Annual Report 2009
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Annual Report 2009

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Highlights

Financial highlights 2009

What we do:

Profit before tax +7%

Earnings per share +7%£215.8m

59.0p(2008: £202.5m)(2008: 54.9p)

Full year dividend +10%

Return on capital

57.5p

54%

(2008: 52.5p)(2008: 57%)

Group turnover +18%

Net revenue +20%

£1.08bn£507.5m(2008: £0.91bn)(2008: £422.8m)

UK Car Insurance profit +15%

Turnover from Non-UK Car Insurance +59%

£206.9m£47.2m(2008: £179.9m)(2008: £29.7m)

ForwardHighlights
01 Financial highlights 2009
02 Admiral Group in 200904 Chairman’s statement

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06 Chief Executive’s statement
10 Business review

Admiral Group’s core focus is internet and telephone deliveryof car insurance. Since launching in January 1993 the Group
has achieved consistent year-on-year growth and now hasover two million customers and employs over 3,500 staff.

32 Governance
51 Financial statements

The Group’s main market is the UK, with a 7% share of theprivate motor market through four brands; Admiral, Elephant,
Diamond and Bell.

SearchThe Group also owns Confused.com, one of the leading UK
price comparison websites.

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In 2006 the Group began expanding organically in othermarkets and now has four non-UK car insurance operations(in Spain, Germany, Italy and the US) and three non-UK pricecomparison websites (in Spain, France and Italy).
Admiral is different:Highly profitable
Strong underwriting profits and high ancillary revenues help us consistently achieve over
50% return on capital. In 2009 ROCE was 54%.

Fast growing

Operational highlights 2009

Consistent year-on-year growth, maintained in 2009 with an 18% rise in turnover.

Low risk profits

Admiral Group plc
Annual Report 2009

Admiral has no debt, a low risk investment portfolio, a conservative reserving methodology,
and utilises reinsurance agreements to significantly reduce underwriting risk.

Strongly cash generative
Admiral’s ‘capital-light’ model and high ancillary profits enable it to return the majority of its
profits to shareholders as dividends. 2009’s dividends represented 97% of post-tax profits.

Total customer numbers +19%

2.08m
(2008: 1.75m)
Overseas customers +64%

121,000(2008: 73,700)

Elephant Auto –US car insurer launchedin Virginia, USA in
October 2009
Rastreator.com –Spanish pricecomparison website
launched in March 2009

For more information visit:www.admiralgroup.co.uk

Admiral Group plc
Annual Report 200901

Highlights
ForwardHighlights
01 Financial highlights 2009
02 Admiral Group in 2009

Admiral Group in 2009

UK Car Insurance

Non-UK Car Insurance• Operating through four brands, Admiral’s core business is selling,
administering and underwriting UK private car insurance• The Group owns four, relatively new direct car insurers outside the UK

04 Chairman’s statement

Back

06 Chief Executive’s statement
10 Business review
32 Governance
51 Financial statements• The business has grown consistently and profitably since being set
up from scratch in 1993, and now insures 1.9 million cars; around
7% of the UK’s 26 million total

SearchBuilding an international business
The Group is the third largest private car insurer
in the UK with a market share of around 7%.
It also owns Confused.com, the UK’s leading
car insurance price comparison website.

Part of the Group’s strategy is to exploit what it
knows and does well in the UK, predominantly
being internet and telephone delivery of car
insurance, to promote expansion overseas.

• The business has offices in Cardiff, Swansea and Newport in the UK
and also has a call centre branch in Canada• Balumba, in Spain enjoyed its third full year of trading in 2009 andended the year with 50,000 customers• In Germany, AdmiralDirekt started underwriting in January 2008; finishing2009 with 35,000 cars insured• ConTe, in Italy sold its first policy in May 2008. It insured 35,500 cars
at the end of 2009
• Most recently, in October 2009, Elephant Auto launched in Virginia USA

Core Businesses:
Admiral started as a direct private car insurer in the
UK in 1993. It now operates through four brands –Admiral, Bell, Diamond and elephant.co.uk.

Print

Confused.com, the price comparison website
started trading in 2002.
International Expansion, Germany:
AdmiralDirekt, German direct car insurer, launchedin October 2007.

Highlights for 2009£939.1m

1.86m

£43m

121,000

UK turnover
17% growth

Number of UK customers
17% growth

Total premiums written
65% growth

Vehicles insured
64% growth

£72

84.9%

£9.5m

Ancillary income per vehicle

Combined ratio

Pre-tax loss

£206.9m

International Expansion, France:
LeLynx.fr, French price comparison website
launched at the start of 2010.

Pre-tax profits
15% growthInternational Expansion, Italy:
ConTe, direct car insurer, launched in May 2008.

Price Comparison

At the start of 2010, the Group launched
Chiarezza.it, an Italian price comparison website.

Admiral Group plc
Annual Report 2009

Highlights for 2009

Other Group Activities

Confused.com

International Expansion, Spain:
The first step in international expansion, Balumbaa direct car insurer, launched in October 2006.
Rastreator.com, the Group’s Spanish pricecomparison website, launched in March 2009.
International Expansion, USA:
Elephant.com, US direct car insurer, launchedin Virginia, in October 2009.

• Confused.com is one of the UK’s leading insurance and financial services
comparison websites• In March 2009, the Group launched Rastreator.com, its first pricecomparison business outside the UK, in Spain

Admiral Group plc
Annual Report 2009

• Gladiator, the Group’s UK van insurance broker increased its customer
numbers by 10% to over 93,000 in 2009

• In early 2010, two more non-UK websites started operating – LeLynx.fr
in France and Chiarezza.it in Italy

Highlights for 2009

Highlights for 200902

• The Group has a conservative approach to investment and manages
a very low risk portfolio. Key priorities are capital preservation, lowvolatility and high levels of liquidity£80.5m£24.9m

£633m

£8.8m

Total revenue

Price comparison
pre-tax profit

Group cash and investments
14% growth

Investment and interest income
64% decrease£25.7m32%£2.4m

Confused.com
operating profit

Confused.com
operating margin

Gladiator pre-tax profit
14% decrease

Admiral Group plc
Annual Report 200903

Chairman’s statement
ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
32 Governance“We will distribute
97% of 2009
post-tax earnings”

51 Financial statements

total dividends for 2009,+10% v 2008.

Totally in line with our risk-sharing strategy were
the agreements we announced in January this yearwith Munich Re and Hannover Re to broaden andlengthen our existing relationships with these verystrongly rated reinsurance providers. Our association
with Munich Re dates back to 2000 and may now
go past 2020 with the advent of a new 15 year
agreement for our US business and the extensionof our agreements with them in Spain and Italy also
to 15 year terms. We are very pleased to have theconfidence of an institution of Munich Re’s standing
to justify its committal to such long-term agreements.

SearchGiven our very prudent investment philosophy,
exceptionally low interest rates across our businessate into the strong growth in UK car insurance
profits, leaving Group pre-tax profits at £216 million,
7% ahead of the previous year.

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Alastair Lyons, CBE
Chairman
Since becoming a public company in 2004 Admiral’s
strategy has been clear and straightforward, being to:Admiral Group plc
Annual Report 200957.5p

Against the backdrop of an estimated 20% growth
in motor insurance price comparison, Confused
maintained its share at close to one-third of thismarket, with profits comparable to 2008. We havenow started to take the learning from Confused into
other markets, launching Rastreator.com in Spainin March 2009, followed by LeLynx.fr in France andChiarezza.it in Italy in early 2010. We are delighted tohave Mapfre, Spain’s leading insurance group, as our
25% partner in Rastreator.

• Grow our share of the UK private motor
insurance market• Exploit the knowledge, skills and resources
attaching to our established UK businesses topromote our expansion overseas in both private
motor and price comparison• Learn by taking relatively small and inexpensive
steps to test different approaches and identify
the best way forward• Operate a ‘capital-light’ business modeltransferring a significant proportion of ourunderwriting risk to reinsurance partners, which inturn allows Admiral to distribute the majority of ourearnings as dividends• Extend this low-risk philosophy to our investment
strategy, only employing cash deposits or money
market funds• Give all our staff a stake in what they create bymaking them shareholders• Recognise the responsibility we have to thecommunities of which we are a part
The milestones of the past year mark anothersuccessful 12 months implementing thisstrategic direction.

With price comparison further increasing its share asa distribution channel for motor insurance, our UK
private motor business had another very strong year,
growing both its vehicle count and gross premiumsby 17%. The 1.9 million cars covered by Admiral
brands account, we estimate, for some 7% of theUK market making us the UK’s third largest private
motor insurer. This growth in our book in 2009 was
accompanied by a 19% increase in profit derived
from ancillary products and services.
As regards our expansion overseas, in October
Elephant Auto Insurance sold its first policies in thestate of Virginia, adding the US to the list of Spain,
Germany, and Italy in which we have establishedprivate motor insurers over the past 4 years. As
Henry Engelhardt discusses in his CEO’s report, wehave learned significantly more about each of thesemarkets over the past 12 months. Balumba, ourbusiness in Spain, has focused with positive results
on further reducing its loss ratio ahead of resuming
policy growth. Our German business, AdmiralDirekt,also concentrated in its second year on its
underwriting result, generating a steady flow of new
business through the year rather than competing
aggressively in the 1 January renewal market. In Italy
ConTe now has 35,000 customers at the end of its
first full financial year. Overall the Group now has
some 120,000 customers outside the UK.

We will distribute 97% of post-tax earnings, ourfull year dividends amounting to 57.5 pence pershare, 10% up on our declaration for 2008. Our
normal dividend, growing in line with our growth
in profits based on a 45% pay-out ratio, amounted
to 26.5 pence per share, whilst our available surplus,
after taking into account our required solvency,
provision for our overseas expansion plans, and amargin for contingencies, made possible a special
dividend of 31.0 pence per share. We have paid
such a special dividend as part of every distribution
we have made since becoming a public company– in total £303 million, 51% of overall dividends.
Every Admiral employee is included in our Free
Share Schemes. As regards the Approved Free
Share Scheme the achievement in full of the 2009
objectives will mean employees will again realise themaximum award of £3,000 free shares. Someone
who has been employed since flotation now has
the potential to hold 1,820 shares under this scheme
worth £22,600*. In line with our straightforward
remuneration philosophy of individual reward
being simply a combination of base salary andperformance-related shares our Discretionary Free
Share Scheme has a much wider than normal
coverage, with over 1,900 individuals currently
holding awards in the scheme. Our strong earnings
growth over 2007 to 2009 resulted in the 2007
scheme achieving a 98% vesting percentage.

We continue to encourage our staff, wherever
they are working, to play an active part in their local
community. Through our Community Chest giving
scheme we supported around 150 organisations,charities, and sports teams during 2009 covering
causes as disparate as the Ystradgynlais Community
Car Scheme and Halifax County Soccer in Canada.
The Admiral Cardiff Big Weekend was the UK’s
largest free festival during 2009.
Our Board has spent a lot of time during 2009
discussing the learning that we should take fromthe events of the last 18 months and the conclusions
arrived at by Sir David Walker, the Financial Reporting
Council, and the FSA. Each year we undertake
an appraisal of the working of the Board and theBoard committees, and of my effectiveness aschairman, and seek to identify how we can improve
our Board process and its effectiveness in setting,and having oversight of the implementation of, theGroup’s strategy.
Particular areas of focus have been ensuring theBoard spends its time on issues of significance,
both operational and strategic, rather than on
the reporting of detailed implementation; themanagement resource required by an ever larger andmore complex business; and achieving adequate
understanding by our Board of the increasing
number of markets in which we have a presence.
Too often one fails to say “thank you” often enough –to recognise how good people feel when they knowthat they, and what they do, are appreciated. Let me,
therefore, be absolutely clear how much I, on behalfof the Board of Admiral, appreciate what everyone
has contributed to achieving another successful
year, in particular the commitment, energy, andenthusiasm of our directors, managers, and staff.
Thank you!

Alastair Lyons
Chairman
25 February 2010

120,000
customers outside the UK.

04

Admiral Group plc
Annual Report 2009

* based on the closing share price on 26 February 2010

Admiral Group plc
Annual Report 200905

Chief Executive’s statement
ForwardHighlights“2009 was anever-so-muchmore-so year...”04 Chairman’s statement
06 Chief Executive’s statement

Back2009 Awards

10 Business review
32 Governance
51 Financial statements• 16th in Sunday Times
Top 100 Companies
to Work For (Special
recognition forfeaturing in every
year of the survey.)• Management
Today’s 16th Most
Admired Company
and Britain’s Most
Admired Insurer

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£1bn+

Henry Engelhardt, CBE
Chief Executive Officer

2009 was an ever-so-much-more-so year. That is tosay, it was a lot like 2008 but ever-so-much-more-so.
For those of you who are fans of the author Robert
McCloskey, you will know that ever-so-much-moreso is a colourless, tasteless, odourless chemical
which makes things, well, ever-so-much-more-so:
sprinkle it on a soft bed, the bed becomes softer;
add it to a fine glass of wine and the wine is evenfiner, etc. Well, I think somebody sprinkled it on
Admiral Group and so 2009 was like 2008, only…
ever-so-much-more-so.
In 2009 we made more money than ever before, we
put two new pins in the Group map and took a giant
step towards perpetuating our model well into the
future. Here are the highlights:• Record profits of £215.8 million• Turnover clears £1,000,000,000 for the first time!
• Group combined ratio of 92%• Launch of Elephant Auto, our insurance businessin the USA• Launch of Rastreator.com, a price comparisonsite in Spain• 17% customer growth in the UK• Confused profits of £25.7 million• Balumba 2009 loss ratio at 83%• Signed an even longer-term, long-term reinsurance
agreement with Munich Re(Yet) Another analogy
2009 was the year of the ox. This was a year where
we did a lot of hard labour, tilling the car insurance
soil as it were. The hard work certainly isn’t over yet
but we’re one year closer to meeting our goal of
creating profitable, sustainable, growing businesses
outside the UK. Meanwhile, 2009 in the UK was an
ox on steroids.
The model lives on
We did three deals during the year that served toreinforce our low-risk, high-return-on-capital model.
The biggest of these was with Munich Re, where
they will be our reinsurance partner in the UK, Spain,
Italy and the USA possibly to 2020 and beyond. The
most important point to take from this deal is that it
not only reduces our risk, it drastically reduces theamount of capital we’ll need to grow our operations.
In turn, this means that if we can create successful
businesses outside the UK we will perpetuate the
cash generative model we have established far into
the future.

2009 Group turnover cleared£1bn for the first time

Turnover growth £m

1200£1.08bn
1000

800

Admiral Group plc
Annual Report 2009

600

400

200

0

Brand launches

1993
Jan
LaunchAdmiral

1994

1995

1996

1997

1998

Jun
LaunchBell andDiamondApr
LaunchGladiator
Commercial

1999

2000
Aug
LaunchElephant.co.uk

2001

2002
Mar
LaunchConfused.com

2003

2004
Sept
Admiral Groupflotation on the
London Stock
Exchange

2005

2006

2007

2008

2009

Oct
LaunchBalumba.es

Oct
LaunchAdmiralDirekt.deMay
LaunchConTe.it

Mar
LaunchRastreator.com
Oct
LaunchElephant Auto
Insurance

Annual Turnover (£m)

06

Admiral Group plc
Annual Report 2009

Admiral Group plc
Annual Report 200907

Chief Executive’s statement
continued

ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
32 Governance
51 Financial statements

The second deal was to reinsure a further 33% of
our US venture with Hannover Re, one of our UK
partners. Again, this deal serves to reduce ourshort-term risk in return for some of our profits infuture years.
The third deal was to sell 25% of our Spanish pricecomparison business, Rastreator.com, to Mapfre,
Spain’s leading insurer. Once again, this is a deal
that sharply reduces the need for our own capital
and, therefore, reduces our risk. It also begins a
relationship with a highly respected insurance group.
As most of our philosophies go, this one too is quite
simple: we are happy to share some of our future
profits in return for:

Search• reduced risk; and• less use of our own capital
The result is far less volatility in our results and,unusually for an insurance company, growth coupledwith cash generation. The beauty of the way we run
the model is illustrated by the fact that despite all ourinvestment in future growth during 2009 we mademore money than we’ve ever made before! (Andthis new record was achieved despite investment
returns seemingly from the land of Lilliput.) And, evenwith growth rates nearing 20%, we are, once again,
paying a record dividend.

Print

Admiral Group plc
Annual Report 2009

Admiral, Confused and the UK car
insurance market
What a great year! Lots of ever-so-much-more-so
sprinkled here. We grew the number of vehicles
insured by 17% and produced a combined ratio of
85%. During the year we raised rates by more than
12%. However, you will not see a 12% increase in
our average premium as we continue to gently alter
the composition of our portfolio towards somewhat
lower premium business. Many of our competitors
are suffering, with experts predicting a 2009
combined ratio for the market between 115%-120%.
It is likely that the market will continue to raise prices
in 2010, especially as investment returns are muted.
We are in an enviable position of having a combined
ratio well below 100% while many of our competitors
do not.
Confused also had a good year in what continues
to be a hyper-competitive market. Confused
profits were £25.7 million, almost the same as 2008(£25.6 million). Our excellent ad campaign featuring
real customers, which paled only in comparison to
the meerkat campaign from one of our competitors,
allowed us to hold steady at around one third market
share. There is no doubt that 2010 will again bea challenging year in the price comparison industry.
Balumba, Rastreator and the Spanish car
insurance market
Balumba lost €1.4 million for the year, but only €300k
in the second half. The challenge for Balumba in2009 was to get its loss ratio under control andthis was achieved through a lot of effort in pricing
and claims handling. We needed to create a baseof viable customers upon which we can build abusiness. The price paid for reducing the loss ratio
from 102% for the 2008 year at the end of 2008 to
83% for the 2009 year at the end of 2009, was aslightly smaller business. The end of year customer

08

Admiral Group plc
Annual Report 2009base declined from 55,400 to 50,300. However, weare now in a position to grow the customer baseagain and, in fact, the base grew by 6% in the last
three months of the year. As you can see by the
expense ratio (63%), we are staffed up for a bigger
business. The goal for 2010 is to grow efficiently into
this expense base without sacrificing the loss ratio.
One of the great positive stories for us in 2009 was
the birth and growth of Rastreator.com, our Spanish
price comparison site. Rastreator (sort of ‘tracker
dog’ when translated), came to life on March 30. In
the autumn we ran our first television campaign andwere positively surprised by the volume of quotes
we immediately started to do. It appears that pricecomparison is on the ascendancy in Spain.

“We have a simple philosophy:
if people like what they do,they’ll do it better.”

ConTe and the Italian car insurance market
ConTe completed its first full year of trading in 2009.
We are very pleased with the progress of thisoperation. It ended the year with:• 35,500 customers at year-end• €12.5 million gwp• 2009 calendar year loss ratio of 99%• Expense ratio of 145%

It appears that some Italian insurers are suffering,as rates appear to have gone up in the latter part of
the year. ConTe has put through three substantial
rate increases since the first of December and is still
selling at a brisk pace.

AdmiralDirekt and the German car
insurance market
The German market continues to be the mostchallenging market we’re in. In its second full year,
similar to our experience in Spain, it was necessary
to dramatically raise rates and stem the flow of new
business to improve the underwriting result. Due tothe seasonal nature of the market, where the vast
majority of renewals are on January 1, the results ofall our pricing changes won’t be known until later in2010. To give you an understanding of the magnitudeof the price changes we’ve made, in the ‘season’ of2008 for business incepting on January 1, 2009 wewrote nearly 17,000 policies. A year later, for policies
incepting on Jan. 1, 2010, the figure was just short of
3,200. However, we did write quite a bit of businessduring the year because of people changing cars,
probably catalysed by the German government’s
cash for clunkers scheme. So at the end of the year
the vital statistics looked like this:Launch of Elephant Auto, USA:

Based in Madrid, the Group’s
first non-UK price comparison
business launched in March 2009

Elephant Auto, Admiral’s only
business outside Europe,
started operations in Virginia,
USA in October 2009

For more information visit:www.rastreator.com

For more information visit:www.elephant.com

One positive development in the market has been
the growth of price comparison sites. In 2009 we
did 4.7 million aggregator quotes, up substantiallyfrom 2008. However, the real force in the market is
HUK Coburg, an uber-efficient mutual that, unlike
other insurers, doesn’t seem to be feeling muchpain despite the cycle at or nearing its nadir. Other
insurers appear to be raising rates, with about half
the firms in the market raising their rates for
January 1 business.

All in all
So, in 2009 we did pretty much the same things we
did in 2008, except ever-so-much-more-so. We grewboth top and bottom lines in the UK. We continued
to develop our operations in Spain, Germany and
Italy and we planted a couple of new seeds, in Spainand the USA. Similar to 2008, I think it will be a year
which is only really appreciated at some point in the
not-to-distant future, in particular when the foreign
operations have developed into growing, profitable,
sustainable businesses. The big difference between
2008 and 2009 was the signing of the reinsurance
deals, particularly with Munich Re. These deals giveus the potential to carry our 50+% return on capitalratio many years into the future.

‘USA, USA, USA’
The biggest seed we planted in 2009 went in
the ground in Richmond, Virginia. Elephant Auto
Insurance began trading in Virginia on October 5.
Elephant is encouraged by the success Geico has
enjoyed selling car insurance direct to consumers
via phone and internet in the US. Geico’s market
share has grown almost 3 percentage points in thefive years through 2008 (latest figures available), from
5.1% to 7.7%, which, to put this in perspective, isan increase of some $4 billion in written premium.
We like other people to pave roads that we can thendrive on.

Although the loss ratio for 2009 might look high,for a first year book of business in a new country
it’s actually quite encouraging (far better than Spain
or Germany in either their first full year). However, anote of caution, the book is still very young and thenumbers quite volatile.

In February 2010 we launched our price comparison
business in Italy, Chiarezza.it, which translates
to ‘clarity’.

Launch of Rastreator, Spain:

Elephant Auto Insurance began
trading in Richmond, Virginiain October 2009.

The US is a complicated market, not in the least
because it is really 51 different markets, due to stateby-state regulation (all 50 states plus Washington
D.C. for those keeping count). Although Elephantlaunched in October it didn’t write much businessin 2009 as it used the time to ensure its systems
worked and the pricing engine generated the correct
rates. For the record, it wrote 204 vehicles in 2009and had 4 claims.
We will take 33% of the risk on Elephant, with
Munich Re and Hannover Re each taking 33%
respectively. In 2010 Elephant will concentrate on
getting things to work in Virginia before it considers
trading in an additional state.

Another source of pride in our Company’s
development was the fact that we are one of only
two firms to be included in the Sunday Times
Best Companies To Work For in the UK list all 10
years it has been compiled. We have a very simple
philosophy: if people like what they do, they’ll do it
better. So we go out of our way to make Admiral agreat place to work. And the people who work here
think it is.
So to all those many people who helped make2009 another excellent year for Admiral Group:
keep smiling!

Henry Engelhardt, CBE
Chief Executive Officer
25 February 2010

Vive La France!
On January 18, 2010 we launched LeLynx.fr, a pricecomparison business in France, a country we thinkis ripe for a move towards internet distribution of car
insurance. At this point there’s really not a whole lot
more to say about this!

• 35,000 customers, up 20,000 from 2008 (+133%)• But only up 5,000 from Jan. 1, 2009 (+16.6%)• €15 million gwp versus €5 million in 2008 (+200%)• Loss ratio for 2009 at the end of 2009 of 109%
• Combined ratio of, gulp, 238%

Admiral Group plc
Annual Report 200909

Business review
ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
10 Q&A on Admiral’s
UK Car Insurance
12 Group review
13 UK Car Insurance
17 Price Comparison
19 Non-UK Car Insurance
22 Other Group Items
24 Principal risks anduncertainties
26 Corporate responsibility

Search32 Governance

15%

Kevin Chidwick,
Admiral Group FinanceDirector, answers
some frequently
asked questions
on Admiral’s UK Car
Insurance Business

Admiral’s share of UK pricecomparison business.

Underwriting mix
How has Admiral managed to maintainits superior loss ratio whilst increasing
market share?
When Admiral launched in 1993 the focus wason younger, city drivers, an under-exploitedsubsection of the market. Although Admiral still has
a disproportionate share of these types of drivers,
for several years we have written business for thewhole market, helping us to grow. Our strong pricing
capability enables us to identify cross subsidies
across the market, i.e. where lower risk customers

pay more to compensate for higher risk customers,
we price to take advantage of these cross subsidies.
The reason we have been able to do this better
than others is down to many factors, however I’dhighlight two key contributors, firstly our culture;
we’re focused on car insurance and car insurance
alone and we’re not afraid to do things differently,
and secondly being data driven; we’re hungry for
data, ways to analyse data, and the results of ouranalysis drives our decisions.

Expenses
51 Financial statements

Can Admiral hold on to its expense
ratio advantage?
We have an expense ratio of 17% versus themarket’s 30%. This is really 14% versus 27% if you
exclude the MIB levies of around 3% which all car
insurers pay. Our success is simple, low cost, light

Print

Premiums

Kevin Chidwick
Finance Director
UK Growth
How have you managed to grow the number of
UK customers by 17% in 2009? Do you expect
this growth to continue?

Admiral Group plc
Annual Report 2009

In 2009 the share of new business sales from pricecomparison (PC) websites increased by a fifth toaround 45%. This is good news for us. In the last
couple of years we’ve focused on PC distribution
and have built around 15% market share of PC
business. Compare this to our current 7% share of
the whole market and you can see why this was a
helpful driver of Admiral’s growth.

The ongoing PC distribution shift and expected
increases in premiums across the market is likely toprovide a favourable environment in 2010. Anotherpotential source of growth is our ability to innovateand stay at the forefront of distribution changes,
maintaining our strong track record e.g. multi-brandstrategy, first internet only brand, first car insurance
price comparison website... We will let you know
when we think we’ve got a new winning innovation!

The fact that PC sites increase transparency of
prices plays to our strengths in two key respects:

For more information visit:www.admiralgroup.co.uk

1) In a market for a commoditised productbought predominantly on price, being thelowest cost provider is a powerful competitive
advantage.

17%
Admiral’s UK expense ratiov 30% for the market

How do you think Admiral’s 12% increases
in premiums in 2009 compared with the UK
market? Do you expect increases to continue?
How will premium rate increases translate toimprovements in loss ratio performance?
We think our price increases were broadly consistent
with increases in the market as a whole. I say thisbecause the percentage of times our brands came
top on price comparison websites at the start of2009 and at the end of 2009 was about the same,
which suggests our relative price competitivenessstayed about the same.

What have been the key drivers of claims
inflation in 2009?
2) It makes good risk selection a more powerful
differentiator, a purer determinant of relativeloss ratio performance.
Price transparency exposes less efficient insurers
with higher costs, who might otherwise make agood living off over-priced business.

Whilst it’s difficult to talk about the market as awhole, I’m aware that some of our competitors havereported a sudden increase in bodily injury claims
frequency in the second half of 2009. We’ve seen acontinued increase in the proportion of claims with abodily injury element, but our experience suggests

Admiral Group plc
Annual Report 2009

this is a long-term trend rather than a sudden change.
This pressure on claims is moderated by overall
claims frequency in 2009 remaining low, with the
exception of a blip of higher frequency in December
2009 and January 2010 due to the snow and badweather. It takes time to see claims severity trends,
but our current expectation for 2009 claims inflationis that it will be similar to 2008, relatively modest
compared to earlier years, but well above RPI.

Ancillary income
Do you think ancillary income per vehicle ofaround £70 is sustainable?
We’ve been successful at maintaining our ancillary
income per vehicle since we floated in 2004 and we
expect this to continue. One reason for this is thatthe ancillary revenue is generated from a range of
products and services rather than a single product.
Having a range of sources means that, of course,
some things will be going well whilst others less10

The increase in price transparency due to pricecomparison sites continues to make it more difficultfor insurers to get announced premium increases
to translate into increases in average premiums
written, the ‘price comparison drag’ effect. This may
result in premium increases continuing for longer
than in previous cycles. We agree with predictions
that there will be further increases in 2010. The
market as a whole is still losing money and reserve
releases and investment income have both shrunk
dramatically. More price rises are needed.

ClaimsPrice comparison
What impact does the growth of pricecomparison, the resulting transparency of
prices and frequent selection of the lowest
price, have on your underwriting advantage?

management, and without many of the complexities
you may find in a large financial services company– the typical model of our competitors. Further,
we’re based in South Wales, which as well as beinga beautiful place to be based, with world classemployees, is also much less expensive than manyother parts of the UK.

well. It will also mean that there is always the threatof certain market or regulatory changes that could
impact on some sources, but that other sources will
be unaffected. The movement to price comparisonhas meant it has been more difficult to maintainpenetration rates, but on the other hand the trend
for increasing car insurance premiums has madeit easier to defend or improve margins on ancillary
products.

Admiral Group plc
Annual Report 200911

Business review
continued

ForwardHighlights
04 Chairman’s statement

Group review

UK Car Insurance

06 Chief Executive’s statement

Back

Search10 Business review
10 Q&A on Admiral’s
UK Car Insurance
12 Group review
13 UK Car Insurance
17 Price Comparison
19 Non-UK Car Insurance
22 Other Group Items
24 Principal risks anduncertainties
26 Corporate responsibility
32 GovernanceTwo or more cars?
Click for a MultiCar quote!

Group Turnover (£m)*

Customers (000s)

51 Financial statements

Print£1,077.4m

2,076

1,200
1,000
800
600
400
200
0

2,100
1,800
1,500
1,200
900
600
300
0
2005

2006

2007

2008

2009

2005

2006

2007

2008

2009

*Turnover comprises total premiums written (including co-insurers’
share) and other revenue

Pre-Tax Profit (£m)

£215.8m

59.0p

240
200
160
120
80
40
0

60
50
40
30
20
10
0
2005

Admiral Group plc
Annual Report 2009

Earnings per share (p)

2006

2007

2008

2009

The Admiral Group had another positive year in
2009, with strong top line growth and a continued
rise in profit before tax and earnings per share.
Turnover rose by 18% to £1.08 billion from £0.91
billion. This was largely driven by the same rateof growth in the number of customers across theGroup, up to 2.08 million from 1.75 million. The
Group also now has more than 120,000 customers
outside the UK.
Pre-tax profit increased by 7% to £215.8 million.
The rate of growth was below that seen in recent
years for two main reasons – firstly, and mostsignificantly, a £15 million (60%) fall in investment
and interest income resulting from lower yields,
and secondly, continuing investment in our new
businesses overseas.

What we do

UK Car Insurance Strategy• 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 pricecomparison websites and direct channels (ourown websites and the telephone)• We are the third largest private car insurer in
the UK, with around 1.9 million vehicles insured,
generating total premium of £800 million. We
estimate the combined market share of ourbrands is around 7%• We also generate ancillary income fromproducts and services that complement the
motor insurance• Our main locations are Cardiff, Swansea and
Newport, though we also service our customers
from call centres in Nova Scotia, Canada andBangalore, India

The strategy for our core UK business remains
relatively simple:• We aim to manage our existing client baseand future growth in order to maximise
profitability and return on capital over the
medium to long term
• At the same time, we endeavour always togive excellent service to our customers, whilst
providing a positive environment for our staff
in which to work and develop in

UK Car Insurance Key Performance Indicators
Admiral’s core UK Car Insurance
business employs over 2,600
people in South Wales, Halifax
Nova Scotia and Bangalore India.
2005

2006

2007

2008

2009

The core part of the Group remains the UK Car
Insurance business, which generated 87% of
turnover and 96% of pre-tax profit. The businessgrew significantly in 2009 and continues to build
market share whilst remaining very profitable.
As part of the Group’s growing international activities,
two new businesses were launched in 2009:
Rastreator.com, our Spanish price comparison
website started offering car insurance quotes inMarch 2009, and later in the year Elephant Autostarted selling private car insurance in Virginia, USA.
The Group’s results are presented in three key
segments – UK Car Insurance, Price Comparison
and Non-UK Car Insurance. We summarise otherGroup items in a fourth section.

UK Car Insurance Vehicle Numbers (000s)• Five year compounded growth at 14%,accelerating in 2009 to 17%• Our ability to grow arises from effective marketing,focused distribution, targeted pricing andinnovative products

1,862
2,100
1,800
1,500
1,200
900
600
300
0
2005

2006

2007

2008

2009

UK vehicles

UK Car Insurance Combined Ratios (£)• Consistent and significant outperformanceagainst the market• Loss ratio advantage arises from targetedpricing and efficient claims handling• Expense ratio advantage partly a factor ofhigher average premium portfolio, also efficientacquisition and a focus on cost control

84.9%
100
80
60
40
20
0
2005

2006

2007

2008

2009

UK Combined Ratio

12

Admiral Group plc
Annual Report 2009

Admiral Group plc
Annual Report 200913

Business review
continued

ForwardHighlights

UK Car Insurance Ancillary Income per Vehicle (£)

04 Chairman’s statement
06 Chief Executive’s statement

Back

Search10 Business review
10 Q&A on Admiral’s
UK Car Insurance
12 Group review
13 UK Car Insurance
17 Price Comparison
19 Non-UK Car Insurance
22 Other Group Items
24 Principal risks anduncertainties
26 Corporate responsibility
32 Governance• Significant profit generated from non-underwriting
activities – further modest increase in contribution
per customer in 2009
• Strong track record of maintaining ancillary income
per vehicle such that ancillary profits generally
increase in line with vehicle growth• Continual development of products and services
in response to changing customer needs andindustry trends

£72
100
80
60
40
20
0
2005

2006

2007

2008

2009

Ancillary income per vehicle

UK Car Insurance Financial Performance

All employees, regardless oflocation, are entitled to receive
shares in the Group’s Approved
Free Share Plan.

UK Car Insurance – Co-insurance andReinsurance Arrangements
In 2009, Admiral underwrote a net 27.5% of UK
premiums (in line with 2008). 50% of the UK total isunderwritten by the Munich Re Group (specificallyGreat Lakes Reinsurance (UK) Plc) through along-term co-insurance agreement, and 22.5%
was proportionally reinsured to Swiss Re (10.0%),
Hannover Re (6.25%) and New Re (6.25%).
The nature of the co-insurance is such that 50%
of all motor premium and claims for the 2009
year accrues directly to Great Lakes and does
not appear in the Group’s income statement.
Similarly, Great Lakes reimburses the Group for its
proportional share of expenses incurred in acquiring
and administering the motor business.

51 Financial statements

Non-GAAP*1 format income statement£m

Turnover*2
Total premiums written*3

Print

Key performance indicators

2007

2008

2009

714.9
617.0

804.8
690.2

939.1
804.7

Net insurance
premium revenue
Investment income
Net insurance claims
Net insurance expenses

140.2 161.9 199.1
16.7
17.1
7.5
(97.0) (105.1) (138.7)(19.9) (26.0) (30.3)

Underwriting profit
Profit commission
Net ancillary income
Other revenue

40.0
20.4
75.8
6.0

47.9
34.7
89.0
8.3

37.6
54.2
106.3
8.8

UK Car Insurance profit

142.2

179.9

206.9

2007

2008

2009

Reported loss ratio
Reported expense ratio
Reported combined ratio

66.7%
16.7%
83.4%

62.0%
19.0%
81.0%

66.9%
18.0%
84.9%

Written basis expense ratio

17.0%

17.0%

16.9%

Claims reserve releases£29.5m £38.0m £31.3m
Releases as % of premium 21.0% 23.5% 15.7%
Profit commission as %of premium
14.6% 21.4% 27.2%
Vehicles insured at year-end 1.38m 1.59m 1.86m
Ancillary income per vehicle £69.0 £70.7 £72.0*1 GAAP = Generally Accepted Accounting Practice*2 Turnover (a non-GAAP measure) comprises total premiums written and other revenue*3 Total premiums written (non-GAAP) includes premium underwritten by co-insurers

Admiral Group plc
Annual Report 2009

UK Co-insurance & Reinsurance Arrangements
2008

27.5%

2009

27.5%

2010

27.5%

2011

25.0%

2012

25.0%

AdmiralFor more information visit:www.admiral.com
www.bell.co.uk
www.diamond.co.uk
www.elephant.co.uk

14

Admiral Group plc
Annual Report 2009

Option

55.0%
50.0%
45.0%
12.5%

10.0%

10.0% 6.25% 6.25%

7.5%

10.0%

10.0%

40.0% 5.0%

8.75%

8.75%

35.0%

Munich Re

Swiss Re

7.5%

40.0%

Partner Re

Hannover Re

New ReThe profit commission terms in all the agreementsallow Admiral to participate to a large extent in
the profitability of the total underwriting, and themost recent reinsurance contracts allow for asignificant proportion of the profit to be remitted
back to Admiral.
In 2010, Admiral will continue to underwrite 27.5%of the total, the remaining 72.5% being split 45.0%
Great Lakes, Swiss Re 7.5%, Hannover Re and
New Re 10.0% each.
Extensions to Munich Re Agreements
In January 2010, Admiral announced it had
extended the agreements in place with Munich
Re in the UK, Spain and Italy and had also signed
a new long-term reinsurance arrangement in theUSA. Munich Re’s risk and profit sharing has
facilitated the Group’s business ‘capital-light’business model for a decade and these significant
extensions are very positive for its continuation.
In the UK, Admiral extended the current
agreement for two further years, to at least theend of 2016. Munich Re will retain 40% of the
UK risks for the additional years. Admiral has
committed to retain at least 25% for the durationof this agreement whilst the allocation of thebalance is at Admiral’s discretion.
The European and US contracts are explained
below in the Non-UK Car Insurance section.

Whilst, Admiral’s UK results have been consistently
profitable for some time, the UK private motor market
as a whole remains significantly loss-making. These
losses, coupled with a difficult investment environment
and falling reserve cushions for most insurers have led
to material increases in prices.
Admiral increased its base premium rates byaround 12% in 2009, the largest annual increase
for nearly a decade. However, Admiral’s average
written premium in 2009 did not change materiallycompared to 2008. This reflected portfolio mix
changes and the growing influence of pricecomparison websites (which we estimate now
generate around 45% of all new business
transacted in the UK), where customers generallytransact at the cheapest price, resulting in market
average written premiums not rising at the samerate as reported price changes.
2009 underwriting profit fell to £37.6 million from
£47.9 million, though was broadly flat if the fallin investment income is excluded. The reported
combined ratio increased to 84.9% from 81.0%;
the 4 point move being made up of a 1 point
improvement in expense ratio and a 5 point higher
loss ratio.
The higher loss ratio was despite an improvementin the 2009 ratio, and was a result of a lower
contribution from prior year reserve releases.
In 2008, releases contributed £38.0 million to
the result, representing 23.5% of earned premium.
The 2009 equivalent was £31.3 million or 15.7%.
This fall reflects a market-wide return towards lessdramatic levels than seen in recent years, which inturn resulted from overly pessimistic expectationsof bodily injury claims inflation in the early 2000s.
The significantly improved profit commission termson the co-insurance and reinsurance arrangements
for recent underwriting years continue to be a major
factor in the income statement, with the material
increase in 2008 v 2007 being followed by a similarrise in 2009. Admiral’s own underwriting result
plus profit commission income amounted to £91.8
million in 2009 – 11% higher than 2008, despite thedramatic fall in investment income.

UK Car Insurance Financial Performance
The Group’s core business grew strongly in 2009,
with 17% more vehicles insured at the end of theyear compared to December 2008 and a similar
increase in written premium.

Admiral’s UK expense ratio of 18% compares very
favourably to the market average figure of around30%. This significant (and sustained) advantage
results in part from a portfolio with a higher averagepremium than the market, but also from lower
infrastructure and acquisition costs. Admiral’s written
basis expense ratio improved modestly in 2009 tojust under 17%.

Pre-tax profit increased by 15% to £206.9 million,
despite having been held back somewhat bya significant (nearly £10 million or 56%) fall ininvestment income. Our investment strategy remains
cautious and is set out in detail later. UK Car
Insurance contributed over 95% of Group profit
in the year.

Our claims reserving approach remains unchanged.
We initially reserve conservatively, above independentactuarial projections of the ultimate outcomes. This
results in a significant margin being held in reserves
to allow for unforeseen adverse development inopen claims and creates a position whereby Admiralmakes above industry average reserve releases.

Admiral Group plc
Annual Report 200915

Business review
continued

ForwardHighlights

Price Comparison

04 Chairman’s statement
06 Chief Executive’s statement

Back

Search10 Business review
10 Q&A on Admiral’s
UK Car Insurance
12 Group review
13 UK Car Insurance
17 Price Comparison
19 Non-UK Car Insurance
22 Other Group Items
24 Principal risks anduncertainties
26 Corporate responsibility
32 Governance
51 Financial statements

Print

Confused.com employs over
150 people in Cardiff.

In determining the quantum of releases from prioryears, we seek to maintain a consistent level ofprudence in reserves, taken together with ‘reserves’of profit commission based on actuarial projectionsof ultimate loss ratios that are, however, yet to berecognised at the balance sheet date.

Regulatory environment
The UK car insurance business operates mainly
under the regulation of the UK Financial Services
Authority, and also, through a Gibraltar-based
insurance company, under the Financial Services
Commission in that territory.

Net income from ancillary products and services
continues to be a major source of UK profits. UK
net ancillary profit increased (to £106.3 million from
£89.0 million) at a faster rate than vehicle growth(19% v 17%) due to a small increase in the levelof contribution per vehicle insured (to £72 from£71). Again, there were no major changes in thecomponent parts of ancillary profit.

The FSA regulates two Group companies involved inthis business – EUI Limited (an insurance intermediary)and Admiral Insurance Company Limited (AICL, an
insurer), whilst the FSC regulates Admiral Insurance(Gibraltar) Limited (AIGL, also an insurer).

It is worth repeating that although Admiral does
not underwrite all the car insurance generated
for its own account, it does retain all ancillary
income generated.
Ancillary contribution
Ancillary contribution is generated from a portfolio
of insurance products that complement our core car
insurance, and also fees generated over the life of
the policy. There is also some (less material) income
from other products unconnected to car insurance.
(Contribution is reported net of the third party
wholesale cost of the product.)

Admiral Group plc
Annual Report 2009

We classify ancillary contribution in three categories:• Compulsory products – primarily legal
expenses insurance• Optional products – such as breakdown cover,personal injury insurance, car hire insurance• Fees and other – administration fees, wasted
leads, claims referral income

16

Admiral Group plc
Annual Report 2009

All three companies are required to maintain capitalto levels prescribed by the home regulator, and all
three maintained significant surpluses above thoserequired levels throughout the year.
Solvency II
The most significant area of regulatory change fora number of years is the Europe-wide Solvency II
project, which will result (from the end of 2012) in
new rules on solvency and risk management for
European insurers.
Our two insurers – AICL and AIGL – will both besubject to the new regime, and the Group has
been working to ensure the Group will be properly
prepared for the introduction of the rules, withparticular focus on systems of risk management
and governance and also capital requirements.
Treating Customers Fairly (TCF)
FSA regulations require regulated companies totreat their customers fairly, and this has been an
area of significant focus in recent years. The Grouphas had a TCF culture along with comprehensive
management information in place for some years,
and we report some of the data in the Customers
section below.

What we do
UKEurope• 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 andpolicy benefits• Confused’s income is primarily generated via
commissions paid by the product provider on thesale of an insurance policy or financial product• Confused is the UK’s leading car insurancecomparison website measured by sales
generated• Rastreator.com, our Spanish insurancecomparison website, launched in March 2009
• Rastreator allows customers to compare car
and motorcycle insurance prices

Price Comparison strategy
UK

Europe• Confused’s strategy is to become thecomparison website of choice in the UK for
financial products, and to maximise the value tothe business of each customer relationship• The Group’s aim is to take what it knows anddoes well in the UK and expand this overseas.
To date we have targeted three markets.
• Rastreator.com successfully launched in Spainin March 2009
• The Group’s French comparison website,
LeLynx.fr, launched in Paris in January 2010
• Most recently, Chiarezza.it, based in Milan, Italy,
started operating in February 2010

Success in delivering against the strategy ismeasured against a large number of key
performance indicators which are common to the
UK and international businesses. These include
quote volumes, conversion rates, sales, income
per sale, revenue per customer and cost per sale.

Price Comparison Financial Performance
Non-GAAP format income statement
£m

2007

2008

2009

Revenue:
Motor
Other
Total

58.8
10.3
69.1

52.9
13.2
66.1

62.2
18.3
80.5

Operating expenses(32.4)(40.5)(55.6)

Operating profit
36.7
Confused.com operating profit 36.7

25.6
25.6

24.9
25.7

Admiral Group plc
Annual Report 200917

Business review
continued

ForwardHighlights

Non-UK Car Insurance

04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
10 Q&A on Admiral’s
UK Car Insurance
12 Group review
13 UK Car Insurance
17 Price Comparison
19 Non-UK Car Insurance
22 Other Group Items
24 Principal risks anduncertainties
26 Corporate responsibility

Search32 Governance
51 Financial statements

Following the successful roll-out of Confused’s
new website early in the year accompanied by the‘Testimonials’ TV campaign, the main story of 2009
was yet another year of fierce competition among thefour key players in UK price comparison.
Despite having to spend aggressively on media todefend its market position, Confused delivered a
profit in line with 2008. Whilst Confused maintained
its share of car insurance price comparison at around
one third (the market leading position), experience inthe early part of 2010 provides no evidence that thetremendous levels of media activity from the major
players will diminish in the near future.

Print

Confused has continued to develop its productrange beyond car insurance and the proportion ofrevenue generated from non-motor has once again
increased, despite an 18% increase in motor
revenue itself:
Non-motor revenue% of total revenue

2006

2007

2008

2009

11%

15%

20%

23%

Admiral Group plc
Annual Report 2009

The most significant of the non-motor products
remains household insurance comparison, butthere is also notable contribution from van andlife insurance as well as a growing capability incomparison of money products such as credit
cards and loans.
Despite the substantial competitive pressures andincreased media activity, Confused delivered a
profit margin of around one third. This was down
on 2008’s result of 39%, but is a positive outcomein the context of the highly competitive UK pricecomparison market.

18

Admiral Group plc
Annual Report 2009

Rastreator.com
Having only started business in March 2009, thepost-launch results for Rastreator in 2009 are notsignificant in the Group context.
The focus for Rastreator in 2010 is to work to
become top of mind in insurance price comparisonin Spain and also an important strategic partner for
insurers based on sales volumes generated.
Alongside enjoying a successful period in
operational terms, the Group also sold a 25%
minority stake in Rastreator to Mapfre S.A. – Spain’s
largest insurer. This partial sale is consistent with
Admiral’s approach of working with partners who
assist us in achieving profitable growth whilst at thesame time reducing risk.
LeLynx.fr and Chiarezza.it
In early 2010, two further European price comparison
businesses were launched in France (January) and
Italy (February). Both opened for business on-timeand under budget. In common with other Admiralinternational launches, both will have modest
starts, and will focus during 2010 on developing
their website, panel of insurers, and testing various
marketing campaigns.

What we do

Non-UK Car Insurance Strategy• The Group now has four direct car insurance
businesses operating outside the UK at varying
stages of development• Balumba, our first overseas business, which
launched in Seville, Spain in October 2006,
enjoyed its third full year of trading in 2009and ended the year with 50,300 customers• AdmiralDirekt (Cologne, Germany) launcheda year after Balumba, writing business fromJanuary 2008. It had 35,000 insured vehicles
at December 2009
• ConTe started operating in Rome, Italy in May
2008 and closed 2009 with 35,500 customers• Most recently, the Group launched a US
business, Elephant Auto, in Richmond, Virginiain October 2009

• As we noted earlier, an important element ofGroup strategy is to take what we do well in the
UK and use our experience to establish
profitable, sustainable businesses overseas.
We will not do this quickly and we do not set
market share or revenue targets within fixed
timeframes• We expect new operations to be relatively small, andloss making in their early years (how long will dependon the market), until the business is established andscale is achieved. Use of proportional reinsurance
across all markets (see below) helps reduce thefinancial impact in the early years• We have identified one further market based on
our targeting criteria (France), which we are in theprocess of researching• Our overseas strategy is summarised in thetable below, where we also comment on our
progress to date

Objective

Progress

1) Establish new, direct car insurance businesses
in our five selected countries outside the
UK (Spain, Germany, Italy, USA and France)• Spain, Balumba.es, October 2006
• Germany, AdmiralDirekt.de, October 2007
• Italy, ConTe.it, May 2008
• USA, Elephant.com, October 2009
• France – market being researched2) Develop each new operation into a profitable,
sustainable business• All businesses remain in early stages and as
would be expected, none have yet reachedprofitability• Balumba in Spain was first to launch and during
2009 made good progress towards becoming
a sustainable business3) Minimise where possible the financial impact
on the Group• 65% reinsurance support in place in Europe• Elephant.com has reinsurance support for two
thirds of its business• The Group takes a ‘slow and steady’ approach
to expansion and aims to build sustainablebusinesses before pushing for significant growth

Regulatory environment
Confused is regulated by the UK FSA as aninsurance intermediary and is subject to all relevant
mediation rules, including those on solvency capital.
The European operations are all structured as
branches of the UK regulated entity, with the UK
regulatory permission passported into Europe.

Admiral Group plc
Annual Report 200919

Business review
continued

ForwardHighlights

Non-UK Car Insurance Financial Performance
Non-GAAP format income statement

04 Chairman’s statement£m

06 Chief Executive’s statement

Back

Search10 Business review
10 Q&A on Admiral’s
UK Car Insurance
12 Group review
13 UK Car Insurance
17 Price Comparison
19 Non-UK Car Insurance
22 Other Group Items
24 Principal risks anduncertainties
26 Corporate responsibility
32 Governance
51 Financial statements

2007

2008

2009

Turnover16.5
Total premiums written
14.2
Net insurance premium revenue 2.0
Investment income
0.1
Net insurance claims(2.8)
Net insurance expenses(1.8)
Underwriting result(2.5)
Net ancillary income
1.8
Other revenue–
Non-UK Car Insurance result
(0.7)

29.7
26.0
7.9
0.7
(9.5)
(6.2)
(7.1)
2.8
0.2
(4.1)

47.2
43.0
12.8
0.2
(13.0)(13.0)(13.0)
3.3
0.2
(9.5)

Note - Pre-launch costs excluded

Key Performance Indicators
Balumba2009
Total premiums
written (£m)
17.8
Vehicles insured
at period-end 50,300
Result (£m)
(1.3)
2008
Total premiums
written (£m)
20.8
Vehicles insured
at period-end 55,400
Result (£m)
(1.2)

Print

Admiral Direkt

ConTe

Total

14.0

11.1

43.0

35,000 35,500 121,000
(5.2)
(2.4)
(9.5)

4.3

0.9

26.0

15,000 3,300 73,700
(2.3)
(0.6)
(4.1)

Note – total figures include Elephant Auto business in 2009

Admiral Group plc
Annual Report 2009

Non-UK Co-insurance and Reinsurance
The risk sharing model that has been a feature of
the UK business since 2000 is also used in Europe
and the USA. As well as providing the capital forthe majority of the underwriting, in return for a shareof future profits, our co-insurance and reinsurance
partners bear their proportional share of the postlaunch expenses as well as the underwriting in all
non-UK operations.
The arrangements in each market in Europe aresimilar and involve Admiral retaining 35% of the risks,
the majority share of 65% being underwritten by
Munich Re.

In the USA, Admiral’s US insurer retains one thirdof the risks generated from January 2010, with theremaining two thirds split equally between HannoverRe and Munich Re. Both reinsurers bear their
proportional share of expenses and underwriting,subject to certain caps on the reinsurers’ total
exposures.
All contracts have profit commission terms that allow
Admiral to receive a proportion of the profit earnedon the underwriting once the business reaches
cumulative profitability.
The contracts in place for Germany, Italy and the
USA include proportional sharing of ancillary profits.
Changes to Munich Re Agreements
As noted in the UK Car Insurance section above,in early 2010, Admiral signed revisions to the Munich
Re agreements in both Spain and Italy to extend
the terms to a total of 15 years (though with optionsfor Munich Re to exit earlier subject to various
conditions). Both agreements have also been revised
to include a stronger alignment of long term interestsand higher profit commissions for Admiral if results
are very positive.
The German contract was not materially changed
and still runs to at least the end of 2011.
Non-UK Car Insurance Financial Performance
Total premium written outside the UK rose to£43.0 million in 2009 from £26.0 million in 2008.
The number of vehicles insured also rose strongly,
to 121,000 from 73,700.
The eldest of the four operations – Balumba in Spain– is only just over three years old and as should be
expected for new car insurance businesses, none
has yet reached the scale or maturity to be profitable.
When a business reaches this milestone will dependon the individual market, though we would not
expect it to happen for at least four or five years.
The combined businesses lost a total of £9.5 million
in 2009, up from £4.1 million in 2008. The higher
loss is partly a factor of more businesses operating
for the full period, and each business bearing a
combined ratio in excess of 100% on a higher levelof earned premium.

Balumba
After having contracted in size over the firsthalf of 2009 whilst management focused on
improving the loss ratio, Balumba started to
grow again in the second half and ended theyear with 50,300 customers. This is 10% fewer
than at December 2008, but 4% more than at
30 June 2009.
We have 615 people
employed in our Non-UK Car
Insurance operations, basedin Seville, Cologne, Romeand Richmond, Virginia.

The significant improvements made in the claims
area, pricing and underwriting processes have led
to a much more satisfactory loss ratio outcome for2009 compared to earlier years.

Admiral Group plc
Annual Report 2009

AdmiralDirekt – loss ratio development triangle
Underwriting year

Balumba – loss ratio development triangle
After 12 months
After 24 months

Underwriting year

After 12 months
After 24 months
After 36 months

2007

2008

2009

137%
135%
133%

102%
109%
–

83%
–
–

As noted in our interim report, one consequence ofholding back the growth of the business has beena less positive evolution of the expense ratio. For
the first half of 2009, Balumba’s expense ratio (onan accounting basis) was around 55% and this has
worsened slightly to just over 60% for the full year.
Management expect this measure to improve as thebusiness grows.
Balumba continues to generate very positive ancillary
contribution, with over €70 earned on average per
customer. This strong performance has contributed
to a positive movement in the overall result, with only
£0.3 million of the full year loss of £1.3 million arisingin the second half of the year.

2008

2009

141%
128%

109%
–

The high combined ratio on the portfolio (and lackof notable ancillary profit) resulted in AdmiralDirekt
making a loss of £5.2 million in 2009.
ConTe
ConTe has grown in size significantly in the second
half of 2009, moving from 3,300 customers at
December 2008, to 15,000 at the end of June 2009and up to 35,500 at the end of the year. Written
premium in 2009 was £11.1 million.
A small base of earned premium is vulnerable to theimpact of large claims, and one such claim in thesecond half of the year has led to a worsening of theloss ratio since we reported interim results. The 2009
ratio is still below 100%, and with the vast majorityof the portfolio made up of new business customers,
the result is encouraging.
ConTe – loss ratio development triangle

The current focus in Spain is to recommence
growing the portfolio at an acceptable level ofacquisition cost, whilst remaining focused onachieving an acceptable loss ratio.
AdmiralDirekt
Germany continues to be the market which offers
the greatest challenge among our new businesses.
The 1 January renewal ‘season’ and an extremelycompetitive pricing environment are two of thefactors that contribute.
Despite focusing on the replacement car
market rather than the 1 January renewal season,
AdmiralDirekt grew its customer base relatively
significantly during the first half of 2009, finishing theyear with around 35,000 cars insured compared to
15,000 a year earlier.

20

Even including the material impact of one verylarge claim (accounting for around 6 percentage
points) the 2009 loss ratio has improved notablycompared to 2008, though with a large proportionof customers being new, a relatively poor loss
ratio is to be expected. Material price increases, agrowing proportion of renewal customers as well as
continued development in the claims area are among
the actions taken by management to further the
improvement into 2010.

Underwriting year

After 12 months
After 24 months

2008

2009

87%
105%

98%
–

ConTe made a loss of £2.4 million in the year.
Elephant Auto
The Group launched its latest new car insurance
business in Virginia, USA in October 2009. The
period from launch to the end of the year wasused to test and embed the systems and very
little business was written until the start of 2010.
The business currently just underwrites Virginia
based risks, though it is actively researching a
number of further states with a view to beginningto write business outside Virginia if and when the
Virginia business produces satisfactory results.

Admiral Group plc
Annual Report 200921

Business review
continued

ForwardGiven our strategy, returns on cash and invested
funds were predictably low. Total investment andinterest income in 2009 amounted to £8.8 million,
over 60% lower than the £24.4 million earned in2008. The weighted average return on invested
funds was around 1.2% for the year.

Highlights
04 Chairman’s statement

Other Group Items

06 Chief Executive’s statement

Back

Search10 Business review
10 Q&A on Admiral’s
UK Car Insurance
12 Group review
13 UK Car Insurance
17 Price Comparison
19 Non-UK Car Insurance
22 Other Group Items
24 Principal risks anduncertainties
26 Corporate responsibility
32 Governance
51 Financial statements

Print

The Group continues to generate significant amountsof cash, enabling the Group to pay the majorityof after-tax profits to shareholders in the form of
dividends. The Group has no debt.
£m

£m

2007

2008

2009

Gladiator operating profit
Group net interest income
Share scheme charges
Expansion costs
Other central overhead

2.0
7.8
(3.0)
(1.4)
(1.3)

2.8
6.6
(5.9)
(0.8)
(1.6)

2.4
1.1
(9.2)
(2.0)
(1.7)

Other income statement items
Other notable items in the income statement are: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).

• Net interest income – substantial reduction from
£6.6 million to £1.1 million reflecting significantly
lower cash returns• Increased share scheme charges (£9.2 million v£5.9 million) – reflects increased staff numbers
and a higher share price in 2009 which drives theaccounting charge.

Non-GAAP income statement and key
performance indicators

Investments and cash
Investment strategy
There has been no change to the Group’s investment
strategy, though there were relatively small changes
in the allocation of funds between investment types
in the year. See Fig 1.

£m

2007

2008

2009

Revenue
Expenses
Operating profit

7.5
(5.5)
2.0

9.5
(6.7)
2.8

10.6
(8.2)
2.4

Operating margin
Customer numbers

Admiral Group plc
Annual Report 2009

Gladiator’s operating profit margin reduced to around
23% from 29% in 2008, reflecting this increased
competition. Operating profit fell from £2.8 million to£2.4 million.

27%
29%
23%
62,200 84,900 93,400

Gladiator has continued to grow its customer base –by 10% to 93,400 in 2009, but significant increases
in competition in the market (resulting from growth inprice comparison distribution and increased media
spend) have led to notable pressure on margins.
Fig 1. Cash and investments analysis

The key element of Group-wide investment strategy
is capital preservation, with additional priorities
focussing on low volatility in returns and high levelsof liquidity.
There has been some movement of cash out ofmoney market funds into cash deposits (maximum
term 12 months) in order to secure higher rates
of return than were being generated by the funds.
A level of liquidity has been sacrificed, but a highproportion of funds continue to be immediately
available. Our objectives noted above have always
been achieved.
31 December 2009

Liquidity money market funds
Long-term cash deposits
Short-term cash deposits
Cash
Total

UK CarInsurance£m

Price
Comparison£m

Non-UKCar Insurance
£m

Other
£m

Total
£m

208.5
178.5
–
112.9
499.9

–
–
–
9.0
9.0

29.2
5.0
–
21.3
55.5

–
–
20.0
48.6
68.6

237.7
183.5
20.0
191.8
633.0

Operating cash flow, before
transfers to investments
Transfers tofinancial investments
Operating cash flow
Tax and interest payments
Investing cash flows
Financing cash flows
Foreign currencytranslation impact
Net cash movement
Net increase in cash andfinancial investments

2007

2008

2009

213.2

251.5

286.4

(76.8)(76.0)(10.5)

136.4 175.5 275.9(49.8) (56.9) (49.1)(5.4) (11.3) (11.8)(117.1) (128.7) (142.2)
0.4(35.5)

9.9(11.5)

(5.3)
67.5

42.5

63.8

77.8

All years show growth in the total value of cash andinvestments, and this growth has escalated over timeas the total size of the business grows.
Aside from continued growth, the only notablechange in 2009 compared to 2008 is that lessoperating cash flow was moved into financial
investments. This is largely a timing difference, witha significant movement from cash to investments
occurring in January 2010.
The main items contributing to the significant
operating cash inflow are as follows:
£m

2007

2008

2009

Profit after tax
127.4
Change in net insurance
liabilities
11.7
Net change in tradereceivables and liabilities
10.7
Non-cash income
statement items
8.4
Tax and net interest expense 55.0
Operating cash flow, before
transfers to investments 213.2

144.9

156.9

37.6

57.1

(5.8)

(4.6)

17.2
57.6

24.1
58.9

251.5

286.4

Other financial items
Taxation
The taxation charge reported in the income statementis £58.9 million, which equates to 27.3% of profit
before tax.

Dividends
The Directors have declared a second interim
dividend for 2009 of 29.8 pence in place of a final
dividend. In line with the Group’s dividend strategy,
this comprises a 13.7 pence normal element anda 16.1 pence special distribution, representing
an increase of 12% on the final dividend paid inrespect of 2008.
The payment date is 1 April 2010, ex-dividend date
10 March and record date 12 March.
The total dividend declared for 2009 (57.5 pence)is 10% higher than the 52.5 pence distributed in
respect of 2008.
Capital structure, financial position
The Group manages its capital to ensure that allentities 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 Group holding company in the formof dividends on a regular basis.
At Group level, capital is managed in conjunction
with dividend policy. As noted above, the policy is
to make distributions after taking into account capitalthat is required to be held for regulatory purposes;
for expansion activities; and also as a further prudent
buffer against unforeseen events. This policy gives
the Directors flexibility in managing the capitalrequirements of the Group.
The Group’s capital continues to be held in equity
form, with no debt.
Other than as stated below, as far as theCompany is aware, there are no persons withsignificant 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 and on the
Company’s website.
At 5 March 2010, the Company had received
notifications in accordance with the FSA’s DTRs of
the following notifiable interests, in the voting rights
in the Company’s issued share capital:

Munich Re
BlackRock Inc
Fidelity
Capital Group
Newton Investment
Managers Ltd
Jupiter AssetManagement Ltd
College Retirement Equities
Fund (CREF)

Numberof shares%

27,079,400
12,872,216
12,771,422
12,766,870

10.2%
4.8%
4.8%
4.8%

10,547,511

4.0%

9,675,157

3.6%

7,949,963

3.0%

31 December 2008

Liquidity money market funds
Long-term cash deposits
Short-term cash deposits
Cash
Total

22

Admiral Group plc
Annual Report 2009

UK CarInsurance£m

Price
Comparison£m

Non-UKCar Insurance
£m

Other
£m

Total
£m

287.3
100.0
4.0
46.4
437.7

–
–
–
15.6
15.6

23.5
–
–
18.2
41.7

–
–
–
60.1
60.1

310.8
100.0
4.0
140.3
555.1

Earnings per share
Basic earnings per share rose by 7% to 59.0 pencefrom 54.9 pence. This rate of growth is in line withpre-tax profit growth.

The interests of Directors and Officers and theirconnected persons in the issued share capital of
the company are given in the Remuneration report.

Admiral Group plc
Annual Report 200923

Business review
continued

ForwardHighlights
04 Chairman’s statement

Principal risks and uncertainties

06 Chief Executive’s statement

Back

10 Business review
10 Q&A on Admiral’s
UK Car Insurance
12 Group review
13 UK Car Insurance
17 Price Comparison
19 Non-UK Car Insurance
22 Other Group Items
24 Principal risks anduncertainties
26 Corporate responsibility

Search32 Governance

Risk

Description and impact

Mitigation

Risk

Description and impact

Mitigation

1. UK Car
Insurance– erosion ofcompetitive
advantage

As the UK business continues to steadily
gain market share, there is a riskthat Admiral’s advantage – both in loss
and expense ratio terms – will erode.
Measured by the combined ratio,
Admiral’s UK Car Insurance underwriting
is typically around 25 to 30 percentage
points more profitable than the market.

Admiral’s UK business has grownconsistently since the business waslaunched in the early 1990’s, and has
enjoyed regular outperformance against
the market throughoutthat time.

3. Ancillary profits– potential
diminution

There is a risk that over the medium
to long term, the level of ancillary profit
earned per customer will diminish.
This might be due to regulatoryor legal changes, or customer ormarket behaviour.

Admiral earns ancillary profits from a
portfolio of products and seeks tominimise reliance on any single item.
This would mitigate the impact ofa regulatory change which affecteda particular product or income stream.

The impact on the Group would beless profit earned on the car insurance
portfolios and a lower return on capital
employed.

The Group have risk management
processes in place such that potential
risks to ancillaries are identified andmonitored, providing management thetime to respond appropriately to any
such regulatory changes and minimise
financial impacts where possible.

Confused.com operates in a highly
competitive market with four businesses
attempting to increase their market
share through aggressive media activity.

The Directors believe Confused is astrong business and is well positioned
to continue to defend its positive positionin the UK price comparison market.

There is a risk that despite Confusedcurrently enjoying a market leading
position, it will not succeed inmaintaining this position or will haveto advertise even more aggressively todefend share.

There is also scope to increase andimprove Confused’s offering in products
beyond car insurance – most notably
in ‘money’, which is a key element of
Confused’s strategy.

51 Financial statements

Print

Various factors might contribute to
the erosion:a) Flat or falling average premiums
as Admiral’s portfolio tends
towards the market average(expense ratio impact)b) A need to either cut rates,
or increase rates at a slower
rate than the market in order
to continue growth (loss andexpense ratio impacts)c) A deterioration in ability to
price effectively

The Directors are confident that the
key strengths of the business which
contribute to the outperformance(targeted pricing and claims handlingon the loss ratio side; lower cost
infrastructure, efficient acquisition costs
and cost control on the expense ratioside) are sustainable.
In addition, the Directors believe further
growth is achievable in the medium term
without undermining Admiral’s combined
ratio advantage. Further growth could
bring benefits such as economies ofscale and additional data points which
are likely to be beneficial for pricing.

4. UK Price
Comparison– effects ofcontinued
competition

Admiral Group plc
Annual Report 2009

The impact on the business would
be a loss profitable underwriting resultand lower return on capital employed.
2. International
expansion –risk of failure

The Group has launched seven new
operations outside the UK in the past
four years. There is a risk that one ormore of the new operations does not
become a sustainable long-termbusiness.

The Group’s approach to expansion is
cautious. Our insurance businesses startsmall and are all backed by proportional
reinsurance support which provides
substantial mitigation against start-up
losses in the early years.

The impact on the Group could behigher than planned losses (andpotentially closure costs) anddistraction to key management.

New price comparison businesses also
focus on modest starts with low set-up
costs and relatively small initial media
spend budgets. This tends to mean thatthe losses the new operations could
incur are minimised whilst management
assess the likelihood of the businesssucceeding.
The Directors are mindful ofmanagement stretch and monitor thisrisk on a regular basis. At present theBoard is confident there is a suitable
management structure in place for
the Group’s international operations.

24

Admiral Group plc
Annual Report 2009

The impact on the business would be
reduced profitability in the future.

5. Risk sharing
structures

Admiral uses proportional co-insurance
and reinsurance across its car insurance
businesses to reduce its own capitalneeds (and increase return on the capital
it does hold) and to mitigate the costand risk of establishing new operations.
There is a risk that such support will not
be available in the future if the results ofeither the UK business or one or moreof the international operations are notsatisfactory.
The impact on the Group would be
the need to raise additional capital tosupport the underwriting. This could
be in the form of equity (either reduced
dividends or new equity) or debt.

Even taking the above into account,
there is obviously still uncertainty overthe future profit levels of the business,
as it depends to a significant extent on
the actions of Confused’s competitors.
Admiral has enjoyed a long-term
relationship with one of the world’s
strongest reinsurers, Munich Re,
which has supported Admiral since
2000. The Group also has a strong
relationship with other major reinsurers,
including Hannover Re and Swiss Re.
Admiral has long-term reinsurance
contracts in place and in early 2010,
significant extensions to the existing
contracts for the UK, Spain and Italy
were agreed. At the same time, newlong-term contracts were signed with
Munich Re and Hannover Re to support
the new US business.
Admiral has relationships with a numberof reinsurers reducing reliance on an
individual reinsurer.

Admiral Group plc
Annual Report 200925

Business review
continued

ForwardHighlights
04 Chairman’s statement

For more information visit:www.admiralgroup.co.uk

Corporate responsibility

06 Chief Executive’s statement

Back

Search10 Business review
10 Q&A on Admiral’s
UK Car Insurance
12 Group review
13 UK Car Insurance
17 Price comparison
19 Non-UK Car Insurance
24 Principal risks anduncertainties
26 Corporate responsibility
32 Governance
51 Financial statements

Print

Introduction
Corporate Responsibility (CR) is embedded
throughout the business – in our approach torecruitment and how we treat our employees, ourapproach to customer service, the contribution we
make to our communities and to charities, and how
we view our impact upon the environment – CR is apart of everyone’s role at Admiral.
This report gives an overview of our approach andhighlights some of our achievements during 2009
and the challenges for 2010.
The CR report outlines what we do in the key areasof corporate responsibility:• Employees• Customers• Charitable giving and Community• Environment

Admiral Group plc
Annual Report 2009

During 2009 we won a number of awards supporting
our commitment to CR and these are detailed ineach section of the CR report.

our way to ensure a good working environment.
Each year our UK employees have completed ananonymous web-based survey to collect viewson what it is like working for Admiral. The survey
includes questions relating to a wide range of topics
including morale, development, management,
communication and social aspects of working
at Admiral. In 2009 the survey also included our
Canadian employees. During 2010 we are planningto roll out the survey to our overseas businesses.
The survey results are analysed by department andeach department manager is expected to sharethe survey results with their team, explore issues
and concerns, and then make recommendations toaddress them.
The key results relating to morale and whether
employees feel that their opinions are important areprovided in the table below. There are no specifictargets with respect to the survey results as the
Executive team use the results to look at trends
within the scores rather than absolute values.

We are particularly proud to have been included inthe ‘Management Today’ Most Admired Companies
award. The award is voted on by the top companies
in the UK across nine criteria. Admiral came 16th
overall this year, (2008 – 81st) and was named as
Britain’s Most Admired Insurer.

It is pleasing that all of the survey results in the key
areas measuring morale, association with Admiraland how employees feel Admiral treats its customers
have improved during 2009 except for the measure‘Morale is high in my department’. Whilst the score
for this measure was still at an impressive 86% the
Executive team take responsibility for looking at theareas of the business where morale is lowest.

Employees
The people working at Admiral are our key asset.
We have a simple philosophy – if people like what
they do, they will do it better. So we go out of

90% of UK and Canadian employees completed thesurvey with over 2600 responses. See Fig 1.

Morale is high within Admiral
Morale is high in my department
Taking everything into account I am happy at Admiral
Every effort is made to understand the opinions
and thinking of employees
I am proud to be associated with Admiral
I would recommend Admiral as a good place to work
I am more likely to stay at Admiral because of the share schemes
Admiral is truly customer oriented
Admiral treats its customers fairly

26

Admiral Group plc
Annual Report 2009

We are very proud to have been included in The
Sunday Times 100 Best Companies to WorkFor in all 10 years since its first publication andreceived special recognition for being one of only twocompanies to have achieved this. In the 2010 list wewere extremely pleased to be placed in 16th position– an excellent result for Admiral and everyone whoworks for Admiral. See Fig 2.
Using a methodology refined over the past sevenyears, the organisers have identified the eight key
factors that define the best companies to work forin Britain.
Leadership: how people feel about the head of
the company and its most senior managers.
My company: feelings about the company people
work for as opposed to the people they work with.
My manager: people’s feelings towards their
day-to-day managers.
Personal growth: to what extent people feel
stretched by their job.
My team: people’s feelings about their colleagues.
Fair deal: how happy employees are with their pay
and benefits.
Giving something back: how much companies arethought to put back into society and the community.
Wellbeing: how people feel about stress, pressure
and the balance between their work and home life.

The final results were announced on 25 February 2010
and are based on questionnaires completed by UK
employees, randomly selected by the organisers. For
the 2010 results, surveyed during November 2009,
1,100 employees provided responses – a response
rate of 75% of those receiving the questionnaires.
The table below provides the overall scores (out of 7)
compared to the previous two years. See Fig 3.
The scores have improved in all areas withsignificant improvements in how employees feel
about their pay and benefits compared to similar
positions in other companies. The score representing
how employees feel about Admiral’s charitable giving
also improved significantly.
It is important for employees to understand theCompany’s goals and objectives. We work tocommunicate this in as many ways as possible.
Everyone is encouraged to attend the annual Staff
General Meeting (SGM). The SGM is arranged toenable employees to hear the views of the Executive
Directors and some of the Non-Executive Directors
on a wide range of subjects which in 2009 included
the performance of the Group and the market within
which we operate; the experiences of Non-Executive
Directors within and outside of the Group; and theGroup’s share plans. We believe that being wellinformed improves motivation and makes Admirala better place to work.

Fig 2

Fig 1
Survey question

Perhaps the best measures of our employees’assessment of their working environment are theindependent surveys they have completed.

2006

2007

2008

2009

76%
87%
92%

89%
82%
87%

90%
90%
90%

93%
86%
91%

74%
91%
90%
69%
90%
86%

73%
91%
90%
71%
88%
84%

86%
94%
94%
71%
90%
87%

87%
96%
95%
79%
90%
88%

Year

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Position

32

42

46

60

20

20

21

57

37

16

Fig 3
Survey Factor

2008

2009

2010

2010 v 2009

Leadership
My Company
My Manager
Personal growth
My TeamFair deal
Giving something backWellbeing

5.56
5.35
5.64
5.12
5.80
3.86
4.70
5.15

5.64
5.47
5.69
5.10
5.79
4.03
4.81
5.12

5.77
5.58
5.74
5.17
5.86
4.32
4.99
5.19

+2.3%
+2.0%
+0.8%
+1.4%
+1.2%
+7.2%
+3.7%
+1.3%

Admiral Group plc
Annual Report 200927

Business review
continued

ForwardHighlights

In the UK, Admiral tracks‘Treating Customers Fairly’ withover 150 individual measures.

04 Chairman’s statement

96% of staff would recommend
Admiral as a good place to work.

06 Chief Executive’s statement

Back

Search10 Business review
10 Q&A on Admiral’s
UK Car Insurance
12 Group review
13 UK Car Insurance
17 Price comparison
19 Non-UK Car Insurance
24 Principal risks anduncertainties
26 Corporate responsibility
32 Governance
51 Financial statements

Print

Share ownership is a key feature of the remunerationof employees. All employees, regardless of location,
are eligible to receive shares in the Group’s Approved
Free Share Plan. Awards under this plan are madetwice a year, following the interim and final results
announcements. The level of awards is linked to
the financial performance over the six-month period
compared to the same period 12 months ago.
Overseas employees receive equivalent awards
within the Group’s Discretionary Free Share Scheme.
The awards to date are shown in the table below.
An employee who was working at Admiral before
1 January 2005 would have received, up to the endof 2009, 1,820 shares. If none of the shares had
been sold, these shares would be worth £21,640 on
31 December 2009 (based on the closing share priceof £11.89). 851 of the 1,820 shares have reachedmaturity and are available to sell. See Fig 4.

Admiral Group plc
Annual Report 2009

The Board firmly believes that share ownershipmotivates employees, decreases attrition andimproves the Group’s recruitment prospects in theregions where its offices are located. Indeed, 79% of
employees say they are more likely to stay employedwith Admiral because of the share schemes.
In addition to the Approved Free Share Scheme,
the Group operates the Discretionary Free Share
Scheme or DFSS. Unlike many plans of this type theawards are spread throughout the organisation fromsenior managers to star performers. Star performers
are employees who have excelled in their role during
the year and who would not normally receive DFSS
shares. As at 31 December 2009, 1,900 individuals
held awards in the scheme. Our strong earnings

growth over 2007 to 2009 resulted in the 2007
scheme achieving a 98% vesting percentage.
The Remuneration Committee report provides
details of the performance measures for vestingof the DFSS.
The Group is also committed to providing aconsistently safe and effective working environment
for all employees (and contractors, customers
and members of the public). In doing so it will,
as a minimum, comply with local health andsafety legislation, but will exceed those requirements
should it be necessary to do so in order to deliver
its objectives.
Customers
Taking care of our customers is key to the current
and future success of the Group. As at 31 December
2009 the Group had 2.08 million customers, up 18%
from 1.75 million the year before.
There are many initiatives in place to ensurethat customers are treated fairly, efficiently andwith respect:• Measures programme• Monitoring programme• Comment form analysis• Treating customers fairly reporting• Complaints analysis

Every department has a unique set of quality
measures to gauge performance. The measures
are updated each year to challenge departments
to make continual improvements. The programmeis reported every month in the internal Company
magazine and awards are presented each year forthe best departments. The annual measures bonus
provides a financial incentive for employees to driveincremental change throughout the business andwas paid out again in full for the 2009 year.
As well as this programme, quality representatives
throughout Admiral monitor the service the Company
provides through the thousands of comment forms
it receives back from customers every month. By
listening to customer comments, we can improve
the quality of service we provide.
The Group works within the regulatory framework of
the Financial Services Authority (FSA) in the UK. Oneof the FSA’s statutory objectives is to help customers
get a fair deal. The Compliance department in the
UK has completed a Treating Customers Fairly(TCF) Management Information pack, pulling
together specific measures that demonstrate weare consistently treating our customers fairly. This
will be rolled out to our overseas motor insurance
businesses.

A detailed report is produced each month together
with a summary, providing details of measures thathave been graded red. The report is discussed at
the Risk Management Committee (see Corporate
Governance section of this report for details on the
RMC) and process or behavioural changes agreed
where appropriate.
During 2009 changes were made to a number ofprocedures as a result of the monitoring contained
within the report. For example, where complaints
have been escalated to the Financial Ombudsman
Service (FOS) the percentage where FOS foundin favour of the Company dropped to 67% during
2009. As a result the Quality department havebeen looking at the internal procedures that cause
complaints to be escalated to FOS and are liaising
directly with the FOS. On a monthly basis TCF
measure scores have resulted in script changes andextra training.
The TCF management information is now embeddedin the culture of the Company. If either a red oramber grade occurs the department manager
investigates the issues and provides information on
the reason for the score along with a plan to improve
the results.
The table below contains some of the key measuresfrom the TCF report: See Fig 5.

Fig 4
Award
no.

1
2
3
4
5
6
7
8
9

28

Admiral Group plc
Annual Report 2009

Award dateNo. shares
per employee

Total SharesawardedNo. of employees
receiving award

Employees stillat Admiral on
maturity date

Annualised
Leaver
Percentage

19 Sep 2005
16 Mar 2006
5 Sep 2006
9 Mar 2007
4 Sep 2007
7 Mar 2008
22 Aug 2008
6 Mar 200928 Aug 2009

411
227
213
151
182
162
163
171
140

585,675
350,942
350,811277,387
353,444337,770
352,732
477,432
396,200

1,425
1,546
1,647
1,837
1,942
2,085
2,406
3,378
3,557

1142
1252
1383
Not matured
Not matured
Not matured
Not matured
Not matured
Not matured

6.6%
6.3%
5.3%
–
–
–
–
–
–

Fig 5
TCF Measure

2008

2009

Targets

Complaints per 1,000 vehicles% FOS complaints found in favour of Admiral
Customer service call answer rate
Claims call answer rate
Customer Comment form score
Claims Service Customer Comment forms% Customer who would renew following a claim
Call answer rate for complaint lines

1.14
78%
95%
92%
9.37
8.80
93%
91%

1.06
67%
93%
93%
9.39
8.75
93%
93%

<1.04
>75%
>90%
>90%
>9
>8.5
>85%
>90%

Admiral Group plc
Annual Report 200929

Business review
continued

ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statement

Back

Search10 Business review
10 Q&A on Admiral’s
UK Car Insurance
12 Group review
13 UK Car Insurance
17 Price comparison
19 Non-UK Car Insurance
24 Principal risks anduncertainties
26 Corporate responsibility
32 Governance
51 Financial statements

There are over 150 individual TCF measures, eachof which is benchmarked to allow the RMC totake an overall view as to whether customers arebeing treated fairly. During 2009 the average redgrades amounted to 1.23%. 91% of the measuresthroughout the period achieved a green grade.

Environment
As a motor insurer we are well aware of the humanand economic cost of floods, storms and extreme
weather. Climate change is a risk that is currently
on the agenda of all large consumers of resources.
Whilst Admiral Group is a relatively small producerof CO2 emissions, it is still committed to reducing
its impact on the environment. From green energy
purchasing to carbon footprint measurement, andfrom the recycling of office waste to the sourcingof paper from sustainably managed forests, we
continue to make progress in this area.

Each quarter the Central Complaints Department
produce a report analysing the complaints received
and causes. The report provides a summary of theroot causes of the complaints and actions taken
to reduce the risk of complaints due to specificprocedures or behaviour.
Charitable and Community
Admiral aims to play a positive role in the community
through charitable fundraising and encouraging
employees to engage with local community partners.
We promote payroll giving and provide matchedfunding for eligible employee initiatives.
Our charity and community programme focuses onserving the communities near our office locations in
Cardiff, Swansea and Newport and since 2007 ouroverseas locations. The Admiral Community Chest
is a fund set up by the Company to provide financial
support to employees and their families directly
involved with local charities and organisations. The
fund has been running for over seven years and inthat time we have been able to contribute to over
500 charities and organisations. During 2009, over
160 local organisations throughout the Group’s
locations were supported.

Print

The Group also sponsors events within the local
community, ranging from the Admiral Cardiff Big
Weekend to the Admiral Swansea 10k run.

Admiral Group plc
Annual Report 2009

More information on how Admiral supports local
charities and the communities in which its employees
live can be found on the Group’s corporate website,
admiralgroup.co.uk.

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, Canada and now the US. The
Group does not own the properties that it occupies
and is, therefore, reliant upon the cooperation of the
managing agents of the properties to make changes
that reduce the consumption of energy and water.
The figures quoted include all of the Group’s offices.
The Group remains committed to:• Raising and maintaining employee awareness of,and ensuring that everyone is 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 performanceand regularly reviewing progress to reduce theamount of resources consumed per employee• Reporting key environmental performanceindicators, taking into account the ABI’s
Guidelines on Responsible Investment Disclosureand guidance provided by the Department
for Environment, Food and Rural Affairs (Defra)
See Fig 6.

During 2009, over 160 localorganisations throughout theGroup’s locations were supported

The main source of the Group’s carbon emissions is
the consumption of electricity and gas in its offices.
There are large variations in the consumption between
offices and the Facilities manager and team will be
increasing the level of monitoring to ensure each site isusing resources as efficiently as possible.
Water usage increased to 6.3 cubic metres per
employee. This was a result of a major leak in the
Cardiff offices during 2009 that emptied both mainheader tanks each containing 10,000 gallons of water.
Employees are encouraged to recycle where possible
and each floor has an environmental representative
tasked with increasing the levels of recycling andawareness. During 2009 the UK offices introduced theBike to Work scheme, which enables employees topurchase bicycles tax efficiently to increase cycling towork and decrease use of motor vehicles.
We also introduced the liftshare scheme during 2009
in conjunction with liftshare. liftshare is the largest carshare network in the UK and provides a free service tothe local business community by providing a car-sharescheme helping to reduce parking issues, saving
employees money and reducing local pollution andcongestion. As well as providing this facility, the Group
operates an interest-free loan scheme for advancepayment of public transport costs.

The Group assesses the potential costs associatedwith 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 inthe London area. Reinsurance cover is purchased
to provide significant protection in the event ofcatastrophes of this nature.
Challenges for 2010
The Group faces a continual challenge to recruit,
train, motivate and retain employees across its wholebusiness. Whilst it appears that morale across theGroup is excellent, there are small areas where this is
not the case and it will be a challenge to identify andincrease the morale within these areas to match how
employees feel about the Company as a whole.
Measuring and managing our carbon footprint is noeasy task and there are challenges on a number oflevels. We strive to improve our collection of data
across the business so that our carbon emissions canbe reported with increased accuracy across all of ouroperations.

The facilities department is in discussion with the
Carbon Trust with the aim of reducing energy
consumption. A number of schemes relating tolighting and computer use are being discussed.
Fig 6
Impact
Area

Usage
2009

Consumption
measure 2009

Usage
2010

Consumption
measure 2010

Energy (’000 kWh)Green Energy (’000 kWh)
CO2 (tonnes)*

5,670
1,844
3,497

7,009
2,146
4,285

Water (m3)
Waste management:
Total waste
Waste to landfill
Waste recycled
TravelCar miles
Rail miles
Air miles

19,859221 kWh/m2
72 kWh/m2
1.06 tonnes
per employee
6.03 per employee

22,810222 kWh/m2
68 kWh/m2
1.14 tonnes
per employee
6.30 per employee

340,926 kg
176,596 kg
164,330 kg

48% recycled

406,747 kg
195,609 kg
211,148 kg

52% recycled

272,656
405,630
1,789,535

83 miles per employee
223 miles per employee
543 miles per employee

449,536449,924
1,754,475

124 miles per employee
124 miles per employee
484 miles per employee

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 isthe potential change to claims frequency through theimpact of more extreme weather patterns.

*The carbon emissions have been calculated using the Carbon Trust Calculator, which uses the emissions factors published by Defrain April 2008.

30

Admiral Group plc
Annual Report 2009

Admiral Group plc
Annual Report 200931

Governance
ForwardHighlights
04 Chairman’s statement

The Admiral Group Board

06 Chief Executive’s statement

Back

Key:
▲ Audit Committee member● Remuneration Committee member■ Nominations Committee member

10 Business review
32 Governance
32 The Admiral Group Board
34 Directors’ report
37 Corporate governance
44 Remuneration report
49 Independent auditor’sreport to the membersof Admiral Group plc

Search51 Financial statements

Alastair Lyons, CBE
ChairmanHenry Engelhardt, CBE
Chief Executive Officer

Kevin Chidwick
Finance Director

David Stevens
Chief Operating Officer

Print

Alastair Lyons, CBE (56) – Chairman ■Martin Jackson (61) – Non-Executive Director ▲●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 forWork 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.

Martin was appointed Non-Executive Director andChairman 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 to that he was the Group
Finance Director at London & Manchester Group plc from1992 to 1998, up to the date of its acquisition by Friends’
Provident Life Office. Martin is also a Non-Executive Directorof IG Holdings plc, Homeserve Membership Limited andRothesay Life Limited. He is a Fellow of the Institute ofChartered Accountants.

Henry Engelhardt, CBE (52) – Chief Executive Officer

Lucy Kellaway
Non-Executive Director

Manfred Aldag
Non-Executive Director

Henry is a founder Director of Admiral and was recruitedby the Brockbank Group in 1991 to set up the Admiralbusiness. He was part of the management team that led
the MBO in 1999. Prior to joining Admiral, he was Marketingand 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.

Admiral Group plc
Annual Report 2009

Kevin Chidwick (46) – Finance Director

Margaret Johnson
Non-Executive Director

Martin Jackson
Non-Executive Director

Kevin is responsible for finance and investments as well as
Admiral’s subsidiaries Confused.com and Elephant in theUSA. He joined Admiral in 2005, becoming Finance Director
in September 2006. Prior to Admiral, Kevin has been in
UK financial services for over 25 years. He has held anumber of senior roles in other insurance organisations
including Finance Director positions at 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 (48) – Chief Operating Officer

Keith James, OBE
Non-Executive Director

John Sussens
Non-Executive Director

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

Manfred Aldag (59) – Non-Executive Director ■Manfred was appointed a Non-Executive Director of theCompany in 2003 as a representative of Munich Re. He
graduated from University of Essen and has a degree in
Economics/Business Management (Diplom-Kaufmann).
He has worked for Munich Re since September 1981 andis currently the Senior Executive Manager responsible for
United Kingdom/Ireland.

32

Admiral Group plc
Annual Report 2009

Keith James, OBE (65) – Non-Executive Director▲■
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 Hodge Life Assurance Company
Limited and is Non-Executive Chairman of International
Greetings plc. He is a solicitor and was the Chairman ofEversheds LLP from June 1995 to April 2004. He was a
Non-Executive Director of Bank of Wales plc between 1988
and 2001 and AXA Insurance Company Limited between
1992 and 2000. Keith was awarded an OBE in 2005 forservices to business and the community in Wales.

Margaret Johnson (51) – Non-Executive Director ▲●Margaret was appointed Non-Executive Director of theCompany in September 2006. She is currently GroupCEO of the international advertising agency Leagas
Delaney and has been with that Company for the
past 13 years. Margaret joined the Group’s Audit andRemuneration Committees on appointment to the Board.

Lucy Kellaway (50) – Non-Executive Director ■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 and Brussels correspondent. Lucy also joined
the Nominations Committee on appointment to the Board.

John Sussens (64) – Non-Executive Director ●John was appointed the Senior Independent NonExecutive Director in August 2004, and is Chairman of
the Remuneration Committee. He is also a Non-Executive
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 Boardof 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.

Admiral Group plc
Annual Report 200933

Governance
Forward
There are no restrictions on the transfer of ordinary
shares in the Company other than:Highlights
04 Chairman’s statement

Directors’ report• certain restrictions may from time to time be
imposed by laws and regulations (for example,
insider trading laws)• pursuant to the Listing Rules of the Financial
Services Authority whereby certain employeesof the Company require the approval of theCompany to deal in the Company’s securities

06 Chief Executive’s statement

Back

10 Business review
32 Governance
32 The Admiral Group Board
34 Directors’ report
37 Corporate governance
44 Remuneration report
49 Independent auditor’sreport to the membersof Admiral Group plc

SearchThe Company has not purchased any of its own
shares during the period.

51 Financial statements

The Directors present their Annual Report and theaudited financial statements for the year ended
31 December 2009.
Business review
The Company is the holding Company for theAdmiral Group of companies. The Group’s principal
activity continues to be the selling and administrationof private motor insurance and related products.

Print

The information that fulfils the requirements of theBusiness review, as required by Section 417 of theCompanies Act 2006, and which should be treatedas forming part of this report by reference is includedin the following sections of the Annual Report:• Chairman’s statement• Chief Executive’s statement• Business review
Group results and dividends
The profit for the year, after tax but before dividends,
amounted to £156.9 million (2008: £144.9 million).
The Directors declared and paid dividends of£142.4 million during 2009 (2008: £128.5 million)– refer to note 13 for further details.

Admiral Group plc
Annual Report 2009

The Directors have declared a second interim
dividend of £79.4 million (29.8 pence per share),payable on 1 April 2010.
Share capital
Refer to the Business review for the disclosureof substantial shareholdings in accordance with
Chapter 5 of the Transparency and Disclosure rules.
Financial Instruments
The objectives and policies for managing risks inrelation to financial instruments held by the Groupare set out in note 17 to the financial statements.

34

Admiral Group plc
Annual Report 2009

Directors and their interests
The present Directors of the Company are shownon pages 32 and 33 of this report, whilst Directors’interests in the share capital of the Company are set
out in the Remuneration report.
Charitable and political donations
During the year the Group donated £147,000 (2008:£106,000) to various local and national charities. The
Group has never made political donations. Refer tothe Business review for further detail.
Employee policies
Detailed information on the Group’s employment
practices is set out in the Business review. The
Group purchases appropriate liability insurance
for all staff and Directors.
Creditor payment policy
It is the policy of the Group to pay all purchaseinvoices by their due date, and appropriate quality
measures are in place to monitor and encourage
this. At the end of the year outstanding invoices
represented 15 days purchases (2008: 20).
Additional information for shareholders
Where not provided previously in this Directors’
report, the following provides the additional
information required for shareholders as a result of
the implementation of the Takeovers Directive into
UK law.
At 31 December 2009, the Company’s issued sharecapital comprised a single class of shares referred
to as ordinary shares. Details of the share capitaland shares issued during the year can be found innote 24.
On a show of hands at a general meeting of theCompany every holder of shares present in personand entitled to vote shall have one vote and on apoll, every member present in person or by proxy
and entitled to vote shall have one vote for every
ordinary share held. The notice of the general
meeting specifies deadlines for exercising voting
rights either by proxy notice or present in person orby proxy in relation to resolutions to be passed at
general meeting. All proxy votes are counted andthe numbers for, against or withheld in relation toeach resolution are announced at the Annual General
Meeting and published on the Company’s website
after the meeting.

There are no agreements between the Company
and its Directors or employees providing forcompensation for loss of office or employment(whether through resignation, purported redundancy
or otherwise) that occurs because of a takeover bid.
There are a number of agreements that alter or
terminate upon a change of control of the Company
following a takeover bid, such as commercial
contracts. None is considered to be significant interms of their impact on the business of the Group
as a whole except for the long-term co-insurance
agreement in place with Great Lakes Resinsurance(UK) Plc. Details relating to this agreement arecontained in the Business review.

Articles of Association
The Articles may only be amended by special
resolution of the shareholders.
Power of the Directors
The Directors are responsible for managing thebusiness of the Company and may exercise all
powers of the Company subject to the provisions of
relevant statutes, to any directions given by special
resolution and to the Company’s Memorandum
and Articles. The Articles for example, containspecific provisions 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 byshareholders at the Annual General Meeting each year.
Annual General Meeting
It is proposed that the next AGM be held at theCardiff City Hall, Cathays Park, Cardiff CF10 3ND on
Wednesday 28 April 2010 at 3.00pm, notice of which
will be sent to shareholders with the Annual Report.
Directors’ responsibilities
The Directors are responsible for preparing theAnnual Report and the Group and Parent Company
financial statements, in accordance with applicablelaw and regulations.

Power to issue shares
At the last Annual General Meeting, held on
28 April 2009, authority was given to the Directors toallot unissued relevant securities in the Company up
to a maximum of an amount equivalent to one thirdof the shares in issue. This authority expires on thedate of the Annual General Meeting to be held on
28 April 2010 and the Directors will seek to renew
this authority for the following year.

Company law requires the Directors to prepareGroup and Parent Company financial statements
for each financial year. Under that law they
are required to prepare the Group financial
statements in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU
and applicable law and have elected to prepare the
Parent Company financial statements in accordancewith UK Accounting Standards and applicablelaw (UK Generally Accepted Accounting Practice).

A further special resolution passed at that meeting
granted authority to the Directors to allot equity
securities in the Company for cash, without regard
to the pre-emption provisions of the Companies Act
2006. This authority also expires on the date of theAnnual General Meeting to be held on 28 April 2010
and the Directors will seek to renew this authority forthe following year.

The Group financial statements are required bylaw and IFRS as adopted by the EU to present
fairly the financial position and performance of theGroup; the Companies Act 1985 provides in relation
to such financial statements that references in therelevant part of that Act to financial statements giving
a true and fair view are references to their achievinga fair presentation.

Appointments of Directors
The Company’s Articles of Association (‘the Articles’)give the Directors power to appoint and replace
Directors. Under the terms of reference of theNomination Committee, any appointment must berecommended by the Nomination Committee forapproval 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 who held office at thetime of the two preceding Annual General Meetings,
to submit themselves for re-election.

The Parent Company financial statements are
required by law to give a true and fair view of thestate of affairs of the Parent Company.

Admiral Group plc
Annual Report 200935

Governance
ForwardHighlights

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

04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
32 Governance
32 The Admiral Group Board
34 Directors’ report
37 Corporate governance
44 Remuneration report
49 Independent auditor’sreport to the membersof Admiral Group plc

Search51 Financial statements• select suitable accounting policies and then apply
them consistently• make judgements and estimates that arereasonable and prudent• for the Group financial statements, state whether
they have been prepared in accordance with IFRS
as adopted by the EU• for the Parent Company financial statements, state
whether applicable UK Accounting Standards havebeen followed, subject to any material departures
disclosed and explained in the Parent Company
financial statements• prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the Group and the Parent Company willcontinue in business
The Directors are responsible for keeping properaccounting records that disclose with reasonableaccuracy at any time the financial position of the
Parent Company and enable them to ensure thatits financial statements comply with the Companies
Act 2006. They have general responsibility for taking
such steps as are reasonably open to them tosafeguard the assets of the Group and to preventand detect fraud and other irregularities.

Print

Under applicable law and regulations, the Directors
are also responsible for preparing a Directors’
report, Directors’ remuneration report and Corporate
governance statement that comply with that law andthose regulations.

Admiral Group plc
Annual Report 2009

The Directors are responsible for the maintenanceand integrity of the corporate and financial
information included on the Company’s website.
Legislation in the UK governing the preparation anddissemination of financial statements may differ fromlegislation in other jurisdictions.

36

Admiral Group plc
Annual Report 2009

Responsibility statement
The Directors confirm that to the best of
their knowledge:• The financial statements, prepared in accordancewith the applicable set of accounting standards,
give a true and fair view of the assets, liabilities andfinancial position and profit or loss of the Company
and the undertakings included in the consolidation
taken as a whole• The Directors’ report includes a fair view of thedevelopment and performance of the business andthe position of the Company and the undertakings
included in the consolidation taken as a whole,
together with a description of the principal risks
and uncertainties that they face
Disclosure of information to auditors
The Directors who held office at the date of approvalof this Directors’ report confirm that, so far as they
are each aware, there is no relevant audit informationof which the Company’s auditor is unaware; andeach Director has taken all the steps that he ought
to have taken as a Director to make himself awareof any relevant audit information and to establish that
the Company’s auditor is aware of 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 proposedat the Annual General Meeting.
By order of the Board,

Mark Waters
Company Secretary
25 February 2010

Corporate governance

The Combined Code on Corporate GovernanceThis report explains key features of the Group’s
governance structure, how it applies the principles
set out in the revised Combined Code on Corporate
Governance (the ‘Code’), and the extent to which
the Company has complied with the provisionsof the Code. In addition, over the last 12 months
the Company, as a large financial institution, hasconsidered the conclusions and recommendations
made in the corporate governance reviews
undertaken by Sir David Walker, the Financial
Reporting Council and the FSA. The Company
will continue to monitor how it is proposed thatthe recommendations made in these various
reports and reviews should be implemented
and will seek to ensure that it is fully compliant
with any resulting changes to the current corporate
governance regime.
The Board complied with the Code in all respects
during 2009 except for Code D.1.1, which requiresthat the Senior Independent Director should attend
meetings with a range of shareholders. The
Company has a comprehensive programme of
meetings and dialogue with institutional investors,
and the Chairman had individual meetings with the
majority of the largest 10 such investors. The viewsof investors expressed through this dialogue arecommunicated to the Board as a whole on a regularbasis through the investor relations report. All
Directors can, therefore, develop an understandingof issues or concerns of major shareholders should
any be raised. Feedback from shareholders suggeststhat these arrangements for communication between
the Company and its shareholders continue to beviewed by them as effective. The Senior Independent
Director is always available to meet with individual
shareholders on request to ensure the Board isaware of any shareholder concerns that cannot be
resolved through the routine mechanisms for investor
communications.

The Admiral Group Board
The Board is the principal decision making forum for
the Group both providing leadership, either directly or
through its committees of Directors, and delegating
authority to the Executive team in a manner that will
promote the success of the Group and is consistent
with good coporate governance practice. The
Board is accountable to shareholders for setting
and achieving the Group’s strategic objectives andfor the creation and delivery of strong sustainablefinancial and operational performance. The Board isalso responsible to the Financial Services Authority(FSA) for ensuring compliance with the Group’s UK
regulatory obligations.
The Board has adopted a formal schedule ofmatters specifically reserved to it which is reviewed
on an annual basis (this was last carried out on
15 December 2009). Matters reserved to theBoard include the approval of:• The Group’s long term objectives andcorporate strategy• Operating and capital budgets, financial results,
and any significant changes to accounting
practices or policies• The Group’s capital structure• Key business policies in relation to healthand safety and environmental matters• New Board appointments• Dividend policy and proposals for dividend
payments• Major acquisitions, disposals, and othertransactions outside delegated limits
The Board met on seven occasions in 2009.
The Board also held a strategy day and visited
its operations in Germany and Spain. In addition,
the Non-Executive Directors and the Chairman
met during the year without the Executive Directors
being present. Agendas and papers are circulated
to the Board in a timely manner in preparation for
Board and Committee meetings. These papers aresupplemented by information specifically requestedby the Directors from time to time. All Directors are,therefore, able to bring independent judgement tobear on issues such as strategy, risk management,
performance, and resources. Additional meetings arecalled when required and there is frequent contact
between meetings, where necessary, to progress theGroup’s business.

Admiral Group plc
Annual Report 200937

Governance
ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
32 Governance
32 The Admiral Group Board
34 Directors’ report
37 Corporate governance
44 Remuneration report
49 Independent auditor’sreport to the membersof Admiral Group plc

Search51 Financial statements

Print

The Directors
All the Directors have access to the advice andservices of the Company Secretary. He has
responsibility for ensuring that Board proceduresare followed and for governance matters. The
Company Secretary provides updates to the Boardon regulatory and corporate governance issues, newlegislation, and Directors’ duties and obligations. The
appointment and removal of the Company Secretaryis one of the matters reserved for the Board.
Board Effectiveness
During the year the Board carried out a detailed
evaluation of itself, the Chairman, and its committees
in order to identify areas for improvement to ensurethat that the Group’s strategy is implemented as
effectively as possible. The process was led by the
Chairman and facilitated by the Company Secretaryand consisted of the completion of a comprehensive
questionnaire evaluating the Board and committees’
processes; their effectiveness; and where
improvements could be considered. Completion of
the questionnaire by each Director was followed by
one-to-one discussions between each Director andthe Chairman where the Board’s role and structure,process, relationships, and any emerging issues
were discussed.
The evaluation concluded that the Board and its
Committees performed well during the year andare effective in meeting their objectives and fulfilling
their obligations. In addition, the Chairman has
concluded that each director contributes effectively
and demonstrates full commitment to his/her duties.

A final detailed report was circulated to, anddiscussed by, the Board and a number ofrecommendations for improvement in certain
processes were agreed including:• A move for Board meetings to be held overtwo days to allow the Board to consider more
effectively the operational and strategic issues
that affect the Group, given the breadth ofmarkets in which it now operates• The introduction of an annual presentation by
the Executive team on each of the key markets
in which the Group operates in order to assess
strategic objectives and to make changes
to implementation plans where necessary• An increase in the Board’s exposure to the nextlevel of senior management in order to support
the Board’s assessment of the Group’s succession
planning process
The Chief Executive, to whom they report, appraises
annually the performance of the individual Executive
Directors. The Chairman, taking into accountthe views of the other Directors, conducts theperformance appraisal of the Chief Executive.
The performance of the Chairman is reviewed by
the Non-Executive Directors, led by the Senior
Independent Director (‘SID’), taking into accountthe views of the Executive Directors. The SID gave
personal 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.

Admiral Group plc
Annual Report 2009

Directors are expected to attend all meetingsof the Board and the Committees on which they
serve and to devote sufficient time to the Groupto perform their duties. The number of full Board
meetings and Committee meetings attended
by each Director during 2009 is provided in thetable below.

Total meetings held
Alastair Lyons (Chairman)
Henry Engelhardt (Chief Executive Officer)
David Stevens (Chief Operating Officer)
Kevin Chidwick (Finance Director)
Manfred Aldag
Martin Jackson
Keith James
Margaret Johnson
Lucy Kellaway
John Sussens

Board balance and independence
The Board currently comprises ten Directors; theChairman (who was independent on appointment),
three Executive Directors, five independent NonExecutive Directors, and one Non-Executive Director,
Manfred Aldag, who is employed by a significant
shareholder and is not, therefore, considered
independent. There is no requirement that thesignificant shareholder has representation on the
Board and, accordingly, Mr Aldag’s appointment
is subject to the same appointment and removal
process as the other Board Directors. The Board has
accepted the Nomination Committee’s assessmentof 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.
Independent Non-Executive Directors are currently
appointed for fixed periods of three years, subject
to election by shareholders.

ScheduledBoard
meetings

Audit
Committee
meetings

Nominations
Committee
meetings

Remuneration
Committee
meetings

7
7
7
7
7
7
7
7
7
7
7

4

2
2

4

4
4
4

The roles of the Chairman andChief Executive
The Board has approved a statement of thedivision of responsibilities between the Chairman
and the Chief Executive. The Chairman is primarily
responsible for the leadership and workings ofthe Board, setting its agenda, and monitoring its
effectiveness. The Chairman is not involved in the
day-to-day management of the business. Save formatters reserved for decision by the Board, the Chief
Executive, with the support of the other Executive
Directors, is responsible for proposing the strategy
to be adopted by the Group; the running of thebusiness in accordance with the strategy agreed
by the Board; and implementing specific Board
decisions relating to the operation of the Group. The
statement of division of responsibilities and mattersreserved for decision by the Board were reviewed
in December 2009.

4
2
4
2

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 afurther three-year period, subject to re-election byshareholders. Their letters of appointment may beinspected at the Company’s registered office or canbe obtained on request from the Company Secretary.
In the view of the Board, the independent NonExecutive Directors are of sufficient calibre andnumber that their views carry significant weight in the
Board’s decision making and that they are free fromany relationship or circumstance that could affect, or
appear to affect, their independent judgement.

Details of the Chairman’s other commitments areincluded in the Chairman’s biography. The Chairman
does perform a number of other non-executiveroles outside the Group but the Board is satisfied
that these are not such as to interfere with theperformance of his duties within the Group.
John Sussens has been appointed as the Senior
Independent Non-Executive Director. He is available
to shareholders if they have concerns that contact
through the normal channels of Chairman, Chief
Executive, or Group Finance Director has failed toresolve or for which such contact is inappropriate.
He is also responsible for leading the the Board’s
discussion on the Chairman’s performance and theappointment of a new Chairman, when appropriate.
In accordance with the Company’s Articles, which
provide that a set number of directors retire byrotation and stand for re-election at each AGM,
Martin Jackson, Keith James, Margaret Johnson,and Lucy Kellaway will retire by rotation and seek
re-election by shareholders at the forthcoming AGM.
Given that the Chairman has served in his rolesince June 2000 he will now seek re-election byshareholders annually. As the Board was minded
to ask him to continue in office notwithstandingthat he had completed nine years as Chairman,
the Company’s leading institutional investors wereapproached to seek their views. They confirmed
their support for the Board’s expressed intent.
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 acomprehensive 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 theGroup’s head office in Cardiff, overseas offices, andmeetings with members of the senior management
team and their departments. Throughout their period
in office the Directors are regularly updated on theGroup’s business; legal matters concerning theirrole and duties; the competitive environments inwhich the Group operates; and any other significant
changes affecting the Group and the industry ofwhich it is a part.

4
The Board receives presentations from senior
managers within the various Group companies
on a regular basis.

38

Admiral Group plc
Annual Report 2009

Admiral Group plc
Annual Report 200939

Governance
ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
32 Governance
32 The Admiral Group Board
34 Directors’ report
37 Corporate governance
44 Remuneration report
49 Independent auditor’sreport to the membersof Admiral Group plc

Search51 Financial statements

Relations with shareholders
The Investor Relations team has day-to-day primary
responsibility for managing communications withinstitutional shareholders through a combination ofbriefings to analysts and institutional shareholders,both at the half-year and full year results. A numberof analysts and investors visited the Group’s Cardiff
office during the year to meet with the Executive
Directors and senior management in order to geta better understanding of how the Group operates
and how it intends to achieve its strategic andoperational objectives. Senior executives from theGroup’s overseas businesses also visit the UK inorder to present to, and meet with, analysts andinvestors. Site visits and individual discussions with
the Executive Directors are also arranged throughout
the year with individual shareholders. Regulardialogue with shareholders helps to ensure that theCompany’s strategy is understood and that any
issues are addressed in a constructive way.
In addition the Chairman had individual meetings
during the year with major shareholders, andreported to the Board on issues raised with him.

Print

This is supplemented by monthly feedback to theBoard on meetings between management andinvestors. External analysts’ reports are circulated
to all Directors. In addition, the Investor Relations
team produces a monthly Investor Relations Reportthat is circulated to the Board. The Report contains
an analysis of share price performance; a summaryof analyst reports received during the month andof meetings that have been held with investors andanalysts; together with details of any significant
changes to the shareholders’ register.
The Chairmen of the Audit, Remuneration, andNomination Committees attend the Company’s
Annual General Meeting along with the other
Directors, and are available to answer shareholders’questions on the activities of the committees
they chair.

Admiral Group plc
Annual Report 2009

The Group maintains a corporate website(www.admiralgroup.co.uk) containing a wide
range of information of interest to institutional
and private investors.
Conflicts of Interest
In compliance with the requirements of theCompanies Act 2006 regarding Directors’ duties inrelation to conflicts of interest, the Group’s Articles
of Association were amended at the 2009 Annual
General Meeting to allow the Board to authorise
potential conflicts of interest that may arise andto impose such limits as it thinks fit. Following the
aforementioned amendment the Company has put
in place updated procedures in place to deal withconflicts of interest. These procedures include each
Board member completing, annually, a conflictof interest questionnaire that sets out any situationin which they, or their connected persons have,or could have, a direct or indirect interest that could
conflict with the interests of the Company. Any
current directorships that they, or their connected
persons hold, any advisory roles

40

Admiral Group plc
Annual Report 2009or trusteeships held, together with any companies
in which they hold more than 1% of the issued sharecapital are also disclosed. These conflict of interest
procedures have operated effectively
throughout 2009.
Board Committees
The principal committees of the Board – Audit,
Remuneration, and Nomination – all comply fully withthe 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 Chairman of the Board is amember), have a majority of, independent Directors.
The committees are constituted with appropriate
written terms of reference that are reviewed annuallyand minutes of the committee meetings are
circulated to the Board.
The Audit Committee
Constitution and membership
The membership throughout the year was Martin
Jackson (Chairman), Keith James, and Margaret
Johnson. The Company Secretary acts as Secretary
to the Committee. Appointments to the Committee
are for a period of up to three years, which may
be extended for two further three year periods,
provided the Director remains independent. The
Committee meets at least three times per year andhas an agenda linked to events in the Company’s
financial calendar.
The Committee has formal terms of reference whichwere reviewed by the Committee during the year andapproved by the Board in February 2010.
The Board considers that the members of theCommittee have the appropriate competence andexperience to carry out their duties and further
considers that Martin Jackson (Committee Chairman)
has the appropriate recent and relevant financial
experience having held the position of Group FinanceDirector of Friends Provident Plc between 2001 and2003 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 and relevant developments
in financial reporting, company law, and the various
regulatory frameworks through presentations
from the Group’s external auditors, Head of Finance,
and Company Secretary. In addition members
are provided with information on seminars andconferences provided by external bodies. The Termsof Reference of the Audit Committee include all thematters suggested by the Code.
Other individuals such as the Finance Director,
Chief Operating Officer, Chief Executive Officer,
Chairman of the Board, the Heads of Risk,
Compliance, and Internal Audit and representativesof different parts of the Group may be invited toattend all or part of any meeting as and whenappropriate. The external auditors are invited toattend meetings of the Committee on a regular basis.

Summary of key activities during 2009
During the year the Committee reviewed the following:• The Annual Report and interim results• Reports 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• Effectiveness of the Group’s system of internal
control including within its overseas operations,particularly gaining assurance that the compliance,internal control and risk management processes
were operating effectively for each of theoverseas entities• Reports from the external auditors on their
proposed audit scope, fees, audit, and auditor
independence• Performance of the internal audit department,with input from the external review referred
to below• The Group’s ‘whistleblowing’ procedures
The Committee reviewed its policy on non-audit
services that, amongst other things, requires that
the Committee approve all proposals for expenditurewith the Group’s auditors of over £30,000 on nonaudit services. The policy was last reviewed on
14 December 2009. The Group’s auditors, KPMG
Audit plc, provide some non-audit services, themajority of which comprise compliance services
related to various taxation issues within the Group,
and which are not considered by the Committee tocompromise their independence as auditors. The
level of non-audit fees is reviewed at each Committee
meeting and details are included in the Report andAccounts.
The Head of Internal Audit is invited to all Committee
meetings and provides a range of presentations
and papers to the Committee, through which theCommittee monitors the effectiveness of the Group’s
internal controls. Committee members receive
copies of all internal audit reports and are given theopportunity 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 the plan.
During the year, the Committee received apresentation from the Group’s actuaries on reserving
methodology. They also provided market insights andidentified emerging trends.
The Committee also approves the annualcompliance review plan and receives copies of theresulting reports. The Head of Compliance, who
has responsibility for the Compliance and Risk
management functions, provides the Committee withquarterly Compliance and Risk Reports summarising
activities in these areas.
The Committee has a policy that provision of external
audit services be tendered every five years other thanin exceptional circumstances. This was last carriedout in 2006 when the decision was made to retain
the services of the incumbent external auditors. At
the same time the external audit partner was rotated.

In addition to the evaluation of the Committee’s
effectiveness undertaken by the Board, theCommittee also carried out a more detailed review
of its own performance. The key finding was thatgovernance of overseas operation and the interaction
with the Committee remit should be kept undercontinual review as the overseas operations grow.
The Nominations Committee
The membership throughout the year was
Keith James (Chairman), Lucy Kellaway, andAlastair 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 whichwere reviewed during the year and were approved by
the Board in February 2010. The Committee met on
two occasions during 2009.
The Committee leads the process for making
appointments to the Board or where the appointee
is likely to become a Board member. The Committee
ensures there is a formal, rigorous and transparent
procedure for the appointment of new Directors
to the Board through a full evaluation of the skills,
knowledge and experience of Directors. The
Committee also ensures plans are in place fororderly succession for appointments to the Board,and reviews the succession plans for other senior
management positions. Responsibility for making
senior management appointments rests with theChief Executive.
During 2009, the Committee continued to discusswith the Executive team the succession planning
across the Group to identify and develop thoseindividuals within the organisation who have thepotential and necessary skills to succeed the current
members of the Executive team. Following these
discussions a Succession Plan was producedby the People Services Manager and presented
to the Committee at the meeting in July 2009.
This Succession Plan considered the senior roles
within the Group and identified whether there was
emergency short term cover in place in the eventthat the individual left the organisation, whether
there was a permanent replacement available within
the organisation, or whether the position would
need to be filled externally. It also identified where
there were individuals who would be capable ofmoving into particular roles following the gainingof further experience.
The Committee also reviewed the current size,
structure, and composition of the Board, to assess
whether further appointments are necessary tomaintain an appropriate balance of skills andexperience within the Board, thereby ensuring thatit can continue to provide effective leadership of theCompany to support its successful operation within
its various marketplaces.

Admiral Group plc
Annual Report 200941

Governance
ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
32 Governance
32 The Admiral Group Board
34 Directors’ report
37 Corporate governance
44 Remuneration report
49 Independent auditor’sreport to the membersof Admiral Group plc

SearchRemuneration Committee
The membership throughout the year wasJohn Sussens (Chairman), Martin Jackson, andMargaret Johnson. The Company Secretary acts as
Secretary to the Committee. The Committee invites
the Chief Executive and Chairman to attend meetings
where it deems appropriate.
The Committee has formal terms of reference whichwere reviewed during the year and were approvedby the Board in February 2010. The Committee met
four times during 2009.
During the year the Committee carried out thefollowing activities:

51 Financial statements• Reviewed the Group’s overall remuneration policy
and strategy• Recommended for approval individual
remuneration packages for Executive Directors,
and the Company Secretary• Reviewed the rules and performance measuresof the Group share schemes and recommended
for approval the grant, award, allocation or issueof shares under such schemes

Print

A separate Remuneration report is included within
the Annual Report.

Admiral Group plc
Annual Report 2009

During the year the Committee purchased
consultancy services from Kepler Associates.
In addition, the Company Secretary circulates
market survey results as appropriate to enable
the Committee to make judgements on the levelsof remuneration appropriate for the Directors andto review the remuneration of the Group’s senior
executives. PricewaterhouseCoopers also provided
advice on the composition and structure of theGroup’s share plans during the year.
Internal control and risk management
The Board is ultimately responsible for the Group’ssystem of internal control and, through the Audit
Committee, has reviewed the effectiveness ofthese systems. The systems of internal control overbusiness, operational, financial, and compliance risks
are designed to manage rather than eliminate therisk of failure to achieve business objectives and can
only provide reasonable and not absolute assurance
against material misstatement or loss.
The Board is of the view that there is an ongoingprocess for identifying, evaluating and managing
the Group’s internal controls; that it has been in place
for the year ended 31 December 2009; and that,up to the date of approval of the Annual Report itis regularly reviewed by the Board and accords with
the internal control guidance for Directors provided in
the Code.

42

Admiral Group plc
Annual Report 2009

A key element of the control system is that the Board
meets regularly with a formal schedule of mattersreserved to it for decision and has put in place anorganisational 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) in
the UK and appropriate management committees foroverseas entities.
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 policy by the
Chief Executive; delivery of the policy by the RMC
via the Group’s systems of internal control and risk
management; and the overall assurance provided
by the Audit Committee that the systems operate
effectively. The Group will continue to review its risk
management structure in the light of any changes
that are made to the current corporate governanceregime following the recommendations of the Walker
review and the subsequent guidance from the FSA.
The Board recognises that the day-to-day
responsibility for implementing these policies must lie
with the Executive team whose operational decisions
must take into account risk and how this can becontrolled effectively. The Head of Complianceand the Risk Officer take responsibility for ensuring
management are aware of their risk management
obligations; providing them with support and advice;
and ensuring that the risk management strategy isproperly 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 theirdepartments face or pose to the Group and theadequacy of the controls in place to mitigate 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 to plan their programme ofaudits 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 from Internal
Audit which include recommendations

for improvement in the control and operational
environment. The Board undertakes periodic
structured reviews of the Group’s risk map,
focusing on the principal assessed exposuresand the effectiveness of the mitigation strategies
adopted. It receives reports from the Chairman of
the Audit Committee as to its activities, together
with copies of the minutes of both the RMC andthe Audit Committee. In February 2010 the Board
carried out the annual assessment for the 2009
year by considering documentation from the
Audit Committee, taking account of events since
31 December 2009, which includes the Internal
Audit Annual Report prepared by the Group’s
Head of Internal Audit.
The Audit Committee’s ability to provide theappropriate 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
and where appropriate provides 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(who chairs the meetings), the Risk Officer,
and senior management representatives.
The Committee’s principal responsibilities are to:• Consider risk management best practice andrecommend its inclusion within the risk management
strategy and policy adopted by the Board• Ensure that the risk management policy approvedby the Board is implemented effectively throughout
the UK operations• Identify and monitor any UK regulatory issues
and ensure that their resolution and action isappropriately recorded• Assess and monitor reinsurance protection• Advising management committees for the Group’s
overseas operations

The Committee has formal terms of reference thatare reviewed on an annual basis. The Committee
meets around eight times a year and eachCommittee member receives an agenda and papers
in a timely manner allowing the Committee to makeinformed decisions and take appropriate actions.
The Committee develops policies to ensurecompliance with regulation and ensures thatappropriate action is taken by the management teamto implement compliant systems and procedures.
Internal Audit
The Internal Audit function assists management
by providing them with timely, independent
assurance that the controls established areoperating effectively. This includes regular reviewsof internal control systems and business processes,
including compliance systems and procedures,and identification of control weaknesses andrecommendations to management on improvements.
BHBi Consultancy Limited carried out an external
assessment of the Group’s Internal Audit functionin November 2009. The purpose of the assessment
was to assess Internal Audits conformity with thestandards set by The Institute of internal Auditors;
evaluate Internal Audit’s effectiveness in carryingout its defined duties and responsibilities; and identify
opportunities to enhance its management andwork processes. The assessment concluded
that the Internal Audit function operates effectively
and recommended some process improvements
in relation to updating its Charter to recognise the
IIA Standards & Code of Ethics, as well as proposing
undertaking a benchmarking process to review
current resource against peer organisations.
Going concern
The financial statements have been preparedon a going concern basis. In considering theappropriateness of this assumption, the Board
have reviewed the Group’s projections for the
next 12 months and beyond, including cash flow
forecasts and regulatory capital surpluses. The
Group has no debt.
As a result of this review the Directors have satisfied
themselves that it is appropriate to prepare thefinancial statements on a going concern basis.

Admiral Group plc
Annual Report 200943

Governance
Forwardyears of the award. Awards are made twice a year,
based on the results of each half-year. Overseas
staff receive an award under the Discretionary Free
Share Scheme equivalent to the SIP award madeto UK employees• Discretionary Free Share Scheme (DFSS).
Awards under the DFSS are distributed ona wider basis than is the case for most plansof this type. The Committee believes that as the
DFSS develops, and awards continue to vest it
will have the effect of reducing staff attrition andstrengthening further the alignment of the interestsof staff and shareholders

Highlights
04 Chairman’s statement

Remuneration report

06 Chief Executive’s statement

Back

10 Business review
32 Governance
32 The Admiral Group plc Board
34 Directors’ report
37 Corporate governance
44 Remuneration report
49 Independent auditor’sreport to the membersof Admiral Group plc

Search51 Financial statements

Admiral Group plc
Annual Report 2009

Print

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 the principles ofgood corporate governance in relation to Directors’
remuneration in accordance with the Combined
Code and Directors’ Remuneration Report
Regulations 2002.

Remuneration policy
The Group is committed to the primary objectiveof maximising shareholder value over time whilst
at the same time ensuring that there is a strong link
between performance and reward. The Committee
reviews the framework and remuneration packagesof the Executive Directors and the most senior
managers. The main principles underlying the
remuneration policy are:Remuneration Committee
The Committee is appointed by the Board andcomprises only Non-Executive Directors. The
Committee is chaired by John Sussens, the Senior
Independent Non-Executive Director, with the othermembers being Martin Jackson and Margaret
Johnson. The Chairman and Chief Executive areinvited to meetings where the Committee considers it
appropriate to obtain their advice on Group strategy
and performance and senior executive pay strategy.
During the year ended 31 December 2009, theCommittee met on four 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.

• Competitive – The Group aims to pay belowmedian salaries but with attractive performancerelated incentives, which provide individuals withthe potential for competitive total reward packages
for superior performance• Performance linked – A significant part of Executive
Directors’ (excluding Henry Engelhardt and David
Stevens) and senior managers’ reward, remains
shareholder aligned given that it is determinedby the Group’s earnings growth versus LIBOR.
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. Executive Directors have agreed to retain
a minimum shareholding equal to at least 100%of base salary, which can be built up over a periodof five years from the date of appointment• Transparent – All aspects of the remuneration
structure are clear to employees and openly
communicated

The Committee’s terms of reference, which arereviewed at least annually and approved by the
Board, are available on the Group’s corporatewebsite and are summarised in the Corporate
Governance Report. The Committee reviewed
them on 14 December 2009.
The Committee presents a summary of its principal
activities to shareholders through this Remuneration
report, and the Committee Chairman attends
the AGM to answer questions from shareholders
on the activities of the Committee and its
remuneration policies.
The members of the Committee do not have any
personal financial interests, or any conflicts fromcross-directorships, that relate to the businessof the Committee. The members do not haveany 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.

44

Admiral Group plc
Annual Report 2009

The Group operates the following benefits:• Death in Service scheme, paying three times salaryavailable to all employees following completion of
their probationary period• Group Personal Pension Plan, matching employee
contributions up to a maximum 6% of base salarywith maximum employer contribution of £4,800.
This is available to all employees following
completion of their probationary period. (Henry
Engelhardt and David Stevens have declined
to be included in the plan)• Private Medical Cover, available to approximately
120 management level staff• Permanent Health Insurance policy covering thesame staff that are eligible for Private Medical Cover• Approved Free Share Incentive Plan (SIP). The SIP
is available to all UK staff (Henry Engelhardt andDavid Stevens have declined to be included in theplan). 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

Of the Group’s current executive directors, only
Kevin Chidwick (Finance Director) participates in thisscheme, as Henry Engelhardt and David Stevens
have declined to be included.
The performance criterion to determine how many
shares vest under the DFSS is the growth in earnings
per share (EPS) in excess of a risk free return,defined as average three-month LIBOR, over athree-year period. The Committee feels that this is agood indicator of long-term shareholder return withwhich to align staff incentivisation. The Committee
recommends for approval by the Board awards
to the Finance Director and other employees under
the DFSS.
The EPS targets are such that for full vesting ofshares to occur, the average EPS growth over thethree-year performance period would have to beapproximately 12% per annum (assuming LIBOR
averages 2% over the period). Only 10% of shares
vest for matching LIBOR over the three-year period.
There is then a linear relationship up to full vesting of
the award whereby 2.5% of the award vests for eachpoint over LIBOR.
The plan allows for a maximum award of £400,000
or 600% of basic salary if lower. However, in orderto ensure that the Group’s remuneration structure
remains competitive, the Board is proposing at
the Group’s forthcoming AGM that, subject toshareholder approval, the maximum award beincreased to £1,000,000 or 600% of basic salary
if lower.
From 2009, for staff below Group Board level awards
will be split. 50% of the award will be subject to theabove performance criteria. The other 50% will haveno performance criteria attaching. The change wasmade in order to assist the Group to attract highcalibre staff by providing more certainty over theoutcome of vesting awards.
In addition, the Group pays a bonus to all holders
of DFSS shares. The bonus equates to the dividend
payable on an equivalent number of the ordinary
shares of the Group. The Committee feels thathaving a Group-wide bonus equivalent to thedividend flow received by investors further aligns
the incentive structure with shareholders.

The Committee is conscious of the maximum
allowable awards under the Group’s shareschemes and controls are in place to ensurethat awards do not exceed 10% of share capitalover the 10 year period from 1 January 2005.
Executive Directors are allowed, although none
currently do, to accept appointments as NonExecutive Directors of companies with priorapproval of the Chairman. Approval will only begiven where the appointment does not present a
conflict of interest with the Group’s activities andthe wider exposure gained will be beneficial tothe development of the individual. Where fees arepayable in respect of such appointments thesewould be passed to the Company.
Executive Directors’ remuneration
Two of the three Executive Directors (Henry
Engelhardt and David Stevens) are founding
Directors. They and the Committee continue tohold the view that the significant shareholdings heldby them provide a sufficient alignment of their interestin the performance of the Group with the interests ofother shareholders.
In light of this, their remuneration packages consistof below-median base salary (compared to market
rates as assessed by the Committee) and benefits
such as private medical cover, permanent healthinsurance and death in service cover. The Group
does not contribute to any pension arrangementson behalf of these Executive Directors, and they
have not participated, nor is it intended that they
participate, in any Group share schemes. Theirremuneration was reviewed in September 2008.
Henry Engelhardt was awarded a rise of 4.7% taking
his salary to £335,000 with effect from 1 July andDavid Stevens’ salary was unchanged at £320,000.
The Committee aims to ensure that the remunerationof the Finance Director is fair and in total, in line withmarket rates, and is designed to reward achieving
increases in shareholder value.
In addition to benefits such as private medical cover,permanent health insurance, death in service coverand eligibility for the Group’s Personal Pension Plan,
there are two main elements to the Finance Director’s
remuneration package:• Basic annual salary• Awards under the DFSSWith effect from 1 October 2009 Kevin Chidwick’s
base salary was increased by 20% to £360,000.
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 suchan increase. £360,000 remains below the medianbase salary of FTSE 100 Finance Directors.
Kevin Chidwick received an award of 45,009 DFSS
shares on 13 April 2009 with a value at the date of
the award of £400,000. The awards represent the
maximum number of shares that could vest after athree-year period and are subject to the performance
criteria described above.

Admiral Group plc
Annual Report 200945

Governance
ForwardHighlights
04 Chairman’s statement

Directors’ service contracts
The following table summarises the notice periods relating to the service contracts of the Executive Directors
serving at 31 December 2009:06 Chief Executive’s statement

Back

10 Business review
32 Governance
32 The Admiral Group plc Board
34 Directors’ report
37 Corporate governance
44 Remuneration report
49 Independent auditor’sreport to the membersof Admiral Group plc

SearchNotice Director(months)

Notice Company(months)

12
12
12

12
12
12

Kevin Chidwick
Henry Engelhardt
David Stevens

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

Total Shareholder Return (TSR)
The following graph sets out a comparison of Total Shareholder Return for Admiral Group plc shares withthat of the FTSE 100 Index, of which the Company is a constituent. The graph measures the period from
1 January 2005 up to 31 December 2009. 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:
500
450
400

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

350

51 Financial statements
Term and notice300

Alastair Lyons

3 years commencing 1 July 2007, terminable by either party giving three months’
written notice.
Manfred Aldag
Indefinite (terminable on one month’s notice from either party) – automatically terminates
should he cease employment with Munich Re.
Martin Jackson
3 years commencing 1 December 2009, terminable by either party giving one month’s
written notice.
Keith James
3 years commencing 1 December 2009, terminable by either party giving one month’s
written notice.
Margaret Johnson 3 years commencing 4 September 2009, terminable by either party giving one month’s
written notice.
Lucy Kellaway
3 years commencing 4 September 2009, terminable by either party giving one month’s
written notice.
John Sussens
3 years commencing 1 December 2009, terminable by either party giving one month’s
written notice.

Print

250
200
150
100
50

Source: FactSet
2005

2008

2009

2010

FTSE 100

Directors’ shareholdings – Audited
Directors’ interests in the ordinary shares of the Company are set out below:
Ordinary shares of 0.1p
31 December
2009

Non-Executive Directors’ remuneration
The Remuneration Committee decides the remuneration of the Chairman after consultation with the
Executive Directors and review of market data. The remuneration of the Non-Executive Directors, including
the remuneration of the Committee Chairman, is decided by the full Board. The Non-Executive Directors
do not participate in meetings when Non-Executive Director fees are discussed.
The fee structure for Non-Executive Directors was reviewed at the end of 2008 and remains the samein 2009:(£)

Admiral Group plc
Annual Report 20092007

Admiral Group plc

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

Base fee
Plus:
Member of Audit Committee
Senior Independent Director
Chair of Audit Committee
Chair of Nomination Committee
Chair of Remuneration Committee

2006

40,0005,000
5,000
10,0003,000
5,000

Executive Directors
Kevin Chidwick*
Henry Engelhardt**
David Stevens
Non-Executive Directors
Alastair Lyons
Manfred Aldag
Martin Jackson
Keith James
Margaret Johnson
Lucy Kellaway
John Sussens

31 December
2008

38,822
18,67940,490,720 40,490,720
10,234,000 10,084,000
562,152––
44,500––8,000

562,152––
44,500––8,000* Includes 1,182 shares within the Group’s SIP details of which are shown below. Of these 213 have reached their three-year maturity date.
** Include amounts held by family members.

Non-Executive Directors are not entitled to bonus payments or pension arrangements, nor do they
participate in the Group’s long-term incentive plans.
The fee payable to Alastair Lyons in respect of his appointment as Chairman of the Board in 2009 is£150,000 p.a. which is reviewed annually. The appointment may be terminated by the Chairman on threemonths’ notice to the Company.
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 month’s notice should the Non-Executive Director wish to resign.

46

Admiral Group plc
Annual Report 2009

Admiral Group plc
Annual Report 200947

Governance
ForwardHighlights

Directors’ remuneration – Audited
Remuneration for the year ended 31 December 2009 was as follows:

04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
32 Governance
32 The Admiral Group Board
34 Directors’ report
37 Corporate governance
44 Remuneration report
49 Independent auditor’sreport to the membersof Admiral Group plc

Search51 Financial statements

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

Bonusesand other(£000)

Benefits(£000)

2009
Total(£000)

2008
Total(£000)

315
328
320

32
–
–

5
1
1

352
329
321

290
313
283

150
6
50
73
45
40
50
1,377

–
–
–
–
–
–
–
32

–
–
–
–
–
–
–
7

150
6
50
73
45
40
50
1,416

90
6
36
60
34
31
38
1,181

*1 Kevin Chidwick received a bonus of £32,000 in lieu of dividends on shares awarded (but not yet vested) under the Group’s DFSS
bonus plan.
*2 Keith James fees include £10,650 for chairing the Board of Admiral Insurance Company Limited and £13,350 for chairing the Boardof Inspop.com Limited.

PrintAwards made under the Discretionary Free Share Scheme (DFSS) andFree Share Incentive Plan (SIP)
The table below sets out the awards made to directors under the DFSS and SIP, including the datesof the awards, the value at the time of the award and vesting date.
Awards to Kevin Chidwick under the DFSS and SIP:

Admiral Group plc
Annual Report 2009

Type

DFSS
DFSS
DFSS
DFSS
DFSS
SIP
SIP
SIP
SIP
SIP
SIP
SIP

At startof yearAwardedduring year

Vestedduring year

At endof year21,18618,48023,00048,667
–
213
151
182
162
163
–
–

–
–
–
–
45,009
–
–
–
–
–
171
140

21,18618,480
–
–
–
–
–
–
–
–
–
–

–
–
23,00048,66745,009
213
151
182
162
163
171
140

Price ataward(£)

Value ataward date(£)

Value at31/12/09*(£)

Date ofaward

Final vesting/maturitydate£6.136 £130,000 £251,602£6.764 £125,000 £219,727£10.50 £241,500 £273,470£8.08 £393,229 £578,651£8.89 £400,000 £535,157£6.764£1,440£2,533£10.284£1,552£1,795£8.264£1,504£2,164£9.181£1,487£1,926£9.195£1,499£1,938£8.738£1,494£2,033£10.67£1,494£1,66518/04/06
04/09/06
18/04/07
29/04/08
13/04/09
06/09/06
09/03/07
04/09/07
07/03/08
22/08/08
06/03/09
28/08/09

18/04/09
04/09/09
18/04/10
29/04/11
13/04/12
06/09/09
09/03/10
04/09/10
07/03/11
22/08/11
06/03/12
28/08/12* The closing price of Admiral shares on 31 December 2009 was £11.89 per share.

For details of Directors’ responsibilities, please refer to the biographies section.

Independent auditor’s report to the membersof Admiral Group plc

We have audited the financial statements of AdmiralGroup plc for the year ended 31 December 2009set out on pages 51 to 81. The financial reporting
framework that has been applied in the preparationof the Group financial statements is applicable law
and International Financial Reporting Standards(IFRSs) as adopted by the EU. The financial reporting
framework that has been applied in the preparationof the Parent Company financial statements is
applicable law and UK Accounting Standards(UK Generally Accepted Accounting Practice).
This report is made solely to the Company’s
members, as a body, in accordance with Chapter
3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state
to the Company’s members those matters we are
required to state to them in an auditor’s report andfor no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility
to anyone other than the Company and theCompany’s members, as a body, for our audit work,for this report, or for the opinions we have formed.

Respective responsibilities of Directors
and auditors
As explained more fully in the Directors’
responsibilities statement set out on pages 35 and36, the Directors are responsible for the preparationof the financial statements and for being satisfied
that they give a true and fair view. Our responsibility
is to audit the financial statements in accordancewith applicable law and International Standards on
Auditing (UK and Ireland). Those standards require
us to comply with the Auditing Practices Board’s(APB’s) Ethical Standards for Auditors.

Scope of the audit of the financial statements
A description of the scope of an audit of financial
statements is provided on the APB’s website atwww.frc.org.uk/apb/scope/UKP
Opinion on financial statements
In our opinion:• the financial statements give a true and fair viewof the state of the Group’s and of the Parent
Company’s affairs as at 31 December 2009 andof the Group’s profit for the year then ended• the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by
the EU• the Parent Company financial statements havebeen properly prepared in accordance with UK
Generally Accepted Accounting Practice• the financial statements have been preparedin accordance with the requirements of
the Companies Act 2006; and, as regards
the group financial statements, Article 4 of
the IAS Regulation
Opinion on other matters prescribed by theCompanies Act 2006
In our opinion:• the part of the Directors’ Remuneration report
to be audited has been properly prepared inaccordance with the Companies Act 2006
• the information given in the Directors’ report for thefinancial year for which the financial statements areprepared is consistent with the financial statements• the information given in the Corporate GovernanceStatement set out on pages 42 and 43 withrespect to internal control and risk management
systems in relation to financial reporting processes
and about share capital structures is consistent
with the financial statements

This report was approved by the Board of Directors on 25 February 2010 and is signed on its behalf by theCommittee Chairman:

John Sussens
Remuneration Committee Chairman

48

Admiral Group plc
Annual Report 2009

Admiral Group plc
Annual Report 200949

Governance

Financial statements

ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
32 Governance
32 The Admiral Group Board
34 Directors’ report
37 Corporate governance
44 Remuneration report
49 Independent auditor’sreport to the membersof Admiral Group plc

SearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further Information

Matters on which we are required to reportby exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required toreport to you if, in our opinion:• adequate accounting records have not been kept
by the Parent Company, or returns adequate forour audit have not been received from branches
not visited by us; or• the Parent Company financial statements and thepart of the Directors’ Remuneration report to beaudited are not in agreement with the accounting
records and returns; or• certain disclosures of Directors’ remuneration
specified by law are not made; or• we have not received all the information andexplanations we require for our auditor; and• a Corporate Governance Statement has not been
prepared by the Company
Under the Listing Rules we are required to review:• the Directors’ statement, set out on page 43,
in relation to going concern; and• the part of the Corporate Governance statementon page 37 relating to the Company’s compliancewith the nine provisions of the June 2008
Combined Code specified for our review.

Chris Moulder(Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
Marlborough House
Fitzalan Court
Fitzalan Road
Cardiff
CF24 2LP

Consolidated income statement
for the year ended 31 December 2009

Year ended:

Note:

Insurance premium revenue
Insurance premium ceded to reinsurers
Net insurance premium revenue
Other revenue
Profit commission
Investment and interest income
Net revenue
Insurance claims and claims handling expenses
Insurance claims and claims handling expenses recovered from reinsurers
Net insurance claims
Expenses
Share scheme charges
Total expenses

5
6
7
8

9
9,24

Admiral Group plc
Annual Report 2009

Admiral Group plc
Annual Report 200931 December
2008
£m

386.4
(174.5)
211.9
232.6
54.2
8.8
507.5
(283.1)131.4(151.7)(130.8)(9.2)(291.7)301.4(131.6)
169.8
193.9
34.7
24.4
422.8
(213.8)99.2(114.6)(99.8)(5.9)(220.3)

Profit before tax

10

215.8

202.5

Taxation expense
Profit after tax

12(58.9)
156.9(57.6)
144.9

156.9
–
156.9

144.9
–
144.9

Profit after tax attributable to:Equity holders of the parent
Non-controlling interests

2 March 201050

31 December
2009£mEarnings per share:
Basic

14

59.0p

54.9p

Diluted

14

59.0p

54.9p

Dividends declared (total)
Dividends declared (per share)

13
13

142.4
54.2p

128.5
49.2p

Admiral Group plc
Annual Report 200951

Financial statements
continued

ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review

Consolidated statement ofcomprehensive income

Consolidated statement of financial position
as at 31 December 2009

for the year ended 31 December 200932 GovernanceSearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further information

Year ended:

Profit for the period
Other comprehensive income
Exchange differences on translation of foreign operations
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period
Total comprehensive income for the period attributable to:Equity holders of the parent
Non-controlling interests

As at:

31 December
2009£m

31 December
2008
£m

156.9

144.9

(5.3)
(5.3)
151.6

9.9
9.9
154.8

151.6
–
151.6

154.8
–
154.8

31 December
2008
£m

15
16
18
17
17,19
17,20

12.1
77.0
212.9
630.9
32.7
211.8
1,177.4

11.0
75.7
170.6
586.9
25.5
144.3
1,014.0

24

0.3
13.1
5.0
281.8
300.2
0.6
300.8

0.3
13.1
10.3
251.8
275.5
–
275.5

18
23
17,21

532.9
5.7
306.8
31.2
876.6

439.6
10.3
270.1
18.5
738.5

1,174.4

1,014.0

Note

ASSETS
Property, plant and equipment
Intangible assets
Reinsurance assets
Financial assets
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY
Share capital
Share premium account
Other reserves
Retained earnings
Total equity attributable to equity holders of the parent
Non-controlling interests
Total equity
LIABILITIESInsurance contracts
Deferred income tax
Trade and other payables
Current tax liabilities
Total liabilities

Admiral Group plc
Annual Report 200931 December
2009£mTotal equity and total liabilities

These financial statements were approved by the Board of Directors on 25 February 2010 and were signed
on its behalf by:

Kevin Chidwick
Director

52

Admiral Group plc
Annual Report 2009

Admiral Group plc
Annual Report 200953

Financial statements
continued

ForwardHighlights

Back

04 Chairman’s statement

Consolidated cash flow statement

Consolidated statement of changes in equity

06 Chief Executive’s statement

for the year ended 31 December 2009

for the year ended 31 December 2009

10 Business review
32 GovernanceSearchAdmiral Group plc
Annual Report 2009

Print

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further information

54

Admiral Group plc
Annual Report 200931 December
2009£m

31 December
2008
£m

156.9

144.9

5.1
2.2
0.2
2.9
13.7
93.4
(42.3)(41.1)
36.5
58.9
286.4
(10.5)
275.9(49.1)
226.8

3.7
1.4
0.8
–
11.3
76.5
(38.9)(36.5)
30.7
57.6
251.5
(76.0)
175.5(56.9)
118.6(11.8)(11.8)(11.3)(11.3)Cash flows from financing activities:
Capital element of new finance leases
Repayment of finance lease liabilities
Equity dividends paid

1.4
(1.2)
(142.4)0.5(0.7)(128.5)

Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Effects of changes in foreign exchange rates
Cash and cash equivalents at end of period(142.2)
72.8
144.3
(5.3)
211.8

(128.7)(21.4)
155.8
9.9
144.3

Note

Profit after tax
Adjustments for non-cash items:– Depreciation– Amortisation of software– Change in unrealised gains on investments– Other gains and losses– Share scheme charge
Change in gross insurance contract liabilities
Change in reinsurance assets
Change in trade and other receivables, including from policyholders
Change in trade and other payables, including tax and social security
Taxation expense
Cash flows from operating activities, before movements in investments
Net cash flow into investments
Cash flows from operating activities, net of movements in investments
Taxation payments
Net cash flow from operating activities
Cash flows from investing activities:
Purchases of property, plant and equipment and software
Net cash used in investing activities

24

20

Share
capital£mSharepremium
account£m

Foreignexchangereserve£m

At 1 January 2008
Profit for the period
Other comprehensive income
Currency translation differences
Total comprehensive income for the period
Transactions with equity holders
Dividends
Share scheme credit
Deferred tax credit on share scheme credit

0.3
–

13.1
–

0.4
–

223.8
144.9

–
–

237.6
144.9

–
–

–
–

9.9
9.9

–
144.9

–
–

9.9
154.8

–
–
–

–
–
–

–
–
–

(128.5)
11.3
0.3

–
–
–

(128.5)
11.3
0.3

Total transactions with equity holders
As at 31 December 2008

–
0.3

–
13.1

–
10.3

(116.9)251.8––(116.9)275.5

At 1 January 2009
Profit for the period
Other comprehensive income
Currency translation differences

0.3
–

13.1
–

10.3
–

251.8
156.9

–
–

275.5
156.9

–

–

(5.3)

–

–

(5.3)

–

–

(5.3)

156.9

–

151.6

–
–
–
–
–
0.3

–
–
–
–
–
13.1

–
–
–
–
–
5.0

(142.4)–13.7
1.8(126.9)
281.8

–
0.6
–
–
0.6
0.6

(142.4)
0.6
13.7
1.8
(126.3)300.8

Total comprehensive income for the period
Transactions with equity holders
Dividends
Issue of shares to non-controlling interests
Share scheme credit
Deferred tax credit on share scheme credit
Total transactions with equity holders
As at 31 December 2009

Retained Non-controlling
profit and loss
interests£m£m

Total equity£mAdmiral Group plc
Annual Report 200955

Financial statements
continued

ForwardHighlights
04 Chairman’s statement

Notes to the financial statements

06 Chief Executive’s statement

Back

In addition, it is not anticipated that any of theother improvements, amendments to standards,
interpretations or revisions of current standards
above will have a material impact on the Group’s
financial statements in future periods.

10 Business review
32 GovernanceSearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further Information

The following IFRS have been adopted and appliedby the Group for the first time in these financial
statements:

1. General information and basis of preparation
General information
Admiral Group plc is a Company incorporated inEngland 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 the results
and balances of the Company and its subsidiaries(together referred to as the Group) for the year
ended 31 December 2009 and comparative figures
for the year ended 31 December 2008. The financial
statements of the Company’s subsidiaries areconsolidated in the Group financial statements. The
Company controls 100% of the voting share capitalof all its principal subsidiaries. The Parent Company
financial statements present information about
the Company as a separate entity and notabout its Group. In accordance with International
Accounting Standard (IAS) 24, transactions orbalances between Group companies that havebeen eliminated on consolidation are not reported
as related party transactions.

Admiral Group plc
Annual Report 2009

The consolidated financial statements havebeen prepared and approved by the Directors inaccordance with International Financial ReportingStandards (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
2009, including all amendments to extant standards
that are not effective until later accounting periods,
except for those listed below:• IFRIC 12 Service concession arrangements• IFRIC 15 Agreements for the constructionof real estate• IFRIC 16 Hedges of a net investmentof a foreign operation• IFRIC 17 Distribution of non-cash assets
to owners• IFRIC 18 Transfer of assets from customers• Amendments to IAS 32 Classification ofrights issues

56

Admiral Group plc
Annual Report 2009

Based on the Group’s current financial assets, thisstandard is not expected to have a material impact
on the Group’s financial statements in future periods.

IFRIC 16 Hedges of a net investment of a foreign
operation is effective for periods beginning on orafter 1 July 2009 and the Group has elected
not to adopt the Amendment in advance of theeffective date. As the Group does not hedge its net
investment in foreign operations, this interpretation
is not expected to have a material impact on theGroup’s financial statements.
IFRICs 12, 15, 17 and 18, and the amendment to
IAS 32 are effective for periods beginning on orafter 30 March 2009, 1 January 2010, 1 November
2009, 1 November 2009 and 1 February 2010
respectively. None of these interpretations have been
applied during the current accounting period, andon adoption will not have a material impact on theGroup’s financial statements.
There are a number of standards, amendments
to standards and interpretations that were issued
by 31 December 2009 but have either yet to beendorsed by the EU, or were endorsed shortly after
the year end. These are as follows:• Improvements to IFRSs (2009)• Amendments to IFRS 2 Group cash-settled
share-based payment transactions• Amendments to IFRS 1 Additional exemptions
for first-time adopters• Revised IAS 24 Related party disclosures• IFRS 9 Financial instruments• IFRIC 19 Extinguishing financial liabilities
with equity instruments• Amendment to IFRIC 14 Prepaymentsof a minimum funding requirement
IFRS 9, Financial Instruments is the only new
standard, all the others being improvements,
amendments to standards, interpretations orrevisions of current standards.
This standard was issued in November 2009 by
the IASB and focuses on the classification andmeasurement of financial instruments. Under the
new standard only two possible classifications arise,rather than the four existing classifications currently
available under IAS 39, and will result in all financial
assets being valued at amortised cost or fair value
through profit or loss. Financial liabilities are excluded
from the scope of this standard.

• Amendments to IAS 1 Presentation of financial
statements: a revised presentation• Amendments to IFRS 2 Share-based payment:
vesting conditions and cancellations• Amendments to IAS 32 and IAS 1 Puttablefinancial instruments and obligations arisingon liquidation• Amendments to IFRS1 and IAS 27 Cost ofinvestment in a subsidiary, jointly controlled entity
or associate• Amendments to IFRS 7 Improving disclosuresabout financial instruments• Amendments to IFRIC 9 and IAS 39 Embedded
derivatives• IAS 23 Borrowing costs• IFRIC 13 Customer loyalty programmes• Improvements to IFRSs (2008)• Revised IFRS 3 Business combinations• Amendments to IAS 27 Consolidated and separate
financial statements• Amendment to IAS 39 Financial instruments:
recognition and measurement: eligible hedged items• Revised IFRS 1 First time adoption of IFRS
Following adoption of IAS 1 Presentation of financial
statements: a revised presentation, the Groupnow presents all income and expenses in two
separate statements, namely the Consolidated
Income Statement and the Consolidated Statementof Comprehensive Income. It also presents a
Consolidated Statement of Changes in Equity
as a primary statement for the first time and has
renamed the Consolidated Balance Sheet theConsolidated Statement of Financial Position. There
are no changes to the recognition, measurement ordisclosure of transactions as a result of the adoptionof this standard.
The requirements of IFRS 7, Financial instruments,
disclosures are met through note 17 to the financial
statements. This includes the enhanced disclosuresabout fair value measurements required under theamendment to IFRS 7 that has been adopted for the
first time.
None of the other standards or interpretations
adopted for the first time have had a material impact
on the consolidated financial results or position of theGroup for the year ended 31 December 2009.

Basis of preparation
The accounts have been prepared on a going
concern basis. In considering the appropriatenessof this assumption, the Board have reviewed theGroup’s projections for the next 12 months andbeyond, including cash flow forecasts and regulatory
capital surpluses. The Group has no debt.
As a result of this review the Directors have satisfied
themselves that it is appropriate to prepare thesefinancial statements on a going concern basis.
The accounting policies set out in note 3 to thefinancial statements have, unless otherwise stated,been applied consistently to all periods presented inthese Group financial statements.
The financial statements are prepared on thehistorical cost basis, except for the revaluation offinancial assets classified as at fair value throughprofit or loss.
Subsidiaries are entities controlled by the Group.
Control exists when the Group has the power,
directly or indirectly, to govern the financial andoperating policies of an entity so as to obtain benefits
from its activities. In assessing control, potential
voting rights that are currently exercisable orconvertible are taken into account. The financial
statements of subsidiaries are included in the
consolidated financial statements from the date that
control commences until the date that control ceases.
The preparation of financial statements in conformity
with adopted IFRS requires management to makejudgements, estimates and assumptions that affectthe application of policies and reported amountsof assets and liabilities, income and expenses.
The estimates and associated assumptions are
based on historical experience and various otherfactors that are believed to be reasonable under thecircumstances, the results of which form the basisof making the judgements about carrying values ofassets and liabilities that are not readily apparent
from other sources. The estimates and underlying
assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognisedin the year in which the estimate is reviewed if thisrevision affects only that year, or in the year of therevision and future years if the revision affects bothcurrent and future years.
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 the Group’s
contracts with reinsurers as quota share reinsurance
contracts. A contract is required to transfer
significant insurance risk in order to be classified assuch. Management reviews all terms and conditionsof the contract, and if necessary obtains the opinionof an independent expert at the negotiation stage
in order to be able to make these judgements.

Admiral Group plc
Annual Report 200957

Financial statements
continued

ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review

Estimation techniques used in calculation ofclaims provisions:
Estimation techniques are used in the calculationof the provisions for claims outstanding, which
represents a projection of the ultimate cost of settlingclaims that have occurred prior to the balance sheet
date and remain unsettled at the balance sheet date.

32 GovernanceSearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further Information

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 acase-by-case basis, for all but the simplestof claims.
The sum of these provisions are compared withprojected ultimate costs using a variety of different
projection techniques (including incurred and paid
chain ladder and an average cost of claim approach)to allow an actuarial assessment of their likely
accuracy. They include allowance for unreported
claims.
The most significant sensitivity in the use of the
projection techniques arises from any future stepchange in claims costs, which would cause future
claim cost inflation to deviate from historic trends.
This is most likely to arise from a change in theregulatory or judicial regime that leads to an increase
in awards or legal costs for bodily injury claims that issignificantly above or below the historical trend.
The claims provisions are subject to independent
review by the Group’s actuarial advisors. For further
detail on objectives, policies and procedures for
managing insurance risk, refer to note 18 of thefinancial statements.

Admiral Group plc
Annual Report 2009

Future changes in claims reserves also impact
profit commission income, as the recognition ofthis income is dependent on the loss ratio bookedin the financial statements, and cash receivable isdependent 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 the periodof cover.
Income earned on the sale of ancillary products andincome from policies paid by instalments is credited
to the income statement over the period matching
the Group’s obligations to provide services. Where
the Group has no remaining contractual obligations,the income is recognised immediately. An allowance
is made for expected cancellations where thecustomer may be entitled to a refund of ancillaryamounts charged.

Under some of the co-insurance and reinsurance
contracts under which motor premiums are sharedor ceded, profit commission may be earned on aparticular year of account, which is usually subject toperformance criteria such as loss ratios and expense
ratios. The commission is dependent on the ultimate
outcome of any year, with income being recognised
based on loss and expense ratios used in the
preparation of the financial statements.

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.

d) Intangible assets
Goodwill
All business combinations are accounted for using
the purchase method. Goodwill has been recognisedin acquisitions of subsidiaries, and represents thedifference between the cost of the acquisition andthe fair value of the net identifiable assets acquired.

Revenue from Price Comparison and Gladiator
Commission from these activities is credited toincome on the sale of the underlying insurance policy.

ClaimsClaims and claims handling expenses are charged
as incurred, based on the estimated direct andindirect costs of settling all liabilities arising on eventsoccurring up to the balance sheet date.

Investment income
Investment income from financial assets comprises
interest income and net gains (both realised andunrealised) on financial assets classified as fair value
through profit and loss or held to maturity deposits.

The provision for claims outstanding comprises
provisions for the estimated cost of settling all claims
incurred but unpaid at the balance sheet date,whether reported or not. Anticipated reinsurance
recoveries are disclosed separately as assets.

The classification and accounting treatment ofacquisitions occurring before 1 January 2004
have not been reconsidered in preparing the Group’s
opening IFRS balance sheet at 1 January 2004
due to the exemption available in IFRS 1 (First
time adoption). In respect of acquisitions prior to
1 January 2004, goodwill is included at the transition
date on the basis of its deemed cost, which
represents the amount recorded under UK GAAP,
which was tested for impairment at the transition
date. On transition, amortisation of goodwill hasceased as required by IAS 38.

b) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of eachof the Group’s entities are measured using thecurrency of the primary economic environment inwhich the entity operates (‘the functional currency’).
The consolidated financial statements are presented
in millions of pounds sterling, which is the Group’s
presentation currency.

Whilst the Directors consider that the grossprovisions for claims and the related reinsurance
recoveries are fairly stated on the basis of theinformation currently available to them, the ultimate
liability will vary as a result of subsequent informationand events and may result in significant adjustments
to the amounts provided.

Transactions and balances
Foreign currency transactions are translated into
the functional currency using the exchange rates
prevailing at the dates of the transactions. Foreignexchange gains and losses resulting from thesettlement of such transactions, and from thetranslation at year end exchange rates of monetary
assets and liabilities denominated in foreign
currencies are recognised in the income statement.
Translation differences on monetary items, arereported as part of the fair value gain or loss.
Translation differences on non-monetary items areincluded in the foreign exchange reserve in equity.
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:(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 average exchange
rates (unless this average is not a reasonableapproximation of the cumulative effect of
the rates prevailing on the transaction dates,in which case income and expenses aretranslated at the date of the transaction)(iii) All resulting exchange differences arerecognised as a separate componentof equity
On disposal of a foreign operation, the cumulative
amount recognised in equity relating to that particular
operation is recognised in the income statement.

58

Admiral Group plc
Annual Report 2009

Adjustments to the amounts of claims provisions
established in prior years are reflected in the income
statement for the period in which the adjustments
are made and disclosed separately if material.
The methods used, and the estimates made, arereviewed regularly.
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.
Co-insurance
The Group has entered into certain co-insurance
contracts under which insurance risks are sharedon a proportional basis, with the co-insurer taking
a specific percentage of premium written and being
responsible for the same proportion of each claim.
As the contractual liability is several and not joint,neither the premiums nor claims relating to theco-insurance are included in the income statement.
Under the terms of these agreements the co-insurers
reimburse the Group for the same proportionate
share of the costs of acquiring and administering
the business.
Reinsurance assets
Contracts entered into by the Group with reinsurers
under which the Group is compensated for losseson the insurance contracts issued by the Group areclassified as reinsurance contracts. A contract isonly 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 underthese 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 the asset
is impaired, then the carrying value will be written
down to its recoverable amount.

Goodwill is stated at cost less any accumulated
impairment losses. Goodwill is allocated to cash
generating units (CGUs) according to businesssegment and is reviewed annually for impairment.
The Goodwill held on the balance sheet at
31 December 2009 is allocated solely to the
UK Car Insurance segment.
Impairment of goodwill
The annual impairment review involves comparing
the carrying amount to the estimated recoverable
amount (by allocating the goodwill to CGUs) andrecognising an impairment loss if the recoverable
amount is 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 approvedby management covering a three-year period.
Cash flows beyond this period are considered, but
not included in the calculation. The discount rateapplied to the cash flow projections in the value
in use calculations is 8.9% (2008: 9.2%), basedon the Group’s weighted average cost of capital(source: Bloomberg).
The key assumptions used in the value in use
calculations are those regarding growth rates andexpected changes in pricing and expenses incurred
during the period. Management estimates growth
rates and changes in pricing based on past practices
and expected future changes in the market.
Deferred acquisition costs
Acquisition costs comprise all direct and indirect
costs arising from the conclusion of insurance
contracts. Deferred acquisition costs represent
the proportion of acquisition costs incurred that
corresponds to the unearned premiums provisionat the balance sheet date. This balance is held
as an intangible asset. It is amortised over theterm of the contract as premium is earned.

Admiral Group plc
Annual Report 200959

Financial statements
continued

ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
32 GovernanceSearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further Information

SoftwarePurchased software is recognised as an intangible
asset and amortised over its expected useful life
(generally between two and four years). The carrying
value is reviewed every six months for evidenceof impairment, with the value being written down
if any impairment exists. Impairment may be reversed
if conditions subsequently improve.
e) Property, plant and equipment anddepreciation
All property, plant and equipment is stated at costless accumulated depreciation. Depreciation is
calculated using the straight-line method to write off
the cost less residual values of the assets over theiruseful economic lives. These useful economic lives
are as follows:
Motor vehicles – 4 years
Fixtures, fittings and equipment – 4 years
Computer equipment – 2 to 4 years
Improvements to short leasehold properties – 4 years.
Impairment of property, plant and equipment
In the case of property plant and equipment, carrying
values are reviewed at each balance sheet dateto determine whether there are any indications of
impairment. If any such indications exist, the asset’s
recoverable amount is estimated and compared tothe carrying value. The carrying value is the higherof the net realisable value and the asset’s value in
use. Impairment losses are recognised through theincome statement.

Admiral Group plc
Annual Report 2009f) 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.
Leases under the terms of which the Group assumes
substantially all of the risks and rewards of ownershipare classed as finance leases. Assets acquired
under finance leases are included in property, plantand equipment at fair value on acquisition and are
depreciated in the same manner as equivalentowned assets. Finance lease and hire purchaseobligations are included in creditors, and the financecosts are spread over the periods of the agreements
based on the net amount outstanding.
g) Financial assets – investments and receivables
Initial recognition
Financial assets within the scope of IAS 39 areclassified as financial assets at fair value throughprofit or loss, loans and receivables or held tomaturity investments. The Group has not held
any derivative instruments in the years ending
31 December 2009 and 31 December 2008.

Admiral Group plc
Annual Report 2009

conditions). Non-market conditions such as
profitability targets as well as staff attrition rates areincluded in assumptions over the number of freeshares to vest under the applicable scheme.

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

At each balance sheet date, the Group revises its
assumptions on the number of shares to be grantedwith the impact of any change in the assumptions
recognised through income.

Deposits with fixed maturities, classified as held
to maturity investments are measured at amortised
cost using the effective interest method. Movementsin the amortised cost are recognised through theincome statement, as are any impairment losses.

Refer to note 24 for further details on share schemes.

Receivables are stated at their amortised cost less
impairment using the effective interest method.
Impairment losses are recognised through theincome statement.

Current tax
Current tax is the expected tax payable on the
taxable income for the period, using tax rates thathave been enacted or substantively enacted by thebalance sheet date, and includes any adjustment totax payable in respect of previous periods.

Impairment of financial assets
The Group assesses at each balance sheet datewhether any financial assets or groups of financial
assets are impaired. Financial assets are impaired
where there is evidence that one or more eventsoccurring after the initial recognition of the asset, may
lead to a reduction in the estimated future cash flows
arising from the asset.
Objective evidence of impairment may include default
on cash flows due from the asset and reported
financial difficulty of the issuer or counterparty.
Derecognition of financial assets
A financial asset is derecognised when the rights
to receive cashflows from that asset have expiredor when the Group transfers the asset and all theattaching substantial risks and rewards relating to theasset, to a third party.
h) Cash and cash equivalents
Cash and cash equivalents includes cash in hand,deposits held at call with banks, and other shortterm deposits with original maturities of three months
or less.
i) Share capital
Shares are classified as equity when there isno obligation to transfer cash or other assets.
j) 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 towhich they relate.

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

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 acorresponding increase in equity.

This designation is permitted under IAS 39, as theinvestments in money market funds are managed as agroup of assets and internal performance evaluationof this group is conducted on a fair value basis.

The total charge expensed over the vesting period
is determined by reference to the fair value of thefree shares granted as determined at the grant
date (excluding the impact of non-market vesting

At initial recognition assets are recognised at fairvalue and classified according to the purpose forwhich they were acquired:

60

The Group’s deposits with credit institutions areclassified as held to maturity investments whichis consistent with the intention for which they
were purchased.

k) Taxation
Income tax on the profit or loss for the periods
presented comprises current and deferred tax.

Current tax related to items recognised directly inequity is recognised in equity and not in the income
statement.
Deferred tax
Deferred tax is provided in full using the balance
sheet liability method, providing for temporary
differences arising between the carrying amountof assets and liabilities for accounting purposes,
and the amounts used for taxation purposes. It is
calculated at the tax rates that 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 the extent
that it is probable that future taxable profits will beavailable against which the asset can be utilised.
The principal temporary differences arise fromdepreciation of property and equipment, sharescheme charges and the tax treatment of overseas
profits. The resulting deferred tax is charged or
credited in the income statement, except in relation
to share scheme charges where the amount of tax
benefit credited to the income statement is limited
to an equivalent credit calculated on the accounting
charge. Any excess is recognised directly in equity.
l) Government grants
Government grants are recognised in the financial
statements in the period where it becomesreasonably certain that the conditions attaching
to the grant will be met, and that the grant will
be received.
Grants relating to assets are deducted from thecarrying amount of the asset. The grant is therefore
recognised as income over the life of the depreciable
asset by way of a reduced depreciation charge.
Grants relating to income are shown as a deductionin the reported expense.

m) Sale of shares to non-controlling interest
On the sale of shares to a non-controlling interest
a consolidated gain or loss is recognised in theConsolidated Income Statement. The gain or loss
is calculated as the difference between the Group’s
share of the consideration received in exchange forthe non-controlling interest, and the carrying valueof the non-controlling share of net assets.
The non-controlling interest is recognised as aseparate component of equity.
4. Operating segments
The Group has four reportable segments, as
described below. These segments represent the
principal split of business that is regularly reported to
the Group’s Board of Directors, which is considered
to be the Group’s chief operating decision maker inline with IFRS 8, operating segments.
UK Car Insurance
The segment consists of the underwriting of car
insurance and the generation of ancillary income in
the UK. The Directors consider the results of these
activities to be reportable as one segment as theactivities 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.
Price Comparison
The segment relates to the Group’s pricecomparison websites Confused.com in the UK
and Rastreator.com in Spain. Rastreator.com waslaunched in May 2009, and is therefore included inthis price comparison segment for the first time in2009.
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
operations Balumba.es in Spain, AdmiralDirekt.dein Germany, ConTe.it in Italy and for the first timein 2009, Elephant.com in Virginia, USA which
launched in October 2009. None of these operations
are reportable on an individual basis, based on thethreshold requirements in IFRS 8.
Other
The ‘other’ segment is designed to be comprised
all other operating segments that do not meet
the threshold requirements for individual reporting.
Currently there is only one such segment, theGladiator commercial van insurance broking
operation, and so it is the results and balancesof this operation comprises the ‘other’ segment.
2008 comparatives have been restated to remove
other corporate revenue, expenses and balancesfrom the ‘other’ segment. These are included in therelevant reconciliations to the Consolidated income
statement and balance sheet.
Taxes are not allocated across the segments and,as with the corporate activities, are included in thereconciliation to the Consolidated income statement
and Consolidated statement of financial position.

Admiral Group plc
Annual Report 200961

Financial statements
continued

ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statement

Segment income, results and other information
An analysis of the Group’s revenue and results for the year ended 31 December 2009, by reportable segment
are shown below. The accounting policies of the reportable segments are consistent with those presented innote 3 for the Group.
31 December 2009Back

10 Business review

UK CarInsurance£m

Price
Comparison£m

Non-UKCar Insurance
£m

Other
£m

Segment
total£mTurnover*

939.1

80.5

47.2

10.6

1,077.4

Net insurance premium revenue
Other revenue and profit commission
Investment and interest income
Net revenue
Net insurance claims
Expenses
Segment profit/(loss) before tax

199.1
188.6
7.5
395.2
(138.7)(49.6)
206.9

–
80.5
–
80.5
–
(55.6)
24.9

12.8
4.2
0.2
17.2
(13.0)(13.7)
(9.5)

–
10.6
–
10.6
–
(8.2)
2.4

211.9
283.9
7.7
503.5
(151.7)(127.1)
224.7

32 GovernanceSearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further Information

Other central revenue and expenses
Interest income
Consolidated profit before tax
Taxation expense
Consolidated profit after tax(10.0)
1.1
215.8(58.9)
156.9

6.3
9.9

0.7
0.5

4.1
4.3

0.7
0.2

11.8
14.9

Restated revenue and results for the corresponding reportable segments for the year ended
31 December 2008 are shown below:

Admiral Group plc
Annual Report 200931 December 2008 (restated)
UK CarInsurance£m

Price
Comparison£m

Non-UKCar Insurance
£m

Other
£m

Segment
total£mTurnover*

804.9

66.1

29.7

9.5

910.2

Net insurance premium revenue
Other revenue and profit commission
Investment and interest income
Net revenue
Net insurance claims
Expenses
Segment profit/(loss) before tax

161.9
149.3
17.1
328.3
(105.1)(43.3)
179.9

–
66.1
–
66.1
–
(40.5)
25.6

7.9
3.7
0.6
12.2
(9.5)
(6.8)
(4.1)

–
9.5
–
9.5
–
(6.9)
2.6

169.8
228.6
17.7
416.1
(114.6)(97.5)
204.0

Other central revenue and expenses
Interest income
Consolidated profit before tax
Taxation expense
Consolidated profit after tax
Other segment items:
Capital expenditure
Depreciation and amortisation

(8.2)
6.7
202.5
(57.6)
144.9

15.3
13.4

0.9
0.3

9.6
2.1

0.1
0.1

25.9
16.0

*Turnover is a non-GAAP measure and consists of total premiums written (including co-insurers share) and other revenue.

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.
The total of Price Comparison revenues from transactions with other reportable segments is £13.3 million(2008: £11.1 million). These amounts have not been eliminated in order to avoid distorting expense andcombined ratios which are key indicators of insurance business. There are no other transactions between
reportable segments.

Admiral Group plc
Annual Report 2009

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.
Segment assets and liabilities
The identifiable segment assets and liabilities at 31 December 2009 are as follows:
31 December 2009

Other segment items:
Capital expenditure
Depreciation and amortisation

62

Revenues from external customers for products and services is consistent with the split of reportablesegment revenues as shown above.

UK CarInsurance£m

Price
Comparison£m

Non-UKCar Insurance
£m

Other
£m

Eliminations£m

Segment
total£m

Plant, property and equipment
Intangible assets
Reinsurance assets
Financial assets
Trade and other receivables
Cash and cash equivalents
Reportable segment assets

6.3
71.8
190.9
582.9
108.8
112.9
1,073.6

1.2
0.1
–
–
16.8
9.0
27.1

3.8
5.1
22.0
48.0
1.2
21.2
101.3

0.8
–
–
–
7.7
0.7
9.2

–
–
–
–
(101.8)–(101.8)

12.1
77.0
212.9
630.9
32.7
143.8
1,109.4

Insurance contract liabilities
Trade and other payables
Reportable segment liabilities

497.0
294.4
791.4

–
2.3
2.3

35.9
6.6
42.5

–
2.9
2.9

–
–
–

532.9
306.2
839.1

Reportable segment net assets

282.2

24.8

58.8

6.3

(101.8)

270.3

Unallocated assets and liabilities
Consolidated net assets

30.5
300.8

Unallocated assets and liabilities consist of other central assets and liabilities, plus deferred and current
corporation tax balances. These assets and liabilities are not regularly reviewed by the Board of Directors
in the reportable segment format.
There is an asymmetrical allocation of assets and income to the reportable segments, in that the interest
earned on cash and cash equivalent assets deployed in the UK Car Insurance, Price Comparison andNon-UK Car Insurance segments is not allocated in arriving at segment profits. This is consistent with regularmanagement reporting.
Eliminations represent inter-segment funding and balances included in trade and other receivables and otherpayables.
The restated segment assets and liabilities at 31 December 2008 are as follows:
31 December 2008 (restated)
UK CarInsurance£m

Price
Comparison£m

Non-UKCar Insurance
£m

Other
£m

Eliminations£m

Segment
total£m

Plant, property and equipment
Intangible assets
Reinsurance assets
Financial assets
Trade and other receivables
Cash and cash equivalents
Reportable segment assets

6.6
68.8
149.5
549.7
105.8
50.4
930.8

1.1
–
–
–
6.5
15.6
23.2

3.1
6.9
21.1
37.2
1.5
18.2
88.0

0.2
–
–
–
5.6
2.0
7.8

–
–
–
–
(93.9)–(93.9)

11.0
75.7
170.6
586.9
25.5
86.2
955.9

Insurance contract liabilities
Trade and other payables
Reportable segment liabilities

406.9
261.7
668.6

–
4.1
4.1

32.7
4.4
37.1

–
2.3
2.3

–
(46.5)(46.5)

439.6
226.0
665.6

Reportable segment net assets

262.2

19.1

50.9

5.5

(47.4)

290.3

Unallocated assets and liabilities
Total net assets(14.8)
275.5

Admiral Group plc
Annual Report 200963

Financial statements
continued

ForwardHighlights

5. Net insurance premium revenue

9. Expenses and share scheme charges

04 Chairman’s statement
06 Chief Executive’s statement

Total motor insurance premiums before co-insurance

Back

Print

31 December
2008
£m

847.7

716.3

10 Business review
32 GovernanceSearch31 December
2009£m

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further Information

Group gross premiums written after co-insurance
Outwards reinsurance premiums

439.9(207.4)334.6(140.2)

Net insurance premiums written
Change in gross unearned premium provision
Change in reinsurers’ share of unearned premium provision
Net insurance premium revenue

232.5(53.5)
32.9
211.9

194.4
(33.2)
8.6
169.8

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 in duration, lasting for 10
or 12 months.
6. Other revenue

Ancillary revenue
Price Comparison revenue
Other revenue
Total other revenue

31 December
2009£m

31 December
2008
£m

129.5
80.6
22.5
232.6

109.8
66.1
18.0
193.9

31 December 2009

Acquisition of insurance contracts
Administration and othermarketing costs
Expenses
Share scheme charges
Total expenses and share scheme charges

54.2

34.7

Total profit commission
Source of profit commission:

Admiral Group plc
Annual Report 2009

Financial year:
Underwriting year:

2006
£m

2007
£m

2008
£m

2009
£m

2004 and prior
2005
2006
2007
2008
2009
Total

14.9
4.7
0.3
–
–
–
19.9

10.5
8.4
1.7
–
–
–
20.6

8.1
8.8
9.3
8.5
–
–
34.7

0.4
1.4
4.2
33.1
13.5
1.6
54.2

31 December
2009£m

31 December
2008
£m

7.7
1.1
8.8

17.7
6.7
24.4

Total
£m

Other
£m

Total
£m

17.3

–

17.3

12.5

–

12.5

26.0
43.3
–
43.3

87.5
87.5
9.2
96.7

113.5
130.8
9.2
140.0

19.7
32.2
–
32.2

67.6
67.6
5.9
73.5

87.3
99.8
5.9
105.7

31 December
2009£m

31 December
2008
£m

20.0
55.6
11.9
87.5

17.9
40.6
9.1
67.6

Ancillary sales expenses
Price Comparison operating expenses
Other expenses
Total

The £26.0 million (2008: £19.7 million) administration and marketing costs allocated to insurance contracts isprincipally made up of salary costs.
The gross amount of expenses, before recoveries from co-insurers and reinsurers is £265.0 million(2008: £211.2 million). This amount can be reconciled to the total expenses and share scheme charges
above of £140.0 million (2008: £105.7 million) as follows:

7. Profit commission
31 December
2008
£m

Other
£m

31 December 2008
Insurance
contracts£mAnalysis of other administration and other marketing costs:

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

31 December
2009£mInsurance
contracts£m

31 December
2009£m

31 December
2008
£m

265.0
(80.6)
184.4
(6.1)
178.3
(38.3)
140.0

211.2(72.8)
138.4
(6.0)
132.4
(26.7)
105.7

31 December
2009£m

31 December
2008
£m

43.3
5.5
48.8
211.9
23.0%

32.2
4.7
36.9
169.8
21.8%

Gross expenses
Co-insurer share of expenses
Expenses, net of co-insurer share
Adjustment for deferral of acquisition costs
Expenses, net of co-insurer share (earned basis)
Reinsurer share of expenses (earned basis)
Total expenses and share scheme charges
Reconciliation of expenses related to insurance contracts to reported Group expense ratio:

Insurance contract expenses from above
Add: claims handling expenses
Adjusted expenses
Net insurance premium revenue
Reported expense ratio

8. Investment and interest income

Net investment return
Interest receivable
Total investment and interest income

64

Admiral Group plc
Annual Report 2009

Admiral Group plc
Annual Report 200965

Financial statements
continued

ForwardHighlights

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

12. Taxation
31 December
2009£m

31 December
2008
£m

63.0
(1.2)
61.8

50.1
(4.7)
45.4

(2.8)
(0.1)
58.9

12.1
0.1
57.6

31 December
2009£m

31 December
2008£mProfit before tax

215.8

202.5

Corporation tax thereon at UK corporation tax rate of 28% (2008: 28.5%)
Expenses and provisions not deductible for tax purposes
Other differences
Adjustments relating to prior periods
Tax charge for the period as above

60.4
(0.6)
0.3
(1.2)
58.9

57.7
0.4
(0.4)
(0.1)
57.6

31 December
2009£m

31 December
2008
£m

–
–
69.6
72.8
142.4

60.5
68.0
–
–
128.5

04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
32 GovernanceSearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further Information

Salaries
Social security charges
Pension costs
Share scheme charges (see note 24)
Total staff expenses
Depreciation charge:– Owned assets– Leased assets
Amortisation charge:– Software– Deferred acquisition costs
Operating lease rentals:– Buildings
Auditor’s remuneration:– Fees payable for the audit of the Company’s annual accounts– Fees payable for the audit of the Company’s subsidiary accounts– Fees payable for other services
Loss on disposal of property, plant and equipment
Net foreign exchange (losses)/gains
Analysis of fees paid to the auditor for other services:
Tax services
Other services
Total as above

31 December
2009£m

31 December
2008
£m

75.9
10.5
0.7
13.7
100.8

60.7
7.7
0.7
11.3
80.4

3.8
1.3

2.7
1.1

2.3
7.6

1.4
10.8

5.7

3.9

–
0.2
0.1
–
(0.2)

–
0.2
0.2
–
0.2

0.1
–
0.1

0.2
–
0.2

The amortisation of software and deferred acquisition cost assets is charged to expenses in theincome statement.
11. Staff numbers (including Directors)
Average for the year

Direct customer contact staff
Support staff
Total

2009
Number

2008
Number

2,695
846
3,541

2,354
525
3,085

Current tax
Corporation tax on profits for the year
Overprovision relating to prior periods
Current tax charge
Deferred tax
Current period deferred taxation movement(Over)/under provision relating to prior periods – deferred tax
Total tax charge per income statement
Factors affecting the tax charge are:13. Dividends
Dividends were declared and paid as follows:

March 2008 (23.2p per share, paid May 2008)
July 2008 (26.0p per share, paid September 2008)
March 2009 (26.5p per share, paid May 2009)
August 2009 (27.7p per share, paid October 2009)
Total dividends

The dividends declared in March represent the final dividends paid in respect of the 2007 and 2008
financial years. Dividends declared in July 2008 and August 2009 are interim distributions in respectof 2008 and 2009.
A second interim dividend of 29.8p per share has been declared in respect of the 2009 financial year.
Refer to the Chairman’s statement and Business review for further detail.

Admiral Group plc
Annual Report 2009

14. 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
2009

31 December
2008

156.9
265,712,457
59.0p
266,062,457
59.0p

144.9
263,821,341
54.9p
264,188,008
54.9p

The difference between the basic and diluted number of shares at the end of 2009 (being 350,000) relates toawards committed, but not yet issued under the Group’s share schemes. Refer to note 24 for further detail.

66

Admiral Group plc
Annual Report 2009

Admiral Group plc
Annual Report 200967

Financial statements
continued

ForwardHighlights

15. Property, plant and equipment
Improvements
to short
leaseholdbuildings£m04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
32 GovernanceSearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further Information

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

Cost
At 1 January 2008
Additions
Disposals
At 31 December 2008
Depreciation
At 1 January 2008
Charge for the year
Disposals
At 31 December 2008
Net book amountAt 1 January 2008
Net book amountAt 31 December 2008
Cost
At 1 January 2009
Additions
Disposals
At 31 December 2009

Computerequipment£m

Officeequipment£m

Furnitureand fittings
£m

Total
£m

2.7
1.3
–
4.0

13.3
3.5
–
16.8

5.0
1.8
–
6.8

2.0
0.4
–
2.4

23.0
7.0
–
30.0

1.3
0.6
–
1.9

9.2
1.9
–
11.1

3.3
0.9
–
4.2

1.5
0.3
–
1.8

15.3
3.7
–
19.0

1.4

4.1

1.7

0.5

7.7

2.1

5.7

2.6

0.6

16.8
3.6
(0.3)
20.1

6.8
1.0
(0.1)
7.7

2.4
0.8
–
3.2

30.0
6.6
(0.6)
36.0

1.9
0.9
–
2.8

11.1
2.7
(0.1)
13.7

4.2
1.1
(0.1)
5.2

1.8
0.4
–
2.2

19.0
5.1
(0.2)
23.9

2.2

6.4

2.5

1.0

12.1

31 December
2009£m

31 December
2008
£m

1.6

1.6

Goodwill£mDeferredacquisition
costs
£m

Software
£m

Total
£m

Carrying amount:
At 1 January 2008
Additions
Amortisation charge
Disposals
At 31 December 2008

62.3
–
–
–
62.3

4.6
14.6
(10.8)
–
8.4

2.1
4.3
(1.4)
–
5.0

69.0
18.9
(12.2)–
75.7

Additions
Amortisation charge
Disposals
At 31 December 2009

–
–
–
62.3

8.6
(7.6)
–
9.4

5.2
(2.2)
(2.7)
5.3

13.8
(9.8)
(2.7)
77.0

16. Intangible assets

Admiral Group plc
Annual Report 2009

237.7
183.5
209.7
630.9
32.7
211.8
875.4

310.8
100.0
176.1
586.9
25.5
144.3
756.7

306.8

270.1

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

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

Computer equipment

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 theaccounting policies, the amortisation of this asset ceased on transition to IFRS on 1 January 2004. All annual
impairment reviews since the transition date have indicated that the estimated recoverable value of the asset
is greater than the carrying amount and therefore no impairment losses have been recognised.

Admiral Group plc
Annual Report 200931 December
2008
£m

11.0

The net book value of assets held under finance leases is as follows:68

Financial liabilities:
Trade and other payables

31 December
2009£m

All investments held at fair value are invested in AAA-rated money market liquidity funds. These funds target
a short-term cash return with capital security and low volatility and continue to achieve these goals.

4.0
1.2
(0.2)
5.0

Depreciation
At 1 January 2009
Charge for the year
Disposals
At 31 December 2009
Net book amountAt 31 December 2009

Financial assets:
Investments held at fair value
Held to maturity deposits with credit institutions
Receivables – amounts owed by policyholders
Total financial assets per consolidated balance sheet
Trade and other receivables
Cash and cash equivalents

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 task of 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 the Group’s investment strategy.
There are several key elements to the risk management environment throughout the Group. These aredetailed in full in the Corporate Governance statement. Specific considerations for the risks arising fromfinancial assets and liabilities are detailed below.
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.
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 ofdeposits, floating rate notes and other commercial paper.
The funds are not permitted to have an average maturity greater than 60 days and hence are not subject
to large movements in yield and value resulting from changes in market interest rates (as longer duration
fixed income portfolios can experience). Returns are likely to closely track the LIBID benchmark andhence while the Group’s investment return will vary according to market interest rates, the capital value ofthese investment funds will not be impacted by rate movements. The interest rate risk arising is therefore
considered to be minimal.
The Group also holds a number of fixed rate, longer-term deposits with UK credit institutions rated A orabove. These are classified as held to maturity and valued at amortised cost. Therefore neither the capitalvalue of the deposits, or the interest return will be impacted by fluctuations in interest rates.
No sensitivity analysis to interest rates has been presented on the grounds of materiality.
Credit risk
The Group defines credit risk as the risk of loss if another party fails to perform its obligations or fails toperform them in a timely fashion. The key areas of exposure to credit risk for the Group result through its
reinsurance programme, investments, bank deposits and policyholder receivables.
Economic and financial market conditions have led the Directors to consider counterparty exposure more
frequently and in significant detail. The Directors consider that the policies and procedures in place tomanage credit exposure continue to be appropriate for the Group’s risk appetite, and no material credit
losses have been experienced by the Group.

Admiral Group plc
Annual Report 200969

Financial statements
continued

ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review

There are no specific concentrations of credit risk with respect to investment counterparties due to thestructure of the liquidity funds which invest in a wide range of very short duration, high quality securities. Cashbalances and deposits are placed only with credit institutions with a financial strength rating of A or above.

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 their short maturity.

To mitigate the risk arising from exposure to reinsurers, the Group only conducts business with companies of
specified financial strength ratings. In addition, most contracts are operated on a funds withheld basis, which
substantially reduces credit risk.

Objectives, policies and procedures for managing capital
Refer to Business review for objectives, policies and procedures for managing capital and external
capital requirements.

The other principal form of credit risk is in respect of amounts due from policyholders due to the potential
for default by instalment payers. The impact of this is mitigated by the large customer base and low averagelevel of balance recoverable. There is also mitigation by the operation of numerous high and low level controls
in this area, including payment on policy acceptance as opposed to inception and automated cancellation
procedures for policies in default.

18. 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 theGroup and its underwriting partners.

32 GovernanceSearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further Information

The fair value of receivables from policyholders represents the maximum exposure to credit risk. The groupdoes not use credit derivatives or similar instruments to mitigate exposure. The amount of bad debt expense
relating to policyholder debt charged to the income statement in 2008 and 2009 is insignificant.

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 thevalue of insurance liabilities established.

There were no significant financial assets that were past due at the close of either 2009 or 2008.
The Board of Directors is responsible for the management of insurance risk, although as mentioned in note
17, it has delegated the task of supervising risk management to the Risk Management Committee (RMC).

The Group’s credit risk exposure to assets with external ratings is as follows:

Financial institutions – Money market funds
Financial institutions – Credit institutions
Financial institutions – Credit institutions
Reinsurers

Rating31 December
2009£m

31 December
2008
£m

AAA
AA
A
A

237.7
85.0
310.3
96.0

310.8
115.6
128.7
64.5

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

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, the Group cedes a significant amount of the motor insurance businesswritten to external underwriters. In 2009, 50% of the UK risk was shared under a co-insurance contract,
under which the primary risk is borne by the co-insurer.
A further 22.5% was ceded under quota share reinsurance contracts.

Admiral Group plc
Annual Report 2009

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 to fund insurance liabilities areheld in the currency of the liabilities, however surplus assets held as regulatory capital in foreign currencies
remain exposed.
The Group hedges certain items of foreseen expenditure using forward contracts and other similar instruments.
None were outstanding at the balance sheet date.

ii) Data-driven pricing
The Group’s underwriting philosophy is focused on a sophisticated data-driven approach to pricing
and underwriting and on exploiting the competitive advantages direct insurers enjoy over traditional
insurers through:Liquidity risk
Liquidity risk is defined as the risk that the Group does not have sufficient, available, financial resources toenable it to meet its obligations as they fall due, or can only secure them at excessive cost.

• Collating and analysing more comprehensive data from customers• Tight control over the pricing guidelines in order to target profitable business sectors• Fast and flexible responsiveness to data analysis and market trends

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 inmoney market liquidity funds with same day liquidity features, meaning that the vast majority of the Groupcash and investments are immediately available. The current uncertainty in credit markets is not likely toimpact this.

The Group is committed to establishing premium rates that appropriately price the underwriting risk andexposure. Rates are set utilising a larger than average number of underwriting criteria.

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:

In practice, the Group’s Directors expect actual cash flows to be consistent with this maturity profile except
for amounts owed to co-insurers and reinsurers. Of the total amounts owed to co-insurers and reinsurersof £154.4 million (2008: £147.9 million), £91.3 million (2007: £77.5 million) is held under funds withheldarrangements and therefore not expected to be settled within 12 months.

• An effective, computerised workflow system (which along with the appropriate level of resources employedhelps reduce the scope for error and avoids significant backlogs)• Use of an outbound telephone team to contact third parties aiming to minimise the potential claims costs
and to ensure that more third parties utilise the Group approved repairers• Use of sophisticated and innovative methods to check for fraudulent claims

Liquidity risk is not, therefore considered to be significant.

Admiral Group plc
Annual Report 2009

The Directors believe that there is a strong link between the increase in depth of data that the Grouphas been able to collate over time and the lower than average historic reported loss ratios enjoyed by
the Group.

A breakdown of the Group’s financial liabilities – trade and other payables is shown in note 20. In terms of thematurity profile of these liabilities, all amounts may potentially mature within three to six months of the balance
sheet date except for a minority of finance lease liabilities which will expire after 12 months. (Refer to note 21
for further detail.)All financial assets will mature within 12 months. The Group’s Directors believe that the cash flows arisingfrom these assets will be consistent with this profile.

70

As well as these proportional arrangements, an excess of loss reinsurance programme is also purchased toprotect the Group against very large individual claims and catastrophe losses.

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

Admiral Group plc
Annual Report 200971

Financial statements
continued

ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statementB) Sensitivity of recognised amounts to changes in assumptions
The following table sets out the impact on equity at 31 December 2009 that would result from
a 1% worsening in the UK loss ratios used for each underwriting year for which material amounts
remain outstanding.

E) Analysis of net claims provision releases
The following table analyses the impact of movements in prior year claims provisions, in terms of their net
value, and their impact on the reported loss ratio. This data is presented on an underwriting year basis.
Financial year ended 31 December

Underwriting year

Back

10 Business review
32 GovernanceSearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further Information

Loss ratio
Impact of 1% change (£m)

2005

2006

2007

2008

2009

66.0%
2.0

74.5%
2.2

71.5%
3.7

79.0%
3.5

84.0%
1.3

The impact is stated net of reinsurance and includes the change in net insurance claims along with theassociated profit commission movements that result from changes in loss ratios. The figures are stated net oftax at the current rate.
C) Analysis of recognised amounts

Gross:
Claims outstanding
Unearned premium provision
Total gross insurance liabilities

31 December
2009£m

31 December
2008
£m

323.5
209.4
532.9

282.3
157.3
439.6

Recoverable from reinsurers:
Claims outstanding
Unearned premium provision
Total reinsurers’ share of insurance liabilities

114.1
98.8
212.9

103.8
66.8
170.6

Net:
Claims outstanding
Unearned premium provision
Total insurance liabilities – net

209.4
110.6
320.0

178.5
90.5
269.0

D) Analysis of UK claims incurred
The following tables illustrate the development of net UK Car Insurance claims incurred for the past fivefinancial periods, including the impact of re-estimation of claims provisions at the end of each financial year.
The first table shows actual net claims incurred, and the second shows the development of UK loss ratios.
Figures are shown net of reinsurance and are on an underwriting year basis.

Admiral Group plc
Annual Report 2009

Financial year ended 31 December:

Analysis of claims incurred (Net amounts):
Underwriting year (UK only):
Earlier years
2005
2006
2007
2008
2009
UK net claims incurred (excluding
claims handling expenses)
Non-UK net claims incurred
Claims handling costs and other amounts
Total net claims incurred

2005
£m

2006
£m

2007
£m

2008
£m

2009
£m

(22.1)(74.3)
–
–
–
–

18.3
(54.3)(67.6)
–
–
–

14.3
12.5
(53.1)(67.3)
–
–

9.6
11.0
10.5
(42.0)(89.5)
–

0.9
1.8
7.9
11.6
(57.7)(96.9)(96.4)–(4.1)(100.5)(103.6)–(3.5)(107.1)(93.6)(2.8)(3.4)(99.8)(100.4)(9.5)(4.7)(114.6)(132.4)(13.6)(5.7)(151.7)

Financial year ended 31 December:

UK loss ratio development:
Underwriting year:
2005
2006
2007
2008
2009

72

Admiral Group plc
Annual Report 2009

2005

2006

2007

2008

2009

85%

82%
90%

75%
87%
89%

67%
79%
80%
88%

66%
75%
72%
79%
84%

Total
£m

(103.3)(102.3)(97.7)(147.2)(96.9)

Underwriting year:
2000
2001
2002
2003
2004
2005
2006
2007
2008
Total net release
Net premium revenue
Release as % of net premium revenue

2005
£m

2006
£m

2007
£m

2008
£m

2009
£m

0.4
5.0
5.2
4.6
2.1
–
–
–
–
17.3
139.5
12.4%

1.1
1.9
2.3
5.1
7.9
2.6
–
–
–
20.9
145.0
14.4%

0.7
1.5
1.3
3.2
7.6
12.6
2.6
–
–
29.5
142.2
20.7%

0.4
0.5
–
2.3
6.4
11.0
10.5
6.9
–
38.0
169.8
22.4%

0.4
0.5
0.3
1.2
(1.6)
1.8
7.9
11.6
9.2
31.3
211.9
14.8%

31 December
2009£m

31 December
2008
£m

178.5
146.2
(115.3)
209.4

166.5
109.8
(97.8)
178.5

31 December
2009£m

31 December
2008
£m

90.5
232.5
(212.4)
110.6

64.9
194.4
(168.8)90.5

31 December
2009£m

31 December
2008
£m

32.5
0.2
32.7

22.3
3.2
25.5

31 December
2009£m

31 December
2008
£m

191.8
20.0
211.8

140.3
4.0
144.3

F) Reconciliation of movement in net claims provision

Net claims provision at start of period
Net claims incurred
Net claims paid
Net claims provision at end of periodG) Reconciliation of movement in net unearned premium provision:

Net unearned premium provision at start of period
Written in the period
Earned in the period
Net unearned premium provision at end of period
19. Trade and other receivables

Trade receivables
Prepayments and accrued income
Total trade and other receivables
20. Cash and cash equivalents

Cash at bank and in hand
Cash on short term deposit
Total cash and cash equivalents

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

Admiral Group plc
Annual Report 200973

Financial statements
continued

ForwardHighlights

21. Trade and other payables

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

04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
32 GovernanceSearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further Information

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

31 December
2009£m

31 December
2008
£m

10.7
154.4
0.3
10.9
29.1
101.3
306.8

10.8
147.9
0.2
9.5
18.8
82.9
270.1

Of amounts owed to co-insurers and reinsurers, £93.1 million (2008: £77.5 million) is held under funds
withheld arrangements.
Finance leases due after 12 months

0.1–

Tax treatment of Lloyd’s SyndicatesTax treatment of share scheme charges
Capital allowances
Other differences
Unremitted overseas income
Net deferred tax credited/(charged) to income

Premium receivable in advance of policy inception
Accrued expenses
Deferred income
Total accruals and deferred income as above

31 December
2009£m

31 December
2008
£m

53.9
35.3
12.1
101.3

45.6
29.3
8.0
82.9

22. Obligations under finance leases
Analysis of finance lease liabilities:
31 December 2009

–
0.3
1.6
0.5
0.5
2.9

0.5
0.1
0.1
(0.1)
(12.8)(12.2)The difference between the total movement in the deferred tax balance above and the amount charged toincome relates to deferred tax on share scheme charges that has been credited directly to equity.

Authorised:
500,000,000 ordinary shares of 0.1p
Issued, called up and fully paid:
266,477,291 ordinary shares of 0.1p
264,541,810 ordinary shares of 0.1p

Minimum
lease
payments£m

Interest£mPrincipal£m

Minimum
lease
payments£m

Interest£mPrincipal
£m

0.3
0.1
–
0.4

–
–
–
–

0.3
0.1
–
0.4

0.2
–
–
0.2

–
–
–
–

0.2
–
–
0.2

Brought forward at start of period
Movement in period
Carried forward at end of period

31 December
2009£m

31 December
2008
£m

0.5

0.5

0.3
–
0.3

–
0.3
0.3

751,513 (2008: 589,384) of these were issued to the Admiral Group Share Incentive Plan Trust for the
purposes of this share scheme. These shares are entitled to receive dividends.
1,183,948 (2008: 1,231,000) 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.
Staff share schemes:
Analysis of share scheme costs (per income statement):

23. Deferred income tax liability

Admiral Group plc
Annual Report 200931 December
2008£mDuring 2009 1,935,461 (2008:1,820,384) new ordinary shares of 0.1p were issued to the trusts administering
the Group’s share schemes.

31 December 2008

The fair value of the Group’s lease obligations approximates to their carrying amount.

31 December
2009£m

31 December
2008
£m

10.3
(4.6)
5.7

(1.6)
11.9
10.3

SIP charge (note i)
DFSS charge (note ii)
Total share scheme charges

31 December
2009£m

31 December
2008
£m

3.6
5.6
9.2

2.5
3.4
5.9

The share scheme charges reported above are net of the co-insurance share and therefore differ from thegross charge reported in note 10 (2009: £13.7 million, 2008: £11.3 million) and the gross credit to reserves
reported in the Consolidated statement of changes in equity.

The net balance provided at the end of the year is made up as follows:
Analysis of net deferred tax liability:

Tax treatment of share scheme charges
Capital allowances
Other differences
Unremitted overseas income
Deferred tax liability at end of period

31 December
2009£m

24. Share capital

Analysis of accruals and deferred income:Less than one year
Between one and five years
More than five years

Amounts credited/(charged) to income or expense:

31 December
2009£m

31 December
2008
£m

(4.4)
(1.6)
(0.6)
12.3
5.7

(2.4)
–
(0.1)
12.8
10.3

The Consolidated cash flow statement also shows the gross charge in the reconciliation between ‘profit
after tax’ and ‘cash flows from operating activities’. The co-insurance share of the charge is included in the‘change in trade and other payables’ line.

Deferred tax on unremitted overseas income has been provided to the extent that it is likely to reverse in theforeseeable future.

74

Admiral Group plc
Annual Report 2009

Admiral Group plc
Annual Report 200975

Financial statements
continued

ForwardHighlights
04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
32 GovernanceSearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further Information(i) The Approved Share Incentive Plan (the SIP)
Eligible employees qualify for awards under the SIP based upon the performance of the Group in eachhalf-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 of award) otherwise
the shares are forfeited.
The fair value of shares awarded is either the share price at the date of award, or is estimated at the latest
share price available when drawing up the financial statements for awards not yet made (and later adjusted
to reflect the actual share price on the award date). Awards under the SIP are entitled to receive dividends,
and hence no adjustment has been made to this fair value.
(ii) The Discretionary Free Share Scheme (the DFSS)
Under the DFSS, details of which are contained in the Remuneration policy section of the Remuneration
report, individuals receive an award of free shares at no charge. Staff must remain in employment until thevesting date in order to receive shares. The maximum number of shares that can vest relating to the 2008
scheme is 1,438,426 (2008 scheme: 1,393,283).
Individual awards are calculated based on the growth in the Company’s earnings per share (EPS) relative toa risk free return (RFR), for which LIBOR has been selected as a benchmark. This performance is measured
over the same three-year period.

Number of free share awards vesting during the year ended 31 December 2009:

SIP H205 scheme
SIP H106 scheme
DFSS 2006 scheme 1st award
DFSS 2006 scheme 2nd award

OriginalAwardsAwardsvested350,942
350,811603,720
77,248288,971296,283
543,079
72,36925. Financial commitments
The Group was committed to total minimum obligations under operating leases on land and buildings asfollows:

Operating leases expiring:Within one years
Within two to five years
Over five years
Total commitments

31 December
2009£m

31 December
2008
£m

–
4.1
31.6
35.7

–
4.1
31.6
35.7

For the 2009 scheme, 50% (2008 scheme: 100%) of the shares awarded at the start of the three year vesting
period are subject to these performance conditions.

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

The range of performance-related awards is as follows:In addition, the Group had contracted to spend the following on property, plant and equipment at the endof each period:• 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 thethree-year period

31 December
2008
£m

–

0.9

26. Group subsidiary companies
The Parent Company’s principal subsidiaries (all of which are 100% directly owned) are as follows:

Awards under the DFSS are not eligible for dividends and hence the fair value of free shares to be awarded
under this scheme has been revised downwards to take account of these distributions. The unadjusted
fair value is based on the share price at the date on which awards were made (as stated in the
Remuneration report).
Number of free share awards committed at 31 December 2009:

SIP H206 scheme
SIP H107 scheme
SIP H207 scheme
SIP H108 scheme
SIP H208 scheme
SIP H109 scheme
DFSS 2007 scheme, 1st award
DFSS 2007 scheme, 2nd award
DFSS 2008 scheme 1st award
DFSS 2008 scheme 2nd award
DFSS 2009 scheme 1st award
DFSS 2009 scheme 2nd award
Total awards committed

31 December
2009£mExpenditure contracted to

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

Admiral Group plc
Annual Report 2009

During the year ended 31 December 2009, awards under the SIP H205 and H106 schemes and the DFSS
2006 scheme vested. The total number of awards vesting for each scheme is as follows.

Awardsoutstanding (*1)

Vesting
date

277,387
353,444337,770
352,732
477,432
396,200
1,210,781
26,3501,306,081
87,202
1,311,686
126,740
6,263,805

April 2010
September 2010
April 2011
September 2011
April 2012
September 2012
April 2010
December 2010
April 2011
November 2011
April 2012
August 2012

Subsidiary

Country of incorporation

Class of shares held

Principal activity

EUI Limited
Admiral Insurance Company Limited
Admiral Insurance (Gibraltar) Limited
Able Insurance Services Limited
Inspop.com Limited
Elephant Insurance Company
Elephant Insurance Services, LLC

England and Wales
England and Wales
Gibraltar
England and Wales
England and Wales
United States of America
United States of America

Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary

General insurance intermediary
Insurance Company
Insurance Company
Intermediary
Internet insurance intermediary
Insurance Company
Insurance intermediary

Of these principal subsidiaries, Elephant Insurance Company and Elephant Insurance Services, LLC started
trading in the year.
For further information on how the Group conducts its business across UK and Europe, refer to theBusiness review.
27. Related party transactions
There were no material transactions with related parties occurring during 2009 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 samerates 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.

*1 – being the maximum number of awards expected to be made before accounting for expected staff attrition.

76

Admiral Group plc
Annual Report 2009

Admiral Group plc
Annual Report 200977

Financial statements
continued

ForwardHighlights

Back

04 Chairman’s statement

Parent Company balance sheet

06 Chief Executive’s statement

as at 31 December 2009

Notes to the Parent Company
financial statements

10 Business review
32 GovernanceSearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further information

Year ended:

Fixed asset investments
Current assets
Cash at bank and in hand
Creditors – falling due within one year
Other creditors

Note:

31 December
2009£m

31 December
2008
£m

4

119.2

108.6

65.1
65.1

57.2
57.2

(66.8)(66.8)
(1.7)
117.5
117.5

(64.3)(64.3)
(7.2)
101.4
101.4

5

Net current liabilities
Total assets less current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Profit and loss account

6
7

0.3
13.1
–
104.1
117.5

0.3
13.1
–
88.0
101.4

These financial statements were approved by the Board of Directors on 25 February 2010 and were signed
on its behalf by:

Parent Company accounting policies
The following accounting policies have been applied consistently in dealing with items which are consideredmaterial in relation to the financial statements:
1. Basis of preparation
The Parent Company financial statements have been prepared on a going concern basis. In considering
the appropriateness of this assumption, the Board have reviewed the Company’s projections for the next
12 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 thesefinancial statements on a going concern basis.
In these financial statements the following new standards, abstracts and amendments to standards havebeen adopted for the first time:• Amendment to FRS 29 Financial instruments: disclosures• Amendment to FRS 20 Vesting conditions and cancellations• Improvements to FRSs
The adoption of these standards has not had a material impact on either the current year orcomparative figures.
The amendments to the disclosure requirements of FRS 29 mirror those of the international standard IFRS 7,
the requirements of which are met in note 17 to the Group financial statements. The disclosures focus
on investments held at fair value through profit or loss, which are not held in the Parent Company.

Admiral Group plc
Annual Report 2009

The amendment to FRS 20, vesting conditions and cancellations amends the definition of vesting conditions,to include only service and performance conditions. This clarification has not impacted the share scheme
accounting in the Parent Company
Kevin Chidwick
Director

The Admiral Group plc Company financial statements have been prepared in accordance with applicableaccounting standards, under the historical cost convention and in accordance with the provisions of Section
296 to the Companies Act 2006.
As permitted by Section 230 of the Companies Act 2006, the profit and loss account of the Parent Company
is not presented. Under FRS 1 (Cash flow statements) the Company is exempt from having to present acash flow statement on the grounds that its cash flows are included in the Group’s published consolidated
financial statements.
The Parent Company audit fee is not disclosed in these accounts as it is disclosed in the Consolidated
financial statements for Admiral Group plc, which precede them at note 10.
Refer to note 27 of the Consolidated financial statements for disclosure of related party transactions.
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 becauseof timing differences between the treatment of certain items for taxation and accounting purposes.
Deferred tax assets are recognised to the extent that they are regarded as recoverable. They are regarded
as recoverable to the extent that, on the basis of all available evidence, it can be regarded as more likely
than not that there will be sufficient taxable profits from which the future reversal of the underlying timing
differences can be deducted.

78

Admiral Group plc
Annual Report 2009

Admiral Group plc
Annual Report 200979

Financial statements
continued

ForwardHighlights

4. Fixed asset investments£m

04 Chairman’s statement
06 Chief Executive’s statement

Back

10 Business review
32 GovernanceSearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further information

Investments in subsidiary undertakings:
At 1 January 2008
Additions
At 31 December 2008
Additions
At 31 December 2009

106.6
2.0
108.6
10.6
119.2

The Company’s principal subsidiaries (all of which are 100% directly owned) are disclosed in note 26of the Group financial statements.
5. Other creditors – due within one year

Deferred income tax
Corporation tax payable
Amounts owed to subsidiaries
Other creditors

31 December
2009£m

31 December
2008
£m

12.3
20.2
34.3
–
66.8

12.8
8.9
42.6
–
64.3

6. Reconciliation of movements in shareholders’ funds

Company figures
At 1 January 2008
Retained profit for the period
Dividends
Issues of share capital
Share scheme charges
As at 31 December 2008
Retained profit for the period
Dividends
Issues of share capital
Share scheme charges
As at 31 December 2009

Share
capital£mSharepremium
account£m

Retained
profit and loss£m

Total equity
£m

0.3
–
–
–
–
0.3
–
–
–
–
0.3

13.1
–
–
–
–
13.1
–
–
–
–
13.1

135.6
69.6
(128.5)
–
11.3
88.0
144.8
(142.4)
–
13.7
104.1

149.0
69.6
(128.5)
–
11.3
101.4
144.8
(142.4)
–
13.7
117.5

Admiral Group plc
Annual Report 2009

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

80

Admiral Group plc
Annual Report 2009

Five year review

Basis of preparation:
The figures below are as stated in the Group financial statements preceding this financial summary andissued previously. Only selected lines from the income statement and balance sheet have been included.
Income statement
2009
£m

2008
£m

2007
£m

2006
£m

2005
£m

Total motor premiums

847.7

716.3

631.3

566.6

533.6

Net insurance premium revenue
Other revenue
Profit commission
Investment and interest income
Net revenue
Net insurance claims
Total expenses
Operating profit

211.9
232.6
54.2
8.8
507.5
(151.7)(140.0)
215.8

169.8
193.9
34.7
24.4
422.8
(114.6)(105.7)
202.5

142.2
176.9
20.5
24.6
364.2
(99.8)(82.0)
182.4

145.0
131.6
19.9
14.5
311.0
(107.1)(55.5)
148.4

139.5
93.4
14.7
15.5
263.1
(100.5)(40.9)
121.7

2009
£m

2008
£m

2007
£m

2006
£m

2005
£m

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

12.1
77.0
630.9
212.9
–
32.7
211.8
1,177.4

11.0
75.7
586.9
170.6
–
25.5
144.3
1,014.0

7.7
69.1
481.8
131.7
1.6
22.6
155.8
870.3

7.5
66.8
395.9
74.7
–
16.9
191.2
753.0

4.6
66.5
378.7
54.2
–
9.4
150.2
663.6

EquityInsurance contracts
Financial liabilities
Deferred income tax
Trade and other payables
Current tax liabilities
Total liabilities

300.8
532.9
–
5.7
306.8
31.2
1,177.4

275.6
439.6
–
10.3
270.0
18.5
1,014.0

237.6
363.1
–
–
239.6
30.0
870.3

219.1
294.4
–
1.0
215.1
23.4
753.0

181.4
254.1
22.0
3.6
182.9
19.6
663.6

Balance sheet

Admiral Group plc
Annual Report 200981

Forward
Highlights
04 Chairman’s statement

Further information

Directors and advisers

06 Chief Executive’s statement

Back

10 Business review
32 GovernanceSearchPrint

51 Financial statements
51 Consolidated income
statement
52 Consolidated statementof comprehensive income
53 Consolidated statementof financial position
54 Consolidated cash flow
statement
55 Consolidated statementof changes in equity
56 Notes to the financial
statements
78 Parent Company
balance sheet
79 Notes to the
Parent Company
financial statements
81 Five year review
82 Directors and advisers
Further information

Directors
Alastair Lyons, CBE(Non-Executive Director)
Henry Engelhardt, CBE(Chief Executive Officer)
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)

HSBC Business Banking
97 Bute Street
Cardiff
CF10 5NA
Joint Corporate Brokers
Merrill Lynch International
2 King Edward Street
LondonEC1A 1HQ
Citigroup Financial Markets
UK Equity Group Limited
Citigroup Centre
33 Canada Square
LondonE14 5LB

Company Secretary
Mark Waters

Registrar
Capita IRG plc
The Registry
34 Beckenham Road
BeckenhamKent
BR3 4TU

Registered Office
Capital Tower
Greyfriars Road
Cardiff
CF10 3AZ

Solicitor
Norton Rose
3 More London Riverside
LondonSE1 2AQJohn Sussens(Senior Independent Non-Executive Director)

Admiral Group plc
Annual Report 2009

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

Corporate website
The Group’s corporate website is atwww.admiralgroup.co.uk. A range of information
about the Admiral Group is presented, including
the Group’s history; financial reports and press
releases; corporate responsibility and governance.
The website also includes contact details for investor
relations and any other information.
Financial calendar
Second interim 2009 dividend
10 March 2010 – Ex dividend date
12 March 2010 – Record date
1 April 2010 – Payment date
Annual General Meeting
28 April 2010
Interim results
25 August 2010
Interim dividend payment
October 2010
Interim results 2010
The Group does not produce printed copies ofinterim results for shareholders unless requested.
The interim results will be available on the corporatewebsite from 25 August 2010.
Head office
Capital Tower
Greyfriars Road
Cardiff
CF10 3AZ

Admiral Group plc
Annual Report 2009

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Marlborough House
Fitzalan Court
Cardiff
CF24 0TE
Actuarial advisers
Ernst & Young
1 More Place
LondonSE1 2AF

Admiral Group businessesUK
Car Insurance
Admiralwww.admiral.com

Price Comparison
Chiarezzawww.chiarezza.it
USA
Car Insurance
Elephantwww.elephant.com

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