annual report 2008

Admiral Group
in 2008

Contents

Admiral Group in 2008

4-5

2008 Financial
highlights

2008 Financial highlights

6-7

Chairman’sstatement

Chairman’s statement

8-9

Chief Executive’s
statement

Chief Executive’s statement

10-15

16 UK car insurance
21 Price comparison
23 Non-UK car insurance

26 Other Group items
27 Investments & cash
30 Employees and customers

Business review

Business review

16-33

34 Corporate governance
42 Remuneration report

Governance &Remuneration

Governance and Remuneration

34-47

48 The Admiral Group plc board
50 Directors’ Report

Financial statements
61 Consolidated cash flow statement
62 Notes to the financial statements
99 Consolidated financial summary
100	Admiral Group plc parent
company financial statements

54-10456 Independent auditors report
58 Consolidated income statement
59 Consolidated balance sheet
60	Consolidated statement ofrecognised income and expenses

Board of Directors 48-53 Financial& Directors reportstatements

The Board of Directors and the Directors’ report ADMIRAL GROUP in 2008

Admiral Group in 2008
uk car insurance

1993

1997

1997		

2000

•	We are the third largest private car insurer in the UK, insuring 1.6m cars across our four brands.
We grew by 15% in 2008
•	We sell through direct channels (telephone and internet) and increasingly via comparison
websites•	Total insurance premium generated in 2008 was £690m, 12% higher than 2007
•	Our business is consistently and significantly more profitable than the UK market – the 2008
combined ratio (measuring the ratio of costs to income) was 81%
2008 Performance:• Customer numbers increased 15% to 1.59m from 1.38m
Strong growth• Turnover* rose 13% to £805m (2007: £715m)• Overall profit increased 27% to £180m, from £142m
Profitability• Combined ratio of 81%, down from 83%• Ancillary contribution per vehicle up to £70.7 from £69.0*Turnover (a non-GAAP measure) comprises total premiums written and other revenue

Price comparison

2002•	Launched in 2002, Confused.com is the UK’s leading car insurance comparison website•	Confused also offers a comparison service for household insurance, along with a range ofother insurance and financial products•	The UK market experienced fierce competition in 2008 – TV and press spend by the industry
increased by approximately 50%•	Confused rebuilt and re-launched its website at the end of 2008 and also began a new media
campaign•	New Spanish comparison website, Rastreator.es to launch in 2009

ADMIRAL GROUP plc Admiral Group
in 2008
4-5

2008 Financial
highlights

2008 Performance:• Non-car insurance revenue increased 28% to £13m

Chairman’sstatement

Profitability• Total revenue fell by 4% to £66m from £69m
6-7

Revenue• Profit fell 30% to £26m from £37m

Non-UK car insurance
8-9

2007		

2008

• Total premiums generated rose 83% to £26m (60% excluding
currency impact)

Result• Loss from combined operations £4.1m

1998•	The Group’s UK van insurance broker Gladiator increased its customer numbers by 36% in2008 to nearly 85,000, and increased revenue to £9.5m (+ 27%)

Board of Directors 48-53 Financial& Directors reportstatements•	Total Group cash and financial investments increased 13% to £555m, investment and interest
income steady at £24m
•	Investment strategy remains very cautious – no write-offs in our portfolios

34-47

Other Group activities

Governance &Remuneration

Volumes

16-33• Number of customers increased 57% to 73,700 from 46,900

Business review

2008 Performance:

10-15•	We have launched three new direct car insurance businesses over the past three years•	Our aim is to build profitable, sustainable businesses, leveraging our knowledge of the UK car
insurance market•	Pleasing progress to date, though challenges experienced in each new market•	Aiming to launch a US car insurer in late 2009 / early 2010

Chief Executive’s
statement

2006•	Profits also increased, by 40% to nearly £3m
54-104 f i n a n c ial h ig h lig h t s

Financial highlights
2006

2007

2008

Profit before tax (£m)

147.3

182.1

202.5

Earnings per share (p/share)

39.8

48.6

54.9

Full year dividend (p/share)

36.1

43.8

52.5

Net revenue (£m)

311.0

364.1

422.8

Customer numbers (m)

1.29

1.49

1.75

Group combined ratio

87.3%

85.4%

86.4%

Earnings per share

Profit before tax
250 250150 150

60

50 50

50

40 40

40

pence

£ millions

200200

60 60

30 30

100 100£147.3m£147.3m£182.1m£182.1m£202.5m£202.5m

39.8p
39.8p

48.6p
48.6p

54.9p
54.9p

30

20 20

20

50 50

10 10

10

0 0

0 0

2006
2006

2007
2007

0

2006
2006

2008
2008

2007
2007

2008
2008

2.0 2.0500500400400100

80

1.5 1.5603003001.0 1.0200200£311.0m£311.0m£364.1m£364.1m

1.291.29£422.8m£422.8m

1.491.49

1.751.75

0.5 0.5

100 100

0 0

20

0 0

2006
2006

2007
2007

2008
2008

40

0

2006
2006

2007
2007

2008
2008

150

60

50

40

30
100

£147.3m£182.1m£202.5m0

2006

Full year dividend

2007

2008

2008 Financial
highlights

50

4-5

20

10

0

Net revenue
6-7

60

500

50

400
60 60

pence

40
50 50
30

52.5p

39.8p
39.8p

48.6p
48.6p

54.9p
54.9p

20
10

1.
40
40
200
30 30
100

20 20

£364.1m£422.8m

36.1p
36.1p

43.8p
43.8p

52.5p
52.5p

10 10

2006

2007

2008

2006
2006

2007
2007

2008
2008

10 10

2006

2007

2008

2006
2006

2007
2007

2008
2008

87.3%
87.3%

85.4%
85.4%

86.4%
86.4%

2006
2006

2007
2007

2008
2008

0 0

0 0

Customer numbers

Business review

100Group combined ratio

80
2.02.0100100

60

85.4%

80 80

86.4%

40

%

60 60
1.0 1.0
20

1.29
1.29

1.49
1.49

1.75
1.75

2006

2007

2008

0 0.5
0.5

20 20

0 0

2006
2006

2007
2007

2008
2008

34-47

0 0

40 40

Governance &Remuneration

millions

87.3%

16-33

1.5 1.5

10-15£311.0m

20 20
0

0

1

300
50
50

Chief Executive’s
statement

43.8p

2.

8-9

36.1p

40 40

£ millions

60 60

30 30

Chairman’sstatement

08

Admiral Group
in 2008

200

m

.8m
m

ADMIRAL GROUP plc 

250

0Board of Directors 48-53 Financial& Directors reportstatements
54-104

 CH A I R M A N ’ S STAT E M E NT

“Admiral has

been able tocreate 326
new jobs in
Wales overthe past
12 months.

“

Alastair Lyons, CBE

Chairman's statement
Amid all the market turbulence it ispleasing to be able to report anotheryear of sustained growth in turnover,profits, and dividend. Also that in
the gloom of widespread job losses
Admiral has been able to create 326
new jobs in Wales over the past 12
months, not to mention 290 posts
outside the UK. 2008, therefore,
marked another year of successfully
advancing our strategy, being to growour share of the UK private motor
market and exploit the knowledge,
skills and resources attaching toour core business to promote our
expansion overseas and our position
in price comparison.
We estimate that we now accountfor some 6% of the UK private motor
market covering 1.6 million vehicles,
15% up on December 2007 and placing
us third in terms of premium in thismarket. Since the business floated in
September 2004 our vehicle counthas grown by over 12% p.a. compound,testament to the relevance of ourcustomer proposition; the effectivenesswith which the business has seized
the opportunities presented by theinternet and the rise of aggregators; andcontinuing innovation such as Admiral
MultiCar. This growth in our bookin 2008 was accompanied by a 17%
increase in profit derived from ancillary
products and services.
The upward trend in pricing thatstarted to emerge a year ago has
been sustained during 2008. As Henry
Engelhardt discusses more fully in his
CEO’s report, we increased our rates
by around 4%, generally in line withthe market as a whole, whilst claims
frequency continued to fall. Ourestablished reserving methodology
under which we make a prudent
assessment of claims in their earlystages engendered further significant
releases as these prior year claims aged.
In my statement last year I underlined
the rapid growth of competitionin car insurance price comparison.

ADMIRAL GROUP plc Admiral Group
in 2008
10-15

Business review
16-33

Governance &Remuneration
34-47

Board of Directors 48-53 Financial& Directors reportstatements

Alastair Lyons
Chairman

Chief Executive’s
statement

I would like to take this opportunity
to extend the thanks of the Board
to everyone who has contributed toanother successful year – our staff
at home and overseas; our Board,
executive and non-executive; oursuppliers; and above all our 1.7 million
customers, whose satisfaction
through great products and great
service will provide the basis of ourcontinuing success.

8-9
54-104

Our success reflects both excellent
strategic leadership and first-classexecution by our staff across all
aspects of our operations. Our staff
have been shareholders in Admiral
for the last 9 years, initially under
private equity ownership and now
through the Free Share Schemes
put in place at flotation. We see
this alignment of the interests ofour staff and our shareholders as
fundamental to our success, and weare strongly of the view that there isa direct link between our staff being
owners of the business and our having

Admiral is now one of the largest
private employers in Wales and, assuch, is a significant part of the local
community. The contribution thatthe company has made to Wales wasrecognised by the award of an honorary
CBE to Henry Engelhardt in April 2008,
on which may I once again extend tohim our hearty congratulations. We
encourage our staff to work with local
projects and we provided financial
support during the year to suchdisparate events as the Admiral Cardiff
Big Weekend offering 3 days of quality
live music, and the South Wales Echo
Community Champion Awards.

Chairman’sstatementThis year our normal dividend
amounted to 24.7p per share, and our
special to 27.8p per share, bringing to£220m the total we have declared as
special dividends since flotation in
September 2004, this being in addition
to £215m normal dividends over thesame period. Total dividends for theyear, therefore, amounted to 52.5p
per share, a 20% increase on last year,
representing a yield of 6.1% basedon the closing share price on 27
February 2009.

As a principle we return all available
surpluses to shareholders after taking
into account our required solvency,
our overseas expansion plans, anda prudent margin – currently £25m
– against contingencies. We, therefore,
commit to pay a standard normal
dividend that has grown in line with
our growth in profits based on a
45% pay-out ratio, and pay whateverremains as available surplus as a
special dividend which will, therefore,
fluctuate from year to year.

6-7

Having launched Balumba.es in Spain
in 2006 and AdmiralDirekt.de inGermany in 2007, 2008 was the turnof ConTe.it in Italy at the end of May.
It has always been the Admiral way
to learn by doing, taking relatively
small and inexpensive steps to test
different approaches and identify
the best way forward. Our expansion
overseas is central to our long-term
strategy of growth of our direct
private motor franchise, and this will
require sustained investment until
we achieve the scale to support
the infrastructure necessary in eachcountry, and have selected the bestmodel to write profitable business.
In this context we congratulate ourSpanish team on bringing their loss
ratio at month 12 down from 137% for
the 2007 underwriting year to 102% for2008 whilst growing their book 18% to55,000 customers by the year-end. Our
teams in Germany and Italy are both at
an early stage of determining how best
to penetrate their respective markets,
and we now also have a team workingin Richmond, Virginia towards a launchin the US.

The result for the year was a pre-tax
profit of £202.5 million, an 11% increaseon 2007 off a 13% growth in total
written premiums.

been placed for 9 consecutive years
amongst the Sunday Times Top 100
Companies to Work For in the UK. Our
remuneration philosophy combinesbase salary and performance-relatedshares across our entire business and
we are delighted that achievementin full of the objectives set for 2008
meant that eligible employees again
realised the maximum award of £3,000
free shares under our Approved
Scheme. The second 3-year period forthe Discretionary Free Share Scheme
significantly exceeded the performance
conditions, qualifying the scheme tovest the maximum share entitlement
under the individual awards.

2008 Financial
highlights

With a very prudent investment
philosophy, only employing cash
deposits or money market funds, it wasinevitable that the sharp fall in generalinterest rates should have had anequivalent impact on our investment
income. 100% of our, and ourpolicyholders’, money was, however,secure.

4-5With another enormous increase inmarketing expenditure in this sector,
it was inevitable that the market shareheld historically by Confused would
reduce, albeit that the overall market
has continued to expand rapidly,
growing by an estimated 60% in 2008.
In determining how much to commit
ourselves we sought to balance our
margin of profitability and defenceof our leadership position. Across2008 as a whole Confused’s turnoverheld broadly steady, being down 4%
on the year, but at a significantly
higher marketing cost such that
Confused profits fell from £37 million
to £26 million. Price comparison now
accounts for 38% of the private motor
market, up from 24% in 2007, andshows no sign of stopping its growthwhich is good news both for Confused
and for the Admiral brands, for which
it represents the principal source of
new business. We would, however,anticipate that this sector will remain
highly competitive whilst some players
continue to be prepared to incur losses
to attempt to build share.

1 0 CH I E F E X E C U T I V E ’ S STAT E M E NT

Chief Executive’s statement““

Our strategy is rather
simple: continue our
profitable growthin the UK and takewhat we know anddo well and do it
elsewhere.
Henry Engelhardt, CBE

At the end of 2008 themarket capitalisation of
Admiral Group was almost
twice that of General Motors.
Funny year 2008!
Normally at this point in mycommentary I like to get right to thehighlights so that shareholders can see
straight away what we accomplishedin the year. This year, however, I think
there are few key messages that I needto get across and, for those of you who
never read beyond the third paragraphof these reports, I’d better put themnext to make sure you get them. The
highlights, and there were plenty ofthem, will follow, further down thepage.
Key messages:
1 Resistant, not proof
2 Freight train gaining speed
3 Headlines don’t mirror reality
4 Fierce competition
5 It’s not just add water and stir
6 Stick to the strategy
So, for those of you who only do threeparas, thanks for your time. For those
who want to know more, please read on.

Resistant, not proof
Car insurance is probably as good anindustry as there is in a recession. Thevery simple fact that it’s compulsory
purchase means consumers aren’t
deciding whether or not to buy it
this year, they’re just asking ‘whofrom?’ I don’t think any industry is
airtight, recession-proof, but this one isrecession-resistant – it’s a compulsory
purchase product! I don’t see people
giving up their cars en masse and sothey’ll have to buy the insurance. I
do see consumers shopping aroundeven more to ensure they get the best
deal. In the UK, I think this additional
shopping, especially when it’s done

ADMIRAL GROUP plc 11
Admiral Group
in 2008
Business review
16-33

Governance &Remuneration
34-47

Board of Directors 48-53 Financial& Directors reportstatements

The UK car insurance market remains
a very competitive place. The market
performed pretty much as we forecastwith rates grudgingly (sloth-like?),inching upwards in 2008. Basedon our data, headlines of 5%-10%rate increases during the year are
misleading. I don’t know the exact
methodology of either the AA or

10-15

Headlines don’t mirror
reality

Chief Executive’s
statement

In particular, we’re really quite
proud of our ability to increase theancillary contribution per vehicle,
albeit modestly (£69.00 to £70.70).
Growing or even keeping the ancillary
contribution per vehicle stable ischallenging in the current economic
climate. However, our track record on
this is good and we feel comfortablethat ancillary income per vehicle in2009 will be close to, if not above, the2008 figure.

8-9

All of this was achieved in anenvironment where distribution
patterns were changing rapidly andprice hikes were hard to come by.

In addition to getting a greater shareof the profits through improved
reinsurance arrangements we fully
expect the UK business to growfurther in 2009. The combination of
all these factors means that the lowrisk, capital-lite, high-dividend model
moves forward in 2009.

Chairman’sstatement

The aforementioned freight train is
our UK direct business. We continue
to grow the number of customers
we serve, premium income, ancillary
revenues and, not surprisingly, ourprofits. The number of vehicles weinsure in the UK grew by 15% in 2008.
15%! The profits increased from £142m
to £180m. Other signs of our excellent
performance here are:• Premium income increased by 12%,from £617m to £690m;• Combined ratio fell from 83% to 81%;• Ancillary income per vehicle rosefrom £69 to £71;

6-7

Freight Train Gaining Speed

A couple of years ago we revised theexisting agreement with Munich Re in
favour of an agreement that goes until
at least 2014. The new agreement gives
us better profit share terms in 20078-9 and then further improvements
in 2010 and beyond. The benefits ofthese profit share improvements are
only just starting to hit the bottom
line with releases from the 2007
underwriting year. In addition, inorder to give us greater control over
our book, Munich Re is in the middle
of a multi-year process of steppingback from underwriting 65% (2006) to40% (2011). For 2008 they took 55%
and for 2009 they will take 50%. We
have been fortunate to replace thiscapacity for 2009, 2010 and 2011 withother reinsurers, with arrangementsthat are shorter in duration and smaller
in size, such that we retain a greater
proportion of the profits than the
Munich Re deal.

2008 Financial
highlights

You might now wonder what the‘gaining speed’ part of the freight train
is all about. Well, we’ve made changes
to our reinsurance arrangements thatwill mean we get a greater share of any
underwriting profits in the future. Thismeans that even if we stand still, we’ll
be more profitable.

4-5

on price comparison sites, plays very
nicely in Admiral’s hands, because it
becomes more and more a survivalof the fittest. And we’re one of, if
not the, fittest. And in those markets
where we have fledgling businesses,
additional shopping around will only
make our job easier.

54-104

1 2 CH I E F E X E C U T I V E ’ S STAT E M E NT

Deloitte’s price trackers but I’d besurprised if they pick up on special
offers (like Direct Line’s early 2009 offer
of 12 months cover for 10 months cost
implying a 16.6% price reduction) or any
special rates on price comparison sites.
A recent review of prices done solely
on price comparison sites indicated, forinstance, that the best rate offered for avariety of risks actually declined by 1%
in January 2009.
Rate increases are being muted by thedominance of price comparison sites,
where consumers naturally drift to thelowest price offered. One measure
we use to gauge price changes by themarket is the percentage times oneof our brands comes up first on pricecomparison sites. This percentage
stayed roughly the same throughout
2008. Meanwhile, during the year we
moved our rates up, on average, 4%.
This leads me to think that the market
moved its rates up about 4% as well.
However, I don’t think this modest
price move means the results for themarket will be poor. In my opinion,
subdued claims inflation, led by
reduced accident frequency, will
result in this year being no worse forthe market than 2007. I think 2008
will again be marked by large reserve
releases by the market as a whole.

The UK car insurance market?

It’s not yet clear how rates will trend
in 2009. There are competing factorsthat influence the potential of rateincreases and rate decreases. On the‘rates moving up’ side, there is thedecline in interest rates and therefore
investment income. With firms
earning less investment income there
is added pressure to produce a better
underwriting result. In addition, lower
petrol prices might spur more driving,which would result in more accidents,
which in turn should lead to priceincreases. Already the winter has been
more severe than many recent winters,with a corresponding rise in frequency.
All of these factors weigh in favour ofrate increases.

On the ‘rates stable or moving down’side there is lack of intense pain in
the industry. It does not appear thatthe industry as a whole is suffering alot; combined ratios plus profits fromancillary products, after releases for2007 (latest data available) indicate themarket makes a reasonable return on
capital. Economic pain is always thegreatest catalyst for price increases andif that pain does not exist then insurers
generally do not increase rates. In
addition, the further growth of pricecomparison sites means more andmore consumers will get the industry’s
lowest rate, pinning the industry torate increases only as dictated by theslowest mover for any individual risk.
Lastly, the recession might result in
people driving less and, despite thedifficult winter, this would have abeneficial effect on frequency, whichmight lead to insurers deciding to holdthe line on, or even decrease, rates.
All in all, I think it means a bit of asleepy year on rates, with the above
cocktail of factors working to produce
rate increases similar to 2008. For
those needing animal imagery I’dsuggest the koala bear. There are anumber of idiosyncrasies about the
koala bear that resonate with similarity
to the UK car insurance market. Hereare three, I leave it to you to pick andchoose which ones best represent the
UK car insurance market: koalas sleep
some 16 hours a day, they can be nasty
if provoked and they are known tosmell quite bad.

Fierce competition
Confused had a pretty good year.
However, as predicted, competition
was fierce and as a result profits
reduced from £37m in 2007 to £26m in
2008. The spend on TV and press by
price comparison sites has gone fromapproximately £5.5m in 2006 to £51m
in 2007 to £76m in 2008. Confused’s
portion of this spend has gone fromvirtually 100% in 06, to a third of the
spend in 07 to around a fifth of theADMIRAL GROUP plc 13
Admiral Group
in 2008
4-5

45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0

2008 Financial
highlights

H2 07

H1 08

6-7

H1 07

H2 08

Chairman’sstatement

Price comparison market media spend £m

The new Confused.com website.

Business review
16-33

Governance &Remuneration
34-47

Board of Directors 48-53 Financial& Directors reportstatements

We are in the process of sowing
the seeds of our future growth andsuccess with the development ofour businesses outside the UK. In
10 years time I expect these seeds
to be a forest of profit growth for
the Group. However, the non-UK
operations should not be expected tomake any noticeable return for a few
years. Building profitable, growing,
sustainable direct operations takes
time. Balumba, in Spain, has only justcompleted its second full year of
trading, AdmiralDirekt in Germany isless than two years old and ConTe in
Italy only launched at the very end of
May 2008. The development of thesebusinesses outside the UK will takenot only time, but also money. Not a
lot of money, but money nonetheless.

10-15

It’s not just add waterand stir

Chief Executive’s
statement

But enough whinging about what a
tough world it is, let me tell you what
Confused is doing to respond. First, we
took the better part of 2008 to rebuild
the quote engine. It’s now faster andeasier for the customer. It also looks
better. Second, we’ve launched a
new TV campaign which, given thenumber of times people have seen theold campaign over the last few years,
will certainly be welcomed by the
British public. Third, we are improving
Confused’s offerings of other products.
In particular we’re seeing growthin household insurance and energy
comparisons.

It is very hard to predict Confused’s
result for 2009, the sector remains
under intense competitive pressures.
However, the market is still growing
and this, coupled with the changes
Confused made at the end of 2008,
has resulted in Confused producing
the biggest number of car insurance
quotes ever in January 2009. But, I’msorry to say, it was not a record monthfor profits. The missing data point to
the future is how much money eachof the competitors in this sector iswilling to spend in 2009 to try andreach, or grow, profitability. If January
is anything to go by then Britain will
be seeing a lot of price comparison
advertising during the year!

8-9

spend in 08. Simply put, competition
has taken a lot of profit out of thismarket through increased marketingcosts, despite continued growth in
the number of people using pricecomparison sites. The dominance of
price comparison sites as the methodof choice for buying car insurance inthe UK is reflected by:• The fact that in 2008 73% of
Admiral’s new business originatedthrough price comparison sites, up
from 50% in 2007, up from 30% in
2006.
• TV and press advertising by pricecomparison sites as a percentage
of all car insurance TV and press
advertising rose from 35% in 2007 to
52% in 2008.
• The fact that only one brand has
yet to have a presence on any
price comparison site and that’s
Direct Line. Even all the other RBS
insurance brands have joined pricecomparison panels.

54-104

1 4 CH I E F E X E C U T I V E ’ S STAT E M E NT

We don’t do things on a grand scale
until we are quite confident of theresult and we work hard to learn as wego, but as we grow these businesses
on top of each other the capitalrequirement increases. This should
not put off investors, as our businessmodel generates cash and we have no
debt to repay.
Balumba was challenged to improve
its loss ratio in 2008 and it did so. The
loss ratio for 2007 at the end of 2007
was 137%. The loss ratio for 2008 at
the end of 2008 was 102%. We arelooking for continued improvementin 2009. Improving the loss ratio was
our primary focus during the year andwhile we were making adjustments topricing and claims management wepulled back a bit on our advertising
spend, resulting in the number ofcustomers Balumba services growing
by 8,500, from 46,900 to 55,400 (18%).
Balumba’s earned combined ratio was
165% for the year, compared to 232%
in 2007. Overall however, Balumba
posted a loss of only £1.2m (€1.5m).
This sum appears modest largely due
to the sale of ancillary products andservices to its customers. This is very
nice income to have but the key tolong-term success for Balumba is tobecome a good insurer.
The German market is an odd beast(certainly bigger and arguably evenless friendly than a koala). There is aseason for car insurance in Germany
that runs about 10 weeks, from early
October to early December. There isvery limited activity during the rest of
the year. This comes about because
almost the entire market renews on
a single date, January 1, and consumers
have to give their insurers a month’s
notice to leave them, which means
they have to give notice by the endof November. After that the only
substantial group of people shopping
are those who are changing vehicle.
Besides the difficult logistics of trying
to gear up for a short sales window, youlose the ability to test, re-calibrate, retest, re-re-calibrate, etc. that we employ
everywhere else. You can test but thenyou have to wait 42 weeks to re-calibrate!
There’s good news and bad news from
AdmiralDirekt.de. On the 1st of January
2009 (from the ‘2008 season’) we hadaround 30,000 policyholders. This wasat the high end of our expectations.
That’s the good news. The bad news
is that the 8,000 policyholders thatwent on risk on January 1, 2008 did
not perform well. The loss ratio forthe 2008 year at the end of 2008
was 142%. Part of this is the volatility
inherent in a small book of businesswhere one or two large claims makea big difference. But part of this too
is down to an inexperience in claims
handling and the typically poorer
loss ratios that accompany first year
business.
Our reaction to these problems wasto spend a lot of energy improving
the claims systems and re-calibrating
our pricing. Our renewal rate for thisseason was low enough to lead us tobelieve our pricing re-calibration had
an effect. Now we wait to see how
this year’s customers perform.
In Italy we were successful in launching
ConTe on schedule and within budget
at the end of May. However, as we’dseen Balumba and, to some extent,
AdmiralDirekt.de, grow their respective
volumes quickly to the detriment of
their loss ratios, in Italy we put rates
up from the outset to protect theloss ratio. The result was our writing
just 3,660 policies in the year withannualised premium income of €1.4m.
However, the 2008 loss ratio at the endof 2008 was 87%! But the loss ratio onsuch a small premium income is subject
to dramatic change with even a single
claim. As the year ended we were recalibrating rates to stimulate sales.
In sum, I am pleased with the progress
we’ve made in Spain, Germany andADMIRAL GROUP plc 15
Admiral Group
in 2008

It is a hugely exciting time within
Admiral Group and I’m glad to bea part of it. I am fortunate to workwith intelligent, highly motivated, nicepeople. I’d like to say a specific thanks
to all the senior managers who are so
dedicated to Admiral Group and to all
the staff in all our offices who work
hard every day to provide a great service
to our customers. I’m looking forward
to another excellent year in 2009.

10-15

Business review
16-33

Opening of the new
Newport office

34-47

Board of Directors 48-53 Financial& Directors reportstatements

Henry Engelhardt
Chief Executive Officer

Governance &Remuneration

Okay, if anyone’s gotten through allthat, it’s time for some highlights of2008. I’m proud to say that it wasanother excellent year for the AdmiralGroup:

Chief Executive’s
statement

Highlights

8-9

We are also looking to expand theinternational presence of our Confusedbusiness. The first launch outside
the UK will again be Spain, with anoperation called Rastreator (a madeup word, but close to ‘rastreador’,
which means tracker). The growth ofinternet distribution for car insurance
makes this market interesting for pricecomparison. This business should go
live sometime in the first half of 2009.

37th best Company toWork For in the UK 2009

Chairman’sstatement

The business in the US will start small,one or two states to begin with and, if
successful, expand to other interestingstates. The company, which has yet tobe named, will be based in Richmond,
Va. and should launch either in the final
quarter of 2009 or first quarter of 2010.
Our strategic plan has always shown fivemarkets to expand into. With the US
coming on-stream that would leave only
the French market left on the list and weare beginning to investigate this market.

6-7

Our strategy has been and continues
to be, rather simple: continue our
profitable growth in the UK and takewhat we know and do well and do it
elsewhere. This means expanding ourdirect businesses geographically totake advantage of changing distribution
patterns in countries with large, mature
car insurance markets. I believe that
this is the way to ensure a prosperous
future. For 2009 this means that,besides continuing to invest in our
Spanish, German and Italian operations,
we are working on a launch in the
United States, the world’s largest car
insurance market.

2008 Financial
highlights

Stick to the strategy

1 Profit before tax up 11% to £202.5m
2	Number of customers up 17% to
1.75m
3 Turnover up 13% to £910m
4	Combined ratio still well below
90% at 86%
5	Top 10 in the FT Best Companies To
Work For; 37th in the Sunday Times
Best Companies To Work For in theUK
6 Launched ConTe in Italy
7 Still debt- free8	Record dividend of 52.5p per sharefor the year9	Robust return on capital of 57%(56% 2007)10	Robust return on income of 56%(57% 2007)11	Number of people employed in
the Group rose to 3,110 from 2,500(+24%), we opened a new office in
Newport (Wales, not Rhode Island)
and we’re hiring in every operation!

4-5

Italy despite the challenges noted
above. They all hold great potential
for the future.

54-104

1 6 B U S I N E SS R E V I E WBusiness review
UK Car Insurance
What we do• We sell, administer and underwrite private car insurance in the UK through four brands– Admiral, Bell, Diamond and elephant.co.uk• Our policies are distributed through direct channels – over the telephone, through our own
websites and also increasingly via price comparison websites• We are the third largest UK private car insurer, with around 1.6m vehicles insured, generating
total premium of £690m. We estimate the combined market share of our brands is around 6%• We also generate ancillary income from products and services that complement the
motor insurance• Our main locations are Cardiff, Swansea and Newport in Wales, though we also operate out ofcall centres in Nova Scotia, Canada and Bangalore, India
Our strategy
The strategy for our core car insurance business is relatively straightforward. We aim to manage
our existing client base and future growth in order to maximise profitability over the medium tolong term. At the same time, we endeavour to give excellent service to our customers, whilst
providing a positive environment for our staff to work and develop in.
We measure customer and staff satisfaction through a number of key performance indicators(KPIs), some of which are outlined in the Customers and Employees sections below.
UK car insurance KPIs:
1) Vehicles insured and growth rate:

3.4%

81.0%

6.7%

• Track record of consistent and significant
growth• Arises out of efficient marketing, focussed
distribution and strong pricing activities• Also boosted by innovative products, suchas MultiCar and 10 month policies

19.0%

6.7%

62.0%

1.24

1.38

1.59

007

2008

2006

2007

2008

Expense ratio

uk Vehicles

2) Reported combined ratio:
6.25%
6.25%
10.0%
50.0%

7.5%
7.5%
7.5%

£60.0mAdmiral option
Swiss Re

£69.3

1.59

25.0%

2010
Hannover Re
New Re15.7%£20.0m

83.4%£75.00£69.0 81.0%

16.7%£40.0m

£0.0m

2009

87.2%

£80.0m

45.0%
7.5%

27.5%

£100.0m

£70.7

19.0%

£66.9m71.5%£75.8m
66.7%£89.0m
62.0%

2006
2006

2007
2007

2008
2008

• Consistent and significant outperformance£70.00against the market• Loss ratio advantage arises from strong
pricing and claims handling operations
1.24 is acquisition
1.38 cost•Expense ratio advantage£60.00driven and also a focus on cost control£65.002006

Loss
ratio profit (£m) Expense ratio
Ancillary

2007

1.59
2008

uk Vehicles

Ancillary income per vehicle (£)
7.5%
10.0%

6.25%
6.25%
10.0%

7.5%
7.5%
7.5%

£100.0m£80.0m

£69.3

£69.0

£70.7

ADMIRAL GROUP plc 17

1.38

1.59

2006

2007

2008

Admiral Group
in 2008

1.24

uk Vehicles

3) Ancillary profit and income per vehicle:£100.0m£75.00

£70.7

£69.0

£70.00£60.0m
7.5%

1.59£40.0m£20.0m£66.9m£75.8m

£89.0m

2006

2007

2008

£60.00£0.0m

Ancillary profit (£m)

Chairman’sstatement

Ancillary income per vehicle (£)

6-7

Hannover Re
New Re£65.00• Significant profit generated from
non-underwriting activities• Strong track record of
introducing and growing nonunderwriting income streams• Continual development of
products and services in
response to changing customer
needs and industry trends

2008 Financial
highlights£69.3£80.0m

4-5

7.5%
7.5%
7.5%

Financial performance
Non-GAAP format income statement

566.0

617.0

690.2

Net insurance premium
revenue

144.9

140.2

161.9

Investment income

9.9

16.7

17.1

Net insurance claims(107.1)(97.0)(105.1)

Net insurance expenses(19.2)(19.9)(26.0)

Underwriting profit

28.5

40.0

47.9

Profit commission

19.9

20.4

34.7

Net ancillary income

66.9

75.8

89.0

Other revenue

5.8

6.0

8.3

UK car insurance result

121.1

142.2

179.9

Compound growth rate of
10%, year on year growth 12%

Significant increase in 2008
due to first recognition ofincome under improved
arrangements

Compound growth rate 15%,
year on year growth 17%* 1 Turnover (a non-GAAP measure) comprises total premiums written and other revenue* 2 Total premiums written (non-GAAP) includes premium underwritten by co-insurers

Governance &Remuneration

Total premiums written*2

16-33

804.8

Business review

2008

714.9

10-15

2007

653.1

Chief Executive’s
statement

2006

8-9

£m
Turnover*1

Key performance indicators
2008

Reported loss ratio

71.5%

66.7%

62.0%

Reported expense ratio

15.7%

16.7%

19.0%

Reported combined ratio

87.2%

83.4%

81.0%

Written basis expense ratio

15.8%

16.7%

16.7%

Claims reserve releases£20.9m£29.5m£38.0mReleases as % of premium

14.4%

21.0%

23.5%

Profit commission as % of premium

13.7%

14.6%

21.4%

Vehicles insured at year-end

1.24m

1.38m

1.59m

Ancillary income per vehicle

£69.3

£69.0

£70.7

Compound growthrate of 13%, year on
year growth 15%

Board of Directors 48-53 Financial& Directors reportstatements

2007

34-47

2006

54-104

1 8 B U S I N E SS R E V I E W

71.5%

66.7%

62.0%

1.24

2006

2007

2008

2006

Loss ratio

Expense ratio

uk VehCo-insurance and reinsurance arrangements
6.25%
6.25%
10.0%

7.5%
10.0%
55.0%

50.0%

7.5%
7.5%
7.5%

27.5%

£69.3

£80.0m£60.0m

45.0%
7.5%

27.5%

£100.0m

1.59

25.0%

£40.0m£20.0m£66.9m

£0.0m

2008

2009

AdmiralAdmiral option

Munich Re

Swiss Re

2010

2006
Hannover Re
New RePartner Re

For the 2008 year, Admiral underwrote 27.5% of the UK premium, up from 22.5% in 2007.
55% of the UK total is underwritten by the Munich Re Group (specifically Great Lakes
Reinsurance (UK) Plc) through a co-insurance agreement, and 17.5% was reinsured to Swiss
Re and Partner Re.
The nature of the co-insurance arrangement is such that 55% of all motor premium andclaims for the 2008 year accrues directly to Great Lakes and does not appear in theGroup’s income statement. Similarly, Great Lakes reimburses the Group for its proportional
share of expenses incurred in acquiring and administering the motor business.
The principal advantages of this significant use of co- and reinsurance are the reduced
capital requirements and also reduced exposure to underwriting risk. This creates a highreturn on shareholder equity and strong cash flows, supporting regular dividends.
The profit commission arrangements in the agreements allow Admiral to participate to alarge extent in the profitability of the total underwriting, and the most recent reinsurance
contracts allow for a significant proportion of the profit to be remitted back to Admiral.
The underwriting arrangements for 2009 have changed compared to 2008: Admiral
will continue to retain a net 27.5%, with Munich Re stepping down to 50% and theremaining 22.5% split between three reinsurers – Swiss Re (10.0%), Hannover Re (6.25%)
and New Re (6.25%).
UK car insurance financial commentary
The UK business again grew strongly in 2008, increasing total premiums written by 12% from£617m to £690m and also growing the number of vehicles insured by 15% to 1.59m. A fall in
average premiums accounted for the difference in the growth rates.
Admiral’s premium rates actually increased by around 4% during 2008, but the continued growthin distribution via price comparison websites partly contributed to a fall in average premiums
written. Also, the mix of the new business and renewal book has shifted very gradually towards
slightly lower premium risks. Our own data on the competitiveness of Admiral’s rates suggeststhat market price changes were broadly in line with our own.
The underwriting results of 2008 showed continued improvement, with a combined ratio of 81%
coming in two points better than 83% for 2007. The private motor market reported a combined
ratio (i.e. including the effect of reserve releases) for 2007 of 104% (115% before releases), meaning
Admiral enjoyed a 21 point outperformance in reported results for that year. We do not expect amaterial change in the market’s result for 2008.

Ancillary pro

Ancillary inc

ADMIRAL GROUP plc 19(Discretionary is defined as a product or service in respect of which a customer makes adecision whether or not to purchase.)

Board of Directors 48-53 Financial& Directors reportstatements

Other – Legal expenses insurance, administration fees

34-47

Discretionary – Breakdown insurance, personal accident insurance, car hire cover, zeroexclusion payment protection insurance

Governance &Remuneration

The major sources, along with a broad categorisation are set out below:

16-33

Although Admiral does not underwrite all the car insurance generated for its own account, it
does retain all ancillary income generated.

Business review

Ancillary income
A large number of income streams combine to form what is known as ‘ancillary’ income.
Most are products or services that complement the core car insurance product (including a
number of insurance products that are not underwritten by Admiral). A portion of the total isdiscretionary.

10-15

Net income from ancillary products and services has for some time been a key source of profit
for the Group, and 2008 was no exception. Ancillary profit increased by around 17% to £89.0m
from £75.8m. Most of the growth came by way of an increase in the number of vehicles insured(+15%), whilst there was also a modest increase in the income per vehicle (£70.70 v £69.00).

Chief Executive’s
statement

The new quota share contracts which came into effect in January 2009 (with Hannover Re and
New Re) include even more favourable terms for Admiral.

8-9

Aside from the underwriting result for Admiral’s own account, another notable feature of the2008 income statement is the significant increase in profit commission income (up 70% to£34.7m). This results from a number of factors, including growth in the overall level of premium
written; a higher percentage of business co-/reinsured in 2007 than previous years and continued
improvement in reported loss ratios for previous years. The main contributor however was thesignificantly improved profit commission terms to Admiral on co-/reinsurance contracts for the2007 year and beyond. We recognised the first profit commission income on this year during
2008.

Chairman’sstatement

The expense ratio increased to 19.0% from 16.7% in 2007. Part of the increase results from an
accounting impact arising from Admiral retaining more of the 2008 premium (27.5%) than 2007(22.5%). A further element of the increase arose due to the commission structures of the quota
share reinsurance contracts. On a like for like basis, the expense ratio for 2008 was in line with 2007.

6-7

In addition to these releases, there is a significant amount of revenue not yet recognised arisingfrom profit commissions earned on the premiums that Admiral does not underwrite itself.
Proportionally these balances have become much more significant at the end of 2008 andconsequently we now consider it more appropriate to consider these two parts together when
we determine the quantum of reserve releases. We seek to achieve a consistent level of overall
prudence.

2008 Financial
highlights

On the Group’s own underwriting, we continue to reserve initially on a conservative basis, above
actuarial projections of ultimate outcomes. This results in a significant margin being held inclaims reserves to allow for any unforeseen adverse development in open claims. This creates a
position whereby Admiral expects to be able to consistently make well above industry average
reserve releases.

4-5

The loss ratio improved to 62.0% from 66.7%, partly reflecting a larger impact resulting from prioryear reserve surplus releases (positively contributing 23.5% in 2008 v 21.0% in 2007), but equallythe ‘pure year’ ratio (i.e. the loss ratio without the benefit of releases) also improved, to 85.5%
from 87.7%, reflecting better claims experience in the 2008 calendar year compared to 2007.

Admiral Group
in 2008

Overall underwriting profit increased by 20% to £48m (representing just less than one quarter of
total 2008 pre-tax profit).

54-104

2 0 B U S I N E SS R E V I E W

Further detail on investment income is set out below.
Regulatory environment
The UK car insurance business operates mainly under the regulation of the UK Financial Services
Authority, and also, by virtue of a Gibraltar based insurance company, under the Financial Services
Commission in that territory.
The FSA regulates two Group companies involved in this business – EUI Limited (an insuranceintermediary) and Admiral Insurance Company Limited (AICL, an insurer), whilst the FSC regulates
Admiral Insurance (Gibraltar) Limited (AIGL, also an insurer).
All three companies are required to maintain capital to levels prescribed by the home regulator,
and all three maintained significant surpluses above those required levels throughout the year.
Treating Customers Fairly (TCF):
FSA regulations require regulated companies to treat their customers fairly, and this has been
an area of significant focus in recent years. Although the Group had a TCF culture along withmanagement information in place prior to the FSA initiative, improvements have been madeto the management information used in the business, and we report some of the data in the
Customers section below.
Risks and uncertainties
There are a number of factors which could affect the business’ future results and prospects andthe main ones are set out below. This is not intended to be a comprehensive list of all risks anduncertainties and the business will always be impacted by its competitors and other factors.
The business may be affected by difficult economic conditions
There is a risk that the recession in the UK could adversely affect the UK car insurance businessin a number of ways:a) Ancillary income – an element of this income stream is discretionary, and whilst it could		 be argued that protection products are more important in difficult economic conditions,		 consumers could choose to reduce the level of non-mandatory products, which would
		 impact the Group’s ancillary incomeb) Claims – there is a risk of increased fraudulent claims, which would affect the Group’s		 underwriting results and also profit commission income
The Group’s insurance business faces inherent claims risk
As with any insurance business, the value of future claims may be different to current
expectations for a number of reasons, many of which are outside the Group’s control. These
could include claims frequency shocks resulting from bad weather, higher claims inflation
resulting from legislative changes. Adverse changes would affect the Group’s underwriting results
and profit commission income.
The business faces operational risk
Operational risk arises across the business in a variety of forms, and if business processes do
not function effectively and efficiently, losses may arise. Potential risk areas include: Claims
handling; internal or external fraud; computer system failure. The Group has a well developed
risk management framework, including a robust set of internal controls, although these can not
be relied upon to completely eliminate the risk of loss.
The business faces regulatory risk
The business is subject to a range of regulatory supervision and should any of it change
significantly, this could materially affect the Group’s operations and the products offered.
Counterparty and other financial risks are discussed in the financial risks section in the notes tothe accounts.

ADMIRAL GROUP plc 21
Admiral Group
in 2008

Price comparison
What we do

6-7

The Group also plans to capitalise on our experience in the UK by establishing new pricecomparison operations overseas.

Chief Executive’s
statement

Financial Performance
Non-GAAP format income statement
2006

2007

2008

34.3

58.8

52.9

Other

4.2

10.3

13.2

Total

38.5

69.1

66.1

Operating expenses(15.4)(32.4)(40.5)

Operating profit

23.1

36.7

25.6

Compound growth rate of
71%, year on year growth 28%

In spite of the challenging market conditions, Confused achieved an operating profit of £26m,
and an operating margin of 39%.
Confused did generate notable growth in its activities beyond car insurance. Household
insurance and utilities were particularly strong and contributed to growth in other revenue of
28% (to £13.2m).

Board of Directors 48-53 Financial& Directors reportstatements

One of the main effects of the increased competition has been to remove a large amount of themarket’s profitability – as business becomes significantly more expensive to acquire, against onlya modest increase in income per sale. As a dominant and highly profitable player in the market,
Confused’s results inevitably suffered against this backdrop.

34-47

At the same time, the size of the market (although somewhat difficult to measure precisely)
also grew significantly. We estimate the number of car insurance policies sold through pricecomparison websites grew by nearly 60% during 2008 to a point where the channel now
accounts for around 40% of all new business sales.

Governance &Remuneration

Competition in UK price comparison intensified further during 2008, evidenced by substantial
increases in media spends by the major players. The market also saw a number of new entrants.

16-33

Price comparison financial commentary

Business review

Motor

Compound growth rate of
24%, year on year decline 10%

10-15

Revenue:

8-9

Success in delivering against this strategy is measured by a wide range of key performanceindicators, including quote volumes, conversion rates, sales, income per sale and cost per sale.

Chairman’sstatement

Confused’s strategy is to become the comparison website of choice in the UK for financial
products, and to maximise the value to the business of each customer relationship.

£m2008 Financial
highlights

Strategy

4-5• Confused.com is an insurance and financial services comparison website• Operating in the UK, the site allows consumers to compare a range of general insurance andfinancial services products across price and policy benefits• Confused’s income is primarily generated via commissions paid by the product provider on thesale of an insurance policy or financial product• We are the UK’s leading car insurance comparison website measured by sales generated.
Confused delivered over 13 million insurance quotes in 2008

54-104

2 2 B U S I N E SS R E V I E W

At the end of 2008, Confused launched its rebuilt website, which makes the quote process fasterand easier for customers. It has also launched a new TV advertising campaign early in 2009,
which led to January being a record month for quotes.
The Group is also currently in the process of developing a price comparison business to launchin Spain, and Rastreator.es (based in Madrid) is expected to start operating there in the first halfof 2009.
Regulatory environment
As an insurance intermediary, Confused is regulated by the UK FSA and is required to comply withall relevant rules, including those on solvency capital.
The price comparison industry in the UK has attracted a lot of attention from a number ofparties over the past year or two, including a review by the FSA. Confused contributed willingly
to the review and actively responded to the issues raised by the regulator during its course.
Confused tries always to act in the best interests of its users. Price and benefit comparison in
motor and home insurance have made what was a very time consuming process substantiallyeasier for consumers, and in general the new industry has contributed to better decisions being
made by consumers.
Risks and uncertainties
This section sets out a list of risks which could affect the business’ future results and prospects.
Again, it is not intended to cover all risks and uncertainties.
The business may be affected by difficult economic conditions
Recession in the UK potentially offers an opportunity for Confused as more and more consumers
use comparison websites to search for the best deals. It could also, however, pose a threatwith fewer new car and home purchases possibly leading to fewer price searches than would
otherwise arise. As yet, Confused has seen little evidence of this.
The industry may continue to attract new entrants and fierce competition
As noted above, the price comparison market in the UK, especially in car insurance, has been
extremely competitive over the past two years, leading to a position where the market overall iscurrently estimated to be unprofitable. Although these might not appear to be ideal conditions
to attract new players, it remains possible that significant new companies might enter the market,
further increasing competition.
The business faces regulatory risk
Price comparison has attracted attention from a number of bodies, including the FSA and it ispossible that the industry becomes subject to more stringent regulation that is currently in place.
Any such change in regulation might adversely affect Confused’s business.
Counterparty and other financial risks are discussed in the notes to the accounts.

ADMIRAL GROUP plc 23

What we do

Chief Executive’s
statement
10-15

Business review

Our overseas strategy is summarised in the table below, where we also comment on our progress
to date.

8-9

The Group Board has also identified the US and France as further key markets in which it plans tolaunch. Current expectation is for a launch in the US sometime in late 2009 or early 2010, and inFrance some time after that.

Chairman’sstatement

We expect our new car insurance operations to be relatively small, and loss making in their earlyyears (how long will depend on the market), until the new business is established and scale isachieved. Use of proportional reinsurance across the three markets (65% of risks and expenses
are underwritten by Munich Re) helps reduce the financial impact in the early years

6-7

As we note above, a key element of the Group’s strategy is to take what the Group does well in
the UK and use this knowledge to establish profitable, sustainable businesses overseas. We do
not expect to do this quickly and we do not target a set market share or revenue within fixed
timeframes.

2008 Financial
highlights

Our strategy

4-5• The Group has three direct car insurance operations outside the UK – Balumba.es (based in
Seville) launched in Spain in October 2006; AdmiralDirekt.de (Cologne) started trading a year
later in October 2007 and more recently, ConTe.it (Rome) launched in May 2008
• The business models of each are based closely on the UK car insurance operation –distribution is through direct telephone and internet channels, and there is significant
reinsurance support for each operation• The combined operations insured 73,700 vehicles at 31 December 2008 and generated £26m of
premium for the year

Admiral Group
in 2008

Non-UK car insurance

16-33

Governance &Remuneration
34-47

Board of Directors 48-53 Financial& Directors reportstatements
54-104

2 4 B U S I N E SS R E V I E W

Objective1) Establish new, direct car insurance
businesses in our five selected countries
outside the UK (Spain, Germany, Italy, USA
and France)

Progress• Spain, Balumba.es, October 2006
• Germany, AdmiralDirekt.de, October 2007
• Italy, ConTe.it, May 2008
• USA, operation being developed, launch
expected late 2009/early 2010
• France, market being researched, launchdate to be determined2) Develop each new operation into a
profitable, sustainable business• All three trading operations remain in earlystages and as would be expected, none have
yet reached profitability.

3) Ensure financial impact on Group is
minimised• 65% reinsurance support secured for all
three existing businesses• Average pre-launch costs < £1m• The Group takes a ‘slow and steady’approach to expansion and aims to build
sustainable businesses before pushing forsignificant growth

Financial performance
Non-GAAP format income statement
£m

2006

2007

2008

Turnover

0.6

16.5

29.7

Total premiums written

0.6

14.2

26.0

Net insurance
premium revenue

-

2.0

7.9

Investment income

-

0.1

0.7

Net insurance claims

-

(2.8)

(9.5)

Net insurance expenses

(0.2)

(1.8)

(6.2)

Underwriting result

(0.2)

(2.5)

(7.1)

Net ancillary income

0.1

1.8

2.8

Other revenue

-

-

0.2

Non-UK car
insurance result

(0.1)

(0.7)

(4.1)

Note - Pre-launch costs excluded

Year-on-year growth 83%

ADMIRAL GROUP plc 25
Admiral Group
in 2008

Key performance indicators
2007

2008

Loss ratio

-

141%

120%

91%

78%

-

232%

198%

Vehicles insured
at year-end

2,200

46,90073,700

Ancillary income
per policy

-

£45

£47

Year-on-year growth 57%

Chairman’sstatement

Co-insurance and reinsurance arrangements

6-7-

2008 Financial
highlights

Expense ratio
Combined ratio

4-5

2006

Underwriting arrangements for Balumba, AdmiralDirekt and ConTe are similar, with the Munich
Re Group underwriting 65% of the risks in each. Admiral retains the remaining 35%.

Business review

The non-UK operations remain a relatively small part of the overall Group result, with total
premium accounting for less than 4% of the Group’s total. Net insurance premium revenue (netearned premium) amounted to just under £8m.

10-15

Non-UK car insurance financial commentary

Chief Executive’s
statement

The contracts contain profit commission clauses that allow Admiral to participate in the
profitability of the business written by Munich Re, when that business reaches profitability on
a cumulative basis.

8-9

Such strong reinsurance support is especially valuable in start up operations, as Munich Re
also shares the (post-launch) expenses incurred. The contracts are long-term in nature andare designed to run for eight years. The reinsurer does have the option for an early exit,
typically after four years, but not before.

16-33

Balumba:

Governance &Remuneration

Balumba accounted for the majority of the non-UK volume, contributing 80% of the total
premium and 75% of the insured vehicles. Its net insurance premium revenue totalled £7.0m. The
key focus at Balumba during 2008 was improving the loss ratio, and whilst significant progress has
been made in this area, management recognise that more improvement is needed. The rate of
growth has been deliberately slowed whilst work continues in this area.

34-47

Balumba loss ratio development
2007

2008

After 12 months

137%

102%

After 24 months

135%

-

Numerous measures have been implemented to address the loss ratio, including:• Rating increases• Improvements to the claims function (including resourcing, enhancing the garage network)• Underwriting control improvements• Joining the Spanish “knock for knock” claims system

Board of Directors 48-53 Financial& Directors reportstatements

Underwriting year

54-104

2 6 B U S I N E SS R E V I E W

The reported loss ratio for 2008 improved to 117%, from 141% in 2007. The overall loss for theperiod totalled £1.2m (up from a loss of £0.7m in 2007).
Regulatory environment
The Group has taken advantage of the ability to passport UK regulatory permissions into Europe
in structuring the three new businesses. This means that whilst all three have to comply withlocal rules and regulations, the main regulator of each is either the FSA or the Gibraltar FSC,
regimes that the Group is very familiar with. Capital requirements are also set by the UK and
Gibraltar regulators.
Risks and uncertainties
Entering new markets
The Group is starting new businesses from scratch in relatively unfamiliar markets. There is a riskthat one of more of these will take longer than planned to become profitable, or even that one
or more will not become profitable.
The Group’s approach to expansion is a ‘slow and steady’ one, aiming to establish profitable
and sustainable businesses before taking on significant amounts of business. This means thatthe financial impact of start-up operations is not excessive. Reinsurance support also helps inthis regard.
Insurance, operational and regulatory risks
The non-UK businesses face similar risks to those noted above in respect of the UK car insurance
operation. Refer to page 20 for details.
Also refer to the section on financial risks for details on credit risk (page 30)

Other Group Items
Gladiator
Established in 1998 and based in Swansea, Gladiator is a commercial vehicle insurance broker
offering van insurance and associated products, typically to small businesses. Distribution is via
telephone and internet (including price comparison websites).
Non GAAP income statement and key performance indicators
£m

2006

2007

2008

Revenue

5.9

7.5

9.5

Expenses

(3.9)

(5.5)

(6.7)

Operating profit

2.0

2.0

2.8

Operating margin

34%

27%

29%

Customer numbers

42,30062,20084,900Compound and year-on-year
growth 27%

Compound growth 42%, yearon-year growth 36%

Gladiator has successfully grown its market share of the UK van insurance market over the past
few years, and achieved a significant increase in profits in 2008 compared to 2007. A material
amount of Gladiator’s business is now distributed through price comparison websites, as thischannel has become more important in the market.

ADMIRAL GROUP plc 27
Admiral Group
in 2008

Other income statement items(Non-GAAP)
2007

2008

Group net interest income

4.5

7.8

6.6

Share scheme charges

(0.9)

(3.0)

(5.9)

Expansion costs

(0.5)

(1.4)

(0.8)

(1.3)

(1.6)

Other central overheads
(0.8)
			

2008 Financial
highlights

2006

4-5

£m

10-15

Investment strategy
The Group’s conservative approach to investment was maintained during 2008, with no change inoverall strategy, and little change in where funds were invested.

Chief Executive’s
statement

Investments and cash

8-9

Expansion costs relate to pre-launch expenses incurred in the development of the international
businesses.

Chairman’sstatement

Share scheme charges have continued to increase, as additional awards are made under theGroup’s schemes, and the share price on which the charges are based has also increased overtime. 2008 was also the first period in which existing awards vested. Refer to note 25 for further
detail on the Group’s share schemes.

6-7Interest income declined in 2008 compared to 2007 largely due to significant falls in the UK baseinterest rate in the last quarter of the year.

Business review

The key element of Group-wide investment strategy is capital preservation, with additional
priorities focusing on low volatility in returns and high levels of liquidity. The majority of
insurance funds continue to be invested in AAA-rated money market funds, offering cash-likereturns, same day liquidity, low risk and good diversification.

16-33

Cash and investments analysis

Non-UK car
insurance
£m

Other
£m

Total
£m

Liquidity money
market funds

287.3

-

23.5

-

310.8

Long term cash
deposits

100.0

-

-

-

100.0

Short term cash
deposits

4.0

-

-

-

4.0

Cash

46.4

15.6

18.2

60.1

140.3

Total

437.7

15.6

41.7

60.1

555.1

Board of Directors 48-53 Financial& Directors reportstatements

Pricecomparison
£m

34-47

UK carinsurance£m

Governance &Remuneration

31 December 2008

54-104

2 8 B U S I N E SS R E V I E W

31 December 2007
UK carinsurancePricecomparison

Non-UK car
insurance

Other

Total

£m

£m

£m

£m

£m

Liquidity money
market funds

335.6

-

-

-

335.6

Long term cash
deposits

-

-

-

-

-

Short term cash
deposits

16.4

11.0

-

18.0

45.4

Cash

63.7

4.9

10.0

31.8

110.4

Total

415.7

15.9

10.0

49.8

491.4

The Group generated total investment and interest income of £24.4m in 2008, similar to the£24.6m returned in 2007 despite an increase in the value of invested funds and cash in 2008 over2007. The significant fall in interest rates in the UK and Europe towards the end of 2008 explains
this anomaly. The average rate of return on the Group’s invested sterling funds in 2008 wasaround 5.1%, compared to 5.6% in 2007.
The nature of the investments means that returns are closely linked to central bank target interest
rates. The significant cuts in these to date (along with expectation of further cuts) will mean that
the Group’s investment and interest income is expected to be materially lower in 2009.
The Group continues to believe that capital preservation and low volatility are the most criticalinvestment objectives, and there are no current plans to materially change investment strategy.
The Group continues to generate significant amounts of cash, enabling the Group to pay alarge portion of after-tax profits to shareholders in the form of dividends. No debt financing isrequired to fund these payments.
£m

2006

2007

2008

Operating cash flow, before transfers to investments

183.8

213.2

251.6

(1.1)

(76.8)(76.0)

Operating cash flow

182.7

136.4

175.6

Tax and interest payments(41.9)(49.8)(57.0)

Investing cash flows

(6.0)

(5.4)

(11.3)

Financing cash flows(93.6)(117.1)(128.7)

Foreign currency translation impact

(0.1)

0.4

9.9

Net cash movement

41.1(35.5)(11.5)Net increase in cash and financial investments

42.8

42.5

63.8

Transfers to financial investments

Underwriting only a minority of the insurance generated means that the Group has less of its
cash tied up to support claims reserves than traditional insurers. Cash generated from nonunderwriting activities tends to match profits recognised.
Net cash declined in both 2007 and 2008, though this is offset by large flows into financial
investments. All years show net increases in combined cash and financial investments.
The main items contributing to the significant operating cash inflow are as follows:ADMIRAL GROUP plc 29

2006

2007

2008

Profit after tax

103.7

127.4

144.9

Change in net insurance liabilities

19.8

11.7

37.6

Net change trade receivables and liabilities

10.6

10.7

(5.8)

4-5

Non-cash income statement items

5.1

8.4

17.3

Tax and net interest expense

44.6

55.0

57.6

Operating cash flow, before transfers to investments

183.8

213.2

251.6

2008 Financial
highlights

Admiral Group
in 2008£m

Chairman’sstatement

Taxation

6-7

Other financial items

The taxation charge reported in the income statement is £57.6m, which equates to 28.4% of profit
before tax.

Dividends

The total dividend for 2008 (52.5p) is 20% higher than the 43.8p distributed in respect of 2007.

34-47

Board of Directors 48-53 Financial& Directors reportstatements

At Group level, capital is managed in conjunction with dividend policy. As noted above, thepolicy is to make distributions after taking into account capital that is required to be held forregulatory purposes, for expansion activities and also holding a further prudent buffer for
unseen events. This policy gives the Directors flexibility in managing the capital requirements of
the Group.

Governance &Remuneration

The Group manages its capital to ensure that all entities within the Group are able to continue
as going concerns and also to ensure that regulated entities comfortably meet regulatory
requirements Excess capital above these levels within subsidiaries is paid up to the Groupholding company in the form of dividends on a regular basis.

16-33

Capital structure, financial position

Business review

The payment date is 27 May 2009, ex-dividend date 6 May and record date 8 May.

10-15

The Directors are proposing a final dividend for 2008 of 26.5p. In line with the Group’s dividend
strategy, this comprises a 12.4p normal element and a 14.1p special distribution, representing an
increase of 14% on the final dividend paid in respect of 2007.

Chief Executive’s
statement

Basic earnings per share rose by 13% to 54.9p from 48.6p. This rate of growth is higher than the
pre-tax profit growth (11%) due to the change in the rate of UK corporation tax from April 2008
(from 30% to 28%).

8-9

Earnings per share

54-104

3 0 B U S I N E SS R E V I E W

The Group’s capital continues to be all in equity form, with no debt.
Other than as stated below, as far as the Company is aware, there are no persons with significant
direct or indirect holdings in the Company. Information provided to the Company pursuant to
the Financial Services Authority’s (FSA) Disclosure and Transparency Rules (DTRs) is published on a
Regulatory Information Service andon the Company’s website.
At 31 December 2008, the company had received notifications in accordance with the FSA’s DTRsof the following notifiable interests, in the voting rights in the company’s issued share capital:
Number of shares%

Munich Re

39,579,400

14.96%

Blackrock Inc

12,872,216

4.87%

Capital Group

12,766,870

4.83%

Fidelity

12,771,422

4.83%

Newton Investment Managers Ltd

10,547,511

3.99%

Jupiter Asset Management Ltd

9,675,157

3.66%

Legal & General Group plc

7,950,924

3.01%

The interests of Directors and Officers and their connected persons in the issued share capital of
the company are given in the Remuneration Report.

Financial risk
Detailed analysis of the financial risks faced by the Group is set out in the notes to the accounts,
starting at page 62.

Employees
We believe the happier our staff are, the better they will do their job. This means that weconstantly work to improve our staff’s working environment. We also try to make sure that theworking day for our staff is as fun and rewarding as we can make it.
It is important for employees to understand the Company’s goals and objectives. We work tocommunicate this in as many ways as possible. As an example, we encourage staff to attend ourAnnual Staff General Meeting (SGM). The SGM is arranged to enable staff to hear the views of theexecutive directors and some of the non-executive directors on a wide range of subjects including
the performance of the Group and the market within which we operate; the experiences of nonexecutive directors within and outside of the Group; and the Group’s share plans. We believe that
employing well-informed staff will improve motivation and make Admiral a better place to work.
The best measures of our staff’s assessment of their working environment are the surveys thatthey have completed. Following independent measurement by the organisations involved Admiral
has received the following awards:
The Sunday Times 100 Best Companies to Work For – Admiral has been included in all nine yearsof the publication (one of only two Companies to achieve this) and was ranked 37th overall in thelast list published.

Position

2000

2001

2002

2003

2004

2005

2006

2007

2008

32

42

46

60

20

20

21

57

37

The Financial Times 50 Best Workplaces in the UK – we have been included in all five years of
the publication.

ADMIRAL GROUP plc 31

2004

2005

2006

2007

2008

7

16

17

8

Top 10*10Admiral Group
in 2008

Position

2003*Positions were not ranked in 20072008 Financial
highlights
6-7

The table below sets out a number of key results from the survey over the last three years andclearly shows that staff feel morale is high within the Company and their own departments andthat management listen to their issues. They also feel that Admiral is truly customer oriented
and treats its customers fairly.

4-5

The Group also carries out its own annual internal web-based survey both to collect employees’
views on what it is like working for Admiral and to address areas where issues are raised. The
survey includes questions relating to a wide range of topics including staff morale, staff
development, management, communication and social aspects of working at Admiral.

2007

2008

Morale is high within Admiral

76%

89%

90%

Morale is high in my department

87%

82%

90%

Taking everything into account I am happy at Admiral

92%

87%

90%

Every effort is made to understand the opinions and thinking of staff

74%

73%

86%

I am proud to be associated with Admiral

91%

91%

94%

I would recommend Admiral as a good place to work

90%

90%

94%

I am more likely to stay at Admiral because of the share schemes

69%

71%

71%

Admiral is truly customer oriented

90%

88%

90%

Chief Executive’s
statement

Admiral treats its customers fairly

86%

84%

87%

Customers

Board of Directors 48-53 Financial& Directors reportstatements
54-104The Group’s Compliance department has completed a Treating Customers Fairly Management
Information pack pulling together specific measures that demonstrate that we are consistently
treating our customers fairly. A detailed report is produced each month together with asummary providing details of measures that have been graded red. The report is discussed at the
The Risk Management Committee (RMC - see Corporate Governance section of this report) andprocess or behavioural changes agreed where appropriate.

34-47

As well as this programme, quality representatives throughout the Group monitor the service theCompany provides through the thousands of comment forms it receives back from customers
every month. By listening to customer comments, Admiral can improve the quality of service it
provides.

Governance &Remuneration

Everyone in the organisation has a part to play in ensuring a high standard of quality. Every
department in the Group has a unique set of quality measures to gauge performance. The
measures are updated each year to challenge staff to make continual improvements. The
programme is reported every month in the internal company magazine and awards are presented
each year for the best departments. The annual measures bonus provides a financial incentive
for staff to drive incremental change throughout the business and was paid out in full for the2008 year.

16-33

The Group has always regarded its customers as central to the success of the business. As at 31
December 2008 the Group had 1.75m customers, up 17% from 1.49m the year before. We focus
on open communication with our customers providing high standards of service at all points inthe customer cycle from new business, customer service, renewals, claims and complaints. The
Group’s commitment to quality is demonstrated through its Quality Measures Programme.

Business review

The survey results are analysed by department and each manager is expected to share thesurvey results with their team, explore issues and concerns, and then make recommendations
to address them.

10-15

2006

8-9

Chairman’sstatement

Survey question

3 2 B U S I N E SS R E V I E W

The table below contains some of the key measures from the TCF report:
June
2008

December
2008

Average JuneDecember 2008

Complaints per 1000 vehicles

1.14

0.95

1.14

% FOS complaints rejected

50%

63%

78%

TCF Measure

Customer service call answer rate

93%

96%

95%

Claims call answer rate

97%

90%

92%

Comment form score

9.28

9.28

9.25

% Customer who would
renew following a claim

90%

93%

93%

There are over 150 individual TCF measures, each of which is benchmarked to allow the RMC
to take an overall view as to whether customers are being treated fairly. This has been in placesince July 2008 and the average red grades amounted to 0.51%. 91% of the measures throughout
the period achieved a green grade.
Each quarter the Central Complaints Department produce a report analysing the complaints
received and causes. The report provides a summary of the root causes of the complaints andactions taken to reduce the risk of complaints due to specific procedures or staff behaviour.

Community
Admiral has adopted a charitable giving policy, which supports the local communities in which its
employees live and work. During 2008, 211 local organisations were helped with a total donationof £42,791.
Financial support is an important part of our commitment to our local communities and ourcustomers. We contribute both as a Company and as individuals through a variety of schemes
including a matching scheme whereby the Company matches funds raised for charity in theworkplace.

Environment
The Group’s impact on the environment stems from its use of resources to run its offices in
Cardiff, Swansea and Newport and its overseas branches in Spain, Germany, Italy and Canada.
The Group does not own the properties that it occupies and is, therefore, reliant upon thecooperation of the managing agents of the properties to make changes that could reduce theconsumption of energy and water. The figures quoted include all of the Group’s offices.
The Group Company Secretary is responsible for the Group’s approach to its impact upon theenvironment.
The Group is committed to:• Raising and maintaining staff awareness of, and ensuring that employees are actively engaged
in, activities to reduce the impact of the Group’s operations on the environment.
• Measuring, monitoring and reporting on the key aspects of the Group’s environmental
performance and regularly reviewing progress to reduce the amount of resources consumed
per employee.
• Reporting key environmental performance indicators, taking into account the ABI’s
Guidelines on Responsible Investment Disclosure and guidance provided by the Department
for Environment, Food and Rural Affairs (Defra).

ADMIRAL GROUP plc 33

Usage
2008

Consumption
measure 2008

Energy (‘000 Kwh)

6,997

321 Kwh/m2

5,670

221 Kwh/m2

Green Energy (‘000
Kwh)

0

N/A

1,844

72 Kwh/m2

CO2 (tonnes)**

4,033

1.71 tonnes per
employee

3,497

1.06 tonnes per
employee

Water (m3)

14,836

6.28 per employee

19,8596.03 per employee

2008 Financial
highlights

Consumption
measure 2007

4-5

Usage
2007

Admiral Group
in 2008

Impact Area

Waste management:
239,139 KG

340,926 KG

Waste to landfill

128,278 KG

176,596 KG

Waste recycled

110,861 KG

46% recycled

164,330 KG

48% recycled

Car miles

279,920118 miles per
employee

272,656

83 miles per
employee

Rail miles

213,357

90 miles per
employee

405,630223 miles per
employee

Air Miles

1,120,537

474 miles per
employee

1,789,535

543 miles per
employee

6-7

Total waste

16-33

Governance &Remuneration
34-47

Board of Directors 48-53 Financial& Directors reportstatements

It is virtually impossible to model the potential impact of climate change on claims frequency
as the actual climate change induced outcome for the UK is unknown. However, the Group does
assess the potential costs associated with a number of disaster scenarios such as a major storm
in the South East, major flood on the East Coast, and a complete flooding of the Thames in the
London area. The Group purchases reinsurance cover to provide significant protection in theevent of catastrophes of this nature.

Business review

Environmental Risks
The Group has reviewed the risks facing its business operations as a result of climate change.
The volume of motor insurance claims for any given portfolio of business is to a large degree
dependent upon weather conditions. The risk associated with climate change is the potentialchange to claims frequency through the impact of more extreme weather patterns.

10-15

During the last quarter of 2007 electricity supply to the Cardiff office was switched to ‘Green
electricity’ which has been excluded from the carbon emission calculation in the table above andhas lead to a significant reduction in the Group’s absolute CO2 emissions.

Chief Executive’s
statement

EnergyThe main source of the Group’s carbon emissions is the consumption of electricity and gas for its
two main UK offices. The Cardiff head office is the older and least efficient, built in the 1960s
and housing just over 1,200 people. The Swansea office, housing 1,100 staff was built in 2006
and is therefore a much more efficient building. The other UK offices are located in Cardiff and
Newport.

8-9

The figures above are for the Group’s worldwide operations.
** The Carbon emissions have been calculated using the Carbon Trust Calculator which uses theemissions factors published by Defra in April 2008.

Chairman’sstatement

Travel:54-104

3 4 G O V E R N A NC E & remu n erat io n

Corporate governance
The Combined Code on Corporate GovernanceThis report explains key features of the Group's governance structure, how it applies theprinciples set out in the revised Combined Code on Corporate Governance (the 'Code'), and theextent to which the Company has complied with the provisions of the Code.
The Board complied with the Combined Code in all respects during 2008 except for Code D.1.1,
which requires that the Senior Independent Director should attend meetings with a range ofshareholders. The Company has a comprehensive programme of meetings and dialogue withinstitutional investors. The views of investors expressed through this dialogue are communicatedto the Board as a whole through the investor relations report. All Directors can, therefore,
develop an understanding of issues or concerns of major shareholders should any be raised.
Feedback from shareholders suggests that these arrangements for communication between
the Company and its shareholders continue to be viewed by them as effective. The Senior
Independent Director is always available to meet with individual shareholders on request toensure the Board is aware of any shareholder concerns that cannot be resolved through theroutine mechanisms for investor communications.

The Admiral Group Board
The Board is the principal decision making forum for the Group providing leadership either
directly or through its Committees of Directors and delegated authority. It is responsible toshareholders for setting and achieving the Group’s strategic objectives and for its financial andoperational performance. The Board has adopted a formal schedule of matters specificallyreserved to it including corporate strategy, approval of budgets and financial results, policies
in relation to risk management, health and safety and environmental matters, new Board
appointments, proposals for dividend payments, and the approval of major transactions. This
schedule is reviewed on an annual basis and was last reviewed on 17 December 2008.
The Board met on eight occasions in 2008. The Board also held a strategy day and visited its
operations in Italy. In addition, the Non-executive Directors and the Chairman met during theyear without the Executive Directors being present. Agendas and papers are circulated to theBoard in a timely manner in preparation for Board and Committee meetings. These papers aresupplemented by information specifically requested by the Directors from time to time. All
Directors are, therefore, able to bring independent judgement to bear on issues such as strategy,
performance, and resources. Additional meetings are called when required and there is frequentcontact between meetings, where necessary, to progress the Group's business.
All the Directors have access to the advice and services of the Company Secretary. He has
responsibility for ensuring that Board procedures are followed and for governance matters. The
Company Secretary provides updates to the Board on regulatory and corporate governanceissues, new legislation and Directors’ duties and obligations. The appointment and removal of theCompany Secretary is one of the matters reserved for the Board.
During the year the Board carried out an evaluation of itself and its Committees. The process
was facilitated by the Chairman and consisted of the completion of a questionnaire followed
by one-to-one discussions between each Director and the Chairman where the Board’s role andstructure, process and relationships and any emerging issues were discussed. A final detailed
report was circulated to the Board and a number of recommendations agreed. The evaluation
concluded that the Board and its Committees performed well during the year and are effective inmeeting their objectives and fulfilling their obligations.

ADMIRAL GROUP plc 35

Remuneration
Committee
meetings

Total meetings held

8

4

2

5

Alastair Lyons (Chairman)

8

Henry Engelhardt(Chief Executive)

7

David Stevens(Chief Operating Officer)

8

Kevin Chidwick(Finance Director)

8

Manfred Aldag

8

Martin Jackson

84Keith James

8

4

Margaret Johnson

84Lucy Kellaway

8John Sussens

8

Chairman’sstatement

Nominations
Committee
meetings

6-7

Audit
Committee
meetings

2008 Financial
highlights

ScheduledBoard
meetings

4-5

The number of full Board meetings and Committee meetings attended by each Director during
2008 is provided in the table below.

Admiral Group
in 2008

The Chief Executive, to whom they report, appraises the performance of the individual Executive
Directors annually. The Chairman, taking into account the views of the other Directors, conducts
the performance appraisal of the Chief Executive. The performance of the Chairman is reviewed
by the Non-executive Directors, led by the Senior Independent Non-executive Director (John
Sussens), taking into account the views of the Executive Directors. John Sussens gave individual
feedback to the Chairman and was able to confirm that the performance of the Chairman
continues to be effective, and that the Chairman continues to demonstrate commitment to
his role.

2
8-9

Chief Executive’s
statement

2
2
5

Board of Directors 48-53 Financial& Directors reportstatements

Independent Non-executive Directors are currently appointed for fixed periods of three years,
subject to election by shareholders.

34-47

The Board currently comprises ten Directors, the Chairman (who was independent on
appointment), three Executive Directors, five independent Non-executive Directors and one
Non-executive director who is employed by a significant shareholder and is not, therefore,
considered independent. The Board has accepted the Nomination Committee’s assessment of
the independence of the five Non-executive directors and is not aware of any relationships orcircumstances which are likely to affect, or could appear to affect, the judgement of any of them.

Governance &Remuneration

Board balance and independence

16-33

The roles of the Chairman and Chief Executive
The Board has approved a statement of the division of responsibilities between the Chairman
and the Chief Executive. The Chairman is primarily responsible for the leadership and workingsof the Board, setting its agenda and monitoring its effectiveness. The Chairman is not involved in
the day-to-day management of the business. Save for matters reserved for decision by the Board,
the Chief Executive, with the support of the other Executive Directors, is responsible for therunning of the business, carrying out the agreed strategy adopted by the Board and implementing
specific Board decisions relating to the operation of the Group. The statement of division of
responsibilities and matters reserved for decision by the Board were reviewed in December 2008.

Business review

5

10-15

5

The initial three-year period may be extended for one further three-year period and the Board
may invite the non-executive director to serve for a further three-year period, subject to54-104

3 6 G O V E R N A NC E & remu n erat io n

re-election by shareholders. Their letters of appointment may be inspected at the Company's
registered office or can be obtained on request from the Company Secretary.
In the view of the Board, the independent non-executive directors are of sufficient calibre andnumber that their views carry significant weight in the Board's decision making.
Details of the Chairman's other commitments are included in the Chairman's biography.
The Chairman does perform a number of other Non-executive roles outside the Group but theBoard is satisfied that these are not such as to interfere with the performance of his duties
within the Group.
John Sussens has been appointed as the Senior Independent Non-executive Director. He isavailable to shareholders if they have concerns that contact through the normal channels ofChairman, Chief Executive or Finance Director has failed to resolve or for which such contact isinappropriate.
In accordance with the Company's Articles, which provide that a set number of Directors retireby rotation and stand for re-election at each AGM, Manfred Aldag, Henry Engelhardt and Kevin
Chidwick will retire by rotation and seek re-election by shareholders at the forthcoming AGM.
The Directors are given access to independent professional advice at the Group's expense, should
they deem it necessary, to carry out their responsibilities.

Professional development
On appointment, Directors take part in a comprehensive induction programme where theyreceive financial and operational information about the Group, details concerning their
responsibilities and duties, as well as an introduction to the Group’s governance and control
environment.
This induction is supplemented by visits to the Group's head office in Cardiff and meetings withmembers of the senior management team and their departments. Throughout their period in
office the directors are regularly updated on the Group's business; legal matters concerning
their role and duties; the competitive environments in which the Group operates; and any othersignificant changes affecting the Group and the industry of which it is a part.
The Board receives presentations from senior managers within the various Group companies on aregular basis.

Relations with shareholders
The Investor Relations team has day-to-day primary responsibility for managing communications
with institutional shareholders through a combination of briefings to analysts and institutional
shareholders, both at the half-year and full year results. Site visits and individual discussions
with the Executive Directors are also arranged throughout the year with individual shareholders.
Regular dialogue with shareholders helps to ensure that the Company's strategy is understoodand that any issues are addressed in a constructive way.
In fulfilment of the Chairman's obligations under the new Combined Code, the Chairman would
give feedback to the Board on issues raised with him by major shareholders, although to datethere have been no such issues.
This is supplemented by monthly feedback to the Board on meetings between management andinvestors. External analyst reports are circulated to all the Directors.
The Chairmen of the Audit, Remuneration and Nomination Committees attend the Company's
Annual General Meeting along with other directors, and are available to answer shareholders'questions on the activities of the Committees they chair.
The Group maintains a corporate website (www.admiralgroup.co.uk) containing a wide range of
information of interest to institutional and private investors.

ADMIRAL GROUP plc 37

Chief Executive’s
statement
10-15

Business review
16-33

Other individuals such as the Finance Director, Chief Operating Officer, Chief Executive, Chairmanof the Board, the Heads of Risk, Compliance and Internal Audit and representatives of different
parts of the Group may be invited to attend all or part of any meeting as and when appropriate.
The external auditors are invited to attend meetings of the Committee on a regular basis.

8-9

The Board considers that the members of the Committee have the appropriate competence
and experience to carry out their duties and further considers that Martin Jackson (Committee
Chairman) has the appropriate recent and relevant financial experience having held the positionof Group Finance Director of Friends Provident Plc between 2001 and 2003 and being a fellow of
the Institute of Chartered Accountants, which imposes requirements for Continuing Professional
Development. The Committee is kept up to date with changes to Accounting Standards, relevant
developments in financial reporting, company law and the various regulatory frameworks throughpresentations from the Group’s external auditors, Head of Finance and Company Secretary.
In addition members are provided with information on seminars and conferences provided
by external bodies. The Terms of Reference of the Audit Committee include all the matterssuggested by the Code.

Chairman’sstatement

The Committee has a formal terms of reference, which were reviewed by the Committee on 19
November 2008 and approved by the Board on 17 December 2008.

6-7

The membership at the year-end was Martin Jackson (Chairman), Keith James, and Margaret
Johnson. The Company Secretary acts as Secretary to the Committee. Appointments to theCommittee are for a period of up to three years, which may be extended for two further threeyear periods, provided the Director remains independent. The Committee meets at least threetimes per year and has an agenda linked to events in the Company’s financial calendar.

2008 Financial
highlights

Constitution and membership

4-5

The Audit Committee

Admiral Group
in 2008

Board Committees
The principal committees of the Board - Audit, Remuneration and Nomination - all comply fully
with the requirements of the Combined Code. They are all chaired by an Independent Director
and exclusively comprise, or, in the case of the Nomination Committee (where the Chairmanof the Board is a member), have a majority of, Independent Directors. The committees areconstituted with appropriate written terms of reference that are reviewed annually and minutesof the committee meetings are circulated to the Board.

Governance &Remuneration
34-47

Board of Directors 48-53 Financial& Directors reportstatements
54-104

3 8 G O V E R N A NC E & remu n erat io n

Summary of key activities during 2008
During the year the Committee reviewed the following:· Annual report and interim results· R eports from the Group’s internal audit department on the effectiveness of the Group’s risk
management procedures, details of key audit findings and actions taken by management· E ffectiveness of the Group’s system of internal control including within its overseas operations· R eports from the external auditors on their proposed audit scope, fees, audit, and auditor
independence· P erformance of the internal audit department through self assessment (the internal audit
department is subject to external assessment once every five years)· T he Group’s ‘whistleblowing’ procedures.
The Committee reviewed its policy on non-audit services that, amongst other things, requiresthat the Committee approve all proposals for expenditure with the Group’s auditors of over
£30,000 on non-audit services. The policy was last reviewed on 19 November 2008. The Group’s
auditors, KPMG Audit plc, provide some non-audit services, the majority of which comprisecompliance services related to various taxation issues within the Group, and which are notconsidered by the Committee to compromise their independence as auditors. The level of nonaudit fees is reviewed twice a year by the Committee and details are included in the Report andAccounts.
The Head of Internal Audit is invited to all Committee meetings and provides a range ofpresentations and papers to the Committee, through which the Committee monitors theeffectiveness of the Group’s internal controls. Committee members receive copies of allinternal audit reports and are given the opportunity to raise questions on the content andrecommendations contained within the reports. The Committee approves the internal audit
programme at the start of each calendar year and monitors the progress made in achieving theplan.
During the year, the Committee received a presentation from the Group’s auditors on
proportionate liability agreements although the Group has not yet entered into any suchagreement with its auditors.
The Committee also approves the annual compliance review plan and receives copies ofthese reports. The Head of Compliance, who has responsibility for the Compliance and Risk
management functions, provides the Committee with a quarterly Compliance report summarising
the activities in this area.
The Committee has a policy that provision of external audit services be tendered every five
years. This was last carried out in 2006 when the decision was made to retain the services of theincumbent external auditors. At the same time the external audit partner was rotated

The Nominations Committee
The membership at the year-end was Keith James (Chairman), Lucy Kellaway, and Alastair Lyons.
The Company Secretary acts as Secretary to the Committee. The Committee invites the Chief
Executive to attend meetings when it deems appropriate.
The Committee has formal terms of reference, which were last reviewed on 17 December 2008
and approved by the Board on 27 February 2009. The Committee met on two occasions
during 2008.
The Committee leads the process for making appointments to the Board or where the appointee
is likely to become a Board member. The Committee ensures there is a formal, rigorous andtransparent procedure for the appointment of new Directors to the Board through a fullevaluation of the skills, knowledge and experience of Directors. The Committee also ensures

ADMIRAL GROUP plc 39· R eviewed the Group’s overall remuneration policy and strategy· R ecommended for approval individual remuneration packages for Executive Directors, andfor approval the grant, award, allocation or issue of shares under such schemes.

There are several key elements to the risk management environment throughout the Group.
These include the setting of risk management policy at Board level, enforcement of that policyby the Chief Executive, delivery of the policy by the RMC via the Group’s systems of internal

Board of Directors 48-53 Financial& Directors reportstatements

A key element of the control system is that the Board meets regularly with a formal schedule ofmatters reserved to it for decision and has put in place an organisational structure with clearly
defined lines of responsibility. In order to ensure these responsibilities are properly discharged,
the Board has delegated the task of supervising risk management and internal control to the Risk
Management Committee (RMC).

34-47

The Board is of the view that there is an ongoing process for identifying, evaluating and managing
the Group’s internal controls; that it has been in place for the year ended 31 December 2008; andthat, up to the date of approval of the annual report and accounts, it is regularly reviewed by the
Board and accords with the internal control guidance for Directors provided in the Code.

Governance &Remuneration

Internal control and risk management
The Board is ultimately responsible for the Group’s system of internal control and, through the
Audit Committee, has reviewed the effectiveness of these systems. The systems of internal
control over business, operational, financial and compliance risks are designed to manage rather
than eliminate the risk of failure to achieve business objectives and can only provide reasonable
and not absolute assurance against material misstatement or loss.

16-33

During the year the Committee purchased consultancy services from Kepler Associates.
In addition, the Company Secretary circulates market survey results as appropriate to enable it tomake judgments on the levels of remuneration for the Directors and to review the remunerationof the Group’s senior Executives.

Business review

A separate Remuneration Report is included within the Report and Accounts.

10-15

Company Secretary· R eviewed the rules and performance measures of the Group share schemes and recommended

Chief Executive’s
statement

During the year the Committee carried out the following activities :-8-9

The Committee has formal terms of reference, which were last reviewed on 17 December 2008.
The Committee met five times during 2008.

Chairman’sstatement

The membership at the year-end was John Sussens (Chairman), Martin Jackson, and Margaret
Johnson. The Company Secretary acts as Secretary to the Committee. The Committee invites
the Chief Executive and Chairman to attend the meetings where it deems appropriate.

6-7

The Remuneration Committee

2008 Financial
highlights

The Committee reviewed the current Board size, structure, and composition and confirmed thatno further changes were required and that the leadership of the organisation was such that theCompany could continue to compete effectively in the marketplace in which it operates.

4-5

During 2008, the Committee discussed succession planning across the Group with the Executive
team. Planning for the most senior management positions was formerly in place but below this,succession planning within the Group was not fully documented. The People Services Manager
has implemented a process of documenting and improving the approach taken by the Group toassess and monitor succession planning throughout the Group through the development of a
Talent Management programme.

Admiral Group
in 2008

plans are in place for orderly succession for appointments to the Board, and reviews the plans forother senior management positions. Responsibility for making senior management appointments
rests with the Chief Executive.

54-104

4 0 G O V E R N A NC E & remu n erat io ncontrol and risk management, and the overall assurance provided by the Audit Committee thatthe systems operate effectively.
The Board recognises that the day-to-day responsibility for implementing these policies mustlie with the management team, whose operational decisions must take into account risk andhow this can effectively be controlled. The Head of Compliance and the Risk Officer takeresponsibility for ensuring management are aware of their risk management obligations, providingthem with support and advice, and ensuring that the risk management strategy is properly
communicated. The head of each business unit or business area is required, with the supportof the Risk Manager, to undertake a full assessment process to identify and quantify the risks
that their departments face or pose to the Group and the adequacy of the controls in place tomitigate or reduce those risks. Reports are produced showing the most significant risks identified
and the controls in place. Internal Audit and the Compliance function use the risk registers toplan their programme of audits to ensure that the controls described are actually in place.
The RMC receives reports setting out key performance and risk indicators and considers possible
control issues brought to their attention by early warning mechanisms that are embedded within
the operational units. The RMC and the Audit Committee also receive regular reports fromInternal Audit, which include recommendations for improvement in the control and operational
environment. The Audit Committee’s role in this area is primarily confined to a high-level reviewof the arrangements for internal control although at its discretion the Committee may well
request more detailed information on specific issues should they arise. The Board’s agenda
includes consideration of risk and control as a regular item and receives reports thereon from the
RMC and the Audit Committee. The emphasis is on obtaining the relevant degree of assurance
and not merely reporting by exception. On 27 February 2009 the Board carried out the annual
assessment for the 2008 year by considering documentation from the Audit Committee, taking
account of events since 31 December 2008.
The Audit Committee’s ability to provide the appropriate assurance to the Board depends on theprovision of periodic and independent confirmation, primarily by Internal Audit, that the controls
established by management are operating effectively. The Audit Committee reviews the wider
aspects of internal control and risk management, providing a high level challenge to the steps
being taken to implement the risk management strategy.
The Board confirms that there were no significant issues arising during the year under review.
The Risk Management Committee
The Committee’s members include the three Executive Directors, the Head of Compliance (whochairs the meetings), the Risk Officer, and senior management representatives.
One of the Committee’s principal responsibilities is to ensure that the risk management policy
approved by the Board is implemented throughout the Group. The Committee has formal
terms of reference and is required to manage regulatory issues, assess and monitor reinsurance
protection, and ensure that a risk management strategy is effectively employed by the Group.
The Committee meets around 8 times a year and each Committee member receives an agenda
and papers in a timely manner allowing the Committee to make informed decisions and takeappropriate actions.
The Committee develops policies to ensure compliance with regulation and ensures thatappropriate action is taken by the management team to implement compliant systems andprocedures.
Internal Audit
The Internal Audit function assists management by providing them with timely, independent
assurance that the controls established are operating effectively. This includes regular reviewsof internal control systems and business processes, including compliance systems andprocedures, and identification of control weaknesses and recommendations to management on
improvements.

ADMIRAL GROUP plc 41
Admiral Group
in 2008

Going concern
The Directors are satisfied that the Group has adequate resources to continue in operation for
the foreseeable future and therefore consider it appropriate to prepare the financial statementson the going concern basis.

4-52008 Financial
highlights
6-7

Chairman’sstatement
8-9

Chief Executive’s
statement
10-15

Business review
16-33

Governance &Remuneration
34-47

Board of Directors 48-53 Financial& Directors reportstatements
54-104

4 2 G O V E R N A NC E & remu n erat io n

Remuneration report
Scope of report
The remuneration report summarises the Group’s remuneration policy and particularly its
application with respect to the Directors. The report also describes how the Group applies theprinciples of good corporate governance in relation to Directors’ remuneration in accordancewith the Combined Code and Directors Remuneration Report Regulations 2002.02.
Remuneration Committee
The Committee is appointed by the Board and comprises only Non-executive Directors. The
Committee is chaired by John Sussens, the Senior Independent Non-executive Director, with theother members being Martin Jackson and Margaret Johnson. The Chairman and Chief Executive
are invited to meetings where the Committee considers it appropriate to obtain their advice on
the matters under review. During the year ended 31 December 2008, the Committee met on
five separate occasions. Its remit includes recommending the remuneration of the Chairman,
the Executive Directors, and the Company Secretary; review of the remuneration of senior
management; and review of the awards made under the performance related incentive schemes.
The Committee’s terms of reference, which are reviewed at least annually and approved by the
Board, are available on the Group’s corporate website and are summarised in the Corporate
Governance Report. They were reviewed by the Committee on 19 November 2008.
The members of the Committee do not have any personal financial interests, or any conflicts
from cross-directorships, that relate to the business of the Committee. The members do nothave any day-to-day involvement in the running of the Group.
During the year the Committee purchased consultancy services from Kepler Associates. In
addition, the Company Secretary circulates market survey results as appropriate.
Remuneration policy
The Group is committed to the primary objective of maximizing shareholder value over time.
The Committee reviews the framework and remuneration packages of the Executive Directors
and the most senior managers. The main principles underlying the remuneration policy are:·	Competitive – The Group aims to pay below-median salaries but with attractive

performance related incentives, which provide individuals with the potential for competitive
total reward packages for superior performance.

·	Performance linked – A significant part of Executive Directors’ (excluding Henry Engelhardt andDavid Stevens) and senior managers’ reward is determined by the Group’s earnings growth.
Failure to achieve threshold levels of growth in the Group’s earnings results in reduced or no
payout under the Group’s long-term incentive plan.

· Shareholder aligned – A considerable part of the reward is related to the growth in earnings

versus LIBOR. Executive Directors have agreed to retain a minimum shareholding equal to atleast 100% of base salary, which can be built up over a period of five years from the date of
appointment.

· Transparent – All aspects of the remuneration structure are clear to employees and openly
communicated.

ADMIRAL GROUP plc 43·	Death in Service scheme, paying three times salary available to all employees following

Admiral Group
in 2008

The Group operates the following benefits:completion of their probationary period.

· Permanent Health Insurance policy covering approximately 120 management level staff.
·	Private Medical Cover made available to the same staff that are eligible for the Permanent
Health Insurance policy.

2008 Financial
highlights

base salary with maximum employer contribution of £4,800. This is available to all employees
following completion of their probationary period.

4-5· Group Personal Pension Plan, matching employee contributions up to a maximum 6% of·	Approved Free Share Incentive Plan (SIP). The SIP is available to all UK staff (Henry Engelhardt

54-104The Committee determines the fees for the Chairman of the Board after consultation with the
Executive Directors and review of market data.

Board of Directors 48-53 Financial& Directors reportstatements

The Committee is conscious of the maximum allowable awards under both share schemes andcontrols are in place to ensure that neither scheme is issued shares in excess of 5% of the Group's
issued share capital over the 10 year period from 1 January 2005. The Directors have proposed
for approval by shareholders at the AGM on 28 April 2009 that henceforth the 10% total beapplied across both schemes with flexibility to the Board as to what percentage should beapplied to each particular scheme.

34-47

In addition, commencing with the interim 2009 dividend, the Group will pay a bonus toall holders of unvested DFSS shares. The bonus will equate to the dividend payable on an
equivalent number of the ordinary shares of the Group. The Committee felt that having a Groupwide bonus aligned with the dividend flow received by investors further aligned the incentive
structure with shareholders.

Governance &Remuneration

Changes made for 2009 awards
For staff below Group Board level the Committee have agreed a change to the award criteriasuch that from 2009 awards will be split. 50% of the award will be subject to the above
performance criteria. The other 50% will have no performance criteria attaching, except thatthey have to remain employed by the Group for the three-year vesting period. The change wasmade in order to assist the group to attract high calibre staff by providing more certainty over
the outcome of vesting awards.

16-33

The plan allows for a maximum award of £400,000 or 600% of basic salary if lower.

Business review

The EPS targets are such that for full vesting of shares to occur, the average EPS growth over thethree-year performance period would have to be approximately 13.25% per annum (assuming
LIBOR averages 3% over the period). Only 10% of shares vest for matching LIBOR over the threeyear period. There is then a linear relationship up to full vesting of the award whereby 2.5% of
the award vests for each point over LIBOR.

10-15

The current performance criterion to determine how many shares vest under the DFSS is thegrowth in earnings per share (EPS) in excess of a risk free return, defined as average 3-month
LIBOR, over a three-year period. The Committee feels that this is a good indicator of long-term
shareholder return with which to align staff incentivisation. The Committee recommends forapproval by the Board awards to the Finance Director and other employees under the DFSS.

Chief Executive’s
statement

Of the Group’s current Executive Directors, only Kevin Chidwick (Finance Director) participates inthis scheme, as Henry Engelhardt and David Stevens have declined to be included.

8-9

basis than most plans of this type. The Committee believes that as the DFSS develops, andawards begin to vest in 2008, it will have the effect of reducing staff attrition and strengthening
further the alignment of the interests of staff and shareholders.

Chairman’sstatement·	Discretionary Free Share Scheme (DFSS). Awards under the DFSS are distributed on a wider

6-7

and David Stevens have declined to be included in the plan). The maximum annual award under
the SIP is £3,000 per employee. Shares awarded under the SIP are forfeited if the employee
leaves within three years of the award. Awards are made twice a year, based on the resultsof each half-year. Overseas staff receive an award under the Discretionary Free Share Scheme
equivalent to the SIP award made to UK employees.

44 G O V E R N A NC E & remu n erat io n

Non-executive Directors’ remuneration is set by the Chairman and Executive Directors andapproved by the Board as a whole. A summary of their contracts and remuneration is shown
below. The fees of the Non-executive Directors were reviewed in December 2008.
Executive Directors are allowed, although none currently do, to accept appointments as Nonexecutive Directors of companies with prior approval of the Chairman. Approval will only begiven where the appointment does not present a conflict of interest with the Group’s activities
and the wider exposure gained will be beneficial to the development of the individual. Where
fees are payable in respect of such appointments these will be retained by the Company.
Executive Directors’ remuneration
Two of the three Executive Directors (Henry Engelhardt and David Stevens) are founding directors.
They and the Committee continue to hold the view that the significant shareholdings held bythem provide a sufficient alignment of their interest in the performance of the Group with theinterests of other shareholders.
In light of this, their remuneration packages consist of below-median base salary (comparedto market rates as assessed by the Committee) and benefits such as private medical cover,permanent health insurance and death in service cover. The Group does not contribute to any
pension arrangements on behalf of these Executive Directors, and they have not participated,
nor is it intended that they participate, in any Group share schemes. Their remuneration was
reviewed in September 2008. Henry Engelhardt was awarded a rise of 4.9% taking his salary to£320,000 and David Stevens awarded a rise of 20% taking his salary to £320,000.
The Committee aims to ensure that the remuneration of the Finance Director is fair and in
total, in line with market rates, and is designed to provide rewards for achieving increases inshareholder value.
In addition to benefits such as private medical cover, permanent health insurance, death inservice cover and eligibility to the Group’s Personal Pension Plan, there are two main elements to
the Finance Director’s remuneration package:· Basic annual salary· Awards under the DFSS.
It is the Committee’s general strategy to pay salaries below median levels together with attractive
awards under the DFSS bringing the total remuneration to competitive levels for superior
performance. With effect from 1 July 2008 Kevin Chidwick’s base salary was increased by 25% to£300,000. Whilst the increase in Kevin Chidwick’s base salary is above inflation the Committee
felt that the increased responsibilities taken on during the year justified such an increase.
£300,000 remains below the median base salary of FTSE 100 Finance Directors.
Kevin Chidwick received an award of 48,667 DFSS shares on 29 April 2008 with a value at thedate of the award of £393,229. The awards represent the maximum number of shares that could
vest after a three-year period and are subject to the performance criteria described above.
Directors’ service contracts
The following table summarises the notice periods relating to the service contracts of the
Executive Directors serving at 31 December 2008.
Notice – Director(months)

Notice – Company(months)

Kevin Chidwick

12

12Henry Engelhardt

1212David Stevens

1212A D M I R A L G R O U P p l c 45
Admiral Group
in 2008

There is no provision in the Executive Directors’ contracts for compensation to be payable onearly termination of their contract over and above the notice period element.

4-5

The Company has entered into letters of appointment with its Non-executive Directors.
Summary details of terms and notice periods are included below.

2008 Financial
highlights

Term and notice
3 years commencing 1 July 2007, terminable by either party
giving three months’ written notice.

Manfred Aldag

Indefinite (terminable on one months’ notice fromeither party) – automatically terminates should he cease
employment with Munich Re.

Martin Jackson

3 years commencing 1 December 2006, terminable by either
party giving one months’ written notice.

Keith James

3 years commencing 1 December 2006, terminable by either
party giving one months’ written notice.

Margaret Johnson

3 years commencing 4 September 2006, terminable by either
party giving one months’ written notice.

Lucy Kellaway

3 years commencing 4 September 2006, terminable by either
party giving one months’ written notice.

John Sussens

3 years commencing 1 December 2006, terminable by either
party giving one months’ written notice.

6-7

Alastair Lyons

8-9

Chief Executive’s
statement
10-15

Non-executive Directors’ remuneration
The remuneration of the Chairman is decided by the Remuneration Committee and that of theNon-executive Directors by the full Board. The Non-executive Directors do not participate inmeetings when Non-executive Director fees are discussed.

£

Business review

The fee structure for Non-executive Directors was reviewed at the end of 2008 and commencing
1 January 2009 is as follows:

Member of Audit Committee

5,000

Senior Independent Director

5,000

Chair of Audit Committee

10,000Chair of Nomination Committee

3,000

Governance &Remuneration

Chair of Remuneration Committee

5,000

Plus:

The Committee determines the Chairman’s remuneration. The fee paid to Alastair Lyons in
respect of his appointment as Chairman of the Board in 2008 was £120,000, of which 25% waswaived. The Chairman’s fee was reviewed in February 2009 and increased to £150,000 from 1
January 2009 with no fee waiver in place.
Non-executive Directors do not have service contracts but each has a letter of appointment.
The letters of appointment all require a period of one months’ notice should the Non-executive
Director wish to resign. The Chairman’s appointment can be terminated by either party giving 3
month’s notice.

Board of Directors 48-53 Financial& Directors reportstatements

Non-executive Directors are not entitled to bonus payments or pension arrangements, nor dothey participate in the Group’s long term incentive plans.

34-47

40,00016-33

Base fee

Chairman’sstatement

Given the short notice periods applicable, mitigation issues are unlikely to arise.

54-104

46 G O V E R N A NC E & remu n erat io n

Total Shareholder Return (TSR)
The following graph sets out a comparison of Total Shareholder Return for Admiral Groupplc shares with that of the FTSE 100 Index, of which the Company is a constituent. The graphmeasures the period from the commencement of conditional trading on 23 September 2004
up to 31 December 2008. TSR is defined as the percentage change over the period, assuming
reinvestment of income.
The Directors consider this to be the most appropriate index against which the Company should
be compared.

440
400
360
320
280
240
200
160
120
80
Sept-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sept-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08

Admiral Group plc

FTSE 100

Source: Datastream

Directors’ shareholdings - Audited
Directors’ interests in the ordinary shares of the Company are set out below:
Ordinary shares of 0.1p
31 December
2008

31 December
2007

18,679

1,796Henry Engelhardt **40,490,720

40,466,720

David Stevens

10,084,000

10,084,000

Alastair Lyons

562,152

615,600

Manfred Aldag--

Martin Jackson--

44,50044,500--Executive Directors
Kevin Chidwick*

Non-executive Directors

Keith James
Margaret Johnson
Lucy Kellaway--

John Sussens

8,000

8,000

*Includes 871 shares within the Group’s SIP - details of which are shown below.
** Include amounts held by family members.

A D M I R A L G R O U P p l c 47
Admiral Group
in 2008

Directors’ remuneration - Audited
Remuneration for the year ended 31 December 2008 was as follows:
2007
Total
(£000)

2008 Financial
highlights

5
-

290
313
283

247
298
254

90
12
36
60
34
31
38
1,182

-

5

90
12
36
60
34
31
38
1,187

90
6
36
46
34
31
38
1,080

Awards made under the Discretionary Free Share Scheme (DFSS) and Free Share Incentive Plan (SIP)

Date of
award

Final
vestingdate

DFSS

28,103- 28,103£122,810 £252,496**

31/10/05

31/10/08

DFSS

21,186--21,186£6.136 £130,000£192,793 18/04/06 18/04/09

DFSS

18,480-- 18,480£6.764 £125,000£168,168 04/09/06 04/09/09

DFSS 23,000-- 23,000£10.50 £241,500£209,300

18/04/07

18/04/10- 48,667£8.08 £393,229£442,870 29/04/08

29/04/11-£4.37

48,667

SIP

213

-

-

213

£6.764£1,440£1,938 06/09/06 06/09/09

SIP

151

-

-

151 £10.284£1,552£1,374 09/03/07 09/03/10

SIP

182

-

-

182

£1,504£1,656 04/09/07 04/09/10

SIP

-

162

-

162

£9.181£1,487£1,474 07/03/08

07/03/11

SIP

-

163

-

163

£9.195£1,499

£1,483 22/08/08

22/08/11£8.264* The closing price of Admiral shares on 31 December 2008 was £9.10 per share.		
** The total value of vested shares as at 31 October 2008.

For details of Directors’ responsibilities, please refer to the biographies section.
This report was approved by the Board of Directors on 27 February 2009 and is signed on its
behalf by the Committee Chairman:

54-104

John Sussens
Remuneration Committee Chairman

Board of Directors 48-53 Financial& Directors reportstatements

-

34-47

DFSS

Governance &Remuneration

Value at31/12/08
* (£)

16-33

Value ataward
date (£)

Business review

Type At start Awarded Vested At end Price atof yearduring during of year award
year
year
(£)

10-15

The table below sets out the awards made to Directors under the DFSS and SIP, including thedates of the awards, the value at the time of the award and vesting date.
Awards to Kevin Chidwick under the DFSS and SIP

Chief Executive’s
statement*1 Alastair Lyons waived 25% of his annual fee which is currently £120,000.		
*2	Keith James fees include £10,650 for chairing the Board of Admiral Insurance Company Limited and £13,350 for chairing
the Board of Inspop.com Limited.

8-9-

Chairman’sstatement

285
313
283

6-7

Executive Directors
Kevin Chidwick
Henry Engelhardt
David Stevens
Chairman and Non-executive Directors
Alastair Lyons *1
Manfred Aldag
Martin Jackson
Keith James *2
Margaret Johnson
Lucy Kellaway
John Sussens
Totals2008
Total(£000)

4-5

Base salary Bonuses
and fees and other Benefits(£000)(£000)(£000)

4 8 B O A R D O F D I R E CT O R S

The Board of Directors
Alastair Lyons, CBE (55) - Chairman (N)Alastair was appointed Chairman of the Company in July 2000. He is also
Non-executive Chairman of Legal Marketing Services, In Retirement Services,
and Cardsave, and Deputy Chairman of Bovis Homes.
He has previously been Chief Executive of the National Provident Institution
and of the National & Provincial Building Society, Managing Director of the
Insurance Division of Abbey National plc, and Director of Corporate Projects at
National Westminster Bank plc. Alastair was also a Non-executive Director of
the Department for Transport and of the Department for Work and Pensions.
A Fellow of the Institute of Chartered Accountants, he was awarded the CBE in
the 2001 Birthday Honours for services to social security.

Henry Engelhardt, CBE (51) - Chief Executive Officer
Henry is a founder Director of Admiral and was recruited by the Brockbank
Group in 1991 to set up the Admiral business.
He was part of the management team that led the MBO in 1999. Prior to joining
Admiral, he was Marketing and Sales Manager for Churchill Insurance.
He has substantial experience in direct response financial services in the United
Kingdom, United States and France. He has an MBA from Insead.
Henry was awarded an honorary CBE in April 2008 for services to business
in Wales.

Kevin Chidwick (45) - Finance Director
Kevin is responsible for finance, information technology, compliance andinvestments. He joined Admiral in 2005, becoming Finance Director in
September 2006.
Prior to Admiral, Kevin has been in UK financial services for over 20 years. He
has held a number of senior roles in other insurance organisations including,most recently, Finance Director of Engage Mutual Assurance and Cigna UK.
He is a fellow of the Chartered Institute of Certified Accountants and has an
MBA from London Business School.

David Stevens (47) - Chief Operating Officer
David is a founder Director of Admiral. Initially the Marketing Director, he wasappointed Director responsible for pricing in 1996 and claims and pricing in 1999.
He was appointed as Chief Operating Officer in 2004.
He joined Admiral in 1991 from McKinsey & Co. where he worked in the
Financial Interest Group, London office. Prior to working for McKinsey & Co, he
worked for Cadbury Schweppes in the United Kingdom and the United States.
David has an MBA from Insead.

Lucy Kellaway (49) - Non-executive Director (N)Lucy joined the board as a Non-executive Director in September 2006. She is
the management columnist on the Financial Times and author of various books.
In 20 years on the FT she has been oil correspondent, a Lex columnist andBrussels correspondent.
Lucy also joined the Nominations Committee on appointment to the Board.

Manfred Aldag (58) - Non-executive Director (N)Manfred was appointed a Non-executive Director of the Company in 2003 as arepresentative of Munich Re. He graduated from University of Essen and has adegree in Economics/Business Management (Diplom-Kaufmann).
He has worked for Munich Re since September 1981 and is currently the Senior
Executive Manager responsible for United Kingdom / Ireland.

Margaret Johnson (50) - Non-executive Director (A,R)
Margaret was appointed Non-executive Director of the Company in September
2006. She is currently Group CEO of the international advertising agency
Leagas Delaney and has been with that Company for the past 13 years.
Margaret joined the Group's Audit and Remuneration Committees on
appointment to the Board.

Martin Jackson (60) - Non-executive Director (A, R)
Martin was appointed Non-executive Director and Chairman of the Audit
Committee in August 2004.
He was the Group Finance Director of Friends Provident plc between 2001
and 2003 and Friends’ Provident Life Office between 1999 and 2001. Prior tothat he was the Group Finance Director at London & Manchester Group plc
from 1992 to 1998, up to the date of its acquisition by Friends’ Provident Life
Office. Martin is also a Non-executive Director of IG Holdings plc, Homeserve
Membership Limited and Rothesay Life Limited
He is a Fellow of the Institute of Chartered Accountants.

Keith James, OBE (64) - Non-executive Director (A, N)
Keith was appointed a Non-executive Director in December 2002. He is
Chairman of the Nominations Committee and is also the independent
Chairman of Admiral Insurance Company Limited and Inspop.com Limited.
He is also a Non-executive Director of Julian Hodge Bank Limited and isNon-executive Chairman of Atlantic Venture Capital Limited and International
Greetings plc.
He is a solicitor and was the Chairman of Eversheds LLP from June 1995 to April
2004. He was a Non-executive Director of Bank of Wales plc between 1988 and2001 and AXA Insurance Company Limited between 1992 and 2000. Keith wasawarded an OBE in 2005 for services to business and the community in Wales.

John Sussens (63) - Non-executive Director (R)John was appointed the Senior Independent Non-executive Director in August
2004, and is Chairman of the Remuneration Committee. He is also a Nonexecutive Director of Cookson plc and Anglo & Overseas Trust plc.
He was the Group Managing Director of Misys plc between 1998 and May
2004 having been on the Board of the Company since 1989. Prior to joining
Misys, he was Manufacturing Director at JC Bamford Excavators Limited.
He was a Non-executive Director at Chubb plc between 2001 and 2003.

A D M I R A L G R O U P p l c 49
Admiral Group
in 2008
4-5

Kevin Chidwick
Finance Director

David Stevens
Chief Operating Officer

Lucy Kellaway
Non-executive Director (N)Manfred Aldag
Non-executive Director (N)Margaret Johnson
Non-executive Director (A,R)

Martin Jackson
Non-executive Director (A, R)

Keith James, OBE
Non-executive Director (A, N)

John Sussens
Non-executive Director (R)6-7

Henry Engelhardt, CBE
Chief Executive Officer

2008 Financial
highlights

Alastair Lyons, CBE
Chairman (N)Chairman’sstatement
8-9

Chief Executive’s
statement
10-15

Business review
16-33

Governance &Remuneration
34-47

Board of Directors 48-53 Financial& Directors reportstatements
54-104

5 0 D I R E CT O R S ’ repor t

Directors’ report
The Directors present their Annual Report andthe audited financial statements for the year
ended 31 December 2008.

whilst Directors’ interests in the sharecapital of the Company are set out in the
Remuneration Report.

Business review

Charitable and political
donations

The Company is the holding Company for theAdmiral Group of Companies. The Group’s
principal activity continues to be the selling
and administration of private motor insurance
and related products.
The information that fulfils the requirementsof the Business review, as required by Section
417 of the Companies Act 2006, and whichshould be treated as forming part of thisreport by reference are included in thefollowing sections of the Annual Report:

During the year the Group donated £106,000(2007: £87,000) to various local and national
charities. The Group has never made political
donations. Refer to the Business review forfurther detail.

Employee policies
Detailed information on the Group’s
employment practices is set out in theBusiness review.

· Chairman’s statement· Chief Executive’s statement· Business review

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

Group results and dividends

Creditor payment policy

The profit for the year, after tax but before
dividends, amounted to £144.9m (2007:£127.4m).
The Directors declared and paid dividends of£128.5m during 2008 (2007: £116.0m) – refer tonote 14 for further details.
The Directors are proposing a final dividendof £70.0m (26.5p per share), payable on 27
May 2009.

Share capital
Refer to the Business review for the disclosureof substantial shareholdings in accordancewith Chapter 5 of the Disclosure andTransparency rules.

Financial Instruments
The objectives and policies for managing risks
in relation to financial instruments held by theGroup are set out in note 18 to the financial
statements.

Directors and their interests
The present Directors of the Company are
shown on pages 48 and 49 of this report,

It is the policy of the Group to pay allpurchase invoices by their due date, andappropriate quality measures are in place tomonitor and encourage this. At the end of theyear outstanding invoices represented 20 days
purchases (2007: 15).

Additional information forshareholders
Where not provided previously in thisDirectors' Report, the following provides
the additional information required forshareholders as a result of the implementationof the Takeovers Directive into UK law.
At 31 December 2008, 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 25.
On a show of hands at a general meeting of
the company every holder of shares present
in person and entitled to vote shall have one
vote and on a poll, every member present inperson or by proxy and entitled to vote shallhave one vote for every ordinary share held.
The notice of the general meeting specifies

ADMIRAL GROUP plc 51

34-47

Board of Directors 48-53 Financial& Directors reportstatements

Company law requires the Directors to prepareGroup and Parent Company financial statements
for each financial year. Under that law they

Governance &Remuneration

The Directors are responsible for preparing
the Annual Report and the Group and Parent
Company financial statements, in accordancewith applicable law and regulations.

16-33

Directors’ responsibilities

Business review

A further special resolution passed at thatmeeting granted authority to the directors toallot equity securities in the Company for cash,without regard to the pre-emption provisionsof the Companies Act 1985. This authority

It is proposed that the next AGM be held at
the Andrew Probert Room, Capital Tower,
Greyfriars Road, Cardiff, CF10 3AZ on Tuesday
28 April 2009 at 3.00pm, notice of which
will be sent to shareholders with the Annual
Report.

10-15

At the last annual general meeting, held on
29 April 2008, authority was given to thedirectors to allot unissued relevant securities
in the Company up to a maximum of anamount equivalent to one third of the sharesin issue. This authority expires on the dateof the annual general meeting to be held on
28 April 2009 and the directors will seek torenew this authority for the following year.

Annual General Meeting

Chief Executive’s
statement

Power to issue shares

The directors are responsible for managing
the business of the Company and may
exercise all powers of the Company subject
to the provisions of relevant statutes, to any
directions given by special resolution and to
the Company’s Memorandum and Articles.
The Articles for example, contain specificprovisions and restrictions concerning theCompany’s power to borrow money. Powers
relating to the issuing of new shares are also
included in the Articles and such authorities
are renewed by shareholders at the annual
general meeting each year.

8-9

There are a number of agreements that alteror terminate upon a change of control of theCompany following a takeover bid, such ascommercial contracts. None is considered tobe significant in terms of their impact on thebusiness of the group as a whole except for
the long-term co-insurance agreement in placewith Great Lakes Resinsurance (UK) Plc. Details
relating to this agreement are contained in theBusiness review.

Power of the Directors

Chairman’sstatement

There are no agreements between the
Company and its Directors or employees
providing for compensation for loss of officeor employment (whether through resignation,
purported redundancy or otherwise) that
occurs because of a takeover bid.

Articles of Association
The Articles may only be amended by special
resolution of the shareholders.

6-7

be imposed by laws and regulations (for 		
example, insider trading laws) and:· pursuant to the Listing Rules of the Financial
Services Authority whereby certain
employees of the company require theapproval of the company to deal in thecompany's securities.
The Company has not purchased any of its
own shares during the period.

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 meeting, to submit themselves
for re-election.

2008 Financial
highlights· certain restrictions may from time to time

Appointments of Directors

4-5

There are no restrictions on the transfer ofordinary shares in the company other than:also expires on the date of the annual general
meeting to be held on 28 April 2009 and the
directors will seek to renew this authority forthe following year.

Admiral Group
in 2008

deadlines for exercising voting rights either
by proxy notice or present in person or byproxy in relation to resolutions to be passed at
general meeting. All proxy votes are counted
and the numbers for, against or withheld in
relation to each resolution are announced at
the annual general meeting and published on
the company's website after the meeting.

54-104

5 2 D I R E CT O R S ’ repor t

are required to prepare the Group financial
statements in accordance with International
Financial Reporting Standards (IFRS) as adopted
by the EU and applicable law and have elected
to prepare the Parent Company financial
statements in accordance with UK AccountingStandards and applicable law (UK Generally
Accepted Accounting Practice).
The Group financial statements are requiredby law and IFRS as adopted by the EU topresent fairly the financial position andperformance of the Group; the Companies
Act 1985 provides in relation to such financial
statements that references in the relevant
part of that Act to financial statements giving
a true and fair view are references to theirachieving a fair presentation.
The Parent Company financial statements are
required by law to give a true and fair view ofthe state of affairs of the Parent Company.
In preparing each of the Group and Parent
Company financial statements, the Directors
are required to:·	Select suitable accounting policies and thenapply them consistently·	Make judgments 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; and·	Prepare the financial statements on
the going concern basis unless it isinappropriate to presume that the Groupand the Parent Company will continue inbusiness
The Directors are responsible for keeping
proper accounting records that disclosewith reasonable accuracy at any time thefinancial position of the Parent Company
and enable them to ensure that its financial
statements comply with the Companies Act
1985. They have general responsibility fortaking such steps as are reasonably open tothem to safeguard the assets of the Groupand to prevent and detect fraud and otherirregularities.
Under applicable law and regulations, theDirectors are also responsible for preparinga Directors’ report, Directors’ remuneration
report and Corporate governance statementthat comply with that law and thoseregulations.
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.

Responsibility statement
The directors confirm that to the best of theirknowledge:· 	 The financial statements, prepared inaccordance with the applicable set ofaccounting standards, give a true and fairview of the assets, liabilities and financial
position and profit or loss of the company
and the undertakings included in the
consolidation taken as a whole; and· 	 The directors’ report includes a fair view ofthe development and performance of thebusiness and the position of the company
and the undertakings included in the
consolidation taken as a whole, together
with a description of the principal risks anduncertainties that they face.

Disclosure of information toauditors
The Directors who held office at the dateof approval of this Directors’ report confirm
that, so far as they are each aware, there is
no relevant audit information of which theCompany’s auditor is unaware; and each
Director has taken all the steps that he ought
to have taken as a Director to make himself
aware of any relevant audit information and toestablish that the Company’s auditor is awareof that information.

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

Stuart Clarke
Company Secretary
27 February 2009

ADMIRAL GROUP plc 53

Admiral Group
in 2008
4-5

2008 Financial
highlights
6-7

Chairman’sstatement
8-9

Chief Executive’s
statement
10-15

Business review
16-33

Governance &Remuneration

34-47

Board of Directors 48-53 Financial& Directors reportstatements

54-104

54 Fi n a n c ial s tat eme n t s

A D M I R A L G R O U P p l c 55
Admiral Group
in 2008

Financial statements

4-5

Independent auditor’s report

2008 Financial
highlights

56-57

6-7

59

Consolidated balance sheet

60

Consolidated statement of recognised
income and expense

61

Consolidated cash flow statement

62-98

Notes to the financial statements

99

Consolidated financial summary

8-9

Consolidated income statement

Chairman’sstatement

58

10-15

Business review
16-33

Governance &Remuneration
34-47

Admiral Group plc Parent Company
financial statements

Chief Executive’s
statement

100-104

Board of Directors 48-53 Financial& Directors reportstatements
54-104

56 F I N A NC I A L STAT E M E NTS

Independent auditor’s reportto the members of Admiral Group plc

We have audited the group and parent
company financial statements (the ''financial
statements'') of Admiral Group plc for the year
ended 31 December 2008 which comprise theGroup Income Statement, the Parent Company
Profit and Loss Account, the Group and Parent
Company Balance Sheets, the Group Cash Flow
Statement, the Group Statement of Recognised
Income and Expenses and the related notes.
These financial statements have been prepared
under the accounting policies set out therein.
We have also audited the information in
the Directors' Remuneration Report that is
described as having been audited.
This report is made solely to the company's
members, as a body, in accordance withsection 235 of the Companies Act 1985. Our
audit work has been undertaken so that wemight state to the Company's members thosematters we are required to state to them inan auditor's report and for no other purpose.
To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone
other than the company and the Company's
members as a body, for our audit work, for thisreport, or for the opinions we have formed.
Respective responsibilities of Directors andauditors
The Directors' responsibilities for preparing
the Annual Report and the Group financial
statements in accordance with applicablelaw and International Financial ReportingStandards (IFRSs) as adopted by the EU, andfor preparing the Parent Company financial
statements and the Directors' Remuneration
Report in accordance with applicable law
and UK Accounting Standards (UK Generally
Accepted Accounting Practice) are set out in
the Statement of Directors' Responsibilities inthe Director’s report.
Our responsibility is to audit the financial
statements and the part of the Directors'
Remuneration Report to be audited inaccordance with relevant legal and regulatory
requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether
the financial statements give a true and fairview and whether the financial statements
and the part of the Directors' Remuneration
Report to be audited have been properly
prepared in accordance with the Companies
Act 1985 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
We also report to you whether in our opinion
the information given in the Directors' Report
is consistent with the financial statements.
The information given in the Directors' Report
includes that specific information presented
in the Chairman’s statement, the Chief
Executive’s statement and the Business review
that is cross referred from the Business review
section of the Directors' Report.
In addition we report to you if, in our opinion,
the Company has not kept proper accounting
records, if we have not received all theinformation and explanations we require forour audit, or if information specified by law
regarding directors' remuneration and othertransactions is not disclosed.
We review whether the Corporate GovernanceStatement reflects the Company's compliancewith the nine provisions of the 2006 Combined
Code specified for our review by the Listing
Rules of the Financial Services Authority, andwe report if it does not. We are not required
to consider whether the Board's statements on
internal control cover all risks and controls, orform an opinion on the effectiveness of theGroup's corporate governance procedures or its
risk and control procedures.
We read the other information containedin the Annual Report and consider whether
it is consistent with the audited financial
statements. We consider the implications
for our report if we become aware of
any apparent misstatements or materialinconsistencies with the financial statements.
Our responsibilities do not extend to any
other information.

Basis of audit opinion
We conducted our audit in accordance with
International Standards on Auditing (UK and
Ireland) issued by the Auditing Practices Board.
An audit includes examination, on a test basis,of evidence relevant to the amounts andA D M I R A L G R O U P p l c 57

Chairman’sstatement
8-9

Chief Executive’s
statement
10-15

Business review
16-33

Governance &Remuneration
34-47

Board of Directors 48-53 Financial& Directors reportstatements
54-104

3 March 2009

6-7

KPMG Audit Plc
Chartered Accountants
Registered Auditor
Cardiff

2008 Financial
highlights

OpinionIn our opinion:· the Group financial statements give a trueand fair view, in accordance with IFRSs as
adopted by the EU, of the state of theGroup's affairs as at 31 December 2008 andof its profit for the year then ended;· the Group financial statements have been
properly prepared in accordance with theCompanies Act 1985 and Article 4 of the IAS
Regulation;· the Parent Company financial statements
give a true and fair view, in accordance with
UK Generally Accepted Accounting Practice,of the state of the Parent Company's affairs
as at 31 December 2008 and of its profit for
the year then ended;· the Parent Company financial statements
and the part of the Directors' Remuneration
Report to be audited have been properly
prepared in accordance with the Companies
Act 1985; and· the information given in the Directors'
Report is consistent with the financial
statements.

4-5

We planned and performed our audit so as toobtain all the information and explanations
which we considered necessary in orderto provide us with sufficient evidence togive reasonable assurance that the financial
statements and the part of the Directors'
Remuneration Report to be audited arefree from material misstatement, whether
caused by fraud or other irregularity or error.
In forming our opinion we also evaluatedthe overall adequacy of the presentationof information in the financial statements
and the part of the Directors' Remuneration
Report to be audited.

Admiral Group
in 2008

disclosures in the financial statements and thepart of the Directors' Remuneration Report
to be audited. It also includes an assessmentof the significant estimates and judgments
made by the Directors in the preparationof the financial statements, and of whether
the accounting policies are appropriate to
the Group's and Company's circumstances,consistently applied and adequately disclosed.

5 8 F I N A NC I A L STAT E M E NTS

Consolidated income statement
Year ended:
31 December
2008

31 December
2007

£000

£000

Insurance premium revenue

301,460

233,075

Insurance premium ceded to reinsurers(131,624)(90,839)Note:

Net insurance premium revenue

5

169,836

142,236

Other revenue

6

193,863

176,878

Profit commission

7

34,726

20,448Investment and interest income

824,381

24,572

Net revenue

422,806

364,134

Insurance claims and claims handling expenses(213,780)(172,611)

Insurance claims and claims handling expenses
recovered from reinsurers

99,204

72,816

Net insurance claims(114,576)(99,795)

9(99,763)(78,986)

9, 25(5,924)(2,971)

Total expenses(220,263)(181,752)

Operating profit

202,543

182,382

Expenses
Share scheme charges

Finance charges

12

(25)

(284)

Profit before tax

10

202,518

182,098

Taxation expense

13(57,580)(54,682)

144,938

127,416

Profit after tax attributable to equity holdersof the Company
Earnings per share:
Basic

15

54.9p

48.6p

Diluted

15

54.9p

48.6p

Dividends declared (total)

14

128,515

116,016

Dividends declared (per share)

14

49.2p

44.6p

A D M I R A L G R O U P p l c 59
Admiral Group
in 2008

Consolidated balance sheet
As at:
31 December
2007

Note

£000

£000

Property, plant and equipment

16

11,002

7,708

Intangible assets

17

75,68569,063Financial assets

18586,935

481,848

Reinsurance assets

19

170,594

131,668

6-7

Deferred income tax

24

-

1,629

Trade and other receivables

18, 2025,501

22,633

Cash and cash equivalents

18, 21

144,286

155,773

Chairman’sstatement

1,014,003

870,322

Total assets

2008 Financial
highlights

ASSETS

4-5

31 December
2008

8-9

265

263

Share premium account26

13,145

13,145Retained earnings

26

251,821

223,828

Other reserves

26

10,338396

275,569

237,632

Total equity

LIABILITIES
363,060

Deferred income tax

24

10,327-18, 22270,088239,593

Current tax liabilities

18,46330,037

Total liabilities

738,434

632,690

Total equity and total liabilities

1,014,003

870,322

Trade and other payables

Kevin Chidwick
Director

Board of Directors 48-53 Financial& Directors reportstatements

These financial statements were approved by the Board of Directors on 27 February 2009 andwere signed on its behalf by:

34-47

439,556

Governance &Remuneration

19

16-33

Insurance contracts

Business review

25

10-15

Share capital

Chief Executive’s
statement

EQUITY54-104

6 0 F I N A NC I A L STAT E M E NTS

Consolidated statement of recognised income and expense
31 December
2008

31 December
2007

£000

£000

Exchange differences on translation of foreign operations

9,942

429

Net income recognised directly in equity

9,942

429

Profit for the period

144,938

127,416

Total recognised income and expense for the period

154,880

127,845ADMIRAL GROUP plc 61
Admiral Group
in 2008

Consolidated cash flow statement

1,390

725

- Change in unrealised gains on investments

796(1,123)

11,320

5,560

30

6

Change in gross insurance contract liabilities

76,496

68,635

Change in reinsurance assets(38,926)(56,979)

Change in trade and other receivables, including frompolicyholders(36,466)(14,772) hange in trade and other payables, including tax andCsocial security

30,70425,506

Interest expense

25

284

Taxation expense

57,58054,682

Cash flows from operating activities, before movements
in investments

251,633

213,167

Net cash flow into investments held at fair value(76,049)(76,849)

Cash flows from operating activities, net of movements ininvestments

175,584

136,318

Interest payments

(25)

(284)

Taxation payments(56,949)(49,477)

Net cash flow from operating activities

118,61086,557Purchases of property, plant and equipment and software(11,315)(5,390)Net cash used in investing activities(11,315)(5,390)- Share scheme charge

25L oss on disposal of property, plant and equipment andsoftwareCash flows from investing activities:

490

457

Repayment of finance lease liabilities(699)(1,506)Equity dividends paid

(128,515)(116,016)

Net cash used in financing activities(128,724)(117,065)

Net decrease in cash and cash equivalents(21,429)(35,898)

Cash and cash equivalents at 1 January

155,773

191,242

Effects of changes in foreign exchange rates

9,942

429

144,286

155,773

Cash and cash equivalents at end of period

21

Board of Directors 48-53 Financial& Directors reportstatements

Capital element of new finance leases

34-47

Cash flows from financing activities:

Governance &Remuneration- Amortisation of software

16-33

3,227

Business review

3,746

10-15

- Depreciation

Adjustments for non-cash items:

Chief Executive’s
statement

127,4168-9

144,938

Profit after tax

Chairman’sstatement

£000

6-7

£000

Note

2008 Financial
highlights

31
December
2007

4-5

31
December
2008

54-104

6 2 F I N A NC I A L STAT E M E NTS

Notes to the financial
statements
1. General information and basisof preparation
General information
Admiral Group plc is a Company incorporated
in England and Wales. Its registered office is
at Capital Tower, Greyfriars Road, Cardiff CF10
3AZ and its shares are listed on the London
Stock Exchange.
The financial statements comprise theresults and balances of the Company andits subsidiaries (together referred to as theGroup) for the year ended 31 December 2008
and comparative figures for the year ended 31
December 2007. The financial statements of
the Company’s subsidiaries are consolidated in
the Group financial statements. The Company
controls 100% of the voting share capital of allits subsidiaries. The Parent Company financial
statements present information about theCompany as a separate entity and not about
its Group. In accordance with International
Accounting Standard (IAS) 24, transactions
or balances between Group companies thathave been eliminated on consolidation are notreported as related party transactions.
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 andinterpretations endorsed by the EU at 31
December 2008, including all amendments toextant standards that are not effective until lateraccounting periods, except for those listed below:· Amendments to IAS 1 Presentation of Financial
Statements: A Revised Presentation· IFRIC 13 Customer Loyalty Programmes· Amendment to IFRS 2 Share –Based Payment:
Vesting Conditions and Cancellations· Amendment to IAS 23 Borrowing Costs
Amendments to IAS 1 Presentation of Financial
Statements: A Revised Presentation is effective

for periods beginning on or after 1 January
2009 and the Group has elected not to adopt
the Amendment in advance of the effective
date. Although it will introduce a number ofchanges to the presentation of the primaryfinancial statements, it will not change therecognition, measurement or disclosure oftransactions or events that are required byother IFRS.
IFRIC 13 Customer Loyalty Programmes iseffective for periods beginning on or after
1 July 2008. It is not applicable during thecurrent accounting period, and on adoption
will not have a material impact on the Group’s
financial statements.
Amendment to IFRS 2 Share –Based Payment:
Vesting Conditions and Cancellations iseffective for periods beginning on or after 1
January 2009. On adoption, it will not havea material impact on the Group’s financial
statements.
Amendment to IAS 23 Borrowing Costs is also
effective for periods beginning on or after 1
January 2009. It is not applicable during thecurrent accounting period, and on adoption
will not have a material impact on the Group’s
financial statements.
There are a number of standards, amendments
to standards and interpretations that were
issued by 31 December 2008 but have either
yet to be endorsed by the EU, or wereendorsed shortly after the year end. These areas follows:· Amendments to IAS 32 and IAS 1 Puttable 		Financial Instruments and Obligations Arising
on Liquidation· Amendments to IFRS 1 and IAS 27 Cost of an

Investment in a Subsidiary, Jointly Controlled
Entity or Associate· Improvements to IFRSs (2007)· Revised IFRS 3 Business Combinations· Revised IFRS 1 First Time Adoption of IFRS
· IFRIC 12 Service Concession Agreements· IFRIC 15 Agreements for the Construction ofReal Estate· IFRIC 16 Hedges of Net Investment in A 		
Foreign Operation· IFRIC 17 Distributions of Non-Cash Assets to
OwnersADMIRAL GROUP plc 63

Recognition and Measurement: Eligible
Hedged Items· Amendment to IAS 39 Reclassification ofTransactions· IFRIC 14 IAS 19 The Limit of a Defined Benefit· Amendments to IAS 39 and IFRS 7

Reclassification of Financial Instruments

Governance &Remuneration
34-47

Board of Directors 48-53 Financial& Directors reportstatements

Amendments to IAS 39 and IFRS 7 address
reclassification of financial assets. The Group
has not reclassified any financial assets so thatstandard is also not applicable.

16-33

IFRIC 14 addresses the accounting treatment ofa defined benefit pension scheme asset and istherefore not applicable to the Group in thecurrent or previous financial years.

Business review

IFRIC 11 addresses whether share based payments
accounted for as equity-settled in consolidated
financial statements, should be treated as equity
or cash settled in the subsidiary. As it does notaddress treatment in the consolidated financial
statements, it has no impact on the consolidated
financial results or position of the Group for thecurrent or previous financial years.

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
the circumstances, the results of which form
the basis of making the judgements aboutcarrying values of assets and liabilities thatare not readily 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.

10-15

The Group has elected to adopt IFRS 8
Operating Segments in advance of its effective
date (periods beginning on or after 1 January2009). IFRS 8 introduces the management
approach to segment reporting based on
information presented to the Group’s Boardof Directors. Following adoption of IFRS 8, theGroup’s reporting segments have not changed
significantly but have been sub-divided into alarger number of segments based in line with
the increasing materiality of certain operations
within the Group. For further information,refer to note 4 to the financial statements.

Subsidiaries are entities controlled by theGroup. Control exists when the Group has
the power, directly or indirectly, to govern thefinancial and operating policies of an entity
so as to obtain benefits from its activities. In
assessing control, potential voting rights thatare currently exercisable or convertible aretaken into account. The financial statementsof subsidiaries are included in the consolidated
financial statements from the date that control
commences until the date that control ceases.

Chief Executive’s
statement

Asset, Minimum Funding Requirements andtheir Interaction

The financial statements are prepared on thehistorical cost basis, except for the revaluationof financial assets classified as at fair value
through profit or loss.

8-9· IFRS 8 Operating Segments· IFRIC 11 IFRS 2 Group and Treasury Share

The accounting policies set out in note 3 tothe financial statements have, unless otherwise
stated, been applied consistently to all periods
presented in these Group financial statements.

Chairman’sstatement

The following IFRS have been adopted andapplied by the Group for the first time inthese financial statements:

6-7

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

· Amendment to IAS 39 Financial Instruments:

2008 Financial
highlights

It is not anticipated that any of the standards,
interpretations or amendments above will
have a material impact on the Group’s financial
statements in future periods.

Separate Financial Statements

4-5

Financial Assets: Effective Date and Transition

Basis of preparation
The accounts have been prepared on agoing concern basis. In considering theappropriateness of this assumption, the Board
have reviewed the Group's projections for the
next twelve months and beyond, including
cash flow forecasts and regulatory capitalsurpluses. The Group has no debt.

Admiral Group
in 2008· Amendments to IAS 27 Consolidated and54-104

64 F I N A NC I A L STAT E M E NTS

2. Critical accounting
judgements and estimates
Judgements:
In applying the Group’s accounting policies as
described in note 3, management has primarily
applied judgement in the classification of theGroup’s contracts with reinsurers as quota
share reinsurance contracts. A contract isrequired to transfer significant insurance riskin order to be classified as such. Management
reviews all terms and conditions of thecontract, and if necessary obtains the opinionof an independent expert at the negotiation
stage in order to be able to make thesejudgements.
Estimation techniques used in calculationof claims provisions:
Estimation techniques are used in thecalculation of the provisions for claims
outstanding, which represents a projection of
the ultimate cost of settling claims that haveoccurred prior to the balance sheet date andremain 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 are 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 likely accuracy. They
include allowance for unreported claims.
The most significant sensitivity in the use of
the projection techniques arises from any
future step change in claims costs, which
would cause future claim cost inflation todeviate from historic trends. This is most
likely to arise from a change in the regulatory
or judicial regime that leads to an increase
in awards or legal costs for bodily injury
claims that is significantly above or below thehistorical trend.
The claims provisions are subject toindependent review by the Group’s actuarial

advisors. For further detail on objectives,
policies and procedures for managing
insurance risk, refer to note 19 of the financial
statements.
Future changes in claims reserves also impact
profit commission income, as the recognitionof this income is dependent on the loss
ratio booked in the financial statements, andcash receivable is dependent on actuarial
projections of ultimate loss ratios.

3. Significant accounting
policiesa) Revenue recognition Premiums, ancillary
income and profit commission:
Premiums relating to insurance contracts arerecognised as revenue proportionally over theperiod of cover.
Income earned on the sale of ancillary
products and income from policies paidby instalments is credited to the income
statement over the period matching theGroup’s obligations to provide services. Where
the Group has no remaining contractual
obligations, the income is recognised
immediately. An allowance is made for
expected cancellations where the customer
may be entitled to a refund of ancillaryamounts charged.
Under some of the co-insurance andreinsurance contracts under which motor
premiums are shared or ceded, profit
commission may be earned on a particular
year of account, which is usually subject toperformance criteria such as loss ratios andexpense ratios. The commission is dependent
on the ultimate outcome of any year, withincome being recognised based on loss andexpense ratios used in the preparation of thefinancial statements.
Revenue from Gladiator and Confused.com:
Commission from these activities is credited
to income on the sale of the underlying
insurance policy.
Investment income:Investment income from financial assets
comprises interest income and net gains (bothrealised and unrealised) on financial assets
classified as fair value through profit and loss
or held to maturity deposits.

A D M I R A L G R O U P p l c 65

10-15

Business review
16-33

Governance &Remuneration
34-47

Board of Directors 48-53 Financial& Directors reportstatements

Co-insurance:
The Group has entered into certain coinsurance contracts under which insurance
risks are shared on a proportional basis, withthe co-insurer taking a specific percentage ofpremium written and being responsible forthe same proportion of each claim. As thecontractual liability is several and not joint,neither the premiums nor claims relating
to the co-insurance are included in theincome statement. Under the terms of these
agreements the co-insurers reimburse theGroup for the same proportionate share of
the costs of acquiring the business.

Chief Executive’s
statement

Provision for unexpired risks is made where
necessary for the estimated amount required
over and above unearned premiums to meet
future claims and related expenses.

8-9

On disposal of a foreign operation, thecumulative amount recognised in equity
relating to that particular operation isrecognised in the income statement.

Adjustments to the amounts of claims provisions
established in prior years are reflected in theincome statement for the period in which theadjustments are made and disclosed separately
if material. The methods used, and the estimates
made, are reviewed regularly.

Chairman’sstatement(i) Assets and liabilities for each balance
sheet presented are translated at the 		closing rate at the date of that balance 		
sheet;(ii)	Income and expenses for each income
statement are translated at averageexchange rates (unless this average
is not a reasonable approximation of the
cumulative effect of the rates prevailingon the transaction dates, in which caseincome and expenses are translated at thedate of the transaction); and(iii)	All resulting exchange differences arerecognised as a separate component ofequity.

Whilst the Directors consider that thegross provisions for claims and the related
reinsurance recoveries are fairly stated on thebasis of the information currently available tothem, the ultimate liability will vary as a resultof subsequent information and events andmay result in significant adjustments to theamounts provided.

6-7

Translation of financial statements offoreign operations
The financial statements of foreign operations
whose functional currency is not pounds
sterling are translated into the Group
presentation currency (sterling) as follows:

The provision for claims outstanding
comprises provisions for the estimated costof settling all claims incurred but unpaid atthe balance sheet date, whether reported ornot. Anticipated reinsurance recoveries aredisclosed separately as assets.

2008 Financial
highlights

Translation differences on non-monetary
items, such as equities held at fair value
through profit or loss, are reported as partof the fair value gain or loss. Translationdifferences on non-monetary items areincluded in the fair value reserve in equity.

Claims:Claims and claims handling expenses arecharged as incurred, based on the estimateddirect and indirect costs of settling all
liabilities arising on events occurring up to thebalance sheet date.

4-5

Transactions and balances
Foreign currency transactions are translated
into the functional currency using theexchange rates prevailing at the dates of thetransactions. Foreign exchange gains andlosses resulting from the settlement of suchtransactions, and from the translation at year
end exchange rates of monetary assets andliabilities denominated in foreign currencies
are recognised in the income statement.

c) Insurance contracts and reinsurance assets
Premium:
The proportion of premium receivable on in-force
policies relating to unexpired risks is reported ininsurance contract liabilities and reinsurance assets
as the unearned premium provision – gross andreinsurers’ share respectively.

Admiral Group
in 2008b) Foreign currency translation
Functional and presentation currency
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 inthousands of pounds sterling, which is theGroup’s presentation currency.

54-104

66 F I N A NC I A L STAT E M E NTS

Reinsurance assets:
Contracts entered into by the Group
with reinsurers under which the Group iscompensated for losses on the insurance
contracts issued by the Group are classified
as reinsurance contracts. A contract is only
accounted for as an insurance or reinsurance
contract where there is significant insurance risk
transfer between the insured and the insurer.
The benefits to which the Group is
entitled under these contracts are held as
reinsurance assets.
The Group assesses its reinsurance assets for
impairment on a regular basis, and in detail every
six months. If there is objective evidence that theasset is impaired, then the carrying value will be
written down to its recoverable amount.
d) Intangible assets
Goodwill:
All business combinations are accounted forusing the purchase method. Goodwill has
been recognised in acquisitions of subsidiaries,
and represents the difference between thecost of the acquisition and the fair value ofthe net identifiable assets acquired.
The classification and accounting treatmentof 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 ofacquisitions prior to 1 January 2004, goodwill is
included at the transition date on the basis of
its deemed cost, which represents the amountrecorded under UK GAAP, which was tested
for impairment at the transition date. On
transition, amortisation of goodwill has ceased
as required by IAS 38.
Goodwill is stated at cost less any
accumulated impairment losses. Goodwill
is allocated to cash generating units (CGU’s)
according to business segment and is reviewed
annually for impairment.
The Goodwill held on the balance sheet at 31
December 2008 is allocated solely to the UK
car insurance segment.
Impairment of goodwill:
The annual impairment review involves
comparing the carrying amount to theestimated recoverable amount (by allocating
the goodwill to CGU’s) and recognising an
impairment loss if the recoverable amountis lower. Impairment losses are recognised
through the income statement and are notsubsequently reversed.
The recoverable amount is the greater of the
net realisable value and the value in use of the
CGU.
The value in use calculations use cash flow
projections based on financial budgets
approved by management covering a threeyear period. Cash flows beyond this period areconsidered, but not included in the calculation.
The discount rate applied to the cashflow
projections in the value in use calculations is
9.2%, based on the Group’s weighted average
cost of capital.
The key assumptions used in the value in use
calculations are those regarding growth rates
and expected changes in pricing and expenses
incurred during the period. Management
estimates growth rates and changes in pricing
based on past practices and expected futurechanges in the market.
Deferred acquisition costs:
Acquisition costs comprise all direct andindirect costs arising from the conclusion of
insurance contracts. Deferred acquisition costs
represent the proportion of acquisition costs
incurred that corresponds to the unearned
premiums provision at the balance sheet date.
This balance is held as an intangible asset. It
is amortised over the term of the contract aspremium is earned.
Software:Purchased software is recognised as anintangible asset and amortised over its
expected useful life (generally between two
and four years). The carrying value is reviewed
every six months for evidence of impairment,with the value being written down if any
impairment exists. Impairment may bereversed if conditions subsequently improve.
e) Property, plant and equipment anddepreciation
All property, plant and equipment is statedat cost less accumulated depreciation.
Depreciation is calculated using the straightline method to write off the cost lessresidual values of the assets over their useful
economic lives. These useful economic lives
are as follows:A D M I R A L G R O U P p l c 67

4 years

Computer equipment

2 to 4 years

Improvements to shortleasehold properties

4 years

34-47

Board of Directors 48-53 Financial& Directors reportstatementsi) Share capital
Shares are classified as equity when there isno obligation to transfer cash or other assets.

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

16-33

Derecognition of financial assets
A financial asset is derecognised when therights to receive cashflows from that asset
have expired or when the Group transfers theasset and all the attaching substantial risks andrewards relating to the asset, to a third party.

Business review

The Group's investments in money market
liquidity funds are designated as financial
assets at fair value through profit or loss at
inception.

Objective evidence of impairment may include
default on cashflows due from the asset andreported financial difficulty of the issuer orcounterparty.

10-15

At initial recognition assets are recognised
at fair value and classified according to the
purpose for which they were acquired:Impairment of financial assets
The Group assesses at each balance sheet
date whether any financial assets or groupsof financial assets are impaired. Financial
assets are impaired where there is evidence
that one or more events occurring after the
initial recognition of the asset, may lead to a
reduction in the estimated future cashflows
arising from the asset.

Chief Executive’s
statementg) Financial assets – investments andreceivables
Initial recognition
Financial assets within the scope of IAS 39
are classified as financial assets at fair value
through profit or loss (FVTPL), loans andreceivables or held to maturity investments.
The Group has not held any derivative
instruments in the years ending 31 December
2008 and 31 December 2007.

Receivables are stated at their amortised costless impairment using the effective interest
method. Impairment losses are recognised
through the income statement.

8-9

Leases under the terms of which the Groupassumes substantially all of the risks andrewards of ownership are classed as financeleases. Assets acquired under finance leases areincluded in property, plant and equipment at
fair value on acquisition and are depreciated in
the same manner as equivalent owned assets.
Finance lease and hire purchase obligations
are included in creditors, and the finance costs
are spread over the periods of the agreements
based on the net amount outstanding.

Deposits with fixed maturities, classified asheld to maturity investments are measured
at amortised cost using the effective interest
method. Movements in the amortised cost arerecognised through the income statement, as
are any impairment losses.

Chairman’sstatementf) Leased assets
The rental costs relating to assets held underoperating leases are charged to the income
statement on a straight-line basis over the lifeof the lease.

Subsequent measurement
Financial assets at FVTPL are stated atfair value, with any resultant gain or loss
recognised through the income statement.

6-7

Impairment of property, plant andequipment
In the case of property plant and equipment,
carrying values are reviewed at each balance
sheet date to determine whether there are
any indications of impairment. If any such
indications exist, the asset’s recoverable
amount is estimated and compared to thecarrying value. The carrying value is the higherof the net realisable value and the asset’svalue in use. Impairment losses are recognised
through the income statement.

The Group’s deposits with credit institutions
are classified as held to maturity investments
which is consistent with the intention forwhich they were purchased.

2008 Financial
highlights

Fixtures, fittings andequipmentThis designation is permitted under IAS 39, as
the investments in money market funds aremanaged as a group of assets and internal
performance evaluation of this group is
conducted on a fair value basis.

4-5

4 years

Admiral Group
in 2008

Motor vehicles

54-104

6 8 F I N A NC I A L STAT E M E NTSj) Employee benefits
Pensions:
The Group contributes to a number of defined
contribution personal pension plans for its
employees. The contributions payable to theseschemes are charged in the accounting period
to which they relate.
Employee share schemes:
The Group operates a number of equity
settled compensation schemes for its
employees. For schemes commencing 1 January
2004 and after, the fair value of the employee
services received in exchange for the grant of
free shares under the schemes is recognised
as an expense, with a corresponding increasein equity.
The total charge expensed over the vesting
period is determined by reference to the fairvalue of the free shares granted as determinedat the grant date (excluding the impact of
non-market vesting conditions). Non-market
conditions such as profitability targets aswell as staff attrition rates are included inassumptions over the number of free shares tovest under the applicable scheme.
At each balance sheet date, the Group revises
its assumptions on the number of shares to be
granted with the impact of any change in theassumptions recognised through income.
Refer to note 25 for further details on shareschemes.
k) Taxation
Income tax on the profit or loss for theperiods presented comprises current anddeferred tax.
Current tax:
Current tax is the expected tax payable on
the taxable income for the period, using tax
rates that have been enacted or substantively
enacted by the balance sheet date, andincludes any adjustment to tax payable inrespect of previous periods.

Current tax related to items recognised
directly in equity is recognised in equity andnot in the income statement.
Deferred tax:
Deferred tax is provided in full using thebalance sheet liability method, providing for
temporary differences arising between the
carrying amount of assets and liabilities foraccounting purposes, and the amounts used
for taxation purposes. It is calculated at the
tax rates that are expected to apply in the
period when the liability is settled or the asset
is realised.
A deferred tax asset is recognised only to theextent that it is probable that future taxable
profits will be available against which the asset
can be utilised.
The principal temporary differences arise
from depreciation of property and equipment,
share scheme charges and the tax treatmentof Lloyd’s profits. The resulting deferred tax ischarged 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 inequity.
l) Government grants
Government grants are recognised in thefinancial statements in the period where
it becomes reasonably certain that theconditions attaching to the grant will be met,
and that the grant will be received.
Grants relating to assets are deducted fromthe carrying amount of the asset. The grant istherefore recognised as income over the lifeof the depreciable asset by way of a reduced
depreciation charge.
Grants relating to income are shown as adeduction in the reported expense.

A D M I R A L G R O U P p l c 69

Governance &Remuneration
34-47

Board of Directors 48-53 Financial& Directors reportstatements

Taxes are not allocated across the segments and are included for the purposes of reconciliation
to the Income Statement.

16-33

Other
The other segment includes the Gladiator broking operation in addition to certain central
expenses, overseas development expenses, share scheme costs, finance charges and interest.
None of these are reportable segments based on their immateriality.

Business review

Non-UK car insurance
The segment consists of the underwriting of car insurance and the generation of ancillary income
outside of the UK. It specifically covers the Group’s Balumba.es, AdmiralDirekt.de and ConTe.it
operations in Spain, Germany and Italy respectively.

10-15

Price comparison
The segment relates to the Group’s price comparison operation Confused.com. This operation
had previously been combined with the Group’s commercial van insurance broker, Gladiator, toform an ‘Insurance Broking’ segment. However based on the management reporting approach, theDirectors consider that Price comparison is an independent reportable segment.

Chief Executive’s
statement

UK car insurance
The segment consists of the underwriting of car insurance and the generation of ancillary incomein the UK. The Directors consider the results of these activities to be reportable as one segment
as the activities carried out in generating the income are not independent of each other and are
performed as one business. This mirrors the approach taken in management reporting.

8-9

The following segments represent the principal split of business that is regularly reported to theGroup’s Board of Directors, and therefore become the Group’s reportable segments under IFRS 8:

Chairman’sstatement

Under IAS 14 in previous financial years, the primary segments were identified by business type.
No secondary geographical segments were presented on materiality grounds. As described
below the segments presented under IFRS 8 continue to be identified by business type. In
addition, the Group’s Directors consider that the car insurance segment should be sub-divided
into two geographical reportable segments; UK and Non-UK, on the basis of it being useful
information to users of the financial statements rather than the breach of quantitative thresholds
within the standard.

6-7

The Group’s Directors consider that the adoption of IFRS 8 does not lead to a material change
in the identification of the Group’s segments as the business segments reported to the Group’s
Board of Directors have clearly defined lines of risk and reward. The Board of Directors is
considered to be the chief operating decision maker for the Group.

2008 Financial
highlights

IAS 14, the previously effective standard on segment reporting, was similar, in that identificationof segments started with internal financial reporting to key management personnel. However its
main focus was on components of the business with similar risks and generating similar returns
which could potentially be very different to the management approach.

4-5

The Group has adopted IFRS 8 Operating Segments in advance of its effective date. IFRS 8
adopts a strict management approach to segment reporting and requires that operating
segments be identified on the same basis as financial information is reported internally to thechief operating decision maker for the purposes of allocating resources between segments andassessing their performance.

Admiral Group
in 2008

4. Operating segments

54-104

7 0 F I N A NC I A L STAT E M E NTS

Segment income, results and other information
An analysis of the Group’s revenue and results for the year ended 31 December 2008, byreportable segment are shown below. The accounting policies of the reportable segments are
consistent with those presented in note 3 for the Group.
31 December 2008
UK carinsurancePricecomparison

Non–UKcar
insurance

Other

Group

£000

£000

£000

£000

£000

Net insurance
premium revenue

161,947

-

7,889

-

169,836

Other revenue andprofit commission

149,266

66,143

3,656

9,524

228,589

Investment andinterest income

17,098

-

628

6,655

24,381

Net revenue

328,311

66,143

12,173

16,179422,806

Net insurance claims(105,123)-(9,453)-(114,576)

Expenses(43,281)(40,539)(6,821)(15,046)(105,687)

Operating profit

179,90725,604(4,101)

1,133

202,543

Finance charges

-

-

-

(25)

(25)

Segment profit /(loss) before tax

179,90725,604(4,101)

1,108

202,518

Unallocated taxation
expense(57,580)

Group profit after tax

144,938

Other segment items:
Interest revenue

-

-

-

Interest expense

6,655

6,655

25

25

Capital expenditure

15,330

882

9,611

83

25,906

Depreciation andamortisation

13,442

313

2,131

74

15,960ADMIRAL GROUP plc 71
Admiral Group
in 2008

Restated revenue and results for the corresponding reportable segments for the year ended 31
December 2007 are shown below.
31 December 2007 (Restated)Pricecomparison

Non–UKcar
insurance

Other

Group

£000

£000

4-5

UK carinsurance

Other revenue andprofit commission

118,406

69,159

2,238

7,523

197,326

Investment andinterest income

16,662

-

133

7,777

24,572

Net revenue

275,335

69,1594,340

15,300364,134

Net insurance claims(97,019)-(2,776)-(99,795)

Expenses(36,124)(32,433)(2,223)(11,177)(81,957)

Operating profit

142,192

36,726

(659)

4,123

182,382

-

(284)

(284)

(659)

3,839

182,098

Finance charges
Segment profit /(loss) before tax-

142,192-

36,726-142,236(54,682)Group profit after tax

127,416

Business review

Unallocated taxation
expense

10-15

1,969

Chief Executive’s
statement-

8-9

140,267

Chairman’sstatement

£000

6-7

£000

2008 Financial
highlights£000
Net insurance
premium revenue

16-33

Other segment items:
-

-

-

7,777

7,777

Interest expense

-

-

-

284

284

Capital expenditure

11,516

335

3,063

59

14,973

Depreciation andamortisation

11,243

145

942

71

12,401

Revenues from external customers for products and services is consistent with the split ofreportable segment revenues as shown above.
Information about geographical locations
All material revenues from external customers, and net assets attributed to a foreign country
are shown within the Non–UK car insurance reportable segment shown above.

Board of Directors 48-53 Financial& Directors reportstatements

The total of Price comparison revenues from transactions with other reportable segments is£11,050,000 (2007: £10,784,000).

34-47

Segment revenues
The UK and Non–UK car insurance reportable segments derive all insurance premium income
from external policyholders. Revenue within these segments is not derived from an individual
policyholder that represents 10% or more of the Group’s total revenue.

Governance &Remuneration

Interest revenue

54-104

7 2 F I N A NC I A L STAT E M E NTS

Segment assets and liabilities
The identifiable segment assets and liabilities at 31 December 2008 are as follows.
31 December 2008
UK carPrice
insurance comparison

Non–UKcar
insurance

Other Eliminations

Group

£000

£000

£000

£000

£000

£000

Plant, property
and equipment

6,649

1,079

3,112

162

-

11,002Intangible assets

68,836

-

6,849

-

-

75,685

Financial assets

549,680-

37,255--586,935

Reinsurance assets

149,521-

21,073--

170,594

Trade and otherreceivables

105,777

6,557

1,415

5,638

(93,886)

25,501

Cash and cash
equivalents

50,295

15,602

18,24560,144-

144,286

Reportablesegment assets

930,758

23,23887,94965,944(93,886)

1,014,003

Insurance contract
liabilities

406,869-

32,687--439,556

Trade and otherpayables261,759

4,080

4,359

46,385(46,495)

270,088

Reportablesegment liabilities

668,628

4,080

37,046

46,385(46,495)

709,644

Reportablesegment net assets

262,130

19,15850,903

19,559(47,391)

304,359

Unallocated assets
and liabilities(28,790)

Total net assets

275,569

Unallocated assets and liabilities consist of deferred and current corporation tax balances.
These assets and liabilities are not regularly reviewed by the Board of Directors in the reportablesegment format.
There is an asymmetrical allocation of assets and income to the reportable segments, in thatthe interest earned on cash and cash equivalent assets deployed in the UK car insurance, Pricecomparison and Non-UK car insurance segments is allocated to the Other reportable segment.
Eliminations represent inter-segment funding and balances included in trade and otherreceivables and other payables.

ADMIRAL GROUP plc 73

31 December 2007 (Restated)
Other Eliminations

Group

6,288

508

760

152

-

7,708

Intangible assets

67,340

-

1,723

-

-

69,063Financial assets

476,797

-

5,051

-

-

481,848

Reinsurance
assets121,758

-

9,910

-

-

131,668

Trade and otherreceivables

18,070

6,325

3,785

8,194

(13,741)

22,633

Cash and cash
equivalents

79,877

15,906

10,16649,824-

155,773

Reportablesegment assets

770,130

22,73931,39558,170(13,741)

868,693

Insurance contract
liabilities

347,814-

15,246--

363,060

Trade and otherpayables

228,130

4,324

6,300

2,767

(13,741)

239,593

Reportablesegment liabilities

575,944

4,324

21,5462,767(1,928)602,653

Reportablesegment net assets

194,186

18,415

9,849

55,403(11,813)

266,040(28,408)

Total net assets

237,632

Governance &Remuneration

Unallocated assets
and liabilities

16-33

Plant, property
and equipment

Business review

£000

10-15

£000

Chief Executive’s
statement

£000

8-9

£000

Chairman’sstatement

£000

6-7

£000

2008 Financial
highlights

Non–UKcar
insurance

4-5

UK carPrice
insurance comparison

Admiral Group
in 2008

The restated segment assets and liabilities at 31 December 2007 are as follows.

34-47

Board of Directors 48-53 Financial& Directors reportstatements
54-104

74 F I N A NC I A L STAT E M E NTS

5. Net insurance premium revenue
31 December
2008

31 December
2007

£000

£000

Total motor insurance premiums before co-insurance

716,288631,251

Group gross premiums written after co-insurance

334,665

260,901

Outwards reinsurance premiums(140,264)(119,049)

Net insurance premiums written

194,401

141,852

Change in gross unearned premium provision(33,204)(27,826)

Change in reinsurers’ share of unearned premiumprovision

8,639

28,210169,836

142,236

Net insurance premium revenue

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

6. Other revenue
31 December
2008

31 December
2007

£000

£000

Ancillary revenue

109,774

94,216

Revenue from Confused.com

66,143

69,159

Revenue from Gladiator

9,524

7,520

Instalment income earned

8,422

5,983

193,863

176,878

Total other revenue

Refer to the Business review for further detail on the sources of revenue.

A D M I R A L G R O U P p l c 75
Admiral Group
in 2008

7. Profit commission

£000

£000

34,726

20,4482008 Financial
highlights

31 December
2007
4-5

Total profit commission

31 December
2008

Source of profit commission:
2008

£000

£000

£000

£000

2003 & prior

3,858

6,770

3,657

2,611

2004

9,110

8,075

6,811

5,522

2005

1,767

4,701

8,263

8,846

2006

-

380

1,717

9,221

2007

-

-

-

8,526

Total

14,73519,926

20,44834,726

Underwriting year:

Chief Executive’s
statement

2007

8-9

2006

Chairman’sstatement

2005

6-7

Financial year:

10-15

8. Investment and interest income£000

Net investment return

17,726

16,795Interest receivable

6,655

7,777

Total investment and interest income

24,381

24,572Governance &Remuneration

£000

16-33

31 December
2007

Business review

31 December
2008

34-47

Board of Directors 48-53 Financial& Directors reportstatements
54-104

76 F I N A NC I A L STAT E M E NTS

9. Expenses and share scheme charges
31 December 2008

31 December 2007

Insurance
contracts
£000

Other
£000

Total
£000

Insurance
contracts
£000

Other
£000

Total
£000

Acquisitionof insurance
contracts

12,482-

12,482

8,420

-

8,420

Administrationand othermarketing costs

19,72667,55587,281

13,31457,25270,566

Expenses

32,20867,55599,763

21,73457,252

78,986

-

5,924

5,924

-

2,971

2,971

32,20873,479105,687

21,73460,223

81,957

Share scheme
charges
Total expenses
and share
scheme charges

Analysis of other administration and other marketing costs:
31 December
2008

31 December
2007

£000

£000

Ancillary sales expenses

17,893

16,613

Confused.com operating expenses

40,53932,432Gladiator operating expenses

6,719

5,520

Central overheads

2,404

2,687

Total

67,55557,252The £19,726,000 (2007: £13,314,000) administration and marketing costs allocated to insurance
contracts is principally made up of salary costs.

A D M I R A L G R O U P p l c 77£000

Gross expenses

211,181

167,773

Co-insurer share of expenses(72,783)(66,430)

Expenses, net of co-insurer share

138,398

101,343

Adjustment for deferral of acquisition costs(5,974)(3,687)

Expenses, net of co-insurer share (earned basis)

132,424

97,656

Reinsurer share of expenses (earned basis)(26,737)(15,699)

Total expenses and share scheme charges

105,687

81,9576-7£0002008 Financial
highlights

31 December
2007

4-5

31 December
2008

Admiral Group
in 2008

The gross amount of expenses, before recoveries from co-insurers and reinsurers is £211,181,000(2007: £167,773,000). This amount can be reconciled to the total expenses and share scheme
charges above of £105,687,000 (2007: £81,957,000) as follows:

Chairman’sstatement
8-9

Insurance contract expenses from above

32,20821,734

Add: claims handling expenses

4,745

3,471

Adjusted expenses

36,95325,205

Net insurance premium revenue

169,836

142,236

Reported expense ratio

21.8%

17.7%

Governance &Remuneration

£000

16-33

£000

Business review

31 December
2007

10-15

31 December
2008

Chief Executive’s
statement

Reconciliation of expenses related to insurance contracts to reported Group expense ratio:

34-47

Board of Directors 48-53 Financial& Directors reportstatements
54-104

7 8 F I N A NC I A L STAT E M E NTS

10. Staff costs and other expenses
Included in profit, before co-insurance arrangements are the following:
31 December
2008

31 December
2007

£000

£000

Salaries

60,72545,022Social security charges

7,678

6,231

713

588

Share scheme charges (see note 25)

11,3205,560

Total staff expenses

80,436

57,401- Owned assets

2,667

2,127

- Leased assets

1,079

1,100

- Software

1,390

725

- Deferred acquisition costs

10,824

8,449

3,902

3,018

- Fees payable for the audit of the Company’s annual
accounts

30

25- Fees payable for the audit of the Company’s subsidiaryaccounts

186

169- Fees payable for other services

160

85

Loss on disposal of property, plant and equipment

30

6Net foreign exchange gains

162

171

Tax services

160

85

Other services--

Total as above

160

85

Pension costs

Depreciation charge:

Amortisation charge:

Operating lease rentals:- Buildings
Auditor’s remuneration:

Analysis of fees paid to the auditor for other services:

The amortisation of software and deferred acquisition cost assets is charged to expenses in theincome statement.

A D M I R A L G R O U P p l c 79
Admiral Group
in 2008

11. Staff numbers (including Directors)
Average for the year
2007
Number

2,354

1,839

731

525

3,085

2,364

31 December
2008

31 December
2007

£000

£000

Finance lease interest

25

243

Letter of credit charges

-

41

8-9

Total finance charges

25

284

Chief Executive’s
statement

31 December
2008

31 December
2007

£000

£000

Corporation tax on profits for the year

50,10456,194

Over provision relating to prior periods(4,730)(87)

Current tax charge

45,374

56,107

12,102(1,422)104(3)57,58054,68231 December
2008

31 December
2007

£000

£000

Support staff
Total

6-7

12. Finance charges

182,098

Corporation tax thereon at UK corporation tax rate of 28.5%(2007: 30%)

57,71854,629

Expenses and provisions not deductible for tax purposes

414

178

Other differences

(481)

(36)

Adjustments relating to prior periods

(71)

(89)

Tax charge for the period as above

57,58054,68254-104

202,518

Board of Directors 48-53 Financial& Directors reportstatements

Profit before tax

34-47

Factors affecting the tax charge are:Governance &Remuneration

Total tax charge per income statement

16-33

Under / (over) provision relating to prior periods –deferred tax

Business review

Deferred tax

10-15

Current tax

Chairman’sstatement

13. Taxation

Current period deferred taxation movement

2008 Financial
highlights

Direct customer contact staff

4-5

2008
Number

8 0 F I N A NC I A L STAT E M E NTS

14. Dividends
Dividends were declared and paid as follows:
31 December
2008

31 December
2007

March 2007 (24.0p per share, paid May 2007)-

62,412September 2007 (20.6p per share, paid October 2007)-

53,604

March 2008 (23.2p per share, paid May 2008)

60,473-

July 2008 (26.0p per share, paid September 2008)

68,042-

Total dividends

128,515

116,016

The dividends declared in March represent the final dividends paid in respect of the 2007
and 2006 financial years. Dividends declared in September 2007 and July 2008 are interim
distributions in respect of 2007 and 2008.
A final dividend of 26.5p per share has been proposed in respect of the 2008 financial year. Referto the Chairman’s statement and Business review for further detail.

15. Earnings per share

Profit for the financial year after taxation (£000s)
Weighted average number of shares – basic
Unadjusted earnings per share – basic
Weighted average number of shares – diluted
Unadjusted earnings per share – diluted

31 December
2008

31 December
2007

144,938

127,416

263,821,341

261,981,843

54.9p

48.6p

264,188,008

262,291,843

54.9p

48.6p

The difference between the basic and diluted number of shares at the end of 2008 (being
366,667) relates to awards committed, but not yet issued under the Group’s share schemes.
Refer to note 25 for further detail.

ADMIRAL GROUP plc 81
Admiral Group
in 2008

16. Property, plant and equipment£000

Furnitureandfittings

Motorvehicles

Total

£000

£000

£000

£000

Cost
At 1 January 2007
Additions

11,191

4,169

1,812

12

19,517

413

2,129

781

170

-

3,493

(6)

-

(3)

-

(9)

13,314

4,950

1,979

12

23,001

At 1 January 2007

648

7,348

2,716

1,350

7

12,069Charge for the year

577

1,858

611

178

3

3,227

Depreciation

Disposals

-

(1)

-

(3)

3,327

1,527

10

15,293

1,685

3,843

1,453

462

5

7,448

1,521

4,110

1,623

452

2

7,708

At 1 January 2008

2,746

13,314

4,950

1,979

12

23,001

Additions

1,297

3,534

1,837

371

10

7,049

Disposals

-

(10)

-

-

-

(10)

4,043

16,838

6,787

2,350

22

30,040

At 1 January 2008

1,225

9,204

3,327

1,527

10

15,293Charge for the year

692

1,983

841

227

3

3,746

-

(1)

-

-

-

(1)

1,917

11,186

4,168

1,754

13

19,038

2,126

5,652

2,619

596

9

11,002Net book amountAt 1 January 2007
Net book amountAt 31 December 2007

10-15

Cost

At 31 December 2008
Net book amountComputer equipment

31 December
2008

31 December
2007

1,561

2,149

Board of Directors 48-53 Financial& Directors reportstatements

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

34-47

At 31 December 2008

Governance &Remuneration

Disposals

16-33

Depreciation

Business review

At 31 December 2008

Chief Executive’s
statement

(2)
9,204

8-9

1,225

At 31 December 2007

Chairman’sstatement

2,746

At 31 December 2007

6-7

Disposals

2,3332008 Financial
highlights£000

Officeequipment

4-5

Improvements
to short
leasehold Computerbuildings equipment

54-104

8 2 F I N A NC I A L STAT E M E NTS

17. Intangible assets

Goodwill

Deferredacquisition
costs

Software

Total

£000

£000

£000

£000

62,354

3,445

958

66,757

Additions

-

9,584

1,896

11,480

Amortisation charge-(8,449)(725)(9,174)

At 31 December 2007

62,354

4,580

2,129

69,063

Additions-

14,591

4,266

18,857

Amortisation charge-(10,824)(1,390)(12,214)

Disposals

-

-

(21)

(21)

62,354

8,347

4,984

75,685Carrying amount:
At 1 January 2007

At 31 December 2008

Goodwill relates to the acquisition of Group subsidiary EUI Limited (formerly Admiral Insurance
Services Limited) in November 1999. It is allocated solely to the UK car insurance segment. As
described in the accounting policies, the amortisation of this asset ceased on transition to IFRS
on 1 January 2004. All annual impairment reviews since the transition date have indicated that theestimated recoverable value of the asset is greater than the carrying amount and therefore no
impairment losses have been recognised.

ADMIRAL GROUP plc 83
Admiral Group
in 2008

18. Financial assets and liabilities
The Group’s financial instruments can be analysed as follows:

335,608

100,032-

Receivables – amounts owed by policyholders

176,072

146,240

Total financial assets per consolidated balance sheet

586,935

481,848

Trade and other receivables

25,501

22,633

Cash and cash equivalents

144,286

155,773

756,722660,254

270,088239,593

Financial liabilities:
Trade and other payables

All receivables from policyholders are due within 12 months of the balance sheet date.

54-104

The funds are not permitted to have an average maturity greater than 60 days and hence are notsubject to large movements in yield and value resulting from changes in market interest rates(as longer duration fixed income portfolios experience). Returns are likely to closely track the
7 day LIBID benchmark and hence while the Group’s investment return will vary according tomarket interest rates, the capital value of these investment funds will not be impacted by rate
movements. The interest rate risk arising is therefore considered to be minimal.

Board of Directors 48-53 Financial& Directors reportstatements

The Group has a policy of primarily investing in AAA-rated money market liquidity funds, which
in turn invest in a mixture of very short dated fixed and variable rate securities, such as cash
deposits, certificates of deposits, floating rate notes and other commercial paper.

34-47

Interest rate risk
The Group considers interest rate risk to be the risk that unfavourable movements in interest
rates could adversely impact on the capital values of financial assets and liabilities. This relates
primarily to investments held at fair value.

Governance &Remuneration

There are several key elements to the risk management environment throughout the Group.
These are detailed in full in the Corporate Governance statement. Specific considerations for therisks arising from financial assets and liabilities are detailed below.

16-33

Objectives, policies and procedures for managing financial assets and liabilities
The Group’s activities expose it primarily to the significant financial risks of credit risk, liquidity
risk, interest rate risk and foreign exchange risk. The Board of Directors has delegated the taskof supervising risk management and internal control to the Risk Management Committee (RMC).
There is also an Investment Committee that makes recommendations to the Board on theGroup’s investment strategy.

Business review

The amortised cost carrying amount of held to maturity deposits and receivables is a reasonableapproximation of fair value.

10-15

All investments held at fair value are invested in AAA-rated money market liquidity funds. These
funds (spread across three very large providers) target a 7 day LIBID return with capital security
and low volatility and continue to achieve these goals.

Chief Executive’s
statement

310,831

Held to maturity deposits with credit institutions

8-9

Investments held at fair value

Financial assets:

Chairman’sstatement

£000

6-7

£000

2008 Financial
highlights

31 December
2007

4-5

31 December2008

8 4 F I N A NC I A L STAT E M E NTSThe Group also holds a number of fixed rate, longer-term deposits with UK credit institutions
rated A or above. These are classified as held to maturity and valued at amortised cost. Therefore
neither the capital value of the deposits, or the interest return will be impacted by fluctuationsin interest rates.
No sensitivity analysis to interest rates has been presented on materiality grounds.
Credit risk
The Group defines credit risk as the risk of loss if another party fails to perform its obligations or
fails to perform them in a timely fashion. The key areas of exposure to credit risk for the Group
result through its reinsurance programme, investments and bank deposits and to a lesser extent,
policyholder receivables.
Economic and financial market conditions have led the Directors to consider counterparty
exposure more frequently and in significant detail. The Directors consider that the policies andprocedures in place to manage credit exposure continue to be appropriate for the Group’s risk
appetite, and no material credit losses have been experienced by the Group.
There are no specific concentrations of credit risk with respect to investment counterparties
due to the structure of the liquidity funds which invest in a wide range of very short duration,high quality securities. Cash balances and deposits are placed only with credit institutions with afinancial strength rating of A or above.
To mitigate the risk arising from exposure to reinsurers, the Group only conducts business withcompanies of specified financial strength ratings. In addition, most contracts are operated on afunds withheld basis, which substantially reduces credit risk.
The other principal form of credit risk is in respect of amounts due from policyholders due tothe potential for default on credit card payments. The impact of this is mitigated by the large
customer base and low average level of balance recoverable. There is also mitigation by theoperation of numerous high and low level controls in this area, including payment on policy
acceptance as opposed to inception and automated cancellation procedures for policies indefault.
The fair value of receivables from policyholders represents the maximum exposure to credit
risk. The group does not use credit derivatives or similar instruments to mitigate exposure. The
amount of bad debt expense relating to policyholder debt charged to the income statement in2007 and 2008 is insignificant.
There were no significant financial assets that were past due at the close of either 2008 or 2007.
The Group’s credit risk exposure to assets with external ratings is as follows:

Rating31 December
2008

31 December
2007

£000

£000

Financial institutions – Money market funds

AAA

310,831335,608

Financial institutions – Credit institutionsAA

115,613133,179

Financial institutions – Credit institutions

A

128,705

22,591

Reinsurers

A

64,49145,546ADMIRAL GROUP plc 85

16-33

Governance &Remuneration
34-47

Objectives, policies and procedures for managing capital
For details of objectives, policies and procedures for managing capital, and external capitalrequirements, refer to the Business review.

Business review

Fair value
The carrying value of all of the Group’s financial assets equate to fair value. For money market
funds, cash at bank and deposits, the fair value approximates to the book value due to theirshort maturity.

10-15

Liquidity risk is therefore considered to be insignificant.

Chief Executive’s
statement

All financial assets will mature within 12 months. The Group’s Directors believe that the cashflows
arising from these assets will be consistent with this profile.

8-9

In practice, the Group’s Directors expect actual cashflows to be consistent with this maturity
profile except for amounts owed to co-insurers and reinsurers. Of the total amounts owed toco-insurers and reinsurers of £147.9m (2007: £134.7m), £77.5m (2007: £62.9m) is held under funds
withheld arrangements and therefore not expected to be settled within 12 months.

Chairman’sstatement

A breakdown of the Group’s financial liabilities – trade and other payables is shown in note 22.
In terms of the maturity profile of these liabilities, all amounts may potentially mature within
12 months of the balance sheet date except for a minority of finance lease liabilities which will
expire after 12 months. (Refer to note 23 for further detail)6-7

The Group has traditionally been strongly cash generative due to the large proportion of profit
arising from non-underwriting activity. Further, as noted above, a significant portion of insurance
funds are invested in money market liquidity funds with same day liquidity features, meaningthat the vast majority of the Group cash and investments are immediately available. The current
uncertainty in credit markets is not likely to impact this.

2008 Financial
highlights

Liquidity risk
Liquidity risk is defined as the risk that the Group does not have sufficient, available, financial
resources to enable it to meet its obligations as they fall due, or can only secure them atexcessive cost.

4-5

The Group may be exposed to foreign exchange risk through its expanding operations in Europe.
Although the relative size of the European operations means that the risks are relatively small,increasingly volatile foreign exchange rates result in larger potential gains or losses. Assets held tofund insurance liabilities are held in the currency of the liabilities, however surplus assets held as
regulatory capital in foreign currencies remain exposed.

Admiral Group
in 2008

Foreign exchange risks
Foreign exchange risks arise from unfavourable movements in foreign exchange rates that could
adversely impact the valuation of overseas assets.

Board of Directors 48-53 Financial& Directors reportstatements
54-104

8 6 F I N A NC I A L STAT E M E NTS

19. Reinsurance assets and insurance contract liabilities
A) Objectives, policies and procedures for the management of insurance risk:
The Group is involved in issuing motor insurance contracts that transfer risk from policyholders
to the Group and its underwriting partners.
Insurance risk primarily involves uncertainty over the occurrence, amount or timing of claims
arising on insurance contracts issued.
The key reserving risk is that the frequency and / or value of the claims arising exceeds
expectation and the value of insurance liabilities established.
The Board of Directors is responsible for the management of insurance risk, although as
mentioned in note 18, it has delegated the task of supervising risk management to the Risk
Management Committee.
The Board implements certain policies in order to mitigate and control the level of insurance risk
accepted by the Group. These include underwriting partnership arrangements, pricing policies
and claims management and administration policies.
A number of the key elements of these policies and procedures are detailed below:i) Co-insurance and reinsurance:
As noted in the Business review above, the Group cedes a significant amount of the motor
insurance business written to external underwriters. In 2008, 55% of the risk was shared under aco-insurance contract, under which the primary risk is borne by the co-insurer.
A further 17.5% was ceded under quota share reinsurance contracts.
As well as these proportional arrangements, an excess of loss reinsurance programme is alsopurchased to protect the Group against very large individual claims and catastrophe losses.
ii) Data driven pricing:
The Group’s underwriting philosophy is focused on a sophisticated data-driven approach topricing and underwriting and on exploiting the competitive advantages direct insurers enjoy overtraditional insurers through:· Collating and analysing more comprehensive data from customers;· Tight control over the pricing guidelines in order to target profitable business sectors; and· Fast and flexible responsiveness to data analysis and market trends.
The Group is committed to establishing premium rates that appropriately price the underwriting
risk and exposure. Rates are set utilising a larger than average number of underwriting criteria.
The Directors believe that there is a strong link between the increase in depth of data that theGroup has been able to collate over time and the lower than average historic reported loss ratios
enjoyed by the Group.
iii) Effective claims management:
The Group adopts various claims management strategies designed to ensure that claims are paid
at an appropriate level and to minimise the expenses associated with claims management. These
include:ADMIRAL GROUP plc 87

resources employed helps reduce the scope for error and avoids significant backlogs);· Use of an outbound telephone team to contact third parties aiming to minimise the potential

Admiral Group
in 2008· An effective, computerised workflow system (which along with the appropriate level ofclaims costs and to ensure that more third parties utilise the Group approved repairers;

4-5· Use of sophisticated and innovative methods to check for fraudulent claims.

The Directors do not believe there are significant concentrations of insurance risk. This is because,
although the Group only writes one line of insurance business, the risks are spread across a large
number of people and a wide regional base.

2008 Financial
highlights

Concentration of insurance risk:

6-7

The following table sets out the impact on equity at 31 December 2008 that would result from a
1 per cent change in the loss ratios used for each underwriting year for which material amounts
remain outstanding.

Chairman’sstatementB) Sensitivity of recognised amounts to changes in assumptions:

Underwriting year
2005

2006

2007

2008

Loss ratio

53.5%

57.0%

67.0%

78.5%

80.5%

89.0%

Impact of 1% change(£000s)

1,753

2,235

2,871

2,827

3,196

1,032

Total

13,914Claims outstanding

282,273242,576

Unearned premium provision

157,283

120,484

Total gross insurance liabilities

439,556

363,060

Claims outstanding

103,794

76,055

Unearned premium provision

66,80055,613

Total reinsurers’ share of insurance liabilities

170,594

131,668

Claims outstanding

178,479

166,521

Unearned premium provision

90,48364,871

Total insurance liabilities – net

268,962

231,392

Gross:

Recoverable from reinsurers:

Net:

Board of Directors 48-53 Financial& Directors reportstatements

£000

34-47

£000

Governance &Remuneration

31 December
2007

16-33

31 December
2008

Business reviewC) Analysis of recognised amounts:

10-15

The impact is stated net of reinsurance and includes the change in net insurance claims alongwith the associated profit commission movements that result from changes in loss ratios. The
figures are stated net of tax at the current rate.

Chief Executive’s
statement

2004

8-9

2003

54-104

8 8 F I N A NC I A L STAT E M E NTSD) Analysis of re-estimation of claims provisions:
The following tables set out the cumulative impact, to 31 December 2008, of the retrospective
re-estimation of claims provisions initially established at the end of the financial years stated.
Figures are shown gross and net of reinsurance. These tables present data on an accident
year basis.
Financial year ended 31 December
2004
£000

2005
£000

2006
£000

2007
£000

2008
£000

142,968

170,216

202,421242,576

282,273

One year later

137,075

162,205

192,283

223,688-

Two years later

127,613

149,317

178,679--

Three years later

119,625

138,171---

Four years later

113,136

-

-

-

-

Five years later

-

-

-

-

-

As re-estimated at 31
December 2008

113,136

138,171

178,679

223,688-

Gross cumulative overprovision(29,832)(32,045)(23,742)(18,888)-

Gross amounts:
Gross claims provision as
originally estimatedProvision re-estimated as of:Financial year ended 31 December
Net amounts:

2004
£000

2005
£000

2006
£000

2007
£000

2008
£000

Net claims provision as originallyestimated

98,120128,631

154,711

166,521

178,479

One year later

93,910122,423

146,435

154,751-

Two years later

87,761111,964

135,825--

Three years later

82,004

102,911---

Four years later

77,331----Five years later

-

-

-

-

-

As re-estimated at 31
December 2008

77,331

102,911

135,825

154,751-

Net cumulative overprovision(20,789)(25,720)(18,886)(11,770)-

Provision re-estimated as of:

ADMIRAL GROUP plc 89
Admiral Group
in 2008

E) Analysis of net claims provision releases:

4-5

The following table analyses the impact of movements in prior year claims provisions, in termsof their net value, and their impact on the reported loss ratio. This data is presented on anunderwriting year basis.

2004
£000

2005
£000

2006
£000

2007
£000

2008
£000

2000

1,480

370

1,110

740

370

2001

2,967

5,043

1,879

1,483

494

2002

3,229

5,166

2,260

1,292

-

2003

1,513

4,622

5,084

3,235

2,311

2004

-

2,076

7,948

7,589

6,429

2005

-

-

2,623

12,545

10,977Chairman’sstatement

2006

-

-

-

2,588

10,528

2007

-

-

-

-

6,857

9,189

17,277

20,90429,47237,966

107,501

139,454

144,955

142,236

169,836

8.5%

12.4%

14.4%

20.7%

22.4%

8-9

Underwriting year:

6-7

2008 Financial
highlights

Financial year ended 31 December

Net premium revenue
Release as % of net premium revenue

Chief Executive’s
statement

Total net release

10-15

Business review
16-33

Governance &Remuneration
34-47

Board of Directors 48-53 Financial& Directors reportstatements
54-104

9 0 F I N A NC I A L STAT E M E NTSF) Reconciliation of movement in net claims provision:
31 December
2008

31 December
2007

£000

£000

Net claims provision at start of period

166,521

154,711

Net claims incurred

109,830

96,324

Net claims paid

(97,872)(84,514)

Net claims provision at end of period

178,479

166,52131 December
2008

31 December
2007

£000

£000

Net unearned premium provision at start of period

64,87165,025

Written in the period

194,401

141,851

Earned in the period(168,789)(142,005)

Net unearned premium provision at end of period

90,48364,87131 December
2008

31 December
2007

£000

£000

Trade receivables

22,266

20,747

Prepayments and accrued income

3,235

1,886

Total trade and other receivables

25,501

22,633G) Reconciliation of movement in net unearned premium provision:

20. Trade and other receivables

ADMIRAL GROUP plc 91
Admiral Group
in 2008

21. Cash and cash equivalents

£000

£000

Cash at bank and in hand

140,336

150,902

Cash on short term deposit

3,950

4,871

144,286

155,773

Total cash and cash equivalents

6-7

Chairman’sstatement

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

22.

Trade and other payables

Trade payables

10,7605,960

Amounts owed to co-insurers and reinsurers

147,942

134,659

Finance leases due within 12 months

126

345

Finance leases due after 12 months

14

4

9,492

8,557

18,83015,54582,92474,523

Total trade and other payables

270,088239,59331 December
2008

31 December
2007

£000

£000

16-33

Other payables
Accruals and deferred income (see below)

Business review

£000

10-15

£000

Chief Executive’s
statement

31 December
2007

8-9

31 December
2008

Other taxation and social security liabilities

2008 Financial
highlights

31 December
2007

4-5

31 December
2008

38,477
26,948Deferred income

8,007

9,098

Total accruals and deferred income as above

82,92474,523

Board of Directors 48-53 Financial& Directors reportstatements

45,56729,35034-47

Premium receivable in advance of policy inception
Accrued expenses

Governance &Remuneration

Analysis of accruals and deferred income:54-104

9 2 F I N A NC I A L STAT E M E NTS

23. Obligations under finance leases
Analysis of finance lease liabilities:
At 31
December
2008

At 31
December
2007

Minimum
lease
payments

Minimum
lease
payments Interest

Interest

Principal

£000

£000

£000

£000

£000

£000

Less than one year

136

10

126

360

15

345

Between one
and five years

15

1

14

4

-

4

More than five years

-

-

-

-

-

-

151

11

140

364

15

349

Principal

The average term of leases outstanding is two years. All leases are on a fixed repayment basis andno arrangements have been entered into for contingent rental payments.
The fair value of the Group’s lease obligations approximates to their carrying amount.

24. Deferred income tax liability / (asset)
31 December
2008

31 December
2007

£000

£000

Brought forward at start of period(1,629)981

Movement in period

11,956(2,610)Carried forward at end of period

10,327(1,629)31 December
2008

31 December
2007

£000

£000

-

541

(2,401)(2,091)

Capital allowances

31

126

Other differences

(132)

(205)

Unremitted overseas income

12,829-Deferred tax liability / (asset) at end of period

10,327(1,629)The net balance provided at the end of the year is made up as follows:
Analysis of net deferred tax liability / (asset):

Tax treatment of Lloyd’s SyndicatesTax treatment of share scheme charges

ADMIRAL GROUP plc 93
Admiral Group
in 2008

Deferred tax on unremitted overseas income has been provided to the extent it is likely toreverse in the foreseeable future.

31 December
2008

31 December
2007

£000

£000

Tax treatment of Lloyd’s Syndicates

541

1,395

Tax treatment of share scheme charges

60

53

Capital allowances

95

23

6-7

Other differences

(73)

(46)

Unremitted overseas income(12,829)-

Chairman’sstatement

2008 Financial
highlights

Amounts (charged) / credited to income or expense:

4-5

The amount of deferred tax (expense) / income recognised in the income statement for each of
the temporary differences reported overleaf is:

Net deferred tax (charged) / credited to income(12,206)

1,425

The closing deferred tax balances reflect the change in UK corporation tax rate from 30% to 28%
which became effective on 1 April 2008.

8-9

The difference between the total movement in the deferred tax balance above and the amountcharged to income relates to deferred tax on share scheme charges that has been credited
directly to equity.

Chief Executive’s
statement
10-15

25. Share capital

500

500

264,541,810 ordinary shares of 0.1p

265-

262,721,426 ordinary shares of 0.1

-

263

265

263

Authorised:
500,000,000 ordinary shares of 0.1p
Issued, called up and fully paid:

589,384 (2007: 570,827) of these were issued to the Admiral Group Share Incentive Plan Trust forthe purposes of this share scheme. These shares are entitled to receive dividends.
1,231,000 (2007: 964,000) were issued to the Admiral Group Employee Benefit Trust for the
purposes of the Discretionary Free Share Scheme. The Trustees have waived the right to dividend
payments, other than to the extent of 0.001p per share, unless and to the extent otherwise
directed by the Company from time to time.

Board of Directors 48-53 Financial& Directors reportstatements

During 2008 1,820,384 (2007: 1,534,827) new ordinary shares of 0.1p were issued to the trusts
administering the Group’s share schemes.

34-47

£000

Governance &Remuneration

£000

16-33

31 December
2007

Business review

31 December
2008

54-104

94 F I N A NC I A L STAT E M E NTS

Staff share schemes:
Analysis of share scheme costs (per income statement):
31 December
2008

31 December
2007

£000

£000

SIP charge (note i)

2,484

1,268

DFSS charge (note ii)

3,440

1,703

Total share scheme charges

5,924

2,971

The share scheme charges reported above are net of the co-insurance share and therefore differ
from the gross charge reported in note 10 (2008: £11,320,000, 2007: £5,560,000) and the grosscredit to reserves reported in note 26.
 he consolidated cashflow statement also shows the gross charge in the reconciliation betweenT‘profit after tax’ and ‘cashflows from operating activities’. The co-insurance share of the charge isincluded in the ‘change in trade and other payables’ line.
(i) The Approved Share Incentive Plan (the SIP)
Eligible employees qualify for awards under the SIP based upon the performance of the Group ineach half-year period. The current maximum award for each half-year amounts to 600,000 shares(or a maximum annual award of £3,000 per employee if smaller).
The awards are made with reference to the Group’s performance against prior year profit before
tax. Employees must remain in employment for the holding period (three years from the date ofaward) otherwise the shares are forfeited.
The fair value of shares awarded is either the share price at the date of award, or is estimatedat the latest share price available when drawing up the financial statements for awards not yet
made (and later adjusted to reflect the actual share price on the award date). Awards under the
SIP are entitled to receive dividends, and hence no adjustment has been made to this fair value.
(ii) The Discretionary Free Share Scheme (the DFSS)
Under the DFSS, details of which are contained in the Remuneration report, individuals receive
an award of free shares at no charge. Staff must remain in employment until the vesting datein order to receive shares. The maximum number of shares that can vest relating to the 2008
scheme is 1,372,001 (2007 scheme: 964,000).
Individual awards are calculated based on the growth in the Company’s earnings per share (EPS)
relative to a risk free return (RFR), for which LIBOR has been selected as a benchmark. This
performance is measured over the same three-year period.

A D M I R A L G R O U P p l c 95

year period

SIP H205 scheme

350,034

March 2009

SIP H106 scheme

350,811

September 2009

SIP H206 scheme

277,538

April 2010

SIP H107 scheme

353,444

September 2010
April 2011

352,732

September 2011

DFSS 2006 scheme, 1st award

604,187

April 2009

DFSS 2006 scheme, 2nd award

105,369

September 2009

DFSS 2007 scheme 1st award

1,210,006

April 2010

DFSS 2007 scheme 2nd award

26,350December 2010

DFSS 2008 scheme 1st award

1,285,099

April 2011

DFSS 2008 scheme 2nd award

86,902

November 2011

16-33

Total awards committed

Business review

337,770

SIP H108 scheme

10-15

SIP H207 scheme

Chief Executive’s
statement

Vestingdate

8-9

Awardsoutstanding*

Chairman’sstatement

Number of free share awards committed at 31 December 2008:

6-7

Awards under the DFSS are not eligible for dividends and hence the fair value of free shares to beawarded 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 (asstated in the Remuneration Report).

2008 Financial
highlights

Between 10% and 100% of the maximum awards, a linear relationship exists.

4-5· 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

Admiral Group
in 2008

The range of awards is as follows:

5,340,242

Original Awards

Awards vested

SIP H105 scheme

581,565

468,540DFSS 2005 scheme 1st award

686,143604,962

DFSS 2005 scheme 2nd award

74,94370,259Board of Directors 48-53 Financial& Directors reportstatements

Number of free share awards vesting during the year ended 31 December 2008:

34-47

During the year ended 31 December 2008, awards under the SIP H105 scheme and the DFSS 2005
scheme vested. The total number of awards vesting for each scheme is as follows.

Governance &Remuneration* – being the maximum number of awards expected to be made before accounting for expectedstaff attrition.

54-104

96 F I N A NC I A L STAT E M E NTS

26. Analysis of movements in capital and reserves
SharecapitalShare
CapitalForeignpremium redemption exchange
account
reserve
reserve

Retained
profitand lossTotal
equity

£000

£000

£000

£000

£000

£000

As at 1 January 2007

261

13,14517(50)

205,682

219,055

Retained profit for theperiod----127,416

127,416

Dividends

-

-

-

-

(116,016)(116,016)

Issues of share capital

2

-

-

-

-

2

Currency translationdifferences

-

-

-

429

-

429

Share scheme charges

-

-

-

-

5,560

5,560

Deferred tax credit on
share scheme charges

-

-

-

-

1,186

1,186

As at 31 December 2007

263

13,14517379

223,828

237,632

Retained profit for theperiod----144,938

144,938

Dividends

-

-

-

-

(128,515)(128,515)

Issues of share capital

2

-

-

-

-

2

Currency translationdifferences

-

-

-

9,942

-

9,942

Share scheme charges

-

-

-

-

11,32011,320

Deferred tax credit on
share scheme charges

-

-

-

-

250

250

As at 31 December 2008

265

13,14517

10,321

251,821275,569

The capital redemption reserve arose in 2002 on the redemption of shares previously in issue at
below par.
The foreign exchange reserve represents the net gains or losses on translation of the Group’s net
investment in foreign operations.

A D M I R A L G R O U P p l c 97
Admiral Group
in 2008

27. Financial commitments

The Group was committed to total minimum obligations under operating leases on land andbuildings as follows:--

Within two to five years

4,139

2,139

Over five years

31,57427,357

Total commitments

35,71329,496

Within one years

Operating lease payments represent rentals payable by the Group for its office properties.

Chairman’sstatement

£000

6-7

£000

Operating leases expiring:

2008 Financial
highlights

31 December
2007

4-5

31 December
2008

In addition, the Group had contracted to spend the following on property, plant and equipment
at the end of each period:

£000

£000

898

489

Expenditure contracted to

10-15

The Parent Company’s principal subsidiaries (all of which are 100% directly owned) are as follows:
Country ofincorporation Class of shares held

Principal activity

Admiral Insurance
Company Limited

England and Wales

Ordinary

Insurance
Company

Admiral Insurance(Gibraltar) Limited

Gibraltar

Ordinary

Insurance
Company

Able Insurance
Services Limited

England and Wales

Ordinary

Intermediary

Inspop.com Limited

England and Wales

Ordinary

Internet insuranceintermediary

Board of Directors 48-53 Financial& Directors reportstatements

General insuranceintermediary

34-47

Ordinary

Governance &Remuneration

England and Wales

16-33

EUI Limited

Business review

28. Group subsidiary companies

Subsidiary

Chief Executive’s
statement

31 December
2006

8-9

31 December
2007

54-104

9 8 F I N A NC I A L STAT E M E NTS

29. Related party transactions
There were no related party transactions occurring during 2008 that require disclosure. Details
relating to the remuneration and shareholdings of key management personnel are set out in the
Remuneration Report. Key management personnel are able to obtain discounted motor insurance
at the same rates as all other Group staff, typically at a reduction of 15%.
The Board considers that only the Board of Directors of Admiral Group plc are key management
personnel.

A D M I R A L G R O U P p l c 99
Admiral Group
in 2008

Consolidated financial summary
Basis of preparation:

Total motor premiums

716.3

631.3

566.6

533.6

470.4

Net insurance premium revenue

169.8

142.2

145.0

139.5

107.5

Other revenue

193.9

176.9

131.6

93.4

69.5

Profit commission

34.7

20.5

19.9

14.7

21.7

Investment and interest income

24.4

24.6

14.5

15.5

11.9

Net revenue

422.8

364.2

311.0

263.1

210.6

Net insurance claims(114.6)(99.8)(107.1)(100.5)(74.3)

Total expenses(105.7)(82.0)(55.5)(40.9)(28.9)

Operating profit

202.5

182.4

148.4

121.7

107.4

2008
£m

2007
£m

2006
£m

2005
£m

2004
£m

Property, plant and equipment

11.0

7.7

7.5

4.6

3.3

Intangible assets

75.7

69.1

66.8

66.5

66.5

Financial assets

586.9

481.8

395.9

378.7

300.7

Reinsurance assets

170.6

131.7

74.7

54.2

66.1

-

1.6

-

-

-

Trade and other receivables

25.5

22.6

16.9

9.4

16.7

Cash and cash equivalents

144.3

155.8

191.2

150.2

119.3

1,014.0

870.3

753.0

663.6

572.6

Equity

275.6

237.6

219.1

181.4

144.6

Insurance contracts

439.6

363.1

294.4

254.1

216.1

Financial liabilities

-

-

-

22.0

33.1

Deferred income tax

10.3

-

1.0

3.6

4.8

270.0

239.6

215.1

182.9

164.3

18.5

30.0

23.4

19.6

9.7

1,014.0

870.3

753.0

663.6

572.6

10-15

2004
£m

Balance sheet

Board of Directors 48-53 Financial& Directors reportstatements

Total liabilities

34-47

Current tax liabilities

Governance &Remuneration

Trade and other payables

16-33

Total assets

Business review

Deferred income tax

Chief Executive’s
statement

2005
£m

8-9

2006
£m

Chairman’sstatement

2007
£m

6-7

2008
£m

2008 Financial
highlights

Income statement

4-5

The figures below are as stated in the financial statements preceding this financial summary andissued previously. Only selected lines from the income statement and balance sheet have been
included.

54-104

1 0 0 F I N A NC I A L STAT E M E NTSParent Company financial statements

101

Parent Company balance sheet

102

Parent Company accounting policies

103

Notes to the Parent Company financial statements

ADMIRAL GROUP plc 101
Admiral Group
in 2008

Parent Company balance sheet
As at:
31 December
2007

Note:

£000

£000

4

108,604

106,604

5

-

4,354

57,184

48,114

6-7

57,18452,468Chairman’sstatement(64,345)(9,987)-(16)(64,345)(10,003)

Net current (liabilities) /assets(7,161)

42,465

Total assets less current liabilities

101,443

149,069

Net assets

101,443

149,069

10-15

265

263

Share premium account13,145

13,145

Capital redemption reserve17

17

Business review

88,016135,644

101,443

149,069

Current assets
Debtors
Cash at bank and in hand

Creditors – falling due within one year
Other creditors

6

Accruals and deferred income

Governance &Remuneration

These financial statements were approved by the Board of Directors on 27 February 2009 andwere signed on its behalf by:

16-33

Profit and loss accountChief Executive’s
statement

7
8

8-9

Capital and reserves
Called up share capital

2008 Financial
highlights

Fixed asset investments

4-5

31 December
2008

34-47

Board of Directors 48-53 Financial& Directors reportstatements

Kevin Chidwick
Director

54-104

1 0 2 F I N A NC I A L STAT E M E NTSParent Company accounting policies

The following accounting policies have been applied consistently in dealing with items which areconsidered 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 have reviewed the Company's projections for the next twelve
months and beyond, including cash flow forecasts and regulatory capital surpluses. The Company
has no debt.
As a result of this review the Directors have satisfied themselves that it is appropriate to prepare
these financial statements on a going concern basis.
In these financial statements the following new standards, abstracts and amendments tostandards have been adopted for the first time:· Abstract 41 - ‘FRS 20 – Group and Treasury Share Transactions;· Amendment to FRS 17 – Retirement Benefits
The adoption of these standards has not had a material impact on either the current year orcomparative figures as Company does not have any direct employees.
The Company has not adopted in advance amendments to FRS 26 relating to reclassification offinancial assets and eligible hedged items which are in effect for accounting periods beginning on
or after 1 July 2008 and 1 January 2009 respectively.
The Admiral Group plc Company financial statements have been prepared in accordance withapplicable accounting standards, under the historical cost convention and in accordance with theprovisions of Section 226 of, and Schedule 4 to, the Companies Act 1985.
As permitted by Section 230 of the Companies Act 1985, the profit and loss account of the
Parent Company is not presented. Under FRS 1 (Cash flow statements) the Company is exempt
from having to present a cash flow statement on the grounds that its cash flows are included in
the Group’s published consolidated financial statements.
The Company has taken advantage of the exemption in FRS 8 not to disclose transactions orbalances with its 90% or more owned subsidiary undertakings on the basis that the consolidated
accounts are publicly available.
The Parent Company audit fee is not disclosed in these accounts as it is disclosed in the
consolidated Group accounts, which precede them at note 10.

2. Investments

Investments in subsidiary undertakings are valued at cost less any provision for impairment
in value.

3. Taxation

The charge for taxation is based on the profit for the year and takes into account taxation
deferred because of timing differences between the treatment of certain items for taxation andaccounting purposes.
Deferred tax assets are recognised to the extent that they are regarded as recoverable. They
are regarded as recoverable to the extent that, on the basis of all available evidence, it can be
regarded as more likely than not that there will be sufficient taxable profits from which the
future reversal of the underlying timing differences can be deducted.

ADMIRAL GROUP plc 103
Admiral Group
in 2008

Notes to the Parent Company financial statements
4. Fixed asset investments

At 1 January 2007

103,804

Additions2008 Financial
highlights

Investments in subsidiary undertakings:

4-5

£000

2,800

Additions

2,000

At 31 December 2008

Chairman’sstatement

106,604

6-7

At 31 December 2007

108,604

31 December
2007

£000

£000

Amounts owed by subsidiary undertakings

-

4,348

Deferred tax asset

-

6

-

4,354

As at:

Governance &Remuneration

6. Other creditors – due within one year

£000

£000

Deferred income tax

12,816-

Corporation tax payable

8,890

9,931

Amounts owed to subsidiaries

42,590-49

56

64,345

9,987

Other creditors

Board of Directors 48-53 Financial& Directors reportstatements

31 December
2007

34-47

31 December
2008

Business review

31 December
2008

16-33

10-15

As at:

Chief Executive’s
statement

5. Debtors

8-9

The Company’s principal subsidiaries (all of which are 100% directly owned) are disclosed in note
28 of the Group financial statements.

54-104

1 0 4 F I N A NC I A L STAT E M E NTS

7. Reconciliation of movements in shareholders’ funds
Sharepremium
account

Capitalreserveredemption

£000

£000

£000

£000

£000

261

13,14517

139,048

152,471Retained profit for theperiod---107,052

107,052

Dividends---(116,016)(116,016)

Issues of share capital

2

-

-

-

2

Share scheme charges

-

-

-

5,560

5,560

As at 31 December 2007

263

13,145

17

135,644

149,069

Retained profit for theperiod---69,56769,567

Dividends---(128,515)(128,515)

Issues of share capital

2

-

-

-

2

Share scheme charges

-

-

-

11,32011,320As at 31 December 2008

265

13,14517

88,016

101,443

Company figures
At 1 January 2007

Share
capitalRetained
profitand loss

8. Share capital
Full details of the Company’s share capital are included in the consolidated financial
statements above.

TotalequityDirectors and advisors
Directors
Alastair Lyons, CBE (Non-executive Chairman)
Henry Engelhardt, CBE (Chief Executive)
Kevin Chidwick (Finance Director)
David Stevens (Chief Operating Officer)
Manfred Aldag (Non-executive Director)
Martin Jackson (Non-executive Director)
Keith James, OBE (Non-executive Director)
Margaret Johnson (Non-executive Director)
Lucy Kellaway (Non-executive Director)
John Sussens (Senior Independent Non-executive Director)

Company Secretary
Stuart Clarke

Registered Office
Capital Tower
Greyfriars Road
Cardiff CF10 3AZ

AuditorActuarial advisors

KPMG Audit Plc
Marlborough House
Fitzalan Court
Cardiff CF24 0TE

Ernst & Young
1 More Place
London SE1 2AF

Bankers
HSBC Business Banking
97 Bute Street
Cardiff CF10 5NA

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

Joint Corporate Brokers
Merrill Lynch International
2 King Edward Street
London EC1A 1HQRegistrar
Capita IRG Plc
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

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

Solicitor

Norton Rose
3 More London Riverside
London SE1 2AQRegistered Number: 03849958. Admiral Group plc, Capital Tower, Greyfriars Road, Cardiff CF10 3AZ

www.admiralgroup.co.uk