, investigated the process forassessing cases that have the potential to
be settled as PPOs and benchmarked the
key assumptions made in calculating largebodily injury claims reserves, including
mortality (in the case of PPO cases) anddiscount rates applied. The focus of ourwork is the UK Motor portfolio.
	In respect of the margin held above
the actuarial best estimate, we assessed
the rationale for this margin including
consideration of the level of prudence
within the margin, the consistency withwhich the underlying judgements havebeen applied in relation to the current
year and prior periods and the existenceof any management bias.
	We have also considered the adequacy of
the Group’s disclosures about the margin
held above the actuarial best estimate,
and the degree of estimation andsensitivity to key assumptions.

WWW.ADMIRALGROUP.CO.UK

Co-insurance and reinsurance
Refer to page 51 (Audit Committee
statement), note 5 (accounting policy
and financial disclosures).
@@ The risk – The Group has in place a numberof proportional risk sharing agreements,
where insurers outside the Group underwrite
a majority of the risk generated, either
through co-insurance or quota sharereinsurance contracts. For reinsurance
contracts, there is judgement involvedin the assessment of whether risk has
been transferred, which impacts on theappropriate accounting including whether
premium income and insurance claims
are presented gross or net of reinsurance.
A number of the reinsurance arrangements
also include reinsurance caps, whereby
the Group is limited as to the amount it
can recover against insurance claims andoperating expenses based on the cap inplace. This impacts the underlying profitof the Group. For co-insurance contracts,
the accounting is driven by the fact that theGroup does not retain the underlying risks
and rewards of the business underwritten.
The outcome of these judgements affectthe recognition and timing of revenue
along with profit recognition and disclosureof income and expenses associated withthese risk sharing agreements.
@@ Our response – Our audit procedures
included critically assessing the contract
terms for these arrangements to ascertain
whether, taking into account relevant
accounting standards, the appropriate
risk transfer has occurred to support
the treatment of the arrangement as
co‑insurance or quota share reinsurance.
We reviewed the terms of the reinsurance
caps, re-calculated the expected total
cap cost and compared to the actual
cap cost recognised, and assessed theappropriateness of the allocation between
insurance claims and operating expenses.
We have also considered the adequacy of
the Group’s disclosures and appropriatenessof the presentation of transactions andbalances relating to these arrangements.

INTRODUCTIONSTRATEGIC REPORT

Profit commission (£71.8 million)
Refer to page 51 (Audit Committee
statement), note 5c (accounting policy
and financial disclosures).
@@ The risk – The recognition of profit
commission income from co-insurers andquota share reinsurers is initially in linewith the loss ratios booked in the financial
statements and will vary with movementsin the loss ratios. The recognition of thisincome is therefore subject to the samelevel of estimation as the claims liability
noted above until, in the case of quota
share reinsurance, the relevant contracts
are commuted, at which point no further
profit commission is recognised. In addition,different contractual arrangements are inplace with the Group’s co-insurance andreinsurance partners and there is a risk thatthe differences in arrangements are notappropriately accounted for, resulting insignificant misstatement.
@@ Our response – Our audit procedures
included, in addition to our procedures
over insurance liabilities noted above,
forming an expectation of the profit
commission income based on loss ratios
applied and contractual terms of eacharrangement, comparing this to actual
profit commission income recognisedand corroborating any changes to the
profit commission arrangements during
the year. We have also considered theadequacy of the Group’s disclosuresabout the arrangements in place.
3. Our application of materiality andan overview of the scope of our audit
The materiality for the Group financial statements
as a whole was set at £18.5 million, determinedwith reference to a benchmark of Group profit
before taxation (of which it represents 5%).
We report to the Audit Committee any correctedor uncorrected identified misstatements
exceeding £0.9 million, in addition to otheridentified misstatements that warranted
reporting on qualitative grounds.
Of the Group’s 12 reporting components, we
subjected four to audits for Group reporting
purposes, two to specified risk focused audit
procedures and one to a review of financial
information (including enquiry). The components
for which we performed specified risk focusedprocedures and a review of financial information
were not individually financially significant
enough to require an audit for Group reporting
purposes, but did present specific individual
risks that needed to be addressed.
The components within the scope of our work
accounted for 94% of Group net revenue, 97%
of Group profit before tax and 97% of Group
total assets.

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

The remaining 6% of total Group net revenue,
3% of Group profit before tax and 3% of total
Group assets is represented by 5 reporting
components, none of which individually
represented more than 2% of any of total
Group net revenue, Group profit before tax
or total Group assets.
For these remaining components, we
performed analysis at an aggregated Grouplevel to re-examine our assessment that there
were no significant risks of material
misstatement within these.
The Group audit team instructed two component
auditors as to the significant risk focused audit
procedures to be performed. The procedureson the remaining components were performedby the Group audit team. The Group audit
team approved the component materialities,
which ranged from £500,000 to £16,500,000,
having regard to the mix of size and risk profileof the Group across the components.
4. Our opinion on other matters prescribedby the Companies Act 2006 is unmodified
In our opinion:@@ the part of the Directors’ Remuneration
Report to be audited has been properly
prepared in accordance with theCompanies Act 2006; and@@ the information given in the Strategic
Report and Directors’ Report for thefinancial year for which the financial
statements are prepared is consistent
with the financial statements.
5. We have nothing to report in respectof the matters on which we are required
to report by exception
Under ISAs (UK and Ireland) we are required toreport to you if, based on the knowledge weacquired during our audit, we have identified
other information in the annual report that
contains a material inconsistency with either
that knowledge or the financial statements,a material misstatement of fact, or that isotherwise misleading.
In particular, we are required to report to you if:@@ we have identified material inconsistencies
between the knowledge we acquired during
our audit and the directors’ statement thatthey consider that the annual report andfinancial statements taken as a whole is fair,balanced and understandable and provides
the information necessary for shareholders
to assess the Group’s performance, businessmodel and strategy; or@@ the Audit Committee Statement does not
appropriately address matters communicatedby us to the Audit Committee.

ADMIRAL GROUP PLC

OTHER INFORMATION

Under the Companies Act 2006 we are
required to report to you if, in our opinion:@@ adequate accounting records have not been
kept by the Parent Company, or returns
adequate for our audit have not been
received from branches not visited by us; or@@ the Parent Company financial statements
and the part of the Directors’ Remuneration
Report to be audited are not in agreementwith the accounting records and returns; or@@ certain disclosures of directors’ remuneration
specified by law are not made; or@@ we have not received all the informationand explanations we require for our audit.
Under the Listing Rules we are required to review:@@ the directors’ statement, set out on page 73,
in relation to going concern; and@@ the part of the Corporate GovernanceStatement on page 40 relating to thecompany’s compliance with the ten provisionsof the 2012 UK Corporate Governance
Code specified for our review.
We have nothing to report in respect of theabove responsibilities.
Scope and responsibilities
As explained more fully in the Directors’
Responsibilities Statement set out on page 75,
the directors are responsible for the preparationof the financial statements and for being
satisfied that they give a true and fair view.
A description of the scope of an audit offinancial statements is provided on the
Financial Reporting Council’s website atwww.frc.org.uk/auditscopeukprivate. This
report is made solely to the company’s members
as a body and is subject to important
explanations and disclaimers regarding our
responsibilities, published on our website atwww.kpmg.com/uk/auditscopeukco2014a,
which are incorporated into this report as if
set out in full and should be read to provide
an understanding of the purpose of thisreport, the work we have undertaken andthe basis of our opinions.

Salim Tharani (Senior Statutory Auditor)
for and on behalf of KPMG LLP,
Statutory Auditor
Chartered Accountants
3 Assembly Square
Britannia Quay
Cardiff
CF10 4AX
4 March 2015

ANNUAL REPORT AND ACCOUNTS 2014

77

CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2014

Year ended
31 December
2014£m

31 December
2013£mInsurance premium revenue

1,099.7

1,136.4

Insurance premium ceded to reinsurers(634.8)(653.4)Note

Net insurance premium revenue

5

464.9

483.0

Other revenue

7

332.5

327.8

Profit commission

5

71.8

99.3

Investment and interest income

6

15.4

14.3

Net revenue

884.6

924.4

Insurance claims and claims handling expenses(794.5)(826.7)

Insurance claims and claims handling expenses recoverable from reinsurers

535.4

523.7

Net insurance claims(259.1)(303.0)(501.8)(467.0)Operating expenses and share scheme charges

8

Operating expenses and share scheme charges recoverable from co- and reinsurers

8

231.6

215.8

Net operating expenses and share scheme charges(270.2)(251.2)

Total expenses(529.3)(554.2)

355.3

370.2

(4.6)

—

350.7

370.2

(69.1)(83.3)

281.6

286.9

Equity holders of the parent

285.2

287.0

Non-controlling interests (NCI)

(3.6)

(0.1)

281.6

286.9

Operating profit
Finance costs

6

Profit before tax
Taxation expense

9

Profit after tax
Profit after tax attributable to:Earnings per share
Basic

11

103.0p104.6p

Diluted11

102.8p104.4pDividends declared and paid (total)

11

273.5

255.8

Dividends declared and paid (per share)

11

100.0p

94.4p

78

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATIONCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2014

Year ended
31 December
2014£m

31 December
2013
£m

281.6

286.9

Movements in fair value reserve

10.9

—

Exchange differences on translation of foreign operations

3.0

(1.3)

Other comprehensive income for the period, net of income tax

13.9

(1.3)

Total comprehensive income for the period

295.5

285.6

Equity holders of the parent

298.6

286.1

Non-controlling interests

(3.1)

(0.5)

295.5

285.6

Profit for the period
Other comprehensive income
Items that are or may be reclassified to profit or loss

Total comprehensive income for the period attributable to:

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2014

79

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2014

As at

Note

31 December
2014£m

31 December
2013£mProperty and equipment

10

32.3

12.4

ASSETS

Intangible assets

10

107.2

92.8

Deferred income tax

9

22.9

17.0

Reinsurance assets

5

829.8

821.2

6, 10

82.0

77.5

Financial assets

6

2,547.4

2,265.0

Cash and cash equivalents

6

255.9

187.9

3,877.5

3,473.8

Trade and other receivables

Total assets
EQUITY

0.3

0.3

Share premium account

13.1

13.1

Other reserves

13.2

(0.2)

Retained earnings

540.6

502.6

Total equity attributable to equity holders of the parent

567.2

515.8

Share capital11

Non-controlling interests

13.7

8.3

Total equity

580.9

524.1

2,097.4

1,901.3

LIABILITIESInsurance contracts

5
6

203.8

—

6, 10

965.8

1,013.7

29.6

34.7

Total liabilities

3,296.6

2,949.7

Total equity and total liabilities

3,877.5

3,473.8

Subordinated liabilities
Trade and other payables
Current tax liabilities

These financial statements were approved by the Board of Directors on 4 March 2015 and were signed on its behalf by:

Geraint Jones
Chief Financial Officer
Admiral Group plc
Company Number: 03849958

80

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATIONCONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2014

Year ended
31 December
2014£m

31 December
2013
£m

281.6

286.9

– Depreciation

7.1

7.3

– Amortisation of software

4.6

4.9

– Other gains and losses

(0.2)

0.2

23.2

25.7

– Investment income on gilts

(2.6)

—

– Finance costs

4.6

—

196.1

204.4

(8.6)

(18.2)

Note

Profit after tax
Adjustments for non-cash items:– Share scheme charges

8

Change in gross insurance contract liabilities
Change in reinsurance assets
Change in trade and other receivables, including from policyholders

14.7

14.3

Change in trade and other payables, including tax and social security(49.4)

8.0

Taxation expense

69.1

83.3

Cash flows from operating activities, before movements in investments

540.2

616.8

Net cash flow into investments(286.3)(295.3)

Cash flows from operating activities, net of movements in investments

253.9

321.5

Taxation payments(77.0)(88.5)Net cash flow from operating activities

176.9

233.0

Cash flows from investing activities(50.6)(10.1)

Interest and investment income received

3.1—

Net cash used in investing activities(47.5)(10.1)

Non-controlling interest capital contribution

8.5

6.4

Proceeds on issue of subordinated liabilities

200.0

—

Transaction costs on issue of subordinated liabilities

(0.8)

—

Repayment of finance lease liabilities

1.4

(0.9)

(273.5)(255.8)Net cash used in financing activities(64.4)(250.3)

Net increase/(decrease) in cash and cash equivalents

65.0(27.4)Cash and cash equivalents at 1 January

187.9

216.6

3.0

(1.3)

255.9

187.9

Purchases of property, equipment and software

Cash flows from financing activities

Equity dividends paid

11

Effects of changes in foreign exchange rates
Cash and cash equivalents at end of period

6

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201481

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2014

Attributable to the owners of the Company
Sharecapital£mSharepremium
account£m

Fair value
reserve£m

Foreignexchangereserve£m

Retained
profitand loss
£m

Total
£m

Noncontrollinginterests£m

Total equity£m

At 1 January 2013

0.3

13.1

—

0.7

443.0

457.1

3.6

460.7

Profit for the period

—

—

—

—

287.0

287.0

(0.1)

286.9

Currency translation differences

—

—

—

(0.9)

—

(0.9)

(0.4)

(1.3)

Total comprehensive income for the period

—

—

—

(0.9)

287.0

286.1

(0.5)

285.6

Dividends

—

—

—

—

(255.8)(255.8)—(255.8)

Share scheme credit

—

—

—

—

25.7

25.7

—

25.7

Deferred tax charge on share scheme credit

—

—

—

—

2.1

2.1

—

2.1

Contributions by NCIs

—

—

—

—

0.3

0.3

5.5

5.8

Changes in ownership interests withouta change in control

—

—

—

—

0.3

0.3

(0.3)

—

Total transactions with equity holders

—

—

—

—

(227.4)(227.4)

5.2(222.2)As at 31 December 2013

0.3

13.1

—

(0.2)

502.6

515.8

8.3

524.1

At 1 January 2014

0.3

13.1

—

(0.2)

502.6

515.8

8.3

524.1

Profit for the period

—

—

—

—

285.2

285.2

(3.6)

281.6

Movements in fair value reserve

—

—

10.9

—

—

10.9

—

10.9

Currency translation differences

—

—

—

2.5

—

2.5

0.5

3.0

Total comprehensive income for the period

—

—

10.9

2.5

285.2

298.6

(3.1)

295.5

Dividends

—

—

—

—

(273.5)(273.5)—(273.5)

Share scheme credit

—

—

—

—

23.2

23.2

—

23.2

Deferred tax credit on share scheme credit

—

—

—

—

3.1

3.1

—

3.1

Contributions by NCIs

—

—

—

—

—

—

8.5

8.5

Total transactions with equity holders

—

—

—

—

(247.2)(247.2)8.5(238.7)As at 31 December 2014

0.3

13.1

10.9

2.3

540.6

567.2

13.7

580.9

Other comprehensive income

Transactions with equity holders

Other comprehensive income

Transactions with equity holders

82

ANNUAL REPORT AND ACCOUNTS 2014

WWW.ADMIRALGROUP.CO.UK

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATIONNOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014

1. General information
Admiral Group plc is a company incorporated
in England and Wales. Its registered office
is at Capital Tower, Greyfriars Road, Cardiff,
CF10 3AZ and its shares are listed on the
London Stock Exchange.
The Consolidated financial statements havebeen prepared and approved by the Directors
in accordance with International Financial
Reporting Standards (IFRS) as adopted by
the European Union (EU). The Company has
elected to prepare its Parent Company financial
statements in accordance with UK Generally
Accepted Accounting Practice (GAAP).
Adoption of new and revised standards
The Group has applied all adopted IFRS
and interpretations endorsed by the EU at
31 December 2014, including all amendments
to extant standards that are not effective until
later accounting periods. This is inclusive of:@@ IFRIC Interpretation 21 Levies
IFRIC Interpretation 21 Levies was endorsed
on 13 June 2014 and subsequently adopted
by the Group. The IFRIC is effective foraccounting periods beginning on orafter 1 January 2014. It clarifies the IFRS
requirements in relation to the timing ofrecognition of provisions for levies charged
by public authorities. This is relevantto the Group in terms of its obligations
to pay levies relating to insurance business,
primarily to the Motor Insurers’ Bureau,
Financial Services Compensation Schemeand other regulatory bodies in the UK.
	The Group has aligned the timing of its
recognition of provisions for levies tothat required by the IFRIC. The impactof the adjustment in 2014 is a reduction
in net operating expenses of £6.7 million.
Whilst this is considered to be a changein accounting policy in line with IAS 8,
no restatement of comparative information
has been performed on materiality grounds.
@@ IFRS 10, 11 and 12 (‘the consolidation
suite of standards’)
Subsidiaries
	As a result of IFRS 10 (2011), the Group haschanged its accounting policy for determining
whether it has control over and consequently
whether it consolidates its investees.
IFRS 10 introduces a new control modelthat focuses on whether the Group has
power over an investee, exposure or rights
to variable returns from its involvementwith the investee and ability to use its
power to affect those returns.
	In accordance with the transitional provisionsof IFRS 10, the Group reassessed the control
conclusion for its investees at 1 January 2014.
No modifications of previous conclusions
about control regarding the Group’s
investees were required.

There are a number of standards, amendments
to standards and interpretations that were
issued by 31 December 2014 but have either
yet to be endorsed by the EU, or were endorsed
shortly after the year end. The following IFRSs
have been issued but have not been appliedby the Group in these financial statements:@@ IFRS 9 Financial Instruments.
@@ IFRS 14 Regulatory Deferral Accounts.
@@ IFRS 15 Revenue from Contracts
with Customers.
@@ Amendments to IFRS 10, 11 and 12 andIAS 1, 16, 27, 28, 38 and 41.
In 2014, the IASB issued the full, final version
of IFRS 9. This version supersedes all previous
versions. The standard has an effective date of
1 January 2018 although earlier application ispermitted. The standard includes requirements
relating to the recognition, measurement,
impairment, de-recognition of assets alongwith general hedge accounting.
IFRS 15 was also issued during 2014 and applies
to annual reporting periods beginning on orafter 1 January 2017. The standard introduces
a simple, five step principles-based model tobe applied to the accounting of all contracts
with customers.
The Group is currently assessing the impact ofboth IFRS 9 and IFRS 15 on its results, financial
position and cash flows, along with any impactsof the other standards and amendments whichhave yet to be endorsed.
2. Basis of preparation
The accounts have been prepared on a going
concern basis. In considering the appropriatenessof this assumption, the Board has reviewed
the Group’s projections for the next 12 months
and beyond, including cash flow forecasts andregulatory capital surpluses. During July 2014,
the Group announced a successful, inauguralbond placement of £200 million, ten-year, tiertwo subordinated notes with a fixed interest
charge of 5.5%.
The Directors have a reasonable expectationthat the Company has adequate resources
to continue in operational existence for theforeseeable future. Thus they continue toadopt the going concern basis in preparing
the annual financial statements.
Further information regarding the Company’sbusiness activities, together with the factors likely
to affect its future development, performanceand position, is set out in the Strategic Reporton pages 6 to 39. Further information regarding
the financial position of the Company, its cash
flows, liquidity position and borrowing facilities
are described in the Strategic Report on
pages 18 to 21. In addition notes 6 and 11
to the financial statements

ADMIRAL GROUP PLC

include the Company’s objectives, policies
and processes for managing its capital; its
financial risk management objectives; detailsof its financial instruments; and its exposures
to credit risk and liquidity risk.
The accounting policies set out in the notes tothe financial statements have, unless otherwise
stated, been applied consistently to all periods
presented in these Group financial statements.
The financial statements are prepared on thehistorical cost basis, except for the revaluationof financial assets classified as at fair value
through profit or loss or as ‘available for sale’.
The Group and Company financial statements
are presented in Pounds sterling, rounded to
the nearest £0.1 million.
Subsidiaries are entities controlled by theGroup. The Group controls an entity when it
is exposed to, or has rights to, variable returns
from its involvement with the entity and has
the ability to affect those returns through its
power over the entity. In assessing control,
the Group takes into consideration potential
voting rights that are currently exercisable.
The acquisition date is the date on which control
is transferred to the acquirer. The financial
statements of subsidiaries are included in the
consolidated financial statements from thedate that control commences until the datethat control ceases. Losses applicable to thenon-controlling interests in a subsidiary areallocated to the non-controlling interests
even if doing so causes the non-controllinginterests to have a deficit balance.
The preparation of financial statements
in conformity with adopted IFRS requires
management to make judgements, estimatesand assumptions that affect the application ofpolicies and reported amounts of assets andliabilities, income and expenses. The estimatesand associated assumptions are based on
historical experience and various other factorsthat are believed to be reasonable under thecircumstances, the results of which form thebasis of making the judgements about carrying
values of assets and liabilities that are notreadily apparent from other sources.
The estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in theyear in which the estimate is reviewed if thisrevision affects only that year, or in the yearof the revision and future years if the revisionaffects both current and future years. To theextent that a change in an accounting estimate
gives rise to changes in assets and liabilities,
it is recognised by adjusting the carrying
amount of the related asset or liability inthe period of the change.

ANNUAL REPORT AND ACCOUNTS 201483

NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2014

3. Critical accounting judgements
and estimates
Judgements
In applying the Group’s accounting policies
as described in the notes to the financial
statements, management has primarily appliedjudgement in the following two areas:@@ Classification of the Group’s contracts withreinsurers as reinsurance contracts:	A contract is required to transfer significant
insurance risk in order to be classified assuch. Management reviews all terms andconditions of each such contract, and if
necessary obtains the opinion of an
independent expert at the negotiation stage
in order to be able to make this judgement.
@@ Recognition of deferred tax assets relating
to unused tax losses:
	Management applies judgement indetermining the probability of futuretaxable profits of an entity against whichto utilise accumulated losses in determining
the recognition of deferred tax assets.
In applying this judgement, management
makes an assessment of the reliability of
approved business plan projections using
both qualitative and quantitative factors
including the age and status of the business,
the Group’s previous experience in similarmarkets, historic performance against
business plans and the application of
a number of stress and sensitivity tests
to the projections.
Estimation techniques used in calculationof claims provisions and profit commission
Estimation techniques are used in the calculationof the provisions for claims outstanding, which
represent a projection of the ultimate cost of
settling claims that have occurred prior to thebalance 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 ofclaims that occurred prior to the balance sheet
date, but had not been reported at that date.
The estimates of the ultimate cost of reported
claims are based on the setting of claim
provisions on a case-by-case basis, for all
but the simplest of claims.
The sum of these provisions is comparedwith 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 actuarialassessment of their potential outcome. They
include allowance for unreported claims.

84

ANNUAL REPORT AND ACCOUNTS 2014

The most significant sensitivity in the use of the
projection techniques arises from any future
step change in claims costs, which would cause
future claim cost inflation to deviate from historic
trends. This is most likely to arise from a change
in the regulatory or judicial regime that leads
to an increase in awards or legal costs for bodily
injury claims that is significantly above or
below the historical trend.

Foreign currency transactions are translated
into the functional currency using the exchange
rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting
from the settlement of such transactions andfrom the translation at year end exchange rates
of monetary assets and liabilities denominatedin foreign currencies are recognised in theincome statement.

The Group’s independent actuarial advisors
project best estimate claims reserves using
a variety of recognised actuarial techniques.

Non-monetary items measured at cost aretranslated at their historic rate and non-monetary
items held at fair value are translated using theforeign exchange rate on the date that the fairvalue was established.

The Group’s reserving policy requires
management to reserve within a range ofpotential outcomes above the projected best
estimate outcome, to allow for unforeseen
adverse claims development.
For further detail on objectives, policies andprocedures for managing insurance risk, refer
to note 5 of the financial statements.
Future changes in claims reserves also impact
profit commission income, as the measurementof this income is dependent on the loss ratio
booked in the financial statements, and cash
receivable is dependent on actuarial projectionsof ultimate loss ratios.
4. Group consolidation andoperating segments
4a. Accounting policies(i) Group consolidation
The Consolidated financial statements comprisethe results and balances of the Company andits subsidiaries (together referred to as theGroup) for the year ended 31 December 2014
and comparative figures for the year ended
31 December 2013. The financial statementsof the Company’s subsidiaries are consolidated
in the Group financial statements. The Company
controls 100% of the voting share capital of allits principal subsidiaries, except Rastreator.com
Limited, Inspop USA LLC, Admiral Law Limited,
BDE Law Limited and the indirect holding incomparenow.com Insurance Agency LLC.
The Parent Company financial statements
present information about the Company
as a separate entity and not about its Group.
In accordance with IAS 24, transactions orbalances between Group companies that havebeen eliminated on consolidation are notreported as related party transactions in theConsolidated financial statements.
(ii) Foreign currency translation
Items included in the financial statementsof each of the Group’s entities are measured
using the currency of the primary economic
environment in which the entity operates(‘the functional currency’). The Consolidated
financial statements are presented in millionsof pounds sterling, which is the Group’s
presentation currency.

WWW.ADMIRALGROUP.CO.UK

The financial statements of foreign operations
whose functional currency is not pounds
sterling are translated into the Group
presentation currency (sterling) as follows:@@ Assets and liabilities for each balance sheet
presented are translated at the closing rate
at the date of that balance sheet.
@@ Income and expenses for each income
statement are translated at average exchange
rates (unless this average is not a reasonableapproximation of the cumulative effect of
the rates prevailing on the transaction dates,in which case income and expenses aretranslated at the date of the transaction).
@@ All resulting exchange differences arerecognised in other comprehensive income
and in a separate component of equity except
to the extent that the translation differences
are attributable to non-controlling interests.
On disposal of a foreign operation, thecumulative amount recognised in equity
relating to that particular operation isrecognised in the income statement.
4b. Segment reporting
The Group has four reportable segments, as
described below. These segments represent
the principal split of business that is regularly
reported to the Group’s Board of Directors,
which is considered to be the Group’s chief
operating decision maker in line with IFRS 8
Operating Segments.
UK Car Insurance
The segment consists of the underwriting of car
insurance and other products that supplement
the car insurance policy. It also includes thegeneration of revenue from additional products
and fees from underwriting car insurance in the
UK. The Directors consider the results of these
activities to be reportable as one segment as theactivities carried out in generating the revenue
are not independent of each other and are
performed as one business. This mirrors theapproach taken in management reporting.

INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

4. Group consolidation and operating segments continued
4b. Segment reporting continued
International Car Insurance
The segment consists of the underwriting of car insurance and the generation of revenue from additional products and fees, from underwriting car
insurance outside of the UK. It specifically covers the Group operations Admiral Seguros in Spain, ConTe in Italy, L’olivier Assurances in France andElephant Auto in the US. None of these operations are reportable on an individual basis, based on the threshold requirements in IFRS 8.
Price Comparison
The segment relates to the Group’s price comparison websites; Confused.com in the UK, Rastreator in Spain, LeLynx in France and compare.com
in the US. Each of the Price Comparison businesses are operating in individual geographical segments but are grouped into one reporting
segment as Rastreator, LeLynx and compare.com do not individually meet the threshold requirements in IFRS 8.
Other
The ‘Other’ segment is designed to be comprised of all other operating segments that do not meet the threshold requirements for individual
reporting. It includes UK household insurance, the Group’s commercial van insurance broker, Gladiator, and commercial van insurance.
Taxes are not allocated across the segments and, as with the corporate activities, are included in the reconciliation to the Consolidated Income Statement
and Consolidated Statement of Financial Position.
An analysis of the Group’s revenue and results for the year ended 31 December 2014, by reportable segment, are shown below. The accounting
policies of the reportable segments are consistent with those presented in the notes to the financial statements for the Group.
Year ended 31 December 2014
UK CarInsurance£mInternational
Car Insurance
£m

Price
Comparison
£m

Other
£m

Eliminations
£m

Total
£m

1,602.7

206.2

107.5

54.6

—

1,971.0

Net insurance premium revenue

394.3

58.1

—

12.5

—

464.9

Other Revenue and profit commission

272.2

7.1

107.5

17.5

—

404.3

Investment and interest income

11.5

0.2

—

—

—

11.7

Net revenue

678.0

65.4

107.5

30.0

—

880.9

Net insurance claims(198.3)(50.5)—(10.3)—(259.1)

Expenses(81.7)(34.8)(110.3)(17.6)—(244.4)

Segment profit/(loss) before tax

398.0(19.9)

(2.8)

2.1

—

377.4

Turnover*1

Other central revenue and expenses,
including share scheme charges(25.8)

Investment and interest income

3.7

Finance costs(4.6)

Consolidated profit before tax

350.7

Taxation expense(69.1)

Consolidated profit after tax

281.6

Other segment items:– Capital expenditure

65.1

21.3

1.0

1.5

—

88.9

– Depreciation and amortisation

30.6

22.1

1.5

0.2

—

54.4

*1

Turnover is a non-GAAP measure and consists of total premiums written (including co-insurers’ share) and Other Revenue. Refer to note 12 for further information

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201485

NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2014

4. Group consolidation and operating segments continued
4b. Segment reporting continued
Revenue and results for the corresponding reportable segments for the year ended 31 December 2013 are shown below.
Year ended 31 December 2013
UK CarInsurance£mInternational
Car Insurance
£m

Price
Comparison
£m

Other
£m

Eliminations
£m

Total
£m

1,698.9

187.8

112.7

30.8

—

2,030.2

Net insurance premium revenue

425.1

54.1

—

3.8

—

483.0

Other revenue and profit commission

293.4

6.6

112.7

14.4

—

427.1

Turnover*1

Investment and interest income

12.4

—

—

—

—

12.4

Net revenue

730.9

60.7

112.7

18.2

—

922.5

Net insurance claims(251.3)(49.1)

—

(2.6)

—

(303.0)

Expenses(85.7)(33.7)(92.3)(13.2)—(224.9)

—

—

—

—

—

—

393.9

(22.1)

20.4

2.4

—

394.6

Finance costs
Segment profit/(loss) before tax
Other central revenue and expenses,
including share scheme charges(26.3)

Interest income

1.9

Consolidated profit before tax

370.2

Taxation expense(83.3)

Consolidated profit after tax

286.9

Other segment items:– Capital expenditure

25.0

48.1

4.0

0.7

—

77.8

– Depreciation and amortisation

28.5

50.4

1.3

0.8

—

81.0

*1

Turnover is a non-GAAP measure and consists of total premiums written (including co-insurers’ share) and Other Revenue. Refer to note 12 for further information

Segment revenues
The UK and International Car Insurance reportable segments derive all insurance premium income from external policyholders. Revenue withinthese segments is not derived from an individual policyholder that represents 10% or more of the Group’s total revenue.
The total of Price Comparison revenues from transactions with other reportable segments is £9.5 million (2013: £10.8 million). These amounts havenot been eliminated on consolidation as the Directors consider that not doing so results in a better overall presentation of the financial statements.
The impact on the financial statements in the current and prior period is not material. There are no other transactions between reportable segments.
Within the UK Car Insurance segment, transactions between the Group’s intermediary and the Group’s insurance companies relating to vehiclecommission totalling £13.3 million (2013: £18.4 million) have been eliminated (from the insurance expenses and other revenue lines in the income
statement) on the basis that the non-elimination would have materially distorted the presentation of key performance indicators.
Revenues from external customers for products and services are consistent with the split of reportable segment revenues as shown on page 85.
Information about geographical locations
All material revenues from external customers, and net assets attributed to a foreign country, are shown within the International Car Insurance
reportable segment shown on the previous pages. The revenue and results of the three international Price Comparison businesses, Rastreator,
LeLynx and compare.com are not yet material enough to be presented as a separate segment.

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INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

4. Group consolidation and operating segments continued
4b. Segment reporting continued
Segment assets and liabilities
The identifiable segment assets and liabilities at 31 December 2014 are as follows:
As at 31 December 2014
UK Car International Car
Insurance
Insurance
£m
£m

Price
Comparison
£m

Other
£m

Eliminations
£m

Total
£m

Property and equipment

29.0

2.5

0.7

0.1

—

32.3

Intangible assets

89.6

12.2

2.9

2.5

—

107.2

Reinsurance assets

677.5

137.9

—

14.4

—

829.8

Trade and other receivables

204.9

(4.2)

11.7

3.6

(134.0)82.0

2,219.6

124.5

—

—

—

2,344.1

Financial assets
Cash and cash equivalents

101.8

38.6

49.0

16.4

—

205.8

Reportable segment assets

3,322.4

311.5

64.3

37.0

(134.0)3,601.2

Insurance contract liabilities

1,839.4

228.7

—

29.3

—

2,097.4

Trade and other payables

900.7

42.4

7.4

15.3

—

965.8

Reportable segment liabilities

2,740.1

271.1

7.4

44.6

—

3,063.2

Reportable segment net assets

582.3

40.4

56.9

(7.6)

(134.0)538.0

Unallocated assets and liabilities

42.9

Consolidated net assets

580.9

Unallocated assets and liabilities consist of other central assets and liabilities, plus deferred and current corporation tax balances. These assets andliabilities are not regularly reviewed by the Board of Directors in the reportable segment format.
There is an asymmetrical allocation of assets and income to the reportable segments, in that the interest earned on cash and cash equivalent
assets deployed in the UK Car Insurance, Price Comparison and International Car Insurance segments is not allocated in arriving at segment
profits. This is consistent with regular management reporting.
Eliminations represent inter-segment funding and balances included in trade and other receivables.
The segment assets and liabilities at 31 December 2013 are as follows:
As at 31 December 2013
UK CarInsurance£mInternational Car
Insurance£m

Price
Comparison
£m

Other
£m

Eliminations
£m

Total
£m

12.4

Property and equipment

8.2

2.6

1.0

0.6

—

Intangible assets

76.5

13.1

2.6

0.6

—

92.8

Reinsurance assets

705.0

111.4

—

4.8

—

821.2

104.1

(11.0)

7.1

35.1(57.8)

77.5

2,113.4

122.2

—

—

—

2,235.6

Trade and other receivables
Financial assets
Cash and cash equivalents

101.6

35.7

38.7

8.6

—

184.6

Reportable segment assets

3,108.8

274.0

49.4

49.7

(57.8)

3,424.1

Insurance contract liabilities

1,690.4

198.5

—

12.4

—

1,901.3

Trade and other payables

959.9

36.0

6.5

11.3

—

1,013.7

Reportable segment liabilities

2,650.3

234.5

6.5

23.7

—

2,915.0

Reportable segment net assets

458.5

39.5

42.9

26.0

(57.8)

509.1

Unallocated assets and liabilities

15.0

Consolidated net assets

524.1

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201487

NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2014

5. Premium, claims and profit commissions
5a. Accounting policies(i) Revenue – premiums
Premiums relating to insurance contracts are recognised as revenue proportionally over the period of cover. Premiums with an inception dateafter the end of the period are held in the statement of financial position as deferred revenue. Outstanding collections from policyholders arerecognised within policyholder receivables.
(ii) Revenue – profit commission
Under some of the co-insurance and reinsurance contracts under which motor premiums are shared or ceded, profit commission may be earned
on a particular year of account, which is usually subject to performance criteria such as loss ratios and expense ratios. The commission is dependent
on the ultimate outcome of any year, with revenue being recognised when loss and expense ratios used in the preparation of the financial statements
move below a contractual threshold.
(iii) Insurance contracts and reinsurance assets
Premiums
The proportion of premium receivable on in-force policies relating to unexpired risks is reported in insurance contract liabilities and reinsurance
assets as the unearned premium provision – gross and reinsurers’ share respectively.
ClaimsClaims and claims handling expenses are charged as incurred, based on the estimated direct and indirect costs of settling all liabilities arisingon events occurring up to the balance sheet date.
The provision for claims outstanding comprises provisions for the estimated cost of settling all claims incurred but unpaid at the balance sheet
date, whether reported or not. Anticipated reinsurance recoveries are disclosed separately as assets.
Whilst the Directors consider that the gross provisions for claims and the related reinsurance recoveries are fairly stated on the basis of the information
currently available to them, the ultimate liability will vary as a result of subsequent information and events and may result in significant adjustments
to the amounts provided.
Adjustments to the amounts of claims provisions established in prior years are reflected in the income statement for the period in which theadjustments are made and disclosed separately if material. The methods used, and the estimates made, are reviewed regularly.
Provision for unexpired risks is made where necessary for the estimated amount required over and above unearned premiums (net of deferredacquisition costs) to meet future claims and related expenses.
Co-insurance
The Group has entered into certain co-insurance contracts under which insurance risks are shared on a proportional basis, with the co-insurer taking
a specific percentage of premium written and being responsible for the same proportion of each claim. As the contractual liability is several andnot joint, neither the premiums nor claims relating to the co-insurance are included in the income statement. Under the terms of these agreements
the co-insurers reimburse the Group for the same proportionate share of the costs of acquiring and administering the business.
Reinsurance assets
Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on the insurance contracts issued by theGroup are classified as reinsurance contracts. A contract is only accounted for as a reinsurance contract where there is significant insurance risk
transfer between the insured and the insurer.
Reinsurance assets include balances due from reinsurance companies for ceded insurance liabilities. Amounts recoverable from reinsurers are
estimated in a consistent manner with the outstanding claims provisions or settled claims associated with the reinsured policies and in accordancewith the relevant reinsurance contract.
The Group assesses its reinsurance assets for impairment on a regular basis, and in detail every six months. If there is objective evidence that theasset is impaired, then the carrying value will be written down to its recoverable amount.
On the commutation of reinsurance contracts, the reinsurer is discharged from all obligations relating to the contract. Reinsurance assets andliabilities relating to the commuted contracts are settled in the period in which the commutation agreement is signed.
5b. Net insurance premium revenue
31 December
2014£m

31 December
2013£mTotal motor insurance premiums written before co-insurance

1,675.6

1,737.6

Group gross premiums written after co-insurance

1,102.1

1,088.4

Outwards reinsurance premiums(644.9)(620.2)

Net insurance premiums written

457.2

468.2

Change in gross unearned premium provision

(2.4)

48.0

Change in reinsurers’ share of unearned premium provision

10.1(33.2)Net insurance premium revenue

464.9

483.0

The Group’s share of the car insurance business was underwritten by Admiral Insurance (Gibraltar) Limited, Admiral Insurance Company Limited
and Elephant Insurance Company. All contracts are short term in duration, lasting for 10 or 12 months.

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INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

5. Premium, claims and profit commissions continued
5c. Profit commission

OTHER INFORMATION

31 December
2014£m

31 December
2013£mUnderwriting year
2009 and prior

5.3

3.1

2010

13.8

24.9

2011

27.8

26.7

2012

24.9

44.6

Total profit commission

71.8

99.3

5d. Reinsurance assets and insurance contract liabilities(i) Objectives, policies and procedures for the management of insurance risk
The Group is involved in issuing motor insurance contracts that transfer risk from policyholders to the Group and its underwriting partners.
Insurance risk involves uncertainty over the occurrence, amount or timing of claims arising on insurance contracts issued.
Reserving risk is the risk that the value of insurance liabilities established is insufficient to cover the ultimate cost of claims incurred at the balance
sheet date, whether reported or unreported. Other risks include inadequate pricing and reinsurance policies, and inappropriate claims management
processes and controls.
The Board of Directors is responsible for the management of insurance risk, although as mentioned in note 6, it has delegated the detailed oversightof risk management to the Group Risk Committee.
The Group also has a Reserving Committee which comprises senior managers within the finance, claims, pricing and actuarial functions. The Reserving
Committee primarily recommends the approach for UK Car Insurance reserving but also reviews the systems and controls in place to support
accurate reserving and material reserving issues such as Periodic Payment Order (PPO) and claims inflation, which represent the key uncertainties
in the amount or timing of claims settlements.
The Board implements certain policies in order to mitigate and control the level of insurance risk accepted by the Group. These include pricing
policies and claims management and administration processes, in addition to reserving policies and co- and reinsurance arrangements as detailedon the following page.
Reserving policies and controls
Reserving risk is mitigated through a series of processes and controls. The key processes are as follows:@@ Regular management and internal actuarial review of individual and aggregate case claim reserves, including regular reporting of management
information and exception reporting of significant movements.
@@ Regular management and internal actuarial review of large claims, including claims settled or potentially settled by PPOs for which the uncertainty
is increased by factors such as the lifetime of the claimant and movements in the indexation for the cost of future care of the claimant.
@@ Bi-annual external actuarial review of best estimate claims reserves using a variety of recognised actuarial techniques, including reviews of thepotential ranges around best estimates.
@@ Use of a Reserving policy which informs management’s reserving decisions for the purposes of the Group’s financial statements. As describedin note 3, critical accounting judgements and estimates, the policy determines that reserves should be set within a range above projected best
estimate outcomes to allow for unforeseen adverse claims development.
Co-insurance and reinsurance
As noted in the Strategic Report, the Group shares a significant amount of the motor insurance business generated with external underwriters.
In 2014, 40% of the UK risk was shared under a co-insurance contract, under which the primary risk is borne by the co-insurer. A further 35%of the UK risk was ceded under quota share reinsurance contracts. Co-insurance and reinsurance contracts are also used in the International
Car Insurance businesses. Further detail can be found in the Strategic Report on page 30.
As well as these proportional arrangements, an excess of loss reinsurance programme is also purchased to protect the Group against very large
individual claims and catastrophe losses.
Concentration of insurance risk
The Directors do not believe there are significant concentrations of insurance risk. This is because, although the Group has historically written only
one significant line of UK insurance business, the risks are spread across a large number of people and a wide regional base. The introduction of theinternational car insurance businesses in recent years and the launch of UK household business in 2012 will further contribute to the diversificationof the Group’s insurance risk as these businesses grow.

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201489

NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2014

5. Premium, claims and profit commissions continued
5d. Reinsurance assets and insurance contract liabilities continued(ii) Sensitivity of recognised amounts to changes in assumptions
The following table sets out the impact on equity and profit or loss at 31 December 2014 that would result from a 1% movement in the UK loss
ratios used for each underwriting year for which material amounts remain outstanding.
Underwriting year
2011

2012

2013

2014

Booked loss ratio

68%

73%

82%

92%

Impact of 1% change (£m)

12.0

12.0

3.0

1.6

The impact is stated net of reinsurance and includes the change in net insurance claims along with the associated profit commission movementsthat result from changes in loss ratios. The figures are stated net of tax at the current rate.
(iii) Analysis of recognised amounts

31 December
2014£m

31 December
2013£m

1,596.0

1,400.4

Gross
Claims outstanding*1
Unearned premium provision

501.4

500.9

Total gross insurance liabilities

2,097.4

1,901.3

Claims outstanding*1

538.2

537.4

Unearned premium provision

291.6

283.8

Total reinsurers’ share of insurance liabilities

829.8

821.2

1,057.8

863.0

Recoverable from reinsurers

Net
Claims outstanding
Unearned premium provision

209.8

217.1

Total insurance liabilities – net

1,267.6

1,080.1 The claims outstanding recoverable from reinsurers at 31 December 2014 includes £21.4 million representing outstanding recoveries from excess of loss
reinsurance contracts*1

The maturity profile of gross insurance liabilities at the end of 2014 is as follows:< 1 year£m

1–3 years£m> 3 years£m

Claims outstanding

542.6

547.3

506.1

Unearned premium provision

236.2

103.3

161.9

Total gross insurance liabilities

778.8

650.6

668.0

< 1 year£m

1–3 years£m> 3 years£m

Claims outstanding

419.9

478.0

502.5

Unearned premium provision

235.4

103.1

162.4

Total gross insurance liabilities

655.3

581.1

664.9

The maturity profile of gross insurance liabilities at the end of 2013 was as follows:

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FINANCIAL STATEMENTS

OTHER INFORMATION

5. Premium, claims and profit commissions continued
5d. Reinsurance assets and insurance contract liabilities continued(iv) Analysis of UK car insurance claims incurred
The following tables illustrate the development of gross and net UK Car Insurance claims incurred for the past five financial periods, including theimpact of re-estimation of claims provisions at the end of each financial year. The first table shows actual gross claims incurred, the second shows
actual net claims incurred and the third shows the development of UK loss ratios. Figures are presented on an underwriting year basis.
Financial year ended 31 December
2010
£m

2011
£m

2012
£m

2013
£m

2014
£m

(360.3)(249.9)

4.2

41.7

28.1

2011

—

(444.5)(329.7)

43.4

51.4

(679.6)

2012

—

—

(463.7)(335.1)50.2(748.6)

2013

—

—

—

(421.2)(321.4)(742.6)

2014

—

—

—

—

(421.9)(421.9)UK gross claims incurred (excluding claims handling costs)(360.3)(694.4)(789.2)(671.2)(613.6)

International and other gross claims incurred(39.4)(65.6)(113.9)(132.6)(159.5)

Claims handling costs(17.0)(25.9)(26.0)(22.9)(21.4)

Total gross claims incurred(416.7)(785.9)(929.1)(826.7)(794.5)

2010
£m

2011
£m

Analysis of claims incurred (gross amounts)

Total
£m

Underwriting year (UK only)
2010 and priorFinancial year ended 31 December
Analysis of claims incurred (net amounts)

2012
£m

2013
£m

2014
£m

Total
£m

Underwriting year (UK only)(184.1)(119.9)

2.9

41.7

28.1

2011

—

(203.7)(151.1)

39.7

51.4

(263.7)

2012

—

—

(191.3)(139.6)50.2(280.7)

2013

—

—

—

(175.4)(133.9)(309.3)

2014

—

—

—

—

(175.8)(175.8)UK net claims incurred (excluding claims handling costs)(184.1)(323.6)(339.5)(233.6)(180.0)International and other net claims incurred(15.9)(28.3)(54.2)(59.9)(70.2)

Claims handling costs(8.5)(11.9)(10.8)

(9.5)

(8.9)

Total net claims incurred(208.5)(363.8)(404.5)(303.0)(259.1)

2013

2014

2010 and priorFinancial year ended 31 December
UK loss ratio development

2010

2011

2012

Underwriting year (UK only)
2010

78%

77%

75%

70%

67%

2011

—

82%

76%

72%

67%

2012

—

—

84%

78%

73%

2013

—

—

—

85%

82%

2014

—

—

—

—

92%

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 201491

NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2014

5. Premium, claims and profit commissions continued
5d. Reinsurance assets and insurance contract liabilities continued(v) Analysis of claims reserve releases (UK Car Insurance business only)
The following table analyses the impact of movements in prior year claims provisions on a gross and net basis. Figures are presented on anunderwriting year basis.
Financial year ended 31 December
Gross

2010
£m

2011
£m

2012
£m

2013
£m

2014
£m

Underwriting year
40.7

10.3

4.2

41.7

28.1

2011

—

—

32.0

43.3

51.4

2012

—

—

—

30.8

50.2

2013

—

—

—

—

18.4

40.7

10.3

36.2

115.8

148.1

—

—

—

—

12.6

Total gross release

40.7

10.3

36.2

115.8

160.7

Net

2010
£m

2011
£m

2012
£m

2013
£m

2014
£m

2010 and priorTotal gross release (UK Car Insurance)
Total gross release (International Car Insurance)

Financial year ended 31 December

Underwriting year
23.5

10.3

2.9

41.7

28.1

2011

—

—

14.7

39.7

51.4

2012

—

—

—

12.8

50.2

2013

—

—

—

—

7.7

23.5

10.3

17.6

94.2

137.4

—

—

—

—

6.3

23.5

10.3

17.6

94.2

143.7

2010 and priorTotal net release (UK Car Insurance)
Total net release (International Car Insurance)
Total net release
Analysis of net releases on UK Car Insurance:– Net releases on Admiral net share

23.1

7.8

16.3

53.3

66.8

– Releases on commuted quota share reinsurance contracts*1

0.4

2.5

1.3

40.9

70.6

Total net release as above

23.5

10.3

17.6

94.2

137.4

 Admiral typically commutes quota share reinsurance contracts in its UK Car Insurance business 24 or 36 months following the start of the underwriting year.
After commutation, any changes in claims costs on the commuted proportion of the business are reflected within claims costs and are separately analysed
here. £70.6 million of releases on commuted quota share contracts is split as follows: 2012: £29.1 million; 2011: £27.9 million; 2010 and prior: £13.6 million*1Profit commission is analysed in note 5c.
(vi) Reconciliation of movement in net claims provision

31 December
2014£m

31 December
2013£m

Net claims reserve at start of period

863.0

660.4

Net claims incurred (excluding releases)

392.9

387.7

Net reserve releases(143.7)(94.2)

Movement in net claims reserve due to commutation

273.6

208.7

Net claims paid

(328.0)(299.6)

Net claims reserve at end of period*1

1,057.8

863.0 The increase in net claims reserve from £863.0 million at 31 December 2013 to £1,057.8 million at 31 December 2014 is partly as a result of the increase in thesize of gross claims reserves but largely due to the impact of commutations of reinsurance contracts in the UK Car Insurance business*1

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FINANCIAL STATEMENTS

5. Premium, claims and profit commissions continued
5d. Reinsurance assets and insurance contract liabilities continued(vii) Reconciliation of movement in net unearned premium provision

OTHER INFORMATION

31 December
2014£m

31 December
2013£m

Net unearned premium provision at start of period

217.1

233.5

Written in the period

457.2

468.2

Earned in the period(464.5)(484.6)

Net unearned premium provision at end of period

209.8

217.1

6. Investments
6a. Accounting policies(i) Investment income and finance costs
Investment income from financial assets comprises interest income and net realised gains on financial assets classified as ‘fair value through profit
or loss’ and ‘available for sale’, and interest income on holdings in term deposits and gilts.
Finance costs from financial liabilities comprise interest expense on subordinated notes, calculated on the effective interest rate method. The effective
interest rate method calculates the amortised cost of a financial asset (or group of financial assets) and allocates the interest income over the expected
life of the asset.
(ii) Financial assets – investments and receivables
Initial recognition
Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss (FVTPL), loans and receivables or held
to maturity investments.
At initial recognition assets are recognised at fair value and classified according to the purpose for which they were acquired.
The Group’s investments in money market liquidity funds and short term debt securities are designated as FVTPL at inception.
This designation is permitted under IAS 39, as the investments in money market funds and short dated securities are managed as a group of assets
and internal performance evaluation of this group is conducted on a fair value basis.
The Group’s deposits with credit institutions and gilts are classified as held to maturity investments, which is consistent with the intention for which
they were purchased.
The Group’s holdings in Fixed Income and Asset Backed Securities are classified as available for sale (AFS) investments, which is consistent with
the intention for which they were purchased.
This designation is permitted under IAS 39.
Subsequent measurement
Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised through the income statement.
AFS Fixed income and Asset Backed Securities are stated at fair value.
Deposits and gilts with fixed maturities, classified as held to maturity investments are measured at amortised cost using the effective interest
method. Movements in the amortised cost are recognised through the income statement, as are any impairment losses.
Loans and receivables are stated at their amortised cost less impairment using the effective interest method. Impairment losses are recognised
through the income statement.
Impairment of financial assets
The Group assesses at each balance sheet date whether any financial assets or groups of financial assets held at amortised cost are impaired.
Financial assets are impaired where there is evidence that one or more events occurring after the initial recognition of the asset, may lead toa reduction in the estimated future cash flows arising from the asset.
Objective evidence of impairment may include default on cash flows due from the asset and reported financial difficulty of the issuer or counterparty.
De-recognition of financial assets
A financial asset is derecognised when the rights to receive cash flows from that asset have expired, or when the Group transfers the asset and all
the attaching substantial risks and rewards relating to the asset to a third party.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short term deposits with original maturities of threemonths or less. All cash and cash equivalents are measured at amortised cost.

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NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2014

6. Investments continued
6a. Accounting policies continued(iii) Financial liabilities – subordinated notes
Initial recognition
The Group’s financial liabilities comprising subordinated notes were initially recognised at fair value received, net of transaction costs incurred.
Subsequent measurement
Subordinated notes are measured at amortised cost using the effective interest method. Movements in the amortised cost are recognised throughthe income statement.
De-recognition of financial liabilities
A financial liability is derecognised when the obligation under that liability is discharged, cancelled or expires.
(iv) Fair value measurement of assets held at amortised cost
The fair value of gilts and subordinated notes held at amortised cost is calculated with reference to quoted market valuations. See note 6d
for a comparison of fair value and carrying value at the statement of financial position date.
The Group’s deposits are held with well rated institutions; as such the approximate fair value is the book value of the investment as impairmentof the capital is not expected. The amortised cost carrying amount of receivables is a reasonable approximation of fair value.
6b. Investment and interest income

31 December
2014£m

31 December
2013£mInvestment return on money market funds

5.4

4.7

Interest income on short dated debt securities—

1.5

Interest income on available for sale debt securities

9.4—

Interest income on term deposits with credit institutions

5.2

6.2

Investment income

2.6

—

22.6

12.4

Unwind of discount on gilts

(0.4)

—

Notional accrual for reinsurers’ share of investment return

(8.3)

—

13.9

12.4

Interest income on held to maturity gilt assets

Interest receivable*1

1.5

1.9

Total investment and interest income

15.4

14.3

31 December
2014£m

31 December
2013£mInterest payable*1

4.6—

Total finance costs

4.6

—

*1

Interest received during the year was £1.5 million (2013: £1.9 million)

6c. Finance costs*1

Interest paid during the year was £nil (2013: £nil)

Finance costs represent interest payable on the £200 million subordinated notes.

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FINANCIAL STATEMENTS

OTHER INFORMATION

6. Investments continued
6d. Financial assets and liabilities
The Group’s financial instruments can be analysed as follows:
31 December
2014£m

31 December
2013
£m

909.2

1,406.1

Financial assets
Investments held at fair value through profit or loss
Money market funds

—

202.4

909.2

1,608.5

822.7

—

822.7

—

Term deposits with credit institutions

263.1

288.4

Gilts

199.1

—

462.2

288.4

Short dated debt securities
Investments classified as available for sale
Available for sale debt securities
Investments classified as held to maturity

Assets classified as loans and receivables
Amounts owed by policyholders
Total financial assets per Consolidated Statement of Financial Position

353.3

368.1

2,547.4

2,265.0

Trade and other receivables

82.0

77.5

Cash and cash equivalents

255.9

187.9

2,885.3

2,530.4

Financial liabilities
Subordinated notes

203.8

—

Trade and other payables

965.8

1,013.7

1,169.6

1,013.7

Total financial liabilities per Consolidated Statement of Financial Position

The nominal £200 million subordinated notes were issued on 25 July 2014 at a fixed rate of 5.5% and have a redemption date of 25 July 2024.
The notes are unsecured subordinated obligations of the Group and rank pari passu without any preference among themselves. In the event of awinding-up or bankruptcy, they are to be repaid only after the claims of all other creditors have been met.
There have been no defaults on any of the notes during the year. The Group has the option to defer interest payments on the notes but to date has
not exercised this right. The aggregate fair value of subordinated dated notes at the balance sheet date is disclosed in the table below.
Fair value measurement
The measurement of investments at the end of the period, for investments held at fair value and short term debt securities held at fair value, is basedon active quoted market values (level one).
The measurement of available for sale debt securities at the end of the period, is also based on active quoted market values (level one).
The deposits are held with well rated institutions; as such the approximate fair value is the book value of the investment as impairment of thecapital is not expected. There is no quoted market for these holdings and as such a level two valuation is used. The book value of term deposits
is £263.1 million (2013: £288.4 million).
The amortised cost carrying amount of receivables is a reasonable approximation of fair value. The fair values of gilts and subordinated notes(both level one valuations) together with their carrying values shown in the Consolidated Statement of Financial Position are as follows:
31 December 201431 December 2013

Carrying
amount
£m

Fair
value
£m

Carrying
amount
£m

Fair
value
£m

199.1

216.2

—

—

203.8

211.2

—

—

Financial assets
Gilts
Financial liabilities
Subordinated notes

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NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2014

6. Investments continued
6d. Financial assets and liabilities continued
The maturity profile of financial assets and liabilities at 31 December 2014 is as follows:
On demand£m< 1 year£m

Between1 and 2 years£m> 2 years£mFinancial assets
605.4

303.8

—

—

Term deposits with credit institutions

—

48.6

104.5

110.0

Short dated debt securities

—

161.3

183.8

477.6

Gilts

—

0.9

—

198.2

Investments held at fair value

—

353.3

—

—

605.4

867.9

288.3

785.8

Trade and other receivables

—

82.0

—

—

Cash and cash equivalents

255.9

—

—

—

861.3

949.9

288.3

785.8
199.2

Receivables – amounts owed by policyholders
Total financial assets

Financial liabilities
Subordinated notes

—

4.6

—

Trade and other payables

—

965.8

—

—

—

970.4

—

199.2

On demand£m< 1 year£m

Between1 and 2 years£m> 2 years£m

The maturity profile of financial assets and liabilities at 31 December 2013 was as follows:

Financial assets
Investments held at fair value

1,104.8

301.3

—

—

Term deposits with credit institutions

—

188.9

99.5

—

Short term debt securities

—

202.4

—

—

Gilts

—

—

—

—

Receivables – amounts owed by policyholders

—

368.1

—

—

1,104.8

1,060.7

99.5—

Trade and other receivables

—

77.5

—

—

Cash and cash equivalents

187.9

—

—

—

1,292.7

1,138.2

99.5——

Total financial assets

Financial liabilities
Subordinated notes

—

—

—

Trade and other payables—

1,013.7———

1,013.7——

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FINANCIAL STATEMENTS

OTHER INFORMATION

6. Investments continued
6d. Financial assets and liabilities continued
Objectives, policies and procedures for managing financial assets and liabilities
The Group’s activities expose it primarily to financial risks of credit risk, interest rate risk, liquidity risk and foreign exchange risk. The Board of Directors
has delegated the task of supervising risk management and internal control to the Group Risk Committee. There is also an Investment Committeethat makes recommendations to the Board on the Group’s investment strategy.
There are several key elements to the risk management environment throughout the Group. These are detailed in full in the Corporate GovernanceStatement. Specific considerations for the risks arising from financial assets and liabilities are detailed below.
Credit risk
The Group defines credit risk as the risk of loss if another party fails to perform its obligations. The key areas of exposure to credit risk for theGroup result through its reinsurance programme, investments, bank deposits and policyholder receivables.
Economic and financial market conditions have led the Directors to consider counterparty exposure more frequently and in significant detail.
The Directors consider that the policies and procedures in place to manage credit exposure continue to be appropriate for the Group’s risk
appetite and, during 2014 and historically, no material credit losses have been experienced by the Group.
There are no specific concentrations of credit risk with respect to investment counterparties due to the structure of the liquidity funds whichinvest in a wide range of very short duration, high quality securities. Cash balances and deposits are placed only with highly rated credit institutions.
The detailed holdings are reviewed regularly by the Investment Committee.
To mitigate the risk arising from exposure to reinsurers (in the form of reinsurance recoveries and profit commissions), the Group only conducts
business with companies of appropriate financial strength ratings. In addition, many reinsurance contracts are operated on a funds withheld basis,
which substantially reduces credit risk, as the Group withholds the cash received as collateral.
The other principal form of credit risk is in respect of amounts due from policyholders, largely due to the potential for default by instalment payers.
The impact of this is mitigated by the large customer base and low average level of balance recoverable. There is also mitigation by the operationof numerous high- and low-level controls in this area, including payment on policy acceptance as opposed to inception and automated cancellation
procedures for policies in default.
The Group’s maximum exposure to credit risk at 31 December 2014 is £3,047.4 million (2013: £2,644.8 million), being the carrying value of financial
assets and cash, and the excess of reinsurance assets over amounts owed to reinsurers under funds withheld arrangements. The Group does notuse credit derivatives or similar instruments to mitigate exposure. The amount of bad debt expense relating to policyholder debt charged to theincome statement in 2014 and 2013 is insignificant.
There were no significant financial assets that were past due at the close of either 2014 or 2013.
The Group’s credit risk exposure to assets with external ratings is as follows:
Rating31 December
2014£m

31 December
2013£mFinancial institutions – Credit institutions

AAA

291.1

413.0

Financial institutions – Credit institutions

AA

625.8

531.2

Financial institutions – Credit institutions

A

1,216.0

1,060.6

Financial institutions – Credit institutions

BBB and below

119.6

80.0

UK Government gilts

AA

199.1

—

Reinsurers

AA

207.8

190.8

Reinsurers

A

16.3

14.0

Interest rate risk
The Group considers interest rate risk to be the risk that unfavourable movements in interest rates could adversely impact on the capital valuesof financial assets and liabilities.
As noted above, the Group invests the following asset types:@@ Money market liquidity funds and cash plus liquidity funds, which in turn invest in a mixture of short dated fixed and variable rate securities, such as cash
deposits, certificates of deposits, floating rate notes and other commercial paper.
@@ Term deposits with well rated institutions are short in duration (one to five years). These are classified as term and valued at amortised cost.
Therefore neither the carrying value of the asset, nor the interest return will be impacted by fluctuations in interest rates.
@@ Available for sale debt securities. These securities are held within two segregated mandates. The guidelines of the investments retain a similar
credit quality of the money market funds (all holdings are investment grade). The duration of the securities is relatively short and similar to theduration of the on book claims liabilities (the average duration is three years).
@@ UK Government gilts. These are classified as term and valued at amortised cost. Therefore neither the capital value of the gilts, nor the interest return,will be impacted by fluctuations in interest rates.
In 2014, the Group issued £200 million of subordinated notes with a ten year maturity and fixed rate coupon of 5.5%. This liability is valued at amortised
cost and therefore neither the carrying value of the deposits, nor the interest payable, will be impacted by fluctuations in interest rates.
No sensitivity analysis to interest rates has been presented on the grounds of materiality.

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NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2014

6. Investments continued
6d. Financial assets and liabilities continued
Objectives, policies and procedures for managing financial assets and liabilities continued
Liquidity risk
Liquidity risk is defined as the risk that the Group does not have sufficient, available financial resources to enable it to meet its obligations as theyfall due, or can only secure them at excessive cost.
The Group is strongly cash-generative due to the large proportion of revenue arising from non-underwriting activity. Further, as noted above,a significant portion of insurance funds are invested in money market liquidity funds with same day liquidity, meaning that a large proportionof the Group cash and investments is immediately available.
A breakdown of the Group’s other financial liabilities, trade payables and other payables is shown in note 10.
The subordinated notes have a ten year maturity whereas all trade and other payables will mature within three to six months of the balance sheet date.
(Refer to the maturity profile at the start of this note for further detail.)
In practice, the Group’s Directors expect actual cash flows to be consistent with this maturity profile except for amounts owed to co-insurers
and reinsurers. Of the total amounts owed to co-insurers and reinsurers of £756.5 million (2013: £785.3 million), £585.7 million (2013: £629.3 million)
is held under funds withheld arrangements and therefore not expected to be settled within 12 months.
A maturity analysis for insurance contract liabilities is included in note 5. The maturity profile for financial assets is included at the start of this note.
The Group’s Directors believe that the cash flows arising from these assets will be consistent with this profile. Liquidity risk is not, therefore,
considered to be significant.
Foreign exchange risks
Foreign exchange risks arise from unfavourable movements in foreign exchange rates that could adversely impact the valuation of overseas assets.
The Group is exposed to foreign exchange risk through its operations overseas. Although the relative size of the international operations meansthat the risks are relatively small, increasingly volatile foreign exchange rates could result in larger potential gains or losses. Assets held to fundinsurance liabilities are held in the currency of the liabilities; however, surplus assets held as regulatory capital in foreign currencies remain exposed.
The Group’s exposures to net assets held in euros and dollars at the balance sheet date were £2.2 million and £72.0 million respectively(2013: £7.1 million and £60.2 million).
Fair value
For cash at bank and cash deposits and other receivables, the fair value approximates to the book value due to their short maturity. For assets heldat fair value through profit and loss, their value equates to level one (quoted prices in active markets) of the fair value hierarchy.
For gilts and subordinated notes, the fair value is calculated with reference to the quoted market valuation. This is compared to carrying valueearlier in this note.
6e. Cash and cash equivalents

31 December
2014£m

31 December
2013£mCash at bank and in hand

255.9

187.9

Total cash and cash equivalents

255.9

187.9

Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term term deposits with original maturitiesof three months or less.
7. Other Revenue
7a. Accounting policy(i) Contribution from additional products and fees and Other Revenue
Contribution from additional products and fees and Other Revenue includes revenue earned on the sale of products supplementing the core motor
insurance policy, administration and other charges paid by the policyholder, referral fees, revenue from policies paid by instalments and vehiclecommission charges paid by co- and reinsurers. Revenue is credited to the income statement over the period matching the Group’s obligations
to provide services. Where the Group has no remaining contractual obligations, the revenue is recognised immediately. An allowance is madefor expected cancellations where the customer may be entitled to a refund of amounts charged.
Commission from price comparison activities and broking commission earned by Gladiator is credited to revenue on the sale of the underlying
insurance policy.

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FINANCIAL STATEMENTS

7. Other Revenue continued
7b. Contribution from additional products and fees and Other Revenue

OTHER INFORMATION

31 December
2014£m

31 December
2013£mContribution from additional products and fees

185.6

177.0

Price comparison revenue

107.5

112.7

Other Revenue

39.4

38.1

Total Other Revenue

332.5

327.8

Refer to the Strategic Report for further detail on the sources of revenue.
8. Expenses
8a. Accounting policies(i) Acquisition costs and operating expenses
Acquisition costs incurred in obtaining new and renewal business are charged to the income statement over the period in which those premiums
are earned. All other operating expenses are charged to the income statement in the period that they are incurred.
(ii) Employee benefits
Pensions
The Group contributes to defined contribution personal pension plans for its employees. The contributions payable to these schemes are charged
in the accounting period to which they relate.
Employee share schemes
The Group operates a number of equity and cash settled compensation schemes for its employees. The fair value of the employee services received
in exchange for the grant of free shares under the equity settled schemes is recognised as an expense, with a corresponding increase in equity.
For cash settled schemes, the fair value of services received are also recognised as an expense, with a corresponding increase in liability.
For equity settled schemes, the total charge expensed over the vesting period is determined by reference to the fair value of the free shares
granted as determined at the grant date (excluding the impact of non-market vesting conditions). Non-market conditions such as profitability
targets as well as staff attrition rates are included in assumptions over the number of free shares to vest under the applicable scheme.
For cash settled schemes, the total charge expensed over the vesting period is determined by reference to the closing Admiral Group share priceat the end of the period. Prior to the vesting of each scheme, the closing share price at the end of the reporting period is used as an approximation
for the closing share price at the end of the vesting period. As with equity settled schemes, non-market vesting conditions also impact on the total
charge expensed over the vesting period.
At each balance sheet date, the Group revises its assumptions on the number of shares to be granted with the impact of any change in theassumptions recognised through income.
Refer to note 8f for further details on share schemes.
8b. Operating expenses and share scheme charges

31 December 2014

Gross
£m

Recoverablefrom co- andreinsurers
£m

Net
£m

Acquisition of insurance contracts

91.9(56.7)

35.2

Administration and other marketing costs (insurance contracts)

209.5(162.0)47.5

Insurance contract expenses

301.4(218.7)

82.7

Administration and other marketing costs (other)

166.3

—

166.3

Share scheme charges

34.1(12.9)

21.2

Total expenses and share scheme charges

501.8(231.6)270.2

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NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2014

8. Expenses continued
8b. Operating expenses and share scheme charges continued

31 December 2013

Gross
£m

Recoverablefrom co- andreinsurers
£m

Net
£m

Acquisition of insurance contracts

85.5(51.8)

33.7

Administration and other marketing costs (insurance contracts)

203.5(150.5)53.0

Insurance contract expenses

289.0(202.3)

86.7

Administration and other marketing costs (other)

142.0

—

142.0

Share scheme charges

36.0(13.5)

22.5

Total expenses and share scheme charges

467.0(215.8)251.2

The £47.5 million (2013: £53.0 million) administration and marketing costs allocated to insurance contracts is principally made up of salary costs.
Analysis of other administration and other marketing costs:
31 December
2014£m

31 December
2013£mExpenses relating to additional products and fees

37.9

34.4

Price comparison operating expenses

110.3

92.3

Other expenses

18.1

15.3

Total

166.3

142.0

Refer to note 12 for a reconciliation between insurance contract expenses and the reported expense ratio.
8c. Staff costs and other expenses

31 December 201431 December 2013

Total
£m

Net
£m

Total
£m

Net
£m

Salaries

155.3

57.9

148.5

49.2

Social security charges

14.6

6.1

16.7

5.7

Pension costs

5.4

1.9

4.1

1.4

Share scheme charges (see note 8f)

34.1

10.7

36.0

9.0

Total staff expenses

209.4

76.6

205.3

65.3

– Owned assets

6.8

2.7

7.2

2.6

– Leased assets

0.3

0.1

0.1

—

Depreciation charge:

Amortisation charge:– Software

4.6

2.0

4.9

1.9

– Deferred acquisition costs

—

42.7

—

68.8

11.2

3.7

11.4

3.6

Operating lease rentals:– Buildings
Auditor’s remuneration (including VAT):– Fees payable for the audit of the Company’s annual accounts

—

—

—

—

– Fees payable for the audit of the Company’s subsidiary accounts

0.3

0.2

0.3

0.2

– Fees payable for other services

0.3

0.1

0.3

0.1

Net foreign exchange (gains)/losses

(1.4)

(1.4)

1.5

1.5

Analysis of fees paid to the auditor for other services:– Tax compliance services

0.1

—

0.1

—

– Tax advisory services

0.2

0.1

0.2

0.1

– Other services

—

—

—

—

Total as above

0.3

0.1

0.3

0.1

Total and net expenses are before and after co- and reinsurance arrangements respectively.
Refer to the Corporate Governance Report for details of the Audit Committee’s policy on fees paid to the Company’s auditor for non-audit
services. The ratio of non-audit fees to audit fees in 2014 was 109% (2013: 108%).
The amortisation of software and deferred acquisition cost assets is charged to expenses in the income statement.

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FINANCIAL STATEMENTS

OTHER INFORMATION

8. Expenses continued
8d. Staff numbers (including Directors)
Average for the year
2014
Number

2013
NumberDirect customer contact staff

5,179

5,145

Support staff

1,738

1,420

Total

6,917

6,565

31 December
2014£m

31 December
2013£mDirectors’ emoluments

2.0

2.0

Amounts receivable under long term incentive schemes

0.9

0.8

Company contributions to money purchase pension plans

—

—

Total

2.9

2.8

2014
Number

2013
Number8e. Directors’ remuneration(i) Directors’ remuneration(ii) Number of Directors
Retirement benefits are accruing to the following number of Directors under:– Money purchase schemes

2

1– Defined benefit schemes——

31 December
2014£m

31 December
2013£m

8f. Staff share schemes
Analysis of share scheme costs (per the Consolidated Income Statement):

SIP charge (i)

8.6

7.6

DFSS charge (ii)

12.6

14.9

Total share scheme charges

21.2

22.5

The share scheme charges reported above are net of the co- and reinsurers share of the cost and therefore differ from the gross charge reported
in note 8c (2014: £34.1 million; 2013: £36.0 million) and the gross credit to reserves reported in the Consolidated Statement of Changes in Equity(2014: £23.2 million; 2013: £25.7 million).
The Consolidated Cash Flow Statement also shows the gross charge in the reconciliation between ‘profit after tax’ and ‘cash flows from operating
activities’. The co-insurance share of the charge is included in the change in trade and other payables line.
(i) The Approved Share Incentive Plan (the SIP)
Eligible employees qualified for awards under the SIP based upon the performance of the Group in each half-year period. The current maximum
award for each year is £3,000 per employee. The awards are made with reference to the Group’s performance against prior year profit before tax.
Employees must remain in employment for the holding period (three years from the date of award) otherwise the shares are forfeited.
The fair value of shares awarded is either the share price at the date of award, or is estimated at the latest share price available when drawing
up the financial statements for awards not yet made (and later adjusted to reflect the actual share price on the award date). Awards under the
SIP are entitled to receive dividends, and, hence, no adjustment has been made to this fair value.
(ii) The Discretionary Free Share Scheme (the DFSS)
Under the DFSS, details of which are contained in the remuneration policy section of the Directors’ Remuneration Report, individuals receive
an award of free shares at no charge. Staff must remain in employment until the vesting date in order to receive shares. The maximum numberof shares that can vest relating to the 2014 scheme is 2,680,858 (2013 scheme: 2,348,549).
The amount of award that actually vests is based on the growth in the Company’s earnings per share (EPS) relative to a risk free return (RFR),
for which LIBOR has been selected as a benchmark. This performance is measured over the three year period the award applies to. For the2014 and 2013 schemes, 50% of the shares awarded at the start of the three year vesting period are subject to these performance conditions.
The range of awards is as follows:@@ If the growth in EPS is less than the RFR, no awards vest.
@@ EPS growth is equal to RFR – 10% of maximum award vests.
@@ To achieve the maximum award, EPS growth has to be 36 points higher than RFR over the three year period.
Between 10% and 100% of the maximum awards, a linear relationship exists.

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NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2014

8. Expenses continued
8f. Staff share schemes continued(ii) The Discretionary Free Share Scheme (the DFSS) continued
Awards under the DFSS are not eligible for dividends (although a discretionary bonus is currently paid equivalent to the dividend that would havebeen paid on the respective shareholding) and hence the fair value of free shares to be awarded under this scheme has been revised downwards
to take account of these distributions. The unadjusted fair value is based on the share price at the date on which awards were made (as stated in
the Directors’ Remuneration Report).
Number of free share awards committed at 31 December 2014

Awardsoutstanding*1

Vesting
date

SIP H211 scheme

598,400

March 2015

SIP H112 scheme

617,778

September 2015

SIP H212 scheme

533,792

March 2016

SIP H113 scheme

603,432

September 2016

SIP H213 scheme

514,500

March 2017

SIP H114 scheme

575,016

September 2017

DFSS 2012 scheme 1st award

181,668

March 2015

DFSS 2012 scheme 2nd award

1,979,752

October 2015

DFSS 2013 scheme 1st award

173,348

March 2016

DFSS 2013 scheme 2nd award

2,175,201

October 2016

DFSS 2014 scheme 1st award

203,292

March 2017

DFSS 2014 scheme 2nd award

2,477,566

September 2017

Total awards committed*1

10,633,745

Being the maximum number of awards expected to be made before accounting for expected staff attrition

During the year ended 31 December 2014, awards under the SIP H210 and H111 schemes and the DFSS 2011 scheme vested. The total numberof awards vesting for each scheme is as follows.
Number of free share awards vesting during the year ended 31 December 2014

Original awards

Awards vested

SIP H210 scheme

346,590279,990

SIP H111 scheme

489,280

380,160

DFSS 2011 scheme 1st award

1,634,732

1,486,410

DFSS 2011 scheme 2nd award

157,312102,121

9. Taxation
9a. Accounting policy
Income tax on the profit or loss for the periods presented comprises current and deferred tax.
(i) Current tax
Current tax is the expected tax payable on the taxable income for the period, using tax rates that have been enacted or substantively enacted
by the balance sheet date, and includes any adjustment to tax payable in respect of previous periods.
Current tax related to items recognised in other comprehensive income is also recognised in other comprehensive income and not in theincome statement.
(ii) Deferred tax
Deferred tax is provided in full using the balance sheet liability method, providing for temporary differences arising between the carrying amountof assets and liabilities for accounting purposes and the amounts used for taxation purposes. It is calculated at the tax rates that have been enacted
or substantially enacted by the balance sheet date and that are expected to apply in the period when the liability is settled or the asset is realised.
The principal temporary differences arise from carried forward losses, depreciation of property and equipment and share scheme charges. The resulting
deferred tax is charged or credited in the income statement, except in relation to share scheme charges where the amount of tax benefit credited
to the income statement is limited to an equivalent credit calculated on the accounting charge. Any excess is recognised directly in equity.
Deferred tax assets relating to carried forward losses are recognised only to the extent that it is probable that future taxable profits will be available
against which the assets can be utilised. The probability of the availability of future taxable profits is determined by a combination of the classificationof the status of the businesses holding cumulative tax losses and the business plan profit projections for that business, subject to appropriate stress testing.

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9. Taxation continued
9b. Taxation

OTHER INFORMATION

31 December
2014£m

31 December
2013£mCurrent tax
Corporation tax on profits for the year

72.2

83.4

(Over)/under provision relating to prior periods

(0.4)

0.4

Current tax charge

71.8

83.8

Deferred tax
Current period deferred taxation movement

(1.8)

0.1

Over provision relating to prior periods – deferred tax

(0.9)

(0.6)

Total tax charge per Consolidated Income Statement

69.1

83.3

31 December
2014£m

31 December
2013£mProfit before tax

350.7

370.2

Corporation tax thereon at effective UK corporation tax rate of 21.50% (2013: 23.25%)

75.4

86.1

Expenses and provisions not deductible for tax purposes

(0.9)

0.2

Impact of change in UK tax rate on deferred tax balances—

2.7

Adjustments relating to prior periods

(1.3)

(0.2)

Impact of different overseas tax rates(11.2)(5.6)

Factors affecting the total tax charge are:Unrecognised deferred tax

7.1—

Other differences

—

0.1

69.1

83.3

Total tax charge for the period as above
9c. Deferred income tax asset
Analysis of deferred tax asset

Tax treatmentof shareschemes£mCapitalallowances£m

Carriedforward losses
£m

Other
differences
£m

Total
£m

Balance brought forward at 1 January 2013

(3.8)

(1.9)

(5.7)

(3.8)

(15.2)

Tax treatment of share scheme charges through income or expense

1.8

—

—

—

1.8

Tax treatment of share scheme charges through reserves

(2.1)

—

—

—

(2.1)

Capital allowances

—

(1.4)

—

—

(1.4)

Carried forward losses

—

—

(2.1)

—

(2.1)

Other difference

—

—

—

2.0

2.0

(4.1)

(3.3)

(7.8)

(1.8)

(17.0)

Balance carried forward at 31 December 2013
Tax treatment of share scheme charges through income or expense

2.4

—

—

—

2.4

Tax treatment of share scheme charges through reserves

(3.1)

—

—

—

(3.1)

Capital allowances

—

(1.3)

—

—

(1.3)

Carried forward losses

—

—

(5.6)

—

(5.6)

Other difference

—

—

—

1.7

1.7

(4.8)

(4.6)

(13.4)(0.1)(22.9)

Balance carried forward at 31 December 2014

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NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2014

9. Taxation continued
9c. Deferred income tax asset continued
Analysis of deferred tax asset continued
The UK corporation tax rate reduced from 23% to 21% on 1 April 2014. The average effective rate of tax for 2014 is 21.50% (2013: 23.25%). It will fall
to 20% in April 2015. Deferred tax has therefore been calculated at 20% where the temporary difference is expected to reverse after this date.
The deferred tax asset relating to carried forward losses of £13.4 million (2013: £7.8 million) relates to losses incurred in the Group’s US businesses,
Elephant Auto and compare.com, and is calculated at the local US rate of tax (35%).
Elephant Auto (asset recognised: £3.6 million; remaining unused losses: £33 million) – the asset is expected to be recovered over the next sevenyears. The recognised asset has been limited to the amount supported by forecast cash flows over the next seven years. Whilst profits are
expected to be available after 2021, the Group considers these longer term forecasts to be more uncertain and has therefore not recognised an
asset that would only be supported by profits beyond the seven year period.
compare.com (asset recognised: £9.8 million; remaining unused losses: £nil) – the asset is expected to be fully recovered over the next five years.
The recognised asset has been limited to the amount supported by forecast cash flows over the next five years. The forecasts and underlying
assumptions have been reviewed and approved by the Board. In addition, the forecasts have been stressed for both revenue and profit reductions
and the asset remains recoverable under the stressed scenarios.
The Group considers full recovery of the assets to be probable in both cases.
At 31 December 2014 the Group had unused tax losses amounting to £33 million (2013: £nil), relating to these businesses, for which no deferred tax
asset has been recognised.
10. Other assets and other liabilities
10a. Accounting policy(i) Property and equipment, and depreciation
All property and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using the straight line method to write off
the cost less residual values of the assets over their useful economic lives. These useful economic lives are as follows:
Improvements to short leasehold buildings– four to ten years

Computer equipment– two to four years

Office equipment– four years

Furniture and fittings– four years

Motor vehicles– four years(ii) Impairment of property and equipment
In the case of property and equipment, carrying values are reviewed at each balance sheet date to determine whether there are any indications of
impairment. If any such indications exist, the asset’s recoverable amount is estimated and compared to the carrying value. The carrying value is thehigher of the fair value of the asset, less costs to sell and the asset’s value in use. Impairment losses are recognised through the income statement.
(iii) Leased assets
The rental costs relating to assets held under operating leases are charged to the income statement on a straight line basis over the life of the lease.
Leases under the terms of which the Group assumes substantially all of the risks and rewards of ownership are classed as finance leases. Assets
acquired under finance leases are included in property and equipment at fair value on acquisition and are depreciated in the same manner as
equivalent owned assets. Finance lease and hire purchase obligations are included in creditors and the finance costs are spread over the periodsof the agreements based on the net amount outstanding.
(iv) Intangible assets
Goodwill
All business combinations are accounted for using the acquisition method. Goodwill has been recognised in acquisitions of subsidiaries, andrepresents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired.
The classification and accounting treatment of acquisitions occurring before 1 January 2004 have not been reconsidered in preparing the Group’s
opening IFRS balance sheet at 1 January 2004 due to the exemption available in IFRS 1 (First time adoption). In respect of acquisitions prior to
1 January 2004, goodwill is included at the transition date on the basis of its deemed cost, which represents the amount recorded under UK GAAP,
which was tested for impairment at the transition date. On transition, amortisation of goodwill has ceased as required by IAS 38.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash generating units (CGUs) according to businesssegment and is reviewed annually for impairment.
The goodwill held on the balance sheet at 31 December 2014 is allocated solely to the UK Car Insurance segment.
Impairment of goodwill
The annual impairment review involves comparing the carrying amount to the estimated recoverable amount (by allocating the goodwill to CGUs)
and recognising an impairment loss if the recoverable amount is lower. Impairment losses are recognised through the income statement and are
not subsequently reversed.
The recoverable amount is the greater of the fair value of the asset less costs to sell and the value in use of the CGU.
The value in use calculations use cash flow projections based on financial budgets approved by management covering a three year period. Cashflows beyond this period are considered, but not included in the calculation. The discount rate applied to the cash flow projections in the value in
use calculations is 6.8% (2013: 9.8%), based on the Group’s weighted average cost of capital, which is in line with the market (source: Bloomberg).

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10. Other assets and other liabilities continued
10a. Accounting policy continued(iv) Intangible assets continued
The key assumptions used in the value in use calculations are those regarding growth rates and expected changes in pricing and expenses incurred
during the period. Management estimates growth rates and changes in pricing based on past practices and expected future changes in the market.
The headroom above the goodwill carrying value is very significant, and there is no foreseeable event that would eliminate this margin.
Deferred acquisition costs
Acquisition costs comprise all direct and indirect costs arising from the conclusion of insurance contracts. Deferred acquisition costs represent the
proportion of acquisition costs incurred that correspond to the unearned premiums provision at the balance sheet date. This balance is held as anintangible asset. It is amortised over the term of the contract as premium is earned.
SoftwarePurchased software is recognised as an intangible asset and amortised over its expected useful life (generally the licence term). Internally generated
software is recognised as an intangible asset, with directly attributable costs incurred in the development stage capitalised. The internally generated
software assets are amortised over the expected useful life of the systems and amortisation commences when the software is available for use.
The carrying value of software is reviewed every six months for evidence of impairment, with the value being written down if any impairment exists.
Impairment may be reversed if conditions subsequently improve.
10b. Property and equipment

Improvements
to short
leaseholdbuildings£mComputerequipment£m

Officeequipment£m

Furnitureand fittings
£m

Total
£m

Cost
At 1 January 2013
Additions
Disposals

7.3
1.2
—

31.6
1.7
(0.5)

12.9
0.1
—

5.0
0.3
—

56.8
3.3
(0.5)

At 31 December 2013

8.5

32.8

13.0

5.3

59.6

Depreciation
At 1 January 2013
Charge for the year
Disposals

5.3
1.0
—

22.6
3.9
(0.4)

8.7
1.7
—

3.7
0.7
—

40.3
7.3
(0.4)

At 31 December 2013

6.3

26.1

10.4

4.4

47.2

Net book amountAt 1 January 2013

2.0

9.0

4.2

1.3

16.5

Net book amountAt 31 December 2013

2.2

6.7

2.6

0.9

12.4

8.5
16.9
(0.5)
24.9

32.8
6.8
(0.1)
39.5

13.0
1.0
—
14.0

5.3
2.5
—
7.8

59.6
27.2
(0.6)
86.2

6.3
1.7

26.1
3.6

10.4
1.2

4.4
0.6

47.2
7.1

Cost
At 1 January 2014
Additions*1
Disposals
At 31 December 2014
Depreciation
At 1 January 2014
Charge for the year
Disposals

(0.4)

—

—

—

(0.4)

At 31 December 2014

7.6

29.7

11.6

5.0

53.9

17.3

9.8

2.4

2.8

32.3

31 December
2014£m

31 December
2013
£m

2.5

—

Net book amountAt 31 December 2014*1

The increase in additions is due to investment in the fit-out of new premises

The net book value of assets held under finance leases is as follows:

Computer equipment

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NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2014

10. Other assets and other liabilities continued
10c. Intangible Assets
Goodwill£mDeferredacquisition
costs
£m

Software
£m

Total
£m

At 1 January 2013
Additions
Amortisation charge
Disposals

62.3
—
—
—

20.3
67.7
(68.8)
—

9.9
6.8
(4.9)
(0.5)

92.5
74.5
(73.7)(0.5)

At 31 December 2013
Additions
Amortisation charge
Disposals
At 31 December 2014

62.3
—
—
—
62.3

19.2
38.3
(42.7)
—
14.8

11.3
23.4
(4.6)
—
30.1

92.8
61.7
(47.3)—
107.2

Goodwill relates to the acquisition of Group subsidiary EUI Limited (formerly Admiral Insurance Services Limited) in November 1999. It is allocatedsolely to the UK Car Insurance segment. As described in the accounting policies, the amortisation of this asset ceased on transition to IFRS on
1 January 2004. All annual impairment reviews since the transition date have indicated that the estimated recoverable value of the asset is greaterthan the carrying amount and therefore no impairment losses have been recognised. Refer to the accounting policy for goodwill for further information.
10d. Trade and other receivables

31 December
2014£m

31 December
2013£mTrade receivables

78.4

73.9

Prepayments and accrued income

3.6

3.6

Total trade and other receivables

82.0

77.5

31 December
2014£m

31 December
2013£m10e. Trade and other payables

Trade payables

24.6

16.9

Amounts owed to co-insurers and reinsurers

756.5

785.3

Finance leases due within 12 months

1.4

0.1

Other taxation and social security liabilities

20.9

20.6

Other payables

82.2

90.1

Accruals and deferred income (see below)

80.2

100.7

Total trade and other payables

965.8

1,013.7

Of amounts owed to co-insurers and reinsurers, £585.7 million (2013: £629.3 million) is held under funds withheld arrangements.
Analysis of accruals and deferred income:
31 December
2014£m

31 December
2013
£m

60.7

Premium receivable in advance of policy inception

50.9

Accrued expenses

11.1

22.0

Deferred income

18.2

18.0

Total accruals and deferred income as above

80.2

100.7

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OTHER INFORMATION

10. Other assets and other liabilities continued
10f. Obligations under finance leases
Analysis of finance lease liabilities:
At 31 December 2014
Minimum
lease
payments£m

At 31 December 2013

Interest£mPrincipal£m

Minimum
lease
payments£m

Interest£mPrincipal£mLess than one year

1.4

—

1.4

0.1

—

0.1

Between one and five years

—

—

—

—

—

—

More than five years

—

—

—

—

—

—

1.4

—

1.4

0.1

—

0.1

31 December
2014£m

31 December
2013£mWithin one year

8.5

5.3

Within two to five years

36.9

8.2

Over five years

115.5

1.8

Total commitments

160.9

15.3

The fair value of the Group’s lease obligations approximates to their carrying amount.
10g. Financial commitments
The Group was committed to total minimum obligations under operating leases on land and buildings as follows:

Minimum payments due on operating leases

Operating lease payments represent rentals payable by the Group for its office properties. The increase in operating lease commitments from theprior period is due to the agreement of long term lease agreements relating to new premises in South Wales.
10h. Contingent liabilities
The Group is, from time to time, engaged in legal matters or disputes (including, but not limited to, employment, regulatory matters and dataprotection) which might result in an outflow of benefits from the Group. Where the Group is able to reliably estimate probable losses, provision ismade. The Group has not disclosed estimates of the potential financial effect of contingent liabilities arising from matters where the impact ishighly unlikely to be material, or where it is not practicable to do so, or, in cases where it is practicable, where disclosure could prejudice conductof the matters.
In particular, the Group’s US insurance operation is subject to legal action in relation to alleged breach of consumer protection legislation. At thebalance sheet date, the outcome and duration of the legal action is highly uncertain and it is not possible to make a reliable estimate of the outcome.
11. Share capital
11a. Accounting policies(i) Share capital
Shares are classified as equity when there is no obligation to transfer cash or other assets.
(ii) Dividends
Dividends are recorded in the period in which they are declared and paid.
11b. Dividends
Dividends were declared and paid as follows:
31 December
2014£m

31 December
2013£mMarch 2013 (45.5 pence per share, paid June 2013)

—

123.1

August 2013 (48.9 pence per share, paid October 2013)

—

132.7

March 2014 (50.6 pence per share, paid May 2014)

138.3

—

August 2014 (49.4 pence per share, paid October 2014)

135.2

—

Total dividends

273.5

255.8

The dividends declared in March represent the final dividends paid in respect of the 2012 and 2013 financial years. The dividends declared in August
are interim distributions in respect of 2013 and 2014.
A final dividend of 49.0 pence per share (£136 million) has been proposed in respect of the 2014 financial year. Refer to the Chairman’s Statement
and Strategic Report for further detail.

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11. Share capital continued
11c. Earnings per share

31 December
2014£m

31 December
2013
£m

285.2

287.0

276,885,828

274,311,039

Profit for the financial year after taxation attributable to equity shareholders
Weighted average number of shares – basic

103.0p104.6p277,334,765

274,813,144

102.8p104.4pUnadjusted earnings per share – basic
Weighted average number of shares – diluted
Unadjusted earnings per share – diluted

The difference between the basic and diluted number of shares at the end of 2014 (being 448,937; 2013: 502,105) relates to awards committed, but
not yet issued under the Group’s share schemes. Refer to note 8 for further detail.
11d. Share capital

31 December
2014£m

31 December
2013
£m

0.5

0.5

Authorised
500,000,000 ordinary shares of 0.1 pence
Issued, called up and fully paid
278,689,742 ordinary shares of 0.1 pence

0.3—

276,141,432 ordinary shares of 0.1 pence

—

0.3

0.3

0.3

During 2014 2,548,310 (2013: 2,617,838) new ordinary shares of 0.1 pence were issued to the trusts administering the Group’s share schemes.
748,310 (2013: 917,838) of these were issued to the Admiral Group Share Incentive Plan Trust for the purposes of this share scheme to give a closing
number at 31 December 2014 of 7,232,394 (31 December 2013: 6,484,084). These shares are entitled to receive dividends.
1,800,000 (2013: 1,700,000) were issued to the Admiral Group Employee Benefit Trust for the purposes of the Discretionary Free Share Scheme togive a closing number at 31 December 2014 of 12,861,948 (31 December 2013: 11,061,948). The Trustees have waived the right to dividend payments,
other than to the extent of 0.001 pence per share, unless and to the extent otherwise directed by the Company from time to time.
The number of shares in issue at flotation was 258,595,400.
11e. Objectives, policies and procedures for managing capital
The Group manages its capital to ensure that all entities within the Group are able to continue as going concerns and also to ensure that regulated
entities meet regulatory requirements with an appropriate margin. Excess capital above these levels within subsidiaries is paid up to the Groupholding company in the form of dividends on a regular basis.
The Group’s dividend policy is to make distributions after taking into account capital that is required to be held a) for regulatory purposes; b) tofund expansion activities; and c) as a further buffer against unforeseen events. This policy gives the Directors flexibility in managing the Group’s capital.
The Group’s regulatory capital requirements are discussed in the Group Financial Review within the Strategic Report.

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OTHER INFORMATION

11. Share capital continued
11f. Group subsidiary companies
The Parent Company’s subsidiaries are as follows:
Subsidiary

Country ofincorporation

Class ofshares held%
Ownership

Principal
activity

Insurance Intermediary

Able Insurance Services Limited

England and Wales

Ordinary

100

Admiral Insurance (Gibraltar) Limited

Gibraltar

Ordinary

100

Insurance Company

Admiral Insurance Company Limited

England and Wales

Ordinary

100

Insurance Company

Admiral Law Limited

England and Wales

Ordinary90

Legal Company

Admiral Life Limited

England and Wales

Ordinary

100

Dormant

Admiral Syndicate Limited

England and Wales

Ordinary

100

Non Trading

Admiral Syndicate Management Limited

England and Wales

Ordinary

100

Dormant

BDE Law Limited

England and Wales

Ordinary90

Legal Company

Bell Direct Limited

England and Wales

Ordinary

100

Dormant

comparenow.com Insurance Agency LLC

United States of America

Ordinary

67.79(indirect)

Insurance Intermediary

Confused.com Limited

England and Wales

Ordinary

100

Dormant

Diamond Motor Insurance Services Limited

England and Wales

Ordinary

100

Dormant
Insurance Company

Elephant Insurance Company

United States of America

Ordinary

100

Elephant Insurance Services Limited

England and Wales

Ordinary

100

Dormant

Elephant Insurance Services LLC

United States of America

Ordinary

100

Insurance Intermediary

EUI (France) Limited

England and Wales

Ordinary

100

Insurance Intermediary

EUI Limited

England and Wales

Ordinary

100

Insurance Intermediary

Inspop Technologies Private Limited

India

Ordinary

100

Internet technology supplierInspop USA LLC

United States of America

Ordinary

67.79

Insurance Intermediary

Inspop.com (France) Limited

England and Wales

Ordinary

100

Insurance Intermediary

Inspop.com Limited

England and Wales

Ordinary

100

Insurance Intermediary

Rastreator.com Limited

England and Wales

Ordinary75

Insurance Intermediary

For further information on how the Group conducts its business across the UK, Europe and the US, refer to the Strategic Report.
11g. Related party transactions
Details relating to the remuneration and shareholdings of key management personnel are set out in the Directors’ Remuneration Report. Key
management personnel are able to obtain discounted motor insurance at the same rates as all other Group staff, typically at a reduction of 15%.
The Board considers that only the Executive Directors of Admiral Group plc are key management personnel. Aggregate compensation for the
Executive Directors is disclosed in the Directors’ Remuneration Report on pages 60 to 72.

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2014109

NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2014

12. Reconciliations
The following tables reconcile significant key performance indicators and non-GAAP measures included in the Strategic Report to items includedin the financial statements.
12a. Reconciliation of turnover to reported total premiums written and Other Revenue as per the financial statements

Total premiums written before co-insurance arrangements per note 5b of financial statements

31 December
2014£m

31 December
2013£m

1,675.6

1,737.6

332.5

327.8

2,008.1

2,065.4

UK vehicle commission*1(50.8)(48.1)

Other*2

13.7

12.9

1,971.0

2,030.2

Other Revenue per note 7b of financial statements

Turnover as per note 4b of financial statements During 2012 Admiral ceased earning Other Revenue from the sale of non-optional legal protection policies. At the same point, the Group began charging its
panel of co- and reinsurers a vehicle commission. The substance of these changes meant that the total premiums written increased by the amount of revenue
that was previously earned from the sale of non-optional legal protection policies. The vehicle commission included within Other Revenue is therefore
eliminated from the turnover measure to avoid double counting*1*2

Other reconciling items represent co-insurer and reinsurer shares of Other Revenue in the Group’s International Car Insurance businesses

12b. Reconciliation of claims incurred to reported Group loss ratio, excluding releases on commuted reinsurance
31 December 201431 December 2013

UK Car
£m

Group
£m

UK Car
£m

Group
£m

303.0

188.9

259.1

243.3

Less: net claims handling expenses

(8.9)

(8.9)

(9.5)

(9.5)

Add back reserve releases on commuted reinsurance

70.6

70.6

40.9

40.9

Adjusted net claims

250.6

320.8

274.7

334.4

Net insurance premium revenue

365.1

464.9

403.9

483.0

Reported loss ratio

68.6%

69.0%

68.0%

69.2%

Net insurance claims

12c. Reconciliation of expenses related to insurance contracts to reported Group expense ratio
31 December 201431 December 2013

UK Car
£m

Group
£m

UK Car
£m

Group
£m

86.7

Net insurance expenses

43.5

82.7

51.2

Add: net claims handling expenses

8.9

8.9

9.5

9.5

Adjusted net expenses

52.4

91.6

60.7

96.2

Net insurance premium revenue

365.1

464.9

403.9

483.0

Reported expense ratio

14.4%

19.7%

15.0%

19.9%

110

ANNUAL REPORT AND ACCOUNTS 2014

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INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS
PARENT COMPANY BALANCE SHEET

As at

Note

31 December
2014£m

31 December
2013
£m

5

243.1

212.6

0.7

—

203.2

29.5

1.5

8.0

1.4

0.1

50.0

3.3

52.9

11.4

(73.6)(63.4)(73.6)(63.4)

Non-current assets
Shares in Group undertakings
Intangible assets
Other investments

6

Current assets
Amounts owed from subsidiary undertakings
Trade and other receivables

7

Cash at bank and in hand

Creditors – falling due within one year
Other creditors

8

Net current liabilities(20.7)(52.0)

Total assets less current liabilities

426.3

190.1

(203.8)—Creditors – falling due after one year
Subordinated liabilities

9

Net assets(203.8)

—

222.5

190.1

Capital and reserves
Called up share capital

11

0.3

0.3

Share premium account

10

13.1

13.1

—

—

209.1

176.7

222.5

190.1

Capital redemption reserve
Profit and loss account

These financial statements were approved by the Board of Directors on 4 March 2015 and were signed on its behalf by:

Geraint Jones
Chief Financial Officer
Admiral Group plc
Company number: 03849958

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2014111

NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014

The following accounting policies have been
applied consistently in dealing with items
which are considered material in relation
to the financial statements:
1. Basis of preparation
The accounts have been prepared on a going
concern basis. In considering the appropriatenessof this assumption, the Board has reviewed
the Company’s projections for the next
12 months and beyond, including cash flow
forecasts and regulatory capital surpluses.

4. Employee share schemes
The Group operates a number of share schemes for its employees. For equity settled schemescommencing 1 January 2004 and after, the fair value of the employee services received in exchange
for the grant of free shares under the schemes is recognised as an expense in the Parent Company’s
subsidiaries, with a corresponding increase in equity in the Parent Company.
Refer to note 8 of the Consolidated financial statements for further details on share schemes.
5. Shares in Group undertakings£m

Investments in subsidiary undertakings:
At 1 January 2013

192.3

As a result of this review the Directors havesatisfied themselves that it is appropriate toprepare these financial statements on a going
concern basis.

Additions20.3

At 31 December 2013

212.6

The adoption of new accounting standards
during the year has not had a material impact
on either the current year or comparative figures.

At 31 December 2014

The Admiral Group plc Company financial
statements have been prepared in accordancewith applicable accounting standards, under
the historical cost convention and in accordancewith the provisions of Section 396 to theCompanies Act 2006.

6. Other investments

As permitted by Section 408 of the Companies
Act 2006, the profit and loss account of the
Parent Company is not presented. Under
FRS 1 Cash Flow Statements the Company is
exempt from having to present a cash flow
statement on the grounds that its cash flows
are included in the Group’s published
Consolidated financial statements.

At 31 December 2013

29.5

Additions

199.1

Disposals(25.4)At 31 December 2014

203.2

The Parent Company audit fee is not disclosed
in these accounts as it is disclosed in theConsolidated financial statements for AdmiralGroup plc, which precede them at note 8c.
Refer to note 11 of the Consolidated
financial statements for disclosure of
related party transactions.
2. Investments
Shares in Group undertakings are valued atcost less any provision for impairment in value.
3. Taxation
The charge for taxation is based on the profit
for the year and takes into account taxation
deferred because of timing differences between
the treatment of certain items for taxation andaccounting purposes.
Deferred tax assets are recognised to theextent that they are regarded as recoverable.
They are regarded as recoverable to the extent
that, on the basis of all available evidence, it
can be regarded as more likely than not that
there will be sufficient taxable profits fromwhich the future reversal of the underlying
timing differences can be deducted.

Additions

30.5
243.1

A full list of the Company’s subsidiaries is disclosed in note 11 of the Consolidated financial statements.
£mOther investments:
At 1 January 2013

74.6

Disposals(45.1)

Other investments are money market liquidity funds and gilts. Refer to note 6 of the Groupfinancial statements details of the Group’s investments, including money market liquidity funds
and gilts.
7. Trade and other receivables – due within one year

31 December
2014£m

31 December
2013£mTrade and other receivables

0.1

0.1

Corporation tax recoverable

1.3

—

1.4

0.1

31 December
2014£m

31 December
2013£mTrade payables and other liabilities

1.4

0.4

Amounts owed to subsidiary undertakings

72.2

—

—

63.0

73.6

63.4

31 December
2014£m

31 December
2013
£m

203.8

—

203.8

—

8. Other creditors – due within one year

Corporation tax payable

9. Other Creditors – due after one year

Subordinated notes

The Company issued subordinated notes in 2014. Refer to note 6 of the Group financial
statements for details of the subordinated notes issue.

112

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INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

10. Reconciliation of movements in shareholders’ funds

OTHER INFORMATION

Sharecapital£mSharepremium
account£m

At 1 January 2013

0.3

13.1

203.5

216.9

Retained profit for the period

—

—

203.3

203.3

Dividends——(255.8)(255.8)Issues of share capital

—

—

—

—

Share scheme charges

—

—

25.7

25.7

As at 31 December 2013

0.3

13.1

176.7

190.1

Retained profit for the period

—

—

282.7

282.7

Dividends——(273.5)(273.5)

Issues of share capital

—

—

—

—

Share scheme charges

—

—

23.2

23.2

As at 31 December 2014

0.3

13.1

209.1

222.5

Company figures

Retained
profitand loss£m

Total
equity£m

11. Share Capital
Full details of the Company’s share capital are included in note 11 of the Consolidated financial statements.

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2014

113

CONSOLIDATED FINANCIAL SUMMARY

Basis of preparation
The figures below are as stated in the Group financial statements preceding this financial summary and issued previously. Only selected lines fromthe income statement and balance sheet have been included.
Income statement

2014
£m

2013
£m

2012
£m

2011
£m

2010
£m

1,675.6

1,737.6

1,897.2

1,841.3

1,308.6

Net insurance premium revenue

464.9

483.0

498.9

445.8

288.1

Other Revenue

332.5

327.8

361.1

349.0

276.2

Profit commission

71.8

99.3

108.4

61.8

67.0

Investment and interest income

15.4

14.3

15.9

13.7

9.5

Net revenue

884.6

924.4

984.3

870.3

640.8

Net insurance claims(259.1)(303.0)(404.5)(363.8)(208.5)Net expenses(270.2)(251.2)(235.2)(207.4)(166.8)Operating profit

355.3

370.2

344.6

299.1

265.5

(4.6)

—

—

—

—

350.7

370.2

344.6

299.1

265.5

2014
£m

2013
£m

2012
£m

2011
£m

2010
£m

Property and equipment

32.3

12.4

16.5

17.6

13.6

Intangible assets

107.2

92.8

92.5

87.5

82.9

Deferred income tax

22.9

17.0

15.2

10.3

12.4

Reinsurance assets

829.8

821.2

803.0

639.8

357.0

Total premiums

Finance costs
Profit before tax
Balance sheet

Trade and other receivables
Financial assets
Cash and cash equivalents
Assets held for sale
Total assets

82.0

77.5

55.3

52.1

47.9

2,547.4

2,265.0

2,005.1

1,583.0

1,004.7

255.9

187.9

216.6

224.6

246.7

—

—

—

—

1.5

3,877.5

3,473.8

3,204.2

2,614.9

1,766.7

580.9

524.1

460.7

394.4

350.7

2,097.4

1,901.3

1,696.9

1,333.7

806.6

Subordinated liabilities

203.8

—

—

—

—

Trade and other payables

965.8

1,013.7

1,006.5

856.6

561.0

Current tax liabilities

29.6

34.7

40.1

30.2

48.4

3,877.5

3,473.8

3,204.2

2,614.9

1,766.7

EquityInsurance contracts

Total liabilities

114

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INTRODUCTIONSTRATEGIC REPORTCORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATIONGLOSSARY

Accident year

The year in which an accident occurs, also referred to as the earned basis.

Actuarial best estimate

The probability-weighted average of all future claims and cost scenarios calculated using
historical data, actuarial methods and judgement.

Claims reserves

A monetary amount set aside for the future payment of incurred claims that have not yet been
settled, thus representing a balance sheet liability.

Co-insurance

An arrangement in which two or more insurance companies agree to underwrite insurance
business on a specified portfolio in specified proportions. Each co-insurer is directly liable
to the policyholder for their proportional share.

Combined ratio

The sum of the loss ratio and the expense ratio.

Commutation

An agreement between a ceding insurer and the reinsurer that provides for the valuation,
payment and complete discharge of all obligations between the parties under a particular
reinsurance contract.

Expense ratio

The ratio can be calculated on an earned or written basis. Expressed as a percentage, of (i) net
operating expenses, either divided by (ii) written or earned premiums, net of reinsurance.

Insurance market cycle

The tendency for the insurance market to swing between highs and lows of profitability overtime, with the potential to influence premium rates (also known as the ‘underwriting cycle’).

Loss ratio

The loss ratio can be calculated on an accident year or underwriting year basis, and is expressed
as a percentage of (i) claims incurred, divided by (ii) net premiums.

Net claims

The cost of claims incurred in the period, less any claims costs recovered under reinsurance
contracts. It includes both claims payments and movements in claims reserves.

Net insurance premium revenue

Also referred to as net earned premium. The element of premium, less reinsurance premium,earned in the period.

Premium

A series of payments are made by the policyholder, typically monthly or annually, for part of or allof the duration of the contract. Written premium refers to the total amount the policyholder has
contracted for, whereas earned premium refers to the recognition of this premium over the lifeof the contract.

Profit commission

A provision found in some reinsurance and co-insurance agreements that provides for profit sharing.

Reinsurance

Contractual arrangements whereby the Group transfers part or all of the insurance risk accepted
to another insurer. This can be on a quota share basis (a percentage share of premiums, claims
and expenses) or an excess of loss basis (full reinsurance for claims over an agreed value).

Total/Gross/Net premiums written

Total = total premiums written, including co-insurance.
Gross = total premiums written, including reinsurance but excluding co-insurance.
Net = total premiums written, excluding reinsurance and co-insurance.

Turnover

A non-GAAP measure, turnover is the sum of ‘total premiums written’ and ‘Other Revenue’.

Ultimate loss ratio

The projected ratio for a particular accident year or underwriting year, often used in thecalculation of underwriting profit and profit commission.

Underwriting year

The year in which the policy was incepted, also referred to as the written basis. Claims incurred
are allocated to the calendar year in which the policy was underwritten.

Written/Earned basis

A policy can be written in one calendar year but earned over a subsequent calendar year.

ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2014

115

DIRECTORS AND ADVISORS

Directors
Alastair Lyons, CBE
Non-Executive Chairman
Henry Engelhardt, CBE
Chief Executive Officer
Geraint Jones
Chief Financial Officer
David Stevens, CBE
Chief Operating Officer
Roger Abravanel
Non-Executive Director
Manfred Aldag
Non-Executive Director
Annette Court
Non-Executive Director

Company Secretary
Mark Waters
Ty AdmiralDavid Street
Cardiff CF10 2EH
Auditor
KPMG LLP
3 Assembly Square
Britannia Quay
Cardiff CF10 4AX
Actuarial advisor
Ernst & Young LLP
1 More London Place
London SE1 2AF

Penny James
Non-Executive Director

Joint corporate brokers
Merrill Lynch International
2 King Edward Street
London EC1A 1HQSolicitors
Clifford Chance LLP
10 Upper Bank Street
London E14 5JJMargaret Johnson, OBE
Non-Executive Director
Lucy Kellaway
Non-Executive Director
Jean Park
Non-Executive Director

ANNUAL REPORT AND ACCOUNTS 2014

Registrar
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

UBS Investment Bank
1 Finsbury Avenue
London EC2M 2PP

Colin Holmes
Non-Executive Director

116

Bankers
Lloyds Bank plc
City Office
Bailey Drive
Gillingham Business Park
Kent ME8 0LS

WWW.ADMIRALGROUP.CO.UK

INTRODUCTIONSTRATEGIC REPORT

Corporate website
The Group’s corporate website is atwww.admiralgroup.co.uk. A range of
information about the Admiral Group ispresented, including the Group’s history:financial reports and press releases;
corporate responsibility and governance.
The website also includes the contact details
for investor relations.
Financial calendar
Final 2014 dividend
7 May 2015 – Ex dividend date
8 May 2015 – Record date
29 May 2015 – Payment date
Annual General Meeting
29 April 2015
Interim results
19 August 2015
The Group does not produce printed copies
of interim results for shareholders unlessrequested.

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OTHER INFORMATION

Admiral Group businessesUK
Car Insurance:
Admiral www.admiral.com
elephant.co.uk www.elephant.co.uk
Diamond www.diamond.co.uk
Bell www.bell.co.uk
Price Comparison:
Confused.com www.confused.com
Household Insurance:
Admiral Household www.admiral.com/home-insurance

Household

Van Insurance:
Gladiator www.gladiator.co.uk
Spain
Car Insurance:
Balumba www.balumba.es
Qualitas Auto www.qualitasauto.com

The interim results will be available on thecorporate website from 19 August 2015.

Price Comparison:
Rastreator www.rastreator.com

Registered office
Capital Tower
Greyfriars Road
Cardiff CF10 3AZ

Italy
Car Insurance:
ConTe www.conte.it
USA
Car Insurance:
Elephant Auto www.elephant.com
Price Comparison:compare.com www.compare.com
FranceCar Insurance:
L’olivier Assurances www.lolivier.fr
Price Comparison:
LeLynx www.lelynx.fr

The Group’s commitment to environmental issues is reflected in this Annual Report which has
been printed on Revive 100 Silk which is made from 100% post-consumer fibres, FSC® certified
and PCF (Process Chlorine Free). Printed in the UK byusing theirandenvironmental printing technology, and vegetable inks were used throughout.
is a CarbonNeutral® company. Both manufacturing mill and the printer are
registered to the Environmental Management System ISO14001 and are Forest StewardshipCouncil® (FSC) chain-of-custody certified.
ADMIRAL GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2014

117

2014 was anaward winning year!
2nd place in the
Sunday Times Best Big
Companies to Work For listings, 2014

3rd Best
Large UK Workplace
Great Place to Work Institute, 2014Best
Workplaces
Europe

3rd BestMultinational Workplace in Europe,
Great Place to Work Institute’s Best
Multinationals in Europe, 2014

23rd BestBest Large Workplace in Canada(Admiral Halifax)

11th Best
Small to Medium Workplace in Italy(ConTe)5th Best
Workplaces PYMES (SMEs) in Spain
Great Place to Work Institute, 2014
(Rastreator)

8th Best
Company to Work for in Spain(Admiral Seguros: Balumba and Qualitas Auto)

4th Best
Large Employer in the
Richmond Times Dispatch Sterling Award(Elephant Auto)